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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to Cholamandalam Investment and Finance Company Limited Q4 FY '22 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. Thank you, and over to you, sir.
Thanks. Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. To discuss the 4Q FY '22 performance of Chola and share industry and business updates, we have with us the senior management today, represented by Mr. Vellayan Subbiah, Chairman and Non-Executive Director; Mr. Ravindra Kundu, Executive Director; and Mr. Arul Selvan, President and CFO. I would now like to hand over the call to Vellayan for his opening comments, after which we'll take the Q&A.
Thanks, Nischint. So good morning, everybody. We'll just go through key results for both the quarter and for the financial year for the last fiscal year. The disbursements for the quarter were at INR 12,718 crores, which was up by 58%. And for the year, it was at INR 35,490 crores, which is up by 36% year-on-year. The total AUM stood at INR 82,904 crores, up by 8% year-on-year. And that's basically due to slightly higher runoff post the moratorium.
Net income margin was up at INR 1,516 crores for the quarter, up 13% year-on-year, and INR 5,757 crores for the year, up 16% year-on-year. PAT for the quarter was INR 690 crores, which is up 184%, and INR 2,147 crores for the year, up by 42%. The impact of the third wave on the economy turned out to be muted and much more muted than the previous 2 waves. Nationwide rapid vaccination obviously kind of contributed to blunting the impact of Omicron and boosting consumer confidence.
The company had delivered its best ever disbursals, collections and profitability in Q4. The performance was aided by strong signs of recovery in both auto and the mortgage industry. All major CV OEMs reported double-digit growth in March '22, aided by a pickup in infra projects, growth in logistics and e-commerce and coupled with easing of financing -- finance options.
There is a strong rebound in residential housing sales in the current quarter, and this was aided by demand from customers after a lot of deferrals of home buying due to COVID. We just go through, like I said, the disbursements basically, I just kind of broadly went through what numbers were on disbursements. The -- so that's basically a growth of 58% for the quarter and 36% year-on-year.
If we take the individual businesses, the vehicle finance business disbursements were at INR 8,785 crores for the quarter as against INR 6,153 crores in the -- which is a growth of 43%. And for the year, INR 25,439 crores, which is a growth of 26%. LAP including affordable LAP disbursed INR 1,978 crores for the quarter as against INR 1,191 crores, which is a growth of 66%. And the year was at INR 5,862 crores, a growth rate of 62%.
Home loans disbursed INR 441 crores as against INR 538 crores for the quarter, so it was less than Q4 last year. And disbursements for the whole year was at INR 1,571 crores as against INR 1,542 crores the previous year. We've had 3 new businesses launched this year, which is Consumer and Small Enterprise Loans, Secured Business and Personal Loans and the Small and Medium Enterprise Loan businesses. These combined made disbursals of INR 1,515 crores in Q4 and INR 2,619 crores in the full year.
AUM stood at INR 82,904 crores as compared to INR 76,518 crores. And we talked about PAT, which for the quarter was at INR 690 crores compared to INR 243 crores. PBT-ROA was at 4.8%, and for the year was at 3.9%, both significant growth over the previous year. And ROE was at 24.6% as against 10.4% in the previous year. We continue to have a strong liquidity position, INR 5,341 crores of cash, including INR 1,500 crores invested in GSEC [indiscernible] with a total liquidity position of INR 13,246 crores, including undrawn sanctioned loans.
Our ALM is comfortable, and we've got no negative cumulative mismatches across any time bucket. The Board of Directors has also recommended a dividend of INR 0.70 per share, which is 35% of the equity shares of the company, and this is in addition to the interim dividend of INR 1.30 for a total of INR 2 in the [indiscernible]. Asset quality, we'll just talk a bit about the adoption of the RBI circular and revised NPA norms. And we've discussed this [indiscernible]. RBI issued a circular on November 21 directing NBFCs to adopt a tighter provisioning norm. And accordingly from November 1, we have started tracking daily DPDs for agreements which have crossed 90 DPD. And we will continue to classify them as NPA until all dues towards principal and interest are collected in full. RBI also issued a clarificatory circular on February 15, deferring the implementation date to September 30, 2022.
On a conservative note, we propose to early adopt these norms under IRAC. The ECL model provisions this year is stress tested on the impact of COVID being built into the PD and LGD computations. And hence, the ECL model provisions across stages had increased over December '21. Apart from this, we also factored a write-off of INR 190 crores for long overdue accounts where further recovery is expected to be minimal. Towards these, a part of the management overlay of INR 336 crores was utilized and the management overlay provisions carried in the books as of March '22 stands at INR 500 crores.
And asset quality at end of March '22, represented by Stage 3, stood at 4.37%, with a provision coverage of 39.67% as against 5.85% as of December 2021. And the total provisions currently carried against the overall book of 3% as against -- 3.04% as against the normal overall provision levels of 1.75% carried prior to COVID. As per revised RBI norms, the GNPA is at 6.82% and NNPA is at 4.75%. This is based on the IRAC criteria. And so we carry INR 564 crores higher provisions under IND AS over IRAC. The details of stagewise assets and provisions is also something we've shared.
The capital adequacy of the company was at 19.6% as against the regulatory requirement of 15%, and Tier 1 was 16.5%. In terms of subsidiaries and associates and JVs, Cholamandalam Securities had INR 40.12 crores in revenue and Cholamandalam Home Finance had INR 55 crores in revenue, and 2 new investments had basically INR 49.3 crores in Payswiff and INR 1.5 crores in Paytail effectively for the year.
So with that, let me stop with a commentary, and we'll be happy to turn it over to all of you for questions.
[Operator Instructions] The first question is from the line of Dhaval Gada from DSP.
I had three questions. First is on the new business. So I understand this quarter, we did about INR 1,500 crores kind of disbursement. Just if you could give some perspective in terms of various verticals what contributed to this? And for next year, should we just think about annualized run rate as the expectation for next year in terms of new vertical disbursement? So that's the first one.
Yes. Dhaval, Ravi here. So first of all, whatever we expected, it has come in that line as far as the new business is concerned, if you remember the last earning call. However, to project the whole year number is going to be difficult. But as you know that under the new business lines, we have 3 businesses. One is the Consumer and Small Enterprises Loan, wherein we are actually focusing the customers who are taking the business loan or professional majorly, and little bit personal loan.
And then small business and that's a secured loan, which we are actually giving to the small enterprises, mini enterprises rather than that, which are actually having a shopkeeper or taking the loan for the businesses. So that's the second one. And third one is SME, which was there for quite some time, and now we have started actually growing that business.
So this business put together has contributed INR 1,500 crores. And obviously, the coming quarter, the numbers will be better because we have now started expanding in the country. And the CSEL business has actually started doing good number. We have 4 partners also available. The partnership business is 33% of the overall business, and the traditional business is almost 66%. So we are getting good traction.
The SBPL business is a business which is being done directly by the field team internally and which is going to be taking time to ensure that we actually understand the knowledge -- understand the market dynamics and the behavior of this mini or micro SME. So that growth will be slightly slow, but the CSEL and SME started also picking up. And we are expecting that the run rate will improve from the next quarter.
Understood. The -- sorry -- the second question was on that Slide 21. So just a question was next year in terms of maintaining the PBT-ROTA at about 3.9%, which we did in FY '22, just how the moving parts would be since there would be some pressure on margin. And also on credit cost, there is some scope for improvement. So I just wanted to hear your thoughts of how you think about maintaining the current level of PBT-ROTA? And last is the data point on restructured loans at the end of 4Q and the overlap with Stage 2?
Yes. So if you go by the history of Chola, we have been maintaining close to 3.5% PBT-ROTA, between 3% to 3.5%. 3.9% is the highest because now we started getting the reversal of the NPL. And so that is going to be continued over the period. At the same time, obviously, the cost of fund goes up, which is going to impact a little bit NIM. So at the ROTA front, we always internally tap at 0.5%. If it comes more than that, which is going to be a slightly optimistic number, which we are trying also. So though between 3.5% to 3.9% is going to be any number. So NIM impact will get kind of offset-ed by the reduction in the NPLs.
And these structures, can you repeat your question?
The stock of restructured -- standard restructured loan at the end of 4Q. And how much of that is already in Stage 2? I think in last quarter, it was...
INR 3,800 crores was the total restructured book as of end of March. And we have INR 3,362 crores in Stage 2. But as you know, Stage 2 represents both Stage 1 as well as Stage 2 because we present all the books in Stage 2 only. So only INR 444 crores is in Stage 3.
The next question is from the line of Rikin Shah from Credit Suisse.
I have three questions. First one, the OpEx came in higher this quarter and will also marginally decline sequentially. So just wanted to understand the reason behind that. And as the new businesses scale up, what would be the outlook for both of that? That's question number one.
Second, on the bank borrowings, just wanted to check what is it benchmarked to? Is it MCLR or repo rately. Then how often it gets repriced? And third one is just a data keeping question. What would be the total amount of ECLGS disbursements as of today?
Okay. We have not done any disbursement. Out of the bank, if you look at the total borrowing, almost 55% is bank borrowings. Rest are all from the market as well as securitization. These are fixed rates, so they don't change. With regard to the bank borrowings, almost 30% would be benchmarked and the 20% would be -- so 15% would be the MCLR and the balance 5% would be fixed rates. So these benchmark rates as well as MCLRs tend to be repriced either quarterly, half yearly or annually depending on -- mostly MCLRs would be annual. The benchmarks would be quarterly or on half yearly recently. Sorry, the first question was on...
OpEx and ..
So OpEx is basically, see the disbursements are higher and AUM growth is slower. If you see that there is a denominator effect, we are growing faster because we need to cover it up, for example, in the financial sector 43% while the AUM growth is significantly lower. So unless we get back to the AUM, our OpEx will not be apple-to-apple comparison. That is one reason for OpEx.
And we also started investing on the new businesses wherein the growth will come within this financial year. So if you see once the AUM come back to the normal level of growth of 15% to 20%, obviously OpEx will starts slowing down. And as a percentage, it will become better.
And sir, on this particular point of OpEx, we have added around 7,500 to 8,000 employees in last 1 year. So are we largely done in terms of employee head count addition? Or you would be still adding strategically? And also, any comment on the yield? It declined modestly this quarter sequentially. So any specific reason?
See manpower is going to be a continuous process of hiring and expanding because 3 new businesses now just started. They just started 1 quarter. So within the 1 quarter, we have done only 15%, 20% of the total number of branches, which is available in Chola vehicle finance. So obviously, the growth will not come in 1 year time. It will continue to come. So as they grow, they will continue to have the manpower. So manpower count will go up.
Also, we recruited manpower for collection in order to make it more intensive in the last 6 months. So that is also a reason. But from the collection side, now we are -- we have completed the hiring in terms of manpower because going forward, the collection, which is being little weak as compared to the past, so the ATR is now going to be increased. So therefore, requirement of collection executive will be less, but the branch manager and sales executive for the new businesses at a new market will be definitely with the requirement as and when we start expanding further.
Also on the NIM, there was a INR 50 crores adjustment towards the write-off -- written off assets, and that is why you would have seen a slight drop. I think that will get corrected as we move on.
Okay. Got it. And just as a follow-up on the OpEx, the collection agents that we hired, because now the collections would be normalizing, would you be rechannelizing them as sales executives or they will continue to focus only on collections?
They will continue to focus on collections because we need to now start working significantly on the higher bucket where people were busy in ensuring that the X bucket collection efficiency is higher. So once the -- once we are able to achieve that, now they need to go to those account which is now going to be target, and we will continue to do the collections with those [indiscernible]
The next question is from the line of Abhijit Tibrewal from Motilal Oswal Financial Service.
Sir, I had two questions. First one was, again, on the newer lines of businesses. While Ravi sir, earlier his comment suggested that disbursements are now going to improve, given that expanding to other branches, other locations as well. But sir, I mean, is it possible to give some kind of a guidance on how you are thinking of growing this because, I mean, in terms of growth, in terms of disbursements, sir, like you know, really sky is the limit. So how are you thinking about growing it in a calibrated manner? That's the first question.
And secondly, sir, if you can comment on what is the ROA and ROE that this newer product lines can make?
Yes. So as I mentioned, the Consumer and Small Enterprises Loan has got 3 product lines: personal, business and professional loan. So in that, we are focusing more professional and business, less personal. And it has -- it is being done in 2 channels. One is a traditional channel and partnership channel. Traditional channel is almost 70%, and partnership channel is 30%. And we are expanding into all our hubs, almost 275 hubs are there and 1,100 branches. So this will -- almost 70% we would like to cover in this year and 30% in next financial year. So to that extent, the volume will keep growing from this particular business.
Now coming to the SME, we have 3 product lines. One is the health and finance and term loan and working capital and third is the equipment finance. Supply chain finance mainly we're doing in with -- in partnership with the fintech and also partnership with the banker. So that is growing in terms of disbursement, but doesn't support to the AUM growth because that churn fast. But the term loan, which is a secured business and the equipment finance is secured business where we have tied up with the manufacturer OEM [indiscernible] was very specific, equipment has got better resale value and recourse is available from the OEM, we are focusing that to increase the disbursement. So that will be a growth engine for the SME.
The small business and secured business and personal loan, which has actually been done as a secured product to be small grocery, general kirana, restaurant, eateries, [indiscernible] petty cash and all those people is a slow business, which we need to learn the business because that is done only based on the cash flow and the footfall of the customer where we need to evaluate physically, which is going to be slow, but it is going to be a long-lasting product once we learn that, but -- and ROA is going to be the highest from this product.
so put together all 3, if you make it, then the overall ROE from the SME ecosystem, which we have given in the investor presentation, that we are not present in the bottom of the pyramid and top of the pyramid, rest of the area. We are actually representing the SME -- we are there in the SME ecosystem, either with the SBPL or CSEL or LAP or a housing loan -- affordable housing and the SMEs will continue to grow. And the ROA will be equal or higher than the vehicle finance ROA.
Right, sir. And sir, I had a follow-up question on the new lines of businesses and then one last question for Arul sir. Sir, I mean, you suggested that about 30%, 33% of the disbursements in the newer lines of businesses are coming from the 4 partnerships. So is it also important to understand here that while all these partnerships can attach your digital DSAs and help you in sourcing and help you in growing disbursements. I mean how have you addressed the collections part when it comes to loans, which are disbursed through these partnerships? That's my follow-up question for you.
For Arul sir, I mean, understandably, we have been very, very conservative when it has come to provisioning year in the past, also COVID. So I mean, what was the rationale in this quarter for -- I mean utilizing the management overlay? And sir, maybe a related question also is, I mean, the liquidity on your balance sheet has come down to about INR 5,000 crores, INR 5,500 crores. It's now kind of normalized completely? Or is there still room for it to be optimized further?
Okay. So in order to basically build our D2C platform, digitally platform, we need to understand that how these fintechs are working and how is the platform and how is the portfolio quality. So in order to learn that, we have done the partnership, and we are committed to them. But the credit standard or underwriting norms given by us is very stringent. Therefore, the volumes are not high. And in the beginning, when the overall business is expanding physically or traditionally -- traditional channel, it looks like it is higher in terms of proportion. Over the period, traditional business will be much higher than the partnership business that is what is the one point.
Second is that the collection is very closely monitored. Our collection team working with their collection team to ensure that 100% collection comes on month-on-month basis. And as of now, our collection -- our performance of this partnership or experience with all the 4 partners is very good. And in -- and it's a hybrid collection, not everybody is doing 100% collection. Both of -- both the parties -- our collection team and their collection team are working together to ensure that the collection is done.
And we are ensuring that their -- the portfolio quality of the partnership is as equal to our own internal portfolio. So that is what is the partnership portfolio and the collection performance is [ difficult ].
Sorry, with regard to the provision, I think even in the earlier calls, I have articulated that we would be revisiting these provision numbers because under Ind AS, we cannot carry management overlay without any justification for a large sum. Now COVID is largely behind us, so we needed to revisit this and we needed to bring down. And again, as articulated, we have only taken back some part of it and retained around INR 500 crores still for contingencies that may occur.
Progressively, we keep evaluating this, and we will take a call with regard to how long and how far we need to hold this provision. And the other question is with regard to...
The liquidity that we are carrying now.
Liquidity, yes. The current way of approach is to keep 2 months of maturities -- the next 2 months of treasury maturities and fixed obligations of cash and the plan for disbursement has undrawn lines. And in that context, this number will keep raising at every point in time, depending on the maturities that are going to come up in the subsequent 2 months. But it will be in the range of anywhere between INR 3,000 crores to INR 5,000 crores in my view because that is how the maturities will happen. We will see the pattern right now.
[Operator Instructions] The next question is from the line of Umang Shah from Kotak Mutual Fund.
Two questions from my end. Firstly, given the kind of current situation, both from the inflationary environment standpoint and the way interest rate cycle is kind of turning, would we like to guide that what sort of AUM growth are we looking at? And over the next 12 to 24 months, how the AUM mix will change vis-a-vis our core businesses and new business? That's the first one.
So I said, broadly, we are -- see, we're starting at this stage kind of optimistic on AUM growth. But I would also say that there's enough kind of volatility out there, it's very difficult to predict, I would say this year, how much real growth is going to be there, especially in kind of our core products and segments.
So I think that in general, we do feel confident that we will get good growth. We're a bit kind of concerned about giving numbers because the environment is kind of really getting a bit volatile by the day.
Yes. In the month of April, industry did very well because last 2 months of -- last year [indiscernible] was very bad. So commercial vehicle grew by 66%. And even tractor, two-wheeler, construction equipment also did very well as against the last year number. Car only has been the flat number. So our disbursement obviously is going to be aligned with the industry. And if industry is going to sustain at this level, you will see better AUM growth in this year.
Understood. Sir, my second question is pertaining to our asset quality. And do we have any particular net NPA target in mind for NPLs as per the revised RBI norm, so which is currently at about 475? And some of our peers have been targeting to keep the number below 4%. So do we have any net NPA number in mind so to say?
I would say we would like to keep it below 4%, considering the new norms, and that would certainly be -- at least for the current year, that would be the target. We are not too far away from that. So we should be comfortably reaching that.
All right. And one just -- just one data point, what was the total write-off during the quarter?
It's around INR 380 crores has been the write-off, of which we already carried around INR 180 crores as a normal ECL provision, and we had [indiscernible] from the management only of another INR 190 crores for the incremental provision. And that also had a INR 50 crores impact on the interest line.
The next question is from the line of Aditya Jain from Citigroup.
In the open remarks, you talked about affordable LAP being included within LAP. This affordable LAP, are you referring to SBPL? Is that being included -- being called as affordable LAP?
Yes. The affordable LAP is part of the one LAP division and a little bit part of the affordable housing. Both are actually doing the LAP, still especially in the smaller [indiscernible] and smaller town product -- they are done at a much better rate than the normal LAP. And we started focusing that product the last year. SBPL will start showing up after some time because we started doing this in the last quarter only. So that will take a little more time to show up.
On the OpEx, could there be higher...
Your volume -- your audio is not very clear. Can I request you to speak through the handset?
On the OpEx, sir, you mentioned that disbursements were high and there are investments in new business, which [ head to ] the higher OpEx. Wondering that is there also, could we say some sort of one-off impact of the higher collections in this quarter? Or is it only those 2 factors which you spoke about? The reason I'm asking is that vehicle finance cost-to-asset is also quite up Q-o-Q. And then new businesses might not be a factor, though disbursements would be. But is there any collection sort of one-off impact as well?
This -- yes. Okay. See, naturally, when collections are good, there will be performance-driven incentives to the field teams, which would have an impact on the cost that has been factored in. Again, apart from that, even if the salary costs, et cetera, for the on-roll employees, we have factored in at higher incentive levels considering the higher disbursements and the higher performance as a whole.
As you know, even last year, we had a similar approach. And last year, it was more skewed because we had not factored in the increments, et cetera, also, and it was factored into Q4. But this year increments have already been factored in, only that incentives and based on performance, it will happen.
So every time in any quarter, if the performance is low, you will see a drop in this salary cost. And you will see -- while the performance is good, you'll see some spike in the salary cost because this fluctuates with the results of that quarter.
Got it. If you look at Stage 1b and Stage 2B, they are stable Q-o-Q. Should we see this as a normal sort of levels because there will always be some people who delay and then -- go overdue and then come back? And therefore, the decline in Stage 2B will come from other assets. Is that the right way to think of it? Or these Stage 2B and Stage 1B Itself, you would expect to fall going forward?
No, you can take. They are not at too high level. Stage 1, we would be at similar levels. It will keep moving. And the Stage 1B is the intermediary stage where it is moving from Stage 3 to Stage 1A. It will -- it has one 1 more installment to get sort of collected from the customers to before it gets normalized. So to that extent, it's a good thing that if 1B is better -- is a slightly higher number because it's transitionary. It indicates that an NPA -- and account which has been an NPA has been more or less collected.
[Operator Instructions] The next question is from the line of Shubhranshu Mishra from Systematics Group.
Just wanted to understand, have we made any representations to the regulator to become a bank? Or has the -- any dispensation, whether a small finance bank or a universal bank, or a regulator has been nudging us to apply for a license or maybe acquire a bank license? Is there that kind of a thought going on or this kind of a discussion going on between the management and the Board and the regulator or any bilateral discussions as well?
And the second question is on the cost of collections, how do we look at the cost of collections in FY '23? And what should be it as a proportion of the total OpEx?
So on the bank, we've been clear on this from the beginning, right, which is still the RBI indicates in some way that they are open to inviting players like us to become bank. We're not going to initiate anything. And so we've not had any discussions either at a Board level or anywhere else till the RBI sets some direction on that front is I think that should answer that first question.
On the cost of collection, we think it will remain at the same level in FY '23 as it has because we will keep that collections intensity up in order to ensure that we basically push the NPL levels down like Arul said to below 4%.
What if the -- it has a proportion of the OpEx?
We don't...
It keeps fluctuating because it will depend on the sale in which it is because the incentives will keep moving. And I think that's the more granular data, which we would prefer to keep to ourselves.
The next question is from line of Piran Engineer from CLSA.
Congrats on the quarter. Just wanted to understand regarding your small business and small enterprise loan. In a steady state, maybe 2, 3 years down the line, how many branches will you all be doing this business out of it? Is it from the same 350, 400 branches of LAP? Or from the overall branch pools that you all have?
And also how should we think about per branch disbursements on a steady-state basis? And if I may squeeze in another question, the performance incentives that you spoke about, does that come only in the fourth quarter every year? Or is it paid out quarterly? So yes, these are my 2 questions.
Okay. See, the performance incentive is provided every quarter, but it will reflect that quarter's performance largely. So for example, in the current year if you see Q1, we did not have a large amount of profit. Actually, we had a very mild profit. So in that quarter, the incentive provisioning would be minimal. In quarter where there is PBT achievement, that NPA achievement, the disbursement achievements are higher, in those quarters, we tend to take a higher hit of this. But this is to go with the result of the company and in which -- in the pattern in which the teams are rewarded. But one part of it that field teams are getting rewarded on the -- on a month-on-month basis, while the performance incentive is more a provision, which is carried and translated and given at the end of the year.
Yes, the secured business and personal loan, we have given a parameter of MSME ecosystem in Page #12. You will see that we are in the top of the bottom the parameter where this particular business is happening, along with the affordable housing division. So both are actually doing the -- addressing the similar type of customer whereas health of large nonprofessional customer having the properties they can offer us as a mortgage. These guys typically do a small business like saloon, electrical appliance be the groceries, no stationary shops. And their cash flows are calculated when someone is visiting them to understand how is the footfall at all.
So these customers are not available in the town where the LAP is performing. LAP is mainly in Tier 1, Tier 2, Tier 3. And they are addressing a little larger bigger customer where the credit history is available, banking habit of the customer is very, very clearly [ staff leased ] and CIBIL score is also -- can be -- 100% CIBIL score is there.
So therefore, the SBPL will be focusing more on Tier 2, 3, 4, 5, 6 and small business, which is what the top of the bottom of the parameter of the customer. In 3 to 4 years' time, we will be definitely covering almost 70% to 80% of the Tier 2, Tier 3 Tier 4 branches of the vehicle finance and total Chola we have today. And our disbursement will start delivering a good number by the time.
As of now, in affordable housing, we are doing almost INR 200 crores per month. This number has come after 5 years. So affordable housing took 5 years to reach to this INR 200 crores. I'm not saying that we'll take 5 years to do because now we are more learning with respect to the similar type of customers. So we'll do much better than that in terms of learning curve.
The next question is from the line of Shweta Daptardar from Elara Capital.
Sir, is there any seasonality element in the home equity growth fund? Because the disbursements have been sluggish, and the AUM growth has been slightly modest. I also -- the number you had mentioned last time, you are also scaling up on the branches side. So any opinion there? And just one bookkeeping question. In the restructured assets, you mentioned Stage 1, Stage 2 around INR 3,300-odd crores, how much ballpark number would be sitting in Stage 1?
Seasonality, yes, the LAP business or heavy commercial business is strongly correlated with GDP growth, industrial production. And also, to a large extent, it is also depending on the urban economy growth. But LAP, we have also understood that we can approach the small ticket size LAP like 2022, INR 30 lakh fee of LAP, which is available in smaller town. That's the reason we have started expanding and we are getting benefit out of it. And Suresh, why don't you talk about this?
So from -- as far as LAP business, I've spoken about this history on my earlier calls as well. From 250 branches -- in fact, from 125, we moved to 250 branches. Currently, we are at 400 branches. So our INR 20 lakh to INR 50 lakh ticket size also have increased significantly in the last few quarters. And our investment on the both on branch side as well as on the employee side has started giving us that kind of a growth, coupled with the confidence in the SME sector now that the things are improving, COVID behind us and the overall confidence in the SME sector is improving, we are seeing a good traction from our disbursement side.
I would say around INR 3,300 crores -- INR 2,800 crores is the number, which is in Stage 1, and the rest, almost INR 500 crores is in Stage 2.
Next question is from the line of Shalini from DSP Mutual Fund.
This is Vivek Ramakrishnan. My question was on the various CV businesses where you had nuance in terms of where some collections were lagging, especially those associated with hubs. Given the economic improvement, has the collection efficiency improved across the board for the CV business? Or do you still see this lead lag in various businesses?
You are talking about the market-wise collection of the commercial vehicle? In the last quarter across the country, we saw that the collection efficiency has improved across all the markets. There are markets which are affected due to the core mining or mining got impacted in the Orissa or Bihar because of the sand transportation. In Kerala also, it is impacted because of the economy did not do well in the past. But those things significantly improved in Q4, and we are hoping that, that will continue for the next financial year.
The next question is from the line of Alpesh Mehta from IIFL Securities.
Just two questions. First to Arul sir. Sir, there has been quite a few restatements on the individual line items within the P&L, so while the [Technical Difficulty] few restatements...
Alpesh, sorry, your voice is breaking terribly. Can I request to come in a better reception area?
Is it better now?
Yes, slightly better than before.
So Arul sir, there have been quite a few restatements in the individual line items within the P&L between total income and the provision. So what is it regarding?
See, this is based on the advice of the auditors because it would help get a better tax claim on bad debt written off. So whatever we are writing off and sometimes we recover something, that was getting adjusted earlier in the tally. So they say that may be challenged. So that where it is better to show that other income as a shortfall recovery. And we have now adopted that and that's the restatement. There's actually -- I think that's only restatement which I know. I don't know whether -- so it affects in 2 places. So I don't know...
So basically, are these recoveries from written-off accounts or the...
Yes, when you are getting a recovery from a written-off account, we used to adjust that under [ initial still ] because that's where the -- earlier the provision of the write-off has been happening. Under the earlier write-off, that is the normal process. Ind AS allows you it is also suggested that it gives them more clarity and more clear view to the tax officials and it becomes clearly a different line item for them to track. So that's what...
So this goes under the other income line item, if I'm not wrong?
Correct.
It does not impact our operating system.
Correct, correct. It won't get...
It won't go into interest rate.
Yes.
Okay. And large part of this would be related to the vehicle financing, if I'm not wrong because the restatements are higher on that matter.
Yes. It is -- large part of it is vehicle finance. There will be maybe some LAP. Others are very small right now.
Okay. And just a last question. During the quarter, the write-offs have been higher. I can see it in the those 2 accounts actually did some accelerated write-off around INR 190 crores. But even adjusted for that, the write-offs which used to be around INR 200 crores, INR 250 crores, that run rate has increased to almost INR 350 crores. So any idea related to that? And will this continue?
And secondly, related to this, our pre-COVID ECL was around 1.9%. Currently, we are sitting at around 3%. Since we are moving towards the normalization, by when do you see this number moving back to around 2%?
In write-offs last year, we have not done write-offs. So to that extent, there is an accumulation because of last year, the COVID was there. So that's the reason today -- this year, you're seeing a slight buildup on that. Of course, there's has also been a higher level of settlement et cetera. So -- but I don't see this will be -- as a percentage, it will not be at this level.
But in absolute terms, it can be because as we move forward and the book becomes larger, you will see a slightly higher numbers out there. So with regard to the other part, on ECL provisioning, see, we have built the PD LGDs -- the COVID impact into the PD LGDs current year. And so to that extent, the current year PD LGDs are a little bit inflated though this is more like a one-off event.
So this, as you know, we take a 5-year average. So it will take some time for this to sort of run down when you consider a 5-year average. So to that, actually, the impact of this may carry for some time, but it won't be significant as if the subsequent years also tend to be of normal or pre-COVID level.
[Operator Instructions] The next question is from the line of Param Subramanian from Macquarie Group.
So first question was on the Payswiff subsidiary. So now you've reported that the revenues were INR 45 crores for FY '22. So I just wanted to cross-check that because I think in FY '21, it was at INR 200 crores. So what is the reason for the reduction? And if you could talk about profitability for this business and how it's going to contribute for the lending -- to the lending business going forward? So that's my first question.
Secondly, you also mentioned on supply chain finance and fintech partnerships aiding the supply chain panel. So what fintech partnerships are we talking about over here? Is it largely the trades platform? Or is there something else apart from that? And you said 1/3 of the new businesses are coming from fintech partnerships. How is it split between SMEs and consumer business? Sir, those were my 2 questions.
See, I think your first question, one is gross revenue versus net revenue, right? So it's not a drop. We're only showing net revenue. The second question was supply chain partnerships. So your question was, which fintechs do we...
Yes. So you mentioned fintechs and supply chain partnerships. Is it largely a trades platform? Or is there some other partnership? Or is Payswiff already contributing...
Yes, we're exploring multiple -- including a lot of these -- there are a lot of these fintechs now that are kind of getting into the whole B2B supply chain, right? And so we are talking to a lot of those fintechs to try and see if we can do something with that.
Okay. Okay. Sir, going back to the first question...
So we will move to the next participant. The next question...
There is one more question.
What is the third question? What is the third one?
1/3 of the 33% of that comes from partnerships.
Yes. So the partnership business, which is coming from the...
Supply chain finance.
Correct, correct. So supply chain finance is basically keeping the anchor in the center doing the forward integration channel and backward integration with the vendor is a bill discounting and channel funding. That's a different type of business partnering with the SME. But the CSEL is partnering with the partners to -- they do the personal loan, which is multi kit small tenor loan and also one form of off-line BNPL. And then third is that the traditional PL done in the -- the deal generation happen, and we do the conversion. There are 3, 4 types of partnership within the CSEL of 30%.
The next question is from the line of Varun Nabar from Nippon India Mutual Fund.
Just one clarification from my side, which I wanted. So there was a question earlier that we spoke about the repricing of the liabilities. So I just wanted to understand how our assets side get repriced depending on market factors? Or do we largely do just fixed sort of lending? And if that then differs across products?
So the vehicle finance is a fixed rate book. It doesn't get repriced. LAP and retail is repriced. And then we review it every quarter, and we do it depending on market situation.
Okay. So the LAP -- so your longer tenure would get repriced quarterly. So to that effect if the liability side does start going up the risk of a compressing NIM would not be there, at least on the longer tenure that's good.
Small ticket size, small tenure under vehicle finance [indiscernible] see that deal is also significantly higher.
I'm sorry, I missed you there.
You are right. We are saying that you are right what you were saying.
Next question is from the line of Abhishek Murarka from HSBC Securities.
So two questions. One on NIM. Now if you look at slightly longer-term trends, NIMs are pretty much at a high in every business. Incrementally, cost of funds are likely to go up. So what do you think about the NIMs from here? Can you protect it at current levels? And how does that look?
And just squeezing in another one on OpEx. Again, if I look at slightly longer-term trends, before COVID OpEx was roughly at 39% to 40% -- I mean, cost-to-income ratio was 39%, 40%. Now we are seeing setup costs for new businesses and disbursement going up. Do you think from this year, 35%, we are likely to go up from here in terms of trajectory? So yes, just those 2 questions.
So the NIM will be in the range of around 7.5% -- upwards of 7.5%, I would say. This is the way it has been trending only if you look at the last 10 years. It just got element both from a cost of fund side as well as on the yield side. As we grow our portfolio or diversify our portfolio into multiple products with different yield levels, you will see the impact of NIM fluctuating which product we focus on. We focus the product, built on market, et cetera. But the impact of such shift in focus is also would be visible in the OpEx under NCL because the lower yield products will have lower OpEx and lower NCL. While the high-end products, like 2-wheeler or tractor, will also have a higher OpEx and NCL. So in a wide diversified portfolio, it is a little difficult to stay -- give a particularly range, even a range for a NIM level because it's better to track the ROTA, which factors in both the OpEx NCL and the NIM.
Next question is from the line of [ Ranju Shah ] from JPMorgan Chase.
I had just one question. Based on your current disbursements between the used vehicles and new vehicles, particularly on the CV side and against the current backdrop, could you give an outlook on how do you see these 2 books moving ahead?
Yes. So this year, as I mentioned that already in the month of April, industry started behaving very better, and this has continued. Obviously, new vehicle business will be higher disbursement significantly higher than the last year. Last year, the used component were high because the new were low. And as and when new goes up, then obviously, the used disbursements in terms of the proportion -- in terms of the absolute value, it will be high, but in proportion between new and used, the new will be higher.
The next question is from the line of Vidhi Shah from Antique Stock Broking.
Sir, I just had 2 questions. Sir, in Q4, the yields have come down compared to the last 3, 4 years, which were moving around 15% -- 14%, 15% and has come down to around [Technical Difficulty]. So how do we see this going ahead, especially when the new business that we are growing, that should, and the thing is high index on that. That's my first.
And sir, on the restructured book held, if you can give some color on that and also the provisions that we are carrying on the Stage 2 and Stage 1 of the restructured book? What will be your credit cost guidance for [indiscernible]?
So on the NIM -- it is -- you are seeing that it is coming down. It is like I just now explained to another participant. You have seen that the vehicle finance book is coming down marginally in proportion to the overall book and the LAP is moving up. LAP has a lower rate. So it will have its impact on the NIM. And as I again told in some part of this conversation, we also had a INR 50 crore impact on the interest reversal on the write-offs coming into the interest line. So these were the factors.
You will see -- while in the LAP, you will see the OpEx is a much lower number and retail is a much lower number. So it will get compensated and that would -- that's where it's always better for you to track the ROTA business where there are multiple products with a different deal structure.
So with regard to the second question, on the restructure, I think we have given enough data already in this call. I think we can't get more granular on the credit cost of restructure. Frankly, we don't really track that as a separate cost because the restructured book in our -- at the ground level is treated at par with the book and all efforts go on a same parallel basis.
The next question is from the line of Prashanth Sridhar from SBI Mutual Fund.
Sir, just one doubt on the vehicle finance, approximately how much would mature every quarter? Because that also would, in effect, get repriced at a newer rate, right?
Vehicle finance, there is no repricing, no. I told vehicle finance is a fixed rate book.
Yes, sir, but there would be some part of the vehicle finance that's maturing in a quarter and then the new loans would any be at the new rate, right?
oh, maturing, you're saying. Okay. Yes.
So what proportion is that, that matures every quarter? Because that also would...
Almost like -- see, almost like 1/3, it should mature in a year. But since this would again change with regard to the mix of the book. When you -- for example, the coming year, you'll do -- I mean the assumption of the market [indiscernible] will grow. With [indiscernible] growth and it becomes a 5-year book, so then the proposal will run down only once. And that too in the initial year, it will be lower and the lag year, it will be higher.
So whenever there has been -- there is a steady disbursement trend and the steady AUM growth, then you can predict this more accurately. But when you have got like a lull like last year, one whole quarter was lost et cetera, and there has been shifts in disbursement, it's little difficult to predict it. But at a very gross turn you can take one turn of the book internally.
The next question is from the line of Bhaskar Basu from Jefferies India.
So I had a couple of questions. Firstly, just on the broader CV vehicle financing business. So while until till March, of course, the fuel price headwinds were not really seen. And my understanding is that so far, at least the larger freight operators have been passing on the fuel price. How do you see that kind of flowing down to the smaller medium who are basically kind of price takers from the larger vehicle finances? That's my first question.
Secondly, just wanted to understand how is the new book really behaving? So basically in the first -- even in December, we had an NPAs like 6%, which has come down because the base has increased even though the NPL levels are kind of flattish. So these are very small numbers. But just wanted to understand how the quality of the book holding up -- is holding up? Yes, these are the 2 questions.
So in the case of commercial vehicle or heavy commercial vehicles, there are 3 segments of the product which is tractor in haulage and in tractor trailer. So in the haulage long haul customer, especially the large fleet operators, they can pass on the rates and the small haul transport operator who are basically having a small lead for transportation, they don't worry about the freight charges because they are attaching their vehicle as and when the freight is available, and the freight is adequate to this.
So only for the long-haul customers, these diesel prices are very, very critical because they consume the maximum one. And we are not into that segment. We are into the SRTO, where they're transporting within the city and within the state only. For them, it is easy for transferring the price and passing the prices to the customer.
For the tractor customer and tractor trailer customer, the diesel prices has not been a problem because, as a way, the mining operation goes up or the industry production goes up, obviously, they deploy their vehicle depend upon the rate which is comfortable to them. So coming to the point what you are asking that whether going forward, the increased diesel prices will impact the long-haul transportation or overall sales of the commercial vehicle or the profitability of the customer? Yes, it can, but it will impact to those operators who are having a long-haul transportation and having a fixed contract and escalation metrics is tight, and it is not in favor of the customer whom we are not financing.
The small commercial vehicle, the tractor trailer and construction equipment and in SRTO segment in Tier 2, Tier 3 can pass on and they purchase only when there is ability to buy the vehicle and deploy the vehicle in the market. So that's the commercial vehicle scenario. What we are expecting is that during the time, the construction side, a lot of mining side, a lot of projects are coming up. So therefore, sale of the tipper and tractor trailer is going to go up. In last 6 months, the [indiscernible] economy was down. It's started improving now. The small commercial vehicle, light commercial vehicle, which is strongly correlated with the agricultural growth and consumption, is going to go up. So we -- put together, we are hoping that this segment we are focused on is going to increase and that is the reason our disbursement will also go up.
The next question is from the line of Nischint Chawathe from Kotak Securities.
Arul, just one data keeping question. If you could give us the breakup of restructured loans between Stage 1 and Stage 2 for the previous quarter?
If you have -- not -- right now we're not having it, maybe I can share it with you.
Sure. Perfect. That was the last question of today's call. We have more than run out of time, actually.
Thank you, everybody, for joining us today. We thank management for giving us an opportunity to host the call. Thank you very much, and have a good day.
Thank you.
Thank you.
Thank you very much. On behalf of Kotak Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.