Ladies and gentlemen, good day and welcome to Cholamandalam Investment and Finance Company Ltd Q2 FY 2022 earnings conference call hosted by Kotak Institutional Equities. 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 the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities. Thank you, and over to you, sir. Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Ltd. To discuss the Q2 FY 2022 performance of Chola and share industry and business updates, we have with us today Mr. Vellayan Subbiah, Chairman and Non-Executive Director. Mr. Ravindra Kundu, Executive Director. Shaji Varghese, President, Housing Finance. Mr. Suresh Kumar S, Senior Vice President and Business Head, LAP and SME, and Arul Selvan, President and CFO. I would now like to hand over the call to Vellayan for his opening comments. Thank you, Nischint, and good morning, everybody. We'll just go through key financial results for the quarter and a half, and then I will turn it over to you for questions. Disbursements were at INR 8,706 crore for the quarter, which is up by 35% and INR 12,341 for the half year, which is up by 23% YoY. Total AUM is basically been more or less flat at INR 75,000 crore. Our NIM was up at INR 1,393 crore, which is up 11% year-on-year. It was for the half year is at INR 2,756, which is up 23%. PAT for the quarter was at INR 607 crore, which is up 40%. For the half year is at INR 933 crore, which is up 8%. The last quarter, basically, we had several positives. First was the waning of the second wave, which I think has been the biggest effect. India outpacing other countries in terms of increased vaccination and a good monsoon. These events basically led to expectations of a swift revival in the Indian economy. Those expectations have been supported by an uptrend in most economic indicators that we've seen, like tax collections, power, vehicle registrations, highway toll, and e-way bills. This revival has basically helped a recovery in Chola's disbursements and collections during Q2 FY 2022. From an overlay perspective, we continue to hold the management overlay, additional overlay of INR 700 crore. Apart from this, we've created a 10% additional provision for all restructured accounts as per RBI guidelines. You know, as I said, we'll just go through kind of quick numbers at an individual business level. The vehicle finance business was at INR 6,000 crore, disbursements was INR 6,161 crore as against INR 4,781 crore, which is a growth of 29% for the quarter. The LAP business disbursed INR 1,736 crore in Q2 as against INR 1,052 crore. That's a growth rate of 65%. HL home loan disbursed INR 494 crore as against INR 381 crore in the same quarter last year. AUM, like we said, is more or less been flat at INR 75,000 crore as compared to INR 74,471 crore last year. Our PBT ROA was at 4.5% for the half year. The ROE was at 18.7% as against 20% for the half year in the previous year. Our liquidity position continues to be strong with INR 5,401 crore as cash balance, and that's including INR 1,500 crore in G-Secs, with a total liquidity position of INR 9,800 crore if we include undrawn sanction line. The ALM is comfortable with no cumulative negative mismatches. In terms of asset quality, at the end of September 2021, Stage 3 assets stood at 6.16% with a provision coverage of 36.45%, as against 6.79% at the end of June with a provision coverage of 35.51%. Total provisions currently carried against the overall book is 4% as against normal provision levels of 1.75% carried prior to COVID. Total restructuring book with one and two, so that's INR 4,749 crore, representing 6.85% of the total book in Stage 2. Total restructuring one was at 1.27% and restructuring two was at 5.58%, respectively. In terms of capital adequacy, the capital adequacy ratio was at 19.63% as against the 15%. Tier I is at 16.67%. We also had an equity investment in a company called Paytail Commerce, and we invested INR 9.75 crore to get a holding of 16.29%. With that, I'll stop the commentary. Be happy to take it over, hand over to questions. Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Rikin Shah from Credit Suisse. Please go ahead. Thank you. Good morning, sir, and thank you for the opportunity. I have three broad questions. First on the growth. While the disbursements have overall recovered, if I compare the growth between the different segments, the LAP and the home equity is now growing faster and constitutes almost 30% of our total AUM versus 25% two years ago. Just wanted to understand our strategy of growing this business faster going ahead as well vis-à-vis the vehicle. That's the first one. The second one is on asset quality. Our overall stressed loan pool still remains relatively elevated at around 19%. I just want to understand the plans or expectations of how low we can bring it down in the coming quarters. If you could also provide some data on the ECLGS incremental disbursements during the quarter. The third question is on our consumer strategy. A few quarters ago you had articulated that we would chalk out a plan on the consumer lending. Are there any updates on the same? Thank you. That's all from me. Okay. Thanks, Rikin. You know, so broadly on LAP and HE, yes, we do see those two businesses growing, you know, faster than disbursements will grow faster than, you know, vehicle. The other thing obviously is because they're longer tenure loans, they will, you know, increase as a percentage of AUM. We're quite comfortable with that. We do see that trend continuing for the next, you know, few years. I think you'd asked, I'm gonna let then, Ravi, why don't you answer the question on asset quality and ECLGS, and then we'll come back to consumer strategy. Yeah. Asset quality as on, I mean, if you see the collection efficiency, two ways we actually calculate it. One is against the billing, our cash flow. Our billing, again, cash flow against the billing for the month of September was at, like, 114% odd, which has improved in October, which is this month which we just completed now. It has gone up to 116%. Stage 1 roll forward rate of vehicle finance is actually further improved, and it has come down to 1.67% from 0.76%. We have collected 98.24%. More or less across all businesses the numbers are similar. Stage 2 also overstay in September it has further come down. These are all tentative numbers when I say for the month of October. Up to September numbers, all available in the presentation. Things are improving. As against June, we have improved in September, and October is also looking better than September. In terms of disbursement, we have done better in October further over September as well as last year. In spite of there is a slight scarcity in supply and lot of manufacturers are expecting their production and their supply will improve in next two to three months time. In spite of that, we have seen our disbursement is going up further over September in October and also last year. October to this year our disbursement has been pretty good. ECLGS, we have not done much disbursement, very negligible amount of disbursement. INR 25 crore. Only INR 25 crore of disbursement we have done in this current quarter. Quarter. Q. The 19% pool includes around 7% of restructured book. Yeah. It is in Stage 1, but it is not. Yeah. Hope I've answered, Rikin. Yes, sir. Just to follow up for clarification on the asset quality. September collection efficiency number, I missed that number. Second, I just wanted to get a sense on how the NPA levels are for our home equity and then home loan business as well. Both has dropped. Yeah. September, I mentioned that September cash flow against the billing was 115%. In October it has been 116% now, when I- Okay. In terms of roll rate also, our roll rate has come down from 2% to 1.6%. Both sides we have improved. In terms of our LAP, it has come down from 8.86% to 8.17%. Home loan also has come down from 4.29% to 4.19%. It's marginal decreases, but that's the way the, you know, momentum is happening because people have started paying one installment, but they will start paying more once the festival season is over. Okay, sir. Thank you. Thank you. Thank you. The next question is from the line of Praful Kumar from Dymon Asia. Please go ahead. Hi. Good morning. Congratulations on the quarter, and thanks for the opportunity. What we are picking up from the ground that you are doing some, you know, pathbreaking work on the digital side. Can you please outline, you know, your vision, broad contours in terms of, you know, what product suite are we building? Is it more like a super app or like any other product? What are the broad timelines you're looking at? Any pilots have you done? Any update that you can share on the digital journey that, you know, you have been drawing for last few quarters now? Yeah, I think there are a couple of things, right? First, I always want to warn that kind of, you know, it's a transformation, and transformations take time, right? You know, I don't think that we should build expectations because its impact on kind of numbers in the near term is gonna be fairly minimal, right? Sure. No, I'm talking about a three-five-year vision. Just to understand, you know. Probably what we have said is that we will develop around three ecosystems, right? The vehicle finance ecosystem or the vehicle ecosystem, one. The SME ecosystem is the second, and the consumer ecosystem is the third, right? Broadly, what we've said is either through you know. There are two parts to it. Kind of one is how to acquire customers for these ecosystems. The second is what products to sell them, right? From selling products perspective, obviously we need to introduce new products, which is what we're beginning to do that we can offer to these customer sets, right? Whether it's kind of consumer loans, whether it's small business loans, and as such. We're developing products there and individual product teams that, you know, are experienced, you know, within Chola. We're also building up kind of, you know, new teams, but led by people who we feel very comfortable with and who are experienced, you know, from Chola to head those teams. That's on being able to offer them products. On the acquisition side, we have to acquire. See the auto ecosystem, we have an acquisition mechanism through our existing loans. But on the other, consumer and SME, we will look at both partnerships and potential acquisitions by the company, you know, to basically look at how we can acquire customers into those ecosystems over time. That, again, are partnerships that hopefully over the These partnerships and acquisitions will happen, I would say, over the next 12-18 months, to either look at acquiring customers for the SME ecosystem or acquiring customers for the consumer ecosystem. Broadly, that's kind of the strategy. Like I said, as it gets more defined over time, we'll continue to discuss it with you. Understood. Just one more last thing. Do we have an in-house tech team already? You know, we have been building this? Just a small understanding on how deep, you know, entrenched is the product suite already in terms of. Yeah. The speed of development. Yeah. There are two things, right? Yes, we do have an in-house tech team, but we recognize that we need to significantly strengthen there. We're looking at alternative mechanisms of sourcing. By the way, we split it into two teams, right? One is the tech team, one is the analytics team. We've just now gotten somebody to head analytics, you know, who's fairly experienced in the space. Then basically, you know, he's gonna build out a stronger team under him. That's something that he just joined us this quarter. He's gonna help build that out. On the tech side, you know, honestly, we do have an in-house team that has been developing some of the new products, but our traditional approach has been to outsource most of the development. We recognize we need to change that. Mm-hmm. There again, we're looking at alternative approaches in terms of how to build up much more tech. The big challenge obviously, and right now that's happening in tech, is that most guys are in incredible demand. Even startups are having a tough time keeping people. Basically, you know, we do recognize that we need to build up there. I'd still say that that's a work in progress. We don't have any good answers yet. Understood. Looking forward to this, you know, phase of Chola. Thank you so much. Yeah, no, definitely. Yeah. Thank you. Thank you. The next question is from the line of Prashanth Sridhar from SBI MUTUAL FUND. Please go ahead. Yeah. Thank you fo r taking my question, sir. Just three questions from my side. On the vehicle finance, in terms of capacity utilization of the underlying customers, how far you would say we are from the FY 2018 levels, before the CV cycles sort of went bad? On the LAP, missed out, if you have given the restructuring and Stage 2 numbers. And lastly, the new RBI securitization guidelines of not including direct assignment profits in capital, what kind of impact could that have on the capital adequacy calculation? Thank you. Yeah. Capacity utilization, as I've been telling that there are five segments in terms of the, you know, heavy commercial vehicle. If you see the top of the pyramid, these large fleet operators are there. Their capacity utilization have been good. Then replacement demand, whatever number you are seeing is driven by them. The medium fleet operator and small road transport operator, in the Tier I town, they are still having a lower capacity utilization. That's the main reason the replacement demand, which is likely to come up, is getting delayed. However, in Tier II, Tier III town where we are operating around our heavy commercial vehicle customers are there, where the utilization is more depending on the transportation of the agricultural goods or, you know, the sand and transportation of the bricks and all, those are doing well. The capacity utilization in Tier II for the small road transport operator has gone up to 80%-85% level. It is still lower than in 2018, which, because 2017-2018 was the peak capacity utilization. We went up to 100%. We are expecting that the capacity utilization will start picking up when the mining activity, road construction and infrastructure development in and across the country will pick up. We are expecting that will start happening immediately in the next quarter. We are also expecting that the current crops will start coming to the market in November, end of December. With that also in Tier II, Tier III down, the capacity utilization will further improve. Now coming to the restructure. 4.38%. Last restructuring we have done 4.38% of the AUM gross. Yeah. With regard to the final question on the RBI, two points. One, we have not been doing DA for quite some time now. Even when we were doing two years back, we used to net it off against the capital and follow the way the RBI had already been suggesting. As now suggested, we have been already following it from the capital adequacy. Thank you so much, sir. That answers all of my questions. Thank you. Thank you. The next question is from the line of Manan Tijoriwala from ICICI Prudential Asset Management. Please go ahead. Hi, sir. So what would be the split of restructured loan and what is the total restructuring across 1.0 ad 2.0? What has been the increment in this quarter over the previous? Yeah, I think we gave you the 1.0, 2.0 split. The total book is INR 4,749 crores. Coming to 6.85%. Yeah. 6.85%. 1.0 is 1.27% and 2.0 is 5.58%. Is that what you wanted? Yeah. In this quarter it was 0.3% incremental, if I'm not wrong. No, 5.28% is the total on restructuring, which is predominantly in the first quarter. In the current quarter it has been 1.2% increase out of the 5.2%. 5.5%, sorry. Fair enough. Any ECLGS this quarter and last year's ECLGS and restructured loans will be coming up for repayment now. Any pattern in these two segments in repayments and how would you rate them? The ECLGS is only 20% of the amount of the ECLGS loan. The predominant part of the loan still is carried in our book and with the overall Stage 2, Stage 3 movement reflect the overall position. We don't try to give this as separate, you know, independent numbers. If we have a larger exposure as secured with the underlying security, which it has, and that is the reflection from the Stage 2 and Stage 3 loan. The portfolio of ECLGS is doing very well. There is no problem in that. Actually, we have to understand that the ECLGS customer has already the original EMI, which is supposed the customer's EMI is INR 20,000. On account of ECLGS, the customer's EMI would be another INR 4,000, which is now going to get due. This customer is already paying INR 20,000 for last 12 months, so there is no problem in that. Sir, just one last question. What is the provisioning carried specifically on the restructured loan? For restructured loans. Around 10% as the provision percentage. What's that you want? Like, I am not clear. Yeah. That's it, sir. That's all, sir. Thank you. Thank you. The next question is from the line of Zhiwei Zhang from Pinpoint Asset Management. Please go ahead. Hey, thanks for the opportunity. Just a couple of quick questions. Firstly, on the OpEx front, is there any one-off this quarter? Because the cost to income and also the absolute OpEx seems to grow quite a bit QoQ. Also, how should we look at OpEx for the second half? Should we continue to grow from here or, you know, the overall cost to income will bring it down from this quarter onwards? Yeah. So there is no one-off revenue in the income line. With regard to the OpEx, if you recall, we told that, you know, in every year, second quarter, there will be salary increments given. Also, when you are comparing it with last year, it may not look so because last year we did not give the increment in second quarter, we gave it in fourth quarter. We spoke about it in the discussions in the fourth quarter review and the salary cost looked very inflated at that point in time. Same way, the balanced scorecard or what we have as in variable pay, it flexes with regard to the profitability of the company, because we need to provide a large part of the variable pay is linked to the profits of the company. This year, this quarter, as compared to first quarter, the profits are much higher. The provision with regard to the variable pay will also be, you know, proportionately higher. These are the two reasons. Going forward, the salary cost will be around the same numbers as what we see today in the Q2. Got it. Understand. On the credit cost front, how should we think about second half credit costs? Because we saw credit costs drop quite sharply this quarter. Is it safe for us to think about this quarter as a kind of runway for the second half or second half you expect some increase from here? In the second half, we expect it to trend at similar levels, but for any, you know, worsening on account of COVID-19 related issues. If there are no relapses of COVID-19, we should trend at the similar level as Q2. Got it. Thanks so much. Thank you. Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead. Yes. Thanks for taking the question. Most of my questions have been answered. So just one, maybe one question for Ravi, sir. Sir, I mean, you have, I think, I mean, answered my question in bits and parts in the prior questions. But what I was trying to understand is, I mean, how is the demand in both the new and the vehicle financing side looking like now? I ask this because, I mean, if I look at disbursements in 3Q and 4Q, and now in 2Q of this fiscal year, I mean, it has been around that INR 6,000 crore mark. So, I mean, is it primarily driven by supply side issues or is the demand also weak? Because I'm sure, sir, I mean, you kind of alluded to that in the past as well, wherein we keep comparing the demand to 2017 and 2018 levels. I mean, if you can just spend some time and give us some color on how you are looking at demand in both the new and the used vehicles. See, for the month of October, which is an indicator that now the growth is actually kind of, you know, holding good. I mentioned that we have done well in October and industry also has done well in spite of there is a constraint in supply side. Supply would have been 20% higher than what has happened in October, so by various manufacturers put together. That number will come to a normal level in the month of, say, December or January. That is what we are hearing from the manufacturer. In spite of that, we have grown 25% in disbursement in October sequentially. From here, used vehicle demand is looking very good and as well as the new vehicle also lots of you know orders pending across all the dealerships. If we don't encounter the COVID-19, then this growth journey will continue to happen. As I mentioned that in the month of November or December, we will get the kharif crop back into the market and after that, mining and agricultural activity will be normal. From there, heavy commercial vehicle from the small road transport operator also will start picking up. Disbursement from the replacement cycle demand from the HCV will go up and other product like cars and MUV, two-wheeler, tractor will be also good. In this month itself, our tractor disbursement has gone up to the highest level during the financial year, and industry also did well for the month of October. Future is looking bright provided we don't encounter any other problem. Otherwise, the moment supply side, because of the semiconductors and whatever number is down, if that started improving, then you will see industry will growing and our numbers also will go up across the segment and used and new both will do better. Sure, sir. Thank you so much. Maybe my last question is for Arul, sir. Perhaps you have already shared this data point because my line is not very good today. Out of the total disbursement, how much is it across vehicle, LAP and home loans? Yeah, INR 4,200 crore in vehicle, INR 600 crore in LAP and INR 300 crore in HL. Sure, sir. Thank you so much, sir. Wish you and the team the very best. Thank you. Thank you. A request to all the participants. Please restrict to one question per participant. If time permits, please come back in the question queue for a follow-up question. The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead. Good morning. You've always taken a lot of trouble to explain the various segments of vehicle finance. You are also showing some optimism in disbursements. Are you seeing the same optimism in collection efficiency? Has it become more broad-based? Because last time you'd mentioned that, you know, people associated with urban hubs are facing a lot of trouble. Thank you. Obviously. If disbursement goes up in the market where we are operating, obviously because of the economy doing well, collection will further improve. It is actually at that, you know, the customers are able to pay one EMI, but they are not able to pay two or three EMI to roll back their account from Stage 3 to Stage 2 and Stage 2 to Stage 1. In spite of that, we have seen in the month of October. Why I'm saying again and again October, up to September data is available with you. October number also Stage 2 has come down and Stage 3 also little bit has come down. That's the reason, the trend is good. Going forward, if you see the mining activity, road and infrastructure activity improves, that will further, you know, enable the customers to pay their EMI because their capacity utilization will go up significantly. As of now, they are able to manage the current month EMI, and that's the reason I mentioned that our Stage 1 collection efficiency has been 98.25%. This can go up to 99.5%. Against the billing, our cash flow is 116%, which is going to go up further. Excellent, sir. Happy Diwali to Team Chola. Thank you. Thank you. Thank you. The next question is from the line of Shubhranshu Mishra from Systematix Group. Please go ahead. Hi, sir. Good morning. Thank you for the opportunity. Couple of questions. If you can explain the client segmentation in vehicle finance, how many customers are dependent on cash crops versus rainfed crops versus mining, infrastructure activities, if you can differentiate that client segmentation in the vehicle finance. In LAP and SME, sir, apart from the property that is being given to us, what are the kind of property or what the amount of property that the customers would have? That's the second question, sir. If you mentioned any kind of write-backs or write-offs, if you can clarify, that's a bookkeeping question I want to know. Any write-backs or write-offs, or if you can mention both of them. Let's take that. The first question, we don't have that kind of data in terms of, you know, how many customers. We don't give, like, you know, when it comes to rainfed crops kind of all of that kind of stuff, we don't share that kind of data at all. The second question Second, third we will share. Yeah. We will give it. We don't share this data for the first and second. The third one I'll give you. INR 145 crore is the write-off. Bad debts and loan losses on account of repo sales during the current quarter. This is the repo sales losses. Writing back. Any write-backs, sir? Yes. The recovery was INR 10 crore out of the bad debts. These numbers which I gave is after adjusting the recovery. Sure, sir. Thank you so much, and happy Diwali to the entire team. Thank you. Thank you. Thank you. The next question is from the line of Saurabh Dole from Trivantage Capital. Please go ahead. Yeah. Sir, good morning. A couple of questions from my end. The first one is on the coverage ratios. If I look at the pre-COVID coverage ratios, you were somewhere in the mid-40%s. Right now you are well below 40%. Could we have, you know, utilized the strong profit performance during the quarter to kind of raise this coverage ratio and, you know, trend towards the mid-40%s level? It is pre-COVID, it is not forties level. Pre-COVID, it was in the range of around 34%-35% is the provision coverage. During COVID, it went up to 40%+ because of the management overlay which we created consciously for the COVID. We are back to partially around that levels of the pre-COVID levels because, I mean, we have used the INR 400 crore last quarter for the COVID too. Balance sheet is carrying INR 700 crore. As we had indicated even in the earlier calls, part of this INR 700 crore we will retain on a continuous basis, but some of it will get either adjusted towards losses arising out of the COVID book or will get reversed. At a very broad level, we should be carrying anywhere between INR 250 crore-INR 300 crore out of the INR 700 crore. Balance will be utilized or reversed. That will be done after we are clear there is no COVID-19 coming in. Okay. Given that the Stage 2 assets are still elevated, do you think that the coverage ratios have to be raised as we go forward? Or do you think the mid-30s level is something that you're fine with? Stage 2 levels are looking elevated because the restructured book is part of Stage 2. If you remove the restructured book, consciously we have kept that. We will be tracking the restructured book and as it moves up, we will create additional provisions for that when it goes to Stage 3. If it moves back, even in the current INR 700 crore, around INR 140 crore are assets which have been moved back to Stage 1, but we still carry it because there can be a possible COVID -19, etc. We are conscious about it and we are conservative about it. Okay. The second question is on the UCV part of the business. I think Ravindra, sir, was talking about how the outlook is pretty strong. I fail to understand why the growth this quarter was so low, because when I compare it with the largest player in the segment, despite a very large base, they have grown very sharply during the quarter. Any thoughts there? This is also because of the base effect. Last year, in spite of COVID, we grew, while many of the others did not grow. That's where the growth in disbursement seems to be higher. If you look at it, UCVs we have grown. From normally around 24%, we have done around 27%. Yeah. We have grown 27% and you are comparing with the industry, but industry data, authentic data is not available. What we can say is that when we compare with the you know, leading finance companies, we, our growth rates are almost with the top player is same and the player who are actually below us, we, our growth rates have been higher than that. In this quarter, for the July to September quarter, we were also focused more on collection. When our collection efficiency and everything has come to the normal level of the March, then it is better to actually start driving the disbursement, which is going to be the strategy for the next coming quarters. Thank you. A request to all the participants. Please restrict to one question per participant. If time permits, please come back in the question queue for a follow-up question. The next question is from the line of Bunty Chawla from IDBI Capital. Please go ahead. Yeah. Thank you, sir. Thank you for giving me the opportunity. As we have seen in the data front, you have shared the vehicle financing net interest margin. It seems to be one of the highest margin after reporting the number through Ind AS. It seems to be 8.6%. How we should see this number going forward with respect to two constituents. One, as we see in the G-Sec yields are moving up, so there's a chance that cost of funds might move further going forward. Secondly, with the vehicle sales, it seems to be the passenger vehicle could get impacted through the chip, but CV cycle is turning very well. The second half there are chances that CV disbursement much higher, which could result in lower yield. How one should see this net interest margin going forward? Yeah. Mr. Chawla, it is, we have always said because we have a very wide portfolio where the yields are very different, you know, from as low as 9.5%-10% to 18% types. The tracking of NIM alone may not be the right thing because it will change with the product mix. Of course, as you rightly pointed out, there can also be a cost increase. You know, as a direct relationship to the yield movement, OpEx and net credit losses will move. It's better to track, in our case, the ROTA, which is more, you know, which balances out the differences in the NIM and the OpEx and the NCI. Okay, sir. Thank you. Thank you very much, sir. Thank you. Thank you. The next question is from the line of Shreepal Doshi from Equirus. Please go ahead. Hello, sir. Thank you for giving me the opportunity. I just want to understand what is the nature of restructuring that we have done for each of the segments? Like, what, tenure extension or moratorium that we would have given to the customers for each of the segment? Bulk of the restructuring is like a one-month moratorium, and then a reduction in the loan of the EMI to take care that they are able to pay. We have not given large amount of moratoriums. I would say around 50%-60% would be one-month moratorium, and then maybe another 20% would be like a two-month moratorium, and another 20% would be three-month moratorium. Beyond three months, there are hardly any cases. So that's the way we have done it. We have tried to make the EMI lighter by taking advantage of spreading it over the 24 months that has been given, which would be the max extension that is possible for any given customer. Does it answer your question? Is it? Yes, sir. Thank you. The second question was with respect to what will be the segment-wise Stage 3 number, if you can give. Like for VF, for home loan and for home To give you the number, I can tell you the number. 5.73%. Yeah. 5 point 73. 5.73% for vehicle finance, 8.17% for loan against property and 4.2% for HF. Got it. Thank you, sir. One last question was with respect to OpEx. In the other OpEx also we have seen very strong jump on sequential and on year-on-year basis. What could explain that and will it be like this is a new run rate that we should work with? When there is an increase in activity with regard to disbursements, et cetera, there will also be a, you know, corresponding increase in other OpEx. We are also, you know, strengthening our IT side and there are other, you know, expenses that we are taking care of in this build-up towards the upcoming demand. Those will be there. We have said at an overall annual level, around 2.5% levels would be the numbers you should look at. Got it. Thank you so much, and good luck with the next one. Thank you. Thank you. The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead. Yeah. Hi. Sir, last time you had highlighted that almost 80%-85% of the customers in Stage 2, they were generally paying like the full dues and some overdue as well. In terms of the rollbacks from Stage 2 to Stage 1, that has not been much. How should we read this? Maybe when do we expect it to stabilize to the levels wherein we were earlier? Are we seeing that customers are now trying to meet more overdues more than a month or a couple of months overdues that it can be rolled back, yeah. Stage 2 has come down, but Stage 2, there are two parts in the Stage 2. One is a normal Stage 2 and a restructured Stage 2. That restructured Stage 2, although customers are non-delinquent, we have actually shoved them into the Stage 2 because we have created the provision equal to Stage 2. The normal Stage 2 is coming down now, and that has come down over June to September. The trend is good even in this current month also. Sure. In terms of normalizing it to the levels earlier, how long would it take? If you see that the Stage 2, pre-COVID, level was different and during the COVID was different. During the COVID, when moratorium given, customer did not have anything to pay, and we were continuously collecting the arrears, and we were reversing all the Stage 2. In the month of August 2020 and September, we have seen the Stage 2 came down significantly lower level. That level may not come, but we will definitely come to the level where it was in FY 2019-2020. That means the one year before. That should be the target. Sure. One last thing in terms of capacity utilization you highlighted, but when we look at it in terms of the freight rates, and the diesel prices, how are you seeing the movement across various segments of CV? Is it being passed on adequately across the board, and there is not too much of a pressure on the cash flows of the operator? How are you seeing the ground level environment? Rates are going up, but there is a lag between the freight going up and the diesel prices going up. Diesel prices are rapidly going up, so there is a problem as of now. That's the reason I mentioned that the people who are actually operating the vehicles, especially the small road transport operator in Tier I town, they are under pressure. It is also pertaining to the long-haul operation. That's the reason, in spite of having 85% capacity utilization, they are not able to pay two EMI. They're able to serve only one EMI, and that's the reason Stage 3 is not coming down. Going forward, when the other activity will go up, then the capacity utilization will go up to 100%. In spite of diesel prices going up, the freight rate will continue to go up to cover up their income so that they can start paying more than one EMI. Sure. Thanks, and wish everyone a happy Diwali. Thank you. Same to you. Yeah, happy Diwali. Thank you. I request all the participants, please restrict to one question per participant. The next question is from the line of Rahul from Lucky Investment Managers. Please go ahead. Thank you for taking my question, sir. You've already answered the first part. Just wanted to confirm the second part where you had given a guidance on the provisioning that you see as a, you know, this quarter was very low at 0.3%. You guided for a similar number going ahead, or should we look at a slightly higher number? I don't think we want to guide specifically, but obviously kind of this number was very low, kind of, you know, because of what happened in the first quarter, right? I think expecting it to stay at these levels is unlikely. See, over a period, we have told it will be in the range of always, anywhere between 0.8% to 1.2%, 1.25%. That would be the overall long-range numbers. You should look at it that way. Sure, sure. The cost to income, you basically said, expecting its annual run rate of about 2.5%, right? No, cost to assets. Cost to assets. Sorry. Yeah. Okay. Thank you, sir. Thank you. Thank you. Next question is from the line of Nidhesh Jain from Investec. Please go ahead. Thanks for the opportunity, sir. Two questions. One is, can you share the slippage from the OTR 1 pool, or what is the slippage and what is the restructuring we have done in the OTR 1? Secondly, sir, if you think about from a longer term perspective, do you see the vehicle industry will remain the same as it is today, where large parts of the vehicle industry is unorganized, very small road transport operators? Over a period of time, you see the share of large fleet operators to increase in this industry and how do we plan to... What are our views on that and how do we plan to play to change our business model if, as we believe, the vehicle industry will move towards large fleet operators over a period of time? Sorry, we do not want to break and give these numbers as restructuring one movement, restructuring two movement like that. We would want, you know, what is publicly available being shared is the business-wise numbers we have given, stage-wise numbers we have given. I think we will restrict at that. I think we actually are giving beyond what many others are giving. I would request, you know, the demand for such information be restricted. With regard to the second question, Ravindra Kundu. Yeah. No, the question what you're asking is actually the large fleet operator, medium fleet operators start to use market load operators. It's actually predominantly for the heavy commercial vehicle. For the light and a small commercial vehicle, mostly the customers are the small road transport operators. Very small amount of the customers are in the large fleet operator. If you see the TIV of the entire vehicle, commercial vehicle, which is a small commercial vehicle, light commercial vehicle, and heavy commercial vehicle, close to 30% it goes to heavy commercial vehicle. That's 30%-40%. The rest is basically the small and light. Within the heavy commercial vehicle, this is what you are talking about, where the large fleet operator is driving the growth as of now because as I mentioned that they are able to get the load from the load provider. SRTOs are depending on the market and market loads are depending on the consumption and small activities which is happening where like, you know, construction, mining and other things. That is likely to go up only in Q3 end. Therefore coming to the point that if you are asking that heavy commercial vehicle will move from small SRTOs to the large fleet operator more, slightly it has gone up late, in the recent time, but it will come to the normal as and when the haulage starts selling to the SRTOs. Sure, sir. That's it from us. Thank you. Thank you. The next question is from the line of Kushan Parikh from HSBC Securities. Please go ahead. Thanks for taking my question. My question is on the operating cost. wanted some further color on this. If you could sort of break down and let us know how much the incremental salary cost is coming from the increments that we have made and how much would be from the variable portion of it due to the higher business activity. Also on the digital spend front, if you could sort of give us some guidance as to how these spends are ramping up and like how much spending we are expecting to do on an annual basis on the digital spend? Yeah. On the salary cost, the increments constitute around INR 22 crore, and the variable cost provisioning will constitute around INR 40 crore-INR 45 crore. There have been some new additions as Mr. Vellayan was talking. We have added a few new positions, et cetera. Those costs have also got added. Broadly this is the number and then there is some amount of variable pay to the ground staff, because they have also improved the efficiencies during the current quarter with regard to collections as well as the disbursements. That would be the numbers. Sir, on the digital spend? Digital spend, I don't think we've increased that significantly yet, right. If we do obviously. Yeah, if we do obviously start moving on that front, then we will let you know. Like I said, I mean, it's a work in progress about how we're approaching it. There's been nothing to increase that spend right now. It will be more OpEx than CapEx type of work. Okay. That's Thank you. The next question is from the line of Chandrasekhar Sridhar from Fidelity International. Please go ahead. Hi. Just want some color on the fee to business this quarter. The fee that you're using, you used to run at about 4%-5% fee to total income. It's moved to about 7%. Maybe just some color on that and what's driving this. Then just, you know, on the home equity business, we've seen a gradual NIM expansion over time. You're now heading at close to about 4.8% NIM. Just some color again on, you know, what's driving that. Thank you. NIM expansion and home equity. Why are we at 4.8%? What's caused the NIM expansion? Yeah. That is Yeah. Yeah. NIM expansion is primarily the cost of funds reduction and some amount of yield improvements also is reflecting out there. one, two, three. Yeah. Are you also doing maybe different customers now versus what you were doing earlier and able to get better deals or something? No. We are moving progressively into some amount of Tier II cities. So that would also give us a slightly better yield. Right. Just on the fee income, because it seems to have moved up pretty meaningfully. Is there something specific which we need to know about that? See, that relates more with regard to the disbursements, et cetera. Actually what has happened is over the last few quarters, the quarters are not being comparable at all. It is becoming a bit of a, you know. It looks like there is a spurt, that, but that's not the case. Okay. Thank you. Next question is from the line of Aditya Jain from Citigroup. Please go ahead. Thank you. Could you talk about the. You, Aditya mentioned you've classified a decent portion of restructured loans as Stage 2, despite the fact that they are paying. Could you talk about the policies for upgrades? What kind of performance would you look for, and how are they tracking against that performance now? Secondly, maybe this relates to the previous question. On the LAP disbursements have been quite strong. What is driving that? On the tractor, QoQ, we've seen a reasonable decline in disbursements. What is that variability QoQ? Maybe temporary seems more than normal. Those are my questions. Okay. See, bulk of the Stage 2 is already in Stage 1 only, but we have grouped them under Stage 2. There is nothing, you know, you know, to make it better from where it is today. What will happen is, as per RBI guidelines, almost like 20% of the outstanding funds needs to be collected before we could reverse the provision. We are right now wanting to follow the same mechanism to look at, the reversal, I mean, the movement from Stage 2 to Stage 1 as we go along. That's on the Stage 2 to Stage 1 part. With regard to the tractor, I think that's more seasonal. Yeah. For tractor last quarter, which is Q2, the industry was again, you know, building the inventory for the festival season, October, November, December. We have seen that October has been good for the industry. October, last month, you know, industry sold INR 1 lakh units after a long time. Therefore, the disbursement is aligned with the industry number. Our disbursement is also in a similar pace only. We haven't lost market share, and it is actually remaining very strong frame level. Thank you. The next question is from the line of Shweta Daptardar from Prabhudas Lilladher. Please go ahead. Your reposition losses are also being included in ECL evaluation besides normalized losses. If you could throw light more there, and also what has been the reposition scenario because one of your key peers have been seeing meaningful upside in reposition. What's your view out there on the ground? You're talking about the repossession of the vehicle? Yes. Yes. If you see that H1 number in terms of the repo sale, this remains flat. Q1 last year, reposition repo sale was higher and the Q2 was lower. This year Q1 is lower and Q2 was higher. If you add both the number, this come into the same level. Therefore repositions are at the same in terms of the repo to the overall asset is at the percentage of that on YTD basis is same level. Thank you. The next question is from the line of Sanket Chheda from B&K Securities. Please go ahead. Yeah, my question was answered. Thanks. Thank you. The next question is from the line of Piran Engineer from CLSA India. Please go ahead. Yeah. Hi. Thanks. I just have a couple of clarifications, sir. In vehicle finance, last quarter our restructured book was INR 2,250 crore and it's gone up to INR 4,200 crore. Are my numbers correct? Let me just check. I gotta check it out. What is the next one? Like, you have any more? The next one is also on when Kundu, sir mentioned about the roll forward rates. He mentioned that it was 2% in September and it has declined about 1.75% in October. If I recall, last quarter in July you all had mentioned it was 1.5%. Is it a seasonal thing that in September, October it increases or Yeah. Is there anything more to read into it? Yeah. Correct. You're right. In the month of July it was 1.45%. In August, 1.6%. In September, because of the floods across the country and heavy rain, it went up to 2%. It has come down to 1.776%. For the quarter if you see that, it is around 1.6% for the last quarter. This month is actually again come back to the beginning. It itself is a very good 1.76%. Okay. Thank you. Piran, it has been an increase of INR 900 crore in this quarter. INR 900 crore. Okay. Got it. Thank you. Thank you. The next question is from the line of Harshvardhan Agrawal from IDFC Asset Management. Please go ahead. Yes. Hi, sir. Thanks for the opportunity. I just wanted to clarify. Harshvardhan, sorry to interrupt you. You will have to speak louder. Yeah, sure. I hope this is better. Just wanted to understand. You said that restructuring book is at INR 4,750 crore. The breakup that you gave, when I add that up, the number comes to around INR 5,300 crore. Just how do I reconcile the difference, sir? INR 5,000 crore. You're talking about overall Chola? You're talking about overall Chola or Vehicle Finance? Sir, overall Chola. The restructuring book you mentioned. INR 4,200 crore is vehicle finance. INR 600 crore is HE LAP and then INR 300 crore is home loan. Sir, if I were to add this number that you just shared, it is INR 5,300 crore. But in the press release, the restructuring book was at INR 4,700 crore- That would be restructuring book, but then something would have also been paid back, you know, run off would have happened. Those are the numbers. That is, see, the press release anyway wants disclosure on what had been restructured. There is at various points in time. At the time of restructuring, what is the book is the total of that. Okay. These repayments mostly would have come from the vehicle finance book. Is that understanding correct? Can be anything. I mean, I can't. One point o- Hmm? We count on the one point. Yeah. Predominantly, yes, but I mean, we can't. I'm not able to immediately draw a conclusion. Okay. Sure. Thanks. That is it. Thank you. Thank you. Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Mr. Nischint Chawathe for closing comments. Joining us today, thanks a lot to the management for giving us an opportunity to host the call. Happy Diwali to everybody. Thank you. Thank you. Thank you. Thank Thank you, Nischint. Thank you very much. On behalf of Kotak Institutional Equities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.