Ujjivan Small Finance Bank Ltd. (UJJIVANSFB) Q4 FY22 Earnings Concall Transcript

Ujjivan Small Finance Bank Ltd. (NSE: UJJIVANSFB) Q4 FY22 Earnings Concall dated May. 12, 2022

Corporate Participants:

Alpesh Mehta — IIFL Securities — Analyst

Ittira Davis — Managing Director and Chief Executive Officer

Vibhas Chandra — Business Head – Micro Banking

Ashish Goel — Chief Credit Officer

Martin Pampilly — Chief Operating Officer

Carol Furtado — Chief Business Officer

Deepak Khetan — Heads of Financial Planning and Strategy and Investor Relations

Analysts:

Nidhesh Shan — Investec — Analyst

Sameer Bhise — JM Financial — Analyst

Darpin Shah — Haitong Securities — Analyst

Amay Kulkarni — Candor Investing — Analyst

Renish Bhuva — ICICI Securities — Analyst

Shreepal Doshi — Equirus — Analyst

Sanjay Pandit — 1729 Advisors LLP — Analyst

Gautam Jain — GCJ Financial Advisors — Analyst

Sukriti Jiwarajka — Laburnum Capital — Analyst

Amit Mandale — Robo Capital — Analyst

Akash Jain — Money — Analyst

Harsh Shah — Dimensional Securities Private Limited — Analyst

Abhijeet Sakhare — Kotak Securities — Analyst 

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Q4 FY ’22 Earnings Conference Call of Ujjivan Small Finance Bank Limited hosted by IIFL Securities Limited. [Operator Instructions]

I now hand the conference over to Mr. Alpesh Mehta from IIFL Securities. Thank you, and over to you, Mr. Mehta.

Alpesh Mehta — IIFL Securities — Analyst

Thanks, Margaret. Good evening, everyone, and thanks for joining us for this 4Q ’22 Ujjivan Small Finance Bank Earnings Conference Call. From the management side, we have Mr. Ittira Davis, who is the MD and CEO of the company; Ms. Carol Furtado, Chief Business Officer; Mr. M.D. Ramesh Murthy, Chief Financial Officer; Mr. Martin Pampilly, Chief Operating Officer; Mr. Ashish Goel, Chief Credit Officer; Mr. Vibhas Chandra, a Micro Banking; and Deepak, who heads the Financial Planning and Strategy and Investor Relations. Now without much ado, I hand it over to Mr. Davis for the opening comments and post it.

Thanks, and over to you, Mr. Davis.

Ittira Davis — Managing Director and Chief Executive Officer

Thank you, Alpesh, and IIFL for hosting this call. Good evening, and welcome to our Q4 financial year ’22 earnings call. Hope all of you are keeping safe and healthy financial year ’22 started with a lot of challenges with second wave of COVID-19, but I’m happy to say it has also ended on a high note. Our fourth quarter performance completes the turnaround that we envisaged in August 2021, with three fold objectives. First, rebuilding business volumes. Second, improving asset quality and reducing credit costs. And three, attracting good talent and stabilizing our team. All of these objectives have been achieved, and I’m elated to share the final outcome in the form of improved business and financial numbers that we released a little while back. NII was INR544 crores, up 48% year-on-year and 20% quarter-on-quarter. Business profitability is back on track, and we recorded a pre-provision operating profit of INR217 crores versus INR141 crores in the previous quarter. Operating — pre-provision operating profit ROA was 3.9% and ROA at 2.3%. Profit after tax for the quarter was at INR127 crores and credit cost was just INR44 crores. Now let us look at the outcome of the 100-day plans. These plans were put in place in the third quarter of the financial year and rolled over into the fourth quarter. Our disbursement this quarter were ever highest for the bank, and that is second time in a row. Also, overall deposit buildup was very strong, and the CDR falling below 100% for the first time since we started operations. Our stress pool IA PA and restructured loan book has reduced from 32% in June ’21 to around 12% currently.

This is a reflection of all the hard and smart work that we have been doing under our two 100-day eight plans. We embarked on this journey in August 21 when we gave you a credit cost guidance of INR1,100 crores to INR1,200 crores, assuming we will fully utilize our floating provision of INR250 crores. However, we have restricted the credit cost at INR1,118 crores without utilizing the floating provision, which is now sitting in our balance sheet as a solid cushion for future earnings. As I indicated earlier, we have been progressing well on attracting good talent across all levels. At senior levels, we have strengthened our growth over the last five months, hiring very good and experienced leaders to lead different arms of the bank. The recent joinees to Ujjivan are our CFO, Mr. Ramesh Murthy; and Internal Audit head, Mr. Prabhu. After extending vaccination drive to cover almost all employees and families, we launched an initiative to help our customers and their families to get vaccinated. Over the last eight years — over the last eight months, sorry, we have been able to vaccinate over 80,000 beneficiaries. With Q4 disbursement at INR4,870 crores being highest ever on a quarterly disbursement in Ujjivan’s history, for the second consecutive quarter, business volumes has been reaffirmed. This has led by secular growth across all verticals, although micro banking continues to lead, but other verticals have also defended their share in the overall portfolio. The microbanking disbursement comprised of 24% fresh loans in Q4 as against 16% in Q2, indicating a rise in demand with new customers. With continued momentum and disbursement, gross advances grew by 20% year-on-year and 10% quarter-on-quarter, taking our gross book to INR18,162 crores as of March 31, ’22. This momentum in disbursement was outmatched by robust growth in deposits, which grew by 39% year-on-year and 18% quarter-on-quarter, taking total deposits to INR18,292 crores.

In line with our vision for attracting sticky deposits, we launched noncallable FDs in the form of Platina FD, which helped us achieve growth of 30% year-on-year and 15% quarter-on-quarter. For retail term deposits, taking the retail term deposits to INR5,184 crores. Our CASA has also shown tremendous growth of 85% year-on-year and 21% quarter-on-quarter, taking the CASA ratio to 27%. This helped us achieve total growth of 59% year-on-year from retail banking — retail branch banking. For example, retail branch banking savings accounts average balances have moved up from about INR13,000 crores — INR30,000 from as against INR15,000 in March ’21. Our cost of deposits continued to decline, 6% for quarter four was at 6.1% for quarter three. Overall, cost of funds declined to 6.1% from 6.2% in Q3. Collections have improved consistently under our focused strategy laid down by the 100-day plan. We strengthened the collection team further and had a detailed approach towards the different buckets and stress pool. The results are visible and heartening. March ’22 collection efficiency stands at 100%. Restructured book collection efficiency at around 89% from March ’22, is in line with our estimates. NPA collections also have seen rising, giving the alleviated ground efforts by our teams. What is most heartening is the reduction in incremental overdues, IODs, which have almost come back to the pre-COVID levels. With the collection numbers rising sustainably and growth in volumes, the power book has reduced below 10% mark, which is not even 1/3 from its high of 30.8% in June. This is followed by improved asset quality with GNPA declining to 7.1% and NNPA to 0.6%. SMA book is now at 2.5% as against 7% in September ’21. Most of the SMA book is in the 0- to 30-day category. April this year has continued a good trend. And as per provisional numbers, we are seeing net reduction in absolute par and NPA, and good reduction as a percentage of gross advances.

We have not used our floating provision of INR250 crores, and despite improving portfolio quality, we are maintaining a high PCR of 92%, which builds an adequate buffer to support future growth. With growing book and reducing NPAs, yields and NIM have started to improve across all segments. Fourth quarter NIM was at 10.1%, a healthy increase from 8.1% in Q2 and 9.1% in Q3. The outlook, as we look forward to financial year ’23 comes with new uncertainties with ongoing global unrest, but with all the key leadership in place at Ujjivan, the management is wide awake to face any challenges that may come. This year, we also plan to achieve the minimum public shareholding through our QIP and return to regulators for the approval of the reverse merger. Now talking about our business outlook for financial year ’23 and ahead, with COVID fear receding and the economy gradually normalizing, we are seeing a good demand — good credit demand. This is visible from growth disbursements and gross advances in the second half of the last fiscal. We believe, and subject to any further COVID waves and its nature, the momentum should further build on and provide a better overall growth in current fiscal. Also, on credit quality front, as I explained, the slippages have come under control, which is providing a tailwind on the provisioning side.

As we have indicated in our third quarter call, we see FY ’23 as a normal year in terms of slippages and thus, credit costs should definitely be under control. Our cost-to-income ratio has increased and there are two aspects to this, of course, both the cost and the income. While our income was suppressed due to high NPA levels, leading to interest reversal and nonrecognition of income, cost was high due to heightened efforts, especially on the collection side. With credit parameters moving south, we are witnessing easing pressure on income. This will also be visible in our yield and NIM. Fourth quarter NIM is 200 basis points higher than the first half of financial year ’22. Also, new disbursements are helping in the process. Our cost side impact of increased collection cost is reducing, as the income is also rising. Also, the stress pool has reduced over the last seven to eight months from 32% as of June ’21 to around 10% currently. We expect this to help in gradually reducing the cost. If you look at our cost income trajectory in financial year ’22, it has fallen by about 1,800 basis points from a peak of 84% in Q2. I believe this is the base for the next fiscal on which we will further improve, as our efforts towards productivity and efficiency yield results. Overall, I can see financial year ’23 as a strong comeback for Ujjivan, which will create a solid platform for next growth cycle.

And thank you for that. Alpesh, I’ll hand it over to you for the next pages of the call.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Renish Bhuva from ICICI Securities. Please go ahead.

Renish Bhuva — ICICI Securities — Analyst

Yeah. Sir, and congress on a good set of numbers. Sir, just two questions from my side, one on the margin side. So we have already entered the…

Operator

Sorry to interpret, Mr. Bhuva, your audio is quite low. May I request you to come closer to the phone?

Renish Bhuva — ICICI Securities — Analyst

Hello?

Operator

Yes, this is better now. Please go ahead.

Renish Bhuva — ICICI Securities — Analyst

Yeah, hi, sir, and thanks for taking my questions. So my first question is on the margin side. So we have already entered the increasing rate cycle and considering the large part of our book with MFI loans. So how do you see the margins behaving from the current level, sir, in FY ’23?

Ittira Davis — Managing Director and Chief Executive Officer

Renish, like Mr. David mentioned in his opening remarks, so because of the G&P reduction and because of the fresh disbursement, we are seeing a good amount of tailwind on the yields and the NIM. So I wouldn’t be able to give any kind of a guidance for FY ’23 beyond what Mr. David has mentioned. But I think you can take this Q4 performance over Q3 as a good base and see how the business should move.

Renish Bhuva — ICICI Securities — Analyst

Okay. Okay. And secondly, on the restructured book, what percentage of our book is up for the payment by March ’22?

Ittira Davis — Managing Director and Chief Executive Officer

The restructured book would, I think, completely run off by the end of this fiscal.

Renish Bhuva — ICICI Securities — Analyst

Okay. So is this fair to assume that the entire book is up for the repayment by March ’22, since we are hopeful of bringing down book to almost 0 by ’23?

Ittira Davis — Managing Director and Chief Executive Officer

Yes, Renish. By March ’23, the entire book would run off, except for the secured loans, which is a very small portion of the overall restructured book.

Renish Bhuva — ICICI Securities — Analyst

Got it. Sir. Yeah. Thank you. That’s it from my side.

Alpesh Mehta — IIFL Securities — Analyst

Margaret?

Operator

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

Shreepal Doshi — Equirus — Analyst

Good evening and thank you for giving it up for HBV. The first question…

Operator

Mr. Doshi, your audio is again low. Can you please speak louder or come closer to the phone?

Shreepal Doshi — Equirus — Analyst

I’m audible now?

Operator

This is better now.

Shreepal Doshi — Equirus — Analyst

Yes. So firstly, sir, on the microfinance side, post the — I mean, so — have you taken any interest rate increase? Because now NBFC entities are allowed — do not have any CAT. So they would have taken a price hike. So have you also similarly taken any rate hike there?

Ittira Davis — Managing Director and Chief Executive Officer

At this stage, we are carefully watching the situation. And we have decided that, obviously, only the new loans can attract the higher rates. So we will watch the situation till next month, because if RBI comes with a further hike, then we will have to take action. But for the moment, we are quite comfortable because the rates, which we have are in line with the market at the moment, and that should be sufficient. But if another rate hike comes up, we’ll have to adjust the micro finance group lending rates.

Shreepal Doshi — Equirus — Analyst

In the opex during the quarter has come in significantly higher. As you alluded it is towards the collection efforts. But what should be the run rate like going ahead? How should one look at that aspect?

Ittira Davis — Managing Director and Chief Executive Officer

Well looking at the cost-income ratio, obviously, the income will start — has already started going up. And we will be able to manage the costs in a way that the collection costs, which are one of the reasons why costs really went up, is now at a peak level. So we’ll be able to manage that, and we see that eventually coming down a little bit. So I think on that basis, those increase in costs, which we saw in fourth quarter, will sort of taper off in the coming months. And as income builds up and the cost-to-income ratio will definitely move downwards. Unfortunately, we can’t give you specific numbers, because we are in a sort of situation right now, but with the QIP, so we can give you some indications.

Shreepal Doshi — Equirus — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Sanjay Pandit from 1729 Advisors LLP. Please go ahead.

Sanjay Pandit — 1729 Advisors LLP — Analyst

Yes. Congratulations on a strong quarterly performance. My question is what do you consider a normal return on assets and normal return on equity, given your existing business mix? And if you say, over the next one or two years, the migration in that business mix, I guess, it’s still majority microfinance, but there’s also a mix of secured lending, etc. This past quarter appears to have been very strong. Obviously, prior to that, there were some not so good quarters. What do you consider sort of a normal cross-cycle return on assets and return on equity? Obviously, COVID was a bit of a one-off thing, but sort of in a normal year, maybe as an example might be like what we think FY ’23 might be like. I’m not asking for guidance in FY ’23, I’m specific to asking is what do you think is a normal return on assets and normal return on equity for your business?

Ittira Davis — Managing Director and Chief Executive Officer

Q4 by that logic was quite normal, barring, yes, still there is a little bit of a pressure because of a higher GNP and all and a little bit of a collection efforts are heightened as I just mentioned. But apart from that, Q4 is a good base that you can consider. So that — what we did in Q4 as a good base to take care of what you want to — what you can expect in future.

Sanjay Pandit — 1729 Advisors LLP — Analyst

So basically, something like an 18% ROE would be normal-ish. And that would normally in — among Indian banks equate to a multiple of — price to book multiple well over two times. Is that your understanding?

Vibhas Chandra — Business Head – Micro Banking

Wouldn’t be able to comment on the valuations though. But on the performance side, I can say that Q4 is a pretty normal quarter for us. Yes, because of 7% kind of a G&P, some bit of income recognition was still subdued. And the collection costs, yes, are still on the higher side, which like Mr. David mentioned, will taper off. So we’ll still see some bit of — on the tailwind on the income side and some bit of a tailwind on the cost side.

Sanjay Pandit — 1729 Advisors LLP — Analyst

I see. That strikes us as great news. So congratulations, and hopefully, you can keep it up over the next year. Thank you.

Operator

Thank you. The next question is from the line of Gautam Jain from GCJ Financial Advisors. Please go ahead.

Gautam Jain — GCJ Financial Advisors — Analyst

Hello. Many congratulations for very good numbers. Yes. My first question on, I was looking at your collection efficiency for last six months, you’re actually collecting INR100 crores more than what is new for last six months since November 2, to April 2022. So — and you have around INR1,300 crores of, I think, the gross NPA plus write-off books. What’s the size of write off book to gross NPA, together?

Ashish Goel — Chief Credit Officer

Sorry, come again?

Gautam Jain — GCJ Financial Advisors — Analyst

Gross NPA plus write off books.

Ashish Goel — Chief Credit Officer

So gross NPA INR1,280 crores, write-off is roughly INR800 crores.

Gautam Jain — GCJ Financial Advisors — Analyst

You have INR2,000 crore book, right?

Ashish Goel — Chief Credit Officer

Yes.

Gautam Jain — GCJ Financial Advisors — Analyst

And you have already provided most of it. I think around 95%.

Ittira Davis — Managing Director and Chief Executive Officer

In the range of 90%.

Gautam Jain — GCJ Financial Advisors — Analyst

Yes. So my question is, you are collecting INR100 crores more every month. By — I mean, what do you see going forward? Will you be able to collect handsome amounts from this pool of gross NPA and write off books? And if yes, then I mean, what is your worst case synergy on the credit cost side, because if you collect INR50 crore to INR100 crore every month more, obviously, I don’t think you will have any credit cost this year. So your quality will comment on this. Then I will come to the second question.

Ittira Davis — Managing Director and Chief Executive Officer

Okay. So our collection efforts — our NPA started growing post June onwards. So the real collection from the NPA bucket started post July, August. And this year, we have been able to collect about — in micro banking itself, which was a large part of the NPA. We’ve been able to collect about INR620 crores in cash. So that works out to about 60% LGD. Over the long period, I think we will — over this year, we will try to bring the LGD down by another maybe 10%. So it can come down to 50%. One more important part of the recoveries is the recoveries from the bad debt. So last year, we have done — all those write-offs started happening only Q2, Q3 and Q4 onwards. But from that, also, we’ve been able to recover close to INR50 crores. So as the year goes by, I think April has shown us some very good results. So we are confident that the same rate of recoveries will continue to happen. I would, however, want to point out that the collection efficiency also includes some part of prepayments. So that — that will have to be discounted from the overall collection number.

Vibhas Chandra — Business Head – Micro Banking

Payment is in that INR100 crore extra that you…

Ittira Davis — Managing Director and Chief Executive Officer

INR100 crores extra that you see that also has some amount of repayments and foreclosures.

Gautam Jain — GCJ Financial Advisors — Analyst

Yes, I was looking at — okay. So your worst case scenario credit cost guidance would be — I mean, since you are recurring even the earlier part of your gross NPA. So any quality to comment on that?

Martin Pampilly — Chief Operating Officer

Last quarter, Ashish mentioned on the call that he is expecting a sub-one kind of credit cost next year. And I think between last quarter and today, he has overachieved what he has been expecting. So I don’t really want to give any number, put any pressure on Ashish, but I think he’s quite confident and smiling.

Ashish Goel — Chief Credit Officer

You can see the we are at a net NPA of 0.6 as of today. Our slippages have come down significantly. And ECR stands at 92%. So we believe that the provisioning requirement for this year will be quite normal.

Martin Pampilly — Chief Operating Officer

And even if you look at our SMA pool, that is also quite — has shrunk to 2.5%. So I’m quite confident on those.

Ittira Davis — Managing Director and Chief Executive Officer

So are the slippages, as I said, the slippages are coming down quarter-on-quarter. And therefore, our — and since the earlier slippages are getting fully provided, our PCR has therefore gone up to 92%. Net NPA has come down. So we feel that this is going to be a very normal year in terms of credit cost.

Gautam Jain — GCJ Financial Advisors — Analyst

As management said that Q4 should be a base for next year’s financial performance. Then I think 18% ROE would be achievable. Your comment on that?

Martin Pampilly — Chief Operating Officer

No comments on that.

Vibhas Chandra — Business Head – Micro Banking

I reiterate, Q4 was a pretty normal quarter. And given the kind of credit demand we are seeing, like Mr. Davis mentioned, this kind of a performance, this kind of a growth can be replicated. On the cost side, the heightened cost on the collection side will slowly taper off maybe one or two more quarters, and then it will start tapering off as the NPA pool or as the restructured pool strength start to shrink. And on the income side, as the NPA levels reduce, overall NPA levels reduced, your income recognition will improve. The bank a little bit of a room of a little bit of investment also if required. So we definitely see Q4 as a good base on which we can build our FY ’22.

Gautam Jain — GCJ Financial Advisors — Analyst

Okay. Great. So any sort of guidance you want to give on loan growth side, in the range or something which can help us?

Martin Pampilly — Chief Operating Officer

Maybe we’ll wait for one more quarter and then talk about it.

Gautam Jain — GCJ Financial Advisors — Analyst

Okay. Okay. And when you’re going to launch the QIP?

Martin Pampilly — Chief Operating Officer

There’s no timing. We have just taken the enabling resolution.

Gautam Jain — GCJ Financial Advisors — Analyst

Okay. And can you help me with the restructured standard book?

Vibhas Chandra — Business Head – Micro Banking

Restructured standard book. So the total amount — yes, the total restructured book is INR845 crores, of which GNPA is INR370 crores. And par in INR458 crores, that INR370 crores is included in the PAR, rest is standard. Absolute amount for the INR474 crores.

Gautam Jain — GCJ Financial Advisors — Analyst

Okay, great. Okay, that’s it from my side. Thank you so much. And all the best for the future. Thank you.

Operator

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

Nidhesh Shan — Investec — Analyst

Thanks for the opportunity. Steve. Can you give a breakup of the total outstanding provisions in terms of provision for NPA provisions on the structured book and some of the provisions and floating provisions on your cash?

Ittira Davis — Managing Director and Chief Executive Officer

So the provision on restructured book is INR394 crores.

Vibhas Chandra — Business Head – Micro Banking

Total NPA provision is the total NPA provision is INR930 crores. That does not include INR250 crores of floating provision. So if you include the floating provision, it becomes INR1,118 crores.

Nidhesh Shan — Investec — Analyst

INR370 is — INR394 crores is the provisions on the restructured book, INR934 crores is provision for NPA, and INR250 is floating provision.

Vibhas Chandra — Business Head – Micro Banking

Standard provision is INR146 crores. INR934 crores will have some bit of an overlap in the restructured pool, because in restructured pool, you have standard [Indecipherable] and NPA also. So keeping aside the restructured pool, INR146 crores is my standard asset provisioning, INR934 crores is my NPA provisioning, INR25crores 0 is by floating provision. That INR250 crores NPA provisioning put together gives me a 92% PPI. And separately, the provision on restructured book is INR394 crores.

Nidhesh Shan — Investec — Analyst

Can you also break up this INR394 crores in terms of provision for NPA on the restructure book?

Vibhas Chandra — Business Head – Micro Banking

Yes, sure. Just a sec. Of the INR394 crores, INR328 crores is NPA provision and restructured book.

Nidhesh Shan — Investec — Analyst

Secondly, your ticket size in microfinance has increased quite drastically. Last year it was INR38,000. Now it is almost INR60,000. So how should we think about it? What is the driver of the ticket size increase? And how should we think about it in the future?

Martin Pampilly — Chief Operating Officer

Ticket size increase is also a factor of how — what kind of a repeat loan you are doing and all those things. Since the fresh customer acquisition has been on a lower side and repeat loan and repeat loan is generally for the customers, who are on a higher cycle, maybe second, third cycle and beyond. So the ticket size is higher. And also last quarter also we mentioned that we had not taken any kind of a ticket size hike in our quality for a long time, which has done last quarter. So for that matter, this is a onetime kind of an adjustment that has happened on the overall book, and we don’t really see ticket sizes increasing too much from where they are today.

Nidhesh Shan — Investec — Analyst

Sure. And for three year old customers, what is the ticket that we are offering to him?

Vibhas Chandra — Business Head – Micro Banking

In the range of INR60,000 to INR70,000.

Nidhesh Shan — Investec — Analyst

Understood. Understood. And lastly, if you look at our asset quality performance in COVID, micro finance was definitely impacted — got impacted in line with the industry. But we have also seen higher NPAs in our understanding and affordable housing segment, which looks much higher than some of the listed peers. So what — how are we thinking about these segments going forward? And how are we trying to make sure that asset quality performance that we have seen in this segment during COVID, doesn’t repeat in future events?

Ittira Davis — Managing Director and Chief Executive Officer

So Nidhesh, we gave fully evaluated our MSE portfolio immediately post COVID, and we have made certain adjustments in the segment in which we operate. So our informal business that we were doing, which was based on SS income was close to 57% of the overall book. This year’s disbursement is about 19% of the total disbursements we’ve done in FY ’22. And that has brought down the book. The book composition of informal segment down to 43%. We expect that we will continue to do in the range of 15% to 20% of informal business. And that contribution, therefore, on the overall book will continue to come down for at least this year. So that is one of the things that we have done in terms of recalibrating the book composition. The second thing that we did was, there was a Supreme Court freeze on doing legal action against borrowers. So after lockdown in the month of June, when the lockdown opened in July and August, we initiated action. And as you know, there is a 90- to 120-day time period by when the repayments start happening. In December, we had started seeing the upgrades come up very sharply. And in Jan and February, March, the upgrades are almost double of what we saw in Q3. So that has also given us confidence that the upgrades will continue in the same pace at which we are currently going. So these were two or three things that we’ve done, one on the book side and the composition of the book and the second is on the legal actions, which — we didn’t have NPAs before COVID-1. So the entire thing entire legal action got bulk — happened in bulk in July and August. So the book has not stabilized. We are — in MSC, for example, the SMA book has come down from 14% to 6% between December March. So our incremental slippages again, will continue to slow down in the MSE book.

Operator

Thank you. I would request Mr. Jain to rejoin for follow-up questions. [Operator Instructions] 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, thank you for the opportunity. And congrats on a good quarter. So you mentioned that there was a significant uptick in the collection team that you hired is there a presentation as well. So it sustains at this level, especially the overall part in terms of collection staff?

Ittira Davis — Managing Director and Chief Executive Officer

So we are currently working with optimal team size. We don’t see the team size going up from here. But by September end, we will do another — reevaluate the size of the team, like we have told in the past that the team is mostly off-road, who work based on our branches under the supervision of the bank supervisors. So as and when we see that the collections — the requirement for the team is reducing, we will taper off the team over a period of time, but we will take this decision sometime at the end of quarter two. In Q1 and Q2, we expect that there will be very strong recoveries from the NPA bucket.

Sameer Bhise — JM Financial — Analyst

Okay. And secondly, picking your brains on the ticket size, again. I mean, almost even on a Y-o-Y basis, we would have added like 10% more customers, but the ticket size jump looks quite sharp. How does this normalize going ahead? I mean what kind of numbers are you looking in terms of customer additions?

Vibhas Chandra — Business Head – Micro Banking

We did about 1.2 lakh customer additions — new customer acquisition in the last quarter, and somewhere in the range of one lakh in Q3. So we will continue with the same pace. But post COVID, we had focused on our repeat customers, because those are the customers we knew very well. So the ticket size, as you would see is a factor of two things. One, our repeat customers are eligible for much higher ticket sizes. The new customers come at slightly lower ticket sizes. And as we open up our new customer acquisition, we will see that the ticket size will stabilize somewhere at this level for the coming year.

Sameer Bhise — JM Financial — Analyst

Okay. Okay. And when we go to the micro individual loan, how many cycles would this customer would have completed before qualifying for that ticket?

Vibhas Chandra — Business Head – Micro Banking

Three.

Sameer Bhise — JM Financial — Analyst

Sorry?

Vibhas Chandra — Business Head – Micro Banking

Approximately three cycles.

Sameer Bhise — JM Financial — Analyst

Okay. He we can qualify for the individual loan if he has completed three cycles?

Vibhas Chandra — Business Head – Micro Banking

Not everyone, but surely, based on the assessment that the branch team does we feel that about three cycles is most optimal.

Ittira Davis — Managing Director and Chief Executive Officer

Sameer, it also depends on the customers’ profile. So sometime, and what the customer is doing, how productive the business is, how the money is being used, what has been the track record of the customer. A lot of factors, basis which we decide whether we want to graduate the customer from a group loan to an individual loan. So that is the entire credit underwriting process, which we have been following over the last 15 to 16 years.

Sameer Bhise — JM Financial — Analyst

Sure, sure. Appreciate that. And any comment on stress in group versus individual?

Martin Pampilly — Chief Operating Officer

P We see no significant difference. So individual loans, they have performed well in the last two, three quarters, in fact. There was equal amount of stress on both these categories, because when lockdown happened, it was not as if we were not able to reach that was one of the factors. But the income of the customers had also got impacted. So we were able to see stress on both these segments. However, when recovery happened, I think both the segments started responding equally well. We’ve not seen much of a difference in the behavior or the delinquencies in both the segments.

Sameer Bhise — JM Financial — Analyst

Okay. And secondly, on cost income, this is my final question. How does one see stabilizing in 18 to 24 months’ time?

Martin Pampilly — Chief Operating Officer

Yes, the cost income, as I said, the trajectory is downwards. So obviously, we’d like to get to the 50 levels as early as possible, and that is the trajectory which we are following.

Sameer Bhise — JM Financial — Analyst

Okay, thank you and all the best. Thanks. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Darpin Shah from Haitong Securities. Please go ahead.

Darpin Shah — Haitong Securities — Analyst

Yeah, thanks for the opportunity and congratulations for the good set of numbers. So again, on the ticket side now, the ticket size has increased and if you see our — the data which we give on our repeat customers, okay, in terms of number of loans which we have disbursed. So there, it clearly shows that we have done more of a new customer this quarter and still the ticket sizes have significantly gone up. So then what explains that?

Vibhas Chandra — Business Head – Micro Banking

P 90% to 92% of our customers are still repeat loans. Although we have done customer acquisition in Q3 as well as Q4, we opened up new — NCA in the beginning of October. While we have done NCA both in Q3 and Q4, however, 92% of our loans are still repeat loans. And repeat loans, as we said, there were two parts of it. One was, of course, repeat customers are known to us, so they get higher ticket sizes. Two, we did a onetime adjustment, because we had not done a policy change for three years. That policy change happened in the — in quarter three of this year. So therefore, there was an increase in ticket size, which you will see as a sudden jump. But however, it is in line with the market ticket sizes. We are not doing anything, which is higher than the market.

Darpin Shah — Haitong Securities — Analyst

Okay. And just one last comment — data keeping question. If you can provide the details on write-offs and slippages for the quarter?

Vibhas Chandra — Business Head – Micro Banking

Slippage was about INR216 crores and write-off were INR262 crores — I’m sorry INR271.

Darpin Shah — Haitong Securities — Analyst

So INR216 crores was slippages and INR271 crores was the write-off?

Vibhas Chandra — Business Head – Micro Banking

The principal wrte-off.

Darpin Shah — Haitong Securities — Analyst

Yes, thank you.

Operator

Thank you. The next question is from the line of Amay Kulkarni from Candor Investing. Please go ahead.

Amay Kulkarni — Candor Investing — Analyst

Hi….

Operator

Mr. Kulkarni, may I request you to speak on the handset mode, your audio is not very clear?

Amay Kulkarni — Candor Investing — Analyst

I hope this is better. Why are the collections reducing? As — it is a percent there is a reduction in [Indecipherable].

Carol Furtado — Chief Business Officer

Not got the question very clearly.

Operator

Your audio is not clear, Mr. Kulkarni.

Amay Kulkarni — Candor Investing — Analyst

Okay. I was saying there has been a 2% to 3% reduction in the collections in April month. Any comments on that, why there is a reduction in the collection numbers for April?

Vibhas Chandra — Business Head – Micro Banking

Yes, Amay, the momentum that we have built in the collection is on. So even in the month of April, like Mr. Davis mentioned in his opening remarks, the absolute par in the G&P have reduced. Now on the percentage side, yes, there is a little blip. Generally, March is a little higher number, because of the year-end and all. April generally tends to be a slow growth, whether it is business or collections either way. But on ground, we do not really see any kind of impact on the collection side. And we believe in the month of May, that would again normalize back to where we were in the month of March. So we don’t really see that as a trend going forward. It’s just a month — year beginning factor.

Martin Pampilly — Chief Operating Officer

Also, April had a lot of holidays. Yes, substantial number throughout the country for [Indecipherable] Baisakhi and all.

Amay Kulkarni — Candor Investing — Analyst

Okay. One more question. Do you have any plans to increase the branches — Open new branches?

Vibhas Chandra — Business Head – Micro Banking

Yes. We will be opening new branches, but very selectively, and that’s something that we are in the process of putting in play. And of course, we’ll have to maintain the 25% rural coverage in that number.

Martin Pampilly — Chief Operating Officer

We will be going too aggressive on the branch opening very selective and largely focusing on getting the deposit growth.

Amay Kulkarni — Candor Investing — Analyst

Okay. Just one last point. I understand the increase in ticket size is along with an increase in the tenure of the loans. Is that right? So that the EMI basically for the month remains the same. So what is the average tenure for these new loans that you have given higher ticket price loans?

Carol Furtado — Chief Business Officer

So with the new micro finance framework coming into the picture, we would have that flexibility. And it’s up to INR300,000 in three years. So you would see some revisions there happening.

Amay Kulkarni — Candor Investing — Analyst

Okay. Okay. Okay, thank you.

Operator

Thank you. The next question is from the line of Sukruti from Laburnum Capital. Please go ahead.

Sukriti Jiwarajka — Laburnum Capital — Analyst

Hi, good evening. My first question is on the merger process and time line. So if I’m not wrong, after the QIP, you have to refile the scheme with RBI and then you need NCLT approval, right? So is it fair to say that the whole thing will take, what, 1.5 two financial years?

Vibhas Chandra — Business Head – Micro Banking

Sukruti, the process that you mentioned is right. So after we need the MPH requirement that SEBI asked us to lead. We will have to go back to SEBI, the exchanges, and RBI to get the NOCs and then move to NCLT and shareholder approval. On the time line, I cannot comment whether it will be 1.5 to two years. It also depends on how quick these regulators respond. So there is a parallel process going on with one of our peers, who is in a similar process. And they have recently announced that they have got one of the regulators, NOC and they are moving fast on that. With the precedent set on the particular subject, I think that the movement for us can be faster when we move there. That is just our assumption, and we will see how things move when we go there — when we cross the bridge.

Sukriti Jiwarajka — Laburnum Capital — Analyst

Yes. So Equitas, I think they, in their call said we expect to finish it by December next year.

Vibhas Chandra — Business Head – Micro Banking

We will be able to comment on it once we move to RBI and SEBI, not right now.

Sukriti Jiwarajka — Laburnum Capital — Analyst

Okay, okay. That’s fair. Second on — just on the liability strategy. See we’ve had a good year when it comes to liabilities, CASA numbers have accelerated as it has for the entire system. It is likely that FY ’23 will not see the CASA run that FY ’22 saw. So if I were to ask you what you expect to achieve on liabilities and funding costs in the next year, how would you respond to that?

Vibhas Chandra — Business Head – Micro Banking

On the funding cost, you have seen how RBI reacted to the global — global policy changes that are happening. RBI also took a rate hike. And this is something that we also have seen coming and our internal business proposition that we are building is aligned to that. So we see some bit of rate hikes coming in, and we are totally prepared even if the cost of fund goes up because of that. Because whatever rate hike comes, your — a little bit of a movement will be there. And we’ll see if that can be negated by a little bit of a rate hike on the lending side and Mr. Davis also mentioned. So there will be some bit of a north movement on the cost of fund.

Carol Furtado — Chief Business Officer

Just to add to that strategy would be maybe going to that for retail and…

Operator

Sorry to interrupt you, ma’am, we cannot hear you, the current speaker.

Carol Furtado — Chief Business Officer

So just to add to what Deepak said, our overall strategies for liabilities would be to go very granular and build retail deposit base. And this would be done through a customer segmentation approach, and we will be enhancing our digital capabilities.

Sukriti Jiwarajka — Laburnum Capital — Analyst

Sure, sure. And…

Operator

I’m sorry to interrupt, Sukruti, may I request you to rejoin the queue for follow-up question?

Sukriti Jiwarajka — Laburnum Capital — Analyst

No, it’s just a follow-up question on this.

Operator

Yes. So we would request you to rejoin the queue for follow-up. There are several others waiting for their turn as well, ma’am. The next question is from the line of Amit Mandale from Robo Capital. Please go ahead.

Amit Mandale — Robo Capital — Analyst

Hi, thanks for opportunity. My question is I would like to know your internal thought process on launching the QIP? Would it be closer to the year-end or at least when the price to book multiple improves, what’s the like thought process currently on that?

Martin Pampilly — Chief Operating Officer

Amit, we can’t really talk about that right now. It’s just that we have taken the enabling resolution and that’s it. So we — right now, we can’t talk about what’s going on there.

Amit Mandale — Robo Capital — Analyst

Okay, thanks.

Operator

Thank you. The next question is from the line of Akash Jain from Money. Please go ahead.

Akash Jain — Money — Analyst

My first question is on the restructured book. I think the first participant had asked the question, but I think the answer was not very clear. So I’ll ask the question again. On the restructured pool when we talk about collection efficiency of close to 90%. I just want to understand how much of that book had a due EMI, because there is no due, then it obviously won’t come in collection efficieny. So is this still a part of the restructured book where no EMI has been due till March ’22?

Vibhas Chandra — Business Head – Micro Banking

Restructured book EMIs are due now. So whatever we are…

Deepak Khetan — Heads of Financial Planning and Strategy and Investor Relations

The restructured accounts in the restructured book as of now. See, the book got restructured in July, August and September of last year. And accounts which were at that point in time, close to eight to 12. So none of those accounts would have matured by now. But over the period — over the next three quarters, many of these accounts would reach maturity.

Akash Jain — Money — Analyst

No, no, I want to understand the EMI, you would have given a lot or of, whatever, three months, six months or whatever was allowed and that the team would have decided. So I’m just trying to understand, is there any — how much part of that INR890 crores of restructured book where no EMI was due till March quarter? So that we don’t know whether will happen there or we’ll see some more. I think that’s a simple question.

Vibhas Chandra — Business Head – Micro Banking

When we did restructuring July, August and September, close to 95% of the customers — actually higher than that, 96% to 97% of the customers had started paying their EMIs in Q3. The maximum moratorium that we had offered was three months. So customers who got restructured in July, started paying in October and similarly for August and September. So by December, almost all customers, barring one or two, two or 3% at their EMI had fallen due.

Akash Jain — Money — Analyst

Okay. So that’s useful. That part is on collection efficiency of 98% that we saw in April. Any specify reason why there has been a dip because historically, we have always enjoyed 99% to 100% collection efficiency in normal times. retain 100% in March. Any specific reason why this would have fallen to 99% — 98% in April, any qualitative reasons that you can point out? I would have expected it to remain at 99% to 100% going forward, given since reopened and things are normalized to some — to a large extent.

Operator

Ladies and gentlemen, we lost the line for the management. Request you to continue to hold while we join them back. [Technical Issues] Ladies and gentlemen, thank you for patiently waiting. We have the management reconnected. Over to you, sir.

Vibhas Chandra — Business Head – Micro Banking

Your question was related to a slight dip in the collection efficiency in the month of April. So there is only one metric, which has dipped in the month of April, which is a 99.9% efficiency on NBA bucket has come down to 99.75%. Now since NBA bucket is almost 93% of our overall pool, that small dip in the NBA collection efficiency. And 99.9% is something that was exceptionally good. We’ve been performing in the range of 9.6% to 99.7%. So I would say 99.7% was by itself a good number. The second part, of course, as Mr. David was saying is there were a few more holidays, which led to a little bit of dip in the collection efficiency. But this is not something that is — it is normal in terms of our template.

Ittira Davis — Managing Director and Chief Executive Officer

I would like to say, Akash, we don’t really see that becoming a trend. And so far, May has been a decent month for us. We don’t see that debt becoming a challenge for and we see reverting to the average that we have already achieved.

Operator

Thank you. The next question is from the line of Harsh Shah from Dimensional Securities Private Limited. Please go ahead.

Harsh Shah — Dimensional Securities Private Limited — Analyst

Hi, sir. Just going back on the ticket size and your micro finance book. So last year, when the it said was around INR35,000, we faced quite a bit of problem, and we had significant amount of write-offs and provisioning. So what led to change in the policy for the management. And now since we are at almost 70% higher ticket size, god forbid if something worse is going to happen or if we see the kind of slowdown which we saw a year back, I mean, won’t it be calling for trouble for us?

Martin Pampilly — Chief Operating Officer

Harsh, the ticket sizes, as you mentioned, are — first of all, when we increased the ticket sizes, it was largely from the perspective that we were catering to our repeat customers. By and large, that has been our strategy and during the entire COVID period. So we have stuck to that strategy. In the month of October, we said that we wanted to do some new customer acquisition as well. However, the ticket size increase that you see is largely because we have recalibrated the repeat loan ticket sizes. And if something were to happen like a lockdown, then the entire industry can get impacted. So we would not be the only player in the market, but we don’t expect that to happen. India has gone through two cycles, everybody has gone through to two shots of vaccination, the booster shots are currently happening. And that covers a large part of the population. So we don’t think that there is going to be any adverse impact on the earnings of our customers. If that were to happen, then we’ve also covered ourselves with a cushion of about — of a floating provision. So that should take care of things. But increase in ticket sizes would typically not get correlated to any increase in delinquency. We are watching our portfolio very closely.

Carol Furtado — Chief Business Officer

And this is also a factor of the pent-up demand and the rising economy — so this is all led to the ticket size revisions that we have taken into the focus.

Harsh Shah — Dimensional Securities Private Limited — Analyst

Okay. Okay. And if I were to look at your reserve growth has come from microfinance, whereas we have seen slight big growth in housing finance and MSE, which is in contrast to the other SFBs they reported the number. So isn’t there a bit of dichotomy that you are seeing growth opportunity in micro finance, but none in SME or housing? Or what is the conscious call of — what kind of environment are you seeing there?

Martin Pampilly — Chief Operating Officer

We mentioned that our focus on these two businesses is first, bringing down the book quality back to the normal level, which is a comfortable zone. So if you see there has been a movement on that side and there has been a good amount of effort which has gone the yield and which the efforts are yielding results also. So this is in line with what we thought we will be doing on these two businesses. And we see the business growth there, we see the opportunities there. And it’s just a matter of time when these quality, the book quality comes back to the normal level and then there will be a good amount of growth coming in these two businesses as well. There is not an issue of the demand in these two businesses.

Harsh Shah — Dimensional Securities Private Limited — Analyst

Okay. And can you — just a bookkeeping question. What would be the slippage number for Q4 and Q3 FY ’22?

Martin Pampilly — Chief Operating Officer

Q3 was 270 and Q4 is 216.

Harsh Shah — Dimensional Securities Private Limited — Analyst

215?

Martin Pampilly — Chief Operating Officer

216, yes, 270 216.

Vibhas Chandra — Business Head – Micro Banking

And Harsh, one more thing on both these businesses, like we mentioned last time also, there has been some credit policy change wherein we have moved away from the smaller ticket size loan. So to that extent, we have said no to that kind of a business. So that also is reflecting in the kind of numbers we have seen this quarter.

Operator

Thank you. The next question is from the line of Abhijeet Sakhare from Kotak Securities. P lease go ahead.

Abhijeet Sakhare — Kotak Securities — Analyst

Yeah, hi, thanks. Good evening. The first question is for Carol. In continuation with the higher ticket size issue, there was a reference you made on the new guidelines, if you can talk about what has been the broad changes in the product? And given the rise in ticket size, if you could also highlight how has been the change in the tenure or the duration of the product that you made?

Carol Furtado — Chief Business Officer

So currently, we have not actually made any drastic changes, because we are complying to the revised guidelines of the micro finance framework. And we have also, I mean, implemented it across, because our systems are capable of handling the — capturing the house as data and the rising norms are in compliance. We are awaiting for a few clarifications from the Reserve Bank of India through our association of small finance plans, namely on the revised norms and also from the credit bureaus to how to capture the household credit information. There’s not been too many changes. For us, the business has been as usual.

Abhijeet Sakhare — Kotak Securities — Analyst

So the disbursements in the fourth quarter were broadly in that two-year duration product for the second to third cycle product rate. That’s not one righ gone away, right?

Carol Furtado — Chief Business Officer

What?

Abhijeet Sakhare — Kotak Securities — Analyst

The duration on the product, the tenure for the loan, that’s not been increased, right, during the fourth quarter?

Carol Furtado — Chief Business Officer

No.

Abhijeet Sakhare — Kotak Securities — Analyst

Sure. Got it. Second question was for Deepak. There was a reference — was there a reference during the call on the cost growth or cost income ratio that we are looking at for ’23?

Deepak Khetan — Heads of Financial Planning and Strategy and Investor Relations

So Abhijeet, what we mentioned this quarter was a pretty normal quarter apart from the NPA level still at a little elevated levels and thus, the collection cost also at an elevated level. Apart from that, more or less, the quarter was pretty normal. So what we have this quarter is a base on which we will improve upon going forward.

Abhijeet Sakhare — Kotak Securities — Analyst

So cost would decline. Is that what you’re referencing here?

Deepak Khetan — Heads of Financial Planning and Strategy and Investor Relations

I’m not giving any guidance on what kind of cost will come. What I’m saying is this quarter, we did 66% cost-to-income ratio. That is a base. And from there, the trajectory you can build in because of the kind of tailwind we will have on the income side and the tailwind we’ll have on the collection cost side, as Ashish already mentioned that maybe for the first half of the next year, that heightened efforts on the collection will continue, and then we’ll take a call of reducing the size of the outsourced collection agency and the multiple collection agency that we are working with, because the strength pool would have shrunk to a level where that kind of investment would not make sense. So then the cost will also start coming down.

Abhijeet Sakhare — Kotak Securities — Analyst

But just going into next year and the year after, are there like any major two, three areas where there needs to be a certain amount of expenditures, which were deferred, because of asset quality challenges that you would kind of start doing incrementally?

Deepak Khetan — Heads of Financial Planning and Strategy and Investor Relations

So there was no such expenditure that was deferred. Yes. But on the digital side or maybe on the IT side, we would like to make some investments. That would be a mix of capex and opex. But it would not be something that will start impacting my P&L in a very big. Whatever the impact would be is something that the P&L would be quite capable of taking it and moving forward. And it will further drive the efficiency and productivity that Mr. Davis spoke about.

Abhijeet Sakhare — Kotak Securities — Analyst

Sure. Thanks a lot.

Operator

Thank you. Ladies and gentlemen, due to time constraints, it was the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir.

Ittira Davis — Managing Director and Chief Executive Officer

Well, thank you very much, Margaret, and thank you for anchoring this call. I’d like to thank everybody for joining us on this occasion when our numbers are looking good. And I hope you’ll be joining us in future calls with the same optimism that we have. So thank you very much, and good evening.

Operator

[Operator Closing Remarks]