Poonawalla Fincorp Ltd

NSE:POONAWALLA

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Poonawalla Fincorp Limited Q2 FY '24/'25 Earnings Conference Call. We have with us today on the call Mr. Arvind Kapil, Managing Director and Chief Executive Officer; Mr. Sunil Samdani, Executive Director and other senior management officials. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Arvind Kapil, Managing Director and Chief Executive Officer of Poonawalla Fincorp Limited. Thank you, and over to you.

[Arvind Kapil, executive]

Thank you. A very good evening to all of you, and welcome to our Q2 earnings call. I wish all of you and your loved ones a happy and prosperous festival season again. I've now spend around 4.5 months as an MD and CEO of Poonawalla Fincorp, and I've got a chance to fully detail out the operating strategy of the organization. I will, therefore, begin by updating you on the details and progress made since the last call.

To reiterate, our vision is to create a sustainable and predictable retail lending business that scales to 5 to 6x over the next 5 years. So I mentioned 5 to 6 years and cutting that to 5 years at 4.5 months down the line, I'm quite clear that we can probably -- my confidence on this looks far more clearer.

This is on the back of creating a stronger customer finance brand and respectable customer service, the 2 very fundamental to beginning. I continue to be extremely bullish on the Indian retail macro. There's a significant value creation opportunity by, let's say, serving around 400 million creditworthy customers in India, of which around 50% are still underserved.

Delivering on this vision, we'll require significant investments in the quality of our people. That's most important. New businesses, yes, new distribution points and strengthening our capabilities across collections, as I mentioned last time to you. Advanced analytics, extremely important, it's going to be cutting edge in almost every department that we run and customer engagement.

Let me provide you with a brief update across all these dimensions. I thought it will be more prudent for us to be more detailed this time. So all of you get a first-time glimpse of what the plans are, all of this has been thought through, planned and we will systematically execute.

Let me start with our people. Happy to report back to you that we've made offers, which have made almost 95% of the envisioned leadership hires, all the senior management have already joined us. So in 4.5 months, you've got the top management and almost the second layer beyond that is also joined. Barring one CTO that we're expecting in the first week of December, which is also a fantastic resource, almost everybody else is on board, as I talked to you and is already full scale in the working progress and this team in my limited view should be among the top teams by any standard when you compare with the industry.

If I were to give you a quick glimpse on this, if you take the Chief Credit and Analytics Head, Shriram, ex HDFC Bank, you've got the Chief Business Officer, Vikas Panday and Raghavan, ex HDFC Bank, top notch resources, who were introduced in our last call. We have a couple of new seasoned leaders across data science, collections, risk, audit, both internal and compliance. They've already joined us from pedigreed institutions.

To give you guys a sense Bhaskar Pandey joins us as CRO, Chief Risk Officer; ex HDFC Bank, 23 years plus, you've got Bholananda Behera, Chief Compliance Officer, who joined us with 27 years' experience. You've got Nitin Sane, he's joined us. He's ex Citi and then ex HDFC Bank. He's joined us from [indiscernible] Rabo Bank Group, Netherlands with over 20-plus years' experience. You've got Jaswinder Singh, who has joined as risk analytics, one of the finest resources. Anil Hospattankar joins us as Lead Collections with 30 years of experience with Yes Bank.

Let's quickly take you through our plans for the new businesses. As we scale up our customer franchise, we want to go deeper in our focused micro markets rather than just go broad across India. This will enable us to get operating synergies, I believe, understand and manage risk better and ensure our brand promise is delivered in the communities we serve. While we've always had a forte in self-employed segment as well as Tier 2 geographies, we've had a limited product portfolio to serve the segment.

I strongly believe there is a need to expand our offering in order to get multiplier benefits from our catchment areas, for example, improved productivities of our branch and people in that network, improve our cross-sell ratios. And remember one thing, this management team is very well versed with the cross-sell trends that's going to start getting added to our existing portfolio plus the new ones to further lower our customer acquisition costs and manage yields per customer, hedge our portfolio from diversification and substantially increase the granularity to the entire business.

As a result, from a product portfolio that I announced last time, existing that you have 4 key products, that's your small ticket size, PL, STPL, you've got LAP, you've got business loans, you've got preowned car. We want to broaden our offering to 10 products. So what I'm really saying is that we want to build 6 additional offerings. And I'm talking about a whole lot of work is already underway in this. The budgets have been done, the people are getting higher, but I'm putting a launch by quarter one of financial '26, just to be a little more precise in terms of our delivery on precise numbers from thereafter.

So I had shared with you Prime PL, which is already, by the way, taken off much before we had bought off and is scoring pretty decent numbers already. You've got consumer durable. The process is underway to start. You've got shopkeeper loans. You've got used commercial vehicles. The people have joined it. The businesses have joined it. You've got 2 new businesses that are adding now after adequate thinking through and increasing the granularity and the strength of the offering is going to be gold loans and education loans. And both of them as well will be launched around quarter 1 of financial year '26.

Let me quickly take some time to briefly talk about the rationale for each of these businesses and how they'll complement our existing product portfolio and enhance our competitiveness vis-a-vis, I believe, our peers. We should be growing at a much faster rate and far more granular. Quick sense of consumer durable, like I discussed last time, is going to be a key pillar for growing our customer franchise. India's customer -- consumer durable sales in a year is close to around [ INR 8-odd lakh crores ] and only 30% is financed today. That itself shows to you what an opportunity it can be for the company. As a result, consumer durable financing is seeing a 25% plus growth year-on-year. The Tier 2 and Tier 3 locations have been growing fastest 35% plus year-on-year and not surprisingly still presently immense penetration potential.

Our strategy will be anchored along with these geographies with a focus on younger early salary customers. Our underwriter will be backed by robust credit decisioning and fraud models, given the experience of our data science and product team. Quick sense on shoppers loans, India has 13 million kirana stores today, with 3 million mass retailers and family stores where the turnover can be anywhere between INR 10 lakh to INR 5 crores, formal financing penetration is less than 20%. It's a fantastic opportunity for us. Playing in this segment requires strong digital-assisted models and sharp credit policies, and we have the bench strength and past experience, we will work on both digital and physical.

We've captioned this model earlier in my previous organization, and I do see significant opportunity to build a sustainable shopkeeper finance book.

Let me speak about gold loans. As we know that gold is one of the largest and safest form of collateral today that led to the rural and informal sectors in the Tier 2, Tier 3 geographies. I mean gold loans in our portfolio becomes extremely complementary to our catchment areas.

While gold is approximately INR 7 lakh crore plus market, we intend to play in the mid-lower ticket size segment in the Tier 2, Tier 3 geographies. So 40% to 50% of the market. Gold loan branches do require specific infrastructure. However, they're quicker to breakeven especially impaired with other complementary cross-sell business that we've built strength on. And remember one think, this team, I'll repeat, is well seasoned in that area.

I'll cover this in our distribution strategy. Personal loan Prime -- yes, personal loan, we've seen a crowded space, INR 13 lakh crores market growing at approximately 26% year-on-year. However, in my 20 years of experience of leading this business tells me that there's significant pockets of prime customers that are under served in deeper geography, over 3 lakh [indiscernible] and that presents a great opportunity for us. We are already scaling this up from insignificant levels to decent quantums month-on-month and growing at a rapid scale. I'm very optimistic on the yields and the business prospects of this. Our player in this segment will be driven by open market physical sourcing and a strong digital-assisted journey with global scorecard to scale.

Used commercial vehicle is another very interesting business. There are close to 11 million commercial vehicles in India that typically change 2 to 3 owners in a life cycle. 40% of the stock is in the prime 5-, 10-year vintage where funding penetration is less than 40%. The current used commercial vehicle finance market is around INR 1.5 lakh crores today and has grown at a steady rate of approximately 13%. These locations in the semi-urban India are aligned well with our current physical distribution strategy. Our sales strength and self-employed underwriting will help us serve the small fleet operators and first-time buyer segments.

Education loan. Yes, I'm going to be focusing on that as well. A, it could make us a good household names. It's a fast-growing segment, 17% year-on-year increase AUM and almost close to INR 1 lakh crore a year while most of the portfolio has been targeted at international students, there's a clear shift in the trend in increased demand in the segment beyond on various segments of the institutions.

Education loan, like I said, will enable us to amplify our household brand efforts and building across a retail segment. I'm confident that adopting these complementary businesses and leveraging the right data and analytics can help us build a diversified portfolio with predictable and sustainable cash flows and calibrated risk levels, the whole plan is that where your whole business is broadly going to 10 businesses and building it over 4 to 6 quarters, and substantially had a very positive upside in the next 1.5 years on the building blocks.

On the new distribution points, a few comments. It's my firm belief that the segment we catered to requires us to have meaningful presence on the ground, both from a sourcing and collections perspective. As a result, we will prudently expand our footprint. Yes, we presently stand at approximately 101 branches, and we are going to ready to expand our footprint by 400 branches over the next year in T2 and T3 locations consistently with our strengths.

So what I'm saying is I will be launching 400 branches addition in the coming financial year. So the whole work has already begun. There's a whole lot of work happening on that. And from the first quarter itself of the coming financial year, you'll see us moving into that. These will be gold on branches, but there will be heavy cross-sell focus into our core businesses of business loans, LAP, shopkeeper loans. It will be a fair flavor of digital as well. And as a result, we expect a breakeven in these branches to be 12 to 15 months ballpark.

Our new capabilities, if I were to summarize quickly, there are 3 areas we are doubling down on, from a capability standpoint that will serve the foundation for the franchise. I've mentioned last time to you, strengthening collections, number one, we've significantly strengthened our collection organization, bringing seasoned professional. Anil Hospattankar, Head of Collection joining us from Yes Bank, over 29 years of experience in the industry. We see our collection strategy across 3 clear dimensions. I'm laying it out for you so that it's much easier for you to assess because in every passing month, we are moving -- we're almost probably leapfrogging in the way we're getting controls.

The use of advanced analytics, the 3 dimensions, I'm laying up, we've already built advanced portfolio segmentation, risk categorization scorecards for most of our portfolio. We are augmenting them with both honors and external data across the life cycle of customers, free delinquency to delinquency to recovery. That's what they have done on the ground over the last 60 days.

We're putting in place algorithms to help us decide on the right strategy for the customers. We will be fully live by December. Scientific customer and resource allocation is being done and customer engagement. We have significantly augmented our agency capacity. I think that itself can add immense value over the next 60, 90 days, and we're bringing in seasoned debt management professionals to manage the markets. 80% of the required capacity will be in place. Let me give you precise timelines, will be by Jan, the coming Jan '25 and 100% by March '25.

You can well see that work is happening on a war footing on multiple dimensions, investments and adoption of digital technology and collections. Whether it will be rolled out and intuitive in agent-friendly collection app, multiple scan, UPI features for EMI repayments, multilingual bots in probably 10 languages. We are already live, by the way, over the last 60 days. And digital communication enablement to build timely payment habits. We are building out modern, sophisticated collection tech capabilities. That's our priority.

If I look at the point #2, AI-driven credit decisioning and risk management. All the 10 products that we're kickstarting, we spoke of, have to be necessarily driven off the back of a solid risk management infrastructure and scientific decisioning. Remember one thing, what gives us courage to take 4 products to 10 products is a solid management team and over and above a very solid risk management and collections team. Our aim is to build a granular book that is differentiated by specific credit policies for specific segments. As a result, we have defined product and customer segments, risk-adjusted return on capital to granularly assess risk reward choices. We will have approximately 10 to 15 subsegments within each product. We are creating risk separation by using alternate data over and above bureaus.

What I'm really doing is giving you micro details of what my guys are doing. That's what I have that to share with me precise steps. So it gives you a first-hand sense of the detailing that we're getting into. We're leveraging behavioral data. We are doing data from [ digi-workers ] and other digital public infrastructure, data sources, the point of sale and micro market level data and cash flow data via account aggregation, very important. It should give us a 10% to 20% higher lift in predictive algorithms.

We are fairly investing in that to give us the cutting edge in a few quarters. Set of advanced portfolio monitoring techniques that can improve credit costs for another 20 to 30 basis points. We're granularly analyzing productivity and its impact through the door quality along with keeping a track of macro and micro indicators that might indicate a slowdown or temporary shortfall in specific sectors in geography.

The idea of getting into these small details is to give you a ground-level feel on what's happening at an operating level. Building a team of cutting-edge AI professionals along with strong capability in infrastructure, having hired some seasoned professionals to boost our current data science team, that's what we have done on the risk side. We're now investing in overhauling of scorecards from traditional models to AI and ML models. This is being worked upon by [indiscernible] Shriram, Bhaskar. Personally, they're getting into these areas because this could be cutting edge for us. And size of the balance sheet versus these initiatives, we could probably be the best in class in this in a couple of quarters down the line.

We will have a stack of models across customer life cycle, right from classification and regression models to predict income to multi-bureau models and partnerships alternate scoring models. This isn't easy to build. You can build this today because you've got a management team which has that bench strength, to create different swim lanes to ensure risk accuracy is not just compromised while providing a seamless experience to customers.

Fraud prevention is another area where we will heavily lean on AI/ML. We've achieved initial success in identity test patterns and documentation tampering behavior in our digital lending portfolio. We will continue to use a combination of graph-based technologies and Generative AI to drive higher fraud prevention. To ensure all of the above are scalable, we are also building the right data marks and solutions along with modular API capabilities to third-party integration. We will soon partnering with one of the leading institutes of India to ensure we get a highly talented pipeline of machine learning operations and data engineers to build these use cases.

Ramping up digital and performance marketing for our customer engagement is another very close to my heart. If you know my past background in digital, that probably will quantify why this area is so close to my heart. We will have a large customer lending base coming in over 2 to 3 years. Our aim is to ensure we have 50% to 60% of our customers are repeat franchise customers. This will enable us to have a reasonably healthy margins, risk costs and create solid customer cohorts. This will be the building core strength of us.

To enable this, we are building a marketing technology infrastructure. Our focus going forward will be to monetize these capabilities via AI and scientific performance marketing, search engine optimization or search engine marketing and organic traffic bills and engage our customers meaningfully over the web and customer app. It will be a high priority for us. We're doing a fair amount of work on that.

By quarter 4 of financial year '25, we will go live with our revamped website as powered by a modern architecture and personalization capabilities. As we build out our new businesses, our app will also provide seamless service and interaction, including meaningful features that will enable us to engage with our customer base.

Collectively, adding new people, new businesses, distribution points, new segments and also capabilities across AI, collections, digital marketing will mean incremental investments over the next 6 quarters.

I thought it might be appropriate for me to give you on a ballpark basis because we've done a fair bit of budgeting on that, that we do expect the number to be around more about INR 50 crores per quarter over the next 6 quarters. These investments are going to be foundational and will provide a multiplier benefits to our growth and profitability in subsequent quarters. Having walked you through the details of fundamental strategy, I will continue to keep the group posted on our progress in subsequent calls.

Let me now focus a conversation to our performance this quarter. We are firmly on track to deliver our AUM growth as promised in our last quarter. What has changed is the mix of our incremental business, and that is the priority for us as well. We will change the incremental mix more towards being more granular, risk savvy and incrementally solid customers. We've driven our purposeful scale-up of our commercial lending businesses on the back of the strong cash flows and tailwinds we are seeing across our markets.

Incremental business dispersals among the existing 4 businesses, let me give you a sense of the 2 businesses to begin with. Business loan and LAP. It's been around 4.5 months now. And we've already started growing at approximately 50% in business loan and 65% quarter-on-quarter, respectively. I thought probably, this will give you some sense of what this team after joining in various points of time in the last 4 months can pick speed.

At the same time, in LAP, we have improved our pricing as well. So it's not just that the LAP has grown at around 65% quarter-on-quarter. We've increased our pricing by 25% to 30%. We've expanded our presence in 40 new cities. The idea of just sharing this with you was just to give you a ground level feel. We've curtailed down as well. Among the 4 businesses, there is an STPL business. I've given you guys a hint in the first 40 days. With our experienced seasoned eyes, we felt it needed calibration. We've curtailed now our disbursals in the STPL [ high-rise ] business, but almost 1 -- we're down to 1/5. So whatever we were doing in STPL, we're down to around approximately 20% of that disbursals a month. Despite that, you notice we showed a 5% sequential growth, which means the rest of the business have to start growing at a much active rated rate and which we managed to do even in the first 4 months.

Over the next few months, we will test multiple customer cohorts on STPL in terms of credit quality, pricing, average ticket size and then use our digital marketing machinery to scale up the disbursements. But it's very important we get the calibration absolutely bang on right.

Coming from the 2.5 years -- decades rather at HDFC Bank, have been brought up with the philosophy of prudence when it comes to risk management. It's very important that the balance sheet remains financially resilient to any foreseen or unforeseen surprises. I must clarify here that adequate provisioning for me is not merely a regulatory or accounting exercise, but a tool to ensure we are building a strong balance sheet through risk management, we walk to talk. I've been always telling you, we will be solid with risk management. When I say we will be solid, it only means that we have to walk to talk as a management team, which is fundamentally important as we embark upon sustainable, predictable and transparent long-term strategy.

Post a thorough data-driven review of our STPL book, we have decided that an increase in provisions is warranted to ensure we are able to hedge against the unseasoned nature of the book and macro environment we are in. We are very confident that this onetime action combined with calibration of our product mix for incremental businesses will strengthen our balance sheet without doubt and enable us to sharply focus on multiyear, multiproduct growth trajectory and deliver an AUM and a profitable number over the next few quarters.

With this, we are confident that we have done with our credit assessment of the entire portfolio and have adequately provisioned on the entire book. This financial resilience that we have created in the balance sheet will help us build a very strong franchise from Europe. At the cost of repetition, let me reiterate. We are very clear. We are building a long-term franchise that will deliver 30% to 40% AUM growth for the next 5 years. We are firmly on track to achieve it. At the same time, we are going to ensure that the business lines we get into are absolutely sustainable, and we remain prudent and calibrated in our risk management approach.

Before I hand it over to Sunil and Sanjay to walk us through the detailed financial performance this quarter, the festive season -- this festive season, we wish all of you are very happy Diwali. This quarter, in my view, will mark a very positive turning point for this company. We have made provisions for STPL book with a clear intent of better risk management and financial resilience. We are strengthening our balance sheet for the long-term strategy.

And just to summarize with this management debt, which I believe is one of its kind in the industry and our strategy is one of its kind of building a franchise of 6 additional businesses, we're confident we'll take these 10 solid businesses to growth trajectory. I do believe firmly, this will be the transformation of Poonawalla Fincorp, ballpark, I would treat it as 4 to 6 quarters. Both in terms of diversity of customer segments, which we will build and add value to the franchise, multiple distributions that we create at a rapid scale both physically, like I said, we are launching 400 additional branches from 100-odd plus on the website, we'll transform the game. Recalibration of overall risk, substantially lifting the AUM is something that I see a year or 2 to onwards, the foundation for recalibration of profits -- much better profits starting the beginning of third year. Thank you very much.

Let me hand it over to Sunil.

[Sunil Samdani, executive]

Thank you, Arvind, and good evening, everyone. Let me now take you through the quarterly and financial operating highlights. Our assets under management stood at INR 28,396 crores, reflecting a growth of 40% year-on-year and a healthy 5% quarter-on-quarter. Now this is despite the moderation in STPL book due to credit recalibration. In terms of AUM mix, our MSME finance contribution is 33%, followed by personal and consumer finance at 28%. Loan against property and pre-owned car at 19% and 15%, respectively. We continue to maintain a balanced secured to unsecured mix of 51:49 with secured mix improving 225 bps quarter-on-quarter.

Our net interest income, including the fees and other income was INR 645 crores for Q2 of FY '25. This is up 22% year-on-year. The onetime OpEx and the ongoing investments in technology, distribution and people impacted the PPoP, which is the pre-provisioning operating profit, during the quarter, it stands at INR 279 crores. As against INR 432 crores last quarter and INR 346 crores same time last quarter.

During the quarter, we incurred a onetime OpEx of INR 71 crores along with a onetime additional provisioning of INR 666 crores for the STPL book. This provisioning reflects our commitment to prudent risk management practices. The net NPA was stable at 0.33%. Our gross NPA stands at 2.1%. This increase in gross NPA is on account of higher slippages in the STPL portfolio. Our PCR, which is the provisioning coverage ratio during the quarter, improved from 52.53% to 84.47% quarter-on-quarter.

Coming to our liability profile. Our cost of borrowing was lower by 6 basis points quarter-on-quarter at 8.10%. This is despite the tight liquidity environment that we were in. We have been successful in reducing our cost of borrowing through a dynamic treasury management with one eye on the cost of borrowing and another one on the liquidity and the ALM. Our debt-to-equity ratio was 2.26x.

We remain comfortable with positive cumulative mismatch across all our budgets and the surplus liquidity of INR 5,710 crores as of September 30, 2024. The total borrowings at the end of quarter was INR 18,107 crores with approximately 71% of which are on variable rates. Whereas the fixed rate borrowings are of relatively shorter tenure, which places us well to take advantage of the lower interest rate environment envisaged in the future. Our capital adequacy continues to be well above the regulatory requirements with CRAR standing at 29.22% of which the Tier 1 capital is 27.75%.

Let me now take you through some of the technological initiatives that we've taken. With implementation of centralized enterprise data warehouse and the data lake, PFL is now future-ready on any new business segments with high-volume compute platform and the single source of truth with near real-time data. This will benefit cross-sell campaigns, reduce turnaround time at a lower total cost of ownership and faster query compute performance. This will also enhance the data team democratization and the data-driven culture in the organization.

We have partnered with an account aggregator that will further enhance our credit assessment and operational efficiency, which will help in managing the risk. We have built an AI-based delinquency and collection management system that effectively improves collections. Our collection stack is a cutting-edge solution built on a modular low-code, no-code platform. We have integrated top-tier technology to enhance workflow execution, including the dynamic field allocation based on location and a robust legal paintwork, and a multilingual voice and chat box for efficient customer communication. Our goal is to modernize the existing collection stack through seamless upward and downward integration, while maintaining the current user interface, ensuring high user adoption.

On the customer service front, we have implemented an integrated communication hub and an auto authentication of customer based at the registered mobile number. This will help our caller give a 360-degree portfolio view while talking to our customers. We have launched our first GenAI based voice bot and email bot. Our voice bot now proactively engages with the customer, providing important loan details through welcome calls such as disbursement amount, EMI, due date, broken period interest, et cetera. About 35% of our inbound customer calls are handled by our voice bot whereas the outbound welcome calling, 100% of it is done through bot. These topics that generates a high volume of inquiries at the call center are now explained automatically by the bot.

The email bot that we have recently introduced shall provide in phases the instant response to our customer queries 24/7, categorize and scan the incoming emails to identify the topic and the urgency, prioritize email, ensuring that the urgent matters are handled first, bot drafts and send the response to routine inquiries, reducing the workload on customer service team and speeding up correspondence time.

Our Net Promoter Score, a key indicator of customer brand loyalty, has consistently stayed above 70% throughout Q1 and Q2 across all critical touch points, which is sales, onboarding, service and exit. We are actively addressing customer insights, identifying opportunities for process improvements as part of our ongoing commitment to continuous enhancement.

Thank you, everyone, and wish you all a very happy Diwali in advance. I would like to now open the floor for question-and-answer session.

[Operator]

[Operator Instructions] We have the first question from the line of Avinash Singh from Emkay Global.

[Avinash Singh, analyst]

So the first question would be from where I left last quarter, I asked Arvind about the provision offer that was created last year. And of course, I mean, we got answer from your other colleagues -- Arvind, we got answer.

So I mean this around nearly INR 700-odd crores of our provision on this STPL you have created. And then last year, when Poonawalla has received money from that housing estate divestment about INR 1,200-odd crores of that prudential buffer was created. So what has happened to that? I mean, where is that buffer utilization today? Because I mean with that kind of a buffer and again, this kind provisioning to be done, this raises the sort of [indiscernible] quality over the kind of a book that was underwritten over the last 12, 18 months.

And in terms of what your confidence as far as provisioning on the entire book is concerned, that book, I mean almost you have inherited. How comfortable are you in the kind of asset quality and will this provisioning be sufficient for that? So my question is twofold, okay, of course, your confidence going forward in the existing book and the updates on what happened to that -- the buffer that was created, how will you utilize what -- where it is now. That's for the first.

Second one would be more on, of course, as you sort of rightly highlighted the team you have now hired to build a franchise for the future next many years. The question is we're looking -- I mean, how are you finding, I mean, at the ground branch [indiscernible] how are they responding to this entire -- I would say, that change in style, change in the top management. And for the top management, I mean, sort of how you see that the longevity within the organization because, I mean, this kind of a transformation at times could be very frustrating because, I mean, results take time and your incentive sometimes linked to share price, again, that is -- that will again take time to -- before your share price start to reflect this. So I mean, somehow that -- the team also start to get frustrated. So how sort of do you see this transition playing out? And how confident that okay this team is going to stay?

[Arvind Kapil, executive]

Okay, a quick one. I got 2 of your questions. Let me quickly cover the 2 parts and then hand it over to Sanjay to give you a perspective on a certain area. Okay. First of all, we've done risk calibration, check on the entire portfolio. So while you may see provisioning on the STPL book, which I thought was relevant and appropriate to take it to adequate provisioning, which is why we have done that. But the checks have been done on the entire portfolio by our risk team by internal and external assessments. So we are done with our provisioning. I want to be very clear on that. There's no ambiguity there.

There was -- yes, it is a little bit of a -- you might call it about precise upfront call, but it's important that we create and strengthen the financial resilience. You can't talk about risk management and then not have the courage to do it where it has to be done. Tough course is important to make the company stronger and ready for its long-term growth. And you can see that we are ready now. The balance sheet is already, multiple plans and our courage to launch 6 businesses.

In those additional 6 businesses, first of all, there are no people. So we are building those entire teams, franchise and everything. So that will be direct value to the company that we're creating. For the existing businesses, I shared with you about the 4 businesses, STPL, we are recalibrating it. If you -- that's predominantly very biased to digital. On the [indiscernible], their business loans and LAP, the teams have really adapted well. There's no frustration. By the way, there's excitement.

When you challenge people -- I've shared with you the growth rates are around well over 50% in both those businesses. And it's not like the entire team joined in on the first of -- on the 10th of June when I joined. Over the last 4.5 months, we've been joining over at different points of time. And it's a team that managed to click really well with the existing team. I think they are a fine bunch of guys. They've already picked up fantastic speed and acted well. I think we had some good people that we've hired and would love to share the confidence that we have very, very aggressive plans and challenges when you throw at people, people get excited and motivated.

I mean a good example of that is our own Indian armed forces at the border. It's not that they're the best. But when they're faced with fantastic challenges, the excitement is of a different order. You can well compare that with the way we run this -- run things here. When you create exciting challenges, I can see the energy levels are only going up. I think sky is the limit when it comes to business. We are excited about it. I'll be honest with you.

When I told you, we will look at the first portfolio in 40 days, I was very frank with you. Now when I'm excited about the road again. I'm equally in the same spirit, sharing with you. That's what it is. As far as the specific provision of the past, maybe we are more conservative for now. But I think Sanjay will give you a sense of it.

[Sanjay Miranka, executive]

So out of that provision -- exceptional provision, which we've created in FY '23, '24, we are still getting [ INR 239 crores ] of provision in our books. So as Arvind rightly said, books are well provisioned. And just to add to the point on top management and how it is transforming the entire landscape. The way our core products, as of now -- business loan, borrowing against property, preowned cars, the way they have picked up speed with better yields. You will see the results in next quarters and years to come.

[Arvind Kapil, executive]

And even these 6 businesses has a fair amount of work happening, out of the PL Prime, I think we've already started reaching levels of INR 50 crores, INR 70 crores a month to give you a sense. It's probably interesting to see quarter-on-quarter, we are moving it sequentially rapidly on those. So if we go into micro detail, we may have recalibrated some of the high-risk businesses. But the ones which we are growing, we're growing fairly fast and fairly rapidly.

[Avinash Singh, analyst]

Okay. So you said that you are carrying a INR 200 crore provision from last year?

[Arvind Kapil, executive]

INR 259 crores.

[Avinash Singh, analyst]

INR 259 crores. Okay.

[Operator]

We have the next question from the line of Shreyas Pimple JM Financial.

[Shreyas Pimple, analyst]

Am I audible?

[Operator]

Yes, we can hear you.

[Shreyas Pimple, analyst]

So I wanted to ask 2 questions. First, on PL book, what is the actual size of the PL book and of that, the STPL book specifically, which is throwing up issues?

[Arvind Kapil, executive]

Yes. Yes. Sanjay, can you give thought in light of the first question?

[Sanjay Miranka, executive]

Yes. So the total STPL book is to the tune of INR 6,800 crores. Out of which, the book, okay, which is belonging to the period prior to this calibration, that book is about INR 5,400 crores. And the entire book, a book of INR 5,400 crores is well calibrated, and Arvind articulated the disbursement which was to the tune of INR 1,200 crores, INR 1,200 crores monthly, have been brought down post this risk calibration to INR 200 crores in September. And only after, okay, gaining confidence both on any kind of future flow rates, in terms of the overall performance, that book versus the customer segment, versus the average ticket size, we will -- in a measured way, we will, okay, grow that book. So this is -- this, okay...

[Arvind Kapil, executive]

I think we've got an angle on the calibration but the scaling up, I might take 60, 90 days on that particular book because I think it's important we get it absolutely bang on right, and then I think it will open up a new opportunity for us.

[Sanjay Miranka, executive]

While at the same time, okay, it would be important to add that the growth is not dependent on STPL. We have well-settled products, okay, we are giving the growth.

[Shreyas Pimple, analyst]

Understood, sir. The second question was on the capital requirement, both in terms of debt and equity for -- to fund the feet on street or tech investments that would be required for your -- our growth ambitions?

[Arvind Kapil, executive]

So I think we've already -- I've stuck my neck out and shared some figures of around ballpark INR 50 crores for these 6 businesses over the next 6 quarters. To give you guys an indicator, that this INR 300-odd crores in 1.5 years will send the ball rolling for us for a certain growth rate. Remember, one thing I've also said, 400 new branches because you can actually, between digital and physical, substantially increase your productivity. While we invest in digital, very important to get the ground level armies also in India in Tier 2, Tier 3 cities. We come with a very strong experience. I see great opportunities of fantastic ROA products there.

So if you combine your ground level forces with digital forces, the productivity goes up. And business focus is priority for us. You can check my background on digital. We produce one of the best products in the world. So that effort is going to go on. As a matter of fact, for me as a CEO, I'm going to bet big on AI. But I'm going to focus on business. If I can do 2 big projects, which are game changers in the next 4 to 6 months on AI, you'll hear of it. There are already 2 projects that are commissioned. I haven't spoken about it. Let some results come in, in that before we speak about that to you in the next earnings call. And it might be more appropriate.

Most of the stuff that I've detailed out for you all right now is so that everybody with that know -- gets a ground level feel what's happening in the ground because a fair amount of work happening. And you will see a more exponential kind of a flavor as we start moving quarter-to-quarter because the experiences of our distribution is very, very strong.

[Sunil Samdani, executive]

To your point on the debt or kind of equity capital requirements, we are a very low leverage company with our debt to equity at 2.26. So there is enough headroom to increase our leverage. So we don't see that as a challenge for our projections that we are looking at. Equity, again, it's very high capital adequacy. So we don't see a requirement to raise equity in near future.

[Arvind Kapil, executive]

Yes. I think here on should be very strong, exciting times from a business building block perspective.

[Operator]

[Operator Instructions] We have the next question from the line of Parag Thakkar from Fort Capital.

[Parag Thakkar, analyst]

I really appreciate the long-term vision and the execution foundation, which you have laid down. And I really appreciate that you have hired very good people to take the business from here. The only thing is that, unfortunately, when you take this tough decision of providing in 1 quarter, I hope that this shocker, which comes to market and which unsettles market, I hope that shocker thing is over now with this quarter.

[Arvind Kapil, executive]

Yes. First of all, I think, Parag, it's not a shock. It's something which is prudent risk management and as a matter of fact, absorbing shock. And I'm making sure that we have a [ clear ] runway ahead to markets can see more clearly and I can see more clearly the road again instead of playing wishy-washy over and try to postpone. I think when you have this quality and credibility, I have also pressure to hold the ground and walk the talk. So I'm very, very clear. If you see my plans, I've gone out of the way to go into very high detail with everybody. A lot of this is not theory. This is getting executed at the ground level. You can well imagine how many companies in the last 10 years you've seen have got the courage to say we've got 4 businesses. We'll put 6 businesses on the table. I've said that in the first 40 days. Do you see me wavering on that? No. I'm not wavering on it.

Within the first 40 days of coming in, I could see the problem. I specify to you guys, called it out. Then the 4 businesses launched. We have gone ahead and stuck our neck out on another 2 businesses. It's 4.5 months. You can well imagine the seasoned experience we have in putting it on the table. We've got Serum India behind us. We've got a AAA rating. We've got solid pedigree. We've created a management team, which is probably the best in class in my limited view.

And between existing and new people, we've got a fantastic team. And I'm excited for the road ahead. I think the market should be fully excited that this is the company, which is worth its metal. That's what I would look at it. On the stock market, I told you last time also, I don't understand stock market at all. So that's treated as a disclosure. I understand businesses and that you will see we'll create one of its class. I have no doubts.

[Parag Thakkar, analyst]

Arvind, really appreciate your response. Just that I think Avinash also asked the same question, that on the STPL book, where you have provided so much of the amount and we -- after seeing the entire book, you have done this. So I hope that this amount or this thing will not be repeated, right? It is one-off and we have decided to write it off in 1 quarter itself, right?

[Arvind Kapil, executive]

Absolutely. [Foreign Language] if I can reduce, calibrate my business to 1/5 of monthly disbursement, it takes courage to bring it down. Obviously, it's fully recalibrated and we are going to -- and I'm accelerating other businesses [Foreign Language] quarter-on-quarter, 50%, 70% [Foreign Language] growth. Obviously, we have -- it's all well planned. It's well risk calibrated. I can assure you. And we have some very serious strengths, which will play out in quarter-on-quarter. This was an important decision. It marks actually a game changer positive move for the company.

We want to work on various projects like I mentioned in this, and once you -- probably your respective fund managers goes through the details of my conversation, you will realize that I'm investing a lot in AI and a lot of projects. With our experience, we'll create something very exciting within 6 months. And that kind of optimism I'm sharing with you when I see it. So I'm kind of a guy, I'll tell you well in advance how I see the future. If I see the future bright, you will hear it from me.

[Parag Thakkar, analyst]

Yes, sure, sure. Really respect your...

[Arvind Kapil, executive]

Let me be honest there. I don't understand stock market. Sorry, over to you. Sorry, to interrupt you. But I...

[Parag Thakkar, analyst]

No, no. Sorry, sorry. So really appreciate your comments and really appreciate your honesty, and I would say modesty also and the way you have gathered so many people from very, very highly respectable institutions. And so really looking forward to excellent growth as well and asset quality also. The only thing which ultimately I would like to ask and for -- this is for all of us to know that whatever hit you had to take, you have taken, right? Just answer this question and that's all.

[Arvind Kapil, executive]

Yes. Across the book, taken, done, over. We are accelerating on our pedals now.

[Parag Thakkar, analyst]

Okay. So now there will be no extraordinaries. The business is as usual now, and it will grow with a very, I would say, prudent risk management as you are running in HDFC Bank, right?

[Sanjay Miranka, executive]

We will be -- see, that's the DNA [Foreign Language] we can't change that. It's going to be a better DNA. And then I can't move it out because we have worked for an NBFC now. So there will be -- I said the growth will be massive. We enjoy great credibility with the existing distribution. Our understanding on creating new distribution is very strong. This is business time now. So business time is our forte. And this management team, by the way, is not just one level below me. We've got guys who are 2 levels below, now 3 levels below. This is expanding at a very good rate. We used to have difficulty getting that quality of talent at that pace.

Now I think we have a pipeline of guys who want to join us. I mean I'm not exuding extra confidence on what I see on the ground. People have been kind, and I'm very grateful that people are showing interest in joining us. And we are very obliged. But we'll obviously be prudent in all levels because we were brought up being cost conscious. We've been brought up being sensible spenders. We've been brought up being risk prudent. Finance business means risk prudence is hand in hand. It's being extra prudent. It's part of life. You cannot be compromising that area. That's all I'm trying to say. We know how to do business. That's why the word seasoned. Thank you, sir.

[Parag Thakkar, analyst]

Perfect. Perfect. So basically, we will -- so the one-offs have been over. Now it will be as -- business as usual. The growth will be as usual. You'll be always prudent in terms of providing, which was a DNA of yours when you were at HDFC Bank. So we'll continue to see that and growing new 6 businesses, scaling it up. Those kind of investments are absolutely okay with investors. But the one-off thing, which was a one-off thing which you said on the last call that you are seeing that STPL book and now you have provided for it, right? So it's a onetime thing, which we have already taken.

[Arvind Kapil, executive]

Yes. We've just created financial resilience, sir. That's all we've done. And where it was required, I've taken. Rest of the book, we have calibrated, checked. Everything is -- we -- it's within the range that we can manage, and there's nothing. From here on, it's -- I'm excited from here on.

[Operator]

We have the next question from the line of Kaitav Shah from Anand Rathi.

[Kaitav Shah, analyst]

So 2 questions, number one was LAP seems to be the new gold in terms of financing. It's in a pretty good space. Where do you think -- in which ticket sizes or markets would you want to create your niche in the first 2 to 3 years for us to kind of look up to of how -- or measure you? How should we look at it, number one? Number two, what are the outstanding -- I mean, bookkeeping question, what are the outstanding provisions on the book now, buffer that had been created earlier?

[Arvind Kapil, executive]

You're talking about provisions or the new provisions we have created or which one are you talking about?

[Kaitav Shah, analyst]

No, the old buffer. We had a buffer of about INR 1,000-odd crores prior to this. So is it still outstanding? What quantum is it?

[Arvind Kapil, executive]

I think for me -- let me give you a more holistic answer. LAP right now is going to be 1 these 10 businesses for us. We're going to be focusing on a lot of secured businesses, including for gold. By the way, it will also be gold for us, just for your idea. That's a good ROA business. So we still believe gold has a lot of shine left and the size we are at, it's going to be a great opportunity for us.

We see -- we are going to cater to all possible segments that we can take advantage of, which is why on the business side, commercial vehicles, education loans, household names, consumer durable to create a company. When you create solid ROAs from here on, you've got to create customer franchise running faster than the growth rates of companies. So while our growth rates might be extremely on a positive trajectory, I would still want customer franchise to run faster so that through AI, through cohort groups, through cross-sells strengths that we have management depth of, you can create some serious advantages not just for LAP, for various basket of products.

Even if, let's say, I want to be competitive advantage on the website, for example, we should be irrespective of your balance sheet size. But for that, you need multiple products and businesses on the table to be successful. That's the reason we're launching 6 additional businesses, so that both on the consumer side, commercial side, we should be on a solid platform to offer products right through term loans, overdrafts, various -- these are various customers.

Every customer sees a need to be our second customer and third customer. That's important to understand. That's what we're going to do. If you see, we're very clear. We're marking our niche as very strong consumer finance players. And that's important to understand. On that provision, Sanjay, you want to give -- throw some light on a specific...

[Sanjay Miranka, executive]

So our closing provision as on September at entity level is INR 1,406 crores, yes? And we already talked about the incremental provision, okay, which we made of INR 666 crores and INR 259 crores provision, okay, out of the provision, which was created, exceptional provision which was created earlier is still, okay, there in the balance sheet.

[Kaitav Shah, analyst]

Sorry, can you repeat the last number?

[Sanjay Miranka, executive]

INR 259 crores of provision out of the exceptional provision which we had created earlier, is still there in the books. We are carrying the provision in the balance sheet.

[Kaitav Shah, analyst]

Okay. Okay. Okay. Right. Got it. And sir, just an additional question. Sorry for taking -- in the [indiscernible] that you mentioned is, of course, multi-focused consumer NBFC...

[Arvind Kapil, executive]

Can you be slightly louder if you don't mind? I'm not able to fully hear you. Sorry. Yes.

[Kaitav Shah, analyst]

Better?

[Arvind Kapil, executive]

Yes, much better.

[Kaitav Shah, analyst]

Yes. Sir, so the question was when we try and move to a consumer financing multi-product player, generally, there are certain costs associated initially that you have to do, and it could be a 2- to 3-year process if I'm not mistaken. So will we...

[Arvind Kapil, executive]

No, not necessarily [indiscernible]

[Kaitav Shah, analyst]

Sorry?

[Arvind Kapil, executive]

Sorry, you finish your question, sorry.

[Kaitav Shah, analyst]

Yes. So are we going to see some heavier costs initially? Will there be some heavy lifting over the course of next 1 year in terms of cost after the benefits will then flow in, just from an understanding perspective?

[Arvind Kapil, executive]

See, let's look at it commonsensically. Any CEO comes. You've got a balance sheet. You take over. Profits will come out of that balance sheet. It's not going to come out of anywhere else. I want to invest INR 50 crores a quarter into the 6 new businesses along with the expenses of rapidly growing the existing ones. The ones we are growing, existing ones, are fairly good margin businesses. The ones we are growing existing -- the next 6 also are going to be very good. What is the granular tenor. They are not 10-year loans. They're 3-year loans. So in 1.5 years, if you start scaling up, where do you think your calibration goes between your existing and new? Your profits technically, while last time I gave a guidance, should be higher of the percentage of the 2, it should ideally get recalibrated much higher. Now let me be conservative there because what will really happen, in 4 to 6 quarters, you will -- we will be a substantial lifter in terms of the recalibration of profit as well. And that's the plan.

And that's why it's important in the first 4 quarters, we do basic amount of investing. And investment will lead to wealth creation. That's important right now. Remember, what I understand in the markets, my limited understanding is once -- it should be more sustainable and predictable. So as you see us build business, we keep sharing with you the growth rates, how we're building blocks, how we're building it, how we're cross selling it. We'll give you enough feel as we go along, and that's important so that you all will know that we are actually creating a fantastic franchise at a fairly fast pace.

And that's going to be the strong foundation for us. So I'm looking at robustness every 2 quarters, 3 quarters on a different scale. It will get recalibrated. And then at some point, you'll find it will actually get recalibrated to a high level very soon. Yes. Thank you.

[Operator]

That was the last question. On behalf of Poonawalla Fincorp Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.