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LIC Housing Finance Ltd
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Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Earnings Conference Call of LIC Housing Finance hosted by Axis Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Praveen Agarwal from Axis Capital. Thank you, and over to you.
Thank you, [ Yashashri. ] Good day, everyone, and welcome to the earnings call of LIC Housing Finance. Today, we have with us Mr. Tribhuwan Adhikari, MD and CEO. He has been appointed as the MD and CEO as of yesterday. And we have Mr. Sudipto Sil, CFO. I would request the MD to share his initial remarks, post which, we'll open the floor for Q&A. Over to you, sir.
Yes. Good morning, Praveen, and good morning to all of you. Welcome to the post earnings conference call of LIC Housing Finance Limited. As you are aware, LIC Housing Finance declared its Q1 of financial year '24 results yesterday. As Praveen has already mentioned, I've taken over charge as MD and CEO of this company just yesterday. Board has approved my appointment yesterday. Of course, I joined LICHFL on the 22nd of June, a few weeks back this year as COO, Chief Operating Officer. And in the few weeks I've been here as COO, this has given me the confidence that we are in the beginning of a new cycle of growth.
In the past few months, the company has undertaken a series of transformational changes, which include a change in our technological platform, implementation of SAP, restructuring the marketing setup by opening up 15 new offices and 44 cluster offices. There is a new addition to our structure, improving the credit process by creating specialized credit appraisal cluster. This is what I was talking about. All this has been done to deliver a superior growth, both qualitative and quantitative with a significant improvement in TAT and customer service more so since the company is now the largest HFC in the country.
Some teething issues -- since we have changed over to -- changed our technological platform, some teething issues were witnessed in the initial part of the quarter, specifically in the months of April and May. They could have -- they must -- they have led to a transitory impact. However, things are improving fast. And I am pretty sure that we will deliver positive results in the coming weeks, months and quarters.
In terms of the external environment, RBI's rate pause decision in April and June MPC meetings have led to stability in both borrowings and lending rates. This has brought back customers into the market. Demand across all sectors is witnessing buoyancy and is likely to remain that way for most of the coming quarters.
Now I'd like to share the key financial highlights of the quarter of LIC House Finance. Our total revenue from operations were INR 6,746.51 crores as against INR 5,285 crore for the corresponding quarter of the previous year. This was up by 28%.
Outstanding loan portfolio stood at INR 2,76,440 crores against INR 2,55,712 crores as on 30th June 2022. This is a growth of 8%. If I bifurcate this, the individual home loan portfolio stood at INR 2,31,087 crores as against INR 2,09,599 crores, up by 10%. And now individual home loan portfolio comprises 84% of the total portfolio, up from over -- from 82% a year ago. So there's a 2% uptick.
Total disbursement for the quarter was INR 10,856 crores against INR 15,201 crores. Out of that, disbursements in the Individual Home Loans were INR 9,419 crores as against INR 13,133 crores. Disbursements in project loans were INR 251 crores as against INR 309 crores for the same period previous year.
As informed in the last conference call, our aim for the current year is to expand our geographical presence through opening up of new offices, which we have done. As a part of the strategy -- our expansion strategy, 50% new offices have been opened in the current quarter. We are also targeting a 25% growth in the number of MIs or marketing intermediaries, or if I may call it, our feet on the street.
Net interest income rose by 39% to INR 2,209.44 crores as against INR 1,592.48 crores for the same period in the previous year.
Net interest margins for Q1 financial '24 stood at 3.21% as against 2.51% of Q1 FY '23. This is largely as a result of better liability management and the impact of passing on the rate hike in PLR in Q4 and Q1.
Our profit before tax in the quarter was INR 1,649 crores as against INR 1,140.36 crores in Q1 of FY '23, registering a growth of 45%. Profit after tax for the quarter stood at INR 1,323.66 crores as against INR 925.48 crores for the same period previous year. Here, we are showing a growth of 43%.
In terms of asset quality, Stage 3 exposure at default as on 30th June '23, stood at 4.96%. This is the same as it was in the June quarter of FY '23.
Total provisions as on 30th June '23 stood at INR 7,590.68 crores, reflecting a provisioning coverage of 42% as against the provisioning coverage of 40% as on 30th June last year.
There has been some increase in Stage 3, which is largely transitory as we had witnessed in Q1 and also due to some technical issues resulting out of the implementation of a new technical package and software.
However, the positive outcome is that there has been a marginal decline in the Stage 3 of project loans. Visibility on the recovery in that area has also improved.
On the funding side, our cost of funds stood at 7.62% as compared to 7.63% as on 31/03/23. Incremental cost of funds stood at 7.69% for Q1 FY '24.
So with this brief introduction, I would like to invite you for queries. Thank you.
[Operator Instructions] We'll take our first question from the line of Abhijit Tibrewal from Motilal Oswal.
Sir, firstly, if you can help us understand what you is leading to this kind of a margin trajectory? Sir, you, yourself have gone through multiple interest rate cycles. And I mean from what I understand, this is not really a 3.2% kind of a margin business model. So if you can help us understand while in the opening remarks, MD sir said that these are the impact of PLR hikes that we've taken in the fourth and the first quarter. But I mean the kind of spreads, the kind of margins that we're seeing to date, generally is not adding up. If you can help explain that first.
And then, sir, on the asset quality front also, MD sir said in his opening remarks that there has been a marginal decline in the Stage 3 of project loans. So this 60 basis points of increase that you've seen in your gross Stage 3, have -- if they have not come from project loans, if they have not come from wholesale loans, is it predominantly retail, which is leading to this kind of an increase?
And sir, lastly a data keeping question. In every earnings call, you share the Stage 3 numbers based on your product segments if you can just share that.
Yes. As regard the NIM, the 3.21% NIM, which you talked about is purely operational. The PLR hike and liability management have led to this. So I could not get you when you said this is not what you expected. Because we -- if you remember, last year, we passed on the rate hikes to the customers starting June, then some of it was passed up in the September quarter and in the December quarter. The full impact of that rate passing on of the rate hike has come in Q1 of this year. So there is an increase in the NIM.
As regard your asset quality, yes, the project loans -- our Q3 has come down. So basically, it is -- the impact of 60 basis points is due to our individual housing loans. And primarily, the reason for this, there is nothing extraordinary. Primarily, the reason for it, let me be upfront, I think the technological change number took in the month of March, that did create some technical glitches. And as a result of which, our collections from -- our collection of EMIs from our lenders was slightly hit in the sense if I may further clarify. In the case, most -- 85% of our EMIs are collected through e-NACH and [indiscernible]. So there were some technical glitches in our software, due to which, the presentment of demands could not happen in the months of April and May. So that did result an increase in Stage 3. But everything has been taken care of now.
In the -- for month of June and July, the presentments have been perfect and our collection efficiency is near normal. So coming forward, I see that this -- I would call it only transitory, and I'd say -- I'd use the word an aberration.
In the coming quarter, I'm sure our NPAs, if I may call it, Stage 3 NPAs will definitely come down from what they are at as of now.
Yes. Abhijit, if I may just add to what MD sir said. Just coming back to query of this, you are aware of the construct of the liabilities where a good amount of -- good portion, almost 50% plus, of the liabilities are on the fixed rate side, whether on the asset side, a large number, almost 95%, 97% is on the floating side. So the rate -- when the rate hikes were passed out, there was not a commensurate increase in the cost of funds, which we were able to hold back. So that actually led to the expansion of margins more so because the full impact was spent in the first quarter.
Whatever increases we had done in the -- from the period beginning 1st of January, and the ones that we had done from 1st April, the full impact has now been felt.
Got it. So will it be then fair to say that given that there are no one-offs that you are suggesting in the interest income [indiscernible]. Given that, I mean, by now on the asset side, all the PLR hikes that you have taken have been passed on. And as we move along, your liability side, you will get to reprice, so the margins have peaked out and should start coming down from here? Will that be a fair thinking?
No, I will not say that -- I mean I will not directionally comment on whether it will come down or things like that. But the only thing is that if you recollect here, last year, we had given a clear indication that margins are going to expand as also in the call beginning -- call at the end of the fourth quarter. And we believe that there will be substantial improvement in the margins for this financial year on a full year basis. There will be substantial improvement. That much is certain given the kind of strong set of numbers that have been given in the Q1.
Okay. So this is, and lastly, if you can share that data question that I asked, the Stage 3 basis.
Can you please repeat the query?
Yes, sir. So typically, every quarter in the earnings call, you shared the Stage 3 numbers, which is different product segments.
Category segment-wise, right?
Yes, sir.
Yes. So as far as the individual home loans are concerned, the Stage 3, there were 5,000 -- a little less than INR 5,100 crores, and the percentage is 2.2%. Then in the NHI, that is the individual -- nonindividual -- nonhousing individual, sorry. Nonhousing individual, which is basically the retail LAP, et cetera, there, the Stage 3 number is INR 2,100-odd crores. The percentage is 7.8%. Then coming to the nonhousing corporate, the Stage 3 is INR 1,630 crores. The percentage is 24%. And the project is INR 4,874 crores, and the percentage is 42.12%.
So sir, essentially, 42.12% that you said has gone up, right, quarter-over-quarter. It was 40% last quarter.
It has come down. The outstanding has come down to almost INR 400 crores, whereas the provision -- whereas the EAD has actually come down by about INR 20 crores. So there's a marginal decline, but there has been a INR 410 crore reduction in the outstanding.
Got it. Got it. And sir, lastly, what is the status of your restructured pool now?
Yes. As far as the restructured pool is now, if you recollect, we have done about INR 7,100-odd crores or INR 7,200 crores of OTR cumulatively, out of which, about less than INR 100 crores still remain to go out, which will be going out in the next quarter. So almost everything has gone out. Out of that INR 7,400 crores or INR 7,300 crores numbers, only about INR 5,600 crores are still outstanding. The others have been repaid or closed. And the NPLs, there is about -- around 18% to 20%.
NPL. So the nonperforming loans, you said?
Yes.
So what was this 18% to 20%, you said?
NPI, sir.
Stage 3 from the restructured pool?
Yes. Yes.
We have a next question from the line of Avinash Singh from Emkay Global.
So a couple of questions. The first one, again, a bit on the asset quality. If we recall this matched glitch was sort of you had highlighted in your last quarter call. Now if I go by -- stage by stage, the Stage 2 has seen increase in the absolute term as well as the ratio and of course, Stage 3. So just if you can help, I mean, what sort of a portion you can attribute to this net because Stage 2 and Stage 3 both have seen a sort of a jump. And also the provision coverage side, clearly, I mean, you had like -- you were around 49% GS3 coverage at December that you brought down around 45-odd percent to March. Now we are at sort of a 40% or 42%. So what is sort of a driving and what sort of your comfort you have that you sort of -- you are taking this provision coverage progressively down?
Well, when collections get delayed or interrupted, both our Stage 2 and Stage 3 will naturally increase. So that is precisely what has happened in the months of April and May, as I said earlier. This technical glitch did affect us from collecting -- the normal collection efficiency, which we normally have. So that was affected because of that. Movement of Stage 2 and Stage 3 was witnessed. And...
And as far as the overall PCI is concerned, I think there is only a marginal decline, but more importantly, directionally if you see the visibility on the project loan portfolio in terms of recoverability and collections, just to give some numbers, there was also a collection of more than INR 100 crores during the quarter in terms of actual money collected in the project cases. So that is actually giving some level of visibility regarding the quality of assets on the project side, which is the most sticky and most difficult portion of the entire portfolio.
Yes. But I mean the project side NPAs are still, I mean, reasonable sort of almost like INR 5,000 crores odd.
Actually, the provisioning coverage has not declined at all. Instead, in place of 36.88%, the Stage 3 has increased to 37.61%.
Okay. Okay. And sir, what sort of explains your relatively, I would say, higher NPAs or GS3 in your individual LAP because if I recall, the LAPs are a lot into salaried class. I mean -- and there, I mean, 8% -- closer to 8% of Stage 3 in again, a LAP category. Again, is this something, I mean, where you expect improvement? Or is this the broader trend line that you are okay with?
Structurally, the product is a slightly higher delinquency product. That is the reason why the pricing is also done in that manner. Having said that, the fact is that, this also has got impacted because of the technical glitches that we discussed few minutes back. And if you see, for example, in the NHI category for the March ending quarter, it was around 6.5%. So from there, it has increased. There are also the total increase in amount of -- net amount terms in Stage 3 itself is about INR 300 crores.
We have a next question from the line of Kunal Shah from Citigroup.
So firstly, on the margin side, given that we are at 3.2% now, and you mentioned like this is more of an operational. How confident we are in terms of sustaining it because I think we have been highlighting in terms of 2.5%, 2.7-odd percent margins. So now what would be our view with respect to the margin trajectory?
So if we see, in the previous call, I think we had said around 2.5% or 2.55%. Now probably, we will be more looking at a range of between 2.6% to 2.75% kind of a band on a full year basis.
Okay. And the way it would come off in the coming quarters to settle at, say, 2.6% to 2.75%, that would be largely because of the catch-up on the borrowing side?
No, we could -- I mean, there could be some reduction on the rate front by RBI towards the end of the financial year also. That is also possibly what we are trying to factor in.
But just assuming that the rates stay at where they are, then in terms of this yield on advances at 10.15%, how should that ideally move? Because I think incremental cost of borrowing is something which you have mentioned here.
Incremental cost of borrowing, if you see right now, there is a decent amount of stability on the rate side, though the yield curve continues to be quite flattish. It has come up in terms of incremental cost. In the March quarter, we were clocking around 7.84% from where it has come down to around 7.69%, which is very close to the average that we are having at around 7.62%.
So I would say cost line, by and large, will remain clear only. There could be some exits of low-cost liabilities. So to some extent, a few basis points up or down, there could be a movement. Otherwise, on the pricing side, I think there could be a little bit of reduction in the lending rates going forward, owing to the stability in the interest rates indicated by Reserve Bank at this point in time.
Sure. And one last question with respect to growth. So obviously, a lot of efforts have gone into the transformation agenda. But still, in terms of the disbursements, it's not been that strong all through. So how is the run rate currently? And finally, what is the kind of outlook, which we would have with respect to disbursement and loan growth?
Well, as I mentioned, there, a major restructuring took place in the month of March and April also regarding number one change in the organizational structure and also our technological platform. So as I said also, we had some glitches in the technology platform. So partially, the degrowth in our disbursement space, I would attribute partially to this, number one, the technical problems which we had.
And number two, since the organization got restructured, we opened 50 new area offices, we opened 44 new cluster offices. So there was a lot of, I would say, transition of manpower also, movement on manpower from places here and there. So naturally, as is normal when a new person comes into a new office, it takes time. So the marketing effort could have been hit a bit, but this was only witnessed in the months of, as I said, April and May. From June onwards, we are back on track. July has been up to expectations.
And going forward, I see that I think we should be recovering fast and month-to-month improvement will be seen by us.
And so run rate for June would be?
Run rate for June approximately would be about 5,000.
So out of 10,800 5,000 is in June?
June, yes.
We have a next question from the line of Saurabh from JPMorgan.
Sir, just one question on this NTA, the INR 4,000 crores in the project book. Could we just break up as to where are these recoveries being pursued? How much will be in NCLT? How much you're trying to do with this onetime settlement? So any color there will be great.
Saurabh, actually, NCLT, we have received some positive decrease in orders in our favor, about, say, maybe around INR 80 crores of positive orders have been -- has come in our favor, but the payment is yet to come. Total NCLT cases is close to INR 2,300.
Okay. INR 2,300 crores of the INR 4,000-odd crores.
INR 2,300 crores.
Okay. And how many projects will this be funding?
Around 20-odd accounts will be there, 22.
We have our next question from the line of Aniket Kulkarni from BMSPL Capital.
So I had a broader question regarding the trend of your performance, right? So when we look at the last couple of years, the financials have been a bit volatile going in out of the quarters. And so now looking at the types of numbers that you have listed in the last 2 quarters, can we see some stability going ahead? And I mean, how do we see at the profitability and ROE numbers from now on?
Well, it could impact, leading to volatility especially in the -- with respect to the provisions. COVID the...
Hello?
Hello?
Yes. Yes. See, actually, what volatility you had seen, especially that was in the year FY '20, a little bit of FY '20, more pronounced in '21, '22 and '23. And a large amount of that volatility was pertaining to the ECL provisioning that has been quite fluctuating. And that probably was the reason because of the COVID impact on the asset quality. Now if you see asset quality has remained stable, barring of course this recent quarter where there has been an uptick because of some technical matter. Apart from that, the quality of assets in the most sticky portion, that is the project loan, which actually is lumpy and led to the volatility, that has come down significantly. So if you remove everything -- if you remove the ECL portion, and you focus on the operational aspect of margins, then you will see that margins have been fairly stable in the 4.3% range, 4.3% to 4.35% range, for the last 3 years and last year, especially, it was around 2.41%. So margin stability on the operational side, despite intra-quarter volatility on a year-on-year basis has been fairly stable.
The one thing which has resulted in the reported number volatility was the impact of ECL provisioning, which I agree with you, has been quite volatile moving from quarter-to-quarter. That is now likely to stabilize.
Okay. Okay. And another question is could you talk a bit about your efforts regarding diversifying your liabilities? I mean you had said previously that these efforts will help you tackle the interest rate volatility in a better way, right? So can you just give some color on this?
Yes. See, diversification of the liability profile, as I mentioned, is part of our -- last 3, 4 years, we have been striving towards it. 4, 5 years back, there was a huge amount of dependence on the wholesale tech market. From there, we have reached a stage where we have more or less put the -- I mean diversified the liability in different pockets, the wholesale debt market continues to be the dominant portion. But apart from that, we have moved into the bank, then the bank loans market. We have done an ECB. So geographically also, we have been able to diversify.
We have put a large amount of focus on our retail deposit franchise, which I'm still telling that we have not even scratched the surface of the possibility there to diversify between the wholesale and the retail. And largely, if you see, we have tried to structure the liability profile in such a way that 50% roughly remains on the floating rate side and approximately 50% or 60% remains on the fixed rate side. So that interest rate movement also gets more or less hedged by this. So this will be a continuous process.
Of course, the wholesale debt market, bond market, NCD will be a dominant one more so because now you are aware that we are getting a space opened up because of the fact that one large player is moving out of the bond market. So there will be an improvement in the yields. There will be some benefit that we'll be getting there.
Okay. And just one last sort of data point question if I can sneak it in. So can you give any sort of estimation or the expected provisions for the entire year, given that you have seen a slight spike in the NPLs in Q1? But for the entire year, can you give some idea on the provision number which you can see?
Well, 40 to 50 basis points on the credit cost. That was the indication and that would be the indication.
We have a next question from the line of [indiscernible]
I just want to clarify something because I was looking at your slide on the yield and the cost of fund slide. It says that for the first quarter, the yield is at 10.15% and the cost of fund is at 7.62%, right? And then I was just looking at the fourth quarter 2023's full year number in your previous slides. For the full year of 2023, the yield is at 10% and the cost of fund is at 7.3%, which is broadly similar to what we are seeing in the first quarter. But our margins went up from 2.4% for the full year of last year to 3.2% for the first quarter of this year. So I'm just wondering what am I missing here? Because our cost of fund is the same versus full year of last year and now you went up 15 basis points versus the full year of last year per your disclosure, but our margin went up by 60 basis points.
Actually, what you're looking at is a spread between the cost of borrowed funds and the yield on a particular date. It's not based on monthly averages.
When you're talking about margins, it is actually a derivation of the net interest income on each and every day of interest expanded and interest collected. So that actually is what explains the difference. If you look at -- there has been sequential improvement in the margins also from 2.93% to 3.21%. That is how it should be seen, sequentially, not year-on-year.
Yes. So okay. So how, let's say, if I look at the number of 10.15% yield on advances on portfolio, how do you guys calculate that number? Is it like last day of the...
Last date of quarter. That is weighted average yield on advances on the last date of the quarter.
We have a next question from the line of Ketan Gujarathi from Quantum Advisors.
Congratulations on the appointment, sir. I wanted to understand that when you are -- hello.
Yes.
Congratulations on your appointment, sir.
Thank you.
So I wanted to understand that when you were appointed and so what kind of strategy were you are asked to pursue on the trends of let's say a LAP, for example? Because I take your point that this year, your NIMs are pretty much safe around 2.5% plus. But going forward, I think, and again, the pressure will come on the home loan side, wherein it will be hungry for yield. And at that time, will you be able to grow your LAP book? And what will be your strategy? Because yearly, I see the last 7, 8 years, the NPA numbers were much higher than our regular home loan book. So can you just give me color on how you plan to protect your NIM going forward and also the LAP strategy?
Well, the strategy is going to be -- we've got to focus on retail, of course. Yes, on the project front, we'll be choosy as we have been in the past. We'll be picking. We'll be looking at -- because we've been facing pressure of NPAs on the project on front. So we'll continue to be we're and choosy on the project loan front.
And the other categories, quality focus along with profitability, we will be looking at the other categories on that basis. That will be the overall strategy for this year.
And one more question on the NPA front again. So we see that I'm purely comparing based on peers, a lot of peers, they have also reported a very high number, probably higher than us as well. But either they have taken some correction measures, either a write-off or a resolution, or a recovery, but our numbers are still very sticky. I'm saying even barring the technical glitches like you mentioned. Let me take FY '23 number. We are still at a very elevated level of NPA. So can you just give us the guidance because at the end of the day, when we are valuing our company, you need to understand, how do I treat these assets because if I take you at face value also, the GNPA numbers are not really coming forward as predictable. They have been same as it is, even if our asset base is growing. So just can you again help me understand? Because I'm thinking from a 2-year out point of view. So can you give me some comfort in understanding how we are going to move forward.
Yes. as regard the NPA front, let me confess, we have not been very aggressive on OTS or roping in ARC so far. So that is one area we are definitely going to look at this year. We'll be exploring all avenues. So far, our focus has been on going through the normal channels of convincing the borrower to repay at the most [indiscernible] action, et cetera. So these 2 areas of OTS and ARC needs to be explored. We have come out with an ARC policy within the organization. So that is one.
The other we'll also be looking at -- we have not written off much in the past few years. So we will also be looking at write-offs in the coming quarters, technical write-offs that is.
[Operator Instructions] We'll take our next question from the line of Deepak Poddar from Sapphire Capital.
Sir, I just wanted to understand, I mean, in terms of your NIMs and ROA, so what sort of sustainable range we are looking at in both those fronts?
See, I think we've just given some kind of an indication that around 4.6% -- sorry, 2.6% to 2.7%, 2.8% that can be a broad range. That is as far as the margins are concerned on a full year basis. ROAs generally will be in the 1.3-ish to 1.4-ish on a blended all assets basis.
Okay. So clearly, I mean, the NIMs of 3.25% this quarter and an ROA of close to 2% is not sustainable, right?
So I will not use the word not sustainable, but the only thing when we are talking about numbers, I am focused only on the full year numbers.
Understood. And on the growth part, I think we are up 8%, right? And now with the problem solving and June onwards, I think you're seeing improvement in disbursement. So what sort of loan book growth we are targeting this year? I mean, what 10%, 15% or somewhere in that range?
Around 12% to 15% broadly on a full year basis.
We have our next question from the line of Raghav Garg from Ambit Capital.
Just two questions from my side. One is when I look at your presentation for this quarter, the -- you've given a blended cost of bank borrowings and NHB. So could you please split between what was the cost of bank borrowings? And what was the cost for NHB borrowings and then I'll take up my next question.
The NHB borrowing cost is around 5.8%. Balance, you can find out.
Sure. And sir, the second question is that -- so I see that from the bond market, you're picking up money at around 7.7%, 7.8% and your outstanding cost of NCD borrowing is somewhere around 7.5%. You also just highlighted that there will be some maturities in this year. So is my understanding correct in saying that the kind of maturities that are coming up in this year are costing somewhere around 6.5%. And to the extent that there is a differential of 90 to 100 basis points, that is going to get repriced and that will be the impact on the overall cost of borrowings?
See, your first assumption of the rate at which we are borrowing, I think we have done 10 years at 7.65%, not 7.8%. So that is one thing. And as I mentioned, some improvements can be seen once the yield curve stabilizes and -- because right now, the yield curve is flat. So 5 years, 10 years, everything is almost selling at the same price. There will be some, I would say, normalization of the yield curve, which will give some -- could give some benefits. Yes, of course, there will be redemptions will come up -- redemptions of past debt, including debt rates at higher levels and at lower levels will be coming up regularly in fact, growth and there could be some differential which could get added.
But on the other side, there is a portion of the floating rate book also in the liability side, which might give us some benefit once there is a little bit of visibility on the, I would say, topping off of the yield curve.
Right. So sir, on the whole, how would you expect your cost of liabilities to move? I mean would there be any significant expansion?
In the beginning I mentioned that right now, we are borrowing very close to the weighted average cost of funds on the book side. So I would feel that it will largely remain stable within a band of say maybe 10 to 15 basis points.
We have our next question from the line of Shubhranshu Mishra from PhillipCapital.
Sir, just if you can speak about this organizational structural change that happened in March...
Sir, can you please use your handset mode?
Sir, if you can speak on the organizational structural changes that happened in March and April and the technical glitches, it just seems that a large organization is not geared up and doesn't have any backup plans for any kind of technical glitches which led to slow disbursements. And one question, sir, why do we always want a CEO from LIC who is nominated, who may or not have the requisite skills for housing finance? Why don't we get a professional CEO who knows how to run the housing finance business and we can have the LIC normally on the Board? So if you could answer these questions, sir.
Well, as regard the LIC CEO, that has been the norm and the tradition, and I think LIC would -- being the largest shareholder, I think wants to have its nominee on MD and CEO. So that is all I can comment on it. They take the call. They take the call. So it is on LIC to consider what you are suggesting.
And as regards the restructuring, well, the restructuring was felt necessary so that we could go down to the last mile and reach the customer. Expansion of offices, 15 new offices opened mostly in Tier 2 and Tier 3 towns, again, to increase our reach. And also, the restructuring of the cluster offices as we called, again, was taken with a view to streamline our basically loan sanctions and disbursement operations so that they happen faster, TAT is reduced, customer satisfaction improves. So that was on the restructuring front.
And whenever -- naturally, whenever a change -- changes do take place in an organization, there is going to be some amount of distribution as on the technological front, technology is a boon, but sometimes things do go wrong. Yes, we've learnt our lessons. We've learnt our lessons. I'm very sure about that, and we have stabilized. As I said, we have stabilized June onwards. We're totally stable on the technology front. And going forward, I see that whatever we have done, whether on the technological front or on the organizational restructuring front, that is going to yield us excellent dividends.
And sir, this credit cost guidance of 40 to 50 bps when we have a large proportion of our book for salaried segment seems totally out of that, sir. Is this mostly done to cater to the project loans and LAP and so on and so forth?
Yes, you're right. And it is likely to probably come down.
Come down to what, sir?
Yes, I cannot give a number right away, but it is likely to come down, but yes, we are -- the trajectory is of a declining trend.
Sir, declined by how much, sir? 50%, 10%, 20%. How much will it decline?
If you look at the current quarter credit cost, it is around 5% -- it is around 50 basis points. Last year, it was 78 basis points for the full year. I think the trend is quite visible.
We have our next question from the line of Vipul Kumar Shah from Sumangal Investment.
So I have a question regarding the tenure of our CEO. I can understand that LIC can nominate its own CEO, but the tenure of CEO is generally 2 to 3 years in our organization. Every 2-3 years, you get a change in CEO. So don't you think that disturbs the organization and CEO should have a longer tenure?
Well, as I said, this is a call which LIC has to take. This is a norm, you can call it that they have that they nominate their own MDs and CEOs. And the MDs and CEOs being LIC employees, of course, as you would have seen, the nomination is for a period of 5 years, but it depends on the superannuation of the nominated MD and CEO. So if a CEO superannuates in 2 years, 3 years, whenever he superannuates, he has to leave. So again, as I said, this is a call which LIC needs to take.
No, but for a large organization like LIC Housing Finance, you will take at least 1 to 2 years to get accustomed to the entire -- nitty-gritty of the business. And when that happens, the CEO gets transferred. So I think it is affecting the performance of the company. I am a shareholder. I'm not an analyst. So just please convey my feelings to the LIC.
Sure. Point taken, point taken. I will be conveying your feelings.
And sir, another question is regarding your OpEx. So if I see the slide, it was -- in 2019, it was 2.74%. And now it is 4.36% for the last financial year. So, what is the reason for such a sharp jump in the OpEx over a course of 4 years? And how do you plan to correct it?
See, the OpEx is largely because of the IT intervention, which we have done. As you would be aware, in the last 1.5 years, a lot of investments have gone in the IT as part of the project rate, which we had done in association with the Boston Consulting Group. How the OpEx gets rectified, of course, with higher volumes, better margins and better profitability, but it's an investment rather than an expense.
So can you quantify what was the onetime impact of that expense? And going forward, what should be the range of OpEx, which you would expect?
The OpEx going forward, it will be more less on a trend, you have to see on a 3- to 4-year basis because, obviously, when there is a large investment and large intervention done, it obviously can distort a particular quarter or a particular year. It has to be seen on an average of, say, last 3 years. And whatever is outcome of the last 3 years, that is going to be a stable number going forward.
No, but you have not quantified it. So what should be the OpEx going forward for next 3 years?
Cost-to-income ratio, if you see, I think that is more important being a finance company, it all depends upon the cost-to-income ratio. Cost-to-income ratio largely is in 15% to 16% range. It will come down, but it will take maybe a couple of quarters or a couple of years to establish a trend.
And lastly, sir, regarding project loans. So over the years, we are facing a lot of difficulties in this area. So isn't it better to leave that segment altogether where we -- I think we do not have the necessary expertise? So what are your views that will be behind.
That has been articulated at the beginning of the call regarding our -- the strategy in each of the product segments have already been articulated.
I fail to understand what we are trying to comment, sir.
We have already articulated that, yes, all segments will be approached with caution in mind considering the fact that whatever is the benefit or whatever is the return that is always a risk-adjusted return.
But I don't think we have got any returns from this particular vertical. All we have got is NPA only and that has negatively impacted the results of the overall company over the years. So what is the point in continuing the business which is giving you a negative return?
The overall share of project loan for your information is less than 4%, and it has been actually coming down from 7%, 8% -- from 8% to 4% in the last 3 years, 3 to 4 years.
We have a next question from the line of Nilesh Jethani from BOI Mutual Fund.
Sir, two questions from my side. First is the repayment rate seems to be slightly lower in Q1 at 13%. Is it a new normal or it is onetime and what sustainable number we can assume? And second question is on the direct loan sourcing. The share seems to be a little higher at 17%. So how to look at this number going forward?
I think for all practical purposes, the Q1 numbers may not be exactly reflective because the business volumes have been on the lower side. As far as the repayment rate is concerned, that's actually the prepayment, I think, what you are referring to. That is a function of liquidity in the external market. But it generally is between, say, 11% to 13% or thereabouts.
So can we expect this number to inch up?
No, it depends upon the liquidity situation of the -- in the economy. Normally, the variation is not much.
Okay. And on direct loan sourcing of 17%?
Yes, as I mentioned, the first quarter numbers themselves were muted in terms of disbursement. So probably, that is not a trend to build upon.
We have our next question from the line of Lalitabh from Anvil.
Congratulations on the quarter and the appointment also. Sir, just one thing. Our yields have moved...
I am sorry, sir. Can you use your handset mode, please? You are not clear.
Yes. Sure. Just wanted to understand, our yields have moved up various market in Q1. So if you can please share the current yields on the nonindividual home loan part, which comprises around 16% of the home loan book-- of the total loan book. So what is the yield that we are currently enjoying there? And what is the outlook that you are expecting for FY '24?
Sir, you are asking about the nonhousing individual. nonhousing individual incremental yield in the quarter was around 9.75%. And on the non-housing corporate, it is around 11.88%.
Okay. Okay. Fine. So the blended comes to around 10.15%. And if I'm taking the rate that you are giving 8.5% for the -- on your website, then somewhere -- some segments, we are seeing a very healthy kind of a yield, am I calculating it correctly?
We are not able to understand your query, sir.
So basically, I want to understand that if I'm saying 83.6% of our book is individual home loans, which on a ballpark number, if I see the rates to be 9% yield, then to reach at 10.15% yield, the rest of the book should be somewhere around 13%, 14% plus yield.
No, not at all. In fact, I don't know where you have actually got the numbers from. If you see the website, it very clearly mentions that the starting yield is a particular number, it goes according to the single score. So that is to be seen number one. Number two, you have to annualize it then you'll get a proper number. So portfolio on the retail side also doesn't mean that every loan is being sold at the lowest rate.
We have a next question from the line of Umang from Edelweiss.
So firstly, I just wanted to understand this cost improvement that you talked about that you are being the largest players. That's true, and you will have some bond benefits. But I wanted to understand this benefit, we are already looking at this kind of benefit or we are hoping for this kind of benefit that will kick in?
I think it has already started happening.
So that's why we are looking at rationalizing our cost of borrowing and probably move to a better linear position, right?
Yes.
Okay. And sir, secondly on the yields. I understand that there were some glitches, but still disbursement -- I mean, I understand there was some reorganization that has happened. But disbursements, are they still happening at the original yields? Or again, we are going to compete with the market now that we are the largest player and probably we would have a benefit over here? Sir, I just wanted to understand the yield front also.
Can you kindly be a bit more clear because I'm not able to...
Sure. Can you hear me now?
Yes, I can hear you, but if you can explain your query.
Okay. Sorry. So what I'm trying to ask is that the yield portion. So whatever incremental disbursements that have happened in June month, almost 50% of our entire disbursement, if this was happening at par to industry? Or are we the ones who are now setting up the benchmark? As you rightly mentioned that now you are the stand-alone housing finance biggest entity, so I just wanted to understand from your competitive standpoint?
No, yields -- as far as yields are concerned, I think we have to be competitive. We are in a competitive business. Yes, HDFC housing has exited the space, but it is still there in the lending -- home loan lending market. Yes, as a large player, we are -- we would be looked upon to set the benchmarks. But again, yes, we have to be competitive. We have to look at all our peers and ensure that we are competing on the yield front also with them.
We have a next question from the line of Abhijit Tibrewal from Motilal Oswal.
Just one clarification I wanted. Given that your reported yields today, which I recall was 10.15% versus that when I look at the calculated yields for the full year. What we've seen over the past few quarters is that the calculated yields somehow try to catch up with your reported yields, which Sudipto sir explained this is on the last day of the quarter. So is there further room even without taking more PLR hikes, which I'm guessing we have not done any more PLR hikes after the one that we did in April. Is there more room for further expansion in yields from there, some repricing from the back book, which can come in, which maybe can...
I think the asset side has been more or less complete.
Even from the bad book?
We're not expecting any rate hikes further. Some back book repricing can be on the lower side also. Some rewriting could be there. But on the higher side, repricing is unless there is further repo hikes, it is probably -- at this point in time, I think there's a pause.
Got it. So sir, just final one clarification here. So given that there are no more rate hikes on the annual and from what I understand, typically, when more loans get originated, they are usually at a 40 to 50 basis points lower rate than the bad book. So fair to say that, I mean, at least the yields in terms of this 10.15% number that you have seen has peaked out, and should incrementally at least start coming down?
No, Abhijit, I'm not able to understand, if you can kindly clarify.
Yes, yes. All I wanted to understand is, given that, I mean, the yields to be 10.15%, again blended, and given that what we have given to understand the incremental home loans that happened, are usually at a rate which is anywhere around 40, 50 basis points lower than the bad book, then would it be fair to believe as you keep building your home loan book over the next 1 year, this can start coming down from here?
Still not able to understand. Generally, is all a market...
No problem. No problem, sir. I'll maybe reach out to you off-line.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments. Over to you, sir.
Yes. Thank you all. Thank you all for the interaction. In conclusion, I would like to assure you that we are now on a new path of growth. All these structural changes are in place. Our new technology platform is up and running. A lot of activities have already been done in Q1. And the total focus is on growth. This will continue. And I'm looking forward to a decent growth in the coming quarter, Q2. I look forward to your support and continuous interaction. Thank you all.
Thank you. On behalf of Axis Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.