Q4 20/21

Jun 28, 2021

Good day, and welcome to the Adaman Financial Services Q4 FY21 Earnings Conference Call, hosted by MK Global Financial Services. We have with us today Mr. Jayendra Patel, Vice Chairman and Managing Director, Mr. Alok Patel, Joint Managing Director, and Mr. Vivek Modi, Group CFO. 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Vignesh Yal from MK Global Financial Services. Thank you and over to you, sir. Thank you, Malika, and good evening, everyone. On behalf of MK Global, I would like to thank the management of Advanced Lantir for allowing us this opportunity. And we have with us Mr. Devanar Patel, Vice Chairman and MD Mr. Alok Patel, who is joint MD and Mr. Birit Modi, Group CFO. I'll hand it over to Mr. Alok Patel, joint MD for the opening remarks and then you can go ahead for question and answer. Over to you, Alok. Yes. Thanks a lot, Jitamesh, and hi and very good evening to everybody. Thanks for taking the time out of your busy schedule to join us over this call to discuss our financial performance for the fourth quarter and the year ended March 2021. We have issued a detailed press release and an investor presentation for the past quarter. Hopefully, all of you had a chance to review it. If any of you were watching the FM speech just a few minutes back, some big announcements for MFIs with regard to a credit guarantee schemes to the MFI customers. So a little early to get into the details at this point, but at least I'm glad to see that MFIs are continuing to be recognized as an integral part of the overall financial sector, especially the rural sector of India. Anyway, to start, I hope that all of you and your loved ones are keeping safe and healthy and doing well during these unprecedented times. Despite FY 2021 starting off on a challenging note for the microfinance industry as a whole, due to the pandemic and subsequent lockdowns in the first half of FY 2021, the company's performance has been more resilient in the second half of FY 2021. In the final quarter of FY twenty twenty one, it seems repayments and disbursements were both edging towards normalcy. The company enjoyed adequate liquidity and a strong balance sheet position, which makes it well positioned and agile to achieve growth over the medium to long term. The demand from the market remains strong. We also welcome RBI's announcement to harmonize the regulatory framework for various regulated lenders in the microfinance space, which will stop the regulatory arbitrage amongst the non NDFC MFI microfinance practitioners and create a more robust industry to prevent over leveraging among the microfinance customers. The removal of the pricing caps will allow us to price the product according to risk and competition and also allow us to service previously underserved areas in the underserved districts of India. Now I will give a brief overview of our financial performance for the fourth quarter and post that touch upon collections, liquidity and disbursements in a little bit more detail. At the end of the fourth quarter, our consolidated loan book stands at INR $8.14 crores, lower by 5% year over year as the repayment rates combined with lower disbursements during the year led to a rundown in the loan book. As you all know that being a very conservative lender, we had essentially stopped disbursements during the moratorium period and slowly started disbursements from August. In the microfinance division, we initially focused on renewal loans for our existing customers who had completed their previous loans. From the fourth quarter, we have started servicing new customers as well. In the previous quarters, it was riskier to service new customers as lot of the credit bureau data was stale. In the two wheeler and MSME segments, we created more stringent underwriting processes. As a policy, we did not indulge in any top off loans in any of our products to prevent evergreening of our portfolio and to ensure good credit discipline. Loans with disbursements for the quarters stood at INR $2.75 crores, up 51% Q over Q as compared to the third quarter that is. The total disbursements for the year was $5.10 crores, 40 2 percent lower compared to the previous year for obvious COVID pandemic related reasons. The pace of disbursements again slowed down in the first quarter of FY twenty twenty two due to the second wave of the pandemic. Disbursement levels are expected to reach pre COVID levels and even exceed pre COVID levels in the coming second quarter as the second wave situation seems to be normalizing. The disbursements in the microfinance segment reached the peak of 90 crores in March 2021 as a result of branch openings and recovery economic recovery post COVID lockdowns. The company primarily focused on renewing loans of existing customers and starting to disperse new loans to new customers as well. The MSME segment had reached average disbursements of pre COVID levels in March, while two wheeler segment is yet to reach pre COVID levels. Our microfinance portfolio stood at INR643crores, while MSME and two wheeler portfolio stood at INR171crores at the end of Q4. So the microfinance portfolio was higher by 4% and MSME and two wheeler portfolio combined was lower by 28% Y o Y respectively. In the urban two wheeler segment, our performance was impacted by the decline in two wheeler sales in the last well, for the last many years, but more severely in the last one year given the challenging macroeconomic environment in the two wheeler segment. The sales in the two wheeler industry have yet to recover. However, our pilot two wheeler rural product has demonstrated a relatively slightly better performance, reporting a year on year AUM growth of 4% despite the disruptions caused by the COVID-nineteen pandemic. The portfolio has reached about 10.1 crores at the March 2021 with plans to further expand in this lucrative segment. The two wheeler rural book now constitutes of approximately 22% of the total two wheeler portfolio. Gross total income during the quarter declined by 20% year on year to R44.3 crores and net total income during the quarter decreased by 18% year on year to R25.1 crores. This is an account of the decline in the average portfolio during the year and also softer yields on post COVID disbursements sorry, average portfolio decline during the quarter. Including the additional provisions recognized during the quarter, cumulative total provisionings at the end of Q4 stack stood at approximately INR 52 crores at the consolidated level, covering approximately 6.3% of our total loan book. At the standalone level for Namrara, cumulative loan provision stood at 33.1 crores at the March 2021, covering 5.3% of the total AUM. At the Armand level, the cumulative total provision stood at INR 18.4 crores covering 10.8% of the total AUM. Our net profits stood lower at INR 90 lakhs for the fourth quarter. The consolidated profit after tax for the fiscal year twenty twenty one stood at INR 10.6 crores compared to INR 41.5 crores the previous year. This is largely due to the increased provisions in relation to numerous factors related to the pandemic, which I'm sure all of you are aware of. Our GNPA and NNPA stood at 4.60.6% respectively as on 03/31/2021. Liquidity wise, we are in a comfortable position right now. As of March 31, we had cash reserves of approximately INR 132 crores including the undrawn CC limits. Liquidity position has improved driven by the pickup in collections and incremental debt capital base during the year. In the previous quarters, the company had also accelerated repayments of high cost borrowings and replaced it with lower cost borrowings. Now to give a little bit more granular breakdown on the collections. In the microfinance segment, particularly the improvement in the collection has been encouraging as repayments rates have jumped from 91% in December to 92% in January, '90 '4 percent in February and 95% in March 21. However, due to the COVID second wave disruptions, the repayment rates fell to 87% in April and 75% in May 2021. Repayment rates have bounced back quickly in June with easing of lockdown restrictions in most geographies. The collection efficiency in MSME and two dealers segment continued to be healthy at 94% in March 2021. The sudden spread of the second wave of COVID-nineteen pandemic has again created a challenging operating environment for us. The collections experienced a temporary decline in Q1 FY twenty twenty two on account of several intermittent lockdowns and restrictions being imposed across various states. The situation impacts the customer's ability to manage their activities as well as our ability to conduct meetings to recover our dues. Based on our month to date experience in June, the repayment rate seems to be recovering a lot faster compared to COVID one point zero lockdowns. COVID two point zero was unexpected and disappointing in many ways. It is with great sadness that I report that COVID two point zero resulted in the death of five of our team members and untold numbers of family members of our staff. Overall confirmed infections in our staff members was about one hundred and eighty people apart from again many hundreds of family members of our team that were impacted. In light of the human tragedy across India, it seems improper and even impolite to discuss the impact on the business. However, our business itself is very resilient. As I mentioned, the prepayment recovery has been very steep during June and we expect it to reach manageable levels starting from July. Disbursements were negatively impacted during Q1 of FY twenty twenty two and therefore the volumes will be lower than the approved business plan decided in March. It will be imperative to be extremely cautious in disbursing loans to customers with weak cash flows and having exposure to impacted sectors, which is not always easy to evaluate in the microfinance segment and relies greatly on the judgment of your ground level people. On the flip side, our confidence towards our customers who have managed to remain regular in their payments and have shown greater resilience to withstand downturns during both phases of the pandemic may be able to absorb higher exposures. Significant effort from MFin has ensured MFIs to be listed as essential services in many states, which helped a great deal in many areas to continue our operations. This also reinforces recognition by the government on the importance of MFIs in enabling financial stability at the bottom of the pyramid. We shall closely evaluate the business impact of ongoing disruption and derive our experience of FY 2021 to stabilize our business. We shall evaluate and support our borrowers using various measures available to us. Our strong balance sheet, adequate liquidity and capital, stable credit ratings and strong relationship with our lenders should enable us to receive continued funding access over the coming months. Further, our demonstrated capability of managing asset quality stress as witnessed multiple times in the past backed by resilient business model and coupled with highly experienced and stable management team should give comfort and confidence to our lenders, investors and various stakeholders. Finally, to conclude, I would like to express my gratitude to all our stakeholders for their continued support during these very difficult times and a special note of appreciation for the company's field staff, many who juggle between infection risk and their duties. Now I would request the operator to open the floor for question and answer session, please. Thank you very much. We will now begin the question and answer session. The first question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead. Hi, sir. Thank you all for taking this question. The first question is for the June month, how has been the collection efficiency with respect to microfinance and other divisions? Yes. So, well, we expect the I was anticipating this question to be the first one to be asked honestly. So it has improved quite a bit. So from last month in the microfinance segment, it was about 75%. Still another three, four days three odd days to go on this month. We are expecting to close the month anywhere between 87% to 89% prepayment rate in the microfinance segment and 90 plus in both the two wheeler and the LSLE segment. So similar to me. And I mean, you said that you are expecting July to be sort of a normal month. So you are expecting July to be similar to let's say a March month? Similar to May, but it's not similar to May was only about 75%. So this represents almost 12% to 14% increase from the previous year. April, I meant. You are expecting June to be similar to April, right? It is more than April, but yes. So a quick, very V shaped curve as far as recovery is concerned. And frankly speaking, I don't think this time is as bad as last time given the short nature of the lockdowns. And it wasn't on a nationwide level. There were only certain areas that were more locked than others, for example, Maharashtra or Rajasthan and that too more so in some districts than others. Understood. And given the situation, sir, any while we have saved a lot of money on the other expenses, so you would expect a lot of that to come back, right? We have spent a lot of money on other expenses and we would I'm not sure I understand your question. You would expect the cost of income to normalize for most of the part of this year compared to this and FY 2020? Yes, I mean, yes, that is at least generally the plan. Let us see how this year progresses. We made a lot of plans only to kind of have it go out of the window. So we had pretty large plans and detailed plans for FY 2022. And now it has of course, we'll have to go back on the drawing board and work out what F2 will look like. So but in generally speaking, yes, we expect them to remain in comparison by 2020. And so on your two wheeler financing, can you split up the gross NPA for two wheeler financing? And secondly, what is the expectation going forward? Are you seeing some better indicators on that front? So the NPA is in the two wheeler group is slightly higher. So two wheeler, Vivek, you have those figures, the two wheeler NPA figures? 2,000,000 NPA is about Thank you, sir. Thank you. The next question is from the line of Savi Jain from 2.2Capital. Please go ahead. Yes. Hi, Alok. Hey. I just wanted to know what is your restructured book right now? What percentage of your book is restructured? That's less than to about 3% that will be on the books right now. Yes. So after December, we have not done any restructure. That being said, as long as we brought this topic up, I think there might be some restructures that we do in the form of just plain moratoriums for the people who might have missed April and May's repayments. So we might just push the tenure forward by two months. And these will only be customers who are completely regular on March 31. Essentially, that is the plan and that is what we discussed during the board meeting. So what is the collection on your idea, restructure book? How is the collection going? Collection went as high as about 40% in March. During May, that number came down to about 7% on the restructure. In June, I would have to look it up to be honest. I don't have that on top of my mind on my head. Okay. So as far as the first year goes, you are including provisioning and write off, I think you're almost almost taking more than 9% of the book as provisioning or write offs. Is that right? No, I don't think 9%. I think it will be about six percent, right? Including write off and provisioning both. Including write off, yes, you can. I don't think so, Vivek. I think including write off and provisioning, it was something like INR 54 crores last year. No, what if I'm getting your question right, the existing, the provisioning that is available for the future 6.3% and the write off that has taken place is approximately 16 crores, which will be about 2%, so about 8%. Way. And that will take care of you believe there will be no further requirement at least for the first wave, second wave obviously you are still probably validating. Yes. So that it is our belief that that amount was adequate to take care of. Yes. Because I think in the beginning of the wave, I think there was a lot of discussion about what will be the credit costs due to this event. And at least the industry, a lot of players were saying it will be less than demonetization, but it seems to be clearly significantly higher than demonetization. And even in your case, I think it is much higher. Yes. I think for the record, I always said Yes, yes, yes, yes, yes. So as I said, other players. So now as for the second wave, what do you think will be the incremental credit cost? Do I mean, you now assume that this is over? So what do you think can be the credit cost because of this? Yes, really, I think it's a very good question. I wouldn't want to comment on it right now. All we are lot of the things we are seeing is that customers who are facing a problem during one point zero and after a lot of struggle, we got them into some semblance of normalcy where they were at least starting to make repayments. Now again, these guys are probably most of them through no fault of their own, have slipped back into kind of over dues. So how is that will we manage converting them again to having some kind of back into repayments? I would hope so. But really, I mean, there are too many variables and factors at play. I really won't be able to comment for at least another company on what's the But I mean, just to get a sense of the magnitude, it will definitely be much lesser than the first phase, right, the credit card? Yes, it will be much, much lesser because PR team is much better. Very surprisingly, as I said, we expect to end this month at about maybe 87%, eighty eight %, maybe one if you're lucky eighty nine percent. So very quick recovery. I think during COVID one point zero percent when we see payments in June when the lockdowns are over, it started at about sixty percent and then it took us five months to ten percent to ninety percent. So this time, hopefully, the way things are, it never dipped to such low levels and from May to June itself, it should be a good almost a good neutral. I'm looking at the April million number significantly better than the industry. Is that because Gujarat was probably much better placed this time around? Or I mean, I'm looking at other clients' numbers, it's more in the range of 60%, sixty five % for the April and May. So I heard I don't know which players you are referring to. I think most people were in the early to mid 670s as far as my market knowledge is concerned. But of course, probably track this even more than I do as far as the competitors go. But at least the unlisted players and people that I have a regular conversation with, they're probably slightly above average, but not by that big of a margin. Okay. And here is Verslyde, what are I mean, what is the status now? Have you resumed or are you still waiting and watching how this will evolve? We are repurposing, but you see there is a different form of strategies you have to use as far as disbursement goes during times like this. That way you don't want to pressure your people, you don't want to give them hard targets and things like that. As I said in my speech, it's very imperative that we at least microfinance, there is not a lot of paperwork available to formalize a system about cash flows and things like that. So I think it's very imperative that you don't push your people too hard and you tell them you can do less business, but make sure whatever we are doing is of a higher quality. Emphasis on collection. Yes. So much more emphasis on collections also is what we are telling our people. So that gives them a little less time for disbursement. That being said, we are expecting this month around disbursement of maybe about 50 crores in the microfinance book and maybe around 12 watt crores in the other books, so total 62 to 65 crores, somewhere around that neighborhood. So compared to March, that would be about 60%, seventy %. So not too bad overall, but it will take us maybe another month or two months to get back on March levels. Okay. And even if I mean, obviously, not many people expected the second wave to be of this intensity. So will you be now much more conservative maybe expecting a third wave or something in your divestment and growth? Well, I think we were already quite conservative to begin with even post COVID one point zero. I don't know how much room I have to be, so even more so factors that I can create an underwriting that will might would accept. So the answer is, of course, yes and no. We want to keep your eyes and ears open. But I don't know I think I don't know if we can continue doing business by keep expecting the third wave and the fourth wave and the fifth wave. We cannot You mentioned in your presentation about the declining, you're replacing head cost liabilities with low cost. So what is your cost of funds right now? And also I wanted to understand the impact of this base reduction, that 2.75 times base, I think that is applicable now and because of that, will your names decline going forward? Obviously, with the harmonization guidelines that will be taken care of, but that is still not been notified. So in the entire Yes. So I think if you noticed in our presentation, they have already declined. Our average yields have also declined because of that 2.75%. The part is that we have managed to offset it mostly partially or mostly by reducing our cost of borrowing. So today the blended rate is about 2.25% volume as well as microfinance. So while we are probably not getting the full 10% margin, we'll be closer to 9.5% or 9.25 or something. So not as bad as a lot of our competition because we have managed reducing the rates. But of course, once the rules harmonize, I think that will be some much needed breadth of comfort to the entire segment because all of a sudden it opens up the industry to price it according to risk and price the product according to competition. And really that's the way it should have functioned from the very start. So you started with the Malagao Committee report almost ten years ago in 2011 and everything kind of took a full circle back ten years later. So very well. So when do you think this will come into effect, what is the timeline you think this will be? No idea. I have no idea. I have no idea. Yes. I mean, I have no idea. No idea because I think there is no specific guidelines in terms of how fast would they want to turn around, but yes, for sure. So do you think the players will start again lending it like you'll start lending it 26%, twenty seven % and make some really high names and ROEs there because to compensate for so many bad years that you've had in the last five, six years. Will that is that where the industry will move at least on the NDA C MFS side? So overall expectation is that people will increase their rates to try and offset some of the losses during the COVID era, so to speak. I would hope that we don't go back to the March kind of situation where people are charging $30.32 plus. I mean, that won't happen. There is too much competition right now for that to happen. Earlier on, it was a different story where the industry was like one tenth of its size right now. But anyway, let us see. I think there's a lot of things to consider. It's really now a Metro Finance three point zero. Okay. And I think lastly, I just wanted to know I think you would have just emerged from the first wave, I'm sure discussing already with funds for an equity raise and then the second wave hit. So where have we on the fundraise? Are you again starting to starting dialogue? What is your thought there? I would really probably wait till table enough for going after equity. And right now we are quite comfortable with capital equity rate for most growth funding for FY22. Thanks to the second wave, I think not at least for one or two quarters. Thank you. Yes. Thank you. Thank you. The next question is from the line of Vishrinath from Bellwether Capital. Please go ahead. Hi, Anup. The investment business had a very good swing in the in grade two also on selection. So just wanted to kind of understand where we stand on this business. Yes, there is significant amount of rejection rates since it's a kind of labor heavy model. But given the fact that it continues to show a significant better performance, Are we kind of looking to scale this to that kind of INR 50, INR 60 crores disbursement per quarter over this year or next year? Just wanted your views on this. And last time around, Gujarat had that little better performance, but this time the wave pools seem to hit most of the Western states quite similarly. So would it be fair to say that assessing income is actually showing a better asset quality performance? Yes. I think if you kind of MSME did record significant better recovery rates compared to MFI at least from in the starting. Then it somewhat stabilized faster while the MFI repayments are continuing to increase. I think I believe in March, MFI repayment rates cross MSME repayment rates. But that being said, I think if you compare it from a geographical sense, the difference slightly becomes lower in that case, because MSME was primarily in Gujarat. And if you compare Gujarat MFI versus Gujarat MSME, it was slightly better, but you won't see that significant difference. Now as far as the growth side in MSME is concerned, I think I've said this that it takes a special kind of customer. It takes a special to find a special kind of customer to the MSME and therefore growth is not as easy, I guess, or I don't want to call it easy, but not as difficult as it is in the microfinance segment. But we are still committed to it. I think we have seen I always said, yes, I was waiting for one downturn to come before I really expand on this segment. And there were plans to expand into Rajasthan and further expand into MP during FY 2022. The second, we'll put a hold on those branch openings, but we have a target to maybe open about 20 to 22 odd branches in the current fiscal year in MSME. So yes, I think we should continue the growth in the MSME segment. And in the long run, I think even if you look at the new RDI white paper that I was discussing, nowhere in the entire document is the term group loan mentioned. So overall, I think the microfinance segment in the long run is moving towards the more individual side loans rather than the group loans. And that's exactly what we are doing in the MSME. So we are a little bit ahead of the most people there and we should be able to turn that into our advantage. So the MSI, individual product would be very similar to the MSME product firstly as in your line while you're speaking. I request you to mute your phone. Yes. That is, Shriya, that is the plan overall that as time goes on, you'll have to rely more on technology and more on while microfinance, the JLG model, you could have relied on the group loan and you could have relied on the smaller ticket size to sort of offset your risk. Now you will have to actually go on the ground level and develop some mechanism to evaluate the customers. And with this new guidelines, the FOIR rule has come up. So you can only give them 50% of their overall monthly income, the household income. Their EMI should not be more than 50% of that. So now they have also put the onus on the boards of the companies to develop strategies for assessing their income level, the household income level. So I think over the next couple of years, there's going to be a lot of changes, lot of innovation and lot of exciting new things coming. If it wasn't for COVID, I think We'll be able to run some sort of pilot and in, so do you share some insights on that? We have already started the pilot in the microfinance side. I think we already have some 44 odd customers and probably going to increase that by another 100 customers this month. And the idea is in that case is we are trying a cashless model of collections. We are still using the income assessments, but for the customers who have been with us for three or four cycles, at least for the last five to six years. If they have matured enough to a point where we can assess their incomes a little bit better or at least estimate their income similar to what we are doing for MSME. And if they are in an industry that we understand well, then we are dispersing money on an individual basis, on a pilot basis through our MFI segment alone. And we are attempting that we recover the money, at least majority of it through cashless models. So right now, we are doing eNach. We are trying a couple of other things as well, like auto UPI and things which are coming up. There are numerous different methods to get it on a cashless way. I think pulling it out of their bank account will be better than waiting for them to transfer it, like using the UPI apps and things like that. But that being said, I think the important thing is that they should have money in their bank account. I mean, all these cashless models of payment will rely on them having some cash in their bank account, which the rural segment doesn't seem very, very enthusiastic to give up easily, but we'll have to give it time. So as far putting the new regulation into perspective, so over the next three to five years, do you see large part of the book migrating to an individual model given that you have to income assets heavily known post Paramanization? Yes, that is correct. So that is going to be expensive to do and that is not going to be 100% scientific because you can only do an estimate of it. So there are a lot of things honestly that we still haven't figured out, if I'm completely honest with you. But we will and there is enough time to do it. Perfect. Couple of guiding questions. Just want to understand that the 400 crores incremental loan book that we built in MSI, is that showing significant better collections than the stock book that will be about NOK $2.50 crores, that would be one. And two is, if you could give any regional understanding of collections, in the one Maharashtra collection to significantly lower than you had kind of shared it and kind of given us understanding that people. Hello? Mr. Srinath, your voice is not audible, sir. Mental loan book. Yes, hello. Yes, on the incremental loan book, how has collections been? Thank you. So, okay. So on the incremental loan book, they dropped down to or they were at about 99.8587 on March. So they were performing extremely well. I mean to that extent probably better than the pre COVID scenario. Much better than the pre COVID scenario also. I think in the month of May, they dropped down to ninety percent. And that was solely because most of them, we could not collect it. This month has increased again. The last site that was about a week ago and I think that was at about ninety four percent level. Hopefully, by the end of the month, we should be back to at least a 98 plus kind of a method in those loans. But I would have to really check the status of those loans, what happened in the last one week. Perfect. So largely the check is in the stock book and not in the incremental loan book. Is that a fair assessment? It's a fair assessment. As I told a previous participant also, the people who are already facing problems during post COVID one point zero and we have finally got them from like got the repayment levels high enough where the repayment rate was 95, those guys are slid back. So how long it will take them to take them back up that remains to be seen. Alok, thanks for hand holding in such difficult times and patiently answering all the questions. Thanks a lot, Alok. Thank you. The next question is from the line of Balkrishna Bagacia from Accent Investments. Please go ahead. Good evening, sir. I have a couple of questions. Sir, do you think that your current high interest rate in MSME segment can damage or dampen your long term growth approach or long term plan? I mean, they are significantly higher than your peers, right? Well, I don't think in the MSME segment we have a lot of peers, but whichever one we do our pricing is somewhat similar. Overall, our customers are not very, very price sensitive. But if you look at the last quarter yields also, I think we have reduced the rates in the MSME side. As we have reduced our cost of borrowing, we have passed that along to some of our customers. Reducing rates further is not so much of an issue. As I mentioned, on a pre COVID level, that was our highest ROA product and we were very conservative as far as pricing this product for the risk involved or so called additional risk that we thought we would have to bear. And now on a post COVID scenario, it's offsetting previous losses faster than, let's say, MFI book. But if it's competition that is reducing our growth, I really don't have much of a problem of reducing the MSME rates, if it ever needs to be reduced. So on a clarification note, so are you saying that since this particular segment or ground where you are lending MSME loans, you don't have much competition. So you are trying to reap the benefit considering your credit risk as well as limited competition? It's a free enterprise system that we have accepted, sir. If the market demands that we reduce the rate, we will definitely be the first one to reduce the rate, but the thing has not reached at that level or that point. So we have to look at that level. Whatever that we decide, whatever the quantum that we have decided, we are in a position to disperse as far as MSME is concerned. And my collection record is also good in MSME. So it's not something that we are collecting the second class citizens, so called. So there's no I don't see any issue as far as the reducing the rate is concerned. If in the future, if it demands, yes, we'll definitely look into it, sir. Okay. And my second question is related to your medium term plan. Where do you see yourself in terms of AUM and business all the business segment in next three to five years, sir? No comments on that, sir. We'll have to rework the projections and plans based on the COVID two point zero. And sir, and last question, in the long term, do you see or would you like to unlock the value of number of finance by listing it? No, we have no plans to dilute at a number of levels. So for the foreseeable future, number of finance will remain a wholly owned subsidiary of Armand. And that way, it provides the most amount of value and transparency for all of our products or for both the companies rather. So right now, it's the only complete pass through entity. And I think it will just confuse the valuations of both companies if you like dilute at the subsidiary level. The entire purpose of creating Numero as a subsidiary was not for any business reason. It was purely for a regulatory perspective because RBI came up with a rule that said that if you want to do microfinance, then 85% of the assets had to be in the nature of qualifying microfinance assets. So we were essentially forced to be merged into a wholly owned sub. Otherwise, there was no other good reason to do it. All right. Thank you, sir. And best of luck. Thank you. Thank you. The next question is from the line of Shishti Jagati from MDMaggle Financial Services. Please go ahead. Hello. Good evening, sir. Congratulations on good set of numbers. I am sorry, I'm, this is a beta keep in question. Can I get the reimbursement numbers for April, May and June last three months? Okay. So April month, we did microfinance 38 crores. I think we did MSME about 42 crores on a consolidated basis was in April. During the month of May, they did about 20 crores. 20 crores. Shrade less than 20 crores. And during the month of June, as I said, we are expecting to do somewhere maybe about 60 crores, 60 2 crores. All right, all right. Okay. That is it. And sir, just one more question. When you mentioned that you're renewing loans for the existing customers, do you so is there have these customers fully repaid their previous loans or have they seen any foreclosure of loans as well? No, no. So our condition itself is that they should have a clean credit history. Now they could have been late during let's talk I think she's talking about the renewal. So renewal would be our own customers. That gives us a lot of comfort and they would have to be completely clean on our books to be eligible. So I guess there are no top off loans or anything like that or no evergreenings or so they would have to be completely clean. As far as the other customers are concerned, see there are a lot of customers that had overdue starting in August or in September or even in October. We are if the customers had a past overdue, but they have settled that overdue and that customer is clean, so to speak, today. On a case to case basis, we will approve that loan depending on our credit evaluation of the customer. It's important that any overdue amounts as of today. Okay. Thank you. That answers my question. Thanks and all the best. Thank you. The next question is from the line of Avdur Joshi from Newberry Capital. Please go ahead. Hi, good evening. Thanks for the opportunity. I would like to know which rates were affected much more in wave two because as I remember in wave one, Maharashtra was much affected and it has been reflected if I refer to the Slide number 35 of the presentation, our MFI AUM mix has declined in Maharashtra from 21% to 18%. So I would like to know salary for the comps' decision and what we are going to do in further basically depending upon the repayment rates we have in different states? Thank you, guys. It was definitely a conscious decision. During COVID two point zero, I think your first question was which states were more impacted. During COVID one point zero, I think Maharashtra was probably one of the worst impacted. And by impact, I think, I don't know the COVID figures, but at least from a repayment standpoint, based on lockdowns and other factors, the repayments were mostly impacted. I don't want to comment on whether they were tilting more COVID cases or less or more debts or less debts. To be honest, I don't even know or remember that data. During COVID two point zero, I think one of the most stringent lockdowns was probably in Rajasthan followed by Madhya Pradesh, certain districts of Madhya Pradesh and certain districts of Maharashtra. Now I think Maharashtra has been in and out of lockdown for so long that both my staff and the customers are fairly used to it by now, wherein kind of life goes on. But yes, I think that answered, I think this time was going okay for a while and then they had a very stringent lockdown starting from the May 8. Eighth of April, April. Eighth of April. So from literally for sixty days, Rajatthan was probably on one of these most stringent lockdowns in the last fifteen months which the state has seen. Fortunately, our exposure in Rajatthan is not yet a single digit. Yes. Okay. So that's the time, thankfully, we're not very strict this time. Okay. Okay. And again, just to clarify, I think we are still fairly young there in terms of our initial stages we've gotten there in 2018, '20 '19. I think the bouncing back in oil plant is much faster, correct? Okay. But I think there were no like because I heard that MSME sector you want to expand in Rajasthan and MP. So there are no much impact about collection efficiency in these two no. Both of those states have bounced back. I won't call it that they are back to normal, but there was a very V shaped recovery as far as repayments in both those states. But we'll see. I mean, if there are any individual areas which have not recovered, we might be cautious to open a branch there. But our confidence on the entire state has not wavered in either one of those two states. Okay, okay. Understood. Thank you and all the rest. Thanks, Rich. Thank you. The next question is from the line of Dhruvish from Mirabilis Investments. Please go ahead. Yeah. Hi, sir. Thanks for the opportunity. Just one quick question. I wanted to know the lock in for Elevation Capital. Lock in period. Lock in period for Elevation Capital? Yeah. What? Pardon me? There is no lock in. What do you mean by lock in period? They are free to exit. Their lock in period was eighteen months and I'll have to call my company secretary. So don't quote me on this, but I'm 90% confident it was eighteen months, which has long passed. So there is no lock in period. Which one is check like the first sale. Okay. That's fine. Thank you. Thank you. The next question is from the line of Sidhan Bhandari from High West Global Management. Please go ahead. Yes. Hi. I just had a quick question. Assuming that sort of business operations normalize and there's no wave three, by when do you think you're going to comment roughly on what the credit cost impact of sort of wave two is? Is that do you think you'll have visibility by August or you think you'll take normal for you to be able to provide an accurate picture? Well, if you recall in the last COVID, I never really provided an accurate picture even after two, three quarters. I don't think that I would be I'm not talented enough. So I don't know what to say. I mean, if the repayment rate recover and bounce back within couple of months, I can tell you that, okay, this is not going to have any impact. If they don't bounce back, then it will be difficult for me to stake and whether they'll ever bounce back, not bounce back, whether I'll manage convincing the customers. These are really very unprecedented times. Nobody in my entire management team has any experience dealing with situations like COVID. I don't think any manager does in the entire world. So, fairly speaking, I don't know, but maybe we can have a better understanding in the next quarter. No, no, I was not looking for some guidance or explicit numbers. I was just asking sort of when do you expect to have more clarity, maybe a few months out of when it might be the right time to ask this question? I think if you wait until next quarter, let us see how the repayment rates behave and then we'll get to the industry that is the CGM industry. Yes, yes. I think one thing we have learned what General Ver is also saying is that the industry and our customers are very resilient. So everybody tends to bounce back. So you have the worst kind of predictions as well. You wind up getting surprised yourself, right, of the positivity of the entire segment. So money is always green, sir. Yes. Okay. Thanks. That was all from us. Thank you. The next question is from the line of Debashish, an individual investor. Please go ahead. Hi, Anup. I just differ somewhat what you said into the previous question that you are not talented enough to comment. I personally feel your you and Jaindebe are feet on ground people and your projections are far better than the industry. For example, when first deal happened, I think the entire industry was saying that credit cost will be less than demand, but you and Jandebai always said that it is not going to be slow. So this is difficult time for MFI industry and for you. And I'm sure this is very frustrating with all these lockdowns start, start, start, start. In spite of that, March collection was very good. So from that perspective, 94% is good, one of the best in the industry. And now again, second wave have hit. So when you feel we'll be back to that 94%, ninety five %, is July a fair assumption or it will take more time than that? I think it will take probably maybe August, roughly speaking. See, it's from my anyway, thank you for your compliment. And to be fair to others, I don't think anybody expected loan losses to be less than be more, but sometimes what you say is different than what you think. So anyway, but I don't know, Ann. Normally speaking, what tends to happen is that when the recovery starts, the first few months, they are very quick and then the last percent or two you have to struggle month by month. So if you look at let's say January, February, March, to get it from like I think ninety two percent or ninety three percent in January to ninety five percent in March, that was only two percent in three percent. So the change is the amount of change that you can create in terms of percentage business will keep on becoming difficult as I recall the business. So right now you target the lowest hanging fruits, right? The people who have no intention not to pay, but you could reach their house. So those are the easiest ones. Then the ones that are slightly less impacted by the overalls. And then the last page will be people who are whose incomes have been completely disrupted during 01/2000, '2 point zero everything. And you keep in touch with them, you follow-up with them, you sympathize with them, you do whatever it takes and get them to start paying. This is just the nature of the beast. It's just you constantly have to follow-up with the customers and that's all we can do in these cases, right? I mean, this is microfinance. There is no collateral or there is no vehicles to repossess or anything like that. Look, from 2015, something or the other keeps happening, but it was the more than I've left I'll assess crisis, then COVID one point zero, two point zero, then there are natural calamities which keeps on happening in different geographies with respect to third or otherwise. Then there is government intervention, which keeps happening, which spoils the credit discipline of a particular state. So given all these, do you think that you need to tweak something in your strategy in terms of, say, new product more on the secured side? Because three years back, you had talked about house loan, housing loan, which you dropped. You are trying to prototype that or in terms of penetration strategy with respect to geography. Do you think there's a you need to think through some tweaking strategy? No, I mean, I do agree with you, Devishi, that we've had our fair share of unexpected calamities in the form of demon and COVID both and that too in a back to back succession. The thing is that it's exclusive to the microfinance industry, I think barring maybe 10% of the industries, probably 90% of the industries faced some problem or another during demonetization and COVID. As far as natural disasters, if you are large enough and spread over a large enough geography, national disasters kind of happen all the time. There is always too much rain or too little rain somewhere or another that we operate even during the best years and we were more than capable of dealing with it because it was isolated in certain branches or in certain districts. It was never a nationwide thing. So having those kinds of things are really priced into our product only that Every once in a while there will be some natural disaster or another in some isolated area. Now as far as government intervention goes, it's a two edged sword, right? I mean, there are good interventions and bad interventions. We had our fair share of good interventions in the past few months. Assam was going to kind of blow out and there was a positive news there. Of course, we are not in Assam, so it doesn't impact us. But at least for the Assam players, it was good news. This new RBI white paper that has come out is very good news. I think it will be a game changer for the industry as a whole. I was mentioning in my comments that the finance minister just made a credit guarantee scheme announcements exclusively for the NBFC MFIs. So all in all, I think it's a two edged sword. Overall, as far as the central government is concerned and most of the state governments, I don't foresee much of an issue because while there was during AP crisis, I think most of the people understand that we are an integral part of the overall lending business, overall financial inclusion business. And now you find local level operators and those kinds of guys are creating issues all the time. But again, these are isolated incidences on a normal year. But yes, I guess that's what always remains hanging. That is, there is something very serious passed in terms of regulation from the central government That could have a very material negative impact on us. But that's just I don't know exactly how to offset that risk. That can happen in any industry, right? Even in a gold loan, they can be like, well, you can charge more than a certain amount of interest, but that could happen to any industry. My last question, Alok, is given it's very difficult to get a sector and company consistently delivering 25%, thirty % ROE, okay. And there's a huge headroom for growth. You have been delivering 25%, thirty % ROE for very long period consistently and there's a headroom of growth where you're not penetrated in most of the states. So when you expect and now given some support is also coming, the RBI new regulation or today what the finance minister have said on INR 7,500 crores guarantee cover. So when you feel that you will be able to hit that 25%, thirty % ROE, is it a couple of years away or will it be much better? I think we should be back on track by FY '20 '20 '3, I would hope. So, I mean, I would have assumed that we would be back on track by like the second half or the last quarter of FY 2022 itself. That was the original plan. Now with COVID two point zero, I'm not exactly sure. But definitely by FY '20 '20 '3, I don't expect this to be like a huge, huge disaster. And now that we've gone through COVID one point four, we kind of know what to expect, right? Earlier, the expectation was very it was very nerve wracking because again, you didn't know what to expect. But today, we have a better idea of what to do exactly and if certain customers in certain areas are behaving in such a way, what exactly worked last time, did work last time. So we have a lot of knowledge at our disposal. Now as far as our ROEs and things are concerned, I mean, we've had our fair share of good years and we've had a fair share of bad years as well. Luckily, none of them were, I would like to think, were our fault. But then again, it's anybody's opinion, I guess. So I'm not exactly sure how to answer it, David. It's very easy to get impatient in this business. I think we experienced some level of impatience last year and we had pretty good, pretty solid targets set for FY 2022. In relation to that, we opened up some 20 odd branches in microfinance in March month alone. And I think we were planning to disperse somewhere between about 1,200 crores of disbursements is what we were planning in microfinance alone. So but backlit plans are always sometimes don't work out and nobody expected COVID one point zero, nobody expected COVID two point zero. And now everybody is expecting three point zero and hope it never happens. I mean, just to add to it, I noticed that the uncertainties around this make it even difficult to immediately kind of commit to the original plan. Because let's say if you have a setback because of your own faults or something going wrong, then maybe you can post correct. Correct. Here there's nothing that has gone wrong in terms of how we foresee the future without a COVID two point zero. So I mean, if you have kind of a lot of you, the payers is the key word. If I can add a few lines because of my age, would we say that one thing that you remains committed is not because of this natural disasters and the government getting poking their noses into it, but because of the trust that you can repost in this kind of people that I have dealt with billionaires and I have dealt with so many HNIs, but these are the people that I deal with. Both these are the people who has taken money from you and they believe in paying you back. Now COVID-1.0 or two point zero, yes, they might put you a few months behind, but that intentions are not bad and that's what keeps you going. These people are believed as they believe that's all there is to it. Yes. And that's well said. I think most of these people are not willful defaulters. They have genuine issues. And it's not that they're not repaying you back, but at least you can sympathize with them. And as a business owner and people who deals with the bottom of the pyramid, I think it's very important to maintain that trust and that sympathy towards them rather than making it all about dollars and cents. And along with what he said, if you are driving the car impatient to reach your destination, but you are driving in a fog right now and it's always dangerous to accelerate. I mean, there might not be a truck in front of you, but there might be. So you want to take that risk, I for one don't want to. So let's go a little slow. I think in the grand scheme of things, a few quarters here and there don't matter too much. That's true. Thank you and all the best. Alok. Thank you. Thank you. The last question is from the line of Parth from Prudent Roking Service. Please go ahead. Hi, sir. So I wanted to understand the MSME vertical a bit better. So I had three questions on this part. Now what's the difference between a microfinance and an MSME client? Second being, what's the difference in credit appraisal process between a microfinance and MSME client? And third, what are the rejection rates in this vertical? Thank you. So the first question is, typically speaking microfinance loans are lower in ticket. They are backed by joint liability. And usually speaking, in microfinance, you're lending to a woman borrower to supplement the household income. So in the MSME segment, usually it can be male or female. There is no joint liability. And the ticket sizes are slightly higher than microfinance, but not by huge margin. However, they are still not large enough to have secured to have it be secured. And primarily speaking, these guys are involved in whatever activity we are lending them money for that's usually their full time job or their primary source of revenue. Yes. So in our case, our MSME loans range from like 50,000 to about 200,000. Average is only about 70,000. In the microfinance, the average will be about 30,000. So we are trying to cover different slices of the pyramid. So while the microfinance might be the bottom of the pyramid, our MSME can be more actually called micro enterprise loans, which is tailored to the Google segment. And that is supposedly one step above the very bottom of the pillars. As far as the credit appraisal, I think we are at about twenty minutes over, maybe you can call the Investor Relations people, this will take a little bit longer to explain the differences. The rejection rates have varied very significantly pre and post COVID. I think overall on a pre COVID level, the microfinance rejection rates are about forty percent to fifty percent. Right now, they're about sixty five percent. The line from the management is disconnected. Kindly stay on line till I reconnect them. Ladies and gentlemen, we have the management line reconnected to the call. Thank you. And over to you, sir. Apologize everyone. I think we got disconnected. I was saying the rejection rate varies widely. Currently speaking, the rejection rates are very high. Microfinance, they are close to about 65% and in the MSME side, it is about 70% to 75% because lot of rejections are happening due to the credit bureaus, customers showing as overdue etcetera. So I think we have time maybe for one more question and then unfortunately I have to be some place, all of us have to. Okay, sir. Thank you. Yes. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments. I think I keep forgetting to write closing comments, but thanks everyone for joining. Take care of yourselves and we'll see you, I guess, this time a lot sooner because This time it got delayed by a month. Yes, this time it got delayed by a month. But thanks everyone for your participation and our apologies that this time a little bit longer. If anybody has a serious question, you know, they can call directly. Yes. I think we have Investor Relations people. Their contact information is in our press releases and stuff. You can always shoot them a question and one of our team members will be happy to answer it. Thank you guys. Thank you. On behalf of MK Global Financial Services, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.