Day, and welcome to the Bajaj Finance Q1 FY twenty twenty Results Conference Call hosted by GM Financial Institutional Securities Limited. As a reminder, all participant lines will be in a listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Singh from GM Financial Institutional Securities.
Thank you, and over to you, sir.
Thank you. Good morning, everybody, and welcome to Bajaj Finance's earnings call to discuss the first quarter FY 'twenty results. To discuss the results, we have on the call Mr. Rajeev Jain, who is the Managing Director Mr. Sandeep Jain, CFO Mr.
Atul Jain, CEO, Bajaj Housing Finance Mr. Anoop Sahar, President, Consumer Business Mr. Deepak Bagati, President, SME Collection and Mr. Ashish Panchal, President, Rural Business Insurance and Liabilities. May I request Mr.
Rajiv Jain to take us through the financial highlights, subsequent to which he can open the floor for Q and A session. Over to you,
Thank you, Varun. Good morning to all of you. I'll be referring to the investor deck, which is uploaded yesterday on our Investor section of our presentation. We've added two slides, which are essentially Page number four and five, which essentially covers the executive summary of the quarter that went by. I'm going to read some of the important points there to give you texture and then we'll go be open to Q and A.
Overall, I would just open with saying that as a company, we continue to remain focused on growth profitability and sustainability in Q1 FY twenty twenty as well. Overall AUM grew by forty one percent one hundred and twenty that below INR129000 crores. Adjusted for IPO financing book of INR2.5000 crores that sat there, core growth was 38% and balance sheet came in at INR126140 crores. AUM growth was quite granular in nature, which has really been the way we've been building business over the last twelve years. Even the so called slowing businesses, the consumer B2B business, which is discretionary spending business grew by 24%, B2C grew 48%, B2B grew rural B2B, which is discretionary again grew 48%, B2C grew 65%, mortgages grew 45 and AF grew 65%.
Commercial business grew overall 18. New customer acquisition momentum continued to remain very strong. We added 2,500,000 customers in Q1. That's a pretty strong growth on a year on year basis. Total franchise came in at 37,000,000 customers, a tad below 37,000,000 customers and cross sell franchise stood at 22,000,000 customers.
The strategy remains simple, continue to just grow wallet share of our clients, these 22,000,000 customers. Existing customer contribution went up to 66% from 63%. Company in a steady basis continued to add new locations, added 65 locations in Q1 to that below 1,900. We'll probably get to 2,000 locations by March 2020. Cost of funds remained steady.
Liquidity position remained very comfortable. Incremental borrowings, given rally in GSEQ, given surplus liquidity in the system are clearly coming in both the short term and the long term are both coming at a much lower cost. Liquidity position is very comfortable. We are sitting on close to 6,500 crores of liquidity buffer and remain very comfortably placed. Since the liquidity since the sectoral crisis started, company has added close to 32,033 of additional balance sheet in the last three quarters, just as a separate point.
We will continue to diversify our ECB. We are all set. We will probably raise anywhere between 600,000,000 to $750,000,000 in
the
calendar year of the in the current calendar year. FD continued to grow, came across INR 15,000 crore. Overall consolidated balance sheet was 13.5%. Standalone balance sheet was at 16%. And we are continuing to invest deeply in growing retail fixed deposit channels to continue diversification of our liability profile.
Fee revenue pool, that's an in general question you asked. We'll end up communicating that. As part of the question, we announced that we will cover that. Overall fee revenue pool on a year on year basis grew by 65%. Loan losses came in at 69 percent growth.
As I mentioned here, last year Q1 was very, very strong. Loan losses grew only 7%. Q2 grew 43%, Q3 grew 69%, Q4 was 80 and Q1 has come in at 69%. OpEx to NIM, there's continued progress on that metric, came in at 35% versus 37% in full last year. That number was 37% year on year, went to 36%, went to 35%, remained at 35% and came in at 35% again.
Gross NPA and NPA, sequentially, there's just a five basis six basis points movement on gross NPA. Net NPA went up by just a basis point. So one could argue, didn't move at all. PAD came in very strongly at 43% at just a tad below crores. Return on equity was at an ever high, came in at 23.5% as the overall overhang of the equity also went away, The return on equity has moved better.
Return on assets remained very steady at 4%. Capital adequacy remained strong. Tier one is at 15.5%. Consolidated leverage is now 6.6x. In general, as you've guided in the past that we do go out and raise capital between 6.6x to 6.8x.
That's really been the track record over the last eight, nine three raises that we've done in the last eight years. So we may, subject to Board and shareholders approval may go out and raise capital. But as housing finance continue to grow very well, the results are in public domain, Q1 profit came in at INR70 crores, overall balance sheet growth on a overall mortgages was INR45 crores. Given the year on year comparison for BHFL is not relevant because the company started its operations only in January. Bajaj Financial Securities has received all requisite approvals and has just commenced business.
We are quite excited about growing this business over the next three to five year horizon. That largely in general covers the Q1. Given that we I would just now take you to Panel 41, where given we are a risk business, we pride ourselves on saying that and doing that. So let me just take two minutes to cover that from a management assurance standpoint, we've actually moved two of the portfolios, which essentially contribute to 11% of our book from a green to a yellow from a management assurance standpoint, not from a portfolio movement standpoint that much. On a year on year basis, two wheeler, three wheeler is better off.
However, given the sequential movement on one hand and two, given our higher share in of the Vedazodone domestic sales. As a management prudence, we've just from a disclosure standpoint, from a guidance standpoint and from a management assurance standpoint, have marked it as yellow. Digital products, it is yellow. So we have seen movement in the portfolio. We've taken we've been taking actions since actually since the last four, five months, but we've taken harder action in the last two months.
And it's a very short term portfolio. In general, if you were to actually look at this portfolio over a and we've been publishing this data for the last six, seven years, seven years that we've done this business. This business is actually much worse off earlier. We got full handle on the business, full control on the business. But in the last two months, we've seen some degree of it's 3% of our portfolio.
And given the short term nature, in general, washes off in a quarter or so. But just from a prudent standpoint and from a communication standpoint, I thought it prudent that we will communicate the same with you. The red on on trade quality is loan against property, which essentially on a non Island FS remain very steady. There is progress that we are seeing even on our Island FS exposure. We begin to see sale of premises on a starting to sell.
We received monies into our escrow account to the tune of INR18 odd crores in the last twenty days. Company has received all requisite approvals and has actually gone out and put the building blocks on sale, which is really where our exposure is. So we are quite optimistic. And given the moment that we've seen in the last thirty days, we are quite optimistic that subject to legal issues being behind for the company broadly, not on our exposure because our exposure is exclusive security. We may just be able to get out unscathed.
Our total provision in all analysts as account at this point in time stands at 26%. So that's really the highlights on the quarter. On Panel 43, because we added a guidance, Commercial lending portfolios have only one NPE account that's published and it's 65% provided for. Securities lending is 100% current. Despite the volatile environment that we've seen since the Island Of West Crisis, we are in very good shape.
As a measure of prudence as we have written there, and so if we see data as I said, we are data dependent. If we see any of our portfolios deteriorate, the right thing to do in our business from an early warning signal standpoint is to act. What is done is done, but you can reduce your exposures if you were to act in time. So that's one part. Second, and as I mentioned to a few people, when I read the newspapers, when I read what's the television, it all looks gloomy and doomy.
And like any business manager, we are impacted by it. And given that we are building businesses with next five ten year view, the right thing to do and when we look at the micro, it doesn't show up that way. But when we hear the macro, it shows up that way. As a conservative company, the right thing to do from a prudent standpoint is to go out and prune the bottom 10%, 15% of the business. That's really what we've done if you take an example in the rural business.
Rural business, the gross NPA and NPA is structurally lower and that's published than urban businesses. So I could argue there's no reason for us to act. But as I said, when I read and hear, as a conservative company, as a company building a business with a long term view, as a company which if the gloom and doom is right, we could get into trouble, you go out and act in time. So that's really the context of the point number three, half part point number four, full part. And in AF, as I said, point number four, full part.
The only point here, as I said, because on a sequential basis, you've seen movement, we made the decision. So in AF, half part. That's really the context we would like to continue to provide, which you've done over the last eight, ten years, complete disclosure to all investors in the way we see the business. We want you to read the business that way. We're doing it for disclosure and for ensuring that our transparency is as good as it is for anybody.
Read it that way is all just I would say. That's really from me, and I'm happy to take questions between me and my colleagues.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Session. The first question is from the line of Pranav Tendulkar from Rare Enterprises. Congratulations
on a great short set of numbers in a tough environment. I just wanted to ask if what is the number of people that are employed in the origination side of the business and number of people that are employed on the collection side? Because I frankly think that this proportion might change because the time of origination is, say, fifteen to twenty minutes, but time of collection can be anywhere between one month if it is not paying on time, that is on auto mode. Yes.
So out of 20,000 people, 4,464 people to be precise work in collections across the country. You have to remember one thing, only 8%, 9% default. So it's there will always be more people because one has to do work on 8% and another is to work on 100%. That's point number one. Point number two, as I said, to be specific, it's 4,400 people.
Point number three, the company runs a very given, as I said, the gloom and doom conversation that's happening around, that's one part. But we do track as a company how many days do we take to collect from these from the clients who default, which is 89%. In general, if I take the last five, six quarter view post demon, once the demon walked away, let's say, washed away in June 2017, that number has remained steady between fifteen and sixteen days to collect on an average every month. It's an internal metric we track every month, just to give you texture. Third order point, we fundamentally have very rigorous, globally anywhere collections, whether it's done through call centers or through physical or through agencies, is a capacity planning model.
It needs sophisticated, rigorous, disciplined capacity planning models and execution. You have that right with underlying metric being dovetailed into it unless and until a demon like event happens, in general, there is sufficient time that provides you. Third or fourth order point. Five years ago, only 5% of our clients paid through digital, Today, anywhere between 21 to 23% of our clients pay through digital. That has ensured that we can continue to manage growth without adding correspondingly in a linear manner people.
So and that number, the 21% to 23% number, we in a five year horizon want to take it to anywhere around between 4045% for two reasons. It's better for the customer and it gives us the suspension and the width required to continue to grow the business. And third, it would bring down cost dramatically.
Correct.
Okay. Thanks a lot. Thanks a lot for the response.
Thank you. Next question is from the line of Prateek Chera from IIFL. Please go ahead.
Hello. Hi. This is Abhishek from IIFL.
Hi, Abhishek.
Hi, Rajiv. Hi, Sandeep. Hi, everyone. So I have three questions. One is on growth.
Now with your outlook, you're being a little prudent and trying to sort of take steps ahead of time to reduce the risky underwriting that may happen in this kind of an environment. What kind of growth are you building for yourselves in the medium term? So we know your long term target of 25 to 30%. But in the next year or two years, what kind of growth you're building? And what kind of sectoral focus will you have in that growth?
The second question is really on costs. So as your growth moderates, how much room do you have to keep your cost ratios where they are? What are those discretionary expenses which you would sort of cut back on? And given that in your annual report also you mentioned that you have built almost 5x the capacity that you need to handle the through enough capacity to handle the throughput that's coming right now. So when do you start utilizing that capacity and reducing the investment intensity on people, technology, etcetera?
And the third is on asset quality. So with growth slowing again, you will see slippages increasing, and you're seeing that over the last couple of quarters or few quarters, even FY 2019 over 2018. So what kind of credit costs and slippage rates have you built in your estimates? And what do you think where do you think you'll be comfortable Yes. Going
Very fair. That's so two, three things. A 38% core growth or a 41% growth is a very high growth number, Abhishek. That's first point I want to make. Growth environment at this point in time, our medium term outlook doesn't change, okay?
We are a growth company. We'll continue to remain a growth company. The environment, as I say, is patchy. You asked me this question in April, I would say, look, what slowdown? By May 15, things in May, things turned.
By May 15, we expected that World Cup, just on super discretionary consumption, will lead to consumer walking in and spending. It didn't happen. So but I am not as yet saying that as I said, when I look at micro, a 24% super discretionary consumption does not represent a slowing customer. Now you add to it auto slowdown and this and that, that's a macro conversation you guys can do. That's not for me to opine on.
We have to wait to wait for the incoming data, wait for at least a quarter to say that there is a cyclical movement downwards. I won't sign off on that as yet is the first point I would make. We are a growth company, but I've always said, Abhishek, we are first a risk company. Risk between risk and growth, we will choose risk. It's a pretty simple point.
I've said this many times, but we are a growth company as well. And we pride ourselves that I think given we are 115 basis points of the total credit in India, given we are a diversified company playing across many sectors and businesses, there remains and our market share remains very small. There remains very large opportunity for a long, long period of time. So long term, there is no question on. Medium term, I would wait for a quarter to see how things are moving.
I would like to believe, if you were to dovetail this into macro, if all the gloom and doom conversation is correct, you will see some action by respective people in places to stimulate growth. The entire conversation can change completely. So that's one part. I'd rather look at micro. At this time at this point, Patchy, Q1 was very strong.
We will take a Q2 view to determine so called medium term, which is a two year view. Cost, look, costs have to be looked at separately. We run a reasonably high variable cost model. That's one point. I can dial up and dial down my 70% of my tech stack runs on cloud infrastructure, allows me to dial up downtime at a far more rapid pace than anybody in the country.
That's point number one. My point of sale people are on temp staffing, allows me to dial up, dial down. I'm giving you texture so that we are all on the same page. My mid office, back office is run by BPO companies, dial up, dial down, ninety days. Level four, we would like to we remain a disciplined company in terms of managing costs.
Sandeep has a unit, which fundamentally runs a financial planning and analysis wing, whose goal is take out blind spots on costs. This year goal alone is a INR250 crores of cost has to be taken out. I'm just giving you texture so that we're all doing a disciplined conversation on the way we run business rather than a transient conversation. So that's really on management of cost and our approach to managing expenses and costs. Slippages, I have said 2018, 2019 was a record best.
Now when I say record best, you have to read it as record best. What does that mean? Can record best become better than record best? Of course, it can. But in general, it need not be that.
So it's a glass half half full and glass half empty. That's point number one. Let's assume for a moment fundamentally that we had 130 basis points of credit cost last year. We unfortunately, we are unable to publish the last five year data on it because of the change in methodology from to ECL. Otherwise, would have given you last five year data, discussion would have got settled.
I can do some maths on it and give you data, but even then, it would not be appropriate because that's a number that you will not be able to, let's say, validate. So it's not fair to give you a number that you cannot validate. ECL has meant let me first take that conversation away. If you were not on ECL methodology, this number of 69% would have looked like 60%. Let me simplify that conversation first, okay?
If you do because internally, ECL is very difficult to so our internal dashboards are all run on previous GAAP because of the statistical methodology, small swings in thirty days past due can lead to swing in a month, need not be swing in a quarter. So and that's why internal management is and even when banks transition, they will require to do that that way. Do we run, do our CROs and EROs run, walk against on a lag basis, but risk decisions are made not on lag basis. Risk decisions are made on run time basis. So on a lag basis, they run the they build a waterfall, but on a running the business basis, they run it on we run it on previous GAAP.
So the credit cost fundamentally, let's assume for a moment now that has to take into account what happens to the environment. I mean a week ago, we were sitting on 12% negative monsoon. Today, we're sitting on 19%. That was two days ago. I'm sitting ready that if monsoon was to fail, would I act?
I'm just giving you a texture so that you understand that agility in an environment which is perceptibly slow. I'm not saying need to be slow. We'll have to be higher and we'll have to be watched carefully and acted quickly. Now let's assume for a moment, okay? Let's cut the conversation.
Let's assume for a moment 130 basis points comes in at 160 basis points. Let's do this conversation, okay? Now number does not change the material trajectory of the profit pool of the company for the current year. And as I said, I believe these things will change. But even then, it doesn't change.
The number is not material. You know the math, you can do the math. From 130 to 160 basis points, if you do, what happens to the number is not material at all. Does that answer your question? Yes,
broadly. But so just one part of the first question in growth. So which sectors have you planned for? Obviously, you would have planned for something, and then depending on the environment, you'll tweak that strategy. So what basically, what I was trying to understand is what your plan is.
So which sectors do you plan to grow in?
Wherever we are green on, we are growing. Come on. The management assurance green means what? So technically, out of we publish here four, eight and three, 11 businesses, nine are growing. Okay, let me make a second order point so that we are on the same page.
Even the yellows are growing, okay? The net impact of growth on these yellows will be a net impact because what happens is when I go and tell the business manager in the digital products financing for a moment that, look, I'm pruning your bottom 15%, he goes out and finds ways and means to look go after better customer in the process, okay? When he goes after better customer, the net impact of 15% to 18%, in general will turn out to be on a lag of a quarter or a lag of sixty days at 7% to eight percent. Let me make that point clear.
Sure, sure.
Because as I said, we remain a growth company. The opportunity remains very large. Let me give you statistics on digital product financing so that we are all on the same page. Country sells INR 2 crore phones in a month, month. 90 lakh phones are feature phones, which we do not finance.
INR 100 and 10 lakh phones per month are smartphones. We do not finance less than 10,000. That is 55 lakh phones is what we finance. Out of 55 lakh phones, company does, let's say, eight lakh phones, okay? Our goal is to beat 30% of it, which is really where we are in consumer durable.
Now that gives you lay of the land from a depth of the market and breadth of the opportunity that it represents for us. We would go out and tell a business, we are pruning our bottom 15. He will take sixty days and find better customers that he wants to do business with. So the net impact will probably be not will probably be, in general will be 7%, 89% depending on the effectiveness of a business manager.
Understood. Great, great. Thanks. Think, yes, that gives me part of the answer. Thanks.
Thank you.
Thank you.
Thank you. The next question is from the line of Parag Jariwala from White Oak Capital. Please go ahead.
Yes. Rajiv, so I have two questions. One is digital product B2C and SME, where you are saying that there will be some cut in displacement. Is it fair to assume that barring SME, other products are very short in tenure, so a cut in disbursement would be a cut in the overall asset under management? That's one.
Secondly, I know you have replied to the earlier question that the products which are green, are growing. But is there any slowdown in the momentum in terms of, let's say, for housing finance, the number of five log in you get it? Or what are you picking up from the from your staff on the field? Thank you.
So look, when I said patchy, what I mean is a month is harder, a month is softer. That's what the meaning of patchy is, that July can be good, August can be bad, September can be good or great. That's the patchy conversation. I want to and I should have made that point even earlier, what would a company with 37,000,000 customers do when it is finding the environment patchy? What why do we have the franchise?
We have the franchise because when then we go dig deep into the franchise. We find that clients who are great on 37,000,000 customers, we could have bank 18,000,000. 18,000,000 we bank. Okay. Interesting part is longer the customer stays with you, you got to spend more to you've got to spend engage him or reengage him because he's a more prudent customer.
He's a better customer. Lot more customers are chasing that customer. And we see it structurally play in loan loss. The loan loss of a new customer is X, I've always said that. A store existing customer is 0.33X.
A greater than eighteen months customer is 0.15x. So what do you do? You go after them, you reengage them, you spend more on them because adjusted for risk cost, their cost is lower. So see, in a way this point is tied to the previous conversation on digital product financing. When I tell a business manager that, look, you know what, you got to we are pruning your bottom 15, go out and find ways to grow.
These are ways and means it goes out and grows. The second order point, which we have talked to certain people about is our prospect franchise. Have given that in India, in general, super discretionary business remains a highly unorganized sector. These retailers need help in organizing their data infrastructure. Over the last six, seven years, we've worked with these retailers to help them stimulate their cash customers and their credit card customers.
And it's part of our broader data as well project, and we continue to work with these retailers. We have aggregated working with these retailers to help them over the last few years, over 100,000,000 people in India, non-thirty 7,000,000 that we have a view on, okay? The number is north of 100,000,000. Very interestingly, over the last two years, these customers perform virtually like a store card customer. So we are accelerating that, we are accelerating EMI card.
That's really what you would do in a patchy environment, a so called slower environment. Dig deep, find the best customers, reengage them, spend a little more money on them. And given the strength of the franchise and stickiness and loyalty of the franchise, we are very confident that and it will mean on a forward basis, on a twelve months forward basis, eventually it will mean lower cost. So I'm just connecting the last question by Abhishek and by you to give you texture on how growth fundamentally will get generated from even if the environment was to so called television and newspaper environment was to stay the way it is.
Sure.
Does that answer your question?
Yes, yes. Some
color on the green ones terms of
Green ones, we continue to grow. That's my limited point. Some color on the green, mortgage business as a result of its separation, given what's happening externally through the sector. So two things came at a time. We separated the business, created more created a sharper focus.
As you can see, pre January or pre March 2018 to post March 2018, you take the last three year data on mortgages. Business is growing 25%, 28%. I mean, if you take the three year number, that number in the last five quarters is growing on, on an average between 4045%. Mortgages, we think, while it's tough for the team, they are new it's a new business, new company not a new business, it's a new company. They are still getting their arms around the new way to run a business.
But I would say, represents a tremendous opportunity to become a dominant mortgage lender in this country in the next five to seven year horizon. And that moment in a way is now because tough times then also represent opportunities for company. So that business will grow. I would say all our businesses are remain on a growth mode, ones which are represented here in green. The yellow, we are pruning the bottom.
We should be able to find growth. Little size, I want to repeat, remains very small. Remains very, very small.
Thank you. The next question is from the line of Nishant Chohadeh from Kotak Securities. Please go ahead.
Yes. Hi, Rajiv. Hi, Nishant. Couple of questions. Was on a cost to income ratio on a year on year basis.
And I guess these numbers are again comparable because these are in DAS.
Year comparable.
Year ratio actually went up from 50% to 56%.
Cost to
Cost to
income. OpEx to NII is what we track and publish. So I don't know what you are talking about. So I at least I don't have the number. I have OpEx to NII, which we published.
So it will be useful if you refer to that rather than a number that we don't publish. Mr. Chin?
Sure. I will I'll take it up
in the queue. That will
be helpful, not for anything else. It will just be helpful, nothing else. What we published because then we track it that way. And I have last five quarters data on OpEx to NII, that number was 37%, 36354.635%.
That's Let me just kind
of discuss the cut offline. The other thing is that RBL has indicated that their credit card losses, eventual losses are somewhere close to 4%. Would your experience be very similar?
So two, three things. We have worked with Bureau, and I'm sure RBL can tell you that. We work very closely with them to we are they have been a fantastic partner of ours. The business continues to grow well. We are helping them acquire close to 100,000 to 110,000 new cards a month.
We came in at close to 1,300,000 cards in force as of Q1. We are well on course to grow with RBL the relationship to 2,200,000 to 2,300,000 cards on by March 2020. Second order point, the book is maturing now or has matured now over the last two point five years. They share with us the vintage loss curve data. The vintage loss curve and they worked with bureau to look at how this portfolio that they originate with us, given that we work very closely with them and the portfolio of, let's say, top four leading credit card issuers in the country pans out, our numbers are lower.
Let me make that point clearly. Now company to company, it may differ, but because Bureau cannot share company wise data, it shares the aggregated top four card issuers data in the country. And you know who are the four that we are fundamentally talking about, because they are 85% of the market. That number is structurally better, okay? Not for anything else.
Not for anything else, it's better because we sell to existing customers of the company. Even there, let me make a second order point. Card to card customer operates much better. If you took a very harsh view and said we will only card the carded because those numbers are half of that of a new to card because there is a learning involved of the customer, you have to educate the customer. But for the long term growth of a credit card business in this country, for a long term growth of creating a dominant credit card issuing business in this country, we think that road has to be traveled upon.
Blended, it still comes through lower than the top four leading card issuers in India. And we are committed to remain that way for us as a company over the next few years. Does that answer your question?
Yes, yes, fairly. That was it from my side. Thank you very much.
Thank you. The next question is from the line of Atul Bolid from DSP Mutual Fund. Please go ahead.
Hi, Rajiv. This is Rahul here. Just a couple of questions. First is on portfolio quality. So if you look at how we are shaping up in terms of increasing share of existing franchise customers in the portfolio and also the new flow that is coming through is far more filtered.
And given the duration of our portfolios, would you expect that in next six, nine months, the portfolio quality can actually be much better when where it is today? I mean, that be a sort of
I safe would just say to you, given the patchy environment, given the degree of in general, the patchiness that we are seeing, I would wait for a quarter to fully opine on it. I would only just say to you what I said in the beginning, we remain a risk driven business, okay? In the short term, between risk and profitability risk and growth, if you have to choose, we will choose risk because we're building a business with a five to seven year view. Does it remain our aim to keep bringing down credit cost as a company because that is what represents what I say a true engine of the of a risk business. The engine of a risk business is not capital, not pricing.
Engine of a risk business is risk cost. That is the foundation on which we build this business. The long term engine of a risk business is a risk cost. And that is why we are so conscious about this line. So in the long run, it has to keep coming down.
In a few forums, I've talked about what our collections efficiency used to be four years ago, three years ago, two years ago and a year ago. All that represents keep working on bringing down credit costs. But that does not mean it can mean one way down, we run a real business, we run an operating business, we remain in a subsystem of a broader economic system in the country. However, if it was to deteriorate the environment, I can only just tell you one thing that we will be amongst the less affected people is the limited point I would make to you. Because we are agile, we act early, we mobilize the company and ensure that we keep our head above water through difficult times.
That's really all I would say to Does it answer
it does. Yes. And just two more things. One is on the rural business. If you could just give, while it's in green, just qualitatively, if you could talk a little bit about how we've evolved this business over the last six, nine months and some color or texture around that?
And just one last thing is, in the last few months, how has the competitive landscape changed? I would assume that it would have got even more stronger for the company. So if you could just talk a little bit around that, the business that we have avoided and some texture around that, yes? Thank you.
So look, fundamentally, it's a business which takes time to build. We've been invested in the business for the last six years. This is the seventh year of business sixth year of business. Sixth year of business. We took the first three years to put our arms around it.
In the last three years, the business has grown much more rapidly. In the first quarter, the entire addition of 90 am I mistaken or I mean, most of the addition is in rural of branches that we have actually done. Can you just go to the just give me one second. For the quarter, the entire addition in majority of the addition, if you go to Panel 28, has been in rural. From nine zero three branches in March, we went to we added 48 branches in rural, out of the total 65 and balance 17 only in urban.
So you can see our stance on expansion is much more stronger in rural than it is in urban. That does not mean we are not growing urban. We are using a different way to grow in urban. One of the biggest challenges in urban is that the cities are expanding. So we are actually the number here may not represent the urban branch growth, but we are deploying in 120 plus markets a very different methodology to actually grow the pool of customers that we work with in urban.
So that's a separate one, but I thought I'll just cover that. Stands on rural remains strong, but rural is a while we don't lend to farmers, less than 2% of the total book is of the B2B is to farmers, zero on B2C to farmers, B2B to farmers is 2%. But they operate in an ecosystem where they can be affected or impacted if monsoon fails. Now that also does not matter securely. Wherever there is groundwater supply in abundance, monsoons have no impact.
Wherever it's lesser, monsoon has an impact. Having built the business over the last six years, every year as part of a disciplined process, we start to check-in June what which are the markets where impact if there can be impact on monsoon and so on and so forth. So we are launching the movement of monsoon. So far, other than four districts in India where we are present in, we are fine, second order point. Third order, overall in a strong growth stance, will grow there are parts of our businesses in rural, which are starting to grow lot more strongly now.
We were very strong in B2B, we were very strong in B2C. Rural gold loans is something that we've been building for last three years. Given the that business is now moving much more rapidly. We've just opened 23 stand alone branches in rural, which only do gold loans. We tested with 10 branches nine months ago, performance was very good.
We are adding 23 more. As we perfect the model, rural gold loan could be a 500 to a 700 branches business in the next five to seven year horizon. We won't do rural in our we won't do golden in urban. It's 120 plus cities, that's really where we would do. So we continue to look for opportunities, seize opportunities, find new areas of growth, that's rural.
Has market opportunity become better in rural? Answer is, I would say no. These are rural for us is five fifty markets plus. It's a damn hard one to reach. Other than one of the leading private sector banks, there is very little presence.
So their market remains underpenetrated or unpenetrated at this point in time and has remained over the last five, six years.
So just one follow-up. How does rural in in rural gold loan business you talked about, how does that sort of come in the overall strategy of catering to affluent customer segment?
Just average ticket size no, no, very valid question. Our average ticket size of gold loan is INR85000. Let me give you texture. I'm sure you track other. So that means the client is placing the maximum loan that we can do in rural gold loan is INR1 crore.
If you're willing to place INR 1.5 crore gold, we give you so the strategy remains affluent. Ticket sizes upwards of as I said, a hovers between INR 85,000 to INR 90,000. So that's the texture. Third order point, and it's a little more structural, I think somewhere I saw one of the analyst one of the brokerage presentations talking about how NASA is lit up, how India has lit up, there was a NASA, so you can trust the data, how India has lit up well in the last five, seven years. It's quite, at one level, I would say, which means shocking in a positive way how India has lit up.
And that is really how the demand outlook of the rural market would get transformed. So electricity is ensuring discretionary consumption moves. Second order, I think the overall law and order in most of the states that five years ago, you would say, I struggle to do business in, has improved. Let's take I'll use one state example, Bihar. People won't buy cars and homes and big televisions because they can be targeted.
I'm just giving you texture. I don't mean I'm just giving you what the people on the ground say to us or retailers on the ground say to us. So overall so gold loan fits in from affluent rural customers because it is one of the assets that they own in abundance. Second product that they own is land. I can't do financing on land.
So the only thing that I do is gold. And it's a three year old business. We figured out we found our way to growing and building it, and we are quite excited about growing that business as we move from here and remains an affluent focus.
Perfect. Thank you and all the best.
Thank Thank
you. The next question is from the line of Bharat Shah from ASK. Please go ahead.
Hi Rajiv. Good morning. Hi Rajiv. While this quarter is a short number short period, I was just comparing the numbers for this quarter compared to last twelve year average on various key parameters. And I was quite must say impressed to see that even on a larger base asset growth continues to be in line of what has been done over the twelve year growth.
Interest income actually exceeds, fee income exceeds, net interest income also exceeds the twelve year compounded average. So on a larger and larger base to achieve that truly significant. On three numbers I saw with the quarter numbers kind of having a bit worse off than the trailing average. So one was in six things but which I guess probably what you mentioned that going forward the cost of borrowing is coming down significantly probably that may turn again favorable. So I would like to kind of hear your comments on that.
On the operating leverage rating has continued but little less than has been the case over the last twelve years. And third, which has been significant for this quarter and of course it is too short a period to make a meaningful comparison, but the quarterly provisions have risen materially at 69% compared to average loan losses of about 27% over last twelve years. So on these three aspects, if you can just give some view, that would be helpful.
The first question was expense base, right, Bernday?
First of I was saying interest expense.
Interest expense, For
this quarter it grew 55. Last twelve years if we see interest expenses have grown at 40%. So this quarter maybe a bit of oddity but I have seen the comments that interest expense incremental borrowings are at much lower cost. So I suspect interest expense probably again will start turning favorably in splitting that leverage.
So two points, Varaday. Would on so incrementally, whatever issuances that we do in the bond market and the CP market as available in public domain, clearly, if I took a two three months prior view to today, they're clearly coming down. I mean, from 8.5%, three year bond that we were issuing, and I'm talking in quantum conversation, has come down to 8%. It will be it's available in public domain. I raised money at 7% in sixty day CPs.
I raised at 6.3%, 6.4% I mean, last year it was 6.3%, 65%. So clearly so that's one part. Second order point, Bharvat, is that capital adequacy, you'll have to tie this interest cost along with, okay? So that's a if you adjust for those periods, capital adequacy, you may see a more steady line adjusted for given interest cost is a macro market driven conversation. I mean, you know, but if the one of the silver lining in the crowd of this whole patchy environment, slowing economy is likely to be more surplus liquidity in the system should lead to lower should lead to lower inflation, should mean tailwind on that line.
Yes, should mean tailwind on the line. But it's difficult to predict. We will continue to sharpen the pencil on that. But there's a third order point, Bharadwai. You will see the line, however, adjusted for the macro move up a little because we are investing in building for the sustainability of the business, a retail deposits business.
If I did not have this INR 15,000 crores or INR 15,100 crores of retail deposits, they do come in at a higher price. It's the cost of sustainability that I have to invest in to have a ten year view on us as a company and a business. So there are moving parts in this. I can only tell you, we continue to chase efficiency in ensuring we keep bringing down our cost of funds adjusted for the macro, adjusted for retail because it's an investment that we must make to deliver greater sustainability of the business model. So that's part number one.
Operating leverage, I have said in the past that I said actually last quarter as well that so far OpEx to NIM movement has fundamentally come in from movement in NIM than movement in OpEx. In fact, I want to add a dimension to the just an earlier comment that I made that why have we not seen urban branches growing, okay? Branch expansion in the retail business and I'm giving an illustration to make my point. The branch expansion represents a twelve months forward investment. We realize that in urban business, we are already in five fifty odd cities.
Adding a location is dilutive than and given that this urban cities are growing on the fringes, so to open a spoke in a city is more economical than opening a city. I'm just giving you texture. Earlier point I made as well, there is where the entire INR $2.50 crore number I just for illustration, was making the point on is focused on costs, that we will we must as much focus on NIM as we focus on cost. We're investing very deep in areas like robotic process automation across the company to take out, let me say, headcount, whether variable headcount or fixed headcount. So there's lots of work happening.
I won't say I'm seized of it. I am aware of it and rightfully balancing between growth, controllership, sustainability, we'll keep navigating through that. On third point, which is loan loss and provisions, I would I've said this over the last one hour that you and as I said last year, they were at record best. Are you given the granularity of the portfolio, that does not mean it can worsen from here. As I said, our intent remains to continue to improve it because that is sophisticated Nuance risk management conversation.
But if environment is patchy in a given quarter or for a few quarters until we readjust the portfolio to let's say this environment was to persist, let me make a point. If this environment was to persist, you will see that 66% existing customer to new customer probably shift to 70% to 75%. It will in a three quarter bring down loan loss, let me tell you. My problem is new customer represents the future growth of the company. So I have to balance even that equation to from a medium term standpoint.
So it's a calibration, Bharat, by keeping into account these dimensions. And as I said earlier, I made a I was not giving guidance. I just made a point that let's assume the full year credit cost came in at 160 basis points. Doesn't change materially the color of the business or color of the profitability in a material manner. So I've left you with some questions, I realize, but I have to give you a rounded I mean, a comprehensive answer rather than a straight line response.
I hope you appreciate.
Yes, absolutely Rajiv. I fully, fully appreciate what you said. I must say this is a remarkable performance in the overall context and especially maintaining ROA at 4% and record return on equity at 24%. Congratulations to your team and you.
Thank you. We continue to be agile.
Thank you.
Thank you. Thank you. The next question is from the line of Guenthal Shah from Oakland Capital. Please go ahead.
Good morning, Rajiv.
Good morning, Guenthal.
Since the gloom doom is a favor of the season, I have two questions on that. Sequentially, hardly any change in G and P, NPA, but narrative has changed. So can you go to the Slide 44 and run through that you have already provided for INR $12.70 crore of Stage three slippages and have are expiring to collect INR $8.24 crore of things which you think is recoverable based on your internal estimate. Is that a fair estimate to say and that you are over providing based on ECL 86 bps versus required 40 bps. So that is that gives you the cushion coupled with 61% coverage ratio.
Kuntal, this is Sandeep here. The point is correct. Based on ECL model, the net NPA number of INR824 crores as of June 30 represent the recoverable amount that we expect on the portfolio. So that statement is completely correct. As far as the standard asset provisioning, which is provisioning on stage one and two, which is customers less than or up to sixty days overdue is concerned, coming based on expected trade loss model, we are providing as the model is throwing the numbers out.
It is higher than what regulatory provisions required you to make in earlier environment, which is 40 basis points, but this is purely based on statistical outcome of how the performance of the balance sheet and the portfolio is being seen.
Thanks Sandeep. We note that your metrics are far better than the other financial services players, larger ones and banking ones you get compared with. So comparing with them, when I see the fees based income is almost 38% to 40% of their total income and almost 60% to 65% of their PBT versus like 38% of PBT for you. So any five year roadmap you can highlight Rajiv on how you are planning to increase your fees based income, which is more
VENKATAKRISHNAN:] distribution
and not balance sheet linked and hence more sticky and ROE accretive?
It's already higher than my in general experience and in general expectation, we will continue to I'm not saying steady and so on and so forth. Our focus has to continue to create products and services which our customers want to buy. So it's limited by that rather than anything else. And that's really how I would look at it. That's one part.
Second part is more we reduce friction, more it creates opportunities for our customers to do business with. I think and we as a company remain very focused on that. And as long as we remain focused on that, we will be fine. I'll give you texture. We talked about in the AGM yesterday that we've invested in a new point of sale re:Invent platform, which can process 50,000,000 customers annually from, let's say, if you take 7,000,000 customers on the quarter, that means we're talking about 30,000,000 customers or 28,000,000, 30,000,000 customers on a full year basis.
The number used to be we would take three days to pay our retailer. That number is now tracked at how in if I throw the number, you'll be the number is flagged that how many customers you pay in how many retailers you pay in three hours. 55% of what the moment a transaction is done, we pay in three hours. Now what does that do? Let me make a point.
Then the point of sale boy invests less time in selling and documenting and so on and so forth and more time in selling products and services that we create. I think that's so we remain focused on improving efficiency, number one, creating products and services. This number can go to wherever it goes to. So I'm giving you philosophy rather than a number guidance. Hello?
There
have been regulatory filings where Bajaj Finance has taken pledge of shares of some midsized auto ancillaries, which are primarily illiquid and are loan against shares. But would you clarify charges loan against shares? Or are these additional over collateralization of other kind of auto ancillary loans which you are giving out?
This is over collateralization of our security structure. The names are only two or three. First of all, I must just qualify that. The total exposure on that is sub INR30 crores. That means that's the second point I must make.
I think consolidated is INR40 crores. They are very well run companies. We want to ring fence our predominant position of working with those promoters and companies. They generate their ratios are very good. So it's a commercial lending conversation on these two, three clients rather than anything else.
And Raju, my last question from my side. At what price of sale of towers in Gibbs City would you breakeven? And what kind of timelines you envisage? I know it's
is certain. I don't know if it's in public domain. It may not be in public domain. The sale has happened higher than our actually okay, let me make a point. Sale has happened at what we sold the last hour in 2017, December 2017.
Should
So you're confident of full recovery?
Yes. I must just qualify subject to NCLAT proceedings.
And what's the timeline you have in mind, approx?
Company says that given the nature of the collateral, CBRE has sales anywhere between four and six months' time.
Okay. Thanks.
It can happen faster, but that's the internal conversation or conversations that management seems confident of.
Thank you. I'll join the queue.
Thank you. Ladies and gentlemen, due to time constraint, that would be our last question for today. I now hand the conference over to Mr. Karan Singh for closing comments. Thank you and over to you, sir.
Yes. On behalf of JM Financial, would like to thank Mr. Rajiv Jain and the senior management team of Bajaj Finance and all participants for joining us on the call today. Thank you and goodbye.
Thank you. Thank you, Karan. Thank you for hosting us. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of JM Financial, that concludes today's conference. Thank you all for joining us and you may now disconnect your lines. Thank you, ladies and gentlemen. That does conclude today's conference.
Thank you all for joining us and you may now disconnect your lines.