Ladies and gentlemen, good day and welcome to Can Fin Homes Limited Q2 FY2022 conference call hosted by Investec Capital Services. I now hand the conference over to Mr. Nidhesh Jain. Thank you, and over to you, sir.
Thank you, Aman. Good afternoon, everyone. Welcome to the Q2 FY22 earnings conference call of Can Fin Homes Limited. To discuss the financial performance of Can Fin Homes and to address your query, we have with us today Mr. Girish Kousgi, Managing Director & CEO, Can Fin Homes, Ms. Shamila M, Business Head, and Mr. Prashanth Joishy, CFO of Can Fin Homes Limited. I would now like to hand over the call to Mr. Kousgi for his opening comments. Over to you, sir.
Good afternoon to all the investors. Welcome to quarter two earnings discussion. With me, I have Amitabh Chatterjee, who is our Deputy Managing Director. I think Shamila and Joishy are introduced. I also have my Product and Strategy Head, Prashant Sinha. Quarter two was basically pretty good for us as expected a few months back. In terms of disbursement, we did all-time high, and I had mentioned a few months back that quarter four was the best ever quarter in terms of disbursement. Quarter two, we did 10% more than quarter four. If I have to compare it on a Y-O-Y basis, we increased disbursement by 153%. Loan book in last seven quarters was the highest at 13.2%.
See, most of the things I think we should compare with sequential with last quarter, last-to-last quarter, but not on a Y-O-Y for the simple reason, last year we had taken a call and we had changed the pricing strategy, wherein we had to drop rates to compete with the big banks and HFCs. Therefore, I had indicated earlier that our margins would come down, both NIM and spread would come down. Rightly so, we changed our pricing strategy. We dropped rates for two reasons. One, to generate new business and also to protect the book because we saw flight of book from us to banks, and therefore, we wanted to stop that. Therefore, we devised a strategy where we had dropped the rates. That lasted till about quarter four, and after that, we have increased price twice.
In last six months, we have increased rates two times. In spite of competition from some of the big banks and HFCs, we're able to plug all-time high disbursements. Not only on disbursement, even on book we have grown. In terms of NPA, we have reduced from 0.9 to 0.78%. What happens generally is that, when there is an interest rate scenario which is downwards, first margins will contract, followed by contraction in yield. Now we have seen reversal in trend that if you see, if I have to compare margins this quarter with last quarter, NIM which was 3.31 has now increased to 3.4, higher by nine bps. Spread from 2.41 to 2.42, it's almost flat.
Since we have increased rates in last six months twice, margins will improve, which is also see increase in yields, which means our revenue and PAT, both you will see growth. If I have to compare quarter two, if I have to compare on a Y-O-Y basis, both revenue as well as PAT was low. It degrowth. If I have to compare H1 there was growth of about 5% in PAT. If I have to compare Y-O-Y quarter, there was a degrowth. The reason for that is because we had to reprice our portfolio. Margins contracted, which was followed by contraction in yield, therefore, when I compare now, you will see a degrowth. I think that is the context. Now there is margin reversal. We are seeing increase in both spread and NIM. We have increased rates.
We are seeing good disbursement, good demand in the market. H2 will be better than H1. In H1, quarter one was not that great because of COVID second wave, but quarter two we did really well and this trend will continue for next two quarters, both in terms of, I'm talking about this year. In terms of trend continuation, this will continue for next few years. There'll be good growth in disbursements and book. In terms of revenue and profit, there will be definitely improvement from now on, and I think very soon we'll be start showing good growth there also, both on absolute terms and also in terms of percentage growth. In terms of asset quality, we're able to manage it pretty well, and we brought it down. Our peak was 0.91%. I think now it is 0.78%.
Even during COVID period, even after COVID, we've been able to manage our asset quality pretty well. In terms of our restructured pool, totally we have restructured 2.73% of the book, which is approximately about INR 645 crores. This number maybe it will look slightly higher. I want to draw your attention to our moratorium scenario where we had moratorium of 28% when the entire industry was talking about 9%-10%. Typically, Can Fin Homes would always get a higher request whether it is moratorium or restructuring, I think given the pedigree, and therefore even we had 28% moratorium, I think it didn't impact our asset quality at all. Of course, we did focus more on portfolio quality and covering all the customers in terms of getting their understanding, helping them to choose the option and stuff like that. That really helps.
In spite of 28% moratorium, we didn't see increase in NPA. Whereas you would have seen in the market, most of the other players where NPAs did go up. This 2.73% restructured pool, we have done our own calculation and based on our estimate, we feel that maximum of 7%-8% would flow over a period of time because this won't happen in one quarter or two quarters. Over a period of time, 7%-8% of INR 645 crores would become NPA. Which comes to approximately about INR 50 odd crores. In last 15-18 months time, because of COVID, both first wave and second wave, we had literally suspended all our legal initiation. Now we are pretty active with respect to one-time settlement and also servicing. Now we plan to recover about INR 50-60 crores in next three to four quarters.
Eventually when you look at net increase in NPA, today we are at 0.78%. If we have to look at net increase, I think we would be able to maintain NPA less than 1% for next few quarters to come. I think that is the whole context on restructuring. If you look at the profile mix we have now at a portfolio level, we have about 74% salaried and 26% self-employed non-professional. The recent sourcing after COVID started, we've seen that there is shift more towards salaried and now salaried is close to about 82% and SNP is 18%. We've seen product mix, geography mix, we've seen the vintage of each account on book, and we've done our own estimate, and we feel that maximum 7%-8% would become NPA.
We are hopeful it will be much lower than that, to estimate, I think we have taken this percentage of 7%-8%. In terms of liability mix, I think we were able to bring down our cost and our incremental cost now is 4.77%. At portfolio level it is I think 5.57%. We're able to bring down cost. Only thing is, it might take some time for us to see growth in terms of revenue and PAT because when the rate comes down, obviously the yield which was earlier at about 10% has now come down to 7.99%. Right. If you have to look at incremental spread, it is 2.68%. At a portfolio it is 2.42%, while if you look at quarter-on-quarter, I think this spread will keep on improving going forward. This will also aid. We also do a reset.
When we do reset, since we have increased rates twice in last six months, we get approximately about INR 1,250 crores every month for reset. All those loans will be repriced at a higher rate, which means the yield from this level also will go up, which will also ensure that, in terms of absolute amount, both revenue and PAT would be higher. In terms of liability mix, I think our focus was to ensure that we need to focus on source of funds which could give us a most effective and lower cost. Therefore our bank proportion was about 47% and NHB 25% because the NHB rates are much lower and not much of change in terms of deposit.
In terms of market, I think some of the NCDs matured and CD, as I had mentioned earlier, CD, commercial paper, we take CD only for leveraging cost, not for funding purpose. If you have bank approved limits or OD or CC limits unutilized, only against that we take CP. CP is more of a cost leverage instrument the way we look at, and not for funding. To this extent, there was slight change in the funding basket. I think the rest of the things you would have probably gone through. I would open the floor for Q&A.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Our first question is from the line of Nitin Jain from Fairview Investment Advisory. Please go ahead.
Yeah. Good afternoon and thank you for the opportunity. I have a couple of questions.
Sure.
Recently, LIC Housing Finance, they tied up with India Post Payments Bank for distribution of their products. Is Can Fin also looking for any similar tie-up? That is question one. Secondly, in the last couple of quarters, there has been no network expansion for Can Fin. I see the 200 branches pretty much maintained for last few quarters. What is the expansion plan in terms of the network for this fiscal? The third question is, recently on 21st of September, Can Fin's Twitter handle had tweeted that home loans starting from 6.75%. Is that correct? What is the latest rack rate, if you can clarify that as well? These three questions. Thanks.
Okay. At this point in time, we don't envisage any tie up for business. On branch expansion, of course, last year we couldn't open too many branches because of COVID. Otherwise, we have planned to open 12-15 branches every year. Not only that, we are also working on improving branch productivity. We are closing some of our non-profitable branches and opening those branches in the outskirts. With respect to the pricing, 6.75%, I think that is there, but that would be hardly about 0.115% of our entire sourcing. When we say starting from 6.75%, we would have certain filters like bureau score and stuff like that. If you look at the proportion of loans, what we do at this rate, probably it will be less than 0.25%.
Yes, we do have an option where we start. In fact, if you look at the market, most of them, they would mention a 6.5% or 6.6%, you must have seen. These rates are with certain requirements with respect to bureau score. Let's say, someone would say 800+ bureau score should be there, and this should be for a Category A developer, maybe approved project and stuff like that. Number of cases which one would source under these categories would be hardly anything.
Okay. Just a clarification, in terms of the rack rate or the rate at which we are repricing now, what would that rate be?
Now, of course, we have based on risk-based pricing, the average has come to about 7.75%. Now, average at what we raise is about 7.75%.
7.75. Okay. Thank you. That's all from my side.
Thank you. The next question is from the line of Manan Tijoriwala from ICICI Prudential AMC. Please go ahead.
Hi, sir. One question. I wanted to understand the quality of the borrowers that you are onboarding at 6.70% versus maximum the rate that you mentioned at 7.75%. Is there a difference in the type or quality of the borrower at these rates?
In terms of past repayment track record, yes, there is a difference because somebody who would be eligible for 6.75% would typically be, A, earning high, B, would have lot of loans on bureau history, and therefore the bureau score would be more than 800. Otherwise, in terms of repayment capacity and intention, there is no difference. In terms of past record of loans and bureau score, there is a difference.
Right. Fair enough. Sir, now an extension to that question. Last time you had mentioned that around 10% of your book was priced around sub 7%, which was generated around Q3 of last year. That you have annual resets to this book, which will get repriced to say 7.75 or so, which is the minimum rate now. Do you foresee these borrowers to react differently? Will they opt for BT outs or will you be able to retain them?
We have seen the BT trend also because we have increased rates twice in last six months and we have seen the trend. Our BT outflow is now back to normal. We saw book depletion in quarter three and quarter four of last year, and also in quarter two. Now in last two quarters, in spite of rate increase, in spite of repricing, BT out is normal. It's a normal reaction. However, last year we saw abnormal reaction. We saw abnormal reaction, we had to change the strategy in terms of pricing, and I had mentioned then also, this change in pricing strategy is short-term in nature. I think now that phase is over. We've increased rates twice, and we feel that in another quarter or so, maybe a quarter or two, I think rates would start moving up.
Sir, basically, these sub 7% borrowers should be expected to be retained at around 7.25% and 8% as well, is it?
Yeah, because today our portfolio yield is about 7.99. We would have people at different yields. Typically, we have seen that if the differential is about 25-50 bps, the customer tends to stay back and not switch. Earlier our yields were about 10, now it has come back to about nine, maybe it will inch up to about 8.5 in next few quarters. We don't see too much of a challenge in terms of book retention.
Got it. Thank you. That's all from my side.
Thank you. The next question is on the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yes, sir. Thank you for taking the question, personally, congratulations on delivering such good loan growth during the quarter, despite all the correction which is there from the larger banks and the larger HFCs. Sir, two questions here. One is, like you suggested, that you have increased rates twice in the last two months, and that loans could potentially get repriced at 7.75%. Maybe an extension to the question that was asked by Manan. What I'm trying to understand here is, how often are the loans repriced? Today, if you are lending to someone at a particular rate, for how long will those rates remain fixed and subsequently at what tenure it will get repriced? That's One. The other thing is also, while you suggested 7.75%, what is your prime lending rate now?
Like you suggested, you've been increasing the rates over the last six months. What was it when we were there around March, and how has it been increased over the last two quarters, if you can help us understand that. Sir, maybe the last question that I had was on your CP book. In this earnings call as well as in the last few earnings calls, you have highlighted that you are using CP predominantly for leveraging cost and not for funding purposes. Sir, today, about 19% of your borrowing mix is in CPs, and when we look at some of your peers, be it the larger peers or the smaller HFCs, no one is really using CPs predominantly as part of their borrowing mix.
When rates actually kind of start to harden, and which I am kind of sure is beginning to harden now, don't you think it can impact you very adversely given that close to 20% of your liability is in CPs?
Okay. Now, in terms of rates, in March, our rack rate was 6.95%. Till quarter four, we had actually dropped the rates. Now from April, what we have is we have an offer. When we say even now, for example, our rates are starting from 6.75%. In March, 6.75%, probably 30% of the sourcing would have come at that rate. Whereas now we get less than 1%. Now it's an offer, but then it was rack rate. Which means most of the portfolio which got built in quarter three and quarter four was at a much lower yield. Whereas now I mentioned to you it's about 7.75%.
Since we have increased rates now, and in fact, if you look at any bank for that matter, I think whatever rate they say is basically an offer and there are a lot of conditions with respect to bureau, and et cetera, would be there. Therefore, increase in rates, now we've increased by about 6.75% to now about 7.75%, about 100 basis points in terms of average yield. Even when we offered 6.75%, our yield was about over 7% because not all the loans would come at 6.75%, and therefore, today, average is 7.75%. This is number one. Number two, when we talk about this liability mix, see, we have to raise NCDs this year, and we will raise. This year we will raise up to INR 750 crores because that is mandatory, and fortunately, now the rates are very competitive.
Last year we didn't raise for two reasons. One, it was not mandatory last year, and number two, rates were higher. Now we are able to raise NCD at a very fine rate comparatively, and therefore, we will raise NCD. Suppose if CP becomes expensive. See, today, we're able to raise funds from bank at about 5.5%, and we have raised at 5% also. When we have increased our allocation from NHB, our rates will be much finer. Today we are using CP because we are seeing opportunity there. Basically, CP used to be earlier 12%, now it is 19. It's only because we had to retire some of the NCDs. Now, in this quarter, we will raise NCD. This quarter, we plan to raise about INR 500 crores. This whole year, we are supposed to raise about INR 750 crores, because that is mandatory.
Any incremental borrowing, 25% will have to come by way of NCDs. Right. If CP rates goes up, we'll change our mix and we will either take from NHB or from bank. I think that's not an issue at all. Overall, CP rates will go up only if overall there is increase in interest rates. You would see that impact across. We would also try and increase that yield so that we can protect the margins.
Sir, maybe as a last follow-up here, at what duration or at what frequency are the loans repriced for the customers? In other words, if someone takes a loan from you at, let's say, 6.7%, for how long will that rate be locked in for that customer? Sir, secondly, some time back you said that, and that is also evident in the numbers that you report, the pressure on BT out has eased significantly, and because of which your loan book runoff, what used to be there, let's say a couple of quarters back, it will be much lower, I would say, in this quarter. What has really changed? Banks continue to offer interest rates at those low interest rates what they did in the past.
What has changed that irrationality to more rational behavior today from the customers?
Okay. Reset happens once in a year, beyond that, it depends on the market conditions. As of now, interest rate, in fact, even at the last meeting, repo was unchanged. It depends on the market condition. Otherwise, the reset happens once in a year. BT out was very high last year. What happened was we actually repriced. We reduced the costs, we repriced the portfolio so that we can retain the customers. Therefore, whatever you mentioned, now from illogical, I think it has now moved to a bit of more logical stuff. Now the differential is not much, but we always ensure that we maintain whatever is the required margin. Going forward, if the interest rate goes up, then we have scope to increase yields. We'll manage this like this going forward as well.
Not only this, we had set up a core team more than one year back, which only handles customers who want to switch or customers who want to move out. We have a strong retention team. Depending on the customer need, if customer is looking for a switch, we do switch. If customer is looking for a slightly higher loan or maybe a top-up, we extend top-up loans or personal loans. We have a dedicated team which is supported by all the branches. Our retention strategy, our pricing strategy, and our focus on growing disbursement and book has changed the entire scenario.
Sure, sir. Thank you so much. This is very useful. Wish you and your team the very best.
Thank you very much.
Thank you. The next question is on the line of Harsh Shah from L&T Mutual Fund. Please go ahead.
Yeah. Thank you. I just have two questions. First is on the growth. Since this quarter has been very healthy for you as a company, how do we see this growth pan out in terms of disbursements for the next two quarters and then eventually into FY 2023?
H2 will be far better than H1.
H2 will be better than Q2 is the question?
H2 will be better than H1. Q3 and Q4, if you take both the quarters average will be far better than Q2.
Okay. Secondly, on OTR. You had also mentioned that conservatively on a base case scenario, 7%-8% of the OTR will slip eventually, that is around INR 50 crores. What was the rationale behind writing back our buffer provisioning of INR 13 crores because we could have used that provisioning whenever this OTR book starts to slip? Do we also see eventually, even if you spread out your OTR slippage book, still you will have to do that incremental provisioning going forward? What was the rationale behind the writing back the provisioning in this quarter?
We have provided INR 65 crores and we expect only INR 50 crores to slip, and that too over a period of time in next few quarters.
Still you feel that there will be again write-back of provisioning if this number-
Eventually, yes. We have provided INR 65 crores and we are expecting INR 50 crores to slip, and the INR 50 crores will not slip in one or two quarters. This will be over a period of time. While we say this, we also have plan to recover from losses. We plan to recover slightly more than what would slip into NPA. Net-net, we always want to maintain NPA less than 1%. Our recovery in next few quarters is going to be about INR 55-60 crores. That's the plan. What would slip is INR 50. Now, apart from these two, what could actually happen is that there could be some incremental slippages so that we will manage through normal recovery. That was the logic for us to write back because we've already provided INR 65 crores.
Just a follow-up on that. Is there a possibility then, since you are already operating at such a high PCR, you have already provided INR 65 crores of provisioning on OTR book. On a total company level for next two or three quarters or even a little bit slightly longer, let's say four to six quarters, we will see a very compressed credit cost as a whole?
See, this ₹65 crores what we have provided is for restructured loan that is not part of the PCR.
Right.
Irrespective of that, we have still increased our coverage to 40% now.
Yes, that was actually the question. That's what I'm trying to say that since you have already provided INR 65 crores, plus you are already operating at such a healthy.
We don't expect any credit cost increase.
Sorry. Can you repeat?
We don't expect any increase in credit cost.
Okay. credit cost will remain at a very compressed level only for the next two quarters, at least on a medium-term.
Yeah.
Okay. Thank you.
Thank you. Before we move to the next question, I'd like to remind the participants to limit their question to two per participant. If time permits, you may join the queue for any follow-up. Our next question is from the line of Amit Premchandani from UTI. Please go ahead.
Thank you for the opportunity. Sir, just wanted to have your views on what can be the steady-state HFC borrowing mix once you move into two to three years of the current AUM.
If you have seen market in last two years, I think it has been a rollercoaster for HFC as a industry. It's very unfortunate that some companies had to slow down disbursement, some companies had to close down, and stuff like that. If we look at the current trend, our allocation probably should slightly increase. At this point in time, it's about INR 2,000 crores. This is every year, INR 2,000 crores. In next couple of years, we feel that this amount could increase by about 25%, at least.
What is the duration of this borrowing?
This is a long-term, 15 years.
At rates of?
Sorry, come again.
Rate.
Rate would be very dependent. That'd be the lowest actually. It will be sub 5.
It will be fixed in nature, right?
Rates?
Yeah.
Rates are not fixed. We have a small portion which is fixed. Otherwise, they have a variable rate. Depending on the situation, we also either increase or decrease the rate.
That is linked to what, this variable rate?
It is linked to their own reference rate, which broadly is linked to the RBI repo rate.
Sure. Sir, why do you think Can Fin Homes has the ability to predict short-term rates, hence you have kept CPs at such a high share of the overall liability side when none of the other mortgage lenders seem to have that ability?
I think the first basic difference is that I'll tell you what we do and whatever I don't say probably would be applicable to others. See, we don't use CP for funding. We think CP is very risky because CP is short-term, and we don't want to use that for lending. Therefore, since we enjoy huge liquidity and we have the low-cost benefit, and therefore we use CP only for cost leverage. Right? You see CP share going up, it's only because we had to retire some of the NCDs. The minute we raise NCDs now, you'll see that mix changing. It looks high because NCD has come down. Once we raise NCD of INR 100 crores, you'll see that mix. CP we will use only if we have backup, which I already mentioned.
Since we're high on liquidity, we use that to leverage and keep our cost low.
What is the liquidity, sir, in terms of as a percentage of AUM? What is it?
We always
How high is it?
We always keep about a year's liquidity.
Year of repayment obligation.
Total obligation, net of that.
What would be that number now?
It will be about INR 4,000 crores. That will be consistent in the sense every, that is a policy that every year you keep one year. With increase in disbursement, our CP % might come down because now we are able to source from banks at a much finer rate. We also have to manage our ALM, and we are able to get source at a much finer rate from banks. This proportion would come down because of two reasons: One, bank could slightly go up. Number two, NCD will go up.
Okay. Thank you, sir. That's it from me.
Thank you.
Thank you. The next question is from the line of Bunty Chawla from IDBI Capital. Please go ahead.
Thank you, sir. Thank you for giving me the opportunity. One data point, if you can share, because I missed the initial part, that is incremental cost of funds and incremental yields. Secondly, continuing with the previous query from Amit. You said that now we will be raising NCDs, these CPs will be shared or replaced by NCDs. Can we say that the cost of funds could increase or could rise and that could be equivalent to a already price hike we have taken last two to three months? That could have a not much impact on the margin pressure. That's it from my side, sir.
Yeah. Incremental cost is 4.77%. Incremental yield is 7.45%. Incremental spread is 2.68%. Our portfolio is 2.42%. Incremental spread is 2.68%. Right. We will not change the CP number. There could be slight up and down depending on the maturity. What will happen is now NCD, once we source NCD, the mix will change. It's not that CP will go down and NCD will go up. The NCD will go up because NCD goes up, CP will go slightly lower than what it is today, and CP will operate within the limit, and there could be ups and downs depending on the maturity. Suppose if CPs have matured, then the percentage could look lower, and once we refill that it will look at the right level.
In terms of margins, we'll be able to maintain. Now we've seen a reversal because we have increased rates two in this financial year. You will see improvement further in both CP as well as debt.
Okay, sir. sir, lastly from my side, restructured asset, as you rightly said, is 2.7%. Can you share the profile of this restructured book? Is it equivalent to same which you have shared for the overall loan mix, 74% kind of thing, or is it different? If you can share that data.
I think by and large, whether I take geography, whether I take profile within salaried or different segments within self-employed, I think not much of a difference. Yeah, if I have to compare between salaried and self-employed, self-employed is slightly higher compared to salaried. Otherwise, there is no change in the mix or profile.
Okay, sir. Thank you. Thank you very much, sir.
Thank you. The next question is on the line of Chirag Sureka from DSP Mutual Fund. Please go ahead.
Sir, I just want to understand the bank's behavior because I know you've been trying to answer these questions in the past. Q3 of last year, banks seem to be taking away a lot of your customers, and you had to drop rates. Now though you have increased rates, you seem to be able to hold on to your customers better. Was it one, two competitor banks in your area that caused this kind of disturbance who have now stepped back, or is there anything else that we are missing, sir?
Very good question. No, this is not because of any bank per se. It is because of COVID. It is because of pandemic. What happened because of pandemic and because there was national lockdown, and there was a challenge in terms of mobility of people. Because of this, it impacted economic activity and credit uptake in all the segments and products. Therefore, it was difficult for any entity to do business, whether it is bank, be it private or PSU or NBFC or HFC. Therefore, BT was one segment which was chosen for growing the book. Since there was an arbitrage opportunity available because of the differential yield between banks and NBFCs and HFCs. The focus was more on BT. BT, which generally comprises 20% of the total market in terms of incremental business.
It shot up to 40+% during COVID because for most of the banks or maybe all the banks as an industry, corporate and SME uptake was at its low. Retail, the risk was very high in unsecured, and therefore the whole focus was in secured. Again, in secured, the unique thing was mortgage because of its sheer ticket size and long-term in nature. Therefore, there was heightened activity in mortgage. We saw flight of book from HFCs and NBFCs to banks because since this happened, a lot of HFCs had to rethink on their strategy. We also did the same thing, our strategy was short-term, which is why we had to change the pricing strategy.
Now that is almost over, which is why now we don't see that kind of competition from banks because economic activity has improved and now there is good uptake in SME. In corporate, it's far better compared to what it was maybe a year back. May not be back to 100% potential, but far, far better than what it was last year. Therefore now mortgage is back to its place in terms of focus from various institutions across.
Excellent, sir. Thank you. It's another good sign of normalization, which we appreciate. Sir, just one last question from me. Have you considered products like loan sell downs or securitization to kind of manage your ALM? Is that market still alive? That used to be quite active some time ago. I just wanted to know whether you explore that.
It's very much there, but we don't want to sell our portfolio, and we don't intend to buy the portfolio ourselves because we do not know the quality of the portfolio, and we don't plan to do it in near future. Since the market is very robust, we want to grow our book, and that is what we are focused on. That market is pretty active even now.
Thank you, sir, and good luck.
Thank you.
Thank you. The next question is on the line of Gaurav Kochar from Mirae Asset. Please go ahead.
Yeah. Hi, good afternoon, sir. Thanks for taking my question. I have a couple of questions. One on the yield side, you mentioned on the incremental side, the yield is 7.45%. Going ahead, what is the sort of You believe that this spread of 2.42%, is it bottoming out and going ahead? As you mentioned, marginal spreads are at 2.68. Do you see spreads going up at least in the next couple of quarters? Can you just elaborate a bit more on what is the outlook on spreads?
Both spread and NIM will go up. Will go up because we have now increased rates. First we will see expansion in margins, and then you will see revenue going up. Because when interest rate falls, first margins will contract and then yields will contract. Now we have increased the price, margins will expand, which started from last quarter. In the next few quarters, we will see both spread and NIM increasing.
Okay, sure. Sir, the liquidity on balance sheet right now, I mean, quarter-on-quarter it is up. Last quarter it was around INR 70 crore, and this quarter it's around INR 400 crore. In terms of drag on margins, is that also one of the aspect going ahead? Do you see this kind of liquidity going off in the next couple of quarters, or this kind of liquidity will be maintained?
No, that is only on-balance sheet. Off-balance sheet, we have bank sanctions which have documentation done but not drawn. That we have enough. We always have excess liquidity, which can take care of at least close to a year's time. Because of that, we will also have the pricing power in terms of negotiating and getting the cost down. We feel that this will last in the years to come. Because we have never faced any challenge on liquidity, and this doesn't impact the cost or the margin. Rather, it will impact positively because since we have liquidity, we use the P2 leverage, and therefore, it helps us from the positive side.
Okay, sure. My question was only to the extent of on-balance sheet liability, or sorry, on-balance sheet liquidity, which went up. It used to be around INR 100-120 crore. The run rate of liquidity on-balance sheet used to be INR 100-120 crore. That has suddenly spiked up to INR 400 crore. Just wanted your views whether this kind of liquidity on-balance sheet, I understand off-balance sheet, we do have lines and non-lines from banks.
Yeah.
On-balance sheet, since it's a direct drag on margins, will we continue to have this kind of liquidity?
No. We will continue to have this kind of liquidity, and it will further go up, but this will be a positive drag, not negative, because this is for LCR purpose. What we do is, we also place at a much higher rate, and therefore, there will be a positive carry on this.
Okay. Understood. Sure. Sir, the next question is pertaining to the restructured book. You mentioned 2.7% of the loans were restructured. Are you seeing any sort of prepayments? Still early days, but are you seeing any sort of prepayments from this restructured book?
Yeah. Before I answer this question, I would request Joishy to clarify on the earlier point.
Yeah. That on-balance sheet liability was what you are talking about because the Liquidity Coverage Ratio is applicable to the company with effect from 1st of December. On the back of our calculation, it comes to around INR 800 crores. Our average INR 800 crores we should have in the government bonds or in liquid assets. In readiness to that one, we have started acquiring the investments which can yield at a better rate than the loans as well as the cost of funds. The accumulated amount, what you saw in the financials, around INR 300 crores, is only for that purpose. It will rise up as the quarter passes. By the end of Q3, we are going to have the limit, what I have been told. All these things will be at the positive carry only without any dent on the funds cost or the yield.
Okay. Understood. Yeah. Sir, on this restructured book, any sort of prepayments that you are observing in this book? Maybe you restructured something in July. Are you seeing some prepayments happening?
Actually, we saw this not now, even in moratorium. Even though customers opted for moratorium, we were in constant touch with the customers. Customers, whenever they had surplus, they used to pay. Same trend is continuing even in restructuring. We see that customers are making payments. We feel that by the time whatever is the period given to the customer, it gets over, I think we would have surplus of about at least two to two and a half times of EMI in the customer's account. See, actually, COVID pain is nowhere now. I think it is seen across. Salaried, absolutely there is no issue. Most of the customers who lost job, they are now reemployed elsewhere. Most of the self-employed non-professionals, where there was loss of income, that is by and large covered. We don't fund to big businessmen.
We only fund to small retailers, small businessmen who are into service. Our ticket size now is about INR 21 lakhs. It has inched up. It used to be INR 18 lakhs earlier, now it is INR 21 lakhs. Average income per month is now about INR 40,000 per month. These are small businessmen, mostly retailers or somebody who's a consultant or maybe who's in the service industry. Most of the businessmen to whom we cater to, I think income is almost back to 100% or maybe 90%. We don't see that risk at all. The COVID risk, I don't think so we would see that beyond a month or two for self-employed. For salaried, it's not there at all.
Therefore, customers would have excess cash now, and therefore, customer would want to pay and request us either to adjust towards the principal or set aside that against the EMI which falls due in future. We are seeing a lot of payments coming in from customers.
Thank you. Mr. Gaurav, request you to join the queue for any follow-up. Ladies and gentlemen, due to time constraints, we'll be taking our last question from the line of Dhaval Gada from DSP.
Excuse me.
Yes.
I think just a thing, we can extend the time by half an hour to 45 minutes. Time is not a constraint.
Sure, sir.
We can extend, not an issue. We will take till the last question.
All right, sir. We'll request the participants to go ahead. Mr. Dhaval Gada, you may please proceed with your question.
Yeah. Hi, sir. Thanks for the opportunity. Sir, just a couple of questions. If you could just sort of summarize the total provisioning that we carry as of September 2021. We have the NPA provisioning, but just apart from that, the total restructured provision and any other excess provision that you carry apart from specific and restructured provision.
Okay. As per IndAS norms, we are holding INR 159.19 crores and Resolution Framework 1.0, INR 7.37 crores, Resolution Framework 2.0, INR 57 crores. Total is INR 223.79 crores. This is the total provisioning what we are holding.
How much is allocated towards restructured provisioning?
Restructured totally, it's about INR 65 crores. yeah, INR 65 crores.
65 restructured, INR 75 NPA provision, and the rest is excess that you talked about?
That is for the standard assets. 84 is for the standard assets.
84 is for the standard. Understood. Okay.
Yeah. Basically three parts. One is NPA, standard asset and restructured.
Got it. Understood. The second question, sir, was there any interest income reversal related to OTR that you would have done during the quarter? One of our peers had seen a significant interest income impact. I'm just trying to check on that one again.
No, we didn't have that in the quarter.
Understood. Okay. Just lastly, sir, in terms of growth, you had earlier guided to about 16%-18% growth. Given the current trajectory and the commentary that you gave around disbursement, it seems that we will exit at a pace which could be slightly higher than that run rate. Just would you give some color around what kind of growth we can expect in next year, FY23 and beyond? Just directionally, how should one think about growth?
I had earlier mentioned that we'll grow at about 18%, 18%-20%. That was on last-to-last year base, because last year, because of COVID, we disbursed less. Therefore, I had told we'll grow at about 18% compared to last-to-last year. Last-to-last year, we had disbursed about INR 5,500 crore. On that, very easily we can grow beyond 18%-20%. Going forward year-on-year, we can look at growth of about 18%.
Understood. Okay. Thanks, and all the best.
Thank you.
Thank you. Our next question is on the line of Shubhranshu Mishra from Systematix. Please go ahead.
Hi, sir. Thanks for the opportunity. A couple of questions, sir. One, if you could explain, if you could dwell upon the salary segment, how many of them are new to credit? How many of them are PSU sector, private sector, government employees, and what kind of average income levels would they be? That's the first question. Second is what kind of concentrations we have in terms of top 20 branches contributing to the sourcing and top 50 branches contributing to the sourcing. My third question is on the CP, sir. Why are we so defensive on the CP? There have been a lot of questions, but we tick almost every box because we are a double A-rated company promoted by a PSU bank, which has an implicit sovereign guarantee. Why not use CP for funding? Why are we so defensive about it? These are the three questions.
Okay. In terms of salary segmentation, 50% is private and 50% is government. In terms of income level, earlier it used to be about INR 38,000 per month. Now it has reached up to about INR 40,000-INR 42,000 per month. This is across geographies. Top 20 branches, in terms of incremental disbursement, it would account to about 45%. Not the book, in terms of incremental. Top 50, I think, would cover about, I will need to check on it. It will be about 65%-70%, if I'm not wrong. In terms of CP, it is not that we are defensive. When we have an opportunity of creating liquidity from other source of borrowing, we don't want to use CP.
Generally, if you look at last five to six years, I think most of the damage has been created because of over usage of CP for funding purpose. Therefore, we have not found a need till now to use CP for funding purpose because we are high on liquidity, which is why, as a strategy, we would always keep buffer in terms of liquidity so that we can, A, negotiate with the existing bankers to reprice the loan downwards, and also we can use that cushion and leverage CP to leverage the cost. It's not defensive. We have not found the need till now. CP will be used for two purpose. One is when the institution is not getting enough sources to lend. That's number one. Number two, to keep the cost low. We have not found reason to borrow for the first one.
We thought that it will be a good idea to leverage cost because we need to be very cost efficient in this competitive market, and therefore, we don't use CP for borrowing. Basically, why? Because we are into long-term business. CP is short-term, three months, six months, up to one year. We may also face challenge in terms of ALM, and therefore, we just take CP only for cost leverage and we keep rotating that and not use for funding.
Sir, one question still unanswered. What % of the customers would be new to credit, sir?
Can you please come again? Please come again.
New to
New to credit.
Percentage of new to credit. Yes, sir.
New to credit would be in the range of 35%-38%.
Sure, sir. That is on the outstanding or on incremental?
Incremental. I am discounting credit card exposure. New to bank or new to institution, I'm discounting. I'm just saying new to credit. New to credit would be about 35%-38%.
Got it. Thank you so much. Sure. Thanks.
Thank you. The next question is from the line of Saurabh Dhole from Trivantage Capital. Please go ahead.
Sir, good afternoon, thank you for extending the call. A couple of questions from my end. Firstly, if I look at your coverage ratios, I think the long-term trend has been somewhere around the late 20s and the early 30s, but today you are at 40%. I'm just trying to understand when the quality of the book has gotten only better, why would you think of increasing the coverage ratios as the quarters go by? Do you think there is some more space in terms of the kind of coverage ratios you want to have? Do you want to hike it to, say, 45%, 50% in the future periods? That is question number one. The second question is, could you talk a little bit about the competition in the SENP segment?
You've already talked about how competition is abating in some of these borrow segments. Do you want to have a relook at this segment? You've already said that you want to concentrate on the salaried book, but is there a rethink that the changed landscape is prompting you at? Thank you.
In fact, a few quarters back, we were getting questions as to why is your PCR at X level, VP, other institution at X + 20%, X + 30%. Actually, this is not customized. We just provided during bad times, we didn't write it back, therefore, you see that the coverage ratio increasing. Anyway, it has to give more comfort to all the investors that our coverage ratio has increased. Otherwise, there is no other reason. In terms of COVID, I think we've seen that risk, I think it's almost coming to an end, we don't see much of a challenge in terms of the structured book. Therefore, we don't have a number in mind. We will take it up as and when it comes up, I think now 40% seems to be a very good coverage.
In terms of our focus, we focus both on salaried and SENP, because SENP is one segment where we get better yields. It is just that after COVID, the mix has changed more by design, not by desire. We desire to acquire both salaried and self-employed. Because of COVID, because of the fear in system, we don't see too many SENP profiles now opting for loans. It is slightly improving compared to what it was two quarters back, one quarter back, it is slightly improving. We feel that we should get corrected in next maybe two to three quarters' time, and on an incremental level, we should very soon see 75-25 kind of a mix. It's only a short-term phenomena. We don't want to be very aggressive, force fit and source self-employed.
We would want to go back to pre-COVID level in terms of our standards for sourcing both salaried and SENP. If it fits into a norm, we are more than happy to onboard self-employed customers. Now it is more of a design that the demand is more from salaried and less from self-employed. Therefore, we also see that change in our mix.
Is it fair to assume that in the medium term, you think that the 75-25 mix works the best for you?
Short term, not even medium term. Next two to three quarters, definitely I think it works. We are okay right up to 35% also, but not more than that. 65-35 is what we think is ideal.
Okay.
We would not force fit to reach that mix in a given time frame. We are okay whenever it happens. If market dynamics would want us to have that kind of mix without adding any significant incremental risk, we are quite open to it.
Right, sir. Thank you so much.
Thank you.
Thank you. Our next question is from the line of Shreepal Doshi from Equirus. Please go ahead.
Hello, sir. Good afternoon, thank you for being with us today.
Yes, Shreepal.
My question was with respect to have you changed the payout structure for the DSA and the connectors when we changed our sourcing strategy towards more of semi-urban and other locations?
No, we haven't changed. We haven't changed payout structure of DSA. Now, I think for many, many quarters, we've not changed at all.
Okay. Sir, while we've changed our focus with changing pricing strategy towards semi-urban and rural locations, how easy will it be for us to switch back to, again, tier two, three, four geographies when we plan to change the pricing strategy? What will be the operational changes that we will look at, and how easy is it actually, is what my question is more focused towards.
We have done both. We were operating at a high yield, we dropped our yields. We dropped our yields, again, we have increased our pricing. Which will see increase in yield. We've done both in last probably five quarters.
Now?
Increase in price and prior to that, we had dropped rates. Basically, switch is not going to be a challenge for us to a certain extent, which we have displayed in last four to five quarters. We would use this strategy in future as well. There's nothing operationally that we need to tweak. It's more of a focus and our approach towards this entire pricing strategy.
Sir, what about the infrastructure that one needs to sort of have to cater to different customer profiles in different geographies? From that perspective also, there is no material change that you see what we will have to take?
Our profile mix is still intact. Barring that slight change in mix between salaried and self-employed. Within salaried segmentation or within self-employed segmentation is still the same, irrespective of change in yields.
Sir, even on geography front, the infrastructure.
Yeah
well put to source it.
Exactly. Only thing is when we had dropped the rates, we had seen slightly better salaried profile customers coming in, and slightly higher ticket cases, which again saw our ticket size going up from INR 18 lakhs-INR 21 lakhs. Now we are also focusing on slightly higher ticket size, and therefore this ticket size will be maintained. In terms of profile, not much of a difference.
Sir, I suppose the change would be with respect to higher % coming from semi-urban and urban locations versus when we had a different strategy earlier.
I would say we would continue to source from small towns, that is semi-urban and small towns, and in big cities and metros, we source from outskirts. Even today we do that. Only thing is when our pricing was low, we were able to also source from within the city. Now since we have increased our price, there could be slight gap there, which might now extend to other segments. Otherwise, there is no change in the geography or the profile. Even in big cities, we find opportunity to source affordable loans.
Thank you. The next question is on the line of Chandrasekhar Sridhar from Fidelity International. Please go ahead.
Hi. Can you just tell me what is your average on-lending spread right now on NHB funding? Incremental.
Our incremental spread is 2.68% on portfolio.
No, no. Just on NHB, what's your average spread? There's obviously a cap of 6% overall, and then I think teams of the NHB. Just for NHB. Just purely for NHB.
Yeah. Okay. I got it. For NHB, they have different segmentations. 3.95% is the average.
3.95% is the average?
Yeah, because we get a better margin in NHB refinance.
Right. There was a question also earlier about when you are at a certain book size now, when the book size doubles or triples. Do you think you can run NHB borrowings at this contribution to your liability size? If not, just trying to understand, at maybe double the book size, can you actually maintain the spread which you have today?
What I understand is that allocation what NHB gets for refinance and if you see the pool available in the market, I think still there is huge shortfall. Government of India's commitment to promote affordable housing, and if you see in that context, this allocation has to probably increase year-on-year from here onwards. Not too many HFIs are into this segment, at least at this point in time. At least I don't see any challenge in terms of meeting the allocation at least for next four to five years' time.
Effectively you're saying that even at more than double your book size, you will have about 25% NHB loans.
Allocation to Can Fin depends on total allocation, what probably NHB gets from Government. As of now, we have a decent share, and we feel that next two, three years' time, we would continue to have this kind of shares.
Right. Second, just sorry to harp on these questions around the CP again. When you're running it at 19%, why are you taking a call on interest rates? You're effectively taking a call that right now, wherever the income is, you have CP borrowing below 4%. Tomorrow that can very well go up to 5%, and that will just force you to sort of increase interest rates and pass it on to your customers, and in the process, either you have a margin compression or you lose business.
No. Suppose, let's say if I change from CP to other source of borrowing, I will not be able to maintain this kind of margins. If I increase it, I have the loss of losing customers to other banks and institutions. It's a fine balance. I have to balance the risk and also take the advantage of cost. Therefore, to balance the risk, we have liquidity buffer, and to manage cost, we use CP. This will also ensure me to retain, which will enable me to grow on book as well as resources. It is a fine balance, so we can always play with this by tweaking on either side. This is something which is working for us without any incremental risk, and therefore we thought we should continue with this.
Sir, just under last question, can you give me some contours of the restructuring which you have given in this quarter? Either duration or what have you done and another competitor, as someone had asked earlier because I had got some interest over. Just some contours on the restructuring, if you could provide.
Total restructuring is about INR 645 crore, and we have provided INR 65 crore for this. The tenure varies from three months right up to 24 months, depending on the customer need. We have a set of customers, we have different tenures. Max is about 24 months and starting from three months. In terms of what we have done is we also see that we also phase it out. We have bracketed customers into different buckets depending on the income loss or maybe what is the need of the customer, so that all the EMIs due, which starts, which would fall into every single quarter for next few quarters, and it doesn't bunch up in just one or two quarters. It will also give us space for us to manage our restructured pool better, A.
In terms of profile mix or the geography mix, we don't see much of a difference. Yes, we see that self-employed restructured pool in terms of % is obviously higher compared to salaried because we saw more pain in self-employed as a segment due to COVID in our country. Out of this INR 650 crores, we expect 7%-8%. It's an estimate. We have done this based on profile, based on geography, based on loan vintage, based on loan product. We have used our own business intelligence to arrive at this. We feel that at max 7%-8% of this pool could fall into NPA. Therefore, we give it. That comes to about INR 51 crores. We have provided INR 65 crores now. It's fully covered.
To add buffer to this, we also have plan of recovering about INR 60 odd crores in next few quarters from the NPA pool, which are fully provided or more than 50% provided. From these two buckets, we plan to pull back about INR 60 odd crores so that this entire thing is covered. If you see over a period of time or maybe at any given point in time for next, let's say, 18 months, for example, which is about six quarters from now, so our NPAs would ideally be less than 1%. This also because in last four, five quarters, we have not initiated legal and SARFAESI. Now we are pretty active on both SARFAESI and OTS. We saw this in last quarter where we have recovered from NPA pool, which saw 0.9% coming down to about 0.78%.
Thank you. Our next question is on the line of Karan Agarwal from Tusk Investments. Please go ahead.
Hello. Hi, sir. Thank you for taking my question. My question is around the rise in our average ticket size, which was earlier INR 18 lakhs, which has risen to close to INR 20 lakhs now. Is there any change in our strategy? Are we targeting customers which are more creditworthy? Thank you.
Whenever the ticket size goes up, the portfolio would tend to improve. We want to slightly increase our ticket size, but we want to remain focused on affordable so that we can get refinance from NHB. From INR 18 lakhs, INR 21 lakhs because when we want to grow, it's not enough only if I increase my number of customer on board. I should also focus on ticket size, and therefore to certain extent, we would increase ticket size. It not go up drastically. Maybe once in two, three quarters we will see our ticket size inching by about an INR lakh or so. I think it must settle down eventually at about INR 23 lakhs, INR 24 lakhs.
Thank you. Our next question is on the line of Rohan Advant from Multi-Act. Please go ahead.
Yeah. Sir, thanks for the opportunity. One question again.
Rohan, we're not hearing you very well.
It's not very clear. Could you please keep the
Is it clear now?
Sir, could you please use the handset if possible? Because it's not coming clear.
Is this clear?
Yeah. This is better.
Is this?
Yeah.
Sir, my question is on NHB, which is 25% of our funding mix, which will be around INR 5,000 crores. You said that you expect INR 2,000-INR 2,500 crores of incremental funding, which is 50% growth over what we have. Wouldn't that actually increase NHB as a part of the liability mix in the coming years?
If you look at two years back, our liability mix for NHB showed much lower percentage. That is because NHB loan was coming at a much higher rate, and therefore we were not keen to avail from NHB. Rates are competitive, and therefore we are availing. If it fits into a cost structure, we are agnostic about the source to a certain extent. Because this is at a portfolio level, what I mentioned was on an incremental basis. It's possible that this 25% can go up. It's also possible that this 25% can go down. It depends on at what rate we will get loan from NHB.
Okay. Sir, my second question is on our average repayments during the year tend to be 18%-20% of our loan book versus lesser for some of our larger HFC peers. Is that to do with more pre-payments that we get or the tenure of our loans by design are shorter than peers? If you could just help us understand that. Thank you.
I understand your first part, but what I understood was, see, the average loan on book is about eight and a half to nine years, which is in line with the market. That is there. BT out, as I mentioned, BT as a market is about 20%. If I see net of BT in and BT out, for example, every quarter we would lose about.
50 crores. INR 50 crores BT out.
If I have to see only BT out, it will be about INR 40 crore-INR 50 crore. That's all. I'm not sure whether I answered your first question or not because I couldn't hear your first question properly.
Yeah. Sir, my question was related to our larger HFC peers. Is our tenure the same, which you said yes? Do we have more pre-payments than others if not BT out, which is not much?
Last year we had more BT outs. It rose up to about 80.
Pre-payments.
Pre-payments, no. No, you're talking about BT out or pre-payments?
He's talking about both.
Okay, in terms of BT, we saw more BT outs last year during COVID time. That's why we had to change our pricing strategy. Now it is back to pre-COVID levels. Now we see normal BT outs and normal BT ins. Whereas during COVID time, we saw less of BT ins and more of BT outs. In terms of prepayment, the trend is same throughout. There is no change pre-COVID, during COVID, post-COVID.
Thank you. The next question is on the line of Nilesh Je thani from Envision Capital. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, I only had one question. In the presentation it mentions that incrementally, 82% of the loans were for housing versus our historical trend of 90%. Is there anything to read into it or it is just a one-off?
Just a minute. I think 82% was from salaried, sir, not loans.
82% was for housing.
How is it?
82% happened to be incremental salaried.
Yeah. 80%, correct, you are right. 82% of fresh loan approvals during FY were for housing because typically what we do is that personal loan or top-up, even though it has the characteristics of housing, it is termed as non-housing. If you take that into account, this could be 90%, otherwise it's 82%. It is pure housing without top-up and personal loans. If you look at our portfolio mix, 5% is LAP, LRD, and NRP, 5% is top-up and personal loan, and 90% is home.
Thank you. The next question is from the line of Darshan Shah from White Equity. Please go ahead.
Thanks for the opportunity. I just have one bookkeeping question. What is the absolute level of Stage two assets as of September end?
Just a minute. On book, it will be about 3.5%. Normally, if you look at the entire SMA, it will be about 7%-odd to the portfolio. What happens is that end of the month, it will be hardly anything. It would have come down, but again, opening would be higher, closing would be lower. On an average, it will be in the range of about 3.2%-3.5%.
Thank you. Our next question is from the line of Nikhil Chowdhary from Kriis PMS. Please go ahead.
Yeah, thank you for the opportunity. Sir, am I audible?
Yeah, you're audible.
Yeah. Sir, congrats on a decent set of numbers. I had just one question.
Okay.
Sir, currently if we go to raise money through NCDs, what would be our cost?
We will be able to raise at about in range between 6% to 6.05%, 6.07%.
Okay. What was it last year when the COVID was there?
Last year it was about 6.5%-6.75%.
Okay. It hasn't changed materially.
No, it has come down. It has come down by at least 50 basis points.
Yeah. Okay. Our intent is to curtail CPs and probably as and when we try to raise NCD, right?
No, our intention is not to curtail CP. Our intention is to raise NCD because now it is more of a regulatory thing. We will raise NCDs of INR 750 crore this year because that's our incremental borrowing plan. NCD is equal to 25% of total incremental borrowing. CP, we would try and operate within the limit to leverage cost.
Got it, sir. Understood. That's it from my side. Sir, wish you Happy Diwali in advance.
Thank you. Thank you. Wish the same. Wish all the investors Happy Diwali from team Can Fin Homes.
Thank you. Our next question is from the line of Nitin Jain from Fairview Investments. Please go ahead.
Thank you for the follow-up opportunity. Last quarter you mentioned that about 70% of your book has been repriced to 7.5%. I just wanted to know where that number was this quarter. Even here it is on the increase.
It's actually ongoing. Now I think the repricing, most of it on the downside is over. Since we have increased rates in the last six months, now any repricing would be on the higher side.
Yeah. No. Last quarter you had clarified that about 70% has been repriced on the higher side to 7.5%.
No. It is not on the higher side. Repricing, till March it happened on the lower side. From April, it happened on the higher side.
Yeah. Okay. The way I understood is that from Q1 onwards, you have been repricing at 7.5%, right?
Yes, correct.
Okay.
Correct. You're right.
Right. Again, last quarter you had clarified that about 70% you had repriced to 7.5%. Is that right or is there a change in that?
No, not that. I had mentioned that 70% of our book is repriced.
Okay.
When I talk about reprice, till March, it was in the lower side because our rack rate was lower till March.
Right.
The rack rate from April is increased. Anything which comes for repricing would be at the new rack rate. Since we had increased the rate, it would be at that rate.
Okay, got it. Sir, a follow-up question is actually, if I'm a customer in one of your major markets, say Bangalore, when there are competitors like Kotak who is offering at 6.5% home loan. HDFC is offering at 6.7%. Why would I be willing to pay higher than 7% to housing finance? If you can just throw some light on that competitive intensity.
Yeah. See, even today, while we talk about housing finance raising the building book at about 7.75%, we have too many HFCs which are building book at 12%, 13%, and some even at 14%, 15%. If you look at their cost, it will be upwards of 10%. I think today market is quite large, and there are segments, there are profiles who are willing to pay premium for the sheer credit availability and the service what they get. We focus on niche segment, different segment. We go to outskirts, we operate in small towns. We take that kind of risk. We try to balance the risk by focusing more on salaried. When I say more, it's 70/30. At a point now maybe 74% and 26% at portfolio level.
There's opportunity available and therefore, in terms of branch network, I think banks are not able to go beyond a point where HFCs can go. I think that differential existed in the past, even now it exists, and even in future, you will have the differential in terms of geography as well as service. These are the differentiators. Also we give doorstep service. We give ready-made approved projects readily made available to customers to choose from one of the properties. We give consultation on legal and technical aspects. There are so many things which a customer thinks is our USP, which we feel is our USP. Therefore we are able to build this kind of book. If you look at the book growth, it has been pretty well in last couple of quarters.
Thank you. Our next question is from the line of Pravin Mule from Prabhudas Lilladher. Please go ahead.
Hello.
Yes, your line is unmuted. Please go ahead.
This is Shweta Daptardar here. Couple of questions from my side. You just mentioned a while ago that your average tenure on the loan side is eight years. You also mentioned that the repayments are very much in line with industry. In such a scenario, doesn't it warrant that your CP share, I'm sorry I'm harping on the same, CP share should definitely be coming down because then it would be a potential ALM mismatch in a scenario where hardening of interest rates is imminent?
No, we can do that. If I do that now, my cost will go up. If I can manage utilizing CP only for leveraging cost without my ALM getting disturbed, and if it can help the company and the investors in terms of return, why shouldn't one look at that option? Today we have an opportunity. Today we have an opportunity of high liquidity, and therefore we are utilizing that. God forbid, if interest rate goes up and if CP becomes expensive, then we would not take CP. Today we are taking CP only against backup risk, not for funding purpose. Somebody asked in this call, "Why don't you use CP? Why are you so defensive about CP? Why don't you use CP for funding?" We feel CP for funding is a very risky proposition at this point in time.
Post IL&FS and various other companies which had to go through tough times. Therefore we don't want to choose that option. CP as cost leverage is a very good strategy which would help all of us without any risk, and therefore we want to continue with this strategy.
Thank you. Our next question is from the line of Piran Engineer from CLSA. Please go ahead.
Yeah, hi. I just had a clarification, sir. When you said about INR 40 crore-INR 50 crore BT out for your own, was that every quarter or every month?
Every quarter.
It is every quarter net.
Okay. What is it gross?
Sir gross now on a normalized state, it would be about INR 85 crores-INR 90 crores. That's the BT out.
On an annualized basis, only about one and a half to 2% per year, the gross BT out. That sounds quite low, isn't it?
No, it's about INR 90 crores. Yeah, you're right. Correct.
That's what I mean.
You're right.
Okay. Only one and a half to 2%.
Yeah.
What about foreclosures? How much would they be?
Foreclosure would be again
Gross.
INR 90 crores per month including
Excluding. Foreclosure, I just put it in two brackets. One is the normal repayment, keeping that out. Normal EMI repayment that I'm keeping it out, which will be about 2.5%. If I leave that all put together, it comes to about INR 360 crores. Which means every month my book depletes by INR 360 crores. This includes three parts. One is BT, second is preclosure, and the third one is normal repayment and collections.
In that 360, how much was the foreclosure? About INR 30 crores is BT.
Yeah.
How much was foreclosure?
Foreclosure is INR 60 crores per month.
Okay. I didn't hear that. Yeah. Okay. That's all from my end. Thank you so much.
Thank you. Next question is from the line of Nirmal Bari from Sameeksha Capital. Please go ahead.
Yeah, sure. Thanks for taking my question. My question is on, what rate are we. Am I audible?
Yeah, you're audible.
Yeah. Are they 8% since 1st September, right? As per our website. Are we repricing at 8.25% or 7.75% at present? Hello?
See, repricing will be a thing. It depends on different segments, right? Because we do risk rating, and depending on the risk, we reprice. It could happen anywhere between 8.25% or it could be 8.5%, depending on the segment, starting from 8.25%.
Yeah. The minimum at present is 8.25%, right?
Repricing at 8.25%, yes.
Yeah. Sir, in the last one year, specifically from Q3 onwards, when we revised our rates downward, we got a very typical set of clients which we didn't use to get earlier, the higher average ticket size and higher-income clients. When their loans get repriced to 8.25%, why would they stick, as in, what are we offering them that they would continue to stick with us? These clients can very well move to the bank and still get a 7.25% or 7% rate, right?
See, customer has an option of switching if we have retained the customer. We take a small fee, and we switch the rate. This is a common practice across all the HFCs.
Yeah, are we starting to see what has been the response in the last one month since.
It has been pretty good. If you look at last six months, our BT out has come down to pre-COVID levels. We've been able to control that part.
It was the same for the month of September as well?
Yes, September also, yes. This we have done for many, many years till COVID started, and only when COVID started, we saw pressure on book depletion.
Okay. Thank you, sir. That was the only part.
Thank you.
Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Girish Kousgi for closing comments. Thank you, and over to you, sir.
On behalf of the company, we thank all the investors for participating in this conference. As a company, we always try to increase the shareholder wealth by our proactive business strategies, and in coming days, we'll continue with the same strategies. Thank you.
Thank you very much.
Thank you very much. Ladies and gentlemen, on behalf of Investec Capital Services, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.