Suryoday Small Finance Bank Ltd (SURYODAY) Q4 FY23 Earnings Concall Transcript

Suryoday Small Finance Bank Ltd (NSE:SURYODAY) Q4 FY23 Earnings Concall dated May. 16, 2023.

Corporate Participants:

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Kanishka Chaudhary — Chief Financial Officer

Analysts:

Shailesh Kanani — Analyst

Nitin Aggarwal — Motilal Oswal Financial Services Limited — Analyst

Unidentified Participant — — Analyst

Dhruv Shah — Ambika Fincap Consultants Private Limited — Analyst

Renish Bhuva — ICICI Securities Limited — Analyst

Nikhil Vaishnav — Haitong Securities — Analyst

Ankur Kumar — Alpha Capital Advisors — Analyst

Twinkle Katudia — Centrum Capital Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Suryoday Small Finance Bank Limited Q4 and FY ’23 Results and Future Outlook Conference Call hosted by Centrum Broking Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Shailesh Kanani from Centrum Broking Limited. Thank you. And over to you sir.

Shailesh Kanani — Analyst

Thank you, Nirav. Good morning, everyone.

On behalf of Centrum Broking, I welcome all to the fourth quarter and FY ’23 earnings call of Suryoday Small Finance Bank. We have with us top management team of Suryoday represented by MD, CEO, Mr. Baskar Babu; Chief Services Officer, Mr. Narayan Rao; CFO, Mr. Kanishka Chaudhary; and IR Head, Mr. Himadri Das.

With this brief introduction, I hand over the floor to the management team of Suryoday. They will start with a brief overview on the results, after which we will move on to the Q&A session.

Over to you, sir. Thank you.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Thank you, Shailesh. Good morning, everybody.

On behalf of Suryoday Small Finance Bank, I extend a warm welcome to our Q4 and FY ’23 earnings conference call. I and our management team are present here. I trust that everyone has had the opportunity to review the presentation for the quarter and the year ending March 31, 2023, which was uploaded on the stock exchanges.

Now let me provide an overview of the overall economy followed by the industry landscape and finally, Suryoday’s performance for Q4 and FY ’23. Despite the slowing global economy, domestic economic activity in India continues to demonstrate resilience. However, both globally and in India, inflation has remained elevated, posing a significant challenge. Monetary policy continues to prioritize the fragile alignment of inflation with the targeted rate hikes. It’s important to be mindful of various risks to both growth and inflation outlook, including geopolitical hostilities, volatility in global financial markets and the impact of climate shocks.

On a global scale, there have been improvements in supply chain in recent months, which is a positive development. However, it is worth noting that the banking turmoil in the United States and Europe, coupled with concerns surrounding financial stability created substantial turbulence in the global financial markets in March. These events highlighted the interconnectedness and vulnerability of the global financial system.

The banking industry has been grappling with various challenges. However, the initiatives of the government and the RBI to address some of these pressing issues provide rays of hope for the industry, indicating a commitment to strengthening the banking ecosystem and fostering a healthier financial environment.

Now turning to our operational and financial performance. We are delighted to announce that Suryoday has achieved steady and remarkable results in FY ’23. Our inclusive finance and related lines of business has demonstrated a remarkable recovery, nearly reaching the pre-COVID growth levels. This achievement should give us the resilience and the adaptability of our organization in navigating challenging times. During FY ’23, the bank gross advances reached an amount of INR6,114 crores, representing an increase of 20.7% compared to INR5,063 crores in FY ’22. If adjusted for the ARC, the gross advances for the year would have been INR6,541 crores, registering a growth of 29.2%.

The disbursement increased by 44.1% to INR5,083 crores, up from INR3,528 crores during the same period last year. Alongside this growth in disbursement, our customer base also witnessed a substantial growth. As of FY ’23, Suryoday proudly served approximately 23.1 lakh customers, marking an increase of 19.9% compared to the previous year. This significant growth in our customer base signifies the success of our customer-centric approach and our ability to meet their evolving financial needs. In terms of profitability, Suryoday bank has achieved a turnaround. We reported a profit of INR77.7 crores in FY ’23 degree as against the loss of INR93 crores in FY ’22. This recovery reflects our concerted efforts to enhance operational efficiency, optimize our asset quality and improve overall financial performance.

Now let me shed some light on the key operational and financial metrics for FY ’23, providing a comprehensive overview of our accomplishments and the factors driving our success. On the business performance, our disbursements grew by 44.1% in FY’23 on a year-on year basis, indicating strong momentum across businesses on the ground. Due to healthy on-ground demand, disbursement activity have regained momentum and reached the pre COVID levels. The bank has also witnessed a substantial increase in retail asset disbursement, which grew by 72.8% at INR1,580 crores.

Our collection efficiency is improving steadily on the back of business and the economic nearing pre-COVID levels. The overall collection efficiency for our bank stood at 102.2%. On gross advances, the bank gross advances in FY ’23 crossed the INR6,000 crores mark, with Vikas loan portfolio crossing INR1,200 crores mark. Vikas loan is the bank’s flagship product in the unsecured business loan offering offered to the existing graduating JLG customers on the back of increased government impetus for MSME growth. Consequently, the AUM of the Vikas loan grew to INR1,232 crores in FY ’23 from INR213 crores as of FY ’22, while the customer base for the same grew by 2.5 times to 1.9 lakh customers.

The bank’s gross advances stood at INR6,114 crores as compared to INR5,063 crores in FY 22, an increase of 20.7% year-on year. On the deposits and borrowings, our total deposits stood at INR5,167 crores as compared to INR3,850 crores, registering a strong growth of 34.2% year-on year. The bank continues to focus on granular retail deposits. Our borrowings at the end of March 2023 formed 28% of our total liabilities, the majority of which is from refinancing institutions. We have currently a network of 577 branches, of which 95 branches were liability focused, while 324 branches were asset focused and the balance comprise of rural outlets.

On our asset quality, the bank achieved significant improvement in gross non-performing assets, which reduced to 3.1% in FY ’23 from 11.8% in FY ’22, and the net non-performing assets, which decreased to 1.5% in FY ’23 from 5.9% in FY ’22. The bank is targeting a GNP of less than 2%, and NNP of less than 0.5 [Phonetic] in the coming financial year FY ’24. On our earnings side, net interest income stood at INR746.6 crores as compared to INR584.5 crores, an increase of 27.7% year-on year. Our net total income stood at INR844 crores as compared to INR678 crores, an increase of 24.5% year-on year. Our yield improved to 19.3% in FY ’23 from 18.2% in FY ’22, while our NIM improved to 9.5% in FY ’23 compared to 8.6% in FY ’22.

Despite the rising interest rate scenario, our cost of funds reduced to 6.7% compared to 7% in the corresponding period last year. Our cost to income currently stands at 60% as compared to 60.9% in FY ’22. We continue to remaining well-capitalized. Our capital adequacy ratio of our bank currently stands at 33.7%, Tier-1 comprising 30.8% and Tier-2 comprising 2.9%.

Finally, to summarize, we envisage multiple tailwinds that will enable the bank to scale up at a faster pace. We have identified key focus areas, which will act as a catalyst for growth in FY ’24. The bank aims to focus on growing gross advances by 30% approximately, deposits by 35%, achieving a return on assets of 2.2% and a return on equity of 15% in the coming financial year.

Operationally, our key focus areas includes product diversification, maintaining GNPA level below 2% and net NPA level below 0.5%, leveraging digital initiatives across multiple apps, taking CGFMU cover for JLG and Vikas loans, building a very strong Vikas loan book of INR2,000 crores and expanding our branch network.

Thank you. Over to you for questions.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.

Nitin Aggarwal — Motilal Oswal Financial Services Limited — Analyst

Yeah. Hi. Good morning, everyone. Congratulations on a good quarter. Few questions I have. So first is on the GNPA. We have seen very sharp reduction in GNPA during FY ’23 from 12% to 3%. And now the gross — GNPAs have come down to INR190 odd crores, which includes some bit of ECLGS also. So if you can talk about like, what is the unprovided exposures that we are left with? And also if you can give us some sense on the performance of the ARC book, how do you see that going forward?

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Sure. So thanks for the question and good morning. So on the unprovided part of the book, net of ECLGS and the provision that we are carrying, it’s around INR35 odd crores. This is something that we will cover over the next one quarter. And so far as the ARC book is concerned, the cumulative valuation of the book on a 100% basis was INR135 crores. And till March, we have made a collection about INR40 odd crores which is INR10 crores a month. This is in line with our expectation, even though the trust has been set-up for a period of five years as per regulation. Our expectation is that we will be able to redeem the entire ARC portfolio by the end of the next financial year.

Nitin Aggarwal — Motilal Oswal Financial Services Limited — Analyst

Right. And secondly, on the profitability, we have seen sequentially earnings moving up and we ended the year with a INR38 crores profit in Q4. So can we take this exit ROA and ROE for Q4 as a baseline going into FY ’24? How do you see [Technical Issues] ROAs and ROEs moving from here?

Kanishka Chaudhary — Chief Financial Officer

Yes. Indeed, that is the baseline for us to begin with. So, we delivered around INR38 crores, right, for the quarter and that’s where we start. On a ROA, ROE basis, as we have guided, we would be targeting to inch up our ROA to around Q2 [Phonetic] quarter and ROE of 15%. That’s what we will be looking as a bank for the next year.

Nitin Aggarwal — Motilal Oswal Financial Services Limited — Analyst

Okay. And lastly, on the growth part, we have seen good pickup on the disbursement growth and same has come up to 33% in Q4. So what is like the level that we are targeting now in our MFI business in the next few quarters? And how do you really see the mix of inclusive finance and the retail assets moving going forward?

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

On the growth in disbursements?

Kanishka Chaudhary — Chief Financial Officer

Yeah.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

So what we’re really currently clocking is around — approximately around INR350 crores to INR400 crores in inclusive finance. 50% of that coming from Vikas loans. The intent is to really grow the Vikas loan portfolio from currently two lakh customers with an average outstanding of approximately around INR60,000 at this point of time, which will broadly remain the same probably, give and take, INR10,000 on the higher side. So, we’re likely to end up with around 4 lakh customers of Vikas loan, which is a key focus area. And we’ve also covered that under state guarantee scheme of CGFMU, which broadly covers the substantial risks that could ever emanate from the portfolio even in a one-off circumstances.

On the retail asset growth, we are focusing in terms of mortgages, which is currently clocking around INR50 crores to INR60 crores per month on an average. And the book stands currently at INR1,000 crores approximately, which is likely to inch up to around approximately INR1,700 crores to INR1,800 crores at the end of the financial year. Commercial vehicle where we are clocking around INR40 crores of disbursements per month likely to go up at an exit rate of closer to INR75 crores at the end of the year and the portfolio likely to increase from INR400 crores approximately around INR750 crores to INR800 crores at the end of the current financial year. We are likely to see a mix of around 55% for inclusive finance, not necessarily by slowing down the growth in inclusive refinance, but by a substantially higher growth under long-term assets in terms of the retail assets portfolio. So the mix might till goes up to 57%, 55% at the end of the financial year in terms of non-exclusive finance assets.

Nitin Aggarwal — Motilal Oswal Financial Services Limited — Analyst

Sure. Sure. And just related to this, if I can ask one more question. Like now that we are focusing more on the retail assets are mix of mortgages and the Vikas loan is going up, so how do you see the impact of all of this on your opex and the cost income ratios?

Kanishka Chaudhary — Chief Financial Officer

I think the idea is to be able to build our operating leverage. So this is the year when we invested. We see some more investments coming through, especially in terms of expanding our branch network and increasing the feet on street for some of our retail businesses like mortgage and CV. So, I think, given that we will have two engines so to speak, one is the Vikas loan, which has the premium attached to it in terms of pricing. That will be marginally offset with the kind of growth we expect in retail assets. So overall for the next year, we will hold on to the kind of margins that we are having there. The idea is that whatever compression in margins that we may have overall will be more than offset by the reduction in the credit cost in the portfolio.

Nitin Aggarwal — Motilal Oswal Financial Services Limited — Analyst

Right. Thank you so much. And wish you all the best.

Kanishka Chaudhary — Chief Financial Officer

Sure. Yeah. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Piyush Chadha [Phonetic] from Serendipity Trading [Phonetic]. Please go ahead.

Unidentified Participant — — Analyst

Hi. Thanks for a great set of numbers. I hope you can hear me.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Yes, we can.

Unidentified Participant — — Analyst

Okay. Just wanted to do some housekeeping around the numbers. So for March, we said we had INR37.5 crores pre-POP. Would it be reasonable to expect that the run-rate of pre-POP would be slightly better than this in the coming year, leading to a pre-POP of around INR500 crores for the year?

Kanishka Chaudhary — Chief Financial Officer

Yes. I mean, on a full-year basis, that’s what we are targeting. Our first toll gate will be Q1 where we expect to hit, go a little over 100 and then pickup from there. But on a full-year basis, we are looking at a INR500 crores number.

Unidentified Participant — — Analyst

Sure. And in terms of credit costs, what would be our normalized credit costs? Would it be around 1% to 1.5% per year?

Kanishka Chaudhary — Chief Financial Officer

Yeah. I mean, now that we have been able to clean up the book and all, we would expect to be closer to 1% in credit costs, not taking into account the credit [Technical Issues].

Unidentified Participant — — Analyst

Sure. And in terms of the current NPA book, would we still need another INR30 crores, INR40 crores of provisioning before we added — before we are at a normalized run-rate for NPAs? Would that be accurate?

Kanishka Chaudhary — Chief Financial Officer

No, there is some uncovered unprovided for book of INR35 odd crores, like we have mentioned in response to the first query. So, we would want to get that covered by end of Q1. But at the same time, we are also looking at a recovery target from NPA and the write-off pool. So, I think we will be able to offer this.

Unidentified Participant — — Analyst

Great. Thank you so much. This is wonderful. Just one last query around your deposit activities. We’ve typically seen the small finance bank that’s dry and use their asset branches for deposit gathering, don’t meet with great success. I mean the markets for asset growth and deposit-taking tend to be different. How are you planning to solve this problem, because otherwise it becomes a huge cost issue?

Kanishka Chaudhary — Chief Financial Officer

Yeah. So, this was a year of reset for us. But now that we are looking at expansion for this year, especially, we intend to have branch expansion of around 80 to 90, of which half of it will come from conversion of the asset branches into multiproduct branches selling both assets and deposits.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

So Piyush, while the fact that asset branches probably have not been as successful, what we worked on has worked out pretty good is in terms of making composite branches, which means that the team which is focused on deposits operating out of the same branch and focusing only on liabilities under the team, which focuses only on the assets. So to that extent, they don’t really target exactly only the asset customer, but operate out of the location, which are more asset focused.

Unidentified Participant — — Analyst

Thank you.

Operator

[Operator Instructions] The next question is from the line of Dhruv Shah from Ambika Fincap. Please go ahead.

Dhruv Shah — Ambika Fincap Consultants Private Limited — Analyst

Yeah. Thank you for the opportunity and congratulations on a really strong set of numbers. I have two questions. One is on your collection front. So how is our collection shaping up? I can see your collection efficiency has gone up 102%. But how is that shaping up?

Kanishka Chaudhary — Chief Financial Officer

We have given the collection efficiency, both in terms of the pre-June ’21 portfolio and post-June ’21 portfolio. We see substantial number, inching closer to 98% in the IF book and close to around 97% in the non-IF book. We still have a focusing in terms of whatever is the pre-June ’21. Quite a bit of that has grown, obviously, into GNPA, which the efforts around is to really recover back. But the residue left is very, very marginal at this point of time. We see that to reach overall on the basis of the overall portfolio, moving to closer to around 98% to 99% starting from Q2.

Dhruv Shah — Ambika Fincap Consultants Private Limited — Analyst

Okay. Understood. And sir, the other question I have is there any room for further NIMs expansion? I understand that before you alluded that you will maintain your margins. But is there any room to improve on NIMs? We have seen quarter-on-quarter improvement to 10.5%, but is there further room to improvement?

Kanishka Chaudhary — Chief Financial Officer

So, one thing to note is that for the full financial year, we haven’t really raised our rates in fixed income products, especially inclusive finance, right? But given that the rates have been going up and our deposit rates have also gone up in the last two quarters, that’s something that we would want to review end of Q1. Our target is that we are able to maintain a 10% margin NIM on an overall portfolio basis.

Dhruv Shah — Ambika Fincap Consultants Private Limited — Analyst

Right. Understood. And sir, just a last question on your portfolio diversification. Are we planning to expand in any other any other states? Because if I can see quarter-on-quarter, the Maharashtra percentage is still around 40%. Do we intend to bring it down to some closer to 30%? Or are we comfortable Maharashtra being 40% of our total advances?

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

We don’t have any specific plan in terms of reducing the portfolio in Maharashtra. It is stabilized and improvising. But the entry into other few states, as well as acceleration in terms of branches in states like Karnataka, Gujarat and Madhya Pradesh will reduce necessarily this percentage from 40% to closer to 30% over the next 12 months to 18 months. So it is clearly inclusive finance portfolio.

Dhruv Shah — Ambika Fincap Consultants Private Limited — Analyst

Right. Understood. Okay. Great. And all the best for future quarters. Thank you so much.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Amit Garg [Phonetic]. Please go ahead.

Unidentified Participant — — Analyst

Good morning, sir. First of all, congrats for the wonderful quarterly performance. Though some of the questions have already been answered, I just wanted to understand which are the regions that are expected to drive our retail AUM growth. Any specific focused regions that you are intending to?

Kanishka Chaudhary — Chief Financial Officer

So as things stand today, there are a few states we would like to expand to, especially in CVs. So, CV, for example, we want to focus on the southern states and going into Andhra. For mortgage, we will continue our focus in north, where we started our businesses about a year back in Delhi and the surrounding regions. But at the same time, we have seen good prospects for Maharashtra, as well as Gujarat. And these are the states that we would want to continue growing on. As far as south is concerned, two states that we would like to have our presence in is, essentially, Andhra and Kerala.

Unidentified Participant — — Analyst

Okay. I think that’s it from my side. All the best to the team for the quarters to come.

Kanishka Chaudhary — Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Raj Gopal Ramanathan [Phonetic], Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Am I audible, sir?

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Yes, Mr. Raj Gopal.

Unidentified Participant — — Analyst

Thank you. So great delivery on numbers. And as we spoke roughly three quarters back, I think your entire team has been able to execute your strategy quite well. So kudos on that. A couple of questions here. What is — the first question is do have aspirations to become a full fledged universal bank over the next three years, five years or so or maybe longer? And if you are thinking about that, is there any specific roadmap that you have? That’s the first question.

Second is actually linked to your distribution, particularly the branches and deposit growth. So what is your longer-term aspirations in terms of deposit growth over maybe the next five years, seven years that you are sort of expecting to clock at least 25% CAGR over the next five years, seven years?

And the last question that I have is linked to an observation that you made on the Vikas loan. Could you explain the guarantee mechanism that is there for the Vikas loan products that you have? Thank you very much.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Sure. So Mr. Raj Gopal, on the universal bank, we are clearly now focused in terms of building a very, very strong small finance bank platform. Currently, do we have an immediate plan? The answer is no. Will it evolve? Yes, I think it would be a logical progression for any small finance bank to become an universal bank at a point of time. It will certainly not in the next two years. The next two years, our intent is to really become a very strong financial inclusion player. So in technical, a small finance bank can do all that a universal bank can do, except for two conditions predominantly, which is one, 50% of our portfolio has to be for INR25 lakhs and below, which we are observing [Phonetic]. We will be in this range a year, year after next and even probably two years from now on.

The other one is that 75% of our book has to be PSL, which we’re are very comfortable. In fact, the surplus at all points of time that we sell PSLs. And on the forex side, small finance banks have been allowed to become AD-I bank. So to that extent, there has not been constraints in terms of being a small finance bank and universal bank. But our aspiration would be that. But in the next one, two years, we are solidly focused in terms of building a very strong small finance bank platform at this point of time.

And in terms of our deposit growth, given our base is low, our focus always has been in terms of going aggressive in the retail segment, fully retail granular deposit. They have been fairly consistent. The number is at [Phonetic] 1.8. It went to as close as 80% retail. Currently, we are holding around 75% [Phonetic]. The intent is to go back to 80%, and we do with an expansion in branches and through some of the digital acquisitions. We are fairly confident that we’ll be able to clock a 35% growth for FY ’24. And thereafter, we’ll, obviously, at the end of FY ’24 we will look at it, but around 25% looks to be really comfortable.

The challenge though has been in terms of acquiring retail CASA deposits. We did really missed that in the last year. In this coming year, the intent is to really go to closer to 22% of CASA. And specifically within that CASA, more than 80% to 90% will be granular deposits, which will be broadly the deposits, which create a float through the floor. So, we are focusing on that.

On the other question in terms of Vikas loan, Vikas loan is a special loan focused product in terms of graduating JLG customer only for the purpose of business. They need to have visible, clear business on which they kind of want to really expand and loan sizes vary between INR60,000 to INR1.25 lakh, though broadly the range has been in the INR75,000.

The CGFMU cover, cover is a little complicated one to really explain. But we cover 75% of the credit losses after an account has become NPA. Up to around 15% coming in from the fund and 5%. In a technical sense, at the maximum of around 20% of the portfolio becoming NPA, we will get 75% for certain scenario [Phonetic], 75% from the agency and 5% will be our contribution. This has not been taken for cover on an ongoing year-on year basis. As you would know, based on our limited experience every four years, five years, there is a risk which emanates, which makes the portfolio losses higher than 3% or 4%. This is to make sure that we have solid predictability in terms of covering the CGFMU. There is a cost attached to it. We are looking at the cost as an investment as cost models and insurance. And it will really be useful in one-off events ever if that were to happen. But gives us the focus and the stability and almost a safety net in terms of looking at the segment far more, not I would say, aggressively, but far more intensely than otherwise. Thank you.

Unidentified Participant — — Analyst

Okay. And as far as the distribution aspirations are concerned, how that’s likely to play out over the next five years? So, you are currently at — what’s your branch presence? The liability branches are around 300 [Phonetic] numbers, right?

Kanishka Chaudhary — Chief Financial Officer

No. So pure liability-focused branches are little over 90. We want to double that number this year. But in terms of overall deposit trajectory and this is something that we have talked about and guided in the past as well, our ambition is to have a CE rate of 100% by 2025, which would mean that from 2025 onwards, our deposits will match the loan book. In addition to that, given the kind of investment that we are making in leadership as well as the franchise, we would really want to come closer to our peers in terms of the CASA ratio. It’s today 17%. We would target somewhere around 20%, 22% up on next year and then creeping up to 25%.

Unidentified Participant — — Analyst

Okay. Okay. Thank you. Thank you very much.

Kanishka Chaudhary — Chief Financial Officer

Yeah.

Operator

Thank you. [Operator Instructions] Next question is from the line of Renish from ICICI Securities. Please go ahead.

Renish Bhuva — ICICI Securities Limited — Analyst

Yeah. Hi, sir, and congrats on great set of numbers. Sir, just three things from my side. One on the clarification. So in our press release, we have mentioned that our one EMI adjusted collection efficiency is 96.5%. So, this is including gross NPA pool, or this is excluding the gross NPA pool?

Kanishka Chaudhary — Chief Financial Officer

No. It includes the NPA pool as well as the book that got built-up to June 2021. If you look at the book which we built after June 2021, our collection efficiency one EMI adjusted is 98%.

Renish Bhuva — ICICI Securities Limited — Analyst

Got it.

Kanishka Chaudhary — Chief Financial Officer

Renish, just to clarify, it includes all the book.

Renish Bhuva — ICICI Securities Limited — Analyst

Yeah. Okay. Okay. Got it. So in nutshell, I think collection is any which ways close to 100%, I mean, given our gross NPA is close to 3%.

Kanishka Chaudhary — Chief Financial Officer

Yeah.

Renish Bhuva — ICICI Securities Limited — Analyst

Got it. Secondly, in terms of the ROA guidance of 2.2% versus Q4 ROA at 1.8%. So fair to assume that the exit ROA Q4 next year will be higher than 2.2%? Because the guidance which you have given is for the full-year. So..

Kanishka Chaudhary — Chief Financial Officer

Yeah. Correct. No, clearly, yes, we would want to be in the range of anywhere between 2.7% to 3%. Our longtime objective is that we are able to have a steady-state ROE of around 4% and thereabout, which will take us anywhere between 18 months to 24 months to accomplish.

Renish Bhuva — ICICI Securities Limited — Analyst

Got it. Got it. So Q4 will be, let’s say, would be definitely more than 2.2%?

Kanishka Chaudhary — Chief Financial Officer

Absolutely. It will be, yes, 2.62 — between 2.6 and 3.

Renish Bhuva — ICICI Securities Limited — Analyst

Got it. And just last question on the yield side. So what are the lending rate hike we took in MFI book since the new guidelines?

Kanishka Chaudhary — Chief Financial Officer

No. So, we haven’t actually had any rate revisions in our MFI book, even though like I said that for the last two quarters we have seen a hike in deposit rates. I believe we would want to review our pricing on the MFI book after Q1 in terms of any revision that may be required.

Renish Bhuva — ICICI Securities Limited — Analyst

What are our lending rates as of now in MFI?

Kanishka Chaudhary — Chief Financial Officer

We do around 24% — 22%, 25% for the JLG book. It’s 3% more for Vikas loans.

Renish Bhuva — ICICI Securities Limited — Analyst

Okay. So in Vikas loans, it is close to 27%, 28%?

Kanishka Chaudhary — Chief Financial Officer

Correct.

Renish Bhuva — ICICI Securities Limited — Analyst

Okay, okay. Okay. That’s it from my side. Thank you so much.

Kanishka Chaudhary — Chief Financial Officer

Yeah. Have a good day, Renish.

Renish Bhuva — ICICI Securities Limited — Analyst

Thank you.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. Next question is from the line of Nikhil Vaishnav from Haitong Securities. Please go ahead. Nikhil, may I request you to unmute your line from your side and go to the question, please.

Nikhil Vaishnav — Haitong Securities — Analyst

Yeah. Hello. Can you hear me now?

Operator

Yes.

Nikhil Vaishnav — Haitong Securities — Analyst

Hello?

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Yes, Nikhil. We can hear you well.

Nikhil Vaishnav — Haitong Securities — Analyst

Yeah. So, I have just two data keeping questions. So what is our slippages, recoveries and upgrades and write-off for this quarter?

Kanishka Chaudhary — Chief Financial Officer

So if you look on a gross basis, we had around INR55 crores of slippages and we had around INR45 crores of pullbacks. So after the first three quarters, I mean, this is one quarter where on a net basis, we have hardly, barely had any kind of NPAs on a net basis. And we expect the same trend to continue. As a matter of fact, we want to see that by Q2, our recoveries are more than the flow [indecipherable].

Nikhil Vaishnav — Haitong Securities — Analyst

Okay. And what is our restructuring book for this quarter, like by FY ’23?

Kanishka Chaudhary — Chief Financial Officer

No. So we have — I mean there is a book of around INR100 odd crores that remains of the restructured book. As you would be aware that we did a set of restructuring in December 2021 and after that, all the moratorium got over in June ’22. So the entire book is back to being a build book. And the residual book, like I said, is around INR80 crores to INR100 crores.

Nikhil Vaishnav — Haitong Securities — Analyst

Okay. And just one last question. In cost of funds, how much rate we have passed on to the customer and how much we are expecting in FY ’24?

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

No. So, I think we expect around — if you look at how we have built-in our estimates for the next year, we expect around 7.5% to be the cost of fund on an overall basis from where we are today. We have baked in at least two rate hikes of 25 basis points rate.

Nikhil Vaishnav — Haitong Securities — Analyst

Okay. That’s all from my end.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Yeah.

Operator

Thank you. Next question is from the line of Ankur Kumar from Alpha Capital Advisors. Please go ahead.

Ankur Kumar — Alpha Capital Advisors — Analyst

Hello, sir. Congrats on very good set of numbers. Sir, most of my questions have been answered. Just wanted to check on cost-to-income ratio. So it has come down quite well in this quarter. So what kind of trend do you expect for the coming year?

Kanishka Chaudhary — Chief Financial Officer

So thanks for that. On a full-year basis, we expect our cost-to-income ratio, that one that we are working on to be around 57% and thereabouts. Our medium-term objective is that we are able to reach a 55% number. And we would also like to highlight that the 57% CTI that we are talking about includes a 1% premium that we pay for CGFMU [Phonetic] insurance, which we expect to be around INR40 crores to INR45 crores. So that’s what we are targeting for the next 12 months. Medium term, we would want to have a CTI of around 55%.

Ankur Kumar — Alpha Capital Advisors — Analyst

Got it, sir. And sir, on NNPA and GNPA, your guidance is less than 2% and less than 0.5%. So that will mean that then we will need to increase our PCR in the coming years. So you are saying that in Q1, we will see an increase in PCR and then we’ll expect steady state is how should we look at it?

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Yes. You will definitely see an increase in the PCR in Q1 and Q2, in a PCR of somewhere around 90% plus.

Ankur Kumar — Alpha Capital Advisors — Analyst

90%?

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Yeah.

Ankur Kumar — Alpha Capital Advisors — Analyst

Got it, sir. And sir, on advanced growth, so we are expecting 30% growth. So can you bifurcate as in which segments will do? And how is the MFI situation? Are the things doing on the ground?

Kanishka Chaudhary — Chief Financial Officer

So, I would say that in terms of headline numbers, we would want our inclusive finance portfolio to be around INR5,000 crores, right? And so far as retail asset is concerned, we would want to be able to grow up this by around 35% to 40%, growing a little over INR3,000 crores for the retail asset portfolio overall.

Ankur Kumar — Alpha Capital Advisors — Analyst

And how is the situation on the ground, except for like COVID, etc, worries, things are looking good?

Kanishka Chaudhary — Chief Financial Officer

I think we have some work still to do in Maharashtra, where we have been careful in doing new business. But in — so far as the other states are concerned, we have seen a turnaround and things more or less back to normal.

Ankur Kumar — Alpha Capital Advisors — Analyst

Got it, sir. Thank you, and all the best.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Yeah.

Operator

Thank you. [Operator Instructions] Next question is from the line of Twinkle Katudia from Centrum Capital Limited. Please go ahead.

Twinkle Katudia — Centrum Capital Limited — Analyst

Hello. Good morning, sir. Congratulations on the wonderful results. My question is, what is the growth drivers for MFI AUM that would be expecting for FY ’24? Hello?

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Yeah. So, we currently have a customer base of around approximately — around good, very good customer base of 14 lakh customers. So, there is approximately another 10 lakh customers who have been with us, very good in the market, where the data subsets that we have who have exited as probably who need a loan during COVID period. So the base which we’re targeting for Vikas loan at this point of time is approximately 5 lakh customers. The overall targeted with the existing and the customers we exited recently in the last one year is approximately 20 lakhs.

So the drivers would be in terms of — on the back of customers who are with us at this point of time and very good, both through the COVID one and COVID two, or customers who are very good in the market, not borrowed from us or not borrowed from anybody yet and there is another 10 lakh customer. So that’s the pool, as well as we’re also putting up around closer to 80 new branches, predominantly in the states we are already present, but not deep in a presence like Karnataka, Gujarat, Rajasthan and some of the states. So, this combination of this existing customer probably will contribute to the growth of 21% indicated by the KC. 80% will come from existing customers and 20% will be coming from new two bank customers from new to — from the new branches.

Twinkle Katudia — Centrum Capital Limited — Analyst

Thank you, sir. That answers my question.

Operator

Thank you. Next question is from the line of Rati Kumar [Phonetic], Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hi, sir. Good morning. And congratulations on a great set of results.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Thank you.

Unidentified Participant — — Analyst

I have two questions. Just to clarify, you’re talking of INR35 crores overall uncovered exposure on an AUM base of north of INR6,000 crores. That’s roughly around 50 basis points of AUM, if you could just confirm that. And secondly, just wanted to understand how are the corrections trending on our post-COVID book in the inclusive finance and in the retail assets?

Kanishka Chaudhary — Chief Financial Officer

Yeah. So yes, you are right in your understanding. So adjusted for the provision we are getting in the ECLGS book, it’s around 0.5% of uncovered back book that we are talking about. And so far as collections is concerned, it’s around 98% plus. We have some amount of work to do in the retail assets and being able to pull back some of the NPAs that we have seen in the second half of the year and that’s what we are focusing on for this quarter. But on an overall basis, like I said, 98% fee is what we are having today.

Unidentified Participant — — Analyst

Thank you, sir. Thank you for the clarification.

Operator

Thank you. [Operator Instructions] Next question is from the line of Jatin Garodia [Phonetic], Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hi. Thank you for the opportunity. Sir, I had two questions. The first one is, what percent of our bulk deposits are non-callable? And second is we had a negative impact of around INR11 crores on treasury in this quarter. So what’s the outlook in the next year and the quarters ahead? Thank you.

Kanishka Chaudhary — Chief Financial Officer

Hi. Thanks for that. So almost all of our entire book on the bulk deposit is non-callable, I would say bulk of that. That’s what we try and really do, right? 99% plus is the number. So far as mark-to-market is concerned, yes, we have seen — we expect the rates to rise at least in the near term. And for that reason, what we have done is that in our investment book, the G-Secs are something that we have restricted to the hold-to-maturity part of the portfolio. And in — so far as the AFS portfolio is concerned, we are essentially holding only treasury bills to ensure that the mark-to-market depending is minimized. And that will continue to be our strategy for this year as well.

Unidentified Participant — — Analyst

All right. Thank you, sir.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Yeah.

Operator

Thank you. [Operator Instructions] The next question is from the line of [indecipherable], Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hello. Thank you. And congratulations for the great set of numbers. My question is regarding Vikas loans. On these loans, people on such loans, there are people who are charging even much higher than 30% interest rates. So these loans can give us more profits during good times. But during that time, it is possible that the defaults are higher also. So credit swing [Phonetic] becomes very important. If you could share — give us some insights on how you do it, that will be great.

Kanishka Chaudhary — Chief Financial Officer

What we do is, is around graduating customers who have been with us for a minimum period of at least 1.5 years with a clear visible business and done both through physical verification, which we use an app called [indecipherable] where we capture the details of the customer and their household, not just the customer and also capture the photograph of the customer household from outside as well as the business location. And those are the 60% operated business from between here and there, just outside the residents. And around 40% to 45% or whatever separate business like.

They are verified. They are rightly called at two is that there is always risk in the segment because — but however, these customers have been with us, have a demonstrated business line, which generates income and most of the Vikas loan customers at this point of time have a minimum of two incomes in the households, which is really the spouse or the head of the [Phonetic] household who is a borrower or a son or daughter. So given that while we also were majority higher loans, [indecipherable] in terms of the funding only to customers who have got a permanent resident, that has been there for a very long time or — and in many cases, they own the place.

The very reason that we have not really want to increase the pricing in that is that we want to rather cover ourselves with CGFMU cover, which I explained earlier, covers up to around 20% of the credit losses, god forbid, if that were to happen and we’ll get get 70% of that. The intent is to really, can you build a strong base of this customer, not just for unsecured business loan, for a period of time for small ticket slab as we are reducing and also for micro home loans at a proper home loan, which could be in the range of around INR15 lakhs to INR20 lakhs.

These are aspirational, low-income households. In the past, who really become a lower middle class or middle class. So we are very focused. We just [indecipherable] as a distributor. We understand the customer. We underwrite them. We [indecipherable], though we need them before and the intent is really to can we really create a line where the customer can have access to loans and we [indecipherable] on working in terms of whatever, 27%, for interest lower for very good customer and the second cycle of the customer and third cycle.

Unidentified Participant — — Analyst

Thank you so much. Just a follow-up question. So when I look at FY ’22 and FY ’23, it means that group loans have gone down from about INR3,100 crores to INR2,500 crores, and Vikas loans have really scaled up. Could you share your views on how you want to grow group loan versus Vikas loans in future? Your thoughts about that.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Yes. The way we are looking at is that customers coming through the JLG would love to graduate, would like to graduate. They would like to be assessed for what they are capable of repayment, as well as their own — as per their own aspiration and their requirement. And the experiment we did scaled up from INR200 to INR1,200 crores. It’s actually a four-year product for us. We tested it small. We didn’t really wanted to rush in before we understood. And then finally, kind of one of the mechanisms we came out with, since all the customers have banking account with us, their entire repayment is through debiting — through the standing inspection more. And since we know what the balances are in the account, we nudge them to kind of put in the balance even before we get the standing inspection on the due date. And our coverage has been around closer to 90% of the customers do transfer the money well before the dye date. And hence, 90% of the EMIs get collected on the first day of our standing inspection debited in their accounts. And the remaining 9% is when we reach out to them. Quite a few of them transferred to their account and a very few, probably less 2% to 3% we go and connect on our own just like a JLG [Phonetic].

So it’s a graduating product. To an extent, the foot in the door, for a new customer released through the JLG and the low income household, once they kind of established a track record, we have been nudging them and motivating them to move to Vikas loan. They find it comfortable. We find it very comfortable because we are able to access the customer on into her or his household capability economic status. And the requirements of the loan that’s really somewhere between 16,000 in the lower end and to as high as around 1.25 lakhs.

We have quite a bit of things to do. It’s kind of just about two years of scale, and we are very, very conscious of the fact that these are all not businesses like based on one or two years of our own experience, we can scale it. So, we’ll grow probably around 30%, 35%, but mostly in the customers with a established track record with no default to anybody, not even just us, to anybody in the market, which means that they are well seasoned, well disciplined in terms of credit. And we can also take a call on that.

Unidentified Participant — — Analyst

Thank you. So the last question. Do you have in mind a proportion of growth loans versus Vikas loans in your portfolio? Or you would like to grow them both, like at the same rate?

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

We haven’t really put a number to that at this point of time. But the intent is that the customer coming to us is new to bank would be through the JLG when customers wanting to graduate or motivate them to graduate up to 1.5 years and two years with us would be through Vikas loan. So we need both. We need group loans to acquire more and more new customers. They are quite closer to around 30,000, 35,000 new customers every month, which comes through Vikas and graduate, they go to Vikas loan.

However, we are also contemplating introducing new to bank Vikas loan customers at a very small scale in the Q2, which would be people who have demonstrated track record for more than three years with others, but not necessarily with us, they are new to bank. But with an established credit track record, we will experiment in terms of very small scale in terms of new to bank as well in Q2.

Operator

Thank you so much. All my questions have been answered. Best of luck.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Thanks.

Operator

[Operator Instructions] Next follow-up question is from the line of Jatin, Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hi. Thanks for the follow-up opportunity again. I had a question around the Vikas loan. So the presentation mentions that around 69% of our Vikas loans are covered under the credit insurance policy. So is that because of the size of the loans that only 69% are covered? That’s my first question.

And second question is that, as you mentioned, the 75% of the amount under Vikas loans is covered. So how would be the provisions accounted going forward when Vikas loans turns bad? Thank you.

Kanishka Chaudhary — Chief Financial Officer

Sure. So the amount of portfolio that we cover under the credit guarantee scheme, it depends on a few factors, including the residual tenure, right? So something that has less than six months tenure and have been consistently paying, we may choose not to ensure the same. On the other side, if you look at the provisioning part of it, as things stand today, we do standard provisioning for all our unsecured loans in accordance with the guidelines of RBI. But as a management, what we would ideally want to be doing is to make countercyclical provisions for our unsecured book over a period of time. Have done about 0.5% of the unsecured book as countercyclical provision this quarter, and we would want to take that number gradually up on a quarter-on-quarter basis.

Unidentified Participant — — Analyst

Understand. Sir, going forward, apart from the standard asset provision, for Vikas loan since the coverage is 75%, as I understand from one of the previous answers, would that mean that we would have to provide to the rest 25% of the loan amount when it turns GNPA or we would have to cover more of it?

Kanishka Chaudhary — Chief Financial Officer

No. So IRAC circular require us to make a 25% provision when an unsecured loan account turns NPA, what we will have to do as well. But I think as a management strategy, what we would want is that we would want to build up a contingency or a floating provision with the book that we carry. So what I said was that we made about 0.5% of provision this time around to start with, and we will gradually be making that countercyclical on a quarter-on-quarter basis going forward. We would want to ideally have somewhere between 3% to 5% of countercyclical provisions with us at any point in time over and above the CGFMU insurance cover.

Unidentified Participant — — Analyst

Okay. Understand, sir. Thank you very much for answering my questions.

Operator

Thank you. Next question is from the line of Jagdish Sharma [Phonetic], Individual Investor.

Unidentified Participant — — Analyst

Good morning, sir. Congrats on the great set of numbers. So for the INR65 crores provision — so INR65 crores provision for ECLGS, when can we expect the money will be back at [indecipherable]?

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

ECLGS has started getting reimbursement. As of now, approximately around INR14 crores of portfolio has been clear. There is a capacity issue holding it. So INR14 crores, 50% has been paid upfront as we speak [indecipherable] and of course is what we have recovered. So the flow has been very smooth as we lowered to get 50% of it and 50% at a certain point of time. So, I would say that probably by September end, we should have uploaded all the data and technical meaning we should have got around closer to INR25 crores to INR30 crores and the remaining INR30 crores would come in with a gap of around six months or one year.

Unidentified Participant — — Analyst

Okay. Thank you, sir. That’s my questions. All the best. All the very best.

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] As there are no further questions, I will now hand the conference over to Mr. Shailesh Kanani for closing comments.

Shailesh Kanani — Analyst

Thanks a lot. Suryoday management, Mr. Baskar, would you like to have any closing comments for the quarter?

Baskar Babu Ramachandran — Managing Director and Chief Executive Officer

Yeah. Sure. Thanks, Shailesh.

So, thank you for all your continued support, and we look forward to be delivering very consistent performance quarter-on-quarter. The last two years have been very challenging, lots of valuable learnings. What we look forward is to really maintain consistency across and for which we would do what would be required, both in terms of countercyclical provisions being very prudent and how we are focusing, continue to focus on our inclusive finance customer segment, while diversifying into retail assets over a period of time. We look forward to be delivering this on a consistent basis, and we have started giving the guidance for FY ’24. I’m very confident that we will reach it in a very predictable and consistent manner.

Thank you very much for participating. Thank you. Good day.

Operator

[Operator Instructions]