Home First Finance Company India Ltd (HOMEFIRST) Q2 FY23 Earnings Concall Transcript

Home First Finance Company India Ltd (NSE:HOMEFIRST) Q2 FY23 Earnings Concall dated Oct. 20, 2022

Corporate Participants:

Manish Kayal — Investor Relations Head

Manoj Viswanathan — Managing Director and Chief Executive Officer

Nutan Gaba Patwari — Chief Financial Officer

Analysts:

Abhijit Tibrewal — Motilal Oswal — Analyst

Kunal Khudania — DSP Investment Managers — Analyst

Bhavik Dave — Nippon India Mutual Fund — Analyst

Karthik Chellappa — Buena Vista Fund Management — Analyst

Kunal Shah — ICICI Securities — Analyst

Nidhesh Jain — Investec — Analyst

Chandrasekhar Sridhar — Fidelity — Analyst

Shreepal Doshi — Equirus — Analyst

Nilesh Jethani — BOI Mutual Fund — Analyst

Shubhranshu Mishra — PhillipCapital — Analyst

Franklin Moraes — Equentis Wealth Advisory — Analyst

Jigar Jani — Edelweiss — Analyst

Mayank Agarwal — InCred — Analyst

Aakash Bhavsar — Equirus Securities — Analyst

Siddharth Jain — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Home First Finance Company India Limited Q2 and H1 FY 2023 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Manish Kayal, Investor Relations Head. Thank you and over to you, sir.

Manish Kayal — Investor Relations Head

Thank you, Mike. Good morning, everyone. I hope that all of you and your families are safe and healthy. I am Manish Kayal and I look after Investor Relations for Home First Finance. I extend a very warm welcome to all the participants on our quarter two FY 2023 financial results con call. As usual, management is represented by our MD and CEO, Mr. Manoj Viswanathan and CFO, Ms. Nutan Gaba Patwari. I hope everybody had an opportunity to go through our investor deck and press release uploaded on exchanges and our website yesterday. We will start this call with an opening remark by Manoj and then Nutan and then we will have Q&A session.

With this introduction, I hand over the call to Manoj. Over to you, Manoj.

Manoj Viswanathan — Managing Director and Chief Executive Officer

Thank you, Manish. Good afternoon, everyone. I am pleased to showcase the strong business momentum that we’re seeing in our business. Talking about quarter two financial performance, the momentum is continuing on disbursals. We disbursed INR702 crores in quarter two, which is our highest till date, with a growth of 6.2% on quarter-on-quarter basis and 36.3% on a year-on-year basis. AUM is at INR6,275 crores, it grew by 7.6% on Q-o-Q and 35.9% on a year-on-year basis. Portfolio health has improved further. 1+ DPD reduced to 4.7% from 5% and 30+ DPD has reduced to 3.3% from 3.5%. GNPA has reduced to 1.9% from 2.1%.

Profit after tax at INR54 crores saw a growth of 25.9% on a year-on-year basis. ROE has improved by 30 basis points to 13.1% over quarter 1 FY 2022. We will now focus on some of the key drivers and metrics of the business. Technology, during this quarter, digital adoption has further improved, usage of the customer app for various activities has increased. 87% of our customers are registered on our app as of September compared to 84% in June. And unique user logins have also seen an increase to 57% from 54% in the last quarter.

New enhanced lead management system has been deployed to drive efficient lead flows from various origination channels. We have a digital approach for all our customer services, connector engagement and loan management with employees. We continue to be at the forefront of technology usage in the industry and adoption of tech tools to enhance the customer experience and improve our operating efficiency.

Coming to distribution, we now have 101 physical branches taking the total touchpoints to 249. We continue to focus our expansion in the states of Gujarat, Maharashtra, AP, Telangana, Karnataka and Tamil Nadu. We are very market share focused. Currently, our origination market share ranges between 1% to 3% across various states. Our intention is to take this to 5% along with the expansion.

So our growth will come from a mix of increasing distribution and increasing market share. We will remain branch-light and will continue to service markets through a combination of physical and digital presence. Physical branches will reach about 150 in two years. Over the medium-term, growth will mainly come from six core states; Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh, Telangana and Karnataka.

Competition, housing finance in general and affordable housing in particular have gained reputation as secure and profitable business segment. Multiple banks and HFCs are present in different segments and niches of the industry. We have built our presence in urbanized market with heavy competition and hence we are accustomed to intense competition. Also affordable housing finance is a business that requires nuanced understanding of markets and properties. And in addition, the customers in this segment need constant handholding in order to build up a strong portfolio.

Our deep understanding of this segment and expertise in collections developed over the last 12 years, combined with our focus on transparency, technology and speed of service to our customers will enable us to expand our competitive edge.

Coming to yields and cost of borrowing and spreads, the increase in lending rates over higher ticket formal customers has an indirect impact on affordable segment as well. The increase in headline rates makes affordable housing customers less sensitive to the rates they have to pay and reduces the negotiations with customers at the time of origination.

Spreads continue at 5.8% due to slow transmission of increasing interest rates. As rates rise, spreads will move towards 5.25%. We have repriced the back book by 25 basis points effective July 2022. On borrowing, we continue to focus on diversifying our funding sources with a competitive cost of borrowing.

Coming to asset quality, the bounce rates during the quarter have inched up a bit. As per our understanding, there are two reasons for this increase. One is increase in preference of customers for UPI-based payments, which translates to customers bouncing the NACH payment and then paying through UPI immediately within two to three days bouncing.

If we take this into account, the numbers come back to the original figures that we have been reporting. Slight increase in overall industry bounce rates in August and September, as per NPCI data, industry bounce rates have also increased from 29.1% in July to 29.5% in August and 29.3% in September.

However, there is improvement across all buckets. In quarter two, 1+ DPD has improved further. 1+ DPD reduced from 4.7% from 5% and 30+ DPD has reduced to 3.3% from 3.5%. Our Gross Stage 3 in GNPA as per RBI circular dated 12th November 2021 has reduced to 1.9% from 2.1%. This includes INR442 million, which is currently in buckets which are less than 90 DPD, but included in NPA due to asset classification norms as per RBI notification, dated last November. Adjusted for this, the number stands at 1.1% in September and this is down from 1.2% in June, which is an improvement of 10 basis points.

With this, I would like to hand over the call to Nutan to take you through the financials. Nutan, over to you.

Nutan Gaba Patwari — Chief Financial Officer

Good morning, all. I will take you through the performance in Q2 FY 2023. Starting with financials, we continue to stay focused on our key operating metrics with an intention to deliver mid-teen ROE in a couple of years. Our net interest margin stable at 6.5%, even in the increasing rate interest environment. Spreads have stayed flat as we’ve increased our NIMs effective 1st July by 25 basis points and book cost of borrowing increase has been on similar lines. Net interest income has gone up by 51% on a Y-o-Y basis and 9.8% on a Q-on-Q basis. We did direct assignment of INR69 crores during the quarter as a liquidity strategy. We continue to have a robust demand for our portfolio of assets.

Opex to assets stands at 3.1% for the quarter, as guided, we expect this ratio to remain in the range of 3% to 3.2% going ahead, as we focus on expansion. Cost to income at 37.4% in Q2 FY 2023 about 160 basis point increase on a Q-on-Q basis. Q2 FY 2023 PPOP stands at INR74 crores, a growth of 6% on Q-on-Q and 24.3% on a Y-o-Y basis.

Credit cost at 0.3% is within our expected range. Our ECL provision stands at 1% of the total principal outstanding. We continue to be conservative of the provisions. Total provision coverage ratio stands at 50.8%. Prior to NPA reclassification, as per RBI circular, PCR stands at 91% versus 81% in Q1 FY 2023. Adjusted PAT is at INR54 crores, which grew by 5.9% on a Q-o-Q basis and 25.9% on Y-o-Y basis.

Moving to liquidity and borrowings, the company continues to have diversified and cost effective long-term financing sources. During the quarter, we included Karnataka Bank and Yes Bank as our new banking partners and we continue to work towards further diversification.

We have a healthy borrowing mix with 52% of our borrowings from Banks, public sector Banks at 20%, Private sector Bank at 32%, 21% from NHP refinance and 21% from Direct Assignment. We continue to have zero borrowing through Commercial paper. Our cost of borrowing is competitive at 7.1%, increase of 20 basis points from 6.9% on a Q-o-Q basis. Our marginal cost of borrowing for Q2 FY 2023 was at 8%. During first half, we have not availed any new NHB borrowing.

Moving to capital, our total capital adequacy is 50.7% in Tier 1 50.2%. At September 2022, net worth stands at INR1,686 [Phonetic] vis-a-vis INR1,574 crores as of March. Our quarter ROE is at 3.8% and our annualized ROE is at 13.1% on Q2 number. Our book value per share stands at 192.1 at September 2022.

With this, I open the floor for questions and answers. Thank you.

Questions and Answers:

 

Operator

Thank you. [Operator Instructions] We have the first question from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.

Abhijit Tibrewal — Motilal Oswal — Analyst

Yes, thanks for taking my questions. Hi, Manoj. Hi, Nutan. Good morning. Congratulations on a healthy quarter and thanks for hosting this earnings call in the first half today. I had a few questions, most of them were around the impact of the rising interest rates on the bounce rates, delinquencies and your spreads and margins. While, Manoj, you did kind of give out reasons why we saw an increase in the bounce rate during the quarter, just wanted to understand, I mean, can there be some other reasons to this as well? What I’m trying to understand here is, given that you have just increased your PLR by 25 basis points until now, was the bounces in the nature of those customers where you have to increase the EMI of the customer because there was no further room to increase the tenure for the customer? And a related question here, given that you would need to take further PLR increases in the coming months and quarters, what impact could that have on the delinquencies and demand for housing loans?

Manoj Viswanathan — Managing Director and Chief Executive Officer

So, Abhijit, the — I mean, the interest rates that was passed on till now has been passed on in the form of an EMI increase, I mean, sorry, in the form of a tenure increase, not an EMI increase. So we cannot really corelate the bounce rate to that. I mean, so practically no customer has had an EMI increase. So which is why I mean — so we have analyzed the bounce rate across various metrics like bureau, bureau scores, the product category and so on and so forth. So we’re not really seeing any pattern there and it kind of seems to be an across the board phenomenon and which is why we then went back and looked at customers who cleared the payment in July, which was the lowest bounce month and who have subsequently bounced in say September or October.

When we spoke to these customers, what came out was that, most of these customers have cleared their payments already through UPI, I mean, immediately after they bounced the payment. And when we inquired about it, they just felt that they missed the payment and it’s quite convenient now to pay through UPI, so they did not give it too much thought.

And when you actually add up the figures of customers who have cleared the payments in the first say two, three days after the bounce, the figure actually comes back to the original bounce rate in a sense. So looks like more of a payment, I mean more of a customer behavior which is changing.

And if you also look at the 1 DPD and the collection efficiency, again we are not seeing any impact of the bounce rate on that. So it does not seem to be a phenomenon, which is — I mean or a behavior which is — because of difficulty in payment, it seems to be some other underlying change in behavior from the customer’s perspective.

Abhijit Tibrewal — Motilal Oswal — Analyst

Got it. And Manoj, I mean do you think that, given that we will now be required to take further PLR increases in the coming months that would have any impact on the demand for housing loans?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Demand — see, the customer actually comes to a point where he or she decides to purchase or build a house after many other decisions are taken, right? So most customers, I mean, 40% to 50% of our customers are actually building houses on plots. So they need to arrange for a plot first, I mean they would have probably bought the plot earlier or they would arrange to buy the plot. So and even if it is a purchase of a flat or apartment, there is a down payment that they have to arrange and so on and so forth.

So there is a lot of decision-making that goes into the final decision or the final execution of the transaction. And the interest rate is only one out of many things that a customer has to tackle before they purchase the house. So we feel that interest rate is not something that will deter the customer. Customers tend to recalibrate their requirements or tenure according to the interest rate because the decision to purchase or build the house is something that has actually been triggered once much before. So when they come to a point — when they’re ready to buy the house, then the interest rate is not — I mean, does not really change the decision for them.

Nutan Gaba Patwari — Chief Financial Officer

You can hear us.

Operator

The participant has left the queue.

Nutan Gaba Patwari — Chief Financial Officer

Okay. Maybe we can move on to the next.

Operator

Sure. We have the next question from the line of Kunal Khudania from DSP Investment Managers. Please go ahead.

Kunal Khudania — DSP Investment Managers — Analyst

Hi. Just to take this question on the bounce rate forward. In terms of cushions, in terms of an EMI to income ratio and so on, are those comfortable as the way you see it, because at some point of time you’ll move from tenure to higher EMI, right?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Tenure to EMI, there is sufficient headroom because we as a company, we have not really offered very high tenures to customers, most of our customers have taken the maximum of 20 years. So we don’t generally offer 25 or 30 or 10 years to customers. So we have some headroom to go before there is — before an EMI increase needs to be triggered off. Plus, we also had a very high penetration of the subsidy, the Pradhan Mantri Awas Yojana credit link subsidy. So almost 30,000 customers out of 70,000 have actually availed that. And so all those customers anyway have a headroom on the EMI also because the EMI would have reduced by INR2,000 to INR3,000 for each customer. So as a portfolio we have lot of cushion, where we can increase the tenure also and beyond that we can also increase the EMI without hurting the customer. So which is why, at this point, we are feeling fairly comfortable.

Kunal Khudania — DSP Investment Managers — Analyst

Okay. So basically, what do you think the customer health is pretty good, is this banking behavior that’s caused some wobbles? And that you have sufficient cushion, that would be a summary, right?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yes, that’s right.

Kunal Khudania — DSP Investment Managers — Analyst

Thank you so much and good luck.

Manoj Viswanathan — Managing Director and Chief Executive Officer

And we are also tracking, as I mentioned the number of customers who are clearing their payments with within three days of bouncing and that number is actually going up. So which is why we said that, if we add that to the number of customers who have cleared their payment through NACH, the number kind of more or less comes back to the original clearance rate.

Kunal Khudania — DSP Investment Managers — Analyst

Yeah, that’s — thank you, that was very useful. Thanks a lot. Good luck.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Bhavik Dave from Nippon India Mutual Fund. Please go ahead. Mr. Bhavik Dave, you may go ahead with your question. This is the operator, Mr. Bhavik Dave, can you hear us?

Bhavik Dave — Nippon India Mutual Fund — Analyst

Hello?

Operator

Yes, please go ahead with your question.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Yeah, so my question is twofold. One is on the growth front, when I see last eight quarters, our mix has shifted from like home loans to now LAP, obviously, the mix is still towards, remember the incremental growth seems to be coming from LAP and also that leads to self-employed category being higher, which is logical. But even the ticket size has been going up, like INR15 lakh to INR25 lakh ticket size is increasing. So just wanted to understand that, what is the reason for like home loans growing slower than LAP and over the last two years. Any thoughts on this?

Manoj Viswanathan — Managing Director and Chief Executive Officer

No, the LAP is actually growing on a much smaller base. So when we started out, we were practically at very low levels of LAP penetration, so it’s more of a base effect, nothing else other than that.

Bhavik Dave — Nippon India Mutual Fund — Analyst

But now the proportionate shifting, right, like being the 92% home loans have become 89% home loans. So there are reasonable and 5% LAP becoming 10% LAP. So just want to understand like why is the home loan growth not maybe in line with LAP in some time, because we have been growing our — like our distribution is growing very well. Just want to understand, like what is your comfortable mix in your sense on home loan versus LAP or home loan versus LAP, like where do we want to [Speech Overlap].

Manoj Viswanathan — Managing Director and Chief Executive Officer

Sorry, go ahead.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Sorry, industry like some of the peers are at 20%, 25% LAP, so these were like on the lower end, are we inching towards their industry or what is your thought process? Just want to understand that?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah, so I think couple of years back, we were at very low levels of LAP. So on the portfolio itself on the AUM, while we were at about 6%, 7%, our origination was also in the region of about 6%, 7% LAP contribution as a percentage of origination. So which we — at that point also, we had mentioned that this is likely to go up in the medium term to maybe 10% to 15% and which is where we are currently. I mean, so we are at about 15% on new origination. And that catch-up is now happening on the portfolio as well. So you are seeing kind of a — some slight increase every quarter on the AUM as well. So we were at about 7%, 8% a couple of quarters back and that’s gone up to about 9%. So that’s the — so that’s likely to — over a period of time catch up to the 15%, which is the new origination contribution of LAP. So we have always maintained that we want to keep the portfolio at that level, the ratio at that level, so 85%, 15% is the kind of comfortable ratio that we are looking at.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Understood. And what is the [Indecipherable] for LAP, just to understand what is the major difference between a customer segment when it comes to LAP versus home loans?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Segment is largely the same, it’s a similar type of customers. And — but because it’s a LAP product, customers pay between 100 to 200 basis points higher than what they would pay for a similar housing loan.

Bhavik Dave — Nippon India Mutual Fund — Analyst

And the ticket sizes are larger, right? I guess this the movement of…

Manoj Viswanathan — Managing Director and Chief Executive Officer

Ticket size will be in the same range, again same range again INR10 lakhs to INR15 lakhs.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Understood. And also on the sourcing bit, I see that the Connector proportion is increasing. So just to understand how does this work and like what are the kind of payouts to a Connector? We understand like have we seen any adverse behavior in terms of bounces or the AUM generated or originated by Connector? How do this Connector segment help us in the efficiency or quality of the book, anything on that?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yes, on the — so Connectors are paid about 20 to 50 basis points depending upon the consistency and volumes they are bringing in and so on, so it’s only on success. So we really don’t pay them anything for leads and so on. Connectors over a period of time, we have seen that loans originated through Connectors have a similar or slightly better quality than loans originated from the market because there are some filters with the Connectors themselves applying. They’ve been in the business, many of them have been in the real estate related businesses for a long period of time. So they know the market, they know our customers. So there is a certain credit obviously applied at their end as well. So the quality generally tends to be good and on par if not better than the rest of the portfolio.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Understood. And last question, sir, is on the demand outlook. We see that with interest rates going up, what is the kind of demand that is visible for you in because we’ve like clocked a INR700 crores in disbursement this quarter. Is the momentum being visible, because really these customers might get impacted, many have been impacted by COVID — actually COVID remained stable for the entire industry. But when we look at the yield rates now inching up, do you think that there will be any, maybe, decision postponement for these customers’ amount or do you think that that is not yet visible at this point in time on the ground?

Manoj Viswanathan — Managing Director and Chief Executive Officer

No, the increasing interest rates is not really impacting demand. We are seeing very, very strong demand on the ground and we are actually seeing — we are seeing lesser resistance from customers who are also — from an interest rate perspective. I think interest rates will only get impacted because of competition. So there are lots of players in the business at various price points and with various priority. So that is — that can be the only thing that impacts interest rates, otherwise, customers do not generally — in this segment and especially people who are constructing the homes, etc, do not look at interest rates as a big driver of their decision. They are happy to pay premium rates as long as they get the loan and most customers are not even thinking of keeping this loan for 20 years. So they look at it as something that they need to immediately construct the house and then they look at paying it off in a few years. So interest rate is not a big concern for customers, but there are other market forces which tend to push interest rates down. Otherwise, the rising interest rate phenomenon is not something that we think will affect demand.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Perfect, this is very helpful. Thank you so much.

Operator

Thank you. We have the next question from the line of Karthik Chellappa from Buena Vista Fund Management. Please go ahead.

Karthik Chellappa — Buena Vista Fund Management — Analyst

Yeah, thank you for the opportunity. Hi Manoj and Nutan, congrats on the quarter, so I have three questions. The first one is on opex, if I were to look at the absolute opex, right, in other opex, the INR150 million plus is the highest single quarter absolute opex that we have had and is significantly higher than what we saw in previous quarters. We also see salary costs going up quite a bit. Now I know that we have accelerated our branch count, apart from that, what are the other big ticket opex items that got reflected this quarter? And what is the medium-term target for branch additions, at least for the next two years?

Nutan Gaba Patwari — Chief Financial Officer

Hi, Karthik. So, you’re right, the opex has gone up INR44 crores. If you see the other cost line, it’s gone up by INR4 crores. Largely, this is an impact of expansion that we’ve been doing. So that particular line what gets booked is travel, so we’ve had more travel through the quarter, more administrative spends on opening branches that we’ve added. So you are familiar that we’ve front-loaded the branches, so you do see some kind of cost cuts come upfront as well. So higher legal and professional fees coming from higher amount of sanctions and originations that we’re doing.

On the salary line also, we’ve added more people, so that’s the reason why you see more cost sitting there. Coming to the branch additions, we are at 101 right now. We look to get to about 150 in about let’s say eight quarters’ time and that will be largely gradual. So for this year probably another eight or nine branches for this balance year. So, let’s say let’s take the number to 110. Coming to the overall cost, we’ve been guiding at 3.0% to 3.2% opex to AUM. So that’s broadly where we will be for the rest of the year as well.

Karthik Chellappa — Buena Vista Fund Management — Analyst

Got it. Just to recollect. So, Nutan, I think at the time of the IPO, our original thought process was about 120 to 130 branches when we reach, let’s say, an AUM of somewhere around INR10,000 crores or INR12,000 crores. Has that has been upped to 150 branches by any chance simply because of competitive reasons or you actually think there is more potential? I’m just curious as to what was the reason for the slight change in stance, it’s not material, but then still I am just curious?

Manoj Viswanathan — Managing Director and Chief Executive Officer

I think, Karthik, we were basically at that — I mean, that was about 18 months back and we were talking about 120 number probably in a two to three year timeframe. Now — I mean, now that timeframe has actually moved to four years, right. So — because 18 months have already passed. So, it’s just a corresponding number that’s all. I mean, if we look at it, say, same time next year, we’ll probably be at the 120 number that you’re talking about, which is 24 months from the — 24 to 30 months from the IPO. I mean since we are looking at a longer time horizon, maybe another — we are adding another two years to it, that is why we are talking about 150 number.

Karthik Chellappa — Buena Vista Fund Management — Analyst

Got it. Okay, great. The second question is on the bounce rates for which you did allude to UPI-related payment. Now given that UPI adoption will continue to rise or so, do you think there might be some tweaks required in our own payment mechanisms simply because we presenting the check that getting bounced and then communicating to the borrower and then three days that also involve some level of productivity administrative expenses, etc. But if our customers are moving towards UPI, do you think you need to tweak at least on your payment mix, at least to save some time at least on productivity as well as these kind of related ratios? Do you think that’s necessary at this point?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yes, Karthik. So we are contemplating, I mean, of course, the change has been only about 1% in the bounce rate, so 1%, 1.5%. So we have still not triggered off any actions, but we are contemplating. I mean there are now new payment methods available where you can actually give the customer an option to make the payment at his choice rather than going through the regular NACH debit. But we will have — still we’ll have to observe this phenomenon for a few more months, a few more quarters to see if there is a really serious requirement on those lines. So we will kind of watch this space and see if the more and more customers are changing their behavior and then accordingly we will press the trigger, but we are already exploring those options, payment options side by side.

Karthik Chellappa — Buena Vista Fund Management — Analyst

Excellent. My last question is basically on our borrowing mix. So, this quarter, if I look at the private sector banks at 32%, it’s actually at the highest that it’s ever been and there has been a very sharp increase even quarter-on-quarter. So was there any chunky one-time borrowings that we were able to drawdown from these banks? And when we look at the rates that we get from private sector banks vis-a-vis, let’s say, even public sector banks, is there any significant differential at this point?

Nutan Gaba Patwari — Chief Financial Officer

Hi. So, Karthik, the higher increase in private sector banks as I mentioned that we’ve added two banks, Karnataka Bank, Yes Bank, both of them fall in the private sector category. We’ve also had a new line from our existing lenders and a large chunkier line, so that’s adding to that. The other thing also is that the whole private bank comes in slightly early in the year and then the PSU banks sanctions come, let’s say, towards quarter three, NHB comes a little bit towards mid of quarter three. So there is a little bit of phasing of that. So you will see this number getting more towards the 20s probably in quarter three.

Coming to the second part, which is around rate, very comparable, so for example, if you look at HDFC Bank, we will be up 1 year MCLR, so a very comparable rates when it comes to PSU banks and private sector banks.

Karthik Chellappa — Buena Vista Fund Management — Analyst

Got it. Just one last clarification point to the question on the LAP. In the past, when the LAP used to be about 5% to 6%, one of our stance was that we are slightly more cautious from an underwriting point of view given where the market is, given right now that on a incremental sourcing basis it’s up to 15%, can we say that our risk appetite and risk comfort level has improved at the margin?

Manoj Viswanathan — Managing Director and Chief Executive Officer

So we are still cautious on LAP and we have always maintained that there will be some uptick in LAP as we increase our distribution and presence in the market. And we had mentioned that we would probably reach a 15% kind of number on flow, so which is where we are at this point of time, but we continue to remain cautious on that product.

Karthik Chellappa — Buena Vista Fund Management — Analyst

Okay, okay. That’s it from my side. Thank you very much Manoj and Nutan, wish you all the best for the remaining quarters and wish you a happy Diwali.

Nutan Gaba Patwari — Chief Financial Officer

Thank you, Karthik.

Manoj Viswanathan — Managing Director and Chief Executive Officer

Thank you, Karthik.

Operator

Thank you. We have the next question from the line of Kunal Shah from ICICI Securities. Please go ahead.

Kunal Shah — ICICI Securities — Analyst

Yeah, hi Manoj and Nutan, yeah. So, few questions. Firstly, with respect to — when we look at it in terms of the stock of maybe the loans which are say for the apartment purpose as well as for the self-construction, what would be the proportion and how is the flow if we have to look at it, say, in the last 12 months? How would have been the concentration over there?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah. So flow of loans broadly falls in three to four categories. So the self-construction is about 40% of our current flow of business. Then there is an additional about 15% to 20% which is resale transactions, which also largely are individual homes, pure apartments there. There is about 15% that is LAP. So if you add this, it comes to about 70%. And then there is a 30% which is a combination of — you can say it — I mean which is overall developer-led, but it is a combination of high-rise apartments and row houses. So probably about 15%, 15% each. Broadly that is a breakup of incoming loans at this point.

Kunal Shah — ICICI Securities — Analyst

Okay. And in terms of the outstanding, if we have to look at it in terms of this developer-led, then how much would that be?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Historically, the developer-led was high. So on the book the developer-led would be probably about 50% now.

Kunal Shah — ICICI Securities — Analyst

It would be 50%? Okay. Okay. And — yeah, sorry.

Nutan Gaba Patwari — Chief Financial Officer

I was just adding, Kunal, that the historical number is all in the EMI book. So there is no under-construction, anything there.

Kunal Shah — ICICI Securities — Analyst

Okay. Okay. And, secondly in terms of the assignments, so in terms of when we look at it as a proportion of disbursements that’s coming off, so what would be the stance out there? Would we catch-up towards the second half as you highlighted in the opening commentary that demand is still there, but when we look at it compared to that of last year, it is still low. And maybe the related income which is there in P&L, how should we look at it getting into H2 and the next year?

Nutan Gaba Patwari — Chief Financial Officer

So, Kunal, assignment — the first purpose for assignment is liquidity. Now you see that the liquidity is already close to INR1,200 crores at the end of September quarter and we’ve been able to do that at a very competitive cost of borrowing at 8% on a marginal basis. So, essentially, that’s the reason why assignment is low. We also understand the impact on the P&L. So we will look to do probably closer to what we’ve guided earlier, which is around INR100 crores a quarter, so our guidance has been INR100 crores a quarter plus/minus INR20 crores. So we’ll try and get closer to INR100 crores perhaps on this number.

Kunal Shah — ICICI Securities — Analyst

Sure. And in terms of collection efficiency, as well as the bounce rates, reading into that, maybe collection efficiency largely being stable over the last six months and bounce rates also going up a bit, even though it’s technically due to UPI, but what is the kind of improvement we can see from here on with respect to our 30+ DPD buckets? Do we see it? Because I think otherwise collection efficiency is more or less stable as such? 1+ and 30+ should it broadly settle over here or we see it getting down to maybe 2%, 2.5% level in terms of 30+? Yeah.

Manoj Viswanathan — Managing Director and Chief Executive Officer

So the improvement will come from this yellow bar, which you are seeing in our charts, which are customers who got impacted by COVID and who are now stuck in buckets between 0 to 89, right? So that is where the improvement can come, because we are working with those customers to kind of get them regularized and get them back to zero because they are also reflecting in NPA at this point of time, so which is not good for them and for us. So those customers, we are fairly confident they will get regularized. And so that number is what will also drive down the 30-day past due, I mean, as it moves out of NPA, it will also move out of the 30-day past due.

Kunal Shah — ICICI Securities — Analyst

Sure. Sure. So, that’s where may be and how long do we think it will take to normalize?

Manoj Viswanathan — Managing Director and Chief Executive Officer

It could take long because it could take — I mean because customers are generally paying probably one-third of an installment every month, one-third to half in installment every month. So this could take good two, three quarters.

Kunal Shah — ICICI Securities — Analyst

Sure, oh, okay. And last question with respect to Dharmvir Singh, so on the CTO side. So are we in the process of hiring or we have already hired the CTO out there? And what could have been the rationale maybe for him leaving, because I think he just joined last year, so how should we read into this?.

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah, we have some discussions going on with prospective people and yeah, it’s a — the market is very hot for technology people. So, I think, the — our CTO wanted to start something on his own, which is why he left.

Kunal Shah — ICICI Securities — Analyst

Okay. Okay. Thank you, thank you and all the best, yeah.

Operator

Thank you. We have the next question from the line of Nidhesh Jain from Investec. Please go ahead.

Nidhesh Jain — Investec — Analyst

Thanks for the opportunity. Sir, two, three questions. First is on the co-lending arrangement, how is the traction in this quarter? How much disbursement we have done under co-lending?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Co-lending, as you can see, we have disbursed slightly higher than the previous quarter. So, I think we did a transaction of about INR20 crores this quarter, of which about INR16 crores is reflecting in the — so that’s the portion that comes back to us. So momentum is picking up, so monthly originations have started going up. So this quarter you should see further rise in — further increase in co-lending.

Nidhesh Jain — Investec — Analyst

Sure. Secondly, on the spreads, can you guide how the incremental spreads are playing out? We have been able to maintain the spreads quite well, despite increase in cost of funds in this quarter. How are the incremental spreads playing out and how should we think about spreads going forward?

Manoj Viswanathan — Managing Director and Chief Executive Officer

So we have passed — I mean, the increase in cost of borrowing we have passed on to customers, which is where the spreads were maintained. So we will — we are also — we are contemplating one more round of increase. So next quarter also to some extent we should be able to maintain, but we have always been guiding that there will be some compression there. So we are looking at 5.5%, 5.6% kind of a number, we are at 5.8% right now.

Nidhesh Jain — Investec — Analyst

And lastly, can you share the concentration in the Connector channel, let’s say, so what is the number of active Connectors as of now, as of September end and what is the concentration of business coming from, let’s say, top 10% of Connectors?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah, so it’s very diversified channel. So we have about close to about 1,800 to — 1,800 or 2,000 — about 2,000 Connectors who were active in the quarter. And so if you look at, let us say, about 6,000 originations coming from them, that’s just about two to three loans per Connector in a quarter. So it’s very, very diversified. Top 5% — sorry, top 10% of Connectors would be contributing — top 10% of Connectors would be contributing about say 30% of the loans.

Nidhesh Jain — Investec — Analyst

Sure. And this active Connector number has not increased Q-on-Q? Last quarter, I think, also, the number was around 2,000, right?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah, it has not increased much. At last quarter, it was about 1,800 — 1,900 and it’s gone up to about to 2,000 now.

Nidhesh Jain — Investec — Analyst

Okay. Sure, sir. Sure. That’s it from my side.

Operator

We have the next question from the line of Abhijit Tibrewal from Motilal Oswal.

Abhijit Tibrewal — Motilal Oswal — Analyst

Yes. Thank you for allowing me a follow-up question. Looking — I mean, well, you’ve already partly answered this question, just wanted to understand that given that we have, until now, resisted picking any significant PLR increases, but, I mean, having said that, it has started reflecting in moderation, your incremental spreads, while during the opening remarks you also suggested that during the first half of this fiscal year we have not taken any borrowings from the NHB. And assuming that they will be there in the second half, it will obviously aid your incremental as well as portfolio cost of borrowings. But typically, going ahead, given that, I mean, I believe that we have maintained a very fine balance between growth and the trade-off between spreads and margins, how would you kind of look at spreads and margins over the next 1 year?

Nutan Gaba Patwari — Chief Financial Officer

So Abhijit, we are very, very focused on the topic of spreads and margin. So we have to deal with the book spread and the incremental spread separately. On the book spread, we are at 5.8% of NHB’s refinance program, to that extent the book spread keeps on changing. So we’ve done models at our end, and we will need to do another repricing either in quarter 3 or quarter 4. So we will do that, let’s say, about 50 basis points. Cost of borrowing will also increase slightly higher than that, so a portion of that cost of borrowing increase will be absorbed by us and 50 basis points would be passed on.

So let’s say, by end of March, we will be closer to 5.5% kind of a spread, though our guidance, long-term guidance, remains at 5.25%. Moving to the marginal or incremental spread, we’re at 5.40%, we have to be focused on the market from a competitive perspective, from growth perspective and we feel that this is a reasonably healthy spread, which is also ahead of our guided — long-term guidance of 5.25%. So it will be very comfortable with this number. So that’s how we are looking at this overall chapter of spreads.

Abhijit Tibrewal — Motilal Oswal — Analyst

Thank you. And last data keeping question, was there any PMAY subsidy that you’ve received during the quarter? And now what is the quantum of outstanding PMAY subsidy, which is due to you but not yet dispersed from the Ministry?

Nutan Gaba Patwari — Chief Financial Officer

So we received about INR50 crores in quarter 2. We still have receivable of close to INR250 odd crores.

Operator

Thank you. We have the next question from the line of Chandra from Fidelity.

Chandrasekhar Sridhar — Fidelity — Analyst

Just a question from my side. You seem to have spoken quite a few times, I heard you using the word competition and also at the same time mentioning that passing on yields, I mean interest rate is not a factor. It seems that the up — your — the limits is now being determined because of more competitive intensity rather than the ability of the customer to borrow. Would that be a fair assumption? And, I mean, just given the background that you’ve only taken a 25 bps PLR hike?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah. So less of competitive pressure on the back book. The competitive pressure is more for new originations, is a way we would put it, because various players are operating in the segment at various price points, there tends to be competitive pressure at the time of origination. On the back book, we would not say that the competition is a big driver. I mean, I guess, from the perspective of balance transfers, et cetera. So we would not say that that is a big driver, because when there is an increase in prices — by increase in pricing or increase in rates overall, then the balance transfer pressure actually comes down a little bit, because customers get attracted by headline rates, which were there, for example, a couple of quarters back. Now there are no headline rates and generally everybody is at least in the ballpark of 9% for new customers, so the competitive pressure on back book is not that high.

Chandrasekhar Sridhar — Fidelity — Analyst

And this is because you did allude to this — some people have their own P&L pressures or working towards a certain — I’m just trying to understand that theoretically for some reason if our cost of funds were to go up by another 100 basis points, say, over the next 12 to 18 months, just for some reason it were to happen, are we are at the upper bounds of — on the yields, or we sort of play this by increasing, as the flow of LAP keeps increasing that we manage the spreads that way and that sort of — the lower bound on spreads is possibly 5.5%?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah. So on — I mean, we have some headroom, like you said, in LAP and even in terms of our distribution, because we are entering smaller markets, et cetera. So some headroom is there. But, yes, we will have to balance that competitive pressure in the market and maintain our growth. We’ll have to see how it plays out. Plus, we also have the co-lending and so on. So we’re trying to balance all the tools that we have at our disposal to maintain our growth.

Operator

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

Shreepal Doshi — Equirus — Analyst

Sir, firstly, the question was with respect to the bounce rates. So it has gone up, but why is it not getting not getting reflected in the 1+ DPD number. So I just want to understand the linkage there?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah. So most of the customers, if you see, like, for example, let us take October, so if you take the differential of customers who have bounced in October, but who pay — for example, cleared their payments in July through NACH, that difference is about 2% of customers, right, so which is the difference in the bounce rate. But those 2% of customers who have made their payments through UPI within the first three days of bouncing the payment. So if you take the — take 0 to 3 days from bounce. Majority of these 2% of these customers have already made their payments. So which is why this number is not translating into higher delinquency.

Shreepal Doshi — Equirus — Analyst

Sir, second question was with respect to our branch expansion strategy. So what — I wanted to understand what are the indicators or timelines for converting the touchpoint into a branch? So while we — because we have got like 2 decent number of touchpoints also. So what are the indicators that we sort of review, in order to convert the touchpoint into a branch?

Manoj Viswanathan — Managing Director and Chief Executive Officer

So we look at business momentum — business potential in the market and also the momentum. So generally a lot — most of the touchpoints will remain touchpoints. Some of them will have the potential to become branches. And so we look at — I mean, a branch for us means that, in a 4 to 5-year timeframe, the portfolio should reach about INR100 crores. So we estimate whether that potential exist in that location — in that touchpoint, and then accordingly take a decision to put up a branch. So we evaluate this, say, about between 6 to 12 months into the journey of a touchpoint.

Shreepal Doshi — Equirus — Analyst

Sir, these touchpoints 249, also means that these are 249 employees, right?

Manoj Viswanathan — Managing Director and Chief Executive Officer

No, there will be more employees. So 249, let me just break it up, so 249 also includes a 101 branches, right. I mean, so these 101 branches itself would have probably anywhere between 600 to 650 employees. And then you have another 150 touchpoints, which are more thinly manned, which would translate to maybe another 100 employees, 150 employees. So at least one employee per touchpoint is the way we would look at it.

Shreepal Doshi — Equirus — Analyst

One observation. So if we look at the ticket — the more than 1.5 ticket size AUM in — AUM share has increased to 60% from 50%, 2 years back and also the new to credit customers both in terms of loan accounts and AUM has also been coming off, if you look at in the last 2 years. So while this would have given us some momentum on the growth side, do you think this also keeps us exposed to higher BT Out cases going ahead? And if yes, then what is the strategy that we have, sort of, in mind to control it?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah. So on the ticket size, see, ticket size is more of a secular increase and we are seeing that in more affluent markets, especially southern markets, where per capita incomes are increasing, the ticket sizes are also increasing. So a customer who probably 5 years ago used to build a house worth INR10 lakhs or INR12 lakhs is now building a house worth INR15 lakh or INR20 lakhs. It’s a natural increase. I mean, the customer segment is the same, the profile is the same that we used to book. But ticket sizes are increasing, keeping pace with income and so on, in some of the markets.

And as far as the bureau score is concerned, that’s a natural transition that is happening in the country. Every quarter it’s reducing by 1%, the number of customers who don’t have the bureau score and eventually it has to vanish, I mean that segment will have to vanish, because anybody who has got a decent income will probably have a bureau score, because they have some small loans or credit cards, et cetera. But that does not necessarily enable the customer — or qualify the customer to get a housing loan. Most of these customers who have a bureau score, would have small loans, like consumer durable loans, et cetera, which they’ve borrowed. But when it comes to housing loan, they face the same challenges that they used to face earlier.

Shreepal Doshi — Equirus — Analyst

Okay. Got it. So just last two data keeping questions. What is the pricing differential for a salaried versus self-employed customer? Maybe you can give us indication based on the lower band or on the upper end of the range or the interested range? And, also, the differential with respect to home loan and LAP?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah. So salaried and self-employed generally our breakup is 70% — 70%, 30%; 70% is salaried and 30% is self-employed. And in terms of the pricing, self-employed generally, I mean, commands — I mean, if we get pricing of about 1 to 1.5 basis points — 1.5% higher on the self-employed segment. But there again, it is — we are talking about the informal self-employed segment, who don’t have documentation, et cetera. If it’s a formal self-employed segment, then the pricing is nearly similar to salaried segment. So that’s the breakup.

Shreepal Doshi — Equirus — Analyst

And for HL and LAP, like?

Manoj Viswanathan — Managing Director and Chief Executive Officer

HL and LAP, again, the difference is about 150 to 200 basis points or 100 to 200 basis points.

Shreepal Doshi — Equirus — Analyst

Got it. And sir, how is the — like, if you could just give us some color on the average ticket size for both HL and LAP, because we do give the overall ticket size, which is INR1.09 million, but if you could give us segment wise as on 2Q and as on and as on 4Q FY ’21? Yeah.

Manoj Viswanathan — Managing Director and Chief Executive Officer

Ticket sizes would be similar. I mean, I’m just trying to look for the figures. The ticket size that LAP and home loans would be fairly similar. So LAP is in the region of about 10 LAPs, that’s a trend that we’re seeing. In home loans, like I said, in some segments where there are people are doing — constructing their own homes, et cetera, it has inched up a little bit. But broadly in the INR10 lakh to INR15 lakh range is where we are.

Shreepal Doshi — Equirus — Analyst

I’ll probably take it up later on the data side. So yeah, thank you, sir. Thank you so much for answering the questions, and good luck for the next quarter.

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah. The one point I wanted to add to your earlier question on the ticket size, is also that gradually the — I mean, co-lending piece will also — I mean, the co-lending piece as of now is reflecting as part of the overall book. So that also contributes a little bit to the ticket size increase, because that’s an adjacent segment, it’s a slightly higher ticket segment that we are attacking through co-lending. So that also contributes a little bit to the higher ticket size.

Shreepal Doshi — Equirus — Analyst

It’s been — co-lending we are looking at like INR20 lakh to INR35 lakh ticket size, right, if I’m not wrong?

Manoj Viswanathan — Managing Director and Chief Executive Officer

That’s right. That’s right. That’s right.

Operator

We have the next question from the line of Nilesh Jethani from BOI Mutual Fund.

Nilesh Jethani — BOI Mutual Fund — Analyst

Hi Manoj, thanks for the opportunity. My first question was, from a —

Operator

Mr. Nilesh, we request you to kindly come a little more closer to the mic, we cannot hear you well.

Nilesh Jethani — BOI Mutual Fund — Analyst

Yeah. Am I audible now?

Operator

Yes, you are. Thank you.

Nilesh Jethani — BOI Mutual Fund — Analyst

Yeah. My first question was on the AUM side, say, considering next 2 to 3 years, say, by Q1 or Q2 of FY ’25, this 100 to 150 branches would be over. In the similar phase, our — most of our branches which are less than INR100 crores AUM, would try and be mature by that time period. So what is the aspirational AUM, say, from a next three to four-year perspective, where we plan to get considering a strong 50% growth in the branch count, as well as maturing of the existing branches also?

Manoj Viswanathan — Managing Director and Chief Executive Officer

In 3 to 4 years — I mean, we are basically looking at a 30% kind of growth on AUM year-on-year. So it should get us to probably INR12,000 crores to INR15,000 crores — INR12,000 crores to INR15,000 crores.

Nutan Gaba Patwari — Chief Financial Officer

Overall, it’s around INR15,000 crores.

Nilesh Jethani — BOI Mutual Fund — Analyst

Okay. And my second question was on the RM side. So today, most of the work that is sourcing, essay writing, collection, et cetera, is done by the single RM. But as we mature, say, over the next 3 to 4 years, do we plan to segregate this work or will continue to work with a similar business model?

Manoj Viswanathan — Managing Director and Chief Executive Officer

No, we have — I mean, actually a lot of our differentiation in the market comes because of that business process, which a single point of contact, the speed of execution, the collection expertise, and connect that the RM brings to the table, et cetera. So we intend to continue these, because these are our core competitive advantages in the market and we don’t — and we have passed through a very stressful period in COVID with the same model — where it was questioned a lot, because that was a time when there was much more collection load, maybe 2x, 3x of collection load than normal. But even in those circumstances, this model kind of stood the test. So we are now fairly confident that in a regular BIU situation, this model works very well.

Nilesh Jethani — BOI Mutual Fund — Analyst

Okay. Got it. And one last question on the yield side, so when I see our yields, I guess, correct me if I’m wrong, we took a 25 basis hike last quarter and 25 basis hike again in this quarter, that’s what the press release mentions, but when we see competitve —

Manoj Viswanathan — Managing Director and Chief Executive Officer

We have taken only one 25 basis point hike as of now.

Nilesh Jethani — BOI Mutual Fund — Analyst

Okay. But when you see the competition, the hikes have been significantly higher. So despite us claiming that our customer profile is not interest rate sensitive, what is stopping us? I understand we want to maintain the yields. But in a scenario, can we go ahead? Can we push the yields little higher, maybe earn little slightly higher spreads? Our thought process always remain competitive in the market, what’s the thought process basically, I wanted to understand?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Thought process was just, like, fair transmission of the rate to customer, because we have basically contracted a certain rate to the customer, a certain spread to the customer, when we on-boarded the customer. So we are transmitting the rates as and when it gets transmitted to us. So we don’t want to do it ahead of time and gain something or earn something from it. So that’s really is the thinking.

Nilesh Jethani — BOI Mutual Fund — Analyst

Got it. And then next — last question from my side. So in next 2 to 3-year timeline, what comfort percentage as an overall AUM we carry from LAP to be? So today, we are at X number, what comfortable numbers we would be?

Manoj Viswanathan — Managing Director and Chief Executive Officer

15% is something that we are comfortable with. 15% is the incoming flow and that is the number we are comfortable with.

Operator

We have the next question from the line of Shubhranshu Mishra from PhillipCapital.

Shubhranshu Mishra — PhillipCapital — Analyst

A couple of questions. The first one is on the borrowing. What’s the proportion of the borrowings could be on MCLR versus EBLR? And —

Operator

Mr. Shubhranshu, please come closer to the mic a bit.

Shubhranshu Mishra — PhillipCapital — Analyst

Yeah. Can you hear me?

Operator

Yeah. We can hear you better now. Thank you.

Shubhranshu Mishra — PhillipCapital — Analyst

Right. So first one is on the borrowings. So what proportion of the borrowings on MCLR versus EBLR? And what is the average duration right now versus — on a YoY basis and on QoQ basis? The second question is on opex. If we have to split the opex into cost of acquisition, cost of collections and business as usual expenses, what is the split as of now? Third is, dwelling on LAP itself. So what proportion would be on residential properties, and what would be — what will be the proportion on commercial properties and how do we source that? These are my three questions.

Nutan Gaba Patwari — Chief Financial Officer

Yeah. So I start with borrowings. So out of the 100%, the way we break our borrowings is 20% broadly NHB, 20% assignment. The balance, out of 60%, 50% is on MCLR and 10% is on external, whether it is repo or TPL, so that’s the broad breakup. So that was your question on borrowings. Was there anything else in borrowings? Otherwise, I can move to opex.

Shubhranshu Mishra — PhillipCapital — Analyst

What is the average duration right now versus YoY, versus QoQ?

Nutan Gaba Patwari — Chief Financial Officer

Average duration as in average tenure of borrowings?

Shubhranshu Mishra — PhillipCapital — Analyst

Right.

Nutan Gaba Patwari — Chief Financial Officer

7 years. So our asset as well as our liability, our tenure is around 7 years and hence that’s the reason the ALM looks robust. So that’s the second part on borrowings. Moving to opex, the question is cost of acquisition, cost of collection and BAU, the broad split that we do internally is cost of acquisition and because our RMs only do the collection, so we bucket it in one place and then we do essentially the BAU, so broadly it will be 70-30 in terms of the borrowing.

Shubhranshu Mishra — PhillipCapital — Analyst

So 70% would be BAU and 30% is cost of acquisition and cost of collections, right?

Nutan Gaba Patwari — Chief Financial Officer

No, the other way around. So cost of acquisition, we also include entire disbursal, the entire collection, basically the entire branch operation.

Shubhranshu Mishra — PhillipCapital — Analyst

Right.

Nutan Gaba Patwari — Chief Financial Officer

Moving onto LAP, I think, your question is around breakup between residential and commercial. It’s significantly residential.

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah. So LAP is largely all residential. I mean, there may be one-off commercial, but largely it’s residential, 90% plus.

Shubhranshu Mishra — PhillipCapital — Analyst

I mean, how do we source it?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Through the same format. I mean, either our branches or the Connectors would be the source.

Shubhranshu Mishra — PhillipCapital — Analyst

Okay. We also do external sourcing then — right?

Manoj Viswanathan — Managing Director and Chief Executive Officer

External as in, sorry?

Shubhranshu Mishra — PhillipCapital — Analyst

As in through Connectors — not through own employees, but through Connectors as well?

Manoj Viswanathan — Managing Director and Chief Executive Officer

No, mix of both. I mean, the 70-30 mix that you see in the overall product, which is the same in LAP as well. So 70% through Connectors and 30% through other channels.

Shubhranshu Mishra — PhillipCapital — Analyst

Right. And if I’m allowed to speak, then just one last question, what would be the concentration of top 20 or top 30 accounts in LAP?

Nutan Gaba Patwari — Chief Financial Officer

There is no concentration.

Manoj Viswanathan — Managing Director and Chief Executive Officer

No concentration at all. I mean, the ticket size would be in the region of INR10 lakhs to INR15 lakhs generally speaking.

Operator

We have the next question from the line of Franklin Moraes from Equentis Wealth Advisory.

Franklin Moraes — Equentis Wealth Advisory — Analyst

So when you say 73% of Connectors, would this be in terms of volume or value of the loans?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Both will be similar, because it’s all very granular. I mean, we don’t really sell very high-ticket loans. We generally go only as high as INR40 lakhs, so — and the Connector sourcing is very similar to normal sourcing that we get from other channels. So whether you see value or volume, it will be similar.

Franklin Moraes — Equentis Wealth Advisory — Analyst

And in terms of the process, could you explain a little bit? How do we exactly source these Connectors? What are the kind of key attributes that we look into while sourcing these Connectors? And, also, over the last 3, 4 years, what has been the growth of the Connectors?

Manoj Viswanathan — Managing Director and Chief Executive Officer

So attributes that we look for is basically, there — it has to be somebody who is embedded in the local ecosystem, so they know customers and they come to know who in that ecosystem is interested in purchasing or building a house. So that is the main criteria. And it’s — we look for people who have some other business which they are running, which is also kind of a credit check. Because if somebody is running an existing business, like maybe a real estate brokership or insurance agency or any other kind of local ticketing agency, et cetera, it gives them some credibility in that local market as well, and plus it also reflects in the credit quality.

So that’s really what we look for and there has to be some ability to source on a consistent basis. So we don’t generally appoint people who source like one loan and who come across one customer in a very long time kind of a thing. So there has to be — they should be in a business which has a regular flow of customers of their own, so that at any point of time, some of those customers would be looking for a home, and then this connector can refer them to us. So these are the criteria we employ. And then some hard criteria like bureau scores, et cetera, so the Connector himself or herself should have a good bureau score, which is again a kind of credit check that we employ.

Franklin Moraes — Equentis Wealth Advisory — Analyst

And, like, how do we access these kind of Connectors? Do they come to the branch, or do we have some mechanism for kind of accessing these Connectors?

Manoj Viswanathan — Managing Director and Chief Executive Officer

So primarily, we are all connect — I mean, once we appoint them or once we kind of, what you call it, convince them that this is a good business that they can get into, most of the further interaction happens on an app. So there is an app they can download from the Play Store and enroll themselves, and plus they can also keep referring customers on that app, and get the status updates and payment updates, payout updates, et cetera, on the app itself. So once the initial tie-up happens and primarily the engagement is through the app. But our relationship managers also keep interacting with them to kind of give them some updates on the product and more as a relationship management exercise. So that interaction happens from our branches quite frequently, maybe every week, et cetera. So that’s the interaction model.

Franklin Moraes — Equentis Wealth Advisory — Analyst

Okay. And, lastly, on the AUM growth, we’ve guided for about probably 30% of growth for the next 2 two years, but just in the near term, in case interest rates continue to rise, even from current levels, would we be able to kind of deliver the similar kind of growth, or would there be some bit of slowdown in the near term?

Manoj Viswanathan — Managing Director and Chief Executive Officer

As of now, we are seeing a strong demand on the ground and we don’t anticipate any impact at the moment.

Operator

We have the next question from the line of Jigar Jani from Edelweiss.

Jigar Jani — Edelweiss — Analyst

A couple of questions. So on the co-lending side, you said that you have initiated INR20 crores in this quarter, out of which INR16 crores is on your book. So is it probably that you keep 80% of whatever initiation you do and 20% is funded by the banks, or this is just a one-off in the quarter?

Manoj Viswanathan — Managing Director and Chief Executive Officer

The other way around. The other way around. So this — because this is — what you’re seeing is the inflow of funds, right, INR16.6 crores. So the total loan value would be about INR20 crores, out of which INR4 crores remains on our books and INR16 crores is taken on the banks’ books. So whatever the bank has taken on their books, they’ve refunded the money to us.

Jigar Jani — Edelweiss — Analyst

Okay, understood. So it’s funding that you’re showing basically then?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah. We have shown it as — yeah, funding. Yeah.

Jigar Jani — Edelweiss — Analyst

Yeah. Okay. And so — and the other question was, most of this co-lending is in the same mix that you have right now, which is 70% housing, or it is pure housing, what’s the kind of — it’s pure housing?

Manoj Viswanathan — Managing Director and Chief Executive Officer

It’s pure housing at this point of time.

Jigar Jani — Edelweiss — Analyst

Okay. And, thirdly, which is not related to co-lending, but there were been news articles about Warburg Pincus looking to exit their stake in the company. Do you have any updates on that or if you could —

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah. That’s all purely rumor. And we have confirmation from Warburg that there was no such thing being contemplated and they are here for the long haul.

Operator

We have the next question from the line of Nidhesh Jain from Investec.

Nidhesh Jain — Investec — Analyst

Thanks for the follow-up. There is one data point, after third years of operation — branch, what sort of — what annual disbursement level that branch reaches?

Manoj Viswanathan — Managing Director and Chief Executive Officer

After the third year?

Nidhesh Jain — Investec — Analyst

After the third year of opening of a branch, what is the range of annual disbursements?

Manoj Viswanathan — Managing Director and Chief Executive Officer

See, third year — yeah, it depends. See, the throughput — the output depends on the location and so on, but so broadly I can give you a range. So generally, it would be in the range of say INR2 crores to INR5 crores per month kind of disbursal level in a 3-year timeframe.

Operator

Thank you. We have the next question from the line of Mayank from InCred. Please go ahead.

Mayank Agarwal — InCred — Analyst

So my basic question is, for branches we have opened last 2 quarters, how is the connector addition going on there, and how is the disbursements going on if we compare — and when are we expecting the disbursement level to reach our — level of our matured branches? And my second question is, on the bounce, what kind of charges does customer have to incur if an ECS bounces, both on the banking front and what — if anything you also charge there? And, going forward, are we expecting the bounce rate to normalize or they might increase, given more customer might opt for the UPI? Yes, that’s two questions of mine.

Manoj Viswanathan — Managing Director and Chief Executive Officer

So first question if I understood right, you were asking about movement of Connectors, right? I mean, how the number of Connectors is migrating, yeah. So generally, the addition is around 100 to 200 numbers of active Connectors per quarter. So we are currently at about 2,000 range of active Connectors per quarter. And so that’s the number we are at. And as far as the NACH — I mean, the bounces are concerned, yes, the banks do charge. I mean, some banks, they charge fairly hefty bounce charges to customers. So probably it could range between INR100 to INR500 as a bounce charge for the customer at the bank’s end.

And, in our case, we charge the customer a bounce charge only if the customer delays beyond a certain point. So for example, these kind of customers who are now bouncing and paying within 1 or 2 days or 2, 3 days, actually, they all pay through the app or through UPI, through a link. So in reality, we really — I mean, for the first 3, 4 days, we really don’t charge any bounce charge to the customer.

Mayank Agarwal — InCred — Analyst

Okay. Okay. Are we going — this trend to continue, more customers might get — opting for UPI or it would normalize from here?

Manoj Viswanathan — Managing Director and Chief Executive Officer

We’ll have to watch this space actually, because, I mean, we are talking to customers to understand what is driving this behavior, et cetera. We’ll have to really watch this space very closely to understand what is driving this behavior.

Operator

Thank you. We have the next question from the line of Abhishek Agarwal from Naredi Investments.

Mayank Agarwal — InCred — Analyst

Question first, where you are looking net interest margin in FY ’23 and FY ’24 as a whole? Second question, how much amount do you write-off as NPA during the quarter and in 6 months? And, also, how much amount did you receive from selling assets that went into NPA? And last question, at what rate will you issue bond of INR500 crore and for what minimum time?

Nutan Gaba Patwari — Chief Financial Officer

Yeah. So I’ll take those questions one by one. The net interest margin that we’re looking is around 6% for next year. Your second question was on write-off, so in quarter 2, we have — we don’t have any technical write-off. We have some shorter recoveries of about INR1 crore. The amount that we’ve written back, is around INR40 lakhs. This is the NPAs that we had written-off earlier, so those are the recoveries that have come. The bond that is there, it’s — these requirements — legal requirement is that, we have to refresh the Board approval every six months. So we have refreshed that. We are hopeful that we should be able to do this within this year. I hope I have addressed all the questions. If there is anything, please let me know.

Operator

Thank you. We have the next question from the line of Aakash Bhavsar from Equirus Securities.

Aakash Bhavsar — Equirus Securities — Analyst

Hi. My questions have been answered. Thank you.

Operator

We have the next question from the line of Karthik Chellappa from Buena Vista Fund Management.

Karthik Chellappa — Buena Vista Fund Management — Analyst

Yeah. I just have one more follow-up question. What was the attrition at the field level this quarter?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Attrition amongst RMs was about 40%, Karthik.

Karthik Chellappa — Buena Vista Fund Management — Analyst

So this used to be something like about 35%, I think, from the annual report, right, for the full year last year. So it looks like it’s sticky and possibly at the margin or even risen?

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yes, Karthik. It is slightly higher than previous quarters.

Karthik Chellappa — Buena Vista Fund Management — Analyst

And I know in the past you’ve talked about some measures that you’re taking, in the form of giving ESOPs earlier and so on and so forth. Any other initiatives that you have in mind to improve this, because I think this is also putting some pressure on your wage costs?

Manoj Viswanathan — Managing Director and Chief Executive Officer

I’m not sure about wage costs, because this would be largely attrition which happened within first year. There would not be really any difference in the wages. It would probably — it probably puts pressure on just the hiring cost, because you have to hire more people and so on. But, at this level, at an RM level, it’s difficult for us to provide ESOPs. I mean, we have provided ESOPs from the next level onwards, that is branch manager or unit head level. And, at an RM level, the steps that we have taken last time, which I had mentioned was to have an internship program and which is now picking up momentum. So we actually taken people who — as interns and see whether they have the ability to kind of deliver and whether they themselves have the interest in continuing this job and then we will take them on as full-time employees. That will take some time to have impact on the attrition levels.

As more and more interns join us then the — and it should have an impact on the attrition levels. However, I mean, 40% is the overall attrition, but then it would — the — it is about — 10%, 15% would be — decide attrition, which falls in multiple buckets, people who don’t perform, people who are — had to be terminated because of some reason, et cetera. So yeah — but, effectively, yes, the attrition pre-COVID — not pre-COVID, but desired — from the desired attrition is little higher than what we wanted to be. So 5% to 10% higher than what we wanted to be. That’s something which we think will adjust in the medium term.

Operator

We have the next question from the line of Siddharth Jain, an Individual Investor.

Siddharth Jain — Individual Investor — Analyst

Just one question. We have invested heavily in the distribution capacity and we see the impact of that on the P&L with opex going up by about INR12 crores Y-on-Y. How does this translate into the disbursals and the demand with — we have moved up from about INR515 crores in same time last year to about INR700 crores, is this a bit low as compared to the competition? And where do we see this going in H2?

Manoj Viswanathan — Managing Director and Chief Executive Officer

This is on track with what we have planned. And so we have — as we increase the distribution and the number of people, we also have certain benchmarks in productivity, et cetera, which are all being met. So we are kind of happy with the progress and this is the pace at which we think we will keep growing.

Siddharth Jain — Individual Investor — Analyst

Thank you. And any guidance for H2?

Manoj Viswanathan — Managing Director and Chief Executive Officer

In terms of the disbursals you’re talking about or?

Siddharth Jain — Individual Investor — Analyst

Yeah.

Manoj Viswanathan — Managing Director and Chief Executive Officer

Yeah. So we are at about, INR700 crores, this quarter, I mean, and we are at a run rate of about INR225 crores — I mean, sorry, INR250 crores — INR225 crores to INR250 crores per month. And so, yeah, maybe, I mean, we should be growing by about 5% or so on the disbursal quarter-on-quarter.

Siddharth Jain — Individual Investor — Analyst

Okay. Got it. Thank you. And just one more question, on the P&L, we see the net gain on DA about INR99.3 crores this quarter, can you just split this into gross gain and any reversals that we have taken during the quarter?

Nutan Gaba Patwari — Chief Financial Officer

No, we haven’t had to take any reversals this year as of now.

Siddharth Jain — Individual Investor — Analyst

Okay.

Nutan Gaba Patwari — Chief Financial Officer

The reversal will start only when our blended cost of borrowing plus 8%.

Operator

Thank you. That was the last question. I would now like to hand the conference over to Mr. Manoj Viswanathan for the closing comments.

Manoj Viswanathan — Managing Director and Chief Executive Officer

Thank you, everyone, for joining on the call, and wish you all a very Happy Diwali. I hope we have been able to answer all your questions. In case you require any further details, you can get in touch with Manish, who Heads the Investor Relations function or get in touch with Orient Capital, who is our external Investor Relations Advisors. Thank you so much.

Operator

[Operator Closing Remarks]