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Ladies and gentlemen, good evening, and welcome to the 1Q FY '19 Earnings Conference Call of Repco Home Finance hosted by HDFC Securities Limited. [Operator Instructions] Please note, this conference is recorded.I'd now like to hand over the conference to Mr. Darpin Shah from HDFC Securities. Thank you, and over to you, sir.
Thank you. On behalf of HDFC Securities, I welcome you all for the first quarter financial earnings call of Repco Home Finance. We have with us Mr. R. Varadarajan, MD; Mr. Yashpal Gupta, COO; Mr. T. Karunakaran, the General Manager; and Mr. S. Balaganapathy, Assistant General Manager. Now I would like to hand over the conference to Mr. Varadarajan for his initial comments. Over to you, sir. Thank you.
Good evening, everyone, and a very warm welcome to Repco Home Finance Limited earnings conference call for quarter ended June 30, 2018.We achieved a double-digit growth with the loan book even as the demand environment in our home market remains subdued, owing to the combination of macro and state-specific factors. This we have already discussed many a time again. It's heartening to know that non-Tamil Nadu geographies are performing very well. To quantify what I am saying, where the Tamil Nadu order book grew 7% only year-on-year, non-Tamil Nadu order book grew 20%. This growth was backed by healthy growth in sanctions and disbursements of 22% and 28%, respectively, in Q1 and past quarters.I will hasten to add that this is the first time ever we have sanction and disbursements over INR 700 crores in what is generally a seasonally weak first quarter. Total repayments continue to be [indiscernible] at 20%. However, analysis suggests that in the housing segment, the repayments are[Audio Gap]INR 50 lakhs LAP segment, they are about 30%. So even though we are maintaining a ratio of 80% housing and 20% LAP at the time of disbursements, the actual book grew -- not nearly reflects this. You see, it is just a matter of time before our high ticket LAP book runs down and we start seeing growth in overall books. As most of the LAP loans are concentrated in Tamil Nadu, repayments in Tamil Nadu are 22% as compared to 17% in the rest of India.During the quarter, we had a spread of 3.2% and a PAT growth of 9% of INR 60.90 crores. Our operating costs were higher year-on-year, given higher business promotion and legal expenses on account of actions taken on the SARFAESI. Cost to income ratio for Q1 stood at 18.4%. We expect this ratio to be around 17% to 18% during this year. During the last quarter, we have repossessed a number of properties using SARFAESI rules, of which reoccurred accounts for this INR 3 crores, without taking any write off on [indiscernible], We repossessed some more [ of it ] during Q1 FY '19.The company has adopted Ind AS, the new accounting standard, from Q1 FY '18. As for the same, the total provision for expected credit losses stood at 0.70% of the entire book. We had appointed E&Y to help us in this transition. Total provisions carried in the balance sheet are in excess of 2% of the total loan book.The balance between our exposure to the self-employed segment and the salaried class stood at 57.3% and 42.7%, respectively. The share of nonhousing loans in the loan book decreased to about 18.2% from 19.6% a year ago, as we continue to realign our focus towards small ticket loans and stayed away from high ticket nonhousing loans.Capital adequacy ratio continues to be comfortable at 33.2%, comprising entirely of Tier 1 capital. Our retail network comprised of 140 branches and 23 satellite centers, which we expect to expand furthermore this fiscal. We increased our employee strength to 843. Now I will summarize the key financial highlights for the quarter and year ended June 2018 before opening the floor for Q&A. Income from operations stood at INR 1,286.9 crores, up 5% in the last year; net interest income was INR 114.3 crores, up 8%; PAT rose to INR 60.9 crores, up 9% from the previous year; loan book increased to INR 10,074.5 crores, registering a growth of 12% year-on-year. Retail home loan grew 14%, while retail nonhousing loan grew 4%. GNPA stood at 3.96%; NNPA at 2.39%, resulting in a PCR of 40.5% which improved about 8%. Sanctions and disbursements were up 22% and 28% sequentially, and stood at INR 758 crores and INR 703.9 crores, respectively.Thanks, all of you, for joining the call. We would now take your questions if you have any.
[Operator Instructions] The first question comes from Mr. Nidhesh Jain from Investec.
Sir, on the growth aspect, if we, like, to compare your growth excluding high ticket size LAP, which I think we have defined at INR 75 lakhs and above, how are the disbursement growth Y-o-Y and how is the loan growth Y-o-Y, removing 75 lakhs and above for LAP ticket size loans?
See, during this quarter, we have not done any loan above 75 lakhs. But at the same time, those figures, what was done in the last quarter -- I mean, first quarter of last year, that data is not presumably available. But if we remove that, the growth will be definitely more than the 28% that we are showing, overall growth.
But what -- what are the share of more than 75 lakhs loans in the last year?
For first quarter, there is nil.
Current quarter is nil. Last year, Q1?
I don't think this is not readily available, but growth will be higher than 28% if you include that.
Sure, sure. Secondly, on the asset quality -- the asset quality seems to be quite stickier than what we had -- going to be anticipated. Any color on asset quality, especially in the LAP and self-employed segment that we are seeing?
See, generally, the asset quality you see historically, that is what they traditionally are [ booking ]. But in Q1, the asset quality goes down, and then again it improves in the Q2. And if you want to have a breakup of the asset quality, then in the housing loan salaried segment, it is 1.5% gross NPA. Overall GNPA is 3.97%, but in the housing loan salaried segment, it is 1.5%. Housing loan nonsalaried segment is 3.8%. In the home equity segment, it is 6.8%. So most of the NPAs are in the [ last ] segment, which is 6.8%. Overall, housing loan segment is 3%.
Yes. So that's quite a bit -- if you look at the asset quality last year, so our assumption is that this year, given we have seen growth coming in non-LAP segment and that [indiscernible] of salaried had been going up. The asset quality on a Y-o-Y basis, there has not been an improvement in the hardline number.
You're right. There is not much improvement. And that is what -- in fact, we had an issue because of the Q1. But the good thing is that our large [indiscernible] are always very low, though asset quality goes down, because we actually follow the -- strictly the NHB guideline of 90-days definition. So technically, many of the accounts become NPAs, but then because we have cash flow issues in the Q1. But then in the Q2, with the cash flow -- their cash flow improving, they're in a better position to repay, and then asset quality again improves. And that is why -- I never mentioned in the opening remarks, that when we go by the NHB guidelines of restrictive provisioning on NPA, then our provisioning is almost 2.1% of the total asset book. But if we go by the invested actual including the 0.54% provision on the standard asset. But if we go by the expected loss under the Ind AS, it's only 0.7%. So while we are conscious of the asset quality, but as far as the impact on the P&L is concerned, there -- actually, good thing is that we don't expect a huge impact. In fact, we expect only a nominal impact on that.
Yes. And just lastly, what is the stage 1 and stage 2 PCR that we have on the ATM?
Right now, what I'll tell you is that our stage 3, as you know is -- NPL which is 4%, it's INR 398 crores to be precise. As far as stage 1 and 2 are concerned, what we have decided is that because these are part of transition phase and we will evolve this audit readout next 3 to 4 quarters. So we have taken better numbers. But then at the same time, we think that as of now, these numbers we don't want to disclose for the time being, because we are refining those numbers over the next quarters. And probably by the end of the month, we will have clarity. At that time we'll be in a bit of position to disclose those.
The next question comes from Dhawal Mehta from Somerset Capital Management.
Sir, my question is again on this transition to Ind AS. Now I -- is it fair -- just, you mentioned that the probability of loss given default is quite low in your case because you have the security and the mortgage and so on. So is it fair to say, therefore, that as you transition to this new system[Audio Gap] Ongoing basis, your credit cost should actually structurally go down, and to that extent, in the past, just given the guidelines, you have kind of been overproviding for it. So my question is more long-term in that, do you expect that this new system which takes out any kind of ad hoc decision-making you had, wherein you may or provide it, actual provisioning costs will structurally go down longer term?
You're right. But first is that I don't think it is sensible at all. That will be probably unfair to our regulators, RBI and NHB. It was descriptive, whereas all these [indiscernible] to provide for 20% [indiscernible] also being 40%, like that. Even [indiscernible] our security is good or bad, it's up to our customer if they can pay or not pay. What we are doing now is that we assessing the case by case, and we have divided them into different buckets as to what actually we expect to recover from those accounts. And of course, [indiscernible] so to that extent, I will say also a lot of subjectivity goes into that. And that is why we have taken E&Y's help. We are still evaluating. We have divided our existing loan books into different buckets and also at different stages, as your previous questioner was asking. And we are also then taking into account our past method of recovery, our security available and also the macroeconomic factors so that we have some part future-looking things also. So those things we are doing. But yes, we always knew that provision has roughly existing guidelines, which was descriptive in nature, was slightly more conservative -- if that, what I'll use the word -- then Ind AS, which is more realistic. But this is good for us --
So sir, with Ind AS, it is fair to say that the provisioning will be directly related to actual past experience in terms of what percentage of loans go bad and what is the probability of loss given default? So in some sense, does that number will now be purely -- pure arithmetic? Is that a fair assessment?
It's a fair assumption, except the housing private company. Because our loaning is entirely collateral-based, and generally our value of security is 125x, 150x. Sometimes it's 200x. But the Ind AS, which are into non-collateral lending, they are impacting as [indiscernible] was.
Sir, I will just -- specifically referring to housing finance companies, even [indiscernible] you are very -- you have strong collateral. So in some sense, therefore, the -- given the probability of loss, given default [ is lower ], your provisioning costs should come down?
Yes, you're right.
The next question comes from Siddharth Singhvi from Centrum.
I just wanted to have some idea on the high-cost NCDs. Are they repriced?
No, there is nothing to be repriced because we don't have a reset clause. But they are going to make sure, if to that extent, there is a reprice because there is [indiscernible] replace their lower cost borrowing. They are going to be due for -- implemented from August onwards or if [ RERA ] pricing, this February.
Okay, okay. And I wanted a split of nonsalaried and salaried disbursements.
Bala will give you that.
Yes, it's INR 383 crores and INR 321 crores, respectively, salaried and nonsalaried.
Okay. And just one last question, what are incremental spreads now?
Just hold on for a second.
Yes, sir.
Lending rate is 10.3% overall.
Okay. And cost of funds?
8.4% also. 8.3%, 8.4%. 8.3% and 10.22% is today, somewhat 3%, 2.9% roughly.
The next question comes from Mr. Digant Haria from Antique Stockbroking.
My question is, sir, what is the yield on our non-Tamil Nadu housing portfolio and on the Tamil Nadu housing portfolio, are they incrementally leased for both of them on a blended basis?
They are generally the same actually, historically. To be frank, the data is not presumably available, but as far as the incremental yield is concerned, they are the same. Because we have introduced the concept of minimum blending rates, and we are doing this base pricing. So they are the same historically, because it is quite possible that Tamil Nadu loans are quite high -- because we started with Tamil Nadu. So historically, most of the order loan book is from Tamil Nadu. That must be high. But exact data, we don't have Tamil Nadu shared with you separately.
Okay, okay. And in all these new geographies where we are seeing strong growth, like, can you just -- sir, like, I remember a year back, we said that in Maharashtra, despite us being in Maharastra for almost 7 years now, almost 90% of the book is still salaried. Sir, what about the other states, sir, except Tamil Nadu, like, what would be the salaried, non-salaried proportion outside Tamil Nadu?
Again, the exact number we don't have. But yes, to that extent, you are right. In Maharashtra, Gujarat and in Madhya Pradesh, there we have grown in last few years only. Their salaried book is as high as 90%. Maybe apart from Tamil Nadu, in all geographies where we are present for many years like Karnataka or Kerala, their salaried percentage over nonsalaried will be higher.
The next question comes from Sneha Ganatra from Subhkam Ventures.
Sir, first is on the loan book. For the full year FY '19, where do you see your loan book? Can we expect a loan book growth guidance and -- which is similar to our FY '17 numbers? Second question is the outlook on the spreads considering the competition prevailing at the housing and incremental cost of borrowing is also elevated, where do we see your [ spreads ]? And third question is on the cost-to-income ratio.
Okay. So one is as far as the book side is concerned, the guidance we have given is that we are looking for about 20% growth this year. And since we started with a base of INR 9,860 crores, so target is close to INR 12,000 crores, maybe slightly lower so somewhere within INR 11,500 crores to INR 12,000 crores. And as we made a statement in the beginning that our repayment rates including prepayment is about 20%. So for achieving 20% growth we have to do 40% disbursement. And 40% disbursement of INR 10,000 crores will be roughly INR 4,000 crores. Having disbursed more than INR 700 crores in Q1, we are quite confident of achieving this INR 4,000 crores target by the year-end. That is on the book side. Now second, on the overall spread, as far as it is concerned...
Sir, when you're saying 40% disbursement, it did not come in INR 12,000 crores and you want to achieve a INR 12,000 crores target. You have to disburse 50%, 50% for the next 3 quarters, then it is possible to achieve your INR 12,000 crores target considering the repayment of 19%.
No, seriously, you are right. You are looking at repayment at Q1. But generally, what happens is that it also -- that repayment of Q1, sometimes we are not sure what the [indiscernible] rate is [ retailing ] in the loans or we are targeting our budget sales that -- or estimate sales, and the total repayment of INR 3,000 crores will be about INR 2,200 crores. Now for achieving about INR 2,000 crores growth. We need to have disbursement of INR 4,000 crores or INR 4,200 crores in that range. These are the numbers we are working with as of now. Of course, it's being --
And sir, also -- if I'm doing the cross-math also, then it is it reaching -- or disbursement should be more than 50%, 55% during next [ week ] or --
50% of what? 50% of what?
Y-o-Y basis, I'm saying, for example.
Yes, Y-o-Y basis, you are right, it should be -- in fact, it should be almost -- we have taken 50% only fee, last year our disbursement was INR 2,800 crores. And still, we are targeting INR 4,200 crores. So obviously, on Y-o-Y basis, our growth target is also 50% if you go back that way.
Got it. So and the --
Yes. This is the overall spread. As far the overall spread is concerned, we are confident in maintaining, though the incremental spread is slightly lower. But we feel that interest rates are peaked. Of course, we don't know what will be dollar effect and if RBI is increasing the rates again suddenly. But as far as overall cost of borrowing is concerned, we can have resource of borrowing. If you see, even December and June, it has remained almost unchanged, maybe INR 10, INR 15 increase, not a substantial increase, not like [indiscernible]. So the lenders are also slowly passing on the rates to the -- lender's [indiscernible] to us. So we don't see our cost of borrowing going up significantly. Plus, as we mentioned past quarter, we [indiscernible]. So that should result the [ overall costs ] -- plus the lending already increased from 8.3% to 8.75%. That is why [ 45 ] this year in the last 4 months. So we don't see a significant drop in the spreads. We are quite confident that we'll be able to maintain it at 3% or plus. Plus, mind you, there is one thing, that the [indiscernible], despite being 3% or 4%, as the [indiscernible] will go down, that is how much we can book. So overall, we are quite confident of 2 things, the incremental book growth we expect to be around 20%, maybe 1% here and there; and spreads should be about 3% by the year-end.
When you're mentioning incremental growth of 20%, of which -- growth is from the non-Tamil Nadu only?
No. In fact, most of the growth will come from not entirely from non-Tamil Nadu. As [ Kar ] mentioned, the first quarter, the growth in Tamil Nadu was 7% and growth in non-Tamil Nadu was 20%. But probably, that is only maintaining. In fact, the 7% has to grow a little higher. But obviously, majority of the growth will come from non-Tamil Nadu.
Okay. And then same in the salaried, non-salaried and more of the LAP fund also, how the growth will be coming in this?
Yes. The real mix is common across the states.
Okay. Got you. So -- and [indiscernible] on the cost to income ratio?
Yes, cost-to-income ratio, as [indiscernible] mentioned, [indiscernible] in this first quarter because we have increased the dependence on DSAs. So there was a large DSA cost and also these other sourcing costs. Now under Ind AS, under the effective interest method, actually we have an option of apportioning that cost against the processing fee and rest of the year, yes. But because of -- it was done for the first quarter, so we are showing that separately as an administrative cost. That's why cost had gone up, which is 18.4%. But going forward, we are in discussion with auditors that this DSA cost is a direct sourcing cost, which should be reduced from the processing fee to arrive at year-on-year. So to that extent, then we are quite confident that in the next 3 quarters, the percentage of cost will be lower. And we expect around 18% overall.
Okay, but it's similar to Q1 numbers, right?
Q1 numbers is slightly higher than similar. Similar is like [indiscernible] times 4%, we expect to it to be around 18% throughout the year.
Yes. Sir, my last question, just mentioning -- that you're mentioning that INR 4,200 crores disbursements, so we are very confident we'll be able to achieve 50% growth -- Y-o-Y growth on the disbursement front, right?
Percentage growth is always a function of denominator. Last year, 2018, [ cause we thought ] was quite low. So we are quite confident.
Considering the base also, we are very confident we'll be able to achieve 50% disbursement growth and repayment of 20%, 22% and INR 4,000 crores target of [ Tamil Nadu ]?
Yes, as of now we don't have any reason to revise it.
Any correction in the real estate prices or any slower demand are you witnessing in any of the geographies or anything?
That is, Tamil Nadu is also our major challenge.
That I know. Apart from that, any other geographies?
No, the geographies -- no. Maybe Kerala to some extent but not much otherwise. In fact, all other states have grown very well.
The next question comes from Bunty Chawla from B&K Securities.
My query is that you said you guided for 20% loan growth for the FY '19, and being in Tamil Nadu, 60% of the portfolio. And what we are observing is still Tamil Nadu is going under the lingering effects of sand mining and land registration. So what's your view on that, sir?
Honestly, what -- all the areas [indiscernible] we are seeing [ 3 months ] [indiscernible] we are seeing some improvements. We can't say that the situation, what was there last year is still relevant today. Even today [indiscernible] of the -- there should be no [indiscernible] new sand mining.
Sir, your voice is breaking in between.
Now you are able to hear?
Yes, yes, sir. Please, sir.
So the government of Tamil Nadu is -- they are also in [indiscernible] because all the housing finance companies [indiscernible] taken up with government also. And they are putting all their efforts to see that their sand is available. We only hope the improvement will be there. And regarding land registration, in the last month, we saw some good improvement in the registrations. Something is happening there. And regarding our third factor in real estate pricing, there are -- some symptoms are there in the positive way than the last month. So we only hope the 7% growth is actually very low growth in Tamil Nadu. That has only impacted more on growth up to 12%. We only hope this 7% should improve at least to some 10% to 15%. And other areas will be even more growth than this. We'll be able to achieve what we have targeted, the INR 4,000 crores to INR 4,200 crores that's [indiscernible]. We are very, very constantly monitoring on the branch from [indiscernible] on the side.
Okay. So our expectation from Tamil Nadu, around 10% to 15% in line of rupees.
Success should be overall 20%. Tamil Nadu should be 50%.
The next question comes from [ Kasia Jureli ] from [ NJ Global ].
Just wanted one data point. What was the disbursement number in Tamil Nadu in this quarter? And what was buying rate growth in the disbursement number, only for Tamil Nadu?
This quarter was INR 390 crores. [indiscernible] Y-o-Y growth I'll just tell you, one second.
INR 380 crores.
See last Q1 was INR 380 crores. This Q1 was INR 390 crores, so it was marginal growth.
[indiscernible]
Sorry, sorry, the disbursement -- sorry. Disbursement [indiscernible] last Q1, disbursement was INR 327 crores. And this Q1, disbursement is INR 353 crores, so normal in industry. I think positive not negative.
And what was this Y-on-Y growth in Q4? I don't want the number but just pure Y-on-Y growth in Q4.
Was INR 437 crores was up. We don't have the number of [indiscernible]
The next question comes from [ Branchi Misha ] from [ Amorsel Securities ].
So [ Branchi ] here. Just wanted to understanded in your noncore markets, what are the sourcing mix between DSAs and in-house sourcing?
Just now, DSA general, those [indiscernible] in the first quarter. When you say noncore, I don't understand what you mean by noncore. But all around [indiscernible] sanctions are INR 758 crores. [indiscernible]?
[indiscernible]
10% to 15% only.
Noncore earnings, I mean, sir, non-Tamil Nadu market. What...
No, now we are actively [indiscernible] Tamil Nadu also. But see -- but probably non-Tamil Nadu market, if you look at the INR 758 crores, also that INR 390 crores were up from Tamil Nadu sanction. So non-Tamil Nadu was INR 268 crores. Out of that INR 268 crores, exact number right now, we don't have. But maybe around INR 80 crores or so must be DSA sourced. But that is probably going to increase somewhat going forward.
Okay. So if that is going to increase, so how do you expect the cost to income to flat around that 19%, sir? What gives you that confidence?
Yes, because the -- as per the Ind AS, the difference in -- as you might be aware that under the Ind AS, we are to [indiscernible] interest rate method, where the only [indiscernible] INR 100. Suppose we collect 1% fee, under the old accounting [indiscernible] we will book that 1% as an income. And supposedly, we have 0.5% to the DSA, then the 0.5%, we will book that as an expense, correct? But under the Ind AS, we'll show that [indiscernible] fee, and 0.5% of [indiscernible] fee that is cost to somebody else. So actually, we have disbursed, net amount is 99.5 and on that, supposedly [indiscernible] is 12%, then we are getting INR 12 or [indiscernible] You are close [indiscernible] over a period of time to apportion with income and cost. So right now in the first quarter, the [indiscernible] we like to see that DSAs are not linked to -- versus loan account. So that's [indiscernible] is going on, that's why we didn't do in Q1. But going forward, once we are able to link the DSA cost to a particular loan account, then rather than becoming a part of the operating cost, it will be apportioned over the life of the loan. That fee income were largely booked in the first year. Fee income will be apportioned over the life of the loan as the income. Same with the sourcing part if we are able to link it with the loan accounts will also be amortized over the life of the loan.
Right, sure. And the second thing I want to ask you, sir, your NHB borrowings have come down on a Y-o-Y basis. So any specific reason? And how do we look at NHB refinancing going forward?
Two things. Number one, the NHB borrowing cost, there's an increased interest rates. Therefore, this not avail under general scheme. Under rural scheme, we have applied. We are awaiting the refinance. But again, in -- well not in [indiscernible] but there's one earlier. On the repricing, for 3 years, they have actually repriced on a higher rate around 9%, 9.2%. That's why we have prepaid around INR 165 crores is prepaid. Because the overall for the cost, even if it is very competitive to us and beneficial to us, just for the sake of awaiting refinancing, never do that. [indiscernible] constantly look at it. If it is beneficial, we will avail; otherwise, no. So now -- as of now, unless you availment of the rural scheme, other things are not -- very costly. We will not avail that.
The next question comes from [ Utsa Agarwal ] from [ Investors Capital Group ].
What is the ticket size in housing and nonhousing segment?
One second. [indiscernible]
Incremental.
Yes, for housing, this is 15.4 lakhs; for nonhousing, it's 16.6 lakhs.
Okay. And secondly, you mentioned incremental yield is around 10.2%. And incremental cost of fund is 8.4%. Is it correct?
Yes.
8.3% is [indiscernible]
The cost is around 8.1%. Incremental cost is about 8.1%. And the incremental yield is about 10.3%.
And your guidance for straight is around 3% for full year.
Yes, that's right.
So is it like we expect improvement in the spread over the next couple of quarters? Or this is usually a [ week ] in terms of spread...
No, no, no, 1 minute, 1 minute, please. The spread that right now, we gave you, is incremental spread. That is only for the book size that we linked in the Q1. But our guidance is for this overall book size. So historical returns are still much higher for us. And we have the ability to pass something else. [indiscernible] other lenders are aware in the housing finance, we elect to do it, our [indiscernible] take a call in a day or 2. And definitely, we will take into account the spread which is expected there. Because our overall guidance, we would like to maintain that.
The thing is, yield -- just to add one more thing, just to bring clarity. The incremental yield is 10.3%. That is in term yield-only loans disbursed during this quarter. But our average yield of the outstanding loan is 11.44%. Hello?
Yes, yes.
Yes, so average yield on the outstanding advances book as on June 30, is 11.44%. So it's almost 1.15% difference.
The next question comes from Mr. Kunal Shah from Edelweiss Securities.
So this is Prakhar. A couple of questions related to Ind AS. What was the impact on the net worth that we saw because of this transition? And can you provide a reconciliation of the same?
Well, there is some confusion I guess. There's only positive impact on the net worth. See, if you compare the value given the [ PPT ] with the value given the [ PPT ] for March. Because while earning is net worth, we didn't defer finance cost and defer tax assets from those in surplus and share capital.
Okay. And sir, in terms of your overall target of reducing your LAP book, of higher-ticket LAP book, is there anything to read into in terms of higher competition? Or that is a conscious call that you have taken in terms of reducing your higher-ticket size LAP book?
So that [indiscernible] we have taken for 2 reasons: What our experience in last couple of years was that higher-ticket-size net loans, which are doing well, they get prepaid and taken over by others. And those who are not doing well, they continually add up to our NPA book. That's why we say -- that's why we do the conscience call. Have to remind you it's a conscious call but not really a [ performance ] improve or our internal systems, we are able to improve and we again get the confidence of having the big-ticket-size LAP loan and retain them in our books. We may restart again, but that's a conscious call taken by us our us, our board and our management.
Okay. Sir lastly, sorry to repeat from that. Lastly, when do you see the Tamil Nadu issues waning off? How do you see them panning out?
Tamil Nadu, when will it improve?
Can you repeat?
Sir, I'm talking about from Tamil Nadu perspective. When do you think this issues, which are currently been similar to Tamil Nadu, will wane off over a period of time? When do you think that these get resolved?
I think it should be during the course of this year itself, it should settle down. It's what we are expecting. Because you are seeing Q1 of last year, and Q1 of current year, there is some positive improvement. The degrowth is not there. There is a growth. And we are seeing on the field, the improvements are still there. That was what we expecting during the course of the year before the year-end. Things should settle down and then normalcy should be restored.
The next question comes from Bhaskar Basu from Jefferies.
A couple of questions from my side. Firstly, could you just explain where -- which segment do you kind of use DSA more? Because typically, DSAs are in the higher-ticket-size segments. So...
Well, for us, the model that we have, because of our loans, we do not change our business model based on [ ticket size ] requirement. So we use DSA basically based on geography. In Tamil Nadu they are lesser. In Maharashtra, in Gujarat, they are much more prominent. But otherwise, there is loans that [indiscernible] our requirement, our ticket size nonstandard books.
So even for those 14 lakh or below loans, you basically use geographies?
Yes.
Okay. And secondly, in terms of brand expansion, what's your plan? I see you've added about 3 branches in the last quarter. For the full year, what's the target?
We have a target of about 10 to 15 branch, total. While we're [indiscernible] 3 branches, we have also [indiscernible] satellite centers. So some of the satellite centers, we have upgraded to full, 12 branches.
Okay, standard around 10 to 15 branches.
Around 12 branches is what is our target today.
Okay. Thirdly, on the yields, you mentioned that your average yield of the portfolio is about 11.5%, 11.4%. And what would that be for the housing book?
Yes, for the housing book, it is here. Sorry, it's INR 10.8 crores. For the LAP book, it is 14%.
14%. So in this context, I mean, considering that the housing book portfolio is already at around 10.8%, how do you really expect to raise the yields in response to increasing interest rates? Because the back book is already priced high.
As I told you, we don't expect our incremental cost to go up significantly. Maybe it will go up by 10 to 15 [indiscernible] today 0.1 is incremental cost, with an average cost of around 8.2%. We don't expect it to be above 8.5% at worst. We expect it to be around 8.4%, 8.3% by the year-end. We don't see 3% as a challenge.
No, but if you have an incremental lending yield at around 10.3%, and your housing -- and your cost of borrowing on your incremental book goes toward 8.5%, how do you really expect [indiscernible]
No, but we have a LAP books also, the 14% also noise. There's still...
No, but this is already a blended yield you're talking about, isn't it?
Blended yield is 11.44%. Blended yield is 11.44%.
On an incremental basis.
No, no, on outstanding basis.
But on an incremental book, what's the blended yield?
10.3%.
10.3%.
For June.
So 10.3% is your incremental yield you're generating on your new loans, and your cost of borrowing on new loans is about 8.5%...
No, no [indiscernible] 8.1%.
8.1%, yes. In that context, I mean, the spreads are not -- it's still below -- well below 3%. And on the margin, probably your cost of borrowing will go up. While you may not have enough headroom to raise yields on your back book.
See, what I am telling is like this, that our spread right now is 3.2%. Now our incremental lending spread is lower. You are right, like the 10.3% minus 8.1%. So about 2.2%. But -- so that will definitely bring down our average trend, but we are confident of maintaining it at the 3% for number of reasons. One is that the NPAs will improve. They'll go to standard. So whatever income we were not able to book on those, we'll start booking in term of that. Because, as you know, if in standard then they become booked income. That will, in that end, at least continue to contribute to an improvement. Then if there's a cost increase, we'll be able to pass on the cost increase to the customers where we have a system of revising the interest rate. So even the existing loans will get repriced. We have a system of repricing them every 6 months. So they will also get repriced. So factoring all that things, we are quite confident for the entire year, we'll be able to maintain 3%.
Just one clarification on this NPA. Because under Ind AS, you will be allowed to kind of book income on -- even on your NPAs, excluding the...
We're allowed to book, but that is only to the extent of net of provisions. [indiscernible] entire bucket. And the interest that you are booking is only the accrued interest minus net of provision. And of course, in that segment, provision is quite high and of course, while -- as I told you [indiscernible] but generally, the provision on that [indiscernible] probably more than the accrued interest also. We don't know. That has to be -- I mean, we cannot share that right now. But once [indiscernible] improves and they coming to a spot in second bucket, then we can book 100% of the interest. Are you getting me?
Right, right. Okay. And my final question is on the asset quality. You are well back to the levels like last year, when you went through a phase of demonetization, registration ban, and there are a lot of headwinds around you. So 12 months have passed, and we're basically back to square one in terms of asset quality. So just wanted to understand what's really kind of holding back the asset quality there. I mean, I understand the seasonality. But on the margin, things would have improved over the last few quarters considering there were no demonetization or those issues.
See, demonetization and GST and Tamil Nadu, a few related issue, there are multiple factors because our customers, they are mostly old customers. They can see there very high segment of [indiscernible]. So when we are dealing with cash, even though demand-driven [indiscernible] are out of the picture, but [indiscernible] continue to be difficult. And as I told you, what we are seeing is not that they are not paid, but we cannot upgrade them because, as per [indiscernible] once an account becomes NPA, we cannot upgrade them unless they clear the entire [indiscernible]. So they are paying partially, [indiscernible] we have from all sides started putting pressure on them by going [indiscernible] by telling that otherwise, we'll simply assess then their assets [indiscernible] settle. I agree that, that is a challenge to us also. And the management that we have done is that at the ground level, probably especially [indiscernible] segment, their cash flow situation continues to be tight. And then, and yes, here, we have to take 90 days easy cut off. So even if there are many accounts, I can tell you that our account, INR 398 crores, there are many accounts, which are just 91 days -- or 92 days rather because due date the 31st March. So there are many accounts which are 92 days, sir. By 2 days, they become -- be NPA. And then what happens, unfortunately, because this is EMI concept. So even if they could pay partially the money, [indiscernible] technically for 92 days. There are a lot of issues around that [indiscernible], and we are -- as a management, we are fully conscious of the fact that these NPAs are quite high. And we have to exit them. And we're addressing them, and we're quite confident of improving the situation in coming quarters.
But what makes you hopeful about it? Because as you mentioned, most of the things are almost the same as it was.
Oh, what makes us hopeful is that one, we have started taking earlier our approach. For us more of relationship-based approach, where we will tell the customer, "Okay, sir, you will pay. I'll -- give me, sir, 1 month. You give me 2 months, I'll pay. Now we have started to be tough. In fact, during the quarter, we said we have taken [indiscernible] actions [indiscernible]. We have taken [indiscernible]. We are going forward and assessing their properties. We intend to sell. So what else changes? That we have also become more aggressive in recovery, plus we have now set up a dedicated collection and recovery vertical, where we are following over the customer from day 1. So what has -- what gives us confidence is that we approach -- change our approach. And simultaneously, sir, when our approach [indiscernible] example I'll give you. Suppose you are an endangered borrower. [indiscernible] income was 1 lakh. Now you have a dozen liabilities. You have to pay also your children's -- pay tuition. You have to pay to somebody else. And you have to pay also the finance also. Now your income has come down from 1 lakh to 75,000 or 50,000. Now you said [indiscernible] the last, because it will also give you time. But now the comment sit on your head then, obviously, the form finances become [indiscernible]. So that is what gives us confidence.
[Operator Instructions] The next question comes from [ Shrivda ] from [ Trabudasli Lader ].
Just to clarify my doubts. So did I hear it correctly? The business sourcing expenses in this particular quarter have not been netted off against NII as per Ind AS? Is it true?
You're right. The gross.
Okay. Sir, so going forward, the very fact that we are largely dependent on DSAs in the non-Tamil Nadu markets, and incrementally the growth should be coming from the non-Tamil Nadu side, and had it not been for Ind AS, so what would our cost income pan out going forward under I-GAAP?
Now of course, I-GAAP, now we are not going to calculate. We are going to calculate only Ind AS. So probably going forward, we will, as I told you that it was the first quarter that we have calculated, and we are going to refine ourselves going forward. For the full year, we expect -- unless Ind AS now says no I-GAAP for us, I-GAAP will be only for providing to [ NSV ]. And for the Ind AS, we expect it to be around 18% for the whole year.
So actually, I should have reworded it. So structurally, things are not changing. We still have higher OpEx, right. Is it because of the Ind AS accounting change is why we are going to see C/I ratio normalizing around 18% level?
Well, it is not because of -- sorry to say but your statement is right. But it is not right also. I'll tell you why. Because while we will adjust the operating cost [indiscernible] fees, your fees will also be apportioned over time. So it was not Ind AS, we will have shown higher fees also, and that the higher fees would have resulted into higher net profit. So it is not that I think because of Ind AS things are going to significantly change. We are saying that -- and to be frank, that figure is about 70 lakhs. So we are saying that 70 lakhs for the first quarter. Maybe what we are trying to tell you about INR 2 crores or INR 2.5 crores depending on how it goes. That's only a portion over [indiscernible] life of the loan. But same thing, when we get about INR 25 crores of fees, that will also be apportioned over the life of the loan.
Okay, okay. Okay, fine [indiscernible]. Secondly, sir, you just mentioned almost 400 cases have gone under SARFAESI. And under SARFAESI, cases exceeding INR 1 crores are eligible, right? And currently, our G&A...
Not INR 1 crores, 1 lakh.
1 lakh.
1 lakh.
Okay, okay, 1 lakh...
[Operator Instructions] The next question comes from Jay Modi from Emkay Investment Managers.
I just had one bookkeeping question. Can I have state-wise disbursement number for this quarter?
Yes, just 1 second. Yes, it is INR 44 crores in Madhya Pradesh, INR 42 crores in...
Can you hear?
Yes.
Yes, INR 42 crores in Telangana; INR 32 crores, Gujarat; INR 133 crores, Karnataka; INR 22 crores, Kerala; INR 56 crores, Maharashtra; INR 53 crores Tamil Nadu.
Yes. And the best answer, rest of the states are about INR 20 crores also, based on [indiscernible]
The next question comes from Mr. Nidhesh Jain from Investec.
Sir, what is the stock [indiscernible] property that we are holding after...
INR 40 crores.
And whether they're included in our GNP or not?
Yes, it is part of the GNP. It is part of the GNP. We will not net it up.
And that will be the last question for the day. I now would like to hand over the conference to Mr. Darpin Shah for closing comments. Over to you, Mr. Darpin Shah.
On behalf of HDFC Securities, I thank the management team of Repco Home Finance for their valuable time and insights. I also thank all the participants. Thank you.
Thank you.
Thanks a lot.
Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. Thank you for your participation, and for using Door Sabha's conference call service. You may all disconnect your lines now. Thank you, and have a pleasant evening, everyone.