Mahindra & Mahindra Financial Services Limited (NSE: M&MFIN) Q3 FY23 Earnings Concall dated Feb. 03, 2023
Corporate Participants:
Anish Shah — Non-Executive Chairman
Ramesh Iyer — Vice Chairman and Managing Director
Raul Rebello — Chief Operating Officer, Core Business
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
Analysts:
Anuj Singla — Bank of America Securities — Analyst
Jignesh Shial — InCred Capital — Analyst
Abhijit Tibrewal — Motilal Oswal — Analyst
Kaitav Shah — Anand Rathi — Analyst
Shweta Daptardar — Elara Capital — Analyst
Subramanian Iyer — Morgan Stanley — Analyst
Nischint — Kotak Institutional Equities — Analyst
Sanket Chheda — DAM Capital Advisors — Analyst
Bhuvnesh Garg — Investec Capital — Analyst
Shubhranshu Mishra — PhillipCapital — Analyst
Presentation:
Operator
Good day and welcome to the Mahindra & Mahindra Financial Services Limited Q3 FY’23 Earnings Conference Call.
This call is not for media representatives or Bank of America investment bankers or commercial bankers, including corporate and commercial FX. All such individuals are instructed to disconnect now. A replay will be available for Bank of America investment bankers and commercial bankers, including corporate and commercial FX. The replay is not available to the media. This call will be recorded and the recording will be made public by the company pursuant towards regulatory obligations. Certain personal information such as your name and organization may be asked during the call. If you do not wish for it to be disclosed, please immediately discontinue this call. [Operator Instructions]
I now like to turn the call over to Mr. Anuj Singla. Thank you and over to you sir.
Anuj Singla — Bank of America Securities — Analyst
Yeah, thank you, Nirav. Good evening, 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 three and nine months FY’23 earnings. To discuss the earnings, I’m pleased to welcome Dr. Anish Shah, MD of M&M and Chairman of the Board of Mahindra Finance; 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. Thank you very much sir for giving us the opportunity to host you.
I now invite Dr. Anish Shah for his opening remarks, post which we will open the floor for Q&A. With that, over to you Mr. Shah.
Anish Shah — Non-Executive Chairman
Thank you, Anuj, and good evening, good afternoon, good morning to everyone. Our apologies for the delay today, we have just concluded a Board meeting and have an exciting announcement that we had to upload to the stock exchange side before we could get on this call. I will plan to stay on the call for the first 10 minutes or so to cover the announcement. As well as address any questions. And then hand it over to Ramesh, Raul, and the management team to take it forward.
So over the last 12 to 18 months, we have been very clear about the path that Mahindra Finance has headed in. And that has been around improvement in asset quality, ensuring that we significantly reduced the volatility in asset quality, in driving growth, in bringing in a much stronger management team as the business moves into the future and to look at data and digital in a way that can really help Mahindra Finance, be a leader in technological in financial services. So these are the four areas of focus that we’ve had over the last 12 to 18 months. You will see the results and many of you may have seen it already with regard to asset quality and I won’t spend much time on that. The management team will take you through that in detail.
What I would like to talk about is, our succession plan. We announced earlier that the MD & CEO, Ramesh Iyer will retire, on April 29, 2024. I would give a lot of credit to Ramesh and the team for building a very strong business. As we see the business of core is truly extremely strong. It’s been the volatility in asset quality that sometimes has caused angst for all of us. And that’s something that, as I mentioned earlier, we will reduce, but the team has built a fantastic business, it’s a great franchise. It’s one that even today with banks and other NBFCs in this space continues to be, a very strong leader in rural and semi-urban markets. And therefore, the strength of the franchise is one that can be leveraged to do a lot more as we go into the future. So that’s the reason why I would give a lot of credit to Ramesh and the team who have built it.
As-is our norm at the Mahindra Group, we also want to ensure a very structured and a thoughtful succession process. That is something that you had seen when I got into my role, where the announcement was made literally about 18 months or 15 months prior to that happened and exactly in that same vein, we are making an announcement 15 months prior to ensure a very smooth succession at the leadership level. We have gone through a very detailed process. The Mahindra Finance Board was collectively very deeply involved in it. There were a number of candidates that we looked at from across the industry and I must say that it was very gratifying to see many of the top bankers in the country also very keen to talk to us about this role at Mahindra Finance. Having done very detailed assessment of all potential candidates, we are pleased to announce that Raul Rebello, who’s currently our Chief Operating Officer, we’ll assume the post of MD & CEO Designate for now and then will assume the post of MD and CEO when Ramesh retires on April 29, 2024.
Raul comes with a very strong background with Axis Bank, having spent 19 years there, has built a very strong business at Axis Bank and then over the last 17 months. At Mahindra Finance has really led along with Ramesh, the turnaround that you’ve seen and the improvement in asset quality, the growth, the focus on technology and data all of those things. And therefore, we feel that Raul is an ideal candidate to take this business forward. The details that we’ve gone through with him on the vision for the future on how to leverage technology, how to be a tech leader, we’re also, I would say, inspiring for the Board and something that you will see in the months and years to come. And therefore, we are very excited to have Raul Rebello, as the next MD & CEO Mahindra Finance.
At this point, therefore, let me open it up for questions. I would caution in a sense or request that please do not ask questions on M&M, because we are in a silent period right now, till we announce our results next week. I’m here in my role as Chairman of Mahindra Finance and would be happy to address any succession plan. The details on the quarter, I would again request please wait for the management presentation and then go through the questions after that, but specifically on succession, if there are any questions, happy to address that.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions]
Anuj Singla — Bank of America Securities — Analyst
Yeah. Just checking with so — Dr. Anish Shah mentioned that the management would like to make some comments on the results as well. So if the management is okay, we can go ahead with the comments and after that we can proceed with Q&A.
Anish Shah — Non-Executive Chairman
Yes, that sounds good. I think we can do that. Are there any other questions on succession?
Anuj Singla — Bank of America Securities — Analyst
Sir, we have one, but I think we can combine it along with other questions if that’s okay with you. So we will have many more towards the end. And I think —
Anish Shah — Non-Executive Chairman
Why don’t we cover the one question? Because I will step out after that and leave it to the management to go forward.
Anuj Singla — Bank of America Securities — Analyst
Sure, sir. Sure. Nirav, can you open with this?
Operator
Sure. Thank you. The first question is from Jignesh Shial from InCred Capital. Please go ahead.
Jignesh Shial — InCred Capital — Analyst
Yeah. Hi. Am I audible?
Operator
Yes, sir. You are.
Anish Shah — Non-Executive Chairman
Yes, go ahead.
Jignesh Shial — InCred Capital — Analyst
Yeah, yeah, yeah. Thanks. And congratulation for to Raul and even you guys for such a advance announcement and all. I just sort of have one question that with Raul moving towards, gradually moving towards top rule, are you seeing any further additions into the top management level immediately or how any changes in the structure has been thought about? Or it’ll more or less just a changes succession plan that has been talked about? Any — anything — any further changes that we are seeing in the top management side that is what I wanted to do? Thank you.
Anish Shah — Non-Executive Chairman
So Jignesh, over the last two years, there have been a number of senior leaders who joined Mahindra Finance, many from very reputed banks in the country. And that has really helped build a very strong team here. This was sort of one additional step that was a critical one, which we’ve taken now. It’ll leave the post of the Chief Operating Officer open, which is Raul’s current position. And we will review that. And the two options are that either we will fill that post as is and bring in a new Chief Operating Officer or there may be some small changes, but I wouldn’t expect something significant or dramatic, because we’ve got a very strong team in place now and this was a plan laid out 18 months to go and executed in a very structured manner. So I would not expect any significant changes.
Jignesh Shial — InCred Capital — Analyst
Sure, sure. Thanks. Thanks. Thanks for the answer, sir. I’ll be back for the question answer on the results. Thank you so much.
Anish Shah — Non-Executive Chairman
So with that, I will leave it to the management team to then take it forward. Thank you all again for joining the call today and we will continue to be in dialogue with you. So if there are any further questions here after the call as well, please feel free to reach out to us and we will respond to them. Thank you. Ramesh, over to you.
Ramesh Iyer — Vice Chairman & Managing Director
Hi. Good evening everyone. Can you hear me?
Operator
Yes, sir. We can.
Ramesh Iyer — Vice Chairman & Managing Director
I’ll very quickly give an overview and then we can get into the Q&A. I’ll take you back to the few quarters back when our NPA had gone to the highest level and then we had made a commitment that how we see things changing and then on every quarter we have seen things going in the right direction as and research bias and it’s not by chance it’s going in the direction. We clearly put in place various initiatives that were required to bring things to control and we also have said repeatedly how the rural market buoyancy helps this get corrected. We continue to see the rural market continuing to be strong. The demand is high. Cash flows definitely are showing very, very positive trends. Good news is the monsoons have been good, yields have been good, support price announced is good, therefore the farm cash flow definitely is holding up.
We are also seeing opening up of the infrastructure in different states and this will only further enhance going forward. And the contracting cash flow is doing pretty well. I think every activity levels, which had subdued in the past, which we had listed out, whether it is the tourism, people movement. We see no pressure on any of those front and that’s clearly indicative of how the cash flows of the rural market is performing. We’ve also always stated in the past that demand for vehicles, tractors, pre-owned vehicles is a direct indication of the improved cash flow. And that results also into collections being always good, because that speaks of the overall cash flow strength of that market.
Demand is holding up. Very clearly foot fault at the dealership continues to be high. Supply positions have improved. Vehicle availability is increasing. There are some vehicles non-availability, some part of locations non-availability pre-owned vehicle was short supply product. But all in all, we see availability has improved and that has resulted also into good retails. And you can see from our disbursements we’ve clock the higher disbursements in MMFSL this quarter as compared to any of the past.
The NPA levels are continuously declining. Also important to read it with, we had no repositions during the quarter and in spite of that we’ve seen quality correction, which is again a reflection of the cash flows holding up. When there was this order of repositions imposed on us, we had said that it’s coming a quarter, where normally the repositions would be low and with the improved cash flows we may not necessarily resort to high repositions. And that’s come out pretty true that that we have done well in spite of no repositions. We have overall improved market share in most of the product lines that we work with and we are very happy to report that we continue to maintain our leadership position in most of this product in this market.
We are very efficiently using the data and the various proxy data that’s available for even underwriting. And if we kind of analyze our last 12, 18 months of lending, extremely happy to note that the delinquency from that portfolio is pretty negligible and therefore, as we progress in that direction and we start cleaning up our past both by recovery, reposition, settlements and all of that, we would be a very healthy balance sheet in terms of our asset quality is concerned and coupled with the growth that we are already witnessing.
We have talked about our strategy up to 2025. We are very much on course for achieving most of those parameters and we are progressing extremely well on those fronts. We have invested sufficiently and adequately, appropriately in the technology space. And we have a Project UDAAN, which is a transformation project in hand, where all of us are very actively engaged with our best of people put in that project and that will really bring much higher degree of stability to what we are focusing.
We do believe that until 2025, it is definitely a great opportunity in the rural market and we are absolutely ready for capitalizing on that opportunity given our deeper penetration, given our investment in technology, given our advance relationship with OEMs and dealerships and very clear indications of getting into new product lines. And more specifically, I’ll call out the SME as a segment, where we had set out clearly that what would we want to do in the next couple of years. And currently, we run a book close to about INR4,000 crore on the SME segment, and they largely come around the auto engineering, agri-space that we will understand. It comes around the small trader community that we will engage with and we believe that that’s a great growth opportunity.
The other two growth engines, which is the leasing business that we got into, again, very happy to report that we have under return more than 200, 250 clients and they’re all good corporate, who offer the CTC vehicle to their employees. And we believe that we are getting ready for the future and we are rather one of the NBFCs, who got into it much earlier than anyone else. And we definitely see advantage under growth coming from there. On the digital finance front, which we are launched year plus back, I think all processes well tested, technology well tested and we’ve kind of built relationship across. While the numbers are too small to report at this stage, but you will see numbers punching in and if we look at the next one year, we should very categorically be able to talk about that being another vertical of growth for us.
All in all, we think that having done things with lot of patients and partnership approach with the consumer, we’ve been able to turn it around and we are at the juncture now, where we are able to clearly see growth for us, some of the areas of clear focus for us going forward. We have — we are conscious of the fact that the borrow cost has gone up and what we have done is, we’ve also passed on to the consumer, more importantly in the quarter just gone by the effects of which could be seen in future, around 80 basis point has been passed on to the consumer. While there is still a gap, but we don’t believe that that needs to be bridge in urgency and our expectation is in the next couple of quarters, we may probably start seeing the interest rates come off. If not, we can always take a decision to work more and how much more to really pass on, but we don’t see any specific pricing power being withdrawn from that market while there is sufficient competition across the country, but given our presence for a long period of time, and as I said about our relationship, large customer base, deeper penetration, all of that put together, we are able to counter that pretty well.
Any compression that you see in our NIMS would also come from a product mix change, because different products come at different rate levels or yield levels and therefore, and certain products which are low yield products are high in volume, like especially the personal segment cars, etc., you would see some compression on NIMS, but they more than get offset by lower operating cost and lower credit cost for those product.
The other area of focus for us very clearly is going to be on the opex. It looks a little elevated at some point of time, but you now start seeing the productivity kick in with the disbursements going and the AUM growing. But at the same time, we have little overinvested into future, especially with our transformation project and we would continue to invest in that direction even in the coming year, while the absolute operating cost would remain under control and the productivity would kick in. But additional invested cost into these projects will keep the cost a little elevated, but we do see a 20, 30 basis point improvement that we are very cautiously working on and the benefit that could be seen over a period of time.
Putting all of this together, I think our real clear way forward is to keep controlling the asset quality and maintain continuous improvement. And as you all must be aware that RB has already lifted the ban on the repossessions and therefore, we will resort to repossessions from delinquent account, which are long outstanding and that should release further provisions from the book as we repossess and transact on them. And we therefore strongly think with the growth returning with asset quality under control, margins being maintained and with little additional focus on the opex, as we consume capital, our returns should also start to improve. While our first attempt is to keep continuously focusing on the ROA improvement and parallelly as we consume capital, you’ll also see the ROE improvement.
So all in all, we think we are doing — taking advantage of what’s happening in the rural market and we are being benefited from what’s happening out there. And our confidence is that in the times to come rural market is a place to watch and it’ll have the continuity of the positive buoyancy and the sentiment that we see there.
I would stop here and open it up for Q&A.
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Abhijit Tibrewal — Motilal Oswal — Analyst
Yes, thank you for taking my questions and congratulations on a good quarter and congratulations to Mr. Raul Rebello as well. So two questions, first, on margins, I’m just trying to understand, there were wide ranging expectations that we will see a compression in margins, but looks like we’ve been able to kind of maintain steady margins. So I mean is — I mean, should we read it as, I mean given that, I mean interest rates are now picked out going forward, we can maintain steady margins or I mean, how should we look at margins going forward is the first thing that I’m trying to understand?
Ramesh Iyer — Vice Chairman & Managing Director
No. So as I said, I think you should look at margins from two or three angle. One, you are right. We also believe that the interest rates must have peaked out, but start rolling back only in the next couple of quarters. It’s not going to happen in a hurry. Nevertheless, we have passed on some rate increase and we would continuously watch that space and if the interest rates were to further go up, for sure, we will further discuss on how do we pass it on. Also it’s important to understand that and you must have seen it, that now we also enjoy a AAA rating. We’ve been upgraded to AAA and that should bring in some benefit on our borrowing cost as well as ability to borrow from more vendors, more providers of funds and could be an advantage from a cost perspective.
And the fourth is, clearly as the borrowing cost starts to correct downward, we should be benefited out of that. And maintaining the current margin levels therefore for sure is not an immediate challenge. Will it start improving from here? Will definitely depend on the two or three parameters that I talked down, but please be conscious of the fact product mix will keep moving the NIMS up and down. That depends on the yield of the product. But on the end result of the ROA, it should benefit us, if it comes from certain products which require low opex and low credit cost.
Abhijit Tibrewal — Motilal Oswal — Analyst
Okay, sir. This is useful. The next question I have — that I have is on the asset quality. I mean, obviously, from peak gross stage 3 levels of about 15% plus. I think we have come a long way and then congratulations to your team for that. Just trying to understand, I mean, over the last or next let’s say one year, where can, I mean, this gross stage 3 head to and even how much scope do we have now for releases of ECL provisions? Because I think, in the remarks also you talked about given that this RBI ban is lifted. We will now in be — in the position to work in because there’s some of those old delinquent accounts, which will lead to further ECL provision. And also, I mean, one of the other numbers that you kind report is this bad debt and resettlement process. So given where they are, I mean, and given the fact that we’ve not done any repossessions, I mean were there more in the nature of customer settlements, which led to, I mean that write-off number in period?
Ramesh Iyer — Vice Chairman & Managing Director
So in one of the earlier calls, we had said that even though repossessions are not being entertained, we were definitely in touch with the customers and your right we have reached out to them for a settlement and there are definitely settlements come at a little lower loss than probably repossessing and selling some of the high delinquent account vehicles. So you are right that to the extent you see that number, it comes from — some comes from whatever stocks that we must have had in the books, which would’ve got sold and some comes from the settlement that will happen with the consumers. But your specific question on where do you see the stage 3 going forward? This is a business which will have a little volatility when it comes to quarter one, quarter two versus quarter three and quarter four. And that is more by nature of the cash flows of that market. But with repossessions opened up, etc., we will definitely concentrate on high aging buckets like, 12 plus, 18 plus kind of a bucket. And to the extent there, we settle or we repossess and settle, etc., should give us a scope for at least another 100 basis point improvement on the gross NPA over a period of time. But on a normal regular basis, if everything going well in the market, we do believe that 3%, 4% gross NPA is this market always will be on that range given that we are in tractors, we are in three wheelers, we are in pickup vehicles and all range of vehicles.
Abhijit Tibrewal — Motilal Oswal — Analyst
This is useful, sir. And sir, just squeezing in one last question to get to those guided ROA levels by FY’25, 3.5%. I think one of the biggest drivers of improvement in ROAs are going to be your opex and credit costs. So I think during the opening remarks, you talked about — you talked about that, you are working very hard towards reducing the opex by about 20 to 30 basis points and that the improvements will come over course of time. So are we talking about the sustainable 20, 30 basis point kind of improvement every year from here on? And sir, secondly, in terms of credit costs, in terms of the franchise that you’ve built, you’ve in the past talked about, I mean reducing the longer deal of the more vulnerable customer base and targeting a slightly more virtual customer segment or [Indecipherable] customer segment. So I mean against that, I mean what are those sustainable credit costs that this franchise that you’ve built can work on?
Ramesh Iyer — Vice Chairman & Managing Director
So one is on the ROA that you said, and you refer to my initial remark as well and we did say that we will work at least on an immediate basis in the next couple of quarters. How do we get to 30 basis points saving arising from there? It’s a hard work because it is variable model as volumes increase as collections improve. It comes with the parallel variable cost. But definitely with the sentiments of the market being pretty good there can — there will be some productivity that would kick in for sure. So far as the credit cost is concerned, I mean, it’s important to look at our coverage already, right? We are at about 59% coverage. And as we speak, and as I said, the future delinquency improvement will come from high age bucket, which already carries a higher provision. So our view is that we may not have to necessarily over worry on the credit cost front going forward. What we really have to focus on is the opex coming down and the NIMS being protected by better borrowing, by better lending rates and better product mix management. And that will collectively lead to an improved ROI that we start seeing.
Abhijit Tibrewal — Motilal Oswal — Analyst
Got it, sir. This is useful, sir. Thank you so much and wish you and the team the very best.
Operator
Thank you. [Operator Instructions] Next question is from the line of Kaitav Shah from Anand Rathi. Please go ahead.
Kaitav Shah — Anand Rathi — Analyst
Hello?
Operator
Go ahead sir. You are audible.
Kaitav Shah — Anand Rathi — Analyst
Hello?
Ramesh Iyer — Vice Chairman & Managing Director
Yes, Kaitav, we can hear you. Please go ahead with your question.
Kaitav Shah — Anand Rathi — Analyst
Yes. Good evening and I believe congratulations are in order for Mr. Raul Rebello. First of all, good set of numbers. So my question is more on the subsidiaries, if there is any visibility of plan around improving the numbers on both the subsidiaries?
Ramesh Iyer — Vice Chairman & Managing Director
So on the subsidiary, let me first take the MIBL, which is a smaller one, very clearly, we are awaiting certain regulatory changes that we’ve been given to understand are on the way. And you would see a good turnaround in this business because if you see the top line of this business in terms of our ability to kind of mobilize business and the premium numbers, they’re pretty healthy, right? What has caused a little depression on the bottom line clearly is, the way the commissions are structured and that’s definitely undergoing some change and you would see change in this business for sure. But more importantly, the larger business, which is our rural housing business, we have taken a very conscious call on how much should we do the rural housing lending and how much should we get into the affordable lending.
And while we started off initially with a 15%, 20% as affordable lending, we do believe that we need to get to a much higher percentage in the affordable lending space. And the months gone by, we have seen a mix of at least about 50%-50%, 45%-55% kind of a number. And you will see that first very clearly arresting the volatility of the NPA. As all of us know that the business that we got into the rural housing to an extent initially was a little experimentation. We were the first to get to the business and it has given us lot of learnings from different markets at different points of time. And therefore, we’ve taken this conscious call on also getting into affordable housing a little more larger than we are today that changes the overall ticket size of the loan as well as therefore the mix of the business changes.
On the rural front, again, it’s a great business to be in, except that we’ve very quickly aligned and realized that we need to cut certain segments, while there is enough high end segments available even for the rural lending. And therefore the segmentation has helped us to move up the ladder in going to different segment of customers. And you will see in rural housing, at least in the next one year, you’ll see dramatic change not just to the asset quality of the book that we are building, also correction too, because we are put in a very strong legal practice in place to be able to negotiate with the customer, settle with the customer, use surfaces where required, etc., etc. So one side we will do the past book cleaning up and on the other side will build a very strong future book. And this two together should help grow the book as well as return back to high profitability level.
Kaitav Shah — Anand Rathi — Analyst
Right, right. Wonderful. So one data keeping question on the customer account that you have and what you’ve added in terms of digital for this quarter and what it would look like, say in the next one year?
Ramesh Iyer — Vice Chairman & Managing Director
Sorry. When you ask this question, you mean how many customers are we acquiring digitally? Is that the question?
Kaitav Shah — Anand Rathi — Analyst
Yes, sir. Yes. Overall customer set and the number of customers acquired digitally? And what is it that we are targeting?
Ramesh Iyer — Vice Chairman & Managing Director
The customer base live today is close to about 20 lakh, 22 lakh customer we have live and you must be seeing our monthly updates, where we say, on an average we are upward of 60,000 plus customer every month we add. And good months, we have added 70,000, 75,000 plus customer, right. In terms of digital acquisition is concerned, it will not be a very high number because choose high vehicles and tractors still digitally. We have been — we have started seeing traction there. But more importantly, in our personal loan segment, if you recall quite some time back, we had discussed and launched a product called month end, which is to our existing customer, existing extremely good customer who have repaid 12 months, 15 months, 18 months without a default. We are giving them certain personal loans, which will mature much before maybe the vehicle loan matures and therefore the vehicle act as a collateral, but that loan largely is digitally handled. And that is close to about INR40 odd crore a month is what we do there.
And in number terms, there will be about 4,000, 5,000 customers or maybe 16,000 customers and that we see will grow faster as compared to digital growth in vehicle tractor business. But many of the processes including recovery process, including KYC process, are all very well digitally handled. So one additional data point I may want to give you, a company which used to be 90% plus cash collecting company over a period of time is now come to about 40% is what gets cash collected and 60% is coming through various digital means. And that’s an interesting phenomena for us because that helps us in terms of even improving our cost going forward.
Kaitav Shah — Anand Rathi — Analyst
Right. Got it, got it. Thank you. And one last question, if I may be allowed to ask. So in terms of the operational changes, this is more to Mr. Raul Rebello. Are there any other low hanging fruits, I mean, you have already — we’ve already seen some ground level changes, but are there any other low hanging fruits to improve the efficiency from here on that you could talk about from a strategic perspective?
Raul Rebello — Chief Operating Officer, Core Business
So I think, you would’ve seen a region 25 document wherein we’ve put out our growth plans, asset quality plans as well as our opex plans. But more from a growth standpoint, while we have our organic channels of growth, which is a dealer channel, we’re also investing a lot in as Mr. Iyer said, in other channels of acquisitions. So the non-dealer channel as well as the platforms for origination. We’ve also you would’ve heard from our last update we’ve tied up at India Post Payments Bank. So we’re unlocking as many partnerships to acquire customers as well as service customers in a manner, which is for customers there should be an ease of having a financial relationship with us.
Kaitav Shah — Anand Rathi — Analyst
Okay. Okay. Thank you so much sir. Thank you.
Operator
Thank you. The next question is from the line of Shweta Daptardar from Elara Capital. Please go ahead.
Shweta Daptardar — Elara Capital — Analyst
Thank you, sir, for the opportunity and congratulations on good set of numbers. A couple of questions from my side, so you made a comment in the opening remarks, mentioning that you have maintained your leadership positioning and also market share across products. But if I’m looking at your breakdown of business assets as well as disbursements, composition, then your three key products auto and utility vehicles, tractors and cars all have been reporting slight sluggishness month — I mean, sorry nine months Y-o-Y as well as I compare with March quarter. So would you like to throw light upon them what would be the key growth businesses going forward? That’s question number one. Question number two. So you have fairly address this, but still, in absolute terms, if I have to look at credit charge to P&L in terms of provisioning, so that number has been little volatile. So if we have to sort of model in that particular number, so how shall we look at the provisions on P&L going forward? Thank you.
Ramesh Iyer — Vice Chairman & Managing Director
So let me take the first one. Within our mix you may see some sluggishness in growth of the first three product that you’ve talked of, that has no relationship to the market share and leadership position that we have. Because they’re already a very large-based number and what we do in that business will depend on the underlying volumes of the market. If tractor industry grows by 2% or 3%, since we already have a 30%, 35% market share. And therefore we will also get only that kind of a growth coming from there. So I think you’re dealing these two verifications on the market share front, on the leadership front is very independent of the growth rate this product offers internally. And therefore, if you kind of look at our growth engines, we always have said that pre-owned vehicle will be a growth engine for the year because the demand for that is pretty high.
I think it’s also important to look at as the vehicle price, tractor price starts to go up, for the same volume the disbursement will go. So for that benefit is not still coming in, because the OEMs are also cautious in terms of when and how much one — they want to increase. So when the price increases on the vehicles, tractors, etc., begin to happen, which we believe in the next 12 months, you will see a few increases should happen and that will also bring in a higher disbursement for the same volume. So therefore one should look at retention on market share and the volume that we clock on a monthly basis on this product to be very independent of each other. But the growth that is projected by all the OEMs going forward also seems to be looking attractive and which is why we are confident that we’ll maintain our growth rate.
In — as far as the provision number that we should consider for the P&L purpose, Vivek will take this question.
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
Yeah. So hi, Shweta, you can hear me, right?
Shweta Daptardar — Elara Capital — Analyst
Yes, sir.
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
Okay. So what I would suggest is instead of looking at original provision number, you should probably look at the overall credit cost number, because there is an interplay between the provisions and the other write-offs that we do, because to the extent, a bad debt is written-off, you would know that we write-off bad debts on a quarterly basis. And in the termination losses or settlement losses that are also accounted for as in when they are — they’re incurred. And in most of the cases these come out of the stage 3 — gross stage 3 assets that we hold. And therefore my suggestion would be not to look at the provision number per se, but look at the overall credit cost as a number.
Shweta Daptardar — Elara Capital — Analyst
Fair point, sir. So one, if I may squeeze in, which again you have already addressed partially. So did you guide for incremental 100 bps decline in stage 3 GNPA is going ahead?
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
I think the question was how should we look at the trajectory of gross stage three over the next 12 months? I think that was the question that was asked? And that’s where Mr. Iyer said that, potentially, we could look at sequential downward movement in the gross stage 3 from where we are today.
Shweta Daptardar — Elara Capital — Analyst
Okay. And sir, are we giving breakup of stage 1 and stage 2?
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
Yeah. So we give that — so you are talking about the guidance, are you talking about the breakup?
Shweta Daptardar — Elara Capital — Analyst
No, breakup separately of stage 2.
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
Oh yeah. So we do that. So it is — it is already available on Slide 25 of the investor presentation. But now that you’re asking this question, as of 31 of December, we are close to INR6,500 crores of stage 2 asset, which comprises 8.4% of our asset book.
Shweta Daptardar — Elara Capital — Analyst
Thank you.
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
Okay. Thank you.
Operator
Thank you. Next question is from the line of Subramanian Iyer from Morgan Stanley. Please go ahead.
Subramanian Iyer — Morgan Stanley — Analyst
Hi. Thanks for the opportunity. Congrats on a good set of numbers and congratulations to Mr. Raul Rebello. So my question is again, with respect to credit cost guidance for FY’24 and ahead, given that it’s very important for your ROA projection. Given the business mix and risk profile is undergoing a change, and we have also seen the impact on loan yield, would you guide to a much lower structural P&L provision charge than what you used to guide in the past of about 180, 200 basis points in normal times?
Ramesh Iyer — Vice Chairman & Managing Director
I think if you’re talking of a little long-term, definitely as the asset quality, the segment of customers starts changing, mix of business starts changing with little more of SME coming in. I think the answer would look to be an, yes for sure.
Subramanian Iyer — Morgan Stanley — Analyst
Sure. And maybe we have already taken the bulk of the provisioning in this year, right? And you’re seeing good recovery, so why not for FY’24?
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
No, you — if you look at, we still have 5.9% NPA, right, while we are made provisions for. So if you look at the GS 3 at 5.9%, our focus is to collect from what we have provided. And you may get some benefit, and as I just said in the opening remark as well, the repossessions have been allowed and we will focus on high delinquent account, but to forecast that as a number is a challenge. So maybe when we put out our monthly number, like we put out our monthly number for January and you would’ve seen that the NPA levels are maintained at a December level, which is not normally the outcome anytime. You always see as a quarter end, the first month of the next quarter, you see something going up. The very fact you see in January that’s been curtailed, we are reasonably confident to believe that our efforts on the delinquent account resolution is working and we will put it out on a month-to-month basis. But to make a commitment, what would it look like in February, March, it would get a little challenging for us.
Subramanian Iyer — Morgan Stanley — Analyst
Thank you. And my second question is, if you could highlight, where do you expect your exit cost of funds versus the current calculated levels is about 7.2%. We have seen a — with respect to yields, we have already seen a sharp completion in 2Q. So do we expect that going forward the yield should stabilize or maybe even move ahead — move higher? Yeah?
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
Yeah. So the high interest scenario even continues. So it’s not that the interest rate curve has flatted — started sliding, and you have also seen fed recently taking up the rates by another 25 basis. It is to be seen what action does RBI take, but we at least believe that the high interest rate scenario is here to continue, at least for the first half of the next fiscal. So that is the view that we have today. And you also know that during the current year, we have had to borrow at rate higher than what we have done in the past. And as the older book, which probably could have been a lower cost book exists, some pressure on the overall weighted average interest rates will continue and slowly maybe towards Q3 or Q4 or next year, there could be some signs of the rate stabilizing at a lower end. So if your question is, have you already started seeing a lower cost of borrowing, the answer is no. Having said that, we will come — we’ll always use a very prudential approach of our borrowing mix and we’ll try and optimize the cost to the extent we can.
Subramanian Iyer — Morgan Stanley — Analyst
Yeah, thanks. So assuming obviously that you will have some NCLR based borrowing repricing as well, I mean, where do you see possibly the cost of funds exiting in the next three to four quarters?
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
So see right now as of 31 of December, if — we are at a certain rate, I believe over the next three to four quarters, we believe on a weighted average basis, another 15 to 20 basis point increase in that particular borrowing mix.
Subramanian Iyer — Morgan Stanley — Analyst
Thank you. And wish you all the best.
Ramesh Iyer — Vice Chairman & Managing Director
Thank you, Subbu.
Operator
Thank you. Next question is from the line Nischint from Kotak Institutional Equities. Please go ahead. Nischint, unmute your line for you side, and go with the question, please.
Nischint — Kotak Institutional Equities — Analyst
Yeah. Hi, am I audio audible now?
Operator
Yes, you are. Thank you.
Nischint — Kotak Institutional Equities — Analyst
Sure. Thanks. Before my question, just continuing from Subbu’s question, the rate hikes that you have done, are you seeing the full benefit already flowing in the P&L or do we kind of expect expert to see the benefit going forward?
Ramesh Iyer — Vice Chairman & Managing Director
No. No. We’ve just increased the rates in this quarter. So November onwards, we increase, so you will start seeing it over a period of time.
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
And Nischint, as you know, this is a very large book that we are carrying. So the rate benefit is on disbursements that we do on a month-on-month basis. So you will see the benefit over a period of time. It’s not — it’s not a magic wand that it will reflect in the weighted average yield overnight. It won’t happen.
Ramesh Iyer — Vice Chairman & Managing Director
And next is, as you know, this will benefit only the new book, right? I mean the new lending that we did in November, December. So the past book is still a fixed rate. So you will start seeing at least the new businesses come at this new rate, and therefore the full benefit you won’t see at the NIMS level until the past book is matured and the new book builds up.
Nischint — Kotak Institutional Equities — Analyst
Sure. And the hike that you done last month was how much, I mean, I guess you mentioned 80 aggregate, but how much was last month?
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
Nischint, my request is, let’s not get so measured.
Nischint — Kotak Institutional Equities — Analyst
Sure, sure, sure. Fair point. Just one broad question, we calculate this ratio called repayment rate for the quarter, and basically just an interplay of your quarter-on-quarter loan growth and disbursement. And I think the sense that we got was that the repayment rate was very high last quarter. So was there any specific trend out here that a business trend out here that you would want to highlight?
Ramesh Iyer — Vice Chairman & Managing Director
No. Actually, if you see our asset book, there are two components in the asset book. So one component is of the loans that we grant to our customers, and the other asset book is, it comprises the trade advances. So the trade advance is also a function of the incoming festive season. So we have witnessed a much higher level of credit allowance as we close the second quarter. And much of that credit allowance has got utilized, because the month that followed both October as well as November, they were festive months. And these advances have now got converted into retail, and therefore that trade advance level has now seen a much more normalized level by end of this quarter. So that’s how probably you should see — you should look at it. So if you can look at the June to December, maybe that could be a better way to look at it instead of looking at it from September or June to September and then September to December.
Nischint — Kotak Institutional Equities — Analyst
Sure. And fair to say that a part of the Jan business would also have fair amount of trade advances?
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
So it’s a normalized level of — sorry. No, no, no, no. What we published as disbursements if you’re talking about our monthly —
Ramesh Iyer — Vice Chairman & Managing Director
Today’s — yeah, today’s disclosure, yeah.
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
Stock exchanges, no, those are the loans that we enclose to our customers.
Nischint — Kotak Institutional Equities — Analyst
Got it.
Ramesh Iyer — Vice Chairman & Managing Director
So pure disbursements.
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
That does not have trade advances.
Ramesh Iyer — Vice Chairman & Managing Director
It doesn’t have trade advances.
Nischint — Kotak Institutional Equities — Analyst
Okay. Got it. Got it. Thanks. Thanks and all the best.
Ramesh Iyer — Vice Chairman & Managing Director
Thank you, Nischint.
Operator
Thank you. Next question is from the line of Sanket Chheda from DAM Capital Advisors. Please go ahead.
Sanket Chheda — DAM Capital Advisors — Analyst
Yeah. Hi sir. Congrats on a very good set of numbers. My question was on the PCR that impact we have, so when — if we include the impact of the new classification and also the PCR is currently at about 45%, 46% versus pre-COVID level that we used to have of about 30%, 35%. So moving ahead as you are highlighting that cash flows are improving and as far as the new NPA information would is concerned, no, you don’t see any meaningful in the coming times. So whether we will move back to 30%, 35% level over the cost of certain next price quarters or how do you see that particularly on the PCR cover that we have?
Ramesh Iyer — Vice Chairman & Managing Director
No. So this is a formula-driven approach, right? I mean, it is not about us doing a 60% provision or bringing down to 35%. It is a historic four-year data, which is formula-driven. And you will see as each year passed away, and a better year comes into play. You’ll start seeing this getting corrected.
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
And just to add to what Mr. Iyer mentioned, you would recollect that we carried during the COVID period an overlay, but today the overlay is zero. So everything is completely driven by the ECL model that we have adopted.
Sanket Chheda — DAM Capital Advisors — Analyst
Okay. Okay. So the formula-driven thing adds the subjectivity of good times and bad times like that?
Ramesh Iyer — Vice Chairman & Managing Director
No. So if you look at the ECL model, ECL model is, in our case at least is completely a function of the historical trend of the collection behavior of our customers. So far as the stage 1 and stage 2 provisions are concerned, yes, it is also based on a projection of the future, but which also are — is also completely based on external indicator. So the judge — the management judgment, I would say is very, very minimal. And just to one more correction, I don’t know where you picked up this number of 45%, 46%, but our stage 3 PCR is 59%.
Sanket Chheda — DAM Capital Advisors — Analyst
Oh, stage 3 is 59% — INR77 crore, which under RBI amendment will get added to the stage 3. Then the stage 3 moves to seven points. And then corresponding whatever net NPA we have basis that the number was coming to 44%, 45%?
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
Yeah. But I don’t know, but maybe in that case you will also have to add to the provisions, the provisions that were already carrying in stage 1 and stage 2 for this — for the — for this hierarch NPA, which is otherwise not getting classified as gross stage 3. So if you’ve done that, it is fine, but if you need any more clarification —
Ramesh Iyer — Vice Chairman & Managing Director
Yeah, a small addition would be there. Yeah.
Sanket Chheda — DAM Capital Advisors — Analyst
Yeah. No problem. No problem.
Operator
Sanket, do you have any follow up question?
Sanket Chheda — DAM Capital Advisors — Analyst
No, no, that’s it.
Operator
Thank you. The next question is from the line of Bhuvnesh Garg from Investec Capital. Please go ahead.
Bhuvnesh Garg — Investec Capital — Analyst
Yeah. Hi sir. Thank you for the opportunity. So two, three questions from my side. Firstly, on leasing business, just want to know what kind of ROA and ROE we are targeting from this business?
Raul Rebello — Chief Operating Officer, Core Business
Yeah. So this is Raul here. So our leasing business, as you know, we mentioned that we are doing a B2B business, which is largely lending under the employee lease program. And our average pricing that we get over here, I mean, we aim for a 12% plus, we have to play it as per corporate. I don’t think we disclose product-wise ROA, so I will refrain from that. But we compete with a couple of players in the market and basis, every — every deal we evaluate and we price it accordingly. It’s a growing business and for us, it’s a strategic business in terms of how we are diversifying also from the core.
Bhuvnesh Garg — Investec Capital — Analyst
Got it, sir. My second question is on your other opex, we see sharp decline in your other opex Q-o-Q. Just want to know what was the reason for this?
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
Yeah, yeah. So there are two reasons — two reasons for it. So you would recollect that we have taken onboard or taken on payroll some of the resources that were earlier part of our outsourced payroll. So therefore, I would say, it’s a contract between the employee cost line item and other opex line item. And the other key reason is that because during the third quarter, we were not doing any repositions using third-party reposition agencies. Those related costs were also not incurred during Q3. And that’s primarily reason why you would see the Y-o-Y increase in the other opex at a very lower number of 1.1%.
Bhuvnesh Garg — Investec Capital — Analyst
Got it, sir. And currently on your yield, so if I look at your yield, it seems to be up by 50, 60 bps Q-o-Q. So just want to understand what drove that increase given that you mentioned 80 bps height that you took pin the number, and then also you are moving towards higher than more quality customer where your yield could have been lower. So just want to understand that what drove this 50, 60 bps to increase in it?
Ramesh Iyer — Vice Chairman & Managing Director
So we have be presume that you are referring to Slide 22, wherein you are saying the total loan income to average business asset has moved up from 13.4% to 13.7%. So it would definitely reflect the yield increases that we have taken in the third quarter. And that is one of the primary reasons, why it is so. And there is product mix also. To the extent, we are able to do more business from high yielding products. So to that extent the yields will be better.
Bhuvnesh Garg — Investec Capital — Analyst
Got it, sir. Yeah. That’s it from my side. Thank you and all the best.
Operator
Thank you. Next question is from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.
Shubhranshu Mishra — PhillipCapital — Analyst
Good evening, sir. Thank you for the opportunity and hearted congratulations to Raul on the new appointment. First one is, if we can specify the rollback rates in stage 1 and stage 2, this quarter versus the last quarter? That is it first. Second is, if we can speak on housing finance business, I know there was a previous participant he spoke on this. However, it seems like a capital mass allocation for the longest period of time we have seen sticky gross NPAs of almost 16%, in the last 10 years barely around total cumulative PAT of INR1,000 crore. So why are we running this business at all, sir? Do you think that it’s a misallocation of capital? Would it be feasible if we can just hide this off at a point in time? Thanks.
Ramesh Iyer — Vice Chairman & Managing Director
So maybe we’ll take your input and review, but you should look at it as, definitely, as last five year out of the 10 year has been most challenging. And what rural went through right from demonetization to the COVID situation. And we’ve chosen to work with that customer segment, who are taking this loans of INR1 lakh and INR1.5 lakh for house improvement, room addition and they were doing pretty well in the first five years, it just that this disruption caused them enormous pain. And we have realized that this is not the segment that we should go after. But having built that franchise and which is what I was explaining, that there is enough opportunity to move this a little up in the segment and go up to a INR2 lakh, INR5 lakh kind of a segment in rural, which is more affluent in nature and we don’t want to miss that opportunity having invested so much of time and money there. We do see a turnaround clearly possible.
The other thing we should look at is, I said, we are changing the mix and about 40%, 50% of the future book will come from affordable housing space, which again, is an INR8 lakh, INR10 lakh, INR12 lakh kind of a product we are looking at maybe up to INR15 lakh, and that would come at a very different quality and the e-level and the two together is the real change in strategy that we are looking for the housing business. And you are right that for a little longer period of time that we have not been able to generate sufficient profit, but we do see that the next three years you will see a dramatic change in this business.
Vivek Karve — Chief Financial Officer of the Company and Group Financial Services Sector
Coming to your first question, I think you wanted to know about the rollback rates. As [Speech Overlap] dynamic situation, because there could be roll back and roll forward. But if I ready to give you a rough indication, if you look at again, Slide number 25 of our investor deck, you would see that, what was 83.5% as of September 30 has now improved to 85.5%, 85.7% in fact for stage 1 as of 31 December. And this is a direction upwards so on stage 1, which is the good news for us, at the same time, stage 2 has come down from 9.7% to 8.4%, and stage 3 has come down from 6.7% to 5.9%. So that should give you a fair bit of an indication on the rollbacks or roll forwards.
Shubhranshu Mishra — PhillipCapital — Analyst
Sure, sir. Thank you so much. Best of luck.
Ramesh Iyer — Vice Chairman & Managing Director
Thank you. Thank you so much.
Operator
Thank you very much. As there are no further questions, I will now hand the conference over to Anuj Singla for closing comments.
Anuj Singla — Bank of America Securities — Analyst
Yeah, thanks, Nirav. Mr. Iyer, any closing comments before we conclude?
Ramesh Iyer — Vice Chairman & Managing Director
Not really, but except that we feel extremely happy and energetic with what we see in the rural market. And I think now all the pieces are in place for us to really capitalize on that emerging opportunity. And as we’ve demonstrated in the last few quarters we do believe that run up to 2025, the strategy that we have committed. We are on course for that. Thank you everyone for participating. Thank you very much.
Anuj Singla — Bank of America Securities — Analyst
Thank you, sir. Nirav, back to you.
Operator
[Operator Closing Remarks]