Ladies and gentlemen, good day, and welcome to the LIC Housing Finance Q2 FY 2024 investors conference call, hosted by Axis Capital Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star ten zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Praveen Agarwal from Axis Capital Limited. Thank you, and over to you, sir.
Thank you, Vikul. Good afternoon, everyone, and welcome to the earnings call. We have with us Mr. Tribhuwan Adhikari, MD and CEO, and Mr. Sudipto Sil, CFO, from the management team. I would request MD and CEO to give us a brief on the results. After that, we open the floor for Q&A. Over to you, sir.
Yeah. Thank you, Praveen. Very good afternoon. Good afternoon and welcome to the post-earnings conference call of LIC Housing Finance Limited. As you are aware, LIC HFL declared its Q2 FY 2024 results yesterday. Before I start the highlights of the Q2 results, just like to outline a few developments in the economy over the quarter. RBI kept the policy rates unchanged in its August and October meetings. However, temporary incremental CRR was introduced in August MPC meeting to tighten the liquidity in order to curb inflation. The inflation numbers in the quarter were slightly higher above the RBI's targeted range. In the October MPC meeting, the RBI governor hinted that RBI could opt for OMO sales auction or G-Sec to mop up excess liquidity.
Due to the high inflationary pressures and tight liquidity, the interest rates remains elevated, at elevated levels during the quarter with almost a flat curve. Now, I would like to share the key highlights of the financial results of the quarter. The total revenue from operations of the company were INR 6,753 crore, against INR 5,086 crore for the corresponding quarter of the previous year, up by 33%. The outstanding loan portfolio stood at INR 2,77,987 crore, against INR 2,62,836 crore as on September 30th, 2022 , reflecting a growth of 6%. Out of this, the individual home loan portfolio stood at INR 2,34,509 crore, as against INR 2,16,771 crore, up by 8%.
This home loan portfolio comprises 84% of the total portfolio. Total disbursements for the quarter were INR 14,665 crore against INR 16,786 crore in previous quarter last year. Home loans were during the quarter, home loans were INR 12,516 crore as against INR 14,300 crore , and project loan disbursement was INR 433 crore against INR 407 crore for the same period in the previous year. So project loan growth was the disbursement was slightly up by 6%. The disbursement for the quarter reflects a 35% growth over Q1 of FY 2024, though it still remains below the Q2 of FY 2023.
As I had shared in the post-results call of the first quarter on the August 3rd , initially in the beginning of the year, due to complete revamp of the technology, we had some technology-related issues which had affected the numbers in Q1 and the first month of Q2. But now these technological issues have been resolved, and ever since August and in the month of September and even in October, we are witnessing a month-to-month improvement in the improvement. Trend is pretty much more visible in October, where the sanction figures have clocked an almost 15%-20% Yo Y growth.
So I see this as a very, positive reflection that, of the portfolio growth in the coming quarters, and I believe we should grow at a much higher rate as to what we've been doing so far in the two months of the current, two quarters of the first, of the current financial year. Net interest income stood at INR 2,107 crore, as against INR 1,150 crore for the same period in the previous year. It is up by 83%. Net interest margins for, the current quarter stood at 3.04%, as against 1.78% for Q2 of financial year 2023. And we have been able to maintain the NIM above 3% for two consecutive quarters in a row.
PBT is, for the quarter, was INR 1,480.06 crore, as against INR 378.85 crore in the previous year, registering a growth of 291%. PAT for the quarter stood at INR 1,188.05 crore as against INR 304.87 crore for the same previous period in the previous years, a growth of 290%. In terms of asset quality, the Stage 3 exposure at default as on September 30th current year stood at 4.33%, as against 4.90% as at 30th September of last year. Total provisions as on September 30th current year stood at INR 6,512 crore, reflecting a provision coverage of 41%, as against 44% in the quarter last year.
With our continuous and focused efforts on recovery, we have been able to achieve significant reduction in NPA in Q2. Also, in the current quarter, we have also gone in for a technical write-off of INR 925 crore. All these loans were carrying 100% provision. Recovery efforts were put on maximum focus during the quarter. A lot of focus was on the feet on the street, going and meeting the delinquent customers, motivating them to pay back. And there was a net reduction in stage 3 sequentially without considering the write-off also.... A further improvement is likely to come in the coming quarters, and the stage 2 accounts have also had witnessed significant improvement with our vigorous recovery and follow-up efforts.
On the funding side, the cost of funds is issued at 7.66%, 7.66%, as compared to 7.62%, slightly uptick of, 0.4 basis points. Incremental cost of funds stood at 7.73% for Q2 of FY 2024. During the quarter, the short-term benchmark 364-day T-bill moved from 6.79% to 7.18%, and 10-year G-Sec also witnessed significant increase in the yields. Despite the increase, the increase in the weighted average cost of funds was restricted to about 4 basis points. The company also renegotiated on the existing funding availed from the various banks and was able to obtain better pricing. The margin for the quarter is 3.04%.
On the interest rate scenario, it's likely that interest rates will remain elevated for a long period of time considering the inflation, inflation situation. With this brief introduction, I would like to invite you for the queries. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mohit Jain from Tara Capital Partners. Please go ahead.
Hello?
Hello.
Hello. Yeah. Hi, can you hear me?
Yeah. Good afternoon, Mohit.
Yeah, good afternoon. Sir, I have two questions for you. First one is regarding the overall loan growth, sir. I heard that you said that the system issues have now been resolved, and the book is now going to grow at a good pace. So sir, in this situation, should we, are we going to stick to our guidance of 20%-15%?
Yeah, yes. Our basic guidance at the beginning of the year and even at the con call of at the end of-
Mm-hmm.
-Q1, the 22%, we stick by that guidance.
Okay, because I think that the R rate now for the remaining six months is going to be almost like 5% per quarter that we need to grow. So we are confident of achieving that number too.
Yeah, Mohit, we do understand that the repo rate has, of course, gone up because of our slightly lower than expected performance in Q1 and Q2.
Mm-hmm.
But we are well poised. We are well poised. We are witnessing significant improvements in the situation. The sanction numbers are pretty comforting, especially in October. Yes, there is a gap between, gap of almost 20% between the sanction and the disbursements. So we believe-
Mm-hmm.
this gap is going to be bridged, and already in October, we have witnessed a significant growth. I think this will continue for the next two months, and I think we, the quarter three will be a good quarter for us.
Okay. Okay. Sir, my second question is regarding the credit cost. From a quarter-on-quarter basis, because it is from 50 basis points to 60 basis points, and I just think you explained that the write-offs were 100% provided basis, so I don't think that will have a real impact. So what is the... Is it because of seasonality that the credit cost has increased? And do we stick to that original guidance? So, you know, if we said that our credit cost is supposed to come down to 40-50 basis points, because Q1 was already higher at around 70 basis points. I think on Q1 was a 50 basis point, which then also is around 50 basis points.
Yeah, Mohit, I'll ask Sudipto Sil, our CFO, to take this.
So, Mohit , actually, if you see the published accounts, then there is a note which we have put.
Mm-hmm.
This is basically a charge of INR 105 crore approximately, from INR 4 crore, which is a one-off, because this is basically pertaining to some of the repossessed assets, where we have-
Mm-hmm
reclassified from the assets held for sale to loans.
Mm-hmm.
From that, we had made an additional provision of INR 104 crore.
Yes.
So if you remove that INR 104 crore net, then probably the real credit cost charge for this particular quarter will be reduced.
We don't expect such charges in the subsequent quarters. I think we have a lower-
This is a one-time one-off.
Okay. Okay. Okay. Okay, thank you.
Thank you.
Thank you. Our next question is from the line of Gaurav Sharma from HSBC Securities. Please go ahead.
Yeah. Hello?
Yeah, good afternoon, Gaurav.
Yeah, good afternoon, sir. So I'll just, couple of questions. One is, I just want to know your incremental lending rate and incremental cost of borrowing for quarter two. That is one. And second, sir, my question is pertaining to PCR. So like, couple of quarters, we mentioned that in, that we have moved to 52%, 50% PCR. Now it has again come back to 42%. So just wanted to know the timeline that that is, again, we'll be targeting that 50% PCR, or it will remain at the current level as well?
Yeah, I'll take the part about the PCR, Gaurav. Yeah, the PCR has slightly come down. In Q2, it was 42, in Q, sorry, Q1 of current year, of the current financial year, it was 41. It was 42. It has now come down to 41, so there has been a 100 basis points reduction. This is partly because of this write-off, which we have done. Yes, the RBI mandate is that we should aim for a PCR of approximately around 50%. Of course, we do understand that all our lending is totally covered by, totally covered by securities and mortgages... So compared to the banks, we are slightly, I would say, more comfortable as far as the collaterals are concerned. But still, it is our endeavor.
Yes, 41%-42%, we believe as a, as a management, we are comfortable. Yes, we would like to take it up to 50% as mandated by, or as requested by RBI governor. Of course, for banks, it is ideally 60%. We'll keep it on the similar, similar levels, initially, and then scale it up, depending upon recovery. Yes, we would definitely like to have, more comfort on the PCR side. Would try to attain 50% as quickly as possible.
Yeah, I might add to that. For example, if you actually add back the write-off amount of about close to INR 925 crore, then you'll actually find that the PCR level is higher than what it is optically shown here, number one. Number two is that we are expecting improvements on the recovery front, which will automatically reduce the outstanding NPL size and amount, and that itself will lead to an improvement in the PCR, otherwise also.
Well, just to comment on that, on the recovery front, yes, there are a lot has been done. We've really hit the streets. Our team is already hitting the streets in a big way, approaching customers. We are also exploring whatever options we have, the legal options we have, we are exploring all of them. So in fact, everything is going together. There has been a significant improvement in the recovery effort in the quarter. We are receivables, but, we are also doing well. And now the only thing is that, yes, two issues that are large, we are... What we see in the horizon are a few big cases. Project loan has been our achilles heel, if I may say that, almost 40% NPL in the project loan side.
Yes, we are targeting the big case, big cases, and a lot of the cases are in NCLT and IBC. We can see a few big cases coming to resolution in the horizon. So that, and of course, we are also pursuing the OTS route aggressively. And yes, one thing which we had, which I had said in the first quarter, that we were exploring the ARC route. So long until the end of the first quarter, we had not explored or not ventured into the ARC route. In the current quarter, yes, we have taken a pool of loans to the ARCs, who should be coming back to us shortly.
So, taking that, I think in the remaining part of the quarter, in the coming quarters, we are going to go aggressively and take the ARC route for the lumpy and sticky loans, which, for which we see no resolution.
Understood, sir. And on question number one, that is incremental lending, that is incremental lending rate and cost of borrowing.
Yeah. Yeah, incremental cost of fund is around 7.73%, and incremental lending rates with everything put together is, I mean, largely now, as you've been knowing, largely it is in the retail side that we are lending. But if you aggregate with the little bit of project loans and other assets that we are doing, it is around 9.4%, roughly.
Sir, incremental cost of borrowing, I was asking, sir. Actually, incremental cost of borrowing you have mentioned.
7.7%. 7.7% to 7.73%.
Okay. So it is same as incremental cost of fund and incremental cost of borrowing are same rate, right?
Yes. Yes. Yes.
Okay, got it. Thank you, sir. That's all my questions. Thank you.
Thank you.
Thank you. Our next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Yeah, thanks for the opportunity. Sir, just a couple of questions. One is, what was the disbursement amount for the month of September?
Aja, one question only, or do you have some more?
Yeah. So, my other question is with respect to last quarter, you had spoken about some NCLT recoveries. I think you just touched upon it in the previous question. You know, if you can provide some timeline as to when can one expect that the recoveries or resolutions would materialize and we would see some benefit? And then my third question is, what is your margin outlook for the second half? Given that we're already trending above 3% for the first half, something that we haven't seen in the last many years, what would be your expectations as far as margin is concerned and whether we can sustain at this level or not? Those are my three questions. Thank you.
Okay. Yeah, Raghav. Your first question was about disbursement figures for September. September, the total disbursement was INR 4,813 crore, compared to INR 5,509 crore of last year. Yes, there was a slight degrowth. So this was it. Coming to NCLT, as I said, the NCLT, this is a legal framework. Yes, from the current status of the cases, we see in the horizon that these cases could get resolved and resolution could come through probably in 2-3 months' time. But again, legal, you know, you can never predict what is going to happen on the legal front. So yes, we do see some big cases. There are other, we are in talks with various other big delinquent borrowers, especially on the project loan side.
They are expressing even some interest in OTS, which we are following up. So that also we see a few good loans coming sort of getting resolved. Overall, if I may put it, put it to a figure, I believe somewhere in the region of INR 400 crore-INR 500 crore of sticky and lumpy loans, which are existing in our books today, I expect them to come for to come up to be resolved, rather, not come up to be totally resolved in the current quarter. Now, coming to the NIM, yes, the NIM is at 3.04% in the current quarter. Yes, as 3.41% in Q1.
But that was, I believe, as I said in the con call of August 3rd , I think that was the peak. 3.41% was the peak, and I clearly indicated that we would not be able to sustain it, and slowly we expect the NIM to come down, and that is precisely what has happened. So from 3.41%, we are at 3.04%. The guidance we had given you was in the region of 2.6%, 2.5%, 2.6% . Yes, I think I still maintain that guidance, and I think we should be able to achieve the guidance of probably 2.6%-2.8% in this current financial.
Sir, just one follow-up to questions. So this September disbursement is about INR 4,800 crore. And if you look at for the full quarter, that's about 14,700, almost 15,000 crore.
Yeah.
Earlier during the call, you had mentioned that the disbursements have been picking up month-on-month. So this, you know, INR 5,000 crore of disbursement in September versus INR 15,000 crore for the whole quarter, is, it doesn't sit right when you say that there has been monthly improvement, or month-on-month improvement. Can you explain a bit more on that?
No, if I go by, if I just give you a figure, I don't have the exact figure, but if I tell you, July was around INR 4,500 crore , right? August also, I believe, was somewhere near that. Compared to that INR 4,880 crore , some progress we have seen. If you look at the figures in Q1, it was INR 3,000 crore for, I believe, INR 3,000 crore around for April, and for June, it was around INR 4,000 crore odd. Looking into those numbers, I see an improvement. Another factor which we—I am also considering is my sanctions, right? I believe right now my sanction to disbursement ratio is around 80%. That means what I am sanctioning, only 80% of them I'm able to disburse.
I expect, in this quarter, this to be much, much, much higher. That is what we've been after, with the marketing teams. And I believe, with the festive season around the corner and some special, I would say, festive offerings, which we have given to our customers, special rates, et cetera, definitely, I am very optimistic about the business part of it in Q3.
Sir, would October disbursements be lower than September? Would you say that? Or,
No. No, no, no.
No. Would it be materially higher than September?
Definitely, it will be higher than September. September, five, my September disbursement figure was, 4,813 , as I told you, right?
Yeah.
October, I would definitely expect... Yeah, October is already over. October disbursements are about INR 5,000 crore . I don't have the exact figure right now. It is INR 5,100 crore something. Right? So there has been an improvement in that. In October, I see a significant increase in the sanctions, 15%, 17% , I think it's 17 point something, I don't remember exactly. 17% growth in the disbursement wide, year-on-year.
Thank you, sir. That was all from my side.
Yeah. Thank you.
Thank you. Our next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
Hi. Just one question from my side.
Mm-hmm.
You know, if I look at the GNPL, you know, we have seen almost a INR 1,700 crore sequential decline in GNPL. I believe INR 900- odd crores comes in because of technical write-offs. What is the balance?
Nischint, actually, the technical write-off on the principal side is around INR 925 crore. There is also an element of some reduction in. This is also a write-off which is pertaining to the income on the Stage 3 assets.
So, so can you give a breakup in terms of what it is? I mean, if you can just sort of, you know, help us reconcile 1,600 and 900.
Sorry?
Can you help us reconcile 900-
7 loan accounts on the project side, which is around INR 699 crore, or you can take INR 700 crore. The balance, INR 225 crore, pertains to LAP, a good number of retail accounts.
No, no, the point I'm trying to make is... Hello? Yeah, the point I'm trying to make is that, can you reconcile the 1,609, you know, 1,675 and INR 900 , you know, what is the difference? I think that's what I'm, I'm saying, you know?
Yeah.
Where, where-
Actually, as I told you, INR 925 crore pertains to the principal portion of the loans written off.
Mm-hmm.
Then there is also an amount of interest which was there in the gross EAD , that is the Exposure at Default. That is close to around, say, INR 500 crore. That has also been written off.
Mm-hmm. And then, then balance could be some recovery? Is that it?
There is some recovery. There is some actual recovery on ground.
How much would that be?
Maybe around INR 200 crore-INR 300 crore , approximately.
Perfect. Thank you. That answers my question. Thank you.
Thank you. Our next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. So, sorry to take forward that question. So in terms of the recovery or actual improvement in Stage 3, that seems to be like around about 200, or maybe Stage 2 plus Stage 3 is that amount. Last time you highlighted that we will see unwinding of the part of stress which was there due to disruption.
... So is there more left for Q3 and we should see the further improvement, both in terms of Stage 2 and Stage 3? And similarly, with write-off, is it largely done, or we will see more write-offs coming into Q3 and Q4 as well?
Yeah. The first part of the question, the actual improvements we'll get to see in Stage 2. The Stage 2 is actual improvement which upgrades to Stage 1. So that is something that, kindly note, that that is one improvement which is there. Actual recovery from Stage 3 accounts, complete recovery through closures, et cetera, that also, as I mentioned in the previous answer, that also, is there. As far as the write-off is concerned, now these accounts which have been written off are the ones which have been fully or wholly written off.
Now, this will the size of this obviously will not be every quarter, it will not be such a big size, but some small, small, some, a few 100 crore of accounts which have been fully written off, have been fully provided for 100% provisioning, that will keep on continuing. Because these are only technical write-offs, and the follow-up action, legal action, SARFAESI action, everything continues as it is.
Okay, but that quantum would be hardly like 100 or so, not to the extent of-
No, no, sir, it is, actually for the last, well, three quarters, I think we have not done any significant write-off. So you can say to some extent that this is also some kind of a pileup of for last couple of quarters, at least.
Okay. Thank you. That's why in Stage 2, you are highlighting that is more in terms of upgrades into Stage 1 rather than flow-through in Stage 3.
No, this is upgrade to Stage 1.
Okay. A larger part of the reduction which has been there in Stage 2 assets.
Stage 3 has been, Stage 3, even without considering the write-offs that we discussed, even without, considering the write-offs, there is an improvement. Stage 2, there is an improvement in terms of upgrade to Stage 1.
No. Okay, because if I look at stage 3 purely, the difference, and if I add on to the, maybe the write-off, then there is some increase, maybe not much, but INR 120- odd crores kind of an increase, which is there in stage 3. So just wanted to get whether it's more in terms of the flow-through from stage 2, yeah.
There's actually an increase, I mean, there is a reduction, the Stage 3 by approximately around INR 100 crore.
Okay.
INR 100 crore, also.
Okay. And, secondly, in terms of the, repricing, so the, now, given that growth is also around about, 6% , 1% sequential, has there been a lot of, repricing requests which are coming in, and then maybe we are pricing it lower, so would there be some proportion? Because yields have also come up, during the quarter. So any particular portion of the book wherein we saw the repricing lower in this quarter?
Yeah. Well, if I... Let me clarify this. Well, I told you that in Q1, we had gone in for a total technological upgrade, and due to that, we ran into some problems, some challenges. One of the challenges was rewriting. So in Q1, there was literally no rewriting option available to our customers. So resultantly, Q2, the entire rewriting, in fact, in Q1, the rewriting was zero. In Q2, the rewriting was to the tune of INR 9,291.55 crore. So there was a huge impact of rewriting which probably affected our margins.
Okay. That was on INR 9,000 crore of a book.
95. Yeah.
Okay. Okay, and this would have got repriced to what extent? Maybe, people are bargaining for 50, 100 basis points. How would that be?
Yeah, of course, it depends on where they were, where they were. The repricing would be probably in the region of 9%, 8.75%-9%. Approximately up to 200 basis points, repricing would have taken place.
Okay, 200 basis points repricing.
That is the, that is the range.
That is the range, range.
That is not the average.
Yeah, got that, got that. And, now, just last question in terms of margin versus growth, the preference would be more in terms of sustaining the margins rather than growing? Or, maybe now we will see the uptick in the growth as well, at some cost of margins, because now it is settling at more than 3%.
Yeah, I agree. This is options choice. You go for growth or go for margins? Yeah, that is. But no, I think we, we concentrate on growth. We concentrate on growth. We will be looking at, getting the margins as well as showing growth, because we need, to grow the loan book. That ultimately would translate into better margins.
Okay. Okay, thanks and all the best. Yeah.
Thank you. Our next question is from the line of A.M. Lodha, from Sanmati Consultants. Please go ahead.
Good afternoon, sir. Am I audible there?
Yeah, yeah, you're audible, okay. Good afternoon.
Sir, there is only small request. You just simply file a letter to the exchange that the presentation has been uploaded and press release is uploaded on the website. We have to go to the website, and with all other companies, they are filing the presentation, the press release direct to the. And besides uploading on the website of the company, they are filing, attaching the presentation and the press release to the exchange directly at NSE and BSE. So investor can have easy accessibility to the press release and the presentation instead of going. Even in your letter, the letter does not have that green line which we can push and go to the website. It is just a photocopy of the paper copy, enclosed in the, filed in the stock exchange, nothing else.
1. 2, sir, this is my suggestion. I trust management will take care of it, filing the presentation directly to the company, sir. Directly to the stock exchange, besides uploading on the website.
Yeah, okay. We'll take note of it and see how it is, with-
Every company is filing, sir. Every company is filing presentation and press release directly to the stock exchange, along with the letter. Here is the presentation of the company and the press release in regard to the second quarter results.
Okay, sure. Sure, Mr.
Point taken. Point taken. Second, my request is, sir, with this company, I am quoting you on this, paragraph of Mr. Adhikari, can, this, the, from this commentary on this, this, please. The demand continued to be robust, and the overall economy is doing very well. Sir, I am telling you, each and every small finance company, each and every gen bank finance and every home finance company has grown more than 10%-15% in the quarter and in six months. Whereas LIC Finance is, is actually there is a decline in the loans. In Quarter Four, these loans have been INR 12,000 crore against the INR 14,300 crore , and in six months, the disbursement is INR 25,000 crore and INR 31,000 crore. What is this?
This, the company is working like a sarkari company. It is, we know it is a sarkari company, but that doesn't mean that we would work like a sarkari company.
No, no, no, Mr. Lodha , I completely agree with you. We're not working as a Sarkari company. No.
That is the question.
Yeah. But what exactly would you want to know? Yes, I made-
Yes, I want to know, there is degrowth in the loans. In the... You see the pace of the housing, you see the pace of the home loans, you see the pace of the economy. Even housing is being sold briskly, even tiles, even every housing material is being sold briskly, and you are, there is degrowth in the company, in the quarter and half yearly in the disbursement of the loans.
Yeah, okay. The loans, Mr. Lodha, I agree. There has been a degrowth in Q1 and Q2. We have stated earlier also, yes, Q1 we had some major issues with the technology, and resultantly,
Q2, sir, also is in degrowth.
Yes. The effect is this, Mr. Lodha, you would understand that, things do not set right immediately, you know, and whenever there's a disruption in one quarter, it takes time to settle down. So Q2 has been better than Q1, but of course, I do concede there's a degrowth. Let me assure you, in Q3, you will not see any degrowth.
Please, please, do something for the betterment of the shareholder, sir.
Thank you.
Thank you. Thank you very much, sir.
When we meet in Q3, at the Q3 con call, you will not have neither the complaint about the upload of the presentation, nor about the business.
Thank you. In the interest of time and fairness to all participants, may we request participants to limit their questions to one or two per person? Should you have a follow-up question, we would request you to return to the question queue. Our next question is from the line of Aniket Kulkarni from BMSPL Capital. Please go ahead.
Yeah, good afternoon, and thanks for the opportunity. I had a couple of questions. So firstly, let's say in a hypothetical scenario that interest rates do come down by 100-150 basis points in FY 2025. So if this happens, then how will the NIMs look versus the current levels? And secondly, do we expect to maintain greater than 15% ROEs in the next couple of years? And if so, what will be the reasons behind it? These are my two questions.
Yeah, sorry, I what was the last part of your second question? I just missed it.
Yeah. So the second question basically-
About ROEs?
Yeah. So, do we expect to maintain the greater than 15% ROE for the next couple of years? And, if so, what will be the reasons behind it?
Yeah. Actually, the first part, I mean, your second query regarding the ROEs. ROEs, obviously, we have made significant improvements as compared to last year, and our targeted levels of ROE are always in the range of around at least 16%-18%. Right now, we are at 16%. So that will be the management focus. Without any deviation or any diversion, that will certainly be a management focus to maintain ROEs. And, we can say that we are in a position to maintain at least a decent level of ROEs that we are currently holding right now, because of improvements in the ROAs, structural improvements in the ROAs that we have seen, and also because of the fact that progressively going forward, at least 25-30 basis points of credit costs have reduced.
As compared to last year also, you can say that around 25, approximately 25 basis points of credit costs have been reduced. So that will certainly also add to at least 2 percentage points on the ROE. Now, your first question is regarding the situation of interest rate, reduction of those interest rates. Nobody can predict. It can go up further, it can come down or remain wherever it is. We have seen in earlier cycles also that during the reduction in the interest rates, we have been able to utilize our triple A rating to borrow much cheaper from the market as compared to any other player. So that situation remains unaltered.
In fact, slightly better off now, because right now, if you look at it, we are the largest housing finance in the country, with a triple A consistently for the last 22, 23 years. So that certainly gives us a benefit or advantage in the bond market.
... Yeah, so, will the NIMs be maintained at, let's say, the current guidance of 2.6?
Current guidance, but what, see, obviously, you know, Q1 call also we said that 3.2%, 3.21% NIM, whichever we had, I mean, shown, that is certainly on the, higher side and it's a peak. And we have, our MD just, has indicated that, at the beginning of this year, we were looking at a, a NIM range of between 2.4%-2.55%. Right now, we feel, more comfortable or more confident in looking at a NIM range of between 2.6%-2.8%, which should be maintained.
Okay, okay. Yeah. Thank you so much for answering my questions, and best of luck for the coming quarters. Thank you.
Thank you. Our next question is from the line of Gaurav Jani from Prabhudas Lilladher. Please go ahead.
Yeah, thank you for taking my question. One is, you know, this quarter, we have seen higher repayments of about INR 13,000 crore, if you were to back calculate the numbers. So any particular reason for this? I mean, why is this number high?
Yeah, we have seen some lumpy project loans getting prepaid, especially towards the end of the quarter.
Okay. And, sir, could you split as to, you know, between the repayments as to what would have been between individual housing and, you know, project loans?
Right now, I do not have the full numbers, but I can share with you that overall trend, if you look at the repayment plus prepayment put together, lump sum prepayments are there, not the repayments. The prepayments, it's around 10.3%. It generally varies between nine point... around 9.5 %- 10.5% range. That is what we have seen over the last few quarters.
So no, sir, what I'm trying to understand, sir, is that, you know, is it because of the competitive intensity from banks that we are losing our customers?
This was as I mentioned, there was a one-off, large builder account which got closed.
Okay, okay. So, can you provide the quantum or?
If you see the builder loan portfolio, which is there in the presentation, you'll see that shrinking. Despite some increased disbursement, it's shrunk. That is the reason.
Understood. Secondly, GNPL, sir mentioned regarding an ARC, you know, the resolving lumpy accounts through the ARC route. So this will be over and above the resolutions of INR 400 crore-INR 500 crore that you mentioned in Q3, right?
Now, can you come again? Can you come again, Gaurav? ARC-
So you did mention about, you know, resolving lumpy accounts through the ARC route, right?
Right.
Just want to clarify, would this be over and above the INR 400 crore-INR 500 crore resolutions that you're looking at in Q3?
Yes, definitely, definitely. This is over and above the INR 400 crore to approximately INR 500 crore of resolutions, which we see coming up in the horizon from NCLT and a bit from OTS also. As I said, ARCs, we have not yet explored ARCs till now. It was only in the second quarter that we have taken up a small pool to the ARC, just to test the waters, if I may use the word, just to test the waters. And I think they should be coming back shortly to us. And going forward, we intend to take it up in a much more serious way. So definitely, ARCs would be an option we would be exploring to resolve our lumpy and sticky loans, where we see no resolutions coming forth.
So, sir, just to clarify on this side, could you provide a runway as to what's the target pool of these lumpy loans as well as the total quantum, and what's the total provisioning on these loans? I mean, have we sort of put our head to this or, you know, we'll just take it forward as it comes?
As you said, this is something new field where we are entering into, and we just entered into Q2. Right now we've taken about 15, 20 accounts to the ARCs. So we've not really put our heads. We're looking into, we are trying to go through the first pool, which we have put up. And let's see how it goes. And pretty optimistic it will go well, and once it goes on and then we really put our heads.
Sure, sure, sure. I understand, sir. Thank you. That, those are my questions.
Thank you. Our next question is from the line of Varun from Kotak Securities. Please go ahead.
Hi, sir. I have two questions. First one is on disbursement, with regard to the segmental NPA. Could you give the details on that? And the other one is on the bridge between-
Gaurav, Varun, could you come again? We couldn't get you.
Okay. There are two questions. The first one is on the segmental NPA. If you could the details, give the details for segmental NPA, doubtful loans, LAP and all. And the second question is on the bridging of gap between sanctions and disbursements. You said there's a 20% gap that is going to be bridged. So what are the factors driving this? That's my question.
Okay. I'll ask the segmental NPA, I have to request Sudipto to take it. Yeah. Segmental NPA for the individual home loans as of thirtieth of September is 1.17%, Stage 3. Then for the non-housing corporate, which includes the project loans, it is 35.48%. On the non-housing individual, it is 7.13%. These are the Stage 3 as of thirtieth of September.
... Yes, thanks, sir. And regarding the sanction?
Yeah, about after that?
Yeah, the second question was on sanctions.
Yeah.
The bridge between sanctions.
As I said, right now, our sanction to disbursement ratio is only 80%. 80% of what we have sanctioned has been dispersed. And your question, I believe, was how do we bridge the gap? How do we bridge the gap, right? I think, we need to be more aggressive on the thing. We really need to turn the into the TAT, because all the files moving from the area office to our cluster offices, which have newly opened. Now, one more thing, these cluster offices are newly opened in this current financial year. So again, in the beginning, we had some issues as regards the functionality of these offices. Those have been taken care of.
Now I think we really need to focus on reducing the TAT and ensuring that the TAT between the sanction and disbursement are reduced.
Okay. So thanks.
Yeah.
Thank you. Our next question is from the line of Jigar Jani from B&K Securities. Please go ahead.
Yeah. Hi, thanks. I joined the call a bit late, so, apologies if you've already answered this. But what would be the sustainable level of NIMs say in FY 2025, 2026, once this entire, repricing benefit kind of close to? And what kind of sustainable credit costs are you looking ahead, also, probably say in FY 2025, 2026?
Yeah, as far as the credit cost is concerned, we had indicated that around 50 basis points for the current year, by ballpark, 50-55 basis points, ballpark in the current year should be maintained. You are asking about 2025?
Yeah. So, normalized, say, ROA, I'm just trying to figure out what would be the normalized credit cost going ahead.
Going forward, beyond 2024, that is, right?
Yeah, yeah.
Yeah, that should come down. Credit cost should come down. Right now, probably the way it has come down from 70 basis points to around 55 basis points in the first half of the year, it gives an indication that probably it will come down further. At least around 10-15 basis points going forward in FY 2025, 2026 looks very much achievable, at least as far as the credit cost is concerned. Then your second question regarding the margins, right? Your first question was regarding the margin, sustainability of the margin. Yes. Sustainability, we have discussed in the beginning of the call also. We, when we had started the year, we were looking at increase from last year.
Last year it was an increase over the previous year, so pre- last to last year, we had delivered a margin of around 2.29 in FY 2022. FY 2023, that got elevated to 2.41, and from the beginning of the year, we were confident of delivering around 2.55 thereabouts. Right now, what we are looking at current financial year is around 2.6%-2.8% should be. Comfortably and confidently, we are, we are confident of delivering, in that range. Going forward, FY 2025, assuming the interest rate, scenario remains relative, I think we should be able to comfortably hold on to those levels.
Okay, understood. Okay, thanks so much. Those are all the questions.
Thank you. Our next question is from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.
Hi, sir, thank you for the opportunity. Can we speak on the login to sanction ratio and then boil down the sanction to disbursement ratio so that we can figure out what is the rejection ratio? So are we, like, just about not rejecting anyone, especially when we are in a down cycle in credit right now, especially in the lower ticket sizes? So if you can speak on that. Thanks.
Yeah, Shubhanshu, well, honestly, I do not have the login figures with me. Because logins could be anything from a personal login or just request, it could be logged in. What we look at in the company is what has been sanctioned and what has been dispersed. So that is what our focus is. And if I may add, your query regarding whether we are not rejecting, question doesn't arise because all lending is based on CIBIL score. So question of rejecting or accepting a weak credit doesn't arise itself when there is a basic threshold of a credit score below which we don't accept any loans. Whether it is working or what-
What is that threshold?
automatic rejected.
What is that CIBIL score threshold, sir?
Our 80% of the business gets done at a CIBIL score of 720 plus. 80% of the business, and below 650, no credit score is accepted.
Below 650, sir?
Yeah.
Okay, okay. And sir, what is the business as usual, sanction to disbursement ratio? Say, two, three years ago, pre-COVID, what was the ratio, sir?
In the nineties.
Okay.
Disbursement to around 85%-90%.
Sure, sir. Thank you. These were my questions. Thanks.
Thank you.
Thank you.
Thank you. Our next question is from the line of Punit from Macquarie. Please go ahead.
Hi, sir. Am I audible?
Y eah, you're audible, Punit. Yeah.
Yeah. So, so on the NIMs front, like, you know, Q1 you requested a 10 basis points increase, and this quarter it was a steep decline. So what, what would, you know, you attribute this to? Because since all the loans are floating, you know, they can't... Is there any one-off, like is there any interest reversal? Can you just elaborate on that?
No, I'm not able to, Punit, we will get you. Could you, could you just be a bit more specific, please?
In 1Q , you know, you would like the yield up to INR 15 billion, but now on an overall basis, in 1H , it's like 10 basis points down. What caused this? Because, you know that for years we have not seen any decline in yields for the HFCs at least, right? If you could elaborate on that.
No, I think that is something that we had discussed just few minutes back, that there were some repricing requests from existing customers.
Yeah. So you said that the 200 basis points repricing should have taken place for the most of the customers, but because of the system issue,
There is another reason which also we discussed, that some builder loan got closed, and obviously you would be knowing that builder loans are at a higher rate of interest.
Right.
So two things, is that existing book, customers, requesting for a lower rate of interest as a retention strategy and being good customers, we retain them. And there were some lumpy accounts , which were in the high-yield bracket, which got closed.
Right. Right. So, just from a perspective, this 200, in next quarter, this will take place, right? Because the system issues are sorted. The next quarter will again, on sequential basis, we will witness an uptick, right, in yields, if I'm getting my understanding right?
No, actually, I'm not able to understand. If you can kindly-
The repricing that you said, the 200 repricing that you were not able to do because of the system issues that you had.
Yeah.
Now, since the issues are resolved, next quarter, this will take place, right? The-
It started happening in Q2.
It's, yeah. Yeah.
Yeah.
Okay. Okay.
Q2, it's already happened.
Now, Punit, just let me clarify. In Q1, we had no rewriting, so naturally there was a huge spillover into Q2, and I gave you the figures, that INR 1,291 crore of business got rewritten.
Right.
The overall rewriting, not on an average, but it was around about a reduction of 200 basis points. That did affect our margins. Now that the technological issues are over, as I said in the beginning, the rewriting will come back to normalcy. It's not like they won't rewriting what happened, but they will come down to normalcy. So it will definitely not be INR 9,000 crore in Q3. And I think it should be somewhere around the region of maybe INR 3,000 crore-INR 4,000 crore .
Yeah. Okay. Yeah. Thank you. Thank you so much.
Yeah. Thank you.
Thank you. Our next question is from the line of S. Rosani, from SV Rosani. Please go ahead.
Hello.
The line for Rosani has been unmuted. May I request you to unmute your side? So maybe I request that we move to the next participant, as there's no response. Our next question is from the line of Hardik Shah from Goldman Sachs. Please go ahead.
Hi, sir. Thank you for the opportunity. Am I audible?
Yeah, you're audible. Hardik, you're audible.
Sir, can you give some color on the loan transfers in the quarter? What is the usual run rate, and are you seeing any increase there?
loan transfer-
Balance transfer, you mean?
Balance transfer, yes.
Right?
Yes. Yes, yes.
Yeah. In the quarter, BTs was about INR 2,300 crore. INR 2,300 crore, the exact figure is INR 2,396.65 crore.
Okay.
Yeah. And-
This is the pool to which you had also offered a retention rate, but they still moved out. How, how does it usually work?
No, it could be a host of factors. It's not a question of us offering our retention rate. Yes, some of it I would agree, would have been slightly because of the technological issues, customers having some issues with their loan accounts and probably not being very satisfied with us. Yes, that could be one of the reasons. And of course, the other reason is the competitive pricing being offered by competitors. So that always happens. Of course, 2,300, almost INR 2,400 crore got taken over. We also took over about INR 1,200 crore. Yeah, agreed, the gap between the takeover from us and the takeover by us is about, what? INR 1,000 crore, INR 1,200 crore plus.
What I understand, is this, is this rate higher than before, or is it business as usual?
Yeah. Actually, if you look at the steady state, BTs, it has more or less stabilized at around between 3%-4% on the portfolio on an annualized basis. So this also, this number just shared with you, that also more or less works in that range, around 3.3%. So over a period of years, it has stabilized, but as MD mentioned, there was a spike because of the technology-related servicing issues, which hopefully going forward have reduced.
Yeah, I think I see a reduction in this. Or rather, let me use the word, I see a reduction in the gap in turnover from us and turnover by us.
Understood.
From us and-
Thank you. Thank you, sir.
Yeah. Thank you.
Thank you. Our next question is from the line of Vipul Kumar Shah from Sumangal Investment. Please go ahead.
Hi, sir. So what is this technical write-off of INR 925 crore? I'm still not able to understand.
Well, Vipul, it's like this, these are all NPAs, which are 100% provided for. So that means a provision of 100% has been made against each one of them. A technical write, write-off basically means that it gets written off from my books of accounts and the balance sheet, balance sheet gets clean, right? So, they are reduced from the NPAs, as well as the portfolio also gets reduced by the same margin.
And also the provision-
Also the provision, the provision gets released.
But at the same time, they remain on the ledger, so the follow-up action, legal action, recovery action, whatever is happening, that continues.
Okay. So that gives you the chance to recover, right?
Yes, yes, yes. It is, it is there in our, I would use not books, I would not use the books because it has been taken off the books. It is there in our loan ledgers. It continues to be in our loan ledgers, and the follow-up action for recovery, the legal action for recovery, the OTS action and even the ARP action, all are options, all are available to us.
Sir, my second question pertains to project loans, where we have NPA of around 35%-40%. So what is the logic of continuing with such type of loans where every one out of three rupees lent becomes NPA? So I simply do not see any logic to continue this business.
Let me give you a perspective on this. Our project loans, I agree, are our delinquency ratio is almost 35%-40%. But in the last, if I look at my project loan disbursement in the last 5 years, of high financially as defined, let's say, our delinquency ratio is only 5%. So basically, these are all loans given earlier to 5 years, which have turned bad. So honestly, I would not say that project loans as such are bad. They are probably in the early stages when we started doing project loans, probably our diligence was not proper or probably we did not have the proper the strategies and the SOPs in place. So that could be one of the reasons. Yes, we are very wary on the project loan side.
We are not going all line and sinker into the project loan. We are being very choosy about when to lend, where to lend, how much to lend. But it is definitely an option. We are not writing off project loans as an option.
Thank you. Ladies and gentlemen, that was the last question of our question and answer session. I would now like to hand the conference over to the management for closing comments.
Well, thank you, friends. Thank you to all of you for the con call. I believe we answered most of the questions you put to the best of your satisfaction. Yes, Q2 is over. We are looking forward to Q3. Festive season is around the corner. Festive season always brings joy. And we are also pretty optimistic about our performance, the performance of LIC HFL in Q3. All the issues which we had as regards technology, as regards restructuring, they are now in the back burner. And I definitely am very, very optimistic that from the business front, where we are slightly on the back foot right now, I think we are going to rebound back in Q3.
As some of my friends said, the negatives, which you see in the business front, that will be eradicated. So thank you all once again.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.