Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Kayal, Head of Investor Relations at Home First Finance. Thank you, and over to you, sir.
Thank you, Riya. Good morning, everyone. I hope that all of you and your families are safe and healthy. I extend a very warm welcome to all participants on our Q4 and FY 2024 conference call. I hope everybody had an opportunity to go through our investor deck and press release uploaded on stock exchanges yesterday. We have also uploaded the Excel spreadsheet with historical numbers on our website, so please have a look. On today's call, we have our MD and CEO, Mr. Manoj Viswanathan, and CFO, Ms. Nutan Gaba Patwari. We will start this call with an opening remark by Manoj and Nutan, and then we will have a Q&A session. With this introduction, I hand over the call now to Manoj. Over to you, Manoj.
Thank you, Manish. Good morning, everyone. I'm pleased to share with you the highlights of the Q4 and the full-year FY 2024 performance. We concluded FY 2024 on a strong note. Disbursements at INR 3,963 crore grew by 31.5% and even grew by 34.7%. The spread remained healthy at 5.4%. The PAT at INR 306 crore grew by 33.9% on a year-on-year basis, leading to an ROA of 3.8%. Delighted to deliver ROE of 15.5% for the full-year FY 2024, and Q4 FY 2024 soared higher at 16.1%, even in a high-interest rate environment. We continue to build distribution by simultaneously entering new markets and deepening our presence in existing markets. The states of Uttar Pradesh, Madhya Pradesh, and Rajasthan are emerging as large affordable housing markets, and we have taken steps to strengthen our presence and expand distribution in these states.
Overall, we have added 22 branches in FY 2024, and now we have 133 physical branches. Including potential and digital branches, we now do business across 321 touchpoints across Tier 1 to Tier 5 markets in 13 states. We have added seven branches in UP, MP, and Rajasthan in FY 2024, serving 16 additional touchpoints in these states. Our asset quality continues to be strong, with a focus on early delinquencies. One-plus DPD is at 4.2%, and it has declined by 30 basis points from previous quarter. 30+ DPD is at 2.8%, with a decline of 20 basis points from the previous quarter. Gross Stage III GNP A is at 1.7%, flat quarter -on -quarter, and prior to RBI classification circular, the figure stands at 1.1%. Our credit cost was at 10 basis points. That is a decline of 20 basis points on a quarter-on-quarter basis.
Overall, collections remain strong, and even in Q4, we have had considerable recoveries from previous written-off accounts, contributing to these low credit cost levels. We continue to maintain our credit cost guidance of about 30-40 basis points. Digital adoption continues to be strong, and the key area of our focus as we grow. 95% of our customers are registered on our app. Unique user logins were 53% in Q4. Service request rates on the app were at 89%. In Q4, we have processed 47% of our loan sanctions, with data coming from the account aggregator. Another important point to communicate is that our chairman, Mr. Deepak Satwalekar's tenure has been extended for a second term of five years, subject to shareholders' approval at the upcoming AGM. With this, I would now like to hand over the call to Nutan to take you through the financials.
Nutan, over to you.
Thank you, and good morning, everyone. Starting with the spreads and NIMs, our overall spread is at 5.2%, and our spread ex co-lending is at 5.4%. Our overall Q4 net interest margin stands at 5.3%. The NIM compression is an outcome of continued growth and increase in financial leverage, increased cost of borrowing, and higher cash and cash equivalent holding in Q4. The breakup of this NIM compression is around 20 basis points coming from cost of borrowing increase, net of repricing, 20 basis points on impact of financial leverage, and 20 basis points on higher cash. Moving ahead, our ex co-lending spread guidance of 5.5%-5.25% stands for the medium term. Co-lending is building well in line with plan and remains to return accretive product in markets we operate. Our first milestone is to take it to 10% of AUM. Today, we are only at 3%.
As you all must also be watching, the deposit rates are holding. MCLR of all banks are trending up on the back of tight liquidity situations. Despite all of this, our marginal cost of borrowing remains range-bound for the last five to six quarters with continued diversification. Our ability to engage with banks for improved pricing comes from continuous focus on transparency of sharing information with lenders and our scalable business model that allows us to expand while managing risks. We also got an outlook upgrade from India Ratings, one of our three rating agencies. This kicks off a very important journey for us to move to the next rating category. Moving to operating cost, operating cost to assets at 2.5% for Q4 is due to cleanup of some old provisions as part of our closing the financials for the year.
We continue to maintain the guidance of 3% going ahead as we focus on expansion and get deeper into new markets. Our balance sheet is strong and ready to take on the growth ambitions of the company. Starting with borrowing, the company continues to have diversified and cost-effective long-term financing sources. This remains diversified across banks and NHB. Our borrowing mix, as you have already seen, continues to be 60% from banks, NHB is at 18%, and we've also taken a further drawdown of INR 250 crore in April 2024, 14% from direct assignment, and 3% from co-lending. 3% is from IFC, NCD, and we have no borrowings from commercial paper. Our cost of borrowing is comparative at 8.25%, an increase of only three basis points quarter-on-quarter. Coming to capital, our capital adequacy is at 39.5%, with Tier 1 at 39.1%.
Our debt to equity is now at 3.4x. Our March 2024 net worth is INR 2,122 crore, and book value per share is INR 240. Moving to provisions, we have remained conservative and continue to carry provision over and above the ECL requirements. The total provision coverage ratio stands at 50.9%. Prior to NPA reclassification as per RBI circular, our PCR stands at 75.7%. On specific transactions, we did a direct assignment of INR 103 crore during the quarter as a liquidity strategy. We continue to have a very robust demand for our portfolio of assets. Our total co-lending volume in Q4 was INR 68 crore for Q4 and INR 214 crore for the full year. Co-lending business is growing, and we expect to contribute 10% of AUM in the near future. With this, I open the floor for questions and answers. 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 touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset 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 Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Good morning, everyone. Congratulations, Manoj and Nutan. I think another good quarter for you and the team. I had just three questions. First one for Nutan: how should we look at cost of borrowings trending? I mean, I think you guided that maybe one, two quarters it is going to stabilize. Where are we now in terms of the outlook on cost of borrowings? If you can answer that, then maybe I can take the second question.
Sure, Abhijit. So Abhijit, like I was mentioning, everyone is watching the overall liquidity situation and the deposit rates and MCLR. So what we are experiencing is that the private banks, we are able to continue to maintain the pricing. Public sector banks, there is a little bit of a higher pushback. Nonetheless, our pricing is maintained at the same levels for the last five to six quarters as we've been disclosing the numbers as well. So net coming to cost of borrowing, another 10-20 basis points at best is what we are looking at. We are not expecting any further increase unless, of course, the policy rate changes or the G-Sec pricing changes. With this environment, another 10-20 basis points, not more than that.
Got it. Thank you, Nutan. The second question I had was for Manoj. Manoj, I mean, if I look at the BT out rate, until last year, the number which used to be that ballpark of 6%, right, suddenly seems to have moved in this year to 7.5%-8%. So I mean, is there anything you are seeing there? Because what you've seen in the past, right, as organizations grow, as organizations mature, and other lenders, right, have more comfort on your originations, the appetite to take balance transfers of other institutions go up. So anything that you're seeing there on balance transfers?
No, I think the balance transfer is slightly elevated only because of the repricing that has happened. I mean, we don't see any kind of long-term trend or anything like that. Largely, it's a reaction to this sharp increase in rates that has happened in the last two years. It's largely a result of that. We are also putting in place a lot of new measures to address the balance transfers. We don't see that as a major concern. I mean, it is a concern, but it's not a major concern because if you see overall erosion, erosion levels are still at the same level. So it seems to kind of, what do you call it, balance out between balance transfers and own prepayments, etc. The total erosion still stands at about 16%-18%, including balance transfers.
It's not like the increase in balance transfers has increased the erosion rate of the portfolio.
Got it. Thank you, Manoj. One last question that I had was more at the sectoral level. I mean, you'll recall there was this circular from RBI which spoke about HFCs now kind of asked to start charging interest on loans only when the check was handed over to the customer. So I mean, what I'm kind of trying to understand is, at the sectoral level, what we have seen is it can even take up to 30 days, 40 days in a lot of cases from the time the check is printed to the time the check is actually handed over to the customer.
I mean, two things I wanted to understand from you in terms of our practices, what is our practice in terms of when is it that we start charging interest to customers, and if at all you see this having any impact on the interest income?
So in our case, we don't issue checks at all. So as a practice, we have been doing electronic transfers from day one. There are, of course, a certain proportion of transactions, especially on the resale transactions, where the customers themselves require a demand draft because they have to show the demand draft to the seller so that the seller will transfer the property in their name. So it acts as a kind of assurance. So those are the only transactions where we issue a demand draft. But in the case of a demand draft, we are also incurring the cost from day one because the money goes out of our account. So we charge the interest to the customer. However, the clearance happens fairly quickly. So I mean, we don't have a practice of actually issuing a check and then completing the transaction later, etc.
The turnaround time between issuing the demand draft and clearing happens fairly quickly. Within 30 days, almost 90%, 95% of the issued demands get cleared. On an average, it could be maybe a 15-day turnaround before it is cleared. We don't have a very large I mean, basically, it largely happens in the case of resale transactions where the seller requires the assurance. Those are the only cases where we issue a demand draft. Otherwise, largely, it's done electronically.
Got it. So in a sense, I mean, for us, it is not going to be much of an impact because anyways, resale transactions would be a much lower proportion of our disbursements. And there also, like you are saying, there was a 15-day, on an average, kind of a lag between the demand draft getting printed and handed over to the customer. So now, if at all this is the only impact which will be there, that now on printing of demand draft, we can't start charging the customer. Only when the demand draft gets handed over to the customer, we can start charging interest.
Exactly. The RBI circular does not mention demand draft, so we will have to get a clarification on that in due course.
Got it. Got it. I think, I mean, this is useful. Thank you so much. I think, I mean, you're doing very well, and hope we continue to do that. All the very best to you in it.
Thank you.
Thank you. Next question is from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Hi. Good morning. Congrats on the good result. So firstly, on the origination mix of co-lending, that is declined by 30 basis points on a QoQ basis. And second is on the accelerated AUM shift towards more than INR 1.5 million loan tickets in this quarter. And this is also ex of co-lending. I see that shift being too significant this quarter. So the reasons behind both.
Okay.
Your question was not clear, Rajiv. Can you repeat?
Yeah. Can you hear me properly now?
Yes.
Yeah. First question is on the origination yield, ex of co-lending. That has come down by 30 basis points quarter-over-quarter. And second is the AUM shift in this quarter towards more than INR 1.5 million loan ticket has been pretty accelerated. And this is also ex of co-lending. If you remove the impact of co-lending, the shift is pretty significant. So what is also driving this?
Sure. So origination yield, as you mentioned, will be rangebound. Our target is to hit it with 13.5% kind of an origination yield. But there will be some quarter-to-quarter fluctuations on that. Nothing more to read into that. And the second question was on.
Average ticket size going up.
Average ticket size, as we mentioned before, there will be a secular increase in ticket size as we go forward because in certain states in the country, the ticket sizes have gone up because of higher incomes and aspirations of people to build larger houses or purchase larger houses. So there will be a gradual thickening of ticket sizes, but it's not very I mean, we are not addressing or we are not going after a different segment. It is just a normal increase that we are likely to see as the country progresses.
The second question is on Gujarat, which is our key market. Incrementally, there is a bit of growth slowdown in Gujarat. So when I calculate, the growth Q1 has been around 4.5%-5% in this quarter versus 6%-8% in the previous quarter. So the slowdown which we have seen in this quarter in Gujarat, is it linked to competition, yeah? Is it that the higher amounts of BT out are happening in Gujarat because it's a slightly more matured market for us? Or whether there is this market slowdown happening in Gujarat?
Gujarat, if you're referring to the AUM decline in Gujarat, that is something that we have.
Incremental AUM growth, yeah.
Yeah, yeah. Incremental AUM growth, yeah. So because we are diversifying out into other markets, it's a kind of intended number. Our aim is that over time, share of Gujarat will come down in the overall mix. But no, in Gujarat also, see, our share is about 4%-5%. So there is still a lot of headroom to grow. So it's not that we are looking at a slower growth in Gujarat. We aim to grow by between 20%-30% in Gujarat as well.
Okay. Thank you. And just lastly, Nutan, can you explain the decline in OpEx in this quarter, both the employee cost as well as the non-employee cost? Because I see that branches have been added, but the OpEx has come down. Have I missed out something in terms of explanation in the press release?
Nothing to miss, Rajiv, essentially, because March is a financial year's close. We took this as an opportunity to clean up some excess provisions that were there, that kind of got built up. So it's essentially that. And that's why when I was talking about my opening remarks, I mentioned that the right number to look at moving ahead is 3%. We should not get anchored to the 2.5%.
Got it. Clear. Thank you so much, Manoj.
Thank you. Next question is from the line of Shreepal Doshi from Equirus Securities. Please go ahead.
Hi, sir. Good morning. And hello, ma'am. Good morning. My question was pertaining to the cost of funds side. So incrementally, what is the rate of interest that we are getting on sanctioning by the NHB?
So NHB, again, has multiple schemes. It varies from scheme to scheme. So the range that we get from NHB is anywhere from 5.5% to 8.5%. So that's the range that NHB lends on. It depends on the funds available with them, the pool that we can tag and refinance, their mix and how they want to share it with different HFCs. So it's a combination of various factors, but that remains to be the range.
Okay. So we must have seen a change or an increase in that rate range as well, right, in the last six months' time period?
Yes.
So technically, we would have passed on that change to our customers as well, right?
So if it is the floating book, yes. If it is fixed book, then it does not change. But it is fixed from NHB as well. So the age of scheme, for example, remains fixed. The RL scheme is floating, so there we pass on. But the pass on is not one-to-one. We do pass on at specific time periods because we plan for it. So we will not specifically go and then pass on for customers which are tagged to NHB. We will not do that.
Okay. Okay. And the second question and also, sir, can also question here. So the second question was on the credit cost front. So if you look at structurally, we've had a credit cost ranging between 30-50 basis points. So this quarter, it has been a little lower. So while if you look at peers in the landscape, they have been in the range of 15-20 basis points. So with portfolios seasoned now and having seen two big cycles, is it fair that incrementally, we can also stabilize at relatively lower levels?
So let me give you the context and how we also look at from an ECL provisioning perspective because that impacts credit cost. So firstly, as you would have seen, our delinquencies have improved and stabilized across buckets, right? So therefore, the ECL movement is only for new growth that we build on the book. But we also try to carry a larger provision than what the ECL model shows up, and we have a significant overlay more from a risk management perspective. So specifically for this quarter, what has happened is that we've had some writebacks from loans that were originally written off during the COVID period and later because we've been taking studied calls to do technical write-offs. But we've had recoveries of almost close to INR 2.5 crore. That is essentially why this quarter, the number is looking low.
Moving ahead, because of the provisions that we continue to carry, which is higher, we continue to carry slightly higher provisions on growth as well. The right number for us probably is around 30 basis points, not 15, not 20. So around 30 basis points is what we think we should be projecting for us.
Okay. Okay. Got it. Then last question was on the branch expansion side. Incrementally, which states would drive our branch expansion?
So we are looking at some of the emerging affordable markets like UP, MP, and Rajasthan to drive further expansion. So as we mentioned, seven out of the 22 branches that we put up last year are in these states. And in the coming years, also, we intend to further expand into these states.
Got it. Got it. Thank you, sir. Good luck for the next quarter, sir. Thank you.
Thank you. Next question is from the line of Sameer Bhise from JM Financial. Please go ahead.
Yeah. Hi. Thank you for the opportunity, and congrats on a good quarter. So if I look at the marginal cost of borrowing, that's still like 40 basis points away from the on-book cost that we see on slide 29. So by when do you think they both converge, given the environment remains the way it is right now?
Sameer, hopefully, never is the answer because we also have NHB borrowing. As you would have seen on the liquidity slide, we have a INR 250 crore sanctioned line from NHB, which we have drawn down in April, which allows us to kind of maintain the cost of borrowing. Of course, in this FY 2025, we also hope to get a significant line, which will again help us manage the cost of borrowing. From a projection perspective, the 8.30% can look more like 8.50% in two quarters to three quarters and hopefully flatline there. Again, the assumption is that there is no policy rate change or no significant changes in the overall debt capital markets.
Is there a case for a bit of a pricing increase on the asset side?
Let Manoj address that.
So pricing increase, as we mentioned earlier, up to small increases like 10-20 basis points, we are looking to absorb it, and we are not looking to pass it on to the customer because we want to give the customers a stable period where we don't keep changing the rates. So we will watch the trends. If there is a substantial increase, then of course, we will have to pass it on. But if the difference remains in the 20 basis points range, we will not pass it on.
Fair enough. So I think until 20 basis points, you are okay to hold on to current spreads levels given that you have NHB access also. Secondly, if I just look at the quarterly ROA profile, so for the full year, I think we have been able to hold on well at around 3.8%. But say if I look at a five to six quarter trend, steadily, there has been like a 30 basis points kind of a drop. Is it the right way to look at it on a quarterly basis? And would it be fair to comment that probably the ROA is kind of bottomed out at current levels?
No. Yeah. So ROA will keep declining slightly every quarter because that's the financial leverage that is being used.
Right. Right. Yeah. Yeah.
So that's much of a movement you will see. I mean, there may be some fluctuations in some quarters because of higher cash being kept, etc. But otherwise, on a secular trend, you will see that there is a small decline every quarter, which is largely due to the financial leverage.
Yeah. So in terms of our threshold on the downside, we would be towards the trough now?
Yes. So the way to look at it, let me share how we are looking at next year's projected ROA trajectory, for example. So we've always been talking about a spread of 5%-5.25%, right? When you look at that, our NIM for full year is 5.8%. So let's say 5.5% NIM, more or less, and 2.2%-2.5% of other income. So that lands somewhere between 7%-8% of net total income. And an OpEx of 3% and a credit cost of 30 basis points, you will land at a ROA of around 3.5%. So that range can be 3.4%-3.6%. But let's say you anchor around 3.5%± , which essentially leaves you with a 16%+ ROE because the financial leverage will continue to go up. We're already at 4.5%.
Let's say we exit close to 5 % with an average of 4.7%-4.8%. The idea is that we maintain a 16%+ ROE with a significant contribution from the core business itself.
Perfect. This is helpful. Thank you and all the best.
Thank you, Sameer.
Thank you.
Thank you. Next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Hi. Thanks for the opportunity. So my first question on this thing where RBI pointed out charging of interest before the date of disbursement. If I understand correctly, you give in-principle approval, but the actual disbursement happens later, right, after further due diligence. Just wanted to clarify if you were charging any interest before the date of disbursement but after giving the in-principle approval. Just one clarification on that, and then I'll ask another question.
Oh, not at all. Not at all. Yeah. Disbursement, the interest starts only once the actual payment goes out of the system. As in, once our account gets debited for the amount, only then the interest starts.
Okay. Thanks a lot for that. My second question is on incremental spreads. So I think you are guiding for 5.25% in that range. But if I look at your incremental spreads, it's around 4.7%, right?
So how is it that you will be able to bridge that gap from 4.7% to, say, 5.25%?
So Raghav, there are quarters where the spread will be lower. Essentially, those quarters where we do not take the NHB funding. But the quarters where we take an NHB funding, the spread will also expand. So the overall spread for the years, therefore, will kind of compensate that and land in that 5%-5.25% range. That is one of the key drivers. The other driver, of course, we've all talked about your expansion. We've talked about the product mix slightly increase on the left side. So all of those things will contribute to spread as well.
Right. Nutan, if I look at your spreads since 1Q FY 2023, they've been coming down, right, and that's because of the higher cost of borrowing. There hasn't been a quarter where there hasn't been a series of quarters where these spreads have fluctuated up and down. So why should that be the case going forward?
So the reason they've been coming down is because the cost of borrowing has increased sharply. There has been a significant catch-up. Now that catch-up is complete. So therefore, it will kind of stabilize. But each line, and I'm talking about co-lending numbers, we should start seeing some expansion in that from new products as well.
Understood. Last question, why was your OpEx ratio lower or absolute OpEx flat despite branch and employee addition?
Just some cleanup in the financials, Raghav. I mean, this is March, so we kind of do a deep cleanup of the financials. So we had some old provisions, which we said it's kind of better to kind of knock them off.
Okay. Understood. Thank you. Sorry, just one more last question. What is the outstanding pool of return of loans from which you could potentially see some recovery going ahead?
The potential target pool, I mean, the number would be close to INR 20 crore, but we do not expect the INR 20 crore to come and hit us as writebacks in the future. What we see is usually call it around INR 50 lakh-INR 70 lakh every quarter. This quarter, it was around INR 2.5 crore. Of course, we did some focused activity as well on that. So I would not expect more than INR 50 lakh-INR 70 lakh going ahead every quarter.
Understood. Thank you. That's all from my side.
Thank you. Next question is from the line of Pavan Kumar from RatnaTraya Capital. Please go ahead.
I just wanted to check if there has been any change in terms of NHB lending pool that is available to all the HFCs. How do we see our NHB pool as a proportion of our entire borrowing pool going forward? Is there going to be any kind of significant increase in proportion, and how will that affect the overall spreads?
So no significant change as far as we are familiar with. NHB does have this process of inspection and quality of reporting and everything else, which determines the size of the borrowing. One of the new criteria that we also understand has gotten added is the incremental housing loans. And essentially, a percentage of that is what NHB will be funding. So we are the best placed from that perspective. So coming to the second part of your question, NHB refinance as a percentage of the overall book, my sense it will be 20% on an average basis. I mean, it will be ±2% depending on whether we've taken disbursal, not taken disbursal, but ballpark around 20%. And the percentage cost of borrowing, 8.3%, is where we are right now.
Like I was mentioning earlier, 8.50% assumes that we will continue to maintain a 20% NHB refinance and able to deliver 8.5%, let's say, for the rest of this year.
Sorry. You answered the other question 20 seconds later. Sorry.
Yes.
Okay. Okay. But I just wanted to have your comments. One of the larger in the space, HFC, I mean, you can call it an HFC, it is HFC, has exited the market. And I thought that pool would be available to all of you guys. I just wanted your comments on why there has not been a significant increase in the availability.
Sorry. Your question is why some other HFCs does not have 20%. Is that what you're asking?
No, no. I'm asking about all the HFCs for all the HFCs that are there in the market. The pool should have significantly increased since the biggest player has now merged themselves into a bank, right? So that's not my question.
We tend to agree with you. But going back, NHB runs a treasury function. It's not the money that they have from the government or subsidies. They essentially raise from the market because they have a significant advantage in rating. They add a small margin to that, and then they lend to us. So overall, what they have been raising has reduced to account for the largest HFC move, becoming a bank.
Okay. Now, one last question from my side. What would be the difference in the borrowing rate NHB versus the marginal borrowing rate at the present moment?
Almost 50 basis points.
50. Okay. Thank you. Thank you, Nutan.
Thank you.
Thank you. Next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
Hi. Thanks for taking my questions. Three small questions. One is, where do you account for recovery from return of loans?
In the credit cost line.
So this is adjusted with the credit cost?
Yes.
Okay. How do you account for co-lending income? Where does it get reflected?
So Co-lending income gets reflected on the spread basis. So essentially, only the delta gets represented in the interest income line.
Okay. And okay. It is not like fee income or something?
No, no, no. The fee income is sitting in the fee line, but there is no upfronting. That's your question.
I got it. And so this comes, sorry. Just to clarify, this comes on interest on loans, or does it come on other interest income?
Interest on loans.
Okay. Got it. Can you quantify the number for this quarter or the year? It's too insignificant.
I'll have to come back to you.
Okay. Okay. Maybe you can do it from next year, where you start getting a little more out of it.
Yeah. The issue is that once we get to this milestone of 10% on co-lending, it merits a separate disclosure on the product. Otherwise, it's too small.
No, no. Fair point. The reason why I'm saying is that you will just book a spread. And the I-GAAP yield calculation that you do sort of tends to get a little distorted. And obviously, it kind of gets into a discussion mode. The other one was that why did the repayment rate go up for the quarter? And ideally, I would have expected the repayment rate to be lower this year versus the previous year.
You're talking about the balance transfer rate?
No, the repayment rate. So the simple math is you have the loan book number. You have the disbursements for the period. So we could mathematically calculate the repayment. And we obviously don't know the breakup of repayment between prepayments and BT outs or scheduled repayments. So just some color on that.
The number is 18%, right? You're looking at the same number?
18.5%. That's right. So it's 18.5% for the quarter. For the full year, it remains flat at 20.5%, which we would have ideally expected to go down. So just some color on that. Is it something that BT outs have gone up?
No. You see the total erosion rate quarter-on-quarter is largely in that 18% range only. It ranges between, say, about 17%-20%. Some quarters, 17%. Some quarters, 19%, 18.5%, etc. So that's the range it is in. So this quarter has not been very different. So the total erosion rate, that is what you're referring to, is only 18.5% for the quarter. That includes the balance transfer, which is about 8%. And the balance comes from our own prepayments and the EMI portion, etc.
Last year, the BT out was lower than 8%, right?
Yes. Last year, the BT out was lower than 8%. But if you see the erosion rate, that again was in the same 18%-20% range only. Total erosion was in that range only.
Yeah. So last year, I think there was something because of the CLSS scheme that the repayment rates were higher. This year, despite the fact that there's no CLSS scheme, the repayment rate is still at around 20.5%, which probably means that the difference is BT outs. I think that's what my question was.
Last year, including CLSS, the rate was higher, actually. It was higher by about 2%-3%. This year, it's come down by about 2%-3%. Last year's average was about 20%. This year's average is about 18%.
So mathematically, both I can take it offline, but mathematically, repayment rate for 2023 and 2024, both years is 20.5%. And we would have expected that ex of CLSS, probably this goes down to maybe 200 basis points or so. So maybe that is the increase in BT outs. I think that's what I was that's the hypothesis I wanted to check.
Yeah. Reduction in CLSS probably has been compensated by a slight increase in BT out.
Is this because of competition, or what is it that you are seeing, the high BT outs?
BT out rates are higher largely because of the rates being higher because we have repriced the last part of our book. That is creating some tension with customers. That's primarily the reason. We have analyzed our BT out also. Largely, the BT outs are in cases where there has been a I mean, the three rate increases that we did over last year have been passed on to those customers. Those are the customers who are more prone to BT out.
The last rate hike you would have done in which month?
Last hike we did in April of the last year.
2023.
April 2023.
That's a long time back, right? I mean, some of your peers have done it as late as the January of this month, so January of 2024. So it's not like nobody else is priced rates. Are you seeing new players in the market? Are you kind of maybe sort of are any of your borrowers getting migrated to the larger bank? Whom are you losing customers?
Migration is largely to the larger banks. So I mean, new players, in any case, will not target BT out as their starting point or as their core business because they will have a challenge on cost of borrowing, etc. So it will be largely the bigger banks and bigger housing finance companies that target BT out.
Nischint, just a couple of points from my side on BT out. One, if you compare us with the peers because you brought up that point, home loan to home loan, we're operating at a much higher pricing in the markets, in competitive markets. So that makes us more prone to BT out per se. But we've kind of maintained that, and we've delivered the growth despite that. The second issue in comparison is that most peers run with a mix of fixed and floating book. And BT out numbers are not fairly disclosed on the floating and the fixed books. So the comparison is not very fair. What we can compare is the total runoff. And if you compare that, us versus anyone else in the market, we're broadly aligned.
It's not an isolated issue for us in the sense that our BT rate is higher compared to anyone else. If you compare runoff, it's identical. Pricing in the market is higher. That makes us more prone to BT out by design.
Got it. But is it something that you may want to review going forward, given the fact that competitive intensity seems to be heating up in June?
Yes. So we have a thought in mind that we will want to look at customers and cohorts and see where we need some pool of customers to reprice upwards and downwards, also take risk into consideration. So that is something that we will do probably this quarter.
In that drop, what kind of a margin guidance would you give? Would you say that we are willing to sort of drop down the spreads a little bit?
No. No. So the idea is that the increase and reduction compensates each other.
Sorry. What is the increase?
There could be some pool of customers where the risk has gone up, so we can reprice them. Some pool of customers where we think that they are prone to BT out and hence need to reprice them downwards. We can go cohort by cohort rather than looking at the entire book.
Sure. Got it. Thank you very much, and all the best.
Thank you, Nischint.
Thank you.
Thank you. Next question is from the line of Nidhesh from Investec. Please go ahead.
Thanks for the opportunity. First is on insurance income. We have got a corporate agency license. Any update on that and what could be the quantum of fee income that can be generated from that vertical?
So we got the agency license in February 2024. We are in the process of discussions with multiple insurance agencies sorry, companies. We are in advanced stages. We hope that we should be able to sign one agreement in this quarter. Once we sign at least, let's say, two to three and cover the entire book that we actually onboard today, my expectation is that should add close to INR 5 crore-INR 6 crore of additional income into the P&L on a quarterly basis. So let's say Q3 onwards is when we should be able to see the full income of INR 5 crore-INR 6 crore in the P&L. And how fast can we get there? Maybe middle of Q2 or early Q3, something that we'll have to see. But INR 5 crore-INR 6 crore quarterly is what we have in mind.
Sure. Secondly, what would be the branch expansion target for this year and next year?
Branch expansion, we are targeting 20-25 branches every year. Along with that, say, about 60-70 touchpoints per year. That's our expansion plan.
Sorry. I missed the number, branch addition this year.
20- 25 branches a year.
In the new geographies, specifically UP, Rajasthan, and MP, where we are expanding our branches, what is the sourcing strategy, and what is the profile of connectors that we are acquiring here? Do you see any change in the connector profile? Are these connectors new to market, or they are already sourcing business for someone else in those markets?
Sourcing strategy is going to be the same what we have followed in other markets. And it's not that we are new to these states. We have been doing business in these states for a while now. It's just that we are scaling up. So largely, the profile of connectors, etc., remains the same. I mean, it's a mix of both new connectors as well as people who might be sourcing for others. So that's generally the case in all the markets and true for these states as well.
What is the active connector number for the quarter and number of RMs at the end of March 2024 and March 2023?
Active connectors, we had about 3,000 connectors for the quarter. RMs was in the range of about 700 RMs.
Sure. That's it from my side. Thank you.
Thank you. Next question is from the line of Rahul Maheshwari from Ambit Asset Management. Please go ahead.
Hello. Good afternoon. Good set of numbers, Manoj. Congrats to Manoj and Nutan. Just two questions. First, can you give some highlight on the borrowers across Pan India? What is the income, how the income is shaping up, specifically in the Hindi hinterland? Are you witnessing the growth or some kind of pressure? We have witnessed that there is some rural recovery taking place. So can you give some highlight that how the income is shaping? And second, as you mentioned that UP and MP are the two states where you are getting more and more becoming more and more growth drivers. Can you highlight that each state has its own credit cost as a regional specific? Are you finding some case specifically towards those states when you are entering, or it's a Pan India-based same kind of credit policy which you are opting up? Thank you.
Yeah. On the first question, as far as the incomes, etc., concern, we are not seeing any stress with our customers. It's overall looking strong. And whatever stress was there, immediately post-COVID, etc., has also kind of tapered off now. People are I mean, livelihoods are there. Jobs are available. So overall, it's a more positive picture across the country. Rural was never a large part of our business. I mean, if at all, customers would have a very small impact or small advantage from rural incomes. Largely, our customers are from a service background or from manufacturing sector, or they have their own businesses, etc. So they are not highly dependent on rural incomes or agricultural incomes. As far as the credit cost by state is concerned, there is no such trend as such. It's largely location-led and depending upon the supervision in that location, etc.
So credit quality of that particular portfolio because consumer behavior across states, we have seen, is fairly similar. I mean, it is more related to the occupation the customer comes from and their own income streams, etc., so not connected to the state as such. So we are not seeing any such trends. And the variations are not really state-led. It is more customer-led or customer profile-led or customer occupation-led is how we are seeing it.
Manoj, just one thing on the first question. If a set of borrowers, how much income growth you have witnessed in the last one year for them? Whatever the self-employed people which are with you and who are regularly paying the EMI, any such number or some color you can quantify?
Income growth is not something that we track as a specific number, but we can just extrapolate based on ticket size growth because it comes or flows from income growth. So ticket size growth is, you can say, annually, we are seeing about a 10% kind of a ticket size growth. So I would say incomes are also probably moving in the same moving up in the same manner. Maybe 10%-15% income growth is what we can kind of extrapolate.
Okay. Thank you so much, Manoj.
Thank you. Next question is from the line of Arvind R from Sundaram. Please go ahead.
Hi, Arvind. Thank you so much for the opportunity. I mean, it was mentioned that leverage would reach 5x by fourth quarter 2025. What would be the maximum leverage you would be comfortable with?
As a planned expansion, debt to equity of 5x or asset to equity 6x is what we have in mind. We also look at capital adequacy ratios and what is the comfort level with banks and rating agencies. All of that, we've taken into consideration. Asset to equity of 6 x, which gives us another two to 2.5 years of runway, is what is on our mind.
Sure. And a provision coverage ratio, despite it actually, ours is one of the highest among the peers. And considering we are also giving loans to the better set of customers, I'm like, "Can we expect credit cost to come down?" I mean, I can also see our PCR also come down in the last one year consecutively. Are we getting more and more comfortable with the lower credit costs than what we have done in the past?
So there are two ways we look at it. One, you're absolutely right. The PCR is overall coming down. We've not reduced absolute provisions. What has happened is that the new growth that we're adding, that is the reason why the PCR looks low. What we track internally is the overall ECL provision as part of the principal outstanding, which is around 0.9%. That is the approximate number. 0.8%, 0.9 % is what gives us comfort. Our ECL throws up around 0.5 % number. So we want to kind of keep a 50%, 40%-50% higher than that. So that's the broad thought process at our end. So when we look at that and we project, credit cost comes around 30 basis points going ahead.
Sure. And just one question on the yields. I mean, excluding co-lending also, it has come down. I'm just trying to understand how it will move. This is despite increasing the mix of LAP loans and slightly higher yielding segments. So yields, we are not able to hold up. That's the question I have. Yeah.
I mean, firstly, quarter on quarter, a few quarters, it's largely stable, I would say. It has not been reducing ex co-lending. The other angle to keep in mind is that compared to the peers, we are actually on the higher side with an 85% housing book. A 13.6% yield is something that we feel is really competitive from a market perspective. That's how we are looking at it right now.
Just one last question on the competition. We just saw BT out rates increasing. In case of a rate cut scenario, can this competition even become aggressive? What is your view on that?
No, it is largely relative. So if there's a rate cut, then we'll also pass something on to the customer, etc. So it becomes relative. So whether it's increasing or decreasing does not really matter that much. I think the BT out is largely a result of sharp increases over the last 12-18 months, which has been passed on to the customer. And if there is a period of stable interest rates, then the BT out rate should moderate a little bit.
If there is just one question, sorry, to add. Our borrowings, especially the bank borrowings, is it only predominantly linked to MCLR, or is it linked to repo or other external benchmarks?
Almost 3/4 is MCLR-linked. 1/4 is other external benchmarks.
Sure. Sure. Thank you so much.
Thank you. Next question is from the line of Ravi from Naredi Investments. Please go ahead.
First of all, thank you very much. Congratulations to Manoj and his team to this INR 9,697 crore AUM and might probably reach INR 10,000 crore in 40 days. At present, you might be INR 10,000 crore and into sales. Sir, cost-to-income ratio, what is our target to reach in the next three years? At present, it is 34.1%.
So cost-to-income ratio, our aim is to keep pushing it down. In the next one or two years, likely to hover around the same levels. Maybe from third year onwards, we can start seeing some decline. Our aim in the medium term is to get that down to around close to 30% levels. So I would say maybe three to five year time frame, we should be able to get it down to 30% levels. Otherwise, next one to two years, we are looking at 34%-35% level.
Okay. Sir, our two promoters, True North and Aether Mauritius, both having 23.56%. What I saw, our share prices are always down in fear that they will exit from our company. So any information do you have about the exit of their promoter holding?
So as we mentioned in the past, they are likely to exit gradually because they are private equity funds. So currently, only 23% is left. So the aim is to probably exit by about 10% every year. So next two to three years, once a year is what the thought process is, that once a year, there will be a 10% sale in the market through a block and exit through that process. So we have tried to give it a bit of predictability and structure. So once a year is what I think we have basically broadly communicated. And since the last transaction, we also give I think they have given a six month lock-in after the previous transaction, which happened in November, just to give comfort to the market that it will happen only once a year.
Okay. Thank you.
Thank you. Next question is from the line of Sonal Gandhi from Centrum Broking Limited. Please go ahead.
Hi. Thanks for the opportunity. So I had a couple of questions. One is for the co-lending book, what is the yield that we are getting?
Close to 10%.
Close to 10%. Okay. Second related question, Manoj. I mean, our yields have gone down by 30 basis points. Now, I understand. I'm talking about origination yield. I understand the rates are competitive. But our BT out is a little high. Our co-lending yield is a little low. So what gives us confidence that we'll be able to maintain between 5%-5.25% kind of spread? If you could just try and give some clarity over there.
No problem.
Sir, just one more question here I'll add, if you can. What will be the spread of or what will be the percentage of LAP portfolio in our bookings in the next one or two years, which could kind of cushion up the yields too?
No problem. So see, currently, our spread is 5.4%, right? And we are guiding 5%-5.25%. So on the upper side, 5.25%-5.40% we already have a 15 basis points that we have with us. We are saying that our cost of borrowing can go up to a maximum of 20 basis points. So we are still within that range. So mathematically, we feel very comfortable. Of course, on the yield side, we have opportunities on LAPs. We have opportunities in smaller markets, which will continue to drive. The LAP portion of our current portfolio is 13%. Our three-year plan is to take it to 20%. So it will be gradual. It will not be very sharp. But March 2027 is 20%. So we have room there.
So those are the things on our mind, which give us the confidence to maintain this 5%-5.25% ex co-lending.
Any range that you would like to give for co-lending? I mean, what would be the spread then?
So the problem of co-lending spread and the reason we kind of split it out this time is that co-lending, we only keep 20% on our balance sheet. So let's say when I said that the yield is 10%, and let's say I am having a cost of borrowing of 8.75% the spread is 1.25%, but that's an incorrect way to look at it because you have to multiply that by 5%. So therefore, the number becomes 6.50% or 6.75%. That is the right way to look at it. Right now, the number is low because we are in a very high-interest rate situation. Our aim and our thought process is that by the time we scale this up to 10%, co-lending today remains a return-activity product on the balance sheet, primarily because we access the same markets we are present in an adjacent segment.
It uses our capital more effectively and allows us to build a return-accretive product. We are at 3% today. We can scale this up to 10%. By that time, the interest rate situation will improve, adding significantly to the overall profitability of the company. Co-lending spread is not a straight answer, unfortunately.
Just the other way to ask it would be basically saying because you're taking the spread income on the co-lending book. The spreads should logically be higher than your on-book probably, that's not the case right now, but the spreads would be higher than on your on-book spreads. Is that understanding?
If you get the spread on assets, it is actually. So for the example which Nutan gave, it's 125 basis points is the spread. But if you look at it on the asset, that's only INR 20 out of INR 100. So if you take 125 basis points on INR 20, it actually then works out to 6.25%. So the spread is slightly higher than the spread that we are running on our normal asset, which is 100%. So that's the way to look at it. Here, the asset is only 20% of the loan.
Okay. Okay. Another question was on DA income. So that looks a little low this quarter. So have the rates come down in the market? If you could just give some clarity around it.
No, the DA, essentially, see, we have a lot of liquidity already on the balance sheet. We continue to do DA primarily because we have relationships with banks. And if you see our DA mix on the balance sheet, it's at an all-time low of 12%-13%. So just more from a liquidity perspective, we did not want to load more cash on the balance sheet, so we kept it at a low number. I mean, probably, we should start doing a little bit more, perhaps another INR 50 crore-INR 100 crore. Let's see. That is something that we will plan it out as well.
Okay. Let me just take this offline because I think if I just calculate the percentage, that is also looking lower on a QQ basis. But then I'll take this offline. My next question was on employee addition. So employee addition, I mean, we've added about 10 branches this quarter, and I think employee addition is probably around 13 employees. So what exactly is happening here?
So I mean, I will let Manoj get into the details. But the employee addition doesn't happen when the branches get added. There is always people come on board, and then branches get open. So it's a lead-in live effect. It's not one-to-one matching. But I'll request Manoj to get into the strategy on how we hire.
Yeah. So because we hire, almost 90% of our hiring is from, it's from freshers, and they are hired from campuses. So there are periods when there are large batches which come in. So for example, as of March, you're seeing the number. But if you see as of April, there would be a large number of people who would have joined in April. So there is a bit of a, you can say, spike in certain months when there are a larger number of people joining. So it's more of a step function, not a smooth curve.
Understood. And what's your, I mean, you're in UP market, MP market, then Rajasthan, where you're growing very strong. I mean, what is the initial sense that you have on the asset quality in this market? Some of the initial trends?
So asset quality, as I mentioned, it is largely consumer-led and consumer-profile-led. So we are taking care to ensure that we are onboarding what we are comfortable with because I mean, the idea is to keep the credit quality similar to what we have in the rest of the country. So as such, early signals are good. Credit quality in these markets are also very similar to other markets. Plus, as I also mentioned, they've been in these markets for a while now. So they're not new to us. It's just that we are scaling up. So from that perspective, the credit quality is similar to what we had in the past.
Understood. Okay. Thank you. Thanks for answering my question.
Thank you. Next question is from the line of Sanidhya from Unicorn Asset. Please go ahead.
Yeah. Go ahead, Madam.
No, sir. Your voice is a little low.
Yeah. Now, is it clear?
Yes, sir. Please go ahead.
Yeah. Hi, Madam. So congratulations on great set of numbers. So my first question is, it's observing that our NIMS have been going slightly down as compared to quarter-on-quarter also and last year as well, from six point-few basis points to now 5.3 % in the latest quarter. So how are we looking at this?
So like I was mentioning in the opening remarks, there are three key contributors. One, we've had more cash on the balance sheet. Then there is financial leverage as we grow that picks up. And of course, the cost of borrowing has also gone up, and we've repriced as well, but the net impact is there. So approximately 20 basis points, if you look at year-on-year, is the impact. More or less, most of these things have settled. So we are going ahead from here, let's say, to maintain this 5-5.25 basis point spread, which we have a significant degree of confidence. Our NIMS should be in a similar range where we are today. Let's say 5.3-5.5 is what we have thought because I mean, the next question, you may say, "Okay. The financial leverage is going to go up.
Then how will we maintain the NIMS? Because we have the cash cushion, which we can kind of look to manage better.
Okay. That's fine. So five would be the minimum level which we are looking. 5- 5.25 would be the ideal.
Yes. Yes.
Okay. Okay. And my question was that we have been a major player in Gujarat, Karnataka, Maharashtra kind of states. It's good per capita income, right? And now, we are venturing into much venturing is not the word. We are aggressively venturing into MP and UP, Rajasthan, all these states. Whereas I see the per capita income in these states are lower. How is the ticket size that we are referring to in these states? Is it the same like in the earlier we had for the states with higher per capita income, or is it slightly lower?
The ticket size is lower. So in these states, the ticket size is lower because these states also the product is largely self-construction. So they're able to construct their own homes. And to your question on the profile, so when we started the business 10 years ago, the per-capita income in places like Gujarat, Tamil Nadu, etc., was where it is in UP, MP today. So we are at that starting point when we started the business, which is why we feel very confident that these states now will be large contributors to affordable housing. And as they develop and show similar development like the more industrialized states, we will have more affordable housing coming in, and the income, people's income, also will keep going up in the same manner. And we'll have a similar trajectory like what we have had in Gujarat, Tamil Nadu, etc.
Okay. That's a good perspective to look at. So just adding onto the same thing, so any number you want to give for the average ticket size compared to states like Gujarat, Karnataka, Maharashtra versus these newer states? And at the same time, what are the yields, particularly in these states, compared to what in the other states?
So Gujarat is, you can say, slightly different from the other states because it's largely an apartment-led market. So to that extent, the ticket sizes tend to be a bit higher, and the interest rates also tend to be slightly lower. But most of the other markets are very similar because they all serve the self-construction market. Ticket sizes tend to be around INR 10 lakhs, INR 10 lakhs-INR 11 lakhs, INR 12 lakhs in the new states that we are talking about. And rates, you can say, would be maybe 20-30 basis points higher because self-construction market rates are slightly higher.
Okay. And do we see just on the same states verification in the system, AUM? So I can see that we have been constantly as a percentage of gross loan in compared to states, total AUM versus the particular states' AUM. So these states are continuously losing from Gujarat, from almost 36%-38% to now 31%. Same for Maharashtra, and I can see for Karnataka. Whereas for Uttar Pradesh, Rajasthan, we are aggressively trying to increase this. So what is the mix that we are going to see? Currently, I can see 50% is coming from these three states, Gujarat, Maharashtra, and Karnataka, I would say, more than 50%. So is it going to be much more lower, or what are the which would be the highlighted state three years, four years down the line? I'm not talking in the short term, from a good.
Three years, four years, yeah. Three years, four years down the line, I think we would be aiming for something like a 10% share across the states. So under the state I mean, in similar-sized states, the population is very small, or the state is small, and the ratio will be likely to be lower. But amongst the top states, say, six, seven states, the ratio is likely to be in the same 10%-12% range is what we think will happen.
Okay. Just on the branch and number of districts, so we are saying that we have covered 11 districts in Uttar Pradesh, whereas branches are just six. How are we managing on that front?
It's a large state, and we are expanding gradually. Like I mentioned, a single branch caters to nearby areas as well. It can cater to multiple locations. The branch is not the only point of distribution point. It can cater to multiple distribution points. A single branch can cater to multiple distribution points across districts also. That's how we serve multiple locations.
So yeah, that's okay. But as I could see a trend from all the different states versus branches in compared to district, every time the branches are higher, of course, in the district. So we have multiple branches, maybe more than one in a certain district in other states versus compared to U.P. and Uttar Pradesh. And I can see that 11 districts are covered in the six branches. So is it feasible that I'm not sure how are we doing a fact-check for those people who we are dispersing. Is it totally technology-driven, or is it some kind that we are physically the person is site inspection is done and everything? So how are we doing in adjacent districts whereas our branch is in different districts?
So are we really able to do the know-how of the place, or is it just a little bit riskier that we are doing?
Oh, no. It is not. I think you're just seeing the starting point because we have just started our expansion into UP. So we generally have a what do you call it? Protocol by which we follow, which is we start with a person going into a new location. So that's what we call as a digital branch. And then it becomes a virtual branch or a proposed branch where we start looking out for new branch premises. So we are in that early stage in UP. And in the coming years, we will see that this number converges as we are seeing in other places. So number of branches will be either equal to or overtake the number of districts in due course because right now, we are at an early stage because many of the branches are in that digital or virtual stage.
So that's where you're seeing the number of branches being smaller than the number of districts.
Okay. Okay. Thank you. That answers my question. Thank you.
Thank you. Next question is from the line of Jigar Jani from B&K Securities. Please go ahead.
Yes. Thank you, and congrats on the good set of numbers. Just one question of clarification. Your guidance on yield of 13.5 % and cost of borrowing is on IGAAP, or is it ex-co-lending IGAAP?
This is essentially on AUM. So it will be on IGAAP.
So essentially, you were saying that this 5.2 % will probably end up near 5% on an IGAAP basis on spreads sometime next year.
Numbers that we disclosed are on an IGAAP basis.
Yeah. So on an IGAAP basis, your cost of borrowing is 8.3%, which I can see in your fact sheet as of Q4, which you are saying probably will end up in the next two quarters at 8.5 % because there could be a 10-20 basis point increase. Whereas your yields, you are guiding towards 13.5%. Is my understanding correct on these numbers?
That is right. But the number I'm referring to on the spread guidance is ex of co-lending. So the number you need to anchor to is 13.6%.
Okay. And for the cost of borrowing also, I need to anchor to 8.2 % then in that sense.
Yes. Yes. Exactly.
Okay. Okay. Understood. Thank you so much. Thank you for the clarification.
Thank you. Next question is from the line of Gaurav Sharma from HSBC. Please go ahead.
Hello. Yeah. Am I audible?
Yes, sir.
Yeah. Thank you for taking my question, sir. Just one question. So on disbursement outlook, I just wanted to understand whether your LAP segment will go faster, or it will be in the similar range of overall disbursement for FY 2025?
Sorry. Can you repeat the question, Gaurav?
Yeah. So my question is on the disbursement side for LAP segment. So the LAP segment in disbursement will go at a similar rate of overall disbursement, or it will go faster in FY 2025? Can you give some color and also on AUM growth guidance?
Not substantially different. I mean, like we said, we are trying to increase, or we will gradually increase the LAP share. So it might have a slightly higher growth rate than housing loans, but not very significantly different.
Okay. AUM growth will also be in the similar run rate, right?
Yeah. AUM growth, overall, we are targeting a 30% AUM growth. So again, maybe a slight, I mean, because LAP is currently only about 13% of our book, 13%-14% of our book. So I mean, the AUM growth in LAP will look a little higher, but overall, we are targeting 30% growth.
Okay. Got it, sir. That was my only question. Thank you, sir.
Thank you. Next question is from the line of Varun, an individual investor. Please go ahead.
Hi. Just wanted to check, why do we have so much of cash balance on our balance sheet this quarter and even in the last quarter?
So it's close to around 2.5, 2-2.5 months of disbursal that we have been keeping. Now, this is something that we started right after IL&FS crisis, and then we've kind of maintained these sort of balances. What also happens is the number that you look at is the end-of-the-quarter number where we take most drawdowns towards the end of the quarter so that our overall interest cost is managed. And we also are able to manage banks in terms of periodic drawdowns. So the average cash holding will be slightly lower than what you end up seeing. So those two, I think, would be how I would like to explain this number.
Okay. So should we expect this to remain at a similar level going forward, or should we expect it to go down in the coming quarters?
Not immediately, I would say, but perhaps 12 months from now, once the liquidity situation in the overall market improves, we are fully covered as far as our next rating upgrade is concerned, then I think we definitely have a case for improvement here.
Okay. Thank you.
Thank you. Next question is from the line of Harshit Porwal, an individual investor. Please go ahead.
Okay. My question is with respect to the percentage of cash salaried customers in the total salaried book.
Sorry. We couldn't hear you.
Hi. Am I audible now?
Yes.
My question is with respect to the cash salaried percentage in the total salaried book.
You mean formal salaried?
Cash salaried. Cash salaried will be around, so out of the total, it will be around 20%-25%. So within the salaried, it will be maybe 30%+.
Okay. So 30% +. And any amount of construction finance in our total book?
No. There is residual about INR 4 crore or so left. I mean, just two loans which are left in the portfolio. The rest are all closed.
Thanks, sir. Thank you.
Thank you. Next question is from the line of Raj Patar from an individual investor. Please go ahead.
Hi. I just wanted to know, what is the vision for next five years in terms of new products or new business line?
We want to stay focused on housing because we feel that there is a huge opportunity in housing for a dedicated housing finance company. And so our aim is to stay focused on housing and specialize in housing itself. And of course, related products like loan against property, etc., we will continue to offer. But otherwise, largely remain as a housing finance company and stay focused on housing.
Okay. Thank you.
Thank you. Next question is from the line of Divyansh Gupta from Latent Advisors. Please go ahead.
Hi. Am I audible?
Yes.
Yes.
Yeah. One data-keeping question. For this quarter, how much was the write-off in absolute amount?
Around INR 2 crore.
INR 2 crore. Got it. And the collection efficiencies that you have mentioned in the presentation deck is based on the number of EMIs or the customers. What would be a collection efficiency from a POS perspective? Given the ticket size are now varying, the EMI does not necessarily represent the POS collection efficiency.
The first point is that this is based on number of customers, not value.
Yeah. Yeah. I'm asking from a value perspective, from a POS outstanding, right? Typical industry collection efficiency.
Slightly better.
Would be slightly better because in higher ticket sizes, delinquency is slightly lower than the lower ticket sizes. So it will be slightly better.
What would be possible to give a number, or you want to keep it right now with you?
It will be, see, it is not significantly different. So that is why we are not even publishing it. It will be very similar, but maybe marginally better.
Got it. Just one last question around BTs. How much of our origination is coming in from balance transfers?
Very minimal. Less than 1%.
Less than 1%. Got it. And similar to the balance, in a similar vein, for the balance transfer, you mentioned that, let's say, till 20 basis points, you are comfortable in taking a hit in your P&L and not pass it on to the customer. Now, let's say the overall increase happens 30 basis points. So when you ultimately pass on the interest rate hike, do you pass 10 basis points, or do you pass 30 basis points? I'll tell you the origin of the question is that a sudden 30 basis points will affect a customer's EMI much more, which might lead to a higher incidence of balance transfer because others will just say that 10 basis point hike has happened. But for us, for Home First, customer has become 30 basis points. So does it play any role in the psyche of customers leading to BT outs?
See, the last time when there was a rate increase, we passed on 25 basis points and then 50 basis points, 50 basis points. So total of 125 basis points was passed on. So I guess, see, anywhere between 25-50 basis points can be passed on to the customer. So I guess if we see a see, as of now, we are running a deficit of 20 basis points. So I think your question is if, let us say, the rates go up by another 20 basis points, whether we'll pass on 20 or whether we'll pass on 40, I think is the question. I think the answer to that will be we'll probably pass on 25 basis points and leave the 15 for later. So it all depends upon how the rates move and how sharply they move.
I mean, if they were to move much more sharply, which is unlikely, so let's say they move by, say, another 30 or 40 basis points, then we may have to pass on 50 basis points at one go. So it all depends upon how the rates move.
Got it. And given, let's say, the last time when we were passing on rate hikes, right, then the whole industry was also doing it. Home First was not the only player who was passing on these hikes. So that way, customer didn't necessarily have a big option to go to another lender who might be doing a predatory pricing. But now, why are we other players are increasing the rates, so why aren't we taking that hike?
So see, we have had an ideology that we don't want to change the rates too many times to the customer. Frequently changing the rates to the customer not only agitates the customer, but it also upsets their planning, etc., which is why we want to hold on to the rates as much as possible. So which is why I understand there is a serious increase. We don't want to pass it on. We want to keep it stable for the customer. It's just a good fair practice for us, as far as the customers are concerned.
Got it. Just one last question. When the rate increase actually happens, do you increase the tenure, or do you increase the EMI, keeping the tenure constant?
We always increase the tenure so that the customer's budget does not get upset. Our first attempt is always to increase the tenure unless the tenure crosses a certain limit, in which case we have to then change the EMI.
Interesting. The EMI. Got it. Understood. See, that's all from my side. All the best.
Thank you. Next question is from the line of Abhishek, an individual investor. Please go ahead.
Hope I'm audible.
Yes.
Yes.
Yeah. Your question pertains to, I think, in the earlier years, the management has spoken that there is a reversal of provisions for the year-end leading to the lower OpEx to EM ratio. So that will be pertaining to the employee expense, I guess, and not the provisions, no? Am I right?
Yes. We also take certain employee-related provisions around incentive payments and related items, so more in that nature.
Sorry. Voice was breaking. Can you please repeat your question?
Yeah. Largely employee-related and expense-related provisions.
Yeah. And the lower provisions for the quarters, those, I think, earlier the CFO had spoken regarding the other write-back or the recovery has been booked in the provisions, hence the lower provisions for the quarter-end.
Credit losses. The write-back is pertaining to the lower credit losses.
Yeah. You do not book in the other income part. You book in the provisions part.
Credit cost.
Yeah.
No. The lower line item in the P&L, I mean, just before the PBT, provisions are lower. So that is the lower is because of the recovery we have booked, no?
Yes. Yes.
Yeah.
The recoveries have been passed in the credit cost line.
Yeah. The recovery from the write-offs is the reason for the lower credit cost. The lower operating expense is because of certain other provisions on the employee side, employee expenses, etc., which there were some provisions which have been now we have got rid of it. So that is the reason for the reduction in the operating expense. Both are different.
Yeah. Yeah. Yeah. Yeah. Yeah. Thanks for the clarity. That's it from my end.
Thank you. As there are no further questions, I would now like to hand the conference over to Mr. Manoj Viswanathan for closing comments. Over to you, sir.
Thank you. We are confident to continue the growth momentum led by a strong economic environment, expanding distribution network, and differentiated business model. We continue to stay focused on providing loans for affordable housing led by distribution and use of technology, and that by diversified funding and strong risk management. Thank you, everyone, for joining on the call. I hope we have been able to answer all your queries. In case you require any further details, you may please get in touch with Manish Kayal. Thank you very much.
Thank you. On behalf of Home First Finance Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.