Good evening, and welcome to Mahindra & Mahindra Financial Services Limited Q1 FY 2024 earnings conference call. This call will be recorded, and the recording will be made public by the company, pursuant to its regulatory obligations. Certain personal information, such as your name and organization, may be asked during the call. If you do not wish for it to be disclosed, please immediately discontinue this call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. I would now like to turn the call over to Mr. Anuj Singla from Bank of America. Thank you, and please go ahead. Thank you, Carol. Good evening, everyone. This is Anuj Singla from Bank of America Securities. Thank you very much for joining us for the Mahindra Finance call, to discuss Q1 FY 2024 earnings. To discuss the earnings, I'm pleased to welcome Mr. Ramesh Iyer, Vice Chairman and Managing Director, Mr. Raul Rebello, Executive Director and MD and CEO Designate, Mr. Vivek Karve, CFO of the company and Group, Financial Services Sector, and Mr. Dinesh Prajapati, Head Accounts, Treasury, and Corporate Affairs. Thank you very much for the opportunity to host you. I now invite Mr. Iyer for his opening remarks, post which we will open the floor for Q&A. With that, over to you, Mr. Iyer. Yeah, hi, welcome, everyone. Thank Thank you for this opportunity. I think all of you must have seen our results in the numbers, which must be with you already by now. I think few good things as we kind of begin. One, first time I would think, since I've been associated for— from the inception, this is the first time where we see the Stage 3 number in the first quarter is actually lower than even the March end number. That's very, very unusual for this business because we've always believed that the first and second quarter for rural, the market that we largely represent, always has not too much of activity with the monsoons. Starts with the heavy summer, moves to monsoon, until the festival season begins to happen from end September, maybe early October. Things start to begin, therefore, we always have seen that pressure. Like, unlike ever before, I think we've seen this number both in Stage 1, Stage 2, reflecting good holding up, and that is nothing but a clear reflection of the economic activity out there, leading to good cash flows. I think the other good thing that we saw also was that the disbursement for this quarter at an INR 12,000 crore plus number is a very, very high disbursement, considering that we ended the fourth quarter on a very high note, even as the overall industry out there. That gives us clear happiness to also state that we've gained market share in the product lines that we are in. More than that, in spite of all competition out there trying to do various things, I think our reach, our relationship, our customer retention approach, all of that is producing the required results that we are looking for. I think there was always this question on the pricing possibilities and the pricing pressure. Happy to state again that at every stage that we have tried to push up the rate a little, it has got accepted at the market, and therefore, in spite of, again, competition, both at product level and as finance level, we have not seen too much of pressure on the ability to pass on price. While you see a little compression to our NIM, that's more caused by we having borrowed fresh money for disbursements, and when we reprice our liability, it comes at a new rate, and it does take a lag for us to be able to pass on. Our initiative of focusing on pre-owned vehicle as an initiative, including pre-owned tractor, is yielding good results, and we are able to see numbers move up in that direction. In the prime segment that we keep talking of, that in that market as well as in the semi-urban market, when we start looking customers from a segment higher than the segment that we were earlier operating in, there was always this question about how competitive would we be and what are the possibility? If some of you may recall our past discussion, that when we have a 30%-35% market share in case of Maruti, in rural market, we have a 12%-15% kind of market share. I think it makes a big difference when we negotiate with the dealer to say when we are in certain segment, we also need to get certain other segment, and we've been able to penetrate through that. They definitely come at margins different from the earn and pay segment, but they also come at a much low cost of operation and a much low credit cost. We are also building a book of way forward, which qualitatively will not only be different, but also has an ability to give the margins because of the low cost of operation and the low credit cost. From an overall demand perspective, I think we are continuing to see the demand holding up, but at the same time, we are conscious of the fact that we also see the OEM's ability to supply more vehicles, and therefore, some inventory built up at the dealership is seen. At this stage, dealers still believe it as positive because these stocks are necessary for the coming festival season, and therefore, they see that more as a positive at this stage. The overall economic activity on all fronts, whether it is people movement, tourism, the infrastructure side, the road, all of these projects are in full swing, and therefore, we see excellent cash flow position on the ground. We all started the year with a little fear expressed about how the monsoons would pan out to be. As we speak and all of us are exposed to this number, I think the monsoon spread has been pretty decent, and all the relevant states have got decent monsoon, and therefore, the belief is very clearly one would see good yields coming out. With the election year ahead of us, we also believe the support price would be good. For a business like ours, which is dependent on infra cash flow, people movement cash flow, tourism, and farm cash flow, we are very, very excited that what we see on the ground makes us believe that our strategy that we put out in 2022, that by 2025 we will be of a certain size, of a certain return, and of a certain quality, does not seem to be a difficult task in hand for us. We remain invested well in our Project Udaan, which is a transformation project, which looks at new initiatives on the digital front, new initiatives on the people front and the process front, and we are progressing very, very well on that, and we are almost on schedule for getting the benefits of it. While like we have stated this before, while it may bring in some cost as we implement this, the benefit that we would get on implementation of this project will be disproportionately beneficial. So that we would rather call it an investment at this stage and not a cost at this stage. Nevertheless, it will come in with some cost, which will start showing the benefits around all of this. Our importance to the OEM partners that we work with stays very, very high. We've been having strategic meetings with all the OEM partners, and we do get a lot of information and insights, which makes us important partner for all of them. If I put therefore all of this together, and as I said, for the first time ever in the history, we have seen the first quarter showing this kind of quality numbers, and, we continue to believe that this would be the trend going forward. With our forecast of how we see the second half with good festival season leading into good harvest, I think, we are in, in a great place for us to repeat our past performance that we saw even in the previous years. The cost of borrowing, our belief, is not going to come down in a hurry, while all of us know it is not moving up any further, maybe. We are not hoping on the cost of funds to come down to be able to make better margins, and therefore, our margins will come from our pricing ability and the product mix change that we are envisaging to protect the margins going forward. As I said, the little dip that you, you must have seen in this quarter is more caused by we borrowing a little more and replacing our maturing liability. As we start moving the price up for our new disbursements, and as we mix the product with more of even pre-owned vehicle, et cetera, we would see improvement to that happen as well. There are some specific actions that we have put in place, and we are working on it to bring down our OpEx on an overall basis, while we're seeing some initial trends of that benefit. I think that exercise is still not over and not complete in itself, and we have identified certain specific areas that we need to work on. The Project Udaan that I was referring to addresses us our process deep, and therefore, a reengineered process with use of better technology is what eventually will help us also bring down the cost. We are sufficiently capitalized, and therefore, there is no need for us to, at this stage, look at any capital raise or whatever. Since we were AAA rated a little while ago, we are able to see opening up of new avenues of our ability to raise money. While we have never had a situation where raising liquidity was an issue, but nevertheless, it's happy when we look at we get more revenues from where liquidity could be raised and even getting money for a little more long-term possibilities. Therefore, putting all of this together, we feel that we are at the right place, and all corrective actions have already been initiated and put in place. Most of them are already working for us, and therefore, going ahead, we are very, very positive of where we see all of this leading to. The management team is in place, while we have made some new additions to our management team, but now most of them have been with us for definitely for more than two years, close to, and therefore, they are also all well in place, not just to understand this business, but also to have a good cultural integration into the organization and contribute by their experience that they come with from different institutions, and therefore, that adds to the additional benefit of relooking at this model in a different direction. I would only request on one thing as I close, which is you must have seen the news on the acquisition of some holding by the parent in the RBL Bank. We would not be able to add any value to any questions that may come in that direction because it's purely a corporate action, and I would honestly submit and request that we avoid spending any time around that because we would not be having any answers to any of your questions that you may have. Except that I can tell you that this is purely a corporate action, and you would have seen a stock exchange announcement by M&M on this. I think with that, I will kind of stop here and invite questions, with clearly leaving a positive outcome that what we see in this quarter gives us a lot of happiness to believe that the following quarters would only be better than what we have seen. Thank you. Over to the moderator. Thank you very much. We will now begin the question-answer session. Anyone who wishes to ask a question may press star then one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Manish Ostwal from Nirmal Bang. Please go ahead. Yes, sir. Thank you for the opportunity, and I have a couple of questions on quarter four numbers. Quarter one numbers, sorry. First, on the margin side, you said there is some cost increase and loan mix impact impacted the margin this quarter, and with the lag effect, the margin will improve. Secondly, the margin guidance, which we have given long term 7.5%. Just because the price action in the coming quarters will take the margin to that level, or how do you see the margin coming rest of the current financial year? Yeah. As you are also aware, you know, once we start putting out a new price, you don't get the benefit immediately. Clearly, visibility-wise, you will see it move upward. We do hope that as we close the year, are we able to get very close to those numbers. You know, honestly, 7.5%, when one puts out, you don't expect the cost of borrowing to remain this high. While we believe that the cost of borrowing may not come down, but if we are lucky and the cost of borrowing also starts to come down, definitely you will see that margin move in that direction. Purely by pricing, and with this being the cost, I'm afraid that we may not be wanting to believe that it will reach 7.5% so fast. Clearly, the cost of borrowing will as well come down, and the two together will help us. As I also added, we are kind of looking at more pre-owned vehicle as an improved growth story for us, and that should also help us in the improvement of margin. Secondly, sir, I was looking the slide number 8 and the 22, where 8 we have mentioned the collection efficiency, 94%. If I look at the on a YOY basis, there's no improvement. Even if I look at the full year performance of last year, the collection efficiency, 96%. I understand the seasonality of the business, but the... despite of the, the recovery in the market, which is reflecting your loan growth and the vehicle sales numbers in the marketplace, why the collection efficiency has not seen any improvement in our numbers? Secondly, how one should read the trend in your credit cost, remaining part of the year versus the 2.1%, which we reported in Q1? You know, in some way there was an answer in your question. Seasonality is definitely one answer, and you would see credit cost improve as we go to the third and fourth quarter, and we have seen it even in the previous year, and you will continue to see that for sure. I think it's also important to understand when you say 94% this quarter and it's sequentially not much improved. You know, we see this as a good number, and you probably compared it to last year's first quarter as well, and last year's first quarter was also one of our best quarters. If we are able to reach this kind of a 94% levels, and if you go a few quarters before, you will see this number used to be a 91 type number. Yeah. Clearly, we are very happy with looking at a 94 as a number for the first quarter. We are seeing trends continuing in the same way, and therefore, we don't see second quarter to throw up any surprise. If that was to happen, you will see third and fourth quarter helping the cause the way we are projecting for ourselves. the last question on the Mahindra rule- I'm so sorry to interrupt. May I please request you rejoin the queue for your follow-up, as we have many questions in turn? Sure, sure. Thank you so much. Before we take the next question, a reminder to all the participants to please limit your question to two per participants only. You may rejoin the queue follow, for a follow-up. The next question is from the line of Mahrukh Adajania from Nuvama. Please go ahead. Yeah, good evening. My first question is on slippage. I don't know... I know that you don't spell out slippages correctly, but, because the credit costs are slightly higher than expected, could you give some broad color on slippage or at least some broad color on recovery and upgrades of non-restructured standard loans during the quarter so that we can calculate slippage? Then also, if you could highlight the amount of interest reversal in, say, Q1 relative to, say, Q3, right? We have the management reconnected. You may please go ahead. We have Ms. Mahrukh Adajania on the call. In the queue. Thank you. Yeah, hi. Can you hear me? Yes, sir. Yeah. I don't know up to where you heard, let me kind of repeat whatever I said. If you kind of look at our Stage 3, they have actually improved over the fourth quarter. If there was a slippage from Stage 2 to going to Stage 3, then you would not have seen this improvement for sure. Even at Stage 2 level, you are seeing an holding up happening, which means even from Stage 1, the flow is not high. Also, third thing is if you have a 94% collection, it only means that the overall collection from every bucket is appropriate and adequate. Therefore, there is no pressure on, is there any slippage on the credit front? I don't know, on the restructured, you said, if you were referring to the COVID time restructured portfolio, if at all, I think, I, I don't exactly remember, but I think when we started, we had some 9,000 odd number. No, INR 4,000. Now it is what? It's two- Eighteen. About INR 1,800 crore is what is just remaining there, and they are performing portfolio. Otherwise, we will have to classify them in whichever bucket we have to classify them. Yes, sir, I was not referring to the outstanding or asking you the number. Yeah. Basically, I was referring to the presentation where you've shown amount of restructured assets which have been upgraded from Stage 3 to Stage 1. If Vivek wants to add, it's a technical thing. Yeah. So hi, Mahrukh, Vivek here. Hi. The curing or upgrade typically happens from Stage 2 to Stage 1, and we have very stringent norms for any curing that we do. The assets which are in Stage 3 would not get cured. That is one. I just wanted to also add to what Mr. Iyer said. If you also look at the GNPA as per IRAC, the difference between the IRAC, IRAC GNPA and Stage 3, that number also has remained range-bound. Over a period of time, that number is slowly coming down, which should also give you some understanding on the slippages. Just reconfirming what Mr. Iyer said a while ago. Okay, there were no material interest reversals or anything therefore? Yeah, because a material interest reversal would happen if, there would be a big jump or a big drop. Mm-hmm. in our GS3, because that's where the interest reversal takes place. Because in Stage One as well as Stage Two, the interest accrual continues. The question of reversal arises only when an asset which was so far standard becomes NPA. Okay, when you've written that restructured assets of... Mahrukh, one more thing, is under Ind AS, there is an interest accrual that happens on a net basis. In case of banks, probably you are coming from the banks, where, the interest reversal has to happen the moment an asset becomes an NPA. In case of NBFCs which follow Ind AS, the interest accrual keeps happening on a net basis. Got it. Okay, when you say restructured assets of INR 466 crore have been cured during the quarter and now reclassified under Stage 1, it's from 2 to 1, right? Precisely. That's a perfect understanding. Okay, because the statement, talks about Stage 3 first and then about restructured assets, so that's why the misinterpretation. Don't. Okay. don't link the 2. They are 2 independent sentences. Okay, sir. Okay. Thank you so much. Thanks, Mahrukh. Thank you. Before we take the next question, I'd like to remind all participants to please limit your question, two per participants only. The next question is from the line of Viral Shah from IIFL Securities. Please go ahead. Yeah, hi, sir. Thank you for taking my question. I had 2 questions. One was on your GNPA. You mentioned that quarter-on-quarter, sequentially, sequentially, you actually saw a bit of correction. If I look at it, your write-offs actually were at 1.6%. Now, historically, in 1 Q, we have seen very low write-off. Is this sequential GNPA a result because of this higher write-off? Number 1. My second question was on basically your repayment rate. Typically, in 1 Q, your it sees a bit, a bit of a decline. This quarter, there has not been as much of a decline compared to the history. Would that be a function of the kind of change in the borrower mix that you have been trying to achieve in terms of more of mass affluent? What was the second question, sorry? Missed you. Second was with regards to the repayment rate. Typically in 1Q, quarter on quarter, your repayment, implied repayment rate, reduces materially. In this quarter, it has not been the case. Is that actually because either you have changed or a reflection of the changing borrower mix of more affluent customers not requiring Earn and Pay, or you actually now starting to structure your contracts more on an EMI basis versus more lopsided in the second half of the year? Let me first answer your second question, and then we will go to your first question. On the second question, we have not experienced any significant increase or decrease in our overall door-to-door maturities of our loan book. I think that's not that's not what we are experiencing today. Probably that should help answer the second question. Your first question was about the write-offs, right? Yeah. Yeah. On write-offs, if you look at over a period of time, you take FY22, you take FY23, our total write-offs, have been upwards of INR 2,000 crores. However, if you look at the first quarter of the current year, that number is much lower at, INR 313 crores. Sir. Sorry to interrupt you, sir. FY 2022 and 2023, in that sense, were not a normal year. I am looking at in a, on a pre-COVID basis. Mm-hmm. Your typical write-offs in the first quarter used to be less than or sometimes even negligible. However, you know, we have also, we have also changed our accounting policy a couple of years ago, where we do, we do the write-off every quarter. Earlier, we used to do write-off only once in a year. Once in a half year. Once in a half year, I'm sorry. September. September and March, we used to do, now we do it on a quarterly basis. It may not be right to, like, compare it. No, I think also it's important to understand that, you know, if the gross NPA absolute value had substantially gone up, and then we bring it down through a write-off, then your answer is right. If you look at on an absolute basis, they are in the ballpark of INR 3,700, INR 3,900 type numbers. Therefore, they are not held there or corrected through write-offs and whatever else. I think it's purely by collection, and I think I urge you all to also look at, at a 94% collection efficiency, therefore, you see that each bucket is holding up to that number. If the collection efficiency was much lower and you say, "Oh, there is a correction happening to the bucket," then your conclusion that are you taking some write-off, et cetera, is true. If the collection efficiency are 94%, people don't pay us advances. Advances anyway, don't get into collection efficiency, so they are pure EMI payments. If pure EMI payments come, then you will see that stability of each bucket begins to happen. Got it, sir. Thank you. Thank you. Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead. Yeah, thank you, and good evening, everyone. Again, going back to the liability, liability side of things, just wanted to understand that in addition to the increase in cost of borrowings that we have seen, and obviously, I think everyone is seeing that today, borrowings which are maturing being replaced with higher cost liabilities. In addition to that, there is a lot of volatility that we are seeing on your yield line as well. Is that a function of what you were explaining earlier on the call, the Prime X customer that we are targeting now kind of reflecting in lower yields? Although, sir, without interest income reversals, and like you explained, we have not had much flows in the Stage 3 or the NPA bucket, so unlikely we would have seen any interest income reversals. So what really explains this, that we've not had, I mean, what about 3-3.4% kind of a QoQ growth in the interest income, which is also reflecting in a good decline in the yields? I mean, they will, they I think Vivek or Dinesh will provide you the figure, but I would assume that the 40 basis point dip that you see, 50% of it would definitely be caused by cost of money and the disbursement that would have happened now, the benefits of that will only flow later. If you have a disbursement growth and the proportionate income out of that disbursement doesn't come in, whereas the interest starts to kick in, right? You will see some correction coming through this. You're right, to some extent, the Prime X number definitely will bring that pressure, but that's a conscious call that we have made to be in that segment, because that comes with a lower OpEx and a much lower credit cost, and therefore, they shouldn't affect our ROE going forward. While we may see whatever is the compression of NIMs that you see by a Prime X customer, would be more than offset in the OpEx and the credit cost to lead to a better ROE. Therefore, it's a, with a consciousness we are getting. I also want to confirm to you, of the total book currently, the Prime X type customer would be not more than 10, 12% at this stage. Therefore, they are not going to substantially compress either of the line items there. Whatever we try and pass on as the lending rate increase, the benefit starts to come only little later and easily. They don't come immediately as we pass on. I think you would start seeing change of these numbers as we build the assets in the next three quarters. Got it. Thank you for that, and just one last question. Sir, now, how should we think about, your, your credit costs? Essentially, if I look at this quarter, INR 330 crore of, write-offs, and arguably, I mean, on a declining trend, how should we think about what we call as write-offs or reposition costs or repo costs? Essentially, sir, I mean, is this a trajectory which will kind of continue for the, for the, for the next few quarters? And also, sir, trying to understand, I mean, I think in your SEBI, SEBI release, you talked about, your, your ECL model refresh and, and how you kind of keep moving, taking last, last certain number of months into consideration. So now, I mean, given that, whatever, I mean, maybe 2, 3 years of last data that we consider, are we now kind of getting into a plane where, the base itself can start getting worse in terms of the ECL model? One last question for Vivek, sir. Sir, in terms of your liabilities, how are you posturing your, your MCLR-linked bank loans? Essentially, earlier, when rates were rising, I think most of us, wanted to benchmark our terms, at least 6 and 12-month, bank term loans. How are you posturing your MCLR-linked bank term loans now? Let me first quickly give you the NPA answer. See, last year, if you look at, we started off with some 7.7, close to 8% NPA beginning of last year, that had to come down to a 4.4. You will obviously have a different level of termination, settlements, closures, et cetera. A 4.4 or 4.5 closure of March, if we believe that that has to be held at a 3.5, four type number, they don't come through these kind of terminations and settlement. You should understand that we are almost at a level where the NPAs could be as low as it could be, and it can only improve from here, because we don't see flow forward from Stage 2 to Stage 3, and we are not in the best of quarters. I can give you all assurance that our gross NPA or a Stage 3 number is probably at its best from a first quarter perspective, and no major untoward incident on the ground, we are very comfortable to be in the position that we are in. To bring a correction to this number, we don't have to resort to any major repossession, settlements, and things like that. What we are working on is how do we hold each Stage at Stage 0, 1, 2, and don't allow them to forward flow. Which is where I keep referring to the 94% collection efficiency, which gives us that comfort even. Therefore, be rest assured that you won't see a similar large chunk write-offs or termination like you would have seen in the past when we bring down the Gross NPA from a very high level to a level low. This will all happen by normal method of settlement, recovery, closure, and if the coverage protects, 60% coverage is protecting the write-off, eventually, that is likely to happen through these products, and therefore, you may not see a big hit. Let's for a minute imagine the entire INR 3,000 odd crore of NPAs to be resorted to only by a settlement repossession. Will it not fetters the 40% balance yet to be provided for? I think my answer is clear, yes. That is where the ECL model works well. My last comment would be, as our book composition keeps changing, we will find that the 60% is a higher coverage because we still use a historic data, whereas the current book is not of similar nature, and therefore, one would only see a benefit of this excessive provision going forward. Is the comment I would leave you with, and the liability, I'll ask Vivek to expand it. Yeah. I heard you ask a question around MCLR, but to me, the question was not very clear. Can you please repeat your question? Sure. Essentially, what I'm saying is, I mean, what we've seen, here in, in MMFSL and, and other peers, we typically consider, past data. That could be two-year, three-year, four-year data for the ECL model, and then, then every quarter after quarter, right? I mean, the recent quarter comes into that, the ECL, and then subsequently, the old quarter gets knocked off. Essentially, what I'm kind of trying to understand is, this, this INR 200 crore of increase that we've seen in terms of provisioning, excluding the write-offs. What, what Mr. Iyer was also explaining that at this point in time, whatever provision coverage ratio we are maintaining at Stage 2, Stage 3, when can be that point in time where we can start, seeing, the requirement for a lower provision and coverage ratio on Stage 2 and Stage 3? Now, now I have a better understanding of your question. Probably, we may have to wait for one more year, appears to us. Got it. Got it. Sir, the last question on liability. Sorry? Sir, were you explaining something on ECL? No, no, this will happen in a year's time, right? We are taking a 42 months average when we arrive at this, and therefore, each year book as they run off and the new year book comes in, this will start to show the correction. If you take April 2021 onwards, where we have taken various steps for a better quality book, therefore, 2021, 2022, 2023, as we come to the next year or mid of next year, you will suddenly see this playing out very, very well. You had one more question on that. Sir, that's on liabilities. Yeah, can you repeat that question? Because somehow there is some disturbance. If you can repeat your question. No problem, sir. Is my line clear now? Yes, yes, it is. Line is clear, yes. Sir, what I wanted to understand is, your liabilities book, when the interest rates were going on, quite naturally, everyone wants to posture towards 6 month and 12-month MCLR-linked bank term loans. Now that there is, I mean, I would say, almost certainty of, of stability in interest rates, repo rates, or maybe an outside chance of a, a smaller quantum repo rate hike, how are you posturing your MCLR-linked bank term loans now, with regards to the tenor? No, if your question is that whether we would like to maximize floating rate loans, yes, we would, we would definitely like to take that opportunity. At the same time, we also need to be mindful of our ALM. We'll take those judicious calls from time to time. It will be very difficult to tell me exactly, is there a formula? Yes, there is a broad formula, but we work within the boundaries of the overall ALM that we need to achieve and the opportunities available in the market. As on date, about 38% of our bank borrowings are floating, and in any case, the money market borrowings are anyway fixed. We won't breach the ALM norms. Sorry, sir, my bad. Of the entire borrowing, 38% is floating. My bad. Sorry. 42% of the entire-. Mr. Tibrewal, I am so sorry to interrupt. This is the operator. May I please request you to rejoin the queue for your follow-up question? Sure, thank you. Thank you. The next question is from the line of Sanket Chheda from B&K Securities. Please go ahead. Yeah, hi, sir. Couple of questions. Pardon me if it's repeating. The first one is on your spread. So while we talked about that, maybe 40 bps was out of cost and 20 bps would be out of yield. On your slide number 21, it's the other way around, actually, from the last quarter, there's a 40 bps fall in the yields, and about 20 bps in the cost of funds, which is resulting in about 60 bps of fall in the gross spreads. That's one. The second is that, the cost of funds have been rising since last two, three quarters, for us. While I understand that once we take the hike, it takes some quarter, comes with a lag, but our yield is even lower than last quarter's Q1. So was just not able to reconcile. I think, see, the book also has certain which would have been booked, let's say, three years back at a very different yield, right? As the book matures and you're getting the new book come in, you will see this compression, which will be visible, which should therefore reflect in a credit cost to be not similar to what we had two years back. I think while we should focus on the NIMS, we should also look at how the credit cost is panning out to be, to look at the net result. Which is why I was referring to saying that when we start lending new and at a new rate, even the benefit of it won't happen immediately. That will happen on a cumulative basis. Surely, I mean, don't have an exact number, but then if, let's say, some tractor portfolios have matured over this period, which would have been a much higher yield item, and against that, if you are actually growing an asset which is in a UV or a car, right, therefore, they will be at a different yield. The cost of operation and the resultant credit cost for these 2 products will also be very different. Which is why I said that if you look at depression, which is absolute to cost of borrowing, we will cover for that through our lending rate moment, and the product mix moment by increasing our second-hand vehicle financing, you will see the NIMS improvement. The Primax will still come at a lower yield, but they will also come at a lower OpEx and a lower credit cost. I think that's the way we'll have to look at the overall. Okay, sir. The second question was again on the write-off front. Now, when we say that maybe all the buckets are holding up, the ideal situation would have been if it wouldn't have affected profitability. With the help of write-off, we can keep the NPA numbers maybe same or lower in any quarter, irrespective of Q1. Just wanted to understand, when, when we guide about maybe asset quality or the stress level, then how should we look at profitability in that context? This quarter also, it is not affected by an NPA going up or whatever. It's affected by the LGD change which has come in, and there is an additional provision. No sooner you see the LGD either constant, you will see no further impact. Which is what I was explaining, that as the book of the past matures and the new book of a better quality, which keeps coming in, you will start seeing the LGD climb down, and therefore, the higher coverage that we carry actually becomes a reversal benefit. Even though. So, sir- Be held at that. Yeah. So the LGD, I understand, increasing provision on Stage 1, 2. May I please request you This is the same question. Yeah. Stage 1, 2, 3 provision increasing, I understand that would be out of, say, increased LGD requirement. Out of 526, INR 313 crore is a write-off. Correct. Correct. That is not a new number, right? That if you historically look at that number on a half-year basis, it'd be cumulative of two quarters, except that a year back or so, whenever we moved to every quarter, writing it off. That number is not a substantially new number, and that is from within the NPA pool. It's not outside of the NPA pool number. Correct. Just a minute, Vivek. If you look at the, the trend line on the write-offs over the last 6 quarters, that number has been gradually going down, and I think that is the trend we can expect going forward. Yeah, my limit, limited point was that if you wouldn't have taken that, the NPA would have gone up. Yeah, that's okay. No. yeah, those were, those were my- Sorry to clarify on this. This is a business as usual. Where you're in a lending business, these write-offs will always happen as per the write-off policy of the company. Yeah, but then that narrative doesn't hold, right? That NPA has not, you know... Yeah, but, yeah, no, thanks. That clarifies. Those were my questions. Yeah. Thanks. Thank you. The next question is from the line of Abhishek from HSBC. Please go ahead. Yeah, hi, good evening. My question is on this Tier-I ratio. It's down by about 100 basis points quarter-over-quarter. If we look at a slightly longer period also, it's come down quite sharply. I mean, last year, 1Q, it was 22.8. What is leading to so, you know, such a high capital consumption? The disbursement growth. Last year, our disbursement growth was 80% full year, and in the current quarter, the disbursement growth is 28%. Of course, we have not raised any further capital, so it will reflect in capital. Vivek, the disbursement growth is just 4% QoQ. Will it sort of consume 100 bits? You also have some profits to boost. Payment of the Tier 2, Tier 2 capital. We have so far not raised any fresh Tier 2 capital, but that we can always do. No, no, I'm talking about Tier-I. The 100 basis points QoQ Tier-I consumption. Mm-hmm. Disbursement growth is just 4% QoQ. Risk-weighted assets would have to go up much faster than your, you know, QoQ asset growth. Yes -for that kind of- At the loan book increase, the loan book has gone up 5% on a QoQ basis. It's, it's mathematical, I think. It is, it's really a function of the disbursement and its resultant impact on loan and, and the, and the rundown. The net increase in the loan book. Mm-hmm. There is no other discontinuity. No, it just seems like the risk-weighted asset is growing faster when we are doing relatively less riskier assets. As far as the NPA is concerned, with an asset 100%, unlike in case of banks. would it be operational risk when you- No. Into a new year, would it be? No. The answer is no. Okay. Okay. Yes. Okay, got it. Thank you. Thank you. The next question is from the line of Kunal Shah from Citigroup. Please go ahead. Yeah. The question again on credit cost guidance, okay, and particularly any impact of the maybe the floods in North India, because we have almost like 25%, 30% exposure in the northern region. It's, I think, too premature. We didn't have any collection efficiency dip in North when we look at it as we closed June. Therefore, I don't think that it is caused by that. It's very uniform across. And again, you know, go by collection efficiency. We don't have where we have a states where we have collection efficiencies over 60% or 70%, and somewhere else it is 100%, 110% to lead to 94. I think it's pretty uniform collection efficiency across, so we have not had any jilt. Raul, you want to add anything? Yeah. Just one, Raul, one stretch. Yeah. You're right, there has been a, you know, a, kind of, quite heightened rain in some parts of North India. When we look at a long trend, the discomfort that is caused on a weekly basis or a fortnightly basis, customers are resilient, and maybe they would miss an installment, but it comes back quickly. Yes. These are temporary disruptions, but nothing that gives us worry for a, for a medium term. Okay. Credit cost guidance would be given that, maybe write-offs are almost like half, if we just look at in terms of the run rate, annualize this run rate. Maybe in terms of the provisioning, write-backs could also be limited because we are already at a low level of, Stage 3. Should it be fair to assume that we can still settle at, 1.5%-1.7% odd credit cost? Is there a, a, maybe, it could be higher looking at the Q1 trend? I mean, the See, the only answer we can give is, if Q1 has shown this color, and if there is nothing untoward the next three quarter, we are very comfortable to believe that it's going the right direction. Okay. 1 last question on Mahindra Housing. Again, this quarter, we reported a loss, there seems to have been a good quantum of provisioning out there. Still net, Stage 3 is going up. It's like almost 8.5% odd, more than INR 500 crore odd. Should we expect some kind of a write-off out there and maybe some knock on the net worth, which can happen and further infusion into the Mahindra Housing? I think, you know, all the cleaning that was required based on our on ground has all been carried out, and will now be solved through pure recovery and settlement, and we don't expect anything big to come from there. Okay. Okay, yeah. Thank you, and all the best. Yeah. Thank you. The next question is from the line of Kau Shizan from Scontley. Please go ahead. You may please go ahead with your question. Hey, thanks. Thanks a lot. Yeah, thanks so much for the opportunity. Just on the write-off amount, first quarter, I think, usually is kind of worst season for that. Any rough ball range of, you know, this year's total write-off that we should be thinking about? Any, any ballpark range that would be very helpful. Thanks. If we understood your question correctly, is there any guidance on the total quantum of write-offs that we are expecting for the full year? Is that your question? Yes, sir, that's right. Thank you. Okay. Very frankly, we do not provide any specific guidance on these numbers. If you were to hazard a guess, the current quarter's number is, is probably a good indication. Okay. Roughly, it should be somewhere, quarter year run, it should be somewhere about the first quarter level. Yeah, it should be in that, in that ballpark. I'm talking about the write-offs. Right. Understand. That's, that's very clear. Secondly, on the cost to AUM or cost to assets, you know, so we appreciate that, you know, we're in a good deny asset quality scenario, and we're doing investment phase. How should we think about cost to assets this year versus last year? Again, your voice is not very clear, but did you, did you want to understand cost of borrowings as a percentage of? No, OpEx. OpEx as a% of assets? Okay. Just to assess this year versus last year, how should we think about the ratio here? I understand. Right at the beginning, I commented we are at 2.8 as against 3.something that we closed last year. You know, we are investing in adequate technology, people training, and all of that for a much preparedness for future growth, et cetera, that we have projected for ourselves. We would see a temporary movement up, but stay committed to the 2.5% that we put out as our way forward, while we would see this 2.8 hovering between 2.8 and 3 type numbers. Clearly, you will start seeing a decline of it as the benefit of all those investments starts to flow in. While we are incurring it as a cost, we do recognize that they are not a one-time cost and they are in for much future. Therefore, if one looks at the period for which this is getting done, we are comfortable to believe that, while temporarily some increase may see, but that will start correcting itself. Got it, sir. Lastly, on the margins, the, the cost of borrowing, you know, how much do we expect it to go up further from current levels, you know, through the rest of the year? Any, any ballpark estimate, you know, assuming there's no, you know, RBI rate changes anymore? At this stage, we are only believing that the borrowing cost is not going to come down in a hurry. At the same time, we are confident that I don't think we are expecting any further increase to cost. As our past liability matures and we start getting in new money, it will come at a new cost. That should be more than protected by our increasing lending rate that we are projecting over a period of time. Simple answer would be we don't see a big movement, either reducing costs at this stage, nor are we expecting new borrowings is going to push up our costs substantially. I think we are where we are. Yes, sir. I, I fully understand the, the, the current incremental borrowing cost is not going to go up anymore, right? I'm just wondering, the average current book borrowing cost, the cost of funds, how to... I mean, it will fully reprice to our incremental front, front-end kind of borrowing costs, right? How much difference is it, the incremental borrowing cost versus our current cost of funds? Yeah, that's what I think he tried to answer. The incremental borrowing cost is, is not likely to be higher as compared to the, the current, the cost at which we are borrowing currently. What's our average cost? No, sir. Because our average cost now. Sir, I am so sorry to interrupt. May I please request you to rejoin your, the queue for your question? Thank you. I'd like to remind all participants to please limit your question to two per participants only, as there are many people waiting for their turn. The next question is from the line of Shweta from Elara. Please go ahead. Thank you, sir, for the opportunity. Two questions. One is if I look at the disbursement next, why has there been decline quarter-on-quarter on the SME side? No growth. Yeah. The question is, is there a, is there a quarter-on-quarter reduction in the SME book? Is that your question? Book or disbursement? Disbursement. The disbursements have grown. The book is a bit flattish over Q4. The reason is because. Sure. you know, we had the matured book, which is running off much faster. We had some lumpy loans which are running off. Otherwise, when I look it on a disbursement, we have factored in a 50% growth, and in Q1, we have achieved close to about 45% of that, you know, YOY. The flattish book is largely because of run-off, but otherwise, from an incremental growth, we are doing well. Okay. The next question is, why there is sequential surge in repossessed assets quarter-on-quarter? Your question is not clear. Is the question around repossession? Yeah. Why have they increased quarter-on-quarter? No, when it comes to the year-ending, clearly what happens is we do sell more vehicle, the number of vehicles repossessed in each quarter would not have gone up. Just the stock would have gone up because we start with a much lower stock as we do the cleaning for the year-ending. It's nothing more than that. Okay, that helps. Thank you. Thank you. The next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead. Yeah, hi. thanks for taking my question. sir, I just have one question. One is, clearly the- Sorry, sir, if you're on a mobile, we can't hear you. You're... Mr. Umang Shah, may I please request you to use the handset mode while speaking? Looks like we've lost the line for the current participant. We move on to the next question from the line of Nishchan Chawathe from Kotak Securities. Please go ahead. Hi, thanks for taking my questions. Just one or two small questions. Have you raised lending rates for new customers during the quarter? This quarter? Yeah. I think not all products, but some select products, there has been a very. S mall increase? Yes, yes. We, we have passed on a marginal increase. If you look at Q1 versus Q4, we've been able to pass on a marginal increase. We don't want to give any forward guidance because, as you know, it's becoming a very competitive market, and in Q2 and Q3, as the festive season unfolds, we will have to be competitive. You know, on one side, we are growing the prime segment, and on the other side, I guess, you know, this quarter we saw a fair amount of increase in pre-owned vehicles, you know, ratio on, on, on AUM. Just trying to understand, you know, keeping the incremental or whatever rate hikes aside, from a portfolio mix point of view, are we really shifting towards lower yield assets or are we shifting to higher yield assets? While we have our prime segment coming in, we have clear upper limits on how much will it be as a% of our incremental sourcing. We are conscious of, we have given you guidance on what kind of part to be at. Clearly there is no drastic shift away from our core business, which is the Earn and Pay customer segment. As diversification requires us to also cater to a new customer segment, we have, you know, specific vehicles to deliver and to attract that customer segment. We have upper limits in terms of what that means as a% of our incremental sourcing. Does now the growth in pre-owned sort of offset any threat or any... Little louder, we're not able to hear you clearly. -now does it mean that, you know, faster growth in pre-owned will sort of offset any compression in your, you know, because of the prime segment? Yeah, that's the objective. And you would have heard Mr. Iyer, talk about the aspirations to grow. In fact, you would also see pre-owned vehicles is 17% of our incremental sourcing, and we are looking at, growing that segment. Just very quickly, you know, your growth in operating expenses was in single digits this quarter. You know, does it continue for the year, or would you kind of see it coming closer to the 10% on growth that you're doing? I think a while ago, Mr. Iyer talked about it. In the, in the first quarter, our ratio is 2.8%. We expect it to inch up closer to 3% for the full year. Perfect. Thank you. Those are my questions. All done. Thank you. The next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead. Hi, am I audible now? Yes, sir, you are. You may please go ahead. Sure. Thank you. Sir, I just have one question. Given that, the outlook is looking fairly benign and collection efficiencies are kind of holding up, all else being equal, how confident are we that, we should be able to close the year with NPL levels, lower compared to last year, and credit costs also remaining in the similar range? Or, or, or are we looking at credit costs being higher compared to what we have seen last year? You know, in first quarter, NPL or GS3 is lower than fourth quarter of last year. For a model like this, which is for the first time it's happened, I think, I repeat myself, if there are no unknown major disruption in the market, we don't see anything very different, unlike in the past, where third and fourth quarter has always been good and they would remain good. That's our belief, therefore, we are happy with where we have ended for this quarter. Sure. The credit costs also then should remain fairly range on compared to what we have seen last year. You should look at it as follows, right? If there are no new NPAs built up and the existing NPAs are provided for sufficiently, then you know the outcome. Okay, great. Thank you so much, sir, and wish you good luck. Thanks. 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. Yeah, thank you very much, Carol. Mr. Iyer, any closing remarks before we conclude? I think the only closing remark that I would make, hearing from all the questions, is clearly we are relooking at our product mix and want to focus, and we are able to reach traction on the pre-owned vehicle, which will improve the yield and therefore will lead to improving or protecting the margins going forward for sure. We don't see borrowing cost going up beyond where we are, and therefore, the compression coming from the borrowing cost to compress the NIMs any further is not our way forward look. Three is, if Stage 2 is holding up where it is and Stage 3 is showing correction, and having provided for 60%, the uncovered portion of the current NPA pool is only INR 1,500 crore. Whichever way we may want to solve, by collecting, by repossessing, by selling, disposing, it will not be more than that number for sure. As we see more collections there, I think. First quarter has reflected that with the collection efficiency also holding up. We see for ourselves the next three quarters to be showing the trends better than what we have seen in the past year. The disbursements are holding up, and therefore, growth is something that we are comfortable and confident about, in spite of whatever be the competition. Overall, from our perspective, we believe that what we have seen the previous year, after all the correction efforts that we put the year before, is all yielding results and re- yielding results in the right direction. Thank you very much. We conclude this conference. Thank you all for joining us. You may now disconnect your lines. Thank you.