Ladies and gentlemen, good day and welcome to the Cholamandalam Investment and Finance Company Limited Q1 FY 2023 earnings conference call hosted by Kotak Securities Limited. 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Mahesh from Kotak Securities. Thank you and over to you, sir.
Hey, thank you, Renju, and good morning to all who have joined into the call today. We welcome you all to the earnings conference call of Cholamandalam Investment and Finance Company Limited. Your usual moderator, Nischint, has had to step out today, and I shall handle today's session. To discuss the first quarter's performance of Chola and share industry, and business updates, we have the senior management represented by, with us today. We have Mr. Vellayan Subbiah, the Chairman and Non-Executive Director. Mr. Ravindra Kundu, who is the Executive Director. Mr. Arul Selvan, the President and CFO. I would now like to hand over the call to Mr. Vellayan for his opening comments, after which we shall take the Q&A. Over to you, sir.
Thanks, Mahesh, and good morning, everybody. So just quickly jumping into quarter results. Disbursement for the quarter were at INR 13,329 crores, which is up obviously by 267% just because of the base effect from the last year. Total AUM is at INR 86,703 crores, up by 14%. Mean net income margin is up at INR 1,640 crores, which is up 19% year-on-year. The PAT is at INR 566 crores, which is up 73% year-on-year. Overall, consumer confidence continued to improve with the Indian economy growing at 14%-15% in spite of higher than expected inflation and tightening of monetary policy.
Chola delivered its best ever first quarter disbursements, collections, and profitability, with domestic auto sales zooming by 55% in the current quarter, albeit on a low base, and sustained growth momentum in residential unit sales as well. The you know, like we said, kind of disbursements are at INR 13,329 crores. Q1 FY 2022 was impacted by COVID, which is why it was lower in that quarter. Getting into the individual businesses, vehicle finance disbursements were at INR 8,562 crores as against INR 2,846 crores, which is a growth of 201%. Loan against property, including affordable LAP, disbursed INR 2,169 crores as against INR 386 crores, which is a growth of 462%.
The home loan business basically disbursed INR 478 crore as against INR 199 crore, which is a growth of 140%. SME disbursed INR 1,030 crore as against INR 204 crore. Our new businesses, which are consumer and small enterprise, in particular business and personal loans, registered disbursements of INR 1,035 crore and INR 36 crore, respectively in Q1 FY 2023. AUM stood at INR 86,703 crore as compared to INR 75,764 crore. PAT, like I mentioned, was at INR 566 crore compared to INR 327 crore. The PBT ROA was at 3.7% as against 2.5% in the same period last year. ROE was at 18.9% as against 13.5%.
The company continues to hold a strong liquidity position with INR 5,113 crore as cash balance as of the end of June 2022, including INR 1,500 crore and INR 200 crore invested in G-Sec and T-bills, which are shown under investments, and a total liquidity position of INR 11,324 crore, which include undrawn sanction lines. The ALM is comfortable with no negative cumulative mismatches across all time buckets. Consolidated PAT for the quarter was at INR 562 crore as against INR 329 crore, which is a growth of 71%.
In terms of asset quality, at the end of June 2022, stage three assets stood at 4.16% with a provision coverage of 40.69%, as against a comparable 4.37% at the end of March 2022, with a provision coverage of 39.67%. Total provisions currently carried against the overall book is 2.92% as against the normal provision levels of 1.75%, carried prior to the COVID-19 pandemic. Management overlay is now at INR 528 crore in terms of provisions carried on the books.
As for the revised RBI norms, the November 12 circular of last year, the GNPA and NNPA percentages stood at the end of June 2022 at 6.31% and 4.35% respectively. We carry INR 736 crore higher provisions under Ind AS over IRAC. As per prevailing IRAC norms, the GNPA will be similar to the stage three numbers given above. The details of stage-wise assets are available as part of the overall release. The capital adequacy ratio for the company was at 19.15.
As against the regulatory requirement of 15% and Tier 1 capital is at 16.3% as against the norm of 10%. Mahesh, I'll stop with that. We'll be happy to take questions from our side.
Sure, sir. We can open the floor for questions now.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone 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. The first question is from the line of Shreepal Doshi from Equirus Securities. Please go ahead, sir.
Hello, sir. Good morning, and thank you for giving me the opportunity, and congratulations on this set of numbers. Firstly, I was wondering what is the outstanding restructured book loan?
I mean, restructured book loan?
The outstanding book stands at around INR 3,500 crores, the restructured book, which was at around INR 5,800 crores, earlier when we did initially. It was around INR 3,400 crores.
Still you are not audible. I'm sorry.
It's the outstanding book is at INR 3,400 crores now as against the INR 5,800 crores when we initially did the numbers.
Right. Got it. Just the second question on the same line. What will be the write-off that we would have taken from the restructured pool during this quarter?
The restructured book has shown no stress different from the normal pool. It is progressing in the same way. As you know that, we have discussed this earlier also. The moratorium given in the restructured books are very small, ranging predominantly to one month to three months at most. All these assets are started being tracked as part of their our normal book itself. The stage three numbers, which are already there, corresponds with whatever is in the restructured book also.
Okay. It has been guided for less than 4% net NPA number for the year end. Keeping that in mind, what will be the credit cost that we will be building for the year?
The credit cost, which is currently we are seeing at around 1.2%, will be the levels. As I have told, even in today's morning call, we will range anywhere between 1%-1.5% over the cycle, and we should be at the pre-pandemic levels now.
Okay. Got it. Thank you so much, and good luck for the next quarter.
Thank you. Next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Good morning, and thank you for taking my questions. My first question is to Ravindra Kumar Kundu, sir. Sir, I mean, if I kind of look at the texture of the vehicle finance disbursements, so basically I'm looking at the difference of segments. Pre-owned vehicles, ATVs and construction equipment are the three segments where we have seen a sequential decline. Again, I understand there is a seasonality expected, not really fair to compare Q4 to Q1. I mean, having said that, I just wanted to understand that these three products, that is used vehicles, ATVs and construction equipment, are they seeing a lot of aggression from banks and some of the other established NBFCs? And how should we kind of read this? That's my first question to you, sir.
Second question is, I mean, how is the demand in tractors right now? There are a few other your peer NBFCs who have suggested that the demand in tractors is very, very strong. While, I mean, when we talk to some of the auto guys, they don't kind of suggest the same thing. If you can just kind of give some color on the tractor demand.
Heavy commercial vehicle and construction equipment, the strategic customer or group customer or top of the pyramid customer or large fleet operator customers are always being funded by banks only. We were always financing the retail customer. That's the reason if you see that heavy commercial vehicle and construction equipment, our market share has been small as compared to the light commercial vehicle and used one. When the strategic customer or large fleet operator purchase the vehicle, it is being funded by the banks only. At this juncture, the majority of the sale which is happening is because of the replacement demand coming out from the strategic customer or large fleet operator. Banks are operating.
After some time, when the freight availability and, you know, capacity utilization of the retail customer improves, then the retail customer also will come, which will further drive the growth because initial drive of the, you know, commercial vehicle or construction equipment growth comes from the large fleet operators followed by the, you know, retail customer and that point in time we also get into that. Having said that, we also see that our market share has gone up in Heavy Commercial Vehicle and construction equipment because our customer segment also, in some parts of the country started actually participating in purchase. That is from HCV and construction equipment.
In the case of used vehicle, the used vehicle business is actually growing much faster because even the strategic customer or large fleet operator who are actually buying the vehicle are not adding the fleet but replacing the fleet. They are continuously selling their existing vehicle and it is going to the retail customer and the retail customers are buying. That's the reason retail customers are not buying the new vehicles. Till such time you will see that you know, used business is going to grow, and we are expecting that this year used business is heading to grow. Now, coming to the tractor. Tractor monsoon has been good and as overall average, it is higher than 100%. Bengal, Jharkhand, Bihar and Uttar Pradesh are not having that kind of monsoon.
It is slightly deficit. We need to wait for that because these are the largest market for the tractor. Once that monsoon is actually completed by, say, August-September end, we will be in position to say that how much you know demand strongness is there. However, as of now, the last quarter we saw 16% growth and is driven by Madhya Pradesh, Rajasthan and some other market where monsoon has been very good. We are hoping that you know rest of the four states where tractor fields have been good in the past or they are actually producing more kharif will also have a better monsoon and that will further drive the tractor growth in this financial year.
Thank you, sir. This is good. This is useful. My last question is for Arul sir. Sir, I mean, if I kind of look at the runoff that we are seeing in the loan book, you have suggested kind of last quarter that it will be mainly weighted for the next two quarters, which is predominantly H1 of this fiscal year, and then it should revert back to the normalized levels. How should we kind of think about it? I mean, we've already seen that normalized or kind of come down in this quarter. How should we kind of think about it? I mean, that's how I mean, it will progress, that it will remain slightly elevated for the second quarter and then start normalizing in the second half of this fiscal year.
Sir, secondly, I mean, kind of if I look at the write-offs, what was the quantum of write-offs and the pre-calculated write-offs? I mean, looks like for slightly elevated, nothing alarming, slightly elevated compared to, let's say the pre-COVID levels. How should we kind of think about? Those are the two questions.
Yeah. The runoff will be there for one quarter for retail finance, and it will be actually not even visible in the LAP later because they are. The write-offs has been higher both in Q4, but in Q1 it has not been there for retail finance other than the repo sale related. Those are normal, you know, quarter-on-quarter levels. The 1.2% on the credit cards, we are conservatively saying that levels will be maintained over the quarters because we will see that in Q2 continuing, but Q3, Q4 should be better.
Got it. Sir, lastly, your Tier 1 is 16% now and the kind of growth that we are seeing now, while you always have that room to raise Tier 2 capital, I mean, any thoughts of a primary equity raise over the next 12 to 18 months?
No. We are very clearly articulating that unless the Tier 1 goes down below 13%, we will not be seeking capital. I think we stick to that stand.
Great, sir. Thank you so much and wish you and your team the very best.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Next question is on the line of Bharat Shah from ASK Investment Managers Limited. Please go ahead, sir.
Yeah. Hi. Given the kind of new lines of the business that we are attempting to build up and given our traditional strength areas, what kind of a cyclically sustainable ROE, pretax ROE we see it as a range or which is part of our business model?
Yeah. I think we should be there in the 3%-4% levels. We commit to that and we stay committed to it. There is scope to improve, but right now we do not want to take a conservative call on that.
3%-4% range.
I'm talking pre-tax ROE.
Yeah, pre-tax I'm talking about. What kind of, given the kind of potential growth that we see in our lines of activity plus the new lines, what kind of leveraging compared to our net worth we think will be a point for capital raise? I mean, typically, what will be sustainable level of leveraging we'll prefer to keep before we go into one new capital raise?
We are currently at the 6x equity levels. We will continue to be around the 6-7x levels because that would give that would be the number. Actually, we could the 13% or the sub-13% level will take us to 8x, but we don't intend to go there. We can comfortably be in the 6-7x, you know, band. That is, that's the way we are wanting to look at. More importantly, the new businesses churn more because they are shorter tenure. I don't see the debt equity will be significantly impacted because of scaling of the new businesses.
INR 1 n et worth and about INR 6 borrowing, so INR 7 rupee of total capital?
Up to 7x. Right now, 8x, now it is around INR 5.9 trillion. Yes. Go up to 7x, which means 8% then. Okay. So potentially up to 8% of total capital and 3.5%-4% range of ROE pre-tax, which means about close to 2.7%-3%, post-tax, return. Therefore about sustainable ROE of about 20%. Yes, that is correct, sir.
Okay. Thank you.
Thank you. The next question is from the line of Sharaj Singh from Laburnum Capital. Please go ahead.
Hello, sir. My question was around the GNPA and the GNPA numbers which were reported. When the new norms coming from first of October, our GNPA will be the GNPA number, right? You can see the reporting right now is only for to report the numbers. They won't be applicable, will they?
We have given you both the numbers. You know, the stage three numbers right now, which is shown will be the pre or the current prevailing levels of any net NPA and the gross NPA as per IRAC norms. The new norms, if it comes through and we have put through the numbers, we will be at a net NPA of 4.43% and at the overall level we will be at 6.31% of the gross NPA as we close June. The details are available in page 26 of the investor presentation. Kindly refer to it.
This is my question. Actually, you reported the GNPA under new norm of the NPA will be 6.3%. As on first of October when the new norm actually kick in, the effect will start coming in for that, right? The GNPA should be your gross NPA numbers as on that date. I mean, if they were to come in from today, your GNPA as on date will be.
This is a debatable point. We are Gross NPA as per RBI is different from the stage 3 numbers, which is as per Ind AS. That is why we are giving it as stage 2B and stage 1B if you see. Those two if you add, they are really under Ind AS to stage 2s-level of asset because they are less than 90 days. 90 days and above is shown as stage 3, less than 90 days and, you know, more than 30 days is shown as stage 2, and less than 30 days is shown as stage 1. Those assets which are attached to NPA and or in these brackets will be shown in the stage 2B and stage 1B respectively. And they will be if you add all three you will get the net NPA as per RBI.
We intend to present it as such unless the regulator, you know, wants us to group everything under stage three.
Oh, Thank you. That was the question.
Thank you. Next question is on the line of Rikin Ketan Shah from Credit Suisse. Please go ahead.
Thank you for the opportunity. I had a couple of questions. First one was on the asset yields in the vehicle finance business. If I look at the presentation, it seems to have come off by 50 basis points sequentially, in Q1. Any trend or color there or one-offs included there? That's first one. Second one, the employee headcount is up sharply, right? In last one year we would have added around 8,000, but I understand that could be a mix of on and off payroll. Any split between that? I just a clarificatory question relating to the restructure. Did I hear correctly that the book is currently around INR 3,400 crores now? One last question is for Kundu, sir.
On the vehicle finance business side, while I understand the disbursements are strong, but the outlook seems to be a bit more cautious, pertaining to you know, lower fleet availabilities, uneven rainfall, et cetera. Are we expecting slowdown in the disbursements in the quarters ahead? That's all.
I will just start from the vehicle finance. In the vehicle finance industry showed 115% growth from the commercial vehicle and passenger vehicle with 41% growth. The other products like two-wheeler 54% and three-wheeler 224%, tractor 16% and construction equipment 161%. If the industry is growing in this pace for this financial year, we might touch the previous peak in terms of commercial vehicle and passenger vehicle and maybe in two-wheeler. Subject to that, we will definitely grow at the rate of 35%.
If industry is growing at the rate of 30%-35%, we have a opportunity to grow slightly higher than that because there will be a value growth in terms of inflation and cost of the vehicle, and also little bit market share growth will be there. This is what is the industry. Now we have given you the effective outlook where we have given product by product, you know, what is expected in terms of good and bad. In terms of tractor, suppose I'm just giving you the example, you can go through the total outlook of Chola given in the presentation. In an overall, monsoon has been very good. Actually it is higher than 100% last year.
There are four states which is actually selling more tractors is now going through the deficit of monsoon. Unless that gets corrected in next 2-3 months' time, we cannot say that for full year tractor sales will be very good. Secondly, if the crude oil prices are at this level and it doesn't go up and it goes down, then obviously the growth we have to commercial vehicle projected will be achieved. It might go up further. Similarly, you know, the consumption increases, rural demand actually improved because of the better monsoon, better agricultural growth. Again, it will further improve the sale of two-wheeler, three-wheeler, you know, even cars and maybe in the rural market.
However, you know, as of now, whatever industry is showing up, we can safely say that the industry is going to grow in this year in terms of number, 35% over last year, and we'll be doing better than that. We need to also keep those things in mind that which can actually, you know, create problem for us. That's the reason we have given the mixed type of outlook. That is from the vehicle finance side.
Rikin, can you repeat? You asked four questions.
I know. Yeah. So much. Yeah. Actually, Mahesh covered up two questions. You are trying to beat it by cramming four questions into one attempt. I think that loses the whole purpose of this, Mahesh asking one question.
That 31 is a straightforward answer. 3524 is the right number. Yes. 352.
Yeah. Okay. Got it.
What is the last number? So one was on the employee headcount addition.
Just wanted to get a flavor on the increase between the off payroll and on payroll and what could be the salary differential between them.
The salary differentials and all we cannot get into now. Okay. The headcount details we have given in the investor presentation. That is mainly because of new business. Yeah, that's because of new business.
Housing finance is also expanding out of staff, so they are also recruiting people.
Yeah. Got it. Anything on asset team, sir?
In the vehicle book, it came off by 50 basis points. It will go up now. This ROA is here. Well, book yield. Marginal book yield will start growing.
Got it. Okay.
There is a lag of six months. Marginal book we started doing. There is a difference in the mix like, you know, at this juncture when all the new vehicles are getting sold more and more because that is, you know, that is the industry sales, we have to participate in that as well. Overall yield is depending on one is the mix and second is the overall yield is also depending on the time when we take it to increase it.
Got it. Thank you.
Thank you. Next question is from the line of Subramanian Iyer from Morgan Stanley. Please go ahead, sir.
Hi. Thanks for the opportunity. I have two questions. The first one is, what is your observation on loss given default, vis-à-vis the 40% stage three coverage you have, considering that most vehicle financiers seem to be taking accelerated write-offs and there might be a large pool of repossessed vehicles, for disposal in the market? That's my first question. The second one is, how much room do you have in your ALM in terms of moving the mix to CP, to limit the rise in your portfolio cost of funds in the near term? At a product level, how much margin compression do you expect through the cycle, or can you pass on the entire cost of funds increase to customers?
The loss given default in the case of repo vehicles is in the range of around 32%. The incurred loss in the case of repo vehicles is around 32%. Our provision coverage is significantly higher and gives us enough headroom to cover any volatility there. The second thing is on the CP headroom. CP headroom, we can go up to 15% of the borrowing book. We are right now at around 4% or 6%?
I think it's 7%. Yeah.
Sorry. 4% was last quarter. Yeah, 7%. We have another 7%-8% at the beginning, but we may not go all the way up, but we'll be in the range of around 10%-12%.
At the product level, do you think you can hold the, I mean, your margins by passing on entirely to the customers?
Yeah, What is LAP and housing finance is a floating rate which we are doing it. Yeah, that's right. So basically, like, you know, vehicle is a fixed book, but then the other two books is where we basically pass.
Sure. Through the cycle, would you be able to pass?
Vehicle Finance product level, marginal rate only will go up as and when we do business that will go up. In the Vehicle Finance, main important role played by the product mix. How much we do the high yield business versus low yield business will be important for arriving at an overall yield. We are changing the product mix towards the high yield book continuously. That will help us to increase the yield in next six to nine months time. There is a lag between marginal book yield and the overall book yield. Housing finance and affordable housing and LAP is instantaneous, where we increase the rate as and when the cycles of the market cost of fund goes up.
Thank you and wish you all the best.
Thank you.
Thank you. Next question is on the line of Nidhesh Jain from Investec. Please go ahead, sir.
Thanks for the opportunity. On the new businesses, what sort of specifically in consumer and SME, in consumer, what percentage of origination that we are able to do through our own branches, our own origination engine? In SME, how much of disbursement are we able to do outside of the Muthoot group?
Consumer business or SME business, all we are doing it from the branches only. With respect to the Murugappa Group versus open market group, book only supply chain finance, 50% of supply chain finance is actually, you know, related to Murugappa Group. Rest are your open market. In SME, we have three products. Supply chain finance, term loan and equipment finance. Supply chain finance is, you know, 30% of the overall book and out of 30%, 50% goes out of Murugappa. That's the number.
In consumer loans 100% of origination is through our own branch now. Is that correct?
All.
CSEC.
Existing infrastructure of Vehicle Finance. Where in 126 branches we have opened up. These from 127 branches. From there they are almost covering standard towns of the Vehicle Finance. You can say that 50% of the branches of Vehicle Finance being now covered by CSEC from 127 hubs. They have three model. One is the DSA model, DST model, and then they have partnership model. All three models they are utilizing it to acquire the business.
Yeah. If you can say that what percentage of business coming from partnership model, that would be helpful in the CSEC.
One-third of the cases are coming from partnership.
Okay. Thank you. That's it from us, sir. Thank you.
Thank you. Next question is from the line of Kaitav Shah from Anand Rathi. Please go ahead, sir.
Good morning, and thank you for taking my question. Sir, if you can explain what are the number of new customers that have got originated in the new model under the new business?
Almost 100,000 vehicles.
Okay.
In the first
1.6 lakh customers.
From one business.
From one business. Yeah, so basically, let's just say kind of, let's say about INR 2 lakh across all the businesses. These are the new?
Yeah.
I mean, non-vehicle or non-LAP customers.
Yeah. We don't have any other loans.
Okay. Versus what would that run rate be, say, last year? Just an offhand number.
Last year it was 60,000 Vehicle Finance only. Other new businesses were not there in quarter one.
This year how many is the vehicle finance? Yeah. So this quarter had about INR 1.8 lakh from vehicle finance and INR 1.8 lakh or about INR 2 lakh from all the other businesses.
Okay. Lovely. Thank you. Sir, second question was related to your partnership arrangements. The customer ownership is with the partner or with Chola? Just trying to understand the model here.
Chola.
Okay. I think those were the two questions I had. Thank you so much. All the best.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. Next question is on the line of Sweta Daptardar from Elara Capital. Please go ahead.
Thank you for the opportunity. My first question is for Ravindra Kundu, sir. Good morning, sir. As far as the vehicle finance disbursement mix is concerned, why has the used vehicle financing loans quarter-on-quarter declined? I mean, is it the Q1 phenomenon or categorically we have chosen to sort of take a cautious step? If it's the latter, then why so? My second question is on the LAP front. What is the normalized loan loss provision we are looking at? Because that's been quite erratic for a while, and therefore that's also weighing on the overall profitability, but what would have been the ideal PBT ROA we are looking at? Thanks.
Sweta, what was the first question? What is the mix you're talking about used?
Why has been the decline in used vehicle financing disbursements quarter-over-quarter as against the industry cues which have been pretty buoyant?
Oh, yeah. Like you see that our product mix in terms of portfolio page number, we've given it in the page number 40 where-
41. Yeah.
40 is the portfolio. Right-hand side is the product, portfolio and left-hand side is the disbursement.
Right.
Used vehicle, the product, portfolio in terms of our asset under management is 27%. As against that we have done 29%. Our disbursement is higher than the mix of the, you know, current mix. Disbursements are higher than that. If you see the tractor is 10% in terms of our portfolio, but in terms of disbursement is 8%. That way you can say that tractor we are little cautious as against the portfolio mix in terms of disbursement. In terms of used business we are higher than the portfolio in terms of disbursement. That shows that we are quite aggressive in terms of used.
Okay. Maybe Q4 always has been a stronger one. Maybe that base was pretty high.
Yeah, you are right. In the Q4 to Q1 you can say that there has been drop in used business. But, you know, that is because of the mix. In this first quarter we see that new vehicle sales have picked up significantly. This has been a first time in April, May, June, it has been such a best quarter for the new vehicle sales. So when you participate in new vehicle sale, your overall disbursement, which is actually gets skewed towards the new one. That is the difference, nothing else. Otherwise, if you see our portfolio versus our disbursement, our disbursements are higher than the portfolio.
Sure. Just one question there related. Are we number two in terms of market share on the used side? Am I getting it right? Yeah, perfect. My next question is on the LAP front.
Yeah. Loan Against Property. What was the question?
It was on what is the normalized loan loss provision?
Yeah.
The last two years, if you look at it in the investor presentation, it's showing about 0.7% or 1% considering the COVID situation, but at a normalized situation it could be about 0.4%-0.5%, you know, on a portfolio.
Do you have any targets in mind for PBT ROA, for LAP?
ROA? Yeah, it is the, you know, we are expecting Suresh to deliver on at least 3.5%.
3.5% is the expected ROA. Currently, for the current quarter we are at 2.7%.
Yeah.
That is because, on a steady state, we are expecting at a 3.5%.
Three point five to four percent.
Perfect, sir. Thank you so much, and best luck for future endeavors.
Thank you. Next question is from the line of Param Subramanian from Macquarie. Please go ahead.
Hi. Thank you for the opportunity. I wanted to ask firstly on the restructured book. You've classified, I think it's largely in stage two, and I think it's largely repaying, you know, based on the commentary that you've provided. How long will we continue classifying this in stage two? And do we plan to, you know, classify this back to stage one and reverse the 11% sort of provision cover that you have here? That's question one. Question two is again on the Vehicle Finance yield decline quarter-on-quarter. Could you know, explain again what was the reason for the Vehicle Finance yield declines? You know, I didn't get the part on the marginal book. Are you saying the marginal book yield is lower than the existing book yield?
I just wanted to understand that. Thirdly, I also wanted to understand on the credit cost, you know, what was the reason for the spike in the quarter? If you could quantify the write-offs in the quarter? Yeah, those are my questions.
We started moving those restructured books, which have repaid more than 30% of the original costs. During the quarter, we have moved around INR 50 crore of the restructured book to stage one because they completed repaying more than 30% of the costs outstanding on the date of restructure. We will do that every quarter as they repay more than 30% levels, which is what is given by RBI as a guidance. The rest of the book is shown in stage two.
Okay.
Some had moved into stage three. This is the remaining performing. Of course, also a lot of around INR 1,500 crores have got repaid or, you know, settled out. Spike in credit cost. The spike in credit cost this time is also because for the first time we have also started providing on the macro factors. So far during the COVID period, when we started, you know, measuring the macro impact, the macro impact had been negative. That is, it was resulting in a reversal of provision, though we did not take reversals and kept them, we did not provide anything additional.
This quarter, what has happened is because the interest costs highs and then there are uncertainties, the macro model threw up a provisioning requirement of around INR 40-50 crore, which we have provided additionally as part of the ECL, and that's the reason you see the spike happening. As far as the book yield is concerned of vehicle finance, before it was 13.99 and Q1 it is 13.91. It is almost same level. Before that in Q3 it was 14.26. From Q4 onward we started seeing that the new vehicle sales have picked up. When new vehicle sales pick up it does go back. This actually reduces slightly price. Otherwise it is almost same level. It is not come down.
Kundu, sir, if I could just interject, sir. The income yield you've provided in the Vehicle Finance in the slide. It is down 50 basis points QoQ. That's the number I'm looking at. The income yield that you've provided in the slide on Vehicle Finance.
Which slide are you referring to?
Sir, 15.4% have gone to 14.9% on vehicle finance income yield.
This was Q4 versus Q1. You are talking, I think-
Yes.
Q1 versus Q1. The mix was completely different and that was a very small book. That was the COVID book. That was influenced by the large quantum of COVID tractors in the book at that point in time. It will keep changing based on the mix of the book. Of course, there have also been some small reductions in the yield, but now we will be pushing up the marginal yield as we see the interest rate hikes coming up. In a downturn when interest rates are dropping, you will see that progressively the book will show the impact toward the next few quarters of the drop because the book has to change its composition.
Okay. Got it. Sir, just one last part on the macro provisioning. Is this something that will recur quarter on quarter or is this you're looking at more as a one-off for this quarter? That was my last question. Thank you and all the best.
No, the macro. There is a model we have built factoring in, you know, the various macro measures like your GNPA, GDP and, you know, consumption and industrial growth, et cetera, and the influence on each of the portfolios that they have. Based on that the model throws up, and it takes into consideration the impact of such things over the next one quarter or two quarters or three quarters down the road. That is how the model throws out what is the macro provision required for each of the sub-segments. That's how we measure it. When it comes that it can there will be reversals, we don't consider reversals, but when it throws up that there is a requirement, we provide for it.
We will continue using this model as we go because it's an integral part of the Indian model of provisioning.
I think if you take from that, it's not the intent to provide every quarter, but it depends on what the actual kind of variables indicate for the future outlook.
Thank you.
Got it, sir.
Thank you, team. Thank you so much.
Thank you.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. Next question is from the line of Jignesh Shial from InCred Capital. Please go ahead, sir.
Yeah. Hi. Am I audible?
Yeah.
Yeah. Perfect. Congrats on good set of numbers. Just one data point, sorry I missed out joining little late, but are you giving slippage recovery and write-off number for the quarter and for the last quarter? Either total or the business-wise, whatever is available.
We couldn't hear your question clearly.
Can you hear me now?
Yeah.
Yeah. Can I get the slippage recovery and write-off number for the quarter, and for the last quarter, if it is available or you are giving it?
Okay. Yeah. We can tell you now. Normally we don't give it. It is around INR 148 crore this quarter. Last quarter it was around INR 200 crore.
This is net, right?
Sorry? Net.
This is net slippage you're saying or this is?
Hello?
Yeah. This is slippage number you're saying, right?
Write-off.
Write-off. Okay. Can I get?
What is slippage? Slippage is. See, there are only two components. One is write-off, the other one is the provision accretion or, you know, reduction. That moves with the model and the NPA number.
Understood.
NPA move up, the provision is more. NPA moves down, provision. That's more a notional number. Write-off is the crystallized loss then.
Understood. Second question had been you acquired PaySwiff last year. So how that particular business is, you know, how is accommodative to us and how we are basically using it up? If you can give some color on it, fintech part, how it is helping us out or what we are doing with this business. If you can give some color on it, if possible, that would be really useful. Thanks for this.
I think broadly it's still early days for PaySwiff.
Okay.
The intent and, you know, that still, you know, continues to be our focus is that they deal with a particular profile of SME customer.
Mm-hmm.
They have a fairly large distribution capability into those customers using both a combination of a direct sales model and a partnership model. You know, in some of the partnerships, we do have access to that customer base, in some we don't. The intent is to basically, once we get some history with those customers, to start a lending book on top of that.
Okay.
Like we said, this will take a little more time because we need to first develop the capability to have enough data on those customers that we can start a lending book. Once we have that, then you know, the intent is to basically see how a combination of a payments product and a lending product can be driven to expand our penetration in the SME segment.
Understood. If I can squeeze in just one more thing. These customers will be more catered through your new business line, right? Rather than Vehicle and Housing and LAP. This is more towards the new business line that you will be catering to this customer. Is that understanding correct?
Absolutely. That is correct. That's what we've articulated as well, that the intent is to really focus on how we expand both the Consumer and SME ecosystems, which is why you can see the partnership model that we have talked about for both, you know, our Consumer and Small Enterprises Loans business. In some cases, a structure like this is what we're gonna focus on to improve our penetration in those segments.
Considering the kind of growth we are seeing in new business, gradually the overall portion would be tilting towards new business as well. The mix would gradually will be changing over the next two or three years. This would be a fair assumption to make, right? Right now the dominance which is there in vehicle will gradually will be more granular in nature for Chola as a whole.
Well, I don't think the mix shift will be so different in 2-3 years, but the intent is to move it over a period of time. We'd like to take a longer term horizon on that.
Understood. Thanks for this, sir, and all the best.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Next question is from the line of Bunty Chawla from IDBI. Please go ahead.
Thank you, sir. Thank you for giving me the opportunity. Firstly, if you can share your thought process on the AUM growth guidance for this year as in last year.
Is it audible, sir?
Please speak a bit louder.
Yeah. Can you throw in the guidance on the AUM growth path? Because last year there was a pressure on the prepayment, repayment. This year should be the normalization for that year and disbursement growth path picking up. So if you can share your thought process on that. Secondly, sorry for the repetition. I missed the write-off number. If you can repeat that number for me.
If you just see, like we mentioned that in vehicle finance, if industry delivered 34% growth over the last year, obviously vehicle finance will grow much better than that. In that case, we will get opportunity to grow more than 20% because 70% growth, 70% book is vehicle finance. In any case, LAP and housing finance, they are growing over 20% as of now. Only thing is at the moment, vehicle finance starts growing at the rate of 20%, it will actually improve the overall growth. We have done well in the Q1, if you have seen that, as compared to the last quarter. I'm expecting that the industry will support this year, and we'll come out of the higher rundown, obviously, in the second quarter. Both put together, we're likely to go grow, you know, safely 20%.
Like we said, there's one more quarter of runoff to be had.
Yeah.
Only in the second half will we start seeing the revenue.
Sir, write-off number, if you can repeat for me.
1 more year it will be INR 400 crore we have. 48 x 1.
Thank you. Thank you very much, sir. All the best.
Thank you. Next question is from the line of Alpesh from IIFL Securities. Please go ahead.
Hey. Hi. Thanks for taking my question. Just two questions. What's the average duration of this new portfolio that we are adding into our balance sheet? That's one. Secondly, in the home loan business, I see the new purchases portfolio being stable between INR 1,300-INR 1,400 crore since last few quarters. And the self-construction is increasing, so any specific reasons on that front? Lastly, one more question is, are-
Can you repeat the home loan question? I'm sorry, I don't know if it's a volume problem at our end, but you might have to just speak up a bit for the home loan question.
Okay, sure. The home loan portfolio mix when I see the share of the self-construction over the last 7-8 quarters is increasing whereas the new purchases share is coming down. In the absolute value that number remains between INR 1,300-1,400 crores for the last few quarters. Any specific shift in the business focus there? Lastly, I just wanted to check, now with all this moratorium, et cetera being over, can we see the repayment and the prepayment rates across businesses being pre-COVID levels in rest of FY 2023 now?
Housing, affordable housing self-construction has been the focus area, and we have further actually improved that. In housing, affordable housing, we are mainly working in the South zone and we started in rest of the country. Rest of the country mix was slightly lower, which we have now changed it to towards self construction. That is what is affordable housing.
Sir, what would be the average ticket size for that self-construction portfolio for us?
INR 10 lakh.
INR 15 lakhs.
INR 14 lakhs.
14. Okay, great.
In consumer and small enterprises, we mentioned that there are three verticals. There are three channels. One is partnership channel and DSA, DCA and GBP channel. In partnership we are doing 33%. In whatever we do in the partnerships mainly is a consumer loan or personal loan, which is a short-term and small ticket size, which is hardly 3-6 month tenure. In the case of balance 60%, which is a traditional loan, it goes up to 5 years. We have both the product in the consumer side. 33% is a small ticket, a small tenure. Balance 66% is a normal ticket size and up to 3 years, 3 years is average.
Okay. The last question related to that, prepayment, repayment rates, are we fully back to the pre-COVID levels? During the COVID, whatever the disruptions related to the changes in the payment schedule, are those being addressed now completely?
Yes. In that sense, you know, the collection has been back in the. Actually, we've been doing 9% and 14% of the billing collection. It is going on very well. There's a reason if you see that our Stage 2, Stage 3 is coming down. We further improved actually in that. In first semi, quarter one and quarter two are always lean collection. Collection picks up from after the February. In spite of that, this year we have done collection in the June quarter and we are expecting that, you know, September quarter also will be good. The next core collection will happen in December and March quarter.
Okay, great. Thank you so much.
You're welcome.
Thank you. Next question is from the line of Mahesh. Please go ahead.
Hey. Just two questions on my side. One is we see some pretty healthy new vehicle sales of commercial vehicles in the market, and yet, at an industry level, we still see overdues have not reached pre-COVID. If you just kind of tell us some qualitative answers as to what could explain this, that lenders are taking some time out to clear out the inventory of overdue loans in the market.
Talking about the new vehicle sales picked up, but the overdues of the customer who have not come down, that's what you're saying?
Yeah.
It is obvious. You have actually missed out during the COVID period, gone into 6 or 9 bucket. They are continuously paying 1 or 2 EMIs. Now, that is, like, it will take at least 6-9 more months to come back to the normal level. However, the new requirement from the market, mainly driven by the large fleet operators from the heavy commercial vehicle and construction equipment part of it has gone up, and that's the reason they are driving the numbers. This particular drive of growth cannot be sustained unless the retail customers start coming up.
We are expecting that the retail customer who have, you know, who only purchase the used vehicle will start coming back to the market after the second half, maybe after the festival, subject to the monsoon is being good and, you know, agriculture growth is there, supported by GDP growth. The current number is driven by the large fleet operators in commercial vehicle and subsequently it will be driven by the retail customer.
Perfect, sir. One last question from my side. There is a reasonably stark difference between the way market is seeing the macro backdrop for next year, yet lenders are reasonably optimistic of the situation on the ground. How would you reconcile the two when you are building your business for this year, and how can the portfolio be protected for next year in case there is a slowdown out there? Thanks, and that will be all.
Yeah, I think it's very difficult to, I mean, to actually say what is gonna happen, right? In terms of I think too many people are trying to predict, and we don't know how to predict. We are basically not trying to formulate this view and, you know, so that's why even Ravi said it. Listen, if the market grows at X, this is what we will end up growing at, which will be slightly more than the market. What's actually gonna happen, I don't think anybody can say at this stage. Like, it looks like basically kind of, you know, everybody who looks too much at the West has got kind of the view that recession is coming around.
It also looks like, you know, it won't be as pronounced in India as it is kind of globally, and that might be causing some of the bullishness. That's not how we are driving internal behavior. It's kind of actually driven by what we are seeing on the ground, and that's what's kind of driving most of what's happening for us.
Thanks, sir. Thank you. Renju, you can close the call for now.
Thank you. Due to time constraints, we have reached the end of question and answer session. I would now like to hand the conference over to the management for closing comments.
Nothing specific from our side. You know, thanks a lot for joining, and we look forward to seeing you next quarter.
Thanks a lot. On behalf of Kotak Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.