Bajaj Finance Ltd (BAJFINANCE) Q2 FY23 Earnings Concall Transcript

Bajaj Finance Ltd (NSE:BAJFINANCE) FY23 Earnings Concall dated  Oct. 20, 2022

Corporate Participants:

Rajeev Jain — Managing Director

Sandeep Jain — Chief Financial Officer

Anup Saha — Deputy Chief Executive Officer

Analysts:

Anuj Singla — Bank of America Securities — Analyst

Hardik Shah — Goldman Sachs — Analyst

Saurabh Bajaj — J.P. Morgan — Analyst

Sameer Bhise — JM Financial — Analyst

Kuntal Shah — Oaklane Capital Management — Analyst

Umang Shah — Kotak Mutual Fund — Analyst

Piran Engineer — CLSA Limited — Analyst

Nidhesh Jain — Investec Bank Limited — Analyst

Niket Shah — Motilal Oswal — Analyst

Shweta Daptardar — Elara Capital — Analyst

Param Subramanian — Macquarie — Analyst

Presentation:

Operator

Good day and welcome to the Bajaj Finance Limited Q2 FY ’23 Earnings Conference Call. This call is not for media representatives or Bank of America investment bankers or commercial bankers including corporate and commercial FX. All such individuals are instructed to disconnect now. A replay will be available for Bank of America investment bankers and commercial bankers, including corporate and commercial FX. The replay is not available to the media. This call will be recorded and a recording will be made public by the company pursuant to its regulatory obligations. Certain personal information such as your name and organization maybe asked during the call. If you did not wish for it to be disclosed, please immediately discontinue this call. [Operator Instructions]

I would now like to turn the call over to Mr. Anuj Singla. Thank you. Please go ahead.

Anuj Singla — Bank of America Securities — Analyst

Thank you, Nirav. Good evening, everyone. This is Anuj Singla from Bank of America Securities. Thank you very much for joining us for the Bajaj Finance earnings call to discuss quarter two FY ’23 results. To discuss the results, I’m pleased to welcome, Mr. Rajeev Jain, Managing Director; and Mr. Sandeep Jain, CFO, and other senior members of the management team. Thank you very much, Rajeev and Sandeep for giving us the opportunity to host you. I now invite Rajeev to take us through the key financial highlights for the quarter post which we will open the floor for Q&A.

With that, over to you, Rajeev.

Rajeev Jain — Managing Director

Thank you Anuj. Thank you, Bank of America for hosting us. I have few other colleagues, I have the Managed Director of Jain. Anup Saha, Deputy CEO, Rakesh Bhatt, Deputy CEO BFL both and a few other members. Wish you all a very happy Diwali season is right on us. Let me just — I hope you — I’m referring to the PPT that we have uploaded for investors.

Jumping right into — onto Panel Number 4. Now overall, excellent first-half good quarter for the company across balance sheet grow portfolio quality and profitability all three metrics are looking quite good for first-half and second-quarter as well. I think the highlight is pretty strong momentum across all lines of businesses with secular AUM growth in first-half. I think that’s the — if I take away one big thing is that growth is very secular across all lines of businesses that we that published to the Street. Pretty confident of reasonably strong FY ’23 now.

On the going digital metrics, as we’ve started the transition from a plan to into production the total number of users now cross on the app 26 million. We are continuing to rank among the top four or five on the — on Google Play Store in the finance section. Phase 1 of Web 2 has gone live as planned. Fully on track to go fully digital across all products and services as we said at the end of Q1 by March ’23, both on app and web. Very quickly financial metrics AUM came in at INR218,000 crore, up 31%, opex to NIM came in at 35.9%, we’ve guided for between 35% and 36%. We continue to invest in teams technology and payments businesses, so we came in at 35.9%, PAT came in at INR2,781 crores, which is a year-on-year growth of 88%, ROE came in at just a tad below 23.6% despite the fact that overall capital adequacy remains at 25%, net NPA came in at 44 basis points. So pretty good quarter, pretty good first half.

Just to provide some texture on the — on Panel Number 5. AUM growth came in at INR14,500 crore, just a tad below INR14,500 crore as I said secular across all lines of businesses. If you refer even to the press release or go to panel number — just go to panel number of the investor deck. If you see the growth across — one sec. That’s Panel Number 47 we will fundamentally see, one, the growth in the third column 29%, other than two-wheeler and three-wheeler business, which is still in a degrowth mode we’re hoping that by quarter-four even that business should be back to growth mode. Sales finance grew 29%, urban B2C 31%, rural sales finance 33%, rural B2C 34%, SME lending grew 32%, securities lending 67%, commercial lending 36% and mortgages 31%. Overall coming in — so everything is between 31% and 35% barring loans against security, which had a very-very strong quarter.

And if you look at the composition remains virtually, if we look at year-on-year basis plus-minus 1 percentage point remains largely identical. I think — and that’s why I was saying that the highlight of the quarter or the first-half of the year is that, despite growing balance sheet the product mix remain same, because that’s directly tied to the overall profitability that we deliver as a company.

Going back to Panel Number 5 now, AUM was up at 31% as I talked about it, added 6.76 million loans that is a growth of 7% on a year-on-year basis, overall B2B disbursements grew 15% at just a tad below INR14,000 crores. Added the — new customer acquisition momentum continues to be pretty strong, came in at 2.61 million customers. We’ve added a new panel that I’ll cover for a moment. As I talk about it to provide greater disclosure on customer acquisition and what it means for the growth of the business. And we provided a five-year data on it to give you some texture.

Now we are on-track now we think we’ll get anywhere between 10 million to 11 million new customers is what we’ll add versus 9 million to 10 million customers we forecasted in Q1. Customer franchise just a tad below 63 million, on course to get to 68 million, 69 million customers by end of the year. 99 locations is what we added, stood at just a tad below 3,700 locations and 143,500 distribution points. Competitive intensity pretty elevated when I look at our B2B adds of retailers four years ago, there used to be four-five competitors now they are 17.

We’re continuing to protect our market-share, continue to hold to the kind of madness we’re seeing across products and services. Continuing to protect our margin profile, as I’ve said many times in the past between volume and margin, we protect margin. That does not mean under any circumstances we’re going to lose market-share as well and that’s representative of the fact that in the first-half of the year the balance sheet has grown virtually INR28,000 crores, just a tad below INR27,500 crores.

Costs of funds because of strong ALM management came in at 6.91%, there will continue to be sequential movement on that as we — given the kind of — how the rates are moving up. Strong position in terms of liquidity, given that the systemic liquidity is now virtually running to below INR10,000 crores at any point in time from INR700,000 crore that it stood, just seven, eight months ago. So continue to maintain a cautious stand on overall liquidity between BFL and BHFL.

Deposits we continue to gather, I think there is a reasonable chance that we’ll exit the year at a deposit book of just about close to INR50,000 crore, it maybe between INR48,500 crore to INR50,000 crore. We added just in the last quarter INR5,320 crores, if we stay with that momentum that itself will get us to INR49,000 crore to INR50,000 crores. It’s now at 22% of our consolidated borrowing. We are on-track for overall — for that number to be 25%. Opex to NIM I talked about, not much to talk about there. We will continue to remain between 35% and 36%. We’re starting to see as you will see even in the second-quarter results NIM growth is stronger than opex growth. So slowly we’re starting to see the benefit of that flow-in.

As we fully go digital, as the momentum improves provided there is no event risk being external in nature, I think we’ll start to see operating leverage definitely flow-through given the kind of strong franchise and low wallet share of our overall versus the size of franchise that we sit on. Loan loss and provisions have now normalized, in the last two quarters, they have been between INR725 crores, INR750 crores. We expect this number to exit at between INR750 crore to INR825 odd crores.

On a quarterly run-rate basis between 135 to 145 basis points. We continue to hold the management overlay given the sustained inflation, given rapid rise in interest rates, we at this point in time are forecasting that we’ll continue to retain the management overlay and would accordingly use it either to strengthen our overall ECL model or eventually release it, given that we’re seeing strong credit performance across all portfolios. But we’re just waiting for some of the cloud — dark clouds that gathering around the globe to pass away.

GNPA 117 basis points, we are at ever low 44 basis points net NPA. So very strong metrics on GNPA and net NPA. Even on an absolute basis stage 2 down sequentially, stage 3 down sequentially. 10 portfolios are green. I could argue even the two-wheeler and three-wheeler portfolio in terms of current basis has come in better than where it was in February ’20. However, the gross NPA, net NPA would still probably need two quarters before they’re back and that’s why we continue to mark them as yellow. As a result, overall profits grew by 88% to INR2,781 crores.

Capital adequacy strong total headcount we added 1,600 employees sequentially between Q1 and Q2 in the quarter across all the three entities. Higher addition in BFSL and in BFL. BHFL very quickly, balance sheet up 42% to just a tad below INR63,000 crore, home loans grew 37% of course base of each one of them is different so keep that in mind. Home loans grew 37%, loan against property 37%, lease rental discounting 72%, and develop finance 68%. The mix is given below as you can see which is home loan is 60% of the balance sheet, loan against property is 11%, LRD15%, developer finance is 7% and rural is — sorry, I may be missing a point. I think BFL is 4%, sorry?

Sandeep Jain — Chief Financial Officer

7%.

Rajeev Jain — Managing Director

BFL is 7%, rural is 4% and others are 3%. Overall approvals grew by 17%. So a little soft on approvals from a quarter standpoint, disbursements remain strong however came in at 32%. It has — they had a very good quarter cost of funds continue to lag behind the BFL and that was really one of the objectives, because eventually that was one of the purposes that we see yield curve to be lower for mortgage companies versus non-banks. So we’re beginning to see the benefit, we’ve seen that benefit over the last four-five quarters play and it continues to play. Cost of funds given at 6.63%, they had a liquidity buffer of just a tad below INR1,800 odd crores.

Borrowing mix remained steady, capital adequacy pretty strong. So they also don’t need capital, they were at 24.6%, they delivered a net profit of INR306 crores, a growth of 84%. So overall pretty good quarter loan losses and provisions came in at 30% versus INR61 crores a year ago. They have a management overlay of INR242 crore. Of course, it’s included in the consolidated numbers of INR1,000 crores. GNPA, NNPA amongst the lowest in the industry at this level of scale at INR63,000 crore total gross NPAs at 24 basis points and net NPAs at 11 basis points.

Stage 2, Stage 3 even here sequentially down. Headcount was down 450 odd people in the current quarter. BFSL we are in a build phase. It still continues to be early years. The way over the last five years, we’ve built-out BHFL, we are on-track that next year would belong to BFSL as a company.

Quickly omnipresence update, I’ll just — I don’t intend to read-through the same. So on geography, we talked about 99 locations added on app platform fundamentally on-track to go fully digital. What we had planned for sprint one of Phase 2 have gone live. Sprint 2 is on-track. I think all products and services across 66 different products and services that we offer to consumers’ journeys would be available by March ’23. On payments lots of work-in-progress. I think we’ll have a much bigger update to provide you in — at the end of Q3. So we remain on-track for payments as well. This quarter is a big quarter in terms of what we are delivering in terms of capabilities as a company for consumers.

Web platform on-track for Web=App by March ’23. Phase 1 has gone live in staggered release. And phase — very similar, starts to look similar. Start here, stop there, stop there, start here in the next 15 days time as we finish the season. And by March ’23 both app and web will look identical and you’ll be able to stop at one place and start another place and vice-versa. So on-track, these are metrics, all metrics are moving in the right direction, what we have just to help you — level one I’m not going to go through metric, the only metric that I’ll go through is what we don’t believe will meet our FY ’23 estimates on.

Overall, the point I want to make is this is not a — this is about this is the way we conduct the business so we continue to be highly disciplined about the execution of the omnipresence strategy, point number-one. Rapid adoption of omnipresence across all processes of the company. And continued progress on all metrics to make sure in production we are achieving what we eventually build this out for. And as a result in Q1, we articulated that what we think this will deliver as estimates, what you see as green fundamentally represents that as of first-half we are on-track to deliver them. So the only one on this panel that you see, we think the wallet account instead of 18.5 million given that we may be just a tad a million lower accounts. It may be instead of 18.5 million, 17.5 million is really how it’s looking like. Otherwise all the numbers are looking may probably are either going to be delivered or we may exceed those numbers based on how Q3 goes.

Same point applies to Panel Number 13, we are on-track, the only thing that you see is digital EMI card acquisition we had said we’d get to 3.8 million to 4 million, it’s probably going to look like 3.6 million to 3.7 million, but I think even that will become much more clearer whether we’re yellow or green as we exit this quarter. But otherwise, I think, we’re pretty well-positioned, these assets are in-production, they’re delivering to us what we would like them to deliver. Giving to the consumer in terms of service experience what it should deliver and as a result, we are now on the app alone, the active consumer basis 26 million customers. We are organically adding on an average anywhere between 4.5 million downloads now a month.

So not most, or virtually all of it is organic, 90% is organic and 95% is organic as Kurush just confirming and 5% is what is inorganic. So clearly, because you’re bringing value to the table that we’re seeing and have stitched all the processes in the company that we’re seeing organic momentum build-out from it.

This is a new panel, Panel Number 14 that I thought I would just take two minutes to give you some texture. This is fundamentally a six-year data that’s on one-hand. The first half data is the seventh metric. Principally, we thought we’ll just give you some texture on how customer franchise is leading to AUM build-out and profit build-out. And what does the cross-sell franchise, which we’ve been talking about to the Street for the last 15 years, principally mean. So if you just focus on two columns that’s FY ’17 for the moment and FY ’22. And mind FY ’22 is not a full year, it was only three quarters. But just from a relevant standpoint, and hopefully, this will be a first year — first full year with no event FY ’23 should be that way. It will become much more relevant by end of FY ’23.

So if you see, we were booking in FY ’17, 10 million loans, last year we booked 24.5 million loans, this year we’ll probably book 31 million, 32 million loans. New customers, we were adding 4 million in FY ’17, we added last year, 9 million. As I said, we’ll probably add 10 million to 11 million this year. Existing customer mix on the loans booked used to be 60%, it’s today at — last year was 63.5% this year so far is at 62.3%. The total franchise, which is gross franchise, was 20 million is at 57.6 million, and first half is at 63 million, and we think we’ll end the year at 68 million, 69 million. The cross-sell franchise was 11 million is at 33 million in six years.

And mind you, one year was a gap year, which is FY ’20. And we foresee that the cross-sell franchise alone will be 40 million consumers probably a little higher, 41 million consumers as we exit the year. We don’t cover loans done. Products that we sell like co-branded credit cards, we used to be doing no credit cards. We’re now — last year, we did 1.36 million, as I said, because it was a nine-month year, we’re already at a run rate of 1.8 million, 1.9 million new cards for the current year.

We used to sell very little other financial products to existing customers. We last year sold 2.23 million various other products, which are what I would call non-loan non-lending products. This year already the run rate at 1 million in the first half. What all this means is how is AUM per cost sell franchise moving. It used to be at 54%. And mind you, we are only 6% of franchise is principally commercial. So 94% of the franchise business or even if you add, let’s say, developer finance for a moment. Even that leads to 35%, 40% of the business gets converted into mortgage loans.

So I can argue on that as a direct correlation. But let’s say plus, minus 10% of the franchise is commercial in nature. 90% of the business has a direct correlation. And if the mix has not changed, which it has not changed between FY ’17 and FY ’23 first half of the year, then all things being same, the average AUM per — not average AUM per client cross-sell franchise used to be INR55,000 is at INR58,500 it’s at INR60,000 and the profit per customer, which used to be INR1,700 is at last year was at INR2,145 and is first half of the year and second half of the year, even if you keep them similar, it’s probably a INR3,000.

I think — I thought we’ll just provide some texture to how the correlation between different metrics are moving to provide better clarity os all the purpose of this panel. We’ll publish this panel every half yearly, because quarterly number may not make too much sense. So we’ll publish this in March again. But just for continuity sake, may publish the quarter, but relevance of this panel will be annualized or at the very least half yearly. That brings me very close, we’ll just go to — I’ve already covered the panel on the product mix, which was secular.

We’ll just quickly cover on financials, that’s Panel 32, balance sheet grew 31%. AUM grew 31%, assets under finance grew 32%, total income grew 29% interest — NIM grew 31%, opex grew 24%, loan losses and provisions degrew 44%, but they are largely now annualized to what we see the number to be between INR725 crores to INR800 crores on a run rate basis at 135 to 145 basis points, on a — as average cost to AUM and profits grew 88%.

Just very quickly to last two panels in terms of portfolio quality we are — we continue to look quite strong as is the case in Q1. Most of them are looking better than February ’20. Not most, all probably other than even two-wheeler, three-wheeler, as I articulated, is looking better than it was in February ’20. But because the GNPA position still and NNPA remains elevated versus February ’20, we penciled it as yellow. Otherwise, most portfolios are now in better place than they were in February ’20. I think that’s really from us for the quarter. Happy to take questions at this point.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Hardik Shah from Goldman Sachs please go ahead.

Hardik Shah — Goldman Sachs — Analyst

Hi, Rajeev. Congratulations on a good quarter. My first question is how many employees are into recovery and collection channels out of the total 39,423 headcount that we have?

Rajeev Jain — Managing Director

Yes. Okay. It’s just about that below 9,500 people.

Hardik Shah — Goldman Sachs — Analyst

Okay. And my second question is, with this inclusion in upper layer category of VFCs, what are the plans over the next few year in terms of growth in listing requirements?

Rajeev Jain — Managing Director

We don’t foresee any change as a result of the map date. We don’t foresee any change in the growth outlook as a result of — at this juncture as a company.

Hardik Shah — Goldman Sachs — Analyst

Okay. And in terms of listing requirement?

Rajeev Jain — Managing Director

I mean, on the face of it, it’s still three years away, we see clarification is what our view is and go by what regulator has to say.

Hardik Shah — Goldman Sachs — Analyst

Okay, thank you.

Operator

Thank you. Next question is from the line of Saurabh from JP Morgan. Please go ahead.

Saurabh Bajaj — J.P. Morgan — Analyst

Sir, just two questions. So one is, have you seen your subvention market share how is it behaving at the store? And the second is essentially on this — on the Bajaj — on the mall side, what is the average ticket size of these loans that you’re syndicating this 2.6 million, 2.8 million loans that you’re syndicating? What will be the ATS of these loans?

Rajeev Jain — Managing Director

So ATS doesn’t changed. So overall, market share other than total credit and our total balance sheet rest of the numbers are best effort basis. If the data is not a verifiable data then that number is a highly subjective point is the first point I must make. So market intelligence can be — is a matter of interpretation and perception. So whatever number I give you will be of as much my perception and interpretation is. As I said, INR218,000 crores total credit that, let’s say, the regular publishes is real. So that’s our total market share. Rest of the number or wherever the numbers are published by verifiable data. Having said that, to just tell you the point, clearly, as I said earlier, I used to see four lenders and now I see 16.

And if I was to tell you that we are holding our market share, it may — you may or may not agree with me. But we’re doing everything we can to defend our market share. So it’s point number one, I would make. Would I believe that we would have lost some share? The answer is yes because of the just — versus four in the number goes to 16, and we are very, very dominant player at the store or in that line of business. It’s like Maruti used to be a long, long time ago, and numbers had to go down from where their dominance used to be. So that’s point number two. Specific market share, whether if a competitor gives me or I give you is of no consequence.

Saurabh Bajaj — J.P. Morgan — Analyst

Okay. Okay. And the average ticket size of these loans is 2.8 million, what should we assume, sir?

Rajeev Jain — Managing Director

Ticket size is same, doesn’t change, doesn’t change, does not change. In fact, to give you texture we still don’t offer, let’s say, smaller access, which we intend to start offering in — so let’s say, iPods and so on and so forth, which is much higher velocity and volume we still don’t offer sometime by March, April, we’ll start to see that. In a way, then ATS may be a relevant conversation today the ATS versus the ATS we do is higher.

Saurabh Bajaj — J.P. Morgan — Analyst

Okay. Okay. And just one follow-up, sir, the market share loss. You’ve seen more impact coming via fintech or with banks like — is it due to Pine Labs and all?

Rajeev Jain — Managing Director

I don’t see fintech there. I see lenders only there mostly. If you pick up the paper, I mean, the IC16 lenders there, they may be working through an aggregator, that’s possible, but principally IC lenders being there mostly.

Saurabh Bajaj — J.P. Morgan — Analyst

Okay, thank you, sir. Thank you.

Operator

Thank you. Next question is from the line of Sameer Bhise from JM Financial. Please go ahead.

Sameer Bhise — JM Financial — Analyst

Yeah, hi. Thanks for the opportunity. Just had a question on the ROE profile. I mean, for last three quarters, you have been overshooting the guided range. So some thoughts on it on how sustainable and on the medium term, how does it look? Or you want to revisit that? Probably the ROE is highest in a decade or so. So just wanted some thoughts there.

Rajeev Jain — Managing Director

Yes. Look, if you go to Panel Number 18, our long-term guidance on consolidated basis doesn’t change. AUM growth of 25%, 27%, profit growth of 23%, 25%. So long-term guidance hasn’t changed. We are obviously — we had, as you rightly saying, we had difficult time in COVID. We are having a — that was super normal negative, this is super normal positive. If you aggregate, as we say, we want to compound and deliver a 19% to 21% ROE on a sustainable basis. We’ve done that now for the last 12 years. So — and we want to do that hopefully the next 10. So I think that’s really where the thought process is. We are clearly going through a super normal profitability zone, lower interest rates, now stronger momentum, lower credit cost.

Sameer Bhise — JM Financial — Analyst

But then you are also spending more. So…

Rajeev Jain — Managing Director

We’re also spending more. We are using — I could argue this is a great time to invest because we are using that and bad times don’t last, good times don’t last, do whatever you’ll do in that time. So to that extent, I think as good times don’t last, the operating leverage should start to play through. So there’ll be a time when NIM will be moving slower, but operating leverage will move better. There will be a time.

So very clearly, we were at 32.5%, 33% prior to COVID. We are at 35.9%. So there will be a time for it to go back to 33%, and there may be a time where NIM will be softer. And as operating managers, we are responsible to ensure we provide that degree of flexibility in the P&L or management of P&L to ensure we deliver sustainable value to the shareholders and that’s really what we are up to.

Sameer Bhise — JM Financial — Analyst

Fair enough. This is helpful though I just still wanted to probe you that given the share of mortgage in the consol balance sheet goes up, your ability to lever up probably increases slightly…

Rajeev Jain — Managing Director

Look at last four years, it’s 32% only. And mind you, they are not — they don’t have a small base. Their aggregate balance sheet is INR70,000 crores mortgage now. So it’s not small by any means because you see INR63,000 crores sitting in BHFL, another INR7,000 crores is sitting. So when we give you 32%, it’s on INR70,000 crores. Neither INR70,000 crores is small, nor INR218,000 crores is the — it’s very hard to move the mix.

And we are in a growth mode, if you go to panel 47 in all lines of businesses, even two-wheeler, three-wheeler, hopefully by the fourth quarter should be in a growth mode. So I can’t say — I can say related to the previous question because I have a very dominant share in the sales finance business. So I will grow in line with the market, even that we have so far beaten because we’ve been expanding geographies. That geographic expansion, as I said earlier, will probably stop by March ’24 most plus minus.

So we’re still maintaining share because of strong geographical expansion. But other than the two lines here, I would say, for a sustained long period of time, we should be in a very similar growth mode.

Sameer Bhise — JM Financial — Analyst

Right, right.

Rajeev Jain — Managing Director

In the process, the mix should not change. And in the process, hopefully, the overall P&L profile should not change.

Sameer Bhise — JM Financial — Analyst

Fair enough. This is helpful and congrats on a strong quarter, again. Thank you.

Operator

Thank you. Next question is from the line of Kuntal Shah from Oaklane Capital. Please go ahead.

Kuntal Shah — Oaklane Capital Management — Analyst

Hey, Rajeev. Good evening, thanks for taking my call. And I just have three questions one is on, what are the key metrics…

Rajeev Jain — Managing Director

One at a time, as per [Indecipherable]

Kuntal Shah — Oaklane Capital Management — Analyst

Okay. What are your key activation engagement and retention metrics which you are seeing in the Track One and which are the worrisome point out there? And many of the fintechs are moving money, but they are not managing money or lending money well. But at some more time, you will have to also move money. So what are your thoughts on ability to move the money for the customer behalf and become number one or two on the app metrics?

Rajeev Jain — Managing Director

Kuntal, principally on point number one, there is a hard framework, Kurush talked about it. His heart goes out for those hard metrics, we can publish them. They stand for happiness, engagement, adoption, retention and large success. It’s a global framework. It’s a Google framework. We can publish it. But at a fundamental level, it will lead to more questions. It won’t lead to an outcome. We are at four point — so if you take happiness, we are at 4.1 on Google Play Store from a rating standpoint and so on and so forth.

I think what is happening, so we have holds of data. We have holds of metrics that are available. We are waiting for some degree of stability. What I mean by that is that an existing customer, hard [Phonetic] metrics work differently from a prospect customer that I know and from a NTV customer that I don’t know. And the mix shifts the hard metrics. So there will be a point in time in the maturity where we are quite happy to publish these metrics. As I said, we have tons of data that we can publish.

But because of the mix in movement, it’s not a appropriate time right now to published them. Overall, however, we are giving you outcome metrics, that’s Panel 12 and 13 and — to give you texture that this is not for happiness, but for business. So I think that’s really — we can give you input metrics leading to output metrics because that’s how we manage the funnel. We — in marketing terms, they call it funnel or in management of funnel, but it may lead to more confusion, more data may lead to more confusion.

On second point, payments, on moving money that’s really what the objective of payments is. The principal objective of payments is one engagement and two moving money. And our 70 million franchise, hopefully, sometime in the near future, 100 million franchise moves a lot of money. So we want a reasonable share of that money that they’re moving. And that’s really why for the last 18 months, we are investing in payments. And next year, we are clear that maybe in addition to the B2B volumes we move close to around INR50,000 odd crores of GMV, we should be able to move in next year, which will be the first full year of the entire payment stack that we would have actually put on table.

It is very much possible we may beat those numbers. But we’ll see. I’m not — they don’t make money that everybody knows now. So anyway, it will have no impact on what that means, but it only gives us greater share of the clients’ mind and his wallet. And those data points are important. And will help us to lend better, do insurance better, do mutual fund better, which is — which we understand fully well. So that’s a response to your two questions Kuntal.

Kuntal Shah — Oaklane Capital Management — Analyst

I’ll join the queue for — I have one more question, I’ll join the queue.

Rajeev Jain — Managing Director

Yeah.

Operator

Thank you. The next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.

Umang Shah — Kotak Mutual Fund — Analyst

Yeah, hi. Congratulations to the team for a great quarter and thanks for taking my question. Two questions. One is on pertaining to Slide Number 14, right? I mean the metrics that you have provided, thanks for sharing this. If you look at the cross-sell of other financial products to existing customers, right, there is a marked shift in FY ’22. Now how should we read this in context of the fee income, which anyway is — or a noninterest income pool, right, which is materially stronger compared to some of our competitors. How does — how will it change this particular metric going forward?

Rajeev Jain — Managing Director

As we go more and more digital, this will happen more and more. There are many more lines over the next 12 months where customer buys them because these are smaller value, he’s buying an insurance, he’s buying a mutual fund, he’s buying a pocket insurance, He’s buying them. The only means to stimulate him is through notification and infrastructure and through banner infrastructure on the app. He’s buying them. That is really the overall objective of transitioning to fully going digital because we clearly believe that the customer has a very large wallet. Lending wallet and insurance wallet, a payment wallet, a mutual fund wallet, a securities wallet.

These numbers would keep growing Umang, we ourselves are — I must make a point are surprised by the budget takeup. So it surprised us on the positive, I would say. And you should expect more of it to happen as we fully go digital or go fully digital.

Umang Shah — Kotak Mutual Fund — Analyst

Understood. My…

Rajeev Jain — Managing Director

What will that mean in number it’s a little early, but next time — by next year we’ll provide that outlook as well.

Umang Shah — Kotak Mutual Fund — Analyst

Great. Rajeev, second question is on — clearly, I mean, we have been talking quite a bit about our omnipresence strategy and clearly going digital on all product lines. In that context, how relevant is geo expansion for us? And anyways — I mean, the other part of the question is that we are anyway fairly deeply present, right? So incrementally, the geo expansion that we are doing, how relevant is that for our growth? Just wanted to understand that.

Rajeev Jain — Managing Director

It’s economic. I must make that point. It’s very economic. So it’s not for hobby. That’s point number one. It’s — we’ve now reasonably perfected the frame. It’s very linear, which means we know in the credit business that we’re in, in the seventh or eighth months that makes money. So it’s very economic, very hard. It’s harder for anybody — for most people to crack. So that’s the second point.

Third point, we will remain omnipresent only. We got — we — customers still — I mean, the M3 money supply and the economies are ever high. That means customer still use cash, point number one. It’s doubled from, let’s say, 2016. I mean that’s the nature of the consumer. That’s really how we’re all brought up. So cash will remain important. That means branch will remain important. Two, debt management will remain important as long as credit exists.

Three service will remain important, but service, we are very clearly seeing is moving more and more digital. So — but the cash and the debt management infrastructure will remain relevant as long as we’re in the credit business. Lastly, deposit, take all products and services, a branch provides meaningful trust and confidence to the consumer to do business with you. I think that’s the third point I would make, an important point. Anup wants to make a point.

Anup Saha — Deputy Chief Executive Officer

I think as a key play from here, we take more products to more geography. I think that’s another big play because as we look at a very well-diversified portfolio of products we have, the B2B and personal loan is where we are present in all the geography. But from here on, where you really write the velocities like as we start our open market two-wheeler, goal loan. We take more products to more geography, and I think that’s a multiyear journey of growth.

Rajeev Jain — Managing Director

So, I think it’s very important Anup is making that, we’ve got boots on the ground we still don’t have all products on the ground. I mean — and we will — and between ’15 and ’20, let’s say, ’23 or ’24 we would have completed what I would call, that’s when we embarked on break-to-Grow as a frame and got to Bharat. The next phase is all products to Bharat. We don’t have all products to Bharat or India. We will take all products in a templated disciplined and rigorous manner to Bharat the next eigth, nine years. That itself could be a six, seven, eight-year journey for us as a company. So omnipresence will remain very important.

Last point, we’re in a highly regulated business. Boots on the ground will be needed. They will become more productive, but they won’t go away. They’re just result of automation, result of digital, they’ll become more and more productive, more efficient, but not going away.

Umang Shah — Kotak Mutual Fund — Analyst

Understood. I think this is quite helpful. Thanks, Rajeev, and wish you all good luck. Thanks.

Operator

[Operator Instructions] Next question is from the line of Piran Engineer from CLSA. Please go ahead.

Piran Engineer — CLSA Limited — Analyst

Yeah, hi. Congratulations on the quarter. Just a couple of questions. Firstly, what’s the strategy in home loans because last few months, we’ve been 30, 40 bps lower than players like SBI and HDFC. So what exactly is the thought process of undercutting the market leaders? Is it mainly a market share gain strategy or how do we really read this?

Rajeev Jain — Managing Director

Yeah. I mean, we’ve come to a conclusion that home loans is as much psychology business as it’s business, and we’ve seen that play. I think you will find that in certain pockets where we are very, very comfortable. As you can see, clearly, BHFL is beginning to — their cost of funds have begun to be lower than structurally now over the last five, six quarters than BFL. Because as I said earlier in my opening remarks that a mortgage company has a — the interest rate curve is lower than non-bank. So we’re seeing that benefit play through now as the company has completed five full years of operation. Very clearly, both in the bond market and otherwise, we’re seeing that. And it helps that they have amongst the lowest gross NPA, net NPA.

So that benefit we are passing through to take certain positions in certain affluent spaces. So, let’s say, a crore of home loan, we have taken a position that we want to be the lowest. Of course, mind you, the market doesn’t sit there. The market remains — continues to sit between INR50 lakhs and INR75 lakhs. But we do want to start to take a position in certain of these pockets and these cohorts to make sure we can create a space for ourselves in a market, which is intensely competitive. And the real big are playing on the strength of pricing and on the strength of distribution act. So — we’re trying to make a space for ourselves Piran. That’s all we’re trying to do.

Anup Saha — Deputy Chief Executive Officer

If I may add, Rajeev, what — would price and process are the two distinguished but generally, we talk about home loan market as a commoditized market. If it is a commoditized market, we believe we have a better process. Then coupled with that price positioning in the premium segment of the home loan, we believe, is going to get us on a faster track to gain market size, both psychologically and then consequently, the market share. That’s the strategy behind.

Piran Engineer — CLSA Limited — Analyst

Got it. Okay. That’s clear. And sir, secondly, and this is probably a bit more long term, like four, five years down the line, where do we really see the customer count settling at today, which is 6 crore, 6.5 crore and obviously, the TAM is something that most investors, including me struggle with, is it going to be INR10 crore, could it be materially higher? Because in Panel 14, you rightly stated that your AUM per cross-sell franchise is stable. So a lot of growth comes from growth in the franchise. And just want to get a sense of what that addressable pool really is in your view in the more long term, not next one or two year?

Rajeev Jain — Managing Director

Bottoms-up is a better way to play India than top-down play it by the year. We ourselves are surprised by — we have upgraded the guidance to 10 million to 11 million. We have an ambition to have 100 million consumers. Now as you rightly said, I’m not chasing the number. Maybe we get there in — as we fully go digital, it may happen in two and half years. It may happen in four years. It may never happen. I mean — but we are playing this business bottoms up the earlier conversation on omnipresence from geographic expansion to going digital, I think the opportunity is tremendous, but it’s a credit business. It’s credit and risk first. Otherwise, if that does not come into the way, the ambition is 100 million consumers is really what I would say.

Piran Engineer — CLSA Limited — Analyst

Got it. Sir, just one last clarification on Slide 13. In your app — panel 13 in your app business metrics, you’ve got digital EMI card acquisition and then you’ve got a similar number in on the last para. So I guess the first one, is it the number of consumer durables purchased on the app, like the 100,000 number for Q2 FY ’22?

Rajeev Jain — Managing Director

So you’re referring to Panel 3, the three lines, that digital EMI card acquisition in the quarter, this is what you’re referring to?

Piran Engineer — CLSA Limited — Analyst

Yes, which is 100,000 for this quarter. Is that a number of consumer durables purchased on the app?

Rajeev Jain — Managing Director

No, no. Go ahead.

Sandeep Jain — Chief Financial Officer

100,000 are the number of customers who have procured digital EMI card from us.

Piran Engineer — CLSA Limited — Analyst

Sandeep, that is 664,000, right below?

Rajeev Jain — Managing Director

664,000. Yes. 664,000 [Foreign Speech] 100,000 came from the app, 564,000 came through web just to give you — it’s all digital. So — and in fact, it’s an interesting point you make the point. When I was telling on this call nine months ago that we think web we will be — web helps to discover and app helps to exploit this is really the point we’re making that you see — and you will see this play product by product.

We are reasonably clear because just the sheer scope of discovery of web is going to surprise even us. We are very clear that it will be bigger. App is to exploit, engage, web is to discover. As you can see, 100,000 came in from the app, they came — they started from the app, completed the app — on the app got the EMI card. But 564,000 came on the web. Where with about different affiliate marketing channel and so on and so forth.

Sandeep Jain — Chief Financial Officer

And incrementally as we move towards App=Web and Web=App, I think it becomes irrelevant whether the customer is starting to journey from app or web it will get completed on either the platform.

Piran Engineer — CLSA Limited — Analyst

Got it, got it. No, this is super helpful. Thank you so much and all the best.

Operator

Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead.

Nidhesh Jain — Investec Bank Limited — Analyst

Thanks for the opportunity, sir. Sir, can you share the yield on urban B2C and dual B2C portfolios?

Rajeev Jain — Managing Director

I mean, we don’t do segmental — having said that, I must make a point to you. It’s all in public domain now, right? I mean it’s on the app. Just download the app, put your location and based on if you’re an existing customer, you’ll get a price and so on and so forth. I mean it’s out there fully in public domain. Of course, there are different cohorts, as I keep making a point. We don’t run one urban B2C, and we don’t run one rural B2C. It’s based on a 40, 50 cohorts at the very least, it may be higher cohorts on the other end. That’s really how we do risk separation and price segmentation and price separation.

So — but we don’t publish that what the effective yield is because that may also change. At a fundamental level, if the mix change of the cohort, the net yield on that would change. So that’s really how I would respond to your question.

Nidhesh Jain — Investec Bank Limited — Analyst

Sure, sir. Second is just a clarification, sir, the Panel 14 existing customer mix 62.3%, which means that out of the new loans booked 62.3% of the loans has been given to existing customers, is this right?

Rajeev Jain — Managing Director

Yes.

Operator

Thank you. Next question is from the line of Nikesh Shah from Motilal Oswal. Please go ahead.

Niket Shah — Motilal Oswal — Analyst

Yeah, hi. Thanks for the opportunity. Just had two questions. One is on the fee income part, which I think in the previous participant, you did answer in the web and the app environment, the fee income would grow faster than the OEM growth. This would be additional lines of fee income? Or would there be some cannibalization?

Rajeev Jain — Managing Director

No, we don’t foresee cannibalization. Clearly, it’s a wallet share conversation. As I said, from push we transition to pull. This is what he wants to buy because these are lower value, higher velocity, of course, stimulated, stimulated being defined as banner, as I earlier said, bannerization, notification infrastructure, nudges, end of journeys and so on and so forth, what a typical digital marketing infrastructure would do, but these are new lines.

And as I said earlier, for engagement or to meet the latent needs of the consumer, you’re going to see more and more come to play.

Niket Shah — Motilal Oswal — Analyst

But how do we — is there some way to quantify because it’s — there are multiple lines of fee income that you would be doing it, so…

Rajeev Jain — Managing Director

We’ll provide an outlook on that by next year.

Niket Shah — Motilal Oswal — Analyst

Got it. And the second question is on the [Technical Issues] business, while we do understand you’ve made an application for the credit card license, when do we expect clarity on that? That will be all.

Rajeev Jain — Managing Director

When we get clarity.

Niket Shah — Motilal Oswal — Analyst

Yeah.

Rajeev Jain — Managing Director

When we get it, we apply it, yes. When we get clarity, we’ll provide you clarity.

Niket Shah — Motilal Oswal — Analyst

Okay, got it. Thanks so much. I’ll come back in the queue.

Operator

Thank you. Next question is from the line of Shweta Daptardar from Elara Capital. Please go ahead.

Shweta Daptardar — Elara Capital — Analyst

Thank you, sir, for the opportunity and congratulations on great set of numbers. So two questions on the rural business side, if I look at stage 3, sequentially, there has been marginal spike. So what reason you would attribute for the time?

Rajeev Jain — Managing Director

So actually, you will see spikes, not even just in rural, you’ll see across — at a fundamental level, they’re all still below. We’ll publish just too many columns so we didn’t publish, but as we published in the graph behind, they’re all still significantly below Feb ’20. So numbers movement is marginal, number one, but it’s still significantly below Feb ’20. The right way to look at this would be December ’19. So that’s how you should read these numbers. So we plot against 31st March ’22 got one more column of December ’19, the numbers you would make, because we don’t want to leave.

See this is, as I’ve said, we were at 130 to 140 basis point average credit cost to AUM. We are not guiding that it will be 1%. I mean, we don’t want to leave money on the table. We are a growing company. We manage risk well, we manage risk consistently well ove long periods of time. But this is not the new normal that we want 100 basis points credit cost. As long as it remains in the corridor of 130, 140, 145 basis points, we are very comfortable with the profile. So it’s by design. And you will see these numbers still move until each of these lines, principally if they’re worse off, go back to, which is the case of two-wheeler and three-wheeler. Until then we’ll keep stamping as yellow. And others will remain green until they go back to pre-COVID, which is December ’19. Whenever the bust December ’19, we’ll change the color coding to a yellow, red based on our management assessment.

Shweta Daptardar — Elara Capital — Analyst

Fair point, sir. Sir, second question, if I look at gold loan franchise, I think [Indecipherable] you’re putting up on an average 20-odd branches every quarter, sir, can you just give us color on the entire modus operandi of how is the market positioning? How do you view the consensus and where do we see this business growing as an overall book? Thank you.

Rajeev Jain — Managing Director

We are very small to give you guidance on that. Only outlook I can give you is that you should expect to see more infrastructure rollout in this space over the next six, eight months, is the only point I would make. We are — we will see greater momentum in physical infrastructure, which means growth in business over the next 9, 12 months.

It’s growing even now and that’s why we’re investing. But we intend to invest lot more as over the next, as I said, six, eight, nine, ten months. Because we’ve come to just as a last point I would make, we’ve come to a conclusion that fundamentally it’s reached a point where principally it cannot sit in the existing branch. It’s a lot more — it’s viable. We’ve now — we understand how a stand-alone gold loan branch works. So — and we are clear that it’s not serving the needs of the consumer in the brand that it sits in.

So if it sat independently, distinctly in — on a ground floor infrastructure, consumer-facing, it’s a lot more viable, profitable, effective. So sorry, and dedicated teams as well. So you will see a lot more action here over the next, as I said, six, eight, nine months. It’s a fair question you asked. You asked the question because you will see more movement here in this line.

Shweta Daptardar — Elara Capital — Analyst

Got it, sir. Thank you so much.

Rajeev Jain — Managing Director

Thank you.

Operator

Thank you. Ladies and gentlemen, we’ll take the last question from the line of Param Subramaniam from Macquarie. Please go ahead.

Param Subramanian — Macquarie — Analyst

Hi, Rajeev and team. Thank you for the opportunity. I have a few questions. Firstly, on — if you look at the digital transformation…

Rajeev Jain — Managing Director

You can ask two, as I told Kuntal, Param, you can ask two.

Param Subramanian — Macquarie — Analyst

Okay, okay. Sure, Rajeev I’ll limit to two. So first question — firstly so if we look at — talking about digital transformation, whether we like it or not we all appreciate you’re working on a very large base of customers, but the volume of loans booked were still flattish compared to say three years ago the reported customer franchise has increased significantly. So if we’re talking about digital transformation, don’t you think on a volume basis they should start looking up? And there is — the reason I’m asking is that there is a big divergence now between the volume of loans that you’re booking versus the value growth that we’re seeing in the AUM that you’ve highlighted before as well. So your thoughts on that Rajeev firstly.

Rajeev Jain — Managing Director

So you go back to our two years ago transcript. You’ll find, we used to do wallet loans 200,000 a quarter. We stopped doing them. You will find that we were doing retail EMI purchases loans, 220,000 a month, which means 700,000 number, I think, by the time we exited in ’20, it was 600,000 to 700,000 a quarter. That number is at 200,000 because we — so both these contributed to in a quarter 0.5 million additional loans. We walked away from wallet loans clearly, one, we lost money, two, RBI new guidelines came in, and they’re in the right direction.

Two is [Indecipherable], we came to a conclusion that at a fundamental level, it’s only at INR14,000 plus retail EMI card spend that we are viable over cycles. In the cycle, in an upcycle, we were in money, but in a down cycle adjusted for both we were not in money at less than INR14,000. So the call was that rather than doing 225,000 loans, we are now doing 70,000 loans, but we make money and that’s really what the purpose is. So apple-for-apple, new loans book is not a metric incrementally increasingly. And that’s why it’s relevant Param you’re asking the question, we thought we will start to talk in addition to new loans book, AUM because what have we said always, it’s acquired to cross-sell. The means of cross-sell over the last — means to acquire over the last 15 years are also changing.

Mind you, go back to, let’s stay with the — go to digital card acquire, okay, that actually, we don’t have FY ’17 data. So 664,000 digital EMI cards acquired, in ’17, they didn’t exist. And as we still don’t publish mind you new payment customers we’ve not started to publish. Sometime by quarter four, we will start to publish them. And we’ve taken the call, we’ll only publish those who are full KYC, since we’re discussing might as well discuss that as well, right?

So we’ll start to publish that number, which we’re not publishing as yet. So — and we don’t want to deal with — I don’t want to count non-KYC customers as KYC. So the means of customer acquisition are changing. The means of mining are changing. Important is Panel Number 14 is AUM per customer changing and is profit per customer growing. If we are going, that’s really what should matter. And digital transformation, as I have said, remains a means to an end. It should mean stronger growth, sustained momentum, growth in customer wallet and hopefully, higher profitability. That’s really all it is.

Param Subramanian — Macquarie — Analyst

Got it, Rajeev. No, I appreciate the mix shift away from remi [Phonetic], it’s even adjusting for that because if I’m not wrong, it was less than 10% of the — on a volume basis. So that’s why I was asking that. But moving on, if I could ask on the ticket prices in the personal loan business, how has this moved over the last three or four years, if you could highlight that? Because some of our channel checks seem to indicate that it’s gone up significantly. So if you could give some color on where the ticket size is on the personel loans, the urban B2C and the rural B2C business? And how it used to be, say, three or four years back?

Rajeev Jain — Managing Director

The mix has not changed. I go back to your point. The mix is same. See, this is the point I keep making, the mix is not changing, nothing else is relevant. The mix of the business is from a — go to Panel 47, so let’s say, urban B2C 20%, 21% I don’t know if I have older presentation. And a year later it’s 20%. I don’t think the number would look between 19% and 20%, if you open even 2019. So you should — so as the mix is not changing, that means the overall business model is not shifting in any given manner. Whether for high risk or for lower risk, mind you. The question was for lower risk that if mortgage grows, risk would be lower, what would happen. Your question is a higher risk.

Param Subramanian — Macquarie — Analyst

No, no, it’s not on risk, Rajeev, you — so basically, I’m asking on ticket sizes, how much headroom more do we have to expand ticket sizes because if we — the movement over the last three or four years, could you give us some color on that?

Rajeev Jain — Managing Director

Param, what happened is we are very clear, inflation in India runs at 7%. Every year, annually, we principally track only inflation. On January 1, we had inflation as a growth in a personal loan business and run rate, fundamentally it will run with inflation, inflation plus 2%, 3%, depending on if you’re doing well, plus 2%, 3%, if you’re doing badly, minus 2%, 3%. That really was inflation plus 2%, 3%, inflation minus 2%, 3%. So that’s really how — the ticket size we don’t know.

Last point I must make at a fundamental level, as we go down and down into India, clearly, affordability is an important dimension. By design, it’s more low and grow. Okay, by design. So India in 3,682 cities is very different from 3,000 and 3,500 and 120 and 8. So we break India into 23 different Indias. And those 23 different Indias is how we then run the model.

Param Subramanian — Macquarie — Analyst

Got it. If I can ask one last question since I am the last person in the queue that — yes. So you mentioned that at the margin, you might be losing market share at the store in terms of financing consumer durables. So this has been the key customer acquisition engine for you. Do you see this impacting the cross-sell franchise in any way if this sort of competitive trend persists because like you highlighted there are 16 lenders at the store now. So does that affect you in the cross-sell journey, say, three, four years down the 9 when you’re cross-selling a personal loan, because the acquisition franchise could be impacted because of that? That’s my last question.

Rajeev Jain — Managing Director

So fundamentally, Param, on a lighter way and I published Panel Number 14 on to you early 14, 13, which panel is it?

Sandeep Jain — Chief Financial Officer

14.

Rajeev Jain — Managing Director

14. Panel is for you only. And I can’t foresee four years because I didn’t foresee COVID, I didn’t foresee where interest rates are headed. So I can’t foresee four years, we’ll build micro up. We’ll take year at a time. As management, we still take quarterly time because we have a quarterly test. So channels are changing, business has not changed, means are changing.

And I think digital transformation is delivering to us at a means level more opportunities than challenges because the consumer has changed. We’re all paying for our coconut water on UPI. We were not doing that. So the consumer has changed. The means — business has not changed. We are in the credit business. If the means don’t change. So means are representing more opportunity rather than challenges, because consumer would go to those who are meeting his means because he’s gotten used to those means.

You must, of course, understand business because if you give money against a coconut water, you’re going to be in trouble. So that’s a different point. But — so I don’t foresee challenges, I see opportunities.

Param Subramanian — Macquarie — Analyst

Okay, Rajeeev, thank you. Thank you for your comments, yeah, really appreciate. Thank you.

Rajeev Jain — Managing Director

Thank you.

Operator

Thank you very much. I now hand the conference over to Anuj Singla for closing comments.

Anuj Singla — Bank of America Securities — Analyst

Thank you, Nirav. Rajeev, sir, any closing comments before we conclude?

Rajeev Jain — Managing Director

No. Wish you all a very Happy Diwali, go shop, it’s raining heavily across India. So — and raining every day in the evening hurts business more. So please shop during the day. Thank you. Have a good year ahead.

Anup Saha — Deputy Chief Executive Officer

Thank you all.

Rajeev Jain — Managing Director

Thank you, Anuj, for hosting us.

Anuj Singla — Bank of America Securities — Analyst

Thanks to you, sir, for giving us the opportunity to host you. Thanks, everyone for joining this concludes our call for today. Over to you, Nirav.

Operator

Thank you very much.

Rajeev Jain — Managing Director

Thank you.

Operator

[Operator Closing Remarks]