CREDITACCESS GRAMEEN LIMITED (CREDITACC) Q4 FY22 Earnings Concall Transcript

CREDITACCESS GRAMEEN LIMITED (NSE: CREDITACC) Q4 FY22 Earnings Concall dated May. 12, 2022

Corporate Participants:

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Balakrishna Kamath — Chief Financial Officer

Analysts:

Renish Bhuva — ICICI Securities Limited — Analyst

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Kashyap Jhaveri — Emkay Investment Managers — Analyst

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Nidhesh Jain — Investec — Analyst

Digant Haria — GreenEdge Wealth Services — Analyst

Jai Mundhra — B&K Securities — Analyst

Abhishek Murarka — HSBC Bank Limited — Analyst

Piran Engineer — CLSA India — Analyst

Alpesh Mehta — IIFL Securities — Analyst

Nilesh Dalvi — Head of Investor Relations

V.P. Rajesh — Banyan Capital Advisors — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to CreditAccess Grameen Limited Q4 FY ’22 Earnings Conference Call hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

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

Renish Bhuva — ICICI Securities Limited — Analyst

Thanks, Sino. Hello and good morning to everyone. Welcome to the CreditAccess Grameen Q4 FY ’22 earnings conference call. From the management team, we have with us today Mr. Udaya Kumar, Managing Director and CEO; Mr. Ganesh Narayanan, Deputy CEO and Chief Business Officer; Mr. Balakrishna Kamath, CFO; and Mr. Nilesh Dalvi, Head Investor Relations.

I will now request Mr. Udaya Kumar to take us through the earning highlight of Q4 and then we’ll open the floor for Q&A. Over to you, sir.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Thank you, Renish. Good morning to everyone. Our sincere thanks to all of you for joining us today morning to discuss our fourth quarter and FY ’22 financial performance. We have successfully navigated the year achieving our annual performance guidance on the back of our robust operational controls and catering to pent-up demand in rural India. The rural economy showing strong sense of rebound coupled with an expected good monsoon providing a boost to the fortunes. Our consolidated gross loan portfolio grew by 22.2% Y-o-Y to to INR16,599 crores on the back of 28.2 lakh borrowers. The borrower base shows a 2.2% Y-o-Y decline due to 3.8 lakh borrowers written-off during FY ’22. However, on a Q-o-Q basis, we have reached 2.3% increase giving strong borrower addition traction in Q4 ’22. We added roughly 3 lakh new borrowers in Q4 FY ’22 on the back of an expanded branch network and stable operating environment.

Over the last 12 months, CAGrameen acquired 5.8 lakh borrowers, of which 49% were outside the Top 3 states showing relevance of our calibrated diversification efforts. In the same period, MMFL added over 1 lakh new borrowers, of which 49% were outside Tamil Nadu. Overall, disbursement grew largely in line with the portfolio growth on a Y-o-Y basis to INR5,5,792 crores in Q4 FY ’22 on a consolidated basis. MMFL is continuing to show a strong growth trajectory with 65% of the book being converted to CA Grameen model at the end of March ’22 depicting very superior asset quality. The bucket of products and services are being offered based on our customer-centric concept and stretchable repayment options largely weekly and biweekly. At CA Grameen, collection efficiency has largely stabilized reaching 96% excluding arrears while including arrears figure stood at 97% at March ’22. Excluding non-paying NPA customers, collection efficiency touched 99.5% for the same period.

The collection efficiency at MMFL, which consists 30% of our consolidated GLP, has been consistently improving with 95% collection efficiency excluding arrears and 94% including arrears in March ’22 compared to 89% and 91% respectively in December ’21. Collection efficiency for April has improved further to 97% excluding and including arrears for CA Grameen. And or Madura, it stood at 92% excluding arrears and 93% including arrears for the same period. The asset quality at CA Grameen has shown remarkable strength with PAR 30 reducing from 5.6% in December ’21 to 3% in March ’22 whereas PAR 0 stands just at 3.6%. At MMFL, PAR 0 reduced from 11.1% in December ’21 to 7.5% in March ’22. On a standalone basis, our NII grew by 10.4% Y-o-Y to INR446 crores while NIM stood at 11.5% for FY — sorry Q4 FY ’22. Adjusting for the impact of interest income derecognition, NIM would have been 12.5%.

The cost to income ratio stood competitive at 30.4% while OpEx to GLP saw a reduction at 4.5%. PPOP grew by 10.9% Y-o-Y to INR332.2 crores. The credit cost was INR128.3 crores, which also included the impact of write-off of INR243 crores. The credit cost was partially offset by INR22.8 crore bad debt recovery during the fourth quarter. PAT for the fourth quarter was INR152.1 crore leading to ROA of 4.1% and ROE of 15.6%. GNPA strategically reduced from 5.5% in December ’21 to 3.12% in March ’22 and NNPA reduced to 0.9% as on March ’22. PAR 90, which is standard across our company, stands at 2.26%. Our ECL stood at 3.19%. On a consolidated basis, our NII grew 11.4% Y-o-Y to INR1,653.2 crores for FY ’22. PPOP grew by 13.2% Y-o-Y to INR1,077.5 crores. Credit cost declined 22.6% Y-o-Y to INR596.7 crores compared to INR771.4 crores a year-ago. Bad debt recovery stood strong at INR74.1 crore in FY ’22 compared to INR15.7 crore in FY ’21.

PAT for FY ’22 grew by 171.8% Y-o-Y to INR357.1 crores resulting in a ROA of 2.2%. On a consolidated basis, our GNPA was 3.61% and NNPA was 1.31% as on March ’22. Liquidity continues to remain comfortable with total cash and cash equivalent to INR1,761.4 crore amounting to 10.1% of total assets while capital liquidity remained strong with 22.8% at a consolidated level. We’ll continue to tap newer geographies and cater to unserved and underserved markets as a part of our capital creation at the bottom of the pyramid. A total of 211 branches have been opened during FY ’22, of which over 91% came outside of the Top 3 states while overall branch network stood at 1,635 at the end of March ’22. The Q4 has been a pivotal point in the Indian microfinance industry with our awaited new microfinance guidelines announced by the Central Bank creating a level playing field.

CA Grameen being the industry leader is at the forefront to capture the massive opportunity with its deep rural focus, competitive interest rates, one of the highest consumer retention, and strong governing standards. The microfinance targets scope has widened with INR3 lak household income providing a significant head start for market share expansion and increased retention of both higher vintage customers given our unique customer-centric business model. We are set on a very exciting journey of catapulting from serving one woman per household to meeting the financial requirements of the entire household. We’re leveraging our microfinance system and increasing wallet share per household in line with our Vision 25 of being a preferred financial partner for low income households. We take cognizance of the rising Interest rate environment scenario and believe that we shall continue to remain competitive.

The new microfinance guidelines announced by RBI allowing us [indecipherable] will have a positive impact on loan pricing. Any material increase in the cost of borrowings can be gradually passed on to the cost of borrowings can be gradually passed on to the new disbursements partially offset by modest margin compression in the existing loan portfolio. Further compared to FY ’22, FY ’23 will witness lower industry reversal and lower negative carry impact on account of excess liquidity which will boost net interest margin. Based on our current estimated liability profile, we believe that even at 100 bps increase in benchmark rates and even if entirely passed on by the lenders, which would result in 30 bps to 35 bps increase in average cost of borrowing by March ’23 compared to March ’22. Having fixed in the rate of floating debt — in the rate of floating rate borrowings will be partially offset with the decline in the share of higher cost fixed borrowings.

Hence, we believe that our average cost of borrowings for FY ’23 remains at the range of 9.3% to 9.4% on a consol basis on non-specific situation. Overall, we foresee NIMs to improve by 50 bps to 60 bps in FY ’23 compared to FY ’22 thanks to risk-based pricing. Assuming a stable operating environment, we look forward to achieving loan portfolio growth of 24% to 25% in FY ’23. Hopefully we would remain muted during Q1 FY ’23 as we implement the new RBI guidelines on the field and ensure required turnings on new process and controls to all our employees. Also many of the processes including reviewing multiple [indecipherable] accessing the foyer out of the Grameen etc. would remain in manual process for few months. However, we are confident of achieving the guideline growth for the financial year. We are anticipating a cost of 1.8% to 2% which would include the impact of residual write-offs on account of COVID during Q1 and Q2 for CAGrameen net asset book.

Overall, we aim to achieve an ROA of 4% to 4.2% and ROE of 15% to 18% in FY ’23. On integral platform along with MMFL underpinned by our rural focus, customer-centric approach, strong liquidity, capital adequacy, highly experienced management, and strong balance sheet leaves us at the forefront to drive growth in the largest microfinance industry in the world.

With this brief note, I would like to open the floor to you for any questions. Thank you. Thank you for patiently listening.

Questions and Answers:

Operator

Thank you very much. We’ll now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Nikhil Rungta from Nippon India Mutual Fund. Please go ahead.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Hi, sir. Thanks for this opportunity and congratulations on this great set of numbers. Sir, two questions from my side. First is you have already given a slide on how Grameen is well placed in the rising interest rate scenario and you touched based upon that in your opening remark as well. But I just wanted to know historically whenever there have been — I mean whenever Grameen has been in the rising interest rate scenario, how has the portfolio performed?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

So in the rising interest scenario, our strength is to play a best price for our customer, Nikhil. If you observe, we have been able to price much better among the industry player for our customer which always helped us to retain our customers and then manage our portfolio better and we are able to give without modification of NIM. By and large he NIM remained same despite interest rate hike or something. So for example FY 2009 — FY 2008 and FY 2009, there were higher interest rate scenario. Our NIM used to be around 1.5% and 12.7% actually. We’re able to manage better and we are able to price better. The competitive edge always there being a larger player and able to — ability to negotiate with the bank for the better price, which also helps us to create our customer and retain our customer and also build our portfolio, which always helped us.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Okay. And so whatever impact we’ll see will be taken care of from rising NIMs. Can we say that?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Absolutely, absolutely. We are not actually expecting any reduction in NIM on account of this. It will be only improved because we have double impact. One is see our repayment obligations are high priced while borrowing is take lower price than the current average borrowing cost actually. That is why we expect that you would need 75 bps increase or 100 bps increase in the financial year where actual increase may not be more than 20 bps to 30 bps and we have agreed to pass on the price. Pass on the cost to customers. And third one is ability to price based on risk where risk is higher — priced little higher, which will be additional advantage.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Right. Sir, second question is you have mentioned that our provisioning in FY ’23 could be in the range of 1.8% to 2%. But on a normalized scenario, you have always highlighted that the sustainable provision should be around 1.4% to 1.5%. So can we say that this additional 30 basis point to 40 basis point is because of write-off of this pending things which are there and this will be taken care off in earlier quarters itself?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Correct, correct. So we need to recognize that we still have 1.3% MNP as of March ’22, correct. So this will be difficult which will actually get written off or the cost will have to be taken in the Q1, Q2. So that is why the average cost probably will go up to I mean 1.8% to 2% including those costs.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

And we’ll maintain the policy of an NNPA at 0%?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Most probably yes because we will go by the Ind AS rule or live share provision rule. It all depends on how the CAGR will be held. To a large extent, we will continue to recognize early recognition of risk, which is going to be our character continuously.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Okay. Perfect, sir. That’s all from my side and best wishes for the future.

Operator

Thank you. The next question is from the line of Kashyap Jhaveri from Emkay Investment Managers. Please go ahead.

Kashyap Jhaveri — Emkay Investment Managers — Analyst

Thank you so much, sir. And congratulations for a great set of numbers. Three questions from my side. One if I look at assignment, we have gone little slow this year and consequently the income from that part is also significantly lower versus last year. So one part is what was the sort of thought process behind the assignments this year and how do we see direct assignment fundings transaction next year? That’s the first question. Secondly, in terms of our gross stage PE and next stage PE, I can’t find actually the absolute numbers in the presentation., So if you can probably help with that. And the last question is on the opex side that this year we have seen an opex growth of over and above 20%. For medium term, let’s say next two, three years, what would be the expense growth and would there be any savings from cost risk as an issue?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Sure. So BA is one which is actually an instrument which we use as a short-term funding only where there is a demand or request from our lender because we prefer borrowing term loan. We normally not prefer to do assignments and credit for balance sheet with patient and adequate capital adequacy or we wish to grow in the balance sheet not to do BA. But some time we have to oblige some lenders who require the BA, that is why we do it because it’s only based on the demand from the bank. Otherwise we prefer not to do BA. So, that’s for first question. It’s based on demand wherever we have to sometime oblige. That is why we do and this on the BA front. Otherwise our interest is not to do BA. We want to remain growing up in the balance sheet growth other than the portfolio growth. Gross BA maybe [indecipherable].

Before that, opex I will tell you. Opex will actually continue to go down based on economy of operation. Maybe a bit of exception we would see in the first half of this year while managing the new regulation. Maybe we’ll have some what you call inefficiency because of manual processes we have to follow. But it will remain lower than the current year for next year. But while we are already in the optimal opex stage, the reduction will not be very high actually. It will be lower. So probably we took four years to bring it from 6% to 5%, probably we will need another four years to take it from 5% to 4%. So that’s like anywhere in the opex. So actually optimal level of opex, that change will not be very fast. It will be slow, but it will be continuous improvement.

Balakrishna Kamath — Chief Financial Officer

Kashyap, it’s on page number — Slide Number 8 and Slide Number 10.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

There is a reconciliation of entire number.

Balakrishna Kamath — Chief Financial Officer

In Slide Number 8 we have given for CA Grameen standalone wherein the GS3 is is 3.1% and net NPA is 0.9%. And on Slide 10 it is for Madura wherein he GS3 is 5.8% and NNPA is 3%.

Kashyap Jhaveri — Emkay Investment Managers — Analyst

Yes, I’m done. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Amarnath from Ministry of Finance of Oman. Please go ahead.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Yeah, hi. Am I audible?

Operator

Yes, sir. You are.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Sir, considering your past performance and the current year GLP growth of 22.2% and all this favorable points you said so far, I’m surprised why the future guidance for GLP is just 24%, 25% when everything is falling into place in current year and maybe next year. Did you take conservative assumptions or there is a headroom for it?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Actually as the base increases, speed of the growth need not be exactly when the base was small, right. So it’s actually a kind of industry growth over the industry growth. Probably we would expect industry growth between 20% and 25% and we would actually imagine industry growth or big industry. When the sizes are small, what you say is right. The growth number can be more and more. The ability of growth is linked to ability of establishing our infrastructure across geography, ability of recruiting manpower and train for the quality operation implementation because microfinance is not just distributing money. It’s lending, it’s a collection business. We need to have a right kind of employee — infrastructure rate fund, employee rate, kind of employee training adequately for the growth. So we need to be very careful in choosing the geographies, choosing the right people, and train and grow. So I definitely feel that 24% or 25% is a reasonable good growth. It is not conservative. It is well-thought growth.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Sir, I understand this part. What I’m trying to say is — sorry. But see last two years because of this corona and COVID, we keep on increasing our infrastructure. That infrastructure part is good that we keep on increasing. But because of the outside environmental situation, we did not able to grow our book and that risk was there in the market so we were conservative in the last one and half year. Now all those cumulative impact of whatever you have done is supposed to be flowed back quite nicely in the next two, three years.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Happy to have that. But for FY ’20-’21 we have not added the branches, probably you missed that. Because of the COVID year, we have not added any branches. Only last year 2021-’22 added branches. That is one. Two, as I explained in my opening remarks, Q1 will be muted growth. There may not be muted growth because of the implementation of new regulation. Probably we will really get only three quarters to grow with speed. Let’s say we are committed and it’s a well-thought process.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

And second question, sir, relating to this kind of a growth assuming 25% say for next two, three years. The current level of capital adequacy what you have, will it be — and whatever the property will accrue, will it be enough or we need to have some kind of a capital raise? And second, the associated question is say for example management decides that we want to grow more than 25% because the market is giving that opportunity because many of the small people in the market either they have managed or they have consolidated here and there. So the bigger player like you will always have a higher opportunity especially the business and economies open up and the demand for the microfinance loan will be huge supported by this RBI new guideline. So I’m just trying to understand whether the current level — our capital adequacy currently quite high, will it be enough or within two, three years or maybe one, two year down the line, we need to raise capital?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

We might raise capital, but not immediately. Probably as you said, maybe one to two years down probably we need capital. But at least we want to continue to maintain adequacy more than 30%. With that context, we might have to go back to raising capital in the next six to seven quarters.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

And due to this new RBI guidelines and since we are probably one of the lowest charging interest rate in the market at the moment, what is your best estimate how much our immunity can improve? I remember in the last call you have given though it was not confirmed that point of time, but you have given a basis that around 150 bps of yield increase is possible if the RBI says, now they have done it. So do you believe that you able to maintain that 150 bps what you’ve given last time or it will be more or less?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

So actually the increase in price will come gradually because this will be only with the new disbursements not with the old disbursement. Repricing is not possible in microfinance.. However, we already complied and published our interest rates as per the new policy and we already compiled on everything on the RBI policies requirements. We presume that 50 bps, 60 bps increase is possible for this financial year because the future disbursal only will get the benefit of new pricing. On average pricing increased by 1.25% to 1.5% actually. But the gain for the year would be about 50 bps, 60 bps, 70 bps. The full impact would get in FY ’23-’24.

Operator

Thank you. Amarnath, I will request you to come back in the question queue for a follow-up question. [Operator Instructions] The next participant is Nidhesh Jain from Investec. Please go ahead.

Nidhesh Jain — Investec — Analyst

Thanks for opportunity. Sir, three points. Firstly, what is the expectation of new customer acquisition for FY ’23? Secondly, how should we think about the increase in share of three-year tenure loan? I understand it’s quite positive from portfolio rundown and from customers or monthly EMI outgo. But are there any downside risk to this strategy? And thirdly, sir. What is the yield strategy? If you can explain to which customer — how are we deciding to which customer at what rate we will be offering the loan? These are the three questions, sir.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

So basically new customer acquisition will definitely go up actually because last two years we are not able to — I mean while we acquired some customers, but it is not really optimal. Definitely we would go little high because branches are there and both companies will start acquiring customers which will help us. Probably we will not be able to give exact number, but it should be more than 8% to 10% Y-o-Y growth what we’re targeting for next financial year for estimate and expectations. In the case of three years loan, probably it will go to about 25% to 30% of the total portfolio of microfinance. But as we acquire more customer, Nidhesh, that will come down. Currently because it is squeezed because we are not acquiring many customers. We have higher vintage customers sitting in the book. That is why it is little high.

As we start acquiring more and more customers, this percentage will come down. But for the vintage customer, it’s a good strategy. There is a lesser EMI load and then continue to provide the credit line product for that, the products are available for them and along with the continued three years loan. In case of yield, it is little difficult to say geographic wise, but what we did is high risk geography, we actually put a premium on a higher pricing, low and medium pricing. So overall, the pricing will be between 8.75% to — 18.75% to 21.5% high risk actually fixed currently. For example, I’ll be an example of state, Maharashtra probably the high risk at this point of time, which will actually be in the higher pricing geography, which will be tracked every quarter or every half year, we’ll check and see and in all components of the operating. And if there’s a change, we will reprice again.

And also we took one more strategy of benefiting to the long — what we call long standing claims on vintage claims. What we observed that after three to four years of experience with us before their risk keeps coming down near to zero. So for them, we actually — we are charging 1% lesser than the normal price. So overall, it’s about 1.25% to 1.5% higher in potential. But probably 50% will be in cash during the financial year and we’ll get the full benefit for the net financial year.

Nidhesh Jain — Investec — Analyst

Sure, sir. Just some clarification, you mentioned 8% to 10% growth in client base, asset client base next year, right?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Correct.

Nidhesh Jain — Investec — Analyst

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

Operator

Thank you. The next question is from the line of Digant Haria from GreenEdge Wealth Services. Please go ahead.

Digant Haria — GreenEdge Wealth Services — Analyst

Yes. Hi, sir. My question is a little more on these new guidelines. So in the past seven, eight years, we’ve always seen that any form of regulatory easing has eventually been misused by the industry in terms of like over lending and just trying to not implement those things in spirit. So what are the risks that you see in these guidelines that is it possible that maybe in the next one year, we’ll see over leveraging again and despite of us being conservative, we have to face all the industry issues. But any thoughts on this because I think it’s now two months and there has been a lot of thought on those guidelines. That would be really helpful, sir. Thank you.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Thank you, Digant. One side you observe that there are leveraging issues for over-lending. Unfortunately, the regulation was one sided and only for one entity. That’s why we have seen some difficulty. So the whole reason the industry went back to regulators asking for a common guidelines, correct? So whereas SRO was able to control NBFC, am I correct, but others, there was no really extended control by SRO, whereas they have banks or [Indecipherable]. So Obviously, there will be a different regulation, different way of doing the business with different entities, which definitely resolved by the current RBI guidelines.

And now that every micro lender irrespective of the entity nature has to follow one common guideline. And also directly regulatory RBI comes under the one common regulation may be supported by SRO. We believe that discriminatory in terms of products or services might change, might controlled. Having said that, while we observed that last seven, eight years, there was no such over-lending, but if you see the data, there’s only 4.5% customers got, I mean, borrowed more than three lenders, actually, as of December — December ’21. And more there than — only 7.5% of borrowers borrowed more than INR1 lakh. So it is not that there is a huge, what you call, mis-selling or is mis-giving loans also, it is not. But there’s some geographies, some districts might have had some issues. But otherwise, by and large, everybody followed the rule.

There are small black ships, it is there in every business. So I don’t think that should be the key problem. But yes, overall, 98%, 99% people have followed the rules. Otherwise, let me give you an example. We are — MFIs can give loan up to INR1.25 lakhs actually since 2015. But average outstanding for borrowers still around INR40,000 only. So it validates that MFIs have behaved very responsibly.

Digant Haria — GreenEdge Wealth Services — Analyst

All right, sir. Thank you for this. Sir, the second and my last question is sir, because the last two years have not really seen a lot of new disbursements or new borrower addition to the whole industry and to our fold also. So do you think the — with MFI again starting disbursement, the liquidity itself can also help rural India. So if you can just give some flavor of what’s what happened in last two years versus what is the sentiment or the real cash flow situation in rural India? That’s it from my side, sir.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

So liquidity flow will always help the both rural economy and MFIs are at the forefront to do this. And see disbursement was not that only for in the last financial or previous year. For example, last financial year, almost seven months people have dispersed money unlike gaming maybe others have done.

We believe that there will be good customer additions also good disbursement in the rural, which will definitely help the bottom of the pyramid. So — and with the liquidity available across. So we should not see any difficulty for — I’m not quite sure raise money, of course, there is some sentiment about cost of borrowing. But yes, that is there. We can’t help because it may be — even if we were 1% increase or 2% for our borrower, actually, they are paying just INR10 more per week actually. So they don’t mind too much about the price, which will be much, much lesser than their alternative money borrowing company lenders. So that is why I don’t think this will be a negative impact on them.

However, there is some inflationary trend, which are talked about, but our belief is that inflationary variation also is not a dip impact on the rural front, because they also generate the product, they sell the product, where they buy the raw material, they also use for consumption. In the buying and selling, they actually big inflationary cost automatically. So net impact on them is less. To give an example to you, at least 55% of micro customers are in dairy business. They take care of cow and they sell milk. Probably their milk price would have gone up by INR2 to INR3, probably some further price would have gone up.

So net impact probably either positive or flat for them, even though in the inflationary attendance. So we don’t see too many challenges. Given that we assume this year it will be stable, there will not be too many disturbances, I think industry also will be able to establish themselves in the rural and the deep what you call deep interline and which will help the bottom of pyramid definitely.

Digant Haria — GreenEdge Wealth Services — Analyst

Thank you, sir. Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Jai Mundhra from B&K Securities. Please go ahead.

Jai Mundhra — B&K Securities — Analyst

Yes. Hi, sir. Just one question. In your opening remarks, you had said that due to new guidelines, there would be some slowdown in disbursement as you attune to the new guidelines. If you can elaborate on the same that what do you intend to do in terms of household assessment? Or if you can elaborate there as to what you need to do?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Yes. See, regulation asks you to do assessment of household income that we are doing already. That is not the problem. Actually, problem is to digitize their data and data going to bureau and bureau needs to be ready for that. That’s the challenge, bureau yet to be ready for that. That is first challenge.

Second one is you also need to get the household liability or a borrowing side, which again, dependent on the bureau, multiples bureaus, micro finance bureau and the consumer bureau. And you need to get the total view of the family in terms of all borrowing from all members of the family from our bureaus and giving the one what you call, one view about what is the obligation of them against the household income. So these are all currently not automated. It takes time. Bureau will need time to get a common view for you to get it all other bureaus.

Today, what we ought to do is, we have to generate from individual bureaus and manually aggregate it and see what is the obligation, what is the income and what we can lend. So many of that latency will be there for few months. And that is one-third of the bureau and household.

In the meantime, we also need to train our entire field staff on household income and bureau and FYR because they need to be aware about every facts to explain to our customers also. So these all will be a challenge in the first few months to implement everything and also with the inefficiency of some manual work with the bureau data and the household data. That is why we said that first quarter may be muted due to this kind of inefficiency where we have to work.

Jai Mundhra — B&K Securities — Analyst

Right. And in this process, in the interim, do you suspect that banks or universal banks may have slightly higher edge or I mean all of the participants would have to readjust import.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

No, actually, this works for everybody. Everyone has to do this activity without that, they cannot lend. The whole industry will be — as per the whole industry will be muted for first quarter.

Jai Mundhra — B&K Securities — Analyst

Right. Understood, sir. And you think second quarter should normalize, right? I mean it should not last beyond let’s say, INR2 million, INR3 million?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Exactly, exactly, exactly.

Jai Mundhra — B&K Securities — Analyst

Great, sir. Yes. Thank you and all the best.

Operator

Thank you. The next question is from the line of Renish Bhuva from ICICI Securities. Please go ahead.

Renish Bhuva — ICICI Securities Limited — Analyst

Yes. Hi, sir. Congrats on a great set of numbers. Sir, just two questions from my side. So one is on this revised regulation. So of course, it helps us in terms of pricing our loans are much better than the earlier cycles. But if I have to look at the, let’s say, the entire regulations impact on P&L, how do you see net-net it will impact us? Because see, our operating cost is likely to go up because now we have to get the comprehensive bureau report wherein so earlier we might be taking only a borrower’s bureau reporter now, wherein now we have to take all household members bureau report and then there is operational cost also involved because well staff has to spend a bit more time on the field assessing the income of the household.

So if I have to factor all these things, how do you see ROE impact of this new regulation. I mean, there should — there will be a margin accretion for sure. But if I were to adjust for the higher operational costs, how should it look like on the ROE?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

So actually, it will be impact initially for a few months actually, when you do manually some of the things. When you automate it, it won’t be too costly. You see actually this increase will be placed anyway, Renish. What happens, when we start pricing the customers, the pricing today is based on your cost of borrowing, cost of running the company, cost of operation and cost of risk, right? So if cost of borrowing — cost of operations don’t serve, obviously, the price will get passed on to that exchange. So we don’t see that very high that it can be in it, but still we have opportunity to reprice every quarter. That’s why the net is in case, there’s increase in operations, still it won’t eat up the margin. That is what our view.

But in any case, we are not expecting the overall OpEx is going up actually because probably it may remain muted for this year because every year we are seeing about 10% to 50% significant reduction. You may not see the reduction this year and from next year’s transaction. So to that extent, we don’t see an impact of OpEx — on OpEx because of the regulation.

Renish Bhuva — ICICI Securities Limited — Analyst

Got it. Helpful, sir. And secondly, again, linked to the regulation. So now we are allowing to build the 25% of non-qualifying methods. So do you see that this is the opportunity for all MFI players to diversify and build the secured book. And structurally, the industry can move to, let’s say, 50-50, if at all, I mean, assuming regulation will further allow us to build a 50% maybe over three to five years.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Yes, I’m not sure about 50% because that we hope it will happen over a period of time. But the 70%, 25% [Phonetic] definitely helps the industry to stabilize to some extent with the at least some percent of non-micro finance book or a check book or a stable book. So this is a starting point, maybe it takes two, three years for the people to really build it because — all of us are expert in micro finance, so not expert in other products. It needs time, slow and you have to build it carefully. So — but in two to three years’ time, we would see this resiliency of diversified book in the microfinance segment. So it’s potential definitely.

Renish Bhuva — ICICI Securities Limited — Analyst

And what is our plan on that front?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

We too, we already told about it. We have planned many secured products and unsecured products also for graduated customer in terms of individual loans, two-wheelers, asset-backed loans, like lab on and also affordable homes. These are the three, four segments also the gold loan with four, five type of products we are piloting right now. So we will see good traction this year and then probably scaling up will be possible during next financial year. But the pilots are already, some pilots already begin, some of them are in the process of piloting. So this year, we will definitely see the pilots, ensure the right business model so that we can scale up next financial year.

Renish Bhuva — ICICI Securities Limited — Analyst

Got it. And just the last follow-up on that. So — of course, this building of the retail assets will require a higher OpEx because we need to have the collection team and entire process has to be different from what we have been doing on the MFI side. So even after factoring some of the upfront investment towards building the retail assets, net-net cost to our sites where should it settle in ’23, ’24?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Yes. Yes. Yes. There won’t be any increase of our operating cost because we have manpower already acquired, we have branches set up already. So — and we have a — technology enhancement we already made. So we don’t have any, we are not expecting any increase, except — I mean, hiring great people for the field other than that we don’t see any [Indecipherable], that’s why, overall impact on the cost will not be — will be available next year, and we’ll be able to hear.

Renish Bhuva — ICICI Securities Limited — Analyst

And any thought on building up the separate collection team for retail assets?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

As we move, we will do definitely. So as you move based on microfinance loans, we have a separate collection team now, so obviously, we’ll build for that answer. That portfolio buildup will start building that also.

Renish Bhuva — ICICI Securities Limited — Analyst

Okay. Okay. This is helpful, sir. Thank you very much, sir.

Operator

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

Abhishek Murarka — HSBC Bank Limited — Analyst

Hi. Good morning, sir. Thank you for taking my question. Sir, two questions. One is what portion of MFL’s portfolio is now as per CREDAG rules, so underwriting rules? And why are the yields different between MFL and CREDAG? Is there still a difference in the customer profile? Or is it because of some other computational reasons? So that was my first question. I’ll come back to the second.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

There is actually the — it’s only the borrowing cost variation slightly because [Indecipherable] for borrowing cost is higher than CREDAG. But we are trying to make it lower. We reduced almost 2% last two years, but we still have some gap between CREDAG and MFL in terms of borrowing cost. So — and plus the probably because of the recognition, it’s little high and OpEx also a little higher than us, that’s right, this variation we could see.

Abhishek Murarka — HSBC Bank Limited — Analyst

Okay. And what portion of MFL’s portfolio is now underwritten as per CREDAG rules? I see it was 35% last quarter.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

65%, now. 65%.

Abhishek Murarka — HSBC Bank Limited — Analyst

All right. All right. And my second question, sir, is when you study this customer information to figure out the foyer and how much headroom you have in terms of being able to give a loan, do you see any differences between states? Do you see the headroom being higher in some states, Southern or Western, so any sort of comment or insight on that would be useful.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Maybe it is too early to give the — I mean, get the insights, Abhishek, probably another one or two quarters’ time, you would get — you’ll have significant numbers because we made that role hardly, we discussed less than INR100 crores in the new model. So probably we’ll try to highlight next time, if possible. Right now, we don’t have our specific insights.

Operator

Thank you. Abhishek, I’ll request you to come back in the question queue for a follow-up question. The next question is from the line of Piran Engineer from CLSA India. Please go ahead.

Piran Engineer — CLSA India — Analyst

Yes. Hi. Thanks for taking my question. Just had a couple of questions. Firstly, in the last four, five quarters, our customer count has not changed, but our loan book is up 30%, 35%. And now next year also we are targeting 8%, 10% customer growth with 25% loan growth. So over a two-year period, basically, customer leverage is up 50%. So how comfortable are we really with this strategy? And my second question is, we’ve also started three-year, 10-year loans, have others in the industry also started this? Thanks.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Yes. So on the customer leverage, it is more of a — for last two years, [Indecipherable], we are not able to add customer for many months in the first and second year, whereas we had to lend to the customer already finishing our loans. Automatically based on the intake, they will get a little higher loan than the earlier loan. So our presentation clearly depicts the nature of increase the portfolio.

Now we will clearly see that the CAGR increase of DLP per borrower is not more than 10% to 15%, which is mentioned maintained continuously and the increase in borrowing is only for the vintage customers. So non-vintage customers, both the portfolio for customers remain seen probably that slide depicts clearly about how this increase happened.

Then the second question is — sorry, I just missed. You also [Speech Overlap]

Piran Engineer — CLSA India — Analyst

How many others are starting [Speech Overlap]

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

No, no. Before that you also said that growth is 25% whereas customer accretion, maybe 10%. In microfinance, the customer growth and the portfolio growth should be — should not be more than 25% difference. That means if the growth of customer is 10%, portfolio growth cannot be more than 30% to 35%. That is the thumb rule actually. If you do more than that, it is leveraging. But if you see here, we are talking about 10% to 15% variation between these two, which will not leverage the customer. And with the inflationary trend, the requirement of borrowing for the customer vintage of the borrower, which all adds to the customer portfolio. So that’s why we don’t see any leveraging issue here.

And on the three-year loan, we really don’t have good insight about others so far, whereas we started the three-year loan almost 1.5 years back. So it’s not new. We only highlighted actually because the EMI load sometimes people in that outstanding goes up by that with the load on customer, that is how it’s clearly depicted here again. When the customer even though that’s leveraging of trading per borrower goes up, simultaneously tenure also goes up. So that there is no load on the customer.

The cable, what we made in the Page 7, it’s clearly the same load of INR10,000 if it is what happens, what is the EMI, if it is one year, two year and 3 years. So load on customer will be lesser, that’s why there is no additional risk because of giving a higher loan for the higher vintage customer.

Piran Engineer — CLSA India — Analyst

Okay, sir. That answers my query. Thanks.

Operator

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

Alpesh Mehta — IIFL Securities — Analyst

Yes. Hi. And thanks for taking my question and congrats for the good set of numbers. Just two questions. First is the, sir, in the comment about increasing ticket size. Most of the lenders are giving more or less a similar kind of a comment that since last two years, the customer acquisition has not been that great and the vintage of the customer has increased. So the question over here is till the time the bureau recalls are being updated, is there a possibility that in the last six, eight months, the leveraging of the customers would have increased meaningfully? And simultaneously is that also one of the reasons why we are seeing some kind of an improvement in the asset quality at the system level?

The second question is related to the other comprehensive income, there is almost INR100 crores plus kind of a charge that will be classified to the P&L in the future in the adjutant quarters? So what is this regarding?

And lastly, onto these margin stuff, competitive intensity while obviously RVS given as the lever in terms of increasing the pricing. But would the competitive intensity restrict that and are we increasing the processing fees? Thank you.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

I have to go back to one by one now. First it’s about the increase, what you say, plus five, six months delay in upgrading the bureau. There is no delaying in updating bureau by anybody. So no MFI how length without checking with the bureau or reporting to bureau. The SRO ensures that every MFI reports on time and takes the bureau report before lending. Therefore, there’s no chance of MFI or anybody lending with the bureau data. So that’s why that question is not I said [Indecipherable] clearly.

The second one, you said about comprehensive income.

Alpesh Mehta — IIFL Securities — Analyst

Other comprehensive income.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Other comprehensive income, Nilesh, you have the insight?

Nilesh Dalvi — Head of Investor Relations

Alpesh that is basically increase, which is passed on into fair valuation of the loan assets. So the loan assets, which we typically held — which we hold eligible for selling under a direct assignment transaction. So those assets we typically book in our balance sheet as fair value assets. And accordingly, as the interest rate changes those assets get revalued and the entrance passed through the OCI directly into the results. So I mean, last year, you must have seen our lending rate was reducing every quarter. And in fourth quarter, it was almost at 19.05%. So it is more of an accounting entry, which needs to be made.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Under [Indecipherable] you have to publish that outcome.

Alpesh Mehta — IIFL Securities — Analyst

Okay. And just the last question on the processing fee, are you planning to increase it?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Yes. We actually considering that there is a cost of operation is slightly going up, we had increased our [Indecipherable] 47 bps. So it takes care of all the — I mean, expected increased OpEx in our lending.

Alpesh Mehta — IIFL Securities — Analyst

Okay. And lastly, sir, just about the bureau data, are the SMB data is also being updated regularly on to the bureau data you’ve alluded?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Yes. The banks, NBFCs, MFIs, all are providing data to bureau, it has picked up everybody. So bureau [Indecipherable] fully 100%.

Operator

Thank you. The next question is from the line of Amarnath from Ministry of Finance of Oman. Please go ahead.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Yes. Thank you for giving the opportunity. So just one thing. The secured portfolio, now you have a leader to go up to 25%. Is there any first-hand plan that within how many years you will try to achieve up to that 25%? And associated with that will the ROA and ROE profile will be different for the secured part of the assets compared to your non-secured part of assets?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Yes. We expect the ROA or OpEx will be different for these products. But when you say 25% leeway it is not necessarily only for [Indecipherable] basically non-microfinance assets. When you say asset, it at the balance sheet level, including all other assets also. But let’s assume that at least 20%, 22% will be available for financing, and lending, so it could be even the — particularly non-microfinance means non-complying with that new regulatory norms. If a product is not compliant that becomes a non-microfinance asset. So one can do unsecured loan also, secured loan also. But what we believe that secured would be better to do because of the diversification point of view because the entire other book is unsecured book. That’s why it will be good to do the secured book. So our view that it takes some time for us to build, but at least three to four years, it will take to reach 15%, 20% kind of assets here because the microfinance bureau continue to grow, that’s why with this headroom also keep growing definitely.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

How will be the ROI, ROE profile for those type of assets?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Difficult to say now. It will take — it will have some large defect to give the ROA, but still at the fourth year, we should be giving about 44% plus ROE there also.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Okay, sir. Thank you.

Operator

Thank you. The next question is from the line of V.P. Rajesh from Banyan Capital Advisors. Please go ahead.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Hi. Good morning. Thanks for the opportunity. All my questions have been answered except this one. I was just curious, what is your current market share? And where do you see it going to in the next three to five years in the MFI business?

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

So in the industry, our market share was 5.6% and NBFC takes about 18-odd percent actually and the feedback. Yes, we would continue to grow, but difficult to see the market share point of view. Yes, we’ve not put a specific target number again because it’s supporting the industry that a lot of people are moving into the market. So — but we definitely will maintain our shape and the then turn aspire to increase our market share.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Okay. That’s all I have. Thank you.

Operator

Thank you. The next question is from the of Nikhil Rungta from Nippon India Mutual Fund. Please go ahead.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Yes. Hi, sir. Thanks for again giving me this opportunity. Sir, just one question from my side. Recent checks there’s that rural agri is doing very good. And you mentioned rightly that 50% to 55% of our portfolio are involved in this allied agri. Sir do you think that if this rural agri comes out to be very good, as expected, then our growth could be higher than what we have guided and our provision could be significantly lower than what we have guided because of prepayment company’s borrowers.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Hoping actually, let’s see how it works. But yes, difficult to give estimation now, Nikhil. The provisions actually, as we said earlier, it’s more of a legacy carry forward for this year, that is why we said little higher, but that is well calculated number because 1.3 carrying the NNPA will definitely allow the rate for next financial year. So we expect better year definitely. So let us hope for the best.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Sure, sure. That’s all. Thank you.

Operator

Thank you very much. As there are no further questions, I will now hand the conference over to the management for closing comments.

Udaya Kumar Hebbar — Managing Director & Chief Executive Officer

Thank you, all. Thank you for spending time in the early morning and look for a good year, and all the best to everybody. Thank you very much.

Operator

[Operator Closing Remarks]