Ladies and gentlemen, good day and welcome to Q4 FY 2022 earnings conference call of Ujjivan Small Finance Bank Limited, hosted by IIFL Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Alpesh Mehta from IIFL Securities. Thank you and over to you, Mr. Mehta.
Thanks, Margaret, and good evening, everyone, and thanks for joining us for this Q4 FY 2022 Ujjivan Small Finance Bank earnings conference call. From the management side, we have Mr. Ittira Davis, who is the MD and CEO of the company. Ms. Carol Furtado, Chief Business Officer. Mr. MD Ramesh Murthy, Chief Financial Officer. Mr. Martin PS, Chief Operating Officer. Mr. Ashish Goel, Chief Credit Officer. Mr. Vibhas Chandra, Head Micro Banking, and Deepak, who heads the financial planning and strategy and investor relations. Now, without much ado, I hand it over to Mr. Davis for the opening comments, and post which we will have a Q&A session. Thanks, and over to you, Mr. Davis.
Thank you, Alpesh and IIFL for hosting this call. Good evening, and welcome to our Q4 financial year 2022 earnings call. Hope all of you are keeping safe and healthy. Financial year 2022 started with a lot of challenges with second wave of COVID-19. I'm happy to say it has also ended on a high note. Our fourth quarter performance completes the turnaround that we envisaged in August 2021 with threefold objectives. First, rebuilding business volumes. Second, improving asset quality and reducing credit costs. Third, attracting good talent and stabilizing our team. All of these objectives have been achieved, and I'm elated to share the final outcome in form of improved business and financial numbers that we released a little while back. NII was INR 544 crores, up 48% year-on-year and 20% quarter-on-quarter.
Business profitability is back on track. We recorded a pre-provision operating profit of INR 217 crore versus INR 141 crore in the previous quarter. Pre-provision operating profit ROA was 3.9% and ROE at 2.2%. Profit after tax for the quarter was at INR 127 crore and credit cost was just INR 44 crore. Now let us look at the outcome of the 100-day plans. These plans were put in place in the third quarter of the financial year and rolled over into the fourth quarter. Our disbursements this quarter were highest ever for the bank, and that is second time in a row. Also, overall deposit build-up was very strong, and the CDR falling below 100% for the first time since we started operations.
Our stress pool, i.e., PAR and restructured loan book has reduced from 32% in June 2021 to around 12% currently. This is a reflection of all the hard and smart work that we have been doing under our 200-day plans. We embarked on this journey in August 2021 when we gave you a credit cost guidance of INR 1,100-1,200 crores, assuming we will fully utilize our floating provision of INR 250 crores. However, we have restricted the credit cost at INR 1,118 crores without utilizing the floating provision, which is now sitting in our balance sheet as a solid cushion for future earnings. As I indicated earlier, we have been progressing well on attracting good talent across all levels.
At senior level, we have strengthened our board over the last five months, hiring very good and experienced leaders to lead different arms of the bank. Recent joinees to Ujjivan are our CFO, Mr. Ramesh Murthy, and internal audit head, Mr. Prabhu. After extending vaccination drive to cover almost all employees and families, we launched an initiative to help our customers and their families to get vaccinated. Over the last 8 months, we have been able to vaccinate over 80,000 beneficiaries. With Q4 disbursements at INR 4,870 crore being highest ever on a quarterly disbursement in Ujjivan's history for the second consecutive quarter, business volumes has been reaffirmed. This has led by secular growth across all verticals. Although micro banking continues to lead, but other verticals have also defended their share in the overall portfolio.
The micro banking disbursement comprised of 24% fresh loans in Q4 as against 15% in Q2, indicating a rise in demand with new customers. With continued momentum in disbursement, gross advances grew by 20% year-on-year and 10% quarter-on-quarter, taking our gross book to INR 18,162 crore as of March 31, 2022. This momentum in disbursement was outmatched by robust growth in deposits, which grew by 39% year-on-year and 18% quarter-on-quarter, taking total deposits to INR 18,292 crore. In line with our vision for attracting sticky deposits, we launched non-callable FDs in the form of Platina FD, which helped us achieve growth of 30% year-on-year and 15% quarter-on-quarter for retail term deposits, taking the retail fixed term deposits to INR 5,184 crore.
Our CASA has also shown tremendous growth of 85% year-on-year and 21% quarter-on-quarter, taking the CASA ratio to 27%. This helped us achieve total growth of 59% year-on-year from retail banking, retail branch banking. For example, retail branch banking savings account average balances have moved up from about INR 30,000 crore as against INR 15,000 in March 2021. Our cost of deposits continued to decline 6% for quarter four versus 6.1% for quarter three. Overall, cost of funds declined to 6.1% from 6.2% in Q3. Collections have improved consistently under our focused strategy laid down by the 100-day plan. We strengthened the collection team further and had a detailed approach towards the different buckets and stress pool. The results are visible and heartening.
March 2022 collection efficiency stands at 100%. Restructured book collection efficiency at around 89% for March 2022 is in line with our estimates. NPA collections also has been rising, given the elevated ground efforts by our teams. What is most heartening is the reduction in incremental overdues, IODs, which have come back to the pre-COVID levels. With the collection numbers rising sustainably and growth in volumes, the PAR book has reduced below 10% mark, which is not even one-third from its high of 30.8% in June. This is followed by improved asset quality, with GNPA declining to 7.1% and NNPA to 0.6%. SMA book is now at 2.5% as against 7% in September 2021. Most of the SMA book is in the 0-30-day category.
April this year has continued the good trend. As for provision numbers, we are seeing net reduction in absolute PAR and NPA and good reduction as a percentage of gross advances. We have not used our contingency provision of INR 250 crore. Despite improving portfolio quality, we are maintaining a high PCR of 92%, which builds an adequate buffer to support future growth. With growing book and reducing NPAs, yields and NIM have started to improve across all segments. Fourth quarter NIM was at 10.1%, a healthy increase from 8.1% in Q2 and 9.1% in Q3. The outlook as we look forward to financial year 2023 comes with new uncertainties with ongoing global unrest. With all the key leadership in place at Ujjivan, the management is wide awake to face any challenge that may come.
This year we also plan to achieve the minimum public shareholding through our QIP and return to regulators for the approval of the reverse merger. Now, talking about our business outlook for financial year 2023 and ahead. With COVID fear receding and the economy gradually normalizing, we are seeing a good demand, good credit demand. This is visible from growth disbursements and gross advances in the second half of the last fiscal. We believe, and subject to any further COVID waves and its nature, the momentum should further build on and provide a better overall growth in current fiscal. Also, on credit quality front, as I explained, the slippages have come under control, which is providing a tailwind on the provisioning side.
As we have indicated in our third quarter call, we see FY 2023 as a normal year in terms of slippages and thus credit co-costs should definitely be under control. Our cost to income ratio has increased and there are two aspects to this of course, both the cost and the income. While our income was suppressed due to high NPA levels leading to interest reversals and non-recognition of income, cost was high due to heightened efforts, especially on the collection side. With credit parameters moving south, we are witnessing easing pressure on income. This will also be visible in our yield and NIMs. Fourth quarter NIM is 200 basis points higher than the first half of financial year 2022. Also, new disbursements are helping in the process. Our cost side impact of increased collection cost is reducing as the income is also rising.
Also, the stress pool has reduced over the last 7-8 months from 32% as of June 2021 to around 10% currently. We expect this help in gradually reducing the costs. If you look at our cost income trajectory in financial year 2022, it has fallen by about 1,800 basis points in Q4 from a peak of 84% in Q2. I believe this is the base for the next fiscal on which we will further improve as our effort towards productivity and efficiency yield results. Overall, I can see financial year 2023 as a strong comeback for Ujjivan, which will create a solid platform for next growth cycle. Thank you for that. Margaret, I hand it over to you for the next stages of the call.
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 the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who would like to ask a question, please press star and one at this time. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Renish Bhuva from ICICI Securities. Please go ahead.
Yeah. Hi, sir, and congrats on a good set of numbers. Just two questions from my side, one on the margin side. You know, we have already entered the-
Sorry to interrupt you, Mr. Bhuva. Your audio is quite low. May I request you to come closer to the phone?
Hello?
Yes, this is better now. Please go ahead.
Hi, sir, and thanks for taking my question. My first question is on the margin side. We have already entered the increasing rate cycle, and considering the, you know, large part of our book is MFI loans. How do you see the margins behaving from the current level, sir, in FY 2023?
Renish, Mr. Davis mentioned in his opening remarks, because of the GNPA reduction and because of the fresh disbursement, we are seeing a good amount of tailwind on the yields and the NIM. I wouldn't be able to give any kind of a guidance for FY 2023 beyond what Mr. Davis has mentioned. I think you can take this Q4 performance over Q3 as a good base and see how the business should move.
Secondly, on the restructured book, what percentage of a book is up for the payment by March 2022?
The restructured book would, I think, completely run off by the end of this fiscal.
Is it fair to assume that the entire book is up for the repayment by March 2022 since you are hopeful of bringing down book to almost zero by 2023?
Yes, Renish. By March 2023, the entire book would run off except for the secured loan, which is a very small portion of the overall restructured book.
Got it, sir. Yeah. Thank you. That's it from my side.
Thank you. Margaret?
Thank you. The next question is from the line of Shreepal Doshi from Equirus. Please go ahead.
Sir, good evening, and thank you for giving me the opportunity. First question will be.
Mr. Doshi, your audio is again low. Can you please speak louder or come closer to the phone?
Am I audible now?
This is better. Please go ahead.
Firstly, sir, on the microfinance side, post the moratorium, have we taken any interest rate increase? Because now NBFC-MFIs are allowed do not have any cap, so they would have taken a price hike. Have you also similarly taken any rate hike there?
At this stage, we are carefully watching the situation, and we have decided that, you know, obviously only the new loans can attract the higher rates. We will watch the situation till next month, because if RBI comes with a further hike, then, you know, we will have to take action. But for the moment, we are quite comfortable because the rates which we have are in line with the market at the moment, and that should be sufficient. But if another rate hike comes up, we'll have to adjust the microfinance book lending rates.
Okay. The OpEx during the quarter has come in significantly higher. As you alluded that it is towards the collection efforts. What should be the run rate like going ahead? How should one, you know, look at that aspect?
If you're looking at the cost income ratio, obviously the income will start, as already started going up, and we will be able to manage the costs in a way that, you know, the collection costs, which are one of the reasons why costs really went up is now at a peak level. We'll be able to manage that, and we see that eventually coming down a little bit. I think on that basis, those increase in costs which we saw in fourth quarter will sort of taper off in the coming months. As income builds up and, you know, the cost income ratio will definitely move downwards.
Unfortunately, we can't give you specific numbers because we are in a sort of situation right now, but with the QIP, so we can give you some indications.
Thank you. The next question is from the line of Sanjay Pandit from 1729 Advisors LLP. Please go ahead.
Yes. Congratulations on a strong quarterly performance. My question is, what do you consider a normal return on assets and normal return on equity given your existing business mix? If you see over the next one or two years the migration in that business mix, I guess it's still majority microfinance, but there's also a mix of secured lending, et cetera. This past quarter appears to have been very strong. Obviously, prior to that, there were some not so good quarters. What do you consider sort of a normal cross-cycle return on assets and return on equity? Obviously, COVID was a bit of a one-off thing, but sort of in a normal year, maybe an example might be like what we think FY 2023 might be like.
Although I'm not asking for guidance on FY 23, I'm specifically asking for what do you think is a normal return on assets, a normal return on equity, for your business?
Q4 by that logic was quite normal barring yes, still there is a little bit of a pressure because of a higher GNPA and all, and a little bit of a collection efforts are heightened like Mr. Ittira Davis mentioned. Apart from that, Q4 is a good base that you can consider. That's what we did in Q4 is a good base to take care of what you can expect in future.
Basically, something like an 18% ROE would be normal-ish, and that would normally, among Indian banks, you know, equate to a price-to-book multiple well over 2x. Is that your understanding of?
Wouldn't be able to comment on the valuations though, but on the performance side, I can say that Q4 is pretty normal quarter for us. Yes, because of 7% kind of a GNPA, some bit of income recognition was still subdued. The collection cost, yes, are still on a higher side, which like Mr. Davis mentioned, will taper off. We'll still see some bit of on the tailwind on the income side and some bit of a tailwind on the cost side.
I see. Well, that strikes as a great news, so, congratulations and hopefully you can keep it up, over the next year.
Thank you, Sanjay.
Thank you.
Thank you. The next question is from the line of Gautam Jain from GCJ Financial Advisors. Please go ahead.
Hello. Many congratulations for very good numbers.
Thank you, Gautam Jain.
My first question on I was looking at your collection efficiency for last six months. You are actually collecting INR 100 crore more than what is in our view for last six months since November to April 2022. You have around INR 1,300 crore of, I think the gross NPA plus write-offs books. What is the size of write-offs books plus gross NPA together?
Sorry. Come again. write-off-
Gross NPA plus write-off books.
Gross NPA is INR 1,280, write-off is roughly INR 800.
You have 2,000-
8, 800.
INR 2,000 crore book, right?
Yeah.
You have already provided most of it. I think around 95%.
It is in the range of 90%.
Yeah. My question is you are collecting INR 100 crore more every month, by, I mean, what do you see going forward? Will you be able to collect handsome amount from this pool of gross NPA and write-off books? If yes, then I mean, what is your worst case scenario in the credit cost side? Because if you collect INR 50-100 crore every month more, which is, I don't think you will have any credit cost this year. Your qualitative comment on this, then I will come to the second question.
Okay. You know, our collection efforts, our NPA started growing post June onwards, so the real collection from the NPA bucket started post July, August. This year, in micro banking itself, which was large part of the NPA, we have been able to collect about INR 620 crore in cash. So that works out to about 60% LGD. Over this year we will try to bring the LGD down by another maybe 10%, so it can come down to 50%.
Mm-hmm.
One more important part of the recoveries is the recovery from the bad debts. Last year we have done although the write-offs started happening only Q2, Q3, and Q4 onwards. From that also we've been able to recover close to INR 50 crore. As the year goes by, I think April has shown us some very good results. We are confident that the same rate of recoveries will continue to happen. I would, however, want to point out that the collection efficiency also includes some part of prepayments. That will have to be.
Okay.
That will have to be, discounted from the overall collection number.
Okay.
Prepayment is in that INR 100 crore extra that you have. Yeah. INR 100 crore extra that you see, that also has some amount of prepayment when put through this.
Yeah, I was looking at [inaudible]. Okay. Your worst case scenario credit cost guidance will be, I mean, since you are recovering even the earlier part of your gross NPAs, any qualitative comment on that?
Last quarter, Ashish mentioned on the call that he's expecting a sub-1 kind of credit cost next year. I think between last quarter and today, he has overachieved what he had been expecting. I don't really want to give any number or put any pressure on Ashish, but I think he's quite confident in managing this.
As you can see, you know, we are at a net NPA of 0.6% as of today. Our slippages have come down significantly and the PCR stands at 92%. We believe that the provisioning requirement for this year will be quite normal.
Even if you look at our SMA pool, that is also quite has shrunk to 2.5%. We're quite confident on both sides.
Yeah, the slippages, as I said, are coming down quarter-over-quarter.
Mm-hmm.
Since the earlier slippages are getting fully provided, our PCR has therefore gone up to 92%, net NPA has come down. We feel that this is going to be a very normal year in terms of credit cost.
Okay. As management said that, Q4 should be a base for next year's, you know, financial performance, then I think 18% ROE would be achievable. Your comment on that?
No comment on that, Gautam.
Okay.
I reiterate Q4 was a pretty normal quarter and, given the kind of credit demand we are seeing, this, like Mr. Davis mentioned, this kind of a performance, this kind of a growth can be replicated. On the cost side, the heightened cost on the collection side will slowly taper off maybe one or two more quarter and then it will start tapering off as the NPA pool or as the restructured pool shrink. On the income side, as the NPA levels reduce, overall NPA levels reduce, your income recognition will improve.
Yes. Yes.
That actually gives the bank a little bit of room for investment also if it's required. We definitely see Q4 as a good base on which we can build our FY 2023.
Okay, great. Any sort of guidance you want to give on loan growth side? In the range or something which can help us.
Maybe we'll wait for one more quarter and then talk about it.
Okay. When you're going to launch your QIP?
There's no timing. We have just taken the enabling resolution.
Okay. Can you help me with the restructured standard book?
Restructured standard book?
Yes.
Yes. Just a sec. The total-
The amount.
Yeah. The total restructured book is INR 845 crore, of which GNPA is INR 370 crore and PAR is INR 458 crore. That 370 is included in the PAR, rest is standard.
INR 474.
Absolute amount INR 474.
474. Okay, great. Okay, that's it from my side. Thank you so much and all the best for the future.
Thank you.
Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity. Ashish, can you give the breakdown of your total outstanding provisions, in terms of provision for NPA, provisions on restructured book, and standard asset provisions and floating provisions, if you have that?
The provision on restructured book is INR 394 crore. Total NPA provision is INR 934 crore. That does not include INR 250 crore of floating provision. If you include the floating provision it becomes INR 1,184 crore.
Sure. 370 is INR 394, the provisions on restructured book. 934 is provision for NPA and 250 is floating provision.
Standard provision is INR 146. INR 934 is core. INR 934 will have some bit of a overlap in the restructured pool because in restructured pool you have standard book and you have NPA also.
Hmm.
Keeping aside the restructured pool, INR 146 is my standard asset provisioning, INR 934 is my NPA provisioning, INR 250 is my floating provision. That INR 250 and NPA provisioning put together gives me a 92% PCR. Separately, the provision on restructured book is INR 394 crore.
Okay. Can you also break up this INR 394 in terms of provision for NPA on restructured books?
Yeah, sure. Just a sec. Of the INR 394, INR 328 is NPA provision and restructured book.
Understand. Secondly, your ticket size in microfinance has increased quite drastically. Last year it was INR 38,000. Now it is almost INR 60,000. How should we think about it? What is the driver of this ticket size increase, and how should we think about it in future?
The ticket size increase is also a factor of how, what kind of a repeat loan you are doing and all those things since the fresh customer acquisition has been on a lower side and repeat loan is generally for the customers who are on a higher cycle, maybe second, third cycle and beyond. The ticket size is higher. Also last quarter also we mentioned that we had not taken any kind of a ticket size hike in our policy for a long time, which was done last quarter. For that matter, this is a one time kind of an adjustment that has happened on the overall book, and we don't really see ticket sizes increasing too much from where they are today.
Sure. For three, let's say three-year-old customer, what is the ticket size that we are offering to him?
Uh-
The customer who has completed 3 cycles.
In the range of INR 60,000-70,000 .
Understood. Lastly, if you look at our asset quality performance in COVID, microfinance is definitely impacted, got impacted in line with the industry. We have also seen higher NPAs in our MSME and affordable housing segment, which looks much higher than some of the listed peers. How are we thinking about these segments going forward? How are we trying to make sure that the asset quality performance that we have seen in these segments during COVID doesn't repeat in future events?
Nidhesh, we carefully evaluated our MSME portfolio immediately post-COVID, and we have made certain adjustments in the segments in which we operate. Our informal business that we were doing, which was based on excess income, was close to 57% of the overall book. This year's disbursement is about 19% of the total disbursements we've done in FY 2022 and that has brought down the book composition of informal segment down to 43%. We expect that we will continue to do in the range of 15%-20% of informal business and that contribution therefore on the overall book will continue to come down for at least this year. That is one of the things that we have done in terms of recalibrating the book composition.
The second thing that we did was, you know, there was a Supreme Court freeze on doing legal action against borrowers. After lockdown in the month of June, when the lockdown opened in July and August, we initiated recovery action and as you know, there is a 90-120 day, you know, time period by when the repayments start happening. In December, we had started seeing the upgrades come up very sharply and in January, February and March the upgrades are almost double of what we saw in Q3. That has also, you know, given us confidence that the upgrades will continue in the same pace at which we are currently going in Q4.
These were two or three things that we've done, one on the book side and the composition of the book and the second is on the legal actions which, you know, we didn't have NPAs before COVID-19 so the entire thing, entire legal action, you know, happened in bulk in July and August. The book is now stabilized. We are, you know, in MSME for example, our SMA book has come down from 14%-6 % between December and February and March. Our incremental slippages again will continue to slow down in the MSME book.
Thank you. I would request Mr. Jain to rejoin the queue for follow-up questions. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants, we would request you to please limit your question to two at a time. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Sameer Bhise from JM Financial. Please go ahead.
Yeah. Hi, thank you for the opportunity and, congrats on a good quarter. You mentioned that there was a significant uptick in the collection team that you hired. It's there in presentation as well. It sustains at this level, especially the off-roll part, in terms of collection staff?
We are currently working with the optimal team size. We don't see the team size going up from here. By September end we will do another, you know, reevaluate the size of the team. Like we have told in the past that the team is mostly off-roll who work based on our branches under the supervision of the bank supervisors. As and when we see that the collections, the requirement for the team is, you know, reducing, we will taper off the team over a period of time. We will take this decision sometime at the end of quarter two. In Q1 and Q2 we expect that there will be very strong recovery from the NPA uptick.
Secondly, picking your brains on the ticket size again, I mean, almost even on a YY basis, you would have added like 10% more customers. The ticket size jump looks quite sharp. How does this normalize going ahead? I mean, what kind of numbers are you looking in terms of customer additions?
We did about 1.2 lakh customer additions, new customer acquisition in the last quarter and somewhere in the range of 1 lakh in Q3. We will continue with the same pace. You know post-COVID we had focused on our repeat customers because those are the customers we knew very well. The ticket size, as you would see, is a factor of two things. One, our repeat customers are eligible for much higher ticket sizes when new customers come at slightly lower ticket sizes. As we open up our new customer acquisition, we will see that the ticket sizes stabilize somewhere at this level for the coming year.
When we go to the micro individual loan, how many cycles would this customer have completed before qualifying for that ticket?
Three.
Sorry.
Approximately three cycles.
Okay. He can qualify for the individual loan if he's completed three cycles.
Not everyone, but surely based on the assessment that the branch team does, we feel that about three cycles is most optimum.
Sameer, it also depends on the customer's profile. Sometimes and what the customer is doing, how productive the business is, how the money is being used, what has been the track record of the customer. There are a lot of factors basis which we decide whether we want to graduate the customer from a group loan to an individual loan. That is the entire credit underwriting process which we have been following over the last 15-16 years.
Sure, sure. Appreciate that. Any comment on stress in group versus individual?
We see no significant difference. Individual loans, you know, they have performed well in the last two, three quarters in fact. There was equal amount of stress on both these categories because when lockdown happened, it was not as if we were not able to reach. That was one of the factors. The income of the customers had also got impacted.
Right.
We were able to see stress on both these segments. However, when recovery happened, I think both the segments started responding equally well. We've not seen much of a difference in the behavior of the delinquencies in both the segments.
Okay. Secondly, on cost income, this is my final question. How does one see it stabilizing in 18 to 24 months time?
Yeah. The cost-income, you know, as I said, the trajectory is downward. Obviously, you know, we'd like to get to the 50 levels as early as possible and that is the trajectory which we are following.
Okay. Thank you and all the best.
Thanks. Thank you.
Thank you. Ladies and gentlemen, please limit your question to two at a time. The next question is from the line of Darpin Shah from Haitong Securities. Please go ahead.
Yeah. Thanks for the opportunity and congratulations for the good set of numbers. Again, on the ticket size, you know, the ticket size have increased even if you see our the data which we give on repeat customers, okay, in terms of number of loans which we have disbursed. There it clearly shows that, you know, we have done more of a new customer this quarter and still the ticket sizes have significantly gone up. What explains that?
90%-92% of our customers are still repeat loans although we have done customer acquisition in Q3 as well as Q4. We opened up new NCA in the beginning of October while we have done NCA both in Q3 and Q4. However, 92% of our loans are still repeat loans. Repeat loans, as we said, there were two parts of it. One was of course repeat customers are known to us, so they get higher ticket sizes. Two, we did a one-time adjustment because we had not done a policy change for 3 years. That policy change happened in quarter three of this year. Therefore there was an increase in ticket size which you will see as a, as a, you know, sudden jump. However it is in line with the market ticket sizes.
We are not doing anything which is higher than the market.
Okay. Just one last housekeeping question. If you can provide the details on, you know, write-offs and slippages for the quarter. Thank you.
It was about INR 216 and write-off was INR 262. INR 271. I'm sorry. INR 271. Including all that will be INR 288, INR 289.
INR 216 was slippages and INR 271 was the write-offs.
That's it. Yeah. The principal write-off was INR 271.
Okay. Thank you.
Thank you. The next question is from the line of Amey Kulkarni from Candor Investing. Please go ahead.
Yes. Hi,
I wanted to ask you a question.
Sorry to interrupt you, Mr. Kulkarni. May I request you to speak on the handset mode? Your audio is not very clear.
Yeah. I hope this is better. Why have the collections reduced in April? There is a 2-3 percentage points reduction in the collections. Any comment on that?
Not got the question very clearly.
Your audio is not clear, Mr. Kulkarni.
Okay. I was saying, there has been a 2%-3% reduction in the collections in April month. Any comments on that? Why is there a reduction in the collection numbers for April?
Yeah. I mean, the momentum that we have built in the collection is on. Even in the month of April, like Mr. Davis mentioned in his opening remarks, the absolute PAR in the GNPA has reduced. Now, on a percentage side, yes, there is a little blip. Generally, March is a little higher number because of the year-end and all. April generally tends to be a slow growth, whether it is business or collections, either way. On ground, we do not really see any kind of impact on the collection side. We believe in the month of May that would again normalize back to where we were in the month of March. We don't really see that as a trend going forward. It's just a month, year beginning factor.
Also April had a lot of holidays.
Yeah.
Especially number of throughout the country from the New Year, that festival here.
Okay. One more question. Do you have any plans to increase the branches? Open new branches?
Yeah. We will be opening new branches, but very selectively and, you know, that's something that we are in the process of putting in place. Of course, we'll have to maintain the 25% rural coverage in that number.
Of course.
We won't be going aggressive on the branch opening, very selective and largely focusing on getting the deposit growth.
Okay. Just one last point. I understand the increase in ticket size is along with an increase in the tenure of the loan. Is that right? That the EMI basically for the month remains the same. What is the average tenure for these new loans that you have given higher ticket size loans?
You know, with the new microfinance framework coming into the picture, we would have that flexibility and, you know, it's up to INR 3 lakhs in three years. You could see some revisions there happening.
Okay. Thank you.
Thank you. The next question is from the line of Sukriti from Laburnum Capital. Please go ahead.
Hi. Good evening. My first question is on the merger process and timeline. If I'm not wrong, after the QIP, you have to refile the scheme with RBI, and then you need NCLT approval, right? Is it fair to say that the whole thing will take, what, 1.5-2 financial years?
Sukriti, the process that you mentioned is right. After we meet the NCLT requirement that SEBI has asked us to meet, we will have to go back to SEBI, exchanges and RBI to get the NOCs and then move to NCLT and shareholder approval. On the timeline, I cannot comment whether it will be 1.5-2 years. It also depends on how quick these regulators respond. There is a parallel process going on with one of our peers who is in a similar process, and they have recently announced that they have got one of the regulators' NOC and they are moving fast on that. With the precedent set on the particular subject, I think that the movement for us can be faster when we move there.
That is just our assumption and we will see how things move when we move there, when we cross the bridge.
Yeah. Equitas, I think, they, in their call said they expect to finish it by December next year.
Next year. We will be able to comment on it once we move to RBI and SEBI. Not right now, Sukriti.
Okay. Okay, that's fair. Second, on the liability strategy. We've had a good year when it comes to liabilities. CASA numbers have accelerated as it has for the entire system. It is likely that FY 2023 will not see the CASA run that FY 2022 saw. If I have to ask you what you expect to achieve on liabilities and funding costs in the next year, how would you respond to that?
Ma'am, the funding cost, Sukriti. You have seen how RBI reacted to the global policy changes that's happening. RBI also took a rate hike. This is something that we also have seen coming and our internal business proposition that we are building is aligned to that. We see some bit of a rate hike coming and we are totally prepared even if the cost of fund goes up because of that. Whatever rate hike comes, your a little bit of a movement will be there. We'll see if that can be negated by a little bit of a rate hike on the lending side, as Mr. Davis also mentioned.
There will be some bit of a north movement on the cost of funds. Just to add to that, strategy would be maybe going a lot to retail and-
Sorry to interrupt you, ma'am. We cannot hear you, the current speaker.
Yeah, just one moment. Yeah.
Just to add to what Deepak said, our overall strategy for liabilities would be to go very granular and build a retail deposit base and this would be done through a customer segmentation approach and we would be enhancing our digital capabilities.
Sure. Sure.
Is the book-
I'm sorry to interrupt you, Sukriti. May I request you to rejoin the queue for follow-up?
No, it's just a follow-up question on this.
Yes. We would request you to rejoin the queue for follow-up. There are several others waiting for their turn as well, ma'am. Thank you. The next question is from the line of Amit Mehendale from RoboCapital. Please go ahead.
Hi. Thanks for the opportunity. My question is QIP. Would like to know your internal thought process on launching the QIP. Would it be closer to the year-end, you know, or at least when the price to book multiple improves et cetera? What's the, like, thought process currently on that? Thanks.
Amit, we can't really talk about that right now. It's just that we have taken the enabling resolution and, that's it. Right now we can't talk about what is going on there.
Okay. Thanks.
Thank you. The next question is from the line of Akash Jain from Moneycurves. Please go ahead.
Question is on the restructured book. I think the first participant had asked the question, but I think the answer was not very clear, so I'll ask the question again. On the restructured pool, when we talk about collection efficiency of close to 90%, I just want to understand how much of that book had a due EMI, because if there is no due, then it obviously won't come in collection efficiency. Is there still a part of the restructured book where new EMI has been due till March 2022?
Restructured book, EMIs are due now. Whatever we are reporting.
There are no matured accounts in the restructured book as of now. See, the book was restructured in July, August and September of last year.
Mm-hmm.
Those were accounts which were at that point in time close to 8 to 12 EMI due. None of those accounts would have matured by now, but over a period, over the next three quarters, many of these accounts would reach maturity.
No, no. I want to understand whether the EMI. Just see, you would have given a moratorium of whatever, three months, six months or whatever was allowed and that the team would have decided. I'm just trying to understand is there any. How much part of that INR 890 crore of restructured book where new EMI was due till March quarter, so that we don't know whether installment will happen there or we'll see some more pain. I think that's a simple question.
When we did restructuring July, August and September, close to 95% of the customers, actually higher than that, 96%-97% of the customers had started paying their EMIs in Q3. The maximum moratorium that we had offered was three months.
Okay.
Customers who got restructured in July started paying in October and similarly for August and September. By December, almost all customers barring one or two, 2% or 3% had their EMIs falling due.
Okay. That's useful. Thank you so much. The other part is on collection efficiency of 98% that we saw in April. Any specific reason why there has been a dip? Because historically we have always enjoyed 99%-100% collection efficiency in normal times, topped at hitting 100% in March. Any specific reason why this would have fallen to 99%, 98% in April? Any qualitative reason that you can point out or it's just a. I would have expected it to remain at 99%-100% going forward given things have reopened and things are normalizing from COVID logistics.
Ladies and gentlemen, we lost the line for the management. Request you to kindly stay on hold while we join them back. Ladies and gentlemen, thank you for patiently waiting. We have the management reconnected. Over to you, sir.
Your question was related to a slight dip in the collection efficiency in the month of April. There is only one metric which has dipped in the month of April, which is 99.9% efficiency on NDA bucket has come down to 99.75%. Now, since NDA bucket is almost 93% of our overall pool, that small dip in the NDA collection efficiency and 99.9 is something that, you know, was exceptionally good. We've been performing in the range of 99.6%-99.7%. I would say 99.7 was by itself a good number. The second part of course, as Mr. Davis was saying is there were a few more holidays which led to a little bit of a dip in the collection efficiency.
This is not something that is, you know, normal in terms of our template. Like we said, Akash, we don't really see that becoming a trend, and so far May has been a decent month for us. We don't see that dip becoming a challenge for us and we see reverting to the average that we have already achieved.
The next question is from the line of Harsh Shah from Dimensional Securities Pvt. Ltd. Please go ahead.
Hi, sir. Just going back on the ticket size in your microfinance book. Last year when our ticket size was around INR 35,000, we faced quite a bit of problem, and we had significant amount of write-offs and provisioning. What led to change in the policy for the management? Now since we're at almost 70% higher ticket size, God forbid if something worse is going to happen or if we see the kind of slowdown which we saw a year back, I mean, won't it be calling for trouble for us?
Harsh, you know, the ticket sizes, as we mentioned, are. You know, first of all, when we increased the ticket sizes, it was largely from the perspective that we were catering to our repeat customers. By and large, that has been our strategy and during the entire COVID period. We have stuck to that strategy. In the month of October, we said that we wanted to do some new customer acquisition as well. However, the ticket size increase that you see is largely because we have recalibrated the repeat loan ticket sizes. You know, if something were to happen like a lockdown, then the entire industry can get impacted. We would not be the only player in the market. We don't expect that to happen. India has gone through two cycles.
Everybody has gone through two shots of vaccination. The booster shots are currently happening, and that covers a large part of the population. We don't think that there is going to be any adverse, you know, impact on the earnings of our customers. If that were to happen, then, you know, we've also covered ourselves with a cushion of about a floating provision. That should take care of things. Increase in ticket sizes would typically not get correlated to any increase in delinquency.
How-
We are watching that hopefully very closely.
This is also a factor of the pent-up demand and the rising economy. This has all led to the ticket size revisions that we have taken into the books.
If I were to look at your disbursement, most of the growth has come from microfinance, whereas we have seen a slight degrowth in housing finance and MSME, which is in contrast to the other SFBs when they reported the numbers. Isn't there a bit of dichotomy that you are seeing growth opportunity in microfinance but none in SME or housing or was it a conscious call of what kind of environment are we seeing there?
We mentioned that our focus on these two businesses is for bringing down the book quality back to the normal level, which is a comfortable zone. If you see, there has been a movement on that side, and there has been a good amount of effort which has gone, the efforts are yielding results also. This is in line with what we thought we will be doing on these two businesses. We see the business growth there, we see the opportunities there. It's just a matter of time when these quality, the book quality comes back to the normal level, and then there will be a good amount of growth coming in these two businesses as well. This is not an issue of the demand in these businesses.
Okay. Just a housekeeping question. What would be the slippage number for Q4 and Q3 FY 2022?
Q3 was 270, and Q4 is 216.
216.
216. Yeah. 270216.
Okay. Thank you.
Harsh, one more thing on both these businesses. Like we mentioned last time also, there has been some credit policy change wherein we have moved away from the smaller ticket size loans. To that extent, we have said no to that kind of a business. That also is reflecting in the kind of numbers we have seen this quarter.
Thank you. The next question is from the line of Abhijeet Sakhare from Kotak Securities. Please go ahead.
Yeah. Hi. Thanks. Good evening. The first question is for Carol, ma'am. In continuation with the higher ticket size issue, there was a reference you made on the new guidelines. If you can talk about what has been the broad changes in the product. Given the rise in ticket size, if you could also highlight how's been the change in the tenure or the duration of the product that you made.
Currently, we have not actually made any drastic changes because we are complying to the revised guidelines of the new microfinance framework. We have also, you know, I mean, implemented it across because our systems are capable of handling the capturing the household level data and, you know, the pricing norms are in compliance. We are awaiting for a few clarifications from the Reserve Bank of India through the Association of Small Finance Banks, mainly on the revised CSR norms and also from the credit bureaus to, you know, how to capture the household credit information. There's not been too many changes. For us, the business has been as usual.
The disbursements in the fourth quarter were broadly in that two year duration product for the third cycle, second to third cycle product, right? That's not gone up, right?
What is that?
The duration on the product, the tenure for the loan, that's not been increased, right? During the
No.
fourth quarter.
No.
Okay. Sure. Got it. Second question was for Deepak. Was there a reference during the call on the cost growth or cost income ratio that we are looking at for FY 2023?
This is what we mentioned that this quarter was a pretty normal quarter apart from the NPA level still at a little elevated levels and thus the collection cost also at an elevated level. Apart from that, more or less the quarter was a pretty normal. What we have this quarter is a base on which we will improve upon going forward.
Costs could decline. Is that what you're referencing here?
I'm not giving any guidance on what kind of cost will come. What I'm saying is this quarter we did 66% cost to income ratio. That is a base, and from there the trajectory you can build in because the kind of tailwind we will have on the income side and the tailwind we'll have on the collection cost side, as Ashish has already mentioned that maybe for the first half of the next year that heightened efforts on the collection will continue and then we'll take a call of reducing the size of the outsourced collection agency and the multiple collection agencies that we are working with because the stress pool would have shrunk to a level where that kind of an investment would not make sense. The cost will also start coming down.
Just going into next year and probably year after, are there like any major two, three areas where there needs to be certain amount of expenditures which were deferred because of asset quality challenges that you would kind of start doing incrementally?
There was no such expenditure that was deferred. Yes, but on the digital side or maybe on the IT side, we would like to make some investments that would be a mix of a CapEx and the OpEx, but it would not be something that will start impacting my P&L in a very big way. Whatever the impact would be is something that the P&L would be quite capable of taking it and moving forward.
Sure.
It will further drive the efficiency and productivity that Mr. Ittira Davis spoke about.
Sure. Thanks a lot.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir.
Thank you very much, Margaret, and thank you for anchoring this call. I'd like to thank everybody for joining us on this occasion when our numbers are looking good. You know, I hope you'll be joining us in future calls with the same optimism that we have. Thank you very much and good evening.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.