Ladies and gentlemen, good day, and welcome to Bajaj Finance Q3 FY 'twenty one Results Conference Call hosted by JM Financial Institutional Securities Limited. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Singh from GM 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 mister Rajiv Jain, who's the managing director mister Sandeep Jain, who's the chief financial officer mister Atul Jain, CEO, Bajaj Housing Finance mister Anoop Sahar, deputy CEO and mister Deepak Bhagati, who's president collections. May I request mister Rajiv Jain to take us through the financial highlights, subsequent to which we can open the floor for q and 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 Manjal, who's my head of strategy and runs set of businesses, Fakri, who's our chief risk officer. Okay. I'll be referring to the presentation that's uploaded in the investor section of the of the website of the company. I'll be running through seven, eight pages. I hope to take between twenty and twenty five minutes to go through the two points that we have outlined for you.
And post that, we'll be open for Q and 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 so 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. Otherwise, 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.
And 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 at on a year on year basis, 1% down at INR 143,550 crores. OpEx to name was better on a year on year basis, was at 32.3 versus 32.8. PAT was down 29%, and 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%.
And net NPA, this is a pro form a on a pro form a basis came in at one point point, sorry. This is the based on the Supreme Court, Honorable Supreme Court status quo, it's at 19 basis points, but 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 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 and INR 9,500 crores every quarter.
We think at a fundamental level as we exit by in Q4, we should start to get closer to anywhere between INR 9,000 and 9,500 crores 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 6,000,000 loans, again, point six seven million loans. Most businesses are between 85100% 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%. So clearly, are quite confident as a company that we'll get back to 09/9005 or maybe a little higher growth as we exit 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, are at 90% to 93%. Rural at 100% in value terms, 103%, 104. Credit card origination is at 102% on a year on year basis. E commerce at 107%. AFI 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 $7.70 crores against INR 3,700 crores 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. You've taken the pricing action and we're starting to see most of the INR $7.70 crores growth that you are fundamentally seeing essentially came in a little higher, came in the month of December. So we should go back to a stronger growth momentum in terms of net AUM as we get into Q4. Commercial business grew 15%, lab business grew by 22%.
We are quite hopeful that commercial business will continue to given how well the businesses that we learned to have done through this phase, we are quite confident that even next year should be a good year for them. Company acquired two point zero that is, I think, a good part of the quarter was that we acquired two point two million new customers. Given the environment, overall franchise stood at 46,000,000 customers and the best franchise stood at 25,350,000 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. So gross formation was or addition was 15%, net addition was 8%.
Existing customers contributed 64%. In general, they contribute to 68 to 70%. That's an area that we are working on, and we should make progress as we get into in current quarter or as into the next fiscal. 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.
But 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 received we've talked about a second partnership for the credit card business, given our ambition to be among the top three or four card issuers in India. We have received we have partners with DBS Bank, and we have received RB 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.
NIM, quickly, so that's on balance sheet. On NIM, overall margin profile remains pretty steady at pre COVID levels or in mortgages, which I talked about. Net interest margin was lower, mainly caused by, as you can see there, the interest reversal of INR450 crores that on a year on year basis used to be at INR83 crores. So that's a 60 crores industrial vessel. There'll be some degree of slip through in quarter four as well.
But from Q1 onwards, that should go back to INR 83 crores, 85 crores between INR 83 crores and 100 crores on a quarter on quarter basis. Cost of surplus liquidity, we started to wind down. That's the next section I'll cover. Was it INR 113 crores? It was at INR 83 crores.
If you actually look prior in Q1 and Q2 of last year, that number used to be INR 50 crores. So even 83 crores was a elevated number. This number either will go back to 83 or may actually even go lower as we get into the next fiscal. That brings me to liquidity management. So clearly, both those actions on top, both being in a way have stress tested the model as they go back as they revert back to their normalcy should add to the NIM on a which is how it was prior to COVID.
Liquidity, we remained sufficiently liquid, represented 11.6% given the favorable and stable market conditions. We are now starting to dial down our liquidity buffer. If you recall, last quarter, was 18%. We have dialed it down to 11.6% or 22%, sorry. We'll go back to our 7% to 8% liquidity buffer that we used to maintain as a company by March 21.
To drive that, we already started to action in the last forty five days. We've paid down close to INR 6,600 crores of prepayment is what we've done between December and early January. As a result, the consolidated cost of funds came in at 7.78. It will further go down to 7.5 and by March 21. It also assumes that CP book which used to run at seven, eight, eight to 10%, today is virtually running at 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 given the kind of rapid churn of the balance sheet, we do generate anywhere between INR 5,000 crores and 7,000 crores of natural liquidity in the balance sheet on a month on month basis. So I think that's something that got tested very, 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 INR24000 crores, a year on year to 18 and stood at 19% of consolidated balance sheet.
We expect to end the year at between INR25000 and INR25.5000 crores for us as a company. Majority, 7%, 78%, 76% of that is retail, 24% is corporate. That ratio will keep growing to provide greater stability. OpEx came in at INR $13.90 crores, lower by 9% Y o Y. So NIM is down 5%, OpEx is down 9%.
So 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 INR 60 odd crores of higher recovery commission costs given the flow through, So it's actually down by technically 11%, 12%. It was also, of course, caused by lower business volumes. There's no denying that.
But 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 2018, some of the costs are transient, like employee costs, you'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. But some of the business transformation are changes in OpEx are structural in nature, like call center costs, travel costs, A and P 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 cost, the elephant in the room.
Loan losses were pegged at INR1352 crores against INR371 crores. We also did a principal write off of INR1970 crores after looking at the applying various lens as a company in terms of clients who should be written off and who so various tests were applied by risk and by finance and by independent auditors to write off INR $19.70 odd crores on account of COVID related checks. As of December, we still carrying INR 800 crores of overlay provision as a company. Loan losses, just to highlight, we are continuing to roll to front load basis 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, 170 basis points of credit cost of average assets is what we expect to go back to from starting next fiscal. And 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 lower net loan loss to average assets. But at this point in time, the only thing that I'm looking at is how do we go back to revert back to average loan loss to average to average loan loss to average assets rather than anything else without accounting for recoveries.
Recoveries will be addition. We did experience, quite honestly, I mean, it looks like we've seen many cycles in in nine months fundamentally. April was in a one cycle, July was another cycle, and October and November, December was another cycle. In in nine months, it feels like as a financial services professional, you'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 can very confidently say that. At this point in time, clearly, we so we continue to observe significant improvement portfolio quality in Q3. In collection efficiency in bucket zero, I I do read some of the analyst reports. It talks about general collection efficiencies. I would just guide, that there are bucket zero efficiencies, bucket one and two efficiencies, and they are bucket three and above efficiencies.
That's really how fundamentally we internally look at it. When we look at those clients who are current and they they went into default, which is called bucket zero efficiencies, they are actually back to pre COVID or better than that. Okay? So that's level one point. The, the early bucket collection efficiencies, clients who are in bucket one and two because of the kind of share flow through that's happened from zero to one and one to two, are significantly better than pre COVID, which is really what is resulting in lower credit card guidance, which is really even in bucket three and above, we are experiencing the same thing.
We have to if it sustains, it could fundamentally mean lower credit cost, but 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 the point. Overall, we have provided a guidance of that in Q2 that whatever we have taken, we are regularly left in our assessment with anywhere between 2,600 to 2,900. At this point in time, we've taken since then in this current quarter INR $13.52 crores. We think the fourth quarter residual credit cost in our assessment could be INR 1,200 crores to $12.50 crores. As I said earlier on the previous point, if they continue to be markedly better, the number could be INR50 crores plus minus.
Given we've gone so far with it, we in general, our management view would be we might as well take it and we can if it comes back, it it will drop into the P and L as we get ahead. I'd rather add the, add the ninety fifth percentile, not, or ninety seventh percentile, not get to wait to the 100. So that's really where, we are fundamentally headed. And I've I've articulated that if they remain better. There could be reduction, but the reduction could be plus minus 50 to 75 crores.
Gaussian, 24 is a resolution plan. At this point in time, 2,040 crore of that, just INR $9.50 crores is mortgages. INR $5.23 crores will get cleaned up essentially sorry, against that INR 2,040 crores, we are holding provisions of 400 crores overall mortgages and AFR secured accounts. B2B, it's one single large account, which is part of the resolution plan. So that's the resolution plan framework.
Gross NPA and NPA, twenty fifth is while it's a published number, given the interim order of under the Supreme Court. If you took a pro form a view, fundamentally, are this one time ending Q3 at two eighty six basis points of gross NPA and 122 basis points of net NPA. If you break that up, the B2B business's net NPA is up by seven basis points. Post the cleanup, SME is up by 48 basis points. B2C is 89 basis points and Auto Finance businesses three forty eight 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 in 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 from a pretax standpoint to INR $15.55 crores, mainly caused by INR $5.20 crores of loan loss provision, interest reversal of INR $3.67 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 in our at a at a fundamental level, that's that's really where where they're headed to be at a design level.
Capital, clearly, we are good for next three years from a growth as a company. The Tier one capital itself is at 25%. So we are very, very well placed. So far in Q1, we talked to you guys about 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, six panels as to what we are headed to become over the next or how the company will run over the next five, seven years. To us, this is not a this is a fundamental change in the way company will be run. So under the hood, there is a lot changing. Is is the point number one that I would fundamentally want to articulate. And once the hood changes, everything else over a period of time will change any which way.
Where we are headed is that, you know, 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 omnichannel infrastructure in this country for financial services, products, and services. It's not it's not so that's the position that we are taking as a company because we are a regulated business. We are not a pure payments business. Regulatory 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. And that's really what we are up to. So there is a consumer side of the business, and there is a within the company, how business data will move and how apps apps will get multiple apps will get created to deliver to the consumer a omnichannel experience. Now 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. And that's really what we've been up to. That process will get completed. That's underway.
That process will get completed by May 21. What that lead to is to creating apps. So app will follow. The process 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.
And that means this stack itself is customer first or rather than company first. That is the hardest part of this entire transformation that we are to deliver. Point number 31, I talked about omnichannel customer. As I said, we are a highly regulated business. Customers in a click of a button, 10% of the customers may get money.
90% will need call in five minutes. 90% will need that somebody calls them and takes them helps them complete the journey in next five minutes so that the loan happens in five minutes. That's really where the omnichannel framework starts to play out. We are in the process of developing or significantly transforming four large productivity app and 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.
And so that should also go through by May 21. 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. And in our business, if I look at our P and L stack, a linear 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 nonlinearity of headcount to growth will go through a significant transformation as we get into the next fiscal.
We will launch Pay for consumers sometime in Q4. We will launch Bajaj Pay for merchants, mainly meant for our merchants. We are not looking at competing in 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 b to b business, the way customers will start to experience it in the next thirty days' time. We're building an insurance marketplace, which will go live by along with the overall new ecosystem.
We are building an investment marketplace and Bajaj Finsur 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 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 ecosystem that we 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. We think by September, we should deliver what I would call a reasonably solid business.
Having said that, let me make one point that, it's not my next year our next year growth as a company is not contingent on it. This is the way company will be run. I think I want 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, optimize, sharpen, sharpen, sharpen. And 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 we believe that 46,000,000 customers someday will go to 75,000,000 or 100,000,000 customers in this country. And our strategy is acquiring cross sell.
We've got to deliver much better customer experience. That's one, much reduced friction. Number two, so that purchase and post purchase experience improve. So every quarter, henceforth, we will share as to what we are doing on customer experience for us as a company, because at the design level, we've got to structurally change, this piece of the hood to deliver a a moment of truth company for us. So there are set of actions that are here.
Point number 37, I I covered. Clearly, the self-service infrastructure will see significant augmentation as we deliver, the business transformation. The the largest part of the weight actually will be on self-service infrastructure, for most, if not all. Some of the items parallelly to, at a fundamental level that we're doing is like an IO process that we have that we have created to strengthen customer grievance. He also has a mandate to tell us, what changes that we make, so that customer friction reduces.
Call monitoring infrastructure, we 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 a 100% at the design level. We proactively moving into DRA certification.
That's something that we're doing as well. So that's that's we've now moved. We've taken a decision that NPS was used to watch customer experience. We are headed to watch it for our collections processes. We're already seeing 3%, 45% response rates from customers on this.
So 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 10 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 medical equipment financing business.
We think it's a large opportunity across SME 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 are now discussing INR 15 crores, 18 crores a month. This should grow as you move ahead, Ali. Panel 35, very clearly, just on liability mix from 13 at zero to overall on a stand alone basis of Ajax Finance, deposits are at 24%. On a consolidated basis, 2019, ECB is at six.
Move to 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%, and we added 2,200,000 customers. Panel 45, that's pro form a.
This is not the as I said earlier, this is a pro form a number rather than the reported number. This is also reported, but this is a pro form a reporting. At the 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 levels from a net NPA standpoint for us as a company. That I'm left with last one panel.
This is on panel 48. This is stage wise provisioning, gross asset ratio. I mean, let me just take two minutes to make this 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 two and stage three provision, q three versus q three last year. If you add five thousand eight hundred ninety two and four thousand one hundred ninety four, that adds up to INR 10,000 crores of Stage two and Stage three, which used to be INR 6,000 crores of Stage two and Stage three, gives you gives us a differential of INR 4,000 crores of Stage two and Stage three differential.
Against that, the Stage two and Stage three provision itself is INR 1,800 odd crores. That leaves us with INR 2,300 crores of plus minus INR 50 crores, INR 2,300 crores of residual provision for us as a company. As we guided, we will take INR $12.50 crores 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 1,000 crores should take us back closer to we have additional stage one provision, as you can see here in this panel of INR $14.00 5 crores versus INR $7.70 crores. That's a INR 700 crore stage one provision that's fundamentally sitting there. So that's the last point. Largely, if not more, should more than cover at the design level for us as a company as we take T4 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 fully should be reasonably sufficient to take care of any from a mitigated impact standpoint. So that's really the full recon at a design level between Stage two, Stage three as of 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 105% recon, not a 100% recon as a company. Last panel, as you can see, the b to b businesses have started to revert back to in stage one to to pre COVID, two wheeler and three wheeler is what will take two quarters. B2C will take B2C and SME has some distance left, will happen in as a result of the provisions that we'll take in Q4 is really what this fundamentally reflects. That's the quarter and some liquidity of 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 your touch tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
First question is from the line of Maru Kajanya from Milara. Please go ahead.
Yeah. Hello. 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 Jan is a Flexi expert. Let him answer.
Bharat, I think Flexi is history now. I think we are not converting too many existing terminal into Flexi.
Since
q two. Since q two. Q two was the last quarter when we had 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 selling personal loan, business loan, loaning in securities, loaning
in property,
and so on and so forth. That's purely new organization that we have been doing in 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 are observing pre COVID level. So absolutely nothing to worry about on the flexi side.
Okay. But 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.
So Got it.
And in terms of write off, what was the segment that saw the maximum write off?
The write offs were across businesses across auto finance and particularly three wheeler business where we have chosen to write off certain set of customers where the receipts were not coming for the last couple of months. We had b two c businesses wherein we had customers who have not paid us for the last five, six months, including moratorium period. Similarly, we had customers in b two b who had not made the repayment in the last six, seven months, including the moratorium period.
So the customers is reasonably
Yeah. So the customers who had shown last six months of non repayment track record, these were the customers we assumed were badly impacted by COVID nineteen and may not be able to come up to the terms in terms of repayments even in quarter four and subsequent period, and 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 Antarshabanujee from ICIC Prudential Asset Management. Please go ahead.
Yes. Good evening, sir. Can you hear me?
Yes. We can hear you.
The phone call is on your panel 39 where you give the distribution reach. I see there's been a drastic reduction in the the retail spend stores. So and some of the other stores as well. Can you tell us what's the rationalization strategy you have to follow there?
So, fundamentally, look, we have we have observed closures as well. So in in digital product stores, the thousand number is thousand stores are closed. So that's that's good. Right? Yeah.
Yeah. So 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 thousand. So yesterday, macro level, the digital products has seen closures. So you should read 1,000 as having closed.
But the biggest change here is the retail EMI card stores, which has gone down to 15,000 stores. If you recall in q one, we had paused in q one and q two, we we paused that business. We had articulated that Remy and Wallet are the two point of sale businesses that we are that we have not restarted. We have restarted retail EMI cards, but we are focusing on an average ticket size of 15,000 rupees. So wherever the ticket size is less than 15,000 on an average, that's where we are not servicing them at this point in time.
So that's the
Okay. And that's likely to remain from here,
if I understand it? 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 Vedashpay for merchant, we intend to bring this back. But in a completely new design, that was leading to 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. We own retail EMI card stores for which we will have to do linear staffing. As Bajaj Maher 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 second half of next fiscal onwards.
Any rough idea of how much cost would have been saved due to this alone?
No. This doesn't I mean, this is a that this is not a save item that way. This is a restructuring item. This is restructuring the business model to serve for the future. Okay.
You want a specific number? The number will be $10.12 crores in a quarter. That doesn't we didn't know it's not to reduce cost. 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. So 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. And just last one, data saving question, what are the incremental deposit cost that you are incurring on whatever you're raising increment?
That's that's from 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're offering for three year tenure.
Okay. 6.1% Blended one
one year. Blended pricing at a at a at a tenure level would come at 6.456.5%. Yeah.
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. So particularly with respect to this RBI's ownership and the corporate structure guidelines or maybe conversion into this banking, what would be our view? And finally, maybe there are maybe RBI has indicated that there would be some kind of a change in the structural framework for NBFCs. So how prepared would the we be with respect to some of the aspects wherein clearly we see the regulatory arbitrage being there between banks and NBFC.
So how would the restructure? Definitely nothing is out as yet, but how are you particularly looking at it?
Kural, your question is the answer. Once it is out, at least I'll be able to respond to the question. Otherwise, it's it's it would be hypothesis. And based on that conclusion, it'll not be fair.
Generally, in terms of the operational flexibility, do we see it not being there under the NBSC structure, which might not be there under the bank? So I don't see. Sorry. I'm not
No. I don't. I believe that the arbitrage will continue to just go away. And it's that's that's that. Because 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 growth sustainable growth of a sector, it cannot run an arbitrage. It should run on its own feet and should not purely be built on arbitrage. So 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. Anal, 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, and we we we we welcome the the move that RBI will make on discount.
Sure. Okay. And secondly, in terms of this distribution, which we highlighted, particularly, say, on the digital side or lifestyle stores. But does it, I mean, which will impact the servicing or maybe because you said it's not based on the customer behavior and it's purely in terms of the closer. But do it yeah.
Does it impact in terms of the asset quality or to us or no? Not really. Maybe when it's shut down, it doesn't matter in terms of the behavior of the customer.
Yeah. Yeah. It so in a way, I have a view that when you see a thousand 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. There are in good times, more mushroom, and in bad times, they shut down. The entry barriers and exit barriers are very low. So this clearly reflects that right now, it's a bad time. But twelve months down the line, as times turn, you may see it may increase again.
You walk in, whether you walk into video sales or you walk in, in general, to a smaller store, our underwriting models in general don't change to the extent of 95%. So really doesn't change. But there is evident consolidation, at least in consumer durable in my mind.
No. Sure. I understand that. But in terms of our customer behavior, okay, which we would have originated from those stores. Is is the behavior different from the shutdown stores in the No.
No.
Among the top three retailers, I can tell you, one of them has is below below our national average. Now you know? So that's the and they're one of the largest. So it it really doesn't matter.
Sure. And one last question in terms of restructuring, is there a further pipeline wherein now we are still yet to maybe you would have evaluated it, but yet to finally get restructured or it is just single or this is a final number?
Yeah. It is final number. Actually, since fifteen December, we are we've not seen I mean, we are we are we're done.
Okay. So 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 Guntal Shah from Oakland Capital. Please go ahead.
Hey. Good evening, Rajat.
Good evening, Guntal.
You 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. So, basically, you are relying on the process improvement to ride out through the crisis. Is that the correct understanding? Can you explain
this Yes.
In detail?
Yes. And and secondly They will have bigger near term impact. They will have bigger near term impact.
Okay. For a couple of quarters?
Yes. By as I said, by May. In fact, I believe in the next fiscal, the bigger impact of that will come from I I made that point through the productivity apps that we are creating rather than the consumer app. And that's where the omnichannel frame is. In a time like this, just got back to business, if we can start to generate 2,200,000 customers in a quarter, you should safely assume that we can or doing 6,000,000 loans.
We'll be back very soon to doing what you're doing pre COVID. That's so many 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 three in one or or the business transformation frame will be. So I think that's that's really where, Kuntal, we are headed.
And one question I had is, you know, when you when by when we compare your numbers and your front loading of credit cost, 4.1% on nonconsolidated basis versus others adjusted for the size comparable, most of the financial choose to write out losses over time and provide as they earn. I understand you want to get rid of it and start with the insulate, but the difference is just to start to ignore. Like, can you just highlight that is it over cautious chance, 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 banked 14,000,000 customers at this point in time. It's based on that we are making decisions.
So this is not based on a this is a very, very large sample straddled across 2,000 cities in India. And we are making database and fact based decisions. We do believe philosophically that P and L must fully reflect the state of the business. That's a philosophical point. The earlier point is a a is a is a fact based point, and I can't speak for others.
We want RPNL to fully reflect at any point in time the position of or the state of the business.
But but, Rajiv, since you don't have a banking license and you bank with all the other major banks, your customer their customers overlap. So there's a disconnect.
Kuntal, you're asking me? You're telling me? Because if you're asking me, I can't I look at I look at private sector banks, nationalized banks. We do lend
to
some customers who have poor corporate demand accounts given our deep distribution. They I'm not seeing a structural difference. We last did a bureaus we we work with to see whether our customers, are defaulting with us or are they defaulting structurally or in Morad structurally they went into Morad with us or they went into Morad with broader banking system. Conclusion was 97%, 98%. If they were in more ad with us, they were in ad with we broke that up by public sector banks, private sector banks.
Conclusion was reasonable not reasonably, completely identical. So on our base. So, yeah, that's that's all I would say.
Thanks, Rajiv. This was super useful and more reassuring. Thank you.
Thank you very much. The next question is from the line of Nishin Chawate from Kotak. Please go ahead.
Hi. Am I audible?
Yes.
So, Rajiv, when we look at, you know, the panels for, you know, monthly collections, you know, somewhere you mentioned that December
to to these numbers. So wherever it's written off, it's written off against that. Identically reads to that. That reads identically to nineteen seventy rows written off. That shows in stage two, stage three.
Identically reads to the last three panels. That that's how it correct me, Sandeep? Yeah. Yeah. Yeah.
So what you're saying is so okay. It's through to the page number 49. Yeah. And what you're saying is December 20 numbers are net of provisions excluding stage one. Yes.
I'm just trying to understand what does it mean.
Yes. Yes. Yes. Of course. Of course.
Because I have provided I have written off. I have to then there's nothing left. That's all I have to do. Stage one. Not not accounting for rightfully, as you said.
Stage one. So stage one, 1,400 crores, which you see in previous panel is good to be used then, Which is 1,405 crores is what I would call in fact, as that improves, miss Chen, and I said earlier, this number has to circle back to on an average asset basis to 60 basis points rather a 110 basis points. So, eventually, there is that 700 crores fundamentally that's sitting there. In addition, Nishanth, as I said earlier, we will take in q four, anywhere between around 50 to $12.50 crores. That's that largely, as I said, it's a 105% reconciliation.
And if I look at stage two and stage three loans, you know, if I look at it on a quarter on basis, last quarter was I think stage two plus stage three was around 13,000 crores. This quarter is around 10,000 odd crores, and you have written off approximately 3,000 odd crores. So, broadly, I think if I have
to think about it in a
quarter on quarter, there is no improvement within stage two plus stage three loans. If I have to look
should return of $19.70 crores in current quarter, not 3,000 crores. So there is there is a thousand crore to 1,200 crores of recovery, which means customers who are in stage two have come back to stage one, by making the payment off for their installment, not only for the current month, but probably also for the previous month.
And you would expect maybe a higher, recovery in the next quarter, and that's where, you are kind of confident about the, the the the provision guidance?
I won't comment on rollback number as to how many customers or what amount will rollback from stage two and three to stage one. I won't comment on that. But 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.
You understood. Let me since you have a question, let me reconcile once again for you. Okay? Last year, same time, we were at 6,000 crore. Same so we are supposed to be at six.
We are not supposed to be at zero. That's level one. Let me articulate. Right? You're not supposed to go back to zero.
We were last year at six. We are at 10. Differential is 4,000. Last year, we had stage two, stage three provision of 2,000. We have stage three, stage two stage stage three provision of 3,007.
800 crores. Okay? That leaves us with 1,700 crores. It's all here on this panel 48. We will take in the current quarter 1,200 crores, the and so on and so forth.
So, 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 q four, where this number is, and, where it'll go to. You we want to get back to 6,000 by by q one fundamentally.
Adjusted what? The only number that may go to q two at a design level, maybe auto finance business because there is underlying collateral value that's sitting there. See, so the 4,000 differential, even if you take four other businesses, very little, but take for AF, which structurally over the last twenty years has delivered between 4550% recoveries on repossession. If you take that, as I said, it's a 105% recon, rather 100%
recon. And, Ashin, 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% out, 5% will be 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. So wherever we are seeing that there's less than 10% probability of recovery, rather than keeping it in the GNP and carry it as provision, we'll just write it off.
Sure. Got it. Got it. This is helpful. The second question is just trying to understand a little bit about the charge pay, you know, in terms of what is the thought process around it, and how does it integrate with the whole of
PPI business a PPI business focus on our merchants and on our customers. Close open loop universal QR infrastructure allows our customers to use the universal QR and the UPI infrastructure for to do their day to day activities, allows the customer in a single interface to use credit card, UPI, EMI card, depending on the network and QR. That's that's really what you could do in a single interface infrastructure.
So how does it integrate with the overall the rest of the business in terms of lending or
the checkout at the checkout page, you will you will see these four options. Based on the 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 that's how it'll it'll integrate with the broader b to b business. Today, you can walk into a store and use your reward points on a on a on a co branded card in and convert into margin. That's how it'll integrate into the business. Today, monthly, five to eight crores gets converted from from reward points into into margin money by customers to buy a product. This is how it will integrate at a at a fundamental level.
And many more ways as we as we 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 Prashant Shreedhar from SBI Mutual Funds. Please go ahead.
Yeah. Good evening. Just had a clarification on a data point. What is the amount of flexi loan that will be part of the stage three, 4,000 crores and the restructuring 2,000 crores?
I don't number have handy. I can come back to you separately. But I think once the customers move into stage three, it really doesn't matter whether it is flexi or non flexi. That's the only point I'll put on table. We may have some set of customers who may be in stage two and stage three 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, you know, we saw the jump in terms of converted to
numbers we track. And to the earlier question, was like, see. If it was standing out, we would at least have the number. Let me make that point. Since and we track many numbers most numbers.
If you're not tracking it, you should be reasonably you should reasonably believe that we don't think it's the elephant in the room.
Fair fair point. Thanks. But I think you had spoken about it earlier. Is any, you know, feedback on the traction in terms of how much gets converted into slightly this quarter? I think we have the number for the previous two quarters.
No. We we are we are not tracking even that. So that's that's what Sandeep responded even earlier. And that is we we If
you if you look
at the commentary that we had 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. So we are 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, this flexi conversion is not going to be area of focus. And any which way, we set up customer that we wanted to convert into flexi product have already got converted.
Sure. Sure. Thank you so much. That's that's all good.
Thank you very much. The next question is from the line of Abhishek Muraga from IIM. Please go ahead.
Yeah. Hi. Good evening, everyone. Can you hear me?
Yeah, Vishay.
Yeah. Hi. Two 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 would give some understanding of, you know, the kind of business flows or, customer based monetization that you're looking at, it would be great.
Yeah.
So it would be a little premature, Abhishek. At this point in time, we just received a approval. Our first we'd work with them as a bank to they don't have a 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.
So I think that's 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, it will be we are in January, maybe by July 1. So maybe we'll provide an update, Abhishek, sometime in in q one.
Sure, Rajiv. But sorry. Just to ask, you know, just conceptually, does this sort of cannibalize the customer flow to RBL, or does it not cannibalize that that flow, the tool that is available to RBL?
No. As I said earlier, Abhishek, the RBL is our strategic partner. We built out with them over last four years a very good business, and they'll continue to it's a special relationship, and it'll continue to be strategic, and it'll continue to grow the way it's grown over the last few years. And we see very large opportunity to be able to serve both the manufacturers as a company for the medium term, definitely.
Sure. Sure. Thanks. So that's clear. The other question is, Rajiv, when I look at this, you know, panel on home loans and lab, and I see the sequential reduction in the, you know, those buckets, that you reported, it's still much, much higher than pre COVID levels.
And I just wanted to know what are the structural reasons for, you know, stress in home loan? Because lap, I understand, could be to some businesses which are seeing, you know, stress. But home loans, considering it is, you know, very high quality underwriting cross sell to existing customers, why should that portfolio see, you know, much higher delinquency?
Because it is the largest outflow for a customer. That's exactly the point that we are we all cannot forget that there was a COVID crisis. Wait. Atul wants to make so I think it will so, clearly, you will see. But at a fundamental level, I wish I could also remember that this is super secured.
So eventual loss given default as customers go back to normalcy should be will be much, much lower. This and AF are the two businesses because they are long tail. In fact, model will take the longest to 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 levels. So we'll have to just work through.
Sure. And last bit, just a few 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 one point zero and two point zero?
ECLGS. Okay. Yeah. So, Abhishek, I can't give you NPA moment because of the standstill that has been announced by or that has been ordered by a part of the supreme court. So and and that's the reason why we chose not to publish that NPA moment walk for the current quarter because, fundamentally, I'll not allow any customer to be classified as NPA in the current times.
So so that's sort of that's the point number one. Point number two, what was your second question?
The ECLGS outstanding. ECLGS disbursement that you would have done.
I think charge amount of. Yeah.
I think that that is about 600 to 700 rupees of outflow that we have done.
Outstanding. Yeah. Okay. And and just in the movement of NP, even though, you know, you cannot disclose that, but just on a pro form a basis, the slippages, would that be close to 40 to 4,300 crore if we were just to assume that, you know, nearly 2,090, 70 crore was written off?
Yeah. If you if you if you if you track the movement in the stage fee outstanding and add back to it, the g the write off number, that'll be the number that'll that'll get worked out.
Yeah. Okay. Okay. Fair. Great.
Thanks a lot, and all the best for 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, Rajiv, and Hi. 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 in, I mean, engineering the turnaround at Bath.
Unfortunately, one constituency that you haven't had great success with is customer friendliness. Right? So 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. But are we reaching a point where you might 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. So, I mean, just 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 it's start to publish.
As if you go back to panel 10, I don't believe that, you will make a choice. It's not, I think, so that's that's level one. We run an NPS of, pre COVID. We run an NPS of 47, 48. Sixty four percent of the customers are existing customers.
We think it will go back to 68. So
structurally, it
isn't it's not a choice between either or. I I must I must say that. Have to be straightforward. You have to be clear. That's so I don't think it's a choice or it's a choice to make.
I've said this on panel 10 if you if you if you go to it, that we believe that if we see, we actually get as a starting relationship a very small share of his wallet. Let's let's face it. He's taking a one 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 I he's got a used car wallet. I want that part of his wallet.
I he's got an empty wallet. I want that part of his wallet. If I did not serve him right, anyway, he'll not do business with me. So I have actually purposed not an option, but to serve him right to get that part of the wallet. And that you've done reasonably successfully across across businesses for many years.
Now should we do much more? And that's why the panel 10 has appeared. Let me make that point that at the size of our franchise that we'll get to, we cannot even make we have to be far more serious about it as we as we get ahead.
Yeah. I mean, so the reason I'm asking that see, the reason I'm asking that, Rajeev, is at some point of time, you 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. So I'm just wondering, I mean, 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.
I mean, can something be done is something being done to address that perception?
Yeah. I mean, as I said, that's why we do NPS. And NPS, tells us that on a year on year basis, over the last three years, you're making, significant progress. So I have to said that my experience tells us that our share of our customers already gone up. So let me three years ago, we didn't have dedicated customer service branches.
Today, top 28 cities in India, I have only dedicated customer experience customer service branches. On an average, each branch has eight to 10 cashiers. They are 10,000 square feet on an average infrastructure. So I we can we can go into detail, but I don't know how to buy 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 observed.
Because 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's going to like it, and that's why NPS goes up. As friction goes down, we will see per force 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 precook work for him, less and less more and more he is gonna be happier. That's really how we all behave, and that's really how, customers behave.
So, now then comes the next question, which is an investor related question. What is the price? Prices now price between fair, reasonable, low, that's a matter of judgment because that their their incomes at a fundamental level, what is the risk adjusted pricing for that customer? So as they hear the conversation starts to get a little more complex, we have to be added and continue to solve for it.
Great. Just one just one other question. This was extremely helpful. So just one other question. You have generally been I mean, you have dreamed out almost anything that happens offline in terms of, you know, durable financing, mobile financing, electronic appliance financing.
I just wanted to understand how 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 for your for for the firm?
For 8%, that's far largely determined by the by the new through the door customers that are coming offline, level one. And that's why I said 2,200,000 new customer acquisition was a was a was a was was an important metric in q three. Gets converted in general, 90% of the clients land up taking an EMI card. And and of them, those who choose to use, on e com, get access to it. That's really how the virtuous cycle fundamentally works.
So 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. So as you can see, in the previous quarter, offline business were grew by 86%. Ecom grew by 107%.
So so we'll continue to we'll stay focused on the customer rather than on the channel.
Okay. That helps. That helps, Rajee. Main time.
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 mister Karan Singh for closing comments.
Yeah. On behalf of James and Angel, I would like to thank Rajiv Jain and
the senior management team of Bidaj Finance for joining us on the call today.
Thank you.
Thank Rajiv. 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 Thank you for joining us. You may now disconnect your lines. Thank you.