Capri Global Capital Ltd (CGCL) Q3 FY23 Earnings Concall Transcript

Capri Global Capital Ltd (NSE:CGCL) Q3 FY23 Earnings Concall dated Jan. 30, 2023.

Corporate Participants:

Ravikant Bhat — Senior Vice President, Investor Relations

Rajesh Sharma — Managing Director & Chief Financial Officer

Analysts:

Uday Pai — Investec Capital Services (India) Private Limited — Analyst

Gaurav Sharma — HSBC Securities and Capital Markets India Pvt Ltd — Analyst

Bunty Chawla — IDBI Capital Markets & Securities Ltd. — Analyst

Ashish Kumar — Infinity Alternatives — Analyst

Gaurav Somani — Korman Capital — Analyst

Kartik Gada — Multipl Wealth Management — Analyst

Pravin Mule — ICICI Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Capri Global Capital Limited Q3 FY ’23 Earnings Conference Call hosted by Go India Advisors. As a reminder, all participant lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ravikant Bhat from Capri Global Capital Limited. Thank you and over to you, sir.

Ravikant Bhat — Senior Vice President, Investor Relations

Good morning, everyone. This is Ravikant. I shall read out a brief disclaimer for today’s call. The discussion on today’s call regarding CGCL’s earnings performance will be based on judgments derived from the declared results and information regarding business opportunity available to the company at this time. The company’s performance is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially in future. Given these uncertainties and other factors, participants on today’s call may observe due caution while interpreting the results. A separate disclaimer is available on Slides 2 and 3 of the Q3 FY ’23 Investor deck. Participants are requested to note the same.

I now request our MD, Mr. Rajesh Sharma, to present the opening remarks. Over to you, sir.

Rajesh Sharma — Managing Director & Chief Financial Officer

Good afternoon, friends. Like always, it is a pleasure to welcome you all to Capri Global’s post earnings conference call. Let me start by wishing you all a Happy New Year 2023. We declared our reviewed consolidated results for Q3 and for nine months FY ’23 on Saturday, 28th January 2023. I hope you had a chance to go through the Investor deck. With our Rights Issue process yet to be concluded, we will have to refrain ourselves once again from giving specific forward guidance. I hope our discussions today around CGCL’s performance during Q3 and nine-month FY ’23 will provide you all with sufficient clarity and keys to understand the direction of company’s progress. In this commentary, all references to profit and loss and balance sheet aggregates as well as the ratios shall refer to consolidated values. All reference to Urban retail shall mean MSME and affordable housing.

As you would have noted, we have reported a decline of 42% year-on year and 14% year-on year in our Q3 FY ’23 and nine-month FY ’23 net profit respectively driven majorly by the costs we incurred in the gold loan vertical. I shall elaborate on this later in this call. Let me first start with our business performance. Please refer Slide 6 and 7. Asset under management increased 49.9% year-on year and 11.4% quarter-on-quarter to touch INR86,525 million. The share of retail loans improved to 79.1% from 74.4% in Q2 FY ’23. The share of construction finance segment where growth was stronger in H1 FY ’23 including strong sanction disbursement pipeline softened during this quarter by 200 basis point quarter-on-quarter to 19.4%, below our threshold of 20% at consolidated level. This is in line with our previous commentary that construction finance momentum shall be softened in H2 FY ’23.

Disbursal touched INR18,105 million growing 43.1% year-on year and 21.7% quarter-on-quarter. Disbursal for nine-month FY ’23 stood INR43,917 million and were up 57.9% year-on year. The share of retail disbursal comprising MSME, affordable housing, and gold loan was 75.5% in Q3 FY ’23 compared to 47.7% and 35% in Q2 FY ’23 and Q1 FY ’23, respectively. Gold loan led the momentum in disbursal during Q3 FY ’23 constituting INR7,741 million or 42.8% total disbursal. This translated in gold loan AUM touching INR7,152 million constituting 8.3% of total AUM compared to 1.8% share in Q2 FY ’23. This rapid scale-up was supported through an expansion of exclusive gold loan branches, which increased from 182 in Q2 FY ’23 to 449 in Q3 FY ’23. I shall discuss the core [Phonetic] impact and our commitment to this business while discussing the earnings performance. As part of our growth strategy, we continued expanding our Urban retail network deeper and in contiguous geographies.

We added 15 Urban retail branches across Rajasthan, Uttar Pradesh, and opened our maiden branch in Bihar in the state capital Patna. Our non-gold loan branch network stood at 160, up from 145 Q2 FY ’23. Our total branch network stood at 609, up from 327 in Q2 FY ’23. Details on our network expansions are given on Slide 29 and 30. The car loan distribution business continued with its strong momentum. As shown on Slide 12, the loan origination touched INR16,920 million, up 3.1 times year-on-year and 24% quarter-on-quarter basis. Total origination in nine-month FY ’23 stood at INR39,975 million, over 2.3x FY ’22 origination which were INR17,022 million. I shall discuss the fee contribution from the vertical while commenting on our earning performance. As of Q3 FY ’23, the car loan distribution business had a presence in 322 locations in 29 states and union territories, unchanged from Q2 FY ’23. The vertical had six exclusive branches at all other locations with feet-on-the-street sales force.

I shall now turn to earnings performance, I shall be referring to Slide 14 to 17. The net interest income or NII increased 17.5% year-over-year and 5.3% quarter-on-quarter to INR1,610 million. The net interest income in Q2 FY ’23 was boosted by certain one-off components amounting to INR130 million attributed to recoveries. Adjusted for the same, the net interest income increased 15.1% quarter-on-quarter. The net interest margin computed on average net advances was 8.45%. Adjusted for the one-off item in Q2 FY ’23, the net interest margin was up 34 basis Q-on-Q while the unadjusted NIM declined 41 basis quarter-on-quarter. The near-term pressure on net interest margin have been higher on account of a net repricing of loans compared to borrowing. We expect that net interest margins to stabilize as our incremental loan mix changes in share of higher yielding loan as well as the repricing of existing loan book.

Let me now turn on non-interest income. During Q2 FY ’23 earning call, we had offered from historical perspective on CGCL’s non-interest income, which has seen its share in net income rise from an average 14.5% between FY ’18 to 26% in H1 FY ’23. The non-interest income has become an important structural earning driver for CGCL contributed by two key product lines; the net fee income from car loan distribution business and number two, the income on assigned portfolio under co-lending mechanism. Continuing with this analysis, I’m pleased to inform the share of non-interest income to net income improved further and extruded 32.4% and 28.6% respectively in Q3 FY ’23 and nine month FY ’23 respectively. The car loan business contributed INR333 million and INR800 million in net fee during Q2 FY ’23 and nine month FY ’23, respectively. The income from co-lending portfolio constituted INR200 million and INR385 million or 8% and 6% of net income in Q3 FY ’23 or in nine month FY ’23 respectively.

I would like to mention here that presently we are not targeting any mix of the interest and non-interest net income. Both the non-interest income streams are doing well and have a strong growth runway given the scope of our intermediation bank partnerships. I shall now turn to the operating expenses, please refer to Slide 16. Since the beginning of this year, we have not given a specific guidance on cost-income ratio. We have generally said our cost ratio stands lopsided on account of aggressive expansion plans. In line with that, the cost-income ratio got pushed up further to 69.5% in Q3 FY ’23. As highlighted in Slide 16, adjusted for the expansion in gold loan vertical, the cost-income ratio would have been 47% in nine months FY ’23. Based on our internal classification, we estimate a loss before tax of INR975 million in the gold loan vertical in nine month FY ’23.

We have slightly modified our cost average AUM ratio graph to include an additional line graph. We have presented cost divided by average AUM ratio by including the car loan origination volume during the respective quarter in the average AUM definition. This gives a better perspective as the employees’ expenses incurred on the car loan vertical is captured in our opex while the [Indecipherable] car loan is not part of our AUM. The cost divided by average AUM ratio has risen to 329 basis in trailing one year while the cost to average AUM ratio including new car loan origination has risen by 234 basis in the same period. I would also like to highlight that we have already onboarded a significant number of staff for gold loan vertical since branch rollout in Q2 FY ’23. This was to ensure assistance [Phonetic] ahead of the planned rollout Q3 FY ’23. Hence the average headcount in gold loan at the beginning of Q3 FY ’23 was 13 branch. It normalized to seven branch by the end of Q3 FY ’23. This contributed to the increased employee opex in Q3 FY ’23.

The necessary pre-rollout hiring has now reduced with the initial periods getting established. We had planned a gold loan branch count of 556 FTE in Q3 FY ’23. Having rolled out a significant number of planned branches in nine-month FY ’23, the incremental employee additions and opex intensity should soften in Q4 FY ’23. Now I’m coming to credit cost and asset quality. We reported a net credit cost of INR245 million in Q3 FY ’23, which includes INR188 million in net write-off and INR57 million in ECL provisions. Despite the spike in Q3 FY ’23, the cumulative credit cost in nine months FY ’23 was INR530 million, 50% at FY ’23 credit cost of INR1,057 million. The nine-month FY ’23 annualized credit cost stood at 94 basis compared to 124 basis nine-month FY ’22. The Stage 3 asset increased to 7.3% of INR130 million Q-on-Q to touch INR1,911 million. We expect cash recoveries from some of these slipped accounts in Q4 FY ’23. The Stage 3 ratio stood at 2.36%, 66 basis year-on year and 4 basis quarter-on-quarter.

Our provisions on the Stage 3 assets were 29.1% margin, better than 28.7% in Q2 FY ’23. Standard restructured asset stood at INR1,454 million constituting 1.8% of AUM. Approximately INR1,100 million-plus of restructured assets had reached moratorium and another INR350 billion shall exit moratorium in Q1 FY ’24. The cost drivers discussed earlier in the call have profitability in Q3 FY ’23. Our consolidated net profit after tax declined 42.3% year-on year and 13.5% quarter-on-quarter to INR374 million. The nine-month FY ’23 net profit was lower 14.4% at INR1,398 million excluding the direct costs incurred on the gold loan vertical. Our Q3 FY ’23 and nine-month FY ’23 net profit would have been higher by approximately 32% on year-on year. We reported a capital adequacy ratio of 24.2% for CGCL and 38% for CGHFL. The proposed capital infusion through INR14.4 billion Rights Issue will timely augment our growth equity. We hope to communicate the timeline of the capital raise in the near future.

With that, I conclude my commentary. We shall now take questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Uday Pai from Investec. Please go ahead.

Uday Pai — Investec Capital Services (India) Private Limited — Analyst

Hello. Thank you for opportunity. I have two questions. What would be the gold loan yield on a steady-state basis, you said 15% which seems low right now? And what are — what is the quarterly disbursement in gold loan that you are targeting?

Rajesh Sharma — Managing Director & Chief Financial Officer

Can you repeat the question because a lot of background noise is coming?

Uday Pai — Investec Capital Services (India) Private Limited — Analyst

So, what would be the gold loan yield on a steady-state basis and what is the quarterly disbursement of gold loans you are targeting?

Rajesh Sharma — Managing Director & Chief Financial Officer

So, gold loan yield is very — sorry. Now the rollout at the beginning, you have to add lot of customers so our yield in the range of about 15.5%, but slowly it is going up. So when the retail customer segment is increasing of the low ticket size, the yield will start going up. Our target of the yield will be in the range of 19%. So gradually we’ll see our yield is inching up. In Q4 and next year FY ’24 quarter one, you will see the yield improvement significantly when the branch gets some vintage. And we are targeting the gold loan book to close in the range of about INR850 crores in Q4 FY ’23 and will continue to grow depending on the branch rollout and everything else. But we’re targeting about INR3.5 crore, INR4 crore per branch AUM within 15 months from the date its starting operations.

Uday Pai — Investec Capital Services (India) Private Limited — Analyst

Thanks. That’s it from my side.

Operator

[Operator Instructions] We have our next question from the line of Gaurav Sharma from HSBC. Please go ahead.

Gaurav Sharma — HSBC Securities and Capital Markets India Pvt Ltd — Analyst

Hello. Am I audible?

Operator

Yes. Please go ahead.

Gaurav Sharma — HSBC Securities and Capital Markets India Pvt Ltd — Analyst

Thank you, sir, for allowing me to ask questions. Congratulations on a great set of numbers. Just three questions. So one is like your AUM is shifting towards gold loan and shift from MSME is coming through. Just wanted to know the steady state mix of your AUM? That is one. Second is in gold segment, some of the bigger NBFCs had mentioned that they are also getting aggressive, they also are expanding their standalone branches in gold. So, how you see the competition and how do you cater that? How are you going to counter that? And third my question is related to the car loan disbursement, it’s showing a great momentum so — and you have mentioned that you are operating your branches — you have just six branches and you’re operating at 322 locations. So just wanted to know more about your operating model in this segment and if you can provide the OEM mix in that like which are largest contributor in the fee income, it will be really helpful? That’s it from my side.

Rajesh Sharma — Managing Director & Chief Financial Officer

So if you talk about the competition in the gold loan, yes, there’s a competition, but there is a market also growing. A market of about INR3,50,000 crore is growing at the pace of 12% and majority of growth is still contributed and staggered by the NBFCs. So to build a book of INR10,000 crores, which we had said earlier, in next four to five years should not be given the size and the given growth coming up should be a problem and it depends on how fast you build a brand and how fast you quickly build confidence among the investors to — sorry, borrowers to come and take the loan from you. So for that we are continuously doing our radio campaign, our — you must have seen that even cricket team — Gujarat IPL cricket team we have taken the sponsorship showing the Capri loans. So, various campaigns are going on to build that brand and I think that is showing up.

We have built a very fast INR700 crore plus of AUM within less than six months. So, I think it’s very credible as far as I’m concerned. So we feel the competition is there, but market size is growing. If we talk about is car loan, it is purely fee income where the referral is given to the bank and we assist the borrower to have hassle-free disbursement in a fastest turnaround time. So, it is a mix of technology and feet on the street. While the branches are six, but we have our connector model also. So we get the lead, we use some sort of technology there, and we use our local feet on the street combined. And I think we are one of the largest player in this segment and fee income is directly contributing to the bottom line. So, we work on the unit economics as well. This year I think we’re targeting a fee income of INR100 crore and it will significantly contribute to the bottom line.

Gaurav Sharma — HSBC Securities and Capital Markets India Pvt Ltd — Analyst

And sir, last one on the steady state of AUM mix, what will be the share of gold loans and MSME? Thank you.

Rajesh Sharma — Managing Director & Chief Financial Officer

So, I think initially it can be depending on the branches. But if you talk about four to five years how it look like, gold loan will be about 25% of AUM and 25% of AUM will be MSME and about 30% will be your home loan and about 20% will be construction finance. That is how it looked like.

Gaurav Sharma — HSBC Securities and Capital Markets India Pvt Ltd — Analyst

Okay. Thank you so much, sir. That’s it from my side. Thanks for that.

Operator

Thank you. We have our next question from the line of Bunty Chawla from IDBI Capital. Please go ahead.

Bunty Chawla — IDBI Capital Markets & Securities Ltd. — Analyst

Yes, sir. Thank you for giving me the opportunity. Just few queries. Firstly, what is the incremental cost of borrowings in Q3 FY ’23 and how we are seeing that shaping up in Q4 FY ’23 and similarly what will be the impact on the margin as a whole?

Rajesh Sharma — Managing Director & Chief Financial Officer

Can you repeat the question because voice is breaking?

Bunty Chawla — IDBI Capital Markets & Securities Ltd. — Analyst

Okay. Is it audible now?

Rajesh Sharma — Managing Director & Chief Financial Officer

Yeah, it’s better.

Bunty Chawla — IDBI Capital Markets & Securities Ltd. — Analyst

Yeah. So firstly, what is the incremental cost of borrowing for us during this quarter and how the cost of fund will shape up in Q4 FY ’23 and similarly, what will be the impact on the margin front going forward?

Rajesh Sharma — Managing Director & Chief Financial Officer

So our cost of borrowing for NBFC is in the range of about 9%, which has gone up by about 70 basis from one year-ago and our cost of fund for Q4 — our housing finance cost of fund which was earlier about 7.25% has also gone to about 8%. If you talk about the cost of fund, it will remain in the same range and we are able to pass on to — our new borrowing are happening at increased rate and — all the customer on the floating basis, we already passed on this hike. Only customer in the fixed loan for three years, we are not able to pass on that because that is how that has been designed. So, cost of fund will not be able to put pressure on the bottom line given that we are not able to pass on to certain segment of the customer. And I think there’s a cycle when the interest rate goes down, then this segment of customers still continue to pay at higher rate and when the cycle going up, still the customer enjoys. So on a longer term, those set of customers do not create much of the problem for the bottom line. But while we’ll give fixed because it helps to retain the customer for certain period because we incur a cost on that. So based on that category of customer, we offer floating and fixed. So cost of fund increase will not put any much pressure. We already have passed on to the customer as well as the new loans are booking at the increased rate of interest.

Bunty Chawla — IDBI Capital Markets & Securities Ltd. — Analyst

Okay, sir. And sir, similarly in the liability mix if you see, the bank borrowing has taken — has increased. So, are we focused more towards bank borrowing? Is there any specific reason?

Rajesh Sharma — Managing Director & Chief Financial Officer

First of all, the bank giving long money about seven to eight-year money we can have from the bank. And PSU banks cost of funds is cheaper to us as compared to private sector banks. So if you see the rate of interest Sate Bank can offer for us, the mid-size private sector may not offer. So, we always see who can give us long-term rate loan and who can give at better rate of interest. Basis these two criteria, we go for our borrowing mix.

Bunty Chawla — IDBI Capital Markets & Securities Ltd. — Analyst

Okay. So, that was very helpful, sir. Lastly, just yesterday there was — or last week Bajaj Finance has shared similarly as we are going aggressive in gold loan branches in gold loan focus. So, how should one see that in our overall market pie? Is it that increasing or are — it’s altogether different, they are focusing as we are focusing. How one should see versus Bajaj Finance in terms of gold finance?

Rajesh Sharma — Managing Director & Chief Financial Officer

So I think any sector which is offering a margin, there will be competition, but we too — we have to derive comfort from that overall. Market is also growing. So it is not that the market is stagnant and more player are adding on. So if INR3,50,000 crore market is growing 10%, 12%; I think that is offering good room for the new player to come in as well as the new existing player to grow their book.

Bunty Chawla — IDBI Capital Markets & Securities Ltd. — Analyst

Okay. Thank you sir. That was very helpful, sir.

Operator

[Operator Instructions] We have our next question from the line of Ashish Kumar from Infinity Alternatives. Please go ahead.

Ashish Kumar — Infinity Alternatives — Analyst

Thank you, sir. Sir, couple of questions on the gold loan business. One is you mentioned that in each branch, you’re targeting INR3.5 crores to INR4 crores of AUM. So what kind of an opex as a cost to AUM will you having at that once we achieve that?

Rajesh Sharma — Managing Director & Chief Financial Officer

If we talk about cost, I think every branch would have a cost in the region of about INR2.5 lakhs to INR3 lakhs a month. So, we breakeven every branch at INR3.5 crore level on an leverage basis.

Ashish Kumar — Infinity Alternatives — Analyst

Okay. And sir, so basically for us to be able to hit our numbers in terms of profitability let’s say a 5% NIM, correct, we will need to at least have maybe 5% pep-up — sorry, what I mean is it INR6.5 crores per branch — INR6 crores, INR6.5 crores?

Rajesh Sharma — Managing Director & Chief Financial Officer

I may not be able to answer that immediately because I’m not analyzing that way. But after INR3.5 crore, you start making and every — it starts directly add to the PBT I would say. So if you build AUM of INR6 crore and assuming those cost parameters, then on balance INR2.5 crore, you should be able to bake about INR25 lakh operating profit.

Ashish Kumar — Infinity Alternatives — Analyst

Great. Operating profit for branch which is by roughly 3%, 4% and a 3% ROE. Sir, the second question was in relation to the whole competitive scenario. In gold loan, you’ve seen traditional market standalone leaders like Muthoot and Namrata from struggling to grow their AUM. Purely from a timing perspective given the fact that we are looking at INR3.5 crores maybe in 18 months — 15 to 18 months’ time, is it a right time to enter into this business because everybody including the banks have become super hypercompetitive in this space? So should it — do you think it makes sense for the competition to reduce a little bit because like we have seen in the past every time few people enter, some people figure out that they can’t make money on this business and exit the business. The banks get busy with the larger ticket size lending. So purely from a timing perspective, does it make sense for us to wait rather than go so aggressive in terms of the gold loan branch opening or do you think..?

Rajesh Sharma — Managing Director & Chief Financial Officer

So, our belief is if you want to enter into gold loan, you have to have a wider branch network. It’s a very small ticket size; INR80,000, INR90,000, INR50,000, INR1 lakh kind of loan. So unless you have a size, you cannot make profit out of it and you should be able to absorb the first 15 months [Indecipherable] every branch will throw unless the branch reaches a breakeven point and start building AUM thereafter, will not make money. So, that kind of capital allocation is required. So in some ways, it is an entry barrier for the smaller player to do gold loan. So still if you see Muthoot who has reached INR12 crore per branch even though they are able to maintain, they are super profitable in terms because they are in this business since long. So any branch which is reaching INR7 crore, INR8 crore upward that will start delivering in the higher profit and any segment which is offering profit, it is natural to attract more player and more competition.

But still it is all about your brand presence, your ability to build confidence among the borrowers and these are the two factors that help you to build a high AUM. We are quite confident that we have MSME, we have home loan, we have car loan lead referral business, and the gold loan. So, there’ll be some sort of cross-selling will also be possible. So, we have to work on that cost efficiency also and with the multi-product, we have to believe in the cross-selling aspect. Combination of this, I think this business also in the plus positive side that if your processes are set, then you accelerate it. I think you need not worry about the delinquencies if your processes are set. So, there are even plus and minuses. But overall it is attractive business model to follow if you’re able to continue to expand your network and achieve the size.

Ashish Kumar — Infinity Alternatives — Analyst

I understand where you’re coming from. I was coming more from the absolute amount of profit pool I agree with you completely and understand. I was coming more from an ROE perspective because branches — somebody like Manappuram who has been for so long, they’re struggling to get to a mid-teens kind of an RoE. So anyways, I understand where you’re coming for. Thank you, sir, and wish you all the best.

Rajesh Sharma — Managing Director & Chief Financial Officer

Okay. Thank you.

Operator

[Operator Instructions] We have our next question from the line of Gaurav Somani from Korman Capital. Please go ahead.

Gaurav Somani — Korman Capital — Analyst

Hello. Thank you for the opportunity. Sir, can you share the mix of borrowings — sorry, lending in terms of fixed and floating which we have?

Rajesh Sharma — Managing Director & Chief Financial Officer

Our borrowing?

Gaurav Somani — Korman Capital — Analyst

No, lending, sorry. The assets — the lending which you have done, currently what is the mix of floating and fixed loan rates which we have?

Rajesh Sharma — Managing Director & Chief Financial Officer

Ravikant, will you be able to share that detail, please?

Ravikant Bhat — Senior Vice President, Investor Relations

Gaurav, so most of borrowings are basically…

Gaurav Somani — Korman Capital — Analyst

The loans which we have given basically?

Ravikant Bhat — Senior Vice President, Investor Relations

If you could just repeat it?

Gaurav Somani — Korman Capital — Analyst

Sir, my question is the loans which we have given, can you share the mix of fixed and floating which we have in there?

Ravikant Bhat — Senior Vice President, Investor Relations

So, gold loans would be entirely fixed. They reflect only at the end of the tenure. As far as the other loans are concerned, housing and MSME particularly, these are resettable. So basically we give out loans that are fixed for a tenure up to three years and after that, they become floating. So typically in a year, we would have about I would reckon 25% to 30% of the portfolio at least coming up for — eligible for repricing. And construction finance, the resets happen — can happen more often.

Gaurav Somani — Korman Capital — Analyst

Okay. Thank you. My next question is on the — on our cost-income ratio. In the past you have suggested that the cost-income ratio will hover around 60% to 65%. This quarter we have touched around 70%. So, any view on once the gold loan business — where do you see this normalizing probably a year or two down the line when the gold loan business stabilizes?

Rajesh Sharma — Managing Director & Chief Financial Officer

Can you repeat the question, please?

Gaurav Somani — Korman Capital — Analyst

Sir, my question is on the cost-income ratio. It’s hit 70% this quarter. In the past you have said that it will be around 60% to 65%. So, where do you see this normalizing once the gold loan business stabilizes?

Rajesh Sharma — Managing Director & Chief Financial Officer

So I think we need to see that had not the gold loan profit would have debited to P&L account, this cost-income ratio would have been in the range of 47%. So if we talk about overall cost-income ratio vertical wise so MSME and home loan, our aim will be to bring it to in the range of about 35%, 36%. And if we talk about gold loan, it will be in the range of about 45% kind of opex. And if we start doing cross-selling and also the BC [Phonetic] arrangement in co-lending in the gold loan, that will completely change the dynamics. While we are not saying that when it will happen, but I think next year we’ll have a few partnership in the gold loan of co-lending and this is where we’ll use our network to originate this for the loan so that we’ll be able to compete with even lower segment of the gold loan customer. So the dynamics of the cost-income ratio will completely change in our favor in a larger way.

Gaurav Somani — Korman Capital — Analyst

So, we see this stabilizing below 50% probably a year down the line.

Rajesh Sharma — Managing Director & Chief Financial Officer

Yes.

Gaurav Somani — Korman Capital — Analyst

Sir, lastly on the co-lending aspect if you can share the amount of co-lending which you have done till now?

Rajesh Sharma — Managing Director & Chief Financial Officer

So, co-lending till now we have done in the range of about INR450 crore.

Gaurav Somani — Korman Capital — Analyst

Perfect. And any — and what is our view on this business — on the co-lending business? We want to grow it or we want to do it on our own book?

Rajesh Sharma — Managing Director & Chief Financial Officer

No. We definitely want to do co-lending business and we want to grow this. At the moment, technology interface with banks are underway. Once that takes up, the volumes will increase significantly and this has an edge where we get a cheaper rate and the risk is shared, we originate and we collect and we get a fee. So while on the profitability side it has no impact, but on the allocation of capital you are not required. So, it becomes very, very highly ROE accretive.

Gaurav Somani — Korman Capital — Analyst

Okay. Thank you, sir. That’s it from my side.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Kartik Gada from Multipl Wealth Management. Please go ahead.

Kartik Gada — Multipl Wealth Management — Analyst

Yeah. Thank you. Am I audible?

Operator

It is not loud, sir. Can you use the handset, please?

Kartik Gada — Multipl Wealth Management — Analyst

Hello. Is it better now?

Operator

Yes. Please go ahead.

Kartik Gada — Multipl Wealth Management — Analyst

Thanks for the opportunity. One question on MSME. So in terms of the percentage mix of the MSME disbursals, it’s clear because the gold loan has been quite sharp — the increase in gold loan, that’s why the percentage of disbursals share has reduced. But even the absolute amounts for last two, three quarters has been lower compared to previous periods the MSME disbursals. So, can you throw some light on that? What is our thought process? Are we deliberately going slower or what’s the scene out there?

Rajesh Sharma — Managing Director & Chief Financial Officer

So, you see there is no thought process to slowdown the MSME disbursal. If you see our disbursal has not slowed down, the other verticals have also picked up so you might be seeing that our disbursal in overall MSME have come down. But that has come down because the gold loan will also come up. But if you see our branch network is increasing. The branch network is increasing, the disbursal in absolute terms is increasing only so it is all-time high. This is happening in all the segments.

Kartik Gada — Multipl Wealth Management — Analyst

I’m looking at Slide 7 so if I take Q3 and Q4 of last year, the MSME disbursal was INR3,600 crores, INR4,200 crores versus that this year for the last — this year for the three quarters, it has been INR1,800 crores, INR3,100 crores, and INR2,800 crores. So, that is where I was coming from.

Rajesh Sharma — Managing Director & Chief Financial Officer

Ravikant, will you check that because I’m not able to answer that.

Ravikant Bhat — Senior Vice President, Investor Relations

Yes, sir. So what has happened is basically you see, we have combined teams for both MSME as well as housing. There is a certain stiffness as far as MSME is concerned both on the pricing as well as the overall growth. This is more of a momentary thing and therefore, we had focused slightly more right. So, quarterly there could be some dissonance as far as the growth is concerned. But as Mr. Sharma said earlier, both MSME — all the three; MSME, affordable housing, as well as gold loans; would be key retail growth drivers for us. So, don’t read too much into what has happened during second quarter. And overall again if you see how the MSME portfolio has performed, it’s up 30% Y-o-Y and you have to look at it both on book plus the assigned portfolio where the assignment has been slightly higher during second quarter — during the third quarter. So growth is happening, it’s just that shifted a bit to some other segments, but it could return once again going ahead. So, we will be focused on all the three products as far as the growth outlook is concerned.

Kartik Gada — Multipl Wealth Management — Analyst

Okay, fine. And another question on the housing loan segment so how has the ticket size been moving for us in this segment? Can you throw some light on that? Hello. So I was asking my second question, which is on the home loan segment. How has the average ticket size being moving in this segment for us?

Rajesh Sharma — Managing Director & Chief Financial Officer

Obviously we saw about INR12 lakh to INR13 lakh. And since the housing prices are growing, it might at the most can reach about INR16 lakh, INR17 lakh. It is not going to significantly change since we are in the affordable housing segment.

Kartik Gada — Multipl Wealth Management — Analyst

Right. These are my questions. Thank you so much.

Operator

Thank you. We have our next question from the line of Pravin Mule from ICICI Securities. Please go ahead.

Pravin Mule — ICICI Securities — Analyst

Yeah. Thank you for taking my question. So, just a continuation of earlier question that how we are seeing the incremental demand in MSME segment and in any specific segment or geography we are seeing the strong demand? And sorry if I missed this, what is the quarterly disbursement rate we are targeting?

Rajesh Sharma — Managing Director & Chief Financial Officer

So if we talk about the demand, demand is depending on our branch network. So suppose we have more branches in Madhya Pradesh, then we see the stronger disbursal happening in Madhya Pradesh because our branch network is more. But our rest of Maharashtra branch is lesser so we will see lesser disbursements. So it is sometime a function of our presence also. And if we talk about our disbursal, I think always MSME we have seen the disbursal of in Q3 about INR286 crore and in construction finance INR278 crore. So if you see this disbursal in last quarter of year happened highest so it increases quarter-on-quarter. First quarter of the year is always lower and the last quarter is always highest. In that sequence, disbursements happen because always loan demand and it is a push product so it happened in — and it happens across all NBFC and banking system. So. I think we should be growing our MSME portfolio in the range of about 25% plus this year as well.

Pravin Mule — ICICI Securities — Analyst

Okay. Thank you, sir.

Operator

Thank you. [Operator Instructions] As there are no further questions, I now hand over the call to management for closing comments. Over to you, sir.

Rajesh Sharma — Managing Director & Chief Financial Officer

Thank you. So as we said, we have always stick to our core philosophy to build the customer base whom banks are not catering. So we do MSME, where customer do not have income proof, we do affordable housing. In the same thought process, we added the gold loan. And for the fee income, we are doing very well in the car loan distribution. I believe that next two years once our gold loan expansion takes place and every branch started delivering contribution and at the same time our MSME and affordable housing portfolio will also grow, our operating cost will come down and then the great fee contribution from the car loan and the advertising income of the insurance products. So, I think we are inching towards a higher AUM and better profitability. Technology, we are making a lot of investments in data science team, we have added about 15 people we are having. We have pinpointed, they are analyzing every geography, every product, everything; and they’re making a sea change [Phonetic]. That will also help us not only in our asset quality policy, but also in the cost-income. So overall we are quite confident that we are on a path where we should be able to deliver better returns for our stakeholders. So, thank you. Thank you all of you for joining the call.

Operator

[Operator Closing Remarks]