Ladies and gentlemen, good day, and welcome to Bajaj Finance Limited Q1 FY '21 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Singh from JM Financial. Thank you, and over to you, sir.
Thank you. Good evening, everybody, and welcome to Bajaj Finance's earnings call to discuss the first quarter FY '21 results. To discuss the results we have on the call, Mr. Rajeev Jain, who's the Managing Director, Mr. Sandeep Jain, who's the Chief Financial Officer, Mr. Atul Jain, who's CEO of Bajaj Housing Finance, Mr. Anup Saha, Deputy Chief Executive Officer of Bajaj Finance, and Mr. Deepak Bagati, who's President, Risk and Collections. May I request Mr. Rajeev Jain to take us through the financial highlights, subsequent to which we can open the floor for Q&A session. Over to you, sir.
Thank you, Karan. Good evening to all of you. Our apologies to be doing this call this late, mainly because of our AGM, followed by BFS AGM. I'll take 20 minutes to speak, and then hopefully we can do Q&A for 40-50 minutes. I'll be referring to the presentation, which we uploaded in the afternoon on our Q1 results. Let me just jump quickly to page number four of the presentation. Q1 clearly was a pandemic quarter. The focus of the company was really on employee safety, capital preservation, liquidity management, business scenario planning, OpEx management, collections capacity augmentation, creating new customer propositions, business transformation framework, and lastly, but most importantly, calibrated restart of business as the country started to reopen because the lockdown was sudden in nature.
As a result of the fact that 68 days, country was in national lockdown, the results are that assets under management grew by 7% YOY. OpEx to NIM came in at 27.9% versus 35%. PAT came down by 19% YOY. ROE came in at 2.9%, not annualized. Net NPA came in at 50 basis points versus 64 basis points. These numbers, given the whole host of situations, are not really that, I would say, they need to be watched over the next one or two quarters before we make too much sense out of them, is really what I would guide all of you to. Let me just quickly cover some of the 35, 37 points that we've articulated here for clarity. Let me just jump to balance sheet and franchise very quickly.
Clearly, till 10th of May, business operations were closed, and gradually restarted as local administrations eased lockdown conditions. As of yesterday, we are operational in 2,322 locations, which represents 85% of company's business. 86 locations at this point in time are closed for business fully. Example being Pune, Bangalore, among the large cities, which represents 15% of company's business. These locations, Bombay is part of 2,322 rather than part of being 86, just to give you texture. AUM, we talked about moderated to 7%. On a gradual basis, over the last 60 days, company has opened business by business based on its degree of confidence. It started with sales finance, auto finance, point-of-sale business, loans against security, gold loans business. Started in June, home loans and credit card distribution business.
In between, extension of moratorium came in, and it's only in July that we restarted all our other lines of businesses from 1st of July. At this juncture, based on our assessment and what we are seeing, we do believe that 75 plus cities should revert to pre-COVID volumes by October. This is 75 plus, I mean. 40 to 75 cities by November, 10 to 40 cities by January, and top 10 cities by March. This is assessment at this point in time. This, of course, assumes that we will not have a second national lockdown. In general, as a result, our view is that overall assets under management growth could look like anywhere between 10%-12% in FY 2021. We've booked a set of 1.7 million customers in the last 50 days across our different businesses.
In general, the early bounce rate and collection efficiencies of these clients, we are seeing them to be marginally better or in line with pre-COVID-19 levels. This is an early indicator. If these indicators were to persist in July and August, in August, September, and so on and so forth, then we could probably have a stronger growth stance in the second half of the year. Given the lockdown, company was also locked down. The entire focus of the company was what do we do with our workforce? What do we do with our customers? In the process, two big parts emerged where we could work with our existing customers, which is point number 8 and 9.
We had a health card product which had gone live in October, November this year, and given the entire focus on health, we started to cross-sell health card to our existing EMI card customers. The company successfully managed to sell 5.33 lakh health card customers. It generated INR 35 crore of net fee income in the quarter for the company. Given the lockdown, company also decided to convert some of its existing customers with no overdue and good repayment track record from term loan to a Flexi Loan for a switch fee. This generated INR 135 crore of switch fee in Q1. I'll be covering this in greater detail given the, what I would call WhatsApp murmur since we released this investor deck in the afternoon, the data in the afternoon. Just give me five minutes to come back to this point. Let me just jump to point number 10.
Fundamentally, company acquired half a million new customers in the current quarter. Total franchise stood at 42.95 million. Liquidity, company is sitting on INR 20,600 crore of cash and SLR investments of INR 2,550 crore. This represents virtually 19.25% of its total borrowing. Given the environment, we do believe that we will continue to run high liquidity buffer. Its impact on cost of fund is reasonably material, which is the point number 13. It is INR 169 crore was the cost of excess liquidity in Q1 itself. In a way, it's a INR 650 crore run rate if we were to maintain this for a full year. Do we have that stance for at least the next one quarter? The answer is yes, and we will take it as things progress. Deposits book stood at INR 20,061 crore. It's a year-on-year growth of 33%. Contribution was 17% of consolidated balance sheet.
We continue to attract sizable deposits even in Q1. We dropped rates twice by 65 basis points in 2 tranches. Corporate retail mix stood at 70/30, in line with our stated strategy to reduce reliance on corporate deposits. As you may be aware, on point number 15, S&P Global downgraded the company's long-term issuer ratings on account of sectoral downgrade due to COVID-19. That's it. Update on point number 15. On OpEx, as I said on April 6th call and in May 18, 19?
19.
May 19th Q4 results, that clearly we have limited control over revenue, we have limited control over credit cost, we do have control over OpEx. Company has gone out hammer and tong and has looked at where are the, what I would call non-value add costs and even value-added costs for at least the next two quarters until things come back to normalcy. On a sequential basis, overall OpEx has dropped by INR 296 crores on a year-on-year, which is a 20% sequential drop and an 11% year-on-year drop. We've taken several actions. We have taken a voluntary pay cut. It's across the company from 5% at junior levels to 17.5% for the current year. We are reasonably heavy on incentives. We have taken a view till September to pause that as well. We've done significant call center optimization and so on and so forth.
All actions that we deemed appropriate that we had to take as a company to protect the P&L and in the process balance sheet have actually been taken from an OpEx standpoint. On credit cost. Let me spend five minutes on it. There are eight, nine points. You're aware, RBI, on account of continuing disruption, extended the moratorium by another three months till 31st October. Consolidated moratorium book came in at INR 21,705 crores, which is 15.7% of AUM from INR 38,599 crores, which was 27.1% of AUM as on April 30th. Mainly, bounce rates are dropping, collection efficiencies are improving, and as a result, the moratorium book came down. During the quarter, as a measure of prudence, company continued to accelerate its provisioning, took INR 1,450 crores of contingency provision, taking total provision that we have taken so far to INR 2,350 crores.
In addition, there is INR 623 crore of ECL on this INR 21,705 crore, taking the overall provision to just a tad below INR 3,000 crore on this INR 21,705 crore book, aggregating to 13.7% on the consolidated moratorium book as of June 30th. Since moratorium book is also continuing to accrue interest, in line with our assessment, we also decided to reverse interest income to the tune of INR 220 crore during the quarter. Last, we provided an update on our credit cost scenario planning model on 6th April. We estimated at that point of time 80%-90% increase in credit cost, assuming lockdown continues till 15th May. The national lockdown continued for 68 consecutive days till 31st of May, it was followed by multiple district and state-level lockdown imposed by respective local authority.
At this juncture, as we speak, Bangalore and Pune are in midst of, I would call, a more stringent lockdown than the original national lockdown. Based on incoming data over the last three months, we have now updated our credit cost model and we now estimate that the overall credit cost for the year will actually rise by 100%-110%, which is INR 6,000 crore-INR 6,300 crore for FY 2021 over previous years. We do believe, and it's evident and visible, that we have reasonably strong pre-provision profitability to absorb the increase versus what we had originally estimated in April. We had provided an outlook that to mitigate the significant increase in bounce rates as a result of the pandemic, we are investing significantly in augmenting our collections infrastructure. We've added 2,800 collection officers so far and 16,000 collection agencies to manage the increased loans.
At this juncture, the way it really looks to us is that 75 plus cities should revert to pre-COVID collection efficiencies sometime around November, 40 to 75 by end December, and 10 to 40 cities by February. The question that we have in front of us fundamentally is what happens to top 10 cities? It is really tough to predict. Most of you who are on call or a lot of you who are on call are in Bombay, are aware of how the lockdown has been. We are for the last eight days in Pune in a complete lockdown state. Top 10 cities is making it very difficult for us to fully forecast, in an effective manner, how things will pan out. Of course, if the cases were to go up, we are so far not forecasting a second national lockdown.
That's really on the credit cost, and I'm coming in a moment to a set of points that I do want to cover, which are not there in the investor deck as well. Let me just complete this. Profitability came in 19% lower, mainly on account of INR 1,670 crore of provisions and reversal of interest income. Overall pre-provision profitability remained reasonably strong. We have given an outlook to the street that in May, we are also looking at some of the businesses where we do believe that there may be some opportunities from a margin profile standpoint. We've taken actions as we deemed appropriate to increase margin profile in some other businesses. A business that is probably struggling most on account of pricing pressure is the mortgage business, where there is tremendous pricing pressure at this point in time.
We are repivoting the mix marginally for short to medium term to navigate through this. Capital position remained very strong at 26.4% overall CAR. Q1 capital was 22.6%. Let me now jump very quickly to what I would call, and I'll come to transformation if there is interest on that, but later. Let me just jump to moratorium, which is panel 11. This is data as of April and as of June. Clearly, the data is based on, you see all the information here. There is some question that, as I said, I'll come to what the WhatsApp chatter is, and I'll try and address as to why we have changed the format in terms of not providing the bounce data, and I'll cover that in a moment.
At this point in time, as you can see, AUM as of April 30th was INR 142,000 crore by different lines of businesses. INR 38,600 crore were AUM under moratorium. It was 27%. We had overall COVID-19 provision and ECL provision of INR 1,870 crore on that. As of June 30th, it's INR 138,000 crore, INR 21,705 crore, which is amounting to 15.7%, and total provision is INR 2,973 crore, which is 13.7% of total provision. Let me now come to, and then I'll open it up to questions, to some of the WhatsApp chat that's going on since in the afternoon we published this data. Have I missed anything, Sandeep?
No.
I'll cover that at the end. Let me just jump to some of the points. For the first time now, we were helping the street by telling them that if somebody looked at how did the fee income grow during this quarter, we said there is INR 140 crore of fee income that's come in as a result of Flexi. That was a perspective on providing update on Flexi. Let me connect the right dots from our perspective. Flexi product or Flexi Loan product, as it's called, was launched in 2013 by us as a company for loans against property customers as a competitive tool against OD/CC. That's really what we were competing with.
Gradually, as we saw the power of it, we extended this product across all our lending businesses, like personal loan, doctor's loan, SMEs, and loans against securities. Fundamentally, if you are a customer, it allows you to draw when you want and pay when you want, giving you complete flexibility and control over interest outgo. You may have zero drawdown and zero interest repayment, or you may have 100% drawdown and pay interest on that. You can choose a Drop line Flexi or a hybrid Flexi. Drop line Flexi fundamentally is like a Flexi Saver or a home saver that some of you may have had, where the amortization starts on day one.
Hybrid Flexi works exactly like an overdraft or a cash credit account, where in fact, here, this is more hybrid, that first one or two years, you're in an interest outgo and then you transition to term. In both the products, customer has to service interest or EMI as the case may be, based on utilization level. We do charge the customer 25-50 basis points higher pricing. Customer does pay an annual AMC, which can range anywhere, depending on the product, from 25-100 basis points, generating a fee income arc. On a lifetime basis, in the past seven years with our experience, that this product is distinctly more profitable, despite loan losses being marginally higher compared to term loan due to slower amortization. The fact is, it is slower amortization. That's the nature of the product.
If you look at today, the INR 36,000 portfolio that we've given data on, if you were a doctor, our main product that we offer on a INR 7,100 of doctor portfolio is only Flexi. If you're a salaried customer, affluent salaried customer, 90% of INR 10,600 of salaried PL is offered only Flexi. 100% of LAS is Flexi. 60% of LAS and LRD portfolio is Flexi. 65% of SME, which is INR 11,000 odd portfolio, is Flexi. Because these clients have surpluses and cyclical needs. Fundamentally, I would like 100% of these clients to get Flexi product because I get more fees, they get more cyclicality. I have greater competitive product to manage my good customer portfolio. In fact, our challenge more often than not on this product is utilization rate. Utilization rates in Flexi essentially run between 60% and 85% of the approved line as a framework.
Conversion from term to Flexi, in general, we offer. This is a moment of truth business. If any of you would like to go ahead and take it, you can offer it tomorrow and take it. Let me just come to what the fuss is all about from WhatsApp chatter standpoint. In Q1, I want to just remind everybody, we are in a pandemic. To help our good performing and never overdue customers navigate COVID and to grow our fee pool during this pandemic when everything is on lockdown and all businesses are shut, we chose to offer term to Flexi conversion to a set of clients. Let me reiterate, never overdue customer, who never had any installments overdue in his entire relationship with BFL. Serendipity, however, it emerged that we never offered it to our personal loan cross-sell customers as well.
We went out and offered it to them as well, and which we will do even going forward. INR 8,600 crore of conversion number that we have given to the street generated a fee of INR 147 crore. Okay. Additionally, it will also generate AMC on every anniversary, depending on the nature of the segment. Out of a total conversion of INR 8,600 crore, INR 5,000 crore were.
Participants, please stay connected.
Sorry. Yeah. Sorry?
Sir, go ahead.
Yeah. Out of a conversion of INR 8,600 crores, INR 5,000 worth of customers were not even in moratorium. They were serving their term loans successfully, even during these times. Balance INR 3,600 crores who were never in delinquency and had a good Bureau score but sought moratorium to conserve cash in pandemic are the customers that we offered. We offered it to much larger base. Let me make a point. We offered it to close to INR 15,000 crores because we wanted to generate fees, one, and we wanted to help our customers. What we are seeing on this INR 8,600 crores of customers, sorry, the INR 3,600 crore customers, is significantly lower bounce rate and collection efficiencies at pre-COVID levels. At this point in time, based on the banking, only INR 26 crores of these customers have flown forward in the month of June.
At a fundamental level, we believe as we get out of this COVID-19 pandemic, we believe on a click of a button, we will, on our digital assets, customer will be able to convert from term to Flexi and Flexi to term. That's really where we are fundamentally headed, and I thought I'll clear the air. Intention was to connect the dots from a fee standpoint and not from a portfolio standpoint. Let me come to the second point, that we have not provided bounce data. Let me just remind while you all appreciate that, and I'm aware of it, that we provide utmost disclosure to street in general. Bounce was a topic fundamentally that we talked about in our first update on COVID-19 on April sixth. It was important that when we came in May to not break the chain and thus we published the data.
Post that, lots of you got on call with me or with Sandeep, essentially, and we realized that the analyst community in general and investors struggled with the disclosure. I further add to it, that given reduction in monthly banking. The monthly banking in the last four months has actually dropped by 18%. If you looked at aggregate percentages, they would not really help. That's why we've not provided the data. Can I say to you that the bounce rates by each portfolio in general are dropping by 3%-4% every month over the last three months. Is that data, can we provide? The answer is yes. Of course, I must just say that the big drop fundamentally will only be evident and visible by September when moratorium ends.
There is some chatter on why on customer franchise you have not provided, updated the slide. May I just remind that we are in pandemic times, and because of moratorium, everything is in a static mode. We will refresh our customer franchise data only by October. Basis September and October bounce rate, number 1, repayment, number 2, and bureau refresh, number 3. The only relevant data on that panel for Q1 was the addition of half a million customers to our gross franchise, which we've already disclosed. Let me come to the last two points, then I'll open up to questions on portfolio health charts. I don't want to remind, everything is in a static mode. Due to moratorium, 0 DPD, 30 DPD, and 60 DPD portfolio movements are on a standstill basis. Either based on customer request or suo motu moratorium.
The only DPD at this point in time which is moving is 90 DPD. Which if you draw the dots too, has resulted in loan loss provision of INR 255 crores in Q1 already. As it represents, ECS states the provisions and write-off. If we had populated 0, 30 and 60 as current because of suo motu moratorium or customer requested moratorium, it would have presented an artificially rosy picture which would have not been a prudent thing for us as a company to do. We will reinstate portfolio charts from Q2 post ending of moratorium. If RBI, let me make a point, were to extend moratorium further, we will still not be publishing it. This will only be published post normalization of or ending of moratorium is the limited point I would make, not for anything else, because it is otherwise artificial.
Let me just come to the last point on loss forecast. In general, it's our view as a company that we need to prepare for the worst and hope for the best. If we believe as a company that all is well, we would have not reduced INR 300 crores of OpEx on a sequential quarter. Despite, let me make a point, in that accounting, wherein a variable sourcing cost gets amortized with income over life of the loan. In IGAP, it's a different treatment. In Ind AS, it's over the life of the loan. The degree of impact has to be far more brutal for the INR 300 crores of OpEx saved to fundamentally come through. Reason for increase in loan loss forecast is primarily on account of continued disruption in economic activities owing to persistent lockdowns.
I thought about this, 86 markets representing 15% of our business are currently in complete lockdown. For every lender in this country. Mind you, this does not include markets like Mumbai, which are considered open but are functioning, you would know it better, probably at 25%, 30% levels. Even markets which are considered open, lot of nuances like weekend curfew, some states are running two days curfew, some states are running one day curfew in a week, and so on and so forth, reduces fundamentally number of working days, in general, disrupting momentum. We have factored in these additional nuances in our risk model or our credit cost model and have thus accordingly increased our credit cost guidance. If things do change for the better, we have no intention. Let me make a point. We entered pandemic with a completely clean balance sheet.
We took the two large accounts that we had, we charged them off. I have nothing to charge off. We entered in the pink of health from the portfolio standpoint. There's nothing to clean. We are still taking these charges, as I said, because we want to prepare for the worst and hope for the best. All actions that need to be taken to protect and prevent credit cost from rising have already been taken, but it's important that we protect the PNL to the extent possible. If things change for the better, we will have balanced three quarters to fundamentally adjust accordingly, is really the thought process that we've had in increasing our credit cost forecast. I did have some point, but I don't want it to be a monologue. Clearly, 70% of the last quarter's effort, I'll just make only one point. That's page number nine.
70% of the management effort actually in the last quarter has gone into how do we transform the company to prepare when we get on the other side of the tunnel. We do very strongly believe that never let a crisis go waste. This crisis is throwing up tremendous challenges in the short term, but tremendous opportunities in the long term. There will be structural change in the way our business will be conducted, is really what we believe as management in next 12 months' time. That's really where majority of our effort is fundamentally going. Some of the cost lines may get permanently eliminated if we manage to transform what we are planning to based on the transformation work that the teams are doing at this point in time. That's really 70% of our effort.
We are quite confident that nine or 12 months' time, you will see a very different moment of truth because we are a consumer company, for us as a company, as we get onto the other side. That's really all from me. Hopefully covering most of the points. Between me, Sandeep, Atul, Anup, Deepak, happy to answer whatever questions you have. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, you may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Anyone who wishes to ask a question, you may press star and one. First question is from the line of Antariksha Banerjee from ICICI Prudential Asset Management. Please go ahead.
Yeah. Good evening, sir. Can you hear me?
Yes, I can hear you, Antariksha.
Congrats on the numbers. First, let me appreciate your disclosures, especially on the Flexi Loan. I had two specific questions on the same. One is, I think the worry really is on the portion of this loan that is currently under a principal holiday. As you yourself acknowledged that the macros and the environment are not really great. If somebody is today not making a principal payment or a full EMI payment, could you be in a position to say how much of this total book is currently under principal holiday and only making interest payments? That's one. The second is, while you give these products to specific sets of customers, what are the negative filters that you apply? I understand you say that no overdue is one of the conditions.
Are there other conditions like some occupations which are blacklisted or some other negative filters that you may have in this product?
This is level 2 filter, Antariksha. Let me simplify the conversation.
Sure.
This is a level 2 filter, which means first, whether we want to give you money. Okay. Number 1, it differs product by product. Number 2, even there based on our stance, if it is in general a lower risk business, we offer it to all. Doctor's portfolio, we offer it to 97%-98% of our customers. Salaried PL in general, we are keen to offer it to 95% of the customers. As I said, 90% of the customers of doctors only land up taking it. It's a level 2 filter. Okay? As I said, in general, we see utilization rates itself at 60%-85%. Coming to the structure of the product. The structure of the product has got nothing to do with COVID or moratorium. You may be a doctor, Antariksha, who may have taken a year ago, a Flexi Loan of INR 15 lakhs.
Your utilization may have been INR 10 lakh. You may be in a one-year product or a two-year product or in a drop line product. That structure has not changed for a customer. It's got nothing to do with COVID or with moratorium. Does that clarify the point?
Just one follow-up, if I may.
Yes.
What I'm trying to say is, since you started the product or maybe the sanctions that you made for the last two years, since then today, we know the macro, it's got worsen, as you yourself admit.
Yes.
Some of their customers' income earning capability itself would have gotten worse. In your estimate, people who are only paying interest, probably are in the first year or second year, depending on the product, how much would you estimate to be under stress based on what data you analyze their income earning capability or whatever you would use to analyze that?
Antariksha, let me step back. As of March, none, or none being defined as those who was taken into account on annualized credit cost basis. It's pre-COVID, post-COVID conversation, fundamentally.
Correct.
Okay? That we're all on the same page.
Yes.
Did we see lowest economic growth for us as a country in 2019-2020? Despite that, if you take out the one-time provision on two large accounts that we took, the credit cost remains only range bound, which it moved only by 20 basis points. This INR 36,000 crore, the book was sitting there. Okay? As I said earlier, adjusted for margin, this performed better on an ROE basis at a design level, structurally over the last seven years.
Sure. Because of COVID, does that change or it's still you think where it was?
COVID, as I said earlier, in general, we will see far greater clarity, and that's not for Flexi, for anything as moratorium ends. The big month will be when moratorium ends. Otherwise, is there a secular reduction, as I said earlier, in bounce rates with each passing month? By portfolios, the answer is yes. Is collection efficiency going up? Answer is yes. Is it going up by what we would have liked it to be? Answer is no, because of continued disruption in economic activities. We all will have to fully wait as a banking system or as a financial system fully for what happens in September as moratorium ends.
Sure. Okay. Thank you so much, that's all.
Thank you very much. Next question is from Kuntal Shah from Oaklane Capital. Please go ahead.
Hi. Good evening, Rajeev. Thanks for excellent set of disclosure. I believe you exceeded almost disclosure by any other player in the BFSI segment. My 2 questions are, you have ECS of INR 623 crore, COVID provision of INR 2,350 crore, INR 220 crore of Morat book interest written back, INR 303 crore of Karvy written off, INR 275 crore of IL&FS written off, both of the last 2 [you are still security]. This amounts into almost INR 3,500 crore of provisions/ECS/all the things you have taken. This is far larger given the size of the book compared to any other player we have seen. Any light you can throw on that and on why it is such a large magnitude? Is it by business or is it because of precaution or what? What is the reason of such a large percentage?
Second is, we saw that wallets have jumped 75% to INR 15 million and credit card by almost 80%. Any flavor you can do on the credit card and wallets business which you have not touched base upon?
Kuntal, on your first point, I would just make a point that we would like to run a fully costed P&L. That's really how we run the company, that account for losses early rather than later. That's the reason why we are a risk-driven company because when it flows through the P&L, businesses act. It's an important point. The fully costed P&L is fully tied to the way we run business. When it flows through it, we run 40 different P&Ls as a company across businesses. When they flow through the P&L, the business manager wakes up and takes a set of actions to prune bottom 15%, 20% of the business. Number one. Number two, this pandemic is like never seen before. We have not seen this kind of bounce rates or nobody has seen this kind of bounce rates. Nobody has seen this kind of collection efficiency.
Nobody ever imagined we will all be operating from home for 120 days. We do, as a philosophy, believe that we want to run a fully costed P&L to the extent of information available to us, erring on the side of conservatism and caution rather than believing all is well. That's my first point. Point number 2.
Wallet and credit card.
Wallet and credit card. Wallet is INR 15 million. Customers are 43 million. Fundamentally, there should be a day when all our customers should be wallet customers. There will be a day. That's the design thought process and the framework that we are working with. Credit card itself has grown. We would like to be among the top three or four card issuers in India. We have the franchise and the customer base. As a measure of conservatism, we started to originate only in the month of June. New customers, we are still at only 25%-30% of 20% levels in June we were. In July, we hope to be at 30% levels. It continues to remain a reasonably disproportionately profit pool for us and for RBL Bank, who is our strategic partner in this.
Rajeev, anything on zero-based budgeting? What does it mean for shareholder?
What it means for shareholders is that fundamentally, there should be dramatic. If I simplify the conversation, it should fundamentally mean significantly lower friction, significantly higher velocity, net significantly lower costs. Our OpEx to NIM, which is at 31.5%, as we come back to full demand potential sometime in FY 22, do we believe that number can go to 28, 29%? The answer is yes. On our cost base, that's a substantial number to drop into the profit pool for us as a company.
Thanks, Rajeev. All the best. I'll join the queue too. Thank you.
Thank you. Next question is from Bhavesh Kanani from ASK Investment Managers. Please go ahead.
The amount of reduction we have seen in moratorium, you did mention the extent of Flexi you have done during the quarter. Can you help us or probably put in perspective your understanding of how much reduction in moratorium is due to Flexi or such alternate products? Secondly, by virtue of the fact that moratorium was taken out of fear and with cash flows or salary intact, people have resumed normal repayment.
Sorry, the second part of the question was what, Bhavesh?
Sir, in moratorium, whatever reduction we have achieved, a part of it would be because the salaries of borrowers who had taken moratorium in round one are intact and the concern of maintaining liquidity is addressed, so they would have resumed repayment normally. The second question would be where you invited borrowers to switch from normal term loan to a morat loan. If you can break up the reduction in moratorium into these two buckets.
Yeah. As I said, Bhavesh, when I was making the point, the total amount of conversion is INR 8,600 crore. INR 3,600 crore were clients. I'll repeat what I said. Out of INR 8,600 crore, INR 5,000 crore came from customers who were not in moratorium. For a moment, for simplistic purposes, let's add this INR 3,600 crore to INR 21,705 crore, the number. It is not so the case, but so that we are all not lost in multiple numbers, let's add it for a moment. It is not so, let me reiterate, but let me add so for simplification purposes, which is why we try and resist from giving numbers, but let me still give it. The number still gets to 18 point
18.3%.
18.3%. Whether I did 15.7 or 18.3, didn't really matter, quite honestly. Okay. I could have still argued that it's a 27 going down to 18. That is not the point. The point fundamentally was that, as I said earlier, we are trying to draw the dots from a fee side. Let me make a point, and it's an important point. We would like to tell the street what we were up to in Q1. We're a public company. What were we as management up to? We as a management were up to employee safety, capital preservation, liquidity management, business scenario planning, OpEx management, collections capacity augmentation, customer proposition. Flexi and EMI cards sit in customer proposition. Business transformation framework, which the earlier gentleman had asked me and I responded.
This is really a flow in terms of, as a matter of fact, what were we up to in the last 100 days. For simplicity sake, add to it's 18%. Okay, big deal. It is not so. Let me reiterate for the third time so that hopefully it's understood clearly. Go ahead.
Yeah. See, another point is, see this product is offered to set of customers who have performed reasonably well with us in the past. That's an important point to note. Secondly, I think in the current situation, it's very important that customer starts getting back into repayment behavior. Keeping the customer in moratorium is not in the interest of anybody, neither the company, nor in the interest of customers. It is important that customer comes back into the habit of making monthly payment.
Okay. Thank you. Thanks for this.
Okay.
Thank you very much. Next question is from line of Prashant Sridhar from SBI Mutual Fund. Please go ahead.
Good evening, sir. Just two questions from my side. If bounce rates would not give an accurate picture, maybe if you can just give us the total amount of collections that was due for June. Against that, how much was actually collected? Number 1. Number 2, how big is the gold AUM? Are you incrementally competing with the bigger gold NBFCs? That's it.
First question, I will not answer.
Collection.
Collection efficiencies. Two things. Bounce rates, as I said, are dropping by 3%-4%, and collection efficiencies have moved anywhere, in the month of June especially because lot more was open, have moved within 8%-10%. In July, we are forecasting it to move by another 8%-10%, subject to how open still the country remains. Okay. Having said that, having made both these points that there's reduction in bounce rates, there is increase in collection efficiency. As a result, reduction in moratorium. We are still way off from where we used to be pre-COVID-19. That's an important point I want to make because it connects to the eventual credit costs. That's the dot to connect. Are they moving in the right direction? Answer is yes. Slower than I would like? The answer is yes. We have 45 more days before the moratorium ends.
That's an important 40 or 45 days from here on. Gold loan. Look, we started gold loan in rural markets three, four years ago. We tried to be intelligent, realized 18 months ago it really doesn't work, and decided to do how gold loan works. The business is now aggregating INR 70 crores to INR 80 crores of net assets per month with between INR 1,500 crores to INR 1,700 crores of AR. Should grow. We are rapidly expanding gold loan in 75 plus markets. Today, we offer it in 400 cities at this point in time as a standard operating. [ Spring], we will grow this much more rapidly.
Sure, sir. Thanks.
Thank you very much. Next question is from Preeti RS from UTI Mutual Fund. Please go ahead.
Good evening, sir. Thanks for the kind introduction. Sir, my question is on the collection of the network that you have.
Preeti, sorry to interrupt you. May I request you to speak a little louder, please?
Yeah. I want to understand what is the increase in the collection if the network that you have increased. If I remember in Q1 FY 2020, the number was INR 4,500. If you could explain the 2,800 and 16,000 vis-a-vis that number.
1,800 officers are in addition to the 4,500 we had.
Okay. 16,000 is fresh?
The officers on the company's rolls. 16,000 is agency staff.
What was that number back in June 2019?
Around 28,000 to 30,000 is really what the ballpark number would be.
Okay. 30,000 is now close to 46,000.
Yes.
Okay. Sir, the second question is on the employee cost. You did mention that there have been salary cuts. How do you boost employee morale in situations like these?
Fundamentally, it's a little ironical that in the quarter that we actually cut salaries, we became the fifth-best employer in India. We do believe people is capital in our business. People make a business. The stance that we as management have taken is fundamentally that in good times, employ first. In bad times, shareholder first. It's the first time in 13 years that we are fundamentally doing a shareholder first. We will remain shareholder first until we come back to a growth stance. We have long-serving employees. They understand the point. Is it difficult? Because the effort is 2x at this point in time and outcome is half. Let's say 70% or 80%. If you had incentives, they're earning 70% of what they would earn. Effort is 2x and reward is 0.7x.
Once in 13 years, it's okay to have shareholder first, and balance 13 years, we'll have employee first. As we come back, we will ensure that we reward those who persist with us in getting the other side of the tunnel.
Right. This 2,800 number, this is effectively moving our sales force network into collection?
No. Very little. Nothing. We've not moved anything. Very little. Less than 150 people. Yeah.
Got it. The last question that I had is on the auto finance book. The provisioning on the [morat] AUM is at 12%, which is lower than the overall average at 14%. While the logic would suggest that you would probably provide higher since it's a mass segment compared to a mass affluent segment of the other portfolio that we have.
Mainly our assessment is that as a result of repossessions and the residual value in general historically being 45%-50%, and we expect it to be little higher because of BS6 conversion. In general, the prices have gone up of second-hand assets. That's the fundamental logic behind why that number is at 11.8 versus in some other businesses at 21 and 22.
Okay, sir. Got it. Thanks, and wish you all the best.
Thank you.
Thank you. Next participant is Roshan Chutkey from ICICI Prudential Mutual Fund. Please go ahead.
Thank you so much for taking my question, and congratulations on a great set of disclosures and a great quarter. Firstly, sir, what is the collection efficiency absolute number over each of the three months of the quarter, if you can just share that?
In the first product by product.
At a company level.
No, Roshan. If you have, let's say, auto finance businesses and was in suo motu moratorium. It's by business that the number has to be seen. Let me give you a texture on it so that you're clear I'm not obfuscating the point. In terms of number of clients banked, largest number is in sales finance. If you refer to page number 11, in terms of number of clients, the largest is sales finance. The number will obfuscate the point. One has to look at it portfolio by portfolio rather than on an aggregate number basis. Is the limited point I would make to you. As I said earlier, are we seeing bounce rates go down? Yes. Every month, answer is yes. Are we seeing collection efficiencies go up? Answer is yes. At the pace at which I would like it to be?
Answer is no. That's really what our stance is at this point in time.
One question is that the portfolio has paid all the EMIs
Sorry. Yeah. Percentage of clients who have paid all the EMIs.
Current portfolio.
Yeah, portfolio that is fundamentally current. That means minus moratorium.
Including moratorium.
Let me understand your question.
Including moratorium, including everybody, what percentage of the portfolio has paid all the EMIs thus far, sir?
See, Roshan, for the current quarter, that number may not be relevant because of the standstill nature of the book because of moratorium. However, what may be important to see is that the moratorium book has come down from 27 to 15.7%, as Rajeev has articulated earlier. Second, the other parts of the balance sheet has remained on standstill mode from classification point of view. If the customer was in 0 DPD, it remains on 0 DPD. Customer who was in let's say, 1 month overdue or 2 months overdue, remained in that bracket.
No. Okay.
The number may not be relevant in the current quarter. I'll come back to you separately on the number part.
Okay. What exactly is our moratorium definition? If somebody makes even one payment among the three or four payments that are pending, is he deemed to be out of moratorium?
These are set of customers who have come out from moratorium based on their June repayment.
One month repayment is good enough.
Customer may have paid in the month of April. Customer may have paid in the month of May. Customer may have paid in the month of June. He is no longer in moratorium.
Okay.
INR 21,705 crore worth of customers have taken moratorium for the month of June as well.
Right. This INR 220 crores of interest reversals. When did we charge them to reverse it? I mean, which period have you charged them in the first place?
This is the interest earned by capitalizing the interest during the moratorium period. The amount is around INR 1,700 crore of interest that is debited on the customers during moratorium period. The company believes while it is making provision to the tune of 13.7% on the principal component, there ought to be a provision that needs to be made on the interest component as well.
Okay. All right. Thank you so much.
Thank you.
Thank you.
Thank you very much. Next question is from the line of Nischint Chawathe from Kotak. Please go ahead.
Yeah. Thanks for the opportunity. Am I audible?
Yeah. Yes, Nischint.
Yeah, sure. Just trying to understand these INR 38,000 crore AUMs and the moratorium going down to INR 21,700 crore? These customers, the difference is actually paid all their EMIs till June, right? They have cleared all their dues.
Nischint , as I clarified to the previous speaker, these are set of customers who have not paid their installment in the month of June.
Customer may have taken moratorium in the month of April. Customer may have taken moratorium in the month of May. However, if they have paid for the month of June, they are out of moratorium. If they have still not paid for the month of June, they continue to be in moratorium.
These 17,000 odd customers would be the ones who would have paid the June installment, and hence they are out of the moratorium. It is possible that tomorrow, let's say some of them don't pay the July installment, they can come back into the moratorium.
It may so happen that for 5% of the INR 17,000 crore worth of customers may, in the month of July, come back and seek moratorium again. If they seek moratorium, they'll be added back to moratorium pool.
The thing is, then what you are saying is that these 17,000 got moratorium in the first two months, but today they are no more in the moratorium. Technically, these numbers change every month. It's not that you need to clear all the dues to get out of the moratorium.
I think, Nischint , the important point is that structurally, from a trend information point of view, when you look at data of 30th April, interim we look at 31st of May and now 30th of June, we have seen structurally the moratorium book going down.
While hypothetically you can see the number go to higher levels when the moratorium period is over, looking at the trend line information, looking at bounce rate, looking at the collection efficiency, we have reason to believe that we are on right path.
No, that's fine. Actually, I was asking this question because we are just trying to compare across companies, right? We just thought I'll put it in place. The second thing is, when I'm looking at a provision of around INR 3,000 odd crore, which is around 14% of the total loans under moratorium as we speak. I think you've guided for around INR 6,000 crore of provision for this year, which practically means that you're looking at somewhere close to around 30% odd coverage on loans under moratorium. Is that the right way to think about it?
Nischint , let us appreciate that loss need not necessarily come from the moratorium book. We still have INR 115,000 crores of balance sheet that is provided at normal rate of ECL. It may so happen that moratorium book will give you higher losses. You will also see some losses coming from other part of the balance sheet as well.
Okay. Just one last one was on the mortgage business, where I think you mentioned that you are facing some competition. There was some change that you are making. I didn't kind of clearly catch what you're trying to say. Thank you.
Just on the previous point, Nischint , it's important so that we are all on the same page, that the purpose of moratorium as Sandeep is making is purpose by RBI was that everything is shut down. Client's position is stalled at zero. I'm not talking us, I'm talking the entire banking system. As things come back, as his income/salary comes back-
Exactly
as his anxiety level goes down, he starts to repay. Technically, I could have taken a 36-month loan. For four months, I need not pay you. When the four months end or six months in this case, as given by RBI, he starts from the month of September, that's fine, as long as he does not default from there. He's clear in September, does not default again, and continues to clear. The environment has eased or cleared. That's really the objective of providing moratorium is. Does not mean, however, that all of it will come back to normalcy, and which is really how our credit model has actually been created. That we are distinguishing between the two at a fundamental level. Just to add to whatever Sandeep has said so far. Last point I'll make, all of this anyway will end on 1st of September.
That's why I made the point earlier, that for the entire banking system, month to watch is September. September beginning and September end.
If RBI does not provide an extension of the moratorium, on that day, there are no dogs and cats. There is only one thing. That we're all on the same page on the previous point. We can have different calculations at this point in time, but all of it will end in the next 40 days.
Nischint , this is last point, I think. As we publish even the portfolio charts, what we provide you is the point-in-time information. Let's say on 30th of June, X% of customers were in bucket 1, bucket 2, and so on, so forth. It may so happen that some customers from bucket 1 may go back to 0, some from 0 may go back to 1, and this may keep happening over the next couple of months as well.
Static position at one.
Static position as at 30th of June, that's how you should look at it.
Sure. Just on the mortgage question now for you.
Mortgage, as I said, Nischint , we started business in June again. It is obviously very soft at a fundamental level. At this point in time, on top of it, there is significant competitive pressure. What I was fundamentally saying is that we will have to re-optimize between our various portfolios of mortgage offerings that we do to make sure that we are able to deliver economic return to the shareholders at this point in time. It's a strategic business. It's helping us during these times. That's very evident and clear for a whole lot of people who had a question that why do this business. This is providing the required safety and stability, which is really why we built out a 46,000 crore portfolio. As you can see, its level of moratorium rate is lower.
It's just re-pivoting in terms of mix a little bit, to deliver minimum hurdle rate of return on equity and nothing else.
Basically, either you are raising home loan rates or you're moving from the salary to self-employed or something like that.
No. Based on as we grow a little more comfortable, if you go back to the previous two, panel number 4, as you can see there, we started home loan in June. As you can see at point number 5 on panel number 5, we restarted loans against property only in July. The risk view doesn't change. Within that, will we be re-pivoting a little bit to deliver minimum hurdle rate of return on equity? The answer is yes. If it compromises risk, we won't even do that at a design level.
Sure. Okay. Got it. Thank you. Thanks a lot and all the best.
Thank you.
Thank you very much. Ladies and gentlemen, due to time constraint, that was the last question for today. I will now hand the conference over to Mr. Karan Singh for closing comments.
On behalf of JM Financial, I would like to thank Mr. Rajeev Jain and the senior management team of Bajaj Finance and all the participants for joining us on the call today. Thank you and goodbye.
Thank you very much. On behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.