Ladies and gentlemen, good day and welcome to Ujjivan Small Finance Bank 2QFY23 earnings conference call hosted by IIFL Securities Limited. As a reminder, all participants in 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. Arash Arethna from IIFL Securities Limited. Thank you, and over to you, sir.
Yes. Thank you. Welcome to the participants for the Ujjivan Small Finance Bank 2QFY23 earnings call. From the management side, we have Mr. Ittira Davis, MD and CEO, Ms. Carol Furtado, Chief Business Officer, Mr. M.D. Ramesh Murthy, Chief Financial Officer, Mr. Martin PS, Chief Operating Officer, Mr. Ashish Goel, Chief Credit Officer, Mr. Vibhas Chandra, Head of Micro Banking, and Mr. Deepak Khetan, Head of Financial Planning, Strategy and Investor Relations. I'd now like to hand over the call to the management for their opening remarks, and then we can move to Q&A. Thank you, and over to you.
Thank you, Arash. Good evening, everyone, and welcome to our Q2 financial year 2023 earnings call. We began this financial year with a great quarter, witnessing an all-around performance along with improved profitability. Q2 further built on that good performance. Our disbursements continue to track the INR 4,000+ crore mark, which has now become a new normal. Our gross advances are up 8% against June 2022 and 44% against September 2021. This is in line with our guidance of 30% growth for the financial year. As we have mentioned in our last earnings call, Q2 has delivered strong deposit growth, INR 1,947 crore of incremental deposits, marking 11% growth against the previous quarter and 45% growth versus September 2021. Most of this growth came from retail, which is now 61% of total deposits.
On the liquidity front, we also continue to tap alternate channels like IBPC, securitization, and term loans. We also raised sub-debt and fresh equity this quarter, taking our CRAR to 26.7%. On the asset quality side, sustained collection efficiency and normalized slippages coupled with strong recoveries continue to drive lower PAR and NPAs. We maintain our narration on credit costs that with sustained collections and improving credit parameters, provisions would be sub 1% this fiscal, which is below normal. This would be supplemented by strong recoveries. As of September 2022, our NNPA is just at INR 8 crore or 0.04%. Also, our SMA book, as well as restructured book, has shrunk further, indicating the reduced stress. I would also like to highlight that as of 30th September 2022, our
Total provision on books are at INR 1,126 crore, of which INR 115 crore is standard provision, INR 762 crore account level NPA provision, and INR 250 crore floating provision. The entire floating provision of INR 250 crore created in June 2021 continues to be there on our books and can be utilized for making specific provisions in extraordinary circumstances with prior approval of the Reserve Bank of India. Only INR 160 crores is utilized for NNPA PCR calculation, INR 30 crores towards Tier 2 capital, and the balance INR 60 crore has been grouped as part of other provisions without utilizing the same towards Tier 2 capital. This amount continues to be earmarked for utilization for NNPA or PCR as and when needed. The outcome of all this put together is the highest ever quarterly profit.
PPOP of INR 385 crore and PAT of INR 294 crore. Credit cost is negative this quarter. As I mentioned that while slippages have come under control, recoveries continue to be strong. Also, I would like to clarify that as per regulatory guidelines, we have revised the treatment of bad debt recovery. Since Q2 financial year 2022, we have been netting it off from credit costs. However, this quarter onwards, we have restated the earlier treatment, which is showing bad debt recovery as part of other income. This leads to increase in income and POP on the one side and credit costs on the other, but PBT and PAT remains the same. Prior period items have been restated for your reference. With the recent equity raise, we have complied with the SEBI requirement for minimum public shareholding.
Following which the boards, both the boards have approved a revised scheme of amalgamation with our promoter, Ujjivan Financial Services. The same has been submitted to exchanges and the Reserve Bank of India. We are in process to get the requisite regulatory approvals, post which we can approach the NCLT. The entire process may take around 12 months. The outlook now for the rest of the year. As promised on last call, we now looking at growing our platform further. We have added 15 branches this quarter and will add a similar number in the second half of the year. We are keeping our branch strategy a bit dynamic to complement our growing digital presence. I'm extremely delighted to mention that we have launched a mobile banking app, which is first of its kind to target customers who are not tech-savvy.
It is called Hello Ujjivan, and it's based on voice and video in vernacular languages. We have it in eight languages. The same is now available for customers to download and use. We would be encouraging our semi-literate customers to use this app and increase penetration of digital banking. This will have multiple benefits in the long run. We continue to invest in technology and other digital platforms to grow our business, volumes, assets, and liabilities, both services, improve processes, and overall reach our customers. I would like to reiterate that our focus this year is to consolidate our businesses and make them profitable and invest in new avenues for growth. We maintain our 30% gross advances growth guidance, with deposits growing a little faster. While cost of fund is increasing, our focus is to grow CASA to reduce the rate of increase of the cost of funds.
Also, time to time, we'd like to evaluate and pass on the increased cost of funds as and when it is possible to do so. For example, we took some rate hikes in September 2022 on our asset book. We are monitoring our operating costs very closely and aim to bring in efficiencies through process improvement and productivity enhancement. This is a continuing process. We look to hold our cost-to-income ratio comfortably below 60% for the financial year 2023. H1 cost-to-income ratio is at 55%. Also, we had earlier guided for a 2.3% return on assets, which we said is a conservative guidance. However, our first half performance, we are confident of a comfortably higher ROA. The second half would be a bit different than the first half because of a couple of items.
PSL income might be a bit lower, and OpEx might be a little higher as we invest in branding and also expand our branch network. NIMs, we believe, will be around 9.5% for the year. Overall, the second half of the year would be similar to the first half in terms of overall profitability. As we discussed earlier, the risk to this guidance is the inflationary pressure that's brewing in the economy and the resultant rate hike movements. Also, we would be monitoring the global geopolitical scenario. Overall, I see financial year 2023 as a strong comeback year for Ujjivan, which would create a platform, a solid platform for the next growth cycle. I'd like to stop here and request the operator to begin the Q&A. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Participants who wish to ask a question may kindly press star one on your touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking the question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Renish Bhuva from ICICI. Kindly proceed. Hello, Renish Bhuva, can you hear us?
Hello, am I audible?
Yes, you're audible now, sir.
Hi. Hi, sir. Congrats on a great set of numbers. Sir, my question is on ROA guidance. If you look at the first half 2023 ROA, it is already at around 4%, and then we are guiding at 2.3% for the full year. It suggests that the second half profitability will be much lower. Though you have mentioned about the investment towards infrastructure and the brand building, but why you are expecting half ROA in second half?
Renish Bhuva, we didn't, Mr. Davis just said that we are expecting much higher than what we guided. We guided a conservative ROA of 2.3% earlier, and now we are saying that our full year ROA for this year would be much higher. He also mentioned that second half would be more or less similar to the first half on the overall, profit number or profitability basis.
Okay, got it.
We are not nowhere saying that second half would be poorer than first half.
Got it. Would you like to revise your ROA guidance to 4%? I mean, that is what the data suggests.
We would stop here and not give a number of ROA.
We have given you a profit guidance though, because we said second half will be similar to first half.
Got it. Got it, sir. Sir, secondly, on the growth guidance, so of course, I mean, AUM growth will be 30%, but would you like to highlight also the key growth drivers among the broader segments?
Yeah, the growth. Our overall business is growing, and that will continue to grow because our disbursements are north of INR 4,000 crore quarter-over-quarter. Our OSP will continue to build on that basis, on that disbursement basis. The yield from that portfolio will be substantially higher with each passing quarter. That will be the basic growth drivers. In addition to that, we have, you know, in this quarter we had some PSL income and some other income coming in. The other most important thing is our recoveries, our NPA recoveries and our collections. That we expect to continue to be good for the rest of the year, but perhaps not as good as the second quarter or first quarter. Still at good levels. Not very good, but good.
Okay.
Renish Bhuva, for first half, bad debt recovery was roughly INR 56 crores.
Correct. Correct.
That is what Mr. Ittira Davis is saying. It might not be INR 56 crore, but it will be a very good number because it's a number which generally tend to slow down as the NPAs are older or the age of account gets older and older. Though so far we have not seen that flattish kind of a growth coming, number coming in. On the PSL side, we have booked a good amount of PSL in the first half, INR 9.2 or INR 9.3 in the first quarter and INR 14+ crore this quarter. We don't expect a very big number in the second half. These are the two numbers which we do not expect to be coming in the second half.
Overall, given that the business volumes have increased, the P&L size has increased, we do not see the overall P&L to be very different compared to what the first half P&L numbers are.
Yeah. Because in fact my question was around the AUM mix impact. What I was trying to get a sense is that you have the 70-30 mix, which we have, you know, which has been actually static from last three-four quarters. How should one look at this?
Renish Bhuva, the next two quarters are not going to see any significant change in the current mix that we have because as we said in the previous two calls also that microfinance for us has seen a very good demand from the market and therefore the disbursements have continued to be very good. Secured products obviously take a little longer to build a book, therefore the mix is not going to be significantly different in the next two quarters as compared to the last two.
Got it. That's it, sir. Thank you very much.
Thanks, Renish.
Thank you. The next question is from the line of Shripal Doshi from Equirus. Can we proceed?
Sir, thank you, and congrats on great set of numbers. Sir, firstly, I wanted to understand and get some sense on what was the slippages, recovery and upgrades during the quarter.
This in terms of.
NPA. Yeah.
The slippage was about INR 75 crore and the upgrade was INR 146 crore. In terms of percentage it was 0.4% and 0.7%.
Okay. The upgrade you're saying overall reduction was INR 146. If you could say what were the other like up-recoveries if you would be?
Overall, look at recoveries and upgrades as a single unit, you know, last three quarters, I would want to say that our slippages have come down from 1.2% to 0.8% to 0.4%, and the upgrades have remained always higher than the slippages. We've seen a net reduction in all the three consecutive quarters.
Got it. With respect to the reverse split here, I heard that it will take another 12 months to sort of fortify.
It's the overall timelines because, you know, we have to get clearances from RBI and from the stock exchanges, following which it will go to the NCLT. How long it takes with each of these bodies is not certain. This is a conservative number we have given of 12 months. We hope it will be faster, but we are just putting that as a rough estimate as it is. Because we have submitted all these papers to RBI and to the stock exchanges last month. From last month we could say 12 months is a conservative estimate. We also mentioned in the last call that we expect it to be completed by September of next year, is the indication that we have.
Got it. The last question was on credit cost side. You said it will be like for FY 2023 it will be less than 1%. I expect second half to have relatively higher as compared to first half on credit cost side. Is it because there will be some write-offs that would come from the restructure pool which is, you know, which is having a collection efficiency of close to 88%?
On the credit cost, you know, there are two factors that I would want to highlight. One, our SMA pool, which is now about 1.7%. As a result of that, our incremental slippages, as I was saying, the trend has been downward, and last quarter we had about 0.4%. Therefore, this trend we expect to continue because our restructured assets, which we, you know, I would want to give you some numbers. We had restructured micro banking portfolio of about INR 944 crore, and we have collected almost INR 600 odd crore out of it. The book that we currently have is INR 222 crore, of which INR 110 crore is NPA and fully provided.
We don't see too much of a risk in terms of the restructured portfolio. The credit cost would happen from the existing NPA moving to higher buckets because slippages are, you know, coming down. Existing, we have some NPA which will move to higher buckets, and that's where we expect the credit cost to come from.
Got it, sir. This one side, like in the last say three quarters our disbursements have been pretty strong. How is the new book performing in terms of asset quality? What is the steady state sort of a business , as usual credit cost that we are looking at from say April 2024 onwards?
In terms of new book, we continue to have a 99.5%-99.7% collection efficiency. On micro banking, which is our largest portfolio, about 85% of our book is new book, which was dispersed in the last four quarters. Therefore, the portfolio quality is quite stable there. 99.7%-99.8% is the collection efficiency. Old book, which is about 7% of book, which is more than two years old, that has slippages and, you know, that accounts for whatever slippage we have. In terms of credit costs, you know, we'll continue to see 100-150 basis points in a normalized year.
Got it. Thank you very much, and good luck for the next quarter.
Thank you.
Participants are requested to kindly restrict your questions to two per participant. The next question is from the line of Harsh Shah from Dimensional Securities. Kindly proceed.
Good afternoon, sir. My first question is pertaining to the AUM mix. Since we are entering a very high interest rate regime, is it a conscious decision on our part to maintain the MFI book at higher level? Because earlier we were guiding of 60% kind of contribution from MFI and 40% from non-MFI. Is that the thought process behind keeping the MFI book at a higher level? Because currently we are at around 70%.
Harsh Shah, it is not a factor of the interest rate scenario in the market. We have been mentioning over last couple of calls that given the microfinance industry coming off from a very bad two years, there is a very high growth demand, credit demand which is there. That is the interim while the other businesses start delivering very high volume in turn because anyway the microfinance portfolio for us is big, so it will take time for other businesses to start delivering in that absolute amount. There's no such thought process on the interest rate cycle.
We are still committed in the long er term in the next three to five years to, you know, balance that portfolio as we have indicated in previous calls. That strategy remains intact.
The focus is on growing the secured book also.
Okay, fair enough. Second question pertains to the type of asset, AUM growth we are seeing. We are adding 30% then probably even after that we will be higher double-digit. What is the strategy on the liability side? How do we plan to catch up in terms of liquidity to maintain to sustain that kind of growth? When we tap the external borrowing market, what would be your incremental borrowing cost on that side?
I'll take the first question. You know, we have not changed our strategy. We are going very strong on retail granular growth. The same thing of, you know, having our customers segmented into various categories like the high net worth, senior citizens, and having specific programs for that is still under traction and we are going ahead with that. We are also opening branches. You know, one of the advantages that we have is on the interest rates, and we are taking a lot of, you know, we are getting good deposits from these customers across the segments. Our customer service and technology is also helping us do that. We are also working on a very strong branding for Ujjivan, and that is going to help us in accelerating our deposit growth.
The focus is also a lot more now increasingly on the digital.
Okay. The incremental cost of borrowing?
Incremental cost of borrowing right now what we would probably be looking at is not really a normal bank loan or term loan or something. Probably we can look at a refinance facility or something. That may not be very expensive. It would be more or less where we have the current cost is there, for the current cost of borrowings are there. It would not be very different from there. We will get to know the final number when we get the facility, but it would not be very different.
Okay, sure. Thank you so much.
Thank you. The next question is from the line of Deepak Poddar from Sapphire Capital. Kindly proceed.
Hello.
Hi.
Yeah. Thank you very much, sir, for the opportunity. First of all, I wanted to understand on the accounting adjustment you mentioned that the bad debt recovery is accounted in other income. Basically other income and then the provision is kind of nullifying each other, right? The PBT in fact remains same, right?
Let me answer. This is Ramesh Murthy here. If you recall, there was a Master Direction given by RBI in August 2021, which again they reverted to the original position in November 2021. All what we are trying to have done here is that we have regrouped this as per conforming to the RBI Master Direction. That's all there is. Which is why the recoveries from bad debt previously written off have been added to other income.
Okay, just wanted to understand now the going forward other income, because we are seeing lot of variability, right? From INR 90-INR 100 crore it has jumped up to INR 150 crore this quarter. Going forward, if I have to, I mean, understand what should be the right range for other income. I mean, some understanding on that, if you can provide.
Range we cannot predict because that depends on the recovery which we get.
Uh-huh.
Deepak has already mentioned that whatever we were having on the PSLC income we have taken, and we don't expect that to be at the same level in the next half.
This INR 145.45 crores will reduce, right? Ideally that recovery amount that has come this quarter will not come again in third quarter, fourth quarter.
Deepak, I can say that there's no one-off as this other income. The only thing is what I already mentioned, that the bad debts recovery depends on what kind of pool you have for bad debt recovery.
Uh-huh.
As we move forward, that pool will continue to shrink. Last quarter we had INR 30 crores. This quarter we have around INR 26 crores.
Okay.
It is not too much of a difference, but there is still some difference.
Okay.
PSLC income is basically your book that you have. We have booked around INR 25 crore of PSLC income in the first half. Second half we will have some income, but we cannot say how much it will be there and which quarter it will be there.
Fair enough. I got a hang of it. Yeah. Understood.
Rest in other income there is nothing else. This is one-off. These two item also will be there, but the quantum may be up and down depending upon the quarter and the overall business. That's it.
Oh, fair enough. Understood. Fair enough. My second question regarding your cost to income. I think you did highlight that you expect that to increase driven by branding exercise and infrastructure building, right? So I think it was about 53% this quarter. Overall we are expecting below 60% for the entire year, right?
Yes. Yeah. This quarter it is 52%, and for the first half it is 55%. What we are saying is, again, we have taken a little bit of conservatism in the overall guidance as like we have been saying. Overall we are saying that comfortably below 60% we will be there. Mr. Davis has already mentioned that second half would be more or less similar to first half. We do not see that 55% or 56% kind of a first half number as a challenge.
Understood. Fair enough. I understood. Yep. That's it from my side. All the very best. Thank you so much.
One thing that we need to also see is the rate cycle. As the rates move up, the overall size of the P&L moves up. With the income moving up, but the absolute OpEx does not move with the rate cycle, so that helps understand.
Correct. The base effect you will get basically.
Yeah.
Fair enough. Yep. Thank you so much.
Thank you. The next question is from the line of Abhishek Murarka from HSBC. Kindly proceed.
Hi, everyone. Good evening and congratulations for the quarter.
Thank you.
My question's on OpEx. Now when I look at your, you know, growth of 30% plus on the retail liability side, you're having to, you know, work with on granular deposits. You know, on the other hand, you've not really added a lot of branches and your employees have actually, number of employees have actually come down in the last two-three quarters. How long can this sustain? As in how much capacity is there in the system to sustain growth before you have to add branches and employees more aggressively?
I think, you know, in our opening remarks, we said the branch expansion is going to take place, continue. In the second half we'll add a few more branches, but you know, next year we'll be going back to a more normal branch growth plan and obviously with that staffing will also grow. So those numbers will begin to look up. Yes, it will answer your question that you know, with that growth we'll be able to add to the granular growth of deposits.
We've been working on the productivity also. I mean, we've been working very hard towards getting our productivity levels up and in a lot of our business verticals it is surpassing industry standards.
Of course.
So
Because your branch count hasn't really gone up much in the last few years, since 2020 because of, you know, all the pandemic related issues in between, what would be a normalized branch addition, let's say to support a 30% growth? What kind of normalized branch and employee addition would you expect?
We said, you know, because we also have a digital strategy, so, you know, what we had earlier is not a guidance for going forward. But I would say that this year we are adding about 40-45 branches this financial year. Next year, it could be a little bit more, could be towards the 75-100 mark. You know, the numbers will keep shifting based on our, how our digital strategy presents itself. Because we believe that very core to our is digital strategy and that is a cost contained strategy, so that is very important. As that opens up and is successful, we will slow down the branch growth. But if that is not producing the deposit that we require, we'll continue the branch expansion.
Yeah. Sir, what I'm trying to gauge here is sub-60% a normalized cost to income level? This year I understand, but next year a more normalized cost to income, would it be sub-60% or around 60%? How do we think about it?
Abhishek, it would be probably much below 60.
Okay, perfect. My second question is on credit costs. I understand this year again, you know, sub 1%, but I believe you mentioned 100-150 basis points normalized credit costs. Was that only for MFI or was that for, let's say, going forward?
We were mentioning 100-150 basis points for the bank as a whole.
For the bank as a whole. Okay. In case your book doesn't require additional credit costs, would you still make that or would you, maybe this year you won't, but next year onwards it gets back to 100, 150?
I didn't get the question, Abhishek. Abhishek, this year we have not. When Ashish said 100, 150, that was a normalized.
Normalized.
Yeah. Not for this year.
No. Let me ask. To gauge if it is normalized, would second half also run at 100-150 or this sort of kicks in next year in FY 2024?
This is for next year. This year is a very exceptional year because, you know, we've done provisions in first and second quarters of last year and we are getting good recoveries this year. Therefore, you know, you would have seen the bad debt recovery as well as the credit cost being very minimal in the first two quarters. We expect that this trend for the next two quarters will remain. However, next year onwards those recoveries may not happen. We will probably see 100 to 150 basis points year-over-year as a normalized cost.
Abhishek, also for this year our PCR currently is almost at 99% with NNPA of just INR 8 crores. A n INR 90 crore of floating provision is not being used to calculate this PCR.
INR 30 crore of that INR 90 crore is in tier two capital calculation and INR 60 crore is being put under other provisions which can be anytime moved back to NPA provision if required. This year actually, like Ashish has been mentioning calls after calls, this year would be a little below normal kind of a credit cost. Second half we'll see how the things move. If required, we probably doesn't look like anything, but we understand what you're coming from, whether we'll still go ahead and make some provision. We haven't taken that call yet. If additional provisions just to be on a safer side we require.
But we continue to have about 1% as floating provision. That I think is sufficient for us to take care of any extraordinary circumstances.
Sure. Sure. Thanks. Thanks so much. That's useful, and congratulations again for the quarter and all the best.
Thanks, Abhishek.
Thank you. The next question is from the line of Ashlesh Sonje from Kotak Securities. Kindly proceed.
Thank you. Thanks for the opportunity. A few questions.
Hi, Ashlesh.
Excuse me sir, we are not able to hear you. Ashlesh?
Hi. Is it better?
No, sir. Would you be using your handset?
Is this better?
Yes.
Hello? Yeah. A few questions on the individual loan book. That book has grown at a robust pace, this quarter. Disbursement almost doubled, YoY and up 35% QoQ. Can you talk about what proportion of these IL customers would have graduated from our group loan product?
Yes, yes. Yeah, IL has been our strategy and one of the product in micro banking which is rare in the country. Because this, you know, the role of the entire micro banking changing with RBI policy coming in, IL has become even more important and we are focusing on IL. It is largely GL to IL graduation, close to 90% and remaining 10% comes from the open market.
Okay. Roughly 10% would be new to bank. What proportion of IL customers would you say be new to credit? I guess
It's you know, negligible. It's very little. No.
Okay. Understood. Second question, again on IL. So what would be your qualifying criteria for graduating customers from the group loan product to the individual loan product?
We, you know, we see the customer repayment behavior in the group lending and also the repayment capacity of the customer. We also look at the data which is available in the market, around the customers, you know, with the other MFIs and banks as well, to assess customer repayment capacity. Based on that, we graduate customers into from GL to IL
Sir, more specifically, would you have any thresholds on experience with that customer as in any?
Yeah. We normally graduate customers after two years.
Any qualifying criteria on number of EMIs that he has paid with us so far?
Yes, we have. We have a grade criteria, but on average customers are graduated to IL after 24 EMIs minimum.
Okay. Okay, understood, sir. Thank you. Those were all the questions on my side.
Thank you. The next question is from the line of Sharaj Singh from Laburnum Capital. Kindly proceed.
Hello, sir. Good evening, sir. My question is on the rate hike pass on. Are we looking to pass on any rate hikes to our customers and, do we see any pushback here?
Yeah. On the asset side, we have done our rate hike in September of 50 basis points on the micro banking book. On the housing loan and the MFIs, there is a fixed to floating conversion that we have from time to time. So those kick in also during this period. So on that basis, the higher interest rates on the book are brought in. If necessary, we will look at the way in which rates are moving and look at further increases if required.
Sir, actually I want to understand, like, given the segment and the customers we deal with, how much of a rate hike can the customers actually bear? Is there some threshold we have?
In the MFI segment?
Yeah, in the MFI segment.
We have not received any pushback from the customers as of now, and we are quite competitive there. I mean, we are looking at a rate hike in the immediate future.
There are players who are much higher than us on the rate side. That is not really something which is a much challenge here. It's more of a tack and service and how to deal with the customer, which brings the customer back to you and the loyalty of the customer rather than the interest rate. Because these are small tenors, small ticket size loans, so the EMI amount change is not something that pinches the customer's pocket much. Rather customer believes or would prefer RMs or RO who serve them much better.
It's mainly the customer connect and how we service the customers that matters most to them.
Okay. From the deposit side, how do we look at the rate hikes? How much have we passed on so far, and how do we look at it in the current quarter or the coming quarters?
We recently did a rate hike, and we are yet to see the results of that. We did one, I think, sometime in September also. I mean, in August we did a rate hike and we got a good traction there. Recently, we did another and we are yet to see the numbers coming through.
Can you quantify it please, ma'am?
Sorry.
Sorry?
Can you quantify the rate hike that we've taken in Q1 and Q2 together so far?
We'll come back to you on the exact amount, but we can tell you that, among our peers, we are not like, we have the highest rate or something. We are in line with the peers.
Okay. One last question. You mentioned that it could be a rate. Looking at the borrowing mix, you're looking at some change with the term loans coming in. Could you explain like when can we look at the term loan expanding in the mix?
We mentioned that we would be looking for some refinance facility. What happened is during COVID, we allowed our refinance facilities to dry down because we were sitting on very huge pile of cash as disbursements were not happening. After COVID, once we have now got back into action and the business has started to perform, now we are looking at expanding or going back and taking those refinance facilities. That is something that we are looking at. We wouldn't be able to comment on the timing and all of that.
It was 't in term loans.
Yeah. We didn't mention term loan. We said in the Q2 we have already taken it.
Okay. Thank you.
That was a small facility, not a big one.
Yeah. Okay. Okay. Thank you so much and congratulations.
Thank you. The next question is from the line of Raj Shome from Shom e Partnership. Kindly proceed.
Yeah. Hi. Good evening. Am I audible?
Yeah, yeah. Good.
Yeah. Hi, sir. So sir, it's a question. Okay. Like, I see that first, first is like a clarification. Did you just say that your deposit growth will be higher than 2% loan book growth for this fiscal?
Yeah, we did say that our deposits will grow faster than our loan.
Okay. Now the question is this. Like when I listen to the con calls of the other banks, it's clearly a fact that like there is a war on deposits, on getting deposits, but when I listen to you and listen to the presentation, I didn't get that feel. What is it, for example, like I know it can be a little bit of a base effect as well, but can you just give some more color as to why, like it's very simpler for Ujjivan to get the deposits, whereas let's say for the other banks it's becoming difficult. If you can just throw some color on this, sir.
Raj, thank you for pointing it out, but I would say it's not simpler for Ujjivan. There's a lot of hard work and strategy that has gone behind it and a lot of good execution that our teams on ground have been doing. Couple of things which I think Carol Furtado has already mentioned to one of the question earlier is that, one, we have not done much of branding yet, which we are now doing, which Ittira Davis also covered in his opening remarks. There's a lot of focus on digital, which is now taking shape in a good form. One is the Hello Ujjivan app which was launched. There was on the branding side, I would say that we did a good campaign on fifteenth of August, and the results of that was very good.
It was a tactical campaign that we did on the Independence Day, where a lot of ads were put on while the PM 's speech was there, and we got very good feedback on that and a very good customer connect from there. We believe there will be a lot of future tactical campaigns that we'll do. One, that would be there. Branch expansion like Mr. Davis has been mentioning, that would be there. A lot of training of the ground staff is being there. A lot of focus on the service quality is being there. While the service quality is already good, there's a lot of improvement that we have been doing.
Technology.
There's a lot of investment in technology side which is there. Our renewal rate on FDs are improving. Our business from our existing customer and already have a good base of customers on the liability side. That is helping us. That ticket size is increasing. All these things put together for us is helping us and giving us that confidence that the growth in the liability would be much faster than what the growth in the assets would be.
Okay, sir. Okay, that's a very elaborate and a great answer. That's it for me, and thank you so much for the opportunity. Thank you so much.
Thank you. Thank you.
Thank you.
Thank you. The next question is from the line of Pritesh Bumb from DAM Capital Advisors. Kindly proceed.
Hi. Evening. Congratulations on the set of numbers. Just two questions from my side. I see the average ticket size has dropped on the MFI book. So, have you now started to do incremental lending to new-to-bank customers and on the lower cycle customers, which we, I think, during the COVID, we had more into higher cycle customers.
Yes, you're absolutely right. Last year we were focusing on repeat customers, Q3 and Q4. The ticket sizes had indeed gone up because repeat customers were almost 90%-92% of our overall disbursements. In Q1 and Q2, we have added about 400,000 new customers, new-to-bank customers. As you know, new-to-bank is in the range of 40,000- 45,000, ours are in the range of about 65,000. That has brought down the ticket size. Currently we are in the range of 54,000.
Right. Incrementally, do we see or we get comfortable to reduce, continue to reduce this ticket size?
It will be an outcome of the ratio of new-to-bank and repeat loan customers. We expect that the ratio that we currently have about 30/70, 30 new and 70 repeat will continue in the next two quarters.
A follow-up to that. Basically the new cycle customers will be relatively higher rates against what we can assume or compared to a older cycle customer. Is that fair understanding?
No, there is no differentiation in terms of lending rates. The rates are uniform. That rate is uniform.
Okay. Last question was, when we look at the share of mix between states of our MFI book, where are we growing incrementally? Because I would assume Tamil Nadu and Karnataka is almost at the upper range of your mix, right? Incrementally which states we have grown the MFI book?
So see, our strategy from day one was to diversify in the larger states where we work and we work in almost everywhere in the country except few states. Our share of micro-lending portfolio is not more than 15% [inaudible] in states. We have ensured that. At this point of time as you see that you know as we mentioned in the last two earnings calls also that initially after pandemic end and we were focusing on our existing customers and we were not able to serve many customers during pandemic. That is why the percentage of repeat loans were very high and that is why our ticket size was on the higher side in the previous quarter.
As we have been able to serve the repeat customers, we have moved to new customer acquisition and that has led to the ticket size going down. At the same time, you see the growth, it is almost similar, not very different. There are some states where we see that overall industry level the average portfolio size is very high. At the same time, our portfolio in these states are limited to 15%. At the same time, there are states which have behaved much better during pandemic like the eastern part of the country we have UP, Rajasthan, Gujarat and Odisha where branches are also not that saturated, relatively new and we are seeing more growth there.
At the same time we all know that Assam, the industry is still new and therefore we are not growing at this point of time. Second, in terms of ticket size, though the ticket size has gone down, but at the same time we have a IL product program where our ticket size on the higher side and with the renewed focus we will be targeting GL to IL conversion more and we will be seeing higher percentages going up quarter-on-quarter going forward.
Sure. Thank you for answering. On the list for the future.
Thank you. Ladies and gentlemen, the management would be taking last three questions. The next question is from the line of Yash Dantewadia from Dante Equity. Kindly proceed.
Hello. Oh, hi. My first question is regarding your branch growth plan. Which areas are you targeting? Is it urban, semi-urban or rural?
In the branch growth plan, we are looking at both semi-urban and also, you know, Tier 2, Tier 3 cities are our focus area. A few in the urban and, you know, as a regulatory compliance, we need to also have 25% of our branches in unbanked rural areas, and that is something that we will also be growing.
As we move towards normalized profitability. What I mean by normalized profitability is, as we've already discussed at length, minus your additional collections and minus , and addition of normalized provisions. If these are the factors that you kept in mind while saying that we are expecting the same profitability carry on in the second half?
Yash, we didn't understand the question. Can you please repeat?
Yeah. I'll repeat it. As we're moving towards normalized provisions, right? This time the provisions were in minus because of collections. When we move towards additional provisions, normalized provisions is what I mean, and when your other income becomes normalized, when your additional collections stop, is that what you meant when you said that, you know, we'll have similar profitability in first half and second half?
What we said that bad debt recovery in the first half is good and there has been a good amount of write-off that has been done in FY 2021, 2022 and first half FY 2023. Of that, roughly what we have collected in the last six quarters is a little over INR 100 crore. We would have written off 1,000-odd crore plus, and we have recovered 100-odd crore or little more than that. INR 900 crore of that is still available from which we can recover. Based on how this book performs, the recovery will continue to be there. What we mentioned is it's a kind of a cautious call that we are giving, that this number may not track the same trend.
There might be a little up and down depending upon the quarter and the economy and all that. On the provision side, I think Ashish has mentioned that the recoveries or the slippages are now more or less normal and recoveries given as the sustained collections are there and there is a strong collection effort which we continue to put. I think we have put in a very good slide there where we've put in how the collection team has been moving since the last 10, 12 quarters. If you see that also gives a kind of a trend how the collection effort has been put. With that, we believe that the collections would be good and there would not be much of slippage going ahead.
Could you also tell me how your cashless collections have gone from 16% to 22%? What is the process behind this?
The cashless collection for us is. There are two parts. One is a direct digital where the customer deposits through a GPay or some other digital means.
Okay.
Where we are not involved through our manpower or any other form and the money comes directly to our account. There is another means where they come and deposit in our collection centers where we have tie-up with the payment bank or some other fintech, and these two put together is 22%. There's another way where the CRO deposits the money into these fintech partners or the payments bank, which is another 35% or plus more of that.
Digital repayment is something to add up customers not used only to microbanking. One good thing that has happened out of the lockdown and pandemic is that both us and customers have learned to pay digitally. During pandemic only we activated ourselves for all the platforms, including all the wallets, UPI, et cetera, to give option to the customer to pay digitally as center meeting and movement was not possible. We saw that customers responded and slowly our repayments through all these digital mediums are increasing. We have just launched Hello Ujjivan app for this microfinance customer segment. With the advent of this app, we are looking at increasing digital repayments quarter on quarter.
Okay. Also, this INR 250 crore floating provision that we've kept, it's written in the presentation that this is kept for extraordinary circumstances, right? So what kind of extraordinary circumstances are you even expecting in the future? Is it something like inflation or something else other than inflation?
Extraordinary circumstances is anything which is not in the normal course of business. Like we had a pandemic, about two years back.
Yeah. How long are you planning to carry this forward?
This is 1% of our overall book, which we plan to carry for some time, till the time we see that there is no, you know, probably no use for it. We want to carry it at least for the next two quarters and then based on whether we decide and, you know, RBI permits us, we will then take a decision on, you know, retaining it or withdrawing it.
Also, when you recently raised money at around INR 21 per share, you sold mostly to institutions. Can I know what was the subscription on the book? How much was it subscribed by the book?
Sorry, we cannot mention that as that's not public information. What I can say that there was a very strong demand from different kind of institutions, including insurance, mutual funds and a lot of large FIIs also. Beyond that, we cannot mention anything.
Thank you. Thank you so much for your time. Have a nice day.
Thank you. The next question is from the line of Darpin Shah from Haitong India. Can you proceed?
Yeah, hi. Thanks for the opportunity. Again, on this, loan loss provisions. In case, you know, in FY 2024 also we see superior collection efficiency of 99.5%+, and we don't require any additional provisions. Will it be fair to assume that..
Darpin, I'm sorry. Darpin, Deepak here. I'm sorry to interrupt. Can you be a little more clearer? We can't hear you properly.
Sorry. Is this better now?
Yeah.
Okay. Sorry about it. My question was, you know, you know, assuming in FY 24, we will see a superior performance in terms of collection efficiency, you know, 99.5%+ . For our provisions then, will we create additional standard asset provision and create cushions for future or will we let it flow through in ROAs?
Darpin, you know, hiking standard asset provision really doesn't help in the long term because let us say that there is an extraordinary circumstance like the pandemic when the NPAs went up to 10%. We continue to carry, you know, standard asset provision for the balance 90%. That may not be a preferred strategy for us.
No, you know, keep on adding these provisions, won't it help in the longer run? Not only for MFI, but you know, for other segments as well, when we grow faster than the other businesses.
We will have to evaluate and create some kind of a counter cyclical or a contingency provision if that is something that we have to think about. As of now, we are, you know, carrying about 1% of our book as floating provision, but whether another contingency provision or something else is also required to be done is something that we haven't evaluated as yet.
Okay, great. That answered my question. Thanks a lot, and all the best.
Thank you, Darpin Shah.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.
Well, thank you very much for all those who participated and joined us in this conference, and also to IIFL for hosting it. Thank you, and we look forward to seeing you at the next conference.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.