Release Date: October 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Spandana Sphoorty Financial Ltd (BOM:542759, Financial) has implemented a conservative lending approach, pausing onboarding of new-to-credit borrowers to mitigate risks.
- The company has strengthened its controls, including enhanced KYC checks and additional fraud prevention measures.
- Spandana Sphoorty Financial Ltd (BOM:542759) has created a separate quality assurance layer at branches to focus on process adherence and customer service.
- The company has added additional manpower and a dedicated collection team to improve collection efficiency.
- Despite challenges, Spandana Sphoorty Financial Ltd (BOM:542759) expects operations to normalize by the end of the current financial year, indicating a positive outlook for recovery.
Negative Points
- The company reported a significant loss of 216 crores for the quarter, highlighting financial challenges.
- There has been a substantial increase in borrower indebtedness, impacting the company's portfolio quality.
- High attrition rates among loan officers and branch managers have been a persistent issue, affecting operational stability.
- The company's net interest income declined by 20% over the last quarter, indicating pressure on profitability.
- Spandana Sphoorty Financial Ltd (BOM:542759) has faced disruptions due to climatic factors like heavy rainfall and floods, further compounding operational challenges.
Q & A Highlights
Q: Stage two has substantially increased. Does this mean a significant part will flow into stage three in Q3?
A: Ashish Damani, President and CFO, explained that while mathematically it might seem so, there has been a 50% collection even in stage two buckets. Shalabh Saxena, MD and CEO, added that the recruitment of additional manpower began last quarter, and the benefits will be seen this quarter. They have also set up a recovery team to handle beyond 90 days, as they believe the current disruption is temporary.
Q: Can you provide insights on the ESOP penetration within the company and how you managed to retain outgoing branch managers?
A: Shalabh Saxena stated that they did not offer monetary incentives to retain branch managers. Instead, senior management engaged directly with them to understand and address their issues, leading to a 78% retention rate. The focus is on ensuring branch managers and supervisory levels are well integrated into the organization's objectives.
Q: How is Spandana addressing the issue of multiple lenders leading to borrower over-leveraging?
A: Shalabh Saxena mentioned that Spandana will not be the fourth lender to new borrowers, even though industry guidelines allow it. They have observed a clear correlation between the number of lenders and portfolio quality issues, and are taking steps to mitigate this risk.
Q: What are the expectations for cost-income ratio and credit costs?
A: Shalabh Saxena did not provide specific guidance on credit costs due to the fluid situation. They are avoiding guidance until they have more clarity by the end of Q3, as the situation is dynamic.
Q: Is there a need for a separate collection mechanism post-crisis?
A: Shalabh Saxena believes in maintaining the integrated model where the same person lends and collects. However, for loans that become GNPA, a separate recovery team is advisable until regularization.
Q: How is Spandana handling KYC issues, especially with multiple voter IDs?
A: Shalabh Saxena acknowledged the issue but noted it does not significantly impact the book. They have stopped new-to-credit lending to focus on customers with a valid credit history and are implementing checks to prevent such issues.
Q: What is the strategy for growth in AUM given the current challenges?
A: Shalabh Saxena stated that growth will primarily come from the existing customer base. They are focusing on stabilizing operations and addressing customer needs, with plans to increase disbursements once the situation normalizes.
Q: What is the expected recovery rate from the 90+ days overdue accounts?
A: Ashish Damani estimated that recoveries could be between 20% to 30%, considering the diverse reasons for accounts moving into GNPA, including temporary challenges and logistical issues.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
