Good day, and welcome to the Bajaj Finance Limited Q2 FY23 earnings conference call. This call is not for media representatives or Bank of America investment bankers or commercial bankers, including corporate and commercial clients. 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 clients. The replay is not available to the media. 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 organization may be asked during the call. If you do not wish for it to be disclosed, please immediately discontinue this call. 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 this conference call, please signal an operator by pressing star then zero on your touch-tone phone. I would now like to turn the call over to Mr. Anuj Singla. Thank you. Please go ahead.
Thank you, Nikesh. Good evening, 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 quarter 2 FY 2023 results. To discuss the results, I'm pleased to welcome Mr. Rajeev Jain, Managing Director, and Mr. Sandeep Jain, CFO, and other senior members of the management team. Thank you very much, Rajeev and Sandeep for giving us the opportunity to host you. I now invite Rajeev to take us through the key financial highlights for the quarter, post which we will open the floor for Q&A. With that, over to you, Rajeev.
Thank you, Anuj Singla. Thank you, Bank of America, for hosting us. I have few other colleagues. I have the Managing Director of BHFL, Atul Jain, Anup Saha, Deputy CEO, Rakesh Bhatt, Deputy CEO, BFL, both, and a few other members. Wish you all a very happy Diwali. Season is right on us. I'm referring to the PPT that we have uploaded for investors, jumping right onto panel number four. Now, overall, excellent first half, good quarter for the company, across balance sheet growth, portfolio quality and profitability. All three metrics are looking quite good for first half and second quarter as well.
I think the highlight is the pretty strong momentum across all lines of businesses with secular AUM growth in first half. I think that's the if I take away one big thing is that growth is very secular across all lines of businesses that we publish to the street. Pretty confident of reasonably strong FY 2023 now. On the going digital metric, as we have started to transition from a plan to production, the total number of users now crosses on the app 26 million. We're continuing to rank among the top four or five on the Google Play Store in the finance section. Phase one of web two has gone live as planned.
Fully on track to go fully digital across all products and services, as we said at the end of Q1, by March 2023, both on app and web. Very quickly, financial metrics. AUM came in at INR 218,000 crore, up 31%. OPEX to NIM came in at 35.9. We've guided for between 35 and 36. We continue to invest in teams, technology, and payments businesses. Came in at 35.9%. PAT came in at INR 2,781 crore, which is a year-on-year growth of 88%. ROE came in at just a tad below 23.6%, despite the fact that overall capital adequacy remains at 25%. Net NPA came in at 44 basis points. Pretty good quarter.
Pretty good first half. Just to provide some texture on the panel number five. AUM growth came in at INR 14,500 crore. Just a tad below INR 14,500 crore. As I said, secular across all lines of businesses. If you refer even to the press release, or go to panel number. Just go to panel number of the investor deck. If you see the growth across. One sec. That's panel number-
Forty-seven.
Sorry. 47. You'll fundamentally see, one, the growth is the third column, 29%. Other than two-wheeler and three-wheeler business, which is still in a degrowth mode, we're hoping that by quarter four, even that business should be back to growth mode. Sales finance grew 29%, urban B2C 31%, rural sales finance 33%, rural B2C 34%, SME lending grew 32%, securities lending 67%, commercial lending 36%, and mortgage is 31%. Overall coming in at. Everything is between 31% and 35%, barring loans against security, which had a very strong quarter. If you look at the composition, remains virtually, if you look at year-on-year basis, plus minus 1 percentage point, remains largely identical.
I think that's why I was saying that, the highlight of the quarter or the first half of the year is that, despite growing balance sheet, the product mix remains same because that's directly tied to the overall profitability that we deliver as a, as a company. Going back to panel number five now. AUM was up 31% as I talked about it, added 6.76 million loans. That is a growth of 7% on a year-on-year basis, overall disbursements grew 15% at just a tad below INR 14,000 crore. T he new customer acquisition momentum continues to be pretty strong, came in at 2.61 million customers.
We've added a new panel that I'll cover for a moment, as I talk about it, to provide greater disclosure on customer acquisition and what it means for the growth of the business. We provided a five-year data on it to give you some texture. Now we are on track. We think we'll get anywhere between 10-11 million new customers is what we'll add versus 9-10 million customers we forecasted in Q1. Customer franchise just a tad below 63 million on course to get to 68-69 million customers by end of the year. 99 locations is what we added, stood at just a tad below 3,700 locations and 143.5 thousand distribution points. Competitive intensity, pretty elevated.
I look at our B2B adds of retailers, four years ago, there used to be 4 or 5 competitors, now there are 17. We are continuing to protect our market share, continue to hold on to the kind of madness we're seeing across products and services, continuing to protect our margin profile. As I've said many times in the past, between volume and margin, we protect margin. That does not mean under any circumstances we're gonna lose market share as well, and that's representative of the fact that in the first half of the year, the balance sheet has grown virtually INR 28,000 crore, just a tad below INR 27,500 crore. Cost of funds because of strong ALM management came in at 6.91%.
There will continue to be sequential movement on that, given how the rates are moving up. Strong position in terms of liquidity, given that systemic liquidity is now virtually running into below INR 10,000 crore at any point in time from INR 7 lakh crore that it stood just 7-8 months ago. Continue to maintain a cautious stand on overall liquidity between BFL and BHFL. Deposits we continue to gather. I think there's a reasonable chance that we'll exit the year at a deposit book of just about close to INR 50,000 crore. It may be between 40, 48.5 to 50 thousand crore. We added just in the last quarter, INR 5,320 crore.
If you stay with that momentum, that itself will get us to INR 49,000 crore, you know, INR 49,000-INR 50,000 crore. It's now at 22% of our consolidated borrowings. We are on track for overall that number to be 25%. OPEX trend I talked about, not much to talk about there. We'll continue to remain between 35%-36%. We're starting to see, as you will see even in the second quarter results, AUM growth is stronger than OPEX growth. Slowly we're starting to see the benefit of that flow in.
As we fully go digital, as the momentum improves, provided there's no event risk being external in nature, I think we'll start to see operating leverage definitely flow through given the kind of strong franchise and low wallet share of our overall versus the size of franchise that we sit on. Loan loss and provisions have now normalized. In the last two quarters, they've been at between INR 725 crore and INR 750 crore. We expect this number to exit at between INR 750 crore to INR 825 crore odd on a quarterly run rate basis, between 135 to 145 basis points.
We continue to hold the management overlay, given the sustained inflation, given rapid rise in interest rates. We at this point in time are forecasting that we'll continue to retain the management overlay and, you know, would accordingly use it either to strengthen our overall ECL model, or eventually release it, given that we're seeing strong credit performance across all portfolios. We're just waiting for some of the clouds, the dark clouds that are gathering around the globe, to pass away. GNPA 117 basis points. We are at all-time low 44 basis points net NPA. Very strong metrics on GNPA and NPA. Even on absolute basis, stage two down sequentially, stage three down sequentially, 10 portfolios are green.
I could argue even the two-wheeler and three-wheeler portfolio in terms of current basis has come in, better than where it was in February 2020. However, the gross NPA and net NPA would still probably need two quarters before they're back, and that's why we continue to mark them as yellow. As a result, overall profits grew by 88% to INR 781 crore. Capital adequacy is strong. Total headcount, we added 1,600 employees, sequentially between Q1 and Q2, in the quarter, across all the three entities. Headcount addition in BFSL, and in BFL. BHFL very quickly, balance sheet up 42% to just a tad below INR 63,000 crore. Home loans grew 37%. Of course, base of each one of them is different, so keep that in mind.
Home loans grew 37%, loan against property 37%, lease rental discounting 72%, and developer finance 68%. The mix is given below as you can see, which is, home loan is 60% of the balance sheet, loan against property is 11%, LR is 15%, developer finance is 7% and rural is—sorry, I'm missing a point. I think DF is-
60%.
DF is 4%. Sorry.
Seven.
7%. DF is 7%, rural is 4% and others are 3%. Overall approvals grew by 17%, so a little soft on approvals from a quarter standpoint. Disbursements remained strong, however, came in at 32%. They had a very good quarter. Cost of funds continued to lag behind the BFL, and that was really one of the objectives because eventually that was one of the purposes that we see yield curves to be lower for mortgage companies versus non-banks. Just beginning to see that benefit. You've seen that benefit over the last four, five quarters play and it's continues to play. Cost of funds came in at 6.60%.
They had a liquidity buffer of just a tad below 1,800-odd crore. Borrowing mix remains steady. Capital adequacy pretty strong, they also don't need capital. They were at 24.6%. They delivered a net profit of INR 306 crore, a growth of 84%. Overall pretty good quarter. Loan loss and provision came in at 30% versus INR 61 crore a year ago. They have a management overlay of INR 242 crore. Of course, it's included in the consolidated numbers of INR 1,000 crore. GNPA, NNPA amongst the lowest in the industry at this level of scale at INR 63,000 crore. Total gross NPAs at 24 basis points and net NPAs at 11 basis points. Phase two, phase three, even here sequentially down.
Headcount was down 450-odd people in the current quarter. BFSL, we are in a build phase. It still continues to be early years. The way over the last five years we built our BHFL, we are on track that next year would belong to BFSL as a company. Move quickly, Omnipresence update. I'll just, you know, I don't intend to read through the same. On geography, we talked about 99 locations added. On app platform, fundamentally on track to go fully digital. What we had planned for sprint one of phase two have gone live. Sprint two is on track.
I think all products and services across you know 66 different products and services that we offer to the consumers journeys will be available by March 2023. On payments, lots of work in progress. I think we'll have a much bigger update to provide you in at the end of Q3. We remain on track for payments as well. This quarter is a big quarter in terms of what we are delivering in terms of capabilities for as a company, for consumers. Web platform on track for web is equal to app by March 2023. Phase one has gone live in staggered release and phase very similar starts to look similar.
Start here, stop there, start here in the next 15 days' time as we finish the season. By March 2023, both app and web will look identical, and you'll be able to stop at one place and start another place and vice versa. On track. These are metrics. All metrics are moving in the right direction. Just to help you, level one, don't have. I'm not gonna go through metric. The only metric that I'll go through is what we don't believe we'll meet our FY 2023 estimates on. Overall, the point I wanna make is this is not a. This is about this is the way we conduct business. We continue to be highly disciplined about the execution of the Omnipresence strategy, point number one.
Rapid adoption of Omnipresence across all processes of the company. Continued progress on our metrics to make sure in production we are achieving what we eventually build this out for. As a result, in Q1 we articulated that what we think this will deliver as estimates. What you see as green fundamentally represents that as of first half, we are on track to deliver them. The only one on this panel that you see, we think the wallet accounts instead of 18.5 million, given that we may be just a tad a million lower accounts, it may be instead of 18.5, 17.5 million, is really how it's looking like.
Otherwise, all the numbers are looking. Maybe probably are either gonna be delivered or we may exceed those numbers based on how Q3 goes. Same point applies to panel number thirteen. We are on track. The only thing that you see is digital EMI Card acquisition. We had said we would get to 3.8-4 million. It's probably gonna look like 3.6-3.7 million. I think even that will become much more clearer whether we are yellow or green as we exit this quarter. Otherwise, I think we are pretty well positioned. These assets are in production. They are delivering to us what we would like them to deliver. They're delivering to the consumer in terms of service experience what it should deliver.
As a result, we are now on the app alone the active consumer base is 26 million customers. We are organically adding on an average anywhere between 4.5-5 million downloads now a month. Virtually all of it is organic. 95% is organic, as Kurush Irani is confirming, and 5% is what is inorganic. Clearly, because we are bringing value to the table that we are seeing, and have stitched all the processes in the company, that we're seeing organic momentum build out on it. Move. This is a new metric, panel number 14 that I thought I will just take 2 minutes to give you some texture.
his is fundamentally a six-year data, that's on one hand. The first half data is the seventh metric. Principally, you know, we thought we'll just give you some texture on how customer franchise is leading to AUM build out and profit build up. What does the cross-sell franchise, which we've been talking about to the Street for the last 15 years principally mean? If you just focus on two columns, let's say FY 2017 for a moment and FY 2022, and mind you FY 2022 was not a full year, it was only 3 quarters. Just from a relevant standpoint, and hopefully this will be a first year, first full year with no event, FY 2023 should be that way.
It'll become much more relevant by end of FY 2023. If you see we were booking in FY 2017 10 million loans. Last year we booked 24.5 million loans. This year we'll probably book 31-32 million loans. New customers, we were adding 4 million in FY 2017, we added last year 9 million. As I said, we'll probably add 10-11 million this year. Existing customer mix on the loans booked used to be 60%. It's today at 63%, last year was 60.5%. This year so far is at 62.2%. The total franchise, which is gross franchise, was 20 million, is at 57.6 million, and first half is at 63 million, and we think we'll end the year at 68-69 million.
The cross-sell franchise was 11 million, is at 33 million in 6 years. Mind you, one year is a gap year, which is FY 2020. We foresee that the cross-sell franchise alone will be 40 million consumers, probably a little higher, 41 million consumers as we exit the year. We don't cover in loans done products that we sell, like co-branded credit cards. We used to be doing no credit cards. We now last year we did 1.36 million. As I said, because it was a 9-month year, we are already at a run rate of 1.8, 1.9 million new cards for the current year. We used to sell very little other financial products to existing customers.
We last year sold 2.23 million various other products, which are what I would call non-loan, non-lending products. This year already the run rate is at 1 million in the first half. What all this means is, how is the AUM per cross-sell franchise moving? It used to be at 54. Mind you, we are only 6% of franchise is principally commercial, so 94% of the franchise or business, or even if you add, let's say, developer finance for a moment, even that leads to 35%-40% of the business gets converted into mortgage loans. I can argue even that has a direct correlation. Let's say ±10% of the franchise is commercial in nature. 90% of the business has a direct correlation.
If the mix has not changed, which it has not changed between FY 2017 and FY 2023 first half of the year, then all things being same, the AUM per client or cross-sell franchise used to be INR 55.5 thousand, is at INR 58.5 thousand, it's at INR 60 thousand. The profit per customer, which used to be INR 1,700, is at, last year was at 2,145, and if first half of the year and second half of the year, even if you keep them as similar, it's probably at INR 3,000.
I think, I thought we'll just provide some texture to how the correlation between different metrics are moving, to provide greater clarity is all the purpose of this panel. We'll publish this panel every half yearly because quarterly number may not make too much sense. We'll publish this in March again. Just for continuity sake, may publish the quarter, relevance of this panel will be annualized or at the very least half yearly. That brings me very close. We'll just go to, I've already covered the panel on the product mix, which was secular. We'll just quickly cover on financials that's panel 32. Balance sheet grew 31%. AUM grew 31%. Assets under finance grew 32%. Total income grew 29%.
Interest, NIM grew 31%. OpEx grew 24%. Loan loss and provisions de-grew 44%, but they're largely now annualized to what we see the number to be between INR 725-800 crores. On a run rate basis and 135-145 basis points as average cost to AUM. Profits grew 88%. Just very quickly as to last two panels. In terms of portfolio quality, we continue to look quite strong as is the case in Q1. Most of them are looking better than February 2020. Not most, all probably other than. Even two-wheeler, three-wheeler, as I articulated, is looking better than it was in February 2020.
Because the GNPA position still, NNPA remains elevated versus February 2020, we pencil it as yellow. Otherwise, most portfolios are now in better place than they were in February 2020. I think that's really from us for the quarter. Happy to take questions and respond.
Thank you very much.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking your question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. A request to all the participants, please restrict to two questions per participant. If time permits, please come back in the question queue for a follow-up question. A reminder, you may press star and one to ask a question. The first question is from the line of Hardik Shah from Goldman Sachs. Please go ahead.
Hi, Rajeev. Congratulations on a good quarter. My first question is how many employees are into recovery and collections channels out of the total 39.23 headcount that we have?
Yeah. Okay. It's just a tad below 9,500 people.
Okay. My second question is, with this inclusion in upper layer category of the NBFCs, what are the plans over the next few years in terms of growth and listing requirements?
We don't foresee any change as a result of the repo rate. We don't foresee any change in the growth outlook as a result of, at this juncture, as a company.
Okay. In terms of listing requirements?
I mean, on the face of it's still three years away. We'll seek clarification is what our view is and go by what regulator has to say.
Okay, thank you.
Thank you. Next question is from the line of Saurabh from JP Morgan. Please go ahead.
Sir, just two questions. Sir, have you seen your subvention market share, how is it behaving at the store?
Yeah.
The second is essentially on this, on the Bajaj, on the mall side, what is the average ticket size of these loans that you're syndicating, this 2.6-2.8 million loans that you're syndicating? What will be the ATS of these loans? Thank you.
ATS doesn't change. Overall market share, other than total credit and our total balance sheet, rest of the numbers are best effort basis. You know, if the data is not a verifiable data, then, that number is a highly subjective point, is the first point I must make. Market intelligence is a matter of interpretation and perception. Whatever number I give you will be of as much my perception and interpretation is. As I said, 218, 2 lakh 18 thousand growth is real. Total credit, let's say, the regulator publishes, is real. That's our total market share. Rest of the numbers or wherever the numbers are published by verifiable data.
Having said that, to just stay with the point, clearly, as I said earlier, I used to see 4 lenders and now I see 16. If I was to tell you that we are holding our market share, you may or may not agree with me, but we're doing everything we can to defend our market share. P oint number one I would make. Would I believe that we would have lost some share?
The answer is yes, because of just versus 4 if number goes to 16 and we are very, very dominant player at the store or in that line of business. It's like Maruti used to be a long, long time ago and numbers had to go down from where their dominance used to be. That's point number 2. Specific market share, whether if a competitor gives me or I give you, is of no consequence.
The average ticket size of these loans is INR 2.8 million. What should we assume, sir?
It's difficult to say. Does not change.
Okay.
In fact, just to give you a texture, we still don't offer, let's say, smaller accessories, which we intend to start offering, so let's say AirPods and so on and so forth, which is much higher velocity and volume. We still don't offer. Sometime by March, April, you'll start to see that. In a way, then ATS may be a relevant conversation. Today, the ATS versus the ATS we do is higher.
Just one follow-up, sir. The market share loss, you've seen more impact coming via Fintechs or with banks? Like, is it due to Fintechs or-
I don't see Fintechs there. I see lenders only there mostly. If you pick up the paper, I mean, I see 16 lenders there. They may be working through an aggregator. That's possible. Principally, I see lenders' names there mostly.
Okay. Thank you, sir. Thank you.
Thank you. Next question is from the line of Sameer Bhise from JM Financial. Please go ahead.
Yeah. Hi. Thanks for the opportunity. I just had a question on the ROE profile. I mean, for last three quarters, you have been overshooting the guided range. So some thoughts on it on how sustainable and on the medium term, how does it look? Or you want to revisit that? Probably the ROE is highest in a decade or so. Just wanted some thoughts there.
If you go to panel number 18, our long-term guidance on consolidated basis doesn't change. You know, AUM growth of 25%-27%, profit growth of 23%-24%. Long-term guidance doesn't change. We had, as you're rightly saying, we had difficult time in COVID. We are having a, that was supernormal negative. This is supernormal positive. If you aggregate, as we say, we want to compound and deliver a 19%-21% ROE on a sustainable basis. We've done that now for the last 12 years. We want to do that for hopefully the next 10. I think that's really where the thought process is. We are clearly going through a supernormal profitability zone.
Lower interest rates, now stronger momentum, lower credit cost.
You are also spending more.
We are also spending more. We are using
Yeah.
In a way, I could argue this is a great time to invest because we are using that and bad times don't last, good times don't last. Do whatever you do in that time. To that extent, I think as good times don't last, the operating leverage should start to play through. There'll be a time when NIM will be moving slower, but operating leverage will move better. There will be a time. You know, very clearly, we were at 32.5-33% prior to COVID. We are at 35.9%. There'll be a time for it to go back to 33%, and there may be a time where NIM will be softer.
As operating managers, we are responsible to ensure we provide that degree of flexibility in the P&L, our management of P&L, to ensure we deliver sustainable value to the shareholders. That's really what we are up to.
Fair enough. This is helpful, though I just still wanted to probe you that given the share of mortgage in the consolidated balance sheet goes up, your ability to lever up probably-
Look at, you know, last 4 years, it's at 32 only. Mind you, they don't have a small base. Their aggregate balance sheet is INR 70,000 crore mortgage now. It's not small by any means, because you see INR 63,000 sitting in BHFL, another INR 7,000 crore is sitting. When we give you 32%, it's on INR 70,000 crore. Neither INR 70,000 crore is small, nor INR 218,000 is. It's very hard to move the mix. We are in a growth mode, if you go to panel 47, in all lines of businesses. Even two-wheeler, three-wheeler, hopefully by the fourth quarter should be in a growth mode.
I can say related to the previous question, because I have a very dominant share in the sales finance business, so I will grow in line with the market. Even that we are so far beating because we've been expanding geographies. That geographic expansion, as I said earlier, will probably stop by March 2024, most plus minus, you know. We're still maintaining share because of strong geographical expansion. Other than the two lines here, I would say for a sustained long period of time, we should be in a very similar growth mode.
Right.
In the process, the mix should not change. In the process, hopefully, the overall P&L profile should not change.
Fair enough. This is helpful, and congrats on a strong quarter again. Thank you.
Thank you. Next question is from the line of Kuntal Shah from Oaklane Capital Management. Please go ahead.
Hey, Rajeev, good evening. Thanks for taking my call. I have just three questions. One is on what are the key metrics.
One is for.
What are the key?
As per BofA.
Okay. What are your key activation, engagement, and retention metrics which you are seeing in the track one, and which are the worrisome point out there? Many of the fintechs are moving money, but they are not managing money or lending money well. At some point of time, you will have to also move money. What are your thoughts on, you know, ability to move the money on behalf of the customer and become number one or two on the app metrics charts?
Yeah, Kuntal, principally, you know, on point number one, there is a HEART framework. Kurush said, talked about it. His heart goes out for those HEART metrics. We can publish them. They stand for happiness, engagement.
Adoption.
Adoption.
Adoption, retention, and task success.
Retention, and?
Task success.
Task success. This is a global framework. It's a Google framework. We can publish it. But at a fundamental level, it'll lead to more questions. It won't lead to an outcome. We are at 4.2. If you take happiness, we are at 4.2 on Google Play Store from a rating standpoint and so on and so forth. I think what is happening, so we have hordes of data. We have hordes of metrics that are available. We are waiting for some degree of stability. What I mean by that is that an existing customer, HEART metrics work differently from a prospect customer that I know and from a NTP customer that I don't know. The mix shifts the HEART metrics.
There will be a point in time maturity where we are quite happy to publish these metrics. We, as I said, have tons of data that we can publish. Because of the mix in movement, it's not appropriate time right now to publish them. Overall, however, we are giving you outcome metrics. That's panel 12 and 13 and to give you texture that this is not for happiness, but for business. I think that's really, we can give you input metrics leading to output metrics because that's how we manage the funnel. In marketing terms, we call it a funnel or in management of funnel, but it may lead to more confusion. More data may lead to more confusion.
On second point, payments, you know, on moving money, that's really what the objective of payments is, you know. The principal objective of payments is, one, engagement, and two, moving money. Our 70 million franchise, hopefully sometime in the near future, a 100 million franchise, moves a lot of money. W e want a reasonable share of that money that they're moving, and that's really why for the last 18 months we're investing in payments. Next year, we are clear that maybe in addition to the B2B volumes we move, close to around INR 50 crore or INR 1,000 crore of GMV, we should be able to move in next year, which will be the first full year of the entire payment stack that we would have actually put on table.
It is very much possible we may beat those numbers, but we'll see. They don't make money, that everybody knows now. Anyway, it will have no impact on what that means, but it only gives us greatest share of the client's mind and his wallet. Those data points are important and will help us to lend better, do insurance better, do mutual fund better, which we understand fully well. That's a response to your two questions, Kuntal.
I have one more question. I'll join the queue.
Yes. Yes.
Thank you. Next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.
Yeah. Hi. Congratulations to the team for a great quarter, and thanks for taking my question. Two questions. One is on pertaining to slide number 14, right? I mean, the metrics that you have provided, thanks for sharing this. If you look at the cross-sell of other financial products to existing customers, right? There is a marked shift in FY 2022. Now, how should we read this in context of the fee income which anyways is or a non-interest income pool, right? Which is materially stronger compared to some of our competitors. How will it change this particular metric going forward?
As we go more and more digital, this will happen more and more. There are many more lines over the next 12 for 12 months where customer buys them because these are smaller value. He's buying an insurance, he's buying a mutual fund, he's buying a pocket insurance, he's buying them. The only means to stimulate him is through notification infrastructure and through banner infrastructure in the app. He's buying them. That is really the overall objective of transitioning to fully going digital because we clearly believe that the customer has a very large wallet. A lending wallet, an insurance wallet, a payments wallet, a mutual fund wallet, a securities wallet. These numbers would keep growing among, you know. We ourselves are, and I must make a point, are surprised by the take-up.
It surprises us on the positive, I would say, and you should expect more of it to happen as we go fully digital.
Understood.
What will that mean in number? It's a little early, but next time, by next year we'll provide that, yeah, that outlook as well.
Great. Rajeev, second question is on clearly, I mean, we have been talking quite a bit about our omnipresent strategy and clearly going digital on all products or lines. In that context, how relevant is geo expansion for us? Anyways, I mean, the other part of the question is that we are anyways fairly deeply present, right? Incrementally, the geo expansion that we are doing, how relevant is that for our growth? Just wanted to understand that.
It's economic. I must make that point. It's very economic. It's not for hobby. That's point number one. We've now reasonably perfected the frame. It's very linear, which means we know in the credit business that we are in the seventh or eighth month it makes money. I t's very economic. It's very hard. It's harder for anybody, for most people to crack. That's the second point. Third point, we will remain omnipresent only. Customers still use cash, point number one. I mean, the M3 money supply in the economy is at all-time high. That means customers still use cash. It's doubled from, let's say, 2016. I mean, that's the nature of the consumer. You know, that's really how we're all brought up.
Cash will remain important, that means branch will remain important. Two, debt management will remain important, as long as credit exists. Three, service will remain important, but service, we are very clearly seeing is moving more and more and more digital. But the cash and the debt management infrastructure will remain relevant as long as we're in a credit business. Lastly, deposits take all products and services. A branch provides meaningful trust and confidence to the consumer to do business with you. I think that's the third point I would make, an important point. Anup wants to make a point.
I think as a key play from here, we take more products to more geographies. I think that's another big play because as we look at a very well-diversified portfolio of products we have, the B2B and personal loan is where we are present in all the geographies, but from here on, where you really ride the velocities, like as we start our open market, two-wheeler, gold loan, we take more products to more geographies, and I think that's a multi-year journey of growth.
The way I think it's a very important point Anup is making, that you got boots on the ground. You still don't have all products on the ground. I mean, and we will, and between 15 and 20, let's say 2023 or 2024, we would have completed what I would call, that's when we embarked on bricks to grow as a franchise and got to Bharat. The next phase is all products to Bharat. We don't have all products to Bharat, or India. We will take all products in a templated, disciplined and rigorous manner to Bharat over the next eight, nine years. That itself could be a six, seven, eight-year journey for us as a company. Omnipresence will remain very important. Last point, we're in a highly regulated business.
Boots on the ground will be needed. They will become more productive, but they won't go away. You know?
Mm-hmm.
They just the result of automation, result of digital. They'll become more and more productive, more efficient, but not going away.
Understood. Perfect. This is quite helpful. Thanks, Rajeev, and wish you all good luck. Thanks.
Thank you. A request to all the participants, please restrict to two questions per participant. Next question is from the line of Piran Engineer from CLSA. Please go ahead.
Yeah, hi. Congrats on the quarter. Just a couple of questions. Firstly, you know, what's the strategy in home loans? Because last few months we've been, you know, 30, 40 basis points lower than players like SBI and HDFC. What exactly is the thought process of undercutting the market leaders? Is it, you know, mainly a market share gain strategy, or how do we really read this?
I mean, we've come to a conclusion that home loans is as much psychology business as it's business. We've seen that play. I think you'll find that in certain pockets where we're very, very comfortable. As you can see clearly, their cost of funds have begun to be lower than BFL structurally now over the last 5, 6 quarters. Because as I said earlier in my opening remarks, that a mortgage company has a lower interest rate curve than non-bank. So we're seeing that benefit play through now as the company's completed 5 full years of operation, very clearly, both in the bond market and otherwise we're seeing that. It helps that they have among the lowest gross NPA and net NPA.
That benefit we are passing through to take certain positions in certain affluent spaces. Let's say INR 1 crore home loan, we have taken a position that we want to be the lowest. Of course, mind you, the market doesn't sit there. The market remains, continues to sit between INR 50-75 lakhs. We do want to start to take a position in certain of these pockets and these cohorts to make sure we can create a space for ourselves in a market which is intensely competitive. The real bigs are playing on the strength of pricing and on the strength of, you know, distribution heft.
But-
There's no.
Yeah.
We're trying to make a space for ourselves, Piran.
Yes.
That's all we're trying to do.
If I may add, Rajeev, both price and process are the two distinguishers because generally we talk about home loan market as a commoditized market. Now if it is a commoditized market, we believe we have a better process. Coupled with that price positioning in the premium segment of the home loan, we believe is going to get us on a faster track to gain market size, both psychologically and then consequently the market share. That's the strategy behind it.
Got it. Okay. That clears it. Second, this is probably a bit more long-term, like 4 or 5 years down the line, you know, where do we really see the customer count settling at today, which is 6-6.5 crores? And obviously the TAM is something that, you know, most investors, including me, struggle with. You know, is it gonna be 10 crores? Could it be materially higher? Because, you know, in FY14 you rightly stated that, you know, your AUM per cross sell franchise is stable, so a lot of growth comes from growth in the franchise. Just want to get a sense of, what that addressable pool really is in your view, in the more long term, not next, 1 or 2 years.
Bottoms up is a better way to play India than top down. Played by the year, we ourselves are surprised by 9-10, or we have upgraded the guidance to 10-11 million. We have an ambition to have 100 million consumers. Now, as you rightly said, you know, I'm not chasing a number. M aybe we get there, as we fully go digital, it may happen in 2.5 years, it may happen in 4 years. It may never happen. I mean, we are playing this business bottoms up. The earlier conversation on omnipresence, from geographic expansion, to going digital, I think, the opportunity is tremendous, but it's a credit business. It's credit and risk first.
Otherwise, if that does not come into the way, the ambition is 100 million consumers.
Okay.
is really what I would say.
Got it. Sir, just one last clarification on slide 13.
Thirteen.
Panel 13. In your app business metrics, you've got digital EMI card acquisition, and then you've got a similar number in on the last para. I guess the first one, is it the number of consumer durables purchased on the app, like the 100,000 number for Q2 FY 2022?
You're referring to panel three, the three lines.
Mm-hmm.
That digital EMI card acquisition in the quarter. This is what you're referring to?
Yeah. Which is 100,000 for this quarter. Is that the number of consumer durables purchased on the app?
No, no.
No.
100,000 are the number of customers who have procured digital EMI Card from us.
No, Sandeep, that is 664, right? Below.
664. Yes, yes.
Yes.
664,000 came from the app.
App.
564 came through web.
Okay.
Just to give you.
Yeah.
It's all digital. In fact, it's an interesting point you made when I was telling on this call nine months ago that we think web helps to discover, and app helps to exploit. This is really the point we're making. That you see. You will see this play product by product. We are reasonably clear because just the sheer scope of discovery of web is going to surprise even us. We are very clear that it will be bigger. App is to exploit, engage, web is to discover. As you can see, 100,000 came in from the app. They came, they started from the app, completed the app on the app, got the EMI Card. But 564 came on the web.
Wow!
Web or different affiliate marketing channels and so on and so forth.
Incrementally as we
All day, every day.
Yeah. Incrementally, as we move towards app is equal to web and web is equal to app, I think it becomes irrelevant whether the customer is starting the journey from app or web. It'll get completed on either of the platforms.
Got it. Got it.
No, this is super helpful. Thank you so much and all the best.
Thank you. The next question is from the line of Nischint Chawathe from Investec. Please go ahead.
Thanks for the opportunity, sir. Can you share the yield on urban B2C and rural B2C portfolios?
I mean, we don't do segmental. Having said that, I must make a point to you. It's all in public domain now, right? I mean, it's on the app. You can just download the app, put your location and, based on if you're an existing customer, you'll get a price and so on and so forth. I mean, you know, it's out there fully in public domain. Of course, there are different cohorts, as I keep making a point. We don't run one urban B2C, and we don't run one rural B2C. It's based on a 40, 50 cohorts at the very least. It may be higher cohorts on the other end. That's really how we do risk separation and price segmentation, and price separation.
We don't publish that what the effective yield is because that may also change. At a fundamental level, if the mix change of the cohort, the net yield on that would change. That's really how I would respond to your question.
Sure. The second is just a clarification for this panel 14. Existing customer makes 62.3%, which means that out of the new loans booked, 62.3% of the loans has been given to existing customers.
Yes.
Is this right?
That's it.
Okay.
That's it.
All right. Thank you, sir. Thank you. That's it from my side.
Thank you. Next question is from the line of Niket Shah from Motilal Oswal. Please go ahead.
Yeah, hi. Thanks for the opportunity. Just had two questions. One is on the fee income part, which I think in the previous participant you did answer, in the web and the app environment, the fee income would grow faster than the EMI growth. This would be additional lines of fee income, or would there be some cannibalization?
No, we don't foresee cannibalization. Clearly, it's a wallet share conversation. As I said, from push we transition to pull. This is what he wants to buy because these are lower value, higher velocity, of course, stimulated. Stimulated being defined as bannerization, notification infrastructure.
Got it.
Nudges, end of journeys and so on and so forth, what a typical digital marketing infrastructure would do.
It can be.
These are new lines. As I said earlier, for engagement or to meet the latent needs of the consumer, you're gonna see more and more, come to play.
How do we, you know, is there some way to quantify? Because it's, there are multiple lines of fee income that you would be doing it, so.
As I said earlier, we'll provide an outlook on that by next year.
Got it.
Thanks.
The second question on the business, while we do understand you've made an application for the credit card license, when do we expect clarity on that? That'll be all.
When we get clarity.
Yeah.
I mean, you know. When we get clarity, we'll provide you clarity. We'll also get clarity.
Okay, got it. Thanks so much. I'll come back.
Thank you. Next question is from the line of Shweta Daptardar from Elara Capital. Please go ahead.
Thank you, sir, for the opportunity, and congratulations on great set of numbers. Two questions. On the rural business side, if I look at stage three, sequentially, there has been marginal spikes. What reason you would attribute for the same?
Actually, you will see spikes not even just in rural, you will see across, and you know. At a fundamental level, they're all still below. We'll publish just too many columns, so we didn't publish. But as we publish in the graphs behind, they're all still significantly below February 2020. Number movement is marginal, number one, but they're still significantly below February 2020. The right way to look at this would be December 2019. That's how you should read these numbers. If you plot against
Sure.
31st March 2022, if you plot one more column of December 2019, the numbers would. You would make. Because we don't want to leave. See, this is, as I said, we were at 130-140 basis points average credit cost to AUM. We are not guiding that it'll be 1%. I mean, we don't want to leave money on the table. We are a growing company. We manage risk well. We manage risk consistently well over long periods of time. T his is not the new normal that we want 100 basis points credit cost. As long as it remains in a corridor of 130, 140, 145 basis points, we are very comfortable with the profile. It's by design.
You will see these numbers still move until each one of these lines, principally if they're worse off, go back to, which is the case with two-wheeler and three-wheeler. Until then, we'll keep stamping as yellow. Others will remain green until they go back to pre-COVID, which is December 2019. Whenever they bust December 2019, we'll change the color coding to a yellow or a red based on our management assessment.
Fair point, sir. The second question, if I look at gold loan franchise accretion, you're putting up, on an average 20-odd branches every quarter. Can you just give a color on the entire modus operandi? How is the market positioning? How do you view the competition? And where do we see this business growing, you know, as an overall book? Thank you.
We are very small to give you guidance on that. Only outlook I can give you is that you should expect to see more infrastructure rollout in this space over the next 6-8 months. Is the only point I would make. You will see greater momentum in physical infrastructure, which means growth in business over the next 9-12 months. It's growing even now, and that's why we're investing. We intend to invest lot more as over the next, as I said, 6-10 months. Because we've come to
Okay. Thank you.
Just as the last point I would make, we've come to a conclusion that fundamentally it's reached a point where principally it cannot sit in the existing branch. It's a lot more viable. We understand how a standalone gold loan branch works. We are clear that it's not serving the needs of the consumer in the branch that it sits in. If it sat independently, distinctly, on a ground floor infrastructure, consumer facing, it's a lot more viable, profitable, effective.
Few more seconds.
Sorry, and dedicated teams as well. You will see a lot more action here, over the next, as I said, 6, 8, 9 months. It's a fair question you asked.
Got it.
You asked the question because you will see more movement here in this line.
Got it, sir. Well, you've said your answer. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, we'll take the last question from the line of Param Subramanian from Macquarie. Please go ahead.
Good afternoon.
Hi, Rajeev and team. Thank you for the opportunity. I have a few questions. Firstly, on, if we look at the digital transformation-
As I told Kuntal, Param, you can ask two. Go for it.
Sure, Rajeev. I'll limit to two. First question. Firstly, if we look at, you know, if we're talking about digital transformation, you know, whether we like it or not, we all appreciate you're working on a very large base of customers, b ut the volume of loans booked were still, you know, flattish compared to, say, three years ago. The reported customer franchise has increased, you know, significantly. If we're talking about digital transformation, don't you think, you know, on a volume basis, we should start looking up?
The reason I'm asking is that, you know, there is a big divergence now between, you know, the volume of loans that you're booking versus the value growth that we are seeing in the AUM that you've highlighted before as well. Your thoughts on that, Rajeev, firstly?
You go back to our two years ago transcript, you'll find we used to do wallet loans, 200,000 a quarter. We stopped doing them. You will find that we were doing retail EMI purchases loans, 220,000 a month, which means 700,000. Number, I think by the time we exited February 2020, it was 650,000, 700,000 a quarter. That number is at 200,000 because we. Both these contributed to, in a quarter, 500,000 additional loans.
Yes.
Okay? We walked away from wallet loans, clearly. One, we lost money. Two, RBI new guidelines came in, and they're in the right direction. We came to a conclusion that at a fundamental level, it's only at INR 14,000 plus in retail EMI card spends that we are viable over cycles. In an up cycle, we were in money, but in a down cycle, adjusted for both, we were not in money at less than INR 14,000. The call was that rather than doing 225,000 loans, we are now doing 70,000 loans, but we make money. And that's really what the purpose is.
Apple for apple, new loans booked is not a metric incrementally, increasingly, and that's why it's relevant, Param. You're asking the question, we thought we will start to talk in addition to new loans booked, AUM, because what have we said always? It's acquired across time. You know, the means of acquire over the last 15 years are also changing. Mind you, go to digital cards acquire.
No problem.
Okay, Zach. Actually, you don't have FY 2017 data. 664,000 digital EMI cards acquired. In 2017 they didn't exist, you know.
Mm-hmm.
As we still don't publish, mind you, new payments customers. We've not started to publish. Sometime by quarter four, we'll start to publish them. We've taken a call, we'll only publish those who are full KYC. Since we are discussing, might as well discuss that as well, right? We'll start to publish that number, which we're not publishing as yet. We don't want to deal with, I mean, don't want to count a non-fully KYC customer as KYC. The means of customer acquisition are changing, the means of mining are changing. Important is panel number 14, is AUM per customer changing and is profit per customer growing? If they're growing, that's really what should matter. Digital transformation, as I have said, remains a means to an end.
It should mean stronger growth, sustained momentum, growth in customer wallet and hopefully higher profitability. That's really all it is.
Got it, Rajeev. No, no, I appreciate the, you know, the mix shift away from rural. It's you know, even adjusting for that, because if I'm not wrong, it was less than 10% of the, on a volume basis. That's why I was asking that. M oving on, if I could ask, you know, on the ticket sizes in the personal loan business, how has this moved over the last three or four years, if you could highlight that? Because some of our channel checks seem to indicate that, you know, it's gone up significantly.
If you could give some color on where the ticket sizes on the personal loans, the urban B2C and the rural B2C business and how it used to be, say, three or four years back. Yes.
The mix has not changed. I go back to your point.
Okay.
The mix is same. See, this is the point I keep making. If the mix is not changing, nothing else is relevant. The mix of the business is from, and go to panel 47. You know, so let's say urban B2C, 20%, 21. I don't know if I have older presentation. A year later, it's 20%. I don't think this number would look between 19%-20% if you open even 2019. You should. As all the mix is not changing, that means, the overall, business model is not shifting in any given manner. Whether for high risk or for lower risk, mind you. The earlier question was for lower risk. That if mortgage grows, risk would be lower, what would happen? Your question is on higher risk.
No, it's not on risk. Rajeev, you, basically I'm asking on ticket sizes, how much headroom more do we have to expand ticket sizes? Because, the movement over the last three or four years could give us some color on that. Yeah.
Param, what happens is we are very clear inflation in India around 7%. Every year annually, we principally track only inflation. On January 1, we add inflation as a growth, in a personal loan business and run with it. Fundamentally, it'll run with inflation. Inflation plus 2-3%, depending on if you're doing well, plus 2-3%. If you're doing badly, minus 2-3%. That's really how the inflation plus 2-3%, inflation minus 2-3%. That's really how the ticket sizes don't move. Having said that, last point I must make. At a fundamental level, as we go down and down into India, clearly affordability is an important dimension. By design, it's more low and grow. Okay? By design.
India in 4,365th city is very different from 3,251 and 208. We break India into 23 different Indias. Those 23 different Indias is how we then run the model.
Got it, Rajeev. If I can ask one last question since I'm the last person in the queue. You mentioned that, you know, at the margin, you might be losing market share at the store in terms of financing consumer durables. You know, this has been the key customer acquisition engine for you. Do you see this, you know, impacting the cross-sell franchise in any way if this sort of competitive trend, you know, persists? Because like you highlighted, there are 16 lenders at the store now. Does that affect you know, on, in the cross-sell journey, say 3, 4 years down the line when you're cross-selling a personal loan? Because, you know, the acquisition franchise could be impacted because of that. That's my last question.
Fundamentally, Param, on a lighter vein, I published panel number 14 for you only. 14? 13?
Fourteen.
Which panel is it?
Four-four-fourteen.
14. Panel is for you only. I can't foresee four years because I didn't foresee COVID. I didn't foresee where interest rates are headed. I can't foresee four years. We'll build micro up. We'll take year at a time. As management, we still take quarter at a time because we have a quarterly test. Channels are changing. Business has not changed, means are changing. I think digital transformation is delivering to us at a means level, more opportunities than challenges because the consumer has changed. We're all paying for our coconut water on UPI. W e were not doing that. The consumer has changed. The means, business has not changed. We're in the credit business. If the means don't change. Means are representing more opportunity rather than challenges.
Because consumer would go to those who are meeting his means because he's gotten used to those means. You must of course, understand business, because if you give money against a coconut water, you're going to be in trouble. That's a different point. I don't foresee challenges, I see opportunities.
Okay, Rajeev. Thank you. Thank you for your comments. Yeah, I really appreciate it. Thank you.
Thank you.
Thank you very much. I now hand the conference over to Mr. Anuj Singla for closing comments.
Yeah. Thank you, Nikesh Shah. Rajeev, sir, any closing comments before we conclude?
No. Wish you all a very happy Diwali. Go shop. It's raining heavily across India. Raining every day in the evening hurts business more. Please shop during the day. Thank you. Have a good year ahead. Thank you. Thank you all. Thank you, Anuj, for hosting us.
Thanks to you, sir, for giving us the opportunity to host you. Thanks everyone for joining. This concludes the call for today. Over to you, Nikesh Shah.
Thank you very much.
Thank you.
With this, we conclude today's conference call. Tha nk you for joining us. You may now disconnect your lines. Thank you.