MAS Financial Services Ltd (MASFIN) Q2 FY23 Earnings Concall Transcript

MAS Financial Services Ltd (NSE: MASFIN) Q2 FY23 Earnings Concall dated Nov. 03, 2022

Corporate Participants:

Mr. Kamlesh Gandhi — Chairman and Managing Director

Mrs. Darshana Pandya — Director and Chief Executive Officer

MR. Ankit Jain — Chief Financial Officer

Analysts:

Abhijit Tibrewal — Equity Research Analyst

Hardik Doshi — White Whale Partners — Analyst

Rahul Jain — Credence Wealth — Analyst

Harshvardhan Agrawal — IDFC — Analyst

Madhuchanda Dey — Moneycontrol — Analyst

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Shubhranshu Mishra — Phillip Capital — Analyst

Deepak Sonawane — Haitong Securities — Analyst

Himanshu Upadhyay — O3 Capital — Analyst

Sarvesh Gupta — Maximal Capital — Analyst

Ankit Gupta — Bamboo Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to MAS Financial Q2 and H1 FY23 Earnings Conference Call, hosted by Motilal Oswal Financial Services Limited. [Operator Instructions]

I now hand the conference over to Mr. Abhijit everyone from Motilal Oswal Financial Services Limited. Thank you and over to you, sir.

Abhijit Tibrewal — Equity Research Analyst

Yes, thanks, Vivian. Good afternoon, everyone. Welcome to the Q2 FY23 Earnings Call of MAS Financial. We have with us today the management team, represented by Mr. Kamlesh Gandhi, Chairman and Managing Director; Mrs. Darshana Pandya, Director and CEO; and Mr. Ankit Jain, Chief Financial Officer; and other members of the senior management team. On behalf of Motilal Oswal, we thank the management for giving us this opportunity to host their earnings call today.

Let me now hand over the virtual mic to Mr. Gandhi, post his opening remark, we will open up the floor for Q&A. Thank you and over to you, sir.

Mr. Kamlesh Gandhi — Chairman and Managing Director

Thank you, Abhijit and good evening to all of you. I’m very happy to connect to all of you once again. And before we start, I wish all of you a very Happy New Year in Gujarat, post Diwali, there’s the beginning of the new year. So I wish all of you a very Happy New Year, happy prosperous and healthy New Year.

While the results are in front of you and all of you must have gone through that, I just give you the heads up on what we did in Q2. As you are aware that we could register a very robust financial performance resulting into a 30% viral light growth in AUM in profitability close to 27%, and maintaining the quality of the assets, high capital adequacy of 34%, and a good liquidity. So all around, it was a performance on which we are used to where all these two and a half decade. If you plot our performance over the last two and a half decades, we’re varying back to COVID year where we had a calibrated approach on growth, and in the hindsight we all agree that rightly so. We have registered a growth of 25% plus and this quarter was no different post the normalization.

So with this strong quarter, it gives us more confidence on the fundamentals what we have followed over all these two and a half decades, that we focus on the qualities, the asset quality, predicting of extending credit where it is due, the understanding that the markets are there, will be there. It is very important for us to be very strong and to be there. And the consistent and the strong customer for all these two and a half decades is a function of following these basic fundamentals.

If you see the growth, it was across all the product lines we operate, while Darshana will do the number crunching for you, but across all the product lines that is [Indecipherable] commercial vehicle loan and the pasting the salary for a loan which is a very wide segment to be sold. All those segments that is in the good growth this quarter, resulting into an overall diverse fine growth of 53% YOY and AUM growth of close to 30.13% this year.

On the distribution front, we continue to expand our distribution that will close to around 150 branches and 6,250 scientists, and also this our strong network of NGS is more than 150 of them. They contributed very positively and efficiently during the quarter with mix between 60% of the portfolio being through our direct retail distribution and the 40% annual distribution, which is also working very, very efficiently. And as I’ve always said, that this shift and mix of direct versus the retail as a channel is a function of the growth in our retail and distribution. And we have very high regard, but we are very high confidence in that distribution channel through our NBFCs also.

On the technology front, I think it’s very important to share with you that we are in an advanced stage of digitizing work processes. Within next quarter or two, we’ll be seeing all the products thing and digitized processing, bringing about more efficiencies and that will bring about better customer services and at the same time, will help us to have a better control on the assets we create, along with the frame text of the country that result the complete understanding of the working of the technology and how we should from time to time adapt and adopt the theme.

In terms of the team, which is very responsive, an integral part of any organization. As you know that we have a very strong and a solid top and a middle management team accompanied by work was super handed by people working with us for more than five years, that as I talked to you, the team currently is in excess of 2,200 and it will get further strengthened as we grow from quarter to quarter.

If I talk about the housing finance subsidiary, this quarter, I’m happy to report a growth of AUM by 28%, 27% on a YOY basis. And as I always, absolutely ever shown the confidence that this company will also contribute very meaningfully going forward. And we see this company growing anywhere between 25 to 30% in the coming quarters. So all in all, we are back on the track, also calibrated approach for COVID. If you see right from Q3 last year, we started growing and now we have full-pledged growth while maintaining the fundamentals of asset quality capitalization level.

Currently we are at around more than 24% of capital adequacy. And it is very important to note that the high level of capital adequacy is based on a non-diluted growth, whereby the contribution to the capital has been mainly through internal accruals, and as we completed five years for capital raced through IPO, more than doubled our AUM profitability and all important all the important parameters, but it has been fuelled through internal accruals.

And with the current business models, we are very confident that we will be in a position to grow anywhere between 20 to 25%. Going forward if there is an opportunity that way we could do it in Q1 and Q2, it can be even more, but we are very strong enablers and our conviction is based on those enablers, namely the self-propelling capital model, the [Indecipherable] expertise the large market and last but not the least, the attitude and aptitude of a team of being a learning organization and be confident but never be complacent.

So all in all, we are happy to report this number and we are seeing very strong traction for the coming quarter also and we are very confident of a very strong performance coming quarter two. With this, I would like to hand over to the Darshana to provide the numbers are in front of you, but if you can do the headline numbers, that if you can be the one who can, once again refresh those numbers.

Over to you, Darshana.

Mrs. Darshana Pandya — Director and Chief Executive Officer

Yeah, sure. Thank you. Good evening, everyone. I’m happy to connect with all of you once again. To start with as shared by Kamlesh, that we can see the growth across the product. So if we look at the AUM, overall AUM has increased by 30.13%. And if we look at the product configuration, microenterprise loan has increased by 24.07% that is from 2,893 to 3,590 crore. SME loans has increased by 33.04 % from 2,000 crore to 2,672 crore. [Indecipherable] loan has increased by 30.16% from 361 crore to 470 crore. Commercial vehicle loan, there is a growth of 19.91% from 228 crore to 273 crore. As salary Personal loan is a new segment of the portfolio as on September 22 is 133 crore.

If you look at the income and DBT type figure, total income on Q1 basis increased by 46.73% from 156 crore to 230 crore. DBT has increased by 27%, that is from 51 crore to three likes to 65 crore. Titles increased by 28% from 38 crore to 49.07 crore. If you look at the half yearly figures quarterly performance, income has increased by year also it has increased by 40.33% from 305 crore to 428 crore. DBT has increased by 26.35% from 101 crore to 127 crore, and price has increased by 27.2% from 75% growth to 95.9%.

Regarding the quality of the assets, because maintain the quality during this quarter also to point the growth stage at 32.26% and [Indecipherable] asset as on September is 1.60% as compared to 2.27 at growth stage three and 1.63% next stage three as of June 22. And we still hold around.37% of our on book asset as our management overlay.

So defaults regarding the parent company now coming to the housing finance performance. [Indecipherable] has increased by a shared — as it has increased by 27.38% from 300 crore to 382 crore. Total income has increased on quarterly basis that has increased by 13.87% from 9 crore [Indecipherable]. Profit before tax has increased by 13% from one crore 89 lakhs to 2 crore 13 lakhs. Price has increased by 13.47% from one crore 48 lakhs to one crore 68 lakhs. On half yearly basis, the numbers are a total income has increased by 7.07% from 18 crore to 19.39 crore. DBT has increased by 20%,that is from 2 crore 95 lakhs to 3 crore 64 lakhs. Price has increased by 19.2% from two crore 31 lakhs to two crore 75 lakhs.

Here also the silver line is the quality of the portfolio as on September of a gross rate HDF that is.59% and [Indecipherable] as compared to.54% growth stage three and 1.8% lakhs as of Jun 22. And here also, we hold around.98% of our overall book asset and the management overhead. This was regarding the performance of the company.

Now I’ll request Ankit to take you to the particular liability management during the process.

MR. Ankit Jain — Chief Financial Officer

On the liability management company, servicing liability management was able to maintain the average liquidity buffer of around 600 crore this quarter and unapplied cash is cashless society of around 500 crore. In addition, the company has sanctioned on hand to the tune of rupees 2000 crore with under various facilities in the form of term loan, the direct assignment calling, etc. In the last quarter, the company did around the bid 255 crore direct assignment [Indecipherable]. The company has more than 1100 crore sanctioned on hand, which was utilized during the quarter and the coming quarters. The company is to maintain around 20% to 25% of the year as our book directly coming in [Indecipherable]. In the last quarter completed around two episodes cycle of colony transition, [Indecipherable] with three things namely, Bank of India, Bank of Maharashtra, and essentially South Indian Bank. Although we are in process of colony tie up few other bank, which we see as a win-win proposal for both the entity.

Company has captured facility of around 1,825 crore, out of it complementing utilize the level of 65% to 70% and that kind of scattered liquidity buffer. We successfully rolled over around 12.50 crore part time working capital this quarter, which is a sub limit to capex limit. It is around 732 crore download during the quarter. This helped us to further strengthen the asset liability matching pattern. We further have more than surrendered crore sanction on hand which will live during the current year.

Also we have assessed the structural liquidity of the quarter for the period ended September 2022. And based on the assessment, there is no negative impact on the liquidity and the cap all the community buckets remain positive. [Indecipherable] at 21.24% with year one capital of 21.2 crore and debt equity of 4.2 this time. Also to add on with around up 25 crore subordinated debt during the quarter, disqualified the year to capital for the company, and thereby further spending the capital structure.

Lastly, the cost of borrowing for the quarter has remained stable at 8.3%. In the current increasing rate scenario, we are trying our best to hold on at a comfortable level. So, this is under Kaplan laboratory management and I will give a better advice to convince a closing remark and then we can open it up for Q&A.

Abhijit Tibrewal — Equity Research Analyst

Thank you. And now, we are open for taking questions for better understanding.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session.[Operator Instructions] The first question is from the line of Hardik Doshi from White Whale Partners. Kindly proceed.

Hardik Doshi — White Whale Partners — Analyst

Hi, can you hear me?

Operator

Yes, sir. We can hear you.

Hardik Doshi — White Whale Partners — Analyst

Yeah. Thank you. Hi. Congratulations on good term numbers. I just wanted to ask about the operating expense ratio, right. It’s gone from 1.5% to 2.4%. And then the second part of it is the expansion of the branches and employees, etc. How much of this movement of almost 90 basis points, right. How much of it is timing and will be gradually absorbed over a period of time? And how much of it is like maybe permanent in nature given that you want to move more of the assets on book, was in your book and also the entire context, etc.?

Mr. Kamlesh Gandhi — Chairman and Managing Director

So on that, we always maintained that our focus has been on ROA, which is a function of the aid we take and then the cost of the funds and the costs of operations and economic costs. The cost of operations will depend upon the growth in various product segments what we are into, and also the form of distribution. As I shared in the beginning that we increase our branches, we increased our distribution to 6200 titles, but at the same time, that increases our yield when we direct, when we work directly as compared to our NTSC distribution channel.

So the right the right way to answer your question is that our focus will be to maintain ROA is anywhere between 2.15% to 3.25%. And the operational costs will depend upon the growth in the various products and distribution model as we proceed going forward. So the ROA will reflect will reflect the real intention of the company to maintain a certain yield under certain operational costs.

Hardik Doshi — White Whale Partners — Analyst

Okay, okay. Got it. So basically, you’re saying that the increase in name is being offset by the increase in opex as a percentage of EM and so on a blended basis people up as a percentage [Indecipherable] Okay, and then this 133 crore of AUM that is on the [Indecipherable] personal loan, is that all entirely with the relationships with FinTechs or are we doing it to a branch as well. And also like, you know, can you give a profile of the salaried employees that you giving it to, a little bit more color?

Mr. Kamlesh Gandhi — Chairman and Managing Director

It’s a combination of both. Because if I take you to fundamentally interest in this product that we are all already into the major segment of the economy, the SME micro enterprise loans will cease including to two wheelers commercial vehicle, and we are also working harder to gain some momentum in this car. This was that assumption segment which we are missing since long according to us. So we are trying to take baby steps there. The portfolio, what you’ll see is a combination of both through our past with FinTechs and through our branches.

Hardik Doshi — White Whale Partners — Analyst

Got it. Got it. And then these are salaried private sector salary personal loans, right?

Mr. Kamlesh Gandhi — Chairman and Managing Director

Yes. We have shared that in briefly in our presentation, that basically these are the employees belonging to the approved companies having a permanent domicile and based on the repayment capacity, the loads are extended.

Hardik Doshi — White Whale Partners — Analyst

Got it. Got it. Thanks so much, and congratulations again.

Mr. Kamlesh Gandhi — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Rahul Jain from Credence Wealth. Kindly proceed.

Rahul Jain — Credence Wealth — Analyst

Hello. Am I audible?

Operator

Yes, sir. We can hear you.

Rahul Jain — Credence Wealth — Analyst

Sure. Congratulations on a good performance. And thanks for the opportunity. Sir, just one, just trying to understand the salary part more in details. You have mentioned in your PPT about approved companies. So typically, two things. There are this loans going in terms of approved companies would mean what? And this is for what purpose and secondly, how do you plan to grow this book over the next 12 to 24 months? How do you plan to grow this book further?

Mr. Kamlesh Gandhi — Chairman and Managing Director

I told were taking the smaller sizes, well the way we do for any product. So we are not bagged up percentages or contribution of this product towards total AUM, we like to discover that. We are not bagged it. So it all depends upon what is the portfolio quality we get and what is the opportunity to get in the market. On the approved companies, there are certain parameters on which we will approve a company such as their revenue, that the size of the organization in terms of the employees employed was their compliance. They’re being paid their compliance on the basic parameters. So we have few, five, seven basic parameters on which we would add to our company and in those companies, the employees working in those companies only will be extradited.

Rahul Jain — Credence Wealth — Analyst

These are typically towards small ticket because the average ticket size is roughly around 24,000?

Mr. Kamlesh Gandhi — Chairman and Managing Director

So this is not like that only as I told that, when we start, we started in a very calibrated manner. So the ticket size will also increase over a period of time as they gain the confidence and better understanding. But as of now, the ticket size will gradually increase and the current ticket sales is also a function of sourcing or business through certain FinTechs where the ticket size is small.

Rahul Jain — Credence Wealth — Analyst

And sir, out of the EU of 7000 crore today, how much of it is to the FinTechs?

Mr. Kamlesh Gandhi — Chairman and Managing Director

The last quarter, we did a disbursement of closer 240 growth rate to category 30, 235 crore through FinTech and [Indecipherable] in terms of AUM FinTech contributes less than 10% [Indecipherable] 8.78% of the total EU.

Rahul Jain — Credence Wealth — Analyst

Sure. One last question on the AUM segment. So do we have done exceedingly well in the current quarter, but the series continues to lag behind. Anything specific to read into both of these things that you will have is doing very well and TVs continue to not to do well?

Mr. Kamlesh Gandhi — Chairman and Managing Director

I think that two different products altogether. So with our growth really has to grow is not given. It all depends upon the opportunity we get in the ground level and our team and origination team has systems and operations and the confidence we get at various market to extend more loans. This is a function of so many parameters, but going forward, it was like you medium term visa and we say that this basically contributes around 10 to 11% currently, so this contributes around 20% [Indecipherable]

Rahul Jain — Credence Wealth — Analyst

Hello. And just one last question, sir. In the growing interest rate scenario, how do we plan to or what is your confidence level on maintaining names?

Mr. Kamlesh Gandhi — Chairman and Managing Director

There are two aspects to it, that our capability is to get the moorings at a competitive rate despite the fact that the rates have increased, and secondly your capability to pass it on to the borrower. So as I shared last time also that coming is on the second point that we have 70% to 75% of the loan that potentially we can pass on the interest rate hike to the borrower. And in terms of our borrowing, majority of our borrowing is NCLR linked, so we get a benefit of a lag effect in the interest in the rate, and also because of our electronic track record. We can also bargain on the premiums that the bank has over NCLR from time to time. So with all these factors and given the intent and the track record and our capabilities to pass on to the borrowers, I think we are pretty confident of maintaining the means in the medium to long term.

Rahul Jain — Credence Wealth — Analyst

Thank you so much, sir and wish you all the best. Thank you so much.

Operator

Thank you. The next question is from the line of Harshvardhan Agrawal from IDFC. Kindly proceed.

Harshvardhan Agrawal — IDFC — Analyst

Hi, sir. Thanks for the opportunity. Sir, I just wanted to understand among the segments that we record, which segments have floating interest rate loans and which are fixed one? And a connected question to that is how much interest rates may have increased in that floating book and what’s the frequency of repricing?

Mr. Kamlesh Gandhi — Chairman and Managing Director

We talked about 70% is a potentiality to convert bearing too high, higher rates. That’s practically bearing, I think [Indecipherable]

Mrs. Darshana Pandya — Director and Chief Executive Officer

[Indecipherable]

Mr. Kamlesh Gandhi — Chairman and Managing Director

[Indecipherable] enabling agreement with the borrower to increase the rate, so you can configure around. Conservatively I’m talking about 70%, 75% of the borrowers that we can potentially have a floating rate and from time to time, we have raised the rate on an average basis raised by 0.3%.

Harshvardhan Agrawal — IDFC — Analyst

This 30 basis point rate increased, you asked three months or over the past six months?

Mr. Kamlesh Gandhi — Chairman and Managing Director

Overall increase, there is one reported rise of 1.9% from June onwards or May onwards, during those periods. The conversating with the recorded right period we have increased [Indecipherable]

Harshvardhan Agrawal — IDFC — Analyst

Right. And sir, one last thing that I wanted to understand was, how does the repricing across? So let’s just say you decide that for a particular loan the interest rate would be increased today. So is it applicable for the next year? No, which is next month or it would be like after a quarter or some time period?

Mr. Kamlesh Gandhi — Chairman and Managing Director

There is a cut-off date. Let’s say, for example, last time when we increased, it was effective first October. So on the loan outstanding from first October, those rates will increase.

Harshvardhan Agrawal — IDFC — Analyst

Because first of October is also started the quarter. So is it fair to assume that the cut-off dates are starting to quarter?

Mr. Kamlesh Gandhi — Chairman and Managing Director

It all depends upon to our maximum effort is to absorb those rate and don’t pass it on. So it all depends upon what are the rates rise be getting done, so that we don’t fix the timing of a quarter or a month. It all depends upon how we fare on raising the liability and how we could manage not to get at the interest rate. If we would manage to get it to increase rate, we might absorb it for a longer period. But as for this, better how we can be stable on the interest rate to the borrower.

Harshvardhan Agrawal — IDFC — Analyst

Sure. Sir, just one last thing that I wanted to understand, you said, we have taken a 30 basis point increase in interest rate over the last six months. So maybe from June onwards, we have taken 30 basis point. Is that correct?

Mr. Kamlesh Gandhi — Chairman and Managing Director

Yeah.

Harshvardhan Agrawal — IDFC — Analyst

Sir, because if I were to look at the calculated year, they have increased by a higher rate. So is it because of function of our loan in growth to higher yielding, which has any salary loans or something? Just wanted to understand, but that year increase essentially [Indecipherable]

Mr. Kamlesh Gandhi — Chairman and Managing Director

That 30 basis point was not in one way, it was a different points of time, depending upon the product segment and the borrower. It will not be fair to extrapolate very simply. But overall, the average is what we are given is zero point [Indecipherable].

Harshvardhan Agrawal — IDFC — Analyst

Okay, sir. I’ll get back in the queue. Thanks a lot, sir.

Operator

Thank you. The next question is from the line of Madhuchanda Dey from Moneycontrol. Kindly proceed.

Madhuchanda Dey — Moneycontrol — Analyst

Hi. Thanks, sir, for taking my question and congratulations on very strong quarter. I have a couple of questions. The first one is as you share the disbursement ticker of 2256 crore of which you mentioned about 235 crore shooting 10, so if you could just elaborate on the other channels in this disbursement made?

Mr. Kamlesh Gandhi — Chairman and Managing Director

What did you say?

Madhuchanda Dey — Moneycontrol — Analyst

To have every day message channel virtual and BST partners, that it was meant, totally augmented is [Indecipherable] and to have a direct channel gets 1380 crore. And the rest was to the — no, so 230 crore is a part of this 1379 crore.

Mrs. Darshana Pandya — Director and Chief Executive Officer

Okay. Okay, got it. Got it man.

Madhuchanda Dey — Moneycontrol — Analyst

My second question is a bit of a reputation if my understanding is correct. You mentioned that of course the opex has increased to now to a level of more than 2% of total assets. Is this the trajectory going to be for the foreseeable future, given that the businesses — Hello?

Mr. Kamlesh Gandhi — Chairman and Managing Director

So that is the trajectory and once again, I’d like to reiterate that our focus will be on ROA. So the just to give us a heads up on trajectory, it will be in this range or even higher. But depending upon the retail assets we create, it will not impact our ROA.

Madhuchanda Dey — Moneycontrol — Analyst

Okay, I got it. The focus will be to maintain that 2.75 to 2.25 [Indecipherable]

Mr. Kamlesh Gandhi — Chairman and Managing Director

Right.

Madhuchanda Dey — Moneycontrol — Analyst

Right, yeah. Got it, sir. So my third question is on the name. You have managed to maintain the name despite the rising cost of borrowing and what are the levers which are available at your end, which gives you confidence that even should the interest rate rise from here on, you will be comfortable in maintaining them at this level?

Mr. Kamlesh Gandhi — Chairman and Managing Director

So, if we take both sides of the balance sheet that one is how we raise the fund. So majority of the funds we raise is MPLS back, so we get a time lag impact of the MPLS triggers, whereby they can raise the rate that’s very strong track record, whereby we can impress upon the bank to reduce the premiums what they normally used to charge. So on the liability side, we’ll try to be as efficient and we’d like to prolong those impact of the interest rate hike as much as possible.

This is on the liability side and on the asset side, as I shared, we have more than 70% of the portfolio whereby in a situation where it is inevitable for us to raise the rate to maintain the given means, we are in a position to do that. And as I shared with the earlier queries that we raised the 0.3% during the duration of the rate hikes of total 1.9% in the reporting. So these are the strong enablers on the asset to the liability side, which uses a reasonable confidence to maintain the mean and we demonstrated that in Q1 and Q2 both.

Madhuchanda Dey — Moneycontrol — Analyst

Sir, a very last question. It’s a very general question on the long term. We are increasingly seeing banks penetrating deep into the so called current banking and getting into the [Indecipherable] which was originally a forte of NBSP likely. So how do you comment on that and how do you see your business shaping up in light of this competition?

Mr. Kamlesh Gandhi — Chairman and Managing Director

Okay. We are blessed to be in a country which has enormous potentiality. When we talk about [Indecipherable] banking or rural banking and BFC, or even the regional rural banks or local area banks, whatever you call it in the current hour top. Altogether, still not at a scale to satisfy the [Indecipherable] exclusions that this country has. And when you’re talking about extending credit in the segment where we work very actively, we all are talking about just that top 15% to 20% of the segment year, 80% has to see the light of the day on the formal credit.

So what we have seen through our experience that more the players the better it is in terms of awareness and it has to expand the market size, and at the same time, the sensitivity of the dynamics of the business also increases among the lenders. So there are multiple advantages of more players being entering the area where the market is huge. And having said that, we are a niche player over all these years. We have high level of efficiencies. So we do have the where we tend to send a competition also, but I think population is still two years or a decade away, where it will be just the played on the interest rate. Currently, it is all about how you identify your demography. How do you identify your customers? How you give them better services and last but not the least, how you can maintain the quality of assets while extending the loans and bringing millions under financial inclusion. So my take on this is that more the players the better it is for companies like us.

Madhuchanda Dey — Moneycontrol — Analyst

Thank you very much, sir, for patiently answering all my questions and all the best.

Mr. Kamlesh Gandhi — Chairman and Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Amarnath Bhakat from Ministry of Finance, Oman. Kindly proceed.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Yeah, hi, sir. First of all, thanks to perform better than what you have predicted in the last two quarters. You always say 20% – 25%, but actuals are coming 30%, way above than what you predicted before. I hope that continue. I have two sets of questions. First of all, we know this Reserve Bank of India in the last few months itself increased by cost increase by 1.9. And you say, it is all your borrowing most of them are NCLR based. Then how they file 22 your cost of borrowing is around 8.75. By the end of Q2, it’s just 8.83, just few basis point increase in your cost of borrowing. How it has actually happened?

Mr. Kamlesh Gandhi — Chairman and Managing Director

Yeah, they shared when we have a NCLR bank borrowing there are reset date, that it is one year NCLR are borrowing in six months and still borrowing. So the rates are based back to NCLR and that [Indecipherable] So, the very same tries we have had the advantage as I shared with him earlier query also, that we have an advantage to prolong those rising interest rate because of that period triggers. Say for example, I have majority of them on a one year NCLR. So the years they can raise the rate is after one year. So this is the advantage of having an NCLR based borrowing. It just remains for a very sustained period of time, then our rate will also increase.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

That means, am I understanding that this is at the moment is not reflecting because you got this advantage. Over say two quarters down the line, which has been not increased, now it will come to increase in the next one quarter or two quarter down the line and your cost of borrowing will proportionately increase more?

Mr. Kamlesh Gandhi — Chairman and Managing Director

As I shared by [Indecipherable] if there is a sustained increase, then definitely we are also no exception from this cycle. So once like the x increases on a sustained basis, our rates will also go up. But during that period, we’ll have a lot of opportunities to streamline our liability and manage your liability more efficiently. So as to have the interest rate within the given target [Indecipherable]

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Sir, this is something very exceptional happened at your company compared to the similar size NBFC, what we have seen the result there so far. Anyway, my second light of the question is, now, time gap between increase of your cost of borrowing and increase of your interest rate for your customers. Is there a gap that means your liability costs come at a later stage, whereas you increase the cost of your borrowing to the others at faster space and that gap generally give you a better name for the sub-period of time.

Mr. Kamlesh Gandhi — Chairman and Managing Director

[Indecipherable] increase on an average basis around 0.3% for our borrower. So, [Indecipherable] almost equivalent to the rates we got on the liability side. So as such, it is not a pleasant experience with the customer to raise at least in the retail segment to raise their rates often. Our endeavors are to have a very stable rate, but as I shared, most the time, once we reach a situation whereby it is inevitable to raise the rate, we start raising the rate. So to the extent it doesn’t hamper our needs or if it is not, if it is beyond our capabilities to absorb that given our targets of needs, we transfer those rate to the borrower. So we try to match the rise and raise the rise we get and the rise we do.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

And your unsecured loan partial, I’m sure for the last two quarters you given focus on that particular part as well. Now, as of today, what is the status means? How much of your total percentage I’m sure it is miniscule. How much of your total percentage is clearly an unsecured loan? And if you can give us some kind of an outlook that how you are seeing this unsecured part of your portfolio is growing. Will it be growing faster than the growth of your other part of the portfolio or it will be at par with that?

Mr. Kamlesh Gandhi — Chairman and Managing Director

The micro enterprise loans where the ticket size are less are majorly the unsecured loans, and the other are all secure if it is SME secured to winner is, as the name suggests is against the winner and commercially we use that against the assets, and what will home loans are the secured loans. And micro enterprise loans forms approximately 30% to 35% of our AUM configuration, and going forward, we say this configuration to be maintained in the same proportion.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

And you want to increase your leverage more than what you are now?

Operator

Sorry to interrupt, sir.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

This is the last. This is relating to that one only. Just want to know about this leverage part which has been increased quite a bit compared to anything, compared to the previous part. Is there an intention to increase the leverage more than 4.2, because this 4.2 itself is past four years or three years highest.

Mr. Kamlesh Gandhi — Chairman and Managing Director

We don’t plan to increase more than that. And it might be higher, but it is well within the industry norm and it is looked at from the angle of the capital adequacy we maintain. So under capital adequacy of 24%. The lenders are more than comfortable with this leverage. So I think they’ll be maintaining and as we grow our balance sheet size, it will not be possible for us to maintain low leverage, because that will be hurting our ROA. So I think this is an optimum leverage what you’ve reached, maybe something in the range of four to 4.5 Bank, and the capital adequacy of 24% more than 30%, we get good line of support.

Amarnath Bhakat — Ministry of Finance, Oman — Analyst

Thank you. Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Shubhranshu Mishra from Phillip Capital. Kindly proceed.

Shubhranshu Mishra — Phillip Capital — Analyst

Thank you for the opportunity, sir, and wish you a very Happy New Year. Coming to the question. Sir, the first one is on the contributions from our NBFC partners. We wanted to put this out on our PPTs earlier, wanting to understand what proportion of our AUM are we generating from our NBFC partners. Also wanted to understand in the credit cost that we have seen this quarter, what’s the write off proportion. Also, if you can talk a little bit more about our collection architecture for microenterprise loans and SME. How many people are deployed in the various geographies? What are the kind of incentives that are given? Any collection agencies as they are deployed? Thank you, sir.

Mr. Kamlesh Gandhi — Chairman and Managing Director

Happy New Year to you. We are going in the order of the questions, but the way it comes to my mind in terms of the number of persons employed at various geography will be shared offline with you by Anjit. But just to give you the fundamental topic that all our business is backed up by banking with collections and banking disbursement, so we just have to address the issues where there is dishonor of the RTGS or any ACH on time, and the number of people employed in house and through agency will be shared by you offline. The configuration I think they were mentioned in our presentation around 40% is to NBFC and 50% is through a direct channel.

Shubhranshu Mishra — Phillip Capital — Analyst

Understood, sir. Going forward, the contribution will keep falling?

Mr. Kamlesh Gandhi — Chairman and Managing Director

Yes. Well, once again, I like to reiterate that we are very happy and satisfied with both the distribution model, but the only thing is a bit bizarre retail distribution grows at a faster pace as compared to our NBFC distribution. The contribution looks more lean towards the retail distribution. And I as I see that I think on few water basis on a year or two year basis, I will see this settling anywhere between 30% to 35% through NBFC and 60% to 70% in favor of our retail distribution.

Shubhranshu Mishra — Phillip Capital — Analyst

And just one clarification, sir. The credit card separately on the PNM. That’s only from our origination. It’s not from our NBFC partners, partner with the nation. Is that correct?

Mrs. Darshana Pandya — Director and Chief Executive Officer

Credit cost you’re asking about?

Shubhranshu Mishra — Phillip Capital — Analyst

Yeah, yeah. The provision environment on financial instruments that we feel that the credit cost on the PNL.

Mr. Kamlesh Gandhi — Chairman and Managing Director

Because that is on board, because even we have to have a standard as opposing also.

Shubhranshu Mishra — Phillip Capital — Analyst

Okay.

Mr. Kamlesh Gandhi — Chairman and Managing Director

So when we talk about provisioning, it is further complex on this section.

Shubhranshu Mishra — Phillip Capital — Analyst

Right. So it’s for both on reservations as well as our NDFC partner discussion?

Mr. Kamlesh Gandhi — Chairman and Managing Director

Yeah, yeah.

Shubhranshu Mishra — Phillip Capital — Analyst

Understood, sir. And I’ll take the rest of the questions offline. Thank you.

Operator

Thank you. The next question is from the line of Deepak Sonawane from Haitong Securities. Kindly proceed.

Deepak Sonawane — Haitong Securities — Analyst

Yeah. Thank you, sir, for the opportunity. So my question have entered disbursement in quarter. As we can see that currently we dispersed around 235 crore as compared to last quarter of around 200 crore. So we have seen kind of deep id assessment. Any specific reason behind this?

Mr. Kamlesh Gandhi — Chairman and Managing Director

There was a lot of regulatory overhang. It used to say that you’re supposed to come out with the guideline, and then the guidelines coming the interpretation of guidelines and then how to structure our business in compliance with the guidelines was very important. So we took a cautious decision not to accelerate the disbursement unless we are clear on the guideline. So now the guidelines are pretty clear, there are guidelines and then queries and they were served by the RBI. So now, we are very clear on how we should conduct ourselves in terms of doing business with various FinTechs.

Deepak Sonawane — Haitong Securities — Analyst

Okay, okay, thank you, sir. Sir, what is every unit that we are offering to our customers through salary personal loans?

Mr. Kamlesh Gandhi — Chairman and Managing Director

Salary personal loans, it ranges according to the customer profile, it ranges from 14% to 19%.

Deepak Sonawane — Haitong Securities — Analyst

Okay. Sir. Last question, just day to day data keeping question from my side. If you can give us the CC asset percentage as of September for all the two wheelers, [Indecipherable] CBs, micro enterprise and SMEs, it will be great.

Mr. Kamlesh Gandhi — Chairman and Managing Director

That we will share it with you offline or if you can simply to give it to them.

Mrs. Darshana Pandya — Director and Chief Executive Officer

Yes. Just a moment. [Indecipherable] stage three percentage is 1.68 and nearly the 1.5 [Indecipherable] and CL is 4.47 around. Outstanding loan is 1.10 [Indecipherable]

Deepak Sonawane — Haitong Securities — Analyst

Okay, thank you, ma’am.

Operator

Thank you. The next question is from the line of Himanshu Upadhyay from O3 Capital. Kindly proceed.

Himanshu Upadhyay — O3 Capital — Analyst

Hello.

Operator

Yes, sir. We can hear you.

Himanshu Upadhyay — O3 Capital — Analyst

Yeah, my question sir has been replayed. I don’t have any further queries. Thank you so much.

Operator

Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Kindly proceed.

Sarvesh Gupta — Maximal Capital — Analyst

Good evening, sir, and thanks a lot for taking my question. And congratulations on a good set of numbers. So, sir, one thing which I wanted to just clarify is against the separate rise of 1.9%. So we increase the rate by around 30 basis point only. So is it sort of mean this is very different from other NBFCs, of course. So, it also lead us to getting a lot of balance transfer or something like that, you know, from our existing customers, because, you know, they would have seen that your rates are much lower than what is being offered in the market. Because obviously for the other NBFCs, you know, rates would have increased, especially in this period.

Mr. Kamlesh Gandhi — Chairman and Managing Director

The borrowers only deal with it. For them, interest sensitivity is not that high. For them getting the loans at the right time and relationships plays an important role. We are not practically [Indecipherable] are happening because of this. And at the same time for the new borrowers, the rates have already increased when what I’m talking about the rate rises of the existing borrowers or the existing borrowers, we try to maintain on an average is what I’m talking 0.3% is on an average for the whole AUM.

There might be cases where we might have raised 0.5% samples for some 0.6% depending upon the borrower profile and the basic linkers that we used to charge to them. If the basic interest rate cap is less, we had more room to increase. So we could manage on an overall basis that 0.3% and the new rates have already increased for the legacy portfolio. We did practically we would not find such as much of this opportunity in the market.

Sarvesh Gupta — Maximal Capital — Analyst

Understood and secondly sir, and now that we are almost on a 30% sort of growth trajectory, maybe ROA of around 15 odd percent. So we will be consuming capital quite fast. So are there any thoughts around equity fundraise, if not this year, then next year?

Mr. Kamlesh Gandhi — Chairman and Managing Director

Th 30% as in terms last two quarters, we still take on our global target as a company target anywhere between 20 to 25%. But because the COVID situation, we had got room in having extra capital as buffer. So we have a strong, strong traction this year to grow at 25% plus and with 25% plus growth rate, the risking it to the extent of 20% – 25% and average between 2.75% to 3%, I think will fuel our growth for at least next two, three years at the same rate.

Sarvesh Gupta — Maximal Capital — Analyst

Thank you and all the best.

Operator

Thank you. The next question is from the line of Ankit Gupta from Bamboo Capital. Kindly proceed,

Ankit Gupta — Bamboo Capital — Analyst

Thanks for the opportunity and congratulations for a good set of numbers. Sir, on cost of borrowing as human, the NCLR hasn’t set us as of now the rate hikes. Assuming you know over the next three to four quarters, when this NCLR revision tips us reduce your cost of borrowing, let’s say in Q1 or Q2 of next year?

Mr. Kamlesh Gandhi — Chairman and Managing Director

As I am telling to earlier question that if it is on a very sustained basis, we are no exception that our rate will not increase, but it will get time to create the assets accordingly. And ultimately, we will be in a position to maintain our game at the same level which we are operating right now. This is what we visualize and visualize as of now, that it is as well as that we get some time to recalibrate our assets and liabilities. But our rate might increase, but will be maybe in a position to maintain our leverage. That is what we [Indecipherable].

Ankit Gupta — Bamboo Capital — Analyst

Sir, for the new customer acquisition or for the new loan that we are sanctioning. Have we also taken this [Indecipherable] we are giving them loans at higher rate of interest.

Mr. Kamlesh Gandhi — Chairman and Managing Director

It is at higher rate because the other factoring that was the marginal cost of borrowing [Indecipherable] related. So we have to factor in that and depending upon the product and what bet the market can absorb depending upon the product. Those rates are improved.

Ankit Gupta — Bamboo Capital — Analyst

Sure, sure. And sir, I think validation talked about capital adequacy ratio, we have touched almost 24%. And we are targeting let’s see 1,000 and 10,000 crore by the end of FY24. Any plans of fundraising as of now?

Mr. Kamlesh Gandhi — Chairman and Managing Director

The way we have designed our model for up to 10,000 crore, we don’t say any requirement of fundraising preserving the capital adequate around 20% plus. And beyond that, it all depends upon the growth rate and the opportunities we get in terms of capital raise. So it is never say never to capital raise. But what point we have I’m trying to drive home is that it to grow at 20% – 25%. It will not be [Indecipherable] for us to raise capital to grow at those rate. Those will be ready to quantify to 20%- 25% and we already have a capital buffer currently. And we also have the potentiality to raise that to capital from time to time. So the combination of all those things will help us to get around 20% of capital adequacy ratio and can grow anywhere between 20 to 25.

Ankit Gupta — Bamboo Capital — Analyst

Sir, I just have one last question, if I may just [Indecipherable]. In the last two quarters, we’ve also seen significant growth in our micro enterprises loan compare and although SMEs as guided earlier continues to be the major growth driver for us. So given the current scenario, how do you see the growth in segments where we make lend to SMEs, MEL and we saw over the next year or two, how do you see the growth in all these segments panning out for us? No strategy for growth in these segments?

Mr. Kamlesh Gandhi — Chairman and Managing Director

All these small enterprises, the growth rate is pretty high, if you knew is that the two years of COVID and that is what I shared with all of you in my opening remarks that growing our AUM at around 25% plus has been our style of working on the way of working for all these two and a half decades. And the same was the function of the borrower fully [Indecipherable] So they grew in size and that gives us an opportunity to sell them and we could also continuously grow at around 20% – 25% along with that. So I think with the things normalizing, we see this enterprise is not for only a year or two, but for a very sustained period of time. We were in a position to register very healthy growth rates and at the same time they will give us good opportunity to grow along with them. This is what we have experienced over 25 years.

Ankit Gupta — Bamboo Capital — Analyst

Sure. And on the side, how do you see growth of CVS and [Indecipherable]?

Mr. Kamlesh Gandhi — Chairman and Managing Director

If we have a stable, the GDP growth of anywhere around 6% to 7%. We see it is the next year two to three years is contributing progressively from 12% to 15% to 20%. This is whatever endeavors will be. Maybe few percentage here or there or two quarters here or there. But in long term, we anticipate this to contribute around 15% to 20%.

Ankit Gupta — Bamboo Capital — Analyst

Sir, okay, okay. Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for any closing comments.

Mr. Kamlesh Gandhi — Chairman and Managing Director

Thank you, all of you. I think we are in a position to answer your question. And in case if you have further queries, you can get in touch with our IR team. And you can get the reference and I wish you all the best. Thank you for patiently hearing to us. Thank you.

Operator

Thank you.

Mrs. Darshana Pandya — Director and Chief Executive Officer

Thank you.

Abhijit Tibrewal — Equity Research Analyst

Thank you. On behalf of Mozilla Roswell Financial Services Limited that concludes this conference.

[Operator Closing Remarks]