Cholamandalam Investment and Finance Company Ltd
NSE:CHOLAFIN
Earnings Call Analysis
Q3-2024 Analysis
Cholamandalam Investment and Finance Company Ltd
Cholamandalam Investment and Finance Company Limited exhibited a robust financial performance for the third quarter of FY2024. Driven by increased disbursements and asset under management (AUM) growth, the company saw a 27% year-on-year increase in quarterly disbursements, reaching INR 22,383 crores. On a year-to-date basis until December, disbursements surged by 40% to INR 63,940 crores, paralleled by a 36% hike in AUM to INR 1,41,000 crores. Notably, vehicle finance disbursements grew by 18%, loan against property by 51%, and home loans by 48% due to expanded operations into Tier 3 and Tier 4 regions. This trend was complemented by a 33% increase in disbursements across three new business lines, enhancing the overall portfolios and serving a wider demographic of clients.
The company's net income for the quarter rose significantly, with a 41% jump to INR 2,580 crores, and profit after tax (PAT) witnessed an upward movement of 28%, arriving at INR 876 crores. Over the nine months to December, there was a consistent growth pattern, with net income and PAT increasing by 37% and 30% year-on-year, respectively. In terms of financial stability, Cholamandalam maintained a substantial liquidity cushion with cash balances standing at INR 7,742 crores at the end of December 2023. The overall liquidity, including undrawn sanctioned lines, was even stronger at INR 9,932 crores, ensuring a comfortable position to meet forthcoming financial obligations without strain.
Reflecting the credible performance and financial stability, ICRA upgraded the long-term rating outlook for Cholamandalam from AA+ stable to AA+ positive, signaling confidence among rating agencies regarding the company's ability to manage its obligations. The consolidated profit before tax for Q3 increased by 25% to INR 1,157 crores, demonstrating effective cost management and operational efficiency. Asset quality metrics also signaled improvement, with a drop in Stage 3 levels, representing 90-plus dues, from 2.96% to 2.82%, and a reduction in gross non-performing assets (GNPA) as well as net non-performing assets (NNPA), which are now well below the threshold for Prompt Corrective Action (PCA) prescribed by the Reserve Bank of India (RBI).
Cholamandalam's capital adequacy ratio (CAR) stood at a healthy 19.37%, surpassing the regulatory norm of 15%, indicating a solid capital buffer to absorb potential losses and support further growth. A similar prudent approach was reflected in their Tier 1 capital at 15.55% and Tier 2 at 3.82%. In alignment with the company’s performance and in a move to reward shareholders, the Board of Directors approved an interim dividend of 65% for the year ending March 2024, marking an investor-friendly approach to capital distribution.
On the provisioning front, there was a noted reduction, attributed to the removal of 100% provided items in certain segments, which in turn lowered the gross Stage 3 levels and corresponding Expected Credit Loss (ECL) provisions. This action aligns with regulatory requirements that enable the company to claim tax benefits and reflects a meticulous approach to managing its provision book.
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Ladies and gentlemen, good day, and welcome to Cholamandalam Investment and Finance Company Limited Q3 FY '24 Earnings Conference Call hosted by Kotak Securities Limited. [Operator Instructions] I now hand the conference over to Mr. Nischint from Kotak Securities. Thank you. And over to you, sir.
Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited to discuss the 3Q FY '24 performance of Chola and share industry and business updates. We have with us the senior management today. The senior 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 his opening comments, after which we'll take Q&A. Over to you, Vellayan.
Thank you, Nischint, and good morning, everybody. So we'll just go through the results for the quarter and the 9 months ended 31st December 2023. The disbursements for Q3 were at INR 22,383 crores for the quarter, up by 27% and INR 63,940 crores for year-to-date December, which is up by 40%. The total AUM stood at INR 1,41,000 crores, which is up by 36% year-on-year. Net income for the quarter was at INR 2,580 crores, which is up 41% year-on-year and INR 7,073 crores for year-to-date December 2023, which is up by 37% year-on-year. The PAT for the quarter was at INR 876 crores, which is up by 28% and INR 2,365 crores for year-to-date December, which is up by 30% year-on-year. So the -- just some highlights. So like we said, we had disbursed volume of INR 22,383 crores. Vehicle finance disbursements grew by 18%, aided by a steady growth in used volumes. Loan against property grew by 51% and home loans grew by 48%, driven by branch expansion into Tier 3 and Tier 4 locations. Disbursement growth in the 3 new businesses was at 33%. So like we said, aggregate disbursements in Q3 FY '24 were at INR 22,383 crores as against INR 17,559 crores in Q3 FY '23, for a growth of 27%, and year-on-year, we were at INR 63,940 crores as against INR 45,512 crores, which is a growth of 40%. Vehicle finance disbursements were at INR 12,354 crores as against INR 10,446 crores which is a growth of 18%. This is for the quarter. And for year-to-date, there are at INR 35,385 crores versus INR 27,509 crores in the previous year, which was a growth of 29%. The loan against property business dispersed INR 3,409 crores in Q3 FY '24 as against INR 2,255 crores in Q3 FY '23, which is a growth rate of 51%. Disbursements for year-to-date December '23 were at INR 9,281 crores as against INR 6,537 crores in the previous year, registering a growth of 42% year-on-year. The home loan business disbursed INR 1,587 crores in Q3 FY '24 as against INR 1,072 crores in Q3 FY '23, registering a growth of 48%. Disbursements for y-to-date December 2023 were INR 4,615 crores as against INR 2,425 crores, which is a growth of 90%. The SME business disbursed INR 1,981 crores in Q3 FY '24, which is a growth of 11% over INR 1,782 crores in Q3 FY '23. And year-to-date for SME, disbursements were at INR 5,971 crores, which is a 39% growth over INR 4,284 crores in year-to-date December 2022. The consumer and small enterprise business disbursed INR 2,773 crores in Q3 FY '24 as against INR 1,868 crores in Q3 FY '23, which is a growth of 48%. Disbursements for year-to-date were at INR 7,980 crores, which is a growth of 77% over the INR 4,501 crores in year-to-date December 2022. The secured business and personal loans dispersed INR 280 crores and INR 708 crores in Q3 FY '24 and the 9 months ended for FY '24. Total assets under management stood at INR 141,143 crores as compared to INR 103,789 crores as of December 31, 2023, which is a growth of 36%. PBT growth in Q3 was at 26% and for year-to-date December 23 was at 29% as compared to overall asset growth of 36% year-on-year. PBT ROA was at 3.3% for Q3 and for the 9 months ended December '23. ROE was at -- for year-to-date was at 19.8% as against 19.1% in the previous year. The company continues to hold a strong liquidity position with INR 7,742 crores as cash balance at the end of December 2023, including INR 3,765 crores invested in HQLA assets such as Gsec/TBill and shown under investments. The total liquidity position, including undrawn sanctioned lines, was at INR 9,932 crores. The ALM position continues to be comfortable with no negative cumulative mismatches as per regulatory norms. On the ratings front, we've had some encouraging news. ICRA has upgraded the long-term rating outlook for Chola from AA+ stable to AA+ positive. Consolidated profit before tax for Q3 was at INR 1,157 crores as against INR 926 crores in Q3 FY '23, which is a growth of 25%. In terms of asset quality, Stage 3 levels represented -- representing 90-plus dues reduced to 2.82% as of December 2023 from 2.96% as of end September 2023. GNPA percent as per RBI norms reduced to 3.92% as of December '23 as against 4.07% in September '23. NNPA, as per RBI norms, also dropped to 2.56% as against 2.59% in September 2023. NNPA is below the threshold of 6% prescribed by RBI as a threshold for PCA. The -- in terms of capital adequacy, the CAR for the company was at 19.37% as against the regulatory norm of 15% and Tier 1 capital was at 15.55% and Tier 2 was at 3.82%. The Board of Directors also approved the payment of an interim dividend of 65%, being INR 1.30 per share on the equity shares of the company for the year ending March 31, 2024. I'll stop with that. Thank you, Nischint, and we'll turn it over to the audience for questions.
[Operator Instructions] The first question is from the line of Avinash Singh from Emkay Global.
A couple of questions. The first one is regarding your credit cost and provision cover. So particularly, if we look in Q3 versus Q2, the provision cover had come materially lower in the other segment. Now one can understand there could be some sort of a change in the asset mix within that segment. But I mean just in 1 quarter, taking down provision cover to 45% from close to 64%, what explains this provision cover changes in the other segment? That's one. And second, if we see -- I mean, the fee and commission income has seen a material jump. You notice the accounts mentioned that you've got the insurance broker license. But I mean earlier also, you would have been sort of a selling issuance under -- income would have been recognized in some other lines. So what has changed here? And is this a higher fee and commission sustainable or what is some sort of a onetime some one-offs?
Yes. With regard to the first question, reduction is because we removed 100% provided items in the others. So if you will see the gross Stage 3 has come down. And so equally, the ECL provision has come down. That's the reason that the fully provided book, you write it down because for NBFCs, you don't get tax benefit unless you write it down. If you just carry them as fully provided, it does not work well from a cash flow perspective. And that's the reason we do this at frequent intervals. That's the reason. It's not a provision coverage drop, it is more a removal of 100% provisional items, both from the gross Stage 3 as well as the provision. With regard to the insurance income, yes, so far, we have been receiving the insurance income through our subsidiaries over the first 2 quarters, you would have seen that. And from the subsidiaries, we have taken it back into the main company by way of dividend. So since we did not have the license till then, now we've got a license in this quarter. So going forward, the insurance income will accrue into -- straight into Chola's book.
Okay. So this level of fee income is sustainable. And on this PCR again, so in other segment it's largely unsecured, I mean personal loan and other unsecured. So this 45% coverage you think is sufficient?
Yes. That is -- it's a mix of SME business, which is a low credit cost as well as low this thing. SBPL is also doing well. They have a very, very low NPA numbers. And CSEL is the one where we are carrying higher provisions because of the unsecured nature. So this will keep moving up and moving down as we build the provision, write it down, build the provision, write it down. That cycle will continue.
The next question is from the line of Suresh Ganapathy from Macquarie Research.
So 2 questions. Wherein, first one, the growth itself, right? I mean we have had some lower disbursement growth in the personal loan segment and 4% Q-o-Q is the overall growth that we have seen on disbursement. Because of the base effect which is given your 40% AUM growth, how do you look at growth for FY '25 because we are hearing that banks are cutting down their credit lines to the NBFCs. We still have a large dependence on banks. So have they increased rates? Have they withdrawn some credit lines or restricted? And consequently, what is the outlook for growth for FY '25?
Yes, so Suresh, I don't think we're going to guide for FY '25 in this call. But basically...
No, the direction, just a direction if you can give, yes.
Yes, yes. So to your point on kind of -- so I think definitely, the -- what we see at least, right, and you see even in kind of in the areas we're continuing to grow on, areas we feel quite comfortable about our book, which is basically kind of home loans, LAP have both seen good growth and both are -- the books are performing very well. Vehicle Finance will also continue to kind of do well. So I think that we feel quite comfortable with -- I mean whether the levels of growth sustained at these levels or dropped slightly, we will kind of -- we will get a better indication through this quarter. But we feel quite comfortable with the current levels of growth. And like I said, I mean, it might drop a bit from here, but I don't think it's going to be too significant in terms of the drop. What we have cut back on is our partnership business in CSEL, in our consumer and small enterprise loans. So definitely, we've reduced the amount of exposure to unsecured and we continue to do that in terms of our bias for disbursements -- go ahead.
Yes. Sorry, sorry, you go ahead.
Yes, yes. And so broadly, I think that we don't see any trends that would cause us to get a lot more conservative going into next year.
But is there a supply of -- for this restricted banking system? I mean, are we seeing any populations with your banking partners where they are trying to restrict credit lines or they are filing because see the problem there is RBI is saying lending to NBFCs is [indiscernible]. And down the line, we have credit numbers to the NBFCs, right? Yes.
Your voice is not clear.
Sorry, sorry. Yes, you got the question, Vellayan?
Yes. So I think, Arul, why don't you provide a perspective because you're closer in terms of like how the banks -- I mean -- so Suresh, again, right, I mean I don't think availability of funds is going to be a challenge for the growth rates we're looking at. But Arul, why don't you answer the question?
Yes, yes. So first of all, banks are happy to still lend to us and we are getting good lines of credit from them. Apart from banks, we are building other sources. For example, this quarter, we have taken a loan from IFC of around INR 150 million at a very fine rate and we are seeking similar loans from other multi-nationals, which we will see it happening in the subsequent quarter. We are also building our retail book. We have done retail debentures, INR 5,000 crores. We will maintain ROA during this financial year, and all of it has been subscribed and we have closed the issue -- have repost that part of the issue yesterday -- sorry, that's on Friday and then we will get the money in a day or 2, so INR 1,500 crores is coming in from that. So there is multiple sources of revenue with good credit and thankfully ICRA's credit rating would also help us. And hopefully, as we move forward, we should see better traction in the rating side also.
That's helpful. Just one data-keeping question. Your fintech NPA last quarter was 4.6%, 4.7% is what you have disclosed. If that number comes down, any number you can share that?
No, we cannot just talk about those going forward numbers, Suresh. And I think we have been giving guidance on 2 questions per participant. Can you just stick to that and come back in the queue.
[Operator Instructions] Next question is from the line of Bhavesh Ratiral Kanani from ASK Investment Managers.
This one is on the new lines of business. You said that there has been quite a few of write-offs in the lines of business that we have started recently. One, can you quantify the write-off there? And secondly, if you can share your thoughts on the writing policies we are following for these new lines? And to add some color to the situation, if you can share what are the corrective steps we had taken a few months back on these lines on sourcing and how to manage the quality and what has been the impact of same?
Yes. So with regard to the CSEL business, the way we provide is on 90 plus, we provide 100% -- 50% and then 180 plus we provide 100%. The moment it touches the 100% provisioning, we remove it from the books because we already will get an FLDG reimbursements on that to the extent of the FLDG cover. And so we do this other on an ongoing basis. What you are seeing as a removal this quarter is also with regard to those 100% efforts, which are being provided. That's why you're seeing a drop in NPA as well as with regard to the provisions coming down. This is a cycle as we answered somebody else earlier also, it's an ongoing cycle, and you will see that continuously happening. With regard to the rest of the businesses, depending on the tenure of those businesses, we have different write-off policies, likewise, for example, in Vehicle Finance, we provide at the end of around 36 months in certain categories of assets and for 8 months for the rest of the categories. And in the case of loan against property and mortgage, it's a slightly longer tenure when we reach the 100% provisioning. Like every case when the provision coverage reaches 100%, we remove them because, as I said earlier, we need to get the tax benefit on it. When we don't get it, then we simply provide, unless we write it off, we have written-off tax benefit. So it's a different -- it is our current tax and deferred tax, so we need to reduce this variance between these 2.
And sir, on the corrective measures we have taken for these new lines and the impact of that number...
Yes, Ravi.
Yes, yes. The CSEL business, as we clearly articulated in the past, we have 2 line of businesses, the CSEL one is traditional which is through our feet on the street and one is through partner. So through feet on the street, there were no issue in terms of delinquency for -- as low as 0.6%. And in the case of the partnership or it went up to 4.7%, it has come down to 2.7% so that is because we have reduced the disbursement from 4 partners and earlier we used to do INR 550 crores to INR 600 crores disbursement, which is now we are capping it to INR 250 crores to INR 300 crores. The ROAs are good in this business. So we'll continue to do it, but with the good partner. And we have also tightened our underwriting process with the existing partner. We started also providing them details of the roll forward rate management, what we do it in our traditional book as well as in [indiscernible] and LAP for many years. So those partners are also getting benefit in terms of their collections of those cases. We are continuously focusing on reducing the roll forward rate of non-delinquent to delinquent book in the partnership book as well along with them.
Wonderful, sir. And lastly, sir, where do we book the FLDG-related inflows?
That comes under the other income line, fee and other income line.
The next question is from the line of Kunal Shah from Citigroup.
So a couple of questions. Firstly, in terms of the bank borrowing, how much has the rate gone up for us if you have to look at it in terms of banks trying to pass it on post the increase in the risk weights?
See, the bank borrowing rates have not moved up any significantly because they are still at the end of the -- what we call the EBLR-linked loan. So the EBLR-linked loans that spreads have not increased. One or two banks which have tried to come with a request for a higher increase where we are able to accommodate if it is minimal, we have accepted that spread increase, which is in the range of around 15 to 20 basis points on a much smaller number. And in case, there are requests for a higher requirement on our spread, we are pre-closing those loans and moving on to get better loans from other resources.
Okay. Okay. So overall increase will also be around about less than like 15, 20 bps as such. We are not seeing much pressure out there.
Yes. I think you will not get more than that. Correct.
Yes. And the second question is with respect to OpEx. So while we are seeing some benefit with respect to the insurance income, an element which is there in the cost or this entire increase in the cost which has been there, say, on a quarter-on-quarter basis, that is more related to the core business and overall cost to assets will continue to be at the higher level?
Yes, overall cost too as such would be in the range of around 3%. Here, this is trending a little higher because there has been some expansions as well as some additional costs, et cetera, we are incurring with regard to -- on the IT side as well as on the branch expansion side. So we will endeavor to keep it around the 3% mark, which is what our -- what we have spoken about at least also.
The next question is from the line of Abhijit Tibrewal from Motilal Oswal.
I have 2 questions. First one is for Ravi sir. Sir, just wanted to understand what is the view on the vehicle cycle now, you've in the past explained that it is only when push selling starts to happen is where we start looking at maybe a downward trajectory in the vehicle cycle. Where are we in the cycle today, whether we talk about passenger vehicles? I mean, we often keep hearing that the discounts are going up now especially in passenger vehicles. If you could just briefly elaborate your view on both passenger vehicles and commercial vehicles?
So passenger vehicle, small entry-level cars are actually doing very well. Their discount levels are not under control, and that is the area of focus for us. The mid segment and the premium segment, still the discounts have not started as it used to be in the past, still there is a demand in that segment. So passenger vehicle, if you see the growth for the quarter, it went up by 8%, which is the -- among the -- between the commercial vehicle and passenger vehicle, CV has been the highest. Commercial vehicle, in fact, is actually lower. It is 4% in terms of the new, which was expected. So for us, the used vehicle for PV and CV are the growth driver. And in addition to that, we are also doing small ticket size loan like 2-wheel and 3-wheeler, tractor and the other products. So for the industry, if you take entire vehicle industry, including construction equipment tractor, it went up by 18%, and our growth has been 22% in the same period for the new vehicle segment. And in addition to that, we have also done better job in terms of used vehicles. So we are quite confident that the growth levels will be continued in next year, although the commercial vehicle growth will be in single digits this year and might be in the single digit in next 2, 3 quarters.
Got it, sir. Sir and my last question was on the margin trajectory in vehicle financing. I mean having said that, I mean, we've already seen some rise in cost of borrowings in this quarter. So 2 subparts to this question. One is, I mean, how do we look at cost of borrowings trending for the next few quarters? And assuming status quo on rates, how do we look at cost of borrowings for next year? And given that our vehicle book will kind of continue to reprice, how do we look at margins in the vehicle financing book going forward?
What is the cost? And what is the margin?
I will take it. See, if you see the vehicle finance numbers which we have given, you already see that the yields have been improving around [ 5 -- 50 basis points ] and while the cost of fund increase has been only 20 basis points and it is vehicle finance specific, if you refer to our presentation on Page 47. So the NIMs have started improving. So you see the trend going forward. Unless something more differently happens in the environment, we don't know. As we talk today, our cost of funds, I would say that we are at the cusp of hike. And unless something new happens, we should not see further rate increase other than the 10, 15 basis points we spoke about earlier.
The new trend is 7.2%, 7.6%, 7.8% the last 3 quarters and is going to go up. And the difference between the NIM from the same period of last year is also coming down from, say, 100 basis point to 80 basis point, and now it is coming to 30 basis points. And our marginal book yield is actually 1% higher than this book yield. So that will start coming up, showing it up in next 2 to 3 quarters. So I think from the NIM point of view, I don't think there's any problem. We'll continue to increase our ROA if the situation continues as it is.
The next question is from the line of Piran Engineer from CLSA.
Congrats on the quarter. Just firstly, a question on overall customer level indebtedness. When you're talking about our LAP customers and there's been a lot of noise about rising leverage in the system. And these are smaller customers who might take, say, LAP loan for their business, personal loan elsewhere. Are we tracking the data? Can you share some information on what percentage of our LAP customers have taken PLs from other lenders? And broadly, is there any merit given where the environment is in unsecured to slow down this business?
No, loan against property for Chola is actually coming from this thing. One is that the expansion happening continuously. You'll see that our number of branches in LAP is much lower than the Vehicle Finance branches. Second is that we are also having another product called micro LAP, which we have introduced it in the last year -- last I think 2 years, which is actually at AGM. And third important is that our East Zone has also started adding numbers, which was not there actually. We were operating in 3 zones. Fourth zone also started adding well. So -- and delinquency are coming down continuously. It has all-time lowest delinquency in loan against property because of the SARFAESI is helping us and our development LTVs are always been 50%. So that is also helping us. Now we have been doing a scrub of our portfolio and seeing that how much our LAP customers are taking personal loan. In fact, it is much lower. And that is also a reason for our existing penetration is also not high in the LAP book. So these are the scenario. Now going forward, how is going to be the growth, we are expecting that this will be much stronger than any portfolio within Chola. As the Chairman mentioned that we are quite confident and hoping that our LAP and HL will be growing faster among all.
Okay. So just to clarify, very few customers have taken an additional personal loan from outside the system, like outside Chola?
Relatively.
Okay. Okay. Fair enough. And the second question, just for Arul sir, just to clarify, are we seeing banks also move away from repo-linked loans to MCLR-linked loans given that there is tightness in liquidity at their end?
See, the point is that we go to the MCLR-linked loan for non-priority sector as well and EBLR-linked loans for priority sector as well because still priority sector loans are -- can be priced finely and which will be always a shade lower than the MCLR benefits. So I think banks have a restriction that they cannot lend below MCLR, there we opt for the EBLR-linked loan.
Got it. And that is a 2/3, 1/3 mix, right, EBLR versus MCLR?
No, you have a new fixed rate also. So we have our own, let's say, 15% of our borrowings in fixed rates, so they don't change and around 25%, 30% in MCLR linked and the rest are EBLR linked.
The next question is from the line of Dhaval from DSP.
Congrats on the result. I just had one question relating to profitability. So if you look at the 9-month PBT ROTA, that was about 3.3%. Directionally, would you agree that this is at the lower end of our sort of sustainable band given where we are in the margin cycle and where we are in the investment of our OpEx cycle? So as some of the new businesses scale up, would you agree that the PBT ROTA should be more like a 3.6% to 4% kind of band on a sustainable basis compared to the 3.3% where we are today? Or if there's any other part which I'm sort of missing to understand the sustainable profitability that you're targeting of the model?
All the businesses are laughing because that is the target we have given internally.
Dhaval, first of all, we've never guided on any focus and level. Our guidance of -- if at all it can be called the guidance is that, that it will be in the 3.5% level. Yes, we should be there, maybe a shade less in a worst-case scenario for the full financial year, but this is also through a cycle. We will have to see how we get across in the next financial year. This financial year, it has been hit a little bit because of the higher cost of funds and the Vehicle Finance being a fixed rate book but it will keep changing.
The next question is from the line of Shubhranshu Mishra from PhillipCapital.
Two questions. The first one is what is the percentage of repeat customers in each of our business, vehicle finance, home loans and LAP? Second is, what is that percentage that we do over and above 5% mandated FLDG? Do we have some kind of soft clearance on the fixed deposits of the fintech partners, which is beyond 5%?
So repeat business in vehicle finance, we are actually tracking in a big way because this business is quite mature. So 30% is actually we are getting from our existing customer month-on-month. Other businesses are low as of now as a long-term book. So one is the one customer completes the loan, it is difficult for that customer to go for the [indiscernible]. Top ups are also much lower because testing in the businesses. So vehicle finance is 30%, repeat loans.
Yes. And there are no cross-sell between the businesses. There are hardly any cross-sell between the businesses. The second question on the FLDG, we restrict it to 5%. There's nothing beyond that.
But in the last call, you said that you do it beyond 5%, so that's on the transcript.
That was in the earlier scenario where we were getting higher and those things are being stopped post the RBI guidance.
So we were doing it beyond 5%, beyond the mandated 5% by the regulator. Is that a fair understanding?
No, we are not is what I'm saying.
Yes, it is earlier norm.
The difference between the earlier norm, earlier FLDG level and the current FLDG level is adjusted in the rate which we get from the customer -- from the fintech. So earlier if we were getting only 15% as the hurdle rate, now we are getting higher to the extent of the sacrifice on the FLDG.
The next question is from the line of Abhishek Murarka from HSBC.
Congratulations for the quarter. I wanted to understand the yield, especially on home loans. So when I look at your Slide 64, it's gone up from 15.6% to 16.7% in 1 quarter. So can you explain what that is and if there's any one-off or any of the incomes booked there can be segregated?
No, there is no one-off income. It is the mix of the new business, the new portfolio that is being built by the team in the new locations, that's what is showing up which is the Tier 3, Tier 4 locations in East and the [indiscernible]. Also, the floating rate book, which we had repriced over the past year when the increase happened, that time, we would not have reprised all of the book because some parts of the book would not have gone through the full tenure that is like a 1-year gap or something we leave because we don't want to reprice it immediately after issuing the book or issuing the loan. So those things, once the mandatory period of 1 year closes, we reprice them. So such increases have also come into play because, as you know, the recent scale up in home loan, was helpful in repricing the new book as they mature into the 1-year threshold -- or cross 1 year threshold.
Okay. So what would be the incremental yield over there, so marginal yield versus the book yield?
It is 1.5% actually across what we're seeing.
Okay. So the marginal yield or disbursement yield would be 1.5% higher. So we can still see some bit of catch-up in the overall yield in the quarters?
No. See, this happens like onetime and now most of the book would have been repriced. So there would be not much to scale up from here. See, this is different from the vehicle finance book, where the marginal yield of a new book consistently changes the color of the book because the old book remains at the old rate. Here, the old book is getting repriced. So please, I don't want you to think this rate will go up significantly beyond this. Yes, it will remain -- the book yield and margin yield is more or less same now. As such as we move on, we will have to see how their yield will pan out in newer locations as they go and that they will build it. So there's -- vehicle finance and this is a slightly different piece of scale and...
No, of course, of course. So basically, the repricing has happened and now incrementally the yield is around these levels.
It will be around this level is what you should think of.
The next question is from the line of Shweta Daptardar from Elara Capital.
Congratulations on a good quarter. So I have a couple of questions. So one, because I've joined the call late. Is it that the insurance distribution income has seen higher commission rate some, say, 5-odd percent to 15% last quarter. Is this why there is one-off element, and that's why the other income is lower? That's question number one. Question number two, I'm looking at Stage 2b assets. So since the time we started reporting this number, we have never seen decline or at best this remained stable. So which sort of business segment is contributing to this? And there is one more, but I'll come, yes. Sir, these 2.
Yes. See, as I was saying earlier, the insurance income started accruing into Chola's book because this quarter is the quarter where we got the license in our name. Until last quarter, we got it through the subsidiary because they use their license and they could get it, and we got it as dividend. That's why the line item is the dividend. When I get it as dividend, you take it to the other income and you get it as a fee and commission income, it comes into our business income itself. But basically, both are business income. And going forward, it will come in the fee and commission income, as you see it now. Sorry, what was the second question, on the Stage 2b? No. As a percentage, it still remains much within the -- it's actually a drop also. Yes, it is a drop. And as this thing grows, you will have this progressive increases. The other point is also we will be doing this correction. We have always been representing our restructured book in Stage 2b, which is where we will move them because most of the restructured book which have completed more than 1 year in presenting in Stage 2b, we can move it now into maybe 1 or 1a or 1b. We are basically in discussion with auditors. These are actually lower than 60 days or lower than 31 days, but still, we are showing them in Stage 2b because of they were restructured during the period of COVID restructuring, given as a special thing. And there, we consciously kept that as 2b to identify them as restructured assets. But now they have been performing well and remaining below the 30 days overdue, we can move them into the Stage 1 which is what we are discussing with.
But the numbers in terms of percentage is actually 0.93%...
No, it's come down. Percentage has come down.
Yes. Sir, if I can, one last question I'm squeezing in. So the new business contribution you were guiding earlier will be around 15-odd percent over the next few years. So anything changes on that with the kind of concerns rising?
Sorry? Can you repeat?
Sir, new business share you had guided last quarter will be around 15% over the next few years. So anything changes on that with the kind of concerns we are seeing in the system?
No, it remains there.
No change.
The next question is from the line of Arvind R from Sundaram Alternates.
Sir, I would like to understand, sorry if this question has been answered already, is this increase in yields on the home loan book is sustainable quarter-on-quarter? Like I mean, is this a yield it's going to be for like in the future quarters? That is my first question. And second question on Vehicle segment, sir? Like how do you view like I can see like a month-on-month vehicle sales -- I mean like a place showing signs of slowdown. Clearly, the growth is coming from the realization rather than the number of vehicles sold? And what is your view on the segments, sir?
In the case of vehicle, as I've mentioned, that the growth from the industry point of view it will be in single digits, and for the -- and that is specific to the CV. But the other vehicle like passenger vehicle or 3-wheeler, 2-wheeler are growing very well, factory is down. So put together, as of now, for the quarter, it grew by 18%, and our disbursement for the new segment was 22%. But if you include the use which is growth, that is actually giving us positive now. This is going to be continued in terms of Q4 as well as next quarter. So we are quite confident that we can grow for the vehicle finance for at least 10%, 20% in next year as well.
As far as home loan is concerned, since we have expanded in new geographies and Tier 2, Tier 3 towns, where we are keeping rates slightly higher than the yield because we foresee -- for unexpected the foreseen reasons in terms of delinquency, therefore, we are keeping a rate at certainly higher. And we want to operate at that price so that we can adequately price the risk going forward.
The next question is from the line of [ Vikram Subramanian from MWAM ].
I just had a follow-up on the PCR, especially in the other book. I think earlier in the call, you had mentioned the PCR and the other portfolio, there is a new business portfolio, will keep moving up as you build up provisions with increasing delinquencies and then will come off when write-offs happen, just like what happened between last quarter and this quarter. But as per LGD, isn't there a specific level of provision that we need to maintain? Could you please share some color on what that would be for the new business overall or specifically to CSEL?
So the new businesses have not gone through enough cycle to build LGD. We have taken the provisioning basis what is happening in the industry and worked on it to conservatively build beyond that. So as we were saying earlier, we provide -- while we provide at the Stage 1 level around 1% and then Stage 2, and when it crosses 90 days, we provide 50%. And when it crosses 180 days, we provide 100%.
The CSEL?
And this is only the CSEL, yes. There is unsecured business. I think the focus of your question is more on that side. So this we will continue until we get like a 3 to 4 years of LGD experience in this business, and then we will adopt it. As -- if we calculate LGD in the current way we are performing, actually, the provisioning requirement would be much lower. So we don't want to adopt it and we want to conservatively build a slightly higher provisioning. And the cycle I spoke about has nothing to do with the LGD. It is more like what you create as a provision and its write-down when -- from a perspective of availing tax benefit on the write-downs that you are less confident of collecting, but that does not rule out any collections there from. We will still pursue and collectively keep as it. Yes, and just to clarify, the new businesses including 3 businesses: SBPL, SME and CSEL. So CSEL portion is only 7% and rest of the portions are 4%.
Okay. That's clear. Just one other follow-up question, Stage 1 and 2 provisions. Through the past couple of years, the specific Stage 1 and 2 provisions, cumulatively, it has reduced from about 1.8%, 180 bps a couple of years ago to about 75 bps right now. I mean, again, I'm assuming this is just going by the ECL PD into LGD calculation. And as the cycle improves, you have been reducing it. But is there any cushion or probable contingent that we can provide here, would that be something management will look at it because [indiscernible] seems quite a low number for such a high growth rate of Stage 1 and 2?
For Stage 1 provision if you see that it is actually 0.44%. And this is higher than the pre-COVID level. And even for the Stage 2 also, the provision is 10.33% for the Stage 2 book which is much higher than the old book, isn't it...
So see, you should not look at it in a combined way because in a combined way, if you look at it, because when you're growing the Stage 1, which is a lower loss requirement book, then your overall percentage will look like it is coming down because the denominator is a larger part of the Stage 1. So you should always look at it Stage 2 separately, which is a slightly riskier than Stage 1 because it has trended to go into the 30 plus. Stage 3 is where we already view, all of us know what it is. So don't look at Stage 1 and 2 together. If that is the way you are looking at it, that is not the right approach because when you're growing the book, it's maybe that you're growing book at 30% plus, you will always seem to be at a percentage also, it is dropping. But in absolute terms if you look at Stage 2, while the asset has remained more or less at the same level in spite of such a growth input, for example, in September, it was at INR 4,000 crores, now we are at around INR 4,900 crores. So as a percentage, the proportion of Stage 2 asset has also come down. And thereby, the total provision there all has actually increased from 10.24% to 10.33%. So it is -- actually, we have reduced the increase in book and the provision coverage, both have been commensurate to what is happening there. So kindly don't look at it together.
The next question is from the line of Ashwani Kumar Agarwalla from Edelweiss Mutual Fund.
In the last quarter, the tractor industry degrew, but whereas our disbursals grew 23% quarter-on-quarter. So can you just throw some light on that?
No tractor industry is down by 5% and tractor overall volume is actually up by 5%. That is because we are not only doing tractor new, we are also doing factory used.
Okay. And the last quarter, the liquidity has become negative for the first time in many quarters. And this quarter itself, it's likely to be negative. So do we see an increase in cost of funds more in this quarter as compared to last quarter? And fourth quarter is typically a tight liquidity situation.
See, this time, we have seen some increase in cost of funds primarily because if I can again recall your -- let me speak about the segment loans we closed when there was an increase in -- increased by banks, which in our context was higher and not justified. So we closed those loans. So when you close such loans, you have certain pre-closure expenditures. That would also be in terms of roaming. And as again, I was saying earlier, the cost of funds, in our view, has sort of peaked out here. And until -- unless something drastically different happens either by regulatory interference or any global incidents, we don't see cost of funds going up from here. We also don't subscribe any quick rate cuts, though there are talks about it, but even without factoring in rate cuts, the cost of funds should hover around this level.
Okay. And sir, business loans have been flat quarter-on-quarter. Typically, Q3 is a strong quarter for business loans because of the festive season and whatever. Why were we flat on a quarter-on-quarter basis?
This one, you're talking about CSEL business?
Yes, the overall business loans, the businesses, INR 6,620 crores?
Sorry?
Altogether, put together, INR 6,620 crores.
You're talking about the growth in the AUM or disbursement?
Disbursement in the business loans.
See, which line -- one second. You're talking about others you were talking about? Can you tell me repeat which slide you're referring to?
Sir, I'm not talking about slide, but I'm talking about overall business loans, if you look at the business loans together?
No, what you are referring to...
We have not given any cell data that business loans coming...
No, what is business loan, like is it vehicle finance -- all of it is business loans in our view. I don't know...
What you're referring to...
I'll take this question offline. And second, what was the impact because of the Tamil Nadu floods...
Tamil Nadu is a very small portfolio. We are well diversified from geography and the floods were only in Chennai, not even in entire Tamil Nadu...
Yes, that is not impacted.
It's not impacted much. It might have impacted a few customers in Chennai, but I don't think that's significant.
The next question is from the line of Pranuj Shah from JPMorgan.
Just a couple of questions. First one is on OpEx, just coming back to this quarter, it was elevated at 3.3%. Now you did allude to that you're currently in expansion phase and there is also IT costs coming in. So can this continue for another few quarters also and then you normalize maybe sometime later in FY '25?
It is 3.1% versus 3.1% last same period. It is not that it has gone up. What we are mentioning is that our OpEx will be at 3% level because of the continuous improvement in our IT as well as the expansion going up. So it has not gone up, first of all.
At YTD level, they are still low.
Yes, YTD, it is lower.
Okay. Sure. Sure. And last thing is on -- like, obviously, you've had higher write-offs in the new business segments. So the FLDG income for this has already been recognized or that would come in the upcoming quarters?
Yes. Wherever we are writing off, to that extent, it will be changing from what we are writing off. I think this quarter, we would have recognized around INR 6 crores to INR 7 crores as FLDG.
Sorry, INR 6 crores to INR 7 crores FLDG is that what you had mentioned?
Yes. Sorry, it is INR 12 crores.
The next question is from the line of Nidhesh from Investec.
Just on the housing finance and home equity, if you can share what is the average ticket size on book and incremental average ticket size on these 2 businesses?
So for the LAP business, the portfolio average ticket size is about INR 50 lakhs and through the door, it is about INR 60 lakhs.
For the HL business, the ticket size is INR 1,320,000, and the tenure is around 14 years and all.
And LTV is 50%.
About SA as well, portfolio level, there's yield about...
Sir, just a follow-up on home loans, sir, on that the yield of 16.7% looks very high because the listed peers in the housing finance segment, on the pure housing, the yields are more like 12%, 13% on the affordable housing finance side. So is this portfolio also contains LAP book or it's just pure housing book?
No, it is pure home loan only and self-construction housing loan. As we expanded into new geography, we have expanded the disbursement. Other than South like we have mentioned that from the last 1.5 years, we have been expanding non-South. So non-South business has actually started growing. And as the South and all non-South will start actually being a similar growth, then obviously, the number will not be going further. So this particular yield is actually because of the one way expansion and second is the reset of the pricing. And after that, it will not be going up.
As that was the last question of today, I now hand the conference to Mr. Nischint for closing comments.
Thank you for joining the call today. We thank the management for giving us an opportunity to host the call.
Thank you.
Thank you.
Thank you.
On behalf of Kotak Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.