Cholamandalam Investment and Finance Company Ltd. (CHOLAFIN) Q4 FY22 Earnings Concall Transcript

Cholamandalam Investment and Finance Company Ltd. (NSE: CHOLAFIN) Q4 FY22 Earnings Concall dated May 06, 2022

Corporate Participants:

Nischint Chawathe — Kotak Securities Limited — Analyst

Vellayan Subbiah — Chairman and Non-Executive Director

Ravindra Kundu — Executive Director

Arul Selvan — President & Chief Financial Officer

Suresh Kumar S. — Vice President & Business Head, LAP and SME

Analysts:

Dhaval Gada — DSP Investment Managers — Analyst

Rikin Shah — Credit Suisse — Analyst

Abhijit Tibrewal — Motilal Oswal Financial Services Ltd. — Analyst

Umang Shah — Kotak Mutual Fund — Analyst

Aditya Jain — Citigroup — Analyst

Shubhranshu Mishra — Systematix Group — Analyst

Piran Engineer — CLSA — Analyst

Shweta Daptardar — Elara Capital — Analyst 

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Alpesh Mehta — IIFL Institutional Equities — Analyst

Param Subramanian — Macquarie Group — Analyst

Varun Nabar — Nippon India Mutual Fund — Analyst

Abhishek Murarka — HSBC Securities — Analyst

Himanshu Shah — JPMorgan Chase & Co. — Analyst

Vidhi Shah — Antique Stock Broking — Analyst

Prashanth Sridhar — SBI Mutual Fund — Analyst

Bhaskar Basu — Jefferies India — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Cholamandalam Investment and Finance Company Limited Q4 FY ’22 Earnings Conference Call, hosted by Kotak Securities Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities Limited. Thank you, and over you, sir.

Nischint Chawathe — Kotak Securities Limited — Analyst

Thanks. Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited.

To discuss the 4Q FY ’22 performance of Chola and share industry and business updates, we have with us the senior management today represented by Mr. Vellayan Subbiah, Chairman and Non-Executive Director; Mr. Ravindra Kundu, Executive Director; and Mr. Arul Selvan, President and CFO.

I would now like to hand over the call to Vellayan for his opening comments, after which we’ll take the Q&A.

Vellayan Subbiah — Chairman and Non-Executive Director

Thanks, Nischint. So good morning, everybody.

We’ll just go through key results for both the quarter and for the financial year, for the last fiscal year. The disbursements for the quarter were at INR12,718 crores, which is up by 58%. And for the year, it was at INR35,490 crores, which is up by 36% year-on-year. The total AUM stood at INR82,904 crores, up by 8% year-on-year. And that’s basically due to slightly higher runoff post the moratorium. Net income margin was up at INR1,516 crores for the quarter, up 13% year-on-year and INR5,757 crores for the year, up 16% year-on-year. PAT for the quarter was INR690 crores, which is up 184% and INR2,147 crores for the year, up by 42%.

The impact of the third wave on the economy turned out to be muted and much more muted than the previous two waves. Nationwide rapid vaccination obviously kind of contributed to blunting the impact of Omicron and boosting consumer confidence. The company has just delivered its best-ever disbursals collections and profitability in Q4. The performance was aided by strong signs of recovery in both auto and the mortgage industry. All major CV OEMs reported double-digit growth in March ’22, aided by a pick-up in infra projects, growth in logistics and ecommerce and coupled with easing of financing or finance option. There is a strong rebound in residential housing sales in the current quarter and this was aided by demand from customers after a lot of deferrals of home buying due to COVID.

We’ll just go through, like I said, the disbursements, basically, I just kind of broadly went through what numbers were on disbursements. So that’s basically a growth of 58% for the quarter and 36% year-on-year. If we take the individual businesses, the vehicle finance business disbursement were at INR8,785 crores for the quarter as against INR6,153 crores, which is a growth of 43% and for the year, INR25,439 crores, which is a growth of 26%.

LAP, including affordable LAP, disbursed INR1,978 crores for the quarter as against INR1,191 crores, which is a growth of 66%. And the year was at INR5,862 crores, a growth rate of 62%. Home loans disbursed INR441 crores as against INR538 crores for the quarter. So it was less than Q4 last year and disbursement for the whole year was at INR1,571 crores as against INR1,542 crores in the previous year.

We’ve had three new businesses launched this year, which is consumer and small enterprise loans, secured business and personal loans and the small and medium enterprise loan businesses. We’ve combined made disbursals of INR1,515 crores in Q4 and INR2,619 crores in the full year. AUM stood at INR82,904 crores as compared to INR76,518 crores. And we talked about PAT, which for the quarter was at INR690 crores compared to INR243 crores.

PBT-ROA was at 4.8% and for the year was at 3.9%, both significant growth over the previous year. And ROE was at 24.6% as against 10.4% in the previous year. We continue to have a strong liquidity position, INR5,341 crores of cash, including INR15,000 crores invested in Gsec. So the total liquidity position of INR13,246 crores, including undrawn sanctioned lines. Our ALM is comfortable and we’ve got no negative cumulative mismatches across anytime buckets.

The Board of Directors has also recommended a dividend of INR0.70 per share, which is 35% on the equity shares of the company. And this is in addition to the interim dividend of INR1.30 for a total of INR2 in the year. In asset quality, we’ll just talk a bit about this option of the RBI circular and revised NPA norms. And we’ve discussed this before. RBI issued a circular in November ’21, directing NBFCs to adopt a tighter provisioning norm and accordingly, from November 1st, we have started tracking daily DPD for agreements, which have crossed 90 DPD. And we will continue to classify them as NPA until all dues towards principal and interest collected in full.

RBI also issued a clarificatory circular on February 15, deferring the implementation date to September 30, 2022. On a conservative note, we propose to early adopt these norms under IRAC. The ECL model provisions this year is stress tested and the impact of COVID being built into the PD and LGD computations. And hence, the ECL model provisions across stages had increased over December ’21.

Apart from this, we also factored a write-off of INR190 crores for long overdue accounts where further recovery is expected to be minimal. Towards these, a part of the management overlay of INR336 crores was utilized and the management overlay provisions carried in the books as of March ’22 stands at INR500 crores. And asset quality at end of March ’22 represented by Stage 3 stood at 4.37% with a provision coverage of 39.67% as against 5.85% as of December 2021. And the total provisions currently carried against the overall book are 3% — 3.04% as against normal overall provision levels of 1.75%, carried prior to COVID.

As per revised RBI norms, the GNPA is at 6.82% and NNPA is at 4.75%. This is based on the IRAC criteria. And so we carried INR564 crores higher provisions under IndAS over IRAC. The details of stage-wise assets and provisions are also something we’ve shared. The capital adequacy of the company was at 19.6% as against the regulatory requirement of 15%. And Tier 1 was 16.5%. In terms of subsidiaries and associates and JVs, Cholamandalam Securities had INR40.12 crores in revenue and Cholamandalam Home Finance had INR55 crores in revenue and two new investments had basically INR49.3 crores in Payswiff and INR1.5 crores in Paytail, respectively, for the year.

So with that, let me stop with the commentary. And we’ll be happy to turn it over to all of you for questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Dhaval Gada from DSP. Please go ahead.

Dhaval Gada — DSP Investment Managers — Analyst

Yeah. Hi. Thanks for the opportunity. I had three questions. First is on the new business. So, I understand, this quarter we did about INR1,500 crores kind of disbursement? Just if you could give some perspective in terms of various vertical what contributed to this and for next year, should we just think about annualized run rate as the expectation for next year in terms of new vertical disbursement? So, that’s the first one. Yeah. Sorry.

Ravindra Kundu — Executive Director

Okay. Hi, Dhaval. Good morning. Ravi here. Yeah. So first of all, whatever we expected, it has come in that line, as far as the new business is concerned, if you remember the last earning call. However, to project the full year number is going to be difficult. But as you know that, under the new business line, we have three businesses. One is the consumer and small enterprises loans, wherein we are actually focusing the customers who are taking the business loan are professionals majorly, and little bit personal loans. And then small business — and that’s a secured loan, which we are actually giving it to the small enterprises, mini enterprises, rather than that, which are actually having a shop or taking the loan for the businesses. So, that’s the second one.

And the third one is SMEs, which was there for quite some time and now we have started actually growing that business. So, this business put together has contributed INR1,500 crores and obviously the coming quarters, the numbers will be better because we have now started expanding in the country. And the CIFCL [Phonetic] business has actually started doing good number. We have four partners also available. The partnership business is 33% of the overall business and the traditional business is almost 66%. So, we are getting good traction.

The SBPL business is a business, which is being done directly by the field team internally, and we’re just going to be taking time to ensure that we actually understand the knowledge, understand the market dynamics and the behavior of this mini or micro SME. So that growth will be slightly slow, but the CIFCL [Phonetic] and SME started also picking up. And we are expecting that run rate will improve from the next quarter.

Dhaval Gada — DSP Investment Managers — Analyst

Understood. The second question was on that Slide 21. So just a question was, next year, in terms of maintaining the PBT-ROTA at about 3.9%, which we did in FY ’22. Just how the moving parts would be, since there would be some pressure on margin and also on credit cost, there is some scope for improvement. So, I just wanted to hear your thoughts of how you think about maintaining the current level of PBT-ROTA. And last is the data point on restructured loans at the end of 4Q and the overlap with Stage 2. Yeah. Thanks.

Vellayan Subbiah — Chairman and Non-Executive Director

Yeah. So if you go by the history of Chola, we have been maintaining close to 3.5% PBT-ROTA, between 3% to 3.5%. 3.9% is the highest because we now started getting the reversal of the NPLA. And so that is going to be continued over the period. At the same time, obviously, the cost of fund goes up, which is going to impact PBT net [Phonetic]. So, at the ROTA upfront, we always internally target 0.5%. If it comes more than that, which is going to be slightly optimistic number, which we are trying also, so though between 3.5% to 3.9% is going to be any number. So NIM impact will get impacted, kind of offsetted by the reduction in the NPLs. And restructures, can you repeat your question?

Dhaval Gada — DSP Investment Managers — Analyst

The stock of restructured — standard restructured loan at the end of 4Q and how much of that is already in Stage 2? So, I think last quarter it was — yeah.

Vellayan Subbiah — Chairman and Non-Executive Director

INR3,800 crores was the total restructured book as of end of March, and we have INR3,362 crores in Stage 2. But as you know, Stage 2 represents both Stage 1 as well as Stage 2, because we present all the books in Stage 2 only. So only INR444 crores is in Stage 3.

Dhaval Gada — DSP Investment Managers — Analyst

Got it. Thank you. And all the best.

Vellayan Subbiah — Chairman and Non-Executive Director

Thank you.

Operator

Thank you. The next question is from the line of Rikin Shah from Credit Suisse. Please go ahead.

Rikin Shah — Credit Suisse — Analyst

Hi. Good morning. Thanks for the opportunity. I have three questions. First one, the opex came in higher this quarter and yield also marginally declined sequentially. So, just wanted to understand the reasons behind that. And as the new businesses scale up, what could be the outlook for both of that? That’s question number one.

Second, on the bank borrowings, just wanted to check what is the benchmark tool? Is it MCLR or repo rate linked? And how often it gets repriced?

And third one is just a data keeping question. What would be the total amount of ECLGS disbursements as of today? That’s it.

Vellayan Subbiah — Chairman and Non-Executive Director

Okay. Third one, I didn’t get.

Ravindra Kundu — Executive Director

ECLGS. We have not done any disbursement. Out of the bank, if you look at the total borrowings, almost 55% bank borrowings, rest are all from the market as well as securitization. These are fixed rates. So, they don’t change. With regard to the bank borrowings, almost 30% would be benchmarked and the 20% would be — 15% would be the MCLR and balance 5% would be fixed rate. So the benchmark rate as well as MCLR tend to be repriced either quarterly or annually depending on. Mostly MCLRs would be annual. The benchmarks would be quarterly or [indecipherable].

Sorry, your first question was on?

Rikin Shah — Credit Suisse — Analyst

Opex.

Ravindra Kundu — Executive Director

Opex is basically…

Vellayan Subbiah — Chairman and Non-Executive Director

The disbursements are higher and AUM growth is slower. If we see that, there is a denominator effect. We are growing faster because we need to cover it up. For example, [Technical Issues] AUM growth is significantly lower. So unless we get back to the AUM or opex, it will not be apple-to-apple comparison. That is one reason for opex. And we also started investing on the new businesses, wherein the growth will come within this financial year. So if you see once the AUM comes back to the normal level of growth of 15% to 20%, obviously, [indecipherable] starts going down. And as a percentage, it becomes even better.

Rikin Shah — Credit Suisse — Analyst

And sir, on this particular point of opex, we have added around 7,500 to 8,000 employees in last one year. So, are we largely done in terms of employee headcount addition? Or we would be still adding strategically? And also any comment on the yield? It declined modestly this quarter sequentially. So any specific reason?

Vellayan Subbiah — Chairman and Non-Executive Director

See, manpower is going to be continuous process of hiring and we’re expanding. We’ve got three new businesses now just started. They just started one quarter. So within the one quarter, we have done only 15%, 20% of the total number of branches, which is available in vehicle finance. So, obviously, the growth will not come in one year time. It will continue to come. So as they grow, they will continue to have the manpower. So manpower count will go up.

Also, we recruited manpower for collections in order to make it more intensive in the last six months. So that is also a reason. But from the collection side, now we are — we have completed the hiring in terms of manpower because going forward, the collections which means relatively weak [Phonetic] as compared to the past. So the ACR is now going to increase. So therefore, requirement of collection executive will be less, but the branch manager and sales executive for the new businesses at a new market, there would definitely be the requirement as and when we start expanding further.

Ravindra Kundu — Executive Director

Also, on the NIM, there was a INR50 crore adjustments towards the right return of assets and that’s why you’ve seen a slight drop. I think that will get corrected as we move on.

Rikin Shah — Credit Suisse — Analyst

Okay. Got it. And just as a follow-up on the opex. The collection agents that we hired — because now the collections would be normalizing, would you be rechannelizing them as sales executives? Or they will continue to focus only on collections?

Vellayan Subbiah — Chairman and Non-Executive Director

They will continue to focus on collection because we need to now start working on significantly on the higher bucket, where people were busy in ensuring that the big bucket collection efficiency is higher. So once we are able to achieve that, they need to go do those accounts, which is now going to be target and we will continue to do the collections based on this.

Rikin Shah — Credit Suisse — Analyst

Got it. That’s all from my end. Thank you very much.

Operator

Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal Financial Services. Please go ahead.

Abhijit Tibrewal — Motilal Oswal Financial Services Ltd. — Analyst

Yes. Thanks. Good morning, Mr. Vellayan, Arul sir and Ravi sir. Thanks for taking my questions. I have two questions. First one was, again, on the new lines of businesses. While Ravi sir earlier in his comments suggested that disbursements are now going to improve, given that we are now expanding to other branches, other locations as well. But, sir, I mean, possible to give some kind of a guidance on how you are thinking of growing this? Because, I mean, in terms of growth, in terms of disbursements, sir, like you know, really sky is the limit. So how are you thinking about growing it in a calibrated manner. That’s the first question.

And secondly, sir, if you can comment on what is the ROA and ROE that this newer product lines can make?

Ravindra Kundu — Executive Director

Yeah. So as I mentioned, the consumer and small enterprises loan has got three product lines; personal, business and professional loans. So, in that, we are focusing more on professional and business, less personal. And it has — it is being done in two channels. One is the traditional channel and a partnership channel. Traditional channel is almost 70% and partnership channel is 30%. And we are expanding into all our hubs, almost 275 hubs are there and 1.100 branches. So, this will be — almost 70% we would like to cover in this year and 30% in next financial year. So to that extent, the volume will keep growing from this particular business.

Now coming to the SME. We have three product lines. One is a health and [Phonetic] finance in term loan and working capital and third is the equipment finance. Supply chain finance, mainly we are doing in partnership with the fintech and also partnership with bank. So, that is growing in terms of disbursement, but doesn’t support to the AUM growth because that churns fast.

But the term loan, which is a secured business and the equipment finance is a secured business where we have tied up with the manufacturer OEM who produces very specific equipment has got better resale value and recourse is available from the OEMs. We are focusing back to increase the disbursement. So that will be a growth engine for the SME. The small business and secured business and personal loan, which is actually being done as a secured product to be small grocery, general kirana, restaurants, [indecipherable] petty cash and all those people is a slow business, which — we need to learn the business because that is done on the — based on the cash flow and the footfall of the customer, where we need to evaluate physically, which is going to be slow. But it is going to be long-lasting product once we learned that and ROA is going to be the highest from this product.

So put together all three, if you make it, then the overall ROA from the SME ecosystem, which we have given in the Investor Presentation that we are not present in the bottom of the pyramid and top of the pyramid, rest of the area. We are actually representing the SME we have there and the SME ecosystem, either with the HCV, CLR [Phonetic], LAP or a housing loan, affordable housing and the SME. So, we will continue to grow and the ROA will be equal or higher than the vehicle finance ROA.

Abhijit Tibrewal — Motilal Oswal Financial Services Ltd. — Analyst

That’s it. Thank you, Ravi sir. And sir, I had a follow-up question on this new lines of businesses and then one last question for Arul sir. Sir, you suggested that about 30%, 33% of the disbursements in the new lines of businesses are coming from the four partnerships. Sir, it’s also important to understand here that while all these partnerships can access your digital DSAs and help you in sourcing and help you in growing disbursements, I mean, how have you addressed the collections part when it comes to loans, which are disbursed through these partnerships? That’s my follow-up question for you.

And for Arul sir, sir, I mean understandably, we have been very, very conservative when it has come to provisioning even in the past also, COVID. So I mean, what was the rationale in this quarter for, I mean, utilizing the management overlay?

And sir, maybe a related question also is — I mean, the liquidity on your balance sheet has come down to about INR5,500 crores. It’s now kind of normalized completely or is there still room for it to be optimized further? Thank you so much.

Ravindra Kundu — Executive Director

Okay. See, in order to basically build our D2C platform, digital platform, we need to understand that how these fintechs are working and how is the platform and how is the portfolio quality. So in order to learn that, we have done the partnership and we are committed to them. But the credit standard or underwriting norms given by us is very stringent. Therefore, the volumes are not right. And in the beginning when the overall business is expanding physically or traditionally, traditional channel, it look like it is higher in terms of proportion. Over the period, traditional business will be much higher than the partnership business. That is what is the one point.

Second is that the collection is very closely monitored. Our collection team working with their collection team to ensure that 100% collection comes month-on-month basis. And as of now, our collection — our performance of these partnership or experience with these all four partners is very good. And it’s the hybrid collections. Not that everybody is doing 100% collection. Both the parties are collection team and their collection team working together to ensure that the collection is done. And we are ensuring that there could be — our portfolio quality of the partnership is as equal to our own internal portfolio. So, that is what is the partnership portfolio and the collection performances is concerned.

Arul Selvan — President & Chief Financial Officer

Sorry. With regard to the provision, I think even in the earlier calls I have articulated that we would be revisiting this provision numbers because under IndAS, you cannot carry a management overlay without any justification for a large sum. Now, COVID is largely behind us. So, we needed to revisit this and we needed to trim down. And again, as articulated, we have finally taken back some part of it and retained around INR500 crores for provision for contingencies that may have. But obviously, we keep evaluating this and we will take a call with regard to how long and how far we need to hold this provision.

And the other question is with regard to…

Abhijit Tibrewal — Motilal Oswal Financial Services Ltd. — Analyst

The liquidity that we are carrying now.

Arul Selvan — President & Chief Financial Officer

Yeah. See, the current way of approach is to keep two months of maturities, the next two months of treasury maturities and fixed obligations of cash and the plan for disbursement as undrawn lines. And in that context, this number will keep raising at every point in time depending on the maturities that are going to come up in the subsequent two months. But it will be in the range of anywhere between INR3,000 crores to INR5,000 crores in my view, because that is how their maturities will — we see the pattern right now.

Abhijit Tibrewal — Motilal Oswal Financial Services Ltd. — Analyst

Right, sir. Thank you so much, and wish you and your team the very best.

Arul Selvan — President & Chief Financial Officer

Thank you.

Ravindra Kundu — Executive Director

Thank you.

Operator

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

Umang Shah — Kotak Mutual Fund — Analyst

Yeah. Good morning. Thanks for taking my question. Two questions from my end. Firstly, given the kind of current situation, both from the inflationary environment standpoint and the way interest rate cycle is kind of turning, would we like to guide that what sort of AUM growth are we looking at? And over next 12 months to 24 months, how the AUM mix will change vis-a-vis our core businesses and new business? That’s the first one.

Vellayan Subbiah — Chairman and Non-Executive Director

So, I’d say, broadly, we’re — see, we are starting at this stage kind of optimistic on AUM growth. But I would also say that there is enough kind of volatility out there. It’s very difficult to predict, I would say this year, how much real growth is going to be there, especially in kind of our core products and segments. So, I think that in general, we do feel confident that we will get good growth. We are a bit kind of concerned about giving numbers because the environment is kind of really getting a bit volatile by the day.

Arul Selvan — President & Chief Financial Officer

Yeah. In the month of April, industry did very well because last two months of — last year, retail was very bad. So commercial vehicles grew by 66% and even tractor tooler, construction also did very well as against the last year. Car only has been the flat number. So, our disbursement obviously is going to be aligned with the industry. And if industry is going to sustain at this level, you will see better AUM growth in this year.

Umang Shah — Kotak Mutual Fund — Analyst

Understood. Sir, my second question is pertaining to our asset quality. And do we have any particular net NPA target in mind for NPLs as per the revised RBI norms, which is currently at about 4.75? And some of our peers have been targeting to keep the number below 4%. So do we have any net NPA number in mind, so to say?

Arul Selvan — President & Chief Financial Officer

I would say we would — we would like to keep it below 4%, considering the new norms and that would certainly be — at least for the current year, that would be the target. We’re not too far away from that. So, we should be comfortably reaching that.

Umang Shah — Kotak Mutual Fund — Analyst

All right. Sure. Thank you so much. And just one data point. What was the total write-off during the quarter?

Arul Selvan — President & Chief Financial Officer

It was around INR380 crores, has been the write-off, of which we already carried around INR180 crores as normally ECL provision and we had the [indecipherable] from the management overlay of another INR190 crores for the incremental provision.

Umang Shah — Kotak Mutual Fund — Analyst

All right.

Arul Selvan — President & Chief Financial Officer

And then another INR50 crores [Phonetic] impact on the interest line.

Operator

Thank you. The next question is from the line of Aditya Jain from Citigroup. Please go ahead.

Aditya Jain — Citigroup — Analyst

Thank you. In the opening remarks, you talked about affordable LAP being included within LAP. Affordable LAP — are you referring to SBPL because that being called as affordable LAP?

Ravindra Kundu — Executive Director

Yeah. The affordable LAP is part of the one LAP reason and little bit part of the affordable housing. Both are absolutely in the LAP. It is especially in this [indecipherable] and smaller town product. Return at a much better rate than the normal LAP. And we started focusing that product in the last year. SBPL will start showing up after some time because we started doing little — this last quarter only. So, that will take little more time to show up.

Aditya Jain — Citigroup — Analyst

Got it. On the opex, could there be higher…

Operator

Your audio is not very clear. Can I request you to speak through the handset?

Aditya Jain — Citigroup — Analyst

Sorry. On the opex, you had mentioned that disbursements were high and there are investments in new business, which gets to the higher opex. Wondering that, is there also — could we say some sort of one-off impact of the higher collections in this quarter? Or is it only those two factors, which you spoke about? The reason I’m asking is that vehicle finance cost to assets is also quite up Q-o-Q and then new businesses might not be a factor, the disbursements would be. But is there any collection sort of one-off impact as well?

Vellayan Subbiah — Chairman and Non-Executive Director

So this thing this — yeah.

Ravindra Kundu — Executive Director

See, naturally, when collections are good, there would be performance-driven incentives to the field teams, which would have an impact on the costs, that has been factored in. Again, apart from that, even if the salary cost, etc, were down, roll employees, we have factored in higher incentive levels considering the higher disbursements in the higher performance as a whole.

As you know, even last year, we had a similar approach. Last year, it was more skewed because we have not factored in the increment, etc, also. And it was factored into Q4. But this year, increments are already being factored in, only the incentives. And based on performance, it will happen. So every time in any quarter if the performance is low, you will see a drop in the salary cost and that means we will say — while the performance is good, you will some spike in the salary cost because this fluctuates with the results of that quarter.

Aditya Jain — Citigroup — Analyst

Got it. So if we look at Stage 1B and Stage 2B, they are stable Q-o-Q. Should we see this as a normal sort of levels because there will always be some people who would delay and then overdue and then come back? And therefore, the decline in Stage 2B will come from other assets. Is that the right way to think of it? Or these Stage 2B and Stage 1B itself, you would expect to fall going forward?

Ravindra Kundu — Executive Director

No, you can take. They are not too high level. Stage 1 would be at similar levels. It will keep moving. Stage 1B is the intermediary stage where it is moving from Stage 3 to Stage 1A. So it will — it has one more instalment to get sort of collected from the customers before it gets normalized. So to that extent, it’s a good thing, if 1B is a slightly higher number because it’s a transitionary — it indicates that an NPA — an account which had been an NPA has been more or less collected.

Aditya Jain — Citigroup — Analyst

Got it. Understood. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Shubhranshu Mishra from Systematix Group. Please go ahead.

Shubhranshu Mishra — Systematix Group — Analyst

Hi, good morning. Thank you for the opportunity. Just wanted to understand, have we made any representations to the regulator to become a bank or has the — in any dispensation whether a small finance bank or a universal bank or a regulator has been nudging us to apply for a license or maybe acquire a bank license? Is there that kind of a thought going on or this kind of a discussion going on between the management and the board and the regulator or any bilateral discussions as well? And the second question is on the cost of collections. How do we look at the cost of collections in FY ’23? And what should be it as a proportion of the total opex?

Ravindra Kundu — Executive Director

So on the bank, we’ve been clear on this from the beginning, right, which is still the RBI indicates in some way that they are open to inviting players like us to become bank. We’re not going to initiate anything. And so we’ve not had any discussions either at a board level or anywhere else till the RBI set some direction on that front. I think that’s an answer to that first question.

On the cost of collection, we think it will remain at the same level in FY ’23 as it has, because we will keep that collections intensity up to ensure that we basically push the NPA levels down, like Arul said, to below 4%.

Shubhranshu Mishra — Systematix Group — Analyst

What is the proportion of the opex?

Ravindra Kundu — Executive Director

It is fluctuating because it will depend on the stage in which it is because the incentives will keep moving, and I think that’s a more granular data which we would prefer to keep.

Shubhranshu Mishra — Systematix Group — Analyst

Sure, thanks.

Operator

Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.

Piran Engineer — CLSA — Analyst

Yeah, hi. Good morning, and congrats on the quarter. Just wanted to understand regarding your small business and small enterprise loan. In a steady state, maybe two, three years down the line, how many branches will you all be doing this business out of? Is it from the same 350, 400 branches of LAP or from the overall branch pool that you all have? And also, how should we think about per branch disbursements on a steady state basis? And if I may squeeze in another question. The performance incentives that you spoke about, does that come only in the fourth quarter every year or is it paid out quarterly? So yeah, these are my two questions.

Arul Selvan — President & Chief Financial Officer

Okay. See, the performance incentive is provided every quarter, but it will reflect that quarter’s performance largely. So for example, in the calendar year, if you see Q1, we did not have a large amount of profit, actually we had very marginal profit. So in that quarter, the incentive provisioning would have been minimal. In quarter where the PBT achievement, that NPA achievement, the disbursement achievement are higher, in those quarters we tend to take a higher hit on this. This is to go with the results of the company, in which — is in the pattern in which the teams are rewarded. That’s one part of it. The field teams are being rewarded on a month-on-month basis, while the performance incentives is more a provision which is carried and calculated and given at the end of the year.

Ravindra Kundu — Executive Director

Yeah. For secured business and personal loans, we have given parameter of MSME ecosystem in Page number 12, where you will see that we are in the top of the bottom of the pyramid where this particular businesses have been, allowing the affordable housing division. So we’re actually doing the — addressing the similar type of customer whether it’s non-professional customer having the properties they can offer us as a mortgage. These guys typically do small business like saloon, electrical appliance, eateries, groceries, stationery shops. And their cash flows are calculated when someone is visiting them to understand how is the footfall and all. So these customers are not available in the town where the LAP is performing. LAP is mainly in Tier 1, Tier 2, Tier 3. And they are addressing little larger, bigger customer where the credit histories of a banking has been [Indecipherable] customer is very, very, clearly established and the CIBIL score is also can be — 100% CIBIL score is there.

So therefore, the SBPL will be focusing more on Tier 2, 3, 4, 5, 6 and small business, which is the what, top of the bottom of the pyramid of the customer. Three to four years’ time, we will be definitely covering almost 70% to 80% of these Tier 2, Tier 3, Tier 4 branches of this vehicle finance and total Chola we have. And our disbursement will start delivering good number by the time. As of now, in affordable housing, we are doing almost INR200 crores per month. This number has come after five years. So affordable housing took five years to reach to this INR200 crores. I’m not saying that will take five years to do because now we have more learning with respect to the similar type of customer. So we will do much better than that in terms of learning curve.

Piran Engineer — CLSA — Analyst

Okay, okay. That answers. Thank you, sir, and all the best.

Ravindra Kundu — Executive Director

Thank you.

Operator

Thank you. The 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. Sir, is there any seasonality element in the home equity growth firm because the disbursement has been sluggish and the AUM growth has slightly modest? I also wondered you had mentioned last time you are also scaling up on the branches side. So any opinion there? And just one book-keeping question. In the structural assets, you mentioned Stage 1, Stage 2 around INR3,300-odd crores. How much ballpark number would be sitting in Stage 1? Thank you.

Ravindra Kundu — Executive Director

Seasonality, you only talk about.

Arul Selvan — President & Chief Financial Officer

Yeah, seasonality. Yeah, the LAP business or heavy commercial business is strongly correlated with GDP growth, industrial production and also to a large extent it is also depending on the urban economic growth. But LAP, we have also understood that we can approach small ticket size LAP like 2022, INR30 lakh of LAP, which is available in smaller towns. That’s the reason we have started expanding and we are getting benefit out of it.

And Suresh, why don’t you talk about…

Suresh Kumar S. — Vice President & Business Head, LAP and SME

So from — as far as LAP business, we in fact have spoken about this history of my earlier calls as well. From 250 branches — in fact, from 125 we moved to 250 branches, currently we are at 400 branches. So our INR20 lakh to INR50 lakh ticket size also have increased significantly in the last few quarters. And our investment on the both on the branch side as well as on the employee side has started giving us that kind of a flow, coupled with the confidence in the SME sector now that things are improving, COVID behind us and the overall confidence in the SME sector is improving. We are seeing a good traction from our disbursement side.

Ravindra Kundu — Executive Director

Yeah. I would say, out of the INR3,300 crores, INR2,800 crores is the number which is in Stage 1 and the rest, almost INR500 crores is in the Stage 2.

Shweta Daptardar — Elara Capital — Analyst

Sure. Thank you, sir.

Operator

Thank you. Next question is from the line of Shalini from DSP Mutual Fund. Please go ahead.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Sir, good morning. This is Vivek Ramakrishnan. My question was on the various CV businesses where you had nuance in terms of — where some collections were lagging, especially those associated with hubs. Given the economic improvement, has the collection efficiency improved across the board for the CV business or do you still see this lead lag in various businesses? Thank you.

Ravindra Kundu — Executive Director

You are talking about the market-wise collection of the commercial vehicle? In the last quarter, across the country, we saw that the collection efficiencies improved across all the markets. There are markets which are affected due to the poor mining or mining got impacted in the Odisha or Bihar because of the sand transportation. In Kerala also it is impacted because of the economy did not do well in the past. But those things significantly improved in Q4. And we are hoping that that will continue for the next financial year.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Thank you, sir.

Operator

Thank you. The next question is from the line of Alpesh Mehta from IIFL Securities. Please go ahead.

Alpesh Mehta — IIFL Institutional Equities — Analyst

Yeah, hi. Thank you. Just two questions. First to Arul sir. Sir, there has been quite a few restatements on the individual line items within the P&L. While the [Indecipherable]

Operator

Alpesh, sorry, but your voice is breaking terribly. Can I request you to come in a better reception area?

Alpesh Mehta — IIFL Institutional Equities — Analyst

Is this better now?

Operator

Yes, slightly better than before.

Alpesh Mehta — IIFL Institutional Equities — Analyst

Okay, thanks. So Arul sir, there has been quite a few restatements in the individual line item within the P&L between total income and the provisions. So what is it regarding?

Arul Selvan — President & Chief Financial Officer

See, this is based on the advice of the auditors because it would help get a better tax claim on [Indecipherable] written off. So whatever we are writing off and sometimes we recover something that was getting adjusted earlier in the — they said that this may be challenged. So that’s where it is better to show that as an income, as a shortfall recovery and they have now adopted that and that’s the restatement. Actually, I think that’s the only restatement I know. I don’t know whether — so it affects in two places.

Alpesh Mehta — IIFL Institutional Equities — Analyst

So basically, are this recoveries from written off accounts or the…

Arul Selvan — President & Chief Financial Officer

Yes. When you are hitting a recovery from a written off account, we used to adjust that and [Indecipherable] still because that’s where earlier the provision of the write-off I think happening. And the earlier I get, that is the normal process. INDAS allows you and it is also suggest that it gives the more clarity and more clear view to the tax efficient and it becomes fairly different line item for them to track. So that’s what…

Alpesh Mehta — IIFL Institutional Equities — Analyst

This goes under the other income line item, if I’m not wrong? It does not impact our…

Arul Selvan — President & Chief Financial Officer

Correct, correct.

Alpesh Mehta — IIFL Institutional Equities — Analyst

It won’t go into [indecipherable]

Arul Selvan — President & Chief Financial Officer

Yeah.

Alpesh Mehta — IIFL Institutional Equities — Analyst

Okay. And large part of this would be related to the vehicle finance system, if I’m not wrong, because the restatement are higher on that kind of…

Arul Selvan — President & Chief Financial Officer

Yeah. It is — large part of it is vehicle finance. There will be maybe some LAP, others are very small.

Alpesh Mehta — IIFL Institutional Equities — Analyst

Okay. And just the last question. During the quarter, the write-offs have been higher. I can see it in the notes to accounts that you did some accelerated write-off around INR190 crores. But even adjusted for that, the write-offs which used to be around INR200 crores, INR250 crores that run rate has increased almost INR350 crores. So any idea related to that and will this continue? And secondly, related to this, our pre-COVID ECL was around 1.9%. Currently, we are sitting at around 3%. Since we are moving towards the normalization, when do you see this number moving back to around 2%? Thank you.

Arul Selvan — President & Chief Financial Officer

Write-offs, last year, we have not done write-offs. So that extend, that is an accumulation because of last year the COVID was there. So that’s the reason today, this year, you’re seeing the slight build-up on write-offs. Of course, there has also been a higher level of settled loans, etc. So — but I don’t see this will be — as a percentage, it will not be at this level, but in absolute terms, it can be, because as we move forward in the book becomes larger, you will see us slightly have some out there.

So with regard to the other part, on the ECL provisioning, see, we have built the PD LGTs — the COVID impact into the PD LGTs current year. And so to that extent, the current year PD LGTs are little bit inflated. So this is more like a one-off event. So this, as you know, we take a five year average. So it will take some time for this to sort of run down [Indecipherable] our five year average. So to that extent, the impact of this may carry for some time, but it won’t be if significant subsequent years also tend to be of normal pre-COVID levels.

Operator

Thank you. [Operator Instructions] The next question is from the line of Param Subramanian from Macquarie Group. Please go ahead.

Param Subramanian — Macquarie Group — Analyst

Hi. Thank you for the opportunity. So first question was on the pace with subsidiaries. So now you’ve reported that the revenues were INR45 crores for FY ’22. So I just wanted to cross-check that because I think in FY ’21 it was at INR200 crores. So what is the reason for the reduction? And if you could talk about profitability for this business and how it’s going to contribute for the lending — to the lending business going forward? So that’s my first question.

Secondly, you also mentioned on supply chain finance and fintech partnerships aiding the supply chain finance. So what fintech partnerships are we talking about over here? Is it largely the trades platform or is there something else apart from that? And you said one-third of the new businesses are coming from fintech partnerships. How is it split between SMEs and consumer business? Those are my two questions.

Ravindra Kundu — Executive Director

I think to your first question, one is gross revenue versus net. Now we’re recording net revenue. So it’s not a drop, we’re only showing net revenue.

Second question was supply chain partnerships. So your question was, which fintechs do we…

Param Subramanian — Macquarie Group — Analyst

Yeah. So you mentioned fintechs and supply chain partnerships. Is it largely a trades platform or is there some other partnership or it is paced with already contributing?

Ravindra Kundu — Executive Director

Yeah, we’re excluding multiple — including a lot of these — there are lot of these fintechs now that are kind of getting into the whole B2B supply chain. And so we are talking to a lot of those fintechs to try and see if we can do something like that.

Param Subramanian — Macquarie Group — Analyst

Okay, okay. Sir, going back to the first question…

Operator

Sir, we move onto the next participant?

Ravindra Kundu — Executive Director

There is one more question.

Arul Selvan — President & Chief Financial Officer

What is your third question? What was the third one?

Ravindra Kundu — Executive Director

Yeah. So the partnership business which is coming from the — correct, correct. So supply chain finance is basically keeping the anchor in the center doing the forward integration with the channel and backward integration with the vendor. This is bill discounting and channel funding. That’s a different type of business partnering with the SME, but the CIFL is partnering with the partners to do the personal loan, which is small ticket, small tenure loan and also one form of offline the NPLs. And then third is that the traditional PL done in the — the bill generation happen and we do the conversion. So there are three, four type of partnerships within the CACL of 30%.

Operator

Thank you. The next question is from the line of Varun Nabar from Nippon India Mutual Fund. Please go ahead.

Varun Nabar — Nippon India Mutual Fund — Analyst

Yeah, hi. Thank you, sir. Just one clarification from my side, which I wanted. So there was a question earlier that we spoke about the repricing of the liabilities. So I just wanted to understand how our asset side get repriced depending on market sectors or do we largely do just fixed sort of lending? And if that then defers across products?

Ravindra Kundu — Executive Director

So the vehicle finance is a fixed rate book, it doesn’t get repriced. The LAP and FL gets repriced. And then we review it every quarter and we do it depending on market situation.

Varun Nabar — Nippon India Mutual Fund — Analyst

Okay. So the LAPs, your longer tenures would get repriced quarterly. So to that effect, if the liability side does start going up, the risk of a compressing NIM would not be there, at least on the longer tenures?

Ravindra Kundu — Executive Director

If it’s a small ticket size, small tenure under vehicle finance, it will be fixed.

Varun Nabar — Nippon India Mutual Fund — Analyst

Got it.

Ravindra Kundu — Executive Director

See that the yield is also significantly higher.

Varun Nabar — Nippon India Mutual Fund — Analyst

I’m sorry. I missed you there.

Ravindra Kundu — Executive Director

You are right. We are saying that you are right, what you were saying.

Varun Nabar — Nippon India Mutual Fund — Analyst

Okay, that’s all. Thank you.

Operator

Thank you. Next question is from the line of Abhishek Murarka from HSBC Securities. Please go ahead.

Abhishek Murarka — HSBC Securities — Analyst

Hello. Good morning. So two questions, one on NIM. Now if you look at slightly longer term trends, NIMs are pretty much at a high in every business. Incrementally, cost of funds are likely to go up. So what do you think about the NIMs from here? Can you protect it at current levels? And how does that look? And just squeezing in another one on opex. Again, if I look at slightly longer term trends, before COVID, opex was roughly at 39% to 40% — I mean, cost to income ratio was 39%, 40%. Now we are seeing setup costs for new businesses and disbursements going up. Do you think from this year’s 35% we are likely to go up from here in terms of trajectory? So yeah, just those two questions. Thanks.

Arul Selvan — President & Chief Financial Officer

So the NIM will be in the range of around 7.5, upwards of 7.5 I would say. This has been the rate I think trending on, if you look at the last 10 years. It has got element both from a cost of fund side as well as on the yield side. As we grow our portfolio or diversify our portfolio into multiple products with different yield levels, you will see the impact of NIM fluctuating with which product we focus on. We focus the product based on market, etc. But the impact of such shift in focus is also would be visible in the opex and the NCL because lower yield products will lower opex and lower NCL, while higher yield products like [indecipherable] will also have a higher opex. So with a wide diversified portfolio, it is a little difficult to stay — give particularly range even a range for a NIM level because it’s better to track the ROTA factors in both the opex NCL and the NIM.

Operator

Thank you. Next question is from the line of Himanshu [Phonetic] Shah from JPMorgan Chase. Please go ahead.

Himanshu Shah — JPMorgan Chase & Co. — Analyst

Hello. Thank you for the opportunity. I had just one question. Based on your current disbursements between the used vehicles and new vehicles, particularly on the CV side and against the current backdrop, could you give an outlook on how do you see the two books moving ahead?

Arul Selvan — President & Chief Financial Officer

Yeah. So this year, as I mentioned that already in the month of April, industry started behaving very better. And if this has continued, obviously, new vehicle had previous higher disbursement, significantly higher than the last year. Last year, the used component were high because the new were low. And as and when new goes up, then obviously the huge disbursement in terms of the proportion, in terms of the absolute value, it will be high, but the proportion between new and used, the new will be higher.

Operator

Thank you. The next question is from the line of Vidhi Shah from Antique Stock Broking. Please go ahead.

Vidhi Shah — Antique Stock Broking — Analyst

Thank you for the opportunity. Sir, I just had two questions. Sir, in Q4, the yields have come down compared to the last three, four years which were — will be around 14%, 15% and it has come down so now 13%. So how do we see this going ahead, especially when the new business that we are doing that should I am guessing is a high yielding product? That’s my first. And under restructured book held, if you can give color on that? And also the provisioning that we are carrying on the Stage 2, Stage 1 of the restructured book? And what will be your credit cost guidance for ’23 and ’24? That’s it.

Arul Selvan — President & Chief Financial Officer

So on the NIM, low-80s — you are saying that it is coming in. It is like this, like I just now explained to another question. You have seen that the vehicle finance book is coming down marginally in proportion to the overall book and the LAP is moving up. LAP has a lower rate. So it will have its impact on the NIM. And as I again told in some part of this conversation, we also had a INR50 crores impact on the interest reversal on the write-offs coming into the interest line. So these were the factors. You will see — well, in the LAP you will see the opex is a much lower number and the NCL is a much lower number. So it will get compensated and that’s where it’s always better for you to track the ROTA business where there are multiple products with different yield structure.

So with regard to the second question — on the restructure, I think we have given enough data already in this call. I think we can’t get more granular on the credit cost of restructured. Frankly, we don’t really track that as a separate cost because the restructured book at the ground level is treated at par with the books and all efforts go on a same parallel basis.

Operator

Thank you. The next question is from the line of Prashanth Sridhar from SBI Mutual Fund. Please go ahead.

Prashanth Sridhar — SBI Mutual Fund — Analyst

Yeah, thanks. Sir, just one doubt. On the vehicle finance, approximately how much would mature every quarter because that also would in effect get repriced at a newer reiterate, right?

Ravindra Kundu — Executive Director

Vehicle finance, there is no repricing. I told vehicle finance is a fixed rate book.

Prashanth Sridhar — SBI Mutual Fund — Analyst

Yeah, sir. But there would be some part of the vehicle finance that’s maturing in a quarter. And then the new loans would anyway be at the new rate, right?

Ravindra Kundu — Executive Director

Maturing you’re saying. Okay. Yeah, yeah.

Prashanth Sridhar — SBI Mutual Fund — Analyst

So what proportion is that that matures every quarter because that also would…

Ravindra Kundu — Executive Director

Almost like — see, almost one-third one-third should mature in a year, but this would again change with regard to the mix of the book. When you — for example, the coming year, you will do — I mean, the assumption of the market in consensus NEs [Phonetic] will grow. If NEs grows and if it becomes a fire book, so then the proportional NEs will run down only one. And that too, in the initial year it will be lower and then the lag years it will be higher. So whenever there has been a steady disbursement trend and the steady AUM growth, then you can predict this more accurately. But when you have got like last year when the fourth quarter was last, etc. and that has seen shifts in disbursements. It’s really difficult to predict. But at a very broad terms, you can take one-third of the book.

Operator

Thank you. The next question is from the line of Bhaskar Basu from Jefferies India. Please go ahead.

Bhaskar Basu — Jefferies India — Analyst

Yeah, good morning. So I had a couple of questions. Firstly, just on the broader CV vehicle financing business. So while till March of course the fuel price headwinds were not really seen, and my understanding is that so far at least the larger freight operators have been passing on the fuel price. How do you see that kind of flowing down to the smaller medium who are basically kind of price takers from the larger vehicle finances? That’s my first question.

Secondly, just wanted to understand how is the new book really behaving. So basically in the first — even in December we had an NPAs like 6%, which has come down because the base has increased even though the NPL levels are kind of flattish. Though these are very small numbers, but just wanted to understand how the quality of the book holding up — is holding up? Yeah, these are the two questions.

Arul Selvan — President & Chief Financial Officer

So in the case of commercial vehicle or heavy commercial vehicles, there are three segments of this product, which is tractor and haulage and then tractor trailer. So in the haulage long-haul customer, especially the large fleet operator, we can pass on the fee rates and the small road transport operators who are basically having a small need for transportation, they don’t worry about the freight charges because they are attaching their vehicle as and when the freight is available and the freight is adequate to them. So only for the long-haul customers, these diesel prices are very, very critical because they consume the maximum one. And we are not into that segment, we are into the [indecipherable] they are transporting in the city and within the state only. For them, it is easy for transporting the freight and passing the prices to the customers.

For the tractor customer and tractor trailer customer, the diesel prices has not been a problem because as and when the mining operation goes up or the industrial production goes up, obviously they deploy their vehicle depend upon the rates which is comfortable to them. So coming to the point what you’re asking that whether going forward the increased diesel prices will impact the long-haul transportation or overall sales of the transport — commercial vehicle or the profitability of the customers, yes, it can, but it will impact those operator who are having a long-haul transportation and having a fixed contract and escalation metrics is tight and it is not in favor of the customer whom we are not financing.

The small commercial vehicle, the tractor, trailer and construction equipment and this [indecipherable] segment in Tier 2, Tier 3 can pass on and they purchase only when there is a ability to buy the vehicle and deploy the vehicle in the market. So that’s the commercial vehicle scenario. What we are expecting is that, during the time, the construction site, lot of mining sites, lot of projects are coming up. So therefore, sale of tipper and tractor trailer is on the go-up. Last six months, the rural economy was down, it started importing now. The small commercial vehicle, light commercial vehicle, which is strongly correlated with the agricultural growth and in conjunction is going to go up. So put together, we are hoping that this segment we are focused on is going to increase and that’s the reason our disbursement will also go up.

Operator

Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.

Nischint Chawathe — Kotak Securities Limited — Analyst

Arul, just one data-keeping question. If you could give us the breakup of restructured loans between Stage 1 and Stage 2 for the previous quarter?

Arul Selvan — President & Chief Financial Officer

See, I do not right now have it, maybe I can share it with you.

Nischint Chawathe — Kotak Securities Limited — Analyst

Sure, perfect. Thank you. That was the last question of today’s call. We have more than run out of time actually. Thank you everybody for joining us today. We thank management for giving us an opportunity to host the call. Thank you very much.

Arul Selvan — President & Chief Financial Officer

Thank you.

Ravindra Kundu — Executive Director

Thanks so much.

Operator

[Operator Closing Remarks]