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Ladies and gentlemen, good day, and welcome to the LIC Housing Finance Limited Q3 FY '19 Earnings Conference Call, hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikash Mundhra from Axis Capital Limited. Thank you, and over to you, Mr. Mundhra.
Thank you, Bharat. Good morning, everybody, and welcome to this earnings call of 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 will open the floor for Q&A. Over to you, sir.
Good morning, and welcome to the post-earnings conference call of LIC Housing Finance limited. As you would be knowing, LICHFL declared its Q3 FY '19 results yesterday. The key highlights of the results are as follows: revenue from operations INR 4,414 crores as against INR 3,587 crores.
Sudipto, sir, are we still connected?Ladies and gentlemen, please wait while we just try to check the line for the management.[Technical Difficulty] We have the line for the management reconnected. Please go ahead.
Hello?
Yes, sir, please go ahead.
Good morning, and welcome to the post-earnings conference call of LIC Housing Finance Limited. As you would be knowing, LICHFL declared its Q3 FY '19 results yesterday. The key highlights of the results are as follows: revenue from operations INR 4,414 crores as against INR 3,587 crores for the corresponding quarter of the previous year, a growth of 23%. Outstanding loan portfolio at INR 1,81,698 crores against INR 1,56,176 crores, reflecting a growth of 16%. Individual loan portfolio at INR 1,70,334 crores against INR 1,49,986 crores, which is up by 14%. Disbursements at INR 12,778 crores as against INR 12,292 crores (sic) [ INR 12,293 crores ] for the same period in the previous period year, a growth of about 4%. For the 9-month ended 31/12/2018 disbursements were INR 36,666 crores, reflecting a growth of 15%. Net interest income at INR 1,042 crores as against INR 738 crores up by 41%. Net interest margins at 2.33% as against 2.35% for Q2 FY '19. Profit after tax for the quarter stood at INR 596.31 crores as against INR 475.10 crores, a growth of 26%. The quarter just concluded was one where we -- NBFC, HFC sector retains an unprecedented liquidity squeeze of a magnitude not seen in the recent past. Several initiatives taken by the government regulators have helped stabilize the situation to some extent. The company, however, has not faced any adversity and has accessed all types of fundings avenues throughout the period under review. On the business front, we have disbursed INR 12,778 crores, which shows a growth of about 4%. Overall, we have seen good growth from some locations in central, eastern and some parts of western and southeastern regions. In the home loan segment, the company disbursed INR 9,177 crores, a growth of about 3%. Disbursements in individual non-home loans segment was flat at about INR 2,400 crores, whereas the builder loan segment the disbursements were INR 1,238 crores, a growth of 28%. During the quarter, we have been very selective in taking exposure, and we believe the current environment will allow long-term players like us to improve on our market share. To that end, during the quarter, we have received proposals for portfolio of buyouts, takeovers and are evaluating the same based on various parameters like quality and valuations. Our overall disbursements for 9 month continue to record a 15% year-on-year growth which is in line with our projected growth for the year. On the affordable housing front, under PMAY CLSS schemes, the company continues to do well. During the third quarter, the company recorded a disbursement of nearly 8,500 accounts as against 6,000 accounts in the corresponding period of the previous year. In value terms, the disbursement in this segment was INR 1,646 crores, against about INR 1,000 crores for the corresponding quarter. As a share of incremental disbursements in the retail segment, it works out to be 75 -- 17% in number and 14% in value terms. On the portfolio growth front, the total portfolio recorded a growth of 16.34%, the highest in several quarters. Pursuant to the introduction of IND AS, the companies are required to report expected credit loss on their loan assets and provisions thereof. In terms of asset quality, as mentioned earlier in line with the IND AS, the company has transitioned to the ECL 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. This quarter, there is a net reversal in the ECL provisions to the tune of INR 3.14 crores. For 9 months, the total ECL provisions reduced from INR 407 crores to INR 247 crores. The asset quality has remained stable with stage 3 exposure at default at 1.25%, marginally down from 1.27% as on September 2018. On the cost of funds side, though there has been a sharp increase in the interest rates in the system following the liquidity squeeze, we were able to contain the increase in the cost of funds to a considerable extent. During the quarter, the weighted average costs of funds has increased by about 15 basis points. However, we have been able to offset the increase by passing on the hikes. During the quarter, the company hiked its PLR by 20 basis points, making it a total 70 basis points PLR rise during the current fiscal. The overall spreads have, as a result shown, a year-on-year increase of 15 basis points and a sequential increase of 6 basis points. During the quarter, we have also completed recruitment of nearly 300 employees to augment the human resources. With this brief introduction, I would like to invite you for your queries.
[Operator Instructions] The first question is from the line of Shubhranshu Mishra from Motilal Oswal Securities Limited.
I wanted to understand the movement of NPAs in the corporate book, it has decreased on a Q-on-Q basis. So if you could tell me the slippages and the recoveries?
Yes, we have experienced some reduction in it. There have been recoveries in 5, 6 small accounts.
What's the amount for that, sir?
That would be about INR 60 crores or so.
And any slippages?
No, no.
Right, sir. And we've noticed the disbursement for builders going up. So one is that I want to understand the outstanding number of accounts that you have in the builder portfolio? And the number of deals that we did in this particular quarter and 9 months of this year?
Total number of accounts that we are servicing is about 5 -- 256 or so. During the year, 9 months we have added about 38 accounts. Quarter would be about 6 or 7. Quarter actually, we are showing some growth in the project, but it's very less as compared to Q2.
Right. And if we have to qualify these additions in third quarter, sir. Are these comings from other HFC banks? Where are these portfolio takeovers coming from?
Only 2, 3. Only 2, 3.
Okay. Which are coming from large HFC...
Yes, as I've said in my -- this thing, we've been very cautious actually. Whatever the general feeling in the market is that there's a huge opportunity for LICHFL also to take over, but some of the evaluations that we did in this quarter, they are very risky things, which we are not -- as it is we were not being earlier also. And we have not taken over any of the risky ones, which we think they are risky as per our underwriting norms.
Right, sir. And just a bookkeeping question, if you could repeat the disbursement links for -- at home loans, [ NAFTA ] and builder loans?
Total disbursement INR 12,778 crores. Home loan was INR 9,170 crores, developer was INR 1,238 crores. And this home loan, of course, includes about INR 2,000 crores of...
INR 2,000 crores of?
No, no, INR 1,238 crores of -- sorry, that's separate, of course. Yes, I have given INR 9,170 crores is home loan and INR 1,238 crores is this.
The next question is from the line of Jignesh Shial from Emkay Global.
Yes, hello?
Mr. Shial?
Am I audible?
Sir, your voice is on a lower side, can you please...
Yes. Now is it better?
Yes, sir.
Yes, sorry. You see there had been a decline in ECL provision. Can you give me the numbers of ECL provision, please?
Yes, see -- if you see the -- yes, this is Sudipto here. ECL provision for the quarter, there is a reversal. The reversal is INR 3.14 crores. And if you see for the 9 months, there has been a decline from INR 406.99 crores in the 9 months of the previous year as compared to there is INR 247 crores (sic) [ INR 247.21 crores ] this year.
Okay. And any reasoning for the reversal would be? What...
Actually, if you look at it, the ECL provision of the previous year is actually based upon the delinquency at that point in time, and after that, there were couple of accounts where we had receipts of resolution. So to that extent, it will not be required.
Okay, okay, understood. And moving towards your liability front side, so have you been -- what will be -- have you done any -- getting refinancing from the NHB, has that been any incremental coming out from there? Or the picture -- some left is what it had been earlier? Just little detail on your liability breakup?
On the liability front, in the third quarter, we have raised almost INR 20,000 crores in terms of nonconvertible debentures of various finance and we have also raised the commercial papers. This is almost -- for the quarter, it is INR 9,000 crores, equivalent to INR 9,000 crores. And the retail deposit will be around INR 1,000 crores. Apart from that, we have raised money from the banks, in a line of credit as well as term loans from banks we have withdrawn. And as far as the NHB refinancing is concerned, there is an application, which is -- I would say, almost been approved. So that will come within a couple of days.
Okay. And this INR 20,000 crores NCD, what could be the cost?
The cost -- the average cost was a little less than 9%. Because most of the high-cost funds, which we have raised in the first few weeks of October were in the excess of 9%. Today the same rate would have come down to almost 50 basis points. At least 40 basis points.
Okay, understood. And what will be the movement on yield term? Has there's been any hikes given during the last quarter? Or how is that on your lendings, eventually?
On the lending side, October, we had increased the rates on the retail home loans by 10 basis points. Then again, 1st January, we have increased on the retail side by 10 basis points. That is the home loans by 10 basis points, and on the builder loans as well as on the non-home loans that is the LRD LAP, we have increased by 20 basis points. So of this financial year, the total increases on the retail individual home loan book, which is till now almost 80% of the book, that total increases have been to the tune of 70 basis points.
The next question is from the line of Akash [ Jethani ] from HDFC Securities.
My first question is on the developer book. So given the current development, how do you see the develop book issuance? Is there any stress that's building up? While I know that you have done about 5 to 6 recoveries as you said, but what is your sense on this?
No. Overall, I mean we have been following up reviewing the each impact in each and every big or small developer loans very closely, especially with view to whatever was the liquidity position squeeze during Q3. And going further ahead, we would not want to also and currently, we are not expecting also, any of the big accounts going into default.
Okay. And my second question is on competition in both the individual loan and LAP space, so home loan and LAP space. So how do you see it from other HFCs, NBFCs and banks?
No, it's 7%, nothing has changed much, I would say, even in Q3. Because home loan front, we've been getting most of our growth -- better growth from Tier 2, Tier 3 cities. And central, eastern, some parts of southeastern parts of the country. And there, the competition level has been at the same level. For LAP and other things, probably, if we see rate wise also, the HFCs are placed at par. So competition wise, I mean -- it's at the same level. Banks, of course, have been more active especially in Q3. One factor which would interest you is that especially in Q3 our number of cases, amount of cases, which were taken over by other HFCs, it went down by 25%. And overall for the year also it has gone down by about 18%.
Okay. [ Do you mean ] year-to-date?
The takeovers.
The 5% number?
Balance transfer, yes, is.
The next question is from the line of Bunty Chawla from B&K Securities.
Just need 2 data points if you can share with me. The incremental -- what is the incremental yield on assets currently?
What -- other data?
Incremental cost of funds? What's...
Incremental cost of funds for the 9 months is 8.38%.
8.38%
And for the first 9 months, incremental yield on the assets is 9.94% -- 9.95%.
9.9%?
Annually. Yes.
Okay, sir, okay. It is for 9 months. Yes, exact.
And same for 9 months. Yes.
Okay, sir. And sir, can you share -- there has been a slightly increase in the gross NPA levels on the individual part. Is it something, can you share on that? On a Q-on-Q basis, sequentially?
Yes, gross NPA has gone up, but the contribution has, by in large, come from the retail real estate. And we are confident that it'll be [indiscernible] no actually specific things are -- nothing was observed that it's coming from a particular area, or the particular segment, something like that. The project has not contributed there.
Right, right, right. Sir, lastly, now it seems to me liquidity is slightly better currently in this quarter. So what will be the approach because we have seen some cautious approach in terms of disbursement on the individual portfolio in Q3? What will be the sense in Q4 for the similar?
No. We have been cautious when I made this statement. It was especially with regard to the takeovers that we are being approached for. Otherwise, whatever we were doing it, depending on our SOP, our underwriting standards, our due diligence, we will continue disbursement at the same level.
The next question is from the line of [ Anethan Sarkar ] from Principal Asset Management.
I have 3 questions. First, I see this line item called net gain on derecognition of financial instruments under amortized cost category. So if you could just help me understand what exactly this refers to in derecognition of financial instruments? That's the first one. The second one is that in your notes to accounts, I see in the second point you've said that there is a loss amount of modification of loans amounting to 14 -- INR 15 crores for 9M, FY '19 and around INR 160 crores for 9M, FY '18. So is this amount for 9M, FY '18 included only in the third quarter number? Or has this been recognized across the 9-month period? That's the second question. And the third question is regarding a sharp increase in the proportion of floating rate loans on your book from 82% to 93% in the third quarter. So is this because of conversion of fixed to floating rate loans, which were given 3 years back. And if yes, then what proportion of such loans still remains on your balance sheet?
So we'll start from reverse order. We are having the fixed to floating composition as of now most of the offtake, which is happening, is happening on the floating rate side. We do have products on the fixed and semi-fixed but most of the preferences would be floating rate side. So I mean almost entirely you can say whatever new business is getting originated is happening only floating rate side. So that is the composition.
Yes, I got that part. What I was meaning to ask is that what proportion of these loans still remain...
Yes, I'm completing it. So very small portion of the conversion is left almost, I'd say, it's almost not there. It will be less than couple of percentages. Because whatever those convertible loans we are given earlier were fixed to floating converted loans. We had stopped distributing those loans about 3 years back. So whatever was the residual, I think, not even a couple of percentages will be there for this. Now coming to your other query regarding that few changes and few new line items which you would have seen in this quarter as also in the couple of last quarters. It is because of the transition from the Indian GAAP to the IND AS. Now as per the IND AS, all loans, all home loans or any kind of loans will be treated as a financial instrument. And wherever any of the terms and conditions of those financial instruments are changing, that gain has -- gain or loss whatever has to be appropriated. In that particular quarter in which the change would have happened for the balanced period of the loan. For example -- and this is actually more in terms when the rate of interest had been going down if you recollect in the last calendar year of 2017, there was a huge reduction in the lending rates following lot of rewriting request that we receive from customers. Because obviously, there was a lot of, I would say, the interest rate trajectory was downward going. So when that has happened, the loans were rewritten to a lower rate of interest rate as per the IND AS one will have to actually account for the reduction in the earnings on that financial instruments for the balanced part of the life of that loan. And it has to be taken in the quarter in which it will be taken. So most of it would have happened in the end of Q2 or Q3, from which that accounting had to be done in the previous year's corresponding quarters. So that is the genesis of this particular line item. And thus coming to the other question that you have regarding the derecognition of financial instruments, see here under amortized cost category rating. Under the IND AS, what happens that, earlier there were certain costs and incomes, which we were accounting in the year of receipt. The incomes were processing fees, which we were collecting from our customers in the year of receipt it would be accounted. And similarly whatever in expenses we would have incurred for originating these loans. And which can be directly attributable to these specific loans like, for example, commission paid to the intermediaries or agents originating the loans. So those earlier were accounted in the year of receipt, under the IND AS that has to be amortized. So as and when those loans get prepaid or closed, the unamortized part, the one which is amortized but not yet accounted for will have to be taken in that particular line item. These are the changes, which have been required because of the transition from the Indian GAAP to the IND AS. And probably one would expect that over the next 1 quarter, once the full quarter results under IND AS have been rolled out, next year, the numbers will be, I think, much, much more smooth and more comparable.
Sure, sure, sir. Just on the part about the modification of loans where the amount was INR 159.78 crores for the 9-month period, so had it been -- has it been recognized across the 9-month period? Or has it been recognized in the third quarter of...
It is 9 months, actually. For the full 9 months, it has been invested. This was a new requirement of the accounting standards.
The next question is from the line of Kunal Shah from Edelweiss.
So firstly, in terms of the NPLs and GNPLs on the individual category, was it from LAP as such? And how has the LAP portfolio behaved within the overall individual side in terms of asset quality?
No, it's -- as I said before also it's the contributing -- the rise is basically home loans also. LAP also the levels are around the same. It's slightly higher than the home loans. But increase is not due to -- only due to LAP, we mean the home loan portfolio has also contributed to that.
So what is it, 0.93%? So how do we break between the home loan and the LAP currently and compared to Q2?
See, actually, the 0.93% is on the entire retail piece, but if you desegregate it, of the individual home loans and the non-home loans, it will be around, sir, 0.8...
0.7%.
0.76%, so it's to almost 0.8% for the home-loan piece, the individual home loan piece and probably to that extent, the non-home loan piece will be slightly more than 0.93%. Because the weightage for home loans is much, much greater.
Yes. And how was this in Q2?
Q2, also proportionately 0.93% think.
Okay. So maybe 11 bps, 12 bps increase that's coming both in home loan as well as maybe [ some retail ]?
Yes, yes, yes.
Okay. And in terms of incremental cost you highlighted for the 9 months, if you look at it in terms of the incremental cost, what is it? And in terms of the mix of the borrowing, what we look today in terms of NCDs, banks and all, so how will it be the proportion changing?
Yes, actually, if you look at it for the first half, for the first 6 months that is April to September because of certain, I would say, regulatory changes on the bond market, electronic bidding system, the bond issuances were almost nil. Actually, it was not there. But from 1st of October, the bond issuances have been quite strong and despite the tightness in the overall market, we have been continuously issuing bonds of every single teller and at benchmark prices, literally. So that portion of the borrowing will continue even in Q4. In Q4, we will probably also look at more in the retail deposit side. As far as the Commercial Paper is concerned, you would recall -- recollect that in the second quarter earnings call, we had said that at that point in time, the Commercial Papers were 9.2% of the total liabilities, and we had given a very clear guidance that by December, we will bring it to around 5% level. And as of now, it is exactly 5%. So there is a specific headroom available there, also. And we have not faced any issues in raising money from any of these markets. Additionally, we are also exploring some other avenues, for example, we are working on an external commercial borrowing with some of the banks. So if the banking, et cetera, fits in we might, also, go in for that in the next quarter or in current, that is Q4 or in the first quarter of the next year.
Okay. And between bonds and banks, how are the rates today? Incremental borrowing cost?
We are still receiving money from the banks at PLR plus -- MCLR plus 0 spread. So that continues. And average, if you look at it, the banks MCLR will be in the ballpark of around 8.4% to 8.5%. In terms of bond markets, NCD is at the shorter end, about 10 days back we had done a short-term issuance at around 8.5% coupon. That was about a 2-year paper. We have done a 10-year paper after that, around 8.75% or 8.8%. So I would believe that the yield curve will remain within that range. That is as far as the NCDs are concerned. Shorter end, the cost of fund has come down significantly. In the early parts of January, we had done some Commercial Papers for about 2.5, 3 months, which we had raised at less than 7% to 6.85%.
Okay. Sir, in terms of margins, given cost is coming down and we have raised the rates as well, so there -- are we expecting the improvement and where should we see it settling down now?
The margin improvement, if you look at, on the spread side there has been a sequential improvement of 6 basis points year-on-year, 15 basis points improvement has been there on spreads. And the trajectory certainly points towards improvement. And it is also reflected by the signs that net interest income growth has been fairly in the third quarter.
And lastly, in terms of this resolution on the corporate accounts, does the current real estate environment delay the further resolution, and maybe when we were expecting the recovery. So obviously, it's delayed a bit, but were we nearing or maybe in a very advanced stage. And now -- maybe because of the environment it might not happen for another quarter or a 2?
Actually, for us, in one of our major accounts where we are expecting recovery, it's not held up or they're getting delayed because of the environment. It has got into a legal tangle. And other than that, it's okay. I mean resolutions have not been affected by this or our company at least.
See, the resolution takes time. Because of the legality and all that associated challenges, it takes time. But the underlying security, still, I would say is, I mean the value has not depreciated on the underlying securities, rather I would say that probably the value of the security underlying has increased or appreciated. And it actually is brought on by the fact that in the one resolution that we had been able to do just a couple of quarters back, we had been able to recover not only the full principal but also a good portion of the interest.
The next question is from the line of Abhijit Tibrewal from ICICI Securities.
I had a couple of questions. So firstly, I wish to [ review ] the opening remarks. The last 20 bps hiking in lending rates affected, was it last quarter or this month?
No, see, current fiscal for 9-month period ending 31st December, we did 4 rate hikes starting 1st of July. So till 31st December, we had done -- we'd made a hike of total of 60 basis points. So Q3 was the first quarter in which the advantage of this full 60 basis points hike the company could get. We have made another hike of 10 basis points starting 1st January. So now it is 70 basis points total during the current fiscal.
Okay. And to just a follow-up on your ECL provisioning. If I understand right, last quarter your Stage 1 provisioning was around INR 279 crores, which has come down to INR 4.7 crores now. Similarly, Stage 2 provisioning, which was INR 111 crores is down to INR 1.9 crores now. So the impression that I get is, I mean Stage 1, Stage 2 provisionings have become insignificant now, and most of it has moved to Stage 3, which is why we see a slow -- there's actually no provisionings in the quarter as there are write back of INR 3.1 crores. So how is there such volatility from INR 279 crores down to INR 4.7 crores, Stage 1?
Yes, I will explain to you. In the second quarter, that is the September quarter, there was -- if you recollect in the call, also we had mentioned that the difference between the NHB provisioning and ECL provisioning, we have not returned back to the P&L but we have retained in the books. That we are very clearly indicated that there was the -- ECL provisions were much less as compared to the provisions that we were holding on the books as per the NHB provisioning norms. At the time we had allocated it to each of these stages. Because there was no specific formula for splitting it into specific stage. Now in this quarter, what we have done the same provision, we have reallocated within the 3 stages and obviously, the bulk of it will naturally get into a Stage 3.
Okay, all right. I recalled it, yes. So just a follow-up on that as well. While Stage 1 and Stage 2 are INR 4.7 crores and INR 1.9 crores respectively, translating into a 2 bps, is that the level of provisions that we need for Stage 1 and Stage 2?
Yes. See, actually, that is one thing which has been arrived here after utilizing the formula. The formula has given this result. So we have applied that actually. As modern player -- a player -- and that is the result of this model.
I get that. Okay. And just a few more data keeping questions. So what were the yield on advances in Q3? You've already shared 9M numbers.
I do not have specifically for the third quarter in terms of -- you want the cumulative or the incremental? Incremental...
I want the cumulative Q3.
Cumulative as on 31st of December, on the entire book, the total -- the yield on the retail side was 10.25% and on the project was 13.45%.
13.45%. And what was your quantum of incremental borrowings in Q3?
Incremental borrowings as I share with you. About INR 20,000 crores we have borrowed from NCDs, about INR 9,000 crores we have borrowed from Commercial Papers and that is about close to INR 29,000 crores, about INR 1,000 crores from public deposits. And banks also, we have received, but we have repaid also to the bank. So that will be net about say INR 2,000 crores to INR 3,000 crores.
So we received in the third quarter and we repaid it back away?
Yes, yes, yes.
Okay. And would you be able to share your net worth and the balance sheet side as on December 31st?
Total assets in terms of home loan was INR 1,81,698 crores. The full balance sheet is not required to be published for another 9 months. 6 months is the published and audited numbers, which will there on record.
And similarly for net worth as well.
Yes, yes.
Okay, all right. And just one last thing. This quarter, didn't you have a -- published the split between your interest income on individual loans and project loans? Will you be able to give the same split for the last quarter?
Yes, I think I should be able to give that to you as well. You want for the September quarter, right?
For the September quarter, that's right.
Let me see, if I. Abhijit, I will share it with you separately.
[Operator Instructions] The next question is from the line of Digant Haria from Antique Stockbroking.
Yes. Sir, what would be the lowest home loan rate that you've given to a customer?
When?
Recently.
No, but during quarter, it was lowest mean -- it's as per the published rates only it's 8.80%.
Okay, 8.80%, okay, sir.
During Q3.
Okay, sir. And sir, one more question is, when will we start our -- accelerating our disbursement from INR 9,000 crores that we have in our individual home loan?
No, I didn't get your point.
Sir, the home loan -- disbursement in the home loan that has been for INR 9,000 crores for last couple of quarters. So when will we start accelerating that figure?
No, we would like to take it much higher. But home loan as it is, the growth rates that we're experiencing from 2, 3 big metros is very muted. And for some of the quarters like Q4 quarter usually this INR 9,000 crores goes up substantially. Substantially, I mean say, maybe INR 12,000 crores or something. So this Q4, we should be able to do INR 11,000 crores, INR 12,000 crores.
The next question is from the line of [ Preeti ] from UTI Mutual Funds.
Sir, my question is on the asset quality. So if you see our increase it has almost tripled since March '17 and of course, on a low range. But we have seen this trend sustaining for 3 quarters now, so that trims out any seasonality factor. And if you see yourself and production has also come down to 14%, and we have not observed this trend especially in the standard salaried plus or any other NBFC. So is there any specific to LIC or especially address the center of state government employees? And also the question applies to LAP as well because our [ part inflation ] have suggested that is a very safe LAP and some INR 12 lac ticket size and very low LTV.So why are we observing this trend? And why is [indiscernible]?
No, the 2 points I would like to make. Number one is that -- yes, it has gone up, and there are 2 opinions about it. But it start as I said earlier also, it starts specific to an area or a segment like that. We have, in fact, improved upon our recovery mechanism, also. The reviews have been more, the regionals bits have been called for -- however, monitoring people also. But still it's going on, and still, we expect that probably Q4 we may see a reversal of things. The non-home segment also, the ratio for that segment is higher than the home loan segment. And together they are giving me a ratio of 0.93% as on 31st of December.
Sir, but what do you attribute this to? Was it -- like there was that slip off in the underwriting process that we followed in last few [ years ]. I mean how should we see this?
No, it's not that. I mean I can't say that there is a problem of job generation or job continuation or something like that. We've -- that we are not attributing this to anything of that sort. But the fact remains, of course, that on the -- still in our salaried class also though the delinquencies have not been that high, that much. But as compared to previous levels, it may have gone up. It can be in some cases because of some temporary financial problems, it's more like a case of a delayed payment.
The next question is from the line of Piran Engineer from Motilal Oswal.
Most of them have already been answered but I just want a couple of clarifications. You mentioned you raised INR 20,000 crores via NCDs and INR 9,000 crores via CPs. That's for third quarter or for 9 months?
That is for third quarter.
See, that case what is the sort of liquidity are sitting on, on the balance sheet because on an average, repayments of borrowings of INR 6,000 crore, INR 7,000 crores offer. Annual loan book has increased INR 5,000 crores sequentially? So by -- are you sitting on excess liquidity of some INR 20,000 crores or so?
No, no. That is not the number. It is actually a small fraction of that number. Because what we have used is that, we have utilized those borrowings to actually retire some of the bank loans that we have taken.
Fair enough. So how much of your borrowings would you have repaid in this quarter?
So borrowings that we have repaid down during the quarter will be around INR 15,000 crores to INR 18,000 crores.
Okay, that much?
Yes.
Okay. And the second thing is on the builder loan, how much is to like the corporate balance sheet and how much is to [indiscernible]?
Mostly, I would say corporate balance sheet, we don't lend.
As in term loan.
It is only to the SPV level, which is construction-linked finance.
Okay. And how much of it is residential versus commercial?
95% will be residential.
94% plus 6% to be exact.
The next question is from the line of Amit Nanavati from Nomura Securities.
Just wanted to check on the modification adjustments again. So just would you explain, was basically with the correction in interest rates you effectively it's a NPV hit that you would have taken in the base last year? Would that also mean that this quarter -- this year with increasing rate and plus the benefits also flowing through of that NPV launch, you -- the margins to that extent would be overstated? Is that a fair thing to think?
Unfortunately, no. Because principle of conservatism says, that you factor in for all possible dilutions and losses but don't take credit of any gains.
Okay. But as you increase the rate, so you are getting the actual realized increase, and you took the negative impact in the base itself, right? So otherwise, you would have had an offsetting force in this quarter of some correction in rate and then recent hikes in rate.
No. You have to only -- if it is a negative or it's a decline in the future earnings of a particular instrument. That has to be a factored in. That has to be accounted for.
And what happens if you increase rates afterwards?
[indiscernible]
Okay. And secondly on...
It's actually, you have to understand that, where the P&L movements happen. It's a contractual, right. So it is in the contract itself that when rates go up, the P&L can go up. If the rates come down, it will come down. But when there is a rewriting which happens it is actually than the customer comes forth and he says that he wants a low rate of interest otherwise he will exist. So it is not within the contractual increase or decreases. So that has to be specifically factored in. And no customer will come in and say please increase my rates.
Correct. Nobody would be increasing rates, any which way, right?
No, no, no. But that is as per the contract of PLR.
Okay. And secondly, so the builder's book -- builder NPV is down by INR 2,000 crores so I have mentioned that there has been a INR 60 crores of recovery. What is the balance which led to reduction? And what is the interest recognition which sort of happen during the quarter?
INR 200 crores is not the number.
No is it?
No.
INR 763 crore to INR 703 crore.
Okay, then it wouldn't be large anyway in interest.
Yes.
The next question is from the line of Bhaskar Basu from Jefferies India Ltd.
A couple of questions. So firstly on the loan growth. So as I think someone earlier asked. Loan growth has been muted so far and even this quarter you have attributed it to prudence. But going forward in the current environment, how do we see disbursements moving? Are you likely to see any benefit from some of HFCs kind of facing issues? And how do you think about it?
Now going forward Q3, as I said before also, we are targeting, working hard to show a loan growth for Q4 in the range of about 15%. This would be very high and really challenging looking to the fact that last year Q4 was a period where we showed a very high growth rate and the volumes were also large. As far as taking benefits from conditions of some of the HFCs as I said before also, the market perception that they are not disbursing is not correct. They are not disbursing the riskier segments that they were entering into earlier. So that segment is open, but we're not there in that segment, we are also and now also we will not venture into the riskier segment. We are considering on big volumes and big growth rates in the home loan segment per se, and especially in Tier 2 and Tier 3.
But even within home loans your growth really has been muted. And I understand about the next quarter. But on a 12-month view, how would you think about it? And also, in terms of mix now that the perceived risks obviously of the project loans have gone up. So how do you think about your mix going forward?
The home loan segment, if I see for the 9-month period, the growth rate is in the range of about 8% to 9%. We are -- where -- in the home loan segment, we have been concentrating and showing good growth as far as the affordable segment goes. Last year for the year, we had disbursed about 22,000 number of loans. Current year, as on December only we have crossed 23,000 numbers. And amount wise also, last year, the affordable segment had a share of about 7% overall. Currently, as on 31st December, the amount per share is about 14%. The mix, as you asked, project loans last year, year-end, we had ended it around a 5% share of project loans. Currently, it is at 6%. Going ahead also, we do not intend to raise this ticket much ahead. I feel that it'll end at around the same percentage as in third [indiscernible] months.
Okay. Second question is on the slippages which we have seen. Is there any vintage? What could be the vintage of these loans, which are slipping or Is varying? Any specific trend around that? Are these recent loans? These are older loans?
No see -- no big additions have come to this thing. Whatever are there, they are about 3-year, 4-year, 5-year old loans, which are already there. So we, again, haven't observed any trend as such.
No, I mean the slippages which we saw in the retail portfolio in this quarter. Yes, I am referring to that. So are they -- I mean what would be the vintage of these loans? So are these loans, which you kind of disbursed over the last 12 months or 24 months?
They are about 2 to 3 years.
Okay. Any reason you could attribute to that?
We are seeing -- I mean as I said before also, very regular follow up is that we're -- it's more of a delayed payment sort of a thing.
Okay. And my final question is on this net loss on derecognition of financial instruments. Now as you've explained that whenever basically the lending rates were kind of reset lower, you have to take the loss. But even this year, I mean, I would understand that's the case last year when generally you were lowering the loan rate. But even in this quarter, there is almost like INR 135 crores. I would not think you would have written down any loans, I mean basically resetting loans lower, lending rates lower during the quarter. So what explains similar number this quarter?
This similar number is INR 14 crores, it is there in note #2.
No, if I look at the P&L, [indiscernible] yes, it's about INR 14 crores versus same as INR 14 crores last quarter -- last year as well. It's almost the same number.
Yes. Yes. It is INR 14 crores only.
Yes, INR 14 crores but it is same as last year as well. So while last year you would have kind of reset to...
Yes, there has been some interest, [ corporate ] interest. In terms if you look at it for the 9 months, the number has come down significantly. For 9 months, the number from INR 160 crores has come down to INR 14 crores or INR 15 crores. So that actually is -- there are some -- still some loans which have been at a higher levels especially in some of the very good builder loan cases. So there have been some requests which we have exceeded, too.
No, sorry, in fact, the number is INR 135 crores, isn't it for this quarter?
It is INR 14 crores. If you see the Note #2, I think we can discuss it separately. Because if you see the Note #2, it is very clearly INR 14.93 crores as against INR 159.72 crores.
No, I'm just referring to the [indiscernible] release wherein P&L, you have this net loss of derecognition of financial instruments under amortized cost category?
Yes.
So there is this INR 135 crores -- INR 135.6 crore number there.
Yes. That is actually -- that is, I think, part of the provisioning also, which was there because of the ECL changes as I mentioned. There are some ECL changes, which have happened for the -- between the second quarter and third quarter. So that is what is reflected here.
And minus INR 3.14 crore is basically what you have referred to...
Incremental, incremental, incremental.
Okay. So this is not pertaining to the loan reset assets?
No, that is there in the Note #2, Bhaskar. And which you will find in the initial statement also.
[Operator Instructions] The next question is from the line of [ Abhishek Modi ] from [ Asset Meta ].
My question is regarding to NIMs. NIMs have been dropping a bit. So any idea with regard to that?
Yes, sorry, can you please repeat yourself? I missed it.
The NIMs, net interest margin have been dipping. So any idea because I think it was 2.58% a year ago, now it is 2.33%?
Yes, I will share with you. Actually, NIMs because of the changes in the income recognition were pursuant to the IND AS. A year-on-year comparison may not be actually accurate. But if you look at sequentially. Sequentially, for the first quarter, it was around 2.33%, if I'm not mistaken, which increased to 2.35%. Now it is 2.33%. If you look at between the first and the third quarter, the loan book growth, which was in the range of 15% to 15.5% has actually gone up to 16.4%. So though there is a fairly healthy increase in the net interest income, it is not getting reflected in the net interest margins because the asset growth has been higher as compared to the earlier quarters. In fact, the asset growth is highest in almost 3 years. So that is the reason where the NIMs are not reflecting? But if you actually look at the reported spreads, you will find that there is a fairly healthy increase on a year-on-year spread by 15 basis points. And also on a sequential basis by 6 basis points. So I think one has to look into all these 2, 3 things together.
The second question is, a part might have been answered, with regarding the retails. I think if I'm right, majority of your loan is -- loan portfolio is retail? Correct, sir?
Yes.
But with regard, I think somebody had asked that the NPAs have been -- instead of in retail, the gross number going hasn't been increased? Now is it because if I would look at self-employed the sector category retails have been nonperforming, or the other? What is exact?
So I think we have replayed this some 2 to 3x during the call. But actually, there is no specific trend vis-Ã -vis employment or geography.
Sir, but the why the general basic...
More and more it is in the nature of some delays other than hard-core chronic delinquencies.
Sorry, I didn't get the delay?
Delay rather than a hard-core chronic delinquency.
Delayed -- delay in payments, certainly.
The next question is from the line of Nischint Chawathe from Kotak Securities.
This pertains to this net loss on modification of loans. I'm just curious how does this really fit in the balance sheet? And what would be the accumulated amount that's on debt?
The net loss on the -- you are referring to Note #2, right?
Yes, yes. I am saying that I understand what you did last year and there was some impact this year as well. So I am just saying that this is kind of more of a notion entry, so.
It is a notional entry basically. You're right on that. It's basically a notional entry because it is -- it's basically required because of the IND AS norms only.
Sure, so how does it sit on the balance sheet?
It is actually...
What is the accumulated amount on this [indiscernible]?
Accumulated amount, I would believe that most of the -- going by the actual loans behavior. Majority of the rewriting pressure was eased by the first 9 months itself, right. So all residual will be there for the fourth quarter.
No, no, what I'm trying to say that what -- how much would be -- what -- how much amount of this would be sitting on the balance sheet, right?
It is not a balance sheet entry per se. It is not going to be a balance sheet entry per se. It is actually notional kind of recasting if you look at it in the IND AS. We continue so if you look at it, look at the reconciliation, which is provided in this table. That will give you the net impact of it. So only the balance -- the net of the opening and the closing will reflect in the balance sheet.
Sir, opening at what would also be lower this is obviously for the quarter. But you're opening at what would also be lower to that extent because of it?
Yes.
And any quantum you can share as to how much quantity?
Right now we don't have a quantum to share. But this is the 9 months figure, which is being there.
Ladies and gentlemen, that was the last question for today. I would like to hand the conference over to the management for closing comments.
Thank you, everyone, for participating. We are now looking forward to a good Q4 number ahead. We are concentrating on good disbursements, especially in the home loan segment and there also we will be concentrating more on growth on the affordable housing front. The second points under consideration and action is the deduction in GNPAs during Q4. As was said during the conference also, we were not and we will not be really aggressive in the project loan takeovers in Q4 also. At the end of the year, we are looking forward to portfolio growth in excess of 16%. The income levels should also continue to -- will also continue to go at the same level because as I said, we have done a 10 basis point hike in PLR as on 1st January 2019, also taking it to a total of 17 bps hike during the current fiscal, which should help us in improving our income also. And consequently, because we have currently floating assets in excess of about 80%, that should also help us in getting more income. Thank you, guys. Thank you for joining the con call.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.