Ladies and gentlemen, good day and welcome to the Q3 FY25 results conference call of CreditAccess Grameen, hosted by HDFC Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Krishnan ASV from HDFC Securities Limited. Thank you, and over to you, sir.
Yeah, hi. A very good evening, everyone, and welcome to the CreditAccess Grameen Q3 FY25 earnings call. On behalf of HDFC Securities, I'm Krishnan ASV, and I'd like to thank the CreditAccess Grameen management team for giving us this opportunity to host the call. Today, we have with us the senior management team of CreditAccess Grameen, represented by Mr. Udaya Kumar Hebbar, the MD, Mr. Ganesh Narayanan, the CEO, and Mr. Nilesh Dalvi, the CFO. Without further ado, I'll now hand over the call to Mr. Udaya Kumar Hebbar for his opening remarks, and then we'll open up the floor for Q&A. Over to you, sir.
Thank you, Krishnan. Good evening, everyone. I'm wishing you all a happy and prosperous New Year. Thank you for joining today's conference call to discuss the performance of CA Grameen for the third quarter and the first nine months of financial year 25. The resilience of the microfinance industry has been tested and validated multiple times in the past, and both business operations and asset quality were affected by various external and internal factors. Today, the industry is mature and capable of proactively taking corrective measures to navigate any crisis. The MFIN guidelines introduced by the industry serve the purpose of strengthening and operating standards, which will not only protect the customer interest but also help in maintaining stable asset quality.
While there has been a transient increase in the delinquency trend due to various reasons since Q1 FY25 and resultant tighter underwriting norms, we believe that these measures will make the industry more robust and drive balanced growth in the future. CA Grameen has consistently demonstrated superior cross-cycle performance on the back of our customer-centric and employee-first approach, which have not only shaped our day-to-day operations but also served as a precursor of our resilience. The recent increase in the industry delinquencies has again tested the strength of our business model, and we have been able to emerge stronger, given our enduring fundamentals and agility in responding to evolving circumstances. Our initial assessment of the current delinquency cycle, being transitory in nature, has come true, as we see the new delinquency addition rate slowing down across various geographies since mid-November 2024.
While we had initially estimated the delinquency trend to peak out in September, the actual peak out was seen in October and until mid-November due to the temporary impact of festivities, heavy rains, cyclones, and localized disruptions. The new delinquency trend reversal was extremely visible across various markets beginning mid-November, getting further stronger in December and continuing in January also. While Tamil Nadu also has been showing an improving trend, there was a minor increase of around 15% in January due to the impact of heavy rain and cyclones in November and December. However, we expect this also to normalize since there are a large number of borrowers paying partially but still in part of the market. Overall, we believe that new delinquency addition should normalize the Q4 FY25 or Q1 FY26.
We have also seen rural borrower rates having reduced in PAR 1 to 60 market, given by over 40% of borrowers making partial repayments. This improvement is due to experienced employees who are deployed to support collections in critical locations. With the delinquency trend showing the sign of improvement, growth has regained our focus, reflected by AUM growth in December after eight months of contraction. Our monthly disbursement rate, which was at 50-60% of the normal trend over July to November, crossed 80% in December and expecting 90% in January. Similarly, the trend is also reflected in our new borrower addition, which also saw the share of new-to-trade customers increasing from 30-35% to 42% in Q3 FY25. Our retail finance division, central to our evolving customer strategy, also experienced significant growth with disbursement increasing by 51% year over year, reflecting our ability to deliver tailored solutions.
The retail finance now accounts for 5% of our AUM, amounting to INR 1,245 crores at the end of Q3 FY25, compared to 2.1% a year ago. In the light of the current industry scenario, it is important to quantify the current impact of existing emphasis guideline 1 and the potential impact of guideline 2 applicable from Q1 FY26. We'd like to draw your attention to slide 10, briefing about the current impact. Notably, there has been a significant deleveraging on both customer base and the loan portfolio. In the more than Grameen Plus 3 or Grameen Plus 3 lenders cohort, the GLP share decreased to 18.8% in December 2024 compared to 25.3% in August 2024. There's this improvement over almost 7%. Additionally, in terms of customer base, the share dropped by 500 basis points to 23.6% at the end of December 2024.
Furthermore, deleveraging trend is clearly evident in the cohort of borrowers with unsecured indebtedness over 2 lakh, which includes microfinance and unsecured retail loans. The AUM has decreased significantly from 19.1% in August to 13.3% in December, reflecting a sharp reduction in exposure to this segment. At the same time, the share of borrowers in this category has declined to 11.6% in December compared to 16.7% in August. Kindly note that the unsecured indebtedness refers to both MFI loans and unsecured retail loans as defined by the guidelines stipulated by MFIN Guardrails 2. Now coming to the delinquency portion on slide number 11, the impact of tighter underwriting standards has largely been realized. PAR 15 plus, in case of borrowers with Grameen Plus 3 lenders and three and above lenders, increased from 6.1% in Q2 FY25 to 10.1% in Q3 FY25.
Similarly, PAR 15 plus in the case of borrowers with more than 3 lenders stood at 22.1% in Q3 FY25 versus 12.2% in Q2 FY25. Out of overall PAR 15 of 6.3%, 2.9% was on account of borrowers with 4 or more lenders. Similarly, PAR 15 on account of borrowers with unsecured indebtedness over 2 lakh was 1.3%. So we have also analyzed the loan performance of MFI borrowers with active retail finance loans and found that the delinquency rates for both segments are not significantly different. The PAR 15 for MFI borrowers with retail loans is 7% compared to 6% for those with only MFI loans. This is an encouraging sign given our strong underwriting standards and the fact that the majority of retail exposure is in the form of gold loans where PAR is technical in nature.
The assessment of the potential impact of indebtedness guidelines in the coming quarters is captured in slide number 12. Out of the 23.6% borrowers with more than Grameen Plus 3 lenders, 84% are promptly paying as of 31st March and 31st December 2024. This will help them in gradual reduction of leverage and multiple loans, making them eligible for future loans. Further, only 30% of this cohort have unsecured indebtedness exceeding 2 lakh. Based on our internal evaluation, we are confident that we can retain more than 80% of borrowers in the 4 and 5 lenders cohort also. This analysis clearly shows that indebtedness guidelines will not have any major negative impact on our customer retention and the future growth. Now, I will request Ganesh to brief you on financials, new initiatives undertaken, and performance guidance. Over to you, Ganesh.
Thank you, sir. A very good evening to everyone on the call. I start by wishing you all a very happy New Year. Thank you, Uday, for the detailed brief. While we're anticipating the new delinquency accretion rate to normalize over the coming months, it is imperative for us to complete the accounting journey for the existing delinquent loan. Our early risk recognition and conservative provisioning policy have been key drivers in maintaining financial stability and ensuring that we are well positioned for the future. Further, our approach to take accelerated write-off over the three quarters starting from Q3 FY25 is an effort to early recognize the impact on our financials by the end of Q1 FY26. Accordingly, we took an accelerated write-off of our loan account with 180 plus DPD, not paying amounting to INR 229 crores this quarter, resulting in an additional credit cost of INR 73 crores.
The total write-off for Q3 FY25 stood at INR 376 crores, and for nine months FY25 at INR 606 crores. Overall, we continue to hold INR 134 crores higher provisions compared to the MFI industry, 243 basis points or INR 587.5 crores higher provisions over PAR 90, and 212 basis points or INR 1,010 crores higher provisions compared to IRAC prudential norms. The credit cost stood at INR 750 crores for Q3 FY25. Our collection efficiency, excluding arrears, stood at 93.3%, and collection efficiency, including arrears, at 94.1% for Q3 FY25. PAR 90 stood at 2.64%, GNPA at 3.99%, and net NPA at 1.28%, both predominantly measured at 60 DPD. The collection efficiency expected was over 99.20% for December. The net interest income grew by 7.4% year on year to INR 862 crores, with portfolio yield at 20.2% and interest rate of 10.4%.
We've been able to maintain our average cost of borrowing at 9.8% for the last six quarters, despite the prevailing scenario. In Q3 FY25, we raised INR 3,862 crores, including EUR 25 million from German Investment Corporation DEG and INR 170 crores from CTPL co-financing facility. With DEG on board, we now have six international DFIs in our lender profile. These strategic partnerships are crucial in diversifying our funding sources and in providing access to long-term cost-effective capital. NIMs slightly declined to 12.5% for Q3 FY25 due to interest reversal of INR 75 crores, while nine months FY25 NIMs stood at 13%. Cost-to-income ratio was at 31.3%, while PPOP stood at INR 623 crores in Q3 FY25 and INR 2,004 crores in nine months FY25. While conservative provisioning and accelerated write-offs impacted Q3 FY25 profits, it will safeguard our profitability over the coming quarters, with growth rate getting normalized.
Overall, despite elevated credit costs, we estimate to deliver 2.3% ROA and 9.2% ROE in nine months FY25. We are maintaining heavy liquidity levels with cash and cash equivalents of INR 3,222 crores, amounting to 11.7% of the total assets. Additionally, we have sanctions in the hand of INR 4,071 crores backed by both domestic and foreign lenders, and another INR 6,733 crores were sanctioned in the pipeline. The capital equity remained high at 25.9%. As a part of our strategic initiatives, we are pleased to introduce two new applications, Grameen Maitri, designed for employees, which is a comprehensive platform that manages the entire customer lifecycle from onboarding to dropout. It streamlines branch operations by enabling all required tasks to be performed within a single unified system.
On the customer side, Mahi, our customer digital handle, has been launched to offer convenient access to individual and group loan products, requests for additional loans, receive payment reminders, and make repayments through UPI, etc. With over 2 lakh registered users so far, the app is available in 10 languages across our operational regions. Due to the latest technology stack, it integrates all necessary digital APIs and interfaces, ensuring a seamless user experience. Based on the conduction history, the app will offer varied features and experiences to the customer. Drawing reference to the past crises like demand and COVID, we witnessed normalization in profitability over three quarters, considering the current scenario where AUM growth of 7%-8%, NIM of 12.8%-13%, credit cost of 6.7%-6.9%, ROA of 2.3%-2.4%, and an ROE of 9.5%-10% in FY25.
The preliminary outlook for FY26 projects healthy 18%-20% AUM growth, 4.2%-4.5% ROA, and 17%-9% ROE. We shall come up with a detailed FY26 guidance in May along with our FY25 financial performance. We thank you for your time, interest, and continued support. We look forward to addressing your queries as we open the forum for questions and answers. Thank you.
Thank you. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their 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. The first question is from the line of Sripal Doshi from Equirus. Please go ahead.
Hi, sir, good evening, and thank you for giving me the opportunity. So my question was firstly on this accelerated write-off during the quarter. So what was exactly the profile of these customers in terms of, you know, they being more than two lakh ticket size or they being Grameen Plus 3, Grameen Plus 4? If you could just give some color on that.
Sorry, Sripal, this is more based on the repayment profile because these customers are already more than 180 days, and there is no repayment coming from them achieved for a minimum of 90 days. So that is where we thought it would be to write-off. We have not gone through that kind of detail, which we can analyze and share you privately or separately.
Got it. Okay. So the second question was on excess bucket collection efficiency trend from September to January 2025, if you could provide, you know, that would be really helpful.
For the month of December, it is 99.2% actually. So I think it's more relevant what is latest, which is continuing, and we expect generally also continuing the same level. As of now, it is equal to 99.2% level.
Okay.
This is November and December. I tell you, November and December, it was around 98.8% and 98.7% between October and November.
October and November.
For the month of December, 99.2%. January, we were experiencing similar performance.
Got it.
It's available in your presentation actually, in the slide.
Slide number six.
Six is available.
Oh, okay.
It is actually, it is PAR 15, but I think, you know, more or less you can see that. You have PAR 15 already available. The reverse data is actually expected, right?
Right, right, right. Got it. And then one last question was on the industry side, so you know, with Guardrails 2.0 being implemented from April, and while we are seeing positive trends on asset quality side and also on the disbursement trend that is highlighted in one of your slides in January, but how do you see things shaping up for us and for industry in FY26 in terms of trends on growth as well as on sustainable growth, rather?
So I will be able to give trend for us actually. The industry because we need to see exactly for the industry after getting more balance sheets and publications by others. So for us, we are clearly seeing visible improvements. Two, for new customers, largely we already implemented the guardrails. We feel that it's very important for new customers, though it is deferred to April 1st. And also, we put a trend there in our presentation that even if it is implemented from 1st April, the implication is quite low because in that step-up cohort, already 84% are paying, and our internal assessment clearly shows that we will be able to retain more than 80% of customers in that bucket also.
Got it. So growth, I mean, I know you highlighted that the growth percentage guidance would be given later on, but will it be like structurally coming off at closer to 15%, or would it, or there is a possibility of even better trends on the growth front?
No, I think industry is definitely difficult to say right now because it depends on how long it will go to. We have actually estimated, if you see the slide number, which talks about the other guidance, we said 18%-20% growth is estimated preliminary by us, actually for next FY25-26. And for current year, we're talking about 7%-8% growth.
Got it. Thank you so much. I'll come in the queue for more questions. Thank you.
Thank you.
Good luck for the next one.
Thank you. The next question is from the line of Neetu Tharakan from MFO. Please go ahead. Neetu, please go ahead and unmute your handset in case you are on mute.
Hello. Can you hear me?
Yes.
Yeah. Thank you.
So, Mr. Ganesh, I didn't get the presentation, so maybe some of my questions is because, you know, I don't have a physical. I'm not able to see the PPT. But I'm just curious. We see the trend of delinquencies across the industry, but when can we expect normal figures coming in? Maybe like what, the Q1 of FY26 next year, or it might take more than that? What is the, yeah?
So, I think we did that initial remark. I think between Q4 this year and Q1 next year, between that, we should be getting into a normal zone, Neetu.
Okay. And just because I don't have a PPT, what is the loan portfolio size right now? Have you seen a decrease or an increase from last quarter?
Ladies and gentlemen, the management line has been disconnected. Please stay online while I get them reconnected. Thank you. Ladies and gentlemen, we now have the management on the call. Please go ahead, sir.
Yeah. So we were able to hear Neetu's first question. Was there any follow-up question to that?
So I was just asking what is the loan portfolio size now compared to last quarter? And I've heard that you are seeing a positive trend, so I'm expecting it to grow the next few quarters, but right now, I don't have the figures for this quarter.
As of December, the AUM of the company stood at 24,810. As of January 20th, it is at 25,125 crores.
Okay.
Year on year, we've grown. Quarter on quarter, we have grown simply because of accelerated write-off.
Okay. Okay. Yeah. Yes, sir, that's it.
Thank you.
Thank you. The next question is from the line of Shreya Shivani from CLSA. Please go ahead.
Thank you for the opportunity. Can you hear me? Hello?
Yes.
Yeah. Okay. Thank you for the opportunity. Sir, my question is more around the business operations on the field. We had heard about loan officer attrition being high across MFI players, and probably that number is north of 50% for the industry. Where would we stand? Can you help us understand what are the key concerns the loan officers have currently? And we'd also picked up from some industry interaction that there is a peculiar case in the MFI industry that many of the loan officers who quit their jobs in the past couple of months, they actually quit and did not join any other formal sector. So can you help us understand what's exactly going on at the branch level amongst the loan officers and at the operational level? Not so much to do with what's happening with the customers over here. That's my question.
Normally, in periods of elevated stress, the attrition does moderately go up, same for us, but however, for us, differently, during this cycle, we've got roughly around 3,000 employees requesting to rejoin with CA Grameen. So I think we will be able to manage even if the attrition goes up slightly, but right now, it's not a big challenge for us.
Sir, sir, is your attrition rate higher than 50% or lower than 50%? Is there some number you can help us with?
It is lower than 50%.
It is lower than 50%, right. And, sir, this is not just specifically about you, but if you could just help us understand, yes, in times of stress, the loan officers do exit, but is there a trend where they exit and they do not take up jobs in the formal market? Because we picked up this in some of our conversations with some other industry experts. So, is there?
Yeah. It's a combination. Some of them do, some of them don't, right? So it can be probably equal in numbers. A lot of young guys who join, young guys and girls who join, test the waters, and if it doesn't suit them, they leave the industry. And if it doesn't suit the automation, they go to some other company.
Got it. And sir, in times of stress, does the attrition rate pick up more in loan officers who have joined within the past one year or with more than two years or three years? Or was there a change in the way hiring was done that did you pick up, did the industry hire people with lower expertise or something like that? Had something changed in the last two years that led to much worse behavior in attrition trends currently, or this is just normal trend that has gone on in this cycle?
No, it is a normal phenomenon in this place. Like I said, because a lot of freshers do come in, they will not be able to kind of handle the situation. But once employee normally goes to six months or one year, they don't have all these issues.
Got it. Got it. And sir, my last question, just one follow-up over here. Have we changed any requirements in our hiring process for these loan officers? Have we tweaked it upside or downside?
No. So, you would know that we always hire only freshers, and we stick to that strategy, and there is no major tweak in any of our processes.
Got it. Got it. This is useful. Thank you so much, sir.
Thank you. The next question is from the line of Sanket Chheda from DAM Capital. Please go ahead.
Yeah. Hi, sir. Very good evening. So sir, my question was on our guidance. Particularly this year, we have been stretched on our target for guidance as we move quarter after quarter. And now, as there was earlier question that from April, the Guardrails will be in effect, and we have a decent share in terms of Grameen Plus 3, 3 plus, and 4 plus. So what makes us so confident to use this guidance of 18%-20% growth plus ROA is also almost in the range of normalized levels and ROE, while it's been a turbulent last few months. November was just the peak. After that, it's just one month, one and a half months that we have seen some improvement, but we have yet to solidify those trends.
So what gives us that confidence to be so early in terms of guiding, say, mostly a normalized year, which is FY26?
Right. So if you look at our earlier guidance about picking out and how we will normalize, we are more or less there. We've got a four-week delay, but otherwise, we are already seeing that pattern emerge both in December as well as January, and we are confident that we should sustain it during the year, right? And like we shared earlier, all our internal analysis, we've done a full PAR of our customers, etc. Based on our internal analysis, it gives us enough confidence that the next year's growth also, irrespective of the new guard rails coming in, we should be able to meet it, and we have our strategies around it. Sanket, I'll add here. So see, one thing is that if you see always a majority of our growth has come from customer retention. Historically, 60% growth has been from retention of customers.
As we have shared data, we have a fair visibility on retaining the customer cohorts who have, say, more than three or four loans because a majority, more than 80% of those customers have been promptly paid. As a result of that, there has been a normative deleveraging which has happened over the last six months and which will continue to happen over the next three to four months as well. In a normative fashion, they will become eligible to avail future loans. That's where it gives us visibility to retain our customers. Second is the addition of new customers. Like in the month of December, we have added 70,000 customers. The current run rate in Jan suggests that we'll cross 80,000. In a normal period, we have been typically adding around 1 lakh customers a month.
So adding one lakh customers a month in next year should be achievable for us, which will give us a high single-digit growth in borrower base. And overall, microfinance portfolio will be maybe around 15%-16%. And on top of it, we will also be getting growth from retail finance, which has been demonstrating healthy growth. So as you see, over the last one year, retail finance has grown from 2%-5%. And lastly, it is behaving very well from the asset quality point of view as well. And it is a step towards retaining our high-vintage customers. So a combination of all these factors gives us the confidence to deliver that growth in the next year.
In our ROA guidance, what have we assumed in terms of the credit cost for next year?
So Sanket, like if you see our guidance this year, we had earlier guided around 5%. Now we have revised it to 6.7%-6.9%. So basically, the 1.2%-1.4% delta, it is on account of a month of delay in the improvement of the reversal in the delinquency cycle. So that's where 1% has added to this year's credit cost. And now, as we said, we are going to take accelerated write-off over Q3, Q4, and Q1. So that will help us to absorb more than 80% of the current year's impact in the current year itself. So from that perspective, maybe in a normative year, if our credit cost is around, say, 2%-2.5%, on top of it, maybe another 75-100 basis points might get added into the next financial year.
So that's where for next financial year, as of now, the estimation is we should have a credit cost of 3-3.5%, which should give us the ROA of 4.2-4.5%. I think that took a little bit actually from our ROA point of view to see. The current year, our ROA is less by 3%. It goes to 3% ROA hit we will take this year. And 1% ROA hit we will take next year. So net net, overall, the delta of ROA hit to us because of this event in both years together is only 4%. 3% this year, that means we will be delivering around 2.5 to almost 4%. Next year, we will be able to deliver ROA of about 4.5%.
Sure, sir. Those were my questions.
Thank you. The next question is from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Hi, sir. Good evening. Sir, my first question is, sir, while the new PAR addition is now lessening, any improvement is also seen in resolutions across SME buckets? Can you comment on that? Is the NPL recovery also improving along with the new PAR getting less added? Are you seeing improvements there also in the bucket resolutions and NPS? And one more thing.
Sorry, please complete here. Yeah. Yeah. Maybe I'll respond first and next you would have a question, Rajiv. Yeah. I think it's an improvement in both sets. One is reduction in new PAR accrual. Second is improvement in the forward. Forward is actually reducing. And the increase in the future formata. So all three are combination actually, Rajiv.
Got it.
This is almost 40% of our stage two bucket already in a partial payment stage. The reduction is already now in the X bucket. The collection efficiency is more than 99% now.
So sir, what do you attribute this to? I mean, this improvement in collection across buckets? Because as I see, you haven't added employee or collection team like so many peers, and because your employee base is actually flat. So what do you attribute this improvement in collections to? Is it attributed to any improvement in center meeting attendance, better customer reach out, and how have you done it?
No, I think we anticipate early on. So it is more of a transient nature. I think we estimated that this will peak out and start coming down the new PAR. I think it happened in October afterwards, from November. So we were also able to deploy more people, experienced people in the pockets of collections to work on that. Then the underwriting quality has changed for at least new customers and new disbursements. So all these are a combination of things. Then we didn't have so much of attrition also. Now, if you compare to attrition, it's not very large deviation from the normal thing. That also helped us. All these together in a combination effort, I think the way the customer were defaulting largely were already defaulted. I think there's no more new customer defaulting, very less new customer defaulting.
That also is a trend we are seeing now. So overall, there's a good improvement in terms of both the sides, improvement in terms of collection, improvement in terms of disbursement, improvement in terms of lesser forwarding. All these are happening together.
Also, in times of stress, all our control teams also support us with collections.
Okay. Okay. Okay.
Any revision in lending rates that you are planning?
Rajiv, one minute. So I also wanted to add, Rajiv, as a demonstration to the field team. So almost all employees in the management base, the entire top management has adopted zones. And all of us have traveled extensively over the last few months, including meeting PAR customer selection, more towards a demonstration to the field force, right? So everybody is in the front. So I think the biggest difference in such scenarios will be your field supervisors, your seniors getting involved in solving the trouble. And like I said, we also have an additional workforce with a very high number of control teams. So they also contribute in such times of stress to support the field teams to come back to normal. And you would know about our people strategy, how we plan on hiring only freshers and retaining them.
A lot of our seniors have seen multiple cycles, right? So they also know exactly how to navigate the scenarios. It takes some patience and hard work, but it's something that we have done well so far.
Just one last thing. Any revision in lending rates that we are evaluating in the light of increased credit cost and maybe even OpEx? Because when I look at your NIM guidance for the whole year, it implies that in Q4, your NIM has to improve by 30, 40 basis points over Q3. So what will drive this NIM improvement? Because you will still have higher interest reversals in this quarter. So what will cover up for it? Have you taken any wage side?
So, Rajiv, our pricing policy is very clear and based on certain database, actually. So based on the variation, whether in OpEx cost or the credit cost or the borrowing cost, so it will change to some extent every quarter being reviewed. I think there is a small review happened in Q3 where certain basis points the change of there. Similarly, SME, when there's a change, every quarter there will be change. So there may be small variation because of that. But because of the higher interest reversals, the NIM is actually moderated back to the same level. And to a certain extent, the pricing policy does not change much because it's a long-term average that you take. You take a few quarters average and keep repricing as and when required. So there is a board-approved policy for this.
Every quarter, if the credit cost is there for the next four to eight quarters, then it will gradually get tough. Right now, we don't see a big movement in pricing, but we should come back to normal quickly.
Got it. Thank you, Industry Sir.
Thank you. The next question is from the line of Renish Bhuva from ICICI Securities. Please go ahead.
Yeah. Hi. Hi, sir. Thanks for the opportunity, so just two questions from my side. One on this PAR 15 plus acquisition. So when we look at the statewide numbers, of course, there is an improvement across states except Tamil Nadu, and when we look at the Karnataka specifically, though there is an improvement in January, but there are a lot of news flows which sort of keeps on coming over the last month or so wherein some districts, some pockets, there is some external events happening. So how confident we are that the kind of improvement we have seen in Karnataka maybe over the last two months from a peak of 1%, we are now down to 60 basis points, that will sustain? That's my question number one.
Yeah. I think you're right. There are some negative news around microfinance in Karnataka. But these are actually happening from the last two months. Majority was in Kalaburagi and Belagavi districts. There was some impact we saw in the last month there also. That's quite that we are actually able to show better performance in Karnataka. So recently, there are more news in the media, a lot of microfinance news in the recent days. There have been few local third-party interventions, particularly what I said, Kalaburagi, Belagavi, Tumakuru, Ramanagara districts. Members and industry bodies fully addressed and appreciated to the administration of respective districts as well as the government of Karnataka on the governance of microfinance, PAR practices code, grievance redressal system. It is the regular entities like RBI and SRO governing these areas. So these are addressed to them and how these are handled well.
Based on various publications, I think the Chief Minister of Karnataka also called a meeting tomorrow with some stakeholders, including the SROs, including the members, and including the RBI. A lot of them were called for a discussion, actually. I think this will serve as a platform to discuss the role of institutions, the role of microfinance, which contributed to the state economy, how the microfinance are actually running with practicing a third-party sourcing, the regulations, and the governance, and then the RBI and SROs subsequently explain what they are supporting and handling. I think this will help us to build a strong connect as well as the outcome of this meeting will be more productive and a step forward for us. I think the situation is not that bad. Situation is good. On the ground, there is no such issue. Collections, everything is going on smoothly.
No problem. But there are some news. Particularly, what we observed is from a non-regulated entity. There are one of issues difficult to identify and inform. But wherever further informing the police also, I think we will be able to highlight these issues to the administration and the government tomorrow probably. So we definitely believe that this will be a good step forward for getting resolved these issues.
So at this point in time, I mean, is it fair to assume that you guys don't foresee any risk to the sort of improvement what we are expecting in Karnataka?
No, we don't see, actually. Even if you see worst scenario in the October-November, Karnataka X-bucket collection is more than 98.5%. So right now, it is almost 99.4% ahead of things. So therefore, we do not see any major worries in Karnataka.
Got it. And sir, again, second question is related to that. In Tamil Nadu, though there has been an improvement in December, but then again, there is a very, very sharp deterioration in January. Of course, we did mention that these are the transitory and many things should improve in February. But is there any lead indicators in place wherein we are expecting things to bounce back in February?
No, actually, Tamil Nadu, again, it is more of a lag impact of December month's rain and cyclone. There's a small increase in the PAR 15 level. PAR 0 still, it is normal right now. PAR 15, there's a lag impact. But most of these customers also participating, not able to pay all four years of the year. That is why it's still there. So therefore, we don't see the major issues in Tamil Nadu also. It's a temporary. Maybe this month, by month, then most of things is sorted out. So therefore, we don't see too much of issues in Tamil Nadu also.
Got it. And sir, my last question, again, on the guidance side. So now, sort of when we look at our FY25 performance versus the guidance, a couple of times we have been forced to change our guidance. Of course, I do understand because of the ongoing situation wherein industry is so dynamic, every two months, things might change. And again, hence, what sort of confidence you guys have that whatever guidance we are sharing for FY26, that will hold true?
Yeah. This is an extraordinary year, Renish. Otherwise, probably there's no chances to change the guidance, actually. But it's important to inform you upfront about what we can do is most important. That's what we are doing also. If you see the.
Ladies and gentlemen, the management has got disconnected. I would request you all to stay online while I reconnect with the management. Thank you. Ladies and gentlemen, we have the management back on the line, so we may continue.
Sorry, Renish. When we compare to the revised guidelines, we are actually there only. Even we are saying that we are achieving between 70 bps, despite we are taking the write-off, extraordinary write-off. Therefore, we are actually not getting the guidance, actually. Why we are changing guidance is a kind of great cause, again, because of the extraordinary write-off we took. Plus, a small delay in our estimation. We estimated to be picked out in September, October, but unfortunately, it went into November, sorry, in September, it went delayed by one month. That causes us about 100 additional costs. Otherwise, we are also there in the guidance. There's not too much change in the guidance. And for the next year guidance, we have calculated carefully. It's a preliminary estimation, but largely we should be there. So that's what we estimate and internal confidence we have against that.
But definitely, we'll come back with the full set guidance in the month of May after our annual performance.
Got it. Maybe let me put it this way. So what are the risks which can lead to sort of we revising this guidance or we revisiting this guidance? I mean, internally, do you foresee any risk to this guidance or maybe the parameters which you would track very closely? Of course, collection is one number, but anything apart from this in terms of, let's say, the district which are in stress currently because of external events or maybe some political event happening in some state, etc.? I mean, what are the key things which you guys would be watching very carefully to ensure that guidance remains?
I think we are clearly seeing the improvement is visible for last, I can say, two months, from mid-November to almost mid-January now. We are seeing the change in terms of reversal of trends, in terms of delinquency, in terms of disbursement, and in terms of new customer addition. We're able to see, unless drastic change in this trend, reversing back. Otherwise, we don't see any other reason for failure in this guidance.
Got it. Got it. Okay. That's it from my side, sir. Thank you and best of luck, teams.
Thank you. The next question is from the line of Bhavik Dave from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi. Sir, am I audible?
Yes. Hi.
Hi, sir, just a couple of points, right? One is, again, on the guidance bit. We missed our guidance like two, three quarters in a growth. I think it will be good to maybe wait out for the end of the year before giving guidance on growth because my question comes back to growth, right? And when I look at your numbers, you've been adding 150,000 customers per quarter. You mentioned that you will add 1 lakh per month. And even if you do that, and when I do the math, the 15%-20% growth seems to be a bit of a stretch. And in that context, it would be great if you could just maybe give us a sense that why will customers, after the three guardrails, stick to us versus going to someone else who might give a higher loan?
Considering the customer segment, we've seen has behaved similarly for all lenders, right? It's not that customers are paid X lender and not like a default into the Y. Unfortunately, over-leveraged borrowers have behaved in a similar way. And second is on the retail finance as well. We've majority mined our existing customers and upgraded them to retail financing. So a large part of our customers will also be upgraded in that sense. So like the 70%-80% of the customers that stay back after this washout, it seems that the customer that we'll be able to lend in the existing format and also the new customer addition seems to be a bit of a stretch is my number that I'm working around with.
So if you would just explain to us how this 15%-20% growth will come through because I'm unable to maybe do the math in terms of the customer and the ticket size that we are working with. Thank you.
Yeah. I think broadly, what we've guided, the growth will come from both retail and microfinance, right? So we've always been saying that as we grow bigger and bigger, the growth rate of microfinance will slow down. You've already seen that our share of retail is moved to 2%-5%. So with every year moving by, the contribution of retail will continue to grow. And again, we always figure that microfinance will be an entry point for the customers. And only a certain profile of customers will be able to upgrade. Not necessarily that everybody will move towards retail. People will have to have certain demonstrated history, certain amount of cash flow to demonstrate for them to move towards retail, right? So I think there is enough room in whichever markets we are. If you look at any of our non-bond markets, we are still very, very small.
And I think there is enough room for us to grow both in microfinance and retail, but increasingly, the growth in microfinance will take a step down and retail will catch up. So with the combination, we are looking at delivering this kind of growth.
Also, sir, when I look at your Bihar PAR 0, right? I think that outside the three, four strong states of us, our performance has been quite poor because we've heard other lenders talking about Bihar recovering quite well for them. In that context, how has our experience been both in microfinance and retail when it comes to the non-core geographies? Like, in the sense, Karnataka, Maharashtra, Tamil Nadu seems to be our strong point. Apart from that, how has our experience been in terms of retail and MFI in this cycle? Has it been far worse, or how are you thinking about those lines?
Right. So today, we operate retail only in our core geographies, which is Tamil Nadu, Karnataka, Maharashtra, and Madhya Pradesh, and we are not there in other geographies because our strategy around retail is to bring in customers, season them to a certain extent, and then offer retail finance, so probably we will take a few more years to reach our non-core geographies. Once we become a certain size in each of these geographies, is when we will roll out retail finance strategy. With respect to our retail finance portfolio, it has been absolutely good. Even in the worst times of stress, we are going through a very high credit cycle. However, the retail finance book has held really good asset quality. I think 30 plus as of December, even for our unsecured graduated business loans, is in the range of 70 basis points, so this is unsecured.
Secured, even much lower.
Sure. Because unfortunately, sir, what we've seen is most of these MFI customers have other retail loans, and that's what is causing the over-indebtedness as well. We're just like other industries. We're just looking at maybe borrowers who have three or four lenders to them. But other than that, they have other retail loans, and that cohort has done even worse than just MFI loans. So that's the reason I'm trying to maybe drill down a little more. And last question is, sir, or not a question, but just to understand why did.
One comment on your last statement. So even in our presentation, we isolated even the numbers that in our case, while it could be some numbers published by different agencies, in our case, what we see is that there is no difference in credit costs between customers who are only microfinance customers as well as microfinance customers with retail overlap. So in microfinance customers' case, the bar is around 6%, and in this case, it is around 7, sorry, 7 and 6%.
You can refer to slide 11 for this. There's a clarification on that.
And also, in all our retail finance journeys, we have consistently rehydrated. We are not in a hurry to grow. We will test it. We piloted each of the businesses for enough time, tested results against these pilots, and only then we scaled up. So there is clear strategy around whom we will offer retail, be it secured or unsecured, and what is the market base, what is the base at which we want to grow. So it will be a natural progression over a period of time. And we are very mindful about keeping this quality intact.
Sure. All right. Thank you.
Thank you. The next question is from the line of Arjun Bhatia from BOB Capital Markets. Please go ahead.
Sir, thank you for giving us the opportunity. Can you hear us?
Yes.
Sir, we can hear you.
Thank you for the credit stories. I just wanted to understand, do you also get data about?
Sorry.
Sorry to interrupt. Arjun, can you come? Arjun, can you please come a little closer to the microphone?
Yeah. Just one second.
Am I audible now?
Yes. Yes, ma'am.
Sir, we wanted to understand, do you by any chance get disclosures about loan repayment schedules of your existing customers to other microfinance companies as well?
Disclose loan repayment?
Schedules, like if you have a customer, let's say he's got loans with three other people or four other people, do they disclose with you the repayment schedules? When is the repayment? When is the loan getting foreclosed from the other?
It is available in the bureau. It is available in the bureau reports.
So you have entire access to the data?
Yes. So we may not have the entire repayment schedule, but we will know when was the loan disbursed and when is the closure.
Have you used that?
Yes.
Okay, and have you used that modeling somewhere in your analysis?
Yes. We have to use it for even PAR calculation. The whole fundamental to regulations is that you have to calculate their overall liability, what is the repayments they make as a family every month, and then they get PAR out of it.
Understood. So broadly, what you're saying is that you have mapped already which customer is going to loan is getting foreclosed, and therefore, how many loans will get foreclosed at your end versus others? What I understand from guardrail one and two is that whosoever loan has to be repaid first, that loan cannot be renewed. If he's more than five, then it has to come down to four, and in the second guardrail, if it's four, it has to come down to three and so forth. Is my understanding correct?
Very true. Very true. Would you like to join our strategy team?
So in that sense, sir, I wanted to understand that how do you get the comfort that whosoever is paying you now, after the guardrail two is he gets choked in terms of further supply, he will end up paying to you because he's not going to get a repayment? I just wanted to get some perspective on that. And you model all that in your forecast for growth, all of these who will get foreclosed first at your end versus the others because wherever it gets foreclosed first, the customer can't come again.
Yes, so we take everything into our model, and that is also reason for our confidence, and again, taking a loan is a customer's choice, not everybody closing a loan asks for a second loan, so that is the unique to continuously run for new customer acquisition also, right, so it takes care of many things too.
Understood. Secondly, sir, I wanted to understand, based on discussions of other players, we are told that there's a possibility of new regulations on capping the names directly, indirectly, through various ways. Additional top-up loans, one could give like we understand we give some top-up loans. What are your thoughts on that, and do you expect any further regulations at some point of time in the next six months, one year, which will lead to further consolidation in the industry? Thank you.
Right now, we are not privy to any such information. I don't think we should speculate about it.
Great. Thank you so much for clarifying, and thank you once again for excellent disclosure.
Thank you.
Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Thank you and good evening, everyone. So the first thing that I wanted to understand is what are the covenants that we have in place from our lenders? What is the GNPA or GS3 threshold in our covenants, and what are the thresholds around quarterly profitability?
Hi, Abhijit Tibrewal here. So there is a wide range of covenants. We have more than 70 lenders, and the covenant levels will obviously keep varying from lender to lender. So we have a good amount of comfort that usually, typically in the industry, you will see the GNPA is, if they cross, say, 4%-5%, then there can be some kind of a challenge. So as of now, we have no such issues or.
Got it. So I mean, basically, whatever thresholds are there on GNPA and GS3, we are at least, I mean, much lower than whatever those thresholds are, is it?
Yes. As of now, we are not facing any issues. That's the reason why the access to funding is continued for us. And as we reported, even in third quarter, we have drawn close to INR 4,000 crore from more than 17 institutions. And even our borrowing cost, there has not been any change. Our marginal borrowing cost continues to stay at 9.4%. And at the same time, we are I mean, there is a continued confidence what we are able to maintain with our lending partners.
Got it. And Nilesh, could you also remind us, while we took accelerated write-offs in this quarter and we spoke about taking some accelerated write-offs in the next quarter as well, what is our usual write-off policy? Just trying to understand this addition that we are seeing in GNPA right now, at what point in time do you start getting written off?
So in our normal policy, we write off after 270 days. And during even COVID, we had taken some accelerated write-offs. Similarly, now we've taken write-offs for a portfolio that is not being paid, like Uday said, for the last three months at 180 days. 180 days plus.
It's actually less than 1% of portfolio we took a write-off, which are very accurate numbers for at least last three months, and which are already crossed 480 days.
Got it. Got it. And so lastly, just trying to understand, I mean, while we did speak about Karnataka, whatever is happening there, and you also spoke about that despite all that, we've managed a good collection efficiency. Let's say when you look at your ex-bucket collection efficiency on a national basis, and when you look at Karnataka, how lower is Karnataka from the national average?
In a nutshell, I think Karnataka is better than last quarter.
Yeah. So Abhijit, if you see Karnataka, it's around 20 basis points better than our overall.
Got it. Got it. And just one last question then. I mean, of all the collections that are happening, I mean, what proportion is kind of getting collected in a center meeting, and what portion of collections are happening through door knocks?
Predominantly, it will continue to happen in center locations. Sometimes what happens is the field officer is delayed for the second meeting, and the customers don't pay. So there they won't collect from the Kendra leaders. And some of them, if they don't pay, that is when we go for door-to-door collection, but that is supported, like I said, by a massive team, including control teams, field supervisors, and the likes.
Probably as an indication, maybe there's a good chance.
Got it. Got it. Great. Thank you so much. This is useful, and I wish you and your team the very best. Thanks a lot.
Thank you. The next question is from the line of Parth from Nomura. Please go ahead.
Good evening, everyone, and thank you for taking the question. My question is a bit broad-based. So sir, you mentioned that the delinquency trends are transitory in nature, and you have been seeing reversing trends since November or December onwards. So sir, what has changed on ground that makes you confident that this is just transitory in nature and the reversal trends we sustain going ahead? And sir, another question is that on the new borrower addition bit, we have seen a significant uptick in December 2024. So sir, what has changed on your underwriting process or your onboarding process, which will give us some confidence on the fact that.
Sorry, can you come closer to your mic and repeat your question again?
Sorry, am I audible now?
On the outside.
Yeah. So sir, on the delinquency trends, you mentioned that they are transitory in nature, and we have been seeing reversing trends since November and December, mid-November. So on this, sir, what has changed on ground that gives you confidence that this will stay at this is just transitory in nature and the incremental reversals on the delinquencies would sustain going ahead? And sir, on the next part, the new borrower addition rate has seen a significant uptick during the month. So sir, what has changed on your onboarding processes or your underwriting processes, which gives us the confidence that these borrowers would be better in nature than the previous borrower?
See, on the first question, I think the whole presentation is demonstrating with sufficient data as to why we think this is sustainable. However, we'll have to see how it goes for them that month, right? So we are reasonably confident we picked out. We are showing as on date, whatever is happening in December and that. We've also demonstrated that overall, we are able to see leverage coming down. And we've also demonstrated in our presentation how the previous cycles were and in how much time they've come back, right? So you will see in our presentation what we did in COVID, what we did in DeMo. So overall, roughly three-quarters disruption is what happens for us to come back to normalcy. And we believe it is similar in nature now that we've started showing performance in the last two months.
Okay. Thank you. That helps. And.
New customer additions, we are a little mindful. We have tightened, like say in the guardrails, we have been already doing voter ID validations. The field verification processes have been strengthened. In geographies where we are seeing certain higher delinquency, we moved house verification one level up. We also used quality control teams to vet in customers joining as new in all geographies where we have elevated credit costs. It's a continuous process.
Yes. Got it.
Yeah. And in some places, we've also made it stringent in guardrails where we limited the overall maximum outstanding to 150,000 and also the maximum number of lenders to be not more than two and one in different locations. So based on that district behavior, we follow a district model. Depending on how we see stress in each district, we keep moderating our operating procedures. Our business rule engine gives us the flexibility to adopt a differentiated underwriting process at the district level.
Okay. Okay. I think that is helpful. And just one more question. So I understand BR and UP are your non-core geographies, but some of your peers have highlighted some collection efficiency issues in those two geographies. And while on the PAR accretion part, you have shown some improvement in the December and 3Q '25 numbers. So what are you doing differently in BR and UP where you have seen better collection efficiencies or improving trends there?
See, I think overall, like you said, different people have different geographies depending on which district they are present, which part of the state they are presenting. However, Bihar also we've demonstrated that we've significantly come back in the last two months. So we hope this will continue in the next two months and the quarter also. We just need earlier so that whatever increase we have seen in July, August, September, as we said earlier, it was kind of an accelerated increase because the underwriting got tighter in the industry. And now, because of the deleveraging happening, we see it's I mean, we are of a view that the customers who were not in position to honor their repayments or wherever they were not able to handle multiple loans or they were over-leveraged, those customers have kind of gone into higher buckets of PAR.
But the other customers, they have continued to repay on a prompt basis. So as we have provided in our presentation, even customers with multiple loans or higher leverage, 80% of those customers have been able to pay us on a prompt basis. And overall, BR and UP, it is around.
Ladies and gentlemen, the management has got disconnected. Please stay online while I get them connected. Thank you. Ladies and gentlemen, we have the management back with us. Please go ahead.
Yeah. So UP and BR, it's close to 6-6.5% of the overall portfolio. So even there, larger delinquencies kind of have played out in the month of October-November, and that is where we are seeing the new delinquency addition rates slowing down at a faster pace in December and January. So our approach has been consistent across all the markets, but yes, different markets are behaving or kind of reversing at a different rate. Like if you see in Maharashtra and Madhya Pradesh, our portfolio quality has been much, much superior compared to the industry.
Got it. Got it. This was very helpful. Thank you, and this will be good, so best of luck going ahead. Thank you.
Thank you. The next question is from the line of Kamal Mulchandani from Investec. Please go ahead.
Hello sir. Thank you for the opportunity. Firstly, if you could just let us know that if you are facing some attrition at the branch manager level as well, and if yes, what would be that number for us?
So not very different from the earlier times. So we have been rangebound, and we remain there.
So what is that number?
Around 30%.
Okay. And this is as usual?
Yes. Normally, there is no extra attrition we saw in this period. We saw little whatever changes, slight variation only in loan officer level where we always keep recruiting and having sufficient backup actually. So that measure on top of attrition is quite stable. Again, branch manager and above because we only do internal promotions, there is always the bench which is ready to become branch managers in case attrition goes up. And also, like I told earlier, because it's a tough time, people who joined different institutions or have left the CreditAccess journey is also placed the request to join back. So we roughly have around 2,900 requests to join back CreditAccess.
Okay. Got it, sir. Also, I would like to know that what is our net PAR flow rate from 1 to 30 and 31 to 60 bucket, and what was it earlier versus the current year?
See, roll forward temporarily had increased. I don't have the numbers yet. So yeah, typically in normative times, we have seen that around 50%-60% of customers in 0 to 30 bucket, they do roll back and the balance goes forward, post which, as you see, our provisioning rates typically we provide 70% in the stage three, which means that the roll rates are in that range and in around that in the normative times. During last four to five months, we had seen the roll forwards were higher by 10%-15%, but now it is kind of again reverting to the earlier in month of January. So we are seeing a reversion in the roll forward rates.
Okay. Got it. And lastly, if you could just help me, what were the interest reversals during this quarter and during Q2?
In Q2, we had around INR 35 crores of reversal, and now in Q3, we have around INR 75 crore of reversal. So in this, around close to 18 crores is on account of the sorry, around close to 25 crore is on account of the write-off, overall 376 crore, whatever we have written off. And balance 50 crores is on account of stage three accretion.
Okay. Got it. Got it, sir. Thank you so much for this. That's it. I don't have any other questions. All the best.
Thank you.
Thank you. The next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Hi team, good evening. One qualitative question from my side, and apologies if you have answered this in some form before because I joined a bit late. Sir, in the past few months, we heard of several lenders narrating unpleasant anecdotes, for example, instances when several lenders were queuing outside the doors of delinquent borrowers to collect their respective installments, and that resulting in tensions at the local level. Are those kind of issues now largely sorted, declining meaningfully?
See, as you stated a little earlier, probably our door-to-door collection is not the same, right? And I think because we have a weekly modeled rural model, and we also have a larger understanding of how to navigate those issues, we don't see much of an issue around this space, the point that you're making right now.
Okay. Perfect. Those are all. That was the only question. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing comments.
So I take this opportunity to thank all of you for your patience and time in joining this call and for very interesting questions. I hope we've answered all your questions, and in case there are any further questions, do write to us, do reach out to us. We'll be happy to clarify them. Thank you so much.
Thank you. Ladies and gentlemen, on behalf of HDFC Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.