Ladies and gentlemen, good morning, and welcome to the earnings call of Equitas Small Finance Bank Limited's financial performance for Q4 FY 2023. We have with us today Mr. P. N. Vasudevan, MD and CEO, Mr. Sridharan N., CFO, Mr. Murali Vaidyanathan, Senior President and Country Head, Branch Banking, Liabilities, Product, and Wealth, Mr. Rohit Phadke, Senior President and Head, Assets, Mr. Natarajan N., President and Head, Treasury, and Mr. Rahul Rajagopalan, DVP, Strategy and IR. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone telephone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. P. N. Vasudevan.
Thank you, and over to you, sir.
Good morning, and thank you for dialing in on a Saturday morning. At the macro level, in many parts of the world, we are witnessing turbulence in the financial sector. However, the Indian banking system seems to be far more resilient, and outlook, as things stand today, looks quite positive. The banking sector credit growth has been on a high at around 15% last year, while the deposit growth has been around the 10% level. Clearly, the scramble for deposits is set to increase in the current financial year. Moving on to Equitas, I believe that the initial years of building a brand, raising liabilities, building systems, embarking on technology journey, adding people, all have come out well, and we feel that we are on the right path in our journey of building a stable, sustainable, and scalable bank.
On asset quality, I'm happy to share that the overall asset quality has improved significantly over the last year. Our GNPA as of March 2023, at 2.6%, is at the same level of pre-COVID days. Last year, we had guided for a 1.5% credit cost, and the actuals has turned out to be at the same level. Since our opening GNPA for the current year has come to the normal level, we believe credit cost also would get back to its normal level of around the 1.2%-1.25%. On advances growth, we had recorded a 35% growth last year. For the current year, we expect advances to grow around the 25%-30% level.
We have not been guiding on ROA, but since we became a bank, we have been saying as a model, Equitas should be geared for a 2%-2.25% ROA, assuming that there are no heavy headwinds from the market. We became a bank in September 2016, and the demonetization happened in November 2016, which led to stress in the microfinance world. It took us nearly three years post this to come to an ROA of 2.1% for the quarter ending December 2019. With COVID hitting us in March 2020, we faltered on the ROA again, and it took us about one and a half years to come back to the 2.2% ROA for the quarter ending December 2022.
After becoming a bank 6 years back, this is the first time that we have been able to deliver an over 2% ROA consecutively for 2 quarters. I hope that with God's grace, we should be able to maintain consistency on this front going forward. Our balance sheet continues to remain robust, and we are well capitalized with capital equity at 23.8%. I am also happy to report that the board of directors of the bank has recommended a maiden dividend of INR 1 per equity share for the financial year 2023. Our landed cost of money has been coming down over the years after becoming a bank. For the next 5-6 years, we expect this to play out further because of the kind of robust retail liability franchise that we have been able to build over the last 5-6 years.
This should help get our cost of funds very close to the larger banks as we move into the next 5-6 year phase of the bank. The full benefit of having become a bank would be visible over these 5-6 years. With a good retail liability franchise built up, a wide range of retail lending products in place, and probably the best of governance standards in the industry, I believe we are entering into the best phase of the bank, and in this journey, I look forward to all of your continued support to the bank. We look forward to your support in this exciting journey. I thank you once again for dialing in on a Saturday morning. Thank you so much, and I now hand the call over to Rohit.
Thank you, Vasudevan, sir, and a very good morning to everybody. Advances have grown by 35% year-on-year and 12% quarter-on-quarter to INR 27,861 crores. Quarterly disbursements at INR 5,917 crores, grew by 80% year-on-year. This is the highest ever quarterly disbursement. Collections, too, have been strong, and the GNPA, in absolute terms, has come down from INR 837 crores in March 2022 to INR 724 crores in March 2023. SBL advances have crossed INR 10,000 crores. Driven by strong demand in the retail sector, small business loans lead pipeline remains strong.
SBL disbursements grew by 56% year-on-year. Quarterly disbursements for SBL too were the highest ever disbursements in a quarter. Merchant OD disbursements continue to gain momentum, and the portfolio is showing an increasing trend month after month. X bucket collection efficiency in SBL continues to be at 99.6%. CV sales have grown by 38% year-on-year on the back of strong demand, load availability, and higher freight rates. Passenger vehicle sales have hit an all-time high, with sales of 36.2 lakh units, a growth of 23% year-on-year. Vehicle finance also delivered their highest ever disbursements in a quarter. Improving cash flows of customers have resulted in improving collections. X bucket collection efficiency for vehicle finance was at 99%. The overdue pool, GNPA, and 1-90 DPD for the vehicle finance businesses all have reached pre-COVID levels.
Microfinance has also seen a strong comeback, with growth in advances and improving collection efficiencies and GNPA reduction. X bucket collection efficiency in microfinance was at 99.6%. Affordable Home Loans continue to gather pace. In addition to Gujarat and Maharashtra, Affordable Home Loans are now operational in Tamil Nadu, Andhra Pradesh, Telangana, and Karnataka. Based on the strong demand from all sectors and improving cash flows for customers, I do see a good momentum building, building up for a quality growth in advances. Thank you. Over to Muru.
Thank you, Rohit. Good morning, all. I think, like, Mr. Vasudevan clearly mentioned, credit growth growing across is a very welcome sign, and there is a squeeze of liquidity, we are seeing it across. And, despite that, we can happily say that we have grown on our deposits by 34%. It has been a continuous journey for us as we are, you know, looking up to enhancing our acquisition through our sales, as well as specialized digital channel through B2C and B2B2C. I'm happy to say that all those three cylinders are firing adequately, and we have introduced something called VRM one year back, and virtual relationship managers are helping us, and that portfolio has grown significantly. So is the physical RM channel.
So relationship management is helping us to grow the core, which we call it as a program book, Elite. Now, Elite book has crossed INR 11,500 crore RV, thanks to, you know, family based banking concept. So close to 68,000 families are banking with us. That shows the insight of it. Second thing is we are seeing a good green shoot on current account. We are getting into transaction-centric approach, and current account has been backed up by our acquiring business, where we are, like Rohit rightly mentioned, merchant OD on one side, we also have POS machine, QR code, and payment and transaction solution. We are there in top 25, and I think single largest SFB at this point of time in terms of, you know, machines as well as transaction value.
So that's one good value proposition, which is working. On the issuance side, good to see that our debit card spends in terms of e-com as well as offshore. We are actually making a good, you know, industry benchmark, and we should continue to focus on that side. RTD is looking up. Since saver is a key concept for us, we are getting into saver more and more. As we get deeper and deeper, shifting of money for temporarily should happen because that's the best value and best emergent need, which is happening. So overall, domestic side, we are, you know, consolidated and grown well. On NR side, the growth has been very encouraging. We are now present in close to 100 countries across where we have customers, and our book has crossed INR 1,400 crore of NR book.
That's another healthy sign of creating a channel and going detailed into it helped us. In terms of PPP, that is third-party income, our insurance, mutual fund, and our third-party distribution of broking accounts and all in all, put together, is showing a very good traction, and that is helping the customers to expand their investment as well as, trading, requirements. So increasingly, we see that our, you know, continued focus on CASA to gain the acquisition, penetrating through RTD as a key approach. And, with that note, I hand it over to, Mr. Natarajan, treasury, to take over, give us the treasury perspective.
Update this.
Good morning, everyone. FY 2023 has been a challenging one on the market front, as the Russian invasion of Ukraine made things worse for central banks globally in the fight against a high and non-transitory inflation levels. Cryptocurrency and crypto exchange meltdowns, bank collapses in the U.S. and Europe, and economic collapse of small countries were second-order derivative effects of steep interest rate hike cycles that led to disruption and heightened volatility in markets across the globe. By FY 2024, inflation appears to have peaked out globally, but continues to remain elevated. This is resulting in interest rates remaining higher for longer period and disrupting growth. Global consumer sentiment continues to remain strong, and outside of tech, global labor market continues to be robust. With falling energy prices and the reopening of China, global slowdown is not expected to be as severe as feared earlier.
India continues to remain better positioned, both structurally and cyclically, and is expected to be one of the fastest-growing economies in the world, with the RBI predicting GDP growth at 6.5. This is supported by India's high-frequency data indicators, such as sustained GST collections, strong manufacturing and agricultural activity output, moderating inflation and credit growth, all pointing towards elevated activity levels which signals confidence in the Indian economy.
Markets continue to look for central banks for clues on interest rates, and the volatility may remain elevated till clarity emerges on the direction of rates as central banks continue to fight inflation. Coming to Equitas Small Finance performance for last quarter, this has been another stable performance. Profit on sale of investments was INR 2.9 crore, and MT M depreciation for the quarter stood at INR 1 crore. Our funding profile has been quite stable, with opportunities available to raise funds, both in the form of refinance as well as IBPC . With this, I hand it over to Sridharan .
Good morning to everyone. We had a good quarter on all fronts, including growth in advances, deposits, and profit. Our net interest income for the quarter came at INR 707 crores, as compared to INR 552 crores during the same quarter last year, registering a growth of 28% Y on Y. Other income for the quarter came in at INR 215 crores as compared to INR 105 crores, a growth of 104%. Other income for the quarter includes INR 70 crores of income received from sale to ARC. Net income grew 32% year on year to INR 922 crores, as compared to INR 658 crores during the same quarter last year. The total operating expenditure came at INR 536 crores, as compared to INR 374 crores during the same quarter previous year.
Cost to income moderated to 58.09% for the quarter. Excluding the impact of income from the ARC sale, the cost to income would have been 62.87% for the quarter. Core pre-provisioning operating profit grew 11% year-over-year and 13% quarter-over-quarter to INR 631 crore. Core PPOP to assets expanded to 3.79% for the quarter from 3.62% of last quarter. PAT for the quarter came in at INR 190 crore, as against INR 120 crore during the same period last year, registering a growth of 59% year-over-year. The annual PAT showed a growth of 104% to INR 534 crore from INR 281 crore in FY 2022.
As indicated earlier, the bank has completed the sale of microfinance loans to an ARC amounting to INR 581 crore, out of which loan amounting to INR 500 crore were already written off and balance were 100% provided. Out of the sale profits of INR 80 crore, the bank has recognized INR 70 crore as other income and reversed the excess provision on NPA assets sold to the ARC, amounting to INR 11 crore. The bank has also provided INR 40 crore against the security receipts it held as per the RBI guidelines. Now, moving on to asset quality and provision. The bank carries a total provision of INR 549 crore, NPA provision of INR 412 crore, and provision on standard asset at INR 137 crore.
In order to strengthen the PCR, the management made additional provisions of INR 90 crore and total provision for the quarter is at INR 85 crore. Details on this are given on slide 10 of our investor presentation. GNPA improved by 147 basis points year on year and came in at 2.6% in quarter, Q4 FY 2023, as compared to 3.46% in Q3 FY 2023, and 4.06% in Q4 FY 2022. The NNPA came at 1.14% in Q4 FY 2023, as compared to 1.73% in Q3 FY 2023, and 2.37% in Q4 FY 2022. Provision coverage ratio improved to 56.9%.
As of March 31, 2023, the total CRAR at 23.8%, comprising of Tier 1 at 23.08% and Tier 2 at 0.72%. With this, I would like to hand over to operator, and we'll be happy to take questions from your end. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on 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 queue assembles. We have our first question from the line of Darpan Shah from ICICI India. Please go ahead.
Hi, good morning, and congratulations to the team for such a wonderful numbers. So my first question is on cost to assets. You know, we ended the year FY 2023 at approximately 6.3%. So where do you see this trending over the next couple of years, and what will be the drivers for it?
Yeah. Hi, morning. You know, cost to assets will come down over the next few years, but it'll come down very slowly because cost to assets is going to be a factor of the product mix that we have. You know, the existing products that we currently are lending and having, they are all generally very high touch, high feel, kind of a credit process that you know, that we have. And the ticket sizes are you know, at a lower level. In fact, the average disbursement value per account, if I remove microfinance and the NBFC lending, then the average ticket size comes to anywhere around INR 6.4 lakhs-INR 6.5 lakhs per customer.
So, the current mix is that we have that kind of a mix of portfolio today, requiring high touch and feel credit process, and our current cost to assets is where it is today. This is going to come down over the next few years as we, you know, introduce newer products, where the touch and feel might be a little less required, the ticket size might be more than an average of INR 6 lakh. All that will lead to a reduction in this, but that's going to be a very slow process. It's not going to happen in a hurry. So over the next maybe 3-4 years, we might see it coming down, you know, slowly and marginally.
Okay. Would you be able to put any numbers for FY 2025, FY 2024, 2025, both the years will run?
I don't have a number for FY twenty... FY 2024, so I think you can broadly take it that it'll be remaining very much close to where it is today, because, the new product that we'll introduce is largely going to be personal loan, but it'll come only in the second half of the year, and so it will not have material impact, for the current year. So it may not change. The current year may not change much, but, 2025 may change, but it will be very marginal. I don't have a number it'll be, but it'll be marginal.
Okay, thanks. The second question is on growth trends. So you already mentioned about 25%-30% kind of a growth. So here microfinance again will be the, you know, will be following the same proportion as it is today, or we'll see some, you know, shrinking down?
Yeah, microfinance is currently around 18.7% or so, and over the next 5 years, we should see that coming down by maybe approximately about 4%-5%.
Okay. Okay, thanks. I'll come in the queue for other questions. Thank you.
Thank you.
Thank you. We have our next question from the line of Shreepal Doshi from Equirus. Please go ahead.
Hello, sir. Good morning, and congrats to the whole team for the great quarter. So I wanted to understand firstly, that the additional provisions that we have taken for the purpose of strengthening. It also states that there was some change in policy. So what is this about?
Can you repeat that? It was not quite clear.
We have taken an additional provision of INR 90 crore during the quarter, and it is mentioned that this was due to change in policy, the provision policy for March 2023. So what is the tweak in the policy? Just wanted to understand.
Okay. So these are basically, you know, some kind of provisioning changes on the various NPA buckets. So, you know, when the NPA is 90 days, it becomes NPA, then, you know, at various stages of the NPA, we have certain provisioning percentages. So we changed some of that by, you know, increasing the percentage of provision at an earlier stage of the NPA. So it's basically that. And, you know, this has to be consistent, so whatever we change will remain consistent going forward.
Okay.
Shreepal, if you refer to the Q4 presentation of last, last year, you will get the details for this.
Okay, I'll take it offline in that case. So I just wanted to understand that during this year, during the last 12 months, we've added 3,000 employees and so just wanted to understand what function or business segments this recruitment would be in. And going ahead, what is our branch expansion strategy? Because we have not really added many branches in the last 2-3 years. So from that point of view, wanted to understand this aspect.
See, on the branch part of it, you know, we do have a pretty good network of branches today, and the first focus is going to be to leverage the existing branch network. There will be approximately an addition of maybe about 15 liability branches and maybe another about 30-40 asset branches for the current financial year. But by and large, the focus will remain leveraging the existing branch network that we have. In terms of the staff, I'll ask Rahul to brief you.
Shreepal, from last quarter to this quarter, roughly around 550 odd employee additions have happened. From this, 300 is on the asset side and 200 is on the liability, liability side. And from this 300, again, 50 is largely towards collection, so rest all are business. So it's the sales front-end roles, even on the liability side. Yes, relationship management.
Got it. Got it, sir. And sir, do you still have this approach of having asset and liability branches? We don't have... I mean, don't we just have one branch wherein both asset and liability would be there, right?
So those are things which will evolve over a period of time, you know. As the customer segments become common, then the servicing outlet also will become common, you know? So that's something that will, that will evolve over a period of time, but it's going to take time.
Got it. One last question: So the next project I see in pipeline is the aspiration to become a universal bank. So what's the timeline for the same, or what are, you know, what are your thoughts on the same?
So, you know, we have completed the merger of the whole of the bank, and that was an important milestone that we had to achieve to meet the licensing condition that we had from the regulators. So that just got completed, you know, in the last quarter. So we are in touch with the regulators, and as and when, you know, they give us a green signal that we can apply for a universal bank, we will do that.
Got it. Thank you. Thank you so much, and good luck for the next one.
Yeah, sure. Thank you.
Thank you. We have our next question from the line of Savi Jain from 2 Point2 Capital Advisors LLP. Please go ahead.
Yeah, hi. Can you hear me?
Yes, we can.
Yes.
Yeah. Yeah, congratulations on the numbers. One question I had was on the asset fee income. That is not, you know, track the disbursement growth, which it typically has tracked in the past, so it is a little weird said. Can you explain why that is the case?
Can you please repeat?
So asset fee income, ex of the one-off ARC, other income, if you remove that, the asset fee income growth, QOQ, has been tepid, despite a significant growth in the disbursement number. So typically, there is a correlation between the disbursement and the asset fee income. So I just wanted to know why this quarter has been tepid.
Yeah. So it has gone from 95 to 102.
Yes.
It has increased.
No, no. If you look at the disbursement growth is being significantly higher, right? So, INR 4,797 has gone to INR 5,917, QoQ.
I, uh-
That's a 23.3% QoQ growth in disbursement.
I'll come back offline on this. I don't have a ready answer as of now.
Okay. Okay. And, you know, another question was on the OpEx, especially the other OpEx, which is the one besides the employee cost, that has gone up by 14% QoQ. So is there a one-off there, or what exactly has led to such a large increase this quarter?
There is no one-off, actually. It's a normal increase in the employee expenses, actually.
Ah, other expenses.
Huh?
We're talking of other expenses.
Other expenses. No, see, there is no one-off or something. It is because of the increase in the business, actually, growth.
Just to give you detail, our switching cost as well as our interchange cost make up digital expenses. Is also...
It is measured off. It's only the growth it is.
Yeah. So the other expenses growth is normal only, it's normal business expenses. Along with the business growth, it happens. And as I mentioned earlier, there will be some level of investments that we are committed on the digital side, so this also includes that cost.
So, next year, will there be, you know, the asset growth? Will there be a higher OpEx increase, or will there be a negative operating leverage as well? Because I think the trajectory is quite steep for the other expenses.
Yeah. See, our OpEx growth will continue to remain on the higher side, fundamentally because of two factors. One is that our business model is a high touch and feel model, and so to that extent, the cost will remain sticky. Second thing is that, as we have been mentioning earlier, there are three factors, you know, on which we keep investing. One is in terms of our digital. Second is in terms of our brand awareness. You know, we have to put money behind our brand awareness campaign. We have not been able to spend much in the past, but that's something that we will probably increase. And third is that new product rollouts. You know, we are looking at a personal loan at some point in time.
We will look at a credit card at some point in time. Now the Category A, category one, you know, license has been given to us on Forex. So there's some amount of investment that we'll do on this, 3 new products going forward, as well as on the branding and in terms of digital, which I mentioned earlier. So cost income, I mean, people have been asking us whether our cost income will come down from 63 or 64%, will it come down at some point below 60% and all that. But our response has been generally that, you know, we should be kind of looking at a cost income at a similar level to where it is today.
Fundamentally, because whatever benefit we are able to get out of leveraging our existing investments in various resources will get used to support the future of the bank in the areas that I just mentioned. So by and large, you can expect our cost income to remain at similar levels to where it is today, which means that the OpEx cost increase should be fairly, you know, similar to what we are seeing presently.
Okay. On the ARC sale, the income that you have recognized this quarter, from what I understand, there is not going to be any further provisioning on this in the future, right?
Yeah, there will not be any further provisioning.
Because the security receipts have been 100% provided for, so any collection which will come on NAV basis as well as realization basis will be accounted as income.
Got it. Thank you.
Thank you.
Thank you. We have our next question from the line of Renish Bhuva from ICICI Securities. Please go ahead.
Yeah. Hi, Vasudevan and team. Congrats on a good set of numbers. So first, just two questions from my side. So one is on the margin side, you know. So if you look at the trajectory, margin has been structured around 9, 9.1, despite our cost of fund increasing quarter by quarter. Even this quarter, yields are sluggish, but cost of fund has went up for almost a 20 basis point, and margin has still remained where it is. So, what is the disconnect here, sir?
See, the cost of funds has gone up by 20 basis points during the quarter, but we are also able to recover part of that, in the form of increased lending rate and partly in terms of some level of operating efficiency, which comes in the system. So while the NIMs are more or less flat, you know, just marginally higher than the last quarter, going forward, also we, we should expect that maybe in the immediate term, when I say immediate term, maybe the next 2 to 3 quarters kind of an immediate term, we should broadly expect to see the NIM around this, same 9% level, give or take 10 basis points, this way or that way.
But as we have been always saying earlier also, the NIMs will go down over a three- or four-year period, as both new products get launched and they start taking up a decent, you know, size of the book, which will come at a larger ticket size, which means that it will have a lower operating, you know, cost, etc. So as those kind of get rolled out and they start contributing more, the NIMs should start coming down, but I think that's at least a year plus away.
Got it. So sorry, I mean, is it right to assume that, incrementally, whatever pressure we might face on the OpEx side, we'll be able to pass on to the customers?
It's a combination, as I mentioned, of passing on a part of that to the client by way of increased lending rates, and also partly in terms of some level of efficiency that we continue to see in the system.
Got it. No, sir, because, I mean, when we talk to peers, the commentary has been that it has been challenging to pass on the, you know, high lending data, especially in the vehicle finance business. So I just wanted to get a sense what is our stance.
See, by and large, you know, see, we are not talking of a very large increase being passed on to the clients, because, you know, last quarter, the RPA rate did go up by 25 basis points, but subsequently, in the last review, it's remained flat. So we don't expect that from here on, there will be too much of requirement to increase the lending rate. And these marginal increases that we might have to do over the next 2, 3, 4 months, it may be very marginal, frankly. It may not be very high, is what we believe.
Got it, sir. Got it, sir. And so my second question is on the retail TD share. You know, so of course, you know, more than 90% is non-collectible. But if you look at the trajectory from last six quarter, the share of retail TD actually went down to 60% from 80%, year and a half back. So, despite, you know, in most of the calls, we've been highlighting that we are focusing on retail TD, but ultimately, our bulk TD proportion is going up quarter by quarter. So, I mean, how one should read these data points, sir?
There are three sides to it. One is retail TD, in terms of number of customer we are adding into the book, has gone up in last six months, which means average ticket price have come on, and then granularity has gone up. That is one side. Second thing, individuals opting for bulk TD has gone up. Earlier, it used to be only institutions. For example, we have a new segment where NRN individual is also started giving. See, for us, we classify exactly what is, you know, given to us by the regulators. INR 2 crore and above, we categorize it. So even if you come with, say, INR 2.1 crore, it makes a sense to take it into a bulk TD route.
Got it.
So NRN has helped us, and similarly, individuals have helped us. Third thing is, there was a space available in the last quarter where we could get non-callable with a reasonably high duration of 1 year, 2... and 1 year plus. So we went on to that. So increasingly, you will see retail TD in terms of individuals growing, and in bulk also, individuals as well as NRIs coming in. One of the reason is the present different taxation also. So we are seeing a trajectory picking up there. And in bulk, we predominantly don't focus on INR 100 crore, INR 200 crores, between INR 3-10 crore at a specific bucket, which gives us the arbitrage of, costing as well as spread of number of accounts.
Sir, what is the rate differential between retail TD and bulk TD?
See, retail TD is published rate, right? Bulk TD is based on tap. So we normally push for retail TDs only and retail TD rates.
Okay, but not materially high rates.
Today, actually, bulk is cheaper, too, at the industry level.
Got it. Got it. And, so just last question again, it is on the, the participant which asked earlier. Then if we look at in connection with the, the asset fee and the, and the OpEx part, so, let's say with the business growing, other OpEx is growing, but that is not, sort of offsetting by the higher asset fees. So, I mean o f course, it means that we are paying higher on sourcing, and at the same time, we are not able to charge the same fees to the customer. Is that the right way to look at it, or is there some other things which are still happening there?
So on the fee part that you're asking, you know. See, one is, you know, as you keep building the portfolio, operating efficiencies will come into play. And as operating efficiencies will come into play, that will take care of the increased cost that the variable cost that will incur. Secondly, you said that, you know, the sourcing costs. I know. In SBL, 92% of our sourcing is direct, only 8% is through whatever, connectors or intermediaries.
Got it.
Outsourcing is not the issue. On the fee part of it, what has happened is, you know, we have also gotten into other segments, not merely our traditional segments, but more credit-tested segments, where there was an opportunity last quarter. CVs have gone up, so prime CV is a segment. In SBL, secured business loans, which is a slightly high ticket size customer, that was an opportunity, and that is why the fee income has not grown in proportion to the disbursements, but the disbursement spike is very high. So the customer interest income and the operating efficiencies itself will take care of the increased disbursements. It will not lead to a negative cost.
Got it. Got it, sir. Very helpful, sir. Thank you very much, sir.
Thank you. We have our next question from the line of Abhishek Murarka from HSBC. Please go ahead.
Yeah. Hi, good morning, Vasu and team, and, congratulations for a fantastic quarter. My question is, first on credit cost guidance, you know, what, what do you see it, as for FY 2024, especially given, you know, this new provisioning policy? So just some guidance around that would be helpful.
As I mentioned in my earlier remarks also, for the current year, we should be budgeting a credit cost of between 1.2-1.25%.
Okay. Okay, perfect. And my second question is just some color on the business side. So in vehicles, how much yield increase have you been able to take in the last, let's say, let's say a year? And currently, how easy are you finding it to pass on? I know you said that, you know, there's competition, you replied to Renish also. But just some context in terms of the business dynamics, what's happening in terms of, you know, ability to pass on rates?
In vehicles, 50% of our book is on the used CV.
Right.
Yeah, only about 35%-40% is on the new CV, and the remaining 10% in used cars. So the pressure on margins is primarily on the new CV, which is a limited book. See, we intend to... We have scaled up used cars in the last year, and we intend to scale up used cars further. So used car and used CV is a high-margin product, where we don't see a pressure on margins as of now, and the new CV piece is very small. So the product mix will work in favor of vehicle finance.
What would be the rate, the blended yield, right now, for used versus new?
So, currently, the blended yield for vehicle finance is 15%-16%.
16, okay. Okay. All right. And, just some similar commentary around SBL. What would be the yield and how much increase has been taken?
E-SBL blended yield is at 16.5%.
Sorry, could you repeat that?
About 17%.
Okay, okay, got it. Got it. Right. Okay, thanks. Thanks, and all the best.
Thank you.
Thank you. We have our next question from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity. Firstly, on the liabilities, we have seen bit moderation in CASA, on a sequential basis. So how should we think about CASA growth, in FY 24? And secondly, when do we see CASA cost, cost of CASA for us, to trend downwards? Because that still remains quite sticky. When do we get comfort to reduce the SAR rate, for us?
Hi, Murali here. First, you know, your question is very valid. See, at this point of time, the arbitrage between SAR rates and TD is very welcoming for a long-term saver. So if you look into the segment which we operate, savers as a segment, number of people opting to go for TD within the book, taking existing money and bringing in new money, both are going up. So I think at this phase, we should leave it to the depositors, because it is part of consumption cycle, and we should be optimally priced. Today, on SAR rate, there are already most of the banks have crossed 7.25 also, and there are banks which have crossed 6% also.
So the optimum pricing we'll start seeing once the interest rate starts dipping and giving us a favorable turn. So at this point of time, if you see our layering in terms of pricing, I'm sure you are aware, up to 1 lakh bucket, it is 3.5, 1-5, it is 5.5. If you see, these two buckets are growing because the compulsive proposition of spend, which we have put in with debit card, has gone up. So actually, the higher bucket where you have 7%, those are the people actually shifting towards TD and getting the arbitrage out. So effective cost of till we keep growing the 3.5% bucket and 5% bucket for us, it will help us to bring the cost of funds down.
CASA, the only way to pick up now is getting in the new customers to a continuous opportunity which is available in the market, then keep cross-selling TD for a longer duration. That is going to be our approach, and we are continuing in that direction.
... Okay. Can you share some data on what percentage of our SBL is from current customers?
Yeah, it is there in the presentation slide number, savings slab by 20?
Three.
23, we have up to INR 1 lakh, it is 6%. INR 1 lakh to 1 crore, 63%. So 70% of the bucket, okay, between that 1 to 5 will be another 8%-9%. So top 15% of the book, that is up to INR 1 lakh and 1 to is contributing 15% of the book. So we need to keep expanding the pie to get the cost of funds down. We need to expand the INR 1 lakh to 1 crore bucket to get the SAH. This is the two strategy through which relationship banking is working for existing books. Digital banking is working to source customers, and sales channel is there to get the effective penetration.
Sure. How is our success in getting salaried accounts in the market?
Salaried.
Salaried.
Salaried. Salaried, there are two sets of salaried. We have created the... One is you create a corporate code and specifically target. We have close to 1,800 corporates with, you know, 30% of the employees going through us. We also do a unitary basis because our proposition is for savers. We don't have the range of consumer products. So in our star book today, 38%-40%, 38%-40% is salaried individuals who are holding balances with us because of the proposition. So our focus is to get individuals targeted. Second is to cross-sell, to get the CASA on. Third stage, work in progress, which UAT is done. We will take through a digital route to target specific corporates of CA and CD. That work is on.
Secondly, on the asset side, we have written off almost INR 1,000 crore of loan over the last 3 years, by 2021, 2022, 2023. So if you can share some breakdown, how much is microfinance and how much is non-microfinance? What is the strategy to get recovery from these written-off pools?
One sec, let them get the data on the breakup of written-off assets. But, Rohit, in the meanwhile, meanwhile, can talk about what is our likely recovery.
So, see, I'll just give you a sample example of the restructured pool. You'll understand, you know, how it has behaved. In the opening balance, we had INR 1,881 crores of assets restructured. Out of those INR 881 crores, INR 833 crores worth of customers foreclosed or settled their accounts. So the live book there is only INR 726 crores, and about INR 491 crores of customers have been, are, were either written off or in vehicle finance, repossession has happened. Out of this, microfinance, INR 123 crores has been written off, and vehicle finance, INR 153 crores of customers have, the vehicles were repossessed, and current NPA is INR 219 crores.
73% of the customers have really been normal. It's only about 27% of the restructured book customers who have not been able to pay.
This is on the written off assets. If you look at, you know, the microfinance loan, close to INR 535 crores, of which we have sold INR 500 crores.
Last three years written off, he wants a breakup.
Last three years, around INR 400 crore in microfinance and INR 150 crore in CV and BL and INR 60-51 crore. That's the breakup.
Total into?
Into INR 400-INR 600 crores.
Six hundred.
In the last three years, we have written off only INR 600 crore?
Yes.
Yes.
Not more than that.
Technical write-off.
Technical write-off. Okay. Right, Nilesh, you got that? Yeah, yeah. So, okay. As per the... I think I have included both written-off and technical write-offs. That was amounting to around INR 1,000 crore in last-
No, no, no. The technical write-off is what we write off, fundamentally arising out of microfinance-
Finance.
Most of them. The other written off is basically in vehicle finance. You know, when we repossess the vehicle and, and it is sold and there's a shortfall, that is, written off in the, in the same quarter. And, second thing is that in vehicle finance, when the NPA bucket crosses a certain level, like, let's say two years or three years, and we have not been able to repossess the vehicle even after that, then after that point in time, we do again a technical write-off in that vehicle finance, portfolio also. So that's how it goes normally.
Okay. Sure. Sure. Thank you, sir. Thank you. That's it from my side.
Thank you.
Thank you, Nidhesh.
We have our next question from the line of Aravind R. from Sundaram Alternates. Please go ahead.
Yeah, thank you for the opportunity. Like, I just wanted to understand the credit growth, you know, expectation in the next two, few years, and what is the mix you are expecting in each of the segments? I just wanted to understand that, yeah.
So, as Vasu sir mentioned, you know, that we expect growth to be between 25... Advances growth to be between 25%-30% this year. And I think we'll maintain that pace. On the mix between different segments, I think mortgages will be at about 50% of the book. Microfinance will come down from 19% currently to about 15%, and vehicle finance will be at about 20%-25% of the book. So this is what the current scenario is, and this is what we are looking at as of now.
... Yeah. Yeah, thank you. Thank you.
Thank you. We have our next question from the line of Manish Agarwalla from PhillipCapital. Please go ahead.
Yeah, congratulations, team. Just one question on RBI draft on penal charges. So any thought how does that impact Equitas?
If you recall, no, we have been consolidating the past NBFC, EHL with the-
No, the recent circular on penal charges.
I don't think we'll have much of an impact.
Okay. So, so despite being the fact that we are, in a segment where, you know, the overdues, are on the regular criteria, we don't see any negative impact in our numbers.
Hello, can you repeat your...? You're not audible.
Yeah. So the point I was trying to make is that we are in a segment which is self-assessed, and the overdues in that segment are very regular in nature, though the NPs might be very low. So we don't have-- we don't see any impact of this draft regulation on penal charges. That's what you want to confirm, correct?
Yes. That's what we are saying, that there won't be any impact on us on that circular, if the circular comes into effect.
Okay. The other data-keeping question I had, can you confirm what is the outstanding standard asset provisioning and contingent provisioning in the book right now?
Hello? One more time.
Yeah. Outstanding standard asset provisioning and contingent provisioning, if any, in the book?
Yeah.
Yes.
Yeah, the non-NPA provisioning is INR 412 crore and 136 crore is on the standard provision and restructured standard provision. So totaling to INR 548 crore.
Okay. And finally, the restructured book which you have, does that entirely pertains to SBL or we have some portion of retail there?
No, it's across the bank. The number which we have quoted, INR 234 crore, is across the bank. Yep.
Actually, how high it becomes zero.
Do you have the breakup?
Yeah, yeah.
Do you have the breakup?
One second. I'll give you the breakup.
One sec.
One sec, one sec. We'll give you the... I have the breakup.
Okay.
See, we have in SBL, INR 109 crores, CE, INR 80 crores, and MLC, INR 46 crores. Entire microfinance, MUDRA. So these three, totaling to INR 235 crores.
Okay, thank you. Thank you very much. That's helpful.
See, basically on the restructured book, you know, there was a certain level of worry in the market in terms of the size of our restructured book, you know, when we, when we initiated that in December of 2021. You know, we had that 10% of our book restructured, 9.7% or whatever, around 10% of our book was restructured. But the reality is that it's played out fairly well, and you know, today, at the end of March 2023, we are left with only about INR 235 crore of restructured book. And against that restructured book, we have an NPA of INR 177 crore, which is all put out in your presentation at page 11.
And against this, INR 177 crores of NPA in the restructured book, we have 88% provision coverage in the system. So I think we are fairly well covered on the restructuring, and it's actually played out well. And, you know, a bank like ours, which is focusing on a certain segment of borrowers who are from the very, very, you know, the low-income segment, you know, we just got to be a lot more humane, and considerate and empathetic to our client base, in terms of stress, like what we saw in the last two years. We can't just be like any other bank trying to keep our, you know, restructuring or moratorium, et cetera, low. We can't do that.
We just got to be supportive to these customers because, you know, the message that we keep giving internally also to our sales staff and our credit staff when they do a transaction for a customer is that, you know, if they make a mistake. Because, you know, the customer doesn't, beyond a point, he doesn't even know how much he is actually making out of his business. We got to sit down and create a kind of a balance sheet or a P&L for the customer to determine his level of income, and then remove something for his expenses and say, "What's the balance available for an EMI repayment?" And use that to calculate the loan that he can actually be able to borrow and service. So we do that kind of calculation for the customer.
The message to the team is that, you know, you guys make a mistake, what happens is the bank will have a small write-off. The bank will get on with its own life. We'll never be impacted. But for that individual customer for whom our staff makes a mistake, you know, at the end of the process that the bank will roll out, the customer will lose his property, and that property is probably the only property he has in his life, and he'll lose his property. So we just got to be very careful, very sympathetic, and very empathetic with the kind of segment of borrowers that we deal with.
And, so we did go for a very large level of restructuring in 2021, but it's played out well, and the bank has actually come out very strongly after that. And today, the restructuring is mostly completed, in terms of either payment or in terms of closure or in terms of NPA and written off or whatever. Similarly, I'll just give you one more data point, I mean, just to refresh all your memories.
... in 2020, when RBI came with a moratorium, you know, 90% by value and 97% by number of customers took the moratorium in Equitas Bank. Just can you believe that number? 90% by value took moratorium. 97% by number of customers took the moratorium. But at the end of 2 years of COVID, you know, the bank is absolutely back to a very strong financial position. Our GNPA are absolutely back to our pre-COVID levels. Collections are very robust. Customers have been able to come back very strongly and repay their loans and, you know, and save their property and protect their security, whatever they have given to the bank. And so it's really played out very well.
So this kind of an empathetic approach is something that a bank like us will have to, you know, keep in mind all the time. So I just thought that I'll just give you that background, because, quite often we tend to, you know, in our own, you know, analytics on financial numbers, I think sometimes we tend to forget the kind of customer that we service. And when you forget that, then, you know, I don't think you are doing the right, business at all.
Yeah. Thank you, Vasu, sir, for your reply, and all the best.
Sure, sure. Thank you, ma'am. Bye.
Thank you. We have our next question from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Hi, team, good morning. First question is on the slippages front. We have seen a meaningful sequential decline on slippages. Can you give some color on what is driving this decline?
So slippages were down to INR 190 crores from INR 286 crores. So, I think slippages are improving because, you know, there's enough cash flow with the customer now. Collections are improving in the field, and I think this trend will be maintained.
Mm-hmm. You expect the number to decline further from here during FY 2024?
It will definitely improve. It will not, it will not be bad. That much I can tell you 100%. It'll definitely be better than 190.
Okay, okay, perfect. And secondly, on the cost of funds front, we have seen a sequential increase of about 20 basis points. But looking at the liabilities book that we have today, how much... If we assume no further hikes on the term deposit rates and the SA rates which we offer, what is the amount of increase on the cost of funds that we are likely to see at the peak?
See, it is directly proportional to the product mix. Today, we are at CASA ofas we closed last quarter, 42, and that has actually cost of SA is 6.2 or 6.3. Incrementally, as you source TD, the incremental cost of TD is, you know, closer to 8.5. So which means there is an arbitrage of 23, you know, 230 bits, to be very precise. So if we continue to get CASA 45%, as our total composition, we can maintain the CASA costing rate. TD is market-driven. TD, which was 7.1, has moved up to 7.5. So 40 bits increase is what has happened in last 3 quarters if you see.
So if we have to sustain that, we need to increase the CASA to CASA ratio, CASA ratio, and importantly, getting into the TD mix. So TD is market-driven. TD, despite that, you know, 250 bits of RBI hike, we have still not, you know, gone up to the 250 bits. We are at 150, 160 bits at this point of time. Mm-hmm?
One seventy-five.
175 post this hike. So, I think today we don't see an increase in SA rate, so which means SA book can be, as we grow, we can maintain the cost of fund on SA. On TD, we are going on duration centric, so we are looking at certain buckets only. So that is directly driven by the prices. So I think 3-4 bps hike per month over the next six months is seen. Then, as it cools down, we need to bring it back.
Understood. So when you say 3-4 basis points is the hike on cost of funds on a monthly basis, that is-
For TD, because that's a proportion of 55%. Yes, yes.
Is that because of the TDs getting repriced, or you are talking about hike in the-
If you are replacing the existing TD... See, there are two costs of TD. One is you get from the market, which is an open market sourcing, which is directly. Second, you are replacing, on maturity, a lower cost TD with a higher cost one.
Hmm.
Because that is market-driven again.
Okay. Okay, perfect. Thanks a lot. This is helpful.
Thank you. We have our next question from the line of Manoj Oberoi from Yes Securities. Please go ahead.
Yeah. Hi, sir, this is Rajiv. Congratulations on very strong set of numbers. Just a few questions. Firstly, SMA one and two position as of December, what will that be?
SMA one and two?
As of December.
That's basically a talk of standard asset provision.
No, no. I'm saying SMA one and two, portfolio as at the end of December. So you have given as at the end of March in the presentation.
Okay, okay, okay. Okay, you're talking of slide 11, where we have given you March 2022 and March 2023 data. So what's the December number of SMA? Hmm?
...
The total of SMA 1 and 2 in December is?
3.88.
3.88 is the total of SMA 1 and 2 in December.
Okay.
In March, that has come down to what? 3.19 or something like that.
Sir, what happened to those INR 60 crore of restructured standard provision, which we were planning to utilize? Have they been fully consumed in the current quarter in the form of additional provisions?
This quarter, we have consumed INR 11 crore, which has been returned back. So over a period, actually, depending on the collections, subscribed to the RBI guide, you know, the rest will be utilized.
Yeah. So what is the residual balance of those provisions now, which can be, you know, written back, maybe?
Yeah, one second. We have balance of INR 6 crore. Because last, in Q3, we utilized INR 30 crore, actually.
Yeah. Got it. So only INR 6 crore now.
Yeah.
Yeah. And just last thing, so I see you holding PCR of 88% on the restructured NPLs, which is significantly higher than the overall PCR on the NPLs. So why so?
I mean, these are restructured assets because at some point the customer was under stress. So basically, we have a policy of having a higher provision for restructure. And, so that, you know, whatever trouble that might arise in future out of that should be reasonably, you know, covered up. As well, our overall PCR on the entire NPA book is 57% as of March. And, so we should be looking to increase that 57% over the next few quarters, and our target is clearly to go to the 70% level, you know, in the next few quarters.
Got it, sir. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. P. N. Vasudevan for his closing comments. Over to you, sir.
Yeah, thank you. Thanks, all of you, for dialing in and keeping us on our toes with all your questions. We really appreciate it, that you are taking your time out and to help us improve our business and keep it going forward. So we look forward to your continued support. Wishing you all the very best. Bye-bye.
Thank you. On behalf of Equitas Small Finance Bank Limited, we conclude today's conference. Thank you for joining us. You may now disconnect your line.