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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 '23 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr.Ă‚Â Manish Kayal, Head, Investor Relations at Home First Finance. Thank you, and over to you, Mr.Ă‚Â Manish Kayal.
Thank you, Renju. Good afternoon, everyone. I hope that all of you and your families are safe and healthy. I am Manish Kayal and I look after the Investor Relations of Home First Finance. I extend a very warm welcome to all participants on our Q4 and full-year FY '20 financial results conference. As usual, Home First management is represented by MD and CEO, Mr. Manoj Viswanathan; and CFO, Ms. Nutan Patwari. I hope everybody had an opportunity to go through our investor deck and press release, which was uploaded on stock exchanges and on our website yesterday. We will start this call with an opening remark by Manoj and then Nutan, and then we will have a Q&A session. With this introduction, I hand over the call to Manoj. Over to you Manoj.
Thank you, Manish. Good afternoon, everyone. I'm pleased to share that Home First has reached several notable milestones in FY '23. We now take pride in having served one large customer since inception with [indescernible] housing loans disbursed in excess of INR 10,000 crores. Physical branch office distribution has crossed 100 branches. It stands at 111 branches as of 31st March 2023. And they have disbursed more than INR 3,000 crores in this financial year, demonstrating a growth of 48.4% over the previous year. This year saw the entry of International Finance Corporation, a member of the World Bank Group as a lending partner to the company with the issue of NCDs aggregating to INR 280 crores. We also received our first ESG rating score under lower risk category from earning starts estimates. Declaring our maiden annual dividend of INR 2.6 per share, which is 13% dividend payout. Moving on to FY '23 financial performance. The profit after tax at INR 228 crores, was a growth of 31.1% on a year-on-year basis, over INR 174 crores in the previous year. This translates to a return on assets of 3.9%, an increase of 30 basis points compared to last year. As a result, ROE improved sharply from -- by 170 basis points to 13.5% in FY '23, over 11.8% in FY '22. In quarter 4 FY '23, the company delivered an ROE of 14.4% versus 12.5% in quarter FY '22. Strong financial results were achieved on the back of good disposal momentum, AUM growth, portfolio quality, a prudent management of cash and operating costs. The AUM is at INR 7,198 crores, and it grew by 33.8% on a year-on-year basis. Disposal momentum continued into quarter 4, we increased with a disposal of INR 869 crores, which is a growth of 35.6% over quarter 4 FY '22. The portfolio health remains strong with further improvement. Bounce rates have improved to 13.6% in quarter 4 from 14.9% in quarter 3. The 1 plus DPD improved to 4% from 4.4% in quarter 3, and it has dropped below the March 2020 pre-COVID levels. 30-plus DPD improved to 2.7% from 3% in quarter 3. Gross Stage 3 GNPA for the latest RPI guidelines improved by 20 basis points to 1.6% in quarter 4 from 1.8% in quarter 3. This includes INR 421 million, which is currently in buckets less than 90, but they are still improved in NPA due to the asset classification loans as per RPI notification dated 12 November 2021. Prior to such classification, it is 0.9%, and it stands below March 20 levels. We will now focus on some of the key drivers and metrics of the business and outlook for the current year. Coming to technology. During quarter 4 FY '23, digital adoption has further improved. Usage of the customer after various activities has increased. 93% of our customers are registered on the app as of March 23 compared to 91% in December 22. Unique user organs have increased to 57% in quarter 4 from 55% in quarter 3. 91% of our service requests were raised on a compared to 89% in quarter 3. We continue to invest in technology, and we have a number of projects lined up for the year that will enable us to widen our moat in origination, underwriting and collections. Coming to distribution, we added 9 branches in quarter 4 and a total of 31 branches in the entire year. We now have 111 physical branches, 65 touch points we added this year, taking the total to 265%. Our FY '20 disbursements in our core segment of INR 5 to INR 25 lakhs ticket sizes are diversified with top 50 districts of the country, of the industry contributing to 72% of our business. The next 50 districts of the industry contributed 15% of our disposals and the balance 13% comes from districts, which are beyond the top 100 tics of the industry. For reference, the top 100 districts of the industry contributed 62% of the disbursals in the 25 ticket size segment for the overall industry. We continue to focus our expansion in the state of Gujarat, Maharashtra, AP, Telangana, Karnataka and Tamil Nadu, supplemented by gradual and contiguous expansion in other states where we are present. Expansion will stand Tier 1, 2 and 3 levels of terms. We are targeting to reach 400 touch points from March 2025. We are targeting an AUM growth of 30% plus for FY '24 to be to enable us to cross the INR 10,000 crores mark in March in the next 12 to 18 months. We have a 3-pronged approach to growth, centered on expanding distribution, increasing market share and expanding the addressable market to coal index.Talking about margins, FY '23 full year sales stood at 5.7%. This is an improvement from 5.6% of last year. Quarter 4 FY '23 spreads were at 5.5%. It declined by 10 basis points on a year-on-year basis. We have increased our rates now by 50 basis points from April 1 onwards, and an overall increase of 125 basis has been given to customers since July 2022, and stabilized this will see the spreads going forward. We are confident of maintaining spreads of 5.25% on our loan book in the medium term. Coming to asset quality, it is at 3 corporate levels, and we intend to maintain this with the buyers towards gradual improvement. Our strategy is to achieve this by strengthening our data-driven risk models and filters. The stability in input parameters post-covid will enable us to accomplish this. Coming to people, we are always focused on building a high-quality team that is capable of high productivity. We are invested in creating a capital recruitment program with the Connected 200-plus engineering colleges and business schools across the country.Pressures are equipped with the right knowledge and skills through a warning or continuous training and testing process that will make some productive entry-level employees. A majority of our branch managers and cluster managers are selected from amongst existing employees, and they are trained on specific skills for the next code. [Indiscernible] have planned for new initiatives to further strengthen our hiring and training programs. With this, I would now like to hand over the call to Nuta to take you through the financials. Sir, over to you.
Good afternoon all. I will take you through our performance in Q4 FY '23. I would like to start by mentioning that now we have crossed 14% ROE and reported quarter 4 ROE of 14.4%. Our Q4 net interest margin was robust at 6.1%. For full year, it stands at 6.4%, increased from 5.4% last year under utilization of balance sheet and PLR increase of 75 basis points we have taken until March 23. I would also like to convey that we've taken another round of hike of 50 basis points from 1st April 23. Net interest income has gone up by 44.6% in FY '22 on a Y-o-Y basis. For the quarter, it increased by 30.6% on a Y-o-Y basis INR crores. With a direct assignment of INR 81 crores during the quarter as a liquidity strategy, approximately INR 289 crores for FY '23. We continue to have a robust demand for our portfolio. We executed co-lending transaction of INR 35 crores in Q4 and 89% growth in FY '23. Co-leading business is growing and expect this to contribute around 10% of business in the near future. OpEx to asset stands at 2.9% for the quarter and 3% for FY '23.Ă‚Â 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 34.4% in Q4, a decline of 130 basis points on a Y-o-Y basis. For FY '23, it stands at 35.7% versus 34% in FY '22. Q4 FY '23 profit before provision stands at INR 91 crores, a growth of 11.3% on Q2 basis and 38% on Y-o-Y basis. For full year, this is INR 317 growth of 26% from INR 251 crores in FY '22. Credit cost in Q4 is at 0.4% or 40 basis points and is well within our guided range of 30 to 50 basis points. Our retail provision stands at 1% of the total principal outstanding. We continue to be conservative with the provisions. Total provision coverage ratio stands at 59.5%. Prior to NPA reclassification as per ad Circular, provision coverage ratio stands at 10.8%. Our adjusted PAT for Q4 is INR 64 crores, a growth of 9% on a Q-o-Q basis and 32.9% on a Y-o-Y basis. For full year FY '23 adjusted budget INR 228 crores, increase of 31% over FY '22 INR 174 crores.Ă‚Â Moving to liquidity and borrowings. We continue to have diversified and cost-effective long-term financing sources. During the quarter, we added South Korea Shinhan Bank and Indian Bank as a new banking partners, and we continue to work towards further diversification. We continue to have a healthy borrowing mix with 58% from borrowings from banks, 15% from NHB refinance, and 19% from direct assignment. We continue to have vigor borrowing through commercial paper. Our cost of borrowing is competitive at 7.9% despite not growing NIR 600 crores in FY '23, which we have done in April 23. 7.9% represents an increase of 70 basis points on a year-on-year basis. We pushed forward drawing the NHB funds in April 23 as we have sufficient liquidity through our lenders and we fund in April 23 will help us manage our cost of borrowing whether in FY '24. Moving to capital. Our total capital efficacy is 49.4% and Tier 1 is 4.9%. Our March military network is at INR 1,817 crores vis-a-vis INR 1,574 as of March 22. Our quarter 4 ROE is at 3.9%. Our annualized ROE stands at 13.5% and quarter 4 is at 14.4%. Our book value per share is INR 206.5 per share, and we declared a first-ever dividend of 2.6% by INR 2.6 per share. With this, I open the floor for questions and answers.
Thank you. [Operator Instructions]Ă‚Â The first question comes from the line of Mona Khetan from Dolat Capital.
So firstly, what's the percentage of AUM? Or has there been any decrease in EMI after exhausting the tender in fees of...
Sorry, what percentage of AUM has?
For what percentage of AUM, have you seen an increase in EMI so far after having exhausted the tenor increase? Yes.
Yes. So we are looking at in terms of number of customers. So about 2% of our customers have undergone an increase of more than INR 1,000 and another 3% is between INR 500, INR 1,000. The balance would be either lower than earlier or lesser than INR 500.
Okay. I miss some part of the answer customer team [Technical Dificulty]
I'll repeat. So 5% of the customers have a increase of more than INR 500 of which 2% have an increase of more than INR 1,000.
Okay. So the only 5% of the customer impact [Technical Difficulty].Yes. Yes, a significant number. I mean, there are about another 20% who have an increase between INR 30 to INR 500, but a significant increase is only 5% of the customers.
Next question comes from the line of Rahul Maheshwari from Abbott Asset Management.
Yes, Nathan and Manoj, excellent set of numbers. First of all, also the disclosures regarding the ESG and all, et cetera, very fantastic. My 2 questions in the previous commentary last quarter, you had said in southern markets, the ATS is getting stable at least in the tire and tire 3 cities. And in northern markets, the ATS has witnessed reduction. How -- can you give some brief color that what has happened in quarter 4? And what are the insights you're getting at the start of this financial year?
I think what I was referring to was that in northern markets, the ticket sizes are lower than southern markets. In southern markets, the house -- the size of the houses and also the material uses, et cetera, more extensive, so the ticket sales tend to be a little higher. So the same trend continues. We are seeing the same trend even in this year or this quarter as well. The ticket tin in the southern markets are slightly marginally higher than what we're seing in Northern markets.
And on your slide, if we go in where you have given some detailed information on the tech interventions which you have raised on cases, you have developed a lead management system. Can you give some more numerical quantitative details that how it will be helping and in terms of the throughput, how the trajectory would be seeing going ahead? And second thing, how much leads you are getting on a monthly basis? And what is the rejection rate?
Lead management system, just to streamline the processing of leads. I mean we already -- we are already using Salesforce platform to attack our loans. So we just thought the lead management system will act as a central database for all leads which are coming through, and we don't have to run all those leads through our telco system. So that is the reason for we're building this lead management system plus it also has integrations with things like SMS, WhatsApp, et cetera. So it kind of makes it easier to interact with the customers. So in case we have to provide certain answer queries, et cetera. So there are multiple features in it. It helps to route the cases to the right person, right color, access the central report that you can pull various details like extra directly from that. So there are many features which help us to improve the productivity. That's as well as the lead management system in confront. And as far so -- it depends on the channels. Overall, we -- our conversion rate is about 50% -- 40% to 50%. So if we are booking about 3,000 to 4,000 loans in a month and a number of leads will be about double of that. But in certain channels, there are a very large number of leads coming through like in digital channels. So I'm not considering that as far as this ratio is concerned.
Just -- It is related to this, when we were supposed to 6,000 to 8,000 leads, which you are getting and of that, only 50% is converted, how much fees you are charging at the beginning for those cases also in case if they are not converted?
Rahul, the leads which get declined straight away based on initial parameters. We don't really charge any fees. We don't charge any fees. If the loan looks feasible. I mean the relationship manager on the ground feel as the loan is feasible to go through, which satisfies some of the basic criteria, then we charge a log-in fee, which is about INR 3,000.
Next question comes from the line of Renish from ICICI.
Congratulations on the set of numbers. So just one question is on the spread. Okay. So in PPT, we have mentioned that our incremental spread is sort of pretty low at 4.7%. So just one thing, is that after considering this 50 basis point rate hike?
No, that is for the prior quarter origination.
Okay. Okay. And secondly, which is sort of linked to this only. So in the opening remarks, we did mention about maintaining spread at around 5.25%. But when we look at the incremental spread at 4.7%, how confident we are that we'll be able to sort of meet this 5.25 spread in coming quarters?
So let me just start on this. So 13.4% is our yield for Q4, and we have taken a 50 basis point yield increase in April 23. So we expect that with this increase in yield, the Q1 yield will close around 13.7% to 13.8%. That is almost 30 to 40 basis points higher than the reported quarter, which is Q4. Now on the cost of borrowing line because we have drawn down NHB in Q1 and also we are able to maintain a similar marginal cost of borrowing. So we expect that the cost of borrowing will be around the same range or at least not more than 10 basis points higher. So essentially, 5.5% spread could tactically expand for a very short period in quarter 1 and quarter 2, when the cost of borrowing moves up to 80. So 20 is a cost -- the cost of borrowing that we are projecting, it can go back again to 55, 60 levels. So that is how we are projecting this. So we are very comfortable with the watermark that we have set out for ourselves, which is 525. So that's the next 2 quarter projection on the spread that we have internally. Now we also have to monitor how the IBI Report progresses in June and August and then decide if you want to do any further changes.
Okay. So just a clarification, then so, when we do the rate hike, what percentage of our AUM gets replaced, let's say, in a month or quarter?
So essentially, for example, for April 23 rate hike, all customers who were on the -- in the AUM on 31st January will get repriced with the exception of NSV funds.
Got it. So basically, it's a 3-month period kind of a thing?
2 months, you can say.
2 months, so basically. Okay. Okay. And secondly, on the assessment run rate. So this quarter, of course, we have seen the improvement. So what kind of sequential growth we are expecting, given we have added people and branches in this quarter. So maybe first half, what sort of business meant growth rate we assume?
So we have always maintained about a 5% to 10% kind of a growth on previous quarter. So we intend to maintain that kind of number.
Next question comes from the line of Mayank Agarwal from InCred Capital.
My first question is on OpEx. So we witnessed a 7% Q-o-Q growth on OpEx, while there was no branch addition this quarter. So is it -- this is because of the increased disbursement or we might see an increased number of branches next quarter? So that OpEx was upfronted. And my second question is on margins again. So basically, your current forecast is factoring the rate power are still factoring the rate hike or rate reduction in this fiscal for the -- what you guided for a 5% spread?
So on the first operating cost, we've actually added 8 branches in Q4. So 9 branches in Q4, and that is also mentioned in our presentation. So that is where the operating cost increase is coming from. The second question on margins, it assumes that there is no rate change by RBI either upwards or downwards. We will have to watch how it progresses in June and then take further action.
Okay. And secondly, are you witnessing any kind of increase in competition from a small regional players or anything -- is it higher than what you have seen within a year ago? Any color on that?
No, nothing significant or no significant change. I mean competition has always been there in the segment. So no significant change as much.
And my last question is on DA income this quarter. It was higher just because you've led more segments or anything specific there?
No, just see volume. And we've also given the volume trends. Largely, we have mentioned that we will speak around this INR 100 crores plus minus INR 20 crores, and that's where we have landed presenting the volume only.
Thank you. Next question comes from the line of Chandra from Fidelity.
I had a few questions. Manoj, maybe you can just help me tell us what is so why you've given the number in terms of rupees increase, what is the percentage increase in the MI for these customers? One, and second is, what does this mean to the fire at this point in time versus origination? What's been the change in fire if you've done some work around that?
Yes. The percentage increase -- so if you take INR 500, so we have basically looked at 2 buckets, 100,000, 1000s increase would be like a 5% increase in the magenta because average MI is about INR 10,000. And so INR 1,000 would be about 10%. So 5% to 10% maximum 15% would be the kind of MI increase, which is therefore that 5% of the customers. And again, we can average or is about 40%. So on 40%, the -- I mean, if you were to look at it, say INR 25,000 or INR 25,000, that would be 25% 2.5% to 5% change in the prior year.
Right. Secondly, I mean, you always said that once you cross that 14% that you will start -- you eventually start moving to a different target segment of customers? I mean those which you may not necessarily want to do business given that sort of your incremental lending gains are at 14 and you want to -- you would be sort of disbursing it. At these rates, does the customer profile start changing in any material way?
Yes. So which is why you kept the incremental lending rate at about 13%, 13% and 13.5%. If you see even for the current quarter, resonation rate is 13.5%. So we are always trying to keep it below the 14% because 14%, we feel there is an ecological threshold and the movement to a different segment. So we agented shutting between 13% and 14%. And if we have to reprice if we reprice it after a couple of -- after a quarter or so because then it just gets passed on as an increase and not as a human increase.
Right. So could you just tell me maybe what's then the origination yield on HL and LAP at this time? I mean after the rate hike, which is taken.
So would be about -- the blended rate is about 13.5%, and LAP would be giving us about 30 basis points to 13.2% for itself?
So even after the April increase your originating at 13.2%.
No, this is before the increases at the origination inordinate.
Right, right. Okay. So even at origination for your new customers, you'll be originating a cycle lower acetic rate increase date?
Exactly, exactly correct. Ă‚Â Time of origination, we are keeping it below 14%. And then we increase it after maybe a couple of quarters. required.
Right, right. And this quarter, the repayment get was a little clear. Is it just the CLF subsidy? Or is there anything else to be ready to...?
Yes, there was a big abidance which came in this quarter. So which is almost, I think, 8% of the -- 8% of the evolution portfolio ratio.
Right, right. And then just lastly, I don't know when do we come up for us next rating with you. I mean, obviously, you just had an upgrade win back but trying to see that, is it like in a year or a couple of years? How do we just think about that? And just within the context right now, currently, could you just help us with what you leverage caps, which you have to be which sort of inform you are working with?
So Chandra, on the rating improvement, essentially, it's now an outcome of scale, subject to we're maintaining good asset quality like we have been diversification in terms of market, also improvement in profitability, everything else remaining the same. It is a function of scale. So let's say, once we cross INR 10,000 crores, let's say, in the next 15 months, 12 to 15 months and, let's say, 3 to 6 months from then. So give or take about 18 months road timeline is what we think it should take for the next rating upgrade. Now coming to your second question on leverage, we are actually at 3.6% as we speak. Now this is really -- if you look at from a debt to equity, it's around 2.6%. So not significant leverage and capital adequacy is also high, and we get a 35% risk weight benefit. In our conversations with rating agencies, they are comfortable with the debt to equity of almost 5x. Now we've also been talking about INR 100 crores of assignment every quarter. We've also been talking about co-lending of on disbursement. So this really allows us to look at a very different AUM from, let's say, 5 years before where some of these products couldn't be scaled the way they can today. So the AUM context should be very different, but your asset to equity could still operate at let's say, 5.5, 6x in the next 18 cycles. So some of these questions haven't bothered us and we are remaining focused on growth per se. And we think that will happen in the next 15, 18 months once we cross INR 10,000 crores.
Thank you. Next question comes from the line of Kunal Shah from Citigroup.
So firstly, sorry, taking up on the -- taking forward Chandra's question. In terms of this CLSS subsidy, I didn't get the number. It was 8% of AM. What was the absolute quantum, if you can highlight?
Yes. So INR 138 crores is the absolute amount of CS subsidy that price in Q4 in FY '23 reached to INR 66 crores. And with this, the good news is that we see everything or no more deals on this particular line. If you look at it in percentage terms, our total asset runoff was 25%. 8% out of this would continue to sales. And...
Been annualized erosion rate we have calculated...
Yes, yes, yes. So out of INR 42-odd crores, INR 138 crores is this, and then there is BT out of 1.5 annualized.?
Yes.
Okay, okay. And when we look at this entire BT outset, given that there is another further 50-odd bps kind of an increase which we have done from April. So any risk out there in terms of elevated BT out of this is more kind of a Q4 phenomena?
Yes, it is basically Q2 phenomenon. If you see last Q4 also was higher a little higher than the Q4 to see Q4 '22. So it's just a Q4 phenomenon.
Okay. So the hike would also not have too much of impact on this. And again, we should see it normalizing in the coming.
Yes, it doesn't seem to be because last Q4, I mean, rates were low and DPTs were also again high. So it's more of a quarter-end phenomenon looks like.
Sure. And then in terms of the branches, so again, full year, we did almost we added more than 30-odd branches, and you have been highlighting that maybe for another couple of years, should we see a similar kind of a run rate or maybe we have done some part of it and now it should slow?
No. I would say slow, maybe a similar kind of base, about 20 to 30 branches, 20-odd balances, we can say.
Okay. And overall, in terms of the disbursement, so again, after 18, 24 months or maybe 2 years down the line, because when we look at it, like, say, from '19 to '22, there have hardly been like 20-odd branches which were added and still there is a strong run rate of disbursements. So once this branches mature, almost like, say, 300-odd branches, which is again more than 35-odd percent. So then the disbursement should see a strong uptick once the maturity is there? And maybe at least this growth momentum can sustain?
Yes, yes. I mean we get disbursements from all the all categories of branches. So I mean, we will continue to put some new branches and the growth momentum is coming in from the larger branches as well.
Okay. Sure. And in terms of the OpEx, overall, when we look at the OpEx to expense ratio, it should stabilize. We are not seeing any maybe 3-odd percent levels which are there. Obviously, from 2.7%, it has gone up to 3% for the full fiscal with the 30-odd branch expansion. So I think broadly would be able to sustain this kind of...
By around this level. We had said when it was at 2.5 to 17 we said, it will go up to 3%, 3.2%. So that is what we are maintaining. Maybe for some more time, it will be a stay at these kind of levels and before it starts coming down.
Sure. And lastly, in terms of the ROE trajectory, so it's commendable that maybe 30, 50 bps kind of addition every quarter accretion, which is happening. But now incrementally, what would be the levers available, both in terms of the ROA and ROE?
So some of the levers is we have to really utilize the co-lending and Ball potential. So that is one of the aspects. We are looking closely at cedi costs as well. So some of those things are there, we can further optimize some of our cash utilization. So let's say, even if we are able to hold on the ROA at around 3.7%, 3.8% level. With the increased leverage, we are hopeful that we should be able to move towards 15% are we trajectory in the next 3 quarters?
Okay. So co-origination securitization? And secondly, you mentioned credit cost also any levers available?
So credit cost, Kunal, if you see, we are still carrying 1% of provision of ECL as a percentage of our principal outstanding. Now when the 30 DPD is 2.7%, sometimes we'll have to relook at it. So some of those areas, we will take a closer look and see if there is an opportunity. And the fourth area that I also mentioned was cash utilization.
Next question comes from the line of Ravi Naredi from Naredi Investments.
Thank you to give me this opportunity, one of really wonderful result. My question is in quarter 4, interest income rises 47%, while net profit rise only 7% and finance cost was 76%... [Technical Difficulty]Ă‚Â Quarter 4 interest income rise by 47%. Net profit rise by 7% and finance costs rise by 76%. So what are the reasons? This INR 224 million is the interest income against INR 139.
Sir, you were looking at quarter 4 versus quarter 4 last year.
Yes. Yes, quarter 4, last year.
Total income is INR 138.7 crores for this year versus INR 102 crores for the last year quarter 4. So that's a 35.3% increase in total income.
The finance cost rises don't then rent.
So that is the case. So if I may answer this question. The finance cost has gone up because there has been a lag in the increase in cost of borrowing. If you look at our last 4 quarters of cost of borrowing, though the report has increased by 250 basis points, our data is only by approximately 70 basis points. And there has been a very high degree of labs, we were able to maintain almost flat levels of cost of borrowing in Q1 and Q2 because they linked to Mcl borrowing. So there has been a lot of lag and the cost of volume increased only in Q3 and substantially in Q4. That is the reason why you are seeing a sharper increase in interest expense versus interest income. But when you look at it at the full-year level, the interest income has gone up by 43% and the interest expense has gone up by 41%. So we've performed better.
Or this other expenses also very high INR 175 million against INR 15 million.
So as we expand the businesses do more branches and more people, that is the reason. But sir, if you see the overall quality of returns, that has improved sharply on a quarter-on-quarter basis consistently.
Okay. And Mr. Manoj, can we assume the 30% CAGR growth is possible in next 2, 3 years?
Yes, sir, we are targeting AUM growth of about 30% over the next 2, 3 years.
Next question comes from the line of Sanket Chheda from DAM Capital.
Yes. So congrats on a good set of numbers. The second new standards as far as disclosures are concerned quite good disclosure. Particularly, my question was on OPEC as we have guided that we'll carry on with some investments in this year where in the OpEx should be around 3%, 3.2%. We have closed it at about 3%. And in last couple of quarters, the OpEx has been lower at about 2.8%, 2.9%. So how do we see this is now over the FY '24 25?
So Sanket, we still want to expand, let's say, from 265 touch funds to 400 odd in the next 2 years, which will essentially mean more branch locations, physical branch locations, more people, more travel and all of that. And as you know that there is a vintage by win by which the brand really starts to perform and productivity, et cetera, picks up. So basis all of that, we've done a bottom-up analysis, and we are projecting a 3% to 3.2% operating cost. So we have calibrated it to say that it is 1% to 30% plus growth. This level of operating cost is central today to be able to maintain this. So operating cost will be directly variable on a growth perspective. So this is something we have in mind.
Okay. Okay. And now that the stress has also normalized in terms of the credit cost, what run rate do we see in 24?
30 to 40 basis points. We don't need more than that.
Okay. Sure. I think those were the 2 patients strongly.
Thank you. Next question comes from the line of Raghav Garg from Ambit Capital.
Just a couple of questions. First one on the treasury income side. So I see that you've reported about EUR 95 million of treasury income this quarter. The run rate usually has been about $20 million, $22 million in last few quarters. When I look at that as a percentage of average assets, that's about 1.6% versus a run rate of about 1.1% in last several quarters. So can you explain what is the reason behind this bump up and whether this is sustainable or not?
Right. So Raghav, when you look at the overall treasury investment management, it essentially falls into 3 buckets. We look at liquid funds essentially overnight funds for the very short-term liquid funds, which carries no underlying risk. The second category is deposits with the consortium banks and we heard categories stable. Now depending on the underlying disbursal and operating cost plan, we choose between these 3 products, essentially depending on where we think we can maximize the returns even if it is 10 or 20 basis points. So in this quarter, it so happens that we faced more deposits and lesser liquid funds, which is why we you see a reduction in mutual fund in sale and an increase in the bank deposit in our fact sheet. Coming to your second part of the question on sustainability. At a very high level, this represents almost a 6.5% to 6.6% of yields on the funds placed across these 3 categories. So it will depend on 2 things: one, the rate operating with in the market; and secondly, volume. As far as volume is concerned, we don't expect to increase it by any meaningful number. So we want to keep approximately 2 months of re-purpose with cost and cash and cash equivalents on the balance sheet to optimize our cash holdings. So that we will continue to do. So we don't expect the overall treasury income to be changing meaningfully. It can change between the free category.
Right. So is this understanding correct that the run rate will not be as high or whether if we look at this -- the yield that you just mentioned around 5%, 6% versus around 1%, 1.5% that we've seen previously is not sustainable. Is that -- would that be fair to assume?
No. So it will really depend on where the report is. So so long as we report is 6.5%, there is no reason why this should change. We have not seen 1.5% early earlier, we have seen more in the range of 4% to 4.5%, which is similar to the record bank. So are a function of the repo rate at that point of time.
Understood. My second question is on your PLR hike. So if I do the math, July, you have taken about 25 basis points December again, another 50 basis points. Cumulatively, that's about basis points that you've taken in FY '23, but on your reported yields, the increase is only about 60 basis points. So can you explain whether -- to what extent have you been able to pass on the rate hike that you've taken in FY '23? And in light of that, how confident are you that this 50 basis points PLR hike that you've taken in April 2023? To what extent will you be able to pass that on in order to mitigate any margin compression?
So let me break down this for you. So when we take any rate hike, we look at various pools of AUM, and there is one significant chunk, which is your NHP School, which is a fixed rate pool and asset side as well as liability side where we do not increase. Now please also remember that this particular tool had similar or better spreads to us in itself. So there is no need to worry so much spread compression on that particular part of the pool. So that pool has been about INR 700 crores. More recently, it's increased to INR 900 crores. So when we take any rate hike, we have to exclude INR 900 crores out of our total rate hike pool. So when you look at the blended increase in the Eslin, the drop from 75 to 60 represents the fact that you've not taken any increase on the coal ate. So this is how is visible, but it does not impact the spread because it is fixed in nature on both sides.
Sure. I understand. This INR 700 crores that you're mentioning, this is as of March 2023, is that...
Yes.
Would be under affordable housing fund?
Yes, yes.
Right. Do you have any visibility or any sense whether the -- at NHB level, whether this AHF fund will be rolled over or whether it will get any new deposits in FY '24 or not?
So out of the INR 600 crores that we have drawn down in FY '24 in the month of April, we already have received 300 under this fund. This next application will happen in July because the NHB refinance year is July to June. So we will have to engage with the officials at that point of time and we would only have a better understanding perhaps in Q2 of this year.
Sure. And if at the system level, the AHF fund does not get rolled over in FY '24, would that mean that typically, if a company is lending under the HS, then without it, there would be some kind of pressure on margins for a typical housing finance company? Would that be correct to assume?
No, simply because it's a very small set of our book today. If you see, like I mentioned, INR 700 crores as of March out of INR 7,200 and we're able to manage the margin on the spread to the rest of the book. So nothing to -- nothing mentioned that there will be impact or anything of that front.
Next question comes from the line of Amit Ganatra from Invesco AMC.
A couple of questions. One is that I think at the beginning of the last year, so during first quarter con call, you had mentioned that spreads from 5.8% can come down to 5.25%. Now if you see the spreads have come down to 5.5%. But when they have touched 5.5%, your guidance seems to be that spread should remain stable. So any specific reason as to why this change in thought process when it comes to spread? So that's my first question, and I'll ask the second question later.
So Amit, maybe I can get started. So our guidance still remains at 5.25% on the lower end. What we are trying to say that the visibility for the next quarter seems to be stable on spreads.
Yes. And also, I guess, now, I mean, 1 year after that, sitting where we are today, the overall outlook on interest rates seems to be more that it will -- I mean, there may be a minor increase or to flatten out. So which is the reason for our slight change in stand.
Okay. And your -- on the borrowing side, I mean, your reported cost of borrowing is 7.9%, right? And what is the incremental right now, cost of power?
Around EUR 878 80, excluding NHB. Okay.
That was my other question that in terms of your borrowing mix, why is expect NHB as a percentage is continuously coming down?
So if you see March 22, we were at around 27%. And in the last 4 quarters, we did not run on any NHB, which we draw on in April 23. So when you look at Q1, that number will go back to 20-plus levels. So it's just a function of when we have drawn down the funds.
Okay. Okay. So during the course of the year, you did not draw down anything and that kept on coming down? And now once again, if you start if you're saying that in April you ran down automatically in the first quarter, it goes?
Yes.
So then if that happens, then that also helps in terms of overall cost of funds, right?
Absolutely. So that's why we are saying that our quarter 1 cost of fund will not go up. See if you remember, Amit, we've always said that there is a lot of lag in MCLR. So the increase actually started to happen in Q3. Q3, Q4, Q1 should be the maximum increase given the lag. So we've seen the increase in Q3, Q4, but because of NHP saying we should be able to hold it in Q1 and then see another 20, 30 basis points in Q2, and then that's a satin after that.
Okay. Okay. After that, okay, you're saying and then there should be a flaT?
Yes.
And cost, you are saying that you still will be in the investment mode.
Yes, we have to be right.
Okay. Okay. So more or less, from an ROA perspective, this year, the fact that you managed to protect ROE itself is decent, right? Because overall, there was this possibility that ROEs could have declined. I mean at the beginning of the year considering interest rates going up, that was this possible, but that has not happened. So now the important thing is that more or less, we should be able to maintain ROEs at these levels and as leverage should go up, which should drive ROEs, right? That should be the bus?
That is the case.
Next question comes from the line of Nidhesh Jain from Investec.
Firstly, on the disbursement, can you share the disbursement per branch on 3-year vintage branches, the branches which we opened 3 years back, what is the disbursement of branch on an annual basis for Finder from those angle?
3 years plus vintage generally will be about INR 3 crores plus. I mean we don't have the figure of the corporate right. But just bal lpark, it will be about INR 3 crores per branch.
Is that per month?
Per month, yes.
Sure,Ă‚Â and secondly, in the distribution in the origination, the share of connectors continues to go up. So the origination mix is becoming much more concentrated towards Connectors. So does it worry you or is it a stated strategy that correct us is the best segment to ornate loans?
No, the Connector group itself is a very diversified group, and the distribution of loans is also very diversified. So most of the connectors are only providing us 1 or 2 loans in a month. And they -- the Connectors are also from different categories. So these are not large large entities, which are giving us any concentrated business. So we are very comfortable with this channel. And if you look at the asset quality also, the Connected Group's asset quality is good or better than the overall average. So we are very comfortable with this channel.
And what will the count of active connectors for the quarter?
Active connectors for the quarter is about 220 -- 232.
Okay. There was significant increase quarter-on-quarter in exonerates quarter, I think last quarter, 200.
Correct, about 200 plus.
And lastly, on the operating cost. So when should we expect operating leverage to asset ratio to start improving FY '24, I think that we will still be in investment mode. But should we expect operating leverage to play out to 5 and that will also will be early to expect that?
I think from FY '25, some operating leverage should play out. So I mean, the objective is to bring the cost to income at least marginal lower.
Having said that, if you compare us with in the larger players we have coded housing industry or even the print industry. We are actually quite competitive when it comes through operating cost, whether you look at it in OpEx to AUM per loan or per iliofemoral which is where you slice it. So from that perspective, the focus right now is growth and of course, maintaining the right optimal levels, not overstressing about operating costs and compromising growth. So it's really a choice that we are making to focus on growth, maintained by asset quality and then also -- and not go over both on operating costs. We've been maintaining this 3% approximately, which is actually quite good.
Sure. Sure. And just last question on the LAP segment, which is witnessing reasonably strong growth and the share of LAP has now increased to almost 13%. And we have guided that long term, we want to keep the share of RAP around 5%. So if you can say what is the ticket size in LAP and the 15% limit still holds true for us?
Yes. was currently disbursing at about 15% rate. And so I guess maybe in a couple of quarters, the AUM will also catch up to that level. So at the moment, our stand is that we'll stay with 15%. We'll see the portfolio quality for maybe a few more quarters before we start taking a decision to take it further up. The ticket sales are generally in the same range as our regular housing loans, no major difference.
Next question comes from the line of Kartik Chellapa from Indus Capital Advisors.
So I have 3 questions. The first is, if you were to look at your 78,000 odd borrowers, how many them either anecdotal or so would you think have either experienced a drop in their income or possibly face the job loss? Various other things, it could be economic, it could be macro, but I'm just trying to see what percent of your customers based on the interactions that your field officers had with them would have experienced a drop in income, whether it is inflationary or macro or fall in demand or any.
So generally, I mean, so I would say on -- if you look at it on a steady-state basis, I mean, we keep reviewing our collection cases, which go into collection. Typically, about 15% to 20% of the cases, the reason comes as job loss from I'm talking about the collection, but the ones that slip into collections. And in most of the cases, the resolution is also that the customer has got another job. So now he will catch up on his 12s. So in job loss cases, we don't normally see a permanent delinquency. So this is all from our collection experience.
And the 15% to 20%, what was the pre-COVID has gone up in any significant math? Or is this more in line with [Indiscernible]
Ratios have actually come down to precut levels. I mean if you see your day past due, it's at 4%. So since the numbers have come back to precore levels, we are not seeing anything different from our peak over times and 30 come down to 2.7. So generally, the reasons are similar. I mean, job loss, temporary job loss and the customer will get back another job or is getting another job. The reasons are more -- I mean the problem is more permanent in case of medical problems, where there is a serious medical issue in the family, et cetera. But those are also -- I mean, the ratios are generally the same. I mean, we're not seeing any particular reason going up as such.
Got it. My question is, if you were to just look at our AUM mix by credit history, the new edit is now almost 20%. And if I'm right, it's probably one of the lowest among our previous, let's say, 2 to 3 years or so. Typically, what is the difference in the credit and customers with the credit score? And at what point of time do you think you'll be comfortable to increase this ratio.
This ratio is actually coming down because -- I mean, it's more of a market phenomenon where more and more customers are getting some form of credit and they end up getting us for -- so we are taking true to our segment, which is people who are building their first home between 20,000 to 50,000 income levels coming with some form of informal income, et cetera. So in that segment, more and more customers are getting credit, either a small personal loan or a consumer loan, et cetera. As a result of that, they're getting a score. So this number according to us is actually reducing secularly every quarter. So every -- every quarter, you're seeing a 1%, 2% kind of a drop in this number. So I mean it's just a question of time and maybe in the next 6 to 8 quarters at will vanish completely. I mean you may not find customers in our segment who don't have a credit bureau score. So that is really the way we are looking at it.
Okay. Okay. Interesting. And my last question is basically on channels. Now in the past, we've had this secondary channel which we're trying to develop the can -- and I think we have an office or heading that. But with the channel, excluding the connectors, even branches are actually down, and the strategic alliances have cost? What constraints are you actually facing and scaling up this channel, if any?
So it is a -- I mean it's a channel which has multiple process that need to be solved. And the partners are also working towards that we are also working towards it. The challenge is not getting leads. I think I've mentioned this in the past also that we get a very large number of leads through these channels. But interventions that the connector provides. The connector is actually filtering the leads to understand which customer is serious, which customer is eligible, et cetera. So there is some valuation being provided by the connector, which is absent in the other channels in the strategic alliance channels because there the leads come through without much filtration. So as a result of with conversion rates are grown. So we are working with the partners to see how to address this challenge. And at some point, there will be a good enough solution to it, and then the channel will start scaling up.
Okay. And what exactly is the difference between a connector or correct?
Sorry, connector and?
And the micro connector, you also have another Vietin called micro ICR. So [Technical Difficulty] has the difference.
Yes. So just a certain classification difference. Micro connectors are located near the branches. I mean they are like neighborhood shops. Whereas these connectors are more of people who are in the real estate segment or in the Financial Services segment. And they are in touch with touch with our kind of customers. So the neighborhood shops arrangement or relationship with neighbors call it as micro-connectors.
Next question comes from the line of Abhijit Tibrewal from Motilal.
First things first, I mean, have you already addressed why we choose to increase the provisioning cover in this quarter?
We've kept it at the similar levels compared to what we've been doing last 5 or 6 quarters now.
1%, we wanted to give it 1% of the overall book. So we have kept at that. we'll observe our delinquencies more over the next 4 quarters, then we'll take a call on whether to bring that down or not.
And secondly, looking the other income that we are seeing now, it's a fair thing to annualize it, right, for year-on-year.
Yes,Ă‚Â annualize it.
Then the other question that I had was on the branches. Some of the mature branches that we have today in terms of productivity, do you think that they are anywhere close to their peak capabilities in terms of the kind of AUM that they manage? Or do you think we still have basically capabilities in even our mature branches to further scale up?
So we are looking at, say, branches reaching at least INR 200 crores before we start thinking about them tapering off, so I think at the moment, we have only maybe 1 branch that is approaching that number. But we have a lot of branches in the 100 to 200 categories, so 100 to 150 categories. So they still have maybe at least a couple of years to go before they will -- I mean, we can start thinking about them. But I think every time a branch cost to process a certain threshold, we are able to discover new ways of making them more productive. So we are hoping that even under INR 200 crores barrier, we'll be able to kind of push it further.
Got it. Maybe one more question that I had was, again, I'm not trying to suggest that we should grow faster. As a matter of fact, I feel analysts or investors are happy if you continue to grow at maybe a 30% kind of a CAGR over the next few years. But just trying to understand, when you look at the demand, which is there in the affordable housing segment, when you look at some of your peers in the unlisted affordable housing segment and the rate at which you are growing. So is it that we are consistently kind of trying to maintain these levels of disbursements so that our asset quality is under control, we cherry-pick our customers, we are able to pick and choose which customers we want to lend to? Or -- I mean, basically, what I'm trying to read into is given that there is so much demand given that there is so much of disbursements that's happening even from some of the unlisted affordable players, are we making a conscious decision of keeping disbursements under check? Or how should we kind of read this?
Yes. To some extent, I mean we are focusing on a question of bandwidth. I mean if we put all our attention on disposals, maybe as we mentioned, we can grow more. But we are trying to just balance it because we also have to create an organization that will be able to handle a much larger book. And coming back to the question on branches, we have to start thinking what happens when a brand it's INR 150 crores or INR 200 crores. How do we make it more productive. So we are also spending time on answering some of those questions and getting the branches ready for that. So that occupies some time. And plus we are also -- I mean if you see our rate of interest is also as has been extremely gradual even though we are -- I mean, we are very little loan against property. Our blended yields are very strong. if you see compared to our peers. So that is also another area where we kind of focus. So we are trying to get the right kind of customers in this segment who are willing to pay that kind of rate. So that also is one of the parameters that we look at. So given all this, given that we want to create a strong foundation for strong brand structure, get the right kind of customer who will pay us a good yield. We feel comparable with the 30% kind of a growth rate.
One last question. So here, if we assume basically 2 scenarios that going forward, there are no more report hikes and assuming another 25 basis points equal. Under these scenarios, versus where we are in terms of cost of borrowings, where should be weak, if there are no report hikes and if there is a 25 basis point, when should the cost of borrowing stabilize? And against that, against these 2 scenarios in case there is a 25 basis point hike. What is the, I would say, increase in yields that you would have to take to maintain to meet that guidance of stable spreads from here?
Right. So let's go one by one. The first scenario is where there is no more changes in the reported. So we are seeing that our cost of borrowing will pick up at 820 in the next 2 quarters. So that is the peak. Now moving to the second scenario, if there is a 25 basis point rate hike in the on June, let's say, we will see this 20 getting to 80 then that takes to the yield question. So if we want to stick to 525, we frankly don't have to do much. We don't have to do anything. But it will be a call at that point of time how we want to look at new growth versus old customers, how we want to look at this whole EMI portfolio, et cetera. And at that stage, we can decide if you want to pass on or want to absorb, but those decisions will have to come post the June rate hike, if it happens.
Next question comes from the line of Nischint Chawathe from Kotak Institutional Equities.
Firstly, Nutan, you mentioned that your incremental cost of funds is around 8.8%, then how do you sort of expect your average cost to sort of flatten out to 8.2%? I understand that there is some support coming from NHB, but if our incremental rate is higher than your weighted average, then it should kind of start -- continue to interpret?
Right. So we've discussed this. So there is a 50 to 70 basis point impact that comes because of the NN present. So we've taken INR 600 crores of NSP draw in April, in the middle of April. So that will really help us to hold our base at around 7.9% to 8% in quarter 1. And then, of course, see, because if I look at the rates today, it is below 7.9% because of a sudden increase in NHP in April. But of course, the lag is also being passed on. So I will touch closer to 7.98% for the full quarter. And then 81 8.2% is the peak that we are seeing in Q2. So this essentially depends on what is the mix of NSD in the overall borrowing book. So as long as I am at 20% levels broadly, I will continue to get by 60, 70 basis points impact on the blended cost of borrowing.
So basically, 8.2, you're just sort of building in the annual borrowing program...
Yes, yes, yes. And for the first half of this year, we've already drawn down in April. So it's no longer sort of when it's already done.
Got it. The second question is on collections. Stage 2 is at around 1.1%. I think peak was in the best was like I think or 90 basis points in 2018 or so. So do you think that we are already there at the best level where we can be there a scope of improvement? And it would be -- do you see that we are already at the best level where we can be or can be to further and probably how was pavers?
Yes. So we are -- we are more or less there in terms of the recovered levels. Of course, our aim is to keep on improving. And I think as we -- and as our experience also keeps growing, we will be able to improve it, maybe not substantially, but at least marginally, we will keep improving it because our experience on what works, what doesn't work to keep on increasing. So we will implement that and we will try to bring some improvements. So yes, I mean, the model is there. We will keep trying to improve marginally from here on.
And how was April versus April last year?
April was April last year was -- I mean, compared to April last year was substantially substance like March versus last March has been substantially better. So the April is on that base. And generally, we don't have that kind of a skew in March. So our first quarter is generally similar to our last quarter of the previous year. So I would say, I mean, there's nothing significant to report as far as April is concerned, for a good month. I mean are you talking about collections you talk about disposal.
Under collection?
Collection, yeah.
So the collection efficiency, which I think some of your peers put out, we'll probably say that April versus April would not be very [Indiscernible]
No, no, it won't be very different -- be very similar. I mean, in fact, April versus March fiscal is very, very similar. I mean, I would say maybe just a marginal difference.
Next question comes from the line of Jatin San from Berman Capital.
I wanted to understand under the breakup of this other noninterest income, there is action called others. It was more or less 0 for the last 8 quarters. Now it has increased to INR 45 crores, but this is income related to?
So we started some work on using our website for marketing, et cetera, and we are getting revenue against that. We expect that this will be consistent on a quarterly basis going forward.
Okay. Great. And second question is around the AUM growth you're guiding for 30% AUM growth for FY '24. Is that a conservative guidance? Because on, one hand, you are guiding for 5% to 10% Q-o-Q growth for disbursement and repayment rate will come down as there will be no impact of TLS subsidy. So just doing the back-end calculation, you will be growing at 35%, 36% growth. So are you being conservative by giving like 30% growth guidance for FY '24?
I say I'm conservative that mean I'm giving away the game can't all the we are aiming for 30%.
Thank you. Next question comes from the line of Amit Ganatra from Invesco AMC.
Yes. Just one question I missed was this co-lending business. Can you explain now, if this business grows, then what kind of implication it has on -- first of all, where does the income get booked just like any other, I mean, lending that you do, the entire thing gets reported in interest income and interest expense in your proportion? Or how does it get recognized?
Yes. So as far as reporting to Amit, it gets reported in the respective lines, there is no panting in co-lending. So no spiking of income or expense. So just on the tenure based for our portion as well as for the push in the bank. The only portion that we get upfront is the purchasing fee that we collect from the customer and then we sell down 80%. So that part of the present comes to us in the quarter where we actually transfer the loans and which is not a very large number. Coming to the portion of how we are looking at it from an overall level, once we do the transfer to the bank, we are able to leverage our book much better. That's one from a financial perspective. Second, we are able to actually address the recent market because we actually can look at a sizable portion of you move slightly higher ticket cases 2020 30 lakhs, where the borrower expects a lower rate of interest. That Manoj opens up, and it also improves productivity for our fronting. So those are the broad 2 or 3 aspects on how we're looking at it. Maybe I can just request Manoj to share how we're looking at expanding this...
Yes. Mainly co-lending will have the impact of helping us expand the addressable market. I mean that's a key -- that's the key benefit from co-lending because we end up spending time on distribution, building distribution. But in some cases, what happens is in the same area, there are adjacent ticket sizes in the same projects, same areas there are adjacent ticket prices that come to us. So we generally operate in the INR 5 to INR 25 lakhs. But when the ticket size comes in the 25 to 40 lakh range, generally, the customers are a little more rate conscious. They are a little more formal in their overall outlook. And as a result of this, they are more rate conscious. So that is a segment that we have to give up. I mean we will -- we may end up even meeting the customer, but then the customer does not take the loan from us. So that is a customer segment that we can address through co-lending. And it helps us overall our productivity of our teams, improve our brand presence in the market, improve our cloud in the market. So that is really how we are looking at welding. And of course, it is how do we accrete a product because the capital allocation from our side is also very low for this product. So overall, it is a [Indiscernible]. And for the bank, it is very good because they get extra distribution. And so it's good for them as well.
But from a customer's perspective, he is taking loan from your company only, right, or easy aware that there is a bank?
Yes. customer is taking a make we are the brand phase for the customer. So a customer knows that he is going to interact with us through the life of the loan. He has made aware that there is a difficult lending product. So there are 2 parties involved. So that is something that we make the customer aware. So -- and for that, the customer is getting a benefit of a lower rate.
Okay. Okay. So effectively, I mean, a proportion of co-lending goes up, then from an optical perspective, it has a deflationary impact on your yield as well as cost, right? Sorry, I want to say inflationary impact on thing, because if co-lending goes up as a proportion, then the reported yields tend to go down, reported cost of...
Yes, but we are reporting the yields or the origination yields you are reporting is co-lending.
Yes. So if you see the Page 27 of the presentation, the 13.5 million is excluding co-lending.
Okay. But from a calculated perspective, when we calculate, it will come down, right?
Yes.
And leverage goes up?
And leverage goes up, yes.
But leverage, why should it go up? I mean you have the same risk weight, right? So why should leverage...
It will go up when you look at it from an AUM perspective.
But when they calculate also, it should work out now because the principal on our book is only 20%. So the interest that we're getting will be measured around the 20%. Not on the total. So the yield also should work out.
Are to the customer, but the blended will go down.
But let's take this goes down, but leverage should not necessarily go up, right? It basically -- it helps you to improve your leverage faster is what I can understand is. Is there was a possibility that this customer would never have been your customers in if co-lending was not a product available to you. So it tells you to report a higher growth -- it actually helps you to improve your TAM to some extent? And to a large extent, I mean, since the risk and everything is shared. So to that extent, yes, it's actually a win-win at this stage, if it works.
And the customer also is marginally better because it's a formal customer.
Thank you. Next question comes from the line of Arvind from Syndrome Alternate.
A good set of numbers. I just have one question. So like on fee income side, I can see like there was like a INR 3.6 crores in fourth quarter in INR 3 crores in the third quarter, but it was almost virtually nothing in the previous years. Like what are the driving factors behind this? Can I understand? And the other question is, so just a clarification. So you are mentioning 50 basis point rate hike in first half April 2023. So the overall impact on yields will be 30 to 40 basis points, and then it could be stabilized around that point.
Yes. Sir, one by one. On your first question on the fee income. So this largely represents the processing fee that we get on closures. So every time there is a repayment or a partial repayment or BT out or when we do assignment or co-lending or when we receive any CLSS subsidy, we get a small fee from NHB. So every time we get a higher -- so like we give INR 137 crores of subsidies. So that's far you see this number going up. So that is the first part. The second part of 50 basis points, yes, once we take this rate hike in per tape, it will stabilize around that 40 to 50 basis points plus level
Thank you. Next question comes from the line of Shreepal Doshi from Equirus.
Hello, sir. Good evening, and thank you for being with part -- and -- congrats on yet another strong quarter. Sir, my question was pertaining to the branches that we have. So what percent of our branches would be more than INR 100 crores. And what percent of our branches will be less than INR 50 crores in our AUM? And secondly, in line with the same question, what would be the KRI, like if you could Alexan Kari of a branch or often an employee who will be operating at a mature branch versus that of a new branch?
Yes. Mr. Roshan, can you go ahead? All right. Since there is no reply from the line of Mr. Roshan we'll go with the next participant. Next comes is Mona Kethan from Dolat Capital.
Yes. So firstly, on the noninterest income, this component has declined sharply in FY '23. So what is the outlook here? I understand it's partly driven by lower BA direct assignment. So could be this as a percentage of assets remain same going forward? Or how do you see this?
We've been doing about INR 100 crores of DS approximately. We will continue to maintain that. So as a percentage, the gain on DA as a percentage will remain walkaround 1%.
Okay. So what was the primary reason for noninterest income coming down so sharply this year?
Are you specifically referring to net gain on D or any specific line because when I see noninterest income, it's actually gone up of 1.1% to 1.3%?
Okay. What I see is that noninterest income for this year stands at about INR 100 crore versus INR 118 crore last year.Ă‚Â Okay, fine. I'll take it offline. The other question was on the write-off. So how much of write-offs have we made this year? And if you could also share the cumulative write-off the company has made so far.
So last year, we had a write-up of approximately INR 20 crores to INR 22 crores. I think 22 posed to be exact. And this year has been less than 50% of that, so approximately INR 10 crores. Also, it's important to remember that the write-offs are majority short recoveries when we close loans. And for most part of the lineup, we already have a provision. But when we actually close the loans that appeared in the write-off in and not in the net of provision line, so there is no financial impact for sales. because we replace those provisions with newer provisions. Your second question was the cumulative write-off. It will be approximately INR 40 crores to INR 45 crores. But if it is different, I will have to get back to you.
Sure. So FY '23 was INR 10 crores?
Yes.
Thank you. Next question comes from the line of Manuj Obroy from Yes Securities.
Congrats on great numbers. This question is on the provisioning coverage on Stage 3 assets. So that's been consistently taken up. So any specific reason behind this? Or is this your conservatism? Or is it also driven by the recovery experience on the count?
So see, we have thought that we want to keep the overall provision at 1% of the principal outstanding. Now if you have to do that, you to park it against some exposures. Now in a situation where the 30 DPD is continuously improving, it becomes difficult to market in stage or in Stage 1 because the probability of default models, et cetera, are showing a write-back. But then we said, okay, if you want to still continue with given the conservatism approach we want to follow. So then the only place where we can practically partition Stage 3. So that's how it ends up the peering base. As you have seen on the credit indicators, even the stage 3, the 3 NPAs back to March '20, March '19 levels. So no indicative threat, but it's just starting position from how we are looking at it.
So not a bit of management overlay, if in case if this is to increase in the future, would you dip into Stage 3 provisions and shift from provisions in stage 2? Or would you still -- so -- because I mean, if it's already allocated to Stage 3, then how would you then treat this provision in the future?
So see, men between stages is allowed because it's an overlay. It's not a big issue. I think in a situation where Stage-2 increases. In my mind, that's a bigger issue to be resolved. So frankly, we'll have to go back and see where the concern is and why that would happen. What we are seeing even today based on daily collections, our cash flows are actually improving. No reason that we think that in the near term, we should get to a stage where 30 DPD is concerning from where we are today.
Got it. So it's pretty much floating taking that's it. Okay. And just on this Karnataka and Maharashtra, I mean, they are part of our core focus markets, but they kind of continue to grow slightly slower than the overall book. When do we see a stronger turnaround in those markets and they started growing in line with the overall book?
Maharashtra to start turning around this year -- and as far as connective is concerned, a large part of the business comes basically from Bangalore itself. And I think it will continue at similar levels. But in rest you should start seeing early increase in AUM.
Next question comes from the line of Arvind Arl from Sundram Altis.
Sorry, the same question on fee income itself. Like can we excite the fee income run rate to be around this level? Or like do you think it could increase like as a percentage of asset or like unmet?
So I want to remind that this fee income is not the purchasing the income that we recover from customers and the stop onboarding that goes and gets booked in the interest line itself under the EIR norms of India. This fee income pertains to early closures or early any efficiency that we recover from sales subsidy. So sales subsidy is no longer there. So that portion will not come. So what I can we won't confirm is that probably 50% of this should continue because we will not have any more sales to subsidy going forward.
And because of interest rate hike, do you expect BT outlay to go up maybe...
So we are not seeing that happening so far. You see the PTO grade, it's more of a -- there is a year-end spike and otherwise, it just poses a normal trend. And even through the last year, there was multiple interest rate hikes, you have not seen -- during the year, we have not seen any spike in the spike happened only in March or in the last quarter. So we expect the same trend to continue. And last year was a year of aggressive rate highs. This year, really that kind of aggressive rate that should not happen. I think mostly people are expecting maybe one round or maybe not even that.
And lastly, just one question. I think at the start of the call, you were discussing about higher disbursement rates or growth in certain markets, like some kind of breakdown. Can you repeat that, like...
I was just -- disbursement rate -- no, but discussing about ticket size, ticket size is higher in southern markets. Disbursement if you see the share of disbursement more or less, if you see FY '23, it reflects the same disbursement share of disbursement as FY '22. So we have not seen any major changes geographically in terms of share of disbursement.
Okay. Okay. Because we have -- by AUM, we have the like clearly in your fab, but was one very clear on disbursements that's why I want to...
Yes. So we have -- so that share of disbursement is not similar to what we had last year.
Next question comes from the line of Shreepal Doshi from Equirus.
Also, my question was pertaining to what percent of our branches are mature. That is more than INR 100 crore AUM size. And in what percent of our branches will be below INR 50 crore AUM size. Secondly, in the same line, what are the -- if you could highlight some KRA differences for a branch, which will be mature versus some versus a branch which is relatively new?
So we have about 25 branches, which are 100-plus, but 100, I mean, there's still a lot of headroom to grow because we are looking at each of these brands reaching at least INR 200 crores. And if you look at the branches, which are below 50, it could be about 50 branches, 60 branches actually. 60 branches will be around less than or equal to INR 50 crores of -- in terms of KRAS, the larger branches would have slightly more, you can say, focus or buyer towards collections because the volume of collections would be higher in the larger branches. In smaller branches, the buyers towards collection will be lower. I mean it's just a function of volume of collections, disproportionally, proportionate to the portfolio.
And sir, in terms of, say, employee targets, so like for an RM or a relatively larger branch would probably have a target monthly target? Or if you could highlight that?
Yes. So relationship managers have broadly 2 sets of targets. One target is to achieve a disposal number for the month. And so it will be around INR 50 crores to INR 70 lakhs of dispersal per month. And they also have their collection allocation. So typically, our list manage would get about between 10 to 20 loans to be collected. So we are talking about 75,000 plus loans and with a 13% trade, it's about 10,000 rooms to be collected every month. So typically, an RM would get about 10 to 20 loans per collect. So broad -- I mean, at a very high level, this is the KRA. There is a disposal target and there is a collection target. We also do on a quarterly basis, we set some new priorities for them, which is either it could be a yield target or it could be a channel diversification target, it could be a number of active channels. It could be a product diversification target, things like that. So that depends upon quarter-to-quarter, we change the priorities. But what remains static is basically the disposal target of the collection target.
Got it, sir. Sir, second quick question was with respect to the LTVs. So if I look at it, more than 80% LTV is close to 34% of our overall origination currently. Now that has been coming down. Is there a focus -- is there a strategy to further bring it down?
So this is actually AUM, I mean, so this gives you a share of AUM at the time of origination. If you look at actually our current share of current share of cases, which are greater than 80% LTV, it would be far lower than this. So I don't have the figure right in front of me, but my guess is it would be around maybe 10% to 15%.
Got it. Got it, sir. And the last question was with respect to the rate. So you highlighted earlier in the call that there has been an increase of 5% to 10% in terms of EMI for a customer. Now is that including the 50 basis point last rate hike that we have done?
Yes.
Afterwards after the recent tables.
Got it, sir. And is there any other rate hike on the cards?
Not at the moment. I mean, we'll have to see how the policy rates move and then we can decide if at all, we need to increase.
Got it, sir. So this quarter, we've also like come up with dividend payout. So what's the strategy there in terms of payout ratio that we would want to sort of maintain?
So we have done some analysis, and we said for a company of our size and which is declaring dividend for the first time this kind of a ratio is a good ratio to help. And we'll maintain this for some time. So based on our analysis and dividend policy, we have et 10% dividend payout. So we're likely to probably keep it at this kind of [Indiscernible].
Next question comes from the line of Arvind Arl from Sundram Ultra.
I just have just one last question. So you were mentioning about MCLR-based loans as loans from banks. So is that what like predominantly funding from banks make makes up like -- or is it also consists of report or other real benchmark.
So bulk of it is actually selling almost 75% of our bank loans, the [Indiscernible], and the rest is based on external benchmarks, including repo and TV.
Ladies and gentlemen, as there are no further questions, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. Manoj Viswanathan for closing comments.
Thank you, everyone, for joining us on the call. I hope you have been able to answer all your queries. In case you require any further details, we may get in touch with Manish Kayal, who heads the Investor Relations. Thank you so much.
Thank you. On behalf of Home First Finance Company, India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.