Aptus Value Housing Finance India Ltd (APTUS) Q2 FY23 Earnings Concall Transcript

Aptus Value Housing Finance India Ltd (NSE:APTUS) Q2 FY23 Earnings Concall dated Nov. 09, 2022

Corporate Participants:

M Anandan — Founder

Balaji P — Executive Director And Chief Financial Officer

Analysts:

Mona Khetan — Dolat Capital — Analyst

Shubhranshu Mishra — Philip Capital — Analyst

Ankit Bansal — BB Investment — Analyst

Rishikesh Pakri — LeapFrog Investments — Analyst

Pranav Gupta — ASK Investment Managers — Analyst

Jain Swati — Kotak Securities — Analyst

Amit Bhatt — MIT Engineers — Analyst

Franklin Mora — EquiNet Advisory — Analyst

Manoj Sharma — YES Securities — Analyst

Analyst — — Analyst

Ankit Bansal — AB Investment — Analyst

Presentation:

Operator

Good day, ladies and gentlemen, and welcome to the Q2 FY ’23 Earnings Conference Call of Aptus Value Housing Finance Limited, hosted by Dolat Capital. [Operator Instructions]

I now hand the conference over to Ms. Mona Khetan from Dolat Capital. Thank you, and over to you, ma’am.

Mona Khetan — Dolat Capital — Analyst

Thanks, Michel. Good evening, everyone, and welcome to the earnings call of Aptus Value Housing Limited to discuss its Q2 FY ’23 performance. We have with us the senior management from Aptus to share industry and business updates.

I would now like to hand over the call to Mr. Anandan for his opening remarks, post which we can open the floor for Q&A. Thank you, and over to you, sir.

M Anandan — Founder

Thank you. Thank you, Mona. Ladies and gentlemen, good afternoon to all of you. I am Anandan, CMD of the company. I welcome you all to this conference call to discuss the financial performance for the quarter ended half year ended FY ’23. I have with me Mr. P. Balaji, ED and CFO; and Mr. CT Manoharan, Executive Vice President, Business Development. The results and the investor presentations are available from the stock exchanges as well as on the website. I hope everyone has a chance to look at it. After, as you know, had a healthy first half year, so resulted in our strong financial results. Disbursement growth has picked up momentum and collections are back to pre-COVID levels.

With focused collection efforts, our 30-plus DPD sharply improved to come down to about 6.32% from something around 12.98% in March 22, the 9.9% in June, and now it is 6.32%. In fact, these levels were able to achieve even sooner than what we have expected. Coupled with this improvement, there is good improvement in NPA and RP as well, which has improved to 1.410% as against 1.5% as an better June 22. Total disbursements for the half year stood at INR1,129 crores as against INR668 crores in the supply in first half FY ’23 represented to up by about 69% in September, it closed about INR6,000 crores, 5,932, which represents a healthy growth of 33% year-over- year very healthy at about 14.32%, representing an improvement of 129 basis points as compared with previous year.

We have registered an ROE of about 8.10%, which is one of the best in the industry and an ROE of 15.83%. I would like to reiterate the fact that we have enough balance sheet liquidity. Currently, we are carrying about INR1,000 crores of cash on cash equivalents and deposits. Liquidity without — in fact, this INR1,000 crores does not include undrawn sanction of INR500 crores from National Housing Bank. Our network stands at about INR3,125 crores, which indicates robust capital adequacy in order to support the future growth. Key highlights for the half year ’23 performance being our NII was about INR405 crores, up by 45% and NIM, 14.32%, up by 129 basis points.

And net profit, about INR232 crores, up by 52%. Our AUM up by about 33% at INR5,932 crores. This does help for the first half year, as I mentioned earlier, about INR1,129 crores growth up 29%. And GNPA is about 1.47%, capital adequacy is about 80%. And our ROE asset bench about 8.7% one of the best in the industry, and ROEA to about 15.8%. In fact, there is an improvement or increase of about 174 basis points in our ROE compared with the previous year period.

I would now hand over the line to Mr. P. Balaji, our CFO, to discuss various business parameters. Thank you.

Balaji P — Executive Director And Chief Financial Officer

Thank you, sir. Good afternoon, all of you. As of 30th September, the total live customers were over 95,000 it proven a growth of 31% year-on-year. Total number of branches were at 230. We have added 5 branches during the half year. Employee count was at 2,359. Main performance highlights were AUM grew by 33% year-on-year to INR5,932 crores, and disbursements increased by 69% to INR1,139 crores as compared to last year. NIM was at 14.32%. It has increased by 1.29%. opex to assets 2.10%. PAT was at INR242 crores, representing a growth of 52% year-on-year. ROEA and ROE was at 8.71% and 15.83%, respectively. Now coming to the asset quality with focused collection efforts, 30-plus DPD sharply improved to 6.32% in September versus 9.91% in March and 12.98% in December ’21.

Coupled with this, there is a good improvement in our GNPA to 1.47% from 1.75% as of June. Net NPA is at 1.1%. We have increased the provision coverage ratio from 0.8% in March to 1.1% as of 30th September. We are carrying a total provision of INR60 crores and this, when compared as a percentage of NPA works out to a coverage of 69%. Outstanding restructuring book were at a nominal 0.8% of the total loan book and the beginning of this book is on par with our normal book. Borrowing, we have well-diversified borrowing. 64% of our total borrowings are from banks, 21% from NH, 10% from like IFC and large financial institutions and the balance is in the form of securitization. We enjoy a rating of AA- both from ICRA and care, we have published on balance sheet liquidity of INR1,000 crores without including the undrawn sanctions of INR500 crores from NHB. As on 30th September, our net worth was INR3125 crores. Thank you all.

Now with these remarks, I open the floor to the question — for the question-and-answer session.

Questions and Answers:

Operator

Thank you very much [Operator Instructions] We have the first question from the line of Shubhranshu Mishra from Philip Capital. Please go ahead.

Shubhranshu Mishra — Philip Capital — Analyst

Hi, sir. Good afternoon. Thank you for the opportunity. A couple of questions. One is I just want to understand what are these quasi home loans? What is the definition of these, what is the ticket size? And what are these insurance loans? My understanding–

M Anandan — Founder

Voice is not clear. They are not able to–

Operator

May we request — Mr. Mishra, may we request you to please use your handset if possible.

Shubhranshu Mishra — Philip Capital — Analyst

Hi, is this clear?

Operator

Please proceed.

Shubhranshu Mishra — Philip Capital — Analyst

Yeah. Sir, I wanted to understand the definition of the quasi home loans and the average ticket size for these quasi home loans. And my understanding is that we can’t provide a loan for insurance attachment. We have shown something at 4% as insurance loans. So if you can clarify on that. And I wanted to understand what proportion of our bank borrowings are on PB&R. These are my few questions. Thanks.

M Anandan — Founder

Yes. First, in terms of the quasi home loans, actually, they are loan requires to consent the hole, so there are home loans only. But the only thing is that they doesn’t qualify the full interpretation of NSB as a home loan because they were constructed. The completion was done about two, three months back or such a thing. So in other words, the — for all practical purposes, they are new homes and the customer bill them for them to sell operation copper. And as they really planned in advance, they would have been very much qualified for it. But since they really see a most of our customers are really sell some customers and land is owned by them construction costs also largely incurred by them.

But when it comes to part of the transaction cost, they don’t request for it in time much earlier than actually what we need, resulting in these loans are given after completion of the transaction after procurement and things like that, which doesn’t qualify a shell. But from our point of view, there are good loans than new loans for good customers. And we are really treating them as part home loans, I would say the definition of L as defined by the NSV. That’s on the loans. As far as the insurance is concerned, actually, this is not insurance.

This is an insurance — I mean it’s more of a credit it to shield insurance premium paid for the credit shield in case of unfortunate events happen in our customers, then the outstanding loan liabilities paid by the insurance company, as you are aware. These are very much permitted. So we are giving a loan equal in product insurance premium, current insurance premium. And that works out about 3% to 4% of the loans, and this is very much permeable by the regulator. What we cannot be qualified, it doesn’t qualify it. If you can’t classify the part of the hedge, you can set these non-hedge loans. So that’s on an insurance, on the bank on.

Shubhranshu Mishra — Philip Capital — Analyst

How much — what is the borrowing percentage linked to the [Indecipherable]?

M Anandan — Founder

Yes. Actually, our could look at it of our managing size alone to funding a INR crores closer to about INR3,000 crores is really our net worth and INR3,000 crores, it’s really — it is really the bank borrowings. Of the INR3,000 crores, 60%, about INR1,800 crores is the bank borrower fixed rate and the balance is a variable rate. And this variable rate is linked to the one-year MCLR, right?

So in other words, there is some as far as the company is concerned, while there is substantial increase in interest rate, the impact is somewhat less and given the fact our leverage is low, be that the borrowed funds, significant part of our funds are really fixed loans for a period of five years turnabout. And of the director for also the variable part, the interest rate is linked to MC on a one-year basis. So there is a lag impact. So that way, at least for the we are ending March 23, we don’t expect as we expect our existing funding costs to continue.

Shubhranshu Mishra — Philip Capital — Analyst

Right, sir. And what is the average ticket size on quasi home loan, sir?

M Anandan — Founder

It is about same actually our home loans, as you are aware, it will be in the average of about INR8 to INR nine lakh, and the cost in home loans also are on that only. As I’ve mentioned, it is our home loans for all package purposes, but it doesn’t meet fully the requirements of manage.

Shubhranshu Mishra — Philip Capital — Analyst

That’s it. Thank you for your time. That would be all.

Operator

Thank you. We have the next question from the line of Ankit Bansal from BB Investment. Please go ahead.

Ankit Bansal — BB Investment — Analyst

Hello. My question is, sir, the finance cost and employee costs have increased in this quarter. Can you please explain what are the reasons, sir? Is the interest rate increasing, that is the reason? Or can you please explain?

M Anandan — Founder

Yes. Actually, the interest cost percentage terms, it has not increased at all. It has increased because of the incremental disbursements came out of borrowing and improve our — as you know, that improve leverage. So in other words, the increased finance cost is on account of the additional borrowing coming to support the additional investment. We have mentioned that in the current year, we have discussed six months we defer about INR1,200 crores. Almost entire INR1,200 crores came out of borrowings. The equity has been fully utilized even in our opening level. So in other words, interest as per se in percentage terms, it’s not so much increase, in fact, it’s a amari reduction.

But then what was we increased cost in absolute terms on because of the additional borrowing to support the additional reimbursement. That’s one. On the ARPU also, if you see, first of all, the opex last year was five months because April 21, as you know, was roughly close on a kind of way, current year, it’s really six months. So it is high versus six months comparison. But apart from that, there is some increase in opex only mainly in the employee-related cars that to the variable component of the ample wintered cars to support the significant growth in our disbursements in the first half year.

Ankit Bansal — BB Investment — Analyst

Okay. Okay. Sir, the next question is, sir, what the performance in new markets, like Arisa Maharashtra were just started, how it’s been –?

M Anandan — Founder

As part of our growth, we always working on 2 things. One is really increase the productivity, enhance the productivity of our existing branches, existing staff and then add with new branches in the existing stage then add the new branches in these new states. The first one in terms of the increase in the productivity of existing branches in starts going on well. And adding the new branches in the existing states, namely particularly in Angola and Talangana, we did add quite a few branches in the last 12 months or so.

And the third element that we’re asking Timsoadding new branches in new states, we have — we believe this philosophy of contiguous growth to that extent we are looking at Maharastra, and Satish. And if I fast we have really started — we have opened 1 branch in Maharastra, Barempand there are plants to open second bench also will be open any time now. So we will be looking at closely Marastra and also in going forward.

Ankit Bansal — BB Investment — Analyst

Okay. Sir, any idea of giving dividends, sir, your shareholders are waiting for this.

M Anandan — Founder

The Board will take the call as appropriate in time.

Balaji P — Executive Director And Chief Financial Officer

Yes.

Ankit Bansal — BB Investment — Analyst

Sir, we are loyal shareholders. Sir, we have been wide from the IPOs please consider this requirement.

M Anandan — Founder

Yes.

Ankit Bansal — BB Investment — Analyst

Thank you.

Operator

Thank you. We have the next question from the line of Rishikesh Pakri from LeapFrog Investments. Please go ahead.

Rishikesh Pakri — LeapFrog Investments — Analyst

Yes. Sir, just wanted some clarification on definition. So for example, there is a sanctioned part of 72 hours, which is mentioned there. So what does it include, I mean, is it like end-to-end from log in to sanction? Or are there parts which you don’t consider in this that definition?

M Anandan — Founder

It is basically the log in to sanction from the time the files are logged in at the branches, the sanction happens at the end of it, that is within 72 hours. But what happened, the final disbursement, the kind of segment which we are servicing, basically the self-employed kind. They might not have the full legal papers on hand. So it takes time for them to have the legal documents given to us and on it takes time for us to wet the documents. So that takes around seven to eight days. So after that, the disbursement happens, but the sanction happens within 72 hours.

Rishikesh Pakri — LeapFrog Investments — Analyst

Okay. Thank you so much. And sir, just on your asset rundown, what are your current BT out replay?

Balaji P — Executive Director And Chief Financial Officer

Actually, our total, really see the balance transfer. So, the other financial institutions, including banks and, it is only about 2.5% to 3% only. But in addition to that, there is another 5% is coming. It’s not a BT. The type of customers who are largely self-employed, over time, they accumulate savings through local chips like Shira, Margery, etc., etc., and using the funds or other point, they come for the pre-closure of the loan with their own money. So, it is not really BT, but from other point of view, it is a pre-closure.

So, pre-pressure overall, it is about a, but after 8% further split if you look at it, 5% is out of customer on money and 3% do really the bank transfer to others. In fact, we also have the habit as a process. We check through these customers who are really settle their accounts through the one fund after six months, after 12 months to see whether they have taken the loans anywhere else and they have not taken the loan also. So, they have kept the 3. So, which means that it is confirming our view that it is our overall performance.

Rishikesh Pakri — LeapFrog Investments — Analyst

It’s excellent. So, sir, just to confirm, these are annual numbers, right? 8% annually in terms of rundown and BT?

Balaji P — Executive Director And Chief Financial Officer

Is the percentage and we, lately, we complete the percentage on the opening stock on lending. Our AM, as I say, on the 1st of April 22, we take, and that we compare with the actual pre-closure during the year.

Rishikesh Pakri — LeapFrog Investments — Analyst

Understood, sir. No. Excellent. Just one last question from me, sir. on your asset side or liability side, you’ve given a fixed and variable mix. On the asset side. I mean, what percentage of your books are under fixed rate which you cannot reprice? And what is flexible? I see some numbers in the presentation. Is that the right way to look at it?

Balaji P — Executive Director And Chief Financial Officer

Yes. In the loan book, 78% of our loans are on a fixed rate contract basis. Annually 22% is ready and the variable contract basis. But having said that, on the liability side also, we’ve got a significant part of which on the fixture, the either equity or the fixed loans. And the variable part of the loans are really around 28% or so. On the liability side, we assess about 22%. But then we are also able to bring down our some of our borrowing cars, you are leveraging our credit rating upgrade tenant of December. And also going forward, we are planning to use the under INR500 crores from NHB, which normally provide us as a lower interest rate for a much longer tenure.

Rishikesh Pakri — LeapFrog Investments — Analyst

Okay, sir. So just to confirm, so on the 78% fixed, you don’t have any ability to reprice. And is this ratio staying constant for your fresh onboarding your current disbursements also in similar proportion?

Balaji P — Executive Director And Chief Financial Officer

Yes. See, we start the first half, actually, our contract does provide in case of exceptional situation, we have the right to revise the interest rates even have a fixed way contracts. That’s cross we ever invoked in the last 12 years.

Rishikesh Pakri — LeapFrog Investments — Analyst

Understood, sir. Excellent. No, congratulations for a very good quarter, sir, and all the best. Thank you. That’s all for me.

Operator

[Operator Instructions] We have the next question from the line of Pranav Gupta from ASK Investment Managers.

Pranav Gupta — ASK Investment Managers — Analyst

Firstly, a clarification did you say 70% of the loans are on the asset side are fixed?

M Anandan — Founder

Yes.

Pranav Gupta — ASK Investment Managers — Analyst

Okay. So 2 questions from my end. One is on the employee costs. So if you look at it on a sequential on a Y-o-Y basis, on both the count has been a significant jump. Could you explain if there is any one-off here or whether on rate that you’re looking at, given that we are expanding into new geographies. That was the first question.

M Anandan — Founder

See, first of all, I want to sort of to kind of notice that CapEx, operating costs, one of the lowest in the industry, including the employee cost. But coming to the specific in terms of an increase in the first half year of this year versus last year, I had mentioned it well above the last year first six months not really six months. It’s only five months because April 21 was fully closed, and our employee cost, not the employee cost, but the variable employee costs and other related expenses was lower. So that’s one aspect.

But other significant aspect is that in the current year, we had a 69% increase in our volume of disbursements. We have disbursed about INR1,200 crores as again, some about INR700 crores also these previous six months. Now as part of our employment remuneration terms, a part of the employment cost is a variable component of the employment, employee cards, incentives, variable cards. That is to move in line with the increase in volume. So, because to reflect the increased volume, but that’s also one element of our increase in the employee cost.

Balaji P — Executive Director And Chief Financial Officer

Otherwise, there is no, actually, there is no onetime or there is no unusual costs have been incurred. But just to add, what is you asked about the sequential growth, right, from INR22 crores to INR33 crores.

M Anandan — Founder

Yes, yes, yes.

Balaji P — Executive Director And Chief Financial Officer

Yes. I’m coming to that. See, what has happened in the first quarter. Our appeal cycle is from May to April. So, in April, the costs that would have got booked will be low and May and June will be slightly higher because of the increments that have been given. But for the quarter ended September, it will be at the higher cost. That is one thing which has contributed to this. plus, the other one is the, as Mr. Lanman told, it is basically the incentive payouts because of the increase in the volume of business. So these are the 2 things which has contributed to this increase.

M Anandan — Founder

Even if I take these two situations into consideration, one being the the revision of pay probably coming only in two months for last quarter and three months for this quarter. And even if I take into consideration the jump in disbursement that we’ve seen to a certain extent, maybe explains the jump, but maybe I’ll take it offline in more detail.

Pranav Gupta — ASK Investment Managers — Analyst

No problem, no. The second question is, if I look at our NBFC, you which typically books business loans that we do, that growth has lagged the on long call move growth, whether this is.

Balaji P — Executive Director And Chief Financial Officer

Yes, it’s very much true. That’s a conscious decision by us in terms of particularly given the coverage impact and the behavior of the customers in terms of repayments, creditors, contains like that caused by the post COVID strict scenario. We are wanting to be very careful in lending to that segment till things come back to the normal sites. So, to that extent, we have tightened our correct process, sanction and business and to sell. And we would want, because when we look at the old data, the customer behavior data in terms of repayment, match clearance, repayment, NPA, etc., etc..

In every detail, you found, the profile of the SME customers are slightly lower than the profile of the home loan customers. And largely caused by the impact on for post-COVID situation. So, we were a bit conscious careful in running that segment. But now we are finding that is coming back to normal. So we have started restoring it back to our lending level.

Pranav Gupta — ASK Investment Managers — Analyst

Yes. So actually, the question that I was trying to get at was that like you mentioned right now that we are seeing an improvement in the profile or improvement in the situation of the SME customers. But when should we expect this grid to sort of either come closer to or match or even surpass NBC or the housing financial

M Anandan — Founder

Even in this quarter, from this quarter onwards, we have been trying to restore it back to the normal levels, yes. Pre-Covid Level. yes.

Pranav Gupta — ASK Investment Managers — Analyst

Got it. And just one request if we could break down the between the housing finance and the business phone segment, that will be very helpful.

Balaji P — Executive Director And Chief Financial Officer

We’ll do From the next quarter onwards, we’ll start doing that.

Pranav Gupta — ASK Investment Managers — Analyst

Sure, sir. Thank you so much.

Operator

Thank you. We have the next question from the line of Jain Swati from Kotak Securities. Please go ahead.

Jain Swati — Kotak Securities — Analyst

A couple of questions. One is on stage two loans. Do you think that this is a normalized Stage 2 loans? Or do you think that there is enough train for improvement?

M Anandan — Founder

Stage two, we would want to improve it further to pre-covid levels of at least 4.7%. Actually, that’s the focus with which we are functioning and that’s why we brought it down from 9.91 to 6.48% as of June and then to 6.3 as of September. The efforts are on but it might take another one or two quarters to come back to that level.

Jain Swati — Kotak Securities — Analyst

The other question is really on attrition — sorry, attrition rates that you would have seen in your home market. Have you seen any change over the last 12 months?

Balaji P — Executive Director And Chief Financial Officer

Actually, it’s just now the last 12 months, if you really look at — we have looked at the data for the last five years, it is about the same level. And okay, there are some minor movements happening slightly upwards. But then that’s, let’s say, on 8%, we do some 8.1, 8.2, that kind of thing. But broadly, the pre-covid is around 8%. sorry, this in. On the attrition, as far as — if you look at the entire Humana in 3 segments, what we call Singerman the C level, it is gratition. — and as we mix management, which really compressing our area manager Parsonage time, assistant ABB and things like that. The attrition is only around 4% to 5%.

But our attrition is really slightly large, are the third segment, what we call Bank three, which is really at the sales office of the 500, 600 staff closer to about 2,000 people are employed in the branches, 1,000 in terms of sales offices and about 400 in collection. — and the balance in legal, technical, data, etc., at the branch level. There, again, the attrition is lower in support countline legal, technical credits and all but the acquisition, in fact, given collections as low, that the attrition of the sales office level of 1,000 is high, it’s around 30%. That’s what we are trying to work out how to really improve on that.

Jain Swati — Kotak Securities — Analyst

And have you seen a change over the last 12 months, I think that’s what I was looking at.

Balaji P — Executive Director And Chief Financial Officer

Jan, actually, it’s kind of improving. It used to be around 25%. In fact, it has coming down a bit because the — basically, that is or — we have introduced system to what we call if they serve a minimum of 6 palomino earlier, we’ll pay them a onetime in a startup on bonus kind of thing. That seems to be helping us in a way. So in other words, those complete up for a certain period of time and also put in the record in — they will be giving an addition to that salary and what I say, they will be given a sort of productional bonus. That’s going to be one time, but that seems to be working because Yes, we saw through our analysis that a lot of these actions used to happen are happening. Of those employees who will service for less than six months. And it comes down as they are for a longer period in the company.

Jain Swati — Kotak Securities — Analyst

Sure. Got it. And just one last final question is, typically, when economy slows down, many of the self-employed borrowers who are kind of borrowing at a slightly higher sort of 15% plus rate of interest tend to repay their loans because their businesses are probably not yielding them as much. Have you seen a similar trend when the economy actually slows down?

Balaji P — Executive Director And Chief Financial Officer

Actually, you are right, looking at the overall economy, yes, the inflation he’s sitting on the many left in the hands for making these kind of obligations after beating that there are regular expenses less. So it is bad for a canter. But what we are really seeing that in the affordable housing finance segment, where the loan size is small, the EMI size is small. The net increase in the EMI itself is very, very limited. And duction our case, 80% of the cases, the customers are saying in these properties themselves. — it is entire three tire for cities.

And also these customers — most of our customers, they are in the service businesses, though the inflation is very high, our Indosat are also high. But but they are able to quickly correct installing need whatever we are doing by five repair INR six, that is to a target. So in other words, because of the small size of the small base of the EMI and the fact they’re copying there, we are not seeing that as a negative of even repayment are in demand of thresholds.

Jain Swati — Kotak Securities — Analyst

Sure. Got it. Thank you very much and all the best.

Operator

Thank you. We have the next question from the line of Amit Bhatt from MIT Engineers.

Amit Bhatt — MIT Engineers — Analyst

Congratulations for a great performance in disbursement front in the first half Sir, my first question is, can you please throw some light on disbursement in the festive season, which is almost 0 for festive season after two years gap. And the second one is your competitors like Vista, there are more attention in opening new branches and hiring staff. So how your company is going to maintain the AUM growth, the same AUM growth in the coming quarters?

Balaji P — Executive Director And Chief Financial Officer

So first of all, I don’t know where you got the idea that our compete is 5 star because 5 in the NBFC, largely small SME loans and loan being a high to five lakh on up to three lakhs. — and he is on NBFC doing way that kind of thing. We are largely a housing finance company, giving loans largely for the onload. So we are not saying are different. Okay, Pisca be compared with other NBFCs like sale, Veritas part up Financial there are different segments, there are different segments. — just one aspect. Second to is really as far as again you know pretty well that the — the demand for home and the home loan is very significant, very large in the lower and middle income population. — similarly in tire pret airport cities, particularly from customers who are self-employed, hence, they don’t have any readily very for income documentation.

So the core level, the demand for Lapa homes are need for room loans or more in this customer segment, the pie is very large, and the penetration is very low. And because of that, I think you must have seen the data that the growth growth of that on the growth rate of all affordable in some companies is much higher than the growth rate of the formal housing finance companies that — so in other words, the parent companies are growing around 10%, 12%, home affordable housing companies are going much higher than that. And that is come for many, many years to come because the size is very large and the penetration is very low. So competition for it’s yes, it will come, but if one has to go some more time on that.

Amit Bhatt — MIT Engineers — Analyst

And sir, another question which you missed out. Can you please throw some light on disbursement in this festive season, sir, which is cost season after two years of forward

Balaji P — Executive Director And Chief Financial Officer

Actually, as we have seen that we have given the 69% growth in disbursements compared the previous year — it was a first quarter. Our current year has grown. And in the second quarter, which is including the use September — October get reflected in October you now. But we’ve had a good growth — demand coming on the point of [Indecipherable] — but then you also know that the fuel season was there last year as well.

So we are really talking about Net-to-net, yes, but the size that we have released our disbursements are higher. In fact, because of the structural alone, but there are other factors also in terms of a larger number of branches, higher number of sales, staff and our ability to generate more online-offline inquiry and things like that.

Amit Bhatt — MIT Engineers — Analyst

Okay. Thank you sir.

Operator

Thank you. We have the next question from the line of Franklin Mora from EquiNet Advisory. Please go ahead.

Franklin Mora — EquiNet Advisory — Analyst

Yes. Thanks for taking my question. So what would be our incremental cost of borrowings?

Balaji P — Executive Director And Chief Financial Officer

Yes. I’m not able to hear you.

Franklin Mora — EquiNet Advisory — Analyst

Yes, sir, can you hear me?

Balaji P — Executive Director And Chief Financial Officer

Yes.

Franklin Mora — EquiNet Advisory — Analyst

Yes. So I wanted to know what is your incremental cost of borrowings?

Balaji P — Executive Director And Chief Financial Officer

Okay. This quarter, we have raised almost INR800 crores from banks. That is at the rate of around 7.5% to 7.7%. So that is the incremental cost — and plus there will be some pricing fee that was paid around 25% to 0.5%. So that’s the incremental cost.

Franklin Mora — EquiNet Advisory — Analyst

So sir, if I have to just understand like post your rating upgrade, what is the kind of cost benefit that you are seeing?

Balaji P — Executive Director And Chief Financial Officer

We actually — I mean earlier we used to get funds at around 8, 8.25. Now it is — currently, it is around 7.5% to 7.7%. And there have been some banks which have been given, which is giving at the MCLR rate itself — without any spread. So that is the kind of confidence that is getting reported by these banks on the company because of the rating upgrade.

Franklin Mora — EquiNet Advisory — Analyst

Okay. And would it be fair to assume- like assuming there is no further RBI rate hike that it would take about one year for this entire rate to pass on?

Balaji P — Executive Director And Chief Financial Officer

Yes. What is happening is currently, we are having the INR1,000 crores of funds. Plus, this — the bank borrowings, which are linked to this lag there can — which is one year MCLR, there can be increased, some increase can come in Q3 and also in but that will be offset by the lower cost of borrowings, which we’ll be drawing from NHB. So if you compare that, I think the cost of funds will or less remain the same at 7.7% for the entire year.

Franklin Mora — EquiNet Advisory — Analyst

Okay. Okay. And is there any scope for increasing your yields from current levels just in case rates go up further- and the cost of funds increase?

Balaji P — Executive Director And Chief Financial Officer

Definitely, I mean, we can. I mean, there’s nothing in the sense that on variable contracts, definitely, we can increase — and on fixed contracts also in exception situation like this, we have the right to increase. But we will also look at what — how best we can support our customers in these times, in these difficult times. And given our financial metrics, we said we will look at the — any increase in our [Indecipherable] only at a very, very large restart. But we would really want to first exhaust-improve the operations to productivity, cost control and better way of doing things. And reduce our NPA, the NPA and the credit costs and things like that, and thereby continue to deliver good ROE – ROE to the shareholders, and look for minimum increase to the customers.

Franklin Mora — EquiNet Advisory — Analyst

On the 22% floating book on your loans, what are the components over there?

Balaji P — Executive Director And Chief Financial Officer

Components?

Franklin Mora — EquiNet Advisory — Analyst

I said what comprises the floating piece on your loan book?

Balaji P — Executive Director And Chief Financial Officer

See, out of the total loan book of INR5,932 crores, 22% is linked to the variable rate, where we have scope to increase the rate. Will that — does that answer the question? Or do you want something–?

Franklin Mora — EquiNet Advisory — Analyst

I was trying to understand, is the product different in a fixed rate versus a floating rate? Are you offering some different products? Or is it the same

Balaji P — Executive Director And Chief Financial Officer

It’s basically the housing loan, which has been offered at the variable rates. The quasi on loans and the small business loans are a fixed rate of it.

Franklin Mora — EquiNet Advisory — Analyst

Okay. Sir, my last question is, what is the tenure on average for your lending piece?

Balaji P — Executive Director And Chief Financial Officer

We lend up to 15 years for the housing loan and 10 years for the quasi [Indecipherable] loans and seven years for the small business.

Franklin Mora — EquiNet Advisory — Analyst

Okay. And I mean, end-to-end, how much — how long does it — does the borrower take to repay on an average?

Balaji P — Executive Director And Chief Financial Officer

Average for the housing loan, it is around 10 years. And for the quite home loans, it should be around eight years, and for the small business loans, it’s around five years.

Franklin Mora — EquiNet Advisory — Analyst

Okay. That’s it from me. Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Manoj Sharma from YES Securities. Please go ahead.

Manoj Sharma — YES Securities — Analyst

Yes. Sir, Rajiv. Can you hear me?

M Anandan — Founder

Yes, I did.

Manoj Sharma — YES Securities — Analyst

Yes, yes. So sir, my question is on asset quality. So when I look at the gross NPLs, we have seen a significant reduction in this quarter. So firstly, this reduction, I presume is as per — it is full normalization or recoveries, right? Because we report gross correct?

Balaji P — Executive Director And Chief Financial Officer

No, no. What was the question? I didn’t get it.

Manoj Sharma — YES Securities — Analyst

So the question is the reduction in NPLs that we are seeing in the quarter, it is basically either full normalization through collection or it’s a recovery in NPL, which we have kind of pursued and got it.

Balaji P — Executive Director And Chief Financial Officer

It is NPL record.

Manoj Sharma — YES Securities — Analyst

Okay. Okay. Okay. Now because when I was looking at — while we are showing very good recovery in the NPL bucket, there is also increase in Stage two coming from Stage one or maybe from the zero portfolio.

Balaji P — Executive Director And Chief Financial Officer

So given that the percentage that has increased in the stage 2 and stage — the person that has decreased in the 3 is there. because under the new RBI guidelines, what happens is if the NPA has to go out of NPA, it has to be fully collected or it has to be settled by the customer.

Manoj Sharma — YES Securities — Analyst

Correct. So that is what we are following, right? So when we show in-

Balaji P — Executive Director And Chief Financial Officer

[Indecipherable]-guidelines clearly.

Manoj Sharma — YES Securities — Analyst

Correct. Correct. So my question is, a, while the NPL bucket is recovering, we are getting good recovery and we’re getting full collections and full normalization out there. Why do we see slippages into Stage 2, meaning that an already fine customer slipping into the next bucket? — Why do we have 2 kinds of movement?

Balaji P — Executive Director And Chief Financial Officer

[Indecipherable] in the stage of 0.25%, but that will get collected next — in the next two quarters. I mean, that will be focused. And then as I told you, our focus is to bring it — bring the stage to 4.7%. So that’s objective with which we are funding.

Manoj Sharma — YES Securities — Analyst

Okay. And sir, Telangana and AP has been driving significant growth for us over the last many quarters last. Can you kind of point out which markets and locations in AP and Telangana are driving the growth? And what will be our market share in the target customer segment?

Balaji P — Executive Director And Chief Financial Officer

No. Actually, if we don’t want to get into maybe specifically in — and then by and large, we would put this — the growth that we are getting is clearly largely through the increase in the productivity of the existing brand sales- well above 15 Q1 cutting branches. That, again, growth coming through largely the increase in productivity of the — our sales offices, And if you look at this geographically, the growth is coming more in other states like Telangana and Tamil Nadu and maybe less in some states like in states like [Indecipherable]. And the growth is largely coming on the hedge because we have taken a conscious call to go slow on the SME business, which we are restoring now.

Manoj Sharma — YES Securities — Analyst

Okay. Just last follow-up. I mean, can we get the name of top 5 cities or markets — in terms of concentration?

M Anandan — Founder

I think we will take it offline.

Manoj Sharma — YES Securities — Analyst

Sure. Sure, sure. Thank you.

Operator

Thank you. We have the next question from the line of Maruk [Indecipherable] from Nuvama Wealth Management. Please go ahead.

Analyst — — Analyst

Yes. Hello, sir. Good afternoon. Sir, my first question is whether you would like to maintain your Stage 3 CL cover at 25%? You- so will that remain at that level now?

Balaji P — Executive Director And Chief Financial Officer

Yes. The provision coverage ratio on the NPA, we would like to maintain at around 25%.

M Anandan — Founder

Now also we have also taken a decision that any — any NPA beyond 24 months, we will ride write them out fully. So in other words, our philosophy is that — anything about 24 months will be fully turn out. Of course, recovery efforts will continue to be there. But then as a policy decision, we should be anything over 24 months will be 100% written off. Then the NPA between 91 to 24 months, what we have decided to carry this 25% right through, okay? And in the overall terms, we have decided to have an overall provision total loan book. If our loan book is about INR5,900 crores, 1% of that, we have decided to kind — so that 1% also will continue. This is a policy that the labor to be active going forward.

Analyst — — Analyst

Got it. Very clear. And sir, my other question. I have two other questions. One is on margins. Two, you are expecting — sorry, not margins, but spreads you are expecting spreads to now remain stable given the offset of higher bank borrowing costs with NHB? So margins will remain stable, right?

M Anandan — Founder

Margins still remain stable. As I told you earlier in one of the responses if you look at my cost of funds, it is at 7.7%, and the yield, we are very comfortable able to maintain at around 17%. And this cost of funds is likely to remain the same for the next six months or maybe for nine months as well. So we will be able to maintain this spread or the NIMs, and this will continue unless in our area, unless there is substantially higher increase in interest rates than what has been generally understood by all of us today as of as of now. something crazy happens all into is going to be totally even extra thing, which all of us have to pace

Analyst — — Analyst

Got it, sir. So — and my last question is that have you seen the demand behaving in October and November?

M Anandan — Founder

No, we don’t actually — we see the demand being in past, and we see good demand. Now given the fact that we are our customer profile are I mentioned that it is clearly in lower admitted income can comply tireracity, small home loans and largely for sale construction, which are largely occupied by them. And this is — the penetration in this market is very, very low. While the overall market penetration is around 10% to 12%. But within the affordable housing within this segment, the penetration even it’s much lower, actually, because of the home loans reach a part in a positive, smaller home loans are even much lower. So in other words, that’s where the macro scenario we look at, we extract the demand to be — continue to be robust for many years to come.

Analyst — — Analyst

Got it, sir. Sir, and just one small clarification on this case home loans, why is the duration lowers the product structure differently from normal home loans?

M Anandan — Founder

No. See, basically, see, the question is that there are refinanced guidelines being different from the home loans and on the nonhome loans. — the loan loans are treated as at normal loans. And from the ALM point of view, we got the prudent decision, but we are home loans to have a much longer duration than in our note.

Analyst — — Analyst

Okay. Thank you

M Anandan — Founder

Thank you.

Operator

Thank you. We have the next question from the line of Ankit Bansal from AB Investment..

Ankit Bansal — AB Investment — Analyst

Hello.

M Anandan — Founder

Yes, okay.

Ankit Bansal — AB Investment — Analyst

And sir, my question is, sir, with this kind of pace you are growing what are your future — where are you seeing yourselves? How are you placing your disbursement? How are you placing your growth? What customers are you targeting in next five years or 10 years? But what level of growth are you expecting in next five years

M Anandan — Founder

Yes, Ankit the question is that the Fundamental basically, our customer profile will continue to be. So we win because we are quite happy with this kind of customer profile and which needs, of course, a lot of the ability to write underwrite the ability to connect our challenges — but having said that, we ship a large customer underserved, use. So fundamentally, we may not look at different types of customers in terms of larger size, farmer, wholesale, corporate, we will not look at at all. So we will continue our focus strategy focus will continue to be in the same CASAstomers. And given these customers who are located largely in tire three type for cities, the growth will — we would want to be on the path when you want it to be nearer to the customers in terms of collections and risk management. and further demand to meet the further demand. We will continue to have the branch additions as relevant and appropriate. We will not really go over go on the branch additions also.

But we have — we’ll continue to keep adding enough branches to be able to support the growth. And so in other as far as the objective and the core objectives of the company is that we would want to really look at the growth rate of at least twice the market growth rate. when I just explained in our armor loan market is growing at 10%, we would want to grow at in the affordable housing is growing around 15%, we would want to grow up around 3 being 25% to 50%. And that is other Calasiao. And again, we don’t believe we don’t want to growth of 100% growth, 50% growth, 20% growth and down. We would want to go for the consistent growth over long period of time. with good quality assets, it is compromising on our financial metrics, which has to reflect the risks that they are underwriting.

Ankit Bansal — AB Investment — Analyst

Okay. Sir, my last one is you have — you are using AI technology for all this in your business. So what upgradations are you doing to keep in day-to-day to present technology with your current — midpart technology? But upgrading you make changes will you make so that your technology will remain updated with the present in.

M Anandan — Founder

I think it’s a very large person. But generally, entire are really investing a lot of time for money people on the technology plans, both in terms of acquisition underwriting, irrigation of legal documents, connections, customer service, risk management and not only in terms of the doing more business enabling is scaling up. Same time, control the risk and provide highest level of service to our customers because we do are in a repeat business, and we do get a significant interest we do get some good repealed overall, areas in terms of enabling scaling up, enabling productivity, enabling cash control, enabling risk management, enabling customer service and for that, we are really looking in technology in every aspect, whatever the 11 technology is, whether it is our core loan processing, or management, our customer service, or the employee management. I think many metalogy can sit with you some time in an off-line unbased you maybe clearly.But one thing is that Avis not a data technology. Everything is relevant and everything is new. I mean — so there is no — as of now, there is no need for upgrades.

Ankit Bansal — AB Investment — Analyst

Thank you.

Operator

Ladies and gentlemen, that was the last question that the management could answer today. I would now like to hand the conference over to Mr. Mona Khetan for closing homes. Over to you, Mona.

Mona Khetan — Dolat Capital — Analyst

Yes. I just have some quick clarifications before we close the call. So the outstanding restructured book would be around INR42 crores as of September. Is that a fair understanding?

M Anandan — Founder

0.8% of the total

Balaji P — Executive Director And Chief Financial Officer

Yes.

Mona Khetan — Dolat Capital — Analyst

Sure. And where is the 1 plus DPD as of September end?

M Anandan — Founder

As of September, it was at around 8.75%.

Mona Khetan — Dolat Capital — Analyst

Okay. So similar as the June quarter.

M Anandan — Founder

Yes. Yes.

Mona Khetan — Dolat Capital — Analyst

Thank you, sir. Thank you, everyone, for joining us today. We thank the management for providing us this opportunity to host the call. Thank you very much. And so, over to you for any closing comments you may have.

Balaji P — Executive Director And Chief Financial Officer

Yes.

M Anandan — Founder

Thank you, Mona for organizing this conference call. I would like to pay my sincere gratitude to all the analysts and the investor plan, perhaps taken time out that is to listen to us today. Please feel free to connect with us in case you have any further queries, we would be happy to get back to you.

Balaji P — Executive Director And Chief Financial Officer

Thank you. Thank you. Okay.

Operator

[Operator Closing Remarks]