Ladies and gentlemen, good day, and welcome to CreditAccess Grameen Limited Q2 FY 25 earnings conference call, hosted by ICICI 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 this conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Renish Bhuva from ICICI Securities. Thank you, and over to you, sir.
Yeah, hi, thanks, Neerav. Good evening, everyone, and welcome to CreditAccess Q2 FY25 earnings call. On behalf of ICICI Securities, I would like to thank CA Grameen management team for giving us the opportunity to host this call. Today, we have with us the entire top management team of CA Grameen, represented by Mr. Uday Kumar, Managing Director, Mr. Ganesh Narayanan, CEO, Mr. Nilesh Dalvi, CFO, and Mr. Sahib Sharma, DGM, Investor Relations. I will now hand over the call to Mr. Uday Kumar for his opening remarks, and then we'll open the floor for Q&A. Over to you, sir.
Thank you, Renish. Good evening, everyone. Thank you for joining the conference call to discuss our second quarter and first half year of FY 25 business performance. The unsecured lending space, including microfinance, marked by high growth, has been witnessing an increase in delinquency levels over the past three, four quarters. Given the short-term nature of such unsecured lending and timely calibration by various institutions, we believe this credit cycle to be transient in nature. Taking due cognizance to this, the microfinance industry, represented by MFIN, implemented the guardrails in July 2024 to strengthen the underwriting norms across all the group entities. While we have been witnessing an accelerated realization of delinquencies in the last few months, we believe that the MFIN guardrails are essential for fostering a healthier environment for the industry in the medium to long run.
Coming to the second quarter performance, the overall AUM grew by 11.8% YOY to INR 25,133 crore with the GL book growing by 9.3% YOY to INR 24,188 crore. Meanwhile, RF book, or retail finance book, continued to show robust growth, driven by selective customer base with an AUM of INR 945 crore. The customer base grew 1.2% YOY to 49.63 lakh at the end of September 2024. On a QOQ basis, we witnessed 4.4% decline in our overall AUM and 1% decline in the customer base. We added 1.4 lakh new customers during the quarter and 3.37 lakh during the half year, FY 2025.
Our branch infrastructure expanded to 2,031 across 398 districts, as we added 55 new branches during this quarter. The net income, net interest income grew by 20.8% YOY to INR 933 crores. As guided before, our average and marginal cost of borrowing remains steady at 9.8% and 9.4% respectively. The portfolio yield at 21.1% and interest spread 11.4%, too, remains stable and continue to be one of the lowest in the microfinance industry. NIM stood at 13.5% for Q2 FY 2025, compared to 13% in Q1 FY 2025, because of higher capital adequacy of 26.2% and low base effect on account of a decline in loan portfolio.
Core income ratio was 30.7%, while TPOP grew by 19.5% YOY to INR 602 crore at the end of Q2 FY 2025. We would now like to draw your attention to six and, so go to slides six to ten on the asset quality update. We have observed a temporary increase in delinquencies across various geographies on account of several factors. There have been localized disruption in repayments caused by third-party interventions in various states. Customers have been facing tight liquidity and cash flow constraints, as lending industry has curtailed disbursement, with more focus on controlling delinquencies. Further, certain customers, especially agri-laborers, have also faced income variations on account of low rainfall last year, followed by severe heat wave during the April to June 2024.
Furthermore, there has been also a transient impact on heavy rainfall in several regions during September quarter. On top of all the above, a segment of overleveraged borrowers with lower cash flow also are part of this delinquent bucket. We expect the situation to stabilize in Q3 FY 25, and business sentiments should improve in Q4 FY 25. The company continues to strengthen its collection effort with additional power control measures by deploying senior and experienced field staff and quality control teams on the back of continuous customer engagement, in addition to strong underwriting measures. We try to understand the current delinquency trend by analyzing the customer overlap with other lenders, along with leverage and vintage.
The delinquency is the lowest in the case of unique customers with high vintage and highest in case of customers with low vintage and high velocity of loans being availed from multiple lenders. As on September 2024, CA Grameen four and above accounted for 12.6% of our group lending portfolio and had PAR fifteen of 12.2%. Hence, the overall PAR 15+ impact on account of CA Grameen plus four above customers is 1.5% only. We have also drawn statewide comparison of our delinquency versus the microfinance industry by sourcing credit bureau data for the month of August 2024. As visible on Slide 9, our performance has been relatively better than the industry across our top 5 states, accounting for 85% of our gross loan portfolio.
Our collection efficiency, excluding arrears, stood at 96.3% for Q3 FY 2025, PAR 90+ at 1.74%, GNPA of 2.44% and NNPA of 0.76%, both predominantly measured at 60+ DPD. The credit cost stood at INR 420 crore for Q2 FY 2025, which includes an additional INR 28.8 crore provision on account of increased ECL across all three stages compared to F1 - compared to Q1 2025. Overall, the annualized gross credit cost stood at 4.1% for H1 FY 2025. While analyzing our credit cost figure, we would like to draw your attention to early stress recognition and conservative provisioning policy.
The company currently holding 179 basis points, which is INR 431 crore, higher provisioning for PAR 90+ and 150-250 basis points, that is equal to INR 621 crore, higher provisioning compared to IRAC prudential norms. Even when we compare us with the average provisioning policy adopted by NBFC-MFIs, MF industry, we are currently holding additional INR 102 crore provisions on account of our early recognition and higher provision rates. This will help us to recognize 70%-75% of our current share within the current financial year, instead of deferring it to next financial year. We had comfortable liquidity position as on September 2024, with cash and cash equivalent of INR 2,036 crore, amounting to 7.6% of total assets.
We have sanctions in hand of INR 3,830 crore and another INR 6,918 crore worth of sanctions in pipeline. Our capital adequacy remains strong at 26.1%, further adding strength to our balance sheet. For Q2 FY 2025, PAT stood at INR 186 crore, with the ROA of 2.7% and ROE of 10.4% - 10.7%. For H1 FY 2025 , the PAT stood at INR 584 crore, with the ROA of 4.1% and ROE of 17.1%, reflecting our strong operating profitability on the back of resilient business model. In the light of current industry landscape and short-term challenges encountered, we have revised our estimate for FY 2025 annual performance guidance.
We anticipate our loan portfolio to grow, loan for growth of 8-12%, NIM about 12.8-13%, credit cost between 4.5-5%, ROA 3-3.5%, and ROE between 12-14%. We note that revised guidance is based on our estimation of stabilization of delinquencies in Q3 FY 2025, followed by improved business momentum in Q4 FY 2025. This should be on the back of improved rural economic dynamics during the second half of FY 2025, driven by healthy agricultural activities. The country has witnessed the highest monsoon rainfall over the past four years, which should help in increased sowing activities, resulting in a positive spillover effect.
We reiterate our medium-term growth outlook, aiming to reach 50,000 crore mark by FY 2028, as guided earlier, through a combination of both microfinance and retail finance business. Lastly, we would like to share with you, an important update related to the management team. Mr. Gururaj Rao has been elevated to the Chief Operating Officer as KMP with effect from first November, who was serving as Chief Audit Officer. Also, Mr. Nagaraj Kumar, currently serving as Head of Operation, is now appointed as Head of Internal Audit, with effect from first November 2024. Both of them have been associated with the company for more than fifteen years, contributing to the company's growth and success. I'm confident that under their leadership, we will further strengthen our market share and deliver exceptional value to all our stakeholders. Thank you for your patient hearing.
We look for- look forward to addressing your queries as we open the forum for question and answers. In the meantime, I'm requesting Nilesh to give you a five-minute brief of the asset quality spread slides what I mentioned, so that to, he'll give a little more clarity on those slides. Slide number, yes.
Hi, good evening, everyone. So, I'll be referring to slide number 6 to 10.
You should go.
So since there is a lot of data we have shared, I thought it's better we kind of provide you some interpretation of the data what we have provided. So on slide number six, we have given an update on how the PAR has moved up from Q1 to Q2. So overall, the PAR 0 has increased by 2.9%, and PAR 90 has increased by around 1%, and PAR 60 has increased by around 1.5%. These percentages are on a pre-write off basis. Sorry, the PAR 0 on a pre-write off basis has increased by around yeah 2.9%.
So overall, the slippage, what we say, at 60 DPD, the slippage is around 1.5%, and at 90 DPD, the slippage is around close to 1%, the new PAR creation. And we have also given the figures across our top five states. So Karnataka, it is 2.3%. Maharashtra and MP, relatively, they are holding well at 4.2% and 4.6%. In TN, it has increased to 6.2%, and Bihar is on the higher side at 8.9%. And other states, it is 8%, but here we have to also take into account that the book de-growth is higher because there are certain states where we are kind of not growing much, like Rajasthan, Gujarat, Kerala, et cetera.
So to that extent, there is a base effect, which is kind of playing out there. Now we go to the slide number 7. Here, we have just tried to analyze the PAR by looking at the vintage lender overlap and the leverage. So the first chart we have shown the portfolio breakup basis the lender overlap and the vintage. So like here we see that unique customers, they are accounting for around 27% of the book in AUM terms. And, CA Grameen plus four and above, that segment is accounting to around 12.6% of the overall portfolio. Here we see that the larger proportion of customers in four and above bucket, it is in the low vintage, that is between zero to four years.
The table to the bottom right, there we have given the PAR 15+, that is stage two and stage three, across lender overlap and the vintage. So again, here we see that the PAR is lower in the unique and CA Grameen plus one, plus two categories, whereas it kind of inches up in the plus three and plus four and above, buckets. CA Grameen plus four and above, it is around 12.2% is the PAR 15, as on September end. Again, here we see that the PAR is higher in the zero to four years of vintage bucket.
So largely, what we have inferred from this is that customers who we recently onboarded over last couple of years, who have a relatively lower vintage with us, that is where since we cannot meet their entire requirement, because we will start with, say, 40-45 thousand kind of a loan. So that is where they have larger overlap with other lenders, because maybe they might have a certain history in the microfinance industry, and then their overall funding requirement is higher. Moving to the next slide. Yeah, one more point wanted to highlight is the CA Grameen plus 4 and above cohort. It is 12.6% of the overall group loan portfolio, where the PAR 15+ is 12%.
Overall, CA Grameen plus four and above cohort is accounting for 1.5% PAR on the overall book. Out of whatever 5% PAR we have, out of that, the impact of this cohort is around 1.5%, CA Grameen plus four and above cohort. Now moving to slide number 8, here we have again tried to analyze the PAR by considering the leverage. Here, as we see in the first table to the top left, total indebtedness of more than INR 2 lakh rupees, there it is around 9.4%, the overall borrowers, and the PAR 15 for that cohort, that is more than INR 2 lakh, it is 6%.
So again, here, as we see, the PAR is lower for high-vintage customers, even though their overall indebtedness is higher, as we see in the table in the bottom left. And the PAR is higher in case of low-vintage customers who have taken higher leverage. So again, the point we are trying to reiterate is that if higher leverage is aligned with vintage, then the PAR is lower. And only in early vintages, if customers have taken multiple loans or they have higher leverage, that is where the PAR is relatively higher. Now, considering the two tables on the right-hand side, wherein we have tried to understand CA Grameen plus four and above borrowers. So four and above borrowers with more than two lakh leverage, that is 6% of the overall borrower base. And there the PAR is PAR 15 is around 10%.
So again, in the bottom right table, same point appears again, that the PAR is higher in the low-vintage buckets, where the leverage is higher. And, as the vintage increases, the PAR is relatively lower. Now, we go to the next slide, that is slide number nine. Here, we have tried to assess our performance versus industry during March to August. So across all our operating states, the PAR 1-180. So we are considering 1-180 because the write-off policy varies from player to player across industry. So that is where the 180 plus, there is a large variance. That's why we are considering 1-180 bucket, and that is where, as on August, our CA Grameen's PAR 1-180 was 3.4% versus 6% for industry.
In our top four states, we are doing better than the industry. In case of Bihar and UP, we are largely in line with the industry. Overall, top five states which account for 85% of our portfolio, there we are relatively doing much better than the industry. This is the CRIF High Mark data what we have sourced for the month of August, which is the latest available data. Moving to next slide. On slide number 10, we have indicated the ECL what we have taken as on September. Here the thing is that since ECL is a forward-looking model, we keep revising the underlying data every quarter. We typically take 36 data points, that is three-year data we take, and as the recent data enters into the computation, the ECL rates vary.
So here, from Q1 to Q2, we have seen the ECL rates have increased across stage one and stage two. In stage one, last quarter, our ECL was 0.89%, which is now 1%, and in stage two, it has gone to 57.5% from 56%. So because of this, it is helping us to kind of build early provisioning buffers, and that is where today we see that compared to IRAC norms, we are almost holding over INR 600 crore of additional provisions. And even when we compare it with the NBFC industry norms, wherein the stage two is provided after 30 days and stage three is provided after 90 days. So compared to that, since we do early recognition, we are providing INR 100 crore of additional provision by booking stage two after 15 and stage three after 60.
So to that extent, we believe that, the current delinquency which has arisen, almost 60% of the impact has been taken in the PNL. And, that also kind of gives us confidence that the current delinquencies will be largely taken care in this year, so that the spillover effect in the next year will be relatively limited. So these are the larger points I wanted to make. We can now take questions. Thank you, Nilesh.
We'll open the floor for questions, sir.
Yeah.
Thank you very much. We'll now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queues. The first question is from the line of Dhaval from DSP Mutual Fund. Please go ahead.
Yeah, hi. Thanks for the opportunity. And, you know, thanks for sharing all these additional data points, it's quite useful. I had two questions. First is relating to, you know, the slide six and slide nine. So if you look at the change in the August to September in PAR, it seems quite, you know, sharp in certain states. You know, the PAR increase has been quite sharp. Is that how you expect the... So, first part is, when do you think this number starts stabilizing based on the past experience? And, so that is one part of the question.
And the second is, given that you said 60% of the recognition, or at least the provisioning part is taken care, do you think this is a peak level of credit cost, and we should start seeing a moderation from next quarter? Yeah.
Okay, first question, PAR, is it not August to September? It is June to September, I think, what you asked. The change is from June to September, not in the slide six.
Sir, sorry, sir. What I was referring to, so if you look at state level PAR that was shared, CA Grameen versus industry. I think slide nine, where we have given, for example, states like Bihar and MP and Karnataka, et cetera. That PAR is as of August for the industry and for us as well. And then September, we have given PAR data in, I think, slide six. The delta change that I'm seeing in each of the state numbers is quite sharp. I just wanted to reconcile that that is the kind of magnitude of increase that, you know, one has seen. And when do you think this will stabilize, especially in the top five states?
I think there are some data variation. So PAR 90, it's shown as... Well, there's one person. So, there's a difference, I can tell you.
Dhaval, as on August, the PAR 1 to 180 is-
No, no, we've got two seventy. See, Dhaval, that is different. That is 1-180 , this is 1-270 . That's what the difference.
Oh, okay.
That is 1-270. Okay? That's the difference between that research. Because we don't have a 1-290 proper data from the system, from the High Mark. It is relevant is 1-1.8, that is why we took it. Because after 1-270, there is no process of people rating of proper, I mean, proper comparable. That is why we took comparable data, which is 1-180 from the High Mark data. So this. Our data is 1-180-1-270 days. Therefore, there will be some difference. Okay?
Okay, okay.
Yeah.
So then, sir, underlying question is basically this PAR increase that you would have seen. PAR 0 is what I'm referring to. Between August and September, what would be the kind of change that you would have seen in the top five states? And when do you think this starts peaking out? That's the underlying question actually.
... If you say so, there is, there may be a difference between 75 basis points to 100 basis points, actually. There's a difference between that. I know the, every month is a variation of 50, 60, 70 basis points, actually. So maybe September was a kind of peak. It could be about peak. We can't, we don't have right term, exact data here, because quarter-to-quarter data is available with me here. But it could be little higher, about 25 basis points. It could be higher than August, September. Okay, just from a, estimation, it may not be too different. And then second part, you said about whether this is a peak. So our view also, it should be peak, but great quarters, it may not be.
What I'm telling technically, is that the PAR accretion or increase should be peak as per us this quarter, or maybe the trend of reversal should start from Q3. So it may be first, August, maybe October may be stabilized, November may start turning around, you know, December may be big improvement. So that kind of change, we are estimating for Q3.
So, credit costs, you're saying that should peak in Q3, so credit cost-wise?
Yes. That is what our estimate.
Okay. And you, bulk of the pain should be, I mean, 80%-90% of the pain should be crystallized in FY25. Is that how one should think about it?
That exactly we are talking about, because our 15+ is carrying almost 60% average rate already. Every quarter, we're already carrying more than 60% for the 15+ DPD book. So by default, even if the March level, you would have carried 60% plus for the 15+ DPD already, right? So automatically, we'll be carrying. We will be crystallizing majority of the cost in the same financial year.
Understood. Understood. And, sir, just last question on, in terms of, growth, how should one think about, you know, this current environment and, you know, going forward for FY 2026 as well, from a growth standpoint, if you have any thoughts?
Our view is we will, we should be turnaround and start in this Q4, and then this continue afterwards. I think we don't see any challenge in FY 2025, 2026. So that is why we are reiterating the medium-term growth or a medium-term, what you call, guidance for INR 50,000 crore by 2028. We are reiterating that.
Got it. Okay, got it. Thanks, and I'll come back in the queue. Thank you.
Thank you. Thank you very much.
Thank you. Next question is from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Hi, good evening. Sir, what was the regular bucket collection efficiency in Q2, and versus Q1? And, is October showing an improvement in that parameter?
So, Q2 was ninety-
Ninety-six.
96%, and Q1 was, it was 97%. So there's 1% variation.
Sir, I'm asking for the regular bucket, zero, zero DPD bucket collection efficiency, specifically, you have that number?
Yes, Rajiv. So the on-time collection is 95% for September quarter, it is 96%.
And October?
As on September, and it's 95. So usually you can take it as the... whatever is in PAR, that will be the non-standard.
So it should be ninety-five.
Yeah.
Okay. Yeah, yeah, okay, okay, and then, is it the right thing to understand that this, this metric has to start stabilizing and improving, so at least the fresh PAR creation will have to start stopping, for the whole situation to stabilize? Is that the right way to monitor this number? And would this number be the key?
No, it will, it will not stop, but it will reduce from here on.
Correct. Correct.
Our view is peak, maybe September is peak, October is stabilizing at the same level and start coming down. This is what our estimation. We are seeing that actually happening already in a couple of states.
Hmm. Mm-hmm, mm-hmm. So what is the parameter in terms of collection metrics, which you are looking at, which will make you start disbursing again, more and more assertively?
No, we are actually dividing branches between the stable branches and a bit of non-stable branches. In the non-stable branches and stable centers, we are actually planning to start this. Already we are disbursing to some extent. Maybe we'll start looking a little more carefully, going from next quarter, actually, October Q3. So our metric is more of a stable branch and stable center for growth, and the non-stable branch and non-stable center is more of a focus on control and collections.
And, sir, your zero to sixty DPD for a-
From a data perspective, our 70% of centers have a zero DPD, actually. So that's where we are actually working on how to renew with better understanding and all. 73%, just for the sake of numbers. So 73% of our centers have zero DPD.
Okay. Okay. And, sir, your zero to sixty DPD bucket has swelled from 1.1% as of June to 2.5% as of September. So, I'm sure you've put a lot of collection effort there, but what is your assessment? Would it largely flow into 60+ , or can you reduce the flow because of whatever efforts you've put?
So, unfortunately, our view is the flow is higher actually, not lower, because these are the type of customers. It's more of a, as I said earlier also, it's more customers we acquired in the last one to two years. The probably at the higher multiple lending segment. So, we are not seeing too much of recovery from there. That is why we are very careful and providing it upfront. So it will come back to some action, but not too much. The flow is little higher compared to earlier.
Mm-hmm. And just one last question. When I look at PAR 0 and PAR 30 figures in Bihar and the newer states, it's pretty high versus the vintage states versus the older states. But even in Bihar, we are on a very similar line with the industry. There is no difference between CreditAccess and other player or the industry as such. Generally, that is not something that you know, we have seen in the vintage states. Even in the newer states, it seems like you're-
Bihar is-
Sorry?
Bihar is only the exception. Bihar is only the exception at this point of time.
Even in the newer states, I believe that when I look at even in the newer states, which, for which you have not given the data of 1 to 180, I'm sure you are very much around the industry there. Yeah.
There we explained where we reduced our portfolio drastically. There is an impact of the base effect also.
Mm-hmm.
That is 2% variations because of the business impact, actually, denominator impact is there. Bihar and UP, largely we are in line with the industry.
Okay. Okay.
Yeah.
Yeah, yeah, yeah, that's it. Thank you.
Yeah. Thank you.
Next question is from the line of Gaurav Kochar from Mirae Asset. Please go ahead.
Yeah. Hi, sir. Good evening. Three questions from my side. Firstly, you know, how much of this PAR 0 buildup that you have seen in, in September, how much of this would you attribute to, let's say, the late monsoon that we saw and floods in various areas? And you have also mentioned in one of the slides that, there were floods and there were collection-related challenges. How much of that would you attribute? And in, in sync with that, let's say in October, how does PAR 0 improve?
Flood-related is about INR 70-80 crores.
That was last twenty crores.
No, no, no. In the last, in the September. Now it has actually already come back to almost 24-20 crores part. So it's flood-related. Okay, there's a small impact in this number because of flood-related, but that is will not significantly impact us. It will actually come back. It has already come back to a large extent, so we should not worry about that. That is not a big part. It is small part, actually, in the September numbers. When, again, October, some more would have gone up in the last couple of days, but again, those will come back. It's not a big number to worry. What was the second question?
Yeah, just in this, in sync with this, let's say the overall October collection efficiency trend, has that improved over September so far, while there are still five more days?
So far it is stable alongside in September, Gaurav. There's not too much. That's what I was telling. October, November, it's more of a stability than we should look at the, improve. Maybe November we'll see that little improve. December should have more improvements.
Got it. Got it. Sure. And so the AUM growth guidance that you've given is 12% for the full year. Now, even if I take the lower end of that guidance, 8%, that is translating into 15% plus growth in the second half of this year. Given the trends currently, and we are in a stabilization sort of a mode, are you comfortable to grow this portfolio by 15% over the September 2024 levels in the second half?
Yeah, that is our estimation. That's again, I'll link back to estimation. In the Q3, we should be able to turn around. That is what the symptoms showing in our book as well as in the field level estimation. If that happens, then we will get almost four months of the disbursement time, which is actually quite sufficient for growing, because we can, we have a very large number of customers renewals coming in the second half. Normally in microfinance business, second half is high renewal, so. And we have a very large number of retained customers. So obviously, we will be targeting our own renewal customers. So we have a good chance of achieving it.
Got it. Just last question, if I can squeeze in. Your credit cost guidance of 4.5-5%, you know, for the full year. So in the first half, you delivered, you know, and if I annualize that, it's closer to 4.6, 4.7%. And you're saying that you expect the collection trends to stabilize in 3Q, and in 4Q it should improve. So is it more on the conservative side, or you believe, you know, that overall credit cost outcomes may be slightly better than that? Is it maybe more conservative on the guidance? Because if I do the math, it translates into, let's say around 700 or 720 or 740 kind of a number, which is provisioning in the second half.
So you expect that sort of credit cost in the second half?
So that is why we kept a little larger, what you call, range, right?
Right.
The larger range we kept because we are. The best case will be the lower range, the worst case should be the other range. That's why we kept that. Because this little uncertainty is there everywhere, right? You can't-
Right.
be very precise as of today. So that is why if you see our entire guidance has a larger range compared to our earlier guidances. Because there is uncertainty, we have some plans, we have some, what you call, indications. Accordingly, we are working. So our view is we should do better. That is why if we do better, we will get a lower range.
Got it. Got it.
Yeah.
Yeah, that's it.
Okay.
Thanks.
Thank you.
A request to all the participants, kindly restrict to one question per participant, and join the queue again for a follow-up question. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
... Yeah, good evening, everyone. Thank you so much for taking my question. Hi, sir. Sir, two things I want to understand. First thing is, in the slides and even in your opening commentary, when you call this as a transitory or temporary increase in delinquencies, I think what we are wanting to communicate is that maybe this credit cycle that we are seeing in the MFI sector today, that will be more short-lived, could get over in this year, rather than transitory in the sense that these are temporary operational difficulties and will get course-corrected in the coming quarters. Is my kind of understanding correct when we use the word transient or temporary?
Yeah, exactly, but it is not necessarily operational difficulties. It is a bit of environmental issues also there. Environment, I'm talking the whole industry sector. It's not just microfinance industry is struggling. It's a lot of other industry which is finance sector, microfinance sector, individual loan sector, the personal loan sector, credit card sector, retail loan sector. You can see all of that, maybe because of the some of the reasons which are in the nature of third-party intervention, some of nature of lack of income, some of the nature of the lack of liquidity and capital because of tight credit norms by everybody. All these are mixed here. So that is why we are saying, because these are short-term loan cycles, so this cycle also should be short-term and should be over in this financial year itself. That is what our view.
Yeah, yeah, Nilesh?
Yeah, Abhijit, one more point to add here. So the thing is that, the MFIN guardrail which have been introduced, in month of July, so that will or that has, significantly tightened the underwriting norms in the industry. So what we are seeing is that because of this, it will be more of accelerated recognition of the stress. So maybe, like what we have been seeing since last year, September, there has been a steady state increase in the delinquencies on account of, various factors. So now it is more of accelerated recognition of these, delinquencies, which will happen in this financial year or, which has, which started, in July, June, and maybe it should end somewhere in third quarter.
So to that extent, as you said rightly, it will be a short-lived delinquency cycle, and post that, the industry delinquency trend should be relatively better.
Yeah.
Thank you. Next question is from Shweta from Elara Capital. Please go ahead.
Yeah, thank you, sir, for the opportunity. So two questions. One is, so you have implemented district-based pricing model, but if I look at Q2 versus Q1's, they have remained largely stable. And, second question, Nilesh, to you. So you mentioned that, customers with four and above lenders are largely the low-vintage portfolio customers, and, and the overlap with other lenders is higher, primarily because your initial origination amount or initial amount has been as low as INR 40,000-INR 45,000 odd rupees. So does it mean that, these customers initially came to you and then suddenly they moved to the other lenders, that's why the number of lender count has increased? Because you were, you were giving, like, lesser amount of loans in the initial phase. Thank you.
Yeah. Shweta, I'll take the second question first. So the point I was trying to make is that, as you know, every year, whatever new customers we are adding, so 30%-35% of the customers are new to credit, which means that the balance, 65%-70% customers are from the existing market. And, the unique proportion is higher in the core markets wherein we have a longer operating history, and, in the newer markets, it's relatively, lower, around, say, 25, 20%-25% or 25%-30%.
So that is where what happens is that when we grow in the newer markets and we are tapping customers from the industry, it is very much possible that the customer has been operating in the microfinance industry for five to ten years, but since it is new to us, we have to start at level zero, wherein we will be lending anywhere between forty thousand to fifty thousand. So that is where, since we are not able to meet their entire requirement, they might end up availing loans from two or three lenders more. So that is the point I was trying to refer, and as the customers build higher vintage with us, their eligibility keeps increasing cycle after cycle, post which we are able to largely fulfill their entire financial requirement.
So that is where, in the higher vintage customers, we see that their exposure with us or their wallet share, and we have a higher wallet share. So that is the point I was trying to make.
Yeah, on this district-based pricing, yes, we implemented already, so there is a bit of shuffle between the districts from the state level to district level now. But it should not change too much numbers, because it's only start catching up quarter by quarter over a period of time, it may change a bit, but it will actually helps us to identify the risk and price it properly at a district level, at a granular level. It will not change too much on the yield immediately, and it will... It's actually not anticipated to have a yield change, actually. It will remain stable because of this.
Thank you.
And then last year we have not grown also, right? We have actually degrown during the quarter, so it will not make too much difference.
...Thank you very much, sir. The next question is from the line of Nikhil Rungta from LIC Mutual Fund. Please go ahead.
Yeah, hi. Thanks for the opportunity.
Hi, Nikhil.
Hi.
Hi, Nikhil.
Hi, hi. Sir, just two questions I will-
Nikhil, sorry to interrupt you. Can you please speak through the handset?
Go on. Yeah, is it fine?
Better. Thank you.
Yeah. Sir, just two questions. I'll say it in one go. One is, we have seen unseasonal rains in October. Of course, you have mentioned that, October, the collection efficiency should be similar or better than September. But because of these unseasonal rain, do we see any impact on October efficiency as well? Second, when will disbursement growth come back? And also, you had earlier mentioned that in every cycle there is some or the other learning, so what's the learning from this cycle, and how are we implementing the change?
Nikhil, thank you. So recent October, we had almost 80 crores of defaults in September because of the rains. Because we had rains in Bihar, Madhya Pradesh, Maharashtra, West Bengal, everywhere. But that default has already come down to 20 crores. So basically, the rains of such kind of default normally will not be a long term. This is only one week or two week, and next week money will come. Similarly, even if in August, October, we may have some difficulty week. I'm anticipating Odisha, Bihar will have some default in the next two days. But still this will come back. We are really will not worry much about it. So whatever collection efficiency will remain stable even with that, so we don't worry much about it.
Second one is about the growth will come back. We estimate we should get at least four months of good, what you call, business momentum in this financial year. Therefore, we calibrated about 8-12% growth potential for this financial year. The lending perspective, you know, the data, what Nilesh explained, clearly show that the default rates are coming from the new customers whom we acquired from a different profiles. So, because if you see any customer, even the new customer is behaving better. So, we need to be improving the underwriting. In guardrails, one way is helping us also. In some cases, we have made more changes than the MFIN guardrails, particularly in your case, so that we will not make the similar mistake what we did before, okay?
So it should help us. We'll continue to retain the customers, which will help us to do well. Again, data clearly shows that. So the learning is to retain our customers and have a better underwriting for the new customers in the new geography.
Okay. Okay. Thank you. Thank you, sir.
Thank you. Next question is from the line of Shreya Shivani from CLSA India. Please go ahead.
Thank you for the opportunity. I just wanted to, two questions. First, I'm not sure if you've already shared this, but this, 15.3% that you've shared, the CRIF plus four, borrowers, as of August twenty-fourth, what would that number be, say, a year ago or any, like year ago, year and a half ago? That would be useful, and second, I wanted to understand that, you spoke about, you split your branch, branches into stable, non-stable, et cetera. So, how is 70% of your, branches, that data that you shared out, does that mean that the, those are stable and the group meetings are continuing over there, and the rest 30%, there's some disruption in the group meetings?
Just wanted to understand details of that 70% data that you were speaking about earlier.
Yeah. The first of CA Grameen plus four, we said about 12-13%. One year before, it was about 8%, if I remember correctly, but not exactly. Maybe Nilesh will check it and let me know later. And in case of branch, I told the centers, not the branch. 70% of centers are behaving, maybe it's distributed in the branches, but at least 40-50 of our branches have a lesser PAR, okay? Those branches we are actually enabling to do business with a better way going forward, because at this point of time, we are actually controlling them also because surrounding system is not very great at this point of time, so we tightened there also.
Maybe slowly, by the six months, they're able to control within the 2% PAR. I think we are actually starting to work and motivate them to acquire customer and disburse more with the strong underwriting process.
Correct. And these customer centers which are under stress, obviously, a bigger chunk would be coming from the state of Bihar for you, right?
Not necessarily. Bihar portfolio itself is only 5% of ours, Shreya.
Correct.
Shreya.
Correct.
It's only 5%. It won't make it out. It's, it's distributed.
Correct. Correct. And sir, just last question I wanted to understand. If I just check the CRIF High Mark data on Bihar state, the different buckets, it seems like majority of the deterioration has just happened in the past two, three months, right? Because till June, the trends are still not so worse off as it looks right now, at least from your numbers.
Yeah.
Assuming your numbers are closer to industry in that case.
Yes, yes. It's the last three months. It's actually the, even for our number also increased in the last three months.
... Thank you. Next question is from the line of Bhavik Dave from Nippon Mutual Fund. Please go ahead.
Yeah. Hi, sir. Am I audible? Yes.
Yes, I hear you.
Yeah. Sir, a couple of questions. One is on incremental growth, right? And when we see how difficult is it to add new customers? We've seen new customer addition drop out. And for us to come back to the growth levels that we think about in FY 26 maybe in the current environment, how difficult will it be to add new customers, considering 6% of our existing customers are already in that four plus lenders, plus two lakh plus ticket size, right? So even the existing customers will attract. So a bit on how we're thinking about growth.
See, the growth will come from two buckets. One is from renewals, and one is from new customer acquisition. So large number of customers will come for renewal in the second quarter, actually. So even if we think about 6% customers we have to drop, so we have already if you look at, we are already acquiring more than 50,000 new customers per month with the new guidelines, right? So it's a bit of scaling normally will happen in the second quarter, second half. So you will have a increase in customers also, increase in renewals also. These two things should take care of your what I call moderate growth, what we estimated.
Thank you. Next question is from the line of Hardik Shah from Goldman Sachs. Please go ahead.
Yeah, I think Bhavik wanted to ask one or two questions, I think. Sorry to interrupt.
So one moment. Bhavik, do you have any follow-up questions?
Hello. Yeah, yeah. So one, another question was, sir, in terms of, in terms of the customer behavior, right? And we've understood that, customers have very high understanding in terms of, their credit scores. This cycle wherein the incomes have not got impacted, but obviously some overleveraging has taken place. Do you see customers coming back and repaying as in when they have their money in their account, rather than just, like, going away? Is that recovery or behavior visible in this cycle? Because COVID incomes got impacted, so did during demonetization. This cycle is very different, so how is the consumer behavior or customer behavior in this cycle? If you could just talk about it.
I think we need to wait and see. As of now, in the last three to four months, our experience that are actually moving forward is much higher than the recovery here. So we have to see probably next three months and see how it changes. As of now, it's mostly moving forward, the lesser recovery we are seeing.
Okay. Okay, that's it. Thank you, sir.
Thank you. Next question is from the line of Hardik Shah from Goldman Sachs. Please go ahead.
Thank you for the opportunity. Am I audible, sir?
Yeah, yeah. Hardik, please.
Yeah. Sir, I have two questions. One is, last quarter you alluded that, your ability to access customers was better in Q2 , and hence you were receiving partial payments. How is that trending for the delinquent customers? Number one. And number two, if I see the fresh flows across states from Q1 to Q2, that has gone up across states. Karnataka has gone, for example, from 0.3% to 0.9%, Tamil Nadu from 1% to 1.7%, Maharashtra from 0.5% to 2.6%. So what is giving you the confidence that things will stabilize in Q3 , and improve in Q4, given that fresh flows are continuing to come across states?
The access to delinquent customer is still good, but unfortunately, the recovery is little less compared to earlier, actually.
Yeah.
We thought in the June quarter, we should be able to do. We'll be able to recover, but it is not exactly what we had wished earlier. So it is not in the expected lines. We expected to recover more. Unfortunately, these kind of customers who have multiple lending and probably what we say, overleveraged or so, I think there are actually so many third-party interventions in many states, they are not repaying, so less repayment is coming. It actually is not as per our wish as of now.
And the second what you said is, yes, there is an increase in the what you call Karnataka, Maharashtra also, but it's not as high as compared to the whole industry or compared to the other states. We strongly believe that that will still is controllable and then we will be able to manage much better. And already, you know, we need to keep checking the field information, how it's moving. We are seeing the stabilization in both Karnataka, in Maharashtra and Madhya Pradesh and Chhattisgarh, the large part of there. Even Tamil Nadu, for example, is showing 6.2% today PAR 0, but it is actually by and large stabilized between what are called accrual.
Addition in August or addition in September or this October is not higher than the previous month. So therefore, we are seeing that kind of sign in many states. So therefore, we have a strong belief that we should be able to turn around in Q3, and we should be able to grow in the Q4, unless something more different thing happens. Okay? As of now.
Okay.
This is our strong-
The ban made by NBFC, ban made by RBI for a couple of NBFCs or also microfinance players, will that accentuate problems in some of the states that you operate in, in terms of liquidity and hence the problem that was accentuated by MFIN guardrails could kind of get accentuated even further?
It should not be, because our overlap with such as any of these players are very, very low. So therefore, we don't see any such charge. Because our maximum overlap is only with IndusInd Bank. No other we have even double-digit overlap, actually. So we don't have any worry about that.
Okay. And, sir, last question on your retail book, which you've grown a lot in this quarter, although it remains a very low proportion. Any color on the asset quality there? How is that trending?
So that, that asset quality is excellent, I mean, very, very good actually. So I think overall, within 0.6% of PAR 30 kind of thing.
Understood. Understood. Okay. Thank you. Thank you, sir.
Very, okay, 0.6, 0.3, sorry.
Thank you. I request all the participants, kindly restrict to one question per participant. Next question is from the line of Gaurav Sharma from HSBC. Please go ahead.
Yeah. Am I audible?
Yeah. Yeah, Gaurav.
Yeah, sir, thank you for taking my question. So two questions. One is, so we have seen that you have increased your branches, but in the number of employees, we have seen that they have decreased from the last quarter. So what explain this divergence? That is number one. And second, sir, you have mentioned in the medium term that share of retail finance would be around double digits. So and given your target of sixty thousand crores, so do you think you will be growing this segment build more aggressively and their share may increase in medium term, or you'll stick to your previous guide on the share of the retail finance portfolio, sir?
I will on second one. Our retail finance will grow as per our earlier model of what we said that by FY28, we will reach up to 15%. So that is what the way we are going. So it will not grow, it will not grow too fast, but it not too slow also. 15% reaching by, by FY28 means we should reach 7,000 crore, which is almost, you know, from 1,000 crore to 7,000 crore is not small. But the, it will grow in speed, but percentage will remain about 15%. On the employees, it's a small operation. I think it's about 200 employees have changed. There may be more in training, which is not comes in the, in the number.
So there is no, what you call, worry about any employee attrition issues with that.
Okay. And sir, hiring for these additional branches has already been done or it will come in the, like, the operation?
Normally, we start with a few employees to start branch. Because normally, once you open the branch, it takes at least two months' time to start business. So therefore, in that process, we will take employees and we'll hire, maybe one or two employee would have hired first, branch manager and one employee, then within two months, we'll hire employees for those branches.
Understood. Understood, sir. Those are my only questions. Thank you so much.
Thank you.
Thank you. Next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Hi, sir. So one question. So the key issue in this time is over-leverage at the customer level, and this will keep on repeating with two, three years. So what we are doing to make customer exclusive for us? Because the best asset quality experience is provided by the customers who are exclusive to us. So from here onward, what are the steps we are taking so that more and more customers are exclusive to us?
See, always our operating model is to acquire and retain the base. It is only in that possibility. It is only reevaluated that that is the best way of dealing with microfinance business. So I think it is more of a underwriting improvement, which we already know some cases, they're actually stringent than the MFIN guardrails. Some more analytical ability we have used. So I think we will keep doing what we did and plus additional underwriting process, and high touch will remain as our core business model, which will help us to grow. It's a temporary, but yeah, we will definitely learn some of these lessons and build more robust process to retain our employee, yeah, our customers.
And sir, just to add that MFIN guardrails are also pretty aggressive. They are allowing up to four lenders. So isn't that still-
Yeah
...reasonably aggressive in my mind? And up to two lakh rupees, they are allowing. So ideally, we should be operating at much lower numbers, at least in number of lenders, internally.
I think it should be calibrated, you know. I think it is even now, I think it's not that time to comment on that from my side. But we should look at the vintage customers of non-vintage, and then we should work on different model. As you see from data, a vintage customer with the high leverage, still it is good that there is no delinquency or less delinquency, right? So we need to be little careful in designing it, but we will... At least this time it is important to start something. It may be three lender or four lender. There was enough debate happened. Finally, we said, let us start with four lender. Maybe over a period, we will move to three lender. Also, depends looking at the implementation and the results, actually.
But the MFIN said that after Q3, they will again review and see the impact of the guardrails. Whether to make it more stringent or to add more parameters, they will look at it.
Okay, sir. Okay. That's it from my side.
Thank you.
Thank you. Next question is from the line of Shreepal Doshi from Equirus Securities. Please go ahead.
Hi, sir. Good evening, and thank you for giving me the opportunity. So my question was on how are the center meeting attendance trending as in in the month of October? And from the qualitative aspect side is there a like how is the inherent will to repay the loan, that aspect being you know discussed with like with customers from your RMs or you know your senior RMs who are right now going at the ground level purely?
So center attendance, there is no variation in October or September. I think largely we are more than 60-65% in the southern market, so little, little less in the northern market. You know, it's maybe 50-58%. So there's always 50 difference. And willing to pay, you know, even, even if you take average 50%, uh, of the 50-58% center attendance, your on-time collection is 95%. That itself shows there is a willingness to pay, correct? So even they ensure that they are, they're paying to the center, actually. So if you ask me what is my door-to-door collection, it's only about maybe 3-4%. Other than everything is paid in center and on time.
Therefore, you know, sometimes we need to be giving that extra space for customers, even though they are not coming to center meeting. They're willing to pay and paying on time in the same center. They may have their own difficulty to attend the center meeting, so therefore, we are, we are fine with that, actually.
Got it. Sir, just one last question. From these 27% centers which are relatively having higher delinquency, so which state would these be coming from or, you know, would be part of?
This is the spread in all states. You know, higher the delinquency state would have a higher percentage. Lower delinquency state will have lower percentage, correct? But largely it is in the little higher delinquency states like in Tamil Nadu, Bihar, Jharkhand, Rajasthan, Kerala. These are the little higher in terms of percentage of centers.
What strategy we have deployed to improve our collections there?
Those centers need to be, you know, basically assigned to the better experienced employees there. They will have a higher... In a branch, higher proportion such centers will be handled by a more experienced employee to handle and motivate the customers.
Got it, sir. Got it. Thank you, sir. Thank you so much for answering my question, sir.
Thank you, Shreepal. Take care.
Thank you very much. Ladies and gentlemen, we'll take that as our last question. I'll now hand the conference over to Mr. Renish Bhuva for closing comments.
Yeah, thank you, Udaya sir, team for such a detailed answers. Thank you, everyone. We can now log off.
Thank you very much.
Thank you. Thanks, everybody, and happy Diwali to everybody.
Thank you, sir. Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.