Good morning, ladies and gentlemen. Welcome to the Shriram Transport Finance Company Limited Q3 FY 2022 earnings conference 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 the operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Umesh Revankar, Vice Chairman and Managing Director, Shriram Transport Finance Company Limited. Thank you, and over to you, sir. Yeah. Thank you. Good morning, friends, and good evening to those who have joined from the western part of the world. A warm welcome to all of you who have joined this call. I hope all of you are healthy and safe. Today, we have our Joint Managing Directors, Sudarshan, Sridharan, Nilesh, Sunder, and Parag, along with me and Mr. Sanjay, who is our IR Head. Friends, let me first go through economic updates, then let me come to the results. India saw rising economic activity in October and November on the back of decline in new COVID cases. However, the emergence of new variant led to some restriction, including night curfew in some cities towards the end of December. However, a heartening feature of the third wave is a lower serious hospitalization and fewer casualties. This led to very mild restriction on people and vehicle movements in January 2022, which have not majorly impacted the overall economy so far. New cases have been decreasing in the major cities like Mumbai and Delhi for the past few days, pointing to better days ahead. The government announced several policies to support Indian economy in regaining the momentum. The excise duty on the fuel was reduced to curb inflationary pressures. The central government announced relaxation of additional market borrowing by states equivalent to 0.5% of their gross state domestic product for strengthening their CapEx spend. INR 20,900 crore was released under PM-KISAN scheme to boost the rural economy. The RBI continued to come out with positive statements and initiatives. RBI introduced a PCA framework for NBFC, which will come into effect from October 2022. We at Shriram Transport are currently compliant with said norms and will continue to be within the norms even after our proposed merger with Shriram City Union Finance. As a result of all above factors, we continue to expect Indian GDP growth to cross 9.5% for fiscal 2022, in line with RBI estimates. In line with same, several economic indicators were positive in the past quarters. The PMI increased from 53.7 in September to 55.9 in October and 57.6 in November, before slightly moderating to 55.5 in December, hence remaining above expansion mark of 50, reflecting sustained stable demand. The index, the IIP was slightly up, being 4.5% and 1.4% in October and November, reflecting national recovery. The GST collection continued being INR 1.3 lakh in October, INR 1.31 lakh in November, INR 1.29 lakh in December. That's up to 24%, 25%, and 13% respectively on year-on-year basis. Coming to the auto industry, commercial vehicle sales marginally increased to 194,712 units in Q3 against 193,034 units in Q3 2021, and higher compared to 166,251 units in Q2. The heavy and medium commercial vehicles, which indicates the robustness of the economy, showed positive growth with 60,349 units against 49,473 units same period in the previous year. LCV numbers were flat year-on-year basis, but showed a good demand all over the geography. Coming to Shriram's current quarter's performance. We clocked a disbursement of INR 15,489 crore, including INR 574 crore towards new vehicles and INR 14,820 crore towards used vehicles, compared to the total disbursement of INR 12,606 crore in the previous year. AUM was INR 124,602 crore, compared to INR 114,932 crore in the previous year. Net interest income was INR 2,388 crore in Q3 against INR 2,148 crore in Q3 last year, an increase of 11.17% year-on-year. Net interest margin was 6.65% against 6.44% in the previous quarter due to improvement in cost of funds. The profit after tax was INR 681 crore in Q3 compared to INR 728 crore in Q3 previous year and INR 771 crore in Q2 current year. Earnings per share stood at INR 25.26 against INR 29.54 in the previous year. The collections were consistently good in the months of October, November, December. It was 102.32%, 100.14%, and 101.06% of the total demand respectively. Collection for Q1, Q2 and Q3 were 91%, 99%, and 101.17% of the demand respectively. The gross Stage 3 NPA stood at 8.4% compared to 7.11% in the previous year and 7.82% in Q2 FY 2022. The net Stage 3 NPA stood at 4.36% compared to the 4.31% of previous year and 4.18% in Q2 2022. There was an 8% increase in gross Stage 3 and 47 basis- point increase in net Stage 3 due to revised norms, revised process of NPA classification based on RBI circular dated November 12, 2021. Had the company followed earlier method, the profit before tax for the quarter and nine months ended December would have been higher by INR 354.75 crores. Our liquidity position now stands at INR 17,319 crores against INR 17,228 crores in the previous year. The Board has suggested us to continue with higher liquidity due to COVID wave three. We still are confident of double-digit growth for the full year as we see a good credit demand coming in the fourth quarter. The cost-to-income ratio was 19.70% in the quarter. We are likely to maintain the same for the rest of the period. We added nine branches, which now stands at 1,834, and in terms of employee strength, we added 362 new employees through business associate method. During the quarter, company has not considered any additional credit loss for COVID, and so far we have done INR 2,852.50 crore of the total provisioning. On the external front, we have applied to all concerned regulators on the merger front. The credit rating agencies are already updated. Mr. Parag would give you updates on the rating and new fund raise and on cost of funds. Parag, please take it away. Good morning. I'll cover up on the liabilities front first. One is the mobilization for the quarter has been similar to the mobilization in the previous quarters with securitization, as indicated earlier, closer to INR 5,000 crore level. That's INR 4,800 for this quarter, which includes assignment transaction of INR 500 crore. Rest of the sources are retail deposit, domestic bonds, and bank borrowings, which is almost INR 2,500 crore level each. On the overall liabilities, the cost has come down by 11 basis points for the quarter, and if you compare with March 2021, it has come down by around 50 basis points. We do expect some benefit on cost of funds to be there for coming quarter also. There could be some reduction. On the liquidity buffer already indicated, we are carrying INR 17,300 crore of liquidity buffer. Maturities for next three months, which includes a dollar bond repayment in February, is INR 14,000 crore. In January, we have already raised a dollar bond of $475 million, which will take care of liquidity to be maintained at higher levels. Post-March, we will review our liquidity position and try to reduce it if situation is normalized. On ALM front, we continue to have all buckets positive, and up to one year, the cumulative surplus will be around INR 16,000 crore. HQLA is 165% against statutory requirement of 50%. On rating, I think, post our announcement, we reached out to all rating agencies, including international rating agencies, and all rating agencies have given a stable outlook for Shriram Transport, considering the merger which will be there after eight or nine months. I think I'll hand over to Sunder now. Hi, everyone. On the employee front, around 95% of our employees have been vaccinated with at least one dose of COVID vaccine, and close to 25% with both the doses of COVID vaccine. Coming to the provisioning part, as you're aware that RBI had come out with a clarification circular on November 12, 2021, wherein there were two major factors impacting the financials. One was the upgradation of NPA assets into standard assets only on recovery of the entire overdues, which Shriram was anyway already compliant, and we did not have any impact on that count. The second component was the daily stamping of NPAs, which the company was earlier doing on a quarterly basis. Now, RBI had stipulated that it should be done on a daily basis, which the company started following effective November 12, 2021. Due to which there has been an increase in the NPAs to the extent of INR 946 crores. Had we not followed that earlier, had we followed the earlier method, the profit would have been higher by around INR 354.75 crore because the provision would have been lesser. The Stage 3 and NPA both currently are at 8.4% as against 7.62% had we followed the earlier norm. We have increased our coverage to 50.26% as against 48.57% in Stage 3, primarily because due to an increase in the management overlay. The LGD continues to be at 43%. It was at 43.1% in the previous quarter. Stage 1 assets were 79.99% as against 79.39% in the previous quarter. Stage 2 was 11.16% as against 12.19% in the previous quarter. We are maintaining an excess coverage over and above the RBI requirement to the extent of INR 6,541 crore. The share of profit from our associate, Shriram Automall, was INR 5.4 crore in the current quarter. With this, I have covered most of the data points which have been noted by CFO and CEO. Yeah. I will throw it open for Q&A. Thank you. Ladies and gentlemen, we will now begin with the question- and- answer session. Anyone wishing to ask a question may please press star and one on your 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 settles. The first question is from the line of Abhiram Iyer from Deutsche CIB Centre Private Limited. Please go ahead. Hi. Thank you for taking my question. First, what I wanted to ask was a bit more clarity on the higher provisioning and the difference in Stage 3 assets due to the RBI circular. You mentioned that this is primarily due to, you know, daily recognition versus what the company used to do on a quarterly recognition. From a, from the company's perspective, the results are still announced on, you know, the end of the quarter, the 31st December. It doesn't matter if you're, you know, what you recognize as NPAs on 30th December or 31st December, because ultimately, it's a point in time. Could you just explain the mechanism on how exactly, you know, this contributed to an increase in the Stage 3 assets? That's question one. Question two was primarily around delinquencies. Could you just let us know what's the sort of percentages of 0-30, 30-60, and 60-90 delinquencies, and how this is compared to, say, the previous quarter? Coming to the first question, I'll just give you an example. Supposing there's a due date for a customer on 5th of December, and he skips the December 5th due date and makes the payment of that particular installment on, say, 7th of December. On 7th December, he is at the 60-day bucket. On 5th of December, he had fallen into the 90-day bucket. As per the earlier recognition norms, as on December 31st, since he was at the 60-day delinquency bucket, he was not treated as a Stage 3. However, now RBI says that you need to do a daily stamping at the end of day processing, b y which this particular borrower has been classified as an NPA on 5th of December, and he will be continued to be classified as a sub-standard asset till he repays the entire overdue. There is an impact on the financials and also the Stage 3. Got it. Got it. Thanks for the explanation. When it comes to the bucketing, Stage 1 is close to 80% and Stage 2 is 11%. Stage 2 is 11%. Stage 2 is 11%, yeah. This is primarily— I can see Stage 2 seems to be lower than previous quarters. Could you sort of help me understand, is this because the loan quality of the assets has been going up, the loan quality of the borrowers as well? No, see, one is the collection has been good, and second is because of this new RBI rule, some of these otherwise what would have been Stage 2 would have gone Stage 3. Had it not been followed, it would have remained in Stage 2. Noted. Noted. Thanks a lot. I'll get back into queue. Thank you. We'll move on to the next question. That is from the line of Rikin Shah from Credit Suisse. Please go ahead. Good morning, sir, and thanks for the opportunity. Had three questions. First one was more on the business front. Just wanted to understand overall capacity utilization levels for your customers and how the freight rates have moved vis-a-vis the fuel costs. That's one. Second, more related to the margin. If Parag could help with the incremental cost of funding and the overall cost of funding, that would be helpful. As an extension to that, the liquidity buffer that we are carrying, which is around INR 173 billion, earlier we used to articulate that we would start trimming and, while, you know, COVID third wave is milder than expected, just want to get a sense as to what level we can kind of come down, starting from April 1. The last question is on the asset quality. While I understand that you may have to keep Stage 3 coverage to keep the net NPAs below 4%, but is there a scope to bring down the coverage on Stage 1 and 2 loans, which is around 130 basis points above the pre-COVID levels, at least as per my calculation? Thanks. That's all from me. Yeah. Thank you. I'll cover on the business front, then I'll hand over to Parag. See, as far as the credit demand or freight rates are concerned, both are good. In fact, idling of the vehicles are minimum now. The retail prices are better. The fuel price has come down because government had reduced certain duties, so it has come down by around 10%, and that really helped the customers. The new trend is people are also moving actively into CNG, either a fully built CNG vehicle or putting a CNG kit on the vehicle. This is seen in the area where CNG is available, not across the country. The CNG availability is mostly in the western corridor, West Mumbai to Delhi corridor. Rest of the place, the CNG availability is not strong. Government has promised to add 6,000 more CNG pumps across the country, thereby the viability of the customers will be much better, those who are owning a CNG vehicle. Because the price difference is around 35% between diesel and the CNG will be less by 35%. That is the way the business may move, so people may get into CNG. Business is very viable and the business is available throughout the day. As far as the credit cost or the Stage 3 is concerned, when the RBI circular came, first, when we had a first cut at the end of November, it looked as if the Stage 3 will move up by 120 basis points. As we started communicating with the customers and our team about the change in the norm and making the customers realize that they will move to Stage 3 and they need to pay earlier, then by December end, the overall increase in Stage 3 came to around 80 basis points. With this exercise, we are confident that by next quarter end, the Stage 3 will improve by another 80 basis points-100 basis points. That means from 8.4%, we should be able to bring it down to around 7.5%-7.6% level. It's basically communicating to the customer because many of the customers, they, even though they know the due date, they may pay one or two days late, not realizing that it is going Stage 3. This communication is something which we are trying to make it clear to the customers. I feel we are very confident because market is good, business is good, the viability in the business is good. We should be able to reduce significantly by the fourth quarter. As far as the provisioning is concerned, we will look into our the, what you call, the, what is that called— [Eight one one]. The Stage 2 and the Stage 3 at the end of quarter four because normally we do it annually. This exercise we'll be doing and we'll rework on the same. Okay, thanks. Just on the funding cost and liquidity open. Parag. Blended cost of whatever we have raised for the quarter will be around 7.25%. With the overall cost at the end of December being at around 8.45%, which used to be close to around 8.97%, as of March end, March 2021. When it comes to liquidity buffers, yes, we used to carry around three months of liquidity requirement and if we go back to those levels, the liquidity requirement will be around between INR 9,000-10,000 crore. What we are currently carrying is more than INR 17,000 crore. I think this is the two questions. When it comes to the reduction I was talking about between September and December quarter is around 11 basis points. It was 8.56% as of September end, and it is 8.45% now. Incremental cost is between 7.25% and 7.5%. Okay, thank you. Thank you. The next question is from the line of Sanket Chheda from B&K Securities. Please go ahead. Hello. Yes, sir, my question was on, particularly write-offs. First, what was the amount of write-off? On the back calculation, suggested it was around INR 450 crore. We had a total improvement of about INR 2 billion. In a way, if we put Stage 3 and Stage 2 and compare it to last Stage 3 and Stage 2 in the new method, but the write-off was even higher than that. The comment you made that, earlier you accepted 120 basis points and later it went down to 80 basis points, it seems that it was higher either i f the write-off was taken Stage 3 or even it was taken from Stage 2, the overall system was still higher and there is no improvement per se even the collection, even if the collection efficiencies are going up. As a total pool from Stage 3 to Stage 2, there is no inherent improvement if we include the write-offs. The total provision on write-off in the current quarter was INR 984 crores, out of which write-off that is written off on settled contracts were INR 453 crore and the balance INR 530 crore was allocated to the provisions which we have made. On account of the change in norms, it was INR 354.75 crore. The balance, even though there was a write- back because of dip in the quarter- on- quarter pre- RBI circular by close to 20 basis points. It was 7.82. It came down to 7.62 as per the earlier norms. Technically, there would have been a write back but management had prudently taken an additional management overlay and that increased the total overall provision to INR 530 crore, t hat is the reason. No, no. My question was if the write-off was INR 450 crore then there was no inherent improvement or, the thing which we are saying that the impact was 80 basis points, maybe it was more, but it looks less, because of the write-off statement. The write-offs— Is that right? No, no. See, write-offs have been, if you analyze each quarter's number, there will be a write-off of close to INR 350 crore-INR 450 crore quarter-on-quarter and those are attributed to the settled contract during that particular period. Further if you analyze it, around 40% of the total write-offs are contributed by the performing standard assets, wherein the company gives certain waiver of interest as a goodwill gesture and to retain the customers for repeat business. That contributes to 30%-40% of the overall write-off. The other write-off which we take is on account of cases which are Stage 3 and if you see the historical LGD, it is in the range of 30%-40% because of COVID. Now it is elevated, but that is what is the percentage of write-off which is required for an asset to be settled when it is Stage 3. These have contributed to that. Having said that, we still maintain that post-COVID we have seen a marked improvement in the collection figures as stated by our MD earlier also. It is now 101% in the current quarter as against 98% and 99% in the previous quarter. We see an improvement in the collection and we are confident that going forward our NPA levels will further come down. Okay. Sure, sir. One thing on this disbursements, now we have done almost a similar kind of disbursement what we did in last quarter and even in Q4. Whereas, the tailwinds due to some festivities should have been reflected with slightly higher disbursement number coming out. So, how do you look at it, which looks a muted response. If we do a correlation what kind of disbursement they have seen in terms of quarter-on-quarter? And how we are sure that we will comfortably achieve our double-digit growth by the end of Q4? Just shed some light on that. Thanks. Yeah. See, we are seeing a little more bigger demand for new vehicle and bigger ticket size than a heavy vehicle. That will give us a little momentum on lending. Volume will definitely be higher compared to Q3 because of the bigger ticket size and the new vehicle demand and the heavy vehicle and including construction equipment. We expect that the budget will be focused on infrastructure and therefore there will be immediate demand for infrastructure- related vehicles and equipment. This is the expectation. AUM growth as of December is 8.41%. We're still aiming at double digit. We may be little short of double digit, but still the fourth quarter will be quite big. That's what I can say. Oh, sure sir. Thank you. Thank you. The next question is from the line of Radhika Lohia for Mirae Asset. Please go ahead. My questions have been answered. Thank you. Thank you. The next question is from the line of Vikram Subramanian from Spark Capital. Please go ahead. Hi sir. My question is regarding Stage 3 provision cover and LGD under the new norms. You have provided provision analysis in the presentation where you have given Q3 FY 2022 Stage 3 and all asset quality parameters both on the old norms and new norms. Under the earlier norms, your provision coverage remains at the same 48% as in Q2, but under the new norms it's increasing to 50%. Why would that be the case? Because LGD should remain ideally the same, or in fact even improve given that you know the increase Stage 3 under new norms is just because of daily stamping. Probably they are a slightly better quality customer than the normal NPAs. Why would the PCR, basically PCR, increase? Am I missing something here? We reassess the LGD on a yearly basis, and the next review is due in the month of March 2022. Having said that, our LGD has remained more or less constant but for that across the product some variation. If you recall the previous year, previous quarter LGD was 45.10%. Now it has become 45%. It has improved in fact by 10 basis points based on the product allocation. Answering your specific question of the increase in the coverage, as we had mentioned in the start of the call itself that we had taken an additional management overlay to ensure that the Stage 3 remains under control. Our target, which we have been indicating earlier also that we want to be less than 4% as on March 2022, and hence to achieve that, management is taking additional coverage over and above the LGD requirement. Hence it has crossed 50% in the current quarter. Okay. Got it, sir. I just asked that to, you know, assess if we are expecting some kind of sticky credit losses or NPAs from the daily stamping moment. One other additional question. The impact during this quarter due to the new norms is close to INR 350-odd crore. Why couldn't we have had drawn it down from the existing management overlay? We could have done that, but that would have ensured that our net NPA was closer to 4.5%, which we didn't want to do it, and hence we had taken an additional management overlay over and above that. See, our objective is to reduce the net NPA to 4% or less by March 2022. To achieve that, we need to take additional management overlay. Okay. Got it, sir. Just one last question on the you had mentioned you had reached out to the credit rating agencies post the merger announcement and all of that. What has been the feedback, if any, from them regarding the merger and how they view it? The rating agencies are, I think, they are okay. In fact, one of the things, rating agencies will definitely like to have diversity of assets which can be achieved by this merger. We will have multiple assets that cyclicity of businesses is addressed through, you know, diversity. That should be positive for the rating agencies. Other than that, because of the size of the entity which is getting merged is relatively small, there are not much of concerns from the rating agency point of view. In fact, the entity Shriram City Union Finance which is getting merged was rated one notch lower and now all the rating agencies have put that entity on a rating watch positive. They are more or less all rating agencies are okay with the numbers and the merger balance sheet how it will look like. Other than that, no concerns from rating agency point of view. Okay. Got it, sir. I just asked because there is, you know, identifiable promoter stake is slightly reducing after the merger. Has there been any feedback on that? That was what I wanted to know. No, there's no mention of that. Rating agencies are more looking at the business viability and the overall asset quality. They normally don't comment on the owner's equity holding. The robustness of the business is what they are focused on. As Parag rightly said, they are more comfortable with multi-product business than a monoline business. Monoline business, due to cyclicality, they feel there are ups and downs. That's the comfort they derive out of the multi-product company. Overall, they are quite positive. Got it. Okay, sir. Thanks for taking my question. Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead. Yeah. Hi. I have comments on the quarter. I just have a couple of questions. Firstly, has the portfolio composition of vehicles changed in the past two years? As in, you know, have you moved to higher- tonnage vehicles within the HCV segment? So that's my first question. The second one is, out of the 2 million customers on book, how many of them are taking a loan from Shriram for the first time? And has this ratio changed over the past few years? So that's it from my end. See, if your composition of vehicles, depending upon how the new sales happen, it keeps changing. For example, the capacity of the vehicle has been increasing over the period. Earlier 10-wheelers, which carry around 70 tons was the largest vehicle. Now, with additional tonnage being allowed, 15% additional tonnage being allowed, a 54-ton gross, that is going to be the— which carries around 42 tons. That is going to be the vehicle. If you look at the new sales, most of the new sales are happening at 16-wheel vehicle, which are earlier 49-ton, now 54-ton. The capacity or the size of the vehicle is increasing. Accordingly, our portfolio also keeps changing a little. Even in the ICV segment, earlier the maximum carrying weight would be around 7.5 tons. Now, ICVs, they carry up to 9.5 tons. Today's ICVs are nothing but the earlier MCV, that medium and heavy. There is a change in the way products are changing. Therefore, there is some movement in our portfolio. The ticket size and the vehicle is changing. The second thing, Sir, if I may just stop you here. This should happen for us with a lag of five, six, seven years, right? If it's happening now, maybe in 2027, 2028, we get that benefit of migration of tonnage. Also after the axle load norms, would we have not seen the tonnage going down rather than up for vehicles? Because now you can carry more load on the vehicles. I'm a bit confused here. No, no. See, you are right. What happens is, when I'm saying it, the vehicle carrying capacity has gone up. It is not that after five or seven years, we get to finance huge vehicle. Sometimes it comes within second year or third year. If ownership changes, because if somebody is taking a loan from a bank and if ownership changes there, then for that second-hand vehicle, we need finance. Vehicle can come to us in the second or third year also. We also finance new vehicles. It's not that we don't finance new vehicles. As far as the tonnage is concerned, you are right. The tonnage is not coming down. Tonnage is only increasing. People are preferring more and more heavier vehicle because of the fuel cost. As the fuel cost goes up, the people prefer to carry on the larger vehicle, because if you carry 30 tons or 45 tons, the fuel cost is going to be same. Preference would be to take the heavier vehicle. Understood. The other question on customers on the book? Customers on? Out of 2 million customers that we have— Yeah, yeah. How many are existing and how many are taking a loan from Shriram for the first time? See, it remains 30%-40% of the customers will be always new, and rest of them will be repeat customers. When I say repeat customer, people who have one vehicle will buy a second vehicle or he will upgrade to new vehicle. No customer will remain in the same segment throughout. He'll keep upgrading or keep adding. The new to Shriram would be around 30%-35%. This has always remained stable-ish? It depends. Depends when there is credit growth, expansion is very fast. When economic growth is very fast, then the new customer would be around 40% because more people will come into this business and more —maybe drivers would like to upgrade into new vehicle because of the new being owner, because of the opportunity that creates. It's basically the difference is the how the economic activity is. Current level, it's 30%-35%, but when economy revives fully, it can be 40%. Okay. Okay, perfect. Sir, if I may just squeeze in a last question for the CFO. Just wanted to understand what percentage of bonds or proportion of bonds are maturing in FY 2023 and at what interest cost? Maturity. See, roughly around, on maturities, three to four years. We have total bonds outstanding as of now of close to around, INR 20,000 crore. One third of which will mature in the current year, in 2023. Cost-wise it will be around 100 basis points more than what we are borrowing as of now. Got it. Okay, sir. Thank you so much. Thank you. The next question is from the line of Gaurav Kochar from Mirae Asset. Please go ahead. Yeah. Hi, good morning, sir. Thanks for taking my question. Just wanted to understand on this RBI daily stamping norms, how does it impact the BAU slippages and credit costs therein? I mean, whatever you've provided is a one-time reset for the existing book, but going forward, given that, you know, this has to be continued, do you see any sort of impact on slippages and hence credit cost? See, whatever is the RBI norm, whether it is 180 days or subsequent single norm of 90 days now coming to the daily stamping and all that, it will have a momentary impact on the financials. Historically, if you see, our credit losses have been around 2%, so which in the long-term averages we are confident that we will be achieving the same. Okay. In that backdrop, I mean, I think, Umesh sir commented that we would like to bring the Stage 3 down to 7.5%, 7.6%. So, will it be driven by write-offs or you expect to recover from existing Stage 3 customers? See, we expect recovery from Stage 3 customers. As the collection efficiency has improved over the last couple of quarters, we are confident that the Stage 3 will automatically come down and the daily stamping also, since it has been sensitized to our business team as well as the customers in turn by them, so there will be a natural reduction in the gross NPAs in the next couple of quarters. See, for example— Okay. If somebody has a due date on 5th of the month and earlier he felt that he has the time to pay it. There would have been some relaxation within his attitude to pay, where he can use that money for something else. Now, when we communicate to him that it will be stamped as Stage 3 account, then he would rather pay before the due date or on due date rather than delaying it. It is only the communication that is what is important. Since we did not have much time when RBI came out with the clarification, we could not communicate. As I was telling you, our earlier estimation was around INR 120, then it has come down to INR 80, and we feel that it will come down further. When it comes down further, we have another two months to go rather, by March 31st. We should be able to bring down to around 7.5%-7.6% level. Okay. Understood, sir. Sir, next question is on liquidity. You know, just extending from where Rikhin left, the liquidity seems to be high. So any plans to trim down the liquidity levels? I think earlier you talked about trimming it down post September, but in December it's still at elevated levels. So any plans of trimming that down, given that the impact of the third wave is not very high, you know, by fourth. Just wanted to understand your thoughts on the excess liquidity that you're carrying. Definitely, yes, we would like to bring it down. But this time the board members felt that it is better to be cautious and wait for the impact of third wave to be seen. Till March we will continue with same, but post-March definitely we would like to bring down the high liquidity levels, so that, you know, there is a positive impact on the net interest margin. As Parag briefed you, our cost of borrowing is also coming down quarter-over-quarter, so that's also positive for us. Right. Understood, sir. Sir, my last question is with respect to Stage 3, the total that you have quoted is 8.4%. How much of this would be, say, less than 90-day DPD? I mean, I understand that some customers would have paid EMI on a delay, some customers would have been 60+, but because of daily stamping, they're still marked as NPA because they need to clear all three EMIs. What portion of Stage 3 would be 90 days or less than 90 days overdue? That is INR 956 crore. That is nothing but in the provision sheet, if you see, the difference between the INR 10,000-odd crore and the next column. It is INR 956 crore, which are— Okay. Less than Stage 3, but they have been classified as Stage 3 because of the daily stamping. Okay. Sure. Sure. Yeah, that's it from my side. All our lending is against the asset, so we have underlying asset. As Sunder rightly put it, the net credit cost for us over the period will not be more than 2%. Temporarily for a technical reason, it will go up and then may come down. What we need to see is the business model. The business model will tell you over the 10 years that our credit cost in the business model has been 2%, and it will remain around that. Sometimes it may go up and down because of a technical reason and because of some new way of looking at the NPA. Understood, sir. Just to get, I mean, for FY 2023, your credit cost guidance remain at 2%. That hasn't changed because of the RBI norms. Yes, yes. It will not change. We are confident that it will be around 2%. Okay. Great, sir. Thanks a lot and all the best. Thank you. The next question is from the line of Raja Kumar V, an individual investor. Please go ahead. Yeah. Thanks for the opportunity. Sir, I have a couple of questions. The first question is, on the— Mr. Kumar, sir, we are not able to hear you clearly. Yeah. Can you hear me now? Much better. Thank you. Yeah. Thanks for the opportunity. I have a couple of questions. The first question is on the tie-up with Ashok Leyland. One of your subsidiary had tied up with Ashok Leyland. I just want to know what benefits Shriram Transport is going to get, you know, particularly with reference to the scrappage policy. The second question is, I also see that the resale value of the trucks have gone up because of the, you know, increase in steel. Just want to know how Shriram has benefited in terms of, you know, sale of the repurposed vehicle. It's possible if you can give me the value of repurposed vehicles at the end of December. Yeah. See, the Automall has signed an agreement with both Ashok Leyland and BharatBenz. There are two points there. One is the unsold vehicle of the previous year, which would be sold in the market, and that is one. Second one is, if they have an exchange vehicle, if their dealers are in exchange of a vehicle, selling new vehicle against the used vehicle. These two stocks remain with either a dealer point or at the manufacturer level. Shriram Automall is helping them in selling those vehicle. Shriram Transport will get benefit. If documentation is clean, then we should be able to fund that vehicle. There is an understanding. Wherever the sale happens, Shriram Transport executive will reach out and assess the vehicle and give his estimation of finance that can be given. That is the arrangement. The second one is the resale values have definitely gone up, as rightly put it, because of the steel value going up. As scrappage value has gone up. It has gone up by around 20%, and in some cases it has gone up by around 30%. It depends upon the kind of the steel content in particular vehicle. Resale values have gone up, which helps us in our portfolio quality. That means our underlying asset has much higher value than the outstanding amount. That helps us even in the trade cost. If at all we have repurposed and sell, the loss will be minimum. Okay. Thank you, sir. Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead. Hi. Am I audible? Yes, yes, Nischint. Yeah. Hi. Just wondering, you know, the excess provisions that we made this quarter, you know, most companies and auditors would kind of opine that, you know, this change or this post of clarification from RBI on the NPA classification, it should not have any impact on the overall credit cost or, you know, the ECL should broadly be neutral. With that kind of a logic, is it fair to say that, you know, the extra provisions that are kind of reversed in the next quarter? When you will be basically resetting or reviewing your, you know, long-term LGD and PDs. Every year, in March we review our LGD. Definitely, we will really look at it at that time. That's one. The second, you are right, that this is more of technical and not actual. So, what we said is it's easier to maintain one set of you know books rather than trying to keep it two separate sets, one as per the RBI requirement and another as per our normal accounting requirement. So therefore, we try that it is better to have a straight line thinking. That's one. Second one is, the what I would like to say is, the credit cost over the period should not change for the company. There's a temporary increase because of this, and therefore, maybe two quarters from now, it will all come down to the regular level. The point is that, you know, if the PDs and LGDs are reset, then in all possibilities, you know, you will see probably a reversal of this amount. Because technically this is supposed to be an ECL neutral, you know, I mean, this has to be kind of ECL neutral. That's the point I'm trying to make. Yeah, it will reverse over a period of time. Agreed. One more, Nischint. Since we also were targeting 4% net. As per the RBI requirement, we wanted to make a progress towards that. As I was telling you, since we are confident of bringing Stage 3 to around 7.6% level, even at this level will be less than 4%. That's right. Just if you could share the numbers, you know, the absolute percentages on, you know, PDs and LGDs Stage 1 and 2. Okay. One second. LGD is 43%. Sure. The PD Stage 1 is 7.33%, and the PD for Stage 2 is 21.75%. This is as against 45.10% in the previous quarter LGD, 7.34%, PD for 12 months, and 22.06% the PD for Stage 2 of the previous quarter. Okay. Sorry, I thought you are gonna reset it every end of the year, right? Yeah. No, this difference is primarily because, see, we have different rates for different products. Okay. Because of the weighted average of the portfolio change. Yeah. That changes. Okay. Perfect. Thank you very much, and all the best. Thanks. Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead. Yes. Thank you for taking my questions. First, just two questions here. We kind of, from what I understand, we have taken conservative credit cost provision during the quarter because we budget for net Stage 3 of less than 4%. You also said that this is an RBI requirement. Just wanted to understand, I mean, what RBI requirement is this? Because at least the PCA guidelines that kind of came out, PCA framework guidelines talked about net NPAs of 6%. This net Stage 3 requirement of less than 2%, which some of your peers also kind of allude to, what RBI requirement is this? That's my first question. Sir, the second question is to Parag, sir. I mean, you've not been very active in doing assignment transactions. I mean, in the coming quarters, will we be seeing more of assignment transactions in addition to the securitizations or PTCs that you've been doing? Maybe last, the third question is for maybe Sunder sir. When we kind of classify these assets in Stage 3, do you also end up taking interest income reversals, or is this adjustment routed through the provisioning line item? This is what I kind of wanted to understand. Those are my three questions. Okay. The first question— Yeah. First question is, basically, as rightly put it, for PCA, the net NPA should be 6% or less. RBI has been consistently telling that large NBFCs they would prefer it to be less than 4%. Systemically important NBFCs are more, what you call, prudent and more take the hit at earliest level so that, you know, there is overall health of the NBFCs remains strong. That is advice, more of advice. We would like to adhere with that so that it helps us to, you know, project the company as a conservative company. Yeah. On assignment versus securitization, that depends more on the investor's interest. Assignment also brings in some kind of up-fronting of income and all. It does. In securitization, it is more evened out, so there is no kind of variations quarter-on-quarter basis. That is why securitization is a preferred product from our side also, but also depends upon investors' interest. Answering your last question, whatever we have classified Stage 3 based on the date stamping, we have tried to maintain the same provision as well as the income reversal. Even though the cases might have been in, technically in Stage 2 as per the earlier guideline, we continue to maintain the same provision coverage as well as the interest reversal also. It is maintained based on Stage 3 only. Even though it may be, market-wise it can be less than 90 also. We are more conservative in that approach. Right. Answer to that extent, maybe just a last follow-up here. You have maybe answered this already during this call, but fair to assume that at least internally, given that you've been building management overlay, given that you're already holding COVID provisions, while you might have to kind of maintain a higher provision cover Stage 3 because of our endeavor to keep it below 4%. Fair to assume that going forward, maybe the next few quarters, if things really start normalizing, we can expect the provision cover Stage 1 and Stage 2 kind of to start coming down. Yeah. Correct. It is fair to assume. Next couple of quarters, if the gross NPA, Stage 3 comes down below 7.5% or 7.7% levels, definitely there'll be a release of the management overlay. Sure, sir. Thank you so much, and wish you the very best. Thank you. The next question is from the line of Sameer Bhise from JM Financial. Please go ahead. Yeah, hi. Thank you for the opportunity. We gather a bit of a considerable slowdown in rural demand, so wanted to know your sense there. Secondly, just if you could share the interest reversal number for the quarter and nine months. Interest reversal number, I don't have it right now. I can ask Sanjay to share it across offline. Sure, sure. That will be fine. Yeah. Okay. And— See, as far as credit uptake is concerned, you are right. First 15 days in January, we did observe this slowdown because one is the virus and second one is because normally in the first 15 days because of the not auspicious days, people normally don't get into new activity. Post 17th, we have seen the demand picking up. We are confident because the Prime Minister has announced PM Gati Shakti with a lot of emphasis on the logistics and infrastructure. That, what you call that? Actually, the disbursement or the actual play out has not come out fully till now. During the budget, we feel the Finance Minister will emphasize on the same. February and March, we will see heightened activity in this infrastructure sector. That's the expectation. Therefore, we are quite confident that disbursements will be much higher in February and March. Okay. This is helpful. All the best to you. Thank you. Thank you. The next question is from the line of Param Subramanian from Macquarie. Please go ahead. Hi. Thank you for the opportunity. So two questions. Firstly, on OpEx. So if I look at OpEx, it's roughly at the same level for the last two years. So where is this headed from here? Could you explain why this is the case? Because disbursements have come back and collections have also come back. So OpEx directionally, where does it go from here? And secondly, on the cost of funds, obviously quarter-on-quarter there is a sharp reduction. Where is this, in your view, headed from here, especially since you know the consensus view seems to be that we are headed into rising interest rates? Yeah, those are my two questions. Thank you. On the OpEx, we feel that. Okay, last couple of years we have been having a strict control on the costs of the company, ensuring that it does not go to an elevated extent. Now we have started hiring in the last couple of quarters and the incremental employees are going up. We expect this cost to go up maybe by around 5%-10% in the next financial year. However, we want to maintain a cost income ratio of close to 22%-23%, which has been our earlier trend. That should be a fair indicator for the OpEx. The next question, Parag. On cost of fund, we feel that 10 basis points-15 basis points further reduction can be there. Yes, costs otherwise bond market rates are up. So, 10 basis points-15 basis points because of elevated costs that we have had earlier and replacement of higher cost liabilities will help to bring down the overall cost by 10 basis points-15 basis points, and further reduction may not be possible. Okay, thank you. All the best. Thank you. Thank you. The next question is from the line of Matthew [Ching] from PIMCO. Please go ahead. Hi, sir. Thanks for taking my question. I just wanted to understand a bit more about this ECL provision. If I understand correctly, one of the key drivers for the higher ECL provision this quarter is because of your higher headline GNPA because of this new RBI rule, while your LGD assumption is yet to be reviewed. Should we expect a reversal of some of this additional ECL provision in Q4 after you review your LGD assumptions? And if yes, what would be the magnitude? And my second question is, I understand some of the states have already brought back the lockdown COVID lockdown measures. How is this affecting your customer and what is the trend of the collection efficiency in January? Thank you. To answer the first question, the Stage 3 has increased because of the change in the regulatory requirement as dictated by the Reserve Bank of India. This is the circular dated November 12. These numbers, the LGD numbers, will be again revised in the March quarter. We are confident that it can marginally come down from the current 45% levels to a manageable level. Going forward, the management is confident that once the business team and the customers are fully versed with the daily stamping of the NPAs, the Stage 3 should gradually come down in the next couple of quarters. Mr. Revankar will take the second question. As I was telling you, first 15 days in January, there was a widespread virus impact. Even though many people are not testing, but this time, since the virus is less virulent, couple of days absenteeism or maybe weeks absenteeism were seen in the first two, three days. Post that, business is as usual. The collections have really picked up. We feel that January collection would be quite good, maybe near to 100%. February and March we should be able to do very well. We expect the collection to be on par with the previous quarter, or even it can be better. Got it. That's very helpful. Thank you. Thank you. The next question is from the line of Gaurav Purohit from BNP Paribas. Please go ahead. Hi. Good morning, and thank you for taking my question. I have a question on the new sales where it continues to decline for the past eight quarters. What is the strategy there and what are the kind of yield differential between a new vehicle portfolio and a used vehicle portfolio? Thank you. Even though the portfolio is coming down, but disbursements are going up. If you see QoQ, the disbursements have gone up by around 30% on QoQ. We feel that the new portfolio will start picking up now. We were restraining ourselves from the new because the economic environment was not really feasible for new assets, which is higher ticket. Normally, new vehicle also require higher LTV lending, which we were resisting. Now since the economy looks like fully recovered, we will be doing some new vehicle. The differential between a new and used is around 300 basis points-400 basis points. That's the one reason we focused more on used. When we start lending to new, the used also will go up simultaneously. It will not have a big challenge on our overall yield. Overall yield will not have much impact. This quarter we feel the new vehicle lending will go up without much of impact on the overall yield. One follow-up question on that. Where do you see the AUM net stabilizing, especially for the new vehicle? Currently it is at around 5% of the total. Ideally, we have to take new vehicle when you say you have to take up to five- year- old vehicles in the book also, because sometimes we may fund a vehicle which is just two years old and that's as good as new to us. If you take up to five years old vehicle, the overall portfolio would be anywhere between 12%-15%. Only new vehicle if you take by the book, it is today at 5%, but slowly it will be inching up to around 7%-8% maybe in the—a s the economy starts growing, demand for new vehicle will go up. Automatically the proportion of new vehicle will go up. In the past if you see our historically it has been at around 15%. Up to five years old if you take, we will be around 15%, any point of time. Thank you so much. Thank you. Thank you. The next question is from the line of Aditya Jain from Citigroup. Please go ahead. Thank you. There's a slide on the provision analysis which is very helpful to see the impact of the daily tagging. In that there is a small movement stage 3. Stage 1 is lower when daily tagging is applied. The right way to see that is that some people came after 90 days past due and then paid two EMIs. Is that the right way to see it? Yeah, correct. Right. Okay. On the liquidity reduction, any thoughts now on will it be phased out? If yes, over what period? You know, would it be a more sharp reduction in liquidity? We will have a relook at the next quarter board meeting because the Board wants us to be conservative for this quarter. Definitely they have indicated that it's the time to reduce the overall liquidity. Next two quarters, definitely, we will reduce it. Got it. The impact of daily stamping on income recognition. It seems a difference in the approach on how we recognize income on Stage 3 versus, let's say, an asset Stage 1. Daily stamping aside, just at a, you know, how the approach maybe, what is the recognition that we do on Stage 3 as of now? See, on Stage 3, the coverage that we are carrying is 50%. Supposing the same asset, as per the norm, a borrower is Stage 1, then on that asset we have a coverage of 3.27% in the current quarter. Supposing the same asset was in Stage 2, it was 11.67%. This is the difference which happens wherever it is positioned. If it's Stage 3, you take a higher- cover provision. If it's Stage 1, we take a lower coverage of 3.27%. No, my question was on the interest income recognition from— Interest income, it will be replica of the same thing. Supposing there was an interest income of say INR 100, right from the inception of the contract to the cut-off date. If it had been in Stage 3, we would reverse 50% of the interest booked for it. Supposing if it was in Stage 1, there will be no reversal for it. Got it. Yeah, correct. It would have been at 3%. If it was, if the conversion Stage 3 happened, let's say in the middle of the quarter, then whatever was recognized till then, of that 50% would be reversed and incrementally 50% would be recognized. Correct. Yeah. Got it. Just lastly, is there any thoughts on the current one or any pilot project or something on the merger synergy? You've given us some sense during the earlier call and all which was helpful. You know, any specific pilots or studies that you could talk about here? Look, the pilots are going on. We are working on HR and technology integration. We feel it will be virtually seamless because there has been a reasonably good progress. As far as introducing the products in each other's company, that we are working on. There are some studies going on the same. That we will start working on launching of various products in the various branch. That should happen at any time. Got it. Just lastly, could you tell us disbursement by segments, and sorry if this has already been told, then I'll find out separately. Yeah. Sanjay will inform. Thank you. Thank you so much. Thank you. The next question is from the line of Prakhar Agrawal from Edelweiss. Please go ahead. Yeah, hi. Just a couple of questions. First, more fundamentally, just wanted to understand, given that we are already in the NPA, so we would be probably looking at the behavior aspect of the customers. How does this daily tagging impact your Stage 3? Ideally it should have been the under IRAC norm that you would have been maintaining a separate gross NPA levels and probably that would have been impacted. Just wanted to fundamentally understand that how it does impact under Ind AS. What you say is correct. Many of the other companies have taken that stand. However, we thought it is prudent to follow the circular in spirit also. Hence we aligned both Stage 3 and NPA along similar lines. Also we decided that whatever has been classified as an NPA will be retained as Stage 3, irrespective of whether it comes to Stage 2 or 1. Still it is fully recovered. The overdue is fully recovered. Also maintain a provision equivalent Stage 3, in spite of non-requirement in NPAs. We followed the circular, RBI circular in spirit also. If I were to just say that under IRAC norm, if we were to just look at your gross NPA numbers will be 8.4%. Correct. Had we not followed this circular, our gross NPAs would have been 7.62%. Second, and more so in relation to this, the circular, the second part of story which says that you have to, the account can only be updated if you pay entire dues. Don't you think these sort of things materially impact your LTV? At least for a guy, for a customer like us, which probably they're in the cash flows, inherent volatility is higher for cash flows. The ability to pay four EMIs or more probably may impact your overall LTV for the pool. In last four to five years back itself, we were in one of the inspection, RBI had asked us to upgrade the NPAs only on recovery of the full overdue. The company has been following it for last four to five years. Since we have already been following that, it will not have any impact on the LGD computation going forward also, because we have already taken that into computation. Okay. Just last bit follow-up on this. The rise that we have seen in coverage ratio Stage 3 this quarter is essentially to do with us maintaining a net NPA of around sub 4% by March quarter this time. Correct. Okay. Thank you. Thank you so much. Thank you. The next question is from the line of Prashanth Sridhar from SBI Mutual Fund. Please go ahead. Yeah. Hi. Am I audible? Yeah. Sir, just two questions. One is, what is the total amount of repossessed assets outstanding today? Is that included in Stage 3 number? Yeah. The restructured account is slightly more than 10,000 assets which we have as on 30th December. Repossessed, yeah. Repossessed stock is slightly more than 10,000 numbers as on 30th December. All the repossessed assets are classified as Stage 3. We also make a provision of 100% if the repossessed assets remain unsold for more than six months. Okay, sure. That is helpful. Sir, the other question was, since now almost 20% of your borrowing are, you know, non-rupee, are those all 100% hedged? The full deposit of the borrowing is overseas, including loans and bonds, and everything is completely hedged for the whole duration. Okay. Even like a seven or 10-year paper, you are able to find the hedge, is it? Yeah, yeah. We are able to find the hedge. Okay, okay. Largely, since you have a significant securitization also, how is the collection efficiencies different on the securitized pool versus on the overall portfolio what you've disclosed? Oh. Securitized pool will be largely seasoned pools. Collection efficiency will be slightly better. The time of securitization itself, the performance, should be 100%. The collection efficiency for securitized pool is slightly better. It's very effective. Sure. I'm just trying to understand what would be the delta, let's say three years, before versus today. When you talk about Stage 3 levels for securitized portfolio and this non-securitized portfolio, this should be closer to 8.5%-8.6% levels, the non-securitized portfolio, and the securitized portfolio will be around 3%-4% or more than that. Okay. Okay, sure. The difference between them hasn't changed. Even today it's like about double. Yeah, it is. It has been continuing to be the same. Okay. Okay, sure. Thank you so much. Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Umesh Revankar for his closing comments. Yes. Thank you all for joining this call, and we're confident that the Q4 will be quite large because we do see a lot of positive indicators, especially on the demand and also number of employees reporting to the duty on a regular basis and the customers' feedback all seems to be quite positive. As I was telling you, first 15 days there were some challenges, but after that we are seeing reasonably positive indicators and we expect Q4 to be quite large. There is a significant improvement in the portfolio quality as we have taken enough measures to see that we will overcome the challenges and improve our overall portfolio. One particular line which I missed in the beginning, I would like to inform that our deposit portfolio is seeing a healthy growth. Our deposit portfolio today stands at more than INR 20,000 crore. That is 19% of overall liability against around INR 14,800 crore in the same time previous year. There is a good progress in retail deposit mobilization. All our deposit is retail, and that's helping us to stabilize and at the cost of deposit portfolio is around 8%. Incremental deposit is coming at 7.57%. That this is very positive and we expect overall good progress and good result going forward in the next quarter. See you all again in the next call. Thank you very much. Thank you. Ladies and gentlemen, on behalf of Shriram Transport Finance Company Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.