Ladies and gentlemen, good day and welcome to Bajaj Finance Q4 FY 2021 Earnings Conference Call, hosted by JM Financial Institutional Securities Limited. As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Bunny Babjee from JM Financial. Thank you, and over to you, ma'am.
Thank you. Good evening, everybody, welcome to Bajaj Finance earnings call to discuss the fourth quarter FY 2021 results. To discuss the same, we have on the call Mr. Rajeev Jain, Managing Director; Mr. Sandeep Jain, Chief Financial Officer; Mr. Atul Jain, Chief Executive Officer of Bajaj Housing Finance; Mr. Anup Saha, Deputy Chief Executive Officer, Bajaj Finance; Mr. Deepak Bagati, President, Collections; and Mr. Fakhri Sarjan, Chief Risk Officer. I request the MD, Mr. Rajeev Jain, to take us through the financial highlights, post which we can open the floor for Q&A session. Over to you, sir.
Good evening, good morning to some of you who are in another hemisphere. We've uploaded the press release. I think we are waiting for BSE and NSE to upload the investor deck, and that's why we've not uploaded in our section of our website. It's been done so now, I'm told, so you can refer to that. I'll run through a few slides quickly to give you texture on the quarter that went by. Overall, if I look at the assessment of the quarter, I would say, given the circumstances, a good quarter for the company. I'm on panel number four, with most lead financial indicators fundamentally normalizing to pre-COVID levels. Our business transformation plan that we have been sharing over the last three quarters is on track.
We expect to launch the overall three non-financial services infrastructure in a phased manner between August and September as a company. If you look at the quick financial highlights, on a year-on-year basis, we ended March 31st with AUM of just a tad below INR 153,000 crore, a growth of 4%. OpEx to NIM, versus 31% last year, came in at 34.5%. I'll cover that with some texture in a moment. PAT came in at INR 3,947 crore. It's a growth of 42%. The year-on-year comparisons are not really relevant fully. That'll remain so the case for the next four quarters as we go from here. We'll have to live with these numbers at least for the next three, four quarters. ROE came in at 3.7% not annualized, versus 2.9%. Net NPA came in at 75 basis points versus 65 basis points as of March 31st.
Let's quickly run through the key numbers. Overall AUM, as I said, I'm on panel five, INR 153,000 crore, year-on-year growth of 4%. Core AUM growth was INR 9,400 crore versus a year ago, INR 2,061 crore. If you look at the AUM growth between Q1, Q2, Q3 of FY 2020, on an average, the AUM growth on a quarterly basis was INR 9,700 odd crore. We are within the 95%, 97% run rate of quarterly AUM growth in Q4. We were at INR 8,500 crore core AUM growth in Q3 and that's moved to INR 9,400 crore. In terms of accounts booked, the company booked 5.5 million accounts versus 6 million accounts a year ago. We have updated the investors in general about two businesses that we have put either in a pause mode or have constrained their lending. Mainly our wallet loans business, which used to be 175,000- 200,000 accounts.
That business is kept in abeyance. Our retail EMI card spends business, that is capped at this point in time at 50,000 accounts per month versus 150,000 accounts that we used to do pre-COVID. Adjusted for this, on an apple-to-apple basis, we are at just about 6 million accounts on a quarterly basis. The new customer acquisition run has come back to pre-COVID levels at 2.26 million new customers we acquired in Q4. Our long-term guidance, in general, is between 7 million- 8 million customers in a year. In the last two quarters, we fundamentally hit a 4 million kind of number. We are well on track to normalizing new customer acquisition in the last two quarters to pre-COVID levels. Overall franchise was 48.6 million. The cost of franchise was 27 million.
Overall, on a year-on-year basis, growth of 27 million gives us a reasonably good platform to grow from once we are out of the second wave as a country. Our total geographic footprint, just a tad below 3,000 locations and 110,000 distribution points. In terms of margin profile, we are holding margin profile except mortgages. In the Q4 that went by, we took an interest reversal of INR 300 crore as compared to INR 122 crore that we were taking in Q4 last year. The interest reversal peaked in Q3. In Q3, that was INR 450 crore. It's already come down to INR 300 crore. We think it should fully normalize by Q3 back to INR 120 crore-INR 140 crore range.
Overall cost of funds, we had shared that as we start to bring down our liquidity buffers, as we start to have greater confidence on growth, we will start to also improve our borrowing, which should fundamentally lead to reduced cost of funds given where the environment is. The overall cost of funds came in at 7.4% or 7.39% versus 8.37% a year ago. That's close to 100 basis point differential. The liquidity buffer still held quite high. We expect to bring this down to about INR 9,000 crore-INR 10,000 crore in the current quarter as things normalize. As part of the process to bring down our cost of funds, we have shared even in Q3, we have now paid down close to INR 7,500 crore to banking system, to various banks, as part of our strategy to optimize.
The deposits book with the intent to continue to granularize our liability balance sheet grew 20%. It's now crossed INR 25,000 crore. Just a tad below INR 26,000 crore at INR 25,803 crore. Overall corporate and retail in that, retail is 77%, corporate is 23%. OpEx, as I said earlier, I would cover with a little bit of detail, came in at 34% versus last year at 31%. In absolute terms, OpEx was higher by INR 153 crore. Recovery commission in that line was higher by INR 140 crore and employee-related costs were higher by INR 151 crore. Part of it was mitigated by prudent management of other expenses. While the number was higher by INR 300 crore, the net number was higher only by INR 153 odd crore. If you look at the ratio, which is OpEx to NIM ratio, fundamentally came in at 34.5% versus 31%.
In general, as we are looking at the management of OpEx, we are also clear that as the AUM starts to grow over the next two, three quarters and operating leverage starts to kick in, and we expect collections cost to fully normalize by Q3, you should start to see OpEx to NIM go back to pre-COVID levels. Hopefully by Q4 of the year, as we deliver business transformation fully, should start to look lower. Let's come to loan loss and provisions. We had guided that we would take between INR 1,200 crore-INR 1,250 crore, despite the fact that overall bounds, collection efficiencies, even as we were speaking in January, we're looking better. As a prudent measure, we decided to continue to take provisions. We took provisions of INR 1,231 crore.
We also did accelerated write-off to the tune of INR 1,530 crore on account of COVID-related stress. Have fundamentally, on a go-forward basis, advanced our write-off policy. This is really how you will see the numbers play out as we move from here. Overall, last year as a result of COVID, we entered FY 2021 with an INR 900 crore of COVID overlay. We are again entering, in a way, second wave with INR 840 crore of management overlay and macro provision. This gives us confidence that we can navigate through this crisis, if it becomes one, in an efficient stroke and effective manner. Gross NPA, net NPA, we think represents the health of the business, came in at 179 basis points and 75 basis points versus 161 and 65 basis points.
The absolute net NPA was up only INR 200 crores from where it was on March 31st, 2020, at INR 1,136 crores. In that, the AF, our auto finance portfolio and mortgages largely saw an increase of INR 300 odd crores. As you can see from the numbers here, from 490-609, that's INR 180 odd crores and another INR 120 odd crores. The non-overdue, which is portfolio which is current but classified as one-time restructuring, stood at INR 1,739 crores. It includes INR 918 crores of secured exposures, essentially, again, auto finance and mortgages. One large B2B retailer account of a strategic partnership that we have of INR 397 crores and INR 424 crores of unsecured assets. We have essentially considered the OTR book as indicator of significant increase in credit risk and as a matter of prudence, classified it as stage II assets.
Against these assets, we are holding a provision of INR 328 crores, which is a 20% provision. The non-OTR stage II assets stood at INR 5,000 crores against INR 3,950 crores. We hold a ECL provision of INR 1,240 crores, which is 25% against INR 589 crores, which was 19% that we held on against INR 3,000 crores of assets as of March 31st. Of the non-stage II book, secured assets are INR 3,000 crores and unsecured assets are INR 2,000 crores. Bounce rates, if I look at origination over the last six months, fundamentally, I'm on panel seven, clearly across businesses are in line or better than pre-COVID origination ought to be in general. The current bucket bounce rate, which is good customer slipping into default, is back to pre-COVID levels now. The current bucket collection efficiencies are significantly better than prior to pre-COVID levels.
The overall collection efficiencies across current bucket I, bucket II, which is 30 DPD, 60 DPD, even right of recovery, continues to be significantly better than the experience that we have had. We've not experienced these kind of collection efficiencies across our portfolios in the last 14 years since at least I am running the company here. Overall, gives us the confidence that we are well-positioned to navigate any temporary stresses on account of second COVID wave that may actually emerge. PAT, we've talked about INR 1,347 crores versus INR 948 crores. The board of directors given that we have accreted capital in the current year, have recommended a dividend of INR 10 per share which is 500%, which is the same as last year. Capital adequacy remained very strong at 28.5%, 28.34%, and Tier I in that was 25.1%.
BHFL, the mortgage arm of the company, the AUM grew by 19% to just a tad below INR 39,000 crore. Its capital adequacy is again strong at 21.5%, and its PAT for the quarter was INR 179 crore versus INR 91 crore, a growth of 97%. Overall, it's our view as management at this point in time that the company is entering FY 2022 or has entered FY 2022 on a reasonably strong footing. Barring a nationwide lockdown or extended lockdowns in large GDP-contributing states or a national lockdown leading to a moratorium. I think barring these three events, we are reasonably confident of delivering our long-term guidance metrics in FY 2022. Given that we are at a moment where, I'm in panel eight, in general, people are also asking as to what's the feel on the ground.
I thought I'll just give you some texture to give you where we think we stand and how some of our high-frequency businesses from an origination standpoint, are doing at this point in time. We are virtually headed into end of April, and the disruption in general across the country started in the last 10, 12 days. There are seven, eight points. Let me just quickly cover that. As I said, barring a national lockdown, three to four large GDP-contributing states going into simultaneous lockdown for three to five weeks, and another moratorium on loan repayment. Barring these three big events, we are reasonably confident of delivering the long-term guidance metrics in FY 2022. We are also wiser. I think having experienced the first wave, we believe that a disruption in the first quarter could be reasonably mitigated in the balance three quarters.
I think none of us expected how quickly the economy will bounce back in September quarter and the January quarter gives us confidence that even if it's a disruption between April and May, a month is lost, let's say, for a moment, hypothetically, it can definitely be made up in the balance 10 months of the year. Having said that, we are in a rapidly developing situation. We are watching the situation closely and are taking appropriate actions to navigate through this. While we are confident about it, we don't want to be overconfident about it and we are watching the situation very closely. One of the things that we are also clear about from the last event is that we'll remain fully open for business as a company in whichever way we can.
Despite the significant disruptions that one has seen in few states in the last 10, 12 days, we remain open in line with local administration advisories. If you take the last seven, 10 days, in general, we are still originating even with larger state being 15%, 16% of the GDP. 15% of GDP comes from Maharashtra, Delhi is a very large market, and so on and so forth. We are still originating 50%, 55% of daily volume in our B2B business given our deep distribution and widespread geographic footprint that we have. 80%-85% of our business in B2C and SME businesses and 40%-50% of businesses in mortgages is really how last seven, eight days have fundamentally panned out.
The reason for the confidence is also because I think in the last one year, last time around. None of us got any time. I think in the last one year, we significantly augmented our digital capabilities to remain fully functional, whether it's for new origination, for full-fledged service, full-fledged operations or collections in a work-from-home situation. I think there is significant preparedness and readiness to navigate through this a year later into the pandemic. We are also clear that we have 25%-30%, you're aware, we added 1,800 odd capacity in terms of staffing in our collections infrastructure. We are running with 25%-30% extra collections infrastructure at this point in time as a company.
Sir, sorry to interrupt. Sir, this is the operator. We are getting some disturbance from your line.
Understood. Got it. Let me just shut the window. Yeah. I'm just down to the last two points, then I'll hand it over for questions any which ways. We are well on track to launch our 3-in-1 financial services in a phased manner between August and September. We also believe that if the recovery in general is a back-ended recovery, given the COVID second wave, I think it'll help us accelerate our market share as the economic momentum accelerates, is really what our point of view at this point in time is. There has been no cuts that we have taken so far. In the last 15 days, the risk and collections data is not warranting any kind of risk plans change at this point in time.
We'll continue to remain data dependent as a company, and we'll make risk decisions as May opens up and so on and so forth. As I said, we are a lot more prepared. The business continuity for micro containment, which we increasingly call Playbook, is a lot more prepared. Lastly, but an important point, while we all were worried about the health of the franchise, this time we're really worried about the health of our employees and are given the high transmissibility and more lethal as it seems and are closely monitoring the situation. We had a reasonably generous financial aid program last year. The company spent INR 37 odd crores on that. We've reinitiated that program.
We've initiated work with vaccine producers to vaccinate all our employees and our associates as quickly as we can, and the company will bear the cost of it. That's the preliminary assessment. Let me just quickly run through panel number. Let me just give you update on business transformation, which is really what we are most excited about. Fundamentally, as you're aware, I'm in panel number 10. The 3-in-1 financial services for our, let's say, by the time we launch this, we'll be 51 million, 52 million customers, that we are launching as an omnichannel frame for our franchise. We'll launch as an update form on our Experia app. I think by the time we launch, we will have 10 million customers on it already. At this point in time, we have 7.5 million Experia users.
It'll cut short or shorten the onboarding process significantly. Parallelly, as we do this, the productivity apps, our sales app ecosystem, our merchant app ecosystem, collections app, and partner app ecosystem will go live between May and September in a phased manner again between now and yeah, we are virtually into May, between May and September. The Bajaj Pay for consumers, which is our payment infrastructure, the BBPS service has gone live, UPI in CUG has gone live, and we are just waiting for regulatory clearance for PPI is ready to go live. We are just waiting for approval for the PPI business to go live. The three marketplaces, which is our e-store, insurance, and investment marketplace, are in advanced stages of development at this point in time. The first phase of e-store has gone live in February.
We have now 25,000 SKUs on it for our consumer electronics business. 40,000 retailers have been onboarded. The final capabilities of the e-store will go live between July and August 2021. The insurance and investments marketplace will go live between July and August as well. The onboarding app of Bajaj Financial Securities has gone live. Trading app will go live on 31st of May. 12 adjunct partner apps are already live. Overall, 28 apps will go live as the 3-in-1 financial service goes live. Quickly on customer experience, I had outlined that we are clear that if we have to be a moment of truth company, we will need significant transformation in customer engagement and experience. We think engagement comes from service. Just to give you texture, 33% of the overall app ecosystem is dedicated to service, just at a frame level.
Clearly, we think it'll lead to. That is really the core reason why customers will engage more and will do more business with you. You see a set of points here on panel 11. The total infrastructure is working quite well. 15%, 16% of the calls are happening through that. We are deploying an AI solution to analyze these calls along with a bag of words. We opened collection service desk across 10 branches. We are adding seven more, so it'll go to 17. On a proactive basis, we are investing in DRA certifications. 7,000 of our agents have already got trained. We'll cover that in full year. The NPA for collections, probably we are the only exception anywhere in this part of the world doing that. 97% of our customers are giving us four and five scores. That's an update quickly.
Let me just jump in the interest of time, all the way down to how are we seeing the portfolio health to be. That's virtually down to panel so that I leave some time for questions. Panel 50. Yeah. Panel 49 fundamentally represents, I've talked about it, that fundamentally INR 141,000 crore of assets are in stage I. OTR assets are INR 1,739 crore. Stage II is INR 5,000 and stage III is INR 2,731. Versus last year, as I've articulated, INR 3,100 crore is normal stage II versus that it's INR 5 and INR 2,400 crore last year was stage III. It is INR 2,731. We had a coverage of 60%, we had coverage of 59% in stage III, 58.5% in stage III and we had a coverage of 19%. We have a coverage of 25%. In general, I'm down to Panel 50, 51, 52 represents 13 of our different businesses.
We have a red here, which is still our two-wheeler and three-wheeler financing business, which is still significantly behind where it was a year ago in terms of stage I assets. Other businesses are all caught up or are better off. The B2C loans are still behind by 108 odd basis points. As a result, stage II there is higher by 120 odd basis points. Otherwise, rest of the businesses are back to where they were in February 2020. This is not March 2020, this is February 2020 because March was That's the reference point that we've used for the last four quarters that we continue to intend to use. That's really quarter gone by and myself and my colleagues here are ready to take any questions that you may have.
Thank you very much. We will now begin the question- and- answer session. The first question is from the line of Rakhi Prasad from Alder Capital. Please go ahead.
Hi, good evening. I wanted to get a sense of your credit underwriting in terms of automated credit underwriting. What kind of products are you doing through automated digital methods? Any sense on what would that be on a total percentage of AUM? How has that trended over the last 12 months?
Fundamentally, our B2B, which is the point-of-sale business, is the one which is the fully automated underwriting. Our B2C businesses are quasi-automated because we fundamentally determine, based on our analytics, who we want to give money to. To only 10% of the customers we are willing to do straight through. Balance 90% go through a quasi-underwriting process. Everything else would be fully underwritten. If you look at the portfolio in that sense, the B2B businesses, which essentially contribute to No, you just go to composition. If you go to panel 43, you will see the composition there. The 8% of the business. 10% of the business is fully automated. The consumer B2C and rural B2C, which is another 28% of the business is quasi-automated, the rest is fully underwritten. Are we audible?
Yes, sir, you are audible.
Okay, understood. Got it.
Ms. Prasad, do you have any more questions? Ms. Prasad. Is there any. Hello? We move to the next question from the line of Aditya Jain from Citigroup. Please go ahead.
Thank you. Could you just help understand the QoQ movement in restructured assets and stage II loans? Since the last quarter, if my understanding is right, we had INR 2,000 crores restructured in stage I, and GST was about INR 5,900 crores. In 4Q, the two collectively, OTR plus GST was INR 6,700. Is that right? If it is, then the decline has come from where? The write-offs movement to GST or upgrades?
Yeah. Aditya, there are three questions that you're asking. One is, on the OTR book. The OTR that we had offered to the customers was approximately INR 2,200 crores. Of which some INR 400 crores customers have already been classified as stage II in the normal process because of the OD position as on 31st March. The balance INR 1,7 39 crores that you see are the customers who have taken OTR from us but are honoring their promise as per the revised repayment terms. Had it not been for OTR, these customers would have got classified as stage I only. That's point number one. Point number two, the bad you see in stage II that has gone down, the point is correct. It has gone down from INR 5,900 crores in the last year to INR 4,985 crores as of now. This is on account of two things.
One, the recovery that has taken place in stage II, as well as the customers moving into stage III. Most amount of rise that we have done in the current quarter and in the previous quarter as well are basically from the stage III assets and not from stage II assets. Stage II is mainly on account of recovery and some migration to stage II that has taken place in the current quarter.
Got it. Thank you. One question on the digital transformation side.
Yeah.
If you could just help us understand, in terms of size, how many point of sale terminals will you put? What will it mean in terms of change in business model of, say, you have ex amount of people at the store present today, how could that change? Some sense of what the cost movement essentially will be because of all these initiatives?
Fundamentally, look, it's a fair question. While we share with you that these are different apps, we see them as a single ecosystem. Let me make that point. Fundamentally, we are very clear we are in a highly regulated business. Click a button and get money will happen for 10% of the clients, 90% will need assistance. That's really how you fundamentally see SalesOne app as integral. SalesOne app, Merchant One app are integral to what we call omnichannel infrastructure, is integral to the overall design. It's important and that's why we are saying an omnichannel framework where customer will be able to transition in a frictionless manner between offline and online and vice versa. I think that's something for you to remember. Let's just take an example for a moment so that it becomes clear.
Point of sale, you go to an e-store, you are on e-store at home, you look for a retailer in your vicinity, you identify a product, you don't buy it. You go to, let's say, add to cart, and you left it. We realize that appliances is a high involvement category. We will fundamentally flow that lead to the store that you've chosen and the person, either to the retailer based on our arrangement or to the point of sale person that we have, who based on appointment will speak to you and assist you and help you, call you to the store and do the transaction. That's one example of omnichannel. The other example of omnichannel, we may pre-approve you've downloaded the 3-in-1 financial services. You do add to cart, are not able to go ahead because you need some assistance, or we need something from you.
That lead based on allocation methodology will flow to a particular person in the field who would assist you and help you go through the transaction. We are very clear that on the other hand, it may be an insurance product or an investment product that you may be able to buy in three clicks. It may be a broking account that you'll be able to, if you're a KRA customer, KRA onboard customer, you'll be able to open in three clicks. It will differ product by product, and nature of the product and the nature of the transaction. The right way to look at it would be as it emerges between August and September, as you experience it as a consumer, that's really where the imagination would become more clearer. We are as excited about launching this. Something Anup you were saying?
As Rajeev rightly said that this is an O2O framework, which is the online to offline and offline to online. We are not taking a position that it is only online. It's an assisted O2O framework, where if the customer desires, he can go all the way to disburse. If he needs assistance, we can call fairly quickly. I think the game here is how fast do I reach out, and that's where the moment of truth will really play out.
Got it. Thank you. That's helpful. Last, just clarification. How will all of this relate with the Finserv Markets app? Is it completely disconnected or, yeah? You can overlap it.
Finserv Markets app is completely disconnected, the company is helping us build a technology platform because we are in the middle of building 3-in-1 financial services. We are in the midst of significant transformation of our current core technology platform. They are building the investment and insurance and e-store marketplace for us on an arms-length basis as a technology partner.
Got it. Thank you very much.
Thank you. Next question is from the line of Kuntal Shah from Oaklane Capital. Please go ahead.
Hi, Rajeev and team. Thanks for taking my call. We lost you for some time in between, at least I did.
Oh, sorry. We didn't realize.
This might be a repeated question.
Yeah.
I would just focus on the slide number 10, giving the transformation thing. Particularly, two aspects that I would need your comments on what would be the switching cost for the customers in the current existing other platforms pertaining to investment, insurance, e-stores, and the stickiness for you as on to justify the current acquisition cost, and your comment on the Fintechs, which are acquiring customers spending crazily versus your cost of acquisition. Secondly, more comment on how this arm's length pricing is going to work between the parent company and this, because ultimately the platform owner owns the customer, not the service provider. Some clarity on who is owning the customer and how it will flow through between the two respective.
Okay. First of all, Kuntal, as you can see on top, on panel number 10, we are not building this for new customer acquisition. At a design level, as I've said in two panels before, we continue to originate customers at point of sale. That does not mean that this will not originate new customers as well. We see EMI card origination has now become a reasonably large standalone engine, digital engine for us. We are now originating anywhere between 40,000, 45,000 paid customers and 60,000- 70,000 approved customers on a month-on-month basis. We think as this ecosystem becomes large, it's very much possible that that number will significantly expand. Leave that aside. Our focus is on originate at the point of sale and acquire and cross-sell has really been our strategy, that's really what this panel and platform is intended to serve.
We have enough customers. We are very clear that, sometime in the near future, we'll be 100 million customers company, given the distribution and the product portfolio that we bring to the table, and the geographic presence that we bring to the table. That's one part. Omnichannel frame, originate at point of sale, do more with them is really what this platform is for. That's one part of the question that you asked me. They are a technology partner for us. Bajaj Finserv markets is a technology partner on an arm's length basis. They are paid to build the technology. The way we work with various companies, we have various technology partners. Bajaj Finserv markets is another important strategic group technology partner. That's really how we are doing this on a complete arm's length basis.
Customer, as I said, belongs to us. Any customer who comes on this platform takes our product, belongs to us, so there is no.
Okay.
Having said that, since there was an earlier question and there is this question, we created Bajaj Finserv markets as a challenger in the group. That was our original objective, and that objective stays. They are a challenger. We are "producers," if I may say so, between us, Bajaj Allianz Life Insurance Company, Bajaj Allianz General Insurance Company. We are producers. Among them, we happen to be somebody who's a producer and is an open architecture large distributor as well. I understand the confusion that at times. We created them as a challenger to make sure that their space is very large, it's a growing space that can create a distinct and a differentiated model to find a new way to originate customers.
That's really what they've been up to for the last three and a half years, and they have their own journey, and we as a company have our own journey. They have their own customers, we have our own customers. There's no confusion in our mind. This just happened to be. You have to look at them as, you guys understand it easily, as Amazon and AWS. That's the easier way to look at them. They have two parts. They do business on their own, and they also do technology development. We are using their technology development arm. That's all. Nothing else.
Okay. Rajeev, just one question is, can we expect all the engagement metrics like DAU, MAU, churn rate, CAC, all to be published after the third quarter when this.
I would say, Kuntal, the way we are seeing it as is that we go live between August and September. We are already working on what I would call a phase II. We know that given the large ecosystem that we are looking at creating, there will be optimization opportunities, and that's being polite. All large app ecosystems, as they go live, that's really how the nature is. We do think there will be optimization opportunities that will appear in Q3 and early Q4. From Q4 results onwards, we will start to publish. Answer is yes.
Okay. What are the friction for switching costs from one platform to other? I mean, there are marketplaces right now, right? Insurance, investment. What are the switching costs and stickiness consideration involved?
The switching cost fundamentally appears as we see only in the mutual fund space, otherwise there are no other switching costs. That's the only place where I'm aware of there is a switch cost that appears if you move to a direct plan.
Rajeev, I meant from one platform to other, like if somebody has a policy or a live account of mutual fund or FD in one marketplace. What are the inertia and the considerations to switch to you?
That's something that Kuntal, at a design level, we are originating a customer at the point of sale. We offer him an ecosystem. We continue to give him rewards. We continue to reduce this friction for him. He will have a higher probability to stay with you. I think at a frame level, that's the journey we are going to. We think this will become the present and the future of the company from a next five-year standpoint. I think while COVID has had many costs, I think it has significantly accelerated our orientation and our direction a lot more rapidly than we had actually planned before COVID. You will see it play out well.
What kind of marketing budget we have in mind to acquire customers or at least make the product aware to a widespread of potential customer base?
Kuntal, we like to deliver return on equity to our shareholders. In general, I'm reasonably miser on these. We will continue to originate customers at the point of sale. I've reiterated it a fourth time. I won't repeat for the fifth time. Our origination frame is not changing. It may bring additional customers at no cost as a result of SEO and a small INR 40 crore, INR 50 crore a year that I currently spend in marketing in SEM so be it. We don't need more customers. We need greater engagement, and we need greater share of the wallet. That, we are super clear about.
Thank you. All the best.
Thank you.
Thank you. The next question is from the line of Satwik Jain from Perennial Fund. Please go ahead.
Yeah. Thank you. Given the erratic lockdowns in most of the main states and cities, could you walk us through what different you are doing versus the competition to maintain such good recovery rates?
When you say recovery rates, in general, as I said, the capacity planning was significantly augmented in Q1 last year. If you recall, we virtually added a 33% additional debt management infrastructure in Q1 last year. That's one part of the conversation. Two, the incremental through-the-door acquisition is distinctly superior, very clearly. The B2B portfolio of ours, which really where millions of customers are, has largely fully churned. If you see that on panel 50, you will get a texture of it. Just go to panel 50. If you see our B2B business, you see since December 18, which is virtually eight quarters, we never saw it go past 99% in terms of being current. We are seeing them at 99.52%. That's one point here.
As I mentioned on panel seven or eight earlier, that the incremental through-the-door acquisition and their current bucket balance sheets are looking significantly better.
Right.
It's a factor of both, what is coming through the door, and clearly, how efficiently we are able to manage those clients is really what so far has played out in the last six months.
Right. Thank you so much. All the best for the future, and hope you stay safe.
Yes. That's important.
Thank you. The next question is from the line of Jignesh Shial from Emkay Global. Please go ahead.
Yeah. Good evening, sir, thanks for the opportunity. Firstly, congratulate on a good set of numbers and very valid disclosures that you have given. I had just a single question now. If I can see roughly around INR 840 crores of macro and management overlay, I can see it up right now. Any brief idea about what kind of credit costs are you looking for the current year as well as for the next year? At least for the current year, considering this COVID wave is still there, the second wave has already been there, and businesses are getting affected and all. Any guidance of how we are going to utilize this particular overlay, or how will be the credit cost planning out for the current year?
You would appreciate that I've given you a preliminary assessment. Let me place this into two parts. Prior to March 31st, or as this crisis started to unfold so rapidly, I would've confidently told you we'll look between 150 to 100 basis points. It could have even been lower given the kind of rate of recovery rates that we are seeing in the last two, three months. At this point in time, we have transparently laid out the way we see the situation to be, you would have to wait for a little while for us to have a full view. The only point I wanted to make is that we are technically not carrying any baggage, rather carrying a surplus into the second wave. I think that is what is very clear and important. It is also showing that the through-the-door acquisition is better.
It is also showing that our collections infrastructure is much stronger. It is also showing that we remain open for business. If the three events which I talked about, which is a national lockdown doesn't happen, three to four large GDP-contributing states don't go into simultaneous lockdown for three to five weeks, and there is, as a result of some of these events, there is no other moratorium, I think we should be between 150-1 70 basis points. It may be a little lagged. It may not be the case in Q1, but on a full year basis, I think sitting here, I would like to believe so, but we are as aware as all of us are.
Understood. Just one quickly. If I understand correct, we had up an OTR offer to around INR 2,200 crore kind of an OTR we had offered. INR 400 crore is already converted into normalized stage II. Balances we are keeping as a stage II only, but under our own method, otherwise, it would have been in stage I.
Absolutely.
Is my understanding correct?
That's correct.
7,039 crore does not have any overdue , but because they have taken OTR, we have classified them as stage II.
Okay. Good. Thanks a lot, and all the best.
Thank you.
Thank you. Next question is from the line of Nischint Chawathe from Kotak Securities Limited. Please go ahead.
A very simple question from my side. What was the total write-off in the quarter?
If you go to panel six, it's specifically mentioned there that total INR 1,530 crores was written off.
1,530 crores was the additional write-off that we had done on account of COVID-related stress as well as on account of write-off policy change. Apart from that, we had INR 500 crores of normal write-off that happened in the quarter.
Total write-off was around INR 2,000 odd crore.
That's correct.
Okay, perfect. Thank you.
Thank you. The next question is from the line of Hasmukh Gala from Finvest Advisors. Please go ahead.
Yeah. Rajeev, congratulations for such a brave face you are putting up in this adverse time. Just would like to know, can you hear me?
Yes, I can hear you. Yes.
Can you just tell me how far we will be from our normal growth trajectory, et cetera, looking to the second wave and we don't know how long it's going to start, and as you said, the moratorium and other issues that could come up. How far we will be from a normal growth profile? Will you again be looking at the growth or will you be looking more at the protection of assets, good quality assets? What will be the strategy in FY 2022?
Look, and that's why I realize it's a fair question that will be asked. FY 2022 is a long year, and that's why we gave you a preliminary assessment the way we are seeing it at this point of time on panel number eight. No, just go. Go to panel eight. Yeah. That's on panel eight. We've exactly outlined to you the way we are seeing it. If these three events don't happen, we think we will deliver our long-term guidance metrics that we've outlined for many years, a 25%-27% balance sheet growth and a 18%-20% ROE. The current growth in NPA and NPA numbers. If these three events don't happen. If they play out, then we'll have to see. The additional point that I made here is that I think we are a lot more braver.
I think having faced first wave, which caught each one of us unprepared financially and health-wise, I think a lot more preparation is there, which is really what you can see on panel eight in point number four. I think whether on new originations, service operations, or on collections in a work-from-home situation, we will continue to deliver 90%, 95% TAT is really the way we are looking it as. Even if the flows were to increase in an intermediate period, which is really what we saw last year, I think we have additional staffing in our debt management infrastructure to be able to support it. So I can only go by our readiness. As I've said, even if the recovery was back-ended, which is possible if this goes beyond May end, Bajaj Financial Securities would have gone live.
We have not baked that as part of our plan this year. As part of our planning process, we've not baked that in because as I said earlier to the respondent, that we think it'll get launched in August, September. We are very clear there'll be optimization opportunities. That's really how large app ecosystems work. For next fiscal, it'll be a big play, and that's why the entire management team is fully seized that it's without it that we have to deliver the long-term guidance metrics, and we've given them the resources for the same. I can only comment on our readiness. Very hard to say how things will play out.
Okay.
And we are.
My second question is that out of the nine different asset classes, which are the asset classes where we will see some good positive movement, maybe for the part of the year?
Look, if you see Q-on- Q movement for all the eight asset classes, we were seeing momentum up.
Okay.
We are still a little behind in our B2C businesses, but otherwise, across all, and that's why the overall growth was reasonably granular, whether it was mortgages or B2C or SME or B2B. It was on a Q- on- Q basis, if you look at them, they were all growing in a fine way. We will remain data dependent and act accordingly, is really all that I would say. The last thing we would want to ever do, we are building this business with a long-term view, that if the data does not support, we are not going to chase growth, whatever it means. If the data does support, we will accelerate growth. I am clear about that as well. The readiness on both sides, the prudence requires that we play it that way.
The agility is going to be of a important dimension is really what our assessment of the last 13 months.
Correct.
More agile you are, more you can mobilize.
Right. The last question from my side, any further thinking on banking part of it, which you had touched upon in the third quarter, that you are looking forward to what kind of guidelines come from RBI, and then you will decide the structure and all that, how to go about it. Any further thought process crystallize on that?
No, as I said, we are awaiting, and based on that, we will advise.
Okay. Rajeev and team, thank you very much. Wish you all the best.
Thank you.
Thank you. Ladies and gentlemen, due to time constraint, we take the last question. From the line of Hiren Ved from Alchemy Capital. Please go ahead.
Hi, Rajeev and team.
Hi Hiren.
Congratulations for good set of numbers given the circumstances. I just have two questions. One is that our current cost-to-income ratio obviously is higher given that the growth has come down.
Yes.
I remember that when we were talking about our digital transformation, one of the objectives was to structurally reduce the cost-to-income ratio.
Yes.
Would it be fair to say that we should see a two stage reduction in cost to income from the current level? One is to go to a normalized pre-COVID, pre-Bajaj Finance transformation, and then because of the transformation initiatives, you could see another step down structurally.
Yes. That's really how, I mean without the digital transformation or so-called transformation plan, we were at 31.5%. There's no reason for us to believe that we won't go there. As you're rightly saying, as the operating leverage kicks in, as some of the transient pieces of the OpEx goes away as a result of the event, you will see that happen very clearly.
Okay. My second question is that, considering what the country has gone through last year because of the first wave and a little bit of the second wave, do you believe that your addressable market would have got impacted? What I'm trying to say is that, let's say you have a credit underwriting framework, and let's say earlier, in normal times, if you have 100 people making an initial contact and finally 25 going through the door, do you now have to address 125 opportunities to get 25 through the door?
Hiren, it's a fair question. I am looking at 2 million customers a quarter. I have a little more simpler view to life. In the last two, three quarters, not having faced this, I would like to believe, in no manner, in fact, tightened underwriting standards, if you could originate 1.8 million and 2 million customers, 2.2 million, 4 million customers, I will take it as it comes. I think very deep distribution, that's one part, being in terms of geography and in terms of point of sale, is ensuring that we can capture the market. Sorry. As Anup is rightly saying that the overall competitive intensity from a credit also has taken a knock. Clearly, not too many P&Ls have the kind of ability to take this kind of shock. We write off, but I write off flowing it through P&L.
Right.
I don't write-off as a balance sheet entry. If P&Ls have the power to take on write-off, they should take it on and run a prudent business. We have that firepower. We run a conservative business. We think gross NPA, net NPA flow through the P&L reflects the true strength of a business, and we'll play along that way.
Got it. Thanks a lot. Best of luck.
Thank you.
Thank you.
We'll keep growing customer franchise. 2 million at a time, or 1.2 million.
Sure.
Yeah.
Sure.
Thank you.
Thank you. I would now like to hand the conference over to Ms. Bunny Babjee for closing comments.
On behalf of JM Financial, I would like to thank Mr. Rajeev Jain and senior management team, Bajaj Finance, and all the participants for joining us on the call today. Good evening and thank you.
Thank you. Thank you all so much for this late call. Really appreciate it. Thank you.
Thank you.
Stay safe.
Thank you. Ladies and gentlemen, on behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.