Ladies and gentlemen, good day and welcome to the Muthoot Finance 3Q FY23 Earnings Conference Call hosted by Motilal Oswal Financial Services. As a reminder, all participants' lines will be in 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 this conference is being recorded. I now hand the conference over to Mr. Abhijit Tibrewal from Motilal Oswal. Thank you, and over to you, sir.
Yes, thanks, Vikram. We have with us today the senior management of Muthoot Finance, represented by Mr. George Jacob, Chairman, Mr. George Alexander Muthoot, Managing Director, Mr. Alexander N. George, Whole-t ime Director, Mr. George N. Alexander, Whole-t ime Director, Mr. George N. George, Whole-t ime Director, Mr. George N. Jacob, Whole-t ime Director, Mr. Ea p en Alexander, Executive Director, Mr. K.R. Bijimon, Executive Director, and Mr. Oommen K. Mammen, Chief Financial Officer. We at Motilal Oswal thank the management for giving us the opportunity to host this earnings call today. We will begin the call with opening remarks from MD, sir, and post that, we will open up the floor for Q&A. Thank you, and over to you, Mr. Muthoot.
Thank you, Motilal Oswal. Good day to all. Welcome to the conference call of 2023 Q3. The consolidated loan assets under management increased to INR 65,085 crores, which is up by 7% year-on-year, and the consolidated PAT also increased to INR 934 crores, which is also up by 4% quarter-on-quarter. Stand-alone assets under management is INR 57,731 crores, which is up by 6%. Stand-alone profit after tax is at INR 902 crores, which is also up by 4%. We have received permission to open 150 branches. We have opened many branches in the last 2 quarters. In this quarter, we have opened 54 branches. Another 30 branches are remaining, which will be opened in February and March, and all the 150 will be completed by March.
Thereafter, we plan to approach the regulator for the next set of, maybe 150 or more branch, 150 branches. All these branches which we opened are spread all over the country, north, east, west, and south. We have also raised INR 400 digital crores through the 28 and 29 public issue of the secure redeemable non-convertible debentures. We have also launched marketing campaign showcasing the message, "Put your Gold to work." We have done a very good media publicity on this, and it is actually started showing results. All the other comments are also with you. All the other financial highlights are with you. I think I'll now close and then probably open up the same for question and answers. Thank you.
I have with me, all the others, some of them in present in the room are our CFO, Mr. Oommen, and Mr. ED, Mr. K.R. Bijimon. The others have joined online from the team. Okay, thank you.
Thank you very much. Should we now open the floor for questions?
Yes. Yes, yes, please.
Thank you. Ladies and gentlemen, 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. To ask a question, please press star followed by one on your touchtone phone now. We have our first question from the line of Vaibhav Badjatya with Honesty and Integrity Investments. Please go ahead.
Yeah, thanks for providing the facility. You know, we are now into Upper Layer, we are classified as Upper Layer NBFC. If you can help us understand what is the, you know, incremental regulatory restrictions or the, or any other restrictions which is there on us as being part of Upper Layer NBFC as compared to, you know, any other lower layer of NBFC.
Thank you. I think there are no restrictions. There's only more disclosures and compliances. It is more of disclosures and compliances. To tell you the fact, in the last two years itself, we have been comply with many other really more reports and regulations. To my personal understanding of this, there is nothing much we need to do afresh compared to as being in a Upper Layer because every year we are inspected by the Reserve Bank. Every year the last inspection is also just over. As soon as they after the inspection, they give us more and more new compliances, new disclosures, et cetera. RAR, RMPR, all those risk mitigation plans, et cetera.
Everything has been there for the last, 2, 3, 4, 5, 4 quarters it is there. All these things we have started complying. I think the Upper Layer bracket just puts all these things together only. Yeah, that's one. Another compliance which they have was the company to get listed, we are already listed. I think some of the companies in the 16 number group, some of them may not be listed, so we realized to get listed. That's what I said. As far as we are concerned, there is nothing much more to be complied. To answer your question, there is no restrictions.
Difference in terms of regulatory requirement relating to, you know, minimum capital adequacy or the risk weightage or something, nothing like that?
Yeah, that's all there. That's all, it's already been there.
Okay. Okay.
Already been there. That's why all these things have already been complied. There's nothing new addition to be done.
No, no. Yeah, for you it is, there's no incremental thing. What I'm saying, the difference between the lower layer and the Upper Layer.
Yeah, yeah. That is there in the, in the, in the act or the regulation itself. Yeah. Yes. Yes. Yes.
Okay. Fine. That's it from my side. Thank you.
Thank you. We have next question from the line of Shweta Daptardar with Elara Capital. Please go ahead. Lost line of Shweta. We take next question from the line of Sagar Shah from PhillipCapital. Please go ahead.
Good evening, sir. Thank you for the opportunity. Actually, my first question is related to I wanted to understand a little bit about the ground, on-the-ground view regarding our gold finance business. We have mentioned in your presentation you have stopped the teaser loans actually which was low yielding in nature. Now you're, I think you were suggesting that the competition is decreasing, or especially maybe the competition is realizing that the gold finance business is not as easy as it seems actually. Wanted to understand that, are we in such a phase that we'll return to the era which we clocked almost a double-digit growth in AUM almost every quarter?
Will we return to that or are you seeing some different signs on ground? That is my first question.
I think, you're right. We have certainly said, competition, the people who are just jumped into the gold loan fray are starting slowly to realize that it's an operationally challenging business as well. That's one part of it. That is the sense I get from the branches and the staff there. That is one side of it. The second, your question was whether we will return. Hopefully, we should return. Whether it'll take 1 quarter, 2 quarters or 4 quarters is yet to be seen. To me, in after 3, 4 quarters, we should get back to the double-digit growth.
Okay. Okay. Basically the demand from the customers would be on the higher ticket range or the lower ticket range. Can you specify a ticket size range where you will be seeing some incremental demand?
No, no. The increment, the demand is there. It depends on the location. In maybe in Tier 2, Tier 3 cities it is the lower one, and in the bigger cities it may be the higher one. It's not a big differentiator because it depends on the type of people who are coming there. It's not that one in area only the maybe the lower level people are coming. No. Everywhere all type of people are there. We see demand coming from all over because people need purchasing power, whether it is the lower level, middle level or upper level, everybody needs more money. Some people need more money. I think generally our average ticket size is about INR 70,000.
You should see that people in that range are the people who are coming to us mostly.
Sure. Okay. Sure, sir. My next question, sir, was related to our non-gold finance businesses. Right now they constitute around 4%. You have mentioned it in your presentation that you would be, you intend to actually grow that businesses to increase the proportion of those businesses out of your total AUM. Any specific number that you would like to throw that in the next 2 years you would like to bring that percentage into the, up to what percentage of total AUM? Do you have a target?
Yeah. It is almost 12%, touching 13%. It was, I mean years back it was 10% only. Now it is touching 12%-13%. What we have done is we have started a few non-gold loan business 3 to 4 years back. That is the personal loan, the home finance loan, the vehicle loan, MSME loans, et cetera. Soon after that, COVID also came and we went slow on that. During the COVID we were able to, we were able to moderate all these businesses and also learn many things from them. Most of these loans were meant for giving to our existing gold loan customers. Now that the COVID exercise behind us, these businesses have now started growing and we are giving focus there also.
That is why you would see our non-gold loan portfolio is also starting to increase. We have not put out any specific numbers there, but in the next 3-4 years, we would like 3-4 years plus, we would like this to grow to 15%-20% is what is in our mind. At the same time, all our focus will or the first priority, first preference will be for growing the gold loan business. There is what we would see a 10% growth maybe in the next year. End of next year, we should see a 10% growth in the gold loan business. In the others, the proportion should reach about maybe start growing from 13 to 14 to 15, probably about 20% by 3-4 years.
Okay. Sure, sir. Basically, you are actually saying almost a 10% growth in your gold loan business. That's quite less as compared to, you can say, the pre-COVID level. Is just because of the competition, you are specifying this load of this low growth actually, or is it something else?
No, it is just, I think we are conservative estimate, that's all. We're just being conservative, that's all.
Thank you. We take next question from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.
Yeah. Hi, good evening. Thanks for taking my question. Sir, my question is just related to growth. If I also look at your number of loan accounts outstanding, we are significantly lower compared to where we were, let's say, in March 2021. Even during the year-to-date period, the number of loan accounts have been shrinking. If you could just give some color as to what exactly is happening in terms of new customer acquisition, and how do you see the pace of new customer acquisition kind of shaping up over next 1-2 years?
We were not giving too much importance to the number of customers. We were generally looking at the AUM because that is where the money... the interest is, not in the number. Probably not really sure about these numbers, We were focusing more on the gold loan total AUM. At least steady it is not coming down. Slightly improving even.
Sir, okay. In that case, if you could just help me that whether the competition in the high ticket gold loan segment, has it kind of subsided? Because on the ground, I mean, we do see banks, as well as other NBFCs getting significantly active in the large ticket, home loan segment, or you believe that is not the case?
No. I mean, the competition is there from NBFCs, etc. It's not competition. They are also competing for the same business. I wouldn't say competition. Everybody is trying to do loans or do business, get business from all these people. Whether it is a small or fellows, probably some banks do small loans, some banks do... Generally banks give a bigger loans, etc. Even banks also sometimes give lower loans to probably to the as agricultural loans, etc. In that sense also banks are doing this.
Understood. Sir, the other question again was to our growth aspirations for next year. You indicated that you would like to grow the standalone gold loan business at about 10.5%. For the current fiscal also we had kind of put out a number, a similar sort of a growth number. If I look again during the year-to-date period, we are almost flattish. How should we look at growth from a FY23 perspective as well?
Also if you could just provide a little context from against the background that the gold prices have been increasing last quarter as well as in the current quarter, but that doesn't seem to be reflecting into our gold loan AUM growth and LTV seem to be dropping. Just wanted to understand a little bit on that front.
LTV dropping is because the gold price has gone up, the LTV definitely should drop. We are seeing growth in the last 2 months, that is why you see a small uptick compared to last quarter. That's what you're seeing. Next 2 quarters also you should see better gold loan growth. We should end the year with about 3%-5% growth by the end of the year. That's what our expectations are. It's on that basis that we expect the next full year to reach about 10% growth. That's what our expectations are. You see growth has started coming back, and that is what we see.
Understood. Sir, just a last question was on the subsidiary performance. If you were to look, clearly the microfinance subsidiary seems to have come out of the woods and growing at a pretty steady clip. If I also look at the housing finance business now, the AUMs for that business have been fairly stagnant for a good period of time. From a consolidated AUM perspective, how should we look at the overall mix between AUMs from a 2-3 year perspective? That would be my last question. Thanks.
That's what I said. We were even slow on microfinance, especially the both, the home finance and the personal loan and the vehicle finance books. Slow during the COVID time. Now it is behind us. We have now restarted growing these things, and we have now a new CEO for the home finance also. He has joined us two weeks back. We have mandated or we are planning and budgeting for a very substantial growth in the home finance sector. Home finance business also in the coming years. That's specifically for home finance. In the personal loan sector also, we have now tested the waters for the last two, three years. We have gone through a cycle with this COVID also. We have learned quite a few things. We have understood.
We have modified our systems, our processes, et cetera, and you should see the personal loan book also growing. Also the MSME loans. All the other loans, we have now put correct people in place, correct vertical heads in place, and we should see growth coming in those also in addition to the gold one.
Mm-hmm. Understood. All right. Perfect. Thank you so much for this. Good luck for future quarters. Thank you.
Thank you. We have next question from the lineup. Shubhranshu Mishra with PhillipCapital, please go ahead.
Hi, sir. Good afternoon. Thank you for this opportunity, sir. The first question is around the branch expansion. We have increased most amount of our branches in West in third quarter. However, if I look at the productivity of branches in the East, the branches in East India are way more productive than West India. It seems a bit counterintuitive why we are not increasing more branches in East India. That's the first question. The second question is around the growth and competition. When I look at our website, sir, there are so many schemes which are listed at lower ticket sizes for low, lower interest rates as low as 9% and going up to ticket sizes almost up to 5 crores. Is competition a real threat?
What kind of ticket sizes and is the competition really active in? The third is a data keeping question, sir. If you can split the AUM into less than INR 1 lakh, INR 1 lakh-INR 2 lakh, INR 2 lakh-INR 3 lakh, and INR 3 lakh and above as a proportion of AUMs, that will be very helpful. Thanks.
The first question is about geography. Wherever there's business or branch business may be high in some geographies, some regions. We'll be opening more and more branches in those areas. Definitely, we should look at many other factors also when considering to open branches. There are security, safety reasons also, which also we have to take into consideration when opening branches. Rest assured that if there is a growth potential in any place, we'll be the first one to open branches there. Your second question was about people offering low interest rates. I think I should answer all this in one way, one word only. There are so many players coming into the market now. Some are...
Everybody thinks that gold loan is a very, very easy business, easy to run business, a bed of roses. That is what people outside are thinking. Once you come in, only they see that, you know, to get business, have to offer loans at 6%, 7%, 8%. That is one set of people. Others are thinking that you can take 2 or 3 employees from Muthoot or some other place and start their business. Fine. And there are few things which are very operationally very challenging for any gold loan business. One is the frauds which happen in branches, whether it is. See, all the new players, et cetera, especially banks, they rely on an external appraiser for appraising the gold, whereas Muthoot does it, does it in-house.
All our branches, all our staff are trained to do this. Everything is done in-house. Whereas people outsource. That is, again, a very risky proposition, which people will realize only after a while. Not initially, after a while. The second is we have started the Loan at Home to help our customers to bring, help our customers to get their gold to Muthoot. We send our own staff to collect the gold. Whereas most others, including banks or whoever does that or third party, it's a third party who's going to collect the gold. Customers are never comfortable with handing over their valuables to a third party who will take it to maybe X bank or Y bank or Y NBFC. This is. You'll see, you'll read in the papers also, so many staff frauds, et cetera, happening in branches.
We have a team of 1,000 odd staff who goes around these 5,000 branches and ensures that the quality, quantity, purity, et cetera, are met. We have a 13-layer security systems in our branches. 13-layer security to prevent all sorts of robbery, burglary, et cetera. These things, we have invested money into this. We invested time and the people into this. People are not realizing. Everybody is jumping into this, offering at 9% you said. I don't know you said 9%, INR 5 crore, INR 10 crore, et cetera. I don't know what is their maths in that, what is their final expense, what is their profit in that.
Finally, what is happening is going to happen, what happened 10 years back when many players jumped into the gold loan business, thinking it is very easy, et cetera. After starting to do business after growing the business only, they realize the implications, the operational intensity, operational challenges, et cetera, and they lose interest. That's what I said. Slowly, the intensity is coming down, and we should see only serious focused players in gold loan continuing this. All the others who come into just seeing like everybody getting attracted, like maybe attracted to this business, they will come. After some time they realize. Whether it is the profitability side, whether it's the control side, whether it is the fraud side or the safety, security, et cetera, people will realize only after that.
I think, it is just a matter of a little time that, it is, a matter of time that, we will get back to our old business, you know.
Right. Just one counter question to that, sir. Given the fact that we understand gold finance so well, would you want to give a blue sky guidance for growth in FY24? We've given a conservative estimate of around 10%. Would there be a blue sky scenario as well, sir, like 15%-20%, if you can comment on it or guide us, sir?
we just give a conservative number only. Let us wait and see. It is not that tomorrow everybody is going to stop. It'll take some time, maybe one quarter, two quarter, three quarter. Let us give it some time. Anyway, we are not that we are making any losses. We are making reasonable profit. Instead of the peak profits of 3,900, we are making something lit smaller than that in a year. That's all. Otherwise, nothing great. we have made about 900 crores every quarter, so I think that itself is reasonable to sustain us. I don't know about the new players who will be able to sustain this.
Sure. My data keeping question, sir, the ticket size by AUMs split, sir.
Yeah. Less than INR 1 lakh will be about 41%. Between INR 1 lakh and INR 3 lakh it will be 37%. Above INR 3 lakhs will be 24%.
Thank you, sir. That's okay.
Thank you. We have next question from the line of Shweta Daptardar with Elara Capital. Please go ahead.
Thank you, sir, for the opportunity. A couple of questions from my side. The first being so similar to what earlier participants had raised. Why on sequential basis your ATVs have dropped from 69% to 65%? Is it the outcome of competition or should we attribute to anything coming from the regulatory side?
It is just because the LTV, the price of gold has gone up. The price of gold has gone up, so the LTV will be lesser.
Okay. Okay. Okay. Secondly, you guided for 10% growth, right, for the forthcoming year. What ticket segment should drive this particular 10% growth? Should we presume that low ticket gold loan market is sort of not coming back and therefore... Because your ticket sizes have also gone higher, right? Largely this near term 10% growth is gonna come from which ticket segment?
No, we have not looked at ticket sizes. We feel that the growth will come from all the branches. We have not looked at the ticket size growth exercise. It's not that we are going to do only high ticket loans or low ticket loans. Whoever comes for gold loan, whether it's high ticket or low ticket or branches are equipped to do that. I don't think we differentiate between high ticket, low ticket, et cetera.
There is gold loan demand on the low ticket side as well, even today?
Yes, there is. There is definitely there. That is why our average is still about INR 35,000 only. Low ticket we have, people taking INR 5,000, INR 10,000 also. Many people are there. Definitely. Any customer who comes to the branch, we will service them irrespective of the ticket size.
Okay. One last question from my side. Are we by any chance cross-selling any of our gold loans to our Belstar MFI customers?
Cross-selling MFI customers? No, no. There's nothing like a cross-sell et cetera for MFI customers. MFI customers take MFI loans. Gold loan customers take gold loan. A customer who has taken a vehicle loan from somewhere from Bajaj will also take a gold loan. If somebody who has taken a housing loan from State Bank of India, we also have a gold loan. It's all there. There's nothing like a cross-sell, et cetera.
Understood, sir. Thank you so much.
Thank you. We have next question from the line of Shreepal Doshi with Equirus Capital. Please go ahead.
Thank you for the opportunity. wanted to ask about policy for.
Sir, I'm sorry to interrupt, Mr. Doshi. Your line is not very clearly audible. Could you please use the handset and come to an area where the network is stable and then ask the question? Thank you.
Can you hear me now properly?
Yes. Better. Please go ahead. Thank you.
Sir, wanted to ask you about what is the Like, have you tweaked the policy with respect to acquiring customers from other banks and NBFCs in the gold financing space? Also wanted to understand if some employee has left us because there has been the strategy when other NBFCs and banks are acquiring our employees, so do we have a policy wherein we accept them back when they come back? Just wanted your thoughts on these two aspects.
Acquiring customers I've heard. Acquiring staff is first time I'm hearing. Jokes apart, people have gone away from us. Sometimes they come back. If, if we feel that he was a good resource and he went, he went astray by mistake, we will take him back, sir. We take him back. There's no policy of maybe taking from a, from wherever source gold comes, we'll take. Whether it is from bank or customer, everywhere somebody brings it. If he takes it from the bank and come, we'll take it. If he takes it from an NBFC and come, if he takes it from house or wherever, we'll take it.
Correct, because, like, we have done some channel checks which suggested that we had some restrictions, with respect to, say, B2B cases for gold and also for employees as well. Just want to have we tweaked these policies in the recent times or?
No, no. Anybody who asks, if he's a good person, we tell him we'll take him back, sir.
Got it. Got it, sir. Sir, why the GNPA number sequentially has gone up?
Sir, NPA?
Yeah, NPA number sequentially increased by almost 50%.
I think nobody usually asks that question, or at least analysts don't ask. Only the press people ask about NPA. NPA for gold loan is, doesn't affect the P&L at all because the 100% gold is there. We get back the interest and principal. Retaining some customers, although their NPA is definitely a customer-friendly approach. Customers, otherwise, the next option is when the NPAs are becoming just because it has crossed the time limit. If you give them little more time, they'll take it back, otherwise we have to auction the gold. Auctioning gold is really painful to the customer. When customers request, we give them more time. Since we are in the money, especially now that there is a gold price also high, we are in the money.
We don't auction. All what you see as NPA, it is not some hardcore gold defaulters, right? It's people to whom we have given some more time to take back their gold. We don't see a credit loss. There are no credit losses, sir. Credit loss is only 0.02%.
Yeah. That is the... Yeah. Got it. Got it, sir. Incrementally, you've been guiding for a 10% growth. That will be broadly... How much of it could be driven by this new branches that you'll be needing?
New branches, last year, we are opening about 150 branches. They're not going to grow much in the first year, in coming years, those branches will start giving business. More than that, we have capacity capability of doing more. Today, our average per branch business is about INR 11 crores or plus. Any branch, there are branches with INR 30 crores, INR 35 crores and INR 40 crores also. Potentially, every branch can do this depending on the location and the type of people or community they serve. This can go up to even INR 30 crores also. Even without branches, the AUM can really go up. Opening branches in good places is definitely something which we need to do and that we are doing.
Next year also we'll be opening new branches. New branches definitely adds to business, but not to very substantial business in the initial one, two years.
Got it. Next year also we are requesting for another 150 branches, right?
It is completed. We must be request for the next set of branches.
Got it. Any yield increase that we are doing incrementally rising?
Yield increase actually we do when the cost of borrowing goes up. If the cost of borrowing, et cetera, goes up, we will pass on that to our customers also because we try to maintain our NIM.
Got it. Got it, sir. Thank you so much for answering my questions.
Thank you. We have next question from the line of Pradeep Agrawal with Systematix Shares and Stocks. Please go ahead.
Yeah, hi sir, I have couple of questions basically on the teaser book side. While we understand that, you know, in H2 FY22, we had a large part of the book or which was about teaser rate loans which got matured in this quarter and some will mature in next quarter. What will be the adjusted growth in AUM this quarter on a sequential basis if we adjust for teaser rate book, normalized book growth would have been-
I think, teaser rates, we have been doing teaser rates for the last 10 years.
No, I mean the 7%.
We don't call it teaser rate, we call it differential rate.
Yeah.
We have always, even today we have loans at 8.9%, 10%, 12%, 18%, 20%, 21%. We have. The yield et cetera is on a blended basis. Today also we have. We had an ultra low teaser rate three years back.
Two quarters.
Ultra, two, three quarters back, now we have stopped it also. That is over. Even now we have loans at, 8.9%, 9.9%, 10%. We have to offer differential rate to differential people. Only then we can be in the market. This is what we do.
No, yeah. Yeah, that I understand.
We generally blended higher yield. That is our, sort of, scope, sir. The ultra teaser rate is what you're talking of, 6%, 9%.
Why I'm asking this question is because, you know, in quarter three and quarter four last year, our disbursement have grown significantly after we brought in teaser, ultra teaser rates. Just want to understand, you know, the book which we have done on that ultra teaser rate loans, what portion of that book would have.
That is fully gone off from our books. From, we stopped the scheme towards the end of March. You know, we migrated all those customers with effect from July 1, 2022. That is over.
We do not have any maturity which was due in current quarter of those ultra teaser loans?
Those loans got migrated even before its maturity.
Okay. Okay. Okay. Okay. Got it. Secondly also, you know, would like to understand, your employees base have come down by about 800 odd people, whereas your branches are rising, I mean, to some extent. Anything to key into that?
you know, it could be, you know, because of the brand additions as well as, you know, some normal exits which can happen. You know, sometimes it is seasonal, you know, when you pay larger payouts, et cetera. it is an impact of post, you know, subsequent event of those actions.
Okay. Okay. Okay. Okay. Also, you know, just a direct question on the teaser side. You know, looking at the past 1 to 2 years behavior, if you can give some sense in terms of, you know, those ultra rate or less than 10% rate, what proportion of the customers normally stay back with us even after increasing those rates? What has been your experience in the last 12 months after, you know, putting those interest rates of 7%, 8%? Some sense on that.
We give them an option of going into the higher state bracket. Even without anything else, many of these customers take average ticket, average tenure is only 3 months for them. Even without doing anything, these people will take back their loans. That will be one thing. Some people who renew the gold and continue with us, maybe some of them continued. Few of them would have taken back. We did not get into nitty-gritty of that. If somebody is not interested to keep with us, just want to take it away, they would have taken it away. Majority of them would have closed it even otherwise. Even if there was nothing else, all the loans are generally for 3-4 months only.
Okay. Okay. Just one last question, data-driven question. What was the option number during the quarter?
It's roughly INR 200 crores. INR 253 crores or so. INR 220 crores.
Okay. Gotcha. Thank you so much.
Thank you. We have next question from the line of Nidhesh Jain with Investec. Please go ahead.
Thank you for the opportunity, sir. So firstly the 10% guidance that we are putting out for next year, what is the expectation of volume growth in terms of number of customer growth? When we say 10% growth, how much we expect from number of customer growth in that?
We do not look at the number of customers, et cetera. I think we are talking more about the AUM growth, sir. Number of customers is only a by-product of that.
Okay. Okay. Secondly, you know, the subsidiary, housing finance, we are seeing AUM decline, asset quality, GNPA continues to remain elevated. What is happening there? What is the strategy there in that, in that subsidiary?
10 minutes back, as we told that, we are now, we started all these businesses which we ventured during the course period, the housing finance, the personal loan, the vehicle loans, the MSME loans, et cetera. We have now restarted it. Specifically for housing finance, we have got a new CEO on board also. He has joined us 1 month back, less than 1 month back, and we are sitting with him with and probably putting up the business plans for next 3-4 years or so, you know. We should see the growth coming back in the home finance also. That's what you're questioning. Yes.
Yeah. Yeah. Okay. Lastly, on the microfinance, what is the reason of the PAT declining sequentially? Versus last quarter we reported around 27 crores of PAT. This quarter the PAT has declined to 14 crores.
Yeah.
What is the reason for that?
You know, all the microfinance companies, not only us, everybody has some legacy loans with them which people write off over the course of the year.
Reschedule.
We have just reschedule. Some rescheduled loans were there. That is now altered also. We are just, what should I say, cleaning up the stable.
Sure. Thank you, sir. Thank you. That's it from my side. Thank you.
Thank you. We have next question from the line of Vishal from ICICI Securities. Please go ahead.
Hi. Thank you for the opportunity. I had couple of questions. One question I had about the yield about in the gold finance business. It has improved by 84 basis in this quarter, but it is still at around 13.2% and not back to the normal level of 21%. Just wanted to understand the, I mean, yield trajectory from here on.
You know, due to this teaser rate loans, you know, our yields have significantly come down in the first quarter. you know, we had explained at that point of time that, you know, once this teaser rate loans are migrated, it will, you know, it could improve. This has happened in the second quarter, and again, it has improved in the third quarter. In the third quarter, it has, you know, moved by about 84 basis points. you know, I think, it's not like, you know, this teaser rate loans are, you know, 6.99% has moved to 24%. We have moved these customers in stages, so probably currently those customers might be in 10%-12%.
Depending on how the business narrative is evolving, we'll gradually increase the rates on those loans, and accordingly the, you know, overall yield also can improve in the coming quarters.
Okay. Understood. The second I also wanted to understand on the funding cost part. In this quarter, it has increased by around 20 bits. If I can say, our actual borrowing has also decreased quarter-on-quarter. Did we use the excess liquidity in our balance sheet to contain the funding cost? Also, I mean, going forward, how should we think about the funding cost increase?
I think, we have moderated the on-balance sheet liquidity, you know. Everyone is experiencing now increase in the borrowing costs. In our case also, you know, borrowing costs has gone up. That is reflected in the borrowing cost for third quarter. I think incremental costs, incremental borrowing rates are also higher. You know, I think it should move up a little bit in the fourth quarter.
Okay. Understood. Got it. Lastly, I also had one question on the MFI subsidy. In MFI subsidy our credit cost seems to be elevated, and it is not, I mean, it's not only improvement trajectory, if I can say so. Just wanted to understand what's happening there and when should we see the credit cost normalizing in MFI subsidy.
The... Our MFI is as good or better than the general all other NBFC, all other MFIs. Credit cost is there. As I was saying in the last question, somebody asked the same question earlier also. There were loans which were rescheduled in the last during the COVID time, et cetera. Some of those loans, we have just taken an aggressive stand and recovered off in itself. That is why you see the credit cost is gone up in MFI. What I said is, it is. Our credit costs are definitely better than most of the microfinance. We are nothing, we are better than the others in the MFIs. That's what I want to say.
Okay.
Credit costs are there, no. There is no credit cost in gold loan, but there is definitely credit cost in MFI.
The post-COVID loans are as good as the pre-COVID.
Yeah. The post-COVID loans are as good as the pre-COVID loans. Yes, correct.
Okay. Okay. Should we see, I mean, improvement in credit costs going forward now?
Sure, sir. Definitely we should see better performance, lesser credit costs going forward.
Okay. Okay. Thank you so much. Those are my questions.
Thank you. We have next question from the lineup, Arul Selvan from Independent Advisors Private Limited. Please go ahead.
Good evening, sir. Thank you for giving the opportunity. I had a question in a more long-term framework over here. This was regarding your earlier comments about your plans of increasing the non-gold AUM from the current 12% to maybe 15%-20% in the future. I hope that part is, I got it correct in terms of your future plans.
Now what I'm thinking about here is along the lines of, given that the return profile, the risk profile, and perhaps even the core underwriting experience, you know, and your expertise as well, in each of these segments, be it, let's say, housing loans or microfinance loans, you know, given that these segments are all unique, is there any plans of perhaps, you know, spinning off or demerging this business in the future once it grows, to a sizable proportion?
Is that your question?
Yes. That was my question.
okay. Muthoot Finance.
I understand that perhaps it's a little bit too early for me to ask this, because obviously these things are still at a smaller stage, but I was just trying to understand the.
Yeah. I understand.
Yes.
As promoters of Muthoot Finance, we have been the masters in the gold loan business. I accept it, we also accept that. When it comes to the others, we have CEOs from the market who are experienced with that in all these other divisions. We don't, we don't plan to grow it and then hide it off. We can certainly have it in our own books and our own company. Whether it is microfinance, whether it is home finance, we have CEOs who are experts in those fields and we have a overall managerial control of it. That is what is our plan. We have never thought of growing it and then hiding it off to somebody. That thought has never crossed our minds, sir.
Okay. Okay. In terms of which segment, I heard that the housing segment is where Muthoot is planning on focusing on. Is it predominantly housing or are you also looking at other segments like microfinance and vehicle finance in the near term?
Home loan, home loan is one, the personal loan is one, the MSME loan is another, the microfinance is another. We would focus on all these aspects with separate, verticals. These are all separate verticals.
Right. Right. You said that you've gotten a new CEO for the housing segment.
Yeah. The others are existing CEOs. They are also CEOs.
Right. Right. Right. Right. That's it from my side. Thank you.
Thank you. We have next question from the lineup, Mona Khetan with Dolat Capital. Please go ahead.
Yeah.
Yeah. Hi, sir. Good evening. I just had one question. What is the share of loans we have with yield less than 12%?
It may not be sizable. You know, we don't have the information readily available.
If you could give me a broad sense also, that would be useful.
No, I think, we look at the blended yield. Our blended yield comes-
We run a regulated term, so it's very difficult to, you know. Freeze, you know, particular level.
Okay. Sure. Thank you.
Thank you. We take the last question from the line of Pallavi Deshpande from Sameeksha Capital. Please go ahead.
Yes, sir. Just wanted to understand better on the borrowing cost. Will we see a steeper hike in Q4 than what we've seen in Q3 on the borrowing cost side? The second question would be on the employee costs. If you know, since attritions, what would be the attrition rate and, you know, what's the kind of salary hike that you normally give out?
Borrowing cost, you know, for Q3 it was around 8.13%. I think it is, you know, likely to move up in the fourth quarter because, you know, I think in the third quarter the incremental costs have been going up. I think it should move, you know, more towards 8.5% in the coming quarters.
Right. I think third quarter you had the benefit of some high-cost borrowing also retiring or something like that.
Yes.
fourth quarter will be higher.
You know, the incremental borrowings, you know, because almost all banks now one year MCLR is around 8.3, 8.5%. You know, as and when the reset happens, you know, the rates will move in, in those ranges.
In those ranges. On the employees, you know, what would be the attrition rate and, you know, how has this moved over the last 1, 2 years?
Last two years after COVID, many of the employees don't want to work. They have been all spoiled beyond repair. Everybody is sitting at home and enjoying. People now are finding it difficult to come to office. For us they have to come to office. There's no work from home for a gold loan. Gold loan means the customer comes to the bank. Jokes apart, there is attrition everywhere. People. If not attrition going elsewhere, some of them are just going and sitting at home. That's what my people tell me. They don't know they are getting PMGY, KMGY or NREGA, et cetera, funding, and they're maybe sitting at home. That is again, on the lighter side. People go. Attrition is there everywhere. Every industry there is the attrition.
We normally do some salary hikes and retain them, et cetera, and try to contain this and run the business. This is a very generalized.
I am asking is, you know, the competition we've seen from banks and what I understand is there's been a lot of poaching from the gold finance companies.
Yeah, yeah. That's why I was telling you earlier also, some people go there. As earlier, one person asked me whether if they come back, will you take them? If you take the prodigal son who has gone away and afterwards coming back, we'll take them back if they are good people. Sometimes they feel that they need to go elsewhere.
Would the number be above 20% or the attrition?
Yeah. Yeah. 20%. The lower level also. The lower level people are the people who just jump away. They don't want to work, madam. Those who join quickly, they just join away. They're not going somewhere else, they are just going home.
Right. Mm-hmm.
Going abroad.
Right. Lastly sir on the, overall on the Cost to Income side, can we, you know, assume the long-term trend to be where it is currently, or we see that creeping up? One more, if I may squeeze in is on the gold loan.
No, no. I think.
Online gold loan has that, you know, 36% I think is all transacted online is what you said. How is it?
The transacted online is only just a remittance of cash, madam. People with cash can take cash, but otherwise to take the gold, to check the gold, keep the gold, keep back the gold, it is the physical branch itself. Only the fund transfer transaction can happen online. That is they can take the funds, they can pay, repay the funds, they can pay the interest. Only that happens online.
Right.
All the other things, checking the gold, the taking it, keeping it in the vaulting the place, taking it back, they have to come to the branch. This is a physical process only.
Right. Thank you. Thank you so much, sir.
Thank you.
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, and I'd like to hand the conference back over to the management team for any closing remarks. Over to you, gentlemen.
Thank you. Thank you, investors, those who are again still there. Definitely, thank you for supporting us. We need your, we need your support, we need your, insight, we need your advices always. We are, we are always there. We are only focused on our business and our growth, and we will see that, we will do our best to see that your company, our company does better and better every time. Thank you all for a good day, and wish you a good day. Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you very much.