Ladies and gentlemen, good day and welcome to the Bajaj Finance Limited Q4 FY 2020 earnings conference call hosted by JM Financial Institutional Securities Limited. As a reminder, all participant lines will be in 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 touch-tone 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 fourth quarter FY20 results. To discuss the results we have on the call Mr. Rajeev Jain, who's the Managing Director; Mr. Sandeep Jain, who's the Chief Financial Officer; Mr. Atul Jain, CEO, Bajaj Housing Finance; Mr. Anup Saha, Deputy Chief Executive Officer of Bajaj Finance; and Mr. Deepak Bagati, Chief Risk Officer. 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. First of all, our apologies for doing this call so late in the day. We just finished our board meeting and updates to the board. I'll be referring to the presentation that we uploaded on the investor section of our website. We've provided a reasonably comprehensive update to the investing community, and I'll be referring to that. I'll try and run three, four slides very quickly. It's a long presentation. I don't intend to do that. It's overall 69 odd pages. I'll just run through the executive summary and two other slides downstream, talking about the moratorium and moratorium to our base and so on and so forth, and then open it up for questions. Quickly jumping to slide number four on our presentation.
In our assessment, clearly, Q4 was quite a promising quarter, aided by various fiscal measures that Government of India had actually taken and good monsoon. Economy in our assessment across the businesses that we cover, in our assessment, was clearly on the mend in Q4. COVID really changed everything from 22nd of March, leading to a full lockdown. Company did lose seven to eight productive days in March, from virtually 22nd of March onwards. Despite all of that, we had very good 81 days, and overall, the quarter was a pretty good quarter. Assets grew, new loans grew, customer acquisition grew, and overall franchise grew. If you look at Q4, balance sheet ended with 27%, as we've articulated with the street on 6th of April call that I'd done. Adjusted for eight days, otherwise, the growth would have been something like 31% in Q4.
OpEx to NIM, it's a denominator-numerator matrix, so not really relevant from a numbers standpoint. Loan loss to average AUM, 139 basis points, includes an INR 1,419 crore one-time provision cost that are actually sitting here, which I'll cover in the next few panels. Despite the INR 1,419 crores of impact that we've taken on a one-time basis, overall PAT came in at INR 948 crores, a degrowth of 19%. If you take into account the INR 1,419 crore one-timer, our growth otherwise would have been 38%.
Only COVID-19.
Sorry?
Only COVID-19.
Yeah. ROE came in at 2.9% as a result of one-time impact. On a full-year basis, balance sheet is, of course, INR 147,000 crore. OpEx to NIM has come in at 33%. Loan loss to average assets is at 3.1%, PAT of INR 5,264 crore, a growth of 32%. ROE, despite INR 1,419 crore one-time impact, is coming in at 20.2%. What is relevant and important at this point in time to everybody is what is the view from a COVID-19 standpoint. Panel 5, clearly unprecedented times. We articulated on April 6th, capital preservation, balance sheet protection, and operating expenses management. That's really what we are fundamentally up to. Tailwinds that we have is very healthy capital adequacy, very strong liquidity position.
As a result of the one-time impact that we have taken of INR 392 crore on two large stressed accounts, we are entering next fiscal with virtually similar gross NPA, net NPA that we actually entered with, giving us tailwind. We have access to retail deposits. Balance sheet is now close to INR 21,000 crore on retail deposits. Continue to deal with mass affluent clients other than our two-wheeler portfolio. Very diversified mix, and so on and so forth. In general, the limited point that I would make, given the tailwinds and the headwinds of COVID-19, we are very confident of navigating the challenges posed by COVID. Let's just go through very quickly as to what we are up to and what gives us that confidence. Panel six.
This will give you texture on what has happened in the last, we are virtually on 19, which is 50 days into the quarter and 60 days into COVID-19. We've taken a cautious stance on and have tightened underwriting standards and LTV norms across businesses. We had no business in our B2B business in April, given lockdown. Late April and early May onwards, green and orange locations have started to resume business. We are currently open. We have 2,134 locations that we are present in, where 1,600 locations are actually open, 1,583 to actually be precise. We are now originating between 22,000 and 25,000 applications in these 1,583 locations on a given day. No lending in auto finance, similar to B2B. B2C, which is our personal loan cross-sell or our unsecured businesses, we took a view to not lend in April and in May.
We will gradually reopen, first in green and orange from June onwards, and pick it up from there. Similar for SME businesses. B2B rural has also resumed operations. We do believe that rural will be the fastest to recover. One of the businesses that we've been building, which we've not talked too much about, is gold loan business. We do expect to see increased demand in this business, and we've organized ourselves in the last 60 days to be able to seize that. Mortgage business for us, which is 31%-32% of the balance sheet, is essentially in top 30 cities and mostly in red zones, so will take longer to recover. Commercial lending is virtually on pause except for lending to existing customers. LAS, remains open. We're willing to lend, but demand is very low given the volatility.
That's really on where we are in the last 50 days from a open-for-business standpoint. If you jump quickly to liquidity, we ended as of 15th May at virtually a tad below INR 21,000 crore. Additionally, we have SLR investments of INR 3,300 crores. Virtually makes it 19% of our overall borrowing is technically in cash and cash equivalent at this point in time. Given the environment, given the risk aversion in general, I would say that at least for the first half of the year, we'll continue to run in a high liquidity mode. We have stress-tested our liquidity model very deeply, and we remain very comfortable to support growth as it comes back and the repayable obligations that we have as a company for a long foreseeable period of time. We continue to remain open for business to accept deposits.
Even during the period of lockdown, we originated sizable value of retail deposits. We're also repivoting the deposits business and anchoring it more towards corporate. Retail-corporate mix is now 67/33. It's likely to probably gravitate towards 75/25 or 80/20. OpEx, really where we have significant control, company has moved with agility to manage its OpEx to retrofit it given the environment. We do believe we have significant modularity across our lines of businesses. Company has done what lots of companies have done, frozen all incremental and replacement hiring till September 2020. We do have a modular compensation structure, which helps the company in times like this. You will see reasonable reduction in salary cost, which is, in general, the largest line item for most financial services companies. Have frozen, you can see, advertising, promotion, travel, training, and so on and so forth.
In general, it's our assessment at this point in time based on the actions that we've taken on our fixed OpEx. We've knocked off anywhere between 22%-24% of our fixed OpEx in the last 60 days for us as a company. Rightfully, we've also suspended all new branch expansion. Lastly, and more importantly, while we do believe India will come back, you got to prepare for anything. Nobody prepared for COVID-19. The company has fundamentally initiated. Despite the actions that we've taken, we do believe there's an opportunity to reimagine our cost structure. There's an opportunity in this challenging time to see how business could be done differently as we get out of COVID-19. We've introduced in the company a zero-based budgeting model across businesses and functions, and hopefully, we will see a reimagined way to do business in the next 9-12 months' time.
Credit cost, the most important area of attention. The first point I must make, and we have covered that, as of February, where were we? That's as important a question as post-COVID-19, where we are. Did we get into this with trouble in hand, or did we get into this with a clean slate? It was a clean slate. As you can see from the data that we have actually published, that on a year-on-year basis as of February, other than our two-wheeler business and our lifestyle business, we were same or better off across out of the 13 lines of businesses, only two were yellow or red, and rest 11 were green. The second line is important, it's got demonstrated by our Q4 results that despite that company has very strong pre-provision profitability to navigate through the potential risk emerging from COVID-19.
I think that's an important point, that do we have sufficient profitability to sustain shocks? COVID is, if anything, but a once in 100-year shock. Clearly, we have started to prepare for COVID-19. We took, as you can see, INR 1,419 crore. There were three elements to this. One was an annual ECL recalibration, that's INR 129 crore. Second was INR 900 crore of general COVID contingency provision, we decided to charge off the two large identified stressed accounts that have been outlined to investors. We decided to charge them off, totaling to INR 1,419 crore. 22nd point is important. There are questions on what is the overall provision available. On standard asset provision, as a company, we have 160 basis points of total standard assets provision available. On INR 147,000 crore, we have 160 basis points of provision available.
That's INR 2,352 crores of total standard asset provisioning that is available with the company. 23rd point is important. 27% of consolidated AUM as of April 30th is under moratorium at this point in time. Of this 27%, 68%, or let's say round up to 70%, have no recent bounce history. No recent bounce history being defined as in January, February, March, they did not default, and default being bounced, not as default. People ask us, have we done scenario planning? Answer is yes. Scenario planning takes into account all the lines that you see written here. Clearly, the focus of, or the modeling is essentially focused on the moratorium portfolio. The entire exercise risk managers across the world would be doing on whichever country is given moratorium, and it includes India, would be on clients who've given moratorium. What is the likelihood of those moratorium clients slipping into default?
Those who don't slip into default in moratorium are obviously, in general, adjusted for the second-order impact of the economy should continue to hold their performance in line or better. Panel 9, clearly we've given bounce data. Bounce is up 2.5-2.7x, has to be collected from. We've used the last 60 days to significantly augment, expand our collections capacity model so that as markets start to open, whether it's green, orange or red, or what we are increasingly calling internally deep red, we are ready to rapidly move and engage our clients to be able to collect efficiently and effectively. We are not waiting for it to open. We are adding, if I may give you statistics here, close to 2,800 officers in the company are being added to this activity to do this.
Gross NPA, net NPA, 161 basis points, 65 basis points, sequentially flat year-on-year, virtually flat. The line that you see here is, we chose, as this data is as of March, not to give moratorium from an accounting standpoint to those customers who had high likelihood of default. If I'd taken it for apple-to-apple that into account and given moratorium to all the clients, we would have published a number of 138 basis points of gross NPA and 51 basis points net NPA. We've chosen to take into account those who have a high likelihood of defaults for 161 to 65 basis points. Overall profitability contracted 19%, as you're aware. Adjusted for INR 900 crores, it would have been up 38%. We are looking at our margin profile across our lines of businesses. We do suspect and expect a more benign competitive environment.
Of course, it'll be subject to competitive intensity as to how quickly others come back. Our entire focus at this point in time is on mining our base. New to Bajaj customer, new to bank customer has always been riskier than existing customer. We are using the franchise to do more with him, whether it's a health card, health insurance, or various other products that we feel comfortable. The focus will remain for the foreseeable future on ETB or existing to Bajaj rather than new to Bajaj. Capital position remains strong. Book value came in at 538. Just panel 10. Let me just jump you now straight to panel 15. This is our provisioning coverage data. Very quickly, this is by lines of businesses.
You see on a gross NPA basis, clearly what we had from a management assurance provider read on, which was our auto finance two-wheeler financing business. Gross NPA, net NPA year-on-year jump by 30 basis points. Otherwise, you see a 28 basis point movement in sales finance, 22 basis points movement in B2C businesses, and so on and so forth. Rural improved. Rural B2C was flat. Commercial lending, because of the charge-off of the account, dropped from 64 to virtually zero. Mortgages dropped as well. That's really the gross NPA, net NPA, 154 on a year-on-year to 161, sequentially flat. Net NPA year-on-year, just a movement of two basis points. This also includes, as you see below, a set of changes as required by RBI.
As you can see below, this on an apple-to-apple basis meant gross NPA, which is coming in at 161, otherwise would have been 155 basis points, technically flat, and net NPA actually would have been down from 63 to actually 60 basis points. Let me now jump you to panel 58, which is really my portfolio. We've actually provided you data on balances, amount of AUM under moratorium, percentage of AUM under moratorium, and so on and so forth. It's a little busy slide, but out of INR 143,000 crore, INR 38,500 crore, which is 27% of total AUM, is in moratorium at this point in time as of April 30th. On an average, their default rate was, or bounce rate was 12%. As you can see, April, it jumped to 3x. Fortunately, it does seem that whatever had to move moved.
We've not seen much movement more worsening from there on. It's 100 basis points worsening. 68% of these clients have never defaulted. If the economy was to come back and things were to get normalized in two to three months' time, it is possible that a lot lower hits may have to be taken on this portfolio. At this point in time, we have a 233 basis points coverage on the morat portfolio. Largest impacted in this is clearly the mass business, the first row that you see, which is our two-wheeler business. It's 9% of the portfolio, a substantially larger portion of our morat book. Adjusted for this, in the rest of our businesses where we fundamentally deal with mass affluent clients, the overall moratorium would be around sub 22%, actually. There is no such thing as ex.
On a consolidated basis, 27%, and this is profile by lines of businesses. That's really all. While there is more data on how overall leverage of clients is looking under normal circumstances, there may be interest in that if we were in a non-COVID situation. In the interest of transparency, we decided to still provide this data. We provide this annually. We publish this data to ensure there is continuity on an annual basis. I guess given the environment, there is low interest in it. These are the slides I thought I wanted to cover. We can refer to more such slides based on questions. That's really from us very quickly, and happy to take questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. A reminder to the participants, please limit your questions to one per participant. Should you have any follow-up, request you to rejoin the queue, please. The first question is from Linus Dhabolkar from DSP Mutual Fund. Please go ahead.
Hi, Rajeev. Two questions. First is, on slide 58, I was very surprised to see the sort of bounce rate in the consumer B2C business, given the sort of consistency, and these are all cross-sell customers, essentially. First, your comments around this portfolio, and would it be the most riskiest portfolio amongst all the other portfolios in terms of just the effort required to collect this amount? One. The second question that I had was on the rural business. Just your thoughts of how much sort of opportunity is it in the current environment given you mentioned that gold loan is something that you're picking up. Some comments around the rural business on the growth front and on the B2C business on the asset quality front.
Look, you see this panel, the so-called riskiest to so-called safest, everything is up 4.5, 3x. Look at the mortgage business, right? We deal only with salaried customers. A 4.5% average bounce is up 4x. I'm giving you a reference point. There is fundamentally no outlier here on this panel. From wherever the client was, let me tell you, the safest, mortgage is the safest portfolio. Doctors is one of the safest lines of businesses. Up 4x again, 3.5x, 4x. See, it doesn't happen that 5th of March you bank a portfolio and it has a bounce rate of X, on 5th of April, the same customer you bank, he's at 4x. Clearly this is not credit at work. Okay.
Right.
Credit situation does not. That too when March had fundamentally passed. We went into March virtually on 25th or 26th of the month. Most people had earned whatever they had to earn. There is more than credit at work. You provided full disclosure here. You tell me which line is not up two and a half to 3X. None. Riskier or non-riskier is a matter of judgment. We'd rather go by data rather than matter of judgment. I must just make one point, which is an important point I would continue to make. They are all adjusted. Each one of their profitability models take into account leave significant room from a profitability standpoint from wherever they are. Would mortgage have lowest? The answer is yes. Would B2C business have highest? The answer is yes. It's adjusted for risk and cycles.
That's really how each one of these business stack. That's part one. Part two, look, growth, we are focused on restarting at this point in time. That's our core focus. Locking it down was very easy. You just put a lockdown. You come back 60 days later, you've got to dust everything off. You've got to clean the house. That's really our focus at this point in time. We're just dusting everything up, dealing with different states, different nuances, different branches, and so on and so forth. We want to get the company to work quickly. Growth is not on our immediate priority at this point in time. Are we a growth company? Yes. Would we like to grow, come back to growth mode sooner rather than later? The answer is yes. Not at the cost of being in haste. Gold loan will move as well.
Understood. Thanks for the additional disclosures. Thank you.
Thank you.
Thank you. The next question is from the line of Kuntal Shah from Oaklane Capital. Please go ahead.
Hi. Good evening, Rajeev.
Good evening.
Again, congratulations for some exemplary data disclosure, which we don't see from any of the financial players. My question is, we have 160 basis points standard provision and 90 basis points extra provision as per ECL. Can you compare what is the requirement for RBI Ind AS and Indian GAAP for banks and for NBFC, and how do we stand vis-à-vis this? Secondly, we had INR 275 crore exposure to IL&FS and INR 312 to Karvy. You have written off INR 587 crore, but you have a lot of security against them, so you could have chosen to provide more for COVID and less for this, but you have chosen to do exactly opposite. Can you throw some logic why you are in a rush to clean up the balance sheet far faster than is required to do so?
Kuntal, this is Sandeep Jain here. On your point relating to general provisioning, it's not 160 plus 90 basis point. It's 160 basis point of provisioning that we are carrying, totaling up to approximately INR 2,300 crore that we are carrying at this point in time, including INR 900 crore that we have created for COVID-19 specifically. In terms of, if you look at, RBI has mandated from the current year to also disclose in the balance sheet the comparison if the company was supposed to follow the Indian GAAP or the Prudential norms of RBI from provisioning point of view, how the provisioning would have looked compared to ECL. That disclosure will be part of the annual report. You will see that company continues to provide significantly higher, I would say multiples of what one would have provided under Prudential norms. To your question regarding writing off INR 537 crore of amount.
This amount does not represent the total amount because some portion of the amount was already provided for between last year that we did for IL&FS and in the current year, Q3, that we provided for Karvy. This amount that you are seeing in the P&L as a hit is the net amount for the quarter.
No, I'm saying overall, you have written off INR 587 crores cumulatively over quarters.
Yeah.
You still have the assets under your collateral, so there you expect some recovery, right?
Kuntal, two things. IL&FS, technically 21 months, 18 months into 2018, 19 months into the entire debacle. Legally, we are not seeing any outcomes. We are not seeing any sale. We are not seeing any outcomes. As prudence would demand, as management, we have a responsibility to justify to our auditors and to our shareholders that for how long will we wait. Do we have 2X the security cover on the asset? The answer is yes. Okay? Do we expect recovery? The answer is yes. Time value of recovery is as important as recovery. That's first part. The second, which is a broker account, do we expect significant recovery? Likely is yes.
Given the state of things, given that the account had actually technically given the security for the regulatory action that happened and account was unsecured technically, despite the 10% that we own off a subsidiary company of theirs, in prudence, we took the decision to provision and charge it off. Any recovery that comes in on both the accounts will fundamentally augment our COVID buffers, if required. If they're not required, they'll get passed through to the P&L for lower risk in future.
Sandeep, how much is our provision in excess to the bank's mandated provision?
Mr. Shah?
Hello?
Hello. Mr. Shah, sorry to interrupt.
Okay.
Sir, for any follow-up, request you to rejoin the queue, please.
Kuntal, I just responded. It's not a straight answer. Straight answer would be 40 basis points, which will be inaccurate.
Yeah.
That's why, as Sandeep is saying, it's now required by RBI, and there'll be full disclosure on that because risk weights and so on, and asset classification, et cetera, come into the play for determining the standard asset provisioning requirement.
Yeah. Thanks. All the best.
Thank you. A reminder to the participants, please limit your questions to one per participant. The next question is from the line of Nitin Jain from Ark Capital. Please go ahead.
Hello, sir. I have only two quick questions. If you could disclose the deposit number as of the end of April, or better still, 15th of May. The second question is, in your Q3 presentation, you had mentioned about the Systematic Deposit Plan. I don't find it in the Q4 presentation. Has the company dropped that, or can you do some color on that? Thank you.
Deposits. No, he's asking as of 15th of May. We won't have it handy at this point in time. Maybe we can source it before the call ends. Maybe we can give you data as of 15 May. We don't have it handy. The second order point, has SDP been dropped? The answer is no. It's a new product. We're building that out. We are quite excited about the product, given what SIP has done. We think SGP could fundamentally do that. There was one large technology capability that was coming in that would have made the product a lot more attractive. As a result of the lockdown, that got pushed out to 1st of June. We haven't dropped it, and we hope to build a very large business out of this.
Okay, thank you. If you could give me the deposit number of.
Second order point, without knowing the details as of today as to where we are on deposits. If you refer to page number seven, we've actually specifically said that we're reducing our reliance on corporate deposits. As you can see, absolute balance sheet, it likely may go down by design, not by anything else. We're renewing only at much lower deposit rates on the corporate side of the balance sheet. Retail, also we have dropped rates effective 5th of May, but that's a strategic part of the balance sheet, and that we intend to continue to invest and grow.
Okay, thank you.
Thank you. The next question is from the line of Parag Jariwala from White Oak Capital . Please go ahead.
Actually, in the previous call, you have highlighted the three scenarios and the relevant increase in the credit cost and the profitability and the growth matrix. Now, most of the states' lockdown has been extended till May end. Anything you can guide further on this would be very helpful. That's my first question. Secondly, in this overall environment, what happens to fees? Because what I see is that last two years, we have done excellent on fees, and fees has very high correlation with incremental disbursements. Thank you.
Clearly, if you refer to panel eight, we are fundamentally saying, have we created multiple scenarios and the impact of credit cost as a result of COVID-19? The answer is yes. Are they wide and deep from a scenario planning standpoint? The answer is yes. Do they take into account phasing behavior of moratorium, collection capacity management? We are waiting to see what RBI has to do on whether there is extension of moratorium or is there forbearance that comes in, or there is none. It's difficult to predict at this point in time. The broader point, which is how does the economy respond as it opens? Quite honestly, do we have a model? Yes. Is that model constantly being repopulated as a result of our experience on an ongoing basis based on these points that I made? The answer is yes.
Let me come to the number point. What is the view on the number? I'll make a different point that, can I give you a number based on what I'm saying to you? The answer is yes. What will be the possible variance in the number? It's difficult to state. I will repeat the point that I'm making, which is linked in a way to your fee point, that our pre-provision profitability as a company remains very strong. We can sustain shocks, and COVID is a once in a generation or a once in a 100-year shock. All scenarios are saying that we will continue to remain solid, if that does provide some degree of comfort. Did we say as part of scenario three that we are likely to see credit costs go up by 80%-90%, referring to my April 6 call?
Are we holding mostly there in line based on April and May experience, ±10%? The answer is yes. Can that change for better? Possible. Can that change for worse? Possible. You'll have to just bear with us, and with everybody. We know only as much as we know.
Sure. Thank you.
Thank you. The next question?
Fee remains a important driver. I mentioned it specifically, Health Card, health insurance, mining the franchise, is the only way we'll navigate this storm better.
Thank you. The next question is from the line of VP Rajesh from Banyan Capital. Please go ahead.
Yeah, hi. My question is regarding the recent announcement by the finance minister about suspending IBC process. Could you comment on the impact of that on our book?
No impact on our book. We have no clients under IBC, especially after Will there be an impact like IL&FS kind of account? The answer is likely yes, and this is exactly my point, that given that we are in loops on legal, we might as well charge it and move on. Otherwise, no impact. Post charge-off of these two accounts, no impact.
Okay. Thank you.
Thank you. The next question is from the line of Bharat Shah from ASK Investment Managers. Please go ahead.
Rajeev, I think excellent disclosure. I must congratulate your team and yourselves for this.
Thank you.
Usually attempt is to shove things under the cover, but I think here the disclosure level has actually exceeded expectations. Just one part, on the earlier question of the fee income, I couldn't fully comprehend. How do you plan to ensure that the fee income remains robust? Can you please deal with that again?
I'll give you an example, Bharat. Let me make a point. What I wrote as health card, let's say example. We have 20 million EMI Card customers as a company. That's a number that we disclosed. Over the last 18 months have been investing in a life care financing business. We are present in top 30 multi-specialty hospital chains across top 20 cities in India. We think life care financing is a very large opportunity. We were building that as a client, you can have multiple cards. You could have a store card where the limit is different, whereas if you went into these multi-specialty hospitals, your limit is different. He needs that limit to be different. We realized in June last year, our technology infrastructure did not allow for a multi-carding infrastructure. In January, that went live. Let me provide disclosure.
Between April and May, to our clients, we have sold 300,000 health cards as a company. Client gets much higher limit to be used only in those multi-specialty hospitals or for a set of elective procedures, and pays INR 700. This is an example that I'm giving you of cross-sell or mining our franchise by creating opportunities and products for our customers. There is a lot more work that we're doing, Bharat. I must just say that from a confidentiality standpoint, I would have to stop with this example. As we deliver more, we will talk more. I just want to say we remain focused on it.
Good. Thank you.
Thank you. The next question is from the line of Prashant Kothari from Pictet. Please go ahead.
Yeah. Just one question from my side. Specifically, I looked at this article from The Economic Times suggesting that a place like RBL Bank, SBI Card, all of them are seeing better prepayment rates in May compared to April, but your data is not suggesting that improvement kind of sequentially. Why do you think that is the case, if this is the right data? Is it that the customers are treating banks versus non-banks differently, something like a moral hazard creeping in for non-banks?
Two things. We should not compare company disclosure with press disclosures. They're two different things, principally. Let a company disclose and then I would agree. Let the banks disclose. Let me make that point first. When they disclose, I would compare. Whatever they have disclosed, as you can see on a overall moratorium basis, we are in line in most cases, given that most banks have very large corporate balance sheets. Despite that, we are looking only in line. Logically, Bajaj Finance is not in moratorium for INR 70,000 crore of its assets sitting in banking system, and so on and so forth. Let's just compare presentation to presentation and disclosure to disclosure rather than press. That's one point. Second order, however, when we look at data, we bank 18 million customers in a month. I look at it, you name the bank.
We have very large statistical sample by each bank, from what you would call the best bank to what you would call the worst bank. Numbers stack up 2.5-2.7 times across. They stack up very secularly and linearly. Is all I would just say to you.
Thank you. The next question is from the line of Ashish Sharma from ENAM AMC. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Again, question on the credit cost, Rajeev. Just as we clarified that we are looking at 80%-90% increase, that would be adjusting for the one-offs we have provided in FY 2020, right? That would be the right way to interpret?
In one-off, I would take the INR 900. I would not take the INR 392, Ashish, because there are blind spots and corners that miss it, right, which I may not be aware of. As a result of COVID-19, their situation can change. Just at a design level, I would not take INR 390. It is a normal course of business. We gave money to those clients. They did go into difficulty, and as a result, I made a wrong credit decision. INR 900 is COVID, rest is what I would call business as usual. I'm not trying to manage expectations and numbers. Something like INR 392 or INR 150 or INR 75 can happen as a result of normal credit decision.
Sure. Just on the moratorium data, would you have done some analysis in terms of split between salaried and self-employed, or is the moratorium similar in both the segments?
Structurally same. Do salaried bounce less? Answer is yes. Are they 2.5x-3x? Yes. Does self-employed bounce more? Answer is yes. Structurally, are they 2.5x-3x from there? Answer is yes. Look, we have cut it by bureau, we have cut it by salaried, we have cut it by self-employed, we have cut it by locations. You do know after 13 years that we are data-driven. We have reasonably sophisticated analytical infrastructure. Information is available on the fly. It's pretty secular and linear. For our size of franchise, we are unable to find any hidden corners.
Perfect. just lastly, Rajeev on-
Mr. Sharma. For any follow-up request, you to rejoin the queue, please.
Sure. I'll do that. Thank you.
Thank you. The next question is from the line of Ashutosh Garud from Ocean Dial. Please go ahead.
Hello.
Yeah. Please go ahead.
Yeah. Given the current data and two months of whatever feedback you have got from your customers and the segments across which we are present, how do you think lending as a habit and the reduced, let's say, salary levels and earning capacity is going to impact the disbursement growth which we are looking for, let's say, in the next three to four quarters? Because borrowing as a product itself can go behavioral change. In that aspect, what are your thoughts as we speak?
Behavioral change needs much longer than the event that has happened. Any behavioral change, right? The only behavioral change right now I am wondering, especially in Pune, is are people ready to go to work now? That's the biggest behavioral change I am asking myself. It's as much in seriousness as in lighter weight. I must make that point. It's damn tough for a call, I must say. Coming back to the question. I think we will have greater clarity by July or August. We will need to-
How do you plan to do the disbursement? Sorry.
Sorry. Go ahead.
What kind of an impact it could have on the disbursement levels which you would be planning to do in the next three to four quarters?
The right thing, we are already partially foolish based on the question that somebody asked me on credit costs. I'll be more foolish if I said where I am sitting as to what do we see disbursement growth outlook to be. Our current focus fundamentally is to ensure we restart our 2,134 branches, number one. We augment our collections infrastructure, number two. We, in the interest of balance sheet protection and capital preservation, focus on managing risk, [rather than] and managing growth. As we navigate through this, we will worry about disbursement growth.
Appreciate that. Thank you.
Thank you. The next question is from the line of Praful from PinPoint Asset Management. Please go ahead.
Hi, thanks for the opportunity. I have just one question. In case the moratorium is extended from three to six months, do you think the probability of recovery goes down in that event? Any thoughts or plans if this is coming true? Thank you.
Quite honestly, I find it a little foolish to make the point after 27 years of working in financial services industry, that I don't know. Behavioral risk, we had articulated on April 6th call as well, is tough for call. We will only know it as we get the ability to be able to reach customers, sit face-to-face and see their response. The truth is, if you look at the moratorium data, that is in B2B business, the bounce rate was 9.5%. 97% of them paid us. That is our experience for the last two years. Before that, 95%. Before that, 93%. Before that, 91%. That's our experience for the last 13 years. First things have to open. Do we have the people who can sit in front of them and be able to engage and understand, collect, number 1, and then understand, number 2? Answer is yes.
We will only know that as we get the flexibility to be able to get to work. Behaviorally, it's tough to call. We'll have to see.
Thank you.
I suspect, I must just make a point, that the moral hazard will not just emerge as a single decision-making pillar. The second-order point of the impact of the economy on him or her will also have a bearing on this. It'll be a combination rather than just pure moral hazard point that I have not paid you for two, I got two more, which is four, I won't pay you. I think it's not going to be as simple as that. It is a multivariate rather than a univariate conversation that pure moratorium makes a customer tip. It'll be two, three combinations.
Thank you. All the best.
Thank you. The next question is from the line of Samir Kulkarni from Otto Securities. Please go ahead.
Sir, congrats on a good set of numbers in difficult environment. Can you please highlight the key strategic initiatives you are taking to take BFL to the next level in post-COVID era?
It's a fair question from an investor standpoint. As operating manager, we are right now all hands on deck to manage the current environment. Do we have a strategic framework as a company, which we do very rigorously and in a disciplined manner every November? The answer is yes. Do we continue to remain anchored on that? The answer is yes. Were we significantly expanding our hiring in technology, analytics, geographic expansion? The answer is yes. However, at this point of time, we have put that on a little bit of back bench. Intention is to manage balance sheet, preserve capital, manage OpEx. We are building this business with a 10-year view. We've done it for the last 13. We are building this with the next 10-year view. A plus/minus five, six months don't trouble me at all, and doesn't trouble the management and the shareholders at all.
We have to do what is the right thing at this point in time, which is to preserve capital and protect the balance sheet. Hopefully, I do hope that in six months' time, when we are in more peace times, we can share greater color on what do we intend to do in next three, not ten.
Okay.
Thank you.
Thank you. Thank you for belief.
The next question is from the line of Gurpreet Arora from Aviva India. Please go ahead.
Yeah. Hi. Two quick questions. What is the thought behind reducing PCR in the auto finance book, especially when the NPAs have risen substantially? Are we looking at changing the contours of doing this business? I mean, our share of the group business is more than 50% now. What is our thoughts on that? Second, majority of our liabilities is on fixed rate, and we are carrying excess liquidity on the balance sheet also. How imperative it is for us to pass it on or refinance? Basically, if you could guide us towards the future cost of funds. Thank you.
Sandeep?
On the auto finance piece, the Provisioning Coverage Ratio, of course, the number is still strong, 54%, given the fact that we have a strong repossession mechanism in two-wheeler, three-wheeler business.
Pardon.
In case of two-wheeler and three-wheeler, what we have done is, cases which were in higher delinquency, we have chosen to write off quickly rather than carrying it longer. There is a change in the accounting policy that we have done in the current quarter, which had a small impact on the P&L, but has ensured that we are not carrying the baggage of customers who are in long overdue in the balance sheet. There is that reason why the Provisioning Coverage Ratio has come down marginally.
Okay.
Thankfully, our liquidity model has been very strong, and we have very little CP borrowing. Look, since IL&FS, it's a different world for non-banks. Things had improved, and then you see what, again, COVID does to the risk aversion. You look at our cost of funds for the quarter, it came in at, if you did apple for apple, the number would look like 8.76%. Just give me one second. 8.76% with liquidity drag. I knocked off the liquidity drag, it would look like 8.35%. Are we seized of the fact that we are carrying a drag? As far as we are concerned, preservation of the balance sheet, maintaining sufficient liquidity until we feel comfortable as ALCO and as a company that we are on safe ground remains the biggest priority.
AF, clearly, as we have articulated since quarter two, the portfolio has been marked as red. You continue to see deterioration. We have tightened the underwriting norms in that business in the last two quarters. You should, in the next two quarters, start to see improvement in the portfolio. Actions have been taken. Will we tend to remain captive? The answer is yes. Does it remain over cycles a reasonably profitable business? The answer is yes. Is the loss rate sustainable from a product profitability modeling standpoint? The answer is yes.
Thank you.
Should we capital? The answer is yes, and we have done that.
Thank you. The next question is from the line of Mayank Bukrediwala from Franklin Templeton. Please go ahead.
Hey. Hi. Thanks for taking my question. I had a couple of questions. The first one was more specific on the collections. Bounce rates have gone up two, 3x, and as the book comes out of moratorium, we'll again need more effort in terms of collections on that. The question is, could you give more color on how you're ramping up the collection part of the business, one? Second, what part of a business runs on a third-party collection capability? Are we increasing that part of the business as well? How does your OpEx touch sort of guidance tie up with the need to actually ramp up collection capabilities in the near term?
Let me take the last part first. Adjusted for that. That line is going up dramatically. Rest of the lines, that means, are going down more. The point that I made as part of my opening remarks takes into account this going up. This has two lines. One is the staff who works in the company to manage that. That is a number of 2,800 people that I made to you. The second-order point is there will be a few thousand people who are being added in the last 50 days. We don't collect ourselves other than our SME business where we collect. Numbers are small. Clients have to be dealt with by the company rather than by outsourced staff. In rest of the company, we do not collect on our own.
We work with agency infrastructure that, in general, more often than not, given our size and scale, works only for us. It's largely proprietary to us, but outsourced fully. They have been ramped up. The entire collections model works grounds up rather than top-down. How many people default by each zone? A zone, just to give you texture, if you're in Bombay, as far as we are concerned, as a company, is divided into 48 different codes. That's more than the pin codes Bombay has. That's really how they are cut. Based on that, we look at each code as how many defaults, how many bounce customers. Based on that, we determine staffing for that zone. The model builds up.
Are we ready as the country opens up or as green zones are opening or orange zones are opening, are we ready in terms of where we ought to have been on 20th of May? The answer is yes. That's some color to collections.
Got it. Got it. Thanks.
Thank you.
Just add one more question for you.
Mr. Mayank. Sorry to interrupt, sir. For any follow-up request, you to rejoin the queue, please.
Sure. Thank you.
Thank you. The next question is from the line of Anand Laddha from HDFC Mutual Fund. Please go ahead.
Hello, am I audible?
You are.
Just two questions from my side. What's your average cost of deposit? Our average borrowing cost is somewhere closer to 8.3. When we interact with most of the players, we've seen only good quality NBFCs are getting money at a very significantly lower price. How do you expect your cost of deposit or cost of fund to move for you for next one year? Second, when the customer has taken moratorium, have you interacted with customer? What could be the reason for the moratorium? There's a fear factor. Is it the factor that it is available, which we have taken, despite the fact that moratorium has a cost? Are we reconnecting with our customer just to see if they can pay a part payment so the burden comes down for them?
Yeah. Are we tracking dispositions by millions of customers that we collect from? The answer is yes. Clearly, let things open up. The anxiety is the largest part. As I said in my opening remarks, Anand, 5th March to 5th May, there is no change in April. Other than COVID and the resulting lockdown, nothing changed for a client. Salaried customer got his salary. Self-employed customer had that much money. Clearly, it's the anxiety of unknown that changed. I can still understand April deteriorating, May deteriorating April, and that deterioration is not significant. I could have still understood if the April was 20%, 30%, let's say hypothetically, and May was 2X. I would have said fundamentally, that it's a result of deteriorating financial situation of the customer. I cannot say that today. Between 5th of March, it was 9%, and it became 25% on 5th of April.
It is nothing else but anxiety at work. These 9%, as I said earlier, 97% of these 9% used to pay. I just want to repeat that statistic just for information purposes. That's really what the disposition at this point in time is coming to. Cost of funds will go down as our CP book. If you see in the presentation that we show that the CP book used to be 9, 10%, it should be 9% to 10% of our book. Today, it is less than INR 2,000 crores. In the last five, seven days, we raised some CP borrowing because when I get logically, if my three months inflows are at, in a normal course, INR 20,000 crore, logically, I should have INR 18,000-INR 20,000 crores of CP book. I have less than INR 2,000 crore. That color, if it goes back to the normal times.
If you see March 18, okay, it was 8%, 6%, 43%, 31%, 12%. That's on panel 40. During this period CP, four from six. Four from six. This is standard. Further in. Retail deposits have moved from 12 to 21. Clearly, CP book has to move given the nature of the balance sheet. That's really how one of the ways you will see our borrowing costs go down.
Even banks have cut MCLR. Your borrowing cost should decline faster.
MCLR is beginning to play rapidly. Answer is yes, it should. Anand, I must make just one important point. Are we structurally seeing incremental borrowings go down? The answer is yes. Bank cost of borrowings, are they getting repriced? The answer is yes. Drag is eating most of it at this point in time. That's a management call rather than a market view. When we feel comfortable, you will start to see a rapid drop in our cost of funds.
Thank you. That's it on my side.
Thank you. The next question is from the line of Roshan Chordia from ICICI Prudential Mutual Fund. Please go ahead.
Yeah. Thanks so much. Two-part question. Firstly, what is the tenor of these ECB borrowings and full rate are the same?
Sorry?
The tenor of the ECB borrowings, sir, and the full rate that you're paying for that?
Tenor of?
ECB borrowings.
ECB borrowings. Totally, as you can see, it's 4% of the overall borrowing. I think the total number is around 5,200, 5,300 odd crores. It's a three-year program, fully hedged, both for principal and for interest. Timing is an important dimension in when you borrowed. Last time we borrowed, which was large, we borrowed $100 million in April, and prior to that, the balance $600 million was raised. If I recall the previous number, fully loaded, everything, all-in was sub 8%. This $100 million came in at?
We raised $75 million in-
INR 75 million, okay. At?
7.5.
At 7.5%, 7.6%.
Okay. All right. As for the collection infrastructure, right now these collection agencies that we employ, which are completely our proprietary agencies, are you seeing any signs of people losing their jobs at the agency end, or are we ensuring the staffing requirements are adequate, and how are we handling that situation?
We have ensured that we got to keep the fire on, despite the fact that overall efficiency levels, because of inability to collect from clients, have remained low. As I said earlier, in general, lots of these agencies work exclusively for us. We've ensured that we provide adequate support during this time to keep businesses going. That should help us as overall economy opens up.
Sure.
Mr. Roshan.
For follow-up.
Sorry to interrupt, sir. For any follow-up requests, you to rejoin the queue, please.
Please, I'll do that. Yeah, thanks.
Thank you. The next question is from the line of Ketan Shah from Millennium Partners. Please go ahead.
Thank you for allowing me the question. One question is, I just wanted to understand the mechanics of the moratorium interest that you account for from customers who have taken loan under subvention. What would be the interest rate that you would charge for them for the two months, three months moratorium?
Interest rate is same interest rate that was contracted as part of the subvention pricing with the manufacturer. If you were at, let's say, anywhere between 21% and 22%, and that does get published to the customer in his statement of account. That is really what is charged.
Okay. Fair enough. Sir, any texture on where rural business could be in the next 6 months, 12 months? Or is it too early?
It's too early is all I would say. Do we believe it'll come back the fastest? Yes.
Okay.
To what degree? Tougher call. I must just add only one point. The way we classify rural for the investors is different from the way we look at internally. In general, our experience from a data standpoint is that 120 plus markets in India in general represent very similar behavior across most metrics. The company looks at even the urban business as a prime business, as a growth business, looks at further prime and further growth. That's really how. There is emerging. To us, 120 plus market represent very similar outcomes. Do they have the highest likelihood of coming back quickly? The answer is yes. Same way, and I must make a point, top 15 cities in India continue to be 30%, 40% of India from a consumption power standpoint. Both must be remembered.
Yes, sure. Thank you.
Thank you. The next question is from the line of Hiren Ved from Alchemy Capital. Please go ahead.
Hey. Hi, Rajeev.
Hi, Hiren.
Congratulations on good numbers given the circumstances and also top-notch disclosure standards. My question is this, wherever you've opened your branches, what's been the experience? Do you see you will see an initial spike because of pent-up demand?
Experience is that every market is today structurally run by district collector or district magistrate. That's the only experience, Hiren. Circulars. That's all I would say. Do we see some spike when we open the market? Yes. They don't represent demand. Is there suddenly a demand for more dishwashers? The answer is yes. Are people looking for more iPads? The answer is yes. Structural view. If customer confidence comes back, demand will come back. I go back to my first panel where we said economy was on the mend. We were clearly seeing it. The worst was Q3, October, November. Things had turned the corner from December. You are seeing that in IIP data, in various other data points that were emerging for January, February. We are 60 days into it.
Longer we take, longer will be the time for economy to come back. No such expression, Hiren, if I give you a specific response on pent-up demand. Confidence is there.
Right. My second question is, I know you mentioned, and I think probably that's the right thing to do, which is to focus on risk management and balance sheet more than growth. Again, there are various projections about where the GDP growth could be this year, in terms of whether it's negative one, two, four, five, 10. I don't know. Everybody has their guess. A more fundamental question is that given your current size and penetration, do you think that you will still be able to grow, given everything else being equal, even if the GDP contracts? Which means, will you, in your assessment, be able to gain market share in the true sense of the term? Because your balance sheet still, relatively compared to large retail lenders like an HDFC Bank or whatever, is far smaller.
Are we 133 basis points of total credit in India? That response remains yes. Do we remain pre-March 22 a growth-oriented company? The answer is yes. Are we organized to capture opportunity? The answer is yes. From a capital, liquidity, talent, shareholders, low gross NPA, net NPA. The most important point I must make, Hiren, is, I think it is true that unless and until we are missing it completely, that things will be slower for a while. What is going to make a big difference is, do you have the franchise to do something with? If you have a franchise and you have a cultural orientation to be able to do work with the franchise, we should do relatively better. I think is the way I'm seeing it from a short-term standpoint.
Medium-term, we are a growth company, and we would like to continue to grow our share of total credit in India.
Okay, thanks, Rajeev, and all the best.
Just two data points. I think somebody asked a question on deposits. We have seen INR 200 crores of increment in retail deposits in the month of April and INR 1,000 crores of maturities and pre-maturities on the corporate side of the deposit book. In terms of ECB borrowing that we have taken in the month of April of $75 million, that came in at 7.2% fully loaded.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I 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 of Bajaj Finance and all the participants for joining us on the call today. Thank you and stay safe.
Thank you.
Thank you. Good night. Sorry for doing this call so late. Thank you so much. My apologies for the interruption by moderator. He was doing his job in restricting it to one question. Myself and Sandeep, we are happy to engage one-on-one wherever required. Thank you. Good night.
Thank you. Ladies and gentlemen, on behalf of JM Financial, that concludes this conference. Thank you all for joining us and you may now disconnect your lines.