Ladies and gentlemen, good day and welcome to the Earnings Conference Call of Equitas Small Finance Bank Limited Financial Performance for Q1 FY 2025. We have with us today, Mr. P. N. Vasudevan, Managing Director and Chief Executive Officer, Mr. Sridharan N., Chief Financial Officer, Mr. Murali Vaidyanathan, Senior President and Country Head, Branch Banking, Liabilities, Product, and Wealth, Mr. Rohit Phadke, Senior President and Head of Assets, Mr. Natarajan M., President and Head of Treasury, Mr. Dheeraj Mohan, Head of Strategy and IR. 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 telephone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. P. N. Vasudevan. Thank you, and over to you, sir. Thank you. Good evening to all of you. I'm sorry we are a little bit behind schedule due to some technology glitch. I hope you can hear me loud and clear. I hope you have had the time to go through our results. First, let me start talking about what went well during the quarter. Our deposit growth has been good. Retail deposits continue to perform well, and our retail term deposit book is growing strong. Retail term deposits grew 47% year- on- year, and CASA has been able to hold steady for the quarter compared to the previous quarter. Product segments like housing and used cars have grown well, at 35% and 59%, respectively. We continue to invest in these products. Our flagship product, small business loan, which is now over INR 13,700 crores, has grown by about 27% year- on- year. Microfinance growth remains muted at 6% year- on- year, which is more or less aligned to our overall strategy of reducing the microfinance weightage over a period of time. Small business loans continue to do well in all parameters, and we hope to accelerate the growth in the coming quarters. This good performance has also given us a headroom to grow our Micro LAP portfolio, small business loans up to a value of 7.5 lakhs, which was a little bit controlled during that COVID period. The bank remains healthy on liquidity, with our CD ratio at around 86.75%. W e aim to hold this CD ratio at this level, and maybe marginally reduce it over the rest of the year. Our investments in technology to help build more customer stickiness through apps and launch of products like credit cards, personal loans, and AD1 products are progressing well. In the next few months, we should be seeing these apps and products getting rolled out. Another large investment we have been making in the last one year is our new CRM app, being built on the Microsoft Dynamics platform. This is progressing well and should get rolled out shortly. Our Selfie Loan App for borrowers is seeing strong adoption, with about 1.5 lakh downloads in the last quarter. The app has already started generating leads, as we popularize this app amongst our target segment. I t has a good potential to become a good source for generating leads. Now, I'll talk about what did not go well in the quarter. The first quarter disbursement was quite low. April in particular was really bad, and the rest of the months, though some improvement, was not really still strong. Growth was slow also due to factors that we have been hearing from everybody else, whether it is in terms of elections, heat wave, etc. Our microfinance portfolio loan growth was just about 6%, while the non-microfinance was about 21%. July looks good though, and we are confident that the loan growth momentum will pick up as the months go by. The second thing which did not go well during the quarter was credit cost. Now, credit cost for the quarter has spiked up due to two factors. One is that we have done a one-time correction in our PCR ratio, provision coverage ratio and taken it from about 55.5% to 70%. This was done basically because of the new guidelines that RBI has come out with in the month of April, for SFBs to convert into universal banks. The requirement there is that the net NPA should be less than 1%, and our net NPA as of March was slightly over 1%. We have done a one-time correction in our PCR to bring it down to less than 1%, and also take PCR to a more reasonable level of about 70%, so that that goes behind us at one stroke. The second factor is that even minus the PCR, minus the 70% one-time correction of PCR, our credit costs have still come out on the higher side for the first quarter. This is because of weaker collections, and generally, Q1 as we all know is a seasonally weaker quarter for collections. We are focused on this, and expect that the coming quarter should be better. In microfinance, we have to really see how the second quarter trend shapes up, before being able to predict the way forward on microfinance. Slippages during the quarter were 4.49%, which is above the comfort level of 4% for someone like our bank. The leading contributors to the higher slippages are microfinance and commercial vehicles, which are both elevated during the quarter. On microfinance, the slippage last year first quarter, was 35 crores, whereas this year that 35 has actually moved to nearly 85 crores. Similarly, on CV, last year, first quarter, the slippage was about 90 crores, which has moved to 155 crores this quarter. Y ou can see that these two products really contributed seriously to that slippage. While we are confident that the CV slippage should come back to some level of control going forward, o n microfinance, it's something that we have to really wait and watch how the second quarter progresses before we are able to come with some kind of a prediction. In the current environment, we slowed down the disbursements in microfinance, which also led to a sequential decline in NIMs and yields. However, the disbursement yield across the products actually stayed steady, while in some products they showed even a marginal improvement. In terms of guidance, the Q1 credit cost, excluding the floating provision is about 1.44%. For the rest of the year, on credit cost guidance, we are going to wait for one more quarter. W e hope that by the end of the second quarter, we should be able to come and give a better guidance for the credit cost for the full year. This of course depends on basically the momentum that we are going to be looking at on the microfinance part of the book. Loan growth-wise, we had guided for a 25% growth for the current year. The first quarter has been around 17%, 18%. H owever, this is something that I think should come back, and we should end the year at this guided level of around 25%. Lastly, as we continue to invest in our various product initiatives, our cost income will remain at more or less similar levels of last year. I n the meanwhile, as I mentioned earlier, we are progressing well on our long-term strategy of building a retail bank, that offers relatively attractive rates of interest to depositors, in addition to extending a technology-led customer experience for them. T he money, so collected by us, we are using to lend to the borrowers in the informal and formalizing economy, through a very well-diversified loan platform. T his, we hope, as a combination, should help us create a very sustainable financial performance as we go forward. Thank you so much. Now, I hand it over to Rohit. Thank you, Vasu, sir. G ood evening, everybody. [audio distortion]. Advances have grown by 18% year- on- year and 2% quarter- on- quarter. SBL advances, which contribute 45% of the book have grown 27% year- on- year and 4% quarter- on- quarter. X bucket collection efficiency in SBL continues to be at 99.3%. The merchant overdraft advances have crossed 1,000 crores, and we will continue to scale up the product. Micro LAP in the SBL portfolio has grown 78% year- on- year. We intend to scale up this product this year. Vehicle finance advances have grown by 15% year- on- year, and 2% quarter- on- quarter. The used car book has grown by 59% year- on- year and 9% quarter- on- quarter, and the book now stands at 1,339 crores. X bucket collection efficiency in VF continues to be at 96.4%. Credit cost in VF is slightly elevated. CV sales were flat in comparison to the same period last year, and 8% down over the quarter. The AHA book, the affordable housing loan book, has grown by 35% year- on- year and 4% quarter- on- quarter. X budget collection efficiency here continues to be at 99.2%. MF advances have grown by 6% year- on- year, but degrown by 5% quarter- on- quarter. The MF book has elevated. The second quarter is the beginning of the festival season, and the consumer cycle does see an upswing from the second quarter. I do hope that things improve from here on. Thank you. Handing over to Murali. Thank you, Rohit. Good evening, all. Just to give you a perspective of what we got it right. As a team, we were focusing on mass banking as a crucial thing to garner deposits, and mass affluent to get product holding and relationship value right. I think this quarter was one quarter where we can stand up, and say that our existing customer and new-to-bank customer through retail TD has been a big welcome change in our approach. W e have got that aspect very right. T he first quarter, we had close to 11.2 lakh customers actually contributing towards TD. O ur approach of segmentation, diversification, product management is helping to garner deposits on one side. Second thing is expansion of consumer from saver to actually investor as well as three-in-one, that is trader, is helping us on the other side. Last quarter, we could see, like recently we saw an article, money chasing alternate assets. Our SIP growth as well as mutual fund segment, that is our wealth management unit is performing through ARNs very well. T he second thing is ASBA contributing to a significant chunk of our retaining [audio distortion]. Third important parameters are NR book. NR and elite segment is showing good signs. NRI now we have crossed INR 2,000 crores, and we are almost present in 140+ countries, shows our deepening and relationship and differentiated VRM approach. O verall, on fee-based activity too, we could see on protection side, health actually coming back into limelight and we are able to actually penetrate more and more. O n our four-point strategy, that is getting our family banking right, our journey has started. First quarter has been encouraging, and mass banking is very encouraging and now we see a new development on SCP process for end-to-end solution through selfie. T hird important thing, transaction banking, while we are building up, it will take some more time. F ourth important thing, NR, where we have got in and with AD1 seeing the light at the end of the tunnel maybe in one or two quarters, should help us to garner. O verall, it was a very hard, and very tough and a relatively satisfying quarter. Hope to continue that in coming days. Thank you. [audio distortion]. Good evening to everyone. I'll quickly give an overview of our financial performance for the quarter. All of this is already covered in our presentation. Our net interest income for the quarter came at 801 crores, registering a growth of 8% Y on Y. Other income for the quarter came in at 192 crores, registering a growth of 28%, resulting in a net income growth of 11% year- on- year. Our yield on advances adjusting for securitization and other off-book items drop marginally. Gentlemen, we will hold the line for the management. Please hold while we reconnect them. Ladies and gentlemen, we have the management line reconnected. Thank you, and over to you, sir. Sorry, the call got disconnected. We are continuing now. This is Sridharan here. Credit cost came in at 305 crores, as we created an additional floating provision of 180 crores. Excluding this, our credit cost would have been at 125 crores, equivalent to 1.44%. Out of the 125 crores, microfinance credit cost alone has been at 62 crores, while our SBL portfolio continues to behave very well and the credit cost has remained stable over last quarter. During the quarter, the bank has made a technical write-off of 114 crores, in that 98 crores pertain to microfinance books. The bank carries a total GNP of 889 crores, and NPA provision of 625 crores. Our PCR now stands at 70.29%, up from 56.06% in the previous quarter. We aim to keep our PCR around these levels going forward. PAT for the quarter came at INR 26 crores, due to an additional floating provision of INR 180 crores. As of June 30, 2024, the total [CIS]t has stood at 20.55%, with the tier 1 at 19.59% and the tier 2 at 0.96%. Thank you. With this, I'm handing over the call to Mr. Natarajan, our Head of Treasury. Hello, good evening. Q1 FY 2025 has been a good quarter in the market front. Our treasury made a revenue of INR 29 crores on sale of investments. India, 10-year yields outperformed U.S. 10-year. U.S. yields ended flat on a quarter-on-quarter basis, while the Indian 10-year trended lower and breached the 7% mark. Indian bonds saw good demand on the back of the announcement of inclusion in the global JP Morgan Index. Although the markets had expected the announcement and had pre-positioned to a large extent, good demand for Indian bonds continued to come through largely, thanks to resilient economic activity and favorable macroeconomic conditions in India. The U.S. Fed continues to be data-driven, but the latest comments from Jerome Powell regarding moderating inflation, led the markets to believe that the U.S. could start cutting rates as early as September. Markets are anticipating Indian yields to head lower, mirroring yields in the U.S. in that eventuality. Equities were volatile for the better part of the quarter, but ultimately closed higher as the markets factored in the outcome of national elections. With the big event out of the way, we expect markets to stabilize and continue to outperform global players. Recently, concluded budget has provided areas of focus and target for a new government, which comes with a new world of opportunities. Globally, geopolitics continues to be an issue, as wars continue to wage in Ukraine and Gaza. This is something to pay close attention to from the markets' perspective due to impact on supply chains. We continue to remain positive on the India growth story over the medium to long term, as domestic economic activity continues to be resilient and is expected to further pick up, as manufacturing and focus on agriculture continues to be the twin pillars of Indian economic growth and progress. With that, I'll hand over to Vasu. This is Vasudevan again here. I take pleasure in welcoming our new chairman, Mr. Anil Kumar Sharma. He has taken over from the previous chairman who retired on 25th of April this year. Mr. Anil Kumar Sharma has retired recently from RBI as an executive director, and we have the honor of his presence in this conference call. Thank you so much, sir. We hand it over back to the operator now. Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Darshan Deora from Indvest Group. Please go ahead. Thank you for the opportunity. M y question was regarding slide number 14 of the presentation. I see the yield on gross advances seems to have gone up by 10 bp s or 11 bp s. The cost of funds has gone up by 2 bp s, but the NIM we have reported in Q1 versus Q4 has dropped by 20 bp s. I just wanted to understand the math. Where am I getting it wrong? Yeah. [audio distortion], just to get you on the same page on NIM. T he NIM drop, if I have to attribute it to the change in yield of the portfolio, that's about 11 b ps. Now, this drop is largely because of the composition of the portfolio. M icrofinance portfolio is now lower weighted than what it was before. F rom a NIM perspective, if I put the denominator as earning assets, the yield on the portfolio has dropped by about 11 basis points. Okay. Out here, they're showing 16.45 versus 16.34 bps. Yeah, but this is on the whole book on the gross advances, s o we have securitization also, which happens on the NIM [audio distortion]. Okay, t hat's on the book. Okay, f ine. Got it, a nd the second question was regarding the housing finance business. I f we look at, I think slide 19, the average ticket size at time of disbursement is around 10 lakhs versus for the portfolio is 15 lakhs. W hat explains that? Oh, yeah. Thank you. I n housing finance in particular, as you know, the disbursement happens in tranches, because it's linked to the construction. W hich is why disbursement, let's say it's a INR 25 lakh loan, the first disbursement may be INR 5 lakhs. A s the construction progresses, you see the tranche-wise disbursement, which is why these anomalies there are in housing finance. Got it. W hat would be the average yield on advances for the housing finance business? Average yield on advances in housing finance, now it's gone up, i t should be close to about 12%. Okay, t hank you. That's all from my side. Thank you. Thank you. A reminder to all participants, to ask a question, y ou may press star and one. The next question is from the line of Ishmohit Arora from SOIC Research LLP. Please go ahead. Hi. Thank you for taking my question, sir. T his question was, right now PCR has gone to 70%, and our cost of income is also sticky. Why do you think this happens to our return ratios going forward over the next few years? [audio distortion]. Yeah. This is Dheeraj. I hope I got the question right. If y ou're looking at it from a two-year perspective, like we said, we are trying to build a bank which has sustainable ROAs of 2.25% and a high-teen ROE. T hat's the objective. From a time frame, we've also mentioned that we are in the process of building out a bank. We are about eight years in. We've got another three to four years left for us to emerge as a bank where most of the investments would have happened, s o now those are the two timelines we have. Objective is to hit it as early as possible. I'll just give it to Vasu for some more color. Okay, so t hat is the general direction in which we have been going and which we should continue to be going. In terms of the specific question that you asked that, in terms of PCR going to 70% and our desire to hold it at this level going forward, what could be the potential impact on the bottom line? That's why I said that we are not guiding the credit cost for the year right now. We want to guide for that maybe at the end of the second quarter, because one is the impact of keeping the PCR at 70% on an ongoing basis. Second is the trend in microfinance collections. That's something that is very crucial, and something that we are really concentrating on right now. O nce we get some handle on that also by the end of second quarter, we'll have a much better idea from a credit cost perspective, from the short-term perspective. I'm talking of short-term. Long-term, Dheeraj just explain. I'm really talking of the short-term for the year, so to say. W e should be able to guide that much better by the end of second quarter. Yeah, we'll have to see whether the credit cost of that 1.25%, which we've guided in the beginning of the year, is something we'll be able to manage for the rest of the year. That picture will be clearer by the end of second quarter. I think that we have been fairly consistent in our bottom line over the last four or five quarters. Our ability to get back to those levels really depends on how the credit cost will shape up over the next few months. That will determine that, and we'll be able to guide you that by the end of this quarter. Vasu, thank you. S ir, just a second question. When do you think our cost of funds starts falling? S ome of your peers have already started putting lower cost of funds quarter- on- quarter. See, cost of funds has two sides to it. One is cost of savings account, which is more or less stable between 6.16% and 6.18%. Second is the quantum of replacement deposits, what we do over a period of time. Y ou see, last year we had close to 65%-70% of the book came in for renewal, and so it got repriced at a higher rate, along with the higher rate MTB sourcing. This year we have prefixed, and the quantum which we have now to go is only maybe 20%-22%. That's it. Balance all is either reprice it or that money has gone out, s o that's the reason why cost of fund impact is only two basis points compared to the last quarter. Ishmohit, Dheeraj, we've also reduced in one bucket in our savings account. That is starting July. Yeah, w e've reduced interest by about 200 basis points, so that's something which has already been actioned. Yeah. Thank you, and all the best. Thank you. The next question is from the line of Rajiv Mehta from YES Securities. Please go ahead. Yeah. Hi, good evening. My question is on the SMA bucket, which swelled from 3%-3.8%, which is 30-90 DPD bucket. What are the efforts that we have taken recently in terms of strengthening collections, and not allowing them to forward flow and become slippages, or trying to roll them back in the coming quarters? 30 - 90 days. [audio distortion]. S ee, usually what happens is, whenever we have a collection stress, you move people into collections, you add some people into collections. T hat is the first thing that you do. You also separate the bucket-wise focus, s o we have done that. We have separated bucket-wise focus. We have put more people into specific buckets. I think that will yield results. B asically, our SBL buckets are very good. It's only the vehicle finance which we have to addr`ess. Was it answered? Yeah. I think we also mentioned about X bucket collection efficiency in our mainstay products of SBL, vehicle finance, and affordable housing. I believe that was for the quarter. In July, have we seen improvement in X bucket collection efficiency? See, in July, we've seen Xbbucket collection efficiency stable in SBL, home loans, even in VF also. See, VF, if you look at the trend, it always holds between 95% and 99%. March is always at 99%, and then between months, it goes up from 95% to 97%. W e are at about 96.4%, which is in line with our past data. Okay, n ext question is on yield. How should we look at our portfolio yield or loan book yield moving from year X of portfolio mix change? I know the portfolio mix will keep on changing, but otherwise, my question is, even at the product level, how do you see the portfolio yields moving and catching up with the disbursement yield? T he reported disbursement yield has been way higher. When do we see that catch-up happening? [audio distortion] I'll just cover off the past data. so that probably might answer your question. Now, if I look at, I'll give you product-wise, s ee, for instance, SBL in March 2023, it was 16.29. In March 2024, it was 16.75. I n June, it has gone up to 17.49, r ight? I n VF, March 2024 was 17.23, and June 2023 is 16.69. The simple reason is because the product mix [audio distortion]. Ladies and gentlemen, we have lost the line for the management. Please hold while we reconnect him. Ladies and gentlemen, we have the line for the management reconnected now. We [audio distortion]. Since re apologies, the connection was disconnected. I'll restart. I don't know how much of it you heard. I was going through the yield. SBL, if you look at March 2023, was at 16.29. In March 2024, it improved to 16.75. I n June 2024, it is at 17.49. If you look at housing loans, it was 11.73 in March 2023, which has gone up to 12.13 in June 2024. T his is the direction that the yields will take. I hope that answers your question. Yeah. J ust last question, so at this point in time, we are refraining from confirming our credit cost guidance for the year because of uncertainty, so then why did we still retain our growth guidance? G enerally, we respond from a growth standpoint, we respond to how the collections and how the asset quality moves, but we are maintaining the 25% growth guidance. Yeah. You see, the microfinance is the one where the concern is really high. Vehicles, there is a credit cost spike in the first quarter, but that is something that we are fairly confident of bringing it back. W e should hopefully see not much of an issue going forward, a nd it should be back to reasonable levels going forward. T he rest of the book is not an issue per se. O verall, the credit growth, the advance of growth, I don't see a challenge in that. If there is a dip finally that we have to take in microfinance, we should be able to compensate in the other secured loan products. O f course, the personal loan and credit card might fill up a little bit once they get launched. I don't think 25% is the real challenge for us. The real challenge will be more on the credit cost, maintaining it around that wider 1.25. O n that, as I mentioned, we shall come back to the end of this quarter. Got it, sir. Thank you and best of luck. Thank you. Thank you. The next question is from the line of [Vikas Arza from NDSL management]. Please go ahead. Yeah. Hi, good evening. Just following up on the question on the net interest margins and the portfolio yield, so I'm not very clear, what's the connection between the yield on disbursement versus the yield on gross advances? Y ou'll always have the change in the loan mix, right? A s you guide that, microfinance should taper down in the future. T hat will always have a negative impact. C onsidering these factors, then how should one look at say the yield on advances say by the end of this year, as well as, how should that translate into net interest margin for the full year? Okay. I think Robert had mentioned how yields have moved in the last year. The idea is also, we are focusing on Micro LAP as a product. W e've seen strong growth over the last year, which is a high-yield book. I t almost mimics microfinance in terms of yields. T hose are some of the efforts we've done. A gain, vehicle finance, I think we commented last quarter also that we are slowing down on new commercial vehicles and [NBSC] loans, which are again low-yielding books and focusing on high-yielding products in this interest rate environment. T hose are some of the actions we have taken in the past, and some of them are playing out now. A s you can see, some of the yields are moving. Just to give you some sensitivity, if we have a 5% drop in microfinance disbursement in the product mix, if there's a 5% drop in microfinance disbursement from a mix, you typically will see a 1.15% movement in gross yields. T he yields of 16%-17% we put have that sensitivity to microfinance as a composition, a nd also new products we are coming into will be at a different yield. W e look at product ROEs when we launch it. From a long-term guidance, we'll have to see how banks of sizes which are doubled than ours and similar products which we have got into, how those NIMs will look like, at least from the numbers we've seen. Typically, they are in the range of between 7%-7.5%, s o we'll have to see how we manage our NIMs. Understood, s o what would be the microfinance yield for you as of now? 25%. All right, [audio distortion]. The disbursement rate is 25%. Got it. Yeah. Yield is about 22%. Thank you. Thank you. The next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead. Hi team. Good evening. A couple of questions from my side. Firstly, on the microfinance portfolio. I n your sense, what is causing these elevated delinquencies in this environment? Yeah, s o microfinance last year, Last financial year, at the beginning of the last financial year, microfinance was kind of okay. The delinquency trends were under reasonable control, b ut towards the second half of last year, it started m oving up. I t has really shot up over the last, I would say, nine to 10 months. It's really been moving badly. W hat started in some pockets is actually spreading to more pockets now, a nd this is not really led by some event risk. It's not a political or it's not a flood kind of a natural disaster-related issue. T his is something which is actually fundamental to the industry itself. I f you look at the underlying reasons why it is so, maybe because RBI had come with a uniform guideline for microfinance lending for all the players put together. Under that, certain changes were to be made by all the players. I f you look at the household income of around INR 3 lakh and take a 50% FOIR and assume a two-year loan, effectively, a customer might become eligible, technically speaking, for a loan of about INR 2 lakh. W hen you do that mathematical calculation and arrive at a INR 2 lakh potential capability to lend to a person, suddenly the market veers to that INR 2 lakh. The INR 2 lakh becomes something like a buzzword or a goal for the players in the market. T he ticket sizes start going up and additional lenders coming in. Q uickly, the borrowers' overall indebtedness moves very quickly, and very fast towards the INR 2 lakh mark. I think in my view, that's what has probably been happening in the industry a nd it's a concern. It's not just an issue for us. It's a concern at the industry level. We are in discussion with all the industry players. We have the three associations. We have the Sa-Dhan, we have the MFIN, and we have the Association of Small Finance Banks, ASFB. T wo of them, as you know, are SROs also, recognized by RBI. W e have been having multiple meetings within the industry players in the last two months and three months. T here's been a code of conduct which has been signed off by all the players, where we are voluntarily trying to curb overlending or lending to defaulting customers, etc. I wouldn't say that the implementation of that code of conduct has been very effective on the ground level, a nd that is why we have the concern, which has felt right across the industry. Right, t his is something we have gone through in the past. In 2010, when the AP crisis happened, the industry went into a storm and then s lowly, it started coming back. T he concern remained very high in the industry, about the same concern that I'm raising now, except that the amounts may be lower then because of inflation and time factor. O therwise, the issues are exactly what I'm talking today, was the same issue that was there in 2010. A ll of us had been able to get together at that point in time, bring about a discipline amongst the lenders. T hat discipline was enforced at the ground level. O ver a two-year period, actually from 2010- 2011, there was not much of business because banks had stopped lending to MFIs. 2011 - 2012, in one year, we were able to actually get the discipline completely back. I n 2012, the industry was back to absolute normal levels. T his is something that we have gone through together, all of us in the past. I think it's a journey, that we got to do it again today. We have to get together and discipline ourselves and discipline every one of us in the system. I f we do that, I think the trend should come back. F or a change, the crisis, or if not the word crisis, but at least the stress levels in microfinance for a change is not induced by an external event. This is the first time I think in the last 15 years that I know or 17 years that I have been in this business, that I'm seeing that it's not an external event triggered, but it's something inherently coming up from the sector itself. T his is something, we got to get together and solve it, a nd we are at it. I'm hoping that we guys will really be able to come and solve this. Perfect, sir. Thank you for that elaborate answer. Always good to hear from you as a veteran. Thanks. Sir, again, on the same issue, would you have any sense of, what is the magnitude of this issue? How long can delinquencies stay persistently high? Yeah. That's very difficult to say, b ut I can tell you that we are concerned. Our slippage is not something we have ever seen in the past. I mean, this kind of slippage consistently, month after month is not something we have seen in the past. Demonetization, we saw a large slippage. T hat slippage was maybe about three or four months. We saw a significant slippage. A fter that, that slippage, we were not able to recover for a long time. A fter that, the remaining became normal. In COVID also, after that holiday period or whatever, that moratorium period, as soon as the moratorium stopped and life was coming back to normal, we were able to get back to reasonable levels of collection efficiency again within a few months, I would say. This is the first time I'm seeing where, an extended period of nearly 9-10 months, we have been seeing high slippages, and it's by all of us and in many markets. I t's very difficult to tell you within what time frame we expect it to come back to normalcy. In fact, that answer depends on really how we are able to come together all of us, and ensure that the code of conduct is followed by all of us. I n fact, three days back, we had a meeting in Bengaluru, and all of us pledged we will go back and ensure that we all, at least individually, will ensure we discipline ourselves in the market. T hat's the outcome of a three-day-old meeting. I think the answer to your question lies in how quickly we all become disciplined, and follow the code of conduct. I think give us another month or two, and I think we should be able to come with a much better answer. Thank you, sir. One last housekeeping question. Would you have done any analysis on the proportion of your borrowers in microfinance over a year, which would breach the MFIN guardrail threshold of either more than 200K exposure or more than four lenders? Do you know that? [audio distortion] Customers whose indebtedness is more than INR 2 lakh are 1/5 or other. We'll try and come back to you later. Okay, sir. Thank you for your answers. Thank you, boss. Thank you. The next question is from the line of Abhishek Murarka from HSBC. Please go ahead. Yeah. Hi. Thanks, Vasu. Thanks for the opportunity. J ust continuing with your commentary, then is it safe to assume that disbursements would continue to remain low or declining for the next two, three quarters until you see more discipline in this sector, in MFI? You are speaking with reference to microfinance? Yeah, in microfinance, yes. Yeah. I n microfinance, as I mentioned, the slippages are really not showing any abatement at all. As of now, in the last, as I said, nine, 10 months, it's not been really showing much of abatement. I f nothing changes, if none of us change, if all the industry players' practices remain exactly what it is today[audio distortion]. Ladies and gentlemen, we have lost the line for the management. Please hold. I'll be reconnecting. Ladies and gentlemen, we have the line for the management reconnected now. Thank you. O ver to you, sir. Yeah, Abhishek. So sorry, w e keep getting disconnected. I'm very sorry. It has been a very frustrating phone call, I should say even for me. I don't know about you guys. Just to conclude on that question, Abhishek, the point is that all the industry players are now having their back to the wall, and that's my only hope. T hat once all of us feel the heat, I'm sure cumulatively or collectively, we should be able to bring about a change in our own approach to the market. T hat's the hope that I'm living on. I think the next one month, two months, we'll definitely see a good trend of change, and that should really help us all get our control back on the business. [audio distortion] was that now from a mix perspective, we should see a bit of a sharper correction or reduction in the MFI mix in your overall region? O n the one hand, you will wait to see clouds clearing up and on the other hand, the rest of the book will continue to grow. I think that 17% could come down faster now? It's too early to predict that at this point in time, because I think by next two months, we will have clarity on that. I f microfinance does come back to reasonable normal levels of delinquencies, then our approach of reducing microfinance gradually will come back. W e'll keep to that original plan. On the other hand, if the next two months, three months, we don't see all of us collectively coming together and doing something on the ground, and if slippages continue to remain at the level that it is in today, then we will naturally need to take a sharper call on reduction in microfinance. I have a feeling, I'm just saying my assumption or my feeling, that the industry players are coming together and so that should go well for the industry. If that happens, then we'll stick to our original plan of reducing it slowly over the period of time. Got it. MLAB, can you tell me, so what is the risk weight we use for Micro LAP? Is it 75%, 80%, 100%, or is it 125%? W here are we there? Risk weightage in Micro LAP is only 75%. It's part of the regulatory retail. See, it is not about Micro LAP. It's about the end use of the money. If the end use of the money is for a business purpose, then it comes under the definition of regulatory retail, which is 75% risk weightage. On the other hand, if the end use of the money is for not a business purpose, for anything else other than a business purpose, it's not a question of Micro LAP. It may even be a INR 5 lakh, INR 10 lakh, or INR 15 lakh, or INR 20 lakh loan also, which is also completely secured against house property. Even then, if the end use is not business, it is classified as a personal loan under the RBI's definition of personal loan, and then it goes under the 125% risk weightage. Is that right, c orrect? Yeah, s o that's the way it is. I t's not about Micro LAP, i t's about the end use. In our case, would you have an idea, what's the percentage of our personal loans as per RBI definition? [audio distortion] in our annual report, we will be giving that. I f you're interested, you can just go through our annual report, which we should be publishing shortly. We will give a breakup, earmarking how much of our secured LAP comes under personal loan category to be classified under 125%, s o that will be displayed in the annual report. Got it. Vasu, this last quarter, we did a fair bit of securitization of high-yielding loans, and we lost a bit of yields because of that. Has that also been done this quarter? W hat will be the loss in revenue or interest income because of that? No. We haven't done any additional securitization, or bilateral or anything this quarter. Okay, s o the yield drop is basically reflecting the mixed gains, and not any runoff or sale of portfolio or anything? Yeah [audio distortion]. Okay, g ot it. Vasu, just last question. W e were trending at roughly 2% ROA, and of course we had to make adjustments for unit conversion into a universal bank. N ow that most of the adjustments are done, the plan to get back to close to 2% is a little unclear because on the one side, we are seeing a mixed change-related yield drop. On the other side, we are also guiding for flattish cost to income for the year. C redit cost except for runoff also remains a little high, s o where do you think we might end towards the end of the year? W hat kind of recovery levers do you have to recover back to maybe 1.8%-2% ROA on a run rate basis? See, on an immediate basis for the current financial year, as I said, the credit cost will determine the ROA, ROE, and the credit cost. I'm saying that we will come back to you with some kind of a guidance by end of the second quarter, but on a little bit longer term, medium to longer term basis, if you look at it, the 70% is done and dusted with, so that should not be an overhang on the bottom line any longer and credit cost will come back to normal. I mean, it's just a question of all other products, we don't have much of an issue. Vehicles did have an elevated cost in the first quarter, but that's really not an area of concern for us. It should come back to our normal levels going forward, so everywhere else, we don't have any other issue. O n a slightly medium to long-term basis, we'll be back to our normal levels of credit cost and bottom- line ratios. Got it. Thank you so much, Vasu for answering all those questions. All the best for the short quarter. Thank you. Ladies and gentlemen, requesting you to limit your questions to two per participant. The next question is from the line of Renish from ICICI Securities. Please go ahead. Yeah. Hi. This is Renish from ICICI Securities. J ust two questions. One on this 200 basis points reduction in some of the pockets in deposits. C an you please elaborate a bit on this? I mean, which pockets and what kind of benefit we expect in terms of reducing cost of deposits? [audio distortion] Hi. This is Murali here. See, SA is a laddered approach. As you know, till last quarter, we had up to 1 lakh, 3.5%, 1 - 5 lakh, 5%, and greater than 5 lakh, it used to be 7%. Starting July, that is quarter two, we have expanded the ladder. That is up to 1 lakh, 3.5% continues. 1 - 5 has become 1- 7. T his is seeing the demography, and geography and our product proposition. We have expanded five to seven. That is going to bring in an incremental reduction in SA, since as I said in the initial talk, we are focused on elite, that is the mass affluent and HNI segment. Predominantly, our segment is now moving into investor as well as trading accounts. This will help us to retain the customer and grow the customer. T his is where we get SA benefit of 10 b ps in coming days. No, but Murali, if we are reducing the SA rate in buckets, how does it help to retain customers? See, we are expanding this entire favor to investor. That's why, if you see in our presentation also, the quantum of SIP added in last quarter. If you see, our AUM is predominantly built on SIP and three-in-one accounts. This investor, trader, savings community which we are expanding and cross-selling through product holding and family banking is helping us. Renish, see, the point is that, reducing an interest rate is not automatically meaning that customers will stay with us for longer or put more money on us. No, that's not what we are trying to communicate. What we are trying to communicate is tha, I think the last presentation, we have put out our Liability 2.0 Strategy in terms of, what are the various things we are going to be doing to try and get consumers to consume more of our products and services, so that it becomes more and more of a primary account for the customer? T hat is where the comfort of reducing the interest rate will come to pass. The first step we have done is based on this reduction in savings slab that Murali just mentioned. T he confidence for doing that came from the early comfort that we drew from some of the activities that we have undertaken in the last quarter. There has been some decent amount of progress on those initiatives, and we have seen some initial good outcomes of that. That gives the confidence that we could reduce this without affecting the growth in the balance. Okay. We have to take it offline. S econdly, sir, in terms of the MFI stress, right? I mean, you alluded that there has been a steady increase in the MFI stress over the last 10 months, so it is across pan-India or there are some specific states which might have grown at a higher pace over the last two years, that has contributed to the higher stress? [audio distortion], Renish. There are some states where the problem is absolutely significant, which is Punjab, Haryana, Gujarat. T here are some states where there across branches. For instance, Maharashtra. Some branches definitely. In Tamil Nadu, if you take it, Erode is there where there is a significant number of branches where this problem is there. I t is sporadic in some branches in other places, b ut these are the main concentration of states where there is a problem. Okay. I n MFI, when we talk about stress, strategy is one part, b ut what is the trend in terms of collection?W hether your July collection is better than April, May, and June, or it is segregated at that level? In collections, April, May, and June? No. I n July, it is the same as in June, b ut we have to see how it pans out now. April, May, June, what is the [audio distortion]? I told [audio distortion]. April, May, June, the trend was not great at all, r ight? T his last quarter, that is why the slippages are high. If the trend was good, the slippages wouldn't be high. See, our collection efficiency, X bucket and MF always used to be at 99.5%. T hat has now come down to 98.83%, r ight? T hat is where it stands, a nd that is why this is what Vasu said. Got it, is it right to assume that July X bucket is still at 98.8%? It is at 98.8%. S ee, we are making all our efforts to increase, but it is at that range. Got it, o kay. That's it. Thank you. Thank you. Thank you. The next question is from the line of Nitesh from Investec. Please go ahead. Thank you [audio distortion]. O n the operating profit to average asset ratio have declined from 3.4% run rate to around 3%. T here is almost 40 basis points decline on that number. H ow do you see this trajectory playing out through the course of the year, and any long-term aspiration on this number? Yeah. On PPOP, if you remove seasonality, we should be at that 3.5%, trending towards 4%. That is how at least the bank is invested and built for. T his assumes that the environment is good to lend across products, which is now what is being tested. T he idea is hopefully, we will start to see PPOP improve just with seasonality changing. For example, if you look at our Q1, the fee income, the drop, if you remove the fee income, which is a drop because of assets, and I just look at liability, as you know, insurance is not the season in Q1 and it takes over the quarters. I think when all of those starts coming in, you start seeing that reflecting in PPOPs climbing up. Okay, b ecause last year, Q1 also your number was 3.4. This year, this number has dropped to 3. Last year, Q1, we did exceptionally well, if you remember. What is the trajectory of margins that we should expect going forward? Nitesh, this year, Q1 compared to last year, we were down on disbursement by nearly INR 1,000 crores, and our credit cost was much higher than last year's first quarter. L ast year's first quarter was actually a very good year. This year, the normal first quarter sluggishness, but more than that, the elections really did have its impact in collection across products. A dded to that is the microfinance slippages. Last year's first quarter, we never had this kind of an issue on microfinance. I t's a combination of all of that, s o the last year's first quarter was very different to this year's first quarter. Okay, s ure. H ow should we see the trajectory on margins? Our margins have now come to around 8%. From this year's perspective, how do you see margins trending? Sorry to interrupt there. We have lost the line for the management. Please hold while we reconnect them. Ladies and gentlemen, we have the line for the management reconnected now. Thank you. O ver to you, sir. Yeah, s o sorry. I think we're having a problem with our line. E ssentially, the idea is to compensate for microfinance through Micro LAP and hold NIMs. L ike I said, it's a little volatile now for us to come out and give you confidence if NIMs will hold, y eah. Last question is on, as you just said, reduce the share of microfinance, what all products contribute to SMF priority sector? Do you see challenges on meeting priority sector requirement on the SMF side? [audio distortion] See, the Micro LAP, as Dheeraj was mentioning, the focus has been increased on Micro LAP. T hat is our fully PSL product. I think we should be compensating for PSL bit, from MFI to Micro LAP. Okay. A question, that will be compliant for the small and marginal farmer as well? Yeah. It will be partly compensating for the SMF customers also. Okay. Thank you. That's it from m e. Okay. Thank you. L adies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. P. N. Vasudevan for his closing comments. Yeah, so thank you so much for patiently waiting for us to join back again and again. We had a really bad telephone connection from Chennai this time around, so sorry for that. A nyway, thank you so much for joining, and wish you guys all the very best, and look forward to seeing you again. Bye. Thank you. On behalf of Equitas Small Finance Bank Limited, we conclude today's conference. Thank you for joining us, and you may now disconnect your lines.