Q1 21/22

Jul 23, 2021

Ladies and gentlemen, good day and welcome to the Can Fin Homes Limited Q1 FY 2022 conference call hosted by Investec India. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Utpal Gaglani from Investec. Thank you, and over to you, sir. Thank you, Rutuja. Good afternoon all. Welcome to the Q1 FY22 earnings conference call of Can Fin Homes Limited. To discuss the financial performance of Can Fin Homes and to address your queries, we have with us today Mr. Girish Kousgi, MD & CEO of Can Fin Homes Limited, Mr. Anindya Chatterjee, Deputy Managing Director, Ms. Sharmila, Business Head, and Prashanth Joishy, CFO of Can Fin Homes Limited. I would now like to hand over the call to Mr. Girish Kousgi for his opening comments. Over to you, sir. Good afternoon to all the investors. Welcome to quarter one earnings of this year. It was a fruitful quarter in many senses that after the lockdown in April, we had tough time managing our book, and also to get that business with whatever profitability is available in the quarter. I think eventually it was a good quarter, and I'll talk about the numbers a little later. Let me start with last year, quarter three after COVID one. In quarter three, we came back with good growth of 12%, and quarter four was all-time high. We did disbursement of INR 2,000 crore, which was all-time high in the history of Can Fin, and our NPA was at 0.91%. If you look at June, 0.91% has come down to 0.9%. In terms of business, because of second wave, we got impacted, but we were able to manage on the collection front. We improved our efficiency, which was quite low in April. May was moderate. June we picked up very well, and we were able to disburse, which was equal to 123% on a year-over-year basis. Now, in last few quarters, I've been maintaining that our margins will come down because we changed our pricing strategy, and that change was warranted because of heightened activity, especially in the mortgage business, both home and non-home, largely driven by all the banks focused on retail because corporate and SME was not taking off due to COVID, and this was the fastest way to build the book, and especially by doing balance transfers. In order to protect the customers and save the book, and also to grow Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star 1 on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star 2. Participants are requested to use handsets while asking the questions. Ladies and gentlemen, we will wait for a moment while the questions you assembled. The first question is from the line of Dhaval Gada from DSP Mutual Fund. Please go ahead. Hi, sir. Thanks for the opportunity. Sir, the first question I had was on business momentum. If you could talk about how situation was in June and also how you are seeing the situation in July in terms of fresh enquiries and overall, just given the trend that you've seen in the last few quarters, how do you see the rest of the year pan out on the business front? If you could start with that. Actually, if you see from last year quarter 3 onwards, business trend is very good. Market is very robust. In quarter 1, we did business only for 45 days. Whatever business we have done is only for 45 days. Within quarter 1, June was very good and July also is pretty good. From quarter 2 onwards, business outlook is very good, as long as it doesn't hit us. It's pretty robust. Actually, quarter 3 onwards it's good. Only thing is quarter 1, we had to take a break because of COVID. Otherwise, the trend is very positive. Sir, when you say June and July were very good, just if you could put that in context of, let's say, what you did in 2019 June and July, how would that stack up? Like, if you could just sort of last year base would not be comparable. I'm just saying the year before that, how would the current numbers stack up with that? If you think. Yeah. If I have to compare with last to last year also, only thing is, in quarter one, we lost 45 days. Had we done business for 90 days. No, I was referring to say June and July only. July is very good. In fact, this quarter, we'll be doing very good numbers. Understood. Basically, the INR 1,300 crore plus disbursement that you did in FY 2020, basically Q2 FY 2020. Do you think that run rate or more than that run rate should be doable in the coming quarters? We'll be far better than that number. Okay. Yeah, that's what I wanted. Yeah. Okay. Yeah. The second thing, sir, which I was looking for is on the asset quality front. Now we've had 3 quarters where we've gone back to the pre-COVID credit cost trend. How do you see the rest of the year pan out? Also if you could just quantify the excess provisioning that you carry on top of the specific provisioning and standard asset provisioning. Is there any buffer that is there? How do you intend to utilize that for the rest of the year? In terms of asset quality, I think assuming that there is no third wave, I think we are pretty comfortable on asset quality and we are holding about INR 33 crores now, additional provisioning, which we can utilize if need be. We are pretty comfortable on asset quality. If there is third wave, and if it is not severe, we'll be able to very easily manage. The current credit cost trajectory should be the consistent trend that one could expect year-over-year? Yeah, it'll be consistent. Understood. Yeah. That's it, sir. Thank you and all the best. Thank you. Thank you. The next question is from the line of Amit Ganatra from HDFC Asset Management. Please go ahead. Hello. Yeah. One question is that, your excess provision, has it come down QOQ? In quarter 2, what we have done is we have just set aside against some of the restructuring pool. Can you quantify the restructuring pool then? Actually, we are in the process. I think by next quarter, we'll be able to exactly talk about that. See, we were holding about close to INR 70 crore of provisioning. Correct. We still have an excess on that. We have earmarked some amount. There will be restructured pool. Also going by the trend, what we feel is that once the term gets over, about 15% of the restructured pool would actually turn out to become NPA. We are well covered for that. What you are saying is that INR 70 crores of excess provisions you are carrying, and out of that, INR 37 crores now you have earmarked towards restructured pool? Approximately. Okay. That's why now you're carrying INR 33 crores of excess provisions. Yeah. Second question is that now see what has changed in the environment that you are now confident that you should get higher yields as well as higher growth? Because in the past, I mean, post third quarter of last year, the strategy that we adopted was to try and get higher growth because maintaining both yield and growth was turning out to be tough. Is it that the competitors have also increased rates and that's why we are able to increase rates? Now this is a conscious strategy that we are seeing growth anyways and that's why we can maybe get higher yields? Our growth story is intact. We had an outlook of growing much faster than market and that is still intact. We will definitely grow at a faster pace. Now we had changed our pricing strategy because of intense competition and largely because of COVID. Because of COVID, economy was down and certain segments didn't take off for big banks, and therefore all the banks, they were focusing on mortgage. Now we see that market is quite robust and slowly other segments are picking up, which means the intensity in mortgage business by large banks would come down gradually, and therefore we thought we see an opportunity. While we grow at a faster pace, we can also try and improve on margins, which is why, in fact, even earlier I said that 2.4% and 3%. Now we see some opportunity where we can try and improve this from this level. Okay. One last question from my end is, if you look at the cost, QOQ, it has once again come down sharply. How should we view at your overall OPEX? Just talking about cost-to-income. What happened was last year, COVID was there for quite a long time, and therefore we had to skew all our CSR spends towards Q3 and Q4. Otherwise, what you see for last quarter is an aberration. What you see now is the right cost-to-income ratio. Okay. Thank you. Understood. Thank you. Thank you. Next question is from the line of Anand Dhavdani from Emkay Global. Please go ahead. Thank you for the opportunity. I have two questions. The first question is on the yields. Sir, what would be the yield that will be adding on incremental lending in Q1? Incremental yield is about 7.23% and incremental cost is 4.87%. 4.87? Okay. The interest spread comes out to around 2.36. Incremental yield. Yes. This is obviously lower than since. Do you anticipate that spread to remain at this level, incremental spread, for rest of the financial year? That's what I mentioned. From this quarter, both spread and yield will increase. Okay. This will be driven by higher yield or lower cost of funds or both? This will be driven by 1 is lower cost of funds, number 2, higher business, and number 3, higher yields. Okay. Sir, in terms of your stage 2 assets, particularly what will be the stage 2 assets as of Q1 end and about number for end, and also the restructured book? You need to give us some time to get that to you on the restructured book because it is still work in progress. Other than that, the numbers you are aware. Stage 2 assets, sir? Yes, stage 2 assets put together is somewhere around INR 400 crores. What was the figure at the end of February? It is the huge figure. I'm asking for March 31st. I want to see how has it changed. Pardon? Your voice is breaking. I wanted to understand what was this figure at the end of March so that I can compare the sequential figure for stage 2. You want to compare to the March figures? Yeah. Yeah. Yes, sir. We'll revert back in the week and I'll confirm you. Please take your next question. Once it's over, I'll confirm. May I request some time to take the number? Sure. Thank you. Thank you. The next question is from the line of Sweta Jain from ANS Wealth. Please go ahead. Hi, sir. Thank you for giving this opportunity. I have 2 questions, literally just 2. The first question is, sir, if we see the disbursement for this quarter has been INR 800 crores, while our loan book has just expanded by INR 100 crores. I just wanted to understand, I know we've consciously taken this strategy of reducing the rates with respect to the competition. I just see the loan book growth has been little on the lower side. Just wanted to understand how this strategy is panning out for us. I mean, is it working for us? If you could just shed some light on it. No, it's working for us. What happened in quarter one was, as I told you, that we were not able to do business for 45 days. Every month there are repayments which happens. Definitely your book will go down because of that, which will come to close to about INR 370 crores per month. These are the normal repayments which happens month on month. Right. We were not able to disperse in quarter one because of COVID, you will see even the book growth slightly lower. Okay. From this quarter onwards, since there are no challenges, so book growth should be pretty good the way we have shown in quarter four of last year and partly in quarter three. Okay. My second question is also around the disbursements. Like you said, I think you disbursed INR 1,200 crores last year, and that was the highest disbursement, all-time high, right? Just wanted to understand now going forward, assuming we don't have the third wave or the impact of the third wave is less. Like you're saying, on the ground, the momentum is really picking up. In fact, it started picking up since last year, Q3. Can we assume a benchmark disbursement rate of INR 1,000-1,200 crores every quarter going forward? Far better than that. Better than that. Okay. Far, far better than that. Okay. Would you be able to give a ballpark number, sir? I don't think so. I can only say that quarter 4 we did INR 2,000 crores. I think if you look at the average for next 2, 3 quarters, I think it will be slightly above that. The market is really robust. The only thing is we were not able to do business in quarter 1. This is true for the entire industry. It will be far, far better than the numbers which you quoted. May I request, Ms. Sweta Jain to please rejoin the queue. We have participants waiting for a little while. Yeah, no problem. Just to give a little information for the earlier question regarding the Stage 2. The Stage 2 assets were INR 1,184 crore as on March 31st, 2021, and June it is INR 1,200 crore. There is hardly increase of around INR 16 crore from March to June in the Stage 2 accounts. Thank you. Ladies and gentlemen, in order to ensure that management is able to address questions from all participants, please limit your question to 2 per participant. If you have a follow-up question, you may rejoin the queue. The next question is from the line of Shubhranshu Mishra from Systematix. Please go ahead. Hi, sir. Thank you for the opportunity. Two questions. I wanted to understand what was the rejection ratio in this quarter, and also what was the entire rejection ratio in FY 2021? The second question is, what percentage of our book is domiciled in Karnataka? Further, what percentage of our book is domiciled in Bangalore, sir? If I have to, last financial year rejection ratio was about 15%, and now it is 11%. Historically, it used to be around 10%-11%. Because of COVID, we had made small changes. We had put additional filters. Therefore, it went up to the 15%. Now it is back because we have normalized all those changes. Now it is 11%, back to normal. In terms of Karnataka contributes close to about 36%. Within Karnataka, Bangalore accounts to almost 80%-82% of the book. 80%-82% of Karnataka, right? Exactly. Yeah. Right. Sir, just 1 last question. What is your normalized run rate in terms of number of loans per quarter, or even on a per month basis if it's possible? It will be approximately about INR 12,500-INR 13,000 per quarter. Per quarter. Sure, sir. Thank you so much. Welcome. Thank you. The next question is from the line of Sanjay Seda from VNT Securities. Please go ahead. Yeah. My question was on disbursement only. I got that disbursements going ahead would be at least INR 18 billion-INR 20 billion, is what you are indicating. INR 1,800 crore-INR 2,000 crore or more than that. Yeah. That's on the same lines. Yeah, sure, sir. Thank you. The next question is from the line of Sonal Menas from Prescient Capital. Please go ahead. Hi, sir, this is Sonal Menas. I wanted to get a heads-up update on last time we talked about you releasing the news on the quality of the customers who would be getting added in the loan book, and hence deliberately getting a new set of customers with a higher yield and maybe a higher risk profile as well. Just wanted to get a subjective update from you as to how is that panning out, and what all things has the company done in the last quarter or maybe six months to make sure that we are on track on that basically. What we did was, since we changed the pricing strategy, we had the ability now then to focus on slightly better profiles. Rather than saying better, maybe high ticket, slightly higher ticket, so that we can grow a bit faster and all these are salaried and therefore the risk is lower. Our ticket size went up from INR 18 lakhs to INR 20 lakhs. That's the change. We also had to reorganize some of the strategies to ensure that we start sourcing more from CAT A and CAT B developers, CAT A and CAT B corporates in some of the metros and major cities. We had the pricing power. Even now going forward, we will have the pricing power. We will not be on par with the best banks in the country because we also need to maintain our margins. At the same time, we won't also get back to our pricing strategy, which was there two years back in a way the differential between the best bank and us was about 150 to 200 basis points. Going forward, we will have a difference of about 75 to 80 basis points. We will have that distinction. Since we are widely spread, we'll be able to generate that kind of business and maintain higher yields. Okay. Sir, in terms of internal processes to assess, let's say, a customer who's applying for a second house or a mortgage, or let's say, a top-up loan or a third house, what additional things have been reinforced in the company to make sure that this is a watertight process? Maybe the approvals for that are looked at in a tighter manner because it's a new business that you're trying to get into. I just want to understand that from an internal operations perspective. If it is a second loan and if it's a top-up, then actually the process is simplified so that the track is better and the customer experience is good. We have customers' repayment track record with us, and we have all the details of the customer, including the repayment, and therefore we have simplified the process. This is easier because you have an existing customer, but for a new customer. For a new customer, the same process continues, where we check on the customer profile, check the property, check his cash flows, banking, and income levels. We are a little tighter in terms of calculating the FOIR because this is second property. We have all prudent credit checks which we apply and apply various filters because it's at the other side of the FOIR, higher side of the FOIR. Then we take a call. I think these loans have really worked out to be good for us in terms of delinquency. A customer with a better repayment track record behaves well in our book. Understand. In no way a customer who has, let's say, less credit history or let's say, an inadequate track record on their credit gets through the system because of this being a new product segment or a category you're getting into? No. We have a mix. We also cater to first-time borrowers. When I say first-time borrowers, home, because customer might have a credit card or maybe a small unsecured, which will not give us the credit history in spite of referring to bureau. We have lot of customers who would be first-time into major exposure, and therefore our internal risk assessment becomes the key. We have a scorecard to assess risk. Our scorecard is nothing but a mini bureau. We apply various parameters, and then there is a scoring done, and then the risk tagging gets done. Based on that, we price and we take exposure on the customer. Because of our internal risk assessment and underwriting, we are able to contain that, but we have good 40% in the portfolio which is doing very well. Thank you. The next question is from the line of Shalini Nayak from BFSI Mutual Fund. Please go ahead. Hi, sir. Sir, I wanted to know the amount of your CP borrowing, and also you had mentioned that the incremental cost of borrowing is around 4.8%. How much of this would be coming from the CP? See. Yeah. Yeah. See, CP we take only as a backup. We don't raise CP for funding. This is our internal policy. Only if we have unutilized OD and sanctioned unutilized term loan limits, only then we take CP. CP is used more to leverage on cost and not for funding. Okay. As a policy, you would have unutilized bank limits against on the CP borrow? It is an unwritten policy. It's not a documented policy. Since we have to keep our cost low, since we are high on liquidity, I think it is aiding us to keep our cost low by raising CP as well to leverage on cost. Sure, sir. That helps. How much would that number be, if you could give us a number? CP number? Yeah. It's about INR 4,200 crores now. Okay. Thank you. Thank you. The next question is from the line of Manan Tijoriwala from ICICI Prudential Asset Management. Please go ahead. Hi, sir. I have a couple of questions. First on the reported yields, I see that they reduced by 130 basis points. I'm not sure if this was covered earlier. Is there an annual reset also that contributes to the reduction in yield? For example, we have repriced 70% of our portfolio. We do annual resets. It works in both the ways. When the rate goes down, our portfolio will get repriced on the lower side. When rate is going up, it will get repriced on the higher side. Now, for example, interest rates started moving up. You will see in next few quarters, the entire portfolio will get repriced on the higher side. It helps in both ways. Now we're almost at the far end of the falling rate scenario. Next one to one and a half years time, we will see good lift in the fees on portfolio. You're saying that 70% gets repriced annually. Is there a quarterly repricing as well, which is why you expect the yield to go up? No, it's done on a monthly basis. It's done every month. A certain set of customers who fall due for conversion every month. In one year, we would have covered the entire cycle. Okay. Sorry. For example now, if say you would have generated a loan which was at around, say 6.9 or whatever was the teaser rate at that point, so how much would that get repriced this year? It will be at the card rate. For example, now any repricing now will happen at 7.5%. Any repricing in March would have happened at 6.95%. Whatever is the card rate at that given point in time, let's say in that particular month. For example, let's say two quarters later, if my card rate is 8%, any repricing will happen 8%. Right. basically the lowest rate will aggregate to the lowest rate now. Okay. Exactly. Now we are seeing almost end of the downward rate scenario, which is why we also increased rates from 6.95 to 7.5. I think going forward, we can see upside on these loans. Sir, how much of your portfolio would be, say probably below 7% in the entire portfolio right now? You're saying less than seven or more than seven? Less than seven. Less than seven may not be much, but for the origination what we did in a part of quarter four, that will be, let's say about INR 1,000 odd crores. Not INR 1,000, sorry. Yeah, it will be INR 1,000 odd crores. About INR 750 to INR 1,000 crores max. Because we changed the pricing somewhere in the mid of the quarter. If you take that into account, even the repricing and this all put together, it will be about not more than INR 2,000 crores. Okay. Sir, one last question. As you are borrowing, whatever is above 7%, how much of it would come for repricing in this year? Linked to the repo plus rate. All the borrowings are linked to the repo plus rate, whatever we have from the nationalized banks and some other banks. Whatever we borrow from the national bank is linked to their lending rates. CP as well as NCDs are at the market rates. As and when the repo changes, the rates will get changed. One is that, and number 2, we also proactively engage and negotiate on the bank side. We've been doing it for last few quarters in order to get our term loans repriced on the lower side. Thank you. The next question is from the line of Sagar Daga from BSC. Please go ahead. Sir, just one clarification. On the, you said that you'll give the restructured number in the next quarter, but just the amount that you sort of set aside INR 37 crore, and if I assume 10% coverage on that amounts to like 1.6%-1.7% of loans. Is that broadly where we should be approximately? Yeah. It will be less than 2%. Less than 2. Okay. Got it. Thank you. Thank you. Ladies and gentlemen, please limit your questions to one per participant. The next question is from the line of Amit Jaywant from HDFC Asset Management. Please go ahead. Sir, can you provide the total borrowing number for this quarter? What is the total borrowing quantum? Incremental borrowing you're referring to? No, not incremental. Total. It was INR 18,246 crores in the fourth quarter. What would be in the first quarter of this year? It is INR 19,275. Out of that, you mentioned that some INR 4,000 odd crore is CP. Is that correct? Yeah. If you want to know the bucket mixing, banks constitute 47%, NHB is 25%, market borrowing consisting of CP and NCD is 26%, balance 2% is from the public deposits. Thank you. The next question is from the line of Anand Bhadani from RBL Bank. Please go ahead. Thank you for the opportunity. Sir, my question is more from a strategic perspective and more of a 3 year to 5 year kind of a question. Apologies in case you find it not possible. The question is, we hear a lot about FinTechs coming in and there's this focus where people will have an account with NBFC account aggregator, and they can easily share data with any lender, and you can say it will be equivalent of UPI for credit. For payments, certainly you will have a hand. In that kind of environment, as in it takes 2, 3 years for the environment to kind of develop. In that kind of environment, where would Can Fin Homes fit? A lot of your customers are probably they are relatively savvy. They would shop at a bank for a better rate, and they will go out. Three to five years out, how would Can Fin Homes be able to sustain its book? If you can share any thoughts or any plans you are building for why that sharp deterioration in book because people move out as technology makes it very, very easy. I think very good question. See, as long as there are banks in this country. Okay. Sorry. HFCs which are in a position to build business at a much higher yield. Today we have a mortgage book at 16% yield, at 18% yield, at 15% yield, and also maybe 7% or 8%. The market is quite big, and I don't think that should be a worry as long as a company is able to manage on both sides. One is trying to generate business at higher yield and also control cost in terms of borrowing. Fortunately, we are in a position to keep our costs low, and we have the ability to generate business at a higher yield. We have done this for almost 31 and a half years. Only in last one and a half years, you could see some change in the pricing strategy. Otherwise, always our pricing was about 150 basis points higher than banks in general. The market is quite big, and we are also tuned to raising and doing business at a higher yield and by keeping our costs low. I know that there are a lot of fintechs which are emerging, but I think at least for next few years, a fintech could probably enable faster disbursement or maybe automated sanction, automated disbursement as far as small ticket personal loan is concerned, largely unsecured. For huge exposures because there is a property and therefore there is a legal and technical angle, and currently if you see in India, both legal and technical are not automated. There is no 1 repository where you can refer to and then take a call. Therefore it will be difficult even for a sanction. Pre-approval would be difficult, whereas pre-qualified is a way out. We are also working on that we can just do a bureau pull and then give a pre-qualified limit to the customer, subject to verifying asset and other documents. Definitely going forward, the company has to be agile and aligned to what the market needs in terms of automating. We are on that path. The only thing is because this is home loan long-term product, more of a human touch is required in terms of servicing and there is one more leg of property. This might take much longer compared to other loans. Second reason is that this is a high-value loan. We talk about INR 15 lakhs, INR 18 lakhs, INR 20 lakhs, whereas small ticket personal is hardly about INR 1 or 2 lakhs. Even high-ticket unsecured loans won't go through this time at this point in time. Thank you. The next question is from the line of Abhijit Poddar from Motilal Oswal. Please go ahead. Yeah. Thank you for taking my questions. Sir, I have 2 or 3 questions, maybe I can ask all of them to you now and then you can answer them one by one. First of all, congratulations on a very strong asset quality during such difficult times. What I was trying to understand is, in which stage have you classified your restructured loan pool, and what's the pipeline like for your restructured book now? Understandably, what you suggested some time back that you have taken the INR 3,700 crore of provisions and assuming you have made 10% provision cover. Other than that is the restructure pool that you have already restructured and the loan pool you have already restructured. What's the pipeline looking like now? People can still apply for a restructuring. This is the first question that I had. The other question, sir, that I had is, some time back you shared your stage 2 numbers and very hearteningly, it sort of just moved by about INR 16 crore of QOQ. What is the provision cover that you are carrying on these stage 2 assets? Sir lastly, your incremental cost of borrowings during the quarter, which was 4.87%. Is it largely because during the quarter you raised money in the form of CP and NHB borrowings and going forward, when you would have to borrow from, let's say, a debt market and from banks the incremental cost of borrowings can go up when we don't have enough and more available from the National Housing Bank. The last question is, in the past you have guided on spreads of 3% and NIM of 2.4%. Given that during your opening remarks you alluded that these spreads and NIMs have now bottomed out, what is your guidance now? Thanks. Those are my questions. On the restructuring, we have identified some are done, some are in the process. We have identified and therefore we have provided. I think the overall number is going to be about 3%, which I indicated on the restructuring part. This is an approximation number. Based on the past trends, about 12%-15% of this pool has probability of moving into NPA. This is on the restructuring part. I'll come back to SMA. On cost of fund, this quarter incremental cost is because of many factors. One is we try to leverage by raising CP. That is number 1. Number 2, we availed loan from NHB at a much cheaper rate. Number 3, even from all the banks, both private and PSU We are able to raise at a very competitive rate. In fact, some of the rates are around 5%, sub 5%. It's not just one, it's not just CP or not just NHB or not just bank. I think blended is able to manage this. Even going forward, we'll be able to manage cost. This trend will continue. Suppose if the interest rate starts going up, so this 4.87 might go up. It might go to 4.9, maybe 5. In that sense, we'll also try to increase our yield to maintain the margins. Lastly, on margins, we had told that margins will come down, and that is for a reason, and the reason was that we want to grow our book during COVID. Since opportunity available for all the banks and financial institutions to source and build the book was less due to COVID, BT was a easy kill. Therefore, we wanted to retain our book and whatever business we generate, we wanted to be competitive in a small market available because of COVID. Largely impacted due to mobility, not in terms of real potential, at least on the affordable space. Why I'm saying that margins will improve over a period of time is only because we saw till quarter four, we were dropping rates. Now we have increased rates, and we see that this trend will continue, though it may not be substantial. I think quarter-on-quarter, you will see both margins and both spread and blend will start inching up. I won't be in a position to give guidance at this point in time. Yes, at a portfolio level, 2.4% and 3% would be something which we will protect. Having said that, I think from now onwards, you will see margins improving. Regarding the stage 2 accounts, see, as you are aware, as per the NHB or revised RBI guidelines, HFCs has to calculate the provisioning both as per the IRAC norms as well as the ECL model adopted by the board, and higher among that has to be provided. In the ECL model, we are authorized to collect the marketability of the security discount at a particular level and on the balance amount provide for. Generally, ECL model is going to be discounted value what provision is required as retail model is going to be based on account of security value consideration. That is why whatever the provision has been held for the stage 2 accounts will be as per the IRAC norms. Stage 2 accounts consist of SMA-1 and SMA-2, that is 30-60 and 60-90 days bucket. The provisioning generally will be as per the standard asset provisioning to be carried, which will be around 0.40% on a weighted average basis. Accordingly, the company holds the provision in the books both as well as Q4 as well as Q1 in the current financial year. Thank you. Participants are requested to please limit your questions to one per participant. The next question is from the line of Dhruvesh from Mirae Asset. Please go ahead. Hi, sir. Thanks for the opportunity. Just one quick question. Our BT out was INR 250 crore, and then it went down to INR 90 crore when we reduced the rate in Q4. Now that we have increased the rate again, what is the BT out in Q1? In quarter one, it was INR 57 crores. We're able to manage that because, see, what happens is that, when the differential is very big, then even customers will be motivated to switch loans, and if the difference is not much, then the cost of switch in terms of time, energy, and money proves out to be costly, and therefore, we were able to manage that. Okay, got it. If I can squeeze in a quick question, if you allow? Please go ahead. Yeah. Sir, in the last call, you had mentioned that our DSA payout is much less than the industry. Yes. Won't that can be considered as a business risk? I mean, let's say the competitor increases their DSA payout by, let's say, 20 basis point, then the spread will increase and as a DSA will prefer to source other NBFCs and not prefer Can Fin. How do you see that? Since 55% of our sourcing comes through DSA, so it is a substantial thing to look at. No. See, this differential existed since decades. Yeah. It's not now. This difference in the payout is there since last, I think, more than 20 plus years. The set of DSAs who do business with us, it's largely because of customer pool. Because it is customer pool, I don't think that this will impact because if at all this had to impact, this must have impacted in last 1.5 years because that was a tough patch we've gone through in last many years, right? I don't think so. I'll tell you why it may not impact, because we are making payout to the DSAs for the work what he or she does, which is less than 50% of the work what typically a DSA would do for any other institution. Our DSA sourcing model is different. It's only origination model and not fulfillment model. Whereas for any other institution, it is origination and fulfillment model. Therefore, I can say part 1 and part 2. We only take part 1 done and make payout for part 2. Okay. Got it. Thanks. Thank you. The next question is from the line of Rahul Maheshwari from Ambit Asset Management. Please go ahead. Yeah. Good afternoon. Am I audible? Yeah. Please go ahead, sir. First of all, congrats on asset quality. A couple of questions with that. Firstly, as you wanted from the start of pandemic, the strategy of low yield so that you can compete with the large banks. Can you just incrementally, no doubt, first quarter was hit by second COVID wave, but once the unlockings have taken place, how the trend has been and as you are at the bottom end of your guidance, even in terms of the lending rates and plus on top of that, you were being aggressive in terms of the second home buyers and in terms of higher tickets also. Can you give some color on July trends or going forward, how confident you are, keeping in mind that the COVID doesn't take place? How for the full year you are confident on the guidance which you have mentioned? Looking at the trend, July is better than June. I'm sure August and September is better than the previous months. The trend is pretty strong. I think with every passing month, the month will be better than the previous month in terms of trend, unless and until wave three hits. Otherwise, trend is quite robust. Also, in terms of the outlook, we are well covered and there is no issue at all. In terms of pricing strategy, it was only for short term because we had to protect our book and also be competitive in the market. Now we've seen end of that. Before I mentioned earlier that you will see quarter on quarter we'll be improving our margins. I would not be in a position to give guidance. Because we are increasing rates now, right? I don't see any issue with respect to that. We'll be able to manage. Did I answer your question? Thank you. The next question is from the line of Ashwin Wadhwa from- I think just a second. I just want to check did I answer the question or have I missed anything? Sure, sir. Mr. Maheshwari? Just give me a moment. May I ask? Please, yeah. Sir, just as you mentioned that you have taken a rate hike in the current quarter, and previous quarter in quarter four, we have seen a record disbursement trend where the balance transfer in was three years. Going forward as you're taking rate hike, what was the current trend in the quarter one of balance transferring because of the lower yields which you are charging, and how confident you are in terms of balance transferring apart from the normal trends which are taking place because of the pricing strategy which you mentioned earlier, sir? In quarter one our BT was INR 57 crores, which was much lower than what used to happen earlier. We have very well controlled that. Going forward, we see good uplift in disbursements and we'll be able to manage a BT of at least less than INR 100 crores month-on-month. Sir, what was balance transfer in? This was BT out I think, sir, for INR 57 crores. BT in quarter one was not great because of mobility for almost 40 odd days. BT in generally we do about 12%-15%, and quarter one it was less than 10%. Okay. This one rate will continue to maintain despite you have taken a rate hike, yield hike which you have taken. Going forward, see, we have to make note of one thing. We will not probably go back to our earlier levels of pricing in terms of strategy. Now we'll be slightly higher than some of the big banks just to keep our yields higher and maintain our margins. In terms of book protection, we'll be able to protect because the difference is not going to be much. In terms of BT in, we will have a better chance of generating more business through BT in. Okay, sir. Thank you so much. Thank you. Thank you. The next question is from the line of Santosh Chheda from VNT Securities. Please go ahead. Hello. Sir, my question was largely on business strategy and maybe heading more into affordable housing. Right now we are doing an average ticket size of about INR 18 lakh-INR 20 lakh. In the higher ticket size, mostly the players like HDFC, LIC also have a lower cost of funds wherein in lower ticket size housing loans about INR 8 lakh-INR 10 lakh, most of the players have mainly the higher cost of funds. Also a point that most of the bigger NBFCs are present where the banks are present, mainly in the metro cities. We are in a unique position operating in tier 2, tier 3 cities wherein we can make a marked improvement in lower ticket size loans. See, amongst all the HFCs, we are lowest on cost. I think we will continue to enjoy that advantage. What we will do is we will have a differential pricing where we'll be able to attract slightly better ticket profiles, and also focus on affordable just to have a blend of both the profiles as a mix to ensure that we have a higher yield. I don't see that as a challenge, because we are best in the industry with respect to cost. In terms of profile, we have just upgraded to the next 2 levels in terms of generation. In terms of risk, it will be lower. In terms of yield, it will be slightly less than earlier, but of course, compared to our reverse strategy, quarter back, it will be far better than that. It will be a win-win. Now we have taken a mid path with keeping very aggressive growth plans. Sure. We are looking into maybe slightly lower ticket size also? No, ticket size will inch up. It was 18, now it is 20, so ticket size will go up. Okay. Got it. It will be a mix of both affordable and also big ticket loans. When I say big ticket, I'm talking about INR 40 lakh, INR 50 lakh, INR 60 lakh, INR 80 lakh salaried profile. Yeah. Because we are in that position of having the cost leadership. Exactly we will be able to do that. Is that right? Yeah. Sure. Thanks. Thank you. The next question is from the line of Ashwini Agarwal from HDFC. Please go ahead. Yeah. Hi. Just wanted to know in terms of asset quality, I do with SMA-2 and gross NPA numbers which are being more or less stable. Just wanted to understand in terms of collections, what is the kind of impact that you saw, like in terms of collection efficiency during the second wave and how is that kind of normalized? In general, what's been the impact in terms of the second wave on asset quality as compared to the first wave? Second question is you indicated that demand is quite robust. Is it something which you are seeing across markets or it's more in Karnataka, Bangalore where you have more offices? That's it. Thank you. Okay. In terms of collection efficiency, I think second wave was more severe in terms of efficiency dropping compared to first wave. Even though first wave lasted for about 5 and a half months, second wave lasted for about less than 60 days. The impact was more in the second wave because in first wave there was morat and there was restructuring, whereas in second wave there was no morat and it was restructuring which was announced as a reference date 31st of March. We had a lot of difficulty in terms of managing the collections in the month of April. Efficiency dropped. It was probably the lowest in last few quarters, I must say, last 6 to 7 quarters. We had very tough time managing that. However, we were able to pull it back in May and June was very good. I think we averaged out very well at the end of the day for the whole quarter. Yes, Q2 was pretty bad, especially the month of April, because our entire April was hit in terms of mobility and therefore we had an impact. Fortunately, we were able to pull back in May and June. Overall, if you see now, we don't see any impact on asset quality because of either first wave or second wave. Even in first wave, if we remember, we spoke about morat percentage. We were at the highest rate. That's because we gave that option to the customer. We had given a default option to customer. Therefore, we had slightly higher number and eventually, it turned out to be working pretty well because our NPS didn't increase compared to what we thought it would inch up to. Similarly, even second wave has panned out very well so far. Anyway, from this quarter it will be pretty stable. To be very honest with you, we were able to manage both wave one and wave two pretty well, especially on the NPL front. Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand over the conference over to Mr. Girish Kousgi for closing comments. Thank you investors for spending your valuable time with us. Going forward, we'll be keeping a very fine balance between loan growth and as well as profitability. Thank you all for showing confidence in us. Thank you once more. Thank you. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.