Muthoot Finance Limited (MUTHOOTFIN) Q2 FY23 Earnings Concall Transcript

Muthoot Finance Limited (NSE:MUTHOOTFIN) Q2 FY23 Earnings Concall dated Nov. 10, 2022

Corporate Participants:

George Alexander Boto — Managing Director

Oman Kiama — Chief Financial Officer

Analysts:

Ansuman Deb — ICICI Securities — Analyst

Manu Jobrai — EN Securities — Analyst

Abhijit Tibrewal — Motilal — Analyst

Umang Shah — India Bridge Capital — Analyst

Amit Jain — Budek Finance Analyst — Analyst

Renish Narasak — Individual Investor — Analyst

Arul Selvan — Individual Independent Advisor Private Limited — Analyst

Sanket Chira — B&K Securities — Analyst

Subham Mishra — Philip Capital — Analyst

Rita Pega — Elara Capital. — Analyst

Amanad Margret — Ministry of Finance of Oman — Analyst

Bunty Chawla — IDBI Capital — Analyst

Matil Chendady — MC Pro — Analyst

Shreya Shivani — CLSA — Analyst

Mark Ajania — Nova Institutional Equities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Muthoot Finance Limited Q2 FY ’23 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ansuman Deb from ICICI Securities. Thank you. And over to you, Mr. Deb.

Ansuman Deb — ICICI Securities — Analyst

Good evening, ladies and gentlemen. On behalf of ICICI Securities, we welcome you all to the Q2 FY ’23 Results Conference Call of Muthoot Finance. We have with us the management of Muthoot Finance represented by Mr. George Alexander Muthoot, Managing Director; Mr. Alexander M. George, Whole-Time Director, Mr. George M. Alexander, Whole-Time Director; Mr. George M. George, Whole-Time Director; Mr. George M. Jacob, Whole-Time Director; Mr. Eapen Alexander, Executive Director; –, Executive Director; and Mr. Oommen K. Mammen, Chief Financial Officer. I now hand over the call to the management for the opening remarks, following which we will open the floor for Q&A. Over to you, sir.

George Alexander Boto — Managing Director

Into these numbers and the business of last quarter. The consolidated loan assets under management increased to INR64,300 crores, up by 6% year-on-year for the half year. Consolidated profit after tax increased to INR102 crores, up by 9% Q-on-Q for Q2 financial ’23. Stand-alone loan assets under management increased to INR57,230 crores for this half year, which is up by 4% year-on-year, and stand-alone profit increased to INR867 crores, up by 8% quarter-on-quarter. So compared to last quarter, our AUM was also started slowly growing. Our profit has also improved compared to last quarter. Another key highlight is — we had requested for the first tranche of 150 branches, new branches to be opened. We have got a commission product. Out of that, by September, we have opened 24 branches, and we hope to complete all the 150 branches, which are in various stages of construction and [Indecipherable] by end of December.

We are the first NBFC to launch a milligram gold reward program, a gold reward program for all our customers. As our CSR indicated, a Cup of Life entered the Guinness World Record by distributing one lakh cost-free menstrual cups across 126 venues in 24 hours. The program was aimed at eradicating the menstrual values and creating menstrual awareness in the society. Also glad to state that we have now been classified as an upper-layer NBFC, one of the top 16 NBFCs in the country. We feel it is definitely a recognition of the size and the price and the witness of its findings. A meeting of the Board of Directors held today was considered to approve — for this quarter. I think all the other retail centers are there in Q, and I think we will now get on with the clarification for testing for classification which we won from the management. Over to you, operator.

Questions and Answers:

Operator

[Operator Instructions] The first question is from line of Manu Jobrai from EN Securities.

Manu Jobrai — EN Securities — Analyst

Sir, I would like to know, what was the incremental yield of volumes in second quarter?

George Alexander Boto — Managing Director

So it’s 13.3 percentage for the quarter.

Manu Jobrai — EN Securities — Analyst

And sir, incremental on the disbursements done in second quarter?

George Alexander Boto — Managing Director

I don’t have it.

Oman Kiama — Chief Financial Officer

The yield on the portfolio for the quarter is 17.3%.

Manu Jobrai — EN Securities — Analyst

Okay. And sir, what part of the book will be yielding less than 10% or below?

George Alexander Boto — Managing Director

So right now, I don’t think we have –.

Oman Kiama — Chief Financial Officer

We have moved all the recent loans to higher buckets. So I don’t think we have any in the portfolio.

George Alexander Boto — Managing Director

I don’t think we have any, no.

Manu Jobrai — EN Securities — Analyst

Okay. So the entire AUM is on standard products, standard rates now?

George Alexander Boto — Managing Director

[Indecipherable]

Manu Jobrai — EN Securities — Analyst

Okay. And just last question on how has been the momentum of disbursement during the festive

Season, say, October and November? And is it — had it picked up significantly? And can one assume that disbursement in this quarter, Q3, can be significantly higher than Q2?

Oman Kiama — Chief Financial Officer

I think no, we have to reserve that answer because it’s not there in public domain, but now let’s speak it after the third quarter. But generally, if you can look at our disbursement, it is going at a certain pace. So I think that’s sure we are hopeful about entering that level of disbursements.

Operator

The next question is from the line of Abhijit Tibrewal from Motilal Oswal.

Abhijit Tibrewal — Motilal — Analyst

Sir, just two or three questions. Would it now be fair to say that a large part of your focus is now back on lower ticket loans which have relatively higher yields? And maybe a related question. On the borrowing side, when can we expect that you will continue to see the benefits of higher cost — lower cost borrowings.

Oman Kiama — Chief Financial Officer

So in terms of our borrowing costs, I think our 450 million external commercial borrowing is — already got repaid in October. So that was done at a very high cost. So that will have some savings. So the borrowing cost as of September 30 stands at around 7.98%. So there will be some decline, which will be happening in the third quarter. But I think the borrowing cost is also going up. I think in the third quarter also, we are expecting it to remain somewhere around eight percentage.

George Alexander Boto — Managing Director

And on loans, as we said earlier, the cheaper loans are not there now and very low interest rates are not there now. So we don’t have any such loans with us now.

Abhijit Tibrewal — Motilal — Analyst

Okay. Sir, what proportion of your goal on book today would be towards those higher ticket — loans which you did during December too much? I understand you migrated them to higher interest rates, but what proportion of your book would be towards higher ticket loans that you did during December month?

George Alexander Boto — Managing Director

That said, there was some 20%, 30% of the outlook. I don’t think today we don’t have any effect [Indecipherable]. We have either migrated or –. We’ve migrated to the higher scheme or we would have closed the efforts because any new loan account is there only maximum of two to three months. In the last four quarters, all of those loans [Indecipherable]. Some of them have migrated, covered up loans, and there, patently, loans have increased.

Abhijit Tibrewal — Motilal — Analyst

Understood, sir. And sir, my last question is on your operating expenses. More particularly, what proportion of your employee expenses are variable in nature? So that when you see a decline in your disbursements, you also see a commensurate decline in your employee expenses. And also, your advertisement and commercial –, specific expenses that you incur on advertising and commercial has substantially moderated in this quarter versus last quarter. Is there some seasonality to that? Or was it a conscious strategy to reduce your ad and promotion strengths given that you would now see the competitive landscape turning much more demand?

George Alexander Boto — Managing Director

No, we have not taken a decision to reduce our ad spend. We will be continuing to do. Maybe some of those expenses will come in these two quarters. So whatever we have budgeted for the advertisement expense, we definitely will be doing it. And if you can step — seasonal take up some quarters, some months or [Indecipherable], but the coming months, it will be set. So suffice it to say that the advertising expense would be on track for whatever the budget had said we’ll do. Your next question is about the employee incentives, etc. Some of those things in that last quarter and this quarter, etc, some of these incentives and bonuses, etc, would be paid in –, etc. Last quarter, the Diwali [Indecipherable]. So that overall, by the end of the year, it will be the same.

Abhijit Tibrewal — Motilal — Analyst

Understood. Just to squeeze in one last question, sir. Earlier, you suggested that last part of those — loans have either migrated or closed. Sir, just wanted to understand then, why is it that the yields are not improving? If — I mean that part of these — loans have moved to a higher interest rate, like you suggested, upwards of 10%, or they kind of closed down, then what is the reason that we are not seeing an improvement in yields?

George Alexander Boto — Managing Director

There is definitely improvement. It is only that we have not reached the higher level which we have reached much earlier. Probably, we should not be thinking of very, very high yield also because things are changing. So probably our yields, as you said, what you said is not correct. The yields are improving, but it does not reach the…

Oman Kiama — Chief Financial Officer

Very early level.

George Alexander Boto — Managing Director

Very early level, very high yield. We might not have reached there. But definitely, we have increased. So as we said in the first call, since somebody asked, our today yield is 17.3%. And that definitely is much better. Probably, we have not reached the 19% and 20%. After a while, we should be complete that also with the economic actions we exercise there.

Operator

The next question is from the line of Umang Shah from India Bridge Capital.

Umang Shah — India Bridge Capital — Analyst

Sir, the first question was in terms of value. We have very mild auctions in FY ’22. However, in terms of number of accounts starting auction, we had the highest number of fees in 2016, FY 2016, which was season monetization. Sir, could you go back in time and give us a reason for the theme of why 2016 was the highest year for auction for us?

George Alexander Boto — Managing Director

I think 2016, there was…

Oman Kiama — Chief Financial Officer

[Indecipherable]

George Alexander Boto — Managing Director

Yes, yes, 2016 was the year there was a steep decline in the gold price, the sales regulatory. I don’t exactly remember, about six years back, it just happened. So now, it is almost stabilized. The higher — the very lumpy auctions are not there now. Last year and this year only, the regular ocean auctions are there. And usual auctions, they’re part of the business.

Umang Shah — India Bridge Capital — Analyst

Sir, and second question was, sir, in terms of increasing progression by commercial banks in gold loans. Sir, do you think that some of it is also coming from unorganized sector accessing this credit?

George Alexander Boto — Managing Director

No, I don’t think it is — unorganized sector is also always be there, but it will not be growing much. But it will be stabilizing on what we are already doing, but of course, the banks are certainly doing more unorganized business today.

Umang Shah — India Bridge Capital — Analyst

Right, sir. Sir, what I meant for the unorganized sector pledging the gold of the customers and taking loans at 8%, 9% from banks and then further lending them to other customers, like using banks as their source of financing.

George Alexander Boto — Managing Director

That we call it a [Indecipherable] it is actually double digit. It is not augmented to take — a loan with the crest loan and then move money on that because we can do loans for the bank and do loans only to the owner of the loan. So somebody taking currently gold from many others, then taking it to [Indecipherable]. We are not committing to that, but I’m not sure whether banks are doing it all. I’m not sure about that. If somebody is doing it, it is not financial.

Operator

The next question is from the line of Amit Jain, Budek Finance Analyst.

Amit Jain — Budek Finance Analyst — Analyst

Can you speak about your stand on credit card business?

George Alexander Boto — Managing Director

Credit card, I think we have — you have better or permission to, I think we are in the consideration space. They are not [Indecipherable] in terms of with a credit card as option. In fact, we payment cost.

Amit Jain — Budek Finance Analyst — Analyst

So sir, by when can we expect the changes to be incorporated and the credit card business to commence?

George Alexander Boto — Managing Director

Actually, I’m not the person to comment on that. But the and the conversations which we have in the RB, they are looking kindly at that and probably maybe they come up. I have no — I cannot really — I don’t have any time line with me, but I think I’m hopeful that they should be able to do something on that. They are not doing any and efficient as is.

Amit Jain — Budek Finance Analyst — Analyst

And sir, just to add on, so our existing customer base would be the target market for the credit card business? Or are they going to fall into your…

Oman Kiama — Chief Financial Officer

Mr. Jain,…

George Alexander Boto — Managing Director

Far too premature, far too premature.

Operator

The next question is from the line of Renish Magris, another speaker from — individual investor.

Renish Narasak — Individual Investor — Analyst

Okay. So I basically have two questions. One, if you look at the growth of other private players in the market, they’re growing at quite a good rate. So are we kind of losing market share? And if yes, are we kind of looking to kind of how are we trying to deal with that? And secondly, on the new branch growth that’s there, how does the AUM per branch typically scale over the first, say, two, three years? So if you could give some amount of clarity on that?

George Alexander Boto — Managing Director

I’m not sure from where you were saying that other NBFCs are growing and the growing. I don’t know. I won’t have any statistics on that. I’m not able to comment on that. About our company, actually will be able to say. The other NBFCs, we still gloss on, their statistics are coming out later. Other than that, we have no visibility on other NBFCs, sorry. Then we have net customers at Motilal. What is it second part was?

Renish Narasak — Individual Investor — Analyst

Sir, the AUM per branch for the new branches after opening, how does that typically scale over three, three years, sir?

George Alexander Boto — Managing Director

It takes a year or two for a branch to stabilize. So once a branch gets open, it takes a year or two for the branch to gain good traction. But anyway, from day one itself, we start taking this. And we have seen some branches attaining very good level in one, two years, three years, so attaining a very good level by four or five years. I factor the location of the branch, determined from location, its locality and the need of the people to take loans and the mindset of the people to take a gold loan instead of some other loan. All those factors are we take a stake or consider new contract and then open that one. Sometimes, in some cases, it’s quick compared [Indecipherable]. But anyway, no branch becomes profitable in quick time. Maybe in one year or so, every branch becomes breakeven.

Operator

The next question is from the line of Arul Selvan, Individual — Independent Advisor Private Limited.

Arul Selvan — Individual Independent Advisor Private Limited — Analyst

I wanted to come back to the same question which was asked earlier with respect to the yields after the teaser loans, the teaser rates have been withdrawn. So if I remember, last quarter, you said that the teaser rates were withdrawn or you had migrated most of the customers to higher rates. But if I look at the yields over here, compared to Q1 of FY ’23, the yields have barely moved. I can see a very, very small change in this. So is there a high amount of competitive intensity that you’re seeing nowadays?

George Alexander Boto — Managing Director

The portfolio was — that is one of the recent.

Arul Selvan — Individual Independent Advisor Private Limited — Analyst

I couldn’t hear the last sentence. Could you repeat that?

George Alexander Boto — Managing Director

You couldn’t hear me. Okay. That means in Q2 is a function of the old loans which were given earlier at higher rate being reduced also and also the lower rate in that quarter. In this quarter, the benefit of that very old higher rate notes are not there in the Q2, but then the Q2 new loans are then not reasonable. So it is a function of both of them put together. That is why we are not seeing the impact of that in the way you would say. In Q1, the old loans, which were at very high — very high rates were that, that helped to compensate to some extent with these subjects. In Q2, most loans are getting impact the very high interest rate with that. So we have only the lesser of that. But then the positive is that the new loans are higher new ones and hope you understood.

Arul Selvan — Individual Independent Advisor Private Limited — Analyst

Yes, I follow you. So would that mean that you — the guidance or perhaps the rest of this financial year in terms of our yields will be better than what we already have?

George Alexander Boto — Managing Director

I think the quarter-on-quarter, the yields should arrange for your answer.

Arul Selvan — Individual Independent Advisor Private Limited — Analyst

Okay. Okay. And if I can squeeze one last question. Sir, is your guidance for the annual growth rate in the loan book, is that remaining the same? Or would you be revising it to some extent?

George Alexander Boto — Managing Director

You don’t want to revise it now. We are hopeful that we should be able to achieve the 10% in the next two or three quarters., we are putting our best efforts to do it, and we hope to achieve the 10%. So this quarter, we were able to grow a little, probably next two two quarters, we should hope to do better.

Operator

The next question is from the line Sanket Chheda from B&K Securities.

Sanket Chira — B&K Securities — Analyst

Yes. My two questions are answered in the previous ones. If I can ask one thing on, sir, Q3, whatever incremental disbursements are happening, if you can give us a flavor that. What would be mandated on that? Will it be about 17.3% or 17.5% to guide the directional lever on this?

George Alexander Boto — Managing Director

The incremental lending, we do have several rates. We do have 12%, 15%, something around there. It should certainly be going up, but we cannot — the proportion of the 15%, 14%, 20% portions on the geography to geography depends on the rates and chief financials. We will be trying our best to have — getting more higher yields in the disbursements in the coming quarters. That is what we want to do. But we cannot say that I will help only interest rates, etc. The rates are evaluated. So it is these rates evaluated.

Sanket Chira — B&K Securities — Analyst

And to one of the earlier questions, if I understood that maybe Q2, the region more because we had some portion of teaser rate loans and now which has a one-off. So going forward, that drag won’t be there. Is that correct?

George Alexander Boto — Managing Director

[Indecipherable] the teaser rate, drag will not be there.

Operator

The next question is from the line of Subranch Fomishra from PhillipCapital.

Subham Mishra — Philip Capital — Analyst

Two questions. One is on the. We mentioned that we have pretty much [Indecipherable] interest rate in April or May. So which means in second quarter one time had as much of an impact of those teaser rates. So why is it that the teaser rate almost impacted first quarter was 17.4 [Indecipherable] in second half. I believe we are seeing now a return ratio contracted. Second is on the AUM growth earlier, we had a guidance of around [Indecipherable] in the previous question. The answer was [Indecipherable] and your guidance around 10%. So you have a decrease in your guidance for the full year. Is that a correct understanding, sir?

George Alexander Boto — Managing Director

I think regarding the yield of comparisons with Q2 and Q1 and Q2, I think I’ll explain it in detail to find it back. So I can explain that part in detail. But to answer one part of the question, that’s also answered that yield going forward should definitely be inching forward. The third part of your question was about the guidance. We always said 10% to 15%, but because of all the growth which is not happening in Q1 and Q2, we still stand by the 10% that we have reduce it, we set [Indecipherable]. But because of the profit situation, we should be looking at, at least 10%.

Subham Mishra — Philip Capital — Analyst

Sure. And if I can squeeze in just one last question sir, the [Indecipherable] collections are always higher than the first quarter. This is the only second quarter in the last two, three years where the collections as well as [Indecipherable] has dipped by quite an extent. Why is that, sir?

George Alexander Boto — Managing Director

See, compared to last year of the same quarter is what you have seen. Last year, the same quarter.

Subham Mishra — Philip Capital — Analyst

The last three years, sir, last three years, if you compare 1Q versus always an increase over 1Q.

George Alexander Boto — Managing Director

Okay. So not relative to sometimes the situations will have changed. The economic situation would have changed. That is why I don’t have any other explanation for why it is not there as a trend in the last three years and this year. I don’t have any strict reason for that, nothing specific on that.

Operator

The next question is from the line of Rita Pega from Elara Capital.

Rita Pega — Elara Capital. — Analyst

A couple of questions. Why the tonnage has not moved quarter-on-quarter?

George Alexander Boto — Managing Director

Madam, I think somebody has asked [Indecipherable]. The tonnage is actually a function of the gold price. If the gold price is low, the tonnage will be higher because people have to bring more gold to take the same amount of gold. If the gold price is high, it is 100 grams [Indecipherable]. The gold price now, we have to bring [Indecipherable]. That is exactly the function of the gold price. If the gold price is high, the tonnage will be lower. If the gold price is low, the tonnage will be higher. That is exactly the function of that. And because people take to bring only the acquired amount of gold. We can’t ask people to bring more gold. So that is the function of that. But what we need to look here is the disbursement amount because our profit or our income is based not on the gold but [Indecipherable]. The second part, gold [Indecipherable] as collateral and even not even today, our collateral, our average may be less than 30%. So we still have good margins.

Rita Pega — Elara Capital. — Analyst

Okay. So I thought because gold price has also not moved much, exactly why I raised that query. Anyways, I got the moot points. So can you — somebody touched upon this question already on AUM for branch. So while you are mentioning it takes a year or two for the branches to stabilize, so can you just guide on the path back incrementing how much does a new branch add to the overall AUMs?

George Alexander Boto — Managing Director

I told you to take that — a year for the branch to reach the breakeven level. So after one year, it becomes making profit, then we start growing. So it takes 2, three years or four years for the branch to reach its full potential.

Rita Pega — Elara Capital. — Analyst

Okay, okay. And then one last question.

George Alexander Boto — Managing Director

[Indecipherable]

Rita Pega — Elara Capital. — Analyst

Okay. Okay. So one last question, which also you have partially answered already. So you mentioned that you are hopeful of 10% full year growth, but if I look at quarter-on-quarter movements and if we expect a 10% growth, does that mean Q3, Q4 will be still robust quarter going forward?

George Alexander Boto — Managing Director

That’s what we hope to. You and I cannot say whether it’s [Indecipherable] quarter.

Rita Pega — Elara Capital. — Analyst

Sir, where I’m coming from is because you also mentioned that you do not see much of competition coming from unorganized side, borrowing of banks who are largely focusing on high-ticket loans, and we are already on competitive rates. So is it fair to assume Q3, Q4 will be much better and therefore, 9% to 10% growth is plausible?

George Alexander Boto — Managing Director

That’s what I said, yes.

Operator

Your next question is from the line of Amanad Margret from Ministry of Finance of Oman.

Amanad Margret — Ministry of Finance of Oman — Analyst

Regarding this branch opening related RBI approval. How many approvals do you have for opening the new branches? Or is that problem has resolved?

George Alexander Boto — Managing Director

I think there is no problem, just only that RBI has kept the new branch permissions on hold for a year or so. But now they have give us permission to open branches. And we have requested for 150 branches, which is okay. And of that, we have opened 25 branches. The other ones are in various stages of construction. Probably by end of [Indecipherable], we should be able to open more than 150. And thereafter, if we feel we need more branches, we’ll apply for more branches. So there is not really…

Amanad Margret — Ministry of Finance of Oman — Analyst

[Indecipherable] 150, applied for and got it, sir?

George Alexander Boto — Managing Director

Yes, yes, yes.

Amanad Margret — Ministry of Finance of Oman — Analyst

Okay. Okay. So that was very competitive. Now if I look at your revised or current ROA and ROE, it now came down to, say, ROA of 6% and an ROE of around 18%. Now can we take this is a new normal because previously, your ROA, ROE is much higher but the situation was different. Now considering the current situation, for our overall position basis, can we take this 6% ROA and around 18%, 19% ROE is something normal going forward?

George Alexander Boto — Managing Director

I think that we would like to see it go up and we would expect it to go up slowly also. We don’t think — we don’t want — we would not like to keep it as the normal. We’d like to know we should see at least slowly going up.

Amanad Margret — Ministry of Finance of Oman — Analyst

Sir, one more question. In the top side, I can see your number of staff added only in the Q2 is around 587. If I deduct the Q2 total minus Q1 total, the 587 staff in one quarter, while the business is not that much growing, why the staff is growing? What is the purpose of adding that much staff in one quarter itself?

George Alexander Boto — Managing Director

500 staff out of say, 30,000 staff is nothing, sir.

Amanad Margret — Ministry of Finance of Oman — Analyst

[Indecipherable] adding itself is 2% more, I wonder if 500 people is added in one quarter?

George Alexander Boto — Managing Director

That is not a great number, sir. It’s just 1%.

Oman Kiama — Chief Financial Officer

So if we open 150 branches, now we have at least incurred 600 urgent staff. So we can’t now when we are looking at operating in next couple of months, we have to train them. So earlier [Indecipherable] this was going as a regular process. Now this has come up. So we recruit, and some employees leave also. So all those things are then kept in mind when it comes to the recruitment part.

Amanad Margret — Ministry of Finance of Oman — Analyst

Sir, what is the [Indecipherable]? Especially this — I can see the fantastic growth happening into this microfinance side, especially. If we can give a little more light about that part because it appears to be growing very fast. What is your outlook in respect of this microfinance side of the business?

George Alexander Boto — Managing Director

Micro finance side, good business which is well appreciated by everybody. The customer, the regulator, the government, everybody would like to see the microfinance business grow. And then we see lots of potential there, is putting partaking for hands of people and they see the sector has — offers good potential.

Amanad Margret — Ministry of Finance of Oman — Analyst

Sir, have you something — keep in mind my part of the asking the question is, have you something minded at what percentage you intend to grow the microfinance book at 20% or 30%, some kind of an idea kind of give, but what percentage you’re trying to grow that particular book?

George Alexander Boto — Managing Director

No, we don’t not have any particular guidance on the micro side as percentage at this time. And when there is demand and [Indecipherable], we will grow that business thus.

Operator

The next question is from the line of Bunty Chawla from IDBI Capital.

Bunty Chawla — IDBI Capital — Analyst

Most of the queries have been answered. So a few data points, if you can share. Sir, one is that during the quarter, if you can share what was the auctions which we have done?

Oman Kiama — Chief Financial Officer

We did INR578 crores.

Bunty Chawla — IDBI Capital — Analyst

INR578 crores. Okay, sir. And secondly, if you see the presentation part in that where you shared Stage one Phase II assets loans, there has been a slightly hike in the Stage two loan assets from INR461 crores to INR864 crores. So how one should see that part going ahead? Any impact in terms of Stage three assets going forward? Or any provisioning which could be required during next two quarters?

Oman Kiama — Chief Financial Officer

[Indecipherable] normal if in a particular quarter, disbursements are higher 12 months afterwards. Naturally, the Stage two could be higher depending upon the collection efforts which we do. It’s important to all our risk management metrics for us. We look what is the inputs accrues goes to the customer [Indecipherable] interest. We only manage the risk in that particular portfolio. So we allow these customers to a loan some more time. That’s how long we have the Stage two and sometimes even the [Indecipherable] also go up. Unlike other financial institutions here, it has to be [Indecipherable].

George Alexander Boto — Managing Director

Because if we [Indecipherable], so even if somebody reaches Stage one or Stage two or Stage 3, we are not going to use up our money. We are going to make [Indecipherable] to the customer.

Bunty Chawla — IDBI Capital — Analyst

Okay. So we don’t require any ECL provisioning because of this regulatory part as a going forward, my sense of that?

Oman Kiama — Chief Financial Officer

We have to make support in stage two quarter certainly which will cause a big increase because Stage two also requires [Indecipherable].

George Alexander Boto — Managing Director

But retail solution will not [Indecipherable] book of the [Indecipherable] did not [Indecipherable].

Oman Kiama — Chief Financial Officer

[Indecipherable] that certain…

George Alexander Boto — Managing Director

That’s the point we will try to say. Mostly [Indecipherable] book. We are not making money there.

Bunty Chawla — IDBI Capital — Analyst

Okay. And lastly, sir, on the cost of funds, though on the yields you have spoken, so how one should see the cost of funds moving for the full year FY ’23 compared to FY ’22? We are seeing a [Indecipherable] hike and other hikes are happening in the bonds also.

Oman Kiama — Chief Financial Officer

I think it should be somewhere around 8%. We should be able to manage. Let’s see how it is. At least in the third quarter, we should see that we’re getting around eight percentage.

Bunty Chawla — IDBI Capital — Analyst

Okay. So for full year, 8%, we can consider till now?

Oman Kiama — Chief Financial Officer

I’m not sure about the fourth quarter. It depends upon how the PL rates are going up.

Operator

The next question is from the line of Matil Chendady from MC Pro.

Matil Chendady — MC Pro — Analyst

My question was about your loan growth outlook. We have seen kind of 1% kind of a sequential growth in the loan book this quarter. And when we interact with the private sector banks, we seeing that the gold loan has been identified as a kind of a trust area for them. So what I really wanted to understand from you is if they are putting a focus on gold loans, obviously, the yields are going to be much lower than yours. In that case, which is some pocket of the market which you are targeting to grow your loan book by 10%? If you could give some qualitative understanding about the theme.

George Alexander Boto — Managing Director

No, madam. I think we have given a guidance of at least 10%, of 10%. Hopefully, in the next two quarters, we should be able to achieve that. So there is no specific markets, etc, which we want to tap, under which we won’t market, which no other market, which we don’t know under that. All branch caters to — we have 5,000 branch which caters to local people there. And we don’t leave any type of customer or any type of a loan, size, etc, behind. So whatever comes, we need to do, and that is what we will be hoping to do in the next two quarters.

Matil Chendady — MC Pro — Analyst

I just want a small understanding from you, sir. I mean what is that banks can’t do that you can do?

George Alexander Boto — Managing Director

We are putting too much into detail, madam. I don’t think of what bank can do, what we cannot do, etc, but we improve always. So we will do what we mean by saying what banks can do and what we can do.

Matil Chendady — MC Pro — Analyst

I mean is there a segment which is something where the banks cannot penetrate which will remain afforded for someone specialized like you? That is what I’m trying to understand.

Oman Kiama — Chief Financial Officer

We have always been doing it. The fact that NBFCs are excelling certain activities because we are able to do it in a cost-effective manner, better service to the customers. That is a key differentiator for as far as any industry is concerned. So the same applies to us also.

Matil Chendady — MC Pro — Analyst

Okay. So what you’re trying to suggest is if it’s a cost factor which will give you an edge over banks in certain pockets of the market?

George Alexander Boto — Managing Director

[Indecipherable] the service part.

Matil Chendady — MC Pro — Analyst

And the service quality? The better service quality?

George Alexander Boto — Managing Director

And the service quality, the service quality.

Operator

The next question is from the line of Shreya Shivani from CLSA.

Shreya Shivani — CLSA — Analyst

I have two questions. First is on your borrowing profile. We can see that the share of term loans from banks has risen up to 56% now. It used to be at rate 47% in first — in the second quarter of last year. So any color you can give us to us on this, where would you see this mix going with that increase? Or will you be trimming it down? First is — my first question is on that. And the second is on the liquidity on the balance sheet. I think you guys have mentioned last time that you’ve reduced it and will maintain it at this level. I can see it is at 12% level for second quarter. So will it be — will it continue to be at 12% going ahead since the confirmation on that?

Oman Kiama — Chief Financial Officer

As far as the level of borrowings from banks, it is all — depends on the cost factor availability of funding. So depending upon the scenario, we try to tap that Brazilian market. Now bank particulars, easily available at some point of time. We have that market. We wanted a better yield, better rate of interest. So we tap that market. So the whole borrowing program is based on the availability at what price. So those factors were acceptable for us. So that’s why the bank borrowing proportion is higher.

Shreya Shivani — CLSA — Analyst

Yes, on the liquidity — yes.

Oman Kiama — Chief Financial Officer

Yes, on the liquidity part, liquidity levels have been kept high, slightly higher because. The first tranche of ECB are getting due for payment by October end, which we repay as of now. So we were preparing for that about INR3,700 crores of repayment. So that’s why we have cut slightly higher liquidity as of September 30. So we have brought down the liquidity levels during the quarter. In the intra quarter, we had calmed down the liquidity a little bit. So I think our endeavor is always to keep a normal liquidity. We don’t want to keep a higher liquidity and there are higher interest differential. So I think going forward, we’ll try to improve our liquidity to a certain extent. At the same time, we need to take care of the [Indecipherable] government as well as the comfort of the debt investors, etc. So we will, at a certain, reach our level.

Shreya Shivani — CLSA — Analyst

Got it. [Indecipherable] extra [Indecipherable] repayment is due when?

Oman Kiama — Chief Financial Officer

That is, I think, in September 1, 2023.

Operator

The next question is from the line of Maru Kajanya from Moama Institutional Equities.

Mark Ajania — Nova Institutional Equities — Analyst

So although this has been partly answered to many questions earlier, in response to many questions earlier, I would seek some more clarity. So who are your main competitors right now? And I mean what is the time frame they’re involved in? Because when we speak to State Bank, they say that they were not earlier doing non-agri gold loans. And only over the last two to three months, they are going aggressive on non-agri gold loans. But we don’t have separate numbers from them. Likewise, are there any fintechs who are directly competing with you in your segment?

Oman Kiama — Chief Financial Officer

Maru, I think you answered that yourself. We also don’t have much understanding on their orders and portfolio earlier and what is their portfolio as of now. So I think with all those finer points, we’ll not be able to answer that question from you.

Mark Ajania — Nova Institutional Equities — Analyst

Right. But any practical sense, the feedback you get from branches and stuff like that?

Oman Kiama — Chief Financial Officer

See, banks have probably around 60,000, 70,000 branches across India. We are only having 4,500. So every bank tried to do, every business a little bit. So certainly, it is 4,500 against 70,000. Naturally, it is a competition all those [Indecipherable] branches.

Operator

That was the last question for today. I now hand the conference over to management for closing comments.

George Alexander Boto — Managing Director

Okay. Thank you. Thank you, all investors. Thank you for supporting us. And from our side, we will assure that we will do our best in the coming days and coming months also to keep in mind the interest of our investors and all other stakeholders. And hopeful of doing better in the next two quarters. Thank you.

Operator

Thank you.

Oman Kiama — Chief Financial Officer

Thanks.

Operator

On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.