Ladies and gentlemen, welcome to the Q2 FY 2022 results conference call of Arman Financial Services hosted by Emkay Global Financial Services. We have with us today Mr. Jayendra Patel, Vice Chairman and Managing Director, Mr. Aalok Patel, Joint Managing Director, and Mr. Vivek Modi, Group CFO. 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 would now like to hand the conference over to Mr. Manjith Nair from Emkay Global Financial Services. Thank you, and over to you, sir. Hi, this is Manjith Nair. Good evening, everyone. I would like to welcome the management team and thank them for this opportunity. I shall now hand over the call to the management for their opening remarks. Over to you, Jayendra. Thank you, Manjith Nair. Jayendra right here, Managing Director of the company. I would like to, first of all, say good evening, everyone, and thanks for taking time out of your busy schedule to join us over this call to discuss our financial performance for the second quarter and half year ended FY 2022. We have issued a detailed press release and investor presentation for the quarter, and I hope all of you had a chance to review it. I will start with a brief overview of the industry and business during the last quarter, and then we'll move to our financial performance. The quarter was marked by a rebound in rural economy, along with the improving consumer sentiments and unlocking of most geographies post the second wave of COVID-19. Our cautious approach and conviction, along with the experiences gained during the 2020 lockdowns, helped us navigate smoothly through the challenging times. With the vaccination programs organized by the company across locations, majority of our employees are vaccinated, which will enable smooth running of operations in future and more closer customer interaction. As I have said in the past, our customers have a tendency to bounce back fast, which was clearly seen during the last quarter with the rise in collection and improved disbursement on the back of pickup in demand. Moreover, continued government support towards NBFCs and various relief packages for the revival of economy in the form of loan guarantee schemes, ECLGS, and MSME revival schemes will surely bring the economy back on track. I will now give a brief overview of our financial performance for the second quarter and post that touch upon liquidity disbursement and collections in more detail. Coming to the brief overview of our financial performance for the quarter. Consolidated loan book as on 30th September stands at INR 908 crore, higher by 29% year-over-year. Substantial reduction in COVID-19 cases and unlocking of economy across most of our geographies led to higher AUM growth. Segmented AUM for microfinance stood at INR 742 crore, higher by 42% Y-on-Y, and MSME stood at INR 125 crore, higher by 5%, while two-wheeler stands at INR 42 crore, down by 33% Y-on-Y, as two-wheeler sales declined in the last one year given the challenging economic environment. That, coupled with higher repayment rates, led to a rundown in the portfolio. Consolidated loan disbursement during Q2 FY 2022 stood at INR 267 crores, up by 425% Y-o-Y, as the COVID situation started getting normalized and even the rural economy witnessed an uptick in demand. The total MSME and two-wheeler disbursement in Q2 were 35 crores and 11 crores respectively, while microfinance disbursement stood at INR 220 crores, higher by 469%, mainly due to bounce back in rural economy post second wave and our increasing effort with the performance of the post-COVID disbursement asset quality. Gross total income fell down marginally by 2% Y-on-Y to INR 51 crores, and net total income declined by 6% year-on-year to INR 31 crores. Fall in gross income mainly due to the fall in interest margins on microfinance portfolio as the yield on that portfolio is regulated by the Reserve Bank of India. Profit after tax increased by 220% Y-on-Y to INR 4.9 crores, aided by lower provisioning requirements due to better asset quality of loans disbursed post COVID-19 since September 2020. Consolidated gross NPA stood at 5.6% and the net NPA stood at 1.1% for September 2021. Loan impairment cost of the quarter reduced to INR 8.7 crores. The company prudently took extra provisions of INR 4.1 crores and took write-offs of INR 4.6 crores. Higher provisioning coverage will help the company deal with potential asset quality risks arising on account of COVID-induced disruptions, while aggressive write-offs are aimed at reducing the NPA burden of pre-COVID doubtful assets. Cumulative total provision stood at INR 62.1 crore as on 30th September 2021, covering 6.8% of the book AUM. The company enjoys healthy liquidity position with INR 147 crore in cash and bank balance, liquid investments, and undrawn CC limits. The company has repaid all its debt obligations that were due in Q2 FY 2022, with debt equity ratio of 4.05x as on 30th September 2021, and shareholders' equity stood at about INR 194 crore as on 30th September 2021. AMM continues to remain positive, and the company continues to have access to new source of funds due to company's robust balance sheet and prudent lending practices. The company recently received a rating upgrade of A- from Acuité with a stable outlook despite strong headwinds. I repeat, we are now into an A level of credit ratings, which I'm absolutely proud to announce that most of the NBFCs, most of the MFIs are not facing such a favorable wind. We are lucky to have our rating upgraded from BBB- to A-. Coming to the collections. Collections in microfinance business, which was impacted during Q1 FY 2022 due to second wave, has recovered consistently during the Q2 FY 2022. Collections were severely impacted mainly due to COVID second wave restrictions since our collection executives were not able to visit door to door for recovery. However, with the easing of restrictions, there is steady recovery in collections in Q2 FY 2022. Post-COVID, disbursement loan book collection efficiency stands at 99%. I repeat again, post-COVID disbursement loan book collection efficiency stands at 99%, which I am very proud of it. I must say that whatever disbursement we have made post-COVID, we are enjoying absolutely 99% recovery rate. Collection picked up as the repayment rates reached 99.92% in October 2021 from 89% in July 2021. Two-wheeler and MSME collections continued to be well north of 95% during October 2021. Keeping in mind our long-term growth plans and to enhance the customer reach, we have planned expansion in our branch network from 250 branches as on September 2021 to 291 branches by March 2022. The company has already initiated recruitment process for the branch expansion. Going by our asset-light business model, the CapEx for the same will be minimal. We believe that we are on a strong footing looking at the buoyancy in the economy, coupled with our strong balance sheet, adequate liquidity, capital, improved credit rating, along with stronger relationship with our lenders. This places us in the forefront to drive growth. We stand guided by our long-standing commitment of reaching the most underserved sections of the society in making a difference in the lives of those who need it the most. Our focus will be on scaling up disbursement in a calibrated manner to maximize revenue growth going ahead, while keeping a closer watch on building profitability and maintaining the quality of our loan book. Arman over the period has faced many challenges from external environment in form of regulatory challenges, demonetization and COVID, and every time we have managed to emerge stronger. We thus feel that with the worst behind us, we are well-poised to achieve a growth and harvest the benefits of fairer weather. We are optimistic about our future growth and earning potential, and believe that we are well-positioned and have a stronger foundation for the future which can provide a sustainable and profitable growth for the long term. Finally, to conclude, I would like to express my sincere gratitude to all our stakeholders for their continued support during this very difficult time, and a special vote of appreciation for the company's field staff who continued to show perseverance during the difficult times. I now would request the operator to open the floor for the question- and- answer session. Thank you very much, all. Thank you. 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 your 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. Reminder to the participants, anyone who wishes to ask a question may press star and one. The first question is from the line of Deepak Mehta, Individual Investor. Please go ahead. Deepak Mehta, your line is open. Yes. Hello. Good evening, sir. Thank you for the opportunity and good set of numbers. Sir, my question is around the SME segment. How is the traction in the recent quarter, and how do you see growth in the coming years and coming quarters? The disbursement has of course picked up in the last quarter compared to the previous, you know, three or four quarters. We have a run rate of about INR 15 crore of disbursement in a month. Of course our target remains much, much larger. However, the underwriting has been kind of tightened since COVID and we have not relaxed it. Probably in the fourth quarter, if we relax it will go up another 20%-25%. Generally speaking, a lot of the growth for the coming quarters or year, I should say, will be through branch openings. I think, as Jayendra said, we are opening some 40-odd branches in the microfinance segment in, you know, in December, January and February time frame. In about February and March also we should be opening a lot of the MSME branches as well. That disbursement hopefully should at least increase by 30%-40% by Q1 of next year. Okay. Thank you, sir. My second question is around, so lot of companies, new companies, especially FinTechs, are coming in the SME segment. Correct. If you see recently, Paytm has also tied up with SBFC Finance, and in the long term, in the con call of Paytm, they announced that they are willing to, you know, get into the lending business through the route of SBFC Finance. How do you see this space? Or do you have any plans to tie up with fintech or to, you know, launch any FinTechs kind of business? No, I mean, I think it's a different product altogether. Although, I mean, I always say this, that MSME is a very, very broad term. It includes loans of INR 1 lakh and loans of INR 10 crore also sometimes. It includes urban loans and rural loans. We are servicing a completely different market segment. The customers we service are not, I mean, not the target segment of the FinTechs. The FinTechs are more targeting the urban kind of higher educated, more formalized segment. We don't really look at that, the emergence of the FinTechs as much of a threat on our model. You know, as far as tie-ups or anything, I don't see how exactly there will be synergies, but if something does come up, I'm always open to any kind of a tie-up. Thank you so much. I will get in the queue, sir. All right. Thank you. Thank you. The next question is from the line of Amit Mantri from 2Point2 Capital Advisors. Please go ahead. Hi. Hello. Hi, Amit. Just on credit costs, what has been the percentage credit costs that Arman has incurred in the MFI and MSME business due to COVID so far? I mean, you mean on a static pool? You mean on the current pool? Pre-COVID book. Pre-COVID. March 2020 book, basically. It will be, I think, 6 point something. You know, approximately. No, the overall write-off that you would have done, Amit, for the pre-COVID book already, which has been taken off or written off, will turn out to be about 3.5%. Correct. And volume? We have another 6.5% of provisioning. Of provisioning. That is on the current loan book. I mean, they include both the current as well as the pre-COVID book, which is part of the NPAs, you know. I mean, to get into the numbers again. About 3.5% has already been written off. The provisions that lie in terms of INR 62 crore have approximately INR 40 crore of NPA provisions. Now, NPAs typically almost 70%, almost 90% of the NPAs that we have on the books are the pre-COVID book NPAs, which have become regular in terms of paying the you know installments over a period of time, which got a setback in November 2020, then again maybe the second wave again. These people have shown the resilience, but have also got, you know, the consistency of the repayment has got hampered due to various circumstances. They continue to be on the books, and they kind of are adequately provided at this point in time, if we can put it that way. Okay. We have done some restructuring. How big is the restructured book, and what is the provision against that? Yeah. Restructured book compared to today's portfolio will be very small now. It will be about less than 4% of the book. No, not even 4%. I mean, the restructuring predominantly was for the microfinance book, wherein the restructuring was about INR 26 crore. That is in December 2020. I would not have the exact number, but, you know, a large component of that has already been repaid or, you know, part of the NPA books and adequately provided for. Okay. This was in December, Amit. There was no further restructuring. Anybody who didn't re-start repayment will already be in NPA, right? With regards to second wave, you had not done any significant restructuring, is it? No. There was no restructuring. There was for the ones that we could not reach out to in the microfinance segment and those who were standard assets. SMA one, so those were like completely clean accounts as on March 31st. We did provide moratoriums ranging from one to- Yeah, exactly. That also limited only to the microfinance book. As far as the MSME and two-wheeler is concerned, there were no moratoriums or restructuring given to them which ended. The first wave. The first, yes. Okay. In the MSME book, you know, the collections have been fairly good, you know, consistently greater than 90%. But yet, that's the only segment of the book where the GNPA has been rising. Can you explain that? Couple of reasons. One is what I think Vivek already said is there was no restructuring, there was no moratorium or anything given on that book. Partly because there was sufficient kind of profits and stuff available to just kind of take all of that upfront. The second reasoning also is that if you look at the microfinance segment, there was a bit of a denominator impact where the portfolio has gone up significantly. In the MSMEs, it's been a little bit slower to move up. On a percentage terms, it appears to be a little higher. We are still around pre-COVID levels when it comes to the overall portfolio of the MSMEs. The AUM of MSME vis-à-vis March 2020 is still at about 10% lower than March 2020. The denominator that way is lower. Okay. Now that, you know, you've started growing again and already debt to equity is 4x. Within next few quarters, you might touch maybe 5x debt to equity. What's the plan now on raising equity for supporting this growth? We are obviously, I think, as I keep saying, it's no big secret. We are open to some equity kind of a dilution given the right opportunity. Right now we are, as you said, about 4.05x debt to equity ratio. Basically if you work yourself forward, we are good till about INR 1,200 crores worth of AUM. If you offload some of that as a DA transaction, in that case, and which there is at this point substantial interest to do that, maybe you can delay that a little longer. On September we had an AUM of about INR 908 crores. We have a few quarters before we absolutely need equity. It is not in a rush. Yeah, in the next three, four quarters probably some transaction or another will come along. Especially once the sentiments improve around microfinance and that new white paper that comes out, I think that will add a lot of, you know, valuation kind of support towards an equity raise. Now the provisioning has started coming down on a quarter-on-quarter basis. Is there further provisioning required on the pre-COVID book that was a challenge? No, there will be some, but as you said, it will continue to trend down. I think the worst is behind us. Overall, the trend you will see in the coming quarters is, well, I don't want to give out any indicators, but let us say it will continue to go down in the coming quarters. As long as we can maintain the new book that we have created at 99% repayment, with touch wood, hopefully we should be able to. I don't foresee too much. It's not going to be zero, let me put it that way. Mm-hmm. It may continue to trend downwards. Sure. Okay. Thanks a lot, good luck. Thanks. Thanks. Thank you. The next question is from the line of Mihir Desai, from Desai Investments. Please go ahead. Thank you for the opportunity. Sir, one, my question would be on branch banking. As you have mentioned that, you are planning to add some 40-odd branches, in March, by March 2022. Mm-hmm. sir, can you throw some light on the roadmap of this? Like, can we see some few branches coming in quarter three, or can you please throw some light on this? Yeah. It's a little premature, but overall, you know, about approximately around 20% we are planning to open in December. Then, about another 31%, 30%, 30% and 20% more in January, February and March. By March, we are hoping that all the openings will be completed. But that being said, next week, we are having like sort of a management retreat over three days to kind of decide which areas and what areas we want to expand on. It's a bit premature to give you a definite on where, how many will exactly open, where, what parts of India we intend to open it. 40% is basically an indicative number, but if we don't find that much potential, it might be less than that. If we find more, it might be a few more. Let's see. Sure. Sir, a follow-up on this. As the banking industry as a whole is, you know, looking at a digital growth. Yeah. Where many NBFCs and banks are, you know, planning to cut down some of the branches which are, you know, not performing and add more towards digitalization. Correct. sir, how will it make sense, over, you know, we expanding, couple of new branches? I just wanted to know strategy of your on this part. Our branches are very light, specifically. I mean, the operating cost, largely speaking, is employees, right? I mean, the branch rent and the CapEx that goes into a branch is not very, very high. In fact, we shut down branches or combine branches and stuff all the time. You are right. The new buzzword is digital, fintech, AI, machine learning, all of that stuff. Mm-hmm. Whenever, of course, we are very much technologically driven, we continue to expand on technology. Right now we have a project running for MSME and two-wheeler to convert it completely into a digital-driven, paperless, you know, all the other, fancy terms you want to add behind that, we are going towards that. Microfinance, we had about a year and a half project to convert it into mobile-based, cloud-based kind of driven. Largely speaking, we are an MFI, we are a microfinance company. We are servicing customers who are not able to go digital. If they were sophisticated enough to, you know, take a loan from their mobile phone- Mm-hmm. You know, pay their EMIs through, you know, cashless modes and all that other stuff. Frankly speaking, I would be out of a business, right? I mean, my job is to serve the segment who cannot do that. Believe it or not, that is the majority of India. Urban India is different than rural India completely. You know, us sitting in Bombay or in Ahmedabad or in all the metro cities, it's largely a different world altogether. I don't see that as much of a threat, as I said earlier. Yeah. Yeah, digital is obviously there, but I don't, I mean, frankly speaking, the fintech term has become quite a big buzz. I have studied a lot of FinTechs. I mean, at most we are seeing the companies coming up are FinTech-ish. You know, a true fintech I have not seen yet, at least not a successful model yet. Anyway, I'll hold my further comments on that. Sure, sir. Thanks for well detailed answer, sir. Now coming towards provisions. Currently just looking at the provisions, are the current provisions sufficient for write-off in near future? Or are you planning to increase the provisions going forward? No. As I answered Amit also, I think, the tendency was for the provisions to be quite high for the last six odd quarters. Mm-hmm. This quarter they have come down. I cannot exactly tell you what the future will look like, except to say, I expect, strongly expect it to trend downwards. Mm-hmm. I mean, obviously I would be completely remiss if I said that we are done and dusted and, you know, obviously it's not going to be zero. It will be lower and will continue to get lower as time goes on. Understood. Sir, lastly, on the industry front. Sir, as I had heard recently that we were seeing or we were eyeing that the retail loans can go bad in this cycle of NPA. Sir, just wanted a ground check from you, like you being into business, how do you see this kind of portfolios or are they doing good? Their payments and repayments and all are good as of now, right? Well, probably, you know, a lot of people on this call will have a better answer than I do. Largely speaking, the loans that I have made post-COVID, that is when I started disbursements again in August or September of 2020, about a year ago, those are behaving extremely well. You know, surprisingly, even better than I expected. But, you know, we were very picky, so we tightened the underwriting, as I said. Only people who are absolutely clean, we gave out loans to them. So we sacrificed disbursement in exchange of trying to build a better quality. So far it has seemed to work. I don't know if it was overkill or not or anything. It's early to comment. We are not facing any large issue like that. I would say that the worst is behind. The first lockdown was bad. The second lockdown was in some ways shorter, but in other ways worse than the first lockdown because of the heavy human casualties and the sicknesses and all that other stuff. You know, I'm ready to be done and move forward and everybody in this room is kind of ready to move forward. Let's hope at least that the worst is behind us. Sure, sir. Thank you for answering my questions. If I have further questions, I'll join the queue, sir. Thank you. Thank you. The next question is from the line of V. Srinath from Bellwether Capital. Please go ahead. Hi, Aalok. Just want an update on, you know, want to understand our growth momentum or what are we looking at in the MSME space. Also want to understand if MSME is also on incremental loans post first wave at 99% collections. The second answer is easier to answer, which is yes. That is also behaving about the same. I think that is at 98.8%. So about almost 99% in the MSME side. As far as the growth is concerned, see, I think my answer is pretty similar to what I gave in the, with the first question I got. I'm committed to grow it out. We have tightened the underwriting norms. It seemed that the disbursement pickup has been lot slower than it has been in the micro. It's always been the case because it takes the right kind of customer to disburse in the MSME side. But we are planning to open some branches. We are probably going to not step back completely from the tighter underwriting, but maybe meet it halfway. You know, I expect the disbursements to pick up by at least 30%-40% in the coming couple of quarters. Understood, sir. Few branches in Rajasthan. Have already come up. Yeah. A few branches in Rajasthan, we have already opened as kind of a test. Those are doing well. Overall, you know, collection causes a huge amount of distraction also on the field. MSME, as you know, is also a door-to-door collection, so is the MFI, and I don't know. I don't have any better answer to give you about the growth side, except to say that. Sir, on the growth side, just want to understand, because you've tightened the norms, rejection rates have gone up or lead pipeline itself is not filling up because they're not, maybe not business opportunities on the other side, you know, because we see the disbursement trajectory in MFI has been significantly better. Yeah. It's a combination of couple of factors. One is the rejection rate is quite high, so almost 70% plus is the rejection rate. The pipeline also is kind of slower to come in, and that has to do with your branch efficiency. When they are spending a lot of time on the collection aspects, obviously the time which they can spend on generating leads becomes lower. It's a combination of a lot of different things. Again, in the fourth quarter, we managed, solved, I don't want to say solved, but we have managed improving the disbursement of microfinance by quite a bit in this quarter, you know. I think next quarter we'll concentrate on the MSME side and work out all the whatever kinks that are there to on the disbursement aspect. Perfect. Perfect. On the two-wheeler, the INR 42 crore book now, what would be the size of the rural two-wheeler here? I'm guessing the INR 11 crore disbursements are largely in the rural two-wheeler space. The rural two-wheeler is almost 25%, about INR 10 crore there. In terms of the disbursements, I think that will be again in the same ratio of 75-25%. Got it. How do we see this business kind of going forward in the sense of like, are we looking to build a rural two-wheeler book over a period of time to like INR 50 crore-INR 60 crore? Is there an opportunity or depth of opportunity there? Or, you know, are we looking to kind of slowly get this division, you know, wound down over a period of time? No, there definitely is a desire to do that. As you said, right before COVID, we kind of started it as a pilot, if you recall, through that book. Due to whatever COVID disruptions were there, you know, it created so many distractions for other stuff that these kind of pilot projects were left on the sidelines. As we continue our growth and as we continue getting out of this COVID related disruption, I think there is room for other products also. Hopefully we'll be picking up the rural two-wheeler through our MSME branches and also maybe higher ticket loans on that side as well. My guess is that at least over the long run, you'll see a lot of product innovation on that domain. Perfect. Just the last one is these branch expansions we are having, any kind of broad geographical feel, you can give as in which are the states you're looking to expand and what's working for you? A lot of areas in UP we are considering. We are considering Bihar as maybe another geography. Certain areas of Bihar as another geography to expand. Not going to expand in Maharashtra or largely speaking with MP. Maybe a few branches more in Haryana and Rajasthan. Again, we have a huge list of areas to consider. I am not an expert. I think my field people are better experts. Usually, as I said, we have a management retreat where a large portion is discussing, you know, the areas of expansion and where the opportunities lie. Once we get those, we'll do surveys. We'll get reports from the credit bureaus of how their behavior has been. Largely speaking, you know, a lot of those reports will not give a true picture because- High Mark. Yeah, the High Mark reports. Exactly. Because of the COVID related overdues and stuff, you know, it would be very difficult to kind of assess the numbers exactly. You'll have to use a combination of numbers and experience to kind of narrow the list down. Cool. Thanks. Thanks, Aalok. I'll get back into the queue. Thank you. Thanks a lot. Thank you. Thank you. The next question is from the line of Balakrishna Lagasya from Axon Owl Investments. Please go ahead. Good evening, sir. Yes, as you mentioned earlier that collection efficiency of post-COVID loan book is 99%. I wanted to understand this post-COVID loan book is post first wave or post second wave? Post first wave. Starting from August 2020. Okay. My second question is related to consolidated PNL, where in other costs there is a I mean, almost everything is same, except two things. In credit cost and the other costs. You have an increment of, I think, INR 3 crore. Earlier it was around INR 2.5 crore, now it is INR 5.5 crore. So can you throw some light on the attributes of those increment? I mean, what does it relates to or something like that? I think you are talking about last year versus this year or other expenses? Quarter- on- quarter. Q2 FY 2021, provisions and write-off were INR 18.6, and this quarter it is INR 8.7. There's a 54% reduction, correct? Or am I looking at the wrong one? No, no, I think what he's asking was for the other expenses which have moved to INR 5.5 cr from INR 31 cr. Primarily if I can address that, when you're looking at H1 2020, there had been literally no disbursements during that 6-month period. Your credit costs in terms of the credit bureau cost, the disbursement cost, the travel and conveyance kind of expenses were very low. As compared to that, you know, FY 2022, quarter two has been largely business as usual kind of a quarter, and hence, these costs have come into play again. Correct. It's directly related to the disbursement cost. All right. Thank you so much. Thank you. The next question is from the line of Debashis Neogi from Digitization Investments. Please go ahead. Hi, Aalok. Hi. Hi. Aalok, your answer to the previous question of Amit, just want to kind of drive, you know, the provision is 6.8% of advances and already write-off of COVID loans has been 3.5%. 3.5% has been written off and 6.8% is the provision. 6.8% is the total provisioning. Total. Out of that NPA provision. We are under ECL now. Under ECL, the NPA provisioning will be what? About 40%—NPA is about 40%, INR 40 crore. Approximately the NPA provision out of the INR 62 crore in absolute numbers. Right. Okay. That's where I think the difference will be there. Yeah. Right. Okay. The second question, Aalok, given we know. You know, I'm asking this question as an industry, you know, player, given that you are grounded, you work in the market and you know what is happening around. This 92% collection efficiency optically appears low, but when you compare the other players maybe against other players, most of the players we are better off. There are some who are reporting much better than 92% collection efficiency. For example, you know, CreditAccess Grameen is reporting 94%, 98%, the way their presentation shows. There would be some who are reporting much higher. The disparity is too large. What do you think the reason for this? Is it the way they are or some of the players are treating the NPA, you know, what has been provided for this out of collection efficiency you are reporting? You're absolutely right, that is a bit of an anomaly. A couple of things that I don't have an exact answer. Couple of things I can add and then maybe Vivek can give his opinion as well. It depends on how fast you are growing, so you can have a denominator effect there. B, if your strategy is doing top ups or net off loans, that might have some bit of an impact. C, you could be doing restructuring. D, there is no standardized way to calculate collection efficiency rates and in fact, I don't particularly care for it as well. This is, you know, the first time people have started using it post-COVID. I think even in demonetization there was not a big concentration on collection efficiencies because a lot depends on the tenure of your loans and how quickly maybe they might be contractually the loan might be over, but there still might be an overdue and stuff. So I don't know, yeah. I'm not sure. I think maybe a better comparison would be looking at par numbers or NPA numbers and stuff like that. Because it could be also that people, once you know, provide for an asset, then maybe they don't include it in collection efficiency as well. Vivek, anything? No. Largely, Aalok, I think you've covered majority of the variables that could be taken into account for, you know, calculating a collection efficiency for any organization. Additionally, we've also seen that within the NBFC space, there have been various different methodologies for providing moratorium or restructure. So there are organizations which have moved on to only interest recoveries. So as long as the interest recovery has happened, they've kind of taken it as 100% collection efficiency. Some have restructured, were given moratorium, March 2022. There are. It is very much. It's actually quite anomalous also. I mean, I'm not going to name any competitors, but there are competitors who are reporting worse collection rates doing better than me. There are ones that are reporting better NPAs, better collection efficiencies but reporting huge losses. You guys will know those much better than me. I think collection efficiency can be whatever you want it to be if you are really motivated. There's no set formula, there's no RBI formula or anything like that. If you had to break down the collection efficiency of ours between the regions, is it Maharashtra still? Is it trending up? I think your voice was not clear. Say that again. What I'm saying is, Aalok, if you had to break down the collection efficiency between states, is it still Maharashtra because of the. Yeah, Maharashtra will be the worst. Correct. Maharashtra will be the worst, followed by Madhya Pradesh, followed by, which one will it be? Uttar Pradesh. To certain extent, Rajasthan. Rajasthan has always been consistent, but Rajasthan got impacted in the second wave. They're back to their pre-second wave kind of collection efficiency. Ranking from worst to best would be Maharashtra, then MP, then Eastern UP for that matter, I think. No, UP is doing the best, but UP, Western UP. Western UP. Eastern UP is worse. Haryana would be the best with 100% collection, but we just went into there. How much is Maharashtra now? Is the trend improving? How is it now? Maharashtra is actually the one pulling us all the way down, it's about 84%. Otherwise, every other state is much more than 90%. Okay. Do you see Maharashtra moving up in terms of as a trend? It's moving up by about a couple of percentage points every month. We are not disbursing a lot there, so there is not a lot of new portfolio to kind of you know offset the bad portfolio. Largely, Vivek, as you've been addressing the Maharashtra side, what happens is when we went into COVID, Maharashtra was about 22% of the portfolio. Today it stands at 15% and in terms of disbursements accounts for about 10% only. Largely the Maharashtra impact will keep on diminishing and hopefully if the collection efficiency can keep on improving over a period of time, that will add up to the overall rate. No, Maharashtra has been a bit of a thorn in our foot for some time. If we could reverse time and I don't remember who decided to go into Maharashtra, most likely it was myself, but I deserve a big kick in the back for that one. It happens individually. You know, ups and downs happens. Thank you, Aalok. Thank you, Vivek. Thank you, Jayant. Bye and all the best. Thank you. Thank you. Participants, to ask a question you may press star then one. The next question is from the line of Sumit Goenka from MP Investments. Please go ahead. Mr. Sumit Goenka, your line isn't open. Go ahead with your question. Mr. Goenka, please unmute your line from your side if muted. As there is no response from the current participant, we'll move on to the next question from the line of Vinay Sabnis from Sabnis Financials. Please go ahead. Vinay Sabnis, your line isn't talk mode. Please go ahead with your question. Hi. Good evening. Sorry for the delay. Yeah, thanks for taking my question. I have a question around disbursements. I've seen over the last few quarters the trend is actually improving. What is the current plan to expand the branch network and how does the disbursement level increase with the increasing number of branches? For FY 2022, what will be the closing branch count? FY 2022 closing branches will be, I think, 291. As far as the branch expansion, I think I'll give the same answer as I gave earlier, that we are not sure exactly. We have kind of a figure in mind of about 40 branches in microfinance. In MSME it might be more, but we have not decided that, so we'll take it up after this planning is complete. As far as disbursement goes, it will not add a lot. See, opening branches there's a lead time of about 3-6 months. Once you open a branch, it takes like about three months for it to start adding to your disbursement. Otherwise, in the initial first month or two, it might be only some INR 10 lakh or INR 15 lakh. This is more planning towards FY 2023 than anything else. This year also disbursements are improving month-on-month. I think last month we did about INR 100 crore taken all together on a consolidated basis. Every month we are increasing it by about 5-odd%. I think we will be very close to INR 1,000 crore, if not this month, next month from an AUM side. Yeah, that will be a kind of a big milestone for us. Great. Just a follow-up, a very broad macro type of a question. We see that inflation across most industries is already up, and even on the retail side, it's bound to increase maybe over the next few quarters. In the customer segment which we are in, do we see or foresee that we may have more disbursal rate, faster disbursal growth because of one factor? Because of? Because of inflation, like, affecting a lot of people. Inflation. You mean as far as the ticket sizes go? Yeah, yeah. I don't expect ticket sizes to increase at least for us for at least another, you know, 8-12 months. We have already increased the ticket sizes enough. We'll take it up again in maybe the second or third quarter of next year. Okay, great. Yeah. That's all from my side. Always a pleasure to listen to all your answers on this call. Please keep up the great work. Thank you so much. Thank you. Thank you. The next question is from the line of V. Srinath from Bellwether Capital. Please go ahead. Hi, guys. Just two hygiene questions. One was, could you give the state-wise breakup of AUM, the percentages so that, you know, we can understand how that's moving? The second question would be, out of the INR 908 crore of assets that we have, how much of that is originated post-COVID and pre-COVID so that we'd be able to segregate the good and the bad book? Vivek, you have the geography. Yeah. Geographically, I probably might give you a segment-wise answer. For microfinance, you know, Gujarat is 27%, MP will be about 24%. UP and Uttarakhand kind of add up to another 21%-22%. Rajasthan has now grown to almost 10%. Maharashtra has grown to 15%. That kind of adds up to the entire cake. Haryana has just started, so it's about 3% now. In terms of the two-wheeler, I mean, it's completely Gujarat-centric. As far as the MSME book is concerned, about 85% is in Gujarat. 80% is in Gujarat, about 15% in MP. The balance kind of spread between Maharashtra, four branches and couple of branches that we just started on in Rajasthan. Got it. The good and the bad book? Uh- In the pre and post. About 60% is microfinance in the post-COVID book. About 40%. I don't know the other ones off the top of my head. I know about 60% is that. That will not match up with the collection efficiency because the demand of the new and old will be different than the portfolio, right? The EMIs will be the same. The portfolio of the newer originated loan will be higher than the older originated loan. Got it. That's the runoff, yeah. 60% of the assets, at least in MFI, would be coming from post-COVID disbursements. Correct. Got it. Perfect. Thanks. Thanks, guys. Thanks a lot. Thanks. Thank you. The next question is from the line of Manish from Hansraj Capital. Please go ahead. Hi. Good evening, sir. Thanks for taking my question, and congrats for good set of numbers. I would like to know that, are we having some digital risk strategies to reach out to new customers or any developments which we are doing in digital field? Yeah. In microfinance we just finished a conversion or not just, but it's been like about a year. That has worked out quite well. Obviously there is something that is going on, one-month mini projects. Then there's a lot of projects going on right now, converting our legacy software into a newer one. I think you can look forward to it probably next quarter. We'll probably put it in the presentation of what it is we are trying to do. Again, it's LMS, LOS system, paperless and with geotagging and that we are trying to improve efficiency and data-driven decision process. I think in the next 10 years, you know, a lot of future decisions will be based on things like what occupations and what areas and stuff that they're in. It's important to start collecting all of that data to in the future rely more on the numbers rather than your field intelligence or field people's experience. That we are doing right now. As far as reaching out to the customers via digital mode, we don't have anything in the works right now. If there is some opportunity there in the future, we'll be happy to take it up. As I keep saying, we are serving basically the rural households, you know. We are basically serving people who are not dependent on digital or might be even illiterate in many cases. It's not our target segment. Okay, that's great to know, sir. That's it from my side. Thank you. Thank you. The next question is from the line of Deepak Mehta, Individual Investor. Please go ahead. Yeah. Thanks for the opportunity, sir. Sir, my question is around the disbursement and around the underwriting. Post-pandemic, have we made any changes in the underwriting? Are we prudent on the side that maybe, say, you know, the person has taken loan from another NBFC or bank and he's trying to take more loan from our company in order to repay that loan? Hope you are getting my point, sir. You are talking about evergreening. Evergreening in the sense, the loan taker want to do it, so not the company. He is asking, okay, in order for him to pay one loan, he has borrowed from the other MFI. That does tend to happen. I mean, Largely what happens, Mr. Mehta, is that the CRIF High Mark would anyway give you the lending details from other borrowers. If we are tending to be the third or the fourth lender, we anyway reject those cases. Yeah. That likely I mean, as Aalok bhai just said, yes, that would be happening in the marketplace. You cannot deny that. But the system is kind of enabled over the years and the team is enabled to kind of weed such customers out to the maximum extent possible through the process itself. Well, many people. See, there are no working capital loans available to these customers to begin with. Basically, rolling over term loans would be the only way that they would get working capital as well. It does. I'm sure it does tend to happen, but I don't think it's a large enough problem where it's affecting our repayment rates or things like that. Of course, you'll have those few bad apples. Mostly in the industry also, it's very unlikely that somebody is going to take a loan from me and prepay another person, you know. Once the cash goes in their account or in their pocket, you know, that gets mixed with everything else. So are they using some of that cash to repay their other borrowers? Yeah, of course. So do we do that as well. Aalok, we must draw the attention to the fact that there is a limit. Yeah. That's set by the Reserve Bank of India. Till that limit, he can definitely borrow. From that borrowing, he can take care of another MFI as long as he doesn't exceed his limit, which is set by the Reserve Bank. Correct. Which is, I mean, INR 1.25 lakhs as of now. Correct. Per borrower. Okay, sir. INR 1.25 lakhs. That is from all the lenders. From all the MFIs. That's why our maximum loan ticket size in microfinance is just INR 50,000. That too is very rare. That too is very rare to the fourth kind of cycle plus customer. Well, to add more complication to this answer is that this INR 1.25 lakh might go away soon with the new RBI circular to harmonize the microfinance practitioners. What they are talking about is shifting from an overall debt cap to an FOIR, you know. Anyway, but I'm not going into too many details, but yeah, stay tuned for that change as well. Yeah, got it, sir. Thanks for the clarification. My last question is, do you see in the near coming quarters the cost of capital is going down for our company? Cost of borrowing? Yes, cost of borrowing. Yeah. Yeah, it has gone down significantly. I think Vivek will add more, but I don't think it will probably continue to go down. Right. With all the cheap funding available, you know, that RBI was pumping due to COVID, I think it is probably as cheap as it gets right now. If anything, it will remain stable or maybe go up a little higher in the short to medium term. Yeah, I mean, I think that's about it. The cost of funding has definitely come down in the last 18 months. I think to large extent it has bottomed out because the benefits or, you know, relief that government was to offer has already come into play in the last 18 months, and we don't see that, you know, going down any further from here. The thing is also that whatever benefit we get from cost of borrowing, by RBI law, we have to pass it on to our customers anyway. Yes. I mean, of course, there is always an endeavor to reduce the cost of borrowing or increasing it. To a reasonable extent, we can pass it on or are forced to pass on any increases or decreases that we manage through a deduction in, you know, cost of borrowing. Okay. I think right now the margin should be not more than 10%. Right, sir? That's for microfinance. That's for microfinance or 2.75x the average base rate of the top five PSU banks. Okay. We can assume that our company has reached the optimum level of the cost of borrowing, so it should not be going below this rate. Right, sir? I mean, in the short term, I don't want to say that. Definitely, you know. I don't want to say that. I mean, the endeavor will always be to reduce it. I think as we keep growing and the ratings keep increasing and all the other stuff, I think, I don't want to say that this is the lowest it will get. Given where we are today, I think it is. Vivek and his team have done a great job of reducing it as much as possible. Additionally, as Vivek has pointed out, the rating upgrade has just happened. Rating upgrade. Right. It will surely help us in some or the other way as we move forward in the next couple of quarters. Because that's what rating is supposed to do, and that's what the differentiator largely is between the A and the B category companies. That should definitely help us and Yes, sir. This is why I asked this question because of rating, re-rating, so credit rating and everything. Thank you for honest answer and straightforward answer, and best of luck for the coming quarters. Thank you so much. Thank you. I think last question, probably. Yes, sir. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments. As always, we have no closing comments. Hopefully, everybody had an enjoyable Diwali and a good break with family. I guess it's back to work for all of us. Take care, and have a great evening. Thank you. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you. Thank you. Thank you.