Mahindra & Mahindra Financial Services Limited (M&MFIN) Q2 FY23 Earnings Concall Transcript

Mahindra & Mahindra Financial Services Limited (NSE:M&MFIN) Q2 2023 Earnings Concall dated Nov. 03, 2022

Corporate Participants:

Ramesh Iyer — Vice Chairman and MD

Raul Rebello — Chief Operating Officer, Core Busines

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

Dinesh Prajapati — Head of Accounts, Treasury and Corporate Affairs

Analysts:

Anuj Singla — Analyst

Mahrukh Adajania — Nuvama — Analyst

Rikin Shah — Credit Suisse — Analyst

Manish Ostwal — Nirmal Bang Securities — Analyst

Abhijit Tibrewal — Motilal Oswal — Analyst

Abhishek Murarka — HSBC — Analyst

Shubhranshu Mishra — PhillipCapital — Analyst

Umang Shah — Kotak Mahindra AMC — Analyst

Piran Engineer — CLSA — Analyst

Nischint Chawathe — Kotak — Analyst

Presentation:

Anuj Singla — Analyst

Ladies and gentlemen, this call is not for media representatives or Bank of America investment bankers or commercial bankers, including corporate and commercial FX.[Operator Instructions].

I now hand the conference over to Mr. Anuj Singla. Thank you, and over to you, sir. Good. Thank you, Faizan. Good afternoon, everyone. This is Anuj Singla from Bank of America Securities. Thank you very much for joining us for the Mahindra Finance call to discuss quarter two FY ’23 earnings. To discuss our results, I am pleased to welcome Mr. Ramesh Iyer, Vice Chairman and Managing Director; Mr. Vivek Karve, CFO; Mr. Raul Rebello, Chief Operating Officer, Core business; Mr. Dinesh Prajapati, Head, Accounts, Treasury and Corporate Affairs; and Vishal from the IR team. Thank you very much for giving us the opportunity to host you. I now invite Mr. Iyer to take us through the key financial highlights for the quarter, post which we will open the floor for Q&A. With that, over to you, Mr. Iyer.

Ramesh Iyer — Vice Chairman and MD

Thank you. Thank you, everyone. Thank you for joining the call. Welcome to this conference call. So let me first begin with the company before I really go to the marketplace. After a very long time and true to our belief the way we had projected that it would, we are seeing the asset growth coming back and we are witnessing asset growth beginning to happen. And it’s not happening through just any single product or it’s not happening through any single geography. And therefore, it’s an outcome of across the country, across the product growth that we have seen. We are happy to say that we are gaining market share in our core products, whether it is in the Utility Vehicle segment, it’s in the Tractor segment for that matter, even in the Car segment. It continue to be plagued by nonavailability of certain products as otherwise we could even have seen better disbursement growth from where we are already.

I think the other important feature for us to kind of stay right upfront is the asset quality has also kept pace with the growth. We have always believed that the segment of customers that we work with are circumstantially under pressure whenever the earnings for them drop, but they are not the ones who would not discharge their liability. And this we have said several times in the past, whenever we have had pressures on the quality front, and we have witnessed right from the second quarter of last year after the first quarter pandemic impact. Every quarter after that, we have seen continuous improvement to our asset quality as well as maintenance of our collection efficiency.

So it’s very, very important to note that the growth is back. We are seeing good disbursement growth. We are seeing asset growth happening parallelly along with this. While the growth is happening, we are also witnessing asset quality correction. And some of you would definitely recall that we have always said in the rural market, both the growth and the collections go hand-in-hand, which is nothing but a reflection of the marketplace doing well in terms of its economic activity. And that’s all you will see an overall improvement in both fronts. There are definitely you would have witnessed in our results some pressures on the NIMs that you would have seen. And let me deal with it upfront.

Certain pressure on the NIMs are very conscious decision by the company and certain is caused by the changing environment. The conscious decisions are, we have gone in to finance certain affluent customer or a high-end customer from this market, and we believe that they bring stability to the asset quality, and we had put this out in our three-year strategy, which was laid out post March ’22 results, where we said that we would get into this segment, though this will not be a game-changing segment for us in the sense of it will not be a larger percentage of our disbursements and balance sheet, but they would contribute to this balance sheet, which brings in stability of asset quality. All of us know they come with a little lower yield. And therefore, this does build the pressure on the NIMs when you look at it independently.

But if you look at it on an overall basis, they are also expected to bring in a lower cost to operate as well as a lower delinquency because their customers with good civil score, their customers with good stable cash flow, and therefore, their ability to repay and ability to repay through certain organized methods and not through physical means will always be very, very high. So that’s a conscious decision as to why we are in that segment, and that brings some. The second conscious decision, to some extent, driven by market, but also to the way we budget ourselves, is our product mix. Whenever there is high product mix, whether high disbursement comes from tractor or preowned vehicle, it will always be a high-yield product. And therefore, the NIMs will show a different number. But when the growth is also driven by products like cars, or commercial vehicle or SME kind of a segment, you would always see a little lower yield coming from them.

But again, important to note that their delinquencies operate at a very different level. And therefore, on an overall basis, on a grown book over a period of time, this would get adjusted for and the returns would hold up. So that’s the other reason for that. The third reason for the NIMs pressure that you would see comes from the cost of borrowing. We had, for sure, budgeted for the year that there would be an increase in cost, maybe 75 basis points during the year or so. But all of us know that all this cost increase happened in a hurry. And we had said that also in our first quarter call, that the passing on of rates would happen only with the lag, and it will not happen with a hurry. And I do remember having mentioned that we may not want to push up the rates during the festival times when is the right time to actually acquire good assets and not unnecessarily build pressure by pushing rate.

So therefore, we did delay passing on the rate, but we have now commenced pushing of the rate back to the market. And on a product basis, we have started increasing the rates. Rate increase always happens with the land, and you will see this in the next couple of quarters, the yield starts to improve with the increasing rate that we will pass on to consumer. So that’s one decision, which is now put to action and therefore, you will see the NIMs improvement over a period of time. The fourth, the reason for why you see some pressure at the NIMs level is looking at the liquidity situation, we as a company have resorted back to holding four months chest. We didn’t want to run a situation where money becomes dearer and then we pay a much higher price than one needs to pay normally.

So it’s a conscious call again to store some money and take some holding cost on that. And that holding cost definitely is something that we will have to absorb. We believe that through up to March, this position is likely to continue, and we will not reverse this position of holding extra funds until we see easing of the liquidity situation. But whatever the 25, 30 basis point impact that it will bring in is something that we are willing to live to. And that again is very consciously taken decision on. So that’s on the NIMs front that the pressure is. And some of this will get handled and controlled, which will — and my — we also believe very strongly that as the pre-owned vehicle becomes available, today, what’s typically happening is because of the new vehicle availability is slow, people are not exchanging their old vehicles and therefore, the stock of old vehicles are low.

Also because finance companies and banks are doing well on recovery, repositioned by itself is not a very aggressive activity. And therefore, the availability of stock from that front is also low. And which is why the demand for preowned is high, but availability is low. But once the availability starts to improve as well. Our own preowned vehicle business will also start seeing growth, and that would start also pushing up the yield over a period of time. Put all this together, we do believe that if we were at 7.5% yield levels, I mean, the NIMs level, maybe it will come down to a 7.25% kind of number with the holding cost will still hold, but the other things over a period of time will get corrected. We are confident and comfortable about it. The other thing to look at from our P&L and the balance sheet angle is our cost of operation. It is at an elevated level, and we are very conscious of this, and we have had made a commitment in March that we will try and bring this down to 2.5%. But again, here, there are certain conscious decisions that we have taken.

The first in the line is last two years, the pandemic year, the increments to people were very, very muted. And given the activity level, which has gone up both on the disbursements as well as on the collection front, we only thought it prudent that the employees should also be compensated. And we have introduced certain variable component as well as certain fixed component increased to offset for some of the past, and that has pushed up a little cost, but that will get better handled as the productivity starts to improve and which we are very clearly visible for us. I think the other investments that we have made is in the technology, digital and the data front. We are very conscious and clear of this fact that not all activity that we have pursued so far needs to be continued to be done in the same manner as the past. There are a lot of partnerships possible.

You must have seen one of the announcement with the India Post that we have done. All of this as well as working with OEMs do call for a good investment on the digital front as well as on the data front. And we believe that while it’s a cost to incur now, but they will all yield substantial results as we go along, and that’s where we will start seeing the corrections beginning to happen. Nevertheless, there are very conscious attempts to look at line by line item and see what can be done in these rounds to even bring down certain costs. But there are certain costs which are very variable to the overall business, like for example, traveling cost, the reward programs for dealers or for employees. These are all variable costs. And as the business keeps growing, you will see that cost keep coming in. But on an overall balance sheet basis, we would start seeing the rate getting corrected.

We are on the path moving towards that. But as we said in the three years’ time, they will bring it down to 2.5. We continue to believe that’s a direction that we will maintain. But from a 3.2 level, we’ll come to three and go to 2.75. In the next three to four quarters, you will see this visibility of this. But in the two years that we are talking of, we do believe that it would come down. Currently, even for the same number of people and for the same number of times traveled, the cost is high because the fuel price is high. So therefore, there is this cost impact which is coming in. Some of this also gets corrected by the market corrections that would happen. But these are some of the kind of area for us to really focus on. I think we are very correctly and substantially fixed the growth possibilities as well as asset quality possibility.

We are very clear that we’re investing in the future readiness of both people training capability as well as on the digital and data front. And we are willing to live with that little cost, but that would get surely, you will see a downward trend as the balance sheet starts to grow beyond from where we are. And as I said, on the cost — on the borrowing cost and the passing on of the front to yield and maintain NIMs, we have explained as to how do we see all of this. I will also touch upon there are two additional things which are outside of these balance sheet numbers. One is the provisions that we have made for our joint venture in Sri Lanka. We looked at what are the projections we have made when we got in. We looked at the behavior of the currency and all of that, and we thought it appropriate to make the provision, and we have taken a INR50 crores, INR55 crores of provision in this P&L. They are onetime and not repeatable in nature. But nevertheless, that business independently is profitable even now. And the size of the business obviously is being relooked and that’s the reason that we have taken this conscious call to make a provision.

No further capital need to be allocated to the business as the business is adequately capitalized, and we are comfortable on that front. But nevertheless, this provision has come in as a onetime event here. We are also buying out the stakes in MIBL from the partner AXA, who had invested there. And we have a very strong belief in that business. There are some regulatory changes which are coming in, which will make it even more attractive for the business. And we think that it’s a great value creation that this business will do. And therefore, with due approvals, we have gone ahead with wanting to buy the stakes of the partner. It will go for an IRDAI approval. And as and when the IRDAI approval does come in, it will become a 100% subsidiary of Mahindra Finance. But it’s a great value-creating business. It doesn’t consume capital, but it has phenomenal ability to provide various insurance products to the customers we work with and beyond the customers that we work with in that geography.

On the last bit of the repossession orders that all of you must be aware of by now, through one incident that happened at Hazaribagh in Jharkhand, which made the regulator to look at that very closely and give us a direction to not indulging to repositions by using external agency. The first and foremost, I want to lay out to you that there has been no breach of process from our side. We have followed the process that is required. In our opinion, this has been a very unfortunate incident caused by an accident while a tractor was being driven. And the investigation is on from the police side, and therefore, we can only probably share as much information that we are aware of. But I myself have traveled to the location to understand it more.

Our COO, Raul is today is there, and he is taking stalk of the situation. And we are confident to believe that we would come out clean and we believe that it was an accident. It was not an act done wrongly by any of the people that we are engaged with. We also want to tell you that the agency that we use are not exclusive agents, they are agents who provide the service to the industry. And therefore, we are confident that finally, when the facts are out from the investigation and the codes look at it, this order from RBI will also be looked at it in that fashion positively, and we won’t get the benefit. But does it impact us severely because of this? I think the fortunate thing is that it has happened at the time when the market conditions are good, customers are earning, are able to repay and therefore, repositioned by itself would have been a low-end activity.

I also want to let you know that repossession has never been the first act for recovery. It’s always the last act for recovery and settlement. And it is done with some extremely defaulting customer. Nevertheless, we were doing about 4,000-odd vehicle a month and some of them used to get released back. The portion that we would get impacted by is about 2,000 or 3,000 vehicles where we take back and the customer settles and we release it back to the same customer. That is where the impact of this is likely to be for us. But in the current scenario, with the collections, being extremely good and customer earnings being good, we do believe that it will have a very minimal impact. But parallelly, we have also launched some programs for such customers for a settlement rather than repossession as an act.

The fact of how that works is yet to be tested and seen, but we are active on that. And we are also engaging with RBI very regularly on this to make sure that they understand our position and we are able to get this reversed as the fracs come out. So much on the company. But through the questions, many things will get further answered. But on an overall macro, I think all fronts doing well, whether it is the agri front, where the monsoon was good, expected cash flow is likely to be good. The support price announced seems to be attractive and therefore, farm cash flows will hold up. As we always said, the infra is opening up. Road projects are being allotted already. Mining is opening up in many segments. I think construction activities are doing well, and we believe that even the infra cash flow should show a very, very positive trend. Clearly, there has been no new impact coming from the COVID situation. All activities almost back to normal.

The tourism is at its best. People movement are extremely, extremely aggressive. The temple tourism is high. Schools are operating normal. So I think every segment that we are working with is doing well. But are all the segment adding more assets? I think the Taxi segment, especially the aggregator model, etc., have gone substantially slow and we don’t see growth coming from that area. They are relooking at their model. But as otherwise, in every segment that we are operating, we are very happy and comfortable to look at growth come back, leading to good cash flows in the market, and therefore, the collections to hold up. I think I would stop here. This covers the overall situation of where we are and how we were and what we think going from here. We are very, very positive in the trends that we see in the market, and we do believe that, and I’ve said this before, that the 2025 strategy that we put out in 2022 is an achievable strategy, and we are not relooking at those numbers from any angle.

Thank you so much for joining this call. I’ll open it up for Q&A.

Questions and Answers:

Operator

[Operator Instructions]. The first question is from the line of Mahrukh Adajania from Nuvama. Please go ahead.

Mahrukh Adajania — Nuvama — Analyst

Hello Sir, just couple of questions. Now how do we think about the transition. Of course, the impact has been much lower than fierce, it’s just been INR nine billion. But how does it progress from here? Where does it peak in terms of the difference? And what is the max level of net GS3 that you would be comfortable with? Like anything below six? Or do you have a target lower than that? And also how credit costs would pan out in the second half because we’ve seen a good write-back this quarter. Does that continue given that coverage is good, recoveries are good?

Ramesh Iyer — Vice Chairman and MD

So clearly, right at top front, I said we are very positive. Collections are good. People are earning. They are available can be met and can be collected. So what will give us comfort below 6%, I mean, as a company, it would always aim for as low as that we can be. But for a business model like this, and you will recall, several discussions in the past. We have said in the best of time anywhere between 5% and 6% should be a happy number because it is — it has got its seasonality impact. Tractors don’t turn every month. Trucks don’t run every month. We factor that in our own excitement. And we do believe anything between 5% to 6% should be a good number.

And carrying a coverage of 58%, if you are at 5.5% gross, I think 2%, 2.5% the net will be a very, very happy situation to be in. So that’s on the comfort level of where we think and where we want to be and what will give us happiness. So far as the IRAC provision things are concerned, currently, it’s INR900 crores. And with such a provision that we already carry, even if it was to become INR1,500 crores as a number, I can tell you that we may not require to make any provision through P&L. We are very, very comfortable. And this is the reason we had said even when this rule got announced. And we had said that since we have time up to October, we are seeing things improving.

Therefore, we don’t want to rush into making any additional provision in any quarter and then struggling to reverse it in future, etc.. We were always comfortable and confident to believe that it will even out in the marketplace, and we may not have required to make any provision. I think we have taken the right decision and we can confirm to you that would be the situation.

Mahrukh Adajania — Nuvama — Analyst

Sure. And when does this impact peak out?

Ramesh Iyer — Vice Chairman and MD

So three months, we should know. In this quarter, you will know it. Yes. Vivek will give you a little more insight.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

So Mahrukh, what happens is it has started on 1st of October. So there would be cases which go beyond 90, but then they normalize. So like that — so these guys who have already become NPA won’t add further in the subsequent months. So there could be other set of customers who may join this group in November and December. But at the same time, those who have entered this group will also make all the efforts to bring them completely out of it by collecting all the overdues. So that’s how the mathematics will work. And that’s where we believe that if INR900 crores has got added in October, we are not expecting a significant addition to happen in November and in December. So it’s a flow, and that’s how it will always be.

Mahrukh Adajania — Nuvama — Analyst

Okay. So there is no peak number or any, I mean, that you could share?

Ramesh Iyer — Vice Chairman and MD

No, for the purpose of understanding, that’s why I use the term. Let’s say INR900 crores becomes INR1,500 crores for a minute. Okay. Even then P&L won’t take any provision. We’ll not require to take any provision. So I mean until such time P&L takes a provision if you’re looking for a number, then you have to take some INR3,000 crores and something of that type, which will never happen.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

So, Mahrukh, the biggest comfort we have today is our next Stage three number, which is very comfortable at around 3%. And so the headroom that is available for us to remain below net 6% on net NPA as per IRAC is significant.

Mahrukh Adajania — Nuvama — Analyst

Got it. Okay, thank you.

Operator

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

Rikin Shah — Credit Suisse — Analyst

Good afternoon and thanks for the opportunity. I had a few questions. First one is on the SME and other component of the businesses in your AUM. So those segments have grown very rapidly, right? So even on a sequential basis, we have seen anywhere between 35% to 75% Q-o-Q growth. So just wanted a better understanding of what exactly or what kind of customers we are lending to, a. B, what would be secured versus unsecured component? And c, what proportion of these loans would be to the existing customers versus new customers. So that is the first question. The second question is relating to the margins. So in the opening remarks, Iyer sir, did allude to certain mix changes, which is directionally leading to lower yields. But if I look at the pre-owned segment, the loan book has grown at 9% Q-o-Q, the highest among all the segments, barring SME, other sequentially. So if that segment is your higher bidding segment, then why is the overall yield still declining and how do we think about yield incrementally from here in the near to medium term? That’s the second question.

Thirdly, on the cost side, on the employee headcounts, given that you have converted some of the third-party agents into the contractual or on payroll employees, how do we think about the overall remuneration or employee cost going ahead from the current levels? And fourthly is on asset quality. Just trying to understand this more conceptually. If the collection efficiencies have never crossed 100%, and I do understand that we had a gross NPAs of around 7%, 8%. But even with that, if your collections, if they have never crossed 100%, how the gap between the IndAS gross Stage three versus IRAC, which used to be 570 basis points three quarters ago has gone down to only 1.2% now. So that’s all from my end.

Ramesh Iyer — Vice Chairman and MD

Okay. We will answer one after the other. But if we miss some questions, remind us because you loaded four. So first is on the SME front. Let me tell you that the growth percentages that you see also has a very low base effect, right? So therefore, you have to look at it as a component of the overall asset book rather than standalone, they are growing at 35% and whatever. Because if you were doing not much and then if you have now started doing, it will kind of move upwards.

Rikin Shah — Credit Suisse — Analyst

But even on the overall basis — sorry to interrupt, but even on the overall contribution basis, it has moved up from 7% to 13%, 14% of the much bigger asset size as well, right? So is it on an absolute front…

Ramesh Iyer — Vice Chairman and MD

So I’m coming to that. So I’m coming to that. Now what constitutes this SME as a segment is, one is we have always said that we will play in the area of auto, engineering and agri as the industry that we understand well, and we look at the suppliers of Mahindra or any other such auto manufacturers and their suppliers is something that we’ll look at for the purpose of extending their requirements of expansion or their working capital loan support, etc., etc.. The other segment where we were to present a couple of years back, which is lending to smaller NBFCs where we have had strong relationships in the past who are in similar areas of operations of lending for vehicles or tractors or whatever, but on a smaller scale out there are the ones that with whom we had worked, we have reengaged with them. And that is one segment where we are adding some volumes as well. Does this include bill discounting as well?

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

No, it does not.

Ramesh Iyer — Vice Chairman and MD

Yes. And the third element of this is a very important component, which you should understand that we provide trade advance to the dealers for retail vehicle financing. Now pre-festival this amount substantially goes up. Now what you will see in this quarter, I suppose that TA amount is not same as 30th September balance and they get converted to retail you will suddenly see that retail asset, whether auto, tractor, that number will go up and this SME number will come down. So this is a component of the trade advance, which is given because it’s being provided to the dealer for vehicles to be provided to customers. It is classified under the SME segment and not classified under each of the product segment.

I mean one way to truly see this is that if there is a TA of INR3,000 crores, INR4,000 crores, you break it up into provided to which product and dealer and you added to that respective product and you will see the percentage of those products going up and the SME as a percentage will come down. So that’s a way really to see that product. One minute, Vivek is adding something.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

And Rikin, we have also mentioned in our deck that rather in our press release, that SME as a percentage of the business is around 5%. In fact, it is mentioned on Slide #10 of our…

Rikin Shah — Credit Suisse — Analyst

I noted that. Yes, sir. Thank you for that.

Ramesh Iyer — Vice Chairman and MD

So therefore, this has to be understood in this manner. Now as far as your second question on the…

Rikin Shah — Credit Suisse — Analyst

Sir, before the second one on the first one, if you could provide any color on secured versus unsecured nature? And what proportion of this goes to, say, existing customers versus new customers?

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

Barring trade advance.

Ramesh Iyer — Vice Chairman and MD

No. So barring trade advance, nothing goes to our existing kind of a customer because existing customer profile is very different from the SME segment that we operate with. As far as the — yes.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

And Rikin, to your question of secured and unsecured, see whether we do retail enterprises, business enterprises under SME, all these are secured.

Ramesh Iyer — Vice Chairman and MD

There is no unsecured.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

They are either secured by the underlying working capital or they are secured by the fixed assets, which are getting financed using the funds we provide.

Rikin Shah — Credit Suisse — Analyst

Understood, sir. That answers the first question, clearly.

Ramesh Iyer — Vice Chairman and MD

Now your second question was on the yields, right? And as I explained to you, and you did point out saying that your preowned vehicle growth rate is higher than the other vehicle growth rate. But again, you have to look at it as the overall composition of the mix, right? So the auto still constitutes to be 31% of our total. Tractor is 14%. It’s come down from 17%. It has come down to 14%, if you see on a year-on-year basis. In the next round, if you see, we believe that the retail tractor business will now commence because this is the season now. So if the 14% becomes 15% in the overall constitution, right?

And the other segment starts to grow a little less. Like for example, car is now 20% of our book. And as you know, car is at a competitive pricing. So if the preowned and tractor starts to pick up, which we do believe will happen based on the season of tractor and based on preowned availability, you will see the yields shifting. So in our business, it may be a little not fully correct to look at just for the quarter, what would have happened, you will see this happening. But if you see it on a yearly basis or so, it is a possibility of an adjustment that would — it would happen. But please don’t discount what I said that we are carrying some extra funds for our own requirement, the liquid — liquidity situation in the market. And that will have a little impact on our NIMs, which we are conscious, and we are living with that. And the third comment I made right at the upfront is we have started pushing up our lending rates, and it will bring its benefit on a lag basis, not immediate basis. So we must consider all of this when we kind of look at how the NIMs are likely to pan out going from you here, right? That was your — the second question.

The third question that you asked was on the NPA, where you said that earlier, the gap between your Stage three versus IRAC was higher and your collection efficiencies are not that high and why are we seeing this happen. More technical, but the way I understand is if we are able to collect from Stage two and Stage three account, which has got a better collection efficiency, and the 0 bucket is the ones where we have a little lower collection efficiency, the overall collection efficiency may look low, but the forward flow get arrested. So if you look at our Stage two is also continuously coming down, right? So therefore, it does not go to become an NPA. And similarly, in Stage three, you’re seeing a reversal happening, and it is going to stage. So the efficiency of the collections are also doing very well in Stage two and Stage three, while the overall efficiency remains at 91% and 92%. But also don’t look at just one month, look at the whole quarter. And you see if it is 97% or 98%, it’s holding up well. Yes.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

And Rikin, a couple of more points. You’re right, because you’re talking about a period of January 2022, when we had talked about this gap between GS3 and gross NPA. Those were very different times also where the customer cash flows were far more under stress. So that period of COVID is now behind us. So that is another factor which would impact narrowing of the gap. And the other thing according to me is the way we are managing collections today is slightly different and more focused where we are not allowing the lower bucket guys to get into the higher buckets. And this is definitely the result of the need to move to an IRAC, NPA scenarios. So that also helps to keep a very, very tight leash on movement from lower bucket to higher bucket. I think Dinesh also wanted to add.

Dinesh Prajapati — Head of Accounts, Treasury and Corporate Affairs

Just wanted to add, Rikin, settlement value collections, which is over and above the monthly collection is not factored in the collection efficiency. So effectively, what happens is that contracts where the settlement takes place. That cash flow is over and above the collection efficiency data point.

Ramesh Iyer — Vice Chairman and MD

And that brings down the overall NPA and that happens in an NPA account. So therefore, automatically, it brings down further.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

So in fact, the same period last year, when we talked about this gap, our gross Stage three, my memory is forcing, IRAC was 11.3%. It has now come down to 6.7%. So that also has an impact together with better cash flows from the — for the customer.

Ramesh Iyer — Vice Chairman and MD

You had one more question.

Rikin Shah — Credit Suisse — Analyst

Employees.

Ramesh Iyer — Vice Chairman and MD

Yes.

Rikin Shah — Credit Suisse — Analyst

Because of the…

Ramesh Iyer — Vice Chairman and MD

Hope we have answered the earlier question, Rikin.

Rikin Shah — Credit Suisse — Analyst

Yes, sir. I’ll probably have some more clarifications, but I’ll take that offline. And before we just move to the employee, I just wanted to understand the mass affluent segment that we have.

Operator

May we request that you return to the question queue for follow-up questions.

Rikin Shah — Credit Suisse — Analyst

Okay. Fair enough. So we’ll just take the employee one then.

Ramesh Iyer — Vice Chairman and MD

So your question on the employee was when we have moved them from off roll to on roll will it have a cost impact? Was that your question?

Rikin Shah — Credit Suisse — Analyst

Yes. I do note that you have mentioned in the presentation that it would be cost neutral, but just wanted to understand from the employee cost perspective, whether it will reduce your other operating expense and move into employee costs?

Ramesh Iyer — Vice Chairman and MD

It’s a contract. It’s a contract at this stage. You’re right.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

Earlier they were categorized in other expense, they will now move towards the employee cost.

Rikin Shah — Credit Suisse — Analyst

Perfect, sounds good. Thank you sir.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

Thank you.

Operator

[Operator Instructions] The next question is from the line of Manish Ostwal from Nirmal Bang Securities.

Manish Ostwal — Nirmal Bang Securities — Analyst

Yes sir thank you for the opportunity sir, I have a question on the monthly update collection.

Operator

The audio is very low from your line. Please use the handset mode.

Manish Ostwal — Nirmal Bang Securities — Analyst

Hello, am I audible?

Ramesh Iyer — Vice Chairman and MD

Yes, yes.

Manish Ostwal — Nirmal Bang Securities — Analyst

Yes. Sir, my question on the — our monthly October update, which is where we mentioned that collection efficiency at 91%. And I saw your interview on CNBC where you mentioned that it’s a festival-related impact. Any impact of third-party restriction because of that collection has been down?

Ramesh Iyer — Vice Chairman and MD

No, no, no. See, for — we don’t use third party for our collections. We only use third-party for repositions. And therefore, there is no impact on account of third party from a collection perspective. It is typically in the festival month we do see collections go down, and it is nothing new even last October, if you see the collection efficiency, would have been a similar number. Because one, the activity levels are pretty low, people are not available, holidays for even employees, all of that, but they immediately gets caught up in the next following months. So when you wait for the next month announcement, you wait for the quarter closing, you will see the efficiency go back to its normal level. So it’s nothing new and nothing unusual.

Manish Ostwal — Nirmal Bang Securities — Analyst

Sure, sir. And the second question on the — in June presentation, we mentioned that the management overlay provision of INR1,060 crores. This time, we did not mention that thing. So did we use anything from that figure?

Ramesh Iyer — Vice Chairman and MD

So if you look at our coverage, it remains the same. We have just brought in the overlay also into the ECL formula. It has been subsumed into that because, see, overlay was created for COVID. Typically, could we have reversed and taken the full benefit a view could be anyway. But we didn’t want to do that. We said haven’t made a provision that it stay within. So we have kept the coverage as it is, and we have factored that into the formula. That’s all we have done.

Manish Ostwal — Nirmal Bang Securities — Analyst

Sure sir. Thank you.

Operator

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

Abhijit Tibrewal — Motilal Oswal — Analyst

Good afternoon sir and congratulations on good quarter. Sir, when you talked about some of the developments that you’ve seen on the RBI and on usage of…

Operator

Mr. Tibrewal, sorry to interrupt you. Sir, please use the handset mode.

Abhijit Tibrewal — Motilal Oswal — Analyst

Is it better now?

Operator

Yes, sir.

Abhijit Tibrewal — Motilal Oswal — Analyst

Yes. So while you’ve already talked about, I mean, some of the developments that have had post this RBI ban on usage of third-party for repositions. The two things I wanted to understand in this context, one is, I mean, these 6,000 employees that you have moved from manpower agencies they have moved from off roll to on roll. Are these predominantly repossession and collection personnel who will help offset some of the impact on repositions that you could have had otherwise.

Ramesh Iyer — Vice Chairman and MD

No, no, no. So see, these were all people. Staffing was provided by outside company like TeamLease or anybody and exclusively working for us under our managers doing collections. So the activity that they were doing will continue. And instead of remaining as an outsourced employee, they have now become on-roll employed. Will some of them also repossess. They were past also doing, they will currently also do. So there is no change in activity for them.

Abhijit Tibrewal — Motilal Oswal — Analyst

Understood. And sir, what is the engagement that you have had with the RBI? Is there some cost correction that RBI has suggested and I mean, are they giving you some sense around when you — if that — this bank could get go?

Ramesh Iyer — Vice Chairman and MD

So as I again said, right upfront. One is we were following the process of repossession as was required. But the incident was of a nature where everyone had to take a note of why did this happen. We, as a corporate, are very conscious and therefore, have gone into depth of why and what happened. And as I said, the police investigation is still on. Our on-ground belief is it was an accident, and it was nothing beyond that. And therefore, once we have a clarity from that investigating officer, we will engage even more deeper with RBI on that specific incidents and give more information on that. The requirement is that we should revisit our entire process of repossession of using of agency, appointment of agency and all of that. We have gone through all of that once more internally, and we don’t find major gaps. However, there is always scope for improvement.

We have looked at what others do. We have looked at what else can we do. And I also want to confirm that many a times or almost many times, the agencies that we use are not exclusive agents. They are all agents used by everyone else. So therefore, we don’t see a process failure in appointing an agent or engaging with an agent, but incidents do happen. We have to go back to RBI. And when we say we are engaging with them, we are giving them a feedback on what our Board thinks, the discussion we have had with the board on this subject, our internal deep dive into our own process and revisiting and providing to them where we saw if there was any gap at all and how are we fulfilling and all of that.

I am very, very confident that once all of this is seen in totality and seen along with the incident, which caused an order, we are sure that there will be a revisit, and we would get relief out of that. Am I in a position to put a timeframe to that saying this will happen now tomorrow, day after? I would not want to stretch myself to that. But we will definitely keep coming back to you as we see any development on that front. And our belief at this stage and the confidence at this stage is that anything that happens from here on should be in our favor.

Operator

Thank you. Mr. Tibrewal may we request that you return to the question queue for follow-up questions.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

I’ll just provide one clarification because the gentleman mentioned all 6,000 of collection executives from off roll, they are not only collection. This 6,000 also include some business executives who moved on roll.

Operator

Thank you. We’ll take the next question from the line of Abhishek Murarka from HSBC. Please go ahead.

Abhishek Murarka — HSBC — Analyst

Hi good afternoon. So my question is going back to this gap of NPA that you’ve successfully reduced and you said settlement doesn’t get captured in collection efficiency. So should we assume that this INR3,600 crores gap in December last year, which is now INR900 crores, that entire gap has basically come down due to settlement? And can you…

Ramesh Iyer — Vice Chairman and MD

All cannot come down due to that. Some what Dinesh mentioned was the question that was asked was when your collection efficiency is not crossing INR100 crores, how is that the number is bridging. So he said it will cross INR100 crores if you were to add back the settlement as well. So it can’t be the entire INR3,000 crores. A portion of the INR3,000 crores would definitely be through settlement, but it’s a mix of both.

Abhishek Murarka — HSBC — Analyst

Okay. And this new settlement program that you said you…

Ramesh Iyer — Vice Chairman and MD

I think I just clarified to you. I think all of you should get also this clarity. Our overall numbers of Stage three and Stage two are continuously and substantially reduced, and that has bridged the gap by itself.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

And on top of that, I think the focus that we have on early bucket collection has ensured that the gap which was earlier 6% has now narrowed down to maybe about a couple of percents.

Abhishek Murarka — HSBC — Analyst

No. Fair point. So basically, this is a…

Ramesh Iyer — Vice Chairman and MD

With that clarification on settlement in a way, it has nothing to do with this gap.

Abhishek Murarka — HSBC — Analyst

Understood. So basically, it’s a mix of settlement upgrades and recoveries and yes, okay. The other thing is you mentioned that you’ve launched some settlement programs also now I think this may be outside of this daily stamping issue. Can you share if — what kind of settlement programs, any sort of…

Ramesh Iyer — Vice Chairman and MD

Okay. It has launched only now since we have not recommenced repossession. We have got a list of customers whose vehicle we would have preferred to repossess. Our customers whom we are reaching out and telling them that, okay, we can give you a concessional settlement. Because if you repossess and sell, we get extra amount. And if we are able to, through settlement, get even a rupee better than that, we are actually better off.

Abhishek Murarka — HSBC — Analyst

Okay. So this is sort of targeted to those customers who you would have otherwise repossessed.

Ramesh Iyer — Vice Chairman and MD

Yes. Yes, please understand it’s not some MSP scheme for people to come and pay low amount and get out of the load. It’s purely for those defaulting customers.

Abhishek Murarka — HSBC — Analyst

Understood. And in terms of this ban on repossession, I know you’ve given the clarification and all, but just wanted to understand from a time line perspective, when would you be able to institute all the correctional steps that you have to and go back to the RBI saying, okay, we are done and now it’s up to you to approve. When does that happen?

Ramesh Iyer — Vice Chairman and MD

No. So again, to reclarify, there were no major gaps in what we were required to do versus what was being practiced. But having gone through this incident, I think it’s mandatory for us to revisit our process and reassure that there is no gap. And is there a scope to further tighten it wherever possible. So that is what is being done. We have also gone back to RBI, provided them the information as required, etc.. And we will seek meetings with them and we will impress upon them as to what we have done, how we have done. But at the end of the day, they may want to take their time to understand and then come back. So I’m not able to put a time line to how their response would be. But from our side, we are continuously on that move.

Abhishek Murarka — HSBC — Analyst

Sure. Finally, just one quick question on NIM. You said it should increase in the next few quarters and you pointed that tractor should pick up, preowned should pick up. But on the cost side, also, rates are going up and banks, you would still see the impact of any further repo hikes, etc.. So when do you think NIM improvement sets in? Do you think a couple of quarters later or just from a timing perspective, how do you see this playing out?

Ramesh Iyer — Vice Chairman and MD

Yes. So I think you should add one more thing, which I said, which is we have started pushing our own lending rates for all products already from this month. So all three will happen and which is why we are taking a few quarters, maybe two, maybe three because — and there is a fourth element of the NIMs remaining a little under pressure if the chest that we carry in excess fund that we carry for liquidity protection. So to that extent, there will be this 25, 30, whatever the basis point impact of the chest will continue to happen. But passing on of the yield, I mean, there a lending rate increase, mix of products changing all that is continuously happening. And you will see every quarter, I believe in every quarter, you would not see a dip, you will either see a stability or an improvement. A dip could — will be arrested for sure.

Operator

Thank you, Mr. Murarka, may we request that you return to the question queue for follow-up questions. We’ll take the next question from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.

Shubhranshu Mishra — PhillipCapital — Analyst

Hi sir good afternoon, thanks for the opportunity. The first question is around the opex. If you can split the opex into cost of acquisition, cost of collection and business as usual expel either on a quarterly basis or on an annual basis, it will be very helpful. That’s the first. Second is when does your term get over sir? And what is the succession plan if you do not get reappointed by the Board? Would — will the Board look outside the firm? Or will it be from the Mahindra Group? Or will it be a total outsider, if we can speak on that, sir?

Ramesh Iyer — Vice Chairman and MD

Whose appointment you said, sorry, your voice was cracking.

Shubhranshu Mishra — PhillipCapital — Analyst

Sir, when does your term get over. That’s the first one.

Ramesh Iyer — Vice Chairman and MD

My term, okay.

Shubhranshu Mishra — PhillipCapital — Analyst

Yes. And if we move to the Board will offer your reappointment. What is the succession planning? Will it be from the — from MMFS or from Mahindra Group or a total outsider?

Ramesh Iyer — Vice Chairman and MD

So the second one is easy to handle. My terms end in ’24, I think April or June. And the NRC will engage on this with the Chairman and with the group. At this stage, I may not be exposed to who will that be? Will it be within Mahindra, outside Mahindra, totally from outside somewhere else. I think it’s a little premature to comment on all of this. But be rest assured that an appropriate decision will be taken much well in advance when that has to be taken and that communication for sure would be available.

As a group, we have seen many, many CEOs. You saw it even when Dr. Pawan Goenka retired well on time, there was a new CEO who came in and took over. So be rest assured that that’s something which is in the highest agenda list of the NRC chair, and it would be done appropriately. So far as the split of cost is concerned between collection business, etc.. I’m afraid not to be able to provide you straight across here, but if you can engage with Dinesh or Vishal, they would for surely try and work out what is possible. But except the employee cost, it will be too much of a breaking up of expenses at that level. We can do some approximation and allocation. Vivek will add something to this, but that’s my view.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

Also Abhishek, something which we do not publish in the public domain to — sorry, yes, to share with — we don’t share in the public domain. To share it selectively won’t be possible. So I’m sorry, but what we don’t share in the public domain, we may not be able to share selectively.

Ramesh Iyer — Vice Chairman and MD

If we are able to give you any information, it will be commonly given to many and any. But I still think that splitting beyond employee cost because employee cost is the largest cost of the total. Everything else is a variable cost of their activity and we can definitely put some approximation to it, but employee cost is something which we know who is who.

Operator

Thank you. Mr. Mishra, may we request that you return to the question queue for follow-up questions. We’ll take the next question from the line of Umang Shah from Kotak Mahindra AMC. Please go ahead

Umang Shah — Kotak Mahindra AMC — Analyst

Thanks for taking my question and congratulations to the team on a good quarter. I have got two questions. One is, typically, second half for us has been fairly strong on recoveries and bad asset resolution. Given the band that we have this time around and post side the kind of corrective actions that you’ve already taken, should we assume that there will be probably no letup in terms of NPL resolution in the second half and credit cost should remain benign in the second half? Or this time around, it could be a different trend?

Ramesh Iyer — Vice Chairman and MD

So at least the market is not changing to first half being better than second half. So therefore, we — like you said, we continue to believe that the second half should hold up, especially with the monsoon ending decently well, expectation is high. The support price is also seeming to be good. And I said all of that, the infra has opened all other activities are in place. So we don’t see. Unless an unknown comes to hit us, we don’t believe that there is going to be any let down as we see it.

Umang Shah — Kotak Mahindra AMC — Analyst

And sir, but my question was more from the perspective of the RBI bank. That doesn’t really impact much, let’s say, the markets are conducive.

Ramesh Iyer — Vice Chairman and MD

See, again, I explained this over and over. Repossession is the last resort of recovery, and if not the first step of recovery. And since the market is doing well, cash flows are good, we have already seen how the gap between IRAC and GS3 has bridged, which means people are able to even pay more than one installment in many cases. All of that is very clearly visible. So will it have no impact, I think it will be wrong on the part to say it will have no impact. I said 3,000, 4,000 vehicles, which would have normally try to take and even release back to customer is one of the repo activity. And that is where the termination settlement program has been launched. But at the same time, if we do everything right on the ground, we also think that it may not take a very long of six months for RBI not to respond towards our ask. So in this quarter, whether the order gets reversed or not, I don’t have an answer to. But with every correct step that we are taking, we believe that for the fourth quarter, that activity should be available to us.

Operator

Thank you. Mr. Shah, may we request that you return to the question queue for follow-up questions. The next question is from the line of Piran Engineer from CLSA. Please go ahead.

Piran Engineer — CLSA — Analyst

Thanks. Congrats on the quarter. Sir, just a couple of questions. Most of them have been answered. Firstly, in terms of yield hikes on different products post Diwali, how much have you increased and also competition, and this is over and above the 40 bps hike that we took a couple of months back, right? Then I’ll just tell all the questions together. The next one is on your funding mix. So we’re noticing that your share of deposits is going down, share of bank borrowings going up in the last few quarters. And this is probably a bit counterintuitive because banks are now much more expensive than deposits. So if you could just clarify on that. And lastly, if Mr. Kapoor is on the call, can he talk a bit more, like elaborate a bit more on the digital and data-related investments you all are talking about? That’s it from my end.

Ramesh Iyer — Vice Chairman and MD

Okay. So Mohit Kapoor is not on this call. So maybe we’ll try and see how do we create some input on the digital spend and circulate some note or whatever else to all of you so that everyone is available to be knowing that. Maybe Vivek or Dinesh will take the funding mix question. Vivek, do you want to take it?

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

Sure. So Piran, your observation is correct. But what has happened is the FD flows during the COVID period were exceptionally higher because there was a flight to safety, and that’s what exactly happened. And when you look at the all-in cost of FD versus all-in cost of bank borrowing, you will realize that there is not much of a difference between the two. Because in case of banks, while we do not have to pay any third-party charges like brokerages. But in case of FD, we end up paying those brokerages. So all-in cost, there is not too much of a difference. Having said that, we have been taking calls on progressively increasing our FD rate. So as we speak, our fiive-year deposit carries a rate of 7.25%. And probably, we may take up the rates even higher, depending on what action RBI takes going ahead.

And your observation on bank borrowing, yes, the salience of bank borrowing in the total borrowing mix has certainly gone up because during this volatile period, the market borrowings, which are bonds and NCDs that market has remained slightly volatile. And that has given, I would say, that has necessitated us to take up the share of bank borrowings in our overall borrowing mix. Does that answer your question?

Piran Engineer — CLSA — Analyst

It does. So are these incremental bank sanctions MCLR-linked? Or do they continue to be repo-linked?

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

So I would not like to be very specific, but there is a movement from external benchmark to MCLR.

Operator

Thank you. Mr. Engineer, may we request that you return to the question.

Ramesh Iyer — Vice Chairman and MD

No. He had one more question, where he had some selective, I mean, where have we increased the rates.

Piran Engineer — CLSA — Analyst

No, no. How much have you all increased was the question. And what about comp revenue?

Ramesh Iyer — Vice Chairman and MD

50 basis point is what has been done on certain auto products. We have not broad-based it to all the products yet. But sequentially, we will be doing it for different products at different points of time depending upon the needs, the geography, the availability of vehicle, all that will get factored.

Raul Rebello — Chief Operating Officer, Core Business

So Mr. Mohit is not there. Can I give you a quick — I’ll just provide some quick updates on where the investments are.

Piran Engineer — CLSA — Analyst

Sure.

Raul Rebello — Chief Operating Officer, Core Business

So largely, the investments are around customer acquisition, and two on convenience for customer services and three for repayments. So on customer acquisition front, our mobile app has been significantly spruced up for a lot of sales service journeys. So for example, customers can themselves apply for a pre — I mean, if they have got a pre-approved loan they can complete their details on the mobile app itself. two is on this service front customers would have to come to a branch we try to clear, clean up some of those services, again, on a self-service, either using the call center or on the app. And largely digital also includes making UPI payments, etc.. Mr. Iyer talked about partnerships, the latest partnership with India Post Payment Bank. So we are leveraging a lot of the touch points of these partners to do both acquisition service as well as collection. So this is on digital. On the core tech platform, we are again making a lot of significant investments to ensure that our core systems, whether it’s the LOS, LMS functionalities are improved and made much more versatile.

Piran Engineer — CLSA — Analyst

Thank you so much.

Operator

Thank you. Ladies and gentlemen, we will take the last question from the line of Nischint Chawathe from Kotak. Please go ahead.

Nischint Chawathe — Kotak — Analyst

Am I audible?

Ramesh Iyer — Vice Chairman and MD

Yes, yes.

Operator

So there is an echo coming from your line. Please use the handset mode.

Nischint Chawathe — Kotak — Analyst

Sorry. Yes, is this better?

Operator

Yes.

Ramesh Iyer — Vice Chairman and MD

Yes, yes. Go ahead.

Nischint Chawathe — Kotak — Analyst

Yes. So given the fact that — so basically, this quarter has been quite good for banks and in GS3. And given — and I guess everybody has kind of grown quite well. In our case, we have grown at 9% on a quarter-on-quarter basis, which is obviously a very high number. Given the fact that rural economy tends to be more volatile, would it be sort of been a little bit more prudent to kind of push growth towards the second half where you probably have much more visibility on cash flows. And if your view on the macro remains strong, can we kind of expect better growth rate or growth trajectory in the second half of the year?

Ramesh Iyer — Vice Chairman and MD

So when we lend in a particular month, that’s not the period to worry about is the cash flow is good or otherwise because it’s a vehicle, somebody will buy only if he sees a visibility. It’s a three-year, four-year product. So it doesn’t matter you lend in August or you lend in October, and the season is good in October and the season was not as good in August. The real fact is if somebody is acquiring a vehicle for a three-year period, the three-year cash flow for the customer should be good. And that’s the volatility which actually impacts the rural cash flow sometimes seasonally. So honestly, it doesn’t matter by pushing it between first to second quarter. Will it arrest the future volatility.

The answer is no. So far as how will the second quarter look, we just put out our October number and its highest ever disbursement that demand. But definitely, we should recognize this fact that both the festivals are in the same month. So in a way, one should look at October, November last year versus October, November this year, clubbed together and not see in isolation. And then you will see, okay, it is kind of getting adjusted for that. And we don’t want to over-celebrate that October was very good. And therefore, this quarter, we will have some INR15,000 crores disbursement kind number. The answer is no. But clearly, second quarter — second half for rural historically has been good, and we don’t see that trend changing, either.

Nischint Chawathe — Kotak — Analyst

Sure. And just one data point, which I missed out. How much rate hike have you done? Did you say 40 or 60 basis points?

Ramesh Iyer — Vice Chairman and MD

No, no. I said about 50 basis points, not on all products, some select products. But we will continuously look at different products at different points of time and keep increasing it. Somewhere, it could be 25 basis. Somewhere, it may even be higher.

Operator

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Anuj Singla for closing comments.

Anuj Singla — Analyst

Thank you very much, Faizan. Mr. Iyer, any closing comments before we conclude?

Ramesh Iyer — Vice Chairman and MD

Nothing. But I think we covered it right at the front and then very interesting questions and detailed questions from everyone has captured all that I would have otherwise said in the closing. But the only remark I can say is that after a few years of patience and perseverance and explanation, true to our belief, I think rural is going the direction that we believe it will go. And we do think that the next three years, rural growth will be a potential to watch. And in our business model, I’ve said this several, several times that the segment of customer we work with there could be circumstantially hit, and therefore, you will see some volatility, but they are never intentional defaulters.

And therefore, they always do get corrected, and that’s been even demonstrated in the last at least five or six quarters continuously. As to what built up as a very high NPA in the first quarter of last year, how every quarter we have demonstrated a repayment that proves enough of the customers’ intention and the pressure they go through when circumstances change. I don’t think I have anything beyond that. We are adequately capitalized. We don’t have a liquidity pressure at all as Mahindra Finance, as a Mahindra Group company, as a relationship with every lender to us, we’ve been able to raise money at one of the best rates and sufficiently enough from everyone.

Our people are contributing very, very positively. They’re also investing in them for their training, etc., to be really steady. Raul just talked about how we are investing in digital to be future ready. I think on an overall basis, we are ready on all fronts to embark on this growth journey, and we do believe that it probably is a turnaround story for us. And that’s our transformation agenda, which we put out in March ’22 to say how would we almost double our balance sheet in three years space. So thank you so much, everyone, for joining this call, and thank you for all your questions.

Anuj Singla — Analyst

Thank you, sir, for giving us the opportunity to host you. Thanks, everyone, for joining. This concludes the call for today. Faizan, over to you.

Operator

[Operator Closing Remarks]

Ramesh Iyer — Vice Chairman and MD

Thank you.

Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector

Thank you.