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Thanks, Margaret. Everybody, I welcome you all to the 3Q results of Repco Home Finance. With us we have Mr. Varadarajan, Managing Director, and the entire management team of Repco to take us through the highlights of the quarter, followed by Q&A. Over to you, sir.
Thank you. Good afternoon, everyone, and a very warm welcome to Repco Home Finance Limited Earnings Conference Call for the Quarter ended December 31, 2017. In the quarter gone by, the following dynamics played out simultaneously. We got the loan approval for well over INR 750 crores. Even in a suppressed demand scenario, it is an unprecedented year, and even more than what we achieved in the seasonally strong Q2. Asset quality improved year-on-year but moderated sequentially. Competitive intensity was cut through with the prepayments ratio touching the 20% mark, again, in the quarter gone by.We continue to face challenges of Tamil Nadu state-specific factors like high sand prices, which impacted our cost-conscious and river sand preferring borrowers in the silt construction space who choose to postpone construction after loan sanctions and continuing delay in regularization of layouts impacting resale of plots. To give you some perspective, silt construction [indiscernible] 56% of the housing loan book. Now, let me spend a couple of minutes to give an update on how we are tackling the aforementioned challenges. Madras high court passed an order in December to ban sand quarrying in Tamil Nadu and to allow import of river sand from foreign countries like Malaysia. Although the cost of imported sand is likely to be 1/3 of the cost of the local sand price, Tamil Nadu ports don't have the bandwidth to handle supply of sand needed for the construction activity of the entire state. This order to ban sand quarrying was stayed by the Supreme Court last week, taking cognizance of the needs of the state. While uncertainty still prevails, we hope sand quarrying will pick up, resulting in moderation in the prices and improving the availability. To improve our competitiveness, we've recently launched a new home loan product at competitive rates for AAA-rated salaried customers. This will not only boost our disbursements in Q4 but also attract technical savvy customer's attention towards Repco Home Products, who had historically glazed over us just by looking at the starting rate, notwithstanding the ability to borrow at the lowest rate. This scheme's also improved visibility on online home loan quotients. Also now with market interest rates hardening and spread differentiated between AAA-rated bond papers and banks' MCLR rates gaining, it will limit the ability to our competitors to offer a finer rate of interest. And entity like Repco Home, whose market-borrowing facilities are rated AA, but bank-borrowing facilities are rated the highest [indiscernible] bank. Internally, we'll stand to benefit in a scenario where [ win ] rates are at par with bank rates. Now I will give you the performance highlights for the quarter gone by. During the quarter, we earned a spread of 3.2% and a net interest margin of 4.6%. Our operating costs were marginally up Q-on-Q on account of spends on advertisements, brand building, to boost off-line and online visibility, and also [indiscernible] proceedings that we initiated on chronic NP accounts, and also on account of ad hoc provisions for actual reevaluations of employee benefits. When considered for entire 9 months as a whole, OpEx is under control at 16.8%. Revenue, net interest income and PAT numbers for Q3 FY '18, although not strictly comparable weighing to the effect of regulatory forbearance in the last base year, grew 5%, 18% and 4%, respectively, compared to Q3 FY '17. Sanctions and disbursements rose 70% and 31%, respectively, over the previous year numbers. Our focus in the next quarter will be on, among many things, improving the asset quality, which will result in a marked improvement in provision coverage ratio, which stood at about 45.5% at the end of December 2017. The balance between our exposure to the self-employed segment and the salaried class stood at about 59.2% and 40.8%, respectively. The share of nonhousing loans in the loan book decreased to about 18.9% 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 22.3%. Our retail network comprised 129 branches and 31 satellite centers, of which 3 were opened this year. Now I will summarize the financial highlights for the 9 months ended December 2017 before opening the floor for Q&A. Income from operations stood at INR 822.2 crores, up 7% from the last year. Net interest income was INR 312.2 crores, up by 18%. PAT was INR 149.5 crores, up by 14% from the previous year. Loan book increased to INR 9,490.4 crores, registering a growth of 10% year-on-year. Retail home loans grew 12% while the retail nonhousing loans grew 1%. GNPA stood at 3.7%, NNPA at 2.05%, resulting in a PCR of 45.5%. Thank you, all of you, for joining the call. We will now take your questions, if you have any.
[Operator Instructions] The first question is from the line of Nidhesh Jain from Investec.
Sir, in this quarter, we have seen some increase in our operating expenses, both from the employee side and other operating expenses. Is there any one-off? Or it's a regular increase in the OpEx that we have seen.
Nidhesh, we've increased our strengths on business permission and advertisements. And also there's an increase in legal fees [indiscernible].
Ladies and gentlemen, it seems we've lost the line of the management. We request you to stay connected while we join them back to the call. Thank you. [Technical Difficulty]
Yes, my question was on the operating cost, both on the employee cost and other OpEx. Why it has changed -- why the growth has been so high for this quarter?
Okay. I'll answer you. See, as far as the employee cost is concerned, we normally do, in the fourth quarter, some actualization and then make provisions. The same what we do, we made the provision in the Q3 itself on an adult manner. Therefore, in Q4, that will not be necessary to make provisions for the employee's cost additionally. And as far as the other one, that is more advertisement and marketing cost is concerned, so we wanted to be aggressive in the third quarter for improving our presence in the silt and also the increasingly -- our disbursement. That's where we spent more. That [indiscernible] expenditure may not be there in the fourth quarter. And again, if you come to the securities, so in respect of chronic accounts, we initiated [indiscernible] action. Actually, recovery cannot happen formerly in that quarter itself. We are expecting the recovery to be in the current quarter, but we spend the money on the advertisement and legal fees for that. So that is the reason, therefore, we know this increase in the OpEx may not be there. We're not expecting it in the fourth quarter.
And sir, what is the growth guidance for next year and this year -- this financial year?
This financial year, now we are targeting to reach the level of [indiscernible] that number. INR 10,000 crores we would like to reach during this financial year. We are working on it. And so for the next financial year, already -- the last time we said we told, it will be 20-plus.
For 20-plus growth, I think we would need to do a disbursement growth of around 30% to 35%.
Right.
Seems to be a very tough task given the momentum that we have seen in the company right now.
No. It's within the last 2 quarters. We have been disbursing or sanctioning around INR 750 crores. So this quarter, our [indiscernible] needs to do at least around INR 1,000 crores. So from next year -- next Q1 onwards, if you're able to around that, I think it is doable.
Okay. And how is that -- and you mentioned in the opening remarks that you are now focusing on AAA-rated borrowers. So what sort of rates we are offering to those borrowers?
Yes. AAA rated -- no. We're also offering at 8.30% as offered by other banks and the [ HSC. ] Because we cannot lag behind that, so we are offering only to the salaried customers, AAA-rated customers up to 75 lakhs.
Up to 75 lakhs. What portion of disbursement may be coming from the debt segment?
It may be around 10% to 15% in that category.
Okay, Sir. Okay. And just lastly on the incremental ticket size, if you can share the incremental ticket size in LAP and incremental ticket size in -- on housing loan?
Just a moment.
Yes, Nidhesh. In the last segment, it is 19 lakhs, 1-9. In the home loan segment, it's 15.6 lakhs.
Incremental ticket size?
Yes, incremental.
[Operator Instructions] The next question is from the line of [indiscernible] Finance.
[indiscernible] during the last con call, we said that we have a target of around 1,800 crores disbursement for the second half of the financial year. So we still sticking to that target or we have revised that?
[indiscernible] We have done the sanction of INR 750 crores in the Q3, and we proposed to do another 1,000 crores in Q4. So it's around INR 1,750 crores.
[indiscernible] In the last con call, we said we'll be targeting around 1,800 crores of disbursement. But because this year -- this quarter, the disbursements are a bit low, so to raise that 1,800 crores target, fourth quarter disbursement needs to be very high.
Yes. [indiscernible] we're creating headwinds right now in the form of sorting of sand. If that abates, yes, we'll be able to dispose all the backlog of sanctions.
Okay, so it is contingent on the sand availability, you're trying say?
Right, right.
Okay. And sir, second question is on or around other income. We, like in this quarter, other income is just around 1 million. So is this now can you -- if you can throw some light on that?
So last year, same period, we had received a dividend from Repco Home Finance. That is why that number is awfully high. But this year, we received the dividend the last quarter.
Sir, even in the last quarter, we had like around 20 million of other income, so even on sequential basis, it's very low.
Yes, that is because we had received dividend last quarter.
Okay. So last quarter, we had a dividend, and this -- and so...
Nine-month basis, it is more or less in line.
Okay. And this is not something to do with the processing fee? [indiscernible]?
No.
[Operator Instructions] The next question is from the line of Abhishek Murarka from India Infoline.
Sir, my first question is, you're targeting higher disbursements growth this quarter and, also obviously, part of it is contingent upon if that sand issue gets sorted or if it doesn't. But next year, again, you're targeting a much higher disbursement growth rate. So I just want to know what are the key 2, 3 activity -- changes that you would have made to your systems or to your processes to be able to get to that kind of disbursements growth rate?
[indiscernible] issue regarding sand. What we are doing is that we are -- as of now, our -- 60% of our book is in Tamil Nadu. So this problem is in Tamil Nadu. What we are doing is that we are geographically growing. We have already set up branches in states like Maharashtra, Gujarat and nearby areas, one branch in indoors, so we are going to geographically diversify, that is number one. And second is that we are also recruiting on Chief Development Officer [indiscernible] focus will be on marketing. So far, most of our customers, because of the segment we're addressing, they were walk-in customers. So these 2 specific missions that we have taken is to diversify geographically and, second, activate our sales team. And we believe that the rate at which industry is growing, and given our lower base, achieving this growth target should not be difficult.
So sir, just following up on this. If I look at your geographical breakup and I calculate the growth rate, even the key geographies like Tamil Nadu, Andra and Telangana and Karnataka, there is a slowdown. So this together will form something like 70%, 72% of your book.
You're right.
In fact, even Karnataka, so that's about 84%, 85%. So except Maharashtra, I don't see the growth rates holding up anywhere else. So it's not [indiscernible].
Telangana is near 19%. Gujrat is 20%. Other states, other [indiscernible] 23%. So...
What is 23%? The growth?
[indiscernible] hopefully that the situation is similar, will also remain unchanged.
Sure. So what I'm driving at is, sir, that this seems to be not just a Tamil Nadu issue because Tamil Nadu is 60% of your book, but the remaining 20%, 25% which is from Andhra, Telangana, Karnataka, even that is not growing fast. And Kerala is also growing at only 13% y-o-y. So if only 12%, 13% of your book, which is actually growing at 25%-plus. So what seems to be the issue in these 3, 4 states, which are your key states? Which is -- is it competition? Is it that you don't have enough branches or people and you need to increase your network there? What seems to be the issue?
For us, Karnataka is a concern. There also, we had some problem on [indiscernible] issues there. And also as you said the number of branches, in fact, we are now increasing the number of branches in [indiscernible] Bangalore, where we feel that we can improve the disbursements. But if you take the Kerala, Kerala, there is a problem of inordinate NRI. Most of the customers, they depend on NRI income. Since it is unstable, we thought that the quality gets affected whenever there is a problem in NRI. So we -- consciously, we decided that we will not grow very fast in Kerala. But as far as Andhra Pradesh [indiscernible] between Andhra and Telangana, Telangana is growing very well. Only if all of our branches are located in coastal Andhra and note that is, again, there is purely, depending on the agriculture, that is why we were not focusing on that. Now what we are doing is as far as Karnataka is concerned, we want to expand our presence there as well as the marketing team there so that we can improve our performance. And Tamil Nadu, once the issues are resolved, I think we have a good number of people here who can easily market our product in [indiscernible] because of our traditional base. On to Telangana, we are growing. I think we'll continue to grow in Telangana. And the other state, as my COO told you already, in the other states like Maharashtra, Gujarat and that, we want to improve our percents as well as improve our performance there. So putting all together, I think, we should be able to do what we propose.
[indiscernible] Andhra Pradesh, we are thinking of some [indiscernible] there coming up with a lot of new projects. So I am sure there also our growth should increase.
Okay. And are you also -- so all of the sourcing in home loans, will that still remain internal and through loan mela, et cetera? Or when you say that you want to set up -- improve your marketing and all that, you'll lose some other activities to...
So we have already enrolled DSAs on our roll. Really, about 10% of our sourcing is happening from DSAs.
In home loans?
In home loans, yes. And I mean, when I say it’s because we have a ratio of home loan and mortgage is almost similar, so overall, it's [indiscernible] 10%. And then we are hoping to enroll more DSAs so that, I think, will go up. Secondly, we are planning to settle specific sales teams. Right now, what happens is everybody does multitasking, so we have set up a business development team in corporate office. We are planning to put some officers only for the sales and business development purpose at regional offices and branch offices. So on the sales channel, we are doing all these things, that is, DSAs plus internal sales team.
We'll move to our next question, which is from the line of Bhaskar Basu from Jefferies.
Just a couple of questions. Firstly, could you give some update on the sand mining issue, especially regarding this whole Supreme Court interim order? So what exactly is the next step there in terms of the resolution process there?
We have to wait and see. [indiscernible] High Court of Medras, they stayed an order on sand quarrying itself. That's already stayed by the Supreme Court, therefore, now sand quarrying can take place here. But in between, when there was a proposal for import sand, again, they went into trouble because even Tamil Nadu government comes out with their [indiscernible] saying, all the sand which are imported should be sold only through the government. Again, that is a problem. That is why we're -- almost all the players in the industry are in dialogue with the government of Tamil Nadu to resolve the issue earlier so that they know the industry grows there. That is a problem for that [indiscernible] industry now. So I think it should be resolved very soon.
But is the Supreme Court stay an interim order? Or it's a...
It's an interim order. Supreme Court has given an interim order, staying the order of the High Court of Madras. Therefore, right now, as per the Supreme Court interim order, sand quarrying can take place.
Right, but -- sorry. But is there a next hearing or something because Supreme Court typically would not leave it at that. It will probably come up with a follow-up hearing on the issue as such because that's not normally the way Supreme Court kind of usually proceeds. So is there a next hearing on this issue? And if so, when?
No. For this, at least, they have not fixed the hearing date. It may not come immediately. Normally, it takes some more time, maybe some 3, 4 months to take for the Supreme Court to take up because they have stayed the order on an interim basis and asked the government to give their response. After that only, they will fix the next hearing date.
Response on which issues?
On this issue, on this issue from the government of Tamil Nadu. Because government of Tamil Nadu has given, they filed the petition so The High Court has stayed based on the public interest litigation there. That's what they have asked the response of the other parties -- responded.
Okay. Secondly, you mentioned that you, one, you are kind of looking to go towards the more rate-worthy; customers and also expand -- increase your growth in terms of other states. Is there a shift in the customer profile you're looking at generally? And if so, your spreads have typically been much higher because you focused on a certain segment of customers. And now with you kind of shifting towards more rate-worthy customer, would you see spreads kind of -- the mix changing going forward?
No. No. [indiscernible] to continue to maintain. As of now, the 3% spread we have maintained for this quarter also. So since there is a substantial reduction of it compared to last year and current year, we have reduced the cost of the fund to be [indiscernible] around [ 70 ] basis points, which [indiscernible] to the extent of [ 60 ] basis point to the customers. Therefore, the spread from last year's 3 to now 3.1. And we would like to maintain at level 3. So this offering of the lower rates as compared to the extent and not more than 10% of the customers. I think we should be able to maintain this trend [indiscernible] as there may not be any strain on the spread as of now.
And finally, with the interest rates kind of forming up, how do you see your borrowing profile changing? Would you kind of like it to stabilize in those other mix?
Since we're getting the lowest rate of MCLR from all the banks from whom we're borrowing, I think this quarter, we should be able to maintain that level. I think, incrementally, our cost of borrowing is around 8.05...
[indiscernible]
7.81%. An incremental is 7.81%, and we should be able to maintain that around that rate.
And going forward, what is the mix? I mean, would you like to keep the same mix going forward or ...
No, going forward, no since [indiscernible] get a better rate in the future. Otherwise, right now, we'll be borrowing only from the bank.
Okay. And just finally, in terms of the asset-quality increase, in terms of GNPA sequentially, was there any specific reason, per se? Why did we see an increase? Because a couple of quarters back, you have been saying that we'll see sequential improvement over the next few quarters.
Yes, yes, you're right. In fact, [indiscernible] when we brought it down, in fact our intention was from 3.4, at least we should come down to around 3, that was our aim. Because, sequentially, we want to bring down the NPA. What happened is, we found a lot of customers where they have marginally [indiscernible] 120 base brackets, there are around -- more than 50 crores, 90, not exactly 120, 90 and 120; and totally, overall, if we see 91.69 [indiscernible] in that bracket, almost 100 crores, which is very, very soft NPA which we can easily recover. Actually, we thought of recovering in the month of December because we were able to recover in the previous months based on the trend we were projecting. But we hope -- and that is the reason we're talking to the branches. We could not do it at the end, but subsequently, we collected in the -- January, in the month of January. So that has resulted in the higher NPAs to the extent of from 3.4 to 3.7 basis points. But still, we are very hopeful, because this INR 91 crore over 91 days to 120 days bucket, which we can easily recover, very soft bucket. And also focusing because [indiscernible] initiated a lot of service action during last quarter. You're aware that it cannot result in the recovery. It takes some time. We give a notice of 60 days, and after that, again, we have to call them and then go fix for the auctioning. Many times, if you get to auction, we get the recovery. But the process takes almost around 6 months from that day and many may come after 3 or 4 months. So during this quarter, we are receiving a lot of recovery, and that is why, as we told in the earlier conferences, our aim is -- for this quarter, we wanted to do around 3 and then the next quarter, we should be around 2. This was our intention, and we are working on it. Though, we have slipped in this quarter marginally from 3.4 to 3.7. Considering the type of NPA accounts, we should be able to clock at around 2% by the end of the year.
So the 2% target stakes, I mean, you...
We will continue to work on that target only [indiscernible].
[Operator Instructions] The next question is from the line of Rahul Ranade from Goldman Sachs. With no response, we move to our next question, which is from the line of Nischint Chawathe from Kotak Securities.
I'm looking at your loan repayment number, and this particular ratio, which is repayments as a proportion of opening loan book, this has actually gone up over the last 9 months. Just to put the number over here, your repayment rate was around 17.7% in '16. It was around 17% in FY '17. And over the last 9 months, it has gone up to like 21%. So I was just wondering whether you've seen higher prepayments? Or how should we look at these numbers?
[indiscernible] commercial bank. They -- that not able to do business [indiscernible] regular lending, so they're all going into the housing loan segment. And because their cost of funds is low, they are able to offer lower rates. So most of it is because of prepayments.
And you would incrementally say that this kind of trend continues for a while? Or any sort of outlook on this?
It is likely to continue. That is why what we have tried to do is, we have devised a strategy [indiscernible] mentioned that we are also offering [indiscernible] to reduce the rate to 8.3%. Of course, we select good quality customers. So hopefully, that will bring down the prepayment rates. Second is that, we are also now trying to aggressively take them from other banks by offering them at 8.3%. So this is rate war, it may continue for some more time, but with the hardening of rate of interest and credit growth in other segments, in the longer run, it will not continue, but for the next quarter-or-so, it should continue.
So you kind of consistently maintained your spreads at around close to 3%. So would you say that maybe over the next couple of quarters, this number could come kind of down a little bit because of this?
As [indiscernible] mentioned, no. Because our existing book size is almost INR 9,500 crores. On that, we are getting 3.2%, correct. And then, the incremental book size will be a fraction of that, and second there also, the salaried customers' lower rate will be only another 10% to 15% of the segment. [indiscernible] So we are not targeting to reduce the spread in next 2 to 3 quarters.
Because some of the existing customers couldn't get reprice, right, at the lower rate given the fact that you are kind of now offering lower rates...
[indiscernible] I mentioned that we are already done repricing, but our cost of funds will also come down. In fact, on average, in the last quarter, our cost of funds, average-wise, came down by [ 70 bps, whereas, the average reduction in interest rate on the [indiscernible] bps.
The next question is from the line of Ritika Dua from Elara Capital.
[indiscernible] over the previous question. So while we understand that incrementally, you think that this 10% to 15% would come from the salaried class, but then incrementally, obviously, your costs are also not falling, so you were able to pass on -- when you had a 70 basis point benefit, you passed on 60 basis points. But incrementally, obviously, you're costs will not be following that much? Is that a right assumption? Or you think that you have something [indiscernible] old liability is repricing at a lower rate?
Yes, one is the image we recurred. Right now, if you see the borrowing component which we refinanced, which is the cheapest loan for us, it's less than 10%. So we will improve that. We are in discussions, and at the end, we'll improve that. [indiscernible] that we'll take care of the spread.
So but then the only thing with NHB has been that our share of NHB has been coming down very considerably also because, also, we never used to have such high market borrowings earlier, which probably -- if we believe that will be stagnant incrementally. So -- but NHB -- so what we understand, obviously, that there aren't too many [ HFCs ] now, which are like reaching the -- probably would be also eligible in terms of like getting NHB to finance it while [indiscernible] has been expanding. So what does the current sanction look like for you? I mean, because we generally get to know that, if I'm not wrong, but what is the outstanding sanctions that we have from NHB?
No. No. We [indiscernible] Yes, our proposal is for 1,000 crores sanction [indiscernible] NHB. I mean, we are in dialogue with them, and finally, they'll give their sanction. We're waiting.
[indiscernible]
And sir, just connected to this, again, so this is -- would be under the RHS, UHS scheme? Or this would be the general refinance?
Normally, general also, [indiscernible] earlier, we did last year, and we did not [indiscernible] come down because the rate of interest were almost similar to the commercial banks. So we were -- now we're here looking at the lease because there is a rate of interest right now. As far as the rural scheme, definitely, it is going to be cheaper only, but we will raise the maximum whatever we will be able to raise. As far as the commercial loans are concerned, we will look at the interest rate. If the interest rate is at least beneficial to us, we'll get away from NHB. Otherwise, if we get a better rate from banks like State Bank of India, we'll [indiscernible] from State Bank of India.
Okay, sir. And just a second question on asset quality. You were just mentioning that some percentage -- some 100-odd crore number, if I'm correct, were sitting in the soft bucket. And we've already seen some recoveries happening in January. So already, we are 1.5 month into the last quarter. So are we really hopeful that this 2% will be achieved. Probably, I'm assuming that you would've already recovered a majority of it. That gives you the confidence. Or is it still that we are more hopeful towards the end of the quarter?
It is already happening, though, we have not recovered the entirety. The signal is that now we should be able to do it, and substantially, we're able to [indiscernible]. Because I told you 91 days to 120 days, which is a very soft bucket, almost INR 91.69 crores [indiscernible] 100 crore is there. And the next bucket of 120 to 180 days [indiscernible] these are all very soft buckets, so we are attacking those, and we should be able to recover those accounts. And [indiscernible] beyond 180 days, we are going in for [indiscernible] that had resulted in some increase [indiscernible] in one loss last quarter because it required additional legal fees as well as the advertisement fees, [indiscernible] advertising for all the [indiscernible]. And that created some cost, but still, the benefit is going by improvement in this quarter and next quarter.
Okay, sir. And so just connected to the second, INR 135-odd crore number, which is like 100 lying in 90 to 120, and balance lying in 120 to 80. Can you give some color as to how much is home loan in that and how much is left?
I didn't have the data, but it should be almost in the same ratio. But I don't have the data on that right now, I can get it....
The next question is from the line of Rakhi Prasad from Alder Capital.
How much is the amount that you -- is under [indiscernible] recovery beyond 180 days?
[indiscernible] It seems to be around [ INR 87 crores ]. I think around [ INR 180 crore. ] -- around INR 170 crore. We initiated action.
INR 170 crores?
Yes.
Okay. And in terms of the number of live accounts -- so your live account growth has been around 9% year-on-year. Is that -- can you give us some color around where this growth is coming from and why is it not related to the 30% disbursement growth?
Normally, if you see the loan book growth rate, it is around 10% and number of customers' growth is 9%. So that means that ticket size has not significantly increased. We continue to maintain our ticket size at around 14 lakhs and, therefore, the increase in this growth of the businesses by adding new customers. And if come across in all segments uniformly, except there is some reduction in the LAP portion. Because the LAP growth worth around 1% only year-on-year, and 12% growth is there for the housing.
So this 30% disbursement growth, you will see the average ticket size is still maintained?
[indiscernible] 30% disbursement rate? Yes. Compared to last year, growth rate is 30% in disbursement, 31% right.
Incremental ticket size will be similar to what's existing?
I will give it, one second.
You want the incremental ticket size of last year?
No, no. [indiscernible].
For home loan, INR 15.6 lakhs. For home equity, it's INR 90 lakhs. Average is INR 16 lakhs.
Average is INR 16 lakhs.
1-6, yes.
And the last question on the employees strength, which has increased, essentially, but you're number of branches is above only 3 that you've added this year. So this employee strength, if you can give some -- is it because of the sales team that you've increased?
Yes. We have added employees both in the sales as well as for the recovery. In both, we started recruiting people -- hiring people in both of the segments, both for the development side as well as the recovery side. We've initiated now [indiscernible] from that. [indiscernible] employees and also, some of the branches where there is no -- loan accounts are low, they're also for to strengthen the branch and add in new...
Then your geographic expansion that you're planning to do, will that be primarily through DSAs? Or you're planning to open -- you mentioned that you will be opening branches, so any guidance on that?
[indiscernible] the growth will be on both sides because right now, our DSA contribution is around 10% -- less than 10%, So going forward, it may improve. It may improve marginally. But as far as the new branches is concern, it depends on the location because certain areas are only for DSA-type of growth. So that we will not hesitate to hire DSAs. It depends on the location.
The next question is from the line of [indiscernible] Capital.
Just one question. At the start of the call, you mentioned that the ticket size for AAA loans is something around 75 lakhs, and I roughly remember a few quarters back, you mentioned that you do not want to give loans above INR 50 lakhs. So just want to understand if there's any change of strategy or anything on that side?
No. Let me clarify. We did not mean that the average ticket size for the new product is INR 75 lakhs. What [indiscernible] do that, for loans up to INR 75 lakhs, salaried class, AAA customers, we are giving it 8.3%. It does not mean that the loan -- every loan is INR 75 lacs. In fact, every loan is the size [indiscernible] also. So it is not that to be 75 lakhs is be upper limit. It does average ticket price.
Yes, but I believe a couple of quarters, you mentioned the upper limit is INR 50 lakhs. Is that correct? When there was an issue in the LAP size, we decided to reduce the upper limit to INR 50 lakhs. I just thought...
LAP [indiscernible] INR 75 lakhs.
The next question is from the line of Raul Ranade from Goldman Sachs Asset Management. Due to no response, we'll move to our next question, which is from the line of Ankit Agarwal from Centrum Capital.
Sir, I just wanted to know on the disbursement side, what is the -- can you give the split between salaried versus nonsalaried on the disbursement side? And what was it [indiscernible] the quarter last financial year?
Just one second, see, Disbursement in the December quarter, salaried was 313 crores and nonsalaried was 344 crores. So it was slightly higher for noncredit positive, [indiscernible] also. If you see our book size, 59% is nonsalaried. So out of 657 crores. 344 crores to nonsalaried. In the last quarter or last year, that is December '16, the total [indiscernible] of 502 crores, out of which, 355 crores was the nonsalaried and only 157 crores was the salaried.
Okay. And sir, in the previous quarter?
Previous quarter, the total disbursement was 752 crores. Out of 752 crores, 442 crores was nonsalaried and 310 crores was to salaried. Here I'd just like to clarify that salaried does not automatically mean 8.3. 8.3 for the AAA customers among the salaried class [indiscernible] so all salaried class people will not be eligible for 8.3.
But sir, is there change -- I mean, obviously, I alluded to repayment rates have gone up, which we can see in the data also. But do you see these repayment rates higher in the salaried segments versus nonsalary? Or...?
Rates are higher in the unsalaried segment also in the LAP segment.
Higher in the LAP segment.
[indiscernible]
Okay. Okay. But because our rates are higher, [indiscernible]. And that's why the strategy of shifting more towards maybe the salary segment.
[indiscernible] by attracting them to us. But as far as nonstandard customers are concerned, they are still -- we had unique strength like our understanding of the geography, our relationship with the customer, which the other banks cannot match.
But then I would have imagined that would have laid a smaller repayment or lesser repayment rates. And as a result, banks would not be well equipped to relegate to this target segment. But if they are able to -- are aggressive and are taking this away, then that competitive advantage doesn't remain, right, with us?
But still, the repayment rates are restricted in the sense they have gone up differently. But since there are large segment of customers there, the banks are still not able to take over those types of loans. So yes, the complete advantage is diminishing, but that's why we are addressing that issue by reducing the rate of interest wherever feasible by giving them additional loans and by deepening our relationships.
And so Ankit, what is happening is they're giving small-ticket loans but are losing large-ticket loans to banks and financial institutions. So when I say large-ticket loans, I, mean about INR 50 lakhs.
Okay. And sir, on the provisioning cost front, where do you see this sort of coming down from here? Or do you see this as a trend going ahead?
Once we achieve our [ PTR ] target of 100%, the costs should come down. We expect to achieve the same by hedge fund of next year if not earlier.
Okay. Okay. You're right. And sir, on the NIMs, you're saying that we'll be able to manage the NIMs even after we remove a little bit of exposure to the salaried segment?
Right.
[Operator Instructions] We'll move to our next question, which is from the line of Manish Agarwalla from PhillipCapital.
Yes, all of my questions have been answered.
The next question is from the line of Ankit Kohli from Pure Research.
Sir, my question is really at a broader level. In light of the increasing competitive intensity in the sector, the housing finance sector seems to be trying for maybe consolidation. And in this regard, I want to understand what are your views about the future of Repco Home Finance: one, have you been approached by any party for an acquisition? Because Repco is currently trading at a discount to peers and will make a good fit for anybody who wants a South India presence. So if yes, what are your views there? And if no, and if you want to continue to kind of grow Repco, what is the vision? How do you plan to make Repco insulated from external factor because, clearly, over the past 1, 1.5 years, demonetization and increased competitive intensity have kind of displayed that we need to strengthen our business. So I'm trying to understand, are we kind of -- would we be open to like a buyout, and if not, then how do we plan to strengthen our business? If you can address both these parts of my question.
No, no. Our target is very clear. From the beginning, we have been targeting the Tier 2, Tier 3 [indiscernible] and nonsalary segment, which is not properly settled here yet, and we've been serving them. And the potential there is very huge, very high, and the government has turned affordable housing -- continues there. Even when they're cutting budget, enough trust has been given. So all these factors taken into account, the future is definitely good because of the demonetization, GST, and [indiscernible]. There may be some issues which are very temporary in nature, and that is not going to affect our long-term growth. There may be a few quarters, 1 or 2 quarters, the results may not be to the expected level as far as asset quality and growth is concerned, but that doesn't mean, in the long term, that it'll continue. And as far as the competitive intensity is concerned, that competitive intensity many things are being pending, [indiscernible] in a sense. To that answer, the segment is still there, particularly in the Tier 2 and Tier 3 cities and particularly for the companies with the average ticket size of around 14 lakhs, 15 lakhs, therefore, opportunities is huge. It's not the end with this. [indiscernible]
Any of the larger banks for housing finance companies focus on acquisition? Is there any talk around that?
No. I'm not able to...
Nobody has approached us...
Nobody has approached. And we have no intention -- I think, nobody will approach. Probably, when there is an intention to do it, somebody may approach. We are very clear. We are very clear in our approach. Nobody has approached us.
[Operator Instructions] The next question's from the line of Vishal Rampuria from HDFC Securities.
[indiscernible] So once you mentioned on the call that you're looking at 20% kind of guidance for next year. Given the sand issue in Tamil Nadu, and this -- the entire land issue, which is happening for last few quarters, do you tend [indiscernible] so high for us for last -- I think for last 3, 4 quarters. It has been 2-0- type number. So you think that this growth is still possible? Because you need to at least grow this percent by 38% kind of number?
I already answered this query. Because next year, see this sand issue and regulation issue cannot continue forever. It has to come to -- there may be some political instability in this state and during that period. There may be some problems, but that is [indiscernible] permanent problem. It's a very temporary problem for a few quarters. Once our problems are solved, the state offers great growth potential, and we have also reoriented our strategy to grow in other states. That has been already told by my COO that we'll be growing in other states like Maharashtra, other states like Gujarat, and also Karnataka, we would like to grow further, and Telangana offers us much scope. On Andra, the new government is offering a lot of scope. Therefore, we are very optimistic. Our growth can be there the way we want to grow in the next year.
But at least in your home state, in terms of land issue, what are [indiscernible] for last few quarters. That is completely resolved? Or you think that will take 1 or 2 quarters to get it completely normalized?
Actually, to be very frank with you, I expected it should have been over maybe this quarter. It is not yet over. Sand issue continues. Actually, we are very optimistic it should be over. That is why we told you all the players that both they were [indiscernible] construction industry, they're in dialogue with the government of Tamil Nadu to resolve issue at the earliest. It doesn't affect the growth of the state itself. I think government is to [indiscernible], and we only hope that it should be resolved, but it is not yet resolved.
In terms of total NPA on the books, as on third quarter, [indiscernible] INR 50 crores, so you mentioned that INR 175 crore there only initiated and INR 100 crore is basically [indiscernible] bucket. So for balance number, do you plan to initiate as far as next quarter?
No, no. We are only handholding with them and then find out what exactly is the issue. If the repayment default is intentional, we don't hesitate to go for [indiscernible] action. We're only trying to persuade them. We know when there is no intention to default, then there is some temporary setback in [indiscernible] in the family. We are handholding and try for recovery. We don't want to totally spoil the relationship there, but ultimately, if we're not able to recover, we will not hesitate going for [indiscernible] action.
And sir, do you think that is increasing, in NPA especially, in your self-employed categories largely linked with your GST headwinds -- the impact of GST on this [indiscernible] even?
GST is one of the factors. GST for -- demonetization is the one factor and GST is another factor. So we are only hoping all these issues will be the thing of the past and we should come out of it at the earliest.
We move to the next question which is from the line of [indiscernible] from BNP Securities.
I just wanted some data points. What could be the interest reversal this quarter?
Sorry, can you just repeat again?
Interest reversals this quarter.
We'll get back to you, we don't have it ready.
And the number of loan sectors have mute over 11% of the percentage of loans?
We'll get back to this.
Sir, I wanted to understand the asset quality in the state of Tamil Nadu and especially on the self-employed segment. Some color on the same?
Tamil Nadu was 3.8% this quarter. That is up from 3.5% last quarter.
Hello can you hear us?
We'll move to the next question, which is from the line of Hatim Broachwala from IDBI Capital.
My question is a slightly longer-term question on the mix of the loan book in salaried versus nonsalary. So current mix is 40-60. What is our target or expectation for 3 year down the line on the mix?
Three years down the line, it will depend on a lot of circumstances, like how the other players react. But the target for us, if I say, next 1 year is to shift slightly towards salaried but not substantially, so maybe 60-40 will become 58-42 or at maximum 55-45. But longer run, we're also different on so many other factors, like regulatory changes, how aggressively the banks are wading into the housing financing sector, how the housing finance industry grow. So it is difficult to stay as of now, but our focus still will be more towards nonsalaried as compared to salaried -- if you look at percentage-wise.
We'll move to the next question, which is from the line of Nidhesh Jain from Investec.
On the distribution, you mentioned that you're taking 2 initiatives. One is geographically diversifying the book, and second is activate sales team. So as of now, what is...
Will this have a structural increase in our operating expenses because, as of now, our initial model was very low cost in terms of when loan made as. But if we are moving towards our own direct sales team and DSAs, will that have repercussions on our cost to income ratio and OpEx structure?
No. I -- we mentioned sometimes that most of the increase in cost is because of the legal expenses. Yes, [indiscernible] faster in business development. And we -- actual expenses related to employee salary. Yes, with this new expansion, definitely will be something increasing the cost, but we are quite confident that, that cost will be covered by the increase in the income. So while there will be absolute increase in terms of operating cost, but cost-to-income ratio, we don't see it [indiscernible].
So what are the reasons for employee cost going up by...?
The rate that [indiscernible] something for actual evaluation of employee ventures. You should do -- generally, do in the fourth quarter. So we will not have to provide this in the fourth quarter.
Okay, okay. What are the quantum?
It's about INR 1.5 crores.
[indiscernible] That's the accounting standard or leave encashment and graduality you want to make provision. Actual payment is not there for the terminal benefits. So that provision we have to make, for our auditors I just said that you better make [indiscernible] review usually relate for the fourth quarter and takes actually evaluation from the [indiscernible] and do it. But this time, our auditor suggested you do it now. And let us do us audit actual valuation in the first quarter and any difference is there, you make provision. That was for all the 3 quarters we provided now.
Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to back to Mr. [indiscernible] for closing comments.
Thanks everybody. I thank the management for giving us the opportunity to host this and see you all next quarter. Thank you.
Thank you.