Good morning, ladies and gentlemen. Welcome to the LIC Housing Finance Q2 FY 2023 Investor 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 then 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. Thank you, and over to you, sir.
Thank you, Lisane. Good morning, everyone, and welcome to the earnings call of LIC Housing Finance. From the management team we have Mr. Y. Viswanatha Gowd, MD and CEO, and Mr. Sudipto Sil, CFO, to take us through the key highlights of the results. I would request Mr. Gowd to take us through the highlights, after which we'll open the floor for Q&A. Over to you, Mr. Gowd.
Thank you. Thank you, Praveen. Thank you. Very good morning to all of you. I extend a hearty welcome to all of you to the post-earnings conference call of our LIC Housing Finance Limited. As you are aware, LIC HFL declared its Q2 FY23 results yesterday. I have with me our COO, Mr. Ashwani Ghai, and also our Sudipto Sil, the CFO. Prior to detailing the operational aspects, I would like to highlight that in the current fiscal year, RBI had increased the repo rate by 190 basis points in fourth consecutive MPC meetings in line with the monetary policy tightening across the world due to inflationary pressure. Consequently, the company also raised its LHPLR by 175 basis points in the current fiscal year till date. The key highlights of the quarter results are as follows.
Total revenue from operations were INR 5,086 crore as against INR 4,708 crore for the corresponding quarter of the previous year. It is up by 8%. Outstanding loan portfolio stood at INR 2,62,336 crore against INR 2,37,660 crore as on September 30th, 2021, reflecting a growth of 10%. Out of which individual home loan portfolio stood at INR 2,16,771 crore as against INR 1,88,348 crore. It is up by 15%, and now it comprises around 83% of the total portfolio. Total disbursements for the quarter were INR 16,786 crore as against INR 616,110 crore. It is up by 4%.
Out of that, the disbursement in the individual home loan were INR 14,300 crore as against INR 14,330 crore disbursements. Disbursements of project loans were INR 407 crore against INR 353 crore for the same period previous year. It is up by 15%. Disbursement for the quarter has been stable and also there has been sequential improvement in the same. Housing demand continues to be fairly strong as we enter into the festive season and into the second half of the year. Disbursement in the home loan segment appears to be stable. The success of our Homy app has helped our company to improve penetration in the young homebuyer segment. Sanctions through Homy app during Q2 FY 2023 were INR 9,159 crore.
Net Interest Income stood at INR 1,163 crore as against INR 1,173 crore for the same period in the previous year. Net Interest Margin for the Q2 FY 2023 stood at 1.8% as against 2% for Q2 of FY 2022. There has been a sharp decline in the NIM sequentially from Q1. As a conscious exercise, we have been retaining retail assets for better portfolio growth, especially in increasing rate environment. Consequent to that, there has been some impact on Modification Loss to the extent of about INR 275 crore and has dented the NIMs for the quarter and also due to some lags in transmission of higher rates on the portfolio. Also, with 115 basis points of repricing effective on entire portfolio from October 1, 2022, there is likely to be significant increase in interest income in the current quarters.
Profit before tax for the quarter was at INR 378.85 crore as against INR 308.95 crore in Q2 of FY 2022, a growth of 23%. Profit after tax for the quarter stood at INR 304.97 crore as against INR 247.86 crore for the same period previous year, with a growth of 23%. In terms of asset quality, the Stage 3 exposure at default as on September 30, 2022 stood at 4.9% as against 5.14% as on September 30, 2021. Total provisions as on September 30, 2022 stood at INR 6,521.89 crore, reflecting a provisioning covering of 44% as against 43% as on September 30, 2021.
This includes INR 535.50 crore for COVID-19 related provisions. ECL provision for assets recategorized as NPA as per RBI notification dated 12th November 2021 is INR 118.37 crore. There has been some improvement in retail assets by little over INR 700 crores across IHL, LHL and NHC. However, there is increase in NPA in the project by INR 540 crore. Overall, there is a decrease in Stage 3 sequentially. Also, during the quarter, we have taken technical write-off of INR 191 crore in retail asset category. On the funding side, we witnessed an increase in cost of funds, which were 7.1% as compared to 6.76% as on 30th September 2021, attributable to consecutive repo rate hikes of 90 basis points by RBI in Q1 2023 and 100 basis points in Q2 2023.
Incremental cost of funds also have inched up and stood at 6.89% for Q2 FY 2023. With this brief introduction, I would like to invite you for your queries. Thank you.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your 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 on the line of Mahrukh Adajania from Nuvama. Please go ahead.
Yeah, hello sir. Sorry, why did margins decline so sharply? You said as a conscious decision to retain retail assets and also some lag. Could you explain in detail what led to such a sharp margin decline? Because I thought in the last con call we had guided to stable or to maybe slightly bett.r margins. That is my first question.
Okay. Yeah, please continue.
Yeah. My second question is that the leverage ratio is on the higher side. Now it's crossed 10, now on an average on a total asset basis. Any thoughts on that on equity raise? The third is on NPL. NPL stay higher than the 4Q levels, and they have inched up even in third quarter. Any thoughts on that?
Yeah. Good morning, Mahrukh. This is Sudipto here. Of course, we just discussed about in the opening remarks, MD mentioned about the retention, et cetera. As far as the margin is concerned, yes, obviously there has been a sharp decline in Q2 as compared to Q1 and also year-on-year. What was mentioned in the opening remark is that, and if you recollect in the previous calls, we had said that we are trying to retain assets, especially the really high quality retail assets. We are attempting as a conscious strategy to retain those assets, especially in an increasing rate environment. This also was a conscious effort to move those assets from the fixed rate interest regime to the floating rate interest regime.
That is exactly the reason why this has happened. There has been obviously a upfront discount or re-reduction in interest rate that was offered to those customers because they were basically very high quality customers, almost like a zero NPA customers. The overall thought there is to ensure that we are able to retain those customers with a long residual life in a floating rate environment. If you actually look at the fact after the retention was done, we had also increased the interest rates on the PLR several times to the tune of almost 175 basis points in the last four months or so. That is the reason why this impact of, say, INR 275 crore, which we had discussed in the beginning of the call.
That is the reason why this has to be done as per the accounting treatment under the Ind AS.
Got it. In these assets.
For the full- year FY 2023, we're very confident that we can deliver an improved over FY 2022 margins.
Okay, got it. This was like a proactive decision or there were actually a lot of prepayments or takeovers and that's why you chose this?
See, it is a combination of both. We are in a competitive industry and there will always be, you know, competitive pressures and people who would like to move out. It is actually a conscious effort, a conscious decision taken that, yes, we need to retain good quality, high quality customers with very good CIBIL scores. Also we have to ensure that they are not in a fixed rate regime because in an interest rate environment, where which is increasing, a fixed rate regime is actually not conducive for the overall NIM. It's actually a decision taken on both accounts, and it is actually a decision which is taken keeping the next several years in mind, not only one quarter.
Got it. Now is all the conversion fully done or you could see some more in the third quarter or so?
Yeah. Unlikely. Very unlikely.
Okay. On NPL and leverage.
Leverage, I think we are comfortable. In fact, if you look at the Tier 1 and especially with the scale-based regulation kicking in, the requirement of Tier 1 actually is lesser than the earlier NHB regime, which used to be around 10%. Now the Tier 1 requirement has been reduced to 9%. Overall, if you look at the leverage, it is still within, I mean, substantially within the range of the allowable limit. It is around little less than 10, 9-point-something.
Okay. NPL? Also, the technical write-off, what was that on? It's through the P&L. Is it or it's?
See, actually there has been some improvement. In the last call we had said that there will be an improvement on the recovery. It was visible, if you recollect. Within the quarter itself, we have been able to, I mean, improve the collections and reduce the NPLs by almost INR 800 crore, and that has happened through on ground collection. There has been some deterioration in the asset quality in the project loan side. Also, the percentage is getting further distorted because the outstanding loan in the project loan category has also come down sequentially by almost 5%, which on that base is quite significant. Pertaining to your other query on the technical write-off.
Yes, the technical write-offs mean that the on ground follow-up, recovery, legal, everything continues as it is, but these are loans which have been more than three or four years NPA, and they have been fully provided for. This is actually done through the PNL as is required in the Ind AS accounting system.
Okay. Thanks a lot. Thank you.
Thank you.
Thank you. The next question is on the line of Dhaval from DSP. Please go ahead.
Yeah. Thanks. Just on margins again. On the yield side, you mentioned that you know certain loans were converted from fixed to floating. If I look at the data, about 2% is the increase in floating loan which translates to about INR 5,000 crore. What's the impact, the NII impact of this fixed to floating? If you could just quantify to get a sense of what's the you know overall magnitude of change that we've seen in this particular quarter. The other related point is, apart from this impact, we highlighted last quarter that from first of July we had taken 60 odd basis points PLR hike. We do not see the impact in the numbers in this quarter. Any specific reason again? Thanks.
Yeah, Dhaval. Actually, if you, I'll take your second question first. If you actually look at the spreads and you compare it with the weighted average cost of funds, the spreads actually are reflecting a 7 basis points expansion over June numbers. You know that the cost of funds has increased point to point by about 40 basis points. The translation of 60 basis points on the PLR generally happens with a lag because not all the accounts are eligible for a repricing, especially the NPA accounts and accounts which have been freshly disbursed. Apart from that, it has been translated. That 7 basis points is because there has been a corresponding 40 basis points increase on the cost of funds during the same period. Certainly it has got translated.
You are probably not getting to see it reflected on the margins. I understand that is your query, and that has happened because of the reasons that we just discussed, because of certain lumpy items in the on the negative side of the income has probably weighed down the increases. Also one has to keep in mind that sequentially there has been a shrinkage in the project loan portfolio by INR 700 crore, and year-on-year it has come down by almost INR 2,000 crore.
Yeah.
Project loan is the high yielding portion of our book which earns us interest, average interest of around 12% to 13%. There also is an impact of reducing interest income on the project loan, which has led to a reduction in the overall increase in the revenue from operations.
Compared to last year, I believe more than 20% reduction is there in the book size.
Yes.
The loan portfolio.
That is also having an impact. That is the reason probably why you are not getting to see the increases in the income, corresponding to the increases in the spreads.
Sudipto, could you quantify the specific impact of fixed to floating in absolute rupees crore? What's the kind of impact hit we have taken?
See, that is precisely what we said, that INR 275 is the accounting loss that has been, or Modification Loss that has been accounted in this quarter.
Apart from that, any other item?
Yeah. Apart from that, estimated about INR 95 crore reduction in the interest income from the project loan side. These are the two bigger impacts.
If we adjust even—
Around 360. INR 360 odd crore.
Even if you adjust these two items, the NII would have been INR 1,530 crore or INR 1,525 crore approximately compared to INR 1,610 crore.
No, it would have been closer to that because there also is a fact that there has been increases on the cost of funds side. The interest income notional gain on the net of the increases in the spread side would have resulted to INR 200 crore. Around INR 220 crore is the actual increase in the cost of funds. INR 20 crore come out from that. There are small pieces which keep on adding.
Okay. Impairment was like INR 70 crore.
I think, yeah. These are small, INR 20 crore, INR 30 crore from here and there, but majority of these two are this INR 275 crore and this INR 95 crore.
Got it. Sudipto, the point is that only which is.
Total will be around INR 400, INR 450 odd will be the difference.
Yeah. The point, Sudipto, actually the first part which you replied saying that actually the spreads have expanded. My point is that even if you adjust for the new cost of fund, the delta, INR 200 crore delta we saw in the interest expense line, even adjusted for that the NII is not going up, which is the whole point that there is some other impact which we are not able to figure out. To say that.
No, these are the only two major impacts. Actually, these are the only two major impacts.
That's all. Nothing else in that.
Obviously, there will be cases of normal retirement of existing loans which would have been going at higher cost. That also is there. That is a normal behavior. There is nothing abnormal in it. Every quarter there will be this kind of normal repayment-led decline in interest income if a high cost loan goes off the book in a normal manner, not in a pre-closure manner.
Got it. Thanks. I'll come back. Thank you.
Yeah.
Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yes, thanks for taking my question. Again, kind of coming back on the NII and the margins. While you have explained what led to this sequential decline in NII, I mean, what we're trying to understand is, I mean, what proportion of this could recur again in the third and the fourth quarter? I mean, components of Modification Loss or discontinued reduction in interest income from project loans and couple of other things that you highlighted, smaller pieces. What part of it could again recur in the third and the fourth quarter? Alternatively, if they will not recover, is there a case for estimating a strong recovery in margins, especially in the fourth quarter of this fiscal year?
Yeah. Third quarter only, from first of October, there is a pending increase of 115 basis points in the entire pool of loan book. That is around INR 2.5 lakh crore. That has already kicked in because whatever increases in the PLR we had done in the second quarter in August and September, that has already translated from first of October. That impact will certainly be a positive accretion to not only the spread but also to the net interest income. That is one thing which is there.
To the extent of what is going to be the prepayment on project loans, I mean, I think the project loan portfolio has shrunk to an extent that further exits are very limited, especially the high yielding. There also, if necessary, we might actually retain good assets and offer a better rate of interest. That is again a commercial call that we will be taking as and when such a situation arises. Disbursement growth on the project loan is expected to nullify such shrinkages in Q3 and Q4.
Already in the current Q2, Q3, even the month just now ended also has shown good results almost in the collection efficiencies. Understood. Sir, the last question again is—
It should be understood that whenever any such retention is done, it is done on assets where the credit cost is zero or near zero. The asset quality is of primary focus.
That is for long.
The repayment on those assets are substantially long, so that any kind of these kind of front-ended losses will be more than offset by the continued earnings on those assets.
Retention.
Especially if it is a conversion from fixed to floating in a high, increasing rate scenario.
Correct. Understood. Sir, I mean, again, a related question here. I mean, I recall even last quarter and this quarter we've talked about, I mean, various, retention exercises that we've taken. Like we explained for, top-notch quality customers where credit costs, were very low or zero like you explained. Is there a significant, kind of, pressure on customers wanting to take, balance transfers? I mean, primarily because of, the interest rates which are being offered and because of that we had to do this, retention exercise. Likely you have another 2% of fixed rate book outstanding. Can we expect that, let's say over the next two quarters, these 2% customers will also be converted into, floating rate and would lead to again, some kind of a NPV impact or a Modification Loss?
See, actually the retention of good quality assets is always a desirable proposition. Rather than allowing the assets to go and consume further expenses to originate further new assets, if you have got a track record tested customer, it is always better to retain such customers. Obviously everybody will be looking out for such customers. If you are having those customers within your fold, then you should be able to retain them. That is a strategy that asset growth has to be given that priority. More importantly, it is not an asset growth which is given priority irrespective of quality. It is an asset growth which is given priority with the best quality.
Also with a long duration also.
With a significantly long duration.
Yeah.
Which we continue to earn in future.
Right. That's what I mean. Understood, sir. Sir, last question is on the asset quality bit. Firstly, if you can share the product-wise gross Stage 3 numbers that you shared on different product segments. Home Loans, Non-Housing Individual, Commercial and Project Loans. That's the first. Secondly, sir, last quarter you had talked about, I mean this, there could be potential slippages from the restructured pool. Firstly, how has experience been on that front in the second quarter? In the third and the fourth quarter, is there a reason to believe that, I mean, in the restructured pool, wherever moratoriums are going to open in the third and the fourth quarter, we could see some slippages from the restructured pool, that particularly in the second half of this fiscal year.
Especially in the, what do you call, there is a slight improvement as far as asset quality is concerned. Even compared to our earlier quarters, there is a slippage in the earlier quarters even into our developer book. Retail segment is showing good improvement. Going forward, that should still improve. IHL, if you look at only IHL now, individual housing loan, at Stage 3 level, it's, I think the ratio comes to around 1.68, Stage 3. NHC is around 22.38%. Non-Housing Individual, it is at 6.85%. Project is around 42.24% as far as the Stage 3 things are concerned across all products.
Sir, projected, did you say 22.24? 42.24.
40.24. Because book size has come down.
Understood.
There is shrinkage in the book size over last year of around more than 20%.
Understood.
Obviously, the absolute volume has not gone up in the quantum, but the percentage comes.
Got it. Sir, finally, what is the expectation of slippages from the restructured pool?
The restructured pool has been behaving, slightly, I would say, stable. In fact, what we had indicated in the previous call also that there will be recovery on the other side, especially in the retail side. That is something which is working out well. INR 700 crore of NP has been reduced on the retail segment, and that has happened across individual home loans as well as the lap loans, et cetera. There is certainly some decent improvement.
Thank you so much, sir. Wish you the very best. That's all from my side.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference call, we request you to limit your questions to two per participant only. If time permits, we can come back in the question queue for a follow-up question. The next question is on the line of Mayank Bukrediwala from Citadel. Please go ahead.
Hi. Hi, sir. Thanks for taking my question. I want to harp on the same question that Dhaval was asking. Just want to clarify so that INR 277 crores, the impact of NPV, is passed through the interest income line. Now, the question is, if I add that back also and adjust it, and if I adjust the other INR 90 crore also, your loan yields this quarter on a calculated basis appears to be at best flat. While we had taken a 60 basis points PLR increase at the very start of the quarter. Just wanted to understand, is there any other impact or has there been an issue in passing through the rates? That's question number one. The second is, you're speaking about sort of retaining customers, the good quality ones.
Right now we are actually at a relatively large differential versus banks at the rates that we offer. Because banks have ballpark passed 100 to 140 basis points rate to their customers, while we have passed close to, I mean, until the last quarter, 60 basis points, but there's still some gap versus what we have passed versus the banks. Why are we seeing this pressure to retain the customers? Ideally, we should have some bank customers move to us because I think our rate is still relatively lesser compared to the bank.
No, Mayank, your second question regarding that, there is a gap. Actually, the rate is on the back book. It is already communicated. The effect will be from first of October.
The question is you, ideally, at least until now, you would not have seen any pressure at all because—
No, it doesn't work that way because once there has been a PLR hike announced in public domain, it is very clear that it will get impacted and the dates of impact are also predetermined, like first October, first January, et cetera. The difference, what you said in the beginning of your query, your first query is that, yes, there is a lag because in our case we reprice it on a quarterly basis. That is first October, first January, first April and first July. That is one of the reasons why there is a transmission lag. That also our MD mentioned at the beginning of the call. Having said that, the fact is that what—
The transmission hike that we took at the very beginning.
60 basis. Yeah, I'm coming to that.
Sure.
That 60 basis points which has happened in June, that is effective from first of July, for which we get a two-month benefit that it is payable, it is due from July, payable August, because that is how the EMIs are done across the country in the industry. It is on an arrears basis. The INR 200 crore is the impact of that transmission, which should have actually got reflected in the interest income.
For two months, which is at least we should—
Sorry.
Be on the—
There has been INR 200 crore of interest cost also which has increased during the similar period.
I know.
That has got netted off.
INR 240 crore.
INR 240 crore. That is more or less netted off. Now, your query is that what is the gap between the June NII and the September NII. Is that right?
No, I'm not talking at the NII level. I'm simply talking at the yield level. Just at the yield level. If I just look at the yield and add that 277 plus the 90, even then the yield does not really go up when you have taken at least two months of 60 basis points repricing as—
No, it has actually, Mayank, it has actually come because if you compare the yield on the assets between June and September, there is a 47 basis points increase in the yield, overall yield, and there is a 40 basis point corresponding increase in the cost of funds. The yield of 47 basis points has actually come.
Okay. I'll recheck my numbers.
Please check. There is a 47 basis points increase which has actually happened on the yield side, point to point basis.
I'll recheck my numbers. Thanks. Thanks, Sudipto Sil. Thank you so much.
Yeah.
Thank you. The next question is from the line of Manan Shah from Kotak Mahindra AMC. Please go ahead.
Hi, thanks for taking my question. I just wanted to confirm MD sir mentioned that FY 2023 full- year margins should be better than FY 2022. I just wanted to confirm that.
On a full- year basis. Yeah, full- year basis.
Yeah, on a full- year basis. Okay. FY 2022 we were 2.3%. On a full- year basis, FY 2023 we should be better than that.
2.29.
Yeah, 2.29. That's correct. Okay. The second question is on what proportion of our loans would be, let's say partly fixed, cum floating, if at all we have such loans?
There will be some, very small, maybe around 1% or so.
Basically, it's fair to assume that about 97% to 98% of our loans will be purely floating in nature.
Correct. Yeah, correct.
Okay. Just last data point, what's our outstanding restructured book now as on end of September?
3,466.
1 point something percent. More than 1%.
What proportion out of this would still have moratorium on it?
This is the moratorium part only, no? This is the amount which is not exited from the moratorium period, so that is the reason why it is still considered under the OTR pool.
Okay. Understood. All right. Thank you so much. Those were my questions.
Thank you. The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.
Yeah, thanks for taking my question. First, INR 275 crores impact is on what quantum? If you can just mention by quantum that will be easy. Is it on INR 5,000 crores which is reflected from, say, fixed to floating, or it is on entire INR 15,000 crores wherein we gave the benefit last time, okay, to retain the customers? What was the yield reduction? If you can just first let me know the quantum.
Around 9,000.
On INR 9,000 crore this is almost equivalent to 3%.
No, it is not 3% because it is actually it does not work, I mean, linearly. It is a front-ended calculation depending upon the residual life of the asset, which is estimated around nine years or so.
Yeah, yeah. Nine thousand crores of exposure and 275 crores impact, so that maybe in percentage it clearly translates to 3 odd %.
No, it is not 3%. It is not 3%. The reduction is not 3%. It is the NPV of the reduction.
Yeah. No, I understand that. I am saying not the reduction. I am just saying that impact or the Modification Loss is 3% of the exposure through NPV.
Yeah. That way if you just linearly calculate, yes.
Yeah, yeah. What would be, when we look at it, now after all this modification and all, how much is the yield that will accrue in future on this portfolio?
Yield in terms of.
We wanna say.
The increase in yield you mean to say?
Yeah.
Yeah. See, just say your calculation is not correct because first of all it is not a 3% reduction. That 3% you are actually—
No, no. I'm not saying 3% reduction. I'm not saying reduction. That is okay. 3% I understood. Let us keep it aside now. Now what
Yeah. Your calculation is not correct.
Interesting rates.
Just to give you an indication, whenever from the point when we had started converting these loans, from that point to point, we have increased our PLR by 175 basis points.
Floating also affects.
It has come to floating.
Yeah.
These are all floating.
Yeah.
Point to point the rate increase is 175 basis points.
Yeah.
Of course, it has not happened in one particular day. It has happened throughout the quarter.
60 + 115. That 175 basis points entirely it is passed on by way of the benefit or how is it in terms of the reduction? In terms of the benefit to those clients, it's been 175 basis points benefit which has been passed on when they converted?
Yeah, yeah. Roughly you can say. Now it has been almost netted off.
Okay. Going forward this book will now yield 8% odd only, or it will yield a higher number?
No, currently it will yield more than 8%. It will be, at current level it will be around 8.5%.
It is a present applicable floating rate, no?
It is as of floating rate, it will be charging 8.5%.
Okay. This 115 basis points impact which comes through effective from November, that will now again not have any implication on this book?
No, I'm considering that also because it is already effected from first October.
No, but September results, it might not be there, no? So is it there in the numbers already or it
In September results it's certainly not there. It is certainly not there.
Will it further come?
Yeah, it will come in Q3.
Yeah.
The benefit we'll get, we'll be seeing in Q3.
Okay. Got it. Again. Sorry. Yeah. Got this thing. When we look at it in terms of the restructured pool, last time the commentary was INR 3,100 crores, out of which 2,100 was individual and 1,000 was wholesale. The slippage which has happened of INR 450-odd crores in project, is it from the restructure or it is outside of this restructure of 1,000 crores? Because that number.
Can you repeat the last question?
The NPA slippage.
Can you repeat the last question of the query?
NPA in the project book, you said that was INR 550 odd crores. No, delinquency, slippage was INR 550 odd crores.
5.50.
That is from the restructured pool or that is outside of restructured pool?
Yeah. Half of it roughly is pertaining to a restructured book.
Okay. That has already slipped.
Around 350 is from the restructured book.
350 is from the restructured book. Why actually last time INR 3,100 crores of restructuring and even after this slippage, now what we have disclosed is INR 3,466 crores of restructured pool. Because there is the movement which has happened and it has moved out of the moratorium and slipped as well. Why there is an increase actually?
No, no. There is this 370 had already been removed from the restructured asset, restructured pool. As of June 30, it was not there.
Okay. It was not there, but it slipped in this quarter.
Yes.
Maybe it was already out of moratorium last time itself. Okay.
Yes. It was not there.
Still there is INR 1,000-odd crores in the individual outside of it. When we look at it, INR 3,466 crore, how much is individual and how much is project?
Just a minute. I will give the break up to you.
Project and individual.
Corporate is around 2,093. 2,093.
20093.
Yeah.
Great.
The other one is 1,373.
Last time corporate was INR 1,000 crores.
No. INR 1,000 crore had exited.
Oh, because last time I thought number was 3,100.
No.
Out of which you mentioned 2,082 was retail and 1,002 was wholesale.
It was INR 2,215.44.
Oh, okay.
What is remaining is what has exited. What had exited, you are right. That number exited.
Okay. Got it. Any risk on the slippage which we see from this pool? Because we have already seen INR 875 crores of slippage from the pool that was outstanding as of March. Any further slippage which we expect from here?
No. Going forward, I think now actually we're not foreseeing any such big slippage, but maybe very small insignificant amounts will be there.
Okay.
Now with the passage of time, we are getting some more, I would say clarity that, probably, the quality is at least for the time being is holding up.
Okay. Lastly, in terms of the scale- based, would there be a requirement to increase the coverage on Stage 1 and Stage 2? Because that's still at six odd basis points on Stage 1.
That June sixth circular was already operational for housing finance companies for many years. This June 6 circular only has been incorporated in the scale-based regulation.
Okay. We can still continue with 6 odd basis points of provisioning on Stage 1.
Correct.
Okay. Got it. Yeah. Thanks. Thanks a lot.
Thank you.
Thank you. We'll move on to the next question. That is from the line of Ashwani Agarwalla from Edelweiss Mutual Fund. Please go ahead.
Hi. Good afternoon, sir.
Good afternoon.
What in the financial instrument which you had written down, roughly INR 190 crore, was it fully provided for?
Yeah.
Yeah.
It was fully provided for. It is actually not one account. It is almost 950 retail accounts.
Yes.
Sir, it was. If it was fully provided for, then why it had to be written off because you already fully paid?
It has to be as per the Ind AS. As per the Ind AS, what actually happens is that you have to pass it through the P&L.
Correct.
It has to be passed through a P&L, irrespective of the fact that there has been a provision or not.
Isn't it double accounting, but you have already provided?
No, it is not. In fact, we have also iterated on this internally, but it is not that way. In the Ind AS what actually happens is that, see there are two different systems of provisioning that happens. That is RBI based, IGAAP based on RBI IRAC norms and the Ind AS ECL, which is basically on the probability of default and loss given default, and which actually depends upon the value of underlying security.
Correct.
When we actually move it, say for example, a loss asset which is more than five years or more than 51 months, then as per the RBI IRAC norms, it is a fully provided loss asset, right? As per the ECL is concerned, it does not necessarily follow that same pattern of provisioning. The provisioning depends upon the PD, the probability of default, LGD, that is the loss given default, and the value of underlying security, which drives the loss given default. What actually happens is that when you write off something which is fully provided as per the RBI IRAC norms, you have to also pass an entry to ensure that the entire asset is removed from the ECL provisioning.
Okay. You mean to say in ECL provisioning terms, it was not fully written off, so you had to do it?
No. It might have been fully provided. It is not written off. It might have been fully provided, but irrespective of that, you still will have to move it through the P&L. There is no double accounting, we have checked that. Good question.
Secondly, the fixed rate loan, which was converted in this quarter. When was this generated? Because if I recollect properly, RBI had clearly said that fixed rate loans, housing loans cannot be generated. When was this generated?
No. Who said that? Fixed rate loans today also are being sold. It cannot be fixed or it cannot be fixed cum floating. Even there also is no such, it cannot be a step up kind of a teaser loan.
True.
Fixed rate loan today are also being sold. Every company and bank has got a fixed rate loan offering.
Okay.
You can also take a fixed rate loan from any bank or HFC.
Okay. When was it generated?
It's not banned by Reserve Bank.
When was these loans generated?
They would have been generated about four to five years back.
another last thing which I wanted to know, in a rising interest rate scenario, why would a customer typically move from a fixed rate to floating rate?
No, it is not the customer who necessarily has to move, no. If the company feels that we are better off in a rising rate scenario for a longer period of time to move it to a floating rate, that is the initiative that the company will also take. No?
Okay. Sir, my last question, you had earlier guided for roughly 2.2% to 2.3% NIMs for the entire year and 1.2% RoA. Do we still stand by that?
Last year's NIM was 2.29%. Few minutes back our MD has also said that we will do better than last year's NIMs on a full- year basis.
RoA of 1.2%.
We are at 2.17% for the half year.
What about return ratios, RoA? Will we be around one?
ROE will also correspondingly increase. We cannot have a ROE and NIM movement without a corresponding RoA improvement. 115 basis points of repricing is already affected from 1st October.
October.
First October means that you will get an impact from for two months during the quarter, November, December. But there has been a 175 basis points increase, which will translate to an obvious improvement in the RoAs. As I mentioned just few minutes back, the spreads have already started reflecting some increase over June.
Okay. I'll come back in the queue.
Thank you. The next question is on the line for Rikin Shah from Credit Suisse. Please go ahead.
Thank you for the opportunity. I have three questions. First—
Sorry to interrupt, Mr. Shah. We are not able to hear you clearly.
Just one moment. Am I audible now?
Yes.
Yeah. You are good.
Okay.
Please.
Thank you. Yeah. Looking ahead, if we look at the yields on advances, which as of first half was 8.6%. Now with 115 basis points of increase from first October, do you expect that this could probably be increasing by 90 to 100 basis points from the current run rate in the second half? Is that a fair understanding or that may not play out?
No, going by the previous instance, there are some NPLs on which the yield benefit does not accrue because obviously you don't collect anything. Secondly, whatever disbursement you do during the quarter, that also doesn't get covered under this immediate rate hike. In the previous one, that 60 basis points has led to a 47 basis point yield improvement. Going by that, you can expect at least an 80 to 90 basis points yield improvement.
Okay. In terms of the weighted average cost of funds, which is at 7.1%, how do you foresee that moving in the second half?
I would say that a good amount of the impact has already been absorbed because the successive rate hikes, most of the liabilities which are on the floating rate side was linked to the repo and the external benchmark, that is the one-year T-bill, 364-day T-bill. Going by that, I would say the majority of the impact for the rate hike that has happened has been factored in. You will get one more impact a little bit. Maybe 15 to 18 basis points impact will come because of the rate hike of September. 50 basis points rate hike, repo hike of September will translate to around 15 to 18 basis points increase in the weighted average cost on the entire book. Then we have to see what is the increases by Reserve Bank going forward in December.
That will outline the future increases. As far as the overall cost of fund is concerned, one thing is very, very clear that whatever are the repo policy rate hikes, the cost of funds will increase by about less than 50% of that on the entire book.
Okay. Understood. If I just triangulate these numbers, 80 basis point increase in the asset yield and another 20 basis points, say, increase in cost of fund, assuming no further rate hike, the margins should increase by 60 basis points. The spread should increase by 60 basis points.
Right.
In the third Q.
Correct.
Okay. Fair enough. Second, just clarification on this INR 191 crore retail write-off. I heard your explanation on difference between the RBI IRAC and the Ind AS norms. But let's say if this asset was a 100-rupee asset, and even as per ECL, you had provided completely as you stated. So, the provisions against that was INR 100. So now why is there a need to further provide or to write it off, or why additional charge on the P&L to write it off?
See, actually you have to remove the entire asset from there. What is the outcome of it? Or what is the impact of it? When you actually pass it through the P&L. Which means that notionally your provision on ECL remains intact. It means that you are actually having a slightly better provisioning coverage ratio.
If your ECL provision was already.
On the remaining assets, on the remaining part of the Stage 3 assets.
Basically what you are saying is that, to maintain the overall stock of ECL coverage, you had to kind of take additional charge in the PNL so that the overall ECL coverage doesn't go down.
Absolutely correct.
Basically this charge is not related to the write-off that we did, but it is just to maintain the coverage levels you took this additional.
Only thing which I would like to submit is that had it been under the RBI IRAC and IGAAP, then probably this entry would not have been required.
Sorry, could you clarify this a bit more so that I understand better?
Had it been a fully provided case under the IGAAP, RBI IRAC norms, and then you want to, you know, write it off, then probably this entry would not have been required.
Okay. This was fully provided under Ind AS but not under IRAC, and hence, this thing.
Something like that. Yes. I think you got it the other way around.
Okay, this is still a bit confusing, but I'll move on. Just on the restructure part, out of total INR 3,466 crore, you did mention the split between the corporate and retail. Could you repeat that? Also I would like the split of this same amount, what would be in the Stage 2 and in the Stage 1.
Stage 2, Stage 1, I'll not be able to give you offhand, but as far as the OTR is concerned, as on 30th September, it is INR 2,093. INR 2,093 crores, this is Stage 3, INR 2,093 on the corporate side, that is the builder side, and on the retail side it is INR 1,374.
Okay.
Stage 2, actually the entire OTR, this OTR is actually Stage 2.
Entire 3,466 is sitting in your Stage 2?
Yes. Stage 2 has got other effects also, but this one is, I mean, the entire OTR is in Stage 2.
Last quarter, INR 1,000 crore was in Stage 1. Now all of this is sitting in Stage 2.
Correct.
Okay.
If you recall it from the last quarter, what we had done is that you'll find the reference in the call also. We had moved the assets in the last quarter itself to their status preexisting before the impact of OTR.
Okay. Got it. The last one is, in the absolute amount terms, what would be the NPA number for Non-Housing Individual and Non-Housing Commercial? Last quarter,
Non-Housing Individual, the Stage 3 is 1,740. That is for the NHC. NHI is 1,766.
Okay. Perfect. Thank you so much. That's all from my end.
Thank you.
Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.
Yeah. Hi. Thanks for taking my question. Just to clarify once again on the spread thing. Four or five years back, there were these fixed rate loans and they've now been repriced downwards technically, and that's why we have an NPV loss of INR 275 crore.
Correct.
When in the last two years when interest rates were much more benign, isn't it logical that they would have done it back then? Also, why did we not leave it as fixed rate loans unless we are expecting, you know, significant further floating rate hikes in the next coming years?
Your first question is that when it was actually going down, it would not have been positive for the company to reduce it at that point in time because it would have led to.
No, the borrower wanted it, right?
Huh?
The borrower would have wanted it.
The borrowers would have wanted it, but you know, probably from our side we had somehow managed to convince that this is not the correct time to move. Now we have effected that movement.
Okay, fine. Just in terms of, you know, y'all retain INR 9,000 crore of retail assets from balance transfer out. The question here is that the banks have also increased rates a lot. How, where would they balance transfer out, if at all?
Yeah. I'm not getting your query.
Hey, not a BT. BT has not gone, no.
No, not. No.
No, no. Y'all try to retain INR 9,000 crore of home loans and you'll give better rates, right? The point is, in this retention strategy, there was no other choice for the customer but to be with y'all because he could not have gone from bank to bank.
No. That is not correct. No, that is not correct. We have to understand that the, for most of the other, I mean, most of the banks, there is a substantial difference between the onboarding rate and the back book.
Okay.
The onboarding rate comes with a lot of offers and discounts and waivers of processing fee, et cetera, just to onboard the customer. The back book is different. The existing customer and there is a gap between the existing customer pricing and the customer pricing for the onboarding or for the promotional offers. There is always a gap.
Ok. So then let me—
It's across all banks in the system.
Got it. Your best quality customer, absolutely prime CIBIL score 800 and at floating rate today, what will be his rate after all the PLR hikes we've taken?
8.3.
8.3% is the lowest. That's the best guy, right?
Correct. Got it. This INR 95 crore reduction in interest income from project loans, what exactly is that about? Because we haven't discussed that. Because of the shrinkage in the portfolio, number one. Number two is that, as we mentioned, the INR 540 crore of assets have been classified as NPLs in this quarter, so reversal of income on that. Got it. Just lastly, we've seen a 10% jump in the OTR book from 3,100 to 3,460. So really, what explains that? I think that. Is it accumulation of interest or? No, there is no such, I mean, there is no such accumulation of interest because that is not there. Maybe some residual accounts would have been there, but no, you are at 3,400. No.
3,400 is the 3,466 is the final. Correct. No, but it was 3,100 last quarter and restructuring has. It was not done incrementally in the quarters, so the increase. It could have been the case that some part restructuring which could have been affected. That has I mean that is not slippage. That is just restructuring. There's no doubt. Last year it was 3,766 as on June. 1,544 and 2,222. Okay. I think 300 has actually come down, not the other way around. Okay. Okay. Understood. Just my question—
Sorry to interrupt.
Without 100 had moved out. I think the number that we are getting confused is that 3,100 had moved out of the OTR last quarter. Okay. 1.3 only. No. 1.15. Okay, this makes sense. Just one request, sir. If many of these numbers are not in the PPT, if you could just enhance the disclosures in your PPT, that would be really helpful. It just makes it much easier. The OTR number is actually a published number. It is as per notes to account that is published with full detail. Just only in general, an extract of all the one-offs that happen in a quarter, you know.
Sorry to interrupt, Mr. Engineer.
That would be helpful.
Mr. Engineer, may we request that you return to the question queue? There are participants waiting for their turn.
Yeah, yeah. Sure, sure. Thanks.
Thank you. The next question is on the line of Roshan Chutkey from ICICI Prudential Mutual Fund. Please go ahead.
Thanks for that. Thanks. Yeah. On this 27—
Mr. Chutke, can you speak to the mic? You're sounding very soft.
Yeah, please.
Am I clear now?
Yes, please proceed. Thank you.
Yeah. On this INR 275 crore, just a basic question. Why did you have to do the NPV of, you know, NPV calculation at all, for this INR 9,000 crore assets, basically?
That is required as per the Ind AS guidelines, Ind AS 109, no?
Okay. So what is the corresponding?
What is that? Voice is very low.
Hello? Hello? Hello, can you hear me?
Yeah. Your voice is not clear. He's breaking actually.
Hello? Can you hear me?
Hello. Yeah. Please tell me.
Yeah. No, I was just understanding, trying to understand, is it because of the fixed to floating? Is it because we never saw any other lender do this kind of a thing when you reduce the rates or increase the rates, right? Why would you do the NPV calculation? I mean, it's just the interest income that you—f or example, if it moves from 7% to 8%, the other way around, then you'll have a hit of—
No, no. It is not that way, actually, Roshan. It is not that way. Whenever there is a modification of any financial contract, there has to be either a modification gain or Modification Loss. Wherever there is a modification. Now, when you are moving some assets from fixed to floating, or it can also happen from floating to fixed, either way, then this will be treated as a modification, and then it has to be calculated to whatever, what was the rate of interest which was applicable or the earnings that were applicable on a EIR basis. That is expected interest rate.
What was it earning prior to the modification and what it is earning post that? Whatever is the difference, that has to be applied over the residual life of the asset and discounted at the present value. That is how it is absorbed. The logic behind that, as per Ind AS, is that all your assets are either financial assets or financial liabilities. Whenever there is a modification of any of the financial assets vis-a-vis to its earning capacity on a particular day, then it has to be accounted for in the value. It has to be taken through a P&L impact. That is very clear. That is the standard 109. Ind AS 109.
Thank you.
The reason why it probably has not been visible is that probably the number had been small, so it would not have, I mean, resulted in any major kind of a requirement for clarification. Because here the number is very large. That is the reason why it is getting reflected.
Thank you. We move on to the next question. That is on the line of Sandeep Jain from Baroda BNP Paribas Mutual Fund. Please go ahead.
Hey. Hi, sir. Thank you. Just one clarification on the you know ECL side and the write-off has to be moved to the P&L side. Has the assessment of PD and LGD increased from the last quarter or last year or so?
No, not at all.
Okay. I'm just trying to understand from the last question on when you have answered that we need to maintain the, you know, similar amount of provision and.
No. It is actually enhancement of the PCR.
Okay.
We have some of provisioning coverage which you have seen. The total assets coverage ratio has also increased sequentially from 2.4 to 2.58.
Now there is some confusion. I'm really sorry for this question but see, generally what used to happen is whenever we have provided for some assets and that asset is getting written off, there is no need to take onto the PL. That is a very logical way, right?
No, no. That is, as I told you, in RBI, that is different.
I get.
Because here there are two differential calculations. No. That is not the case in case of Ind AS. It is not the case in Ind AS.
I understand INR 100 to 200 crores of amount and—
In the last quarter, we also had written off something around INR 30 crores that had to be also passed through your PNL. Even that was fully provided.
No, I understood. For example, if I'm—
We had done a technical write-off about INR 30-odd crore. I think some between INR 20 crore and INR 30 crore.
Yes, sir.
that was also passed through PNL. It is not a practice that we are adopting now.
No, I understood that. Okay, no issues. I'll take it offline. What I'm trying to understand is that suppose if there is some large account or some other account can come, and we have already done a quite amount of good PD and LGD on those, you know, account and all. If that account needs to get write-off, then, you cannot take back provisioning from them.
You have to pass it to PNL.
You have to pass it through whatever may be the amount.
Whatever is the asset value that has to be passed through your PNL account.
You cannot touch the ECL related provision.
No, you cannot do it.
You cannot do it.
You cannot net it off from the ECL. The very purpose of that is to reflect it to your PNL. Otherwise, there is no space for it in the entire PNL, no. It will just vanish. It will just get removed without any, I mean, nobody will get to know also if it is not pulled into PNL.
Your ECL based provision coverage will further increase if that is the case.
It has increased.
Got it.
It has increased.
Thank you.
If you see the details that is there on the presentation, it has increased. In fact, every quarter it has been increased. The PCR has been increasing every quarter.
Okay.
Money has not gone out of the system. It is there within the company as a provision.
Got it. Yeah.
Thank you. The next question is from the line of Mr. Nischint Chawathe from Kotak. Please go ahead.
Yeah, thanks for the opportunity. We were just trying to understand, you know, from a borrower point of view, you know, these 9,000-odd core borrowers, you know, for who moved from fixed to floating. I mean, what is the proposition for them? You know, they are probably paying 7% fixed, and they are now moving to 8% floating. Is it something that you are giving this kind of a discount to them on the principal amount and which is where they're willing to convert. I mean, why should they—
How can there be a discount on principal, Mr. Nischint?
No, that's what I'm trying to understand. What's in it for them.
The rate of interest has been given a discount itself. That is the reason why the Modification Loss is arising in the first place, m ore of they'll live for long-term also, no?
These customers would earlier be paying what? 9% fixed or something like that?
No, not 9%, but around 8.5% or thereabouts.
Okay. That has probably now come down.
Depending on credit rating, et cetera, and amount, et cetera.
It was 8.5% fixed, which probably came down to 7.5%, so you had to do this adjustment.
Correct.
Now you're saying that you—
Now that 7.5 is on floating.
That you have again raised it back to whatever amount.
Correct.
Yeah, that's really—
The reason is that, see, today we are in an increasing rate scenario, so everybody would like to have a fixed rate of interest. But whenever the rate cycle reverses, maybe one year down the line, one and a half years down the line, if the loans are still on fixed, there will be exits. Because at that point in time, nobody's going to pay a higher rate of interest at a steep difference to what the market is offering.
Sure.
You have to keep the long-term interest in mind in terms of the entire, life cycle of the loan.
Definitely. You know, excluding these two adjustments from the interest income line item, you said that your earnings are going up by around 40-odd basis points. This is on a year-on-year basis, which is second quarter versus second quarter or first versus second?
June to September.
That is on a current quarter basis, I think that you're looking at a 40 basis point.
Yes.
Sure. Okay. Those were my questions. Thank you very much.
Thank you. Thank you.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to the management for the closing comments.
I thank you all for your active participation. I think from our side, because always there's a good demand for housing, the demand is very robust across all places, and all the regions have already chalked out a very good strategy. I think Q3 going forward will have far better NIMs and also excellent performance across all the parameters. Thank you once again. Wish you all the best.
Thank you. Ladies and gentlemen, on behalf of Axis Capital Limited, that concludes this conference call. Thank you for joining us and you may now disconnect your lines. Thank you.
Thank you.