Arman Financial Services Ltd Q3 FY2024-25 Earnings Conference Call

Ladies and gentlemen good day and welcome to the Arman Financial Services 3 qfy 25 conference call hosted by equia Securities as a reminder all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes should you need assistance during the conference call please signal an operator by pressing star then zero on your Touchstone phone I now hand the Conference over to Mr shripal Doshi from equarius security prorities thank you and over to you Mr Doshi thank you Sagar good evening everyone I welcome

you all to learning call of Arman Financial Services to discuss the 3Q fi25 financial performance and business update today we have a senior management team of the company represented by Mr jendra Patel Vice chairman and managing director Mr Alo pel joint managing director and Mr VI Modi group CFO I will now hand over the call to Alo Patel for his opening remarks post which we can open the forum for question and answer over to you Alex uh thank you so much rfal and uh good evening everybody on behalf of Arman i' would like to welcome

all of you to our Q3 and 9 Monon ended fiscal 2025 earnings call so joining me today is actually just VI uh the group Chief Financial Officer and uh our invested relations team uh hope you had the Opportunity to revieww the result the press release and the presentation which are available on the stock exchanges and our website uh so apologies uh I don't think normally we provide at least 24 hours this time due to scheduling conflicts uh there was a very short interval between uh publishing the results and the cor call so uh anyway I'll

walk you through the results so I would like to begin with an Overview of the industry developments highlighting the key trends in business followed by a financial and operational performance of Arman over the past few quarters the micro Finance sector has faced several challenges including overleveraging weakening of the center meeting discipline deterioration of the joint liability group or JG model and Rising employment attrition furthermore the postco Euphoria experience by micro Finance institutions and in particular non- mfi lenders in the retail unsecured space combined with a favorable regulatory environment has significantly increased household indebtedness this has

occurred despite limited real income growth placing considerable strain on borrowers ability to meet the repayment obligation as a as a result we have witnessed delinquencies and a Corresponding rise in impairment cost across the industry for the past two quarters these challenges have directly contributed to an uptick in the default rates further exacerbating the financial stress within the sector in response both Arman and the broader industry have made concerted efforts to strengthen underwriting standards and mitigate risk of overleveraging naturally these measures have led to high rejection rates and as A consequence lower dispersements Additionally the increased

focus on collection has also stretched the field bandwidth further impacting sourcing efforts and contributing to staff attrition this in turn has led to a decline in both dispersements and AUM these evolving macroeconomic conditions have intensified pressure on micro Finance institutions making it necessary for us to strategically recalibrate our Business models the industry wi excuse me the industrywide AUM degrowth has also resulted in liquidity issues for the micr finance borrowers and it is essential that these challenges stabilize before the cycle reaches a state of equilibrium in response to the above highlighted challenges Arman has taken a

cautious approach by prioritizing portfolio quality and collections over Growth while this has resulted in lower dispersement and AUM contraction we believe that this long-term strategy will strengthen our financial resilience in the long run as on 31st December 2024 our Consolidated assets under management stood at 2280 cres reflecting a year-on-year decline of 6.5% dispersement for the quarter amounted to 338 CR while the 9month dispersement stood at 1170 CR down 28% from the Previous year of course due to the reasons mentioned previously our gross total income for the quarter was 164 CRS 10 almost 165 cods down

2.4% year onye while for 9 months it grew by 10.9% to 530 cres pre-provisioning operating profit or ppop stood at 69 CRS for Q3 down 4.7% year onye but grew by 133% to 20 231.50 CR for the 9 month Period now moving to the segmental performance for the micro Finance business our wholly owned subsidiary number of Finance reported an AUM of 1768 cres as of December 31st 2024 a decline of 13.6% year on-ear dispersements for Q3 fi25 stood at 214 CRS compared to 459 CRS in the same quarter last last year the cautious lending approach

approach along with aggressive provisioning has impacted short-term Profitability with numerous Q3 profit after taxes at rupees I I should well at a loss of 17.2 CRS due to increased impairment cost of 67 CRS this quarter however despite these headwinds number of for number of Finance we continue to maintain a strong Capital adequacy ratio of 45.7% our gross NPA for the micro Finance business stood at 4.4% while net NPA was only at 0.56% msme two-wheeler and lap which is part of our Standalone Arman entity this business delivered an encouraging growth AUM for this segment grew by

30 .9% year on-ear to 512 CRS this segment's gross total income for Q3 fi25 stood at 44.9 cres growing at 32.4% year onye while fat increased to 9.9 cods which is about 5.7% as of 31st December 2024 capital Adequacy for the standard loone Arman entity stood at a healthy 39.4% from an asset quality perspective gnpa for msme stood at 3.43% and for two-wheeler stood at 4.03% despite industry challenges this segment remains resilient and continues to support the company's overall growth trajectory the new loan against property or micro laap segment introduced last Year although it is

at a Pilot stage right now has gained encouraging traction presently the product is offered in Gujarat and piloted in Telangana and MP it's about 1% of the AUM so far the focus of this product is on tier three and four and Rural locations where we are expecting the good growth in the coming years the average ticket size of lap loans currently is about 4 and a half Lakhs now coming to the liquidity and borrowing our liquidity position remains strong with cash and Bank balances liquid Investments and undrawn CC limits amounting to 262 cres additionally we

have 120 cres in undrawn sanctions from existing lenders ensuring continued Financial flexibility total borrowing stood at 7 1765 roads with a diversified funding mix of this 34% was from Banks 11 from nbfcs and financial institutions 20% From ncds and direct assignments or off balance sheet liabilities contributed to about 30% the rest is borrowed from DFI such as naad and CB and others this Miss reflects this mix reflects our ability to maintain funding access despite industry heads on the collection efficiency side collection efficiency for the month of December 2024 stood at 95.3% the segment wise collection

Efficiency for the 9 months F525 stood as follows micr Finance 95.2 msme 96.2 two-wheeler 95.7 before we open the floor for questions and answers I would like to take a moment to highlight some of the Strategic initiatives that Arman has undertaken in response to the current challenges we have reinforced our underwriting standards to ensure stronger asset quality and have expanded our collection team to improve borrower Engagement and repayment discipline additionally we have introduced a dedicated uh credit department at the branch level which focuses exclusively on maintaining credit quality in a sense we have now completely

separated credit from sales in micro Finance encouragingly early indicators from December and January show improving Trends in the credit cycle with zero dpd flow forward rate stabilizing while it's little too early To tell whether we have reached the bottom should these Trends continue we will adapt our business strategy accordingly although we have experienced a temporary slowdown in AUM growth we remain confident in our ability to navigate these challenges in the industry and position Arman for long-term sustainable growth thank you very much and now we can open the floor for questions and answers thank you very

much we will now Begin the question and answer session anyone who wishes to ask a question may press star and one on their Touchstone phone if you wish to remove yourself from the question que 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 que assembles again you may press star and One to ask a question our first question comes from Aura sing from punch pancharatna investors please go ahead hello yeah go ahead yeah am I audible yes

yeah good evening uh just want to understand what are the green shoots you are looking for to understand the cyc cycal turnaround and what measures you have taken for Recovery see Uh as far as green shoots are concerned typically what we look at to judge whether we are coming out of it is zero dpd flow forward rates this means can you people who are previously uh paying regular uh who have now crossed who have become one day overdue at this point so uh normally in the mfi segment we would experience that at about 99% uh

so there will be 1% flow forward now again just because something has Flowed forward that doesn't mean it will get written off obviously at every bucket there are repayments that happen uh but uh we typically track flow forward rates quite closely at every bucket now this will be too much details to get into but until uh the zero dpd flow forward rates return to 99 I would not say okay this is over or this is behind us uh now that being said uh we have seen at least for the last Two months zero dpd flow

forward rates have been uh 98% plus so I think it was 98.03% 35 to 40 bips ahead of previous month on a month to date so again I I'm not superstitious but in days like this you become a little superstitious I don't want to jigs anything but you know uh obviously there is minor improvements in the zero dpds uh you know in the last couple of months now uh as far as the initiatives we have Taken I mean there are many many initiatives obviously on a day-to-day basis we work on all of them some of

the larger ones is see uh people who follow micro finance will know that there was always a bit of a conflict of interest between credit and sales where at the operational level at the branch level uh you know micro Finance principle was that the guy who does the dispersement does the collection and so while there was Obviously credit mechanism uh at the ho level and at the regional levels it was not at the branch level we have completely separated that now so at least uh so far about 120 branches by March we will reach most

if not all branches and uh the idea being is that if you cannot rely on JLG or JG culture anymore which again it's too early to tell whether it's Completely gone or if this is just a blip in otherwise very successful model which we have been following Arman has been following for 15 years but the market has been following for or the industry has been doing for better part of five decades almost right so uh so that is one initiative another is that we have started with uh CG fmu so that is uh uh I

don't know that kind of is the CGS SMU is the guarantee cover being provided through the Government's ncgc uh the national kind of credit guarantee cover scheme so that is available for micr finance borrowers uh so we probably one of the uh few micr Finance entities which have already enrolled and as of quarter three uh disbursements uh which let's say about 200 crores of disbursements that have taken place in quarter 3 uh have a guarantee cover Through the cgfm so the guarantee is it's a little complicated like all of These things get but essentially what

it covers is about uh 72% of your principal in default ignoring time value of money so let's say okay your default is 100 rupees they will give you 72 rupees and 28 rupees the company has to eat it uh for which we pay a premium it's sort of a default Insurance uh and basically how the math works is that considering time value of money and all those other things if you're uh overall static pool losses at This point with what we are paying them uh crosses about three and a half% uh you'll you know you'll

make money and uh or you'll come out ahead and less than that but again let's not get into this is not a profit making this is not a profit making V venture or anything it is to buy me better sleep if that makes sense the focus is clearly uh visible thanks thanks a lot no and again I'm sorry for the longwinded answer but I'm sure kid something similar to these Questions were there in probably most of the uh people's uh Minds so that's why I took my time on this question no no please this is

really helpful thank you thank you next question comes from sham jaer from texture Capital advisor please go ahead yeah hi am I audible yes yeah hi sir thanks for the opportunity uh I had a couple of questions the first one being sir on what dpd do we write off the Loans so I think right now we are writing off quicker than so the policy the policy the policy is uh anything which is not paid us uh for the last six months once the account turns 180 Plus so essentially anything which is over and above let's

say 300 is automatically written off uh but as of I mean right now uh we are writing off anything which is not paid us after it has turned NPA that is 90 dpd so essentially anything which is 250 days or 240 days plus uh Will get uh so basically we are being slightly more conservative and everything over about 25050 days if we see no hope of any recovery is written all right and so basically also one um I wanted to understand basically for customers who are flowing from DPT buckets right for example DPT 30 to

dpd 60 plus what action do we try to take to stop that uh net forward flow so there are lot of initiatives so First of all we have a ro mechanism recovery officers that now we have about 350 of those and you know that will continue to increase uh so those take over at the F level we have various schemes we are using bot calling we are using Auto calling we are issuing legal notices 0 or 180 plus so everything that you under the sun that you can think of you're doing okay but again I'm

open to ideas So if anybody has any clever ideas I'm I'm I'm All ear you know anything to increase the collection right you to be careful you have to be careful with these customers I mean you cannot you know you cannot use high pressure tactics because the kind of customers that you are dealing with you know that is obviously not something that uh I would encourage all right so my another question was um I wanted to understand more on overleveraging right so as I understand the first guards had been announced somewhere in August of 2024

and the second guards were announced in November 2024 right I wanted to understand since before these guardrails were announced what were our internal guidelines that we followed which ensured we weren't exposed to any uh you know over Leverage The Borrowers like what was our internal guidelines before the first First guard itself so we were using F like everybody else so this will require a bit of a history lesson but prior to April 2022 there were hardcoded uh overleveraging uh you know what do you call it rules that were issued by beer whatsoever that you could

I think you could be the third lerer or something no so you no more than two mfis or no more than three Lenders the three lender Norm was by mfin more than anything else but again this only applied to mfis now was a time when mfis were controlling 80 90% of the market today we are probably controlling 40 40 at the most 40% of total household debt of the rurals obvious mfis Although our portfolio increased there are now there are many many players that are servicing rural segment right now in April 20 after April 2022

all of those in a Deregulation by RBI lot of changed including removing those caps and what cap they imposed was a 50% F so you assess and their installment should not be more than 50% of what they are earning right so all in all that you know sight Is 2020 but all in all that seemed like a good measure right that you look at their household income and their could not cross more than 50% of that so largely lot of people were not looking at this plus one plus 2 plus Three or anything we we

had numerous uh underwriting standards which were in place so first of all we were looking at all loans not just mfi loans because mfi was losing ground in term of market share uh we were looking at uh husband wife we were looking at default rates we were not even entertaining a customer who was one day overdue anywhere else uh so there were various measures Which were there in hindsight yeah I mean you know number of lenders is something that we found a close correlation but let me tell you even right now 46% of our customers

have an exposure of less than 50,000 Rupees total you know uh 60 or excuse me 60 44 60 68% of our customers have a total loan exposure including all loans of less than one lakh rupees right so I don't want to put Overleveraging is the only problem here I mean there are lot of see problems like this rarely occur due to one issue I mean there are always multiple issues it's and it's like the Swiss Cheese model where it has to pass through a lot of holes to get here i% of the issue is definitely

overleveraging but there are many other issues you know debt has increased aspirations have increased uh culture has changed JG got Diluted and uh you know I'm I'm willing to accept my share of the blame for whatever has happened but I will not completely say it is due to overleveraging or weak credit uh there are many many aspects here and honestly right now the biggest issue is credit has stopped right I mean credit hasal dispersements are like half of what they used to be when you stop liquidity obviously things are going to wor get worse before

They get better right anyway yeah so last two questions and then I'll uh again quickly join back the queue uh the first was key is there any like what is the standardized process for income income assessment both at the industry level and that we follow at Arman and the second question was uh what are our loan officers and collection agents how are they ined incentivized is what I mean these two Questions uh so so to answer your first question we have completely revamped how we are assessing income so I mean that will be when did

we do that sir so I think we started the initiative in August and uh so with the new BCM structure that I was mentioning earlier uh the cor earlier again that conflict of interest right the guy who dispersing the money was was assessing the income correct now today there's an independent Person whose bonuses and everything depends on asset quality rejection rates are like 80 82% right now right right and that's not something to be proud of I mean very few lending businesses can run with that kind of rejection rate so something or another has to

uh change but anyway that's fine like I I'm not too concerned about a declining during Dem monetization it had declined by Third during Co once things are over things Catch up back very quickly so that is not my concern my concern right now is simply on asset quality and 90% of our time goes towards that management bandwidth is stretched field bandwidth is stretched on Collections and repayments uh so dispersements will come back to normal in due course of time uh but uh that is not my priority at this point uh now how are we incentivizing

see field officer Incentives uh you know I mean on average they are like around 2500 rupees so that's a mix of lot of things but nowadays with attrition and everything the rate is and every month being different than others uh we rely a lot on RNR uh kind of incentives so we'll have certain zero dpd targets or collection targets and those things or they have multiple contest the actual incentives ofself are gone down Significantly uh overall in exchange of uh base salary and this is what you know the field offices are demanding U and given

the attrition you kind of have to uh deal with that collection people on the other hand obviously their incentives uh matter on what buckets they are collecting so harder the bucket the more money they get it's a standard system that pretty much everybody follows including HDFC bank and Banks And nbfcs and whoever else right so my apologies I I couldn't understand one the uh income assessment weight could you please uh elaborate that once again so the income assessment lot of is based on judgment uh we try to get evidence as much as possible depending on

the kind of occupation that they are doing so the simplest way to explaining is that if they you know if they're in large part of our portfolio goes into Cattle so depending on the number of cattle they have it's easy to guesstimate what kind of income they'll be having uh other occupations it it really depends uh on on a case to case basis it's also depend on a lot of self declaration that the customer might nowadays we are not really paying much attention to the self declaration that's where in the the BCM or the Credit

evaluation becomes more independent and assessment by the company over and above that there's also a lifestyle assessment that we do so there are what kind of house they are living in in comparison to people who are you know their neighbors uh what kind of facility do they have do their children go to school do they not go to school so there's a whole form that is there uh I mean if you're interested we can VI will walk you through it in a Separate time but unfortunately I don't I don't think this is the right way

a right place to kind of walk through it right now sure sir sure sir and so what is our loan right of this quarter out of the total impairment it's about 45es 45 if you're talking about number alone yeah yeah number and total as well uh the Consolidated total I think I have to refer to the presentation but carry Somewhere there uh sorry sir carry somewhere in the presentation but uh 25 in number about four odd cres in Aran so 45 plus four about 50d 50 thanks thanks sir thank you next question comes from Narendra

from Robo Capital please go ahead uh hi sir thanks for the opportunity uh am I audible yes yes please go ahead yeah uh so sir given uh that we are in are we in a position you Know uh give any growth or credit cost sorry to interrupt Narendra uh your voice is coming very low if you're using speaker phone maybe request to use handset or something please not only low but it's cutting off so I'm missing some of the words is it better now sir yeah yeah maybe yeah so my question was uh that given

the situation that we are in currently are we in a position to give Out any guidances regarding AUM growth or credit cost for the next year what I cannot even give you a guidance for next month so I mean uh it's I'm I'm kind of joking but the the fact is any guidance is meaningless at this point I mean we don't know uh how the next quarter is going to look like when when the things so until things stabilize uh unfortunately no I'm not in a position to give any Guidance understandable sir thank you so

much and yeah thank you next question comes from the line of Mo shanka from AUM Capital please go ahead uh I wanted to understand since DG model has suffered so are we uh moving more towards secur mix and will our AUM growth be mostly towards SEC are we moving more towards what did you say uh mostly secured mix for lap and Two Meers and mfi disbursement will be low no so lack is a long-term play I mean just as we started msme in 2018 about like you know 5 six years ago and now it's 500

CR I mean we really don't we are not a kind of company that moves very quickly you know we're sort of boring in that way uh so lap is a long-term play and yes you are right we would like to get into a more secured kind of a book but uh I don't think the secured book is going to be meaningful For at least 2 three years you know and secured is a whole another Beast really I mean you know if I open up a shop to give unsecured loans it's very easy to sell those

loans if I open a shop to give secured loans then it's not that easy I mean you know you got to find customers who are willing to mortgage their house for their business and stuff so it it's it's a different business in in many ways and uh but Uh I guess uh one way to answer your questions if I could yes definitely I would uh but uh today I don't see it having a meaningful I mean definitely we can Target like a 5 to 10% over the coming three four quarters but to say the majority

portfolio will be that is I wish it was the case and micro Finance is kind of here to say yeah we through we through right now in middle of a bit of a crisis if we Can put it at a sector level yeah but uh micro Finance I mean it's it's not going out of package no I mean all you have to ask is okay is there a need for this product and I don't think you know 99 out of 100 people you ask is going to reply yes so there is a need for unsecured

small ticket loans in the rural segment you know I was saying this to even people at RBA I think I said it last time also uh but I'll say it again Since the 60s Indian government to their credit has been trying to push the financial inclusion agenda right starting from Farm Credit to PSU Banks to PSL Banks to Cooperative Banks to rrbs to bank linkage nabad you know SGS mfis uh I mean you name it to their credit they have done it all everybody has been so concerned to make sure money reaches at the bottom

That nobody was too concerned about too much reaching the bottom right so so so in many ways uh you know if it helps helps you sleep better at night this is this is a success and you know it's a success of the financial inclusion agenda uh at least the reach part now all we have to worry about is how to assess them better and convince the customers to repay us better uh incomes you know real incomes Have not really increased since Co I think if you look at real incomes in the rural they have increased

by 0 to 1% uh you know a lot of these guys in hindsight again I've gone to the field myself we supplementing inflation with loans one way to put it so uh I acknowledge that there were a lot of things broken but uh you know the first step of solving a problem is first of all Admitting there's a problem and B finding out what that problem is and I think all of us and I'm not just saying the company I would say the industry at large has grasped both of those things has acknowledged that there

is a problem and now we are aware of what those problems also are so give us some time we'll fix them uh my second question would be like don't you think mfi as a sector our business model is quite fragile because Um uh if you look at generally we are our cost of barding will be very high on top of that we need to carry a very high number of Field Force for collections and uh uh because of that our costs are going to be very high as as compared to a fintech or maybe a

bank so don't you think our business generally our business model as a whole industry is quite fragile I mean you know exactly 12 months ago people were calling it very Resilient so I guess the flavor of the month will change every every quarter uh no but I mean I'm not exactly sure how to answer that I mean if you are comparing us to fex let me tell you that is not the right comparison to make uh fex in this in operating in rural unless they have a good method to collect the money is a picking

time B according to me uh but again what what the hell do I know uh the as far as Banks I mean you know They've had a good 80 years to do it and they have not managed so if banks were in a better position to do what I do then why haven't they you know I mean they clearly had adequate time to do it so again I'm not exactly sure how to answer your question okay my last question would be like what would be a cost of borrowing so marginally I would say it's About

11 and a quarter if you include everything else in it process for quarter for the N9 months turning out to be about 12.86 yeah so all in the increment of the marginal cost as said is is under 12 yeah okay thank you I'm wishing you all the best hope you have a good thank you next question comes from the line of adiya pal from MSA Capital Partners please go Ahead hi uh thank you so much for the opportunity uh I'm am I audible yes yes thank you please go ahead uh so just wanted to understand

from you that uh say four to six quarters uh the disbursements that we have originated uh how have they performed on a on a cohort basis quarterly cohort basis so if you look at last 12 months better but you know in micro Finance first six months you don't really see a lot of defaults so uh it's hard to judge at This point but uh no because just trying to understand the momentum where we are at right because I understand so if you are saying the stuff which we have let's say dispersed between April and April

May June right for no let's say let's say 12 let's take December 23 onwards right because that will give a good good runway for you I mean obviously that will be that will that will not look Good this was you know I would say the peak of the bubble if this is what it was was Q4 of Q4 of f fi 24 24 so that's when the most amount of overaging would have taken place and so you're after all said and done if you do a static pool analysis that will be the worst quarter all

considered and say the the last at least the last nine nine 10 months the book That has been generated they have been performing adequately in your yeah yeah I mean yeah it's adequate is a word I mean there nothing to write home about to be honest it's it's not you know I mean largely what you want to compare it with uh I mean if I was to compare it with preo kind of a scenario obviously these last nine months performance may not kind of compare directly with the pre-co kind of a because the behavior of

the customer has changed right Right but is it is it performing then the rest of the rest of the book you know at 1,800 cres of total a 600 cres in the last 9 months or 6 months are the 600 doing better yeah obviously they're doing much better see what makes this uh current crisis that we are facing very different than what we have faced in the past is that in the past we could essentially buy ourselves out of whatever trouble uh or the industry could rather Buy themselves out by dispersing good quality customers which

were plenti available right so postco post demon we grew substantially by the time you got into taking care of the bad customers uh the good customers are replaced in today's scenario when the portfolio is falling obviously the denominator effect works both ways right so uh so that is that is why on a static pool today my numbers will look better than what it is right now because the Portfolio is declining so uh again everything is all relative I understand so let's not get into nuances of what is and what not no not getting into nuances

but just trying to certain where the momentum is heading right because no I'm not talking to you I'm not talking to myself I I I'm sorry uh so uh no so yes the portfolio that we have created is the last 6 months looks much better than what we have otherwise to answer your Questions simply uh but it is not like pristine or anything like that what we experience on a post C underst and uh there's been a sharp increase in a 31 to 9 par 31 to 90 as well it is uh specifically speaking about

mfi so it has gone up from 4.4 to 7.1 uh how to read was in March I believe and 7.1 is current right true so how to read into this and what will be what will be the flow forward rate do You see do you do you see that you can arest this over here rather than it flowing deeper into our NPA buckets I mean you know it's there isn't much to read from it it's not like hieroglyphic certainly not good I mean I I have no I have nothing good to say about it uh

except to say it is what it is uh we are working on it uh flow forward rates if it adds if it gives a little bit of comfort Are improving at every bucket uh so uh but uh but yeah I I would say that uh we are watching those numbers very closely all buckets we are watching very very closely and uh so we are trying to do everything that we can so uh on a console basis we've done a 175 CR of credit cost which 150 150 odd closes uh n for the 9 month how

bad do you see if do you see This this entire a worsening of a set quality or higher right offs being pushed to F5 26 because uh we should start growing now right at least from this quarter onwards or maybe from fi 26 we should start having some growth not just not just going but even the base effect will kick in right no so I think dispersements will improve uh we are seeing improvements in dispersements uh uh in in Q4 so dispersements will improve as far as Growth goes again I don't think that will happen

till q1 uh what what was your for the cost so when when when does it when how should your question is if your question is can we pushing anything forward uh for FY 26 the simple answer is no absolutely not so I think people who have known Us in the past will attest okay we have not done any top offs not done any restructuring not done any net off Type things and so far we have not done any ERC type transactions either uh which is not to say I'm about doing those but you know that's

we have not done it yet so whatever needs to be taken care of has been taken care of so the reason I'm asking all these questions is just to sise quickly is that on an average an mfi loan is anywhere between 18 to 22 months some some uh players also do 24 months but on an average industry is 20 22 months now If we see when the crisis started if we say that if if we call Fi 24 as Peak so we are already 50% inside the through the Journey of that entire credit cycle being

weakening worsening so so now things have to start to give in the crisis if you say that the crisis started in April we are 9 months into it so by Logic we still have about 15 months to go 24 months loan G 24 months Take right so that is a assessment to make you to consider that the first quarter there were no like real changes I mean people just started seeing an upt in the in in I mean the people just started seeing uptake in repayments right and then there was heat waves and elections and

stuff which I openly said I mean this is India it's always hot here there's always an election Somewhere so so anyway I I think uh we wasted the first quarter in just saying okay this is a temporary blip and it will cover so really the I would say until August nobody really took it seriously uh now post August obviously everybody's uh kind of been I don't want to say panicked or anything like that but you know taking it very very seriously uh including the industry and everybody So I think listen yeah I think my estimate

which I gave one quarter ago Remains the Same that we will see the Bottom by March already I feel that we have probably reached the bottom but I'm refraining myself from uh that conclusion because I I don't have the data available with me to call it yet uh so and then from q1 I would say you should start seeing an improvement but Improvement also to get back will take about a few quarters right so it's Not like it's going it's going to happen overnight let me definitely definitely it's a lending business May request you return

to the question yeah I'm I'm done in the directions uh wishing the team all the very best and thank you thank you so much for taking all the time thank you thank you ladies and gentlemen in order to ensure that the management is able to address questions from all the participants in the conference please restrict yourself to two question Each if you have any followup questions please rejoin the queue the next question comes from the line of nides Jan from investech please go ahead uh so can you share par par Plus data for the micr

finance book par One Plus data do you have [Music] that part one data may not be there in the presentation but U you can go to the second question if you have I we kind of pull that out So the second question is what is your assessment of the stress in your book on the microfinance side uh given that there will certain percentage of customers who are stressed and once those are identified as gnpa or stress then the then the the act of that the book should perform reasonably well right so what is assessment of

stress on the book and the microf in your view I'm not I'm not sure I understand you're not very clear here What is my opinion on the stress of the micro Finance book is that what you're asking yeah so probably let's say 10% customer 15% customers are are stressed once those customers have have uh have recognized as par one uh then the rest of the books should start behaving reasonably well right so what is your assessment that this number is 10% 15% uh in your view uh so so I would say that uh again uh

please don't quote me on This although this is recorded I would say about 20% of the customers are stressed in the industry and uh why I say that 20% number is that 80% of my customers pay me on dot on the second that it is due the money right so about 20% of customers uh will be late by an hour two hours five hours five days whatever or don't pay me at all so uh if I were to extrapolate maybe 20% are under stress 1 to 30 we were referring to was About 3% yeah yeah

people have skipped one installment and yeah they stable makes sense you have 2% zero dpd flow forward and another one will be stable one yeah okay and in your assessment with all these guard RS coming into force uh industry becoming much more conservative do you think this overleveraging problem will be solved or we we expect further Cycles let's say three Years down the line four years down the line because industry will again go overboard and again Overland no I you know I I don't think so uh believe it or not I've experienced a lot of

overlanding and overleveraging in my career including many bubbles uh so see if it if it was only the mfis who were controlling the industry I would say okay no it it should not happen Again but uh you know we are now controlling nbfc mfis are controlling four lakh give or take four lakh croses of an industry which is 10 to 12 lakh cores if you consider rural lending right I mean you have two and a half lakh C SGS one and a half lakh in retail to the customers another two and a half or so

to the spouses and again these are estimates so these are nothing you won't find this hard hard data available on the net so uh now it has uh you know Earlier on every Tom dickin Harry was coming into rural lending because they thought it's high returns high margin you know uh even people who had nothing to do with lending money the only way they could monetize their business was you know through lending uh lot of technology companies and other ones I'll ref frame from using names or anything now all of that Euphoria is gone right

I mean companies who had no business being In this industry postco and post deregulation came in droves uh now you know I think mfi never waste a good crisis so uh I think we kind of pick ourselves up make the the adjustments and move on with life uh but uh until everybody else kind of sees that I'm not exactly I don't know I Don't know maybe I'm being too pessimistic but the fact is K Indians have a very short memory you know will will everything will be done and dusted and two three years later people

will forget and Life Will Go On that's the way it should be really life is too short to be dwelling on the bad days alone sure sir that's it for my side thank you so so again to simply answer Your question I hope so go ahead next question thank you next question comes from the line of BU sha from samik Sha Capital please go ahead good evening uh so so uh what has changed in last two or 3 months where so that flow rates are uh decreasing so is it a structural change or let's say

due to the crop season people are earning the money and paying back and then again uh this issue may come up again no nothing like that we are just Running out of stressed customers okay but there is a liquidity issue so let's say borrowers who had three4 loans so so what is your assessment are they paying only one mfi or are they uh letting go of two to other three mfi because they are not getting any other money for the new loans right an excellent excellent question and see the there's about 8% of cases that

we have that people are paying us and not Paying others or vice versa people are not paying us paying others and the but in my opinion this thing about okay oh I'm a bank they'll pay me and they won't pay other I mean it's a myth practically speaking it really does not happen most of the defaulters and I would say 90% plus if they stop paying one they stop paying others so that is number one number two in our di uh Team I mean we look at a lot of data and now that we have

business intelligence also We have noticed that whether you are you know Arman plus 1 2 3 4 5 6 whatever it may be the the lowest defaults are amongst the customers who have remained stable at the number of mfi so let me let me try explain that better what we have found is that let's say k when I originate the loan the four right which today for some reason everybody's tracking plus one 2 3 4 honestly I I it's I think people are Paying too much attention to this but anyway I I I'll hold my

thoughts to that let's say somebody that I lent money to that I thought was a good customer at origination but he was I became the fourth lender the lowest defaults are those that remained at four a person who was at four and became three default increases who was at four and you know became two it slightly increases more and the revers also who Was at four and became fifth obviously in that case the default rate Skyrocket but the lowest ones are the ones that remain stable with their outstanding and number of lenders this is what

is true in my portfolio I don't know if it's true in others and and so you see right like I mean only thing that you can kind of judge from that is to say that people people who need money but don't get money also will become Defaulters so it works both okay thank you so much and all the best thank you the next question comes from the line of ronov CHA from AA Capital please go ahead hey hi a am I Audible yeah please than yeah Al I have two questions one is on the CG

fmu um you just mentioned that your rejection rates are offers of 80 82% given that the industry has gone through a cleansing of your customers uh or the industry per se uh of whatever The rotten apples were and then at a 80% rejection rate uh how are you thinking of you know going ahead and getting one more layer of security uh on the disb which we are doing and at what cost because uh you're stepping up on your underwriting stuff you're stepping up on your collection stuff and now if you were to pay this premium

uh how does uh uh your Economics work if you could just highlight that no so I mean uh so the cgfm cost for us right now is about uh 1% a year for the uh principal outstanding of the customer right so over a period of time let's say 2% 2% will be the cost of of that so uh but when I said 3 and a half% that basically that calculation comes in because they're not covering 100% they're covering 72% and also there is some time value of money the first claim that you can really do

is going to be almost 24 months from now kind of a thing right Now that uh that 2% uh kind of a cost theoretically can go up if your default rates are so this is like the one year and obviously depending on the default rate they will reset it as time goes on but uh that is what it is right now so but the first claim I don't think will come until 2026 yeah so uh so it's a long it's a long game I mean it's a long play so I would not uh but if

I understood your question Correctly I think are you asking me that am I being too conservative is that uh did I read your question correctly yes I understand when the first claim will come in I'm I'm just asking where your rejection rates have gone up uh we've gone through a 9 months of cleansing of the industry uh and then we are adding one more layer of insurance so just wanted to understand right you're right I mean that is definitely possible that you know I'm being too pessimistic and Everything like that so as I said in

my speech also that uh I'm happy to we are happy to change our strategies uh even consider them every month or every week if need be or every day so but until uh I'm comfortable I I don't think I I mean this is not a casino like I I can't uh I can't Take crazy bets I mean theoretically if CG fmu is insuring 72% I should go nuts right just start just start lending but that's not uh I I don't think that's how it should work or can work no got itad um and my second

question is on msme uh so your a last quarter was also around 400 OD CR and this quarter is at 410 uh you did allude that management bandwidth is towards Collection uh but how should we think because your uh G&P Etc asset quality numbers are in line uh what is happening here why are we not stepping up is there a concern in this segment also uh which worries you so obviously msme credit cost have gone up and uh really you are just dealing with a different Subs setlement of the same customers they are cousin Brothers

only of msis right so it would be surprising if there was no impact I mean then that would definitely Mean that you know something is a Miss overall uh but there is just so much uh pressure in the market that you cannot push dispersements right now so whatever is happening naturally is happening rest of the time we are concentrating on quality so we're not pushing anything uh you know let let this year end there's about a month and a half to go this year's been a Wash uh I I don't think it's probably one of

the worst years of my career to be honest but uh this let this year get over uh come April we'll you know we'll take a reink and restock of things including policies on msme and everything and whether we want to push growth or not push growth or whatever it is so uh I don't think that we are going to achieve much in the next month and a half even if we change our strategies Right now got thank you so much and best of luck thank you next question we take we'll take a few more questions

I the next question comes from the line of shrat V from bellweather Capital please go ahead hi Alo just wanted to find out how's the experience been in the msme business uh would it be possible to share X bucket zero dpd uh you know how Has been the credit experience when you're balancing growth as well as collections in this particular product because I remember both were being handled by the same person yeah so so last month was 98.8% % was zero dpd so not quite 99 plus but better than mfi for sure and uh yeah

I think npas and stuff look similar but you have to understand that uh you you cannot just look at NPA you have to look at NPA along with you Know the impairment cost and Provisions and everything so whatever is written off is not going to come in NTA so by that respect uh as VI said in mfi we have written about 45 while in MSM we have written of five 5 seven cres maybe uh so so yeah I think uh VI if you want to share msme specific numbers happy to share it but generally I

mean in terms of the par uh numbers that we were discussing earlier on the questions and also in the Uh presentation uh the par uh 31 to 90 is about 1.9% so under 2% and the NPA for msme is about whatever close to three and a half% so overall uh comparatively the stress is lower if you compare it with what what it was last year obviously it has 2.2 uh MP has grown to about 3.4 already and there have been uh much bigger write offs that we've seen in uh msme and Arman stand alone so

that's where the stretch uh in the unsecure can Be felt in uh the Aran book as well but on a kind of apple to Apple comparison uh the overall credit stringent credit process that we followed over the years is I mean kind of giving better better returns got it and given that you know that product has had a little better credit experience um you know are we looking to kind of what is the growth uh plan here from a say Branch growth perspective uh Team addition you know because dispersements have growth has kind of flattened

out quarter on quarter so are we looking to like take this to 100 CR dispersement somewhere mid next year or something like that uh just want to get a broader understanding Al no so so we have grown by about 30% on a same quarter previous year to now but yeah in the past couple of quarters it has flattened specifically due to the micro Finance stress so I mean obviously that Has led to R rejections rection would automatically be felt here as well because if let's say there is an overlap customer who is defaulted on micro

finance loan obious some other place the the impact is going to be felt here in terms of micr play yeah so uh we are definitely not where uh we should be even in MSN U uh but uh I think uh you know honestly I would have expected a sort of a dispersement run Rate at this point of being at least around 50 to 60 cres uh but clearly we are not there yet we are at more around 40 cods or so uh so let's say by first or second quarter we can reach somewhere in the

neighborhood of 60 OD cods of dispersement this is per month right sorry this is 60 CR per month or per quarter per month per per month got it got it we are noing branches we got to keep the opets down you know Obviously Opex has gone up in an effort for this collection income is going down so everything is out of act I cannot afford the pnl and my balance sheet cannot afford right now me going crazy and opening branches and it's just you know as I said management bandwidth is also stressed trying to deal

with these issues so uh I understand MSN is doing better than micro but uh you know there is I mean uh there is No uh there's no compound wall also sometimes I mean whatever problems mfi is facing some of it will deep into MSN as well got it so at least it's fair enough to assume that on the way out probably sometime mid next year this would be one of the first businesses to start growing right meaning like where you go to like 60 CR a month so on and so forth a fair understanding right

I yes I agree see right now it's very Difficult for me to put pressure on anybody to dispers money let me be very Frank with you I cannot go to my business head and be like a disperse Targets this and that whatever is naturally happening is happening but yes I call him three times a day about collections that's for sure got it and last uh question is on lap uh you know how is the pilot in mad telingana uh you know what has been the broad feedback again there what is our Branch growth how many

branches are we in Gujarat outside Gujarat uh what is your broad uh thinking on you know putting up new branches and if if there was a like a kind of file per Branch kind of wag number in your mind is that also going to improve or largely are we looking at growth from just a branch perspective you know moving away from the slightly more sadder topics to something more interesting yeah yeah yeah so so thank you uh so overall in mp And tangana it's too early so we have just hired our team yet uh Telangana

have we dispersed anything in Telangana very few files uh overall in in microolap I think you'll get a better idea so we had not dispersed till Q3 I know that Q3 we not January and stuff we have started dispersing you just hired a new guyy who has some experience in secured and lap loans also uh so right now we are dispersing Out of 15 branches if I'm not mistaken and we'll probably expand that to at least 25 branches uh by by next so so we have kind of people and set up there to about 19

order branches as of December got it and how do you see 12 months like out from a again uh what are your broad plans on Branch roll out and you know the team setting up and broader architecture or thought in your mind for that business for the micro lab side yes lap Yeah so we are we have reached a run rate of around three cres a month by the Target was to reach around five cors by uh year and obviously that was that did not happen uh but uh you know overall the the good part

about microolap is that uh it's it's it does not run down very quickly right because the tenures are longer correct so while the dispersement run rate I don't expect it to cross you Know five seven codes in the coming 3 four quarters but the portfolio will increase faster than uh dispers monthly dispersement run rates because it's you know longer tenure obviously perfect is there so we have a lab guy there we have hired people in Telangana mp uh Gujarat is obviously there but I think as discussing with others also that probably Gujarat is not the

best Market For this product Telangana will be slightly Southern markets are more favorable for this products uh MP again there is good feedback we are getting for this product as well but uh this might not be a product for all uh States you know because again the paperwork and all of those things are very important so while you might find customers who are interested whether whether these are mortgageable Prop properties at least to a reasonable extent I know that we are not going to get like a 100% uh executable mortgage or whatever you call it

but uh as long as we can get it to a point where we are comfortable I'm okay to do it but a lot of places in Rural and in tier four cities will not be there the paperwork is just not there cool thanks thanks a lot guys I'll get back into the question too thank you the next question comes from anant Mundra from my temple Capital please go ahead hello uh thank you for the opportunity sir uh so what is the provision cover that we carry on our stage two bucket in numra well can you

move on the question just pull out this figure sure cover on stage two bucket so that is 30 9 yes yeah so what I'm trying to basically understand is our current book has reached uh 98.1 98.2 kind of a uh X Bucket collection efficiency so do we at least make a break even on the current V and whatever credit cost that has to acre in future is only mainly going to come from the bucket that has already like the stat to current stat to bucket that's what I'm just trying to understand and is that understanding

correct like do we at least make a break even at 98.1 98.2 current bucket efficiency yeah so I mean ballp part you can make your calculations but I cannot Comment on on this but what is about 42% on the stage two cases all right okay okay that be that be okay okay sir any comments on do we make a break even at least on the current book at a 98.2% kind of a collection efficiency I don't know I can do the math but I'm not sure at this point so I I'm not too sure whether

I got the question right he's saying I mean that Lot depends on slow forward rates of other buckets but he's asking at 98.2% are we at a break even stage it's see there are too many wheels there is OPAC there is credit cost there is uh you know uh uh lending cost I'm sorry borrowing cost and there is also interest income and many many factors again I mean just to kind of keep it to your question only specifically 98.2 let's say is one part of the entire bucket I mean this this probably might Account for

95% of the revenue for me but then the balance Ty is equally important so yeah so so the flow forwards when we talk of the current bucket it probably has the largest impact but flow forwards that uh all the buckets are are equally important I mean if I've written off let's say cores in last four quarters it doesn't mean that I've forgotten about them I mean collection even if let's say 3% collection has to happen for them that's Revenue for me I mean two wheer it's like 20 25% zero dpd bucket right but you collected

by the one so but but if current current buet collection uh as as Al said earlier also if it kind of is 99% that's that's good best that's in the given the situation that's probably the best thing to have yeah that's that's probably as I mean it's you know it's like if you are going to a temple And asking and praying for something like don't ask for a private jet ask for something reasonable so like you know 99 is it amazing probably not but uh you know I'll take it at this point I can manage

easily with that got it got it got it and so just I I missed out how much how much are we paying as premium on the CG fmu insurance that we are availing 1% a year 1% a year got it got it okay so that's it from mind thank you plus GST so I Guess 1.3% thank you ladies and gentlemen we would take that as a last question for today I now hand the conference over to Mr shal DOI for closing comments thank you everyone for being part of the call and special thanks to the

management of the company for giving us the opportunity to host this call uh thank you sir and have a good weekend everyone thank you thank you everyone Thank you thank you on behalf of equius Securities that concludes this conference thank you for joining us you may now disconnect your lines