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Ladies and gentlemen, good day, and welcome to the LIC Housing Finance Q1 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Praveen Agarwal from Axis Capital Limited. Thank you, and over to, Mr. Agarwal.
Thank you. Good morning, everybody, and welcome to this earnings call for LIC Housing Finance. We have with us Mr. Vinay Sah, MD and CEO; and Mr. Sudipto Sil, Deputy CFO, to discuss the quarterly results. I would request Mr. Sah to take us through the key highlights of the quarter, post which, we'll open the floor for Q&A. Over to you, sir.
Good morning, and welcome to the post earnings conference call of LIC Housing Finance. As you would be knowing LIC had declared its Q1 FY '19 results last Friday. With effect from this quarter, that is Q1 FY '19, Indian Accounting Standards is applicable for housing finance company. Accordingly, our financials have been presented in accordance with the Ind AS and previous year's figures have also been reinstated wherever required to present a comparative picture. The key highlights of the results are as follows: Revenue from operations INR 4,019 crores as against INR 3,027 crores for the corresponding quarter of the previous year, a growth of 11%. Outstanding loan portfolio at INR 1,68,652 crores against INR 1,47,050 crores as on 30th June 2017, reflecting a growth of 15%. Individual loan portfolio at INR 1,60,265 crores as against INR 1,41,439 crores, up by 13.4%. Disbursements at INR 9,600 crores as against INR 8,700 crores for the same period in the previous year, a growth of 10%. Net interest income at INR 980.03 crores as against INR 919.37 crores, up 7%. Net interest margins at 2.34% as against 2.52% for the same period last year. Profit after tax for the quarter stood at INR 567.94 crores as against INR 479.65 crores, a growth of 18.41%. Pursuant to the introduction of Indian Accounting Standards, companies are required to report expected credit loss or ECL on their loan assets and provisions thereon. Accordingly, the provisions for ECL for the current quarter stands at INR 160.75 crores against INR 203.97 crores for the same period in the previous year. The asset classification as per the new accounting standards is now classified as Stage 1, Stage 2 and Stage 3 exposure as default EAD.The quarter under review saw a significant length in the way of beginning of a rate hike cycle initiated by SBI's increase in repo rates after a gap of 4.5 years followed by another rate hike this month impacting the wholesale rates as well as retail lending rates. On the business front, we have disbursed about INR 9,600 crores as compared to INR 8,700 crores for the corresponding period at a growth rate of 10%. Overall, we have seen good growth from some locations in central, eastern and some parts of northern and southern regions of the country. Overall, loan sanctions reflects a good pipeline buildup, especially in the project loan category. The loan sanctions in the retail category recorded a growth of 13%, thereby indicating a pickup in disbursement growth in the retail category in coming quarters. On the affordable housing front, under the PMAY CLSS scheme, the company continues to do well. During the first quarter, the company recorded a disbursement of more than 7,100 accounts in this segment as against -- about 2,000 accounts for the corresponding period of the previous year with an average ticket size of INR 18 lakhs. In value terms, the disbursements in this segment grew nine-fold to INR 1,300 crores as against INR 142 crores in the quarter -- in the previous quarter. As a share of incremental disbursements in the retail segment, it works out up to 17% in volume and 15% in value terms. If I recollect that the share of this segment in our overall business in FY '18 was 11% in volume terms and about 8% in value terms. We, therefore, continue to be confident of growth in the segment this year as well. As part of our current year's growth strategy, we have opened 24 new marketing offices, which works out to roughly 10% of the existing numbers. Most of the offices have been opened in places where we did not have an outlet and a large number in prior 3 and 4 locations. This is the largest branch expansion initiative of the company in recent times and will support its growth plans.During the quarter, we have launched a new distribution channel called the direct marketing executives to augment our sales network and to synergize our marketing efforts, especially with respect to projects funded by us. During the quarter, we have also launched a mobile application based evaluation module for faster and better quality assessment of properties and projects funded by us. In terms of asset quality as mentioned earlier in line with the Ind AS, the company has transitioned to the expected credit loss model based on exposure at default. The loss provisions are in line with the historical loss rates of the company, which is one of the lowest in the industry. As a result, the provisions have reduced on a year-to-year basis from INR 161 crores in Q1 -- to INR 161 crores in Q1 FY '19 as against INR 204 crores in Q1 FY '18. In my earlier interactions, I had mentioned that we are working resolutely towards recovery of delinquent accounts. And I think to share and would like to, specifically, highlight a recovery of a large building loan default where we had successfully auctioned the underlying asset, recovering the full 100% of the principal amount and nearly the entire portion of the interest. With this, we are confident of more such recoveries in coming quarters. On the retail side, there has been a seasonal increase in NPAs, which we are confident of reducing in the coming quarters. On the cost of funds side, you are aware of the sharp increase on the interest rate scenario and the rate hike cycle initiated by RBI through repo hikes of 50 basis points in 2 tranches. Despite such increases in the system, the company was able to maintain a weighted average cost of funds to the marginal decline of 1 basis points over March 2018 period through active liability management. During the quarter under review, the overall stretch have shown a sequential improvement by about 10 basis points between March and June 2018. The rate hike cycle has required the company to put -- to also review its PLR. The company hiked its PLR by 30 basis points in 2 transits in April and June, a further 20 basis point hike has also been made this month, making it a total 50 basis point PLR hike, which can be nearly -- this will be a nearly INR 1.40 lakh crores of back book and for all the new disbursals. As only a part of the rate hike was during Q1, we expect a larger spread benefit in Q2 and Q3. With this brief introduction, I would like to invite you for your queries. Thank you.
[Operator Instructions] We will take the first question from the line of Prakhar Agarwal from Edelweiss Securities.
Sir, a couple of questions from my side. First is on asset quality. So if I -- what was the quantum of corporate developer loan that we recovered this quarter?
Can you speak up a little loudly please?
Yes, so what was the quantum of corporate developer recovery that happened this quarter?
It was about INR 43 crores.
Sir, despite that we have seen some rise in corporate developer book on sequential basis when I look at your gross NPA numbers. So what were the slippages? And why was the target segment? If you could highlight some part of that?
No actually, this -- some small accounts have gone into, but no major account has gone into delinquency this quarter as far as projects are concerned.
Okay. So if I look at your numbers, around INR 100-odd crores of increase in gross NPA on an outstanding basis on corporate developer side. Now when I take INR 40 crores of recovery that has happened, post that, around INR 140-odd crores of slippages which has happened in gross NPA on sequential basis. Was that an impact of Ind AS or something else because of...
Some part of it was on account on an Ind AS because of reclassification of other factors, the EAD, and there has been a recovery, as you have very rightly mentioned, there was a recovery of around INR 40 crores principal, on which, as we mentioned in the opening remarks, there was also a recovery of almost the entire interest portion on that asset. So there has been some revolution on the corporate loan side as well.
So on individual side also, when I look at your rise in gross NPA numbers, while sequentially, we see on Q1 basis that there is some seasonal impact, the quantum is relatively higher on that part as well?
See the quantum partly could be attributed because the rate itself has increased, so the amount of increase itself could be reflected to that. But, yes, there has been an increase and we are working towards it. There is a seasonality, which has also impacted. Though the seasonality this time around between March and June as compared to the March and June of the previous couple of years has been a little less as compared to the March and June increase. So it has been a little less, but, of course, yes, it is an increase, and as we mentioned, we are working on it. And another thing that can be mentioned here is that if you actually look at post NDAs, the actual loss rates, which is mentioned in the -- which is basically the ECL on the exposure at default, that has actually been coming down, which reflects the recoverability of such accounts.
And secondly, when I look at your ECL favor that we're talking about in terms of outstanding basis when I look at your stage 3 provisions, which is somewhere close to around 32%. When I compare to players, it is rated on a higher side, anything to read into that as well so why we have impact a higher side on that segment?
That is to be slightly on the conservative side. It's an additional buffer, you can say an additional -- you can say level of comfort that we have mentioned, not a new thing. But if you actually look at it, the recoverability, again we would like to highlight, is very, very high there. Going by the historical losses in the company, which has been witnessed over the last several decades. And even as recently as in the last couple of quarters, the actual loss rate is much, much lower.
Okay. And on the margins side, despite these sort of recoveries that we're seeing on corporate developer and 20 basis point of rate hike that we -- that was effectively for 2 months that we have seen this quarter. Your margins, there was some pressure on that. So why is that so?
Actually, this Q1 fully has not got translated. The full impact of the 30 basis point will come in the -- fully in Q2 and the...
Was there an impact of corporate recovery that happened, too? Or there wasn't any because...
No, see, actually, the corporate recovery is in the upcoming 1 quarter, because after Ind AS, it will have to be apportioned.
Okay. So there would not be any impact on margins because of interest income reversals also this quarter?
No, no, it is not because of that. And actually, if you look at it, there has been sequential improvement in the spreads between March and June. Generally, between March and June, we see a dip. But just to refer to your point, there has been some impact of the rate hike and on the asset side, due to which you have seen some improvement in the overall yields between March and June. And 1 hike that we were able to -- we had done in the month of April, that has given some results. There was another hike, which we had done in the month of June. There was absolutely very miniscule impact of that happening in Q1. So the Q1 basically was based upon about a 1.5-month impact of the first rate hike that we had done.
Where do we expect this margin [indiscernible] and any guidance on that?
See if you look at the total increase in the PLR that has been affected in the first 3, 4 months of the financial year to a tune of almost 50 basis points and this will have an impact on almost INR 1.4 lakh crores of back book. So that certainly has the impact of pushing up margins, I would say, quite meaningfully in the next couple of quarters.
We will take the next question from the line of Prashant Poddar from ADIA.
So just a clarification. So rate hikes of 10, 20 and 20, they were in -- can you just tell me the exact dates? First, is it possible?
Yes, the first was in April, that was the -- the first hike was in April. The second was in middle of June. The third was in August, just a couple of weeks back.
So which essentially means that the whole 20 basis point increase that happened in the end of June that or mid of June or end of quarter that had no impact literally for the first quarter?
Yes, that was -- that did not have an impact.
While your cost would have continued to go up, as it is visible in your interest expense going up by 12%?
Correct, correct, correct.
So from current levels on a -- just pro forma basis, your spread should increase by about 20 basis points for the second quarter -- for the first quarter?
I don't like to put an exact number to it. But yes, certainly -- it certainly has that kind of a possibility, yes.
Okay. Just a clarification on that as well. So this kind of 10, 20 and 20 basis point increase in a very short period of time has not been seen by -- for quite some time, particularly in mortgages segment, where we expected the industry to be much more competitive. It looks like it has been very sanguine, so can you help me understand what is the competitive -- I mean, how is competitive dynamics playing out in this segment?
Prashant, this has been -- I mean, every hike has been done after taking into consideration the competition also. If I can say about the new loans. Probably, still we have maybe 5 basis points or so lesser than most of the leading companies. Only one of the bank's probably around the same level as we are giving. Back book effect, of course, I think, it will be there too as, which I said, on the full INR 1.40 lakhs portfolio.
Okay. One more question on the loan growth itself. Individual loans, not the loan growth, but the investment growth was pretty muted at about 5%, 6% for the current quarter, while it also has an impact of the Pradhan Mantri Awas Yojana scheme. So if you take that out, it looks like a flattish or a marginal decline in disbursement, if some of the trendsetters actually went ahead and got disbursements done by this particular scheme. What is happening in that? And if you look at other HFCs or even banks to that extent, the growth rates look slightly better.
Prashant, 2 things I'd like to say. Number 1, if we take the only pure home loan growth rates, that was around 9%. Okay. So what happened was that preferably some noncore portion gets figured into this wherein it was seeing the very less growth or nearly muted, so the overall came to 5%. But if I see the actual home loan growth rate, that is around 9%, that's number 1.
Which is the disbursement?
Disbursement. I'm saying about only disbursement. And secondly, as I said in my address probably going ahead, we're seeing a good growth in sanctions. Sanctions grew by about 13%, 14% for the home loan. So going ahead, the new branches that I talked about, we have a very focused attention on them. Our first aim was to open all these 24. It should not linger on for 6 months or so. So all these offices have been opened. They are operational. Business has started. And PMAY also, as I said, our PMAY portfolio, I'd say that the average ticket size is about INR 18 lakhs. So we are not too much into the lower segment, where the ticket size, very few numbers are there in that. So probably a more of this thing will help disbursement growths in the coming quarters. And thirdly, I mentioned about the new channel of [ DND ], those people have been directly targeted to focus on retail loans at the projects where we have financed the developers. So -- individual loans and those projects will be the responsibility of these particular people.
Okay. Just -- quickly on asset quality. Both individual and non-individual, so non-individual is an easier one. It's a smaller book and despite that one recovery that you talked about, the GNPLs actually have gone up. And I could not understand the technicality behind Ind AS leading to recoveries happening over a period of time rather than one go?
Well, see, actually, it is -- yes, recognition -- see actually, here as per the existing NHB loans, the moment an account goes into NPA, you stop accruing interest on that. So whenever there is a recovery, you recover the entire amount. There is a reversal and there is a recovery also in 1 single shot. But in this, even on the delinquent accounts, you're allowed to accrue interest. And then -- so when -- then the recovery actually happens, it does not happen in a lump sum. That is what I meant when I said about the recognition of the entire portion of the -- this one.
Okay. So to that extent, on the NII, the impact will not be large?
Will not be large.
But, but gross NPL numbers would have come down immediately?
Yes, yes.
So again, going back to the previous question, which the person mentioned about -- which the analyst mentioned about non-individual loans, NPLs going up if we adjust that, I think that loan was INR 60 crores, INR 70 crores or so as NPLs?
Total recovery was -- principal was INR 40 crores, total recovery was about INR 55 crores. INR 45 crores -- between INR 50 crores.
INR 70 crores.
Okay. So reduction of INR 40 crores and then more increase of INR 100-or-more crores. So anything to read into the quality of non-individual loans or any stress -- any potential stress in the system that we should be worried about?
No. I said I think, there is nothing exceptional because in the last couple of quarters also we have seen slippages which happen and they get recovered during the year itself. There are some signs of early recoveries also which happen. So as of now, there is no such specific reason. And the methodology of recognizing and, EAP, exposure at default has changed incrementally. So that would also have some impact in the numbers.
So you have 230 live accounts in builder segment, of which how many would be NPAs? Last year, I remember it was 5, 6, which were NPAs.
Which ones continue to be...
Which one continue to be 5 to 6 NPAs.
Okay. And -- okay, but there -- So these 230 are all big, you're saying?
Yes, yes, yes.
Okay. And individually, you said the seasonality impact was lesser this time. But if you look at on a year-on-year basis, which takes out the seasonality, the NPLs have actually gone up from 0.4% to 0.8%, we have not seen that kind of seasonality in or Ind AS impact in any of the other HFCs. If you can help us understand little bit of that as well and potential recovery of this segment as well. And that is like my last question actually.
Well, the percentage has gone up. But as Sudipto said, last year also, if we compare March to June, it had shown 0.35 points basis rise, and current year, it is about 0.4. But we're looking 1 period, and I'm really hopeful that coming quarters this number will have impact internally speaking and targeting our less than 1% GNPA, as at end of Q2. That's the internal target that has been checked and we have put in our reinforce -- in fact, the recovery teams also and I'm very sure that Q2 is going to be much, much, much better.
Sorry, I have one last one. On non-interest income, there is a strong growth of 54%. Is it a -- and in the thing that you talked about in terms of change of fees as well as focus the insurance -- insuring all your homes -- home loans, is it that which is leading to this increase?
Yes, yes, it is the -- the fee income, which we have discussed in the last couple of calls, that is beginning to derive better incomes.
[Operator Instructions]We will take the next question from the line of Ayush [indiscernible] Research.
What are the NIMs currently this quarter?
Okay. Excuse me, can you be a bit louder, please?
Yes, what are the NIMs following this quarter?
Sorry. You're not -- can you please speak up a little loudly?
What are the NIMs following this quarter?
NIMs?
Net interest margin. Yes.
Net interest margin, okay. See, actually, if you look at the net interest margins, you're comparing it with on a year-on-year basis. If you recollect last year, we had actually started reducing our interest rates following there was a lot of, I would say, competitive intensity. Because of that in the second half of the year post July, we have reduced our P&L by 20 basis points. So what we are today is the Q1 of last year vis-Ã -vis the Q1 of current year. Now once we're able to recover the margins post the PLR hikes, I think the margins will go back to where it was in the previous year before the PLR cuts.
But then if interests were good last year, then the NIMs should have increased in this quarter, right?
Actually, sequentially, at the beginning of the call, we mentioned, sequentially, there has been an increase in the spread between March and June. But if you compare it with the June numbers with current June numbers, then it has not come up to that level. But between March and June, there has been an increase in the spreads.
Are we seeing an increase in the adjusted [indiscernible]?
Sorry?
Have the lending been increased this quarter?
Yes, they've -- actually, we have increased it again in the month of August, which will be in Q2, yes.
By how much, sir?
That is by 20 basis points.
20 basis points. And so another share of flat increase.
Share of?
Builder developer loans.
Builder loans actually has remained by and large at the levels of March. It was 4.8%, right now it's around 5%. There has been some increase in the builder loans and we had mentioned in our previous interactions also that post we are here looking at builder loan segment afresh considering the better quality proposals, which are now coming.
And so what about loan against property?
They are around the same levels actually, but very, very marginal impact.
And I guess, 28% in Q1 FY '18?
Actually, the LAP -- that noncore segment consists of LAP and LRD both. So there has been some conscious decision and they increase whatever has come, has come, the LRD LAP we have not done much.
[Operator Instructions] The next question is from the line of Dhawal Mehta from Somerset Capital.
Sir, just a couple of clarifications on the ECL. Just given that we obviously have lost [indiscernible] which is low, is it fair to assume that going forward producing costs on a recurring basis will be structurally low?
Yes, that is what it looks like right now. But after the implementation of the Ind AS the entire -- the way we use to look at NPAs earlier, and made a provision based on a rule-based formula, irrespective of the underlying securities, irrespective of the asset coverage ratio and irrespective of the ultimate recoverability experience, so those were never taken into account. Now these things are taken into account, the security value, the number of times of security cover as well as our own experience and the track record in recoverability. So all these things are taken into consideration. And as a result of which we have seen the provisioning levels that is called the loss provisioning levels under the ECL, that has been coming down.
And then -- and given that -- I mean, are you realizing that the whole idea is to move from a rule-based descriptive kind of system to one that is more realistic and is more driven by past experience, actual real experience of the concerned company. In that case, is there a reason to be more conservative because your idea is to not -- as I see it is not to be more conservative or more aggressive, but to be more realistic. And so in that, I'm just thinking, as you have mentioned [indiscernible] where it is in terms of your business on the [indiscernible]. So I'm just trying to understand that from that point of view.
Yes, actually, if you look at it, historically, the loss rates has been around 7 basis points. In our 29, 30 years of operation, the loss rates have been in the range of around 7%. Obviously, historical loss rate need not necessarily always play out in the future, and that is the reason why an extra buffer or an extra provisioning has been maintained in order to ensure that the conservatism is not dispensed to it.
If we can just go by past anecdotal -- like you mentioned, 7 basis points, then obviously, the meaningful provisioning should come down significantly even from the levels that you currently maintained, is that so?
Yes, I think, I mean, that is the reason why I mentioned that there has been some conservatism, which has been building there. And you can actually probably now visualize that in the earlier NPA recognition and provisioning formula, it's a much, much, much too conservative.
We take the next question from the line of Sunil Tirumalai from Crédit Suisse.
A couple of questions. Anything that helped the OpEx to fall. I mean, just wanted to understand what is the sustainable number there.
The OpEx, actually there are 2 parts of it. One is the salary and benefits, and the other is the establishment expense. Now in the establishment expense, typically, we used to classify the commission paid to broker -- to agents for acquiring the business. Now that has to be apportioned. That cannot be shown as a charge-off item in the year of incurring the cost. So there will be a little bit of, I would say, aberration -- if you compare it with the numbers that were earlier being shown. Because now that item, which is one of the largest items, that has to be apportioned. So that is one of the reasons why probably you are seeing a steep fall. But going forward, that is going to be the accounting practice.
Yes. So my question was more from, I mean, on Slide 14, I'm guessing, both the previous year and current year numbers are on the same accounting.
Correct.
There also we have seen a decline.
Yes, that is because probably in the current quarter the component of commission would have been much larger than the component of commission in Q1 of last year. So as a result of this, both have been removed from the details. That is one thing. Second is, salary and benefit part of it. There was a one-off item which was charged in Q1 of last year, which was in a -- one installment of an arrear payment. Which payment? Which has obviously not been there in this year.
Can you quantify that, please?
Around INR 7 crores or so.
Okay. And -- got it. And secondly, just wanted to understand how are you thinking about growth rates long term. I mean, we actually have -- not just companies smaller than you but even the company which is larger than you, the market leader also, in individual loans delivering 18%, 20% kind of growth rates. Is that something that you are -- you're kind of planning to do? Or what -- is that in your aspiration? Or are you comfortable with sub-10% kind of growth in home loans? I just wanted to get a color on that.
Yes, Sunil, as we said, I mean, we are -- internally, we are targeting growth rates in excess of 17%, 18%, so that we land up somewhere near 15% or so in the coming quarters. And that should start happening starting Q2.
Got it. And final question is: Any change in your funding strategy, funding mix given the new interest rate regime? That would be helpful.
Yes, actually, in the funding strategy, we have been doing, I would say, slightly more levels of Commercial Paper within our ALM framework to ensure that we get the best of the funding cost. We have also very recently, kind of, put a lot of focus in raising the public deposits -- the retail deposits. So we have designed the entire scheme with slightly more attractive rates. And probably we'll be a little bit more aggressive in raising deposits going forward. We are also actively exploring external commercial borrowings, and we've already been discussing with several banks for ECBs. That has also been happening [indiscernible].
We take the next question from the line of Bunty Chawla from B&K Securities.
Just the data plans. Can you share the incremental yield and incremental cost of fund?
Incremental cost of fund for the quarter, it is around 7.89%. And incremental yield is slightly more than 10%.
So what will be the yield -- incremental yield if we compare the Q-on-Q basis? You said it has increased. And this quarter, it was around 1.9%.
So that is -- you are talking about the [ bandwidth ] book spread. [ Bandwidth ] spread is 1.9%.
Okay. So incremental spread should be?
Incremental spread should be average of -- 7.89% was the incremental cost of funds. And the annualized yield should be around -- in the range of 10.19% or whereabouts.
10.2% roughly. I think.
Yes.
We take the next question from the line of Adarsh from Nomura.
Sir, question, again, on cost of funds. You did mention 7.9% incremental spreads. That -- sorry, 7.9% incremental cost of funds. That includes a lot of CP, right? That's not like a sustainable funding strategy, right? So where is your current cost of funds on the full book? And if you have a judicious mix of, say, loans, bonds and some CP, what would be your incremental cost today?
See, actually I wouldn't say that the level of CP is very high because as of the quarter end, the CP is only considerable about 6.7% or 7% on the total liabilities. So I wouldn't say that it is very high. It has been -- it is higher than what we used to have maybe a couple of years back, but it is still much, much less than -- comparable to the peers in the industry. So it is well below 10% in terms of the total exposure to CP as we had on 30th of June. So that is number one. Number two is that, yes, there has been an increase in cost. But when you actually look at the cost, you will also see the fact that there are liabilities on the book which are also maturing, say, for example, in this current year, about INR 20,000 crores will be maturing, which will take around 8.5%. So if I raised the same amount -- at present, it looks like slightly lower than that. There will be some marginal benefit that we will get on the -- on this overall cost of liabilities. And the cost of liabilities also will be looked into and the -- at the same time, the -- and that of the asset repricing. So there has been an increase in the system cost of funds in the interest rate scenario. And we have passed on the interest rate hike also on the asset side and commensurate -- the effort is to always ensure that the margins and the spreads are protected, which we have been able to display in the first quarter.
So broadly, Sudipto, the way to look at this is, your -- whatever repricing you're having on liabilities, you will be able to reprice it broadly as of today at the same rate. And then you're looking at assets, where you would have like a 30, 35 basis point advantage. So will that be a full spread benefit? Or how should one look at it over the next 2 to 3 quarters?
Yes, I think majority of it will flow through -- the majority of it will flow through in the bottom line because, as we just mentioned, the cost of funds we have been able to hold at the same level as that of March, considering the fact that there have been 2 rate hikes and there has been at least a significant increase in the system cost of funds on incremental side. That has happened because of, kind of, changing the incremental liability structure to some extent and majority because a large portion of our liabilities are of fixed cost, which locks in the cost at that particular level. So there are no further increases. For the benefit flows from the asset side directly to the bottom line.
And second question, again, coming back to asset quality, right. We discussed there is seasonality in individual loans, but there has been some increase. So this segment's -- have you seen the increased geography, individual book, LRD, LAP because you kind of give the NP on individual, but that includes home loans -- core home loans, then it includes LAP, LRD. So if you can just break that up. How many accounts because the general point is, in the last 7, 8 quarters, we've seen about a 10% increase in our non-core book mix. And I just want to make sure that we are not looking at an ever-increasing trend because that's -- we've seen that in a few HFCs. So...
Well, I think, if you look at the overall category-wise between the LAP, the LRD and the normal core home loans, of course, builder loans, we are already having the figures, and we are not discussing that separately. Obviously, the LRD delinquency rates are the lowest. But between the LAP and the home loans, I would say this: No one is at par. Probably, the LAP is slightly higher, but it is not drastically higher as compared to the home loans.
So any specific reason or geography you can think why -- I know it's 20, 30 basis points, but, I think, for a company where your credit cost annually has been 7, 8 basis points, 20 seems a lot. So if you can just -- any reason -- like I'm sure you would have gone into which accounts, which geographies or which income segment of -- have kind of lived to this higher default rates. So if you can just qualitatively talk about that?
Geography-wise, if we see, north continues to have high NPAs, and south also continues to have high NPAs. East contributed a lot last year, but that's in the recovery train. Their recoveries are better. They are on a -- they have been reducing their NPAs. As far as accounts are seen, it is the sub INR 15 lakh ticket size, where it's more. In LAP, of course, whatever we have seen, there also some higher cases are there. But LAP also, our average ticket size is not very high. But as compared to the INR 18 lakhs -- ticket size of INR 15 lakhs, LAP, it's slightly more.
Understood. Sir, last question. Can you just -- I kind of joined a little late. I don't know if you discussed this. Can you walk us through your network reconciliation under IND AS?
Yes, that is one [indiscernible] that the network increase will be almost to the tune of slightly more than INR 1,000 crores. So it is almost a 10% increase in the network that would have happened.
Can you give components of this, like, I'm sure, deferred tax is one, but apart from that?
It is majority -- majority of it is [indiscernible].
And did ECL lead to a reduction or an improvement? It should have led to a reduction, right? What was the quantum?
Yes, it should have led to a reduction.
How large was that?
See, the ECL reduction is actually not fully factored into the balance sheet. That's something that, maybe, probably in the next quarter we'll be able to get more light on it -- we'll be able to share more light on it. But the choice would be as high as INR 200 crores to INR 250 crores.
So you're you saying that as of today, you've not factored ECL, and it's INR 1,000 crore improvement, but you could have an ECL hit of INR 200 crores, INR 250 crores. Is that the way to look at it?
It is a positive impact.
We take the next question from the line of Umang Shah from HSBC Mutual Fund.
All my questions have been answered. Just a clarification of -- on Adarsh's question. So you meant that INR 1,000 crore accretion is largely because of the DTL, and assuming next quarter when the ECL adjustment happens, there could be a positive impact of INR 200 crores to INR 250 crores?
Like, Yes.
And that is over and above this INR 1,000 crores?
Yes.
We take the next question from the line of Aarsh Desai from Vallum Capital.
Sir, my question was with regards to the 2 basis point hike in the PLR. Can you agree that little [indiscernible] funds heightened PMI to start losing some of the books to balance down funds to some of these banks who've been able to maintain their housing finance in very much lower level?
No, I'd say 2 things to that. One is we have done it after seeing the competition. So it's not that our rates are very high and theirs a very low rate. Maybe, as I mentioned earlier also, it's just a 5 basis point difference with one of the banks. That's all. And number two, as you will see from the Q1 numbers, and we are working on it, our exits have gone down actually. We have seen a marginal reduction in that.
Okay. No, my point [indiscernible] across the board competition have increased their margin [indiscernible], but as a matter of fact, a lot of housing books would start moving from housing finance companies to banks as we were told by a couple of the housing finance companies. Do you see anything like that happening?
No, I don't think that, that can be a given that housing finance companies will use portfolio of the banks. I think that cannot be taken as a given. It probably depends on many factors, including the servicing, the rate of interest being offered by the HFC and the bank. So I don't think that can be a straight type of formula that HFCs are going to lose market share to banks. Actually, in the last couple years, the contrary has been the case.
[indiscernible] scenario, but I thought [indiscernible].
No, it does not. Actually, if you look at it, it is not that way because, I think, at least, for the top few HFCs, they are as competitive as the top few banks.
Okay, okay.
[indiscernible] of in terms of their ability to retain customers, acquire customers as well as also to borrow funds at the lowest possible rates.
We take the next question from the line of Manish Agarwalla from PhillipCapital.
Just one data keeping question. What would be our weighted average [ age ] on individual loan as well as the other incrementally loan, the individual loan excluding your LAP and [indiscernible] portfolio?
The individual incremental -- individual lending will be, on the home loan side, will be around 9.2%, whereas on the -- this is annualized, whereas in the LAP, it will be around 10.5%.
And on the weighted average basis, what would be individual rate?
Individually, on the weighted average, it is -- will be around -- with -- you're talking of the HLAP or without LAP?
No, without LAP.
Without LAP, it will be around 9.4% or thereabouts.
So basically, your bank book and the incremental is more or less same now. Correct?
Yes, now they [indiscernible] more or less same because of the price [indiscernible] which has happened on the other sites.
We take the next question from the line of Kushan Parikh from Emkay Global.
This is Jignesh here. I just had one follow-up questions [indiscernible] and just one simple thing. Let me say in Stage 3...
[Operator Instructions]
I just had one question, just your NPA, which is 1.21%. It is all your 90 days recognition NPA, right? That is the reparation of NPA remains the same what it had been in the previous term. I mean, as for the...
Yes, stage 3 is...
[indiscernible]
All are 90 days plus, and there is no deficit or something [indiscernible]. All are 90 days plus [indiscernible].
Yes.
We take the next question from the line of Kamal Verma from CLSA.
Yes, so I just wanted to ask regarding provision levels and IND AS. So for most of the housing finance companies, provisions have declined. For you, it has increased from like INR 1,000 crores -- it is INR 100 crores in 1Q FY'18 to INR 200 crores now. So this gave you the seasonality because you have higher NPAs in first quarter...
No, no, actually it is the other way round. Last year, it was INR 204 crores. This year, it is INR 160 crores.
So yes. No, no that's under IND AS. I'm comparing it between I GAAP and IND AS. So under I GAAP, the provisions, last year, were INR 100 crores -- INR 104 crores. Under IND AS, it is INR 204 crores. So it has doubled. So what can be the realistic number for the full year?
Yes, full year numbers will be more or less in line with the change for the current Q1.
So like INR 150 crores?
Yes. And progressively, if you look at it, generally, the first quarter, the provisions are the highest because the NPAs are also the highest in the Q1. Progressively, in Q2, 3 and 4, NPA levels keep on coming down. So progressively, the incremental provision for each of the 3 quarters will be lower than what we've seen in Q1.
But it will be higher than what it would have been under I GAAP?
Unlikely. Because if you look at the entire ECL model, the overall provisioning itself has come down significantly. If you compare the on-book provision as of 31st of March, and if you compare the ECL provisioning as of now, that is what we were discussing in a couple of questions earlier, the GAAP is almost INR 300 crores positive.
Yes, but, still the provision costs are higher. So...
No, actually, they've come down. That is precisely what I am telling.
Has it come down? But I am comparing between I GAAP and IND AS.
Between I GAAP and IND AS, the provisionings actually come down.
Okay. Okay. And regarding like how much portion of your borrowings are fixed rate -- at fixed rate?
Fixed rate borrowings will be around 75% to 77%.
Okay, and these are at 8.5%, as you mentioned, I think?
No, no. I didn't mention at 8.5%. It is less than 8.5%. 8.5% is that portion of the borrowings which is going [indiscernible] during this current financial year.
Okay, okay. And the total stock of borrowings will be at? The fixed rate ones?
Yes, it will be less than 8%, slightly around -- slightly more than 8%.
We take the next question from the line of Nischint Chawathe from Kotak Securities.
Just one thing. How much recovery did you make from the developer alone this quarter?
The developer, that account was total around INR 70 crores, which we have recovered, out of which about INR 40 crores [indiscernible].
Sure. And then in terms of accounting, this INR 30 crores will be reflected, the balance INR 30 crores will be reflected in interest income?
No, it will actually not be in the interest income for the current financial year or current financial quarter because under IND AS, it will not be in the one quarter.
Okay. So then how does it get accounted for?
See, under IND AS, even for loan under -- which is under EAD, you can still accrue interest on EAD Stage 1, 2 as well as Stage 3. So when you're actually accruing the interest on any of the Stage 1, 2 and 3, even if there is a further recovery after some time, the full lump-sum comes up after some time. You cannot count it back again. What you're referring to under Indian GAAP is correct.
So will it mean that this creeps into -- will it mean that the provision for the quarter was less? Or it just creeps into lower -- how does it really get accounted for?
The provision release will be there. Let's say, it has already been canning on the books as per the earlier accounting standards.
Okay. So I believe this was 100% provided. So to that extent you almost got...
Yes.
So to that extent, you got INR 30 crore saving this quarter?
Yes.
Okay. Sure. The other point that you mentioned was that other expenses, I think, there were some adjustment with respect to origination expenses. Is that right?
Yes.
So the origination expenses now on will be deferred?
It will be apportioned, yes.
It will be apportioned. And this apportionment happens at the expense level not at the income level?
It happens at the income level also to the -- for the component of processing fees, which is collected at the time of -- for leaving the role.
Okay. And what gets apportioned at the [ expense ] level?
It is the commission expenses.
Okay, okay. Commission expenses as in the yearly commission, you mean.
Agent commission.
Agent commission. That's right. Just one small data reconciliation. Your non-core book was INR 27,000 crores, right, at the end of the quarter?
Yes.
And last year -- sorry, not last year, fourth quarter was INR 23,800 crores?
Yes.
And the disbursement for the quarter was around INR 1,400 crores?
INR 1,400 crores? Yes.
What was the disbursement in this segment?
INR 1,400 crores. Yes.
So if I do INR 23,800 crores plus INR 1,400 crores, I get around INR 25,200 crores. So how was the closing book INR 27,000 crores?
There's a -- actually, some LRDs -- LRDs which were not classified earlier, is now being categorized under this segment.
Okay. So just [indiscernible] what would -- I mean, just for record sake, what could be the loan book like on a like-to-like basis, I mean, INR 23,800 crores could have gone like where?
Sorry?
This INR 23,800 crores this quarter should have been like what number? I mean, I believe INR 2,700 crores as some people think. So...
Yes, yes. It could have been around, say, INR 2,000 crores [indiscernible].
We take the next question from the line of [ Amit Goenko ] from [ Glen Enterprise ].
Sir, my questions have been answered.
We take the next question from the line of Subramanian Iyer from Morgan Stanley.
Yes, sir, a question on your margins. Sir, I understand under IND AS, the seasonality in your margins should be lower because you would be accruing interest income on your NPLs as well. So does this mean that this quarter, seasonally, shouldn't have seen the kind of decline in margins that you see typically, and even the fourth quarter, [indiscernible] won't see the same amount of margins -- the benefit in margins even if you were to have interest income recoveries, even if you were to have NPL recoveries?
Yes, actually, all the margins recovery will be given -- obviously, whenever there is a significant upgrade in asset quality, it will have an impact in provisioning and also in the classification of assets in the EAP 1, 2 3 category. But mostly, the margin recovery will be driven by improvement in the lending rates.
Got it. And a question on the deferred tax liability reversal. Does that -- so how is the accounting being done in the Tier 1 perspective in the sense that were you knocking off -- did your Tier 1 suffer as a result of this deferred tax liability creation in the past or -- so would you see -- so essentially, would you see a benefit to your Tier 1 as well?
It was a neutral. It was a neutral to have any significant -- it would not have a write-back impact.
Okay. Can you explain how it was neutral?
It was a neutral because it was not taken out of the Tier 1.
We take the next question from the line of Manish Shukla from Citigroup.
Of the INR 20,000-odd crores of borrowing during quarter, how much would have been CPs of the incremental volume?
See, all the INR 7,000 crore would be on the CPs.
Okay. And that, you're saying, is more or less quarter specific. It may not be same proportion through...
And then it is 90 days, 60 days, between that. So sometimes what happens is the cumulative number might be INR 9,000 crore, but actually, it might be 2 CPs taken within the same quarter.
What I'm saying as a proportion of CPs, the INR 7,000 crores on INR 20,0000 crores, do you see the proportion of CPs remaining similar on subsequent quarters?
No, no, no, it will come down. Always, the -- it cannot exceed the rating, which itself is quite low, number one. Number two is that at the end of the quarter also, if you see the total amount of CPs that we're already having as on 31st of March plus the CPs that we have done incremental during the quarter, the total itself is the -- the March -- the June-end number itself is much lower than the addition of these 2.
That's why. That's the reason I asked on an incremental basis. Sure. The second question is what is the total non-core disbursements for the quarter, as in non-mortgage disbursements?
Projecting to date, you're asking?
No, no. [ Project separate ] on the individual side. [indiscernible]
INR 1,400 crores.
INR 1,400 is all noncore. Okay, so the LRD, the roughly INR 2,000 crore adjustment that you're saying was earlier classified in the project or individually?
Part of it was on the project.
We take the next question from the line of Nikhil Walecha from JM Financial.
Could you please tell me the exact number for net worth as of June '18? Is it INR 13,700 crore?
Yes, there has been an increase of -- to -- to be very honest, the balance sheet figures are to be disclosed only as of September. That is, the publication of financials has to happen in September. But the increase in the net worth which has happened in the opening balance sheet of 1Q 2017 as per IND AS the increase in the net worth is to the tune of around roughly between INR 1,100 crores and INR 1,200 crores.
So this would be around INR 12,500 crore to INR 13,000 crore?
INR 12,500 crores was the closing net worth as on 31st of March 2018.
Yes. So -- and the INR 1,000 crore number that you are saying, that would be added on March '18 or Q1 '18 number?
No, it will be added as an opening balance sheet. Always.
Okay, so this would be around INR 13,500 crore then?
Yes.
Okay. And sir, when the exact amount for this DTL?
DTL, it would be around, say roughly, INR 1,100 crores to INR 1,200 crores.
So this increase in net worth is primarily on account of DTL, right? INR 1,100 crores to INR 1,200 crores?
Yes.
We would take the last question from the line of [ Keyur Ashar ] from Reliance Life Insurance.
I just had a data plan question. So I just wanted to understand what is our split between the individual loans and the remaining part of our total AUM?
Okay, [indiscernible] total AUM is individual plus LAP [indiscernible] will be around 95%, 5% will be the builder notes.
Okay. And on the individual loans we are seeing that we have a broad NPA of 0.81%, and overall we have about 1.2%. Is that right?
That's right.
Well, that seemed to be the last question for today. I would now like to hand the conference over to the management for their closing comments.
Yes, thank you for the queries. I [ beared ] with the company, again, as we've said, is again, going at and seeing to it that we'll be -- get back to more than 15% growth in disbursement, we arrest the NPAs and bring them substantially down by Q2, improve upon the spreads and see how best we can borrow funds at the least rates available in the market. Thank you very much.
Thank you very much. Ladies and gentlemen, on behalf of Axis Capital Limited, we conclude today's conference. Thank you all for joining us. You may disconnect your lines now.