Ladies and gentlemen, good day and welcome to Bajaj Finance Q3 FY 2021 Results Conference Call hosted by JM Financial Institutional Securities Limited. I now hand the conference over to Mr. Karan Singh from JM Financial. Thank you, and over to you, sir.
Thank you. Good evening, everybody, and welcome to Bajaj Finance's earnings call to discuss the third quarter results. To discuss the results, we have on the call Mr. Rajeev Jain, who's the Managing Director; Mr. Sandeep Jain, who's the Chief Financial Officer; Mr. Atul Jain, CEO, Bajaj Housing Finance; Mr. Anup Saha, Deputy CEO; and Mr. Deepak Bagati, who's President, Collections. May I request Mr. Rajeev Jain to take us through the financial highlights, subsequent to which we can open the floor for Q&A session. Over to you, sir.
Thank you. Thank you, Karan. Thank you for hosting us. Good evening to all of you. I have two more colleagues that I missed. Ashish Panchal, who's my head of strategy and runs set of businesses, Fakhri, who's our Chief Risk Officer. Okay. I'll be referring to the presentation that's uploaded in the investor section of the website of the company. I'll be running through seven, eight pages. I hope to take between 20 and 25 minutes to go through the two points that we've outlined for you, and post that will be open for Q&A. Let's quickly jump to panel number four. If I look at the quarter that went by, in our assessment as a company, it is a quarter marked by granular business recovery.
Essentially, all lines of businesses have. Growth has been structural across other than auto finance business, and given the kind of credit losses that they're taking, it's ought not to grow that business. It's been reasonably structural. Significant improvement in risk metrics in Q3 and tracking implementation of a business transformation plan, which I'll cover in some degree of detail, and we have provided an update on that. Putting into motion a plan for pre-COVID growth and financial performance from next fiscal onwards. I just want to remind, the objective of us taking some of the actions that we're taking, including front-loading our loan losses, is with the purpose of ensuring that as we exit this fiscal, we don't have to think about 2021 for us as a company.
As a result of the plan that we laid out and which we've been putting into motion over the last three quarters, AUM came in in the current quarter on a year-on-year basis, 1% down at INR 143,550 crores. OpEx to NIM was better on a year-on-year basis. We're at 32.3% versus 33.8%. PAT was down 29%. There are a set of items that I'll cover which have caused this. ROE on an annualized basis is looking like 12.9% to 13%. Net NPA, on a pro forma basis, came in at one point. Sorry. This is based on the honorable Supreme Court status quo. It's at 19 basis points. Otherwise, it's at 122 basis points. Very quickly on to panel five. I talked about AUM.
Core AUM growth, essentially, if I add the IPO receivable that was there in last quarter of a tad below INR 1,000 crore, plus ECL that we take, if you add that, the core growth in the quarter was just a tad below INR 8,000 crore. On an average, if I take last four quarters pre-COVID, the number used to be between INR 9,000 crore and INR 9,500 crore every quarter. We think at a fundamental level, as we exit in Q4, we should start to get closer to anywhere between INR 9,000 crore and INR 9,500 crore for us as a company as we get into Q4. AUM growth is back. In general, as I said earlier, it is a secular recovery across all lines other than AF.
We booked 6 million loans against 7.67 million loans. Most businesses are between 85% and 100% of last year volume in Q3. Even in Q3, if I look at, let's say, fundamentally between October and December, if I look at point number four, while on a quarter basis, our B2C businesses, SME, rural B2C, and mortgages were 81%, if I look at December, they were at 90%.
Clearly, we are quite confident as a company that we'll get back to INR 9,000 crore, INR 9,500 crore or maybe a little higher growth as we enter Q4 for us as a company. In Q3, the urban consumption businesses were at 86%. That's in volume terms. On value terms, they're at 92%, 93%. Rural at 100%. In value terms, 103%, 104%. Credit card origination is at 102% on a year-on-year basis. E-commerce 107%. AF, I talked about, given the kind of credit pressures that they're in, at 62%, and that's likely to remain so for a little while.
Mortgages disbursements were at 90%, but the AUM growth was structurally lower on a year-on-year basis. In Q3, they grew by INR 770 crore against INR 3,700 crore in Q3 last year, mainly caused by significant portfolio attrition, caused by the kind of pricing that we're seeing between the top three lenders in the mortgages space. Four lenders, actually, in the mortgages space. We've taken the pricing action, and we're starting to see most of the INR 770 crore growth that you're fundamentally seeing, essentially came in a little higher, came in the month of December. We should go back to a stronger growth momentum in terms of net AUM as we get into Q4. Commercial business grew 15%. LAS business de-grew by 22%.
Given how well the businesses that we lend to have done through this phase, we are quite confident that even next year should be a good year for them. I think a good part of the quarter was that we acquired 2.2 million new customers, given the environment. Overall franchise stood at 46 million customers, and the base franchise stood at 25.35 million customers for us as a company. The overall franchise grew by 15%, but net growth, because a whole lot of customers slipped out as well as a result of delinquency and default. Gross formation was, or addition was 15%, net addition was 8%. Existing customers contributed 64%. In general, they contribute to 68%-70%.
That's an area that we're working on, and we should make progress as we get into in current quarter or as into the next fiscal year. Overall, the new origination clearly that we're looking at is looking significantly better than the pre-COVID origination. Whatever is coming through the door is anywhere between 20%-30% lower than what used to come through the door pre-COVID. It's only all but natural, given the kind of cleansing at a financial system level that's happened. Just as an update, we've talked about a second partnership for a credit card business, given our ambition to be among the top 3 or 4 card issuers in India. We have partnered with DBS Bank, and we have received RBI approval to distribute co-branded credit cards in partnership with them as well. RBL will continue to be a strategic partner for us as a company.
We continue to believe that we will grow that relationship, and this is a structural addition rather than anything else from a ambition and from a orientation standpoint. NIMs, quickly. That's on balance sheet. On NIM, overall margin profile remains pretty steady at pre-COVID levels, as in mortgages, which I talked about. Net interest margin was lower, mainly caused by, as you can see there, the interest reversal of INR 450 crores. That on a year-on-year basis used to be at INR 83 core, so that's a INR 360 crore interest reversal.
There'll be some degree of slip through in quarter four as well, but from Q1 onwards, that should go back to INR 83 crore, INR 85 crore, between INR 83 crore and INR 100 crore on a quarter-on-quarter basis. Cost of surplus liquidity, we started to wind down. That's the next section I'll cover, w as at INR 113 crores. It was at INR 83 crore.
If you actually look prior in Q1 and Q2 of last year, that number used to be INR 50 crores. Even INR 83 crores was an elevated number. This number either will go back to INR 83 crore or may actually even go lower as we get into the next fiscal. That brings me to liquidity management. Clearly both those actions on top, both being in a way have stress-tested the model as they revert back to their normalcy should add to the NIM, which is how it was prior to COVID. Liquidity, we remain sufficiently liquid, represented 11.6%, given the favorable and stable market conditions. We have now started to dial down our liquidity buffer. If you recall, last quarter it was 18%. We've dialed it down to 11.6%, or 22%, sorry.
We'll go back to our 7%-8% liquidity buffer that we used to maintain as a company by March 2021. To drive that, we already started to action in the last 45 days. We paid down close to INR 6,600 crore of prepayments is what we've done between middle of December and early January. As a result, the consolidated cost of funds came in at 7.78%. It'll further go down to 7.5% by March 2021. It also assumes that CP book, which used to run at 7%, 8%-10%, today is virtually running at 4%, 5%, 4%. It will also go back to normalcy. We also tested one more model very clearly over the last nine months, or especially in the first six months, that the company has a natural hedged liquidity profile built in.
Given the kind of rapid churn of the balance sheet, we do generate anywhere between INR 5,500 crore and INR 7,000 crore of natural liquidity in the balance sheet on a month-on-month basis. I think that's something that got tested very hard through this crisis as well. Deposits continue to grow as part of our intention to granularize. Came in at just a tad below INR 24,000 crore, year-over-year growth of 18%. Stood at 19% of consolidated balance sheet. We expect to end the year at between INR 25,000 crore and INR 25,500 crore for us as a company. Majority, 76% of that is retail, 24% is corporate. That ratio will keep growing to provide greater stability. OpEx came in at INR 1,390 crore, lower by 9% YoY. NIM is down 5%, OpEx is down 9%, clearly our actions on OpEx have helped.
We were quite brutal in the way we managed OpEx, and we think it is the right thing to do. This despite a INR 60 odd crores of higher recovery commission cost given the flow-through. It's actually down by, technically, 11%, 12%. It was also, of course, caused by lower business volumes. There's no denying that. Some of the actions that we took have now been institutionalized as we go ahead and should deliver sustained savings. As I've said in point 18, some of the costs are transient, like employee costs, we're starting to roll back. We rolled back majority of that in between November and December, and we will roll back fully from February onwards. Some of the business transformation changes in OpEx are structural in nature, like call center costs, travel costs, AMP costs, training costs.
They are not going to come back or may come back only to the extent of 40%-50% from where they were pre-COVID. Let's just jump to credit costs, the elephant in the room. Loan losses were pegged at INR 1,352 crores against INR 831 crores. We also did a principal write-off of INR 1,970 crores after looking at applying various lens as a company in terms of clients who should be written off. Various tests were applied by risk and by finance and by independent auditors to write off INR 1,970 odd crores on account of COVID-related stress. As of December, we're still carrying INR 800 crores of overlay provision as a company. Loan losses, just to highlight, we are continuing to front load basis a lifetime loss estimate rather than a flow-through estimate. That's just for highlighting the point.
We do expect that as we complete the current fiscal, that in the next fiscal we will go back to what has been our average 150, 160, or 170 basis points of credit cost of average assets, is what we expect to go back to from starting next fiscal. This is not accounting for how recoveries would pan out. If recoveries are better in FY 2022, it's difficult to pin a finger on it at this point in time. We may experience in the next fiscal a lower net loan loss to average assets. At this point in time, the only thing that I am looking at is how do we revert back to average loan loss to average assets rather than anything else without accounting for recoveries. Recoveries will be additional. We did experience, quite honestly, it looks like we've seen many cycles in nine months, fundamentally.
April was in a way one cycle, July was another cycle, and October, November, December was another cycle. In nine months, it feels like, as a financial services professional, we've seen three cycles. At a fundamental level, the degree of volatility of up and down is just quite unprecedented fundamentally, and not experienced by anybody, I can very confidently say that. At this point in time, we continue to observe significant improvement in portfolio quality in Q3. In collection efficiency in Bucket 0, I do read some of the analyst reports which talks about general collection efficiencies. I would just guide that there are Bucket 0 efficiencies, Bucket 1 and 2 efficiencies, and there are Bucket 3 and above efficiencies. That's really how fundamentally we internally look at it.
When we look at those clients who are current and they went into default, which is called Bucket 0 efficiencies, they are actually back to pre-COVID or better than that. Okay? That's level-1 point. The early Bucket collection efficiencies, clients who are in Bucket 1 and 2 because of the kind of sheer flow-through that's happened from Bucket 0 to 1 and Bucket 1 to 2, are significantly better than pre-COVID, which is really what is resulting in lower credit cost guidance. Even in Bucket 3 and above, we are experiencing the same thing. If it sustains, it could fundamentally mean lower credit costs. I would wait for some more time before I could confidently say that it will result in lower credit costs in the process in the next fiscal, but I would wait for a quarter to make that point.
Overall, we have provided a guidance that in Q2 that whatever we have taken, we are residually left in our assessment with anywhere between INR 2,600-INR 2,900. At this point in time, we've taken since then in this current quarter, INR 1,352 crore. We think the fourth quarter residual credit cost in our assessment could be INR 1,200 crore-INR 1,250 crore. As I said earlier on the previous point, They continue to be markedly better. The number could be INR 50 crore± . Given we have gone so far with it, in general, our management view would be, we might as well take it and if it comes back, it will drop into the P&L as we get ahead. I'd rather add the 95th percentile or 97th percentile, not get to wait to the 100th. That's really where we are fundamentally headed.
I've articulated that if they remain better, there could be reduction, but the reduction could be ±INR 50 crore-INR 75 crore. Gross GNPA, 24 point is a resolution plan at this point of time, INR 2,040 crore. Of that just INR 950 crore is mortgages. INR 523 crore will get cleaned up, essentially. Oh, sorry, is against that INR 2,040 crore, we are holding provisions of INR 400 crore overall, mortgages and AFR secured accounts. B2B, it's one single large account, which is part of the resolution plan. That's the resolution plan framework. Gross NPA, net NPA, 25th is, while it's a published number, given the interim order of honorable Supreme Court, if you took a pro forma view, fundamentally we are at, this point of time ending Q3 at 286 basis points of gross NPA and 122 basis points of net NPA.
If we break that up, the B2B businesses net NPA is up by 7 basis points. Post the cleanup, SME is up by 48 basis points. B2C is 89 basis points and auto finance business is 348 basis points. Fundamentally, other than auto finance business, which has an underlying collateral, we expect between Q4, Q1, we should largely be reverting back to the pre-COVID levels of net NPA for us as a company, is really what our internal risk models at this point of time are saying. Jumping, if you aggregate this entire conversation between balance sheet, AUM growth, NIM, liquidity, OpEx, and the credit cost, takes us to the last point of profitability. Overall contracted 28% from a pre-tax standpoint to INR 1,555 crores, mainly caused by INR 520 crores of loan loss provision, interest reversal of INR 367 crores, and additional liquidity cost of INR 130 crores.
I talked about the actions that we are fundamentally taking in each one of these lines, and they should result into natural addition to profitability as we get into next fiscal for us as a company. I don't think there is any, at a fundamental level, that's really where we are headed to be, at a design level. Capital, clearly, we are good for next three years from a growth as a company. The Tier 1 capital itself is at 25%. We are very well-placed. Far in Q1, we talked to street about zero-based budgeting. We provided a short update on business transformation that we are up to.
This is the first time we are fundamentally articulating over the next five to six panels as to what we are headed to become over the next or how the company will run over the next five to seven years. To us, this is a fundamental change in the way company will be run. Under the hood, there is a lot changing, is the point number one that I would fundamentally want to articulate. Once the hood changes, everything else over a period of time will change any which ways. Where we are headed is that, clearly, COVID led us to structurally question the way our business is conducted, not run. The way it's conducted and where we are headed is that we want to build for us as a company, a omni-channel infrastructure in this country for financial services products and services.
That's the position that we are taking as a company because we are a regulated business. We are not a pure payments business. Regulated business, not a payments business, which means omni-channel is what would work. You will need to transition between offline to online in a seamless manner, is really on a realistic basis, given the nature of our business, that business will run. That's really what we are up to. There is a consumer side of the business and there is within the company how data will move and how multiple apps will get created to deliver to the consumer a omni-channel experience. It was very clear that if you want to do this, it's not about building an app. Most people mistake it for that. The structural transformation is in changing your operating processes.
If you have to change your operating processes, followed by that, you have to change your core technology stack. That's really what we've been up to. That process will get completed. That's underway. That process will get completed by May 2021. What that'll lead to is to creating apps. App will follow. The hardest part in this entire frame has been changing the way processes would run, which means customer first rather than company first. I think that's the fundamental change in methodology or approach that we are headed to build. That means this stack itself is customer first rather than company first. That is the hardest part of this entire transformation that we are to deliver. Point number 31, I talked about omni-channel customer. As I said, we are a highly regulated business.
In a click of a button, 10% of the customers may get money, 90% will need a call in five minutes. 90% will need that somebody calls them and helps them complete the journey in the next five minutes, so that the loan happens in five minutes. That's really where the omni-channel framework starts to play out. We are in the process of developing or significantly transforming four large productivity app ecosystems within the company. They are inward facing, but they will seamlessly talk to the customer asset and employee assets on a real-time basis, which will be sales one app, merchant app, collections app, and partner app. That should also go through by May 2021. We do believe fundamentally that once these are delivered, this will require much lower headcount addition as a proportion of growth as we get into the next few years.
In our business, if I look at our P&L stack, a linearity of headcount addition to growth is something that always troubled me at a design level. We deliver this, that would dramatically get solved. That does not mean headcount addition will not happen, but the non-linearity of headcount to growth will go through a significant transformation as we get into the next fiscal. We will launch Bajaj Pay for consumers sometime in Q4. We will launch Bajaj Pay for merchants, mainly meant for our merchants. We are not looking at competing where the big elephants are fighting. We have 103,000 merchant ecosystem. We move 7%-8% of their commerce. We think we have an opportunity to double that volume in the medium term, just staying with that organized ecosystem so that we further ring-fence it. Within a single app ecosystem, customer will be able to access.
We are creating five proprietary marketplaces. EMI Store, which existed, but now, quote-unquote, "It is integral to our B2B business," the way customers will start to experience it in the next 30 days time. We're building an insurance marketplace, which will go live along with the overall new ecosystem. We are building an investment marketplace. Bajaj Finserv Health is already live. These are five proprietary marketplace ecosystems using our group companies and the broking app is the last app that we are creating, which should allow customers to buy a whole host of financial services products and services through a single app ecosystem across electronics, insurance, investments, and health. In addition, we've identified what we call adjunct affinity app ecosystems that we will integrate between now and May as we build this out.
I think the first phase of this will get launched by July, second phase by August, and third phase by September end. We think by September end, we should deliver what I would call a reasonably solid business. Having said that, let me make one point, that our next year growth as a company is not contingent on it. This is the way company will be run. I think I want to emphasize and reinforce that point. This is not for next year. This is the way company will be run rather than needed for growth at a fundamental level. We will use the second half of next year to optimize, optimize, and optimize, sharpen, sharpen, and sharpen. This is really how we will, as we go ahead, run the company, just as a last point. This is a new section we've added.
Clearly, if we have to build a moment of truth business for us as a company, and if we believe that 46 million customers someday will go to 75 or 100 million customers in this country, and our strategy is acquire and cross-sell, we got to deliver much better customer experience. That's one. Much reduced friction, number two, so that purchase and post-purchase experience improve. Every quarter henceforth, we will share as to what we are doing on customer experience for us as a company, because at a design level, we got to structurally change this piece of the hood to deliver a moment of truth company for us. There are a set of actions that are here. Point number 37, I covered. Clearly, the self-service infrastructure will see significant augmentation as we deliver the business transformation.
The largest part of the weight actually will be on self-service infrastructure for most, if not all. Some of the items parallelly at a fundamental level that we're doing is like an IO process that we have created to strengthen customer grievance. He also has a mandate to tell us what changes must we make so that customer friction reduces. Call monitoring infrastructure. We fundamentally have created now all calls by March that are made by our collections agents fundamentally will be recorded calls. That's really where we are headed. We are already at 35%-40% of the calls are recorded fully. They will get to 100% at a design level. We're proactively moving into DRA certification. That's something that we're doing as well. We've now taken a decision that NPS was used to gauge customer experience. We are headed to gauge it for our collections processes.
We are already seeing 3%, 4%, 5% response rates from customers on this. Clearly, we are changing a lot under the hood. It's been a terrible crisis, but I think it's put through some of the structural changes that we needed to make to create next levels of growth momentum for us as a company. Let's move. I jump to panel 19. The only business that we fundamentally added through this period is the medical equipment financing business. We think it's a large opportunity across SMEs and commercial in the SME now and in the commercial in the medium term for us as a company. We've done B2B tie-ups, and we're now disbursing INR 15 crore-INR 18 crore a month. This should grow as we move ahead.
Panel 35, very clearly, just on liability mix, from 13% at 0 to overall on a standalone basis of Bajaj Finance, deposits are at 24%, on a consolidated basis, they're 19%, ECB is at 6%. Move. That's panel 37. Customer franchise, I talked about it. At the top of the funnel, grew by 15%. At the bottom of funnel, grew by 8%. We added 2.2 million customers. Panel 45, that's pro forma. As I said earlier, this is a pro forma number rather than the reported number. This is also reported. This is a pro forma reporting. At a design level, as you can see, the largest impact has been in the auto finance part of the business. Rest of the businesses, we expect between Q4 and Q1 to revert to pre-COVID-19 levels from a net NPA standpoint for us as a company.
I'm left with last one panel. This is on panel 48. This is stage-wise provisioning. Let me just take two minutes to provide you with level of clarity on this panel so that we are all on the same page. Fundamentally, what you see below is Stage 2 and Stage 3 provision, Q3 versus Q3 last year. If you add INR 5,892 crore and INR 4,194 crore, that adds up to INR 10,000 crore of Stage 2 and Stage 3, which used to be INR 6,000 crore of Stage 2 and Stage 3. Gives us a differential of INR 4,000 crore of Stage 2 and Stage 3 differential.
Against that, the Stage 2 and Stage 3 provision itself is INR 1,800 odd crore. That leaves us with plus minus INR 50 crore, INR 2,300 crore of residual provision for us as a company. As we guided, we will take INR 1,250 crore in the fourth quarter. That's one part.
We expect majority of that, as you can see, is essentially coming from auto finance. You will see recoveries of close to INR 1,000 crore should take us back closer to. We have additional Stage 1 provision, as you can see here in this panel of INR 1,405 crore versus INR 770 crore. That's an INR 700 crore Stage 1 provision that's fundamentally sitting there. That's the last point. Largely, if not more, should more than cover at a design level for us as a company as we take Q4 provision that we are fully secured and not accounting for recoveries in next year. If any sudden impact was to appear in any one line of business, the recoveries from next year should be reasonably sufficient to take care of any from a mitigated impact standpoint.
That's really the full recon at a design level between Stage 2, Stage 3 assets last year versus this year, what we will do in Q4, and where we'll get to by Q1 for us as a company. That's what I would call a 105% recon, not a 100% recon as a company. Last panel, as you can see, the B2B businesses have started to revert back in Stage 1 to pre-COVID. Two-wheeler and three-wheeler is what will take two odd quarters. B2C and SME has some distance left, will happen as a result of the provisions that we will take in Q4, is really what this fundamentally reflects. That's the quarter and some little guidance on Q4 so that we can all hopefully forget about the current fiscal and get back to some degree of normalcy as we get into next year.
That's from me. Happy to take questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, you may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Anyone who wishes to ask a question, you may press star and one.
First question is from the line of Mahrukh Adajania from Elara. Please go ahead.
Yeah. Hello. My question is, sir, what was your stock of Flexi loans at the end of the quarter, and how much was converted during the quarter?
Sandeep Jain is a Flexi expert. Let him answer.
Bagat, I think Flexi is history now. I think we are not converting too many existing term loans into Flexi.
Since Q2.
Since Q2. Q2 was the last quarter when we had a decent amount of conversion that had happened. Otherwise, from quarter three onward, what we are doing is we are acquiring Flexi in the normal course of business across salaried personal loan, business loan against securities, loan against property, and so on and so forth. That's purely new origination that we have been doing in the past as well. As far as the portfolio quality of Flexi is concerned, we are seeing no difference in the portfolio performance versus what we were observing pre-COVID level. Absolutely nothing to worry about on the Flexi side.
Okay. The stock would be similar to what was in the last quarter?
Would have marginally gone up because of the new acquisition that we have done in the current quarter, which is the new business underwriting that we have done.
Got it. In terms of write-offs, what was the segment that saw the maximum write-offs?
The write-offs were across businesses, across auto finance and particularly three-wheeler business, where we have chosen to write off a certain set of customers where the receipts were not coming for the last couple of months. We had B2C businesses wherein we had customers who have not paid us.
Including moratorium.
For the last five, six months, including the moratorium period. Similarly, we had customers in B2B who had not made the repayments in the last six or seven months, including the moratorium period.
It was resonably.
Yeah. The customers who had shown the last six months of non-repayment track record, these were the customers we assumed were badly impacted by COVID-19 and may not be able to come up to the terms in terms of re-payments, even in quarter four and subsequent periods. We chose to write them off in the current quarter itself.
Okay. Thank you.
Thank you very much. Next question is from the line of Antariksha Banerjee from ICICI Prudential Asset Management. Please go ahead.
Yes. Good evening, sir. Can you hear me?
Yes, we can hear you.
The first one is on your panel 39, where you give the distribution reach. I see there's been a drastic reduction in the retail spend stores and some of the other stores as well. Can you tell us what's the rationalization strategy you have followed there?
Fundamentally, look, we have observed closures as well. In digital product stores, the 1,000 number is 1,000 stores have closed. That's it, right?
Yeah.
In some places it's closed, but the larger part of the conversation is if you recall that we're fundamental. That is one, that's 1,000. Just at a macro level, the digital products have seen closures. You should read 1,000 as having closed.
[audio distortion]
The biggest change here is the retail EMI Card stores, which has gone down to 15,000 stores. If you recall, in Q1 and Q2, we had paused that business. We had articulated the Remit and Wallets are the two point-of-sale businesses that we have not restarted. We have restarted retail EMI Cards, but we are focusing on an average ticket size of INR 15,000. Wherever the ticket size is less than INR 15,000 on an average, that's where we are not servicing them at this point in time. That's the INR 15,000 difference.
Okay. That's likely to remain from here, if I understand.
Once we launch, let me make a point. Once we launch merchant, and that's really what that team is working on, that as we launch Bajaj Pay for merchants, we intend to bring this back. In a completely new design. See, we did not shut it because we had a credit cost problem. We shut it because the model was becoming completely linear. We cannot then serve 200,000 merchants if we had a design beyond retail EMI Card stores, for which we will have to do linear staffing. As Bajaj Pay for merchants emerges, it creates a nonlinear way to grow this pool, is really what we'll wait for, and we'll build that out from the second half of the next fiscal onwards.
Thank you. Any rough idea of how much cost would have been saved due to this alone?
No. This is not a save item that way. This is a restructuring item. This is restructuring the business model to serve for the future. You want a specific number? The number will be INR 10 crore-INR 12 crores in a quarter. It's not to reduce costs. It is to structurally ask the question that how will it be run if it was to scale.
Got it. Okay. The second question is on the DBS tie-up. Just to understand, the broad contours of the way you do this credit card business remains the same with this partner as well. Is that right?
Yes, very much.
Okay. Just last one data keeping question. What are the incremental deposit costs that you are incurring on whatever you are raising increments?
You mean wholesale, retail? Retail is published, but you could raise today, you could place a fixed deposit with us at 6.6%.
Yeah, 6.6% is the pricing that we are offering for three year tenure.
Okay.
6.1% [crosstalk]
A blended one. Blended pricing at a different tenure level would come at 6.45%, 6.5%.
6.5%, okay. Thank you.
Thank you.
Thank you very much. The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.
Yeah. Thanks for taking my question. Particularly with respect to this RBI's ownership and the corporate structure guidelines or maybe conversion into this banking, what would be our view?
Finally, maybe RBI has indicated that there would be some kind of a change in the structural framework for NBFCs. How prepared would we be with respect to some of the aspects wherein clearly we see the regulatory arbitrage being there between our banks and NBFCs. How would we structure? Definitely nothing is out as yet, but how are you particularly looking at it?
Kunal, your question is the answer. Once it is out, at least I will be able to respond to the question. Otherwise, it would be hypothesis, and based on that conclusion, it will not be fair.
Generally, in terms of the operational flexibility, do we see a lot being there under the NBFC structure which might not be there under the banks of the product segments or not really?
No, I believe that the arbitrage will continue to just go away. I think they've constantly been harmonizing. I think that's the word constantly being used. They've been harmonizing the arbitrage, and I am fully supportive of that. I believe that for the sustainable growth of a sector, it cannot run on arbitrage. It should run on its own feet and should not purely be built on arbitrages. I am fully supportive of whatever decisions they make. We will optimize our business model, and it should be with minimum friction is what I would believe to all stakeholders.
Kunal, RBI has always come out with guidelines which made the sector more resilient. I think that's what RBI is currently looking at as well. We welcome the move that RBI will make on this count.
Sure. Okay. Secondly, in terms of this distribution which we highlighted particularly, say on the digital side or lifestyle stores, but does it any which way impact the servicing? You said it's not based on the customer behavior and it's purely in terms of the closures. Does it impact in terms of the asset quality to us or no, not really? Maybe even if it shut down, it doesn't matter in terms of the behavior of the customer?
Yeah. In a way, I have a view that when you see 1,000 digital product stores shut down, two things. Consumer durable, you don't see much movement because they are harder to build and shut. Okay. There is a digital product. In general, we do observe that in good times more mushroom, and in bad times they shut down. The entry barriers and exit barriers are very low. This clearly reflects that right now it's a bad time. 12 months down the line, as times turn, you may see it may increase again. Whether you walk into Vijay Sales or you walk in in general to a smaller store, our underwriting models in general don't change to the extent of 95%. Really doesn't change. There is evident consolidation, at least in consumer durable, in my mind.
No, sure. I understand that. In terms of our customer behavior, okay, which we would have originated from those stores.
[audio distortion]
Is the behavior different from the shutdown stores and the existing stores or it?
No. Among the top three retailers, I can tell you one of them is below our national average. They're one of the largest. It really doesn't matter.
Sure. One last question in terms of restructuring, is there a further pipeline wherein we are still yet to maybe you would have evaluated it, but yet to finally get restructured or it is just in work or this is the final number?
This is final number. Actually, since 15 December, we're done.
Okay, there are no additions to it. Okay, thanks. This is helpful. Thank you.
Thank you very much. The next question is from the line of Kuntal Shah from Oaklane Capital. Please go ahead.
Hey, good evening.
Good evening, Kuntal.
You said something that it's a moment of truth for the company, which is equivalent to a crisis on whose outcome everything depends. You also said the digital initiatives are not contingent to the growth. Basically, you are relying on the process improvement to ride out through the crisis. Is that the correct understanding?
Yes.
Can you explain this in detail?
Yes.
Secondly, [crosstalk]
They will have bigger near-term impact.
Pardon?
They will have bigger near-term impact.
Okay. For a couple of quarters?
Yes. As I said, by May. In fact, I believe in the next fiscal, the bigger impact of that will come from, I made that point through the productivity apps that we are creating rather than the consumer apps. That's where the omni-channel frame is. In a time like this, just got back to business. If we can start to generate 2.2 million customers in a quarter, you should safely assume that we can, or doing 6 million loans, we'll be back very soon to doing what we were doing pre-COVID. That's omni-channel frame, but to serve them is really what we see a three-in-one frame will be. To mine their wallet is really what we see a three-in-one or the business transformation frame will be. I think that's really where, Kunal, we are headed.
One question I had is, when we compare your numbers and your front-loading of credit cost, 4.1% on non-consolidated basis versus others adjusted for the size comparable. Most of the financials choose to write out losses over time and provide as they earn. I understand you want to get rid of it and start with clean slate, the difference is just too stark to ignore. Can you just highlight that, is it overcautious stance or you are seeing that kind of thing and others aren't?
I can't speak for others, Kuntal. I can speak for myself. These decisions are based on millions of customers. We bank 14 million customers at this point in time. It's based on that we're making decisions. This is a very large sample, straddled across 2,000 cities in India. We are making data-based and fact-based decisions. We do believe philosophically that P&L must fully reflect the state of the business. That's a philosophical point. The earlier point is a fact-based point, and I can't speak for others. We want our P&L to fully reflect, at any point of time, the position of or the state of the business.
Rajeev, since you don't have a banking license and you bank with all the other major banks, your customer, their customers overlap. Where's the disconnect?
Kunal, you're asking me or telling me? If you're asking me, I look at private sector banks, nationalized banks. We do lend to some customers who have cooperative bank accounts, given our deep distribution. I've not seen a structural difference. We last did a bureaus we work with to see whether our customers, are they defaulting with us or are they defaulting structurally or in morat. Structurally, they went into morat with us or they went into morat with broader banking system. Conclusion was 97%, 98%. We broke that up by public sector banks, private sector banks. Conclusion was completely identical on our base. That's all I would say.
Thanks, Rajeev. This was super useful and more reassuring. Thank you.
Thank you very much. The next question is from the line of Nischint Chawathe from Kotak. Please go ahead.
Hi, am I audible?
Yes.
Okay. Rajeev, when we look at the panels for monthly collections, somewhere you mentioned that December 2020 is net of provisions. What does this really mean?
Yeah. Sandeep Jain.
Nischint, we lost you in between.
Nischint, right?
Yeah. Nischint. When you say December 2020 collections are net of provisions, in those monthly collection efficiency panels, that's a footnote.
Nischint, identically reads to panel number 45 to these numbers. Wherever it's written off, it's written off against that. Identically reads to that. That reads identically to INR 1,970 crores written off. That shows in Stage 2, Stage 3. Identically reads to the last three panels. That's how it. Correct me, Sandeep Jain.
Yeah, that's correct.
What you're saying is, okay, let's go to the page number 49. What you're saying is December 2020 numbers are net of provisions excluding Stage 1.
Yes.
I'm just trying to understand what does it mean?
Yes. Of course. Because I have provided, I have written off. Then there's nothing left. That's all I have to do. Stage 1, not accounting for, rightfully as you said, Stage 1. Stage 1, INR 1,400 crores, which you see in previous panel. Please go to the previous panel. Sorry. Which is INR 1,405 crores is what I would call. In fact, as that improves, Nischint, and I said earlier, this number has to circle back to, on an average asset basis, to 60 basis points rather than 110 basis points. Eventually there is that INR 700 crores fundamentally that's sitting there. In addition, Nischint, as I said earlier, we will take in Q4 anywhere between INR 1,150 crore-1,250 crore. That largely, as I said, it's 105% reconciliation.
If I look at Stage 2 and Stage 3 loans, if I look at it on a quarter-on-quarter basis, last quarter was, I think Stage 2 plus Stage 3 was around INR 13,000 crore. This quarter is around INR 10,000 odd crore, and you have written off approximately INR 3,000 odd crore. Broadly, I think if I have to think about it on a current quarter, there is no improvement between Stage 2 plus Stage 3 loans.
Nischint, we've written off INR 1,970 crore in current quarter, not INR 3,000 crore. There is INR 1,000 crore-INR 1,200 crore of recovery, which means customers who are in Stage 2 have come back to Stage 1, by making the payment of their installment, not only for the current month, but probably also for the previous month.
You would expect maybe a higher recovery in the next quarter, and that's where you are kind of confident about the provision guidance?
I won't comment on rollback number as to how many customers or what amount will roll back from Stage 2 and 3 to Stage 1. I won't comment on that. From the portfolio that we have written off or we may write off in quarter four, do we see some amount of recoveries to take place in next year? Probably answer is yes. Can I put a number to it? I can, but probably we'll wait and watch as to how these recoveries work out, as we get into quarter one of the next year, and then we'll be more confident in terms of giving a number.
Nischint, since you have a question, let me reconcile once again for you. Okay. Last year, same time, we were at INR 6,000 crores. We are supposed to be at INR 6,000 crore, we are not supposed to be at zero. That's level 1, let me articulate, right? You're not supposed to go back to zero. We were last year at INR 6,000 crore, we are at INR 10,000 crore. Differential is INR 4,000 crore. Last year we had Stage 2, Stage 3 provision of INR 2,000 crore. We have Stage 2, Stage 3 provision INR 3,800 crore. Okay. That leaves us with INR 1,700 crores. It's all here on this panel 48. We will take in the current quarter INR 1,200 crores, and so on and so forth. That's fundamentally on this panel, full recon, forget about the recovery. We are not talking recoveries.
We're talking what we will do in Q4, where this number is, and where it will go to. We want to get back to INR 6,000 crore by Q1, fundamentally. Adjusted for the only number that may go to Q2 at a design level may be auto finance business because there is underlying collateral value that's sitting there. The INR 4,000 crore differential, even if you take four other businesses, very little, but take for AF, which structurally over the last 20 years has delivered between 45% and 50% recoveries on repossession. If you take that, as I said, it is 105% recon rather 100% recon.
Nischint, in normal times, one takes a cutoff at 95% level that if I'm 95% sure that money will not come or other way around, if I have 5% only probability of recovery, then I choose to write off. In the current time, given the extreme stress scenario that we have gone through, probably that threshold has increased from 5% recovery to 10% recovery. Wherever we are seeing that there is less than 10% probability of recovery, rather than keeping it in the GNPA and carry it as provision, we'll just write it off.
Sure. Got it. This is helpful. The second question is just trying to understand a little bit about Bajaj Pay, in terms of what is the thought process around it and how does it integrate with the overall
A PPI business focused on our merchants and on our customers. Open loop universal QR infrastructure allows our customers to use the universal QR, and the UPI infrastructure to do their day-to-day activities, allows the customer in a single interface to use a credit card, UPI, EMI Card, depending on the network, and QR. That's really what it'll do in a single interface infrastructure.
How does it integrate with the overall, the rest of the business in terms of lending modules?
At a checkout page, you will see these four options. Based on the merchant, an EMI may appear. Based on merchant, it may not appear. Based on a reward that we may offer to a merchant, it may appear. Based on a merchant, it may not appear. That's how it'll integrate with the broader B2B business. Today, you can walk into a store and use your reward points on our co-branded card, and convert into margin. That's how it'll integrate into the business. Today, monthly INR 5 crore-INR 8 crore gets converted from reward points into margin money by customers to buy product. This is how it'll integrate at a fundamental level. Many more ways as we deliver this between July and September.
Sure. Perfect. We'll be looking forward to it. Thank you and all the best.
Yes. Thank you.
Thank you very much. The next question is from the line of Prashanth Shridhar from SBI Mutual Fund. Please go ahead.
Yeah. Good evening. Just a clarification on a data point. What is the amount of Flexi Loans that will be part of the Stage 3 INR 4,000 crores and the restructuring INR 2,000 crores?
I don't have that number handy. I can come back to you separately, but I think once the customers move into Stage 3, it really doesn't matter whether it is Flexi or non-Flexi. That's the only point I will put on table. We may have certain set of customers who may be in Stage 2 and Stage 3, with Flexi facility from us. But from provisioning point of view, from exposure point of view, they are no different from a normal term loan customer.
Okay. Sure. Fair enough. And we saw the jump in terms of converted to [audio distortion]
The numbers we track, and to the earlier question on Flexi, if it was standing out, we would at least have the number. Let me make that point. We track many numbers, most numbers. If you're not tracking it, you should reasonably believe that we don't think it's an elephant in the room.
Fair point. Thanks. I think you were talking about it earlier. Is there any feedback on the traction in terms of how much gets converted into Flexi this quarter? I think we had the number for the previous two quarters.
No. We are not tracking even that. That's what Sandeep responded even earlier.
If you look at the commentary that we are given in quarter one and quarter two, there were significant amount of customers whom we wanted to offer Flexi loans who had not availed it earlier. We had in stock sitting out there. We had field forces who did not have enough business in the market to do because of lockdown situation, and that's where Flexi conversion took place. I think as we go back into normal business, the Flexi conversion is not going to be area of focus. Any which ways, the set of customer that we wanted to convert into Flexi product have already got converted.
Sure. Thank you so much. That's all.
Thank you very much. The next question is from the line of Abhishek Murarka from IIFL. Please go ahead.
Yeah. Hi, good evening, everyone. Can you hear me?
Yeah, Abhishek.
Yeah. Hi. A few questions. One, in terms of this DBS tie-up, the pool of customers that is available to RBL and DBS, is that going to be kept exclusive or is it a larger pool and hence the flows that were going to RBL earlier are not going to shrink? If you could give some understanding of the kind of business flows or customer base monetization that you're looking at, it would be great. .
It would be a little premature, Abhishek, at this point in time. We just received approval. We had to work with them as a bank. They don't have an active credit card business in India, so they have to put together the infrastructure and the technology platform to launch in India. I think that's the first step. I think that's first thing that has to happen and largely to be done by them. We'll assist them in whichever way we can. I think by the time it gets launched, we are in January, maybe by 1st of July. Maybe we'll provide an update, Abhishek, sometime in Q1.
Sure, Rajeev. Sorry, just to ask, just conceptually, does this sort of cannibalize the customer flow to RBL or does it not cannibalize that flow? The pool that is available to RBL.
No, as I said earlier, Abhishek, RBL is our strategic partner. We built out with them over last four years a very good business. It's a special relationship and it will continue to be strategic and it will continue to grow the way it's grown over the last few years. We see a very large opportunity to be able to serve both the manufacturers as a company for the medium term definitely.
Sure. Thanks. That's clear. The other question is, Rajeev, when I look at this panel on home loans and LAP and I see the sequential reduction in those buckets that you reported, it's still much, much higher than pre-COVID-19 levels. I just wanted to know what are the structural reasons for stress in home loans? Because LAP, I understand could be to some businesses which are seeing stress, but home loans, considering it is very high quality underwriting cross-sell to existing customers, why should that portfolio see much higher delinquency?
It is the largest outflow for a customer. That's exactly the point that we all cannot forget that there was a COVID-19 crisis. Wait, Atul wants to speak. I think so clearly you will see, at a fundamental level, Abhishek, also remember this is super secured. Eventual loss given default as customers go back to normalcy will be much, much lower. This and AF are the two businesses because they are long tail. In fact, mortgage is the longest to go back to normalcy to that extent because you'd work through the customer. Even on bounce rate, so far they're still higher than they were at pre-COVID-19 levels. We'll have to just work through.
Sure. Last bit, just a couple of disclosure related questions. Can you give the movement of NPA and what is the ECLGS outstanding that you have? How much in ECLGS 1.0 and 2.0?
ECLGS.
Okay.
Yeah. Abhishek, I can't give you NPA movement because of the standstill that has been announced by or that has been ordered by the Supreme Court. That's the reason why we chose not to publish that NPA movement work for the current quarter because fundamentally I'll not allow any customer to be classified as NPA in the current times. That's point number one. Point number two, what was your second question?
The ECLGS outstanding. ECLGS disbursement that you would have done.
I think [Non-English content]
I think that is about INR 600 crore-INR 700 crore of outflow that we have done.
Outstanding?
Yeah.
Okay. Just in the movement of NPA, even though you cannot disclose that, but just on a pro forma basis, the slippages, would that be close to INR 4,200 crore-INR 4,300 crore if we were just to assume that nearly INR 1970 crore was written off?
Yeah, if you track the movement in the Stage 3 outstanding and add back to it the write-off number, that will be the number that will get worked out.
Yeah. Okay, fair enough. Great. Thanks a lot and all the best for the next quarter.
Thank you.
Thank you very much. The next question is from the line of Krishnan ASV from HDFC Securities. Please go ahead.
Yeah, hi, Rajeev and the rest of your team. My question is a little more structural. You have generally had a lot of wins to your credit from the time that you've been in engineering the turnaround at Bajaj. Unfortunately, one constituency that you haven't had great success with is customer friendliness, right? Just wanted to understand, you have mentioned a few things around business transformation and what you want to do in order to become more customer friendly. Are we reaching a point where you might want to admit that it's not possible to be both customer friendly and investor friendly?
No, I don't agree at all. Just to set the record straight, we run one of the highest NPS in the lending business in India. Structurally, we never published it. Now we'll start to publish. If you go back to panel 10, I don't believe that you'll make a choice. That's level 1. We run an NPS of, pre-COVID, 47, 48. 64% of the customers are existing customers. We think it will go back to 68. Structurally, it's not a choice between either or. I must say that you have to be straightforward, you have to be clear. I don't think it's a choice, or it's a choice to make.
I have said this on panel 10, if you go to it, that we believe that if we actually get as a starting relationship, a very small share of his wallet. Let's face it. He's taking eight-month loan at no interest. I'm getting a very small share of his wallet. He's got a personal loan wallet. He's got a home loan wallet. He's got an insurance wallet. He's got a credit card wallet. He's got a used car wallet. I want that part of his wallet. He's got an FD wallet. I want that part of his wallet. If I did not serve him right, anyways, he'll not do business with me. I have actually perforce not an option, but to serve him right to get that part of the wallet. That you've done reasonably successfully across businesses for many years.
Should we do much more? That's why the panel 10 has appeared. Let me make that point, that at the size of our franchise that we will get to, we have to be far more fastidious about it as we get it.
Yeah. See, the reason I'm asking that, Rajeev, is at some point of time, you did have aspirations to be a bank. We have recently had one adverse regulatory development where a large bank was told not to add new customers if you can't be fair to your existing customers. I'm just wondering, is there something that you could do to fix the perception of not being customer friendly? Maybe you are, but maybe there is a perception that lies out there that you're not very customer friendly. Can something be done? Is something being done to address that perception?
Yeah. As I said, that's why we do NPS. NPS tells us that on a year-on-year basis, over the last three years, we are making significant progress. My experience tells us that our share of our customers' wallet has gone up. Three years ago, we didn't have dedicated customer service branches. Today, in top 28 cities in India, I have only dedicated customer service branches. On an average, each branch has 8-10 cashiers. They are 10,000 sq ft on an average infrastructure. We can go into detail, but I don't know how to fight perception, but when I ask our customers at an NPS level, done independently, that is not what we are seeing, or that is not what we have observed. At a fundamental level, let me make a point. What is the core product?
The core product is how quickly am I able to give him the core product, which is a loan. If that takes long, I can be whatever, he's not going to like it. If that is quick and reasonable, he is going to like it, and that's why NPS goes up. As friction goes down, we will see perforce, like it or not, NPS go up. More and more friction goes down, more and more NPS will go up. Less and less questions I ask and more and more I pre-cook work for him, more and more he is going to be happier. That's really how we all behave, and that's really how customers behave. Now then comes the next question, which is an investor-related question. What is the price?
Price between fair, reasonable, low, that's a matter of judgment because therein comes at a fundamental level, what is the risk-adjusted pricing for that customer? Here the conversation starts to get a little more complex. We have to be at it and continue to solve for it.
Great. Just one other question. This was extremely helpful. Just one other question. You have screened out almost anything that happens offline in terms of durable financing or mobile financing, electronic appliance financing. I just wanted to understand how is that market share, how is that share of the wallet or share of the transactions that happen over the online journey, how is that tracking for the firm?
7%, 8%, that's largely determined by the new through-the-door customers that come in offline, level 1. That's why I said 2.2 million new customer acquisition was an important metric, in Q3. Gets converted, in general, 90% of the clients land up taking an EMI card, and of them, those who choose to use on e-com, get access to it. That's really how the virtuous cycle fundamentally works. More and more customers keep coming through the offline ecosystem. More and more customers keep buying EMI card. More and more customers keep using the EMI card based on their choice, whether in offline or in online. As you can see, in the previous quarter, offline business grew by 86%, e-com grew by 107%. We'll stay focused on the customer rather than on the channel.
Okay. That helps. That helps, Rajeev. Many thanks.
Thank you.
Thanks.
Thank you very much. Ladies and gentlemen, due to time constraint, that will be the last question for today. I will now hand the conference over to Mr. Karan Singh for closing comments.
On behalf of JM Financial, I would like to thank Rajeev Jain and the senior management team of Bajaj Finance for joining us on the call today.
Thank you.
Thank you.
Thank you all. Thank you. Sorry to be late. Thank you.
Thank you very much. On behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.