Ladies and gentlemen, good day. Welcome to Ujjivan Small Finance Bank Limited Q1 FY 2024 earnings conference call, hosted by IIFL Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then 0 on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rikin Shah from IIFL Securities Limited. Thank you. Over to you, sir. Thank you, Salman. Good evening, everyone, and thanks for joining the call. We have with us the management team of Ujjivan Small Finance Bank to discuss the business strategy and outlook post the 1Q results. The management team is represented by Mr. Ittira Davis, MD and CEO, Ms. Carol Furtado, Chief Business Officer, Mr. Martin PS, Chief Operating Officer, Mr. Ashish Goel, Chief Credit Officer, Mr. M.D. Ramesh Murthy, Chief Financial Officer, Mr. Vibhas Chandra, Head, Micro Banking, and Mr. Deepak Khetan, Head, Financial Planning and Strategy, IR. With this, I'll pass on the call to Mr. Ittira Davis. Over to you, sir. Thank you, Mr. Shah. Good evening, and welcome to our Q1 earnings call. I am delighted to share with you our Q1 performance. Despite Q1 generally being a slow quarter, our performance has been robust. Building on the strong base of financial year 2023, our pre-profit, pre-provision operating profit and PAT have reached new highs of INR 458 crores and INR 324 crores respectively, which is 52% and 60% higher than Q1 of the last year, respectively. Even against Q4 FY 2023, it is 12% and 5% higher, respectively. Our return on assets at 3.8% is again something that puts us ahead of our peers and that has been the trend for the last few quarters. Some of it is due to lower credit cost, even our PPOP ROA at 5.4% is quite remarkable. We posted a return on equity of 30%, which also means that the business is self-funding itself, leading to an improvement in CRAR from 25.8% to 26.7%. Starting with the business numbers. We dispersed INR 5,284 crore, up 22% year-on-year. While the demand continues to be there, disbursement for micro banking was sequentially low due to Q1 being historically weak quarter. Expect the disbursements to come again by the second half of the fiscal year. We acquired about 2.6 new customers this quarter in micro banking. As our new branches move towards maturity, we will see more traction in micro banking, especially in the new customer acquisition. Among the secured products, affordable housing, which is now more than INR 3,650 crore, continued to show strong disbursements, with INR 418 crore in the Q1, as against INR 288 crore in the Q1 of the last year. The business is slowly moving to another form to improve operating efficiency. We have already opened four hubs in Ahmedabad, Bangalore, Mysore and Jaipur. More will be commissioned over the next few quarters. As these hubs gain business momentum, it will further propel growth. I'm really sorry to interrupt. Well, sir, there is a lot of disturbance from your end right now, due to which you are not audible. Okay. If you could please just readjust the microphone where it is placed, that would be great. Yeah. Is it better now? Yes, sir, that has made some difference. Thank you. I'll just go through the business numbers again in case it was not very clear. Starting with the business numbers, we disbursed INR 5,284 crores, up 22% year-on-year. While the demand continues to be there, disbursement for Micro Banking was sequentially low due to Q1 being a historically weak quarter. We expect the disbursements to pick up again by the second half of the fiscal year. We acquired 2.6 lakh new customers this quarter in Micro Banking. As our new customers move to maturity, we will see more traction in Micro Banking business, especially in new customer acquisition. Among the products, affordable housing, which is now more than INR 3,650 crore, continued to show strong disbursement, with INR 418 crore in the Q1, against just INR 288 crore in the Q1 of the previous year, that is FY 2023. This is slowly moving our hub-and-spoke model to improve operating efficiency. We have already opened four hubs, one in Ahmedabad, the other in Bangalore, Mysore and Jaipur. More will be commissioned over the next few quarters. As these hubs gain business momentum, it will further propel our growth. The SID disbursed INR 320 crore, up 113% year-on-year. MSME continues to be in transition. We have a few more technology-related changes to be introduced before we ramp up the business, which will be much like what we went through during the housing, you know, transformation. Once that is ready, we are ready to launch. We also launched the semi-formal product in Q1. More products are in the pipeline. The business should start to pick up towards the end of this fiscal. Vehicle Finance and Gold Loan should also start to contribute in the second half of the year. Our gross loan book now grows to INR 10,000 crore. Our June 30th was INR 25,326 crore, up 30% year-on-year and 5% quarter-on-quarter. Liabilities, our deposit grew 45% year-on-year and 4% quarter-on-quarter to INR 26,660 crore. We continue to see movement of current deposits towards term deposits this quarter, which is in line with the industry trend. Our retail term deposits grew 71% year-on-year to INR 10,970 crore, while CASA grew 27% year-on-year to INR 6,556 crore. Our cost of funds has continued to rise this quarter in line with the industry. Despite pressure from cost of fund side, we were able to expand our NIMs this quarter. This was a result of consciously reducing excess liquidity, which was driving a negative carry and pulling down NIMs, and benefiting from the yield expansion of an effect of book repricing, which we took last year. Last year, we had two repricing on the microfinance book, one in September and the other in March this year. Sorry to interrupt you, again. Apologies. sir, there is a lot of disturbance from your line. Just let me quickly get you reconnected. Yeah, please do that. Ladies and gentlemen, the management line is now connected. Sir, you may proceed. I'll just go back, a few sentences, to our gross loan book. Our gross loan book has now crossed INR 25,000 crore, and on June 30th, it was INR 25,326 crore, which is a growth of 30% year-on-year and 5% quarter-on-quarter. Talking about our liabilities, our deposit grew 45% year-on-year and 4% quarter-on-quarter to INR 26,660 crore. We continue to see some movement of CASA deposits towards term deposits this quarter, which is in line with the industry trend. Our retail term deposits grew 71% year-on-year to INR 10,970 crore, while CASA grew 27% year-on-year to INR 6,556 crores. Our cost of funds has continued to rise this quarter in line with the industry. Despite pressure from the cost of funds side, we were able to expand our NIMs this quarter. This was a result of consciously reducing the excess liquidity, which was driving negative carry and pulling down our NIMs and benefiting also from the yield expansion as an effect of our book repricing post the hike we took last year. Last year, we took 2 hikes on the microfinance front, one in September and one in March this year. The full effect of that is being felt in this quarter and beyond. Our net interest income was up 32% year-on-year and 7% quarter-on-quarter, driven by gross loan book growth and yield expansion. Coming to credit and collections, our asset quality remains sturdy, with the GNPA of 2.4%, versus 2.6% sequentially, while our NNPA continues to remain negligible at 0.06%. Slippages remain under control, with Q1 slippages at INR 103 crore and upgrade and recoveries at INR 77 crore. Restructured book now is at INR 182 crore, with June 2023 collection efficiency at 102%. While the NPA collection has started to move down towards normalization, bad debt recovery remains strong this quarter. We recovered INR 35 crore. As we have already mentioned, our bad debt recoveries should be significant even in financial year 2024, although it would be lower than what we recovered in financial year 2023. During the quarter, our branch expansion continued, with 32 new branches added. 14 of these were in the east, 8 in the north, 6 in the south, and 4 in the west. This quarter, that takes the total to 661 as of the 30th of June. We will now be adding 70-odd branches for the rest of this year. We are in the final stages of testing our digital fixed deposit offering, which will provide seamless experience to our customers and help us to serve beyond brick and mortar. Now an update on the merger with our promoter, Ujjivan Financial Services. The hearing of our application with the NCLT was completed on June 28th, we expect to receive the order soon and trailing directions for scheduling the meetings of stakeholders and other directions as the NCLT may deem fit. On my succession plan, as I've been mentioning, the board is working on identifying the right candidates. The board is committed to identify the potential candidate with strong business orientation and a connect with the ground and dedication towards building a mass-market bank. Both internal and external candidates are being considered, and, you know, much before the due date, the transition will be completed. As many of you would have noticed, we have launched our nationwide brand campaign a few days ago, earlier this week. This campaign is prominent step towards establishing Ujjivan as a mass-market bank. Previously, we had not invested much on ATL brand campaigns, moving ahead, we will continue to invest in brand building, which will provide our branches more awareness and help us build trust across our customer base. This, in return, will push our retail liabilities further. To conclude, I would add that business momentum remains strong, reassuring our confidence toward the guidance that we shared at the beginning of this financial year. Thank you. Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 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 comes from the line of Nitesh from Investec. Please go ahead. Thank you for the opportunity. two, three questions. Firstly, in the MSME segment, we have seen some deterioration in asset quality and growth slowing down. We are reorienting that business. Can you speak about the strategy, in which segment we will be operating in? needs, what are we targeting needs and profitability in that MSME, MSE book going forward? Could you please repeat that question? I'm asking about the strategy in the MSE book. Given that we have seen growth slowing down, where we have been bit cautious and we are reorienting that business. What is the strategy going forward? What segment, customer segment, needs, ticket size we will be focusing on? Hi, this is Carol Furtado. As we have been talking about the transition that has been taking place in our MSME segment, we have been talking about our customers under various categories. One is a semi-formal LAP, the other one is the formal LAP. We are also getting into the working capital facility, supply chain, and digital MSME lending. Semi-formal LAP, target to semi-formal micro and small enterprises who are transitioning from the unorganized and the informal business model to the organized and formal business setup. Here, the offering would range from INR 15 lakhs to INR 1.5 crores and the tenor up to 12 years. We have already launched this product since May, and this product seems to be on a growth path. The formal LAP is where we would be focusing on formal Micro, Small, and Medium Enterprises, who are operational as an organized formal business setup. Here, we are in, proposing to offer a loan size of around INR 25 lakhs to around INR 5 crores, with a tenor up to 15 years. This would be set up in select locations to grow the LAP portfolio. The third line would be the working capital facilities, again, where the target is formal Micro, Small, and Medium Enterprises. This is to fulfill their business banking needs. We would be offering a variety of products here, fund-based and non-fund-based facilities. Here again, the ticket size would be around INR 15 lakhs to around INR 10 crores. Supply chain is again there, which is being worked on to meet the cash flow-based short-term funding requirements of our customers. We also would be having digital MSME lending, which we will grow through our Fintech partnerships. You know, yes, we have been operational since May in the semi-formal LAP segment, and we are investing heavily to build the infrastructure and internal capabilities to strongly address the other 4 business lines in the MSME vertical. That is the reason why the transition is taking some time to operationalize. We have made significant progress in designing the strategy, we will be showing the progressive outcomes in the coming quarters. The full extent of the investment will be visible in the span of the next two, three financial years. Sure. Is it reasonable to expect that the yields in this portfolio will be less than, say, 12%, given that we are largely operating in formal segment and higher ticket size? Yes, the blended rate would be around 12-13%. Sure. data keeping question on the customer acquisition in the, in the microfinance group and individual loan side. what is the count of customers that we have acquired in this quarter? what is the active customer base on both microfinance group and individual as of June 2023? Yeah, hello. As far as, you know, customer acquisition is concerned, we have acquired 2.6 lakh new customers this quarter. What was your second question? Our overall base in microfinance is close to 40 lakhs. I wanted a breakup in group and individual, if that is possible. Okay. For the quarter or the entire micro-banking customer base? As of June 23, what is the active customer? Yeah. Base in microfinance group? In microfinance, we have 40 lakh borrower base. Out of 40 lakh, 36.5 lakh customers are group loans, and 3.5 lakh customers are individual loans. Sure. Thank you, sir. That's it from my side. Thank you. Thank you very much. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. The next question comes from the line of Shailesh Kanani from Centrum Broking. Please go ahead. Congratulations, sir, on excellent performance during the quarter. Thanks for the opportunity. Sir, my first question is with respect to our Individual Lending book. We are seeing very good traction on that front. Can you share some qualitative aspect with respect to the book and the customer profile, even though it's a high ticket size loan, what kind of customers we have been booked there? Yes, this loan is something which, you know, is old businesses in Ujjivan. We started this business in 2008, long back, as we realized there is a huge potential of customers upgrading to, from JL to IL. Our current average ticket size is close to INR 1.3 lakhs in IL, where the customer graduates after 2-3 cycles. We see a huge potential here because large number of customers actually graduate after, try to graduate after 2-3 cycles. There is a gap. There are microfinance players, and then there are other players also who are into formal financing. These customers don't get financed from anybody. We have started this. We have close to 3.5 lakh customers as at this point in time, and we want to grow this business as we see potential going forward. Largely, customers are divided into three categories. We have business loans. We also have agri and allied business in IL. A good amount of customers also take home improvement loans. These are the basic three categories of loans that we offer. Okay, that's useful. Second question is with respect to yields on affordable housing segment. They seem to be little on the lower side. Can you just highlight about that and if there is any scope of improvement in that, in that segment? Yeah, the yield for the affordable housing segment is around 13%. Mm-hmm. Which is excluding the MBLG business, and it has been in this line only, around 12.9%, 13% odd. I did not understand what you mean that it is on the lower side? Just considering that with the semi-formal segment, how is it that the yields might improve on that front? Just wanted to know your view on that. As we move more towards the tier two and three towns and beyond that, yes, there would be a little improvement that might happen. Our yield on disbursement is around 13.2%. For salaried, the yield is around 11%-12%, and for semi-formal, self-employed and all, is around 13%. Okay. That's all from my side. Thanks a lot. Thank you very much. Thank you. The next question comes from the line of Manish Ostwal from Nirmal Bang Securities Private Limited. Please go ahead. Yes. Yes, sir. I have a question on your comments in the press release, where you mentioned that we remain confident of our sub 100 basis point credit cost for FY 2024. Given your collection trends in the business, Don't you think you need to revise downward or, still you think, there's a risk which may play out? Thank you. This is Ashish. In the Q1, we have actually had much lower than the low credit cost, you could say about 10 bits on the overall book. We have given a guidance of about 1%, but our book is maturing and will be maturing. We continue to mature during the course of the year, so there could be slightly higher credit cost in the Q3 and Q4, which we are factoring in when we give a guidance of about 1%. We've always maintained that it will be lower than 1%. That is, we maintain that. We will continue to see a lower credit cost during this quarter-on-quarter this year, and it should, you know, sum up to less than 1% for the year. Yeah. Secondly, in our one of the slide where we have mentioned the collection efficiency in segment-wise. I was seeing the MSME, the collection efficiency is quite stagnant, and the second is the other segment. What are the efforts we are making to improve the collection trend in these two categories? In MSME, our, what you see here on the slide is billed in the month and collected in the month, but there is also a good amount of additional collection which we do, which is collected in the next month. Overall, if you see the collection efficiency, including the overdues, it has been maintained at 98.5% throughout the quarter. What you see here in this slide is 88, 87, 88, which is the collection for the month, but there is also overdue collection, which we do month on month. This is also a result of, stabilized cases in bucket 1 and 2. Okay. Manish, if you see the additional collection, that also is quite a hefty amount. That's what Ashish is referring to. One more thing, the collection efficiency, 88%-87%, is including the GNPA par portfolio that we have. Given that MSME current GNPA numbers are high, this number seems to be a little lower. However, as he mentioned, the NPA bucket collection is quite good, and even from the par, SMA 0, 1, 2, and your NPA collections are quite good, which are happening. If you add up the total collection, that will seem to be a very good collection that is coming in. Thank you, Deepak, and thank you, management team, for answering my question. Thank you. Thank you much, Manish. Thank you. The next question comes from the line of Renish from ICICI. Please go ahead. Yeah. Hi, sir, I'm Congress, on a good set of numbers. Sir, just 2 questions. One is on the liability side. If we refer to the new customer acquisition in the quarter, actually that has gone up from INR 3 lakh 35,000 to INR 3 lakh 41,000. When we look at the average CASA balance, it is that also remained sort of flat sequentially. Despite that, our CASA balances has sort of contracted by four percent. What explains this, sir? Renish, CASA balances, if you see it's an industry phenomena that the CASA balances, CASA, is going down for almost all the banks who have reported their results so far. If you see for even a little longish period, you will actually see that the CASA has grown quite handsomely. We would say that this is more or less in line with the industry, a little better off with the industry, and with the new in the facilities that we are providing, new products that we are coming up with and the retail the brand campaign that we have launched, these balances will improve going forward in the coming quarters. Got it. Secondly, on the ROE side, you know, last 4, 5 quarters, given the very low provisioning requirement, plus the strong AUM growth. Now on a steady-state basis, once the credit cost normalizes, as, you know, you guys are highlighting that second half, we'll see a slightly higher credit cost. On a steady-state basis, what kind of a ROA this business can generate? Vinesh, on the ROA side, we have mentioned that for this year we will definitely see a 3% plus ROA. We maintain that guidance on that. We have mentioned that the ROE for this year will be 22% plus. We maintain that guidance. There might be a little upswing to that depending upon the market condition, but right now we do not want to change any guidance. Not for this year. I'm saying on a steady-state basis, once, you know, some of the operating parameters normalize, especially credit cost. In that scenario, does the, let's say, the current business mix, should generate a 2.5% ROE on sustainable basis? How one should look at it? Definitely, we can do that and more, maybe more than that. We can definitely do that. Okay. Okay, that's it from my end, Deepak. Thank you. Thank you. The next question comes from the line of Sukriti Jiwarajka from Laburnum Capital. Please go ahead. I just want to follow up a little bit on the asset quality of the MSME book. Like you just mentioned, both the GNPA and the power numbers are quite high. The thing is that they've been quite sticky and quite high for a few quarters now. What is causing the stress? Which pockets, which sectors? Maybe some light on why these numbers continue to be so high, even the power numbers. What is the path to bringing this down? There are, you know, two, three reasons that I would want to list down. One, our book has not grown, so therefore, the percentages are looking high. If you look at the absolute numbers, the absolute numbers have been stable and moved a little up or down, quarter-on-quarter. The, you know, the denominator effect has impacted the percentages. In terms of slippages, the slippages have been under control. The NPA number in absolute number has been under control, and our bucket X efficiency has been. Operator, your request has been initiated. If you'd like to cancel this request, please press star zero again. We can indicate this. Yeah. In terms of geography, you mentioned that, which geographies are causing this? There is a little bit of NPA in West Bengal, which is slightly elevated as compared to the rest of the regions. Got it. Got it. A similar question for MFI. If you are seeing any early pockets of, you know, early warning signals or any early pockets of stress. Because the thing is, every MFI is guiding to 30% growth over a very high base, and a lot of banks are looking to aggressively get into this space. As a conservative lender, are there any signals of, you know, customer over-leverage or something that is coming up in our radars? You know, one of the advantages we carry is our book is spread across 25 states. That makes us less vulnerable to geographic stresses. You know, we also have a statewide cap. Most of our 5 bigger states are also capped in the range of 15%, and there are 3 states which are above 10%. Every other state is between 5%-10%. In terms of high-growth states, our market share is in the range of 3%-4% all across every state. There is no specific area where we have any high concentration of the book. In terms of growth, we've been maintaining, you know, around 6%, 30+ MOB. sorry, 30+ in, 18 MOB book, which we've been monitoring for the last 24 months consistently, post-COVID, and this has remained steady for us. One more thing which gives us confidence is our non-delinquent book, which is, you know, bucket 0. That has been consistent above 99.8% for the last 18 months. We've not seen any specific areas in which there are any, you know, stresses building up. Got it. No geographies. I understand that you have very well diversified your book, that is not even the question. It is really on a macro level, if anything is coming up, whether it affects you or not, in pockets, in areas, in geographies. If there is a change in, you know, there are certain areas at certain times which are very topical in nature, like the floods, or if there is any other natural calamity, those are the kind of things which do affect us. Right. We had a marginal dip, for example, in certain regions in north, but do get recovered over the next month or so, because these are again 15-20-day phenomena. Got it. Okay. Thank you so much for answering my questions. Thank you, Sukriti. Thank you. The next question comes from the line of Pritesh Bumb from DAM Capital. Please go ahead. Hi, good evening. Just two questions. One is a clarity needed, you will grow, as a percentage of loans, 43% comes from new loans acquired. Is this a phenomenon that the existing loans are migrating to IL or we are actually, you know, have a rise in terms of new fresh loans? Both things are happening. Our GL customers are also migrating to IL as well as, new customers are also getting added. We, at, for example, said that, we added about INR 2.6 lakh new customers in this quarter. This is in addition to about INR 9.6 lakh new customers we had added in the last full year. The net addition last year was about INR six and a half lakh. Yes, new customer acquisition, which we opened last year, was a strategy, and, we are also opening new branches. That also gives a slightly, you know, increase in our, in our NC numbers. It's a combination of all these factors. That is the reason our ticket size also has gone down, is it? Yes. The last year, you may remember about 5 quarters back, our ticket size had gone up, 6 quarters back, because we were doing largely repeat loans, and we were very conscious about doing new customer acquisition. Because we didn't know what was the impact of COVID and how long it would last. Last year, when we started our NCA strategy again, we started seeing as the new customer% has gone up, the average ticket size has gone down. Sure. Which geography these new customers are coming from? If you can give some more color on that. All geographies. These are across branches. We have added team members across branches, and therefore, there is no skew in any state. Got it. The second question was, the off-role employees of collections are going down steadily. At what level will steady that number? Is that the reason why the other Opex, quarter-on-quarter, was down? The way we are looking at it is, our cost of collections, it remains in the range of about 20% with our off-role staff. There are two factors here. One is the entire book, which was affected by COVID, is now 700 DPD and above. Obviously, the collections will slow down over a period of time. Therefore, as the collections have slowed down, we have proportionately brought down our team size. The metric that we have followed is about 20% cost of collections. As the numbers keep going down, the team can be, suitably, you know, downsized. The second reason is also that our NPA book has not grown. In fact, there has been a steady reduction of accounts in the NPA and the written off pool. Last year, we reduced more than 1 lakh accounts from NPA plus write-offs, so that has also contributed to a reduction in the off-role team strength. Your query on whether that has led to the Opex reduction versus Q4? No, that is not really the primary reason for reduction versus Q4. Q4 business numbers, disbursements were much higher versus Q1. That is the reason why the numbers are lower. Sure. That means it was a BAU, basically, business as usual. Yeah. Yeah, it's a business as usual. Thank you. Thank you. Yeah. Thank you. Next question comes from the line of Himanshu Taluja from Aditya Birla Mutual Funds. Please go ahead. Hi, sir. Congratulations for a good quarter. Just one question has been from my end, most of the questions have been answered. Sir, last year you have made a serious strength in your collection team, and as a result, we have seen a very strong better recoveries as well. Given yourself and the momentum to continue FY 2024. Last year, I think, you have made a good collections, better recovery from the early delinquency period. Now, given the current NPA pool would be in a more harder bucket, what are, what sort of a recoveries that you think that you can probably achieve in FY 2024? Anything... Do you need a similar work, collection workforce, in this year as well, which you may have, probably, which you have added the last year? Himanshu, this is something that Mr. Davis touched in his opening remark also, that FY 2024 also, bad debt recovery would continue to be very handsome. Maybe a little lower than what we did in FY 2023. FY 2023, we did around INR 135 odd crores. This year it will be a little lower than that. Whether it will be INR 100 crores, INR 120 crores or INR 90 crores, I cannot comment on that number right now, but it should be in that range at least. That is what we believe. In terms of collection team size, as Ashish has already mentioned in the last query, the pool, the hard bucket pool where collection, difficult collection is there, that pool size is shrinking as we move forward. Which is why the collection team size, slowly you will see the off-roll will shrink as we move along, but the on-roll team will stay. That is a strategy that we'll have, off-roll will continue to shrink. Sure, sir. Sure. Sir, second is, just a few, two more data-digging questions. What sort of a PSL income that you have made last year and what you have recognized in this quarter? Generally, which quarter generally you used a higher PSL income? This quarter is INR 26 crore, roughly. Last quarter, PSL income, last year, PSL income, let me check, was around, what, INR 40 crores? Check. I'll just give you the exact number, what was last year full year PSL income. We generally, PSL income, you'll see coming in the Q1 and the Q4. I'll also. Yeah, full year was INR 28 crore. Last year, full year was INR 28 crores. I will also mention that when you look at PSL income, you also look at the kind of IBPC that we are doing, because that also gives a similar benefit to the book in terms of lower cost of funds. Last year, on an average, we were having around, say, INR 1,500 crore of IBPC. This year, already, I think the IBPC number is a little higher than that, and will continue at this number, this rate for the full year, around INR 2,000 odd crore. That additional benefit is also there this year. Sure, sir. Sure. Just last question, sir. Within the MFI, any sort of a target that you have between the individual and the group, do you have or, how one should look at the growth between the two? Yeah. Obviously, we want to grow much faster than GL, because we have a captive customer base of over 40 lakhs. In GL, we have a lot of customers who want to graduate to IL. We will see IL growing much faster than GL in this financial year, in this financial year also, and we'll continue the trend from the last financial year. For that, we have also strengthened our IL team, and we have, you know, increased the number of feet on the street for IL in Ranchi. Sure, sir. Sir, thanks a lot, and congratulations for a good quarter. Thank you. Thank you very much. Yeah, thanks. Thank you. The next question comes from the line of Ashlesh Sonje from Kotak Securities. Please go ahead. Hi, team. Congratulations on a good quarter. I have just one question on the Opex for us. If I look at the cost to assets ratio, that has been steadily coming down over the past few years, and given that we are in a period where we are reporting very strong return ratios, how do we look at the cost ratio going ahead, in terms of the investment that we, if we plan to make in the franchise? Ashish, we have mentioned both for the cost to income ratio and operating cost to average asset ratio. For this year, they will be more or less stagnant. Right now, we do not change the guidance. We may see a positive swing there, but right now, we'll maintain the guidance number. We'll see if we want to change the guidance when we come next time to meet the street. Right now, we do not want to make any changes there. Okay. If I go ahead a few years, you know, like 2025, 2026... Over, next 3 years, yes, definitely these numbers will come down slowly, maybe around cost to income ratio, maybe around by 300, 350 basis points every year, it may come down. Okay, perfect. Thank you. Thank you. The next question comes from the line of Manan Tijoriwala from ICICI Prudential Asset Management. Please go ahead. Hi, good evening. I have 2 questions. First, on the group loans concept, what is the average ticket size that we have now in the first, second, third cycles? The question is, what is our average ticket size in group loan in first, second, and third cycle? Right, yes. Our average ticket size in the first loan is close to between INR 40,000-INR 42,000. In repeat loans, in the second cycle, it is close to INR 50,000. Third cycle onwards, the average ticket size is close to INR 60,000. Okay, okay. How soon can we refinance a customer to a second or a subsequent cycle, and what is the tenor of the loan, generally? You know, the maximum tenor that we allow to our customer in Group Loan is three years. Our average tenor is close to 22-23 months. We allow our customers to take loan, repeat loans, only after completion of 70% of their EMI. 70% of the EMI. Okay, okay. Understood. How much of the loan book is now under 3 years, sir? 3 years? I'm sorry, over three years. yeah. Yes, our, you know, the three years tenor loan is close to 20% or 22% of our entire portfolio at this point in time. Okay, okay. Understood. On the individual loans, are these all our MFI customers, or are we sourcing from the market as well? Yeah, we have open market acquisition strategy as well, and we have kind of restarted our open market acquisition as we have stabilized after the effect of pandemic. Before that also, we were acquiring open market customers. These customers are largely referred by our internal customers, microfinance customers only. At this point of time, our open market customer acquisition is close to 5%-6% of whatever we acquire in new lending. This number will also slightly go up in the financial year as we go ahead. Mr. Manan, may we request you that you return to the question queue for follow-up questions, as there are several participants waiting for their turn. The next question comes from the line of Manuj Oberoi from YES Securities. Please go ahead. Yes, sir. Hi, congratulations on strong numbers. This is Rajiv here. Just, I'm left with just one question, and that is when I look at your one plus and GNPA in affordable housing portfolio. Yeah, can you hear me? Sorry, we are not able to hear you. Now is it better? Still you are not audible. Not audible. Can you hear me now? Hello? Hello. Hello, am I audible? Hello. You are hi. Mr. Manoj, could you please fall back to the queue? We shall move to the next questioner. The next question comes from the line of Amit Jain from Axis Capital. Could we reconnect the call? Operator, can we reconnect the call, management line? Yes, for sure, that can be done. Just allow me a moment while I reconnect the call for the management. Calvin, can you reconnect us? Yes, I'm doing so. Ladies and gentlemen, the management line has been connected back again. Mr. Amit Jain, you shall proceed with your question. Thank you. Yeah, hi, sir. Can you hear me? Yeah, we can. Yeah. Hi, thank you for taking my question, sir. I had a question on margin. Given that now that the rates have stabilized, and do we see that the cost of funds could increase further from current levels? Similarly, on loan repricing, is it largely done, or do we have some bandwidth to further increase on loan prices? first off, on your cost of fund, query. cost of fund may go up from here as well, because repricing of the old FDs may happen. to some extent, we believe cost of fund has not yet peaked. maybe we are around 2 quarters, maybe 2 quarters at least away, when we see the interest rate cycles also peaking out or starting to see sliding down. to that extent, we'll keep that as an open-ended answer. On the repricing side, there's a lot of room left. We took 2 rate hikes last year. One was in September, 50 basis point on our banking book, and one was in March, 50 basis point, again, on 1st of March. Of the existing book, 30% book is on the March pricing, 30% book is on the September pricing, 40% book is before that. On that 40% book, 100 basis point repricing is to happen. On that 30% book, 50 basis point repricing is yet to happen. There's a lot of room left on the banking book, repricing to happen. In that case, we still maintain our guidance of around 9% then for this year. Is that a fair assumption? Yeah. We remain very confident that we'll be able to hold on to the numbers. The second question is on the employee base. Around, we have added around 2,500 employees over the last 6 months. Mostly I think these would be street on street. Is that right? That's right. Any particular geographies where we are adding employees or it's, or is it all across? See, employee addition to a large extent is happening because of the new branches that are coming. This quarter we had opened around 32 branches in Q1, and in Q4 also there was a lot of branches that opened. Last year we did around 52, and most of the branch openings were back-ended. There were a lot. These branches were opened and the employees were hired for the new branches. Going ahead, 9 months we will be opening around 70 branches. To that extent, some employee hiring will be happening. Whatever branches we are opening this, Q2, to some extent, some hiring has already happened. Apart from this, the hiring is happening maybe we have introduced RM modules for our large banking, so there's some bit of a hiring happening. Some bit of a hiring is happening on our secure books where we are growing the business. For example, housing is growing very well. There, some, ground-level team is being added. MSME, as the new product come, there will be a little bit of a hiring happening. Those will be additional hiring apart from the branch. Sure, sir. 35% of whatever is hiring, happening is in the front-level staff that is happening. Sure, sir. That is very helpful. Thank you, sir. Thank you. Thank you. The next question comes from the line of Manoj Oberoi from YES Securities. Please go ahead. Hey. Hi, this is Rajiv here. Thank you for taking my question, and congratulations on the strong performance. My question is on affordable housing book. As I see your one plus and your GNPLs, in your affordable housing book, looks slightly higher than peers when I compare them with, you know, peers operating with similar ticket size entities. Any specific reason for that? The par in the GNPA for us has been, you know, consistently coming down. If you compare the pre-COVID book and the post-COVID book, Rajiv, our post-COVID book performance is significantly better than the peers. You know, the 30-plus number, which you can look at, we are better than all the affordable housing players there. Our NPA, in fact, for the last 22 months, source book is in the range of 0.1%, and 30-plus is in the range of 0.5%. The new book has done very well. The old book. The new book is about 65% of the overall book. Old book is where the NPAs are, and that is about 2.4%, if you look at the overall book. you know, almost 30%-35% of that is in the stage of sale of assets or repossession of assets. That gives us confidence that this number will further go down because the efforts on legal that we had started almost 18 months back have given us a lot of results. A good percentage of that has been taken, you know, the bank has taken the property, now in the process of auctioning. A good number of cases are in the process of getting, you know, the enforcement of security happening there. Old book is also, you know, getting cured at a very fast pace. Last year, same time, I think we were in the range of 4.5%, and now we are in the range of 2.4%. The arrearage amount also has come down by about INR 60 crores. Yeah, got it. There is some, you know, a remark that there's Micro-LAP also in this book. What% of this affordable housing book, as we see, is Micro-LAP? Is this a focus product, and what are the areas? Rajiv, the Micro-LAP product is a very focused product for us. The idea is that, wherever the large ticket size individual loan is there in microbanking, and we see that the family is able to support that, bigger ticket size, we migrate them to Micro-LAP. However, in the current book, the amount of Micro-LAP is just around INR 40 crores. Okay. Okay. This will be scalable with the bank. Got it. In yield, we Yield is around 19.5% in that book. Great. Thanks so much, and best to you. Thank you. The next question comes from the line of Deepak Poddar from Sapphire Capital. Please go ahead. Thank you very much, sir, for the opportunity. Just I wanted to understand, I mean, in terms of brand, I think you mentioned, we will be continuing the brand investment in Q1, right? What was the quantum that we did in the Q1, and how do we see that going ahead? Deepak, we won't be able to share exact expenses of the brand campaign. The brand campaign went live on 24th of July. To that extent, whatever, the production cost and all was there, that was taken in the Q1. The overall cost will come in Q1 and Q2. There is a 5 week plus brand campaign. 8 week plus, 8 week brand campaign is there. The overall cost will come in both the quarters. Q1 is loaded with that. To some extent, it will be there in the Q2 as well. Okay, okay. Ideally in the first half only the, this cost will come, right? Not in the second half. Yeah. A lot of it has already come in the Q1, and the balance will come in the Q2. Okay, okay, fair enough. I understand. Sir, just a clarification in terms of, I think this reverse merger. I think we had a last update as on 28 June, right? As you mentioned in your press release. How soon we are expecting it to get through? Deepak, it's a legal matter. We won't be able to give timeline on when do we hear from the court. Right now, what we can say is within this year, we believe that the matter would be wrapped up. Within this calendar year? Yeah. Okay. Understood. Sir, in terms of reverse merger, our share outstanding will decline by about 1.5%-2%, right, post the merger? it will be 0%. There will be no promoter. 1,925 million shares would be our revised share outstanding, post the reverse merger? Yeah. Post the reverse merger, roughly around INR 3 crore, all shares will be canceled. Fair enough. Yeah. That's correct. That's correct. Okay, that's it from my side, sir, and all the very best. Thank you so much. Thank you, Deepak. Thank you. The next question comes from the line of Prabal from Ambit. Please go ahead. Am I audible? Yeah, Prabal, but a little soft. Can you be a little louder? Is it better? A little better. Yes. My first question is on deposits. Congrats on the performance, here. As we are growing our deposit base, how are we ensuring that we also bring in customer engagement so that some portion of this new deposit accretion over a period of time becomes sticky with us and also less rate sensitive with us? Hi. So on the deposit base, a lot of work is being done to increase the visibility and the awareness of our brand. You know, Deepak also mentioned, and Mr. Davis also mentioned about the brand campaign that we are doing. We hope to garner a lot of retail deposits through this campaign. We have also put in a lot of specific customer segment-wide programs, which will help us in growing our deposit base. We are also categorizing our customers into, you know... We've categorized our branches into various categories, and we have also introduced a relationship management fees in place. We have a strategy for new customer acquisition, as well as for the existing customer acquisition. You know, like I mentioned, the segment-wide programs, for high net worth customers, for senior citizens, for retailers, for starts, for women, for youth. This is the way in which we will be growing our deposit base with a specific attention to each customer segment, and also, designing products that are required for that particular segment. You know, the strategy is new and existing, deepening our relationship and of course, through the brand channels. We have also introduced a digital channel. The digital fixed deposit has been recently launched, and that is an area too, that we will be looking at. Our service quality is another area for our customers. The customer service area is another aspect that we are strongly working on. We have a phone banking team to attend to customers for any of their requests. That's a channel that has been significantly upgraded, and we are able to do a lot of service requests through this channel. customer- Sorry to interrupt. Actually, my question was not on accruing new deposits, but more on how do we make sure that these new deposits become more sticky and stays with us, even when we reduce the interest rate? Yes. Through all this, you know, the customer service programs that we have, the multi-channel approach, the relationship management team, this is what will help us. You know, segmenting our customers with programs like the with various programs and using analytics, we will be able to define our requirements for each of these customer segments. A lot of cross-sell is going to come into the picture. With all this, we will be able to deepen our relationship with the customer. Okay. Okay, I'll take this offline. My next question is on, sir, can you tell us how is microfinance individual underwriting different from a group underwriting in terms of, you know, what are the different processes in both the systems? Hi. Group loan, the individual loan underwriting is very, very different from how we do group loan. Group loan is classical Grameen model, and it happens the way it happens for the industry. As far as when customer try to graduate from group loan to individual loans, we have a separate feet on the street from business side, who are supposed to acquire customers and onboard customers. Then we have independent credit team. ... Right from street and street to the, to the, credit officers, we have independent trade team who analyzes customers based on their, uh, family level income. And this practice we are following for the last say, thirteen, fourteen years, which is now mandated by RBI. And this is something which is done by trade office in- individually, and, loan is underwritten by the trade officer. Apart from that, we use a lot of data analytics to understand which customer can graduate. We have a lot of data, internal data, as well as, as well as certain data, as well, for the customers. We use this data to underwrite customers better so that we can graduate all eligible customers from DM to IM. So IM is a separate vertical. There are separate people there, both in business and credit, and apart from that, we use data to analyze customer better. Just the last question. What are the top 3 states, since we have a diversified portfolio across geography, what are the top 3 states where you are seeing better than expected traction? Maybe if you can also highlight the bottom 3 states where you are still watchful in terms of growth. You are talking about IM or overall microfinance? Overall microfinance. Our top three states is Tamil Nadu, Karnataka, and West Bengal. We have, obviously, we have more number of branches. We started from here in the region. As far as, you know, bottom three, and as such, we don't have bottom three in terms of growth. We have number of branches which is different in different states, but at this point in time, I would say that Assam is something where the industry is facing issue, and we are also very cautious and we are doing, you know, we have changed our strategy in the state of Assam. Apart from that, we don't see any state where we see no growth, which is very low at this point in time, but overall growth is at par with the average growth of Ujjivan Microfinance business. Okay. Thank you. All the best. Thank you. Thank you very much. Thank you. Last question comes from the line of Preet Nagarsheth from Wealth incviser. Please go ahead. Thank you. I wanted to better understand the upgrade, the recoveries and the written off numbers that you posted on the presentation. I thought you mentioned that the write back was, the write back recovery was, what, about 35 crores for this quarter? Yes, INR 35 crores. How is this 77 and 60 coming? Could you just explain that? Preet, that 77 is the NPA recovery and upgrade. That is in addition to the INR 35 crore of the bad debt recovery. That INR 35 crore is bad debt recovery, something that has been written off the book. This 77 is upgrade and recoveries of from the NPA book, which is still there on the book. This INR 60 crore is fresh write-off during this quarter. 52 is technical write-off, and around INR 7 odd crore is other write-off. Is it a write-off or is it a write-back? Write-off. Okay. If you see the math, then because you are starting NPA, then you have your slippages, and then you are adding back the recoveries. No. The math says you have a starting NPA of 631, and there's a slippage of 103. Oh, okay. You have upgrade, so you reduce that 77. You have write-off, so you reduce that 60, and the ending, or the closing NPA is 597. Got you. How much of this can we expect to continue for the next quarters? Will it be in a similar range? Are you asking for a NPA guidance? That's correct. We are at around 2.4%, and we would be ending the year by around, say, 2% odd number. Okay. Next quarter should be around 2%. Okay. The other thing I wanted to understand was that, should we expect a different disbursement for the Q2, given the flood situation that's ongoing in various parts of the country? The flood situation has not really impacted so much on the business. It's a temporary phenomenon in few days at few districts. Right now, we do not want to say that it will impact the overall performance of the quarter, neither on the collection side nor on the business side, disbursement side. Got you. The last question is, can you shed some light on the Hello Ujjivan app, and how is that helping you win business on the ground or give you a right to win, vis-a-vis all the other competitors out there? I didn't get your query. Can you repeat? Basically, the Hello Ujjivan app that you have out there, right? The question is around Hello Ujjivan and how it will help us and customers. That's correct. How is it helping you vis-a-vis competition, right? One of the lines- Hello Ujjivan, as we mentioned in the last, you know, call also that this is something which we have developed for, especially for microfinance and rural customers, as we realize that the original application, our customers are not able to use because they can't read. This application is where the customer can talk to the application and do their banking transactions. At the same time, we see this as an opportunity where this channel can be used by our customers in various activities, including onboarding repeat loans for our customers on this application. Today, we have about over 3 lakh customers who have already downloaded it, with that is exciting news that customers are liking the application. Soon we'll also have repayment is already there, customers... A lot of customers are repaying through this application, which also reduces your cost because your cost of transaction becomes zero. At the same time, as we onboard repeat loans on this, application, once a customer is onboarded, you know. The repeat loans, top-up loans, and other services which customers want in our loan can be serviced through mobile application. This can be a game changer, and we are working very hard on building this application to ensure that all services, future services, when customer is onboarded, can be offered through this application, including repeat, top-up, CDs, reliability, relationship. We are trying to onboard through this application. Yes, this is something which customers are liking at this point in time. A lot of customers have installed, at the same time, we are seeing a lot of new features being added in Hello Ujjivan going forward in this financial year. Wonderful. Thank you so much. Wish a ll you guys, all the best. Thank you. Thank you. The next question comes from the line of Sanjay Pandit from 1729 Capital. Please go ahead. Hi, guys. We ask an update, okay? Hi, Sanjay. We can't hear. You are not audible, Sanjay. Can you be a little louder? Can you hear me now? Can you hear me now? One second. Yeah, better. Can you hear me? Yeah, better. Hello, can you hear me? I Okay, I'll go ahead. Okay. My question is, for those holding the Ujjivan Financial Services, the holding company, going into the reverse merger, does the ratio pretty much stand as is? If so, would there be some kind of cash distribution prior to the reverse merger? Regardless of that, what kind of sort of per-share book value accretion can Ujjivan Small Finance Bank expect to have concurrent with the reverse merger by virtue of, I guess, some cash coming into the, into the bank? Sanjay, book value accretion would be INR 2 or maybe a little more. There is roughly around INR 180 crore of cash that UFL currently has. That will come to the bank, plus a INR 200 crore- Yeah of different shares are there, which will get canceled. That will also come to the bank. A total of INR 380 crore as is, which is there. If and plus, whatever, the Bank has proposed a dividend, if that get approved tomorrow, that will also come to UFL. That amount will come to UFL, and depending upon if whether UFL distributes that money in form of dividend or not, or whatever is the amount, this is that we still believe at least INR 380 crore is there, which will come to the Bank, which means roughly INR 2 book value accretion would be there for Bank. There would be no cash distribution to UFL shareholder as part of the reverse merger. Understood. Okay, thanks. Thank you, Sanjay. Thank you. Due to time constraints, that was the final question. I now hand the conference over to the management for closing comments. Well, I thank you all for joining us, you know, in this session. It's been wonderful to take your questions and answer them. If there are any questions that remain unanswered, please contact Deepak or Madhusudan at our offices here in Bangalore, and we'll be happy to respond to you. I'd like to take this opportunity to thank Mr. Shah, IIFL for their coordination and hosting of this call, and to Chorus for their logistics. Thank you very much. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.