Ladies and gentlemen, good day, and welcome to the Five-Star Business Finance Limited Q2 FY 2024/2025 earnings conference call hosted by Ambit Capital. 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 phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Raghav Garg from Ambit Capital. Thank you, and over to you, sir.
Five Star Business Finance Limited, represented by-
I'm sorry, sir. Your voice got cut out. Can you repeat that?
Sure. Good afternoon, everyone. We have with us today the management of Five Star Business Finance Limited, represented by Mr. Lakshmipathy Deenadayalan, Chairman and Managing Director, Mr. Rangarajan Krishnan, Joint Managing Director and Chief Executive Officer, and Mr. Srikanth Gopalakrishnan, Joint Managing Director and Chief Financial Officer. Without much ado, I would like to hand over the call to Mr. Lakshmipathy Deenadayalan for his opening remarks, after which we can open the floor for questions. Thank you, and over to you, sir.
Yeah. Thank you, Raghav. Good evening, everyone. A warm welcome to all the people who are on the line. Happy to take you through on the second earnings call for this financial year. So let me straightaway jump into the operational numbers and few updates which I wanted to share with you all. First, let me take you through on the branches. We have opened 113 branches in September quarter. Out of that, 32 are new branches and 77 are split branches. Hope so that you people know what the split branch concept, what Five Star has put in. Let me repeat, the split branches will address the concentration risk in a location, so we'll keep continuing the split branches as we go forward. Now let me take you to the disbursement.
We had a good disbursement of INR 1,251 crore, versus INR 1,200 crore last September. It registering a growth of 4% year-on-year, and INR 1,318 crore in last quarter, June quarter, which shows a negative growth of 5% Q on Q. Yes, we have slowed down our disbursement. This is a conscious strategy to moderate our portfolio growth for a full year. Let me take you to the portfolio. Our portfolio stands at INR 10,927 crore, versus INR 10,333 crore in June and INR 8,264 crore in last September, registering a 6% quarter on quarter growth and 32% year-on-year growth. Considering the current environment and regulators' views, what we hear, the board has taken a call to slow down the growth.
Our guidance for the financial year 2025 will stand at 25%. We will take a call in next financial year. Let me now move towards the collections. We have done well in our collections. Our September quarter collection efficiency was at 98.4%, comparing with 98.5% in June. New customers collection, which we call due on collection, was at 97% in September, versus 97.2% in June. Now, taking you through NPA. Our gross stage 3 assets was at 1.47%, versus 1.41%, which had an increase of six basis points. At the current scenario, we have performed well, both in collections and maintaining a good asset quality. Now let me take you through on the liability side.
We were able to diversify our liability from banks to other structured borrowings. Srikanth, CFO, will speak more about that. On the borrowing cost, the borrowing cost for the quarter was stable at 9.65%, versus 9.65% last June. Incremental borrowing cost was at 9.52%, versus 9.47%, with an increase of just five basis points. Now let me take you through other updates which I wanted to share with you all. First, the rate of interest. In line with our commentary over the last many quarters, we have now decided to drop our lending rates on incremental disbursement, starting from first November 2024, by 200 basis points. That is from 24.5%- 22.5%.
I'm happy to say this, since our portfolio is a fixed rate portfolio, the spread compression impact will be on the incremental disbursement. The second update, which will be more interesting, we have done a bureau scrub of all the primary applicants on active loans as on September 2024. Out of our total active loans of 3.3 lakh, we find that about 13% of our loans, which is 59,000 loans, are over-leveraged. That is, the applicant having three or more loans with other financial institutions. Of the loans which are over-leveraged, only about 1,600 loans, translating to just 0.4% of the total active loans, have exhibited lower collection efficiency in last six months.
Let me repeat: Only 1,600 loans, translating to just 0.5% of our total active loans, have exhibited lower collection efficiency in last six months. We are monitoring this portfolio very closely and also decided to implement stricter underwriting norms for our over-leveraged loans going forward. So with those, updates and, numbers, now I will hand it over to Srikanth to go more deeper into it. Thank you.
Very good evening to all of you. As Mr. Pathy has highlighted, we have had a good quarter in the second quarter as well, despite some sectoral headwinds, especially those that are being faced by the unsecured lenders. But we doing a fully secured product, with strong underwriting and collections mechanism, I think we have managed to, you know, come out with a good set of results even during this quarter. We have an active loan base of 4.3 lakh, so we are still not really putting too much of monies into the hands of the same borrower, but diversifying our portfolio into a much larger base of borrowers. Our yields continue to remain consistent at around 24% or so.
With the drop in yields that we will be doing from first November, you'll see the incremental yields going down, but for it to get reflected in the portfolio, it takes some time. The cost of funds again remaining flat at 9.65%. This has ensured that our spreads have remained flat compared to the last quarter. There has been a slight drop in the net interest margin, primarily on account of leverage, the quantum of debt going up. Our cost to income again, pretty much, stable compared on a sequential quarter, and as we've been guiding in the past, we expect our cost to income, and when we mean cost to income, we are also including the credit cost into this.
So inclusive of credit cost, we'll be at about 35% of cost to income even in a steady state scenario. Healthy ROE is around 8.3%. Our ROE has just crossed 19% for the first time. So this is again on anticipated lines, compression in ROE, and you'll see ROE sort of going up. From a borrowing perspective, we have 443 lenders who have lent monies to us. As we have guided in the past, we are clearly looking at moving towards other than banks to get our debt, and to that extent, we have onboarded Nippon India Mutual Fund and Kotak Mahindra Mutual Fund as lenders to us. They have subscribed to our PTC transaction.
Incidentally, given that this is a public call and today it could be a public news, we also had HDFC Mutual Fund subscribing to our PTCs today. It's HDFC and HSBC Mutual Fund. So clearly, the intent to diversify the borrowings out of the bank is showing a good traction. We have dropped our other than bank borrowings from 74%- 70% during this quarter. These come in at slightly higher rates, which is why you are seeing the incremental debt coming in at 9.52% against 9.447% last quarter. We continue to be good on the liquidity buffer and undrawn sanction lines.
So we had a liquidity buffer of close to INR 1,700 crore and close to INR 250 crore of undrawn sanction lines from banks and other institutions. On the collection efficiency, there was a very marginal dip, which has also contributed to a slight increase in our DPD. But if looked at from the context of what is happening around in the industry, I think the numbers that we have delivered are very impressive. On the provision coverage, we continue to be attractive. We are maintaining about 1.65% of ECL on the overall AUM, and about 62% of provision coverage on stage three assets. So we will continue to, like we said, we'll continue to remain cautious, prudent, and build adequate buffer in good times for any contingencies that might arise.
We booked a PAT of INR 268 crore for the quarter, which is a growth of about 34% on a year-on-year basis. On a sequential basis, our PAT went up by 6% from INR 252 crore- INR 268 crore. Net worth is strong at about a little over INR 5,700 crore. Mr. Pathy has already given the update. The over-leverage issue has not really caused much of an issue for Five Star. The borrowers of Five Star are continuing to pay to us. Given all of these things, I think we will continue to remain very focused, remain cautious, and look at the environment closely before taking any of the decisions, because we all know what is happening around.
But the silver lining for us is the portfolio of Five Star is continuing to perform extremely well, and we will continue to keep monitoring this as we go forward. So on that note, we'll take a pause, and we'll open up for any questions that any of you may have. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask 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. The first question is from the line of Renish from ICICI. Please go ahead.
Yeah, hi, and congratulations on a good set of numbers. So just two things from my side. One, on this, you know, a few business model changes, what we have done, unlike lower growth and a rate cut. So what kind of a profitability impact do you see in FY 2025, FY 2026? And also, does it also mean that the steady state ROEs which you guys might have thought about, maybe, you know, when we started this business, and now, given the changes, which are, you know, sounding more of a structural in nature, what kind of ROEs this business can now generate going ahead, and maybe short-term impact because of the changes?
So, Renish, on the first point, you know, definitely there will be an impact in the profitability on account. More so in FY 2025 on account of the lower growth, because like we said, the yields dropping will not have much of an impact because it's going to be on a very smaller portfolio, rather than we have about 11,000 crores of portfolio which are fixed rate and running at a higher rate. But because we would grow about 4%-5% lower than what our original guidance was, there will be an impact on the profitability. So we have not really worked out our numbers, but I don't think there is going to be a significant compression in our ROA.
So given where our assets will end at, I think we should be, you know, closer to about 8% of ROA for this year. But over a period, I think that definitely will drop to about 6% or so. But really, this is not a new information which we are giving to you today. In fact, all the while, we have been saying that our steady state spread will be about 1%, which will translate to a steady state ROA of about 6% or so. So on a steady state, there is actually no change in our guidance. The only change will probably be on the growth. But at this point of time, we are not giving you a growth guidance for a longer term. Like Mr.
Patty said, the 25% growth is for this year, but we'll continue to be monitoring how things change, and you know, growth is something that we can always fine-tune as we go forward, so I don't think there is an issue from a steady state ROA and ROE as against what we have been talking. It is just that maybe it will happen in a little more faster manner than the sort of gradual manner that we highlighted to you, maybe, when we have been meeting you in the past.
Got it. So nutshell, I mean, we don't foresee any risk to our 12% steady state spread here?
At this point of time, no, Renish. You know, today, I think the way that the environment is changing, we are also, you know, while we can be as proactive as possible, there are times when we have to be reactive. But at this point of time, we don't really see a challenge to our 12% spreads.
Got it. Got it. And also my second question is on the borrower base, right? So, given you know the kind of things, loans, what we are getting on the MFI side, and given our ticket sizes, maybe if you can just clarify, you know, what percentage of our borrower base are having MFI loans, and how is the credit behavior of that pool? And linked to that, do you foresee any let's say collection challenge in that pool, especially the ones who might have two, three, four other MFI loans?
Renish, just to give you a little bit of context, what we have been telling even in the past, our belief, and today with data, it stands, you know, a lot indicated, is the fact that the borrowers have not seen a compression in their incomes, but obviously there is a bit of a pause. There is some level of over-leveraging that has happened. What is happening is, people are starting to prioritize, and in the order of their priority, we stand, you know, almost on top. Which means that they are repaying us. And out of this scrub, which we have done, we see that about roughly 30, 30% of our borrowers also have an active microfinance loan as we speak.
And we are not seeing, you know, while we have not looked at what kind of delinquencies those microfinance institutions are taking, but you just have an overall number and not an institution-wide number. But even on the portfolio where there is a microfinance overlap, we have not seen any deterioration. So the lower collection efficiency that we are seeing is just from about 0.4% of our base, which is about 1,600 loans. So at this point of time, we don't, you know, we don't believe that the issues that are being faced by the microfinance companies from their borrowers, the similar borrowers are prioritizing us and repaying us without any issue. And there is no-
Got it.
You know, early warning signal or whatever it is, that this could also percolate to our portfolio. But like we said, we will continue to keep monitoring the over-leveraged portfolio very closely and be ready for any actions if they are warranted.
So, Renish, so let me repeat and give confidence to the listeners. Five Star in last 22 years, see, we have seen.
... five crises, starting from Andhra crisis, what happened to MFIs, and then demonetization, then COVID and COVID two, and now what we all call as over-leverage crisis. In all the above four crises, Five Star came out very successfully, because I keep repeating, even though we lend to middle and lower middle class people, during the stress time, they prioritize whom to pay, whom not to pay.
So that is why you see the other players who are suffering, whereas the mortgage players like housing and us are comfortably placed because of strong security what we have and our collection infrastructure what we have put at the ground level. Both are giving a good result in this quarter, and I hope and I'm confident that this will continue till this gets settled.
Got it. Got it. No, this is very helpful. Thank you, and best of success.
Thank you.
Thank you very much. The next question is from the line of Viral Shah from IIFL Securities. Please go ahead.
Hi, thank you for the opportunity to let me ask the question. So I had two questions. One is that, with regards to the growth rate, percentage specifically, which is 25%, is there any logic behind it, or is this just based on the discussion, with the regulator or the feedback that you would have, gotten?
See, as I said in opening remarks, board has considered the current environment and the regulators' view, which you and me hear from all sources. So board has taken a very conservative call, that to slow down the growth in this over-leverage time. So, we feel that our board has taken a right call and not grow at the time when everyone speak about over-leveraging. So we have taken a call to step down our growth a bit from 30%, what we said, to 25% for this financial year.
As I said in opening remarks, we will revisit this in the next financial year when we feel and when the board feels that this is, the environment is good, we will go back to our stronger growth as we have been doing in the past.
Thank you, Mr. Pathy. That's crystal clear. On the second question, is that you mentioned that the 14% of your portfolio is basically over-leveraged. Is this on value basis or on volume basis? Like, is it in number of customers or by value of the loans that these customers have with you?
So this is on the basis of number of accounts, Viral, not on value. In fact, on value, it will be slightly lower than this also.
Yeah.
Because, you know, if they have taken so many loans, then our loans also will not be at, let's say, INR 3.5 lakh - INR 4 lakh. So our amount would have been lesser. So this is on an account basis. We have not done the analysis for the value, but very clearly, at the value basis, this number will be smaller.
Also, because there would have also been a rundown,
Right.
-exposure, so of course it will be lower than that. But even as a corollary to that, if we get a color in terms of the definition that you use for the old average customers, is that they have three or more other loans. Do you have color on what are these other loans? Are they secured, unsecured? What is the value of the outstanding of those other loans? Any of those things, do you think?
Again, primarily unsecured, Viral, so we have seen overlaps with MFI, overlaps with gold loans, overlaps with vehicle loans and, you know, agri kind of loans. The overlap with LAP, housing or secured business loans are very, very small. And, you know, typically the number is, yeah, like you said, 30% overlap with microfinance and maybe a similar overlap with gold. Rest of the overlaps are smaller than 30%.
Right. And when you mention that this overlap with vehicle loans, you, which vehicle? You mean to say two-wheelers?
Two-wheeler, yeah.
Okay, and when you mention
something -
Sorry.
Some three wheels could be there, but predominantly two-wheelers.
Got it. And, when you mention the LAP or the housing piece, do these borrowers have another house or the property against which they would have taken this?
They should be having, Viral, because we don't do any pari-passu charge. It's an exclusive charge.
Got it.
They have taken money from us on one property, and if they have taken another housing loan, it should be on a different property.
Got it.
But the numbers are extremely small.
Got it. Got it. That's very clear. Thank you so much, and all the best.
Thank you. Thank you.
Thank you very much. The next question is from the line of Manik Bansal from Master Capital Services Limited. Please go ahead.
Hello. Am I audible?
Yeah, please go ahead.
First of all, congratulations on strong set of numbers, and thank you for the opportunity. I'm having a question on, like, our average loan-to-value ratio has reduced from 40.5% in Quarter One to 39% in Quarter Two, which means that underlying collateral increased around INR 2,200 crore on loan book increase of INR 583 crore. What can be the possible reason? Is the bank focusing on product lending?
So, Manik, the growth has slowed, right? The disbursement is lower. And on an LTV basis, when the loans run down, we don't revalue the collateral, but even assuming the same collateral value, when the loan runs down, obviously, there will be a drop in the LTV. And when you are not adding, you know, higher LTVs at the pace that you have been adding in the past, this number will continue to keep dropping. So you will always see a portfolio LTV that will be much lower. In a lower growth phase, the portfolio LTV will continue to keep dropping, you know, dropping a bit quarter on quarter.
Okay. So, another question is on, like, we added 113 new branches this quarter, right? But the company's loan portfolio grown to about INR 583 crores only in Quarter Two. What can be the possible reasons for this low growth?
So, Manik, we have clarified that most of the branches are split branches. So a split branch is essentially one larger branch getting broken into two. So that does not automatically increase your business outcome or portfolio. So it's more a risk management measure, which we have been explaining in the past few quarters. So over the last quarter, specifically, we had focused on most of the branches which have more than 1,500 loans, and that's the effort which has happened. So almost 77 branches out of the 113 that we opened are split branch category. Also, the other point to note is when you open a new branch, it takes at least three to six months for the branch to stabilize.
So these are investments that we are doing now, and over a period of time, these will yield results. So it's not an immediate, and an automatic increase in business.
Okay, okay. That's easy. And the last question is on, like, the company securitization, company securitization portfolio. The company securitization portfolio has grown from 14%- 18%. Okay, so there is a 4% increase on securitized borrowing, and as the company's con call shows that we have onboarded Kotak Mutual Fund and Nippon Mutual Funds. So will this impact the cost of funds in coming quarters?
Sorry, what is the question? We have onboarded Nippon and Kotak for PTC transactions. What is the question?
So will this impact the cost of funds or overall borrowing mix?
So this is slightly, like I said, Manik, at a premium compared to our, you know, let's say, a bank borrowing. But we are very clear that we want to diversify our borrowing sources. So we end up paying about twenty, twenty-five basis points premium on this. But generally, the way these things work is it will typically be higher cost in the initial transaction, but once they get comfort subscribing to our, you know, portfolios and seeing the performance, we are hoping that at some point of time, the cost will start going down. So we don't really see a long-term impact on these, you know, on these transactions on the cost of funds. But for getting the diversification impact, we have paid a little bit of premium.
Okay. Thank you so much. All the best for your future quarters.
Thank you.
Thank you very much. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Good evening, everyone, thank you for taking my questions. Srikanth, the first thing I just wanted to understand, I'm seeing on our slide six, NIMs have expanded by almost twenty basis points Q2. Is that a right observation?
Yes, sir. It is, NIMs have expanded a little bit.
Sure, I mean, how should we understand this? Because, I mean, all along, what we are understanding is, there are no yield increases that you are taking. On top of that, I mean, I would say cost of borrowing is what you have reported is also largely stable. So, and leverage is indeed going up. So on what basis this NIM expansion?
Abhijit, the last point is where the difference is. The leverage for this quarter has actually come down a little bit. While it's not material, but-
Mm-hmm.
If you look at our debt equity, it's come down from 1.23- 1.20. So the-
Got it.
Pace of network growth is higher than the pace of the borrowing growth.
Got it, sir. This is clear. The other thing is that, I mean, obviously, I mean, audit for the last year, I'm guessing, would have happened by now. I mean, in addition to, I mean, just the loan growth and pricing that you have spoken about, any other observations in the audit, RBI audit?
Abhijit, I have not said this is the outcome of the RBI audit. I said the board has taken a clear view and what commonly that we have been saying for last quarters, based on that, the rate of interest has been reduced two hundred basis points, which we have been saying to the market for some quarters, and we have done it now with the approval of the board, and this gets effective from first November.
Got it, sir. This is clear, and you had spelled this out earlier as well. But what I was trying to understand,Pathy , sir, was, I mean, the audit is over now, and there are no observations from RBI, right? That's what I'm saying.
So this is FY 2023 inspection report has come.
Mm-hmm.
There are no material observations. There are qualitative observations, obviously, how we can strengthen our process around the complaints management, not compliance, but complaints management. So there are qualitative observations, and we have very clearly, you know, taken those suggestions from RBI and we'll be implementing that. In fact, we've implemented most of it and given compliance to RBI also. FY 2024 has also been completed, but we have still not got the final report from RBI... Our interaction with the inspection team during the inspection leads us to believe that there are, you know, there are no red flags, there are going to be no major, you know, observations or inspection findings. But again, we will just want to wait for the final report to come in before we give you a, you know, very clear answer.
This is useful, Srikanth, sir. I mean, I'm very, very heartened, you know, to see the lease. Now, just one last thing, I wanted to understand. While you have already articulated that this 200 basis points cut in our incremental lending rates that we are taking will obviously not have too much of an impact on yields this year. But given that, I mean, in the past you have said, roughly around 25%-27% of our books, of our existing loan book runs down every year, how will this impact come into the portfolio yields over a course of time?
So over a course of time, Abhijit, first where what you are reading as 24% today, 24, 24.1, will gradually start going down. In fact, it will go down much more, you know, quicker than what we have been guiding in the past. So that's what I answered Renish also initially. The impact will be on the faster pace of yield coming down on the book, than what we had guided. So originally, we were thinking that, you know, this, the book will start being at around the incremental yields in three years, but maybe today, that could probably be in FY 2026-FY 2027, we'll start seeing some impact, which is more sharper than what we would have guided. So 2025, I think we will largely be around 24% or slightly lower than that.
But 2026, 2027, the drop will be a little more sharper than what we have been guiding in the past.
So, Abhijit, let me reiterate what Srikanth said earlier. So our long-term guidance, three years, five years down the line, we will be in the spreads of around 12% and our return on assets will be around 6%, and that's the steady state scenario that we are looking for.
Got it, sir, so this is, this is clear now. Thank you so much, and wish you and your team the very best.
Thank you, Abhijit.
Thank you very much. The next question is from the line of Dinesh from Finsight. Please go ahead.
Hello, Sir, can you hear me? Am I audible?
Yes. Yes.
Okay, sir. Thank you for taking my question and, really, you know, great set of numbers under current tough situations, which we understand. So my question is, I would like to know, we have split the branches and, you know, if I remember, you mentioned in the previous call that we would like to reduce the number of employees per branch, from somewhere around, say, like, 20-odd we have right now, what kind of a number we are looking at? Like, I mean, will it be, somewhere in the range of 10- 12? Because definitely some of the employees will get split, right?
Dinesh, on a steady state, we have expect once a branch reaches what we call as an ideal branch kind of a scenario, it will have an average of about 10-11.
Okay, 10-11 , right. So second question on the same lines, like, say, we are increasing our branches, we are definitely adding more employees here, and we are reducing our interest rates, maybe like, whatever, two hundred basis points, and we know the situation is very tough. What kind of a situation actually is there out in the market? Like, say, and we are reducing our growth targets as well, like, I mean, are we expecting the situation will become even worse in the next maybe two, three quarters? Or, do you think, are you seeing maybe the last signs of the revival are there, you know? If you could just give, you know, on the overall macro, what's your view?
Dinesh, I'll add a couple of things, probably invite Srikanth also to add his viewpoint. I think the first point on the interest rates, we have repeated multiple times, even as part of this call, that this is a well-articulated strategy that we have had, and we have been, sort of talking about this for the last few quarters. The spreads that we had additionally enjoyed was because of the lower borrowing costs, and we were waiting for the most appropriate time to pass this on. And today, the board has given us the final approval, and we are going ahead with, the, you know, passing of about two hundred basis points benefit to the customer. So this is exactly as we have anticipated, and this does not deviate from any of the guidance that we have given on the spreads part.
That's clear. The second part I want to also reiterate is that we are not seeing any stress scenario from our books at this point of time. The bureau scrub that we have done is additionally giving us the confidence that if at all, you know, we'll have to look at over-leveraged customers who are sort of not behaving well with us from a collections perspective, it's hardly about 0.4% of the portfolio. Well in control, and anyway, the situation is getting very, very closely monitored, including some tightening of underwriting process as we proceed. But while things within your control are fairly okay, but there will also be scenarios that we have to watch out for from macroeconomic perspective and what's happening in the sector.
So the call to reduce the growth rate, from about 20, you know, 30%, about 25% now, is more in line with what we are seeing around us rather than what we are seeing within us at this point of time. And Mr. Bhatia has very, clearly sort of detailed that out, is that we are not revising any long-term guidance. We are revising the growth guidance given for this year, and we will of course, wait and watch as to how the situation evolves and take a call appropriately at the end of this financial year.
Okay. Thanks for that, you know, elaborate. My last point on the, you know, things we discussed. We mentioned about overleveraged loans, maybe around 0.4% or 1,600 counts, right? My question is, sir, like, say, how do you come to know, like, did we give the loans then at the, towards the end, like they've already borrowed from somebody else, from some other MFIs, and then we gave the loans? Or, what is the sequence of loans, sir? Have you done that study as well? Like, I mean, they were already overleveraged, and then we gave the loans, or, you know?
Because I want to understand the collection efficiency of this particular 1,600 counts, like, are they at the below average or what's the current, you know, situation out there?
So, Dinesh, both the scenarios are possible. Firstly, let me clarify that at the time of sanctioning of the loan, any, loans that they would have had outstanding at that point of time, we would have taken that into account before sanctioning our loan, both from a DBR perspective and from our own risk management perspective. So that's clear.
Yeah.
But especially with respect to unsecured loans, you cannot stop any of these people to go and borrow from unsecured loans. And, you know, that's where the over-leverage is sort of creeping up in the sector. So, I don't have an exact answer how much proportion of this 1,600 had three loans or more at the time of sanction, and how much got or borrowed one more loan post-sanction. But today it stands put together about 1,600. But if you're going to take a guess, it will be more than 50% of people who have taken a loan after we have sanctioned rather than the other way around.
Okay. So, but has this impacted our collection efficiency? Because it has marginally gone down, right? So the risk is there, right?
Yeah, the risk is there. That's why, you know, we are sort of isolating this 1,600 loans and then monitoring closely. Srikanth can give some more color about the 1,600 loans.
Yeah.
So, see, even on the 1,600 loans, it's not like, you know, none of these guys have paid anytime during this six months. There are customers, you know, who have been paying maybe, you know, two installments, three installments during this period. But we are definitely seeing drop in collection efficiency, which means there is some level of, you know, issue at their cash flow level, which is why, you know, we are monitoring this portfolio. See, the other point, what you said, when at the time of underwriting, we have a very stringent mechanism in terms of not going beyond 50% debt burden ratio.
So when we take all of that, it's a little unlikely to presume that, you know, these customers would have had all this over-leverage even at the point of, you know, even at the time of underwriting the loan. So it's more likely that they would have actually taken the loan post, you know, re-sanctioning the loan. And that's what, you know, Mr. Pati also alluded, right? In a personal loan, there is no security. So for others to just come and give the loan is a lot more easier than when you're doing a secured loan, where it can typically be only one lender who can give. So, you know, there is a little bit of laxity in the discipline in the entire lending ecosystem, everybody in the ecosystem tends to get affected.
The good part is the effect on us has been extremely marginal, and, you know, unlike many other players who have suffered, you know, big on the collection efficiency drops or credit costs or NPAs going up, the impact that we have seen is almost close to nothing.
Okay, sir. You know, it was really great. Thank you, and I'll be back in with you for more questions. Thank you very much, and all the best.
All the best.
Thank you very much. The next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
Yeah, I hope I'm audible. Thanks for taking my question. You know, on the credit cost side, you know, I know we are slowing down, you know, looking at what's happening around. But, you know, given the ECL coverage that we are sitting right now, which is closer to 1.6%, do you think it is, you know, it is required that we kind of just inch it up a little bit, you know, and build a little bit of a buffer? Let's say that we would have... You know, something that, let's say we would have done during COVID or, you know, any of the stress periods.
Nischint, if you look at between the last quarter and the current quarter, it has inched up. You know, it has inched up by about two basis points. While obviously, you may think that this number is not a big number, but you know, the ECL model also gives us not too much flexibility to you know, sort of keep pushing these numbers, especially when you have strong PDs and LGD. But yeah, we are fairly in sync with the thoughts that you have echoed, that we will continue to keep monitoring this portfolio. Wherever there is a possibility available to us to you know, push up some of these numbers, we'll continue to keep doing.
You know, our ECL will always be at an appropriate level, you know, depending on how the portfolio is behaving. The bigger impact for us is on the LGD. Even if a loan becomes default, Nischint, we've kind of lost the free buffer. And I can give you a number. If you sort of put a weighted average LGD on our entire portfolio, you know, not on our entire portfolio, on the loans that have turned default, it's around 10%. While if you look at the Stage Three, we are holding almost 52% of provision coverage.
So it's a very high number that we are holding, while it may be a little archaic from a comparison perspective, but if you look at this to the IRAC provisions that's required, we are almost sitting on INR 100 crore of additional provisions, INR 120 crore. So I don't think, you know, we would want to... We had a very detailed discussion, and I think all of us, including the management, the board, and the auditors, feel this is a very appropriate level of provision that we are sitting on.
Sure. And are there any covenants with banks on net NPA or any of that?
... There are commingled missions, but those are more like 3%-4%.
Okay. Sure. And just if you can, Got it. And, I think what you mentioned is that you have around, you know, 46,000 odd customers who have more than three loans. Is that what you mentioned?
It's about 58,000 .
58,000. And total customers as of now are?
About 4.3 lakh .
Okay, got it. What we are then saying is that out of these, around 1,600 are the ones who probably have, you know, exhibited some stress.
Correct. So it is 4.3 lakh, out of which about 13.7%, 58,000 customers, who have three or more loans. Out of these 58,000 customers, 1,600 customers are seeing some lower collection efficiencies, which could possibly, you know, indicate towards some stress in their cash flows, and we are monitoring that portfolio. So on an overall basis, it translates to about 0.4%.
Got it. And just a little bit of a waterfall on the steady state 6% ROA that we are looking at, if you could give some color on that.
So I think, you know, the way that we are looking at this is about 12% spread, which will mean, you know, about 14%-15% net interest margin at a, at an, let's say, three and a half X kind of a leverage. From there, if we are looking at maybe about 5%-5.5% OpEx and about a percentage of credit cost, we will broadly be at about 8.5% pre-tax profit. On a post-tax basis, it should be about 6%.
Got it. And 3.5x leverage is 3.5% to equity, something which you agree with the lenders?
See, comfortable at the lender level and with the kind of, you know, profits that we also keep generating, it's, we want to get there first before, you know, moving to the next level. Three and a half X is a very, very comfortable number for lenders, rating agencies and the external stakeholders.
Got it. Thank you very much, and all the best.
Thank you.
Thank you very much. The next question is from the line of Arvind, from Sundaram Alternates. Please go ahead.
Hello, sir. Thank you so much for the opportunity and congratulations on the set of numbers despite, you know, being in the very tough environment. So, like, one question is, so we have revised down our guidance on AUM growth. Like, if I back calculate, I could see that, you know, disbursements has to be flatish or even go down a bit, when you compare to the second quarter. Like, if that is going to be the case, would we slow down on the branch addition? Or is my understanding right so, sir?
So, Arvind, branch addition is, you know, more a long-term strategy of the company. You will have to keep a lot of things into consideration, including, you know, putting up the distribution network, infrastructure, the people that you want to put in the branch and the risk management. So it's not about the quarter-on-quarter growth or in terms of adjusting based on specific disbursement requirement of a company for a particular quarter. So our branch expansions are more from a perspective that, yeah, we have to become a company with larger distribution outlets, and we are also becoming, you know, lot more well risk-managed company. So that has no direct impact on quarter-on-quarter disbursements. We will continue to do it, and usually also, if you look at historical track record, we always up-sell the branch addition.
Any branches that we wanted to put, it'll obviously be much higher in the first half of the year rather than in the second half of the year, which is what you are seeing even now. You will automatically not see us expanding branches in the same pace in the second half of this year, which is in line with what we have been doing for the last few years.
Sure, sir. If you are like, maybe, like, slow down disbursements, like what kind of, you know, additional guardrails in terms of underwriting are we going to take? Like, because we are going to slow down disbursements, like, there should be some more. Like, are we going to like, require in a much more comfort on LTV or like a far rate? Like, what are the things that we're going to do, like, in the near term?
So, I mean, broadly, two, three things. We have identified certain pockets where, you know, the stress could potentially get built. It could be based on a profile of customer, or it could also be based on the leverage of those customers. So for these cases, we'll definitely be tightening the underwriting norms, both in terms of LTVs and DBRs. So that's the first step, and second, if you're also seeing any collection inefficiencies in particular pockets, there we will be tightening the entire credit underwriting norms in a much more stringent manner than what we are normally doing for the other part of the portfolio. We will take a call based on what we are seeing. The bureau scrub give us a lot more insights, and we'll be using that, you know, to form the basis of underwriting principles.
Sure. Sure, and that's it. Thank you so much.
Thank you very much. The next question is from the line of Chandrasekhar Sridhar from Fidelity International. Please go ahead.
Yeah, hi. Good evening. I have a few questions. So, when you dropped the, disbursement rate from November and given that, sort of AUM growth, disbursements are really going to be weak in the second half, given your sort of AUM number. I mean, if you look historically, I mean, typically 40%-45% of your AUM is contributed by that year disbursements. That number is actually going to be pretty minimal, for this year, and even if we move into next year, the impact is not going to be, you know, very significant. So I'm a little curious to understand, why you are saying that sort of you will get to-...
These are 12% spreads, on an accelerated fashion, especially when disbursement growth is slowing down, the impact on AUM in many ways in 12 months is not, you know, particularly significant. And obviously, coupled with that is, you know, 70% of the borrowings are variable, you know, 12 months out. You know, even if you have a 25 basis points rate cut, it means sort of, we get, you know, some maybe 8- 10 basis points, or 15 basis points somewhere of some sort of an advantage on the borrowing cost. So just curious to understand how you sort of get to 12% spread within two years itself.
So, Chandra, what we guided is for this year it will be at 25%. For next year, we are not predicating these numbers on a 25% growth. Hopefully, there will be some, you know, betterment of conditions, and we could look at, you know, we could look at a different growth. But if you're going to grow at 25%, let us say for the next three years, if the environment is going to stay where it is, and we'll have to grow only 25%, then I agree with your point, it may not happen in two years. And in, you know, in our guidances that we gave, we have not factored in for any of the rate decreases part.
Because I think we also believe that if there is a rate dropped by the RBI and our spreads are sort of inching up, we would want to continue to pass, keep passing these, you know, rate benefits to the customers. We would like to operate at around a 12% spread in a steady state scenario. So the question is not whether the spread will go up. The question is, we would want to keep the spread at around 12%. The only variable in that is the impact of the existing fixed rate book of about INR 10,900 crore. How that is sort of going to run down and how the new disbursement is coming.
There, I agree with you. If the growth rate continues to be slow, then, yeah, two years may not be the point, you know. It may get pushed even beyond that. But if we are able to get to a little better growth rate in the years to come, maybe we'll be able to accelerate that a little bit.
Right. So, I mean, since you're not ruling out more than 200 basis points, so you're starting off with 200. At some point in time, maybe, you know, 12 months out, if you get a further rate cut, you'll just pass it on to further disbursements.
Yes. We will continue to keep evaluating the scenario and, you know, give the benefit to the borrowers. We don't want to, you know, unduly increase our spread. We would like to operate around the 12% spread, and the sooner that we can get there, I think that's also a comfort internally as well as for the regulator.
Right. Okay, what does this mean just in terms of, I mean, given the bulk of, the OpEx is also largely sort of disbursement driven business. I mean, if the disbursement growth itself slows down, I was wondering, how do we start thinking? You said 5%-5.5% OpEx. It's curious to understand, I mean, ideally, if your disbursement slows down, your OpEx should actually start slowing down pretty quickly.
So our disbursement, sorry, our OpEx is, you know, a little more skewed towards fixed salary rather than variable. So while the incentives are variable and are linked towards, you know, the disbursement, the proportion of the variable as a component of the overall salary is more like about 30%-35%. So there is a 65%-70% component that is fixed. So even if there is a slowdown in disbursement, you'll have to see that. In fact, if you currently look at it, our OpEx is not even at about 5.5% or so. It's lower, but we are not even assuming, you know, any scale benefit to come through there.
For the current quarter, the OpEx is about 5.1%, but I'm even assuming a little higher number because if the disbursement continues to remain slow, maybe, you know, the benefit of scale may not come through. So, you know, it's actually the other way than what you're thinking. Our OpEx is not, you know, much variable. It's about 60% fixed.
Right. And you know, just when you put out a credit cost number, sort of steady state in your ROE tree of 100 basis points, I mean, you said that your LGD, you know, historically has been 10%. Just curious, trying to put the two and two somehow don't make sense together when you're talking about credit. That, I guess it'll be the worst sort of worst case scenario you would be thinking of in terms of credit cost, right? Unless you basically, you know, want to up to your PCR to a certain, you know, substantially higher level.
See, there is a buffer built there. Let me not disagree with that. But the question is, you know, it is also a question of, you know, how does the numbers look like when the portfolio starts seasoning? See, what happens when the growth rate slows is that some of these things that we probably have not seen in the last five, seven years could probably come through. So we are making, you know, necessary allowances for all of that. So if the portfolio seasons, you know, are we going to start looking at some of these things?
When there are, you know, more of legal actions that we take, would that mean that there will be a little more discount that we'll have to give to the customer, which means the LGD, which is at 10% today, will probably go up? Some of these are points that we have actually assumed when we put out the 1% rate. You are right, the 1% rate is still, you know, is probably on the, you know, the higher end of the range. What we typically guide is about 75- 100 basis points. When I gave you the ROE, three, I took the higher end of the range.
Right. Lastly, just what's the write-off numbers for the quarter? My calculated number is about INR 10 cror, but, just wanted to get that confirmed.
Yeah, it's about INR 11 crore.
Right. Got it. Okay.
INR 11 crore for the current quarter. These are the INR 7 crore for last quarter. So for the full year, we have written off about INR 18 crore.
Got it. Got it. Thank you.
Thank you very much. The next question is from the line of Aditya Pal from MSA Capital Partners. Please go ahead.
... Hello. Thank you so much for the opportunity, and congratulations to the management on the great set of numbers. So wanted to understand that, now, on the ground, any, the issue that you're seeing, are there any particular geographical pockets that you want to call out, where you're seeing a lot of stress?
No specific geographical pockets, Aditya. I think the bureau scrub gave us some insights in terms of particular category of customers, but it is not concentrated to any single geography.
Understood. And, sir, a broader point would be that, is this a longer-term issue that you are seeing? Because what we are hearing from it is the listed microfinance entities that, by Q4, the balance sheet of the customers should be fine with the good monsoon and income picking up in the rural areas. Anything that you want to highlight over there?
See, Aditya, this is, I'm, my hope is this is not going to be a longer term issues. When the microfinance companies slow down their growth, when they are very clear on whom to lend, how to lend, this scenario, that is, over-leveraged scenario, will slowly come down, and it'll die soon. We are hoping for that, and regulators also are taking a tighter norms on the unsecured loans. So I don't see this panning out for a longer period of time. It's going to be a shorter period of time. The board has taken a very clear call.
During the shorter period of time, let's focus more on collections and credit underwriting rather than growing at this over-leveraged time. So that's why we have brought down our growth. So my hope is, it should be shorter, may not more than two quarters from now.
Understood. And, sir, another question was that, so now we are splitting our branches. How long do you foresee that where we are splitting our branches, and then finally we'll be following the organic branch growth, when this entire program is finished, completed?
Yeah, Aditya, the split branch concept is not for growth. That's for addressing the concentration risk at a particular location. We have been explaining in a few quarters that when a branch grows beyond a size, we don't want the bunch of our employees in the same location and bunch of our customers in the same location. So to address the concentration risk, we are splitting that branch into two, so the accounts are equally split, the employees are equally split. So the growth will be as normal. Don't take these branches as new branches, because those are old branches, where the concentration risk has been put in place.
The new branches, which we opened 36 and which we will open, as we go forward, that will drive the growth, much faster. But Aditya, if I may just add, little more, context to it, because I understood your question, slightly differently. You are probably asking us how long will it take where when we come back to you and say the entire branches are split and it is, we are done with it?
Exactly. Exactly.
Okay. Yeah. So I think, you know, we started this about, more, in a more focused manner, about two quarters back, and we don't want to do all of it together. So we are very choosy and careful in terms of how much, we can do in a particular quarter and which states to focus in a particular quarter. Like, for example, this year, this quarter, we focused extremely well on Tamil Nadu. In Q1, we focused a little bit, more on AP. So we will split it out in such a manner that we are able to digest it well without any undue risks at the ground level. We are right now focusing on any branch which has more than one thousand five hundred customers, so that's the first port of call.
Once we are done with it, then we will get down to any branch which has sort of more than a thousand accounts. So in a, I think in about two to three quarters, we should have been done with most of this, you know, the splits which are already pending at this point of time. Beyond that, it'll only be incrementally and organically, whichever branch gets to that stage, we'll get to a split stage. So it's not going to be accelerated like what you're seeing now.
Understood. Understood. So by mid of FY 2026, Finserv should be back. So this should, this program should have been completed, and we can start reporting on an organic growth branch basis.
Correct. Correct.
Understood. Understood. Thank you so much, and wishing you all the very best, and wishing the team also a very happy Diwali.
Thank you.
Thank you, Aditya.
Thank you very much. The next question is from the line of Siraj Khan, who is an individual investor. Please go ahead.
Hello, am I audible?
Yes.
First question is, with respect to our borrowing mix, how much is linked to the floating rates or the external EBLR and MCLR loans? What is the percentage of it, can you please say?
So we have, you know, given this number, so about, roughly about 35%, is the floating rate book, which is typically either linked to about 37% is fixed, I'm sorry, not variable. About 63% is the variable rate, which is brought here. This is linked to MCLR or EBLR.
... Okay, MCLR is lower. And next with respect to, so one of the earlier questions that was asked with respect to which are the states in the bureau that were showing any stress? So, I did not catch that. Were there any specific states that are maybe in our core geographies that are showing stress?
No, Kiran, we answered it earlier also. So we are not seeing any geographical concentration of stress. The stress is more about the particular category of borrowers who are slowing over the bridge rather than any geographical concentration.
Understood. Understood. So on a corollary to that, in our learning states, that is, Rajasthan, Maharashtra, Chhattisgarh, Uttar Pradesh, the new branches that we have opened, how many were in these four states? And next question is, how much of a learning curve do you see, and when do you start to see these, any one of these or maybe all of these becoming core geographies?
Yeah. So, just to answer, I think in the last quarter in Maharashtra, we opened eight branches. Yeah, so we have not opened any other, location. So Maharashtra is the only, you know, new learning state where we opened eight branches. And in the previous quarter, we sort of commented that in Maharashtra we are seeing very good, signs of growth at this point of time. We have had more than four to five years of experience in the state. And, you will see us a little bit, you know, growing in a more accelerated pace in Maharashtra. So Maharashtra is coming of age in that sense, you know, from, from a learning state to becoming, one of an important states. The other states will take a little more time for us.
Understood. So Maharashtra would be in the next year, like, to become a core state.
Yeah.
Also, what I wanted to know incrementally, are we seeing a higher higher growth in the ticket size? Because gradually our ticket size on an overall basis has increased. Is this... So how much of this is natural and how much of the growth is purely a credit hunger that is there in the system?
I think for us, most of the ticket size growth has only been natural and more inflation driven. So we are still continuing to maintain about three and a half lakh ticket size, which we, which is what we were pre-COVID. And we have been guiding you that any ticket size increases will largely be inflation driven rather than you know, anything else. Yeah, you are right in the sense that this profile of customers are credit hungry, but we are not changing our underwriting practices. So we will only go with what we are comfortable with, and that will, from a ticket size perspective, it will only largely be inflation driven for us.
Understood. And finally, with respect to the credit cost, I think you had said it was INR 11 crore for the current quarter and INR 7 crore for the previous quarter. Is that correct?
That's only the write-off. It's not the credit cost.
Correct. Sorry. The write-off, yes.
The write-off is INR 11 crore for current quarter and INR 7 crore for last quarter. Yes.
Understood. Finally, in data shipping, what was the sanction to disbursement and the learning to sanction ratio in amount and size, if you could share?
So they have not seen any big differences. The usual learning to sanction ratio is about 75% for us. And sanction to disbursement ratio is close to 95%. So these ratios are at similar levels at this point.
This is both for value of AUM, value of loan and the cases?
Yeah.
Or is it different?
More value, but, you know, these numbers are very close to each other.
Understood. Understood. Thank you very much.
Thank you.
Thank you very much. The next question is from the line of Aditya from Securities Investment Management. Please go ahead.
Yeah, hi, sir, thanks for the opportunity. Just one question. So we have taken this decision to cut our disbursing yield by 200 basis. But sir, in the previous quarters concall, we are looking for a rate cut of around 50- 75 basis. So what has led to this decision of increasing the rate cut?
So, Aditya, I think Mr. Pati sort of alluded to this, that you know, we have always been wanting to operate at around the 12% spread. But you know, what's happening in the external environment, you know, the views of the regulators in terms of what we are hearing on the public domain. So some of these things have you know, made us to take a call where we are cutting the rates a little more sharply than what we have been guiding in the past. So we want to get close to the you know, 12% spread as soon as possible, rather than you know, sort of waiting it out and getting it in a more gradual manner.
Understood. And has that been a nudge by the regulatory authority to cap the rate at which we can give the loan to the borrowers?
See, there has been public commentary by the regulators, which all of us are aware of, and you know, in some interactions, they have also been sort of trying to understand the reasoning behind the rates that we are charging to the customers, and they have had some inputs, while they have not really pushed or nudged or forced us to do any of these things, but you know, we are telling it, you know, more on our own. But at the same time, you know, we believe that this will also put us in the good books of the regulator, and see, at the same time, you know, our spread being at 12% two, three years back, and today it's at 14%, doesn't really gel in well.
And this is a guidance that we have been consistent about it. We want to get back to the 12% level. Today, we want to get back to that in a little more quicker manner. So that is why it's a decision to cut the rates a little more sharply.
Sure. That's all from my side. Thank you, sir.
Thank you very much. The next question is from the line of Manav, who is an individual investor. Please go ahead.
Sir, have you said that your AUM growth will be slowed down by now, because in Q1 you had told that it would be around 30%, and now you have told that it is around 25%? So what will be the disbursement growth for this year as per 25%?
So, Manav, what we have always been saying is, you know, don't, you know, don't get too focused on the disbursement growth, because, you know, the disbursement growth is not the only determinant. While it's definitely a pointer towards the AUM growth, it's not the only determinant. The way we will sort of fine-tune our disbursement growth is depending on how the runoffs also stack up. We will ensure that we do adequate disbursements to get to the AUM growth that we want. So while the disbursement growth may not be much for this year, you know, our thought process is most likely you will probably see a flattish disbursement in the second half or maybe a very small increase as compared to, you know, similar to H1.
So if we do a flattish disbursement, we'll probably end up with about INR 5,200 crore of disbursements for the full year as against about INR 4,800 -INR 4,900 last year. So this will mean like a 10%-12% disbursement growth, translating to about 25% AUM growth. So it also depends on what is the vintage of the portfolio, what kind of runoffs are we seeing on the portfolio. So our, you know, point is, you know, don't get too, you know, too glued on to the disbursement growth. That will be, that will be determined by the company in order to achieve the 25% AUM growth that we are guiding you.
Okay, sir. No problem. And sir, on the ROE numbers, as you said, we are on a long-term basis. You said that ROE would be around 6%. And for leverage, now, I think you are around 2.2, 2.3. So, what is the ROE number shaping up for the next one to two years?
So see, this year we are not seeing, you know, too much of a compression in ROE because the rate cut, the rate drop that we are doing is only happening maybe for about five months of disbursements. So there will be some compression. But our steady state guidance, Manav, is which we are thinking, you know, in about two to three years it will happen. It will probably, you know, what we are saying is the ROE will drop to about 6%, and depending on where the leverage is at that point of time, the ROE will be a determined number.
Okay. So can I assume that ROE will be around 21%-22% by 2-3 years then?
Yeah. See, if the leverage is around 3-3.5x, 16- 33.5, Manav, you know, so it's anywhere around, you know, 20%- 22%.
Yeah. Okay. Thank you very much.
Thank you very much. The next question is from the line of Viral Shah from IIFL Securities. Please go ahead.
Yeah, hi. Thank you for the opportunity to ask me again the question. Actually, I had a question with regards to the comment again that you had mentioned about the over-leveraged portfolio and also what is happening in the environment, especially when customers are going out and taking a loan after you have say given a loan. So at a sector level, do you see... So in case of MFIs, we have seen that MFIN has now come out with a regulation stating that the loans need to be capped at for borrowers, sorry, for lenders. Similarly, have you internally say thought about capping bringing in some say underwriting norms when you onboard the customers?
or conversely, is this under discussion with MFIN to ensure that this kind of lending after, some other lender has lent, does not happen? Not just on MFI loans, but even this, any other loans.
See, Viral, MFIN can control the MFI loans. I don't think MFIN can control any of the other loans. What we are saying is we will put some, you know, stricter underwriting norms, whether we want to disburse, you know, loans to over-leveraged customers, or, you know, we don't want to, or do we want to cap a lower NPA DBR and all that. I think a lot more will be driven by internal decisions. See, unfortunately, unlike MFIN, we don't have a common regulatory body for, you know, the other forms of MFIs, other forms of NBFC, because there are, you know, multiple kinds of lenders. They can be business loan lenders, vehicle lenders, and all that. So I think we will put some internal norms.
We are going to be looking at an MFIN kind of directive to come for us. But we will definitely, you know, tighten our underwriting norms.
Yeah. So my, actually, sorry, Srikanth, my, rather, comment was with regards to, have you represented to MFIN? Because, many of these customers have gone out and taken a loan after you have given a loan. And in most of those cases, it's MFI. I understand for other kind of lenders, you don't have this SRO kind of body, but at least for MFIN, you can... Can you ask them not just, say, for MFI loans, but any of the four loans, so you don't, those MFI lenders don't end up giving loans to your kind of customers?
No, Viral, I think MFIN has already taken some action, so we will see how that pans out. But it's a good suggestion that we, I think... You know, we can go and suggest, then MFIN take is also a point, but, you know, I think it's a good suggestion. We'll keep it in our minds. If they're able to reach out to MFIN, you know, senior people level, we will definitely do that.
Okay. Very sure, Srikanth. Thank you.
Thank you very much. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah, thank you for allowing me a follow-up on this one. It is one question for Srikanth, sir. I mean, given that, I mean, you started doing PTCs, and you're seeing a good reception from Nippon, Kotak, and one more mutual fund that you spoke about, at some point in time, will you also consider doing direct assignments to banks?
So Abhijit, there is no compulsion for us to do direct assignment. Our capital adequacy is very good. At this point of time, we are not really looking at, you know, doing direct assignments because, you know, you know this, we have always been a company which wants to have the assets on our balance sheet. In fact, we started doing PTC only after Ind AS came into picture, because that allows us to hold the assets on our balance sheet. So at this point of time, I think there is not very serious thought internally to do direct assignments, but we will keep our eyes and ears open, Abhijit. So if there is a, if there is some benefit that the company can derive based on direct assignments, you know, we can look at it.
But anyway, you know, given that we are a higher maturity portfolio, we can't do that in big quanta. So at best, you know, it can probably be about 68% of our overall book.
Got it. Got it. This is useful now. Thank you so much, and best of greetings to you and your team.
Thank you, Abhijit.
Thank you very much. The next question is from the line of Kushal Goenka, who is an individual investor. Please go ahead. Mr. Kushal, your line has been unmuted.
We can go to the next one.
Since there's no response, we'll move on to the next question. The next question is from the line of Dinesh from Finsight. Please go ahead.
Hello, sir. Thank you for giving me another opportunity. Sir, I have a very specific question here. We are doing pretty well, you know, in terms of the PAT number, which is around more than INR 250 crore plus for quarters. Can we expect to, you know, cross a INR 1,000 crore mark in this financial year? Is it possible?
Yes.
Okay, great. Great, sir. And sir, I have a suggestion here, because I was going through our deck, and, you know, on the last page, on the page fifty-eight, we give a very detailed count of, you know, like number of employees, and at every count they are... Because being an investor here, I understand. I would rather suggest we should not give this in so much detail, you know? Because since we are running our operations so well, you know, some of the competitors may take a look at it and, you know, it could become disadvantageous for us in the future. And if we could just give the total number of headcount, the employees, I think that would suffice, I believe. It's just a suggestion, sir.
Thank you, Dinesh. Your suggestion is taken.
Okay, sir. And my last point is, sir, can we expect our cost-to-income ratio to, you know, and maybe in a foreseeable future, in the next two, three years, to decline to less than 30%? Is that, fair assumption or possibility?
So, Dinesh, if you are saying without you know our guidance is inclusive of credit cost, we'll be at about 35%-36%. So, you know, whether it's the cost to income, ex credit cost will go down below 30% and all that, at this point of time, we don't want to guide you. Please go with you know roughly about 31%-32% of OpEx to income and about 3%-4% of credit cost to income.
Okay, sir. That sounds great, sir. Thank you very much, and happy, happy Diwali in advance.
Thank you.
Thank you.
Thank you very much. The next question is from the line of Siraj Khan, who is an individual investor. Please go ahead.
Thank you for the follow-up. One question we expect is the branch, branches. What is the average time for a branch, once it is set up, to reach maybe, say, INR 1 crore of disbursement? Or what is the first, what is the break-even time for the branch to reach, and then what maybe duration?
So, Siraj, on an average, a branch takes anywhere between seven to nine months to kind of reach this break-even point. We define a break-even point at about INR 2.5 crore of AUM. So at about INR 2.5 crore, the branch breaks even on its own cost and starts contributing towards profitability. Of course, the head office costs are not covered, but all branch costs get covered at about INR 2.5 crore portfolio. So this, the branch reaches anywhere between seven to nine months.
And then, say, on a disbursement basis, for branch disbursements, how much time does it take to reach maybe, say, INR 50 lakh of disbursement per month, or, and INR 1 crore? How much time have you seen in your experience, to reach these levels?
Yeah, I think the rough way to sort of look at it is that each officer can do about, you know, three to four disbursements a month. So this you can round it off at about, let's say, INR 10 lakh on an average. So if you have five officers or six officers in a branch, the branch can easily do about INR 50 lakh-INR 60 lakh of disbursements per month. Now, this starts happening anywhere after the third month onwards. So that's why it takes so much time for the branch to build up an INR 2.5 crore portfolio between the seventh and the ninth month.
You are saying 50-60 times by the third month, you are saying?
No, INR 50 lakh- INR 60 lakh of disbursement, sorry.
INR 50 lakh-INR 60 lakh of disbursement by the third month. Okay, understood.
Yeah.
And, um-
From the third month onwards. Yeah.
Understood. Understood. And one more suggestion that I also had, would it be possible for us to maybe produce a fact sheet? Because that will be very much helpful to maybe, you know, go through historical data also. That's just a suggestion. That's... Thank you and thank you, and happy Diwali.
So we look at it, at this point of time, you know, we are not doing it, but, you know, your point is taken. Let us see, you know, when we'll be able to implement it. We'll try to do this sooner than later.
Thank you very much, and happy Diwali.
Thank you.
Thank you very much. As there are no further questions from the participants, I would now like to hand the conference over to the management for the closing comments. Thank you, and over to you.
Yeah. Thank you all for taking your time and asking the questions. Hope we have clarified all. If anyone has any further questions, clarifications, please reach out to our IR team. We'll be happy to take it forward. So and thank you, and happy Diwali to every shareholders and stakeholders of Five Star. So see you with the better numbers in next quarter. Thank you.
On behalf of Ambit Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.