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Home First Finance Company India Ltd
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Ladies and gentlemen, good day, and welcome to the Home First Finance Company India Limited Q1 FY '22 (sic) [ FY '23 ] Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Manish Kayal. Thank you, and over to you, sir.
Thank you, Mike. Good afternoon, everyone. I hope that all of you and your families are safe and healthy. I'm Manish Kayal and I look after Investor Relations of Home First Finance. I extend a very warm welcome to all the participants on our Q1 FY '23 financial results con call.
Today on the call, I'm joined by our MD and CEO, Mr. Manoj Viswanathan; and CFO, Ms. Nutan Gaba Patwari. I hope everybody had an opportunity to go through our investor deck and press release which we uploaded on exchanges and on our website yesterday. We have also uploaded the excel version of our fact sheet on our website and request you to please have a look.
With this introduction, I hand over the call to Manoj. Over to you, Manoj. Thank you.
Thank you, Manish. Good afternoon, everyone. We are pleased to showcase the strong business momentum that we are seeing in our business. FY '22 closed on a strong note and quarter 1 of FY '23 is also displaying the same trend.
I will take this opportunity to highlight -- to share the highlights of the quarter with you. During the quarter, we dispersed the highest ever quarterly number of INR 661 crores which is an increase of 3.1% on a quarter-on-quarter basis and 117% on a year-on-year basis.
Our AUM at INR 5,832 crores is up by 8.4% on a quarter-on-quarter basis and 35.8% on a year-on-year basis. On asset quality, there is further improvement in 1 plus and 30-plus DPD levels, 1 plus DPD improved to 5% from 5.3%, and 30 DPD improved to 3.5% from 3.7%.
Our gross stage 3 stands at 2.1%, which is down 20 basis points from 2.3% in March '22. This includes INR 444 million, that is 0.90%, which is currently in buckets that are less than 90 DPD, but they have been included in the NPA due to the asset reclassification norms as per RBI notification dated 12 November 2021. Adjusted for this, the number stands at 1.2% in June '22, and this is down from 1.3% last quarter, an improvement of 10 basis points.
During the quarter, the rating on our long-term credit facilities were upgraded to AA- stable from both ICRA as well as Care ratings. This is in addition to the AA- stable rating assigned by India Ratings on our long-term credit facilities in March' 22. So this update is a testimony to our strong risk processes, asset quality and strength of the balance sheet and also highlights the economic and factorial from COVID and the overall outlook for the affordable housing sector.
We are also pleased to report that during the quarter, we have done the first transaction under the co-lending tie up with Union Bank of India. The year amount of this co-lending transaction is INR 9.65 crores, and the amount transferred to Union Bank is INR 7.7 crores. This quarter, we opened 13 physical branches taking the overall number to 93 from 18 in March '22 and the total distribution points have gone up to INR 220 crores from INR 200 crores in the same period. This is in line with our plan to reach 400 distribution points in the next 2 years.
Digital adoption has further improved. Registration of the Customer App are up to -- up at 84% compared to 80% last quarter and 67% a year ago. Service requests made on the app in quarter 1 FY '23 have gone up to 87% compared to 75% a year ago.
The 48-hour turnaround time for loan approval also continues to be higher 90% in this quarter.
Our e-onboarding initiatives are again progressed further with the e-stamp adoption at 57%, e-NACH adoption at 60% and e-sign in 40% of the cases in quarter 1.
With this, I will now hand over the call to Nutan to take you through the financials. Nutan, over to you.
Good afternoon all. I will take you through our financial performance in quarter 1 FY '23. We continue to stay focused on our key operating metrics with an intention to deliver mid-teen ROEs in a couple of years. Our net interest margin is stable at 6.4% even in the increasing interest rate environment. Rates have increased by 20 basis points on a quarter-on-quarter basis, but it was offset by increasing growth and cash position.
Net interest income has gone up by 49.8% on a Y-o-Y basis and 9.2% on a Q-o-Q basis. We did direct assignment of INR 80 crores during the quarter as a liquidity strategy. We continue to have robust demand for our portfolio of assets. OpEx to assets stand at 2.9% for the quarter.
As guided earlier, we expect this ratio to remain in the range of 3% to 3.2% going ahead as we focus on expansion. Cost to income at 35.8% in Q1 FY '23 was flat on a Q-o-Q basis. Q1 FY '23 PPOP stands at INR 70 crores, growth of 6.1% on Q-o-Q and 15.2% on a Y-o-Y basis.
Credit cost at 0.3% is within our expected range. Our retail provision stands at 1% of the total principal outstanding. We continue to be conservative with the provisions. Total PCR stands at 45.8%. Prior to NPA reclassification as per RBI circular, PCR stands at 81%.
Our adjusted profit after tax of INR 51 crores grew by 6.4% on a Q-o-Q basis and 46% on a Y-o-Y basis.
Moving to liquidity and borrowings. As Manoj mentioned, both ICRA and Care Rating have upgraded our long-term credit facilities to AA- with an outlook to our long-term rating in this quarter. The company continues to have diversified and cost-effective long-term financing sources.
During the quarter, we included Qatar National Bank and South Indian Bank as the new banking partners, and we continue to work towards further diversification. We have a healthy borrowing mix with 47% of borrowings from banks. Public sector 22% and private sector 25%. 25% from NHB refinance and 22% from direct assignment.
We continue to have zero borrowing through commercial paper. Our cost of borrowing is lower at 6.9% from 7.2% on a Q-o-Q basis. This is due to drawdown of NHB funding in March '22. Our marginal cost of borrowing for quarter 1 was 7.7%. During this quarter, we have not availed any new NHB borrowings.
Moving to capital. Our capital adequacy is at 52.3% and Tier 1 is at 51.8%. Our June network stands at INR 1,628 crores versus INR 1,574 as of March '22. Our quarter ROA is at 3.9%. Our annualized ROE stands at 12.8%, on Q1 numbers versus 11.8% in FY '22.
Our book value per share stands at 185.7% as of June 22. With this, I open the floor for questions and answers.
[Operator Instructions] We have the first question from the line of Karthik Chellappa from Buena Vista Fund Management.
Congrats on a great quarter team. I have 3 questions. The first one is what drove the sharp reduction in the Tier 1 ratio in the first quarter? It is down, I think, almost [ 50.8% ] to like 51.8% this quarter on a quarter-on-quarter basis.
Sure, Karthik. So the way capital adequacy is computed, It has risk wave against different assets. So we have some investments on the treasury side in liquid funds and overnight funds, which did categorize at 100% risk weight versus if you place money through [ FDs receivables ], which can categorize as 0%. So that is the reason why this is looking like a sharp reduction. If we made an assumption that it was like quarter 4 where we get money in FDs or in bank balances, then the number would be 56% and not 52%.
And from what exactly is the nature of these investments that you have done, which necessarily at 100% is ras quick?
These are liquid fund investments, the classic investments which are out for 17, 18 days, that's the tenor that we look at.
Got it. I mean so from here, similarly for the next quarters, we shouldn't expect a similar reduction in Tier 1, right? This onetime reduction was probably just a shift in allocation, right?
Absolutely. Here on, it will be linked to largely linked to growth.
Okay, largely linked to growth. Okay. Okay. Got it. The second question is a slightly medium-term question. So basically, Nutan and Manoj, if I look at the industry as a whole, right, specifically HFCs and NBFCs and if I look at your annual report, the attrition rate has actually been rising, whether it is for [indiscernible] you are at about 36%, 37%. [indiscernible] is at north of 40%.
So across, we are seeing a rise in attrition. And I also noticed that the median remuneration increase for nonmanagerial staff last year was something like about 8% or 9%. So with inflation rising and with such a high attrition from a medium-term perspective, how are you thinking of improving your staff retention?
Karthik, this is ongoing, you can say, execution challenge in this industry. And there are phases when it's a little higher, some this has been slightly lower, et cetera. But generally, [indiscernible] the attrition rate, even in the best of times is in the region of 25%. 20%, 25%. .
And so the 35% rate which you're talking about is also inclusive of, you can say, people who join, left immediately, did not fit in, It's not their line of work or the kind of work they want to do, et cetera. So it consists of all profiles of such people.
So generally, it's 10% range, 25% to 35% is generally the range, which is there. Of course, post-pandemic, I think there was a phase -- that is a phase when the attrition has increased a little bit. But I think we are, you can say, working towards various ways in which we can improve that number.
So one way is to, for example, at the hiring level itself will increase the -- or improve the communication in terms of the job profile, et cetera. So we are taking various steps to see how we can address just the attrition level. But generally, it's going to be brains bound in that range.
And would it be reasonable to expect that a double-digit rise in pay raise is now going to be the order of the day, at least for the next 2 to 3 years as everybody aggressively builds out their branch network, et cetera?
So we -- from a pay increase perspective, see, we have always believed in kind of building our own team and hiring less from the market to that extent. So generally, when you hire from other companies or if it's the lateral hiring, then the offer or what you call it, more aggressive or we need to make more aggressive offers to attract people. But we have always believed in building our own team, so we hire from campuses. So a very large proportion of our hiring is from campuses. And then we groom them and help them to kind of develop within the organization by giving them more responsibilities.
We have fairly wide coverage of ESOPs as well. So once a person spends a couple of years, they get covered by ESOPs once they move into a kind of supervisory role. So that also helps us to retain people. So we have very good coverage of ESOPs. If you look at our current ESOP coverage, it almost 300 people in the organization have ESOPs, 800 to 900 member organization. So 25%, 30% of the population has ESOP. So our people management strategy in that sense is slightly different, and that's how we are looking at addressing this wage inflation issue.
Got it. My last question, Manoj, if I look at the incremental yield, loan yield this quarter, it's almost -- it's cost 13% already, 13.2%. And with more interest rate hikes on the way, possibly this also is going to go up. But given that you have a disbursement target of 25%, 30%, how much more rate hikes do you think the industry and your customer set can take without impacting growth?
See, there is -- I mean the affordable housing, if you see the spectrum of affordable housing and the rate range of rates in the market, it ranges -- this is a very wide broad range. So right from, let's say at 11% to [indiscernible] operating at 18%. So to that extent, there is enough absorption capacity in the market.
So for example, let's say, the 13% category of customer is declining the loan because the rates have gone up slightly. Then there is a 13.5% type of customer or 14% type of a customer who is available in the market and who's interested in taking the same loan.
So there is absorption capacity. And as of now, it looks like the rate increases will be very gradual. So we feel that it's -- I mean -- and we are not seeing an impact at least last 2, 3 months. We're not seeing any impact of these little rate hikes in the market in terms of impacting demand. So we are fairly positive on that front that it's not going to impact demand in a big way.
We have the next question from the line of Nidhesh from Investec.
Can you share the percentage of disbursement, which is coming from self construction in the quarter? And what is the number on AUM?
So incremental numbers coming from self-construction, that is pure self construction. That is the people with the plot who are building homes will be about 40% to 45%. And this obviously does not take into consideration individual contractors building homes, selling to customers, retail transactions. So those are separate. This is purely people who are building their houses on their own.
And what would be the number on AUM? I'm trying to understand incrementally, are we seeing increase in this share of self-construction?
On the AUM, it will be slightly lower. It is about 30-odd percent because this business started a little later than the apartment business. So on the AUM, it's about 30%.
Sure, sure. Secondly, in terms of tech, that has been a differentiator for us. But in last 1 year, we have seen 1 large HFC also [indiscernible] sales force that was couple of affordable housing finance players, I think, also are replicating trying to replicate our model. So in that context, how we stay ahead in the game from our next 2 to 3 perspective, how are you thinking of improving on our existing processes, existing infrastructure? .
Yes, we have to apply our mind on how we can continue to stay ahead. So what we adopt today, it's not very difficult for people to copy it after within a few quarters. So we have to continuously thinking on what kind of -- what technologies will be applicable to us and what will be relevant to the customer and how we can adopt it and stay ahead.
Having said that, it is not only about the technology, it's also about the business processes that support technology and vice versa. So for example, if we are adopting a certain technology in the process, the way we actual physical flow of documents, physical flow of the business also needs to kind of be designed in a way which can work and think with the technology. So that's also -- I mean, that's a mindset and that's a design thinking process also that we adopt. So it's not just technology in isolation. It's also about how the teams work together and how the whole process is designed.
We have the next question from the line of Abhijit from Sundaram Mutual Fund.
Congratulations on a very good set of [numbers] I have 2 questions. First one, there's a consistent [indiscernible]. If you can talk -- even after management's own estimates, I think NIM was supposed to moderate. If you can talk about how you're seeing the trajectory of NIM and also combine it with cost of funds in the light of recent rating upgrade. Whether it will be a yield decline, is it passing on the benefit to the customers? Or do you see cost of funds sort of inching for you? What scenarios will play out? That's the first question. .
Second question is on DA income. This particular quarter, I mean, you have done quite well on ROA and keep up growth, despite DA income coming off. How does it look for the rest of the year, especially because the demand seems to be quite good for direct assignment, et cetera.
So on the NIMs and ROI, the transformation has not been -- has not really taken place fully. It has started. So to some extent, our cost of borrowing is kind of moving up. But the full transformation of the report increase, et cetera, has not happened yet, and we are also passing it on -- only to the extent that we are -- that it is impacting us. .
So which is why you would not have probably seen any change in the NIM and -- so while we had mentioned that, yes, it's the NIMs will be will moderate a bit. It's not yet happened. And -- but yes, I mean, we -- what we are saying is that even once the full transmission happens, then we should be looking at a 5.25% kind of spread and then corresponding minor moderation on the NIMs.
And as far as the DA is concerned, I will request Nutan to address that.
Sure. So on DA income, the reason for doing a lower DA, I mean, primarily because from a liquidity standpoint, we did not look at a larger amount. And that's why we decided you're absolutely right that the demand from a DA perspective, given that it is an attractive PSL asset is very, very good. So not an issue on that side.
Also on the cost of borrowing, your question around how does this look going forward? So cost of borrowing has logical 2 components. One is the marginal cost of borrowing. Now subsequent to our rating upgrade, we have been able to discuss reasonable -- we have diversified our lender base even further and we continue on that journey.
Secondly, portal rating upgrade, we are able to discuss and engage with banks to reduce the credit spreads further, so which is why you see the marginal cost of borrowing also in quarter 1 is around 7.7% and hopefully remains in a similar range in quarter 2 also. So that is one part of the cycle.
The second part of the cycle is on our existing borrowings, the increase coming from the repo impact one of the NCL reset over this year. So that we expect to enter gradually. So once all of that sets in, we do see some kind of a compression, and that's what we've been kind of indicating whether that full compression gets translated in quarter 3 or quarter 4, it probably will be around that time.
Just to clarify, the income recognized on DA will come back to what you reported in the last year from Q2, right?
So we are -- our strategy to do DAs is approximately INR 100 crores plus/minus. So we will remain in that range [of the week]. Or INR 100 crores per quarter.
We have the next question from the line of Mona Kattan from Dolat Capital.
Congratulations on a very good set of numbers. So firstly, on the OpEx front, your cost to assets was around 2.7% in FY '22. And given the expansion plans in this fiscal, how do you expect this ratio to evolve for FY '23?
Right. Mona so, 2.7% was there in last quarter was around 3%, and we've been indicating a number of around 3% to 3.2%, given that we do branch expansion. We add people also even [indiscernible] effective April. So with the combination of increase in variable expense and also leverage from our fixed spend, we are looking at the 3% to 3.2% range for the rest of the year.
Sure. And on the margin front of spread front again, so Manoj just mentioned that post full transmission, we could see a spread of around 5.25%. So does that -- is that fair -- is it fair to assume that we'll not be able to pass on the entire rate hike to our borrowers? The cost of fund hike to our borrowers given that we did not pass it on in the down cycle as well?
Yes. Just the bad practice, we -- since we have not passed on the full benefit, we are also looking at absorbing some of it. I feel have to see how it plays out and how much the real transmission or the total transmission, and we will take a call on that business. .
Sure, sure. And just 2 data keeping questions. So what were the write-offs during the quarter? And cumulatively, if you can share? And what's the restructured outstanding book?
So the write-off for the year, there are 2 parts that is a small technical write-off around INR 3 crores and residual write-off of around INR 1 crore. So that's the write-off number.
For the quarter?
For the quarter. Yes. And for restructuring is around INR 26 crores. INR 26 crores is the outstanding.
Okay. Okay. Against INR 28 crores last quarter?
That's right.
Okay. And cumulatively also, if you could share the write-off over the years, how much have we written now?
We'll have to come back to you, Mona.
We have the next question from the line of Amit Ganatra from Invesco AMC.
Question from my end, you mentioned the marginal cost of funds was around 7.7%. What was the marginal yield? .
13.2% for quarter 1.
But like incremental yield, right? .
Yes. Yes.
13 point...
2.
Against the book yield of?
12.8%. Just 12.7%, I think. 12.7.
We have the next question from the line of Shreepal Doshi from Equirus.
Congratulations on great set of numbers. My question was, firstly, like in the last 2 quarters, we've added branches especially in the state of Tamil Nadu. So there, we've taken the highest number of additions. So any particular thought process? I mean, is it because that some of the companies operating there have relatively higher spreads? And so is that the thought process? Or if you could throw some light, what is your idea behind it?
Yes, sure. Sure. So the increase in distribution, both the physical as well as the virtual distribution. We are basically looking at it from the certain set of states that we have identified where business is strong and demand is strong.
So if you look at rural affordable housing demand in the country. So Gujarat comes up on top Gujarat and Maharashtra, and then followed by [Karnataka] that will be the concern in terms of size and then next Tamil Nadu. So we are just going purely by size of market. These are very large markets for affordable housing. And hence, we are strengthening our distribution in the market, nothing else other than that to it.
Okay. Got it, sir. Also, the second question was with respect to the -- like in the floating and fixed rate, the other look that we have with respect to floating and fixed rate, what would be the split there? And do we have anything like floating with a book which is in floating bucket, but would be fixed for say, 2 to 3 years sort of a bucket. So it gets reset after every 2 to 3 years?
No. So see, effectively, the entire book is floating for us. And the reason we say there is a fixed portion is because there is -- there are certain schemes, the NHB scheme where we are supposed to offer a fixed rate to the customer. But those terms -- I mean those loans are also at the back supported by a fixed rate loan to us from NHP. So effectively, there is no interest rate -- interest rate risk on those loans. So this is effectively our entire book is floating. I think we can reprice at any point.
Okay. Got it. Got it. Sir, one last question with respect to the cost of fund. So the reported number is 6.9%, but this will also include the assignment that we would have done, while it is low, but still it would include, right? .
No, it will not include. This is the cost of borrowing on the on-balance sheet borrowing.
Okay. Got it. And one last question on this, if I can squeeze in. The branches side, so what number of branches would be having an AUM of, say, more than INR 120 crores, so which will be mature as per our standards.
So 20.
INR 120 crores or INR 125 crores. I think that's the parameter for us to consider it.
Yes 20, I'm saying 20 branches, around 20 branches.
And what number of branches would we say below INR 50 crores? .
Below INR 50 crores is about 50 branches. 50 to 60 branches.
[Operator Instructions] We have the next question from the line of Pooja Ahuja from Monarch Networth.
Thanks for the opportunity and congrats on the numbers -- congrats for the quarter, sorry. So just wanted to ask, firstly, if I look at the absolute NPA number for the last 3 quarters, it's been somewhere INR 100-odd crores. If you could just give a breakup of how much of this would be in the 90-plus bucket and in less than 90 bucket?
Yes. So that number is 44 and 56, 58, so INR 44 crores is below the NPA bucket. But it has -- these are a cases which have crossed into NPA at some point. So they have to be reported as NPA. So that is INR 44 crores. And what is actually in NPA is about INR 58 crores. .
So both the numbers, if I look at compared to the previous quarter, it's been quite sticky. So what would you attribute this to?
So inflows, I mean, so it fairly includes the EBITDA outflow. So we have resolved about INR 20 crores and INR 20 crores have come back come into NPA. And this number will trend down basically as the earlier buckets also trend down, so which is trending down gradually. So 5.1 plus reduced from 5.3 to 5 and 33, 30 plus as reduced from 3.5% to 3.3%.
So that -- as these buckets reduce, 30 flow into the NPA also we'll keep reducing.
So because now we are -- if you look at it, look at it from a pre-RBI classification number, we are at 1.2 in terms of the NPA. So which is very close to the [pre vanity numbers] So at these levels, the improvement will be gradual going forward.
Okay. Sure. Got it. And on the -- I mean, we've seen disbursement growth consistently increasing every quarter. So where is this demand coming? Is there any particular geography that's doing well? Or is it across?
Demand is coming from across. And it's also a function of where we are adding distribution. We are -- as per our strategy, we are adding distribution in the 6 states that we are focusing on, which is Gujarat, Maharashtra and the Southern states. So then, so that's where the growth is also coming from. In the other states, we're not adding as much distribution.
We have the next question from the line of Jigar Jani from Edelweiss Broking.
Congratulations for [indiscernible] quarter. Couple of questions. So your incremental yields over the last 2 quarters have been inching up. So last quarter it was 13%, this quarter it is 13.2%. So how long will it take to reflect in the overall yields? Because actually, the yields have come down this quarter from the quarter book. And the related question to this is, can you say that your floating rate book, your entire book is floating, how much of that is linked to an external benchmark? And how much is internal?
So okay, see the yield -- the rate at which we are originating when it will reflect in the book, it's -- so it should reflect over a period of 6 months to a year. But the issue is that every year, there are some portion that goes into NHB refinance schemes, where the rate also get reset. So the way we draw down these NHB schemes is that we reset the rate for existing customers. Wherever there are rate caps, which are required by NHB. And we own under those accounts.
So I will let obviously overall portfolio yield gets subdued to that extent. So from April until about December, you will see that slowly the book yield is trying to catch up with the origination yield. But then again, we have a large, you can say, a drawdown of NHB and then the book yield reduces slightly. So that's the -- that's how the mechanism works. And yes, I think that was the answer of question.
Yes. And so when you calculate your incremental yield that does not include yields on the NHB, that what you are saying?
Yes, but what we are putting is the overall yield, including NHB -- giving the NHB loans. Although -- this is why you are in, which is why when you're seeing it, it's looking lower than the origination yields. We must not have any NHB component.
Okay. Okay. Understood. Understood. And how much of your voting rate is linked to like repo or any other external benchmark?
It's basically linked to our basically linked -- so it's basically linked to our borrowing cost. And so of which, I think about 45% is linked to repo and the remaining is largely linked to NPLR.
Sorry, I didn't get the number. Can you just repeat that number?
At about 5% is directly linked to repo, our borrowing.
Okay. Okay. Understood. And last quarter, you had said that out of [ GMV ], which is the INR 44 crores, which is on [ 90 ] plus but this has to be classified as per RBI into this category. You cannot initiate [indiscernible]. Is that still holding true? Because one of your peers had actually mentioned in the call that they have been able to initiate the[indiscernible], will that like normalize only when the customer pays back?
See, we are taking the stand that these are customers. First of all, this number is large. The difference between the [pre RBI post id] number is kind of wide at this point only because of we are attributing largely to COVID-related impacts, right? So these are customers who we had some impact due to COVID and they could not pay for a couple of months, went into NPA. And then now they are trying to catch up. And the catch-up is taking time because these are customers who can't pay more than an installment every month. So we have to collect partial amounts and make good and come back to normal. So it takes a few months.
So given the situation of the customer and there, you can say, keenness to retain the property and continue the loan and become regular, we ourselves think that a service action would not yield good results. And it's not fair. So we have really not attempted it in that sense. We are -- our attempt is to only collect partial installments and bring these customers to a normalcy.
We have the next question from the line of Deepanjan Ghosh.
Just 2 questions from my side. One is if you can give some color on the customer, what are falling terms of origination or log-in to the [indiscernible]? And how that has change, let's say, compared to the last quarter, during pandemic and pre-pandemic? And second is the data keeping question, if you can mention [indiscernible] number for the quarter.
So if you look at -- I mean, let me just take you through about -- take you through the -- or walk you through the origination funnel. So if we have about 100 plus -- this is origination funnel for channels that are directly handled by the brands, so builders, connectors, et cetera. The origination funnel for digital channels is a little different. I think I'll take it through separately.
So generally, when [100 leads] come through from a connector or from builders, about 60% to 70% of it, you can say about 30% gets rejected or decline upfront. 60% to 70% goes through. 30% gets decline upfront, primarily bureau-related reasons or because the customer cannot afford any budget, it doesn't -- the loan doesn't fit into the budget.
So let's say, out of 70 loans which are -- which come into the system, say about 50 would be finally approved by our centralized credit team. So broadly the ratio is 50% approval for field-based channels.
For digital channels, it's very different. So if 100 leads come in, generally, the conversion itself is less than 1%. So probably one customer would finally get converted into a loan. 99 customers would fall into various buckets. About 30%, 40% of them would be declined as because they were not eligible or there's a bureau-related issue. Another 30% to 40% would be casual inquiries, that people are not really interested in taking the loan. They just what they were inquiry and so on and so forth.
So finally boils down to 10 interested customers out of 100 and out of which we generally convert one. So that's a different funnel altogether as far as digital channels are concerned.
So Manoj, follow up on this. Has this 50% sort of odd number on a blended basis changed, let's say, pre-pandemic and during pandemic and as of today?
Not really. I mean the ratio is at least pre-pandemic and now it's fairly similar. And if you look at it during pandemic, it was not significantly different. I mean people will see because people who are coming through the door only customers who were, let's say, not greatly impacted with the pandemic. So to that extent, the decline ratio, et cetera, was similar. Somebody who was badly impacted by the pandemic was not even applying for a loan at that point of time. We are not seeing much difference frankly speaking.
And if I can just have the data for [DT out]
[DT out] was about 5.6% this quarter.
We have the next question on the line of [ Shirish Was ] from Manulife Advisor Services.
My first question is regarding CRAR and ROE. So in the opening remarks, it was mentioned that we are targeting mid-teens ROE. So in this journey, how do you see CRAR and our ROE shaping up going forward? .
CRAR is currently set about 50% levels. And it will be some time or quite a long time before it even comes close to the regulatory cutoff. So we are comfortable as far as the capital is concerned. As far as ROE is concerned, we are making gradual improvements, and we're also trying to balance it out with, you can say, our requirement for investment at this stage for growth -- for future growth. So basically, we are looking at hitting our 14%, 15% in about a 2-year time frame. So that's what we are looking at.
Got it, sir. Secondly, as a majority of our loans have been originated in the last 4 years. I wanted to understand how is the NPA picture across our loans with older vintages, are the numbers higher or lower than our aggregate NPA ratios currently? .
No. So we plot vintage charts to understand how recent portfolios are performing, vis-a-vis the older ones. So that's a regular exercise in our risk management process. Unfortunately, because of 2 waves of COVID, those charts are completely -- I mean, its impact -- those charts are impacted because of these 2 waves of COVID. So the figures are not consistent or not, you can say, you can't read much into it. You don't have any insights from it. So having said that, at least as far as the early delinquencies, like [indiscernible] are concerned, they are fairly in line with the pre-pandemic levels. So we are comfortable from that perspective.
Got it, sir. Sir, just lastly, just a suggestion is in our investor presentation, going forward, once the situation normalizes, we can introduce this information by dividing our loan book across different vintages and showing the NPA picture because that portfolio is not highly seasoned because of our high growth that would be more informative in understanding the NPA picture going forward.
We have the next question from the line of Siji Philip from Mirae Asset.
Mr. Philip, can you hear us?
Am I audible?
Yes, we can hear you now.
Yes. Congrats on a good set of numbers. So 2 questions from my end. Firstly, on the incremental yields of 13.2% we had this quarter, how much would be coming from the lab book because the lab book has proportion has increased this quarter?
So 13.2% about 30, 40 basis points will be coming from lab book. 30, 40 basis points.
Okay. And you said about NIM moderation, but since [indiscernible] planning for a higher proportion of our lab going forward, do you expect that [indiscernible] moderation would be limited?
The -- I mean, we're not looking at a very sharp scale up and increase in lab, very gradual increase that we are contemplating. So to that extent, difficult to -- and we don't want to rapidly scale up labs to compensate for any moderation that might happen in the medium term.
Okay. And my second question is, as we expand into different states, would the risk assessment profile be different and it could include more of independent houses or plots rather than just apartments that we are currently doing much of? So would there be a change in the risk assessment profile?
Not at this juncture. I think that journey is something that we have crossed in the last 4, 5 years. So when we started the self-construction business almost 7 years ago, there was some -- there were some differences in the way we were accessing apartments versus construction cases. But we have already -- we're 7 years into that journey. So we are fairly well versed with that process.
And when we see -- when we look at markets, the self-construction business is largely there in the southern markets. And if you look at Western markets like Gujarat, Maharashtra, it consists of more of apartments. So to that extent, each market has a characteristic, and we have said, you can say, a fair amount of experience now in each of these markets. So we can say going forward, not too many new things that we are aware coming across.
Right. So comment to that, since our legal and technical aspects are basically [ outsourced ], right? So do we have a separate legal and technical team for each of these geographies?
No. So these are lawyers, local lawyers as well as architects or engineers whom you can say contracted in those places. So we have a service provider agreement with them, and these provide services to us.
So each market, each city would have a set of lawyers and valuers who have an arrangement with us. And we are -- apart from that, we also have a central team, which went their reports. So the legal or the technical report also is vetted by an internal legal technical person or underwriters who will look at the report and from their own formulate their own opinion. So it's a 2-step process.
We have the next question from the line of Abhijit from Sundaram Mutual Fund.
That has continuously coming down. Is it something to do with the [ LGD ] calculation, it was hovering around 25%...
I think the first part of your sentence was dropped off.
The coverage on page 3. It is continuously coming down. It used to be 25%, 30%. Now it is 22.5% in Q1 FY '23. So is this something to your [ LGD ] assumptions? Can you please elaborate? And what is the comfortable coverage ratio as per you?
So it is a combination of the [ LGD ] also, like I was mentioning in the call earlier, we have taken a technical write-off of around INR 3 crores against which we had some provisions. So when we [revoke] that, optically, it looks low. So right now, we are at a comfortable provision coverage ratio on a stage 3 basis. And as we continue to improve our credit numbers, we will look at if we need to rationalize it further. But right now, we are very comfortable with the overall [ ECL ] situation.
It's a function of the composition of the portfolio and the respective losses that those cohorts are giving us. So it's a direct number.
We have the next question from the line of Suraj from Liberum Capital.
Am I audible?
Yes, Suraj.
My question was on [ GP ]. So our rates are around 5%, 4% to 5%, if I'm correct. So what percent of our customers actually approaches the [ GP offer]? I mean in the past, you said you'd actually counsel your customers to move from the offer, but what percent of our customers approaches to these offers?
What percentage of customers approaches for a balance transfer? So there is -- so it's -- I mean, there is nothing like a balance sense or request that they have to make to us. So I mean, we will not be able to give you a figure because most customers, I mean, they have access statement of accounts on their app and the balances on the app.
So it depends on who is interested, they would apply for a loan or somewhere else and then come back to us saying that they want to transfer the transfer and we are ready with the payment.
So we -- I mean, at a very early stage, we would not know whether the person is looking to do a balance transfer or not. However, what we can do and what we do is that we have analytics around the profile of customers and their behavior, which where we are able to predict to some extent, they will do a balance transfer. But based on -- we cannot predict that number based on any request or anything that they're making to because there's no such process. So it's more analytical that in nature as to how we can find out whether they are going to do a balanced transfer or not. I mean it's more of, you can say, algorithm which can predict whether they will do a balance transfer or not.
So what kind of steps do we take to prevent our customers from leading based on this analysis?
So we do -- we do active counseling. We offer talk of loans to them. We explained to them that the balance transfer is not in their interest because they would have to pay a lot of upfront fees to do the balance transfer.
Plus we also offer them whenever there is NHB schemes where we have to draw down [no amounts] to NHB under certain schemes. We reset the rate for these customers and then go down so that they get the benefit of a lower rate. So these are ways in which we address the balance transfer issue.
Just [ BT ] piece you mentioned, too, this is payable to the [indiscernible] or the banking over?
Sorry, Sorry, I'm not able to hear you clearly.
In case the direct transfer down to the customer has to pay our [ BTP ] upfront. Is it stable to Home First or the finance company taking over [the loan]?
No, no. I'm referring to the fees they have to pay to the company that's taking over the loan. So there will be processing fees, there will be mortgage charges and so on, right? So they will have to go through the entire process right from scratch, so that will end up incurring a lot of charges. I mean, we don't charge anything for balance, we are not allowed to also [indiscernible].
Okay. And the second question was around what is the average tenure of a loan.
The contractual tenure is between 15 to 20 years, mostly customers look fpr 20 years and some customers take 15 years. So generally 15, 20 years. Effectively, we consider the prepayments and so on, it comes to around between 6 to 7 years.
Okay. So now given that we've seen substantial growth come in the last 4 years or so, could we see a heightened rundown in the book going forward as the payments are coming up?
That is. I mean, rundown has been natural rundown because of the repayment of the loan. That is generally, I mean, that would be a preferred option for us because then the rate of, you can say, rundown is lower. If the customer is only just making his installments and reducing the loan. Generally, the rundown is faster only because of prepayments. If the customer runs down on the loan on a normal natural basis and the tenure, that should all be more 7 years.
No, I actually meant including fees, I mean, given that you've seen a large growth in the last 3, 4 -- 4, 4 or 4 years, loans mature. Could we see higher prepayments coming up and the running out faster? .
No, we are not anticipating anything like that because see, we have been growing at this pace for a while. And I guess that question will come up only if the sales slows down as growth slows down. I mean our days of origination as of AUM growth slows down. But then, yes, the rundown on the loans will then kind of overtake the growth. So -- but at the pace at which we are growing currently, we don't anticipate any such issue.
Okay. And one last question, if I may. So I was just trying to understand the penetration scope that is there in the core market. So what I'm trying to understand is in this core marketplace radically targeted is industrial towns around those areas, right? So how much of the scope is there to further penetrate around these towns? Or are we now going to serve more of the little deeper rural self-employed customer going ahead as we penetrate further?
So if you look at these markets, I mean, if you take any of these markets, which I was talking about, which is the Gujarat, Maharashtra, [Karnatka] and Tamil Nadu, the market share that we have currently is in India affordable housing space is somewhere between 1% to 3%. So there are still 97 customers over who are taking a loan from someone else. And we also don't know about the customers who are probably not even taking a loan and trying to just manage with their own funds or borrowing from friends and relatives and so on, which is a very common phenomenon in this state. So which is why do go for growth is really very huge. So we are, first of all, not present in all the places.
Secondly, we have a low market share at this point. And there is also a hidden market out there where customers are not even aware they can get a loan. So putting all these factors together, I would say we are still very, very long way away from even kind of getting worried about this question. There's a lot of run rate for growth available.
And I'm talking only about towns, as I think you mentioned that we need to go very deep to get business, et cetera? So we are -- see, we are only looking at -- we are currently present at 225 towns. We are looking at about 200 towns in the next -- so 225 towns are actually giving us about INR 200 crores of disbursal every month. So if we expand that to 400 towns, it is very -- it's not a linear growth.
So a lot of runway available. And we will not have to go rural -- and rural markets are also small and I think it is small. So whatever growth is coming will come from the larger accounts.
We have the next question from the line of Shreepal Doshi from Equirus.
For end NIM...
Shreepal, we're not able to hear the start of your question.
Sir, I just wanted to understand how would the NIM trend for the year, for FY '23 and the ROA which is currently 3.9% for the quarter. How do you see that trending for the year? .
Shreepal, so from a NIM perspective, we are looking at close to 6% and similar levels of ROA around 3.7% to 3.9% range, depending on how the interest volatility -- interest rate volatility takes up from here. So depending on that, we'll land in that particular range.
Got it. And any change in guidance on the loan growth because our first quarter has been significantly better. So -- and anything that you would want to change on the loan growth side?
Not right -- not at the end of this quarter, we can relook at it after quarter 2.
That was the last question. I hand it over back to the management for closing comments.
Thank you, everyone, for joining us on the call. I hope we have been able to answer all your queries. In case you require any further details, you can get in touch with Manish Kayal who has Investor Relations. Or you can get in touch with Orient Capital, our external Investor Relations services. Thank you.
On behalf of Home First Finance, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.