SBFC Finance Ltd (NSE: SBFC) Q2 2025 Earnings Call dated Oct. 28, 2024
Corporate Participants:
Sanket Agrawal — Chief Strategy Officer
Aseem Dhru — Managing Director and Chief Executive Officer
Narayan Barasia — Chief Financial Officer
Pankaj Poddar — Chief Risk Officer
Mahesh Dayani — Chief Business Officer
Analysts:
Renish Bhuva — Analyst
Shubhranshu Mishra — Analyst
Ananga Rana — Analyst
Nishchint Chawathe — Analyst
Pranav Gupta — Analyst
Divyansh Gupta — Analyst
Sonal Minhas — Analyst
Lakshminarayanan — Analyst
Nidhesh Jain — Analyst
Chinmay Nema — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to SBFC Finance Limited Q2 FY ’25 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Renish from ICICI Securities Limited. Thank you, and over to you, sir.
Renish Bhuva — Analyst
Yeah. Thank you, Neha. Good morning, everyone. I will now hand over the call to Sanket for management briefing. Yeah, over to you, Sanket.
Sanket Agrawal — Chief Strategy Officer
Good morning, everyone. Welcome to the Q2 FY’25 conference call of SBFC Finance. Thank you for joining in early in the morning. I have with me — along with me I have the management of SBFC, Mr. Aseem Dhru, MD and CEO; Mr. Mahesh Dayani, CBO; Mr. Narayan Barasia, CFO; and Mr. Pankaj Poddar, CRO.
We will start with the opening Remarks from Aseem followed up financial detailing from Narayan, and then we will open the floor for questions. Over to you Aseem.
Aseem Dhru — Managing Director and Chief Executive Officer
Good morning, everyone, and never a dull moment in financial services, is there? So, there are times when the ball nicely comes on to the bat, the pitch is flat, the bounce is even. Those points in time, the scoreboard keeps kicking along. Then there are pitches that test the batter’s mettle. If you go back to our con-calls in April and July, you’ll remember that I had mentioned that the industry will have three challenges: One, slowing growth; two,compressed margins due to the rising cost of funds; and three, rising credit cost.
If you see the results that have come out so far from cement to FMCG, paints to retail, consumption growth is slowing, and this is an outcome of three things: One, a K shaped post-pandemic recovery; two, inflation taking a bite into consumer wallets; and EMI’s of loans biting even deeper into that wallet. It is the proverbial tide going out, showing us who was swimming with what trunks on.
We just declared our second quarter FY’25 Results. Growth has been slightly above our guided range of 5% to 7%. Reduction of costs have been above the guided range of 50 basis points for the full year, and credit costs have been at the upper end of our guided range of 80 to 100 basis points. In these times of rising cost of funds, we have managed to increase our spreads by 14 basis points. Even as leverage increased, we have preserved our ROA at 4.56%, while increasing our ROE by 37 basis points. We’ve added six branches during the quarter.
In the finance business, we aren’t paid to manage growth, anyone can do that. We are paid to manage the risks that come visiting in cycles. At this moment, there are four clear and present risk that the industry is battling with. One, credit cycle is at our door and managing this is going to be our challenge. Two, we have tightened our credit underwriting since February and finding lendable customers has become that much more of a challenge. Three, our base case is that we aren’t likely to see a rate cut anytime soon. And even if that does happen, as long as banks scramble for deposits, MCLR leakages will keep pushing up our cost of funds. Four, the regulator has a zero tolerance policy, and as a regulated entity we have to tighten our belts and clean up any process weaknesses we have to behave in line with the letter and spirit of the regulation.
While we recognize these challenges, I also think, like what happens in the stock market, we often move from irrational exuberance to overblown fears. At SBFC, no matter what is the weather outside, we are always cautiously optimistic. In good times, we told you the same thing we are telling you now. We will endeavor to grow at 5% to 7% quarter-on-quarter. As economies of scale built, our cost to income ratio will keep dropping by 50 basis points annually and credit costs will largely remain contained in the 80 to 100 basis point range, although there could be a quarter where it may brush above it marginally.
We finance small businesses in small towns and have to balance their interest with ours. Ask any batter which innings he remembers, and chances are it will be the one he played against all odds. As a banker, I’m excited that this pitch is going to test us, but then that is the point of the whole thing, isn’t it? A good surfer doesn’t fight the waves, he rides them and that’s what is our ask.
With this, I turn it over to Narayan for taking us through the numbers.
Narayan Barasia — Chief Financial Officer
Thank you Aseem. Hi. Very good morning to you. I will take you through the financials of the quarter ended September 2024. Our AUM as of September ’24 is INR7,715 crores with a reported growth of 33% on a Y-o-Y basis and 8% on a Q-o-Q basis. This is 99% of our book which is secured by properties and gold.
We added six branches during the quarter with total branch count now at 192 as of September 2024. Our borrowing cost has reduced marginally to 9.32% for Q2 FY’24-’25, which is similar to Q2 FY’23-’24, in spite of rising MCLR by banks. The yields and spreads continue to remain stable at 17.69% and 8.37% respectively for the quarter. Our opex continue to reduce and is at 4.6% for the quarter due to improved operating leverage, while we continue to increase our investments in branch network. Our return on average AUM for the quarter is 4.56% and return on average equity further improves to 12.67%.
In terms of asset quality, our GNPA has inched up slightly by 9 basis points in Q2 for FY’24-’25 to 2.69%. Our 1+ DPD, however, for secured MSME declined marginally during this quarter by 4 basis points to 6.33%. Our credit cost is slightly above 1% to 1.03% for the quarter. We maintain a very healthy PCR of 40.17% as of September 2024.
Our capital adequacy ratio is 38.6%. Our tangible net worth is INR2,707 crore as of September’24. We reported a profit after tax of INR84 crores for the quarter, thereby reporting a growth of 60% on a Y-o-Y basis and 7% on a Q-o-Q basis.
With this, we open the floor for question-and-answers.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.
Shubhranshu Mishra
Hi. Sir, two questions. The first one is, any signs of stress that we are seeing in unsecured business loans, especially in the ticket size of maybe INR5 lakhs to INR15 lakhs? If so, from what kind of industries?
The second is, are we seeing customers coming and pledging their gold to fulfill their due for unsecured loans, they may have outstanding somewhere else? Thanks.
Aseem Dhru
Thanks. This is not applicable to us. We don’t do unsecured lending.
Shubhranshu Mishra
Right. The second one?
Aseem Dhru
Since we don’t do unsecured lending, they know, I mean — your second question is that do people pledge gold to pay an unsecured loan. But since we don’t do, that doesn’t happen. But it could happen that people have pledged gold to pay an EMI somewhere else. That could happen. That we would not be able to exactly know.
Shubhranshu Mishra
Sure, sure. Thanks.
Operator
Thank you. [Operator Instructions] The next question is from the line of Ananga Rana from E91 Partners. Please go ahead.
Ananga Rana
Hi. Thanks for the opportunity. I just wanted to understand the bounce rate for this quarter and just how have we seen that move over the last two to three quarters maybe?
Pankaj Poddar
So, in our segment actually we track 0+, 90+ and collection efficiency data and the data of the same has been provided. In this segment, that is — according to us that is the key for us to track and we are watchful of the same in the current environment.
Ananga Rana
But would you be able to maybe give some color on what the bounce rate has been like?
Aseem Dhru
What has happened in this environment is that the bounce rate isn’t going up. The bounce rate has been pretty steady all through. In fact, in some cases slight marginal decline. So, the challenge isn’t the bounce rates going up, but the challenge has been once the customer slips, to bring the customer back has become that much extra difficult. So, the way we look at it is that the environment has become tighter and now in the current market environment usually what happens is that when unsecured lenders tighten the belts, the secured lenders do face some impact which naturally comes thereafter. So, what we are likely to see and what we’ll have to watch for is that the bounce rate may not change, but the difficulty to bring the customer back once slip — once he goes to 60 DPD, then he keeps being stable, but we find it difficult to bring him back to normalcy, which was a little easier earlier. So, that curve has got inclined a little, but nothing really material is changing. See these are the cycles of the economy that that they keep playing.
It’s a slightly more inclined curve right now, but nothing really material or dramatic and which is why we are not changing our credit cost guidance for the year. We are not seeing anything that is really concerning us to that level. But yes, we are watchful. The environment is elevated risk and therefore we would be watchful.
Ananga Rana
Thank you, so much.
Operator
Thank you. The next question is from the line of Nishchint Chawathe from Kotak Institutional Equities. Please go ahead.
Nishchint Chawathe
Hi. Thanks for taking my questions. I think the first one, just data keeping one is, if you could share the interest on co-originated loans you’ve been giving it in the call for last two quarters?
Narayan Barasia
So, we don’t give out individual interest rate. So, our strategy has been to maintain the co-origination book at 20% of our total book, that’s what we do. And we generally — we have been doing co-origination with CLM-1 which is very rare in the — in the market. People have generally tended to use CLM-2, which is assignment post-disbursement. We have used CLM-1, which we believe is a far superior product in terms of delivery and execution.
Nishchint Chawathe
No, no, just the interest income broken up into it because it just helps us to kind of calculate things a little more accurately, which is what I think we’ve done in the last quarter.
Narayan Barasia
That’s roughly 40-45 bps Nishchint, as we discussed in the March con-call. The yield of 17.7 would have 45 basis point of co-origination fee income that goes at the top line.
Nishchint Chawathe
Got it. It did help. The other thing is that I believe we are not changing the credit cost guidance for the year, but going forward on the growth rate, I know you have been delivering better than what you have guided, but do you see the overall growth momentum changing, or would you kind of — I know you have already tightened the screws, but beyond that do you see the growth momentum really changing for the year?
Mahesh Dayani
So, Nishchint, hi. Good morning. So, overall, if you look at in our overall guidance what we’ve been giving is close to around 5% to 7%. And for a moment, even if you were to look at the lower end, which is close to between 5% to 6%. And if we continue with the current momentum and it doesn’t drop, we will be in the guided range at least through this particular financial year. So, what we’ve been talking about that despite probably tightening and the current disbursal momentum which is there, you would see us delivering on the same growth pattern that we’ve been guiding for.
Nishchint Chawathe
And you also mentioned about your cost of funding going up, which is fair, but incrementally are we able to really pass it on to customers because I think in the 1st Phase of the rate hike you are able to maintain your spreads very well. Do you see that incrementally while the cost is going up, it’s a challenge to pass it on?
Mahesh Dayani
So Nishchint, what typically happens is that we have a category of customers which range anything between INR5 lakhs to INR30-odd lakhs, and towards the higher end of the ticket sizes and for the higher end is INR15 lakhs and above, we tend to co-originate those loans, which effectively means that only 20% of those loans are with us and 80% is with the co-originating partner. And then you have enough flexibility to move in the way that you would want your yields to move.
So, if you look at even our current quarter, you would see co-origination as a percentage is at 17%-odd and the balance is on the SBFC book, so you would see a positive impact there. So, it’s just the way that we are now managing our spreads, are managing our yields and as we’ve been maintaining and most of our book — I guess largely the book is on a variable rate so our ability to pass on is extremely high on the book.
Narayan Barasia
So, Nishchint one clarification. Our cost of borrowing has been very steady. If you look at the cost of borrowing of Q2 last year and Q2 this year, it is absolutely flat so it has been at the same level.
Nishchint Chawathe
But I believe that as banks are raising their benchmarks for their MCLRs, it is bound to increase…
Aseem Dhru
SBI has raised, for example, in the last four months their MCLR 3 times, but even during that quarter where all banks raised their MCLR, our spreads have gone up by 37 basis points. So that sort of answers the question that even when we have not technically done a rate increase, where we have been able to maximize yields. So, yes. And is that a challenge going forward? Yes. And again, going back to the three challenges that I have outlaid several times over the last one year, that maintaining margins is going to be a key challenge and as bank’s NIMs come under pressure, NBFC NIMs
Will also come under pressure. Our ability to manage is what will get tested.
Nishchint Chawathe
No, the point is that if banks NIMs come under pressure and they pass on rate hikes to NBFCs or their MSME borrowers, then to that extent you can also pass it on to your borrowers, right? That’s what I was wondering.
Aseem Dhru
I mean before — that is of course an option available, we have a variable portfolio. But we also have to be cognizant of the fact that we deal with customers who are vulnerable to EMI increases. So, we don’t want to do it as much as possible. I mean, we will do it if we have to. But as much as possible, we would rather find innovative ways to reduce our cost of funds. So, I mean, we have diversified our holding away from banks. So, we have been continuously dropping our percentage borrowing from banks and we have gone to the NCD market which is giving us a better yield. We have gone to — we are now going to raise it from multilateral financial institutions shortly. So, we have to find ways to battle it. But yes, the pressure on the cost of funds will come.
Two ways to do it. One is to just take it and pass it on, but that’s lazy banking. I would rather that we work harder to reduce or keep our cost of funds flat even in an inclining environment. But if we cannot keep it flat, then we have no choice but to pass it on.
Nishchint Chawathe
Got it. And just one last thing is, the regulator has been talking about end use monitoring on especially asset classes like LAP. Are you able to do that or are there any changes being made to be able to do that?
Aseem Dhru
So, yes, this is a requirement that we have to be in compliance with. We have devised ways in which we will be achieving the same. So, again as I said in my call earlier that regulatory asks have gone up and we have to be in compliance with both the letter and spirit. We have devised the plan to actually fall in line and ensure that we have end-use monitoring, though for an NBFC it is a lot more challenging because we don’t have view on the customers’ bank transactions unlike a bank. But we’ll have to be in compliance, and we have devised a method by which we will fall in line with what is asked.
Nishchint Chawathe
Got it. And the other kind of points made by the regulator, I mean not necessarily for you, but for the industry which probably we need to be work on?
Aseem Dhru
No. So, see the — I mean, the ask is very clear. One is that the Customer Fair Practice Code is prime on the agenda that all lenders will have to ensure that whatever practices you are following from lending to interest rate to collection, etc., have to be fair and the disclosure to the customer has to be
Transparent and there can be no hidden charges inside whatever you are charging. So, one is Customer Fair Practice Code. The second is — in that a lot of things that changed of last in terms of how — at what point of time your interest gets booked, etc., that you only book interest once you have given the money out to the customer and not when you sanction the loan. So, one is Customer Fair Practice Code.
The second is the governance and compliances within the organization, ensuring that your liquidity management is correct, your high quality cash requirement is appropriate, ensuring that you are following all the processes that have been laid out for lenders to follow. And third is how you are managing your risk, because the regulator has also been guiding that growth has to be in line with all the risk governance and operating practices at the NBFC or the bank, and we have to ensure that our risk management frameworks are in line with the growth that we are seeking, and that we are not growing at the cost of everything else. So, ultimately what they are driving is prudent practices, and we have to be compliant of what is the ask.
Nishchint Chawathe
Got it. This was very helpful. Thank you very much and all the best, and wish you all a very happy Diwali.
Aseem Dhru
Thank you, Nishchint.
Operator
Thank you. The next question is from the line of Pranav Gupta from Aionios Alpha Investment Advisors. Please go ahead.
Pranav Gupta
Hello?
Aseem Dhru
Yeah, go on, Pranav.
Pranav Gupta
Yeah, hi. Good morning, and thanks for the opportunity. Just a couple of questions. Firstly you mentioned that while bounce rates are not going up, but once a customer slips, it’s becoming more and more difficult to cure the customer even though the customer remains stable in the bucket that they are present in. Just wanted to get a qualitative sense on that statement. What I am trying to understand is, is it because of the inflation that has
Been eating up into the customer surplus or is it very anecdotal in terms of specific business impacts that they might face? What is the trend that we are seeing in these buckets and why are these customers not able to pull back? That’s the first question.
Aseem Dhru
No, it is — there is nothing — there is nothing that — It’s not that there is a whole hoard of customers that have fallen in, it is just that the regular customers who used to bounce and pay, their the ability to collect has declined to some extent, only within that cohort of customers. And when two EMIs pile up, it becomes a little difficult for the customer to pay two EMIs because, of course, see, the post-pandemic inflation has been quite substantial, and the incomes haven’t really kept pace. So, it’s very logical, and we are not dealing with the top-end of customers in the space, we are dealing with customers who are managing to keep their ends meet. So, where there is a demand on their incomes and more than what their
Incomes are in line. Ans also, see, small businesses have their own challenges.
As India gets more organized, some of the small businesses find the competitive intensity quite a lot. And today if you see, when corporate results, they show pain of growth. Now, obviously, that same growth is also affecting the small businesses. It’s just that they don’t come in newspapers, and there is no data readily available as to what impact they have. So, nothing really dramatic. It is just that a slight slowdown in their income or a slight increase in their cost, they find it a little difficult to service, but these come back. These are cycles. They will be brought back. It will take some time, but they will all be brought back.
Pranav Gupta
I appreciate that. Just a follow-up on that. Like you mentioned, I think like most lenders have mentioned in the past couple of quarters that obviously inflation has creeped up and incomes haven’t kept pace. Is it then logical to assume that our rejection rates have been going up steadily over the last couple of years given that more and more customers would probably breach the FOIR requirements that we would have?
Aseem Dhru
So, I think you missed the opening comments that I had made. I had covered all of this in the opening comments, Pranav.
Pranav Gupta
I am sorry about that.
Aseem Dhru
It’s been covered that. And yes, the rejection rate has gone up.
Pranav Gupta
Will you be able to quantify that, say, maybe now versus two years ago, if that’s possible?
Pankaj Poddar
Yeah, around 5% to 7%.
Pranav Gupta
Okay, okay. So, just one last question. You mentioned again in the opening remarks that as the AUM scales up, logically you will see operating efficiencies kick in, and we will see the cost to average assets come off. Do you have any number in mind where you believe that this can settle in the long term, say, three, four, five years down the line? You mentioned 50 basis points is what we can see in terms of benefit every year. Where do we settle eventually given that our business model is going to remain a high touch feet on street different business models? So, where do we see this settling in the longer term?
Aseem Dhru
In the long run, everybody is dead. Nobody can play the full 18-hole golf course at the same time. You play it a hole at a time. At this moment, we are confident that we can keep reducing this cost by 50 basis points. Somewhere around when we get to an AUM of about 3.5% is where — till then scale efficiency will kick in, after that we will have to get operating efficiencies to come in. So, scale will give us that advantage to get to those numbers. At the moment, we are operating at a 40% cost-to-income ratio. We would like to see it get to the 30s. After that, we would like to see it get to the 20s. But that plan we don’t have right now. But that’s our job. We will work towards making that happen.
Pranav Gupta
Sure, sir. Thank you so much.
Operator
Thank you. The next question is from the line of Divyansh Gupta from Latent Advisors. Please go ahead.
Divyansh Gupta
Hi, sir. A couple of data point questions. So, what would be our write-off during this quarter? And if you can split it between, let’s say, gold and MSME?
Pankaj Poddar
So, we have not done any write-off in this quarter.
Divyansh Gupta
Got it. And the Stage 3 AUM, if you can break it between MSME and gold?
Sanket Agrawal
See, we don’t call out the number between the products. We holistically disclose it. If you look at the holistic numbers, the Stage 3 has gone up from 2.6% to 2.69%. That’s the marginal increase that has happened. We don’t disclose the separate numbers for the products.
Divyansh Gupta
Got, got it. One clarification question on the collection efficiency that we mentioned. So, we mentioned this is the standard secured MSME collection efficiency. So, is it fair to assume it is the DPD zero at the start of the month and that is the collection efficiency that we are reporting?
Pankaj Poddar
So, this is non-NPA — non-NPA collection efficiency, standard efficiency.
Divyansh Gupta
And what would be our overall collection efficiency?
Pankaj Poddar
So, that is largely stable and range bound. So, we are not seeing any further deterioration there.
Sanket Agrawal
See, we don’t look at the collection efficiencies of NPA assets. There you actually go and look at the absolute recoveries. The collection efficiency is more on the denominator effect of zero bucket, and then obviously one and two from zero to 89 is what we look at. And there it’s been stable around 97% to 98% across quarters. NPAs we generally look at the absolute recoveries that we do and the gross flows against that, that has happened.
Divyansh Gupta
Got it, got it. And just one last question. So, if I look at our borrowings to our AUM ratio, right, so that has largely remained similar in the range of 65%, and actually it has been coming down, so 65%, 66%, 67%, 65.7%. Given that we are underleveraged, my assumption or expectation would have been that all of the growth in AUM should have been funded through debt and therefore this number should have been going up. But the number is actually flattish or going down. So, are we seeing any challenges in raising liability?
Narayan Barasia
No, so liabilities are more than plenty. I don’t think there is any challenge of liabilities in the market. Also, if you see, while the MCLRs are going up and the cost of borrowing in the markets are going up, but we have been able to maintain our cost of borrowing. So, that also in a way says that since we have enough liquidity, our ability to negotiate and bargain a good price is there. So, I think there is no problem from a liquidity point of view.
For your other question as to in terms of leverage, you are absolutely right. As we go along, the entire growth is going to be funded through debt till the time we achieve a respectable leverage. The reason you are seeing sometimes in a quarter-to-quarter basis is there is a profit which also kicks in, which adds to the net worth of the company. And that’s the reason the leverage sometimes may look optically similar. But all the growth is getting funded through…
Aseem Dhru
Look, we are sitting on a lot more cash than we need to, just to ensure that we have a good night’s sleep. So, we are sitting on excess liquidity. So, that also is a factor. Understood. And just one last question. Given that RBI has declined our housing loan application or HFC application, so is there a next step that we are thinking of doing secured housing in the NBFC or anything else? No. At the moment, no such plans. If we had got the housing finance license, we would have — see within this, there are several disadvantages. So, to compete with the housing finance companies would be tough without having access to NHB finance without having access to SARFAESI, without having access to the risk weights that they have. So, there is a regulatory arbitrage that is there and we had sought the license. However, the regulator has taken a view that they do not want to approve any regulated entity under a regulated entity. So, that’s the principal call they have taken. So, it’s not — nothing to do with SBFC, it is the policy level decision that has been taken. And to that extent, that’s a business that at the moment we won’t be addressing.
Divyansh Gupta
Got, understood. Thank you and all the best.
Aseem Dhru
Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Sonal Minhas from Prescient Cap Investment Advisors. Please go ahead.
Sonal Minhas
Hi. This is Sonal. I hope I am audible?
Aseem Dhru
Yes, go on please.
Sonal Minhas
Sure. Thank you, sir. Sir, I am new to this call basically. So, there will be some questions which I want to just understand the nuts and bolts of the business. I wanted to understand like what percentage of your portfolio on an absolute terms you would have written off in the last three years? And if you could add that to your disclosure going further, or you do, I will be happy to understand that?
Sanket Agrawal
See, in secured assets, overall in the last three years we have just written off around INR10 crores, INR12 crores. So, it’s immaterial to that extent. In unsecured portfolio, we would have done some write-offs, but that’s a rundown portfolio, now only INR55 crores is left. So, from an overall perspective, there has been hardly any write-offs, and we will do the disclosures as required going forward.
Sonal Minhas
Sure, sir. Thank you. That is very helpful. Also wanted to understand the average tenure of your MSME loan would be what? Because on your website it says 15 years, but roughly what is the weighted average at the portfolio level if we are talking about as we see it right now?
Sanket Agrawal
See, at the portfolio level it is 10.2 years contractually the average tenure and the behavioral tenure should be around six years.
Sonal Minhas
Got it, okay. And sir, from a maturity profile of the asset quality, the peak NPAs or the peak behavior in terms of bad asset quality starts hitting the numbers after two, three years. Is that a fair assumption?
Pankaj Poddar
So, yeah, for mortgage basically — for mortgage business, typically the maturity happens between 24 to 36 months.
Sonal Minhas
Okay, understand that. So, if I were to understand, let’s say, the NPA profile of your business, if hypothetically let’s say, the NPAs right now are 2.7%, basically if I do a T minus three years kind of book, which is maybe half of your book or even lower, that would be a good way to understand what if INR100 you have lent out back then, then maybe 2.7 times into 2 or thereafter basically would be your GNPA from that maturity profile. So, I am just trying to understand after two, three years your peak NPAs of a portfolio would be 5%, 5.5% or thereabouts?
Pankaj Poddar
So, see, there are a lot of moving parts and since we are talking in terms of portfolio level, our model basically we have baked in that from a model standpoint we have seen, let’s say, NPA at any given point in time is what we are baking in sub 3% and the credit cost should be in the range which we have guided. So, that comes from the model and then based on the maturity of books and the growth and other things, there are different moving parts which then drive the numbers from a portfolio standpoint.
Sonal Minhas
No, I understand that, sir, but that’s why I was trying to understand from a maturity profile. Let’s say, when you said 24 to 36 months, what is the NPA basically number which the portfolio hits at when the portfolio is maturing? Because the current numbers as we see right now would have a very high denominator.
Pankaj Poddar
No, so to your point, post COVID, in fact the majority has already hit in. So, what you are seeing right now is the portfolio which already has baked in more than 24 months of books which have already kicked in post-COVID growth. So, largely if you look at some of the maturity aspects are already baked in the portfolio which you are seeing since last quarter. So, that’s the reason one of the factors which you are seeing across portfolio is the maturity curve hitting in the portfolios from a growth standpoint.
Aseem Dhru
Logically, if you technically stop disbursing, roughly it would be double of what you are right now, and that would be a lifetime kind of a number.
Sonal Minhas
Yes, that’s what I was just trying to — not picking the number, but just want to understand that and that is why I was coming to that, sir. This is helpful. The second question also is just to understand that what percentage of your MSME loans — if you have let’s say 100 clients, how many of them would you have given more than one loans?
Pankaj Poddar
So, we see we look at portfolio in a manner that 85% of the customers typically, we would say have not taken any commercial loans or mortgage loans in our business and in our customer segment because they would not have more than a single property and all. Only 15% to 20% typically you would have mortgage or some decent commercial loans outside of us.
Aseem Dhru
One of the challenges of our segment is that we don’t cross-sell to these customers because when you cross-sell, you actually give more loans out and that’s not something that is recommended for our segment. So, I mean, generally we don’t do more than one loan and even while taking the
Customer in, if he already has loans taken from others, the income simply won’t qualify for a loan from us. This is what we are watchful off, which is why our portfolio is on civil watch is any customer trying to take a loan after we have given a loan. So, that’s something that we proactively watch for and try and act before it hits.
Sonal Minhas
Understand, that sir. And just from a strategic perspective, there are some other MSME listed banks, small scale banks and other companies as well, MSME has come out of a period of stagnation where the asset quality was not something which encouraged bankers to actually lend aggressively or grow aggressively and I think the situation has improved over the last eight, nine months. Since this is my first call with you, I just wanted to understand that between growth and asset quality, as you said going forward you will be more cautious. If there is a position where you see the quality of customers or the asset quality in the market basically deteriorating, would you be okay to just basically on an outside case, I won’t grow the business for one year and this is what is my business call? Just trying to understand your thinking — the way you think, the way you behave as a team to know you more.
Aseem Dhru
We had covered this earlier that since February we have tightened our credit standards, which basically has led to a 5% to 7% reduction in approval rates. So, you don’t really take a call of — based on what you see, you take calls of tightening credit norms and improving the gates of entry. So, the exam to get in becomes tougher as the market environment becomes tougher, so in fact if the environment becomes tougher, that is why you end up writing good credit in bad times and bad ones in good times. So, sometimes it is good that the environment allows you to be a little more watchful because growth hides a lot of mistakes. So, even as an organization where you often — while we are in the thick of things, it’s very easy to lose sight of what you are doing. So, it’s good that in between some hiccups come which help us ensure that we tighten any processes that we have left loose.
Sonal Minhas
Understood, sir. And sir, your origination and collection team is the same? Just trying to understand that from an operations perspective.
Pankaj Poddar
So, we have a separate dedicated collection team.
Sonal Minhas
Okay, got it. So, separate origination and then collection team basically?
Aseem Dhru
Yeah, origination, credit collections, audit, fraud control, these are all separate teams.
Sonal Minhas
Okay. And does it help to have some overlap between origination and the collection because you are an industry veteran, so just trying to understand this from your perspective, how you do see this?
Aseem Dhru
People have taken different routes. I mean, we all come from the stable of banks and in banks traditionally we have believed that this risk should be kept separate. Because intermingling of risks leads to behavioral problems inadvertently. So, I mean, of course it pushes up your cost when you keep your team separate. So, cost-wise, keeping teams separate is inefficient, but we believe in the longer run it is better risk management, that’s a point of view. I mean, somebody could argue it differently as well. I don’t know. I mean, it’s to whatever, whoever thinks is right, they can follow that path. We have chosen the path of separating all risks.
Sonal Minhas
Got it, sir. This is from my side. I’ll come back in the queue. Thanks a lot for answering my questions. Thank you.
Aseem Dhru
Thank you.
Operator
Thank you. The next question is from the line of Lakshminarayanan from Tunga Investments. Please go ahead.
Lakshminarayanan
Hi, thank you. I think at start of the call you made an interesting statement saying that you are afraid for risk management and less of growth. Very apt and nice to hear that. A few questions. First is that you talked about you not giving loans to people who already have loans, but we also hear that
Once people take loans from you, they may end up taking more loans subsequently. Do you have a mechanism where it actually raises some flags at your end? If so, how have you changed it? Do you see this? Because this is what we hear that there is excess loan being taken subsequently or after a loan is given. I just want to understand what your tracking mechanism there?
Mahesh Dayani
Yeah, hi. So, most of our customers, almost 85% of our customers are actually borrowing against the property for the first time, although they may have small loans, but the serious loan is something that they do with us for the first time. What also tends to happen is once we onboard the customer, there is a watch on the customer that if he goes and does some additional borrowing, an alert comes to us. So, we look at what is the intensity of the borrowing, whether its a small and marginal borrowing or a wheel borrowing or something more than what he is borrowing. We try to go ahead and address it. If we can’t address it, then we find ways to move out, considering that the leverage is beyond our thresholds that we set out for.
Lakshminarayanan
Got it. Is this thing, incidents increasing in the last couple of months?
Mahesh Dayani
Yeah, so if you look at the opening remark that Aseem mentioned, that one of the key reasons for the rejections to inch up has largely also been on account of the leverage moving up. So, we see that trend emerging. And if you would have looked at the Bureau Scores or the Bureau Table which was published in March or in April, it also recommended the same that a lot of these CIBIL scores were deteriorating on account of higher loans and leverage.
Lakshminarayanan
And second question is that one of the USPs of some of the NBFCs, especially in your segment is the faster turnaround rate. That’s in 24 hours or within 36 hours or 48 hours you need to give a yes or no. Now, has that cycle time increased now? Or how is it? Are you still keeping those patch the same?
Mahesh Dayani
In fact, I will be very worried if someone wants me to say a yes or no in 24 hours. So, by default, probably my answer is going to be no. So, we really don’t want to lend up in a hurry and then take a long time collecting it. So, in secured, there are multiple things that go in before we decision it. While a financial decision is relatively easy provided he has all the documents together, but that seldom happens for an average INR10 lakh customer.
The second part that the time taking part is the property details, which is respect to legal or title. So, thereabout, we would take close to around 10 working days to 12 working days to finally decision and hand out the money to the customer. So, unlike unsecured, secured does go through a bit of detailing before we hand out the money to the customer.
Lakshminarayanan
Got it. And finally, on the fee income, does it include insurance related premium as well as processing and foreclosures? What are the things that it includes?
Mahesh Dayani
We don’t have insurance. What we include in our fee component is the asset processing fee that we charge from the customers and some component of other things.
Lakshminarayanan
Okay, but I was told that in several cases, that is the NBFCs do insist on buying insurance just to ensure that there is a safety net if something happens to the borrower. Do you also insist on insurance? And if so, do you actually have a premium commission that is coming to you?
Mahesh Dayani
That’s independent to the customer’s choice, although we would prefer that the customers actually take insurance and it’s obviously beneficial for them. But it’s completely dependent upon the customer. So, if there are customers who already have health insurance or a life cover, that’s good enough for us, then obviously we really don’t insist on anyone undertaking that. But really to push it through, the answer would be no. So, it’s an independent call that the customers would have to take.
Lakshminarayanan
Got it, got it. Thank you so much. I’ll get back in queue.
Operator
Thank you. The next question is from the line of Nidhesh Jain from Investec Capital Services. Please go ahead.
Nidhesh Jain
Thanks for the opportunity, sir. The first question is on employee attrition. I think employee attrition has been pretty high at 50% for us and I think that is an industry phenomenon also. But do you see that this could be a hindrance to the scalability of our business model? And what are the steps we are taking to reduce employee attrition?
Aseem Dhru
See, when you have a direct sales model, this unfortunately is a bugbear that you have to bear. Does it hurt? Yes, it hurts. What can we do about it? A lot. Ad a lot of measures are underway. Hopefully, we will see the results. And ultimately it’s about hiring and engaging people better. But it’s hard work. You are going door to door to really seek business. And at the front end, when this is a little far for the course to some extent. But is there a scope of improvement? Yes. Are we working towards making this happen? Yes. We will have to wait for a couple of quarters to see how successful we are. But yes, it’s a combination of what is the reality of our business. If you are doing it through DSAs, your employee attrition goes down because then the attrition goes on to the DSAs books. If you are doing direct origination, then to some extent this is a cross we have to bear. But yes, we are seeing how we can improve that.
Nidhesh Jain
Sure, sir. Secondly, on the BT out rate, how are the trends there and what is the BT out rate for the staff?
Sanket Agrawal
Overall, the rundown is around 14%. 6% of this would be the EMI rundown and 6% to 8% would be the BT out rate.
Nidhesh Jain
On an annualized basis?
Sanket Agrawal
On an annualized basis, yes.
Nidhesh Jain
Sure. And the third. What is the share of gold loans in our overall AUM?
Sanket Agrawal
So, it should be 16%. So, 84% is MSME and 16% is gold loan.
Nidhesh Jain
And the last question is on any other products that you plan to add over next, let’s say, three to five years? Any other lending products that you plan to add over the next three to five years?
Aseem Dhru
Yeah, at the moment, we’ll stay focused with the two products that we are doing. We still have a lot of room of improvement of doing these two well. Once we get these two on the right track, where we want to see that, then ultimately the ambition is to reach out to the customer segment that we have chosen and offer more products to the customer. But until we have a right to win in a customer segment, we don’t wish to enter. So, we will take it slowly. At this stage, we’ll stay focused on the two products that we are doing.
Nidhesh Jain
Okay, sir. That’s it from my side. Thank you.
Renish Bhuva
Thank you.
Operator
Thank you. The next question is from the line of Chinmay from Prescient Capital. Please go ahead.
Chinmay Nema
Good morning, sir. Hope I am audible?
Aseem Dhru
Yeah, go ahead please.
Chinmay Nema
So, a couple of questions from my side. Firstly, on the collateral, so could you give some color on, just trying to understand some specifics here. So, what kind of land ownership records do you look at? How much do you go back into the history of the ownership and in terms of valuation, do you look at the government rate in the area or what is your valuation process? Just trying to understand the nuts and bolts of underwriting in that aspect.
Pankaj Poddar
Yeah, so we get into the explanation, it can take a whole day because the collateral subject if you look at in our country, it is very vast and while things are changing, but this right now is state level subject. So, what we have done as a process is we have state level policy processes which we have devised in detail. Largely we look at 13-year chain documents as a process and it is standard industry practice. And we have our empanel lawyers at state and location level who help us in ensuring that our collateral processes and the documentations are checked as part of the underwriting process.
In terms of valuation, we have approved guidelines under which we operate. That in fact takes into account; one, regulatory and guideline rates and also the operating rates which are prevalent in each micro market for which we have expertise, specialized vendors and partners whom we have empaneled. And based on the processes and guidelines, they provide us the valuation which also then later on is reviewed and verified at our underwriting level by credit managers. We also visit collateral as part of the process. So, we have detailed collateral assessment process, which also takes into account other factors in terms of verification, verifying other details as a process for us to onboard. And that’s the reason Mahesh was saying that it takes time for us to ensure that the collateral process is intact before we go ahead and take a transaction.
Chinmay Nema
And do you also require additional guarantors?
Pankaj Poddar
So, what we do as a process, we take at least one family member as co-applicant. And largely, if you look at it one of the female members in the family also comes in the loan structure. And 100% of the transaction, we will have one additional co-applicant as a process. All the property owners, we do take as part of loan structure.
Chinmay Nema
Git it sir, got it. And secondly on the post disbursal mechanisms, I know you said that this is typically the first property-backed loan a typical customers of yours would be taking. To understand on the process side, do you do regular bureau scrubs or is there a mechanism in place to check for overleveraging?
Pankaj Poddar
Yeah, so we do regular bureau scrub. And since we are in retail business once you do scrub, based on our analysis, we find that we classify customers into various types of future risk and based on that we drive our cross-sell and collection strategies. Because we are in retail mortgage, you practically cannot recall your loans, but future actions in terms of upsell, cross-sell and collection is what we drive through that.
Chinmay Nema
Got it, got it. And thirdly on the employee profile, could you give me some sense around, and where this question is coming from, I think in some of the unsecured businesses that we look at, one of the key challenges is the subjectivity in assessment of the employee income which is the customer
Income, which is a big source of trouble, which only comes into light when all the overleveraging has happened and when it’s too late. So, just trying to understand that when you look at the customers that you lend to, what degree of subjectivity is involved in their income assessment? If you could give some sense around what’s the typical turnover of a customer? What percentage of your customers file ITR or have GST certificates? Just trying to understand your conservativeness in that aspect?
Mahesh Dayani
So, you are asking me to give out a Coke formula literally, but I will probably try and address it. So, one of the key things what we do is that there is no subjectivity of the credit officers on the ground to assess, because then you will obviously not have a homogeneous form of underwriting. So, that’s something that we avoid. We’d like to see something what is cited in terms of the income coming through. And currently in the form of UPI, I guess you can cite every little transaction that the entrepreneur is making. So, from subjectivity, there is very little room for subjectivity. What we see, what we cite is what we assess, and based on that the loan amount, the EMI, serviceability of the customer is established and delivered. So, we have certain norms which are laid out depending upon the customer’s profile, the size of the business based on which the financial eligibility is arrived.
Just to also calm your nerves with respect to the collaterals and the kind of collaterals that we take which I think was a part of your earlier question. All our associate partners, which are largely the legal and the valuation is the same set of vendors that ICICI uses, who is our co-originating partner. And obviously once they pass all the collaterals and it passes their master. So, just to give you a sense of comfort that the collaterals that pass through are something which is also acceptable at bank level and bank standards and which are among the top four banks in the country.
Chinmay Nema
Got it, got it. And my last question is on the co-origination piece. So, could you give some sense around, does the asset quality differ on your co origination book versus the book which is sourced in-house? And in extension to that, your co-origination partners, just trying to understand what is their incentive to partner with you? I mean, is it primarily driven by business growth or is it driven by as they are looking for their exposure to priority sector lending? Just trying to understand what’s the basis for this partnership.
Mahesh Dayani
Yeah, so I think post-COVID there has been a structural shift. If you would have noticed that a lot of NBFCs have found their moat in lending to small businesses which are away from the main metros. They seem to have done a better job there. And from the other side, you have moved towards prime customers and that’s what they do a brilliant job there. And both institutions co-exist and there might be a little bit of overlap here or there, but largely post COVID you have a very formal structure of play for both kinds of institutions, whether it’s the banking or the NBFCs. Now where do they complement each other? Obviously, from a liquidity perspective, and someone was speaking about the borrowing question, so almost 20% of our AUM is in the form of co-origination. So, it gives us a fresh lead of liquidity for NBFC, and especially extremely helpful in times where rates are inching up.
And in time, the banks depend on these sectors. Also it helps them distribute the spread. So, it’s a win-win for both, for both NBFCs and for banks and that’s the reason you see a lot of emphasis on the co-origination that’s coming. The only difference is that we are a part of co-origination one, which effectively means that the disbursals happened on a live basis where 20% is retained by us and 80% is disbursed by the co-originating partner at the point of sale.
Operator
Thank you very much. Ladies and gentlemen, we’ll take this as a last question. I would now like to hand over the conference to the management for closing comments.
Sanket Agrawal
Thank you so much for joining the call. Thank you so much for all the questions. If there is anything left, you can reach out to us separately. Happy festive season. Thank you so much.
Operator
[Operator Closing Remarks]