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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the Spandana Sphoorty Financial Limited Q4 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involved risk and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Shalabh Saxena, MD and CEO of Spandana Sphoorty Financial Limited. Thank you and over to you, sir.
Thank you very much. Good evening to all of you. Thank you for joining the call. Thank you for your interest in Spandana Sphoorty. Friends, it's been now 8 quarters that the new management has taken charge. It has been an eventful journey so far, some hits and some misses. However, the good part is we have received good support from all the stakeholders. The Board, our customers, yourselves and most importantly, our employees, all of you have been strong pillars for us, please keep continuing the support.
Now to move to the year gone by, which is the financial year 2024 and then the quarter 4 in specific. As an institution, we had the best financial year. We had the best quarter and the best month in March ever in the company's history. On behalf of the management, I thank all the employees, which is both the head office and the field for pulling their might to ensure convergence on these results and the larger objective of staying on course to deliver the Vision 2025 objectives. Let me start with the Vision '25. In July of 2022, after taking charge and spending some time understanding the company, we had articulated the course that we would charge for the next 3 years, that is until FY '25. With 2 years done of the 3, as a team, we are contended with the fact that we are very near to most of the indicators or targets that we had set for ourselves. Here is a short update on some of the parameters we had set for ourselves.
The first one is the number of branches. As you know, distribution is the key to any financial services company. So we had set a target of 1,500 branches end of 2025. We are already at 1,642 branches, which is 142 branches more. As you all know, while the plan was to complete these 1,500 branches by end of FY '25, we had preponed the opening of these branches, which obviously had its impact on the cost. But the core belief was that if we -- because opening a branch of the company takes a lot of effort. There are a lot of energies and the synergies that have to be kind of pooled in to ensure the distribution gets started. We thought, if possible, let us just open all the branches in the previous year and wait for this year to just ensure that the branches unfold their productivity and optimize efficiency gain. So we are ahead as far as the number of branches is concerned.
The second thing that we've been espousing as a company is the customer focus, which is customer acquisition focus. Our focus on customer acquisition-led growth continues. All along, we've been maintaining that our growth will come more through new customer acquisition and had accordingly projected a 4-million customer base by end of FY '25. We have closed this year with a customer base of 3.32 million and hence, are on track.
Geographical concentration mitigation, very critical in microfinance that we are mitigated on the concentration risk. We had stated our intent of mitigating the concentration risk by ensuring that we increase distribution in areas where we are not present and moderate our focus in existing.
Accordingly, 2 years back, our top 2 states were upwards of 17.5% to 18% or thereabouts are now just under 14%. We are on course to maintain our target of no single state to be more than 13% by end of FY '25, which was this year.
Weekly model. This was a change that we desired to bring in the distribution model in Spandana. In our endeavor to move to the weekly-based JLG model of microfinance, we opened 429 new branches during the course of the year, which had a weekly repayment model. While we continue this pursuit of moving to the weekly, the progress has been satisfactory.
In quarter 4, 21% of the distribution was contributed by the weekly branches. The collection efficiency continues to be above 99% in those branches. The fifth point, which was a focus on muted ticket sizes. And more importantly, the average indebtedness at a customer level and shorter tenures, which is a shorter tenure loans. Ever since we started our journey, the core philosophy we've been driving is lend or be muted on ticket sizes, shorter tenures, weekly repayment and track the indebtedness levels of the customers.
Our business data for the year supports the playing out of this philosophy. Our ticket sizes are 8% to 16% lower than what is being offered. Our maximum ticket size that we offer is 80,000 to any customer, which is probably one of the lowest offered in the industry. We continue to trade the path of being a responsible lender, ensuring that the loans we give to our borrowers are sustainable. Our average customer indebtedness was about INR 36,000, which is 15% to 33% lower than the industry. Apart from this, our focus on the weekly model and the gradual shift in the distribution to weekly is going at the right pace. Our other priorities in terms of people, in terms of technology, in terms of processes, and refining the processes are perfectly on track. We, as an institution, continue to invest in technology, which we believe is the path to optimize growth and efficiencies. We continue to digitize our processes ensure minimum brakes in customer journey and most importantly, create a fully digitized environment for our loan officers to service our customers in the most efficient manner.
Now to come to the results, both year FY '24 and the quarter 4 results. I'll begin by stating that during the last quarter, we received a new rating, a rating of A Plus Stable from CARE. This is the highest rating received so far by the company. On the business side, let me state out a few numbers, disbursements. In Q4, we disbursed INR 3,970 crores, a quarter-on-quarter growth of 56% and a Y-o-Y growth of 30%. The 56% has to be looked at in the context of the so-called muted quarter that we had in Q3 because of the reasons that we had specified in the last earnings call.
For the full year, we disbursed INR 10,688 crores, which was 32% growth over the previous year disbursement. On the AUM side, our year-end AUM was INR 11,973 crores, which was 15% quarter-on-quarter growth over the previous quarter and a 41% growth over FY '23. Customer acquisition-led growth is what we've been speaking a lot about. Our steadfast focus on new customer acquisition has resulted in we adding almost 1.4 million customers during the year. FY '24, which was a growth of 59% over FY '23. New customer acquisition during quarter 4 was 4.4 lakhs, registering a quarter-on-quarter growth of 30%. This has taken our total customer count or a customer base to about 3.3 million, as I had stated earlier.
This focus on customer acquisition-led growth, I'm just substantiating it with the numbers. The disbursement growth of 32% and the AUM growth of 41% has been a result of a customer acquisition-led approach, which we have been following over the last 2 years. If I were to split the growth to represent my point better, disbursement to new customers grew by 62%, whereas disbursement to existing customers grew by 9%. So while the average plays out the way it is, but this is a combination of the way we've been driving the business plus obviously, the new focus states that we've started growing our market share in.
On the portfolio quality, we've increased our provisioning to 80% this quarter as you would have already seen in the presentation. Our GNPA for the quarter saw a decline of 11 bps over the previous quarter to 1.5%. Likewise, our NNPA for the quarter was 0.3%, 17 bps decline over the previous quarter.
Just a short commentary on the new businesses that we had started under our subsidiary Criss Financials. In our endeavor to set up new business lines during the last financial year, we rolled out 2 product lines loan against property and Nano enterprise loans. The loan against property, obviously, is a secured line and Nano enterprise loans are loans to shopkeepers, but these are loans which are between INR 60,000 to INR 90,000 in selected identified geographies. And we've made decent progress. The focus this year was on testing the product and process in one state, establishing technology solutions, hiring talent, creating the right distribution network and then to expand to other geographies.
Just to kind of build on this, I must specify that this business is under our subsidiary. This has a separate set of branches. This has a separate set of people. It is being led by somebody who does not look after microfinance. So this is a completely new vertical or separate vertical where we are doing this business.
Over the last 1 year, we've established a footprint in 5 states, namely Rajasthan, Madhya Pradesh, Andhra Pradesh, Karnataka and Tamil Nadu with the operationalization of 62 branches. We ended FY '24 with over 3,000 customers and we've created a book of INR 52 crores AUM. We've also added about 700 staff for this new business line. That's one more reason why we have some bit of a spike in our cost, but then this is an investment for the story that is going to play out this year. The average ticket size on the micro LAP, as we call it, is about INR 4 lakhs. This is a segment that we believe has a lot of potential, and this is a segment that we intend to capitalize.
On the FY '25 deliverables, during the FY '25, we plan to expand these 5 states taking the total branch count to about 100 in the same business line and grow organically to reach a book size of anywhere between INR 400 crores to INR 500 crores. We are targeting the micro LAP segment for the reasons that I just spoke about.
Now going back to microfinance, liability and marginal cost of borrowing, including the borrowing mix as you all know, the quality of growth will be defined by the quality of the liability franchisee that we have. With every passing quarter, we are improving and the quality of our liability mix also is improving.
In FY '24, our borrowing was -- for the full year was about INR 10,441 crores, which was a growth of 81% over the last year FY '23. We borrowed in the quarter of -- in the last quarter of INR 3,428 crores, which was 50% up over quarter 3. Our marginal cost of borrowing was 11.8% for quarter 4, which was 37 bps lower than Q3 cost of incremental borrowing.
Likewise, if I look at the borrowing mix versus category, we now have a more healthy mix with banks' contribution increasing to about 52% on the total borrowings. End of this year, we anticipate this 52% to move to anywhere upwards of 65%, and that's going to drive our costs out on the borrowing side.
Now to brief all of you on the financials for FY '24. The consolidated net worth of the company has increased to INR 3,645 crores. Our gearing is 2.6x. Our balance sheet is sufficiently comfortable on a CRAR at 31.3%. On the net interest income, the company increased by -- the NII increased by 59% in FY '24 compared to FY '23. The full year NII was INR 1,289 crores. On the PPOP, the company's PPOP increased for FY '24 to INR 953 crores versus INR 562 crores for FY '23. That's a growth of about 70%.
Quarter-on-quarter, the PPOP went up by 11%. Yield and NIMs. The yield on the portfolio was 24.2%, which was pretty much on the similar lines of what it was over the past few quarters. While it was an improvement of about 11 bps quarter-on-quarter, NIMs for the quarter improved 128 bps to 14.6%, 13.3% was the NIM for the previous quarter, which is quarter 3. NIM for the year was 14.1%.
On the PBT and PAT, PBT for FY '24 was INR 671 crores for the full year versus INR 18 crores for FY '23. PAT for the year was INR 501 crores.
To quickly sum up our key focus for FY '25. Micro finance, we will continue to pursue the agenda of financial inclusion and driving growth through the year on philosophies, which have been articulated in detail in today's as well as the previous calls and discussions. On the productivity side, this year is all about optimizing our channels and unlocking productivity across the organization. We intend fast pacing this between this and the next year. On the LAP and Nano enterprise loans, the new business lines will scale up this year as our desire is to capitalize on this opportunity, which the market presents. But of course, this is new for us, and hence, we'll be very careful and cautious. The entire management team of Spandana is thankful for the consistent feedback that we have been receiving from all of you. We continue to focus on delivering on the targets we set for ourselves and look forward to your continued support. Thank you very much.
Sagar, you can open up for questions.
[Operator Instructions] The first question is from the line of Renish from ICICI.
Congrats on a good set of numbers. Sir, just 2 questions from my side, one on the 1 plus DPD bucket, which has been increasing quarter-on-quarter. Even this quarter, we saw uptick. So sir, what is going on there on 1 plus DPD?
This is Ashish. You want to put your second question? Or should I answer the first one?
Yes. So again second is related to asset quality only. So on the ECL model, when we look at the -- just give me a second, please.
The line for the current questioner has dropped from the queue. So we'll move on to our next question.
Our next question is from the line of Mahrukh Adajania from Nuvama Wealth.
My first question is on outlook on loan growth, right? We hear from some NBFCs that RBI may not be -- the regulator may not be very comfortable with even more than 30% growth for smaller NBFCs. So how do you view yourself in that context in terms of growth outlook? I know that your guidance has been kind of below 30, but your growth has been much above this, right? So -- and I know the base effect, but still, so just some comments on that and what -- how much you would like to grow over the next 1 to 2 years? That's my first question.
Mahrukh, hi. Shalabh here. The 41% growth and which is the point I have been making over the past 1 year to whosoever I have been speaking to. We have to look at this growth in the context of the organization and the institution that's Spandana is and the scale at which we used to operate and the scale at which we are present currently in the country.
After the write-off, et cetera, in quarter 1 of FY '23, if you look at our FY '23 year-end AUM, we were at 8,511. So hence, on a percentage basis, the number looks big, but as an institution for the size that we present, which is about 1600 branches, 1630 branches and 14,000 employees. What is very critical to know is how from a quality and from a mitigation point of view, how are we growing? And which are the regions and areas that we are growing.
Our -- my commentary today and even otherwise, we've been saying that we will remain spread across the country. We will ensure that we are -- we lend short tenures and we will be muted on ticket size. So the average indebtedness is what we track rather than anything else. That's number two. Number 3 is going forward, we said that if I -- now that we are at about almost INR 12,000 crores. We have -- just in my commentary, I said that we'll grow about 20% to 25% this year to take the number up to about closer to INR 14,500 crores to INR 15,000 crores on an AUM basis.
In a couple of months back, we had come out with a theme for [indiscernible] because we were very close to completing the Vision '25. We had come out with a theme of 28x28, which is which is INR 28,000 crores of AUM by FY '28, which works out to about 22% annualized growth. So we are comfortable with the 20 to 25 percentage growth. What also one should look at is the amount of borrowers that we've added. We added this year while we are projected that we will do -- we will end up with a 4 million base by end of next year, we are already at upwards of 3.3. So we are adding more and more customers. We are low on the levels of credit that we gave. My belief is that these loans being income-generating loans. They add a lot of value to the segment that we lend. And yes, we will be cautious for sure. So I don't think the 41% growth has to be looked at in the context of the base to summarize. And going forward, we will -- we are very, very comfortable in a number, which is anywhere around 22% to 24%.
Got it. But there would not be any regulatory soft cap as such, right, in case you get opportunity to grow higher?
No, but that's the point. I'm saying even before, if you go back to our commentary, 3 years back we had projected -- I mean all of this -- all of what you are saying is last 2, 3, 4, 6 months of phenomenon. We had chartered this growth and the growth rate, but about 8 quarters back. And we are not deviating from that script. We are exactly where we had projected and which we thought was a comfortable rate to grow. That rate to grow is even theoretically also arguing, is the number which is much lower than the threshold that you are talking about. So south of 25% growth rate is a good number to target. That much is the opportunity which the market presents. And I think we should be -- we are comfortable that we'll be able to marry and balance the quality as well as the absolute number in the -- for the opportunity that the company presents.
Fair enough. And my next question is on the forward flows. I think the first participant tried to ask that. So when do you see easing of forward flows and the 61 to 90 DPD has risen? So how does Stage 3 look like for the next 1 or 2 quarters?
Hi, Mahrukh. This is Ashish. Sorry -- you had a follow-up to the question.
No. I'll hear the forward flow and then yes.
Sure, sure. So yes, the flows have been higher, but I think we have kind of discussed this in the past also that we are trying to do the right thing for the company, which just move towards the weekly as a format for -- in the branches where there was a monthly business. So we have initiated that. And that, coupled with some of the other -- some of the states are showing some challenges with regard to the Karz Mukti Abhiyan in some parts of Rajasthan, some parts of MP, where we have a little bit of business. There has been some little stress. Having said that, that's not the large worry for us as such since we don't have any business in Punjab or Haryana. The primary challenge is 62% of our flows are contributed by branches, which are into the Parivartan mode. And that is likely to kind of start showing or starting yielding results starting this quarter onwards. So that's where we are.
Having said that, I think if you look at the overall credit cost that we have as a business on a BAU basis for last year has still been around 1.9% against the 2% which we kind of envisaged.
So Mahrukh, let me also supplement. The quarter 4 was obviously -- it's end of the financial year. So we are managing multiple priorities. Parivartan is what Ashish spoke about, is something that obviously we started with the right intent, and it is going as per -- so there are no surprises now. Now the surprises whatever, they were happened last year, quarter 3. We are confident that over the next quarter, quarter-and-a-half, we will be able to kind of -- while the challenge in the microfinance is once a customer slips to get it back into a regular or a current book is a bit of a challenge. But nevertheless, the teams on the ground are working towards it to ensure that this is done. I have a broader philosophical answer to this. If you take a step back, why did we do it? Because we get asked this question, why did you even do it? In our humble attempt, we are -- we had to do what is right for the institution. Institution where and we saw there was an opportunity in that model because that model had some limitations on the scalability. Apart from the fact that weekly is something that we like. So that's the reason why we walk that part in about 50% of our portfolio.
We obviously last quarter 3 of last year and quarter 2 of last year, there were some bitter surprises but now over the past quarter and a half, we are fully in control in terms of the assessing the issues that are at hand and how to kind of control. Obviously, you have to juggle multiple priorities and hence, we were more -- while we were balancing the SMA buckets, there was a year to end as well. We've done that. Q1 and Q2 will be slightly soft because that's how the industry functions. We are reasonably sure that over the next 2 quarters, we will kind of ensure that this part is very well taken care of. That's number 1. Number 2 is, when it comes to the customers, for the scale that we have added, we will continue to work with these customers to ensure that the -- and that's what we do.
If you see our 1 to 90, about 50% is the 1 to 30 bucket, almost 50%. So customers -- and that's not so good part about -- once it slips, you have to ensure that you kind of squeeze the customer, don't allow her to flow. Once it flows, it's a bit of a challenge. But anyway, this is all a thing of the past. Q4, we did our attempt, but obviously multiple priorities to be handled. Q1 and Q2, we will kind of just sort this out.
So most of the Parivartan-related stress will be done by the second quarter, as in forward flows?
So you are calling it a stress, and I agree, it is a stress because it is...
No, no. As in the transition, sorry, I used the wrong word.
No, no, even I'm using the word, okay. Let me put it that way. So look, any SMA bucket, any customer in the SMA bucket is not a pretty site, Mahrukh. So there's absolutely no problem in that world. The only thing is that we are -- our sense is that by quarter 2, we have to ensure and that's what we've been discussing with the customers. What we've done is a lot of analytics in terms of lot of the center to ensure that you reach out to the customer and bring them back into the current state. So flow is a reasonable estimate, where we should be done as far as this part is concerned. And then it is pretty much BAU. Now to supplement what Ashish said and that was the second part of my answer. We had said that we will be in the range of 2% credit cost. This could bring some bit of stress here. At best, even if I were to speculate, would add what about 50 bps max in a short term. In a long term, Q3 -- by Q3, Q4, I think we'll be back to the 2% that we've been seeing. So it is those kinds of liberty you to take because we should not forget that we have kind of just -- this is a new distribution, when I said distribution, many geographies are new, and this is still fresh. So Q2 August is when we started this last year. So once we come closer to that, I think we should be in a good comfortable position before that.
Got it. That help. And if I can squeeze...
Sorry to interrupt. Mahrukh, Ma'am, may we request you to return to...
Yes, I'll do that. .
So Renish is here. Renish, I think we lost you when there was a siren playing in the background. So your question was -- the first question was the same as Mahrukh's question. We answered in detail.
Second question where you got dropped was on the ECL model and then we lost you. If you could just repeat your question.
So sir, on ECL model, when we look at the model across these stages, we have seen the increase in PCR. So have we changed ECL model this quarter?
Thanks, Renish for the question. So what we have done is we have changed the methodology and -- improved the methodology, in fact. We earlier were having 8 years covered in the model as an input. However, the input were at the year-end, like the 8 data points across various states. From there, what we have done is we have moved to every month as a data point in the model. So there are now 8 years into 12 months, which is 96 data points, which are being fed into the model for smoothening purposes. So the model is now much smoother in terms of the input. Moreover, the other change that was done was we were doing at different states, so with not much of weight in some of the states where you kind of not adding any value and our products, customer profile are homogeneous across the country, products are homogeneous. So what we have done is we have moved to enterprise data inputs in the model. That has kind of smoothen the flows across the buckets. And it has led to an overall increase in the provisioning for us by about INR 4 crores. Having said that, what the good part is it has given us some release in the current bucket because the flows are rationalizing as we move forward. However, in the subsequent buckets, Stage 2 and under LGD, it has shown a higher number. And accordingly, the model has been adjusted and INR 4 crores excess has been provided for.
So I mean, does that mean, let's say, a PD or LGD might have gone up in stage 2 and stage 3, and it might have improved in stage 1, which essentially means that incremental disbursement is actually of a better quality than what we had, let's say, 2, 3 years back?
That's a reality. And I think it has more to do also with the fact that in between there was a period of COVID, which kind of impacted the overall data points. And as we go forward, this will -- this should continue in the model because your current bucket as it improves, currently, even we are still not there at a stage where we would like to be, the current bucket like we just explained to Mahrukh's question or your question and 1 to 90 can improve going forward.
As it improves, this current bucket should -- flow should also, I think, improve from where they are presently over time. Obviously, since the data points are 96 and it is on a rolling basis, the rate at which it will refresh will be slow -- that's also...
Again, just the last question on the collections. So considering this project Parivartan and again, when we look at the net collection efficiency on the weekly model, which is significantly higher 99 versus 96.5 on the blended basis. So it is fair to assume that, let's say, going ahead, collection ideally should improve from here on? And if that is the case, then ideally 1 to 90 bucket should have been picked out by now? I mean, is that the correct reading? Or am I missing something here?
No, largely, yes. Barring that the fact that Parivartan like Shalabh was trying to explain earlier, will take about a quarter or two. So that means there can be a bip -- a few bips here or there in, let's say, the immediate quarter that is in discussion. But yes, 2 quarters down the line, what you are saying should play out. Your 1 to 90 bucket should start showing a lot of improvement. And likewise, the overall credit cost as well.
See Renish, let me -- we have to look at the long term and I'm not saying long term means 5 years, I'm saying long term, which is about 4 to 8 quarters, if you were to look at the way we are shaping the business and the way we are steering our business. What are we doing? We are lending right. We are very, very focused on the geographical mitigation. And hence, we are spreading ourselves in the places where we are not.
Our emphasis for specific states is reducing, which is the number that I quoted in my -- in my earnings call's speech. We are focused on the weekly model, which is shorter tenure, higher customer engagement because this is a high touch point industry -- high customer touch point industry. And most importantly, when it comes to driving the customer behavior, we are insisting on all the things that JLG model should follow.
Now if this is what it is, you will have a few -- one quarter up and a quarter down. But broadly, if your story is fine, then what you are creating is a very stable enterprise, which is there, which will keep on chugging along as you progress during the year. Any transition or any change in the model comes with that element of risk which has played out in our case and hence, we are where we are. But we did what was right and given a chance, we would do it again.
Now the other thing is that -- because this is a question while you will not ask but people ask, [Foreign Language] what are you going to do with the other set of branches which have not yet gone weekly. We are very, very -- obviously, experienced. With experience, we are wiser. We are very carefully choosing this whole thing. We will go 2 to 3, 3 to 10 branches not immediately, but in the next 2 to 3 quarters when we start that journey.
But this time, we will not do any wholesale changes. We will go very, very slow so that we are able to balance everything so that the overall balance of the organization is protected.
[Operator Instructions] Our next question is from the line of [indiscernible].
Just wanted to check on the cost-to-income ratio. I understand that there is too much of upfront investments being made for the growth. Like what's the stable sort of cost-to-income ratio that you'd be happy targeting and obviously, there as a part of the AOP, which was [indiscernible] for the 3 years. But just glide path over FY '25 would be helpful to understand.
Yes. So [ Sumil, ] 4 quarters from now. So the answer to your question, what is the number that we would be happy with? We would be happy with the cost to income of anywhere south of 40 and upwards of 35. So that's the number that we should be happy with. We should be happy with the cost -- with OpEx to AUM of anywhere around 6-6.25 This, as you -- I'm just repeating what I said and what you also sort of corroborated. All of this is because of the upfronting and the new business lines that we've opened. Once they start delivering and unfolding the productivity, all of this gets stabilized. So this is that onetime -- this is that onetime hit that you have to take for a better tomorrow.
And on the provisioning side, so we are in excess provisioning other than a specific provision, if I were to look at the GNPA number and the provision that we carry on the balance sheet. So your overall provision is more than the GNPA as we see it as of 31st March 24.
What we follow, Sumil, this is Ashish, what we follow is the ECL methodology. So any bucket, stage 1, stage 2 or stage 3. Based on the PD, we do carry the expected loss. So in stage 2, now we carry -- so in stage 2, now we carry 47.8% of whatever is there in the bucket as a provisioning that also adds and for stage 1, 0.87% is what we are carrying as a cover, which was earlier 0.92% in the previous quarter.
So basically, the idea is just follow the model, model gives you the PDs. LGD is also coming out of the model only, and we are just multiplying and doing the provisioning as required by the entire piece.
I have 1 question, Ashish, for you. This net gain on fair value changes. If you can walk us through, I understand that this is impacted by any direct assignment or securitization that you do. But there is a flow element, and there is a stock element. So the direct assignment that you did in this quarter was INR 16 crores of impact, but there is an overall net gain from fair value change is INR 34 crores. So what does it comprise of, if you can help me understand?
So there are 2 things here. One is the DA, which you have articulated and it was INR 16 crores in this quarter vis-a-vis INR 20 crores in last quarter. There is also another income which gets reported in the same line, which is the investments that we do with the mutual fund companies during the course of the quarter. We just placed any surplus money with various mutual fund institutions to reduce the negative carry. And that also goes into the same line item. These are the 2 things.
And there is an amortization as well because you upfront all the excess income and then you will have to further book more because it would have been discounted at a certain rate. And every quarter, they will be further amortization of income, which will be positive on the P&L .
So that happens for the processing fees that we collect. We collect 1% with every loan as a processing fee. However, it will be added to the line -- interest income line itself. Here, there won't be any amortization since we -- whenever you do the DA transaction, you have to record it on the date of the transaction, the entire income since the transaction is kind of completed under the Ind AS method. So all the income will be booked in the same quarter. Basically, for the quarter, let's say, whatever the period that is anyway would have recorded. Upfronting will happen for the balance tenure on the 90% of the book, which is hived off from the balance sheet.
But there has to be discounting of the excess income, right? I mean it's not booked all upfront. It's discounted by a certain discounting rate.
That is the rate at which you've done the transaction between the bank and us. Typically our rate for the DA transactions is lower by 50 to 70 basis points compared to the term loan transactions that we do.
Okay. So there is no -- for the P&L impact of the [indiscernible] that we do, except for the quarter [indiscernible].
That's right.
Our next question is from the line of Shreepal from Equirus. Shreepal, your line is unmuted, you can proceed with your question.
Congratulation to the whole team for a good quarter. So my question was, firstly, pertaining to the new customer acquisition. So the new states that we are targeting or when we are entering, are we seeing that there is already a decent number of lenders giving room to a particular customer and are you having any filter as to not to give a loan to a customer who is already having 2 to 3 lenders already.
Yes. So Shreepal, see. First of all, the people who are driving our business on the ground are somebody or a set of people who have been doing businesses in those geographies in many, many years. So they understand that terrain well, that's number one. I'm just taking the step back to your question and giving you how we decided to enter a geography so that will give you a fair sense of how we kind of face this whole thing, number one. Number two is we rely a lot on the CV data to figure out how was the experience during demonetization and how the experience during the COVID for us to take a call on where we open a branch.
So where do we open a branch is a secondary data? The set of people there will then collaborate saying, yes, this is okay, while the data is okay, but we should or we should not go. And most importantly, the people who are there have been long-term vintage employees doing microfinance for many years. So they will subscribe to, I mean, we should be going in those geographies or not.
So we do all those checks and then we go. Now your question is that do we see at a criteria stage, we don't want to be the fourth and fifth lender, number one. Number two, there are certain geographies, which obviously I can't really put it out here. But there are certain geographies where we restrict specific -- we have a customized approach to -- when we enter a geography where we will say that, no, we will not be the third or we will not give a loan if a customer has taken a credit -- has a credit limit from X or Y. So those are the very tactical calls which we take at a geography level. Suffice to it and that is our test.
And if you see the performance of the weekly branches because those are the branches that we have opened last year, about 430 of them. It is kind of going as per the script that we have crafted. So as far as the new geographies now, the challenge that we, as an enterprise, I'm just extending your question, challenge that we have as an enterprise have is how do we transfer the model that we currently have into something which works on the lines of the weekly model.
So the weekly is a combination of the geographies and obviously, the lending profile of the customers. These customers are used to a weekly rhythm and the cadence of meeting 52 times a year. So we are walking that path. Do we take calls, we take -- so unlike the past, when you had a one-size-fits-all from Karnal to Tamil Nadu. We had all the -- we had a similar one-size-fits-all credit criteria. What we are doing is we are customizing the credit criteria in terms of how many -- what is the credit limit you should give to a particular geography and to a particular customer. What should be the credit limit you should give to a specific customer who has an experience with somebody else, but not with us. And vice versa somebody who has had an experience with us who is a cycle 5 customer with us and so on and so forth.
So it's a good grid which the risk team here sort of validates and [indiscernible] which then is handed out and built into the system so that the sourcing automatically gets channelized as per what we would have designed. Sorry, long answer to the question, but I thought it is important to explain.
That is actually very helpful. Sir, my second question is also related to like on asset quality stream. So we've come out from the COVID cycle, and therefore, the par numbers had gone -- has improved significantly. However, now since the last 3 quarters, it has been increasing, but where do you see it stabilizing? We are saying it is increasing because we've seen the bottom as well. So where do you see sort of stabilizing or sort of normalizing going ahead when you talk about, say, past...
Percent which I mean I'll just refer to the same question I answered to a previous participant. In immediate -- on an immediate -- see, overall, what was our guidance that we'll be in the neighborhood of about 2% credit loss. Right? So we are -- we -- immediately, we could see [Foreign Language] bps here and there. But 4 quarters from now, I think we hold to that number or that steer that we had given [indiscernible] two quarters from now.
Is it like an industry-wide phenomenon that you feel like we will be close to 2, like industry-wide number that you feel it will be like 2-2.5?
Industry, you can hear me, right?
Yes, I can hear you now.
So look, I can't comment on the industry. I will tell you about my company and the company...
Sorry to interrupt. The line for the management has been dropped. Please stay connected while we connect the management line back.
Ladies and gentlemen we have the management line. Sir please continue.
[Foreign Language] Shreepal, so as far as we are concerned, if you do all the right things, 2-2.5% is not a number that cannot be, and I have seen the other numbers as well. But I think that's a number. If you watch your steps well, that's a number that can be delivered. ROEs of upwards of 4.5% is very much doable, and that is what we've been delivering. So in a steady state, look, you will always. We've been trying to do various things. We have been successful in most of them. Another 2 to 3 quarters as an institution, we should stabilize. 4 quarters, hence, I think this will be an absolute BAU. Because what has happened is now we have our franchisees across the -- sorry, we have our branches across the country, which are reasonably spread. And now all we have to do is to ensure productivity, efficiency with the quality that we desire.
Sir, just last question pertaining to the pricing side. So we've seen the regulator being a little stringent or strict in the recent times, and they had highlighted about spreads in the MFI landscape. Since our cost of fund is likely to improve given the rating upgrade, will we sort of look -- relook at our pricing and bring it down and then broadly maintain the spread? Or will we continue with the current yield?
So look, the overall guidance on profitability and the corresponding yields and NIMs will not be disturbed. Let me start from there, number one. Number two, yes, this year, we anticipate a lot of upside on the cost of borrowing. What this will do to us is, what we are doing is, we have already started passing the benefits to the customers.
For example, starting the first of April, we have already -- for customers who are cycle 6 and above, we've given them a benefit in terms of the reduction of the interest rate from 50 bps to 100 bps. So that's part 1. Part 2 is going forward, and we are already working on it. This is something that we've already done. Going forward, what we will do is the risk-based pricing, which is, obviously, you charge a regular rate to the customer who joins you for the first time around, and then pass on the benefit depending on your comfort for the specific geography or the cycle of the customer going forward is what we will do. What -- the reason why we are confident is that now we have 2 years of data with us post-COVID, which we are now -- you can easily and reasonably estimate how are you going to kind of price your customer risk. So that is -- so over the next 2 to 3 months, that is what we are going to do, which is calibrate the cycle of the customer with the corresponding pricing. But what remains absolutely clear is that with a reasonable stability both on the pricing and the quality side, we will pass on the benefit to the customer, which we are already working on.
The next question is from the line of Rajiv Mehta from Yes Securities.
Congratulations on strong numbers. So most of my questions are answered. Just 2 questions. So Shalabh, just for greater comfort on the quality of new customer acquisition, geographies like Bihar, West Bengal and Tamil Nadu, which are large and crowded MFI market. Is there -- can you share what percentage of the acquired customers here will be unique or percentage of customers can have more comfortable leverage [indiscernible].
Rajiv, offhand, I don't have [Foreign Language] But see, I have been seeing, Rajiv, just to give you a larger answer. I have been looking at this specific data for the last 6 years that I have been exposed to this microfinance industry. So I can say with what are the things that always shine. The things that always shine is your relationship with the customer, how well you run a process. And most importantly, how is your engagement in terms of the center meetings, et cetera, that you do? That's very, very critical. Number four and actually number four should be number one. The people who are on the field handling your branches and handling your centers are the ones who should be the local people who understand this whole terrain better. We have in our teams, all those who've been handling their specific geographies where they are for the last many, many years. So that's an added advantage. So whether it is a brand-new customer or whether it is a second cycle customer or a third cycle customer, I've seen data on demand. I've seen data on COVID. There is no specific yes or no which comes out. What the differentiator is your people on the ground and how well they've managed your book? I mean that's what comes out. So we can send you the data when we speak separately. But is there anything -- the data will not -- is not a clear trend line anywhere, Otherwise, you would stay away from that.
Clear. And just 2 questions for Ashish. Ashish, in this quarter, we saw a significant reduction in the stock cost upfront, and that's even sharper than the reduction in incremental cost upfront. So did we have a good reduction coming through in this quarter on the existing kind of loan because of rating upgrade or something?
No, not really, Rajiv. It has more to do with the fact that we have had a heavy borrowing in the last few days of the quarter, and that's why there is a denominator effect. So if I have to normalize it, my normalized cost of borrowing should be about 11.9. definitely lower than 12%. So it has to be looked in that context. So while it is coming down, 11.8 is definitely an aberration. I mean, because of a lot of borrowing happening, and we've kind of manage the negative carry on the cash holding during the quarter in a slightly more agile manner, I would say.
And just last thing is what will your current assessment of the remaining impairment cost that can come from the loan disbursed prior to April '21? And maybe on the security receipts, I mean, the transactions that we did in the last year.
See, the overall security receipts that we carry in the books is about INR 112 crores. Against that, we're carrying INR 34 crores of provisioning already. We expect to collect the rest of it, although there can always be a timing difference in terms of the assessment done by the valuators vis-a-vis, let's say, the speed at which we collect again, always -- there can always be a timing thing where we may have to take a little bit more provisioning, but I don't expect that to be any significantly larger thing to offset the overall credit cost that we will take in any quarter as such.
Okay. And on the DA -- legacy DA. Anything that...
So on the legacy DA, we, last quarter, explained that there are about INR 5 crores, which is there in the balance sheet that has all been fully provided for, and there are nothing further that we have done, nor we plan to do as of now.
The question is from the line of Sarvesh Gupta from Maximal Capital. Sorry to interrupt, Sarvesh sir, your line is not clear. If you are using the speaker mode, may we request to use the handset mode, please?
Yes. Is it better now?
Yes, sir. Please go ahead, sir. The line for the current participant has been dropped. So we'll take that one last question from the line of Mr. Parikshit Kabra.
Most of my questions have been answered, so I'll just ask this one thing. The employee benefit expenses have been rising. And I'm just wondering, I know you said that there have been upfront investments in new business ventures. So how do you see this going ahead next year? Is it going to continue rising at the current trend? Or do you now see it stabilizing where it is?
So yes, the last quarter has been higher because of the amount of hiring that we have done, plus we had a reasonably decent quarter from a disbursement perspective. So your cost will be driven -- your incentives will be driven by that. But on a normalized basis, I think investments in the new businesses will continue in the next year as well. However, the larger business, which is the microfinance or the core business, that should start delivering a lot of -- a lot more productivity and a lot more efficiencies. So on an overall basis, I think by FY '25 when we should be below 6.5%, the way we have looked at it earlier.
Thank you. Ladies and gentlemen, we will take that as our last question for today. I would now like to hand the conference over to Mr. Shalabh Saxena for the closing comments.
Thank you very much to all of you for joining the call and showing interest in our company. As I said, it's about 8 quarters that we've been at the help driving the business with all the right intent. Yes, there have been hits, there have been misses. Hits have been obviously more than the misses for sure. What we've already espoused is to do the right business, which is long term, what we have ensured in whatever we've been doing is to ensure that business organizations remain robust and the model and the business model that we are developing remains sustainable for a long time. . Thank you for all your questions and all the suggestions and advices that we get from you when we interact with you on one-on-one. Please keep the advices flowing. Thank you very much. God bless. Thank you.
Thank you. On behalf of Spandana Sphoorty Financial Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.