Ladies and gentlemen, good day, and welcome to Cholamandalam Investment and Finance Company Limited Q4 FY22 earnings conference call hosted by Kotak Securities Limited. As a reminder, for the rest of the line, this will be in the listen-only mode. 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 Nischint Chawathe from Kotak Securities. Thank you and over to you, sir.
Thanks. Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. To discuss the Q4 FY22 performance of Chola and share industry and business updates, we have with us the senior management today, being presented by Mr. Vellayan Subbiah, Chairman and Non-Executive Director, Mr. Ravindra Kundu, Executive Director, and Mr. Arul Selvan, President and CFO. I would now like to hand over the call to Vellayan for his opening comments, after which we begin the Q&A.
Thanks, Nischint. Good morning, everybody. Let's go through the results for the quarter and for the financial year, for the last fiscal year. The disbursements for the quarter were at INR 12,718 crore, which was up 58%. For the year, it was at INR 35,490 crore, which is up 36% year-on-year. The total AUM stood at INR 82,904 crore, up 8% year-on-year. That's basically due to a slightly higher runoff post-moratorium. Net income margin was up at INR 1,516 crore for the quarter, up 13% year-on-year, and INR 5,767 crore for the year, up 16% year-on-year.
PAT for the quarter was INR 690 crores, which is up 184%, and INR 2,147 crores for the year, up by 42%. The impact of the third wave on the economy turned out to be muted and much more muted than the previous two waves. Nationwide rapid vaccination obviously kind of contributed to curbing the impact of Omicron and boosting consumer confidence.
The company has delivered its best ever disbursements, collections and profitability in Q4. The performance was aided by strong signs of recovery in both auto and the mortgage industry. All major three OEMs reported double-digit growth in March 2022, aided by a pickup in infra projects, growth in logistics and e-commerce, and coupled with easing of financing options.
There's a strong rebound in residential housing sales in the current quarter, and this was aided by demand from customers after a lot of deferral from home buying due to COVID. We just go through, like I said, the disbursements. Basically, I just kind of broadly went through what the numbers were on disbursements. That's basically a growth of 58% for the quarter and 36% year-on-year. If we take the individual businesses, the vehicle finance business disbursement was at INR 8,785 crores for the quarter as against INR 6,160 crores in the, which is a growth of 46%. For the year, INR 25,439 crores, which is a growth of 26%.
LAP, including affordable LAP, disbursed INR 1,978 crores for the quarter as against INR 1,191, which is a growth of 66%. The year was at INR 5,862 crores, a growth rate of 62%. Home loans disbursed INR 441 crores as against INR 538 for the quarter, so it's less than Q4 last year. Disbursements for the whole year was at INR 1,571 crores as against INR 1,542 the previous year. We've had three new businesses launched this year, which is Consumer and Small Enterprise Loans, Secured Business and Personal Loan, and the small and medium enterprise loan businesses.
These combined made disbursements of INR 1,515 crore in Q4, and 2,619 crore in the full year. AUM so stood at INR 82,904 crore as compared to INR 76,518 crore. We talked about PAT, which for the quarter was at INR 690 crore compared to INR 243 crore. Our PBT ROA was at 4.8% as, and for the year was at 3.9%, both significant growth over the previous years. ROE was at 24.6% as against 10.4% in the previous year. We continue to have a strong liquidity position. INR 5,341 crore of cash, including INR 1,500 crore invested in G-Sec.
With a total security position of INR 13,146 crores, including undrawn sanction lines. Our ALM is comfortable, and we've got no negative cumulative mismatches across any time bucket. The board of directors has also recommended a dividend of INR 0.20 per share, which is 35% of the equity shares of the company, and this is in addition to the interim dividend of INR 1.30 for a total of INR 2 in dividends. Asset quality, we'll just talk a bit about the adoption of the RBI circular and revised NPA norms. We've discussed this before, but RBI issued a circular November 2021 directing NBFCs to adopt a tighter provisioning norm.
Accordingly, from November 1, we had started tracking daily DPD for agreements which have crossed 90 DPD, and we will continue to classify them as NPA, so all dues towards principal and interest are collected in full. RBI also issued a clarificatory circular on February 15, deferring the implementation date to September 30, 2022.
On a conservative note, we propose to early adopt these norms under Ind AS. The ECL model provisions this year, it stress-tested on the impact of COVID being built into the PD and LGD computations, and hence the ECL model provisions for Stage 3 have increased over December 2021. Apart from this, we also factor a write-off of INR 190 crores for long overdue accounts, where further recovery is expected to be minimal.
Towards these, a part of the management overlay of INR 336 crore was utilized. The management overlay provisions carried in the books as of March 2022 stands at INR 500 crore. Asset quality at end of March 2022 represented by Stage 3 stood at 4.67% with a provision coverage of 39.67%.
That's against 5.85% as of December 2021. The total provision currently carried against the overall book are 3% as against three point zero four percent as against normal overall provision levels of 1.75% carried prior to COVID. As per revised RBI norms, the GNPA is at 6.82% and NNPA is at 4.75%. This is based on the IRAC criteria.
We carry INR 365 crore higher provisions under Ind AS over IGAAP. The details of stage-wise assets and provisions also are something we've shared. The capital adequacy of the company was at 19.6% as against the regulated requirement of 15%, and tier one was 15.5%. In terms of subsidiaries and associates and JVs, Cholamandalam Securities had INR 60.12 crore in revenue, and Cholamandalam Home Finance had INR 55 crore in revenue. Two new investments had basically INR 49.6 crore in Payswiff and INR 1.5 crore in Paytail, respectively for the year. With that, let me stop with the commentary, and we'd be happy to turn it over to all of you for questions.
Thank you very much. We'll now begin the question and answer session. If anyone wishes to ask a question, you 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'll wait for a moment while the question queue assembles.
Participants, you may press star and one to ask a question. The first question is from the line of Dhaval Gada from DSP. Please go ahead.
Yeah. Hi. Thanks for the opportunity. I had three questions. First is on the new business. So I understand, you know, this quarter we did about INR 1,500 crore kind of disbursement. Just, you know, if you could give some perspective, in terms of, you know, various vertical, what contributed to this? And, for next year, should we just, you know, think about annualized run rate as the expectation for next year in terms of new vertical disbursement? So that's the first one. Sorry.
Okay. Hi, Dhaval. Good morning. Ravi here. First of all, whatever we expected, it has come in that line as far as the new business is concerned, if you remember the last earnings call. However, you know, to project the whole year number is going to be difficult. As you know that under the new business line, we have three businesses.
One is the Consumer and Small Enterprise Loan, wherein we are actually focusing the customers who are taking the business loan or professional majorly, a little bit personal loans. Then small business and secured loan, which we are actually giving it to the small enterprise, mini enterprise rather than that, which are actually having a shop or taking the loan for the businesses. That's the second one.
Third one is SME, which was there for quite some time, and now we have started actually growing that business. This business put together has contributed INR 1,500 crore. Obviously the coming quarter, the numbers will be better because we are now started expanding in the country. The CSEL business is actually started doing good number.
We have four partners also available. The partnership business is 33% of the overall business, and your traditional business is almost, you know, 66%. We are getting good traction. The SBPL business is a business which is being done directly by the field team internally, and which is going to be taking time to ensure that we actually understand the knowledge, understand the market dynamics and the behavior of the mini or micro SME.
That growth will be slightly slow, but the CSEL and SME started also picking up, and we are expecting that the run rate will improve from the next quarter.
Understood. The second question was on the slide 21. So just, you know, the question was next year in terms of maintaining the PBT ROTA at about 3.9%. The moving parts would be since there would be some pressure on margin and also credit cost, there is some, you know, scope for improvement. So I just wanted to hear your thoughts on how you think about maintaining the current level of PBT ROTA. Last is the data point on restructured loans at the end of 4Q and the overlap with stage two. Thanks.
Yeah. If you go by the history of Chola, we have been maintaining close to 3.5%, PBT ROTA, between 3%-3.5%. 3.9% is the highest because now we started getting the reversal of the NCL. That is going to be continued over the period. At the same time, obviously the cost of fund goes up, which is going to impact a little bit. At the ROTA front, we always internally target 0.5%. If it become more than that, which is going to be a slightly, you know, optimistic number, which we are trying also. Those between 3.5%-3.9% going to be any number.
NIM impact, they will get impacted, you know, kind of, you know, offset by the reduction in the NCL. Restructured, can you repeat your question?
They spoke of standard restructured loan at the end of Q4 and, so, you know, how much of that is already in Stage 2?
3,800.
I think last quarter it was 4,000. Yeah.
INR 3,800 crore was the total restructured book as of end of March. We have, you know, INR 3,362 crore in Stage 2. As you know, Stage 2 represents both Stage 1 as well as Stage 2. We present all the book in Stage 2 only. Only INR 444 crore is in Stage 3.
Got it. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Rikin Shah from Credit Suisse. Please go ahead.
Hi, good morning. Thanks for the opportunity. I have three questions. First one, the OPEX came in higher this quarter, and yield also marginally declined sequentially. Just wanted to understand the reasons behind that, and as the new businesses scale up, what would be the outlook for both OPEX? That's question number one. Second, on the bank loans, just wanted to check what is it benchmarked to? Is it MCLR or repo rate linked, and how often it gets repriced? Third one is just a data point question. What would be the total amount of ECLGS disbursements as of today? Thank you.
Okay.
Third one, repeat.
ECLGS is.
We have not done anything.
We have not done any disbursement. If you look at the total borrowings, almost 55% is bank borrowings. The rest are all from the market as well as syndication. These are fixed rates, so they don't change. With regard to the bank borrowings, almost 30% would be benchmarked, and 20% would be, say, 15% would be MCLR, and the balance 5% would be fixed rate. So the, these benchmark rates as well as MCLR tend to be repriced either quarterly, half-yearly or annually, depending on mostly MCLR would be annual. The benchmarks would be quarterly or annually. Recent. Sorry, your first question was on OPEX and-
OPEX is basically the disbursements are higher. AUM growth is slower. If you see that there is a denominator effect. We are growing faster because we need to cover it up. Take for example, in the financial sector, 23%, but the AUM growth is significantly lower. Unless we get back to the AUM, our OPEX will not be apples-to-apples comparison. That is one reason for OPEX. We also started investing on new businesses, so then the growth will come within this financial year. If you see, once the AUM come back to the normal level of growth of 15%-20%, obviously OPEX will start to come down. As a percentage it will become settle down.
Sir, on this particular point, it looks like we have added around 7,500-8,000 employees in last one year. Are we, I mean, largely done in terms of employee headcount addition or we would be still adding strategically? Also, any comment on the yield, it declined modestly this quarter sequentially. Any specific reason?
See, manpower is going to be a continuous process of hiring and expanding because three new businesses now just started, you know, they just started one quarter. Within the one quarter we have done only 15-20% of the total number of branches which is available in Chola Agriculture and Health. Obviously the growth will not come in one year time. It will continue to come. As they grow, we will continue to hire the manpower. Manpower count will go up. Also, we recruited manpower for collection in order to make it more intensive in the last six months. That is also a reason. From the collection side, now we have completed the hiring in terms of manpower.
Because going forward the collections will be little easy as compared to the past. The APR is not going to be increased, so therefore requirement of collection executive will be less. The branch manager and sales executive for the new businesses, the new market, will definitely be the requirement as and when we start expanding further.
Also on the NIM, there was a INR 50 crore adjustments towards the write-off, written off assets, and that's where you would have seen a slight drop. I think that will get corrected as we move on.
Okay, got it. Just as a follow-up on the OPEX, collection agents will be hired, because now the collections will be normalizing. Will you be rechannelizing them into sales or they will continue to focus only on collection?
They will continue to focus on collection because we need to now start working on significantly on the higher bucket where people were busy in, you know, ensuring that the 90s bucket collection efficiency is higher. Once we have achieved that, now they need to go to those account which is now going to be target and we will continue to do the collection with those people.
Got it. That's useful for mine. Thank you very much.
Thank you. The next question is from the line of Vijay Agrawal from Motilal Oswal Financial Services. Please go ahead.
Good morning, Mr. Vellayan, Arun sir and Ravi sir. Thanks for taking the questions. I had two questions. First one was, bringing on the newer lines of businesses. While, Ravi sir earlier his comments suggested that disbursements are now going through to be 15 or expanding to other branches, other locations as well.
I mean, possible to give some kind of a guidance on how you are thinking of, growing this because I mean, in terms of growth, in terms of disbursements, so like, you know, really sky is the limit. So how are you thinking about, growing it in a strategic manner? That's the first question. Secondly, if you could comment on what is, the ROA and ROE that this, newer product lines can be pulled.
Yeah. As I mentioned, the Consumer and Small Enterprise Loans has got three product line, personal, business and professional loan. In that we are focusing more on professional and business, less personal. It has is being done in two channels. One is a traditional channel and a partnership channel. Traditional channel is almost 70% and partnership channel is 30%.
We are expanding into all our hub. Almost 275 hubs are there and 1,100 branches. This will be almost 70% we would like to cover in this year and 30% next financial year. To that extent, the volume will keep growing from this particular business. Now, coming to the SME, we have three product line. One is a Supply Chain Finance and term loan and working capital, and third is Equipment Finance.
Supply Chain Finance mainly we are doing in partnership with the fintech and also partnership with the anchor. That is growing in terms of disbursement, but doesn't support to the AUM growth because of that churn cost. The term loan which is a secured business and Equipment Finance is a secured business where we have tied up with the manufacturer, OEM, who produce very specific equipment, has got a better resale value and the recourse is available from the OEM.
We are focusing that to increase the disbursement. That will be a growth engine for the SME. The small business and secured business and personal loan, which is actually being planned as a secured product to the small grocery, general kirana, restaurant, e-commerce, DM, push carts and all those people, is a slow business which we have...
We need to learn the business because that is done only based on the cash flow and the footfall of the customer, where we need to evaluate physically. It is going to be slow, but it is going to be long lasting product once we learn that. ROE is going to be the highest from this product.
Put together all three, if you mix it, then the overall ROA from the SME ecosystem, which we have given in the investor presentation, that we are not present in the bottom of the pyramid and top of the pyramid, rest of the area, we are actually representing the SME. We are there in the SME ecosystem, either with the SBPL or CSEL or LAP or housing loan, affordable housing and the SME.
It continue to grow and the ROA will be equal or higher than the Vehicle Finance ROA.
Thank you, sir. Thank you, Ravi sir. Sir, I had a follow-up question on the new lines of business and then one last question for Arul Selvan sir. Sir, I mean, you suggested that about 53.2% of the disbursements in the lines of businesses are coming from the co-partnership. It is also important to understand here, that while all these partnerships can access your digital DSAs and help you in sourcing and help you in growing disbursements?
I mean, how have you addressed the collections part when it comes to loans which are disbursed through this partnership. That is my sort of question for you. Arul Selvan sir, I mean, understandably, you have been very, very conservative when it has come to provisioning even in the past or through COVID.
I mean, what was the rationale in this structure for, I mean, utilizing the management overlay? Sir, maybe a related question also is, I mean, the liquidity on your balance sheet has come down to about INR 5,700 crore. It's now kind of normalized completely or is there still room for it to be optimized? Thank you so much.
Okay. See, in order to basically build our B2C platform, digital platform, we need to understand that how these fintechs are working and how is the platform and how the portfolio quality. In order to learn that, we have done the partnerships and we are committed to them. The credit standards or underwriting norms given by us is very stringent, therefore the volumes are not high. In the beginning when the overall business is expanding, physically or traditional channel, it looks like it is higher in terms of-
Proportion over the period. Traditional business will be much higher than the partnership business. That is what is the current point. Second is that the collection is very closely monitored. Our collection team working with their collection team to ensure that 100% collection comes in month-on-month basis. As of now, our collection performance of this partnership or experience with all four partners is very good.
In any hybrid collection, not that everybody is doing 100% collection. Both of the parties, our collection team and their collection team working together to ensure that the collection is done. We are ensuring that the portfolio quality of the partnership is as equal to our own internal portfolio. That is what is the partnership portfolio and the collection performance is concerned. Sorry.
With regard to the provision, I think even in the earlier calls I have articulated that we would be revisiting this provision number because under Ind AS, you cannot carry a management overlay without any justification for a large sum. Now, COVID is largely behind us, so we needed to revisit this and we needed to bring down.
Again, as articulated, we have only taken back some part of it and retained around INR 500 crore till further contingencies that may apply. Progressively, we keep evaluating this and we will take a call with regard to how long and how far we need to hold this provision. The other question is with regard to
The liquidity that we are having.
Liquidity. The current way of approach is to keep two months of maturities, the next two months of treasury maturities and fixed obligations of cash and the plan for disbursement as undrawn lines. In that context, this number will keep varying at every point in time, depending on the maturities that are, you know, going to come up in the subsequent two months. It will be in the range of anywhere between INR 3,000 crore-INR 5,000 crore, in my view, because that is how the maturities will come. This is the pattern right now.
Right, sir. Thank you so much and wish you and your team the best.
Thank you.
Thank you.
Thank you. That is all for participants. Please restrict to two questions per participant. If time permits, come back in the question queue for a follow-up question. The next question is on the line of Sumant from Kotak Mutual Fund. Please go ahead.
Yeah, good morning. Thanks for taking my question. A few questions from my end. Firstly, given the kind of current situation, both from the inflationary environment standpoint and the way interest rates especially is kind of turning, would we like to guide that what sort of AUM growth are we looking at? And over the next 12-24 months, how does AUM mix will change vis-a-vis our core businesses and new business? That's the first one.
I think broadly we're starting at this stage kind of optimistic on AUM growth. I would also say that there's this vast kind of volatility out there that's very difficult to predict. You know, I would say this year, how much real growth is going to be there, especially in kind of our core products and services. I think that, you know, in general, we do feel confident that we will get good growth. We're a bit kind of concerned about giving numbers because the environment is kind of really getting a bit volatile by the day.
Yeah. In the month of April, industry did very well because last two months of last year, April, May was very bad. Commercial vehicle grew by 66% and even tractor, two-wheeler, construction also did very well as against the last year number. Car only was in the flat number. Our disbursement obviously going to be aligned with the industry and if industry is going to sustain at this level, you will see better AUM growth in this year.
Understood. My second question is pertaining to our asset quality and do we have any particular net NPA target in mind for NPAs as per the revised RBI norm, which is currently at about 4.75%. Some of our peers have been targeting to keep the numbers below 4%. Do we have any net NPA number in mind so to say?
I would say we would like to keep it below 4% considering the new norms. That would certainly be, you know, at least for the current year, that would be the target. We are not too far away from that, so we should be comfortably reaching that.
All right. Sure. Thank you so much. One just quick on data point. What was the total write-off during the quarter?
This is around INR 380 crores has been the write-off, of which we already carried around INR 180 crores as a normal ECL provision, and we had a carryover from the management overlay of another INR 190 crores for the incremental provision.
Okay.
It also had an INR 50 crore impact on the interest line.
Thank you. The next question is from the line of Piran Engineer from Citigroup. Please go ahead.
Okay. In the opening remarks, you talked about originated LAP being included within LAP. Within LAP, are you referring to a GTPL? Is that being included or being called as a
Yeah.
The affordable LAP is part of the LAP division and little bit part of the affordable housing. Both are actually doing the LAP. This is typically in the smaller tickets and smaller towns product. They're done at a much lower rate than the normal LAP. We started focusing that product the last year. SBPL will start showing up after some time because we started doing this last quarter only, so that will take a little more time to show up.
Got it. On the upside, could there be a higher-
I'm having trouble hearing your volume. Your audio is not very clear. Can I request you to speak to the handset?
Sorry. On the OPEX, you mentioned that disbursements were high and new business, which leads to higher OPEX. I'm wondering, is there also some sort of one-off impact of the higher collections in this quarter, or is it only those two factors which you spoke about? The reason I'm asking is that Vehicle Finance Stage 3 assets is also quite low. Their new businesses might not be affected as usual. Is there any one-off impact on collections as well?
No. This means this. Yeah. Okay. See, naturally, when collections are good, there would be, you know, performance-driven incentives to the field teams, which would have an impact on the cost that had been factored in. Again, apart from that, even with the salary cost, et cetera, for non-role employees, we have factored in a higher incentive levels considering the higher disbursements and the higher performance as a whole.
As you know, even last year we had a similar approach. Last year it was more skewed because we had not factored in the increment, et cetera, also, and it was factored into Q4. This year's increments had already been factored in. Only the incentives and based on performance it will happen.
Every time in any quarter, if the performance is low, you'll see a drop in the salary cost, and when the performance is good, you'll see some spike in the salary cost because this fluctuates with the results of that quarter.
Got it. If you look at Stage 1B and Stage 2B, they are stable QOQ. Should we see this as a normal behavior? Because there will always be some people who delay and then overdue and then come back. And that's why this 9 in Stage 3 will come from other assets. Is that the right way to think of it or these Stage 2B and Stage 1B itself you would expect to fall going forward?
No. You can see they are not at too high levels. Stage 1B will be at similar levels. You know, it will keep moving, and it does. The Stage 1B is an intermediary stage where it is moving from Stage 3 to Stage 1A. So it will. It has one more installment to get, you know, sort of collected from the customers to before it gets normalized. So to that extent, it's a good thing that if Stage 1B is a slightly higher number because it's transitory. It indicates that an account which has been an NPA has been more or less collected.
Got it. Understood. Thank you.
Thank you. Thanks to all the participants. Please restrict to one question. The next question is from the line of Shubhranshu Mishra from Systematix Group. Please go ahead.
Hi. Good morning. Thank you for the opportunity. Just wanted to understand, have you made any representations to the regulator to become bank or has there been any representation, whether a small finance bank or a universal bank or the regulator has been nudging us to apply for a license or maybe, you know, acquire a bank license. Is there some that kind of a thought going on or any kind of a discussion going on between the management and the board and the regulator or any bilateral discussions as well?
The second question is on the cost of collections. How do we look at the cost of collections in FY 2023, and what should be as a proportion of the total OPEX?
On the bank issue, we've been clear on this from the beginning, right? Which is till the RBI indicates in some way that they are open to inviting players like us to become banks, we're not gonna initiate anything. We've not had any discussions either at a board level or anywhere else, till the RBI sets some direction on that front.
I think that should answer that question. On the cost of collections, you know, we think it'll remain at the same level in FY 2023 as it has because we will keep the collections intensity up, in order to ensure that we basically push the NPA levels down like Arul Selvan said, to below 4%.
What would be, as a proportion of the OPEX?
We don't.
It keeps fluctuating because it will depend on the stage in which it is, because the incentives will keep moving, and I think that's a more granular data which we would prefer to keep to ourselves.
Sure. Thanks.
Thank you. The next question is from the line of Karan Engineer from CLSA. Please go ahead.
Yeah. Hi. Morning. Just wanted to understand regarding your small finance small enterprise loans, in a steady state, maybe two, three years down the line, how many branches will you all be doing this business out of? Is it from the same 350, 400 branches of LAP or from the overall branch pool that you all have? Also how should we think about per branch disbursements on a steady state? If I may squeeze another question on performance incentives that you spoke about. Is it done only in fourth quarter every year or is it paid out quarterly? Yeah, these are my two questions.
Happy for it. Thank you, sir. Okay. See, the performance incentive is provided every quarter, but it will reflect that quarter's performance largely. For example, in the current year, if you see Q1, we did not have a large amount of profit. Actually, we had a very marginal profit. In that quarter the incentive provisioning would be minimal. In quarters where the DPD achievement, like, NPA achievement, the disbursement achievements are higher, in those quarters we tend to take a higher hit on this.
You know, this is to go with the results of the company and in which the pattern in which the teams are rewarded. That's one part of it. Field teams are getting rewarded on a month-on-month basis.
While the performance incentive is more a provision which is carried and calculated and given at the end of the year.
Yeah. Secured Business and Personal Loan, we have given our parameters of MSME ecosystem in page 12. You will see that we are in the top of the bottom of the pyramid where this particular business is happening, along with the affordable housing division. Both are actually addressing the similar type of customer where it's like a non-professional customer having the property whom they can offer us as a mortgage.
These guys typically do small business like selling electrical appliances, groceries, you know, stationery shops. Their cash flows are calculated when you know, someone is visiting them to understand how the footfall and all. These customers are not available in the town where the LAP is performing.
LAP is mostly mainly in tier one, tier two, tier three, and they are addressing a little larger, bigger customer where the credit history is available and banking habits of the customer is very clearly established. You know, CIBIL Score is also can be 100% CIBIL Score is there.
Therefore, the SBPL will be focusing more on tier two, three, four, five, six, and small business, which is what the top of the bottom of the pyramid of the customer. 3-4 years' time, we will be all definitely covering almost 70%-80% of each tier two, tier three, tier four branches of the vehicle finance and total Chola we have today. Our disbursement will start delivering a good number by that time.
As of now, in affordable housing we are doing almost INR 200 crore per month. This number has come after 5 years. Affordable housing took 5 years to reach this INR 200 crore. I'm not saying that we'll take 5 years to do because now we have more learning with respect to the similar type of customers, so we'll do much better than that in terms of learning curve.
Okay. That answers and all is well.
Thank you. Next question is from the line of Shweta Daptardar from Elara Capital. Please go ahead.
Thank you for the opportunity. Is there any seasonality element in the home equity storefront because last year it was happening sluggish and the AUM growth happened slightly better. I also remember you had said last time, you know, you are also scaling up on the branches side. Any opinion there? Just one booking question. In the restructuring assets, you mentioned Stage 1, Stage 2 was 3,300 last call. How much ballpark number would be coming in Stage 2? Thank you.
Seasonality, weren't you talking?
Seasonality. Yeah. The LAP business or heavy commercial business is strongly correlated with GDP growth, industrial production, and also to a large extent it is also depending on the you know, urban economy growth. But LAP, we have also understood that, you know, we can approach small ticket size LAP like 20, 22, 30 lakh rupees of LAP, which is available in smaller towns. That's the reason we have started expanding and we are getting benefit out of it. Suresh, why don't you pick up from here?
From after LAP business, we in fact I've spoken about this history of my earlier calls as well. From 250 branch, it was from 125 we moved to 250 branches. Currently we are at 400 branches. Our INR 20 lakh-INR 50 lakh ticket size also have increased significantly in the last few quarters, a nd our investment on the both, on the branch side as well as on the employee side has started giving us that kind of a growth.
Coupled with, you know, the confidence in the SME sector now that the things are improving, COVID behind us and, you know, the overall confidence in the SME sector is improving. We are seeing a good traction from our disbursements side. Yeah.
I would say out of the INR 3,300 crore, INR 2,800 crore is the number which is in stage one, and the rest almost INR 500 crore is in stage two.
Sure. Thank you, sir.
Okay.
Thank you. Next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.
Sir, good morning. This is Vijay from Sundaram. My question was on the various CV businesses where you had nuanced in terms of where some collections were lagging, especially those associated with hubs. Given the economic improvement, has the collection efficiency improved across the board for the CV business, or do you still see this lag in various businesses? Thank you.
You are talking about the market-wide collection of the commercial vehicle?
Yes.
In the last quarter across the country, we saw that the collection efficiency improved across all the markets. There are markets which are affected due to the, you know, poor mining got impacted in Odisha or Bihar because of the sand transportation. In Kerala also it is impacted because of the economy did not do well in the past. Those things significantly improved in Q4, and we are hoping that that will continue for the next financial year.
Thank you.
Thank you. The next question is from the line of Alpesh Mehta from IIFL Securities. Please go ahead.
Yeah. Hi. Just two questions. First, Arul, there have been quite a few restatements on the major line items within the P&L. While the
Alpesh, sorry, but your voice is breaking terribly. Can I request you to come in a better reception area?
Is it better now?
Yes. Slightly better than before.
Okay. Thanks. Arul Selvan sir, there have been quite a few restatements in the individual line item within the PNL, between total income and the provision. What is it regarding?
See, this is based on the advice of the auditors, because it would help get a better, you know, tax, you know, frame on tax written off. Whatever we are writing off and sometimes we recover something that was getting adjusted earlier in the end. I say that it may be challenged. Therefore it is better to show that as an income, as a short-term recovery, and we have now adopted that and that's the restatement. Actually, I think that's the only restatement where, you know. I don't know whether. It affects in two places. I don't know if we-
Sir, basically, are these recoveries from written-off accounts or the?
Yes. When you are getting a recovery from a written-off account, we used to adjust that under the income itself because that's where the earlier provision or the write-off had been happening. And the earlier, if that is the normal process. India allows you, and it is also suggested that it gives more clarity and more clear view to the tax officials, and it becomes clearly a different line item for them to track. That's what we-
This goes under the other income line item, which I'm not correcting. It should not impact our operating income.
Correct. It won't get into interest income.
It won't go into interest income.
Yeah.
Okay. Large part of this would be related to the Vehicle Finance, is that correct? The requirements are higher on that.
Yeah. It is large part of it is Vehicle Finance. There will be maybe some from the LAP. Others are very small.
Okay. Just a last question. During the quarter, the write-offs have been higher. I can see it in the notes to the company, you did some write-off around INR 190 crores. But even adjusted for that, the write-offs which used to be around INR 260 crores, that run rate has gone to INR 300 crores. So any idea related to that and will it continue? Secondly, related to this, our pre-COVID ECL was around 1.9%. Currently we are sitting at around 3%. Since we are moving towards the normalization, why, when do you see this number moving back to around 2%? Thank you.
The write-offs, last year we have not done write-offs. To that extent, there is an accumulation because of last year the COVID was there. That, that's the reason this year you're seeing a slight build up on that. Of course, there's also been, you know, a higher levels of settlements et cetera. I don't see this will be, you know.
At a percentage it will not be at this level. But in absolute terms it can be, because as we move forward and the book becomes larger, you will see a slight numbers out there, right. With regard to the other part, on the ECL provisioning, we have built the PD LGDs, the COVID impact into the PD LGDs current year.
To that extent, the current year PD LGDs are little bit inflated, though this is more like a one-off event. You know, we take a five-year average, so it will take some time for this to, you know, sort of run down when you consider a five-year average. To that extent, the impact of this may carry for some time, but it won't be significant as in subsequent years also tends to be of normal or pre-COVID levels.
Thank you. As this is for all the participants, please restrict to only one question per participant. If time permit, please come back in the session two for the follow-up question. The next question is on line of Bala Subramanyam from Axis. Please go ahead.
Hi. Thank you for the opportunity. The first question was on the base shift, subsidy. Now, you've reported that the revenues were INR 55 crore for FY 2022.
I just wanted to cross-check that because I think in FY21 it was INR 8.8 billion. What's the reason for the reduction? And if you could talk about, you know, profitability for this business and how it's going to contribute for the lending business going forward. That's the first question. Secondly, you also mentioned on supply chain finance and the FinTech partnerships in the supply chain finance.
What FinTech partnerships are we talking about over here? Is this largely the Tata platform or is there something else apart from that? And you said one-third of the new businesses are coming from FinTech partnerships. How is it shared between SMEs and consumer business? Those are my two questions.
Three questions. I think your first question, one is gross revenue versus net revenue, right?
I think.
Basically, now we're reporting net revenue.
Yes.
It's not a drop. We are showing net revenue.
Okay.
The second question was supply chain partnerships. The question was which FinTech do we
You mentioned fintechs in supply chain partnerships. Is it largely a Tata platform or is there some other partnership or is the case with what is contributing to this?
We're initially very, very early. Yeah, we're exploring multiple things, including a lot of these. There are a lot of these fintechs now that are kind of getting into, you know, the whole B2B supply chain, right? We are talking to some, a lot of those fintechs to try and see if we can do something with that.
Okay. Sir, going back to the first question.
Huh?
Sir, we move on to the next question?
There's one more question.
One more.
What is the third question?
33% of the business comes from partnerships.
Partnerships.
Yeah. The partnership business which is coming from the-
Supply Chain Finance.
Correct. Supply Chain Finance is basically keeping the anchor in the center, doing the forward integration with the channel and backward integration with the vendor. It's a discounting and channel funding.
That's a different type of business partnering with the SME. But the Chola is partnering with the partners to mainly do the personal loan, which is multi-kit small tenor loan. And also one form of you know offline BNPL. And then the third is that the additional PL done in the lead generation happen and they do the conversion. There are 3-4 types of partnership giving the Chola 30-30%.
Thank you. The next question is from the line of Varun Nadar from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi. Thank you, sir. Just one clarification from my side I wanted. There was a question earlier that, which was about the repricing of the liabilities. I just wanted to understand how are assets priced and repriced, you know, depending on market prices. Or do we largely do just fixed to floating lending? And is that done for the core products usually?
The Vehicle Finance is a fixed rate book. It doesn't get repriced. The LAP and HL gets repriced. Then we review it every quarter and we do it, you know, depending on market situation.
Okay. The LAPs for the longer tenure would get repriced quarterly. If the liability side does start going up, the risk of compressing NIM would not be there at least on the longer tenure.
Small ticket size, small tenor under Vehicle Finance is basically fixed.
Got you.
See that the yield is also significantly higher.
I'm sorry, I missed you there.
Yeah, you are right. We are saying that you are right, what you were saying.
Nice. Thank you.
Thank you.
Thank you. Next question is from Abhishek Murarka from HSBC Securities. Please go ahead.
Hello. Good morning. Two questions. One on NIM. Now if you look at slightly longer term trends, NIMs are pretty much at a high in this business. Incrementally, cost of funds are likely to go up. What do you think about the NIMs from here? Can you predict current levels and how does that look? Just squeezing in another one on OpEx.
Again, if I look at slightly longer term trends before COVID, OpEx was at 39%-40%. I mean, cost to income ratio was 39%-40%. Now we are seeing, you know, setup costs for new businesses and, you know, disbursements going up. Do you think from this year's 35%, we are likely to go up from here in terms of trajectory? Yeah, just those two questions. Thanks.
The NIM will be in the range of around 7.5%, upwards of 7.5% I would say. It's been the way it has been trending only if you look at the last 10 years. It has got the element both from a cost of funds side as well as on the yield side. As we grow our portfolio or diversify our portfolio into multiple products with different yield levels, you will see the impact of NIM fluctuating with this product we focus on.
We focus the product based on market, et cetera. The impact of such shift in focus is also would be visible in the OpEx and the ECL, because the lower yield products will have lower OpEx and lower ECL. The high yield products like two-wheeler or tractors will also have a higher OpEx and ECL.
In a wide diversified portfolio, it is a little difficult to say. You know, give a particular range, even a range for a NIM level because we have to track the ROTA which factors in both the OPEX here and the NIM.
Thank you. The next question is from the line of Anuj Shah from JPMorgan Chase. Please go ahead.
Hello. Thank you for the opportunity. I have just one question. Based on current assessments between the used vehicles and new vehicles, particularly on the CV side and against the current backdrop, could you give us outlook on how do you see the two groups moving ahead?
Yeah. This year, as I mentioned that already in the month of April, industry started behaving very better. This has continued. Obviously, new vehicle business will be higher disbursement than we had in the last year. Last year, the used component were high because the new were low. As and when new goes up, then obviously the used disbursement, in terms of the proportion. In terms of the absolute value, it will be high. But the proportion between new and used, the new will be higher.
Thank you. The next question is from the line of Vidhi Shah from Axis Broking. Please go ahead.
Thank you for the opportunity. Sir, I just had two questions. In Q4, the come down as compared to the last 3-4 years, which was ranging around 15%-20%, and it has come down to now 2.something%. How do you see this going ahead, especially when now the new business is growing. That should, I am guessing, is a high incidence impact. This is first. Three, sir, on the retail book health, if you can give some color on that and also the provisions that we are carrying on the Stage 2 and Stage 1 of the retail book, and what will be the expected guidance for 2023 and 2024.
On the NIM, you know, it is, you are seeing that it is coming down. It is like this, like I just now explained to another participant. You are seeing that the vehicle finance book is coming down marginally in proportion to the overall book, and the LAP is moving up. LAP has a lower rate, so it will have its impact on the NIM.
As I again told in some part of this conversation, we also had a INR 50 crore impact on the interest reversal on the write-offs coming into the P&L. These were the factors. You will see while in LAP you will see OPEX is a much lower number and ECL is a much lower number. It will get compensated and that would.
That's where it's always better for you to track the ROTA in a business where there are multiple products with different fee structures. With regard to the second question.
Restructure.
On the restructure, I think we have given enough data already in this call. I think we can't go get more granular on the credit because of restructure. Frankly, we don't really track that as a separate cost because the restructure book in our. You know, at the ground level is treated at par with other books and all efforts go on a parallel basis.
Thank you. The next question is from the line of Prashanth Sridhar from SBI Mutual Fund. Please go ahead.
Yeah, thanks. I just have one doubt on the Vehicle Finance. Approximately how much would mature every quarter? Because that also would be repriced annually, right?
No Vehicle Finance, there is no repricing. No. I told you Vehicle Finance is a fixed rate book.
There would be some pool to the Vehicle Finance that's maturing every quarter, and then the new loans would anyway be at a new rate.
Oh, maturing you are saying. Okay. Yeah, yeah.
What proportion is that matures every quarter? Because that also-
Almost like 1/3 is to mature in a year. You know. This would again change with regard to the mix of the book. For example, in the coming year, I mean, the assumption of the market, you know, is that heavies will grow. If heavies grow, then it becomes a higher book. The proportion of heavies will run down only 1/5. You know, and that too in the initial year it will be lower, and then the lag years it will be higher. It's if there is a steady disbursement trend and a steady AUM growth, then you can predict this, you know, more accurately.
When you have got like a lull like last year, one whole quarter was lost, et cetera, and there have been shifts in disbursements, it's a little difficult to predict. At a very broad sense, you can take one-third of the book with you now.
Thank you. The next question is from the line of Bhaskar Basu from Jefferies India. Please go ahead.
Yeah, good morning. I had a couple of questions. First please, just on the broader CV vehicle financing business. While till March, of course, the fuel price increases were not really seen, and my understanding is that so far at least the larger fleet operators have been passing on the fuel price.
How do you see that kind of flowing down to the smaller medium, who are basically kind of price takers from the larger financers. That's my first question. Secondly, just wanted to understand how is the new book really behaving. Basically, even in December, we had an NPA of almost like 6% which has come down because the base has increased even though the NPA levels are kind of flattish. These are very small numbers.
I just wanted to understand how the quality of the book is holding up. Yeah, these are the two questions.
In the case of commercial vehicle or you know heavy commercial vehicle, there are three segments of the product, which is tractor, then haulage, and then tractor trailer. In the haulage long-haul customer, basically the large fleet operators, they can pass on the freight rates, and the small group transport operators who are basically having a small need for transportation.
They don't worry about the freight charges because they are attaching their vehicle as and when the freight is available and the freight is dedicated to them. Only for the long-haul customer, these diesel prices are very, very you know critical because they consume the maximum one. We are not into that segment. We are into the SRTO, where they are transporting within the city and within the state only.
For them it is easy for, you know, transferring the price and passing the price as to the customer. For the tractor customer and tractor trailer customers, diesel prices has not been a problem because they, as and when the mining operation goes up or the industry production goes up, obviously they deploy their vehicle depend upon the rate which is comfortable to them.
Coming to the point what you are asking that whether going forward the increased diesel prices will impact the, you know, long-haul transportation or overall sales of the transportation, commercial vehicle or the profitability of the customers. Yes, it can.
It will impact those operators who are having a long-haul transportation and having a fixed contract and escalation matrix is tight and it is not in favor of the customer whom we are not financing. The small commercial vehicle, the tractor, trailer and construction equipment are under the SRTO segment in Tier 2, Tier 3, can pass on, and they purchase only when there is an ability to, you know, buy the vehicle and deploy the vehicle in the market.
That's the commercial vehicle scenario. What we are expecting is that during the time the construction side, a lot of, mining side, a lot of, you know, projects are coming up, so therefore sale of the tipper and tractor trailer is going to go up. You know, last 6 months the rural economy was down. It is starting to improve now.
The small commercial vehicle, light commercial vehicle which is strongly correlated with the agricultural growth and, you know, consumption is going to go up. If we put together, we are hoping that the segment we are focused on is going to increase and that facilities and our disbursement will also go up.
Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.
Arul Selvan, just one data-keeping question. If you could give us the makeup of restructured loans between Stage 1 and Stage 2 for the previous quarter.
I'm not right now having it. Maybe I can share it with you.
Sure. Perfect. Thank you. That was the last question of today's call. We have more than run out of time, actually. Thank you, everybody, for joining us today. We thank management for giving us an opportunity to host the call. Thank you very much. Have a good day.
Thank you.
Thanks a lot.
Thank you very much. On behalf of Kotak Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.