Please note that this conference is being recorded. I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities Limited. Thank you, and over to you, sir.
Thank you, Neerav. Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. We have with us the senior management of Chola today to discuss the three year FY23 performance. 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 the opening comments, after which we'll take Q&A. Thanks.
Nischint, thanks so much. Good morning, everybody. I know everybody's waiting for the budget at 11:00. I think from Chola's perspective, there is cause to celebrate in that our total AUM crossed the milestone of INR 1 lakh crore. That's up by 31% year-on-year. This has been a target for the company for a while, so we're glad to achieve that target and to celebrate it. That's a quick start. Disbursements basically are at INR 17,559 crore for the quarter, up by 68% and INR 45,512 crore for the year to date, up by 100% year-on-year. Obviously, the year-on-year comparisons are gonna look a bit skewed because of the COVID quarter last year.
Total AUM is at INR 103,789 crores. That's up by 31%. The net income margin is up at INR 1,832 for the quarter, up 22% and INR 5,169 crores for the year, up by 21%. The PAT is INR 684 crores for the quarter. That's up by 31% and INR 1,813 crores for the year. That's up by 24% year-on-year. The board of directors today announced the unaudited financial results for the quarter and nine months ending 31st December 2022. Chola has delivered the best-ever disbursements, collections and profitability in Q3 FY23. We have gained market share across product segments in vehicles finance and other business units.
Sale of commercial vehicles are expected to come close to the pre-pandemic peak of over one million units in FY 2023 due to improved fleet utilization, strong replacement demand and pick up in the road construction projects across the country. Despite high inflation and high interest rates, strong festive season sales and workforce returning to the metro cities has helped drive growth. The housing market has also been very strong. Aggregate disbursements in Q3 FY 2023 were at INR 17,559 crore as against INR 10,430 crore in Q3 FY 2022, a growth of 68%. VF, Vehicle Finance disbursement were at INR 10,446 as against INR 7,647, a growth of 37%. LAP dispersed INR 2,225 as against INR 1,661, a growth of 36%.
Home loans, which is affordable home loans and affordable LAP, dispersed INR 1,072 as against INR 539 for the quarter. That's a growth of 99%. SME dispersed INR 1,782, registering a growth of 273% over INR 478 crores in the same quarter previous year. CSEL, a new business, Consumer and Small Enterprise Loan, dispersed INR 1,868 crores for the quarter. Secured business and personal loans dispersed INR 137 crores. Our total assets under management stood at INR 103,789 crores. Our PBT ROA was at 3.8% for the year to date and 3.6%. Sorry, 3.8% for the quarter and 3.6% year to date.
ROE was 19.1% year to date. company continues to hold a strong liquidity position with INR 7,396 crores as cash balance, and a total liquidity position of INR 10,000 crores, including undrawn lines. ALM is comfortable with no negative cumulative mismatches across all time buckets. Consolidated PAT was at INR 685 crores compared to INR 528 crores in the same quarter. board of directors approved an interim dividend payment of 65% being INR 1.30 per share INR 1.30 per share of the equity shares of the company. in terms of asset quality, the, you know, Stage Three assets stood at 3.51% with a provision coverage of 40.96%, as against 3.84% at the end of September 2022.
Total provisions currently carried against the overall book is 2.45% as against the normal overall provision levels of 1.75% carried prior to COVID-19. We feel quite comfortable there. As per revised RBI norms, GNPA and NNPA stood at 5.37% and 3.69% respectively. We carry INR 726 crores of higher provisions under Ind AS over IRAC. The capital adequacy of the company was at 17.75% as against the regulatory requirement of 15%. Tier one capital was at 15.12%. Let me stop with that, and we're happy to turn it over to you for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star 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. Participants, you may press star one to ask a question. A request for all the participants, please restrict to two questions per participant. If time permit, please come back in the question queue for the follow-up question. The first question is on the line of Abhijeet Tibrewal from Motilal Oswal. Please go ahead.
Yes. Good morning, everyone, congratulations on a very good quarter. Just two questions here. First thing is on the competitive landscape, how should we look at it particularly in vehicle financing? I mean, how are kind of banks behaving? Are they able to take IRR increases on the incremental disbursements that they're doing? This is in the context of the fact that on a QOQ basis, we have seen about a ten basis points expansion in vehicle financing needs. While if we kind of look at your blended needs expanded by about 30 basis points. Obviously understand that's got to do with the home loan business and the newer businesses that you've brought into.
That's one thing I kind of wanted to understand that, I mean, you've been kind of able to deliver almost steady, stable margins in this quarter. What's led to that? The second thing was on the OpEx. A little counterintuitive that the employee expenses are actually growing in proportion with our disbursements. Is that the right way to kind of look at it? Or is there something else in terms of teams that you are building out in your newer businesses which is leading to this high employee expenses? Yes.
Hi. Good morning, Abhijeet.
Morning, sir.
See, in the case of vehicle finance, if you see that there are 3 product line we need the commercial vehicle segment, which is heavy commercial vehicle, light and small. We have been, you know, leaders in light and small which is our area of focus. In addition to that, we do tractor, used car through your other product. The banks are competitive in the segment of heavy commercial vehicle mainly, and they take maximum share in that segment, which is actually a rate-sensitive product. For us it is not a priority as of now. We mentioned that we will do it in with respect to our own existing customer in that market where we are comfortable. Another thing is that the heavy commercial vehicle still is driven by the large fleet operator and medium fleet operator.
The SRTO, the small road transport operator, has not come back to the market. They are still buying the used vehicle, which is actually good for us because we are the leader in the used vehicle business as well. That is the product mix. We are doing it. In terms of overall market is actually doing very well in terms of commercial vehicles. Both the players like, you know, those who are in top of the pyramid players and the middle of the pyramid players are all are getting benefited because it is getting distributed by the products and by the segment with respect to the segment which we want to do it. That is how we are able to manage the better yield in the business. Now, coming to the OpEx.
OpEx is actually in terms of ratio, it is looking high because our disbursement growth is basically significantly higher and we need to, you know, spend money on account of, you know, variable pay for the disbursement, wherein the asset growth is 30%. Till such time when the disbursement and asset growth doesn't come together at same level in tandem to that, you will see that little bit OpEx is high. At a company level, OpEx is also high because we have expanded our business in terms of new businesses and also, you know, deployed a lot of thing into technology side also. All those things are going to get, you know, mature and we will be getting benefited on account of OpEx in next one year time. You will see that will add our ROE as well.
Perfect. Just one last question here. I mean, at least in terms of newer businesses, the disbursement trajectory that we are seeing is improving. I mean, is it fair to kind of conclude that, I mean, based on whatever early delinquencies, collections that you are seeing in the three newer lines of businesses, that's giving you comfort to kind of keep scaling it up and kind of improve the momentum going ahead?
Yeah, absolutely right. Absolutely right. In fact, our delinquency in this new business are significantly lower than the trend what we see in the market for the same business done by the other finance company. However, we have only done one year. We need to wait for that. The way the, you know, bounce rates are there or the early delinquencies are seen now, we can say that our new business portfolio is significantly doing better.
Perfect, sir. Thank you. Thank you very much. I will come back in the question queue and all the very best to you and your team.
Thank you.
Thank you. Thanks, Abhijeet. Thank you. Next question is from the line of Upmanyu Shah from Kotak Mahindra. Please go ahead.
Yeah. Hi, thanks for taking my question and congratulations to the team for a very strong quarter. I have two questions. One is on the asset quality front. If I look at our gross stage three numbers or GNPA under the new IRAC norms, gross stage three or NPA numbers appear to be fairly steady or sticky in absolute terms for last four quarters, whereas we are seeing fairly good rollbacks in our stage one and stage two buckets. How should we read into this that are our NPLs getting more stickier or... Just wanted to get some sense given that the overall collection efficiencies are fairly strong at this point of time.
Yeah. Historically, if you see that for first three quarters of the year is always better for Stage one and Stage two. Stage three, we get a maximum, you know, performance in the, you know, Q4 because first three quarters is a difficult quarter for the customers to pay two installments or three installments. They roll back from 6th bucket to below three buckets. Obviously we continue to keep them between three to four buckets and then when it comes to the fourth quarter and the customers start making, earning more money, then they start, you know, where they are giving us the higher installment and roll back their account. Good thing is that if you see, you know, the Q...
You know, stage three, normally it goes up in during the Q2 and Q3, it has not gone up in this year. It has been coming down. It has not come down significantly. If you see the last year performance or last to last year performance, you will be able to see that the same thing has happened in the past. This year in fact is actually performing better because we are now, you know, driving three stage two, 2a, 2b and 1a, 1b also. We have been successfully holding the, you know, roll forward rate. Our bucket roll forward in basis that is actually less than 0.5%, which is significantly lower than what it used to be in the past.
I can tell you that, you know, the Q4 performance will actually show you better result in terms of stage three reduction.
Okay. That's helpful. Sir, the second question is related to our home equity business. Both from disbursements as well as credit cost perspective needed some outlook. Our home equity disbursements again for past three quarters appear to be fairly range bound and credit costs are kind of near zero for the first nine month period, right? Profitability clearly is far more superior compared to what we have seen in past few years. Both from growth as well as profitability perspective, how should we look at this business over next one to two years? Just wanted some outlook on that front. Thanks.
See, home equity in the previous years we had our stage three little bit higher, which we started, you know, roll back and our stage three reduction is in a continuous basis in a very good position. For example, in last nine months, we have reduced from 7.95% to 4.76%, which is about 300 basis points of reduction, which is reflecting in the almost close to zero credit cost. In terms of our business growth, we used to have some 250-300 branches, which is now at 570 branches. On that perspective, our expansion in tier three, tier four cities is going good and we continue to see this happening.
Both disbursements trends we see the business expansion and the numbers going up. From a credit cost, maybe next year onwards, we can see it will not be zero, but it will have a very minimal credit cost, which is acceptable levels. Our Stage three will continue to be, you know, coming down from this levels.
understood. The home equity disbursements are not getting classified into any other head, right? Because the branch expansion, or the redistribution expansion doesn't seem to be reflecting into the disbursement numbers. That's what I wanted to understand.
Remember the disbursement numbers are flat.
No. Yeah. The disbursements are flat, definitely. See, what is happening in the case of loan against property, when we expand it to the smaller geography, number of loans goes up and ticket size starts coming down. That is actually good for the construct of the business in the beginning. After that, when you further go up and, you know, consolidated the business in the tier three, tier four town, you will see the, you know, higher growth coming up. We are comfortable with this kind of growth in the beginning because we are creating the foundation of doing the LAP against property, loan against property in the tier three, tier four town.
It is a, it is a thirty-six percent and, uh-
Next, next year also there we will see growth.
Yeah.
We will see growth next year.
Just want to give you perspective from quarter-on-quarter is about 36%, 40% growth is happening. This growth will happen at a 40%, 45%.
Yeah. No, you're just asking sequential quarter.
Sequential quarter.
Three quarters have been flattish.
Yeah.
I think there will be growth next year. Okay? We understand what your question is, right? Ravi explained the cause of it.
Yes.
There will be growth in the book next year. We're not re-signing it anywhere else to your question.
Understood. Understood.
If you reassigning it to home loans, you know Prashant is responsible for that.
All right. Yeah. Yeah. That was my question. Thank you so much, and wish you good luck. Thanks.
We're not reassigning anywhere.
Thank you.
Thank you. Next question is from the line of Kiran Engineer from CLSA India. Please go ahead.
Yeah, hi. congrats on the quarter. Just a couple of questions. Firstly, just want to understand management's thought process in, you know, ramping up the new businesses because typically in the past we've seen that when you'll enter a business you'll go slow for a few years, be it home loans, tractors, two wheelers and then ramp up. In this case what we've seen is that in four quarters it has, you know, grown multi-fold. Really just want to get a sense of, you know, the psychology underlying this.
We mentioned in the last quarter also that, you know, when we are starting the consumer loan, which is PL and DL, you see the overall industry size and as against the overall industry size even for this quarter also we saw our market share is hardly 0.8% or 0.9%. We, if we want to do this business and expand it like, you know, we have 1,700 touch point in vehicle finance.
As of now we are in less than 50% in the case of the CFL. If they are having one person also across the 600-700 branches, they need to basically do the business there and that giving them, you know, INR 400 crore-INR 500 crore disbursement, which is, you know, per person, per manager, INR 1 crore disbursement, which is very significantly lower number compared with the competitors what they are doing it. This much business is required to be done. Wherein the case of two-wheeler, see we, you see the two-wheeler market in the... We are doing, say INR 200 crore disbursement. Say five years back, we used to do, say INR 50 crore disbursement. And we were doing INR 50 crore against the overall industry size of, say INR 500 crore.
That time we were taking, say 10% market share. In the case of PLBL, we are taking hardly 1% market share because the market is large. Therefore it is actually not an apple-to-apple comparison if you compare the PL business, PLBL business versus the two-wheeler business done by us in the past. We are actually fundamentally maintaining the same cautious approach towards the PLBL and not going to mini market where we saw we have has a little problem like, you know, mini market has the higher bounce rate and all that. We are not going aggressively.
The only thing I would add to that is that, you know, we are also much more comfortable now with our modeling and, you know, indicators, right, and kind of using our EV and kind of, you know, non-SCRA data and kind of using our bounce data and using our analytics to get comfort with the scale at which we're growing, right? That's a constant kind of check that we have in place. We're taking, we have that comfort now because we've had that experience with previous businesses in the past.
Absolutely. In the case of like two wheeler or construction equipment, lot of business to be done under the NPCI, wherein the case of PLBL, we are not even doing any NPCI. It is a 100% scorecard based and anything less than full run.
96% of customers are more than 700+ credit score. Just speak little loudly.
The consumer lending business, as on today, 96% of the customers whom we have acquired in the last one year are with a credit score of more than 700 plus.
Got it. Got it. That helps. Just secondly, sir, you had also mentioned that, you know, our delinquency or bounce rates in these new businesses are lower than what it is for peers. What really would you attribute this to? Is it, you know, geography selection, customer selection, some different underwriting processes, collection processes? You know, according to you, what has contributed to this outcome?
I'll just answer it. We have our credit model. Our the underwriting is completely digital. Every aspect is covered, whether it is on the. You know, it's complete digital underwriting process and all the rule engines are applied. Credit scores, deviations are strictly monitored. That is point number one. As I said in the beginning, 700+ minimum credit scores, very rarely we approve, there is authority at any level. Our current efficiency is 99.72% on the current bucket, and our bounce rates are sub 5%, which is today the best in industry. Our first EMI bounces are sub 3% with 100% clearance in the month-on-month basis.
Specific to the HCL, we have come with a, you know, concept of first EMI bounce collection by the sales team, which is very rare in the industry. As of now, our bounce rate is also much lower, so it is easy to basically get it credit collected by the sales team. All the sales teams are, you know, collecting it. Also before the first EMI hit, all of these customers are being met by the sales team to basically, you know, educate them that this is check is going to sit in your account and you need to get it cleared. There are very specific way of managing card buckets by the HFC is going on because we know that this is a area where we did not do better in 2005 and 2007.
We are going double cautious.
Got it. Okay. That, that helps. Thank you so much.
Thank you.
Thank you. A request to all the participants, please restrict to two questions per participant. Next question is from
from Mahrukh Adajania from Mirae Asset Capital Markets. Please go ahead. Thank you, sir, for the opportunity and congratulations on great set of numbers. Two questions from my side. You had guided earlier AUM growth of 20%-22%. You have already surpassed that. Does your growth outlook guidance change? Secondly, if I look at vehicle finance, net income margins, of course here you have lesser scope to actually reprice. How has the repricing happened there, both on the liabilities and assets side? Thank you.
On the growth, yeah, we are now looking in the range of around 27%-30% growth. We will keep it there for the time being, for this dimension year. On the margins, see the vehicle finance, as the proportion of the new book changes, the NIM improvements will be visible. It will take another three to four quarters or before the overall book, you know, changes to the new rates. That will happen progressively.
Just one related question. Despite wide pressures on the welfare finance net income margins, we have really come out well on the overall blended NIM front. That's also because your other businesses are contributing. Going forward, shall we expect the NIMs to remain sort of steady to better the way we saw this particular quarter?
The NIMs we will be monitoring. We are confident it will hold. There will be, as I was telling in the last few calls also, we will have the 40 to 50 basis point hit on account of cost of funds on a year-on-year basis. That we are trying to mitigate by scaling up the pricing in our floating rate books, which is the LAP and HCL, which we have already done to the extent of around 160 basis points with regard to LAP and 130 basis points with regard to HCL. We are, we see which is like, you know, we shouldn't kill the golden goose by scaling it up too much. We don't want to do another 40 basis point which we are contemplating.
We will see what are the MPC results announcement in the next week and then take a call on scaling further. But right now we are comfortable. On the other side, on the cost of funds, we are constantly negotiating with banks, et cetera, to bring down the cost of funds as much as possible. We are pleased with the issues of maintaining NIMs. We will work on it and we'll keep it. The good part is it is also compensated by the NCL reductions which will happen. As I said, the mix of products, mix of businesses, we have to not focus on one single line item. We have to look at the ROA and profitability. ROA 3.5+ is sort of a commitment we stick to and it will work out.
Thank you. Shwetal requested to come back in the question queue for a follow-up question. Next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity, sir. Firstly, on the margins, if I look at segmental margins, there is a 40 basis points sequential drop in vehicle finance, which is around 65% of the book. Margins on home equity and home loan have remained broadly stable on a sequential basis. Sir, what explains overall margin being flat despite 40 basis points compression on vehicle finance margins?
This is just now, our CFO has mentioned that. Vehicle finance is a fixed book and other businesses are floating. In the case of LAP, HCL and SME, we are able to basically increase the book yield by increasing the yield. Wherein, in the vehicle finance, the marginal book yield has gone up as compared to last same period. For the overall book, it will take little time. It takes two to three quarters when we start seeing that the overall book is also getting, you know, benefited in terms of marginal book yield increase. That is what is happening. What we are interested more into the ROE to be delivered at a 3.5% plus, which will be combination of the NIM and also the OpEx and also the NCL.
As of now, our focus is more to reduce the NCL and trying to, you know, what Vellayan Subbiah was saying that he's negotiating with the banks to keep the cost upper low. At the same time, we are trying to increase our marginal book yield in vehicle finance.
The mix of new businesses.
The mix of the new businesses and in the case of vehicle finance, used business is going to help us to increase these.
Yes, actually, I was trying to understand the calculation because if I look on 65% of the book, there is a 40 basis point decline in margins. On roughly, housing loan and LAP, which is around, 20% of the book, there is a flattish margins on a sequential basis. The entire margin has been-
It's a complicated thing. If you again go to the liability side, almost 40% of our liability side is fixed with regard to secretaries book, with regard to NCD, CP, stat, et cetera. Only 60% is in the banking segment, which is in a way floating. Actually, if you look at it, there's only a 20% gap between the 60% fixed on asset side and the 40% fixed on the liability side. That's what we need to manage. This is exactly what we will manage by, you know, if we require by requesting and, you know, negotiating with the banks to keep some parts of this increase down. We can't, you know, get into too much of the nitty-gritty. Broadly look at it that way. This is the thing.
It's not like the entire liability side is floating.
Sure. Secondly, on the new initiative, if you can, if you can share specifically on the unsecured side, what will be the comfort level in terms of AUM mix over medium term? How much of the unsecured book ever will be in the Flexi format, which is typically in the Not in the term loan format, but in the format where customer can use it as a credit limit? These are the two questions.
As of now, we are not doing any flexi. 80% is term loan only. Also we have been mentioning that we are into pilot phases in terms of PLBL business and it will take time. Unless we reach out to the pan-India level and try out PLBL everywhere, in all three model, traditional model and D2C model and as well as our DSP model, we'll not be in position to predict what is the mix of the business for coming from, you know, PLBL business. We are comfortable the way things are moving as of now, it has actually, you know, tried the business like that's what is our, you know, expectation that we will continue to drive in the same manner. As of now, we are doing, say, INR 600 crore business. Last quarter, we did, say, INR 400 crores.
That the increase is happening every quarter. We will continue to do it for some more time.
Sure, sure. That's it from my side. Thank you.
Thank you.
Thank you. Next question is from the line of Jignesh Shial from Incred Capital. Please go ahead.
Yeah. Hi, sir, and thanks for the opportunity. I just quick two questions. One, we are seeing a bit of a reshuffle. This is for Arul Selvan, sir. A bit of a change in the overall liability mix, you know, of your bank, and now we're able to see from 50%-52% sequentially if I'm seeing it correct. Any particular strategy we are looking forward to just to, you know, manage margins or how do we see it going forward? That is kind of first question.
The mix is moving from term loans from banks to securitization.
Yeah.
You know, the securitization has moved up. What is happening is during the last years when bank term loan rates were very low, we could really push down the based on the benchmark rates. We used that and we could move down the cost. What we are doing is we are securitizing priority sector loans and able to keep it. Ultimately, lender profile seem is more or less same, but we are. Securitization is a fixed rate book, a fixed rate. Those and the ability to negotiate that to slightly tighter rates because of the priority sector appetite in the market, in the banking sector, we are moving that side. You would have seen our securitization, we have done almost.
Yes.
INR 1,000 crores now. That move from-
A 2% gain in FCNR is also coming from the banks.
Okay.
FCNR is a 6% drop, it's a 4% loan because the 2% gain in FCNR.
Oh, okay. Yeah.
Mm-hmm.
I mean, this reshuffle, I mean, should we expect this to stay for a while can the rate remains elevated or this will be again reshuffle changing quite a bit, in quarterly basis? That is what I actually really wanted to understand.
Yeah. We will be looking at every opportunity at different points in time. We are looking at, you know, more securitization this quarter also because normally Q4 there will be larger appetite from banks on the securitization for their year-end targets. We are also exploring other avenues. Right now it's little premature to talk about this, sir.
Understood. Understood. Thanks. Second question was, I mean, there is one slide which reflects quite well that, you know, now Tula is almost present to all segments of SME. If you can give me some more details about or elaboration about the cross-sell synergy that Tula is able to see here. I mean, if I see it correct, the new initiatives that we, you know, earlier when our discussion happened is that to the existing set of customer also, lot of same customer base would be given the opportunity into the new lending segment as well.
If I want to see it as in Tula as a cross-sell franchise or if you can give me some clarity, I mean, some guidance how of the total customer base would be repetitive customers and all, that would be really helpful if some data can be shared on that part. Thank you. That's it from my side.
With that intent only, if you see that we have created another ecosystem called SME ecosystem in addition to the vehicle ecosystem, auto ecosystem. Auto ecosystem, we have a series of the vehicles starting from two-wheeler to heavy commercial vehicle. In the SME, we have similarly, you know, the ACMP micro, which is we call it SBPL. From there too, we are kind of, you know, addressing the SME. It's too early to basically, you know, do the cross-sell from this way because we are in the pilot phase, as I mentioned, for each new business starting from SBPL, TSPL and also SME in addition to the, you know, affordable housing loan. At some point in time, we will see that we are going to do, you know, this cross-sell.
Before that, we need to establish our data analytics team and understand that what kind of customers we need to give additional loan in order to give them cross-selling.
The first wave of growth in any case is coming from the presence in the new and the broader presence in the new verticals, right? The second can then be once you've got enough of a customer base in both on all the three ecosystems, then we can look at cross-sell. We get enough of a lift right now just from the growth in the new verticals itself.
Understood. The basically the second phase of specifically on the new vertical side can happen through, you know, the existing set of customers across the different segment, I mean, different pure lending segments. Is that a fair assumption then?
Obviously. Obviously.
Sorry to interrupt you, Jignesh. I'll request you to come back in the question queue. I request all the participants please restrict to one question per participant. If time permit, please come back in the question queue. Next question is from the line of Chandrasekar from Fidelity. Please go ahead.
Hi, good morning. Just two questions. One, what's happening on the cost to assets on the home loan business? This is now an INR 7,200, INR 7,020 crore book, and the cost seem pretty much like some of, comparable affordable housing financials, or in fact more so maybe, just something around that. Then on the new businesses, how much are we sourcing from, you know, traditional versus partnership channels and now? Maybe it's just worthwhile, given the size now, publishing maybe an ROE tree so that we can get some sense on, the expenses which are going in that segment. Thank you.
As far as home loan is concerned, we have piloted this project first in South and then we scale to different geos as we always have done and for other products. Similarly for home loan, now we are spreading our wings in west, east and north. Expansion is actually aiding in net growth in terms of book value and the last one. As of now, we are present at 462 branches across India, where vehicle finance is around at 1,700 touchbases. Over a period of time, this expansion will yield to target customers and overall growth will come. As of now, the slight increase in cost is due to the bad expansion of the branches and manpower.
As far as the new initiative is concerned, CAF business are made up between Two-third of our business is coming from traditional and one-third is from the partnership. In the last quarter of the INR 1,868 crores, INR 1,300 crores came from our traditional business and INR 568 crores came from our partnership business. We intend to keep that ratio. During the growth phase also we intend to keep that levels.
In terms of the ROE, Sri, I think it's too early. Let the businesses kind of grow a bit, you know, get through this growth phase a bit more, then we'll start showing.
Thank you.
Thank you. Next question is from the line of Preeti RS from UTI Asset Management. Please go ahead. Preeti, may I request you to unmute your line from your side and go with the question, please? We get no response. We move to the next participant. Next question is from the line of Bhavesh Kanani from ASK. Please go ahead.
Thank you for taking the question. My question is related to the business-wise disclosures we are giving. How does it work really when we, when we kind of, you know, build out those PNL for individual business in terms of the money that gets allocated to various businesses? This is in context of the earlier question on how a large part of the book, that is maker finance has seen little bit of margin complexion. Let's say we have INR 100 worth of resources at company level. How does the allocation of those resources transfer pricing happen? Is there whatever is the excess liquidity and whatever will be part of the treasury operations, how is that summing up happening, if you can throw some light on that?
Yeah, we follow a transfer price mechanism based on the, you know, duration gap of the asset side of each of the book. We take the tenor, average tenor of the book, and accordingly we take the pricing in the market and give them the pricing based as a transfer price based on which they price their yields. The transfer price is maintained for the intended purpose. Our treasury will try and borrow lesser or at a lesser cost or a high, you know, depending on market availability, and that is determined as the treasury's efficiency of either borrowing lesser at a lesser cost or a higher cost. The liquidity kept is also taken to the treasury's, you know, because they earn on the investment of it. That is kept in the treasury's account.
Okay. Okay. Yeah. Thank you. That answers my question.
Thank you.
Thank you. Next question is from the line of Param from Equity Group. Please go ahead.
Yeah, hi. Thanks for taking my question. It's again related to a previous participant's question. Basically, you know, we are seeing margin being maintained despite a 40 basis point decline in in vehicle finance. If we, you know, work backwards, it seems to indicate that the margin of the new business has gone up substantially quarter on quarter. Is that, is that, correct? Why is that happening?
In business, LAP and nature. LAP and nature also margins are moved up, because but there in spite of the cost of fund increase because they increase the yield on the entire book, the margins have remained flat and it has not shown up. As I was saying, look at it more from a ROA angle. The vehicle finance book had because there is a cost of funds is going up. The yield on the existing book has not grown commensurately. There you will have a cross off.
Sir, I get that. In the margins that you're reporting for the LAP and home loan businesses, they are up only like 10 basis points, whereas the vehicle finance is down 40 basis points.
Yeah.
Quarter-on-quarter. 50 versus 50.
They are maintaining it because of the increase they made on the book. Sorry, I'm not following your question. Like, the cost of fund increases and their yield increases, so the difference there is much lesser. Where in the vehicle finance, the cost of fund increase is there and only on the marginal book the yield is increasing on the existing book, yield is not increasing.
Okay, sir. I'll probably take this offline. Anyway, my next question, sir, is on the recoveries from, you know, your repo sales. If I'm reading from your PNL, it's about INR 50 crore for this quarter. You know, it's been trending at that level for the last two or three quarters. How sustainable do you think this line is? Going forward, will you be able to maintain this? Yes.
Sorry, I'm not seeing.
it's the other operating.
Where?
On the top here.
Yeah. Where, where are you seeing this? Which page, Param? You're talking about in the OpEx line, the recoveries? No, no. On the top line, other operating income. Yeah, yeah. Other operating income includes. Yeah. Fee income, with fee income. Yeah, yeah. It is going to be, you know, in line with the disbursement growth and, you know, income growth. It is amortized. This is not a... I just wanted to clarify, this is not recoveries from return of accounts or deposits. No, no. No, no. It is not a return.
There will be a small quantum in that, where the return of book income will also come as a shortfall recovery, but that's not the large part of this income.
Thank you. Param, sorry to interrupt you. I'll request you to come back on the question queue for a follow-up question. Next question is from the line of Preeti RS from UTI Asset Management. Please go ahead.
Hi. Thanks for taking the question. My question is on the LCV book and vehicle portfolio. Today, it stands at 7% of its peak share of 19%. Even in terms of disbursement, it's little more than a third of its peak disbursements in Q4 of FY 2018. Is that a conscious strategy or it's been market specific or the competition driven?
What? What book? Can you speak a little loudly? What book are you saying? What is your question again?
The heavy commercial vehicle book. LCV.
Yeah, yeah. Yeah, yeah. That's it. Yeah, go ahead.
Correct.
Heavy commercial vehicle, you're asking?
Is it a strategy to keep it this way?
Yeah, yeah. I mentioned in the beginning itself that heavy commercial vehicle is the area where the banks are operating more aggressively. Also in the heavy commercial vehicle, there are two segments are only operating coming for the purchase, large fleet operator and medium fleet operator. The SRTOs are still not buying. They are buying the used vehicle. Our focus has been into the SRTO and the used more. Therefore, if you see that our portfolio mix is 7%, but the disbursement mix of LCV within the vehicle finance is 5%, which is by default it is coming like that.
We are expecting that the next year after the, you know, entire market is actually coming back, like, you know, agriculture growth and, you know, infrastructure growth in case, then SRTO will also buy the new vehicle. Obviously, at that point in time, we will start doing LCV.
Okay.
I mean, like that in LCV also we have grown as compared to the last quarter to this quarter. Our market share has gone up as of now. If you see that is also there in the page number 36. We are growing higher than the market. Our disbursement growth in the past, disbursement trend in the past was higher. That's the reason you see that the rundown is more and therefore our disbursement mix is lower.
Okay, got it. Yeah. The question is also because the market has come back, as you rightly said. They are actually probably at FY19 run rate. Other disbursements haven't come back. Obviously.
Yeah.
From the numbers, we won't get the mix.
Market share is growing, going up. If you see the page number 36, you will be able to see our growth has been 62% in LCV, wherein the market has grown by 42%.
Okay. Got it. Thank you. Thanks for that.
Thank you. Next question is from the line of Anurag Mantri from East Bridge Advisors. Please go ahead.
Yeah, hi. thanks for taking my question. Just one thing on the vehicle finance, PMLA. Just want to understand, you know, how the paid cost, sort of trend from here. Since the first half said, I think the paid cost about close to 2%, they've actually now come down to some 1%. Is this sort of a new normal run rate that we are looking at, going forward? Or, how do you think about it?
Q3 and Q4 always have been the better quarter for vehicle finance. We continue to maintain the same thing that the first quarter is a lean period for vehicle finance, the second quarter is the rainy season. Third quarter is the festival season. Although the market start earning more money, customers start more money, they don't come and pay. In spite of that, we have been successful in getting better result in Q3. Q4 will be better than Q3. The other thing is, in Q1 and Q2, we had a larger amount of repossessions and sale because last year we could not repossess and sell due to courts putting a freeze on repossessions. That was explained in the calls last year, in the first and second quarter. Now we have come back to normalcy.
Got it. This level is effectively what we can think of as a full year normalized level, so to say. Great. Thank you so much.
Thank you. Next question is from the line of Rikin Shah from Credit Suisse. Please go ahead.
Good morning, sir. Thanks for the opportunity. Had just two questions. First one was on the employee head count. Of course, it has gone up in line with getting into the new businesses. Will you be able to share the plans in terms of how many more employees would we need to add over the course of next two to three years to kind of roll out all the new business products for most of the branches? That's point number one. Question number two is more like data keeping. Just wanted to get a split of restructured loan book between stage one, two, and three. As of for December. We mentioned that in the new business we are in the pilot phase and we have reached only 50% of the vehicle finance touchpoint, and we are growing.
Therefore, you will see that continuously this growth will continue to happen in terms of branch expansion for the new business and therefore obviously we'll add head count. Head counts are based on the business plan individually we are planning. We are not as of now interested to, you know, disclose that. In the case of restructured book, restructured book right now is around, total it is around INR 2,800 crores. At peak it was around INR 5,000 crores. Now we have brought it down to INR 2,800 crores. Main because that by multiple things, some could is due to resolution and moving back to stage one when they collect more than 30% of their outstanding as they are there now. Some through repossessions and settlement and, you know, closures of certain trends.
The INR 2,800 crore is completely sitting in stage one and two. Nothing is now slipped into stage three. Some part of it will be in phase three if they have moved to the... I think around INR 31 crore is in. Sorry, around INR 500 crore is in stage three. INR 2,000 crore is in stage two, INR 500 crore in stage three. INR 259 crore in stage one. Perfect, sir. Thank you very much.
Thank you. Next question is from the line of Anuj Shah from J.P. Morgan. Please go ahead.
Hello. Thanks for taking my question, sir. Just in line with previous participant had asked about the credit costs. Now you're saying that it will trend below that 1% mark, this quarter now 0.7%, and your NIMs also should hold up because your new disbursements are picking up. PBT ROA, do you think you should be comfortably able to maintain at that 4% mark for 4Q and beyond for FY 2024 also, especially for offices and concerts? Thank you. That is up to you to rework. I am giving commitment of 3.5% and above. Okay? At a overall number. Please, it is your liberty to rework what you call It actually fluctuates quarter on quarter. It definitely Q4 number in CFL number will be better than Q3.
In again Q1 it goes down, Q2 goes up as the market is starting to flowing out. Flowing, always will flow. Again Q3 will go. What is important is that we are consistently delivering the ROA at overall number and vehicle finance is trying their best to get you to 4% is actually much high. Our internal target is between 3.5% to 4%, depend upon situation. Okay. Got it. Got it. Thank you so much.
Thank you. Next question is on the line of Alpesh from IIFL Asset Management. Please go ahead.
Good morning and thanks for taking my question. Just two questions. First is, I'm sorry to come back to this margin question, but if 65% of the book seeing 40%, 40 basis points kind of a decline on a QoQ basis, around 20% of the book is flat-ish. The overall book is showing a flat margin on a quarter-on-quarter basis, then logically speaking, the new businesses should have contributed materially to the margins or there could have been some treasury changes. What explains this? Because we are unable to reconcile this 40 basis points decline for the 65% of the book.
Okay, I'll tell you what. Let's take one other question. In the meanwhile, let's try and see if we can kind of get some kind of a of a ROTA breakdown to kind of explain this, because this question's been asked multiple times. Let's take another question. In the meanwhile, we'll work on that and then kind of come back to you in a minute.
Sure. Thanks, sir and, sir, the second question is related again to the new businesses. While we are building up quite fast and some of these businesses are yet to go through the credit cycle, right? The initial signs are definitely and obviously also supported by the macros. The initial signs are clearly reflecting a better credit cost kind of experience. When we are giving a guidance of 3.5% ROTA and currently for the nine months we are at almost at 3.6, 3.7. In case there is some deterioration in the asset quality, while it would have been largely priced in via higher yields.
In case there is any deterioration in the asset quality in new businesses, what could compensate for the higher credit cost in FY 2024 PNL? Would that be operating leverage or you have the leeway available to improve the pricing there?
Okay. We'll come back to the FY 2024. You have two parts, right? Kind of one is trying to understand what happened in FY 2023. Second is what are the implications for FY 2024. Correct?
Yes. That's where typically what happens is in some of these businesses when you build up the initial being a higher yield business and the initial signs and slightly a higher duration book, the upfront profitability is slightly on the higher side since the credit cost experience is not built in into the earnings. As you go through the credit cycle, obviously the credit cost will go up. What could compensate for the higher credit costs? In nine months your ROTA is still at around 3.6, 3.7. What could compensate for that higher credit cost in FY 2024? I'm just trying to understand that because that seems to be a significant pricing pressure on the vehicle finance book and the LAP book considering the competitive intensity.
Obviously the credit cost experience is quite good this year in those portfolios as well.
Alpesh, first, Arun is gonna answer your question on what happened this year, right? Let's get that clarified because this question's been asked three times. I'll answer your question on kind of what is gonna happen for next year. Okay?
Sure. Thank you. Yeah. Thanks.
Yeah. see, what we have said is when the LAP has increased their cost, their yield to by around 160 basis points and retail has increased by 120 basis points, that constitutes more than 40% of the book.
Arun, sir, rather, I'm sorry to interrupt you here. What we are trying to understand, 65% of the book, I'm not getting into a yield or a cost discussion here. What we are saying that on the reported basis, 65% of your book has seen a 40 basis points QOQ drop in margins. 20% of your-
No, no. I wanna clarify. Are you talking about margins or yield?
We are talking about the margins. We are talking about the net interest margin, which is 40 basis points down in the vehicle finance. Overall book is flat QOQ, and the other businesses are also kind of flat on a QOQ basis. What explains this difference when 65% of the book is showing a 40 basis points drop in the margins QOQ?
No. Other businesses have gone up. Why don't you go to the NIM page? This, Shyam, just show the NIM Excel sheet.
Ex-excel.
Excel. You have the Excel NIM by business, no? Yeah. Here's a sense, right? Which is if you take the LAP NIM, right? YTD, it has gone from 4.82%-5.46%.
Okay.
That is a 70 basis point increase. Similarly, home loans has gone from 7.59 to 8.02. That's another 43 basis points increase. That's offset by vehicles that come from 8.67 to 8.48, which is a 21% decrease. Okay? You take a weighted average of those three, you actually end up with... The fact that the new businesses also have had an increasing NIM, you end up with, I mean, a weighted average NIM of 7.79 moving to 7.69. That's why... I'm still confused. Is that answering your question or not?
No, it's not. It's not. If you let me just go by the presentation. Yeah. Let me just go by the presentation. Slide number 21. The overall, net interest, net income margin that you have reported.
Yeah.
Which is 2Q FY 23, 7.6%, 3Q FY 23, 7.6%. Okay? This is at the overall company level, we are flat on a quarter-on-quarter basis. Now if I come to the vehicle finance margin, which would be, I guess, on the page slide number, just one second. The numbers that you have reported.
Forty-five.
It's on slide number 45.
The NIM, around YTD 12 have dropped by 20%.
No, I'm not talking about YTD. I'm talking about quarter on quarter, 2Q versus 3Q.
Okay.
Which is slide number 45. This is dropped by 40 basis points. This is almost 65% of the AUM. Your overall portfolio is flat at 7.6 quarter-on-quarter. If I come to the loan against property business, which is, which is kind of hardly 10 basis points improvement, slide number 53.
Five point three and five point four.
5.4%, right. If I come to the home loan business, again, the slide number 61, 7.9% and 8%. The two businesses, which is loan against property and home loan, which would be roughly, I'm just rounding up the numbers around 25% of the AUM, there we have seen ten basis points improvement. 65% of the AUM is seeing 40 basis points decline, whereas our overall margins which are reported is 7.6% flat QOQ.
Right. The 7.6 is down from 8.2, no?
No, it's 7.2.
Considering the CSEL business, SME business, and the treasury profitability. These are not the sum of that is reflected there.
Yes, I'll tell you.
Arun, we need to. If you want, you come again, come over, we can get on a call and we can discuss.
No, but the point. Yeah. I'll tell you, Shyam, that might be easiest because it's tough to solve like this. The net income margin from Q3 FY22 has dropped by 60 basis points, no? I think what.
We are sir, the difference over here, what is coming is 2Q FY23 versus 3Q FY23, rather than 2Q FY22 to 3Q FY22.
Right. Yeah.
We are looking at the sequence.
In addition to these three businesses, we have LAP financial, you need to also consider.
New business.
SBPL, CSEL and SME and treasury.
Treasury.
All four.
Okay.
So.
Okay. The 7% of the business is compensating for 30 basis points overall drop in margin.
Treasury gain is also there, no?
Okay. treasury gains would have been a major contributor in this quarter. If I were to think from that perspective, considering the new businesses yield, it should be around 16.5 or 17%. It would be on a higher side.
All 4 put together.
Treasury gain will include income received on the investment source also.
74%.
74%. Yeah.
You're correct.
Yes. Which is I'll just try to take this offline. The next, the second question is on the FY 2024, how the things would work, if you can let us know.
Sorry, FY 2024, part of your question is basically, I think if your concern is there will be credit losses in the new businesses. We think that the credit loss, the increase in credit losses will be more than offset by the decrease in OpEx in the new businesses.
Okay. You are building in the operating efficiencies that would compensate for the higher credit cost, you've got all that. Okay.
Yeah. That will more than compensate.
Okay, great. Great. I mean, those were my questions. Thank you so much.
Okay. Thanks.
Thank you very much. I now hand the conference over to Mr. Nishant Shah for closing comments.
Yeah. Thank you everyone for joining us today. We thank the management for giving us an opportunity to host the call. Thank you very much.