Ujjivan Small Finance Bank Ltd
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Ujjivan Small Finance Bank Ltd
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Ladies and gentlemen, good day, and welcome to Ujjivan Small Finance Bank Q1 FY '23 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Alpesh Mehta from IIFL Securities Limited. Thank you, and over to you, sir.
Thank you, Lisa, and I welcome all of you to Ujjivan Small Finance Bank 1Q FY '23 results conference call. From the management side, we have Mr. Ittira Davis, MD and CEO; Ms. Carol Furtado, Chief Business Officer; Mr. M.D. Ramesh Murthy, CFO; Mr. Martin P. S., Chief Operating Officer; Mr. Ashish Goel, Chief Credit Officer; Mr. Vibhas Chandra, Head Micro Banking; and Deepak, who head the Financial Planning and Investor Relationships.
Now without much ado, I hand it over to Mr. Davis for the opening comments and post which we will have a Q&A session. Thank you, and over to you, sir.
Thank you, Alpesh. Good evening, everyone. I'm delighted to welcome you to our Q1 FY '23 earnings call. I hope all of you are keeping safe. It's been more than 9 months since we started on our recovery path with a fourfold objective of strengthening the leadership team, growing business volumes, increasing collections and improving asset quality. We are pleased with the outcome of our efforts on all 4 counts.
We stabilized our business in Q3, turned around in Q4, and this quarter marks growth and profitability. Q1 business volume kept pace with a mammoth fourth quarter, both in terms of assets and deposits. On the deposit side, we focus more on growing granular retail base and also curtailing the overall cost of funds. On the asset quality side, we have maintained the traction as collections are inching up with slippages being under goal.
Recoveries and upgrades are helping us reduce our PAR and GNPA every quarter, in fact, every month. We have already taken the provisions upfront and thus do not expect major credit quality challenges this year. As of June 22, our NNPA is just at INR 18 crores or 0.1%. Also, our SMA book as well as restructured book have shrunk further indicating the reduced stress.
The outcome of all this put together is the highest ever quarterly profit for Ujjivan, which is more than INR 203 crores on the back of a strong PPOP of INR 271 crores and a negligible credit cost. We are maintaining healthy CRAR of 20%. This quarter, we have considered INR 30 crores for floating provision as part of Tier 2 capital and INR 220 crores for netting off from gross NPA.
The entire floating provision continues to be on the books and can be utilized in the future for making specific provisions in extraordinary circumstances, with, of course, prior approval from the RBI. Including INR 250 crores of floating provision, total provision of gross advances are at INR 1,290 crores.
Now we have achieved the objectives we started out with. We have put our sight on growing the platform further. This year, we would look to restart expanding our physical presence across the country, though we look to make a modest beginning with around 25 branches, largely focused on the liability-rich catchment areas.
Physical reach would be supplemented by a strong and focused investment in digital platforms to grow our business volumes, both assets and liabilities, services to improve processes and the overall reach to our customers. Our focus this year is to consolidate our business and make them profitable, invest in new avenues of growth.
Our economy is recovering. The credit demand has picked up. This is evident from our performance over the last 3 quarters. We look to grow our gross advances by around 30% this year with deposits growing faster than advances. We are monitoring our costs very closely and aim to bring in efficiency through process improvement and productivity enhancement.
We look to hold our cost-to-income ratio at the current levels. Credit cost, we have already guided would be contained well below 1% as the declining trend in NPA and PAR would continue for the balance of the financial year '23. Return on assets should be north of 2.3%.
The risk to this guidance is the inflationary pressure that's brewing up in the economy and the resultant rate hike movements. Also, we are monitoring the global geopolitical scenario. Overall, I see financial year '23 as a strong comeback year for Ujjivan, which would create a solid platform for the next growth cycle. I would like to stop here and request the operator to begin with the question and answers.
[Operator Instructions] The first question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.
I'm glad to note the optimistic tone. I'll just touch upon the issue that you raised of inflation and the two-pronged recovery, especially in the micro banking segment of your customers. How is the restructured book doing? I know the customers cannot make more than 1 EMIs typically. So do you expect recoveries from this book with the lag? Or are the customers still feeling a lot of pain? That's my only question.
Ashish here. On the restructured book, let me answer that question first. We -- under the resolution framework 2.0, which was the May 5 guideline -- May 5, 2021 guideline. We had restructured about INR 944 crores in the micro banking book and a small amount in the housing and the MSE book. Out of the INR 945 crores, we have already recovered INR 580 crores from the customers. In fact, almost 1.6 lakh customers have also closed their accounts. And we currently have an outstanding of about INR 360 crores on the RF2 book. And we continue to collect from there.
In fact, what we have seen is that post restructuring and the moratorium that we had given for about 3 months and immediately, both the lockdown customers had indeed started paying very well. And our collection efficiency in the restructured book continues to be above 80%. The current quarter, we have ended at about 79%. So this trend has continued.
In fact, out of the INR 360-odd crores, we have INR 148 crores in NPA, which is fully provided. So we don't see any incremental risk in this portfolio. In fact, we see that the portfolio will do even better as we go into the remaining part of the year because our paying customers are actually paying at a very healthy rate of 80%.
Sir, if I can just dwell on that NPA part, are they also -- is it because they're just more than 3 months dues? Is it more accounting or are the customers, do you feel that they're going to be more written-off and they're now going to come back as paying customers?
On the NPA portion, we have seen that about 30% of our customers are paying on a month-to-month basis. The only thing that they are not -- the only problem is they are not able to recover the past EMIs and the arrears which have got built up over a period of time. So even on the NPA portfolio, we are not saying that we will write-off. There will be a small portion of write-off, which may happen. However, as I was saying, 30% of our NPA customers are paying month-on-month. So we don't see write-offs happening in that segment.
Excellent. Good to know.
Vivek, also one more thing given that what Ashish mentioned, NPA is quite high in that 360, but the overall collection efficiency is 80%, which means even the NPA customers are paying. They are NPA because 3 months overdue is there, and then they're paying 1 EMI at a time. So it's not that, that entire amount, whatever is NPA anyway 100% provided for will be written-off or there's any -- which is why we believe there is no pressure on that book.
The next question is from the line of Shreepal Doshi from Equirus.
Firstly, on the microfinance side, our ticket size has gone up significantly in the last 2 quarters to almost INR 56,000 now. So could you please throw some color as to what would be the reason behind the same? And in the MFI segment, are we continuing to focus on the urban side only or are we also exploring of increasing our share in the rural side?
Thank you for the question. As we mentioned in our last quarterly call also, that our ticket size went up mostly because of -- after the lockdown, we'd mostly focused on repeat loans, the customers who were paying during the pandemic period. And we were not able to provide and repeat sometimes. As you know, that in microfinance and repeat to the ticket size is on the higher side.
So first 2 quarters went on serving the customers who were -- we were not able to serve during the lockdown. And as we have moved into quarter 1, and we have already served the pending customers, we have moved our focus to new customer acquisition as well. If you compare from the last quarter, last quarter, NCA was -- new customer acquisition was close to 24% which is now close to 32% this quarter. So our focus has changed and in NCA, the ticket size is on the lower side, which actually are yielded into lower ticket size, average ticket size in the current -- in the last quarter, Q1 of this year. So that is one thing.
And second, as you mentioned that whether we are focusing on urban only, as after conversion to bank, we have also opened banking and banks to other locations, [indiscernible] location, which is 25% of bank presence. And we have started focusing on rural areas as well, though -- and we have not only macrofinance as the product we are selling there, we are selling other products also which is relevant and logical to the rural market. And apart from asset, we also sell liability products to these branches. So our focus is both in urban as well as rural.
Just one follow-up there. So what would be the ticket size bracket for our more than, say, 5-year vintage customer that we would be having?
It's high. We go up to INR 1 lakh for repeat loans after the third or fourth cycle, and the average ticket size is close to -- for the repeat, ticket size is close to INR 58,000. But the range is from, say, INR 50,000 to INR 1 lakh.
What is the maximum that we give to a customer -- to a group loan customer?
INR 1 lakh is the maximum in group loan.
Okay. Okay. Got it. Sir, on the other -- the question was on the housing side. So that's another segment where we are seeing strong growth. So there the ticket size is INR 1.2 million. And so if you could just give some color as to which geographies are we targeting? Or is the product available at all the branches? And what is the strategy going ahead with respect to the share in the overall loan book mix?
This is Carol. On the housing side, our focus has now moved a little bit from the informal to semi-formal and the formal segment. And what we have also done is that we have gotten to state-wise policies, which is helping us get better results there. And yes, I mean -- so informal is very low as a percentage, but we are focusing on the semi-formal and the formal segments.
Got it. And then geography wise, we would be broadly doing business in all our states or like any...
Geography wise, we are focusing mainly on the semi-urban areas.
Okay. Got it. Just a few data keeping questions. So on the NPA side, so if you could give us the slippage recovery upgrade and write-off number for the quarter?
INR 156 crores, right? The upgrade was INR 215 crores, and we did a write-off of about INR 63 crores.
That's the technical write-off.
That's the technical. The total write-off is around INR 79 crores.
Slippage numbers, I think I'll miss that number.
INR 156 crores.
Okay. One last question on the provisioning side. So what is the provision that we are having on the restructured NPA book?
So on the restructured book, we have -- on the NPA side, we have about INR 148 crores of NPA in RF2 on which we are holding full provision. And in RF1, we have INR 130-odd crores of NPA, again, on which we are holding full provision.
Basically, we are having 100% coverage on the restructured NPA bucket?
That is right.
[Operator Instructions] The next question is from the line of Nidhesh from Investec.
Two questions. First, if you can share the number of customers and group loans and individual loans in the micro banking at the end of June '22? That would be the first data point question. And secondly, if you look at the segment-wise collection trends, we have seen sharp improvement in collections in micro banking. But in MSE and affordable housing, our collection trends have not improved. They have remained at around 95% for the housing and I think 84%, 85% for MSE. So what was the reason behind that?
Okay. I'll take the question on the collection trends. Now the collection that we see is a blend of nondelinquent and NPA collections. So in secured book, which is the MSE book, we have elevated NPA as of now, it is in the range of 10%. So therefore, our overall blend rate collection is in the range 85%. Although we have seen some significant improvement in upgrades in the MSE portfolio also, there is a quarter-on-quarter decline in the gross NPA there.
And on the housing side, the collection continues to be in the range of 95% and above, again a reflection of a much lower GNPA in the housing book. On the nondelinquent portfolio, we continue to have a collection efficiency of more than 95% in both the products.
And sir, also, just a follow-up on this. If I look at additional collection, additional collection is as high as the collection that we are doing against the due for MSE and affordable housing. Does it indicate the balance transfer happening in this portfolio? How should we look at look at the additional collection which are happening on MSE and affordable [ without capacity hike? ]
[indiscernible] happening, take that -- there's a whatever NPA -- out of NPA, whatever collection we are getting and all that, like Ashish mentioned, there's a good amount of upgrade that happened in the MSE also. So that amount was totally -- roughly around INR 40-odd crores for this quarter.
Okay. Sure. And just the first question on number of customers in group loans?
We don't share segment-wise, product-wise number. So we can't share that. We don't share that.
I was just looking at the loan outstanding per customer, loan size in group loans specifically because ticket size sometimes -- ticket size I'm assuming is based on disbursement that we have done in this quarter. So I was just -- I was more interested in looking at the loan size outstanding. That's why I was asking that number. So if you could just share that number, what's the loan outstanding per customer in only group loans, that would be useful.
So at any point in time, we would have repeat as well as new customers coming into the bank. And as Vibhas was sharing that there is repeat loan, which is in the range of INR 63,000 and new loans in the range of INR 44,000. And the blended average of both the loans put together is in the range of INR 55,000, INR 56,000.
Now in terms of the average ticket size, these are short tenor loans, about 22 months is the average tenure. So typically, the loan outstanding per customer should be in the range of INR 30,000, INR 35,000, because we would have amortized by about 50% in the last 6 to 9 months.
The next question is from the line of Deepak Poddar from Sapphire Capital.
Sir, I just wanted to understand now, I think, you spoke about cost to income holding at current level with good growth as well as the credit cost well below 1%. But why we are still guiding for ROA of 2.3% plus? As compared to this quarter, I think it was about 3.4%. So is that a conservative kind of outlook that you gave on ROA front?
We are baking in like Mr. Davis mentioned in his remarks, we are baking in a little bit of inflationary pressure and swaps hike on the or repo rate hike and cost of fund hike and all that. That's why we are keeping that as a little conservative side.
Okay. Yes. So that's a little conservative number. But we do expect our NIMs to -- what sort of outlook we have on NIMs, actually?
So overall yield should be improving even if we do not take any kind of a rate hike on our lending rate. Yield should continue to improve as the NPAs moving down, and we expect the declining trend on the NPA and PAR to continue. With that, even if the cost of fund is stable, the NIM should be stable or upward trajectory. But we take that plus or minus as a stable NIM for the year.
That's great. And my second query is on your cost to income over the next 2 to 3 years. So I think earlier, we were kind of targeting 50% kind of a cost to income on a little medium-term basis. So any thoughts on that would be helpful.
So that's -- I would put it like this, 50% is the first milestone that we want to achieve within a short term and then the journey should continue beyond that.
Is the first milestone, and what's the timeline we are looking?
Short-term milestone that we look at that.
Short term. Maybe 2 years, maybe something like that?
I don't want to put a year to that.
The next question is from the line of Renish Bhuva from ICICI Securities.
Congrats on a great set of numbers. Sir, first question is on the -- this new MFI regulation in terms of the process alignment. So sir, where do we stand currently in terms of the process migration as per the new regulation?
Yes. Thank you very much for this question. We know that the new MFI regulation came into force on 1st of April. And [indiscernible] we have also published [indiscernible] to, that clarifies that implementation date is 1st of October. As this regulation came into force and the communication changed in the month of March. [indiscernible] most of the items which were mentioned in RBI policy, we are already following it for the last 10 years.
So it is just a confirmation of whatever you are doing for the last 10 years is something they also want others to follow. There are some items which needs time. For example, the [ check rate bureau ] of our customer households, there are some things that need to happen at [ rate bureau ] also. For that RBI has allowed us time to 31st of October.
And apart from that, we didn't face any issue in the month of April. We were normally -- we were normally able to do business in the April as well, which is a good thing that has happened to us, whatever we have done over a period of time in microfinance business as we are a very old player in the microfinance business. That has helped us in following the RBI regulations. And we are on line with the pending items which need to be delivered, where the time line is 1st of October. Hopefully, we'll be able to do that well within the timeframe.
Got it. Sir, just a follow-up on this. So on this 50% FOIR, have you seen higher rejection rate once we have implemented the new process?
No. In fact, our rejection rates in Q4 and Q1 have been exactly the same. There's been no uptick in rejection rates. In fact, we were also thinking what would the rejection rates look like post the FOIR implementation, but we found that the rejection rates have not gone up -- not have they gone down. They remain to be the same.
And perhaps, the reason is that, as I mentioned, that we are following more items which were prescribed by RBI for a very long period of time. So we are already following this process and rejection were based on customer income [indiscernible]. I have yet to do -- now situation is our rejection rate has not gone up based on the calculation.
Got it. And sir, a second sort of question is kind of repeating. So on the MSE and the affordable housing piece, even if we look at the gross NPA number and PAR 0 number, PAR 0 appears to be on the higher side. So I mean, in terms of the process, what we have changed, let's say, during COVID to make sure that the incremental growth in both these segments should be of a better quality than what we have seen during COVID?
Okay. I'll answer this question in 2 parts. One, what was the portfolio composition when COVID 2 happened and therefore, what was the reason for the increase in GNPA. So when COVID 2 happened, most of our portfolio and about 58% to 60% of our portfolio was in the informal segment, which got hit very hard due to income-related reasons. So people were not earning that income due to the lockdowns. So that led to a very sharp increase in the GNPAs.
During the same time, we also started to recalibrate our strategy, started planning for a shift in our customer segment from informal to semi-formal and formal. And during the last 1 year, we've made significant progress. In fact, on MSE, we had an 8% formal segment. We are now at 22%, and the incremental disbursements on a quarter-on-quarter basis has been 48% in the formal segment. So therefore, the change of composition of the book has been very significant in the last 1 year.
So we -- and if you want to ask me about the delinquencies we have seen in the last 24 months, the GNPA is less than 0.5%.
Okay. This is for the MSE business, right?
That's right. Affordable housing, if you were to ask me about our change of strategy, we have in the last 4 quarters done significant work on our salaried segment. So the salaried segment pre-COVID used to be in the range of about 38%, which is now almost 47% of the book. And our quarter-on-quarter disbursements are almost 54% to 55% on the salaried segment. Therefore, the book composition has also changed and therefore, [indiscernible] composition has also changed in the entire portfolio.
Again, I would want to say that in the last 24 months, our -- the book that we have disbursed has GNPA of less than 0.5% in the housing portfolio as well.
Okay. Okay. And sir, just last data point. Again, on the MFI book. So if you can, let's say, highlight the number of borrowers who are unique to us and maybe the borrowers having plus 1 lender?
Okay. On the unique segment, we have almost 35% of the customers that we have are unique to Ujjivan, and 65% of the customers have multiple borrowing arrangements.
Sorry, 35% is unique and 55% is...
65% customers have unique borrowing arrangements -- sorry, multiple borrowing arrangements.
And would you like to highlight, let's say, Ujjivan plus 1 lender if you have that data with you?
I would not have [indiscernible] would be there in 1 or plus 2. It can't be more than that.
The next question is from the line of Gautam from GCJ Financial.
Congratulations for very impressive numbers. My question is related to your growth expansion plan since you have stabilized and now you've started growing, can you throw some light on your branch expansion plan going forward?
Gautam, in which regard you want the expansion? Is it branches or is it book? What is your -- what's the focus?
Branch expansion.
The branches, yes, our strategy is both brick-and-mortar and digital. So we will grow the branches in areas where we think it's good to be there. For example, this year, we will be entering Telangana. We have not been in Andhra and Telangana. So this is an area for us, which we need to look at. So we are entering Telangana this year. But we will continue to grow the branch network as required, but we are trying to push more in growing business through the digital routes.
Okay. And second question pertains to deposit. The deposit growth was very slow in this quarter. I think sequentially, we have added only INR 156 crores. So is -- I mean my question is -- I mean, what is our strategy to grow deposit in line with your loan growth? And what steps we are taking to raise the deposit in an upward interested market?
Yes, the thing is that it's important that we have a granular retail growth because that is the type of deposits we would like to have long term as against bulk deposits. So that is the focus. We have got our branches now working full gear to increase the deposit base. And we are also looking at different segments in that, including government and local municipalities and all of that. So we have got a very good strategy in place. And I think the coming quarters will show the growth on that front.
Have you raised the deposit rates?
Sorry?
Have you raised the deposit rates?
Yes. We raised the deposit rates after RBI changed the repo rates by 50 and then 40 basis points. So we've made a slight adjustment in the deposit rates.
Okay. Okay. And last question is on -- since microfinance industry is doing very good post-COVID, and we are doing the, I think, one of the best among the industry. I would like to hear your qualitative comments on your overall collection and how long this industry will continue to move like this? And is there any change in competitive landscape, I mean, pre-COVID, post-COVID, have any small player left the ground? Just your comments on that.
So yes, thank you for the question. What we see we have gone through -- microfinance industry has gone through various crises. This is one of them. Before that we have also seen demonetization and other crises. And what we have seen that after each crisis, the customer segment that we serve in microfinance, we have seen that bounce back very quickly.
And at the same time, at industry level, we have also seen that after [indiscernible] crises, there are a lot of -- so addition to that crises especially in the [indiscernible] who are weaker. We see a lot of opportunity going forward after this crises in terms of customer equity and market share. And we are all set. As a microfinance vendor, we don't only lend the group loan, we have full basket of products that we offer to customers, not only in asset but also in liabilities. And thankfully, we have a lot of activity around digital for these customers. So we are seeing this sometime very, very positive. And in terms of growth in microfinance, we see coming few -- sometimes very, very positive for macro finance growth in Ujjivan.
And to add to that, I can say that to the microfinance customer base, we will be looking at adding some of the secured products as well. So we see this as a good base for us.
The next question is from the line of V.P. Rajesh from Banyan Capital Advisors LLP.
Congratulations on very good set of results. My first question was regarding the restructured book. If you can give a little more color on the customer behavior as to how some of them are able to repay, is it that their businesses have rebounded or they are able to borrow from other banks or NBFCs or something else? That will be just helpful.
So on the -- I would not like to see the restructured book as behaving any differently from our overall book. When there was a lockdown, there was a need for customers who had lost their income to get some kind of relief from the bank, and therefore, we had done the restructuring under RF 2.0.
Post the lockdown opened, we saw that customers' incomes had come back to normalcy. And therefore, we started seeing some very repayment rates from the overall book as well as from the restructured book. So I would say that the restructured book has not behaved very differently from the overall book because the customer segment was the same and the incomes had gone back to normal. So therefore, I would say that restructured book has behaved very well for us. And it was indeed the set of customers who were looking for some kind of relief, had been given relief.
Right. But if they are lagging in their payments and they have prior EMIs, obviously, they will have to have extra money or extra funds to pay that back and where is that coming from? If you have any sense on that?
I'm sorry, there was a little bit of disturbance in the line. Could you please repeat the question?
Sure. So what I was saying is that the -- when the book was restructured, they probably would have prior EMIs that were unpaid at that point in time. So as their businesses are coming back, are they coming back that strong as they can clear all the past dues as well very quickly? I mean I'm just trying to get a sense whether they are borrowing more from other institutions to clear their dues with you or some informal sources or it's just that their business have come back very, very strong?
So there are indeed, I would say that about 5% to 7% of the customers who went back into NPA because their incomes had not come back to normal. But we have not seen any behavior in the restructured book which is any different from the overall book. So as I was saying, the restructured book behaves quite well in spite of the first 3 or 4 months of setback that the customers have had. And they have continued to pay their EMIs. In fact, as I was saying, from the INR 945 odd crores, we have collected INR 580 crores already. But overall book has come down to INR 360 crores now.
Wonderful. Okay. And my second question, any guidance on the fund raise?
Fund raise, okay. So the fund raise that enabling resolutions we have taken -- we have taken 2, 1 on the equity side and 1 on the debt side. Both are enabling resolution. And we'll see as and when we want to get the funding from the market. Right now, we don't want to give any time line to any of the activity. We have timeline of December, that by December, we need to meet the SEBI requirement of minimum public shareholding, so we will meet the SEBI requirement.
This is Ramesh Murthy. Apart from the equity side, which Deepak has covered, we are also looking to raise some sub debt. But as Deepak has mentioned, we wouldn't like to right now put a time line to it, but it's very much on our radar and very much on our cards here. And we have the enabling resolutions as he has mentioned before.
The next question is from the line of Harsh Shah from Dimensional Securities.
This is Harsh here. So just wanted to understand the macro situation that is going on in the rural and semi-urban side, because we hear a lot of commentary from the FMCG companies that there's some sort of slowdown that is happening. So just wanted to get a sense from your side. I mean, since you're saying that the credit demand is picking up, how is the business environment that is there in the macro -- in the rural India?
On the rural areas, we are mainly in the unbanked rural areas, and that is our licensing condition also where 25% of our branches need to be unbanked rural areas. We are not seeing a slowdown there. We are seeing that the credit demand is equally high and things are going on well there. We are, in fact, opening branches in these unbanked rural areas here again. On the semi-urban side, also, as of now, we do not see any [indiscernible] We are going strong in those areas, too.
Okay. And when we guide this growth area of 30%, so is it the entire industry is going to grow at that rate or is it Ujjivan who's going to take the market share? And will it be from the organized player or from the unorganized to organized, what sort of migration are we expecting?
I think the 30% is a reasonable level as far as -- I don't know about the full industry, but the small finance banks, which are active in the micro banking area, as indication in a recent seminar which was held a couple of days ago, 30%, 35% seems to be a rate which is doable. So for the SMBs who are operating in the micro banking area. But MFIs, I don't have any figure on that.
Okay. Sir, so when we say SMBs growing at 30%. So just wanted to understand from there is the demand being generated because the -- I mean you have the GDP which is growing at 10%, 11% at the best. Then how is the 30% growth coming in? Is it that the unorganized segment is too large and some demand is coming out from there?
The one thing you have to keep in mind is that last year was a very slow year because there was COVID. From that base, when you say 30%, it looks reasonable. So I think we are not -- when the industry gets back to a normal run, then 30% maybe a number of which looks ambitious if the environment is not strong. But in a condition where you are coming from a low -- some people de-growth to some extent, 30% in this recovery year looks reasonable.
And if everything remaining stable, what kind of growth can we see over the next 5 years or so? I mean, just a ballpark guess.
That's too futuristic to comment Harsh.
I mean just if there are no hiccups, no major headwinds.
Harsh, the industry has had a good -- if look back at a period when there was no constraints, the industry has done very much. If you look at the 2014, '18, '19 period before demonetization, it was okay.
The next question is from the line of Ashlesh Sonje from Kotak Securities.
Just one question from my side. I want to assess the non-NPA provision buffer that we are carrying. Of course, there is a floating provision of...
Sorry to interrupt, Mr. Ashlesh. Your audio is sounding very soft.
Yes, sorry. I hope this is better.
Much better.
So wanted to get an assessment of the ex-NPA provision buffer that we are carrying. There is, of course, a INR 220 crores floating provision. But outside of that, what is -- what are the standard asset provisions and the restructured asset provisions outside of NPA?
Yes, so the total provision that we have on the book is INR 1,290 crores. Of that INR 1,290 crores, INR 909 is my NPA provision and INR 250 crore is my floating provision. And the balance is my standard asset provision. Roughly INR 131 crores would be my standard asset provision.
Okay. And the restructured provision would be part of the standard asset provision, right?
The asset part of the NPA provision. As I have said that we are carrying 100% provision on both RF1 and RF2 book, which has turned into NPA. So that is part of the 909 [indiscernible] mentioned.
There is a small portion of the restructured provision, which is there in the standard asset provisioning. Not very big portion, but a very small portion.
The next question is from the line of Vikram Subramanian from Spark Capital.
I just wanted to get some clarity on the equity raise that you had mentioned. So I know it was an enabling resolution. But this equity raise would be completely towards meeting the NPA's requirement, right? So do we at least have a number of shares locked in, in terms of how much we would be raising?
No, we don't have any number of shares locked in that we'll be raising, so and so number of shares. It is -- but your understanding is correct that the reason for doing this equity raise right now is for meeting NPS requirement. However, I will also add that given the kind of growth that we are expecting, it's always better to have a little extra capital. And thus, we are looking for this equity raise. And like Ramesh mentioned, we might also look to supplement with a little bit of sub debt if required.
Okay. Okay. Got it. And [ budgeting ] you had mentioned...
Nothing concrete right now. So we won't be able to give quantum and time line for either of those things.
Got it. And I think you had mentioned something like December to be a deadline by which we might do the equity raise?
Yes. That's the 3-year time period that we have from SEBI because we got listed in December 2019. And within 3 years, you need to meet the NPA's requirement. So our 3 year ends on 11th of December 2022. So as per the regulatory requirement we need to finish the equity raise by that time. And we are hopeful we'll be able to meet the regulatory requirement.
The next question is from the line of Eric Chan from Buena Vista Fund Management.
Congratulation on a strong set of results. I have 2 questions. The first question is on the strong disbursement in 1Q. Can you talk about what would you do? How do you adjust your process to take care of the RBI harmonisation requirements for income and liability check for household in microfinance?
Eric, actually, Vibhas actually mentioned a couple of questions back, that we have been following all the norms required by RBI under the new requirement standards. We did not have to tweak our processes to comply with that. And thus, we were able to do the disbursement in line with whatever we have been doing so far.
And the other thing is that we have been disbursing over INR 4,800 crores in the previous 2 quarters. So this pace is now sustainable.
Sure. I was under the impression that the RBI pre like household income check and the 50% maximum servicing ratio was a new requirement that came out in March this year?
Yes. The requirement is new, but Ujjivan as a process has been following it for a very long time. So as per our process, it's in line. For the industry, it is new. And thus a lot of other players will have to make shift or make arrangements or changes in their process to comply with the requirements. And like Vibhas also mentioned, RBI recently announced that the regulations are implemented with an effective date of 1st of October.
Got it. Second question is, can you talk a bit about your PSL certificates. We heard that RBI has been tightening their order checks and now require for some of the MFI loans to have various paperwork and support proof. For example, agri loans require proof of either land ownership or their lease contracts. I wanted to just check whether you have been seeing some of that challenges? And how does that impact your PSLC eligibility?
Yes. Thank you for your question. As far as PSL is concerned, we have been following RBI policy around that in letter and spirit, both in microfinance and other books also including housing and MSE and whatever business we do. We don't see any challenge in that. We have a robust process and [indiscernible] to qualify our loans into different PSL categories. So we have also heard what [ you ] were selling in the market. But at the same time, we smatter in whatever we are -- ways and process we have to qualify loans into different categories is something which is in line with RBI requirements.
The next question is from the line of Moin Danawala from Tata Opportunities Fund.
Congratulations on fantastic set of numbers. I have 2 questions. Question number one, would you be able to provide us a summary of the overall kind of actual plus estimated losses that we would have seen from the time COVID started till today? And question number two would be if you can give us an update on the merger?
I'll answer on the merger part. And while Ashish frames his answer on the first part. He'll have to do a little bit of digging on the number. So on the merger, the first step is to meet the NPS requirement. And like I mentioned to the previous caller's question that we would be meeting the SEBI requirement by December as the time line is there. And only post that, we can take ahead the reverse merger process. In a parallel process which we are seeing, we have not seen that the SMB had any challenge in getting the regulatory approval from RBI or SEBI or exchanges. So that process should not take much of time.
On the overall impact during the year, we had overall slippages in both micro banking as well as the other segments, housing as well as MSE. And on micro banking, specifically because the slippages were higher, we had overall slippage in the range of about INR 1,500 crores. We recovered INR 700-odd crores from the NPA pool, and we had a write-off of about INR 780 crores. So the total inventory has actually come down by about INR 60 crores between March to June -- between March of last year to June 30 of this year, which is what we would say as the first year, that is the last full financial year and the first quarter of this year.
In terms of write-offs, I could give you the number, it was about INR 780 crores that we did in the last financial year. But one more important data I would want to share, out of the INR 780-odd crores of write-off we have actually also recovered INR 65 crores in the last 4 quarters. So the write-off, as I was saying earlier, is not something that would not come back. We are seeing some signs of recovery from there and close to 8% of the overall write-off for the year has been recovered already.
That's great news. So would it be right to summarize this as saying that we would have approximately INR 1,715 crores of write-offs between April '21 to today and a similar number in the years prior to that?
No, I don't know how did you get a INR 1,700 crores of write-off. We had roughly INR 780 crores of write-off last year.
INR 63 crores this quarterly.
Yes, total INR 80 crores this quarter, including everything. And prior to that, the write-off amount was very limited. So the write-off amount if you're looking at would be roughly INR 870-odd crores, not more than that. And like Ashish mentioned, out of that INR 870-odd crores, roughly INR 70-odd crores has been recovered already in that side. And we expect that recovery should continue as we -- this year proceeds.
The next question is from the line of Vijay Karpe from [ Shriram Life. ]
Congratulations on a good set of numbers. I had two questions. One was, if you could talk about your top state, which is Tamil Nadu. And also if you could talk about [indiscernible] had in terms of business environment there and also in terms of disbursement, AUM growth and collections.
Sorry, Vijay, we didn't get your first -- the first part of the question.
Yes. My question was, how has been the business environment in the state of Tamil Nadu, Bihar and UP? And also how has been the disbursement, AUM growth and collections there?
Yes. I think you are coming from the point that these states are re-tailored in terms of OSP and these are for second and third states in terms of OSP, our pool. Top five, [indiscernible] belong to, I think Tamil Nadu and Bihar are in top 3 in terms of OSP when market is concerned.
We always had a policy that we don't grow to a certain on -- beyond certain extent in any state. And that is why we have grown business in almost everywhere in the country. And these states also have that limit. We don't grow beyond certain limit. We don't grow -- we are -- 10% to 15% of our OSP marked residing in any particular state.
As far as the business environment is concerned. As we mentioned earlier that we -- most of the branches are urban, [indiscernible] as we do our microfinance [indiscernible] to plan. And we don't see any particular challenge in terms of credit quality or political risk in these states, Tamil Nadu, West Bengal, Bihar and UP. In terms of portfolio quality also, all these states are in line with or a little better than our overall [ profitability ] at pan India level.
Great. And how has been the collection efficiencies in these 3 states.
So as I mentioned that -- I don't have exact number, but all these states are performing like the overall pan India performance, if not better. Especially Bihar and UP is much -- a little better than our national average. Tamil Nadu is in line with our national average. So there is no much difference.
Got it. Got it. And the last question from my side. So the -- in December, the dilution which you are doing, will that be a fresh issue? Or will it be also an [ OFS? ]
It will be completely fresh issues.
The next question is from the line of Akash Jain from [ Moneycurve ].
Yes. So first of all, I think a few congratulations for the team, I think, excellent set of numbers. I think we are very quick to criticize the management when numbers are bad. And I think we should be equally open to congratulating them when numbers are good. So congratulations. So I have just two clarifications. One is, when you say 80% collection efficiency on the restructured book, so is it on that month's EMI? Or is it on the whole base where old part EMIs are also being considered?
It is on that month EMI, Akash.
So if I -- so in that case, there would be slippages coming from the restructured book into GNPA on a monthly basis, right? So that is how -- so there will be some slippage from restructured book on a monthly basis on the NPA book. And then there will be some recoveries potentially from the GNPA book. That's the way this whole thing will work, right?
That's the right understanding. Correct. However, one point I would want to make here is our -- the SMA book, SMA-01 and 2 on the restructured book is in single digits. So we -- even if there is any slippage, it's a very minor small number.
No. But when there is 80% collection efficiency, then [indiscernible] 20% of the book is [indiscernible] the non-provided book is going into GNPA every quarter, right?
So let me put it this way. So the 80% collection efficiency is a blend of nondelinquent and the NPA. If I were to look at the collection efficiency on the NPA, that would be in the range of 30% and the collection efficiency on the nondelinquent and the SME book would be in the range of 98%, 99%...
[Technical Difficulty]
So Akash, as I was saying, the collection efficiency of 80% on the restructured book is a blend of nondelinquent as well as NPA collection. And out of the INR 360-odd crores of restructured RF2 book, we have INR 148 crores already in NPA. That is giving a 30% collection efficiency. The nondelinquent book is giving more than 96%, 97% collection efficiency. So the overall average comes to about 80%.
Okay. So because you have already provided for effectively the whole restructured NPA part, we do not see too much slippages coming from the non-NPA book because there the collection efficiency is broadly in line with the overall book as well?
That's right. That's right. So in fact, as I was saying, our SMA book, SMA-01 is in single digits. It's a very small number.
And on the NPA book, I think earlier, you guys had mentioned that 30% of the customers are giving every month EMI. But if I just broadly want to understand what is the collection efficiency of the GNPA book, including the -- including restructured book GNPA as well as overall book GNPA? What will that collection efficiency number look like?
Akash, let me put it like this. The entire book that we have, NPA or PAR or GNPA or restructured, everything put together, collection efficiency is 99%. So whatever NPA also or restructured also is there, there is very limited scope where the payment is not coming. Rest, the overall collection is 99%.
So if I want to just clarify one thing here. So when we talk about 99% collection efficiency on our Slide 21, you -- it basically means all the customers were -- which are 0 to 90 and even more than 90, which have not been fully provided for. Is that the base that we have to take into account?
Everything that was due for that month is counted. So if you look at the June number on that Slide 21, if that is -- that INR 1,121 includes every money that is due in the month of June -- for the month of June.
I got it. One last question here, sir. So in -- unfortunately, with the way the RBI regulation is that once a customer goes into delinquency, even if he has paid 1 or 2 past EMI, he still remains as a delinquent customer. If I for once forget or ignore the RBI requirement. I just want to understand how many of the actual book, not from an RBI norm perspective, how much of the actual book is actually 90 days plus. Is that number significantly different from the 5.9% we have as per RBI norms.
No, it will not be very different. See when customers miss 2 or 3 EMIs and they start touching 91 or 121 DPD, they could actually pay 1 or 2 EMIs and come back to 61 or maybe 31, but they still continue to be tagged as NPA customers because till the time, as you said, the arrears are completely repaid, we will not be upgrading any of these 2 standard assets. So therefore, the quantum of customers who are in 30 or 60 DPD, it's a small number. I would say it is not more than INR 40 crores to INR 50 crores.
The overall SMA book itself is...
The overall SMA book itself is 1%. I would say this is a fraction of that, maybe 0.2%, 0.3%, which is NPA with maybe 2 EMIs pending.
Okay. Okay. Okay. So most of the customers are barely able to pay -- even on the NPA book, they are barely able to meet that EMI requirement for that month. And hopefully, over a period of time, they will be able to pay, but asking them to pay more than 1 EMI is a difficult scenario for a [indiscernible].
Yes. Also Akash, there would be customers who are NPA for more than 3 EMIs payable.
We'll move on to the next question that is from the line of Jai Mundhra from B&K Securities.
Sure. So apology, sir, if this question has been answered earlier. I wanted to check what is the total stock of provisions in the balance sheet, which is specific plus sloping, plus restructured? Is this what you're giving on Slide 23?
So Jai, the total provision on the book is INR 1,290 crores. Of that INR 1,290 crores, INR 131 crores is standard asset provision, INR 909 crores is my NPA provision, specific NPA provision and INR 250 crore is my floating provision. So out of that INR 250 crores of floating provision, INR 220 crore is being counted for a PCR calculation and INR 30 crore is being used for my Tier 2 capital.
Total is INR 1,290 crores.
INR 1,290 crores. If you see Slide 23, on the bottom of the Slide 23, we have mentioned that INR 1,290 crores.
Sure, sure. And second question is, sir, on one of your peer banks had shown that RBI in their instruction had called out for people who have taken MSE loan, but they did not qualify for PSL because of, let's say, inconsistent land record, et cetera. Is that -- I wanted to check if you would have faced similar problem? Or could that be a potential sort of a risk?
So we have not had any such observation from RBI. What I understand in one of the recent peer bank's call there was a discussion regarding agri book being classified as PSL and they have needed some bit of documentation and all. So there -- and this question was also discussed and Vibhas clarified.
The requirement came in September '20 onwards, and we have all the documentation required, wherever it is required. And also, with the RBI point where the documentation is required for agri-allied only if the ticket size is above INR 2 lakhs. For us, the ticket sizes are not there. So for that category for SMS category, we would not require that documentation.
Understood. And last question, sir, I just wanted to clarify, the RBI new recent guidelines on MFI lending, which ask you to calculate the household savings, et cetera, this clearly does not seem to have any impact, right? Because your disbursement has been fairly good, but I just wanted to double check that did -- I mean, does this new regulation had any business impact on this at all?
Yes. So as I mentioned earlier that household income or household liability, et cetera, this is something which we've been practicing for the last 10 years. So that is something we are already doing. So we didn't have to stop for that. There are certain changes for which RBI rollout time is 1st of October, which we and other partners with regulators are working. And we'll be -- we'll meet the requirement on that. But yes, as far as income and liability [indiscernible] is concerned, this was already in place before the RBI came with their requirement and the policy.
Ladies and gentlemen, we'll be taking the last question from the line of Sameer Bhise from JM Financial.
Strong quarter for Ujjivan. So just wanted to get a sense on the provisioning policy. Would it be more prudent to create some buffer given that we've kind of had a significant stress in the past? We are probably heading into very good times in terms of growth and profitability. So just wanted to get management's thoughts there. Right now, I think the floating provision buffer is around INR 250 crores. Would it be more prudent to create some more buffer before -- just to kind of shield off some of the unforeseen events in the future?
Yes. I think at the moment, you're right, we have the INR 250 crores, that is sufficient for the time being. We are coming out of a crisis. But in the future, we will look at the model again and see what we have learned from the COVID situation. And if required, we'll set aside -- if our model is to be continuing to focus substantially on the micro banking, we will look at the risk factors from that perspective and set it up accordingly. It is something that we plan to discuss at our board level.
Okay. But it's on agenda, but so far, I think nothing is finalized. Is that a fair assessment?
And right now, we are continuing with the guidelines, which we had from before, which I think is also quite prudent because it takes care of all the risks at the present time. But whether we need to prepare for another COVID situation, that is something that we can look at later on.
Ladies and gentlemen, that was our last question. I now hand the conference over to the management for the closing comments.
Yes. Thank you very much. I appreciate all the questions that we received and the interest shown by the participants. I appreciate the support provided by IIFL. So thank you very much.
Thank you. Ladies and gentlemen, on behalf of IIFL Securities Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.