Muthoot Finance Ltd
NSE:MUTHOOTFIN
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Muthoot Finance Ltd
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Ladies and gentlemen, good day, and welcome to the Muthoot Finance Limited Q1 FY '22 Results Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Shah from ICICI Securities. Thank you, and over to you, sir.
Thank you, Linda, and good evening, everyone present on the call. Today, we have with us Mr. George Alexander Muthoot, Managing Director; Mr. Alexander M. George, Deputy Managing Director; Mr. George M. Alexander, Executive Director; Mr. George M. George, Executive Director; Mr. George M. Jacob, Executive Director; Mr. Eapen Alexander, Executive Director; and Mr. Oommen K. Mammen, Chief Financial Officer, from Muthoot Finance Limited to discuss their Q1 FY '22 earnings. Over to you, sir.
Thank you, and good day to all. I am happy to present the earnings call for the quarter 1 of 2021-'22. The consolidated gross loan assets has reached INR 58,135 crore from INR 46,501 crores a year ago, showing a growth of 25%. And the consolidated PAT has reached INR [indiscernible] crores, a year ago, INR 858 crores, which shows a 14% growth in the profit. The -- this year -- this quarter has not been very good, because the pandemic -- the COVID effect of this year was actually there in April, May and June. Similar quarter last year, the impact was only there in March, April and May. So this year, all the 3 months of this quarter were affected. Now glad to report that things are looking up. All branches everywhere things are opened. Everything has opened up. Business has really started picking up.This quarter, just this quarter, with Q1, there was no growth in the gold loan business. Rather, there was a small fall in the overall AUM because we consciously regrew our non-gold loan portfolio. But we see good prospects in Q2 and certainly, better prospects in Q3 also. So we would like to retain our guidance of minimum 15% growth in AUM this year also. And we are hopeful that we should be able to do it, because now we are seeing signs of improvement in the economy, which means that credit growth also should start. And once credit growth starts, gold loans would be in demand.Our non-gold loan verticals, because of this COVID, we were planning to start good business last -- 6 months back after the COVID first wave. But then soon after the second wave also came, so we have actually delayed the business activity or business growth in the non-gold loan business. That is why we have seen a de-growth in the non-gold loan portfolio, both -- all in the micro finance, the home finance and the vehicle finance business. But here also, we should be seeing business and growth picking up in this quarter. Rather, end of this quarter, we should see business picking up. And by quarter 3 and quarter 4, we should see better growth in this non-gold loan portfolio also.Our non-fund-based business, which is the broking business, has done extremely well this quarter. We have registered -- we have had good growth in the insurance broking business and good profits have come from there also. As far as the Sri Lankan subsidiary is concerned, it has actually -- more coming out from the non-gold loan business, and it is now personally doing only gold loan business. As of date, their gold loan portfolio is more than 53% of the total book. So we are consciously regrowing the non-gold loan portfolio in Sri Lanka and doing mainly gold loan business and they have added branches also there. This is actually accelerating the progress of the gold loan. And we hope that by end of next year, in the next 18 to 24 months, we should see Sri Lanka business also a mirror image of Muthoot Finance with more than 90% of gold loan portfolio. So gold loan business there also is very good.So we have been able to curtail all of our expenses also. So this time also, our expenses have been put under control. And that is -- those are one of the reasons why our profit has also been okay, rather we have been able to make [indiscernible] profit. Otherwise, yes, all the other businesses, as I said, we will be restarting the non-gold business maybe after 2, 3 months a little more speed. And the gold loan business, yes, as I said earlier, has started doing well, and we should see good growth in gold loan business in the next -- all the coming months going forward. With that, I think I will stop here and maybe wait for any questions or clarifications from the -- from your side.
[Operator Instructions] Our first question is from the line of Harsh Shah from L&T Mutual Fund.
So sir, my first question is regarding how on ground situation when you entered Q1 versus when you're exiting the Q1 and as on July? And how has been the customer feedback in terms of repayment? How has been your collection trend? How has been your overall business trend when you're -- when compared with the start of Q1 vis-à-vis the exit of Q1? That is my first question. And secondly, sir, can you just throw some light on the drop in yield that we had in this quarter? What was the main reason of that? And how will that look like once we enter Q2 and remainder of the financial year '22?
Thank you. See, as I said earlier, the COVID impact was very prevalent in the last -- all the months in the last quarter. That means April, May, June, the COVID impact was very severe and many branches were not opened. Branches were opened partially only. So that was the reason we saw very tepid growth in the first quarter. Now, as I said earlier, also, things are looking up. Business is start to be picking up. All the branches everywhere is opened, and people are coming for gold loans. The repayments and collections. See, there is no EMI collections in a gold loan. It is only bullet repayment. So people are coming to repay the loan. They are coming for fresh loans. They are coming to pay interest.So I think it's almost as business as usual going forward from here. Now the drop in yield -- the drop in the yield is always -- there is a 1% fluctuation in the yield every quarter. Sometimes it is 22%, sometimes it is 21%, sometimes it is 20%, it goes back to 21%, et cetera. There is nothing -- there is no specific reason for that drop in yield. It is because sometimes, occasionally, we give different schemes for customers also.So that must have the some of the impact of that only. I don't think there is anything else to that because we are not consciously done anything to reduce the yield.
Right. And just one last question, sir. How much of -- have you -- first of all, have you done any auctions in this quarter? If yes, can you just tell us the quantum?
Yes. We have done about INR 37 crores of auctions.
INR 37 crores, right?
Yes.
We will take our next question from the line of Amit Ganatra from HDFC Asset Management.
I had a question on the balance sheet movement Q-o-Q. So effectively, on a flat quarter-on-quarter even, your borrowings increased by INR 1,800 odd crores. And this was on a balance sheet which was already carrying excess liquidity until previous quarter. And even in your presentation, if you see Q-o-Q cost of funds have gone up, so incremental borrowing cost also seems to be higher. So can you explain what has happened this quarter? Why this kind of balance sheet movement as well as the increase in cost of funds Q-o-Q?
So sequentially, the absolute amount -- finance costs has gone up, that is because the level of borrowings which was there in the Q4 because of the growth in Q4, that borrowings have gone up. Second, there was a churn in borrowing. So we had about INR [ 1,009-odd ] crores of NCD repayment. But in June, we had raised some about INR 1,900 crores of -- INR 1,500 crores from NCDs in April. So that was carrying as an additional liquidity in the books. But net, at the end of June, we won't see that additional amount which has raised. So for the almost like 2 months, we have incurred additional expenditure on those additional borrowings, which we have adopted. And in terms of cost of borrowing, I think we should see that coming down. Probably a little bit of averaging impact also has impacted the cancellation. But otherwise, I think in the next 1 or 2 quarters, we should see a significant decline happening in cost of borrowing.
And what should we expect on liquidity? Because liquidity also Q-o-Q has actually gone up, excess liquidity that you're carrying on the balance sheet?
See, I think, at least for some time, we have to maintain this level of liquidity, as we have explained in previous quarters also. One, because of uncertain times, it's always better to carry excess liquidity. And it gives a lot of flexibility for us also to negotiate better rates, et cetera. So we don't want to be stressed in terms of the liquidity portion.Second, it helps us in planning for the growth. Because all of a sudden when the growth starts happening, we don't have a runaround for raising fund. So it helps planning our growth plans -- I mean, meeting our growth target. Third thing is that the liquidity coverage ratio also has been implemented. So we need to ensure that these are all maintained. What we need to look at is how we can increase the returns of the excess liquidity of this we are carrying. We are taking certain steps in the next couple of quarters, which will increase the yield on these idle funds which we are maintaining.But I think at least for some few quarters, we have to maintain this excess liquidity in the books for planning our -- meeting our business targets.
We'll take our next question from the line of Prashanth Sridhar from SBI Mutual Funds.
Just 2 questions, sir. One, on the gold loan market, if you could just give us some idea of the on-ground situation, maybe not specific to you. Well, I guess, Muthoot Finance doesn't do much auctions, but a couple of news items saying that increased auctions or increased non-repayment, et cetera. Just some idea around that. And for Muthoot Finance, on the non-gold loan businesses, if you could give us some idea on Stage 2 and restructuring and maybe collection efficiency on the MFI?
See, on ground, the gold loan business is growing now. And if you want a comparison, there was some talk about in the news also about too much of auctions coming, et cetera. But I think those came because some other companies has given short-term loans. So when they do short-term loans, it becomes nonperforming or a technical nonperforming becomes quickly easy. So in order to not to show too much of NPS in their books, they would have done auctions. But since we give the loan for 12 months, we have time. And none of these loans are becoming a probable loss item, because the present gold price can support even in a bad time for them. So we don't foresee any loss except on these accounts. So that is why we have been maintaining them. So probably, if need comes, we will also be doing some auctions. That is a regular feature, monthly, quarterly auctions. Probably last quarter because of the lockdown, et cetera, also auctions were very low. But going forward, we should see some auctions also. Last year also, we did INR 400 crores of auctions. So similarly, we should see this year also.Then your next question is about the collection efficiencies, et cetera, in the other verticals. See, other verticals, they are...
The Stage 2 and restructuring and collection efficiency.
I know, I know. So the other verticals have the EMI cost. So because of that, they have Stage 2 assets, et cetera. And the collection efficiency for them with the Stage 2 is for the home finance. April, it was INR 84 crores; May, it was INR 83 crores; June, it was INR 87 crores; and July, it is INR 88 crores. That is on a portfolio of INR 1,900 crores. And for the Muthoot Money, which has a portfolio of INR 330 crores. The collections in April was INR 71 crores; May, INR 65 crores; June, INR 76 crores; and July INR 77 crores. You see things improvement also happening. So going forward, it should only improve. But as I said, unlike the gold loan business, all the other businesses have the market problems. Every NBFC is doing vehicle finance and affordable home finance has the same issues. I'm sure we will all come out of it going forward. But the remaining fact we have is that our vehicle loan portfolio is only INR 333 crores and our home loan portfolio is only INR 1,700 crores.
Sure, sir. Anything on the MFI, sir? And any idea on the [indiscernible]?
MFI, the March was -- collection was INR 94 crores; April, INR 89 crores; May, INR 71 crores; June is INR 65 -- INR 66 crores.
Mainly because of the lockdowns. Mainly because of lockdowns. MFI, you need to go there and collect.
The average Stage 3 asset of -- Stage 3 of INR 112 crores and Stage 2, INR 283 crores, out of INR 3,100 crores.
Our next question is from the line of [indiscernible] from [ Point72 ].
So firstly on the growth part. I guess, to see our minimum target 15%, that's about mid-single digit Q-on-Q growth for the next 3 quarters. Do you like to give us some color on how should we think about the trajectory of the growth? Is it more like gradually step up and more of like a half weighted? Or how should we think about it?
See, regarding the growth, we have been giving a guidance of 15% last 3, 4 years. And going forward also, we would like to give the same guidance. But our actual performance would have been much better. Last year, instead of 15%, it was 24%. Prior to that year, it was 22%. And prior to that, it was 18%. So it also is a matter of which of the economic activity, et cetera.So as I said earlier, if things really look up well and credit demand picks up, the first person -- the people come to gold loan for the first time. The first loan they will take will be from a gold loan, this is the most easy. So we should see good growth pickup if the economic activity picks up. But we said 15% because that's an estimate we have been giving over the last several years. I'm sure we should be able to do better than that.
That's clear. Then so if I look at last year, after the first wave, September, we had a very tremendous, good growth. I'm just wondering whether we are looking at similar kind of situation for the second wave here? Or there's some fundamental difference?
Yes, because the first wave happened in the month of March, April and May. And this time, it happened in April, May and June. That means all the 3 months of this quarter were affected. Whereas last year, 1 month of the previous year and the 2 months of the second quarter affected. So quarter 1 of last year was a little better than quarter 2 of this year. So quarter 2, things started looking up only by end of June. So I think July, August also things should be looking better.
Right. But last year, September quarter, we had a very good quarter. And I don't know whether it is because of a pent-up demand or anything. Do you see it repeating this year?
Yes, we can expect good demand. I don't know whether we should see the same demand of last September in this September also. But we should see definitely better demand for gold loan next 2, 3 months, surely.
Got it. So last one is on the yield slide. So I understand that there's -- sometimes you will give some schemes. So are we thinking of giving a little bit more promotional cash schemes to kickstart the demand in the near term? Or how should we think about that?
Yes. I think we have some good budget for sales and marketing work. We do quite a lot of advertisements also. And we also bring up newer and newer schemes probably offering new schemes, various schemes, et cetera, to keep some excitement within the employees and also with the customers that new schemes are coming. Also all sorts of schemes so that we keep the excitement, both within the employees as well as with the customers.So we have to do some of it. We've seen doing some of these things to generate newer and newer business, and it has almost -- always paid off. Our advertisement and marketing has always paid off. So actually, we can see a lot of advertisements in the local newspapers we have started last 2 months. And now that the pandemic, the COVID protocols, et cetera, are relaxed, we have started giving more and more advertisement. So that's coming more in the print media as well as in the TV, mostly in the local languages because the customers there are local language customers.
Our next question is from the line of Abhijit Tibrewal from Motilal Oswal.
Sir, I think my first thing is to kind of congratulating for all the grit and resilience that you have kind of demonstrated this quarter and last year during such tough times. Sir, my question was more around that you have already touched upon it briefly in some of the last questions. And what I'm trying to understand is, whatever demand or the disbursement that we saw during 1Q, was it also a function of the fact that certain markets which are, I would say, your strongholds were seeing relatively stringent lockdowns compared to the rest of the country, even, let's say, towards the end of June?And a related question here, sir, when you say demand is picking up, is it that demand is more strong in the northern part of India compared to the southern markets?
See, when we say demand -- see, when business is open up because that -- at that time, the people need funding to restart business, to do extra stocking, et cetera -- stocking up their goods. So our main customers are small shopkeepers, traders, small businessmen. When their business actually opens up, it's the time they need money. And that is the time they have come for the gold loan.So North India also I think Delhi had a very tough lockdown, last 2, 3 -- 2 months. But now things are opened up. Tamil Nadu, et cetera, is now fully opened up. Kerala is not fully opened up, but of course, our Kerala market -- our Kerala business share is very little. So we have about 3% of our portfolio. But still some branches, some places are opened, some places were opened till afternoons, alternate days, et cetera, et cetera. Now I think everywhere it is opened all the day.So that's what I said when business is picking up, small businesses should pick up, that's what we should. When small businesses pick up, they need money, and that's the time they come for a gold loan. So that's what I was saying. So it's not that our stronghold markets, we are strong in many places, and it's not that we are strongly in some place. We're strong everywhere. But then it is only up to the market which opens up for the business activity it starts. When the business activity starts, we are in demand. Our gold loan is in demand.
Sure, sir. And sir, the second question that I had is while you are not in favor of auctioning a lot. In other words, if you look at the last 3, 5 years, the quantum of auctioning has actually been kind of coming down on a Y-o-Y basis. But I mean, referring to the same article, which talked about a lot of auctions for one of the other gold lenders, but the same article also said that Q2 is exactly 9 to 12 months after we saw a peak in gold prices. And because a lot of lenders like yourself or for that matter, banks, who lent at 90% LTV back then might see higher auctioning in 2Q. What are your thoughts on that?
See, auctioning happens when customers are abandoning the gold. So we have over the period of -- over the last several decades, we have been having definitely a much better relationship with our customers than many others. We are always in touch with them. We are collecting part interest from them. Although it is good for a year, we give schemes for prepayment of interest. So if they pay interest quarterly, we give some good discounts.If they pay monthly, we give better discounts. If they pay half yearly, we give discounts. So in spite of we have given a loan for 1 year, we keep constantly collecting interest from them. We keep constantly engaging with them. That is why we are able to not have to go to the last resort of auctioning. So of course, we also do auctions. We have done auctions. Two years back, we did about INR 1,000 crores of auction. Last year, we literally did about INR 400 crores of auction. So that is actually very miniscule when we compare with the lakh of crores. We lent INR 1,25,000 crores last year. And of that, only INR 400 crores are auctioned. That means it's a good sign that our contact with customers is better. So -- but when somebody looks only at the LTV and give it at 80%, 90%, and they have no other ways of contacting customer and collecting it, then they have to go for auction.So that's what I always say that gold loan is a very operationally intensive business. People think it is very easy, but it is very operationally intensive, operationally challenging. And many people think just one cut, give it, wait for it, doesn't come, auction it. That is not how gold loan is done. That is why customers -- such customers don't go back to them for the second loan. We have more than 70%, 80% of our customers coming back to us later on. That is why we have the better relationship with our customers. That is nothing -- that is something which we have developed and we have nurtured over the last several decades, which has not been able to copy or emulate by the new players. So they have to -- they have only one thing, they give the loan. They doesn't pay, auction it. That is not the way gold loan business is done.
And just to clarify, we never said that we are not in favor of auctioning or we are in favor of auctioning. These are all need based actions which is required, just like MD sir mentioned.
Mr. Tibrewal may we request you to move to the next -- I mean, return to the queue as we have several participants waiting for their turn. [Operator Instructions] Our next question is from the line of Shubhranshu Mishra from Systematix.
And I've got a few questions. One, I wanted to understand the direct process of auctions as such, what kind of pricing we use, who are the bidders, and what are the various safeguards for any kind of foul play that can happen in any kind of auction? Is it centralized or is it done in branches? That's the first question, sir. Second is actually database. What is the interest accrued as of this quarter versus 1Q FY '21? And what is the percentage of AUM, which is more than INR 1 lakh of ticket price?
So auctioning and auctioning properly is an art in itself. It's an art in itself, and we do our auctioning at the branches, at the regions in the districts and in the states. So it's not centralized. It is done at the branch level. So we ensure that we get a reasonable -- a correct price, and we have not had any -- what I should say, any frauds, et cetera, in the auctioning process because we are very much in the ground, we know the ground realities. So we see -- we ensure that whenever the auction, we get the best price. There are always chances of the auctioneers of jewelers coming forward and ganging up, et cetera, that happens. But since we have been doing it for the last several years, we do it. Then we also have e-auctions, we do online auctioning also. So that has also started now. So I think we are the few companies -- one of the few companies, which are doing this e-auction. This also helps in this transparency and also getting better yield on the gold loan portfolio.Your question about...
Yes, interest accrual as of June '21 is INR 2,925 crores. Last year June, it was INR 1,835 crores.
And gold loan more than 1 lakh [indiscernible] percentage of premium this quarter?
I think it should be almost the same. Just give me a second. It'd be 53 percentage.
We'll take the next question from the line of Prakhar Agarwal from Edelweiss.
Few questions. To start with, when I look at your overall gold portfolio, so there is other loan component, which is INR 500-odd crores. So we have seen a significant rundown in that [indiscernible] from a 2-year perspective. What experienced this? What is the outlook on this segment?
Look, other cost of -- yes, other loans has unsecured personal loans, and it is about INR 330 crores, and we also have about business loans and miscellaneous certain loans of about INR 70 crores and we also have given out loans to subsidiaries about the remaining portion will be loan to subsidiaries, that will be about...
INR 200 crores.
Loan to subsidiaries about INR 120 crores. So you're asking about the growth [indiscernible] Unsecured personal loans will gradually grow. Similar business loans also, we have a focus that will also -- that is currently about INR 60 crores and will also grow, but of course, not to the extent of the growth in gold loan.
Okay. Sir, second question is in terms of your growth that we have been seeing. If I were to look at last 8, 10-quarters and then see how your yield growth has been, large part of that has come from a value segment. And at least when I look at from a volume perspective, growth has been [ objectively softer ]. What explains this and how do we see this going forward?
We didn't understand your question. What is that?
So overall, AUM growth that we have seen, if I were to look at year-on-year comparison, large part of that has come from AUM per gram increase rather than tonnage increase. If I were to just look at the numbers that it is at lower single digit, while your AUM per gram growth is in excess of 20% cost. So how do we see this -- what explains it? And how do we see this going forward? Does it mean that more customers are essentially lower? Or how do we see this going forward?
See, you should understand something. I think we have been explaining in the last 2, 3 quarters also. When a customer needs INR 50,000, earlier, he had to bring 40 grams. Today, he need to bring only 30 grams. So it's evident there. So in 30 grams, he gets the same amount what he got for 40, INR 50,000 last time. So he'll bring only 30 grams and rate per gram will be higher. So today, he will not expect the rate per gram at the old rate. He will do only what is required. So the rate per gram will be concurrent with the current price only. If the gold prices is high, the rate per gram also will be high. If the gold price is low, the rate per gram will also be low. Suppose the rate -- the gold price falls, the rate per gram will also fall. That's the explanation, sir.
I'm sorry, Mr. Agarwal, we -- may we request you to return to the queue. There are many...
This is just a follow-up on that. Anyway, I'll take it later.
We will take our next question from the line of Manan Tijoriwala from ICICI Prudential Asset Management.
Could you share how much total provisions are carried on the standalone and consolidated loan book as a percentage of total loans? And how much of this would be, say, probably excess in your opinion across the businesses right now?
So, the ECL provision as of June is INR 650 crores. In addition to that, we have some excess provision retained in the books, about INR 295 crores. So roughly, we have about INR 945 crores of provision sitting in our books. And consolidated, it will be another maybe INR 100 crores more.
The gold loan portfolio has about INR 900...
INR 945 crores.
INR 945 crores. The subsidiaries have about INR 150 crores, I think so.
[indiscernible]
Excuse me?
[indiscernible] subsidiaries, right?
[indiscernible] yes. Yes, another INR 150 crores.
Our next question is from the line of Bunty Chawla from IDBI Capital.
Just one query. If we see the employee expenses, which is approximately INR 231 crores in this quarter. If you compare with the last 4 quarters, in fact, it is the lowest among these -- last year, same quarter, we know there was a complete lockdown. But after that, in Q3 and Q4, there were hikes and all those things happening, because the business picked up. So we thought that run rate could continue in Q1. And if you can share how this employee expenses will -- run rate will go in the next 3 quarters?
No, I think employee expense is almost similar to Q1 of last year. March, there are certain performance incentives, et cetera, [indiscernible] which gets added up. So -- which is quite consistent across the last several years. So net, net, there is no much of a [indiscernible]
So for full year, what should the run rate we can as compared to FY '21? What could be the...
FY '21, which is last -- INR 1,006 crores is the last year's full employee cost. We should expect something similar this year also. It all depends upon the various pay hikes, et cetera, happen in different points of time.
Our next question is from the line of Alpesh from Motilal Oswal.
Congrats on good set of numbers. Sir, first question is regarding the new customer acquisition. Despite having a lockdown, we feel that the new customer acquisition is quite strong in this quarter. Can you just throw some light on that? That's the first part. Secondly, as far as growth is concerned, by the quarter end AUM is positive of -- while the quarter end AUM is flat Q-o-Q, but there we see a decline in April and May months considering the interest expense -- interest income is down quite sharply on a quarter-on-quarter. And lastly, what is the reason for a Q-o-Q decline in the other operating expenses and the directors [indiscernible]?
See, the growth -- what is the first question? Growth?
New customer.
New customer. We were able to add about 50 or 60 -- 50,000-plus new customers, because in the last April -- May and June, we were in many parts where -- which was opened, we were able to get fewer customers that's actually -- kudos to our marketing and sales team that they were able to add new customers. In this difficult time also, it's definitely a good achievement from the marketing side. Because in the month of June, et cetera, we have started good advertisements also, newspaper advertisements, et cetera. So I must say these some of the reasons why new customers would have come. And next question?
The operating expense -- so the operating expense for the current quarter, starting the fourth quarter of last year is low because fourth quarter of last year, it was -- the CSR expenditure book was about INR 45 crores, which was not there in the current quarter. So that is one reason why the expenses. Second reason is advertisement expenditure. Quarter-on-quarter, it is low by about INR 17 crores.
And is there any bunching up of Directors remuneration in the fourth quarter?
It is usually paid at the end of fourth quarter.
Sir, could you please return to the queue?
I'm sorry, the questions are not completely answered. There is last question there. Regarding the AUM number, the April and May month, did you see a decline in the AUM in June...
If you look at -- for Muthoot Finance, it was almost like a stable. And if you look at the gold loan piece, we have grown by about INR 100-plus crores. So it was almost at the same level. Now one thing which you can differentiate between the last quarter is that last quarter -- last year this quarter, it completely shut, but there also we were functioning. But this year, what happened was that, though, it was opened, it was not consistent. The branches were on and off, they are opening and closing. So throughout on and off we were able to open the branches, but it was not consistent. So if you look at the disbursement for the last year -- this year, in the first quarter, the disbursement and collection numbers are lower than last year.
Our next question is from the line of [ Veeral Gandhi from Ninety One Asset Management ].
Just about your NIM. I saw NIM fell this quarter -- quarter-on-quarter. And earlier on, you mentioned you occasionally offer schemes. Could you just try to give a little bit more detail on why NIM fell? And also what your thoughts are on where NIM will go for the rest of the fiscal year?
So just to give you perspective, see, gold loan is a very short-term product. And like MD sir mentioned, last year, we disbursed about INR 1,25,000 crores. But the portfolio is remaining outstanding in the book is only about INR 50,000 crores. So there is a churn which happens in the portfolio. And quite often, there is a flicking in terms of the schemes. And added to that because of the COVID, a lot of these discounts, et cetera, have been offered across the various schemes. So all this have an impact. But at the end of the day, generating a return on asset of around 7.5 percentage, which is very attractive and generating a return inclusive of almost of like 25 percentage.
Okay. And the future direction?
See, I think, we are generating about 7 to 8 percentage. I think that should certainly continue. And that our leverage is significantly going to improve from the percent 2.7. So I think 7% to 8% is something which we should look at, at least for the near future.
Return on asset.
Return on asset.
Okay. Last one was just on impairments, which were quite high this quarter. Why was that?
So on the impairments, like it's -- the impairment is based on the loan assets as well as the interest accrued. So both together, the portioning, et cetera, modest quantify. And second that there is a movement in terms of from Stage 1 to Stage 2 and Stage 2 to Stage 3 as well as crisscross changes. It also has an impact on the total amount of impairment. So to answer your question, the current quarter, the impairment is primarily because of the increase in interest accrual and correspondingly, the increase in the ECL provision.
Our next question is from the line of [ Rikin Shah ] from Credit Suisse.
Just have one question. I wanted to better understand the process of online gold loan business. I understand that around 30% of gold loan customers transact online. But what's the entire process in terms of onboarding them, doing the transactions and the disbursement that we think?
Online transactions means, actually, we encourage customers to transact online. That is to take their money online, to repay their money online, to pay their interest online. Actually, we have a hybrid system of actually assisted online boarding. So because our customers are not the high-end customers, we have to assist them initially to onboard them. So we encourage them to pay up their interest -- pay interest or take further loans on the gold through online. So actually, more than 70% of our customers transact online, but they don't do 100% of the transactions online. If the branch is open, they would rather come to the branch. If they have a difficulty in coming to the branch, lockdown or any other thing, they use the online business. But most of them are tuned to do it, if need be. 90% of our customers prefer to come to the branch if it is open. If it is not open, it's a type they use this online method. And this online also, we onboard them with assistance. So that is what.But then here also, the -- originating a loan, bringing their gold to the branch cannot be done online. The customer has to come to the branch and do the gold loan. When the customer wants to take back the loan, he has to get back the gold, he has to come to the branch to take back the gold. All the other -- financial transactions, you can do it online. And we encourage them to do it. Especially when all these lockdowns, et cetera happened, many customers used to pay their interest, principals, take more top up loans, et cetera, on this online business. So it has actually picked up well. But if given a chance, customers prefer to come to the branch to transact.
We'll take our next question from the line of Shreya Shivani from CLSA.
This is Piran Engineer from CLSA. Congrats on the quarter. Just a couple of data keeping questions. Firstly, if you have it off hand, what is the breakup of this INR 2,700 crores interest income? What is the breakup between regular interest and penal interest?
Penal interest is very little, sir.
See penals are normally applied for loans above 12 months. We have very less...
We have very less, very less.
Okay. Because in the past [indiscernible] quarters when...
So I understand what you're saying. When we auction a gold loan or when somebody has taken or we keep the gold loan more than 12, 16, 18 months, at that time, they pay a penal interest. That is when we keep -- at some time, we have an NPA of about 8% -- 5% or 4%, et cetera. At that time, a lot of old loans were there. When those loans get closed, they give a lot of penal interest. Now our NPA is only about 1%. So that means loans above 12 months is very little. So on that only very little penal interest will come now. Earlier when we had accumulated a lot of old loans, then the interest plus penal interest was there. That was what you were referring to earlier.
Yes. So for the last few quarters, we've not had much penal interest?
Yes, yes, yes. Yes, sir. Yes, sir.
Okay. Okay. Got it. My second question is for Oommen sir. You mentioned that we are keeping high liquidity to comply with LCR. So I was just curious to know what our LCR is? And secondly, what are our undrawn credit lines from banks to cater to the growth if it comes? Why do we need to have on balance sheet liquidity? Why not just keep undrawn credit line?
So this undrawn credit balance sometimes doesn't come if there is an issue. If there is a market hiccup or something is happening in the market, banks just will not do the undrawn credit also. They will see some excuse not give it to us. So it is a risk just to keeping everything as undrawn credit. And one final morning, when there is a real demand and there is some commotion in the market, banks is just delayed. So that is something, which we should not end it for us. Gold loan -- a customer comes for a gold loan, we have to give the gold loan. If we don't give the gold loan, that is one of our main USP. Customers know that if they come to Muthoot, they can get money. So at the cost of some -- what should we say, some interest loss, it is better to keep some funding with us. That is the policy. That's a thought behind keeping a little extra. Of course, we understand that it is interest negative. There's a negative carriage. But I think, overall, we should see that it helps in the business growth. That is why we keep this. It is not that -- we are aware that there is an interest loss, but then it helps with overall business. And Oommen always says that it helps in negotiating for better rates with other lenders also.
Okay. Sir, may I squeeze in one more question. Okay. I'll just go ahead. And this question has been asked before, but I really want some clarity now. We've seen banks compete quite heavily like State Bank of India's gold loan book has gone from INR 5,000 crores, INR 6,000 crores to INR 20,000 crores. And the rate at which they are growing maybe, who knows in a few years, they might even overtake us. So like what exactly is our strategy here to counter competition? Because while this may be temporary or not, we don't know right now. It may turn out to be a more permanent sort of competition. But nevertheless, we need to have some strategy to keep competitors at bay, and especially such large competitors. So have we really chalked out something?
There's one point of clarification. What we have is -- State Bank of India has a very large portfolio, not the number which they are disclosing now. Because a lot of these loans are hidden under the agri portfolio, et cetera. So they have now started disclosing only the non-agri portfolio. So they have a very large portfolio. And what we hear is that banks have put a lot of restrictions now on these agri, gold loans, et cetera. So gradually, we'll see this agri loan portfolio getting shifted to the non-agri portfolio. So there'll not be surprises there. Suddenly, we see these numbers going up. So it will be only a shift around the agri portfolio to non-agri portfolio.
Anyway to ward off -- we can't ward off competition. We can only do our work better. So we can't wish others not to do the business. Let them do the business. But then we -- as I said, we will try -- we will try our best to see that we grow at least 15% year-on-year. So we have some things, some schemes, et cetera, in our mind so that we see that we are able to grow the 15%. I think that is what we are here for.
We'll take our next question from the line of [indiscernible] from B&K Securities.
Yes. So my question was on yield for the first quarter. Usually, you said that it's a quarter phenomena. Sometime it's 22%, sometime it's 21% and 23%. But when I see trend for the last 2 years, that is FY '20 and '21, last quarter June and also previous year's June, there also the trend is definite in terms of having a lower NII or lower yields in first quarter of the year and then it bounces back in Q2 pretty high. So is there any trend in terms of repayments being less in first quarter, or the bullet payments being relatively lower in the first quarter and then it bounces back in Q2?
Yes. Almost you answered it. Sometimes in quarters, all this makes a slight difference, 21%, 20%, 22% et cetera. I think we should not throw too much light on that. Finally, we should see that our NIM, et cetera, or the interest spread is protected. That's what we are trying to do. So sometimes, there is a variation of 1%, 1.5% quarter-on-quarter, et cetera. And by year-end -- as you said, by year-end, we should be able to do better. But then even 21%, 22% is a very good yield. Even 21% is good, 22% is too good. So being there itself, it could something very good to achieve.
Absolutely. Sir, my question was not on mainly quantum of yield. But in FY '20, per se, in first quarter, we had a 3% de-growth in NII. And then next quarter, it was 21% sequential growth. So I was just asking about the phenomena.
Yes, yes. So when the business also picks up, the interest fees also should pick up.
Our next question is from the line of [ Ankush Agarwal from VP Investments ].
So again on the yields, as you earlier mentioned that these goes from like 20% to 24%, right? So what are the factors that determines the end rate that you charge the customer?
So we have different schemes for different -- sometimes we give a lower yield. School opening season, we can do a lower yield. Some other festival season, we can charge the higher yield. So it is just a geography specific, season specific, et cetera, we have. So we actually have to keep the customers also happy. Sometimes we are -- we cannot advertise in the newspaper that we are giving loans at 22%, et cetera. But we have to advertise since we are giving at 11%, 10%. So we give at 10% also some loans. Others, we do higher rates. So we have to -- we actually say these are all competitive rates, et cetera, we have to offer here and there. Then only we can keep the customers happy and probably excited -- excite our staff also, because they also shouldn't come in say, sir, some other bank is giving at lower rate, our customers are going there. So we have to compete there also. So daily routine, sir.
Got it. So it's mostly like market dynamics and competitive scenario?
Yes, exactly. Exactly.
Right, right. So secondly, I wanted to understand some basic requirements of business, right? Given that the short-term nature of our loans, there will always be large inflows and outflows of cash. So does it result in a situation where in a certain level of liquidity is sitting idle during the transition phase of the loan? Is that understanding correct?
See, we answered it once or twice also. Keeping some liquidity at stake, it helps in the growth. Growth is really coming and we need money. Sometimes this -- the second point is that keeping liquidity is also good for us. And the third is -- yes, okay, okay.
Yes. So what I was coming from is, I understand that you're doing it to manage the growth requirement and those kind of other things. But I was saying that there is a built-in scenario on the business itself, wherein the loans are going in and out constantly, right? It results in a situation wherein the lot of buffer of liquidity gets accumulated.
Yes. I was going to answer that only. See, if you are giving a loan for 3 months or 2 months and the loan is being paid back, and there is mark-to-market have a lower borrowing also for 3 months. Then it means that the loan, et cetera, gets extinguished, my deposit also get extinguished. That's not the question here. We have to keep all giving loans, because our loan churns in 4 months. So there will be every day, so many of people will come and repay. The same day, we have to give loan also. So finally, if you are going to stop the business, it is nice. Fine. Everybody will pay, everybody has repaid.But then if you are to continue the business, then we need to keep on giving loans. If -- the day you stop giving loans, then everything will come down. Of course, finally, there's not been any loss. The whole thing can get back, but then the business will not be there. So that is why we need to keep on giving loans. So that is why we can't mark the loan at a 3-month loan and take a 3 months deposit or 3 months borrowing. That's the problem. That's the issue which I said.
Ladies and gentlemen, due to time constraints, we will take one last question. That's from the line of Digant Haria from GreenEdge Wealth.
So you explained really well that gold loan is a very operationally intensive business. And everyone in the market knows that Muthoot Finance has mastered this business very well. So do you see any pressure on your employees, because a lot of your competitors are opening new branches or trying to introduce gold loan as a product in their branches. So is there a big competition in the market for your employees? And what, as a company, are we probably going some extra mile to maybe retain them, reward them? And are we running more schemes than usual, because of the competition? Sir, if any color you can give on this particular thing that would be useful?
Yes, yes. As you said, everybody worth their name wants to start a gold loan business today. And the easiest way is to take some managers or some other people from Muthoot or some other good company and start the business. But then, as you also said, it is a very operationally intensive, operationally challenging business. It looks very fine from outside, but operationally, everything is a challenge. Everything is a challenge. Whether it is the -- keeping the gold, taking the gold, checking the gold, dealing with customers, auctioning it, accounting, everything is a challenge because people just sometimes forget that. Just by getting 2 or 3 people from our staff, maybe paying them some 20%, 30% extra, they can do business. But quickly, they will understand it is not possible.Now for employee retention, et cetera, many of our good employees are actually -- they have a lot of trust and confidence in us. And they just don't jump the ship when somebody shows a carrot. Just a carrot, they may not jump. So we also keep a lot of employee engagement programs, rewards, recognition, incentives, et cetera. We keep them -- try to keep them happy. But all said and done, there are people who are trying to poach some of our staff. We are aware of it, but what can I do on that. But we see that we retain the good people with us. So it is not a good practice to poach people. But there are some companies, who are trying to do that, which is also unfair.
Okay. Right. Sir, any other things you are doing to like just more marketing at the branch level or more schemes or more than what we usually do, because of this excess competition phase that we are right now seeing?
No, it is not because -- see, I don't think we see a competition from these other NBFCs et cetera. The bank, et cetera, everybody is there. But we keep revising new and newer schemes. Today, some schemes we give a INR 99 paisa -- 99% -- INR 99 paisa interest, that is about 11.9%. So we have to advertise, we have to keep the staff also motivated. Staff also is challenging, because somebody shouldn't come and say, State Bank of India is offering at this price, so customers are going from here to there. So we have to have a scheme for them also.But finally, we try to see that we are able to protect our blended yield. That is what we are trying to do. And I think, to a great extent, we have been able to protect that yield. Going forward also, we will devise some good strategies in between to see that retain our employees, we keep them happy, we retain our customers also. That's more important than the employee is also the customers. If the customers are there, then things can happen. So we have some things customer-centric as well as employee-centric to do these things and then I'm sure we should be able to tide over this thing. Earlier also, about 10 years back also, we had the same issue. Everybody jumping into this soon after our IPO when there was a lot of visibility on Muthoot and gold loan and profit and all these things. But then it's also fizzled out after 1 -- after 1 year or so, probably. This may fizzle out, may not fizzle out. But let us see, we are there to see competition also. I think that's our job here.
Digant Haria, I don't know whether you have seen that news, one large institution where a big fraud has happened. Some -- the branch manager or the employee has replaced some 400 or 500 packets. And that institution suddenly trying to probe the -- fraud happening around about 300, 400 packets, it's a very large amount. So I don't want to name the entity, but those are the risks involved. Just because you have people and money, this doesn't work.
Right, right. No, no sir, I'm sure you guys have seen cycles, and you have a great process around it. So competition or no competition, Muthoot keeps doing well. So best wishes to all the team. I mean you guys have done a really great job in the last 12 months.
Thank you, Digant.
I now hand the floor back over to Mr. Kunal Shah from ICICI Securities for closing comments. Over to you, sir.
Yes. Thanks to the entire top management team of Muthoot Finance for such elaborative answers to all the questions. And thanks to all the participants for participating on the call. Have a nice weekend. Thank you.
Thank you, Kunal. Thank you, participants. Happy Onam. Having Onam this month here.
Happy Onam, sir. Yes.
Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.