CREDITACCESS GRAMEEN LIMITED (CREDITACC) Q2 FY23 Earnings Concall Transcript

CREDITACCESS GRAMEEN LIMITED (NSE: CREDITACC) Q2 FY23 Earnings Concall dated Oct. 21, 2022

Corporate Participants:

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Analysts:

Renish Bhuva — ICICI Securities Limited — Analyst

Shreepal Doshi — Equirus Securities — Analyst

Pooja Ahuja — Monarch Networth Capital Limited — Analyst

Abhishek Murarka — HSBC Securites & Capital Markets (India) — Analyst

Puneet Balani — Nomura Holdings — Analyst

Nidhesh Jain — Investec — Analyst

M. B. Mahesh — Kotak Securities — Analyst

Viral Chotai — True North Managers — Analyst

Shreya Shivani — CLSA — Analyst

Piran Engineer — CLSA — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Q2 FY23 Earnings Conference call of CreditAccess Grameen Limited, hosted by ICICI Securities. [Operator Instructions]

I now hand the conference over to Mr. Renish Bhuva from ICICI Securities. Thank you, and over to you.

Renish Bhuva — ICICI Securities Limited — Analyst

Yeah, hi. Thanks, Vishveshwari. Hello and good evening, everyone. Welcome to the CreditAccess Grameen Q2 FY23 earnings conference call. From the management team, we have with us today Mr. Udaya Kumar Hebbar, MD and CEO; Mr. Ganesh Narayanan Deputy CEO and Chief Business Officer; Mr. Balakrishna Kamath, CFO; and Mr. Nilesh Dalvi, SVP and Head, Investor Relations.

We will start the call with brief opening remarks and then open the call for Q&A. I would like to thank the management team for giving us the opportunity to host the Q2 FY23 Earnings Call. I will now hand over the call to Mr. Udaya sir, for opening remarks. Over to you, sir.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you. thank you, Renish. Good evening to everyone and thanks for joining this conference call. We welcome you all to discuss our second quarter and first half FY23 financial performance. We would like to say with great confidence that we are well placed to deliver robust growth and profitability which will further strengthen our leadership position over the coming quarters and years. We have witnessed thereof strongest second quarter performance to-date with all round improvement across all key parameters, ranging from borrower addition, mutual fund, collection efficiency, asset quality, net interest margin, return ratios and traction in foreign funding. We are among the early adopters of new microfinance guidelines, which helped us to channelize our energy power customer additions and non-renewals during the second quarter.

At the consolidated level, we added over 2.8 lakh borrowers during Q2 FY23, the highest borrower addition witnessed in the second quarter. Our borrower base grew by 3% Q-o-Q and 5.7% Y-o-Y on a pre rate of — sorry, 3% Q-o-Q and 5.5% on pre write-off basis to reach nearly 38 lakh loans. At CA Grameen, our borrower base grew by 8.8% Y-o-Y and 16.7% Y-o-Y pre write-off basis basis to reach nearly 30 lakh. At MMFL, while there was 20.6% Y-o-Y degrowth in the borrower base, the per write-off basis, we — actually, we had grown by 8.2%.

On a consolidated basis we added 8.8 lakh new borrowers over the last 12 months, with 47% coming from outside of top three states. Our consolidated gross loan portfolio grew by 24% Y-o-Y and 5.9% Q-o-Q to receive INR16,539 crores. On pre write-off basis, the growth stands at 25.3%. The second quarter disbursement at INR4,375 crores, 12.5% Y-o-Y growth, are highest ever. We appreciate the effort of our MMFL field staff who are currently managing through inflation given that 84% of the book is on CA Grameen tech platform and the remaining 16% book on MMFL tech platform, and still be able to deliver the growth.

The branch addition remained largely muted during the second quarter as we have decided to focus on unlocking branch on productivity. In the last three to five years — three and a half years, we have opened over 525 branches at a consolidated level where business couldn’t scaling owing to COVID related disruption. With COVID moving away and the industry being at the new phase, we expect to generate significant business from these branches which will be further visible in various productivity related indicators. We’ll reinitiate the branch expansion in the second half of our plan.

Our collection efficiency and asset quality have now largely normalized. Consolidated collection efficiency during Q2 FY23 stood at 97% excluding arrears and 98% including arrears. GNPA, largely 60 plus dpd reduced from 3.1% in June ’22 to 2.17% in June ’23 — sorry, September ’23 or 90 units 2.33% in June ’22 to 1.72% in September ’22 and net NPA 60 dpd reduced from 1.15% in June ’22 to 0.77% in September ’23.

We are best placed to protect our NIMs in a rising interest scenario with strong control over cost about earnings coupled with one of the lowest lending rates in industry. Our consolidated weighted average cost of borrowing was at 9.2% during Q2 FY23, only 30 bps higher compared to Q4 FY22, that means in last six months. CA Grameen’s marginal cost of borrowing during Q2 stood at about 8.8% or 50 bps higher in the last six months. Our NIM was 12% in Q2 FY23 and 11.4% during HY FY23. It is 50 bps higher compared to 10.9% in FY22. As guided earlier, we anticipate our NIMs to improve in FY23, driven by new loan takings, low interest [Indecipherable] lower liquidity carrying cost.

On a consolidated basis, NII 39.9% Y-o-Y to INR516 crores, while PPOP grew by 52.7% [Phonetic] Y-o-Y to INR334 crores, indicating a clear part of strong profitability growth ahead. The credit cost was INR105 crores which also included the impact of the write-off of INR162 crores. It was partially offset by INR14.5 crores of bad debt recovery during the second quarter. Overall, ECL stood at 2.46% at the end of Q2 FY23, higher than our GNPA. We recorded our highest quarterly consolidated PAT of INR176 crores during FY23 despite it being a seasonally moderate quarter, resulting in an ROA of 4% and ROE of 15.1%.

Overall, looking at that H1 FY23, financial performance, we are sanguine about achieving our annual performance for FY23. Our liability franchise is an important pillar to achieving the desirable scale under the microfinance [Indecipherable] and providing affordable products to all. We saw several positive developments on the liability front during the financial year. In Q1 FY23, India Rating upgraded our rating from the A+ rating to AA- Stable, ICRA upgraded our rating outlook from A+ Stable to A+ Positive. This was followed by CRISIL upgrading our rating outlook to A+ Positive from A+ Stable in Q2 FY23.

We are witnessing a strong traction in foreign fund flows, aiding our strategy of diversifying our liability mix by achieving 25% to 40% foreign funding over the medium term. During this financial year, we have reviewed funds from say, around USD195 million from prominent foreign financial institutions and loan bodies including Blue Orchard, International Finance Corporation, Syndicated loan by HSBC and United States International Development Finance Corporation. Today, we have strong visibility of foreign sourcing that comprise a 38% share in undrawn sanctions and 19% share in sanction in pipeline. And we have a strong policy that we will not have any open position and 100% foreign currency hedging coverage, so that we are not exposed to any hedging risk — currency risk.

We are extremely happy to announce that DFC supported us with USD35 million ESG-linked loan for up to 7 years, and it is the first of its kind direct lending given to an Indian MFI. This is our the second ESG-linked loan after receiving the first ESG loan sanction of USD25 million from Swedfund in Jul ’21. The microfinance model fits well under ESG realm, given global investment for actively looking at the funding — at funding ESG compliant businesses. We aim to tap ESG funds in our journey which has seen a lot of traction in making concrete efforts to achieve the same ranging from commencing integrated reporting beginning since FY21, while formulating various policies in the environmental government-set framework which are available in the public domain or foreign website.

We would also like to inform you that we are in the process of launching our maiden public NCD issuance in the month of November ’23. We have already filed draft shelf prospectus available on SEBI website for reference. We are planning to raise up to INR1,500 crores in multiple contracts over coming years. This issue will be the first public NCD issuance to be lagged by NBF finance [Indecipherable] We have earlier INR210 crores for the market linked debentures [Indecipherable] and have witnessed good response HNI from family offices. We are taking this through to further diversify our liability profile and and establish a strong of funds o the public market which can be tapped in future.

Our IT system has given — giving us relentless support to cover a wider and deeper footprint. I’m happy to inform you that CA Grameen has bagged the Best Technology Of The Year ’22 award in the Financial Services category at Quantic India Technology Excellence Awards. Award was bestowed for adapting effective measures to build technological advancement, scalable infrastructure and enabling the best-in-class application, given technological adoption is critical in the quest for enhanced productivity and gaining the competitive edge.

With this, we’d like to open the forum for the question and answer section — session. Thank you for your patient attention. Thank you.

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 Shreepal Doshi from Equirus. Please go ahead.

Shreepal Doshi — Equirus Securities — Analyst

Hello, sir, a very good evening and thank you for giving me the opportunity. Sir, the question was with respect to the portfolio yield. So what are the increases that we have taken over the last two quarters in our yields?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

See, based on the new guidelines where interest can be raised virtually based on your cost of borrowing, cost of capital, cost of operation and cost of rate, so our yield would have gone up by — and a futuristic disbursement, gone up by almost 1.3%. So that basically makes about 11.3% interest rate, along with other income, so the cost of it together, we aim at about 20% NIM here onwards. But the entire — full benefit we would get by up — by — between two years time, but yeah. Some of it, we will start getting here onwards.

Shreepal Doshi — Equirus Securities — Analyst

Sir, I’m sorry, I didn’t get. So, you said, NIM would inch up to 11%.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

12%

Shreepal Doshi — Equirus Securities — Analyst

12%, okay. And the portfolio yield has gone up to 21%, is it?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

It’s around 19%-odd, now. It will actually — the full benefit of two years, it should actually go around 20.3%, in that range.

Shreepal Doshi — Equirus Securities — Analyst

Okay. Got it, got it, sir. And sir, you highlighted that you — on the liability side, we are looking at new revenues. So, what is the kind of mix that we are looking at over the next, say, two years. So, even on the asset side, we have increased our product tenure for our Vintage customers. So on the liability side what is the kind of changes that we are looking at in terms of mix, if you could answer that.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

So, I think I already answered in the opening remarks. Our aim is that to enhance our liability profile by at least 25% to 30% from international sources which will be stable and long term, so which will help us to have a positive yield, which already we are, we can further enhance. That is one step. Second is that we also working towards raising INR1,500 crores through public NCD, which is again, a long term funding resources, which will make up more than 50% of our funds, eventually, maybe medium-term level or more than three years loan, which will automatically strengthen the liability profile.

Shreepal Doshi — Equirus Securities — Analyst

Okay. Got it, sir. Got it. And sir, just one last question on the loan officer side. So, I suppose, the last quarter — this 2Q, we’ve added 700, 800-odd loan officers. So, what is the number of borrowers and AUM per loan officer that we feel that we would be comfortable with in terms of operational metric?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

See, in our case, we always look at the relationship as key parameters, therefore we don’t want to load too much on our loan officers. If the loan officer is higher — sorry, number of customers or higher to loan officer, the relationship building will not be possible. Therefore, we are comfortable at about 400 to 450 customers per per loan officer.

Shreepal Doshi — Equirus Securities — Analyst

Okay. And in terms of AUM size?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

AUM, currently we are at INR1.6 crores per loan officer, and we are comfortable with that. It may inch up, I mean over — between 10%, plus or minus.

Shreepal Doshi — Equirus Securities — Analyst

Got it, sir. Got it. Sir, in the presentation I saw there is some revised ECL policy. So, what is it, if you could just throw some color?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Annually, we revise our ECL policy to review for gone last year and what more we have to change. So, this year we reviewed the ECL policy to give a color of new, what you call, risks which is appearing in the [Indecipherable] in last two years or last three, four years. So accordingly, what we design the policy is to have a different PD and LGD based on that geographic risk. It’s not just a common PD and LGD across the board. So, therefore, there is a — the states are designed into low risk, medium risk and high risk category. And the PG and LGD also revised based on such risks. So instead of a common PD LGD for the entire book, it is more on risk based than customer-oriented based. So arriving — for that, we can we can arrive at a better ECL provision. So, also to give a color of, what you call, macro level GDP impact, if anything is there, then again we can look at that also as additional parameter. So, we added a couple of parameters to refine better than what we had earlier, which increased our ECL by about 15 bps.

Shreepal Doshi — Equirus Securities — Analyst

Hello?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Hello?

Shreepal Doshi — Equirus Securities — Analyst

Yes, sir, yes, sir. I can hear you.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Okay. Okay. So I told, I said we actually increased lower — on a comparative basis, our ECL has gone up by about 15 bps with the revised ECL policy.

Shreepal Doshi — Equirus Securities — Analyst

Got it, sir. Thank you so much for your detailed answer, and sir, happy Diwali to the entire team in advance. Thank you.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you. Same to you.

Operator

[Operator Instructions] We have our next question from the line of Pooja Ahuja from Monarch Networth Capital. Please go ahead.

Pooja Ahuja — Monarch Networth Capital Limited — Analyst

Yeah, hi. Thanks for the opportunity, and congrats on the quarter, sir.

Operator

Sorry, but there’s some echo coming from your line. Can you use the handset, please?

Pooja Ahuja — Monarch Networth Capital Limited — Analyst

Yeah. Is this better?

Operator

Yes, please go ahead.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Yes.

Pooja Ahuja — Monarch Networth Capital Limited — Analyst

Yeah, sir, congrats on the quarter. So firstly, wanted to understand on the cost of funds front. While we’ve seen improvement this quarter, would you largely attribute to the liquidity run down? And what are our incremental cost of funds?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

No, incremental cost of funds is explained our marginal cost increased by 50 bps in the last six months and average cost of borrowing increased by 30 bps in this last six months.

Pooja Ahuja — Monarch Networth Capital Limited — Analyst

Right, but Q-o-Q, we’ve seen some improvement. So, will you attribute that to — because we’ve seen some liquidity rundown.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

No. No, no. There’s no relation with the liquidity rundown for this, because we also raised almost INR3,000 crores during the quarter. And it’s more of a liability management, I mean, borrowings at the right pacing right maturity. So I think that is what paid out, actually. Liquidity management rundown will not have an impact on the cost of borrowing.

Pooja Ahuja — Monarch Networth Capital Limited — Analyst

Okay. Sure, sir. And secondly, on the retail book, that’s not traction in the past few quarters. So, just wanted to understand while we’re running our other products in pilot basis, when do we see those segments sort of meaningfully contributing to our book?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

We already said earlier also, this year we will do more of pilots. We won’t see numbers actually because we want to do the — whatever — what we are picking up will be — it should be right trade model. So number traction will be in the next financial year. So we are doing more of a pilot this year.

Pooja Ahuja — Monarch Networth Capital Limited — Analyst

Okay. Okay, sure. That’s it from my side, sir. Thank you, and Happy Diwali to the team.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you and Happy Diwali to you all.

Operator

Thank you. We have our next question from the line of Abhishek Murarka from HSBC. Please go ahead.

Abhishek Murarka — HSBC Securites & Capital Markets (India) — Analyst

Hi, sir, good evening, and congratulations for the quarter. Few questions.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you.

Abhishek Murarka — HSBC Securites & Capital Markets (India) — Analyst

One, on — thanks. One, on branches. You said in the second half, you would initiate branch addition. What kind of run rate are you looking at?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

So, we said normal run rate what we want to do about 10% to 12% of our base, that is what we normally do. And earlier, normally we used to do in the first half but what we thought that it would be better to use the current focus now and mature the branches which we have opened in the last year. A last number of branches were not matured. We have a lot of scope to — lot of headroom there in those branches. So we thought to focus couple of [Indecipherable] to improve them and initiate during the year. So, the 10% to 12% of the base increment, and we will be doing the same level this year also.

Abhishek Murarka — HSBC Securites & Capital Markets (India) — Analyst

By the end of the year, you would be 10% to 12% higher in branch count versus beginning of the year, that’s what you’re trying to say.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Exactly. Yes, yes.

Abhishek Murarka — HSBC Securites & Capital Markets (India) — Analyst

Right. And sir, just on these branches, so if I calculate, even now you would be at around 350 customers per loan officer. And your comfort level is 400 to 450. So, you have at least 15% to 30% extra capacity in the system already. So, would it not be useful to push out these branch and people addition and sweat the existing branches and people at least for a while before you start adding?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

No, no…

Abhishek Murarka — HSBC Securites & Capital Markets (India) — Analyst

The addition, basically.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

That is looking at the current. We need to look for the future also, we need to create infrastructure for next year also, Abhishek.

Abhishek Murarka — HSBC Securites & Capital Markets (India) — Analyst

Right.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

So if you keep doing it then when you start then actually you don’t have headroom afterwards. So we need to keep creating the branches for future growth. The only way you create branches this year and get the potential business next two, three years. So, I think that’s why we will not compromise on expansion of the branches.

Abhishek Murarka — HSBC Securites & Capital Markets (India) — Analyst

Okay. So, suffice to say then, you would probably remain in the 350 to 400 space, because every time you hit that 400, by that time fresh your capacity will come up?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

So, there will be — when we say average, it need not be average across the branches but where we — a mature branch will have about 450, 500 and the non-mature branch will have a lesser. That kind of combination will be there, always.

Abhishek Murarka — HSBC Securites & Capital Markets (India) — Analyst

Understood, sir. Understood. The other question is on NIM expansion. Actually, I think, if I remember correctly, you had guided for the 70 bps NIM expansion over two years or something of that order. And we’ve seen a sudden expansion already, and there’s more pricing benefit yet to come. I think almost 60% of your book will move to the new pricing methodology. So, do you think from — further NIM expansion, do you envisage or do you think your cost of funds will finally start catching up and you would limit your — I mean, the NIMs would get limited to a certain level?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

We guided the NIM — sorry, margin expansion by 1.3%, and we said that 50 to 70 bps may come in the first financial year. The balance will be the next financial year, that’s what we said. And then here, expansion is about 90 bps. This is a combination of two things. One is, the NIM expansion because of interest rates. Second was because of the lesser derecognition, third is the reduction of negative carrier because of higher liquidity maintenance. So that is why you saw little higher NIM expansion this quarter. Probably, this will remain at this level or maybe 25 digits may change — I mean, go up in this financial year and some catch up of cost of borrowing also may impact. So overall, but still it will remain a good 12% to 12.25%, percent for — at least for this financial year.

Abhishek Murarka — HSBC Securites & Capital Markets (India) — Analyst

Understood, sir. Understood. And sir, finally, any kind of cap on pricing, either regulatory or competitively? Do you envisage that or do you think you have the flexibility on pricing, if you need to increase it more, you can do it?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Yeah, if this is the cost of borrowing increases, there is no difficulty to pass on the pricing because we are still among the lowest base to a customer, I mean, competitively in terms of pricing. And the borrowing cost also, probably competitive compared to the industry or somebody. So, that’s why, I think we still have the ability to pass on if there’s further increase in the cost of borrowing.

Abhishek Murarka — HSBC Securites & Capital Markets (India) — Analyst

Understood, sir. Understood. Thank you so much. And all the best for the coming quarters. Congratulations, and Happy Diwali to you.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you. Thank you. Happy Diwali to you all.

Abhishek Murarka — HSBC Securites & Capital Markets (India) — Analyst

Thank you, sir. Thank you.

Operator

Thank you. We have our next question from the line of Puneet Balani from Nomura. Please go ahead.

Puneet Balani — Nomura Holdings — Analyst

Hello, sir, am I audible?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Yeah, yah, audible.

Puneet Balani — Nomura Holdings — Analyst

Yeah, just two questions from my side. First one on the…

Operator

Mr. Balani, can you speak louder, please?

Puneet Balani — Nomura Holdings — Analyst

Hello?

Operator

Yes, please go ahead.

Puneet Balani — Nomura Holdings — Analyst

Yeah. So, just two questions from my side. First on the ECBs, you highlighted that the traction is strong. What costs are you able to — like, including the admin costs, are you able to raise these ECBs and like over the near term, so two to three years, where do you see the ECBs heading?

Operator

Sorry, we are not able to hear you properly, sir. Can you use the handset, please?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

No, no, I think, if I understand — Puneet, if I understand correctly, you were asking about the ECD, including hedging cost, what will be our landed cost, right?

Puneet Balani — Nomura Holdings — Analyst

Right, right.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Right. It may be between 9.75% to 10.5%. It may be around 1% more than normal cost of borrowing, but it will be normally minimum three years funding with us. The repayment will start only after three years. So therefore, because of the patient form of lending, long term and stable, even at 1% higher, it would still make sense for us. And this will be, with a fully hedged cost.

Puneet Balani — Nomura Holdings — Analyst

Okay, okay, okay. And where do you see the ECB heading, sir, over the near term?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

So, our aim is in two to three years’ time, overall international funding will be between 25% to 30% of our overall liability side.

Puneet Balani — Nomura Holdings — Analyst

Okay, okay.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

So it could to the ECB it could be. NCD, private base fund, so everything is possible, but looking from the diversification point of view, and then the stability point of view. So, that mix of ECB in NCD, both.

Puneet Balani — Nomura Holdings — Analyst

Right, right. And sir, on the margin front, of course we have seen a — you have attributed the reasons, just from an understanding point, like what proportion of the Book is post FY22? Any color on that? Just to analyze where the…

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Post FY22, you’re talking about the disbursement made in these last two quarters?

Puneet Balani — Nomura Holdings — Analyst

Yeah, sir, what proportion of AUM is generated from that, like, as such? AUM is the part of the total, because the 90 bps increase — sequential increase, I’m just wondering whether it’s because of a higher — high proportional book expiring this quarter or something like that?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

No, no, no, not because of the — I told the three components, exact components, I will not be able to give right now here. It is the increased pricing, reduced the delinquency related the derecognition, when you compare to previous — earlier quarters, and the third one is the reduced liquidity. For example, we had to carry almost 10% — more than 10% liquidity. Now, we are around 7% liquidity or 6% liquidity. So it’s always a combination of increase in the NIM. Maybe, if you need more details, maybe you can have a one on one call with Nilesh sometime later, whenever you are — we will be able to give some more color on it.

Puneet Balani — Nomura Holdings — Analyst

Sure, sure, sure. Okay, sir. Yeah. Thank you so much.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you. Thank you and Happy Diwali to you.

Operator

[Operator Instructions] We have our next question from the line of Nidhesh from Investec. Please go ahead.

Nidhesh Jain — Investec — Analyst

Thanks for the opportunity, sir. Sir, what is the customer — gross customer addition this quarter? And what is the — any guidance on that number for the remaining part of the year?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

So we already said, Renish, in fact, currently our Y-o-Y customer acquisition is about — it’s about 8%, and actually pre write-off, if you see, it’s almost 15%. So but, net actually, we presume that we — our customer growth will be between 10% to 12% and the portfolio growth will be about 24% to 25%.

Nidhesh Jain — Investec — Analyst

Sure. 10% to 15% is net borrowing — net customer growth, after write-offs?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Yeah, net — yeah, after write-off, yeah. Net customer growth about 10% to 12% and the portfolio, that also net write-off about 24% to 25%, this is what we guided, actually. And probably, we will be able to meet that without any difficulty.

Nidhesh Jain — Investec — Analyst

Sure, sure. And the customers that we are acquiring incrementally, how much are new to microfinance, sir, in that?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

It’s about 30%, 35% in the first half-year. It is the approximate is the first year — sorry, the first half, together. And it could vary between North and South. Actually, South, it maybe necessary lesser, new to credit, Northern part is higher new to credit. So it’s about 30% to 35%.

Nidhesh Jain — Investec — Analyst

Sure. And sir lastly, if I look at the competitive landscape, we are the lowest cost provider, we offering loans at the lowest rates to the customers but the fact also is that these customers are not very price sensitive. So in that — in this situation, how do we plan to, let’s say, gain market share, consolidate position, because what I see that lot of players have taken significant price hike and they are offering at 25%, 26% while we are offering — still offering at 21%. So that is a significant gap in the pricing that other players are operating at. So how we plan to gain from this, sir?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

So our plan is to grow consistently. Market take on it’s own. So a customer, in rural, is trying to acquire more new to credit, and then hold them for a longer period. This is our nature of business, and which we are doing, particular rural land. So in this process, while customer are not price sensitive, but once they borrow from us, they will start becoming price sensitive because when they got money from us at a certain rate, obviously they will expect the same from, the whoever the next lender, otherwise they will stay with us. So it will only help us as a competitive hedge by pricing lower. And then while borrowing also, at a lower price. So, I think, from a competitive point of view, this will help us to gain market advantage. Also, it helps us to retain our claims, which is our main focus. That is why we are — our retention rate is almost 85%. One of the key contributor is low pricing to our customers. Obviously, that actually reflects our nature of responsible lending institution.

Nidhesh Jain — Investec — Analyst

Great, sir. Thanks a lot, sir. Wish you all a very Happy Diwali.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you. Thank you. Wish you all a very Happy Diwali.

Operator

Thank you. We have our next question from the line of M. B. Mahesh from Kotak. Please go ahead.

M. B. Mahesh — Kotak Securities — Analyst

Yeah, hi. Just two questions. The first one is, sir, in the market today, we seem to be seeing MFI plus and non-MFI plus offering multitude — let’s say, multiple number of products which includes personal loans, individual loans, business loans. How easy or difficult does it means right now kind of capture the bulk of the data which is sitting there, one. And more importantly, if I give an MFI loan, does the rule apply as per our current rules, while if I give a personal loan, does the current guidelines apply, what is — how does it work?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

That’s a — unsecured loan to any low income household family with less than INR3,00,000 income, and the meeting the FOIR within 50% will form as a microlending as per RBI regulations, clearly. So, it can be personal loan, it can be term loan, it can be anything. If it is a micro — that forms as a microfinance loan.

And I couldn’t understand your first question actually, sorry.

M. B. Mahesh — Kotak Securities — Analyst

Yeah. So, in that sense, is it easy — I mean, has it been easy to capture all these data when you are growing [Indecipherable]

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Yeah, actually it’s an important element. You loan officer needs to interact with your customers and the family and capture all what they do in terms of their business, their income, their expenditure and the number of people, what kind of bid they are into. So, we need to train them. That is why, if you remember, we said, April, May we did not disperse too much of an — lot of time in training our employees, how it can be captured our system, how it can be — I mean, popularized, how to train. So we used that time. Of course, we don’t have a proper data, but you have to do the proxy and then then talking more with the customers. So it is possibly capture and maintain and report to bureau.

Nidhesh Jain — Investec — Analyst

Okay. And in that context, loans will go away from borrowers to other members in the family, sir?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

It can be. It’s a family-level borrowing and family-level repayment. But what is….

M. B. Mahesh — Kotak Securities — Analyst

But we’re going in that direction right now.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

No, no, it has to be because human alone will not be running our business.

M. B. Mahesh — Kotak Securities — Analyst

Absolutely.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

He is the CFO. Human is the CFO.

M. B. Mahesh — Kotak Securities — Analyst

Okay. Absolutely. Sir, one final — second final question from my side is any other pockets which is still pending from your side where you think the stress on the ground has still not come back to pre-COVID levels?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

We don’t have any specific pockets, actually, in our business. We are quite okay. So there are one or two districts not doing well sometimes. This is normal business. When you’re operating in 300-odd districts, so — otherwise, we don’t have any any difficulty.

M. B. Mahesh — Kotak Securities — Analyst

Okay, sir. Thanks a lot.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you. Happy Diwali to you.

M. B. Mahesh — Kotak Securities — Analyst

Happy Diwali to you, sir.

Operator

Thank you. We have our next question from the line of Viral Chotai from True North. Please go ahead.

Viral Chotai — True North Managers — Analyst

Thank you so much. I had two, three questions. One, on the ESG loan part, the question was that if — you say that moratorium will be there for three years. Is there any other conditions also, like spread to be maintained or any other specific conditions which you will have to adhere to obtain this loan?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

It is normally bilateral but we need to really negotiate with respective lenders. There is nothing unique actually. We’ve reached out to different, different lenders. So, it’s like any other bank, the unique bilateral negotiation and terms on the grounds.

Viral Chotai — True North Managers — Analyst

Okay, okay. Thank you. Next question in terms of NCDs, you said, will be raised in the next month, maybe in November. What is tentatively cost of borrowing will be there, because now we got rating improvement as well. What will be the blended cost for that?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

We have not yet decided. We have to do a road show and then meet potential investors, and then we will decide the tenure and the size and the price at the appropriate time before launching the NCD.

Viral Chotai — True North Managers — Analyst

Okay, okay. In terms of the definition, in your presentation at the last, definitions are given. In your portfolio yield definition, it says interest on loan minus processing fees plus the interest from securitization. And in denominator, we take the average on-book AUM. So when we are taking interest from — income from securitization, shouldn’t we take on-book plus of book in a denominator to arrive at the yields on a portfolio?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

I think we follow standard practices, and I think there won’t be any difference between standard practice. Therefore, portfolio yield and then the related calculation part equal to a standard practice of any other NBF MFI.

Viral Chotai — True North Managers — Analyst

Okay, okay. And sir, last question, I understood most of this competition or a player, we have done extremely well during COVID, COVID losses were lowest. So, if we, for example, if we take our AUM pre-COVID and we take total credit so far, whatever write-offs including provisions, what will be just a ballpark number, what will be your total COVID losses we would have incurred?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

About 4.5% annually for both years.

Viral Chotai — True North Managers — Analyst

4.5%, okay.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

202 and 2021, and an average of 4.5% both years.

Viral Chotai — True North Managers — Analyst

Okay. Thank you so much, sir. Happy Diwali…

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you. Thank you and Happy Diwali.

Viral Chotai — True North Managers — Analyst

Yeah.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] We have a question from the line of Shreya Shivani from CLSA. Please go ahead.

Shreya Shivani — CLSA — Analyst

Hi. Thank you for the opportunity, and congratulations for a good set of number. Sir, particularly, I have two questions. First one is on the borrower count, particularly for Madura. So, that has been moderating, and I understand it was supposed to be — it was intended to be this way. So from the coming quarters, are we going to see an improvement in the borrower count over there or there is still room for correction or culling out of borrowers from the Madura book? That’s my first question.

And my second question is on the — this is more to do with the branch discipline or the group meeting discipline, sorry. So as far as I remember that, coming out of COVID, a lot of MFI players were reporting that the group meeting discipline has sort of not returned. If you can, give us some flavor on how it is now, which status seeing better recovery and how much of your group meeting discipline has returned, and which part — which geographies of the country?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Okay. In Madura — so, we explained two things. One is, because they are handling two types of system, there will be slight latency in their efficiency in customer acquisition. But the reduction customer is due to write-off of large number of customers during the last two years. If we look at the pre write-off, Madura also grown by 8.8% in — Y-o-Y in customers. Therefore — and then portfolio also grow by some 20%, 24% — 28%. So it is not that Madura is not acquiring customers. It is little lesser compared to CreditAccess Grameen. Otherwise, because of the write-off numbers are little higher there, therefore it looks like little — 20% reduction in the customer that we anticipated. So, still, they acquired good number of customers. And then improving. As the — right now, if you see, 84% of the book is already accretive at Grameen platform. Only 15% needs to be managed now. As it comes down, the ability to acquire more customer will improve. So would see good improvement in the next two quarters in Madura book also. That is first question.

Second one is about discipline coming back. I think discipline was still quite good even during COVID. As and when we allowed the central meeting to happen in the system because, it is not that, we don’t have indiscipline in the the group. So there’s still little attendance reduction when compared to pre-COVID, probably during peak COVID, it was 78%, 80% attendance. Normally, it is about 70%, 72% attendance, which is still quite good actually. We don’t have any challenge about the group discipline or the discipline issues or a collection issues. Largely, we are back to normal.

Shreya Shivani — CLSA — Analyst

Got it, sir. That answers my question. Thank you, and a Happy Diwali to all of you.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you. Thank you, and Happy Diwali to you.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Piran Engineer from CLSA. Please go.

Piran Engineer — CLSA — Analyst

Yeah, hi. Good evening, and Happy Diwali. I just had a clarification on one of the questions from a previous participant on eligibility of loans. Sir, you said that if it’s below INR3,00,000 and FOIR less than 50%, but this is only if it is under JLG model, right?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

No. Actually, I responded to the regulatory question, actually. What is microfinance, I thought it, that from regulatory point of view. It’s not ours. Our view is all our income generation loans are the group only.

Piran Engineer — CLSA — Analyst

No, no, yeah, yeah, as per the regulation — no, no, my question is that…

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Regulation, there is no bid requirement. For regulation, there is no bid requirement. They have not mentioned that.

Piran Engineer — CLSA — Analyst

So even if I want a personal loan, they have to verify whether I’m of this lower income category and what my FOIR is?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

If you want to categorize that microfinance, then you have to evaluate the family income, it should not be more than three years, and we also — sorry, more

Than INR3,00,000, you are to evaluate all the borrowings of the family, and the outflow should not be more than 50% of the total borrowings, so — total outflow. So, if we maintain that, it is microfinance.

Piran Engineer — CLSA — Analyst

Okay, okay. Got it, got it. And that is for — to maintain the 75% share of microfinance to be classified as MFI. That’s the only reason?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

This is for NBFC MFI. For NBFC — for a bank, for example, not necessarily that rule if applicable, right?

Piran Engineer — CLSA — Analyst

Okay, okay. I got it, got it. That sort of answers my doubt. Thank you, and all the best.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you. Thank you, and all the best and Happy Diwali.

Operator

Thank you. We have our next question from the line of Sreepal Doshi from Equirus. Please go ahead.

Shreepal Doshi — Equirus Securities — Analyst

Thank you, sir, for giving me the opportunity once again. Sir, the question was with respect to the customer overlap, so how many currently — like, in the — like, for 2Q, what would be the customers which are unique to us and what would be like credit plus one lender and cred plus two lenders?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

There is no — not much change in our customer profile. It’s about — 43% of our customers are unique for Grameen and about 39% of the customers have one other lender, and the balance have either two or three lenders, actually. That’s the profile of our customers.

Shreepal Doshi — Equirus Securities — Analyst

Okay, right. Okay that’s similar. And sir, the last question was with respect to what is the internal cap on the total leverage that we would be comfortable at the customer level?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

So, we have taken a call that even though regulatorily, there is no cap, we said that if a customer is vintage customer, he is already more than four years of microfinance experience with us, we can go up to INR2,00,000 of leverage. And of not, it’s only INR1,25,000. It’s what we — INR1,50,000. So, that way we took the leverage from all the borrowings together, not just just Grameen, all borrowings together. Within Grameen, it’s INR1,25,000 is the maximum for the customer more than six year with us, and less than various categories, some [Indecipherable]

Shreepal Doshi — Equirus Securities — Analyst

Okay, okay. Got it. Sir, any color, if you could give, what would be the overlap bit players like BHAFIN and Spandana? I understand they — there would — there might not be significant overlap in each of the states, but if you could give some color in some of the key states like Karnataka, Tamil Nadu and Maharashtra, maybe.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

So, I will not be able to give state-wise but overall our overlap with BHAFIN is about 14% and then Spandana is about 4%.

Shreepal Doshi — Equirus Securities — Analyst

Oh okay. Got it, sir. Thank you so much, sir. Thank you so much for the detailed answer.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you. Thank you. Happy Diwali.

Shreepal Doshi — Equirus Securities — Analyst

Same to you, sir.

Operator

Thank you. [Operator Instructions] We have a question from the line of Viral Cotai from True North. Please go ahead.

Viral Chotai — True North Managers — Analyst

So, first question, in terms of collection efficiency, it’s mentioned 98% are IT. And it says including arrears as well. So on a deal basis, if you can just tell NRV reached now pre-COVID level in specific [Technical Issues] if they’re not doing value.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

We said — we told both, actually. Without arrears, we said 97%, with arrears, 98%. That means, demand was — collection is 97%. So largely around the pre-COVID level because if you exclude the non-paying NPAs, it will be about 98%, that is all.

Viral Chotai — True North Managers — Analyst

Okay. And any specific states which are not performing well, where collection efficiency is lower than…

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

No, overall, we don’t have too much variations.

Viral Chotai — True North Managers — Analyst

Okay. Thank you so much.

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you.

Operator

There are no more questions in the queue. Any closing comments, sir?

Udaya Kumar Hebbar — Managing Director and Chief Executive Officer

Thank you. Thank you, everybody. During the festival time, we actually evening time of all of yours. So, Happy Diwali to everybody and have a prosperous, happy Diwali and then maybe somewhat. Thank you, very much.

Operator

[Operator Closing Remarks]