Poonawalla Fincorp Ltd

NSE:POONAWALLA

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day and welcome to Poonawalla Fincorp Limited Q1 FY '23 Results Conference Call Hosted by AMBIT Capital. [Operator Instructions]

I now hand the conference over to Ms. Bijal Thakkar from AMBIT Capital. Thank you, and over to you, ma'am.

[Bijal Thakkar, analyst]

Thank you, Michelle. It's our pleasure to host Poonawalla Fincorp's Earnings Call. The company is going to be represented today by Mr. Abhay Bhutada, Managing Director, Poonawalla Fincorp; Mr. Sanjay Miranka, Chief Financial Officer, Poonawalla Fincorp; Manish Jaiswal, MD and CEO, Poonawalla Housing Finance business; Mr. Mahender Bagrodia, Head Collections, Poonawalla Fincorp and Mr. Manish Chaudhari, President, Poonawalla Fincorp. Welcome, sirs.

And I now hand over the call to Mr. Bhutada, Managing Director to make opening remarks.

[Abhay Bhutada, executive]

Thank you so much, Bijal. So good afternoon, everyone. Welcome to the Poonawalla Fincorp Quarter 1 FY '23 Earning Conference Call, and trust you are all doing good. So let me take you through with the key highlights for the quarter. I would like to start it by saying, this has been a fantastic quarter for us. We have translated our strategy into execution and results are there for all to see. Our PAT increased by 118% year-on-year to INR 141 crore. AUM stands at INR 17,660 crore, up by 22% year-on-year. Disbursement increased by 98% year-on-year to INR 3,436 crore.

Our cost of borrowing reduced by 264 bps year-on-year to 6.9%. Our NIM grew by 155 basis points year-on-year to 9.5%. In terms of asset quality, GS3 reduced to 2.19%, down 319 bps year-on-year while NS3 reduced to 0.95%, down 176 bps year-on-year. Our ROA improved by 155 bps year-on-year to 3.4%. Our capital adequacy stood at 46.1%. We have created a management overlay of INR 224 crore on our agriculture discontinued book. We initiated our capital market journey with NCD issuance of INR 250 crore.

Similarly on our housing subsidiary, PAT increased to INR 30 crore, up by 248% year-on-year, AUM grew by 31% year-on-year to INR 5,282 crore. Disbursement increased to INR 535 crore, up 115% year-on-year and GS3 and NS3 stood at 0.87% and 0.54%, respectively, down by 107 and 71 bps year-on-year, respectively. So, our execution excellence has ensured this quarter has been better than last quarter despite quarter 1 generally being a muted quarter. Our organic disbursement has seen secular growth quarter-on-quarter since quarter 1 FY '22 and stands at around 80% of our total disbursement in this quarter as it grew 27% quarter-on-quarter. The organic disbursements have grown from over last 3 quarters from INR 1,295 crore in Q2 FY '22 to INR 1,543 crore in Q3, INR 2,164 crore in Q4 of FY '22.

In Q1 FY '23 we did INR 2,738 crore of organic disbursement, strong disbursements on back of excellent organic disbursement growth is validation of our business model. During the quarter, we have launched new products, supply chain finance and machinery loan and continue to witness traction from the existing product range. The AUM of focused products continued to register healthy growth rate of 66% year-on-year and 13% quarter-on-quarter. With focus on Direct, Digital and Partnership model, the distribution stands very well diversified. DDP contribution grew from 17.5% to 34.1% quarter-on-quarter. With our continued focus on technology, we are on track to be fully digital across all our product line. We have started seeing traction because of the same as we have become a lender of choice for our customers as well as partners.

Let me take you through what we can expect over the rest of this financial year. So, I will go point-by-point. First is in terms of growth opportunity, despite disturbances on the macroeconomic front, India's economy looks far more certain with systematic strength remaining intact. The higher frequency economic indicators of GST collection, PMI indicate expansion in economic activity. As indicated by banks, double-digit credit growth number in quarter 1, the demand for credit continues to expand. Also in the consumer and MSME segments wherein we operate, there has been a revival in consumption as well as MSMEs business activity post-pandemic. The company after its business transformation is well-placed to capitalize on the systematic credit growth in the economy.

Digital First. We are constantly making strides in continuously redefining our strengthening right to win strategy. We believe, digital capability is to be a source of competitive moat, a toll for efficient operations and a driver of sustainable profitability. Since we initiated the journey 4 quarters back, our focus has been on the culture of Digital First-Tech Led across all functions of the organization. Digital capabilities for sourcing, underwriting, onboarding, collection and customer service are in place, resulting us delivering the best-in-class turnaround time and overall customer experience.

This gives us right to win our fintech architecture and digital capabilities, makes us a preferred partner for other fintech player in the overall ecosystem and enable us to leverage strategic partnership in terms of overall customer acquisition and to offer digital first products. In terms of disbursement and AUM, we have reached a monthly organic disbursement run rate of excess of INR 1,000 crore. So, we are absolutely on the track to do disbursement in excess of INR 12,000 crore. This, I'm talking about the organic disbursement for the full financial year. This should help us increase our AUM by approximately 30% year-on-year basis, translating to more than INR 5,000 crores of AUM growth by end of FY '23.

In terms of cost of borrowing and NIM, on the liability side, despite the rising interest rate environment and the consequent factoring of higher interest rates in the debt market instrument, we have been able to achieve 264 bps reduction in cost of borrowing year-on-year, with cost of borrowing at 6.9% in Q1 FY '23. Though we can see -- you may see some rise in the cost of borrowing in the upcoming quarter, however, we expect the overall cost of borrowing by Q4 FY '23 to be still lower than that for Q4 FY '22. We have initiated our capital market borrowing, dynamic management of liability book, optimizing liquidity, continued diversification of our liability, would help us retain our competitive edge in our cost of funds.

Also, we are passing some of the price increase to the customers, which coupled with the liability side will help us maintain our NIMs at about the same level for the full financial year. In terms of asset quality, we have seen a consistent decline over the last 5 quarters in both GS3 an NS3, which is now stands at 2.17% and 0.95%, respectively. We will continue our focus on reducing it further. We expect GS3 to be less than 2% and NS3 to continue to be less than 1% by end of FY '23. Our current OpEx to AUM currently stands at 5.6%. I shared during the last quarterly call, we continue to invest in capability building across people and the technology. With further increase in the activity level, we expect the same to reduce drastically from the next financial year onwards.

Consolidate, Grow and Lead strategy, which we are following since acquisition of the Magma Fincorp, we have been executing the strategy to the team. In fact, within first 6 months of acquisition, our consolidation phase got over and now we have moved to the growth phase in quarter 4. We continue to be fully committed to our articulated vision and strategy. This is ensuring that we are well on track to achieve your management Vision 2025. So with key metrics of disbursement, AUM, cost of borrowing, NIM, asset quality, showing excellent performance, we are at the right place at the right time, with the right aspiration. We have worked across the functions to get a multiplier effect. We will continue our focus on the execution, investment in people, building technology and a strong retail consumer franchise. We are very confident of our trajectory ahead in FY '23 and beyond and well on course to deliver an exceptional performance in line with our Management Vision 2025.

Thank you, everyone. And requesting Bijal to -- we can start the question-and-answer.

[Operator]

[Operator Instructions]

[Bijal Thakkar, analyst]

Michelle, I think we can start taking the questions.

[Operator]

Okay. The first question is from the line of Shalini Vasanta from DSP Mutual Fund.

[Vivek Ramakrishnan, analyst]

This is Vivek Ramakrishnan here. My question was on your product suite. You have increased the number of products that you'll have. Is there a single product that will be dominant in your product mix going forward or is it going to be split very much to all the products? On supply chain finance is usually a very low margin business, low ROE business, we have seen in the -- lot of other players. What is your strategy there? That's the second question. And the third question is, is there a cross-sell opportunity given the complete diversity in product range that we see? Is there anything which is common across these products?

[Abhay Bhutada, executive]

So, to answer to your first question on the product side, as mentioned in our overall Management Vision 2025, we want to be in top 3 consumer and the retail space, wherein we already mentioned, in terms of loan to professional and in terms of preowned cars, we are already in our top 3 in terms of monthly disbursal rate in the NBFC segment. And going further, all the retail products, wherever we are operating loan to professional, preowned car and consumer finance, wherein we are targeting top 3 position, wherein we'll focus -- and, again business loan. So these 4 products we'll be targeting going further. And other products, of course, the growth will be -- year-on-year will be 25% to 30%. But these 3, 4 products, wherein predominantly right now also we are preferred choice of lender considering our last 12 months of experience.

Second, considering your -- answer to your second question on the supply chain side, as of now we have a lot of partners who are contacting us in terms of co-lending opportunity and we have already done integration with them. So, we'll be not able to disclose the name of the partner, but yes we have onboarded 2 or 3 partner last quarter and we are getting good margin. So we expect this business to continue. So there is a lot of competition, but the product proposition and the rate of interest because of our low cost of fund which we are offering, again in that also, we are, because of our tech capabilities, we are getting a preferred choice of option.

Considering your third question, cross-sell opportunity. So, we are already doing a lot of cross-selling to our existing customer base. As we speak, we have already crossed more than 6,000 chartered accountant disbursement, a lot of in professional loan, in personal loan also we are doing lot of cross-selling. So, we have started getting fee-based income, insurance income. And as and when we will grow, we have started organic disbursement in last 4 quarters, considering the existing customer base of Magma and considering the new customer base, we are getting good traction in terms of cross-selling. And the way ahead will be -- will focus we have an exclusive team, who is focusing on the cross-sell, digital, that is out DDP model, wherein we focus on the digital side. So, we are getting good traction on the cross-selling. We'll be able to give you more numbers from next quarter onwards on the cross-selling side.

[Operator]

[Operator Instructions] The next question is from the line of Sonal Gandhi from Nirmal Bang Institutional Equities.

[Sonal Gandhi, analyst]

I have a question on this management overlay provisions that you created this quarter. So, what is the thought process behind this? And, second, just how do we see credit cost for the entire year since we have such a large provisions that we are ending up with. Sir, if you could answer these 2 questions.

[Abhay Bhutada, executive]

Yes, Sonal. So, we have created the management overlay of INR 224 crore. This is the additional provision, okay, which we have created out of onetime gain, which we got by sale of Magma HDI shares. The provision has been created specifically for the discontinued book, yes. So what it does that the discontinued book, okay, which is close to INR 2,000 crores on book, the provision, which we were carrying was 9.3%. It has gone above 20%, with this additional provision. And, we believe that this is the recovery expectations, we don't have to take any additional hit, okay, to our P&L. So, the collection efficiency and the expected collection efficiency, we are well placed, okay, to recover in fact more than okay what we have already provided for.

[Sonal Gandhi, analyst]

And how do we see credit cost coming for the year? And also comment, if you could give us some sense on the new book that you generated over last 1 year. So, any initial signs over there that, what is the credit quality of that book, any slippages, some color on that. And given both the consumer factor, how do we see credit cost for FY '23?

[Abhay Bhutada, executive]

Absolutely. So, the entire new book across products, okay, which we are generating, because we have made, okay, changes to the target customer segments. I think, the experience so far has been fantastic, right from early bounce rates to, okay, eventual delinquency. We are not experiencing anything more than what we had anticipated. In fact, actual experience is far, far better than our initial business plan. And our expectation in terms of credit cost, is that, on a steady-state scenario, our credit cost would remain less than 1%. Because, as you know that we have gone for a conservative provisioning and write-off policy, so after taking that into account, we still expect credit costs to be less than 1% on steady-state basis.

[Sonal Gandhi, analyst]

Even for FY '23?

[Abhay Bhutada, executive]

Yes. Absolutely.

[Sonal Gandhi, analyst]

Okay. Sir, another observation was our fee income has come down on a Q-o-Q basis wherein organic disbursements have gone up. So, what has happened over there exactly?

[Abhay Bhutada, executive]

So, see as you know, Sonal, that Q4 tends to be a heightened activity level. Though for us, Q1 in terms of disbursement and overall activity level has further gone up. So there would be a marginal change in fee income. But overall in terms of ROA tree, in terms of profitability, I think, we are well placed even for rest of 3 quarters in the current financial year.

[Sonal Gandhi, analyst]

And sir, if you could just indicate what is the GNPA as per 12th November circular?

[Abhay Bhutada, executive]

Yes. So basically, what we have got GNPA percentage as compared to March '22 has come down significantly. At consol level, the GNPA as on 30th June '22 is 3.6%. This number was 5.9% as on 31st March '22. And similarly, I'll give you one more number, which is, net NPA. So, NNPA, which was 4% as on 31st March, has come down to 1.9% as on 30th June '22.

So the entire trajectory, and this is what is reflective of the conservative provisioning, which we have followed since acquisition.

The second piece, the kind of segments which we have gone into, it -- and the rigor around collection, which has been put on the ground. So across GS3, NS3 as well as when we talk about GNPA, NNPA, it is I think a fantastic story and we expect even in future both, our GNPA -- NS3 number to be much better. In fact our expectation is that, as we close this financial year, our GS3 number should be less than 2% and NS3 number in line with our 2025 vision, less than 1%.

[Sonal Gandhi, analyst]

So if I could just squeeze one last question. So the write-off our number, I think it's somewhere around INR 90 crores to INR 94 crores for this quarter. So if you could just give, what is the write-off that is happening from the restructured book in -- from the normal book?

[Abhay Bhutada, executive]

So the total write-off has been about INR 105 crores during the quarter. I won't have the breakup in terms of how much is from restructured and how much is from non-restructured book. But it is suffice to say that even our restructured book which first of all restructured book by itself has come down significantly. So, right now the restructured book is at INR 619 crore as on 30th June.

Out of this, about 35% is a zero-bucket book. So -- and the restructured book we are carrying a provision of about INR 147 crores. Again, our expectation is that our recovery would be in fact better than the net of provision book, which we are carrying. And hence okay -- broadly okay, one doesn't have to see the restructured book and normal book in a different direction.

[Operator]

The next question is from the line of Nikhil Rungta from Nippon India Mutual Fund.

[Nikhil Rungta, analyst]

Congratulations on the numbers. Sir, 2 questions from my side. First is on the provision side, you indicated that you have taken these provisions for the discontinued book. Last year, if I remember, we took a similar -- I mean the amount was significantly higher provision on existing book. And in the past 2 quarters, we have been seeing that there are write-back of provision despite our book being, I mean, on the upper trend. So do you think from these provision, we can see write-back coming in over the next, say, few quarters as and when that book continues to trend down?

[Abhay Bhutada, executive]

Yes, absolutely. So on prudent basis, Nikhil, we have made provisions. And like we said that okay, we take pride in our collection infrastructure. And we believe that whatever provision we are carrying in our books, whether on restructured or a normal book, it will put us in good speed in terms of recoveries. And yes, there can be one would always expect and work towards getting some write-backs out of the provision which we are carrying. And like I said, that we have been right-sized we acquired this entity. We have adopted a highly conservative provisioning and right of policy, right? So obviously, when the policy is conservative and your collection efforts are completely on board, definitely, there has to be better write-backs.

[Nikhil Rungta, analyst]

Okay. And sir, my second question is, last quarter, we announced capital leasing plans in our housing finance subsidiary. So any update on that?

[Abhay Bhutada, executive]

So Nikhil, right now, we have appointed the investment banker. And the transaction, as we discussed last time, it will be completed before end of this financial year. So we'll be able to give you more update once we start signing NDAs and maybe quarter-on-quarter, we'll give you the update. So we are just appointed investment banker, and now we are closing on IM and other activities.

[Operator]

[Operator Instructions] The next question is from the line of Shreepal Doshi from Equirus Capital.

[Shreepal Doshi, analyst]

Congrats for a good set of numbers. So my question was with respect to the focused book and rather the overall loan book. So in the overall loan book, 30% is from the mortgage business. What will be the largest 5 segments for us on the overall loan book because we have not highlighted that. So if you could throw some light on the largest 5 segments, can you give some color with respect to the percentages? And who would be our peers in each of the 9 states?

[Abhay Bhutada, executive]

So the largest segment for us, if you look at in terms of the customer segment, the 2 segments which we continued from erstwhile organization. One is the preowned car, where the -- even erstwhile it was one of the leading organization. And we have in fact increased the trajectory of business as far as the preowned car is concerned. Yes, the segment we have going to far more formal segment as compared to what it used to happen earlier. So preowned car is clearly one strong segment for us.

And the second segment is the affordable home loan, so we are one of a few pure play affordable home loan company. In fact CRISIL AA+ CRISIL and CARE AA+ rating, I think that puts us into the top league as far as the affordable home loan business is concerned. So these 2 are the segments which we are continuing from our earlier at par. Now the 2 large segments, which we have added to this is, one is the unsecured products. Now unsecured again this is the segment, which is not new to us as a Group, because as Poonawalla Group, we had started off as a private limited company, it's a separate company Poonawalla Finance Private Limited.

For about 2 years, we were doing digital lending in the unsecured space. And the products were personal loan, loan to professional and business loan. The best part is, that the entire 2, 2.5 years period of Poonawalla Finance coincided with the pandemic. Despite that, the performance of the book was extraordinary. And now with another year of experience in Poonawalla Fincorp, so we launched unsecured product in the Q2 of last year and now we are seeing the traction as well as the product lines month-on-month. And to our liking, we talked about the performance of this book again is better than what we would have expected.

So, basically, again unsecured while it is a year-old product as far as the Poonawalla Fincorp is concerned, but we have an experience of 3 years in the unsecured space. So, that's the third vertical. Fourth vertical look which we added in Q3 of last year, it is the loan against property segment, yes. So this is where we are again targeting high quality creditworthy formal segment. So, these are the 4 large verticals, which are there. Now, there are few products wherein I would say we have launched, which is the machinery loan, medical equipment loan and supply chain finance.

Overall, and then go forward we are going to launch products on consumer durable side, we will launch on merchant advance side, as well as we are exploring what is going to be the best play, what should be the best play in the EMI card and credit card segment. However, the existing, as well as the new product, which we have already launched, it should basically even on a steady-state scenario, should give us 90% plus of our business. So broadly, our targeted bouquet is already there as the offering to our customers. Now in terms of overall secured -- unsecured, so you asked about the mix. So right now we are having a mix of 76/24, 76 being secured and 24 being unsecured. On a steady-state scenario, that mix would be somewhere around 60/40, 65/35 as things play out. And as we become -- get more experience of new products to the markets, et cetera, we'll look at optimizing the mix.

[Shreepal Doshi, analyst]

Got it. So, and -- so in the POC, I think, we were -- I remember we are the fifth or the sixth largest player there, right? In affordable housing market, we are the third or the fourth largest proven lender there. In the unsecured product segment, so who would be our predominantly competition?

[Sanjay Miranka, executive]

So all the -- so Shreepal all the NBFCs who are doing this lending, we compete with them to name a few the likes of Bajaj, Tata Capital, Aditya Birla Finance. I think these are typically the players who are present in this segment. Having said that, we really look at ourselves being specifically focused on the formalized income segment here and that is where the differentiation comes in. I think even on the unsecured side, you have a huge spectrum, which is available. We cater to the top most spectrum here. We are catering to those who are actually having some credit history available with them, they are not new to credit, per se. And these are, especially on the business loan side of it, these are people who are covered under the GST regime for us to be able to underwrite them based on the cash flows there.

[Abhay Bhutada, executive]

And just to add on POC side, we are amongst the top 2, top 3, players in the NBFC space. And this is when we have within POC, we have identified super creditworthy segment. So for example, we don't do commercial side of preowned car finance. Even then, we are among the top 2, top 3 players in the NBFCs.

[Shreepal Doshi, analyst]

I think the fit is including the banks, right?

[Abhay Bhutada, executive]

Yes, absolutely.

[Shreepal Doshi, analyst]

Sir, one question with respect to the disbursements. So, in the last 4 quarters, we have disbursed close to INR 11,000 crores, INR 11,500 crores disbursements. So how has been the slippage for that particular fresh disbursement that were done. If you could give some qualitative color or some numbers there, would be really helpful.

[Abhay Bhutada, executive]

So, Shreepal, in terms of the fresh business that we have done, I think, as Sanjay outlined it earlier, the performance has been better than what we have kind of budgeted for. There are no slippages, which are beyond the expectations that we had. Even on our new portfolio basis, the way if I look at it on the early vintages on this 0 plus, 30-plus, I think, we are way beyond what typically the numbers in the industry are. On the bounce rates as well, which is the first level of indicator that we get, we are in low-single digits there. So I think the performance for all the portfolio is phenomenal. I think currently on a consol basis, if I look at the entire book, that we would have originated over the last 12 months, our 30-plus would stand sub-0.3%, which will be the best-in-class today.

[Shreepal Doshi, analyst]

Sub, you said 30-plus would be the...

[Abhay Bhutada, executive]

Sub-0.3%.

[Shreepal Doshi, analyst]

Okay. Got it. Sir, just last -- a few housekeeping questions. On the balance sheet side, if you could give us the borrowing number and net advances number, and like earlier, we used to give the entire balance sheet. So, just a request if we could continue with that disclosure.

[Sanjay Miranka, executive]

So I think balance sheet number, yes, primarily there are 2 numbers. One is the net worth and second is borrowing from NBFC standpoint, right? And just we can include that slide again from next quarter onwards. As far as our total borrowings, okay, which is concerned, yes, our total borrowings has been in the range of INR 10, 800 crores. This is consol number, and net worth INR 6,235 crore.

[Operator]

The next question is from the line of Harshvardhan Agrawal from IDFC Mutual Fund.

[Harshvardhan Agrawal, analyst]

Coming from which segment as in the discontinued book or the...

[Operator]

Mr. Agrawal, can you please repeat from the start?

[Harshvardhan Agrawal, analyst]

Yes. Sure. Sir, the query that I had was on the write-offs. The INR 105 crore write-off that we had in the quarter, I wanted to understand as to from which segment is write-offs are coming from?

[Abhay Bhutada, executive]

Yes, so the entire write off has been coming from legacy book, right. And majority of them has been either from preowned car segment -- asset-backed financing, which we have discontinued. So the largest portion is coming from asset-backed finance, which is the discontinued book. Then it is preowned car, and then in erstwhile organization, there used to be some kind of SME financing. So, it's coming from there. And a very small amount is coming from affordable home loan piece.

[Harshvardhan Agrawal, analyst]

Right. So, sir, when you say the most portion is coming from our legacy book, it's the INR 2,300 crore loan book that we show currently. Is that -- is from there is the write-offs are coming from?

[Abhay Bhutada, executive]

Yes. So INR 2,300 crore is the balance book from the existing product line, which we have discontinued. And out of that more than 50% book stands in 0 bucket. And for the remaining of the bucket, we have provided enough provision earlier also. And currently because of the onetime insurance gain sale, we have provided additional management overlay of INR 224 crores. So from that perspective although it is a policy write-off, we have changed the policy write-off at the time of Magma acquisition. We have done 90-plus unsecured write-off and 180-plus secured write-off. So, we are not expecting any single rupee loss from the balance legacy book of INR 2,300 crore, because of our extra provisioning, which we have done towards the legacy book and we are continuously writing off every quarter, it is only policy write-off every quarter on 90 and 180 basis.

[Harshvardhan Agrawal, analyst]

Sure. And sir, just wanted to understand the provision movement between the number that we put out in ECL and the number that we have put out in the P&L, because ECL has grown by around INR 100 crores, but in the P&L, there is a negative number. So, if you can just reconcile that.

[Abhay Bhutada, executive]

Yes. So basically see Harshvardhan as you know what happens is the book, which we would have written off, the book which part of it would have been sold off, so all of that book would be getting much higher provision. And this only shows that, a, the legacy book has come down significantly as a proportion to the total book. And with the new underwriting being in high credit segment, right, the ECL provision obviously ought to come down.

[Harshvardhan Agrawal, analyst]

Right, sir, but just wanted to reconcile the number. As in the ECL the total provisions have grown by INR 100 crores and in the P&L, we have taken a provision write-back. So, just wanted to reconcile those numbers.

[Abhay Bhutada, executive]

So the provision write-back, which we have -- yes, so basically the major of the difference which you are seeing recon could be because of onetime provision which we have made of INR 224 crore. And write-back, whatever I have taken, we have not taken any specific write-back of provisions. Whatever has got written back basis the performance of the book has got written back.

[Harshvardhan Agrawal, analyst]

Okay. Sure. And sir, one last question maybe on our new product. We see that -- we have mentioned credit cards as one of the product in our PPT. So, this product is it like, we are able to do a co-branded credit card or it's like we are going to issue credit cards on our own?

[Abhay Bhutada, executive]

Initially, we were exploring the co-branded credit card, but now we are exploring both the option. We are waiting for some further clarification from the regulator side. And we just received last quarter last quarter the new guideline. So, now we are exploring and within 1 or 2 quarter, we are going to decide internally, whether we will go ahead for the co-branded card or we will launch on our own.

[Harshvardhan Agrawal, analyst]

Okay. So, basically, we'll have a clarity during the course of the financial year.

[Abhay Bhutada, executive]

Yes.

[Operator]

[Operator Instructions] Next question is from the line of Jignesh Shial from InCred Capital.

[Jignesh Shial, analyst]

So, I actually missed one data point that already has been answered to the previous question. Can I get a bifurcation of your liability side with your borrowings specifically? Maybe also that if possible because there is…

[Abhay Bhutada, executive]

You are asking bifurcation between the 2 entities?

[Jignesh Shial, analyst]

No, no, the borrowings bifurcation.

[Operator]

Mr. Shial, you are not audible. Mr. Shial, you are not audible. I would request you to use your handset please.

[Jignesh Shial, analyst]

Is it better now?

[Operator]

Yes. Please proceed.

[Jignesh Shial, analyst]

Yes, I'm asking for borrowings bifurcation. So, between capital market bank borrowing securitization whatever you would have done, can you give me on a console as well as on standalone basis? Am I understood?

[Abhay Bhutada, executive]

Understood. So basically our -- first of all, because we are highly capitalized company. So, I mean that becomes a very important component of our total liabilities, so INR 6,235 crore like we called out is coming from equity. And thereafter, there is the entire piece of the term loans and the equity lines from banks. So that accounts for about close to INR 8,000 crore. We have fix-rated debt of about INR 2,500 crore. So that makes it to the total borrowing for both company.

[Jignesh Shial, analyst]

This fixed rated will be what? Capital market borrowings or how will it be?

[Abhay Bhutada, executive]

The fixed rate debt is the capital market borrowing. Obviously, see part of this borrowing has been there for the time since we acquired this company. Now that number would be close to INR 1,800 crore and obviously that number over the next 12 to 15 months, it will come down by 80%. That will again give the opportunity for us to reprice and then replace it with lower cost fixed rated liabilities.

[Jignesh Shial, analyst]

Okay, understood, that's useful. Second question I had was, you said -- my apologies for my bit of an ignorance, but you said there is a bit of a -- there is INR 1,000 crore-plus a legacy book, right, which Magma had and which you gradually were to write it off at all. And you have created certain provision against it and you are expecting write-backs also from it. Is my understanding correct?

[Abhay Bhutada, executive]

So, okay, let me clarify it. So there is a discontinued book, so there are certain products, which were being done by Magma earlier, because those we having to do cash collection and we -- as a policy we don't want to get into a business where we ourselves have to do any kind of cash collection. Now it is the book, which we call as discontinued book, that total book is about INR 2,300 crore, out of which one book is INR 2,000 crore. On INR 2,000 crore, we were carrying a provision of 9.3%. We have increased, that provision to 20%-plus, so there is an additional 11% provision which we have created and this is the number 11% is equivalent to INR 224 crores of management overlay, which we have created, right?

Now, obviously, on prudent basis looking at the recent experienced bucket movement, et cetera, and because the book also has become vintage, right, lets say we thought it appropriate to create this onetime provision. Given our collection franchise and the rigor around collection, obviously the objective is that we don't have to utilize that provision completely and basis our actual collection performance on discontinued book, yes, one would always love to have some guidelines.

[Jignesh Shial, analyst]

Understood. This is quite useful. And lastly, just understanding more on your business strategy side. I understood that you have created already a pretty ease for yourself of the preowned car segment and you are already entering into a new lending segments altogether. Definitely, this is all segments have been pretty competitive even whether it is Bajaj or even as you say, Tata Capital or any of the names and all.

So how -- what is the niche that basically Poonawalla as a brand you're trying to create to make sure that there is a legacy customer coming to you and basically the customer base significantly stickier. That is first. And number 2, is it specific or geographies where you're expanding pretty heavily or you're saying? So if you can just give a brief about the kind of customer profile you're having? And what is piece that you are specifically doing, if you could highlight that, that would be really useful to us.

[Abhay Bhutada, executive]

Good question. So from the existing product, if you see either it is a preowned car or business loan or personal loan, professional low or any of the product, in most of the products, we follow a customer collect segment. Wherein with the help of data analytics team, we have started targeting the customer. As of now, the targeting customer is the top-rated customer. Most of our customers fall 750-plus CIBIL score. They are in formal income segment in terms of business loan, cash flow-based lending GST based lending. That is the reason just now as informed by our colleague, our -- after 12 months of seasoning, 30-plus is 0.3 and we do not expect any additional changes in that overall range and credit cost, again we are expecting will be less than 1 for rest of the financial year.

So the difference basically the USP here is as compared with the top 3 NBFC or even history of the bank. One, we are giving the customer experience like a fintech, the product proportion what we have, the transparency, the legacy which we carry from the overall Poonawalla Group, the ethics and the principle. So there are no hidden charges. So I think that is giving us good advantage. If you see professional loans, we are -- as we speak, we have crossed more than 6,000 Chartered Accountant, which is around 2.5% to 3% of the total Chartered Accountant base in India. And entire 100% paperless process, there is no single signature required.

So customers -- all the professionals customer in personal loan segment, business loans, they are giving us first choice of preferred lender in the NBFC space. Monthly, we are doing constantly since last 4, 5 months. We are crossing INR 110 crore to INR 120 crore in terms of professional loans CAs and doctor. And this is all digital acquisition. This is all direct acquisition. We do not have any kind of direct selling agent, so we save on the onboarding costs. Because of the low cost, we are able to match with the top private bank, even SBI with the top 2 NBFC and considering our telephonic discussion and the internal survey.

So 90% of the customers, they are balanced transferred from the mid-sized NBFC or the mid-sized bank and more than 50% is a fresh lending to them. So overall customer proportion, customer experience, user experience to them. And from the day 1 thought process was we have started targeting customer like a bank, we started behaving like a bank in terms of lot of other transparency. So I think we have done much, much better than our expectation. So, that was the answer to your question, why we are different as compared with other NBFC.

As after 2 or 3 quarter, you will get to know the segment wise reporting we will start. So we will get a fair idea. Second, with regards to the location, as of now, we are a pan-India player. Depending on the opportunity, we are open for any location. Because of our digital and the strong collection infra, we don't see any challenge in terms of location. With our data analytics team, we have enough team available as of now. We have strengthened that team during the last 2, 3 quarters, so we don't see any major issue in terms of location. Right now, we are covering more than 250 locations for most of our products.

[Jignesh Shial, analyst]

Understood. And just lastly, one more -- just wanted to understand if I see it, your consol business your ROA is somewhere around 3.4% correct? And that we are already seeing an improvement of around 155 bps Y-o-Y and all. So is -- what is the -- on a consol business because you already have a housing subsidiary, definitely there the overall ROAs will be relatively lower, standalone would be definitely be higher. But what's -- because ROA is -- because you're loaded with excess capital right now will take a bit of its own sweet time. But would be your thought process or what kind of sustainable ROA over a period of next 3 years, not immediately, but over a period of, say, by '24, '25 you'll be targeting to achieve.

And considering if the NIM already at 9.5%, which is substantially good and you already have a pretty decent liability franchise being built in, what would be the contributor in case if you're thinking about expanding into ROAs and all? Or do you think steady-state business here would be something you would be looking to sustain? Any guidance or any thought process on ROAs that would be helpful.

[Abhay Bhutada, executive]

Sure. As you rightly pointed out, as we leverage -- current leverage is less than 2, so ROE will take time. Once we cross 3 or 4 leverage that will be the right point to look at that. But in case of ROA for the current financial year, it will be above 3 in the range of 3 to 3.5. And on a steady sustainable basis anything between 3.5 to 4, which we would like to see 2-year down the line.

[Jignesh Shial, analyst]

Understood. So now incremental ROA suppose if I assume that another 25 bps to 50 bps if you were to achieve it, or will it be more of a team expansion whereby you will be getting into more lucrative products altogether or you'll be thinking about because anyhow provision is not a concern for you at least at this point of time and all. So, considering that steady state business, you maintained your book well. So will it be a team expansion that you will be looking out for or are you now thinking about cutting down the OpEx or fee income or something like that. Just a thought over it if you have any idea?

[Sanjay Miranka, executive]

So, see our ROA, reported ROA is 3.4% for the quarter. Normalized ROA is 3.1% and like Abhay said, basically on steady state basis our objective would be to get to the ROA of 3.5% to 4%. Now as far as the NIM is concerned, I think our legacy book because of the customer segment, it was operating into, right, it was at a much higher yield. As that book keeps coming down, while during the current year, we expect NIM trajectory to continue. But on a steady state basis, the NIM level could be -- could be lower than 9.5. However, there is a significant amount of operational efficiency which will kick in, right?

[Jignesh Shial, analyst]

Yes. Understood.

[Sanjay Miranka, executive]

And let's say, okay, we expect from normalized ROA of 3.1% for Q1 on a steady-state basis, we expect this ROA to improve further.

[Jignesh Shial, analyst]

Perfect. This is really helpful. And just for my knowledge, as Hiren from Bandhan has already joined you guys or he's likely to join now?

[Abhay Bhutada, executive]

Yes. He has joined. So, Hiren Shah, yes he heads our Investor Relations.

[Operator]

As there are no further questions from the participants, I now hand the conference over to Ms. Bijal Thakkar for closing comments.

[Bijal Thakkar, analyst]

Thank you. Thank you, sir. Thank you, Mr. Bhutada. Thank you, Manish for being on this call. And Michelle, you can now end this call.

[Operator]

Thank you. On behalf of AMBIT Capital, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.