Ladies and gentlemen, good day, and welcome to the LIC Housing Finance Ltd Q2 FY 2025 investor conference call, hosted by Axis Capital Ltd. As a reminder, all participants' 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 Ltd. Thank you, and over to you, sir.
Thank you, Neha. Good day, everyone, and welcome to the earnings call of LIC Housing Finance. From the management team, we have Mr. Tribhuwan Adhikari, MD and CEO, and Mr. Sudipto Sil, CFO, to discuss the key highlights of the results. I would request Mr. Adhikari to share his initial remarks, post which we'll open the floor for Q&A. Over to you, sir.
Yeah. Thank you, Praveen. Very good morning to all of you, and welcome to the post-earnings conference call of LIC Housing Finance Ltd. As you all are aware, LIC Housing Finance Ltd declared its Q2 FY 2025 results yesterday. Before I start the highlights of the Q2 results, I would just like to outline a few developments in the economy over the quarter.
Ladies and gentlemen, we have lost the management line connection. Please stay connected while we reconnect it. Thank you. Ladies and gentlemen, thank you for patiently holding. We have management line back on the call.
Yeah, sorry for the call drop. So as I was saying, coming to the real estate sector, in Q2, we have observed steady demand across major markets, coupled with increase in prices. As we head into the peak festive season, we are confident of high levels of transaction in the residential space. With this overview, I'd like to share the key financial highlights of the quarter. The total revenue from operations was INR 6,926 crores, as against INR 6,753 crores for the corresponding quarter of the previous year, up by 3%. Outstanding loan portfolio stood at INR 294,588 crores, as against INR 277,987 crores as on 30th September 2023, reflecting a growth of 6%.
Out of which, individual home loan portfolio stood at INR 258,790 crores, as against INR 234,509 crores, up by 7%, and continues to be 85% of the total portfolio. The total disbursements for the quarter was INR 16,476 crores against INR 14,665 crores in the same quarter last year, up by 12%. Out of these disbursements, in the individual home loans, the disbursements were to the tune of INR 13,051 crores, as against INR 12,516 crores, up 4% year-on-year. We have seen good growth in the northern and some states in the southern parts of the country.
Sequentially, the disbursements were up by 27%, as against the Q1 number, up to INR 1,915 crores, with the home loan disbursements up by 19%, from INR 1,093 crores to INR 1,305.1 crores. Disbursement in project loans were INR 1,397 crores in the quarter, as against INR 433 crores for the same period last year, up by 223%. As you would note, that this was continuously degrowing over many quarters, but has now started, the trend has reversed. It is now about 3% of the overall portfolio. We continue to be cautious and selective in our approach in this segment.
Net interest income stood at INR 1,974 crores, as against INR 2,107 crores for the same period in the previous year, and INR 1,989 crores for Q1 of FY 2025. There's a marginal decline of INR 15 crores, quarter-over-quarter. Net interest margins for Q2 FY 2025 stood at 2.71%, as against 3.04% for the Q2 of FY 2023, and 2.76% for Q1 of FY 2025. Sequentially, as well as year to year, there has been a decline in the NIMs. Profit before tax for the quarter was INR 1,664.36 crores, as against INR 1,480.06 crores in Q2 of FY 2024, a growth of 12%.
As compared to Q1 FY 2025, the PBE, PBT recorded an increase of 2.21% from INR 1,628.43 crores to INR 1,664.36 crores. This is largely on account of decrease in provisioning by INR 66 crores sequentially. Profit after tax for the quarter stood at INR 1,328.89 crores as against INR 1,188.05 crores for the same period previous year, a growth of 12% and against 1,300.21 crores, an increase of 2%. In terms of asset quality, stage three exposure at default as on September 30, 2024, stood at 3.06%, as against 4.33% as on September 30th, 2023.
Total provisions on 30th of September 2024 stood at INR 5,458 crores, reflecting a provision coverage of about 49%, as against a provision coverage of 41% as on 30th of September 2023. A technical write-off to 200 , of INR 286 crores have been made in this quarter. These loans, all these loans were carrying 100% provisions. Also, there was a recovery from write-off loans to the tune of INR 49 crores. In the coming months and quarters, we expect this trend to continue. Credit costs for the quarter and half year have also come down due to better NP management.
On the funding side, cost of funds, which stood at 7.73, as compared to 7.76 as on 30th of May, 2023, and again, as against 7.76 as on 30th June, 2024. So there's a decline of three basis points sequentially on the entire borrowing of INR 2.57 lakh crores. Incremental cost of funds stood at 7.71 for Q2 of FY 2025, as against 7.73 for the corresponding period last year, and 7.82 for Q1 of FY 2025. On the funding environment, we have witnessed a reduction in borrowing rates compared to Q1. The future trajectory will be largely driven by the RBI's commentary around inflation and the policy rate action.
The past quarter was a period where we had focused on growth and also initiating some steps towards strengthening the margins. Towards that end, apart from slowly rebuilding our wholesale book, we have also launched a new product in the affordable space with the complete focus on the self-employed category. The pricing is about two hundred and fifty basis points higher than the standard home loans. With the PMAY scheme also, PMAY scheme also being announced, we expect good traction in both volumes and margins in the coming quarters. With this brief introduction, I would like to invite you for your queries.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question can press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use 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 Avinash Singh from Emkay Global. Please go ahead.
Hi, good morning, thanks for the opportunity. So broadly, three broad questions. One, if you can help, if I look at your yield, not just for quarter, for the half year half first half of this year versus last year, the yield on your asset has gone down substantially, almost like twenty-seven odd basis point. In a market environment where, I mean, the competition had been increasing rates even on the pure home loan, because the rates are going up, and if I try to look your asset mix change, that also is not substantial. I mean, just one percentage point move in, you know, the developer loan, going lower, one percentage, that also does not explain this kind of a move. So competitive environment also is not kind of a data missing on the rate side.
Your asset mix, largely stable, just one percentage point move here, from housing to developer. And this yield is down twenty-seven basis points. So where this yield is going to sort of stabilize, particularly when the rate cut cycle starts, I mean, next year? So that's question number one. Second would be, you know, on the ECL, if I look at the stage one and two, your provision coverage is dramatically down on the stage one and two, I am talking year- on- year. So what is sort of further changing in your ECL model that is leading you to reduce? Particularly if I look at the stage two, almost, PCR is going down probably from 7% last year to, like, 4%.
So what is, kind of, driving this, you know, PCR reduction in stage two? And lastly, the third question is on your disbursement in developer finance. So last year, of course, you have been very guarded, and that is reflecting in how developer finance in your asset mix has come down. But now when, I mean, I mean, there are some signals that, property market probably would be, kind of, going to slow and all, but you have chosen to accelerate in the developer financing. So what explains this strategy change? And if you can help us understand what kind of, you know, a risk mitigation measure or selection filter you are applying when you are kind of accelerating now in this developer finance. Thank you.
Yeah, Avinash, morning. I'll take question number three first regarding your developer finance. Yes, we have been guarded as far as developer finance is concerned. This is the first time that after almost six quarters that we are showing a growth in our developer finance book. Yes, two, three things, risk mitigation measures you have said. We are still guarded. I use the word, we are still guarded as far as developer finance is concerned. We are not going whole hog into it. What we have done, that we have identified select developers all over the country, and especially from the big cities which have been traditionally contributing to our developer book.
And all these while selecting them, what we've been looking at, of course, is the credibility and the sort of the image of the developer. And one major point we've seen is the external rating of all these developers, right? So at the moment, as per the directives of the executive committee, we are only looking at developers having a triple B or a higher rating. So we are talking to these developers, trying to build connect, and disbursing to them only. So yes, developer finance, we are looking at it. We are not withdrawing from the market as some companies have. And now with the property markets looking up, the prices going up, we see an opportunity in this market.
Our guarded focus, if I may use the word, in this developer finance, will continue. We've done well in this quarter. We disbursed about INR 1,500 crores as compared to INR 500 crores in the same quarter of last year, so which is good. And we have a good pipeline, which has built up, and we expect quarter three and quarter four also to be strong in this thing. As regards yields, I would request Sudipto to take it.
Yeah. See, actually, if you, I will rather take the second question, the question on the PCR first, and then we'll come to the yields. See, as far as the PCR is concerned, as compared to last year, you would recollect that there was a good portion of loans which were still in the OTR, one-time restructuring post the COVID, which was announced, and all those loans were placed in that, stage two, even if, they were performing loans. And that is the reason why there was a higher provisioning coverage ratio, which we had kept as a matter of precaution. Though the loans were performing, we kept them in stage two, and we had provided, the additional, provisioning that was required.
However, now that OTR matter has got completely done, so either the loans are performing or they have moved to the stage three, whatever it is. So accordingly, now if you see sequentially between Q1 and Q2, I think the PCR has been by and large stable across almost all categories of all subcategories of loans.
Hello?
Yeah.
Yes, yes, sir.
Yeah, yeah. Then your query was regarding the yield. So actually, as we mentioned that, probably this quarter, part of first quarter and second quarter, the focus was on getting back on the growth to build up the portfolio. We had last year, which was a poor year of underperformance, and we had lost a lot of portfolio. So this year, probably the focus was more on generating growth in the segments, especially in the home loan segment. And we've also started rebuilding the builder loan segment, as we have also observed. However, going forward, your question about the impending rate cut as and when it happens, that also we more or less have a plan in place.
Of course, the timing and the magnitude of the rate cut, we cannot predict. But if you see, almost half of our liability side is already on a floating rate side, and there are also liabilities which run off every year, almost 20% of the fixed portion. So 60% is either fixed or floating in a sense that it will get repriced within a space of a few quarters. Apart from that, we are also looking at engaging into some kind of derivative contracts, like simple swap structures, to ensure that by and large, the liabilities remain in some kind of an alignment with the asset side, to the extent that is possible, without actually adding too much of risk on the balance sheet.
Okay, thank you.
Thank you. The next question is from the line of Mahrukh Adajania from Nuvama Wealth. Please go ahead.
Yeah, I have two questions. Firstly, you know, when on many bank calls, basically what we understand is that now they are lending at around 8.9%-8.8% to their prime customers. And we also hear that PSU banks are lending at 8.5%-8.6% to similar profile of customers. So where would you figure? Like, would you offer 8.5%-8.6% to your very prime customers, or where are you benchmarked in retail?
Okay, Mahrukh, one question only.
Yes. No, I have others as well, sir. So my other question is, so basically that's one. Second is that, say, if repo rate is cut today, right, then, when, what proportion of your book, outstanding book, incremental I know, but outstanding book, would reprice at the end of the month? You know, or the beginning of the next month. Because I know you would have some benchmark rates that will change with the repo, but what is the lead lag, right? Because for banks, you know, it's almost immediate, so I just wanted to understand that better also. Okay. And third, if you comment on growth, when will it, when do you think, based on your expectations of disbursements over the next few quarters, when do you think we can see a double digit growth? If not in overall, then at least in retail.
Okay. So, Simak, I'll take the first question and your last question. Repo rate, I'll ask the impact of repo rate cut, I'll ask Sudipto to take it. Well, as regard the first question, you alluded to the fact that, yes, many of the PSU banks have been increasing their rates, and well, to the prime customers, some of them are lending at eight point five, point eight, point six. Yes, this is basically the segment which we are in. Traditionally, we have also been focused on the prime or the super prime category of borrowers, and quite naturally, in doing that, we have been competing basically with banks, right?
So, yes, our lending rates are in that same band of 8.5 to 8.6, or rather, I may use the word, we're in the band of 8.5% - 8.6. Recently, about a month back, we also have revised our rates, our incremental rates, up by 15-20 basis points. So we realize, we understand very well that, yes, growing the book is important, but we also need to look at the margins we are getting through this, the growth in the book that we are looking at. We're very well aware of that situation, and we have taken steps to ensure that the margin part also plays a major role in deciding our strategies.
As I said, we have increased our incremental rates of lending by about 15-20 basis points about a month back. On the other side, our IHL book, which is basically this prime and super prime customer base, giving us low margin and low yields, constitutes 85% of our book. We are consciously looking to diversify to some extent or to whatever extent possible and go into the NHI and the NHC categories, which are slightly more margin aggressive. That we are doing, and we are seeing traction in that. The other part of it is the affordable segment, where we were in the affordable segment, but we were catering to the salaried affordable segment rather.
So we were not there in the so-called traditional affordable segment of self-employed people with low or no CIBIL, people with undocumented income. So this, the conscious call about twenty days back, we have launched a product which is exclusively aimed at this self-employed affordable segment, people with low CIBIL or no documents or undocumented documents. And the initial response, we rolled it out, the initial response from our intermediaries and DSAs is very good. And the response from our people in the area offices or branch offices, as you may call it, is very good. But yes, it is gaining traction, but the real impact of this will be felt probably a month or so down the line. We are pretty optimistic about this.
This is where we need to be, and we are aggressive on this. Looking forward, I feel this is one product or one segment which has the potential over the next two to three years to contribute to at least 15%-20% of our book. So this is what we are doing as far as the margins are concerned. So the clear guidance is, yes, growing the book is important, but growing the book with better margins is more important. Now, coming to the... What was the third question? I have just forgotten.
The repricing. Repo, repo impact.
Yeah, the repo impact was, Sudipto, so can you take the repo impact?
Yeah. See, the repo impact, as far as our loan policy is concerned, the reset is on the first of the quarter. For example, if, as you said, if there is a repo cut today, then whatever changes will happen, that will get transmitted to the customer's loan account from first of January. First of January.
As far as the borrowing is concerned, it depends. Most of the borrowing is either linked to Treasury bill or to repo, and most of our borrowings, on the banking side, that is, are almost immediate or month-end.
Okay. But so if the rates are cut today, the repricing happens in January, so-
Yeah.
Like, after two months.
For the effect by January. Yes.
Yeah, okay. And liabilities, you are saying immediate? The banking liability.
Banking liabilities are immediate for the repo accounts and for the T-bill accounts, month-end.
Okay. Got it. Thank you. Thanks a lot.
Yeah.
Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.
Yeah, hi, team. Congrats on the good numbers. Just firstly, with the strong recoveries we got this quarter, what was the interest income impact of that?
Yeah. See, as far as the interest income impact is there, it is around INR 86 crores. So I think last quarter, if you recollect, it was around INR 90 crores. So by and large, I would say it's around the same level.
Okay. This is, this INR 86 crores is interest income on NPA-
Interest income on NPA accounts.
Yeah, I know. I meant the write-back from recoveries of NPAs.
So that is the write-off. Once the write-off happens, it gets added into the other income piece. So if you see our published numbers this time, you will find in the other income, it is reporting a number of INR 56 crores, which was around INR 7 crores or something in the previous quarter. So that actually accounts for amounts which we have received from accounts which were written off earlier, around INR 22 crores from some project loan account, which is part payment, and the balance part is yet to be received, and some INR 27 crores or INR 26 crores from the pool of retail accounts. All of these which were written off technical write-off.
Okay, okay, understood. Secondly, any one-offs in the OpEx number? It was quite high this quarter.
Yeah. OpEx number, basically, there were some. One was pertaining to the distribution cost, which has increased, and that had happened because sequentially, if you see, there has been a improvement in the disbursement by about 27%. So one account, one is on account of that.
Okay, so there's no real one-off. It's just, the consequence of stronger disbursement growth?
Yes. In a way you can say so.
Okay, okay, understood. And just last,
Wage revision also. Wage revision, a little bit of impact has been taken, which has been taken all the quarters. Sometimes one of the quarters is slightly more, but this is something which has been there since 2023 FY, every quarter.
Sorry, what was this you're saying? Wage hike.
This is for the wage revision.
Yes.
Wage revision, sometimes what happens is that we actually make some provision based upon some estimate number of employees, and whenever there is an increase in the number of employees or there is an increase in the estimates pertaining to gratuity and other linked, you can say, outflows with the wage revision, there is an increase. So that is about say, INR 7 crores or INR 8 crores additional this quarter.
Okay. Okay, understood. And just lastly, one clarification on the previous question. You mentioned that there has been increased increase-
Yeah, your voice is breaking. Can you please come closer to the mic?
Am I audible now?
Yeah. Yeah, you are audible now.
Yeah, yeah. So just on the previous question, where we mentioned that last month we've increased prime rates by 15-20 basis points, this will be only on incremental disbursements, right?
Yeah. Yeah.
Okay.
I will explain how we have done it. Actually, there is a slight change in the pricing structure. Earlier, as you would know, the pricing was linked to the CIBIL score, but it was a band of 50 points. So a person having a CIBIL score of 701 and a person having a CIBIL score of 750 used to get the same pricing. Now, what we have done is that we have created some subcategory, category in between that. So 700 to 725 will be one category, which will be priced about 10 basis points higher than the earlier category. So this is the way we have actually segregated and made it a slightly more differentiated as compared to a more homogeneous pattern, which we were following earlier.
But there's no PLR hike, right?
No PLR, no PLR hike.
Yeah. Okay. Yeah, that's what I want to confirm. Okay. Okay, that's it from my end. Thank you, and wish you all the best.
Thank you. Thank you, Piran.
Thank you. The next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Thanks for taking the question. So the first is, when we look at the decline in stage three as well as stage two, is that the impact of the recovery? No doubt you indicated recovery from written-off account, but, broadly, want to get the sense in terms of the decline in the stage three and stage two percentage. There is some amount of write-off of INR 28 odd crores, but still the overall quantum seems to like almost INR 100 crores in stage three. And even stage two, there is a decline out there of almost like, say, 250 odd crores. So what's driving that?
Sorry to interrupt you, sir. We have lost the management line connection. Please stay connected while we reconnect them. Thank you. Ladies and gentlemen, thank you for patiently holding. We have the management line back on the call.
Yeah.
Yeah.
So were you able to hear the question?
Yeah, yeah, Kunal, we got your question. One was about the stage three and the drop in stage three, and also stage-
stage two. Yeah.
Regarding stage three, yes, there has been an improvement or reduction of approximately INR 507 crores. Of this, 287 is because of the write-off, because we've written off about INR 287 crores in the quarter. But apart from that also, there is some reduction, and that is because of the recovery efforts we've taken. No lumpy resolutions in the quarter, so it's all been the regular stuff. None of the-
Mostly on... so I think last time you indicated three large accounts of INR 250 crores, INR 375 crores, and INR 400-odd crores, so none of them have got resolved in Q2?
No, Kunal, as you would know, these big accounts, they do take time, right? There are promises, and promises are broken, and then again, renegotiation starts. So yes, there are four or five accounts, big accounts, which we are in various stages of discussion.
... one big account, which I had alluded to last time, INR 400-odd crores. This is very close to, I would say, settlement. It has gone to the ARC. We have received a firm bid. We have already gone in for the Swiss Challenge, so probably in the next 15-20 days, the issue would be finalized, and the firm bid ultimately, if nobody challenges it, should go through. So that is one development we are expecting in this quarter, quarter three. And there are other four or five accounts where we are in various stages of discussion. And as with these big accounts, you never know. Now, something sometimes suddenly clicks, and more often than not, it doesn't. So in various stages of discussion and discussions are moving forward.
I think there is progress being made, so results may not be seen. I'm expecting definitely in Q3, one big account to be sort of addressed, and then going forward, probably a few more. Overall, but overall, we are not totally dependent on these big accounts. As and when they come, we would take them to be a bonus. We are more focused on the bigger pool of stage three, especially in the retail part of it, and trying to bring down that pool quarter- on- quarter.
Sure. So current quarter's reduction is largely led by the retail or the smaller accounts?
Ah, yes. Yes, yes.
Okay. Okay.
There will be a few project developer loans also, but small, small ones. Nothing big, nothing big.
Okay, got it. And secondly, last time you indicated that collection from NPA was relatively lower at INR 90-odd crores, and we expect that it should normalize to INR 130 crores-150-odd crores in coming quarters. But again, this quarter it seems to be like INR 86-odd crores. And you indicated like margins should bottom out, but we are still seeing the decline because we are chasing growth as well. So where do you finally expect margins to settle now?
Margins, we had given you a guidance in the beginning of the year. We had given the market a guidance of 2.7%- 2.9%. Right now, we are at 2.73%. Yes, agreed, a slightly elevated cost of borrowing and also slightly depressed margins in the sort of the lending have contributed to that. But I think this is. We have hit the bottom. We have hit the bottom. We are pretty sure of that. And in the coming quarter three and quarter four, I expect a 5-10 basis point improvement.
Yeah, actually, just to add to that, Kunal, some two, three different, like a little bit of improvement on the wholesale book. If you've seen that for the first time in almost seven or eight quarters, we have seen a sequential growth in the wholesale book, so that actually is an indicative portion of the book. Secondly, that new product that we have launched, which we have seen some initial, I would say, early green shoots there. That also is a product which is around two hundred and fifty basis points higher than the general home loan that we are doing. A little bit of push will also come from the tweaking of the rate structure that we have just discussed about the change in the CIBIL score driven rate structure.
These are the three things which are there. The fourth thing is that whatever benefit you are seeing on the cost of funds side, we have seen a reduction of three basis points. The number might be very small, but three basis points on a pool of INR 2.5 lakh crores, that has come actually towards the end of September. So that benefit, some part of that benefit will also trickle down into the coming quarters.
Got it. Got it. Okay. Okay.
If you see the incremental cost of funds also, as compared to Q1, there is a drop of about 11 basis points in second quarter. We expect that assuming that rate of the interest rate scenario remains by and large at this kind of a situation, though it has been a bit volatile in the last two to three weeks. We expect by and large, that those benefits also to percolate down.
Got it. And yields on developer, incremental developer book would be how much?
Yield on the entire book, wholesale book, I would say not the developer per se, because we are also doing a fair bit of, lending on the NHC, which is loans to other housing finance companies. So blended, that will be an annualized rate of close to 10.5%. 10% on the card, and if you annualize, it will be closer to 10.5%.
Okay. Okay, got it. Thank you.
Thank you. The next question is from the line of Ankit Minocha from Adezi Ventures Family Office. Please go ahead.
Yeah. Hi, good afternoon. My first question is an extension of the Repo rate cut question from one of the previous participants. So, I mean, considering that you mentioned that the liability pricing transfer is immediate at the end of the current month, while the asset transfer happens on the first of next quarter, then does that mean that we would have tailwinds for margins for this period of a rate cut, or would it be headwinds for margins for the period of the Repo rate cut?
I would say it is something which is balanced out in terms of timing. We will get some benefit on the liability side, but that will be on about 50% of the book, whereas on the asset side, it is likely that the pass-on will be towards almost 90%-95% of the book. So timing wise, there will be a little bit of cushion that we will get. More importantly is that even before the rate cut actually happens, we will see a little bit of softening, which will happen on the bond yields, which we have seen in the last maybe one month or so. So that also keeps on adding to the cushion.
Right. And this timing that you speak about, say, if I look at it from a more immediate timing perspective, say one or two, one quarter only, for example, then in that case, in that one particular quarter when the rate cut happens, then you would see some sort of a margin expansion, and then that would kind of peter out later on. Is that the correct understanding?
I will say it will remain largely stable. I will not look at, I mean, depending upon the, I mean, it's a, it's not a very simple Excel sheet kind of an extension. Timing-wise, what you are saying is absolutely right, but to the magnitude of it will depend upon the expected rate cuts of the Repo. Repo is only a policy announcement. The rate moves before and after the Repo in a different fashion altogether.
Okay. Sure. Thank you. And my second question is with regard to the fact that I believe 54% of your liabilities is NCDs. So, in next year, even if there was a moderate Repo rate cut environment, does this portion, I believe this portion would not be repriced, right? Or is my understanding incorrect?
No, I will say that, about 20% is my average duration of NCDs is about five years, so 20% of it any which case will get redeemed over, any, period of 12 months, number one. Number two is that if you just look at the NCD incremental borrowing in the last three months, say from the period of May onwards till about September end, almost all the, tenors have, the pricing has moved down and the yields have moved down by about between 15 and 20 basis points, even without a Repo cut. So the same tenure which we were raising at in the range of around 7.70, we have very recently raised at 7.48.
Similarly, across the other tenors, three years and five years also, we have witnessed a similar kind of a reduction.
Understood. So something like, say, if there is a two or three-year environment or rate cut environment-
I would put it this way: See, we have not seen any repo cut, but without the repo cut also, the incremental costs have come down by eleven basis points in a period of three months. So that is precisely what I'm trying to say, is that before and after the repo also, the markets move in a completely different manner which may not be directly linked to a repo.
And that would affect the pricing of your NCD book, over the long term also. I mean, two or three years later, then the NCD pricing should kind of be better for you then, actually.
Yes. Yes.
Understood. And finally, my last question is about the developer finance vertical. So, I mean, what is the current portion of the book for developer finance? What do you anticipate this might be for next year? And what is the anticipated NIM profile for this business?
Yeah. Developer finance right now, it constitutes 3% of my book, right? So, as I said in the answer to one of the questions, we are guardedly optimistic about that. We are going about in a guarded manner. We are not going whole hog into it, where the legacy has not been very good. So we have selected a few quality developers, and we are working with them or engaging with them. As I said, we are going in for external ratings. The developers rated triple B and above is what we are looking to fund. So that is the way it is going to be.
I feel in the way of cost we've done about INR 1,500 crores in this quarter, which was INR 500 crores in the same quarter last year. So there is traction. So just to point out, after six or seven quarters, we've seen a growth in the developer book. So okay, we are guardedly optimistic about this quarter. We are going to grow the developer book. We are not shying away from that. So probably by the end of the year, I'm looking something about, say, 4% of my book, up from 3% right now. And in the coming year, I would say another 2%, so somewhere around about 6%, 5%-6% of my book should be the developer book.
The NIM profile versus the legacy book?
As far as the builder is concerned, generally, the kind of builders that we are targeting now is, I would say, much better in terms of external credit rating. So probably here we'll be able to price it somewhere between 11% and 12% for a construction finance, which will be around 350 basis points. So for every one single percentage point, there is around four basis points margin improvement.
Understood. Thank you. Thank you for answering my questions.
Thank you. The next question is from the line of Mohit Jain from Tara Capital Partners. Please go ahead.
Hello.
Yeah, hello.
Hello. Yeah, hi. Good afternoon, sir. So I have two questions. One is on the disbursement side. In the previous quarter, we have said that we are targeting for INR 75,000 crores of disbursement. In the first half year, we have done almost INR 30,000 crores of disbursement. So it seems the task for the remaining half is to it seems to be pretty strict. Do we stick to that timeline? And in that context, how has been the festive season so far in terms of disbursement? And the related question will be in terms of the AUM growth. On the media today also, you said 20% to 15% is the growth we are looking for this.
So far, the AUM growth has been slightly softer.
So how do we look at it going forward? Do we stick to the guidance or do we look into this?
If you think you're referring to the media thing in the beginning of the year, we had said double-digit growth.
Mm-hmm.
That is what we had guided, right?
Mm-hmm.
The specific question with Lata and CNBC asked me-
Yes.
-that, did you factor in PMAY into it? And I had said that, "No, not exactly PMAY," but yes, affordable, we have been in the affordable segment. We have been doing affordable, we have been giving affordable loans, so not fully factored in, but yes, some part of that 75,000 definitely was affordable also.
Okay.
And we had questioned for that thing. So then I had said that, yeah, about from double digits, initially, I had said it would be the lower double digits.
Mm.
Then I said, "Okay, if the PMAY comes in and we get into PMAY, which we intend to, we, it would be between 12% and 15%." That is what I said.
Uh-
We stand by that. Yes, right now we are at 6%, up from 4.5% in the last quarter, so marginal 1.5% increase. But traditionally, base is big. You must realize one thing, in IHL, almost INR 2.9 crores of-
Mm-hmm
base. So expecting us to deliver the same run rate as some of my smaller peers, I think would not be justified. So that is why slightly lower guidance as compared to what the industry is expecting.
Mm.
But yeah, 6% right now. I'll stick by my guidance that double digit growth is what we're looking. Clearly, Q3 and Q4 upcoming. Q3 and Q4 traditionally have been strong quarters for us-
Mm
and for the industry also. And right now, as you said, the festive season is going on. Very early to assess because Diwali is on Thursday this year, on Thursday, and then Diwali is the day after. So right now it is okay. I think the growths are similar to what we experienced during the festive season. And the festive season carries on till December. Various festive offers and all, et cetera, are on till December.
Mm.
So I expect this festive season to contribute to our already existing growth, 27% in sequentially. So we expect this to continue.
Okay. Thank you, sir. So we stick to the disbursement and the guidance?
Yeah.
Okay. Thank you, sir. Thank you.
Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah, thank you, and good afternoon, everyone. Sir, first thing, I mean, couple of times in the call, we shared that, I mean, while we are focused on growth, I mean, there are two things that I wanted to bring to your attention. One is where you said that while growing the book is important, but growing the book with better margin is also important, and at the same time, somewhere we also acknowledge the fact that our large balance sheet compared to a lot of our peers, and which is where we can't be growing as fast as our peers. So what I'm trying to understand is today, if you look at our margins, they are already at decadal heights, this despite an inferior product mix.
Your loan mix has moved increasingly in favor of individual home loans. Then, I mean, doesn't it merit that, I mean, we focus more on bringing in loan growth, even if it means kind of reducing the margins a little bit, because we are already at a higher level than where we used to operate as a business model. In addition, you have other levers, like the pricing that you have done on your rate based on CIBIL scores. You are also bringing in the self-employed customer segment, affordable segment now, self-employed affordable segment. So that is one question that I had. The second question is on the affordable segment itself.
While we used to do salaried affordable loans earlier, the fact that we are now venturing into self-employed affordable segments, which in itself is a, I would say, very vulnerable and riskier customer segment. And if you look at, I mean, the smaller affordable HFCs that they have, it's a very, very okay... I mean, I would say intensive, operationally intensive business. So unless we build capabilities there, I mean, I'm sure we are not setting up a whole host of branches in tier two, tier three cities. So that is the other thing that I wanted to understand, that what was the rationale to venture into a self-employed affordable segment, in addition to the fact that it gets to higher yields, two fifty basis points higher yields? And the last one is again, a clarification.
When we say that, our backbook yields get repriced on the first of, every quarter, first day of every quarter, am I right, in kind of saying that they're not necessarily your loans that you're giving to your customers are not necessarily linked to your, repo rates, but instead, because banks have repo linked home loans and because of competitive, pressures, you actually, reduce it to the same extent as the repo rate cut?
Yeah, Abhijit. Okay. Point taken. Yeah, your first point is very well taken. Yes, this is a call we need to take regarding growth versus margins. You were alluding to the fact that I think we should be growing our loan book and probably not looking at margins. But then again, I think this is a Hobson's choice we have, and we do need to grow our books, but at the same time, we need to look at margins, and because all along thirty-five years we've been looking at growth and not completely focused on margins. We have been competing in the prime and the super prime segment of borrowers. Our competition is mainly with banks who have an advantage of low cost of funds.
So we have been fighting this price war or this cost of lending war all these years. And yes, we have grown a big book. We have got a book of two lakh ninety-four thousand crores. But then if you look at my margins, my margins are only about 2.73 , or NIMs are at 2.73 . It has to be a balanced approach, I believe. We cannot junk one for the other. I cannot be saying that I'll be looking only at margins and completely forget about growth, and at the same time, I cannot be saying that I look only at growth and not look at margins. It has to be a balanced approach, and that is what we are aiming for.
While looking for growth, we are also trying to diversify our book slightly. I would not say by a big margin, but slightly towards the higher margin segments like NHI, NHC and the affordable also. Yes, regarding the affordable, yes. Yes, I do agree that the self-employed sector, which we have ventured into and for us it is risky. Yes, it is risky, definitely risky. And for us, since we are going there for the first time, we have not done it in the past, it is all the more risky. The pricing, we have priced the risk. We have priced the risk, and I fully agree that, yes, we need to build the infrastructure and the capabilities. As regards officers, we have officers in Tier two and Tier three towns.
So right now, we would be treading cautiously into this segment because we do realize that there is potential in this segment. There are margins in this segment, but we would be ensuring that whatever due diligence or whatever extra due diligence and extra efforts are required in doing this business, and especially monitoring this business, these are done. So do not expect very high growth in this affordable self-employed segment. But definitely in the next two to three years, we would like to ensure that this product or similar type of products they form a good portion of our sales. Does that answer your question, Abhijit?
I think one query is left regarding the back book.
Yes, sir.
You had a query there, Abhijit?
Yes, Tribhuwan sir, you're right, you're right.
Yeah. So-
So, um-
What was it again?
Yeah. Yeah. The question is that when you said that, I mean, the back book gets repriced on the-
Yeah, actually, if you look at it, the contractual agreement is that there will be a review. Whether there will be a repricing or not, that is subject to external situations. So the review parameter is once every beginning of the quarter, so first January, first April, first July and first October. What decision we take few weeks prior to that date is depending upon so many factors, like one of them will be a reduction in the cost of funds, competitive intensity will be another. Our loans are linked to our internal PLR. They are not linked to any repo or external benchmark.
Got it, sir. This is useful. That's all I wanted to clarify. Thank you so much, and wish you the very best.
Thank you. Thank you, Abhijit.
Thank you. The next question is from the line of Gaurav Kochar from Mirae Asset. Please go ahead.
Yeah. Hi, sir. Good morning. Thanks for taking my question. First of all, congrats on the quarter. I think disbursement growth has picked up in this quarter, and we hope this trend sort of continues. Just two questions from my side. Firstly, I think an extension of what Abhijit already asked, regarding the, you know, the book, that is the back book, that repricing will happen every quarter. So, is the understanding correct, that even if, let's say, the repo rate cut happens 25 basis points, maybe in the fourth quarter of this year, not necessary that on first of April, which is the beginning of the quarter, you will have a similar sort of RPLR cut.
That RPLR cut would be largely linked to your cost of funds sort of movement. If your cost of fund repricing is only by a few basis point, then that would be largely the reduction in PLR. Is that understanding correct?
Yeah, I think that understanding is absolutely correct. Our loans are not linked to any external benchmark, but we understand if there is a repo cut, there will be improvement in the cost of fund. To that extent, there could be a situation open for passing on a reduction to the customers, but that is not a one-to-one kind of a correlation.
Got it. Got it. Got it. So maybe over a period of time, that entire 25 basis points pass on as you get the benefit on cost, so, that lead lag impact would not be-
Of course! I mean, to be very realistic, you need to keep in mind what is the competitive situation. So probably it is possible that the rate action might happen on the incremental side rather than on the back book. That is also possible, but these are possibilities which will be explored only when the external situation becomes clear.
Got it. Got it. Perfect. That's, that's one. Secondly, let's say without rate cut, looking at today the yields on the portfolio and the efforts that you're talking about to increase the yield, be it you know the affordable side, little more self-employed and the little tweaks you have done on your you know the credit score, you know dividing the C700-C 715 into two small buckets. So all of this effort, directionally, let's say assume there is no repo rate cut for next two quarters, can we expect the yields to continue to improve from here?
And given that cost of funds, the incremental cost of funds have started to moderate a bit, you know, maybe the cost of funds remain stable over the next couple of years. The amount of, you know, improvement in yield should translate into NIM sort of improvement in next two quarters. Is that a fair sort of outcome to expect?
... Yeah, I think that's a fairly reasonable expectation. There are three things which we have done. One thing, as we have identified, it is kind of tweaking the pricing structure, so it is not only from 700-750 , but also from 750-800 . So there are four subcategories with some 10-15 basis point differential. So that will always give some kind of, though the number might be very small, but that will be a positive accretion. Number two, improvement in the wholesale book in terms of its overall volume. Certainly, that will be an improvement. And, the overall improvement in collection efficiency and collection efforts, that will also help.
The fourth thing about the new product launch that we have discussed, that of course is in the very initial stage, but as and when it picks up, that will also be a margin accretive exercise.
Got it. Got it. And just lastly, on asset quality, you've spoken about, you know, small ticket resolutions that happened in this quarter. You know, the NPA is down to 3.1%, and incrementally, if you are seeing another wholesale account of INR 400-odd crore, I think sir alluded to, that may get resolved in this quarter or maybe if not this quarter, in next quarter. So near term, let's say, whatever recoveries from NPL you get, this quarter you indicated it's slightly lower than last quarter. I think similar to last quarter, INR 90-odd crores and INR 86 crores. So going forward in the NII line, can we expect that number?
I think last quarter you said that normalized rate was INR 140 crores-INR 150 crores, and that dropped down to INR 90 crores, and it's at a similar band in this quarter. Can we expect in second half that number to move up, and that also, you know, adjusted for that, the margin should go up?
Yeah, that is a one-off as it is. I mean, because in some quarters it might come, some quarters it might not come. We are putting in efforts to also realize interest along with NPL accounts, but obviously it is a difficult ask, but we are on the job, and as and when such resolutions actually happen, that will certainly add to the margins.
Sure. And what is the total write-off pool of non-corporate or non-project loans? What is that write-off pool where you're recovering, you know, steadily from? What would be the total quantum of that write-off pool in the retail book?
The total written off on the retail side is about INR 2,300 crores. This is a cumulative figure for the last 20 years.
Okay.
On the project side, it is about INR 1,900 crores . Total, around INR 4,200 crores is the amount which is written off on the book. These are all technical write-offs, and over a period of last 20 years.
Okay, so these are essentially the ones that are left, which have not yet normalized or recovered?
No, no. These are the write-off amount, out of which we have also recovered about INR 300 crores already.
Okay. Cumulatively, put together, INR 300 crores, you're saying?
Cumulative.
Okay. Okay, got it. Perfect. Thanks. Thanks, and all the best.
Thank you. Thank you, Gaurav.
Thank you. The next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
Yeah, thanks. You know, you mentioned that incremental cost of funds is around 7.71%. What is the incremental lending rate?
Incremental lending rate,
Ladies and gentlemen, we have lost the management line connection. Please stay connected while we reconnect him. Thank you. Ladies and gentlemen, thank you for patiently holding. We have the management line back on the call.
Yeah, Nischint, are you there?
Yeah. Yeah, yeah.
Yeah, yeah. Go ahead. Please go ahead.
So incremental lending rate is how much?
Around 9.4, annualized.
Nine point four. Fair. And, I think on the segmental NPAs, I'm not sure if you gave the numbers. What is the individual retail GNPA number, the ratio?
You want... Okay, I'll give you all the numbers. You can just note it down.
Mm-hmm.
All the three categories I'll give you. On the individual GNPA, stage three, we'll call it stage three. It is 1.26. That is in the IHL, individual home loans.
Against 1.38 last quarter, right?
1.38 was the last quarter number. In terms of the project, it is 30.13 as against 33.
Got it.
Plus project.
Yeah.
And the last piece is the NHI, the non-housing individual, which was 5.39 in the previous quarter, now it is 5.03.
Got it. I think this is helpful. Thank you very much.
Thank you. The next question is from the line of Vikram Subramanian from Marshall Wace. Please go ahead.... Mr. Vikram, your line has been unmuted.
Hello, sir, am I audible?
Yes, sir, please go ahead.
Yeah, Vikram, you're audible.
Hi, thanks for taking my question. I just wanted to get some clarity on some operational aspects of, you know, core home loan products. Basically, in the prime home loan category, if a customer wants to take their home loan to a different lender, you know, through balance transfer, maybe to one of the banks, what are the practical frictional costs that the customer faces? Is there any cost that we charge them? What are the various costs that we can charge them, and which are the ones we can practically enforce?
Well, Vikram, in fact, beginning of this year only, RBI said that you cannot penalize the customer for anything, right? Earlier, we did have something called prepayment charges, but now that has gone. So as of date, a customer on transferring his loan account from one institution to the other, or at least HFL to anybody else, there are no costs involved.
Only you can say in one way that, there is a cost on the other side in case the other bank charges a processing fee, that is a cost. And mortgage-
Yes, mortgage.
Mortgage, that is the memorandum of, I mean, that, mortgage creation, that document, that is about 0.5% of the outstanding loan, depends upon state to state. So that is a cost of switch. So every time a person creates a new mortgage, that document has to be executed.
Got it. Got it. But both of these costs that you mentioned are on the other side, are not on our side. Is this the right understanding?
No, no, no costs, no costs on our side.
Prepayment penalties cannot be charged. Prepayment penalties cannot be charged as per the regulatory mandate. It cannot be charged for individual home loans. For commercial, like, if you have given a non-housing commercial loan or a builder loan, then there are prepayment penalties which can be taken, but for individual home loans, it cannot be.
Got it, got it. That's clear. Just wanted to check on that. Thanks. Thanks, sir.
Thank you. The next question is from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.
Hi, good morning. Thanks for this opportunity.
Yeah, good morning, S hubhranshu . Morning.
Hi. So, just quickly on the project finance portfolio. So three questions within the project finance portfolio. First one is, in the outstanding portfolio that we have, what are the total number of accounts that we have, and what would be the largest account there? Second is, in this stage three numbers, what is the proportion or the number of accounts from project finance, and what is the value of that? And, the disbursement that we have done in project finance this quarter, how many of those accounts are refinanced, or are these absolutely fresh projects that we have lent to? Thanks.
Okay. So, S hubhranshu , first was on how many loan accounts in our project finance. We have approximately about 200 loan accounts in our project finance book as of now. Right? So, what was the second question?
What is the largest account among them, sir?
About INR 500 crores.
Okay.
±INR 25 crores, or rather, +INR 25 crores, INR 500 crores, INR 550 crores.
Right. And in stage three, what is the number of project finance account and what is the value?
Stage three project finance numbers? Yeah, just a minute.
Yeah, you want the stage three?
Stage three project finance.
Okay, well, I think we shared the number just a few minutes back. Including NHC and project put together, it is about 30% is the stage three.
Number of accounts, if you can give number of accounts.
Numbers will be around, say, 35-40 will be approximately in stage three.
Okay. And, the disbursement that we have done in, project finance this quarter, what proportion is refinance and what is the proportion that is going to, fresh loans, as in fresh projects?
Although I think entirely is fresh.
Entirely is fresh.
Entirely fresh.
Entirely fresh. There is no,
Takeovers, we are talking of takeovers, no? Takeovers are not there.
Yes, yes, yes. So it is absolutely fresh projects or fresh launches?
Yes.
Got it. And sir, our entire project finance loans are single lien, or are there any accounts which are pari passu?
No, they are all single. They are fully charged to us.
They are single lien, right? Even in the stage three.
Even in the stage three also.
Okay, okay.
Almost entirely, we are the sole lenders. See, actually, in the project finance, we are almost, in all the cases, maybe barring one or two cases, we are the sole lenders. So we have exclusive charge and security of the documents of title.
Right. Right. Just counterintuitively, sir, why is it taking us longer in that case, if we have got single lien to resolve these accounts in that case?
It is not because of single lien or pari passu. The issue is because in a situation where the project is semi complete or half complete or in some stage of, I would say, progress. It depends upon the two, three different things. One thing is that if it is through the court route, IBC takes its time, so you really do not have any strict control on the timelines on an IBC.
Okay.
If you go, because the homebuyers also sometimes create a, I mean, interest is created, so they also are party to this entire legal matter. In case you are looking for a settlement with the borrower or on auction, these are all processes which take their own time for better realization.
Understood. Understood. This was very helpful, sir, and best of luck for ensuing quarters and Happy Diwali!
Ah, thank you. Thank you, Subhranshu. Happy Diwali to you.
Thank you. Ladies and gentlemen, we'll take this as the last question. I would now like to hand the conference over to the management for closing comments.
Yeah, thank you. So as we've spoken and answered the queries, the second quarter was a quarter where we had focused on consolidating on the key operating metrics, especially on the growth front. Now, with the festive season amongst us and Q3 and Q4 traditionally strong quarters in front of us, we are confident of a very good Q3 and Q4 to follow. I extend heartiest festive greetings to each one of you, and thank you for your continued support.
Thank you.
Thank you. Thank you.
On behalf of Axis Capital Ltd, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.