Ladies and gentlemen, good day, and welcome to the Q2 FY 2024 Earnings Conference Call of Aditya Birla Capital Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on a touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Vishakha Mulye, CEO, Aditya Birla Capital Limited. Thank you, and over to you, ma'am.
Thank you so much. Good evening, everyone, and welcome to the earnings call of Aditya Birla Capital for Q2 FY 2024. Joining me today are my senior members of my team, Bala, Rakesh, Pankaj, Kamlesh, Mayank, Pinky, Vijay, Ramesh, and Sanchita. I will cover our strategy and approach across businesses, and I request Vijay to cover the financial highlights, followed by discussion on performance of our key businesses by respective CEOs. The Indian economy continued to be resilient amidst the uncertainties in the global environment. The underlying growth momentum is visible with expansion in manufacturing and services PMI, real estate buoyancy, and higher demand for travel. GST collections increased by 13% year-on-year to INR 173,000 crore. Passenger car sales by 16% year-on-year in October.
Though there has been a pause in our monetary policy tightening globally and in India, trend in inflation needs to be monitored closely. We expect the positive macroeconomic trends to continue and Indian economy to perform well in FY 2024. At Aditya Birla Capital, we follow one ABC, one P&L approach to focus on quality and profitable growth by leveraging data, business, and technology. The three pillars of our approach are one customer, one experience, and one team. This approach has helped us to accelerate our growth trajectory, build scale, and increase market share across our businesses. Our total lending portfolio across NBFC and HFC businesses grew by 41% year-on-year to INR 109,000 crore. The total AUM across mutual fund, insurance businesses increased by 12% year-on-year to over INR 400,000 crore.
The total consolidated revenue grew by 22% year-on-year to INR 8,831 crore in Q2 FY 2024. We are happy to share that our consolidated profit before tax grew by 46% year-on-year and crossed a INR 1,000 crore milestone during this quarter. Consolidated profit after tax grew by 44% year-on-year to INR 705 crore. Our endeavor is to provide one experience to our customers across all channels. We follow an omni-channel architecture for distribution and give our customers the complete flexibility to choose their channel of interaction. Digital first is at the core of our strategy for product innovation, direct acquisition, and seamless transaction experience. In our AMC business, about 78% of our customers were onboarded digitally. In life insurance, 80% of renewals were done digitally.
In our health insurance business, 85% of our business is delivered by auto underwriting. As you are aware, our comprehensive B2B platform for MSME ecosystem, Udyog Plus, went live earlier during this year. I'm happy to share that we have seen a very robust response for our Udyog Plus with more than 164,000 registrations as of September end. It offers paperless digital journey for small ticket businesses loan, along with the PIFA solutions and various value-added services to our MSME clients. We have integrated Udyog Plus with central government and private e-commerce websites via tokens to provide various credit facilities to sellers on these platforms. We have started integrating Udyog Plus with ABG ecosystems to provide channel financing to our dealers. Udyog Plus has reached a monthly run rate of INR 50 crore rupees disbursement, with ABG ecosystem contributing two-thirds of this business.
We will continue to scale the businesses in ABG ecosystem as we expand our market footprint in B2B segments. As we continue to strengthen our digital offerings, we are also focused on expanding our physical footprint. Our branch expansion is targeted at driving penetration into tier three and tier four towns and capturing white spaces across our customer segments. Our overall branch count increased by 71, and we had 1,403 branches across all our businesses as of September end. In line with our one ABC approach, we continue to expand our co-located branches, which increased by 70 during the quarter to 691 branches across 201 locations as on September end. We are also leveraging the extended ABG and ABCL ecosystem to accelerate our growth trajectory across various businesses.
ABG and ABC ecosystems contribute about 7% of our total disbursement in our housing finance business during this quarter. We also follow a one customer approach, through which we build deep understanding of our customer profiles and provide them best-in-class solutions across PIFA for their financial and business trade needs. We had mentioned in our previous earnings call that we are developing an omnichannel B2C platform with various touchpoints, through which we'll acquire new customers and provide holistic financial solutions to our existing customers. We are progressing well in this journey, and the mobile app launch in 90 days. Going forward, we will continue with our one ABC, one P&L approach to grow and build scale in each of our key businesses. Now, I request Vijay to briefly cover the financial performance of our three subsidiaries for the quarter. Over to you, Vijay.
Thank you, Vishakha, and good evening, everyone. Coming to the financial performance, consolidated profit after tax grew by 44% year-on-year and 9% sequentially to INR 705 crore. The total revenue grew by 22% year-on-year and 8% sequentially to INR 8,831 crore in Q2 of FY 2024. In our NBFC business, we continued with a strong momentum of disbursement and granularization of our book. Disbursement for the quarter grew by 32% year-on-year to INR 16,477 crore in Q2 of FY 2024, which helped the loan portfolio to grow 44% year-on-year and 9% sequentially to INR 93,522 crore as of September end. The NBFC business had a healthy ROA of 2.51% and ROE of 18% in Q2 FY 2024.
During Q2 FY 2024, we also infused equity capital amounting to INR 750 crore in our NBFC subsidiary to support the growth momentum and maximize our share of opportunities. Our housing finance business continues to see healthy momentum, with disbursements increasing by 52% year-on-year and 16% sequentially to INR 1,882 crore during Q2 of FY 2024. The loan portfolio grew by 23% year-on-year and 6% sequentially to INR 15,439 crore as of September end. ROA was a healthy 2.03% and ROE was 14.5% in Q2 FY 2024. Coming to our AMC business, the average assets under management increased by 10% year-on-year and 5% sequentially to INR 3,10,899 crore, of which equity AUM contributed approximately 42%.
Our passive AUM grew by 68% year-on-year to INR 28,438 crore in September end. In life insurance business, our individual first year premium grew by 13% year-on-year. Net VNB margins expanded by 195 basis points year-on-year and 240 basis points sequentially to 14.2% in H1 FY 2024. Embedded value increased by 13% over March 2023 and crossed INR 10,000 crore mark. In our health insurance business, our unique and differentiated Health First model helps us to deliver a growth of 23% year-on-year in the quarter one of FY 2024. The combined ratio was 119% in Q2 FY 2024. With that, I will now hand over the call to Rakesh to take us through the NBFC business performance in detail.
Thanks, Vijay, and good evening, everyone. In our NBFC business, we saw a sustained momentum across all segments in Q2 , contributing to 9% quarter-on-quarter and 44% year-on-year growth in our AUM, taking it to INR 93,522 crore of loan growth. Our retail and SME segment AUM grew 49% year-on-year and now stands at INR 62,577 crore, contributing to two-thirds of the AUM mix. Our active customer base grew to 5.9 million customers, compared to 5.3 million last year, a 13% growth year-on-year. New business sourcing was strong in Q2. We disbursed INR 16,477 crore, which is 32% higher than Q2 last year.
All product segments contributed to this growth, with our business loan segment being the biggest contributor in terms of disbursement, mixed at 41%, followed by personal and consumer loan segment at 32%. Our strong sourcing quality in this segment is demonstrated by 87% of the portfolio having a credit bureau score of 700+. Our net interest margin expanded by 60 basis points year-on-year to 6.87% in quarter two, while our OpEx to AUM ratio reduced by 26 basis points year-on-year to 2%. Our cost income ratio reduced by 428 basis points year-on-year to 28.76% for the quarter. Our profit after tax for Q2 was INR 548 crore, growing by 53% year-on-year.
As a result, the return on equity for the quarter expanded by 42 basis points year-on-year to 18.01%.... The asset quality has shown a consistent improvement over the last year, with stage two and stage three combined book coming down from 8.50% in Q2 of last year, to 5.24% in Q2 of this year. Gross stage three book has dropped to 2.64% from 3.53% in Q2 of last year. Our stage Three provision cover has increased to 48.3%, which is higher by 5.2% over Q2 of last year. As I had mentioned in last quarter earnings call, we launched Udyog Plus, our unique and differentiated unified B2B platform for MSME customers.
In a brief duration of six months, we have over 164,000 MSMEs registered on the platform as of September 2023. To deepen our geographical reach through physical presence, we added 43 branches this quarter and 154 branches in the last 12 months, taking our branch count to the total of 375 branches as of September 2023. We will continue to scale Udyog Plus and invest in enhancing our distribution capacity to fuel our growth momentum. I'm happy to share that we successfully concluded the maiden public issue of NCD, non-convertible debentures, for INR 2,000 crore in October 2023. The issue received an overwhelming response and was oversubscribed by 1.22x with over 10,000 applications across categories of investors.
To conclude and reiterate our performance, we had a robust quarter in terms of growth, leading us to a return on our assets, return on asset of 2.51% in Q2 . In the last few quarters, we will continue to build a granular portfolio and enhance our retail and SME segment mix. As we build, scale, enhance capacity, and invest in technology, we remain committed to delivering a sustainable return for the forthcoming quarter. With that, I will now hand over to Pankaj Gadgil, MD and CEO of Housing Finance Limited.
Thank you, Rakesh, and good evening, everyone. I'll now cover the performance of ABHFL in Q2 FY 2024. We maintained strong momentum in disbursements and book growth. Robust financial performance and focus on portfolio quality has led to consistent improvement across all return matrices. Q2 key highlights are as follows: Like Vijay earlier mentioned, disbursements of INR 1,882 crore, which is an increase of 52% year-over-year. I'm also happy to announce that we've crossed INR 15,000 crore mark in EWM, and as of September 2023, it stands at INR 15,400 crore, an increase of 23% year-over-year. The customer base also has grown, and it has grown by 18% year-over-year, and now stands at 58,400 customers.
NIM is at 4.88%, and our profit before tax for the quarter is INR 97 crore, which is our ever highest in the quarter, with an increase of 28% year-over-year. On asset quality, Stage two plus stage three has reduced by 38 basis points QOQ and 390 basis points year-over-year. The PAT for Q2 FY 2024 is INR 75 crore, an increase of 26% year-over-year, and the ROA for the quarter is 2.03%, with the ROE at 14.50%. You can refer to the detailed financials on slide 25 of the presentation. On portfolio quality, with focus on quality of origination, 96% of our disbursements in Q2 FY 2024 are towards 700+ CIBIL or new to credit.
The contribution of 730+ CIBIL to origination is at 74%, which is significantly higher than the industry average of 42%. Our Gross stage three has shown significant improvement, decreasing from 3.75% in September 2022 to 2.60% in September 2023. We are maintaining stage three PCR of 34%. The details of the same are provided on slide 23. Moving to treasury management, we maintain an average cost of borrowing of 7.60% for the quarter, prioritizing a diversified borrowing mix. The contribution of NHB to our total borrowings has increased from 16%- 21% in September 2023. We have maintained positive ALM across all markets, and the CRAR stands at 20.38%.
You can see that we have demonstrated consistent improvement across all aspects of book growth, asset quality, and core profitability. Now, I'd like to provide you a brief six-month update on the organizational roadmap that we presented during our discussions in April 2023. Firstly, coming to the growth and distribution network, we've been growing at a consistent pace in both the prime and affordable segments. We now have a nationwide presence with 131 branches, covering about 85% of the total addressable market of the housing finance industry. We witnessed a twofold growth in channel partner onboarding in the last six months, and like Vishakha earlier mentioned, the ABG ecosystem contribution of the disbursement now stands at 7% for the quarter.
Secondly, on digital reinvention of our entire customer journey, I am pleased to announce that as of August 2023, we've successfully deployed our new unified digital lending platform, Finverse, in all branches as per plan. This expansion follows our discussion during the last call, when it was initially deployed in 33 branches in June 2023. Within just one month of its India launch, Finverse adoption is now more than 40% in September 2023. Finverse, to reiterate, offers unified interface for all stakeholders, like customers, partners, employees, and vendors, with 95+ API integrations and built-in data-led algorithms for easy credit assessment. It also has additional capabilities like real-time dashboard and customer portal. This simple and intuitive user-friendly interface ensures the benefits like easy login, real-time query resolution, digital collection and validation, access to loan status for customer, amongst other features.
Lastly, on the analytics front, we are well on course. We have built the team now in the last six months, and the adoption of our initial models, including attrition prediction, pre-delinquency management, and lead scoring models, performance is very encouraging and consistent with our envisioned plan. In summary, we continue to invest in long-term growth while maintaining robust profitability and a quality portfolio, all while maintaining customer centricity at this course. With that, I now hand over to Bala, MD & CEO of our asset management company.
Mr. Bala, may I request you to unmute your line from your side, please?
Yeah. Can you hear me now? Can you hear me now?
Yes, go ahead.
Okay. Yeah. Thanks, thanks, thanks, Pankaj. As we... as I presented the AMC analyst call, I'll give a quick briefing also for the AMC performance for the quarter ending September 2024. Our overall average asset under management, including alternate assets, REIT, at INR 3,24,000 crore, and growing by 10% year-on-year basis. The mutual fund quarterly average AUM has crossed INR 3,00,000 crore, and equity quarterly average AUM crossed INR 1,00,000 crore. Our SIP flows compared to last year has gone up from INR 913 crore- INR 968 crore, and overall folio accounts remain about INR 80 lakh. Our strategic efforts across channels have enhanced market presence with a focus on offer company gaining the focus on offer company that we have created, gaining traction and driving upstream.
The sales ecosystem, including VRM, Sampark, and Service to sales and digital distribution, have also been yielding a positive return. On the passive, on the passive front, our AUM grew by about 68% to about INR 28,000 crore as of September 2023, and has been growing our customer base along with that, about INR 5.4 lakh folios. On the AIF front, the fundraising is underway in the ABSL India Special Opportunities Fund Category three AIF. After setting up our GIFT City, we have launched the industry first ABSL Global Emerging Equity Fund. This strategy feeds into our larger emerging market equity fund, enabling investors to access and benefit from emerging market opportunities, where we have closed the first tranche of this fund and garnered collection of about $11.2 million. Moving on to the financial for the quarter.
Our revenue from operations for the Q2 FY 2024 was at INR 335 crores versus INR 1,011 crores in Q2 FY 2023, up by about 8% year-on-year. Our operating profit for Q2 FY 2024 was INR 181 crores versus INR 170 crores, up by 5% year-on-year. With this, I'll hand it over to Kamlesh, who is the MD & CEO of Aditya Birla Sun Life Insurance Company Limited.
Thank you, Bala. I will now speak about the life insurance business performance. The first half saw a growth rate of 13% for the individual life insurance business, in line with the private industry growth, and higher than the overall industry growth of 8%. This growth in value was supported by a 19% growth in policy count. Our growth was driven through higher growth in our proprietary channels at 22%. We saw degrowth in our largest bank partner in Q2, which was driven by their strategic shift to contribute more to their subsidiary life insurance partner. Our other bank channels saw a robust 39% growth in Q2. During the quarter, we commenced business at IDFC First Bank, and our Bank of Maharashtra business will go live in the month of November.
We are hopeful by the end of Q3, we will further strengthen our bank proposition to drive growth going forward. Products launched in the last one year contributed 44% of the business in H1 of financial year 2024. In the individual business, traditional products contributed 79% and the ULIP contributed 18% to our overall business. This has resulted in strong gross margins. Upsell to existing customers contributed 28% of the business in H1 of 2024. This helped productivity growth in both our proprietary as well as partnership channels. The group life insurance business segment for the industry saw a degrowth of 23% in the first half, while ABSL degrew at 10%. We continue to remain number one in the ULIP segment of this business, with an AUM of INR 10,455 crore.
We maintain our guidance of growth for the full year projections for this business of 24. Our total premium of INR 6,827 crore has registered a growth rate of 7% over last year. This growth came from new business growth as well as renewal premium growing at 19%, and digital collections now accounting for 80% of our annual premium. Persistence across all buckets did well, with the 13th month persistence now at 87% and the 61st month at 59%.... We continue to maintain an upward bias in our forward guide, guidance for these persistency numbers. Our assets under management now stand close to INR 76,999 crore, with a YOY growth of 19%. 25% of this AUM is in equity and the balance 75% in debt.
Our investment performance has been better than respective benchmarks across all three categories of either equity, debt, or even balance funds, either from a one-year or a five-year perspective. Our digital adoption across various areas is demonstrated in slide 44. 100% of the new business customers are onboarded digitally. 83% of all our services are now available digitally, covering 62% of our customer transactions, and our customer self-service ratio now stands at 89%. Our net VNB margin continues to grow well, with an expansion of 195 basis points to 14.2% in H1 of this year, as seen in slide 41. We expect to deliver 23%+ net VNB margin in financial year 2024. Our approach is to continue the growth trajectory of this business ahead of the industry, backed by both productivity and capacity.
We expect continued improvement in the quality of the book. Growth will come from a diversified mix of both proprietary and partnership channels. We will continue to be investing across in our digital infrastructure, across prospecting and onboarding in sales, underwriting, and customer service, as well as claims. With this, I'll hand over to Mayank, MD & CEO of our health insurance.
Thanks, Kamlesh. Let me now present the performance of our health insurance business. In the first half of this year, we have registered a gross premium growth of 23% year-on-year, in line with the market. We've seen some good traction in retail sales towards the end of this quarter, and we saw an overall growth of about 38% in September 2023, against a SAHI growth rate of 23%. Post the changes we had done in our channel strategy in the first half of the year, we now expect this growth traction to continue. Our market share in SAHI has improved from 10.4% at the end of the last financial year to 10.7% in the first half.
We saw good traction in our larger retail channel, with the proprietary channel growing at 34%, backed by the capacity additions over the last 12 months, and a very focused geography strategy. The share of proprietary channel is now close to 30% compared to 25% in the same period last year. Our advisor count has now crossed 100,000 for the first time, demonstrating the large scale of our agency channel. Our focus on driving superior product mix has led to contribution of fixed benefit products growing from 12% in the first half of last year to 16% of the portfolio in this first half, which will positively impact profitability in the forthcoming quarters. We continue to add new capacities in our bank insurance channel with the onboarding of YES BANK.
Activation of new partners added in the last few months will support our retail business growth in the coming months. Our corporate business grew at 37% year-on-year, driven by a strong focus on profitability. This is enabled by sharp selection of customer segment, cross-sell, upsell, corporate wellness, and the industry-leading OPD product. We continue to focus on mid-corporate and SME segments to create a sustainable and profitable corporate and affinity business. By prioritizing both growth and profitability, we are trying to build a resilient franchise. Our net loss for the first half is reduced to INR 140 crore from INR 149 crore in the same period last year. Claims and expense ratios have trended well overall at a company level.
Our core in first half is higher compared to same period previous year, mainly due to the impact of seasonality of growth over the last 12 months. Individual components are trending very well, and we expect the core to normalize in the coming quarter, in line with what we saw last year. As a tech and digitally enabled, data-driven, health-first business, we remain committed to investing on a sustained basis, both in our tech and digital capabilities. Our digitally powered hyper-scale, hyper-personalized engagement allows us to gain deeper insight into our customers' accessing of health, of health and lifestyle data. Our app downloads have increased 67% year-on-year, and our monthly average users have grown by 35% year-on-year. Health service transactions now stand at 79% compared to 67% Q1.
Leveraging high-end data analytics tools, we drive better business outcomes, enabling us to make informed decisions that positively impact our customer lives. This involves personalized product offerings, targeted health and wellness intervention, and a personalized service approach, all aimed at enhancing overall customer experience. In addition, the investment in data augmentation and analytics is helping improve our cross-sell retention, and most importantly, fraud waste and abuse management. We continue to bolster our digital health and wellness ecosystem, and now have more than 60+ partners, and we are now working with multiple insurers, techs, and health tech players to enhance customer value and operational efficiency. In the last quarter, we launched the first of its kind digital-based, claim-based health assessment feature at scale to augment customer health data, working with a health tech partner.
It now contributes to more than 15% of our total health assessments, significant good acceptance by customers. Looking ahead, given the compelling opportunity and enabling regulatory environments, we remain optimistic on the growth potential of the health insurance industry. Our vision continues to be to expand our franchise aggressively, but maintaining best-in-class unit economics with a clear focus on profitability. Thank you, and now pass it back to Vishakha for our closing remarks.
Thank you, Mayank. This concludes the comments on our performance, and now we'll be very happy to take any questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Anuj Singla from Bank of America. Please go ahead.
Yeah, thank you. Good evening, everyone. So the first question I have it on the personal and the consumer segment with an average ticket size of INR 33,000. Now, we get a lot of queries on the bureau data, which shows stress in the less than INR 50,000 category. But when I look at our earnings, the GS3 has been stable QOQ, so there doesn't seem to be any kind of stress in our portfolio. So can you talk about the early delinquency trends in this quarter and any action we have taken on the customer cohort or the new sourcing in this segment?
So if you look at, Anuj, our unsecured and personal consumer loans with ticket size less than INR 50,000, and tenor less than 30 days is only 1% of our total loan growth. Our unsecured personal and consumer loans with ticket size less than INR 50,000 and tenor less than 30 days, which comprises the BNPL source partners, is only 2% of our overall loan growth. So clearly, I think, the portfolio is very small for both these segments. And in terms of what, as you rightly mentioned, that our portfolio looks very, very stable, but we have been monitoring this portfolio very closely in terms of taking wherever decisions in terms of tightening. We are doing our underwriting and scorecards. We are tightening the scorecards.
So we are issuing, all the indicators are looking fine at this point in time, and we have no cause of concern, but we have started tracking the leverage of these customers. So to give you an example, customers who are onboarded nine months back, 12% of the customers have now leveraged, which is one and a half times of what they, they were nine months back. So clearly, we are tracking the leverage of these customers also and keeping a very close watch on this portfolio. So very calibrated, growth of business is what we are looking at in this segment.
Got it. Got it, Rakesh. Thank you very much. And the second question is on the sourcing from the digital ecosystem partners. Now, one of the peers today commented that the delinquencies in this portfolio sourced through the digital ecosystem on the Fintech partners are higher versus traditional partners. Can you talk about your experience here in your portfolio? And secondly, within the... There is a slide here as well, where you mentioned that you're using the customers acquired through the digital ecosystem for cross-sell. For this cohort of customers, can you talk about the cross-sell rate? What have we achieved till now?
No, I think the cross-sell, almost 40% plus of the new personal loans come through these consumer loans. So that's our cross-sell conversion. Your first question in terms of what we are seeing through the digital partners, so again, we are not seeing any deterioration in terms of... Yes, we have calibrated. If you look at our personal and consumer in Q4, growing at 21% quarter-on-quarter, which came down to 15, and then in last quarter, it's come down to 9%. So we are calibrating, and we are really tightening, wherever needs to take proactive measures, we are doing it.
At this point in time, we don't see any deterioration, and our portfolio looks quite stable, but very, very proactive in terms of, through the door analysis, looking at the bounce trends, looking at the resolution. In terms of the leverage, as I mentioned earlier, we are looking at it very closely and taking calibrated course in terms of doing business.
And one more point is that, I'm not sure what the others are doing, but as far as we are concerned, we said in our remarks that we follow an omnichannel approach. So irrespective of the fact which channel the customer approaches, as far as our credit standards and underwriting standards are concerned, they're identical. Okay? So that's a very important point which is there. So even though they come through the digital channel for us, we treat them like any other channel, and our underwriting standards are same across our channels. So that also kind of helps us to manage.
So it's not that because it is coming from a one particular channel, that our asset quality is, you know, not as good as it is from our own channel or through a DSA channel or through our direct channel. And of course, as Rakesh says that, you know, we are very proactively managing this portfolio. Wherever required, we are also tightening this.
Vishakha, would it be fair to assume that the delinquency trends, irrespective of the challenge, will be quite similar, though not exactly? It will be similar across channels?
Yeah, for the customer, for the similar customer segment, it is identical.
Okay. Okay, okay, got it. And the last question is on the capital. So while we injected capital in the NBFC in this quarter, like Vijay mentioned, the Tier 1 is still 13.8, capital adequacy 16.3, and this business has been growing pretty impressively, and I think the trajectory also remains strong. So how should we look at the capital requirements of this business, maybe over the next two years?
... So, Anuj, we raised INR 3,000 crore of capital, if you recollect, during the month of June, which, at a franchise level, we are confident that it will suffice us for two years, which is closure of FY 2025. And within that, a large part of the allocation will continue to go towards our lending businesses. So we see the trajectory clear, and for next two years, we are sufficiently funded.
Got it. Got it. Thank you very much.
Thank you. Our next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Good evening, everyone, and congratulations on a good quarter. Just wanted to understand, and you've already spoken about personal loans, consumer loans, and business loans, what we are doing, and that we are calibrating. I just wanted to understand, given that we have a fairly good tie-up with, with some of the fintechs, digital players, we have, I mean, I would say, good number of partnerships in the digital ecosystem through which you source personal loans. Have you had a chance to check what proportion of your personal consumer or unsecured business loans is being originated through this fintech ecosystem? And likewise, what is the average ticket size of these loans? And currently, as of September, what was your Gross Stage Three in this portfolio?
A total of INR 19,200 crore, which is our personal consumer. The consumer, which is around INR 4,200 crore odd, which is 22% of our retail and consumer business. That's where the digital partnership really plays out. And I also mentioned about the proportion and the percentage of less than 50,000 ticket sizes in our overall portfolio, which is less than 50,000 is and more than 30 days is only 1% of our overall portfolio. So that's that's how it is...
Got it. And currently, in this, in these loans, like you said, consumer is predominantly the portfolio originated through digital partnerships. What is the Gross Stage Three number that you're seeing right now?
This is again. It's in our, if you look at, improving the asset quality slide, which is there.
Ten. Ten.
Slide number 10. If you look at both our stage two and stage three, is quite stable, including stage two and stage three, last quarter was 4.1%, and this quarter also, it is 4.1%. And if you look at 2.1% was the stage two and 2% is stage three. So it has been very, very stable now.
Got it. Essentially, this entire consumer portfolio that you're talking about, fair to assume, I mean, large part of it is originated through digital partnerships?
Consumer. Consumer business, yes.
Consumer, consumer.
Apart from that, some ecosystem and internal ecosystem and all also, but yes, these are small ticket loans.
Got it. Just one last question. Just trying to understand, I mean, because our asset quality is still holding up very well, I mean, and the fact that you already shared, that you already calibrated your underwriting. I mean, are you not seeing any fintech partners where you are evaluating whether you should continue that partnership or whether you should not? In other words, what I'm trying to understand, when there is so much that's being discussed, at the industry level, there are no early warning indicators that you're seeing in your consumer portfolio at this point in time?
In terms of we review these portfolios on a regular basis, on a weekly basis. We have a monthly cadence with our partners. We review the portfolio, whichever cohort, partnerships or segments which are not looking good, we close it and tighten it then and there. So it's not about that. So we would have taken a call, maybe 12 months back or 15 months back with few of the partners, quite a few partners. So this is an ongoing process. We keep reviewing this. So you are right, there are certain, partners where the portfolio quality might not be good, but we don't wait for long. We take a decision then and there, and we just, tighten it or stop that partnership. And there are a lot of examples where we have stopped, doing any business with them.
Got it. I think that, that's all from my side. Thank you so much, and all the very best to you and your team.
Thank you. Our next question is from the line of Parag Thakkar from ANVIL WEALTH . Please go ahead.
Hi, am I audible?
Yes, sir. May I request you to use your handset, sir?
Yeah. So basically, my question is that, what kind of margin picture do you see and ROE picture do you see, on the NBFC side as well as housing finance side? Because, generally, we are seeing this new moderation across the sector in the lending space. And the other point is that as everybody is alluding to, the asset quality, which is related to fintech or digital partnerships. So what kind of red flags are there in your system, for example, balance check, rate or whatever, which you can highlight, which gives us comfort that on the consumer side, especially in your digital partnerships and FinTech, our asset quality will remain robust.
So, so Parag, I will just, address the NBFC and then I'll, and I'll come back to that for the housing. But in terms of the margins, I think first point was the margins. If you look at our cost of funds went up by 14 basis points, though our yields improved for the quarter, but because of the cost of funds went up, that is the reason why the margins slightly, and it's very, it's in the same range, it's not... And we are quite confident that with the change in the product mix, we will be back and, to the normal margins, which we have, delivered, previous quarter and whatever we have committed going forward.
So, with the change in the product mix, we should be able to. Also, we believe that we are at the back end of the increase in cost of funds. And once that stabilizes, the change in the product mix will start really delivering the improvement in the margins. So that was your first question in terms of-
Sir, just, just to interrupt, so our guided range is what? 6.5%-7% and then 2.5%-3% ROI?
Yes, so 2.5% ROI is what the last quarter also we delivered 2.54%, and this quarter also is in the same range, 2.51%, very similar range.
Right.
I think we will continue and deliver these ROIs and continue to, as our commitment is, improve the ROAs over the next couple of years.
Great. And what is the loan book, based on the economy, based on the economic momentum, what kind of loan book growth you anticipate in the NBFC? We'll come to housing later. On your NBFC part, what kind of loan, for example, this quarter, I think you have grown about 44%, right?
Yeah.
So, what kind of sustainable growth we can assume, which will improve ROI effectively, as you rightly said, in the coming two years, as I said?
So Parag, again, if you look at we invested in our distribution, we increased our branch footprint. If you look at branches two years back was 119 branches, that has grown to 375. We are looking at 500 odd branches. We have increased our headcount in terms of manpower. So we have built in the capacity-
Mm.
This is what is paying off. But yes, going forward, the growth mile will be slightly moderated compared to what we have delivered last quarter. Our guidance, which we have always given, is that we will double our book in the next three years, and that's what we are really working to deliver.
With this improvement in ROI, from 2.5% to, say, what level in the next two years? That is, I'm just asking about the approximate numbers, not, not necessarily I'll hold on to that, but... So ROI improvement, as you are saying, from 2.5%-
Yes, yes, Parag.
So what kind of ROI you are targeting in the next two years? We are doubling our book in three years, and ROI, ROI, what is the-
Sorry to interrupt, Mr. Parag, may we request you to use your handset, please?
One second.
So Parag, our committed guidance from this front is that we will double our book in the next three years, and we will improve our ROA to 3% in the next three years, with the change in the product mix and improvement of margins.
Got it. Got it. Perfect. All right. And, and, and, second question was on the red flags. How do you see, for example, if there is a loan given through a digital channel, how do you see that, you know, there is a red flag and, this loan can turn bad? So what is the first sign? The, the check bounce rate, right?
Parag, I mentioned earlier, I think we are tracking the leverage. See, when we give the loan, we know what is the kind of debt the customer has, because you have access to the credit bureau score and everything. But post that, how many more loans the customer takes and increases the leverage and debt, I think that's what we are really watching very closely. And I mentioned that 12% of our customers over the last nine months, we have seen that they have taken their leverage has gone up by 1.5x.
Correct.
So we are tracking these customers. These 12% of the customers, we are tracking it very closely, and we will continue to track the customers where the leverage is going up. Also, we track the vintage delinquency very closely, and as I said, the first indicator is the bounce rate. And our bounce rate is still improving, and it's quite stable. So I think that's the first indicator. Things are looking stable, and we will continue to monitor very, very closely the leverage, the vintage delinquencies. All these parameters, we will continue to look at very, very closely.
Sorry to interrupt, Mr. Parag. May we request that you return to the question queue for follow-up questions, as there are several participants waiting for their turn. Thank you. Our next question is from the line of Shloka from Carnelian Capital. Please go ahead.
... Yeah, hi, this is [Carnelian] here. I have two questions. One was on this corporate and mid-market book. Again, over here, we have had a very good growth of about 37% on year-on-year basis and 8% on quarter-on-quarter basis. Within which construction finance, you know, from about INR 4,000-odd crore has gone up to, like, INR 5,500 crore, right? So two questions to this part. One was specifically on construction finance. You know, what kind of lending is this? And if you could help understand the growth that is coming here. And secondly, overall corporate and mid-market, how do we see the growth, you know, in this particular segment? Is the competitive intensity out there which would kind of impact the NIMs going ahead?
Some highlight on this particular segment of the overall book growth would really help. That's the first question.
So if I can address that, then maybe you can ask the second question. So if you look at the developer finance, INR 4,200 crore, which went to INR 5,300-INR 5,400 crore, yes, growth of INR 1,000-odd crore in that portfolio. This is a very, very stable portfolio for us. See, the drawdown in this business is dependent in terms of how the project is moving and when the requirement is. So that's the reason, I think the drawdown in this quarter has been slightly higher. And majority of our exposure in this portfolio is to Category A developers across the country, primarily focused on Mumbai, Pune, and Bangalore. So these are the three markets where our prime exposures are, and it's a very, very stable, very well-performing portfolio for us.
So that's question number one. On the mid-market and corporate, see, again, corporate books is looking very, very good at this point in time. The corporate portfolio, the leverage which the corporate businesses have, looking very good. We are looking at a very calibrated growth in this business. Our, our growth drivers will remain retail and SME, and this business will... Yes, we, we will not miss an opportunity, but clearly, the growth drivers will be retail and SMEs.
Got it. And in the construction finance, is there a concentration on, again, you know, it's kind of spread out about an INR 1,000 crore increase, right? And if I see, compare it from last year, right, so from INR 3,000 crore to almost doubling of the book to about INR 5,500 crore. So is there concentration here, or it's fairly diversified between the lenders and between the projects, or how is it?
So these are very, very diversified. See, last year's comparison is that, it was coming out of COVID, and lot of projects were slow at that point in time. If you look at, just before COVID also, our portfolio used to be 4,000+ . So from that point of view, there is no significance, over the two to three years because the construction activity was low. That's the reason the portfolio has come down. But, now the real estate has picked up and construction activity has picked up, so that's the reason you see a pick in this. And it's quite well diversified. As I mentioned, Category A developers primarily focused on, Mumbai, Pune, and Bangalore. Yes, some amount of Hyderabad, but primarily these are the markets which we really cater to.
Got it. Got it. Interesting. The other question that I had was, you know, again, in the NBFC, the active customer number for the last four quarters, you know, has been more or less hovering around the same number. But we have had robust growth when it comes to, the unsecured piece, the personal, and consumer loan piece, right? So how should one read this, while active customers number more or less remain the same in the last four, quarters, if I read the numbers correctly, but then we have had robust growth, on the asset side. So how should one read this, two data points, put together?
And we mentioned this, we are looking at a very well-calibrated business with our digital personal. So small ticket loans we have been, that have come down. I mentioned it to you that it got up over 21%, then 15%, then 9%, so it's been coming down. We are really looking at mining the existing customer base and cross-selling to the existing customer base, the customers who are performing well. So our clear focus is that we cross-sell to the existing customers and we are churning the small tickets wherever is very calibrated in terms of...
So that's the reason why you see, though, the customers in terms of customer acquisition would be higher, but active customers has been slightly, and because that's a very, very strategic call which we have taken in terms of calibrated growth in this segment.
No, but, if I understand correctly, cross-selling would be of different products, right? I mean, the other businesses that we have, that will be, something, which will be- which we, will be cross-selling, right? Particularly about the NBFC, customer base growth and the loan book growth.
So again, I think cross-sell is maybe not the right term, up-sell. So a consumer loan customer who comes in, then we... Once we see and track the performance of these customers, then we up-sell a personal loan. So a consumer loan customer moving to a personal loan, but the number of customers is not increasing.
...Okay. So basically, average ticket size for one customer is going up, right? There could be different segments of loan for that particular customer, right, and therefore, the active customer base is not going up, but, the loan book growth, would be right to understand average outstanding for one customer, going up in the last few quarters, is one of the reasons which is driving growth. Is that the fair understanding then?
A fair understanding, but yeah, that's a fair understanding.
Okay. Okay, okay. Okay, fair enough. I'll come back in the time. Thank you.
Thank you.
Thank you. Our next question is from the line of Bhaskar Basu from Jefferies. Please go ahead.
Yeah, good evening. I just had two questions. Firstly, a housekeeping question: What was the write-offs in the NBFC book this quarter and the prior quarter?
Prior quarter, INR 490 crore. So prior quarter was INR 490 crore, and this quarter is INR 369 crore.
Which of the segments is the write-offs coming from?
Primarily, it will come in the small ticket on secured loans.
Okay. My second question was basically within the INR 19,000 crore of PL and consumer loan book, I mean, what percentage is basically fintech origin? Because I think you answered to it in the earlier question, but especially in the cases where the loan is originated at the fintech and you subsequently also kind of upsell them to PL, that would also be part of fintech-originated loans. So what proportion of the total book would be fintech originated?
Bhaskar, we mentioned this. Most of the fintech origination comes in the consumer segment, where we acquire customers, which is small-ticket customers in the consumer segment.
Because my understanding is a lot of this upsell loan effectively goes back to the fintech in a way, right? So that's where I'm coming from.
No, no, Bhaskar, that's... I think we have an analytics team and which builds this scorecard and all. The majority of the customers, the upsell is done by us. In certain cases, if it's done by the partner, there is a commercial arrangement which is there with them. That's how the arrangement is.
So, do you kind of approach the customer directly or through the fintech is what?
So again, see the scorecard, and I think Vishakha also mentioned this, we have a clear only channel with all the past scorecards, which is very, very, very similar, even if we acquire for the same customer segment, for the same ticket size, we acquire through direct or through the digital partner. So all of these scorecards and BREs are built on our system and by us.
Okay. And where, where do you kind of reflect the FLDG or, the, the performance guarantee, et cetera, in, in, for some of these fintech arrangements, which... Where in the P&L does it come in?
So, Bhaskar, we have two partners where we have signed on FLDG. We are assessing others. It's very early days, but yeah.
Okay. So no FLDG's on your arrangements. Is that a fair understanding?
The way it happens, it's like recovery. It will be, if the FLDG is recovered, it will be shown as a recovery.
So, Bhaskar, you know, there were various eras of, you know, digital lending. So there was an FLDG era. After that, the digital new guideline of RBI came, where we moved to that lending where FLDG's were not allowed. But it, as we had explained before, it gets adjusted in the lending rate and the fees that we pay to our, to our digital partner. Recently, RBI has just come out with a, you know, guideline, according to which 5%, we can have, FLDG. We are engaging with our partners. In terms of two of our partners, we have, you know, kind of have concluded and moved to an FLDG kind of an arrangement.
In terms of accounting, the way it happens is, FLDG is recovered in cash from the counter, from the partner, and therefore, that is considered as a recovery. There's an actual cash that you collect on FLDG, and it is considered as recovery, and therefore, is booked in the provision item on the write back. We do it on a cash basis, when it is never accrued, you receive, and only then it gets booked as a, write back. So that's how it happens, but, it is not since the guideline is quite new. And, you know, just six/nine months back, the whole system has moved from an FLDG era to a normal lending era. Again, going back involves a discussion, involves a negotiation, and actually...
Implementation on the ground, which is what is happening right now.
Understood. Thanks.
Thank you. Our next question is from the line of Nishchint Chawathe from Kotak Institutional Equities. Please go ahead.
Hi. Thanks for taking my question. The first one for Pankaj, and, you know, if I look at the housing business yields, you know, the yields have been sort of flattish or in fact have gone down a little bit sequentially. You know, how should one read this? And, you know, some of the players have been kind of, you know, talking about increasing competition in the space. So maybe if you could share some thoughts on that. And, even, even for that matter, any, you know, any, any slowdown in demand that you may be seeing in the, in the prime segment.
Yeah. Thanks, so the question is around effective interest rates. So like you rightly said, I think the rates that we were having in quarter one was 11.56% in the IR, which has now plateaued to about 11.3%.. That is, you know, where the IR is. So here, like you would know, it's obviously we've come down because of compression of the margins, because, you know, we had the ability of passing on the rates that was increased on the repo side to our customers last year. So two key points that you had, the increase of repo rates. Obviously, they were passed on.
But, you know, on our side of it, the banks, which, you know, lend to us, obviously there's a lag in terms of they passing on the increase in rates to us. Now, I think, you know, that cycle is almost, you know, kind of, you know, come to an end. So in my assessment, you know, one compression has happened because of the cost of funds, you know, which has gone up. But like you would have previously, that amongst, you know, all the housing finance companies and cost of borrowing, we among the top quartile, you know, clearly because of our ability to borrow even AAA. As well as, you know, our NHB contribution, you would have also seen, which has gone up, you know, from about 21%- 16%. So that is, you know, one side of the story.
The other side that is there is that, you know, how this will play out is that, you know, while the yields are, you know, getting a bit compressed, you know, on that side. For us, really the ROE trend, you know, has two other functions, which is of course, the credit costs and also the, you know, cost-to-income ratios. And I think, you would have observed that the, you know, credit costs have, you know, significantly come down, which is coming at the back of, very smart, you know, positions and, I would say very smart recovery, at least in stage two, stage three. It's also shown. So sequentially, also the stage two, stage three has come down, and of course, YOY it has come down very handsomely.
So that is really helping us on the credit cost, which is coming at the back of good quality of sourcing. We speak about the 96% sourcing that we got, you know, which is 1,000+, and also entities. It's also the reflection of the pre-eligibility lending that we do and of course, the regular corrections. So on that count, I think by yields, you know, I, in my assessment, of course, they have slightly come down over Q1, but I think we should be more broadly stabilized here. Yes, market is very competitive. There are, you know, there are, you know, with that, you know, it's wanting to, you know, get into this space. It is, of course, it is operating. Efficiencies are entire, you know, stack on the digital, you know, which has gone live.
It's also going to bring in, you know, more operational efficiency, which will help us, you know, in, you know, recalibrating the costs. That should, you know, ensure that the ROE is within the range that we are today at, and will remain range-bound at, you know, in the, you know, zone of about between 2%-2.10%. That is where we are.
So you mentioned on the borrowing, borrowing costs, you know, being in the upper quartile. But you know, what is your marginal cost of borrowing for the quarter? I'm not sure if I could see it anywhere in the presentation.
When I said, I said among the best, so it is not among the highest. I just want to reconfirm that. So that is one of the best.
Mm-hmm.
So broadly, like the cost of funds is in the range of about 6.5% for the company.
Mm-hmm.
Anyways, on the background of our ability to borrow, you know, at the best rates in the market, being a AAA consistently in the last five years, and also, NHB, as you will know, you know, if you have a different contribution of affordable, you get affordable refinance, so that helps you to improve your all, you know, cost of funds.
Thanks. That, that's helpful. Just quickly moving on to the, you know, insurance business, life insurance business. You know, I'm just trying to understand, you know, most of the players have, you know, at this point of time, reported a compression in margins, while, you know, you have reported a fairly healthy 200 basis point sort of expansion. What kind of explains that? And if it is just a product mix, then what kind of an optimal product mix are you looking at?
So our product margins, if you look at through the year, actually, go up. So it's not... I mean, the buildup happens through the year. If you look at last year, same point of time, we would have been at about 1.5% range and ended the year at about 23%. And that's the pattern that you'll see in the first half of this year. The expansion is essentially on account of maintaining our traditional book mix.
We've seen some uptake on the business that we are doing on the protection side, but also because still we continue to reap the benefits of higher productivity as compared to what we get, what we got last year, largely in our proprietary channels and direct channels, we are seeing the uptick. Like I said, we maintained our guidance for end of year to be safe. Last year we were at 23%, and we will be around that range, 23%-24% margins even by the end of this year.
But is it so that the margins in proprietary channels are higher than that of partnerships and will that grow faster?
It depends on what state and what size you are building on the proprietary. I think in general the answer to that question should be should be a yes. But even on partnerships, depending on you know different cohorts-
... depending on what bank relationships you have, depending on what size, some of them contribute, because all of them are functions of what kind of investment that you put in. So some of the small banks could have, as, value creative margins as what I am saying on the proprietary side, depends on when it becomes scale, it could be a combination of your volume as well as margin gain. But yeah, proprietary, would have a tendency of, bringing significantly larger value creative margins, in the business.
Sure. Thanks. My final question to Mayank, you know, what explains the increase in combined ratio?
Yeah, as I said, that it's just, you know, the seasonality of the growth, because, you know, last year our group business grew more in the first half of the year. It will start normalizing it from the third quarter, because individual components are all trending well. Our retail loss ratio is going down, our corporate loss ratio is in line with what we have quoted, and therefore, it's a profitable segment, our expense ratio. So just because of the [n x 2] , so if I look at [n x 365, each component is going very well.
Towards the end of the year, probably be, you know, probably be neutral or probably improve or better is what you're saying?
Right. It will, you know, you'll start seeing the change in Q 3 itself.
Perfect. Thank you very much, and all the best.
Thank you.
Thank you. Our next question is from the line of Shubhanshu Mishra from Phillip Capital. Please go ahead.
Hi, thank you for the opportunity. So, I think there have been quite a few questions around the personal loan and the consumer loan part. I just want to know, what is the outstanding number of loan accounts in that, and what was this a year ago? And, how many of these customers have two or more trade lines when you onboard them?
You said how many? I think what we will do is, we will get back to you on this, Shubhanshu.
Okay, sure. And also, if we can have some sort of a, you know, zero plus or rollback rates for this, because the average ticket sizes are too low to be adjusted in Gross Stage Three and those kind of numbers. So if we, we can probably publish that as well.
Thanks, we'll consider that.
Sure. And just, because you didn't answer any of my questions. You mentioned that you are going to do something like FLDG. What does like FLDG mean? You either do FLDG or you don't do FLDG.
No, no, like, like, we will have to do FLDG. As I said, there were different guidelines of Reserve Bank of India, where there was FLDG before, then they came with this digital lending guidelines, where they prohibited FLDG, and now they've again announced FLDG up to 5% of the total [things]. So what I said is, that we will engage or we are engaging with our digital partners to see whether we can get into the whole rearrangement which is in line with the Reserve Bank of India guidelines. So we will. If we do FLDG, it will be exactly according to the Reserve Bank of India guidelines.
Right. And these fintech partners includes Paytm, where we'll do FLDG.
Paytm is one of the partners.
Sure. Thanks.
Your earlier question on number of customers, so it's 5,937,141 customers.
That's only personal loans.
You want personal loans?
Yeah. Only personal loans. Only personal loans.
Okay. I'll give you that as well. I will share that with you. I think separately I can share that.
Sure. Thanks.
Thank you. Ladies and gentlemen, that was the last question of our question and answer session. I would now like to hand the conference over to Ms. Vishakha Mulye, CEO, Aditya Birla Capital Limited, for closing comments.
Thank you, everybody, for joining us today evening, and Happy Diwali to all of you and your families. Look forward to be in touch. Thank you.
Thank you. On behalf of Aditya Birla Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.