...Ladies and gentlemen, good day, and welcome to Ujjivan Small Finance Bank, Q2 FY twenty-five earnings conference call, hosted by IIFL Securities Limited. As a reminder, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ricky Shah from IIFL Securities Limited. Thank you, and over to you, sir.
Thank you, Neha. Good evening, and a very warm welcome to Ujjivan Small Finance Bank 2Q FY25 results call. To discuss the business strategy and outlook post the results, we have the entire management team of Ujjivan Small Finance Bank. The management team is represented by Mr. Sanjeev Nautiyal, MD and CEO, Ms. Carol Furtado, Executive Director, Mr. Martin P.S., Chief Operating Officer, Mr. Ashish Goaal, Chief Credit Officer, Mr. Vibhas Chandra, Head of Micro Banking, and Mr. Varun Agarwal, Deputy CFO. With that, over to you, Mr. Nautiyal, for your opening remarks.
Thank you so much. Good evening, and welcome to our Q2 FY 2025 earnings call. Total disbursements during the quarter were at INR 5,376 crores, slightly better than Q1 FY 2025, up 2% QOQ, but lower with respect to Q2 FY 2024, that is down 6% YOY. This resulted into loan book growth of 14% YOY and marginal 1% QOQ at INR 30,344 crore as of September 2024. Q2 FY 2025 has been a relatively slow quarter compared to previous ones. This was an outcome of expected reduction in business volumes due to implementation of MSME guardrails and our heightened caution around the microfinance segment. While growth might be visibly slow on the overall book, performance remained robust in the secured portfolio.
Affordable Housing business, our second largest asset vertical, disbursed INR 758 crore during the quarter, higher by 40% YOY and 70% QOQ. This made the Affordable Housing and Micro Mortgages book grow to INR 5,784 crore as of September 2024, adding a book of INR 585 crore versus June 2024, and registering a book growth of 43% YOY. Systematic group marketing activities across regions, penetrating deeper in select markets with better per capita income, stronger ground team, better connect with customers, and diligent customer retention plan have added to improved business. Micro Mortgages portfolio, a part of housing portfolio, continues to grow stronger with each quarter. This is approximately INR 400 crore book now as we speak, from INR 76 crore in September 2023. Customer, branch, and staff referrals added an edge to the business growth.
Around 60% plus of the overall disbursements in Micro Mortgages happened via referrals. MSME business has now stabilized with all its products, policies, and systems in place. Disbursements have picked up and will continue to see an uptrend QOQ. During Q2 FY 2025, MSME vertical disbursed INR 216 crore versus INR 130 crore in Q1 FY 2025. This resulted in achievement of a book of INR 1,514 crore, up 5% YOY, 7% QOQ, adding INR 100 crore of incremental book in H1 FY 2025. To further strengthen the product suite, we have introduced Elite LAP product in addition to the base LAP offering, and this is helping in increased business volumes. In Q2, we also launched Bank Guarantees and the Working Capital Term Loan variant, making our working capital offerings comprehensive and full stack.
Apart from growing the book, our focus is also in managing asset quality of this portfolio. Our revised MSME strategy has resulted in a better quality, growth, mix, and health of the portfolio. Our FIL book, as on September 24, was INR 2,042 crore, contributing 7% to the total asset book. This book grew by 57% YOY and 13% QOQ, and continues to scale as per the strategy of increasing the secured book of the bank. Vehicle finance streamlined its business process and strengthened infrastructure in the last quarter, and made full use of the upgraded capabilities during Q2 FY 2025. Disbursing INR 82 crore, leading to a book of INR 262 crore, up 105% YOY and 20% QOQ.
The team is poised well to drive higher business in the upcoming festive months by capitalizing on upgraded technological enablements, dealer tie-ups, partnerships, offering competitive rates, and better utilizing cross-sell avenues. Similarly, gold loan business has expanded well, currently being offered from 162 branches across the country and targeting to cover over 200 branches by end of next quarter. Disbursements have been rising incrementally month on month, and over 40% of the monthly business is coming from referrals. This has led to a book of 62 crore, growing over 100% QOQ. Going ahead, special focus will be on process enhancements and introducing products and features to better serve our customers. Our secured portfolio, as at September 2024, is 34.9% of the total book. The strong growth in the secured book has led to a faster progression towards 60/40 unsecured, secured book mix.
We anticipate that secured book will reach around 40% by end of this financial year. Bank has always followed a risk-calibrated approach. In order to de-risk the portfolio, we have diversified our product suite and continue to make steady progress by offering relevant products to our customer segment. In the last eighteen months, we have introduced products like micro mortgages, gold loans, two-wheeler loans, agri and working capital SME loans. And it's good to see that these five products, products alone now contribute 6% of the quarterly disbursements in Q2 FY twenty-five, versus 4% in Q1 FY twenty-five, with this portfolio growing 29% QOQ and 3x YOY. Let me now come to microfinance. As mentioned in our Q1 earnings call, the microfinance segment has seen some challenges, and the situation continues to evolve for the financial year twenty-five. This is our current understanding.
We believe that business revival on a reasonable estimate will only be visible from Q4 FY25 onwards at the earliest. To steer through this, we have devised a prudent approach and restricted disbursements to new to credit NTC, and stopped new customer acquisition in problematic clusters of some states. We have cautiously acquired only 1.5 lakhs new group loans and individual loan customers during the quarter, who had demonstrated better credit behavior. Our approach during this quarter was serving good quality repeat customers. Additionally, we have also introduced stringent norms for new to bank customers with three existing MFI lenders, 1.5 lakhs MFI exposure for all new to bank sourcing. Pincode/center-wide decisioning for repeat loan and top-up loan is in place. We continue focusing on the graduation of good customers from group loans to individual loans.
Around 90% of the overall individual loan book is from this migration. Due to these factors, we will continue to see a de-growth in our group loan portfolio for this year, which will weigh down our overall portfolio growth. We have a North-Star Focus on building the individual loan portfolio, which continues to show much better health and prospects. We will strive to achieve the lost ground to some extent from our individual loan segment and other businesses. Coming to liability business, total deposits grew on a strong retail footing to INR 34,070 crore, up 17% YOY and 5% QOQ. Retail deposits at INR 24,746 crore now constitute 73% of the total deposits, having grown 32% over September 2023.
Our deposit strategy emphasizes on increasing the wallet share of existing customers, along with quality acquisition of new customers through a mix of physical and digital reach. Focus on providing solution-based approach continues, and accordingly, we have created the products and features which are relevant for the segment, like introducing Non-Resident Maxima in Q2 FY 2025, a variant of Maxima account launched last year. We also introduced Navratna Family Program focused towards HNI customers and their families. We are targeting relationship management to ensure that at least three to four products or services are added to each customer. This has also added to improvement in ticket sizes and stickiness of the customers. CASA book at INR 8,832 crore, now forms 25.9% of total deposit book, is up 26% YOY and 6% QOQ. Value-add products are showing healthy traction.
Maxima SB book stands at INR 1,323 crore, with 21,000+ accounts as on September 2024, with average ticket size of INR 6.17 lakhs. Our strategy is to keep enhancing our offerings. In line with this, we had applied for AD-1 license, and I'm happy to share that we received the RBI approval and secured the license earlier during the month. This will enable us to offer full-fledged bouquet of products and services, like engaging in retail, foreign currency deposits, remittances, currency exchange. We shall also engage in foreign currency transactions, borrowings, and in trade finance offerings. This will lead to an incremental avenue of other income, aiding our P&L and also widening of our MSME product offerings.
On asset quality, as mentioned earlier, we are observing stress in the microfinance segment, due to which our PAR has increased to 5.1% in September 2024, versus 4.2% in June 2024. PAR 0 for our group loan portfolio has increased to 5.5% in September 2024, versus 4.1% in June 2024. In Q2 FY25, we have seen credit cost of INR 151 crore versus INR 110 crore in Q1 FY25. Due to this, we anticipate full year credit cost may now be around 2.3% to 2.5%. We are strongly monitoring our portfolio quality. GNPA / NPA, as on September 2024, stands at 2.5% / 0.6%.
Slippages for Q2 FY 2025 were at INR 243 crore versus INR 192 crore in Q1 FY 2025. During Q2, slippages in microfinance book are at 0.99%, while in secured book, the slippages remain steady at 0.44% for the quarter, same as in Q1 FY 2025. We have written off INR 140 crore during the quarter. We continue to focus on collections and have ramped up the collection team by adding over 300 personnel during the quarter, taking the count to 2,200 plus. Bad debt recovery continues. INR 25 crore was recovered in Q2 FY 2025. Our target is to collect over INR 100 crore this year. On financials and margins, the NIM for the quarter is 9.2%.
Yields on the overall portfolio have declined marginally due to the growing mix of secured portfolio. We are likely to see further compression as secured book will continue to grow at a faster pace. Cost of funds for Q2 FY 2025, at 7.5%, remains at similar levels versus last quarter, owing to focused approach on growing retail deposits. Operating costs for the bank is a key monitorable. Cost-to-income ratio for the quarter ended at 60%. Our objective is to keep this in control in the upcoming quarters. Tax for the quarter was INR 233 crores, and subsequently, ROA and ROE for Q2 FY 2025 is 2.2% and 15.7%, respectively. Similar softness in return ratios will be visible for the full year, financial year 2025.
However, we are very confident that once the microfinance business spins back into a growth trajectory, ROE of 18%-20% is achievable for next year, financial year 2025, 2026. Last but not least, I want to highlight my key areas of focus for the coming quarters. Microfinance is the largest portfolio for the bank. We shall continue to do well in this segment once situation normalizes. Profitably expand the non-microfinance secure portfolio: A, we are giving heightened focus to growing the MSME book. Green shoots are visible in our portfolio, and we are confident that MSME book will do very well. B, scale up vehicle finance, gold loan, and agri businesses. C, continue to expand our housing loan and micro mortgages portfolio.
Three, our objective is to make the bank a retail deposit franchise with continued focus on growing CASA, which even will see stronger growth in this business ahead. Four, lastly, on the other income, we will garner avenues to enhance our other income. Special focus will be on product services. Just as we added AD1 License, we also will be adding mutual fund distribution and ASBA facility during this financial year, in addition to other insurance product offerings. I end here and hand over to the moderator, Mr. Shah. Thank you. Over to you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Before we begin, a gentle reminder, in order to ensure that the management is able to address the questions from all the participants, please limit your questions to two per participant. I repeat, please limit your questions to two per participant. Thank you. The first question is from the line of Rajiv Mehta, from Yes Securities. Please go ahead.
Yeah. Hi, good evening. Sir, your credit cost guidance of 2.3%-2.5% implies maybe further worsening of trends in Q3 and then even provisioning, elevated provisioning continuing in Q4. So, have we seen absolutely no improvement in October in terms of collection efficiencies in the NTC account? And if you can also give more color on the microfinance portfolio in terms of, you know, what percentage of portfolio would be borrowers having, you know, 4+ loans and indebtedness of more than two lakh, and then what percentage of this pool is already in SMA and NPA?
Sure. Sure. So, our you know, in Q2, our non-delinquent portfolio, which is the regular portfolio, saw a collection efficiency of 99.23%. And in October, you know, the first few days there were holidays, but we are seeing a much better in collection efficiency in the month of October compared to the month of September. Of course, there are about seven days for the month to end, but the initial trends of the first three weeks are much better than the month of September. So we are seeing, you know, improving collection efficiency, and we hope that in this quarter, our collection efficiency in the non-delinquent portfolio will reach back the Q1 levels. Your second question was on?
Sorry.
Yeah. I'll just repeat it.
The-
Five lenders.
Yes. So we have about 7% of our borrowers in four-plus lenders, and the slippages on that was higher than the, you know, than the borrowers with one, two, or three lenders. The overall slippages from there is about 4% or 5% higher than the regular ones. I'll just give you the right numbers on that.
Okay. And, the second question is on, has there been any change in the write-off policy which led to higher write-offs? And, what is the reason behind reduction in Tier 1 Capital, in this quarter?
There has been no change in the write-off policy. However, we have written off about INR 50 crores of our Assam portfolio, which was NPA since 2019. That is about 50 odd crores, and that is, you know, we were carrying that as a NPA portfolio not till now. That is one additional write-off that we have done during this quarter.
We have paid dividend during the quarter of INR 290 crores. That has resulted into a dip into CRAR ratio, capital.
Sorry, sorry, sir, it was not very clear. Can you just repeat again on the Tier 1 capital reduction?
We have paid dividend during the quarter. That has resulted into a dip in the capital-
INR 290 crore.
INR 290 crore.
Oh, that was a large number. Okay. Thank you. I'll come back in the queue.
So the question on slippages, about 10% of our slippages comes from four-plus lenders.
Okay.
So the contribution is 7%, and the slippages are about 10%.
Got it.
Thank you. The next question is from the line of Renish from ICICI Securities Limited. Please go ahead.
Yeah. Hi, sir. Just two questions from my side. So, let's say on the individual loan side, you know, we have been growing this book quite aggressively since past many quarters. And, as you rightly said, 90% of these customers are actually migrated customer from the JLG book. So what are the current trends in that book? And, do you foresee asset quality sort of worsening in that book also in second quarter, I mean, second half?
You know, when we were taking, you know, precautionary measures during the first and second quarters of this financial year, we also slowed down the growth of our individual loan portfolio. The group loan to individual loan migration is about 90%, as rightly mentioned. You know, the slippages and the NPA of individual loan is much better than the group loan portfolio. The impact has been largely on the group loan portfolio. If we look at the September numbers, IL GNPA is below 2%, and that gives us a lot of comfort that, you know, the IL portfolio can be grown much more profitably, and therefore, we continue to focus on that portfolio.
Okay. And would it be possible to share similar data point for IG IBook customer as well, like customers with more than three, four lenders?
In IL, these customers have, you know, mostly, relationships with Ujjivan. However, we can come back to you whether our customers also have loans outside.
Okay.
If that is what you're referring to.
Yeah, yeah, yeah. Okay, so that data-
We'll come back to you on it.
Sure. And, sir, secondly, on this, credit cost guidance, right? I mean, so we have been saying that for the full year, credit cost will remain 2.3%-2.5%. And when we look at, for top trend, it is, broadly 1.7, 1.85. So, it naturally means that second half, will be, you know, more elevated, maybe around 2.7% or 2.85%. And when we look at the collection numbers or, even in your opening remarks, you are highlighting that overall collections are better. So actually, I'm not able to connect the dots. At the... at one end, we are saying, things are improving, and on the other hand, we are increasing the credit cost guidance.
So, you know, credit cost typically comes with a 90-180-day lag from the date when a customer has gone into delinquency. So what we were referring to is an improved collection in the non-delinquent portfolio. However, we have seen, you know, 99.23% of non-delinquent collection efficiency in Q2. When these customers get into 60, 90, 180 DPD, that is where the, you know, credit cost will start to pick up for this set of customers. So for Q2, whatever has moved into delinquency, the credit cost would be a outcome of that number.
No, sir, then it is, let's say then this collection efficiency has no meaning, right? Because, it's ex bucket collection, so, why can't we start giving ex arrear collection as well?
Ex-arrear collection is 99%. Sorry, ex-arrear collection is 106%. Ex plus arrears.
No, no, I'm saying collection excluding arrears. I think what,
Oh, that is ninety-seven. Okay, you're talking about non-delinquent plus the delinquency?
Correct.
Plus the delinquency, that is 97%.
But that includes overdue collection as well, right?
That includes overdue collection, that is right.
Yeah, so I'm saying excluding overdue collection.
You know, the way we measure our collection efficiency, and this is what we have been putting up on our-
... on our deck as well, is we have non-delinquent portfolio collection efficiency, which we mentioned is 99.23%, and overall collection, which is due versus collection at 97%. The additional collection, which is, which could be prepayments or others, that's a separate number. Including that, the number goes up to 106.
Okay. Thank you. That's all, sir.
Thank you. The next question is from the line of Ashlesh Sonje from Kotak Securities Limited. Please go ahead.
Hi, team. Good evening. Firstly, on the `MFI book, just wanted to get a sense of what proportion of the overall MFI portfolio of INR 193 billion, which you have, what proportion would be outside the scope of the MFIN guardrails?
So we have about 7% of borrowers who have four plus relationships. So that is, this translates to 93%, which have three and below.
But would you need to abide by those guardrails for the 100, for the full 100% of your portfolio? Because some of these borrowers might have incomes, let's say, about INR 300,000, so technically they won't qualify as microfinance from a technical definition perspective. Right? And you might not have to abide by the MFIN guardrails for that set of customers.
Yeah. We have customers with the income, family level income is more than thirty thousand, and yes, you are right. Technically, we don't need to abide by the MFIN guardrails, but we have decided that we'll go ahead with that. Earlier also, we were using it, and after implementing the guardrail, our own guardrail is actually stricter than MFIN guardrail, which is implemented for both customers having less than twenty-five thousand income and more than twenty-five thousand income as well.
Understood, sir. Perfect. And secondly, you mentioned the slippage number for the quarter at roughly, I think, INR 190 crore, if I back calculate based on the number you have given. Firstly, is that correct? And also, can you give a corresponding number for the previous quarter, the in-house slippage number?
So it was two, one ninety-three for the previous quarter and two forty for this quarter.
Okay, understood. And just one clarification, you mentioned a number of 7% borrowers who are, four plus. So that is five or above, right? Five or up, more lenders, right?
Four and above.
That includes four as well?
Yes, yes. It includes four.
Okay, but the MFIN guardrail still allows four lenders, right?
Thank you.
Would you have a number for borrowers? Yeah.
Yeah, yeah. 7%, around 7%, what I'm saying, it is four and above. This includes four also.
Okay. Now, would you have a proportion of borrowers who are associated with five or more lenders? Because that actually would be the ineligible set of borrowers, right?
Uh-
We are a little aggressive on that, and that's the reason why we count four and above.
So we don't have five and above as of now. We've been only working with four and above because that is something that is the reason for us to worry. Five and above is really out of the consideration set.
Understood. Perfect. Thanks a lot, sir.
Thank you. The next question is from the line of Shailesh Kanani from Centrum Broking Limited. Please go ahead.
Thanks a lot for the opportunity. Just one question on the miscellaneous income side. There seems to be a QOQ sharp jump, and wanted to understand and get some color, what is the reason for this jump up? And because in the comments and in the PPT, it's foreclosures, late payment and other charges. So how sustainable it is? Just wanted to understand that.
Yeah. We have introduced new MAB charges for customers in quarter one. That has resulted into this spike by INR 12 crore in the miscellaneous income. There's a quarter on quarter, the spike is INR 12 crore.
Sir, I didn't understand. Which charges you said?
MAB, minimum account balance charges.
Okay, okay.
Non-maintenance.
Non-maintenance of MAB, MABV charges.
Okay, okay. So that, that has resulted. So it, it is quite sustainable in... That is only your take?
Yes, we will continue charging customers who do not maintain their minimum balance in their accounts.
Obviously, because this, maintenance charges were not there, and we introduced some time in last year, and we gave some time, and after that, we introduced it, and the charges came in. But with time, obviously, it will little go down because customers start maintaining balance. So numbers will slowly decline, but it will still be there in every quarter.
Okay, so second question would be on Micro Mortgages. We have a decent exposure over there, and that book is also ramping up, so any issues in terms of asset quality over there?
We've built a book of INR 300 crore over the last eighteen months.
... about 50% of this book comes from individual loan customers who graduate to Micro Mortgages. In this book, we have not allowed new to credit. In fact, new to credit is only 1%. Everybody else has a history, a bureau history, and the bureau, you know, cutoffs are quite high. As of today, we see a, you know, on-time repayment of 99.5% and a full month repayment of almost 100%. In fact, only nine or 10 customers out of 8,000 customers are in delinquency. So we, you know, we maintaining this, a very tight monitoring on this portfolio.
Okay. So just last question from my side. So can you just reiterate the revised guidance, if you can? Because last time, which, we have the guidance of growth of around 20%, similar growth for deposits, and we have already revised the credit growth guidance. How about ROE? If you can just share those three numbers.
So actually, on the business side, we are saying that, you know, our secured portfolio will grow by 40-plus%. Our individual loan in the microfinance book will grow by 17% for the full year. We are not penciling on the microfinance group loan growth or degrowth, because we feel that it is still, you know, a little ambiguous, not. The clarity is still not there, so we refrain from, you know, giving you a guidance on that. And therefore, the return on equity is going to soften, as you would have seen in the results that we've shown for the half year. And again, this will be subject to how bounce back we see in the group loan business. That will actually decide where we actually, you know, zero in.
So on the business side, this is what we say: credit cost, we've already said 2.3%-2.5%. Secured book would be around 40%-42%. Hope that answers your query.
Yes. Yes, sir. Thanks a lot, and best of luck.
Thank you. The next question is from the line of Soumil Shah from Paras Investments. Please go ahead.
Hi. Thanks for the opportunity. Could you, is there any update on the universal banking license, so?
This matter is under active consideration, and we would, you know, we would announce it and let you know about it.
Okay, so can we expect it in this quarter?
It's work in progress. This financial year seems likely.
Okay. Okay. And sir, we do have a floating provisions of 250 crores, so why we are not utilizing it to reduce our NPA?
The floating provision can be utilized only in extraordinary circumstances with prior approval of RBI. Therefore, you know, when we took the floating provision, we have taken it for an event which is unforeseen. You know, like, something like, something like a pandemic or something which disturbs the portfolio quality. We don't use it on a normal basis. Currently, we have utilized it only for PCR computation and NNPA computation. Therefore, and we still have 100 crores of unutilized, you know, floating provision. We'll keep it at this, you know, at this level, and as and when required, we'll use it.
Okay. Okay. And the last question from my side. So in the first half, our loan book has grown by mere 2%. So now, what can we expect to close this loan book by the end of this year?
I think, just now, you know, highlighted how the book is going to pan out. Secured book overall, which is, you know, gold loan, vehicle loan, housing loan, micro mortgages, MSME and agriculture, that will grow by 40+ percentages, more than 40% for the full year. Individual loan in the microfinance book will grow by 17% for the full year. We are not, you know, announcing anything on the group loan side in the microfinance book-
Mm-hmm.
Because we find that it is, the situation is still very fluid and evolving. And therefore, you know, that number we refrain from zeroing in, and the other parts is as I just now suggested to you.
Okay. Okay, that's it from my side.
Thank you. A gentle reminder, in order to ensure that the management is able to address the questions from all the participants, please limit your questions to two per participant. I repeat, please limit your questions to two per participant. Thank you. The next question is from the line of Jay Prakash from L&T India. Please go ahead.
Hi, sir. I have two questions. Like you said, that you have stopped business in most of the clusters where the business has impacted, and which strategy you're following there for collection?
So we have, you know, some branches which we call, you know, stressed branches, and in those branches we have put restrictions on growth, and these restrictions on growth are, you know, not acquiring new customers, acquiring, you know, new to bank, new to credit customers. As and when we find that customers are showing some signs of delinquency, not giving them repeat loans, no top-ups, et cetera. So these are the kind of restrictions we have put for branches, which are showing higher signs of stress.
If I heard you right, we have not stopped business anywhere. Repeat customers, we have our borrowers, and at this point of time, in turbulent times also, over 80% bank customers are paying on time, on date, and we have a good eligibility in repeat loans. So we are serving our existing customers through repeat loans and graduating them to IL.
Which states the major major portfolio you have vetted from the this type of customers? Which states or which type of banks? Which type of banks or which banks you are stop this business? Means, mostly affected the business. Which banks?
Can you please repeat the question and clarify it?
No, no, like, which clusters and basically, which locations majorly impacted among the states?
Okay, this is actually done at the branch level. So we have branches, which we find, you know, as I was saying, that these are stressed branches, and that is where we have put restrictions on new acquisitions as well as servicing customers with, higher, you know, higher loan sizes or, showing signs of stress. So this is across all states. There could be some branches in Western UP, some in Kerala, some in Gujarat, some in Tamil Nadu, and some in Maharashtra. It's across five branches.
So just to clarify once again, we have not stopped business anywhere. We have large number of customers in each branches. We are serving customers, existing customers with loan and products.
The restriction is only for the kind of customers that we do not want to onboard. Otherwise, the disbursements for the welcome kind of customers is still going on.
Understood, sir. The second question is that, you told that you have something done at pin code level to understanding the opportunity, right? So, whether it's, there is any kind of calls like score card analysis pin code level you have been implemented?
Yes, yes. So this is something, something which is old practice. It is not something new that we have developed during this or trying to do during this turbulent time. This we are doing for years, I think starting from demand season period, where we not only during the branch opening, we understand the picture, pin code information to understand the credit behavior, but also we do it periodically for all branches we are operating and the pin codes we are operating. And based on the performance of the pin code, we fine-tune our credit policy for each branch.
Okay, got it, but have you done any hard calls on the charge rejection basis of pin code or stop any pin code processing? Is it like that?
Yes, no. In pin codes, you have, you know, good number of borrowers, but in this pin code, we become cautious. We stop certain products which we feel that will is not suitable for the pin code. Those action we take, we don't stop business in a location because we are present there and we are serving customers there, but we take great decisions there based on the performance of the pin code.
Thank you, sir. All the best.
Thank you.
Thank you. The next question is from the line of Shripal Doshi from Equirus Capital. Please go ahead.
Hi, sir. Good evening. So my first question was, which are the states where we have seen the collection efficiency being relatively better? And which are the states where we are seeing, you know, the collection efficiency being lower than your average collection efficiency of 97%?
Yeah. Hi, Shripal. So, like we had spoken last time also, we have the top five states, which is Tamil Nadu, Karnataka, Bihar, West Bengal and UP. Of the five states, we find that our collection efficiency is not at par in Tamil Nadu. Whereas in other states, we find that the collection efficiencies are 99.4% and above. In fact, in Karnataka, the next, number is 99.7%. Bihar, we continue to be in the range of 99.4% to 99.5%.
I'm sorry, but your voice was not clear. So are you saying that in the top five states, our collection efficiency is above 97%? I'm sorry, but I couldn't hear you properly, sir.
I was talking about the collection efficiency for the regular customers, non-delinquent customers. I was talking about Tamil Nadu being not at par, but all the other states have 99.4% to 99.7%. This is Bihar, UP, West Bengal and Karnataka.
Got it. Got it, sir. Then, just one aspect that I wanted to understand on the customer identification side, related document side. So, how are we... So, so on that front, what all documents do we take, and what is our process there?
So we acquire customer hundred brand customers on the basis of E-KYC, and that is something which is, you know, the safest way to acquire customers and have full-
... but it should be under license already sorted. Yeah.
Okay. And then one last question was on margin side. So, since the share of secure portfolio is inching up and the growth in that segment is in the second half also is actually very, very strong, where do you see the margin stabilizing for the year?
So margin compression will happen because the secured business will grow at a faster pace, and softness in return ratios would be visible for the full year, financial year 2025. So the previous guidance will be missed, and therefore in the medium term, if you say 18-20% ROE from next year onwards is very much under our radar. But for this year, we would not like to commit to any specific number because the microfinance book actually is a big book, and therefore we want to be more sure on how it is going to pan out.
Got it. So okay. I mean, even on margin front, because of the MFI book being larger, but we are not committing to giving a specific number. Fair understanding?
On the NIM, would you like to say?
On the NIMs, currently, I thinkThank y today we are at 9.2% for the quarter, but, full year, we will be a little below nine, hovering around 8.6%-8.8%.
Got it. Got it. That was helpful. Thank you, and good luck with the next quarter.
Thank you. The next question is from the line of Amit Mantri, from Two Point Two Capital. Please go ahead.
Yeah, hi. Can you just talk about the OpEx increase that has happened in this quarter? Or is this now the sustainable run rate on the OpEx side, or were there some one-offs in this quarter on the OpEx side?
Yeah. So the OpEx increased mainly on front of personal expenses and the other OpEx. The personal expenses in FY 2024 versus the H1 FY 2025 has increased by 31% from INR 273 crore to INR 368 crore. Mainly because last year, due to an industry benchmarking, one of the activity which we did is with effective 1st October 2023. Salary corrections was performed for our employees. The second, there is a volume increase in terms of number of employees. We added around from September to September around 2,700 people. These are mainly towards the business which we expect to do well from a secured business and towards the branches, which we added, around 123 branches we added last year. So this was the main reason why people were added. Our secured portfolio continued to do well.
On a quarter on quarter basis, we have a 12% growth in the secured portfolio, which is expected to show good results in the upcoming quarters as well. Lastly, we have built up our collection team as well and has been reinforced with the additional manpower. So that was the reason for the personnel cost. On the other OpEx, the fixed cost has increased, mainly because of we have added again, as I mentioned, 123 branches last year. Our fixed cost in terms of occupancy expenses towards the rent, electricity, maintenance, and IT and depreciation cost because of the capital investment, the costs have increased. That's the main reason for the increase. We have been closely monitoring the control aspect, and that's the focus area for the upcoming quarters as well.
So as you would see, these are all actually investments. Many initiatives were launched last year at different stages of time, but the full impact is being visible from April onwards this year. But these are all investments for growing our book, strengthening our collection, or reaching out to the people in the nooks and corners of the country by opening our branches.
On a YOY basis, I understand, but even on a QOQ basis, compared to Q1 of this year, the OpEx has increased by almost 10% quarter on quarter. So what would explain that increase?
Sorry, if you can repeat the question?
So even on a quarter on quarter basis, when you compare it to Q1 FY twenty-five, the OpEx has increased 10%, on a quarter on quarter basis. So what would explain that increase?
Yeah. So as I mentioned, the quarter-on-quarter increase because we have opened last year, 123 new branches, the fixed cost has increased. The branches were opened during the year over the period of at various points in the time in last year. This year, we had a full year expense. This quarter is the full year expense that is resulting into the increase in OpEx. From a personnel cost as well, there are additional hirings for the mainly for the secured portfolio, which we are doing. And the collection team, we are beefing up the collection team, that is adding up to the cost.
Thank you. Thank you very much.
In fact, on the quarter on quarter, we have been having a strict control on the cost. For the unsecured portfolio, wherever there is attrition, we are looking to... There's a degrowth in the number of employees.
Okay, thank you very much.
Thank you. The next question is from the line of Gautam Jain, from GCJ Financial. Please go ahead.
Thanks for the opportunity. Good evening, sir. Sir, can I get the... Hello?
Yes, yeah, please.
Yeah, can I get the credit cost separately for microfinance and other business, the secure business?
... So we have, you know, we've, as a practice, not been looking at separate credit costs. It's been a blended cost for us.
No, for the full year, for the-
But if you want it, we could send it to you.
No, just for the year, we are expecting 2.3%-2.5%, if it is 2.4%. So I just want to know how much is coming from secured business. Is that less than 1% or it's between 1%-2%?
Secure business is typically, it will be less than 1% or in the thereabout region. You know, it is the unsecured business where the credit costs would be high for the year. But yes, you can take a benchmark of about 1% for secured businesses.
Okay. And when you say you raised the credit cost guidance from 1.7 to 2.3 to 2.5, so that means you're still expecting a lot of slippages to happen in second half. Is that correct to understand?
Yes. So all cases on the, you know, borrowers who have been, you know, who enter into delinquency in Q1 and Q2, the credit cost would only happen with a lag of ninety to one eighty days, because that is when they get into GNPA and they get into the provisioning buckets. So therefore, there will be a you know, in the second half, the impact of that would be felt. So yes, there will be a higher credit cost because delinquencies and the PAR numbers have gone up in Q1 and Q2.
Can you give us a ballpark number? Suppose you have a 4.40 close, slippage in first half, what could be the slippage in second half? Around that number or it may be higher?
So we were maintaining slippages in the range of 0.5% for many quarters. This quarter, the slippages will have been in the range of about 0.8%. So you could expect that the slippages would be in that range for the remaining two quarters.
Okay. Can I ask one more question?
Yes, please.
Hello?
Yes, please. Please go on. Go ahead, please.
Yeah, yeah. So just want to ask whether our secured business has break-even in terms of profitability or still not making money?
There are different variants. It depends on, you know, how mature that business has been in the books. So yes, housing is in profit. Gold loan and agri and vehicle, we have, you know, just started to do those businesses. And MSME is likely to break even by this year end. And the other three have just taken off, and they are a very small portion of the business, and therefore, I would say they would still need a twelve-month period to actually show that profit coming in.
Okay. Great to hear that.
FY is, of course... Yeah.
Yeah, that's another business.
Yeah.
Okay, thank you so much, and all the best for the future.
Thank you.
Thank you.
Thank you.
Thank you. The next question is from the line of Nivesh Jain from Investce . Please go ahead.
Thanks for the opportunity. The first question is on slippages for first half. So in first half of INR 430 crores of slippages, how much is from secured and how much is from unsecured?
From unsecured, sorry, can you hear me now?
Yes.
Sorry, are we audible?
Yes.
There was some disturbance.
Yes, we hear you now.
Okay, so about 80% of the overall slippages are from microfinance.
Sure, sure. And secondly, sir, in the microfinance group loan segment, your PAR zero is 5.5%, which is a quite decent number if you compare with some of the other peers. How do you see this number trending over Q3 and Q4? And when do you see that this number will peak out?
So the way we look at it, PAR basically is NDA collection efficiency. So yes, we did see the NDA collection efficiency, which is the non-delinquent portfolio collection efficiency, dip from 99.46% to 99.23%, as I said. But this time, you know, in Q3 and onwards, we feel more optimistic because the guardrails have been implemented, the changes in policies and other things, customers would get adjusted to it. And therefore, the collection efficiency is likely to improve from here on. PAR would be just a derivative of that.
Sure. Are you seeing any trends because of the guardrails being implemented and a couple of players have been asked to stop disbursement with immediate effect? Do you see any spillover of that in terms of collection behavior from the customers?
No, we, you know, there is very little overlap in the customer base of the players that you are referring to and our customer base. In fact, it is in the range of 1-1.5%. It is, it is a rough understanding of that. So there is not too much of an overlap there, so we don't expect our customers to have, you know, major impact due to this slowing down or, you know, closure of disbursements in other fields.
Okay. And lastly, on the vehicle finance segment, which segment of vehicles we will be focusing on?
... So we have, you know, about 80-90 good dealership tie-ups, where we are getting very good volumes, and there are about 300 more, where we are expecting good business to come in as the months progress. The manufacturers are all, you know, the large manufacturers.
It's mainly the two-wheeler segment that we are focusing.
In the two-wheeler, yes. In two-wheeler, we have tie-ups with across manufacturers.
Okay. Thank you. That's it from my side.
Mm-hmm.
Thank you. The next question is from the line of Arvind, from Sundaram Alternates. Please go ahead.
Hello, sir. Thank you so much for the opportunity. Lots of my questions has been already addressed, but, one thing, I understand, like, if we are a growing bank, you know, we need to invest in the franchise, either in deposits or in technology and everything. But, like, do we see any, like, a slowdown in expenses, either in terms of branch addition or in terms of IT expenses or, like, in product-related expenses? Like, what I'm trying to get is, like, you know, Can we expect any moderation in cost income ratio, in any ways, in, for the next few quarters?
The current year, we are not foreseeing any additional branches. We are not opening any branches, so to that extent, whatever the expenses are will continue. We continue to have investments in technology. That will continue because, as we upgrade, I mean, as we get into newer and newer lines of business, we need to keep upgrading our technology system, so that will also continue.
Oh, in, on the IT side, there are investments or expenses, as you may call it, will necessarily have to be done on an annual basis or, you know, the renewals of the service agreements, et cetera. All that will continue. So we are not withholding or stopping these investment activities. Cost optimization from a general sense is what every enterprise would look at, and the cost optimization we would certainly look into. But as we said, we are hiring because we feel collection needs to be strengthened. We are not... We are hiring for the secured book, which we are now trying to grow. So all essential expenses and investments continue to happen, and that's the way we would like to end the year with.
Sure, sir. Like, okay, okay. But like, you know, we are talking about, you know, 100, 100 branches, more than 100 branches in the recent time. I can, what I understand is like, obviously, as you said, you know, like you need, you know, personnel for, you know, secured book and other services. I was trying to understand, like, you know, would the employee addition or the branch addition would slow down at least for some time, or will it continue at the similar pace? But as you said, the branch addition would, you are not having any plans, but, was it the same case with the employee addition?
As I would like to clarify, the branches have already been opened. They have been invested with people, process, technology, and everything that a branch requires.
Okay.
So those expenses have started kicking in. What we will have to do is to ensure that business happens, and they are all becoming a profitable venture for us, and that we continue to invest in, right?
Yeah, understood, sir. And okay. Yeah. And like, do we, like, we need, you know, foresee. Like, I mean, like, I understand, like, we are a growing bank, and we need to, like, you know, consistently, you know, like, you know, ensure our deposit franchise, especially in retail deposits. Would we be open to, like, you know, use of, like, let's say, like, if there is a rate cut or something like that, like, able to use, you know, wholesale deposits to manage margins or improve margins, in the short-term manner? Or, like, will we continue to focus on, like, you know, retail deposits, even if it comes at a slightly higher cost?
We will continue our focus on retail deposits. We are growing our, you know, deposit base through granular retail deposits, and that will continue, and our interest, I mean, the rate of interest out there, we are closely watching the situation. Wherever required, we are reducing our interest rates, but this is something that will keep evolving, and we are focused on that to keep our cost of funds also constant.
Okay. Okay, and just one last question, like, I see the MSME loans are, like, have started growing, reasonably well. But, you know, but MSME loan, when I look at the collection efficiency, is actually, you know, below, like, you know, even like something like MFI, like, it is close to 90% only. I'd like to understand, you know, you know, what are the efforts being taken here to improve that, collection efficiency? And, and why is that, like, you know, collection efficiency is actually lower there?
Okay. In MSME, we have two books. One is what we had during the pandemic and immediately after that. We recalibrated all our products and policies last year. So for the last 18 months, we have been, you know, working with the recalibrated product and policy. This has worked very well for us. In fact, this is almost now 40% of the overall MSME book, and this continues to have zero delinquency. Not a single case in one DPD and above. It is the old book which had got seasoned. Some of it got, you know, into delinquency during COVID. That is what we are now wanting to, you know, it's a degrowing portfolio. It's now about 600 odd crores, and this is something that is leading to this delinquency. So the new book is completely pristine.
We are not worried about what we are, the new product and policy, how it's responding, you know, with very, very clean portfolio now.
Understood, sir.
The old book shall continue to have lower collection because most of it is in the SMA in Bihar.
Sure. Sure. Thank you so much, sir. Thank you.
Thank you. The next question is from the line of Pritesh Bumb, from DAM Capital. Please go ahead.
Hi. Hi, good evening, Ujjivan team. Just a couple of questions. One is this guidance of credit cost. This includes a desire of PCR to be above 70%, right? So that will include our PCR thought process of 70-plus%.
Yes, Pritesh. So our PCR currently is at about 78%, and if we look at the... You know, at the end of Q2, if you look at the unutilized floating provision, we are almost fully covered. It would, you know, put together, this would be about 97% PCR. So even if we see an increase in NPLs, the PCR will continue to be above 70%.
Sure. No, so the whole point was that we are not able to utilize the floating provision until we you know ask RBI and RBI gives permission. But the incremental book is the slippages are coming in, and that's where I think the PCR is dropping. But the credit cost, which we are guiding at, just wanted to check that that includes that PCR, because there will be write-off certainly because of the policy, right? So in terms of that, PCR will remain above 70%.
Yes, PCR will remain above 70%. In fact, you know, when we compare ourselves having 97%, 98% PCR for the last eight quarters, you know, 90% and above PCR for the last eight quarters, 70%, it looks a little low, but 78% by itself as a number is a very decent PCR that we are maintaining.
Got it. The second question was just wanted to get the thoughts on ticket size perspective. We've seen this quarter, ticket size move up, and which is natural that, we are limiting growth in, you know, certain pockets and new to credit customers are not being roped in. But then, generally thinking that we are one of the highest in terms of ticket size, and, basically we've not seen ticket size coming down for a long, long time. So what are the thoughts here? Basically, how do we see that we get more conservative in terms of ticket size, especially in the JLG side?
On the JLG side, you know, the reason for the ticket size looking a little high is because the blending of new to bank customers is not happening. In this quarter, we did almost 50% of our loans as repeat loans on the group loan side, and we did not see a you know, sizable number of new customer acquisitions, which is why our ticket size looks a little high. But if you compare ourselves with Q1, the ticket size has remained more or less the same.
Yeah, so my perspective was that we are at a very high ticket size, and where, say, for example, some of our peers would be in the range of INR 28,000 to, you know, INR 40,000, maybe below that, but we are at about INR 58,000, and of course, that math which we are talking about is absolutely right, but when we were growing the new ticket or the new to bank customers, the ticket sizes had not fallen, and now we are seeing a ticket size getting a little bit higher, so any thoughts on that? How do we, you know, bring down the ticket size overall?
So when, you know, this is a repeat of what happened around two years back, when we were doing a lot of, you know, customer retention plans, and we were servicing our existing customers. And we were very immediately after COVID, that how should we go about doing new customer acquisition? We were, you know, the environment was not certain. We saw that, at that time, the ticket size had gone up. But as we opened our new to bank customer acquisition, the ticket size came down. You know, remember, it was about INR 58,500-INR 59,000 during that time when we used to be focused on repeat. It's the same thing that we're seeing today also. As the NCA has come down, the ticket sizes have started to go up a little.
But once we start opening NCA, the blending of new customers would happen and the average ticket size would come down. So it's a repeat of what we saw immediately post-COVID.
Got it. Thank you so much.
Mm-hmm.
Thank you so much for this answer. Yeah, yeah. Thanks.
Thank you. Ladies and gentlemen, we'll take this as the last question. I now hand the conference over to the management for closing comments.
Thank you, friends, for patient hearing and for your enterprising questions, which made us think about our responses. Hope we adequately satisfied your queries. As I close this session, this very engaging session, the key highlights that I would like to conclude with is that we would continue to invest growing in our secured book. We would continue to do the individual microfinance lending, where we see opportunities growing. We will steadily also grow our group loan microfinance book. On liability side, we will focus on CASA and try reducing the cost of funds. And digital and analytics is an area where we would like to invest more and focus more. And cost to income is another metrics where we would like to focus.
So with this, I would like to conclude and thank you for joining us for a very engaging session with our team.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.