Muthoot Finance Limited (MUTHOOTFIN) Q1 FY23 Earnings Concall Transcript

Muthoot Finance Limited (NSE: MUTHOOTFIN) Q1 FY23 Earnings Concall dated Aug. 12, 2022

Corporate Participants:

George Alexander Muthoot — Managing Director

Oommen K. Mammen — Chief Financial Officer

Analysts:

Dhawal — DSP — Analyst

Alpesh — IIFL Securities — Analyst

Ankit Patel — L&T Mutual Fund — Analyst

Piran Engineer — CLSA — Analyst

Jinu Desai — — Analyst

Abhijit Tibrewal — Motilal Oswal — Analyst

Amit Mantri — 2point2 Capital — Analyst

Vaibhav Badjatya — Honesty and Integrity — Analyst

Prakhar Agarwal — Edelweiss Securities — Analyst

Shweta Daptardar — Elara Capital — Analyst

Bunty Chawla — IDBI — Analyst

Bhuvnesh Garg — Investec Capital — Analyst

Hitesh Gulati — Haitong — Analyst

Nischint — Kotak Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Muthoot Finance Q1 FY23 Post-Results Conference Call hosted by Batlivala and Karani Securities India Private Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Sanket Chheda from Batlivala and Karani Securities India Private Limited. Thank you, and over to you, sir.

Operator

Hi, all, welcome to Muthoot Finance 1Q post-result conference call. We have with us today is the entire management team starting by George Alexander Muthoot, Alexander M. George, George M. Alexander, George M. George, Georgia M. Jacob, [Indecipherable] Alexander and the CFO, Oommen Mammen. So without further ado, I would hand over the call to the M.D. sir for opening remarks followed by which we will take up the Q&A session.

Over to you, sir.

George Alexander Muthoot — Managing Director

And our own customers will certainly come back for availing the loans even though they are not of teaser loans, because of the quality of service we offer them. At the branch level also, efforts are initiated to win back our old customers. Although our live customer base is about 50 lakh — we have live active customers of 50 lakhs, we have a customer base of more than four to five times this number who earlier transacted with us. You should be aware that we have not been opening new branches for the past two years, but recently RBI has given us permission to open 150 branches.

We have already opened a few branches in July itself and expect to complete it by October of this year. The additional business from these new branches will also help to increase the AUM in the coming quarters in this year. Overall, the yields have started improving and the AUM will also start moving upwards in the succeeding quarters.

The profit after tax for this quarter was INR802 crores, which is about 18% less than what it was in the last quarter. Probably, when these teaser rates things have all behind us, now it is behind us. New loans are being generated at the better yielding. So, we should see in the next two, three quarters things becoming back to normal or not normal — back to the old days and we should be able to see higher and yields and better performance. The same thing with regard to the AUM also, the AUM on the gold loans will also start going up probably in the next two, three quarters. We should see coming back with full vigor.

The subsidiaries have gold loan subsidy. Home Finance subsidiary has just started new lending only. It will take up — it will picked up in the days to come. The vehicle finance, Muthoot Money, also is starting to pick up. The microfinance has actually received funding from the external new private equity investors and the assets there also grown considerably in the last quarter and last year also just showing good signs of recovery.

The business in Sri Lanka is okay. There is no damage to any of the business there. The financial sector there is doing well. The branches are being opened. Business transact is transacted. Only the [Indecipherable] country risk is there. If the country risk is [Indecipherable] business there. Of course, the value of our investments depreciation in Sri Lanka would be [Technical Issues].

The Muthoot insurance brokers are running well. It has reported a very good profit last year and also this quarter. With this, with an optimistic thoughts in mind, optimistic of the future both in the profit side, as well as the AUM side, I wish to conclude that we are optimistic of [Indecipherable] and we should be doing well. Thank you. And I think I will switch over now to questions or clarifications from the investors.

Operator. Hello, hello. Are you there?

Operator

Yeah, one second sir. Could you hear us?

Questions and Answers:

Operator

Sir, I’m sorry. The operator is present. [Operator Instructions]. Our first question is from the line of Dhawal from DSP. Please go ahead.

Dhawal — DSP — Analyst

Yeah, hi, thanks for the opportunity, sir. My first question was relating to the teaser rate impact. Could you just quantify — how much would be the impact that would get reversed from the second quarter? So in a sense, sequentially how much yield improvement one should expect post the revision of the rate?

George Alexander Muthoot — Managing Director

Okay, thank you. The teaser rates we stopped in March itself and we had been asking the branches and their customers to migrate to the higher rate. And we had given them two month’s time for that and by 30th of June, all the teaser rates have been migrated to higher rates. So the impact of these lower rates is what we saw in the last quarter that has affected the yields. But then, we were able to get customers. But as far ongoing in the next quarters are concerned, we should see yields coming back to the better higher yields in this quarter that is Q2 and Q3. By Q3, we should see the things fully, fully on track.

Dhawal — DSP — Analyst

Okay. So the benefit or the normalization will happen in two parts, in Q2 and Q3. Is the understanding correct?

George Alexander Muthoot — Managing Director

Yeah. See the normalization this has happened. Now the new loans, the newer loans with newer rates should also start yielding income in the next two quarters.

Dhawal — DSP — Analyst

Understood. Sir, the second question is relating to the cost of borrowing. So on what is your expectation for the rest of the year in terms of borrowing and specifically in the next quarter? I mean how should one think about cost of borrowing.

Oommen K. Mammen — Chief Financial Officer

See, generally the borrowing cost has been going up for across all the segments, all the NBFCs with the AAA rating or a double-A plus rating. Now, we have certain legacy borrowings. Some are at lower cost and some are at higher cost. One such borrowing, which has taken at a higher cost was the first tranche of external commercial borrowing which is going to get retired in October. So once we retire that, we should get some benefit and we should see some increase in the borrowings also. So net-net, I think we should not expect a significantly higher increase in the overall cost of borrowing. But it’s very difficult to quantify at this point of time because the last — RBI has been increasing at a frequent intervals. So, it’s very difficult to quantify how much increase can happen.

George Alexander Muthoot — Managing Director

Overall, I think the barrowing cost should remain stable. That’s what — some new barrowing cost, which may go up can be offset by some of the higher legacy borrowings going off the books.

Dhawal — DSP — Analyst

Got it. Thank you, sir, and all the best.

George Alexander Muthoot — Managing Director

Thank you.

Operator

Thank you very much. Our next question is from the line of Alpesh from IIFL Securities. Please go ahead.

Alpesh — IIFL Securities — Analyst

Hi, thank you. Thank you for taking my question. Just taking forward to the Dhawal’s question, sir, just wanted to know what percentage of our portfolio was a teaser loan at the beginning of the quarter and what were the yield differential between the normal portfolio and teaser loan portfolio and what percentage of that teaser loan portfolio got shifted to the normal rate. That’s the first question.

Oommen K. Mammen — Chief Financial Officer

So, as MD sir explained, the teaser rate, we stopped in March and I know in the first quarter, the focus was on migrating these loans to higher rates. This exercise was completed as of June 30. So all these loans are at a higher rate from July 1st onwards. So, we should see that the overall yield should improve from Q2 onwards.

Alpesh — IIFL Securities — Analyst

Sir, I understand that, but I am just looking forward to some numbers so far. What was the percentage of the teaser loan portfolio at the end of March and what was the yield differential between the normal portfolio and the teaser loan portfolio? This is just to get some sense about how the yields will move going forward.

Oommen K. Mammen — Chief Financial Officer

So no, a teaser loans were a sizable segment because some are at — because we follow a rebate system, some are at slightly higher rates. Some are at the base rate. So we can’t quantify exactly what is the level of teaser rates.

George Alexander Muthoot — Managing Director

Teaser rates started at 6.9%.

Oommen K. Mammen — Chief Financial Officer

Teaser loan starts at 6.99%. That is given as a rebate for prompt payment.

Alpesh — IIFL Securities — Analyst

Okay, let me just flip that question over here. What is the yield improvement do you see for the rest of FY23 from the current levels based on your our portfolio composition?

Oommen K. Mammen — Chief Financial Officer

So, we try to maintain as spread of above 10% at all points of time. Now, this was a specific situation. It was a strategic decision, which was taken to launch the teaser rate. Now, the rates have started improving. So, which has also helped us in moving smoothly passing from the teaser rate to the higher grades. So, I think going forward, we should improve the spreads and the overall objective is to maintain a spread now above 10% for the remaining part of the year.

Alpesh — IIFL Securities — Analyst

The second question, sir. What’s your view on the competition? Some of your large peers within the NBFC space are talking about competitive intensity coming down from banks as well and they have also withdrawn some of this teaser loan as you have done. So overall, competitive intensity in the space and the related question to this, what percentage of our portfolio is related to the business purpose? It is quite [Indecipherable] if the economy is recovering, do you see growth coming back strongly or it would be a gradual improvement in your view?

George Alexander Muthoot — Managing Director

Yeah, I think the improvement will be gradual. The business has to pick up. It is not that it is going to come out all of a sudden in the jiffy. It will come back. Competition is always there. Competition has always been there. It’s now that many of the banks have just had — just in the last two, three quarters focused more on this, and that is one of the reasons why this teaser, etc., had to come in.

Now anyway, I think most of the NBFCs have stopped their teaser rates. I’m not sure about the banks, whether they have increased their rates or increase their focus. I’m not very sure. But if you say that some people are saying that the bank have stepped off the accelerator, I’m not aware of that. That’s probably.

Alpesh — IIFL Securities — Analyst

That comment was related to the NBFC not for the bank because the bank competitive intensity is still there. Okay, is this the first tranche — is this the first tranche of branch approval from the RBI for FY23 or this is the overall branch approval for the entire.

George Alexander Muthoot — Managing Director

No, we asked for some branches and we give it and once that is opened, we ask for the next set. That’s the usual practice. It is not that we go and ask for 1000 branches and then try tranche, etc. When we are for some branches, they give the approved. Then once it is open, we again go there and ask. That is the usual practice. It is only in the last two years, they did not give the approval. That’s all.

Alpesh — IIFL Securities — Analyst

Okay and just the last one from my side to the CFO sir. You mentioned the spread right, not the net interest margin. We are talking about.

Oommen K. Mammen — Chief Financial Officer

Yeah, I mentioned the spread, [Speech Overlap] higher.

Alpesh — IIFL Securities — Analyst

And when you talk about 10%, you try to achieve that is for the entire year or for the quarters to come? Because there has been a decent amount of spread compression for the first quarter. So to make up for that, the second half of the spread should be higher than that as well.

Oommen K. Mammen — Chief Financial Officer

No, I was referring to the quarters.

George Alexander Muthoot — Managing Director

Future quarters.

Alpesh — IIFL Securities — Analyst

Okay, great, thanks, and all the best, sir.

Operator

Thank you. Our next question is from the line of Ankit Patel from L&T Mutual Fund. Please go ahead.

Ankit Patel — L&T Mutual Fund — Analyst

Yeah, good evening, sir. My question was regarding the.

Operator

Sir, your voice is breaking up. Can you please adjust your connection?

Ankit Patel — L&T Mutual Fund — Analyst

Sir, please go to the next question. I’ll come back in the queue. Thanks. Sorry.

Operator

Okay, thank you. Our next question is from the line of Piran Engineer from CLSA. Please go ahead.

Piran Engineer — CLSA — Analyst

Yeah, hi, sir. Thanks for taking my question. Just a couple of things. Firstly, were there any auctions this quarter and if so, what was the quantum?

Oommen K. Mammen — Chief Financial Officer

So there was auctions. It was around INR1,334 crores.

Piran Engineer — CLSA — Analyst

Okay, fair enough. And secondly sir, I wanted to understand the teaser loans better. If I took a loan in January, wouldn’t it be for 12 months, wouldn’t it expire next year in January, like how is it run off by June?

George Alexander Muthoot — Managing Director

See all loans are given for 12 months. But of course, we always have an option to increase the length by informing the customer given him a month’s notice and that is what we have done.

Piran Engineer — CLSA — Analyst

But, is that compliant in the sense of the thought the customer has to agree to it, correct and why will the customer agrees when we locked in 7%.

George Alexander Muthoot — Managing Director

It is in the contracts sir.

Piran Engineer — CLSA — Analyst

Oh, okay. So we can change the rates at our wish.

George Alexander Muthoot — Managing Director

Yeah, yeah. But we have to inform the customer, that’s it.

Piran Engineer — CLSA — Analyst

So, sir, like, if we are given say 7% loan this January.

George Alexander Muthoot — Managing Director

Without that, we actually, we are meeting the customers and they were coming forward to because everywhere, the rates went up. They are also understanding the current [Indecipherable]. We don’t have an issue there.

Piran Engineer — CLSA — Analyst

Okay, okay. And when you say migrate into higher rate loans, you went from 7% to 10%, which is the next bucket. Is it?

George Alexander Muthoot — Managing Director

No like 10% etc., it is a higher rate backdrop, that’s all. That can be 10%, 11%, 12%, 14%, etc. So it goes to the higher range depending on various other parameters also.

Piran Engineer — CLSA — Analyst

Okay, fair enough. And just lastly, I noticed that you all have reduced liquidity after several quarters. Is this going to be like an ongoing exercise? Is it some one-off and liquidity goes back to 15% of balance sheet.

Oommen K. Mammen — Chief Financial Officer

Piran, that’s because I know all of you are pursuing me, I maintaining a higher excess liquidity. So we thought, no, we should reduce a little bit. So we try it.

George Alexander Muthoot — Managing Director

Hoping that you people will support us if there is a need.

Piran Engineer — CLSA — Analyst

Sure, sure. Okay, that’s all from my end, sir. Thank you, sir.

Operator

Thank you. Our next question is from the line of Jinu Desai [Phonetic]. Please go ahead. Mr. Desai, your line has been unmuted, can you please proceed with your question.

Jinu Desai — — Analyst

Hi, good evening, sir. Thank you for this opportunity. So, I had a reasonable question. So you are mentioning in the opening remarks that we have five million customers live with us and approx. four times of that which is around INR20 million customers, which are dormant on our book, right. Do we have any plan for and running some sort of analytics and any sort of cross sell on other products on these — on high yielding products on these set of customers from a future standby point.

George Alexander Muthoot — Managing Director

Yeah, that is the question. Fine. We have 5.4 million customers who have account with us today. That is the people who are with us on today. But, actually, our loan period, average is average about three to four months only. People take a loan. They come back after some time. That is why we say our customers, four to five times these customers have already taken a loan from us. They are laying dormant. Some of them come next month. Some of them come after six months, etc. Yes, we have actually — we have actually doing a good service through our efforts are initiated from the branch level.

Actually at the branch level to win back these customers, they can be definitely viewed for gold loans and we can also offer them the other products make a personal loan or LAP or a home loan, etc or all such loans we can offer them or a vehicle loan, we can offer them also so that they become more sticky. That was the basis on which we have done this. Of course, more than the analytics, the relationship at the branch is what we feel will bring back customers. So because we have the touch points, because we have the 5000 branches, we are able to do that directly with the customers and most of them can come to our branch and we can go and meet them also because of the branch network we have.

Of course, if we were a company with the just a few branches and lot of analytics and data and things only, probably it would have been different. But, now that we have branch, we can always make advantage of our branch. That is what we should — we would be doing in the coming daus/ We have actually I think — and the other departments to do this. The personal Loan also started. The vehicle — the home loans and loan against property also is being started. So we have more sticky customers, also the vehicle loan. So as you said, yes, we will be diving deep into these customers and probably meeting many of them because of our branch managers can go and meet them also. That is our plus point compared to others who don’t have the branch network.

Jinu Desai — — Analyst

Okay. Thank you, sir. Wish you all the best.

Operator

Thank you. Our next 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. Again coming back to that question on auctions and while you have shared the quantum of auctions, when I look at, we got 30 plus DPD, which is your Stage 2 and Stage 3, I mean if you typically used to be in that range of 1.5% to 2% before I think it’s spiked about 13% sometime around the second quarter of the last fiscal year. Now you has been kind of seeing it moderate, it has been declining for the last three quarters and has now come below 3%. So fair to assume that going forward, I mean, now the trajectory in auctions will moderate over the remaining three quarters of this fiscal year?

Oommen K. Mammen — Chief Financial Officer

Sir, please understand something. Auction is not [Technical Issues]. We gave time to the customers, even after the 12 months, even after the 30 days, 60 days, etc., who are not coming — who are not able to take, we have given sufficient time. Those are the things we auction. By auctioning, actually we don’t lose much probably a smaller part of the interest only will be reduced. Otherwise, we will get the principal as maybe 90%, 95% or 85% of the total interest we will receive. So that’s not a issue that because there is an auction, but of course, as you said what, when we had the 13% or 12%, which are you saying as DPDs etc. That was the time when we had given a lot of money to customers during the COVID time and some of the customers were unable to restart their business, probably they tried their best for the next 12 months and still there were not able to get back the money which they expected to get, that is why we kept in the auction. We auctioned it — just behind us now. We auctioned, we realized money, probably we do not lose any money. We got the interest rate, etc., that’s all behind us.

Now going forward, such type of an issue we don’t see, but if another COVID or something comes and such things come probably that is part of this business, sir. Nothing unusual, part of this business. So now we don’t have much DPD business, etc. Probably I’m not — I can’t say that after one year or two years, it is not coming again, that is only what I wanted to say. But looking at the percentage, I don’t think in the next few quarters, etc., there will be substantial auctions.

Abhijit Tibrewal — Motilal Oswal — Analyst

Okay. Sir, essentially what I was trying to understand is, well, I mean it’s known fact that we don’t lose much when auction. But it does lead to or run off or a decline in your — so, as you say, loan book — gold loan book, so what I was trying to get to is, sir. I mean monthly disbursement run rate of about INR127 billion during this quarter, which is the second best monthly run rate ever for you. And despite that, if there was a 2.4% sequential decline in gold loans. I mean I would say, what time will be attributable to either auctions or the second thing that I was trying to understand this, why you have migrated customers from teaser rate gold loans to higher interest rates. Has it kind of led to higher balance transfers to your competitors, because once you — while is during your contract like to explain, but once you migrate customers from, let’s say, 6.9%, it was teaser rate loan to let’s say 10.9%, 11.9%. Of course, there can be a balance transfers that this customers might do to your competitors. So we do you see something like this. I mean, especially during the month of July.

Oommen K. Mammen — Chief Financial Officer

No, sir. There is nothing like people coming to do this. And then going back to competitor, etc., which has also have only the same rates. Nobody has the lower rates than this, but then there is generally people who take that the Board in the normal course. We protect — but it’s not that all the releases and all the — came out of the — whether the books is because of teaser. Teaser is only a part of the book. The main book more the majorities [Technical Issues] not that everybody took teaser rates or rather everybody. We didn’t give teaser rates to everybody. But then like that is done, migrated, some of them, most of them — 90% of the — 95% of the migrated and came off some people took back their gold that — and in the normal course also people take back the gold, why should have somebody — I told you the average tenure of a loan is only 3 to 4 months. Nobody keeps it for years together.

Abhijit Tibrewal — Motilal Oswal — Analyst

But, sir, my last question was on —

Operator

Sorry to interrupt, may we request you to please return to the question queue. There are several participants waiting for their time.

Abhijit Tibrewal — Motilal Oswal — Analyst

Sure. Thanks.

Operator

Thank you. Our next question is from the line of Amit Mantri from 2point2 Capital. Please go ahead.

Amit Mantri — 2point2 Capital — Analyst

Yeah. My question is on this INR1,300 crores of auctions that were there and what is the interest loss? Can you give the amount?

Oommen K. Mammen — Chief Financial Officer

Interest loss, I don’t think there’s any substantial interest loss. [Technical Issues]

Operator

Mr. Mantri, do you have any more questions.

Amit Mantri — 2point2 Capital — Analyst

No, sir. So, for example, last year there were around INR7,400 crores of auctions that happened and we recovered around INR6,500 crores against the INR7,500 crores is outstanding. So there were around INR900 crores of interest lost last year. So in this quarter also there would have been — not — maybe not principal loss but there would have been for interest that would have happened as well, right.

Oommen K. Mammen — Chief Financial Officer

I think the loss can only be the premium interest loss — extra interest that is the usual loss, which happens. See, when it is coming into more than NPA accounts, the interest jumps or there’s a premium interest of 2%, 3% rate, etc. That is what would have been the loss. For us, we know it, there’s nothing — not like that. Those are not actually — what should I say? The normal interest.

Amit Mantri — 2point2 Capital — Analyst

Okay. So how much was that premium interest loss that will happen?

Oommen K. Mammen — Chief Financial Officer

All right. So no, we don’t have that figure right now. So I know the auction realization was around INR1,800 crores. In the auction, INR1,374 crores recovered on INR1,800 crores.

Amit Mantri — 2point2 Capital — Analyst

So the recovery was higher than the auction outstanding?

Oommen K. Mammen — Chief Financial Officer

Sorry.

Amit Mantri — 2point2 Capital — Analyst

So the recovery was higher than the total auction amount?

Oommen K. Mammen — Chief Financial Officer

So the — no INR1,374 crore is the loan amount. And when we auctioned it, we recovered the interest. So including in the interest portion, we recovered INR1,807 crores.

Amit Mantri — 2point2 Capital — Analyst

Okay, got it. Thank you. And my last question in Belstar now this, you would have shifted to the new might RBI regulations. So what has been the increase in the interest rates from the earlier regime to the new regime now?

Oommen K. Mammen — Chief Financial Officer

I think they did it in two tranches, one interesting in credit service done in May. And the second one is just now, they have increased another 1.5 percentage, almost 3 percentage — 300 basis points have been increased on fresh loans.

Amit Mantri — 2point2 Capital — Analyst

Okay. Thank you very much.

Operator

Thank you. Our next question is from the line of Vaibhav Badjatya from Honesty and Integrity. Please go ahead.

Vaibhav Badjatya — Honesty and Integrity — Analyst

Yeah, hi, sir. Thanks for putting the opportunity. I just have two questions, sir. In terms of acquiring customers and servicing customers, do you see any substantial difference in these costs, what banks have to incur and what NBFCs like you have to incur, is there any advantage that banks enjoys there in terms of acquisition cost and service cost for the customer for similar ticket sales of gold loan?

Oommen K. Mammen — Chief Financial Officer

Actually, we don’t discuss any interest cost — any acquisition cost at all. For us, the customers are acquired through the branches, through our own channels. So we don’t have [Technical Issues] I know what are you expecting to [Technical Issues]. We don’t have such people to bring or book loans for us. So that’s a substantial cost, which I think many of the banks may be incurring. I don’t know how many of them, to what extent. If they are doing — engaging in external agency, it’s an very expensive cost. We don’t have it, sir. If that’s your question.

Vaibhav Badjatya — Honesty and Integrity — Analyst

Okay. And then, sir, I was just not talking about that is the acquisition cost. But in terms of servicing customer. I mean, I’m just trying to understand whether banks have any cost advantage apart from that, is what I’m trying to understand.

George Alexander Muthoot — Managing Director

I don’t know. I don’t know what — I don’t exactly understand your question. Anyway, what is the acquisition cost — this acquiring customer cost is what I said. I don’t — I do not understand what you’re saying about any other costs, what is that other cost?

Vaibhav Badjatya — Honesty and Integrity — Analyst

Okay. I’ll just move to the second question. Sir, lastly, in terms of gearing, we continue to kind of have a reduction in our gearing note which has reduced to 2.2% from around 2.7% now to sell 2.2%, 2.3%. So what’s your thought on long-term gearing? I mean, do you want to increase it, and what is — because that also kind of impacts your return on equity to some extent. So do you want to use that lever to improve on or what’s your thoughts on that?

Oommen K. Mammen — Chief Financial Officer

So for — the endeavor is to improve the gearing, of course. It all depends on how much loan we are able to increase. Of course, it takes time, but at the same time, still in spite of kind of a profit this quarter, still we have delivered ROE of almost 18 percentage. So in normal times, I think we are doing better than 20 percentage.

Vaibhav Badjatya — Honesty and Integrity — Analyst

But don’t you want to kind of think about improving your dividend payout ratio and kind of rest falling in spite till the time there is a substantial growth pick up that happens?

George Alexander Muthoot — Managing Director

This is a NBFC. We have to quite well capitalized because there is nobody outside to help us or help an NBFC in times of a need, so having more capital is always advantageous to the overall stability of the NBFC. So we always keep that in mind. And although we know that the capital is not adequately being used, but then for sustaining the company, for the long-term interest of the company, we are keeping this growing fully well. It’s not being fully utilized. Anyway, as Oommen said, even if we take it out, I don’t know whether we can get the 17% ROE somewhere else.

Vaibhav Badjatya — Honesty and Integrity — Analyst

Got it. Understand. That’s it from my side. Thank you.

Operator

Thank you. Our next question is from the line of Prakhar Agarwal from Edelweiss Securities. Please go ahead.

Prakhar Agarwal — Edelweiss Securities — Analyst

Yeah, hi, thank you so much for the opportunity. Just two questions. First, in terms of when you launched teaser loan what was the reason or thought process behind launching the teaser loan and then probably focusing all the branches towards streaming to normal loan within the quarter, what is your thought process decided these two actions?

George Alexander Muthoot — Managing Director

It’s a strategic call where many — even competitors also started desperately offering very low teaser rates, etc. So being as the market leader, actually, we could not — we also — we could not actually advertise that our rates are higher than all these things. So we also — through some efforts, we had to also see that we offered these low rates to them also. But then we did it for some time, but then the advantage we saw or the strategy we thought was to attract a new set of customers, it would not have come to us because of the higher rates, etc. So some new customers came to us. We service them; after a while, when — it is actually our smartness to see that we can migrate them into the higher rate. So we are successful in that also. But that came at a cost. That came at a cost is what we see in the dip into this. But then finally, we were able to acquire some new set of customers. A good part of them are still continuing with us with a higher rate. Very few process would have left. That’s the advantage we have. But that’s the thought process behind that.

Prakhar Agarwal — Edelweiss Securities — Analyst

Just a follow-up on this. Supposedly tomorrow, the competition, again, introduces the sort of teaser loans, we probably will think again on those lines. Is that a fair assessment?

George Alexander Muthoot — Managing Director

We’ll take a call at that stage, or follow a different strategy.

Prakhar Agarwal — Edelweiss Securities — Analyst

Got it. Just one data point, I know that you guys are not sharing the AUM that is coming from teaser loans, that you made a statement that large part of customer base shifted from teaser loan to normal loan. So what are the number of customers that availed the teaser loans and how many of them converted actually into a normal loan. That number of customers —

George Alexander Muthoot — Managing Director

Not more than 5% to 10% would have been taken back their loan. All the others converted.

Prakhar Agarwal — Edelweiss Securities — Analyst

Got it. Thank you so much.

George Alexander Muthoot — Managing Director

Somewhere else, that is the problem. 6.9% exercise is the rate which nobody is going to offer.

Operator

Thank you, sir. Our Next question is from the line of Shweta Daptardar from Elara Capital. Please go ahead.

Shweta Daptardar — Elara Capital — Analyst

Thank you for the opportunity. I have two questions. How much incrementally does a new branch add to the AUM on annual basis? And now that you have 150 branch approvals in place from RBI at race, which is of two years, and we were focusing on existing branch productivity. So does it change your overall AUM outlook for better, because Q1 happened to be pretty sluggish in terms of gold loan AUM?

George Alexander Muthoot — Managing Director

So it takes about a year or two for a branch to mature. By two years, three years, a branch should reach about INR6 crores outcomes. It takes some time for that. Initially, it will be slow, but after a while when people come to know more about the branch, it will go up. So Initially, yes, we’re not — it will take some time to reach there, but then finally, two years plus, we should see the branches delivering at least INR5 crores, INR6 crores of portfolio. It’s a minimum.

Shweta Daptardar — Elara Capital — Analyst

Okay. And sir, your growth outlook, does it change for better?

George Alexander Muthoot — Managing Director

Yeah, definitely. Actually, at the opening also, I said when new branches also come, we can get — we can go to new unbanked areas. Maybe where we see a lot of potential, that is where we will be opening our branches. Certainly, it will help us to spread ourselves better and attract new and more customers also.

Shweta Daptardar — Elara Capital — Analyst

But sir, can you quantify, please, what is the growth outlook you are looking at?

George Alexander Muthoot — Managing Director

We had always been giving a guidance of 10% plus or 10%, 12%, 15% depending on the business environment, etc. We continue to do this 10%, 12%, 15%. If it is not very good, at least 10%; otherwise 12% to 15%, that is what we have been looking.

Shweta Daptardar — Elara Capital — Analyst

Sure. Thank you.

Operator

Thank you. Our next question is from the line of Bunty Chawla from IDBI. Please go ahead.

Bunty Chawla — IDBI — Analyst

Yeah, sir. Thank you. Thank you for giving me the opportunity. My question has been answered. Just one data point, if you can share. Generally, in the annual report, we share interest accrued on the loans as of FY’23. So can you share that data?

George Alexander Muthoot — Managing Director

As on June?

Bunty Chawla — IDBI — Analyst

Yes, as on March, as well as on June?

Oommen K. Mammen — Chief Financial Officer

March, I think, it is INR1,955 crores. And June, it is INR1,700 crores.

Bunty Chawla — IDBI — Analyst

Okay. Okay, thank you. Thank you. Yeah, thank you, sir.

Operator

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

Alpesh — IIFL Securities — Analyst

Thanks for the follow-up. Sir, just wanted to get some idea from regarding the branch opening. You were going to RBI in the past few years, but this is for the first time that you got the approval for 150 branches. What was the thought process and what were the comments from the regulator regarding this?

George Alexander Muthoot — Managing Director

See, actually, in the last two years, it’s not fair to say that the last two years, we did not open any branch. We had even proposals and some of them got extended. And so it is only in the last four quarters, etc., that we did not open any branch, right. So that there were always some bits and pieces, which earlier, which was there, we opened. But then they just simply said — they just said keep it on hold, keep it on hold. That’s all. There’s nothing — no remarks, no adverse comments, etc. It’s just that they kept it on hold. We can’t see anything more than that. And four months back, they just gave the permission for 150 branches.

Alpesh — IIFL Securities — Analyst

And now since the competitive intensity being very high and large part of our branches have been matured. Why not taking the approval of more than 150 branches? Or do you see that it should be a very gradual process rather than — because we are sitting on the excess profitability, competitive intensity is increasing. So what is the thought process of why not 300 or 400 branches and only 150 branches?

George Alexander Muthoot — Managing Director

Sir, it is not the money, which we have in our — network, which is prompting us to start branches. It is our feel in the market or feel in the field that there is business in some branches. So we have asked for 150. We’ve got the 150. Once we open that 150, we will again ask. We will again find out how many branches we need to open. This is not dictated by the funds we have with us exercises. It is dictated by the potential we see in the branch. That is what dictate us. So today, we have gone for the first one. Anyway, we can’t open 150 branches just in a jiffy. It takes time to locate premises, have the people increase, open it and then go for the next ones. So once we open this, we will again approach them when we locate potential areas. So once we locate potential areas, we’ll again go forward for addition. So as you said, yes, branch opening is also important for this business. We will keep doing it also.

Alpesh — IIFL Securities — Analyst

And sir, just a last question on the competitive intensity from the fintechs. Are you seeing any changes over the last three, four months or it remains as aggressive as they were earlier?

George Alexander Muthoot — Managing Director

I don’t know. Every quarter I’ve been talking about this fintech business, etc. We don’t have any fintech business, etc. nor do we have any digital lending. What we do is only digital collection of money proceeds, either we give the proceeds of the loan digitally that means through the bank, etc., or correct interest and proceeds through banks. That’s what we do digitally. But digital lending, I don’t know. It’s in the — earlier everybody was talking about digital lending. Now it is something really not very palatable by the regulators also. Anyway, we’ve not been doing that — we don’t continue to want to do that also. Our is only loan against gold, which we do. Digital — if we say anything digital, it is just digital disbursement of money, digital collection of money. That’s all.

Alpesh — IIFL Securities — Analyst

No, sir, I’m not talking about you. I’m talking about the competition, someone like RuPay kind of a stuff like that.

George Alexander Muthoot — Managing Director

I know, sir. There are people who just — I don’t know exactly, their business, they just look at some scores, etc., and give INR10,000, INR20,000 to people. That type of business, we don’t do. But I think the regulator is not very comfortable on that. I think many people have stopped that business also or are asking to be stopped. So finally, fintech, I don’t know whether it will survive here, if that is the business. I don’t know exactly. No, I’m sure — I’m exactly not sure about what this fintech people, what type of lending they do also.

Alpesh — IIFL Securities — Analyst

Okay, great, thanks. All the best.

Operator

Thank you very much. Our next question is from the line of Bhuvnesh Garg from Investec Capital. Please go ahead.

Bhuvnesh Garg — Investec Capital — Analyst

Hi, sir. Thank you for the opportunity. My question is regarding the growth versus margin play. So considering that is the current competitive scenario prices for next couple of quarters. In that case, what would be a reference between growth and margins. So how do we see both these parameters?

George Alexander Muthoot — Managing Director

One cannot be — you said it right, one cannot be compromised over the other. We need to have both. We need to have reasonable yield, we need to have reasonable growth. So it will be a balance of that, sir. So not such that we will want to grow very aggressively and not have margins or the other way also have only margins without the growth. It will go hand-in-hand only. That is a balance which we have to take from our side. So I think if you ask the policy, in our mind, it will be a balanced growth, both AUM to a reasonable extent, yields to a reasonable extent.

Bhuvnesh Garg — Investec Capital — Analyst

Sure, sir, thank you.

Operator

Thank you very much. Our next question is from the line of Hitesh Gulati from Haitong. Please go ahead.

Hitesh Gulati — Haitong — Analyst

Yeah, thank you for giving me the opportunity. Sir, what are the new number of customers you have added in this quarter and what are the customers that have been written off?

Oommen K. Mammen — Chief Financial Officer

So we have added 3.14 lakh customers during the quarter, new customers during the quarter.

Hitesh Gulati — Haitong — Analyst

Sir, written off customers.

Oommen K. Mammen — Chief Financial Officer

Written off customers, sir? There’s no written off, sir. It is just customers taking — closing their loan and closed — account closed.

Hitesh Gulati — Haitong — Analyst

Okay. And sir, this ROE that you’re seeing of 18%, can we assume this is the bottom that we are seeing because this is not — I mean, we have always tend to put in much higher ROE. So what is your view on that?

Oommen K. Mammen — Chief Financial Officer

Sir, we would want it to be the bottom and we would like to see go up fully just like you.

Hitesh Gulati — Haitong — Analyst

Okay, thank you, sir. That’s it from me.

Operator

Thank you. Our next question is from the line of Varun from Kotak Securities. Please go ahead. Varun your line has been unmuted if you have a question. Please go ahead now.

Nischint — Kotak Securities — Analyst

Yeah, hi, this is Nischint here. Am I audible?

Operator

Yes, you’re, sir.

Nischint — Kotak Securities — Analyst

Yeah, this is Nischint here. Just one question, which is on the expenses line item. I was wondering what is the reason for such high growth in operating expenses, both on the employee side and more importantly on the other non-employees?

George Alexander Muthoot — Managing Director

So actually, employee expenses have come down, mostly the annual increment. If there is an increase, it should be on the annual increment. Just a second.

Nischint — Kotak Securities — Analyst

Yeah.

Oommen K. Mammen — Chief Financial Officer

So employee expenses have actually come down from last quarter INR313 crores to INR282 crores. And other expenses have increased to INR247 crores from INR206 crores. So primarily, other expenses have gone up because of increase in advertisement. You can see that in our presentation. That is about INR10 crores. And CSR expense has increased compared to last quarter from, I think, INR26 crores to about INR55 crores or something. So that is a major increase in the — during the quarter.

Nischint — Kotak Securities — Analyst

Sure. Got it. Thank you.

Operator

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

Abhijit Tibrewal — Motilal Oswal — Analyst

Thank you for allowing new follow-up. Just one question. Has your advertisement and publicity expenses gone up sequentially during the quarter?

George Alexander Muthoot — Managing Director

Yes, by about INR14 crores. I think last quarter, it was INR32 crores. This quarter, it is INR46 crores or something. INR45 crores.

Abhijit Tibrewal — Motilal Oswal — Analyst

All right. Sir, what was the reason? I mean earlier, I mean, because there was a very high competitive intensity. I mean, a lot of players talked about the need for higher advertising and publicity. So what is kind of teasing into this INR10 crore kind of a sequential increase. Any seasonality here or just in the normal course?

George Alexander Muthoot — Managing Director

No, it’s normal only, because we have to advertise that Muthoot is still there in the business — in the market. So that is also necessary. Even if there is no competition, people believe that that’s what our marketing and advertisement department also tell us, and that is what we also do. We need to be in the public mind, sir.

Abhijit Tibrewal — Motilal Oswal — Analyst

Last quarter, you shared on data point. I mean for your AUM — gold loan AUM, what proportion of your AUM will be below INR1 lakh and what proportion will be above INR3 lakh. Can you please share that with us?

George Alexander Muthoot — Managing Director

Above INR1 lakh — above INR3 lakh is 23 percentage, and below INR1 lakh is 42 percentage.

Abhijit Tibrewal — Motilal Oswal — Analyst

Thank you so much, sir. This is very useful and all the very best.

Operator

Thank you very much. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. Please go ahead.

George Alexander Muthoot — Managing Director

Thank you. Thank you all for supporting us still now for actually participating in this conference call. One assurance from our side, we will keep — we will leave no stone unturned to do better performance quarter-on-quarter, both in the yield, as well as in the AUM. So thank you from me, Managing Director, George Alexander. We have the other directors also here and also Mr. Oommen, our CFO and our new ED, Mr. KR Bijimon and team also here. So thank you all and thank you for a patient hearing. Goodbye. Happy Independence Day 75 years.

Oommen K. Mammen — Chief Financial Officer

Thank you, Sanket. Thank you for arranging the call.

Operator

Thank you very much members of the management team. Ladies and gentlemen, on behalf of Batlivala & Karani Securities, that concludes this conference call. [Operator Closing Remarks]

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