Good day, ladies and gentlemen, and welcome to the Bajaj Finance Limited Q2 FY 2022 Earnings Call. This call will be recorded and the recording will be made public by the company pursuant to its regulatory obligations. Certain personal information such as your name and organization may be asked during the call. If you do not wish for it to be disclosed, please immediately discontinue this call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. I now hand the conference over to Mr. Anuj Singla. Thank you and over to you, sir. Thank you, Aman. Good evening, everyone. This is Anuj Singla from Bank of America Securities. Thank you very much for joining us for the Bajaj Finance earnings call to discuss Q2 FY 2022 results. To discuss the results, I'm pleased to welcome Mr. Rajeev Jain, Managing Director, Bajaj Finance Limited and other senior members of the management team. Thank you very much for giving us the opportunity to host you. I now invite Mr. Rajeev Jain to introduce the management team on the call and take us through the financial highlights for the quarter. Post which, we will open the floor for Q&A. With that, over to you, Rajeev. Thank you, Anuj. Thank you, Bank of America team, for hosting us. Very good evening to all of you. I have with me here in the room Sandeep Jain, who's our CFO, Anup Saha, who's our Deputy CEO, Babu Rao, who's our General Counsel, Fakhari Sarjan, who's our CRO, Ashish Panchal, President, set of, who runs a set of businesses and my Chief of Staff, and Kurush Irani, who's our Head of Operations and runs our business transformation initiative. I'll be referring to the investor deck that we have uploaded in the investor section of our website. We uploaded that at 4:30 or so. I hope you had time to review that. Let me jump right in. I'll take 20 minutes to just talk through the key pages in the investor deck, and then be open to questions. Let's jump right in. Let's quickly run through panel four. If I summarize how the quarter went, I would just say that it is a quarter of strong revival. We live in feast or famine times. Last quarter was the famine given the second wave. It's a strong revival across growth, risk, debt management and financial metrics in the quarter that went by. In absence of a third wave, I'll just say that we are quite confident about the second half of the year on growth, risk, and financial metrics as a company. Business transformation, which is expected to go live on 31st of October, is running behind schedule, mainly to an extent because of code freeze for the festival season and due to second COVID wave causing certain tech deliveries. That will go live now on December 15. I'll provide you some context in some of the slides as to how under the hood business is beginning to dramatically change in the way we conduct business. Go live is for the business for the consumer app upgrade is now planned for mid-December, which is December 15. Very quickly onto numbers. AUM came in at INR 167,000 crore, just below INR 167,000 crore. That's a year-on-year growth of 22%. OpEx to NIM, I'll talk about, came in at 38.1%. PAT came in at INR 1,481 crore. A year-on-year growth of 53%. ROE at, not annualized at 3.8%, and net NPA came in at 1.1%. I'll be covering all these five points in a little bit of detail in the next 2-3 panels. Just hold on for a moment. Year-on-year, I've jumped onto panel 5. First of all, year-on-year numbers are not comparable due to dislocation that was caused by the pandemic. AUM, I talked about, moved from INR 137,000 crore to INR 166,000 crore. The core AUM growth, which is a strong core metric, grew by INR 11,150 crore. That's the highest ever we've done in the last, I mean, that we've ever done in a quarter. To that extent, the AUM momentum is quite good. When I cover the AUM composition is pretty steady. What should not be going up, which is our auto finance business, is not going up. What should be going up is other lines of businesses. They're all going up, but I'll cover that. In absence of a third wave, we do believe that the quarterly AUM growth for the balance of the year should be quite strong. We booked 6.63 million loans in the quarter. It's still not at an ever high level. I think all-time high level was at 6.88 million in Q3 2019. December, so two years ago, Q3 was the highest ever at 6.88 million, if I'm not mistaken. We still have some distance to go there. Should happen, you know, in the following quarters. Customer franchise just a tad below 53 million. The cross-sell franchise is now 29.4 million. Growth of 23% YOY. The customer franchise also grew by 20%. The cross-sell franchise grew 22%. We acquired 2.35 million new customers in the quarter. In general, last quarter or this quarter, we're on track to add 7-8 million customers a year on from a New customer addition standpoint. Geographic footprint stood at 3,330-odd locations and in 20,000 distribution points. We added 260 new locations. I'll provide some texture as to where we are growing also in just two slides later. Overall margin profile across businesses is holding. We used to have earlier challenges in the mortgage side of the business. As the pricing has come off there, we are able to protect our margin profile there as well. Overall, across businesses, we are managing to protect margin profile. Still may not be fully visible in the P&L due to interest income reversal. Came in at INR 322 crore versus INR 216 crore in Q1 last year. The run rate of that number we expect it to normalize to INR 180 crore-INR 200 crore from Q3 onwards. If in absence of a third wave, probably the worst is behind us even on this metric as we get to Q3. Cost of funds reduced to 6.77%. That's not really the run rate number. The run rate number you should read it as 7%. The wave of IPOs that happened, and we borrowed short term. This metric is little not fully representing the real number. The real number you should read it as 7%. The company also raised a reasonable amount of long-term monies in the quarter that went by. In two years and above, we raised INR 6,800 crore. You know, in that, of course, tenure monies we raised at INR 2,300 crore came in at historic low rates. So it is a good quarter from a treasury standpoint. As a result of, however, such a large raise and bunched in end of Q2, the overall liquidity position was quite strong. We are hopeful that it should get normalized to INR 8,000 crore-INR 9,000 crore by Q4. Maybe by Q3, but definitely by Q4. Depends clearly on how attractive the treasury markets look. If we've to cover long term, we'll cover long, is really our approach as management is. Our deposits book to granularize liability side continued to grow by 33% YOY. In that retail is 77, wholesale is 23. Our goal is 70/30. We're quite okay. OpEx to NIM was higher, much higher than the normal. We exited the year at pre-COVID levels at 33%. This, it's a transient frame, is what I would say. We foresee OpEx to NIM for the quarter came in at 38%, which is a high, as I said, of 8-9 quarters, mainly owing to debt management costs because as clients move into stage two and stage three, the collection costs go up. They are stable in those in bucket 1 and if they are stable, it does not deteriorate the credit profile, but the cost of collections goes up. That was one reason. Second was the salary cost that went up. We added close to 2,000 employees to support our growth trends overall. As a company, that's an all-time high addition that we've actually done in a quarter. We expect this number to go down to 33%-34% mainly as the debt management costs normalize by Q3. That's one part. As the overall balance sheet grows, that's the second part. I think we should exit the year between 33% and 34%. By the time the three-in-one will also go live, next year should look closer to a 30%-31% is what our thought process would be at this point in time. Loan loss and provisions came at INR 1,300 crore. To protect ourselves against a potential third wave, we still continue to increase management overlay. We increased management overlay by INR 350-odd crore actually, from INR 483 crore to INR 832 crore. That's virtually, you know, a INR 350-odd crore addition that we did. Mainly it is not evident as I cover some points in the numbers, but we just want to protect ourselves against wave three and so it's been done from a conservative prudent standpoint. Overall debt management efficiencies across products was better. In absence of third wave, we do now expect that loan losses will normalize to the adjusted for balance sheet between INR 700-INR 800 crore run rate for second half of the year and hopefully in absence of a third wave, that's really where the number should look. GNPA, NNPA improved sequentially of course, from 2.96% to 2.45%, 1.46% to 1.01%. There's material improvement in GNPA and NNPA. If there is no third wave, we expect GNPA, as I guided earlier, to settle back at 1.7%-1.8% at a GNPA level and 0.7%-0.8% at a NNPA level. We also had forecasted in Q1 that we overall estimate the loan loss for the full year to be INR 4,300 crore. We've already taken INR 3,050 crore. We are residually left with INR 1,250 crore. If I take the previous sentence, clearly run rate will probably be a little elevated of INR 758 crore, INR 700 crore-INR 800 crore depending on how the numbers, how the debt management efficiencies pan out in Q3. That's a residual number for next two quarters. If you look at the absolutes, leaving the percentages aside, there was significant improvement sequentially. GNPA from INR 4,700 crore came down to INR 4,100 crore. NNPA came down from INR 2,300 crore to INR 1,825 crore-odd in that the secured component. 57% of our NNPA is essentially contributed by auto finance. A significant marked improvement even there in terms of debt management efficiencies and mortgages. Between both of them, 78% is actually secured assets. Overall stage two also dropped by virtually INR 1,500 crore from INR 7,400 crore to INR 5,950 crore. If you go to panel seven quickly, some more numbers. As you can see, stage two assets dropped from INR 6,900 crore to INR 4,500 crore. You know, which is other stage two assets. We have a 23% provision against it. Numbers are, as you can see across, there is sequentially a marked reduction in all the numbers. That's a good sign. We just wanna make sure that having suffered from a second wave, we protect ourselves for the next at least one more quarter before we take a regularized view of loan losses and these numbers. Overall, as management, our view is that adjusted for balance sheet, the Stage 2, Stage 3 assets should look like INR 7,800 crore-INR 8,000 crore. That's really when we can say that we are back to pre-COVID levels. At a design level, at this point in time, that number is INR 10,450 crore odd. So we still have some distance of INR 2,500 crore. The If the current levels of debt management efficiencies and default rates that we are seeing incrementally across portfolios remain, we will naturally get there at a framework level. The worst should probably be behind us on credit costs as we move on from here. Despite taking a 350 crore extra conservative provision on account of management overlay, the overall profit before tax came in at INR 2,004 crore. Profit after tax came in at INR 1,481 crore, which is a growth year-on-year not comparable, but came in at 53% higher. Capital adequacy pretty strong, 27.5%. BHFL AUM will continue to do quite well. AUM grew by 33% to INR 44,000 crore. BHFL also launched a new vertical, which is an affordable housing finance business. It'll move slowly, but that's a start that we have made to complete the product suite for BHFL as a company. BHFL capital adequacy also remains strong at 20%. They delivered 100% growth year-on-year on its profit after tax, came in at INR 166 crore odd. BFSL continued to retailize or randomize its securities business, acquired 109,000 odd customers. It could have been stronger, but we made some changes to the way our distribution model is organized. Else we were hitting at under 50,000. We have pulled back some of it to create a more sticky origination model rather than just a number. BFSL delivered a small profit of INR 3 crore. That's really on the financials. Overall, I would say good quarter on financials. Marked improvement from where things were in Q1. As I said, famine to feast, the times that we live in. Let me just give you some texture on in July AGM, we talked about that how we see business to be. We've talked about it to investors that we see ourselves to be an omnipresent company, which essentially allows customers to move, existing and new customers to engage, transact, and we service online and offline and vice versa without friction. That's really the frame that we are chasing and pursuing as a company, and we think creates a strong moat for us to grow in a sustainable manner for a long way of time. What I thought will give you texture from here on, that's really how we'll provide updates to the street on a quarterly basis. That's on panel nine. We are a regulated business. We think as long as KYC is relevant, as long as AML is relevant, geography, as long as debt management is real, geography will play as important role and boots on the ground will play as important role than anything else. The omnipresent frame fundamentally at the essence level also starts from geography. At a geographic level, we are at 3,230 locations. As I said, 120,000-odd distribution points, expanded to 116 locations. The prominent footprint when we look at pan-India, we are essentially growing in North and East at this point in time. The GDP contribution of North and East in our overall portfolio versus our portfolio contribution is lower. When we stack the state GDP versus when we stack the portfolio mix, we clearly find that North and East, its contribution to national GDP versus its contribution to our portfolio is lower. We're growing in North and East a lot more. It, of course, is a risk metric. To that extent, it helps reducing a concentration risk and of course creates new growth opportunities because these are a lot more uncharted and virgin markets. In terms of omnichannel now, let me give you texture on offline to online to offline. Let's start from the top of the funnel, as to how are we originating customers and how do we incrementally originate customers. We originated customers mainly at the point of sale. However, in the last two years, that started to change dramatically. In the quarter that went by, the company acquired 372,000 new customers through fully digitally all the way to e-mandate, KYC, Aadhaar, and so on and so forth, acquired a tad below 400,000 new customers. These 400,000 customers in general walk into the store, have a 60-day activation of 20%-23%, have a 90-day active of 28-29%. They add to the point of sale business rather than withdrawing from the point of sale. Sorry? Sorry? I'm not able to hear. They pay a fee. Uh- They pay a non-refundable fee. Yeah. These are all paid cards, to the point Anup is making to me. 50% of them pay fees, as a payment gateway and buy the product. Clearly there's a huge, latent need for the product and 50% pay when they walk into the point of sale. The EMI Store strategy is beginning to after a year of reasonable amount of effort is now beginning to yield reasonably good momentum. The EMI Store visits increased from 10 million in Q4 to 30 million in Q2. We started to, you know, stimulate or activate, use this as an asset to stimulate the entire customer franchise with whom we want to do business, resulted in 200 and close to 250,000 new loans in Q2. Now, the total SKUs that client customers are able to see or prospects are able to see is close to 30,000 SKUs. Total, 25,000 merchants have now become part of, have uploaded their inventory, infrastructure. This offering, eventually, I forgot to cover the EMI card as the consumer app upgrade goes live. This will make the journey a lot more seamless. Similar to the EMI Store, this offering is already integrated with the current Bajaj Finserv App, allows customer to do a single sign-on to actually get in. The point of sale transformation fundamentally, you know, has also started to deliver reasonably good momentum for our personal loan and credit card distribution business. We've been at it for the last one year. It's an integrated offline to online framework which covers communication, call center, and fulfillment right at the point of sale. We generated close to INR 400 crore of personal loans in the quarter right at the point of sale that went by, and 27,000 credit cards distribution in the quarter that went by. The run rate of credit card distribution is actually higher because of the Mastercard issuance. We were down for 34 days. Otherwise, the run rate is close to 45,000 accounts. It's the consumer just to give it, take a moment on it. Existing customer walks in, we have fundamentally pre-stamped him for a set of product options based on analytics infrastructure. We communicate with him to be able to take a loan, improves our D&C rates because he's an existing customer on one hand, reduces promotional efforts, and delivers a lot more integrated outcome. Point number four, CDP platform key to us delivering a consumer app upgrade has gone live. The under the hood effort delivers a significant upgrade to our multi-channel orchestration, customer communication, call governance infrastructure, an integrated multi-dialer framework, and a multilingual architecture. These are under the hood changes that we are making to the business model to ensure that when the consumer app upgrade goes live, it yields from a desirable standpoint for the consumers an outcome that they like. Just to provide some texture, I can go on, but I picked the top four points to provide some update. On consumer app upgrade, we have 13 million active customers on it. As I said, delayed by 45 days because of code freeze for festival season. Normally, we should have guided a little better probably that we said 31st of October, we should have probably said 15th of November. Because till 15th of November, during season, we don't make any changes. We knew Diwali is 4th of November, but should have been little more careful. Certain tech deliveries are running behind. Overall, we are releasing in sprints, given it's a large infrastructure. Sprint one, which essentially covers all customer service menus, payment options, EMI Store, 20 engagement apps, and a robust search and functionality of the entire app, has actually gone live on Play Store for 10% of the customers. It went live for 1% then 5%, and now it's 10%. We have held it there now. We'll now wait for the season to get over till 15th of November and increase coverage from 15th of November. The sprint two covers business journeys end-to-end, insurance and mutual fund marketplace, and all of it will deploy between 15th of November to 15th of December. As I've articulated earlier, that's phase one. My satisfaction on the consumer experience, I would say would really be by April 30th when phase two, on what we see as phase two. Because as we build this out, we've identified a whole host of things that we want to do as well to improve customer experience and journeys will happen. It never gets done in one go. It ought to happen in phases only. Just on payments, we onboarded 3.1 million wallet customers for festival season. One of the objectives of wallet was to create more integrated, more seamless journeys. We integrated the wallet feature for seamless fulfillment. We do whole lot of hosts of promotions, cashbacks and so on and so forth. To and that was the objective of having a wallet or a payment tool. All our cashback reimbursement processes are all integrated for the season into through the wallet. On one hand it'll improve the cashback and reimbursement process. On the other hand, it'll improve stickiness and engagement. Merchant app, that's really our second large app ecosystem that will go live by February. That's also probably behind the 30 days. It'll enable both B2B and B2M across onboarding, transaction, promotion, rewards, and settlement. We will weave into it our earlier REMI business and then hopefully be ready to grow that business from there on. Post board approval, we've applied for PPI, BBPOU licenses and so on and so forth. That work is on. We're expanding the payments team given the long-term strategic nature of the view that we've taken on the business. Just last 2 points of update. As I said, it's an omni-channel frame. The entire architecture is organized as everybody is on this ecosystem, which includes our EMI Store connects the merchants, the productivity apps connects employees and distribution partners. The new debt management services app went live across 34 merchants and 9,000 employees, enables the entire end-to-end journeys of onboarding staff, agency staff. We always onboarded agencies, now it onboards even agency staff, the entire cash receipting, trading, communication, compliance features, dial-in integration and call recording. The entire new next generation infrastructure went live fully. Also enables the debt management staff to service the customer on a host of service-related queries, can instantly trigger a whole host of menu options to help the customer with requirements. One of the things, just to share what we keep telling people that as much as this business is about risk management, it's also about debt management. The company issued 13.5 million receipts in Q2 alone. That's the breadth and the depth of the effort that debt management involves. Sales one, because if a consumer is going to press a button and based on the CDP platform, the lead should go to a call center or to the salesperson, is as integral to the omni-channel strategy, has started to now also go live. We are targeting that by December 15 this happens, by January 5 early this should have also closed. This also enables staff to help customers with a whole host of service-related queries, transitions customers from online to offline. This is online to offline because when a client presses a button and wants a particular product, based on CDP platform, it needs to drop directly to him based on a design. As key as the consumer-facing app ecosystem is, are these as well. We're hoping all of this fully goes live between December fifteenth and January, so that the phase one of this gets over. Hopefully by then COVID is also over by January, and we can all focus on business. That's really on the business very quickly. I'm jumping all the way to panel 43 to give you texture on business composition. As you can see, as I said, what needs to go down is going down, which is AFS, Auto Finance, down year-on-year 15%, rightfully so because the business has really struggled and it's down 15%. Its contribution is also down to 6%, and the rest of the businesses have picked the weight of it and have grown. Overall, you don't see much movement. It's in corridor of 1 or 2%. Provisioning coverage at 126% gives you the data that I talked about. GNPA at 2.96 in June is down to 2.45, and NNPA 1.46 is at 1.1. Still auto finance is really where the pain is. Sequentially down, as you can see, gross NPA is down 3.1% and net NPA is down 3%. We are forecasting this will be down to 7-8%, exiting Q4. Maybe a little better as we move on. Otherwise you see improvement sequentially, markedly actually. Our sales finance business is actually down over March. Consumer B2C is just about 40 basis points ahead. Rural sales finance is same. Rural B2C is up. You can see a star there. The Gold Loan has created some noise. We used to club it there. Adjusted for that, the numbers are lower. 1.65 also had some amount of Gold Loans. To that extent, it's apples for apples conversation. SME is still some way to go. The peak should be over by November, and you should see numbers go down by December. Mortgages, reasonably flat. Marginal uptick between 90 basis points to 97 basis points. Similar to NNPA, provisioning coverage remains same, so we are quite sorted. This is the last panel probably I'll cover. Open it up to questions. Panel 49, you see lots of numbers here. As I said, marked improvement across all, you know. Versus OTR, 1,287 has gone to 1,512 because we have offered OTR in the mortgage business mainly, to the tune of INR 220 odd crore, mainly mortgage. I would say probably only mortgage. That's where the request came from. Normal stage two, as you can see, down INR 1,600 odd crores. Stage three, down INR 600 odd crores. Provisioning, well covered. We've increased the provisioning coverage from 51% to 55%. Well prepared for wave three, if it is to happen. If it didn't happen, we'll take a view on provisions by end of Q4. Last panel, overall management assessment on portfolio quality. We are good. We're still watching two-wheeler and three-wheeler. As you can see, rest of the numbers are down. On this panel, two-wheeler, three-wheeler logically ought to be at 85%-86% stage one. It's still some distance away from it. I think next 3-4 months, we should see some movement here. Otherwise, sales finance, digital products, B2C, also some distance. Better than where it was in March, but still has to get to 98 odd percent of current, which is really where we were for 8, 10 years. We should get there by Q3 is what our assessment is. Our next panel, professional loans. We are virtually there. B2B, we're virtually there. B2C, we have some distance to cover. I think a little more distance to cover, probably we'll be there only by Q4 in absence of a third wave. Loan against property, some distance to cover. May take a little longer than even Q4. Home loans, we are mostly there. Should be there by Q1 next year. That's really the quarter in summary. Happy to take questions, if any. We've tried to cover everything I thought, but happy to answer any questions. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Also, participants are requested to limit their question to two per participant. If time permits, you may join the queue for any follow-up. Our first question is from the line of Aditya Jain from Citigroup. Please go ahead. Thank you. A lot of good details there. On the merchant app, if you could give us a little bit of color, what will that achieve? So if we were to think of the outcomes as improvement in productivity, a higher customer acquisition rate, or maybe directly generating revenue, how would you put merchant app and what its objectives are going to be? Especially given the payment gateway license that you've applied for and received, where does the merchant app fit in? Rajeev Jain explained, this is Anup Saha here. Rajeev Jain explained, merchant app essentially our starting point is we have this REMI business which we are transforming to the payment business. In our phase one, merchant app is essentially the categories under REMI which we do will come under that. What it does to us, the merchant app is the complete onboarding to the payments to settlements to lifecycle management of the merchant. The starting point is fully digital onboarding and as we bring this in, since we spoke about a four-stack payment in our payments journey, the merchant app will enable and along with the merchant app what is coming in is the consumer, is the four-stack payment which is the PPI, UPI, EMI card and credit card supported by reward under the underlying mode. That's what we had explained last time. This is essentially the app which merchant will use the ecosystem of ours. Currently we have 119,000 merchants. Of that, REMI is about more than half of it. But even what we are also expanding when we said P2P and P2M because we are bringing the QR as the payment mode, which is the Bajaj Pay here. Merchant app will enable the merchant to onboard instantly and digitally. And as we bring the journey on QR, this will play out in terms of productivity and coverage. I'll just add to what Anup Saha said. That's the P2M part. Phase one we go live with P2M. Sometime by May or so we go live with P2P. Because at a fundamental level, we have significantly high number of boots on the ground. We are sitting in retail spaces. We intend to use those boots on the ground to significantly expand retail P2P payments ecosystem. We start with going after our merchant ecosystem, which has, let's say, $80 billion-$100 billion of annual commerce. That's one part. Then phase two go to P2P as well. Goal would be full-fledged payments. That's really what merchant app in two phases would cover. The third phase parallelly just to complete that point, Aditya, is the full-fledged acquiring business. Because this is going live with QR. QR will be followed by the POS and the payment gateway business. That is really how this will play out, and that's the strategic call that we have taken, that we'll play all three. Perfect. Thank you. On the POS transformation, just to understand that journey. The personal loan and credit card business is being cross-sold when a customer is at the store. Is that the right understanding? Yes. It's being stimulated at the point of sale. You walk into the store, we have 30 million customers that we want to do business with. You are one of the customers who's fundamentally existing customer who's pre-approved, gets stimulated based on our stimulation models and risk models for a PL or a credit card that we have pre-stamped. Says yes. Using the CDP platform, we route the loan in 30 minutes. We give him 30 minutes in the store and reach out to him. In a way, it's a huge optimization. It's a huge expansion of the pool because earlier, look, 45% of our customer franchise is GNC. This is embedded into the journey of the customer addresses reach out problem. Customer chooses whether he wants the product or not. We do think this will significantly expand as we move. Anup wanted to make a point. As the three-in-one comes in because he's at the point of store, the moment the trigger comes in, even in the three-in-one app, he can consume the journey and go all the way till the final stage. Yeah. As of now, it is through the CDP and the real-time callback. Yeah. That's an important point Anup is making. I've made that point, I made the point earlier that the journey will become a lot more seamless as the upgrade comes. Should lead to significantly higher velocity in the process. Thank you. Mr. Jain would request you to join the queue for any follow-up question as we have several participants waiting for their turn. The next question is on the line of Abhishek Murarka from HSBC. Please go ahead. Hi, good evening, everyone. Thanks for the extremely detailed presentation, as usual. Couple of questions. One on OpEx. Rajeev mentioned that your collection costs have been higher this quarter. First, roughly how much of the OpEx would have been driven by this jump in collection costs? Two, just an extension of that, looking at, you know, the fact that your stage two, three is still slightly higher than normal and some of your, you know, buckets are also a little way away from the normalized levels. Do you think collection costs will remain high for the next few quarters and therefore that presents a risk to your 24% exit target? It's a fair question. Abhishek, to your point on collection cost or debt management cost that we talk about, the number has increased from INR 280 crores in the previous quarter to INR 520 crores in the current quarter. It does have linkages to bounces going up as we called out in Q1. The bounces were up 10% versus where they were in quarter four, point number one. Point number two is, as you have called out very correctly, the stage two and stage three are at elevated level versus where they were earlier in pre-COVID period. That is the second reason, because until the time that we see the stage two, stage three go back to 8,000 kind of number, which Rajeev called out, and we are estimating that by end of quarter four. Yeah. We should be there. The debt management cost may remain elevated. However, I have reason to believe that the cost has peaked out. You will see it sliding down in quarter three, and by quarter four end, you should see it normalizing. Okay. 520 should be a peak, and from there it should head back to normalize. Definitely. We'll see the number go down only from here. Another important information, Abhishek, sorry. To simplify the conversation, the total number between stage two, stage three is down to INR 1,500 crores. You look at it another way. Right. The exit run rate is lower by 25%. That is one part of the conversation. The buckets will also ease. That is just intuitively I'm making the point. The other piece I think that we've been talking about ever since the pandemic started, and I think the company started making higher provisionings and write-offs, et cetera, all of us are estimating hefty write-off recoveries in times to come. The number has moved. In fact, if you look at in the quarter when the number was INR 105 crores of bad debt recovery. In the current quarter, the number was INR 213 crores of bad debt recovery. Even this recovery creates cost for the company. While it is giving P&L benefit that the amounts written off in the last year are getting collected and going in the income line, there is a corresponding cost that is also sitting out there. Perfect. Second, secondly, I was just looking at the standalone fees. I think INR 700 crore was what it was for the quarter. If you could give some granularity there or some breakup between card fees or distribution fees, commissions, et cetera, that would help. Yeah. Abhishek, we have discussed this in past as well. I think the fees are across various kinds of business that we do. It includes the valued services that we offer to the customer. It does include the EMI card that we offer to the customers as a proposition. It does have the distribution fee revenue pool that gets disclosed separately in the annual report as well. It also has the bounce charges that is elevated because of the higher bounces that we have seen in past as well as in the recent quarter as well. Thank you. Murarka, I request you to join the queue for any follow-up. The next question is from the line of Dhaval Gada from DSP. Please go ahead. Yeah. Hi, thanks for the opportunity. I had two questions. One was related to the new digital EMI card customer addition that we did during the quarter, 3 lakh 72 thousand. Just wanted to get some perspective from which platform this was driven. Overall, underlying question is to understand what will be required to accelerate the current customer acquisition journey from the 7-8 million per annum guidance that we have. That's the first question. The second question is on EMI Store. I think about 4% of our loan booking in 2Q happened via EMI Store. Just, I mean, on a normalized basis, sometime next year, what should be the, you know, normal loan origination from the EMI Store? How does that sort of impact profitability? If you could give some color around that. Last, just a clarification on the REMI business in the earlier comments. Just wanted to understand, does the asset quality problem that we had in the COVID period, does that get addressed in the new architecture? If you could just clarify that part. Yeah, those are three things. Thanks. Yeah. Look, digital EMI card, we've been at it, you know, five years ago, we launched during Diwali, three clicks and a happy Diwali. That was the only time we did half-page Times of India ad, realizing very little that it's some way off. We've been at it on wanting to originate clients other than at point of sale. I think rapidly digitizing ecosystem at a country level, and we didn't let it go. We didn't, you know, we stayed at it on one hand, and the country continued to fully digitize on this, on the other. Infrastructure like CKYC, eMandate, PAN integrations have made it possible for you to sit at home and subscribe to a or take a pre-approved loan. I think that's one part. Having gained confidence, we now originate. Marketing function uses it as a product and does search engine marketing on this and through search engine optimization, we originate cards. There is a product management team which runs this. That's one. Its run rate will accelerate. The 372,000 new cards probably could look like 500,000 in the current quarter. It's very much possible. There's clearly a latent need for it. As I said, 60-day active, it adds to the point of sale franchise in terms of customer walking in, and 90-day active is 30%. REMI. That's what it takes to accelerate in a way that we just need to be at it. We just went live with Flipkart. This is a POS infrastructure that we integrated with Flipkart as well. This is the first month we just went live. We'll probably do 10-12 thousand digital EMI cards on the Flipkart platform as well. We will see this probably grow as we and it's completely digital. Second, REMI business, wallet loans and REMI business were two businesses that we... Wallet loans, we shut and REMI business, we significantly restructured because one was a credit issue, another was a margin issue. The business lost two to three years of earnings, was the point that I made in both these. That seemed like you know we had to restructure the business. The business side of it has got restructured. The average ticket size used to be INR 9,500, now it's at INR 15,000. The categories have changed. We moved to categories like tires, low-speed bikes, you know, coaching classes, dentistry services and so on and so forth, which gives us a much better business P&L. Lower ticket size, as we realized larger was the problem. So that it should grow. As the merchant app goes live, this business should probably accelerate sometime in the next year. We will work only with an average ticket size of INR 14 thousand-INR 15 thousand. We're not going to dilute from that. Were these the two questions you had, or did you have another? Sorry. On the EMI Store, the question was writing about- EMI Store, look, it's a strategic call we've taken. Consumer is going online. We can't remain offline. Let's just go to 30,000 feet. We are investing in building that asset. Its contribution, as you said, was 250,000 accounts. We will keep growing this. Probably it's possible next time, same year, it's originating 500,000 accounts. It will originate 500,000 accounts. As the asset gets warmed up, there's still whole host of deliveries that are going live every month. We're still some distance away, even in our assessment, from making the asset as good as it can be. There are continued significant tech investments we're making in making the asset better. It will grow. Customer chooses whether he wants to walk at the point of sale or he chooses to. We are stimulating him increasingly on EMI Store. Our earlier engagement with the customer used to be a dumb SMS or let's say it went to a bot. Now it goes to EMI Store. It just logically lifts the engagement rate of the client from a fee, from being able to purchase. It will continue to move up, and it'll become a reasonably strong asset for us to pursue as we grow the business. It helps the merchant ecosystem as well because we help bring him an asset against the large e-commerce guys. Thank you. Mr. Gada, request you to join the queue for any follow-up. Our next question is from the line of Piran Engineer from CLSA. Please go ahead. Yeah, hi. Congrats on the quarter. I just had a couple of questions, sir. Firstly, on slide 15, I've been tracking the company for a while. Our ROA targets earlier used to be 3-3.5% historically. This time we're mentioning about 4-4.5%. Just wanted to know what really has changed that gives us more confidence for, you know, 100 basis points higher ROA. My other question is regarding the eKYC license now that NBFCs can apply. What is the real benefit apart from turnaround time? And in BNPL, are we looking to move into other categories like edtech or travel like some of the fintech BNPL players have done? This 16 panel moved up mainly as a result of tax rate cut. We exited Q3, or if you take the whole of three quarters of FY 2019, that was it. Yeah. 19, 20, right. And, uh- Mainly moved up as a result of tax rate. We should have done it earlier. I think it was a miss. We corrected it in the current quarter. As the tax rate got revised from 33%-34% to 26%, we should have corrected it. It was a miss from us. Nothing. It's just a mathematical point. On eKYC, we have applied to Reserve Bank of India. I think it's a welcome development and it'll be really beneficial. Helps the customer. I think that's the first point. At the point of sale through biometric. Helps us that we don't have to redact images and so on and so forth, so improves compliance. I think it'll help financial inclusion, I would say. Clearly in smaller, we are in 3,300 cities, helps inclusion in a huge way, I would say. I think these are three benefits that will clearly merge. We are hoping that we can get approval and we can meet all these three objectives. BNPL, I don't want to use the word BNPL since you used it. That's what I tell investors, that we were doing it for a long time. We used to call it REMI. I did not want to be dramatic and make that point. Categories, whatever our consumer is looking at, that's really all we are focused on. He was looking for tires. We got to tire ecosystems from Bridgestone to Michelin to, we're working with all, to SIHA. He was looking for coaching classes. We got him that. He was looking for dentistry. We got that. He was looking for smaller appliances. We got that. We don't have a fixed set. Sorry. He was looking for the smaller cities were looking for low-speed bikes. We are now doing 3,000-4,000 low-speed bikes every month. It's consumer focused. We build out the distribution to help him get this at a low cost for a period of. The only thing that you should know that tenors are shorter. It's only normally 4-6 months. We will keep growing categories, but I just reiterate ticket size has to be INR 14,000-INR 15,000. That's really where you think the economics make sense. Okay. Thank you, sir. Thank you. Thank you. The next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead. Yeah, hi. Thanks for the opportunity and congratulations to the team for a good quarter. Two questions from my end. One, is there any change in terms of product pricing strategy? Because if I look at our interest income on a sequential basis despite AUM mix remaining largely unchanged and despite a INR 300-odd crore interest income reversal, there is a fairly good jump in interest income. Is there anything that I'm missing here? There is no significant change in the pricing. I think what is being missed out is that, the interest income also includes the revenue that is generated because of surplus cash that we are managing. That's an important metric to look at. It is not sitting in the loan book, it's sitting in investment book. I think once you club together, you will see the numbers matching. If at all there's anything else, there's pressure on that. Yeah. I mean, the holding margin profile we have said, Umang, but there's pressure clearly across lines of businesses. In fact, the gross yield on the mortgage side has gone down by almost 80 basis points or 90 basis points in the last one year. No, across. Okay. Across lines of businesses, there's clear pressure because there is clear chase for growth in retail assets. We are clear in most of the lines of businesses, if we take a lifetime view on profitability of the business, we'd rather let go some business than to chase assets. We'll continue to sharpen our pencil rather than dilute margin. Sure. My second question is, again on OpEx for the current quarter. Sandeep is making a point that the IPO financing also had some role to play. In the last quarter, I think, as Rajeev was explaining, the cost of fund of 6.77 is not a right reflection of the effective cost of fund that we have, which should be read as 7%. The corresponding revenue of that is sitting in interest income without the corresponding balance sheet at the quarter end. We had 3,000 in the last quarter end, but we have nothing in the current quarter in quarter end. During the quarter, we have done a lot of financing on the IPO side as well. Good point. Yeah. I think that's a good point. Yeah. Sure. Sure. Got that. My second question is again on OpEx. I appreciate the color given on the current quarter OpEx. I just wanted to understand that probably over next two to three quarters by the time we launch or completely go live on our business transformation will there be any lumpy expense maybe on advertising marketing or any new planned hiring that you have which can push up the cost at least in the near term before we normalize to anywhere between 30%-32% cost to income run rate? Answer is no. We will continue to probably still add staffing. It may not be 2,000 hundred, it may be. We just hired a large batch of engineers from various large institutions. I have 300 odd engineers at this point in time to join between January and June, but no lumpiness. We've already taken into account large infrastructure spends that we are actually doing, which will get delivered, and it's baked in. You just wait for normalization, Umang, of the NIM to play. That's nothing else. Thank you. Umang, please join the queue for any follow-up. The next question is from the line of Vikram Subramanian from Spark Capital. Please go ahead. Hey. Hi. Hi, sir. Thanks for taking my question. I had a couple of questions. First on the EMI card. You had mentioned about a 60-day activation rate and a 90-day activation rate, I think 22%-23% and so on. Could you please explain what the definition of activation rate is and what exactly it means for you as a business? Yeah, yeah. Activation is you come and take a loan. Sorry, I didn't get that. Activation is defined as you come out of 372,000 on a 60-day active basis, 22% would come and take a loan. Okay. How do you see that from- Let's say in a 60-day active period would happen and a 90-day active would be 100,000. Okay. How do you see that going forward? I mean, is this the number that we are targeting? Is this too low? Two, three things. Normally the B2B business happens in a seasonal manner. There are two big seasons, a Q3 and a Q2. We are yet to see because this started to build momentum only from this January onwards, and we have picked pace in the last 4-5 months as the product went live. We are waiting to see how the festival season plays out, whether the activation rates further jump up. On the other hand, I would just say because it's a paid product, customers bought it, the activation rates intuitively and by empirical evidence ought to be higher even than this. You know, I think now I won't put a number at it. We'll continue to share this number. We of course, the product management group tracks it, but we'll share this number as we see how it moves. Got it. Just to clarify, is this activation rate uniform across the POS originated cards and online originated cards? No, we don't originate cards at POS. He takes a loan and then we offer him a card. It works in reverse. Here, in fact, that's really the big change, right? At a design level, we are first creating a card and then a loan account and then a loan. There we create a loan account and then we give a card. That's the big change at a design level. 90% of the customers there take a card because they see the benefit of next time onward, next time around. He doesn't have to do anything. He's fully KYC'd. Friction reduces dramatically. It's 90% there. These are two different, I would say pillars of originating customers is the way you should look at it. Thank you. Mr. Subramanian, request to join the queue for any follow-up. The next question is from the line of Sanket Chheda from B&K. Please go ahead. Yeah. My question was answered. Thanks. Yeah. Thank you. Next question is from the line of Shubhranshu Mishra from Systematix. Please go ahead. Hi, Rajeev. Thank you for this opportunity. First of all, I just wanted to thank you. I'm a Flexi Loan customer, and it's one of the most convenient personal loans being offered by any financial services in this country. That's the first thing I want to mention. Here are my couple of questions. First, we have a legacy auto book which is still, you know, just one OEM. I don't understand the reason why it should be limited to one OEM. Why it has not been diversified? It should be a clear investment and also demand for a diversified application because that's what we have been doing for the last decade. That's it first. Second is- We are not able to hear you clearly. You said one OEM with- You mean two-wheeler, Shubhranshu? Two-wheeler and the three-wheeler, but we are only limited to Bajaj Auto. That's the first question. The second question is on customer relationship value. How do you define customer relationship value? What is the tat and how or what are we projecting in terms of customer lifecycle value and such? That's the second question. The third question was on, you know, how many current live customers are there and how many of them have one outstanding, more than one outstanding loan ex auto loans? Yeah. There are two, three questions. Let me. You meant two-wheeler, three-wheeler, right? Yes. Two-wheeler, three-wheeler, I mean, business has gone through a reasonable stress period. We have seen that concentration risk does have a role to play in this. We are thinking that whether there ought to be more openness in terms of us evaluating other two-wheeler OEMs. That's one part of the conversation. We'll share some update in by January, February on what our stand is on whether we want to diversify. We will never do three-wheeler. We are quite clear. We do that mainly with Bajaj Auto, and we will continue to do that only with them. On two-wheeler, we do have a thought process that whether there's an opportunity to be more diversified to reduce pressure in events like this. That's one part. Second, customer relationship value we used to publish until two years ago, the whole product per customer for many years we published. At a design level that how many products a customer takes. Our PPM models, we don't have, fortunately, any product which should produce a loss. To that extent, any product per customer eventually adds to a customer relationship value. We don't have any loss leaders and we may have higher margin or lower margin businesses, but we don't have any loss leaders. More products a customer eventually takes, the more the relationship value grows at a fundamental level. Until two years ago, we used to publish that in the retail business, in the SME business and in these. These are ours. That's really what our business is. What our products per customer is. After publishing it for many years, we came to a conclusion. You guys were not interested in it, so we dropped it off. We first moved it to an Excel and then we moved it out. Anup Saha is looking at me. He's been with us for four years. He's wondering where we used to, Anup Saha, publish it. I think that's. Doing more with existing customer because on a more serious note, leads to lower loss, lower risk, and more stickiness is the heart of the company. We'll just keep doing more and more with those customers. 68% of the loans booked in the current quarter of 6.3 million came from existing customers. Customer satisfaction, if anybody was to say, I mean, how many companies can talk about 68% of the customers coming from, or the loans in a quarter coming from existing customers? Like, what is the dollar value and what are we chasing here in terms of dollar value? Yeah, dollar value, fundamentally 90% of the customers would essentially be, actually it'll exactly be 90% would be point of sale, 10% would be personal loans and mortgage loans and so on and so forth. On banking, to your question that how many are active, today we have non two-wheeler, three-wheeler. The active banking is 19 million, sorry. 19 million? 17.5 million, sorry. So total banking is 19 million. Active banking at this point of time is 17.5 million, non-two-wheeler, three-wheeler. Total banking is 19 million. Yeah. That's really what the non-two-wheeler banking is. You could call it active, right? Because we are banking on a monthly basis with clients. Does that- Thank you. Mr. Mishra, request you to join the queue for any follow-ups. We have the next question from the line of Kuntal Shah from Oaklane Capital. Please go ahead. Hi, Rajeev. Good evening. I have two questions. Can you give some flavor on, you know, the customer engagement on our new apps, including merchant apps, in terms of retention, engagement, drop-offs, churn, all the metrics which you must be tracking to see the usage and the KPIs you track? Secondly, once our capital adequacy ratio hits around 18%, what would be the steady state OpEx we can achieve at that scale? Because today, we are overcapitalized and our AUM is not getting reflected given the size of our manpower. But at scale, what do you think would be the OpEx number? Would we fall within 30% range at that level of capital adequacy? That has not changed, Kuntal. Our stance is clearly the consumer app ecosystem should lead to significant, really better customer engagement, customer take-up rates. That's really the purpose, because we don't have a franchise problem. We have an engagement problem. You know, the long term, just because we've had a quarterly blip of a number going from— It's been yo-yoing, right? 27%-38% and then came to 33%-34%. We are in transient times. I won't look at the number. If it is 27, I won't look at it. We talked about it. We did cuts. If it's at 38, I won't look at it. The normalized number would be 33-34, which is really it was pre-COVID. We made significant changes to our processes to lead to significant cost optimization across. The medium-term outlook or next year outlook does not change. We do think we'll get to 30-31% as the normalized balance sheet growth happens. That number is not changing. We are in transient times. We'll remain there for two more quarters and go back to normalcy. On app metrics, two quarters from now, we'll start to share a panel on what the metrics look like. We could have published it even now. We've chosen not to. We've opened sprint one to only 10% of the customers. There is a HEART framework. That HEART framework covers. HEART is an acronym. At a design level, it's happiness, engagement, app upgrade, retention. Sorry, activation and retention and transactions. That's the HEART metric. That's the HEART framework. We'll start to publish this in the next two quarters. At a How is this HEART metrics different from NPS score? Kurush can respond. Kuntal, hi, Kurush here. Kuntal, NPS is a very specific- Yeah. One metric, which is the customer's promoter, right? Where he's going to refer you to a customer. HEART is a much more holistic approach. Where in HEART you look at. When we talk of HEART from a happiness perspective, this is something that we have leveraged and benchmarked from what Google uses. Happiness would look at reviews, your ratings, what is the mix of the rating score. That's just on the happiness side. Engagement looks at your traffic, your MAU, DAU, your app launches per user, and so on. As we get into activation and all, that's more to do with how many are retaining on your app. Retention, the name is explanatory. Transactions, you define a set of transactions or properties on the app that you want customers to use and how, what is the usage on those specific properties within the app. As Rajeev called out, we will start sharing at that total. Give us two quarters, probably, as we stabilize, as we launch, as we stabilize, these are the metrics that we're internally monitoring already. Whether on the current app, or on what has gone live at a 5%, 10% level, we are monitoring them. Actually, that is what gives us the confidence to increase. Sprint one to sprint two is, as Kurush said, crash rate was high, we would not expand. We would not increase coverage. Crash rate is today at 0.43. 0.3. Yeah. Crash rate is at 0.3%. Gives us confidence to expand the scope from 10 to 25 to 40 to 100. Yeah. Was that only your question, Kuntal, or you had another question? Just one question. Would we be publishing GMV and all other metrics, given that- GMV, I mean, the loans that we book as a GMV, you guys want it, we'll publish it. We stopped publishing disbursement data, right? That's really what is the meaning of GMV from our standpoint is. You guys want it, we'll publish it. That's okay. I mean, it's not a. But the disbursement data never would correlate. But just. So let's say were we doing INR 58,000 crore, you know, we had a run rate pre-COVID of INR 54,000-55,000 crore of annual loan volumes we were moving just in B2B. This is B2B. Were we moving? Answer is yes. Can we share the data? We can share. It'll become relevant, on a more serious note, it'll become relevant as the P2P goes live, as that clubbed with the P2P and the P2M to the point Anup made as the payments online PG goes live. All that clubbed together is how we are looking at GMV. GMV will be relevant conversation as we accelerate the payments frame between P2P, P2M, PG, POS and our loan volumes. That's really how we see the payment stack to be. These are the five stack frames, and we do foresee these numbers to be reasonably substantial in a three-year horizon. Thanks, sir, and I really look forward to seeing these numbers because I think directionally that will set the tone of our customer engagement. Thanks. Thank you. Thank you. Anuj, happy holiday. Thank you. Yeah. Ladies and gentlemen, due to time constraint, that would be our last question for today. I now hand the conference over to Mr. Anuj Singla for closing comments. Thank you, and over to you, Anuj. Thank you, Aman. Rajeev, any closing comments from you? Wish you all a very happy Diwali. Go and shop. That really is it. We are there to support you. Thank you all. Thank you very much. Ladies and gentlemen, on behalf of Bajaj Finance and Bank of America Securities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.