Ladies and gentlemen, good day and welcome to Q4 FY23 earnings conference call of Cholamandalam Investment and Finance Company Limited, hosted by Kotak Securities. 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 then zero on your touchtone phone. I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities. Thank you, and over to you.
Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. To discuss the 4Q FY23 performance of Chola, share industry and business updates, we have the senior management with us. The senior management is represented by Mr. Vellayan Subbiah, Chairman and Non-Executive Director, Mr. Ravindra Kundu, Executive Director, and Mr. Arul Selvan, President and CFO. I would now like to hand over the call to Vellayan for his opening comments, after which we can take Q&A.
Thank you, Nischint, and good morning, everybody, and welcome to the call. You know, we're pleased to re-report results for the quarter and for the year. Disbursements were at INR 21,020 for the quarter, up by 65% and INR 66,532 for the year, up by 87% year-on-year. The total AUM stood at INR 112,782 crores, which is up by 36% year-on-year. The net income margin is up at INR 2,060 crores for the quarter, up 32% year-on-year, and INR 7,229 crores for the year, up 24% year-on-year. The PBT for the quarter is at INR 1,159 crores, which is up by 25% and INR 3,600 crores for the year, which is also up by 25%.
The Chola has delivered the best ever disbursements, collections and profitability in Q4. We have gained market share across the product segments in Vehicle Finance and other business units. The overall passenger vehicle industry sales in FY 2023 rose to 38.89 lakh units, an increase of 27%. LAP and SME also witnessed strong growth in the current fiscal on the back of lower growth during the pandemic, and amidst of a revival in demand from smaller businesses. Leveraging the industry growth, Chola has improved market share across product segments. The retail AUM of NBFCs is expected to grow at a healthy 12%-14% in FY 2024 after a strong rebound in 2023.
In terms of performance highlights, aggregate disbursements in FY 2024, we just talked about were at INR 21,020 crores, which is a growth of 65%. Vehicle Finance disbursements was at INR 12,190 crores in the quarter as against INR 8,785. That's a growth of 39%. Disbursements for the year were at INR 39,699, which is a growth of 56% year-on-year. LAP disbursed INR 2,762 in the quarter as against INR 1,870 in the quarter for FY 2022, which is a growth of 48%. For the year it was at disbursements were at INR 9,299 crores, which is a growth of 68% year-on-year.
Home Loan, that includes both affordable Home Loan and affordable LAP in addition, disbursed INR 1,405 crores for the quarter, as against INR 549 crores, which is a growth of 156%. For the year, they disbursed INR 3,830 crores, which is a growth of 102%. The SME business disbursed INR 2,104 crores for the quarter. That's a growth of 127%. For the year, the growth was, the disbursement was INR 6,388 crores, which is a growth of 232%. Consumer and Small Enterprise business disbursed INR 2,364 crores for the quarter and INR 6,865 crores for the year.
Secured business and personal loans disbursed INR 196 crores for the quarter, INR 451 crores for the year. Total AUM stood at INR 112,782 crores, which is a growth of 36%. The encouraging news, as you can see, is that we've grown across businesses. Vehicle Finance growth has been bolstered by growth in loan against property, for home loans, SME, CSEL and SBPL. That's very encouraging to see the secular growth across all of our business lines, and that's actually contributed to what we believe will be a reduction in cyclicality over time. The PBT ROA for the quarter was at 4.4%, for the year it was at 3.8%.
ROE was at 20.6% as against 20.4% in the previous year. The company continues to hold a strong liquidity position with INR 5,042 crores as cash balance at the end of March, including INR 1,500 crores invested in G-Sec and INR 1,600 crores invested in T-Bills, which are shown under investments, and a total liquidity position of INR 9,119 crores, which includes undrawn sanction line. The ALM position is comfortable with no cumulative negative mismatches across any time bucket. The consolidated profit before tax for the quarter was INR 1,163 as against INR 927 in the previous year, same quarter. For the year, INR 3,615 as against INR 2,902.
The board has recommended a final dividend of 70 paise per share on the equity shares of the company, subject to the approval of the members of the company at the ensuing annual general meeting. This is in addition to the interim dividend of 1 Rupee 30 Paise per share, which was declared on January 31, 2023. In terms of asset quality, our Stage 3 levels have improved from 3.51% on December 2022 to 3.01% on March 2023, at the end of March 2023. GNPA as per RBI norms has come down to 4.63 in March as against 5.37 in December.
NNPA as per RBI norms has come to 3.11 as against 3.76 in December. In terms of capital adequacy, as at March 31st, we were at 17.13% against the regulatory requirement of 15%. Tier-1 was at 14.78%, which then implies that Tier-2 was at 2.35%. We also successfully initiated our maiden public NCD issue of secured rated receivable NCD. The prospectus was filed in Q4 amounting to INR 1,000 crore and was oversubscribed by 2.6 times within the first three days of issue. With that, I'll bring to a conclusion kind of our opening commentary, and Nischint will be happy to turn it over to you for Q&A.
Thank you very much.
Thank you.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Suresh Ganapathy from Macquarie Capital. Please go ahead.
Yeah, thanks. Vellayan, I mean, these are of course, good numbers. I mean, when everybody's talking about slowdown and consumption-related issues and stuff, where are you getting the growth from, and how do you think this is going to be sustainable heading into FY 2024 when you have already an INR 1 lakh crore kind of an AUM base? That's my first question, Vellayan.
Yeah. Suresh, thanks. I think broadly what we have to look at is in most segments we have, you know, a significantly large market share. That's the first thing. The second thing is, if you notice, most of our growth and most of our expansion is coming from Tier 3, Tier 4 cities. All of the businesses are growing deeper into Tier 3, Tier 4 cities and geographies that, you know, we don't see have as deep financial service penetration as Tier 1, and Tier 2. I think, a combination of that and the fact that, you know... First of, Suresh, like you can see, one of the reasons of driving the growth is that it's not just Vehicle Finance anymore. It is, you know, six businesses all that are growing, right?
That secular growth across the six businesses is what's helping, you know, both the overall CAGR levels, right. It used to be kind of predominantly we were seen as a Vehicle Finance shop. I think that image of Chola will begin to change and is already beginning to change kind of as we observe it in the market.
You're still, financial services in each of these markets and you are saying organically you still see on the ground a lot of demand. Is that the right interpretation?
Yeah, Suresh, like I said, I mean previously when we had growth numbers, it was predominantly driven by vehicle, right? Now you can see how much the other businesses are also supporting that growth. It is, it is moving from one product to now six products.
Okay. Okay. Another two quick questions. Can you assure us that there is absolutely no adverse selection of assets when growth is happening in such breakneck speed? Just some of the newer segments, are you over confident that that is not something which is compromised when you are chasing growth at this stage, and especially when you are penetrating into some of these unknown Tier 3, Tier 4 centers?
Suresh, again, there's, you know, like, you know, all of these Tier 3, Tier 4 centers are centers that we have been present in with Vehicle Finance. They're not new geographies to us, right? The second thing is, I think you know the philosophy of the company. We always tend to be more collections-led in everything we do. Even for the new businesses, the first thing we did was build out that collections infrastructure. That continues to be, you know, I would say, central to the DNA of the way we think in Chola that, you know, it's first collections, then underwriting, then sales. Now given that, we do see significant opportunity in these new businesses.
You know, definitely, The thing in all of our internal reviews, kind of the focus continues to be predominantly in that sequence on collections, then underwriting, then sales.
Okay. One final question is on capital. What is your plan? You are already at around that 15% levels, right? CAR, so yeah.
Yeah, we're at 17, predominantly because we've not used a lot of Tier-2. I think it's a fair ask that we will kind of, I mean, we will obviously something that, again, we tend to be conservative on. It is something that we will kind of, review in this, in this upcoming, financial year.
You will decide Tier-2 or equity capital you will review?
No, that's what I said. I mean, obviously, yes, we will review equity capital and its requirements in the next financial year. In the current financial year. In the current financial year.
Okay. Sounds good. All the best.
Thank you, Suresh.
Thank you. Ladies and gentlemen, in order to ensure management is able to answer queries from all participants, kindly restrict your questions to two at a time. You may join back the queue for follow-up questions. We have our next question from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.
Yeah, hi. Good morning. Thank you, for taking my questions, and congratulations on yet another good quarter. Just two questions from my end. First is, let's say, two years out, how should we look at the overall AUM mix? According to you, how will it look like and are we looking at introducing any other new products, if at all?
I think, I would say that the regular finance should be in the range of around 50% levels. The loan against property and the home loans should be in the range of around 30%-35%. The new business should be in the range of around 15%. This is what we would try to, you know, work on.
Second question is on the yield part. Let's say if this is how the mix looks like, probably there is still a little bit of room for yields to expand from here on, assuming that some of the newer businesses are relatively into the higher yield category. Will that be a fair assumption? Or the current margin profile is something which is more or less a stable margin profile that you would like to hold on to?
See, I think the better way to look at it is that, you know, we want to focus on keeping NIMs kind of at least current levels, right? Because always yield and stack expansion, again, kind of tempered with, you know, compression, you know, either due to kind of a competitive intensity or due to, you know, kind of usually what we've seen is rising interest rate cycles do kind of put increase the level of competitive intensity and therefore reduce the spread. You know, our attempt will be and our kind of focus will be to keep the NIM levels at least constant, which we believe at this stage, you know, should be achievable.
Perfect. Thank you so much and good luck. Thank you.
Thank you. Thanks, Umang.
Thank you. We have our next question from the line of Shalini Vasanta from DSP Mutual Fund. Please go ahead.
Hi, this is Kunal from DSP Mutual Fund. My question is again related to that capital raise only, although you answered that. My question is, if you look at your debt to equity ratio, it's currently at around 6.8, 6.81 times. What is the level you are comfortable with? At what level basically you would seriously consider raising capital? That was my first question.
Again, right, I mean, our spirit has always been that we strive to keep capital adequacy at about 18%. Now, one of the reasons we've dropped is because we are using much less Tier-2 than we traditionally used. We will do both, right? I think Suresh's specific question was on equity. We will do both to push that number up. We will basically look at equity in this financial year. We'll also look at, you know, pushing back Tier-2 again, which will be a combination of our PBI and sub as well. I think that gives you an answer to the overall question, which is that 18% number is usually what we strive to hold over the cycle.
Sure. Thanks a lot and all the best.
Yeah, thank you.
Thank you. We have our next question from the line of Bhavesh Kanani from ASK. Please go ahead.
Thank you for taking my questions, and congratulations for great set of numbers. With this, great set of numbers also comes the challenge of sustaining them in next year and thereafter. Given the adverse trends on cost of fund and potential upward normalization of credit cost, how do you plan to sustain what has been delivered in this fiscal? That's my first question. Second is related to OpEx, where Q4 OpEx sequential growth is appearing out of sync with the kind of business volumes we have done. If you can help us break up the OpEx for full year, as in, how much of it was targeted towards new lines and may not be repeated incrementally, and some sense of how OpEx can turn out in next one or two years.
Can you answer the question on OpEx?
Mr. The OpEx is in the range of around 3% to average assets. It's a number which we, you know, sort of work with and, you know, sort of indicated over the cycles also. I think we will keep it in the range of the 3%-3.1% level on average assets. That's the number we will work with, and I think we are confident of holding it there. To your question on, you know, sustainability, right? I think the, you know, the way we have to look at it is this, right? Which I mean, I answered part of that question with what Suresh asked, which is, you know, we definitely see, you know, Vehicle Finance, you know, we continue to be very strong and continue to grow.
The new segments are also beginning to kick in and deliver, you know, significantly to bolster the Vehicle Finance growth. I think a combination of those two is basically what's gonna allow us to continue to deliver, you know, these numbers. You know, we feel, in, and obviously we have to see kind of the rates continue to go up. We don't see too much more of an increase on the rate front, then we do feel that, you know, we should be able to maintain, you know, NIM as well. That is what we will strive to. Could there be a little bit of NIM compression? It is possible, right? I mean, it's not something that we can rule out. What we will work towards is that.
Obviously kind of the other part of the, you know, solution from our perspective is to continue to see what we can do to improve the quality of the book, which the teams have done a great job on and continue to do a great job on. There's still headroom for improvement on that front as well.
Wonderful. All the best.
Thank you.
We have our next question from the line of Sadiq Singh from White Oak Capital. Please go ahead.
Hi, this is Parag here. Am I audible?
Hi, Parag. Yes, yes.
Yeah, yeah. See, my question is more so from the liability side. When you see now we are INR 1 lakh crore book, how important do you think is to have more diversified source of funding? I think you've done one public NCD, but at least one part of the sourcing could be deposits as well. It gives you know, lot of diversity in that sense. Any plans there, you know, and how difficult or easy it's to convert ourselves into deposit taking NBFCs? Because as we grow more and more, I think, you know, we become more and more systematically important NBFCs.
I mean, I accept it, they have stopped giving deposit accepting licenses. Today they, you know, the trend of investing public is to move towards more dematted and more, you know, liquid assets like the public, the debt market, and that's what we are trying to tap into. I think, the overall, the success that we saw in the first issue, I think we should scale up the issue, and we will do that in days to come. I think by the end of this year, we are targeting to have at least 5%-10% of the borrowing coming from this. Apart from this, the way to look at other funding sources are to look overseas.
We are also initiating action towards it, and we will work towards that, subject to the total overall hedged cost being, you know, competitive to participate there.
Mm. Uh-
Actually, you know, I do think that given, you know, our relationship with both the banking segments and kind of money markets, we do feel fairly confident, about our ability to raise at these levels and for the foreseeable future.
Okay. Priority sector.
Yeah. with the priority sector asset-
Yeah.
-generation, there continues to be significant demand for that, which we tap into through both securitization and kind of direct lending.
Okay. Thank you.
Thank you.
Thank you. We have our next question from the line of Gaurav Kochar from Mirae Asset. Please go ahead.
Hi, good morning. Congratulations to the team for a great quarter. Couple of questions from my side. Firstly, if I just look at the cost of funds alluding to the margin point that you made. The cost of funds for Tola is roughly 100 basis point lower than the FY 2019-2020 levels. If I look at the headline rates, repo or G-Sec or the bank MCLRs, almost all of them are near to that FY 2019, FY 2020 levels. In your opinion, based on your sort of liability mix, how much of this 100 basis point gap will you be able to sustain over the next 12 months? That was one on liabilities, and maybe I'll ask one more later.
Like what we spoken earlier point, we are doing renegotiation with the banks as well as capitalizing on the priority sector asset demand. By these factors they have been keeping the cost lower. I feel that we should be able to be in line with the numbers you have quoted, and we are confident to hold it there. If you recall, we have committed that this year we will not, you know, we'll not see a increase beyond 30, 40 basis points and that's where we are as compared to full year on full year of the cost of funds compared to last year.
I think next year you will see similar levels of increase, but that should be compensated by the yield increases that the teams have brought in place, both on the LAP and HL and innovative finance on the new book.
Understood. My second question is with respect to the new book, the new businesses that you've done. I mean, stellar performance there. If I look at disbursement, they are well ahead of some matured businesses combined. LAP and HL disbursement, put together, the new businesses are much ahead of that. Just to understand what could be the peak run rate or let's say, over the next four quarters, if I were to look at it, what is the kind of run rate that you're looking at on this disbursement? Just wanted to understand how the sourcing of these loans are done, how much of it is in-house, and how much of it is through the partnerships. Just a bit more color on the new business.
There are three different delivery, each follow different paths of sourcing. you know, it's little short time to explain this in detail. It's a mix of in-house as well as the, you know, outsourced model. right now it's very difficult to give a very, you know, indicative number also because we are experiencing these products and we will be looking at various factors to understand how much to scale up and grow in the next two- three years. Let's go through another year of, you know, performance on these products before we look at, you know, starting to look at giving committed number.
Sure, sure. Is it fair to assume that large part of these, would be in-house, you know, sourced through branches or, a large part of this is through the DSAs or the fintech partnerships?
Yeah. See, we have, you know, five businesses other than the Vehicle Finance. In the case of new businesses, what is we are doing in CSEL, they have 2/3 coming from the traditional wherein DSA, DSTs are there and 1/3 is coming from the partner with the fintech companies are there. In the case of the vehicle, all 100% businesses are coming from their in-house team. In the case of HNL where mix is like 60/40. 60 is in-house, 40% is depending on outside. Loan against property come at least 65 is outside and 35 is in-house. What is the mix. In the case of Vehicle Finance we do everything in-house.
Right.
Thank you. I request you to come back in the queue for follow-up questions. We have our next question from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah. Hi. Good morning. couple of questions. Yes. Can you hear me?
Yes.
The first one is, I mean, particularly you have been growing very strongly into your new business, largely consumer, SME kind of, you know, unsecured and secured. This is an area which has been seeing a lot of, I mean, attraction just not for you, for the your peers competitors, that is retail, unsecured and SMEs. That is where perhaps the case or argument for the formalization of credit and, you know, I mean, a democratization of credit that leads to a strong growth. Question here is that, okay, I mean, do you see this kind of a strong growth momentum in this segment to continue for a longer duration?
I mean, in terms of I mean, call it was being abnormal and growth to moderate and how do you see sort of a, you know, competitive intensity and sort of a credit cost in this segment going forward?
In the new business segment, first of all we are present in only 25%-30% of the branches of Vehicle Finance and we are testing the product as of now. From the product perspective our offerings have not been launched as equal to all as of yet. One side we have, you are saying that the market is slowing down or not. As of now market is not slowing down. Second is that we need to also expand across the country and also expand in terms of geography as a new product offering as well.
What we feel that these new businesses which is driven by, you know, consumer which is being done by TCEL and also we are doing the shopkeepers financing by the small business loan, we build with them and SME also term loan and equipment finance we are doing it all with the. This is likely to grow for next two-three years for potential add. In addition to that we have, you know, housing finance and LAP. In housing finance we are doing affordable housing and affordable housing was concentrated in south. Last year we started expanding in northeastern way and we have just gone few branches in the northeast. We have lot of other markets left out to be covered during next two-three years, which will get expanded to all the branches of Vehicle Finance.
In the case of loan against property, maybe we are present in 55% of the Vehicle Finances and where there is scope to further go to those branches and Tier 2, Tier 3 towns are doing better with respect to affordable housing and loan against property. Those branches we will slowly expand in next two-three years. One side there is a growth coming from the industry and other side the growth will come from tapping of the market which is unbanked as well.
You expect your kind of OpEx and credit cost to remain stable despite sort of a mix changing a bit more away from vehicle towards this new segment?
As of now OpEx will be higher because we started investing in new businesses. As we start, you know, stabilizing these businesses, ideally OpEx has to come down so that we can leverage on the branches and the people who have been recruited and invested in the technology. As far as the net credit cost is concerned, as of now, net credit cost is almost negligible. Over the period, net credit cost will start coming up, but that gets compensated by OpEx. OpEx reduction will be higher than NCL. As far as the delinquency measurement is concerned, all the new businesses are tightly controlled. In the new, within one year time, it's too early to talk about the delinquency, but it is significantly better than the competition.
Okay. Thank you very much.
Thank you. We have our next question from the line of Abhijit Tibrewal from Motilal Oswal. Go ahead.
Yes. thank you for taking my questions, and congratulations on a very good quarter. Sir, there are these two things I kind of wanted to understand. you've partly addressed some of those questions, but I just wanted to understand these two things better. one is, I mean, if we look at our own commentary, we talked about our efforts to bring down cyclicality. I think, I mean, we'll also acknowledge one thing that has helped us in the last couple of years is the very strong vehicle cycle. It is anyone's guess, I would say, how long this vehicle cycle will last, whether two years, three years. It's anyone's guess.
I mean, I understand it's not without a vision or a mission statement, but internally, when you look at this franchise over a three-year or a five-year kind of a CAGR, what is the AUM growth that we aspire for internally?
I think the AUM growth generally that we've guided in the range of 20%-25%. Right?
That is what we will continue to maintain. In terms of how we will do it, I think, you know, Arul also answered that question, where you asked about mix, because we definitely see the mix changing and vehicle as a percentage of that mix coming down as the other businesses grow. Again, I think, Arul has guided that, you know, by FY 2026, you know, you could see vehicle becoming, you know, like 50% of our overall AUM. That is a significant shift, right? Because in FY 2023 it was about 61%. That just gives you a sense of kind of the growth. A lot of our growth, you know, like you saw, is coming from businesses like housing loans, which is growing, so like retail, like LAP.
The, the newer businesses basically that we've been getting.
Okay. Just one last question. Maybe one question for you and one for Arul, sir. Sir, in terms of credit costs, I think somewhere, I mean, Ravi sir was also acknowledging that we understand that the newer businesses that we are building, specifically the three newer businesses, will have higher credit costs, maybe going forward. Do you think there is merit given the kind of ROEs that you're making in building some kind of a provisioning buffer for the newer businesses which will come at higher credit costs, going forward? A question for Arul, sir.
Sir, I mean, when we look at, this, the interest rate trajectory, given that now there are fair expectations that there could be a 25 basis point hike, just wanted to understand, how are you looking at margins in FY 2024 now?
Just to clarify this credit cost, whether it is SBPL, CSEL and HL, as of now it is almost at a negligible level. From there it will slightly go up. The reduction in the OpEx will be significant because OpEx is very high and that will come down. What will be gained from the OpEx will be much bigger than what the cost will go up. As far as the provision is concerned, I think the, in the case of CSEL, obviously the unsecured lending, the provision is very aggressive and we are almost making 100% of one at a time.
Therefore, the provision has been kept, very high, but as of now the delinquency levels are low, so therefore we don't have any problem, and we are expecting that the ROE from the new businesses will start going up, which will further increase the overall ROE of the company.
Okay. With regard to increasing rate, we will have to see what is going to happen. If that is a sustained increase that is coming, then we will also follow suit of what we did earlier that in the floating rate book we will have to increase rates. Already in the Vehicle Finance book we have started increasing rates. As I was saying in the morning, the mix will progressively change and that would also give us the benefit of that being able to sustain that mix. We will wait and watch. This is something we have to see what is happening on the ground because there are differing views on the interest.
Just to add what the
Yeah.
In terms of yield if you see that the last year the new vehicle sale was much higher than the used rate because the industry was coming back to normal in terms of Vehicle Finance. The disbursement mix of the Vehicle Finance is skewed towards the new versus used and in the past used to do almost 50/50 high yield versus low yield. In the last year that has come down because the new vehicle sales have picked up. Now this year the vehicle sale will come to the normal level what it used to be 10%-15%.
That will give us bigger opportunity to play in the high-yield segment which is like, two-wheeler, three-wheeler, tractor and used businesses and then the yield will go up and we have seen that in the quarter one we started seeing that. If we continue to do this, then we will come back to the normal level of the interest what it used to be.
Thank you so much, sir. This is very, very useful. Congratulations once again, and all the very best to you and your team.
Thank you.
Thank you. Ladies and gentlemen, we request you to restrict your question to one at a time. You may join back the queue for follow-up questions. We have our next question from the line of Preethi RS from UTI AMC. Please go ahead.
Hi, good morning. My question is on the-
Preethi, you're sounding very low. Can you please use your headset?
Yes, I'm on the handset. Is it any better?
Little better.
Okay, sure. I'll be louder. On the government business, after three years of flat disbursement, we are seeing massive trends.
We can't hear you.
Sorry, we can't hear. Your voice is breaking. Preethi, we are unable to hear you now. We'll move on to the next question from the line of Kiran Engineer from CLSA. Please go ahead.
Yeah. Hi. Congrats on the quarter. Just on CSEL, a couple of questions. I believe you all said 2/3 is small enterprises, 1/3 is consumer. Just wanted to understand on the consumer part, you know, do our fintech partners give us FLDG? On the small enterprises part, you know, how many of these clients already have a loan from a bank or another NBFC?
Wherever it is regulatory permitted, we follow the route, but otherwise we do not have an agency. That is compensated by, you know, taking a higher yield on that. We work partner by partner, the economics of it, and then work out the pricing model around that. The underwriting guidance is also given by us, so considering both aspects, we control the performance of the port as well as the profitability of the respective partners.
Perfect. On small enterprises?
Small enterprises is done entirely in our-
What was the question on small enterprises?
No. I just wanted to understand those clients. These are INR 18-20 lakh loans. You know, are these clients, you know, have they taken loans from other banks or NBFCs? I just want to understand if they're bank customers or not from a lending point of view.
Yeah. Our average ticket size in the traditional business, in the small enterprise lending is around INR 8 lakh.
Yeah. I don't know where you got the INR 18 lakh-INR 20 lakh number from.
Okay. It's misinformed.
Sorry. Go ahead.
The average ticket size is around INR 7-8 lakh. To that extent it is taken care. You know, we also have a policy, stringent credit policy wherein, you know, even at the sourcing stage, at the credit approval stage, we look at the number of inquiries, number of live loans. We have kept lot of tight policy measures there which, you know, we know all this question. I understand your question, we have taken all the precautions on that someday.
No, no.
Business is actually we are doing consumer and business loan. We have two channels. One is a traditional channel and a partnership channel. 2/3 of traditional channel is doing both business loan and personal loan. This business loan is given to the self-employed customer and the professional like doctor and engineer. The personal loan is very low between the personal business loan. Personal loan is given to the salaried class. All these traditional businesses, what we do in it is similar to what others are doing with DSA, which is INR 8-10 lakh rupees.
No, no. Sorry, I may have miscommunicated. My simple question is that in a small enterprise loan segment, what percentage of customers are new to credit and what percentage already have a loan from another bank or NBFC?
All of them are having a credit history. Without credit history, we don't fund in the, you know, CSEL department. There are two businesses we are doing here. One business is a SBPL, small business, secured business and personal loan. In the SBPL, there are some customer who are coming first time, you know, coming to the NBFC or the credit, that is a secured business. We are actually giving them loan against their shop or their house and giving them a loan up to INR 5 lakh. That's a small ticket, say INR 2 lakh-INR 5 lakh. That is secured business.
In the case of CSEL, which is a consumer and a small enterprise loan, we are giving businesses, business loan and personal loan to the self-employed and salaried class people up to INR 8 lakh ticket size and secure and which is done through the traditional way.
Okay.
All of these customers have, you know, credit history, and we are not funding less than 700.
96% of our customers are with the credit score of more than 700+.
10%
10%, 4% customers are between 675- 700. Nobody is below 675. And, 83% of the customers have a credit score more than 725. This is our personal loan, which is the major book as which we have created as of now.
rejection rate is 70%.
We have a rejection rate of almost 72% in our CSEL business.
Thank you. I request you to join back the queue, sir. We have a question from the line of Preethi RS from UTI AMC. Please go ahead.
Hi. Thanks again. My question is on the HL business. We have seen the disbursements in the quarter, for this quarter to be higher than the whole of last year. Could you help us understand what's the long-term strategy here, given intense competition in both prime mortgages and in affordable housing? What is the segment we want to be in, as we grow, and what are the kind of ROEs that we will be targeting?
As far as... Actually, actually, we are in affordable segment. Right now what we have done, we were present in South. Major portfolio was in South. During the current financial year, we have expanded across geos, and the contribution of these businesses are coming from North, East, Eastern, East and West. Right now what we are doing is we are expanding the footprint to all the Vehicle Finance branches and then addressing the customer need. Going forward, we are going to see numbers doubling up every financial year. Just to add actually, as we have done in more in South, the same success we want to replicate in East and West and North. We selected some good market which have HDFC have done very well in terms of portfolio quality to start with.
To see that is getting replicated. In the last year, you know, our experience has been good. With the good experience now we are going to go further to the other branches. As I mentioned in the earlier question also, the home loan as of now is covering 1/3 of the country and started covering to rest of the country. The expansion will be happening over the period. Since we are going to new geography, the disbursement growth will continue.
Okay. What is the ticket segment that we would operate in and the, can we take ROEs?
Our average ticket size will be around INR 15 lakhs. We are operating in that segment. The self-construction will be self construction, self brought will be the address segment where we are going to scale our number.
Sorry, and the ROEs?
ROE guidelines is not there. You have seen our numbers. As we have mentioned that we will continue to maintain our niche and credit cost. Operative is something which we want to improve by improving the productivity and expanding. Therefore, we will, you know, try to maintain the ROE.
ROE.
where we are.
Just a last question on the same. Would we be keen to pursue an inorganic strategy in this business to build further scale?
No.
This is something we will continue to do in-house?
Yeah. Yes.
Okay. Okay. Thank you. That's all. Thank you.
Thank you. We have our next question from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity. Just a couple of data-giving questions. Firstly, sir, can you share the absolute loan book in CSEL and HDB and SME as of March 2023? Secondly, the interest rate hike that we have taken in our home loan book, and LAP book or home equity book, in FY 2023.
We have given the percentage of the new business and we are actually, you can work out. Maybe we will have only a 10 decimal point differences. I think it's a reachable number for you. The disbursement which is what we are giving. Sorry, I don't know. Interest rate hike. Huh? Interest rate hike. What was the second question?
What is the second question? Interest rate hike that we have taken for the existing customers in home loan and LAP book, home equity book, in FY 23.
It is around, 200 basis in LAP and around 150 basis in home loan.
Thank you. We have our next question from the line of Kunal Shah from Citigroup. Please go ahead.
Firstly in terms of the credit cost, if you look at it in terms of the recovery benefit which would have come in from the team recognized during pandemic, are we almost done with that and now credit costs on an overall book should normalize? With respect to the new business segments, what is the kind of Stage 3 and credit cost which we are looking at once it matures or it smoothens out?
Credit costs will. We have always said that the credit cost will range between 0.75%-1.2% over a cycle, and we stick to that. You know, on an average it should be in the range of 1%. But for events like a pandemic and, you know, such widespread and, you know, continued impact areas, I think we are back to that level. We should be, I think this is around 0.9% and we should hold around that. In a good cycle we should drop it to 0.7%-0.75%. Maybe during some stress period it should go up to 1%-1.2%.
New businesses actually, it's very early to talk about it, but you know the, how the startups are performing in the same space. We would like to be slightly little better than industry. That is our aspiration. Let's see that.
Thank you. We have our next question from the line of Sunil Kothari from Unique PMS. Please go ahead.
Thanks for the opportunity, sir. Mr. Vellayan, you joined.
Chola by 2010, it was INR 7,000 crore
Mm-hmm.
Even we crossed INR 1 lakh crore now. Very commendable achievement, sir. My question is, you are now a key person from the management group, Murugappa Group, and you are busy with so many other organization which is also expanding very high. I would like to understand what is your task for Chola for next three, five year. What do you want to achieve? What do you want to prepare for next 10 years' journey? If you can talk little bit more.
Sure, Sunil. Thanks for the question. First is, you know, I have no work at Chola because these guys already know all everything to do, and the team is a very strong team and kind of, you know, the team, you know, like you talked about 2010, you know, the entire team that's sitting here with me is kind of, you know, has been there since that time, and they've actually been instrumental in driving this level of growth for the company. The good thing with that is it kind of gives me very, very work to do. You know, broadly what we focus on is just kind of broad direction setting. I think, you know, Suresh kind of asked the question earlier.
You know, the two big focus areas for us continue to be, you know, what kind of a long-term direction can we set for the company. You asked what the 10-year view, I'll talk about that in a minute. The second is, you know, how do we begin to look at technology in quite a different way? What technology is opening up in India is quite phenomenal. The implications for a business like us are very significant, that's an area we continue to invest in very significantly. On the 10-year view, I mean, our view on India is that, you know, we've delivered a certain level of compounding over the past decade.
Honestly, you know, the kind of opportunity that's offering itself up in India, and the strength and capabilities that Chola has now developed, we see the same opportunities, you know, and that level of compounding being achievable over the next decade as well. So we continue to be very bullish. Some of the steps we've taken in terms of, you know, the diversification into new lines of businesses, they continue. There will be other steps that we take in that direction. Some will be technology led, and some will be, you know, growing out, you know, in traditional businesses. You know, basically moving from, you know, to like a multi-product view, each of the products of which kind of, you know, can be sustainable for us in the long term.
A combination of those two areas is really where the key focus is at Chola as far as, you know, I'm concerned now. I do think that, you know, over the next decade, you know, we do see significant opportunity, you know, to maintain kind of a high level of profitable growth. It's something that here as a team, the entire team, we are all very excited about, and we'll continue to deliver.
Thank you. We have our next question from the line of Pranuj Shah from JP Morgan. Please go ahead.
Hi. Thank you for the opportunity, sir, and congrats on the good set of numbers. Well, sir, you had earlier alluded to building a robust collection infrastructure before moving into new lines of businesses. Would it be possible to elaborate more on this, because I think this is primarily giving you the confidence of sustaining this high growth going ahead. On that, since I think most of your primary investments would be done, do we expect OpEx efficiency, what we've seen in the fourth quarter, to continue going ahead, too? Thank you.
Yeah. For the Vehicle Finance, you know.
Sir, I'm sorry to interrupt. Can you come closer to the microphone, please?
Yeah. Vehicle Finance, if you know that we've been discussing about what is the collection strategy and how robust our collection system is at. First is that, you know, those who understand how we have done collection in Vehicle Finance should be involved in the new businesses. We have actually transferred four of our business head to
Mm-hmm.
Our loan against property business head is also who was in a massive co- collection manager before that, and he has done the credit also. All the businesses are from the Chola. For last 20 years, they are all recruiting the Chola. We understand that how much important we give it to the collection. Come to the collection strategy. Collection strategy varies from product to product and the bounce rates of the segment. For example, as of now, in the case of CSEL, the bounce rates are as low as possible. Their job is to ensure that how can they keep the bounce rate at low and then collect it more digitally than physically.
In the case of, you know, affordable housing, they have an entire collection system which is completely, you know, working along with the sales team, working and going and collecting. Before, you know, disbursement, you know, they are also involved in, you know, doing the field investigation of the properties and also ensuring that the collaterals are in place immediately after they're doing the lending they're going. Different strategies there. Without having the collection platform ready, we don't expand. Firstly we build, you know, collection managers in the market and then understand that what things they're going to collect, and then we start doing it. Obviously, if you want to understand the entire collection strategy for each businesses, it'll be taking a lot of time.
just to mention that in the secured business loan, which we are giving it to shopkeeper, they are doing the lending and collection by their sales team only. In the case of affordable housing, we have a collection dedicated vertical. All the collection vertical within the businesses are
Completely unique and independent to them, and we are working with a different strategy with respect to the product behavior and the market behavior.
Thank you. We have our next question from the line of Shreepal Doshi from Equirus. Please go ahead.
Hi, sir. Thank you for giving me the opportunity and congrats on a great quarter. I just wanted to understand what is the incremental lending rate for vehicle loans, LAP, HL and new business. You also alluded that you would want to maintain margins at current levels. What are the levels for the same?
The broad levels for NIM you have indicated, right? 7.5%.
Sir, what are the levels? As in what is it that gives you the comfort or the strategy that...
The levels of business obviously will change, right? Vehicle is a fixed known product, right? You know, once we originate it, there, then kind of that rate sticks, right? There it's question of kind of obviously one lever is the business mix, right? How much do we do of, you know, between used and we obviously by product segment and by customer segment, we have a pretty good idea of, you know, what is, what is the effective, you know, down to the ROA level itself, we have pretty good data. Even at the NIM level, that's one of the controls we have, where each of the geographies then have to maintain a particular NIM based on the mix that we would steer them towards.
That will force them to moving towards higher yield product, which would mean the used versus new mix, you know, the mini LCV versus LCV versus, you know, two-wheeler versus three-wheeler mix. Each of those mixes are kind of, it's all kind of, I mean, obviously it's, you know, it's done at a fairly granular level. Each geography, whether it's a zone, an region, an area or a branch, understands and the heads at those levels understand what they need to do to maintain the overall NIM, which is how we basically control it at a national level.
That is the example in Vehicle Finance, obviously you've got the mix between businesses themselves, where certain businesses are higher NIM and, therefore we mix, manage that as well, in order to control the overall level of NIM for the company.
Thank you. We have our next question from the line of Sanket Chheda from DAM Capital. Please go ahead.
Yeah. Hi, sir. Supreme Education.
Hi, Sanket.
Yeah. Supreme Education. We are falling short of adjectives to describe your result every quarter. Two questions from my side, sir. One is that the capital burn in this quarter has been relatively lower. Last couple of quarters we were burning about 50 to 60 basis of Tier-1. This quarter the burn is just 34 basis. Other than the high profit, is there anything else?
We use multiple levers to manage our capital adequacy, like securitization is a route where we did in last quarter and even in this quarter we'll see a large amount of securitization happening. These are, you know, mechanisms to, you know, ensure that your capital adequacy stays on board. This is something we've got. Of course the profitability accretion to the bottom line also helps it. That would be the primary reasons.
Sure. Sir, the question has been on the liability side, that you talked about on deposits and maybe over seasoning. Is there any, say, interaction with rating agencies where you can get one notch more of a rating upgrade? Because once HDFC moves out, maybe, there would be a lot of supply on the NCD side, which being the AAA-rated NBFC, one could fetch better pricing. Any light there would be helpful.
No, we are in touch with the rating agencies. Even Mr. Arul had interacted with, you know, on the rating agencies with whom we have relationships over the last two or three quarters we've been talking to them. I think they have their own set of processes and procedures to, you know, speak to. I presume, going by their, you know, internal norms, they will keep evaluating and they're looking at, what's good and what should be done. Our work is to keep doing what we are good at and we will continue to do our best to expect to keep our NIMs, you know, at targeted levels.
Thank you. We have our next question from the line of Bunty Chawla from IDBI. Please go ahead.
Thank you, sir. Thank you for giving me the opportunity and congrats on a set of numbers. Just a data point if you can share, what were the write-offs during the quarter and similarly for the full year number?
Write-off for the quarter would be around INR 80-90 crores and for the full year will be around INR 650 crores, sir.
INR 550?
Sorry, reports. Right. Yeah. These are on the report page and the write-offs are around INR 40 crores bad debts and INR 270 crores settlements and write-offs. I told the report same number.
Okay. Okay. Thank you.
Thanks. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities for closing comments. Over to you.
Thank you very much to all the participants, you know, for coming in such overwhelming numbers. Thank you very much, you know, to the management for giving us an opportunity to host the call. Thank you.
Thank you.
Thank you.
Thank you.
On behalf of Kotak Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.