SPANDANA SPHOORTY FINANCIAL (SPANDANA) Q1 FY23 Earnings Concall Transcript

SPANDANA SPHOORTY FINANCIAL (NSE:SPANDANA) Q1 FY23 Earnings Concall dated Aug. 04, 2022

Corporate Participants:

Shalabh Saxena — Chief Executive Offcer

Ashish Kumar Damani — President and Chief Financial Officer

Analysts:

Parag Jariwala — White Oak India — Analyst

Renish Bhuva — ICICI Securities — Analyst

Unidentified Participant — — Analyst

Nidhesh Jain — Investec — Analyst

Sarvesh Gupta — Maximal Capital — Analyst

Sameer Bhise — JM Financial — Analyst

Vinit Rai — JM Financial — Analyst

Shreepal Doshi — Equirus Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Spandana Sphoorty Financial Limited Q1 FY ’23 Earnings Conference call. This conference call may contain forward-looking statements about the Company, which are based on the beliefs, opinions, and expectations of the Company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operators Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Shalabh Saxena, Managing Director and CEO of Spandana Sphoorty Financial Limited. Thank you. And over to you, sir.

Shalabh Saxena — Chief Executive Offcer

Thank you very much, Aman. Good evening to all of you. Thank you for taking time out to join. Thank you for showing interest in our Company. We, as a management team, address all of you about three weeks back when we had presented the Q4 results. Quarter one of FY ’23 was the first full quarter for the new management since we spent only 11 days in Q4, which is the month of March in Spandana. Needless to say, it has been an exciting journey.

Last time around, we presented the Vision 2025 for Spandana and had clearly articulated the way forward for the next three years. We did receive encouraging support from all of you and the other stakeholders post the last call and the various meetings we’ve had. While we are enthused, I just wanted to add a word of caution. We are playing — as they say in cricketing parlance, we are playing a test match and not a T20, hence we are measuring our steps and taking prudent calls to ensure that the next level of growth for the organization is built on a robust foundation.

With this, let me move to the quarter one results. Friends, post-Covid and internal disruptions, which the company witnessed, there was an impact which the portfolio had to bear. While approaching the results for the quarter, we evaluated the portfolio, drilled it at a customer level, approach the customers to check on their financial health and then made a choice so as to ensure that the path we laid towards the Vision ’25 is strong, definitive, and robust. So we took our time. However, we wanted to do a thorough and detailed job.

While the results have been uploaded, I would want to briefly take you through the same. Disbursements. In quarter one, we disbursed INR1,320 crores as against INR216 crores in Q1 of FY ’22. This is — the INR1,320 crores is almost the same as what we disbursed in Q4 of last year. So sequentially, there was a dip. It was about INR1,380 crores last, it is INR1,320 crores now. But as all of you are aware, quarter one is always a muted quarter and then slowly the pace picks up.

Point number two, member acquisition. Our focus on customer acquisition continued. We acquired 106,000 customers during the quarter. For the year, we have a target to take the base to 2.8 million, which will be 4.5 lakhs for the year. As highlighted earlier, our growth story in Spandana will be a customer acquisition-led growth story.

Point number three, portfolio composition. With respect to the collection efficiency and the write-off that we have taken, all of you have seen the results, however, we will get into the details of both the pre and the post so that it is amply clear to all of you. We had a book of INR6,214 crores. What we have done is we have split or rather we — when we took this decision to write-off, we divided the book into three parts. Book one was the post-April ’21 sourcing, book two was pre-March ’21 sourcing, however, non-restructured, and book three was pre-March ’21 restructured.

The split was as follows. Post-April ’21 was 62% of our portfolio. This was giving us 107% collection efficiency. So just to repeat, of the INR6,214 crores, this is the pre-write-off book, and the reason why I’m kind of stressing this is so that all of you are able to appreciate the exercise that has been done and where we stand at this point in time. So INR6,214 crores pre-write-off, 62% of the portfolio, which was — which is the entire portfolio of post-April ’21 was giving us 107% or is giving us 107% collection efficiency.

Pre-March ’21 is split into non-restructured and restructured. The non-restructured book is 25%. This is giving us a 99.6% collection efficiency. The third book, which is the pre-March ’21 restructured book is 13% or was 13%, which was giving us a 62.5% collection efficiency. With this, what clearly comes out is 96% of the NPA was the pre-March portfolio. Post-April sourcing, which is the book one, as I said, has shown very strong asset quality traits.

So what did we do? We did a detailed analysis of the portfolio on the customers who were intermittent and non-payers. We reached out to them to understand the financial health and engagement levels with the company. Post our drill and evaluating the opportunity we have, the management decided to clean up the book. We have, hence, decided to write-off INR702 crores in the quarter, which is predominantly the pre-March ’21 book.

I will repeat, we have written-off INR702 crores in the quarter, which is the pre-March ’21 book. The residual book or the retained book, as I have earlier highlighted, is showing a very strong asset quality and we do not, as management, anticipate any material incremental write-off from this portfolio in the current financial year.

As I said, this is a step which we have taken to ensure that the foundation and the future that we built for Spandana for the next three quarters and onwards in the subsequent years is built on a quality, which is good, and which will continue to deliver us good results over the quarters. So hence, after the write-off, the re-composition of the book, we now have an AUM of INR5,513 crores.

This now is split into a post-April ’21 now because of the write-off, the share goes to 70%. So now we have the current book is 70% of the post or the portfolio is at 107%. Pre-March ’21 non-restructured is now 24% at 106%, and 6% of the post, which is pre-March restructured book is also giving us 104.6%. So as you would have seen, all the three books are giving us a collection efficiency of upwards of 104% — the average is about 105% and 105.5%.

So with this, we believe in our wisdom and based on the experience that we have in terms of dealing with this profile and the portfolio that we’ve done whatever we have to do in one go. The book that we have now, we are reasonably confident that we have a book which will deliver us quality now. Whatever we had to do, it’s now past us. We have a book now which we’ll now continue to grow and we will continue to now build on this in the subsequent quarters and years.

Come to provision. Post-write-off also, we are adequately provisioned. The potential recovery upside from the written-off book will be a plus. It’s important for all of us to know that while this is a balance sheet item, which has been done, the field, the team will continue to engage with these customers. We will continue to pursue the portfolio where we are confident of recoveries. All of you are aware that a micro finance customer needs a long runway, and if given a long runway with the right level of engagement, there is a lot of potential upside on the write-backs, which we will continue to do.

The consolidated GNPA, thus, after this exercise, is 6.7%. The net NPA comes to 3.4%. The last, but very important, the total provision that exists on the book after this exercise is INR275 crores, which is 75% of the NPA book now. So the last time around, I recollect very vividly. For Spandana, it is not a balance sheet issue, the issue that really existed is what we have resolved. The balance sheet, as we speak, even after this exercise, the Company has a net worth of INR2,817 crores, with a capital adequacy of 47.9%. Our liquidity position remains strong. As on 30th June, we had a cash and bank balance of INR657 crores, which was 3x of the required monthly liability. Our Q1 results, hence, are, while the results are uploaded, our income — total income is INR259 crores. Because of the write-off, the profit after-tax is INR220 crores of loss.

To summarize, we have moved to the new regime of lending as per RBI beginning July. So all new lending is now — all the new lending, which will happen will happen or is happening in the new regime, which is the income assessment, et cetera. I will repeat once again and the investor deck we’ve uploaded has all the details that one would look for, and if there is more, we are — we’ll be happy to engage with you and give you more.

One of the things that we promises utmost transparency in terms of detailing out the portfolio and the split. Any questions we will be happy to take. But we — post this exercise and the Stage I, two, three, which we will elaborate as we move on, we are from what we were in Q4, we are in a very comfortable position. The balance sheet remains strong. I will repeat, a CRAR of almost 48%. We anticipate clear roads now for business. Spandana has a great distribution and a very good team of branch staff in the field and in head office. We are proud of them. And like in the past, we are confident they will build a solid growth story towards our Vision 2025.

We are strengthening the team at the head office, at the senior management, and the middle management level. This quarter, we were joined by the new Chief Risk Officer, Mr. Amit Anand, who joins us from Shinhan Bank, and he has his earlier experience at Bank of India, Bank of Baroda. In the future quarters, you will see recruitments in the middle management, and we’ve seen a couple of them in the senior management, which I have been highlighting in the past as well.

I will reiterate, the top five priorities that we had articulated at the right time, they haven’t changed and will not for at least two more quarters. Number one, people. We have to reinforce the right people at the right place. Spandana has to move to a system and process-driven company and not people-dependent company. So we will — we are taking all the steps to do that. Number two, strengthen the governance, risk and control with added focus on refining processes. Number three, focus on customer acquisition-led business growth while ensuring retention of existing customers. Number four, technology scale up to deliver an end-to-end paperless customer experience. Number five, customer-led initiatives with emphasis on product, service, and meeting their lifecycle needs.

Friends, we remain focused on our goal. We have a task to deliver and we are taking incremental steps to reach the destination. Thank you very much for the patient hearing. I have the entire management team with me, and we are ready to take questions now. Thank you very much. Over to you, Aman.

Questions and Answers:

Operator

Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operators Instructions] The first question is from the line of Shreepal Doshi from Equirus Securities. Please go ahead.

Shreepal Doshi — Equirus Securities — Analyst

Hello, sir. Good evening, and thank you for giving me the opportunity. The question was with respect to our interaction during the last quarter, wherein — I mean, as you highlighted that it was 20 days back, so wherein we had highlighted on the credit cost and also in the presentation this time also around, there is FY ’23 growth aspiration. So what really changed in the 20 days that we are revising our credit cost guidance with a lumpy provisioning during this quarter. And is there still an area where we are still evaluating the loan book or still looking at the quality of the book, which could further derail our FY ’23 guidance?

Ashish Kumar Damani — President and Chief Financial Officer

Hi, Shreepal, this is Ashish. Let me take this question. Yes, what we have guided was 2%, but that was for the steady state. We continue to maintain that, on a steady state basis, the credit cost for the Company should not be more than 2% and that by end of this financial year, we should achieve on a quarterly basis the steady state credit cost for sure. In terms of the book, Shalabh kind of covered it in the opening remarks. We are very confident that the retained book, which is a book left-over after the write-off is giving us very strong collection efficiency numbers across the cuts, right? Whether we look at the restructured book, whether we look at the book which is originated prior to March ’21, or for that matter, post-March ’21 and non-restructured, right?

So we are seeing the collection efficiency north of 105% across the book. So people are not just repaying their current month’s amounts, but they are paying slightly more than whatever the dues in the current month and kind of covering their overdue position as well. That’s why we feel that the rest of the book, there is no further need to do any kind of a — this thing, it will mature with slight delays wherever there are in, let’s say, Stage II or Stage III, but there is no reason for us to believe that this will go into loss.

Shalabh Saxena — Chief Executive Offcer

So Shreepal, let me answer this question and address the point that you have raised. I covered it twice in my commentary, a write-off is a big decision, and hence, it is extremely important that we are very sure of the path that we are planning. We engaged the first step was we drilled the customer level portfolio. We did a lot of analytics in terms of the past behavior of the customer with us. There are other reference points that one can refer to if you want to find out the profile of the customer with and outside of your — the behavior that is being displayed.

And most importantly, there was a level of engagement that had to be done with the customer before we walk the step. We — in Q4, it was a 11-day stint that we had because we joined on the 19th of March, we wanted to be very, very sure of the path that we are taking, and hence, we took our time. We were aware about the fact that we have to come out with our Q1 results, and hence, we said, even if it takes time, even if it gets a bit pushed, we have to be sure and we have to be very sure that there is nothing coming now, which is the point you asked.

Shreepal Doshi — Equirus Securities — Analyst

Right.

Shalabh Saxena — Chief Executive Offcer

If you see our Stage I, two, three post the write-off, our Stage II is now 3.5%. The Stage III is 6.7%. So there isn’t we are very sure of this portfolio, otherwise if we had that chance, we could have done it now. From now onwards, and that is the reason why I’m emphasizing, the foundation that we stand today and the tomorrow that we look at, we are very sure that this is the portfolio. We — and I made this statement today itself in the commentary that, from this portfolio, there isn’t any incremental — material incremental, I’m just — any material incremental write-off, that would come this year. And once we keep, there is a profile of these customers that we’ve engaged with. We are pretty sure that we are done with whatever had to be done.

Shreepal Doshi — Equirus Securities — Analyst

Got it, sir. Sir, just one data keeping question. So of the restructured, what is the outstanding restructured book and how is it split in Stage II and Stage III? And what is the specific coverage on the same?

Ashish Kumar Damani — President and Chief Financial Officer

Sure. So INR406 crores is the total book that we have in the restructured book. Of that, what is in Stage — what is current is INR318 crores. If I take it at a Stage I level, then it is INR349 crores. What is in Stage II is INR20 crores and INR38 crores is in Stage III.

Shreepal Doshi — Equirus Securities — Analyst

Okay. So — okay, so most of these cuts — so majority of the restructured customers have become current in nature in their repayment cycle is what is coming out from these numbers?

Ashish Kumar Damani — President and Chief Financial Officer

So let me give you the numbers, again, sorry. What we are seeing is that, while these customers are in, let’s say, Stage III, they are still engaged with us and they have paid us a good number of installments. If I have to look at the collection efficiency of the restructured book as a whole, 104.6% is the collection efficiency for Q1. Even if I look at at a net basis, it is 80%. So these customers are paying their current month instalments, for sure, right? That is the most important thing in micro finance that whether these customers are engaged with you or not, whether they are making payments for their monthly dues or not. So that is the reason why we are kind of confident hear, Shreepal, and moreover, the book has come down to INR406 crores now. So from the earlier position.

Shreepal Doshi — Equirus Securities — Analyst

So earlier, it was INR995 crore. So the write-off from here would be close to 560 sort of crore or 590 sort of crore, right?

Ashish Kumar Damani — President and Chief Financial Officer

Write-off of INR702 crores, the breakup I’ll give you.

Shreepal Doshi — Equirus Securities — Analyst

Yeah.

Ashish Kumar Damani — President and Chief Financial Officer

Basically, INR460 crores was written-off from the restructured book and INR241 crores was written-off from the book, which was originated prior to March ’21, but was non — not restructured.

Shalabh Saxena — Chief Executive Offcer

So Shreepal, I would also draw your attention to Slide 6 and Slide 8 of the investor deck that we’ve presented. That has all the splits. It might not have staging, but that kind of very clearly articulates the movement of the book pre and post. That will give you a clear sense of which ways we are — which is the three types of books that I mentioned.

Shreepal Doshi — Equirus Securities — Analyst

Right, right, sir. Yeah, that’s very, very helpful actually. Those slides are very helpful actually.

Shalabh Saxena — Chief Executive Offcer

Yes.

Shreepal Doshi — Equirus Securities — Analyst

Sir, just last question with respect to our FY ’23 guidance and Vision ’25. So are we sticking to our loan book guidance for FY ’23, which is close to INR9,200 crore because from here on, we’re talking about almost, say, 60% growth for the next nine months or we would be revisiting that for FY ’23?

Shalabh Saxena — Chief Executive Offcer

So if you go back to the last time when we presented this, it was a back-ended growth of Q3 and Q4. The number that you quoted is an AUM growth and in a monthly model when you back end your disbursements, that’s the number that you will arrive at. We are reasonably confident that we will deliver the numbers, not just FY ’23, but which is FY ’25 vision of a 15,000 micro finance book.

Shreepal Doshi — Equirus Securities — Analyst

Got it, sir. Got it. Thank you so much, and good luck for the next quarter, sir.

Shalabh Saxena — Chief Executive Offcer

Thank you, Shreepal. Thank you very much.

Ashish Kumar Damani — President and Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Parag Jariwala from White Oak India. Please go ahead.

Parag Jariwala — White Oak India — Analyst

Yeah, thank you. Just continuing one of the question of the earlier participant. Yeah, I understand or maybe at least in my mind or in a lot of the analysts’ mind, we were working with 2% as a credit cost for FY ’23. Now Ashish, I understand you are now seeing that basically it is on the — a closing book or probably just stable book, but even if you look at the profitability guidance which was given for FY ’23, like 4% to 4.75% is the ROA band. What happens to that?

Ashish Kumar Damani — President and Chief Financial Officer

So thanks for the question. The profitability guidelines that we have given, if you can see, we have said that it is without taking into account the credit cost coming out of — I mean, basically credit cost needed to be added. It was a normalized profit that we talked about in the guidance. If we knock off the credit cost, then these are the numbers that will work out and probably we will deliver that. There is a clear probability that we’ll report the numbers, minus the credit cost that we are looking at, at this point in time.

Parag Jariwala — White Oak India — Analyst

So Ashish, I mean, what you are trying to say that basically the FY ’23 [Indecipherable] numbers as you are putting in the last PPT, is on the normalized basis, [Indecipherable] one of the [Indecipherable]?

Ashish Kumar Damani — President and Chief Financial Officer

Sorry, what I was saying was, there are two guidance that we’ve given, ’23 and ’25. ’25, there is no issues. We — in a steady state, we should achieve 4% to 5% ROA. There is no problem with that. I was referring more towards FY ’23 if that is what you were asking.

Parag Jariwala — White Oak India — Analyst

Yeah, so, see, very honestly Shalabh and team — I mean, actually we are fine with the way you have articulated about pre-book being coming on a clean slate right now and look forward for a three-year growth, it is extremely encouraging, and maybe we were expecting this in the last quarter. But something which changes in 20 days is something which we are worried about, right? And I know you’ve answered that. But a one disclaimer, in the last quarter that probably we are still assessing the book, could have been better for us.

Shalabh Saxena — Chief Executive Offcer

Right. So point noted. However, I did give you the reasons because you have to be very, very sure when you are walking that path, but we’ve heard you.

Parag Jariwala — White Oak India — Analyst

Sure.

Shalabh Saxena — Chief Executive Offcer

Yeah.

Parag Jariwala — White Oak India — Analyst

Okay. And Shalabh, if you can just briefly highlight what exactly is the profile of the customer where you — I mean, so what were the issues? Have you taken a call that since these guys are not paying on time or probably not clearing the installment, even the COVID is now settled for more than a year? Or there are any specific issue with the category of customer or the process by the — what we have — what Spandana could have followed earlier? Is there any pattern? Is there any way in which we can look at it?

Shalabh Saxena — Chief Executive Offcer

The start point of the answer that you seek for the question — type of question you asked starts at a quantitative and then slowly graduates into a subjective-cum-customer meeting.

Parag Jariwala — White Oak India — Analyst

Okay.

Shalabh Saxena — Chief Executive Offcer

It is not just a data, which gets thrown and you take a decision, a data is the start point and then you reach out to the customer. When you reach out to the customer, you gauge — and plus, you also study the profile of the customer in terms of repayment behavior across other financiers, not just Spandana. A combination of what you learn from the market, which is both primary and secondary source of data, is what converges into your final decision point, which is, you have two options, you keep on pursuing the customer and wait for whatever one quarter, two quarter, or there is an opportunity time and opportunity cost. The same field force you can employ by creating a new business, which is of a much, much cleaner profile.

If you clearly see the post-April ’21 book, which is now 70%, delivering us 107% of collection efficiency. I would rather ask my person and by no stretch of imagination I’m saying we are going to abandon the book, which has been written-off. Look, written-off or a write-off is a balance sheet item. It has limited — it has not much to do with the effort on the ground. We will continue to engage with these customers and we will continue to get the money for the reasons that I’ve specified earlier.

However, when you have to take a point in time decision, what you decide is do you churn the book and get fresh customers in who are of a much cleaner profile while still continuing to pursue with the others who you — while on balance sheet you written off, but you can go and kind of still pursue them and get them to pay because these are not customers who are a cycle one or a cycle two because while that is predominant, but there are some customers with a cycle three, four, five or a vintage with — of about three to five years with us.

But in order of priority — and it is a choice, there is no right answer. It is a point of view. In order of priority, I would want to churn the book and get fresh set of 4 lakh, 4.5 lakh customers this year so that my profile improves, while still continue to pursue the older customers. So there was a choice, we’ve taken the choice, we pick the choice, and the choice is get fresh customers in. Of the customers you’ve written off, not you don’t pursue everyone, you pick and choose and go where you’re confident that you will get the money and regularize them, rest obviously you kind of move on because there is an opportunity cost to the time and the effort that is being made.

So it’s a much more detailed level of thought that goes into taking these decisions, as you will appreciate, and which is what we’ve taken and that’s the reason why we took some bit of time.

Parag Jariwala — White Oak India — Analyst

Well, no problem. Thank you, Shalabh, and all the best.

Shalabh Saxena — Chief Executive Offcer

Thanks.

Operator

Thank you. The next question is from the line of Renish Bhuva from ICICI Securities. Please go ahead.

Renish Bhuva — ICICI Securities — Analyst

Yeah, hi, sir, and congrats on the good set of numbers. So sir, just first one is on the clarification sides on page number nine, we have said that our collection [Phonetic]including arrears are 94%. So this is including the demand for restructured in gross NPA book or this is excluding that book?

Shalabh Saxena — Chief Executive Offcer

The gray one — I think the legends if you read, it explains the question that you’re asking. There is the gray bar is including arrears and the green bar is excluding arrears. This is the post-write-off book, which is the title, and the INR5,513 crore is the AUM that we are talking about.

Renish Bhuva — ICICI Securities — Analyst

Sir, my question is that excluding arrear collection efficiency is including the demand for restructured in gross NPA book or this is excluding the demand for restructured in gross NPA book?

Ashish Kumar Damani — President and Chief Financial Officer

Yes, entire book, Renish.

Renish Bhuva — ICICI Securities — Analyst

Okay, entire book. Got it. And sir, the second is bit on the strategy front, okay? So of course, we do understand that we have cut the AUM in pre-March or post-April, but even when we, let’s say, look at the April ’21 originated book, this is, again, sort of originated under the erstwhile MD. So what is the clear difference which — when you have sort of analyzed this book, why the pre-March book has done so bad, and the book, which is originated post-March ’21 or April ’21, again, under the same management, has led to the better collection efficiencies?

Shalabh Saxena — Chief Executive Offcer

Look, we can do an analysis paralysis on this, Renish, but the data is what drives us to this decision making. There is a pre-COVID, post-COVID element in the periods that you have mentioned, which has to be — we have to be cognizant of, number two. Number three, if a data gives you such a one-sided view, I mean, to be very honest, I don’t think we really would deliberate too much, except obviously touching base with the customer, because there were some disruptions at a company level, which we just wanted to be doubly sure of that those disruptions did not trigger this behavior.

Renish Bhuva — ICICI Securities — Analyst

Got it.

Shalabh Saxena — Chief Executive Offcer

Once we were sure that that is not the case, and if the data, plus the subjective personal meetings, et cetera, kind of give a one-sided view that this kind of is good for the book and right for the book and for the Company, I think there was a little — I mean, there was just a one way that we could have gone and that’s the way we’ve chosen to go.

Renish Bhuva — ICICI Securities — Analyst

Got it, sir. And sir, lastly, if you can just broadly highlight, let’s say, a top two, three, four, let’s say, underwriting mechanism you have changed, which sort of reinforces your view that the incremental book which will be of the much better quality.

Shalabh Saxena — Chief Executive Offcer

Okay, so here is my thing. There is nothing dramatic you can do when you run a micro finance operations overnight. You have to calibrate and move the ship in such a way that there is minimum disruption, because the stakeholders here are not just your customers, there is an employee as well, that’s the most critical, number one. Number two — and which is why I would be, if given a choice, I was led by your question, but if you were to ask me how you run a process in micro finance is extremely important.

Renish Bhuva — ICICI Securities — Analyst

Correct, sir.

Shalabh Saxena — Chief Executive Offcer

Micro finance is command and control. Micro finance is a process that you make. And how well you execute the process, how well you review the process, how well you monitor the outliers, and what do you do after with those outliers, that is the fundamental of a micro finance distribution. The industry today has moved away from just a product-led industry to a distribution-led industry, product is incidental. And once we are able to, through technology once again, because when you run a distribution, which is 70,000 villages, 6,700, 7,000 people, there is little that you can do on a line to line or individual to individual basis. So technology plays extremely important part. We’ve made significant investments in Q4 and Q1 on technology. In a quarter from now and between — so between Q2 and Q3, this Company will move to a paperless organization with all escalations on risk metrics, on control, on audit, the triggers will be technology. So it will be an IT-led initiative company where we will supervise all execution of processes through tech and all supervision will be — the primary driver will be tech. That is the most important thing.

Once we are — we have a good handle on that, there is absolutely no chance that you will — because if a person or an individual or a customer, for that matter, deviates on a process, if you don’t correct it at that point in time, the game is lost. You, in this business — and sorry, I’m just sort of dragging this, in this business, it’s important to do right things and not things right. That’s the most important thing, and that is what it is. So we are — it will take nothing. And as I said, this is not a T20, we are building this organization, which will be more robust and strong. It will take about two to three quarters because, one is, there are two elements to this. There is a people part and the process part. And the second is cultural orientations to align with these initiatives, which we are taking. Culture, obviously, we will take about two quarters to internalize this amongst the people. From an initiative perspective, we’ll kind of do it by the quarter.

Unidentified Participant — — Analyst

Got it sir. This is very, very helpful. Sir, very detailed one sir. Thank you very much for this.

Renish Bhuva — ICICI Securities — Analyst

Got it, sir. No, sir, this is very, very helpful, sir. Very detailed one. Sir, thank you very much for this.

Shalabh Saxena — Chief Executive Offcer

Thank you very much.

Operator

Thank you. Our next question is from the line of Nidhesh from Investec. Please go ahead.

Nidhesh Jain — Investec — Analyst

Thanks for the opportunity. Sir, firstly, can you share the trends in terms of PAR 0 and PAR 30 in absolute amount as of March, June, and July end?

Ashish Kumar Damani — President and Chief Financial Officer

Yeah, Nidhesh, just give us a second, I can give you the numbers.

Nidhesh Jain — Investec — Analyst

It would be useful if you can incorporate that in PPT how the PAR 0, PAR 30, PAR 60, PAR 90 trends are playing out.

Shalabh Saxena — Chief Executive Offcer

Yeah, yeah.

Nidhesh Jain — Investec — Analyst

So I think those trends are pretty useful in micro finance set up.

Shalabh Saxena — Chief Executive Offcer

Yes, yes, we will do that from next time onwards. In the meantime, just we’ll read out the numbers.

Ashish Kumar Damani — President and Chief Financial Officer

Yeah, so I’ll just slightly change this, Nidhesh, I will just give you a Stage-wise numbers so that it can be tracked easily. Stage I numbers for March was INR4,777 crores, Stage II was INR399 crores, and Stage III was INR912 crores. Now, as it stands right now, post the write-off, Stage I is INR4,953 crores, Stage II is INR192 crores, and Stage III is INR367 crores. This is what we have as of June after the write-off. 90% of the book is in Stage I and churning more than 107% collection efficiency.

Shalabh Saxena — Chief Executive Offcer

So overall — sorry, Nidhesh, I’m just interjecting. Overall, at this point in time, post-write-off, our entire book is delivering 105% — north of 105% collection efficiency. That was one of the reasons we said what I said. I don’t want to repeat the whole thing again. But now we are reasonably confident that the past is behind us, whatever we had to do. We didn’t really want to stretch this beyond a quarter, which we have done. Why was it not done 20 days back and now? I’ve kind of [Indecipherable] two answers I have detailed it enough.

Ashish Kumar Damani — President and Chief Financial Officer

Sorry, I’ll just add, earlier also this question was asked by Shreepal, I think, in terms of Stage-wise restructured book, I will repeat the numbers. I think there was one number that was incorrect when I was saying it earlier. So Stage I restructured book is INR228 crores, Stage II is INR61 crores, Stage III is INR117 crores out of the numbers that I have given just now on the overall book basis.

Nidhesh Jain — Investec — Analyst

And can you share trends in terms of July end, if the Stage II, Stage III book has — in absolute amount, if that has —

Shalabh Saxena — Chief Executive Offcer

Apologies, Nidhesh, but July is a different quarter. At an appropriate time, we will kind of engage with you and give it. But broadly speaking, we are in line with the expectations that we had when we conducted this exercise.

Nidhesh Jain — Investec — Analyst

Sure. Secondly, in terms of restructured book, just to clarify the entire restructured book we have not provided the moratorium and that restructured book has been building for almost last eight, nine months or 10 months probably. Is that the right understanding?

Shalabh Saxena — Chief Executive Offcer

Correct. So restructuring was just a restructuring in true sense without a moratorium or a payment holiday. So when the 30th September the event happened, 1st of October, the unpaid installments are added to the tail of the loan. The demand started again from the month of October onwards. So from that event date until now, we are three quarters past. This is the 10th month. So whatever — and that’s one more reason why whatever had to happen has happened. We have a decent future ahead.

Nidhesh Jain — Investec — Analyst

And there is no ballooning of repayments in restructuring, it’s a level repayment structure?

Shalabh Saxena — Chief Executive Offcer

Ballooning, I don’t know [Foreign Speech] but [Foreign Speech] it is as simple as straight-forward, no ballooning.

Nidhesh Jain — Investec — Analyst

Sure. And lastly, from 1st of July when you move to a new regulatory framework, how are the disbursement trends, rejections trends there?

Shalabh Saxena — Chief Executive Offcer

So the disbursements were a bit muted because we had to migrate 1,100 branches onto the new regime. It is less about tech, it is more about teaching the people on how to assess the income, what are the early warning signals, and how do you kind of communicate it back to the head office for us to really build it into the decision-making process. For a distribution of 1,100 branches and the 6,500 plus about 1,100 branch managers and the hierarchy above, we are talking about 8,000 people.

So practically, the month was spent in transferring them, but we were very clear that we have to move to that. So for the quarter, whatever we had expected when we started the year, we are more or less in line with it. Q3 and Q4 is where we will see all the numbers, by which time the entire distribution plus the system would have seasoned.

Nidhesh Jain — Investec — Analyst

Sure, sir. And despite the regulatory framework, you are confident of achieving the full year guidance?

Shalabh Saxena — Chief Executive Offcer

In spite, not despite. So in spite of the regulatory system, I think it is a very good initiative, which has been taken by the regulator. It builds a lot of maturity into both the lending community and the customers. The micro finance industry is now a two-decade-old industry and there is a lot of maturity, which has creeped into the system into the operating environment, be it the executer or be it the customer or be it the employees. So I think it is a great initiative in the right step. So I think, there will always be even whenever you change from A to a B, you will always have a bit of teething problems because there are various stakeholders involved. I don’t foresee this to last long.

Nidhesh Jain — Investec — Analyst

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

Shalabh Saxena — Chief Executive Offcer

Yes, please.

Operator

Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.

Sarvesh Gupta — Maximal Capital — Analyst

Good evening, sir, and thanks a lot for taking the question. Sir, first question is that, so on the credit cost guidance, so initially, of course, it was 2%, but then we have done like 5% this quarter itself. So as I understand that for the remaining three quarters, we should do like 0.5% on the book. Is that the right understanding? Or are we saying that by Q4 we will reach 0.5%?

Ashish Kumar Damani — President and Chief Financial Officer

So thanks, Sarvesh. Like I was explaining earlier, the 2% guidance was primarily without taking the impact of the COVID. And last quarter also when we had this question, we kind of explained that we were building in some recoveries as well. Yes, on a BAU basis, on a steady basis, the business should not give you more than 2% kind of credit cost and we continue to believe so. On an ongoing basis for — on a quarter-on-quarter if we have to look at it, yes, you’re right, we will not see more than 0.5% in terms of the credit cost.

Sarvesh Gupta — Maximal Capital — Analyst

So quarter two onwards itself, the expectation is that —

Ashish Kumar Damani — President and Chief Financial Officer

[Speech Overlap] from Q3 onwards, in fact, Q2 should also be in line. We don’t see any reason for it to be higher than the BAU.

Sarvesh Gupta — Maximal Capital — Analyst

Okay. So that is one. Secondly, on the write-back potential now, we also — even the best of the players in this industry, they tell us that once the loan is written-off, maybe next three years you will achieve 5%, 5% recovery at best, 15% of the total. So is our expectation different on the write-back right side?

Shalabh Saxena — Chief Executive Offcer

So the example that you quoted is — has to be — you have to draw the context when that answer plays out in the sense that, if you do regular write-offs, what you are saying could be in the range – I’m not saying 5% or 10%, but I am saying it could be possibly correct. When you do it in the manner that we’ve done, then the potential could be very different, the answer could be very different. We can assure you that we have not been very aggressive. While as I said, we will keep on pursuing the customer, the right customers, not the entire set of customers, but the right customers, and we will ensure that the money comes back because we do feel that they still need some time. The calculations — I’ll just answer your question, the calculations that we have built are in line with the current rates that we are already getting. So there is nothing — so there is no skew either ways. We will continue to pursue this but it is not that everything will depend on it. We will do it because we think it is the right thing to do.

Sarvesh Gupta — Maximal Capital — Analyst

So what – if you can quantify what is your expectation in write-backs, that would be helpful.

Shalabh Saxena — Chief Executive Offcer

So we can get back to you with the numbers, Sarvesh, what — right now, we don’t have the numbers immediately. But what I can say is that it is not an unusually high number, which kind of skews the year end this way or that. So there is — we’ve built a normal cadence that we are already getting, that is what it is. But we’ll get back to you with the numbers.

Sarvesh Gupta — Maximal Capital — Analyst

Okay. Now, in terms of the yield slide, there was a slide where you were showing yield of 19% while your cost of borrowing has moved from 11% to 12% in this quarter, and going forward, you are incrementally giving loans at 24%. So overall, once all of this settles, where are we seeing our spreads and NIMs at for the remaining three quarters of the financial year?

Ashish Kumar Damani — President and Chief Financial Officer

So Sarvesh, the way we look at it is, your cost of borrowings has a slightly higher number at this point in time, given the recent challenges we had, plus there has been an increase in the repo rates and everything, which is kind of driving higher cost of funds for us at this point in time. But we see that on a steady state basis, maybe by Q3 and Q4, we should have NIMs which are north of 12%.

Sarvesh Gupta — Maximal Capital — Analyst

Understood. And spreads? Because the book is really under-levered, so what is the spreads that you are targeting, if you can –?

Ashish Kumar Damani — President and Chief Financial Officer

So the leverage is something that is likely to change. I don’t have the math right now with me. But NIMs, like I said, should be 12.5% — 12% to 12.5%. In terms of our leverage, we should get to maybe something like 3x by end of the year, but the timing is something that we are still calibrating.

Sarvesh Gupta — Maximal Capital — Analyst

And can you share your July disbursement and/or your July NPA at gross and net level?

Shalabh Saxena — Chief Executive Offcer

So we will — look, this is a quarter which has just begun and not really appropriate to sort of — we’ve just come out with our — in fact we are announcing our Q1 results. We can engage separately and share the details with you. But for now, I mean, let us stay focused on the story. The evolving story is that we’ve kind of — I don’t want to use the word cleaned up the book, but we’ve kind of got the book into a shape which will now deliver quality for the future. That is what we intend doing. Once again, this is still about eight months to go for the year. We are continuing the path that we laid out to, and with whatever results we’ve declared, I think we are in a good position to deliver a profitable growth.

Sarvesh Gupta — Maximal Capital — Analyst

Thank you, sir, and all the best for the coming quarters. Thank you so much.

Shalabh Saxena — Chief Executive Offcer

Thank you so much.

Operator

Thank you. The next question is from the line of Sameer Bhise from JM Financial. Please go ahead.

Sameer Bhise — JM Financial — Analyst

Yeah, hi. Thanks for the opportunity. So you also mentioned about the potential of high-ticket individual loans. Any sense what set of — what proportion of customers would be eligible for it now that you are already into the income assessment kind of a process?

Shalabh Saxena — Chief Executive Offcer

So, Sameer, we are talking — so there is a bread and butter book, which is the micro finance JLG book. The subset of that — and we are — and at least in our minds as the management, we are very clear. We are talking of a single-digit customer base. We are not talking of a 20%, 30%, 40%. We are — these are the micro finance customers who’ve been with us for five cycles, six cycles. They graduate from a joint liability to an individual level — individual loan.

The individual loan also — and I go back to what I said the last time around, we are a great fan of a lower indebtedness level, lower than the industry by maybe 10%. Walking the customer along the path of her financial involvement and journey and ensuring that we give her the loan that she, and in this case the husband as well, would need for their individual businesses that they run. So we are talking — we’ve given a quantum of about INR2,000 to INR3,000 crores in a INR15,000 crore — over and above the INR15,000 crore steady state book of FY ’25 in the various product lines that we had articulated the right time — the last time around.

So this will be a small segment, which we feel needs to be graduated, but we will not be aggressive either on the ticket size or just — or on the need to really push this percentage level number from a single-digit to a 20% or a 30%, that’s not the way.

Sameer Bhise — JM Financial — Analyst

Sure. Sir, the INR15,000 crore is a pure JLG number?

Shalabh Saxena — Chief Executive Offcer

Absolutely. It is a pure micro finance bread, butter, cherry.

Sameer Bhise — JM Financial — Analyst

Okay. All the best, and thank you for taking my questions.

Shalabh Saxena — Chief Executive Offcer

Thank you, Sameer. Thank you very much.

Sameer Bhise — JM Financial — Analyst

Thank you.

Operator

Thank you. The next question is from the line of [Indecipherable] from Clearview Capital. Please go ahead.

Unidentified Participant — — Analyst

Good evening, and thank you for the opportunity. Sir, I just had one additional question on the asset quality. Sir, the way we depict this book, let’s say, into, say, pre-March ’21 and post-March ’21, what is the significance of this date? The reason I ask this is because a few quarters back, you were showing like pre-COVID and post-COVID, now it is pre-March ’21, post-March ’21. A few quarters down the line if it turns to like, say, pre-new management, post-new management. Like, what is the significance of March ’21? Is there any difference in disbursement quality before and after? Because there was a COVID wave before March ’21, were two COVID waves after March ’21. So just wanted to understand your thought process on how — why do we look at the book in this way.

Shalabh Saxena — Chief Executive Offcer

So look, we now are in the seat and we own up for every single penny of the portfolio that is — that we own. I mean, every rupee of the portfolio is something that we own. So there is nothing — there is — there are no colors to a pre-management, post-management that you articulated. The reason why we picked that is there — these books were very clearly displaying signs, which were very different to each other. That’s number two.

Number three is that our experience with the customers across the three books that I — that we’ve laid out is what was very — I wouldn’t call it an eye-opener, but it was a very clear distinct way in which they were — there was a behavior, which was being displayed. And hence we said that, if this is what it is, then so be it, let us just do it. And if at all we were to walk that path, what happens. And when we did this analysis much before it was presented to everyone, we did see a merit in kind of cutting the line at March ’21 and post-April. So that’s the reason it is. As I said, again, at the cost of repetition, the data drove us into walking the path in terms of knowing what — which path to take, and then obviously the customer engagement and our feedback from the field, et cetera, kind of helped us take that decision.

Sameer Bhise — JM Financial — Analyst

Got it, sir. But sir, just one follow-up. Like, isn’t it natural for a loan book with an average, say, tenure of 18 to 20 months to show — the delinquencies will only start after 12 to 15 months time. So this pre-book, like if you roll it forward every year, it will always be more delinquent than the post-book.

Shalabh Saxena — Chief Executive Offcer

In a steady state, yes. But COVID is what no one factored. So COVID changed the rules of the game. And hence, a COVID analysis should not, in my mind, and both ways, a regular analysis and a customer behavior should not spillover onto a COVID book and vice versa. COVID kind of — and that is the reason why only data does not work, you have to have a engagement, and both ways, a subjective and objective decision-making process in this whole thing. While, what you are saying could be true in a steady state, in a COVID one and COVID two, with the containment, non-containment, regular, non-regular, rural, urban, a lot of ifs and buts that come into a decision-making process because of the nature of the environment that we were operating in. So hence, I would — my personal view is, we should recommend or we should look at this particular sort of crisis with a slightly different lens than a normal.

Sameer Bhise — JM Financial — Analyst

Understood, sir. Thank you, and all the best for the —

Shalabh Saxena — Chief Executive Offcer

So post-March of — or rather April of ’21, if you see, and if I were to replay your statement, yes, what you’re saying is right. But the earlier one periods, we’ll have to look at it differently. Sorry. Thank you very much.

Sameer Bhise — JM Financial — Analyst

Yeah. Thank you.

Operator

Thank you. Next question is from the line of Vinit Rai from JM Financial. Please go ahead.

Vinit Rai — JM Financial — Analyst

Hi, good evening, Shalabh. Hello? Yeah.

Shalabh Saxena — Chief Executive Offcer

Hi, good evening, Vinit.

Vinit Rai — JM Financial — Analyst

Hi. Just couple of questions more on the liability side. I can see that, of course, you were looking to disburse about INR8,300 crores during the year, out of which, INR1,300 crores which is done under in Q1, so of course, INR7,000 crores more need to get disbursed, and then, of course, you have your liabilities maturing as well. So which means from a cash flow perspective, what is it that you need to kind of raise in the next eight, nine months, it seems like 9,000-odd-crores from the lending system or maybe even more. And what are the — and since Q3 is now maybe six, seven weeks away, so what is the pipeline of sanctions, and especially given that your ratings are still under watch, how do you look at all this?

Ashish Kumar Damani — President and Chief Financial Officer

Hi, Vinit, this is Ashish. What we would need to raise is not INR9,000 crores, we will have to raise about INR5,800 to INR6,000 crores to meet this disbursement of the remaining disbursement of about INR7,000 crores. The rest will be internal accruals because we are a positive cash flow on a month-on-month basis and that’s the reason your requirement in terms of borrowings should be slightly lower. We have a very strong pipeline and we believe that these numbers should be very [Indecipherable] achievable. Yes, there has been slight delay and that’s why Shalabh kind of highlighted earlier in the call that our disbursements and our growth will predominantly happen in the second half of the year. And by then, this pipeline, which is a strong pipeline, start converting into the cash in bank.

Vinit Rai — JM Financial — Analyst

So you’re saying INR6,000 crores of raising of debt in the next eight months is not really challenging, I mean it’s fairly realistic?

Ashish Kumar Damani — President and Chief Financial Officer

Yes, we believe so.

Vinit Rai — JM Financial — Analyst

Okay. And when will this ratings under watch move to — when will the status change? Any timeline on this?

Shalabh Saxena — Chief Executive Offcer

We are engaged with the stakeholders. Clearly, it is not in our hands. We are engaged with them, and we are hoping for the best.

Vinit Rai — JM Financial — Analyst

Okay. And in terms of your monthly collection, what is — just from a cash flow, what is the — you said internal accrual, so what is your monthly collection today from the field?

Ashish Kumar Damani — President and Chief Financial Officer

Average would be about INR450 crores is what we collect, and this keeps increasing as we start disbursing, right, more and more.

Vinit Rai — JM Financial — Analyst

Right.

Ashish Kumar Damani — President and Chief Financial Officer

And in terms of our cost, if you would have seen, is roughly about INR90 crores for the quarter, INR30 crores roughly for a month. And post the repayments to be banks, we still left out with about INR150 crores on a month-on-month basis.

Vinit Rai — JM Financial — Analyst

Got it. So INR150 crores is your surplus available to disburse. And if you have to disburse another INR7,000 crores, which means about [Phonetic]INR7,000 crores. So that’s the balance you need to raise from the banking or [Speech Overlap].

Ashish Kumar Damani — President and Chief Financial Officer

That’s right, that’s right. Correct.

Vinit Rai — JM Financial — Analyst

And that you’re saying sanctions will pick up like may be very quickly, so that you meet that kind of demand, but that’s basically what you’re saying. Right?

Ashish Kumar Damani — President and Chief Financial Officer

That’s right, Vinit.

Vinit Rai — JM Financial — Analyst

Okay, great. Thank you. Thank you so much for the answer. Thank you.

Operator

Thank you. Ladies and gentlemen, due to time constraints, that would be our last question for today. I now hand the conference over to Mr. Saxena for closing comments. Thank you. And over to you, sir.

Shalabh Saxena — Chief Executive Offcer

Thank you very much all of you for the interest shown. We are quite positive that with the results that we’ve come out, we’ve kind of cleared the way for the Company to march on a growth path, which will deliver high quality and a great value to all the stakeholders. As always, we look forward to your support and any suggestions that you would have. Thank you very much. Thanks to all of you.

Operator

Thank you very much. Ladies and gentlemen, on behalf of Spandana Sphoorty Financial Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.