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Edited Transcript of BAJFINANCE.NSE earnings conference call or presentation 29-Jan-20 11:30am GMT

Q3 2020 Bajaj Finance Ltd Earnings Call

Feb 3, 2020 (Thomson StreetEvents) -- Edited Transcript of Bajaj Finance Ltd earnings conference call or presentation Wednesday, January 29, 2020 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Rajeev A. Jain

Bajaj Finance Limited - MD & Executive Director

* Sandeep Vijay Kumar Jain

Bajaj Finance Limited - CFO

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Conference Call Participants

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* Ashish Sharma

ENAM Asset Management Company Pvt. Ltd - Analyst

* Bhavin Ajitkumar Shah

Sameeksha Capital Private Limited - Founder

* Dhaval Gada

DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials

* Karan Singh Uberoi

JM Financial Institutional Securities Limited, Research Division - Vice-President of Equity Research

* Kunal Sharma;Perfect Research Value Fund;Analyst

* Kuntal Shah

Oaklane Capital Management LLP - Partner

* Nagraj Chandrasekar

Laburnum Capital Advisors Private Limited - VP

* Nirmal Bari

Sameeksha Capital Private Limited - Equity Research Analyst

* Pranav Gupta

Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Bajaj Finance Q3 FY '20 Earnings Conference Call hosted by JM Financial Institutional Securities Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Karan Singh from JM Financial. Thank you, and over to you, sir.

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Karan Singh Uberoi, JM Financial Institutional Securities Limited, Research Division - Vice-President of Equity Research [2]

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Thank you. Good evening, everybody, and welcome to Bajaj Finance's earnings call to discuss the third quarter FY '20 results. To discuss the results, we have on the call Mr. Rajeev Jain, who's the Managing Director; Mr. Sandeep Jain, who's Chief Financial Officer; Mr. Atul Jain, CEO, Bajaj Housing Finance; Mr. Anup Saha, Deputy Chief Executive Officer of Bajaj Finance; Mr. Deepak Bagati, President, Risk and Collections; and Mr. Ashish Panchal, President, Rural business, Insurance & Liabilities.

May I request Mr. Rajeev Jain to take us through the financial highlights, subsequent to which we can open the floor for Q&A session. Over to you, sir.

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [3]

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Thank you, Karan. Good evening to all of you. I'll be referring to the investor presentation that we have uploaded on our website.

I'll quickly jump to panel 4, which, in a way, summarizes the quarter that went by. Overall, I would say it is a good quarter despite a slowing demand environment, an episodic provision on a broker account and overall higher credit costs.

We continued to remain focused on portfolio granularity across products and locations in Q3 as well.

Overall, return on assets sustained its momentum due to continued momentum on operating efficiencies, OpEx to NIM (sic) NII came down further. On a year-on-year basis, it came down to 33.9% versus a year ago at 34.9%. Return on equity was higher despite large capital raise that we've done, primarily on account of lower corporate tax rate, and also, of course, strong profit momentum. AUM came in at INR 145,000 crore. OpEx to NIM (sic) NII, as I said earlier, down to -- below 34%. Loan loss to average assets is only red flag fundamentally from 45 basis points a year ago it came in at 61%. Even if you knock off the episodic provision on a broker account, it came in at 55 basis points. So that's technically 20% higher than a year ago.

PAT came in strong. Core PBT growth was 33%. PAT growth on account of corporate tax cut is at 52% at INR 1,600 crores. ROE despite the capital raise came in steady at -- looking at 23.5% on an annualized basis.

Very quickly on the next panel, it's a key question that's in general being asked, how is the -- how are things looking on the ground? What's the demand environment looking like? I thought I'll just give you some texture on how we are seeing things virtually as of January 26. January 26, structurally is a -- an important day for our consumption businesses.

So what we can see here, I mean, we've dropped thousands of AdWords as part of our digital marketing process on Google, across lending and consumption categories, being electronics, mobile, furniture and apparel, clearly showed a significant demand slowdown in Q3. This is intent to purchase, this is not purchases, this is intent to purchase. Intent to purchase itself was down significantly on a year-on-year basis in Q2 to Q2 and in Q3 as well. However, since December, we are seeing some degree of uptick, which continued in January, which is continuing in January so far. Republic Day sale, which is a big day of -- for most retailers, especially in the electronics and mobile, was reasonably strong. If this -- and it's lot more structurally spread across metro, mini metro, urban, rural, we're seeing a structural pattern at this point in time in consumption categories in the last 30, 40 days. If it was to persist, maybe the process of repair of consumer confidence and consumption pattern has started, but I think we'll have a definitive view on that in the next 60 odd days. That's really on the -- what our sense on demand is in the last 30 days since these numbers were published.

Very quickly, I'll try and cover the next 3 panels, which essentially summarize most of how the quarter went by, as such I've talked about. There's reasonable granularity. The highlight in point number two on Panel 6 was that sales finance business to the conversation on slowdown grew only by 7%, rest of the businesses grew quite well. LAS grew by 5%, loans against securities lending grew by 5%, mainly on account of us winding down most of our broker exposures as a result of the event that happened, which is in public domain.

New customer acquisition, we -- despite a 40 million franchise, company continued to acquire 2 million customers in the quarter, we added 2.5 million new customers in Q3 as well. Overall, now we have 23.5 million -- 40.38 million best overall franchise and 23.5 million customers who we want to give money to -- across various products. Existing customers contributed 68% of the loan, they have remained between 68% and 70% in the first 9 months of the year. We continue to have a growth stance, added 182 new locations. We further accelerated the strategy given the capital raise and tax cuts that we got, and we are opening 200 new locations. These are -- I just want to just make one point, the location is defined as it's a new city, it's not a location. So if I'm opening another office in Bombay, it's not a location. Location is defined as addition of a city or a town in India, that's really how we count location as.

Liquidity, pretty strong. ECB is now 4%. Sequentially, cost of funds are going down, it would have been further down if not for the overhang that sat on the balance sheet on account of the capital raise that we did. CP book is -- as a result of that CP book is virtually down to now INR 2,000 crore, and it had impact on overall cost of funds in -- for 45, 50 days of Q2 -- Q3.

Consolidated cash buffer on Panel 7 were close to INR 11,500 crores, very well placed on liquidity, have excess liquidity and not enough to lend, I would say. We converted $575 million. We also -- we've gone to RBI to raise $650 million of additional ECB approval, which you received. So under automatic route, we can rate $750 million. We had $175 million left, which we will raise, and we had raised the request for additional $650 million which we have received.

Fixed deposits book. So the liability side of the book continue to get diversified. ECB has come in, fixed deposit book hasn't crossed the INR 20,000 crore mark, which is 76% growth. 67% of our book is retail, pure retail, with average deposit of INR 3 lakhs and average tenure of 34, 35 months. We continue to work towards growing this business -- this part of our balance sheet.

We launched SDP to further utilize our retail deposit program. Operating efficiencies, NIM was strong, fees and commission continued to be strong. Operating expenses came down to 34% versus 35% in a year ago.

Credit costs, I talked about it. Overall, we've taken an INR 85 crore exposure on the broker account. We've also taken another INR 15 crores on account of a coffee conglomerate. So overall, we've taken INR 100 crore accelerated exposure provision in Q3.

Gross NPA, net NPA came in flat. Gross NPA came in flat, sequentially, net NPA was up 5 basis points, mainly on account of the coffee conglomerate account, otherwise, it would have been flat. Only business that turned red, it was yellow for the first 2 quarters, it turned red in Q3 was our auto finance business, that's -- we have taken corrective actions. And we hope that in 2 quarters, we should start to see improvement in the portfolio metrics.

Profitability and capital, we've talked about. Capital adequacy, we're well covered now for the next 2 years. We virtually added to capital in Q3. ECL provision is now at 101 basis points. Bajaj Housing Finance continues to grow well, delivered a profit of INR 131 crores in Q3. Bajaj Financial Securities had started business, and we're well [enforced].

What I will do quickly is to take you through the credit slides for a moment and then open it up for questions. I'm jumping straight to Panel 36, which gives by lines of businesses, our credit quality metrics. Gross NPA, net NPA in auto finance business is up 25 basis points, 26 basis points from a year ago and 12 basis points from a quarter ago. Sales finance has -- is up 6 basis points from a year ago and has improved 18 basis points -- 16 basis points from a quarter ago.

Consumer B2C businesses have improved from a year ago and improved from a quarter ago. Rural B2B businesses improved -- have remained flat from a year ago and improved from a quarter ago. Same for B2C. SME have improved from a year ago and improved from a quarter ago.

Commercial Lending businesses a year ago were all standard. They're at 60 basis points at this point in time. Mortgages are flat from a year ago and have deteriorated by 16 basis points from a quarter ago, mainly contributed by the coffee conglomerate account.

Next panel will give you some texture on NPA movements. The slippages were largely adjusted between Q2 and Q3, adjusted for the coffee conglomerate account, they were actually down from March to June and June to September and September to December. Write-offs were in line with the policy. Write-off on sale of -- we sold a portfolio on a cash basis and realized INR 18 crores, as you can see in the panel.

ECL is just an outcome from Panel 37. So that's really -- and very quickly on 39. Digital products, we had flagged it as a yellow in 2 quarters ago, its position has overall improved from 2 quarters ago. We should see the business get into green sometime by end of the fourth quarter.

Lifestyle has improved, but not that much. But as I've articulated earlier, and if you can -- if you follow through the previous transcript, the portfolio is actually very small, but it is what it is.

So salaried customers, in general, I would make a point, continues to be steady. Self-employed customers in general continues to be troubled, whether it's a small exposure, a loan exposure, a consumption exposure, any kind of self-employee -- or a lab exposure. Self-employed customer continues to be highly stretched. Salaried customers in general continues to be reasonably steady so far.

The next 2 panels are -- so home loan is pretty steady. Salaried personal loans, very steady, business and professional loans marginally were soft on a year-on-year basis, around 40, 45 basis points. Loan against property probably mainly IL&FS and Tanglin. Otherwise, steady. The quarter in a quick summary. We are happy to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

The first question is from the line of Dhaval Gada from DSP Mutual Fund.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [2]

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Congrats on a good set of numbers. Four questions. First is -- I'll try to keep it short. The first one was on the Consumer B2B sales finance business. So that book has remained flattish over the last 3 quarters. Could you comment a little bit on the competitive pressure, and if that's the key reason for the growth impact? And how are we tackling that?

The second one was the 0 bucket for the PL cross sell that's been trending higher and is now highest since 2015. What's the threshold after which it turns into yellow or where we tighten credit filters? So that is the second one.

The third is on the auto finance business, that has turned red this quarter and was yellow over the past couple of quarters. But we've seen very strong growth, and our share in Bajaj has only increased from that point. So just the thought process and how we look at this business?

And lastly, on Panel 30, the growth rate in the cross sell franchise has been moderating in both absolute and percentage terms. So is that in line with how we should think about -- or in line with our expectation? Or that's like a one-off and should sort of catch-up in the coming quarters?

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [3]

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Yes. So look, on B2B, this entire competitive pressure, we tracked one side for the last 2.5, 3 years. What is my share of manufacturer subvention? That number has remained absolutely steady, okay? So take the noise out, let's talk money. What is the share of manufacturer subvention pool that has remained across electronics, mobile, very, very steady. That's point number one.

Point number two, we offer this product in 2,000 cities in India. The nearest competitor offers it in -- I mean, you can ask them. So it's -- and the penetration rates are pretty steady across. So whether you go to Vijay Sales in Mumbai, where 30% of the sales move through us or you go to (inaudible) and take the largest dealer, 30% of its sales move through us. But for that 30%, what is that 30% is the key question.

When we look at the search data for electronics and mobile on a year-on-year basis, let me just give you texture on mobile, right? And that mobile data is out -- the last year, the overall mobile phone sales grew by 3%.

A year ago, in October, November, December '18, the growth -- and year-on-year growth for intent, okay, searches was 19%, 8%, 4%. I'm talking '18, okay, which is October '18, November '18, December '18. This year, it was 9%, minus 6% and 2%.

If I take April to August, that number on an average is minus 8%, okay? It's now the single largest category in terms of numbers. And the searches are 130 million searches on an average, between 120 million to 130 million searches. So they are very representative of what is the consumer mood in terms of buying this product.

If I take consumer electronics, let's say, phone -- sorry, refrigerator and so on and so forth. Last year, this category in October, November, December, average was 51% growth in searches. This year, it is minus 6% in searches, okay? On an average, there were between 12 million and 15 million searches in a month average in last year; this year it is 9.5 million, 10 million searches. So clearly, our share is very steady. Our share of manufacturers, our share of retailer sales is sales that you grow. And we remain very well positioned to -- so if Republic Day was good, as I've said earlier, we were there to seize it. So that's point number one.

Point number two on PLCS, clearly look across businesses, the -- and other than salary PL, most businesses are up, okay? They're up structurally by 20 to -- between 25%, 30%, okay. The key point then is, then it's a broader -- so to break this into 2 parts, that means it's structural in nature, okay? If it is 1 portfolio, you act on it. If it is steady on CD, which is very steady. It is a green, right?

Let's just take for a moment, CD, okay. It is green, even CD has moved from 60% to 90%, significantly below our thresholds of nowhere near where our product profitability models are, but it's still up. But still, 99% has gone to 98.6%. I mean, you get the drift, right? I mean, so that's one part.

Coming back to PLCS. Clearly, the margins are very strong. This is a cross-sell product. A 40 to 50 basis points is material and important, but doesn't change the trajectory of the business. But third order point, let me make a point. We have leaned away from this business, between 15%, 17% of the business in the last 5, 6 months. This is a 36-month loan, takes 9 to 11 months to flow through to the P&L in this metric. So if, let's say, acted between April and June, the impact of it will play between April and June, that's really the time that this takes to play out on the standards. So that's point number two.

Point number three, if we have turned it red, I've said in the past, this is the only business that is captive, there is some consideration, a small, but some consideration of a captive play here, the business is a highly profitable business, sustainably generates equal ROEs to the company ROEs, and we are taking corrective action to bring it back. This business has gone to a 86%, 87% level in December '16 as well. And that was actually the worst time that you saw.

In general, I also made a point, Dhaval, to many people that what we are seeing is very close to the demon environment. Across most lines of businesses, if you knock off even the episodic account of the broker account, we will look like 170 to 180 basis points of credit cost in the current year. In that year, we were at 155 basis points. If you adjust ECL to it, we would look like 167 to 168 basis points. So it's much like a ECL -- sorry, a December '16 kind of number, we should see improvement, but I do want to anchor that there is a small measure of captive orientation in it.

Third is cross-sell franchise. There is -- there are -- there is a little bit of noise in the number, but let me first rule out to make a different point. We remain committed to add between 7 million to 8 million new customers to the franchise every year. Even in an environment which is extremely slow, we still added 2.5 million, okay? So that's point number one.

Point number two, if you have the panel in front of you, Panel 30, we were running a Golden Record project in the company, that meant that 780,000 customers, who earlier based on our (inaudible) methodology were actually sitting all the way from 920,000 customers on top in 40.38 million to 780,000 below has actually been cleaned out in the current quarter. So that's a mechanics point, but 7 million to 8 million customers a year, we will continue to add to the franchise for a foreseeable period. Does that answer your -- all your 4 questions?

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [4]

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Yes. Just one follow-up. It's actually related to the first question on B2B sales. So if HDFC Bank is gaining, then -- unless we are maintaining, then is it like the market is getting consolidated, and therefore, it's not our loss -- shared loss. Is that the summary of the entire last few months in the marketplace?

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [5]

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Because -- look to me, the more -- I don't know who is gaining, who is losing. I am looking at what is my share of the subvention. I mean, I -- because I have to rely on data to know whether I'm winning or losing. And I can track the data of 26 top manufacturers in India. I can't track the data of 50,000 merchants in India. I mean -- and if at all I can track, that will be market intelligence, whereas 26 manufacturers are B2B participants from whom I can exactly know, and we have very deep and strategic relationships with them, it's easier for me to manage that and be more credible about it, than what's the market intelligence.

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Operator [6]

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The next question is from the line of Nagraj Chandrasekar from Laburnum Capital.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [7]

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I had a follow-up on the previous participant's questions on auto finance. You mentioned that you somewhat like a captive financier. So there's some small consideration there. So where exactly do you play here? Let's say, for commercial 3-wheeler loan, would be only be financing larger, higher CIBIL score fleets? Or would we also finance customers that other NBFCs turn away and would, therefore, come to us for financing?

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [8]

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We have a dominant share being a captive. And given that banks and non-banks continue to pull back and push forward and we have seen that consistently over the last 13 years, especially in this part of our business and a captive orientation. We have a dominant share of the sales that happen from the point of sale, whether it is 2-wheeler or it is 3-wheeler or to some extent in commercial vehicle. What you see here is a consolidated picture. And that's really how we represented it. So dominant share at the point of sale, we have a steady play, and we play across all 3, 2-wheeler, 3-wheeler and commercial vehicle. Does that...

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [9]

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Got it. What proportion of our book would be each of these products? And what would our average sort of median yields mean for this product?

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [10]

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It would be around 5.5%, 3%, 3.5% would be 3-wheeler. Commercial vehicle will be very, very small, 20 basis points, it's very small. Don't do much at all.

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Nagraj Chandrasekar, Laburnum Capital Advisors Private Limited - VP [11]

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Got it. And what would our average yields be for this book?

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [12]

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Average yields are quite high. They are in line with what the industry numbers would be anywhere between 23% to 24%.

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Operator [13]

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The next question is from the line of Bhavin Shah from Sameeksha Capital.

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Bhavin Ajitkumar Shah, Sameeksha Capital Private Limited - Founder [14]

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I have a couple of questions. You've mentioned you look to add another 7 million, 8 million customers every year. Could you give us some sense of what is the overall available customers -- available market for you in terms of customers? And is it -- can you benchmark it based on per capita income or exactly how?

And second question I have is basically on Karvy that it is pretty obvious to an average investor that money that Karvy had lend from you, I mean, the security was not theirs, I think it's pretty obvious. And given such a fantastic lending track record that you have, how did you make such a mistake?

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [15]

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First question was on -- yes, so look, working with a retailer ecosystem -- because, as I said earlier, 30% of the sales is in cash -- sorry, is in lending, that means 70% of the sales are in cash. Working with retailer ecosystem over last few years, working with public data ecosystem, what is available, we've been aggregating data on customers to -- on prospects in India to reduce friction for them and to help them become our customers by preapproving them.

At this point in time, we are willing to lend to -- in our assessment between 55 million to 60 million people, we are willing to give money to over and above the 40 million customers that are given money to. Of them this year, and it's a metric that we track. This year, we've originated 2 -- we will originate 2 million of these. Last year, from this base came 1.3 million. This year, we'll get between 2 million and 2.1 million, they are lower risk, they are happier because the friction is lesser and that is -- that has been the strategy for the last 4, 5 years because it's a -- it takes a tremendous amount of effort to originate, organize and stimulate this larger base. So headroom remains quite long. So that's first part.

Karvy, industry on broker financing is around INR 22,000 crore. If you read, and I -- if I am a little measured in my response, please bear with me, given that the matter is sub judice at this point in time. So the only point I would make, every loan loss represents an opportunity to learn. The learning is following, if you ask me. Justification is INR 22,000 crore industry, the entire industry runs this way. Regulator allowed it, mistake or learning for us. Regulator started to say in June, debit, credit is not allowed, right thing to do. Let me make a point. A practice which is going on for the last 20 years given that these broking companies you're dealing with hundreds of thousands of customers, should have been given more time.

To be fair to the regulator, they -- first at 30 June, then they said 31st August, then they said 30th September, then they said 31st October, probably in -- not probably, in hindsight, on 31st October, we should have either squared off all our positions on any of the shares, that's the single point learning, if you ask me, because we are very focused in this business on operational risk, very focused on credit risk. We missed, if I may say so, at one level, the regulatory risk dimension. We thought we have no regulatory risk at this point in time. So that's the learning. We have, as you're aware, taken a place card INR 85 crore provision. We are working with the company. And we will draw a line under this, I have said, as part of our investor deck by March 20 either way.

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Bhavin Ajitkumar Shah, Sameeksha Capital Private Limited - Founder [16]

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But I think my question is slightly different. Bajaj Finance is at a forefront of a lot of things, and areas where regulator probably hasn't even understood the business lines, and this was a clear case of misappropriation of client funds by Karvy. And it was pretty obvious to anyone in this industry that Karvy doesn't have this kind of money to -- I mean, this kind of stock holding on their own book.

So you -- I mean, I appreciate what you're saying, but it seems like the real -- the issue here has been that the credit assessment was wrong -- not correct?

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [17]

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As I said, and I'm not defending at all. Credit assessment -- as you are -- that's why I said, the learning to be taken is that regulatory risk we should have acted on. On the point on origination, as I said, the entire industry of INR 22,000 crore exposure with the banking system runs this way even today, so that I'm clear with my -- on my stand.

The entire working capital exposures by various banks, even today, run this way. So I would -- as I said, I would -- I could talk through more, but I -- just on this, I've been advised by our General Counsel to be measured in my response, given that the matter is sub judice at this point in time. But having said that, on a one-on-one basis, you would like to get in touch with us, we'll be happy to do a conversation with you.

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Operator [18]

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The next question is from the line of Kuntal Shah from Oaklane Capital.

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Kuntal Shah, Oaklane Capital Management LLP - Partner [19]

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An excellent set of disclosure, I think, so nothing in the industry even comes close to it in terms of disclosure. So my questions are as follows.

On the PCR coverage, the same line of business, auto finance is seeing fluctuating PCR from 63% to 55% range in the 2 last year's corridor. Can you explain that, why?

And secondly, what is the status on IL&FS and Tanglin. And in Karvy's case, though the overnight regulatory requirement forced a conversion of secured lenders into unsecured and unsecured trade creditors into secured ones, you have access to SEBI, they were all regulated entities. So what was the regulator doing while this thing was happening is a question? And why this sudden change of stance is something perplexing.

And thirdly, on payment -- are payment banks allowed to issue credit cards? And if yes, do you see an opportunity where up to INR 1 lakh, you can issue credit cards and then seamlessly migrate that customer to EMI or wallet and be in that part of the business where currently because of the silos, you are not allowed to do so?

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [20]

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So one is the AF, Kuntal. Second is -- third is payment bank. Second was IL&FS and Tanglin.

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Kuntal Shah, Oaklane Capital Management LLP - Partner [21]

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And what are you going to do about IL&FS and Tanglin and Karvy, all the 3 headline accounts, which is giving rise to the worry. See your disclosure standards are best. We don't have any complaints, Rajeev, but these are public names. I am just asking you specific question. I believe, in IL&FS and Tanglin's case, it's overcollateralized, so you expect money to come through it. It's just the mismatch of selling or disposals versus that? And in Karvy's case, this is a legal question, specifically. They were regulated by exchanges. They were regulated by SEBI.

What was happening in that? And how suddenly the secured lenders became unsecured and unsecured investors became secured?

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [22]

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Yes. So Kuntal, just on AF and Sandeep just help me. Fundamentally, in the AF business, when we repossess an asset, in general, over the last 13 years, our experience is we realized between 35% to 40% of the...

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Sandeep Vijay Kumar Jain, Bajaj Finance Limited - CFO [23]

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40% to 45%.

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [24]

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40% to 45% of the value of the asset, okay? Irrespective, actually, of whether it's an entry-level buy or a premium buy. So the numbers over, between -- it's the function of what is the repossess stock and what is a sale. That's the -- so that's why the numbers remain a little, a little volatile in a corridor of 55% to 60%.

Payments bank, Kuntal, I'll take the third one and then I'll come to the second one, are not allowed to lend. The payments bank are virtually only debit bank, there is no credit. So it's not allowed at all. Logically, I would have -- I don't know then how did somebody take a payment bank and believe that they can build a business, but that's for those who opted to build -- to apply for a payment bank and become one.

The second question, IL&FS. We are working closely with the management, the RFP was issued to sell the buildings. They've received 8 to 10 bids. They've given time till -- sorry, till early February to open the bids, and the process is on. We have a INR 60 crore provision on the account. We have INR 30 crores lying in the escrow as well. And the account is significantly overcollateralized. Even at the rate the bids are received, we should be in money.

Having said that, in the last 10 days, the entire -- if you're tracking what -- on IL&FS -- sorry -- we have filed the affidavit against the NCLT distribution. Management has filed. So there is some legal noise there. We are tracking that closely, is all I would say.

Tanglin, from whatever we hear from -- in public domain and working with the company, we do believe strongly that our account could get where we are -- could get resolved in the next 30 days.

We have taken a clear-cut provision in the current quarter just as a matter of prudence rather than anything else.

Karvy, we will draw a line. I've said in the investor deck, we've taken INR 85 crore exposure, we will draw -- either way, we have -- the company has demonstrated its intent to pay us back and has given us a security. The value of the security is the function of who the buyer is. They are looking to sell, we understand the company. Either way, we think next 60 days are critical on the account. And we would have drawn a line under it by March 31. Does that answer the 3 questions?

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Kuntal Shah, Oaklane Capital Management LLP - Partner [25]

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Yes. Keep up this good disclosure, I think, so it's the best way to earn the investors' trust. And I think nothing else comes close, none of your competitors.

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [26]

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Thank you.

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Operator [27]

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The next question is from the line of Pranav Gupta from Aditya Birla Sun Life Insurance.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [28]

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Congratulations on a good set of numbers. Most of my questions have been answered. Just one question, if you could answer. So we continuously keep on hearing and seeing some of the large competitors get very aggressive in the consumer B2C space. If you could highlight how the competitive intensity has been? And how we're seeing this space over the next 9 to 12 months, that would be very helpful.

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [29]

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I don't want to be arrogant. But I would summarize it as more noise than substance.

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Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [30]

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Okay. But if you could just give some qualitative comments on how you see this going forward? That would be really helpful.

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [31]

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Look, fundamentally, if you can deliver to the customer frictionless purchase experience at the point-of-sale, is one part of the puzzle. Second is, can you manage a 25 million customer being banked in a given month is the second part of the puzzle from a risk standpoint. And can you collect from 10% to bounce in a given month at INR 100 cost is the third part of the puzzle. If you can get all the 3 puzzles together, you can deliver the business. It's a damn hard thing. I'm not saying it because we've managed to -- we do this. One has to make very tough choices because at the end of the day, the purpose of an enterprise is to generate profitability, this business is a multiyear game and quite hard to crack.

And so is true for many of our -- many of the financial services business. Maybe if I take an example, on the other hand, where we've taken as long to start to generate profitability and create scale is a gold loan part of the business. To me, 3 years ago, it's been the easy business. And I today appreciate and respect that how hard it is. That doesn't mean I have -- we become a large competitor, but we will be at it, and we've finally cracked it, and we will -- we are scaling the business. Same so what I am to the gold loan business, I look at it as lots of competitors are to us in the point-of-sale business. Nothing wrong or right about it. It's just a matter of time, maturity and commitment to building the business. Does that philosophical sounds or sound...

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Operator [32]

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The next question is from the line of Nirmal Bari from Sameeksha Capital.

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Nirmal Bari, Sameeksha Capital Private Limited - Equity Research Analyst [33]

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My first question is on the provisions. So if you look at the deck that you had provided. And we look at the 30-day plus delinquency figure, that has increased across the buckets, except for lifestyle -- sorry, except for digital products...

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [34]

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And sal PL and home loans.

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Nirmal Bari, Sameeksha Capital Private Limited - Equity Research Analyst [35]

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Yes. So...

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [36]

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Just wanted to correct.

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Nirmal Bari, Sameeksha Capital Private Limited - Equity Research Analyst [37]

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Do we expect the provisions to increase further because the probability of default that we would assign as the loan goes over plus 30 days to plus 60 days would increase in the coming quarter?

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [38]

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So are we seeing stability in flows? Yes. Are we seeing reduction in flows? No, okay. But have they stabilized in the last 2 months? Yes. So that's one part. Credit costs from AR should not increase in -- is what our view is. We've -- probably most likely peaked and not taking into account the one-offs, okay? This is adjusted for one-offs on a flow basis, let's say, out of INR 145,000 crore, INR 140,000 crore balance sheet. On a flow basis, we are -- even these costs, in my mind, are elevated. They should not increase, but are they peaked? So has it peaked? Yes, but have we started to see improvement? No. So I think one more quarter, we'll have greater clarity as to what is the horizon for next year, whether we will remain at 180 basis points next year, or will we go back to 160 basis points next year? I think one more quarter will most likely settle the -- settle this in our heads. And we will then provide that outlook to you as we come with fourth quarter data.

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Nirmal Bari, Sameeksha Capital Private Limited - Equity Research Analyst [39]

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Okay. And the second question was, would it be possible to give a breakup of the fees income that we are earning from -- I think between credit cards, between our own credit cards, our own loan products and insurance or something of that sort?

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [40]

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So on a lighter vein, as I used to tell people, (foreign language). It's bilateral in nature, both are public companies. And we have a good strategic, deep partnership with them.

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Operator [41]

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The next question is from the line of Kunal Sharma from Perfect Research Value Fund.

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Kunal Sharma;Perfect Research Value Fund;Analyst, [42]

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I have a couple of questions, listing them together. Number one, is there any client stickiness we have because if the client getting a loan at a lower cost from another bank or NBFC, then we'll stick? Next, what competition what do you see from bank with lower cost of funds, either stepping up on digital and IT spending or tying up with fintech players to reach the urban consumers? And the next with banks like Kotak sounding alarm bells on economic condition and slowing down loan book growth to 7%, we continue to grow robustly? Can you please share your thought process behind it?

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [43]

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I'll just repeat the question. One is on what is the growth outlook and what is the view more than -- so what is the growth view? You had a question on what is the client stickiness. That is the first question. What is the...

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Kunal Sharma;Perfect Research Value Fund;Analyst, [44]

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Banks tying up with the (inaudible)

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [45]

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Yes. What is the banks tying up with fintech, what is your view? Okay. See client stickiness. We have 20 million store card customers. In general, the process is really frictionless. Client will belong to those who reduce friction for them, one; second is price. Lower the price of the product or lower the involvement of the buying decisions and lower the friction, he will go after those who are reducing friction, okay? So that's a -- of the 20 million franchise, 12 million will end up making a -- sorry, out of 20 million, we will do 24 million loans, 15 million will end up doing a transaction with us.

We will end up doing in this year, 26 million, 27 million loans. Out of 27 million, 68% of the loans are existing customers, 18 million loans will come from this 20 million franchise. So in a way, now it's not a one-on-one relationship, but in general, it should tell you the heft of the franchise and the stickiness of the franchise.

(foreign language) so that's one part. I can give you data on how our NPS scores are high and so on and so forth. But I keep telling people that the value of the true NPS is, whether the customer is willing to do business with you. If he is willing to do business with you, then that called -- that's the best NPS that you can get.

On third question, on growth view. Look, we remain a very small part of the overall total credit in India. Total credit in India, we are 100 and we will be 140 basis points of total credit in India ending March '20.

The economy can go to 4.5%, go to 5%, 5.5% as long as the business that I'm pushing through the door is -- remains distinctly above my product profitability models, we are here for business, is really what our view is as a company.

So relatively low size, there is 99 -- 98.6% of the banking system available or total credit available for us to grow. So that's one part. Second, as long as the businesses are significantly above our product profitability models by each line of business, we remain growth-oriented. I must make a third order point, and given the questions on credit costs going up. Let's look at the scenario of the first 9 months.

The balance sheet growth started from 41%, went to 38%, has come down to 35%, okay? That means through the door momentum has slowed. During this period, credit costs have gone up, but overall, ROA, we've continued to deliver on. So the business model is getting stress tested for a slowing growth and higher credit costs, and we're still delivering higher or better or same return ratios. I think that should give a reasonable amount of confidence to investors that we can orchestrate between NIMs, OpEx and credit costs and ensure -- and volume growth to deliver a balanced business. I think it's an extremely important point that I thought I should make.

On the second point, banks signing up with fintech. Fintech (foreign language) so we have stopped -- I keep getting the same SMSs that are floating around, what did internet companies deliver, I mean, turnover is lower than profits -- I'm sorry, losses higher than turnover, I think it's a good business to be in, one day I would like to run a business like that. So we have no view on that. Does that answer your question?

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Operator [46]

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The next question is from the line of Ashish Sharma from ENAM Asset Management.

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Ashish Sharma, ENAM Asset Management Company Pvt. Ltd - Analyst [47]

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Congratulations on a good set of numbers, Rajeev. Two questions. One, on the fee income, you partially answered. I mean, we don't need the breakup, but is the -- I mean traction in all the 4 segments? Or is distribution income being the key driver? Just one comment on that. And second would be on Bajaj Housing Finance Limited. Just on the -- I mean, normalized ROA, I mean, Q3 was very strong from an ROA perspective, I mean, even if you could guide on the -- based on the 9 months number, I mean, can we sustain these kind of ROAs for BHFL? That will be the 2 questions, sir.

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [48]

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Atul is here, but I'll just say that we are committed to deliver it between 13 -- between 13.5% and 15% ROE on a fully scaled business as a company, that's all it will do, I've said that in the past. And Atul and his team are fully aligned to the fact that we're building a sum of parts model, that the mortgage business role is to deliver lower risk, lower ROE, but a very -- a tremendous amount of solidity, stability and steadiness to the overall business model. So -- and that means coming in at between 13.5% and 15%, we should be able to deliver that in the next fiscal as well. So that's the second part.

First part, fee income, part of it, Ashish, if you look through the numbers closely, has a degree of linearity, if the volumes had been actually -- the slowing environment meant slowing balance sheet growth meant fee and other income on a relative basis or slower. As the overall demand comes back, you will see, on a percentage basis, we are pretty steady, on a focused basis, pretty steady, volume, linearity has a role to play.

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Ashish Sharma, ENAM Asset Management Company Pvt. Ltd - Analyst [49]

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Okay. Okay. Just clarifying on the BHFL part. You mentioned 13% to 15% ROE. But from an ROA perspective, are we already on a normalized profitability? Or do we see some...

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [50]

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No. It's a young business, we'll have to give a time a little bit. I think next full year should be -- will be the third year of the business. You should see greater normalization on the business in the next year.

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Operator [51]

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We'll take that as the last question. I would now like to hand the conference back to Mr. Karan Singh for closing comments.

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Karan Singh Uberoi, JM Financial Institutional Securities Limited, Research Division - Vice-President of Equity Research [52]

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Yes. On behalf of JM Financial, I would like to thank Mr. Rajeev Jain and the senior management team of Bajaj Finance and all the participants for joining us on the call today. Thank you, and goodbye.

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Rajeev A. Jain, Bajaj Finance Limited - MD & Executive Director [53]

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Thank you all. Thank you.

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Sandeep Vijay Kumar Jain, Bajaj Finance Limited - CFO [54]

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Thank you.

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Operator [55]

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Thank you very much. On behalf of JM Financial, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.