Good morning, everyone. On behalf of L&T Finance Holdings, I welcome you all to the Investor and Analyst Meet for the financial year 2023. Thank you all for gracing us on this occasion. We have with us today our Managing Director and CEO, Mr. Dinanath Dubhashi, and other members of our senior management team. Before we proceed, as a standard disclaimer, no unpublished price-sensitive information will be shared. Only publicly available documents will be referred to for discussions during this meet. While all efforts will be made to ensure that no UPSI is shared, in case of any inadvertent disclosure, the same would, in any case, are part of the recording. Some of the statements during today's meet may be forward-looking in nature.
A note to this effect is provided in the results presentation on the website. I would now like to invite Mr. Dinanath Dubhashi to please come on stage and provide us with a detailed perspective of our journey towards Lakshya 2026 and the way forward towards creating a sustainable retail success story. Over to you, sir.
Thank you, Chandni. Good morning, everybody.
Good morning.
Hope all of you had a good breakfast in a good mood to listen to this presentation. I'm very happy to stand in front of you one more year after we presented the Lakshya plan the last year. I hope many of you were present at that time. It was a meet that we had after a long time, after a long COVID period. We set a few guidelines for us, a route for us for the Lakshya plan in the quest to make us a leading retail NBFC which is totally digitally enabled. Last one year has been very good for us, not just because of the results. It is because the way we executed the plan, the way we worked on almost every aspect of the plan and progressed on that.
What my endeavor will be today is not only to showcase what we have done. I think what we have done in the presentation, all of you would have gone through. In the presentation, we had a three-day gap in between. I'm not going to talk more about that. Kunal, take a seat. More importantly, to try and talk to you about how this is sustainable, how we will continue on this path that we have set in this one year. How we will continue on the path that we have set for Lakshya 2026 as we go ahead. I mean, obviously, I won't tell you how results will look, but we'll at least give you enough material to have confidence to draw up the results line and see how various financial parameters, business parameters will look.
Most importantly, we'll try and convince you that the success we have had during 2022, 2023, we will continue on that route, continue that success, not only in the next year, but the year after that, and so on and so forth. Let me just start. Where do I point? There? Okay. Okay. This is what we spoke about. Each word on this slide is important, and I will explain as we go ahead. It is important that we are now a retail company. As you would have seen, at the beginning of the year, we were 51% retail. We are already 75%. We will talk about the speed that we are gathering as we go ahead. Digital. That also I will talk that what all now we do digitally, which is actually almost everything. Last but not the least, sustainable.
Sustainability has to be looked in two ways. One is how our ESG and ESG is working to make the world sustainable, and our ratings as well as awards show that. More importantly, how this journey is sustainable. We like to convince you and talk to you about that it is not just one year performance, but you can actually look at this performance repeating and going ahead as we go ahead. We talked about digitally enabled and the product focus to customer focus. This is very important. It is not just words. As we talk, I will explain the presentation. I will talk to you about the strategic importance of going from product focus to customer focus. We were a tractor finance company, or we were a Micro Loans company, or we were a two-wheeler company.
How are we becoming a retail finance company is what we would like to talk about. Just to refresh your memory, just one slide from the presentation one year back. These were the targets that we had set for ourselves. Basic four targets. Retailization, more than 80% would be retail. As you would know, we started last year with 50/50. We set a very aggressive target that we will become more than 80% retail in the next four years. We not only wanted to achieve this retailization just by reducing wholesale, but also growing retail in a way that to generate value. The way retail finance was going, we set a target of a CAGR of 25% over the next four years, that is, 2022-2026 for ourselves.
Asset quality, the important number here is net Stage 3 of less than 1% is what we aimed for retail, asset quality. Last but not the least, with after all this, deliver a ROA of 3%. Let me now just take you through the results that we have achieved in just one year. This is a slide from the presentation. Actually, all the slides are from the presentation. You would have seen them. As I said, retailization instead of 51%, which was 51%, we have actually already achieved 70%. Hence, the goal of 80% looks very much in near term and in fact we are already revising that target upwards. I will talk about it as we go ahead. Growth. Instead of a 25% growth, we grew by 35%.
I always call it the Virat Kohli model, not the MS Dhoni model. I don't like to take it deep. It is better to achieve good growth when the going is good and also create the right environment, the right tools, right products, the right digital infrastructure, physical infrastructure to see that this kind of growth continues as we go ahead. Net Stage 3, great story. We are already at 0.71%. Not only has the Gross Stage 3 reduced, but the Net Stage 3, we have actually already overcome that 1% mark and at 0.71 within companies which are, you know, at least 60% rural out of total retail. You would all know, you know the industry better than me. That very clearly a benchmark.
Last but not the least, the ROAs have reached 2.46 for the whole year and especially for the fourth quarter, we were within the touching distance of 3%. I think we are pretty satisfied with the results that we have been able to deliver. There is something that we say internally in the company that when we say that, okay, we will celebrate what we have achieved, immediately the question should be what next? That's what we will talk about today, that within the general direction of Lakshya, where we are going, how we have created the right kind of infrastructure to grow in the future. Now let us talk about each of these items little bit in detail. We talked about the book mix. This slide is very important. It absolutely shows that how things augur well in the future.
The left side of the slide, we said from 51%, retail has become 75% and now this shows the future of the company, possible future of the company, which you have to analyze, you have to put in your models that this, with this move, the profit has moved to 85% profit coming from retail. What does it obviously mean is even with the provision coverages that we have, as you know, our retail provision coverages are very, very high. It's 80% around retail. Yeah. 80% provision coverage. With 80% provision coverage, this is the kind of profit that retail delivers. It is very important that when you compare across the industry, we also see provision coverages.
With the 80% provision coverage, we are delivering 85% of the total profit, which at INR 501 crores and INR 1,623 crores is already moving in the right direction. 85% of that is contributed by retail and hence we are quite sure that as retail percentage keeps going from 75% upwards, book profits, profit growth will be better than that. That's the, that's the whole idea of showing this slide. Now let's talk about the growth and how we have achieved this growth. Total retail disbursements, just disbursements moved from INR 25,000 crores to INR 42,000 crores, which is a 70% growth. More importantly, it is contributed quite well across business lines and across products. As you know, we have four business lines, farmer finance, rural business finance, urban finance and SME.
The numbers there on the screen, I'm not going to repeat them, shows that the growth has been achieved quite well across business lines, right. I have listed the strengths that we have under each of the business. This is again, nothing new, but sometimes it is important to put there to feel confident that this is not a one time performance, but these are the strengths based on which we can continue to grow well. The only thing I would like to talk about here is rural business finance. The 70% growth has to be taken in perspective that the first quarter of FY 2022 last year was almost zero disbursement. Right. It is FY 2022 was Okay, we did some disbursements, but it was largely nine months.
Just to remind you, point that out, that we were still within COVID for the first quarter of that was the COVID second wave, FY22. Will we grow by 70% next year disbursement? Definitely not. It will be a strong growth nonetheless as we go ahead. The important thing here is in every business there are particular milestones that we achieved. Tractors. We achieved a disbursement of one lakh new tractors for the first time. This is really particularly satisfying for me, who came here in the very early days. Come here as in Allegiant Finance into the country in the early days of starting tractor finance. I remember in the first year we had done 2,000 tractors in the whole year.
Within 15 years, if we have touched a mark of INR one lakh tractors, it is particularly satisfying for me personally. Rural business finance, I think this INR 1,500 crore. Within March we did actually INR 1,600 crore. More important and more satisfying number is 30 lakh new customers were added within one year. That shows the capability, the capacity to add new numbers, new customers, as well as do business with existing customers as we go ahead. Various milestones in urban. The big milestone, I would say, is Consumer Loans. A product which is just 2-year-old is really, really catching speed now, and we have crossed some real good milestones in this disbursement. Last but not the least, SME. I mean that growth is extraordinary, obviously because last year we were still in the pilot phase.
Practically FY 2023 was our first year of doing SME disbursements and we have done decently well. The book growth largely reflects this. We would also see that mathematics will work. All of you work your, you know, your Excel sheets. Till last year, till FY 2023, may I say, that the book growth was lower than the disbursement growth because of the previous years. The previous years where the disbursements were very low because of COVID. You know, this year the book growth even at 35% is lower than disbursement growth, naturally. Your models itself will show that even for a 2-year or a 3-year product, we are now getting into the good phase of growth, where because of current book being high, the book growth will now catch up very fast with disbursement growth.
I mean, it's nothing for me to tell you, all of you know your models, and that's how we see that the growth will actually be excellent going ahead. No new points here, but again, particularly satisfying book growth have happened, which have been a very important part of this retailization journey. Now I'm going to come to a slide which we believe was a surprise to the market. Is the way we reduced our wholesale finance book. You know, somewhere in the beginning of the Lakshya, we said, "Okay, we are going to become a retail company." We are looking at transactions. We are looking at selling our wholesale finance book, both infrastructure as well as in, as well as real estate. I have said it during calls, but I will repeat it once again. Nischint. Idhar aaja, khali hai. Aaja. Come.
Karmi, yes. Come this way. Yeah. Comfortable? Good. Okay. Nischint, you have not missed much. You guys, you have seen the presentation. Okay. This is the important slide that we started with the idea that we will be able to do transactions where we were able to sell the real estate as well as the infra platform. We had different kind of issues. Real estate, there was a structure a particular private equity had thought of. They didn't get regulatory permission for that structure. One. Infra, the issue was that of perhaps the issue of plenty. That we did. We hired our investment banker. We did the transaction. We got a bite, actually. Complete due diligence was done.
Then we realized that a private equity player who is wanting to buy a $4 billion-$4.5 billion book could easily cut a $1 billion check for equity. That was not a problem. Raising $3 billion-$3.5 billion debt was next to impossible for that person from the Indian market, and they wanted our guarantee, and obviously that served no purpose. That if we give guarantee for the debt, then the purpose of selling the book doesn't do. We did two things. We decided that we are now going to sell rapidly, even a single asset. It's okay if we don't get too much value, we will sell. Because the Lakshya objective was important, 1. Second, we also said that we are saying that we will sell asset by asset.
There is a chance that the person or persons who are buying it may ask for some discounts or because of, you know, interest rates going up, we may have to give any discounts. That is why when we sold mutual fund, the entire profit coming from that, we kept aside to enable us to give the team the confidence that we can sell down rapidly. I am happy to see that the result is there. Our wholesale book has reduced totally to less than INR 20,000 crores. Even we had not expected in the middle of the year that we will be at less than INR 20,000 crores. Even we had not expected that retailization will be at 75%.
Now I can confidently tell you that the way we have planned, the way we are seeing visibility of sell down, by 2024, we will reduce the wholesale book to such a small number that all retail ratios, retail profitability will slowly start converging with the overall number, overall profitability. To give a specific number, we are very confident of taking retailization to more than 90% by 2024 itself. That's clearly, if I'm saying it from the stage, it is very clearly something that we are very confident of, that reaching a 90% retailization in one year. This is one target that we are sure to achieve and overachieve two years before that is retailization. Okay. This is something lots of questions. On this, there were a couple of more questions coming, I will handle some of those questions on those slides.
There was a question about there is some INR 84 crore entry in our results. Okay? We have given a number, and then there is a INR 84 crores which is added back. Just to clarify, some of you had asked this question, right? Just to clarify, we have a small AIF, very small. The book is just about INR 200 crores. It is, it doesn't matter. When we did mark to market, we wrote down some investments in that AIF. That AIF we own for 53%, other investors own 42%. That INR 84 crores is added back because it is the share of those other investors, INR 42 crores. It doesn't... In the original results, entire 100% hit is taken, and then 45% hit is added back to that, obviously. Just check the number.
The 501 number that you see is the net number to us, finally. Profit. Okay. 1,623 is the final profit to us. These are juggleries of Ind AS. I believe I have explained it correctly. If you have not understood, that is likely because I also don't understand Ind AS. My CFO will be on stage after some time, and he can be more accurate. Okay? That's as much as what I understand that that's it. Okay? Which means that that AIF now is just about INR 200 crores completely marked down to market. We are confident of doing those deals and closing it. Finished. One more of those old janjats gone in this year. That's where one by one cleanup is happening. That was one question. Second question was interesting.
How much of that provision we have used? Okay? Again, just to explain, the way I understand, it was not like we created that INR 2,700 crores of provision from which we keep using. We actually valued three assets, all the assets, and wrote those assets down by that much amount. Okay? As we sell the remaining, we will sell something above that, so that will get reviewed, re-revised, and the remaining assets will keep getting revalued. Plus, minus, plus, minus will keep happening. During the next year it will be completely confusing to do that. The most important thing is management assuring you that we believe after every month taking a review, that there is no any substantial shock of any time or any provision coming into the wholesale line from now on.
Whatever wholesale provisions, little bit you will see, that is another Ind AS jadu, that you have to recognize income on GS3 and then derecognize it again. No real provisions happening. It is only that interest income. Sachin, am I right? More or less. Okay, good. My CFO has given me a thumbs up. Understood, finally. Okay. That's what, you know, we have done. Actually, if you add back INR 4,900 crore of disbursements that we have done in wholesale for two reasons. One is we are a going concern. There are commitments given to wholesale which we have to keep. As I said, for the first seven months, we were trying to keep up the platform and sell as a platform. Obviously we were doing disbursements.
If you actually add back the INR 4,900 crores disbursement we did, we have sold INR 28,000 crores of wholesale assets this year. Even with half that speed, you see that 90% number is very easily possible, right? That's what we are confident of. Okay? With your permission, I'll go ahead. These are the three big strategic things that we wanted to do. I spoke about two already. Now I will speak about the third one, and it is of great strategic importance, which is the merger. Okay? Once again reminding you, when we started this journey, 2016, you remember this right products, right people, right structure. We said that ultimately we are moving to create one company, and I am happy that finally during FY 2024, that will be possible. Why did it take so much time?
I think the first merger that we did was of all the ICCs, all the loan companies, we finished doing the merger. There was the infrastructure finance company. There is a Housing Finance Company, which obviously you will understand that had structural regulatory advantages of their own. We were very clear that we wanted simplicity and transparency more than anything else, right? Especially when you had a large wholesale book. The best way to end all those questions was having one balance sheet. Hence we merged the infra company and HFC three years back. Two and a half, three years back. Only two were remaining. What was IDF that time, which is now ICL and L&T Finance. You would ask why we did not sell it. The reason was very simple.
We had a mutual fund and RBI was not giving permission to any operating NBFC to have a mutual fund. Hence we had to wait till the mutual fund was sold. The stage is this. RBI, we have got a final approval. SEBI always gives an in-principle approval. We have got that. Stock exchanges, we have got approval and we have finally filed. We have to file in two courts, Mumbai High Court, NCLT. Mumbai NCLT is filed already. Calcutta NCLT will be filed as we speak today, tomorrow. We are pretty confident that with this we should be done definitely during FY24, hopefully around Q3. Why is this important? Important for many reasons. One is synergies, et cetera. Capital management.
Today, one of the reasons that the leverage is low, one of the reasons other than of course, we have a lot of equity, is that within the ICL company, the leverage is even lower and we can't touch it. Once can't touch that capital unless it is merged. Right? Also, liquidity ratios. Now with LCRs have to be maintained in every company at every bucket, unnecessary liquidity will have to be kept in every company. Merger will take away that requirement, right? You would also be interested to know that we prepaid all the preference shares, et cetera, we had in L&T Finance Holdings. Now, L&T Finance Holdings is genuinely a zero debt company, which actually makes lot of things easier in this merger, et cetera. Last but not the least, dividend policy. This is very important, okay?
During COVID, the regulator came up with a guideline saying that any NBFC can declare at most 50% of its profit as dividend. Now imagine L&T Finance can declare 50% of its profit as dividend to LTFH. LTFH can declare maximum 60% of its profit after paying his expenses. Okay? Which is salaries of few of us, not much. That leaves very little for dividend. Right? We made a big profit by the sale of mutual fund. Same guideline says that anything which will be considered extraordinary cannot be used for declaring dividend. We have actually applied to the regulator saying that sale and purchase of mutual fund or any other asset is not extraordinary for a CIC. It is the business of an investment company and hence permit us. Let us see what happens.
Even if that doesn't happen, from next year onwards it will be one NBFC and according to the guidelines, you can do 50% dividend payout ratio, which will take away all the constraints that are there from capital management and will free the board's hands to actually manage capital in the most efficient way, depending on growth, depending on risk, safety, and most importantly, keeping in mind the interest of shareholders. All these things will be possible once the merger is done, and that is the importance of the merger. It is not just one structure coming together. That's what I wanted to explain. Asset quality. You have seen this continuously improving asset quality. I mean, there is not much to talk other than the fact that 1,171, we still maintain our standard assets overlays on top of all this provision.
For a balance sheet as big as ours, 61,000 crores of retail assets, we have 421 crores of net Stage 3. Okay. That I think is really for a company which is 60% rural in retail, it's really a benchmark. More importantly, we have to see how we achieved it. It is easily possible to achieving it by trying and rolling back what moves to 90 days or something which is Stage 2. That is why this graph is important. This we have been showing now for a few quarters. Product after product, continuous improvement in regular collection efficiency. This is zero bucket collection efficiency. The whole idea here is to use analytics, use propensity to pay matrices to make sure that the minimum slips at this level.
Very frankly, when it moves from this level, you can still collect, but it involves expenses, right? Collections that happen at this level is at zero or very low expense, very clearly. After that, you have to spend money to collect. Hence, minimizing these ratios and graphs is in front of you. Product after product, we are maintaining absolutely good and improving collection efficiency. The slide which follows, this is something many of you had asked for the last year, and we will now start showing. Everybody, there are some people who ask me why not show wholesale. The reason is obvious. We are selling wholesale. We are rapidly selling wholesale. Ratios don't make sense. I mean, we don't know, you don't know which asset we will sell, whether it'll be a Stage 1 or Stage two.
We hardly have any Stage 3 assets anyway in wholesale. The more important part will be to see over the next two quarters how wholesale overboard book is reduced. That we are committing that we will reduce rapidly. You will see here that across Stage 1 and Stage 2 and Stage 3, continuous improvement and very strong PCR. Okay? This now we will show quarter-on-quarter. Every quarter we will show previous quarter and the last year same quarter to, for you to judge how we are moving. With that, now we come to the last part. I have been guiding always how we will achieve this 3% ROE. This is how the FY23 ROE tree looks. More importantly, look at the Q4 ROE tree.
Okay, with 11.87 NIM plus fees, I know that I have been telling that 11.4, 11.5 is difficult to maintain, and it has only increased after that. 11.87 is not sustainable. It is not sustainable. Very clearly, as urban products catch up more, this is going to reduce. Surely. Interest costs are going to increase by another 30, 40 basis points. As you know, as repo rates increase by 250 basis points, our overall costs have increased by just about 70 basis points. As ALM is managed, banks pass on some of the increases. We believe that over the next couple of quarters, our cost of funds will go up by 30, 40 basis points. Both these things will moderate this 11.87.
I'm not saying it will suddenly come to 11% or anything like that, but it will moderate. The important part is that the way credit cost plus OpEx we are managing, you will see some small increase in OpEx. That's some one-time amnesty schemes, et cetera, being used and also some investments in IT. We are confident that this 4.41 plus 3.59 will start moderating to 7% very soon during FY 2024 itself, right? That will get us quite comfortably to this 3% ROE. Lot of people ask me should I do this 3% ROE target revision upwards. Let's see. Let's hope that we give few quarters of more than 3% and then we can do it.
This is just a summary, just the summary of what I have said till now, and which completes the journey of FY 2023. Rest of the slides I will actually talk about why we think that our retail journey is sustainable, why we think that we are putting all the right elements to succeed. Lot of people ask me, "Retail everybody is doing, digital everybody is doing, everybody is talking the same language. Why will you be successful?" Okay? One of the reasons is we were one of the first ones to talk this language, and hopefully we will convince that we are doing a lot also. That's not to say that the other people are not doing. The most important thing here is the way the market is developing.
I will talk about that and I will actually put my strategy, juxtapose my strategy with the changes happening in the market character, which will hopefully convince you that the way we have set out this journey is a way, one of the ways which can lead a company to success. Okay. This is a slide, may sound little bit like gyaan. All of you people are very well aware of what's happening in the market. I have put it only to put what I'm going to say in %. Right? I personally have been in the retail market from 2008, 2007, 2008. I have seen the market changing drastically. If you take time till 2015, yeah Some of you around are of my age, you will know. Many of you are much younger.
These were the big bad days where NBFCs were supposed to do business which rejects of banks, right? There was hardly any information available, credit information available about a customer, right? There were no bureaus to speak of. I remember when I joined L&T Finance, there was a discussion happening whether we should give information to the bureau, because competitors will use that information. This kind of misinformation was there even within company management. In my own company management even. I'm not pointing fingers at anybody. Right? From there, a time today where this information not only is reliable but completely democratized, the industry had to change along with this. Till 2015 was a time of very asset-based specialization. The reason was very simple, the customer information was simply not available.
Companies specialized in tractor or companies specialized in home finance, companies specialized in car finance, companies specialized in CV finance. There was a company which specialized in second-hand CV finance, gold finance. You see now it will ring a bell, right? That simple customer information was just not there. Unless it is your own customer. Even if it is your own customer, where was the database analytics to actually use it? Right? I mean, very frankly, six years back, if my own tractor customer would have walked into a two-wheeler dealership and taken a two-wheeler, I wouldn't know it's the same customer. No chance. I will take this Aadhaar card, photocopies, file them. Koi chance nahi. By luck, if the credit bureau would have told me next month that it is matching, then I would know from the credit bureau that it is the same customer.
Okay? This is not only I'm laughing at myself, but this is what the industry was. Anything else anybody tells you, don't believe it. Till about 2015, that's the way it was. Came a time when bureaus started coming of age and customer information now started being available. Not only whether how much loan he has or whether she is or he is on time or not, but things like credit scores, things like line-wise information available, much more thicker files started getting available. Microfinance bureaus came into being. Times came where for a microfinance customer, the numbers, the hits were higher than urban customer with Highmark coming into being. Right? Life changed. From there now moving to a place where something like even microfinance, RBI feels confidence to say you have to do FOIR-based lending.
Okay, COIR is Fixed Obligation to Income Ratio. Imagine microfinance, RBI became confident to say everybody will have to calculate COIR. This industry has moved from you form a group, your field officers form a group, you lend, and then you pay. This was the situation 10 years back. From there, it moved to you form a group, but every person of that group, I will know how much he has borrowed from how many people and what is their record, credit record. From there, we have moved to what is, not only this, what is her income, what is her family income, what is her family independence. The market has moved, and market has moved drastically. Information has moved. That's where the place digital data analytics are not just keywords, they are just only way of doing business.
I remember the first time I borrowed a car loan, it was from a corner, my roadside corner bank called Saraswat Bank. I am a Gaud Saraswat Brahmin. Normally, you will go to Saraswat Bank. It took me 10 days to sanction a car loan, and every day I had to find out which table the file has moved. When I say file, it was actually a file. Really file looking like a file, right? This was 1996. 1996, 1997, something like that. From there, now the time that actually on a thumbprint, you can give a car loan. When all these processes are done, actually koi bhi process karte nahi hai. Every process is done, but it is done electronically, real time. That's the way things have moved. Based on that, now how strategies have to move.
That's where with this, and assuming that generally people have no big objections to what I said till now, I will go ahead. This is the first strategy change that we did. After one year, I am feeling confident enough now to explain the thinking behind the strategy and why we believe that this strategy is sustainable. That while we were good in some products, we said, now with the kind of information which is available with the bureaus, with the granular environmental information available, and last but not least, the 2 crore plus borrower information that we have, and actually 2 crore plus family information that we have, now we should go more than just selling products. We divided ourselves one year back. We had a farmer finance, a tractor finance, a two-wheeler finance, this kind of, you know, product lines which we used to call business lines.
We have divided ourselves into real business lines or client lines. We have rural business lines. One is rural individuals, which is farmers and rural businesses, which is rural business finance. Micro Loans is a small part of that. On the urban side, urban individuals where we have three products at this point of time, some loans LAP, CL and two-wheelers and urban small businesses, which is SME finance. The whole idea here now is there is one strong chief executive reporting to me directly, working on these customers and not working on a particular product, and being able to find the right product for these customers. There are a lot of people who ask me, "This product, will they do?
That product, will they do?" The whole idea is, as long as those products make sense for my customers, their ecosystem, their families, and they are profitable to me, I will do them. Otherwise, I will not do them. It's as simple as that, right? Any new product also. This is the way the organization responded. We said, okay, there are going to be three major parts of our strategy. One, how to improve and continuously gain market share in our existing products, how to make them our successes. How do we deepen customer engagement more and more using these products and using more products for those customers. Last but not the least, how do we make this sustainable by making sure that risk is managed properly. Risk, as we understand, the main risk is credit risk.
All of a sudden, you are moving where the human being in most of the products, some products it is still there. The human being is not doing the underwriting. The machine is doing underwriting. As good as the machine is, as good as the programming is, they will do mistakes. As we do mistakes, what are the early warning signals that we take and what is the capacity of the engine to take feedback and improve almost in real time? We have not come to real time, but very quickly. How do we improve is going to be the strategy as we go ahead. Clearly, as I said, state-of-art technology and deep analytics becoming fintech at scale. Fintech at scale also has a meaning, okay. As I said, there are lots of fintech. There are very few companies which have scaled.
There are, I mean, like hands can finger, say, become. We believe we are one of them who is using technology so strong with an INR 61,000 crore retail balance sheet, which within a couple of years may become INR one lakh crore. That's the, that's the scale that we are using fintech for. How does now that translate to product strategy, right? You know, people ask, "25% CAGR, how will you maintain?" This is very important because our three main lines of business, will they always grow by 20%, 25%? I don't know. Tractors, two-wheelers. Two-wheeler still has to come to pre-COVID levels. Micro Loans, I believe that over the next three to five years, these businesses are going to do tremendously well. I'm not going to get into that discourse right now.
They can be seasonal, one year it will be down, then it will be up, whatever, but the general trend is good. We being one of the top five in every business, tractors number one, the other two number four, we will do well enough to gain a small market share every year. That's our confidence as we go ahead. Will that be 25%? Probably not. Disbursement growth. Book growth, maybe it can happen, but probably not. We will be industry growth plus minus 0.5%, 1%. Naturally, these are mature products. Today we are in a position where because on time changing the strategy, there are other products in the armory which are growing faster. Consumer loans and SME, new products growing faster. HL, we are on a new breath of fresh air. We have not been doing great over the last few years.
A new team has come, new engines have come. Sanjay joined us from Kotak. He was the mortgages head there, and this business is really taking off now. These are going to be our growth products. Last but not the least, products which are still not there, which is Rural LAP. We have all the know-how to do it, which is rural business loans for families, which is agri-allied loans, which today we are not there. We are about to launch and launch with our existing customers and their ecosystems and something which will grow from zero to something. There are three stages, three categories of product with different growth rates. The products on top left contributing more to profits and these other two products ranges contributing to growth. We believe we are in a good phase of profitable growth right now.
This is largely a show of strength. The three major products. There are times I keep hearing that, " Growth " asset quality. Ratna, I will just leave this slide there for you, both in book and disbursements. We have been in these products for 10 years and more. I have shown you the growth for 10 years, maintaining profitability, maintaining market share, and most importantly, maintaining asset quality. This is the track record of L&T Finance in these three products. Hopefully, it should give you the confidence that we will continue to do well. More importantly, just look at the customer base that we have acquired. Yes, surely there is maybe one or two companies, probably one, which has a higher customer base than us. No doubt. That's life. That's where you stand.
You start. In any case, there is a lot of difference between the valuations, so it's okay. Right? So, we can always grow, catch up. More importantly, a large part of this database is rural, and that's where we are strong. No one even comes close. That's where the profits in a financier's wallet lies, in rural. There's no doubt about it. Okay? More new to credit is rural, and that's where growth opportunity of increasing penetration lies in rural. I will take one more topic here. There is a lot of news about a fantastic company entering into Micro Loans, right? Some people ask me, "Is it going to disturb you in Micro Loans?" Let me explain something, okay. 50% of my Micro Loans customers are having only L&T Finance as lender. That means they are new to credit, 50%.
Do you really think that 50% of rural lady borrowers are really new to credit that they have zero borrowing? What it means is that they have been borrowing from the unorganized sector. I have either replaced or added to our unorganized sector borrowing. The problem is that there is no way to know whether I've replaced or added to, because those data is not there in the bureaus. More good professional competition coming is good not only for the sector, it is not one because more the customers get into organized lending, the asset quality of both me and the competitor coming will become better. It is good for both of us. This is a stage today in microfinance where good quality competition is welcome, because we will work together to take out the unorganized sector.
This is the need for the country, need of those people, we are a profit-making company. It is definitely good for our asset quality, which can improve even further from where it is with more reliable information now available about those customers. This is what I have talked about already. I think I'm going ahead of slides and talking. This is now the cross-selling and upselling strategy. Each of this, that is rural business, rural individuals, urban individuals. I have not covered urban businesses here. We are too new there. The hooked product is rural JLG loans, tractor loans, and two-wheeler loans and home loans. They are the hooked products. We have started using them already to do upsell, cross-sell.
I think one statistic I can give across products, if I take a average, one out of every three loans that I give is to existing customer. Okay? I think this is a very strong number. We are at a great position where we are acquiring new customers, at the same time now starting to sell more and more to existing customers. We are already at 4.0 products per customer, out of which approximately just 1.4 is loan products and about 2.6 are protection products, insurance products. As we go ahead, this 1.4, even if it starts touching 1.6, 1.7, the potential is huge. There is another development I would like to talk about.
In Q1, hopefully 99%, we will get our corporate agency license and we can move beyond using our strength, our cross-selling strength to sell insurance, not only now to our customers, but to non-customers also. That's another upside for income as we go ahead. Today, we are restricted to sell it to our customers because we are not a corporate agency. We can start selling to non-customers also. Juxtapose that with the distribution strategy that we have. This is very interesting how FinTech is used. The first level of distribution, you can start from the bottom left, is obviously your dealer network, your branches, your DSAs, your aggregators, etc. The second stage, and we have been through all these stages, is using data analytics to choose them, to be selective about them. Let me address another question. El Niño. Right.
First of all, my economist will tell you it is too early to talk about that. Monsoon, we will know maybe in one month or so exactly how it is coming. More important data available shows that reservoir levels are very strong. Market rates for commodities. Other side of inflation is that farmers are getting good money. Something that I always say that, you know, I don't want to sound like a party political, but I always say that direct benefit transfer, the JAM Trinity, has genuinely changed welfare in rural India for these many years. With this now, I mean, monsoon will still affect, but the effect is less. That's not the point. The point is the availability of granular data on the ground.
Now, you can move away from saying monsoon. We can say this almost pin code by pin code. Which pin code, which HP of tractors is likely to do well. Based on that, select dealerships and juxtapose it with that dealerships portfolio performance. That area's portfolio performance even offers, because that data you get from credit bureau and choose. The second stage is actually moving from carpet bombing to daylight precision bombing that we know now. If we have to take a 16% market share in tractors, first of all, we don't aim for a market share. First, when we used to aim for a market share, what does it mean? It doesn't work like that. It works, okay, I have chosen so many dealers to work with, out of which so many are my concentrated dealers.
I will go for a 50%-60% counter share there. I will throw the budget at him. I will do all schemes with him. I will give better LTVs to him. I will give better interest rates. I will put my people at the dealership. I will invest fully in that deal because his asset quality and the probability of his sales being good and his counter share with me will be 50%-60%, which will now work to that 16%-17% market share. Resource allocation becomes very important here and data analytics helps us there. We move to assisted apps and centralized underwriting. That is my people started going with their mobile and booking everything paperless. We have finished that journey also, now we are come to the last leg of D2C apps.
The important part to note is none of this is replacing each other. This is only additive. Each one adds another channel. We have our branch and dealer network. We put analytics to choose the main ones, the important ones in this. We put assisted apps and then the D2C apps. This is the distribution strategy now to juxtapose the organization structure, the product strategy and the cross-selling strategy. This is how everything comes together. Let's talk about each one of them. I'm just going to show the slides. These are good numbers. Whole idea is to show you this is not to show off, but to show that we have strength on ground where we believe that things can be replicated, this growth can be replicated. This is the first page, you remember? Just the structure, just the network.
Right to this is this kind of branch network. On your left is our urban network. On the right is the rural network. You will see why we call ourselves a rural company. Now growing in urban. Total physical points. Just by saying digital, we are not letting go of the physical network. Almost 1,860 physical presence, and that's how it looks. We come into use of data analytics to use this network more efficiently. That's what I think I talked about all this. The dealers that we choose, we give them the industry best tax composition, completely algorithmically approached trade advance and clearly a dealer portal, so that the dealer, like all of you have a app, the dealer will have a app, a portal where he gets all his information, where his case is, everything straight away online. Right.
I'm going to just leave this slide. I'm not going to talk much. Very clearly shows our strengths. For all this, naturally, what the dealer gives us is much sales volume, a portfolio which performs better than others, counter share, and of course adds to our distribution network. Very clearly, this is the output. Very simple. I just explained. Any of you who have gone to rural, semi-urban areas, you will see one big difference over urban, over Mumbai. Huh? I have not yet been able to figure out exactly why, but you will see that all tractor dealers will be on one road, or all two-wheeler dealers will be on one road, one after the other. Right? Now, what does it mean?
When a customer enters a Honda showroom, if the sale is not closed then and there, he will go to a Hero showroom or to a TVS showroom, and most probably, the Honda dealer will lose that sale forever, right? You don't have to travel, you have to just walk next door, right? What he wants, what that dealer wants, of course, dealer payouts, et cetera, are there, but what he wants more is the sale to be closed then and there. What does it mean? First of all, there are 600 financers there. If I am the financer of his preference, and why do I, why do I become financer of preference? Is it because I say "Yes" immediately even before the test ride is over? Even more importantly, I say "No" even faster than that.
I can say no to a case as soon as it is entered in the mobile. It will say, "No." Why is that important? The dealer now can immediately give the files to another financer who is sitting next to him and close the sale. Right? This is very, very important in rural and semi-urban India. That is the importance of turnaround time. It is not just showing off that my turnaround time is better than anyone else's. If this is the importance of turnaround time, lots of people ask me, "Why people borrow at that this interest rate, et cetera?" Very frankly, at 2,500 EMIs, 1% interest rate is INR 10 or INR 12. It's not much more. It doesn't matter.
One thing today that a customer wants, a financial customer wants, is less hassle, saving of time, and availability of money when they want it. Very simple. I will ask you, any one of you, if given a choice of 1% cheaper rate, but you have to go to the bank 10 times to sign documents or 1% costlier, and you will get everything on an app, 99% you will choose the costlier one. Perhaps except for home loans, which is a 30-year one, and that's why 1% will make difference. That also mostly you will take the costlier one and seis mes que va deti queren . Right? That is because the regulator has said no prepayment penalty. Hundred times percent of times you will look at the interest rate later.
I mean, there are times when we have regretted going for the cheapest loan when you have to sign at 39 places. Right? Even just signing, right? A full document coming in front of you, even 39 signatures one time is painful. When technology is available to make that as an eSign, why would you do that? That's what is important. You know, taking it beyond narratives that rural person digital use nahi karta. I mean, it's the narrative which is almost laughable. My every microfinance customer signs on the mobile. Actually, physically signs on the mobile of my guy. What will be the problem? That a microfinance customer may not have a smartphone. 70% of the people may have feature phones. Okay, no problem. My person goes with a smartphone, na?
Where there is a will, there is a way, and you can always make sure that that works. What I went little bit away from the topic, a little bit passionate about it, but what it means is as long as you are competitive, you are not out of the market. If the market is paying the dealer 1% commission, you say, "I will not pay anything," to problem hora. You need not pay 1.25% every day. It can be even little bit less than the market, and the dealer will give business because his main income comes from selling tractors and two-wheelers. You help him to sell more tractors and two-wheelers, he will give business. That's. More importantly, resource allocation. This is also very important. When there are so many dealers, where do I put my people?
If I put my people in every dealer, my cost will run up. If I don't put, he will not give me business. What to do? This is again, analytics tells you where to put resources, how many resources. Resource allocation, again, one big addition from analytics. Okay. We come to assisted apps. This has been the biggest journey of the last two years. Each one of our major product now uses no paper. All documentation, everything, KYC, selfie, liveliness check whether the photo is taken actually or photo का photo लिया है. Multi-bureau check, machine learning scorecards, income assessment, and most importantly, e-agreement, e-signing is all done by app now. Obviously it gives a superlative customer experience. Last but not the least, Planet App. This is just the beginning of Planet App.
We are just 13 months old in PLANET App, and it has been absolutely a runaway success. Lots of servicing happens there. 42% of our total servicing happens through PLANET App and 70% now through digital channels. More is coming. More and more D2C journeys are coming. We have also made actually a two-wheeler D2C journey available on PLANET App. It is frankly not used much. You can actually buy a two-wheeler and get it financed without seeing the dealership even once. That's the journey available. Test ride at home, delivery at home. All done. We will have to make it more popular. Plus अभी भी Indians को थोड़ा dealership जाना अच्छा लगता है। Slowly it will change. We are moving there. The success numbers of PLANET App are here. As we speak, this was not there on 31st of March.
As we speak, we have completed three million downloads. We completed two million when, Abhishek? December or what? December we completed two million. In just four months, huh? January. In 3.5 months, we have completed three million. Downloads read now even rural is picking up these downloads. It's still just about 2.8 lakh, but it is picking up. Just three months back it was one lakh, right? Rural. It's, it's picking up now. Very important is that channel of service and this is something we are now investing in reducing future costs. That when within two year we have moved from 55% service handled at branches to 11% and 23% call center to 15%. Both the quality of service and the cost of service is going to transform drastically.
This is another building block of what we are trying to build. You remember the third thing, which was risk. Now risk has to be looked very differently from here. You remember the time where every underwriter used to get incentivized by that you should not do a mistake. From there now it is all AI-based. Yes, you actually expect or give a leeway की इतना mistakes तो होगा. The funnel is opened properly. So much mistake is allowed to the model and every time a mistake is made, the learning from that gets back into the loop. Strong portfolio management reviews and techniques are very important for that. All that now is in place. You will see because of that month on month, not only the NPA.
NPA performance is actually a very late way and very ineffective way of measuring the model. The model is measured by 0 DPD performance and 0 DPD is improving continuously and obviously NPA will improve. After 90 days NPA will improve. That's obvious as we go ahead. Now we come to the last part of what we want to talk about. This is a very technical slide. This is the really roadmap, the design of what we call Fintech at scale, right? Scale we understood easily. Like there is no point building a Fintech, a great app without scale. We have the equity, we have the borrowing muscle to really build scale and then absolute top-class structure for scalability. Gone are the times of on-prem, on-premise infrastructure. It is not scalable.
We are almost completely, other than what regulator requires to be on-prem, almost completely on the cloud and totally scalable. We have completely automated processes. I have also put the people we work with, FDDC workflow, completely business rule engines and a Fintech ecosystem. There is no point replicating what other people are doing. We do API integration to actually use that. Third very important point is security, very topical. Lots of news, rumors about many companies floating around about ransomware and all those things. It is important. You can never be 100% safe in this world. You have to make sure you are not the low-hanging fruit, because very clearly here the danger is to the lowest hanging fruit. You have to be better than almost everyone else in the market. You will.
I mean, the hackers will always be ahead of whatever any security measures do, but you can't be a low-hanging fruit. We are sparing no expense in doing that ISO 23001 certification already. Abhishek, or kuch certification we are going for?
Process
For process. Okay. Last but not the least, customer journeys built on both assisted as well as data CI. This is the total structure of our fintech at scale. I will just expand it a little bit, what it means for customers. This I have talked a little bit, but this is what we do while customer capturing, right? This delivers a customer value proposition of turnaround time, which our company as a thing, as a culture believes is the most important customer value proposition. Something that Indians lack today is time. Whereas whether you are a rural customer or urban customer. Urban or even a rural customer comes to the taluka bazaar once a week or once in 15 days, and he needs to close his business that day.
If he comes to the branch and sees a long queue, he will then come after one month and your payment will be delayed that much. Very simple. If he wants to buy a tractor, he wants to buy a tractor on that day. Everything needs to be closed that day. Right? When a Micro Loans customer wants funding, she wants it on that day. Delivering that without taking stupid risks. We cannot take a KYC risk. We cannot take a fraud risk. We cannot take credit risk while doing this. Technology helps us. Many times speed is defined as, you know, we can take away certain process. That's never the purpose. Yeah, you can take away the process as such, but what is achieved by that process, the purpose of that process cannot be taken away. It can be done by technology and data.
That's what gives speed. A human being will take some time, right? Last 3-day weekend. Human beings on my head office were home. Other than the people who are preparing for this, for this investing meeting, they were home. The human beings in my branches were working when the dealership was open. For my school's people, I don't know. Was it a week or week? No. Yeah. This was a month end. Where is the question? They were working, all of them. The AI was working all 72 hours, and that is important. When that happens, speed happens. The next part is saying that where all now we can use analytics, right? Very easily understood is for choosing of customers, you can use analytics. For underwriting, you can use analytics. This is understood by most people.
We use analytics for sourcing, as I said, by granular environmental data where to source from. One. Underwriting I need not talk much. Many people do that. Where we use analytics is for collections. Are we achieving these kind of collection numbers by taking too many people in collections? Even if we do, it won't work. What is important is know to a particular confidence interval what kind of probability or propensity to pay each customer has in this particular area, what is the need for resources, and do resource allocation according to that. Doing geotagging of customers, this was one of the biggest liberations we had. One of the big problems of retail is the turnover of street on street. Across industries it is more than 50%. Across companies, street on street. INR 100 rupaye ke liye dusre company mein jaate hai. Simple.
As simple as that, right? Add to that a particular problem in rural India, where address is not by flat numbers and apartment numbers. Address will be Maruti Mandir ke peeche and complete address. That's it. You know, taluka so and so. Over. Just put these two problems together. That your person is changing every six months and address is not known. Biggest problem of rural retail. Resolution technology, geotagging of every customer right at the time of sourcing not only improves that I can locate the customer easily. Secondly, I can actually do a route mapping of each of my person. That you have to follow this route and do it efficiently. That person doesn't have to think ki main kahan jaun.
The computer tells him, "You will travel like this." The computer can track whether he has traveled like that or no, how efficient he is. This is sky is the limit as we go ahead. This has been put just to show that currently and in future, for what all things we are using scorecards. Scorecard is normally understood as a credit scorecard. We have come to a stage where things like authenticity models or bounce predictions. Bounce predictions is very important, otherwise you will either spend money calling up everybody to remind and nuisance or you will not call up anybody. But based on the behavior of the person to see whom to make pre-presenting calls. Right. Which customers not to allocate to a collection team by saying, "Okay, ienia ko bounce hota nahi hai." All these things are now shown in the scorecard. Normative grid.
This is so amazing, right? Initially, every time a repo asset had to be sold, there was a huge process of approvals. Finally, at what price it is sold is based on the assessment of that approving authority. Now there is a grid based on market price, based on our experience of that quality, there is a grid. Above that grid, if you are getting a price, there is no authorization required yourself. Just see how efficient each process has become as we go ahead, and we will continue to grow like this. Hence, this is the last slide, I promise. I have taken a little bit more than what was allotted. On the right side, you see the numbers. On the left side is the summary of the strategy of how we are making these numbers not only possible, not only excellent, but also sustainable.
Thank you all of you for a very, very patient listening. I know I have spoken for about one and a half hours. We still have a good half an hour for question and answers. I will be open. All of you, my only request is to continue to support us like you have supported during COVID, little bit below. Before that, we have had our bad times. I think the company now has its strategy very clear, has the team in place, has the organization in place to deliver that strategy. The organization is genuinely coming to an age, you know. I mean, just about a year back, a very strong individual of the head of retail left. We could find people internally and externally to take up the mantle and grow. Not only grow, but accelerate, deliver what we had to deliver.
That shows the strength of the team. That shows the age and the maturity of the organization that we have now become. Keep your support coming. Thank you very much.
Thank you, sir, for the granular perspective on the latest strategy. We will now move on to the Q&A session. I would like to request Mr. Sachinn Joshi, our Group CFO, please join Mr. Dinanath Dubhashi on stage.
Actually, all the questions which had come to Karthik, I have answered in the last two, three days, so I don't know whether there are any more questions, but of course, you are welcome. Are ek glass pani laoge? Yeah.
We can now begin with the Q&A. Can we have the mic, please?
Just request to introduce yourself and your organization.
Good evening, Sir. My name is Rakesh. I work with Investec. Just two questions. Firstly, Sir, what we have seen in the past is that models behave very well during a normal environment, but in case of shocks environment, these models tends to fail. How are we thinking about... Because, the segment which we operate are not straight line segments. We see deep shocks as we have seen in last 10 years, and I think these things should keep on repeating. That is first question, how are we preparing ourselves with these shock, anticipating these shock events? Second is the segments that we are working are, in my view, are quite, at least the portfolio which we have been built in over last 10 years, are quite sensitive segments and, underwriting is quite subjective.
It's very difficult to quantitize these segments and underwrite these customers using models. If you can elaborate how we have been able to remove that subjectivity and make them more objective.
Thank you. Thank you for asking that question. First I will start with claiming our right to speak about this subject, right? I mean, anybody can speak. There was one slide that I showed of 10-year performance. They were the same segments, there were the same cyclicality, there were the same problems. In fact, there was COVID also, right? The portfolio has not only held but shown steady performance throughout this, right? That is where I claim the right to even talk about this. I'm not saying my wisdom is going to be the best wisdom. There are various ways. In fact, in factors, the top two companies used to believe in very, very different philosophies. Central feel and centralized underwriting. Very different. I don't know. Recently I've not heard, but used to believe very different philosophies. I believe there will be advantages of both.
Important, the cyclic asset, the tendencies of shocks are same whether you are doing a model or a touch and feel underwriting, right? Because you don't know that a shock is coming at the time of underwriting anyway. It is going to come later. The shocks or the cyclicality is dealt not by underwriting, but by your ability to react quickly. React in term of early warning signals, and then concentrated collection mechanism, even if, before it becomes delinquent. All this comes technology, right? Touch and feel say you won't know an account is delinquent or likely to be delinquent before it becomes delinquent. Technology can tell you that. Analytical models can tell you that.
My only proposition to you is don't pay too much attention on method of underwriting, because underwriting is a guess in the future at the end, based on some data from the past, whether it is done physically or whether it is done by a model. Model just does it faster, frankly, and more reliably. When you do physically, problem can. Let us say a company has 600 branches. Each branch will have one underwriter minimum. Your ability to hire, train uniformly, and then retain those underwriters. I mean, you have to be in retail to understand how difficult it is.
Matlab yeh bolne ki batein hoti hai.
Actually, those underwriters keep changing every six months. What touch and feel, right? The only way of making it uniform, sustainable, making sure that the organization, that decisions are taken in portfolio meetings, gets immediately transmitted to the ground is only through models. Just imagine, na, there is a credit organization where there is head of credit, then zonal head, then regional head, then branch head, and then credit underwriters. A decision taken in portfolio meeting, how much time it will take to transmit down and get to uniformly? When you are using model, it happens like this. That is the advantage of models over, and that's what we believe. That is why we believe in centralized underwriting. That doesn't mean we don't use those same parameters. We use all the same parameters. Only thing we take out is non-uniformity, personal bias. Okay?
A push at the end of the month. At the end of the month, 99% of the sales people in branches, you know where they are? Where they should be? They should be at dinner place. They are sitting near the underwriter pushing the file, right? When you do AI-based underwriting, all this goes away. That is where we have not only have faith, but numbers also show that it works. Not only that it works through COVID also, because we not only have a underwriting model, we have a early warning signal model, and then we have a provisioning model, which shows that you have to increase provisioning. That's why our provision numbers are, provision coverage is actually higher. That much management overlays we keep because we want to make sure that if something happens, that is there.
All this put together, all in all, we believe that I wouldn't use the word superior. I would think it is the most practical method, the most real method of doing underwriting. That's. You had a second question which you have forgotten.
Are we bringing some redundancies in the model to prepare for shock events, for example? In the past, the models have worked beautifully during good times.
No, no. Models were, that's what I'm saying. Not only underwriting model, if you take all the three models, they work during shock events also. Abhi COVID se zyada shock event kya hoga yaar? The portfolio held very well, and the provisioning also held very well during COVID. In fact, very simple. We had thought that we will use our entire overlay in 2023. We had to use hardly anything in April 2023. Actually it has held extremely well. Good.
Thank you.
Actually, if you look at the NBS model, the ETL models that we are already working on, they also are getting refined, you know. Every year you find the error, the behavior pattern is checked, how the product is actually dealing outside, what is the history behind that. That is again, factored into the ETL models that takes care of any eventuality. Whatever challenges we have seen over last two to three years, gets actually baked into the ETL model on an ongoing basis. Plus the macroprudential provision, you know, for events which you can't really figure out. You know, those are the things for unexpected events.
Life has to change, right? Let us take a gold loan company. I am talking about an industry that I am not there. Just as an example. Just about five years back, they used to have this some magical pickle people, Harry Potters in every branch, which will, who will rub the gold, see, and woh jo bolta hai wahi true value. That's it. Who knows? He knows. From there, every large branch now of a good company has machines. Now the next is those machines are centrally connected to a server, which can take decisions, uniform decisions. Has the basic of valuing gold changed? No. More uniformity has been brought. Human, you know, human biases have been taken out. The fundamental remains the same. Everything, no. There was a time when we used to do calculations mentally.
It moved to calculator, it moved to Excel. We just talk to ChatGPT, and it will tell. That doesn't mean two plus two has become seven, no. two plus two is still four. I mean, two plus two is too simple. Something like 39 divided by 27, which is difficult. Which was mentally you had to do the math. Calculator came, mixture Excel came. Ask ChatGPT, 10 times difficult. Fundamental of mathematics will remain same. It will just be the same.
Hi. Viral Shah from IIFL. two questions. One is, now that you are templatizing all these products more so in the rural area with use of technology and many other peers are also getting there, right? Of course, including even banks are expanding reach everywhere. Do you see structurally the profitability of the product in whichever shape or form you see, right? Whether it's in terms of pressure on yields or savings on OpEx getting reinvested or not being actually materializing, do you see that profitability structurally going down for especially NBFCs in the rural areas?
You are talking about a particular period in mind, 10 years, five years, two years?
Over the course of next, at least say three years, if structurally one has to see.
Okay. Very, very good question, Viral. Yields structurally will most probably will come down, right? Structurally, I mean. Where we will make up those, and it will take time, right? I said that first the overall yield of the system is way lower than what the unorganized sector charges. That's why we are able to charge those yields. I mean, tractors may us and Mahindra are clear market leaders. Third is Kotak. There is no public sector bank. Public sector banks give tractor loans at what, 9%, 10%. You know, yield being suddenly reducing is a misnomer. Ultimately, like in every good market, will it come down? I think definitely it will come down. Along with that, with use of technology. Use of technology is used for two things. Good companies will use it first for resource allocation, second for collecting early.
As that happens over that same period, it will also not happen immediately. Over that period, like it has happened in housing finance, for example, expense ratios as well as credit ratios will start coming. Like housing finance, why can people afford to lend at 9%, right? I mean, of course they don't make the ROE at that. 9%. Because your expense ratios are low, because your credit ratios are low, right? Because of the asset. Here the asset will not be there, but here analytics will bring that. Whether overall profitability will reduce, I don't think over the next 5-6 years at least we see a big drop in ROAs coming in this sector, in the rural sector. Beyond that, let's see. I think just we'd have to become more and more efficient.
Just another question was that as share of the urban kind of loan book in your overall mix increases, will that also be an offsetting factor in terms of your NIMs?
Yields, yes. That's why I'm saying that steady state yields will be more closer to 11%, yield plus NIMs. You're absolutely right. Currently it is closer to 12, right? Yields plus NIMs. Various factors, increasing fees, reducing yields. Yes, certainly as more urban, it will come. Again, along with that, expenses will be also lower and credit costs also. Yes. There. That lady there. When two people will be there with mic, it will be faster. Yeah. I think you have to ask.
Hi. Shweta from Elara Capital. Sir, I had couple of questions. One, there was this one slide on urban versus rural presence, and you partially answered half of my first question. With rural potential looking higher, which business prospects you see better, you know, urban versus rural? Plus, we have sizable presence on the eastern side, where Micro Loans have been slightly critical in the past. How do you perceive Micro Loans portfolio? That's question number one. Question number two. Incrementally, we saw Q4 putting up lower provisions because as you rightly mentioned, we are one of the highest on the PCR. We have macro prudential provisions in place. Will this trend continue? I'm not talking about credit cost because that's something you've guided.
I'm talking about the credit charge to P&L which was lower. Will we continue to see that trend going forward? Last but not the least, growth shrinkage was seen for past several quarters, and rightly so, because we are paring down wholesale. Now that sizably that is behind, what is the immediate growth for FY 2024? Thank you.
Okay. I'll certainly not answer the last question. I'm not supposed to give such short-term guidance. I will answer all your other questions. I think the answer to your question is in your question only, that it is not urban versus rural, it is urban plus rural. The growth will come from both the places. If we see mature products, the two of the mature products are rural. Only one mature product is urban. Because of that, perhaps the share of urban in our book and also Consumer Loans is growing very fast. SME is growing very fast. They are very small portfolios. Just because of that arithmetic, urban share may go up in our book. It probably will. Third is Home Loans. Home Loans we have just started growing.
As we grow, home loan book doesn't run off faster and home loan book remains. Of all this arithmetic, urban share will increase. That is why I was answering Viral that yields, NIMS plus fees will slowly come down to around 11% because of that. Doesn't mean that we see higher potential in urban than rural. It is just arithmetic working. In the short-term, our economist feels that urban is showing signs of deceleration and some risks in the short-term, very short-term, just one year more than rural. Rural is looking very robust in the short-term.
That's in the short-term, medium to long-term, we believe that certainly, all the four businesses that we are in, which is rural individuals, rural business, urban individuals and urban business, have very good potential for growth. Eastern Micro Loans. You know, eastern India is prone to natural calamities more. Whether it is flood, whether it is, cyclone, it first comes to Andhra Pradesh, Orissa, West Bengal, right. Some history, some geography that. Micro Loans history has shown that large scale defaults do not happen because of any geographical or natural calamity. People pay. Wherever large scale defaults have happened, where large scale defaults have happened in, till now in the history of Micro Loans, is first Andhra Pradesh, then Assam. In between, little bit localized Orissa. That's where it has happened.
Each one this where man-made problems, mainly political problems, right. Normally West Bengal, people keep talking about. For all that is said about the government, there is no politically pushed default in that state. More importantly, what can companies do to protect against that? We can make sure that we protect. We make sure that the overall lending, overall indebtedness of a particular individual is within the fire that he can afford. When does political movements gather speed? It doesn't happen. We believed that during elections it happens. It doesn't happen during. Wherever the fire has gone out of control, that is the time this political movement has gathered speed, which has happened in Andhra Pradesh and then it had happened in Assam.
As long as you take care of that, history has shown that there are some storms, some earthquakes, all these being very serious natural calamities. Books of good companies are held. Right? That was your second question. Third kya tha? Growth. Growth. I can only say that, as I said, we will be 90% retail minimum as we go ahead. Growth rate, I don't want to guess, but I'm sure we will be above 25%. Provisions is more a matter of model. I can only say, and I always say that Opex and credit cost, I take that as a fungible block. Very simple. In retail, I can reduce credit cost by throwing expenses at it. I can put more people, pay more incentives and collections will increase. I take it as a box.
We are today closer to 8%. Over the next two years, we see it moderating to even 7%. That's our target. Credit cost plus OpEx as we go ahead. There are very clear projects in the company happening to make it possible. Does that answer your question? Thank you.
Good morning, sir. May I ask a few questions?
Sure.
Hi, I'm Shubhranshu from PhillipCapital.
You'll have to speak a little louder. I can't hear you.
Is it better?
Yes.
Hi, sir. Four questions. First one is on tractor finance. It's become a very crowded place with banks entering and taking up market share from the NBFCs in the last two odd years. NBFCs, which includes us, we are OEM agnostic and the one you mentioned as well. We have lost market share there, a substantial amount of market share to the banks. That's one. Which has also led to yield compression. How do we look at the tractor finance market? Do we see any asset quality pressures going forward because everyone went to certain lending during COVID? That's question number one. Question number two is on the two-wheeler.
When we're doing urban, new-to-credit customers who have been largely migratory in nature, how do we look at collections over there? When we speak of provision coverage at 80% and, if you look at NDS, 80% essentially means the LGD there. We're talking of 80% LGD on our products. What's your assessment? Is that true? Are we gonna look at 80% LGD on our retail products? Point number four, digital now looks nice and fuzzy, but what is our digital collection strength? Total people on roll and off roll that we have deployed in collection. Thanks.
Okay. Since you said many things. Any of those things were your opinions, right? I mean, there is no fact to support any of them. Over the last three years, NBFCs have gained share from banks. This is fact. These are numbers. All NBFCs put together.
I can vouch for it, sir. There's another MD of a very big NBFC, which is a tractor finance company as well. They have said that they've lost market share at industry level, not just
Okay, fine.
Right.
You can go and check the numbers. They are all public numbers, so I don't have to defend what somebody else says, right? Just numbers. By the way, including that particular company also has gained. They have done very well in the last six months, right? I don't know what we are talking. Great company, great respect we have. They have gained market share. They have started doing very well over the last two quarters. They have gained market share. One bank which has gained market share is Kotak, I would think. Most definitely. I don't think IndusInd, yeah. IndusInd. You know, especially public sector banks losing market share tremendously. I don't know, frankly.
I always believe that any product other than car loans, any product that you name today, the company of first recall is always an NBFC. Whether you say tractors or CV or gold loan or housing finance or consumer durables, you will see that it is an NBFC. So I wonder how much I need to defend that NBFCs with banks. I joined the NBFC in 2007. Since then, I have been answering this question. And every and from since then, NBFCs have continued to do very well. So, you know, the point is, in retail, cost of funds or yields being the biggest of advantage is a theory which has not been, not held. You know, not held through times. That is number one. Second question was about LGD. You asked a lot of questions.
The 80% we have is LGD, first management overlays. Hence we believe that it is always prudent, since it's unsecured loans, it is always prudent to keep high coverages there. In fact, whatever is 90 DPD, we produce, but we provide almost 100% in micro loans. What you see, 80%, is the weighted average of all that. Okay, Fintech, you call jazzy. I don't think so. We have a great team, 27,000+ people on the ground. We do collections entirely in-house. The only thing which is outsourced is repositions and all. Especially in our rural products, collections is done in-house. repo, et cetera, is outsourced. Because of that, we have this kind of manpower on the ground.
What analytics does is help them do resource allocations. In rural analytics or digital doesn't get collections. The digital payments is very limited in rural India. It is actually the people who go and collect. Analytics shows them when, where, how to do resource allocation, where to visit, how. Other than the first numbers where we have a difference of opinion, I believe I have answered your question. The difference of opinion we can share by share numbers. We have total of 27,000 people. Okay? My IR will, if you can give your card to them, will get with precise numbers.
Next question. Can we have the mic here, please?
Hi. Hi, this is Nishant from Kotak.
How are you, sir? Good to see you.
Excellent. First and foremost, your presentation was all encompassing and basically it was driven by the three Rs. One R stands for retail, which you intend to have a 90% share. Second R is rural, which not only drives your sales, but also drives your profits because there the earnings are much higher.
Drives the country also, sir.
The third R, which is the vertebral column or the bread and butter, is the return on assets which you have a target at 3%, which as per your own expression looks tough, but it was a very conservative expression. In the retail, in the rural and retail, microfinance, according to me, occupies a very strong and a core portfolio which can grow further substantially. We were with couple of NBFCs which are leaders in the microfinance segment, and they said that this whole market in India can exceed even INR three lakh crore. One, what is your out of the INR 61,000 crore, what is the book size for microfinance and your, you can say, blueprint for microfinance for the next three years?
Very good question, sir. I will actually take a step back. You're right, by the way. In fact, microfinance is already INR 3 lakh crore, right?
Yes.
More, cross INR 3 lakh crore. I will actually take a step back. You know, the way microfinance was understood was lending at the bottom of the pyramid, where you form a group, lend, and then depend that all five of them will put pressure on each other to repay, et cetera. I think we have moved on from there.
Yes.
There are some companies which will be there, but most good companies have moved on. It is now very, very data-based, very technical subject. Definition of microfinance itself has changed. For microfinance, the income of that whole household needs to be less than INR 3 lakhs per year. Only then it qualifies as microfinance. Above that is something else.
Right.
That is why we are actually calling it now rural business finance, because hardly anything out of our total portfolio qualifies as microfinance. Okay. In fact, portfolio tak hum dekhe hi nahi hai. Out of disbursement, how much will qualify as microfinance? 80, right. Just 20% out of our total disbursement in rural business finance comes under the qualification of microfinance disbursement. Book main to hum log research karne ko gaye hi nahi. Like, we will do now more and more. Now the potential you say na is not only in microfinance, sir. Now the potential is... You're right in amazing potential.
Yes.
This potential is now not at the bottom of the pyramid, which is supposed to be the risky thing, right?
Yes.
The potential now, jiska strength kya hai. Mujhe woh area main. In that particular area, how is the monsoon? How is agri? How are agri-allied industries doing? Mujhe pura maloom hai. Reservoir levels kaise hai? Mujhe pura maloom hai. Mandi prices kaise hai? We know that. I know employment levels there. I know that. Now more and more I know income of the whole family because I'm capturing that. RBI requires me to capture that from last first April, 2022 se. I'm capturing that, right? Now let's see. Just microfinance ka problem kya tha ki yeh pura unsecured tha. Now I need not be that, right. Unka ghar hai. Main unko loan against property de sakta hun. Main udhar home loan de sakta hun. Agar unka husband koi business karna chahta hai to main unko business loan de sakta hun.
Now I know information about the whole family, and that's the plan. You know, you are absolutely right. I would not like to talk about the potential for microfinance only because as much as that is, it is still a very small part of the potential for rural business finance. That's huge. That is why I said that more organized competition coming in that is welcome because yeh bahut jaldi develop hoga. I know more people coming forward to take loans from organized players. Sab ke liye achcha hai. Unke liye achcha hai, humare liye achcha hai, desh ke liye achcha hai.
Help and thankfully, the banks are turning a blind eye towards this segment of business.
Main aisa nahi kahunga, sir. Kaafi banks achcha kaam bhi kar rahe hai. Frankly, you know.
It is your own admittance.
Main aapko yeh bolta hun ki banks are said to be, you know, banks or NBFCs. I don't think we can survive without each other. Main jo cash collect karta hun, agar woh area main bank nahi hoga to main cash ka karega kya?
Correct.
I will have to put there.
Yes.
You know, this whole narrative of either this will survive or this, if, you know, a large company comes in microfinance, baaki sabki halat kharab hogi.
Nahi, nothing.
Aisa nahi hai. The market is large enough.
Too huge.
You have to keep competing about with yourself. Be better than what you were last quarter.
Yes.
You be better than that. That's us.
Thank you and all the best.
Thank you, sir. Thank you.
Hi.
Hi, Vish.
Vish Jaiswal from Kotak. You know, you were honest to call out that there should be margin compression next year because of the fact that cost of funding is going up. What about asset side? Are you raising rates or, you know, can you pass it on?
See Home Loans, we have passed on everything.
Mm-hmm.
See, there are two, three things which work, right? One works, the proportion of Micro Loans in the whole thing versus the proportion of Home Loans. It's simple as highest yield, lowest yield. Baaki sab products beech main. Tractors, two-wheelers, consumer loans, SME, everything comes in between in the 13%-16%, 17% range. Okay. Two-wheelers little bit more than that, but everything comes in that range. Yield. 24% Micro Loans, 9%, 9.5% Home Loans. That what really does that. The good thing is Home Loans because being variable we can pass on everything. Till now we have passed on. Good thing is interest rate has also passed on. This is why we were able to pass on. Wholesale, whatever small portion is remaining is variable, you can pass on. The rest of the loans are fixed rate loans.
The good part of that is most of it is the duration is one to three years. Door to door is two to five years, duration is one to three years. The effect of the old book is that much less. Interest rate risk is actually lesser than that. The more impact on the NIMs may be because we will do more secured, more Home Loans. Urban will grow. If Micro Loans grows like it has grown today, maybe it will not increase. We believe that after a big growth like this, Micro Loans may moderate a little bit from the growth rate actually where it is. That is why conservatively, I'm saying that it may come down.
It will more depend on the mix than really the ability to pass on, because ability to pass on wherever variable is there, it is there. Fixed is there the duration is so small that the portfolio is renewed like this.
Sorry. On incremental basis, have you raised rates for the same to-?
Micro Loans, we will not. We will not. The rest is based on the market. We can do it. Two-wheeler main abhi thoda sa kar diya. All that we can do. Micro Loans we are at 24 and we will stay. It's more, not so much competitive, but we like to keep it.
Because, you know, this seems to be a, you know, observation across HDFCs. You know, there is a lot of resistance to pass on rate hikes. You know, we understand that the impact comes with a lag. Is it something that just where is focus on growth, none of the players and I mean the entire market including competition wants to pass on rate hikes or is it just that, you know, let it be as it is?
Okay, I will go into the philosophy. That when you are with a particular market and particular dealer for the long-term, if this rate hike is not for keeps, right? I mean, it's not. We are not into a five-year high rate cycle. We would like to maintain certain steadiness with that dealer. It is I would not think, and I will speak for my peers also, at least most of the mature peers, it is less of a growth strategy than it's a steady market, giving market steady signals.
Yeah.
That strategy. That works in the long-term. Anyway, these are very high NIM products, right? It's okay. I would rather look inwards, looking for efficiency and credit cost gains than pass it on, unless forced to. If this interest rate cycle remains high for a long time, I may be forced to. Till now, through my ALM and through my efficiencies, I've been able to manage. In fact, NIMs plus fees have only gone up, right?
Yeah. This is on provisions. I know you touched upon it, but how much provisions do you currently have on the balance sheet, if you think the wholesale book? I know you've used some of the wholesale extra provisions and the gains on the mutual fund to sort of do some mark to market on the wholesale side. How much provisions do you really have?
Okay. Total sum, I think IR will get back to you. I don't, I never remember numbers. Sorry for that.
Really, I can answer that.
Yeah, yeah. Please.
Two percent is the total which, you know, is the maximum provision that we have. Overall, if you look at on the retail side, it's about five odd percent. On the wholesale side, INR 2,700 crore was the knockdown that we took, right? You can take that as, you know. Apart from that, there will be about
That knockdown doesn't appear as provisions.
Yeah, it doesn't appear as provision.
It's a reduction on the asset side.
The overall PCR is at about 56% on the GX3.
Nischint, if you're having any re-quant to be done, IR will do it.
I got it. No, thanks. The other thing is, do you sell down loans to banks in terms of-
Wholesale?
No, no. Retail.
Retail, right now we have not done. Our leverage, we have to increase leverage. Why would we do it?
I believe some of these farm loans, et cetera, you know, you can sell down and get a far lower rate.
We can do it.
Yeah.
There is always possibility. Right now we are raising PSL loan. Since RBI has allowed to raise PSL loan from ultimate on lending, we have done that, right? Why do people sell down? Either for funds or for capital adequacy. Right now we don't have either of these issues, right? If we can, if we feel that by selling of a book, especially if there's on lending, there is a problem. By selling of a book on balance sheet and keeping it in AUM makes sense at some points of time, we may do it. Right now, since the capital adequacy is so high and leverage is so low, it won't be out of any compulsion. There is no compulsion to it.
One last question is on the housing side. Does this remain, kind of focused on the prime segment, or do you go down to affordable segment? Thank you.
Oh, okay. I wouldn't say prime and non-prime so much, but you are absolutely right. We were absolutely focused on salaried, largely during COVID. We were focused on salaried. two reasons. one was COVID. second was, we were trying to get our team and the mechanisms in place. Now that the team is fully in place, Sanjay is there. Our business head is a very strong senior business head. Collection head, and these are, I believe, that one of the best team in the housing finance industry is today with us. We are now moving more to HL as well as LAP. You will see increasing percentages of LAPs and all. I would say today 60% will be salaried in book. 60% salaried and 40% non-salaried in the book. In disbursement, proportion of LAP will be?
LAP disbursement is around 30% of disbursement. salaried is more than-
Did you get that?
Yeah.
Okay. We have one question.
Yeah.
This is Chintan Shah from PICO Capital. I had one question on the OpEx part. If you look at the last year, our retail mix has gone from 51% to 25%. During the same period, OpEx has been like gone up by 100 with OpEx to assets during the same period. Now when we plan to go from 25% to 19%, how are we looking at the OpEx to assets number? How do we plan to manage cost on our journey to growth, given that OpEx is a very high cost-sensitive business and along with our much of the digital initiatives which are also taking a toll on the cost part? How do we plan to manage the cost here?
Sure. See, as I said, today, our OpEx plus book, and I'm talking about retail only, yeah. Total OpEx to book, here it is the question of denominator. If I sell my wholesale book faster, this ratio will look higher. Leave that. Digital cost, there is certainly a scope to reduce. Right now we are majorly in a investment phase. As you would see all these things that we are building, this costs, naturally. We are clearly in the investment phase and as we go ahead, right now there will be a phase of investment as well as getting the efficiencies and then slowly where we get maximum efficiencies out of it. That is where I said cost plus credit cost will pare down by almost one percentage point from today over the next couple of years. That's clearly the guidance I am putting.
Lots of efforts will have to be done by that. For that, yes, we are on our way. Doing that.
Mostly that, 1% decline would be probably compensated by the decline in the margins as well. The margins could be like somewhat off.
We are preparing for that. See, it's not like that cost
Sure. Sir, one last question. On the incremental growth going ahead over the next two, three years. How much probably, how much % would be from the existing customer base and how much could be from the new customer base? Any ballpark number, if you could?
I have to be a crystal ball gazer for that. I will only tell you that, one year back, maybe one out of every six loans would be from existing customers. Today, one out of every three loans is from existing customers. Maximum sale to existing customer happens in my rural. My urban only it is cross-selling, not so much upselling. Cross-selling from two-wheeler to Consumer Loans or housing loans to Consumer Loans. As urban upselling also starts happening and customer database become bigger. As urban upselling, this ratio will only go up. That is what. I mean, exactly. In the interest of time. One last question. Yeah.
The question is on OpEx to credit cost. Credit cost, obviously there would be a tailwind even if we have done major part of the macro prudential MFI pain is behind. Still that 3% number seems to be slightly on a higher side. Maybe these product segments would still suggest that this is more like a medium-term or structurally we are with that. Again, in terms of OpEx as well, continuing with four odd percent. This three plus four is very near-term or even over a medium-term and structurally we can see this coming of to-
If you mean the very near-term FY 2024, certainly not. Yes, over the plan period, 2026.
How much is the collection within the overall OpEx? We still said like collections and credit cost would go hand in hand. Within OpEx, how much could be like the collection proportion that we are saying.
Are we giving out the-?
too related.
We can't talk specific numbers per se. The audited numbers will be there, collection cost was substantial, I would say, till FY 22. In 23 in relative terms it, you know, it has come down. Frankly, as I was mentioning, earlier.
He would not like to talk about those numbers.
Yeah. It's, you know, as Mr. Dubhashi mentioned, it's a total of both OpEx plus credit cost. If collection cost is higher, naturally it will impact credit cost.
I would say let us talk about how cost will reduce. That is more interesting, right?
Yeah.
Collection cost will reduce as by analytics. We increase, you know, reduce check bounce percentage, increase 0 DPDs. Cost increase as bucket goes up, cost increase exponentially, right? For check clearance it is or mandate clearance, it is zero.
Yeah.
X bucket, it is so much. First bucket, it is so much. Second bucket, so much. When it becomes NPA, it becomes a large percentage. By analytics and by collection efforts, you know, limiting maximum amount of book to zero bucket or first bucket will reduce costs. Number one. Okay? On the sales side, costs will be reduced by upselling. That more and more I sell to my existing customers, I don't have to pay to the dealer. It's actually as simple as that. This is the way cost will be reduced. Cost will not be reduced. Then little bit productivity increase for new business with my people. Cost will not be reduced by suddenly reducing dealer commission. I will be out of the market. Cost will not be reduced by suddenly reducing my people's salary. I will have employee turnover.
Cost will be reduced by, one, by operating efficiencies. In the interest of time, we will take this as last question. Thank you, sirs, for your detailed responses. Thank you everyone for being here today. For any further questions, request you to be in touch with the investor relations team. This concludes the investor meet. We are available for you anytime to answer. Thank you. Thank you for your support.