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Home First Finance Company India Ltd
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Ladies and gentlemen, good day and welcome to Home First Finance Company India Limited Q4 and FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Manish Kayal, Investor Relations Head. Thank you. And over to you, Mr. Kayal.
Thank you, Nirav. Good afternoon, everyone. I hope that all of you and your families are safe and healthy. On behalf of Home First Finance, I extend a very warm welcome to all participants on Q4 and FY '22 financial results discussion call. I'm Manish Kayal, and I look after the Investor Relations. Today on the call, I'm joined by our MD and CEO, Mr. Manoj Viswanathan; and CFO, Mr. Nutan Gaba Patwari. I hope everyone has had an opportunity to go through our investor deck and press release that we have uploaded yesterday on exchanges and on our website. We have also uploaded our excel version of our factsheet on our website and request you to have a look.
With this introduction, I hand over the call to Manoj. Over to you, Manoj.
Thank you, Manish. Good afternoon, everyone. I'm pleased to address all of you after completing 1 full year as a listed company. FY '22 was a successful year for Home First, and I will take this opportunity to share the highlights with you. Firstly, we crossed 2 important milestones. We crossed INR 5,000 crores of AUM, and we also crossed INR 2,000 crores of annual disbursements for the first time.
Moving on to other highlights. We had our highest ever quarterly disburses of INR 641 crores, an increase of 12.5% on a quarter-on-quarter basis, and 42% on a year-on-year basis. There is further improvement in 1 day past due and 30-day past due levels. One day past due has improved from -- improved to 5.3% from 6.5%. 30 days past due has improved to 3.7% from 4.7%, and our Gross Stage 3 stands at 2.3%, and that is down 30 basis points from 2.6% in December. And this is based on the post RBI circular of November '21.
Prior to this adjusted for the RBI reclassification, the numbers actually stands at 1.3% in March '22, which is down from 1.7% in December '21, an improvement of 40 basis points. [ March may to ] Stage 3 also includes INR 44 crores, which is actually in buckets, which are less than 90 days past due, but they have been included in NPA due to the asset reclassification norms for the RBI notification dated 12 November 2021. However, the set change does not have any material impact on the financial results.
We have been rated AA- by India ratings with a stable outlook. This is a testimony to our strong risk processes, asset quality and strength of balance sheet and also highlights the comfort drawn from the economic and sectoral recovery from COVID and strong growth momentum of the sector. Physical branches has gone up to 80 from 76, and total distribution points have gone up to 200 from 187 on a quarter-on-quarter basis. On digital initiatives, our customer app continues to enjoy high usage with 80% of our customers now registered on the app compared to 76% in quarter 3 FY '22.
Payments and service requests made via the app in quarter 4 FY '22 have also gone up by 82% and 42%, respectively, on a year-on-year basis. 48-hour-turnaround-time for loan approval improved further to 92% of the customers from 90% in quarter 3. Our e-onboarding initiatives have been received well with e-stamp adoption in 65% of the cases in quarter 4. And for the full year, that number is 41%. e-NACH adoption is 51% of loans in quarter 4 and for the full year, it is 38%, and e-sign adoption is in 20% of the loans in quarter 4 and for the full year, 16%. This shows that there is an increasing trend in this adoption of these digital initiatives.
With this, I would now like to hand over the call to Nutan to take you through the financials. Nutan, over to you.
Thank you. Good afternoon, all. I will take you through our financial performance. We continue to stay focused on our key operating metrics with an intention to deliver mid-teen ROEs in a few years. Our NIM has expanded from 5.8% in quarter 3 to a very strong 6.4% in quarter 4, coming mainly from sustained spreads and further optimization of cash on the balance sheet. Net interest income has gone up by 51.6% on a year-on-year basis and 15.6% on a Q-o-Q basis. We [ did lower direct assignment ] in quarter 4 as a liquidity strategy, and we continue to have a robust demand for our portfolio of assets.
OpEx to assets stands at 3% for the quarter, an increase of 20 basis points. This is in line with our expectations. As guided earlier, we expect this ratio to remain in the range of 3% to 3.2% going ahead as we focus on expansion. Accordingly, cost-to-income was 35.7% in quarter 4 compared to 33% in quarter 3. Our Q4 PPOP stands INR 66 crores. Credit cost was lower at 0.2%. Our retail provision stands at 1.1% of the total principal outstanding. We continue to be conservative with the provisions. Our provision coverage ratio stands at 47.1% prior to the RBI reclassification, which is up 83.6%. Our adjusted profit after tax is INR 48 crores for the quarter, a growth of 4.9% on a Q-o-Q basis.
Moving to liquidity and borrowings. As Manoj mentioned, India Ratings has assigned a AA- with a stable outlook to our long-term leasing in this quarter. The company continues to have a diversified and cost-effective long-term financing sources. We have a healthy borrowing mix with 45% of borrowings from banks, growing 7% from NHB refinance, 23% from direct assignment. We continue to have 0 borrowings through commercial paper. Our cost of borrowing is flat at 7.2%. Our marginal cost of borrowing for quarter 4 was at 5.8% due to drawdown from NHB. Excluding NHB, our cost of borrowing on an incremental basis was 7.5%.
Moving to capital. Our total CRAR stands at 58.6% with Tier-1 at 58%. Our March '22 net worth is INR 1,574 crores. Our quarter core ROA stands at 4% flat quarter-on-quarter. Our annualized ROE stands at 12.5% for Q4. Our book value per share is INR 179.6 as of March '22.
With these details, I open the floor for Q&A. Thank you.
[Operator Instructions] The first question is from the line of Karthik Chellappa from Buena Vista Fund Management.
Congrats on a very good quarter. So I have 3 questions. But before that just a housekeeping clarification. There has been some reclassification of some P&L items for previous quarters within interest income and other operating income, although the total hasn't changed. Any quick thoughts on what drove this reclassification?
So Karthik, there are different ways to classify some of the income items. Some of the auditors prefer it in a certain way. And as you know, we've had a change of auditors in this year, and that's primarily related to stratification. We also understand this is how the market is also doing it. So it's largely alignment [ in order to ]...
Got it. Okay. My first question is basically on the BT out that we saw in the fourth quarter of 6.5%. Although it could be a quarter-end phenomenon, could you give some color on to whom was this specific phase BT'ed out? And typically, what were the kind of rate differential that you couldn't match and hence, you basically thought it fit that the account can leave the company?
BT out -- Karthik, BT out generally happened to the larger banks. So nationalized banks and some of the large housing finance companies. So those are the typical companies that do the BT out from us. Rates were fairly lower than ours. So typically, the market rate for a prime customer, which is in the 7.5% to 8.5% in that range. So the differential is generally high. And so it's difficult to retain these customers. And -- but this is nothing different that we have seen in the last 10 years. It's similar to the kind of -- I mean it's the same companies to whom customers are going and the same rate differential that has been there for the last several years.
Got it. So ideally, what we should think about is the BT out for the year is going to be in a 5% to 6% range with a skew towards fourth quarter. That's how we should even think about this going forward, right?
Yes. I guess, 4% to 5% range with some skews in -- like in the last quarter and so on. So that's generally what we see also. If you see historically also, there is a skew in -- I mean, not even in last quarter, especially in March there's a [ general skew ]. But for example, now in April, it has come down. So that's generally the trend.
Great. My second question is, if I look at the securitization volumes, on a year-on-year basis, it's probably just down 9% to 10%, but the gain or the income that we have booked is probably down even more, which means the yields are down. What would explain that?
So Karthik, the yields are flat on a year-on-year basis almost. Why would you say that the securitization volumes are down because we've done securitization in quarter 4 as well. Last year, we did INR 300 crores...
Last year in the fourth quarter, the volume was INR 1,159, whereas this quarter is INR 1,050. So the volume is down like 10%, right?
Yes. So that is very marginal. So that really comes down to liquidity strategy at the end of the company and what pricing we want to do the transactions. It's nothing it's business as usual. Nothing more to read in that.
Okay. The last one that I have is now we ended the quarter with a marginal cost of borrowing of 7.5%, excluding the NHB. Given the out-of-cycle rate hike that we saw today, which is quite sizable at about 40 basis points. As far as your borrowing from banks are concerned, whether public sector banks or private sector banks, with what lag or how soon will this rate hike start reflecting your cost of borrowing as well?
So there are 3 steps to this fact. The first step is the [ resilient ] borrowing, which is small for us. The second step is MCLR linked, so the MCLR for the bank has to go up. And the third step is that the [ leased days ] are different across all borrowing lines. So even for a particular bank, there will be multiple leased lines based on the [indiscernible]. So the whole cycle is a 12-month cycle. However, some of the repo-linked loans, which is a very small percentage for a book could be immediate.
Okay. Got it. I have a few follow-ups, but I'll probably come back in the queue.
[Operator Instructions] The next question is from the line of Shreepal Doshi from Equirus.
Congratulations on a great set of numbers. Sir, my question was with respect to the today's development on rates. So how do you see that impacting our spreads and NIMs over the next 1 year. We've been guiding for 4.75% to 5% of spread in a steady state environment. So do we see any challenges there?
No, we expected rate high -- as Nutan mentioned just now, there will be several steps before which the rate hike gets completely passed on. So we expect it to be gradual over the next 3 to 6 months. And so as such, we don't see a -- we don't see -- and as the rate hike gets passed on to us, we will also pass it on to customers. So we don't see much of a challenge in retaining the spreads. And because the demand on the ground is very strong and customers generally recalibrate their requirements, the marginal rate change. So we don't really see muting of demand or subbing of demand because of the rate hikes.
And sir, secondly, like just in [ banking connection ] to this section. So we assume the loan book mix also changing, which is broadly in the spread or NIMs, like we've seen the self-employed share increase, and we've also seen the [ non-mentioned challenges ]. So do we see this change picking a pace over the next, say, 4 to 5 quarters because that will also help us in [indiscernible].
So there are, I think, 2, 3 levers. So one is that we have always competed in large markets and in very competitive markets with larger players. And our expansion plans over the next 2 to 3 years are largely in smaller towns. So as we go deeper and move into smaller towns, we should be able to sustain the spread that we have been running till now.
Secondly, as you mentioned, there is -- and we have always guided that there will be a creeping increase in loan against property and high-yielding products like that over a period of time as our distribution increases, customers get more comfort, there's more word of mouth and so on. So that is likely to -- and it is a creeping increase. As you can see, at an AUM level, we are still at 7% on loan against property. So it will take time before it starts moving up. But yes, that is another factor, which is in our favor. We have headroom for [ growing ] on those kind of products in the coming quarters.
And thirdly, on the sales employer side, again, it's a very, very -- I mean, marginal increase. I would not read too much into it. But there, again, when we expand into smaller towns, there is likelihood of the self-employed sector going up slightly, slightly more than what has been there historically. But as of now, it's still in the 70-30 range, which we have always maintained.
Got it. And then one last clarification. So I suppose 90% of our [indiscernible] linked to variable rate. Is that the item...
Yes. All our loans are floating rate loans. So if we get a rate increase, we should be able to pass on the rate increase. There is a small portion that is NHB refinance, which has actually picked -- which is a fixed rate loan for the customer, but it's also a fixed rate for us from NHB side. So on both sides that's fixed. So again, there is no interest at risk over there. But otherwise, 90% of the loans are floating rate. So we will be able to pass on the increase.
What is the limit that we have from the NHB in terms of [ funding ]?
Limit from NHB in terms of?
In terms of -- sorry, pricing effect?
No, in terms of funding, like how much, like I think they will be having the total exposure that they could take for?
Here, I think -- I mean we do -- I mean they have some internal formulae based on the net worth of the company, et cetera. Our understanding is that we have sufficient headroom over there.
[Operator Instructions] The next question is from the line of Kunal Shah from ICICI Securities.
Yes. Congratulations for a good set of numbers. So first question is on securitization spread. So now maybe was there a benefit in terms of the spreads at which we have booked the securitization in coming past 18-odd months due to lower rates. And in this rising interest rate environment, would we see pressure out there? Or maybe when banks increase the MCLR. Would there be any unwinding of the benefit in this entire securitization income?
So, Kunal, really, the question is in 2 parts. First, on the new book, and second on the existing book, so let me take it one by one. On the new book, the spread will be in line with our on book spreads. That is what we have seen for as existing transactions, and that is what we will see going forward. There is no pricing arbitrage or some tactically, it can differ from quarter to quarter, but largely around the same step.
Coming to the second part of the question on existing, we've been in assignment now for over 5 years. We have done the model to see what is the risk and then what point does the cost starts to give us mostly from the P&L. We are not forcing that because that given our securitization at a much higher price earlier, we still continue to carry that benefit. So we are not really forcing a risk kind of P&L from an existing securitization book also.
Okay. But maybe when rates were down, in fact, that benefit would not have entirely got unwound. And now maybe again, we will start seeing the impact. That's not the case. In fact, we are still setting with some of the benefit, and that can continue.
Because on the blended basis, we are still higher than that overall cost after securitization over the 5 years.
Okay. Until what rate would it be actually added. So maybe another 50, 70-odd basis points? How much can it take the further note?
Around 8%.
Okay. 8% is what it is going to do. Okay. And secondly, in terms of this entire repricing. So the way I understand is, maybe we will see the cost of borrowing is getting repriced, then we will pass it on. And since 90% is variable. In fact, there would not be too much of a lag which might happen out there. So that would be a clear understanding. Maybe whenever we see our borrowing costs going up, we will be revising our rates and...
Yes. So we'll plan -- we plan the passing on of the rate increase in a gradual manner so that there is not too much like.
Okay. And given the way its kind of BT outs have been there even with this rate. So when maybe -- do you think that maybe in terms of -- maybe the potential to increase compared to the increase in the borrowing cost could be lower because maybe then again, we have seen this kind of a BT rates of more than 6-odd percent, then I think it would further maybe -- if we further hike it. So how should one read that, yes?
Not actually taking there, not too much to be read into it, because as our rate increase, our market rates also will increase. So the lenders who are offering low rates, they'll also have to increase their rates. And generally, I mean, there are both schools so far, but generally speaking, when the rates are very low, like what we saw in the last, let's say, 18 months or so, then customers get more excited because they see rates like [ 6.5, 7.5 ], et cetera. But as we have rate trend up and [ they go towards 8.5 ], et cetera, the segment is a little more subdued. So I would say nothing much to be read into the BT or as far as the rate increase is concerned.
The next question is from the line of Abhijith from Sundaram Mutual Fund.
Congratulations on good set of numbers. Sir, my question is on the branch addition rate. When you're adding branches with what lag do they contribute to AUM growth? And second is, how is the -- if you just have to split between newly added branches and the vintage ones, how is the growth differential? Is there a significant growth rate differential between the new ones and the old ones? And hence, can the growth rate further accelerate? That's my question.
Yes. So our branch or additional strategy, we basically follow a strategy where we start business in a location, and there is a kind of virtual setup, which is created, and they start generating business. And then once the virtual set up reaches an AUM of about INR 10 crores, about INR 10 crores to INR 20 crores, you can say we set up a branch. So that's our strategy. So I mean, branch that from the moment it opens in the system, the AUM starts increasing. But when the physical branch gets added, there will be a certain jump, you can say INR 10 crores to INR 20 crores because at that point only, we had a physical branch.
And as far as the difference between new and old branches are concerned, yes, that's more of a base effect. So for smaller branches, the AUM growth, yes, it appears higher because of the lower base effect. So broadly, the AUM growth in the initial years, [indiscernible] couple of years will be in the region of 75% to 100% from the second year -- sorry, from the third year to fifth year, it will be in the region of about 20% to 50%. And fifth year onwards it will be more like 25% to 30%.
Right. But what vintage branches are also growing at the pace which the company has reported? Or are they at a slower pace?
20% to 30%, they will be growing on it, yes.
Okay. So FY '23, how will the branch addition this is first half, second half? How many branches --?
It's a kind of very well-paced expansion plan. So every quarter, we are looking at adding about 4, 5 branches, [ critical branches ] and we're talking about. But the virtual branches and digital locations will keep coming up in larger numbers.
Right. And most of the OpEx and employee cost increases on the back of this expansion -- geography expansion, right?
Yes.
That's right. That's right.
Okay. Or was there any one-off or variable pay or anything related on the back of good performance? Anything on that --?
No, nothing like that. It is all basically people addition and expenses related to compensation. For example, last quarter, we had some expense related to ESOPs. So it's all related to compensation and people only.
[Operator Instructions] The next question is from the line of [ Preeti Jain ] from [ Daily Stock ].
So I had only one question, so that the interest rates are going to -- go up. So what do you think that will it decrease the demand for housing finance in the coming quarter?
Not really. We are dealing with customers who are generally end users and the planning for purchasing or building a house happens over a long period of time. So something like a rate increase generally does not, you can say, the demand is subdued demand. We are not seeing that even in the past. And the demand of the ground continues. So we are not seeing any impact on that.
Okay. So what will be your guidance for this net financial year in terms of revenue or new loans to be created in this financial year?
Yes. So we are at a disbursement run rate of about INR 200 crores a month now. So we are basically looking at an AUM growth of about 30%.
The next question is from the line of Pranav Mehta from Valuequest Investment Advisors.
Congratulations on great set of numbers. So just one question on your asset quality. So if we look at our [ 1 DPD number or a 30 DPD ] number, so you have shown significant improvement on a quarter-on-quarter basis. But we have not seen a similar level of improvement in our Gross Stage 3, which is, where you know just 30 bps. So what is leading to this sticky 90-plus of Gross Stage 3 assets and -- are some of these loans get concentrated into geographies or something like that? Can you just explain this?
Sure. So if you look at the 90 days past due number, that has also come down by about 40 basis points, right? I mean, I think you are looking at the post RBI classification number, which is 2.6%, coming down to 2.3%. But if you look at the trends as per the previous classification, the numbers have come -- the NPAs come down from 1.7% to 1.3%. So a 40 basis point decrease. And this is more of a lag effect, right? So as the 1-plus and 30 plus reduces, the NPA also will keep reducing. So which is what -- if you remember, last 2 quarters also, we were saying that there has been a decrease in advanced [ 20 past due and 32 past due ] and NPA should start reducing. And you saw a substantial reduction in quarter 4 of [ 40 ] basis points. So this trend will continue.
As far as the post RBI classification number is concerned, actually, a lot of these customers are actually -- the NPA customers are paying additional installments and coming below 90 plus. But they also have to be -- they have to remain classified as 90-plus till they come to 0. So that will remain for some times because this is all an effect of COVID, that we are seeing. And it's going to take time for these customers who actually make those additional payments and come out of completely out of delinquency. But otherwise, yes, very -- if you see on a regular basis, we are actually at pre-COVID levels in terms of collections, if we see collection efficiency. So practically, all customers are paying 1 installment, and the collection efficiency numbers are on that pre-COVID levels.
The next question is from the line of Pranav Gupta from ASK Investment Management.
Yes. Can you talk about the co-lending partnerships that we had with Union Bank, and how that is progressing? Whether we are seeing the expected volumes that we had planned? And how -- just an update on this. That's my first question.
Yes. We are making decent progress, but we're still grappling with certain teething issues. So I think this quarter, we should be able to make more substantial progress. So I guess next quarter call, we should be able to hear some more positive news on that. We have made some progress. We have booked -- I mean, we have on-boarded certain transactions, but yet to kind of pick up pace.
Okay. And then just a follow-up on this, when you say teething issues, is it more on that probably the tech and integration side? Or is it the kind of customers that during [ 9 months of resource ], where are we facing these issues in this partnership?
So you can see net of both because we are in affordable housing, housing finance company, very well embedded in that scheme of things. So it requires what do you call it, a little bit of change of culture and process on the ground level to retrain our people to originate more formal customers. So that is one -- that is a struggle at one end. And on the other end, yes, there are some issues with related to tech and integrating the process with the bank, et cetera. So on both ends, we are addressing those issues.
Sir, my second question is on the expansion. So typically, we've always been in larger markets with the denser population and now you are expanding to relatively smaller towns and cities. How different will the brand structure or the branch, the staffing, how different will it be? And how different will the cost structure will be for these branches that will open in the relatively smaller towns and cities from here on?
So we are not -- see we are not putting up physical branches in very small towns. The -- it's more of access and the presence at those small towns. So the loans will be get booked at the nearest large physical branch and -- and more and more, we are seeing that there is not too much difference in terms of the kind of people or costs, et cetera, which are between a Tier 1 or a Tier 2 town and a larger town. So I would not -- I mean, I would say that it is not very significant. Yes, there may be some differences, sounds like local flavor, et cetera. But nothing significantly different from what we have been doing.
The next question is from the line of Chandrasekhar Sridhar from Fidelity International.
I have 2 questions. Manoj, one is just, is where are we in just terms of the upper limits of yields, which we can charge the customers, the contract being that if sort of rates start moving higher, just how [ EV ] would be for us to pass on while sort of trying to maintain keeping the asset quality, which we are -- or does this get mitigated by a mix and distribution? That's question one. Second was, I noticed that the share of $1.5 million to $2.5 million loans have gradually been picking up slightly higher ticket size has gone up by 3 percentage points over the last 1 year. Just what's driving that?
Third is just, as you go deeper just in terms of distribution, does the whole centralized underwriting model work? Or I mean, will it continue to work? Or do you sort of have to move a little more decentralized? And a couple of questions were just maybe any conversations which you've had post after the ratings upgrade on what happens on the cost of funds? And just maybe if you could remind me lastly on, at what point in time do we need to start having 25% of our incremental borrowings from the market?
Sure, I can actually get the second question properly...
One half, tickets are just are just ticketing up. that's the one on, right?
Yes. The share of loans has actually gone up in [ 1.5 billion, 2.5 billion ].
Yes. So the first question was on yield and what would be the highest point, which we can reach, et cetera, et cetera as the prices go up. So I think there are 2 things here. So what will happen, one is that, see we operate in a range, right? We operate a range between 11% to 13.5% and the blended rate comes to probably 12.7% to 13%. So I think what will also happen when as rates go up is that the floor will keep going up, right? So where we are now able to offer that 11% or 11.5% to certain customers. That number will go up and that band will become narrow. So that will bridge the rate increase and spread competition to some extent.
And secondly, like you said, the mix can be -- we can -- we have a lot of headroom to, you can say, change the mix and get some yield out of that. So I think both these things will help in compensating the rate increase. On the ticket side, it's more of a secular increase. It's not any conscious decision to originate hires. And I think some loans that we originated under the colending program are also there in this. So probably showing up over there. I mean, I think through next quarter, we'll publish it separately.
On the centralized underwriting fees, no, we don't have any second thoughts on that. Absolutely, it's going great. As you can see from our turnarounds, which are improving every quarter. And the -- and we are actually deriving the benefits of centralized underwriting now. So we are very -- I mean, they are strong believers and we are also getting the benefits out of it. So we don't plan to localize it at all. And in fact, with a lot of this information coming in a digital format, our ability to underwrite better through a centralized mode is becoming stronger. So we intend to continue that.
And rating update, I'll hand over to Nutan.
So [ Sanjay ] on cost of borrowing post ratings, firstly, we have a split rating right now. So we have a AA minus stable outlook rating for majority and we have A plus positive outlook for [indiscernible]. So the first step is really to align these ratings. We have started to work. And so we'll need some time there. Once the alignment happens, that's when these [indiscernible] benefits from the banks will start to pass on. Having said that, you would have seen the table the GPEC has been increasing, despite that we've been able to hold on to the cost of borrowing. So the overall comfort and ability to price will continue, and it is only going to help us the alignment et cetera, comes through.
Your second question on 25% incremental borrowing through NCDs, yes, we have signed the initial declaration with the top exchanges. So it's just applicable to us as well. There is a block of 2 years, which is allowed. We are not very worried about it given the fact that we've already started the process of NCDs to mutual funds last quarter itself, we are not looking too concerned on this aspect.
Does that mean that from this year itself, you would start borrowing 25%?
Yes, the incremental portion.
Sure, sure.
The next question is from the line of Rajiv Mehta from YES Securities.
Congrats on a strong performance. So firstly, on growth in 2 key markets for us Maharaja and Karnataka. So combined, it is about 24%, 25% of the book. But I see them going significantly below the overall portfolio growth in certain quarters, there has been no growth as well. So when do we see things reversing in these 2 large markets for us?
So Mehta, see, as far as Karnataka is concerned, we are largely present only in the larger towns. So which is -- at the moment, we are basically based in Bangalore. We are in the process of expansion. In Maharashtra, you will start seeing progress, because now we are expanding into smaller towns of Maharashtra. So you should be able to -- you should start seeing the numbers move up. And we -- we are making progress in Maharashtra also, but I think the progress in South and certain other markets is much sharper. So it's kind of taking away from the progress we are making in Maharashtra.
Okay. And one question is on the strategy of going deeper, so how would it influence our property profile or risk associated with property underwriting and also our ticket size?
So from a risk perspective, see we are not going to very, very small -- very, very small [ arbitrations ]. So we have presented 200 towns and our ambition is to go to or reach 200 towns in 2 to 3 years. So these would be -- in the overall scheme of things in the country, this will be fairly large now. And it's just that from our perspective, we have potential to expand the 200 towns. So we are not really going to very small -- small population, et cetera. So any location that we go to will be a fairly large -- very large town is at least 2 to 3 lakh kind of a population with a demand for at least 30 to 400 loans a month. That's the kind of down we are talking about. So given that and given the way the kind of country's changing and all with the trends and smaller towns, actually progressing very fast in terms of digital adoption, et cetera.
We don't see much of a difference in the way we operate in the next 200 towns compared to 200 towns where we are already present. So we are not seeing that -- this year, we added almost 100 towns. We are not seeing any major change in the way we are operating.
Okay. And were there write-offs in the quarter?
Around INR 2 crores. Those were some sharp collections, some charge recovery.
Partial -- these are partial write-offs from properties that have been coming sold to settled accounts.
Okay. And you've spoken about certain accounts last quarter where you would want to kind of resolve them, and that would lead to -- or that would entail certain write-offs. So has -- is that pulls in line? I mean, I'm sure there is a certain pool which can also then entail such kind of provisions in the coming quarters?
This is an ongoing number. So I mean this quarter, we have resolved more than 200 loans or rather sold to more than 200 properties. So what you're seeing is a number from that. So in certain cases, we would have entered, recovered an amount into lower than our principles. So that's the loss we are seeing, which is INR 2 crores.
The next question is from the line of Abhijit Tibrewal from Motilal Oswal.
Yes. The first one is on the coal ending partnerships that you talked about, so more an academic question. Given that, I mean, co-lending partnerships will entail both fee income as well as some spreads. Typically, the way we compute and wins is -- as a percentage of the total assets. And given that large part of it will be off balance sheet under the co-lending arrangement, can that mean that, I mean, disbursement under the co-lending model can actually be accretive to the margins given that you will continue to book the spreads that you are making in your maybe interest income item, while the assets will continue to remain of balance sheet?
Yes, Abhijit, it will definitely be uprated to the overall margin profile. We will be able to book it in interest income or other income line needs to be seen. My understanding, it should be in other income line, because those assets are not on the balance sheet and interest income reflects the income from the assets that are on the balance sheet.
Right. The next question that I had, Nutan, is on -- I mean has been touched upon that your participation in this call, but if I look at the absolute number of stage 3, which also includes your RBI NPA, that number has not moved much. Volume of INR 2 crores come down to about INR 101.5 crores on an absolute basis. So one of the other things that we were kind of hearing all through the quarter is -- I mean, some of the HFCs have been leveraging a few of the ARCs. So basically selling some of the old legacy NPAs to ARCs and which has helped them exhibit a good improvement in their asset quality.
And Manoj, sometime that was also referring to in the last question that you will model properties during 4Q. So my expectation was that, I mean, given that it is a little easier to kind of input surfacing in mortgages, probably the improvement would have been better. I'm talking about more about the absolute levels of the gross stage 3 numbers.
Yes. So Abhijit, let me just break this down. So then you will be able to appreciate the progress that we have made. So the December number is about INR 102 crores, right? And that the breakup of that was actually INR 68 crores in actual NPAs. So when I say actual NPSs, it is actually with the customers in 90 days past due and INR 34 crores was below 90 days. So this is because of the RBA classification, these customers have to be classified as NPA. So that was the breakup of INR 102 crores of December, which is 68% and 34% and which is been 1.7% and 0.9%, so total was 2.6%. Now when you come to the breakup for this quarter, the number is INR 101 crores total and the breakup is INR 57 crores and INR 44 crores, okay? So the INR 68 crores, which was actually in NPA last quarter has actually come down to INR 57 crores. So there's a INR 11 crore improvement in absolute number as far as the real NPA is concerned.
And that number -- the percentage, I mean equivalent of it is 1.3%, which was 1.7% last quarter. So although on the top, you're seeing it almost similar, INR 102 crores and INR 101 crores. We break it down, the real NPAs gone to INR 11 crores this quarter. And this is -- so these are all actual improvements because these are customers who are getting rolled back to lower bucket. And gradually, we'll be able to pull them out completely from the NPA. So that's an improvement -- actual improvement of about, that is 30 basis points. And if you see the 30 basis points to 90 basis points has also reduced the INR 32 crores. You can see that 30 day past due, the overall improvement is about INR 40 crores, but out of which the 30 to 90 number has improved by INR 32 crores. So there is a 0.7 -- 70 basis points improvement.
So those are actually the real improvements in the delinquency. So -- and as you rightly said, yes property is there and now it's -- market is good to be -- we're able to resolve and sell off the properties and clear of the loans.
A couple of small points, Abhijit. So you refer to the point of ARC. So we have not been using any ARC to build a mechanism. The entire resolution is being done entirely by the company at a loan-by-loan basis, engaging with each customer. The second point that you mentioned on surfacing So our understanding is that surfacing cannot be used for [ gold back ] cases. So only if the customer is -- this whole classification of NPAs, only the financial purposes, if you go back to the 15 February circular RBI, it clearly says that for civil purposes, these customers will not be matters NPA. And hence, for this entire bunch of INR 44 crores of the rollback case, we cannot use our history.
So thank you, to both of you for this explanation. But from what I understood is, I mean, like you rightly said, I mean, surfacing cannot be used for gold back cases, because even that this NPA circular itself has been postponed to September, I guess they're technically not NPAs anymore. You can't technically tag them at NPAs for rule back basis.
Even from 1st October, there is a line in the circular which says that for clinic reporting the old rules continue. So even then you cannot import our on the roll back cases. Is the current understanding, we will see how the market evolves.
Got it. And this INR 10 crore increase that you have seen in your RBA NPA pool. In other words, those people who had rolled back are still less than 90 DPD on the rate of repute. This is to still suggest that, I mean, customer discipline would need to improve. There are still customers on the margin who are keeping into NPA, I mean, I'm talking about this -- there's still people who are looking into NPA and would kind of need better credit discipline or...
Yes. But more than slipping in, actually say, customers are slipping down. So now the customers are coming forward to make more payments than what is required to more than -- sorry, more than one payment per month much so that they can come back to 0. So we will see probably more movement into this it. Out of the real NPA and going into the lower bucket, this phenomenon will probably see for the next 3 to 6 months. And then gradually, these customers will come out of NPA fully.
Got it. Got it. And the last question was for Nutan, on the borrowing cost. So you did kind of earlier during the call said that a small proportion of our borings are record rate linked and I'm assuming the remaining will be all MCLR linked. So I mean, I guess, I mean, all of us really now kind of try to understand what could be the proportion of, I would say, Repo rates are hiked in this fiscal year. So I mean said that, what is your sense Nutan right now? I mean, if there has been a 40 bps kind of a repo rate hike, what could be the quantum of the boring port increase that you could see against 40 bps kind of a reported side.
So against the 40 basis points in the next 2 quarters, I would think about 50% will pass on once the MCLR, et cetera increases, and the gold flow is done, but that will be gradual. This is not the only increase that we will see this year. There will be more increases. What we are really gearing forward towards is an overall increase of 50 to 70 basis points and then how do we build growth and business around it. So that's really the focus area for this year also Abhijit.
Great. And I think, I mean, you're still kind of shooting for this 30% kind of a medium growth. I asked you this because, I mean, when I asked about this co-lending partnerships that we have, and I'm assuming you're already working on some other co-lending partnerships -- so even in the phase of, I mean, co-lending arrangements kind of leading to higher disbursements in the future and approving to your regional growth, we're still thinking that will lead to about a 30% kind of a growth in medium.
Right, Abhijit, see if you look at our disbursal run rate, it is already INR 200 crores plus, right? So if you just extrapolate that and just add up maybe a slight growth towards the second half, we should be able to get to the 30% growth levels.
The next question is from the line of Rahul Maheshwary from Ambit Asset Management.
Just one question, Manoj, can you give some highlight on the connector, which is acting as a sourcing for hope the finance, I think the run rate currently? And how we are diversifying the further sourcing channel for Home First, just to grow in line of 30% AUM growth and the branch expansion which you told at the opening remark.
Yes. So connectors, currently, the number of active connectors per quarter is in the region of about 1,500 connectors. So the run rate typically, I mean, the increase to increase to that number will be about 100 to 200 per quarter. And we also finally also work on the productivity of the connector. So currently, they are able to generate probably say 2 loans a month. So we try to push that number also up to maybe 3, et cetera. So on both these things, there's a lot of work going on. We have made the connector app or more easy to use. We have built customer notifications in the app, et cetera. So that's -- it's an ongoing work to engage and keep the customer connectors more engaged. As far as alternative channels are concerned, we have direct marketing, which is done by the branch, which had taken a bit of a back seat during COVID, because we could not do any activities.
That is now coming back. So last quarter, we saw that number going up, customers coming through direct marketing by the branch. We are also seeing some progress. This year, we anticipate progress on the digital and alliance channels, which have been at 33% kind of markup over the last few quarters. We anticipate again a movement over there because now things -- I mean, again, it was slightly hampered because of COVID and the ability to -- and people working for so on and so forth. But now things, everything being back to normal, we anticipate movement -- upward movement in those channels as well. Overall, we would say we are comfortable with the 70-30 kind of ratio at the moment, 70% coming through connecters and 30% through the other channels. And we are working on increasing the productivity of all the channels.
Manoj, that's quite helpful. But also, can you say a market-specific that where there -- where there is a stiff component of intensity for an example, in markets like Vadodara where Home First Finance gets the lead in terms of ranking, whether it's third or fourth when the overall DSAs are giving the leads to the respective players in the ticket size where the respective company wants to grow. So can you give some flavor that how different regions are giving and whether you're ramping in terms of preference for respective DSA has been improving quarter or year-by-year?
See, again, we are -- our approach is a little different. Our approach is to ensure that in our segment, we are preferred option. So where customers have informal incomes or they are facing some other issues in some of the challenges in getting a loan from a larger lender. So we should be the first -- we should be the preferred option for the connector to pass the lead to us. So that's really been our approach, and we've been fairly successful. I would not be able to tell you specifically mean the location that you pointed out, Baroda's a very, very competitive rate sensitive market with a lot of formal segment customers. So I mean, difficult to make a location-specific comment. But generally, our approach is that in affordable segment, we should be the preferred option for the connector.
And we have enough reasons for enough reasons to prefer us, because we are very easy to deal with everything can be done through the connected app. They get their -- they can keep track of their status. So lots of benefits will be connected as well as the customer. So for them to push our product.
And just a second question, Manoj, there are few customers in your overall pool that they are a salary person also. And at the same time, they are running their as an self-employed customers. A mix of pool because in rural areas, we find those areas already center?
Yes. These are -- I mean, so these are characteristics of affordable housing customers, right? So -- and if they go with this kind of profile to a larger lender, they would probably get decline, because they would not understand that somebody could be working. So there are many, many customers, for example, who work in factories and on weekends, they do work want to sell some [indiscernible]. And that's a real income, but banks and larger lenders won't recognize that. And that's really where we come in. And we understand these customers better, and we are a preferred option for these customers.
Then where you categorize those customer, Manoj?
It will be the predominant income, whichever is the predominant income. So if the customer has a former salary customer, we would categorize them as salaried customer. So our categorization is based on the behavior -- and behavior and predominant income. So if a customer is formal salary, which is really getting a salary grade in the bank, then the barrier is typically like a salary customer. So we categorize them as salaried customers.
Okay. Okay. And the last, any specific credit cost guidance you would like to highlight? Though your every ratio is now back to near to pre-COVID, 1 DPD and et cetera, but any specific thing that you want to comment?
Yes. So think credit cost guidance that we had given for a pre-COVID level is around 30 to 50 basis points. So that's what we are comfortable for the coming year.
Next question is from the line of Pooja Ahuja from Monarch Networth Capital Limited.
Congratulations on a great set of numbers this quarter. So firstly, I wanted to understand how much is the quantum of restructured book as of March?
INR 28 crores.
INR 28 crores at 65 basis points of the overall growth.
Okay. And have we seen any specifics from this group during this quarter?
Yes, slippages are being here. So overall, the slippages are -- the real NPA slippage is around 20%.
Okay.
And there is another standard of 5%, 10%, which is in the DIP reclassification.
Okay. All right. Right. And sir, are we holding any excess liquidity number for March or have we completely run down?
We are holding around INR 650 crores of cash and investments. We will not run down totally. This is our optimal level that we will want to operate at. So we will want to hold about 2 months of liquidity at any given point of time on the balance sheet.
Okay. But as per the regulatory requirement, how much would be the excess? What would be the LCR?
LCR is at 125% and the requirement is 30%. So we are very comfortable on liquidity from all aspects.
Okay. Sure. Yes. That's it from my side.
Next question is from the line of Karthik Chellappa from Buena Vista Fund Management.
I just have 2 questions. The first one is of the disbursements that we did this year, which is roughly, let's say, about INR 2,000 odd crores, would you be able to share what is the 1 DPD ratio of that book?
We have to go back to you.
We have to get back on [ how to answer ] this question. It will be a very small number.
Okay. Okay. Not a problem. The second question is, if I look at the difference between the check bounce rate and the 1 DPD, which is roughly around 9%, that would essentially signify, the customers whose cheques are bounced, but they have regularized it to not have any due by the end of the reporting period, correct?
Correct. That's it.
Okay. That difference of 9%, if I were to compare it with pre-COVID levels, which is, let's say, the fourth quarter of FY '20 or so, there, it was about 6-odd percent, which means despite most of the asset quality parameters inching towards pre-COVID levels, the difference is still sizable relative to pre-COVID. What do you think explains this?
I think some amount of behavioral changes or disturbance, which has been caused by COVID. So it actually takes time to bring customers to a very disciplined behavior of clearing the payment on the same date they're supposed to clear. But that got completely disturbed because of 6 months of moratorium and then after that second wave and so on. So I guess, we are basically talking about 3% or 3%, 4% of customers who have -- whose behavior has kind of changed. It's become a bit casual, because they feel that, okay, maybe there's no penalty. We can just pay it later. So that is one reason.
And another reason which is also there is, because now there are so many digital modes of payment, UPI, et cetera, where they can link other banks. So I guess customers are a little more easy in terms of the payment. Because earlier they knew in the slip and somebody is going to come and collect cash from them or somebody is going to come and knock on their doors. Now they are a little bit more easy because they know that, okay, they just missed the payment, okay, just it's going to take maybe 5 seconds to link another bank and make the payment to another bank. So I think that also is a contributor to about 2%, 3% because we are seeing a lot of customers actually about 3% to 5% of customers who pay immediately after the bonds on state. This makes no sense at all, because if they had an intention of billing, they should probably pay after a few days.
But both is the presentation date, they bounce on cost, and then we will be on 6th or 7th or 8th through their -- through UPI or some other electronic methods. So I think some change in behavior that has taken place through COVID, which is contributing to this.
Which means the 14%, 15% cheque bounce rate, which we see right now relative to a pre-COVID of 10% to 11%, at least behaviorally, we should expect this gap to sustain at least for the next few quarters until they become little more disciplined. Is that how we should infer it?
Yes, require some effort from our side as well. We'll have to, I mean, and we have started that. We have started understanding why customers are paying 2, 3 days after bouncing the payment. And is it because we have, they have this funds coming into some other accounts. So should we change the account for the APIs and so on. So all of those kind of repair work is going on, which will help in getting the numbers back to the pre-COVID level.
Got it. This is very clear, Manoj. That's all from my side.
And we'll get to you on the -- once this comes from the [indiscernible].
Yes, sure. Not a problem.
Next question is from line of Shreepal Doshi from Equirus Capital.
Sir, just a follow-up on our strategy where we are looking at entering more into the results side than the geography. So then how -- what will be the operational changes that we will be making because we've been hiring [ NDA ] graduals and we got team based done. So then I mean we want to attract such talent. So in the Mumbai job opening, I mean, what would be the strategy for that -- for going ahead into this segment.
So in terms of hiring, et cetera, it's not very different. So as I mentioned -- so last year, I mean, the previous year, we added about 100 small locations. And we are still hiring similar people that we were hiring in the past and training them and getting them to operate in these markets. And now because of all of this digital penetration and all of these towns developing, there is not that much reluctance that we are seeing of people wanting to work in these places. There are a lot of people coming from these smaller towns who want to work there in their hometowns or in these small places. So we don't see any difficulty there.
And in terms of operations, again, because of the digital connectivity, we are not -- I mean it's not that we have to start or do something different in these places. We are able to provide service from the nearest large branch. We can video counsel the customer from our nearest branch. So even in terms of operations, I know this question has come up a couple of times even in this call, that are we doing anything different for penetration into smaller towns? It's not nothing significant as I would say, the answer to that question. Because of the digital connectivity, it's fairly similar to how we have been operating in the past.
Sir, it was more like from the talent pool side perspective, because that's been the challenge for the peers operating in the rural geography, especially very well and is required for the customer. So from that point of view.
Yes. But again, like I said, we are not operating in such a very small rural markets where it's difficult for us to get people to go out the profile of the people that go there in those markets is different. We are operating in fairly large towns. I mean, Tier 2, Tier 3 towns, where the profile of employees is similar to the larger networks.
The next question is from the line of Jigar Jani from Edelweiss Broking Limited.
Congratulations on a great set of numbers. Just a couple of questions. Would it be possible to give a split of either the quarter or for the full year? How much of the disbursement should be coming from the top 5 states and how much from the newer states that you have entered into?
Yes, we can give you that. So top 5 states for us are basically Gujarat, Maharashtra, Tamil Nadu, Andhra -- Andhra, Telangana, we can take it together and Karnataka, these are the top 5 states. And I can give you, what this number, which is, just give me one minute -- so about 70%, 70% to 75% would be coming from the top 5 states.
300 as such.
Okay. And this mix is likely to remain or this will shift this year and you will see this newer geographies contributing more because these are fresher branches and will grow at a part?
I think the next is likely to remain with a slight variation of 5% or so, because we are progressing in all of these places. So the mix is likely to be the same.
Sure. And just on the follow-up on the below NPA pool of INR 44 crores. So like Nutan had mentioned that you can't initiate surfacing on these accounts. And probably these accounts will have 2 or 3 EMIs, set of 2 EMIs that is pending. So will this be a sticky NPA eventually because it will be difficult for these people to make these payments or by when do you see this amount substantially go down? Will it be 2 quarters, 3 quarters that this amount will slow down, because we have seen an addition actually Q-on-Q basis in this amount. Just your thoughts on that.
I think it will -- so there will be both events that take place. So one is some of the customers from this INR 57 crores, which is a real NPA will start also making more payments and coming into this lower buckets. And some of the lower bucket customers will get fully resolved. So I think this phenomenon will keep happening, I think, for 6 to 9 months, I would say, because the pool still start reducing. So it's going to take some time, because customers don't have the capability to pay one entire extra installment in a month. They will generally pay 25% or 50% of the installment. So it will take them just to make a [indiscernible], it will take them to 3 months. So they have 3 installments pending, it will go and take them 9 months.
Yes. So that's what I was coming to, because you can't initiate surfacing eventually, it will be the customer is likely to...
From a customer's perspective or a customer's readiness perspective, it is not the right thing to do because these customers are actually trying hard to come out of delinquency and come back to 0. So it does not make sense to take a hard legal action on them. So we will not handle these customers where as long as it takes 6, 9 months or 12 months to get them back to 0.
As there are no further questions, I would now like to hand the conference over to Mr. Manoj Vishwanathan for closing comments.
Just a moment before we close. So just to respond on CapEx question on 1 DBD for the newly originated book. Karthik, 0.7% 1 DBD for loans originated in FY '22. So I'll hand over to Manoj now.
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, get in touch with [ one air ] department, or you should get [indiscernible] Capital, our external Investor Relations adviser. And thank you so much for this call.
Thank you very much. On behalf of Home First Finance Company India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.
Thank you.