Ladies and gentlemen, today I welcome to the Q1 FY 2024 earnings conference call of Repco Home Finance hosted by YES SECURITIES. 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, just signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference has been recorded. I now hand the conference over to Mr. Rajiv Mehta from YES SECURITIES. Thank you, and over to you, sir.
Thanks, Jacob. Good evening all. Welcome to Q1 FY 2024 earnings call of Repco Home Finance. Firstly, we thank the management for giving us this opportunity. We have the Repco management team along with us. Mr. K. Swaminathan, Managing Director and CEO, Mr. T. Karunakaran, Chief Operating Officer, Mr. N. Balasubramaniam, Chief Development Officer, and Ms. K. Lakshmi, Chief Financial Officer. Now, I would like to hand over the call to Mr. Swaminathan for his opening remarks on company's performance and the outlook. Post this, we will open the floor for questions. Over to you, Mr. Swaminathan.
Thanks, Mr. Rajiv Mehta. Thanks, Mr. Jacob. We would like to welcome all to the earnings call of RHFL for the quarter ended June 30, 2023. Thank you all for joining us in this call today. As mentioned, we are happy to announce that we are on the right track to continue the momentum of the previous quarter. The company is steadily progressing on its business. Thanks, [Mr. Rajiv]. Sorry for the interruption. As I said, we welcome all of you to this earnings call for the first quarter of 2023-2024. We are happy to announce that we are on the right track to continue the momentum of the previous quarters. The company is steadily progressing on its business parameters and is confident of meeting its yearly numbers.
The company is in the process of making structural changes in the organization, the results of which would become visible in the coming quarters. As regards business update, we were able to achieve a disbursement of INR 684 crore against INR 642 crore of Q1 FY 2023, registering a growth of 7%. Our sanctions stood at INR 726 crore as compared to INR 691 crore of Q1 FY 2023, showing a YoY growth of 5%. It is worthwhile to note that the sanction disbursements in Q1 of last year included a DA pool purchase of INR 70 crore, while there was no such pool purchase in the current quarter, Q1 of 2024. Our AUM stands at INR 12,655 crore, increased by around 2% QoQ and from the previous quarter of INR 12,449 crore. The ratio of exposure between non-salaried and salaried segment stood at 51.8% and 48.2% respectively.
The share to non-housing loan at home equity stood about 23.1% of loan book, and housing loans contributed about 76.9% of the book. We were able to reduce the GNPA from INR 719 crore to INR 695 crore. It is 5.5% of the AUM, and the net NPA stood at INR 338 crore at 2.8%. We have a total provision of INR 524 crore with a provision coverage ratio of 51.4% for the stage three assets. As of June 30, 2023, we hold INR 600 crore of restructured portfolio, of which approximately INR 200 crore is in stage three. Our NIM for Q1 FY 2024 was at 5.1% as against 4.6% in Q1 FY 2023. We have been able to successfully transfer the increase in our borrowing costs to also improve our margins. We continue to operate at a spread of 3.3%. Our average yield on incremental loans sanctioned rose to 11.56% in Q1 as compared to 11.08% previous quarter.
The profits grew 8.5% QoQ and 43.3% YoY, amounting to INR 89 crore as against INR 82 crore in Q4 FY 2023 and INR 62 crore in Q1 FY 2023. Our ROA and ROE improved to 2.8% and 15.8% respectively in Q1 FY 2024 as against respective figures for Q4 at 2.7% and 14.4%. During Q1 FY 2023, we were little aggressive in recovery actions, and more than 1,340 SARFAESI notices have been issued during this last quarter. Similarly, we are also happy to announce that the company has implemented a salary revision of all its staff members with effect from January 2023. These two measures might have contributed to a little increase in our total cost, but we are confident that the higher pay package as well as the recovery efforts will give a good result for the company in the coming quarters. We also expect a drop in our attrition ratios. The new software.
As indicated in our previous meet, the new software project is already in place in all the outlets. That is, mobile applications and phase one of the project is on the verge of completion and shall be rolled out immediately post-performing a security check. Such an add-on functions to this particular rollout may need to facilitate decision-making in head office to be implemented in the coming months. Branch network. As of June 30, 2023, we have 193 touchpoints across rural space and one UT, comprising of 159 branches and 34 satellite centers with an additional two asset recovery branches. In the month of July 2023, that is, in the second quarter, we have already upgraded seven of our satellite centers. We will also be opening three more satellite centers this year. We are having more than 200 outlets.
To summarize, the key financial highlights for the quarter are the loan book standing at INR 12,655 crore, registering 7% year-on-year growth. PAT is INR 89 crore. ROA and ROE at 2.8% and 15.8% respectively. The core profitability has remained strong with a solid spread and margin of 3.3% and 5.1% respectively. The gross NPA stood at 5.3%, the coverage of 61.4%, net NPA is at 2.8%. For way forward, for FY 2023, we plan to stick to our guidance numbers of 20% growth in sanctions and disbursements, and 12% AUM growth from FY 2023. The GNPA numbers are planned to be brought down by at least INR 100 crore, out of which we have already reduced INR 24 crore. Thank you very much for the opportunity. I think we are open to questions by all the people here. Thank you. Thank you very much. Thank you, Rajiv.
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 system telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the lines of Amish Thakkar from Siguler Guff India Advisers Private Limited. Please go ahead.
Hi. Congratulations on an incredible number. Just want to get some clarity on your disbursement growth. Any guidance on full year and to get to about thousand crores per quarter? If you could just break it down by any additional offerings that you are planning going forward and based on that page also, because you have mentioned your home market is in single digits, while a couple of other markets are growing at double digits. At the same time, Gujarat has been negative. What is the issue in Gujarat and like pulling down that portfolio, if you can just give us broad strokes or high level on these two aspects within.
Thanks, Amish. I think if you see, if you exclude the INR 70 crore of DA book which we did last quarter, that is year-on-year, I think we have grown by around 30% as far as disbursements are concerned. We plan to maintain the same disbursement number for concern. Going forward, especially the first quarter is normally a lean quarter. Despite that, we have grown 30% year-on-year. In the current year also, we are planning to increase the total disbursement number from around INR 3,000 crore last year to around INR 3,600 crore in this current year. We are on track. We are confident that we will be able to achieve the numbers as far as disbursements are concerned. As regards AUM, I think we are around INR 12,400 in the beginning of the year.
We plan to reach somewhere around INR 14,000 crore by the current year end. That is our current assumption. Hopefully when the increase happens, momentum happens, especially the second and third quarter are normally big quarters for company. During the second and third quarter when the increase or the momentum picks up, I think definitely the book growth also will be more than the 9% growth we achieved in first quarter May. Definitely, I think we will be able to reach a number of around INR 14,000 crore. This is our current assumption for the year end.
So anything on branch expansion strategy going forward and what is happening in Tamil Nadu? Why the AUM growth there is 7%-8% versus double digit growth in some other markets? How do you think the market in Tamil Nadu playing out there? 56% of AUM is hidden there.
Actually, Tamil Nadu is doing well. That is, see, even despite the repayments, we are able to maintain the share of Tamil Nadu book, which implies it is, of course, giving us new businesses. We are opening, I think I told you the previous call also, we are opening satellite centers in Tamil Nadu. These centers where we are opening these centers are mostly in tier two or tier three centers. So we are opening in the form of satellite in Tamil Nadu. Whereas in other centers, we directly go for branch opening. Tamil Nadu is contributing a bulk of our business. More than 50% is being given by Tamil Nadu, and we plan to maintain that same ratio. As far as numbers are concerned, I told you the initial range itself, it will be somewhere around 200 + by the year end.
Tamil Nadu itself, we will be opening another six or seven set of offices before the year end. In other places, at least 10 branches we will be opening under Tamil Nadu. So by year end, I think we should be somewhere around 200 + offices.
You seem to have actually ramped down your portfolio in Gujarat. It is only 3% of the book, but have you stopped new disbursements completely there? It looks like the same issue that industry faced in the Surat region or is it something else there?
Not at all, sir. Comparatively, we are not all that popular in markets in west compared to south. That is why there is a slow progress markets like Gujarat, as you are saying. We are positive. In fact, we will be opening some of the branches in Gujarat. Some of our branch expansions are in Gujarat only. Once the infrastructure in terms of human capital is in place, we will be opening branches in Gujarat. We want more growth in Gujarat because these are improved growth markets for us.
Okay. This INR 14,000 crore target, you are factoring in any BT-outs that happened?
Yeah. What are the BT-outs as well as the normal run-offs have all been factored in our INR 14,000 crore, which is a normal thing. To answer your question on specifically on BT-outs loans, I am happy to announce that BT-outs loans are relatively less compared to BT-ins, that is a reversal in trend that we have noticed in the first quarter. Hopefully, if it continues in the coming quarters also, I think we will be able to handle this BT-outs, which was one of the problem areas of this company last year.
Any guidance on this portfolio purchase that happened in Q1 and Q4, will that be included in this financial year as well?
Frankly, as an organization, we want to grow organically year-to-year. When an opportunity comes as far as DA is concerned, definitely we will look at the option provided it is profitable and it gives us volumes.
Okay. Thanks a lot, sir. All the best.
Thanks Mr. Thakkar.
Thank you. The next question is from the line of Aniket Kulkarni from BMSPL Capital. Please go ahead.
Thanks for the opportunity. During the initial commentary, you spoke about some structural changes which the company is going through and you said the effects of it will be seen in the coming quarters. Can you just give some more detail on what are the sort of changes which you are doing and how will it affect the business going forward?
Thank you. The company was not having any sort of verticalization in place in all these years. This sort of verticalization we have started doing . In the last call also, we had told about a collection which was implemented. In the current quarter, we have also started a sales vertical side. Going forward, we will also be adding a credit vertical. This collection vertical is more or less stabilized even though the results will keep coming. Sales vertical is in process. It is just one month over. Going forward, I think sales vertical also will be giving us more volumes. This is what normally we were talking. In addition to that, I think we are also doing some structural changes as far as our software is concerned, which I mentioned in the opening remarks.
All these are just to say, in each and every department something or other is happening. Basically, some sort of a verticalization has started happening in this company, and we are confident that this is going to give us results.
Okay. Thanks for the answer and thanks for having me.
Thanks.
Thank you. The next question is on the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Thank you. Sir, I wanted to understand first your disbursement. If I look at your disbursements, have you already shared the split of your disbursements between home loans and LAP?
Yeah. Home loan and home equity we have given, no? Hello?
So has that already been provided?
Yeah. It has already been provided. I can give you once more.
Yeah.
Okay. I will tell you. We have given the percentage, I will give you the number. See, as far as home loan is concerned, it is INR 9,735 crore. For home equity, it is INR 2,919 crore.
This is the split of your loan book, right?
Yeah. Loan book.
No, sir, I was asking actually about disbursements. For this quarter and maybe the last two quarters, if you could give the split of your disbursements between home loans and LAP, and home equity.
It is not readily available. I will see whether I can give you before the end of the call.
Sure, sir. The other thing I was wanting to understand is, while very clearly you have started to demonstrate some growth in your advances now, which is broadly around INR 12,650 crore now. What is a little worrisome here is if I look at home loans, home loans has grown by just about 2% year-over-year, while your LAP has grown about 28% year-over-year. I understand the things that we have been through. But sir, historically speaking also, LAP and self-employed segment has been a problem area for Repco. Even if I look at the gross NPA numbers that we share basis for our segments. There also, if you look at it in home equity LAP, we had a peak NPAs of about 10%, almost about seven, eight quarters back, which is now at 7%.
So why is it that we continue to do well in LAP where we are not seeing a lot of BT-outs as a matter of fact, our book has been growing 20% is very strong growth. While housing loans which are more safer, there we have just seen a 2%-3% kind of a YoY growth.
Mr. Abhijit, one clarification I would like to make. It is not exactly LAP book. It is what we call as home equity. It is not just NPA. Non-home loan are all LAP. This so-called home equity consists of two or three segments. One is, of course, a LAP, which is maybe a major thing. The other thing is on a commercial, even a commercial real estate one. Second, let us say a home loan with three kitchens. We call it as home equity. All this come under home equity portion. You may also be remembering recently RBI came up with a circular. Wherever some reimbursements happen even in case of a home loan, it is still to be considered as a home loan. All this put together come under non-home loan portfolio.
Even though technically speaking, these may be home loan, they are classified more from a supervisory point as a non-home loan. That is why I am saying as far as the non-home loan portfolio, we do not look at it entirely as LAP book. Your question, yes, LAP is giving me some margins. We are very clear, even in case of a LAP, whatever be the portion, even in case of LAP, all our normal requirements like CIBIL score or the quality of the client, all these are taken into consideration before we. The entire risk parameters are all parameterized in our LLMS situation. All these are taken into consideration. Let us not have a view that all LAP books will be riskier. Of course, by their nature, the NPA percentage of a home equity will be higher than a home loan.
Second, in home loan, there is a bit competition. Compare it to my home equity. My growth is also happening this way. In this particular quarter, it is more because of the change in nomenclature with the supervisory thing. There is an increase in a non-home loan portfolio. To answer your thing, we have now got the disbursement. For the current quarter, it is INR 410 crore housing and INR 274 crore home equity. Previous, let us say, INR 480 crore. In June 2020, it was INR 480 and INR 162. March 2023, it is INR 555 and INR 280. It is happening. Always, the home housing portfolio is more than home equity portfolio. I again repeat, it is not that all non-housing loan portfolios are LAP.
Got it, sir. Sir, this thing that you explained, the change in product mix, a sharp change in product mix that we are seeing this quarter, where the home equity portfolio has moved up from 20.7% to 23%. This is purely a reclassification or the change in guidelines and nomenclature is what you talked about.
It should be mostly because of that reason because we have taken all that. Mainly, I do not have the exact number, but most of the suppliers, we have reclassified all our reimbursement loans as home equity portfolio. There may be an increase in the home equity portfolio in the current quarter. I am not denying that, but it is mostly because of the reclassification.
Got it. Sir, last question is, how should we now look at the asset quality? Obviously, under your leadership, asset quality has continued to improve. During the opening remarks, you also talked about the guidance there. For the full year, you talked about bringing down the NPA by about INR 100 crore. Almost a quarter of that you've already achieved. So how should we look at asset quality going forward? You talked about initiating a lot of SARFAESI. So that's all my question, how should we look at asset quality and also the recourse for the company?
As far as portfolio, whatever INR 100 crore we have given are really a conservative estimate. We wanted it especially conservative as far as NPA is concerned. Mainly because of the residual portfolios is still there in our NPA as well as stage two number, just because of that reason. As I mentioned in the opening remarks, and as you have mentioned, we are going really aggressive as far as recovery actions are concerned in our NPA portfolios, the stage three portfolios. We are confident that all these efforts will bring the NPA numbers still down, and we may even better our guidance as far as NPA numbers are concerned. We continue to monitor almost on a daily basis, on a monthly basis. Definitely, we will be in a position, in my view, we will be in a position to monitor unless something drastically changes.
Got it, sir. This is very useful. Thank you so much for sitting and answering my questions.
Thank you. The next question is on the line of Anand Mundra from Soar Wealth. Please go ahead.
Hello, sir. Sir, wanted to check with you, how do we plan to grow our business by increasing the ticket size or increasing branch productivity or opening new branches? Because when I was doing that, it looked like branch productivity is already very good.
I have slight differing opinion, Mr. Mundra. There is still scope for improvements in productivity. That is where we are driving. Of course, we will be opening more branches. Branches also will be given a growth opportunity. But the measure that I was talking about, it is only for improving the productivity of our staff. Because some portion of our existing staff, we are going to earmark exclusively for selling to our customers, approaching new customers. More and more customers will branch out than we did rather than walk-in customers. I think with all this, we want to improve both our staff as well as our branch productivity. I think that is really main source of our growth for the current year as well as the coming year.
Sir, I visited few branches, so I realized that we don't work on street-on-street model. Is that correct? Because I visited branches in Western India, so I wanted to confirm that.
I agree. We were not at least to a certain extent, I can agree we were not street-on-street model. That is what we are changing. Now with almost all the branches having an exclusive sales staff, at least one person will be in the street throughout, and we are monitoring his or her performance on a daily basis, how many new logins this particular staff is bringing in. This is in addition to the other measures like a DSA or a walk-in model. So the exclusive person who is earmarked for sales, he is supposed to bring in fresh business. That is the expectation. It is still a process which has just started one month back. Going forward, maybe if you visit the same branches two or three quarters hence, I think you will see a change.
Yeah. Definitely, sir. I saw a lot of changes and staff were really motivated. I was just talking about the branch productivity. Sir, second question which I had was, what about the portfolio in stage two and stage one, only a portion of 0 - 30 days, 0 - 30 days and 30 - 60 days and 60 - 90 days. What percentage of portfolio is there, sir?
I agree with you because of the software changes taking place, we are unable to zero in on the correct numbers as far as stage two and stage one are concerned. Definitely going forward, maybe in the next one or two quarters, we will be giving you the precise numbers. Because there are some number issues. Definitely in the next two or three quarters, we will be able to give you the exact numbers in this issue.
Okay. Sir, one more question. What is the actual credit loss which we have actually suffered in the last six years? Whatever you can recollect.
Oh, dear, I am just one year old. Anyway, I will try to give you—
In the last three, four years. Whatever number you have.
I do not have exactly. Anyway, I will try to give you, before May. Five years you are asking. Sir, last year I can tell you, last year on the current rate. This particular quarter may be only around INR 5 crore. Less than INR 5 crore will it cost. I think last year maybe around INR 25 crore, madam.
No, I am not talking about the provision, sir. I am talking about the actual credit loss which you have suffered because you have auctioned the portfolio at a lesser value than the loan outstanding.
That will be very, very less. But right from inception of this company, the actual write-off will be around INR 10 crore-INR 15 crore.
INR 10 crore-INR 15 crore.
Actual write-off. Maybe another INR 10 crore or INR 15 crore may be there, which we have to write off. That may be there. This is throughout the history of the company.
Okay, nice to know that. Sir, coming back to the first point, you are saying that we will be adding feet on street in every branch, at least one employee.
Yeah.
That person will manage any DSA, outsourced DSA, or he will source by himself?
No. Our direction to the particular employee is other than DSA. We call it as a direct channel.
Direct channel, yeah.
Our employee channel. DSA channel should be different.
Okay. Thank you, sir. Thanks a lot.
Thank you.
Thank you. The next question is from the line of Aviral Jain from Siguler Guff. Please go ahead.
Thank you so much, sir. I have two questions. One is, if you can quantify the BT-ins and BT-outs for the quarter, and what has changed on ground so that you are tracking BT-ins? I had seen our cons ask from the previous management to focus on BT-ins and also reduce BT-outs. So where are you seeing these BT-ins from, and if you can quantify these numbers. Consequently, is there a borrower profile change that you are observing given yields are improving, margins are still very competitive? So those are my two questions.
As far as BT-ins are concerned, we got a BT-in of INR 78 odd crore last quarter. BT-out is relatively a bigger picture. We do not know what are the exact BT-ins, but approximately we can say that it should be around INR 44 crore- INR 50 crore. I can say confidently that in first quarter, our BT-ins were more than the BT-outs. To that extent, I can be confident. As far as borrower profile is concerned, we have not seen much of a change, at least in the last one or two quarters. We have not seen much of a change. Our existing borrower, our existing clientele remains the same. But going forward, if we are slightly aggressive in the salaried segment or in the documented segments, maybe our home loan portion may slightly go up. The BT-ins are mostly from other housing finance companies whose interest rates are slightly higher.
If we become slightly aggressive in our interest rates, we will be seeing an increase in the home loan portfolio compared to the home equity portfolio.
The BT-ins are a mix of both home equity and housing loans.
Yes. Because normally they come not only for taking over, but also for giving some add-ons. Normally they come with an additional to the existing loan portion. So that is also being given by us only for those people who are coming as a loan in addition to the interest rate. Second, we are also tracking the movement of our customers. Wherever we are seeing an indication that some of our customers may move out, we try to reach them and see whether BT-out can be prevented.
There is a central monitoring team which was checking CIBIL hits and other hits on your existing borrowers. Are you keeping something like that in motion at a branch level, not at a central level?
At the head office level, we are monitoring through our links with the central agencies, like CIBIL, who give us reports about the likelihood of our customer moving out.
Yeah, number of hits. Correct. Got it.
We try to contact them so that we prevent such BT-outs.
Are BT-ins, the average yield on the BT-ins higher than the overall portfolio for likes or is in line with your overall book?
BT-ins, if it is higher, they do not move in. Absolutely will come to me only if there is some concession or some reduction to them. So it will be online. Of course, we do not sacrifice because of BT-ins, we do not reduce our normal interest rate. So they move in if it is favorable, if it is competitive in terms of our existing portfolio, they move here. We are monitoring.
Let me ask you this question. Yeah, sorry. Let me ask you this question differently, sir. We have seen a tremendous growth in affordable housing finance companies like Aptus or Aavas or Aadhar, HFFC. They have both higher yields. Their average yield is hovering around 15.5%-16%, and even Aptus is much higher. Are they showing pristine asset quality? Is that something you are hunting down that group? Their seasoned borrowers, you can actually attract at 11%-11.5% sort of borrowing rate?
No, we don't target, Mr. Aviral. We don't target any specific company or specific thing. People come based on our rate. Maybe word of mouth publicity goes, they see what is our interest rates and all. Our people, when they move out, they find out what is our interest rate. Such things come in a natural fashion. It is not because of any aggressive push from any particular company or person. Just because of which we use more, mainly because of our interest rate.
I agree with you. With that virtualization of sales, there comes to a situation where you will have lot more foot and lot more effort by your team on ground, the connect challenge. You would want to bring in people who could be a fresh to market, could be existing borrowers who come and something. We should be seeing some heavy collection here, right? From the virtualization that you talked about.
Definitely. It's one thing that will happen in future. I would like to repeat, because the sales vertical itself is still in the nascent stage. We need to train them, we need to tell them how it has to happen and all that. Maybe one or two quarters down the line, this vertical will bring in enough business to us. It will save on cost as well.
Curiously, how were leads being generated earlier? It was just walking into a branch and there was no outreach as such?
T here were outreach, but it was more informal. Now we are standardizing these types of outreach. Earlier, if you recall some years back, we used to have these credit camps. These credit camps are no more happening. It is not popular everywhere because of the competition that is there. Slowly, it was more especially in the south, our popularity, our brand value itself was bringing in business. Now that competition is becoming intense, now we need to go for outreach. That is what we have done this year. Earlier, let us say one year or two years back, not only our outreach, not only our publicity or our brand, some sort of an informal thing from our existing customers also brought in new business. But now we want to be more nearer to the customer, more nearer to the prospective customer.
This digital is going to help us in that fashion.
Then, sir, fast pace will be two years down the line. Do you aspire to outgrow the 20% target that you set this year in terms of the business, the organic business will grow? Given so many building blocks have been put in place to—
Who will say no here? Of course, I have to grow. More than 20%, I will be too happy. Definitely.
Okay. Sure.
Once I see the momentum, I think we will be resetting our own hurdle.
Okay. Good to know, sir. Thank you so much.
Thanks, Aviral.
Thank you. The next question is on the line of Sarvesh Gupta from Maximal Capital Private Limited. Please go ahead.
Good evening, sir. Sir, this change in the mix in favor of home equity has been very sharp, from 20.7% to 23.1%. You mentioned that part of it might be due to some changes in the classification norms, which would have happened during this quarter. So what is that, sir? That is an important insight number that we would want to know.
Sarvesh, see, we do not only target non-home loans. A lot of it is coming to bank. It is not that the growth is happening only in the non-home loan segment. As you yourself mentioned, the main source of reclassification happened there. Some of the home loans also, we ourselves have classified, as I was telling. It may be a few housing loans that when we noticed it was almost two, three years. Or it may be a place where he will be building a house. In addition, he will also be constructing a small shop in front of his house. Such things we classify under home equity. These are all the reasons why this home equity portion has gone up.
There is nothing I want to assure you that we are a pure play home loan company, and you will also be knowing that we can go up to 40% of non-home loan portfolio. We are only around 23%. So we are very much within the supervisory norm, and we are not actually aggressively. I do not want to have any such notion that we are slightly aggressive in non-home loan portfolio. No. It is happening whatever is coming to our intake. As this classification, as per especially in the new system, we are very clear. Unless it is pure home loan, we cannot classify under any other category. So all these are coming into picture. Only because of this reclassification, there is an increase in the home equity portfolio. Otherwise, we are pure housing loan company and we will continue to be a major housing loan company.
That is good, sir. But it will be efforts to get that number. Maybe after the call, it can be shared offline.
On what?
That is one. Second is, sir, if I look at your employee cost on a YoY basis and QoQ basis, it is up 17% and 0%. The numbers are up only 2%. Does it mean that on an average 15% increase in salary has happened from last year to this year?
Okay. See, I told in the initial stage that we did an increase in salary right from January 2023. In fact, we paid out the employees even in this quarter. We paid in June along with the ideas that we have paid. This is one of the major reasons why there has been an increase in the... You should also factor this. There has been an increase in the cost of living over a period, so that has also been factored. All this, we are hopeful for productivity of staff should increase based on this because we are also going back our staff members. The second one is because of an attrition of around 18% last year.
We are quite confident that with the revision in salary, this attrition number will definitely come down and we will have more people who are well-trained in our company who will be there in the company, which will help us with our productivity. We are going for the acceleration now. It will help us because the trained staff will be in the seat. We are seeing increase in the numbers. Despite all this, we are also keeping an eye on the cost to income ratio. It is somewhat under control. Going forward also this is to be the same thing. We do not expect any major increase in the coming quarters because already these things have been factored.
The establishment charges is sitting around INR 1 crore per month, which has already been factored by us, and we are confident that our increasing income will easily overcome this establishment cost increase.
Your NIMs have also spiked up in the last few quarters.
I beg your pardon?
The NIM percentage has also gone up relative to the earlier levels.
Okay.
What is the sort of the levels that we want to maintain? If we are going to be very aggressive on the non-home loan segment, then maybe NIMs can be maintained, but then you might see more gross NPAs stress building up later on. How are you thinking about the NIMs as such?
Okay. I would like to repeat, we do not want to be aggressive in any one segment, leave alone non-housing loan segment. We want to be as like what we were as far as book growth is concerned, both home loans and home equity to grow in tandem. This is our expectation. We want to grow similarly. Maybe in the first two quarters you would have seen some increase in risk. One thing we want to be very clear, whatever is the cost increases, we want to pass it on. We do not want to bear the cost increase. That is one thing that we have taught here. Otherwise, I think going forward, it will be the same. We have given a guidance of around 4.7% or 4.8% of NIM.
Even though in first quarter NIM is slightly more than our guidance, it should stay say around 4.7%- 4.8% till the end year end. Once we increase our home loan portfolio, especially to the salary segment, which is slightly more risky where I have to give some concessions to the customer.
Understood. Finally, on the credit cost, I think this has gone down a lot and maybe because of the reduction in the gross NPA numbers. Maybe in case you are targeting another INR 100 crore decrease this year, then they will continue to be subdued. What is the sort of realistic steady state number in terms of the credit cost that you are looking at?
We have given a INR 25 crore, I think. We have given a INR 25 crore thing for the current year. We would like to maintain that. We do not want it to increase.
This year is fine because this still is coming down from a higher base. But then maybe going down two, three years down the line, how are you looking at the credit cost given the kind of profile that you are lending at?
Okay. See, we are monitoring. Let us be very clear. We are monitoring whatever is the loans we are giving. The early mortality or the early overs, all are getting monitored. Comparatively, we are confident that we will be able to maintain the same level of GNPA and NPA numbers, or it will be going gradually downward shifting going forward. We are confident that going forward, the credit cost numbers will be maintained or it can even be reduced.
Understood, sir. Thank you and all the best.
Thank you, Sarvesh.
Thank you. The next question is from the line of Rajagopal Ramanathan from [Sada Khush]. Please go ahead.
Hello, am I audible?
Yes.
A few questions. A couple of them are data specific. One is, do you have a talk of the quantum of loans that have been written off completely, but you hope to recover over the next, say, 24 months or so? This is the first one. The second one relates to direct assignments, wherein you have indicated numbers for Q1 FY 2023 and Q4 FY 2023. I believe some DAs which were there, which was probably onboarded in Q1 FY 2023 and the balance which was outstanding in Q4 FY 2023. Have you not stated what is that quantum in Q1 FY 2024? I believe either suggest that direct assignments are completely repaid, or you have got to indicate what that is so that we can read an appropriate comparison. Apart from that, a couple of questions relate to any specific reasons why you are being so conservative with this checkbook?
Because as one of the other analysts pointed out, you have a lot of other home finance companies which are comfortably able to achieve 20% + growth in their entire loan book. We are wanting to sort of constrain ourselves at levels of around 12% - 15%. Is there any specific management thought behind that? Lastly, if you do prefer to be so conservative, then what is the rationale in having a capital adequacy of 36% then? Because you will never be in a position to sweat your capital if you are going to be operating at such growth rates. You should be therefore be distributing more dividends. Because clearly, if you look at payouts, your payouts are very limited, and therefore it actually calls for you to increase your payouts to improve capital productivity.
[Sir, Rajagopal].
Yeah.
Okay. Thanks, Mr. Rajagopal. See, as far as rate of is concerned, I think as you have answered earlier, if growth is still there, already you would have written off maybe INR 10 crore- INR 15 crore, not much as far as the write-off is concerned. Today, maybe in the credit side, of course, we will be having around INR 14 crore-INR 15 crore of assets which we have already sold, but still something is outstanding. These have been integrated now. We are also seeing whether some INR 70 crore will recover even this amount. Okay. This is first thing. As far as direct assignment is concerned, I think we want to be very clear. We had put INR 70 crore or INR 66 crore of direct assignment between disbursement of Q1 of last year as well as Q4 of last year.
In Q1 of 2023-2024, we did not do any direct assignment, which means in the disbursement portfolio, there is no DA. As far as book is concerned, yes, whatever we have already sourced, that will still remain. Your specific question, we can say that it is around INR 112 crore which is still lying. It is around INR 112 crore, which is still lying in our book. Out of this INR 12,655 crore, within around INR 112 crore, which is the DA book which is still prevailing. But during the first quarter, we did not do any DA assignment. That is what I want to be very clear. AUM book, Mr. Rajagopal, I think maybe you are a new investor. This company was not doing all this. We were somewhat negative. If you remember, two or three years, it was somewhat negative, or we were not growing.
From 2023-2024, we wanted to be conservative mainly because we wanted to change this curve. From a negative person, we wanted to do something different, and that is why we have given a cleanup. Maybe going forward, when we see the momentum, definitely in the next year, you will see that our growth rate also will be on par with the industry. One thing you should also understand, we are now a 23-year-old company. Naturally, there will be a normal repayment which will be there. But some of our other people were relatively new, so that is also to be factored in as well as AUM growth is concerned. That is the only thing. As far as capital, yes, we want to use capital as possible. You will be seeing the change in the coming year.
I will be very clear, this company is making a slow turnaround. I think we need to be a little patient. This is as an MD, I am requesting you people, new investors. Please be a little patient. You will be seeing the results definitely in the coming year.
Sir, I have actually looked at the last 10 years in terms of repayments as a percentage of your opening loan book.
Okay.
It has tended to average anywhere between 15%-20% of all the opening loan book. If I were to look at this chart, it tells me that irrespective of whatever era or whatever management has been or whatever sort of cycles the company has undergone, this number has not changed much. Whereas what seems to have happened is the disbursement growth which happened between, say, 2013 and 2016, which was significantly higher, anywhere between, say, 25% +, that seems to have completely collapsed. Now you seem to be trying to sort of bend the curve. What I'm essentially saying is the home loan business is a capital-efficient business. If you're actually going to be very conservative with respect to the growth, you will only be sort of making yourself more over-capitalized in the process.
Why I say this is if you look at your valuations, I'm not necessarily saying you should be compared with any other housing finance company, but even for you to command a debt value multiple, investors have to be able to see the capital productivity improve or your growth needs to sort of meaningfully move up. My point is, look, I'm not dissatisfied with what you're doing, but I'm saying that this is one area where you need to start working on because there is no point in holding capital when you're not expecting to utilize it in a foreseeable period. That's my limited observation.
Okay. Thanks. Thanks for your observation, sir. See, you will be seeing the working. As far as valuation is concerned, you will agree that valuation is not in my hands. It is in your hands.
No, sir. That is actually completely in your hands because if you decide to pay out dividends, there is no reason my equity holders are going to complain. Please try to understand. Tomorrow, when you need capital for growth, equity shareholders will give you capital for growth if you are able to make your capital productive. It is not in our hands. It's completely in the company's hands.
Many power of words which I fully appreciate. I am very happy that you have analyzed very well. Definitely, you will be seeing an increase in the dividend payout. Dividend payout alone is not one of the valuation criteria. I think you will agree for that. Secondly, you will be seeing, going forward, there will be an increase in number. There will be more utilization of capital, which we will see. Once the growth picks up, we will also see increase in the capital. Even if one part of it, effective utilization happens again, you will also see. Definitely when I borrow more, when I spend more, all this, when the book increases, definitely this capitalization will also come into picture.
I wish you all the best, sir, but please don't misunderstand what I have tried to put forth here. Because when you have excess capital within the system, it also creates a false sense of security, saying that, "How does it matter? I have all the capital, I can do whatever I want." So it is just to ensure that a company does not take capital lightly and to ensure that it works towards making it more productive. That's my limited point. Thank you very much. All the best.
Thank you very much, sir. I take your advice.
Thank you. A reminder to all participants to ask a question, you may press star and one. The next question is from the line of Akash Jain from MoneyCurves Analytics. Please go ahead.
Yeah, hi, sir. I think the company obviously has come a long way in the last one year under your leadership, and I think numbers are there to see. I have a couple of questions. Sir, one is, I think last quarter, there was this discussion around stage two, where you said that clearly the focus for the last one year has been on GNPA, and successfully the GNPA has been controlled. I think you also mentioned that your focus will now move to stage two because stage two looks a high number and we have to get collection process in place to bring that under control. I just wanted to understand from you where are we in terms of our strategy for controlling stage two. I understand you were not able to give split up between stage one and stage two this time.
But from a strategic point of view, where are we from a focus perspective on stage two?
Okay. Thanks, Akash. As you have said, yes, we are now focusing more on stage two. In fact, more than even stage three, we are focusing more on stage two. I would say the collection vertical is more or less getting stabilized. We as of now, we have 85 people exclusively on collection, recovering even 120 branches being covered under stage two. And on a daily basis which we are monitoring. Of course, we are unable to give you specific numbers because of the change in the software. Going forward, we will be able to give even specific numbers on stage two. We are slightly aggressive on stage two. We have been training the branches also on early mortality, bringing down the numbers, following up on check return, and so on.
I'm confident that in the next two or three quarters, the stage two numbers will be less than 10%, which is our target. We are confident that we should be in a position to bring down this stage two less than 10%.
Sir, the other question is on stages. Clearly the number on provision is very low, so I am assuming there is not too much exposure to stage three. Can you just give us some number in terms of what was the slippage for this quarter and what was the recovery?
Yeah. Slippage actually was INR 56 crore. We could recover around INR 80 crore this quarter. So net slippage reduction of INR 24 crore. Going forward also, we are monitoring almost on a daily basis. Going forward too, the exposure numbers will come down. To that extent, there will be a release in our provisions, which will help us in attaining the provision requirement.
Is it fair to assume that most of the slippages are from restructured book or is it stage two non-restructured book slipped as well?
Yeah, you are completely right, sir. Most of the slippages are from, out of this INR 56 crore, nearly 50% is from restructured book. This will continue also because there is still around INR 150-INR 200 crore in stage two as far as the restructured book is concerned. But they are slipping in a slow fashion. I am also glad to inform that we are also recovering from the restructured book even in stage three. So though some INR 25 crore-INR 30 crore we have slipped in the first quarter, we have also recovered a similar quantum from the restructured book even in stage three. To that extent, we are confident that this will remain.
Sir, one last question. Like you said, this is a very strong legal process that you have started on SARFAESI. My assumption is that can you give us a sense of what is the timeline typically, for example, if you initiate a SARFAESI process, then people may pay up or you may have to take possession and sell the property and recover. Given the fact that we have already provided 50% of our synergies on GNPA and given the way realistic assets we have gone, my sense is that if this really happens, we will probably recover significantly more than what we have provided. There will be probably write back if I am not mistaken.
Just give us a sense whether there will be write back if my understanding is right and just a broad timeline perspective on when the recoveries start flowing in from the timeline the time we start the SARFAESI process.
Technically, within six months the SARFAESI process should be over. This is normal now. You will appreciate which is more the scare which is given to the customer, it helps us in recovery. Once a SARFAESI notice is issued or a possession notice is issued, and even an auction notice is issued, we do not expect that it will succeed then only we will recover. It is more from a situation that the customer comes to us, we talk, we come up with some OTS solution and all that. I think more than actual SARFAESI is the threat or the comfort we are giving to the customer which brings us recovery. That is how it will speed up. It is not from pure SARFAESI action.
If it is a SARFAESI action, okay, maybe some INR 20 crore-INR 30 crore every quarter we may get, but it is more from the threat of say a recovery notice that they will come to us, come for negotiation, and we generate revenues.
Do you expect write backs to come? We have obviously provided 50% and definitely all these resolutions will end up being significantly higher recoveries than what we have provided for. If I am understanding this right.
Yeah. Definitely some write backs will come, but those write backs we have not provided in the current year. I think we incorporated.
Eventually, given that there is so much of provisions that happened in the last few years and beginning to happen because of the respected book of Pura, over the next maybe one year or two years, we will see significant recoveries and write backs. That is at least possible or my assumption is right in that sense. Resolutions are going to happen in the next 12 months- 18 months, right?
It is possible, Mr. Akash, but I do not want to give any specific numbers. It is possible. As you say, since we are providing more, it gives us a definite cushion for the future.
Okay. Thank you so much, sir.
Thank you.
Thank you.
Just one thing before I go to the next question.
Yes.
See, as far as this home equity portion is concerned, it is a mixture as I was telling. The LAP book is only 24%. There is a CRE residential, that is around 11%. There is some commercial construction which is also happening, that is around 2%. The entire book is not LAP. LAP is only around 24%. That comes to light again, I think one of the analysts asked for it.
Sure. A reminder to all participants, if you wish to ask a question, you may press star and one. The next question is from the line of Rishikesh Oza from RoboCapital. Please go ahead.
Hello. Hi. Thank you for the opportunity. Sir, how many branches are we looking to add in FY 2024 and FY 2025?
FY 2025, we do not have numbers. FY 2024, I can tell you on that. FY 2024, we will be opening. Already we have opened four centers. I will not say branches. We will have the outlets. Four outlets we have already done. Three more we will be doing in this quarter. Another eight we have already got the approval from board. And maybe some more also we may do. Another five to six we may do. So at the end of the year, definitely we will be 200 +.
Okay. Also, I missed the number of credit scores. Which credit scores are we targeting for FY 2024?
INR 25 crore.
INR 25 crore?
INR 25 crore.
And same INR 25 crore we are saying for FY 2025 also more or less, right?
INR 25 crore is likely. Principally we are not so concerned anyway.
Okay. But do we expect the credit scores to be benign in FY 2025 too?
Should be, Mr. Rishikesh. I do not want to give a yes or no. Or even less.
Okay.
As per our trajectory, I think it should be even less.
Okay. Got it. Thank you.
Thank you. If there are no further questions, I now hand the conference over to the management for closing comments.