Ladies and gentlemen, good day and welcome to the Mahindra Finance earnings call hosted by ICICI Securities Limited. 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Shah from ICICI Securities Limited. Thank you, and over to you, sir. Thank you, Mallika, and good morning everyone present on the call. This is Kunal Shah from ICICI Securities. We have with us today Mr. Ramesh Iyer, Vice Chairman and Managing Director, Mr. Amit Raje, Full-time Director and Chief Operating Officer, Digital Finance, Digital Business Unit, Mr. Vivek Karve, Chief Financial Officer of the company and Group Financial Services Sector, Mr. Rajnish Agarwal, Executive VP, Operations, Mr. Dinesh Prajapati, Head Accounts, Treasury, and Corporate Affairs, and Mr. Rajesh Vasudevan, Senior VP Accounts, along with other senior management team members on the call for Mahindra & Mahindra Financial Services to discuss their Q1 FY 2022 earnings. Over to you, sir. Everyone to the call. Good morning to all. Let me kind of first begin with what's happening in rural India, what's happening the market that we serve. I will deal with why what has happened and why it has happened that way. Of course, the third section on where we see this going. Clearly, rural India went through one of its worst times ever in terms of the COVID hit situation. Out of the 90 days that was available for operations between April and June, it was hardly around 20 days where there could be any activity, and even those 20 days were kind of hit by part-time operations and not full day available to operate. Things have changed. I think things have gone to definitely moving towards more positivity. Sentiments are returning to some normalcy. When I say some normalcy, both at the branch level as well as at the consumer level. The quarter gone by, we saw there was scare in people's mind. People did not know what next because I think there were cases heard on and around them. There were people whose families were impacted. In our own cases, we saw around 3,000 odd people who were impacted with COVID and we lost lives of at least 60, 70 people in the process across the country and therefore there was all around fear in people's mind and the sentiments were very, very low. The dealerships were not open, the mandis were shut, the banks operated for limited hours and absolutely no movement on the street. All of this is what got rural to be in a very confused state of affair. Amidst all of this, I think the harvest was good. The crop price was also decent and good, they couldn't sell all their crop in May as mandis were shut. They started selling it in June. Some part cash flows did come in and some part cash flows will come in July. If you look at the entire rural prosperity hinges around people movement and goods movement and of course the infrastructure to come in and happen. In none of this front we saw any activity out there and that's one cause of real pressure that had to be gone through. Have things changed from then to now? As I said, dealerships have opened, mandis are open, banks are operating, our branches are open. People are vaccinated at least for one dose, most of them. People have come back to work. Sentiments are returning to normalcy. People are able to travel and meet customers. Customers are able to come to branch. The footfall at the dealerships have gone up. The supply side is getting fixed. Inventory levels are good and decent. The OEMs are very bullish about how the market is likely to turn around during this period. We also hear and see lot of talks about infrastructure opening up in most of the states because that's one area from where you'll see labor absorption happening and therefore things are now all set to get into some positivity from here on. In my earlier call, we had also predicted that it will be post September, that is the festival season onset is where we would see a turnaround story. With the government push on infrastructure and monsoon supporting the market, we believe that the three years from then on should be a good period and we continue to hold our view. Did we see such a steep pressure that we would go through in this quarter in the rural market? I think we definitely saw it when we had this call sometime week of April. We had definitely this standing that the pressure points are mounting, but we had not anticipated that May would be a complete washout and June would take at least 15, 20 days to bounce back. That's one pressure that we had to go through for a fact. We have always taken this approach of partnering the customer in these difficult times and not taking any knee-jerk reaction to such situations and scenarios. We continue to stay with that approach of ours. We have not resorted to major repositions and even if we wanted to possibly it may not have been very easily possible to do so in these circumstances. Nevertheless, our approach was not to be getting into major repositions and build pressure unnecessarily on that front. We were not able to reach out to customer, meet them, talk to them. Only telephonic conversations were possible during those periods. Therefore, we were trying and understanding what they are going through, and we're trying to reconcile to the scenario out there. If you look at restructuring, which was announced by the regulator, and when we reached out to our customers, some of the thoughts that we heard from them were as follows. Many of them said that they would not want to commit themselves to a long-term restructuring and incur a very high interest burden because they believed that they would bounce back in a very shorter cycle, and they would have preferred a moratorium-like scenario, which was offered in the first round, is what they quoted. Some of them said, "If we can pay you some money, please allow us some time, and we would continue to keep making some payments, but do not want to resort into restructuring." Eventually, the restructuring was taken by only some of those fleet operators who believed that they may need about six months to bounce back. Some of the taxi aggregators, the school bus operations, these are the people who then took to some restructuring because they need definitely a six months time to bounce back. Many of them believe that in a month or two, there will be a return to some normalcy and their earnings would return to normal. I think the other sentiment that we saw in the rural market that impacted us is many of the customers did have money, but were not able to come to pay or we were not able to go and collect. That was one that we clearly witnessed out there. In cash collections, I think you would see this for sure. I think the other area that we saw pressures coming from is customers had the money, but with uncertain future, they did not want to discharge the liability, but rather store the money for any future eventuality. This is what really caused the pressure for us in the first quarter. If you look at many of the accounts which are moved into NPA category in this quarter, were all standard accounts as of 31st March. We have put out some statistics there. We saw many of them have paid even some installments during this three months. There are a large number of accounts who have actually paid more than 50% of their loan already. We don't see both of this bunch of accounts as someone to worry about as a credit issue, but they are purely an issue temporarily caused by the liquidity pressure faced by the customers in view of either their low earnings during this period or if they had the liquidity not wanting to pay during this period. We therefore believe that while they have to be categorized as NPA as required under regulatory norms, and classically, Reserve Bank even put out to say that this can be classified as normal account and not an NPA account. The Ind AS accounting possibly doesn't allow that kind of approach to be categorized something as stage three if they have not paid as necessary, and therefore we stuck to remain keeping them at stage three and making provisions against them. I would like to very categorically emphasize here that as payment starts to come in, and we are seeing collection efficiency, and I'll deal with it in a minute. We believe as market conditions starts to improve and these consumers are able to get back to normalcy in operation, and when I say normalcy in operation, we don't expect them that they will get back to more than 100% like before. Even if they were to get back to 60%-70% kind of a situation to start with and over a period of time to get to full normalcy, we would see lot of these accounts would move back to normal because they are all customers with good intention to earn and pay. As far as collection efficiencies are concerned, I would just draw reference to the moratorium period. Between April and August when we had moratorium, as you all know, we had a very large number of accounts which went into moratorium. Post-moratorium, between September to March, we saw very good collections from that market as the vehicles were put to use, tractors were put to use, and we saw recovery happening in a very normal manner. We did believe that the year, if this pandemic two had not hit, we would have seen substantial reversal even from that position and would have possibly gone to the 2019 kind of a scenario or the forecast with which we were working. Unfortunately, the second wave hit it very, very hard. As we move along, we saw April, May, June. April, we had 10, 12 days of working, but the lockdowns had started to happen in states like Maharashtra. Some kind of a curfew-type situations were announced. People movement were restricted and all of that started happening. We did see April collections somewhere around 70- odd-%. May was a washout from an overall activity perspective. It was a total lockdown situation, and the collection efficiencies were around 60- odd-%. Come June, I think the collection efficiency substantially improved, even though first 10 days of June was a drag. Post whatever happened in June, things started to improve, and if we were to consider including the restructured contract, the collection efficiency went higher to 105%. If that was to be knocked off, we were upward of 90- odd-% by pure collections. Which was a direct reflection of the customer intention to come and pay, our ability to go and collect, customer who've seen bank transfer, all kinds of formats were used, and clearly the collection efficiency started to improve. Going there, I very strongly believe, and that's our conviction as a team when we talk to people across the country, is between July to March, you would see substantial reversal to whatever has been built during this period. At least the contracts which have been built into NPA between April and June will reflect a reversal situation as we move to the next nine months. As we all know that the second half of rural is always a good second half, and with expected normal monsoon, I think we should be beneficiary of the changing cash flows of that market, changing rate of that market. We are also seeing very clearly the demand picking up. Footfall at the dealerships continue to be high. OEMs are confirming supply availability and supply chain problem getting fixed. The infrastructure, as I said, likely to open up post-monsoon. We'll also see demand for tractor further going up with very clearly infra tractor picking up. I'd just like to deal for a minute with the tractor business. There's been this question about if the industry is growing, why is Mahindra Finance not growing in the tractor business? Tractor business is split into two parts, agri-based tractor and haulage tractors. We started originally when we started tractor business with agri tractor financing to de-risk because monsoon erratic situation was building overdue in that segment whenever monsoon failed. Therefore, we got into commercial tractor financing, which was a good de-risking approach that we took. At the end of the day, commercial tractor has a quarterly payment possibility versus the agri tractor, which is season to season. Unfortunately, for the last couple of years, we've seen the mining activity going slow or rather stopped in many states, coal excavation was not happening, and the sand mining was not happening. All of this pushed the commercial tractors to a little backward. You would clearly see, even for tractor industry, the growth has come from agri tractor sales, and they have not really registered good growth on the contracting side. Therefore, Mahindra Finance was directly impacted by losing volumes from that particular range. We believe agri tractor was very competitive because it was always a nationalized banks product. Came a lot of private bank to participate in the agri tractor because their requirements for priority sector, et cetera. Therefore, the volumes got distributed and divided amongst many, many players. That's one very clear reason. Even though the industry registered growth, we could not get the benefit of the growth purely because the commercial tractor segment wasn't growing. We would definitely believe that as the contracting segment opens up post-monsoon, the tractor sales growth that we would see arising out of contracting segments, we should benefit out of that and you would see a growth pattern back to us. As far as other volumes are concerned, I think it's direct correlation to the volume transacted by the dealer and the OEM, and there has not been any pressure on the market share as far as other products are concerned. We do think that volumes will come back. We do think the pre-owned vehicle will be a good segment to watch for growth. Whereas we think that the heavy commercial vehicle could take a couple of quarters more before they return back to normal. We have based our growth on tractors, pre-owned vehicle, Mahindra auto products, and the car segment. Within the car segment, we are conscious of the fact that the taxi aggregator segment, the tourist segment, and the school bus operating segment, which buys the Omni van kind of a vehicle, may take some more time because that's not an activity which commenced to happen. Even if they were to begin, let's say sometime from October where we hear schools could start, where we hear the tourism will open up, et cetera. We very strongly do think that those segments add vehicle only after a quarter or two, but collections and recoveries will start improving from that segment. My last comment would be, we work with various segments of these customers across the geography who are providing services to certain fundamental industries. Those fundamental industries are farming, contracting, trading, the education industry, the tourism, and all of this, which collectively means we are participating in goods and people movement kind of an industry. Which is where our segment of customers participate. While rural generally believed to be doing well on the consumption side, but if you dive deep and look at these segments, I think these segments have gone through tremendous pressure in the last year or two, and the last quarter was anything except for them. Which is where the pressure was built on us. These segments improving and returning back to normal. Yes, of course, with the caveat that we do hope and believe that definitely there could be not a third wave which is of such a sharp intensity that we saw the second wave. We all think and pray that the third wave doesn't come in, and even if it had to, it is not as severe. We are conscious that we have to be kind of prepared with some of that type, but we still think there is a lot of positivity around in the market. What we have built as an NPA during this particular quarter is something which we very strongly think are reversible NPAs and they are not credit cost NPAs or a credit-based NPAs. We would see a reversal of that happen. Our whole approach is to first come back to the last March level as we progress strong from here, and therefore get the benefit of reversals that we can over this period before we can even talk of further improvements going over there. So far as the margins are concerned, I don't think we are still under any pressure of our lending rate pressures, and our borrowing cost is one of the best. Given that our net interest margins are being headed, you would have seen a dent in our net interest margin. They come from because of the reversals of income that happen because of the provisions that we make or the NPAs that we have. We carry a high level of [chest] for any future eventuality to be met, and therefore, the yields around that are under pressure, obviously. Those two add up to a little dip to our net interest margin. As otherwise, on an overall book basis, I would think that there would be a marginal dip to our yield of about maybe 15, 20 basis points, but that would have also been caused by some kind of a product mix change, but not otherwise. Clearly, we can hold on to our NIMs and our borrowing cost, as I said, is one of the best, and there is no pressure on the lending rate side. We do believe the volumes will come back to normal and you'll see a growth pattern back to us. We are not overly convinced that in this quarter, if we had had a growth of 40% over first quarter of last year, we are non-comparable per se. Post-September, we would see absolute disbursement growth, and that should lead to the growth story and the AUM growth coming back. As I said, correction of NPA from where it is with a better collection efficiency over the next nine months should help us get our quality as well addressed pretty well. Overall, I would think that while we've gone through one of its worst time in the 27 years we have run this business, this was one of our worst quarters, but I would still think that what has been built in this quarter over March is purely temporary in nature, and that would come back. If I have to draw any reference point, there are two reference points or three reference points I can join. One is the meltdown time, the NPA had zoomed, but those days, I think NPA was 150 days, and therefore, it had not reached a 15% level. On a 150-day basis, we did see it go up to maybe 8- 9 percentiles, but it slipped off, come back very fast in two, three quarters. The demonetization time, I think it went up to 14%- 15% type numbers, then started reversing as the market conditions settled down. Even if we were to take the third reference point of the moratorium time, if the moratorium was not to be available, I think we would have reached this kind of a level of NPA even in that period. Very clearly between October and March, as market conditions improved, we saw substantial collection and reversal happen. We are very confident that at least from this 15% level to come back to an 8% type level should not be very difficult as market conditions open up and the reversal should begin to happen. I think with those kind of remarks and on the liability side, we are pretty comfortable. We have sufficient funds to meet any eventuality. On our capital adequacy, we are doing extremely well. We don't have a pressure on the capital adequacy. Our relationship with OEMs, with dealers are pretty good, and we have had several dealer meets and we have several OEM meets, and everyone is confirming to us about the return of growth for them and therefore a return of growth for us jointly with them. Our employees are being taken care. We have done various employee-based initiatives to not just retain them, but also for their well-being and good health. As we said, we continue to focus on our cost control measures, and there are some fundamental costs which are being well addressed, and there are some variable costs which will possibly come back on the return of the volumes and as the expenses begin to improve. We would add another 50 odd branches during this period. Last year, we did add about 120, 130 branches, but they will be functional during this year. We will also add maybe another 50 odd branches during the year based on the forecast of the growth that we are looking at. I would stop there and then, I think I've covered most of it what I wanted to say. I just wanted to leave this final thought with you that rural is a market which whenever an impact comes or disruption comes, they are the first to hit very severely, whether it is a monsoon failure, whether it is an economic downturn, whether it is this kind of a pandemic situation. The downturn there is very fast, but we have always seen their pickup and uptick is also extremely fast because all these customers that we work with are acquiring assets which are their basic livelihood product, and therefore, they do come back to street again and start putting it back to use for earning for themselves. I think with that thought, I will stop here and possibly now we open it up for Q&A. Thank you. Thank you very much. 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 the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking this question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Aarav Sangai from VT Capital. Please go ahead. Hi, sir. Thanks for the opportunity, and hope all well at your end. I have two questions. My first question would be a data-keeping question. If you could tell me the exact quantum of interest reversals that we had to face through, even just to get to the what would our NIM would have been if we wouldn't have such a large deficit. Of course. I'll give. Hello? Hello. Yeah, sir Vivek, somebody want to answer? I thought it's to you. Yeah. I will come in here, sir. This is Vivek Karve. We had about INR 200 odd crore of interest reversal during the quarter. All right. Okay, sir. My second question is again on the provision front. Since we had a large slippage, I just wanted to understand what kind of ECL do we project, because I remember we used to have a 35%-40% kind of ECL that we used to maintain pre-COVID. Now because of our overlay provisions, we are maintaining a 55%-56% kind of ECL. What is the thought process on making a 50% kind of ECL on the additional slippages that we have encountered this quarter? No. If you look at, I outlined few segments which are causing the pressure for us. It's a very serious management decision to say that it's nothing wrong if we were to carry a higher provision for those segments and if they were to return to normalcy, we would get the benefit. So far as the basic formula-based ECL is concerned, I think we are still in the vicinity of 35%-40%. We have not seen increased loss coming from any reposition disposal at all. Therefore, we don't think that the fundamental formula is changed. It is just that the management overlay on the basis of those segments where we very clearly see what is the pressure that we go through from the street, and therefore might not remain little more prudent on that front, is the only approach we have taken. As things normalize, I think we will come back to our 35%-40% kind of a number. Vivek, you want to add anything if I missed? You are right, sir. Just to be specific, our LGDs are in the mid-30s, and the overlays have been made on a very prudent basis, looking at the stress in some of the identified segments, and also keeping an eye on a possible third wave. We believe that, as the normalcy will return, as was alluded to by Mr. Iyer, there is a very good chance that a significant part of this overlay also may get reversed as the situation improves and the stage three gross assets start depleting. Right. Understood, sir. Just one last question I had. I remember when the RBI came out with restructuring guidelines, you came on TV and guided for a 10% kind of restructuring, which you might expect. I just want to understand, since the overhang of COVID 3.0 is still present, do we expect that in coming quarters, since the businesses that we deal with, they are still not out of the woods completely, we might expect a higher restructuring in coming quarters and an NPA reduction coupled with a higher restructuring? As I said, even in my earlier address, we have to go by the customer needs and not by our needs. The customers still believe that they don't need so much of restructuring and want to incur this additional interest burden, et cetera. In July, we are already seeing activities back to normal, and if the third wave was to come and hit, and we all hope that they are not as severe, but there could be a temporary blip, but I don't see that we will need to do a very large restructuring. In the first quarter, we did about 50,000, or close to 60,000 accounts. In the second quarter, will there be a very large number? I don't see that because the eligible customers are something like 5 lakh-6 lakh customers. I don't think we will do that kind of a number at all. It will be another 30,000, 40,000 account, if at all, coming from the heavy commercial segment, if they are going to take little longer or the contracting segment and those kind of stuff. Other than that, I don't see that this number is going to be abnormally large. Understood, sir. That's it from my end, sir, and all the best for the coming quarters. Thank you. Thank you. Thank you. The next question is from the line of Mahrukh Adajania from Elara Capital. Please go ahead. The line for the current participant is disconnected. The next question is from the line of Karthik Chellappa from Buona Vista Fund Management. Please go ahead. Mr. Karthik Chellappa, your line is unmuted. Please go ahead with your question. The line for the current participant is disconnected. We move on to the next question, which is from the line of Dhaval Gala from Aditya Birla Sun Life. Please go ahead. Thank you, sir, for the opportunity. A couple of questions. One, just to understand, I do understand, reasonable, good presentation. You've tried to explain few cycles. If you could explain this with the light of restructuring also. I know we did not do much in the last year, in the current quarter or current year, we've done. If at all there is any pending restructuring, point number one, and if I have to add the restructuring pool or stress pool looking at stage two, do you think it too high versus any of the past cycles? Any special steps which do you think will require to recover or get back to, say, the improvements we've seen in the last two examples you've given of GST and demonetization. When can that be achieved in terms of number of quarters or number of years? As for the restructures, as I see, I don't think we have a very large number pending for restructuring, and as I said, maybe another 30,000-odd account maximum may come in for restructuring. If the market conditions continue to be what we see now as an improvement trend, may not be required to do beyond that for sure. For us, what steps are we to do to be able to recover all this amount, which we believe. Again, just to repeat, these are all earn and pay segment, and as they earn, they would definitely repay, but we have to be available to collect the money, either going to them or having the branches where they could come and pay. One of the basic requirement is the branches should be up, open, and running so that they can come and pay. Our people should be available to be able to reach these markets and go and collect. One thing that we had done, even in the earlier rounds when NPA went up, was to create state-specific champions with a cross-functional team and with a very clear direction of different bucket collections and focusing on business so that there is no diversion of energy to different activity. We have already done that. We have created a state-level team. For every state, we have created a team with a very senior person, responsible for the state, with a team available to that particular individual to be driving the particular state. The states have also been allocated to the product heads at HO level, like a CU, and each of the product heads is handling couple of states who will focus only on their respective states from a collection perspective and NPA reversal perspective. Finally, we should all understand that it is not what are the alternate ways by which a customer wants to pay. We can create digital means, we can create branch opening, we can create partnerships for collection. All that is possible, and we have done it. Fundamentally, the customer has to earn from the vehicle or tractor that he's using so that he's in a position to repay, right? That is what we are now seeing very clearly, that there is activity returning back to normal. Once that happens, then this kind of a structure that we have created will help us collect much better from those markets. Sir, just to get a clarification, if the improvement in the collection efficiency would get more reflected in stage two assets going forward first, or it would be basically even the stage three assets we'll see. If at all, how would you look at it? That today, from an outside world, people will look at the quantum of gross NPL plus the elevated stage two assets, which include some bit of restructuring also, and the collection efficiencies are impacted. If you could give us some confidence that in July, how has the trend been, and if at all there is any improvement in stage two assets in terms of quantums. No. They used to run between 13%, 14% in the last year, third, fourth quarter, right? Reported numbers. Have they come back to that levels directionally, at least? Means to that magnitude or it's just smaller improvement right now? As I said, June itself saw a very high collection efficiency, right. We are seeing July a similar trend. Normally, one would expect after June, will the July slip off, etc., but what we are seeing is very clear movement in the July collection as well. Our confidence is that these collections will fit both stage two and stage three. Just to give you a little more perspective on the stage two, right. While we had about 400,000 account in stage two, we have seen part payment in more than 85,000 account received during the third quarter itself, while they couldn't move from that stage. Similarly, another 2 34,000 account, we saw movement in that account. We very strongly think that actually out of this 4 lakh, more than 3 lakh accounts have shown movement of repayment, and those will definitely roll back to an extent, and some of them possibly may stay but won't build and go forward. Similarly, on the stage three, as I explained, there was sufficient movement in accounts. If these two are seen together, I think very strongly that there would be reversal happening in both the thing. One thing we should note is when stage three reverses, it could come to stage two, may not go to stage one or zero. To that extent, there will be some built up in stage two happening, but even from stage two, some things will roll back. Please read it in a totality to say that when the overall cash flow of the market improves, you would see reversal of provision happening from stage three. You will see forward flow getting arrested. That's the reason we believe the gross NPA numbers will start climbing down. We very clearly see rollback from stage two happening and our stage one, which normally used to be between zero and one, I think used to be some 13- odd-%, possibly we will go back to those numbers in the next couple of quarters. Will all this happen in this quarter? The clear answer is no. They may not happen in one quarter. Will we start seeing trends of reversal and definitely they will arrest the way forward? I think I'm very confident to say that the way forward would be arrested, the trends of reversal would be seen, and then the next two quarters would definitely give us the opportunity to reverse it much better. Sure, sir. That is useful. The other question is, maybe because of the pandemic and the current one-off type of impact, today our net NPL numbers is pretty high. Is there a possibility that RBI or rating agencies put any pressure or slam down on this type of number? My personal opinion, this is not based on any discussion with anybody, so this is my personal opinion. I think the normal reactions are never on the basis of one quarter. They know that for what reason has the gross NPA gone up, and in spite of that, we have made 53% cover. They know that directionally we are maintaining a higher coverage ratio, and they would want us to understand in one or two to see things happen because we are adequately capitalized and we are carrying sufficient liquidity. What will a rating agency look for and an RBI look for? That we shouldn't be on a default side. If those two ends are well taken care, then I think they will have patience to see for one or two quarters before they can react. I think in those two quarters, we would reflect the directionally how things are changing and therefore the risk of any kind of reactions, I think we would definitely avert at this stage. We have not had the discussion for me to make this comment, but my being in the industry for so long and understanding the situation, I think it's never on one quarter reaction basis. Sure. Thank you, sir. Just a last piece of question, if I'm allowed. Your expectations on outcome for AUM growth maybe in the coming quarters and possible revenue, basically margin progression? Far as margin improvement is concerned, I think our best margin on lending was this kind of one of the lowest. I don't think we are seeing a margin expansion from here arising either out of lending rate improvement or a borrowing cost coming down. We don't forecast borrowing cost to come down from here at all. We are holding, I think, four, five months equivalent requirement of funds, so that pressure of holding that money will always be there on. I think we are okay on the margin front where we are. Far as the growth is concerned, I think AUM growth will also take a quarter or two because we would start disbursing and the improvement in disbursement will happen only from now on. As we reach March, you would see AUM growth beginning to happen. To expect in this quarter, will there be an AUM grid may not be there because we just do INR 3,000 crores-INR 4,000 crores of disbursement is what I think we have done in the first quarter, and enough accounts to mature during this period. I think give us maybe a quarter or two more. At least we will watch for how the disbursement growth happens, and I'm very bullish to believe that post-September, the demand for vehicle, tractors, pre-owned vehicles will definitely be high, and we will benefit from that. Once that disbursement pick up, I think by March end, we should register AUM growth. Thank you. Ladies and gentlemen, please limit your questions to two per participant. Should you have a follow-up question, I would request you to rejoin the queue. The next question is from the line of Mahrukh Adajania from Elara Capital. Please go ahead. Yeah. Hi, sir. Just a couple of questions that you've given a table on what percentage of NPLs and what percentage of stage two are in the recoverable bucket in terms of either part payments or less than 50% of outstanding. What will be the mode of resolution or upgrades to these accounts? Are you confident that they pay back or there'll be a one-time settlement or there'll be recovery, repossession? What will be the mode? Is it just an upgrade on payback because things have opened up? Yeah. This is purely collection. What we have reflected there as solvable are solvable through collection. Got it. What is the write-off number for the quarter? I think very low. I come in here. About all put together, that is bad debts plus repossession losses put together is close to about INR 300 crore. Got it. Sir, the other thing is that net NPA at 4% is a given now, right? By the end of the year, not necessarily in the first three quarters. By the end of the year, we should have net NPAs at 4%. That will be our endeavor, we hope that the gross NPA comes down to make it net 4% and we don't have to make additional provisions. Okay. Any target by through which, I mean, for gross NPAs by the end of the year? I think so, given where we are and as I said, corrections will take two, three quarters for all of this to reverse clearly. At least our first target would be to reach definitely a March level so that we don't have a provision burden for the year if we reach last March level. Okay, sir. Thank you. What we meant was the gross NPA and given the provision coverage, we will naturally reach the net NPA. Read it as that. Thank you. The next question is from the line of Manan Tijoriwala from ICICI Prudential Asset Management Company. Please go ahead. Hi, sir. I had a couple of questions. As we are constrained in disbursement, is this primarily due to stricter underwriting norms, or are you guiding growth only for stage one of this year? Are we seeing that sales infra also being involved in collection? This links to this, how has your on-ground collection team shaped up in the past one and a half years? Is there an increase in employee count in the collections team and what was the count pre-COVID? I missed you in the first question. First question was, have you tightened your? Sorry, I didn't hear you. Hello? What's your first question? Have we tightened up collection norms and are we losing volume? My question is that, so we are constrained in disbursement, so this is primarily due to stricter underwriting, or are we guiding growth for stage one because sales infra is also helping us with collection? No. The overall volume of the market is low. It is not that we have tightened and there is no volume available and everybody is diverted to collection. No such steep action taken. Clearly, overall volume of the market was low last one and a half years. If you see, Mahindra have not been able to sufficiently supply vehicles. There has been a constraint. Maruti volumes were low from availability perspective. Tractor was one number which was growing, and I right at the beginning explained about tractor in the agri was growing and not in the contracting segment. Even in the pre-owned vehicles, with low repossessions by all the banks and finance companies, the supply side on the repossessed vehicles were also very low, leading to low secondhand vehicle financing. Definitely some norms would have been tightened during this period to ensure to adjust to the current scenario. Largely, the volume shrinkage is caused by low volume transacted by the industry overall. It's not that everyone is diverted to collections and things like that. We have sufficient people on the collection front. We have sufficient people handling the business team collection, so there is no dearth there. We have added people. You asked a question, how many people have we added? I think we did add a 1,000-odd people during last year to augment the collection efforts. Again, I want to repeat myself. The lack of collection or increase in an NPA will not ever be out of lack of efforts from the team side or lack of alternate methods provided to customer to repay, et cetera. The fundamental pressure on recovery comes from customers' inability to earn sufficiently during the month to be able to discharge their liability. Therefore, we are not short of branches, short of people, or short of methods. There are a lot of in-house training program by senior team, which happens to the field executives. There are a lot of MIS mechanisms by which the team is guided. There are a lot of communication that happens with the team, and there are supervisory methods by which review takes place. I don't think there is anything lacking on the front of people's capability, number of people available, deeper penetration through our branch network, as well as technology support and partnership approaches. We are just waiting, and the market conditions improve, we would see benefit of all this flow towards us. Right. sir, am I to assume the vaccination level on the collection team would be similar to what you have given on your employees? 70% have taken one dose and 10% have taken both doses. Would that be similar for the collection team? 8,000 people, including the collection team, et cetera, that statistic is being talked about. Fair enough, sir. Sir, could you provide any insight into geographical performance of the portfolio? Where you would have seen some regions having some better asset quality, or you could highlight some where you have asset quality being much worse than you would have on the average. I don't have it ready with me, but from my review understanding, I can tell you there'll be few geographies like Bihar, where mining was impacted, therefore, you would see the tractor portfolio put in the contracting segment will have some pressure. You would see in UP a similar pressure on those kind of fronts. You will see in Karnataka in that kind of a front. Maybe in Guwahati, that is in West Bengal and Assam, you would see from the taxi operation front. I think different product, different geography will have a different phenomena to look at. By and large, in this round of COVID impact, with no exception, every state and for every product has gone through the same pressure. Thank you. The next question is from the line of Anand Bhavnani from White Oak Capital. Please go ahead. Thank you for the opportunity. Sir, just wish to understand the slippages that we are seeing and the elevation in stage two that we are seeing. In your reckoning, is this what is happening across all the players in the industry, or is it higher for us due to any specific reasons? If you can give some sense. I may not be able to fully comment on, is everybody going through this? One thing I can surely tell you as a chairman of FIDC, what we hear from every player when we meet as an NBFC body, is everyone has got a pressure. Is the degree of the pressure same? May not be so. If we are in certain segments of vehicles which others may not be, like for example, in our car segment, we do have very clearly taxi aggregators, tourist vehicles, and the school bus operating Omni vans, which may not be a product for many of the other players, so therefore, in that segment, they may not have a problem. There are people who are in tractor business, but if they have larger agri tractor, they will have less problem compared to us as a tractor problem because we do have lot of contracting segment tractor, and by nature, we are a very large player in that segment, so therefore, our pressure point could be high. The reverse could be true when it comes to heavy commercial vehicle. While we do have problems with heavy commercial vehicle, but the volume that we do on heavy commercial vehicle could be much lower than the other players in the market, and therefore, the problem size could be represented differently. Is everyone having a problem? I think my answer would be a clear yes. Is everyone having the same degree of problem? My answer would be no. Different players will have different levels of problem for different product lines. Is everyone done the same level of restructuring? I think my answer will also be no for that. If we have done 2%, somebody might have done 5%, somebody would have done 9%, 10% also. That's an individual call a company makes based on their profile of customer and the product line that they are in. Sure. Second question is bit more wider in scope- Sir, can I request you to rejoin the queue for follow-up questions, sir? Okay. Thank you. Ladies and gentlemen, please limit your questions to one per participant. Should you have a follow-up question, I would request you to rejoin the queue. The next question is from the line of Jwalant Nanavati from Nomura. Please go ahead. Hi, sir. Just wanted to check if you can give some color on, you've given enough color where at least 80%, close to 80% of your stage two customers are at least part paying. If you can give further split between someone who's paying more than 50% of dues, and someone who's paying even less than 50% of dues, that'd be helpful. Secondly, I'm looking at the incremental ticket size of the NPA formation. It seems to be relatively lower versus our stock NPA ticket size. If you can just highlight which segment it's coming from. Sorry, I didn't understand the second question, but let me give you the answer to the first then I'll take your second question. Far as the movement on the stage two is concerned, I just read out some numbers which I had said earlier. Very clearly, around 84,000 contracts from people who were in stage two even in March have registered movement. Another 234,000 people from a 300,000 account which moved into stage two this quarter have moved. They would not have paid 50% of their installment due during this quarter. Otherwise they would not be in stage two. They would have paid 50% of their contract value what is due to them. Let's say if they have taken a INR 100,000 loan, at least 10,000 of them, about 80,000 of them, I'm seeing, are someone who have already paid more than 50% of their account and things like that. I think when we say 50%, we are talking of about 8,000-10,000 people who would have actually paid 50% of their loan already. As far as part payment movement is concerned, if three installments were due, they would have paid one installment during the quarter. The reason why they are in stage two is that their two installments are outstanding. Right? Therefore, they would not have paid 50% of the installment due of the quarter. Basically what I wanted to check was someone who's moved in stage two, say, in the month of May or April, because you would not have collected or they would have not paid. At least in the month of June, what percentage of this 326,000 contracts are actually paying at least their June dues or at least more than 50% of their June dues? No. I don't have it by month, but I can tell you that 310,000 accounts actually have moved to stage two in the month of April, May, June. Out of that, 234,000 accounts have made payment during this quarter. Thank you. The next question is from the line of Rikin Shah from Credit Suisse. Please go ahead. Thank you for the opportunity, sir. Firstly, on the asset quality side, both on the absolute as well as relative basis, the deterioration has been higher than the peers. What I'm specifically looking to understand is, A, what is our typical loan approval rates? B, what is the proportion of new-to-credit customers for us? C, I heard that we have set up bucket-wise collection teams, but before that, did we not have a soft bucket and a hard bucket collection team? Because the stage two loans have also doubled from the steady state normal levels. That is the first one. Second one, just wanted to understand when you say that 80%-90% of contracts could see reversals, those will be from the stage three and two kind of movement basis, right? Not on the P&L credit cost, because even during the Demon, we never had the net write-backs in the provision terms. We always had some kind of credit cost on the subsequent quarters as well. I'm not sure of the last point that you're saying, because at least from this account, if they reverse back, you will get a credit back. Obviously there will be some new accounts coming in, and there will be some additional provisions, if at all required to be made, will be made. As far as the buckets are concerned, we always had for the last five, six years, we created this bucket approach of soft bucket, hard bucket, and NPC bucket. My clarification was, someone asked a question about how is the focus on collection and what are we doing, do we have sufficient team, et cetera. Answer to that was, we already have a bucket-wise team, and then we have sufficient people in the team who are being trained for handling those situations better. I think you started off with something called, what is your accrual or something. I didn't understand that question. Dinesh, Vishal, anybody, if you have understood that. Yeah. It is the loan approval rate that he wanted to understand. Okay. No, basically, are you trying to find out the AUM de-growth? Is that your question leading to? No. actually, I'm trying to understand if, say, for example, 100 borrowers are coming to you for a loan- Right. what is the typical rejection rate that we have? Okay to be approved? Onboarding. Onboarding is how much. Yes. Yes. There are two types of onboarding. One is before we take them even into our system and call it as an inquiry, there is a rejection that takes place, and that percentage is very high. Once they have moved into our system, after the initial scanning is done by the field executive and the local team, then the rejection is by a systemic approach of various parameter, and there the approval rate could be upward of 80%, 85%. Because they are the scanned customers who have met most of the criteria, but may be rejected because they're asking for a low rate, or they are not willing to give a guarantor, or they are suddenly asking for a higher LTV, those kind of things. By a profile of a customer's credit acceptability, that rate will be very high rejection before they move into our system for approval. Thank you. The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead. Sir, good afternoon. I have two questions. The first one is on the broader rural economy. We heard that there's a lot of state government spending which is happening in the rural economy and, for example, for tippers and such construction equipment, demand has actually been very robust and the contractors are getting paid. Wanted to know your view about that as well as rural incomes per se, because there's been a lot of migration away from cities, and so there is one chunk of income which they used to get which has been lost and whether that is affecting the rural economy. The second question is regarding the collection efficiency. I think you mentioned some number for July. I'm wondering whether I missed it. Please do let us know our collection efficiency for July. Thank you. Let me clarify to you, I didn't put a number for July. I just said that the July collection efficiencies continue to be as robust as what we saw in June. I didn't put out a number, but you will see a very robust number and when I'm comparing it to June. So far as the rural economy is concerned, yes, we also have a similar view that not all states, but we are seeing signs of local spend happening at different state levels and going to absorb a lot of construction equipment tippers, and if you recall my comment that I made earlier, in a couple of months, you would also start seeing demand for contracting tractors, which are used for all these to pick up in the same direction, and we do definitely see those trends out there. As far as the labor movement is concerned, yes, you are right. A lot of people who otherwise used to be engaged in various midtown cities, semi-urban markets, et cetera, and having some parallel income and remit them to rural has kind of slowed down for sure, and that's one of the reasons why the consumption also declined. I think those are very temporary phases. I don't believe a large population will continue to remain only in. As the open up in different cities, people come back to the cities for their earnings. Temporarily, is there a pressure? The answer is clear, yes. Will it be a permanent dent or a shift in the fundamentals of rural economy? My answer is no. Thank you, sir, and good luck. Thanks. Thank you. The next question is from the line of Anita from HSBC Asset Management Company. Please go ahead. Yeah, thanks for the opportunity. My question here is that on the collection efficiency front, you have reported June to be almost 90% collection efficiency, and if I compare the numbers with previous year similar numbers, they are much better. In that sense, I'm just trying to understand as to why was the need to create such high provisions and such high provisioning costs in one quarter. If you're seeing the visibility that similar to last year, things are going to get better, what was really the driver to actually create such high provision costs after taking significant write-offs and provisioning, even last year you have done similar, much higher numbers. One is last year's first quarter comparison to this year's first quarter from an efficiency perspective could be slightly misleading because last year first quarter was with moratorium. Therefore, the demand itself was low, and therefore, the collection itself was. Whereas this year there was no, what you call, moratorium or anything. It's from an absolute demand perspective. Far as and we have put out very clearly certain segments where we continue to see pressure. This is anybody's guess, right? We didn't make sufficient provision and if our gross NPA was this high, somebody would have said, "Oh, why aren't you making sufficient provision and you're carrying such a high net NPA?" When we make a higher provision, obviously, yes, this question also comes to us, was there a need to do? We, as a management, have taken a very conscious call, and we said that if there are some segments which are going through pressure, there's nothing wrong prudently making. Of course, this is a provision and it is not a write-off for us to go out of our ranks, right? Therefore, if it shows a loss for a quarter because we have made such high provision, it's fair and fine with us, but it will get reversed as I have been explaining all through that when things back to normal. Yes, if you have taken a write-off of these values, then you're right. If things are going normal, why do you want to take a write-off? These are just provisions made and under the India's accounting, there is this judgment to be exercised and to look at how the market conditions are and make this provision and get the benefit of reversal if it was to happen. I think you must leave it at that to say that it's a conscious call by the management prudently making this provision, and we are confident that in the next three quarters you will see benefit of this throwback. All right. Okay. Thank you. Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead. Yeah. Hi. Am I audible? Yeah. Sure. How far do you think are we from pre-COVID level as far as collections are concerned from t he non-delinquent loans, I mean the non-stage three loans? If I take June as a singular month and compare it to pre-COVID June, I think we were almost there because normally June we get 95%, 96% collection, sometimes slightly more maybe, but I would think that June was a very good representation and without putting out a number, I can tell you July almost represents that. I would think that the pre-COVID collection efficiency at least is seen in this month. We saw it also post-moratorium like last March, if I'm not wrong, we had 107% or some number, 107% or 109% efficiency, and that was as good as pre-COVID number. The fun of this market is when it dips, as I told you, dip sharply, but even when it bounces back, it bounces back with speed. Therefore, to compare it to pre-COVID, certain months are like pre-COVID and certain months are disastrously. Like for example, if I have to take May collection efficiency, that was never been our situation of collecting so low ever. the market was that bad. I think, Nischint, it's a very difficult balance to say, okay, if all 12 months come back like before pre-COVID, my answer is still no. Maybe we are another three, four quarters away. If there is no third wave, I think from the third quarter we'll start seeing generally we are like pre-COVID times. if you take a specific month, there are certain months like pre-COVID, certain months worse than ever. Any conversations on interest rates going down on the asset side? My view at least is that it will not go down from here because there show that, but maybe Vivek and Dinesh are better judge for that. Yeah. I'll come in here. Nischint, if your question was more on the lending rates, I think that I thought you asked on the asset side. Oh, you said asset side? Yeah. Asset side will be linked to the demand of the market. There is no competitive pressure for rates to go down, for sure. If our borrowing cost is good and if we are able to pass on that to the customer and can acquire some better customer and larger customer base, I think that will be a very conscious call. From a market perspective, there is no pressure to drop the rates. Finally, if you could comment a little bit on the housing finance business in terms of what is happening out there. We saw the quarterly numbers, of course, but any kind of changes that are happening out there? I think their pressure is as much or higher than our pressure because ultimately the asset is not even an earning asset. Therefore, the customers definitely are on a wait and watch mode. They have the money, but they say, "We want to pay you if it gets a little more normalized." I think there, the improvement will be seen post-monsoon and not before that for sure, because they're also to the harvest and the crop money that they get. I keep telling this, we have a large exposure in Maharashtra, and clearly Maharashtra is the one which was going through problem, and this round they did well. If the monsoon turn out good and the crop turns out good, then post-October you will see correction in Maharashtra for sure. From their stored money, will they start paying for their liability? I hold my views. I don't think they will do that in a hurry. Thank you. The next question is from the line of Abhishek Murarka from HSBC. Please go ahead. Yeah, good afternoon, everyone. Thanks for taking my question. A couple of questions. One, on tractors, you made a differentiation between agri tractors and commercial tractors. In reality, how is it possible to differentiate this? What proportion of your tractor portfolio would you say is agri? The second question is actually, there's been obviously a change at the board, I mean change at the parent level in terms of new management. Have you been discussing anything from a business strategy perspective to make the current business less cyclical? Can you share any new plans with respect to Mahindra Finance going forward? One very clear differentiation between agri and commercial tractors is commercial tractors are registered, whereas agri tractors are not necessarily to be registered, not required to be registered also. That's very fundamental level difference that one can see. Second is that repayment structure for a non-agri tractor would normally be quarterly payment, whereas an agri tractor would be half-yearly payment linked to the crop patterns. Third, of course, the differentiation is very well understood by the team which is operating at the local level, and they will therefore very clearly know through the interaction and appraisal methods that which are the pattern which are non and non-agri tractor. They are not very difficult to be understood. The only challenge will be there are some tractors which are used for agri and then also is diverted for commercial purposes in off-season, and those gets recorded separately. In our internal MIS, we have a very clear differentiation between the three of them. I don't have the number very readily with me. I don't know if Rajnish knows the number, but pure agri in our case could be around 25% or 30% of our portfolio is my guess. Rajnish, do you have the number? Sure. Not exactly, but you are right. It is agri is 30%, and majorly it is haulage and haulage plus agri together. Okay. One break up. Now, as far as coming to corporate is concerned, Anish is the group CEO, and then he's also chairman of Mahindra Finance. first of all, there is lot of synergy and understanding of the group's expectation and what the group thinks about it, et cetera. Have we had any plans of new business model, new fundamental change, et cetera? You must have all read and seen one of the biggest introduction is the digital FinCo. We have created a separate vertical within Mahindra Finance, and we run it like a company internally, while it's just a SBU within us, is on the digital finance side, where we have Mr. Amit Raje, who's also in this call. He's the COO for the business. He's in the board as well. He's got a team under him, which is end-to-end team provided for technology, for partnership, for HR, for processes, for customer-facing product acquisition, all kinds of stuff. That is one business that we believe will be a good addition and a game changer internally to a larger extent. He will use the physical support that's required for that business from Mahindra Finance. The Mahindra Finance core team will take the digital support that we require from that business. In a way, it helps Mahindra Finance core business digitize through that, and he gets the physical help from us. In a way, it's a physical business. We've also kind of put in a team which is focusing on the data side of it, and we are crunching all the last so many years of data that we have of customers, guarantors, OEMs, all kinds of stuff. We are able to come out with very clear directional approach to where to lend, what to lend, how much to lend, on what to lend, as well as on how to recover, where to recover, where to repossess, and all those kinds of forecasting approaches. That's the other fundamental shift and change that we see. My last comment in that direction would also be, we are engaged with a consulting firm which are going deeper into our NPAs and slicing them from various angles and possibilities to really arrive at the root cause of why certain things must be happening, and then to get that corrected over a period by certain process change or a policy change. These are the three, I would think, approach change that has come in with the interaction with the corporate and at the corporate strategy level, at the GSO, what we call as the group strategy office. There's one Amit Sinha, who's joined in as head of that, and he's coming from a 20 years in consulting experience from Bain, et cetera. he works very closely with us to help us understand our strategy and also help us redesign it wherever and whichever way required to be done. Sorry, my last comment is we have a Group CTO by the name Mohit Kapoor, who works with us with 50% of his time devoted to us. he's looking at our technology readiness as well as the gaps that we have. We've engaged [Johnson Young] to do the gap study of our technology and adequate investment would go into bringing in the required technology and appropriate technology and change course of the. these are the- If I may just add, the group strategy head is also on our board. Thank you. Due to the time constraint, ladies and gentlemen, we'll be taking the last question now, which is from the line of Sanket Chheda from Batlivala & Karani. Please go ahead. Hello? Yes, sir. You may go ahead. Am I audible? Yeah. Yes, sir. My first question was on your guidance on maybe stage two. As a total pool now being 19% in stage two, 15% in stage three, we have about 1/3 book which is kind of stressed. On that stage three, we have provisions of 54, and we see that our LTV-based provisioning is about 35. If we keep that 35 and extract the 20% assigned it to stage two, in addition to the overlay that we have, we have as good as about 30%-35% provisioning on entire stage two. When you are saying that reversals in a quarter or two, there should be certainty that there should not be any incremental provisions unless you feel that this 35% should go up further in terms of both stage two and stage three. On growth, you said by Q4 we could see some AUM growth for next two quarters while we believe that repayments will pick up. I just wanted to get a sense whether we'll start reporting positive AUM growth from the next quarter. That is, our disbursement would at least match our collections which would see some jump in the next two quarters. Yeah, so far as your NPA is concerned, you are right. We don't also see any increase to those numbers. If at all any, our endeavor is to see that stage two, stage three together can 10% rolls back. From a 35, can it come back to a 25 over a period of time? Which was our normal base in the past, and that's what we are going to drive at, for sure. You are right. Therefore, if this is there, is there a need for more provision? The answer is no. For us, will we start seeing positive growth in the AUM? As I said, it's too premature to say immediately next quarter there'll be a positive, but disbursement growth visibility will be clearly there compared to previous year. As we close March, I am hopeful that there would be a trend of AUM growth visibility. Will it be in the very next quarter? I don't think so it'll happen with that kind of a speed because it will be the first quarter where we would have some decent disbursement happening, but there would be contracts maturing as well. Two, three quarters of disbursement should help us start building the AUM. Sir, on stage three, you were guiding from 15% to maybe 8%, 9% level, and typically stage two average means for 12%, 13%. ideally in three quarters, can it come down to 20%, the current 35% number- I said It will take FY 2023? I said percent is our endeavor. It may not be 20% immediately, but 25% is our endeavor on stage two and stage three. Lastly, on PCRs, since we have our endeavor of maintaining 4%. Okay. Okay. Thank you. Thank you. I would now like to hand the conference over to Mr. Kunal Shah from ICICI Securities for closing comments. Yeah. Thanks to the entire management team of Mahindra & Mahindra Financial Services for giving out such a detailed explanation and all the best for the future quarters. Thanks all the participants for participating on the call. Have a good day. Thank you. Thank you, Kunal, for hosting us. Thanks a lot. Thank you. Thank you. Thank you, Kunal, for hosting us. Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.