Ladies and gentlemen, good day and welcome to Ujjivan Small Finance Bank Q1 FY23 earnings conference call, 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 touch tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Alpesh Mehta from IIFL Securities Limited. Thank you, and over to you, sir.
Thank you, Lizanne, and I welcome all of you to Ujjivan Small Finance Bank Q1 FY23 digital conference call. From the management side, we have Mr. Ittira Davis, MD & CEO, Ms. Carol Furtado, Chief Business Officer, Mr. M.D. Ramesh Murthy, CFO, Mr. Martin PS, Chief Operating Officer, Mr. Ashish Goel, Chief Credit Officer, Mr. Vibhas Chandra, Head Micro Banking, and Deepak Khetan, who heads Financial Planning and Investor Relationships. Now, without much ado, I hand it over to Mr. Ittira Davis for the opening comments and after which we'll have a Q&A session. Thank you, and over to you, sir.
Thank you, Alpesh. Good evening, everyone. I'm delighted to welcome you to our Q1 FY23 earnings call. Hope all of you are keeping safe. It's been more than nine months since we started on our recovery path with the fourfold objective of strengthening the leadership team, growing business volumes, increasing collections and improving asset quality. We are pleased with the outcome of our efforts on all four counts. We stabilized our business in Q3, turned around in Q4, and this quarter marks growth and profitability. Q1 business volume kept pace with a mammoth fourth quarter, both in terms of assets and deposits. On the deposit side, we focused more on growing granular retail base and also curtailing the overall cost of funds. On the asset quality side, we have maintained the traction as collections are inching up, with slippages being under control.
Recoveries and upgrades are helping us reduce our PAR and GNPA every quarter. In fact, every month. We have already taken the provisions up front and thus do not expect major credit quality challenges this year. As of June 2022, our NNPA is just at INR 18 billion or 0.1%. Also, our SMA book as well as restructured book have shrunk further, indicating the reduced stress. The outcome of all this put together is the highest ever quarterly profit for Ujjivan, which is more than INR 203 crore on the back of a strong PPOP of INR 2,271 crore and a negligible credit cost. We are maintaining healthy CRAR of 20%. This quarter we have considered INR 30 crore for floating provision as part of Tier two capital and INR 220 crore for netting off from gross GNPA.
The entire floating provision continues to be on the books and can be utilized in the future for making specific provisions in extraordinary circumstances with, of course, prior approval from the RBI. Including INR 250 crores of floating provision, total provision of gross advances are at INR 1,290 crores. Now we have achieved the objectives we started out with. We have put our sight on growing the platform further. This year, we will look to restart expanding our physical presence across the country, though we look to make a modest beginning with around 25 branches, largely focused on the liability-rich catchment areas. Physical reach would be supplemented by a strong and focused investment in digital platforms to grow our business volumes, both assets and liabilities, services to improve processes and the overall reach to our customers.
Our focus this year is to consolidate our business and make them profitable, invest in new avenues of growth. Our economy is recovering. The credit demand has picked up. This is evident from our performance over the last three quarters. We look to grow our gross advances by around 30% this year, with deposits growing faster than advances. We are monitoring our costs very closely and aim to bring in efficiency through process improvement and productivity enhancement. We look to hold our cost to income ratio at the current levels. Credit costs, we have already guided, would be contained well below 1% as the declining trend in NPA and PAR would continue for the balance of the financial year 2023. Return on assets should be north of 2.3%.
The risk to this guidance is the inflationary pressure that's brewing up in the economy and the resultant rate hike movements. Also, we are monitoring the global geopolitical scenario. Overall, I see financial year 2023 as a strong comeback year for Ujjivan, which will create a solid platform for the next growth cycle. I will like to stop here and request the operator to begin with the question and answers.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.
Good evening, and I'm glad to note the optimistic tone. I just touched upon the issue that you raised of inflation and the two-prong recovery, especially in the micro banking segment of the customers. How is the restructured book doing? I know the customers cannot make more than one EMIs typically. Do you expect recoveries from this book with a lag or the customer still feeling a lot of pain? That's my only question. Thank you.
Hi. Ashish here. On the restructured book, let me answer that question first. Under the Resolution Framework 2.0, which was the May 5, 2021 guideline, we had restructured about INR 944 crore in the micro banking book and a small amount in the housing and the NFE book. Out of the INR 945 crore, we have already recovered INR 580 crore from the customers. In fact, almost 1.6 lakh customers have also closed their accounts. We currently have an outstanding of about INR 360 crore on the RF 2.0 book, and we continue to collect from there.
In fact, what we have seen is that post-restructuring and the moratorium that we had given for about 3 months, and immediately post the lockdown, customers had indeed started paying very well. Our collection efficiency in the restructured book continues to be above 80%. The current quarter we have ended at about 79%. This trend has continued. In fact, out of the INR 360-odd crore, we have INR 148 crore in NPA, which is fully provided. We don't see any incremental risk in this portfolio. In fact, we feel that the portfolio will do even better as we go into the remaining part of the year because our paying customers are actually paying at a very healthy rate of 80%.
Sir, if I can just, on the NPA part, are they also, you know? Is it because there is, you know, more than three months dues? Is it more accounting or are the customers, do you feel that they're going to be more written off and they're not gonna come back as paying customers?
On the NPA portion, we have seen that about 30% of our customers are paying on a month-to-month basis. The only thing that they are not, you know, the only problem is they are not able to recover the past EMIs and the arrears which have got built up over a period of time. Even on the NPA portfolio, we are not saying that we will write off. There may be a small portion of write-off which may happen. However, as I was saying, 30% of our NPA customers are paying month on month, so we don't see, you know, write-offs happening in that segment.
Excellent, sir. Good to know and, wish you all the best.
Vivek, also one more thing, given that what Ashish mentioned, NPA is quite high in that 360, but the overall collection efficiency is 80%, which means even the NPA customers are paying. They are NPA because 3-month overdue is there, and then they are paying one EMI at a time. It's not that entire amount, whatever is NPA and anyway is 100% provided for, will be written off or there's any pressure. Which is why we believe there's no pressure on that book.
Okay. Thank you so much. Thanks for the clarification. Thank you.
Thank you. The next question is from the line of Shreepal Doshi from Equirus. Please go ahead.
Hello, sir. Good evening. Thank you for giving me the opportunity.
Yes.
Firstly, on the microfinance side, our ticket size has gone up significantly in the last two quarters to almost INR 56,000 now. Could you please throw some color as to what would be the reason behind the same? And in the MFI segment, are we continuing to focus on the urban side only or are we also exploring of increasing our share in the rural side?
Hi. Thank you for the question. As we mentioned in the last quarterly call also, that our ticket size went up mostly because of, you know, after the lockdown, we mostly focused on repeat loans, the customers who were paying during the pandemic period, and we were not able to provide them repeat loans. As you know that in microfinance and repeat loans, the ticket size is on the higher side. So first two quarters went on, you know, serving the customers who were, you know, we were not able to serve during lockdown. As we have moved in the quarter one and, you know, we have already served the pending customers, we have moved our focus to the new customer acquisition as well.
If you compare from the last quarter, last quarter NCA was new customer acquisition close to 24%, which is now close to 32% this quarter. Our focus has been, and NCA, the ticket size is on the lower side, which actually has resulted into lower ticket size, average ticket size in the current, in the last quarter, Q1 of this year. That is one thing. Second, as you mentioned that whether we are focusing on urban only. As you know, after conversion to bank, we have also been branching in bank rural location, URC location, which is 25% of bank presence. We have started focusing on rural areas as well, though.
We have not only microfinance products we are selling there, we are selling other products also which is relevant and logical to the rural market. Apart from that, we also sell liability products too in these branches. Our focus is both in urban as well as rural.
Just one follow-up there. What would be the ticket size bracket for our more than, say, five-year vintage customer that we would be having?
Right. Hi as, we go up to INR one lakh for repeat loans after the third or fourth cycle. You know, the average ticket size for the repeat is close to INR 68 thousand. You know, the range is from, say, INR 50 thousand to INR one lakh.
What is the maximum that we give to a group loan customer?
INR one lakh is the max in group loan.
Got it. The question was on the housing side, so that's another segment where we are seeing strong growth. There the ticket size is INR 1.2 million. If you could just give some color as to which geographies are we targeting or is it present, or is the product available at all the branches and what is the strategy going ahead with respect to the share in the overall loan book mix?
Hi, this is Carol Furtado. On the housing side, you know, our focus has now moved a little bit from the informal to semi-formal and the formal segments. Yeah, I mean, so informal is very low as a percentage, but we are focusing on the semi-formal and the formal segments.
Got it. Geography-wise, we would be broadly doing business in all our states or like every-
Geography-wise, we are focusing mainly on the semi-urban areas.
Okay. Got it. Ma'am, just a few questions. On the NPA side, if you could give us the slippage, recovery, upgrade, and write-off number for the quarter.
Around INR 56 crores, right. The upgrade was INR 215, and we did write-off of about INR 63 crores.
That's the technical write-off.
That's the technical write-off.
The total write-off is around INR 79 crores.
Slippage number, I think I missed that number.
INR 156 crores.
156.
Okay. Thank you, sir. One last question on the provisioning side. What is the provision that we are having on the restructured NPA book?
On the restructured book we have, on the NPA side, we have about INR 148 crore of NPA in RF 2.0, on which we are holding full provision. In RF 1.0 we have about 150-odd crores of NPA, again, on which we are holding full provision.
Basically, we are having 100% coverage on the restructured NPA bucket.
That is right.
Okay. Thank you, sir. Thank you so much for answering my questions and good luck for the next quarter.
Thank you.
Thank you.
Participants, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to two per participant only. The next question is from the line of Nidhesh from Investec. Please go ahead.
Thanks for the opportunity, sir. Two questions. First, if you can share the number of customers and group loans and individual loans in the micro banking at the end of June 2022, that would be the first data point question. Secondly, if you look at the segment-wise collection trends, we had seen sharp improvement in collections in micro banking. In MSME and affordable housing, our collection trends have not improved. They have remained at around 95% for the housing, and I think 84%-85% for MSME. What are the reasons behind that?
Who wants to take the question?
You want to take the question?
Okay, I'll take the question on the collection trends. Now, you know, the collection that we see is a blend of non-delinquent and NPA collections. In secured book, which is the MSME book, we have an elevated NPA as of now, which is in the range of 10%. Therefore, our overall blended collection is in the range of 85%. Although we have seen some significant improvement in upgrades in the MSME portfolio also, there is a quarter-over-quarter decline in the gross NPA there. On the housing side, the collection continues to be in the range of 95% and above. Again, a reflection of a much lower GNPA in the housing book. On the non-delinquent portfolio, we continue to have a collection efficiency of more than 95% in both the products.
also just a follow up on this. If I look at additional collection, additional collection is as high as the collection that we are doing against the due for MSME and affordable housing. Does it indicate the balance transfer happening in this portfolio? How should we look at the additional collections which are happening on MSME and affordable-
Nidhesh, take that. There's a whatever NPA, out of NPA, whatever collection we are getting in all that. Like Ashish mentioned, there's good amount of upgrade that happened in the MSE also. That amount was totally roughly around INR 40-odd crores for this quarter.
Okay. Sure. Just a first question on number of customers in group loans.
We don't share, segment-wise, product-wise, numbers, so we can't share that.
Number of customers.
We don't share that.
Because I was just looking at the loan outstanding per customer, loan size, in group loans specifically. Because ticket size sometimes. Ticket size I'm assuming is based on disbursement that we have done in this quarter. I was more interested in looking at the loan size outstanding. That's why I was asking that number. If you can just share that number as a loan outstanding per customer and only in group loans, that would be useful.
At any point in time we would have, you know, repeat as well as new customers coming into the bank. As Vibhas was sharing that there is repeat loan which is in the range of INR 63,000 and new loans in the range of INR 44,000. The blended average of, you know, both the loans put together is in the range of INR 65,000-66,000. Now, in terms of the average ticket size, you know, these are short tenured loans. About 22 months is the average tenure. Typically the loan outstanding per customer should be in the range of INR 30,000-35,000.
Okay.
Because they would have amortized about 50% in the last 6-9 months.
Sure. That's it from my side.
Thank you. The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead.
Hello.
Hi, Deepak.
Yeah, yeah. Hello, sir, and congratulations for a good set of numbers.
Thank you.
I just wanted to understand, now, I think you spoke about cost to income holding at current level with good growth as well as the credit cost well below 1%. But why we are still guiding for ROA of 2.3% plus, as compared to this quarter I think it was about 3.4%. Is that a conservative kind of outlook that we have given on ROA front?
Because we are baking in, like Mr. Davis mentioned in his remarks, we are baking in a little bit of credit inflationary pressure and swap hike on the repo rate hike and cost of fund hike and all that. That's why we are keeping that as a little conservative side.
That's a little conservative number. We do expect our NIMs to. What sort of outlook we have on NIMs, actually?
Overall yield should be improving even if we do not take any kind of a rate hike on our lending rate. Yield should continue to improve as the NPAs goes down, and we expect the declining trend on the NPA and PAR to continue. With that, even if the cost of fund is stable, the NIM should be stable or upward trajectory. We take that plus or minus as a stable NIM for the year.
Oh, that's great. That's great. My second query is on your cost to income over the next 2-3 years. So I think earlier we were kind of targeting 50% kind of a cost to income in the medium term basis. So any thoughts on that would be helpful.
I would put it like this. 50% is the first milestone that we want to achieve within a short term, and then the journey should continue beyond that.
It's a first milestone and what's the timeline we are looking at?
Short-term milestone that we put there.
Short-term, maybe so 2 years, maybe something like that.
I don't want to put a year to that.
Okay. Fair enough. Okay, sir. That's it from my side. All the very best. Yeah.
Thank you.
Thank you. The next question is from the line of Renish Bhuva from ICICI Securities. Please go ahead.
Yeah. Yeah. Hi, sir, and congrats on a good set of numbers.
Thank you.
First question is on this new MFI, you know, regulation in terms of the process alignment. Sir, where do we stand currently in terms of the process migration as per the new regulation?
Yeah. Thank you very much for this question. You know that the new MFI regulation came into force on first of April. Very recently, yesterday only, RBI also published a circular that clarifies that implementation date is first of October. Now as you know, this regulation came into force and you know, communication came in the month of March. Fortunately, most of the items which were mentioned in RBI policy, we were already following it for last 10 years. It is just a confirmation of whatever we were doing for the last 10 years is something they also want others to follow. There are some you know, items which needs time. For example, you know, the credit bureau for customer household.
Yeah.
There are some things that needs to happen at, you know, trade bureau end also. For that, RBI has allowed us time till first of October. Apart from that, we didn't face any issue in the month of April. We were open normally. We were normally able to do business in the month of April as well. Which is a you know good thing that has happened to us. Whatever we have done over a period of time in microfinance business, as we are very old player in microfinance business, that has helped us in following the RBI regulations. We are in line with, you know, pending items which needs to be delivered. We have the time until first of October. Hopefully we'll be able to do that well within the timeline.
Got it. Just to follow up on this. You know, on this 50% FOIR, have we seen higher rejection rate once we have implemented the new process?
No. In fact, our rejection rates in Q4 and Q1 have been exactly the same.
Okay.
There has been no uptick in rejection rates. In fact, we were also thinking what would the rejection rates look like post the FOIR implementation, but we found that the rejection rates have not gone up, not have they gone down, they have remained to be the same. Perhaps the reason is that, as I mentioned, that we are holding more items which were you know prescribed by RBI for a very long period of time. We are already you know following this process and rejection was based on customer income and debt-to-income ratio. As yet to you know now as you can see our rejection rate has not gone up based on whatever the calculation.
Got it. Second, sort of question is kind of repeating. On the MSME and the affordable housing piece, you know, even if you look at the gross NPA number and Par Zero number, you know, Par Zero appears to be on the higher side. I mean, in terms of the process, what we have changed, let's say during COVID to make sure that the incremental growth in both the segments, you know, should be of a better quality than what we have seen during COVID?
Okay. I'll answer this question in two parts. One, what was the portfolio composition when COVID-2 happened, and therefore, what was the reason for the increase in GNPA? When COVID-2 happened, you know, most of our portfolio and about 58%-60% of our portfolio was from the informal segment, which got hit really hard due to the, you know, due to income related reasons. People were not earning that income due to the lockdowns. That led to a very sharp increase in the GNPA. During the same time, we also started to recalibrate our strategy, you know, planning for a shift in our customer segment from informal to semi-formal and formal. During the last one year, we've made significant progress.
In fact, on MSME, we had an 8% formal segment, we are now at 22%. The incremental disbursements on a quarter-on-quarter basis has been 48% in the formal segment. Therefore, you know, the change of composition of the book has been very significant in the last one year.
Mm.
If you were to ask me about the delinquencies we have seen in the last 24 months, the GNPA is less than 0.5%.
Okay. On this is for the MSME business, right?
That's right.
Okay.
On affordable housing, if you were to ask me about our change of strategy, we have in the last four quarters done significant work on our salaried segment. The salaried segment pre-COVID used to be in the range of about 38%, which is now almost 47% of the book. Our quarter-on-quarter disbursements are almost 54%-55% on the salaried segment. Therefore, the book composition has also changed, and therefore, the risk composition has also changed in the entire portfolio. Again, I would want to say that in the last 24 months, the book that we have disbursed has a GNPA of less than 0.5% in the housing portfolio as well.
Okay. Just last data point again on the MFI book. If you can, let's say, highlight the number of borrowers who are unique to us and maybe the borrowers having plus one lender.
Okay. On the unique segment, we have almost 35% of the customers that we have are unique to Ujjivan, and 65% of the customers have multiple borrowing arrangements.
Sorry, 35 is unique and 55 is.
65 is 65% customers have unique borrowing arrangements. Sorry, multiple borrowing arrangements.
Would you like to highlight, let's say, Ujjivan plus one lender, if you have that data with you?
I would not have that.
Okay.
It would be there plus 1 or plus two. It can't be more than that.
Got it. Okay. That's it from my side, sir. Thank you very much.
Thank you so much.
Thank you. The next question is from the line of Gautam from GCJ Financial. Please go ahead.
Good evening, sir. Many congratulations for very impressive numbers.
Thank you, Gautam.
Yeah, my question is related to your growth, expansion plan. Since you have stabilized and now you started growing, can you throw some light on your branch expansion plan going forward?
Gautam, in which regard you want the expansion? Is it branches or is it book? What is your, what's the focus?
Branch expansion.
The branches, yeah. This, you know, our strategy is both brick and mortar and digital. We will grow the branches in areas where we think it's good to be there. For example, this year we will be entering Telangana. We have not been in Andhra and Telangana, so this is area for us which we need to look at. We are entering Telangana this year. We will continue to grow the branch network as required. We are trying to push more in growing business through the digital routes.
Second question pertain to deposit. The deposit growth was very slow in this quarter. I think sequentially we have added only INR 156 crore. Is I mean, my question is, I mean, what is our strategy to grow deposit in line with your loan growth and what steps we are taking to you know to raise the deposit in an upward interest rate market?
Yes, see the thing is that, you know, it's important that we have a granular retail growth because that is the type of deposits we would like to have long term as against bulk deposits. That is the focus. We have got our branches now working full gear to increase the deposit base. We are also looking at different segments in that, including government and local municipalities and all of that. We have got a very good strategy in place, and I think, you know, the coming quarters will show the growth on that front.
Can we raise the deposit rates?
Sorry?
Can we raise the deposit rates between-
Yeah, we raised the deposit rates after RBI, you know, changed the repo rates by 50 and then 40 basis points. We have made, you know, a slight adjustment in the deposit rates.
Last question is on, since, you know, microfinance industry is doing very good post-COVID, and we are doing, I think, one of the best among industry. I would like to hear your qualitative comments on, you know, overall collection and how long this industry will continue to do like this. Is there any change in competitive landscape, I mean, pre-COVID and post-COVID? Any small player left the ground or just your comments on that.
Thank you for the question. You know, what we see, microfinance industry has gone through various crises. This is one of them. Before that, we have also seen demonetization and other crises. What we have seen is that after each crisis, the customer segment that we serve in microfinance bounces back very quickly. At the same time, at industry level, we have also seen that after any crisis, there are a lot of structural additions that happen, especially among the population who are weaker. We see a lot of opportunity going forward after this crisis in terms of customer acquisition and market share.
We are all set with you know as a microfinance lender we don't only lend to book. We have full you know basket of products that we offer to customers not only in asset but also in liabilities. Thankfully we have also done a lot of activity around digital for these customers in the past. We are seeing you know this something very very positive and in terms of growth growth in microfinance you know we see I mean something very very positive for microfinance growth in India.
To add to that, I can say that, you know, to the microfinance customer base, we'll be looking at adding some of the secured products as well. We see this as a good base for us.
Okay. Thank you so much, and all the best for the future.
Thank you.
Thank you. The next question is on the line of V.P. Rajesh from Banyan Capital Advisors LLP. Please go ahead.
Yeah, hi. Thanks for the opportunity, and congratulations on very good set of results. My first question was regarding the restructured book. If you can give a little more color on the customer behavior as to how some of them are able to repay, is it that their businesses have rebounded or they are able to borrow from other banks or NBFCs or something else? That'll be just helpful.
On the, you know, I would not like to see the restructured book as behaving any differently from our overall book. When there was a lockdown, there was a need for customers who had lost their income to get some kind of relief from the bank, and therefore, we had done the restructuring under RF 2.0. Post the lockdown opened, we saw that customers' incomes had come back to normalcy. Therefore, we started seeing some very, you know, repayment rates from the overall book as well as from the restructured book. I would say that the restructured book has not behaved very differently from the overall book because the customer segment was the same, and the incomes had got back to normal.
I, you know, would say that restructured book has behaved very well for us, and it was indeed the set of customers who were looking for some kind of relief had been given relief.
Right. If they are lagging in their payments and they have prior EMIs, obviously they will have to have extra money or extra funds to pay that back. Where is that coming from, if you have any sense on that?
I'm sorry, there was a little bit of disturbance in the line. Could you please repeat the question?
Sure. Can you hear me now?
Yes.
One of the thing is that we, when the book was restructured, they probably would have prior EMIs that were unpaid at that point in time. As their businesses are coming back, are they coming back that strong that they can clear all the past dues as well very quickly? I mean, I'm just trying to get a sense whether they are borrowing more from other institutions to clear their dues with you or, you know, some informal sources or, you know, it's just that their business have come back very, very strong.
There are I would say that about 5%-7% of the customers who went back into NPA because their incomes had not come back to normal. We have not seen any behavior in the restructured book which is any different from the overall book. As I was saying, the restructured book behaved quite well in spite of the first three or four months of setback which the customers had had.
You know, they have continued to pay their EMIs. In fact, as I was saying, from the INR 945 odd crores, we have collected INR 580 crores already. The overall book has come down to INR 360 crores now.
Wonderful. Okay. My second question, any guidance on the fundraise?
Fundraise.
Fundraise. Okay.
The fundraise enabling resolutions we have taken, we have taken two, one on the equity side and one of the sub- debt side. Both are enabling resolution, and we'll see as and when we want to get the funding from the market. Right now, we don't want to give any timeline to any of the activity.
Okay. All right. Thank you, and all the best.
We have a timeline of December, that by December we need to meet the SEBI requirement of minimum public shareholding. We will meet the SEBI requirement.
Got it. Thank you.
Sorry, this is Ramesh Murthy. Apart from the equity side, which Deepak has covered, we're also looking to raise some sub-debt. As Deepak had mentioned, we won't like to right now put a timeline to it, but it's very much on our radar and very much on our cards here. We have the enabling resolutions, as he has mentioned before.
Understood. Thank you so much. All the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Harsh Shah from Dimensional Securities. Please go ahead.
Hi, this is Harsh here. Just wanted to understand the macro situation that is going on in the rural and semi-urban side, because we hear a lot of comments from the FMCG companies that there's some sort of slowdown that is happening. Just wanted to get a sense from your side. I mean, since you're saying that the credit demand is picking up, how is the business environment that is there in the macro in the rural India?
On the rural areas, we are mainly in the unbanked rural areas, and that is our licensing condition also, where 25% of our branches need to be in unbanked rural areas. We are not seeing a slowdown there. We are seeing that the credit demand is equally high and things are going on well there. We are in fact opening branches in these unbanked rural areas here again. On the semi-urban side also, as of now, we do not see any. We are going strong in those areas too.
When you guide this growth rate of 30%, is it the entire industry is going to grow at that rate, or is it Ujjivan who is going to take the market share? Will it be from the organized player or from the unorganized to organized? That sort of migration are we expecting?
I think the 30% is a reasonable level. I don't know about the full industry, but the Small Finance Banks which are active in the microbanking area, you know, as indication, in a recent seminar which was held a couple of days ago, 35% seems to be a rate which is doable for the SFBs who are operating in the microbanking area. MFIs, I don't have any figure on that.
When you say SFB is growing at 30%, I mean, just wanted to understand from where is the demand being generated? Because we, I mean, we have the GDP, which is growing at 10-11% at the best. How is the 30% growth coming in? Is it that the unorganized segment is too large and some demand is coming out from there?
The one thing you have to keep in mind is that last year was a very slow year because there was COVID. From that base, you know, when you say 30%, it looks reasonable. I think when industry gets back to a normal run, then 30% may be a number which looks ambitious if the environment is not strong. In a condition where you are coming from a low, some people, you know, degrowth to some extent, 30% in this recovery year looks reasonable.
Okay. If everything remaining stable, what kind of growth can we see over the next five years or so? I mean, just a ballpark guess.
That's too futuristic to comment, Harsh.
No, I mean, just if there are no hiccups, no major headwinds.
Harsh, no, but the industry has had a good. If you look back at a period when there was no constraints, the industry has done very well. If you look at the 2014-18-19 period before demonetization, it was okay.
I get it. Thank you. Thanks a lot.
Thank you. The next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Hi, team. Good evening. Just one question from my side. I want to assess the non-NPA provision buffer that we are carrying. Of course there is a floating provision of 220-
Sorry to interrupt, Mr. Ashlesh. Your audio is sounding very soft.
Yeah, sorry. I hope this is better.
Much better. Thank you.
Wanted to get an assessment of the excess NPA provision buffer that we are carrying. There is of course a INR 220 crore floating provision, but outside of that, what are the standard asset provisions and the restructured asset provisions?
Outside of NPA.
Yeah, Ashlesh Sonje, just a sec. The total provision that we have on the book is INR 1,290 crore. Of that INR 1,290 crore, 909 is my NPA provision and INR 250 crore is my floating provision, and the balance is my standard asset provision. Roughly INR 131 crore would be my standard asset provision.
Okay. The restructured provision would be part of the standard asset, is that right?
Yes.
Yes, it's part of the NPA provision. As I have said that we are carrying the 100% provision on both RF 1.0 and RF 2.0 book, which has turned into NPA. That is part of the INR 909 that Deepak mentioned.
Got it. Thank you. That's all.
There is a small portion of the restructured provision which is there in the standard asset provision. Not very big portion, but a very small portion.
Yes. Understood.
Thank you. The next question is from the line of Vikram Subramanian from Spark Capital. Please go ahead.
Am I audible? Hello, am I audible?
Yeah. Yeah, Vikram, you're audible.
Yes. Hi, hi. Congrats on a good set of numbers.
Thanks, Vikram.
I just wanted to.
Vikram, can you be a little louder?
Yeah. Is this better?
Yeah.
I just wanted to get some clarity on the equity raise that you had mentioned. I know it was an enabling resolution, but this equity raise would be completely towards meeting the MPS requirement, right? Do we at least have a number of shares locked in in terms of how much we would be raising?
No, we don't have any number of shares locked in that we'll be raising so-and-so number of shares. Your understanding is correct that the reason for doing this equity raise right now is for meeting MPS requirement. However, I will also add that given the kind of growth that we are expecting, it's always better to have a little extra capital, and thus we are looking for this equity raise. Like Ramesh mentioned, we might also look to supplement with a little bit of sub debt if required.
Oh, okay. Okay, got it.
But-
I think you had mentioned.
Nothing, nothing concrete right now, so won't be able to give quantum and timeline for either of those things.
Got it. I think you had mentioned something, like December to be a deadline by which we might do the equity raise.
Yeah. That's the 3-year time period that we have from SEBI because we got listed in December 2019. Within three years you need to meet the MPS requirement. Our three years ends on 11th of December 2022. As per the regulatory requirement, we need to finish this equity raise by that time. We are hopeful we'll be able to meet the regulatory requirement.
Okay. Okay, got it. Thanks. That's affirmative.
Thank you.
Thank you. The next question is from the line of Eric Chan from Buena Vista Fund Management. Please go ahead.
Good afternoon, management. Congratulations on a strong set of results. I have two questions. The first question is on the strong disbursement in 1Q. Can you talk about what did you do? How did you adjust your process to take care of the RBI harmonization requirements for income and liability check per household in microfinance?
Eric, actually, Vibhas actually mentioned a couple of questions back that we have been following all the norms required by RBI under the new requirements. Thus we did not have to tweak our processes to comply with that. Thus we were able to do the disbursement in line with whatever we have been doing so far.
Eric, the other thing is that we have been disbursing over INR 4,000 crore, INR 4,800 crore in the previous two quarters. You know, this pace is now sustainable.
Sorry. I was under the impression that the RBI INR 3 lakhs household income check and the 50% maximum FOIR was a new requirement that came out in March this year.
Yeah. The requirement is new, but Ujjivan as a process has been following it for a very long time. As per our process, it's in line. For the industry, it is new and thus a lot of other players will have to make sure to make arrangements or changes in their process to comply with the requirement. Like Vibhas also mentioned, RBI recently announced that the regulations are implemented with an effective date of first of October.
Got it. Second question is, can you talk a bit about your PSL certificates? We heard that RBI has been tightening their audit checks and now require for some of the MFI loans to have various paperwork and support proof. For example, agri loans require proof of either land ownership or land lease.
I want to just check whether you have been seeing some of that challenges and how has that impact your PSLC eligibility?
Yeah. Thank you for your question. As far as PSL is concerned, we have been following RBI policy around that in letter and spirit, both in microfinance and other groups also, including housing and NBFC and whatever other business we do. We don't see any challenge in that. We have, you know, robust process and continuing to qualify loans into different PSL categories. We have also heard what you are telling in the market, but at the same time, we are confident whatever we have, we are, you know, ways and process we have to qualify loans into different categories is something which in line with RBI requirements.
Great. Thank you. I have no further questions.
Thank you. The next question is from the line of Moin Danawala from Tata Opportunities Fund. Please go ahead.
Thank you, Operator. Congratulations on a fantastic set of numbers. I have two questions. Question number one, would you be able to provide us a summary of, you know, the overall kind of actual plus estimated losses that we would have seen from the time COVID started to today? Question number two would be if you could give us an update on the merger.
I'll answer on the merger part, and while Ashish frames his answer on the first part. He'll have to do a little bit of digging on the number. On the merger, the first step is to meet the MPS requirement. Like I mentioned to the previous caller, to your question, that we would be meeting the SEBI requirement by December as the timeline is there. Only post that, we can take ahead the reverse merger process. In a parallel process which we are seeing, we have not seen that the SFB had any challenge in getting the regulatory approval from RBI or SEBI or exchanges. That process should not take much of time.
On the overall impact during the year, we had overall, you know, slippages in both micro-banking as well as in other segments, housing as well as NBFC. On micro-banking specifically, because the slippages were higher, you know, we had overall slippages in the range of about INR 1,500 crores. We recovered 700-odd crores from the NPA pool, and we had a write-off of about INR 780 crores. The total inventory has actually come down to about INR 60 crores between March of last year to June 30 of this year. This is what we would say as the first year, that is the last full financial year and the first quarter of this year. In terms of write-off, I could give you the number.
It was about INR 780 crores that we did in the last financial year. You know, one more important data I would want to share. Out of the INR 780-odd crores of write-off, we have actually also recovered INR 65 crores in the last four quarters. The write-off, as I was saying earlier, is not something that would not come back. We are seeing some signs of recovery from there, and close to 8% of the overall write-off for the year has been recovered already.
That's great news. Would it be right to summarize this as saying that we would have approximately INR 1,715 crores of write-offs between April 2021 to today, and a similar number in the years prior to that?
No, I don't know how did you get INR 1,700 crore of write-off. We had roughly INR 780 crore of write-off last year. 66, 63 this quarter. Yeah. Total INR 80 crore this quarter, including everything. Prior to that, the write-off amount was very limited. So the write-off amount, if you're looking at, would be roughly INR 870-odd crore, not more than that. Like Ashish mentioned, out of that INR 870-odd crores, roughly INR 70-odd crore has been recovered already.
Gotcha.
We expect that recovery should continue as we, this year proceed.
That sounds good. Thank you.
Thanks, Moin. Thank you.
Thank you. The next question is from the line of Vijay Karpe from Shriram Life Insurance. Please go ahead.
Thank you for giving me this opportunity and congratulations.
Sorry, Mr. Karpe. We are not able to hear you clearly.
Just hold on.
Yes, Vijay.
Am I audible now?
Yes, much better.
Much better now? Yeah. Thank you for the opportunity and congratulations on another set of numbers. I had two questions. One was, if you could talk about your top state, which is Tamil Nadu, and also if you could talk about Uttar Pradesh and Bihar in terms of business environment there, and also in terms of disbursements, AUM growth and collections.
Sorry, Vijay. We didn't get the first part of the question.
Okay. My question was, how has been the business environment in the state of Tamil Nadu, Bihar and UP? Also, how has been the disbursements, AUM growth and collections there?
Yeah. I think you are coming from the point that these states are retailers in terms of AUM and these are first, second and third state in terms of AUM. Top five they belong to, I think, Tamil Nadu and they are in top three in terms of AUM, as far as the market is concerned. We always had a policy that we don't grow to a certain extent, beyond a certain extent in any state, and that is why we have grown our business in almost everywhere in the country. You know, these states also have that limit. We don't grow beyond certain limit. We don't grow beyond, you know, 10%-15% of our business is not residing in any particular state.
As far as the business environment is concerned, as we mentioned earlier, most of the branches are urban and semi-urban customers. As they were before it was microfinance branches converted into banks. We don't see any particular challenge in terms of credit quality or political risk in these states, Tamil Nadu, West Bengal, Bihar and, you know, UP. You know, in terms of portfolio quality also all these states are in line with or little better than our overall portfolio quality at Pan India level.
Great. How has been the collection efficiencies in these three states?
As I mentioned that, I don't have the exact number, but, all these states are performing, you know, like, the overall pan-India performance, if not better. Especially Kerala and UP is much, little better than our national average. Tamil Nadu is in line with, our national average, so there is not much difference.
Got it. The last question from my side, so, in December, the dilution which we are doing, will that be a fresh issue or will it be also an OFS?
It will be completely fresh issue.
Okay, great. Thank you so much, and best of luck.
Thank you, Vijay.
Thank you. The next question is from the line of Akash Jain from MoneyCurve. Please go ahead.
Yeah. Am I audible, sir?
Yes, Akash, you are.
Yeah. First of all, I think a few congratulations for the team. I think excellent set of numbers. I think we are very quick to criticize management when numbers are bad, and I think we should be equally open to congratulating them when numbers are good. Pure congratulations. I have just 2 clarifications. One is when you say 80% collection efficiency on the restructured book, is it on that month's EMI or is it on the whole base where old past EMIs are also being considered?
It is on that month EMI, Akash.
In that case, there would be slippages coming from the restructured book into GNPA on a monthly basis, right? That is how there will be some slippage from restructured book on a monthly basis on the NPA book. Then there will be some recovery potentially from the GNPA book. That's the way this whole thing will work, right?
That's my understanding. Correct. Yes, Akash.
Okay.
You know, one point I would want to make here is our, you know, the SMA book, SMA 0-1 and 2 on the restructured book is in single digits. Even if there is any slippage, it's a very minor small number.
No, but when there is 80% collection efficiency, then theoretically 20% of the book, the non-provisioned book, is going into GNPA every quarter, right?
Let me put it this way. The 80% collection efficiency is a blend of non-delinquent and the NPAs. If I were to look at the collection efficiency on the NPA, that would be in the range of 30%. The collection efficiency on the non-delinquent and the SNA book would be in the range of 98%-99%.
Ladies and gentlemen, the line for the management has got disconnected. Please stay connected while we reconnect the management. Ladies and gentlemen, thank you for patiently holding. We now have the line for the management reconnected. Over to you, sir.
Akash, as I was saying, the collection efficiency of 80% on the restructured book is a blend of non-delinquent as well as NPA collection. Out of the INR 360 odd crore of restructured RF 2.0 book, we have INR 148 crore already in NPA. That is giving a 30% collection efficiency. The non-delinquent book is giving more than 96%-97% collection efficiency. The overall average comes to about 80%.
Okay. Because we have already provided for practically the whole restructured NPA part, we do not see too much slippages coming from the non-NPA book because there the collection efficiency is broadly in line with the overall book as right.
That's right. In fact, as I was saying, our SNA book, SNA 0, 1, 2 is in single digits. It's a very small number.
On the NPA book, I think earlier, you guys had mentioned that 30% of the customers are giving every month EMIs. But if I just broadly want to understand what is the collection efficiency of the GNPA book, including restructured book GNPA as well as overall book GNPA, what will that collection efficiency number look like?
Akash, let me put it like this. The entire book that we have NPA or PAR or GNPA or restructured, everything put together, collection efficiency is 99%. Whatever NPA also or restructure also is there's very limited scope where the payment is not coming. Rest, the overall collection is 99%.
If I want to just clarify one thing here. When we talk about 99% collection efficiency on our slide, I think 21. It basically means all the customers which are 0 to 90 and even more than 90 which have not been fully provided for. Is that the base that we have to take into account?
Everything that was due for that month is counted. If you look at the June number on that slide 21, 1,121 includes every money that is due in the month of June.
Okay.
For the month of June.
I got it. Now, one last question here, sir. Unfortunately, with the way the RBI regulation is that once a customer goes into delinquency, even if he's paid one or two past EMIs, he still remains in as a delinquent customer. If I for once forget or ignore the RBI requirement and just want to understand how many of the actual book, not from an RBI norm perspective, how much of the actual book is actually 90-day plus? Is that number significantly different from the 5.9% we have as per RBI norms?
No, it will not be very different. See, you know, when customers miss 2 or 3 EMIs and they start touching 91 or 121 DPD, they could actually pay 1 or 2 EMIs and come back to 61 or maybe 31. They still continue to be tagged as NPA customers because till the time, as you said, EMIs are completely repaid, we will not be upgrading any of these to standard assets. You know, the quantum of customers who are in 30 or 60 DPD, it is a small number. I would say it is not more than INR 40 crore-INR 50 crore.
The overall SMA book itself is very.
Overall SMA book itself is 1%. I would say this is a fraction of that, maybe 0.2%-0.3%, which is NPA with maybe 2 EMIs pending.
Okay. Most of the customers are barely able to pay, even on the NPA book, they are barely able to meet that EMI requirement for that month, and hopefully over a period of time they'll be able to pay. Asking them to pay more than one EMI is a difficult scenario for an MFI customer.
Yeah. Because also, Akash, there would be customers with an NPA for more than three EMI payable.
Okay. Got it. Thank you so much. That's very useful. Thank you so much.
Thank you.
Thank you.
Thank you. We'll move on to the next question. That is on the line of Jai Mundhra from B&K Securities. Please go ahead.
Thanks for the opportunity.
Hi, Jai. Jai, can you be a little louder, please?
Yes, sir. Hi. Is it better, sir?
A little better, yeah.
Sure. Apologies, sir, if this question has been answered earlier. I wanted to check what is the total stock of provisions in the balance sheet, which is specific plus floating plus restructured. Is this what you have given on slide 23?
Jai, the total provision on the book is INR 1,290.
Right.
Of that INR 1,290 crore, INR 131 crore is standard asset provision, INR 909 crore is my NPA provision, specific NPA provision, and INR 250 crore is my floating provision. Out of that INR 250 crore of floating provision, INR 220 crore is being counted for my TCR calculation and INR 30 crore is being used for my Tier 2 capital.
Right. Total is INR 1,290.
1290.
Yes.
If you see slide 23, on the bottom of the slide 23, we have mentioned that 1290.
Sure, sure. Second question is, sir, on, you know, one of your peer banks, had shown that RBI in their inspection had called out for, people who have taken MFI loan, but they did not qualify for PSL because of, let's say, inconsistent land record, et cetera. Is that, I wanted to check if, you know, you would have faced similar problem or could that be a potential, sort of a risk?
We have not had any such observation from RBI. What I understand in one of the recent peer bank call, there was a discussion regarding Agri book being classified as PSL and they needed some bit of a documentation and all. This question was also discussed and Vibhas clarified. The requirement came in September 2020 onwards, and we have all the documentation required wherever it is required. Also in the RBI point where the documentation is required or for Agri aligned only if the ticket size is above INR 2 lakh. For us, the ticket sizes are not there. For that category, for MSME category, we would not require that documentation.
Understood. Last question, sir. Just wanted to clarify, the RBI new recent guidelines on MFI lending, which ask you to calculate the household saving, et cetera. This clearly does not seem to have any impact, right? Because your disbursement has been clearly good, but just wanted to double-check, that, I mean, does this new regulation had any business impact to Ujjivan at all?
Yeah. As I mentioned earlier that, you know, household income or household liability, et cetera, this is something which is in practice in Ujjivan for the last 10 years. That is something we are already doing, so we didn't have to stop for that. There are certain changes which are there allowed time till first of October, on which we and other partners in the sector are working and we'll meet the requirement on time then. Yeah, as far as income and liability calculation is concerned, this was already in place before the RBI came out with the requirement, with the policy.
Sure. That's very helpful, sir. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, we'll be taking the last question. That is from the line of Sameer Bhise from JM Financial. Please go ahead. Sameer, your line is on the talk mode. Please go ahead.
Hello.
Hi, Sameer.
Yeah, yeah. Hi. Thanks for the opportunity and strong quarter for Ujjivan. So just wanted to get a sense on the provisioning policy. Would it be more prudent to create some buffer given that we've kind of had significant stress in the past? We are probably heading into very good times in terms of growth and profitability. So just wanted to get management's thoughts there. Right now, I think the floating provision buffer is around INR 250 crore. Would it be more prudent to create some more buffer before just to kind of shield off some of the unforeseen events in the future?
Yeah. I think at the moment, you know, you're right, we have INR 250 crore. That is sufficient for the time being. We are coming out of a crisis. In the future, we will look at the model again and see what we have learned from the COVID situation. If required, you know, we'll set aside, if our model is to be continuing to focus substantially on the microbanking, we will look at the risk factors from that perspective and set it up accordingly. It is something that we plan to discuss at our board level.
Okay. It's on agenda, but so far I think nothing is finalized. Is that a fair assessment?
Right now we are continuing with the guidelines which we had from before, which I think is also quite prudent because it takes care of all the risks at the present time. Whether we need to prepare for another COVID situation, that is something that we can look at later on.
Okay. Okay, thank you and all the best.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, that was our last question. I now hand the conference over to management for the closing comments.
Yeah. Thank you very much. I appreciate all the questions that we received and the interest shown by the participants. I appreciate the support provided by IIFL, so thank you very much.
Thank you. Ladies and gentlemen, on behalf of IIFL Securities Limited, that concludes this conference call. We thank you for joining us. You may now disconnect your lines. Thank you.
Thank you.