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Ladies and gentlemen, good day, and welcome to Cholamandalam Investment and Finance Company Limited Q3 FY '23 Earnings Conference Call hosted by Kotak Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities Limited. Thank you, and over to you, sir.
Thank you, Nirav. Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. We have with us the senior management of Chola today to discuss the 3Q FY '23 performance. Management is represented by Mr. Vellayan Subbiah, Chairman and Non-Executive Director; Mr. Ravindra Kundu, Executive Director; and Mr. Arun Selvan, President and CFO. I would now like to hand over the call to Vellayan for the opening comments, after which, we'll take Q&A. Thanks.
Nischint, thanks so much. So good morning, everybody. I know everybody is waiting for the budget at 11:00. So I think from Chola's perspective, there is cause to celebrate in that our total AUM crossed the milestone of INR 1 lakh crores. That's up by 31% year-on-year. This is a -- this has been a target for the company for a while, so we're glad to achieve that target and to celebrate it. So that's a quick start. Disbursements basically are at INR 17,559 crores for the quarter, up by 68% and INR 45,504 crores for the year-to-date, up by 100% Y-o-Y.
Obviously, the year-on-year comparisons are going to look a bit skewed because of the COVID quarter last year. Total AUM is at INR 103,789. That's up by 31%. The net income margin is up at 18.32% for the quarter, up 22% and INR 5,169 crores for the year, up by 21%. And the PAT is INR 684 crores for the quarter. That's up by 31% and INR 1,813 crores for the year, that's up by 24% year-on-year.
So the Board of Directors today announced the unaudited financial results for the quarter and 9 months ending 31st December 2022. Chola delivered the best-ever dispersal, collections and profitability in Q3 FY '23. We have gained market share across product segments in vehicle sub finance and other business units. Sale of commercial vehicles are expected to come close to the pre-pandemic peak of over 1 million units in FY '23 due to improved fleet utilizations, strong replacement demand and pickup in the road construction projects across the country.
Despite high inflation and high interest rates, strong [indiscernible] season sales and workforce returning to the Metro cities has helped drive growth. The housing market has also been very strong. Aggregate disbursements in Q3 FY '23 were at INR 17,559 crores as against INR 10,430 crores in Q3 FY '22, a growth of 68%. Vehicle finance disbursements were at 10,446 as against 7,647, a growth of 37%. LAP disbursed 2,225 as against 1,661, a growth of 36%. Home loan, which is affordable home loans and affordable LAPs, disbursed 1,072 as against 539 for the quarter. That's a growth of 99%. And SME dispersed 1,782, registering a growth of 273% over 478 crores in the same quarter previous year.
CIFCL, a new business, consumer and small enterprise loan disbursed INR 1,868 crores for the quarter. Secured Business and Personal Loans disbursed INR 137 crores, and our total assets under management stood at INR 103,789 crores. Our PBT-ROA was at 3.8% for the year-to-date and 3.6% -- sorry, 3.8% for the quarter and 3.6% year-to-date. ROE was 19.1% year-to-date. And the company continues to hold a strong liquidity position with INR 1,396 crores in cash balance and a total liquidity provision of INR 10,000 crores, including undrawn lines. ALM is comfortable with no negative cumulative mismatches across all [ time ] buckets.
Consolidated PAT was at INR 685 crores compared to INR 528 crores in the same quarter. Board of Directors approved an interim dividend payment of 65% being INR 1.30 paisa per share and the equity shares of the company. And in terms of asset quality, the Stage 3 assets stood at 3.51% with a provision coverage of 40.96 as against 3.84% at the end of September 2022. Total provisions currently carried against the overall book is 2.45% as against the normal overall provision levels of 1.75% carried prior to COVID-19.
So we feel quite comfortable there. As the revised RBI norms, GNPA and NNPA stood at 5.37% and 3.69%, respectively. We carry INR 726 crores of higher provisions under INDAS over IRAC. And the capital adequacy of the company was at 17.75% as against the regulatory requirement of 15. Tier 1 capital was at 15.12. So let me stop with that, and we're happy to turn it over to you for questions.
[Operator Instructions] The first question is from the line of Abhijit Tibrewal from Motilal Oswal.
Yes. Congratulations on a very good quarter. Sir, just 2 questions here. First thing is on the competitive landscape, how should we look at it, particularly in vehicle financing. How are kind of banks being? Are we able to take IRR increases on the incremental disbursements that we are doing? This is in the context of the fact that on a Q2 basis, we have seen about a 10 basis points expansion in vehicle financing needs. If we kind of look at your blended lease expanded by about 30 basis points. Obviously, I understand that's to do with the LAP and the home loan business and the newer businesses that's important, too. So that's one thing I kind of wanted to understand that. I mean you've been kind of able to deliver almost steady stable margins in this quarter. So what's led to that?
And the second thing was on the OpEx. So we contain to tell that the employee expenses are actually growing in proportion with our disbursement. So is that the right way to kind of look at it? Or is there something else in terms of teams that you're building out in your newer businesses, which is leading to this high employee expenses?
Abhijit, in the case of vehicle finance, if you see that there are 3 product lines mainly in the commercial vehicle segment, heavy commercial vehicle lines and small, and we have been either in light and small, which is our area focus. In addition to that, we do tractor -- used car through wheeler product. The banks are competitive in the segment of a commercial lifting and they take maximum share in that expense, which is actually a rate-sensitive product. And for us, it is not a priority as of now.
We mentioned that we will do it in -- with respect to our own existing customer in the market where we are comfortable. And another thing is that the heavy commercial vehicle still is driven by the last fleet of [indiscernible]. So the SRT or the small route transport has not come back to the market. They are still buying the used vehicle, which is actually good for us because we are the [indiscernible] in the used vehicle business as well. So that is the product mix we are doing it.
In terms of overall market, market is actually doing very well in terms of commercial vehicles. So both the players like those who are in top of the [indiscernible] and the materials all are getting benefited because it is getting distributed by the product and by the segment, with respect to the segment which we want to do. And that is how we are able to manage the better field in the witness.
Now coming to the OpEx. OpEx is actually in terms of ratio, it is looking high because our disbursement growth is basically significantly higher, and we need to spend money on account of [indiscernible] paid for the disbursement, wherein the asset growth is 30%. So until such time in the disbursement and asset growth doesn't come together at that same level in tandem to that, you will see that the CapEx is high. At the company level, OpEx is also high because we have expanded our business in terms of new businesses and also deploy a lot of things into technology side also. So all this thing is going to get matured and we will be getting benefited on account of OpEx in the next 1 year time. And you will see that, that will add our ROE as well.
Sir, just one last question here. I mean at least in terms of [indiscernible] businesses, the disbursement trajectory that we have seen is improving. So I mean, is it fair to kind of conclude that, I mean, based on whatever early delinquencies, collections, that you are seeing in the 3 new lines of businesses, that's giving you comfort to kind of keep scaling it up and kind of improve the momentum going ahead?
Yes, absolutely, right. Absolutely right. In fact, linking this new business was significantly lower than the trend, what we see in the market for the same business done by the other finance company. But however, we have only done 1 year. We need to wait for that. And the way the bounce rates are there or the earlier delinquencies are seen now, we can see that our new business portfolio is significantly doing better.
Next question is from the line of [ Omar Shah ] from Kotak Mahindra.
Congratulations to the team for a very strong quarter. I have 2 questions. One is on the asset quality front. So if I look at our gross Stage 3 numbers or [ CNPA ] under the new [indiscernible] norms, gross Stage 3, or NPA numbers appear to be fairly steady or sticky in absolute terms for last 4 quarters. Whereas we are seeing a fairly good rollbacks in our Stage 1 and Stage 2 buckets. So how should we read into this that our NPLs getting more stickier? Or I just wanted to get some sense given that the overall collection efficiencies are fairly strong at this point of time.
Yes. Historically, if you see that for our first 3 quarters of the year is always better for Stage 1 and Stage 2. Stage 3, we get the axiom performance in the Q4 because first 3 quarters is a difficult quarter for the customers to be full installed, at least, installment, the roll back from Tier 2 to Tier 3 bucket. So obviously, we continue to keep them between 3 to 4 bucket and then when it comes to the fourth quarter, when the customers start earning more money, then they start, where they're giving us the higher installment and [ roll back ] on their account.
But good thing is that if you see the Stage 3, normally, it goes up during the Q2 and Q3, which has not gone up in this year.
It has been coming down but has not come down significantly. If you see the last year performance or last, last year performance, we will be able to see that the same thing has happened in the past. This year, in fact, actually performing better because we are now driving 2A and 2B and 1A, 1B also. Therefore, we have been successful in holding the roll forward rate. We are in Bucket role forward and vehicle finance is actually less than 5%, which is significantly lower than what it used to be in the past. So I can tell you that the Q4 performance will actually show you a better result in terms of Stage 3 reduction.
Okay. That's helpful. And sir, the second question is related to our home equity business, so both from disbursements as well as credit cost perspective needed some outlook. So our home equity disbursements again, for the past 3 quarters, appear to be fairly range-bound and credit costs are kind of near zero for the first 9-month period, right?
So profitability clearly is far more superior compared to what we have seen in the past few years. So both from growth as well as a profitability perspective, how should we look at this business over the next 1 to 2 years? Just wanted some outlook on that front.
So I think on the previous, we had our stake a little bit higher, which we started rollback and I would say fee reduction is on a continuous basis in a very good position. For example, in the last 9 months, we have reduced from [ 7.93% ] to 4.76%, which is about 300 basis points of reduction, which is reflecting in the almost close to 0 credit costs.
And in terms of our business growth, we used to some have 200 to 300 branches, which is now at 570 branches. So on that perspective, our expansion in Tier 3, Tier 4 cities is going good, and we continue to see this happening. And both disbursement trends, we see the business expansion and the numbers going up. From a credit cost, maybe next year onwards, we can see it will not be zero, but it will have a very minimal credit cost, which is acceptable levels. And our Stage 3 will continue to be coming down from these levels.
Understood, sir. Then the home equity disbursements are not getting classified into any other head, right, because the branch expansion or the rate distribution expansion doesn't seem to be reflecting into the disbursement numbers? So that's what I wanted to understand.
The disbursement numbers are flat.
So disbursements are flat. But see, what is happening in the case of loan against property, when we expand it to the smaller geography, the number of loan goes up, the ticket size back coming down. That is actually good for the construct of the business in the beginning. And then after that, when you further go up and consolidate the business in the Tier 3, Tier 4 town, then you will see the higher growth coming up. So we are comfortable with this kind of growth in the beginning because we are creating the foundation of doing the lap against property. Loaning is probably mid Tier 3, Tier 4 now.
Is it at 56% and...
Next year also, we will see growth. We will see growth next year. Just want to give you perspective, from quarter-on-quarter, it's about 36%, 40% growth is happening. And this growth will happen at a 40%, 45%. Are you just asking sequential 3 quarters?
Actually 3 quarters have been flattish.
Yes.
So I think there will be growth next year, okay? We understand what your question is, right? Ravi explained the cause of it, and there will be growth in the book next year. So we're not reassigning it anywhere else, your question. We are reassigning it to home loans, no pressure responsible for [indiscernible].
Next question is from the line of Piran Engineer from CLSA India.
Congrats on the quarter. Just a couple of questions. Firstly, I just want to understand management's thought process in ramping up the new businesses because typically in the past, we've seen that when you enter business, you all go slow for a few years, be it home loans, tractors and wheelers and then ramp up. But in this case, what we've seen is that in 4 quarters, it has grown multifold. So really just want to get a sense of the psychology underlying this.
We mentioned in the last quarter also that when we are starting the consumer loan, which is EL and PL, you see the overall industry size. And as against the overall industry size, even for this quarter also, we saw our market share is hardly 0.8% or 1.9%. And if we want to do this business and expand it like, we have 1,700 touch point in vehicle finance. As of now, we are in less than 50% in the case of the CSEL.
And if they are having [ 1.1% ] also across the 600, 700 branches, we need to basically do the business there and that giving them INR 400, INR 500 crore disbursement, which is 5% per manager, 1 crore disbursement, which is very significantly lower number compared to the competitors what they are doing it. So -- and this business is required to be done, wherein the case of 2-wheelers, see, you see the 2-wheeler market in the CV. We are doing, say, 200 crores and 5 years back, we used to do 50-crore business. We were doing 50 crores as against the overall industry size of 500 crores. That time, we were taking the 10% market share.
But in the case of [ PL, BL ], we are taking hardly 1% market share, but the market is large. So therefore, it is actually not an apple-to-apple comparison if you compare the business [ CSEL ] business versus the 2-wheeler business done by us in the past. We are actually fundamentally maintaining the same cautious approach towards the PL, BL and not going to mini-market where we saw a it has a little problem like mini-market has higher [indiscernible]. So we are not going aggressively.
The only thing I would add to that is that we are also much more comfortable now with our modeling and indicators, right, and kind of using the ED and kind of non [indiscernible] data kind of using our bounce data, and using our analytics to get comfort with the scale at which we're growing, right? So that's a constant kind of check that we have in place. So we're taking -- yes, we have that comfort now because we've had that experience with previous businesses in the past.
And in the case of like 2-wheeler or construction [indiscernible], a lot of business to be done under the NTC, wherein the case of [indiscernible] we are not even doing any entity with 100% score card base and anything less than product -- 96% of customers or more than 700-plus [indiscernible] -- just thinking a little loudly. For the consumer lending business, as of today, 96% of the customers whom we have acquired in the last 1 year are with a credit score of more than 700-plus.
Got it. Got it. That's helpful. And just secondly, sir, you also mentioned that a delinquency or bounce rate in these new businesses are lower than what it is for peers. So what really would you attribute this to? Is it geography selection, customer selection? Some different underwriting processes? Collection processes? According to what has contributed to this outcome?
So I'll just answer it. We have our credit model, our -- the underwriting is completely digital. Every aspect is covered, whether it is on the -- it's complete digital underwriting process and all the rural engines are applied. Credit scores' deviations are strictly monitored. That is point number one.
As I said in the beginning, 700-plus minimum credit scores very rarely, we -- there is a authority at any level. Our current efficiency is 99.72% on the current bucket. And our bonds rates are up 5%, which is today, the best in industry. Our first EMI bounces are sub 3% with 100% clearance in the month-on-month basis.
So specific to the TLBL, we have come with a concept of first PMI bound collection by the sales team, which is very rare in the industry. As of now, our bounce rate is also much lower.
So it is easy to basically get it collected by the sales team. All the sales teams are collecting it. And also, before the [indiscernible] market, all of these customers are being met by the sales team to basically educate them that this is -- the check is going into your account and we need to make it clear. So there are very specific way of managing our bucket by the CIFCL. It's going on because we know that this is an area where we is not doing better in 2005 and '07. So we are going double cautious.
[Operator Instructions] Next question is from the line of Shweta Daptardar from Elara Capital.
Congratulations on great set of numbers. So 2 questions from my side. You had guided earlier AUM growth of 20%, 22%. You have already surpassed that. So does your growth outlook guidance change? And secondly, if I look at vehicle finance, net income margin, so of course, where you have lesser scope to actually reprice, so how has the repricing happened there, both on the liabilities and assets side?
Okay. So on the growth, yes, we will -- we are now looking in the range of around 27% to 30% growth. We will keep it there for the time being for the financial year. On the margin front to the [indiscernible] as the proportion of the new book changes, the NIM improvements will be visible. So it will take another 3 to 4 quarters of overall book changes to the new one. So that will happen progressively.
Sir, just 1 related question. So despite the pressure on the rising finance net income margin, we have really come out well on the overall blended front. So that's also because your other businesses are contributing. So going forward, can we expect the NIM to remain sort of steady to better the way we saw this particular quarter?
Yes. The NIM, we will be monitoring. Yes, we are confident it will hold. There will be a very [indiscernible] in the NIM in the last few calls also. So we will have a 40 to 50 basis points hit account on cost of funds on a year-on-year basis. But that we are trying to mitigate by scaling up the pricing in our floating rate book, which is the LAP, which we have already done to the extent of around 160 basis points with regard to LAP and 130 basis points in rotation.
We are contributing [indiscernible] quarter goes -- scale it up too much. So we don't want to do another 40 basis points, which we are contemplating. We will see what are the NPC results announcement in the next week and then take a call on scaling further. But right now, we are comfortable. On the other side, on the cost of funds, we have considered negotiating with banks, et cetera, to bring down the cost of rent as much as possible.
We are sealed with the -- the maintaining NIM. We will comment [indiscernible]. The good part is it is also compensated by the NGL reductions, which will happen. So as I said, the mix of products, mix of businesses, we have to not focus on 1 single line item, we have to look at the ROA. ROA, 3.5 plus is sort of a commitment we stick to and we will work on.
[Operator Instructions] Next question is from the line of Nidhesh Jain from Investec.
First on the margins, if I look at the segmental margins, there is a 40-basis point sequential drop in vehicle finance, which is around 55% of the book, and margins on home equity and home loans have remained broadly stable on a sequential basis. So sir, what explains our overall margin being flat despite 40 basis points competition on real finance margins?
Yes, this is just now our CFO mentioned that. Vehicle finance is a fixed book and other businesses are floating. In the case of LAP [indiscernible] and SME, we are able to basically increase the book yield by increasing the yield, wherein the vehicle finance, the marginal book fill has gone up as compared to last -- same period. But for the overall book, it will take a little time. It takes 2 to 3 quarters when we start seeing that the overall book is also getting benefited in terms of marginal book rate increase.
So that is what is happening. What we are interested more into the ROE to be delivered at a 3.5%-plus, which will be a combination of NIM and also the OpEx and also the NIM. So as of now, our focus is more to reduce the NPL. And trying to -- what my CFO said that he's negotiating with the banks to keep the cost up lower. At the same time, we are trying to increase our marginal on booked vehicle finance...
And the mix of new business.
The mix of the new businesses. And in the case of vehicle for new business is going to help us to increase.
I mean, I was trying to understand the calculation because if I put it on 65 book data, the 40 basis point decline in margins on roughly housing loan and LAP, which is around 20% of the book. Where is the flattish margins on a sequential basis? So the entire margin has been [indiscernible] .
It's a complicated thing. If you again go to the liability side, almost 40% of our liability side is fixed with regard to security move, with regard to NCB, CPs, et cetera. 60% is the new banking segment, which is in a way, floating. So actually, there's only a 20% gap between the 60% fixed and another 40% fixed on the LAP and in vehicles. That's what we need to manage. This is exactly what we will manage by required -- by requesting and negotiating with the banks to keep some parts of the increase. So we can't get into the approval and [indiscernible], broadly we look at it that way. This is the thing. It's not like the entire liability side is [ rolling ].
Sure. And can I have a new initiative within, if you can share specifically on the unsecured side, what will be our comfort level in terms of a mix over medium term? And how much of the unsecured book will be in the flexi formats, which is basically in the -- not in the term loan format, but in the format where customers can use it as a credit limit? These are the 2 questions.
As of now, we are not doing any flexi. 80% is term loan-only. And also, we have been mentioning that we are in the pilot phase in terms of [indiscernible] business, and we take time unless with each of the pan-India level and tie out [indiscernible] in all 3 models, traditional model and B2C model and as well as our [ BST ] model. We'll not be positioned to predict what is the mix of the business coming from PCL business. We are comfortable the way things are moving as of now and let us actually strive this business like that's what the expectation that we will continue to drive in the same manner. As of now, we are doing, say, INR 600 crores business. Last quarter, we did save INR 400 crores. So that increase is happening every quarter. We will continue to do it for some more time.
Next question is from the line of Jignesh Shial from InCred Capital.
Just quick 2 questions. One, we are seeing a bit of a reset. This is so that a bit of a change in the overall liability mix of [indiscernible] bank and not being able to see from 58 to 52 sequentially, if I'm seeing it correct. So any particular strategy we are looking forward to, just to manage margins? Or how do we see it going forward? That is my first question.
See, the mix is moving from term loans from banks to securitization. Securitization, I think, has moved up. So what is happening is during the last years when bank term loan rates were very low, we could really pull down based on that benchmark rate. We use that and we could move down the cost. And now what we are doing is we are securitizing private sector and able to keep it. Ultimately, lenders profile seem more or less the same, but we are -- and securitization is a fixed rate book. Fixed rate -- so those and the ability to negotiate a slightly tighter rates because of the proactive sector appetite in the banking sector. We are moving that side. You would have seen our securitization. We have done almost [indiscernible].
And 2% gain in SCR is also coming from the bank. Not a 6% drop. It's a 4% loan because the 2% gain in SCR -- yes.
So I mean this reasonable -- I mean, should we expect this to stay for a while and the rate remains elevated? Or this will be again changing quite a bit in quarterly basis? That is what I basically we wanted to understand.
We will be looking at every opportunity at different points in time. We are looking at more securitization this quarter also because normally Q4, there will be larger appetite from banks on securitization for the year-end targets. We are also exploring other revenues. Right now, it's a little premature to talk about this.
Understood. And the second question was, I mean, there is 1 slide, which reflects quite well that now Chola is almost present to all segments of SME. If you can give me some more details about -- or elaboration about the cross-sell franchise that Chola is able to see. I mean if I see it correct, that new initiatives had been developed earlier when discretion happens to the existing set of customers also. A lot of same customer base would be given the opportunity into the new lending segment as well. So if I want to see it as Chola as a cross-sell franchise or if you can give us some clarity, I mean, some guidance how the total customer base would be repeated to customers and all, that would be really helpful if some data can be shared on that one. That's it from my side.
With that intent only, if you see that, we have created another ecosystem called SME ecosystem, in addition to the vehicle ecosystem. On the ecosystem, we have a series of the vehicle starting around [indiscernible]. We have every commercial vehicle in India, we have similarly the SCMP micro, which is we call it SBPL.
And there, too, we are kind of addressing the SME. But it's too early to basically do the cross-sell from this because we are in the pilot phase, as I mentioned, for each new business starting from PPL, CIFCL and also SME, in addition to the affordable housing loan. But at some point in, you will see that we are going to do this cross-sell. But before that, we need to start with our data analytics team and understand that what kind of cost, we need to give additional loans in order to give them cross-selling.
And the first wave of growth in any case is coming from the presence in the new -- and the broader presence in the new verticals, right? So the second can then be once you've got enough of a customer base in both -- on all the 3 ecosystems, then we can look at cross-sell. But we get enough of our lift right now just from the growth in the new verticals this time.
Understood. So basically, the second phase of -- specifically on the new vertical side can happen through the existing set of customers across the different segments, I mean, different lending segments. Is that a fair assumption then?
[Operator Instructions] Next question is from the land of Chandra Sridhar from Fidelity.
Just curious, what's happening on the cost to assets in the home loan business? This is now I've seen up 7,200, 7,300 per book and the costs seem pretty much like some of our comparable affordable housing financials or in fact, more. So maybe just something around that. And then on the new businesses, how much are we sourcing from traditional versus partnership channels and now? And maybe it's just worthwhile given the size now publishing maybe an ROA 3 so that we can get some sense on the expenses, which are going in that segment.
So as far as anyone is concerned, like we have piloted this product first in South and then we scale to different views as we always have done and for other products. Similarly for home loan, now we are spreading our wings in West, East and North. The expansion is actually aiding in net growth, in terms of book value and the last one. As of now, we are present at 462 branches across India, where vehicle finance is around at 1,700 patch basis. So over a period of time, this expansion will yield to target customers and overall growth income. So as of now, the slight increase in cost was due to the expansion of the branches and manpower.
As far as the review initiative, the CIFCL business, our mix between...
The business is coming from traditional and 1/3 is from partnership. In the last quarter of 1,868, 1,300 crores came from our traditional business and 568 came from our partnership business. And we intend to keep that. During the growth phase also, we intend to keep that level.
And in terms of the ROA tree, I think it's too early. Let the businesses kind of grow. Get through the growth phase a bit more, then we'll start seeing.
Next question is from the line of Preethi RS From UTI Asset Management. [Operator Instructions] Hearing no response, we move to the next participant. Next question is from the line of Bhavesh Kanani from ASK.
Sir, my question is related to the business-wide disclosures we are giving. How does it work really when we kind of build out those P&L for individual business in terms of the money that gets allocated to various businesses. This is in context of the earlier question on how the large part of the book that is legal finance has seen a little bit of margin contract sales.
So let's say, we have INR 100 with of resources at company level. How does the allocation of those resources transfer pricing happen? And is it -- whatever is the excess liquidity and whatever will be part of the treasury operations, how is it summing up happening, if you can throw some light on that?
Yes. We follow a transfer price mechanism based on the duration gap on the asset side of each of the book. We take the tenor, average tenor of the book. And accordingly, we will be driving the market and give them the pricing based as a transfer price, based on which they price their leads. Then the transfer price is maintained for the end of purpose and the Treasury will try and borrow later at a lesser cost or higher depending on market availability. I mean that is decrement of the Treasury efficiency of the borrowings at a lower cost or a higher cost. And the liquidity kept is also taken to the Treasuries because they earn on the investment of it. So that is kept in the Treasuries.
Next question is from the line of Param from Macquarie Group.
It's again related to a previous participant question. So basically, we are seeing the margin being maintained despite a 40 basis point decline in vehicle finance. So if we work backwards, it seems to indicate that the margin in the new business has gone up substantially quarter-on-quarter. So is that correct? And why is that happening?
So [indiscernible] LAP and HL.
LAP and HL. Also, margins have moved up because that's fair in spite of the cost of fund increase because they increase the yield on the entire book, the margin have remained flat, and it has not shown up. And as I was saying, look at it more from a ROTA angle. The finance book had because there, the cost of fund is going on. The yield on our existing book has not grown commensurate [indiscernible].
Sir, I get that. But in the margins that you are reporting for the LAP and home loan businesses, they are up only like 10 basis points whereas the vehicle finance is down 40 basis points, yes, quarter-on-quarter.
We are maintaining it because of the increase made on the book, sorry, I'm not following your question. Like they increased the cost of an increases and then rail increases. So the difference rate is much better. [indiscernible] the cost of an increase as well and only on the marginal book, the [indiscernible] on the existing book gain is not increasing.
I'll probably take this offline. So my next question, sir, is on the recoveries from your repo sales. If I'm reading from your P&L, it's about INR 50 crores for this quarter. And it's been trending at that level for the last 2 or 3 quarters. How sustainable do you think this line is going forward? Will you be able to maintain it?
Yes. The other operating -- on the top. Where are you seeing this? Which pages? You're talking about the OpEx line, the recoveries?
No, no, no. Sir, on the top line, other operating income.
Other operating income includes fee income with [indiscernible] and fee income. Yes, yes. It is going to be -- the income is sustainable.
Fee income is going to be in line with the disbursement growth and income growth.
And amortize, and it is also...
Sir, this is not -- I just wanted to clarify, this is not recoveries from written off accounts or deposits.
No, no, no. It is not written.
There will be a small quantum in that where the return of book income will also come at a shortfall recovery, but that's not the large part of this income.
[Operator Instructions] Next question is from the line of Preethi RS from UTI Asset Management.
So my question is on the ex-CD book and vehicle portfolio. So today, it stands at 7% versus peak share of 19%. And even in terms of disbursement, it's a little more than 1/3 of this peak disbursement in Q4 of FY '18. So is that a portion strategy or it's in markets that are competitive?
What book? So can you speak a bit loudly. What book are you saying? What was your question?
Your heavy commercial vehicle book.
Yes. Yes, yes. Sorry.
Go ahead. [indiscernible] you're asking.
Yes. It is necessary to keep it...
Yes, yes. I mentioned in the beginning itself that heavy commercial vehicle is the area where the banks are operating more aggressively. And also in the heavy commercial vehicle, there are 2 segments are only operating, coming for the purchase of large fleet operators and many other people.
The [indiscernible] are still not buying. They are buying the used vehicle. And our focus has been into the SCR flow and the used more. And therefore, if you see that our portfolio makes a 7%, but the distant mix of it within the vehicle finance is 5%, which is by default, it is coming like that. But we are expecting that the next, next year after the entire market is actually coming back like agriculture growth and infrastructure growth increase. Then in fact, we will also buy the new vehicle. And obviously, at that point in time, we will start doing activity. Having said that, in NCV also, we have grown comfortably. Last quarter to this quarter, our market share has gone up as of now. If you see that, that is also there in the Page #36. We are growing higher than the market, but our disbursement growth in the past, disbursement trend in the past was higher. That's the reason you see that the rundown is more, and therefore, our disbursement mix is lower.
Okay. Got it. Yes. The question is also because the market has come back as you rightly said. So they are actually caught in the FY '19 run rate, but otherwise haven't come back. So obviously from the numbers we won't get the...
[indiscernible] going up. If you see the Page #36, you will be able to see our growth has been 62% in HCV, wherein the market has grown by 42%.
Next question is from the line of Anurag Mantry from East Bridge Advisors.
Just one thing on the vehicle finance P&L. Just wanted to understand how the credit cost sort of trends from here. So versus the first half there, I think the rate was about close to 2%. They've actually now come down to [ sub 1% ]. Is this sort of the new normal run rate that we're looking at going forward? Or how should we think about?
Yes. See, Q3 and Q4 always have been a better quarter for vehicles and as we continue to mention the same thing that the first quarter is a lean period for retail finance and the second quarter is the rainy season. Third quarter is a festival season, although the market start earning more money, customers start earning more money, but they don't come and pay. In spite of that, we have been successful in getting better results in Q3, but Q4 will be better than Q3.
The other thing is, in Q1 and Q2, we had a larger amount in positions and because last year, we could not [indiscernible] in Q2, costing its rebound position. It was explained in the calls last year, right, in the first and second quarter. Now we have come back to normal season.
Got it. So this level is effectively what we can think of to the normalized level for the...
Yes.
Next question is from Rikin Shah from Credit Suisse.
I had just 2 questions. First one was on the employee headcount. Of course, it has gone up in line with getting into the new businesses. But would you be able to share the plans in terms of how many more employees would we need to add over the course of next 2, 3 years to kind of roll out all the new business products for most of the branches? That's point number one. And question number 2 is more like data keeping. Just wanted to get a split of restructured loan book between Stage 1, 2 and 3. That's all for this time.
Yes. So we mentioned that in the new business, we are in the pilot phase and we have reached only 50% of the vehicle finance touch point, and we are growing. So therefore, you will see that continuously, this growth will continue to happen in terms of branch expansion for the new business. And therefore, obviously, we'll add headcount. Headcounts are based on the business plan individually they are planning. So we are not, as of now, interested to disclose that. In the case of restructured book...
So restructured book is around total, it is around 2,800 crores. At peak, it was around 5,000 crores [indiscernible]. It is because by multiple things, some could -- is due to resolution and moving back to Stage 1 once they collect more than 30% of the outstanding as then they're known and some through repositions and settlement and closures of [indiscernible].
So the 2,800 crores is completely sitting in Stage 1 and 2? Nothing is now slipped into Stage 3?
[indiscernible] will be stage 3, if they have moved to -- I think around 31 crores are -- sorry, around 500 crores in Stage 3.
2,000 crores is in Stage 2, 500 crores in Stage 3.
And 259 crores in Stage 1.
Next question is from the line or Pranuj Shah from JPMorgan.
Just in line of previous participant had asked about the credit cost. Are you saying that it will trend below that 1% mark this quarter below 0.7%? And your NIMs also should hold up because your new disbursements are picking up. So PBT-ROA, do you think you should be comfortably able to maintain that at 4% mark for 4Q and beyond for FY'24 also, especially OpEx as a cost?
That is a tribute to rework. I am giving commitment of 3.5% in [indiscernible]. It is your liberty to [indiscernible].
It fluctuate quarter-on-quarter. Q4 number, NCL number will be better than Q3. But again, Q1, it goes on for Q2 for the market start slowing down. But again, Q3 -- but what is important is that we are consistently delivering the ROA at overall level and vehicle finance is trying their best to basically do 4% is actually much high. But our internal target is between 3.5% to 4%. Depends upon situation.
Next question is from the line of Alpesh from IIFL Asset Management.
Just 2 questions. First is, I'm sorry to come back to this margin question. But if 65% of the book seen 40 basis points kind of a decline on a Q-o-Q basis, around 20% of the book is flattish so -- and the overall book is showing a flat margin on a quarter-on-quarter basis. Then logically speaking, yes, the new businesses should have contributed materially to the margins or there could have been some Treasury changes. So what explains this because we are unable to reconcile this 40 basis point decline for the 65% of the book.
I'll tell you, let's take one other question in the meanwhile, let's try and see if we can kind of get some kind of a ROA breakdown to kind of explain this because your question has been asked multiple times. Let's take another question. In the meanwhile, we'll work on that and then kind of come back to you in a minute.
Sure. sure. And sir, the second question is related, I mean, to the new businesses. So while we are building up quite fast and some of these businesses are yet to go through the credit cycle, right? The initial signs are definitely and obviously also supported by the macros. So the initial signs are purely reflecting a better credit cost to kind of experience.
But when we are giving a guidance of 3.5% ROTA and currently for the 9 months, we are at almost a 3.6%, 3.7%. So in case there is some deterioration in the asset quality diluted, it would have been largely pricing by a higher use. But in case there is any declaration in the asset quality new businesses, what could compensate for the higher credit cost in FY 2024? And would that be operating leverage? Or do you have the lease available to improve the pricing there?
Okay. So we'll come back to the FY '24. So you have 2 parts, right? Kind of one is trying to understand what happened in FY '23. Second is what are the implications for FY '24, correct?
Yes, because typically, what happens that some of these businesses when you build up the initial being higher yield business and the initial signs and slightly a higher duration group, the upfront profitability is slightly on a higher side and the credit cost experience is not built in into the earnings. But as we go through the credit cycle, obviously, the credit cost will go up. And so what could compensate for the higher credit cost and in 9 months, your ROTA is still at around 3.6%, 3.7%.
So what could compensate for that higher credit cost in FY '24? I'm just trying to understand that because that is an insignificant pricing pressure on the vehicle finance book and the land book, considering the competitive impact. And then obviously, the credit cost experience is quite good this year in those portfolios as well.
Alpesh, so first, Arun is going to answer your question on what happened this year, right? And then let's get that clarified because this question has been asked 3 times. And then we'll come -- then I'll answer your question on kind of what is going to happen for next year. Okay?
Yes. See, what we have said is when the LAP has increased, the yield to by around 160 basis points and accelerating by 120 basis points. So that constitutes more than 40% of the ROTA. The order side...
So it is rather -- I'm sorry to interrupt you here, but we are trying to understand, 65% of the book, I'm not getting into a yield or cost discussion here. What we are seeing that on a reported basis, 65% of your book has seen a 40 basis points Q-o-Q drop in margins, 20% of your...
I want to clarify, you're talking about margin or yield?
We are talking about the margins. We are talking about the net interest margin, which is 40 basis points down in the vehicle finance. Overall book is flat Q-o-Q, and the other businesses are also kind of flat on a Q-o-Q basis. So what explains this difference then 65% of the book is showing a 40 basis points drop in the margin.
The other businesses have gone up.
So why don't you go to the NIM stage just so that the NIM itself is [indiscernible].
[Foreign Language].
Yes. So here's a sense, right, which is if you take the LAP NIM, right, YTD, it has gone from 4.82% to 5.46%. So that is a 70 basis point increase. Similarly, home loans has gone from 7.59% to 8.02%. That's another 43 basis points increase. That's offset by vehicle, which has come from 8.67 to 8.48%, which is a 21% decrease, okay? So you take a weighted average of those 3 to actually end up with and the fact that the new businesses also have had an increasing NIM, you end up with -- I mean, a weighted NIM of 7.79%, moving to 7.69%. So let's say -- but I'm still confused. Is that answering your question or not?
No, it's not. It's not. So if you let me just -- yes, let me just go by the presentation, Slide 21, the overall net income margin that you have reported?
Yes.
Which is 2Q FY '23, 7.6%; 3Q FY '23, 7.6%. Okay? This is at the overall company level, we are flat on a quarter-on-quarter basis. Now if I come to the vehicle finance margin, which would be, I guess, on the Page, Slide number, just one second -- the numbers that you have reported. It's on Slide 45.
The NIM dropped by [indiscernible]...
30 basis points.
No, I'm not talking about YTD, I'm talking about quarter-on-quarter, 2Q versus 3Q. With the Slide #45, this has dropped by 40 basis points. This is almost 65% of the AUM. Your overall portfolio is flat at 7.6% quarter-on-quarter. Now if I come to the loan against property business, which is kind of hardly 10 basis points improvement, Slide #53, 5.4%, right?
And if I come to the home loan business, again, the Slide #61, 7.9% and 8%. So the 2 businesses, which is loan and property and home loan, which will be roughly -- I'm just rounding off the numbers, around 25% of the AUM, there, we have seen 10 basis points improvement. 65% of being is seeing 40 basis points decline, whereas our overall margins, which are reported, it's 7.6% flat Q-o-Q.
Right. But the 7.6% is down from 8.2%, no?
No, it's 7.2%.
The CIFCL business, SI business and the Treasury profitability, these are not that reflected there. I think we need to -- if you want, you come over, which you get on a call and we can discuss.
No. But the point -- yes, so that might be easiest because it's tough to solve like this. But the net income margin from Q3 FY '22 has dropped by 60 basis points.
So sir, the difference over here, what is coming is 2Q FY '23 versus 3Q FY '23 rather than 2Q FY '22 to 3Q FY '22.
In addition to these 3 businesses, you have last, you need to also consider the new business. SBPL, CIFCL and SME and Treasury, all 4.
Okay. So the 7% of the business is compensating for 30 basis points overall drop in margins. So...
The Treasury gain is also there, no?
Okay. So price gains would have been a major contributor in this quarter. If I were to think from that perspective, considering the new businesses should be around 16.5% or 17% or it would be on a higher side.
And all put together.
And then the gain will include income received on the investment also, 74 crores is what I have.
Okay. And I'll just try to take this offline. But sir, the second question is that FY '24, how the things would works, if you can get.
The FY '24 part to your question is basically, I think if your concern is there will be credit losses in the new businesses, we think that the credit loss -- the increase in credit losses will be more than offset by the decrease in OpEx in the new businesses.
Okay. So you are building in the operating efficiencies that would compensate for the higher credit.
And that will more than compensate.
I now hand the conference over to Mr. Nischint Chawathe for closing comments.
Thank you, everyone, for joining us today. We thank the management for giving us an opportunity to host the call. Thank you very much.
Thank you. Thanks so much. Thanks, Nischint. Thanks, everybody.
Thank you. Thank you.
On behalf of Kotak Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.