Ladies and gentlemen, good day and welcome to the Bajaj Finance Limited Q1 FY22 earnings conference call hosted by Bank of America Securities. This call will be recorded and the recording will be made public by the company pursuant to its regulatory obligations. Certain personal information such as your name and the organization may be asked during the call. If you do not wish for it to be disclosed, please immediately discontinue this call. This call is not for media representatives or Bank of America investment bankers or commercial bankers, including corporate and commercial FX. All such individuals are instructed to disconnect now. A replay will be available for Bank of America investment bankers and commercial bankers, including corporate and commercial effects. The replay is not available to the media.
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 0 on your touchtone phone. I now hand the conference over to Mr. Anuj Singla from Bank of America Securities. Thank you, and over to you, sir.
Thank you, Rutuja. Good evening. Good morning, everyone. This is Anuj Singla from Bank of America Securities. Thank you very much for joining us for the Bajaj Finance earnings call to discuss Q1 FY22 results. To discuss the results, I am pleased to welcome Mr. Rajeev Jain, Managing Director, Bajaj Finance Limited, and other senior members of the management team. Thank you very much for the opportunity to host you. I now invite Mr. Rajeev Jain to introduce the management team on the call and take us through the financial highlight for the quarter. Post which, we will open the floor for Q&A. With that, over to you, Rajeev.
Thank you, Anuj. I have with me Sandeep Jain, our CFO, Atul Jain, CEO, BHFL, Manish Jain, CEO, Bajaj Financial Securities, Anup Saha, Deputy CEO, Bajaj Finance, Anurag Chuttani, CIO, Fakhari Sarjan, our CRO, Deepak Virdi, our Chief Collections Officer, and Kurush Irani , our Head of Operations and Business Transformation Project. I also have our compliance head and general counsel, Babu. Thank you, Anuj, for the opportunity, and thank you for hosting us. I'll be referring to the investor presentation that is being uploaded on the investor section of our website. Let's quickly jump onto panel number four. I'll be essentially referring to pages four, five, six, seven, and eight, and panel 43 and 45, and then be open to questions. We have tried to write it in a self-explanatory manner, but I'll still read them out to make sure there's clarity on what we are trying to communicate.
Overall, we are all aware we just went through a very severe second wave. Clearly, the quarter was a muted quarter. That's not a word that I've used in the last 14 years of doing four quarters each. This is in a way, 56th quarter that we're doing. That's really what pandemic does. It was a muted quarter impacted by a severe second wave of pandemic. Both business and debt management efficiencies were affected due to strict lockdowns across most parts of India. Overall, as I've said in two calls that we did during this period, sometime in June and one at April end, that it's been an emotionally hard quarter given the number of deaths we've had actually in the company. Despite that, the show goes on. The business transformation remains on track for phase one go live in October 2021.
The company still continued to remain in business reasonably aggressively through Q1. AUM grew to INR 159,000 crore. Opex to NII came down to 30.6%. PAT just remained a tad above INR 1,000 crore or INR 1,002 crore. A year-on-year growth of 4%. ROE came in at 2.7% not annualized. That means 11 odd percent run rate and net NPA, which is really where the big bust was. We had given a warning to that effect in our June 4 release, a move from 0.5%, which was again not relevant due to moratorium. It is a year-on-year number, so it has to be represented. It came in at 1.46%. Let's just dive deep into the numbers. Let me go to panel five. I must state the year-on-year numbers are not comparable. Last year was a complete lockdown till May end.
This year is in parts. Last year there was EMI moratorium. There is no EMI moratorium this year. They are not comparables at all. It's the first point I must make. Overall core AUM growth was INR 4,100 crores. From this, I'm knocking off INR 2,980 crores of IPO financing book. I'm knocking off the interest reversal adjustment, as you can see below. Core growth in Q4 was INR 9,500 crores. Core growth in this quarter was INR 4,100 crores, mainly on account of B2B business dialing down. Essentially on a quarter-on-quarter sequentially, if we had a normal quarter and didn't have second wave, that book normally sequentially goes up by INR 4,000-5,000 crores. Actually the biggest part of impact is actually on account of urban B2B and rural B2B business. It is what it is. The core growth was INR 4,100 crores.
If there is no third wave and life stays even the way it is at this point in time since, let's say, I would say 21st of June onwards, I would say, we expect the quarterly AUM growth rate for the balance to be at pre-COVID level. As I said, if there's no third wave and life continues the way it is at this point in time. We booked 4.63 million accounts. We acquired 1.88 million new customers. There was one good milestone that we crossed. We crossed 50 million customers to end the quarter at 50.5 million customers. Overall growth of 17%. Cross sell franchise stood at 27.5 million customers. Total geographic footprint was at 3,113 locations, 115,000-odd distribution points. We added 125 new locations. We started our financial inclusion journey. We added 50 locations where there is no bank in Q1. It is part of the plan.
There's plan to open 50 more such branches if this pilot was to run successfully in the fourth quarter of the current fiscal. The company also added 49, just a tad below 50 branches in existing locations, mainly 25 standalone gold loan branches in two cities in India. As we walk into it, we opened 13 in Jaipur and 12 in Vizag. 24 dedicated branches for FD we launched in Q1 as well. Overall margin profile adjusted for interest income reversal remains, and as a result of cost of funds going down, otherwise remains steady across all businesses. The interest income reversal came in at INR 451 crore. It's even higher than what it's been in the last. Last two quarters was real. The first two quarters was a placeholder.
We've taken a place card number of INR 306 crores, knowing fully well this would come last year. Last year number was a place card, but this year is a real number, which is INR 451 odd crores. We are trying to pace out the interest reversal. That's how we've taken last year's Q1. Cost of funds, we've guided, will continue to go down. It came down to 7.11% overall as we dial down the liquidity buffer to around INR 8,500 odd crores. That's one. Even now, company has very little CP. There's virtually no CP sitting in the company. Less than INR 1,500 odd crores of CP is what is sitting in the company. We are very clear the CP has to go to 8%-9% of the balance sheet. As that goes in that direction, we will see 7.11% go down further.
On panel six, deposit book continues to grow, giving us granularity on the liability side. Its contribution now is at 21% on a consolidated basis. Opex to NII came in at 30.61%. Several actions are again taken to try and partially mitigate the financial impact, and that's how the number is. It saved close to INR 200 odd crores, INR 250 odd crores of Opex in the current quarter as a result of set of actions that we took on the quarter-basis. Overall, we expect that this will normalize to around 33% by Q4. You may see a jump up in Q2, and settle it closer to this number in Q3 and hopefully stabilize fully by Q4. The EMI bounce rate, that's something that we guided the street. Overall, we have provided data for April and May and June. This is for July.
The overall July bounce rate at a fundamental level has actually come in marginally lower than what it was on an average basis in Q4. Even this metric we did not see deteriorate through April, May, June. If there is some light at the end of tunnel on this point fundamentally reflects a positive metric is what I would say. Forward flows clearly were constrained due to debt management efficiencies. Overall things have eased at this point in time, I'm not providing guidance because, overall July seems in line with March, or I would say marginally better than March. March, when we had given Q4 results, we had said that we have not seen numbers like this. It's pretty volatile. If things were to not harden, lockdowns were not to happen again, we're probably better placed to navigate through this.
Loan losses, point number 11, as a result of being unable to collect from an ECS standpoint, worked like that INR 1,750 odd crores. I'd say a INR 1,750 odd crores. Clearly, it's a number higher than even first quarter last year number that we had taken on. Management overlay provision from INR 840 crores, we consumed part of it. As of 30th June, we are at INR 483 crores. Gross NPA, net NPA, as a result of outflow movement, came in at 2.96% and 1.46% versus the right thing to do is to compare against on a sequential basis rather than comparing year-on-year, because last year, as I said earlier, we were in moratorium. Exiting Q4, we were at 180 basis points. That moved 115 basis points to 2.96% and 75 basis points in net NPA, which moved to 146 basis points.
Given the kind of movement in gross NPA and net NPA, let me just go to level two. Overall GNPA for the quarter increased by INR 2,006 crores from INR 2,731 crores to INR 4,737 crores. The biggest burst was actually in the Auto finance business. You go to panel 43, you will see the gross NPA, net NPA, fundamentally, other than that portfolio versus December, has actually improved. Even versus March, some of the businesses are improved. Versus December, there is positive movement in which is when we were actually getting out of pandemic, in that sense. That's something that I'll talk through when I get to panel 43. Overall, the GNPA increased from INR 2,731 to INR 4,737 crores. Auto finance, as I said, was affected. The AF business GNPA increased from INR 1,200 crores to INR 2,426 crores.
Just in this line of business, there was a movement of INR 1,227 odd crores. Other lines of businesses, which is INR 159,000 minus INR 12,000 crores, the movement was only INR 800 odd crores. Moving to panel seven, which is the NNPA panel, which is the NNPA metric, came in at INR 2,307 crores versus INR 1,136 crores as of March. Secured contribution moved from 50-odd% to 74-odd% in terms of NNPA metric. Non-OD OTR, which is one-time restructuring, which was announced, which was shared in March as well, actually moved down from INR 1,739 crores to INR 1,300 odd crores, either as a result of pay down or as a result of movement from two stage two and stage three. Overall, what we are very clear about is that in the risk business, the true health of the business fundamentally is represented by the GNPA and NNPA number.
That's the metric that essentially determines the health of the business. It's very clear we are at 2.96% and 1.46%. We are very clear that we will do whatever is needed to be done to bring the GNPA back to 1.7%-1.8% and NNPA to 0.7%-0.8%, either by flowing through the P&L actually or portfolio improves. It's only one of the events that's going to happen. We are quite clear that towards the long-term guidance range for gross NPA and net NPA remains 1.7%-1.8% and net NPA at 0.7%-0.8%. Based on that, at this point in time, our assessment is the overall credit cost for the year will be between INR 4,200 crore-INR 4,300 crore for us to be in the GNPA corridor of 1.7%-1.8% and NNPA corridor of 0.7%-0.8%.
This is something that we don't want to tolerate slipping in any given manner. As a result of these events, the consolidated profit I already talked about. Capital adequacy, of course, growth was 15%. AUM growth was only 15%, so capital adequacy remains strong at 28.5%. Tier one crossed 25% mark. We are very well positioned from as COVID eases, as growth stance comes back, we are reasonably well positioned from a capital standpoint. BHFL AUM grew by 24%. Capital adequacy of BHFL also remains very strong. BHFL post-tax profit grew 75%, actually, from INR 92 crores to INR 161 crores. BFSL has now started to warm up to retail clients, has 95,000 customers, acquired 52,500 customers. It is running a run rate now of 40,000-50,000 customers in a month.
We do foresee that sometime between September and October, we will start to have a run rate of 75,000-90,000 customers in a month. Over to the next panel. Today we talked about on business transformation very quickly, that at the AGM we shared the homepage and how our consumer app will fundamentally look. It's also uploaded on the investor section of our website. Please do have a look at it as to how we imagine we will look for customers as we start to roll out in October, the entire new digital platform. I've talked about point number two as well in the AGM. It's a reasonably large ecosystem of over 2,000-plus screens across all businesses and service modules, 7,000-plus content pages.
It's reasonably large work that we've been at for the last eight, nine months, and hoping that we can pleasantly surprise consumers as we launch this. As I said, phase one to various investors have said that as we launch this in phase one, there will be a phase two. Phase two being defined as that we perfect it. We have a long list of things that we want to do. I would say between October or mid-October to March is when we think we'll get to a degree of satisfaction, which gives us satisfaction to the work that the team has been at. The wallet business, we got the PPI license from RBI. We launched the business 1st of July. So far, we've onboarded 320,000 customers.
We are reasonably on track to originate 5 million customers for our wallet business in FY 2022, given the run rate that we have at this point in time and the adoption that we're seeing. Of course, it'll have phases. Customers have to start to use the debit functionality. Clearly, a team has been created to run and drive that business. Step one is to onboard our customers to start to activate clients. With the intention to, as we deliver the entire digital platform, we were super clear even last year, that the second phase of that would mean significantly enhanced presence or control over the payments business. As you see the homepage, after our products, the next component fundamentally is that of payments.
To us, it is very clear that it's very, very strategic in nature, but it is also very clear to us that it is very hard to make money in the business. It has to be done from an engagement standpoint and from a retention standpoint of clients on the platform. It's needed, doesn't make money, but needed to engage clients. Having taken the strategic call, we do not want to make partial effort. We've taken the board approval now. So far, PPI license gave us issuance. We now want to get into acquiring. There are three, four different modes of acquiring. We expect to see ourselves being present across all the three, four modes of acquiring. We are now beginning to pay based on post-approval. We will build out the teams to build out this business.
There are two licenses that we'll apply for, which is a payment aggregator license. We've taken the board approval today, and BBPOU license. BFSL launches app on 31st of May. Let me now jump quickly to panel number 43, which provides some texture and detail on the provisioning coverage and the Gross NPA, Net NPA by lines of businesses. Fundamentally, as you can see, at the overall bottom block, you see that the GNPA on 31st December, ending quarter three was 2.86%. It dropped to 1.79% and has inched back to 2.96%. Net NPA was 122 basis points, went down to 75 basis points and has inched back to 146 basis points. To that extent, COVID has taught us that these things can be volatile, they can oscillate. We don't like it, but that's the nature of where we are in pandemic.
If you see what I was saying to you, that if you see the auto finance business, that is really where the, if you see December to June comparison. Between December and March, at the design level, you have to remember that we landed up taking only INR 1,250 crore of incremental provisions in Q4. It's not like we took between December and March, very high provisions. In fact, provisions reduced. We took INR 1,230 crore of provision between Q3 ending quarter and Q4 ending quarter. As you can see here, the gross NPA of the AF business is really where the movement is. From 11.5%, it went to 19%. Sales finance business went down from 1.91% to 1%, 3.34% in consumer B2C to 2.84%, 2% to 1.35%, 3.64% to 2.85%, 2.60% to 2.15% and 95% to 88%.
Clearly, when I was saying that the worst affected was auto finance business of ours, that's really what I was meaning. If you see the net NPA, you see very similar play there. From 6%, net NPA went to 12%. Sales finance, 24% to 24%, 123% to 95%, 26% to 29%, 145% to 92%, and 84% to 70% and 56% to 61%. Clearly, the mover of the portfolio metrics fundamentally in Q1, essentially came in from the auto part of the business for us. I just go on to my last slide. That's a little more busier than even this, but it will provide some more degree of texture to the comparison that I did between December and June.
You can see a lot of numbers here, but the numbers to focus on fundamentally is how you see OTR has moved, which is column three from INR 2,000 crore to INR 1,300 crore, from INR 6,000 crore to INR 6,000 crore and from INR 4,200 crore to INR 4,700 crore in terms of stage two assets. In terms of provisioning, it's very similar, except for one thing to remember is that AF, while the gross NPA, net NPA moved, it's also important to remember that it's a repossessable asset.
It's an asset that can be repossessed and we do believe that if there is no continued lockdowns or things were to continue the way they are, we should be able to bring control to that portfolio in the next three to four months' time. That's really all from me. We have provided all the details that are necessary from an analysis standpoint, and that we can head to Q&A.
Thank you very much.
Yeah. Rutuja, go ahead, please.
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 the 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 the questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mahrukh Adajania from Elara. Please go ahead.
Yeah, hi, good evening. My first question is on NPLs.
Yes.
Obviously, COVID has impacted auto loan collections. Why is it that your NPLs on auto is secured? Why is it that your NPL on secured is so much higher than on the unsecured segment? That's my first question. My second is that, what is the proportion of Flexi Loans, if at all? What was the total conversions in FY 2021? Also in terms of unsecured loans, are Flexi Loans all unsecured loans or there is a secured portion to the Flexi Loans as well? That's my second question, and then I have one more.
Go ahead. Go ahead with your third question.
My third question is on your card. Basically, what is the status of your retail EMI card and Health EMI card? Also if you could give the NPL movements in terms of slippages for the quarter.
Let's start with the first one. See, look very clearly, even in AF or auto finance, as we call it, if you look at the numbers, the biggest stress there actually is not even that portfolio because we didn't want to keep breaking portfolios and providing data. At a fundamental level, the three-wheeler business there, which is 30% of the business, is more severely impacted. The reason one did not see the pressures of it last year was essentially because we were in moratorium.
Out of INR 11 and a half thousand crore book that we have, INR 4,000 odd crores, INR 11,347 crore book that we have, close to INR 4,000 crores is three-wheeler business. That was far more impacted. That's one part. Two, we do deal, you have to realize, and we have said that many times, that that's the only business where we fundamentally deal with mass customers.
They were far more impacted, or they are far more impacted. Even in Wave one they were impacted. If you see the numbers of the same panel on a full year for last year, you will see the proportion of balance sheet to proportion of loan loss was significantly higher. It played out last time as well and it's playing out this time. On Flexi Loans, I thought you will not ask me this question. Given the data that I gave you, if you go to Panel 43 again, that Flexi Loans were converted in consumer B2C. Flexi Loans, we do it for as a business in SME, we do it as a business in mortgages. If the numbers are telling you anything, we are now one year into it. I think this debate should be settled by now.
Probably I'll answer it for one last time today because I've been polite in making the point, but probably today is the last time I am responding to a direct question on Flexi. Let me add a point just before anybody else wants to ask. Did we do any Flexi Loans in the current quarter? The answer is no. That's once and for all. To question number three, on EMI card, we continue to acquire EMI cards. That's also there in the deck. That's on panel 40. Overall, EMI cards, it was at 24 million. That's on panel number 40 that you will see. Sorry. It was at 21.5 million in last year same time. It's at 24 million as of 30th June. That's the third business. That's the third point.
Finish.
Retail EMI card spends business, we have capped that business at 50,000 accounts a month. At this point in time, we are transforming the business. The ticket size in that business used to be INR 9,000-INR 10,000 per account. We became very clear post-moratorium that unless and until it's INR 14,000-INR 15,000 per ticket, there is no economic frame. As a result, it meant category changes, and so on and so forth. We are doing it, but it used to handle 50,000 accounts a month. We have capped that business at 50,000 accounts, and we are continuing with the business and with a higher ticket size, and it's profitable to that extent. We can move to the next question.
Thanks.
Thank you.
Thanks.
The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.
Yeah. Thanks for taking my question. Firstly, two data points. In terms of the write-offs, how much it would have been and post that there has been this kind of an increase in GNPA. Would decrease in provisioning coverage from 58%-51%, would that be largely on account of maybe when we look at it, the write-offs in the pool that you have?
Kuntal, the write-off is approximately INR 900 crore-950 crore for the quarter. Balance is the addition in the provision that you would see in the statement as well. To the other question in terms of movement of numbers in terms of GNPA, et cetera, is largely concentrated around the auto finance business vertical.
Sure. Yeah, that's fair. In terms of restructuring, you said like it's either moving into stage two or stage three, and that's the reason it's coming off. Broadly, maybe under OTR-2 also there would've been requests. Is it implemented or maybe this is OTR-1 which has come off, and we are yet to implement the requests which are there under OTR-2, and there could be more restructuring additions?
The request for OTR-2 has been very little so far. We have not seen a lot of customers coming and seeking OTR-2 unlike what we have seen in OTR-1. To your previous question, you were also asking.
It's also reflecting, just to add to what Sandeep is saying, it's also reflecting in default rates or bounce rates. If that was high, you would see high OTR requests. That number has actually gone down. Just to correlate the point.
Yeah.
Sorry. To your previous question on the provisioning coverage ratio, it's going down marginally versus where we were in, let's say, December and March. That's mainly on account of customers moving from stage two to stage three and being early delinquency in stage three rather than going into deep delinquency.
Okay. In terms of wallets, you two said, like maybe it doesn't make money, but any kind of a burn that would happen or maybe the kind of cost we are planning to incur, given that we are looking at onboarding almost 5 million odd customers. Finally, how much could be the cost? Definitely, there would be an engagement plan as well, to ensure or maybe retention of the customers. Would we be burning money and it could really impact if possible to maybe highlight that?
Yeah. It's a fair question. Do we foresee that based on customer segmentation, we could go all the way to dropping INR 150 into per client account? It's possible. The large part of the frame is actually built on our entire voucher management infrastructure that we have created, which generates offers from our retail ecosystem, which is what is going to drive that on second usage, he will get money dropped into wallet. There are various promotion frames. On an aggregate, however, you should assume that we will end up spending, investing anywhere between INR 75-INR 100 per client in warming him up to a wallet account. That's planned for.
Okay. When we highlight in terms of Opex to income ratio, that is broadly considered while getting to that number.
Yes. Because we also significantly foresee much higher velocity in the process. Answer is yes.
Okay. Sure. Lastly, in terms of the rollout, the last time it was quite a detailed one in terms of within all the marketplaces, how we are seeing this rollout. Many of them would have already got implemented, but maybe if you can further highlight in terms of now what's happening out there in terms of the various marketplaces and what is pending and till October, what are we planning to implement in the phase one?
Yeah. eStore is now reasonably warmed up. Just to give you texture, out of 4.6 million loans that we did, 120,000 loans came from between attribution and contribution, directly from eStore. In that, the June number was actually 60,000. We foresee that we'll be doing 150,000 odd accounts by October, November. We are a lot more confident of its integration increasingly, between the omni-channel frame. It's our first big test on omni-channel. That is a call received by the customer from our point of sale person in 15 minutes time, either by him or her or the retailers. That's something that we are a lot more comfortable with and confident of, and we are beginning to see that and reflect that in numbers. It's obviously hard, but I think we are a lot more confident that we will continue to deeply integrate the eStore ecosystem.
Same thing will happen as on 31st of October, the insurance marketplace and the investments marketplace goes live. Clearly the omni-channel frame is about integrating offline-online, online-offline, and just keep tightening the screws between offline to online to reduce friction for customers. It's hard, but we are clear that's the only way to play, and we are-
Sure
comfortable with it.
Okay. Partner One app and Merchant One and Merchant app is also very much on track in terms of.
Partner One app, Merchant One app will be the one that will be the consumer app, which will go live between October and November. Anurag is looking at me. It's January, that's correct, because that will go live in January. Phase one of Merchant app will go live in January. That will, in a way, further augment the retail EMI spends business. Our new avatar of retail EMI business to the earlier question is actually linked to a new merchant app ecosystem. That will go live, phase oe of that, sometime in January is when it'll go live. Partner One app, we are now aggregating the whole thing into one place.
Anybody who wants to become a partner of the company will go through this single interface. We expect that to go live also between February and March. In a way, we have lots on our plate and our hands full. Anyway, COVID is creating more volatility into the business. Might as well spend our time getting business a lot more ready for the future.
Sure. Thanks. Thank you so much.
Thank you. The next question is from the line of Aditya Jain from Citigroup. Please go ahead.
Thank you. In the presentation, there is this mention of wallet business, about 320,000 customers added since the launch on 3rd July. That's a pretty sizable number. Could you talk about how much of it is, let's say, completely fresh customers, and how much are coming from the existing customer base? Related to this, the 5 million target for wallet, does that assume again, some cross-sell from the existing customer base? If that cross-sell assumes sizable, how much of it is fresh customers?
One, it's all existing. Two, they have to open the account, so they are fully KYC'd, so that reduces friction. That's level one. Our focus is not on new customers. As the ecosystem develops, new may happen, but we don't need new customers. It is not automatic. Let me just make that point. We will land up doing, let's say, 1.6, 1.7 million customer run rate on any given month. Of that, as you can see, so far till 18th, only 320,000 happened. They have to open the account. There is 1 hop. It's not automatic. There is an hop. He has to register. Could, you want to? He has to accept. Sorry.
For us, because they're full KYC customers, majority of our customers, the wallet is opened at the point of sale. 70% is at point of sale and 30% is at home. Because the customers are full KYC, we are able to open a full KYC PPI wallet. It is a one extra hop in the app, where customer has to take the consent.
Based on various promotions that we earlier talked about, we may do a voucher drop, we may do money drop.
Yeah
If any links is back around and start using.
As Rajeev said, the whole frame for payment for us is around the reward currency. Since we work with the 100,000 merchant, we work very closely in terms of the voucher management frame, which are co-opted in terms of the promotion, and that will be the core heft on the PPI for us.
Got it. Thank you. That helps a lot. On the sales finance in both rural and urban, while the GS3 haven't risen much, the GS2 increases in the quarter are fairly high. One behavior here is fairly different from the personal loan side. What is driving that, and then going forward, does that mean a different expectation here? Next quarter onwards could be a 3B increase in the sales finance piece in rural and urban.
Sorry, sir, you are not clearly audible. We have not understood your question, please.
Can you just repeat, Aditya?
Sorry. My question was, does the GS2 increase in sales finance, both rural and urban, is fairly high. Although the GS3 increase isn't high, but the GS2 increase on a percentage basis is fairly high. Would you expect a reasonable amount of this to convert to GS3 in the next quarter? Or no. Is there expectation that there should be more recoveries from this?
See, you meaning stage two? When you say GS2, you mean-
Yeah, yeah. Stage two. Yeah.
Fundamentally, if you look at the stage two, the fundamental difference between sales finance business, which is sales finance and rural sales finance, and versus others is, it churns very rapidly. That's the only fundamental difference. Churns very rapidly, flows very rapidly, washes very rapidly. That's the only distinct difference between this business and rest of the businesses. That's all you should read from this, and nothing else, is all I would just say, Aditya. I don't know whether I am responding to the question that you are asking.
Maybe enough for now, but just last question from me. The restructuring. Could you just give us qualitatively which segments the restructuring is more in within the different products?
On panel 46, as you can see, if you go to panel 46.
Right
You can see OTR is there for INR 670. Majority is, as of today, sitting in mortgages, INR 700 crores and INR 400 crores in sales finance and very little in. The numbers are right there.
Got it. Yeah. Perfect. Thank you.
Okay.
Thank you. The next question is from the line of Aakriti Kakkar from Goldman Sachs. Please go ahead.
Yeah. Hi, good evening. This is Rahul here. Rajeev, two, three questions. Number one, on the wallet side, clearly, I think you're revitalizing the use case of wallet by talking about the voucher management. Looking about three to five years out, eventually, what really would be the game plan of this? I understand this, and correct me if I'm wrong, but there are discount options that are available. You do cards also, co-branded cards, which can be useful for reward management, et cetera. This wallet always existed. Is it a critical part of the strategy that over time we get into other lower ticket size items through wallet?
That's question number one. Question number two is, on the payment side, how critical the payment piece is going to be for the success of this platform? In payments, we already know there are various types of form factors which are available for both customer-centric and merchant-centric. Which part of the ecosystem are we looking to target?
Fundamentally, Rahul, I'll answer the first part, Anup can cover the second part. The first part is meant for our existing customers. Number two, as I said earlier, the second component after our product offering is payments. We are seeing payments as a fourth single checkout page we'll be following. EMI card, credit card, UPI, PPI, and rewards. This is the rewards as currency. Rewards will come in by January, February, this is the single checkout page strategy that we're headed to at a fundamental level. That's how important, integral, and critical payments to us is. When we launch on 31st of October, you will see UPI, PPI, credit card, and an EMI card. The fifth one, rewards, will come in sometime between January and February. That's one part. We are also very clear that this is what will create stickiness and engagement.
As I said earlier, Rahul, this is a burn frame. That also we are clear about. It means burn. When we look at various players in the market, the only thing that we found lacking was that people are doing more Nobody is doing structured reward management work. Everybody is essentially doing, when people want to acquire customers, they throw in money, and they go away. Three years ago, lots of millennials in my office were all using Paytm. They started using Google Pay, then they started using PhonePe. People want to acquire customers, throw money, burn half a billion dollars, and go away. We don't have a customer acquisition problem. We are generating. We have 50 million customers. They are fully KYC'd. That's the second point I must make. Three, we continue to acquire 1.8 million to 2 million customers in 3,000 cities in India.
Engagement is really where our entire focus is. That is really why the digital acceleration stroke transformation as well. In that, payments is critical. Why are we bringing it now? We had to first get the money-making machine going, then we will get the engagement machine going. You will see on, as we go live in October, these single checkout page across these four. That's a strategic frame. Let's talk about at a mechanics level, and at how broad we are looking at playing the PA/PG.
BBPOU.
BBPOU. Anup can cover that in a moment.
Sure. At an overall level, as we bring our three-in-one asset live to consumer, what we are missing is the high-frequency transactions. As Rajeev said, payment fills that gap for us. Second is, we don't have a challenge of consumer downloading the app. Because our point of sale is where we get maximum of our customers, and as we get them in for the payments, they stay with the app because payment is a daily transaction. However, in terms of our EMI transaction, credit card transaction, loan transaction, all of that will be available in there. Having said that's the PPI licenses where we believe we can originate significant amount of our acquisition in terms of customers and payment.
What we are now bringing, because if you want to play the payment, you need to play the full stack payment, which is what we have now taken approval on the acquiring side of the payment and also the BBPOU license. These are the two licenses we are now going to apply to RBI. The other big plan for us is we are available in 3,000 cities. We have point-of-sale people on 3,000 cities where the real payment, the transformation will come because what we are seeing in our market by market is the adoption of digital. As we go beyond the 120 market is dramatically very high. Our presence in 3,000 cities is going to cover that, and in a way, If you break this up into population, 2/3 of population is sitting beyond the 120 cities.
I think that's where our key heft is. Having said that, the bigger city as well, we have dominant market share in our counters. Consumer acquisition costs, we don't need to spend. We can get them downloaded at the point of sale. Payment ensures that the daily transaction happens, and they remain sticky on the app. The offline retailers need a solution to get the customer on the store, and which is where they contribute along with us in the reward framework. When you look at reward, as Bajaj Finance, we don't need to burn all the money ourselves. The 100,000 merchants are participating on an ongoing basis, and as we bring the assets, they get a sub-wallet to spend as well.
Just to the last one, I think Anup has made extremely important point that outside of 100 cities, the distribution doesn't exist. The second important point that he's fundamentally made is on offline retailer. Look, in the last three years, there's lots of noise and competitive activity at point of sale. At a margin profile level, our margin profile improved rather than deteriorated. It was a very easy call for us to, let's say, we'll also burn money because we need this customer acquisition. We never let that happen. That's really how voucher management frame was born. Being able to originate vouchers from merchants, or making them participate in the frame.
This would be a one-time cost when the customer downloads the wallet and activates on it. This would be a recurring feature to keep the customer active because, of course, the competitive landscape, as you rightly pointed out, still remains fairly.
It will be determined by customer NPV. Larger the customer NPV we see and is equal to one will determine that, quite honestly. Yeah. Credit card rewards to the point Anup is making, we already burn at stores. If you have reward points on Bajaj Finserv, RBL Credit Card, you can burn them today at the point of sale. We've been doing that now for the last 1.5 years. We'll keep ring-fencing the customer around it through these frames is really what we are clear about rather than burning a hole through the P&L.
Also because at a design level, PPI, UPI are small ticket transaction. As you go to larger, they are the credit card and the UPI card transaction. Reward comes in for split and pay because down payment is adjusted to reward. Today, we run that burn for 100,000 merchant with our credit card reward. As we bring in all the four instruments of reward, that kitty of reward becomes far larger for the consumer.
Got it. Just final follow-up on this. Would it mean that we'll also need to get into the offline POS, or that would be done via our tie-up with RBL?
We are very clear that we will do offline. As Anup says, 75 cities and out, nobody is there. It's a problem that needs to be solved for. As Anup says, we are there. We are physical, as I said in AGM, we lend, collect, and deliver the last mile. We've looked at all three form factors. Post-approvals, we'll build our teams. We are not doing this with a short-term view. We are doing this as a full-fledged business. Warming up to issuance. Now we'll start to warm up to acquiring.
Also on the acquiring, as Rajeev said, you'll have the QR-based acquiring, which is the all-in-one QR with the all four instruments live on it. You'll have the point-of-sale QR, which is the physical machine, depending on the type of merchants. You'll also have the online acquiring business, which are the high-velocity business. As we are applying for it, we are applying for all. Since, unlike the other players, we have point-of-sale people there in 3,000 markets, we will be able to bring that at a significantly lower cost.
Sorry, just remind me, when are we going live with this? Offline POS and all?
It'll take time, Rahul. We have to first deliver 31st October, the consumer app. As I said, in January, we're launching Merchant app. With that will go live the QR. QR will go live along with the Merchant app. That's one part. Again, I must just say that these strategic frames, we'll start to peel them as we get deeper and deeper into consumer financial services, what we rolled out today, Rahul.
Got it.
QR in January, along with Merchant app, and you will hear from us over time on rest of the frames.
Got it.
As we get license from RBI to go out and do this.
Makes sense. Just one final question on asset quality, if I may squeeze in. Excluding AF, the performance is pretty solid as it appears. What would you attribute this to? Is it the reflection of better selection over the last 12 months, or generally the market itself has now matured and the underbelly of 10%, 15% customers have been written off in general across the system? What would you?
Yeah. Bounce rate fundamentally represents default. I am super clear about that. In fact, you can ask me the counter question then, we should not say the loss will be this much. One could argue that. We are in uncertain times. We don't want to guide wrong. I want to deliver 1.8% gross NPA and 60, 70, 80 basis point net NPA. We're keeping. That to me is non-negotiable. The default rate, let me give you one texture. Even exiting moratorium in October, November, December last year, the bounce rate, were running at 2.2x of post-moratorium. Post-morat being February, what it was to what it opened and what it remained at in October, November, December.
That is not so the case as you articulated in June and as we articulated in July as well. I just want to make sure that we tide through July and August. If there's no disruption in July and August, it's possible that we are sitting in a better place.
Rajeev Jain, when we see the NACH data, it still appears to be around 30%. Pre-COVID it was about 24%, 25%. I understand there are various nuances to this data, but that's what it appears to be for the whole system.
You have to just remember, Rahul, there are various aspects to this, and let me give you texture so that we are all clear. When we peel the onion for you guys, even a stage three customer is banked. Please remember.
Yeah. Okay.
Okay. If I have written him off, I may write him off, but I'll keep banking or every bank will continue to bank him. Please remember this. I have an obligation, or the banking system has the obligation to continue to bank. Current bucket bounce is really where the frame is. You were not in default last month. You are in default this month. That represents current bucket bounce rate. I can peel this for you in various ways, you are looking at and that represents many other aspects of SI and so on and so forth. We are giving you banking of 14 million customers. I think banking base is what? 15 million. 15 million is the banking base is what really we are giving you. I can't speak for rest.
Sorry to interrupt. May I request Mr. Rahul to please rejoin the queue?
Yes. Rahul. I think you'll have to get behind.
We have people waiting for the turn.
Yeah.
Yes.
Thank you. Participants, we request you to please limit your question to 2. As you have further questions, you may rejoin the queue. The next question is from the line of Kuntal Shah from Oaklane Capital. Please go ahead.
Hi, Rajeev Jain. Kuntal Shah here. Two data points is that one-fifth of our auto finance loan is now in GNPA. At the same time, you said bounce rates are stable, but provision coverage ratio has dropped from 65 to 51. Is it your assessment that many of these earning assets will come back online or can be repossessed and there is some recovery there, that's why the provision coverage is kept low? How do we read this provision coverage also going down in view of the rising GNPA?
You have to read it in point number, Kuntal. Just one second. If you see the mix on panel number seven, NPA was INR 2,307 versus INR 1,136. 74% of this is now secured. The mix has really moved, is really how you should see. Earlier to the point that I made to Rahul, we do foresee that while auto finance has moved dramatically, the repossessibility as clients flow, should lead to significant improvement. I can't bet on it or bank on it, and that's why when the account flows, I have to provide for it.
Thanks. I think that clarifies. My other question is on our reliance on one bank for the credit card partnership and one service provider, Mastercard. Are you planning some second partnership?
Yeah, we're going live with DBS sometime in November or early December.
Okay. My last question is on the friction between marketplace and the OEM products, which both of will go concurrently. Say, if I buy an asset on aggregator marketplace, but I want to then subsequently borrow from Bajaj Finance, all those kind of interoperability issues will come in and would there be a friction? How do you capture the transaction flow between the two marketplace, your marketplace and the Bajaj Finance marketplace?
Look, no, there's no two, there's only one, number one. If you are our customer, you will use your EMI card, create a loan and walk home. Number one. Two, we are bringing a whole host of partnerships onto that platform. Let's say Samsung is going straight in a way, using EMI card, Samsung now is going straight to the consumer. In a way, for Samsung and LGs who have the SKU infrastructure, inventory management infrastructure, we are working with all manufacturers now closely to go direct. In fact, One of the outcomes out of this has also been that it's helping manufacturers go direct. They use essentially EMI card or credit card to do the transaction. That's really how the conclusion of a transaction, Kuntal, is.
Yeah. Tell me. Got it.
No, what I meant is suppose if I buy an asset on the aggregator platform through some third party but want to then borrow from Bajaj, how it will work?
No, you have to stitch. That's the whole point. That retail EMI card, that's the reason I gave you the math. Sorry. Anup was trying to make a point, but as we stitch the way it happens today on Amazon and Flipkart, that let's say 200,000 customers or 250,000 customers in a month use EMI card on Amazon and Flipkart as a payment instrument. As we stitch more and more of such partnerships, more and more EMI cards can then be used for the same. We're doing that with e-commerce. We're doing that with MakeMyTrip. We're doing that with a whole host of travel like EaseMyTrip and so on and so forth.
Professional courses.
On professional courses. Wherever we have bilateral relationships, EMI card is used as an instrument to create a loan.
If it is an aggregator, our product gets in as an instrument. When it comes to our eStore, the retailers are also brought in by us, and the instrument is also available for use. We work both offers and on a sale.
Yeah.
Thanks. That clarifies my question. Thank you.
Thank you.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Anuj Singla for closing comments.
Yeah. Thanks, Ruchita. Thank you very much to the management of Bajaj Finance and Rajeev for giving us the opportunity to host you. That concludes the call for today. Thanks everyone for joining and have a good day.
Thank you, Anuj. Thank you all. Thank you.
Thank you. On behalf of Bank of America Securities , that concludes this conference. Thank you for joining us, and you may now disconnect your lines.