Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Disbursements increased by 22% year-on-year to Rs24,332 crores.
- Assets Under Management (AUM) grew by 38% year-on-year to Rs1,68,832 crores.
- Net income for the quarter rose by 43% year-on-year to Rs3,033 crores.
- The company maintains a strong liquidity position with Rs14,324 crores in cash balance.
- Capital adequacy ratio stands at 18.03%, well above the regulatory requirement of 15%.
Negative Points
- Gross Non-Performing Assets (GNPA) percentage increased to 3.62% from 3.54% in the previous quarter.
- Net Non-Performing Assets (NNPA) percentage also increased to 2.37% from 2.32%.
- Provision Coverage Ratio (PCR) in LAP and SME segments has been reduced, raising concerns about potential delinquencies.
- Operating expenses remain high due to ongoing branch expansions and manpower increases.
- Credit costs have increased quarter-on-quarter, impacting profitability.
Q & A Highlights
Q: Can you explain the reduction in PCR for LAP and SME segments and the rise in delinquencies?
A: Ravindra Kundu, Executive Director: The reduction in PCR is due to resolving old cases with higher provisioning percentages. As these cases are resolved, the provision coverage ratio appears to come down. However, the LGDs remain low, and we are comfortable with the current provisioning levels.
Q: What is driving the increase in OpEx ratio for the vehicle finance business?
A: Vellayan Subbiah, Chairman and Non-Executive Director: The OpEx ratio for vehicle finance has remained stable compared to March 2023 levels. The increase is due to higher disbursements in larger ticket size vehicles. We expect the ratio to stabilize as we continue to grow.
Q: How do you see the growth trajectory for the home loan business given the slowdown in branch additions?
A: Vellayan Subbiah, Chairman and Non-Executive Director: We have ramped up volumes substantially over the last two years. This year will be a period of consolidation, focusing on increasing productivity and maintaining delinquency control. We expect a ramp-up in volumes in the second half of the year.
Q: What are your plans for OpEx over the next two to three years, especially with new businesses in investment mode?
A: Ravindra Kundu, Executive Director: We are expanding branches and manpower for new businesses. OpEx levels for new businesses have started coming down, and we expect further improvement over the next two years. We aim to see an improvement in our ROA profile through both margin expansion and OpEx improvements.
Q: How are you positioned on the cost of borrowings side, especially with the potential for rate cuts?
A: M A M Arunachalam, Non-Executive Director: Our bank borrowings are predominantly driven by priority sector lending. As liquidity improves and CPM rates come off, we should see benefits. We are managing between public sector banks and benchmark pricing to maintain overall borrowing costs.
Q: Do you have any capital raising plans, and how are you positioned for growth targets?
A: Ravindra Kundu, Executive Director: We are comfortable with our current capital adequacy ratio and have no immediate plans for capital raising. We aim to grow at 25% to 30% annually, maintaining a pre-tax ROA of 3.5%.
Q: What is your outlook on credit costs, given the increase this quarter?
A: Ravindra Kundu, Executive Director: We expect credit costs to come down in the second quarter due to good monsoon and improved collections. Historically, we have seen a reduction in delinquencies in the second half of the year, and we expect this trend to continue.
Q: How do you see the growth in the vehicle finance segment, given the muted growth expectations in the auto sector?
A: Ravindra Kundu, Executive Director: Despite muted growth expectations, we see opportunities in high-yield businesses and small ticket sizes. We expect the retail segment to grow from 9% to 13%, driven by inventory levels and demand from small transport operators.
Q: Are you seeing any signs of stress in unsecured business loans?
A: Vellayan Subbiah, Chairman and Non-Executive Director: We have not seen any major spikes in our portfolio behavior. Our bounce rates are sub-10%, and we maintain a high credit score for our business loan customers, with 97% having a score of 700 or above.
Q: What are your plans for branch expansion in vehicle finance?
A: Ravindra Kundu, Executive Director: We plan to convert high-performing locations into branches. We are currently working with 594 additional locations and will convert the best-performing ones into branches, focusing on growth and maintaining delinquency control.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
