Please note that this conference is being recorded. I now hand the conference over to Ms. Deepika Gupta, Head of Investor Relations and Treasury. Thank you, and over to you, ma'am.
Thank you, Steve. Good evening, and welcome, everyone. We are here to discuss PNB Housing Finance Q1 FY 2025 performance, which you must have seen in the presentation and press release shared with the Indian Stock Exchanges and is also available on our website. With me, we have the entire management team across, led by Mr. Girish Kousgi, our MD and CEO. We'll begin this call with the performance update by the team, followed by an interactive Q&A session. Please note, this call may contain forward-looking statements which exemplify our judgment and future expectations concerning the development of our business.
These forward-looking statements involve risks and uncertainties that may cause actual development and results to differ materially from our expectations. PNB Housing Finance undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. A detailed disclaimer is on slide 38 of the investor presentation. With that, I'll now hand over to Mr. Girish Kousgi. Over to you, sir.
Good evening to all the investors. We had a very good quarter one in FY 2025. Just to talk about some of the key performance metrics. On disbursement, our retail disbursement grew by 19% year-over-year in quarter one. We disbursed retail loans of INR 4,363 crore. Thirty-three percent of retail disbursements were made in emerging and affordable segments. Our guidance in emerging and affordable this year on disbursements are 40%-42%, so we have covered 33% in quarter one. So this will increase, and we'll be able to reach our guidance of about 40%-42% of incremental disbursements, which would come in from emerging and affordable. Our total disbursement grew by 19.3%, retail disbursements by 19%.
Within retail, in line with our strategy, we wanted to grow our affordable and emerging much faster than prime. This is more by design. On a year-over-year, affordable business grew by 157% on disbursement, emerging grew by 18%, and prime by 8%. Talking about the book, we achieved double-digit growth of 14.4% year-over-year in retail loan assets. Now the book is INR 65,157 crore. This is the retail book as of thirtieth June. So if you look at last year, last June, our book growth was 11.5%. We are at 14.4%. Our guidance on book growth is 17%, so we will be able to reach 17% by this year end. The total loan assets stood at INR 66,986 crore.
We have made significant progress in retail book, with 97.3% of our book being retail now, as compared to 87% in March 2022. Within the retail segment, in order to balance between growth and profitability, we are moving down the affordability pyramid with increased focus on emerging markets and affordable segments. We started a new vertical, namely Affordable and Emerging Markets. Affordable was started last to last year, and Emerging Market, we started this year. We have set affordable segment in January 2023, and in 18 months' time, we are able to achieve book of INR 2,000 crore, and the book stands at INR 2,361 crore as of June 2025. This vertical has contributed 13% of retail disbursements in quarter one. We started emerging market segment with dedicated branches.
We have 50 branches in emerging. This was started this year in this quarter. This segment focuses on high-yielding customer base, with average ticket size of INR 45 lakh. Yield on incremental disbursement in quarter one, FY 2025, generated by this emerging market segment, was 25 basis points higher than the prime segment. We are pan-India present with strong network of 303 branches across 20 states as on 30th June 2024. With this large presence, we are ready to capitalize the opportunity available both in affordable and emerging segments, predominantly focusing on Tier Two and Tier Three cities. We plan to add 40-50 branches annually. Looking to grow at 17% of retail loan assets in FY 2025 and onwards, with higher growth in affordable and emerging segments. On asset quality, we witnessed remarkable improvement in the asset quality.
Our gross NPA reduced by 241 basis points year-over-year to 1.35% as on thirtieth June 2024. We continue to work towards achieving 1% NPA by this year end. Our overall collections remain strong, and in quarter one, we've had considerable recoveries from written-off accounts, contributing to reversal in credit costs to minus 7 basis points. During the quarter, in corporate book, we resolved 1 NPA account and 1 written-off account. The written-off account was sold to ARC. During the quarter, we recovered around INR 80 crore from total written-off pool, both corporate and retail. We expect to continue recovery from written-off pool every quarter. The company has a written-off pool of around INR 150 crore in corporate and INR 500 crore in retail.
On the borrowing mix, our cost of borrowing has reduced six basis points sequentially to 7.92% in quarter one. Our ability to borrow from debt market at competitive rates, coupled with improved pricing from banks, aided in cost reduction. The incremental cost of borrowing for the quarter is at 7.75%, compared to 7.92% in quarter four FY 2024. Deposits grew by 7% year-over-year, with 88% as public deposits. CRISIL upgraded the rating to AA+ from AA, outlook stable. With this, company is rated AA+ from all four rating agencies. In quarter one, PAT at INR 433 crore, registering a growth of 25% year-over-year. Maintained net interest margin of 3.65% during the quarter.
We had guided a threshold of 3.5% NIM, so we'll be able to maintain that. Our effort across parameters aided in improving the profitability. Our return on assets improved to 2.38% in quarter one from 2.07% in quarter one of FY 2024. Return on equity was at 11.4%. Couple of days back, government presented its union budget. The expansion of PMAY scheme to three crore houses in urban and rural areas is a significant step towards housing for all missions. With our expanding network of 300 branches, including 160 for affordable and 50 for emerging market segments, we are well positioned to cater to this segment. Under the PMAY scheme, to date, the company has sanctioned to over 65,000 customers with a sanctioned amount of INR 13,000 crore.
So even though in the budget a high level, disclosure was made, we are expecting scheme details in next 3-4 weeks' time. And based on the interactions what we've had with the Ministry of Finance and, NHB, we expect the scheme is going to be really beneficial to companies focusing on emerging market and, affordable. So it will be a huge plus for companies focusing on these two segments, and we are geared up. So all our branches, all 300 branches, will be geared up to do PMAY scheme, which, is to be announced by Ministry of Housing and Urban Affairs, you know, in next few weeks' time. So it's a huge opportunity.
So typically, what happens is that, you know, we do not know the color of the scheme, but I think broadly it's going to benefit the end customer, either by way of a lump sum amount in terms of subsidy amount, or it could be some kind of interest. That we do not know. It is our assumption it is going to be big and beneficial. And like last couple of term the scheme was announced, there's going to be a lending cap with a certain margin.
We expect the margin to increase this time, so which would aid companies, you know, where the margin was lower than this. For example, today, we are talking about NIM of 3.65%. The expected PMAY scheme, you know, the margin could be better than this. In the sense it's going to help PNB Housing. All the 300 branches are going to focus on PMAY scheme, and it is going to help the margin going forward. Would like to now, request Vinay to talk about our financial performance.
Hi, good evening, everyone. Thank you for joining us today. I am pleased to present the financial highlights for Q1 FY 2024-2025. As Deepika mentioned, our PAT has grown 25% year-on-year and remained flattish quarter-on-quarter to INR 433 crore in Q1 FY 2024-2025. Net interest income has grown three percent quarter-on-quarter to INR 651 crore in Q1. Our yield for the quarter was 10.03% versus 10.08% in the previous quarter. The marginal drop was due to pure repricing and run-off of high-yielding growth. At the same time, cost of borrowing has improved from 7.98% in previous quarter to 7.92%.
Further, post rating upgrade, our incremental cost of borrowing at the end of Q1 has come down to 7.75% versus 7.93% in Q4 FY 2024. NIM during Q1 have more stable at 3.65%. We might face NIM pressure in the short term, but however, with the higher mix of business in emerging and affordable, we should see NIM improvement after three quarters. Gross margin, including fees and other income, has grown by 11% year-on-year to 4.03%, versus 3.91% in Q1 FY 2024. Operating expenses in Q1 have grown 27% year-on-year to INR 190 crore. This is largely due to branch expansion done in Roshni and emerging verticals during Q4, where we added 100 branches. This will help in profitable growth going forward.
So our OpEx also includes our impact of annual performance appraisals done for FY 2024. Credit cost remains benign at 7 basis points of relief in Q1. We have fully resolved one corporate NPA account through settlement during the quarter. Further, we have recovered INR 80 crore from written-off pool during Q1. This has helped in controlling credit costs for this quarter, and we expect the recoveries to continue in the subsequent quarters as well. ROA, which was 2.07 for Q1, is now at 2.38% for Q1 FY 2025. ROE is 11.4%. Our capital adequacy at the end of Q1 is 29.5%, with Tier 1 at 28.4. Thank you.
With this, now I would like to invite and request Dilip to talk about the performance of our retail prime and emerging business.
Thank you, Deepika. Good evening, everybody. The business that I'm gonna be speaking about is our retail prime business, which now stands bifurcated into prime and emerging markets. On this side of the business, our loan book registered a growth of 11%, and our disbursements registered a growth of 10% year-over-year. In line with our organizational imperative, the margin accretive business, which is emerging market, grew at a faster pace. The loan book in the emerging market grew at 18%. The disbursements in the emerging markets also grew at 18%. On the prime markets, the loan book grew by 10%, the disbursement grew by 8%. We now have 50 branches which stand categorized as emerging markets. They contributed 22% of the disbursements in the first quarter of FY 2025.
This will actually go up to 30+% by the end of the year. In the emerging markets, just to give you a deeper color of this business, this portfolio now stands at almost INR 12,000 crore, about INR 11,970 crore as of June end. It forms 18+% of our retail loan assets. By the end of the year, we are hopeful that this will be anywhere between 22%-25%. In this side of the business, our ticket size is actually lesser than what we see on the prime markets. It's in the range of INR 24-25 lakh. The origination LTVs are at 66% in case of home loans. The sourcing here is largely done through in-house channels. See, almost two-thirds of the sourcing in these markets is done by our in-house channels.
The balance is done through third party or DSAs. On incremental yields in the quarter, overall, our yields increased by about 8 basis points on a quarter-on-quarter basis. Again, the lift in yields were higher in the emerging markets, where it was in the range of 12 basis points. In case of prime markets, it was in the range of 7 basis points. We opened about 33 new branches in Q4 of last financial year. We are happy to share that almost all of them are now started contributing to disbursements. In fact, in the first quarter, they contributed to 6% of the overall disbursements, and since they just started, we expect this percentage to be much higher in the quarters to come.
So to summarize, the two imperatives for this business, which is growth and margin accretive growth, we are happy with the progress we made on both of them. On account of the investments in our footprint, expansion, and technology, growth will go up in the quarters to come. On account of the margin accretive businesses growing at a faster pace, the margins also will go up in this business. Thank you.
We request Sameer to talk about our largely affordable business, please.
Good evening, everyone. Continuing our promising growth story on the affordable housing business side, I'm happy to announce that we have become profitable on a standalone basis in our affordable housing business. And continuing to the growth story, we crossed INR 2,000 crore of loan book in May 2024. The loan book stands at, you know, upwards of INR 2,300 crore at the end of Q1, which is a 5x growth from same time last year, and 32% up from quarter four of last financial year. Disbursements grew by 157% on year-on-year basis, and we disbursed close to INR 600 crore of loans in the last quarter.
Overall, on the yield side, again, you know, there is a positive trend that we are witnessing. Continuing our focus on the informal income side, we have developed our expertise on the underwriting side of managing the informal income customer profile, and it is resulting into higher yields for our business. Our self-employed sourcing has also been consistently increasing. You know, till last quarter, it was about 37% of our sourcing. Now it is upwards of 41% of our sourcing. One of the important initiatives that we undertook in the last quarter was implementation of a new loan origination platform, which is a Salesforce-based platform, which has been introduced in our affordable housing business.
Like most of the other things, we have done a good job in execution of this project, and 135 out of 160 branches are now live on the affordable housing side, on the new loan originations platform. And in the coming months, coming couple of months, we'll be stabilizing the new system and we are likely to start getting the productivity benefits through the end-to-end digitization of the customer application lifecycle process.
Going forward, you know, one important point I think that I would want to share is out of 160 branches that we have in our Roshni business, 60 branches were opened in the last quarter of last financial year. And happy to share that we have operationalized these branches in the last quarter. Now, these branches that we have opened in Tier Three and Tier Four locations have started contributing more towards our business volume, and this will also start translating into higher yields that we expect from this business in the coming months. Thank you.
With respect, Jatul, to talk about your trends and collections, please.
Yeah, good evening, everyone. On credit front, during the quarter one of 2025, the total retained logins were 36,151, and sanctions were 24,589 applications, thereby registering a growth of 33% on logins and 26% on sanction count than last quarter one of the previous year. Decentralized underwriting approach has been adopted by the company, with underwriters being positioned by branches for better business support and customer trust repair. More than 80% of the loan applications during the quarter had a CIBIL score of 700 and above. On collections front, FY 2025 kicked off with continuous growth, focus, and momentum of three key aspects: legal actions or measures to resolve delinquency and reduction in NPAs, greater success in property possessions and subsequent auctions, and recoveries from technically written-off pools.
This thereby allowed us to have an upbeat performance in quarter one, defeating the cyclical industry trends and some amount of operational delays caused due to general elections, vacation of courts in June. To provide detail on this, our ongoing measure on legal collections saw successfully possessing over 165 properties in the first quarter. In terms of disposal of repossessed properties, we successfully sold off 98 properties in the quarter through auction channel, recovering complete principal outstanding in these accounts without incurring any loss.
The sale count is more than one-third of the total successful auctions done in the previous financial year. Another positive development was the quarterly recovery from the technically written-off pool. Close to INR 28 crore in retail were collected from the technically written-off pool, which is more than 40% of our total recoveries in the last financial year. So the company is poised to recover from the technically Written-off Pool quarter on quarter. The organization will continue its multi-pronged strategy of bringing further reduction in NPAs in coming quarters, adopting all-around approach and reduction in delinquency. Thank you.
With this, Anubhav, to talk about our tech transformation, please.
Thank you, Deepika. Good evening, everyone. PNB Housing Finance initiated a massive technology transformation program over a year back. As we stand today, I'm happy to share that most of the initiatives as part of the transformation have been initiated and completed. I would like to cover some of these in brief. Firstly, we have launched a new cloud-based CRM platform, Salesforce platform, which is being leveraged for acquisition as well as improving the customer service capabilities. A lot of automation has been built into this platform, and almost 80% of service requests are being addressed through a self-service mechanism. Using this platform, our involved agent productivity has also seen an uplift of almost 5%-10% on a regular basis, despite growing volumes. This platform is tightly coupled with the predictive dialer, which helps to improve the customer outbound capabilities and reduce leakages to a large extent.
Secondly, we have revamped our public website and converted it into an engagement channel for customers with massive personalization capabilities. And it also provides better access and experience on mobile, which accounts for almost 75% of our user traffic. The new website provides seamless access to our products and services, which has yielded to an increase of lead generation by almost 50% in an organic manner. Thirdly, we have launched a digital collection platform, which provides on-the-go availability of customer data, loan details, payment capabilities, and interaction details to our entire field collection team, and that is leading to improvement of collection efficiency on a large scale. We have also implemented a new cloud-based system on Salesforce as a platform. With the launch of this platform, which is currently underway and shall be completed by end of Q4, beginning of Q3 in the current financial year.
For whatever branches have been marked as a new platform, we have seen improvement in loan tax processing times, as well as enabling better performance and tracking capability for all functions. Through the digitization of various processes, we have seen a reduction in the physical documents that are handled and significant reduction of the manual data entry that is required to be done. Lastly, we have also introduced chatbots, which are intelligent enough to act as a channel of customer service. We are calling it Aria. These are introduced on our new website, as well as on WhatsApp, and we have seen a significant usage of these channels by the customers for customer service in a self-service manner.
Yeah, thank you. So with these updates, Steve, I would just like to open up floor to you end, please.
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 handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
The first question is from the line of Renish from ICICI Bank. Please go ahead.
Yeah. Hi, sir. Congratulations on a good set of numbers.
Thank you.
So just a few questions from my side. One on the spread, or maybe NIM as well. Right, so, incremental cost of borrowing is lower than the blended cost of borrowing. You know, we are growing, let's say, incrementally faster in the high-yielding segments. So despite that, you know, why we see NIM, or let's say, NIM will be under pressure in the near term?
So the reason is, you know, we have couple of reasons. One is the corporate book is degrowing. So we will very shortly start corporate business. So hopefully, in next 3-4 months' time, we'll start corporate business. So I think now the team is ready. We are ready with the blueprint. Very shortly, we will start. So why, you know, there is contraction in the yield because of the corporate book rundown. I think that will get solved in next 3-4 months, because we'll start doing fresh corporate business, number one. Number two, you know, we have a large prime book. So certain amount of BT, even though we have set up a retention team, the BT as a percentage has come down drastically over the last 1.5 years' time.
So there is some BT out, you know, ways that would impact us on the book and eventually on the income. Third, you know, there is also repricing. So on one side, there is yield contraction because of corporate book going down, BT out, and foreclosures and repricing. On the other hand, we are moving towards high-yielding segments. In quarter one, typically, we saw most of the disbursements were a spill off from quarter four sanctions, which were at a lower rate, and which is why in quarter one, we don't see spike in yield.
But if you see the current trend, I think there is an improving trend both in affordable and emerging on the yield side. Incremental yield is going up. So you will see quarter two, the yields are going to be slightly higher. As a policy, you know, we had guided margin of 3.5%, and we stick to that. I think we will have maybe 3%-5%, maybe 3.5%-3.665% for next two to three quarters' time, and then the NIM will start inching up.
No, sir, but again, if we, if we look at the corporate book, you know, as on June twenty-fourth, that book, you know, hardly anything. So I don't think so there should be any drag because of the corporate book on the yield side. Maybe you are right that incrementally, because of the BT out pressure on the prime segment, the repricing, you know, to retain the customers would be lower. Is that the fair understanding?
It is combination of all the three which I mentioned. One is corporate book, degrowth, second is BT out, third is repricing and, foreclosure. All as a combination, I think there is a contraction of yield to a certain extent. And, you know, on the other side, we are moving segments and trying to increase the yield, but that is on an incremental basis. So in about two quarters' time, I think we'll reach to a point where there won't be any contraction of yield and it will start moving up, and that's when we will see, the margins inching up.
Got it. And my next question is to Girish actually. So, sir, you know, given we are present in, you know, almost all the customer segments, whether it is prime, affordable, and if the PMAY scheme has to move things faster on the ground, you know, even when the refinance comes, do you foresee upside risks to our growth guidance of 17% in retail book?
Actually, PMAY is going to help us on bettering our growth rate.
Okay, so would you like to revise our guidance of 17% now, or maybe you would want to wait and see?
We would not want to revise for the simple reason, if we had to grow at the same yield, we could have definitely done far better than 17%. Since we have a dual task, one is to grow, because last year, with so many challenges, we grew at 14.1% on retail. And this year we've said we're going to grow at 17% on book. So this PMAY, you know, we are yet to see how the scheme will get rolled out. And we believe that it will open up huge potential, not only on the affordable side, even on emerging and prime. Because if you have to go by, you know, the last couple of times the scheme parameters, I think a lot of customers would qualify, even on the prime and emerging side.
So we see opportunity of all our branches catering to this particular segment, whereas affordable is focused purely on affordable and which would also consider part of the PMAY. But otherwise, on the emerging and the prime side, largely income-based, we will have an opportunity. So I, we would not want to revise the guidance at this point in time, but we are very sure and confident of reaching 17% book growth, what we have guided for.
Got it. Just lastly, you did mention about this, you know, the margin improvement on the NHB borrowing side. Could you please elaborate a bit on that?
So if you look at, you know, the scheme which was there, you know, till about, March 2022, so the, the funding which comes from, NHB, especially for affordable segment, which is under the, CLSS subsidy, so there, that funding would come at a lower cost. So one, the borrowing cost, it will help us in the borrowing cost, and number two, there is a lending cap. So the discussion was to, you know, increase that lending cap, so that would, definitely help us to improve our margins.
It was 5.5%, right, sir, last time?
No, I think the rates kept on changing over a period of time, but however, the margin was fixed at about 3.5%. I think this time there is, there are some talk. I think this is purely our assumption and expectation. So, you know, we feel that this 3.5% could go up maybe to 4% or 4.5%. So it is going to help us on all the three segments, meet Roshni, emerging and prime, because our margin on the emerging and prime is less than 4% or 4.5%. So any incremental business we do from this PMAY scheme is going to be, you know, will lead to incremental margin.
Got it. Got it, sir. Okay, sir. Thank you, and best of luck, sir.
Thank you.
Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah, good evening, everyone, and thank you for taking my question. First of all, I mean, congratulations on a good quarter. So first thing I wanted to understand is, I mean, this fair practices code for lenders charging of interest in the circular that came out from RBI on twenty-ninth April, I mean, how have we handled this circular? Basically, this circular talked about recognizing interest income only after a DD or check was handed over to the customer. So, I mean, the disbursements and the loan advances that we are showing today and the recognition of interest income, is there any component of interest income reversal in our interest income that we have reported?
So we are fully compliant. No, I think there are a couple of other reasons. One was, you know, there was, I think there were elections during quarter one, and also heat wave. I think despite the regulation what you mentioned, despite election quarter and heat wave, we were able to show growth of 19% on disbursements and book growth of 14.4. I think, you know, else we would have probably been 2-3% higher.
So, I think my question was around, I mean, recognition of interest income after that 29th April circular, which talked about recognizing interest income only after a check or a DD was handed over to a customer.
We had a very strong process even in the past, so the alignment required was very less for us. The gap was very less for us to cover. So in terms of interest, it was hardly about INR 4-INR 4.5 crore.
Got it. Got it. Got it. Great. So the second thing was on OpEx. When Vinay sir was giving his opening remarks, he spoke about OpEx also including the impact of annual performance appraisals, which were done for FY 2024. So, I mean, was this reflecting the nature of, I mean, increments that happened or also the variable payouts? Just trying to understand how the quarterly run rate is going to be now for the next couple of quarters.
Yeah, because this was largely the annual increments. Variable payouts in many cases provision, so there is no such impact on that.
Got it. Got it. So, basically, now, I mean, is this the new kind of a steady state that we can keep building on for OpEx?
That's right. This is our new, steady state number.
Got it. Sir, Vinay sir, just one related question. I mean, while we covered liabilities in greater detail, just trying to understand after this credit rating upgrade, I mean, how are conversations progressing? I mean, incremental cost of borrowing is already down to 775. How are you looking at cost of borrowing trending going ahead?
So, same, Abhijit, so in this quarter itself, we have seen improvement. It has gone down by around six basis points, and the incremental borrowing cost of borrowing has come down to 10.75. While you know, it is still volatile, it will still move slightly, but one more benefit is expected to come in the few quarters. And once the PMAY is announced, as sir mentioned, there could be few further benefits which can come on account of PMAY.
Got it. But this PMAY is going to help us more on the growth side as well as on the spread or margin side, because we are expecting the spread cap, which was earlier 3.5%, to be increased when the details of the scheme come out.
It is going to help us on three counts. One is, on the cost of borrowing, second, on the growth, third, on the margin.
Got it. Got it. So Vinay sir, last question for you. I mean, obviously, this quarter, there was benefit from recoveries on the corporate side. During the opening remarks, I also heard that out of the total pool of or total recoveries of INR 80 crore from the written-off pool, almost around INR 23 crore were recovered from retail, if I heard you right. So just trying to understand going forward, while you spoke about a pool of both corporate and retail written-off pool, how are you looking at basically credit cost trending? They are expected to remain benign for the next couple of quarters, at least?
I think, yeah, credit cost will be muted. Just to give you some numbers, for quarter one, retail recovery was INR 28 crore and corporate was INR 53 crore, total INR 81 crore... and, quarter one being the cyclical, I think the write back amount was quite low. I think this number will only improve in the quarters to come, both on retail and corporate.
Got it, sir. And so later during the call, if you could just explain which corporate account that we have resolved during using customer settlement, what was the nature of that? And what was the outstanding, and how much have we recovered?
So, we had sold 2 ARC, so it was cash and SR. So we have, we received—we recovered the cash portion in quarter one, and the rest will be, you know, the SR will be redeemed in this year. So this is on this particular account. And, on the retail, I think it is quite regular in nature, so we, we keep recovering. And we had 1 NPA in corporate. I think that is now resolved. Now, on corporate, NPA is zero.
Got it. Great. Thank you so much, and all the very best.
Thank you.
Thank you. The next question is from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.
Hi, good evening, and thanks for the opportunity. Shubhranshu here. So, Girish, two questions. The first one is around the PMAY scheme. My fair understanding is that the, as the scheme has to be implemented at scale, as far as self-construction, then it can be implemented. However, if the builders have to revert their inventory, it will take a longer period of time because that supply itself has come out. I just wanted your thoughts on that. How long will the builder developers take to repower, pivot their inventory for affordable housing? And, when do we get that benefit in terms of certification of disbursements at scale? While I understand for self-construction houses, it this could have immediate benefit. The second is around the ARC sale. How much of provisions are we carrying on the SRs right now on the ARC sale? Thanks.
So on the ARC sale, the one that we have done during the quarter, it's 100% provided, and for the other one, we are carrying around 70% provision. On the PMAY, I think we are yet to, you know, get the details. It is still not announced, but we see that it's going to be big one. And if you look at the composition of products, you know, under PMAY, in terms of whether it is self-construction, whether it is self-construction, plot purchase and construction, depending on the nature of product, I think the opportunity is going to be huge. I think once we get the scheme details, we'll be able to rework on that, and if need be, then we will, you know, be ready to take that opportunity forward.
Will we change our disbursement AUM growth guidance once we get the fine print?
No, we will not be able to comment on it. As of now, we stick to 17% book growth guidance, and if there is any need during the year, you know, we may look at revising it, but at this point in time, 17% is where we stand.
17% is the book growth guidance?
Book growth, yeah.
Disbursement, uh-
Retail, retail book growth at 17%.
What is the disbursement growth guidance for retail?
That will be about 25%+.
Sure. Thank you. Those were my questions.
Thank you.
Thank you. The next question is from the line of Viral Shah from IIFL Capital. Please go ahead.
Yeah, hi, thank you, and congrats on good set of numbers.
Thank you.
Actually, I have a few questions, Girish, if you can help me understand. So first of all, in your affordable books, right, what is the share of disbursements that are done for either a purchase or a construction to the borrower versus what is a balance transfer?
Sorry, could you please repeat the question?
In the affordable segment, the disbursements that you do, what would be the share of the business, the BTs that you would have got?
Yeah, I think, you know, on the, BT in would be close to 25%, and BT out is negligible.
Okay. So 25% of the disbursements for one Q that you have done, correct?
Yeah, 25% of disbursement is BT in.
Got it. Next is on the affordable side. I remember in the analyst meet also, you had mentioned that incrementally we are looking at a different customer mix and product mix, which is going to ensure that the yields are going to go up by 100 basis points immediately from next year. So from when should we see that? Because I see that the disbursement yields are flat QOQ.
No, so I mentioned that, so it has already started. The only thing is, you know, in quarter one, most of the disbursements were from the sanctions which happened in quarter four. So you will see, you know, very marginal spike in quarter one. It has already started, so you will see yields improving increment, on incremental disbursements quarter on quarter.
Okay, so we should see that, at least on reported, first decimal numbers from next quarter only.
No, this is on incremental, so from, let's say from now onwards till this year end. So this year, what we're going to originate, that would carry a yield of 12.6% on affordable.
Okay, got it. And if I have to basically look a bit deeper in your cost of funds reduction of 6 basis points in this quarter, what further room do we have in terms of reduction, given that again what was the share of the mix change in this quarter, because there was some increase in the CPs as well. So is this entire reduction just because of the credit rating upgrade, or there is some more benefit yet to come through because of that?
See, it is a combination of various things. So one is, you know, the one you mentioned, CP, definitely CP is one instrument, and second is the cost of deposit. For us, it is coming down. While we are growing our deposit book, our cost of deposits is coming down. Number three, we are renegotiating with all the bankers on the existing lines, and all the new lines we are able to get slightly at a better rate. I think it is a combination of all these things resulting in slight reduction in the cost of deposit, both incrementally and down book.
Okay. Lastly, in terms of the recovery pipeline, last time around, you had mentioned that on average, around INR 50 crore every quarter for six to eight quarters, so that gave us a pool of, say, around INR 300-INR 400 crore. Now that we have had INR 80 crore of recovery in this quarter, do you see the overall pool increasing? Or how the remainder of the recovery pool will look like for next few quarters?
On the retail return of books, I have... We had told approximately about INR 170 crore-INR 180 crore we'll be able to recover this year. So if you look at quarter one, the amount was INR 28 crore. I think in next three quarters, we'll be able to cover up another maybe INR 150 crore-INR 160 crore. On the corporate, whatever books we have, that is INR 150 crore, that will pan out in next three years.
Sorry, next?
Three years.
Okay, next three years. Lastly, if we just go back to the NIM space in the near term, Vinay mentioned there may be some moderation. What is the, like, extent of it that we are talking about? Is it just 5, 6 basis points, or is it going to be more like 10 odd basis points?
See, I think it will be in line, so we have guided 3.5%, so 3.5 is the threshold. And with this mix change and with reduction in cost of funds and all, obviously, you know, we'll be able to maintain this for next two to three quarters. There could be few ups and downs, few bps. After that, it will start inching up.
Got it, Girish. Thank you, this is very helpful, and all the best.
Thank you.
Thank you. The next question is from the line of Sameer Bhise from JM Financial. Please go ahead.
Yeah, hi. Thanks for the opportunity, and congrats on good quarter. Just wanted to understand on the affordable bit. So we've hit 160 branches right now. What is the plan there, or do you think that we have expanded, like, meaningfully in last one year, so you would want to take it slow at this point in time?
We have 160 branches on affordable side. This year, we'll open 40 more branches. By this year end, we will have 200 branches on affordable side. This will be the plan for next 2 years. We'll keep opening about 40-50 branches every year, at least for next 3 years.
Sure. Any specific states, or it remains equally split between North, West, South?
I think we are a national player, so we would be focusing on predominantly three zones, South, West and North. We are scarcely present in East, more on the prime side. So our expansion would be in South, North and West. Largely, our branch expansion is going to be on affordable and emerging side.
Sure. And, just quickly on the stage three ECL change sequential, what could be the reason?
So on stage three ECLs, one is, since we have resolved corporate, so, that has completely gone nil. And on the retail side, there is a marginal drop. It was around 35%. It is now 32.5%. This is on account of, you know, certain one-offs that we had taken on the retail side-
Understood.
It was vintage accounts, so which got resolved or we have taken a one-off, where we had a higher provision. So if that got released and the new which was got added, the requirement is on a lower side. So hence, it is more of a mix change which is happening there.
Okay. Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Omkar, an individual investor. Please go ahead.
Hello, thank you for the opportunity. My question is with respect to the branch itself. Now, you said that we will be adding 40 more branches in the current year and approximately 40-50 over the next 3-4 years. So can you please help me understand what is the metrics with respect to the branch? How much time will the branch take to gestate and become a profitable branch, and what are the number of employees per branch and et cetera, with respect to understanding how the branch will grow as it ceases?
The plan is to open 50 branches. This year we'll open 50, and every year we'll open 50 for next 3 years. That is the plan. This year, 50, next year, 50, and next to next year, 50. That is the plan of branch expansion. In terms of break even on the affordable and emerging, both sides, it will take about average about nine months, nine to 10 months time to break even.
Okay, 9-10 months. And, with respect to the technology transformation that you've mentioned in your opening comments and also in the—or PPT, there is a mention of the reduction in TAT. So what was the TAT earlier, and what is it now? Can that be quantified?
Yes. So our loan processing TAT, if you are talking specifically to LO, our loan processing TAT is reduced by about 16%-17%. And on the CRM side, the customer service request is seeing reduction in TAT because we have reduced self-service capabilities. Almost 18% of requests by the customers are getting self-service without being assigned to any agent. That is improving the TAT on an overall basis.
Okay, can we, can we quantify the TAT in number of days? So like, how much days does it take from login to sanction, or disbursement with respect to days of file that has been reduced?
We bring to end right from reference login to sanction, including salaried and self-employed. This is decision around three working days. So that is why we have seen this coming down to close to four working days. You know, gradually we are reducing it to three, and whereas salaried decisions in the second day itself.
Understood, understood. With respect to the cost to income and the OpEx to OpEx to AUM, as we are saying that we are going to be so aggressive on the branch expansion, affordable housing space as of what I have seen, they are very, the OpEx ratios are very high. So how do we manage to overcome that, and that would not make a drag on the profitability? Could you please shed some light on that?
So see, actually, on the OpEx side, most of the investment related to, you know, 160 odd branches now and 300 overall that we have for the business, investments are already done, right? So it's more up, up, up fronted. So whatever you see now would be the run rate. Rest would be in the BAU core that we would be adding, and it will be only the direct cost that we would be investing, which is mostly, you know, in terms of sales and underwriting people. Rest, everything would be the shared infra. And plus, the economies of scale will kick in from other businesses, which will help in absorbing. So we are pretty much confident that, you know, 1% kind of a OpEx to AP, we should be able to maintain.
Understood. Finally, with respect to the credit underwriting, since our overall portfolio mix is more tilted towards the salaried people and affordable in the tier three, tier four and beyond, will be more self-employed. How are we changing our underwriting practices, and what will be the way that we make sure that the asset quality remains stable? Can you please share that?
So I think the underwriting model for prime and emerging is similar. It is very little different between prime and emerging. I think broadly it is similar. When it comes to affordable, it is totally different. So we have a different vertical for these three businesses. We have a different vertical for, prime, different vertical for emerging, different vertical for, affordable. Now, on the affordable side, you know, largely we're going to focus on, both the income and assessment-based product. It will be 50/50 almost. So 50% is going to be assessment, both on salaried and self-employed, and therefore, there, the underwriting, model, what is required is very different. So we have a different structure, different team, different head to drive this piece, vis-a-vis compared to prime and emerging.
On the prime and emerging, it is, you know, rule-based, and largely the focus is on income side. On the affordable, it is 50/50, and therefore, it is more of assessment model. So on the salaried side, when you say informal, it is cash salary. On the self-employed side, when you say informal, it is basically, you know, LIP and certain programs, you know, where the income is not. So there we have developed models. We have developed various templates. For example, we have close to 35 templates, depending on the sector, depending on the nature of business. All these are centralized, all these are automated, and this would support us in terms of standardization of the assessment.
Having said that, on the affordable side, it's more of touch and feel. So every branch, we have a credit manager. The credit manager meets the customer, does a personal discussion, assesses the income, and then, you know, we use those templates to standardize our decisioning process. So it's very different. On the prime and emerging, it is different. It is more driven by, you know, rule-based algo. On the affordable side, it is a mix of both personal touch, personal discussion, and use of templates.
Understand, thank you. Just one last bit. I wanted to understand what would be the ROA guidance for the next two to three years?
ROA guidance, we are not giving on an annual basis. What we are, what we have laid out on our Investor Day is that we are working towards a range of 2.4%-2.6% in next three years, so we are committed to deliver that.
2.2-2.3, did I get it right?
2.4%-2.6%
2.4 to 2.6. Thank you very much.
Thank you. The next question is from the line of Viral Shah from IIFL Capital. Please go ahead.
Yeah, hi. Thank you for giving me, giving the opportunity to come back. One last question is, so in this quarter, you have had INR 80 crore of recovery, and then there was around, four and a half crores of provisions loss, provisions on the corporate loans, right? And with an overall, net write back of INR 12 crore, it means that the adjusted or ex of the recovery, the credit cost, would have been INR 72 crore. Would that be a right understanding?
Yeah, that's right, Viral, but that also includes some one-off that we have taken on the retail side. So it is not a core credit cost, that also had certain one-off that we have taken.
Okay. And when you mention one-off, is it a charge to
Yeah.
right?
Yeah, right. Charge
Okay, got it. Yeah, that, that makes sense, because otherwise the implied, credit costs were a bit higher.
Yeah.
Got it. Great. Thank you.
Thank you. As there are no further questions from the participants, I would now like to hand the conference over to the management for the closing comments.
Thank you everyone for joining us on the call. If you have any questions unanswered, please feel free to get in touch with Investor Relations. The transcript of this call is uploaded, will be uploaded on our website, as well as the audio of the call. Thank you.