L&t Finance LtdNSE: LTF

Call Transcript Q2FY25

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L&T Finance Ltd.

Q2 FY25 Earnings Call Transcript

October 21, 2024

Management Personnel:

Mr. Sudipta Roy (Managing Director & Chief Executive Officer)

Mr. Sachinn Joshi (Chief Financial Officer)

Mr. Raju Dodti (Chief Operating Officer)

Mr. Karthik Narayanan (Head - Strategy and Investor Relations)

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Moderator:

Ladies and gentlemen, good day, and welcome to L&T Finance Limited Q2FY25 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded.

We have with us today: Mr. Sudipta Roy, Managing Director and CEO; Mr. Sachinn Joshi, CFO; and Mr. Raju Dodti, COO; and other members of the senior management team.

Before we proceed, as a standard disclaimer, no unpublished price-sensitive information will be shared during the conference call. Only publicly available documents will be referred to for discussions during interactions in the call. While all efforts would be made to ensure that no unpublished price-sensitive information will be shared, in case of any inadvertent disclosure, the same would, in any case, form part of the recording of the call. Further, some of the statements made on today's call may be forward-looking in nature. A note to this effect is provided in the Q2 results presentation sent out to all of you earlier.

I would now like to invite Mr. Sudipta Roy to share his thoughts on the company's performance and the strategy of the company going forward. Thank you, and over to you, sir.

Sudipta Roy:

A very good morning to all of you. I welcome you all to the Investor call for the second quarter of FY25. With me on the call are - our CFO, Mr. Sachinn Joshi, COO Mr. Raju Dodti, and the senior management team of L&T Finance.

Today's call is divided into two sections, taken up sequentially by myself and our CFO - Mr. Sachinn Joshi, who will be talking about the overall business metrics & financial performance at length.

Post our opening commentary, we'll be happy to take questions on the call.

Q2FY25 Highlights

I would like to start the call by sharing the highlights of this quarter's performance, wherein we have registered a quarterly Consol PAT of Rs. 696 Cr, a growth of 17% YoY while maintaining a satisfactory trajectory in our Q2 disbursements ending with an overall disbursement growth of 11% YoY with Retail disbursements standing at Rs. 15,092 Cr, a growth of 12% YoY and 2% sequential growth over Q1FY25.

Our Retail book now stands at Rs. 88,975 Cr, a growth of 28% YoY. These numbers reflect the strength of the Retail business franchise that we have created over the years which has been further sharpened by our 5 Pillar execution strategy and I am happy to state that the Company's execution momentum to transform into a granular retail financial services provider continues unabated.

Lakshya 2026 Goals at Consol Level: Our performance

Having met Lakshya 2026 goals at the Retail level 2 years in advance (in Q3FY24), we have re-oriented ourselves for convergence at the consolidated level by FY2026, as detailed in the last quarter's earnings call. Accordingly, our quarterly performance as against the new targets for Lakshya 2026 are as follows:

  • Our Lakshya goal was to achieve Retailisation of >95%. I am pleased to share that we have surpassed this target with 96% Retailisation at the end of this quarter
  • Against a Retail book growth target of 25% CAGR, in Q2FY25, our growth stood at 28% YoY
  • While we have improved portfolio quality by sustaining the Retail GS3 & NS3 levels within the threshold levels, we have now tasked ourselves to converge Consol GS3 & NS3 below 3% & 1% respectively. The corresponding numbers stood at 3.19% and 0.96% at the end of Q2FY25

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  • On the RoA front, we have moved from tracking Retail RoA to Consol RoA in the range of 2.8%-3.0% as per our original Lakshya 2026 targets. Our Consol RoA for Q2FY25 stood at 2.60% up by 18 bps YoY, which in the last year same quarter stood at 2.42%

I would like to draw your attention to Slide 5 of the investor presentation where this has been delineated in detail.

Executive Summary:

I would now like to quickly run you through the key highlights of our performance in Q2FY25

  • Quarterly Consol PAT of Rs. 696 Cr in Q2FY25, a growth of 17% YoY
  • Quarterly Retail disbursements of Rs. 15,092 Cr, growth of 12% YoY. In spite of a challenging operating environment, our acquisition engine and persistent execution strategy ensured that the disbursements exhibited a sequential growth of 2% over the last quarter
  • Q2FY25 Retail book stood at Rs. 88,975 Cr, up by 28% YoY. Consol book growth has picked up pace growing at 18% YoY reaching Rs. 93,015 Cr in Q2FY25. The on-book wholesale assets closed at Rs 4,040 Cr at the end of Q2FY25, which is ~4% of overall book
  • This quarter marks completion of one year of our 5 Pillar transformation strategy and it continues to be central to our roadmap to the future, details of which are available from Slide 11 to Slide 24 of the investor presentation
  • Consol GS3 and NS3 numbers came in close to the target metrics of 3% & 1%, at 3.19% and 0.96%, respectively. The slight erosion in GS3 performance over Q1FY25 is largely on account of macro-operating environment deterioration in the Rural Business Finance vertical in certain pockets, rationalization of Tractor repossession policy in early buckets and some localized adjacencies in the Two-wheeler business. Collection efficiencies in our Rural Business Finance vertical was maintained at 99.43% for Sep-24, which is a 13-bps erosion over the corresponding figure of 99.56% for June-24

Macro-economicoutlook:

Now, I would like to give you some flavour on the Macro-economic scenario and sectoral outlook before proceeding to the 5 Pillars of our execution strategy.

The spread and width of rainfall distribution this year from the south-west monsoon has been unprecedented with rainfall being at 122% of long period average this year and most parts of the country have received adequate or more than adequate rainfall. This augurs well for the restoration of depleted water tables and reservoir levels in most parts of the country. The success of the south-west monsoon bodes well for a possible resumption of consumer demand in rural areas and improvement of rural liquidity post the arrival of the Kharif crop and a possible bumper Rabi cropping season. This could have a positive implication for our Rural Business Finance and Farmer Finance verticals in H2FY25. We have already seen the green shoots of improved tractor offtake in the month of October and are hopeful that the trend sustains and positively impact the entire rural sector.

We would like to share that we have seen localized impact on collection efficiencies in the Rural Business Finance vertical due to wide spread floods in certain geographical pockets namely, North Bihar, Gujarat, and parts of West Bengal. We also saw disturbances from certain unscrupulous elements hampering our collection efforts in NorthEastern UP and headwinds in Odisha on account of temporary disruption in social welfare schemes. I am pleased to share that our Rural Business Finance team was able to proactively address these issues minimizing the impact on the business overall. I would also like to reiterate that the incidence of our customers with chronic overleverage is one of the lowest in the industry with customers having more than 4 external associations standing at 5.4% of the total Rural Business Finance outstanding book. Granular details of our customers' leverage has been given on Slide 17 of the investor presentation. However, we are also seized of the fact that the industry is passing through a period of de-leveraging which might have a ripple effect continuing into Q3FY25 and Q4FY25, thereby moderating our growth outlook. I would like to inform that we did not need to dip into our macro-prudential provisions specifically created for Rural Business Finance vertical in Q2FY25. We would continuously assess our

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collection outcomes in the impacted geographies highlighted above and keep our options open on defraying possible slippages through existing macro-prudential provisions in H2FY25.

As far as the global economy is concerned, it has weakened over the last quarters with some of the major economies including the U.S, China, and the Eurozone now shifting their focus from targeting inflation to fostering growth momentum. The start of Fed's calibrated quantitative easing cycle along with RBI's signaling of a neutral accommodation stance indicates a movement towards a more benign policy rate regime globally and in India in the coming year. Pockets of worry remain due to the conflict zones remaining red-hot in Europe and Middle East and demand constant attention due to the possible spillover impacts into the Indian economy in case of a sustained worsening of the conflicts.

In spite of the rather uncertain global macro and geo-political situation, the domestic growth story remains intact despite some sluggishness in High-Frequency Indicators, as rural consumption and private investment demand start to gain momentum. We hope that a higher government expenditure in the second half of the year and the bountiful rains should add further fillip.

Double Click on the 5 Pillars of execution

As mentioned earlier, I would now like to give a brief update on the 5 pillars of execution that we had enumerated one year back and continue to be in implementation mode against the same.

  1. Customer Acquisition - The focus has been sustained on maintaining customer acquisition momentum in a challenging macro environment while doing the necessary credit adjustments to maintain future portfolio quality. Accordingly, rationalizations have been made in the dealer network in both Two Wheeler and Farm Equipment business in Q2FY25 and focus has been sustained on new customer acquisition in the Rural Business Finance vertical to tap into non-leveraged customers by expanding the new village footprint. Consequently, the cross-sell penetration in Rural Business Finance has been calibrated downwards to exclude customers of higher risk profiles. Details of the same are available in Slide 12 & 13 of the investor presentation deck.
  2. Sharpening Credit Underwriting - Project Cyclops - our three-dimensional credit engine that was operationalized in Q1FY25 has now been scaled up to cover 55% of the Two Wheeler monthly throughput. Two additional scorecards - the Fraud Scorecard and Dealer Scorecard have been implemented in Q2FY25 taking the number of scorecards in deployment to 16, only for the Two Wheeler business. The initial results remain encouraging with through-the-doornet-bounce numbers for fresh acquisitions being approximately 125 bps lower than those underwritten by legacy algorithms. Project Cyclops will be implemented for the tractor business in Q3FY25 followed by the other lines of business, notably Personal Loans & SME Business Loans in Q4FY25.
  3. Futuristic Digital Architecture - The work on upgrading our technical capabilities and IT framework remained unabated in Q2. On the large partnerships initiatives, deep integration with CRED enabled us to go live on Personal Loans sourcing within expected timelines. Progress has been made in optimizing cloud usage expenses and building robust disaster recovery infrastructure, alongside beefing up the cybersecurity capabilities. The organization has embarked on the task of housing the entire Core IT, Data Sciences & Operations capabilities in an integrated facility in Navi Mumbai, slated for go live in Q4FY25.

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L&T Finance is also happy to announce that the inaugural edition of R.AI.S.E., India's premier BFSI-focused Artificial Intelligence conference featuring luminary speakers will be held in Mumbai on the 26th of November, 2024 showcasing practical use cases of AI in the financial services domain to BFSI industry & Fintech participants. We urge you to visit the event website 'www.ltfraise.com' and register for the same.

  1. Brand Visibility - Over the last few quarters, we have invested in building visibility around high-traffic customer points like airports and in-flight advertising on the urban side and wall paintings and melas on the rural side and marked our presence at Global Fintech Fest 2024.
    We will be launching integrated marketing campaigns for Two Wheeler and SME-focused products in the coming months. We are pleased to inform that we have signed a contract with Jasprit Bumrah as a brand ambassador for L&T Finance products.
  2. Capability Building - In line with our objective of boosting the human capital of L&T Finance with an execution bias towards various initiatives, the Regional Business Head structure was operationalized in Q2FY25 to provide more granular distribution & risk control on the ground, aid cross-sell and inter-business synergies and reduce response times to tap emerging market opportunities. Four senior professionals from the banking sector have been onboarded in Q2FY25 to transition L&T Finance from a business silo-driven organization to a more participative matrix organization structure with far more granular senior supervision on the ground in the four geographical regions of the country.
    During the quarter, we also launched our first Model Branch in Madurai, Tamil Nadu for elevated customer experience and brand visibility and will continue to replicate this templated design across all our new and legacy branches over the next few quarters. Details of the new organization structure and model branch are provided on Slide 24 of the investor presentation.
    The organization also continued on its people developmental objectives emanating out of the Great Place to Work survey conducted in April 2024 to transition the organization into a truly differentiated and employee- focused workplace

In addition, I would like to provide a half yearly update on our Wholesale assets and Security Receipts portfolio. As guided earlier, we continue to maintain that we are on track in ensuring the orderly rundown of this book over time. Many of our Real Estate assets in the ARCs, especially those in residential projects have gathered significant momentum towards resolution, with resumption of construction and increasing velocity of sale of units to end users. As part of the ongoing process, to enable faster resolution, we may be required to transfer one on-book asset to ARC in Q3FY25. This in no way diminishes our expectations of eventually recovering more than the Net Carrying Value on our books. We would like to reiterate that our provision coverage and the one-off additional prudential provision on SRs accrued in Q4FY24, would be more than sufficient to deal with the resolution of these assets

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Now, Mr. Sachinn Joshi will take you through the financial updates for the quarter.

Sachinn Joshi:

Thank You, Sudipta. As always, I will be walking all of you through the financial performance of the company for the quarter.

Quarterly Performance:

  • Our quarterly Consol NIMs + Fees remain strong at 10.86% owing to change in portfolio mix and Weighted Average Cost of Borrowings improving by 5 bps on a sequential basis on account of astute liability management
  • Our quarterly Consol PAT at Rs. 696 Cr was up 17% YoY
  • Healthy quarterly Retail disbursements of Rs. 15,092 Cr were up 12% YoY
  • Our Retail book stands at Rs. 88,975 Cr which is up 28% YoY on the back of healthy Retail disbursements during the current quarter. Our Consol book stands at Rs. 93,015 Cr, this is up 18% YoY
  • Consol RoA stands at 2.60%, which is up 18 bps YoY
  • Consol RoE at 11.65%, is up 84 bps YoY

Retail Businesses:

Rural Business Finance

The business registered quarterly disbursements of Rs. 5,435 Cr, down by 5% YoY. The book size reached ~ Rs. 26,500 Cr which is up by 22% YoY in Q2FY25.

Farmer Finance

In Farmer Finance, disbursements stood at Rs. 1,782 Cr in Q2FY25, up by 16% YoY. This led to the book size reaching Rs. 14,488 Cr, reflecting a growth rate of 9% YoY.

Urban Finance

This segment, which comprises Two Wheelers, Personal Loans, and Home Loans/LAP businesses, saw a 29% YoY jump in overall quarterly disbursements. As a result, the overall book size increased to Rs. 41,578 Cr in Q2FY25, translating into a 33% YoY growth.

  • Two Wheelers: The Two Wheeler business registered quarterly disbursements of Rs. 2,393 Cr in the quarter. The disbursements were up 32% from Rs. 1,817 Cr in the same quarter last year. 60% of the disbursements were contributed by prime customers during the quarter. The book size increased to Rs. 12,699 Cr, up 33% YoY.
  • Personal Loans: In Personal Loan, we achieved disbursements of Rs. 1,361 Cr, last year we had done about the same which is Rs. 1,308 Cr and the book size stood at Rs. 7,178 Cr, an increase of 11% YoY. During the quarter, growth in this segment was aided by expansion of physical distribution through the DSA channel focusing on salaried prime customers.
  • Retail Housing: Moving on to Housing, it achieved quarterly disbursements of Rs. 2,531 Cr, up 46% YoY, last year same time we had done Rs. 1,734 Cr. The book size crossed Rs. 20,000 Cr milestone and finally

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closed at Rs. 21,731 Cr, an increase of 42% YoY. The momentum was sustained in the business through

strategic measures including collaborative launches with prime developers across top locations. Additionally, the launch of LTF's 'The Complete Home Loan' offering across 11 locations drove higher lead generation which should lead to tangible results over the next few quarters. The Home Décor finance package of The Complete Home Loans programme has seen a good customer acceptance and we expect increased penetration of this addon to lead to greater customer stickiness as well as higher portfolio yields.

  • SME Finance: Our Q2FY25 disbursements stood at Rs. 1,244 Cr, up by 43% YoY. The book stood at Rs 5,190 Cr at the end of September 30, 2024. The strong growth in business volumes was aided by building additional channels to diversify the existing sourcing funnels. We are in the final stages of launching our supply chain product in Q3FY25.

I will now hand over the call back to Sudipta to make his closing comments.

Sudipta Roy:

Thank you, Sachinn. In summary of my opening note, I would like to maintain that Q2FY25 remained one of the most challenging operating quarters post-Covid in the BFSI sector. We expect Q3FY25 to be as intense a quarter as Q2FY25 with a normalization runaway visible only in Q4FY25. We are confident that we have enough buffers and safeguards available to ensure a consistent outcome in Q3FY25, even as we continue to operate in a difficult credit environment. On the back of a good monsoon, we remain cautiously optimistic about improving rural and urban demand and credit outcomes during Q3FY25 and we will remain focused on execution of our transformation agenda across all lines of business.

I thank you all for joining the call and for a patient hearing. The floor is now open for questions.

Moderator:

Thank you very much. We will now begin the question-and-answer session. The first question comes from the line of Kunal Shah with Citi.

Kunal Shah:

Yeah. So, first question is overall on the credit cost front. So, when we look at it, the ECL provisions have actually come off, so would it be fair to assume that there would have been a significant write-off? And if you can just quantify the amount of overall write-off and write-off in the MFI portfolio, that would be helpful, yeah.

Sachinn Joshi:

This is Sachinn here. Yes, as far as the overall credit cost is concerned, it has gone up, no doubt and the PCRs have also come down. Actually, the impact has been, as Sudipta mentioned in the initial comments, there has been some impact, whether it is Rural Business Loans, there has been some challenge; simultaneously we also had on the repo assets as far as Farm is concerned and finally some issues on the Two Wheeler. So, it's a mixed bag, I would say. It's not just relating to Microfinance. The write-off is actually -- once the 100% provisioning is made across any product or any asset, the write-off actually becomes an accounting entry for us. So, there will be 100% provided assets, which are still part of GS3 and every quarter the write-offs keep happening. So, we really don't share the actual write-off number, but the PCR reduction is primarily on account of some write-off, which you're right and addition of certain Stage 1, Stage 2 assets, which would have moved, roll-forwarded to 90- plus. Naturally, these have a lower provision compared to the 100% provision, which was on the written-off assets.

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So that has led to a reduction in the overall PCR, but we believe that our PCRs have been pretty helpful at 75%- 76%, which has come down by a few percentage points. If you have seen, we have been mentioning this also during our earlier discussions and on various calls that we have been maintaining a very conservative approach and whether it's PCR, whether it's macro prudential provision that we create, the additional overlays that we have, all these are meant typically for a rainy day. So, these are difficult times, no doubt and something which was 75%- 76% going down to 71% and all, we really don't think it's something really worth worrying at this point because we believe that it's a matter of a couple of quarters, and it should be business as usual.

Kunal Shah:

Yeah. And write-off would have had an impact even in terms of slightly lower increase in Stage 2 and Stage 3 as well? Because maybe otherwise, when you look at it in such a challenging environment, GS3 and GS2 is up hardly by like, say, 14-odd basis points both put together.

Sudipta Roy:

Yes, that's right.

Kunal Shah:

And secondly, on the MFI side. So, hearing the commentary from the peers, it seems like Bihar is going through some kind of a swing. You also highlighted floods have impacted the northern part of the Bihar. But there, if we look at the SMA-2 pool or SMA-1 pool, that has gone up quite significantly, which suggests some flow through into Q3 as well. So, now looking at the overall environment in the MFI, are we worried? You also indicated like Q3 would be challenging. But then in that case, are we looking to utilize some of the macro-prudential provisioning getting into Q3 given this stress which is flowing in. And the general commentary on the overall MFI would be very helpful, yeah.

Sudipta Roy:

Yeah. So, specifically on Bihar, though we don't normally give state-wise collection efficiencies, but I will say because there have been some floods in Bihar, especially in North Bihar, we ended our September collections efficiency in North Bihar at about 99.5%. So basically, what I want to say is that in spite of floods, in spite of whatever disruptions come in, our focus on collections and our people's focus on collections continues unabated and we expect that in October the situation would improve as the flood water recedes. It is true that the industry is passing through a period of deleveraging and obviously, as the industry passes through a period of deleveraging it will show up in numbers of the players in the microfinance industry.

However, I would like to put on record a couple of things and frankly, we have seen some commentaries on our performance, which need clarification. The first thing that I would like to say is that L&T Finance, as an organization, especially in the Rural Business Finance vertical, we do not lend to a single customer, who is not a 0 DPD. So that is the first thing that I need to point out. The second thing is that our overall guardrails are always consciously maintained. That means we underwrite not only the customer, but we underwrite the customer's family as well. So, we calculate leverage at a family level.

The second thing is that if a customer's overall debt goes above Rs. 2 lacs at any point in the cycle, whether if she is a fresh customer or if the customer is eligible for a repeat, but the leverage is more than Rs. 2 lacs, that customer goes out of the lending window. So that means we make sure that when we lend to a customer, the overall leverage of the customer is below Rs. 2 lacs. And I would also like to point out that some of these guardrails have been introduced by MFIN as late as June-July of this year. However, L&T Finance has been maintaining these guardrails since 2020. So, it's not that these guardrails are coming to us suddenly new. We have been doing it for the last 4 years.

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A couple of more things. First and foremost thing, our approval rates in the microfinance vertical is 40%. Once our sales guy goes and sources a particular file, then there's an independent check by a branch process manager, which is a completely different vertical, and then last but not the least, about 15% of all our disbursals are checked by our risk control unit. So, it's a 3-tier process through which our customers come across because our focus has always been to bring in non-leveraged customers. The other thing, which I would like to state is that we realized, actually early this year and the latter part of last year, that the industry is probably getting into a situation of leverage. That is why we upped our efforts into new non-leveraged customer acquisition from September last year. And from January of this year, we started cutting out close to Rs. 75 Cr to Rs. 100 Cr of repeat disbursements because we felt that those customers were on the border line of getting leveraged. And this exercise has been continuing for us since January of this year.

And sort of last but not the least, we have brought down our average accounts per collector sharply from about 540 to about 460, which means we have put in actually 1,000 additional collectors in the field. And we did it early on. So our average accounts per collector ratio has actually dropped, which helped our collectors also to address the sort of the flow issues much more effectively. So overall, it has not been a single-axis action. It has been a multi-axes action and I would like to say that the discipline with which the business has been built is not a 1-year phenomenon. It's a 3-,4-,5-year phenomenon. So, which obviously, when the industry is in stress through deleveraging, obviously, if you are in an industry, there will be a ricochet impact on us. We are not immune to it and on top of that, because of the monsoons and the floods etc., it has added to a little bit of additional pain of what the industry has been going through. But I can assure you that our business is fully capacitized to handle this.

And last, but not the least, we have Rs. 975 Cr of provisions which has been kept aside as macro-prudential provisions, which we have not touched this quarter. However, as Sachinn said in this call, for example, if you have an umbrella, and it's raining outside, any logical person will open the umbrella to prevent himself/herself from getting wet. So, we have this umbrella. We are not saying that we will use it, but the fact is that, that option is on the table. But however, as of now, our collection teams are working and our business teams are working to ensure that we have the best outcome possible through these difficult circumstances.

Kunal Shah:

Sure. Just one thing, one clarification. Macro-prudential is Rs. 977 Cr? because last time, we highlighted closer to Rs. 1,100 Cr. So not sure and you mentioned like there is no utilization of macro-prudential at all.

Sudipta Roy:

Macro-prudential provision allocated to Microfinance is Rs. 975 Cr. Overall, Rs. 1,100 Cr is OTR outlays, etc. So that is separate from Microfinance. Pure microfinance is Rs. 975 Cr. PCR in our Rural Business Finance is close to 100%, if not 100%. So, 90-plus everything is anyways 100% provided.

Moderator:

The next question comes from the line of Hardik Shah with Goldman Sachs.

Rahul Jain:

This is Rahul here. A couple of questions. One is, I appreciate the detailed explanation that you gave just a while back on the macro-prudential and the PCR and the portfolio that you've been underwriting. But just wanted to understand the PCR bit again. So, Stage 2 also saw a dip. So, I wanted to understand how you think about Stage 2 provisions and Stage 3 provisions? And where does this provision coverage need to go before you start opening your umbrella, which is your macro-prudential provisions? How should we think about? Because your commentary about the outlook also was a bit soft, at least in the third quarter. So how should we think about the utilization or the PCR trajectory from here on?

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Sachinn Joshi:

Initially, Sudipta made a mention that the deterioration in GS3, it was primarily through the macro-operating environment deteriorating in Rural Business Finance vertical, a rationalization of tractor repo policy and some localized adjacencies in Two Wheeler business. Yes, there has surely been challenges externally in the Microfinance segment. But that is about 26% of our overall book. There are certain other challenges, which he spelt out on the call. Now as far as PCRs are concerned and you talked about Stage 2. Now Stage 2 percentage actually includes the macro-prudential provision, which is sitting over there. We have not enhanced this macro- prudential provision. It has been Rs. 975 Cr, and the book has been growing. So, in percentage terms, you will find that there will be a decline as far as Stage 2 is concerned. The utilization, the overall PCR that we spoke about, just to repeat, we have gone from 75% to 71% on the aggregate basis, more to do with some write-offs of 100% provided portfolio, not necessarily that the whole piece has been completely written off. It's an accounting decision, which is taken, more to do with cash flows rather than anything else. As far as taxation is concerned, already we take a hit, whenever write-off happens, there is a cash inflow for us. The 71% is primarily because of new assets, which were, say, in Stage 2, moving into Stage 3. For Micro Loans, as Sudipta mentioned just a while back, anything which is 90 plus, we do 100% provision, but that's not true for other assets because you also have a very safe book like Home Loan - LAP, you have a book like Two Wheeler, Tractor. The ECL model decides what will be the percentage provision required for a specific Stage 3 asset. And hence, this movement from Stage 1, 2 to Stage 3 and 100% book which has been provided being written off leads to these changes. Now when there is wherewithal, we ensure that we maintain the PCRs at a particular level. Like we spoke about overlay just some time back. But at this point of time, the requirement was not there. If you look at the peer group comparative financials, broadly a 50%-55% PCR is a pretty comfortable situation to be in. We have always tried to be conservative. As and when the P&L permits, we can always rebuild. We had mentioned in a couple of calls back, a couple of quarters back, that this macro-prudential provision also, which is currently on Rural Business Loans, we would take a call on whether -- as the unsecured book starts growing, whether this whole macro-prudential provision should be applied to the full unsecured book, but that will be over a period of time. I hope I have clarified.

Rahul Jain:

Very, very helpful explanation, Sachinn. And just if I were to have a follow-on with the -- your credit cost that you talked about, I think, the news channels were flashing some of the comments that it will stay elevated for the next 1 or 2 quarters more. Does it take into account any further buildup of macro-prudential? Or will it be completely to respond to any potential flow-through into Stage 3 provisions?

Sachinn Joshi:

So, if the challenge in Micro Loan piece actually increases any further, then as Sudipta mentioned, we always have a choice to dip into the macro-prudential provisions and utilize part of it. As he also mentioned that we are better placed compared to the industry. Our numbers are much better. Our collection efficiencies seem to be in control. And if Diwali, post-Diwali, if things don't really improve, there may possibly be a need for macro-prudential provision utilization, but at a much lower level. But if things worsen from here, yes, we keep that option open.

Rahul Jain:

Alright. Secondly, on the MFI portfolio, basis your details given in the presentation, we understand zero plus is about 3.5% of the portfolio, MFI portfolio. Is it possible to get the granular cuts as to how much is 0 to 30, 30 to 60 and so on and so forth?

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