Satin Creditcare Network Limited (SATIN) Q4 FY23 Earnings Concall Transcript

Satin Creditcare Network Limited (NSE:SATIN) Q4 FY23 Earnings Concall dated May. 02, 2023.

Corporate Participants:

H.P. Singh — Chairman and Managing Director

Aditi Singh — Head, Strategy

Analysts:

Vignesh Iyer — Sequent Investments — Analyst

Amit Agarwal — Individual Investor — Analyst

Rishikesh Oza — RoboCapital — Analyst

Lalitabh Shrivastawa — Angel Investor — Analyst

Vishal Gajwani — Aditya Birla Mutual Fund — Analyst

Suraj Nawandhar — Sampada Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Satin Creditcare Network Limited Q4 and FY ’23 Earnings Conference Call. [Operator Instructions] Please note that this conference has been recorded.

I now hand the conference over to Mr. HP Singh, Chairman cum Managing Director of Satin Creditcare Network Limited. Thank you, and over to you, sir.

H.P. Singh — Chairman and Managing Director

Thank you. Good morning, everyone. Thank you for taking the time to join us and discuss our financial results for Q4 and FY ’23. I hope you went through our quarterly results and investor presentation. In case you couldn’t, they are available on our website and stock exchanges.

With great assurance, we would like to declare that FY ’23 has been a success not only in terms of meeting our annual performance guidelines and guidance, but also showing positive development in all operational and financial metrics, which would continue over the coming quarters and years. This year’s performance is because of our dedicated and persistent team who are pursuing the collective goal of development of families. Let me begin by discussing the fourth quarter performance this year, which was outstanding for us and treated strong performance across all parameters.

Disbursement for the quarter stood at INR2,546 crore as compared to INR1,622 crore in Q4 FY ’23 [Phonetic], registering a growth of 57% year-on-year. This has been our highest quarterly disbursement payment. The profit after-tax stood at INR94 crore as against INR60 crore in the previous year, a growth of 59% year-on-year. ROA stood at 4.9%, which was 3.3% in the previous year and ROE at 20.3%, which was 15.5% earlier. This was our highest ever profitability. The cost-to-income ratio was 45% for Q4 FY ’23. With operating efficiency playing out for us, we observed a reduction of 90 bps in opex to average AUM in comparison to Q4 FY ’22. Our opex ratio stood at 6.1%.

Coming to our annual performance, there was a substantial pickup in disbursement, which is up by 67% year-on-year at INR8,087 crore on a consolidated basis. The stand-alone disbursement for the year stood at INR7,390 crore, representing 83% growth from FY ’22. We have also started acquiring new clients. In Q4 FY ’23, first cycle clients accounted for 61% of stand-alone disbursements. We concluded a significant milestone by surpassing INR9,000 crores in AUM on a consolidated basis, up by 20% from FY ’22. The stand-alone AUM stood at INR7,929 crores, which grew by 24% year-on-year and 17% quarter-on-quarter. In the fiscal year, the company centered its effort on elevating the stress in the restructured book and the figure speaks volume of our results. The book has reduced to 2.5% as on booked AUM.

In the last 12 months, a total of 67 branches have been opened up and we added 5,000 villages and a new state to our portfolio as part of our endeavor of driving [Phonetic] financial inclusion for the emancipation of the bottom of premise. Coming to our Assam portfolio, with the support of our prudent approach, we are witnessing good ground and are optimistic of a turnaround in this geography. We have disbursed loans amounting to INR271 crore during FY ’23. The delinquencies in this book have been negligible with PAR 1 at only 0.05% and PAR 90 at 0.01% as on 31st March 2023. The on-book AUM stood at INR326 crore, that is 5.8% of on-book AUM.

Under AMFIRS, Category 1 and 2 have been successfully completed. The groundwork for Category 3 borrowers, the sampling of data by credit bureaus is going on. The asset quality and collection efficiency are testimony to the core strength of our ground team and diligent assessment methodology. The new portfolio originated from July ’21 onwards is performing exceptionally well, which constitutes about 94% of the on-book MFI portfolio with PAR 1 at 0.7% and PAR 90 at 0.3%, which is better than the industry standard as reported by CRIF Highmark. This demonstrates how effective our underwriting processes are.

The on-book DMP of the company stood at INR185 crore, that is 3.28% of on-book portfolio, down from 8.01% as on March ’22. Assam constitutes INR95 crore of on-book GNPA. Excluding Assam, GNPA as on March ’23 stood at 1.70%. The company has sufficient on-book provisions. Our net NPA is 1.50%. The collection efficiency remained stable quarter-on-quarter for the reporting period and stood at 99.6%, excluding restructured portfolio. During the year, we experienced a strong recovery of INR48 crore against write-off tool. This highlights the strength of our fee industry and the resilience towards business and their commitment towards recovering our bad loan by repeated follow-ups and client engagement and motivation.

On the borrowing front, the company raised INR6,846 crore during FY ’23 from various lenders, added seven new lenders, demonstrating the confidence the market has in us and our business acumen. The company has ample liquidity of INR1,029 crore as on Q4 FY ’23. Further, the company has a healthy cost of 26.6% as on 31st March ’23. Up to now, the company has received INR137 crore out of INR225 crore of preferential allotment via the issue of equity shares and fully convertible warrants.

Moving further, our performance at SCNL is constantly guided by our respect for strong business fundamentals and we continue to focus on enhancing the quality of our balance sheet. And hence, this year, we recorded our highest ever profitability and delivered stand-alone PAT of INR264 crore, resulting in an ROA of 3.5% and ROE at 15% for FY ’23. In recent years, the social development goals have become the catalyst for accelerating the world’s biggest challenges aiming from poverty and gender and equality to climate change.

We realized the importance a few years ago and thought it was crucial to embed the principles of sustainability in the rebuilding efforts. Hence, from where we leverage our CSR activities to achieve the sustainable development goals. We are happy to share that we have been acknowledged for our work in the sustainability sphere and awarded by the Indian Social Impact Award 2023, for Best Education Support Initiative for the year ’22-’23.

I would like to quickly touch upon a few awards and recognition recently won by Satin Creditcare. We have been recertified as Great Place to Work fourth time in a row and ranked among Top 25 best workplaces across the BFSI sector, being a testament to our work culture. We won the prestigious ET Excellence Award for best Operational Excellence initiative of the year for Train the Trainers initiative. This being evidence to our robust operational efficiency. Along with the strong FY ’23 operational and financial performance, I would like to share a key development that took place this quarter, which is the merger of our two wholly owned subsidiary, Taraashna and SFL. The merger got effective from 1st March 2023.

Through unwavering adherence to our organization values, we at Satin have worked — always worked to establish a legacy of consistent growth and performance. We enjoy a close long-standing relationships with our stakeholders, which has led to brand trust that endures. With our robust operating model, proven execution capabilities, strong customer relationships and our robust balance sheet, we are well positioned to demonstrate good growth in the years to time. Going ahead, we are expecting to achieve AUM growth of 25% plus and ROA of 3.5% plus.

So, let me run through the financial and operational highlights of our company, starting with the consolidated highlights. Our AUM as on 31st March 2023, stood at INR9,115 crore. We have a customer base of 28.3 lakh as of 31st March 2023, with presence across 1,287 branches. Our disbursement for the year 2023 stood at INR8,087 crore as compared to INR4,856 crore in FY ’22. The total revenue for the year stood at INR1,559 crores, up by 13% year-on-year. Pre-provisioning operating profit was up by 69% year-on-year at INR414 crores.

Stand-alone highlights. Our AUM, 31st March 2023 stood at INR7,929 crore. Our stand-alone disbursement for the year stood at INR7,390 crore as compared to INR4,031 crore in FY ’22. Our average ticket size for MFI lending for the quarter stood at INR42,000. We have a well-diversified customer base over approximately 26 lakh clients, a well-penetrated vast network across 24 states and UT and 77% rural exposure. On-book GNPA reduced from 8.01% as on March ’22 to 3.28% as on March ’23. In absolute term, it reduced from INR412 crores to INR185 crore. Out of this, INR95 crore pertains to Assam.

As of 31st March 2023, our total branch network count stood at 1,078 branches, which is spread across 384 districts. We have a total state and UT count of 24, will make us a well-diversified pan-India microfinance player. As on 31st March 2023, 96% of our districts have less than 1% of portfolio exposure. Our Top 4 states contribute to 55% of total AUM in FY ’23 versus 77.3% in FY ’17. Our well-thought out diversification strategy has enabled us to sail through difficult situation and capitalize on our idea of enriching our client’s lives through financing of various products. We have disbursed around INR221 crore during FY ’23 under the product finance category, which includes loans for bicycles, solar products, home appliances, consumer durables and water and sanitation.

An update on subsidiary, Satin Housing Finance Limited has now reached an AUM of INR505 crore, which grew by 59% year-on-year, having a presence across four states with 5,448 customers. SHFL has a 100% retail book. The quality of the portfolio remains intact with GNPA of 0.34% as on March ’23. The company has 21 active lenders, including NHB refinance, a CAR of 45.3% and gearing of 2.3 times. The company has a credit rating of BBB+. PAT for FY ’23 stood at INR6 crore. Satin Finserv Limited, the company’s MSME and BC lending arm has reached an AUM of INR682 crore, GNPA stood at 4.14%, CAR of 47% and a gearing of 1.2 times. PAT for FY ’23 stood at INR6 crore, credit rating of BBB+ figures.

Lastly, as we continue be part of growth, we are prepared through the road of more profitability and cost efficiency. With this, I would like to open the floor for questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Vignesh Iyer from Sequent Investments. Please go ahead.

Vignesh Iyer — Sequent Investments — Analyst

Congratulations, sir on strong set of numbers. Sir, I would like to know on a stand-alone basis, what does the management think for the future when it comes to a comfortable debt-to-equity ratio. And also want to know whether management is planning on raising any more funds going ahead?

H.P. Singh — Chairman and Managing Director

Thank you so much. So, our CAR right now is at about 26.6%. And what we feel that having a 25% growth, the guidance which we’ve given, we technically feel, I think the requirement — the prepping requirement is probably not there for us to raise any more capital right now. And having said that, looking at the way the sector is growing and the way we are growing in microfinance, I think for us, if we tend to overshoot this guidance of ours, then only I think it’s a cause anything. We have a balance of about INR83 crores, which has to come in as our convertible warrants, which are due by July this year. And once they come in, I think that we’ll get maybe an additional slight more capital, which will probably be infused. So for us, right now, we feel that there is no pressing need for — really further capital.

Vignesh Iyer — Sequent Investments — Analyst

Right. Just a number, if you could give what is your comfortable debt-to-equity ratio on the stand-alone balance sheet?

H.P. Singh — Chairman and Managing Director

We are at about 3 times our — so it’s about 3. We can go up to 4, 4.5, basically. So, we still have room for gearing across over there.

Vignesh Iyer — Sequent Investments — Analyst

Fair enough, fair enough. Thank you, sir. I will join back in the queue.

H.P. Singh — Chairman and Managing Director

Yeah, sure. Thank you.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Amit Agarwal, an independent investor. Please go ahead.

Amit Agarwal — Individual Investor — Analyst

Hi sir, congratulations on good set of numbers. Sir, my question is like we have written-off so much assets in the last two, three years. So, what is the total outstanding of written of assets we have in our balance sheet as on 31st March 2023? And based on our past experience, how much can we expect to recover in say, say, next couple of years from that?

H.P. Singh — Chairman and Managing Director

So technically, if I start from the demonetization phase till now, my own sense is our written-off pool would be close to about INR900 crore to about INR1,000 crore. See, the — again, this is how we operate as a DNA of our company. We still go to a client who has been written-off because of demonetization or anywhere, which is talked about pandemic. We have had the highest writeback, as I said in my opening remarks of about INR48 crore. Now for us, we’ve got a separate team which looks only at write-off clients. And the endeavor always is to get as much as possible as write-backs because this is a straight P&L accretion, which happens across over there.

For us, going forward, we see that we’ll be able to at least manage about INR48 crores, INR50 crores year-on-year. That’s the bare minimum. The endeavor always goes in to get more and more. The teams are always fished into, contribute more towards that. And that’s what our endeavor is because having a separate team or a separate vertical, which actually drives that. So, my sense is INR50 crore is bare minimum. More than that, I think we’ll be happy to overachieve as we keep on overreaching everywhere else, they will be there.

Amit Agarwal — Individual Investor — Analyst

Okay. Sir, one more question. Like earlier, we used to maintain a lot of cash in our balance sheet. So, how much cash and cash equivalents we are expecting to maintain going forward since the stress is now coming down?

H.P. Singh — Chairman and Managing Director

See, Amit what has happened is during the pandemic, I think we were a little hard pressed and we wanted to probably be very conservative during those 2 years of pandemic. That’s the reason why we had a lot of bad balances left. Moving forward, this is the first time in our entire history that we remain close to that about INR1,000 crore mark. We wish to probably be in the same range moving forward ahead. And this is, which we feel is sufficient liquidity for us, if we look at the static ALM, which we’ve been able to do, we still have about six to eight months — six to seven months of static ALM. So, my sense is that gone are the days for us also when we used to keep a higher load of cash because of the pandemic and various other things which were going on, it will be raised bond and what is there now as liquidity to 31st March.

Amit Agarwal — Individual Investor — Analyst

Okay. That is helpful. Thank you. Thank you so much. Yeah.

H.P. Singh — Chairman and Managing Director

Thank you so much.

Operator

Thank you. [Operator Instructions] I would now like to hand the conference over to Ms. Aditi Singh, Head, Strategy for closing comments. Over to you.

Aditi Singh — Head, Strategy

I think Vignesh and there are some people, yeah, in the questions queue.

Operator

We have question from the line of Vignesh Iyer from Sequent Investments. Please go ahead.

Vignesh Iyer — Sequent Investments — Analyst

Hello, sir. Yeah, thank for the opportunity again. Just to understand this unsecured MFI portfolio. Sir, I’ve been tracking your company only for three months now. If you could just explain us the strategy, where you have branch out to — put into financial that the unsecured part of the — goes down because if you could just explain some part of it.

H.P. Singh — Chairman and Managing Director

You want to know the unsecured part of microfinance basically, that’s…

Vignesh Iyer — Sequent Investments — Analyst

Yeah, correct.

H.P. Singh — Chairman and Managing Director

See, let me give you maybe because we have lesser questions to be asked and let me just give you an insight into what microfinance is all about. See, it is a very dynamic business model, if you really ask me. I’ve put in about 30-odd years in this. It is unsecured by nature, but ultimately, it has a lot of collateral, which is attractive [Phonetic] because we follow the group model in terms of our working. Now, when you look at this, technically, you’ve got 10 to 15 women who stand as a collateral guarantor to each other. So, it’s a moral and a peer pressure which works.

In nature, it will be unsecured, but if you really ask me in terms of the joint liability, which is M&As I think it remains quite positive in terms of the peer collateral, which is there. It’s very gender specific, one, that is also a huge advantage because if you look at women are normally financially far more different than men. So, we want be positive, which is there, which people tend to kindly slightly overlook I think is there, that it is peer collateral, it is gender-specific. And it is probably in the rural space, which is far more insulated than the urban scenario in terms of the vagaries of what happens in terms of your activities or maybe the economic system, which works in urban. So, these are the advantages which the microfinance portfolio has.

Vignesh Iyer — Sequent Investments — Analyst

Okay. So — but this diversifying your unsecured portfolio by floating subsidiary, I just want to know whether the holding company has given any guarantee regarding — has any guarantee or any sort of such things for any funds that is raised by your subsidiary or it is operating on its own?

H.P. Singh — Chairman and Managing Director

No, no. So, they are operating on their own. It’s a complete set of separate dynamics. Since we are a parent, definitely, we stand over there in terms of business dynamics as such could be guarantee, could be comfort letter, could be — when they look at the parent company, I think that’s probably the way you should try and look at it. But these are stand-alone entities operating through their separate CEOs, through the separate business models or the other. But definitely, they do leverage the parent’s legacy as such in terms of how they have to grow. That is there.

Vignesh Iyer — Sequent Investments — Analyst

Okay. And when it comes to expansion of branches, do you have any target in your mind for next year? I mean, I mean just to understand more on the part, whether the opex to AUM is going to increase from here on due to expansion or we have done expansion and we are more looking to stabilize around disbursement.

H.P. Singh — Chairman and Managing Director

See, as I told you earlier, 25% growth technically happens without doing too much on opex. Our opex reduced in the last year. It has come down to 6.1%. So, there’s no question of any opex increase, in fact, it’s going to be a decrease from here on moving forward.

Vignesh Iyer — Sequent Investments — Analyst

And how much branch expansion are we seeing from — if you could have some ballpark number?

H.P. Singh — Chairman and Managing Director

Very few, about 50, 60, 70, that’s the ballpark number that’s there.

Vignesh Iyer — Sequent Investments — Analyst

Okay, fine. That’s all from my side. Thank you, sir. All the best.

H.P. Singh — Chairman and Managing Director

Thank you, sir. Thank you.

Operator

Thank you. We have our next question from the line of Rishikesh Oza from RoboCapital. Sorry, sir, your voice is breaking.

Rishikesh Oza — RoboCapital — Analyst

Hello? Am I audible?

Operator

Yes. Please go ahead. I’m sorry, again, cracking.

Rishikesh Oza — RoboCapital — Analyst

Is it okay now?

Operator

Yes. I’m sorry, sir, it’s cracking again. Are you using your handset?

Rishikesh Oza — RoboCapital — Analyst

Am I audible now?

Operator

Yes.

Rishikesh Oza — RoboCapital — Analyst

Two questions from my side. Could you provide any guidance for credit cost and cost to income in next two years?

H.P. Singh — Chairman and Managing Director

We’ve given our guidance for our ROA basically, which would technically include credit costs coming in. We don’t have a separate guidance for credit costs. But the — let me give you this maybe a slight, in fact, the industry is talking of about close to about 1.5% to 2% credit cost. I think the industry talks about 2%, I think we’ll also probably be better or maybe at their cross over. So, that’s my statement on this.

Rishikesh Oza — RoboCapital — Analyst

And on cost to income, if you could guide shortly.

H.P. Singh — Chairman and Managing Director

Cost to income, again, if we look at it, we are down to about 45%. I think we’ve covered a lot of distance from there. In any case, as the opex as told the earlier question, was that we are only looking at bringing it down as optimum efficiency and the denominator base of growth fix-in. I think the opex will also go down so the cost-to-income ratio will technically also be on a downgrade trend.

Rishikesh Oza — RoboCapital — Analyst

Okay. That was it. Thank you, sir.

H.P. Singh — Chairman and Managing Director

Yeah. Thank you so much.

Operator

Thank you. We have our next question from the line of Lalitabh Shrivastawa from Angel. Please go ahead

Lalitabh Shrivastawa — Angel Investor — Analyst

Hello, sir. Am I audible?

H.P. Singh — Chairman and Managing Director

Yeah, yeah, you’re audible.

Lalitabh Shrivastawa — Angel Investor — Analyst

Good morning, sir and thanks for the opportunity. Congratulations on a great set of numbers. My two questions are first of all, if you can help us, how do you see the sensitivity of your lending cost, lending rates [Indecipherable] as well as your cost of funds, especially in the present environment of interest rates and what is the sensitivity of that rate hike moment? First thing.

Secondly, if you can help us understand, sir, if I understand correctly, microfinance is generally a very in fact intensive business. So, it is — if I see employees and other metrics, they have cost metrics also, they have trended down. So, what differently you are doing here? Is the changes in the business mix, the business that you are doing on the ground side, if you can help us understand. So, these are the two questions.

H.P. Singh — Chairman and Managing Director

Lalitabh, the first question, the answer is I think we’ve had rate hikes which have happened. I think they have already been done to a very large extent. There are no further rate hikes coming in. So definitely, I think the cost of funds, whatever it is, will probably inch upwards. That’s one. Secondly, in terms of us, I can say not with certainty, but with a lot of confidence, with this set of results, which have been there, I think we will have at whatever point of time, maybe any kind of a rating upgrade or maybe a outgo which might change, which will also put this in the positive category in terms of how the cost of funds are probably viewed on. So, that’s probably the answer to your first question.

And the second question is you talked about — sorry, what was the second question?

Lalitabh Shrivastawa — Angel Investor — Analyst

So, in the second question, I basically asked that generally MFI is a touch intensive business. Your employee numbers has been kind of stagnant or actually, it has been trending down. You are seeing benefits on the cost side also. But I would like to understand as a business, what difference you are doing on ground? And how do you see that the implications of lower employee profile in the head count, at least panning out going forward on your business?

H.P. Singh — Chairman and Managing Director

So, if you see that I think we’ve — our AUM and the headcount has in fact gone down in terms of our field employees. This is probably what we had wanted to do since the pandemic finished off and we came into being effect. So, the optimum efficiency of the loan for a loan officer, so borrowers for loan officers is the optimal efficiency, which we always have it in terms of our this thing, including I think the variables of how to increase the center size and all that. So, I think the effort has probably gone on to that. And this will continue, so the optimum efficiency will technically move positive in that range. And this is how we’ve been able to achieve a better opex, a better operating efficiency and a better profitability. I think this will keep on continuing and this is our endeavor, which moves on from here onwards.

Lalitabh Shrivastawa — Angel Investor — Analyst

Yeah. Thank you.

H.P. Singh — Chairman and Managing Director

Thank you, sir.

Operator

Thank you. We have our next question from the line of Vishal Gajwani from Aditya Birla Mutual Fund. Please go ahead

Vishal Gajwani — Aditya Birla Mutual Fund — Analyst

Hello, Mr. Singh.

H.P. Singh — Chairman and Managing Director

Morning.

Vishal Gajwani — Aditya Birla Mutual Fund — Analyst

Just wanted to know in terms of the business mix between, let’s say, MFI and non-MFI, what we can see is that the last three, four years, the non-MFI has gone up from 6.3% to 12.3% last year. How should one look at this business mix shaping up going forward?

H.P. Singh — Chairman and Managing Director

So as a baseline, I think both the non-microfinance book, which is the MSME has a lot of potential in terms of their growth. And we are moving slightly ahead. If I say that from a 6%, it has increased to 12%, I probably can maybe look at crystal [Phonetic] rates for the next few years or maybe in the next three, four years, I think this will increase to probably about 20% to 25% in the next three to four years, the mix will change because technically, what MFI has is a larger denominator base. So, I think the growth — if we do 20%, 25% increase there, and we have to do about 50% to sort of keep it at par. So my sense is in the next three to four years will probably be in the range of about 20% to 25% overall AUM in terms of how the input subsidiaries are going to shape up.

Vishal Gajwani — Aditya Birla Mutual Fund — Analyst

Okay, sure, sure. Thank you.

H.P. Singh — Chairman and Managing Director

Thank you so much.

Operator

Thank you. We’ll take our last question from the line of Suraj Nawandhar from Sampada Investments. Please go ahead.

Suraj Nawandhar — Sampada Investments — Analyst

Hello. Good morning, sir. Sir, what is your average cost of funds and average yield?

H.P. Singh — Chairman and Managing Director

As you know, cost of fund has gone up slightly, but we are getting most of the funds in the range of some 11.5% to 11.75%. Lending rates are close to about 24.75% blended for the last quarter.

Suraj Nawandhar — Sampada Investments — Analyst

Okay. And have you been able to pass on all the cost of — rising cost of funds to our customers or have you absorbed some of it?

H.P. Singh — Chairman and Managing Director

No, we don’t reprice our existing customer, but whatever we do, we do it on incremental — on incremental NIM. So, this is how the industry has been working. For such a small loan repricing the existing customer is selling on the ground. So, there is how we do that. But our NIMs have improved over a period of time since our new portfolio has gained in funding. So, these losses are almost minimal.

Suraj Nawandhar — Sampada Investments — Analyst

Okay. And sir, answering the last question, you said that the housing in the MSME book will grow as a percent of the total AUM. But housing MSME will have a smaller spread compared to microfinance. So, can you expect competition in NIMs going forward in the next two to three years?

H.P. Singh — Chairman and Managing Director

See the portfolio range which we look at and the environment which we work both for MSME as well as for housing finance to a large extent is a graduated microfinance customer, which needs a higher ticker size in terms of MSME lending as well as a specific lending in terms of housing financing, where the yield are not compromised or under pressure because of what you find in a housing as well as maybe the urban space. So, this is predominantly rural, which is working in, where the yields again, range for this portfolio to a large extent, within about 30% plus. So over there, the pressure is not there. And moving forward ahead, I think when we talk about our housing finance, our average yield is about 15.5% to 16%. And similarly for our MSME, it is close to about 20.2% [Phonetic] so the pressure is not there, but we do rural and a graduated microfinance customer to a large extent.

Suraj Nawandhar — Sampada Investments — Analyst

Sir, can you just throw a bit light on a broader perspective on the microfinance sector where we are hearing a very strong commentary from other players as well, maybe IIFL as well as you. So what has changed in the overall microfinance as a sector? And where this growth is coming from?

H.P. Singh — Chairman and Managing Director

See, it has become more of — I think two factors which are there, one, post the pandemic, I think the pent-up demand has really shot up in terms of income generation which has happened, the rural GDP going up as well as the rural economics in terms of businesses going up, that’s coming up. The second is I think there is a larger penetration by the MFI players as much overall across and that demand is probably is increasing with a larger penetration in each state to a large extent.

When we talk about, I can just leave one thought with you is that we are talking for about INR3 lakh crore plus industry right now. This industry is poised in the next five years to probably grow at least 4 times or 5 times higher than what it was. So, that’s the depth I’m talking about in terms of the microfinance sector’s growth, which probably can be seen by these numbers.

Suraj Nawandhar — Sampada Investments — Analyst

So, you are saying the sector itself will grow 4 times to 5 times in the next five years?

H.P. Singh — Chairman and Managing Director

Yes. That’s what my reading is.

Suraj Nawandhar — Sampada Investments — Analyst

Oh, okay. Thank you, sir.

H.P. Singh — Chairman and Managing Director

Why I’m saying it, everybody is talking about a 25% growth year-on-year and these are conservative numbers, which the industry talks about. But the depth of the market is that big. The penetration levels per state, if I tell you, the average would be about 15% to 20%. So, there is a lot of room for microfinance players to probably have a solid growth in the next four to five years.

Suraj Nawandhar — Sampada Investments — Analyst

So then why are — whey they are not doing some aggressive branch expansion this year or probably next year, because sector itself is going to grow 5 times in next five years, then we should be ready probably this or max by next year? So, why are you not doing some aggressive branch expansion?

H.P. Singh — Chairman and Managing Director

Why, is very easy to say, but you have to actually have a perfect asset quality as well as various other factors which will kick in. So, it’s not just about growth. It has to be various metrics of optimum efficiency, cost efficiency, trade cost, asset quality, everything has to be taken into account. So, you can only do what you feel is the best for the organization. And I think that’s the reason why we see a guidance of 25% and rather to probably do 100% then depend later on that probably went wrong on that.

Suraj Nawandhar — Sampada Investments — Analyst

Can you say 25% is a conservative guidance?

H.P. Singh — Chairman and Managing Director

Well, kind of.

Suraj Nawandhar — Sampada Investments — Analyst

Okay. Thank you, sir. Thank you.

H.P. Singh — Chairman and Managing Director

Thank you.

Operator

Thank you. That was the last question for today. I would now like to hand the conference over to Ms. Aditi Singh, Head of Strategy for closing comments. Over to you.

Aditi Singh — Head, Strategy

Thank you. Thank you, everyone, who came on this call and they took out time. We have to right now conclude this call because there’s a time constraint. I understand there are some people who still have questions and want to connect. Happy to connect with them offline. And my name is Aditi Singh, I Head Strategy. You can always reach out to me. You can always reach out to Ms. Shweta Bansal, who is DGM, Investor Relations. We’ll be happy to take your queries and run you through any numbers or clarification, if you may.

For now, we shall say good-bye for now until next quarter. Thank you very much. Have a great day.

Operator

[Operator Closing Remarks]