Ladies and gentlemen, good day, and welcome to L&T Finance Holdings Q1 FY 2023 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. We have with us today Mr. Dinanath Dubhashi, Managing Director and CEO, and other members of the senior management team. Before we proceed, as a standard disclaimer, some of the statements made on today's call may be forward-looking in nature, and a note to that effect is provided in the Q1 results presentation sent out to all of you earlier.
I would now like to invite Mr. Dinanath Dubhashi to share his thoughts on the company's performance and the strategy of the company going forward. Thank you, and over to you, sir.
Thank you. Ladies and gentlemen, very good morning and a warm welcome. We have uploaded a presentation I believe is very self-explanatory, but I would still love to take the opportunity of giving some explanations to you. We'll try to be as short as possible. I will talk about this quarter, but more importantly, I will talk about what are the measures we have taken under Lakshya, though quite early now under the next Lakshya 2026 plan. It was during the same time last year in the midst of second wave of COVID actually that I mentioned to you that our strength places quite suitably in the medium to long-term growth after this storm is over. I believe now the storm is well and truly over. I mean, there are some COVID cases, et cetera.
I always maintained that COVID doesn't affect business so much, but lockdowns do. The way we have vaccinated, the way the country has fought, I think, the possibility of new lockdowns is less, and because of that, I believe largely business should be back as usual, now. In the last annual investor call and the analyst meet, held during the month of May 2022, we shared with you our strategic plan, Lakshya 2026, and our underlying goals. Over the last three months, these truly have been the driving force for us. In short, the goal is to be a top-class digitally enabled retail finance company. Within this goal, we aim to pivot from a product-focused company to a customer-focused approach with the aim of creating a fintech at scale.
I have explained what a fintech at scale means last time, and I will also now talk about what we are doing in that direction. Our organizational structure has already been aligned to this aim now, changed organizational structure. In addition, your feedback after the rollout has been most encouraging, and I thank you for the same, and we have tried to incorporate some of your feedback also as we have gone ahead. I'll now quickly move on to the highlights of that quarter, this quarter first, the quarter which has just passed. We achieved the highest ever quarterly disbursements, close to INR 9,000 crore, which is up 10% quarter-on-quarter, retail disbursements. This is special, really special because Q4 was highest ever till then, and we have built a 10% growth in disbursement over that also.
What is even more special is it is now not driven by just one product. More products are driving this growth. Retail portfolio mix rose to 54%, from 45% last year, with about 19% YoY increase in the retail book. The QoQ book increase in the retail book is also 6%, which actually is quite in line with one of our Lakshya goals, which is a 25% CAGR. The first quarter itself, we're meeting it on top of a good book growth already last quarter, enthuses us quite well. As a part of our fintech at scale, cross-sell and use of data is one of our important aspects. 50% now, 50% of rural business finance and 25% of farmer finance disbursements are now driven by cross-sell efforts of the company using the database.
Consumer loans, which is another loyalty cross-sell product, the book has now crossed INR 3,000 crore this quarter. Coming to NIMs, we actually achieved the highest ever NIMs plus fees at 8.23%, on back of quarterly retail disbursements. Interestingly, the quarterly WAC, weighted average cost of funds, is at an all-time low at 7.27% in a phase of tightening liquidity and increasing interest rates. Now, this is more logic and no magic here. Very clearly, we have been talking last one year that we have resisted the temptation of having higher CP when the interest rates were low. We could have done that and interest costs could have been even lower, but we had locked in into substantial amount of medium to long-term funds, which is now coming to our help genuinely.
As interest rates increase further, which looks like definitely they will, the weighted average cost will surely increase. There is no doubt about that, but we are confident that the increase will be less than proportionate with the market increase. Also, our pricing power will ensure that we continue to have robust margins as we go. Asset quality has been pretty stable. Reduction in GS3 from 6.67% last year to 4.08% in this Q1 and NS3 at 1.87%, PCRF 55%. These are the headline numbers. Important to point out, and I will cover a little bit more about this later, these numbers are now on EAD basis. So till last quarter, we have been reporting them on principal outstanding basis. Reason clearly, after the numerator denominator both were on principal outstanding, now both are on EAD, the difference is minimal.
But there is a difference. There will be a difference. No need to get confused. We didn't want to change suddenly the method of reporting of this in the middle of a plan period. Now that the new plan is starting, we are starting with the method of reporting, which is fully in line with the index. Many of you have asked us the question that your GS3 number look different in the financial results and in the investor PPT. From now on, it is all going to be absolutely uniform, so there is no need to get confused. It is just a one-time adjustment. What we have done with last year's also, we have adjusted based on this. Our OTR book, I would like to give a little more explanation of the OTR book here.
OTR book now stands at close to INR 2,000 crore from about INR 3,000 crore just a quarter back. What is this big reduction of INR 1,000 crore, we need to explain. Naturally, if you consider the timings of OTR, especially in asset-light micro loans, two-wheelers, you remember that there was a six-month moratorium given. Most of the billing actually started somewhere in between the first quarter to April, et cetera. Now, when that happens, if collections don't happen, and we have done. Some of the collections have actually come in advance, and that reflects in the numbers. Whatever has to roll forward will roll forward either in Q1 or in Q2. With this, at least on these products, this OTR stuff will be over for once and for all.
What will remain is largely after Q2, largely the HL book, where the moratorium was up to two years. This obviously is a very secured book and follows a very different kind of equation. Let me just talk about the numbers. The total reduction of INR 1021 crore includes about INR 548 crore, that is more than 50%, which is closed now. INR 205 crore written off and INR 268 crore have rolled over to GS3. Basically, written off plus GS3. If you can consider the whole thing as GS3, it adds up to INR 473 crore, on which a credit cost of INR 464 crore have been taken. Now, why is it? In the micro loans and two-wheeler portfolio which was written off or rolled forward, we have taken a 100% provision. Simple logic that while doing the OTR, these were already DPD accounts, 30, 60 DPD.
Now that they have again become 90 DPD, in effect, they are between 150-180 days, and we believe it is appropriate that after OTR also, if the customer has not repaid, it is good to do 100% provisioning. A small part of HL portfolio, very small, also rolled forward, which is provided not 100% but accordingly, because it is a very well-secured portfolio at LTVs of around 70%-80%. But still you will see INR 464 against INR 473, a large part has been provided. Important part is out of this INR 464, there were some questions coming from analysts, so I'm going into details. Out of this INR 464, 213 have been used from the management overlay.
Just for reminder, we had about INR 1,700 crore of management overlay at the beginning of the quarter, out of which INR 213 crore have been used, and INR 251 crore have actually been used from the P&L, making up the total credit cost of INR 795 crore. Okay? In a way, if you see that out of the INR 795 crore, if we would have used this INR 251 crore which hit the P&L, we would have used the management overlays for that itself. The credit cost would have been around INR 540 crore, which we believe can be taken as a sort of steady-state credit cost. Because I said that most of the OTR, especially micro loans and two-wheelers, which are more vulnerable OTRs, they will be over by Q2. Right?
Now, within Q2, how much we will take out of management overlay, how much we will hit P&L, et cetera, our models and board will decide it, what to take. Largely from Q3 onwards, credit cost will be more on the steady-state basis and hopefully continuously reducing as a percentage of the book. We will come largely out of the woods. We are, I believe, already out of the woods, but even this OTR stuff will be over by Q2, and after that, we will move to more normalized credit cost. That gives us also confidence that against these INR 2,000 crore, we carry, we continue to carry additional provision of INR 1,450 crore, okay, in addition to the GS3 and HL/LAP provisions of standard asset.
This, in our opinion, more than takes care of any further OTR loans rolling forward in Q2 FY23. Because out of these INR 2,000 crore now, almost INR 1,000 crore, INR 900 crore-INR 1,000 crore is HL. You know, that's a large part being HL, we believe that we are not only well provided, we should be able to, at the end of the year also, maybe still carry some overlay provisions, which we always believe that it's important to carry some as we go. As we become more and more retail, it is important to carry some as we go ahead. I hope this clarifies. In our opinion, the OTR book has moved well. We have collected good amounts. Whatever is thrown forward doesn't remain hanging, it is provided or written off.
We're just getting this over with, and by Q3 return to complete normalcy as far as credit cost is concerned. That's very clearly the outlook I would like to give. At the end of all this, even after this, the total credit cost was 12% less than last year. With that, the profit after tax for the quarter is INR 262 crore, which is up 47% from last. Let me now deep dive into these headline numbers. Let me first talk about what I'm most happy about, that is retail disbursements. As I mentioned earlier, excuse me. We had the highest ever retail disbursement for the quarter, which were up 10% QoQ. Strong business momentum has been backed by tremendous amount of digitization and leveraging the power of data in addition to our inherent strength in our top three products.
Resultantly, the retail book grew by 19% year-over-year and 6% quarter-over-quarter. More importantly, the retail mix is now up to almost 54% from 45% last year and 51% last quarter. We believe, very strongly believe and are confident that by FY 2023 end, it will cross a minimum of 60% just organically. If like last time we said that if we are able to sell off a part of our real estate book or something like that, it can increase more precipitously. But just organically, the way real estate book we are collecting and the retail we are growing, this will touch a minimum of 60% by FY 2023. Since as you know that our Lakshya target in FY 2026 is a minimum of 80%. All is going well.
We are not only dependent here on the environment to carry us, but we are using new products, we are using data analytics to drive this engine. As our tools, let me talk about the environment for a minute. As two of our large businesses, which is Rural Business Finance, which was erstwhile micro loans, and Farmer Finance, these are rural based. Let me provide you some color on the progression of monsoons and its impact on rural incomes. There is a lot of commentary. Let me give our house view. The southwest monsoons revival in July, after a relatively dry June, has led to the area sown under kharif crops exceeding last year's level already now. For the first time now in the current planting season, till about a few days back, it was negative from last year.
It has now moved to positive from last year. On a cumulative basis, the country has now received 353.7 mm rainfall, which is 13% above normal. It is compared to 5% above normal just a week back. It's really catching up. Week ending July 31 was actually the rainiest week of the season. Nearly 53% of the country has received normal rainfall. Among major agrarian states, only Uttar Pradesh is a little worrying, which has reported large rainfall deficiency in nearly 29% of the total districts. That's a little worrying, but overall, everywhere else, rainfall has caught up very nicely. Even more important than rainfall, reservoir levels. Reservoir levels throughout the country have improved significantly over the previous week and now are up 23% year-over-year.
This bodes extremely well for the coming crop season. Also, the second thing that we look for, I mean, third actually. Rainfall, one, reservoir levels, third is acreage. The kharif crop acreage has already surpassed last year's level, with paddy being the only concern due to less rainfall in UP. Very clear, you know, corresponding there. The mandi arrivals and prices of major rabi crops has stayed extremely robust. Many states like Maharashtra, AP, Haryana, Telangana are taking further pro-farmer measures. We believe that cash flows in hands of the farmers are going to be extremely good. We are quite hopeful of a good season in rural India this year.
According to a study by ICAR, and I'm just quoting an external agency, farmer incomes across states have now increased between 125% and 270% in FY 2021 compared to FY 2017. Slightly aged data, but it's good, directionally good. All this bodes very well for the cash flows and repayment ability of our borrowers. Especially in rural India. This really shows the revival of the rural economy after COVID had begun. Now let me talk business by business. Rural Business Finance, which was previously known as micro loans, and I will just explain that. Our strengths in this segment are slowly coming to the fore. Subsequent to the master direction issued by the regulator for micro loans, microfinance loans, we very swiftly modified and launched our sourcing digital app.
In fact, on 1st of April, we were in the market with the digital app. The need for this app, of course, internal needs of changing of processes, making everything paperless was there, but one most important thing was calculation of household income. Now, any of you who would be interested in having site visits, et cetera, you can call, contact our IR. But I would really invite you to come and see the way this app operates. The calculation of income doesn't happen by asking the people what is their income, but it happens by surrogates. You ask how many cows you have or et cetera, and income is captured. Collection is captured there. You know, geo-tagging of customers, their route maps are on that app. So it's a really state-of-the-art app.
Still developing but already a fantastic app. We would love to demonstrate to any one of you. The important part is based on this information gathered in this quarter, it is actually seen, and we always sort of knew this, but we didn't have proper data, that only about 17% of the new business sourced during the quarter qualifies as microfinance, meaning family income less than INR 3 lakh. Which means that remaining 83% is money given to comparatively higher income groups, that is household income more than INR 3 lakh, where lending can happen using very advanced credit metrics, which opens up tremendous opportunity for growth there at very good credit profile and credit costs.
Putting all this now against a run rate of, say, about INR 1,000 crore in the second half of last year, we are now stabilizing a run rate of about INR 1,200 crore per month disbursements. This has been undertaken by one geo expansion while continuing to maintain the same stringent credit conditions for the business, which bodes well for sustained profitability, asset quality and good growth. We are looking now for new product launches because as 83% of the disbursements are in a better income profile, new product launches both in secured and unsecured category in this segment. The pilot for the same will be initiated by Q3 maximum. The book of Rural Business Finance stood at about INR 14,400 crore, up 27% YoY.
Let me talk about farmer finance, which is admittedly still predominantly tractor finance, either new or what we call Kisan Suvidha, which is cross-selling to our existing customers. We have maintained our market share here in this segment and continue to be market leaders, albeit the number two and number three have seriously reduced the gap, no doubt, but we continue to be market leaders as of end of June. In any case, I always say market leadership doesn't depend on whether you are number one or number two. It depends on whether you make market practices, and we genuinely believe that we make market practices. When I last spoke to you, I have mentioned that we are seeing early signs of recovery in the rural segment.
This quarter we have finalized the finance structurally our highest ever number of tractors, which was close to 33,000 units. While continuing to dominate the farm equipment finance business, through focus on higher counter shares with preferred dealers, we are now also preparing to pilot launch our warehouse finance business this year, which is in alignment with our Lakshya 2026 goals to move towards a more consumer-focused approach. Having the excellent farmer database, funding this warehouse finance requirements now will be the next product after new tractor finance and Kisan Suvidha. Let me now talk about urban finance. Actually, you know, maybe first time we are talking specifically about urban finance.
These are three products, that is two-wheelers, which was an existing product, consumer loans, which is a mainly loyalty product as of now, though we have now started doing outside business quite well, and home loans LAP. This total business saw growth of about 138% year-over-year in disbursements and 15% jump quarter-over-quarter. Talking about two-wheelers, it was an 84% year-over-year jump, but that's okay because last year same quarter was a COVID quarter. This is the highest ever Q1 disbursements, that is important, with over 1.9 lakh units funded during this quarter, where the emphasis has been on deepening our geo presence. We continue to work on focused OEMs and dealer strategy to maintain our market share.
Consumer loans is our first digital native product, which is an entirely digital proposition, no-touch sourcing, instant decisioning, end-to-end no-touch, no documentation methods, and is very close to my heart. We started this business on cross-sell to our existing two-wheeler customers. Now, from INR 400 crore of disbursement in the whole of FY 2021, just less than two years back, we have registered INR 1,000 crore disbursement in Q1 itself. While maintaining and how safe the book is, we have started giving our early bucket, zero bucket collection efficiencies already, and you know, on-time collection efficiencies. You can see where these numbers are. This is absolutely boding well for the momentum of this business. We are now also growing this business by offering products through various partnerships.
Pop-ups cross-sell of products to these set of customers will further enhance the offering to our customers. Retail housing. This is interesting. This is another business which has the full potential of becoming a game changer for us. As I have always said that we have not done great in this business till about nine months back. I am truly excited to see this happening slowly now. During the last couple of quarters, focus was quite clearly on rehashing our approach towards this business, getting our market offerings right. I believe we are progressing steadily on this path, with disbursement touching INR 936 crore in Q1, as against INR 306 crore last year, same quarter. The business trajectory is having a steady upswing for the last four quarters. During the waves of pandemic, we have concentrated here mainly on salary.
We have now started picking up disbursement on the ACMP segment, LAP offering, which will now make this product relatively profitable also. Last time I had explained also that it is not just for profitability that we do this business. Our major growth is also happening through unsecured products like Rural Business Finance, Consumer Loans. It is important to grow the secured book for various other purposes, for regulatory purposes, for credit rating agencies. If you put this whole basket together, the profit growth is going to be quite good, and that is why we have confidently said that ROA will reach 3% by the end of the plan period.
Before we move further, I would just like to share a small update on our SME business where we have completed our pilot and will be going for an open market expansion in the next couple of quarters. Pilot was undertaken in just two cities, Mumbai and Pune, with the aim of delivering a value-added digital proposition. Over the course of the last nine months, we have built a small book but a strong offering and now we are ready to hit the market running. You will see this now. If not so much in Q2, but definitely in Q3 we will start showing the numbers. On the collection side, our continued focus on analytics and data-driven resource allocation techniques over the years ensured that the collection rhythm remained robust across businesses during the quarter.
Our collection efficiencies continue to do better than industry peers, and this has been made possible owing to a concerted on-field efforts and analytics-led prioritization in rural and resource allocation. Portfolio focus continues towards boosting zero DPD collection and managing early bucket delinquencies. We have actually started reporting now the zero bucket collection efficiencies, and we have reported it for the past almost 15 months by product by product. This was also your feedback and we have started reporting that. I believe that NPA control is very important, no doubt, but much more important is the zero bucket collections. It happens at the minimum cost from mostly hopefully at zero cost, and that avoids the headaches for the collection team as it goes ahead. I will not repeat the collection efficiencies in all the products.
It is very clearly given in the presentation, but I can only say that all of them on due date collection are back to pre-COVID levels, and in some products actually better than pre-COVID levels. We are doing well there. This bodes well and also gives us the confidence to give you confidence statements like Q3 onwards credit cost will be, you know, normalized and reducing, et cetera. On wholesale finance in line with Lakshya, let me just remind you, we have said two things, that real estate portfolio, we have stopped disbursing anything new. We are concentrating on completing projects and repayments. If possible, we will look at some structures where we will be able to sell off a large part of the portfolio. We have not been able to do that actually this quarter, but earlier days.
We have been able to get good repayments from projects, close some projects and get good repayments. That part has worked. The inorganic part has not worked, let me say so. On the infra side, we also said that we are of course running our normal capital light model, but we will also look for some partners in this platform. This platform is very valuable. That process is also on. One quarter is too early for anything to happen there, but we will report to you as we go ahead. In the meanwhile, wholesale book disbursements was muted at INR 1,522 crore as we are maintaining capital lines, a capital light model and the wholesale book registered a reduction of close to INR 6,000 crore, a de-growth of 13%.
On real estate especially, we continue to stay away from looking at any new projects and continue to concentrate on existing project collection with the objective of exposure reduction. We are quite happy that the execution of this strategy resulted in a reduction of the RE book by INR 2,563 crore YoY and by INR 1,400 crore QoQ. Now, we have also given at some point of time numbers like INR 4,000 crore that we have collected. Now why book has not reduced by that much and only by INR 2,400 crore? Naturally, INR 1,400 crore but it is going well now. This book is already less than INR 10,000 crore. It's INR 9,800 crore or something like that. Okay?
On investment management, last but not the least, the market was negative, both debt market plus but also equity market. Still our Q1 AUM at the average is little bit above INR 70,000 crore now. The transaction is going on well. The integration efforts are going on well. We are waiting for the last regulatory approvals and hoping to conclude that transaction in Q3. That completes comments on business. Liabilities, as I said, working capital, I mean, the WAC, weighted average cost, all-time low, very clearly based on our ability to raise long-term and medium-term funds last year. A point to highlight is even in Q1, we raised long-term funds of close to INR 1,100 crore in Q1, while keeping the average CP proportion at just around 11%.
Now this holds us in good stead going ahead. As growth happens, we can actually fund it, and growth is majorly happening in retail, which will be shorter term. We can raise shorter term resources, we can increase CP proportions, and we are quite sure that our cost of funds hence will rise. Definitely rise, no doubt, but rise much lower than the market cost of funds. NIMs plus fees also will be maintained because of our ability to pass on the interest. Interest may reduce, I think by the end of Q4. I may guide maybe maximum 8% will be up to 8% will be the reduction. We don't see NIMs plus fees falling much lower than 8% by the end of the year, which is 8.27 now. 8.23 something like that. Yeah.
Okay, one more fact is that our, you know, the ex-IDF, after one year, they got the NBFC-ICC license. We were able to transfer some of the assets from L&T Finance to that entity, thus reducing the negative carry. You would see now reduction of the liquid cash that we are carrying and hence a good reduction in negative carry, which will also reduce the cost of funds as we go ahead. Asset quality, GS3 stood at 4.08% and NS3 at 1.87%, which is an improvement year-over-year, fairly steady quarter-over-quarter. I have already mentioned here that, I've already given explanation that these are on EAD basis, so please don't try to compare it with the number in the last investor presentation. We have given past numbers.
Anybody who wants any other past numbers or any other quarters, et cetera, IR will try and give it to you. Just any clarifications if you need, you can ask on this call or to IR. This is quite clear. Now, from now on, it will be on EAD basis. Capital adequacy, quite adequate at 23.12%, in fact, quite high. As we grow, we believe that it should trend downwards and hence will be good for ROEs as we go ahead. In summary, PAT up INR 262 crore, up 47%, on the back of increase in income and reduction in credit cost. We believe that this trend will continue and will accelerate from Q3 onwards.
Hopefully, by FY 2024, we will be at profitability levels which you have been more used to, before the nightmare of COVID and everything started. That's where we are moving. Okay. Having spoken about this quarter now, I know I've spoken perhaps a bit too much. I thought first quarter of Lakshya, maybe I was also little bit more excited. Let me give you a brief about the progress of Lakshya 2026 plan. Early days, just first quarter, but still, I'd like to talk a little bit more. If you remember, there were four pillars of the plan: sustained, a sustained profit and growth engine, demonstrable strength in risk management, creating a fintech of scale, and sustainable future growth through ESG.
As a part of creating the sustained profit and growth engine, we have now unveiled a new organizational structure, which is totally customer-centric. We have now in retail two businesses which are rural, two businesses which are urban. Rural business, which is now the Rural Business Finance verticals, which takes care of small businesses within rural, which are also in micro loans. This will not be limited to the current product suite, but as I said, we will keep adding new secured and unsecured products to the basket. Rural individuals, farmer finance vertical will now offer not only farm equipment loans but also warehouse finance and other agri-aligned loans. Coming to urban consumers, our present offerings are two-wheeler, CL, HL/LAP, which are now all of them. Two-wheeler, of course, we are in the top five, but CL and HL/LAP are getting well established.
Additional volumes are being targeted and geo expansion is also being targeted. Crossover is being targeted. This is how we will grow our urban finance. Then urban small businesses, which is SM, where we are baby. There are lots of disadvantages of being baby, but a big advantage. Number one, the market is large, huge. There is business to be done. Number two, we have learned from people's mistakes, launching state-of-the-art digital product to start with, and hopefully we'll make a mark on the market in the couple of years going ahead. These are the four verticals. Out of these four retail-lending verticals, three are headed by chief executives who are our internal talent. Three of them, we were able to find people from inside internal talents.
For urban finance, we have hired a top talent from one of the leading private sector banks in mortgages. Very, very clearly, the business organization in retail now well in place. One level below them, the regional structure, zonal structure, well in place. Four strong chief executives looking after each of these businesses running almost like separate companies with common functions like HR, finance, audit, risk, et cetera, common. That's the way the organization has been realigned. In addition to the realignment of the organization, we continue to work on building major strengths across businesses, including deepening of geo network and data mining for cross-sell. On the risk side, we continue to build strengths in risk management, and our sustained collection performance across products, which is well above industry performance, is a testament to the strong portfolio.
We are actually looking at how new age risk management practices can be more and more adopted. On the digital side, as we build digital channel for expansion, we are also focusing to upgrade our information security management systems. Our systems are now ISO 27000 compliant, and we will continue to build strengths against possible cyber threats. Third pillar, Fintech at scale, which involves two distinct vectors. One, expansion of digital channels, and second, leveraging of customer data for cross-sell. During the last quarter, 50% of our disbursements in rural business finance and 27% of disbursements in tractor finance, farm finance are based on cross-sell. The company is actively working towards monetization of its 7 crore-plus customer database, including existing and past borrowers, co-borrowers, guarantors, prospects and references to enhance this cross-sell reach.
In terms of digital channel expansion, I will talk about two initiatives, which I've talked a little bit about three months back, but I will give you the progress. Our Planet app, our customer-facing app, Planet, was soft launch in Q4, and within one quarter has shown 2 lakh downloads. The application, which currently provides onboarding and servicing option for customers, is available both on App Store and Play Store. This app will provide us with geo-agnostic servicing and sourcing channel trending quite well. WhatsApp Business, that's the second one. I had unveiled and showed you the WhatsApp bot, which was for servicing. We have now expanded that the WhatsApp channel is now open to consumer loan customers for booking loans, and people can apply for loans anywhere between INR 50,000-INR 500,000 there.
We are maintaining the complete end-to-end turnaround time of 15 minutes for that, credit to your account within 15 minutes. These two developments. I would like to talk a little bit on the servicing side. Just one year back, our servicing pyramid was branch heavy with 51% requests coming in branches, which is a disaster for me, obviously. With 1,600 microfinance touchpoints, more than 200 branches, it is impossible to train and retain service executives to give uniform service. We have now inverted this pyramid and already become a very digital channel or self-help channel heavy. Almost 58% of requests were serviced through the digital channels by June 2022, and only 21% now are coming from branches, and we will try and reduce it further.
Both on sales side and servicing side, digital initiatives are working well. ESG initiative, which is the fourth pillar. Within that, we have published our first integrated report for FY 2022, which is in compliance with reporting for all essential indicators under BRSR. It is audited by an external agency. We have published it one year in advance of its applicability. Our water neutrality status has been assured by independent assurance provider, and we have adopted 22 sustainability targets for FY 2023. We have achieved water neutrality in FY 2022, and we'll aim to be water positive in FY 2023. More importantly, a small sustainability-linked loan also has been raised, very small, no doubt, just INR 200 crore, where the interest rate is low and will keep reducing as we achieve more ESG targets.
As in FY 2023, we have taken a target for higher amount of raising this. ESG is great for the planet, great for environment, but we believe it will also be good for business and hence very sustainable in the organization. That's about it. I will just say that the initiatives we have taken in the quarter are just a few early re-deliveries of the plethora of projects going on to become a strong retail finance company. I'm sure as quarters go, we'll be able to show you enhanced performance and unveil further projects and consumer offerings that we have in pipeline. As far as financial performance goes, Q1 has been extremely good for disbursement, collection, credit cost profitability, but we humbly acknowledge that this is just one quarter out of 16 quarters included in the Lakshya Plan.
One swallow doesn't make a spring, but we definitely believe that it signifies a good beginning towards our Lakshya goals of 80% retail book, 25% CAGR of retail book, GN3 of less than 1% and ROA between 2.8%-3%. Thanks a lot. I realize that I have spoken quite a lot, 45 minutes. Apologize for that, but hopefully I have already answered some of your questions. We are open to questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Rikin Shah from Credit Suisse. Please go ahead.
Hi, good morning. Thank you for the update and the opportunity. I have four questions. Firstly, led by the re-disbursements, we noticed that NIMs plus fees is at 8.25%. If you look at the yields in the retail portfolio, they have come off by 50 basis points. As you scale up your home loan LAP business, how should one think about them directionally? Of course, the fee income has also gone up, so could you talk a bit more about any incremental fee that you are seeing from the cross-sell opportunity? That's the first one. Second one is on the acquired portfolio. Could you throw some light on the nature of acquisition of the portfolio?
What kind of loans have been acquired and the plans to how big this can get? Thirdly, on the restructured book, of the remaining INR 2,000 crore, INR 1,000 crore you did mention are pertaining to retail home loans. What would be the split between the remaining INR 1,000 crore, and what would be the overall provision coverage on the INR 2,000 crore restructured book? The last question is, relating to the news reports of selling of certain accounts at INR 80 crore to an ARC. What would be the recoveries and any potential write-downs or write-backs, if at all, that would happen? These are the four questions. Thank you.
Okay. I'll try and remember the four questions. The first was on yields, right?
Retail yields.
The first was on retail yields, right? Okay. Rikin, good morning, first of all, and thank you for your questions. Okay, retail yields. Number one, as you know, it is a part of. I will answer you strategically as well as tactically. Tactically, some of the reduction that you see is when the OTR book flows to GS3 or is written off, the income is taken out, de-recognized from zero DPD onwards. In the quarter that it happens, it goes not from the credit cost line, it goes from the income line. As I said, in Q1 and Q2, this all will be over, and after that, things will come back to normal. This small reduction, don't read too much into it. It's, we are...
In fact, you know, I already said that NIMs may contract a little bit. That is not so much because of HL/LAP, because HL/LAP will grow, but the other products are also growing much. It is mainly NIMs will contract because our major product is the Rural Business Finance, which we charge 24%. Now, even if the cost of funds go up a little bit, if it goes up by say 50 basis points or 60 basis points, we are not going to increase that 24% to 24.5. Very clearly, we believe that 24% is a good, fair rate for those customers, and we will clearly keep it there. Any small changes quarter-on-quarter. This is, you know, more tactical. The first part was tactical.
Strategically, our product mix will make sure that our NIMs plus fees maintain at a decent level. I said this year, we don't expect it to come down below 8%. That too, you know, I'm also taking into account mutual fund going out in the last quarter. Some fees will go out from there. Even then, we are confident around 8%. I mean, if it becomes 7.9, don't hang me, but that's the indication. It's around that it will grow. Also sometimes tactically, when competition hikes up or something, you do tactically take some reductions, 10 basis points, 24 basis points to maintain your positions in some markets. It's some mix of all these things. If I were you, I wouldn't read. There is no directional reading in that.
We will be able to maintain overall retail yields quite healthy. That you can take from me. Second question, OTR. OTR, what remains, as I told you, close to INR 1,000 crore is HL/LAP. Around 75% of the rest is micro loans. This whole thing that what is remaining in micro loans will be over in Q2. Either we will collect a lot or whatever doesn't get collected will flow, and we will either provide it 100% or write it off. As you know, against this INR 2,000 crore, and INR 140 crore is one IL&FS account, which is about INR 240 crore, which is done OTR, and that is green, right, after OTR. OTR done, that's green, and that money will come back.
That's not an issue. Out of this INR 2,000 crore, almost INR 1,800 crore is retail. 1,750 is retail. 1,750 means INR 1,000 crore HL, 750 around 600-700 crore in micro loans. I give that. HL will remain till next year, large part of it, but that is secured. We expect a large part of that money to be recovered. If it slows, we will start providing the way our model tells. I think first we provide close to 6%-15% and then keep increasing based on various movements in the portfolio. Micro loans, now whatever becomes 91, we will provide 100%. That's very clear. We carry adequate provisions in that. You talked about OTR provision. Now I will be technically right.
OTR provision will always be only 10%, because RBI asks 10% to be provided. What we have done is have other provisions, you know, management overlays. As you know, INR 1,400 crore are being carried today against almost INR 1,750 crore of retail. Out of this, close to INR 1,000 crore is HL/LAP, so it is not going to require. If you see, let's say worst case scenario, say 60, 70, 80% of micro loans roll forward, we are more than adequately covered. We are very sanguine on that. Most importantly, this will be over by Q2. After Q3, other than home loans, no OTR remaining. That was the second question. Now you have to genuinely remind me of the third one.
Acquired portfolio.
Acquired portfolio. Small acquired portfolio, we had mentioned last time that we are targeting, say, around INR 1,000 crore or so in this year of acquiring portfolios from good, other good NBFCs or sometimes some fintechs. We of course go and examine this portfolio, but there is enough over-collateralization that we buy it. Very small transactions have happened now. There is significant amount of credit enhancement on both these transactions. It is largely done not as a big strategy, but you know that we are also required to use our capital in retail. Just as an experiment, first year, close to INR 1,000 crore we will do. Excellent NBFCs, good credit enhancements. We will see then how it works and how it moves. That's entirely retail, of course. It's entirely retail. I will tell you, part is two-wheeler, part is personal loans.
Okay. Fourth question.
ERC.
ARC is, you know, there are assets which are NPA wholesale assets and in the, you know, reducing wholesale portfolio, sometimes we do that. This time out of that number you mentioned, some 1,000 crore or so, a large part is a completed commercial park in, you know, let me not tell you the city, then otherwise I will be just almost accurate in saying this. It's a completed commercial park. There are some difficulties in selling it on a timely basis and getting the money back immediately, but it is completed and a few more moments, it will be done. Well provided, we always provide for, sell it at the carrying cost after the provision, and hence any immediate reduction in value is unlikely. We have sold some in the past also.
As these are examined by external credit rating agency, external valuers, it is valued, we keep taking those costs and it is a part of our credit cost that you see. Does that answer your question?
Yes, sir, it does. Thank you so much.
Thank you, Rikin Shah.
Thank you. The next question is from the line of Hardik Shah from Goldman Sachs. Please go ahead.
Yes, Hardik. Tell me.
Yeah. Hi. Hi, Mr. Dubhashi. This is Rahul here.
Hi, Rahul. How are you?
Good, sir. Good. Thank you so much for your time today. Just two questions, sir. Number one on the provisioning, you know, of course, you know, we did appreciate that you've taken some extra provisioning this quarter, but given that you already are having a large macro prudential provisions, and of course, the credit environment seems to have gotten better with collection efficiency improving across the board, why are we sort of still onboarding or maybe, you know, making an additional provision? What exactly is the philosophy? I did hear your remark to the previous question about, you know, the OTR, you know, almost, you know, getting provided for maybe in the next quarter or so. Just sort of a bit perplexed, you know, why do we sort of keep making these extra provisions, sir?
When do we stabilize?
Okay. Rahul, thank you for the question. Technically, we have not made any more provisions. In fact, 1,700 has reduced to around 1,400, right? We have actually utilized. I believe what you meant was why this entire INR 473 crore was not taken out of those management overlays and why P&L was hit at all, right? That is your question. It's a matter of two things. The board and the management, one needs to be confident when we release this. That is why this is meant for the rainy day. We will keep reducing this management overlays as we go ahead, no doubt. Also remember always that it is always, you know, the way we started making this macro-prudential provision, we all tend to forget this.
We started making this macro-prudential provision well before COVID hit as a good practice in business because as retail increases, as, you know, sort of unsecured loans in the balance sheet increases, it is good to carry a buffer so that we don't hit P&L with shocks anytime. Now, there is.
Countercyclical.
It is basically can be called countercyclical provisions as well. Now, it's the call that the board will take that out of the INR 1,700 crore, how much we can use the whole thing and the P&L will look fantastic this year itself, naturally, no? I mean, very simple. You do a simple calculation that we have reported INR 262 crore. If you take out, it is INR 251 crore, right?
Yeah.
INR 251 would have been taken out of these results and not hit the P&L. Profit would have gone up by 75% of that INR 251. It would have been close to INR 450 or INR 425 or something like that, technically, right? It would have been a fantastic number. Perhaps that would have led to, and I don't know, I'm not a Tier 1, but that could have led to complete depletion of these results by the time this year is over, once all the OTR is over and everything is finished. I believe, and we all believe, the board believes, that having built this INR 1,700 crore, we should not utilize all of them and keep some part of it as countercyclical.
Once, you know, create when able, when the P&L actually returns to very healthy level, not now, say in two or three years, actually start keeping something aside as countercyclical provisions even after that. It's a measure of conservatism and nothing else. We have not created anything new. There is no intent of creating anything new. Clearly intent is, of course, using what we have created. The question is, it is a matter of opinion whether we should use the entire INR 1,700 or use a part of that. At this point of time, we believe that in this year we will use a part of that, because HL even though we don't see anything, any big problem because of the security levels, but HL will, OTR will come next year. Even more importantly, there we don't expect much losses.
More importantly, the book has micro loans, the book has consumer loans. It is good to carry countercyclical results always. That's our opinion. A substantial part of this remaining INR 1,400 crore we will carry forward next year also. The important part to remember is all this will get over in Q2 and Q3 onwards, the credit cards that you see are clearly normalized credit cards.
Understood. Appreciate the response, sir. Maybe, you know, just one more, you know, follow on, you know, with regards to this and plus the capital gains that you will get from the, you know, AMC sale to, you know, HSBC. What do we intend to do with that, you know, gains? Have you thought about it? Will that be used for, again, some provisioning, or will it be passed on to the shareholders? How do you plan to use that?
Above my pay grade, buddy, to answer this. The call will be taken at the board level. It will be a mix of all those things. We would believe that we will look at, subject to regulations, et cetera, we will look at passing on some of those gains to shareholders. It can be. Some of them we may keep as reserves for future because we are looking at reducing strongly our real estate book. Maybe for that effort, we will keep some. It will all be, you know, in some terms and some macro protection, not for specific projects, we may keep some. Really, the call will be taken in Q3.
I must also say on the positive side, there are some opportunities opening up for acquisitions. And with valuations coming to different level, there are opportunities opening up, good portfolios, good companies for acquisition. You know, we have been very conservative. We will not do anything silly. If a good opportunity comes, that capital will also be used for that.
Fair enough. Just one last question, sir. In terms of the, you know, normalized levels of loan book, of course, you are paring down the real estate portfolio, et cetera, you know, and, you know, wholesale is becoming or has always been light in a capital light kind of model you followed. You know, when do we start seeing the normalized, you know, levels of, you know, loan book in the next, you know, few quarters? And, by when do you intend-
Growth in overall book, I think Q4 onwards you will start seeing. FY 2024 onwards you will start seeing the growth in overall book. This year, my suggestion is concentrate on the growth in retail book because it is the, while the overall book is not growing, the competition is changing tremendously and which will lead to increased profitability. Definitely. Whatever we are doing with the real estate book, et cetera, large amount of reduction will happen this year. I mean, we are expecting real estate book to even come down by 50% from here during this year. Growth in overall book perhaps from FY 2024. Now even the, you have seen that even the old default case book is down to just about INR 400 crore or less than INR 500 crore.
All those things are over and the retail growth will take over. It's just arithmetic, the matter of.
This year ROAs will improve and next year the growth, et cetera, will improve. Leverage can improve.
We believe. We definitely believe, yes. ROAs will keep improving. Yes.
Thank you so much, sir. Thank you so much and good luck.
Thank you. Thank you.
Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yes, sir. Thanks for taking my question.
Hi, Abhijit.
Hi, sir. Firstly on the Rural Business Finance, I think during the opening remarks as well as in the press release, you've said just about 17% of the disbursements in the quarter qualified for microfinance as per new RBI guidelines. Just wanted to understand, I mean, what was the mix like before these guidelines? Basically, were we largely present in the customer segment where the household income was greater than INR 3 lakh? I mean, what was the mix like before that? Why I'm trying to kind of understand this is, I mean, despite having exposure to customers where the household income is greater than INR 3 lakh, and like you suggested, better credit quality customers, despite that, I mean, we've seen significantly high OTR and credit costs in the Rural Business Finance. Secondly, sir.
Before the guidelines, sir. We don't know. See, the OTR happened before the guidelines came, right? We were not measuring household income before that, so I won't be able to answer your question. That time, even in individual income was not being measured by anybody. That requirement was not there. It was a declaration taken that individual income is less than or more than INR 1.5 lakh.
INR 5 lakh.
INR 1.5 lakh. Our customers, we believed individual income was almost always more than INR 1.5 lakh, and that's why you remember we changed the positioning from microfinance to micro loans. Because we were not sure that our customers' individual income is less than INR 1.5 lakh. We didn't want to take any regulatory risk by calling it microfinance and being not able to prove that these are qualifying assets to RBI. We were just safe there. The family income of INR 3 lakh has started measuring only from first April onwards. It may not be right to compare how much OTR, et cetera, et cetera. After all, again, when the government was allowing OTR as a right to every citizen of the country, by the way, it was not that much of a choice.
If somebody asked for OTR, largely unless or until that person is proven to be a defaulter everywhere, you have to give OTR. With people asking like that, the total microfinance OTR we had done was INR 900 crore or so on a portfolio of close to INR 13,000 crore. Even that was not out of line at all with the industry. In fact, much better than the industry. You know, two different. Your question had two parts. I'll try to answer it this way. Don't link the INR 3 lakh and more than INR 3 lakh to OTR, because they were not happening at the same time. OTR happened last year. Measurement of family income has started from first April.
That is why even if you see in our investor presentation, the differentiation between microfinance and rural business loan, we have given only in disbursement, not in book. Because book the data I need.
Okay. Got it. Sir, second question I have is, I mean, I think during your opening remarks and to a couple of participants in the call earlier you suggested that you expect credit costs to normalize from 3Q onwards. Somewhere I think, I mean, I heard that you expect steady state credit costs are about what we saw during this quarter, which is about INR 500-550 crore on a quarterly basis. Is that, I mean, the right reading?
That will be your job. What I said was little different. I said this OTR will be over by Q2, and hence normalized credit cost will be there from Q3. Right? INR 550 crore this year, I just clarified that out of INR 795, INR 251 is OTR related, and hence normalized credit cost for this quarter is INR 550 crore. That doesn't mean Q3 onwards it will be INR 550 crore. We actually hope that it will be lower, but still that's your job to judge no?
Got it. Sir, lastly, I mean, this retail business that you are building and even on the ratio that you kind of plan to take it to 80%, by FY 2026, what is the steady state credit cost that you are expecting from this business?
Huh.
Product wise.
It will be product-wise, depending on product mix. You want to work on your models, any help you need, you contact IR. I think let it suffice to say that we are looking at ROAs of 3% in four years, very steadily increasing. As Rahul summarized it very beautifully, ROAs will grow up this year. Next year onwards, growth will also come and ROE will ROA will also, growth thus increasing ROE. ROA should reach about 3% by FY 2026. Credit check, credit cost, etc., will differ product-wise. You will have your own judgment of how each product will grow. But any thoughts you want to reflect to our IR, you are welcome.
Got it, sir. Sir, lastly, housekeeping question. What is the gross Stage Three and Net Stage Three in your real estate wholesale book and the infrastructure finance business?
We have given the wholesale separately.
Wholesale.
Overall retail and overall wholesale we have given. Okay, to tell you real estate, one big NPA which we have told. That INR 1,300 crore you remove, and you actually see that hardly any NPA is after that.
Okay. All right.
Last time we already said, no? One big NPA in real estate.
Got it. Sir, this media article which was there about the sale to Phoenix ARC, is it already kind of reflecting in the numbers that you have reported or will it reflect in the next quarter?
I don't know about the media article, but I clarified in the question previously that it is, yes, it is reflecting. The media article may have some numbers which I don't remember, but the actual number is 1,000 something. INR 1,052 crore.
Thank you so much, sir. This is very useful.
Okay.
Thank you very much.
Thank you. Next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.
Hi, Kunal.
Yeah. Hi, sir. Good. Good. Sir, firstly, in terms of if you can just broadly explain the INR 750 crore of micro loans which are there in restructure. If you can give some flavor in terms of how much are paying, how much are part paying, and how is the behavior currently just to gauge in terms of how much could really slip, and what can get into 91+ DPD here.
Oh.
Maybe that would be helpful in terms of the trend, because this time there was something which has flown in, so maybe that would be helpful if you can just give the behavior of that particular portfolio, yeah.
What I will do rather than that, in March to June, OTR, I will give you a break-up of that. Will that give the trend?
Sorry, INR 300 crore?
March to June.
Yeah.
Micro loan OTR has reduced by INR 300 crore. Okay?
Okay.
Out of which, around, I would say 75% was moved into GS3 and 75% was resolved and closed. 25% was resolved and closed, 75% moved to GS. Out of the INR 300 crore we provided for. Even if the same trend-
Okay.
We believe that the trend should be better because more collections are happening. Even if the same trend continues, that is what I said in my remarks, we are well and properly covered for that through our depreciation.
Sure. INR 75 crore was something which was recovered from March to June, and maybe INR 225 crore would have actually slipped into GS3 from micro loans.
I'm not giving you. I said 70-75% moved and the rest was recovered.
Yeah. Okay. Got it. Broadly then, and maybe you said whatever would be 91 DPD, we will write it off and provide it entirely. That would be the stance in Q2.
No. Write-off is a, you know, more a tax-related decision. The provision.
Yeah. Yeah. Got it.
Yeah. Yeah.
Sure. Again, in terms of the inorganic opportunity and capital allocation, if you can just highlight that in terms of what is the extent of capital allocation which we can look towards the inorganic opportunity, something if it is there in the mind and particular areas of your, maybe the product segments, where we would tend to prioritize it. No doubt that there would be various opportunities across the product segments. Yeah.
You get me into trouble. I can't answer this on a call or anywhere. Opportunities keep coming. We will have a look at it, and the board will take a call. Most important thing, "While the money is coming in, you have to count it." There is money which is to come.
Yeah.
2, 3. There is a SEBI permission which is required. I can't take all these things for granted. Hopefully
Overall in terms of capital allocation, would there be anything which would be towards the inorganic opportunity given that book would be running down? Yeah.
Book running down? No. I mean, very simply, retail book is growing, so there is no question of book running down. Right? Retail book is growing rapidly, 25% page yield is what we are planning. I mean, you can't say it's running down. Book is growing now, growing continuously. Wholesale is reducing, especially real estate will reduce. If we are able to sell a majority in the infra platform, if that happens, then yes, then the overall wholesale book will reduce precipitously. At least if you own less than 50%, then it won't be consolidated. At that point of time, of course, we will have to think of, you know, acquisitions more seriously, perhaps. I'm using the word seriously, not aggressively. We never look at acquisitions aggressively. It is all still to happen.
First mutual fund money has to come. We have to reach some level of discussion success, at least in this getting a partner in the infra business. At this point of time, if I go to the board, they will say, "Actually show me opportunity. Actually show me this money. Why are you having this kind of plan?" What I'm saying right now is simple small portfolio buys is what we will do on a very trial basis. We have put up a small budget of about INR 1,000 crore for this year. We may do little less than that, little more than that, correct? Those are portfolio buys for which it is not a big opportunity for which I need to, you know, be sure of anything, go to the board, et cetera. That will happen.
Any large opportunity is a question of the opportunity, more importantly is the question of the value, no. Too early to answer that question. Capital allocation, organic capital allocation, very clear, increasing to retail, going to minimum 80%. If we can reduce real estate more precipitously and get a majority partner in the infra platform, even more than 80%. That will be the capital allocation.
Sure. Lastly, in terms of fee income, the sequential jump and the overall jump which has been there. Obviously some would be volume related, wherein there was almost like 10% sequential increase as well in the disbursements. But what would be the other component? Because I thought maybe overall, when we look at it in terms of the AMC fee also it would come up a bit. But I think the traction is stronger. Do we expect it to sustain over the period, maybe INR 200 odd crore fee and other income in retail finance, yeah, quarter?
Certainly, it is very much business related. Certainly expect it to sustain. It is also cross-selling related. The protection products that we sell, it protects our portfolio also, and it gets us income also. That's working extremely well, and it will keep coming on.
I think directly.
Directly linked to business. In fact, we used to get, the other income we used to keep here, right? Even, what about the interest earned on surpluses.
Surpluses.
In fact, interest earned on surpluses was a part of this. Now, those surpluses are coming down, but in spite of that, this portion has gone up. It is directly business related. As I said, if mutual fund transaction happens in Q3, then Q4, the mutual fund part will go up. That's all. Capital will come in. It's more arithmetic there. Trend of retail fees, excellent.
Okay. Okay. Thanks, and all the best. Yeah.
Thank you.
Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.
Hi. Thanks for the opportunity.
Nischint.
Hi. Just one clarification. This defocused book going down by almost INR 1,000-odd crore, this is all recoveries?
I wouldn't know. I think,
Okay, recoveries and sell down. I mean, I'm just.
See, part of it was part of that INR 1,000 crore ARC, little bit, but rest it was.
Sure. On the consumer loan side, if you could give some breakup in terms of, you know, how much was cross-sell and how much was sourced digitally or from third party?
In the book, most of it will be cross-sell. In the book, almost 90%. I mean, I don't have the precise numbers. I will give you. In disbursements, now cross-sell is, I believe, around 60%. As quarterly disbursements go ahead, cross-sell percentage comes down and the other sources of sourcing through various partners, you know, which I've been talking about, will increase obviously. First two years we did only cross-sell. That is why the book is majorly cross-sell.
How much of this is salaried?
I don't have that break-up straightaway available. Can we get that to you?
Sure. Perfect. Those were my questions. Thank you very much.
Yeah. See, loyalty, no? The loyalty was on two-wheeler mostly. It will be the same proportion. Almost 50% will be non-salaried in that loyalty.
Okay. Mm-hmm.
Trusted customers.
Sure.
This, I'm just answering out of common sense. I don't have a precise number with me right now. Since it was two-wheeler loyalty, it will be following the same pattern, right?
That's it. I just wanted a broad sense. Just on this, continuing further, now that you have moved your NPAs to EAD, does it mean that your interest reversals will be lower and your NII probably will be less volatile?
No. It is only for that NPA reporting that, you know, only for those numbers. Accounting was always on EAD basis. In P&L nothing changes. It was only representation of these numbers. We had taken a call not to change the numbers suddenly during the plan period. That's all. If you see actually the published accounts, we are always on EAD basis. It is only in the investor presentation that we used to put the principal disbursement. Nothing has changed in accounting, so nothing will change in profit numbers, NIM, nothing.
Sure. Perfect. Thank you very much.
Thank you.
Thank you. The next question is from the line of Samyak Desai from JM Financial. Please go ahead.
Hello.
Hi.
Yeah. Hi. Thank you for the opportunity. Just wanted to come back to the consumer finance book, strong improvement in disbursements. Some sense on the quality of customer profile which is being onboarded. You said large part of the existing book is the erstwhile two-wheeler customers. Incrementally, any sense on what kind of bureau scores or credit profile are you looking at? On SME finance also, how is the origination progressing, in terms of strategy?
Sure.
Those are my two questions.
Okay. Sure. I will just use the word looking more carefully, not erstwhile two-wheeler customers necessarily. They may be even existing two-wheeler customers, but trusted two-wheeler customers that they have a particular MOB, month on book with us, no bounces. We look at bounces more than, you know, what you call at the end of the month, DPD. Those criteria are used, and because of that the portfolio quality is excellent. Now, while we also started sourcing from outside over the last one year, credit metrics, analytics was mainly credit metrics, and based on that gives pre-approved offers to various prospects. This portfolio is about, I would say, one year old. Continuously we work on that to keep improving the credit metrics.
Given the way zero DPD collections are trending on a INR 3,000 crore portfolio now, it's not a small portfolio. I'm not measuring NPS because often NPS come later. Even zero DPD is trending, which numbers are given in the investor presentation. I would be very happy about the portfolio quality. That's your first question. SME, very clearly our sourcing is on two things. We are in SEP, that is self-employed professional. We are concentrating mainly on doctors and chartered accountants, and then self-employed non-professionals, which are small units which we are concentrate on people, so I don't know the exact number, but whose income, whose top line and bottom line have not gone down by more than a particular percentage during COVID.
These two are the initial, you know, large level, filters that we have. Then of course there is a black box, a credit black box for saying, you know, for actually choosing the credit. Very early right now, just pilot, but the pilot quality very good. We have sourced till now, what about 120-
126. Yeah.
INR 130 crore around. We have one account which is more than 0 DPD, one account at this point of time. But I will not be very proud about it. I mean, INR 130 crore is what? Nothing, right? So cap out-
What rates are these being sourced at, lending rates?
13% approximately.
13%.
Around 15% or 16% something like that at this point.
SEP is 13.
SEP is around 13%.
Okay, those were my questions. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Shubhranshu Mishra from UBS Group. Please go ahead.
Hi, Shubhranshu.
Hi, Dinanath. Thank you for the opportunity. The first one is on the consumer loans that we are targeting. We are saying that we've roughly have a 2.5 lakh database. What kind of ticket sizes are we targeting here? Again, if it's an urban customer, my thought is that it's a hyper-competitive space. What kind of cat A, cat B, cat C customer proportions are we planning to put in here? Because if it's a cat A customer, it's a hypercompetitive space, and it's a super pampered customer. That's the first question around the consumer loans. The second is, there's a particular line that you're getting about the monetization of 7 crore+ customer database, which includes co-borrowers, guarantors and prospects.
Under the extant regulations, can we monetize the database of co-borrowers, guarantors and prospects? I understand you can monetize the customer database, but can we monetize the co-borrower, guarantors and prospects and references database under the present regulations?
Monetize ka meaning, I hope you understood. Monetize doesn't mean sell the database. Monetize means use the data we have collected for making them offers.
For cross-selling to customers.
There is nothing to stop you from the data you have collected with, and we are not sharing data with anybody. Monetizing meaning we are not selling it. The word should be leveraging, not monetizing. I'm sorry for using that. We are taking that database which those people have given to us, putting it through our data analytics and making them pre-approved offers, and it is up to them whether to take that offer or not. Nothing, nobody is forcing them. For example, you know, suppose you have guaranteed somebody, we have your database. We will actually send you a link which for downloading our app or we will send you a link for telling, an SMS for telling them going on to the app.
When you download your app and you log in, you will be automatically getting the pre-approved offer. That's what it was. Perfectly legal, compliance cleared everything. There is no problem there. Answering your first question. The average ticket size, we are not in the BNPL. We are not in the less than INR 50,000 category. You are absolutely right, there are categories either the INR 10 lakh, INR 20 lakh, which is the, you know, wealth customers, or the less than INR 50,000, which is absolutely hypercompetitive. We are not there. We are not in BNPL. We are right now on two things where we know the customer end use or we know the customer requirement track record. The average tickets are between INR 1.5 lakh to around INR 2 lakh. That's the sweet spot.
You know, they are either our customers and hence we go to them with pre-approved offers, hence obviously stand a better chance of conversion than a competition. That if you want, you're going to somebody or you're going on a website and applying, then getting processed, then getting the money, we give pre-approved offers. That's one. Also, increasingly working on being on-site. Educational institutions, we will be on-site. Suppose tomorrow you go and take an admission, not you, but your younger brother or whoever takes in ALLEN or Aakash, either our person will be there or our software will be there, that the fees, which are, you know, not cheap anymore, you get funding from us. It is competitive. I wouldn't say it is hyper competitive.
Good players, there are two or three, I wouldn't take names. Then there are plethora of fintechs. The fintechs are there one day, not there on another day, depending on the amount of funding they are getting from the funders. Reasonably good market. Good companies have made good portfolios. More important here is not so much the issue of demand. More important is how you control for credit quality, how your credit metrics and how you make sure that your portfolio suddenly doesn't deteriorate. A lot of concentration is going there, and we are making sure that that doesn't happen. That's why we are actually calling ourselves Fintech at scale, that we will do all this, but do it in a way that a at scale NBFC does.
Not only for this, even for SME there is more dearth of demand. I mean, you want to give a SME loan, there will be somebody to take it. Right? The important part is, one, how your product differentiates from others, the speed with which you give, and more importantly, the credit metrics and the early bucket collections that you have. If you get all these right, you will build a good portfolio. We are hoping to do all that. Hopefully we will be, you know, perhaps, having more confidence in our ability in two or three quarters as we build this.
Just to clarify, sir, you said that we can make an offer to the co-borrower, guarantor and prospect as well as references under the present regulations. Have I understood correctly?
Sorry.
Under the present regulations, we can make an offer to co-borrower, guarantor, prospects and references. Is that correct? Is that a correct understanding?
Yes.
Sure. Thank you, sir.
Thank you.
Thank you very much. I now hand the conference over to Mr. Dinanath Dubhashi for closing comments.
Oh, no. I mean, no closing comment. Only thing I would say that first quarter of a string of a very exciting 16-quarter plan. Believe we have made a good progress. We will keep showing better and better results every quarter, counting on your confidence. Thank you.