Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Retail disbursement grew by 19% year-over-year in Q1 FY '25, with a significant focus on the emerging and affordable segments.
- Gross NPA reduced by 241 basis points year-over-year to 1.35%, with a target to achieve 1% by year-end.
- Net interest margin maintained at 3.65%, with a return on assets improving to 2.38% from 2.27% in Q1 FY '24.
- PAT stood at INR433 crores, registering a growth of 25% year-over-year.
- The company has a strong pan-India presence with 303 branches across 20 states, and plans to add 40 to 50 more branches.
Negative Points
- Incremental cost of borrowing remains a concern despite a reduction to 7.75% from 7.93% in Q4 FY '24.
- Operating expenses grew by 27% year-over-year to INR190 crores, largely due to branch expansion and annual performance appraisals.
- NIM pressure expected in the short term due to the degrowth of the corporate book and repricing issues.
- The company faces challenges in maintaining yield due to book closure and balance transfer (BT) outflows.
- Asset quality improvements are still a work in progress, with ongoing efforts required to manage recoveries from written-off accounts.
Q & A Highlights
Q: Congrats on a good set of numbers. Sir just two questions from my side. One on the spread or maybe NIM as well, right, so incremental cost of borrowing is lower than the blended cost of borrowing. We are growing, let's say, incrementally faster than the high lending segments. Despite that, why we see NIM, let's say, NIM in kind of pressure in near term?
A: So the reason is we have a couple of reasons. One is the corporate book is degrowing. So we will very shortly start corporate business. So hopefully, in the next three to four months' time, we'll start corporate business. So I think the team is ready, we are ready with the blueprint. Very shortly, we will start. So why there is contraction in the field because of the corporate book run down. I think that will get solved in the next three to four months because we start doing fresh corporate business, number one. Number two, we have a large prime book. So a certain amount of BT, even though we have set up the retention team, the BT as a percentage has come down drastically over the last 1, 1.5 years' time. So there is some BT out way that would impact us on the book and eventually on the income. Third, there is also repricing. So on one side, there is yield contraction because of corporate book going down. BT out and book closure and repricing. On the other hand, we are moving towards high-yielding segments. In quarter one, typically, we saw most of the disbursements were still off from quarter four sanctions which were at a lower rate, and which is why in quarter one, we don't see spike in yield. But if you see the current trend, I think there is an improving trend, both in affordable and emerging on the (inaudible) side. Incremental yield is going up. So you will see quarter two, the yields are going to be slightly higher. As a policy, we had guided margin of 3.5%, and we stick to that. I think we will have maybe 3 to 5 -- maybe 3.5% to 3.65% for the next two to three quarters time until the NIM will start pitching up.
Q: But again, if we look at the corporate book, as on June '24 book, hardly anything. So I don't think so there should be any drag. Because of the corporate book on the yield side. Maybe you are right that incrementally because of the BT out pressure on the prime segment, the repricing to return be customers would be lower, is that the fair understanding?
A: It is a combination of all the three, which I mentioned. One is corporate book degrowth, second is BT out, third is repricing and book closure. All as a combination, I think there is a contraction of yield to a certain extent. And on the other side, we are moving segments and trying to increase the yield, but that is on an incremental basis. So in about two quarters time, I think we'll reach to a point where there won't be any contraction of yield and need to start moving up. And that's when we will see the margins reaching up.
Q: And my next question is to Girish Kousgiji. So sir, given we are present in almost all the customer segments, whether it is prime affordable. And if the PMAY Scheme has to move things faster in the ground as and when the time then comes, do you foresee upside risk to our growth guidance of 17% in retail book?
A: Actually, PMAY is going to help us on bettering our growth rate.
Q: Okay. So would you like to revise our guidance of 17% now or maybe you would want.
A: We would not want to revise for the simple reason, if you have to grow at the same yield, we could have definitely done far better than 17% since we have a dual task, one is to grow because last year with so many challenges, we grew at 14.1% on retail. And this year, we said we're going to grow at 17% on book. So with PMAY, we are ready to see how the scheme will get rolled out. And we believe that it will open a huge potential, not only on the affordable side, even on an emerging and prime because if you have to go by the last couple of times the theme parameter. I think a lot of customers disqualify even on the prime and emerging side, so we feel opportunity of all our branches catering to this particular segment, whereas affordable focus purely affordable and -- which should also consider part of PMAY. But otherwise, on the emerging and prime side, largely eco-based, we will have an opportunity. So we would not want to revise the guidance at this point in time but we are very sure and confident of reaching 17% to growth what we have guided for.
Q: All right. And sir, just lastly, you did mention about this -- the margin improvement on the NHB borrowing side. So could you please elaborate a bit on that?
A: So if you look at the scheme which was there till about March 2022, so the funding which comes from NHB, especially for affordable segment, which is under the CLSS subsidy. So there, that funding will come at a lower cost. So one, the borrowing cost, it will help us in the borrowing cost. And number two, there is a lending cap. So this discussion was to increase that lending cap. So that would definitely help us to improve our market.
Q: It was 5.5%, right, sir, last time?
A: No, I think the rates get done changing over a period of time. But however, the margin was fixed at about 3.5%. I think this time, there are some talks, I think this is purely our assumption and expectation. So we feel that the 3.5% could go up maybe to 4% or 4.5%, which is going to help us on all the three segments, be it Roshni, emerging and prime because our margin on the emerging and prime is less than 4% or 4.5%. So any incremental business we do from this PMAY scheme is going to be -- will lead to incremental margin.
Q: First of all, I mean congratulations on the good quarter. Sir first thing I wanted to understand is, I mean, are these fair practices code for lender charging of interest in the circular that came out from RBI on April 29, mean how have we handled the circular? Basically, the circular talked about recognizing interest income only after a DD or check was handed over to the customer. So I mean, the disbursements and the loan
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
