Poonawalla Fincorp Ltd (NSE: POONAWALLA) Q2 2025 Earnings Call dated Oct. 25, 2024
Corporate Participants:
Arvind Kapil — Managing Director & Chief Executive Officer
Sunil Samdani — Executive Director
Sanjay Miranka — Chief Financial Officer
Analysts:
Avinash Singh — Analyst
Shreyas Pimple — Analyst
Parag Thakkar — Analyst
Kaitav Shah — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Poonawalla Fincorp Limited Q2 FY ’24-’25 Earnings Conference Call. We have with us today on the call, Mr. Arvind Kapil, Managing Director and Chief Executive Officer; Mr. Sunil Samdani, Executive Director and other senior management officials. [Operator Instructions]
I now hand the conference over to Mr. Arvind Kapil, Managing Director and Chief Executive Officer of Poonawalla Fincorp Limited. Thank you and over to you.
Arvind Kapil — Managing Director & Chief Executive Officer
Thank you. A very good evening to all of you and welcome to our Q2 earnings call. Wish all of you and your loved ones a happy and prosperous festival season again. I’ve now spent around 4.5 months as an MD and CEO of Poonawalla Fincorp, and I’ve got a chance to fully detail operating strategy of the organization. I will therefore begin by updating you on the details and progress made since the last call.
To reiterate, our vision is to create a sustainable and predictable retail lending business that scales to five to six times over the next five years. So I had mentioned five to six years and coming back to five years 4.5 months down the line, I’m quite clear that we can probably — my confidence on this looks far more clearer. This is on the back of creating a stronger customer financed brand and respectable customer service, the two very fundamental to beginning. I continue to be extremely bullish on the Indian retail macro. There is a significant value-creation opportunity by, let’s say, serving around 400 million creditworthy customers in India, of which around 50% are still underserved. Delivering on this vision will require significant investments in the quality of our people. That’s most important. New businesses, yes, new distribution points and strengthening our capabilities across collections as I mentioned last time to you.
Advanced analytics, extremely important is going to be cutting-edge in almost every department that we run and customer engagement. Let me provide you a brief update across all these dimensions. I thought it will be more prudent for us to be more detailed this time, so that all of you get a firsthand glimpse of what the plans are. All of this has been thought through, planned and we will systematically execute. Let me start with our people.
Happy to report back to you that we’ve made offers which have made almost 95% of the envisioned leadership hires. All the senior managers have already joined us. So in 4.5 months, you’ve got the top management and almost the second layer beyond that is also joint. Barring one CTU that we’re expecting in the first week of December, which is also a fantastic resource, almost everybody else is on board as I talk to you and is already full-scale in the work in progress and this team in my limited view should be among the top teams by any standard when you compare to the industry. If I were to give you a quick glimpse on this, if you take the Chief Credit and Analytics Head, Shriram, ex-HDFC Bank, you’ve got the Chief Business Officers, Vikas Pande and Raghwan and ex-HDFC Bank, top-notch resources who were induced in our last call.
We have couple of new seasoned leaders across data science, collections, risk, audit, both internal and compliance. They’ve already joined us from fairly great Institutions. To give you guys a sense, Bhaskar Pandey joined us as CRO, Chief Risk Officer, ex-HDFC Bank 23 years plus. You’ve got Bholananda Behera, Chief Compliance Officer, who joins us with 27 years experience, we’ve got Nitin Sane, he joined us, he is ex-Citi and then ex-HDFC Bank, he has joined us from [Indecipherable] Rabo Bank Group, Netherlands with over 20 plus years experience. We’ve got, Jaswinder Saini who has joined at Risk Analytics, one of the finest resources. Anil Hospattankar joins us as Lead Collections with 30 years of experience with Yes Bank.
Let’s quickly take you through our plans for the new businesses. As we scale up our customer franchise, we want to go deeper in our focus micro markets rather than just go broad across India. This will enable us to get operating synergies, I believe, understand and manage risk better, and ensure our brand promises delivered in the communities we serve. Why we’ve always had a forte in self-employed segment as well as Tier 2 geographies, we’ve had a limited product portfolio to serve the segment.
I strongly believe there is a need to expand our offering in order to get multiplier benefits from attachment areas, for example, improve productivities of our branch in people head network, improve our cross-sell ratios. And remember one thing this management team is very well-versed with the cross-sell strengths that’s going to start getting added to our existing portfolio plus the new ones, to further lower our customer acquisition costs, and manage yields per customer, hedge our portfolio from diversification and substantially increase the granularity to the entire business.
As a result, from a product portfolio that I announced last time, existing that you have four key products, that’s your small-ticket size PL, STPL, you’ve got lap, you’ve got business loans, you’ve got pre-owned car. You’ve got to broaden offering to 10 products. So what I’m really saying is that we want to build six additional offerings. And I’m talking about a whole lot of work is already underway at this. The budgets have been done, the people are getting hired, but I’m putting a launch by quarter one of financial ’26 just to be a little more precise in terms of our delivery on precise numbers from thereafter.
So I had shared with you prime PL, which has already by the way taken off much before we had thought of, and it’s scoring pretty decent numbers already. You’ve got consumer durable, the process is underway to start. You’ve got shop people loans, you’ve got used commercial vehicles, the people have joined in, the business has joined in. You’ve got two new businesses that I’m adding now after adequate thinking through and increasing the granularity and the strength of the offering is going to be gold loans and education loans.
And both of them as well will be launched around quarter one of financial year ’26. Let me quickly take some time to briefly talk about the rationale for each of these businesses, and how they’ll complement our existing product portfolio, and enhance our competitiveness vis-a-vis, I believe our peers. We should be growing at a much faster rate, and far more granular. Quick sense on consumer durables, like I discussed last time is going to be a key pillar for growing our customer franchise.
India’s customer — consumer durable sales in a year is close to around INR8 odd lakh crores, and only 30% is financed today. That itself shows to you what an opportunity it can be for the Company. As a result, consumer durable financing is seeing a 25% plus growth year-on-year. The Tier 2 and Tier 3 locations have been growing fastest, 35% plus year-on-year and not surprisingly still, presently immense penetration potential. Our strategy will be anchored along with these geographies with a focus on younger early-salary customers.
Our underwriter will be backed by robust credit decisioning and fraud models, given the experience of our data science and product team. A quick sense of shoppers loans. India has 13 million kirana stores today with 3 million mass retailers and family stores where the turnover can be anywhere between INR10 lakhs to INR5 crores, formal financing penetration is less than 20%. It’s a fantastic opportunity for us. Playing in this segment requires strong digital-assisted models and sharp credit policies. And we have the bench strength and past experience.
We will work on both digital and physical. We’ve captioned this model earlier in my previous organization and I do see significant opportunity to build a sustainable shopkeeper finance book. Let me speak about gold loans. As we know that gold is one of the largest and safest form of collateral today that led to the rural and informal sectors in the Tier 2, Tier 3 geographies, having gold loans in our portfolio becomes extremely complementary to our catchment areas.
While gold is approximately INR7 lakh crore-plus market, we intend to play in the mid, lower-ticket sized segment in the Tier 2, Tier 3 geographies, so 40% to 50% of the market. Gold loan branches do require specific infrastructure. However, they are quicker to breakeven, especially paired with other complementary cross-sell business that we’ve built strength of. And remember one thing this team I’ll repeat is well-seasoned on that area. I’ll cover this in our distribution strategy.
Personal loan prime, yes, personal loan may see in the crowded space, INR13 lakh crore market growing at approximately 26% year-on-year. However, my 20 years of experience of leading this business tells me that there is significant pockets of prime customers that we serve in deeper geography, over 3 lakh failures, and that presents a great opportunity for us. We are already scaling this up from insignificant levels to decent quantums month-on-month, and growing at a rapid scale. I’m very optimistic on the yields and the business prospects of this.
Our play in this segment will be driven by open-market physical sourcing and a strong digital-assisted journey with robust scorecards to scale. Used commercial vehicle is another very interesting business. There are close to 11 million commercial vehicles in India and they typically change two to three owners in a lifecycle. 40% of the stock is in the prime five, 10 year vintage where funding penetration is less than 40%. The current used commercial vehicle finance market is around INR1.9 lakh crores today, and has grown at a steady rate of approximately 13%. These locations in the semi-urban India aligned well with our current physical distribution strategy.
Our self-strength and self-employed underwriting will help us serve the small fleet operators in first-time buyer segments. Education loan, yes, I’m going to be focusing on that as well. A, it could make us a good household names. In the fast-growing segment, 17% year-on-year increase AUM with almost close to INR1 lakh crore a year, while most of the portfolio has been targeted and international students, there is a clear shift in the trend in increased demand in the segment beyond on various segments of the institutions.
Education loan like I said, will enable us to amplify our household brand efforts, and building across our retail segment. I’m confident that adopting these complementary businesses and leveraging the right data and analytics can help us build a diversified portfolio with predictable and sustainable cash flows and calibrated risk levels. The whole plan is that where your whole business is broadly going to 10 businesses, and building it over four to six quarters can substantially add a very positive upside in the next 1.5 years on the building blocks.
On the new distribution points, a few comments, it’s my firm belief that the segment we cater to requires us to have meaningful presence on the ground, both from a sourcing and collections perspective. As a result, we brutally expand our footprint. Yes, we presently stand at approximately 101 branches, and we are going to ready to expand our footprint by 400 branches over the next year in T2 and T3 locations consistently with our strengths.
So what I’m saying is, I will be launching 400 branches addition in the coming financial year. So the whole work has already begun. There’s a whole lot of work happening on that. And for the first quarter itself or the coming financial year, you’ll see us moving on that. These will be gold loan branches, but there will be heavy cross-sell focus into our core businesses of business loans, lab, shopkeeper loans, it will be a fair flavor of digital as well. And as a result, we expect our breakeven these branches to be 12 to 15 months ballpark.
Our new capabilities, if I were to summarize quickly, there are three areas we are doubling down on. From capability standpoint, that will sell the foundation for the franchise. I mentioned last time to you, strengthening collections, number one. We’ve significantly strengthened our collection organization, bringing seasoned professional, Anil Hospattankar, Head of Collection joining us from Yes Bank over 20 years, nine years of experience in the industry, we see our collection strategy across three clear dimensions. I’m laying it out for you so that it’s much easier for you to assess because with every passing month, we are moving — we’re almost probably leapfrogging in the way we’re getting controls.
The use of advanced analytics, the three dimensions I’m laying out. We’ve already built advanced portfolio segmentation, risk categorization scorecards for most of our portfolio. We are augmenting them with both honors and external data, across the life cycle of customers, predelinquency to delinquency to recovery. That’s what they have done on the ground over the last 60 days. We’re putting in place algorithms to help us decide on the right strategy for the customers.
We will be fully live by December. Scientific customer and resource allocation is being done, and customer engagement. We have significantly augmented our agency capacity. I think that itself can add immense value over the next 60, 90 days and we are bringing in seasoned debt management professionals to manage the markets. 80% of the required capacity will be in place. Let me give you precise timeline, will be by Jan the coming Jan ’25 and 100% by March ’25.
So you can well see that work is happening on a wall footing on multiple dimensions, investments and adoption of digital technology and collections. Whether it will be rolled out an intuitive and agent-friendly collections app, multiple scan, UPI features for repayments, multi-lingual bonds in probably 10 languages, we are already live by the way, over the last 60 days. And digital communication enablement to build timely payment habits. We are building out modern, sophisticated collection tech capabilities, that’s of variety.
If I look at the point number two, AI-driven credit decisioning and risk management. All the 10 products that we are kickstarting, we spoke of have to be necessarily driven off the back of a solid risk management infrastructure, and scientific decisioning. Remember one thing, what gives us courage to take four products to 10 products is a solid management team, and over and above a very solid risk management and collections team. Our aim is to build a granular book that is differentiated by specific credit policies for specific segments. As a result, we have defined product and customer segments, risk-adjusted return on capital, to granularly assess risk-reward choices.
We will have approximately 10 to 15 sub-segments within each product. We are creating risk separation by using alternate data over and above bureaus. What I’m really doing is, giving you micro details of what my guys are doing. That’s what I asked them to share with me precise steps. So it gives you a first-hand sense of the detailing that we’re getting into. We are leveraging behavioral data, we are doing data from DigiLocker
And other digital public infrastructure, the data sources, the point-of-sale and micro-market level data, and cash-flow data via account aggregation, very important. It should give us a 10% to 20% higher lift in predictive algorithms.
We are fairly investing in that to give us a cutting-edge in a few quarters. Set up advanced portfolio monitoring techniques that can improve credit costs for another 20 to 30 basis points. We’re granularly analyzing productivity and its impact through the low quality, along with keeping a tab on macro and micro indicators that might indicate slowdown or temporary shortfall in specific sectors and geographies. The idea of getting into these small details is to give you a ground level feel on what’s happening at an operating level.
Building a team of cutting-edge AI professionals along with strong capability and infrastructure, having hired some seasoned professionals to boost our current data science team, that’s what we have done on the risk side. We are now investing in overhauling our scorecards from traditional models to AI and ML modules. This has been worked borne by just same Shriram Bhaskar. Personally, we’re getting into these areas because this could be cutting edge for us. And size of the balance sheet versus these initiatives, we could probably be the best-in-class in this in couple of quarters down the line.
We will have a stack of models across customer lifecycle, right from classification and regression models to predict income to multi-bureau models and partnerships, alternate scoring models. This isn’t easy to build. You can build this today because you’ve got a management team which has that bench strength, to create different swim lanes to ensure risk accuracy is not just compromised while providing a seamless experience to customers.
Fraud prevention is another area where we will heavily lean on AI-ML. We’ve achieved initial success in identity, theft patterns, and documentation tampering behavior in our digital lending portfolio. We will continue to use a combination of graph-based technologies and generative AI to drive higher fraud prevention. To ensure all the above are scalable, we are also building the right data maps and solutions along with modular API capabilities for third-party integration.
We will soon partnering with one of the leading institutes of India to ensure we get a highly talented pipeline of machine-learning operations and data engineer, to build these use cases. Ramping up digital and performance marketing for our customer engagement is another very close to my heart. If you know my past background on digital, that probably would quantify why this area is so close to my heart. We will have a large customer lending base coming in over two to three years. Our aim is to ensure we have 50% to 60% of our customers at repeat franchise customers. This will enable us to have a reasonably healthy margins, risk costs, and create solid customer cohorts. This will be the building cost strength of us.
To enable this, we are building our marketing technology infrastructure. Our focus going forward will be to monetize these capabilities via AI, and scientific performance marketing, search engine optimization or search engine marketing, and organic traffic builds, and engage our customers meaningfully over the web and customer apps. It will be high priority for us. We’re doing a fair amount of work on that. By quarter four of financial year ’25, we will go live with our revamped website that is powered by modern architecture and personalization capabilities. As we build-out our new businesses, our app will also provide seamless service and interaction, including meaningful features, that will enable us to engage with our customer base.
Collectively, adding new people, new businesses, distribution points, new segments, and also capabilities across AI, collections, digital marketing will lean incremental investments over the next six quarters. I thought it might be appropriate for me to give you on a ballpark basis because we’ve done a fair bit of budgeting on that and we do expect the number to be around ballpark INR50 crores per quarter over the next six quarters. These investments are going to be foundational and will provide a multiply of benefits to our growth and profitability in subsequent quarters. Having walked you through the details of our fundamental strategy, I will continue to keep the Group posted on our progress in subsequent calls.
Let me now focus our conversation to our performance this quarter. We are firmly on-track to deliver our AUM growth as promised in our last quarter. What has changed is the mix of our incremental business, and that is the priority for us as well. We will change the incremental mix more towards in more granular, risk-savvy and incrementally solid customers. We’ve driven our purposeful scale-up of our commercial lending businesses on the back of the strong cash flows and tailwinds we are seeing across our markets.
Incremental business disbursals among our existing four businesses, let me give you a sense on the two businesses to begin with. Business loan and LAP, it’s been around 4.5 months now and we’ve already started growing at approximately 50% in business loan, and 65% quarter-on-quarter, respectively. I thought probably this will give you some sense on what this team after joining in various points of time in the last four months can fix for you.
At the same time, in LAP, we have improved our pricing as well. So it’s not just that the LAP has grown at around 65% quarter-on-quarter. We’ve increased our pricing by 25% to 30%. We’ve expanded our presence in 42 — 40 new cities. The idea of just sharing this with you was just to give you a ground-level feel. We’ve curtailed down as well among the four businesses, there is an STPL business. I’ve given you guys a hint in the first 40 days with our experienced season 9, we felt it needed calibration. We’ve curtailed up our disbursals in the STPL business, now almost once we’ve down to one-fifth. So whatever we were doing in STPL, we’re down to around approximately 20% of that disbursals a month. Despite that, you noticed we showed a 5% sequential growth, which means the rest of the business has to start growing at a much-accelerated rate, and which we managed to do even in the first four months.
Over the next few months, we will test multiple customer cohorts on STPL in terms of credit quality, pricing, average ticket size and then use our digital marketing machinery to scale up the disbursements. But it’s very important we get the calibration absolutely back on track.
Coming from 2.5 years and decades rather at HDFC Bank I’ve been brought up with a philosophy of prudence when it comes to risk management. It’s very important that the balance sheet remains financially resilient to any foreseen or unforeseen surprises. I must clarify here that adequate provisioning for me is not merely a regulatory or accounting exercise, but a tool to ensure we are building a strong balance sheet through risk management, we walk the talk. I’ve been always telling you we’ll be solid in risk management. When I say we’ll be solid, it only means that we are walk the talk as a management team, which is fundamentally important as we embark upon sustainable predictable and transparent long-term strategy.
Post a thorough data-driven review of our STPL book, we’ve decided that an increase in provisions is warranted, to ensure we are able to hedge against the unseasoned nature of the book and macro-environment we are in. We are fairly confident that this one-time action combined with calibration of our product mix for incremental businesses will strengthen our balance sheet, without a doubt and enable us to sharply focus on multi-year, multi-product growth trajectory, and deliver an AUM and a profitable number over the next few quarters.
With this, we are confident that we are done with our credit assessment of the entire portfolio, and have adequately provisioned to own the entire book. This financial resilience that we have created in the balance sheet will help us build a very strong franchise from Europe. At the cost of repetition, let me reiterate, we are very clear we are building a long-term franchise that has delivered 30% to 40% AUM growth for the next five years. We are firmly on-track to achieve it.
At the same time, we are going to ensure that the business lines we get into are absolutely sustainable, and we remain prudent, and calibrated in our risk management approach. Before I hand it over to Sunil and Sanjay to walk us through the detailed financial performance this quarter, this festive season, we wish all of you a very Happy Diwali. This quarter in my view will mark a very positive turning point for this Company.
We have made provisions for STPL book with a clear intent of better risk management and financial resilience. We are strengthening our balance sheet for the long-term strategy. And just to summarize, with this management depth, which I believe is one of its kind in the industry, and our strategy is one of its kind of building a franchise of six additional businesses, we’re confident we’ll take at least 10 solid businesses to growth trajectory.
I do believe firmly, this will be the transformation of Poonawalla Fincorp, all park I would treat it as four or six quarters, both in terms of diversity of customer segments, which we will build and add value to the franchise, multiple distributions that we create at a rapid scale, both physically, like I said, we are launching 400 additional branches from 100 odd, plus on the website we’ll transform the game. Recalibration of overall risk substantially lift the AUM growth is something that I see a year, two onwards at a foundation. For recalibration of profits, much better profits, starting at the beginning of third year. Thank you very much and let me hand it over to, Sunil.
Sunil Samdani — Executive Director
Thank you, Arvind, and good evening, everyone. Let me now take you through the quarterly and financial operating highlights. Our assets under management stood at INR28,396 crores, reflecting a growth of 40% year-on-year, and a healthy 5% quarter-on-quarter. Now this is despite the moderation in STPL book due to credit recalibration. In terms of AUM mix, our MSME finance contribution is 33%, followed by personal and consumer finance at 28%. Loan against property and pre-owned cars at 19% and 15% respectively.
We continue to maintain a balanced secured to unsecured mix of 51 to 49, with secured mix improving 225 bps quarter-on-quarter. Our net interest income, including the fees and other income was INR645 crores for Q2 of FY ’25. This is up 22% year-on-year. The one-time opex and the ongoing investments in technology, distribution, and people impacted the PPOP, which is the pre-provisioning operating profit during the quarter, which stands at INR279 crores as against INR432 crores last quarter and INR336 crores same time last quarter.
During the quarter, we incurred a one-time opex of INR71 crores, along with a one-time additional provisioning of INR666 crores for the STPL book. This provisioning reflects our commitment to prudent risk management practices. The net NPA was stable at 0.33%, our gross NPA stands at 2.1%. This increase in gross NPA is on account of higher slippages in the STPL portfolio. Our PCR, which is the provisioning coverage ratio during the quarter improved from 52.53% to 84.47% quarter-on-quarter.
Coming to our liability profile, our cost of borrowings was lower by 6 basis points quarter-on-quarter at 8.10%. This is despite the tight liquidity environment that we were in. We have been successful in reducing our cost of borrowing through a dynamic treasury management with one eye on the cost of borrowing and another one on the liquidity and the ALM. Our debt-to-equity ratio was 2.26 times. We remain comfortable with positive, cumulative mismatch across all our budgets and a surplus liquidity of INR5,710 crores as of September 30, 2024.
The total borrowings at the end of quarter was INR18,107 crores, with approximately 71% of which are on variable rates. Whereas the fixed-rate borrowings are of relatively shorter tenure, this places us well to take advantage of the lower interest rate environment envisaged in the future. Our capital adequacy continues to be well above the regulatory requirement with CRAR standing at 29.22%, of which the Tier 1 capital is 27.75%.
Let me now take you through some of the technological initiatives undertaken. With implementation of centralized enterprise data warehouse and the data link, PFL is now future-ready for any new business segments with high volume compute platform, and the single source of truth with near real-time data. This will benefit cross-sell campaigns, reduce turnaround time at a lower total cost of ownership and faster query compute performance. This will also enhance the data demon deep democratization and the data-driven culture in the organization. We have partnered with an account aggregator that will further enhance our credit assessment and operational efficiency, which will help in managing the risk.
We have built an AI-based delinquency and collection management system that effectively improves collections. Our collection stack is a cutting-edge solution built on a modular low-code, no-code platform. We have integrated top-tier technologies to enhance workflow execution, including the dynamic field allocation based on location and a robust legal framework, and a multilingual voice and chatbot for efficient customer communication.
Our goal is to modernize the existing collection stack to seamless upward and downward integration, while maintaining the current user interface, ensuring high user adoption. On the customer service front, we have implemented an integrated communication hub, and an auto authentication of customer basis the registered mobile number. This will help our callers give a 360 degree portfolio view, while talking to our customers.
We have launched our first Gen AI-based voice bot and email portal. Our voicebot now proactively engages with the customer, providing important loan details through welcome calls, such as disbursement amount, EMI, due date, broken period interest, etc. About 35% of our inbound customer calls are handled by our voicebot. Whereas the outbound welcome calling 100% of it is done through bots. This topic that generates a high volume of inquiries at the call centers are now explained automatically by the bots.
The email bot that we have recently introduced shall provide a basis, the instant response to our customer queries 24×7, categorize and scan the incoming emails to identify the topic and the urgency, prioritize email, ensuring that the urgent matters are handled first, spot draft and send the response to routine inquiries, reducing the workload on customer service teams and speeding up the response time. Our net promoter scores, a key indicator of customer brand loyalty has consistently stayed above 70% throughout Q1 and Q2 across all critical touch points, which is sales, onboarding, service, and exit.
We are actively addressing customer insights, identifying opportunities for process improvement, as part of our ongoing commitment to continuous enhancement. Thank you, everyone, and wish you all a very Happy Diwali in advance.
I would like to now open the floor for question-and-answer session.
Questions and Answers:
Operator
Thank you, sir. [Operator Instructions] We have the first question from the line of Avinash Singh from Emkay Global. Please go ahead.
Avinash Singh
Yeah, hi, good evening. Thanks for the opportunity. So the first question would be from where I left last quarter, I asked that — I asked Arvind about the provision buffer that was created last year. And of course, I mean we’ve got answers from your other colleagues Arvind did not answer. So I mean this around nearly INR700 odd crores of provision on this STPLs we have created. And then last year, when Poonawalla has received money from that housing divestment, about INR1,200 odd crores of that prudential buffer was created. So what had happened to that? I mean, where-is that buffer utilization today? Because I mean with that kind of a buffer and again, this kind of what will need to be done, this ranges the sort of where you will see this quality over the kind of a book that was underwritten over the last 12, 18 months.
And in terms of what is your confidence, as far as the provisioning on the entire book is concerned, that book, I mean, almost you have inherited, how comfortable are you with the kind of asset quality and will this provisioning be sufficient for that? So my question is twofold, that okay, of course, you’re confident in going forward in the existing book and updates on what happened to that the provision — the buffer that was created how utilized what — where it is now? That’s for the first.
Second one would be more on, you know, of course, as you sort of rightly highlighted the team you have now hired to build a franchisee for the future next many years. The question is will that — okay, I mean, how are you finding I mean at ground branch and all levels, how are sort of they responding to this entire, I would say that change in style came in the top management. And for the top management, I mean sort of how sort of you see that the longevity needed to organize and because I mean this kind of a transformation at times could be very, very frustrating because I mean the results take time, and your incentive sometimes linked to share price, again that is — that will again take time to — before your share prices start to reflect there. So I mean, somehow you know that the team also start to get frustrated. So how sort of a do you see this transition playing out and how confident that, okay, this team is going to stay? Thanks.
Arvind Kapil
Okay. Quick one, I got two of your questions. Let me quickly cover the two parts and then hand it over to Sanjay to give you a perspective on a certain area. Okay. First of all, we’ve done risk calibration check on the entire portfolio. So while you may see provisioning on the STPL book, which I thought was relevant and appropriate to take it to adequate provisioning, which is why we have done that. But the checks have been done on the entire portfolio by our risk team, by internal and external assessments.
So we are done with our provisioning. I want to be very clear on that. There is no ambiguity there. There is — yes, it is a little bit of a — you might call it a more precise upfront call, but it’s important that we create and strengthen the financial resilience. You can’t talk about risk management and then not have the courage to do it where it has to be done. Tough calls is important to make the Company stronger and ready for its long-term growth.
And you can see that we are ready now. The balance sheet is all ready, we have multiple plans and have courage to launch six businesses. In those additional six businesses, first of all, there are no people. So we are building those entire teams, franchise, everything. So that will be direct value to the Company that we are creating. For the existing businesses, I shared with you among the four businesses. STPL, we are recalibrating it. If you — that’s predominantly very biased to digital.
On the field and street, ground, there are business loans and LAP, the teams have really adopted well. There’s no frustration by the way, there is excitement. When you challenge people — I shared with you, the growth rates are well over 50% in both these businesses, and it’s not like the entire team joined in on the 1st of or the 10th of June when I joined. Over the last 4.5 months, we’ve been joining over at different points of time and it’s a team that managed to click really well with the existing team. I think there are a fine bunch of guys they’ve already picked up fantastic speed, adapted well. I think we have some good people that we’ve hired and would love to share the confidence that we have very, very aggressive plans and challenges when you throw at people, people get excited and motivated. I mean a good example of that is our own Indian armed forces at the border have started and being the best. But when they’re faced with fantastic challenges, the excitement is of a different order. You can well compare that with the way we run things here.
When you create exciting challenges, I can see the energy levels are only going up, and I think sky is the limit when it comes to business. We are excited about it. I’ll be honest with you. When I told you we will look at the first portfolio in 40 days, I was very frank with you. Now when I’m excited about the road ahead, I’m equally in the same spirit sharing with you. That’s what it is. As far as the specific provision of the past maybe we are more conservative for now, but I think Sanjay, give him a sense of it.
Sanjay Miranka
Yeah. So out of the provision, okay, exceptional provision which we have created in FY ’23, ’24, we are still carrying INR259 crores of provision in our books. And so as Arvind rightly said, books are well-provisioned. And just to add to the point on top management and how it is transforming the entire landscape, the way our core products as of now, business loan, loan against property, pre-owned cars, the way they have picked up speed with better yields, and you will see the results in the next quarters and years to come.
Arvind Kapil
And even these six businesses, a fair amount of work happening out of that PL prime, I think we’ve already started reaching levels of INR50 crore INR70 crores a month to give you a sense. And it’d probably be interesting to see quarter-on-quarter, we’re moving quite sequentially rapidly on those. So if you go into micro details, we may have recalibrated some of the high-risk businesses for the ones which we are growing, we are growing fairly fast and fairly rapidly.
Avinash Singh
Okay. Yeah, thanks. So you said that you are carrying INR209 crore provision from last year.
Sunil Samdani
INR259 crore.
Avinash Singh
INR259 crore. Okay, Thanks. Very clear.
Operator
Thank you. We have the next question from the line of Shreyas Pimple from JM Financial. Please go ahead. Yes, we can hear you.
Shreyas Pimple
Yeah. So I wanted to ask two questions. First on PL book, what is the actual size of the PL book? And of that the STPL book specifically, which is throwing up issues?
Arvind Kapil
Sanjay, can you give — throw some light on [Indecipherable]
Sanjay Miranka
Total STPL book is to the tune of INR6,800 crores, out of which the book okay which is belonging to the PL period prior to this calibration, that book is about INR5,400 crore, and the entire book — the book of INR5,400 crores is very calibrated as Arvind articulated disbursements which were to the tune of INR1,200 crores, INR1,000 crores to INR1,200 crores monthly, has been brought down post this calibration to INR200 crores in September. And only after okay, giving confidence both on any kind of future flow rates in terms of the overall performance at book versus the customer segment versus the average ticket size, we will — in a measured way, we will okay growth that book.
So this is okay —
Arvind Kapil
I think we’ve got a handle on the calibration, but the scaling up, I might take 60, 90 days on that particular book because I think it’s important we get it absolutely bang on right, and then I think it will open up a new opportunity for us.
Sanjay Miranka
While at the same time, okay, it would be important to add that — the growth is more dependent on STPL. We have well-settled products which are giving the growth.
Shreyas Pimple
Understood, sir. Thank you. Thank you for the detailed answer. And the second question was on the capital requirement, both in terms of debt and equity for — to fund the feet-on-street or tech investments that would be required for our growth ambitions.
Arvind Kapil
So I think we’ve already — I’ve stuck my neck down and shared some figures of around ballpark INR50 crores for these six businesses over the next six quarters. To give you guys an indicator that these INR300 odd crores in one half years will set the ball rolling for us for a certain growth rate. Remember one thing I’ve also said 400 new branches because you can actually between digital and physical, substantially increase your productivity while we invest in digital, very important to get the ground-level RVs also in India in Tier 2, Tier 3 cities. We come with very strong experience.
I see great opportunities of fantastic ROA products there. So if you combine your ground-level forces with digital forces, the productivity goes up and business focus is priority for us. You can check my background on digital. We produce one of the best products in the world. So that effort is going to go on. As a matter of fact, for me as a CEO, I’m going to bet big on AI. But I’m going to focus on business. If I can do two big projects which are game-changer in the next four to six months on AI, you’ll hear of it. There are already two projects that are commissioned. I have spoken about it.
Let some results come in, in there before we speak about that to you in the next earnings call and it might be more appropriate. Most of the stuff that I’ve detailed out for you all right now is so that everybody with that node gets a ground-level feel what’s happening in the ground. It is a fair amount of work happening. And you may see a more exponential kind of a flavor as we start moving quarter-to-quarter because the experiences of our distribution is very, very strong.
Sanjay Miranka
To your point on the debt or, you know, equity capital requirement, we are a very low leveraged Company with our debt-to-equity at 2.26. So there is enough headroom to increase our leverage. So we don’t see that as a challenge for our projections that we are looking at. Equity, again, it’s very high capital adequacy. So we don’t see a requirement to win equity in the near future.
Arvind Kapil
I think here on should be very strong exciting times from a business-building block perspective.
Shreyas Pimple
Sure. Thank you. Thank you so much. Those were my questions.
Operator
Thank you. [Operator Instructions] We have the next question from the line of Parag Thakkar from Fort Capital. Please go ahead.
Parag Thakkar
Yeah. Hi, Arvind and the entire team. I really appreciate the long-term vision and the execution foundation which you have laid down, and I really appreciate that you have hired very good people, to take this business from here. The only thing is that, unfortunately when you take this tough decision of providing in one quarter, I hope that this shocker which comes to market and it’s unsettled market, I hope that shocker thing is over now with this quarter.
Arvind Kapil
Yes, first of all I think Parag it’s not a shock, it’s something which is prudent risk management and I’m as a matter of fact absorbing shock. And I’m making sure that we have a clean runway ahead, two, markets can see more clearly as I can see more clearly the road ahead. Instead of merely watching [Phonetic] over and try to postpone. I think when you have this quality and credibility, I have also pressure to hold the ground and walk the talk. So I’m very, very clear. If you see my plan, I’ve gone out of the way to go into very high details with everybody, a lot of this is not theory. This is getting executed at the ground level.
You can well imagine, how many companies in the last 10 years you’ve seen who got the courage to say we’ve got four businesses, we’ve put six businesses on the table. I’ve said that in the first 40 days, do you see me waving on that? No, I’m not wavered on that. Within the first 40 days of coming in, I could see the problem. I specified to you guys, called it up. As the four businesses launched, we have gone ahead and stuck our neck out for another two businesses. It’s 4.5 months. You can well imagine the seasoned experience we have in putting it on the table. We’ve got Serum India behind us. We’ve got a AAA rating. We’ve got solid pedigree.
We’ve created a management team which is probably the best-in-class in my limited view. And between existing and new people, we’ve got a fantastic team. And I’m excited for the road ahead. I think the market should be fully excited that this is the Company which is worth its metal. That’s what I would look at it. On the stock market, I told you last time also, I don’t understand stock market at all. So that’s treated as a disclosure. I understand businesses that you will see we create one of its class. I have no doubts.
Parag Thakkar
I haven’t really appreciate your response, just that I think Avinash also asked the same question, that on the STPL book, where you have provided so much of the amount, and after seeing the entire book, you have done this. So I hope that this amount or this thing will not be repeated, right?
Arvind Kapil
It is one-off and we have decided to write it in — write it off in one quarter itself, right? Absolutely, [Foreign Speech] if I can reduce — calibrate my business to one-fifth of monthly disbursement, it takes courage to bring it down. Obviously, it’s fully decalibrated and we are going on and I’m accelerating other businesses [Foreign Speech] quarter-on-quarter, 50%, 70% [Foreign Speech]
Obviously, we have fully — it’s all well-planned. It’s well risk-calibrated, I can assure you. And we have some very serious trends which will play out in quarter-on-quarter. This was an important decision. It marks actually a game-changer positive move for the Company. In our view on various projects, like I mentioned in this and once you probably or respective product managers goes through the details of my conversation, you will realize that I’m investing a lot in AI and a lot of projects. With our experience, we’ll create something very exciting within six months. And that kind of optimism I’m sharing with you when I see it.
So I’m the kind of a guy who will tell you well in advance how I see the future. If I see the future bright you will hear it from me.
Parag Thakkar
Sure, sure. Really respect your–
Arvind Kapil
Let me be honest there. I don’t understand. Sorry, over to you. Sorry to interrupt you, but I —
Parag Thakkar
Sorry, sorry. So really appreciate your comments and really appreciate your honesty and I would say modesty also. And the way you have gathered so many people from very, very highly respectable institutions and so really looking forward to excellent growth as well and asset quality also. The only thing which ultimately I would like to ask and for all of us to know that whatever hit you had to take — you have taken, right? Just answer this question and that’s all.
Arvind Kapil
Across the book taken done, we are accelerating on our pedals now.
Parag Thakkar
Okay. So now that we know extraordinary hit, the business is as usual now, and it will grow with a very, I would say prudent risk management as you are — as you are running it as HDFC Bank, right?
Arvind Kapil
We will be — see that’s the DNA, [Foreign Speech] It’s going to be a better DNA and that I can’t move it out because we have worked for an NBFC now. So there will be — I said the growth will be massive. We enjoy great credibility with existing distribution. Our understanding on creating new distributions is very strong. This is business time now. So business time is now open. And this management team, by the way, is not just one-level below me, we’ve got guys who are two-levels below. Now three levels below. This is expanding at a very good rate. We used to have difficulty getting that quality of talent at that pace.
Now I think we have a pipeline of guys who want to join us. I mean, we are not exuding extra confidence on what I see on the ground. People have been kind and I’m very grateful that people are showing interest in joining us and we are very obliged. But we’ll obviously be prudent in all levels because we’ve been brought up being cost-conscious, we’ve been brought up being sensible spenders, we’ve been brought up being risk prudent. Finance business where risk prudence is hand-in-hand, we’re being extra prudent it’s out of life. You cannot be compromising that area. That’s all I’m trying to say. We know how to do business that’s why the world chose me. Thank you, sir.
Parag Thakkar
Perfect, perfect. So basically we will — so the one-offs have been over. Now it will be business as usual. The growth will be as usual. You’ll be always prudent in terms of providing, which was the DNA of yours and the HDFC Bank. So we’ll continue to see that and growing new six businesses, scaling it up. Those kinds of investments are absolutely okay with investors. But the one-off thing which was a one-off thing which you said on the last call that you are seeing that STPL book and now you are provided for it, right? Because it’s a one-time thing which we have already taken.
Arvind Kapil
Yeah, we’ve just created financial resilience sir. That’s all we’ve done. And where it will require will be taken. Rest of the book, we’ve calibrated checked, everything is — it’s within the range that we can manage and there’s nothing. From here on, it’s — I’m excited from here on.
Parag Thakkar
Sure. Thanks a lot. Thanks a lot. Thanks a lot.
Arvind Kapil
Yeah. Thank you.
Operator
Thank you. We have the next question from the line of Kaitav Shah from Anand Rathi. Please go ahead.
Kaitav Shah
Hi, good evening. Thank you for taking my question. So two questions. Number one was, LAP seems to be the new gold in terms of financing, it’s in a pretty good space. Where do you think in which ticket sizes or markets would you want to create your niche in the first two to three years for us to kind of look up to of how or measure you how should we look at it? Number-one.
Number two, what are the outstanding — I mean, bookkeeping question, what are the outstanding provisions on the book now? So far that had been created earlier.
Arvind Kapil
You’re talking about provisions or the new provisions we have created or which one?
Kaitav Shah
The old buffer, we had a buffer of about INR1,000 odd crores prior to this. So is it still outstanding, what quantum is it?
Arvind Kapil
I think for me — let me give you a more holistic answer. LAP right now is going to be one of its 10 businesses for us. We’re going to be focusing on a lot of secured businesses, including for gold, by the way will also be gold for us. Just for your idea. It’s a good ROA business. So we still believe gold has a lot of shine left, and the size we are at, it’s going to be a great opportunity for us. We see we are going to cater to all possible segments that we can take advantage of, which is why on the business side, commercial vehicles, education loans, household names, consumer durable to create a Company.
When you create solid ROAs from here on, you’ve got to create customer franchise running faster than the growth rates of companies. So while our growth rates might be extremely on a positive trajectory, I would still want customer franchise to run faster so that through AI, through cohort groups, through cross-sell strengths that we have management depth of, you can create some serious advantages, not just for LAP, for various basket of products. Even if, let’s say, I want to be competitive advantage on the website, for example, which should be a — which should be irrespective of your balance sheet size, right? But for that, you need multiple products that businesses on the table to be successful. That’s the reason we’re launching six additional businesses. So that both on the consumer side, commercial side, we should be on a solid platform to offer products right from terminals, overdrafts various — needs of various customers. Every customer sees a need to be our second customer and third customer.
That’s important to understand. That’s what we’re going to do.
If you see, we are very clear, we are marking our niche as very strong consumer finance players. And that’s important to understand on that provisioning, Sanjay, you want to throw some light on specific —
Sanjay Miranka
So our closing provision as of September at entity level is INR1,406 crores. And we already talked about the incremental provision which we made of INR666 crores, and INR259 crores provision out-of-the — probably which was created — exception provision which was created earlier is still okay there in the balance sheet.
Kaitav Shah
Sorry, can you repeat the last number?
Sanjay Miranka
INR259 crores of provision out of the exceptional provision which we had created earlier is still there in the books.
Kaitav Shah
Okay. Okay. Right, got it. And sir, just an additional question, sorry [Speech Overlap] for taking.
Arvind Kapil
No, no, please.
Kaitav Shah
See what you mentioned is of course, multi-focused consumer NBFC.
Arvind Kapil
Can you speak little louder, If you don’t mind. I’m not able to fully hear you.
Kaitav Shah
Sorry. Is it better?
Arvind Kapil
Yeah much better.
Kaitav Shah
Sir, so the question was when we try and move to a consumer financing multi-product player, generally there are certain costs associated, initially that you have to do and it could be a two to three year process if I’m not mistaken. So are we going to see some heavier costs initially, will there be some heavy lifting over the course of next one year in terms of cost after the benefits will then flow in, just from an understanding perspective?
Arvind Kapil
See, let’s look at it common-sensically. Any CEO comes, you’ve got a balance sheet, you take over, profits will come out of that balance sheet. It’s not going to come out of anywhere else. I want to invest INR50 crores a quarter into the six new businesses along with the expenses of rapidly growing the existing ones. The ones we are growing existing ones are fairly good margin businesses. The ones we are growing existing, the next six also are going to be very good. What is the granular tenure, they’re not 10 year loans, they are three-year loans. So in one and a half years if you start scaling up, where do you think your calibration goes between your existing and new? Your profits technically, while last time I gave a guidance should be higher as a percentage of the two, it should ideally get recalibrated much higher.
And it will be conservative there because what will really happen in four to six quarters, you will — we will be a substantial lifters in terms of the recalibration of profit as well. And that’s the plan. And that’s why it’s important that the first four quarters we do basic amount of investing and investment will lead to wealth creation. That’s important right now. Remember, what I understand in the markets, my limited understanding is, once it should be most sustainable and predictable. So as you see us build business, we’ll keep sharing with you the growth rate, how we’re building blocks, how we’re building it, how we’re cross-selling it, we’ll give you enough feel as we go along. And that’s important so that you all will know that we are actually creating a fantastic franchise at a fairly fast pace and that’s going to be the strong foundation for us.
So I’m looking at robustness every two quarters, three quarters on a different scale. It will get recalibrated and then at some point, you will find it will actually get recalibrated to a higher level very soon. Yeah. Thank you.
Kaitav Shah
Thank you, sir. Thank you.
Operator
[Operator Closing Remarks]