Ladies and gentlemen, this call is not for media representatives or Bank of America investment bankers or commercial bankers, including corporate and commercial execs. All such individuals are instructed to disconnect now. A replay will be available for Bank of America investment bankers and commercial bankers, including corporate and commercial execs. The replay is not available to the media. Good day and welcome to Mahindra & Mahindra Financial Services Limited Q2 FY23 earnings conference call hosted by Bank of America Securities. This call will be recorded, and the recording will be made public by the company pursuant to its regulatory obligations. Certain personal information such as your name and organization may be asked during the call. If you do not wish or for it to be disclosed, please immediately discontinue this call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. I now hand the conference over to Mr. Anuj Singla. Thank you, and over to you, sir. Good. Thank you, Faizan. Good afternoon, everyone. This is Anuj Singla from Bank of America Securities. Thank you very much for joining us for the Mahindra Finance call to discuss Quarter 2 FY23 earnings. To discuss the results, I'm pleased to welcome Mr. Ramesh Iyer, Vice Chairman and Managing Director, Mr. Vivek Karve, CFO, Mr. Raul Rebello, Chief Operating Officer, Core Business, Mr. Dinesh Prajapati, Head Accounts, Treasury and Corporate Affairs, and Vishal from the IR team. Thank you very much for giving us the opportunity to host you. I now invite Mr. Iyer to take us through the key financial highlights for the quarter, post which we will open the floor for Q&A. With that, over to you, Mr. Iyer. Thank you. Thank you, everyone. Thank you for joining the call. Welcome to this conference call. Let me first begin with the company before I really go to the marketplace. You know, after a very long time and true to our beliefs, the way we had projected that it would, we are seeing the asset growth coming back, and we are witnessing asset growth beginning to happen. It's not happening through just any single product, or it's not happening through any single geography, and therefore it's an outcome of across the country, across the product growth that we have seen. We are happy to say that we are gaining market share in our core products, whether it is in the Utility Vehicle segment, it's in the Tractor segment, for that matter, even in the Car segment. We continue to be plagued by non-availability of certain products, as otherwise we could even have seen better disbursement growth from where we are already. I think the other important feature for us to kind of state right up front is the asset quality has also kept pace with the growth. We have always believed that the segment of customer that we work with are circumstantially under pressure whenever the earnings for them drop, but they are not the ones who would not discharge their liability. This we have said several times in the past, whenever we have had pressures on the quality front, and we have witnessed right from the second quarter of last year, after the first quarter pandemic impact, every quarter after that, we have seen continuous improvement to our asset quality as well as maintenance of our collection efficiency. It's very important to note that the growth is back. We are seeing good disbursement growth. We are seeing asset growth happening parallelly along with this. While the growth is happening, we are also witnessing asset quality correction. Some of you would definitely recall that we have always said in the rural market, both the growth and the collections go hand in hand, which is nothing but a reflection of the marketplace doing well in terms of its economic activity. That's how you will see an overall improvement both fronts. There are definitely, you would have witnessed in our results, some pressures on the NIMs that you would have seen, and let me deal with it upfront. Certain pressure on the NIMs are very conscious decision by the company and certain is caused by the changing environment. The conscious decisions are we have gone in to finance certain affluent customer or high-end customer from this market, and we believe that they bring stability to the asset quality. We have put this out in our three-year strategy, which was laid out post-March 2022 results, where we said that we would get into this segment. Though this will not be a game-changing segment for us in the sense of it will not be a larger percentage of our disbursements and balance sheet, but they would contribute to this balance sheet, which brings in stability of asset quality. All of us know they come with a little lower yield and therefore this does build the pressure on the NIMs when you look at it independently. If you look at it on an overall basis, they are also expected to bring in a lower cost to operate as well as a lower delinquency because they are customers with good CIBIL score, they are customers with good stable cash flow, and therefore their ability to repay through certain organized methods and not through physical means will always be very, very high. That's a conscious decision as to why we are in that segment, and that brings up the second conscious decision to some extent driven by market but also to the way we budget ourselves is a product mix. Whenever there is high product mix, whether high disbursement comes from Tractor or Pre-owned vehicle, it will always be a high-yield product, and therefore, the NIMs will show a different number. When the growth is also driven by products like Cars or Commercial Vehicle or a semi kind of a segment, you would always see a little lower yield coming from them. Again, important to note that their delinquencies operate at a very different level. Therefore, on an overall basis, on a grown book over a period of time, this would get adjusted for and the returns would hold up. That's the other reasons for that. The third reason for the NIMs pressure that you would see comes from the cost of borrowing. We had for sure budgeted for the year that there would be an increase in cost, maybe 35 basis points during the year or so. All of us know that all this cost increase happened in a hurry, and we had said that also in our first quarter call, that the passing on of rates would happen only with a lag, and it will not happen with a hurry. I do remember having mentioned that we may not want to push up the rates during the festival times when it's the right time to actually acquire good assets and not unnecessarily build pressure by pushing rates. Therefore, we did delay passing on the rate, but we have now commenced pushing of the rate back to the market, and on a product basis, we have started increasing the rates. Rate increase always happens with a lag, and you will see this in the next couple of quarters. The yield starts to improve with the increasing rate that we will pass on to consumer. That's one decision which is now put to action, and therefore, you will see the NIMs improvement over a period of time. The fourth reason for why you see some pressure at the NIMs level is looking at the liquidity situation, we as a company have resorted back to holding four months cash. We didn't want to run a situation where money becomes dearer, and then we pay a much higher price than one needs to pay normally. It's a conscious call again to store some money and take some holding cost on that. That holding cost definitely is something that we will have to absorb. We believe that through up to March, this position is likely to continue, and we will not reverse this position of holding extra funds until we see easing of the liquidity situation. Whatever the 25-30 basis point impact that it will bring in is something that we are willing to live through. That again is very consciously taken decision on. That's on the NIMs front that the pressure is, and some of this will get handled and controlled. We also believe very strongly that as the Pre-owned vehicle becomes available. Today, what's typically happening is because of the new vehicle availability is low, people are not exchanging their old vehicles, and therefore, the stock of old vehicles are low. Also because finance companies and banks are doing well on recovery, repossession by itself is not a very aggressive activity, and therefore, the availability of stock from that front is also low. Which is why the demand for pre-owned is high, but availability is low. Once the availability starts to improve as well, our own Pre-owned vehicle business will also start seeing growth, and that would start also pushing up the yield over a period of time. Put all this together, we do believe that if we were at a 7.5% yield levels, I mean, the NIMs level, maybe it will come down to a 7.25 kind of a number with the holding cost will still hold, but the other things over a period of time will get corrected. We are confident and comfortable about it. The other thing to look at from our P&L and the balance sheet angle is our cost of operation. It is at an elevated level, and we are very conscious of this, and we had made a commitment in March that we will try and bring this down to 2.5%. Again, here there are certain conscious decisions that we have taken. The first in the line is last two years, the pandemic year, the increments to people were very muted. Given the activity level which has gone up both on the disbursements as well as on the collection front, we only thought it prudent that the employee should also be compensated, and we have introduced certain variable component as well as certain fixed component increase to offset for some of the parts, and that has pushed up a little cost, but that will get better handled as the productivity starts to improve and which we are very clearly visible for us. I think the other investments that we have made is in the technology, digital and the data front. We are very conscious and clear of this fact that not all activity that we have pursued so far needs to be continued to be done in the same manner as the past. There are a lot of partnerships possible. You must have seen one of the announcement with the India Post that we have done. All of this, as well as working with OEMs, do call for a good investment on the digital front as well as on the data front. We believe that while it's a cost to incur now, but they will all yield substantial results as we go along, and that's where we will start seeing the corrections beginning to happen. Nevertheless, there are very conscious attempts to look at line by line item and see what can be done in these rounds to even bring down certain costs. There are certain costs which are very variable to the overall business. Say, for example, traveling costs, the reward programs for dealers or for employees. These are all variable costs, and as the business keeps growing, you will see that cost keep coming in. On an overall balance sheet basis, we would start seeing the rate getting corrected. We are on the path moving towards that. As we said, in 3 years' time, we will bring it down to 2.5. We continue to believe that's the direction that we will maintain. From a 3.2 level, we'll come to 3 and go to 2.75. In the next 3 to 4 quarters, you will see this visibility of this. In the 2 years that we are talking of, we do believe that it would come down. Currently, you know, even for the same number of people and for the same number of times traveled, the cost is high because the fuel price is high, so therefore, there is this cost impact which is coming in. Some of this also gets corrected by the market corrections that would happen. These are some of the kind of area for us to really focus on. I think we have very correctly and substantially fixed the growth possibilities as well as asset quality possibility. We are very clear that we are investing in the future readiness of both people training capability as well as on the digital and data front, and we are willing to live with that little cost, but that would get surely, you will see a downward trend as the balance sheet starts to grow beyond from where we are. As I said, on the cost, on the borrowing cost and the passing on of the front-end yield and maintain mix, we have explained as to how do we see all of this. I will also touch upon there are two additional things which are outside of these balance sheet numbers. One is, you know, the provisions that we have made for our joint venture in Sri Lanka. We looked at what was the projections we have made when we got in, we looked at the behavior of the currency and all of that, and we thought it appropriate to make the provision, and we have taken INR 55 crore of provision in this P&L. They are one-time and not repeatable in nature. Nevertheless, that business independently is profitable even now, and the size of the business obviously is being re-looked, and that's the reason that we have taken this conscious call to make the provision. No further capital need to be allocated to the business, so the business is adequately capitalized, and we are comfortable on that front. Nevertheless, this provision has come in as a one-time event here. We are also buying out the stakes in MIBL from the partner AXA who had invested there. We have a very strong belief in that business. There are some regulatory changes which are coming in, which will make it even more attractive for the business. We think that it's a great value- creation that this business will do. Therefore, with due approvals, we have gone ahead with wanting to buy the stakes of the partner. It will go for an IRDA approval, and as and when the IRDA approval does come in, it will become a 100% subsidiary of Mahindra Finance. It's a great value-creating business. It doesn't consume capital, but it has phenomenal ability to provide various insurance products to the customers we work with and beyond the customers that we work with in that geography. On the last bit of the repossession orders that all of you must be aware of by now through one incident that happened at Hazaribagh in Jharkhand, which made the regulator to look at that very closely and give us a direction to not indulge into repossessions by using external agency. The first and foremost, I want to lay out to you that there has been no breach of process from our side. We have followed the process that is required. In our opinion, this has been a very unfortunate incident caused by an accident while a Tractor was being driven, and the investigation is on from the police side, and therefore, we can only probably share as much information that we are aware of. I myself have traveled to the location to understand it more. Our CEO, Raul Rebello, is today there, and he is taking stock of the situation, and we are confident to believe that we would come out clean, and we believe that it was an accident. It was not an act done wrongly by any of the people that we engage with. We also want to tell you that the agency that we use are not exclusive agents. They are agents who provide this service to the industry. Therefore, we are confident that finally, when the facts are out from the investigation and the courts look at it, this order from RBI will also be looked at it in that fashion positively, and we would get the benefit. Does it impact us severely because of this? I think the fortunate thing is that it has happened at a time when the market conditions are good, customers are earning, are able to repay, and therefore repossession by itself would have been a low-end activity. I also want to let you know that repossession has never been the first act for recovery. It's always the last act for recovery and settlement, and it is done with some extremely defaulting customer. Nevertheless, we were doing about 4,000 odd vehicles a month, and some of them used to get released back. The portion that we would get impacted by is about 2,000 or 3,000 vehicles where we take back and the customer settles and we release it back to the same customer. That is where the impact of this is likely to be for us. In the current scenario with the collections being extremely good and customer earnings being good, we do believe that it will have a very minimal impact. Now, parallelly, we have also launched some programs for such customers for a settlement rather than repossession as an act. The fact of how that works is yet to be tested and seen, but we are active on that, and we are also engaging with RBI very regularly on this to make sure that they understand our position and we are able to get this, reversed as the facts come out. Much on the company, but through the questions, many things will get further answered. On an overall macro, I think all fronts doing well, whether it is the agri front where the monsoon was good, expected cash flow is likely to be good. The support price announced seems to be attractive and therefore farm cash flows will hold up. As we always said, the infra is opening up. Road projects are being allotted already. Mining is opening up in many segments. I think construction activities are doing well, and we believe that even the infra cash flow should show a very, very positive trend. Clearly, there has been no new impact coming from the COVID situation. All activity is almost back to normal. The tourism is at its best. People movement are extremely aggressive. The temple tourism is high. Schools are operating normal. I think every segment that we are working with is doing well. Are all these segment adding more assets? I think the taxi segment, especially the aggregator models, et cetera, have gone substantially slow, and we don't see growth coming from that area. They are re-looking at their model. As otherwise in every segment that we are operating, we are very happy and comfortable to look at growth come back, leading to good cash flows in the market and therefore the collections to hold up. I think I would stop here. This covers the overall situation of where we are and how we were and what we think going from here. We are very, very positive in the trends that we see in the market, and we do believe that, and I've said this before, that the 2025 strategy that we put out in 2022 is an achievable strategy, and we are not re-looking at those numbers from any angle. Thank you so much for joining this call, and I'll open it up for Q&A. 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. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Mahrukh Adajania from Nuvama. Please go ahead. Yeah, hello sir. Hi. Hi. Just a couple of questions. Now, how do we think about the transition? Of course, the impact has been much lower than fears. It's just been INR 9 billion. How does it progress from here? Where does it peak in terms of the difference? What is the max level of Net GS3 that you'd be comfortable with? Like, anything below 6%, or do you have a target lower than that? How Credit Costs would pan out in the second half because we've seen a good write- back this quarter. Does that continue given that coverage is good, recoveries are good? Clearly, you know, right at the upfront, I said we are very positive, collections are good, people are earning. They're available, can be met and can be collected. What will give us comfort, 6, below 6, I mean, as a company, we would always aim for as low as that we can be. But for a business model like this, and you will recall several discussions in the past, we have said in the best of times, anywhere between 5% and 6% should be a happy number because it has got its seasonality impact. Tractors don't earn every month. Trucks don't earn every month. We factor that in our own excitement, and we do believe anything between 5%-6% should be a good number. Carrying a coverage of 58% if we are at 5.5 Gross, I think, 2.5% the Net will be a very, very happy situation to be in. That's on the comfort level of where we think and where we want to be and what will give us happiness. As far as the IRAC provision things are concerned, you know, currently it's INR 900. With such a provision that we already Carry, even if it was to become INR 1,500 as a number, I can tell you that we may not require to make any provision through P&L. We are very, very comfortable. This is the reason we had said even when this rule got announced, and we had said that since we have time up to October, we are seeing things improving. Therefore, we don't want to rush into making any additional provision in any quarter and then submitting to reverse it in future, et cetera. We were always comfortable and confident to believe that it will even out in the marketplace, and we may not have to require to make any provision. I think we've taken the right decision, and we can confirm to you that would be the situation. Sure. When does this impact peak out? Three months, we should know. In this quarter, you will know it. Yeah. Vive will give you a little more insight. Mahrukh, what happens is, it has started on first of October. There would be cases which go beyond 90, but they may normalize. Like that. These guys who have already become NPA won't add further in the subsequent month. There could be other set of customers who may join this group in November and December. But at the same time, those who have entered this group will also make all the efforts to bring them completely out of it by collecting all the overdues. That's how the mathematics will work, and that's where we believe that if INR 900 crore has got added in October, we are not expecting a significant addition to happen in November and in December. It's a flow, and that's how it will always be. Okay. There's no peak number or any, I mean, that you could share. For the purpose of understanding, that's why I use the term, let's say 900 becomes 1500 for a minute. Okay. Even then, P&L won't take any provision. We'll not require to take any provision. Yeah. I mean, until such time P&L takes a provision, if you're looking for a number, then you have to take some INR 3,000 and something of that type. Yeah. which will never happen. Mahrukh, the biggest comfort we have today is our net Stage3 number is very comfortable at around 3%. At around 3%. The headroom that is available for us to remain below net 6% on Net NPA as per IRAC is significant. Got it. Okay. Thank you. Thanks a lot. Thanks, Mahrukh. Thank you. The next question is from the line of Rikin Shah from Credit Suisse. Please go ahead. Good afternoon, and thanks for the opportunity. I had a few questions. First one is on the SME and other component of the businesses in your AUM. Those segments have grown very rapidly, right? Even on sequential basis, we have seen anywhere between 35%-75% OQ growth. Just wanted a better understanding of what exactly or what kind of customers we are lending to, A. B, what would be secured versus unsecured component. C, what proportion of these loans would be to the existing customers versus new customers? That is the first question. The second question is relating to the margins. In the opening remarks, Ramesh Iyer sir did allude to certain mix changes, which is directionally leading to lower yields. If I look at the pre-owned segment, the loan book has grown at 9% QQ, the highest among all the segments barring SME sequentially. If that segment is your higher yielding segment, then why is the overall yield still declining? How do we think about yield incrementally from here in the near to medium term? That is the second question. Thirdly, on the cost side, on the employee headcounts, given that you have converted some of the third-party agents into the contractual or on payroll employees, how do we think about the overall remuneration or employee cost going ahead from the current levels? Fourthly is on asset quality. Just trying to understand this more conceptually, if the collection efficiencies have never crossed 100%, and I do understand that we Gross NPAs of around 7-8%, but even with that if your collections have, they have never crossed 100%, how the gap between the Indicative Gross Stage3 versus IRAC, which used to be 570 basis points three quarters ago, has gone down to only 1.2% now. That's all from my end. Thanks. Okay. We will answer one after the other, but if we miss some question remind us because you loaded four. Sure, sir. First is on the SME front, let me tell you that the growth percentages that you see also has a very low base effect, right? Therefore, you have to look at it as a component of the overall asset book rather than standalone, they are growing at 35% and whatever. Because if you are doing not much and then if you have now started doing, it will kind of move up the even on the overall basis, sorry to interrupt, but even on the overall contribution basis, it has moved up from 7% to 13%-14% of the much bigger asset size as well, right? Even on absolute- I'm coming to that. Now, what constitutes this SME as a segment is, one is we have always said that we will play in the area of auto engineering and agri as the industry that we understand well, and we look at the suppliers of Mahindra or any other such auto co-manufacturers and their suppliers is something that we look at for the purpose of extending their requirements of expansion or their working capital loan support, et cetera. The other segment where we were present couple of years back, which is lending to smaller NBFCs, where we have had strong relationships in the past, who are in similar areas of operations of lending for vehicles or Tractors or whatever, but on a smaller scale out there, are the ones that with whom we had worked, we have re-engaged with them, and that is one segment where we are adding some volumes as well. Does this include bill discounting as well? It does not. Okay. The third element of this is a very important component, which you should understand, that we provide trade advance to the dealers for retail vehicle financing. Now, pre-festival, this amount substantially goes up. Now, what you will see in this quarter, suppose the TA amount is not same as thirtieth September balance and they get converted to retail, you will suddenly see that retail asset, whether auto, Tractor, that number will go up and this SME number will come down. So this has a component of the trade advance which is given because it's being provided to the dealer for vehicles to be provided to customer. It is classified under the SME segment and not classified under each of the product segment. I mean, one way to truly see this is that if there is a TA of INR 3,000-4,000 crores, you break it up into provided to which product dealer and you add it to that respective product and you will see the percentage of those products going up and the SME as a percentage will come down. That's a way really to see that product, one which Vivek is adding into something. Rikin, we have also mentioned in our deck that, rather in our press release, that SME as a percentage of the businesses is around- 5%. Is around 5%. In fact, it is mentioned on slide number 10 of our- I saw that. I noted that. Yes, sir. Thank you for that. Therefore, this has to be understood in this manner. Now insofar as your second question on the Sir, before we move to the second one, on the first one, if you could provide any color on secured versus unsecured nature and what proportion of this goes to say existing customers versus new customer. Barring trade advance. No. Barring trade advance, nothing goes to our existing kind of a customer because existing customer profile is very different from the SME segment that we operate with. Rikin, to your question of secured and unsecured, see whether we do retail enterprises, business enterprises under SME, all these are secured. There is no unsecured. They're either secured by the underlying working capital or they are secured by the fixed assets, which are getting financed using the funds we provide. Understood, sir. That answers the first question clearly. Thank you. Now, your second question was on the yield, right? As I explained to you, and you did point out saying that your Pre-owned vehicle growth rate is higher than the other vehicle growth rate. Again, you have to look at it as the overall composition of the mix, right? The Auto still constitutes to be 31% of our total. Tractor is fourteen percent. It's come down from 17, it has come down to 14 if you see on a year-on-year basis. In the next round, if you see, we believe that the retail Tractor business will now commence because this is the season now. If the 14 becomes 15 in the overall constitution, right, and the other segment starts to grow a little bit. Like, for example, Car is now 20% of our book, and as you know, Car is at a competitive pricing. If the pre-owned and Tractor starts to pick up, which we do believe will happen based on the season of Tractor and based on pre-owned availability, you will see the yield shifting. In our business, it may be little not fully correct to look at just for that quarter what would have happened. You will see this happening. If you see it on a yearly basis also, it is a possibility of a adjustment that it would happen. Please don't discount what I said, that we are Carrying some extra funds for our own requirement, the liquid, the liquidity situation that we read the market, and that will have a little impact on our NIMs, which we are conscious and we are living with that. The third comment I made right at the front is we have started pushing up our lending rates, and it will bring its benefit on a lag basis, not immediate basis. We must consider all of this when we kind of look at how the NIMs are likely to pan out going from here, right? That was your, the second question. The third question that you asked was on the NPA, where you said that earlier the gap between your Stage3 versus IRAC was higher and your collection efficiencies are not that high and why are we seeing this happen? More technical, but the way I understand is if we are able to collect from Stage 2 and Stage3 account, which has got a better collection efficiency, and the Zero Bucket is the ones where we have a little lower collection efficiency, the overall collection efficiency may look low, but the forward flow get arrested. If you look at our Stage 2, is also continuously coming down, right? Therefore, it does not go to become an NPA. Similarly, in Stage3, you're seeing a reversal happening and it is going to Stage 2. The efficiency of the collections are also doing very well in Stage 2 and Stage3, while the overall efficiency remains at 91% and 92%. Also don't look at just one month, look at the whole quarter and you see that it's 97% or 98%, it's holding up well. Yeah. Rikin, couple of more points. You are right because you're talking about the period of this January 2020-2022, when we had talked about this gap between GS3 and Gross NPA. Those were very different times also, where the customer cash flows were far more under stress. That period of COVID is now behind us. That is another factor which would impact narrowing of the gap. The other thing, according to me, is the way we are managing collections today is slightly different and more focused, where we are not allowing the lower bucket guys to get into the higher buckets. This is definitely the result of the need to move to an IRAC NPA scenario. That also helps to keep a very, very tight leash on movement from lower bucket to higher bucket. I think Dinesh also wanted to- Just wanted to add, Rikin, settlement value collections, which is over and above the monthly collection, is not factored in the collection efficiency. Collection efficiency. Effectively, what happens is that contracts where the settlement takes place, that cash flow is over and above the collection efficiency data point. that brings down the overall NPA, and that happens in an NPA account. Correct. Therefore, automatically it brings down further. In fact, same period last year when we talked about this gap, our Gross Stage 3, my memory serves me right, was 11.3%. It has now come down to 6.7%. That also has an impact, together with better cash flows for the customer. You had one more question. Employee. Yeah. Hope we have answered the earlier question, Rikin. Yes, sir. I probably have some more clarifications, but I'll take that offline. Before we just move to the employee, I just wanted to understand the mass affluent segment that we have. May we request that you return to the question queue for follow-up questions? Okay, fair enough. We'll just take the employee one then. Thank you. Your question on the employee was when we have moved them from off-roll to on-roll, will it have a cost impact? Was that your question? Yes. I do note that you have mentioned in the presentation that it would be cost neutral, but just wanted to understand from the employee cost perspective whether it will reduce your other operating expense and move into employee costs. It's a contract at this stage. You're right. Okay. Earlier they were categorized in other expense. They will now move toward the employee cost. Perfect. Sounds good. Thank you, sir. Thank you. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Manish Ostwal from Nirmal Bang Securities. Please go ahead. Yes, sir. Thank you for the opportunity, sir. Sir, I have a question on the monthly update, collection- Abhijit, the audio is very low from your line. Please use the handset mode. Hello, am I audible? Yeah, yeah. Yeah. Yeah. Sir, my question on the our monthly October update, which is where we mentioned that collection efficiency at 91%. I saw your interview on CNBC where you mentioned that it's a festival-related impact. Any impact of third party restriction because of that, collection is down? No, no. See, we don't use third party for our collections. We only use third party for repossessions, and therefore there is no impact on account of third party from a collection perspective. It is typically in the festival month we do see collections go down, and it is nothing new. Even last October, if you see the collection efficiency, would have been a similar number. Because one, the activity levels are pretty low. People are not available, the holidays for even employees, all of that, but it immediately gets caught up in the next following month. When you wait for the next month announcement, you wait for the quarter closing, you will see the efficiency go back to its normal level. It's nothing new and nothing unusual. Sure, sir. The second question in the June presentation, we mentioned that the management overlay provision of INR 1,060 crore. This time we did not mention that thing. Did we use anything from that figure? If you look at our coverage, it remains the same. We have just brought in the overlay also into the ACL formula. It has been subsumed into that because, see, overlay was created for COVID. Typically, could we have reversed and taken the full benefit? You could, anyway. We didn't want to do that. We said, having made a provision, let it stay within. We have kept the coverage as it is, and we have factored that into the formula. That's all we've done. Sure, sir. Thank you. Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead. Yes. Good afternoon, sir, and congratulations on good quarter. Sir, when you already talked about, I mean, some of the developments that you've seen on the RBI ban on usage of. Tibrewal, sorry to interrupt you. Sir, please use the handset mode. Is it better now? Yes, sir. Thank you. Yeah. While you already talked about, I mean, some of the developments that have happened post this RBI ban on usage of third party for repossessions, the two things I wanted to understand in this context, one is, I mean, these 6,000 employees that you have onboarded from manpower agencies that moved from off-roll to on-roll, are these predominantly repossession and collection personnel who will help offset some of the impact on repossessions that you could have had otherwise? No, no. See, these were all people, staffing was provided by outside companies like TeamLease or anybody, and exclusively working for us under our managers doing collections. The activity that they were doing will continue and instead of remaining as an outsource employee, they have now become on-roll employee. Will some of them also repossess? They were past also doing, they will currently also do. There is no change in activity for them. Understood. Sir, what is the engagement that you have had with the RBI? Is there some course correction that the RBI has suggested? I mean, are they giving you some sense around when is it that this bank could get revived? As I again said right upfront, one is we were following the process of repossession as was required, but the incident was of a nature where everyone had to take a note of why did this happen. We, as a corporate, are very conscious and therefore have gone into depth of why and what happened. As I said, the police investigation is still on. Our on-ground belief is it was an accident and it was nothing beyond that. Therefore, once we have a clarity from that investigating officer, we will engage even more deeper with RBI on that specific incidents and give more information on that. The requirement is that we should revisit our entire process of repossession, of using of agency, appointment of agency and all of that. We have gone through all of that once more internally, and we don't find major gaps. However, there is always scope for improvement. We have looked at what others do. We have looked at what else can we do. I also want to confirm that many a times or almost many times, the agencies that we use are not exclusive agents. They are all agents used by everyone else. Therefore, we don't see a process failure in appointing an agent or engaging with an agent, but incidents do happen. We have to go back to RBI, and when we say we are engaging with them, we are giving them a feedback on what our board thinks, the discussion we have had with the board on this subject, our internal deep dive into our own process and revisiting and providing to them where we saw if there was any gap at all and how are we fulfilling and all of that. I am very, very confident that once all of this is seen in totality and seen along with the incident which caused an order, we are sure that there will be a revisit and we would get relief out of that. Am I in a position to put a timeframe to that saying this will happen now, tomorrow, day after? I would not want to stretch myself to that. We will definitely keep coming back to you as we see any development on that front. Our belief at this stage and the confidence at this stage is that anything that happens from here on should be in our favor. Thank you. Mr. Tibrewal, may we request that you return to the question queue for follow-up questions. I'll just provide one clarification because the gentleman mentioned all 6,000 are collection executives from October. They are not only collection. We, this 6,000 also includes some business executives, who moved on board. Thank you. We'll take the next question from the line of Abhishek Murarka from HSBC. Please go ahead. Hi. Good afternoon. My question is going back to this gap of NPA that, you know, you've successfully reduced, and you said settlement doesn't get captured in collection efficiency. Should we assume that this INR 3,600 crore gap in December last year, which is now INR 900 crore, that entire gap is basically come down due to settlement? Can you- No, not all cannot come down due to that. It'll come. Sir, can you. What Dinesh mentioned was the question that was asked when your collection efficiency is not crossing 100%, how is that the number is bridging. He said it will cross 100% if you were to add back the settlement as well. It can't be the entire 3,000. A portion of the 3,000 would definitely be through settlement, but it's a mix of both. Okay. This new settlement program that you said you've got- To clarify to you, I think all of you should get also this clarity. Our overall numbers of Stage3 and Stage 2 are continuously and substantially reduced, and that has bridged the gap by itself. On top of that, I think the focus that we have on early bucket collection has ensured that the gap which was earlier 6% has now narrowed down to maybe about a couple of percent. No, fair point. Basically this reduction is a- No, with that clarification on settlement, you know it has nothing to do with your gap. Understood. Basically it's a mix of settlement upgrades and recoveries. Understood. Yeah, okay. The other thing is you mentioned that you've launched some settlement programs, also, you know, now up. I think this may be outside of this, you know, daily stamping issue. Can you share what kind of settlement programs, any sort of Okay. It is launched only now since we have not recommenced repossession. We have got a list of customers whose vehicles we would have preferred to repossess. Right. Are the customers whom we are reaching out and telling them that, "Okay, we can give you a concessional settlement"? Because if we repossess and sell, we get X amount. If we are able to, through settlement, get even a rupee better than that, we are actually better off. Okay. This is sort of targeted to those customers who you would have otherwise repossessed. Yeah. Please understand it's not some amnesty scheme for people to come and pay low amount and get out of the loan. It's purely for those defaulting customers. Understood. In terms of this ban on repossession, I know you've given the clarification and all, but just wanted to understand from a timeline perspective, when would you be able to you know, institute all the correctional steps that you have to and go back to the RBI saying, "Okay, we are done and now it's up to you to approve." When does that happen? Again, to reclarify, there were no major gaps in what we were required to do versus what was being practiced. Since having gone through this incident, I think it's mandatory for us to revisit our process and reassure that there is no gap and is there a scope to further tighten it wherever possible. That is what is being done. We have also gone back to RBI, provided them the information as required, et cetera. We will seek meetings with them and we will impress upon them as to what we have done, how we have done. At the end of the day, they may want to take their time to understand and then come back. I'm not able to put a timeline to how their response would be, but from our side, we are continuously on that move. Sure. Finally, just one quick question on NIM. You said it should increase in the next few quarters, and you pointed that Tractor should pick up, Pre-owned should pick up. But on the cost side also, you know, rates are going up and banks, you would still see the impact of, you know, any further Repo hikes, et cetera. When do you think, you know, NIM improvement sets in? Do you think a couple of quarters later, or just from a timing perspective, how do you see this playing out? Yeah. I think you should add one more thing which I said, which is we have started pushing our own lending rates for all product already from this month. All three will happen, and which is why we are taking few quarters, maybe two, maybe three. There is a fourth element of the NIMs remaining little under pressure is the chest that we Carry, the excess fund that we Carry for liquidity protection. To that extent, there will be this 25-30, whatever the basis point impact of the chest will continue to happen. Passing on of the yield, I mean, there's a lending rate increase. Mix of products changing, all that is continuously happening and you will see every quarter. I believe in every quarter, you will not see a dip. You will either see a stability or an improvement. A dip will be arrested for sure. Thank you. Mr. Murarka, may we request that you return to the question queue for follow-up questions. We'll take the next question from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead. Hi, sir. Good afternoon. Thank you for the opportunity. The first question is around the OpEx. If you can split the OpEx into cost of acquisition, cost of collection, and business as usual expense, either on a quarterly basis or on an annual basis, that will be very helpful. Second is, when does your term get over, sir? And what is the succession plan if you do not get reappointed by the board? Will the board look outside the firm or will it be from the Mahindra Group? Or will it be a total outsider, if you can speak on that, sir. Thank you. Whose appointment you said? Sorry, your voice was cracking. Sir, when does your term get over? That's the first question. Oh, my turn? Yes. Okay. Uh, um, if- I was not very clear. If the board doesn't offer you reappointment, what is the succession planning? Will it be from the, from MMFS or from Mahindra Group or a total outsider? The second one is easy to handle. My terms end in 2024, I think April or June. The NRC will engage on this with the chairman and with the group. At this stage, I may not be exposed to who will that be. Will it be within Mahindra, outside Mahindra, totally from outside somewhere else? I think it's little premature to comment on all of this, but be rest assured that an appropriate decision will be taken much well in advance when that has to be taken, and that communication for sure would be available. As a group, we have seen many, many CEOs. You saw it even when Dr. Pawan Goenka retired. Well on time, there was a new CEO who came in and took over. Rest assured that that's something which is in the highest agenda list of the NRC chair, and it would be done appropriately. As far as the split of cost is concerned between collection business, et cetera, I'm afraid I won't be able to provide you straight across here, but if you can engage with Dinesh or Vishal, they would for sure try and work out what is possible. Except the employee cost, you know, it will be too much of a breaking up of expenses. At that level, we can do some approximation and allocation. Vivek will add something to this, but that's my view. Abhishek, something which we do not publish in the public domain. We don't share in the public domain. To share selectively won't be possible at all. I'm sorry, but what we don't share in the public domain, we may not be able to share selectively. If we are able to give you any information, it will be commonly given to many and any. I still think that splitting beyond employee cost, because employee cost is the largest cost of the total. Everything else is a variable cost of their activity, and we can definitely put some approximation to it, but employee cost is something which we know who is who. Thank you. Mr. Mishra, may we request that you return to the question queue for follow-up questions. We'll take the next question from the line of Sumant Sharma from Kotak Mahindra AMC. Please go ahead. Yeah. Thanks for taking my question, and congratulations to the team on a good quarter. I've got two questions. One is typically second half for us has been fairly strong on recoveries and bad asset resolution. Given the ban that we have this time around and post that, the kind of corrective actions that you've already taken, should we assume that there will probably be no letup in terms of NPL resolution in the second half and Credit Cost should remain benign in the second half? Or this time around it could be a different trend? Actually the market is not changing to first half being better than second half. Therefore we like you said, we continue to believe that the second half should hold up, especially with the monsoon ending decently well. Expectation is high. The support price is also seeming to be good. I said all of that. The infra is opened up. All other activities are in place. We don't see unless an unknown unknown comes to hit us, we don't believe that there is going to be any letdown as we see it. Sir, my question was more from the perspective of the RBI ban. That doesn't really impact much, let's say the market second view, sir. See again, you know, I explained this over and over. Repossession is the last resort of recovery and is not the first step of recovery. Since the market is doing well, cash flows are good. We have already seen how the gap between IRAC and, you know, GS3 has bridged, which means people are able to even pay more than one installment in many cases. All of that is very clearly visible. Will it have no impact? I think it'll be wrong on my part to say it'll have no impact. I said 3-4 thousand vehicles, which would have normally tried to take and even released back to customer is one of the repo activity, and that is where the Termination Settlement Program has been launched. At the same time, if we do everything right on the ground, we also think that it may not take as long as six months for RBI to respond to our ask. In this quarter, whether the order gets reversed or not, I don't have an answer to. With every correct step that we are taking, we believe that for the fourth quarter, that activity should be available to us. Thank you. Mr. Sharma, we request that you return to the question queue for follow-up questions. The next question is from the line of Piran Engineer from CLSA. Please go ahead. Yeah, thanks. Congrats on the quarter. Sir, just a couple of questions, most of them have been answered. Firstly, in terms of yield hikes on different products post-Diwali, how much have you increased? Also competition, and this is over and above the 40 basis points hike that we took a couple of months back, right? Then I'll just tell all the questions together. The next one is on your funding mix. We're noticing that your share of deposits is going down, share of bank borrowings going up in the last few quarters. This is probably a bit counterintuitive because banks are now much more expensive than deposits. If you could just clarify on that. Lastly, you know, if Mr. Kapoor is on the call, can he talk a bit more, like elaborate a bit more on the digital and data related investments you all are talking about? That's it from my end. Okay. Mohit Kapoor is not on this call. Maybe we'll try and see how do we create some input on the digital spend and circulate some note or whatever else to all of you so that everyone is available to be knowing that. Maybe Vivek or Dinesh will take the funding mix question. Vivek, you want to take it? Sure. Piran, your observation is correct. But what has happened is, the FD flows during the COVID period were exceptionally higher, because there was a flight to safety, and that's what exactly happened. When you look at the all-in cost of FD versus all-in cost of bank borrowing, you will realize that, there is not much of a difference between the two. Because in case of banks, while we do not have to pay any third party charges like brokerages, but in case of FD, we end up paying, those brokerages. All-in cost, there is not too much of a difference. Having said that, we have been taking calls on, progressively increasing our FD rates. As we speak, our five-year deposit Carries a rate of 7.25%. Probably we may take up the rates even higher, depending on what action RBI takes going ahead. Your observation on bank borrowing, yes, the salience of bank borrowing in the total borrowing mix has certainly gone up because during this volatile period, the market borrowings, which are bonds and NCDs, that market has remained slightly volatile. That has given, I would say that has necessitated us to take up the share of bank borrowings in our overall borrowing mix. Does that answer your question? It does. Are these incremental bank sanctions MCLR-linked or do they continue to be repo-linked? I would not like to be very specific, but there is a movement from external benchmark to MCLR. Thank you. Mr. Engineer, may we request that you return to the question queue. No, he had one more question where you are talking about selective, I mean, where are we increasing the rates? How much have you all increased? Yeah. It was the question, and what was competition. 50 basis point is what has been done on certain auto products. We have not broad-based it to all the products yet. Sequentially, we will be doing it for different products at different points of time, depending upon the needs, the geography, the availability of vehicle, all that will get factored in. Got it. Okay. Thanks. Thanks a lot and all the best. Digital, though, Mr. Mohit Kapoor is not there. Can I give you a quick, you know, I'll just provide some quick updates on where the investments are. Sure. Largely, investments are around customer acquisition and two on convenience for customer services and three for repayments. On customer acquisition front, you know, our mobile app has been significantly spruced up for a lot of self-service journeys. For example, I mean, if they've got a pre-approved loan, they can complete their loan on the mobile app itself. Two is, you know, on the service front, customers who have to come to a branch, we've tried to clean up some of those services again on a self-service, either using the call center or on the app. Largely digital also include making UPI payments, et cetera. Mr. Iyer talked about partnerships, the latest partnership with India Post Payments Bank. We are leveraging a lot of the touch points of these partners to do both acquisition, service as well as collection. This is on digital. On the core tech platform, we are again making a lot of significant investments to, you know, to ensure that our core system, whether it's the LOS, LMS functionalities are improved and made much more versatile. Okay. Yeah. That's the part. Thank you so much. Thank you. Ladies and gentlemen, we will take the last question from the line of Nishrin Chavade from Kotak. Please go ahead. Hi. Am I audible? Yeah. You are. Yeah. Sir, there is an echo coming from your line. Please use the handset phone. Sorry. Yeah. Is this better? Yes. Yeah, yeah. yeah. Better. Go ahead. You know, given the fact that, you know, basically this quarter has been quite good, you know, for banks and NBFCs, and you know, given, and I guess, everybody's kind of grown quite well. You know, in our case, we have grown at 9% on a quarter-on-quarter basis, which is obviously a very high number. Given the fact that, you know, rural economy tends to be more volatile, you know, would it be sort of a little bit more prudent to kind of, you know, push growth towards the second half, you know, where you probably have much more visibility on cash flows? If your view on the macro remains strong, can we kind of expect you know better growth rate or growth trajectory in the second half of the year? You know, when we lend in a particular month. Mm-hmm. That's not the period to worry about if the cash flow is good or otherwise, because it's a vehicle somebody will buy only if he sees a visibility. It's a 3-year, 4-year product, so it doesn't matter you lent in August or you lent in October, and the season is good in October, and the season was not as good in August. The real fact is if somebody's acquiring a vehicle for a 3-year period, the 3-year cash flow for the customer should be good, and that's the volatility which actually impacts the rural cash flow sometimes seasonally. Honestly, it doesn't matter by pushing it between first to second quarter, will it arrest the future volatility? The answer is no. For us, how will the second quarter look like? We just put out our October number and it's highest ever disbursement, the demand. Definitely we should recognize this fact that both the festivals are in the same month. In a way, one should look at October, November last year versus October, November this year clubbed together and not see in isolation. Then you will see, okay, it is kind of getting adjusted for that, and we don't want to over celebrate that, "Oh, October was very good, and therefore with this quarter we will have some INR 15,000 crore disbursement kind number." The answer is no. Clearly second half for rural historically has been good, and we don't see that trend changing either. Sure. Just one data point which I missed out. How much rate hike have you done? Did you say 40 or 60 basis points? No, no, I said about 50 basis point, not on all products, some select products. We will continuously look at different product at different points of time and keep you know, increasing it. Somewhere it could be 25 basis, somewhere it may even be higher. Perfect. That answers my question. Thank you very much and all the best. Thank you. Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Anuj Singla for closing comments. Thank you very much, Faizan. Mr. Ramesh Iyer, any closing comments before we conclude? Nothing, but I think covered it right at the front and then very interesting questions and detailed questions from everyone has captured all that I would have otherwise said in the closing. The only remark I can say is that, after a few years of patience and perseverance and explanation, true to our belief, I think rural is going the direction that we believed it will go. We do think that the next 3 years rural growth will be a potential to watch. In our business model, I've said this several times, that the segment of customer we work with, they could be circumstantially hit, and therefore you will see some volatility, but they are never intentional defaulters, and therefore they always do get corrected. That's been even demonstrated in the last, you know, at least five or six quarters continuously as to what built up as a very high NPA in the first quarter of last year, how every quarter they have demonstrated a repayment that proves enough of the customer's intention and the pressure they go through when circumstances change. I don't think I have anything beyond that. We are adequately capitalized. We don't have a liquidity pressure at all as Mahindra Finance, as a Mahindra Group company, as a relationship with every lender to us. We've been able to raise money at one of the best rates and sufficiently enough from everyone. Our people are contributing very, very positively. We are also investing in them for their training, et cetera, to be really ready. Raul just talked about how we are investing in digital to be future ready. I think on an overall basis, we are ready on all fronts to embark on this growth journey, and we do believe that it probably is a turnaround story for us, and that's our transformation agenda, which we put out in March 2022 to say how would we almost double our balance sheet in three years space. Thank you so much everyone for joining this call, and thank you for all your questions. Thank you, sir, for giving us the opportunity to host you. Thanks everyone for joining. This concludes the call for today. Faizan, over to you. Thank you. Ladies and gentlemen, on behalf of Bank of America Securities, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.