SPANDANA SPHOORTY FINANCIAL (SPANDANA) Q2 FY23 Earnings Concall Transcript

SPANDANA SPHOORTY FINANCIAL (NSE:SPANDANA) Q2 FY23 Earnings Concall dated Oct. 17, 2022

Corporate Participants:

Shalabh Saxena — Managing Director & Chief Executive Officer

Ashish Kumar Damani — President & Chief Financial Officer

Analysts:

Jignesh Shial — InCred Capital — Analyst

Dhruv Shah — Ambika Fincap — Analyst

Nidhesh — Investec — Analyst

Renish — ICICI — Analyst

Shweta Daptardar — Elara Capital — Analyst

Sameer Bhise — JM Financial — Analyst

Shreepal Doshi — Equirus — Analyst

Sarvesh Gupta — Maximal Capital — Analyst

Sanket Chheda — B&K Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Spandana Sphoorty Financial Limited Q2 FY2023 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. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Shalabh Saxena, MD and CEO. Thank you and over to you, sir.

Shalabh Saxena — Managing Director & Chief Executive Officer

Thank you very much Shehzan. Good evening to all of you, thank you for taking time out to join the call. Thank you for showing interest in our company.

Friends over the past two quarters, we’ve been trying to steer Spandana towards the path that we had articulated for the organization through the Vision 2025. Suffice to add, we are moving on the right path. We have received tremendous support from all of you, all our stakeholders, which is lenders, shareholders, employees and our customers, thus giving us the confidence of achieving what we set out to achieve by FY 2025. Friends, quarter two was a quarter of consolidation. 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 two results. While the results have been uploaded and I know there some technical challenges on the site, but BSE it was uploaded I think slightly more than an hour back and NSE also it is more or less there, but I’ll take you through the results and brief highlights and happy to take questions now or from tomorrow.

So while the results have been uploaded, I would want — briefly to take you through the same. So let me start with the first point, which is on ratings. Spandana’s rating was ratings watch until quarter one. Post the various developments in the operating environment, all the three agencies have dropped the rating watch. Our ratings now are India Rating, it is A Stable from rating watch with negative implications. CRISIL, we are A stable from ratings watch with developing implications and ICRA A minus stable from ratings watch with developing implications. This was one of the highlights of the quarter.

The second highlight, and here I would want to just build-on this, which is the borrowing story. One of the key challenges that we as a management team had was to start the borrowing cycle from our existing and new lenders. Together as a team that was the single important task that we had committed to ourselves more so because this is the primary driver for fueling our growth plants. We have made the right start, we’ve onboarded 10 additional lenders, two new — and two new first time lenders. We borrowed during the quarter INR1,080 crores against INR155 crores in quarter one and INR308 crores in quarter four of FY ’22. The marginal cost of borrowings has decreased from 14% in Q4 of FY ’22 to 13.1% in Q1 of FY ’23 to 12.64% in quarter two of FY ’23 which is the last quarter. So 14% to 13.1% to 12.64% this quarter. Banks and capital mix market, the mix is 58% banks. We, in our past, through various interactions with all of you, we’ve kind of articulated that we would want to take this number to — our numbers starting with seven. So we are on-track for that. Apart from this, our liquidity position was comfortable with INR964 crores cash balance as on September 30th. In the quarter, many lender doors opened for us, quarter three holds equal promise.

On the financial performance, our Q2 results are presented here with. Total income, our total income this quarter was INR311 crores. This is an increase of 20.1% compared to Q1, where it was INR259 crores. On the net interest income, the net interest income is INR219 crores, an increase of 35.2% compared to Q1 net interest income of INR162 crores. Our yield in Q1 was 16.4% in Q2, it is 19.5%, which is an increase of 310 bps compared to the previous quarter. Cost of borrowings, in the quarter we had our cost of borrowing was 11.2% which was 11.8% in the previous quarter, which is a decrease of 60 bps compared to Q1. Profit after tax we’ve declared is INR55 crores. As you are aware, in the first quarter we had declared a INR220 crores of loss.

On the business side, let me start with the various elements, starting with member acquisition. All of you are aware and we have repeatedly said that our focus for our growth strategy will be driven by the member acquisition story. We acquired 1.23 lakh customers during the quarter, which was a growth of 16% over the previous quarter. We’ve said that our growth story will be customer acquisition led and hence we are building the blocks both culturally and identifying pockets of growth to further our plants.

On the disbursement side, we disbursed INR1,391 crores as against INR1,320 crores in the previous quarter which is a growth of 5% and if I look at Y-o-Y, which is quarter two of the previous year, it was INR1150 crores. So Y-o-Y, it’s a growth of 21%.

On the AUM our book has increased by 5% from the previous quarter. This is a trend reversal since the past few quarters, we had our declining trend. On the portfolio composition, because this is very important, our portfolio composition all of you are aware comprised of two books or rather three books. Post April ’21 and pre March ’21, our book composition has changed from March of 2022. The post April ’21 book, which was 48% and the reason why I’m mentioning the post April ’21 book is that this is a new book post the COVID era, it has — and I’ll — while you would have seen the numbers, but we will spell out the numbers, you know the portfolio is behaving well. It is a new book so it is in line with what one would expect of a distribution house like Spandana.

So, the post April ’21 book, which was 48% in March 2022 became 70% end of quarter one and is now 82% in quarter two. So the post COVID sourced book is 82% of our total portfolio. The new portfolio as I’ve said is exhibiting collection efficiency and hence assumes criticalities. By end of quarter three, it will be upwards of 90% and onwards. We have a book of, as I said now INR5,782 crores, of which INR4,730 crores, which is 82% is giving us a net collection efficiency of 97.5%. This is slated to improve over the next couple of quarters. The pre-March ’21 book, which is a INR1,052 crores, which is 18% of the overall book is giving us 88.7% net collection efficiency, this is excluding arrears. The residual book, post write-off taken in Q1 is showing strong asset quality, we will continue to pursue quality growth.

Friends, you are aware we’ve articulated in various forums our desire to strengthen our rural portfolio. Happy to announce that we are at 88%, our overall rural portfolio now has increased to 88%. We will continue this journey because that is where the Tier three, four, five or rather the Bharat of India, which we have already articulated, is very much a part of our Vision 2025, where we plan to grow.

On the collection efficiency side, our total book which is the entire book irrespective of the splits has or is delivering — delivering us gross collection efficiency and gross as you are aware includes the arrears. Gross collection efficiency of 101.3% and net collection efficiency of 93.3%.

The provisioning position, we are adequately provisioned. The potential recovery upside from the written-off book is a plus. We’ve recovered INR15 crores from the written-off portfolio in the quarter — in the previous quarter. We’ll continue to pursue this for the next two quarters. We anticipate reasonable upsides in this and we have clearly articulated plans on how to engage with these customers and bring them back into the mainstream. The consolidated GNPA is 7.47%, the net NPA is 3.96%. The total provision that exists on the book is INR303 crores, which is 5.23% of the [Indecipherable].

On the balance sheet. Net worth of the company is INR2,867 crores, with a capital adequacy of 45.3%. Our liquidity position remains strong. As on 30th September, as I said earlier, we had a cash and bank balance of INR964 crores, which was almost equal to four times of the required monthly liability. We have a diversified borrowing profile and are further deepening our relationships with new and existing partners.

So to summarize the results and the way forward. We are moving as per plan. The lenders confidence, disbursement, member acquisition, portfolio quality are moving as per plan and in the right direction. 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 HO. We are proud of them and like in the past we are confident that they will build a solid story on towards our Vision 2025. We are strengthening the team at HO at the senior and middle management. We have hired five CXO [Phonetic] levels joining us over the quarter. I will give you more update on the people story in the next quarter.

Similarly, we have enhanced the Board with the addition of two more illustrious Board members, Mr. Animesh Chauhan, former MD and CEO of Oriental Bank of Commerce and Mr. Neeraj Swaroop, former regional CEO of Southeast Asia and Singapore, Standard Chartered. We are strengthening our Board also to ensure that we move towards a more professional setup. On strengthening the organization, we added 300 loan officers during the quarter. Given the trajectory of growth that is required, we are planning to add another 752,000 loan officers in the current quarter. We continue to make progress on various technology initiatives, which have been highlighted earlier. Our Risk Audit and control teams are being strengthened as we speak.

Thank you, very much for the patient hearing. I will repeat very humbly what I’ve said in the last call, we are playing a test match and this is a cricketing parlance example, we are playing a test match and not a T20. We are building the organization, we have a task to deliver. We remain focused on our goal, which is Vision 2025. Thank you once again. I have the management team with me and we are ready to take all the questions.

Thank you very much Shehzan, over to you.

Questions and Answers:

Operator

Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] First question is from the line of Jignesh Shial from InCred Capital. Please go-ahead.

Jignesh Shial — InCred Capital — Analyst

Yeah, hi. Good evening, sir. Am I audible?

Shalabh Saxena — Managing Director & Chief Executive Officer

Yes, Yes, Yes Jignesh.

Jignesh Shial — InCred Capital — Analyst

Yeah. Thanks for the opportunity and congrats on the decent set of numbers. Just a couple of questions I had, but firstly, I can see a pretty good improvement on the margins [Speech Overlap]

Operator

Mr. Shial, the audio is not coming clear. Request if you can just [Speech Overlap]

Jignesh Shial — InCred Capital — Analyst

Is it better now?

Operator

Yes sir, thank you.

Jignesh Shial — InCred Capital — Analyst

Yeah, so as I can see there is a sequential jump or improvement on the margin trajectory site, which is from 9.9% [Phonetic] to roughly around 13% plus. So what will — how do you see it — planning out to be in the coming quarters because if I remember it correct we have been guiding for somewhere around 10% sort of a margins. So do you see that numbers to come down or this will be the new trajectory you’re looking out for?

Shalabh Saxena — Managing Director & Chief Executive Officer

Hi, Jignesh. I have Ashish with me, who –.

Ashish Kumar Damani — President & Chief Financial Officer

Hi Jignesh, Ashish here. Thanks for the question. So 13% yes is the present NIM. We have discussed this last quarter and our guidance was that you we are looking at NIMs to be north of 10.5%. And this should continue.

Jignesh Shial — InCred Capital — Analyst

Understood. So this is the new trajectory and considering that the borrowing mix has improved significantly and expecting it to continue, we should see similar kind of margins going ahead also right?

Ashish Kumar Damani — President & Chief Financial Officer

That’s right.

Shalabh Saxena — Managing Director & Chief Executive Officer

Yes, and just to give you a color Jinesh we moved to the new RBI framework on the first of July where we increased the rates to 24%, with the repo rates which have been going up and there is a further — this thing, we will — or rather we have increased our rates by 1% more and we intend to stay put now for — for the next couple of quarters. So this is more in line with the market. So the reduction in the borrowing rate has to be looked at in the context of what is happening in the market and you know obviously our reach out to the — and the support that we’re getting from the various lenders.

Jignesh Shial — InCred Capital — Analyst

Understood, Understood. So basically we have a dual advantage whereby the cost of loans are basically is coming down, whereas rates have moved up and that is basically flowing into the margins, correct?

Shalabh Saxena — Managing Director & Chief Executive Officer

Correct.

Jignesh Shial — InCred Capital — Analyst

Yeah, okay. Secondly, and obviously there had been sequential search on the stage three as well as if I see it on the overall book, net collection efficiency is also dipped a bit from 94 [Phonetic] to 93.3 [Phonetic]. So this is, overall book I am saying about, originally I mean, post April ’21 is pretty stronger. So how do you see the trend and can you give some more color on it, on the stage three as well as on the collection efficiency side?

Shalabh Saxena — Managing Director & Chief Executive Officer

Let me answer this more holistically and we are ready to happy to take detailed questions. There was for a time when we were reaching out to the customers because there was some disruption on the data side and hence we had to go and we collected a lot of arrears. So the past results have been looked at in context. The current result also, if you see the gross collection efficiency of the book as I mentioned somewhere in my commentary it is at 101%. The point you’re making is correct it has dipped a bit, but then it is a temporary phase because we have been kind of doing multiple — we’ve been doing — managing multiple priorities from a customer point of view and quality of customer point of view. We are completely engaged with all the customers and a few bits here and there, including flows. If you remember the last time around we had said that while we will — we might have — we might see a few flows here and there, but overall the quality of the book is now reasonably under control more so with every quarter when we — when we see the customers will try it, because they would have expired their contracts of 24 months with whatever tale is left. At 82% on the new book, end of quarter next it will be probably with a number starting at nine. I think you know, we should continue to see both in percentage terms and in absolute terms improvement.

Jignesh Shial — InCred Capital — Analyst

So is it fair to see or considering that overall your pre ’21 book, April ’21 book is getting consolidated or gradually should see a repayment and recoveries, is it fair to assume that collection efficiency post April ’21 would be a new benchmark to keep an eye on it?

Shalabh Saxena — Managing Director & Chief Executive Officer

So any benchmark, forget pre or post, micro-finance book has to or should deliver upwards of 98.5% minimum. So that is the number that we are targeting at a books stage. Any numbers that starts with double nine is what we aspire to. I think we should see those days very soon when we hit a quarter four or towards the end of quarter four. So you know a microfinance book, a quality book should deliver a 98.5% and, 99%, 99.25% kind of a number.

Jignesh Shial — InCred Capital — Analyst

Understood. This is pretty, pretty helpful. Secondly, also just quickly if I can get. how the movement has happened? Do you extend — in your initial month, but if I can just get a movement of how opening, sequentially, how the opening disbursement and repayment has happened and if there is any write-off during the quarter? If you can give me that kind of number that will be really useful.

Ashish Kumar Damani — President & Chief Financial Officer

There has not been any write-off so there is basically — we have monthly repayments. So the book, you know and average maturity of the book is roughly about 16 months or so. So that’s how the book kind of runs down. Our disbursement for the quarter has been INR1391 crores. And most of it was towards the end-of-the quarter and as relative impact, Jignesh.

Jignesh Shial — InCred Capital — Analyst

So the balance would be your repayment only since there is no write-off correct?

Ashish Kumar Damani — President & Chief Financial Officer

Yeah, that is correct.

Jignesh Shial — InCred Capital — Analyst

Okay, perfect. That’s really useful. Thanks a lot and all the best.

Shalabh Saxena — Managing Director & Chief Executive Officer

Thank you Jignesh.

Operator

Thank you. The next question is from the line of Dhruv Shah from Ambika Fincap, please go-ahead.

Dhruv Shah — Ambika Fincap — Analyst

Yeah, hi team. Congratulations on a good set of numbers. I just have one question, sir are you still maintaining your disbursement target for the current year of INR8,100 crores?

Shalabh Saxena — Managing Director & Chief Executive Officer

Yes.

Dhruv Shah — Ambika Fincap — Analyst

Because in this first half we have delivered round about around INR2,700 odd crores. So H1 has to be really good for –.

Shalabh Saxena — Managing Director & Chief Executive Officer

So Dhruv let me explain. Go back to what I said at that time and I’m just repeating what I said. We said in the first quarter we will disburse INR1200 crores to INR1300 crores. The second quarter, we disburse INR1,400 crores to INR1,500 crores. Quarter three will be INR2,500 crores, quarter three [Phonetic] will be 3,500 crores. This was the narrative and this was the quantification of the — the plan that we had and we are sticking to the plan.

Dhruv Shah — Ambika Fincap — Analyst

Okay, sir. Great, that’s it from my side. Thank you so much.

Shalabh Saxena — Managing Director & Chief Executive Officer

Thank you.

Operator

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

Nidhesh — Investec — Analyst

Thanks for the opportunity sir. Sir, two questions. Firstly, your margins have now reached normalized levels. Credit costs have also reached normalized levels, how should we think about ROE? What is the operating leverage we should build-in over next couple of years? And what will be the normalized ROE that you expect from this business?

Ashish Kumar Damani — President & Chief Financial Officer

Yeah, so we would talk more from a perspective of you know the normalized BAU or maybe when we have fully — fully BAU, if you are talking about couple of years down the line, we aspire to be in the range of 4% to 4.5% kind of ROA, when the leverage and everything will play out. That’s the kind of ROA we are looking at.

Nidhesh — Investec — Analyst

Hello?

Ashish Kumar Damani — President & Chief Financial Officer

Nidhesh, did I answer your question? Nidhesh?

Operator

This is the operator. Nidhesh, your line is in talk please go-ahead.

Nidhesh — Investec — Analyst

Yeah, sorry. So just a follow-up on this. So the incremental kicker on ROE, will come from which [Indecipherable] because, I think the only lever that we have left — which is left from this this quarterly performance is on the opex front?

Ashish Kumar Damani — President & Chief Financial Officer

I think there are two other levers which we have not talked about one is we — we’ve expect the — the cost of borrowings also to come down further, one. Two, we — if you look at the yield, presently the yield is at 19.5% but on a ideal basis if I had to look at the yield it should improve at least another 100 basis points to 150 basis points. Given that we are coming out of COVID and there is a book, which has You know some bit of you know overdue or whatever. As this book kind of winds out, your yield should start improving. Having said that, Shalabh kind of initially covered in his commentary that you our new disbursement will be at a higher rate of interest. The H2 disbursement is going to be at 25% rate of interest and they should start playing out by Q4 and should have a positive impact on the — on the yield, which will also drive your ROE.

Nidhesh — Investec — Analyst

Sure sir. And second question is on the asset quality. Basically on the collection efficiency on the new book, [Indecipherable] efficiency is around 97.5% and I think on the old book the collection efficiency has deteriorated quite sharply in this quarter versus last quarter because on the new book the collection efficiency has remained stable and the share of new book has gone up. So how should we think about the incremental credit cost because we still have 4% net NPA and my belief is that may lead to higher incremental credit costs in coming quarters. How do we think about that number? And how should we also think about the 97.5% collection efficiency on the new book?

Ashish Kumar Damani — President & Chief Financial Officer

So Nidhesh, the way we are looking at it is yes there has been slippage, but this should not definitely result into you know losses. The engagement with the customer is there between one to 90 book, if I look at 95% of the customers have been engaged with us and have paid more than one instalment during the quarter. So clearly and earlier in the call, we have explained that we are bringing in more, more field force on the ground, which will help us do some focused price on the ground to address the engagement issues more to say. The customer have shown intent. It is just that we need to be little more engaged with them for better outcome and they should start playing out from this quarter onwards. So our strong belief is that we will be able to improve upon whatever the marginal slippages that have happened in this quarter. In Q3 you should start seeing a much better kind of outcome from the book.

Shalabh Saxena — Managing Director & Chief Executive Officer

Just to supplement Nidhesh, if — we’ve presented it in our slide 13, you can see all the changes service. There has been a slip in the 90 plus. Of which the new book contribution and the fresh slippages about 0.29% [Phonetic] rest everything is old book. I’m not saying there is a problem with the old book, the old book are the customer who are very well engaged and that’s the reason why we held on to that portfolio. If you see the other — other stacks, which is Stage one both in the current, [Indecipherable] stage two, we’ve seen some improvement. One can argue that there has been a slippage from there into a greater than 90 [Phonetic]? Yes, sure. But from a — but from a pure play quality of the portfolio and the customer and the engagement levels of the customer, I think we are comfortable and we hold onto the story that we kind of narrated when we were — decided to take the write-off. We were clear that you know the set of customers who we thought was not worth pursuing is what we decided to write-off and the others are customers through our various analysis and our engagement, and our field report they are fine. So these flows here and there we will still see them between quarter three and quarter four, but from a — from a real damage perspective. I don’t think so, so we are — we maintain what we said first time around.

Nidhesh — Investec — Analyst

So incrementally we should not expect any elevated credit costs from the current book?

Shalabh Saxena — Managing Director & Chief Executive Officer

So we had — we had said that the new book on a standalone minus the COVID, if you remember the Q4 results that we presented, we said it’s going to be under 2% it is going to be half of that, is my intelligent guess on the new book part. We are on the old book, either way it is attracting because you know we are seeing the — all those customers are seeing the end of their loans, number two. Number three is from a provisioning perspective, we are well covered in terms of know if at all there were some slips were to happen, but overall we do not anticipate anything, which would happen or what would lead to a deficiency in the judgement that we had when we kind of walked this path. So to that extent I think we are good.

The slips and the flows given the nature, we have to — we have to consider that as a company we have almost 98%, 99%, which is a monthly book — monthly repayment. So it is difficult for the customers to really — move the reverse bucket once they really slip and that’s the challenge that we have. So that we are kind of — at least Q2 was very, very critical that we’ve kind of reasonably managed to wait. I think Q3, Q4 with the decline in that book plus the overall engagement levels, I think we should be fine.

Nidhesh — Investec — Analyst

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

Ashish Kumar Damani — President & Chief Financial Officer

Thank you Nidhesh.

Operator

Thank you. The next question is from the line of Renish [Phonetic] from ICICI. Please go ahead.

Renish — ICICI — Analyst

Yeah, hi, sir. Congrats on a good set of numbers. So sir, just one question on this the 18% of AUM, with this INR1000 crores plus, now if I bi-calculate the collection efficiency on this 18%, it is roughly around 75% to 80%. I mean, let’s say, 82% of the book is having 97.5% collection and when you have a blended collection of 93% that 18% of the book should be around 75% to 80% of collection. And when I look at this stage three assets it is around 420 [Phonetic]. So sir what is happening with this INR600 crore of the balance book? Because of that also re-shifted book is hardly anything. So if you can help me with some reconciliation on this 1,000 [Indecipherable] book, which is the pre-March book — the April book. Sorry.

Ashish Kumar Damani — President & Chief Financial Officer

Yeah, hi Renish. Ashish this side. The collection efficiency on the 18% book is 88.7%. This is the net collection efficiency.

Renish — ICICI — Analyst

Okay. And — hello?

Ashish Kumar Damani — President & Chief Financial Officer

So that’s the number. I mean if that is what you were asking for 88.7% will be the collection efficiency on the old book. The simple averages when you do the disbursement on the floor, I mean this will not actually give you the right color because not all book would have had any dues in the current quarter, right. I mean so collection efficiency is what was due vis-a-vis against that how it was collected. So as you go-forward you will see this number you know kind of improving in terms of you know — because of book which has been disbursed in this quarter was like I said was disbursed primarily towards the end of the quarter. We’ll see it’s dues and recoveries in the coming quarter only.

Shalabh Saxena — Managing Director & Chief Executive Officer

Renish, just to give you some numbers on the question that you asked. The net collection efficiency of the pre-March book is 88.7% and the gross collection efficiency is 97.2%. So it has to be looked at in context of the — of the narrative that we’ve been saying that these are the customers who are you know who are paying, but with a lag and with arrears. Obviously given a monthly liability that they have, it is difficult for them to really clear off their two or three instalments hence the pace is slow not what you or I would want or not what we would definitely want, but I think with a declining book and we are able to hold 97.2% on a gross, I think you know on net also if, I see that at 88.7% closer to 89%, I think we are there.

Renish — ICICI — Analyst

Okay. So again just a follow up okay, so. In this INR1,000 crores, okay only INR400 crores is stage three and INR100 crores is restructured. So balance INR500 crore, I mean are you seeing this book as a stress book or do you see this will recover over a period of time?

Ashish Kumar Damani — President & Chief Financial Officer

This will repair and that’s why I said so this the reason why it is here means obviously it was not a regular book, otherwise it won’t be here. Having said which it is, not something that we can sort of kiss goodbye. We have great engagement with each of these customers, it is just that there is no way they can jump from a greater than 90% into standard, hence they will take their time. Most of them will wait for the loan tenure to be over and then the extended tenure will kind of get them back into a loan termination. So that’s how it is. So we’ll have to bite our time. And see you know how their individual loans run now. In parallel, obviously basis the new disbursements that we are doing are regular book which is at 82 [Phonetic] will obviously keep on increasing. And by end-of-the year, I think you know the pre-March ’21 book should be a lower-single digit.

Renish — ICICI — Analyst

Got it. So just last question. So is it fair to assume that the stage three assets in absolute terms, okay which is 4.2 billion is picked out at current level or we feel that there will be some flow forward from this INR1,000 crore book and it should ideally pick out in Q3?

Ashish Kumar Damani — President & Chief Financial Officer

Renish, so there is a nuance to the question you are asking and I will just to attempt — maybe, I’m not able to communicate. I am saying the flows could be there, I’m not saying they will not be there but the so-called bad customer have peaked out, that is I’m just answering your questions slightly differently. The customers — will I — will I be stressed or as a institution will we be stressed to take a write-off etc.? Unlikely. Right now the way they are and the way the story goes, they will drag themselves towards the end-of-the tenure and that is how they will kind of absorb themselves, that is how it is going to work.

Renish — ICICI — Analyst

Got it, sir. Good enough sir. Thank you very much sir.

Ashish Kumar Damani — President & Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Shweta Daptardar from Elara Capital. Please go-ahead.

Shweta Daptardar — Elara Capital — Analyst

Thank you sir for the opportunity. Sir, couple of questions. One being, what is the incremental cost of fund –.

Operator

Please use the handset mode, the audio is not clear from your line.

Shweta Daptardar — Elara Capital — Analyst

Sure. Is it better now?

Operator

Yes.

Shweta Daptardar — Elara Capital — Analyst

Okay, thank you. So sir couple of questions. One is what is the incremental benefit on cost of funds because of revision when rating stands and just a follow-up there 33% of our borrowing mix today is coming from capital markets. So given that the shorter end of the curve and the capital markets have been slightly tight of late so do you see any change of liability mix going-forward? That’s the first question.

Ashish Kumar Damani — President & Chief Financial Officer

Okay, do you want me to answer the question Shweta or you want to put out your other question also? [Speech Overlap] I will go ahead answer and then have your next question. Basically the liability mix our stated position is that we would want to improve on the exposure with the banks, right. We would want to take it closer to 75% over a period of next couple of quarters. And the capital market exposure should come down to around 25% or so. Having said that we do have interest even on the capital market transactions. If you see in the current quarter also there have been certain transactions that we have done. You know, but when we look at microfinance space, the primary funding is being done by the bank given that we originate lot of — lot of book, which is helpful to meet the agri and the priority requirements of the bank they do tend to do as — with the amount of support on the funding side and that’s what we would want to leverage on. The one thing, which should also play out in the second half of the financial year is a lot many more PTC transactions and DA transactions. Is what we feel will help us improve the share of the banks.

Shweta Daptardar — Elara Capital — Analyst

Sure. noted sir. Sir, second question is on you mentioned in your presentation and also in the opening remarks, that 46% of your new disbursements are coming from new customers. So what has been the strategy on the new customer acquisition front especially where we are coming from the transformational stage?

Shalabh Saxena — Managing Director & Chief Executive Officer

Okay. So I’ll give you a 60 second answer. So what happens Shweta is the as far as the new — when you look at the composition of a micro-finance book, our current distribution or the portfolio that we have about 33% comprises of customers who have a relationship only with Spandana, another 34% are customers who have a relationship with the Spandana plus one more financer. So this is about 67%, 68%. If you, go back to the Vision 2025 we had laid out along with the quarter four deck, we had very clearly said that our — our growth story will be customer acquisition led. We are conservative or we will be conservative on the ticket sizes. We are still not there, we will be walking towards that but this 66%, 67% which is a single lender relationship and one plus one relationship, we as a company want to take it at to a 80%. 80% to 81% then one plus one plus one will be another 11% to 12% and then rest will be single-digit.

Consciously on the field we are reaching out and trying to disburse more and more to customers who are new to us. It will be a mix of the three books or two books that we have said, but clearly our direction is either direct single relationship or one plus one. We — where we want to churn the existing base, a little bit there are we’ve identified about four to five lakh customers where we feel that at some stage they will have to — they will go or we will have to let them go. A new customer — set of customers entering your books is always a good way to refresh our portfolio because they come with a new — one, they are obviously in geographies where the liabilities are less plus they are more current in terms of the way the [Indecipherable]. So this is a part of a conscious strategy and that’s why 46 of the 100 customers that we have disbursed in the last quarter are new customers to — are new customers to Spandana. We will continue this approach for the next — right until FY 2025 and that’s how we’ve kind of projected our numbers.

Shweta Daptardar — Elara Capital — Analyst

Sure sir. Sir, one last question from my side. So we are closer to book bidding. You just explained the customer acquisition strategy and we had the capital infusion happening in Q4, but during standing back very favorable levels where do you see the book now from the 6,000 odd number in next one to two years?

Shalabh Saxena — Managing Director & Chief Executive Officer

Gearing is your question, Shweta, we are at I think 1.2 times, 1.2 times, 2.1 times or something. Anything south of four, we will be comfortable that is the leverage we would want to carry, which is a long way off obviously from where we are. So that’s the ideal one, that’s our direction. As I said the balance sheet and I’ll ask Ashish to chip in, the balance sheet as I said is pretty strong. Directionally, we are very clear in terms of which way we want to go. Ashish?

Ashish Kumar Damani — President & Chief Financial Officer

So gearing — gearing will be at any number south of forex is good enough number for us, but directionally that’s the thing this is right until FY ’25.

Shweta Daptardar — Elara Capital — Analyst

Okay, noted sir. Thank you so much for patiently answering the question. Thank you.

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 and congrats on a good quarter. You mentioned about opex, how long before we again start adding branches?

Shalabh Saxena — Managing Director & Chief Executive Officer

So Sameer your question is, sorry. I mean, you’re asking when will we start opening new branches, is that what you asked? Yeah, yeah so the efforts started this quarter. This was I go back to our narrative, we said first two quarters will be consolidation, the growth story starts now. We will open — we have already a plan to open branches between Q3 and Q4, all put together we projected roughly about 400 plus 160, 560 branches all put together from now until FY ’25. Now for branches to deliver, we will have to ensure that we kind of — open all of them. Max Q1 of FY ’25 for which we’ll have to start the effort now. So we would want to get the maximum runway for every branch to kind of deliver and make meaningful contribution. The distribution — sorry the opening of new branches start this quarter, Sameer.

Sameer Bhise — JM Financial — Analyst

Okay. And secondly, the staff cost is lower QoQ or was there an arrear angle in the entire quarter?

Shalabh Saxena — Managing Director & Chief Executive Officer

What is arrear angle? I mean this — so. Sameer basically we had some — some programs that we have run between Q4 and Q1 which were having those one-time payments and that’s how the number for Q1 was higher. But right now the number that we have is pretty much stabilized kind of cost, employee cost for us.

Sameer Bhise — JM Financial — Analyst

Okay, fair enough. Thank you and all the best.

Shalabh Saxena — Managing Director & Chief Executive Officer

Thank you Sameer.

Operator

Thank you. The next question is from the line of Shreepal Doshi from Equirus. Please go ahead.

Shreepal Doshi — Equirus — Analyst

Hi sir, thank you for giving me the opportunity and congratulations on the quarter. So firstly my question was on the disbursements so while if we see in in June quarter we had already clogged in close to INR900 crores of disbursements. Then what led to the run-rate sort of moderating in 2Q?

Ashish Kumar Damani — President & Chief Financial Officer

So Shreepal look, once again sorry I’m going back to my old this thing, if there are two factors one is, we are running multiple priorities and, they will continue until the year end. Our priorities are more in terms of control, governance, supervision putting the risk and audit teams in-place. Managing — acclimatizing the field to the new tech stack that we’ve kind of rolled-out to the field which will help us do the supervision, control, monitoring etc. in a good way. So we had very clearly said that this is the pace that we will take which is about INR1,300 crores to INR1,500 crores in quarter two and then INR2,500 crores and INR3,500 crores, so we are just following the narrative which we thought we are falling the numbers that we had sort of — funding off what will give us would enough time to invest in the areas that I have just about spelled out to you. So it is a part of the plan it will be a back-end improved.

Shreepal Doshi — Equirus — Analyst

Got it sir, got it. Just wanted you to check because if there was anything specific that happened, so just asked that question. So the second question was on the liquidity front. So if you look at while on a conservative basis, we are maintaining liquidity, but going ahead by FY ’23 end and or in normal FY ’24, what is the percentage of liquidity that you would want to maintain on-balance sheet?

Ashish Kumar Damani — President & Chief Financial Officer

Sorry Shreepal we lost you in-between four a couple of seconds. Are you asking what kind of liquidity we will be maintaining by the year-end?

Shreepal Doshi — Equirus — Analyst

On balance sheet. Yeah, by the year end and in normal — in business-as-usual year that is FY ’24. Okay.

Operator

The line for the management has got disconnected request you all to please stay online while we reconnect them. Thank you. Ladies and gentlemen, thank you for patiently waiting, the line for the management is reconnected. Thank you and over to you, sir.

Ashish Kumar Damani — President & Chief Financial Officer

Hi Shreepal sorry, I will just respond to the question on the — how we are going to look at the liquidity. Internally we have a conscious decision that we will stay put liquid from a balance sheet standpoint and idea is to maintain cash and bank of anything north of two months of our obligations. So we will be liquid four some period of time. Actually this is something that is always good for a microfinance company to have enough and more liquidity on the balance sheet. So we will run it little conservatively.

Shreepal Doshi — Equirus — Analyst

Got it. Sir, like — in the presentation it’s been mentioned that there is a strategy to add another 1,000 loan officers. So what is — I mean so it will all be in 3Q only and what is the level of AUM per loan officer that we are comfortable in a normal business-as-usual environment?

Ashish Kumar Damani — President & Chief Financial Officer

The normal AUM per loan officer if it is anywhere between 100 — between INR125 lakhs, which is INR1.25 crores is a decent number. Anything south of INR one crore is not a very exciting number, which we are at this point in time. Any number, which is around INR1.5 crores is a great number to aspire. So in a short-term right now, what we’ve done is that the 1,000 loan officers we’ve kind of allocated we’ve slightly operational but we are in the branches and the portfolio which is doing good, we are trying to hit loan borrower — for borrowers per loan officer in the range of about 450 [Phonetic] to 500 [Phonetic], that’s the destination module. So we have it and separately I can take you through the numbers, but it’s a detailed one. What we are trying to do is to ensure that at in the next few quarters, we start we get to a enterprise level average of about INR1.25 crore to INR1.3 crores and then onwards into INR1.5 crores.

Shreepal Doshi — Equirus — Analyst

Got it sir. Got it. Sir just one last question on this new customer acquisition that we have done. So I mean there if you could give some color from the geography point-of-view, is it from the newer geography or from the — from our main geographies such as Odisha, MP, or is it from the new geographies?

Ashish Kumar Damani — President & Chief Financial Officer

No, we are mindful of the concentration and the fact that we can’t be stacked into a specific geography so the acquisition is very secular across the industry or wherever we are, one. Two, in fact it is the other way around. We — Shreepal, what we focus on is any branch which is not at a optimal level of AUM that we would want is where we push more because that is for us to — we have to drive the profitability metrics as well. So all the new branches for example that we are going to open this quarter and the next quarter will all be only customer acquisition. So you will see this this number kind of either in the same range. Any number upwards of 40 is good in terms of distribution. We can — so that’s the level that we are going to drive.

In terms of your specific question it is a secular one across all geographies. Wherever we start hitting the ceiling, where we are not very comfortable is where we slightly toned down the customer acquisition number and then we focus on the existing customer.

Shreepal Doshi — Equirus — Analyst

Got it. Sir, one last question. Like you had answered this to a previous participant, but just from different angle. So you said that you have 33% of the customers, which are unique to Spandana currently and the thought processes to bring — broadly to bring it down to close to 8% to 10% is that understanding, right?

Shalabh Saxena — Managing Director & Chief Executive Officer

No, no, no, no. sorry. I don’t think — let me repeat what I said. Our single lender relationship portfolio is 33% customers. One plus one, which is with Spandana and one more financer is 34%. That put together is 67%. This together from a 67% as an enterprise in the next two to three quarters, we would want to take it to 80%. Which means you will have to definitely take up the 33% to 38%, 39% and 40%. There is no other option and the other piece also has to move-up simultaneously.

Shreepal Doshi — Equirus — Analyst

Got it sir, got it. Yeah, thank you. Thank you so much sir. And good luck for the next quarter sir.

Ashish Kumar Damani — President & Chief Financial Officer

Thank you Shreepal.

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 congratulations on a good set of numbers. Sir first question, I think you had mentioned something about write-backs. So if you can shed some light on — because we have also done a lot of write-offs in the previous quarter so how is the collection if any from those pool which we have already written-off? And what is the expectation going-forward? And second is, so this 97.5% on the new book is sort of is still below what is your expectation from a BAU point of view. So what is sort of holding back this book from behaving at a pristine collection efficiency quality sort of a metric? Can you answer these two sir?

Ashish Kumar Damani — President & Chief Financial Officer

Hi Sarvesh, this is, Ashish. I’ll answer the first one and then I’ll request Shalabh to kind of talk about the new book and how it is going to play out. So in terms of. — so in terms of the collection from the return of book, we had INR14 crores that we have collected in the current quarter. The way to look at it is if we have to go by the industry benchmark then anywhere between you know 10% to 20% around 15% or so is the industry benchmarks in terms of collections from the written-off portfolio over a period of year and a half. So one should one should expect us to have at least similar numbers, if not better. Given that we are going to make some focused drives on-the-ground these numbers should be better in my mind. So just to supplement, the last quarter, I think the last quarter we recovered about INR15 crores from the write-off book the next two quarters we have plans to recover about INR40 crores minimum, we will do more than that, that’s number one.

Number two is on your question about 97.5% so — so Sarvesh the gross collection efficiency so deliberately if you would have been seen, we as — as a team we are trying to culturally bring about that change where the timely collection of money is very important, which is the net and the gross ideally should not be any gross, ideally everything should come on-time at the same — on the date is due. Right now, we have of net collection efficiency of 97.5% as you said on the post April ’21 book, The gross if I see which is arrears with arrears you know, our collection efficiency is 105% of the same book. So I deliberately sort of [Indecipherable] that entire narrative because when we speak to our teams it is not about the 105 [Phonetic] it is about the 97.5% moving to 90% as I’ve said my upwards of 98.5% and greater than 99% is what we are aspiring to. So that is what we are we are you know pursuing. Slowly the net of 97.5%, we anticipate to see a figure upwards of 98.5% and 99%, round about that number. So we’ve narrated, we’ve given you both the numbers, the gross number also is 105 [Phonetic] but then obviously it comes with a lag, which is — which might not be what microfinance institution ideally should be very, very happy about.

Sarvesh Gupta — Maximal Capital — Analyst

So how soon do we expect to get to this aspirational number of 98.5% to 99.5%?

Ashish Kumar Damani — President & Chief Financial Officer

We are targeting this quarter and the next quarter for all of whatever I have said. Anything beyond because now COVID is kind of done and settled. There we have a book, which is now 82%. So there is no reason for us to really hit that number and we obviously have started — we’ve already started working with the field on the ground to ensure that this is kind of — we kind of hit this because then it will be a perfectly BAU situation.

Sarvesh Gupta — Maximal Capital — Analyst

Understood sir, thank you and all the best.

Ashish Kumar Damani — President & Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Sanket Chheda from B&K Securities. Please go-ahead.

Sanket Chheda — B&K Securities — Analyst

Yeah hi sir. So on disbursement, sir you had highlighted the trajectory, particularly for Q3, Q4 then total into which comes to around 8,500, but on AUM also we had guided around [Indecipherable] right?

Operator

Audio is breaking from your line sir, please check.

Sanket Chheda — B&K Securities — Analyst

Yeah, is it audible?

Operator

Yeah, please go ahead.

Sanket Chheda — B&K Securities — Analyst

So sir I wanted to add that on disbursement we guided around INR8,500 crores for the full year, the numbers which we [Indecipherable] also we had guided for INR8,000 crore, INR8200 crore of closing AUM by this year’s end, is that right?

Shalabh Saxena — Managing Director & Chief Executive Officer

Yeah, that’s right given that our disbursement is largely in the second half and the Q4 it will be a higher number. The AUM is likely to close north of INR8,000 crores anywhere between INR8,000 crore and INR8500 crores.

Sanket Chheda — B&K Securities — Analyst

So even if we expect say some flow-through in the 90 plus. But as far as its share in the current book is concerned maybe [Indecipherable] the share in the book should have dropped out in this quarter, is that correct assumption to make? So the share will keep dropping in the coming quarters because of the high-growth?

Shalabh Saxena — Managing Director & Chief Executive Officer

On percentage terms and mathematically absolutely yes, but we do expect improvement from in absolute terms also is what we were trying to explain again in the call.

Sanket Chheda — B&K Securities — Analyst

Yeah, that I got it sir. Yes, sir that was the only question. Congrats for this quarter on a very strong operating performance and wish you all the best for the coming quarters as well.

Shalabh Saxena — Managing Director & Chief Executive Officer

Thank you so much.

Operator

Thank you. Ladies and gentlemen that was the last question for today. I now hand the conference over to Mr. Shalabh Saxena for closing comments. Thank you, and over to you sir.

Shalabh Saxena — Managing Director & Chief Executive Officer

Well thank you very much once again to all the participants on the call. It’s — over the quarter, when we reach out or when we have a chart with each one of you separately not everyone, but whosoever we manage to strike a conversation or vice a versa, we’ve had — we’ve had good response and good feedback on various initiatives that we would have taken. There are many ideas that also flow into us and thank you very much for kind of — giving us those valuable piece of advice. We’ve set-out on a mission which is to get to the numbers, but it is less about numbers more about how we do it. While the destination counts, but the process towards — the journey towards the destination is very, very important and that is what we are embarked on. We will ensure that we deliver quality, we will ensure that we create an organization, which people will be proud of. And thank you, you are an integral stake holder to this whole journey and thank you very much for all the support. Thank you very much.

Operator

[Operator Closing Remarks]