Ladies and gentlemen, good day, and welcome to Arman Financial Services Limited Q1 FY25 earnings conference call, hosted by JM Financial. As a reminder, all participant lines will be in a 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mayank Mistry from JM Financial. Thank you, and over to you, sir. Thank you, Laima. Good afternoon, everyone, and welcome to the Q1 FY25 earnings conference call of Arman Financial Services. First of all, I would like to thank the management of Arman Financial Services for giving us the opportunity to host this call. From the management team, we have Mr. Jayendra Patel, Vice Chairman and MD, Mr. Alok Patel, Joint Managing Director, and Mr. Vivek Modi, Group CFO. I would now like to hand over the call to Mr. Patel for his opening remarks, post which we will open the floor for Q&A. Thank you, and over to you, sir. Thank you, Mayank, and thank you to the JM team for hosting this call. On behalf of Arman Financial Services Limited, I extend a warm welcome to our Q1 FY25 earnings conference call. As Mayank said, joining me today are Mr. Jayendra Patel, Vice Chairman and Managing Director, Vivek Modi, Group CFO, and also the investor relations team. I hope you had the opportunity to review the Q1 results, the press release, and the presentation made available on the stock exchanges and our website. Before diving into the quarterly performance updates, I wish to start by addressing the elephant in the room. You would have noticed an uptick in the overall credit cost from the previous quarters and a reduction in volumes. This is not specific to Arman, but affects the microfinance industry as a whole, and at our size, we are not immune to the overall market conditions. As is the tendency with such industry-wide issues, people within and outside the industry, in hindsight, try to dissect the causes behind this. In my experience, it's never one thing, but a series of factors that lead to such issues. The good news is that, in my belief, most of the reasons discussed below are fixable, and I would like to highlight some key aspects of the overall landscape of this. After a strong post-COVID rural economy, coupled with deregulations on April 1, 2022, another gold rush started for the microfinance industry. Arman, as you may have noticed, is benefiting greatly from these favorable circumstances, with record growth and profits in both FY 2023 and 2024. However, changes in the regulation led to some unintended consequences. Under the previous regulation, the total MFI indebtedness of a customer was regulatory restricted to a conservative cap of about INR 1.25 lakh. This rule to restrict over-leveraging was changed to the 50% FOIR on household income rule. This was a perfectly reasonable adjustment, as it was not practical to paint all MFI customers with the same brush, and both the industry and the customer had matured to move to the next phase of financial inclusion. The challenge, however, is conducting a reasonably accurate household income assessment, is a work in progress for the industry, especially due to how MFI operations are structured with credit closely connected to operations. Remember, to maintain a repayment rate of 97%+, we have to select our customers correctly 97% of the time. A slim margin of error, indeed. To further add to that, the availability of non-MFI loans to rural customers has increased drastically, with many banks and other NBFCs tailoring their existing products to reach to the emerging, emerging rural pockets. This includes loans like FinTechs, MSME, LAP, personal, gold, vehicle loans, among many others. With easy access to credit and the culture of customer changing, we are suitably adapting to the changing scenario while simultaneously stopping the repayment culture from diluting. You may recall that the risk of over-leveraging is something that we have been aware and also discussed at length over the past several quarters. This, coupled with the disruptions due to elections, heatwaves, and unusually high employee turnover, created a tipping point and leading to higher slippages this quarter. Both the industry and Arman are taking reasonable steps to try and mitigate these issues. Amidst the situation highlighted above, a silver lining is that the subsidiary Namra Finance recently received a credit upgrade, improving from A-minus stable to A stable from Acuité. Arman's standalone upgrade is expected to be released shortly as well. Now, turning to the Q1 FY25 consolidated performance. Owing to the short-term challenges, we maintained a cautious approach to growth, ensuring stability of our operations. Our consolidated assets under management stood at INR 2,594 crore, as compared to INR 2,143 crore in the same period last year, registering a year-on-year growth of 21%. Total disbursements for the quarter stood at INR 459 crore, as compared to INR 530 crore in the same period last year. Disbursements degrew by approximately 13%. This cautious approach aligns with our past strategy to prioritize portfolio quality over growth. The gross non-performing asset or GNPA stood at 2.79%, while net non-performing assets or NNPA stood at 0.18%. We have implemented stringent corrective measures and enhanced our monitoring mechanisms to address asset quality stress. We are confident that our proactive approach and focused efforts on improving collections and credit assessments will lead to a gradual improvement in asset quality in the coming quarters. Collection efficiency for the month of June 2024 in our microfinance business stood at 95.1%, MSME business stood at 97.2%, and two-wheeler business stood at 96.1%. Overall, consolidated collection efficiency stood at 95.8%. Total borrowing amounted to INR 2,217 crore, compared, comprising of a diverse mix of financial instruments. We maintained substantial liquidity of INR 248 crores in cash, bank balance, liquid investments, undrawn CC limits, and a comfortable debt-to-equity ratio of 1.8 times, with a healthy capital adequacy ratio of 48% for Arman standalone and 38% for Namra. Cumulative provisions stood at INR 101 crores, which is 3.9% of the consolidated assets under management. Of this, provisions of Arman's standalone business stood at about INR 20 crores, and Namra stood at INR 81 crores. In terms of branch expansion, we have opened 91 new branches over the last 12 months, bringing our total branch count to 434. This expansion has been complemented by successful penetration into newer states and geographies, where performance has been promising. Additionally, we have initiated a pilot for the rural Micro LAP product in Q4 of last year. AUM for this loan product as on June 2024 is INR 6 crore. While it is too early to comment on its success, we are optimistic about its long-term potential. Looking ahead in the short term, we will remain vigilant and selective in our growth strategy. Our priorities include continuing to strengthen our risk management practices and collection efforts to protect portfolio quality, adopting a measured approach to expansion by focusing on markets where we have a strong understanding of local dynamics, and enhancing our capabilities to ensure operational efficiency. Now, let me run through the key consolidated financial numbers for the quarter ended 30th June 2024. The gross total income stood at INR 184 crore, registering a growth of 23% year-on-year, compared to INR 149 crore in Q1 FY 2024. Net total income amounted to INR 119 crore, registering a growth of 39% year-on-year, as compared to INR 86 crore in Q1 last year. Pre-provisioning operating profit, PPOP, stood at INR 85 crore, registering a growth of 34% year-on-year, as compared to INR 63 crore in Q1 last year. Profit after tax stood at approximately INR 31 crore, registering a degrowth of 22% year-on-year, as compared to INR 40 crore in Q1 FY 2024. Lower PAT was on account of higher impairment cost and slightly lower yield in the MFI book. Consolidated yields stood at 25.4%. Net interest margin stood at 15.5%, and cost to income stood at 28.7%. To summarize, our industry has matured and ebbs and flows like any other industry. However, we are confident that the company, our customers, and the industry are resilient. While the rural economic environment remains uncertain, we are well-capitalized for future growth and are confident that our prudent approach will enable us to navigate any challenges effectively and yield better performance in the coming quarters. We are confident that many large and small initiatives we are taking will be adequate, and before long we'll be well on our way to continue our growth story. Thank you very much for your support and attention, and I'm sure there'll be many questions. So let us begin the Q&A session, please. Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their 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. The first question is from the line of Rohan Mehta from Ficom Family Office. Please go ahead. Hi, sir. Thank you so much for taking my question. Am I audible? Yes, but it's a little hazy, so maybe if you can get closer to the speaker, perhaps. Is it better, sir? Yeah. Yeah, yeah. Thank you for taking my question. So, with the SROs mandating up to 150 basis points of interest rate cuts and a stricter underwriting standard, how do you plan to adapt the microfinance operations? And just while we're on that point, what impact do you expect to have that on yields and your cost to income? ... So as far as the SROs mandating certain self-imposed regulations, those are largely related to underwriting norms, such as no more than 4 institutions lending to a particular borrower and no more than INR 2 lakh of outstanding. So this is something that we have been following for a while. In fact, ours is a little slightly more stringent than that also, because we look at it on a household level and not on a customer level as well. As far as the interest rates are concerned, there have been no particular orders that have been shared reduced. However, as you are aware, there has been regulatory pushback on reducing rates, and number also has reduced rates slightly, and therefore the yields have declined to a certain extent. But those were marginal decreases, so we don't expect yields to decline too much further, maybe by another 25-30 basis points in the coming quarters, but nothing larger than that. Got it. Got it, sir. And, could you also elaborate on the specific factors that led to the INR 31 crore write-off for this quarter? So were there any particular regions or borrower profiles that contributed most to this? What we find is, at least in the last quarter, and what we find is that there is no particular state that is, or region that is immune to the overall decline. However, there are certain states or regions, more affected by others. Places such as Maharashtra, Rajasthan, you know, MP to a certain extent, while markets, especially like Gujarat and UP, are behaving better. So while the deterioration has been noticed across the board, for pretty much every state. As far as profile is concerned, we have found no correlation as far as any particular profile or income or anything like that, that can be attributable overall. Now, the reasoning for this, I think I covered in my opening remarks. Of course, as I mentioned, there is no usually things like this. It's like, things passing through Swiss cheese holes, right? I mean, there's never one thing that causes bits like this. There is a combination of many factors. In my belief, over-leveraging, which I kind of explained due to regulatory changes, would be one of the primary reasons. However, the tipping points were things such as, you know, heat wave, debt gen, high employee turnovers, and other factors as well. Okay. Okay. Got it, sir. And just to finally follow up on this, what would be your guidance in terms of asset quality and disbursement for FY25? It's honestly a little premature for me to, you know, give guidance on this, honestly. I think we'll have to wait another quarter or so to kind of figure out... But if I had to venture a guess, I would say that post-Diwali, you should start seeing improvements coming in. As far as disbursements are concerned, I think people who have followed Arman for a while would know that at the first sign of trouble, we reduce disbursements, and you can take that as a advantage or a disadvantage or however different people have of looking at it. But we never really compromise on quality for growth pressures. So we will grow whenever we are comfortable growing, and not before that. Got it. Got it, sir. Thank you so much. Thank you. Thank you. Thank you very much. The next question is from the line of Suraj Das, from Sundaram Mutual Fund. Please go ahead. Hi, am I audio? Yes, yes, please. Yeah. So actually, one question on the MFI business. If I see last quarter, your GNPA was INR 64 crore. This quarter, your net write-off, including recovery, has been INR 31 crores. So broadly, 50% of, you know, GNPA of last quarter, you have written it off this quarter. So just wanted to know what happened this quarter that you, I mean, such aggressive write-off this quarter, and, I mean, it is, I mean, have you lost hope of, you know, recovery from this customer or what happened? Because this quarter, the write-off number is a little bit, I mean, it seems like. It's nothing like that at all. I think we are trying to stay ahead of this, to be honest. And, we have been more aggressive, in writing off, just pure and simple, to, be extra conservative, right? And to stay ahead of this. So, as far as operations are concerned, write-offs or operational write-offs don't really happen for a long time in our LMS or, systems, so the recovery efforts continue. These are purely sort of accounting write-offs. ... Sure. But in that context, do you think that the write-off will continue to remain elevated in next couple of quarters as well? Because everybody is highlighting probably this quarter is trans- I mean, this trend is transient and 2, 3 quarters of write-off. So do you expect that similar, you know, 50% of outstanding GMV write-off could be there again next quarter or next-to-next quarter? You know, honestly, from an accounting standpoint, I'm maybe I'm the wrong person for this question. Vivek rather add to it, or Vivek can add to it. But, as far as total impairment, whether provision, provision or write-offs, I don't expect too much of a decline in the coming quarter. However, by Q3 or Q4, you should start seeing a decline. So Suraj, just to kind of add to that, one, write-off, you know, taking it upfront kind of is, a, helps on the tax front. The second is also the fact that, if we have overall provisions, the incremental provisions have not been there. The overall NPAs, if you look at it, in microfinance, has remained stable or rather fallen down. Hence, it's biting the bullet kind of a situation when you're writing it off. And as Alok added, these are more on the accounting side of it. As far as the field is concerned, the recovery efforts continue on these customers. For years in lot of time, lot of cases, I mean, we are still recovering from COVID, believe it or not. So, so I mean, we don't really give up on anything until it's absolutely the last thing, you know, we have no other choice, operationally speaking. Sure, sir. Understood. A couple of more question. I mean, in terms of this, you know, SRO new regulation, as you highlighted in the opening commentary, that you have been more stringent always. So if you can just, you know- Excuse me, can you maybe take it off handset or take it off speaker? Okay. Is it better now? Yeah. Yeah. Okay. Yeah, no, no, so I was asking about this new FOIR guideline. So since you, you know, highlighted in the opening commentary that you have always been more stringent, so if you can highlight in terms of plus one, plus two or plus four lender, I mean, what is the mix in the AUM? And also, in terms of, let us say, borrowers who have more than INR 200,000 total exposure, including retail or whatever, I mean, I'm sure that you must have done some calculation or some study in your portfolio. Yeah, I can give you the- If you can highlight that thing. I don't have it handy with me. Of course, I can give you approximations. So customers with over INR 200,000 of outstanding during origination will be probably less than about 4%-5%, is the overall research that we have done. As far as on an individual customer level, customers who have more than four MFI lenders will be negligible. From a household level, customers who have more than four retail and MFI lenders will be approximately 15-odd%. But I mean, these are a variety of different loans. Sometimes they are very small loans as well, so it's not very practical to look at it from a total loan outstanding, because, you know, there are many MFIs who have multiple loans also going on with the same customer. But largely speaking, our target would be to cut down on the overall leveraging of the customer. And that would mean higher rejection rates, and that would result in a slightly lower disbursement. Sure. Understood. And one last question, in terms of credit cost guidance, I think last quarter you guided for something like, you know, 2.5%-3%. So does that still hold, or I mean, yeah, I mean, you want to revise it upwards or, I mean, whatever? Maybe by 50 bits at this point, but nothing too crazy. Sure. Understood. Thanks. Thank you very much. The next question is from the line of Yash from Stallion Asset. Please go ahead. Hi, thank you for the opportunity. I just wanted to understand, you had some... You said something about INR 1.25 lakh limit. You know, I wasn't clear in your initial commentary. Could you elaborate on that? So, basically what I was trying to say is that pre-deregulation in April 1, 2022, basically the rules that governed over-leveraging an MFI was an overall outstanding cap of INR 1.25 lakh, if I recall correctly. Now, when the deregulations came, they changed the rule where instead of an overall cap, you assess the household income, and your EMI should be 50% of their monthly incomes. And so what I was trying to draw out is that once that rule changed, and earlier on it was super conservative, basically the owners came on the MFIs to evaluate incomes properly and make sure that the product is tailored to what they can afford, the EMIs are tailored to what they can largely afford. Now, what I'm saying is that while it was a very practical thing to do, and there is absolutely zero criticism from my side of that rule change. What I was trying to say is that it's difficult to assess income. And the way the MFI operations are structured is that at field level, there could be a tendency to also overestimate a person's income, or given the fact that these are rural customers, income could vary year-on-year significantly based on agricultural output and other factors, right? And so what I was saying is that we need to do a better job of assessing the incomes and assessing and underwriting the customer. And that goes from an industry level rather than an Arman level as well. Of course, we also need to improve. So let me just start by saying, or I'm sorry, let me add by saying that we have begun to separate credit from sales. So historically, microfinance has kept credit assessment in the hands of the branch managers. Now, Arman also had centralized credit teams to provide secondary checks, but the benefit that provided to ensure that the customers were not over-leveraged is ambiguous. So at the branch level, many employees and customers, knowingly or subconsciously, would have a tendency to over-report the household income to ensure the loan sanctions. And so now we have started a pilot with all the new branches, basically. By the end of, you know, beginning of early next quarter, we hope that at least 100 of the branches would have set credit managers, that will be responsible for sanctioning, and also, we have also hired a head of credit to oversee this new department. So a lot of this learnings came from our MSME credit department. So if you notice, overall NPAs and repayment rates in our MSME departments, you know, those, are much superior than, the MFI department. And so we are hoping that this new, separating the credit would, you know, operating costs would increase, obviously, if we do decide to go ahead on this on a nationwide level. But my thought is that the benefits would largely, exceed the cost. Okay. Okay, got it. And so my second question basically is that, you know, there was a time where obviously in the earlier quarters, you used to go 30, 40% AUM growth. And I understand that, you know, you wanted to slow down because you're seeing, you know, some sort of over-leveraging in the industry, and of course, there's new competition as well. But, in your assessment, you know, how long is prolonged would this cycle sort of last? You think this will sort of sort out itself in, like, a couple of years from now? Or do you... Are you seeing any sort of grounds of improving, you know, from year on, where there is some sense from the new fintech players to sort of slow down or any regulatory pressure to, you know, once everything is in control, then you can sort of start growing at that sort of AUM level, 30, 40% and beyond? So, a couple of things. You said a couple of years. I mean, that is, that is way, way longer than I hope it will last, to be honest. I'm not expecting to last a couple of years. Fingers crossed, by Q4, we should start seeing improvements, at the very latest. That is my estimate, and I'm hoping I'm correct on this. As far as our growth, you know, our growth comes in spurts. I think during crisis, we have de-grown also, like COVID and demonetization and other types of issues. So our growth comes with when there are sufficient opportunities in the market. But, you know, historically, if you look at us, I think, you know, crisis is sort of a ladder for us. So usually right after the crisis, we are well positioned to kind of grow quickly. And, while the sample size of that is not adequate, I hope that, it's also true this time. Just to add to that, further, Yash, I think April, May, June historically tend to be low on disbursement across most sectors, including microfinance. So while the disbursements have seen a fall, and may kind of be flat for some part of the year, but there is no reason to kind of completely believe that the festive season this year is going to be really bad. There are enough hopes on that. Got it. Got it. Thank you. Thanks. Thanks. Thank you very much. The next question is from the line of Srinath from Bellwether Capital Private Limited. Please go ahead. Hi, Alok. Want to first get some understanding of how July has played out from a collection perspective. Has it seen, you know, any sort of improvement from June? And given a large part of our collection engine, even for August, would have been finished by fifteenth. Any indicative understanding of how things are progressing? No, unfortunately, I cannot say that there has been any improvement. So largely things remain stable for now, and I don't think we are going to see significant improvements in Q2. Although, I don't believe we'll see significant downslide as well. So I expect it to be stable. ...Perfect. Perfect. Moving on to the MSME business, like you had, you know, mentioned in the last answer, it's consistently showing, you know, better collection efficiency. So what has kind of worked for that business? And second, you know, our quarter-on-quarter disbursements there have come off a bit. Is it a good time to kind of, given that we have a system and process in place, you know, to continue to grow that business in this financial year? We have, right, Srinath? So we have—I think the overall AUM of MSME has increased by about 50 north crores in quarter one. I mean, quarter one, normally, Srinath, you do not expect too much of a AUM growth. On a sequential quarter, obviously, the quarter four of last financial year is something difficult to beat in the quarter one, because you are doing transfers and promotions and employees moving around. But having said that, y-o-y basis, MSME portfolio has grown. MSME disbursements have also shown- Right. -considerable growth. And so from Q1 to Q1 same previous year, I think it was INR 67 crore and Right. It was INR 89 crore this quarter. So, and even after the ticket size being pretty much the same, unchanged, you know, average ticket sizes. I think, really, what is differentiating is the credit, and as I mentioned to the previous person who asked the question, we are trying to kind of replicate that for microfinance as well. I think the industry has evolved to a point where you definitely need to do a better credit assessment, rather than relying on the JLG culture. So, but, but, yeah, I, we'll continue to concentrate on MSME. Got it. So that is a business line that is, you know, likely to scale this particular financial year. Perfect. Yes. On loan against property, wanted to, you know, understand, you know, how that product line is progressing, how comfortable are you in the kind of loans you've done in the last, you know, 6 months? Yeah, it's, you know, it's not a seasoned portfolio, but in this heatwave and so on and so forth, elections, did that, you know, portfolio hold up well? And the last question is, is, is there an overlap between this and the, the MFI business, where MFI customers who have finished, like, 4, 5 circles, you know, rounds of, dealing with us, are they the upper funnel for this particular business? If you could spend some time on this, that'd be great, pal. You know, it's funny. So as far as micro LAP is concerned, you know, the volumes have not been as high as expected, probably because of the region that we are in right now in the pilot, which is Gujarat. So I think I have received a lot of market information, that this is a product that might be more suited in the southern markets. So we might be launching that in our Telangana branches pretty soon, maybe as early as this quarter. As far as the portfolio is concerned, I think it's about 6-7 crore INR right now. Six crores. We have reached a run rate of almost about INR 1.8 crores a month of disbursements, and that is increasing on a month-to-month basis. Rejection rates are high. Customers are also kind of hard to find those specific customers that are willing to mortgage their residence and have clean papers. So that, that has been the challenge. As far as the quality of the portfolio is concerned, I mean, it's very early to tell, but right now we have a 100% retail rate, so we don't have even a single delayed installment in Micro LAP yet, which is great, touch wood, but obviously that is to be expected during a pilot phase and a book that is not mature enough. Now, what was your second question? I'm sorry, I forgot. So, Opportunity, obviously, on a longer period trajectory, I mean, we have some 18 lakh customers, and overall, some 15 lakh customers would be with us over our journey for the last 15 years. So, that, that's an opportunity, but it's too early to probably start looking at that. Right. I think you said about second, third cycle customer and stuff that was, we are using those customers, of course, and good customers. There has been some level of cross-selling, which has started as well. But it's funny because, you know, we do a lot of... I mean, we have now our entire business intelligence unit. And at least in the last quarter when we did the analysis, there is not too much of a difference between a first cycle, second or third or fourth, or whatever, in terms of repayment rates and default rates. Yes, there's a marginal improvement that you can say, so I'm not going to say that there is no correlation, but it's kind of funny that there is not too much of an advantage this time between first, second, third cycle, and so on and so forth. Yes, I think this has been a feedback across the banking industry also that, you know, across different cohorts, there's been, you know, delinquencies worsening. So, you know, I, I think that's the same kind of playing out in MFI, too, fair enough. Yeah. I mean, to a certain extent, this was expected, and I think, over these calls and other meetings and, you know, we have been talking about over-leveraging, I think, since the last four quarters or so. But what has been surprising is the speed of which it kind of came in, and I think that probably has to do, as I said, with the tipping point of election and heat wave and other factors. Got it. And, and this, Micro LAP business, would we be able to, like, scale it up to kind of over INR 10+ crore disbursement quarterly? You know, do we have that kind of, machinery in place, processes in place? So how do you kind of see the scale-up in disbursements there? The mission is definitely there, and I'm, as I told you earlier, I'm very bullish on this product. But it's... I think we need, I need to do a little bit more work on the geographical aspects of this product. So, definitely, if I can get it to INR 10 crores, INR 15 crores, INR 20 crores or even higher than that by next year, that would be fantastic. But it's a little early, honestly, to give any specific comments on it. Perfect. Perfect. Thanks. Thanks a lot, Alok. I'll get back with the question. Thanks. Thank you very much. The next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead. Thanks. The first question is around your comments on employee attrition in the MFI business. Sorry to interrupt, sir. There's a lot of disturbance in your background. Okay, just hold on. Is this better? Yeah, sir. Sir, first question is around your comment on employee attrition. Is there any specific reason why attrition is unusually high recently? No, it's, it's really across the board. This has been happening since the last, it's been more than 12, 18 months, that this has been happening. There is no real good reason except the fact that, there are many, many opportunities in the market nowadays, where people tend to, I don't know, I guess, find easier jobs or jobs which are closer to their, residences or, you know, lot of other opportunities which are available. So it's, it's kind of funny. You know, I think, Jayendrabhai always says, "Okay, it's a function of the growth of the country," that there are just a lot of opportunities available. The second reason, honestly, is the fact that everybody has been growing over the last two years, post deregulation and post-COVID, and there are not enough people to go around, not enough experienced people to go around. So I think people opt from MFI to MFI, and that is probably leading to it. We are- Microfinance business is a work-life balance. Yeah, work-life balance and stuff is becoming very important, although the older people will kind of you know, I don't know. No, that, that's a natural debate going on. But then we were surprised in our own internal kind of employee survey that even in the rural areas employees felt that they needed more time for family and more time off from work. Right. So, MFIs, you know, I think it's, they make good money, but, it's hard work, right? It's... You have to get out in the rain or wind or cold or sun or whatever it is. You've got to go on the field, collect money, source customers, and disburse. And so the survey that Vivek was mentioning was a survey that we did to the employees, that we asked them to rank 1 to 10 of what would convince them to kind of stay, right, and continue to work here. And so we have done surveys like that in the past, and at the field officer ground level, usually the first thing is more money, right? So that is a given. It's the second, third and fourth thing that we try to look at. This time, surprisingly, work-life balance issues were number one. Of course, salary was a close second, but it's just a changing scenario in the overall country, I guess. But would you say that the proportion of your employees moving, to your- You're not audible. You are not audible. I'm sorry. Okay, sir. I'll come back in the queue. Sorry. Thank you very much. The next question is from the line of Bhavin Shah from Sameeksha Capital. Please go ahead. Hi. Hi, Alok. So, in your opening remark, you said that, Namra's rating got upgraded, and you are expecting that Arman's rating will also get revised. So are we expecting cost of funds to go down, and are we able to maintain the NIM at this range, or will it go down by... Because there is a pressure of reducing the rates on MFI companies. I think, Vivek. In terms of the rating upgrade, obviously, Namra has happened, and Arman, we are still waiting. So, that's one part of it. In terms of the cost of funds, surely the rating upgrades will definitely help the company bring down the overall cost of funds. In the last six months, I think, for the QIP, as the debt equity itself, the quantum has come down. Our incremental borrowings, you've seen the rates come down, despite the fact that the MCLRs have moved up. So, we definitely expect to have a better or lower cost to fund going forward on the incremental borrowings. Yes, there is also on the other side the pressure on the yield because of the regulatory reasons that Alok spoke about. So I think at somewhere we'll be able to hold our ground in terms of both the NIM and, you know, the trade-off between the yield and the cost of funds. Okay. Okay. Thank you. Thank you, Mr. Shah. The next question is from the line of Anil Tulsiram from Contrarian ValueEdge. Please go ahead. Yeah. Thanks a lot for the opportunity. Am I audible? Yes, you are audible. Yes. Yeah. So first question is, do we have any plans to take CGS and new credit insurance for our MFI and MSME loans? And if not, can you elaborate your reasons for the same? That is an excellent question, and, we have evaluated it, and we are considering it. I don't... I'm probably at 50/50. I think the internal calculations we have done is, it makes sense if you expect credit cost to go over, what was it, Vivek? Over 3.5%. 3.5%. So we are right in that fine edge right now, where it makes sense to do it from a cost perspective. But yes, on the other hand, if you want to sleep better at night, it is nice to have. So it's probably not going to, I mean, it's a tremendous expense, you know, to do it, let me be very honest with you. Just reading the document, it sounds like it's not very expensive, but you have to pay the premium on the disbursement, and you have to pay it every year. So if it's a two-year loan and you are... And remember, if the default occurs, the payout does not occur on the disbursement amount, it occurs on the outstanding amount, and that, too, is 75% of it. There is obviously the worry is also there that how quick the claims will come in and also what will be the overall claim ratios. So I don't know. There have been few identified players that have started doing it, and we'll take feedback from them as well on their experience, and we'll decide. Got it. Sir, and in the past, whenever any, industry-wide issues has, happened, generally it has resulted in the credit cost of 8%-10%. So what gives me confidence that this time the issue is different and industry-wide, and at the company level, we won't incur huge credit costs? Like you mentioned, max 3%, so, it won't be like, 4, 5, 6%, touch wood. But what gives us confidence that this time the crisis is not as big as the last, crisis, whatever it has happened in the past? No, I mean, frankly speaking, even during demonetization, I think the overall credit cost was what? About 5%-6%. 5-6%. COVID was a different story where, I mean, it was COVID, right? It was not restricted to just MFIs. I think it was probably 80% of industries got impacted. So, leaving COVID aside, if you look at this as a demon-level kind of disruption, which was quite a big one. But I mean, I can, you know, if you are putting me on the spot and asking me, is it going to be restricted to 3-3.5%? Obviously, I cannot say definitively that it would be. But my experience and the fact that we have somewhat stabilized on the repayment rates and everything leads me to believe that it shouldn't get really worse than 3.5 or so. But other than that, I cannot give you any other confidence. Got it. Sir, in the opening commentary, we have spoken about strengthening quality measures, and we have already spoken about some of them. Can you elaborate in more detail what are those measures, and how are they going to help us in reducing the credit quality, in bettering the credit quality and reducing the credit cost going forward? Yeah. So as I mentioned, we have started to separate credit from sales. So I think we'll be in a better place to give you more information on that by next quarter. Other than that, we have also started developing a stronger ML-based algorithm to try and predict customer behavior over and above any leverage caps that we have also taken to tighten credit. We have slowed down disbursement significantly, and you know, right now we are also trying to, of course, concentrate on the MSME book. We are, in some of the branches, we are shifting collection days from first to the twelfth of every month to throughout the month. You know, the first to the twelfth model, where you collect on the first part of the month and then concentrate on disbursements on the latter part of the month, that is really an excellent model during the high growth phase of the company. But it's not very effective when you have to concentrate on collections, so we are working on changing that. We have created and are expanding a special team of recovery officer for selected branches. This is a strategy that has worked well for us in the past, during times like COVID. We are taking all necessary steps and have launched several initiatives to encourage cashless payments from customers. We are happy to announce that the launch of the Namra App, which is an Android-based smartphone app, that the customers can use for as a payment gateway and also get account-related information. Of course, we'll keep expanding on the functionalities, slowly as time goes on. We are also using better technology, to help branches and middle management to monitor field activities, including live geo-tracking of field force and data mining by a specialized, HO team. We have recently hired a special cell at the HO level, called BIMS, Business Intelligence, and Monitoring Unit. The idea is that we have about 25 people who are constantly monitoring field activities through geo-tagging and through BI's business intelligence reports, to make sure that people are using their time effectively. I don't know if I'm forgetting anything, Vivek. We have noticed a lot of the overdues are related to instances of KYC manipulation. So what happens in that case is that customers who have bad credit or are defaulters or over-leveraged, there has been strong evidence that there has been KYC tampering to kind of defeat credit bureau checks. So we have successfully launched in all of our branches biometric eKYC verification, using either fingerprints or iris scanners. Many smaller initiatives are underway. We are attacking this from all fronts as much as possible, and of course, I'm always open for more ideas from anywhere really. Great. In fact, one related question is, like in the opening commentary, you mentioned, one of the main reason is the leverage, increasing leverage. And then the RBI came up, with the household income assessment and the 50% FOIR. The idea was that to avoid the leverage. So why those measures have failed to control the over-leveraging? Is it because industry is not doing the income assessment and the, debt assessment properly, or the customers are taking more debt after the disbursement, or what has, failed to that this, such a contrasting measure of RBI failed to control the leverage? See, when you talk about... Forget about rural customers for a second. If you are talking about assessing income of people who don't file tax returns or don't keep accounting books, so for that matter, not have very qualified bank statements or qualified bank statements for even urban players, even in our two-wheeler. Mm-hmm. Income assessment is no more than a guesstimate, you know? So, now, especially in the MFI space, that problem exacerbates, right? It's very difficult to assess income. And even if you can assess income, their income levels change drastically from quarter to quarter, or month to month, or year to year, depending on overall macroeconomic scenarios and numerous other factors. So what I was trying to say that this FOIR rule was a great rule, but earlier on, there was a very conservative, hard limit that was put in place, which is, you know, about INR 1.25 lakh or something close to that, for a customer. For a customer. Now it has changed to 50% FOIR. Now, let's say that I assess a customer at an INR 2 lakh income, right? And I leverage him accordingly. What is stopping another MFI from coming in and, you know, assessing the same customer at an INR 3 lakh income and giving him money, right? The second issue also is the fact that, you know, there are multiple institutions now that are targeting the same customers. So earlier on, rural customers were the domain of the MFIs, people like me, right? 80-90%- Mm-hmm Of the loans going there were serviced by companies like mine or SNBs or largely people focused on microfinance. Today's scenario is changing, where there are many institutions who are targeting the same customers, and not specifically in the MFI way, right? I mean, you have tractor loans, for example, you have, you know, LAP loans, you have gold loans, you have many other kind of consumer durable. The tier four cities now have, you know, lifestyle showrooms and white goods, living room furniture there as well to similar customers. Now, those guys are not really restricted by any MFI, FOIR guidelines, right? I mean, typically they have to make a decision on the spot, and usually that's done by a credit bureau check. And a lot of these customers will have very clean credit bureau, even though they might be over-levered. The problem will occur six months down the road when they reach a tipping point where they cannot afford it. So again, I don't want to paint a bad picture here. This is—I mean, 92, 93% of my customers pay me on the dot.... right? Whatever is coming to me. So, but you know, my job is not to worry about the 90% or 92% that pay on time, it's to worry about the 8% that don't. So overall, you know, whenever we make broad statements like this about over-leverage, I'm not talking about 100%, I'm talking about 10%. Got it. So that is what we need to solve. So then the last question is, industry-wide, another thing is, geography-wise, the experience is different in the default. So, are we planning to implement district-wise or state-wise different rate of interest for customers? No, that's a good question. We did consider it. Right now, we have not gone ahead with it, given the scrutiny about interest rates and other factors from regulatory side. But that obviously remains a trump card available to us in the future, that if the situation is to worsen, then at least some of the cost you could potentially pass on to the customers, although I would hate for it to come to that. Thanks a lot, sir. Thank you for that very detailed answers and all of it. Thank you. Thank you. Thank you very much. The next question is from the line of Pranav Gupta from Aionios Alpha Investment Management. Please go ahead. Hello? Yeah. Hi. Yeah, hi, and thanks for the opportunity. A lot of my questions have already been answered, but, so just to get a sense on, you know, you mentioned certain geographies, that, you know, that are seeing higher stress than others. My, my... The sense that I wanted to get from you is that, is this, specific to- is this because of specific factors in the geographies? Obviously, keeping aside the over-leveraging bit, but any specific micro-market factors that are leading to this, or is it just a general deterioration, largely because of over-leveraging, and then, these customers being pushed over the curve because of 12 elections? That's the first question, sir. No, so it's really. So deterioration, as I mentioned to a previous question, to a previous question before, deterioration is across the board in every state. So there is no state that has been immune to the overall deterioration. Some cases are, some states are worse than others, such as Rajasthan, Maharashtra, and other, you know, Bihar has been behaving well, but there has been signs of over-leverage. And I think it really differs from player to player, because where I'm sitting, I feel the southern geographies are a lot better right now, at least some of them. But then I talk to some players, and they say that Tamil Nadu is facing a lot of difficulty. Gujarat is one of our best behaving states, but then there are other players who have made statements saying Gujarat is... So I think it, it just kind of depends in, even on a district level, where you are. So, for example, Gujarat, if you are in Saurashtra area or the southern parts of Gujarat, near Surat and stuff, those are behaving quite badly. But I mean, 100 km west of Surat, I mean, so east of Surat, things are much better- Yeah in terms of, districts like Panchmahal or- Right. Da- Exactly, Dahod. Dahod. Dahod has been, I mean, you have the same leveraging issue in Dahod, but the portfolio quality is quite good. So, it's, you know, I think, the tendency for the human brain is to find relationships, okay? X is causing Y, so let's stop X. But unfortunately, things are not that cut and dry, you know. I mean, there are weak correlations, at a lot of different areas, but there's very little strong correlation to kind of say that if you, if you just stop doing X, then, things will improve. I, I hope this makes sense. No, absolutely. Just to follow up on this, sir, I wanted to understand from you that, you know, a lot of players have mentioned that, over the last six odd months, they've seen center culture deteriorate. You know, members not willing to attend meetings as often as they were earlier. And some part of the deterioration has also led to that. Are we also seeing those sort of trends play out in some of our geographies? Absolutely. And that has not been the case for three or six months. JLG culture being diluted is something that I think I've been talking about for the last 2 years or so. I mean, since COVID, that has been the case, you know? And, it's to be expected, really. I mean, our business model is largely based on discipline and customers coming and sitting in a certain way and coming on time and stuff. As competition increases and as people get more used to availability of credit, 10 years ago or 14 years ago, when we started microfinance, I mean, it was absolutely green pastures all over the place, and if you made the customer jump through 20 hoops to get a loan and to continue getting a loan, they would be ready to do it. Right. Today's customers are different, and I don't think there's anything wrong with that. I think the market has matured, the country has matured, and we have to, rather than you know, fighting it all the way through, adapt our systems to adapt to the new ground realities. So, but yes, you are on, it's absolutely correct. Attendance levels, JLG culture, and everything has been getting diluted. Right. So just a question on the attrition bit that you mentioned. Are we so typically attrition in MFI or in fact most lenders over the last few years has been relatively high, mainly on the feet on street levels. Are you seeing this attrition also increase, you know, slightly above those levels, maybe at branch manager or area manager levels, or is it still restricted to feet on street? It's just restricted to feet on street. I have many friends in other industries, manufacturing and whatnot, and it's always, and they are also facing similar difficulty to find ground-level staff, whether factory workers or field officers or what have you. As far as, like, middle management and above is concerned, or MBAs and other, you know, white-collar professionals are concerned, there is little turnover, and in fact, those jobs are, you know, available. I mean, you know, candidates for such jobs are easily available. It's the feet on the street which is causing the main issue. Right. Right, and just one last clarification. The presentation mentions that collection efficiencies were at 95.8%. Is this including arrears or excluding arrears? This is including arrears. Okay, including arrears. Do you have the number, excluding arrears offhand? Do you mean on-time repayment? Yeah. So on-time repayment in June would have been about 93.8%, 93.6% or something like that, 93%. Okay. Okay. And this wouldn't have significantly improved directionally in July or probably in the beginning of August? No, there has not been any significant- So it would have been almost similar? Similar. Maybe a slight improvement, few basis points, but nothing meaningful. Understood, sir. Thank you so much, sir, and good luck for the future quarters. Thank you. Thank you very much. The next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead. Hi, sir, I hope I'm audible this time. Sir, you made a comment around some identification-related frauds. Are these frauds happening in spite of Aadhaar-based authentication? So, see, what are the basic documents that we check during, let's say, a disbursement? So for us, we take two forms of ID, and in most cases, it is an Aadhaar card or a voter ID. So earlier, what we found, I'm talking about years ago, people would... it was easy to manipulate the numbers of an Aadhaar card. You know, even there are many such places available, illegal places available, where people used to do it. So then what we started doing was using a verify algorithm to make sure that the digits are correct. Then the problem was that, okay, the digits were correct, but they were borrowing the digits from other places, maybe minors, you know, or their children or something. So in that case, we started eKYC's, wherein, you would get basic details about, you know, gender, location, age, other factors, you know, other factors which were available. Now we have finally bit the bullet and also gone to a level where they have to use an iris and/or fingerprint scanner to get the loan. And so I think we started that about six months ago. So a lot of those kinds of at least Aadhaar-based manipulations have stopped. But there are still other documents which are susceptible, right? So, like, voter IDs, and it's, in many cases, we find that these are not fake voter IDs, but there are multiple voter IDs available for the same customer. Let's say that we have a rule that we don't give to rented customers, right? Now, how do we check whether they are rented or not? And so there is a list of documents that we can take from them, such as, electricity bill or other things. Now, those can be manipulated as well. Anybody with Photoshop can do it. And so, more and more customers who want to, kind of defeat your, credit bureau checks or defeat your overall, credit assessment, they would use such tactics. So, and really, this is, this is not just for microfinance, this is for all lending businesses in general. So, this is not restricted to microfinance, and it's largely a cat and mouse thing, right? You, you come out with new systems to stop it, and somebody comes with something else to defeat it and, you know, so on and so forth. Thank you, sir. Thank you for the elaborate answer. That's all from my side. Thank you very much. Ladies and gentlemen, due to time constraint, that was the last question for today's call. I now hand the conference over to Mayank Mistry for closing comments. Thank you all for joining the call today, and thank you to the management team of Arman Financial Services for giving us the opportunity. Thank you. Thank you very much. Thank you. On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.