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Muthoot Finance Ltd
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Ladies and gentlemen, good day and welcome to Muthoot Finance Q3 FY '21 Results Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Shah from ICICI Securities Limited. Thank you and over to you, sir.
Thank you, Ayesha, and good evening, everyone. This is Kunal Shah from ICICI Securities. Today, we have with us Mr. George Alexander Muthoot, our Managing Director; and Mr. Oommen K. Mammen, our Chief Financial Officer from Muthoot Finance, to discuss their Q3 and 9 months FY '21 earnings and to give the medium- to longer-term strategy on the business. Now over to you, sir.
Okay. Thank you. Good evening. This is George Alexander Muthoot, Managing Director, speaking from Head Office, Cochin. I have along with me our CFO, Mr. Oommen K. Mammen; and also our Chief General Manager, Mr. K.R. Bijimon; and the finance -- DGM-Finance also with me. And we also have 1 or 2 executive directors, Mr. Eapen Alexander and Mr. George M. Alexander. And George M. Jacob will also join in the -- another -- on conference with us. So I'm happy to present the financials for this quarter and also for the 9 months for Muthoot Finance and its subsidiaries. I think you all -- the report, et cetera, has been uploaded. It is all with you. We are very happy to say that we have crossed the INR 50,000 crores of loans in the assets under management, even on the stand-alone Muthoot gold -- the gold loan business. So we have reached INR 50,391 crores for the stand-alone at Muthoot Finance. And including the subsidiaries, the assets under management has crossed INR 55,800 crores. That's a landmark for the company. And also, our consolidated profit after tax has shown a year-on-year increase of 20% to INR 2,795 crores for these 9 months. And stand-alone profit has also increased 24% year-on-year to INR 2,726 crores. The branches -- branch network, we have been able to add about 150 branches in the last 1 year. So the branch stands at 5,417 branches. And yes, Muthoot Finance, as I said, has grown by INR 2,203 crores in this quarter. Muthoot Homefinance, which is a subsidiary which is doing the -- using the home finance business, has actually reduced its AUM because we are now little -- we are -- home lending is a little calibrated and cautious. So the repayments are coming. And so the assets under management has actually come down. Muthoot Belstar, which is the microfinance company, is doing very well. We hold a 70% stake in the company. It has grown its portfolio to INR 2,886 crores as against last year's INR 2,285 crores. They have come back to the pre-COVID base of disbursals as well as collections. The collections in Belstar is 98%, and in home finance, it is 88.7%. Muthoot Insurance Brokers also is doing well. It has reported a profit of -- for the 9 months, as against INR 5 crores, it has reported a profit of INR 12 crores. The Sri Lankan subsidiary, Asia Asset Finance, where we hold 72% stake, has increased its loan portfolio to INR 1,331 crores as against last year's INR 1,301 crores. But then we are now focusing more on gold loans, and the company now around 45% of its portfolio is today in gold. And going forward in the next 2 years, we would like to make it just like Muthoot Finance, 85% to 90% gold loan portfolio, and they're actually on track. The Central Bank has even kind of given license to open 15 branches. They have already opened 13 branches. So the business there is also -- that's where Muthoot Finance is going to be mainly focused on, gold loans.Muthoot Money, the vehicle finance company -- vehicle finance subsidiary started in October [ 2081 ], the loan portfolio stands at INR 421 crores as of December. The loan portfolio decreased by INR 42 crores during this year because here also, we are a little cautious and calibrated growth -- or calibrated disbursement only happening. There we -- Muthoot Money, the recovery is 83.85%. The -- we would have like to have -- we would like to add here that we have seen disbursements also growing at -- this quarter. And we have today a active customer base. An active customer base is customers who are personally having a loan account with us. It has also crossed the 50 lakh customer base. So 50 lakh customer base and INR 50,000 crores is what we have in the gold loan business. We have achieved a growth of 22% gold loan portfolio during the 9 months. Compared to last full year, we have achieved a 22%. So on the higher base, we were able to do a 22% growth. And we expect that by March, we should be able to have an AUM growth of 25% to 26%. That is our expectation for the end of the year. The profit also should certainly show improvement. We have an active and inactive, very good customer base. Our disbursements for the quarter were focused on new customer additions, fresh loans to active customers and to inactive customers and top-up loans to the existing customers. We disbursed fresh loans to 3.88 lakh new customers amounting to INR 2,796 crores, and inactive customers of 438 lakhs were also given loans of INR 2,960 crores. Subsidiaries are following a cautious approach. And otherwise, the share capital -- the net worth has reached INR 14,178 crores as against last year's percent of -- last year's similar number of INR 11,400 crores. So our capital adequacy ratio is to date 26.38%, which I think is definitely healthy. And our total weight of gold jewelry is 166 tonnes. Number of employees continues to be in the 25,000 range, 25,800, versus last year this time of 25,100. So one thing is that we were able to increase our business but without actually increasing the proportionate headcount also. So during this quarter also, I think we had issued public issue of nonconvertible debentures. During Nov of '20, we successfully completed our 23rd public issue of nonconvertible debentures, raising INR 2,000 crores. So overall, we see the growth momentum continuing in this -- next quarter also, and we expect things to be much better going forward also. So thank you, and I think I will end here, and we will be open for question-and-answer. Thank you.
Yes, Ayesha, we can start with the Q&A.
[Operator Instructions] The first question is from the line of Sanket Chheda from B&K Securities.
Yes. Sir, congrats on a strong set of numbers. My question was maybe growth beyond this Q4 going into FY '22. Now that we have seen in last 3, 4 quarters particularly our funding profile has become much more conducive to capture growth if the demand is available, so how do you see once we have already utilized the headroom available in the LTV? And -- yes, so headroom available in LTV. And I guess the loan per branch is also getting optimized. So how do we see loan growth or AUM growth going into FY '22?Do we maintain that we -- it would be easy to grow above 15% on a sustainable basis? So that's my first question.
Okay. I think we -- I said we will end this year with about a 25% to 26% premium growth. That is for this year. Going forward also, we have always been saying a 15% consistent growth which we will be able to achieve. And if things are good and okay, we can always do better. So 15% growth is something which we should be able to do in the coming years. Your question about branch optimization and the branch-level -- there's nothing like branch optimization, branch can do INR 10 crores or INR 15 crores or INR 20 crores per branch. That's not an issue at all. So there's nothing like branch optimization. And there is nothing also like LTV headroom, at least for existing customers. So we are getting -- we expect to get new customers to the business. So there is no LTV headroom, et cetera, but new customers come with new gold, and we should be able to do advances to them. We are seeing new customers. Last quarter also, we saw around 3.88 lakh customers coming and taking INR 2,700 crores of gold loan. We see that also. To answer your question finally, instead of 22% and 25%, we should see a 15% consistent growth coming -- going forward. If things are good, we should -- we can do better. Thank you.
Okay. And sir, one thing on acquiring new customers. We have been doing quite a lot of things in past few quarters. So maybe brand -- related to maybe branding of gold loans or maybe gold loans as a substitute to meet short-term or bridge loan need, do we see that easing of those now or -- which could be an added stimulus to maybe grow further in terms of loan growth as far as gold AUM is concerned, growing at...
Yes. Marketing, sales, advertisement are continuous supports. We need to do that to retain our mind share of the customers, and we will continue to do that. And it is not today -- advertisement today -- we do today, the effect may not come tomorrow. But then on a continuous basis, we always do the advertisements, and I'm sure it is effective, it is useful. We will continue to do that also.
The next question is from the line of Prashanth Sridhar from SBI Mutual Fund.
Could you give us the restructuring number and the 0 plus for the nongold 3 businesses?
So no, we have not initiated any restructuring as of now. Probably for some segments, we are thinking about it. But no, those are not material at all. That is too small. So as you know, now gold loan constitutes almost like 97% of Muthoot Finance. There are -- so just small loans. Hopefully very small.
Sure. Anything on the 0 plus for home loan, vehicle and MFI?
So I -- we said the collection efficiency in the home finance is 88%, the micro finance is 98% and the vehicle finance is 83.8%.
Sure. Sure. And lastly, what would be the incremental LTV on whatever gold loans you would have done in the second half of the last 2 quarters of like September and December?
As of December, the LTV is 67% with interest -- with accrued interest and 65% without accrued interest.
Okay. And incrementally, we would be doing it at about 75% given the competition from banks?
No. It will be -- incrementally, it should be in the range of -- usually, what we see is 68% to 70%. Some people take 75%, some people take lesser. So -- and always it has been 68% to 70%.
Okay. The Stage 3 is including or excluding the Supreme Court's judgment, what we have disclosed in the PPT?
See, gold loan, there is no Supreme Court...
So...
Yes, total loan growth, yes.
The actual 90-day-plus loans.
[indiscernible].
The next question is from the line of Subrat Dwibedy from SBI Life Insurance.
So first one was in the vehicle finance and home loans business. The efficiency -- collection efficiency seems to be a bit lower than some of the larger players in those businesses. So is it because of the lower base giving smaller businesses for you? And secondly, can you just share the Stage 2 numbers for these 2 businesses?
See, the home loan, the assets on the book is about INR 1,800 crores. And for Muthoot Money, it is INR 400 crores. It is -- the portfolios are very small. So probably, I don't know the comparative numbers of the big plus and the small plus. We feel -- I think industry level which is okay is what we feel. Probably there will be some companies who may be doing much better than that.
Okay. So and the Stage 2 numbers for these 2 businesses?
So right now, I don't have the numbers. Probably we can share it separately.
Yes. Sure, sir. And I had one more question. On Slide #30, you have shown margin on safety, which has kind of been going down from the peak of Q4 and Q1. So that means the LTV would have increased because of higher competition in the segment? And as what we...
No. No, LTV has increased because it is based on the -- today's market price. So the market price, when the gold price peak probably in the first quarter of the current financial year, the average LTV will come lower. So it was only 55 percentage. But the newer loans, we always give an incremental LTV with maximum 75 percentage. So the newer loans will move towards -- more towards 35% at the current gold price. So the average LTV tend to increase over a period of time. So that's why the margin of safety on the loan tends to come down. So if you look at the RBI, it's allowing 35% as the margin of safety. It should be only around 25 percentage. But because of the fluctuations in the gold price, the margin of safety sometimes tends to be higher. Sometimes it comes closer to 25%.
But it was never below [indiscernible].
Yes.
Sorry, I couldn't hear the last line, sir.
So it should always be below because we don't lend anything more than 75%. So if today the gold price goes up very drastically, gold price goes up, the margin will become -- margin of safety will become instead of 35%, it will become 40%. It's based on today's price.
The next question is from the line of Radhika Lohia from Mirae Asset.
So 2 questions from my end. First is if you can give some color on your Stage 2 assets in gold loan business and the pro forma Stage 3 that you're expecting.
See, gold loan Stage 2, Stage 3, I can give you the number. So -- but then it is actually irrelevant for this because Stage 3 is just loans which have crossed the 90 days. But the gold is -- the 100% plus gold collateral is tough. So it actually doesn't matter much. But I think the Stage 3 is 1.3%, I think so. So I'll give you the number. But this is irrelevant, actually.
So Stage 1 is 98.21%, Stage 2 is 0.48 percentage, Stage 3 is 1.3 percentage.
Okay. And the provisions that you created specifically for Stage 3?
Stage 3, it is INR 73.39 crores.
INR 73.39 crores?
Yes.
Okay. And the incremental yield is that you're offering currently?
Incremental?
The yield at which you're offering?
So, well, we have a product book which is ranging from 12 percentage or 24 percentage. The average tends to be somewhere around 22 percentage. Because in our business, the rates quoted is more like an annualized rate. So when you prepay the loan, we give a lot of rebates to the customers. Because of this, the average tends to be lower.
The next question is from the line of Utsav Gogirwar from Investec.
Yes. Am I audible, sir?
Yes.
Yes. So actually, I have a couple of questions. So firstly, can you just give some color on the growth -- loan growth, let's say, geography-wise? Is it like one of the regions like Maharashtra has done well for us? Or some more color on that because our performance is very good both on the tonnage and overall gold wellness in terms of customer addition, too. I just wanted to understand what has changed. Or just want to understand that part, first question.
So you wanted to know whether there is growth in Maharashtra?
No, sir. I just wanted to know if there is any -- any region has outperformed? Or is the growth, what we have seen, is it broad based? Just want to have more color on the gold wellness there.
So more or less, we would -- so the South contributes the 4% or 5% states contributes for 10 percentage, and the North zone geographies constitute 51 percentage. No, I think that the northern regions contribute about 23 percentage, West contributes about 19% and East contributes 9 percentage. I think more or less it remains in the same range.
Okay. Okay. And sir, second question is, so you have mentioned that you have added around 3.88 lakh new customers, right?
Yes.
So -- and the disbursement is around INR 2,750 crores. Is that correct number?
Yes.
INR [indiscernible] crores.
Yes. Right, correct.
Okay. So at least ticket size comes to around INR 70,000?
Yes.
So -- okay. And this calculation is right. Then what is -- so overall, the customer addition, how much is -- how many customers are more than 5 lakhs ticket size?
I think more than 3 lakh customer base is -- loan accounts -- it's about 20%, 22% of the overall portfolio, more than 3 lakhs. That's the cut I'm having right now.
Okay. Okay, sure. And then, sir, last question. If I look at the other income, there is some -- is there any one-off, INR 11 crores which we have in this quarter?
Other income?
Yes. INR 11.6 crores? Because usually, that is a very negligible amount. But this quarter, it's within high -- on the higher side. So I just wanted to check on that part.
INR 11 crores only.
Yes.
Yes.
Nothing great.
Okay. Sure.
[indiscernible] (24:23).
I've got...
Other income then.
[indiscernible].
Other...
[indiscernible].
Yes. Well, we can come back to you later on, on this.
INR 11 crores.
The next question is from the line of Piran Engineer from Motilal Oswal Securities Limited.
Congrats on a great set of numbers. I just have 2 questions. Firstly...
A little more louder, please. A little more louder, please.
Am I audible now?
Yes. Better.
Firstly, on a prior person's question on the NPL ratio for the subsidiaries. So have you all taken the Supreme Court dispensation or have you not taken it?
So Stage 3, we have announced sales, the actual 90-day DPD.
Okay. Sir because it's strange that with the collection efficiency in HFC of 88%, 89%, your Stage 3 has actually improved. And this is also very contrary to what we have seen for all peers in housing finance and microfinance where the NPA has actually increased. So any reason for the same?
No. I think for microfinance, we are mainly with the -- we have a such good group. Our sales group is our Microfinance Belstar. So I think 98% of collection efficiency there, it was mainly because of the MFB group.
So, I mean, housing finance...
The -- I think the previous company will say, ours is much -- many others are much better, they said. I don't know.
No. But, I mean, if 88% are paying, 12% are not paying, and then some amount will eventually flip into the 90-DPD-plus market. But yours, I think...
Yes. This is because...
Muthoot Money, last quarter, second quarter, it was 5.12. In Q3, it is 9.24 [indiscernible]. Of course, the portfolio that Muthoot Money has is quite low. It's only around INR 420 crores. Belstar, however, have done extremely well, and we have said that they have done...
They've done well.
Yes. They have done well in terms of the collections. They have increased their portfolio also by about INR 199 crores.
Yes. Sir, my question was mainly on the HFC thing, where our NPLs have improved 15, 20 in that.
Right. So on the HFC, the numbers, the Stage 3 numbers that are shown is after taking the Supreme Court orders. Without taking the Supreme Court orders, the Stage 3 assets is 6.81 percentage.
6.81%. Okay. Okay. That's good to know.
I also just want to clarify that, I mean, margin efficiency of 88 percentage is the collection efficiency for the current month EMI based on current month EMI view. So this is without having any arrear collections. It was just taking into account what is due this month and what has been collected for those new business.
Okay. Okay. That's good to know. sir. Sir, my second question is mainly on your liability side. In the last 2 quarters, we've raised about INR 8,000-odd crores. So firstly, why are we carrying so much liquidity on the balance sheet? Just about 6 quarters back, you used to barely have INR 1,000 crores, INR 2,000 crores. And secondly, what is the incremental cost of these liabilities that we've raised?
So I think we have discussed in the last con call also I think we -- with the current uncertainty and with the -- and the way in which we are planning to grow, I think we should have adequate liquidity available. Second, the RBI regulations also have come in for the liquidity coverage. Third, there was always an uncertainty linked to NBFCs and all in terms of liquidity. So we want to protect ourselves in terms of any such risk. So these are the main 3 reasons why we are carrying an on-balance sheet -- high amount of liquidity. There is always a negative carry in terms of this on-balance sheet liquidity. But going forward, I think we should see that as a normal practice which we should follow.
Okay. Then you said we were carrying only INR 1,500 crores 1 year back. But then you see, last year, we grew by INR 10,000 crores. So if we keep only very little cash balance with us and the banks' loans or borrowings are not forthcoming, we will have difficulty in growth capital. That is why we are keeping some money with us. So anyway, we are very much aware of that. It is having a negative carry, but then that is going to be part of the game only going forward.
So in FY '22, if growth goes back to 14%, 15%, we will still keep such high levels of liquidity on the balance sheet? Is my understanding correct?
Yes. I think...
Safe or sorry, which is better? Safe or sorry, which is better?
Okay. Okay. And sir, what was the incremental cost of funds that we've raised in the last quarter?
I think the average cost is about 8.45%. The incremental cost now depends on the bank funding. I think it should be somewhere around 8 percentage. On the NCD side, I think it should be somewhere around 7.5 percentage.
The next question is from the line of Shweta Daptardar from PL India.
Sir, a couple of questions from my side. Sir, firstly, can you provide color on the increased provisioning run rate for this quarter? The past 2 quarters, we have been putting up around INR 10 crores to INR 15-odd crores. This quarter, it jumped to INR 59-odd crores. Now by your commentary on the opening remarks as well, I understand that restructuring will be on the lower side. Although your housing finance GNP is exclusive of SC orders on the higher side, but I think the book is small. So then, what are you sensing ahead?
So this quarter, we have a higher ECL portion. One, as you know, the portfolio has increased considerably in the last 2 quarters. And the second thing, of course, there is a churn which happened in the portfolio, so -- which also has an impact on the ECL provisioning. So these are the 2 reasons why the impairment provisioning has gone up. So in the last year, it was only INR 10 crores. This year, it is -- this quarter, it is INR 58 crores. So probably, it is on account increase in the AUM.
Okay. Sir, more alarming trends...
To answer your question, we don't see any specific impairment [Technical Difficulty] solution. That's all.
Okay. Okay. Okay. That's good to hear. Sir, secondly, sir, you partially answered my question to the previous participant. So you are maintaining a sizeable liquidity on the balance sheet. You plan to maintain that for a -- for the growth reasons. Sir, you have been guiding always 14% to 15% growth. You continue to surpass your own guidance. So should we assume now that both your guidance as well as you delivering on the growth front will be on the higher side for this as well as for next year?
See, we told you we carry this because if we carry very little cash balance and if new funds are not forthcoming, we will not have capital to grow. So we see last year we grew by INR 10,000 crores. So if next year also a similar amount is required, we need to keep some cash with us. If we keep a very limited amount of liquidity, probably we'll be -- we'll take care of our liabilities. But then what happens to the growth capital? So I think going forward, we need to keep more and more liquidity with us, although it has a negative carry. I think in the present circumstances, a little negative carry we should be able to afford because that will finally help in our growth only.
So sir, finally, what is the growth target or outlook now?
Well, I thought I shared it initially. We have already grown by 22% this year. So we expect the -- to year -- to end the year with 25%, 26% AUM growth. And we have always been saying that we will be doing 15% year-on-year. We continue to say that for next coming years, we should grow 15%. But if things are okay and well just like last -- current year, we may be able to do better. But our guidance would be minimum 15% growth going forward in the years to come.
Sure. Sir, one last question from my side. Sir, what is the branch expansion target? I remember you mentioning we will be closing the year with 100 to 120 incremental additions. So where they are now? And as to -- how are you closing the year?
Last year, we have added 150 branches. In the next year also, we should be adding 150 to 200 branches. I think that 200 -- around 200 branches is our calibrated branch expansion plan.
Sure, sir. That's helpful. And congratulations on good set of numbers.
Yes. There was a question on other income. So we just want to clarify that. We had received some insurance claims, that is about INR 8 crores for some burglary that happened. That is a major reason for the other income that's recovered. And there are certain write-offs, which we had done in the past, which we were -- we have recovered. So these are the 2 reasons why there is a higher other income.
The next question is from the line of Ravi Naredi from Naredi Investment.
Really, it is wonderful working. Sir, one thing, gold loan AUM rise is 31.5% in comparison to last December, but profit rise is only 20%, so I need your comments on that.
If you take time for the growth -- to the income -- from the growth to come.
I already -- yes, yes. I understand. And you are doing the real wonderful business. Since you are in this gold business since long, what do you see growth in next few years as maximum? Banks are going for gold loan and everything, so just I need your view about that?
So, sir, I just -- last question, I just answered that only. We should -- we think we should be reasonably able to grow 15% every year. If things are good, just like this year, we may be able to do better. This year, instead of 15%, we may end with 25%. But next year onwards, minimum, we should be able to grow 15% in spite of competition. Competition is always there, sir, and Muthoot should be able to grow in spite of competition, otherwise why are we here?
Yes, yes, yes. And sir, this loan INR 6,000 crore liquidity you are maintaining, and we can arrange the loan at a very low rate when we need, because your tenure is less than 1 year. So everyone is happy to give you loan, then why are afraid to maintaining such a high amount? That's why my point. You had given till growth -- for growth, we need some capital and because you can borrow on commercial paper at very low rates.
So at the end of the day, if we have a money in your hand, that is a different strength we are demonstrating. I cannot explain in words that power one carries.
The next question is from the line of Subhradeep Mitra from UTI Mutual Fund.
Sir, I just wanted to check on the liquidity only. As I can see, you were carrying almost INR 8,500 crore of liquidity in the balance sheet. So sir, over and above, sir, how much is undrawn bank lines or anything like that, that you were carrying?
So undrawn lines will be very minimal. If something is -- rollover is spending. Generally, we don't keep any undrawn bank limits. Almost all bank limits, we would have kept at our will, except for those cases where there is some disconnect on interest rates.
Okay. And sir, my next question, obviously, on Belstar Microfinance. So sir, on Belstar, what proportion of your AUM would be in say, Assam, West Bengal in those regions?
No, we don't have. I don't think they have anything in Assam and West Bengal.
We don't have. West Bengal, they are very small, but Assam, it's not there.
Assam is not there. Yes, yes.
The next question is from the line of Sayantan Bhowmick from Pinebridge Investments.
Congratulations on the great set of numbers. I'm looking at Slide 42 of your presentation where you give the breakup of your expenses. There are quite a few things that I wanted to understand from here. If I look at the previous year, we've broken up provisioning into 2 line items. And one, in the earlier years, it is mentioned as provision for standard assets and NPA assets. And for this year, it is shown as impairment in financial instrument. So what is the difference between these 2 line items?
So from March '18 onwards, no, we are under Ind AS.
Okay. That's only the case.
Okay. So the description is different for other index as well as another holding them.
Okay. So if I understood correctly from the earlier question, most of the provision of INR 58 crores of 0.50 this quarter was largely for standard assets is that a fair understanding?
Yes. That's what we said. 98% of the loan asset is in Stage 1, which is the standard assets.
Okay. Okay. Okay. And some of the other things I was trying to understand. If I look at advertisement publicity for this quarter, it is -- seems to be lower than the previous quarter. So what is the typical sort of amount of money that we spend here? And then is this quarter -- I mean, a lower number in general? Or it is expected to be higher? I mean how do you -- how does this money get allocated rather?
So it is not actually a month-wise, quarter-wise allocation. See, it's rather a burst of advertisements in a quarter, the expense goes up. When there's a burst of -- no burst of advertisement, then the expenses come down. So overall in the year, this is what we generally look at.
Okay. Okay. Okay. And 2 other line items here, the legal and professional charges for the 9 month is -- appears higher than last year. And similarly, the others in the other expense also appears significantly higher than last year. So if you could just help me understand these 2, what, if there is some change or something has...
So -- no, legal and professional charges, we have no -- we increased consultants for various activities. So that is the main reason why the legal and professional are higher. I think, now there are more activities, these are part of the normal business activity. Others...
Compliance costs are also high.
Yes, the compliance cost are also...
Compliance costs are also high. Every day, the regulator says you do that certification, this certification, nothing comes cheap.
So the others include all the CSR expenses, all those expenses. So it is not materially different.
Okay. Okay. And lastly, if you can give some details about how are online tending and how that has gone? How the digital and online gold loans portfolio is doing? And then what is our thought process there?
See, the digital gold loan is -- digital transactions on the gold loan. You can't take a gold loan digitally. To make a gold loan, gold into the branch. You have to bring the gold to the branch and you've got to take it out from the branch also. Otherwise, we have to go to the customer's house and collect it.
Yes. That's what I was trying to ask. But I mean, what proportion of our loans would be where we are going -- I understand we're doing it on a lower scale, but if you can just give some idea as to how that's a business.
It is only for selected customers who ask for it and there is a charge also for that. Because our person has to go there. He has to take all the safety, security precaution. Somebody has to go and test and check the gold. So it's not that easy also.
Okay. Okay. So are we -- I mean, will we -- do we expect to increase it or it's just more of based on customer demand?
No, no. Yes, based on customers. So is it something which we offer. If a customer insists, we can offer. Otherwise, customer is always free to come. But generally, what we have seen is 99% of the customers are more comfortable bringing the gold to the branch and taking it away from the branch.
The next question is from the line of from Aviral Jain from Siguler Guff.We move to the next question, which is from the line of Pratik Kothari from Unique Asset Management.
Sir, my question and we discussed partly earlier regarding competition from banks, if we just talk about -- because SBI also recently talked about how in 6 months they increased the gold loan book from INR 4,000 crores, INR 5,000 crores to INR 20,000 crores. So are you seeing any increased competition, hence any pressure on the yield [ also ] that we made out of it?
From the balance sheet, from our P&L also you'd have seen that there's not be any pressure on the yield. So on the yield, there has been no pressure. But on the growth also, we have been able to grow, sufficiently, what we wanted. So of course, there is competition. It only means that more and more people are getting attracted to this gold loan business. Not that somebody is taking away our customers or we are taking away somebody else's customer. The market is large, the market is big. More and more people are getting -- are availing -- are using this opportunity or this method of financing. That is what is happening. That is what we see in this. Of course, it's not competition. It's not somebody, there is only an x amount of business there, and it is being taken away by a large number of people. No. The total gold available, et cetera, is so high. But it is only people see -- people thinking that, yes, I will also take a gold loan. Everybody has gold loan. Probably, you also gold with you. But you may not be thinking of taking a gold loan. After some time, you may think about gold loan. But then you may use that as a means of finance. That is what is happening now. So because all the banks, big banks, maybe new generation, old generation banks, et cetera, actively advertising about gold loans, more and more new customers are also taking gold loan.
So what you mean is the customer base itself is expanding...
Yes, yes, yes. Exactly. Exactly.
Fair enough. And sir, secondly, I would like to comment on the liability side. Our commercial paper share, which used to be 15%, 20% of the borrowings have come down to 10%. And given that our gold loan book 65%, 66% of the book should be repaid in 6 months' time. Sir, how would the CP share grow, I mean? Why have we brought it down and what's your comments on the thing? Only reason being that our asset side is -- I mean, it's very low tenure.
So I think 10 percentage of the total liability means it's a fair number to manage because though on the individual assets, direction is quite short. At the balance sheet level, we are not de-growing. In case of a stress, we can always liquidate assets and repay the liabilities. But that is not the intention. On a regular basis, we want to grow our balance sheet on a -- at a regular pace. So we intend to keep a majority of our borrowings for a long term. So the CPs, I think we should restrict it to around 10% of the total liabilities.
The next question is from the line of Gaurav Kochar from Mirae Asset.
My first question is regarding the incremental cost of funds. Sir, on a blended basis, what is the incremental cost of funds?
I think it will be more closer to 8 percentage will be the internal cost of borrowing, blended.
Okay. And the liabilities, which are coming for repricing in the next 6 months or 12 months, if you have that number hanging, the quantum and the rate at which it will be coming for repricing?
See we feel we generally take it for a period of 3 months. So every month, we have about INR 1,500 crores of [indiscernible] and CP rates are somewhere around 3.5 to 4 percentage. Apart from that, we have these loans taken from bank that are short-term loans, which again accounts for maturity, and then there's a repricing which happens. So that also is around INR 1,500 crores in a month. So roughly around INR 3,000 crores comes up for maturity every month, which gets rolled over.
Okay. So the repricing happens on a monthly basis?
So every month, it happens. That is about INR 1,500 crores on the bank limit side and the INR 1,500 crores on the CP side.
Sure. And on the LCDs?
LCDs maturities are now quite less. If I remember correct, there roughly will be about INR 100 crores, INR 200 crores in a month.
Okay. Okay. Sure. And the weighted average cost could be higher, much higher?
Sorry?
The weighted average cost on the existing entities would be much higher?
So the entities which we raised in the past, maybe 1.5 years back, it is higher. The entities which we raised in the recent past, it's around 7.5 percentage.
Okay. Got it. Got it. Sure. And sir, just wanted your thoughts on the platform, more like rupees. Banks have been tying up with them for their loan book -- for their gold loan portfolio. What are your thoughts? And how does it impact our performance?
Sorry, we...
We didn't really understand. What is it?
Rupee, as a platform here, banks have been partnering with them for increasing their gold loan portfolio. Your thoughts on this and probably, how is that impacting our portfolio?
Actually -- oh, fine. Probably people who do not have the customer base and customer contacts, customer facilities are the people who use intermediary. For us, we don't have that. All our business is direct customers come to us directly. So we don't need such intermediaries for our business clients. Probably some other institutions, banks or others need intermediaries, they'd be using them.
Okay. In the longer term, sir, if this partnership evolves, do you see any risk to our portfolio from a longer-term perspective?
Only reverse to our portfolio. It can only be moved to their portfolio. If you can get that part.
Okay. Sure. And sir, last question is on growth. I understand that you guided around 15% growth. But given that our LTVs have already touched around 67%, what portion of this 15% assumption includes no inflation in gold prices? And how much of it is through, say, customer addition or 10% is good?
Somebody else asked the same question earlier, right, and we gave the same answer also.
See, our growth is not -- we have different modes of increase in the portfolio. I think Slide 30explains that we have new customers, existing customers taking a loan. So -- and top-up loan is one among modes for increasing the loan portfolio. So we don't project or internally project that gold price should increase for us to achieve this level. The 15% growth is something we want to achieve at a stable gold price.
The next question is from the line of Vikram Subramanian from Spark Capital.
I on a bit of a bad connection. So sorry if I'm repeating this questions. On the Supreme Court dispensation for GNPA, I didn't quite catch that. I know you are already explaining that. Is this stage 3 with or without GNPA standstill?
[Technical Difficulty] Participants the line for the management got disconnected. We would request you to please stay connected while we join them back in the call. Ladies and gentlemen, we have the management reconnected so you can go ahead, please. Mr. Vikram I need you to repeat your question.
Yes. So I was asking have we -- the 1.3% stage 3, has the people, with or without the Supreme Court, standstill? So I lost a bit of what you said to previous participant on the same. So I just wanted to get that clarified?
So the Stage 3 of 1.3% is the actual 90 days DPD. The Stage 3 doesn't include the Supreme Court order.
So we have not availed that all. Have we decided not to avail it or no?
No. So we have also disclosed in our notes to the financial results. However, for provisioning purposes, we are taking the actual 90-day DPD.
Okay. Got it. Got it, sir. And 1 more question. So for the higher provisions that have been done this quarter. You had something about the customer churn impacting ECL calculation. Could you, please, explain how customers impacts PD and LGD?
So it is not a change in PD and LGD. It is the portfolio, which is transferred under each bucket. And as you know, the provision is made on the principal amount plus the interest accrued. So if the order loan account gets repaid, to that extent, interest gets collected. Only the new loans, only the principal amount is there. So that is the reason why we said it also depends on the churn. The primary reason why the provisions have increased is because of the increase in the overall AUM.
Standard provisioning.
Standard provisioning -- and finally, it consists of the standard provisioning.
Okay. Okay. Got it. So basically, it's growth driven. And just finally, you explained other income is because of insurance claims. Could you just please explain how insurance claims work on any stepped up gold, the weakened thing, say about about steps of gold? Do we get the entire gold loss the value at insurance claim during that? How do we finally settle it with a customer who's gold has been stolen?
So if the gold is stolen, the customer gets settled in next 3 months. So we give him either equal and gold, equal in gold is purchased and given or equal ornament is given and [ MVNO ] disbursements are given. And day time, it is charged as an expenditure. So whenever we will see the insurance claim or whenever we receive gold, sometimes we receive bad gold, which is kept with police the also. When we receive that, it is taken as an income as other income. So in this case, the insurance claim was received, so it is keep as an income the customer payment, similar replacement of world that happened much, much the year. And we booked that as an expense. It was charged with some expenditure. So whenever we receive an insurance claim or whenever, the received call, it is other income. The contra-customer payments, customer replacement of gold has happened much, I'm much earlier, and we have booked that as an expense.
Okay. But the claims were complete. So there is net loss from the entire 30%?
Definitely, there will be lost, If you have about INR 8 crores of claims, our loss would have been INR 10 crores out of INR 11 crores because there's always cart [indiscernible] in insurance, that is not their 5%, 2%. 8% I think we are lucky. INR 8 crores we are getting, we are lucky.
The next question is from the line of Prashanth Sridhar from SBI Mutual Fund.
Sorry, sir, just 1 other question. On the gold loan portfolio, what percentage would have a maximum tenor of 1 year?
So almost entire...
Entire portfolio is 1 year tenor only.
Okay. We've shifted way from the 9 months. Okay, okay. And you said 22% would be above 5 lakhs?
Sorry, come again?
Above 3 lakhs is -- 22% is above 3 lakhs.
It's about 3 lakhs. 22% is about 3 laksh.
The next question is from the line of Nischint Chawathe from Kotak Securities Limited.
Am I audible?
Yes, Nischint.
I just wanted to understand a little bit on your cost control efforts. Just wondering as to where does your full year or maybe over the next 1 or 2 years as your cost-to-income or cost-to-asset ratio early settle down, because you have shown a marked improvement in this quarter and even for the last 9 months. So do you think that or maybe -- or does it really pick up over the next couple of quarters?
See, cost is definitely not going to come down. That will only increase because there is always inflation in India, inflation with respect to [ running ] inflation with respect to salary so all those will always be there. So I think we should not dwell more on this cost business because we are also listed everywhere and otherwise also. So we will keep it in check only, but don't expect the cost to come down drastically. I don't think in Indian circumstances, such costs, et cetera, will come down.
The next question is from the line of Santanu Chakrabarti from Edelweiss.
Sir, first of all, congratulations for being on course to clock 25% growth in such a year, that too with a high 20s ROE. You have highlighted on the call multiple times that 15% steady-state growth is something that we will feel assured about in promising over the next few years. I just wanted to get a sense of a sensitivity around that. Let's assume a scenario where, let's say, gold prices are down on the average for the year about 10% next year. And let's say, the rest of the real credit ecosystem which has some parts of which might be substitute competitors for your product, that also registered high teens kind of steady growth. Under such a scenario, would you still be able to deliver 15%? I'm just trying to understand the robustness of the 15% numbers, so that I can understand what is -- what a more realistic growth can be? And how much north of 15% you can.
See, we are there to grow the business under different circumstances, with gold price and their customer competition and whatever doomsday you're operating. So it is our job, we should grow at least 15%. I think we should be able to do that. Now to tell you whether if the gold price falls 10%, 15%, if the competition hots up and the economy is also is not growing, all those negativeness...
So let's assume for the economy is growing and credit is also there. I just wanted to know.
I think we should be able to do that.
And the second question, sir, I had is a more qualitative one. So in 9 months, given some of the -- you have adopted so well to doing business under full and partial lockdowns. New initiatives have been launched. So in this period, have you seen any incremental shift in customer mix, either in terms of how quickly they are repaying spot ticket sizes? Any color around that? Any specific trends that stick out?
Because of the gold price increase, we have seen the average ticket size go up from about INR 35,000 crores to INR 50,000 crores . That is all what we have seen. Otherwise, we have not seen anything else in that. Or whether people are repaying earlier, no, even otherwise, the average tenure was 3 to 4 months, I think it still continues to be that only.
Thank you, Santanu.
The next question is from the line of Nirmal Bari from Sameeksha Capital.
First, a couple of clarifications. When you say that 22% of the customers have more than INR 3 lakh of loan, is that by number of customers? Or is that by the loan base?
No, no, no. I don't have the customer-wise breakup.
Okay. That's by loan book, right? And the second one is, if you can give the stage 3 provision number for this quarter and previous quarters in the stand-alone book?
Stage 3.
So what we have in the presentation is the total ECL provision?
Yes, yes. So ECL provision Stage 3 for the current quarter is INR 73 crores; previous quarter, it is INR 59 crores.
Okay. And I'm looking at the loan book, I think a couple of years back, we were looking at diversifying it into home finance and vehicle finance and all. But things have panned out differently. So now if we look at growth from the next 3- to 5-year perspective, what would be the mix like? You said that the gold loan book should continue to grow, like, 15%, but what would be the consolidated loan book mix be like between gold loans and nongold loans?
See, today, the home finance, vehicle finance, et cetera, it's not doing well. It doesn't mean that it will not do well forever. This just has changed. So maybe after a few quarters -- after a few year or so, things will change. And then that -- this is -- definitely those business could have potential. And we always have started this with the same scenario of that business with our customers. So we see the Muthoot gold loan customers being able to give -- generate leads for these businesses. That is why we started these also. So not that this is the end of the story for vehicle finance and affordable home finance. There is growth there. It will take some time. So today, -- if you ask today, this is not the right time for this. But if you ask me whether this is -- this business will go on forever? Never. Probably after some quarters, 3, 4, 5 or 6 quarters, things will bounce back and we'll ready for that. So at that time, we will start growing that book more aggressively. But today, we would like to grow the gold loan book.
Okay. And so 1 last question on the employee cost side. So the employee cost came down quarter-on-quarter despite the loan book growing. So what's the variable pay -- I think will the variable pay be coming in the current quarter or what was the reason for that marginal decline?
No, that is probably because of our variable pay, part of the variable pay out. Because you know that in the second quarter, we had a 14% growth. So third quarter it will be 7% growth. So that plays a role in the 16 to...
Your question, the variable pay is paid quarterly.
The next question is from the line of [indiscernible] from Daiwa Capital Markets.
Sir, I just have a couple of questions. Can you just give a breakdown of the customers into what percentage are traders, nonbusinesses, agri or nonagri related to any other segment?
Madam, the point is that generally, we don't go very deep into what the customer is doing, et cetera, because it's a very quick loan, 5 minutes, 10 minutes loan. So we don't dwell deep into what he is doing, why he is doing, et cetera. But we get a general sense from our managers that what are these people. That is what only I can share now because if I ask the customer, he'll say business. What business? Anything is a business. So probably if I ask more and more, then he will -- they will get annoyed also. So we don't do that because it is not going to affect his loan or his portfolio or his repayment or his interest cost. Nothing is going to be affected by his profession or his business, et cetera. But then the general sense we get from our managers and staff who deal with these customers is that a good percent of these are small traders, small business, small shopkeepers are our main customer base for this. And probably, in rural areas, some agriculturists also will be there. But it is not that the agriculture is taking it for to buy fertilizer and seeds, et cetera, because we do only money. We can use it for anything. That is the difference. But then generally, it is small traders, small businessmen, shopkeepers, et cetera, are our mainstay.
Okay, sir. And what would be your active and inactive total customer base since you mentioned that a majority of our customers are repeat customers?
Yes. I think general senses, as of today, the loan book, which we have, those active customers means those who are today having a loan, of course, is about 50 lakhs. So the customers who would have been active with us, if you will look at about last 2.5 years, et cetera, it should be in the region of 2 crores. So they will come -- today, they will come; after 6 months, they may come; after 9 months, they may come; after 2 months, they may come. So they are -- they have transacted with us in the last 2 years, should be in the range of 4x of that, that is about 2 crores. What's [ good for ] us is what -- customers, our new customers coming again for a new loan.
Okay. And the last question, what -- at what rate you created a standard asset provision on the incremental lending?
So on H1, we made a provision of 1.09 percentage.
Regular -- regulators -- regulation is 0.4.
So there's the earlier RBI. Let's now to the index.
To the index? Okay. Okay, sorry.
Due to time constraints, that was the last question. I would now like to hand the conference over to Mr. Kunal Shah for closing comments.
The entire senior management team of Muthoot Finance for sharing your perspective and answering all the questions patiently. And thanks, everyone, for participating on the call. Thank you.
Thank you.
Thank you from our side also. Thank you, Kunal. Thank you, team.
Thank you.
Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.