Ladies and gentlemen, good day and welcome to the Q1 FY 2023 results conference call of Arman Financial Services Limited, 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 Chief Financial Officer. 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 with the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manjeet Nair from Emkay Global Financial Services. Thank you, and over to you, sir. Good evening, everyone. I would like to welcome the management team of Arman Financial and thank them for this opportunity. I shall now hand over the call to the management team for their opening remarks. Over to you, sir. Well, thank you, Manjeet. My name is Jayendra Patel, Vice Chairman, Managing Director, and good evening, everyone. It's a great pleasure to connect with all of you again, and thanks for taking time out of your busy schedule to join us over this call to discuss our financial performance for the first quarter of the financial year 2022, 2023. I must apologize for the delay in scheduling this call, but it was unavoidable. As usual, we have issued a detailed press release and investor presentation for the quarter, and I hope you had a chance to review it. Q1 of FY 2023 was a fitting start to the fiscal year, which I'm glad to tell you marks our 30- year in operation. I am pleased to inform you that we have achieved some great results in the first quarter this year despite aligning with new microfinance underwriting guidelines announced by the Reserve Bank of India on March 22nd, which involved significant background operational changes and extensive training for our large field force. The last two years were challenging, to say the least, but I'm glad to say that things are back to normal. Everything now is streamlined, and Q1 FY 2023 is a great indicator for the situation rapidly returning back to normal. With the normalization of the macro environment, the credit demand has also returned to normal as has our customers' ability to repay. Furthermore, with the new RBI regulatory framework for microfinance loans, the NBFCs will get a level playing field while allowing us to price the increased riskiness of microfinance loans. Although the new regulation is targeted more towards bringing different categories of lenders, that is M-MFIs, NBFCs, banks, and SFBs among others under one regulatory umbrella. The NBFC-MFIs stand to gain the most. Let us now go over our financial performance for Q1 FY 2023 and post that touch upon operational numbers in more detail. Coming to the overview of our financial performance for the quarter, it gives me immense pleasure to inform you that as on June 30th, 2022, our company's consolidated AUM stood at INR 1,388 crores, higher by 77% year-on-year. Our expanding branch network helped cater to new customers and geographies, aided by our organic demand growth from existing geographies, which has not only led to great AUM growth but generated high-quality assets with repayment rates of 98%+. As of June 22th, our total operational branches stood at 308 operational branches, and more than 50,000 new customers were added during the quarter. Consolidated disbursements during Q1 2023 stood at INR 380 crore, up by 212% year on year and by 12% quarter-over-quarter, despite adopting the new MFI regulatory framework, keeping the company ahead of the curve. An increased post-COVID loan demand further aided increased disbursement within the rural economy segment. Segmental AUM for microfinance stood at INR 1,159 crore, higher by 84%, and the AUM for MSMEs and two-wheeler segment stood at INR 229 crore, higher by 49%. Our gross total income increased by 59% year-over-year to INR 78.9 crore, and the net total income increased by 71% year-over-year to reach INR 50.3 crore. The increase in gross and net income was due to strong secular growth in all the categories within the portfolio. Our profit after tax increased sharply to INR 15.7 crores in Q1 FY 2023 compared to INR 3.6 crore in Q1 FY 2022, registered a growth of 336%. This was also aided by strong growth in the portfolio and significant improvement in asset quality of our post-COVID disbursements. Our consolidated GNPA stood at 3.6% and our net NPA stood at 0.3% as on thirtieth June 2022. The company has steadily created adequate provisioning to take care of the unprecedented impact of COVID pandemic, and the worst is over in terms of NPA provisioning. The debt equity ratio stood at 4.75x as of June 30th, 2022, and shareholders' equity stood at INR 228 crore. We have sufficient capital for growth in the short term. For the long term, we have announced a fund raise very recently, which is proposing to raise both tier one and tier two capital amounting to approximately INR 115 crore, pending regulatory and shareholder approvals. This is, of course, regulatory and shareholders approval. This equity fund raise is extremely important to the company to fund its growth and meet capital adequacy guidelines. This fund raise will allow us to rest. to reach at least INR 2,500 crores in AUM in the coming years. Coming to the collections, our consolidated collection efficiency improved further during the quarter and grew from 85% in Q1 2022 to 98% in Q1 2023. Collections in the microfinance business have remained at healthy levels and improved further to 99% in Q1 2023. The MSME and two-wheeler segment performed excellently in Q1 FY 2023, with 98% and 96% collections respectively. This discipline, the collection efficiencies resulted from a passionate on-ground workforce, continuous customer interactions, and a customer-focused approach. As mentioned earlier, our comprehensive branch network as on June 30th stands at 308. The expansion has given us deeper penetration by tapping into newer districts in existing states and allowing us to explore new states as well. Due to our asset-light business model, the CapEx spent on our branch expansion has been minimal, which will allow us reach branch level breakeven rather quickly. As I speak, we are transitioning to a new LOS and LMS system, which will drive us into a new technology-based growth phase in the company. New transitions are always precautionary, and we are committed to implement it by the end of the second quarter. This technology will fundamentally shift how we do business and how we service our customers. Not only will we significantly improve our clients' experience and turnaround time, but we expect these technologies to bring in significant efficiencies and reduce operational risk. The number for Q1 FY 2023 clearly seem to indicate that COVID is behind us. But we remain ever vigilant. The future appears to be bright, and with the added capital and new technology, we have all the ingredients in place to take the company into a next phase. With a little bit of luck, the first half of FY 2023 will be one of the bookmarks in the new chapter in the company's history. While we focus on growth, our foremost priority remains to maintain the quality of our loan book. A key outcome of our outstanding operational excellence is our collection efficiency, which remains robust at about 98% for Q1 FY 2023. We remain bullish about the resilience of our overall economy, and our endeavor is to serve the most unserved population of India, so that they could be also a part of India's growth story. I express my sincere gratitude to all our employees, board of directors, customers, investors, and other stakeholders for their continued support during these challenging times. I would request the operator now to open the floor for any questions and answer session. Thank you so much. Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone 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. First question comes from the line of Shubham Ajmera from SOIC Ventures LLP. Please go ahead. Hi. Am I audible? Yes, please go ahead. Yeah. Thanks for providing me the opportunity, and congratulations on great set of numbers. I have two questions. First is on the new RBI regulations for MFI where cap on interest has been removed. I would like to know, like, have you increased our interest margin for the risky customers during Q1, and what is your plan on the future? Are you planning to increase it further as well in the upcoming quarter? Yes and no. Yes, during Q1 we have increased the rates by about 2.5%-3% what it was in Q4. We are watching closely what the competition is charging, so this is in line with what the industry has increased it to. There has been an increase in our overall cost of borrowing and overall cost of borrowing for the entire market, due to RBI raising rates. Maybe in Q2 we have not raised, but in Q3 there is a possibility for us to raise by some small margin, maybe 25 basis points-50 basis points. Let's see. We have not made a decision on that yet. Okay, got it. My second question is on the impairment losses. Like we have done aggressive provisioning in light of post-COVID. Is there any recovery among that? Can we say now the impairment cost will not be much as compared to our previous few quarters or previous post, 2021? No, I mean, lot of the provisioning costs and stuff which you are seeing is not only, like, for example, Q1 provisioning will have standard asset provisioning. It will have ECL provisioning. Okay. It will not only be COVID provisioning. We are, you know, as the portfolio keeps increasing, the provision should increase. Yes, you can say that the quantum of impairment losses or provisioning will definitely not be as high as that it has been in the previous quarters. As the asset side grows, you know, in this business 1%-2% loan loss is to be expected. Yeah. Got you. Understood. Thank you. Thank you for time. Sure. Thank you. Next question comes from the line of Savi Jain from 2Point2 Capital. Please go ahead. Mr. Savi Jain, please go ahead with the question. Mr. Savi Jain, if you have muted from your phone, please unmute yourself and go ahead with your question. Since there is no reply from the line of Mr. Savi Jain, we'll go for the next, that is Debashish Neogi. Please go ahead. Yeah. Am I audible? Yes, please go ahead. Yeah. First of all, congratulations for a very good set of numbers. Also congratulations on the fundraise. Thank you. I have two questions. One is the net NPA in first quarter is very good actually. You know, it's 0.3% compared to all other listed players. I mean, there are six, seven listed players. If you take the average, it works out for them around close to 2%. Okay? The return ratios for us also are significantly better. We are there pre-COVID times, almost there in terms of return ratios and net NPA, we are better. My question to you, Aalok, is this: what we should assume realistically the net NPA numbers? Is this an aberration or we should take a higher number? That is one. Second, given the fundraise and we always said that we are going to leverage 5x to max 6x. With this fundraise, till what level of, you feel, we are done with the capital raise? Yeah, sure. Thank you. Great questions. See, as far as the net NPA is concerned, you know, I can't speak for the industry, but, lot of the NPA pains we have taken over the last, you know, eight quarters to 10 quarters. There was very minimal kind of restructuring or other kind of delaying factors which were used. I think if you compare our, let's say, repayment rates or NPA figures in previous quarters, let's say four, five quarters ago or six quarters ago, they will. They might appear higher than, you know, what the industry was reporting. I think there might be some level of timing difference. That being said, you know, I can't really say that what we can expect in the future, because you know, depending on what other kind of black swan events and stuff happen. The goal here is that to always maintain sufficient provisioning. Now that pricing caps have been removed by the RBI, I think it's prudent to be much more conservative in terms of your provisioning requirement. My hope is to keep net NPA levels to, you know, at least less than 0.5% or even, maybe even zero. Or if you know, in the long run. Sorry, Vivek, you were saying? You know, pre-ECL regime when we entered into India. Prior to that, generally, Arman has been maintaining net NPAs of much lower levels. But our converting into Ind AS accounting and COVID are kind of, you know, they sink in together. Fortunately, maybe, as Aalok has already explained, we've done a very aggressive provisioning initially in the 2021 and 2021-2022. Largely, as a result of this, I think the NPA, the net NPA has been consistently coming down, and now I think if we can actually maintain it to something like sub 0.5%, that should be a good target to achieve consistently quarter-on-quarter and year-on-year. Correct. As far as your question on the recent fundraise, assuming all the regulatory and shareholder approvals goes through, you know, we are confident of at least reaching INR 2,400-INR 2,500 crore based on this most recent fundraise. It depends on your pace of growth as well, because there'll be internal accruals based on the kind of profits that we generate. It might be higher than that, but most likely not less than that. Thank you, and all the best, for future. Thanks. Thank you. Next question comes from the line of Srinath V. from Bellwether Capital. Please go ahead. Hi, Aalok. Just wanna understand how has the business changed with the new rules? You know, do we still have group meetings or, you know, how is the collection done? Because one of the key pillars of the group meeting was that we could collect the payments at one go for like 20 people kind of getting some sort of cost advantages from that. You know, that is one question. The other question was that have you started looking at the deeper rural geographies where, you know, we did have some cost issues because of the, you know, population being less dense. Given the new interest rate structure, have we started going into, say, parts of interior Rajasthan which weren't viable at that 10% margin cap? These are my two questions. Thank you. Sure. So as far as your first question, as far as the groups go, yes, we are still collecting on a group level. We are trying to, I mean, of course it's at a very nascent stage. We are trying to go for cashless collections in some of our portfolios as well. However, we are still insisting on group meetings because that is following the spirit of the JLG. And also, as you said, it becomes operationally efficient for us to go and collect from a group rather than collecting from a, you know, individual person door to door. That is still happening. I don't foresee that going away for at least the short and medium term, until there is a significant focus that shifts to, you know, cashless collection, which I don't foresee happening for a while. Your second question was about moving into deeper rural. Yes, that is, definitely one of our strategies, and we will consider it. Our hands have been full in the past, one or two quarters, so we have not executed on that yet, but that is in the works. We'll keep you updated on that. Cool. Just to follow up on MSME, you know, how is the scale-up going? You know, have we been able to look at a slightly larger ticket size trajectory around INR 1 lakh? In the current market, have we been able to penetrate to newer geographies? What is your broad growth outlook and AUM outlook over the next one year in that segment? Because that segment seems to be the one, you know, that has not, you know, picked up to the same level as what MFI has done. Well, I mean, you know, I wouldn't say it's not picked up. I think, after doing MSME for like four to five years, you know, I think it's unfair to compare the growth level in MSME to the same benchmark as you can grow in microfinance because it takes a particular kind of customer engaged in a particular kind of business. The sourcing is a little bit harder. The rejection rates become a lot harder. That being said, you know, I think we have grown from a low point of INR 113 crore, I believe, in Q1 FY 2022- INR 181 crore in Q1 FY 2023. Quarter-over-quarter, you know, we have grown from INR 113 crore-INR 181 crore, so I don't know what that is in percentages, but No, not that way. Generally, you know, okay, let me kind of rephrase it. How do you see the growth outlook? You know, it's been one of those things where you need a slightly more evolved labor force to scale up. Rejection rates are high. Working around all these constraints, you know, where are we today and how do you see the next one, two years in this product line? Offshoot of that is we had done some pilots to, you know, look at differentiated products in this space, maybe some sort of durable financing or even, you know, slightly, you know, small, larger ticket loans in MSME, and even, say, rural two-wheeler, which was coming out of this branch network. You know, if you could cover all of those initiatives along with what's happening in MSME, that would be great. Yeah. The rural two-wheeler, of course, we are still maintaining our focus on, and that is still generating volumes, although it's It's also 30% of our entire two-wheeler book itself. It's about 30%. Correct. One-third almost. That is definitely there. As far as, you know, the other initiatives, they were kind of due to COVID, they were put a little bit on the back burner. You know, we are reviving them as we speak. We have a new chief risk officer who's taking the initiative of increasing the underwriting for issuing higher ticket loans. As I said, yeah, we had a lot on our plate in the last couple of years. You know, new projects always kind of get delayed during when you are trying to fight forest fires here and there. Additionally, Aalok. Yes. You know, talk about the IBL. Yes. Our learnings from MSME in Arman gave us the opportunity to kind of pilot the individual business loans in our microfinance, which itself is about those still in a pilot phase, but still about INR 30-odd crore. Yes. 30-40. That kind of gives us, at a group level, the reach to almost 150 branches, which are more than three years old. Correct. That IBL product is 100% cashless. We are attempting to disperse and collect money in 100% cashless method. A few things going on, a lot of lessons learned from a lot of different products. Perfect. Fantastic. Hopefully over the next two, three calls, you know, as these products, you know, see the light of day, it'll be nice if you could, in the introduction itself, kind of give an overview because, these are very interesting, you know, as you diversify your book. Thanks, Aalok. Fantastic results. Thanks for, you know, supporting us shareholders. Thanks a lot. I'll get back to the questions. Thank you. Thank you. The next question comes from the line of Amit Mantri from 2Point2 Capital. Please go ahead. Hi, Aalok. Congratulations on the good results as well as also on the fundraise. I know that solves the growth problem, growth capital problem, so that's a great outcome for the company. Thank you. My question is on the provisioning front. Now is the provisioning for the, let's say COVID impacted book or, you know, first wave, second wave impacted book, complete? And now incrementally the provisioning will be the business as usual provisioning or would there still be a higher run rate of provisioning? Because even now, I think we had this quarter also we had around 3.5% provisioning on the overall book. Going forward, will now it's now come back to sub-2% levels or will it continue to be inflated on the higher side for some time even now? No, I mean, I guess it just depends on how quickly you want to write off. To answer your first question, all loans which were troubled loans which we had created before March 2020, I mean, it depends on what you mean by COVID assets, right? Because COVID has been ongoing for two years. There was first wave, second wave, third wave. The largest issue was pre-COVID assets, which is what we call disbursements that occurred before March 2020. Mm-hmm. Those are all taken care of, right? There might be few small things related to the third wave probably, but that will be negligible overall. Largely speaking, most of the impairment of provisioning that you will see from this quarter onwards is, you know, on the post-COVID book. Yeah. The business as usual kind of a thing. Now, conservatively, I would say around 2% is what you should expect. Sure. Now many of the other MFIs, because now the new regulatory regime, are now getting into some of these other geographies where we have been present. You know, so many of them are now talking about getting into Gujarat, Uttar Pradesh, Bihar, Haryana, which are also very big markets for us or new markets. How does competitive intensity looking like now versus earlier? Well, to be honest with you, Amit, you know, it has slightly declined. I don't know why, but competition intensity has somewhat declined, and I cannot speak of why that is the case. Mm-hmm. In a lot of markets, it seems that maybe our competitors are facing larger issues that they need to tackle. Maybe they are. I don't know. I don't want to speculate. You can probably speculate better than I do, but at least in the short term, we are seeing somewhat of a decline. That being said, yes, I think over the long run, you are correct. There are south-based MFIs that are planning to move into Gujarat, you know, and there are east-based that are planning to move to the west and, you know, everybody's planning kind of expansion. One of the reasons why we moved into Bihar was for a very strategic reason as well, is because if we didn't make a move today and, you know, wanted to move two years later, it would be, very difficult at that point because, you know, the market would become very crowded. Competition is something which is always there and, you know, we have been doing it for a while. I don't have an exact answer for you, but obviously there are multiple reasons why we do get, good customers, on board and, we provide a good service to them as well. Okay. Thank you. Okay. Thank you very much. Sure. Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Gaurav Mashalkar from ICRA. Please go ahead. Mr. Mashalkar, please go ahead with your question. Mr. Mashalkar, if you have muted your phone, please go ahead, unmute yourself and go ahead with your question. Since there is no reply from the line of Mr. Mashalkar, we will go ahead with the next question. The next question comes from the line of Vinay Ambekar, an individual investor. Please go ahead. Hello. Yeah. Yeah, hi. Please go ahead. Hi. Good afternoon, Jayendra Patel, Aalok, Vivek. We're very happy with how Arman has come through these troubled times, and we're very happy how you have kind of put in place levers for future growth. While finances are an important element of this, can you kindly elaborate a little bit on how do you plan to take the organization through in terms of what growth you would need at the organizational level to be able to reach the desired AUM of INR 2,400 crore-INR 2,500 crore that you mentioned? If possible, indicate some broad timeline by which that can be done in a sustainable manner, if possible. Thank you. Yeah, I mean, that's a good question. Thank you, Vinay. Yes, financials are important of course, but a lot of ingredients have to come together. I think as Jayendra Patel mentioned in his opening remarks, you know, for the growth to go, a lot of things have to fall into place, as you said. Number one is, of course, we needed capital, which is, you know, there is a capital adequacy requirement of 15% or a debt equity ratio of somewhere around 6x, that is stipulated by the RBI. Typically speaking, it will be difficult to have a debt equity ratio of more than 5x. That we are solving by raising equity, I think. Hopefully that goes through and, you know, we'll get the money in a month or five weeks of time. The second thing which we needed of course is a software. I think, as we speak, you know, we are upgrading our LOS and LMS system. LOS is Loan Origination System, and LMS is, you know, the Loan Management System. Everything pre-disbursement is LOS and everything post-disbursement is your LMS system. This is a very state-of-the-art kind of, if I can use the term, a fintech or fintech-ish kind of a program, you know, completely mobile-based, lot of APIs to verify their IDs, voter cards, Aadhaar cards, you know, KYC validation, direct interfaces with the credit bureau, mobile phone verifications. You know, you can use UPI as well. There are penny drops for bank account verifications. Going completely paperless, we have signed with Leegality to do digital signatures. I don't know. We are using geotagging for every one of our customers, you know, so finding them becomes a lot easier. You can generate heat maps based on those geotag information, get village level information, do all kinds of analytics. You know, as far as collections and stuff also that helps. Categorization of centers. You know, there is Redshift for big data analytics that we have put in on our server. I mean, there are tons of cool things that we are doing with technology and we're gonna start doing. The third big main ingredient, so one was capital, second was technology. The third and the most important is HR. We need the right people for the right job. I think I've said it many times that, you know, we are in. Essentially, we are in a business of selling a commodity, which is money. When you go down to the nuts and bolts of our business, it's more of an HR business than anything else. Hiring good talent, retaining good talent is obviously getting more and more difficult, but we are up for the task, and we have a fantastic team of about 2,800 people, with the right kind of culture that we have created, that are doing a fantastic job on the ground. I have full confidence that they should be able to grow. Thank you for that very detailed answer. Do you think that, at an employee level, we will need to also double our employee strength in order to approximately double the AUM? Or you think we can be able to manage with slightly lesser? It will be slightly lesser. There are economies of scale that you can do, but it's always a risk versus reward kind of a situation with the staff, because, you know, you can push your field officer to have anywhere between, you know, 400-800 customers that he's managing. Eight hundred would be extremely efficient, you know, and during the good days, that would reflect very well on the balance sheet. When you run into situations like COVID or demonetization, that single FO is not able to handle 800 customers, right? I mean, all of a sudden, he has to go door to door to collect from all of them. It's all about, like, finding the right balance between risk and efficiency. Yes, there'll be some economies of scale, and especially with this technology and stuff, at least the back office and stuff, we won't see a very large or exponential increase in back office kind of office level people. Unfortunately, our business is very much dependent on people. You know, for every few hundred customers, you need one FO. Then you have layers upon layers over that. You have a BM and a area manager and a regional manager and a state head, maybe a zonal head. I mean, there are multiple layers that you have to create to keep control of everything. My next point was around the provisions. While you indicated that approximate provision requirement could be 2% going forward, is it possible to give a rough idea of how much do you think could be related to standard asset provisioning, and how much could be related to stressed asset provisioning? Within standard assets, are you taking anything extra over and above the regulatory requirement? Similarly for the stressed asset provisioning also, whether you're taking any extra provision. No, I think, Vijay, I was generally speaking in very simplistic terms, more on terms of loan losses. There'll be, of course, standard asset provisioning and other asset provisioning that you'll have to do. What I basically meant was that if I'm lending INR 100, how much of it will not come back to me in terms of, you know, bad debt or you can call it NPA provisioning or whatever you want to call it or you can call it impairment. Maybe four to five years ago in microfinance, we were getting away with 1% kind of a loan loss situation. Given how the market has evolved, I think in the long run, you have to expect a 2% kind of a loan loss. That is what I was referring to. As far as standard asset provisionings and ECL provisionings and stuff like that, I mean, I think Vivek will talk about that. In terms of the ECL, I mean, obviously this may not be the forum to kind of discuss as to how much is provided on each of the standard assets, because that would have multiple factors involved in terms of staging of these assets between stage one, two, and, you know, how these assets perform. Largely speaking, if we talk of our ECL provisioning, as compared to the statutory or compliance requirement by RBI, I think, that's multiple folds higher than what is required by the regulator. From that aspect, I think, our provisioning are much aggressive and much higher than requirement. I think I mentioned standard asset provisioning because I'm just used to it. There is no such thing as standard asset. I think you are providing ECL coverages on all buckets. All buckets. Whether that's a zero bucket or a 30 buckets, 60 buckets, 90 buckets, 180+, whatever buckets, there are different layers of provisioning that get provided. As long as that less than 90-day provisioning is more than what RBI stipulates for standard assets, you know, we are good to go. Oh, fair enough. Yeah. I got that. Thank you very much. All the best for the future. Thanks. Thank you. Next question comes from the line of Kunal Hilani from Vivriti AMC. Please go ahead. Good evening. I'm just very keen to understand, you know, what the impact of the guidelines are being on an operational basis, right? So, essentially, with the changes that have come in, right, and we see the execution as well, how would you probably, you know, say, in what level of the journey that you've been able to progress so far in terms of pretty much what the guidelines ask to do in terms of aspects such as income estimation, you know, the monthly EMI estimation, family household level assessment, right? So that sort of thing from a lens of, let's say, your systems, processes, policies, the manpower, right? Where would you rate yourselves to be in the journey of being able to truly adhere to those guidelines and broadly, your sense really of what challenges you're facing in that journey? Well, you know, FOIR-based kind of evaluation is something that we have been doing in our MSME for a long time, right? We had some level of experience of doing that. Largely speaking, lot of the EMI-based data and things like that, we are dependent on the credit bureaus. We pull credit bureaus for the entire family at this point. For the customer and their spouse, there is an automated system. For any, you know, unmarried kind of children over the age of 18, there is a manual process involved because our system is not ready yet. With this new system, it should be completely family-based. The credit bureaus are also coming out with a family level of credit bureau check, where they'll give a consolidated kind of a credit bureau report for the entire family. Things are evolving on that point. The only place where you have to use a large-scale judgment is the income side, and that is not always easy to do. I don't think RBI's intent is to make it difficult for people to borrow money. I think what they are looking for is just a systematic approach to get a good guesstimate around their cash flows, right? This is what most people are trying to do. That being said, you know, if two people are assessing an income of one individual customer, is there a chance of getting completely different answers? The answer is absolutely yes. If you do a good enough job, hopefully it will not be too far off, right? I think most people in the industry, and including the RBI, is hoping that they don't want a solution on day one, right? They want the processes and the systems to evolve continuously, MFIs system to evolve continuously to assess that income. I think the spirit in everything is absolutely in the right place. I wholeheartedly agree with whatever RBI has come up with as far as income verification is concerned. Yes, it's difficult to do, but just because it's difficult, that doesn't mean there shouldn't be a long-term endeavor to get us to a place where it's possible to do. I think that is, that's all I have to say on that topic. Now, as far as the other matters are concerned, I don't know. What? Am I missing something as far as the RBI regulation they make? Those are the main ones. So those- Those are the main one. The other is in terms of the qualifying asset criteria, which was earlier 85%, which has been brought down to 75% for the total assets. Right. Largely, if you look at it probably you know turns out to be almost the same equation as 85%, only depending on what are the other assets that any organization might have. For us, it doesn't factor that much because we have two NBFCs, right? The NBFC-MFI is basically for micro loans only. I think we are doing IBL, but IBL also now qualifies. IBL also qualifies for, I mean, largely, I mean, 99% of the IBL is less than INR 3 lakhs of household income. Yes. They all qualify for microfinance loan funding. Right. Also one thing to add, and maybe this is turning out to be too long of an answer, but I think the other intent of RBI was to make this as broad as possible, right? While the earlier regulations were very targeted toward a certain type of customer that you know has to be urban or rural, less than a certain amount of income, the only criteria they have now is essentially to say that you know the loan should be unsecured, and it should be given to a household with less than INR 3 lakh of income. Right. That comes out to be INR 25,000 a month. Now, most families in India, if you exclude, let's say, the metro cities, most families in India would be making less, I would venture a guess, less than INR 25,000 a month. They have made it extremely broad overall, and I think that is the right thing to do. I think instead of putting everything in black and white, let the industry make a judgment call on what is considered as microfinance or a personal loan or any other kind of loan. Understood. I truly appreciate that one as well, Jayendra, as in to say that a level playing field and the expansion of the segment is something that has quite rightly come in. Just a follow-up to that would be that, see, broadly, for, like you said, right, there's subjectivity involved and there's some element of doing more like cognitive work really in trying to assess customers more. With that you'll also probably need more controls and, you know, your policies will also need to be strengthened and systems will also need to be stronger, right? Historically, we've tracked very well. You know, we've managed to keep OpEx very sort of in a calibrated fashion about, let's say, 6.5% maximum, right, in terms of average AUM basis, right? How are you looking at that number really in terms of this organization, you know, at the AUM level that you are targeting just on a employee plus other expenses sort of a basis. What is the sort of OpEx rollout that you are looking at given that you may have to invest more in systems, processes, people, et cetera, et cetera, right? That would also be very helpful, thank you. No, I think, any OpEx kind of increase will be offset by some level of. Okay. Economies of scale, at least until you get to about INR 3,000-INR 4,000 crores, where you run into some level of diseconomies of scale. That is a hurdle to cross for at a later date. We are not expecting a very large scale OpEx increase at this point. In fact, the opposite, we probably have a slightly reduced OpEx, but no promises at this point. I mean, we are trying to reduce OpEx as well. Understood. Thanks. Thanks for the answer. Wishing you guys the very best. Thank you. Thank you. Next question comes from the line of Savi Jain from 2Point2 Capital. Please go ahead. Yeah. Hello, can you hear me this time? Yeah. Yeah, Yeah, I can. Yes. Yeah, sorry for the issue earlier. One question was on the liability side. You know, are we seeing easy access to liabilities from all the various sources, including banks, NBFCs, et cetera? Or because some of these NBFCs that we have spoken to, the larger ones, they have kind of decided to, you know, significantly temper down this business of on-lending to smaller NBFCs. Just wanted to understand access to liability. Is that a concern or there's no issue there? No, there is a concern. I mean, I won't call it really a concern. That is something that we are actively managing at this point. It's not only because of the market. There are numerous situations which are happening which has led to kind of a liquidity crunch during the second quarter of- First and second quarter largely, I think, quarter because of. I mean, number one, it is, you know, first of all banks are pretty reluctant. I won't say reluctant, but, you know, they take it easy as far as disbursements are concerned. In the first quarter. in the first quarter. Second part is a lot of the banks and people they met their NBFC limits during the TLTRO schemes and stuff like that, right? Yes. They have to wait for repayments to occur before they make fresh disbursements. Third is the RBI raising rates and a lot of. People have been holding back their decisions at times. That might be one of the reasons why some of the NBFCs you might have spoken to. Yes. have said that we're not probably lending very aggressively right now because almost every three weeks or every month you were seeing a 25 basis points increase for the last three months. Now I think since everything is kind of stabilized, I mean, largely what we are seeing right now from the larger NBFCs, the smaller private sector banks, they all are coming back and lending to the NBFCs or evaluating NBFCs more aggressively than in the past two, three months. Right. I think, Vivek, if I can also mention that, a lot of the funding has changed from like term loans to a PTC type of loan or PTC lending. Yes. For whatever reason, that has been much more popular in the last couple of quarters than straight up term loans. Yeah, you know, short answer is it a lot more difficult today to raise debt than it was a few quarters ago? Yes, absolutely. You know, it's nothing that we can't handle. Right. There's still demand for this assignment, securitization, like you did a very large transaction last quarter. Are you still seeing some appetite for that? We did a DA transaction last quarter with SBI. Yeah. We are seeing a lot of PTC transactions, which is another type of Buyout transaction. Buyout transaction only, but it is not considered as a true sale, so it's not like an off-balance sheet transaction, at least under India's guidelines. I think we are talking to a few people about DA transactions as well. The problem with DA transactions is it's absolutely without any recourse. You know, the risk basically gets completely transferred to the buyer. Otherwise it's a pretty good deal. Because it goes directly into the books. It's not considered a treasury instrument. It goes directly into their retail kind of PSL book. What about market sources like NCDs and all? I mean, is that something that you're evaluating? We raised NCDs, I think. We've raised one, right? In Q1 we raised multiple NCDs, six months have gone by. Largely, to answer your question more specifically, we've always kind of tried to borrow from multiple channels, and I think all the channels remain absolutely open at this point of time. There is always a bit of a flavor for every quarter. As Alok pointed out, the flavor has been more structured transactions like this for the last couple of quarters. Now as the interest rate to some extent stabilize, we are also seeing a lot of interest by various lenders, including the PSU, private sector banks and larger NBFCs coming back to the conventional term loan kind of lending as well. Got it. You know, secondly, did the Gujarat floods have any impact on your collections? The what? The floods. No, not really. I mean, no, I mean, If it does, I mean, even if it did, it didn't reach my office. I'll say no, it didn't. Yeah, I mean. seen far more damaging events like COVID. I think people have gotten used to much, much more extreme circumstances, and these are now like a cakewalk for them. Obviously, we don't lose focus on the collection efficiency. Yeah. That's something which I think everybody in the organization clearly is, I mean, wired and DNA is to look at the first thing is, has the collection come in? Yeah. I mean, but you are right, Vivek. After going through COVID, it's like being cured of cancer and then if you have a small sneeze you don't even notice it, right? It's one of those things. Is that more from the customer point of view that he is now able to manage even under such circumstances which earlier, you know, floods were a reason for very low collection? Is there a change in the psychology or the ability of the customer to sustain these events because of COVID? I'll be honest with you. I mean, besides demonetization and COVID, like flood, earthquake, famine, whatever, I mean, those were very localized, right? I mean, you'll find a few villages here and there. I mean, we are in hundreds of districts. We are in thousands of villages probably. I mean, one isolated incident in some geographies is a blip nowadays, right? When it comes to stuff like flood, sure, the money might come in four or five days later or a week later or if the place is not accessible. But typically the customers do pay as long as there is not a large livelihood damage where they have lost their house and their farm and everything like that. If it's just an accessibility issue, you know, they'll pay slightly a little late, but they'll pay. Now if you're talking about very large scale floods where they have lost their livelihood and migrated elsewhere, which is not- This has not happened, right? This has not happened. Really not a concern. It's not a concern for us. Right. Lastly, you know, some of these other larger NBFCs, they have slowed down the disbursement significantly in the last quarter. The reason that they mentioned is that they have not been able, you know, they're trying to gear their systems for the new RBI guidelines. They want to be completely sure that they're meeting all the requirements. From what you say, you know, it seems like there is some bit of leeway in terms of what is required. That is a slight difference that, you know, at least I noticed when speaking to you as compared to the other larger entities. I mean, you know, I wouldn't be able to comment on what other people are doing or saying to be honest with you. Mm-hmm. I mean, as I said that, you know, income verification was probably new, completely new to many organizations. We had some level of practice with it through our IBL loan and MSME. So maybe it was just more confidence driven than anything else that, all right, we can do this. We have been doing it for years. I don't. If they are facing issues such as that, are they going to magically solve it in a quarter or two? I mean, what exactly are they hoping that will happen in Q2 that they couldn't manage doing in Q1? I'm not exactly sure how to answer that. You know. Great. That's all from my side. Thank you. Perfect. Very good question. Operator, any other questions? Yep. Please give me a moment. Yep. The next question comes from the line of Sachit Motwani from Param Capital. Please go ahead. Yeah. Hi, Aalok. Hi, Jayendra Patel. Congrats on great set of numbers and even on the fundraise. My first question is a follow-up to what Vinay was asking about, you know, when you're looking at INR 2,400-INR 2,500 crores of AUM. Aalok, I just want to understand from you your emphasis on, you know, the risk management. Are you gonna build a, like a big risk team or something, or how do you look at it? I mean, we have a pretty large operational risk team or an audit team, if you want to put it that way. I mean, we just hired a chief risk officer who comes with a lot of experience in different banks and different NBFCs and Also in MFIs. In MFIs as well. We have always been really conservative, and I think that's been a cultural thing for us from the very start, not only for the MFIs but from the very start in 1992. That has essentially made us survive all these years. That's not something that we want to easily give up on. Right. That being said, there are not very large structural changes to the risk. However, we are starting to formalize it as far as policies and tracking and all those other factors. Got it. Can you name the chief risk officer? It's Raghavan. Okay. I think, Srinivasa Raghavan. Srinivasa Raghavan. Srinivasa Raghavan. Okay. We call him Raghavan. We We all call him Raghavan, so that's a tricky one that you actually could get. Yeah. Yeah. Second was on, you know, other than NCDs, ECBs and securitization, you know, rest of the borrowings would be on a floating rate basis for you? Yeah. Usually, all the term loans are on floating. Okay. That will constitute how much of your liabilities? That will constitute almost. I mean, term loans or bank borrowings from that route will constitute almost 60% of our borrowings, 60%-65%. NCDs included, so around 60%. Okay. Okay. Okay. NABARD, MUDRA, SIDBI. They're also NABARD, MUDRA and everything. That also is to some extent. I mean, MUDRA excluded, but NABARD is generally floating again because they kind of change after one year's reset. Right. 60%. 60%. 60%. What would be your incremental borrowing cost? Well, that again depends largely on where the funds are coming from. Let's say we were to take banks. If you take banks right now, the funds are coming in at about 11%-11.5%. 11%-11.5%, but all costed out, I think the overall increase in the cost of funding for fresh loans has gone up by about 75 basis points, generally, right. Okay. Okay. In terms of resets, the resets could anywhere range between 30 basis-75 basis, depending on the lenders. Because many lenders have actually reset it twice and we might actually have had a three-month reset, you know, contract. Got it. Aalok, I just wanted to get your thoughts on this, you know, Prayaas scheme of SIDBI. Do you think that could be one of the things that you can do with MSME for MSME lending? I've not considered it yet. I mean, it's a good idea. I think definitely we can think about it. Yes. Yeah. Fair enough. Thanks a lot, Aalok. Those are my questions, and all the best. Thank you. Thank you. That will be the last question. We have reached the end of question and answer session now. I would now like to hand the conference over to the management for closing comments. Thank you everybody for your support. You know, I wish you a pleasant evening. Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us. You may now disconnect your lines.