Ladies and gentlemen, good day, and welcome to Bajaj Finance Limited Q2 FY 'twenty one Earnings Conference Call hosted by GM Financial Securities Limited. As a reminder, all participants will be in a 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 second quarter FY 'twenty one results. To discuss the results, we have on the call Mr. Rajiv Jain, is the Managing Director Mr.
Sandeep Jain, who is the Chief Financial Officer Mr. Atul Jain, is CEO, Bajaj Housing Finance Mr. Anoop Saha, who is Deputy Chief Executive Officer, Bajaj Finance and Mr. Deepak Bagati, who is the Chief Risk Officer. May I request 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, Karan. Good evening to all of you. I'll be referring to the investor deck that we have uploaded in the investor section of our website. Let me, without wasting time, jump to Panel four. Q2, the quarter then went by and our assessment is all about gradual unlocking of the economy.
Our focus as a company was all about restarting all our businesses, creating back to growth plans given that COVID caused it all to go to zero between April, May, continuous risk modeling to define loss estimates, augmenting our collections capacity and begin the implementation of our business transformation, which we talked about in Q1, knowing fully well that we will have a smaller aggregate economy over the next twelve to eighteen months. That's really in summary was what we were up to in Q2 as management. Now what that led to is AUM grew 1% to INR237000 crores, OpEx to NII, which I'll provide some more color to over the next few slides, came in at 27.8%. PAT, after a lot of one timers that we took, which I'll cover as well, came in at INR $9.65 crores, a contraction of 36%. ROE at this point in time is not really relevant, but came in at 2.9%.
Net NPA given Morant, given Supreme Court verdict, not really relevant, but came in at 0.37%. I'll throw some more color on it in the next few slides. Let's give some color to the numbers. We'll I'm on Panel five. I'll cover one, two, three, seven and eight points.
While overall presentation is 49 pages, I intend to cover a few salient points for you to give you full texture on the quarter that went by. Very quickly, point number one, restarted origination across all businesses except Retail EMI card business, which used to contribute to close to 450,000 accounts in a quarter a year ago and Wallet Loans business, which used to contribute to 150,000 accounts. Both these remain in pause and will remain in pause till January and March, respectively. Adjusted for that, we've now restarted all our businesses to virtually pre COVID levels. Company overall booked $3,620,000 loans, again 6.4%.
As you can see, $05,000,000 or $600,000 came in just from these two businesses. We had an option to restart both these businesses, but from a risk standpoint, chose to push them to January and March. At this point in time, given that every month is important, we are fundamentally witnessing month on month improvement in volumes across all businesses at this point in time. In general, I would break the quarter into two. We had a conservative stance on volumes till August, given extended moratorium and absence of updated bureau data.
From September, which is from the month of September, the company has started to accelerate volumes across all businesses. We do expect even bureau data to go fully on stream by November, which should further add volume momentum. Please do realize that bureaus are the radar on which the consumer credit in any part of the world works. So it is is a headwind and from an information availability standpoint. Let's talk September.
September, clearly, let's break this into three parts. There are a set of consumption businesses that we are in. The urban consumption business came in year on year at 72% of monthly volumes. Rural is starting to do back virtually close to 100%, came in at 91% of year on year volumes. Credit card origination at 73%.
Ecom came in at 75% and auto finance was at 54%. If you look at loan businesses, which is whether it's personal loans, mortgages, rural personal loans, SME were at 60 on an aggregate basis, 62% of last year's volume. In the current quarter, company acquired 1,200,000 new customers. Overall franchise stood at 44,110,000 customers. Point number seven, AUM moderated to 1%.
We talked about it, it's INR137000 crore. We expect now the AUM growth to be at 6% to 7% versus 9% to 11% forecast that we've actually given you in Q1. If the momentum by Q4 is stronger, which is possible, there may be a potential upside. So far, when we look at the loan volumes that we booked during June, some in June, but July, August, whose the reach for that has come at this one in time and some part of September, the numbers are looking better than pre COVID, but a little bit of oxymoron. Once business goes back to 100%, we can safely
At this point in time, based on our conservative risk plans of July, August, they ought to be significantly better, which they are at this point in time. Jumping to Panel six, point number 10, the management plan at this one time is that the last full pre COVID month was February, is to go back to February 20 volumes as a company on a month on month basis by March or April 2021. We do want to enter next year with forgetting about twenty twenty, twenty twenty one, whether in terms of volume balance sheet standpoint or in terms of loan loss standpoint. We should have covered we will front load the loan losses. We will back load the growth.
And so that net net, April 21, we are back to where we were, where we would have been if COVID had not happened in April 2020. So that's really the thought process back to February 2020 by March. Liquidity, clearly carrying a lot of liquidity given how dark the days were between April, May, June, companies still had close to INR27000 crores of cash between SLR securities and liquid mutual fund investments. Total cost of liquidity, carrying cost of liquidity came in at INR $2.20 crores against INR 4,007 and 50 crores that we used to have in we had in Q2 twenty nineteentwenty twenty. Given favorable market conditions, given the wall of liquidity that's sitting in the system, we will start to now dial down the liquidity buffer over the next six months and expect to revert closer to pre COVID liquidity by March, April 2021.
We also believe that the cost of excess liquidity will normalize exiting Q4. Deposit book continues to grow, came in at INR 21,700 crores, a growth of 23%. The mix has also been shifted. We provided guidance on that in Q1 as well. 75% in our retail, 25% is wholesale in that versus INR 56 to 44%.
Point number 14, extremely important. We fundamentally had a choice to make in April when COVID happened, either cut cost significantly or grow volumes over the next six months. We, as you are aware, chose to cut costs. In Q2, despite higher fees and commission costs to the tune of INR25 crores, so in a way that line went up by INR25 crores due to recovery commissions that are fundamentally sitting there. Overall OpEx for Q2 is down INR224 crores.
As a result, NII grew 4%, but OpEx de grew by 16%. I think it will go a long way in ensuring that we come out of this crisis stronger. Some of these cost cuts are structural, some of them will never come back and some are transient. The transient cost will come back as we go back to growth, but the structural cost changes will be permanent in nature. So if you took this number of INR225 crores, I would say INR120 odd crores is not going to come back and INR100 crores will come back just today, ballpark level.
Let's spend some time on credit cost given the large provisions that we continue to take. Point number 17 is extremely important. Sorry, let me just cover point number 16 as well. As we go back to normalization of all our activities as a company, some of the operating expenses actions also we are rolling back. We have reinstated our quarterly incentive plans, but some of the things that we so we'll ease as we move over the next six months, every month as we get back to normalcy as a company.
Credit cost, first line is an important line. We are loan loss and provision estimates, as far as we are concerned, are on lifetime loss estimates. They are in a way truly ECL loan losses. That's really the way we see it as. This does mean that companies are counting for additional loan losses, otherwise that may otherwise occur in FY 2022.
If you flow it the way it would flow, I can easily take you to first half of next year or maybe even a little longer. We are quite clear. We front load the loan losses, absorb the shock so that the company is geared for growth as we get into FY 2022. Now it is possible that there are recovery we do expect in the process, if we front load the losses that we go back to pre COVID loan losses of 160 to 180 basis points of average assets. If the recoveries are stronger and we fundamentally based on ECL model undertaking higher, we may experience it is possible that FY 2022 may look lower net loan loss to average assets.
It's possible, but that's not really what we are banking on. We are saying we go back to normalcy. We took INR1370 crores, that's the number which is there. Total provisioning coverage is now INR599 crores. In general, we are seeing continued improvement in portfolio quality across all lines of businesses.
If you draw a parallel, we started on 27% moratorium book, went to 15.7. Moratorium ended in converted into so called 30 plus, which is really what we stood at 8%. So 15.7% in July has flown to 8%. That's really how we should look at the parallel. 27%, 15%, point seven eight percent.
Still a far distance from where we were a year ago, we were at 2.3%. 30% plus was 2.3%. It's coming at 8%. But there is a continuous improvement and if it was to persist, maybe overall loan losses can turn out to be lower. It's possible, but we will take that view as we experience every quarter.
Last guidance you provided was INR 6,000 crores to 6,300 crores in addition to INR $11.50 crores that we already taken in Q4 last year. At this point in time, our loan loss models by in general, by most businesses, if not all, are projecting an improvement to this estimate. We'll continue to roll forward these loss forecast by each portfolio. And hopefully, we'll provide a I would say we are 80%, 85% done. There is a 15%, 20% residual frame on which we'll become fully clear.
We are 80% clear. There's a 1020% clarity that will fully emerge by '3. So it's not too far away. So far, we have taken in this year INR3400 crores, that's point number 22, against the INR600 crores, INR600 crores estimate. Regionally, we have to take INR2600 crores to INR2900 crores.
In first two quarters, we have taken
INR 1,700 crores on
an average. If I took this number, you will take INR $14.50 crores to 1,500 crores quarter on the outer side as a company. We have offered we are have started to offer RBI as a resolution plan. So far in the last seven, ten days, we have offered resolution plan of $2.52 crores of that INR $2.14 crores in mortgages and INR 38 crores in consumer. Largely, it will be effective or applicable in mortgage business is really what our assessment at this point in time is.
Point number 24, from a P and L standpoint, again relevant, we've also reversed capitalized interest of INR142 crores so far in first half of the year, we reversed capitalized interest to the tune of INR361 crores. Gross NPA and NPA came in at 103 basis points and 37 basis points based on Supreme Court's interim order of not classifying NPA. Adjusted for that, it would have been 134 basis to 56 basis points. But as I said earlier, these numbers are not really relevant at this point in time. They will become much more relevant in Q3 and will become fully relevant by Q4 only for entire financial system.
Profitability, as I said, I'll provide some color, contracted by 35%. PBT came in at INR 1,305 crores, but on account of massive onetimers. None of them are required to be taken. Let me make that point importantly. 1,370 crores, our run rate as a company was 600 crores of loan losses.
I can easily provide only 600 crores at this point in time. We took 1,700 crores. That's 1,100 crores of onetimer. INR173 crores of additional liquidity, that's one timer. Interest and reversal, we are not required to do, that's INR142 crores.
These numbers, if I add, add up to INR1400 crores. Technically, we could have announced a profit of, INR 7 crores. But that would not be demonstrating prudence beyond the front load losses and back load income rather than front load income and back load losses. So that's the picture in general. Capital, we accreted.
We ended at 26.6% as a company. Business transformation, that's really 70% of the time is going for the management over the last four, five months. We want to become a moment of truth company across all our products and services, reduce friction, generate velocity. We will deliver what we are saying by June, July 2021. Once done, what does that mean?
It's not a technology project. It's a business project. It should mean significantly lower cost and at much higher velocity. That's really what the business transformation once we deliver by June, July would deliver. Let's just jump now to 35 very quickly.
We took away this panel in Q1, given the state that things were in. Investors said we must publish it, so we're publishing it. Again, with some changes, 4,000,000 franchise, 54% is in general cross sell franchise. It used to be a year ago, it was 59,000,000. So as clients move into 30 plus, you see the drop.
This is despite a set of actions that we've taken on we have various statistical scorecards, things like behavioral scorecards. People who pay during this period so in a way, our B score models have also gone through change. But net net, a 5659% of the franchise, which is so called 100 the best franchise, which was 56% in Q4, is looking like 54%. We still added 1,200,000 customers in new customers in Q2. Let's jump to an important slide, which is panel 46.
This is really the this is an important slide. This is the way you should you should read it is stage one, two, and three are defined below. Let me just cover that. Stage one is fundamentally defined as clients with no overdue on reporting date. Stage two is defined as clients with one or two installments overdue and also includes our weak account internal weak account framework.
So weak account clients don't have an overview, but are added to it, much more relevant for mortgages, and I'll cover that in a moment. Stage three is clients with three and above installments overdue. So if you see Stage one as of September of assets are in Stage one. Stage two, which is one or two installments overdue, is INR 10,913 crores and Stage three is INR $18.73 crores. If you exactly populated a year ago number, it's strangely coming close.
It's INR 128,000 was the balance sheet. Stage two versus INR 11,000 crores was at 3,000 crores. Stage three was actually higher. The reason Stage three was higher is because everything is being in static mode. So it's just a point to keep in mind.
Against that, if you see Stage one, the provisions are INR $15.71 crores. Stage two against INR 10,900 crores, 3,500 crores and Stage three, it's 1,100 crores. So versus a 60 basis point standard asset provisioning in a way, we are at 130 basis points as of Q2 versus Stage 17.5% that we used to have, we are at 32%. And Stage three, where we are at 60%, we are at adjusted tad below 59%. This is really a summarized view.
It changes by line. You see a lower Stage two PCR because of being secured asset. You see the lowest in commercial lending at 4.5%. On Stage two, you see 15.5% in mortgages and so on and so forth. So it's based on our past experience that these loan losses have actually been or this PCR has actually been arrived at.
Next few slides are we just go back to where we were. Two changes that we made. Fundamentally, the Lifestyle business, we have talked about it in the past. It will be there in the transcript. Fundamentally, lifestyle is a small business.
We don't want to make a change to it. It's less than R400 crore, so you merge that. So that's one change that we made. The second change that we made is we've now made personal loan together. So we were always publishing B2C business.
Rural B2C was an aggregate output that we are publishing. Personal loan is broken up into two. We are now aggregated together. So that's a second change. Otherwise, there's no change in any of the panel.
That's really the quarter that went by. I think I've covered all the important points. Happy to take questions between me, Sandeep, Atul, Anu.
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 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 First question is from the line of Dawal Gada from DSP Investment Managers.
I had three questions. First was, could you share Bajaj's share in the OEM suspension pool? It seems that we've lost share and part of it might be conscious strategy. I just want to understand how does this impact Bajaj's position in the market from a medium term perspective, if there's any material impact to this strategy. So that was the first, our share and the impact.
The second was in terms of you know, you've talked about this transformation journey. I just wanna understand couple of important drivers to, you know, reach this 10 105,000,000 customer and prospect customer from where we are at about 44,000,000? What what would be one or two major transformation changes that we'll be doing to achieve this target? And the third one is related to, you know, sort of the originations being very low. I mean, they were still down 40% at the September.
But our fee income was quite resilient, and we made a couple of important product introduction this year, which we talked about in one q. Just wanna understand how much of the overall fee is sustainable, and how does this impact overall, you know, business model? So those are the three questions.
Look. So fundamentally, I go back to the PPT. It's not like we've been in a monopoly situation. We've been competing with various players in this business for the last many years with some or two large players in the last three, four years. We used to have 70% of our of the OE share used to be us.
Used to be mean let me just that number did not change. Based on COVID, I go back to point number two. In the last three years, if it didn't change, there was no reason for it to change. We took a stand that this is not the moment to grow. We want to grow as a company.
We don't want to grow at any cost. So that's an important management call that we took that until moratorium exists, number one. Number two, until bureaus fully normalize, until the darkest or we can see some light at the end of the tunnel in terms of reduction in bounce rates number one, improvement in collection efficiencies number two, we don't want to continue business as usual. These were the three drivers. As a result of which, we decided to pull back till August.
To give you a direct answer, the number used to be 70% of our of total OE share used to be with us. Number dropped to 60 to 63%. Okay? It'll go back in q three. That's all.
It is because 70% of the sale let me make a last important point. For us as a company comes from our existing customers. You know? So it's not like that customer has gone anywhere or the retailer has gone anywhere. Did we take a call?
Let me make a point that in the month of June, July, I would not do 40% of our business used to an EMI card being on 100% financing for the last ten years. We took a view even for EMI card customers, we would do only $70.30. Maximum in some of the lines is $80.30 18 eighty three seventy. These were risk calls that were taken. We've released most of them, if not all of them.
There's still some residual pieces left as we I would say 95% we are done with it. There is 5%, 7% that will further release as we see early November down zeta. That's question number one. Question number two, drivers of transformation. Look, transformation frame was created as part of our strategic plan, which we roll every year in November.
We were coming we were becoming quite clear that there's a degree of linearity in our in our lines. If we had to create a nonlinear way to grow, we needed something to change structurally. So we created a frame called three in one that which which fundamentally said in three clicks, you should be able to do it by a financial service product across loan, insurance, mutual fund, cards for our existing customers because that's really where broking. That's really where what our focus was. We significantly expanded the scope of that dramatically.
It would have been a channel. If COVID had not happened, it would have been a channel for us. By July, August, it will become June, July, August, it will become the company will work that way over the next three, four years. Let me make that point. So that is a so on a continuum, it went from four to, I would say, nine.
That's really how what has happened. So it's not that we have talked through this in the last four months. We significantly expanded the scope of it, and then we will conduct business over the next few years. New product interest you know, as we deliver the second point, which I made, it is dramatically enhanced velocity of cross sell. Okay?
We reach customer when we want to. Customer still is not able to reach us. Do we have the orientation to create products? Do we have the product suite to deliver? That answer is yes.
You could buy pocket insurance today. We have a 120 products. Nobody else has Just as an example. We have 33 per thousand customers every month, and our franchise buy one of the pocket insurance products. Just as an example.
So we are the product suite. We are the franchise. As we deliver three in one, we should see significant expansion in in in pull and generating fee play over the next few years.
Understood. Yeah. Okay. Thanks thanks, Arjun. Thanks for Thank the you.
Thank you very much. Next question is from the line of Marukh Ajanya from Alara Securities. Please go ahead.
Yeah. Hello. Hello. Yeah. Hi.
My question is on flexi loans. So what is the outstanding flexi loans at the September?
Total outstanding flexi loans is around INR 43,000 crores. I didn't cover that point. On point number six, on panel number six, we did INR 8,600 crores in in Q1. We did another INR $17.50 crores in Q2 as well in conversion. Largely, we are we will see this number to be INR 500 crores, 600 crores as we go ahead from here.
Got it. That is just conversion. And what are the
what's on the new is not 83,000 crores. As I said, total number across mortgages to personal loans to each of our portfolio, gold loans, labs, so on and so forth put together, would be around 43,000 crores.
Got it. And just in terms of conversion, any particular segment where the conversion was the highest? Any color on segment wise conversion?
In general, the take up rate was between 4550%. There's no specific variance.
Okay. And just one clarification again on the flexi loans. Let's say for b two b customer takes a flexi loan, then the flexi portion will offer
b two b. We don't offer it in b two b. It's only offered in personal loans, offered in mortgages, offered in gold. Gold loan by nature is a flexi loan. Last, by nature itself is a flexi loan.
You know, by nature itself. Okay. So So it's a Zoomer loan? Yeah. Exactly.
Okay. Okay. Thank you. Thank you.
Thank you very much. Next question is from the line of Ashish Sharma from NAM Asset Management.
Siraj, just a couple of questions on the asset quality and specifically the provisioning cost. So the one clarification, which I think you mentioned that we are preempting a little bit of a cost credit cost for FY 'twenty two. So just wanted to get clarity that in no way that the way we think the credit cost will pan out that there will be any slippage of FY 'twenty one credit cost to FY 'twenty two? Basically, we are actually it's a reverse that we are preempting little bit, which actually would have spilled to FY 'twenty two, and we are preempting that.
Answer is so let me simplify the conversation, Ashish. Is it possible that just on a flow basis, as I said in the conversation earlier, can I extend this to September? Answer is yes. Okay. Can the credit cost fundamentally in the current year be lower by INR1200 crores to INR1500 crores on a floor basis?
The answer is yes. Will we do it? The answer is no. So that's one part of the conversation. So we could easily do the number as, let's say, INR1200 crores, it could easily come in at INR5000 crores.
But then in first quarter and second quarter, we'll be saying there's still more residual left. So we are front loading it. That's point number one. Point number two, which is that there'll be nothing left if just to for both of us, in the same page. We're not talking $102,100 crores.
If we're talking we the answer is fully, there's no residual left. We could always do a little higher in q one by a $102,100 crores. That's what I meant. Sure. That also we won't leave it.
I mean, if if am I clear, or did I leave any
No. No.
I I think I think that's that's about it. Second question would be on BHFL specifically. I think in terms of growth outlook there, I think in Q1, we had made a certain statement as to we will have to review the growth outlook there. I mean, how do you see the situation? I mean, the rates have come off even more from Q1 to Q2 in terms of outlook on growth and profitability for BASF and?
So first point, like us, BHFL is also focused on going back to pre COVID growth levels by March, April 2021. So that's point number one. But let's just step back for a moment. Look, BHFL has created an intent to create a stand alone mortgage business. As we became very clear two point five years ago that mortgage businesses are very different from consumer lending and MSME businesses.
BHFL, however, being a two year old business predominantly on the liability side relies on bank funding rather than money market funding. Because it is only two year old, it has only two years of financials. As our thought process was that it complete as it completes the current year, it would have completed three years of financials. We will start to get a lot more access to money market funding. That's, of course, got pushed away by year anyway, but it inherently creates a cost disadvantage.
And this business is about process and cost. You got to do business at a much lower cost, which is process, and you got to do you got to originate money cheap. The one part of the play, to be fair, which nothing it's got nothing to do with the management is we they do have as management a disadvantage that only time will fill the gap on. We that's really what our thought process is. At this point in time, overall, if I look at them as a company, even for them in the month of September, they have come back to 75% of pre COVID volume.
So when they go back in April to March, April to pre COVID, answer is yes. Do they have a inherent disadvantage being a kid nuclear off the block? The answer is yes. How will that get meeting at only time, we'll fill it. There's no shortcut to building businesses.
Perfect. Perfect. And I think you've clarified on the the liquidity buffer part. So going in in the second half, we will start reducing the additional liquidity buffer?
Virtually now, let me make that point. I mean, we are technically not going to borrow in both the companies. If we have to dial it down to where I have given guidance for. There'll be very little borrowing that we'll do. If we do any borrowing at all, that'll be in CP.
I mean, CP for both the companies put together is down to less than INR 2,000 crores. I mean, look at the kind of conservative stance that we took as a company. And I believe rightfully so, given how dark things are looking between April, May, June, July.
Yes, sir. Yes, sir. Perfect. Thank you, Rajiv, and all the best for the next quarter. Thank you.
Thank you.
Thank you very much. Next question is from the line of Adarsh from CLSA. Please go ahead.
Sorry. Hi, Adarsh. Hi,
Rajiv. Ravi, one question on Asset Co, maybe talent on the loan against.
We are losing you. At least I'm losing you.
Adesh, say your voice is breaking.
Oh, sorry. Is this better?
Yeah. It's better is better. Better. Better now.
So what is the in
the asset quality that I
see that most segments have seen a 5% to 10% or say 6%, 7% to 10% kind of SMA book. Loan against property has held up pretty well, right? It's where you were in terms of SMA pre COVID, right? It's quite surprising or I would say positively surprising. So if you can just reflect on why would this have happened or what's led to this being as resilient, right?
Look at the number, right, Panels, A year over year, was 60 basis points. Today, it's two thirty six basis points. Though what has happened is that cases have flown forward. We have so you see, refer the stage to 60 to 236, 51 7, refer it to refer the number. You know, go to next panel.
It looks like it was 13 basis not look. It was 13 the home loans of 13 basis points stage two. It's looking at 140 basis points. So see, it's all related from where they were, and please understand, each of them are adjusted for margin. It's adjusted for margin conversation.
We can't sustain a two thirty six basis points stage one in lab business. We can't sustain a one hundred and thirty forty basis points Stage two in home loan business. It's not sustainable. You run a home loan business or you see in front of you, this is three year data, eighty two years data. Number runs at these levels.
So adjusted for risk, it's a pretty universal outcome and, in general, so far, it seems to us.
I was just saying that when I compare to business loans and everything, the app's held up well because the segment is still business owner, And it looks like it's held up at two, two and a half percent. It's held up maybe well. The the other way I like this to ask this question is when it relates to any SME kind of business. If you didn't have the flexi product, will the 8% number be materially higher for us, Rajiv, in terms of the SMA book? How would you answer that question?
Look, I'll answer it a little differently. You can't model these numbers. We model numbers by 203040% within as the world went into lockdown, Fed's twelve year models failed in two weeks. Okay? If I was to model, that thing will go up from having we are publishing, let's say, consumer durable data for the last eight years.
Number gravitated between nine years and nine years and a half. Eight years, so we are publishing. We are watching this data for ten. If I model it, saying it will went to '92, what will happen? I would say, let's not do business.
Because at '92, the business doesn't make money so that you're all on the same page. You know? We are we are risk managers. We take risks so that money can be made. It's not so it's a you can't model these numbers.
These models come out of once in a century crisis. Please understand this. We model for okay. Number went to 98 and a half, goes to 97.5. What will happen?
You will say you cut the bottom 10%. At 92%, you have cut 40% business, which you guys have a view on. Why are you not growing? You see, we can't talk from two sides of the conversation. You know?
At 92%, I have to cut 40% of the business if I have to ever model the, the business, business is not run that way. So this is a once in a once in a lifetime crisis, produces this way. The important thing, however, is just something else. Why have we not relaunched Remy and Wallet loan? Because I have a view that we are in a business of cycles.
In financial services businesses, cycles happen. In consumer lending, cycles happen. Some happen in 10, some happen in 12. You can stretch it to 15. Cycles will happen.
There'll be one year of lower growth or a disproportionately lower ROE. It's a truth of our business. I've been in it for twenty seven years to to know that. What triggers it is not known. In that year when that happens, did the business lose three years of earning or years of earning?
That is an important conversation. Remy and wallet loans lost for me two and a half, three years of earning. We have to repeat those business. These businesses, don't have to repeat it. That's the lens that we applied for what restarts and what does not restart.
You know? So there's nothing else, Adesh. You have to take these hits and move on and build back.
And last question, Rajiv, is you did speak about the cost. Right? Part of it comes back. And can you elaborate a little bit on part that doesn't come back? How that changes cost income maybe next year over a two year period?
You obviously quantified some numbers on what the structural and transient cost numbers are, but how does that really change cost income over a two year period?
So we are, Raj, one of the lowest anyone OpEx to NIM at 31%. Today's number is anyway transient. So let's say it's at 28%. It will slowly go back to, let's say, 31 over the next two, three quarters. But fundamentally, as we deliver three in one financial services for us as a company, do I expect the second half of the year could look sub 30?
The answer is yes. As we fully optimize that frame in '22 twenty twenty twenty one, '21, '22 next year? In '22, '23, can the number go to 29%? The answer is yes. We are not doing this as a hobby.
It is the way we will conduct business. Cost of doing business will go down, and the business that we do with customer will go up. Both will create a disproportionately lower OpEx spending on a low base.
Got it. Got it. So which which broadly comes back to the point that, as you reiterated in the presentation that, COVID because of changes on borrower level is less leverage, more leverage. You're not seeing the reason to believe that income or forecasted ROE is long term changes materially except for this one year of EBITDA?
Yes. The answer is yes. Franchise is very large. Distribution is very deep. We as management are surely but steadily going to go back to growth.
That those are three important dimensions for us to just forget about 2021 as we step out of it.
Thanks. That is it from my side. Thank you.
Thank you very much. Next question is from the line of Kunthal Shah from Oakland Capital. Please go ahead.
Hey, Rajiv. Good evening. The questions I had was, what would be the amount of interest on interest under moratorium should you should the case be adverse against you? Can you throw some color on two wheeler and three wheeler business, which has seen some deteriorating metrics? We understand that the three wheeler guy business and would be not paying back, but just your texture and view on it.
Also, are you considering any additional credit card partnerships with any bank? And can you fund 3x the balance sheet size without banking license? And lastly, the question is, we noticed two things. We have been extremely cautious, not only have you put brakes on the foot, but you have also engaged emergency brakes. And your numbers of provisions are are same size in related to the comfort of the other lenders whose balance sheet size is probably 7x larger than law.
So are you a canary in the coal mine, or are you just over cautious? What's your view and law? What's your team view?
Kuntar, you asked five questions. Let me one was about card, another was about the bank. Card was interest on interest on interest on interest.
Two wheeler, three wheeler also. Two wheeler, three wheeler. Yeah.
And five was cautious while growing. Yeah. Understood. Yeah. Yeah.
Emergency brake versus emergency brake and accelerator. Okay. Look, interest and interest, government has given in its affidavit to the Supreme Court. We are waiting for they have said that they would pay financial all financial institutions, interest and interest. We are waiting for clarification.
Is that part of affidavit that they would bear the cost? The answer is it seems the answer is yes. To whom, how, what, I think we will just wait for clarity. The entire financial system is waiting for that clarity, so we are also waiting for clarity. That's point number one.
Bank, at this point in time, we don't have a view on doing a bank. I think as the balance sheet grows, let it grow two to three times, we are all here. We can always make a decision at that point in time. Question number three, card partnership. I mean, the business has now started to grow again.
As you said, it's back to 75% of last year's volume at this point in time. I said we have a strategic and important partnership with RBL, but I've also said we want to be a dominant card issuer in this country among the top three, four may require another partnership. At this point in time, there's a significant dislocation, we are just we are in a pause mode on that. Two wheeler, three wheeler, clearly you have break two wheeler and three wheeler. Clearly, that's the customer who is really at the bottom end of the pyramid across the ecosystem, across all lenders, so on and so forth.
It used to be a book which, in general, would give much higher loan losses, price for risk, but that's really how it used to be. In that, clearly, three wheeler has performed much worse. If there are two part of the books that may go into restructuring because of the nature of the business, one is mortgages will go into a lot more mortgage customer will go into restructuring and two, three wheeler book. I essentially see these these two books or these customer segments for different reasons. Reasons not related to one is a productive asset as, you know, mainly three wheeler sales as a connecting point.
If local trains in Bombay run, autos will run and so on and so forth. They give you a point to point within a city. Until they restart, you have no option but to provide restructuring option to those customers. Mortgages, because as tail risk emerges, if there is a tail risk that emerges, given it's a large part of clients or a customer's monthly outflow may see restructuring request. Emergency and acceleration, that's really what COVID has created.
We don't have an option. It's a crisis leadership test. We anybody who's working has to go through this at this point in time. There is no option. I think the management has rallied extremely well.
I am quite proud of the way they have rallied. There is a third thing. We also press the clutch doing transformation. So clutch is transformation, emergency break is about credit cost and acceleration are about restarting. We're doing all three with two legs, you can imagine.
But that's that's really the way it is. I don't think it's set to change. I see Manjali smiling. I don't think it's set to change at least for the next four, five months. You have to go through this.
So that's the response to your five questions
quickly. Wish you all the best. Thanks.
Thank you.
Thank you very much. Next question is from the line of Mayank Bukhrediwala from Franklin Templeton. Please go ahead.
Hey, hi, Rajiv. Thanks for taking my question. No. I wanted to check about the cross sell portion of a business. So you've indicated many times it's about 70%.
But what I wanted to specifically check is how much of that cross sell happens onto a b two c, that is your personal loans platform, or to your mortgages platform? As in of the 23,000,000 cross sell customers, how many customers take a personal loan or a mortgage loan in a year from here? And second question is that you've declined your cross sell franchise a bit. What is the I missed the criteria on how you sort of declined the cross sell franchise. And if we have close to 8% of our customers in Morat in September, can that decline potentially be larger?
And the last question is on your online presence. Where are we in terms of online financing presence, and how critical has it become to increase that?
Yeah. So online cross sell and decline the larger. Let me take the easy one. It's possible that the decline may increase. It's very highly likely.
As bureau data becomes available, we will run a scrub on these clients. So that's very much possible that we may see decline. Could it be half a million customers or 1,000,000 customers? It's very much possible. It's difficult to put a finger on it at this point in time.
You have just wait for bureau normalization. Less of it, Mayank, will come from further flows at our end. More of it will come from bureaucrat because we have two measures. Has he paid me, and has he paid the system? Has he paid me or not paid me?
That's become largely clear. That are largely clean. But how many of them have not paid the system? 75% of our customers have bureau scores. It will become clear by November, so we may see some reduction there.
It's very much possible. Cross sell is a little more complicated answer, differs by product. Defer by product, differs by risk, stands, strategy at that point in time. The entire 23,000,000 is available for cards business, mortgage business, personal loan business, insurance business, all businesses. There is an overlay that emerges as a result of risk and as a result of customer wanted.
It's a many aspects that go into it for determining it. So let me simplify the conversation. Right? Let's just go to out of this 23,000,000, how many am I ready to give personal loan to? Let's say if you were to ask a question, 10,000,000 customers I'm willing to give a personal loan to.
Today, this number was a hundred and twelve lakhs, eleven point two million. We were ready to give personal loan to 11,200,000. Today, we are ready to give to 10,000,000 customers across our rural and I mean, urban and rural franchise. It was to to 7,000,000 people sorry. To to 5,000,000 people, we are willing to give a personal loan to.
I'm just revalidating my number. To 5,000,000 people, we are willing to give a credit card. So that's really how the stack plays. Right? Online, offline, online is fundamentally a function of the size of the franchise.
We have deep relationships both with Flipkart and Amazon. It's a function of franchise, franchise converted into EMI card. That's really what it is. And that works. So the franchise grows, that business will grow.
And as that business grows, its share with the ecom players would grow. So that's why it's linked to the franchise rather than linked to growing ecom or degrowing ecom. If franchise grows, ecom will grow. If franchise degrows, whichever way I wanna cut it, ecom will degrow. Franchise.
And we are we do foresee even in a quarter two, whereas I said, July, August, the stance was, let's just be very conservative or cautious. September was, let's get into business. We still added 1,200,000 customers even in a quarter like that. So we will grow franchise. And as a result, ecom will grow.
Got it. And and
just one very small follow-up to this. You said you've got about a floor of customers that you want to give a personal loan to. My question is also that to how many of them are you actually able to give that loan to today, and can that number increase?
On a rolling basis, annually, 10% land up taking. I take a a 10,000,000 number, pre COVID, we were doing a million personal loans, you know, plus minus 100 thousand.
Got it. Perfect. And would that be, like, the peak number at 10%?
No. No. No. That number will fundamentally multiply as three nonfinancials has come. We are not able to reach.
30% customers to DNC only. We cannot even reach out to them. Just the example. More little more, 40% is DNC. We can't even reach out to them.
So there are various layers of of this frame, but net net, if I simplify 23, ten, one at a at a at a Under. Train level.
Perfect. Perfect. This is very helpful. Thank you so much.
Thank you.
You very much. Next participant is Nishanth Chawate from Quota. Please go ahead.
The
line for the participant is on hold. Next question is from Sandeep Papad. Please go ahead.
Sandeep, we are not able to hear you.
Sandeep, your line is open. Please go ahead.
Yeah. Yeah. Amina? Hello?
Can you hear me now?
Hear you. Yeah. We can hear you now. Yes. Yeah.
Just in terms of the bounce sort of the initial bounce or zero DPD, any color on where it's starting and then it gets to sort
of eight percent thirty DPD? Any color on
that would be helpful.
So the answer is a little convoluted, but please bear with me. Look what hap so are they coming down? Answer is yes. But are they at pre COVID level? They cannot be so that you you understand my point.
That the portfolio balance is a function of those who are sitting in stage one, two, three. Until they're going to charge off, they'll continue to be banked. Until you clean that balance sheet, the so called so that's one part of the conversation. Second is the new customers on top who are much lower risk until they get dropped into it. So two ways it'll go back to pre COVID levels.
The fresh customers who default much lesser in general, in the first, depending on the product, the fresh customers default at much lower rate as they mature into the cycle depending on what type of loan their balance sheet increases. As we are aware, April, May, June, Gujviniwa, July, August, September, we are at duty. The top of the funnel is small. On top of that, there is a stock sitting there, which is just exited moratorium and gone into 30 dBD. So when both these happen, are we seeing that they are at lower than pre COVID answer is yes.
Let me give you example. Will you see this 92% number that is sitting here in CD business on panel 47? By March, go back to '98 transit year. You know, you will see it back at 97 and a 98% because these are eight months loan. They would have watched.
Top one total funnel would have been filled. Bounce rates would look in fact, before you see this, by February itself, we will see the current bucket bounce rate of this portfolio start to look similar to pre COVID. So it's portfolio by portfolio from deep rather than a a general point. Are they going down? Of course, they are going down by every month.
Just that had to naturally happen any which way.
Understood. Just one follow-up on that. Pre COVID used to
be around twelve percent. Would we be North of 25 or around that zone,
or where would be roughly?
So I go back again to the the earlier two points. Until the stock sits there and look at this. Until the 8% clients sit there, these 8% annual gonna bounce. If the new book is added, let's say, 6% or 7% or 8%. So, Sandeep, it's a I can give you a number, but it's not material.
It's not relevant. That's all I'm just trying to articulate. Nothing else. Under under correct. Thanks.
Thank you very much. Next participant is Gaurav Kochar from Vera Asset. Please go ahead.
Yeah. Thank you so much, sir. A few questions from my side. First, on your flexi loans, what would be the average principal moratorium given to the given to the borrower?
So there are there are three kinds of loans we offer. As I said in q one, you could take it. You could get a term loan. You could get a drop line flexi, or you could take a flexi. Flexi is nothing but like a line.
You could use it you could use it by drawing down and paying down at a a design level. They based on products, some of them come with a first year interest repayment only. Some of them come with Okay. Two year interest repayment. So some come with six months.
It's based on Right. The feature that is created by the need of the product. Nothing else.
Right. Sure. And you mentioned around $4,343,000 crore worthy flexi loans outstanding as of September. So is it fair to assume that a large part of this was under principal moratorium in in the month of June?
No. No. Let me make a different point. We blocked five and a half, 6,000 of lines on some of these customers at the peak of COVID. So it's a reverse point.
You release them. You started our release that they were undrawn. You allowed them to now and you restored that back to normalcy as we move slowly. This will go through this may go through some degree of change even as bureau data emerges. Some of them who may be today blocked unblocked, may get blocked.
If the this is a quarterly refresh run that we run, so that's that's not correct.
Okay. Okay. Sure. Any rough rough idea as to what percentage would be would be in the principal moratorium if if you are back back of the mind? Any any number that you'd like to comment?
I don't have a number like that. Sandeep, do you have a number like that? I'm No.
I think the recent loans in the last probably eight, nine months would be under somewhat of interest servicing. Yeah. Go ahead. My sense is the number will
be less
than 25%, but I don't have a number readily available.
I mean Sure. That's what I'm trying get back. So that's why
Sure. Sure. Not a problem. Sir, my second question is on the stage two the stage two loans that you've disclosed. If I were to see I mean, last six months between March and August, a lot of these customers were under moratorium.
And now, you know, between August and September, it's just been one month. So is there a possibility, you know, I mean, in a worst case scenario when customers would have enough cash or liquidity to pay up one EMI, but there's what is the comfort on the sustainability of this repayment trend? So the 92% customers were paid broadly, what is the sustainability of the subsequent EMIs, you know, in the month of October, November, December flowing in? So do you see a risk to this 8% going up is my question.
You're asking this from a company which is taking 3x the loan losses. Let me make that point first. I think it's an important point for me to make. The risk models that we have said that we roll do take into account how many times the client went into moratorium. One to all the statistics, how is it performing, how are we seeing their efficiencies and how long are we taking to collect from them even if they default, all of that by line of business goes into the risk modeling frame.
Tail risk, is it possible in some of the businesses which are actually seen, let me make a point, lot more lot more who have returned to normalcy a lot more quickly, I see a tail risk there. Do I see a tail risk in mortgages? Do I see a tail risk in some of our salaried personal loan businesses? Do I see a tail risk in professional loans? I see.
Because they've all largely reverted back to normalcy. But it is clear that aggregate economy will be smaller. It is clear that we will the current year, things will contract anywhere between 1012%. So if I trade it of if I trade the tail risk between the hits that we will take, and hopefully, as the economy recovers from the shock, we see recoveries, net net, it should adequately cover.
Sure. Sure. Yes. That's that's that's good to know. And my last question was regarding the growth.
You mentioned second half, you know, you'll be cautiously drawing the book. Maybe you mentioned around 6% of the Asian group in this year, which implies roughly 5% growth sequence sequential growth in the next two quarters. So any any segments or any customers where you would target this growth? Is it the existing customers or you want to make fresh acquisitions?
Any color around where would the case come from?
It would come I mean, it's based on our it's it's data dependent frame. It differs product by product. It would also differ based on incoming data. In a way, it's a leap of faith to begin with that we've done business in July, August. We've become a lot more confident in September as you've seen July, August.
It is going to be to the earlier respondent that are making, we'll continue to use clutch, brake and accelerator, all three at one point in time over the next five, six months to generate growth while ensuring there are no blind spots left.
Sure. Alright, sir. That's it from message. All the best, and thank you so much.
Thank you very much. Next participant is Kunal Shah from ICICI Securities. Please go ahead.
Yeah. Thanks for taking my questions. Three questions. So firstly, in terms of underwriting standards, we would have extended it across the board. So when we are seeing that in September, we are back to to almost 64%, had it been the normal case where it would have been, and why would it be lower because of more of of the norm?
Second question is, incrementally, we are seeing banks signed up with the payment solution provider for maybe the EMI on debit cards and all. So is there any risk which we see in any of the maybe the metro market also? Third, in terms of fees, I mean, if you can give more granular details that quarter on quarter, if you look at it, despite the interest in the volume, it's still flat. No doubt, year on year, the fee income has been quite robust for us. But and maybe we are not seeing that uptick in the volume from sequential business.
So what would have led to that?
Fee, OEM, that was the first question on.
Yeah. You have a debit card?
No. That is OEM. That's the first Overall, Anurag, I
think standard. Had it been like we are not standard, it's what level of business we would have been back to.
I understood your underwriting question a little differently that, let's say, if COVID didn't happen, what would the number look like? Right? I mean so let's say if you took a consumer durable, you're a MyCard customer, in general, your your bounce rate would look like 4%. Okay? Is it looking like two and a half percent?
Answer is yes. But as I said earlier, let me just caution. That was on the July, August banking because it's a conservative stance that we've taken. As we release some of this, we will see how it plays out. As I said to the earlier point, we will keep using clutch, brake and acceleration based on the way we see data.
I think we want to run the company that way. It just has to be a lot more volatile at this point in time for the next three, four months. OEM payment solution providers, other lenders, it's a large market. It's a free market. This place for everybody.
They've all been there pre. They are there in at the time of COVID, they'll be there post COVID. I mean, we have to have a competitive offering to make the to continue to have a 70% of OE share, which we don't intend to dilute. Did we dilute in July, August? The answer is yes.
Was it a management decision? The answer is yes. If that was a management decision, the management decision clearly as we talk now, and that is really where we have held over the last many, many years at 70%, 72% on a of OE's share. Fees, as I responded to few other people earlier, as we deliver three in-one financial services, the share of fee as a result of product and customers should grow. It will be a lot more bought or pull rather than push.
So I would be really, really excited about cross sell frame as and products per customer as three in one financial services gets delivered.
Kunal? Okay. Yeah. Yeah. Yeah.
So maybe in terms of the outlook, where should we see the ideally fee to affect or maybe how should we look at it overall in terms of the selection once the three in one model also fixed in? So how should we ideally look at it?
Should we should we that's panel number 13. Are we clear that if you knocked off COVID in the investor presentation on Panel 13 that should we go back to 25%, 27% AUM growth, 24% profit growth, a gross NP of 140 basis 170 basis points and a 3.5% ROA? The answer is yes. So will we go back to these six guardrails from a long term standpoint that you fundamentally created? The answer is yes.
And that's really why we are front loading loan losses. We are backloading growth. The objective is to go back to these long term guidance that we provided in general to public market investors, and we will go back there.
Sure. Okay. Yes. Thanks a lot and all the best.
You very much. Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Mr. Karan Singh for closing remarks.
Yeah. On behalf of James on behalf of James Financial, I would like to thank the senior management team of Viadra Finance for joining us on the call today. Thank you, and goodbye.
Thank you. Thank you all for patiently.
Thank you.
Thank you very much. On behalf