Muthoot Finance Limited (MUTHOOTFIN) Q3 FY23 Earnings Concall Transcript

Muthoot Finance Limited (NSE: MUTHOOTFIN) Q3 FY23 Earnings Concall dated Feb. 07, 2023

Corporate Participants:

George Alexander Muthoot — Managing Director

Oommen K. Mammen — Chief Financial Officer

Analysts:

Abhijit Tibrewal — Analyst

Vaibhav Barjatya — Honesty and Integrity Investment — Analyst

Sagar Shah — PhillipCapital — Analyst

Umang Shah — Kotak Mutual Fund — Analyst

Shubhranshu Mishra — PhillipCapital — Analyst

Shweta Daptardar — Elara Capital — Analyst

Shreepal Doshi — Equirus Capital — Analyst

Pradeep Agarwal — Systematix — Analyst

Nidhesh Jain — Investec — Analyst

Vishal Narnolia — ICICI Securities — Analyst

Mona Khetan — Dolat Capital — Analyst

Pallavi Deshpande — Sameeksha Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Muthoot Finance 3Q FY23 Earnings Conference Call, hosted by Motilal Oswal Financial Services. As a reminder, all participants’ lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note, this conference is being recorded.

I now hand the conference over to Mr. Abhijit Tibrewal from Motilal Oswal. Thank you, and over to you sir.

Abhijit Tibrewal — Analyst

Yes, thanks Bikram. We have with us today the senior management of Muthoot Finance represented by Mr. George Jacob, Chairman; 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; Mr. K.R. Bijimon, Executive Director; and Mr. Oommen K. Mammen, Chief Financial Officer.

We at Motilal Oswal thank the management for giving us the opportunity to host this earnings call today. We will begin the call with opening remarks from MD sir. And post that, we will open up the floor for Q&A.

Thank you, and over to you Mr. Muthoot.

Operator

Thank you, Motilal Oswal. Good day to all. Welcome to the conference call of 2023 Q3. The consolidated loan assets under management increased to INR65,085 crores, which is up by 7% year-on year. And the consolidated PAT also increased to INR934 crores, which is also up by 4% quarter-on-quarter. Standalone assets under management is INR57,731 crores, which is up by 6%. Standalone profit after tax is at INR902 crores, which is also up by 4%.

We had received permission to open 150 branches. We had opened many branches in the last two quarters and this quarter we have opened 54 branches. Another 30 branches are remaining, which will be opened in February and March, and all the 150 will be completed by March. Thereafter, we plan to approach the regulator for the next set of maybe 150 or more branches — 150 branches. And all these branches, which we opened are spread all over the country, North, East, West and South.

We have also raised IMR422 crores through the 28th and 29th public issue of secured redeemable non-convertible debentures. And we have also launched marketing a campaign showcasing the message, Put Your Gold to Work. We have done very good media publicity on this, and it has actually started showing.

And all the other comments are also with you. All the other financial highlights are with you. I think I’ll now close and probably open up the scene for question and answers. Thank you. I have with me all the others, some of them in — present in the room are our CFO, Mr. Oommen and ED, Mr. K.R. Bijimon. The others have joined online — from the team. Okay, thank you. Thank you very much, sir. Should we now open the floor for questions?

George Alexander Muthoot — Managing Director

Yes.

Abhijit Tibrewal — Analyst

Yes, please.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Vaibhav Barjatya with Honesty and Integrity Investment. Please go ahead.

Vaibhav Barjatya — Honesty and Integrity Investment — Analyst

Yeah, thanks for providing the opportunity. So, we are now into upper layer — what could be a considered [Phonetic] as upper layer NBFC. So if you can help us understand what is the, you know incremental regulatory restrictions or the — or any other restrictions which is there on us as being part of upper layer NBFC has compared to low — any other lower layer of NBFC.

George Alexander Muthoot — Managing Director

Thank you and I think there are restrictions [Technical Issues] disclosures and compliances — [Technical Issues] more of disclosures and compliances. And to tell you the fact, in the last two years itself we have been [Technical Issues] comply with many other — many more reports and regulations. And to my personal understanding of this, there is nothing much we need to do afresh compared to as being in upper-left because every year we are inspected by the Reserve Bank, every year — last inspection is also just over. So as soon as — after the inspection they give us more new compliances, new disclosures, etc.

RAR, RMPR, all those risk mitigation plans, etc., everything is — has been there for the last two quarters, three quarters, four quarters, five quarters it is there. And all these things, we have started complying. And I think the upper layer bracket just puts all these things together in a way.

And one –another compliance which was there was the Company to get listed, we are already listed, so I think some of the companies in the 16 member group, some of them may not be listed, probably they will have to get listed. So, that’s what I said — as far as we’re concerned, there is nothing much more to be complied. And to answer your question, there is no restriction.

Vaibhav Barjatya — Honesty and Integrity Investment — Analyst

So, a difference in terms of regulatory requirement relating to minimum capital adequacy or the risk [Speech Overlap], nothing like that?

George Alexander Muthoot — Managing Director

Yeah, that’s all — they’re all — this all — so they’ve already been there. That’s why all these things have already been compliant. There’s nothing — new additional to be done.

Vaibhav Barjatya — Honesty and Integrity Investment — Analyst

Sir, for you it — there is no incremental thing, but what I’m saying, the difference between the lower layer and the upper layer…

George Alexander Muthoot — Managing Director

Yes, that’s there in the act — or the relationship, yes.

Vaibhav Barjatya — Honesty and Integrity Investment — Analyst

Okay, fine. That’s it from my side. Thank you.

Sagar Shah — PhillipCapital — Analyst

Thank you. We have next question from the line of Shweta Daptardar with Elara Capital. Please go ahead. We lost the line of Shweta. We take the next question from the line of Sagar Shah from PhillipCapital. Please go ahead. Good evening, sir. Thank you for the opportunity. Actually, my first question is related to — I wanted to understand a little bit amount of ground — on-the-ground view regarding our gold finance business. As you have mentioned in your presentation, you have stopped the teaser loans actually which were low-yielding in nature, but now you’re — I think you were suggesting that the competition is decreasing, especially — maybe the competition is realizing that the gold finance business is not as easy as it seems actually. So I wanted to understand that — are we in such a phase that we’ll return to the era which — in which we clocked almost a double-digit growth in AUM almost every quarter? So, will we return to that or are you seeing some different signs on ground? That is my first question, sir.

George Alexander Muthoot — Managing Director

So I think you’re right. We have said like that, competition, that people were just dumped into the gold loan fray, [Technical Issues] slowly to realize that it’s an operationally challenging business. That’s one part of it. And that is the sense I get from my branches — from the branches and the staff there. That is one side of it.

The second question was whether we will return. Hopefully, we should return. Whether it will take one quarter, two quarter or four quarters, it’s yet to be seen, but to me after three quarters, four quarters, we should get back to the double-digit growth.

Sagar Shah — PhillipCapital — Analyst

Okay, so basically the demand from the — demand — you can say that the demand from the customers would be on the higher-ticket range or the lower-ticket range, sir? Can you specify our ticket size range, where you will be seeing some incremental demand?

George Alexander Muthoot — Managing Director

No, the demand is there, it depends on the location. It may be, in Tier 2, Tier 3 cities it is a lower one and in the bigger cities it may be the higher one. But that’s not a big differentiator because the — it depends on the type of people who are coming there. It’s not that one — in the area only the — maybe the lower level people are coming. No, everywhere both types of people are there.

We see demand coming from all over, because people need purchasing power, whether it is the lower level, middle level or the upper level, everybody needs more money, some people need more. So, generally our average ticket size is about INR70,000. So, we should see that the people in that range is the — are the people who are coming to us mostly.

Sagar Shah — PhillipCapital — Analyst

Sure, okay, sure sir. My next question was related to our non-gold finance businesses. Right now, they constitute around 12% and you have mentioned in your presentation that you would be — you intend to actually grow that business, to increase the proportion of those businesses out of your total AUM. So, any specific number that you would like to throw that in the next two years you would like to bring that percentage into the — up to this percentage of total AUM? Do you have a target?

George Alexander Muthoot — Managing Director

Yeah, it is almost 12%, touching 13%. A year back it was 10% only, now it is touching 12% to 13%. So, what we have done is we’ve started a few non-gold loan business three years to four years back, that is the personal loan, the home finance loan, the vehicle loan, MSME loans, etc. And soon after that COVID also came and we went slow on that. But during the COVID, we were able to moderate all these businesses and also learn many things from there.

So, most of these loans were meant for giving to our existing gold loan customers. Now that the COVID, etc., is behind us, these businesses have now started growing and we are giving focus there also. That is why you will see our non-gold loan portfolio is also starting to increase. And we have not put out any specific numbers there, but in the next three years, four years, we would like — or three years, four years plus we would like this to growth to 15% and 20% is what is in our mind.

But at the same time, all our focus — the first priority, the first preference will be for growing the gold loan business. And there is what we would see a 10% growth maybe in the next year. End of next year we should see a 10% growth in the gold loan business, and in the others the proportion should reach about — maybe start growing from 13% to 14% to 15%, probably about 20% by the — by three years, four years.

Sagar Shah — PhillipCapital — Analyst

Okay, sure sir. So basically, you are — actually, you’re seeing almost 10% growth in your gold loan business. So, that’s quite less as compared to, you can say, the pre-COVID level. So, just because of the competition who are specifying this low — this low growth actually or is it something else?

George Alexander Muthoot — Managing Director

No, it is kept — just a conservative estimate, that’s all. We’re just being conservative. That’s all.

Operator

Thank you. We take next question from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.

Umang Shah — Kotak Mutual Fund — Analyst

Yeah, hi, good evening. Thanks for taking my question. Sir, just related — my question is just related to growth. If I was to look at your number of loan accounts outstanding, we are significantly lower compared to where we were, let’s say, in March ’21 and even during the year-to-date period the number of loan accounts have been shrinking.

If you could just give some color as to what exactly is happening in terms of new customer acquisition and how do you see the pace of new customer acquisition, kind of, shaping up over the next one year to two years?

George Alexander Muthoot — Managing Director

We are not giving too much importance to the number of customers. We’re generally looking at the AUM because that is where the money — the income is, not in the number. Probably not pretty sure about these numbers, but then focusing more on the gold loan total AUM. So, that has been steady, it is not coming down, slightly improving.

Umang Shah — Kotak Mutual Fund — Analyst

But sir — okay, so in that case, if you could just help me that — whether the competition in the high-ticket gold loan segment, has it kind of subsided or — because on the ground, I mean, we do see banks as well as other NBFCs getting significantly active in the large ticket home loan segment, or you believe that is not the case?

George Alexander Muthoot — Managing Director

No, the competition is there from NBFCs, etc., competition, they are also competing for the same business. I would say competition, everybody is trying to give loans or give business — get business from all these people, whether it is the smaller fellows, probably come back to the small ones, sometimes we — generally give [Phonetic] bigger loans, etc. Even banks also sometimes give lower loans to — probably to the — as agricultural loans, etc. In that sense also, banks are doing this.

Umang Shah — Kotak Mutual Fund — Analyst

Understood. Sir, the other question again was to our growth aspirations for next year, you indicated that you would like to grow the standalone gold loan business at about 10% odd. For the current fiscal also, we had kind of put out a number — a similar sort of a growth number, but if I look again during the year-to-date period we are almost flattish. How should we look at growth from FY23 perspective as well?

And also, if you could just provide a little context from — against the background that the gold prices have been increasing last quarter as well as in the current quarter, but that doesn’t seem to be reflecting into our gold loan AUM growth and LTV seem to be dropping. Just wanted to understand a little bit of that part.

George Alexander Muthoot — Managing Director

See, LTV dropping is because the gold price has gone up, the LTV definitely should drop. We are seeing growth in the last two months, so that is why you see a small uptick compared to last quarter. That’s what you’ve seen. And next two quarters also we should see better gold loan growth.

So, we should end the year with about 3% — 4% to 5% growth by the end of the year. That’s what our expectations are. So on that basis that — we expect the next full year to reach about 10% growth. That’s what our expectations are. So, you see growth has started coming back, and that is what we see.

Umang Shah — Kotak Mutual Fund — Analyst

Understood. And sir, just a last question was on the subsidiary performance. So if you were to look, clearly the microfinance subsidiary seems to have come out of the woods and growing pretty — at a pretty steady clip. But if I was to look at the housing finance business now, the Amos for that business have been fairly stagnant for a good period of time. So from a consolidated AUM perspective, how should we look at the overall mix between Amos from a two -year to three-year perspective? That would be my last question. Thanks.

George Alexander Muthoot — Managing Director

That’s what I said, we would like to — we will slowly — especially the home finance and the personal loan and the vehicle finance books slow during the COVID time. Now it is behind us now. We’ve now restarted growing these things. And we have now a new CEO for the home finance also. He has joined us two weeks back. And we have mandated — or we are planning and budgeting for a very substantial growth in the home finance sector also — home finance business also in the coming year, that’s specifically for home finance.

In the personal loan sector also we have now tested the waters in the last two years, three years. We have gone through a cycle with COVID also, so we have learned quite a few things, we have understood. We have modified our systems, our processes, etc. And you should see the personal loan book also growing, so also the MSME books. So, all the other loans we have now put correct people in place, correct vertical heads in place, and we should see growth coming in those also in addition to the gold loan.

Umang Shah — Kotak Mutual Fund — Analyst

Understood. All right, perfect, thank you so much for this and good luck for future quarters. Thank you.

Operator

Thank you. We have next question from the line of Shubhranshu Mishra with PhillipCapital. Please go ahead.

Shubhranshu Mishra — PhillipCapital — Analyst

Hi sir, good afternoon. Thank you for this opportunity. The first question is around the branch expansion. We have increased most amount of our branches in West in third quarter. However, if I look at the productivity of branches, the East — or the branches in East India are way more productive than West India, so it seems a bit counter-intuitive why we are not increasing more branches in East India. That’s the first question, sir.

Second question is around the growth and competition. When I look at our website, there are so many schemes which are listed at lower ticket sizes for — lower interest rates, as low as 9% and going up to ticket size almost up to INR5 crores. So, is competition a real threat? What kind of ticket sizes and — is the competition really active in?

And the third is a data keeping question, sir. If you can split the AUM into less than INR1 lakh, INR1 lakh to INR2 lakhs. INR2 lakhs to INR3 lakhs and INR3 lakhs and above as proportion of AUM it will be very helpful. Thanks.

George Alexander Muthoot — Managing Director

So, first question is geography, so we are aware wherever there is business, per branch business may be high in some geographies, some regions. We will be opening more and more branches in those areas, definitely we should look at many other factors also when considering to open branches. There are security, safety reasons also with — which also we have to take into consideration when opening branches. So, rest assured that if there is a growth potential in any place we’ll be the first one to open branches there.

Your second question was about people offering no interest rate. So, I think I should answer all this in one way — one word only. There are so many players coming into the market now. Some are — everybody thinks that gold loan is a very easy business — easy-to-run business, a bed of roses, that is what people outside are thinking. But once you come in, really they feel that to get business I have to offer loans at 6% 7%, 8%, that is one set of people. Others thinking that you can take two employees or three employees from Muthoot or some other place and start their business fine, but there — and there are few things which are very — operationally very challenging for any gold loan business.

One is the frauds which happen in branches, whether it is — see, all the all the new players, etc., especially banks, they rely on an external appraiser for appraising the gold, whereas Muthoot does it in-house, all our branches, all our stuff are trained to do this, so everything is done in-house whereas people outsource the — that is again a very risky proposition which people will realize only after a while, not initially, after a while.

The second is, we have started the loan [Indecipherable] to help our customers to bring — help our customers to get their gold to Muthoot, and as we send our own staff to collect the gold, whereas most others including banks or whoever does that or third party, it’s a third party who is going to collect the gold. And customers are never comfortable with handing over their valuables to a third party who will take it to maybe X bank or Y bank or Y NBFC. So, this is — and you will see — you will read in the papers also so many staff cross [Phonetic], etc., happening in branches. We have a team of 1,000 audit staff who goes around these 5,000 branches and ensures that the quality, quantity, purity, etc., [Technical Issues].

Now, we have a 13-layer security systems in our branches, 13-layer security to prevent all sorts of robbery, burglary, etc. So, these things, we have invested money into this, we have invested time, people into this. People are not realizing this. Everybody is jumping into this, offering us 9% gives — I don’t know, it’s at 9%, INR5 crores, INR10 crores, etc., I don’t know what is there match in that, what is their final expense, what is their profit is that.

So finally, what is happening is — going to happen — what happened 10 years back when many players jumped into the gold loan business thinking it is really easy, etc., after starting to do business, after growing the business only they realized the implications, the operational intensity, operational challenges, etc., and they lose interest. So that’s what I’ve said, slowly their intensity is coming down. We should see only serious, focused players in gold loan continuing in this. All the other who come into — just seeing like everybody getting attracted like maybe — attracted to this business, they will come after some time, they realize and they will leave [Phonetic], whether it is the profitability side, whether it’s the control side, whether it’s the fraud side or the safety, security, etc., people will realize only after that. So, I think it’s just a matter of a little time that — it is a matter of time that we will get back to our old business growth.

Shubhranshu Mishra — PhillipCapital — Analyst

Right. Sir, just one counter question to this. Given the fact that we understand gold finance so well, would do you want to give a blue-sky guidance for growth in FY24, you’ve given a conservative estimate of around 10%. Would there be a blue-sky scenario as well, sir, can — like 15%, 20%, if you can comment or guide on it, sir?

George Alexander Muthoot — Managing Director

No, we just give a conservative number only. Let’s just wait see. It is not that tomorrow everybody is going to stop, just take some time, maybe one quarter, two quarters, three quarters, let us give it some time. Anyway, we are not — not that we are making any losses. We are making reasonable profit. Instead of the peak profit of INR3,900 crores [Phonetic], we are not — we are making something — little lesser than that in a year. That’s all. Otherwise — nothing great. So, we have made about INR900 crores every quarter, so I think that itself is reasonable to sustain us. But I don’t know about the new players will be able to sustain this

Shubhranshu Mishra — PhillipCapital — Analyst

Sure sir. My data keeping question, ticket size wise AUM split, sir?

Oommen K. Mammen — Chief Financial Officer

Yeah, less than INR1 lakh will be about 41%, between INR1 lakh and INR3 it will be 35% and above INR3 lakhs will be 24%.

Shubhranshu Mishra — PhillipCapital — Analyst

Thank you, sir. Best of luck.

Operator

Thank you. We have next question from the line of Shweta Daptardar with Elara Capital. Please go ahead.

Shweta Daptardar — Elara Capital — Analyst

Thank you, sir, for the opportunity. Sir, couple of questions from my side, the first being similar to what earlier participant had raised. So, why on sequential basis your LTVs have dropped from 69% to 65%? Is this the outcome of competition or should we attribute to income coming from the regulatory side?

George Alexander Muthoot — Managing Director

No, it is just because LTV — the price of gold has gone up. The price of gold has gone. So the LTV will be lesser.

Shweta Daptardar — Elara Capital — Analyst

Okay. Secondly, so you guided for 10% growth, right, for the forthcoming year. So, what ticket segment should drive this particular 10% growth? Should we presume that low ticket gold loan market is sort of not coming back and they both — because your ticket sizes have also gone higher, right? So largely, this [Indecipherable] growth is going to come from which ticket segment?

George Alexander Muthoot — Managing Director

So, we have not looked at ticket sizes, we feel that the growth will come from all the branches. We have not looked at the ticket size growth exercises, not that we are going to give only high-ticket loans or low-ticket loans. Whoever comes for gold loan, high ticker or low ticket, our branches are equipped to do that. I don’t think we differentiate between high ticket, low ticket, etc.

Shweta Daptardar — Elara Capital — Analyst

Sir, there is gold loan demand on the low ticket size as well even today?

George Alexander Muthoot — Managing Director

Yes, there is, definitely there is. That is why on average is still about 75% [Phonetic] for 35,000 only. Low ticket, we have people taking 5,000, 7,000, 10,000 also, so many people are there, definitely. Any customer who comes to the branch, we will service them irrespective of the ticket size.

Shweta Daptardar — Elara Capital — Analyst

Okay. Sir, one last question from my side. Are we by any chance cross-selling in our gold loans to our Belstar MFI customers?

George Alexander Muthoot — Managing Director

Cross-selling — MFI customers — no, there is nothing like cross-sell, etc., for MFI customers. MFI customers take MFI loans, gold loan customers take gold loan. A customer who has taken a vehicle loan from somewhere — from Bajaj will also take a gold loan. If somebody was taking a housing loan from State Bank of India, they also have a gold loan, that is all there — there’s nothing like a cross-sell, etc.

Shweta Daptardar — Elara Capital — Analyst

Understood, sir. Thank you so much.

Operator

Thank you. We have next question from the line of Shreepal Doshi with Equirus Capital. Please go ahead.

Shreepal Doshi — Equirus Capital — Analyst

Thank you for giving me the opportunity. Sir, I wanted to ask about [Technical Issues]…

Operator

Sir, I’m sorry to interrupt. Mr. Doshi, your line is not very clearly audible. Could you please use the handset and come to an area where the network is stable and then ask the question? Thank you.

Shreepal Doshi — Equirus Capital — Analyst

Can you can you hear me now properly?

George Alexander Muthoot — Managing Director

Better.

Operator

Please go ahead.

Shreepal Doshi — Equirus Capital — Analyst

So I wanted to ask you about, what is the — like have you tweaked the policies with respect to acquiring customers from other banks and NBFCs in the gold financing space? And also, I wanted to understand if some employee has left us, because there has been this strategy wherein other NBFCs and banks are acquiring are employees? So, do we have a policy wherein we accept them back when they come back? So, I just wanted your thoughts on two aspects.

George Alexander Muthoot — Managing Director

Acquiring customers I’ve heard, acquiring staff is first time I’m hearing. Anyway, jokes apart, people have gone away from us, sometimes they come back. If we feel that he was a good resource when he went, he went by mistake, we will take him back, sir, we’ll take him back. There is no policy of we taking — from wherever source gold loan comes we’ll take, whether it is from bank or customer, everywhere somebody brings it, if he takes it from the bank and come, we’ll take it, if he takes it from an NBFC and come, if he takes it from his house also we’ll take it.

Shreepal Doshi — Equirus Capital — Analyst

[Indecipherable] because like we had done some channels which suggested that we had some restrictions with respect to, say, BT in cases for gold and also for employees as well. So, just want — when — have you tweak this policies in the recent times or just…

George Alexander Muthoot — Managing Director

No, anybody who ask, if he is a good person, we tell him we’ll take him back, sir.

Shreepal Doshi — Equirus Capital — Analyst

Got it. And sir, why the GNPA number sequentially has gone up?

George Alexander Muthoot — Managing Director

Sir? NPA.

Shreepal Doshi — Equirus Capital — Analyst

Yeah, NPA number has sequentially increased by almost 50%.

George Alexander Muthoot — Managing Director

I think nobody usually asks that question now, at least analysts don’t ask. Only the press people ask about NPA. NPA for gold loan is not as — not — doesn’t affect the P&L at all because 100% gold is there. We get back the interest and principal, so retaining some customers although they are NPAs is definitely a customer-friendly approach, because customers — otherwise, the next option is, one, the NPAs are becoming — just because it has crossed the time limit.

So if you give them little more time, they will take it back, otherwise they have to option the gold. So, optioning gold is very painful to the customers. So when customers request we give them more time. And since we are in the money — especially now that there is — gold price is also high we are in the money, so we include auctions. So, all what you see as NPA, it is not some hardcore gold — default et., it is people to whom we have given some more time to take back their gold. So we don’t see a credit loss, there are no credit losses, sir. Credit loss is only 0.2%.

Shreepal Doshi — Equirus Capital — Analyst

Yeah, that is the — yeah, got it, sir. And sir, so incrementally you have been guiding for a 10% growth. So, that would be broadly — so how much of it could be driven by this new branches that [Technical Issues]?

George Alexander Muthoot — Managing Director

See, new branches, last year — or we are opening it would 150 branches. They’re not going to grow much in the first year. So, in coming years those branches will start getting business. But more than that, we have capacity capability of doing more. So today, our average [Indecipherable] is about INR11 crores plus. So [Indecipherable] is INR30 crores, INR35 crores and INR40 crores also. So, potentially every branch can do this depending on the location and the type of people, community they serve. This can go up to over INR30 crores also.

So even without branches, the AUM can really go up but then opening branches in good places is definitely something which we need to do and that we are doing. So next year also, we’ll be opening new branches. New branches definitely added to the business, but not do any substantial business in the initial one year, two years.

Shreepal Doshi — Equirus Capital — Analyst

Got it. And sir, also we are requesting for another 150 branches, right, you said in your opening remarks?

George Alexander Muthoot — Managing Director

Yeah, this is completed, it will be completed. In March, we will ask — request for the next set of branches.

Shreepal Doshi — Equirus Capital — Analyst

Got it. And sir, any yield increase that we are doing incrementally, pricing?

George Alexander Muthoot — Managing Director

Yield increase actually we do when the cost of gold goes up, so if the cost of gold, etc., goes up, we will pass on that to our customers because we try to maintain our NIM.

Shreepal Doshi — Equirus Capital — Analyst

Got it, sir. Thank you so much answering questions.

Operator

Thank you. We have next question from the line of Pradeep Agarwal with Systematix Shares and Stocks. Please go ahead.

Pradeep Agarwal — Systematix — Analyst

Yeah, hi sir. I have a couple of questions basically on the teaser book side. So while we understand that in H2 FY22 we had a large part of the book which was about teaser rate loans which got matured in this quarter and some matured in next quarter. So, what will be the adjusted growth in AUM this quarter on a sequential basis if we adjust for teaser rate book — normalized book, both would [Speech Overlap] for this quarter?

George Alexander Muthoot — Managing Director

Teaser rates, we have been doing teaser rates for the last 10 years.

Pradeep Agarwal — Systematix — Analyst

No, I — that 7%…

George Alexander Muthoot — Managing Director

We don’t call it teaser rate, we call it differential rate. So, we have always — even today, we have loans at 8.9%, 10%, 12%, 18%, 20%, 21%, we have and the yield, etc., is on a blended basis. So, today also we have — but we had an ultra-low teaser rate two years — we should call it [Speech Overlap] ultra– two quarters, three quarters flat, and now we have stopped it also. That has grown [Phonetic]. But even now, we have loans at 8.9%, 9.9%, 10%. We have to offer differential rate to differential people, only then we can be in the market. So, this is what we do. [Speech Overlap].

Pradeep Agarwal — Systematix — Analyst

Yeah, that I understand.

George Alexander Muthoot — Managing Director

[Speech Overlap] blended higher rate, that is what [Indecipherable]. The ultra teaser rate is what you were talking of, 6%, 9%…

Pradeep Agarwal — Systematix — Analyst

Why I’m asking this question is because in quarter three and quarter four last year, our disbursements have grown significantly after the broadening teaser — ultra teaser rates. So, I just want to understand the book, which we have done on that ultra teaser rate loans, what proportion of that book would have…

George Alexander Muthoot — Managing Director

That has fully gone off from our books.

Unidentified Speaker —

No, we stopped this scheme towards the end of March and we migrated all those customers with effect from July 1st, 2022, so that is over.

Pradeep Agarwal — Systematix — Analyst

Okay, so we did not have any maturity which was due in current quarter or [Indecipherable]?

Unidentified Speaker —

No, those loans got migrated even before its maturity.

Pradeep Agarwal — Systematix — Analyst

Okay, got it. Secondly also, I would like to understand, your employees base have come down by about 800 odd people whereas your branches are rising to some extent. So to read into that?

Unidentified Speaker —

So, it could be because of the MAL additions as well as the normal exits which can happen. Sometimes it is seasonal when you pay out — larger payouts, etc. So, it is an impact of post — subsequent event of those actions.

Pradeep Agarwal — Systematix — Analyst

Okay. Also, just an added question on the teaser side. Looking at the past one year to two years behavior, if you can give some sense in terms of ultra rate or less than 10% rate, what proportion of the customers normally stay back with us even after increasing those rates? What has been your experience in the last 12 months after putting those interest rates of 7%, 8%, some sense on that.

George Alexander Muthoot — Managing Director

We give them option of going into the higher bracket. Even without anything else, many of these customers, the average ticket — average tenure is three months, four months. Even without doing anything these people will take back their gold, so that will be a given thing. Some people who renew the gold and continue with us, maybe some of them continues, few of them would have taken back. We did not get into nitty-gritty of that. Somebody is not interested to keep with us, just want to take it away, they would have taken it away. But majority of them would have closed it even otherwise. Even if there is nothing else, all the loans are generally for three months, four months only.

Pradeep Agarwal — Systematix — Analyst

Okay, just one last question, data-driven question. What was the auction number during the quarter?

Unidentified Speaker —

It was INR200 crores — INR223 crores.

Pradeep Agarwal — Systematix — Analyst

INR223 crores? Okay. That’s it. Thank you so much.

Operator

Thank you. We have next question from the line of Nidhesh Jain with Investec. Please go ahead.

Nidhesh Jain — Investec — Analyst

Thanks for the opportunity. Firstly, the 10% guidance that we are putting out for next year, what is the expectation of volume growth in terms of number of customer growth? When we say 10% growth, how much should we expect from number of customer growth in that?

George Alexander Muthoot — Managing Director

We do not look at the number of customers, etc. I think we — I was talking more about the AUM growth. Number of customers is only a byproduct of that.

Nidhesh Jain — Investec — Analyst

Okay. Secondly, in our subsidiary housing finance we are seeing AUM decline in asset quality, GNPA continues to remain elevated. So, what is happening there, what is the strategy there in that subsidiary?

George Alexander Muthoot — Managing Director

Ten minutes back I had — I think we told we have now restarted all these businesses, which we [Indecipherable] during the COVID period, the housing finance, the personal loan, the vehicle loans, the MSME loans, etc., we started it. And specifically for housing finance, we have got a new CEO on-board also. He had joined us a month back — less than a month back. And we are sitting with him and probably putting up the business plans for next three years, four years also. So — but then, we should see the growth coming back in home finance also. That’s what your question is.

Nidhesh Jain — Investec — Analyst

Yeah, okay. And lastly, on the microfinance, what is the reason of the PAT declining sequentially versus last quarter? Last quarter we reported around INR21 crores of PAT, this quarter the PAT has gone down to INR14 crores. So, what is the reason for that?

George Alexander Muthoot — Managing Director

No, all the microfinance companies, not only us, everybody has some legacy notes with them, which people write-off over the quarter. This is what you — we have just rescheduled — some rescheduled notes were there [Speech Overlap] that is also just what should we see, cleaning up the stable.

Nidhesh Jain — Investec — Analyst

Sure. Thank you, sir. That’s it from my side.

Operator

Thank you. We have next question from the line of Vishal from ICICI Securities. Please go ahead.

Vishal Narnolia — ICICI Securities — Analyst

Hi, thank you for the opportunity. I had couple of questions. One question I had about the yield in the gold finance business. It has improved by 84 bps in this quarter, but it is still at around 18.2%, not yet to the normal level of 21%. I just wanted to understand the yield trajectory from here on.

Oommen K. Mammen — Chief Financial Officer

So, due to the teaser rate loans our yields have significantly come down in the first quarter. So, we had explained at that point of time that once this teaser rate loans are migrated, it will — it could improve, so which has happened in the second quarter and again it has improved in the third quarter. So in the third quarter it has moved by about 84 basis points.

And I think it’s not like these teaser rate loans, 6.99% has moved to 24%. We have moved these customers in stages. So probably, currently those customers might be in 10% to 12%. So depending on how the business scenario is evolving, we’ll gradually increase the rates on those loans and accordingly, the overall yield also can improve in the coming quarters.

Vishal Narnolia — ICICI Securities — Analyst

Okay, understood. Secondly, I also wanted to understand on the funding cost part, in this quarter it has increased by around 20 bps and if I can see, our absolute borrowing has also decreased quarter-on-quarter, so did we use the excess liquidity in our balance sheet to contain the funding? And also, I mean, going-forward, how should we think about the funding cost, please?

Oommen K. Mammen — Chief Financial Officer

See, I think we have moderated the on-balance sheet liquidity, everyone is experiencing now increase in the borrowing cost. So in our case also, borrowing cost has gone up, so that is reflected in the borrowing cost for third quarter. I think incremental cost — incremental borrowing rates are also higher, so I think it should move up a little bit in the fourth quarter.

Vishal Narnolia — ICICI Securities — Analyst

Okay, understood. And lastly, I also had one question on the MFI subsidiary. And in MFI subsidiary, our credit cost seems to be elevated and it’s not — and it’s not on the improvement trajectory, if I can say. So I just wanted to understand what’s happening there and when should we see the credit cost normalizing in MFI subsidiary?

George Alexander Muthoot — Managing Director

Our MFI is as good or better than the general — all other MFIs. So, credit cost is there. I said the same in the last question, somebody asked the same question easier also. There were loans which were rescheduled last — during the COVID [Speech Overlap] and some of those loans we have just taken an aggressive stand and [Speech Overlap] and that is why you see the credit costs have gone up in MFI.

What I’ve said is, it is — our credit costs are definitely better than most other microfinanciers. So, we are a bit — w are better than the others in the MFI is what I wanted to say. Credit costs are there. There is no credit cost in gold loan, but there is definitely credit costs in MFI.

Unidentified Speaker —

Post-COVID loans even are as good as pre-COVID.

George Alexander Muthoot — Managing Director

Yeah, the post-COVID loans are as good as the pre-COVID loans, yes, correct.

Vishal Narnolia — ICICI Securities — Analyst

Okay. Sir, so should we see any improvement in credit cost going forward now?

George Alexander Muthoot — Managing Director

Sure, definitely we should see better performance, lesser credit cost going forward.

Vishal Narnolia — ICICI Securities — Analyst

Okay. Thank you so much. Those were my questions.

Operator

Thank you. We have next question from the line of Arul Selvan from Independent Advisors Private Limited [Phonetic]. Please go ahead.

Unidentified Participant — — Analyst

Good evening, sir. Thank you for giving the opportunity. I had a question in a more long-term framework over here and this was regarding your earlier comments about your plans of increasing the non-gold AUM from the current 12% to maybe 15% to 20% in the future. I hope I — I hope that part is — I got it correct in terms of your future plan.

So now, what I’m thinking about here is along the lines of — given that the return profile, the risk profile and perhaps even the core underwriting experience and your expertise as well in each of these segments, be it, let’s say, housing loans or microfinance loans, given that these segments are all unique, is there any plans of perhaps spinning off or demerging this business in the future once it grows to a sizable proportion?

George Alexander Muthoot — Managing Director

Was that your question?

Unidentified Participant — — Analyst

Yes, that was my question.

George Alexander Muthoot — Managing Director

Okay, Muthoot [Speech Overlap]…

Unidentified Participant — — Analyst

And I understand that but perhaps it’s a little bit too early for me to ask this because obviously these things are still at a smaller pace, but I was just trying to understand the…

George Alexander Muthoot — Managing Director

Understood. As promoters of Muthoot Finance, sir, we have been the masters of the gold loan, that is accepted, we also accepted. But when it comes to the others, we have CEOS, etc., from the market who are — experienced in that — all these other divisions. So, we don’t plan to grow it and then hive it off, etc. We can certainly have it in our own books and our own Company, so whether is microfinance, whether it is housing finance, we have CEOs, etc., who are exposed in those fields and we have overall managerial control also. That is what is our plan. And actually, if you — we have never thought of growing and then hiving it off to somebody. That thought us not crossed our mind, sir.

Unidentified Participant — — Analyst

Okay. And in terms of which segment — I heard that the housing segment is where Muthoot is planning on focusing on. So, is it predominantly housing or are you also looking at other segments like microfinance and vehicle finance in [Speech Overlap] term?

George Alexander Muthoot — Managing Director

Home loan is one, the personnel loan is one, the MSME loan is another, the microfinance is another. So, we would focus on all these aspects with separate verticals, these are all separate verticals.

Unidentified Participant — — Analyst

Right. But then you said that you’ve got a new CEO for the housing segment.

George Alexander Muthoot — Managing Director

Yes, the others are existing CEOs. They’re also [Speech Overlap].

Unidentified Participant — — Analyst

Right. That’s it from my side. Thank you.

Operator

Thank you. We have next question from the line of Mona Khetan with Dolat Capital. Please go ahead.

Mona Khetan — Dolat Capital — Analyst

Yeah, hi sir, good evening. I just had one question. What is the share of loans we have with yields less than 12%?

Oommen K. Mammen — Chief Financial Officer

So, it may not be sizable. We don’t have that information readily available.

Mona Khetan — Dolat Capital — Analyst

If you could give me a broad sense also, that will be useful.

George Alexander Muthoot — Managing Director

No, I think we look at the — blended is — our blended yields come…

Oommen K. Mammen — Chief Financial Officer

Because we run a rebate system, so it’s very difficult to freeze a particular level.

Mona Khetan — Dolat Capital — Analyst

Okay. Sure, thank you.

Operator

Thank you. We take the last question from the line of Pallavi Deshpande from Sameeksha Capital. Please go ahead.

Pallavi Deshpande — Sameeksha Capital — Analyst

Yes sir, just wanted to understand better on the borrowing cost. Will we see a steeper hike in 4Q than what we’ve seen in 3Q on the borrowing cost side? And the second question would be on the employee cost. Is it in — since attrition — what would be the attrition rate and what’s the kind of salary hike that you normally give out?

Unidentified Speaker —

So, borrowing cost, for Q3 it was around 8.3%. I think it is likely to move up in the fourth quarter because I think in the third quarter the incremental costs have been going up. So, I think it should move towards 8.5% in the coming quarters.

Pallavi Deshpande — Sameeksha Capital — Analyst

I think the third quarter, you had the benefit of some high cost borrowing, also retiring or something [Speech Overlap]…

Unidentified Speaker —

Yes, that benefit continues, but not the incremental borrowings, because almost all banks now one-year insular is around 8.3%. 8.5%. So as and when the reset happens, the rates will move in those ranges.

Pallavi Deshpande — Sameeksha Capital — Analyst

In those ranges. And on the employees, what would be the attrition rate and how has this moved over the last one year to two years, if you could [Speech Overlap]…

George Alexander Muthoot — Managing Director

Last two years, moves of the employees don’t want to work. They have been all spoiled beyond repair. Everybody was sitting at home and enjoying, s people now are finding it difficult to come to office to work. And for us, they have to come to office, there is no work for home for a gold loan. So, gold loan means the customer comes to the bank. So, jokes apart, there is attrition everywhere, people — it’s not attrition, going elsewhere. Some of them are just going and sitting at home, that’s what my people tell me. They don’t know, they’re getting PMGY, KMGY or NRGI, etc., funding and they may be sitting at home. That is again on the lighter side.

People go, attrition is there everywhere. Every industry there is attrition. So, we normally do some salary hikes and retain and — etc., and try to contain this and run the business. It is a very generalized [Speech Overlap]…

Pallavi Deshpande — Sameeksha Capital — Analyst

What I’m asking is the [Speech Overlap] you’ve seen from banks, what I understand is there has been a lot of poaching from the gold finance companies and…

George Alexander Muthoot — Managing Director

I was telling earlier also, some people go there — earlier one person asking whether they come back will you take them. So, it like the prodigal son who has gone away and afterwards coming back, we’ll take them back if they are good people. So sometimes, they feel that they need to go elsewhere.

Pallavi Deshpande — Sameeksha Capital — Analyst

If so, would the number be above 20%, the attrition?

George Alexander Muthoot — Managing Director

Yeah, 20% — lower level also — lower level people are the people who just jump away. They don’t want to work, madam. Those who join quickly, they just join and they’re not going somewhere else, they’re just going home or going abroad.

Pallavi Deshpande — Sameeksha Capital — Analyst

And lastly, sir, on the — overall, on the cost-to-income side, can we the long-term trend to be where it is currently or will we see that creeping up? And one more if I may squeeze in is on the [Speech Overlap] the online gold loan, has that — 36% I think is transacted online, is what you put up. So, how is it…

George Alexander Muthoot — Managing Director

So, we transacted online is only just remittance of cash, madam. People remit cash, they take [Phonetic] cash, but otherwise to take the gold, to check the gold, keep the gold, keep back the gold, it is the physical branch itself. Only the fund the transfer transactions can happen online, that is they can take the funds, they can pay — repay the funds, they can pay the interest, only that happens online. All the other things, checking the gold, taking it, keeping it in the — back in the place, taking it back, but they have to come to the branch, and it is a physical only.

Pallavi Deshpande — Sameeksha Capital — Analyst

Thank you so much.

George Alexander Muthoot — Managing Director

Thank you.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I’d like to hand the conference back over to the management team for any closing remarks. Over to you, gentlemen.

George Alexander Muthoot — Managing Director

Thank you, investors, those who are again still there. Definitely thank you for supporting us. We need your support. We need your insight. We need your advises always. So, we look we are always there. We are really focused on our business and our growth, and we will see that we will do our best to see that your Company, our Company, does better and better every time. So, thank you all for a good day, and wish you a good day. Thank you.

Operator

[Operator Closing Remarks]