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Edited Transcript of BANH.NS earnings conference call or presentation 14-Jan-20 10:59am GMT

Q3 2020 Bandhan Bank Ltd Earnings Call

Jan 22, 2020 (Thomson StreetEvents) -- Edited Transcript of Bandhan Bank Ltd earnings conference call or presentation Tuesday, January 14, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Chandra Shekhar Ghosh

Bandhan Bank Limited - Founder, MD, CEO & Director

* Hiren Shah

Bandhan Bank Limited - Senior VP & Head of IR

* Sunil Samdani

Bandhan Bank Limited - CFO

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Conference Call Participants

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* Anand Dama

Emkay Global Financial Services Ltd., Research Division - Research Analyst

* Digant Haria

Antique Stockbroking Ltd., Research Division - Assistant VP, Equity Research

* Gaurav Jani

Centrum Broking Limited, Research Division - Research Analyst

* Karthik Chellappa

Buena Vista Fund Management, LLC - Investment Analyst

* Kunal Shah

Edelweiss Securities Ltd., Research Division - Associate Director

* Manish Ostwal

Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst

* Nishant Shah

Macquarie Research - Research Analyst

* Rahul Jain;LionRock Capital;Analyst

* Rakhi Prasad;Alder Capital;Analyst

* Rohan Pramod Advant

Multi-Act Equity Consultancy Ltd. - Portfolio Manager

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Presentation

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Hiren Shah, Bandhan Bank Limited - Senior VP & Head of IR [1]

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(technical difficulty)

Thanks for joining this conference call. We are here to discuss Bandhan Bank's business and financial performance for the quarter ending December 2019. Along with that, we'll also take the opportunity to update on the recent developments in the industry and Bandhan Bank. To discuss this in detail, I've got with me our Founder, Managing Director and CEO, Mr. Chandra Shekhar Ghosh; our Executive Director Designate, Mr. Sudhin Choksey; our Chief Financial Officer, Mr. Sunil Samdani; and myself Hiren Shah, Head of Investor Relations.

Now I'd like to request our Founder, MD and CEO, Mr. Chandra Shekhar Ghosh, to brief you all about the financial performance of the company and developments during the quarter.

Over to you, sir.

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [2]

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Welcome, and good evening, and happy new year to all of you. Thank you for your time. I'm just to discussing the point Quarter 3 Financial Year '20 Bandhan Bank results.

Profits have been jumped in the bank, 120.85%, which amount wise is INR 731 crores after taking additional provision on standard advance to INR 200 crore. Our loan portfolio grown, that is, 88.87%. It has become now INR 65,456 crore, which was in last year INR 35,599 crore. So year-on-year growth has come 88.87%.

Deposit portfolio has grown very good in this quarter which is 58.51% year-on-year. Our deposit now has come INR 54,908 crore, which was last year INR 34,639 crores. The total business of the bank reached INR 1,20,000 crores within less than 5 years of the bank. The CASA growth has come 31.36%, but the CASA of the total deposit 34.31%. If I not count my GRUH deposit, it will be more than 35%.

Gross NPA is now 1.9%, which was 1 year before 2.4%. Net NPA 0.81%, which was in the last quarter 0.6% and last year 0.7%. Capital adequacy ratio, it is now 24.69%, actually it is really 29.46%. You know that we are -- the provision to some of this, the portfolio in the last quarter, but that is last year, for that reason it has come in this. And return on asset has come 3.5%. But if we not consider INR 200 crores standard advance in this quarter, so then our ROA will come 4.23% because we account for this provision of INR 200 crores, so that our ROA has come 3.5%. And ROE, it is in 20%. But if we not consider INR 200 crores, it is 24%. Cost-to-income ratio 33.4%, NIMs 7.9%, which were in the last quarter 8.1%.

We have about 4,228 (sic) [4,288] banking outlets, out of that 1,009 is bank branches, 3,084 doorstep service center and 195 GRUH centers. We added new customers in the last quarter 7.3 lakhs and our total customer now 19 million. Employee 37,331 and we have the ATM 486.

So we feel that if we see the advanced growth, it is a very good growth but little bit a conservative way because in the -- if we not count in that the GRUH, that actually growth has come off the advance in the 33%. We are a little bit conservative because of the external, some of the challenges there, so that we have willingly decided to be conservative in the last quarter. But now it has been over, this quarter, it will be continue as usual of the last year. So Bandhan would like to focus future in the same way it is in micro-banking, the core, housing, also in core and MSME, and these 3 are more focused. We saw that in a big demand in the rural India, Tier 3, 4, 5, 6. We like to continue to provide this type of financial services to that segment across the country.

So thank you to all of you. I hope you have some questions, we like to answer on that. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We take the first question from the line of Karthik Chellappa from Buena Vista Fund.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [2]

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I have 3 questions. Firstly, can you give us some color on the kind of disruption, if any, that you have faced in -- owing to the CAA-related protests that we have seen? And specifically, on Assam, I believe we have taken INR 200 crore provision, which works out to 3% of our Assam portfolio. Would you foresee any similar level of standard provisioning required in the next quarter, either with respect to the Assam portfolio or outside?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [3]

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The first point I'll give the answer to you on that not in a specific any of the issue whatever you mentioned the name. What's happened is there anything in the external issue will come in India, flood, natural or sometime election, that is continuously coming on that and my last 19 years experience, I saw that, my team has seen it. So this is not anything exceptional. It is -- the only the challenge on that how people is movement regularly or properly or not. If it is a movement of some short time, we will not make on that. And after that, when this scenario is changed, automatically people are coming to their regular business and everything. This is my one point. We have not seen that very exceptional in the Northeast point of view on this in my last 19 years' experience. Sunil, can you give that another point on this?

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Sunil Samdani, Bandhan Bank Limited - CFO [4]

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Yes. So in terms of the provision that we made, that is based on our assessment of risk. What we've noticed, in fact, we've tried to depict that in our investor presentation as well, that if you leave Assam aside, our on-time repayment rate is at what it was in September 2019. So outside Assam, we've not seen a dip in OTR rate. Including Assam, if you look at the Assam movement, in the first week of December, when the disruptions were at peak, we saw it falling, but it has swiftly recovered back to 93.5% as of December end and constantly improving. So basis this behavior of our customer, because in 1 week, we get to know the behavior of all our customers. To basis this recent behavior, we've estimated this. But what is important is this behavior as we've seen an improvement week after week, so on a conservative side, we have taken this provision on the basis of the OTR movement as on the last week of December.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [5]

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So just to clarify, can we say that in the fourth quarter, we shouldn't expect any similar provisions just looking at the consumer behavior? Or is it just too early for us to make that judgment?

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Sunil Samdani, Bandhan Bank Limited - CFO [6]

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If the situation is what it is today, then we need not take any more provisions.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [7]

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Okay. Okay, sir. And of course, excluding Assam, whether it's West Bengal or Maharashtra or so, your on-time repayment rate is still about that 98%, 99%?

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Sunil Samdani, Bandhan Bank Limited - CFO [8]

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Excluding Assam, it is -- the December is 98.8%.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [9]

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Okay. Perfect. Sir, my second question is on the segmental GNPA movement, especially for GRUH, which has gone from 0.34% to 0.49%, which is effectively, I think, something like a 40% increase quarter-on-quarter and you have qualified that by saying there is a change in the recognition norms. Could you give us more color on what exactly were the changes? And how much of this increase came from those changes alone?

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Sunil Samdani, Bandhan Bank Limited - CFO [10]

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So what we've seen is, during the quarter, there is slippages in the GRUH portfolio of about INR 82-odd crores. Of this, till last quarter, the provisioning and the asset classification, rather the asset classification, not the provisioning, was done as per NHB norms in September. But post merger, it has to be done as per banking regulations. So the difference between the 2 regulations are under NHB, it's the -- on the reporting date DPD is considered. And if the DPD is above 90 days, then it is classified as NPA. Whereas under banking regulations, if a portfolio moves beyond 90 days and then even if it falls back to, let's say, 60 or 30, it continues to be an NPA till it becomes 0 DPD. So that's a major shift in the recognition of NPA between the 2 norms. So we've seen about INR 82 crores of slippages in the home loan book this quarter. And about 50% of this can be attributable on account of this accounting change.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [11]

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Okay. So the classification is pretty much done, which means in the March quarter to December quarter, it will be apple-to-apple comparison on a classification basis?

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Sunil Samdani, Bandhan Bank Limited - CFO [12]

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Yes.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [13]

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Okay, perfect. Sir, my last question is on the balance sheet. We have this item called other assets, which is like about INR 1,150 crore, that has gone up about 84% from March levels. What would this be, the increase?

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Sunil Samdani, Bandhan Bank Limited - CFO [14]

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One minute.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [15]

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Slide 23, sir. The last line item of other assets from INR 628-odd crores to about INR 1,150 crores.

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Sunil Samdani, Bandhan Bank Limited - CFO [16]

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So give a minute.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [17]

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Yes. Sure, sir.

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Sunil Samdani, Bandhan Bank Limited - CFO [18]

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You're looking at this. Can we come back on this?

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [19]

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Yes. Okay, not a problem, sir. We can even take it offline.

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Operator [20]

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(Operator Instructions) We take the next question from the line of Nishant Shah from Macquarie.

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Nishant Shah, Macquarie Research - Research Analyst [21]

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Just one operational question. How do you go about, like in, say, the eastern geography, understanding which customer, say, is not affected by something like a CAA or NRC, right? Because some news articles are saying that these guys also seem to have Indian KYCs, but then they are still an illegal immigrant and they are now probably going back to their country of origin. So how do we manage the operational risk in terms of like gathering that market intelligence in terms of knowing who is like a slightly riskier customer in terms that he may not necessarily be an Indian citizen? Especially if you consider the fact that these guys also have Indian KYC documents. It becomes -- isn't it like an operational nightmare? So that's just the first question.

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Sunil Samdani, Bandhan Bank Limited - CFO [22]

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If you look at the draft norms on the NPR, one of the valid documents that they talk about, that should be in the possession of the citizen is the KYC document itself. Then the question comes, what is the origin of the person, right? So if the customer was with particularly in Eastern region, the average age of the customer with us is about 6 to 8 years, in which case they anyway qualify. They have the OVD and the average age of customers in Eastern India for us is 6, 7 years, they anyway qualify.

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Nishant Shah, Macquarie Research - Research Analyst [23]

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Okay. And what about the new customers that you add?

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Sunil Samdani, Bandhan Bank Limited - CFO [24]

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New customers, anyway, now that we know that what is the perceived risk, accordingly we evaluate the customer. We'll have those right questions.

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Nishant Shah, Macquarie Research - Research Analyst [25]

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Okay. So do you expect like your growth or customer acquisition to then come down because of this?

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Sunil Samdani, Bandhan Bank Limited - CFO [26]

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Customer acquisition has been healthy. Even last quarter, it has been upwards of 20% year-on-year.

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Nishant Shah, Macquarie Research - Research Analyst [27]

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Okay. Fair enough. And next question is a little bit difficult to phrase, I will try my best. So what should be -- what -- if you look at your retail liability base, what do you think is the percentage of your primary transacting customers in your retail liability base? So in the sense that who are the customers who have an account with you, and that is their primary transacting account and they probably either don't have any other bank account or they probably use the other account as like a secondary account?

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Sunil Samdani, Bandhan Bank Limited - CFO [28]

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This is a very difficult thing to answer because how do you define primary, right?

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Nishant Shah, Macquarie Research - Research Analyst [29]

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Velocity of transactions seeing like sign-ups for bill payments, utility bills getting linked, something like that.

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Sunil Samdani, Bandhan Bank Limited - CFO [30]

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So that's what. So that's multiple product being sold. So we have customers who have salary account with other banks, but they move their balances to our accounts and they transact with us. So there could be a situation where I would say it's a primary account for me and the other bank would say I have a salary account, so it's a primary account for me. It's very difficult to quantify...

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Nishant Shah, Macquarie Research - Research Analyst [31]

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Right. Sir, I'll try to explain the context of the question. So it's been like almost 4.5-odd years since we have now become a universal bank. And still, if we see our mass-market retail customer or retail assets, they've not really grown at quite the pace that we would have expected, right? So the question becomes that is the growth or is the lack of growth possibly because we don't really have the primary transactors with us in the sense that these are customers who have a salary account with someone else and are keeping most of the balances here, but they're also well penetrated in terms of other retail asset products like a home loan or a credit card. So in the sense that our cross-sell ability to them becomes limited. Is that like a fair observation in terms of like that you probably have a lot more float income or a float CASA, but not necessarily cross sellable CASA? I know it's a very subjective question, but like any color you could give is like appreciated?

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Sunil Samdani, Bandhan Bank Limited - CFO [32]

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I don't think we can comment on behalf of customers because ultimately, the customer has a choice which product they want to take from whom. And typically, at least on the liability side, we've seen that customer maintains more than 1 bank account and more so in the fixed deposits. Our experience is that customer typically spread their fixed deposits with 2, 3 banks. And whether those customers, we cannot cross-sell the products, I don't think so. If our product is better, our services are better, they'll take it from us.

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [33]

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I can add the one point, that is our growth of the customer at 26%, non-micro customer growth is at 50%. I'm coming to that point, if you see that is the rural and semi-urban, we have that the presence is 70% and customer is 68%, where the private sector banks have very less amount of presence in that rural and semi-urban, it is only the public sector bank. So that is the one area where there are people that are not getting the all types of banking service from the existing banking outlet. So that is an opportunity at Bandhan, but we are not analyzed on that how much is coming primary and they have another loan on that, that is not counting on that.

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Nishant Shah, Macquarie Research - Research Analyst [34]

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Okay. So one question then. At the time of your listing in your DRHP, the mix of your retail loans was, if I remember correctly, of about 70%, 80% personal loans and loans against deposits. Has that changed as of today in the last couple of years?

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Sunil Samdani, Bandhan Bank Limited - CFO [35]

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Yes, with GRUH addition, surely it has changed.

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Nishant Shah, Macquarie Research - Research Analyst [36]

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No, no, ex of GRUH additions, like I'm talking more organic. Have we tried to get a lot more, say, home loans, car loans, credit cards, something like that? Has that mix materially changed?

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Sunil Samdani, Bandhan Bank Limited - CFO [37]

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See, apart from personal loan and loan against term deposit, the other product we started was mortgage loan, which is part of the GRUH vertical today.

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Nishant Shah, Macquarie Research - Research Analyst [38]

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Okay. But anything about the organic growth? Like how -- say, our part of within that mortgages, how has that grown in, say, the last couple of years?

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Sunil Samdani, Bandhan Bank Limited - CFO [39]

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Yes. So that book year-on-year has grown about 40%.

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Nishant Shah, Macquarie Research - Research Analyst [40]

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Okay. In absolute terms, how much would it be?

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Sunil Samdani, Bandhan Bank Limited - CFO [41]

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That will be about INR 400 crores.

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Nishant Shah, Macquarie Research - Research Analyst [42]

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Okay, perfect. Okay, cool. And just one last question. In some of our channel checks, we've now come across some like some anecdotal cases where there's something called a medium enterprise loan supposedly being maybe piloted or maybe our intel is wrong, right? So could you talk about that? Is this kind of an experiment being done like where you are trying to say scale up some of our existing customers into, say, higher ticket size loans of say INR 3 lakhs or so? Or is it just completely anecdotal?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [43]

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No. If you see that what has happened, we have that INR 1 crore 4 lakhs of the borrower in microcredit. It is not specific in Assam. It's everywhere. So out of that, the 50% of my borrower who are more than 5 years to 19 years with us. So out of those customers, some of that good number of customer we are finding out they fit with like of the MSME, but maybe they have not any -- that is got the trade license and IT return properly. So we ask them to revert them, if they like to make it in a good way. And then we like to individual loan as an enterprise that can be key. And that way, they can grow as an MSME. So that is -- we can be -- of the opportunities we can think about it. Otherwise, one person is in one of the business, they are in the 2, 3 business now done on that. And there is one microcredit started with INR 5,000 and 19 years after also the INR 50,000 or INR 1,00,000 how they like to maintain. They will go to the multiple banks, multiple things. Otherwise, they will not like to grow and concentrated to the same. But these are the type of enterprise, when they are coming as a MSME, they will create the new employment of that areas. So that is also a need for country economic growth and unemployment to create the job. That is future objective where we can get in.

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Operator [44]

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Next question is from the line of Anand Dama from Emkay Global.

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Anand Dama, Emkay Global Financial Services Ltd., Research Division - Research Analyst [45]

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Sir, can you please help us with the 30 DPD plus portfolio that you would be carrying now, particularly into the state of Assam?

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Sunil Samdani, Bandhan Bank Limited - CFO [46]

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30 DPD as of December is INR 556 crores, which in September was INR 384 crores. So the increase in 30 DPD is INR 172 crores. I'm talking about pan-India. And out of this increase of INR 172 crores, INR 162 crores is the increase in Assam.

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Anand Dama, Emkay Global Financial Services Ltd., Research Division - Research Analyst [47]

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Okay. And this INR 556 crores now would have come down?

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Sunil Samdani, Bandhan Bank Limited - CFO [48]

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Look, this we are talking about December numbers.

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Anand Dama, Emkay Global Financial Services Ltd., Research Division - Research Analyst [49]

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Yes, I mean, particularly in...

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Sunil Samdani, Bandhan Bank Limited - CFO [50]

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It's on December and we'd like to restrict ourselves.

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Anand Dama, Emkay Global Financial Services Ltd., Research Division - Research Analyst [51]

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Okay. Sure. Sir, secondly, is that we have made this INR 200 crores of provision, standard asset provisioning. So what is the rate of standard asset provisioning that we have used? Or any pool that you can quantify on which this INR 200 crores provision has been made?

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Sunil Samdani, Bandhan Bank Limited - CFO [52]

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So if you have to look at the question that you asked earlier, the increase in 30 DPD in microfinance portfolio is INR 172 crores vis-à-vis September, Assam is INR 162 crores. We've looked at one as that metric, and we've also looked at recent behavior on the OTR rate and conservatively provided this.

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Anand Dama, Emkay Global Financial Services Ltd., Research Division - Research Analyst [53]

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Okay. So you don't expect any further provisions to be made on these loans? And if the recovery rate is better going forward, then basically, there could be some reversal on these provisions as well, right?

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Sunil Samdani, Bandhan Bank Limited - CFO [54]

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That's logical. I mean we don't want to comment on future, but that's how it will be.

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [55]

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But we expect, and this is -- you are correct on this.

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Anand Dama, Emkay Global Financial Services Ltd., Research Division - Research Analyst [56]

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Sure. Sir, another, reports were coming in, particularly adverse reports coming in West Bengal and markets. Sir, any comments over there, what's happening in these markets? Do you -- are you seeing some stress building up into this West Bengal as well?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [57]

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If you see that, I have been working 19 years in the West Bengal and I have not seen any of this type of incident in Bengal. That is good. If you see that before my 19 years, nobody believed on that why I have been starting with West Bengal. At that time, the government was very stringent on that. And always, the people are treated West Bengal cannot be lent, that time I also faced on that issue. And gradually, if you see that 19 years, the INR 3,000 I've given the loan or INR 1,000 I've given the loan, and after 15 years, these people have built up a good enterprise. And these the people -- if you see that 19 years, many of the challenges come to the life. Chit fund, all are in Bengal. All things in that time we have faced and our people know that. But ultimately, my customer know that. We are running the business. They need the money. They must be paying to us and whatever happening, and they are not bothered about it and they are giving to that. If you see that within that, all situation, my OTR of West Bengal till now is 98% plus. I'm not saying that, that is the scenario. Only point on that you will not count the amount of the portfolio. You count how the senior of this business, how mature the business, how long running this business, how many business they have been making on that. If I say that the last time I also mentioned in this, I mentioned that the business intelligence team asking them to see check the microcredit borrowers who are taking loan from us, what is their status of the income. And they said to me that they have collected some of the random sample and meet that people and find out on that their per month income INR 38,000 of family income. When I asked to my banker's colleague because I was not a banker and asking them how much you can like to lend to these people and they say that they can give INR 6 lakhs on the basis of INR 38,000 per month income, that I have been giving is INR 1,00,000 or INR 1,25,000. So that is not the matter.

If I find out on this the customer and who have the business and that you see that now we are a bank, we are very much strong rich team. Everything, they are also guided to our system, processes, everything. I'm not feeling anything about the West Bengal point of view portfolio.

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Anand Dama, Emkay Global Financial Services Ltd., Research Division - Research Analyst [58]

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Sure, sir. That's helpful and hope we'll be able to recover. So basically, any center, particularly in the Assam where we still don't have any recovery at all? Or basically, every center, we have started recovering, and we've been able to reach all the centers?

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Sunil Samdani, Bandhan Bank Limited - CFO [59]

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No, there hasn't been a single day where such situation has come where there hasn't been any recovery. Lowest OTR, if you look at our presentation we ever see in was on the curfew day, where it was 78%.

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Anand Dama, Emkay Global Financial Services Ltd., Research Division - Research Analyst [60]

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Okay. Okay. Sure. And sir, we would have had the RBI supervision for last year being completed recently. Any comments, adverse comments which were there from RBI on the overall compliance risk as such?

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Sunil Samdani, Bandhan Bank Limited - CFO [61]

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I mean we are not -- we can't comment on the RBI inspection report. That's a confidential document, but there is nothing to report. Otherwise, we would have reported.

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Operator [62]

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(Operator Instructions) Next question is from the line of Rahul Jain from LionRock Capital.

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Rahul Jain;LionRock Capital;Analyst, [63]

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Can you hear me?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [64]

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Yes, please.

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Rahul Jain;LionRock Capital;Analyst, [65]

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So 2 questions. One is when you look at the media reports nowadays, obviously, with respect to all the CAA-related protests as well as overleveraging concern, there are quite a few, there's a lot of concerns being raised from multiple channels with respect to microfinance, especially in the east and northeast part of India. Even today, we have seen an article saying West Bengal is seeing a bit of a microfinance crisis. So what's your -- I know you partly answered this question just now. But what's your assessment? Why do you think there's been such a big concern being raised and why you don't see any issue at your end? So what is really happening? Maybe at not your end, but on an industry level, are you seeing some things which is basically causing all these things being talked about in the press report?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [66]

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We cannot make comments on the press report. And second point on that, in my practice of the 19 years, I have not seen because I'm working in the ground level. And I meet every month some of the customers and some of the ground level people, what their perception on that. And so that I've given that my best explanation from my experience. Yes, because of I am doing the business, I also try to address my risk in future. And accordingly, I will take my -- the decision. Second point of my learning on that any business have the risk. And this is a challenge for our country, India. I cannot say that no. But the last 19 years, we have the best way. I have been seeing that the experience gathered by my team, how this type of situation will be like to face on that. And other point of that, the customer point of view have been raised is the customer loyalty. They understand about it. They need the money for business. And how they got the money and how -- what the position they have come. So they are satisfied and automatically my repayment and -- there is some disturbance from the...

(technical difficulty)

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Operator [67]

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Yes, Mr. Jain's line. Hello, sir?

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Rahul Jain;LionRock Capital;Analyst, [68]

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Hello?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [69]

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Now it is okay. So that I have 100% commit from myself on that. As per my experience, I have not seen any this type of challenge in Bengal, whatever the report has come on that.

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Rahul Jain;LionRock Capital;Analyst, [70]

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And my second question was with respect to just from operational perspective. So I understand the -- on the ground loan officer is always in contact with the borrowers and do obviously have a lot of communication. But when you look at these borrowers, in terms of data access, like how do you make sure that you always have a full picture of both formal as well as informal leverage at the customer level? For example, a customer can always walk up to a local money lender, borrow something and repay the installment to the microfinance companies. So how does the bank manage that data access and the operational details? So how do you make sure that whatever data you're seeing is clean and is covering all the potential leverage which could be there at the customer level?

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Sunil Samdani, Bandhan Bank Limited - CFO [71]

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See, to answer your question, in terms of indebtedness, 100% of microfinance customers are on credit bureau. What is not there in credit bureau, of course, is the moneylenders' indebtedness, but then our model is such that we meet customers every week for an hour. The average age of customers with us is more than 5, 6 years of our existing customer base. So that gives us enough ability, increase our ability to get the information about the customer, not only from the formal sources but also from informal sources and the business in which they are in. So we are quite confident of this model of collecting information and assessing the customers.

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Operator [72]

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Next question is from the line of Prakhar Agarwal from Edelweiss Securities.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [73]

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Kunal over here. Firstly, in terms of, again, the portfolio in Assam. So against this portfolio of INR 6,500 crores, I think we have made the provisioning of INR 200-odd crores, which is 3-odd percent. And I think we are saying if this situation continues as it is, there will not be any further provisioning required. But if we look at maybe the previous events across for the industry, and I think this seems to be much now more intense, so the general write-offs have been in the range of 5% to 6% during the demon or maybe at AP wherein most of the players were impacted. So what gives us the confidence now with respect to this 3%? And currently, also our collection efficiency is around about 93.6%, so there is still a gap of almost like 6-odd percent, which we need to fill over there. So first is that. And against maybe this exposure, which we have of INR 6,500 crores, what would be the quantum of deposits which we would have raised from Assam as such, so maybe purely in terms of the MFI?

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Sunil Samdani, Bandhan Bank Limited - CFO [74]

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Yes. So I'll answer your first question first. In terms of our assessment, yes, our total book is INR 6,500 crores in Assam. But as you've seen, our OTR has come up quite swiftly to almost 93%, 94%. And this is based on the recent behavior of the customer that we envisage, that this will be the right amount or the adequate amount the way we look at today. So we've looked at our data from 3, 4 sides, looking at DPD, looking at OTR, looking at the customer interactions in the field and come up with this. And with respect to deposits in Assam, our total deposits from Assam, but not necessarily is our customer deposits, this is the deposits from our banking channel, is INR 1,474 crores.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [75]

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Okay. And if we can get the split between the customers and the -- maybe outside of the MFIs, would that be possible to share?

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Sunil Samdani, Bandhan Bank Limited - CFO [76]

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That is not readily available. But on an average, we have -- our average balance per DSC customer is about INR 1,900.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [77]

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Yes. And maybe whatever...

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Sunil Samdani, Bandhan Bank Limited - CFO [78]

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At India level. We don't have the readily available Assam number.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [79]

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Okay. Sir, maybe would that help in terms of at least, if there are deposits, maybe our recovery rates would relatively be better because maybe customers have the deposits and they would not want to delay, especially with Bandhan? So just trying to evaluate maybe as compared to that of other players that should we be relatively better off in terms of the recovery run rate given the...

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Sunil Samdani, Bandhan Bank Limited - CFO [80]

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What we've done, if you look at our presentation, we have benchmarked this event against GST and demonetization, the 2 procedures that we have faced. So there our experience has been that things come back to normalcy in 3 months' time, in both demon as well as GST, as far as Bandhan goes. Here, we are talking about Bandhan specific, right? So we are quite confident that this should be back to normalcy in 3 months' time.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [81]

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Sure, sure. And secondly, in terms of GRUH portfolio, so mortgages if we really look at it, it's been still quarter-on-quarter sequentially, when you look at it, the portfolio is down. So is it more to do with the integration? Or this is more in terms of the business momentum, which we should look at it? And when should we expect this portfolio to get back to the growth trajectory? Because when you look at it, it was like 19,200, 19,300, now it's down to like 19,000, so slight slip sequentially. So is it more of an integration or that's maybe the trend in the near term?

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Sunil Samdani, Bandhan Bank Limited - CFO [82]

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I think it has more to do with the integration because the merger got effective from 17th October. So it's only 1.5 months that we are into the merged entity. And the priority, obviously, is to ensure that we are on compliance with RBI norms, especially on the KYC and on identification of the NPA. So I think probably, we should get back to the normal momentum, which we have experienced during the last 12-month period, probably in the 3 months' time to 6 months' time.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [83]

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Okay. So it would still take like 3 to 6-odd months to get back to the normal trajectory?

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Sunil Samdani, Bandhan Bank Limited - CFO [84]

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Yes.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [85]

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Okay. And till then, I think it should be more or less flattish kind of, so maybe in terms of the business growth that should be limited in GRUH portfolio?

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Sunil Samdani, Bandhan Bank Limited - CFO [86]

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See, what has happened, this particular quarter, I wouldn't make any judgment based on this quarter situation. I think going forward, this fourth quarter probably will give us an indication as to how soon we can gather the momentum.

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Operator [87]

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Next question is from the line of Rakhi Prasad from Alder Capital.

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Rakhi Prasad;Alder Capital;Analyst, [88]

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Just on the growth of the MFI book for rest of India, it seems like it's growing faster or sequentially because Assam took a hit this quarter and also number of employees have also increased. So are we putting more employees in the rest of India locations? Could you just give some color around this growth?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [89]

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If you see that the West Bengal growth is coming in the 15% in the last point on that. And this is -- if you go to this, the total microfinance portfolio growth has come 30%, but instead of that, the West Bengal growth has come 15%. So this is the one point I mentioned. And second point on that, this is not in a microcredit point of view to -- that is employees increasing. Employees increasing from the different vertical opening on that SEL and others. And some of the internal auditor is needed so that we transfer from the business to internal audit, concurrent audit, so that is some other factors also is there. And the one point we have been introduced in the last 1.5 years or even 1 year also, that is in every of the microcredit office, one of the position is the operational head that is we have now given to them. So that it is number of some employees is increasing on that.

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Sunil Samdani, Bandhan Bank Limited - CFO [90]

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To answer your question, yes, the growth outside East India in terms of customer acquisition is faster than Eastern India. And our growth, excluding Assam book, has been steady, it was 34.6% year-on-year in September quarter. It is 33.5% this year, excluding Assam.

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Rakhi Prasad;Alder Capital;Analyst, [91]

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Okay. So this growth in employees and the corresponding cost also, that's why we can see that growth in the cost just because of this jump in the employees, is it correct?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [92]

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Cost will be increased on the basis of also...

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Sunil Samdani, Bandhan Bank Limited - CFO [93]

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Yes, partly -- the increase in OpEx partly is yes because of the increase in people, but the large amount is specifically for the merger-related expenses. There has been an increase in advertisement expenses, which we did on merger. Also, as we replaced GRUH high cost borrowings, since GRUH was on Ind-AS, the processing fee paid on loans was also amortized over the tenor of the loan. So now that we have repaid the group borrowings, you cannot carry the uncharged processing fee on the books, and that has to be charged off. So that's why there has been that impact on -- onetime impact on account of repayment of GRUH borrowing.

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Rakhi Prasad;Alder Capital;Analyst, [94]

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Okay. So then next year, basically, this will get normalized?

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Sunil Samdani, Bandhan Bank Limited - CFO [95]

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Yes.

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Operator [96]

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Next question is from the line of Rohan Advant from Multi-Act.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [97]

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Sir, my first question is on the code for responsible lending that we've been reading about in the newspaper, which the MFIN seems to be propagating. I know Bandhan stands on this, but if hypothetically it were to be adopted, how will it be decided who gets to lend to the customer, if the total is capped at INR 1 lakh? That is the first. And second was on NIMs, the decline on Q-o-Q basis, if you could just throw some light on that.

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Sunil Samdani, Bandhan Bank Limited - CFO [98]

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So in terms of CRL, I think that's the core for a microfinance institution, and we are a universal bank. It's very logical that we can't be part of it. Otherwise, tomorrow we may have to sign the housing finance company code or an MSME company code or a gold loan company code. So that's one reason. And two, I know there are -- what we believe there are certain issues in terms of who can lend and how much can lend because that code defines 2 MFIs and 1 bank. The code maker cannot say what customer -- with whom customer can take loan, it's the customer who will decide. So there are certain differences of thoughts here, and that's where we are not signing there.

And to your next question, coming to the NIMs, we've seen a drop of about 20 basis points on the NIMs, largely 2 reasons. One is the excess liquidity. We've been carrying excess liquidity of almost INR 4,500 crores this quarter for the entire quarter. And we -- as we repay in this quarter, the balance GRUH liabilities, this excess liquidity will come down. And two, as the recognition of NPA of GRUH portfolio, there has been a reversal of certain interest income. We are quite hopeful. And once the cost of funds comes down with those onetime charges getting -- being recognized in this quarter, we see the NIMs going back to that 8% mark in a quarter or 2.

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [99]

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I can add to the -- I can add another one point, Bandhan from beginning has a responsible lending practice but not as a certificate. That we are only the organization our interest rate is in 17.95%, the lowest in the industry. And if you come on that -- before bank -- I was in a bank, that time also my interest rate was at 22.5%, which is lower than any of the lenders, we are the lower. So we are very careful about it, my customer point of view. How we can see the responsible lending and pass on some of the benefit to them.

Second point, if you say, we at the organization, we are practicing, and say that there is an only single loan, 1 loan, 1 customer. Until it will not close, we are not going to the next loan. So many of the things. If you see that going to respect to all, if you visited my group meeting and how we respect my customer and customer also respect us. And the assessment have been prepared on the basis of their business and others. So I hope that we are as a microfinance institution and also as a bank, we are practicing responsible lending on that, not signing the papers. So this we like to continue in that.

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Rohan Pramod Advant, Multi-Act Equity Consultancy Ltd. - Portfolio Manager [100]

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Sir, lastly, on number of exclusive borrowers, if you can share?

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Sunil Samdani, Bandhan Bank Limited - CFO [101]

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It is in the same range of about 55%.

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Operator [102]

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Next question is from the line of Nishant Shah from Macquarie.

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Nishant Shah, Macquarie Research - Research Analyst [103]

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There was a question early on about like what the underlying pool is for this INR 200 crore provisions that you've made. Could you just repeat that, I didn't quite catch that properly? And second question is, there's a sequential 10% drop in PCR. So could you just like maybe talk a little bit about that? Why should the PCR, excluding technical write-offs, be down by 10%.

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Sunil Samdani, Bandhan Bank Limited - CFO [104]

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To your first question, we've already explained. We've evaluated it from all sides, from the DPD side, from the OTR side and the interaction from the field, and that's on the basis of our conservative estimates, we've come up with this INR 200 crores. On the PCR side, the increasing GNPA that we've seen largely is on account of the home loan book treated based on the NPA. That's more on the accounting side, the norms for recognizing from an HFC to bank. And in the home loan business, the loss given before...

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Nishant Shah, Macquarie Research - Research Analyst [105]

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Fair, absolutely. Sir, just coming back to the first question again, this INR 200 crores, what would be the, say, the proportionate total advances outstanding for all the customers that you've identified on which you've made this INR 200 crore provision? So what you're trying to estimate is like, hey, what actually could be the affected portfolio potentially?

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Sunil Samdani, Bandhan Bank Limited - CFO [106]

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That's what it is.

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Nishant Shah, Macquarie Research - Research Analyst [107]

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So the INR 200 crores is the total amount? It's not that, hey, we assume that maybe 25% is the haircut that we would have and therefore, the underlying exposure is maybe say, INR 800 crores, and we've provided 25% against it, that's not how we should look at it, right?

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Sunil Samdani, Bandhan Bank Limited - CFO [108]

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Yes.

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Operator [109]

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(Operator Instructions) Next question is from the line of Karthik Chellappa from Buena Vista Fund.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [110]

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Out of the 10.5 million micro borrowers, how many would be in West Bengal?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [111]

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Micro borrowers? There isn't -- you can say that my portfolio of the micro in West Bengal 45%. So similar in the savings from that.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [112]

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So in terms of number of borrowers also, it is likely to be around 45%, 46%?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [113]

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Yes.

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Operator [114]

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Next question is from the line of Aakash Dattani from HDFC Securities.

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Unidentified Analyst, [115]

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I have 2 questions. Firstly, after what you all have seen in certain parts of Assam in the quarter that has gone by, are there -- is there any introspection or are there any reasons which you all would want to change your operational policies, practices? What is your take from this?

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Sunil Samdani, Bandhan Bank Limited - CFO [116]

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We've been operating in Assam for last 13 years. And for -- out of these 13 years, for last 10 to 11 years, at least last 10 years, we've been the sole lender in Northeastern states. It's only in the last 3 years, we've seen other players entering the Northeast India. And we hear this noise only in the last 1, 1.5 years. So we don't think there is a need to changing the processes that we do. We've become conservative in lending because of the difficulties that we are seeing in Assam. Otherwise, as a model and a process, we've been confident about our model and process.

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Unidentified Analyst, [117]

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Okay. And secondly, could you comment if there have been any group meetings that have been suspended in the quarter that has gone by?

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Sunil Samdani, Bandhan Bank Limited - CFO [118]

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So there has been a few days where there has been disturbance and we could not conduct the group meetings.

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [119]

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So if you see that in some of the time on that, when the bandh is coming so that I cannot request my staff to go to the village and then it will not happen. That is sometimes the customer is coming to the office to repay in the evening. So that is happening on that. It is not exceptional. It has happened in the frequent time in Assam.

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Unidentified Analyst, [120]

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Okay. So there isn't a large proportion of meetings that still stand suspended, right? Is that a fair assumption?

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Sunil Samdani, Bandhan Bank Limited - CFO [121]

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No, not really. I mean if you're talking about recent past, it's been a peaceful protest in Assam. So the meetings continue.

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Operator [122]

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Next question is from the line of Gaurav Jani from Centrum Broking.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [123]

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Actually 3 quick questions from my end. One is, how many customers would you have in Assam of the total 10 million in micro-banking?

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Sunil Samdani, Bandhan Bank Limited - CFO [124]

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14.2 lakhs.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [125]

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14.2 lakhs, okay. Sir, and -- the customer profile in Assam, so these would be typically unsecured loans eligible for the JLG model, right?

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Sunil Samdani, Bandhan Bank Limited - CFO [126]

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Yes. The entire micro-banking categorization is unsecured.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [127]

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Yes. As per the erstwhile JLG model?

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Sunil Samdani, Bandhan Bank Limited - CFO [128]

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Yes.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [129]

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Sure, that's helpful. Sir, lastly, if I may ask you, so what will be the vintage of our MFI loan, would it be 1.5 to 2 years? Am I reading that correctly?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [130]

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Yes.

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Sunil Samdani, Bandhan Bank Limited - CFO [131]

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Yes. It's 1 year and 2 years, we have 2 products.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [132]

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Got it. So assuming that, I mean, I think for a quarter, we might on an average have INR 1000-odd crore portfolio outstanding, right?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [133]

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Yes.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [134]

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Which should be due for Q3, and hence, that can also be due for Q4, right? That's the way to it from Assam?

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Sunil Samdani, Bandhan Bank Limited - CFO [135]

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Sorry, I didn't get this question.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [136]

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So what I was getting to is Q3 would actually have an outstanding or probably an overdue of INR 1,000 crore from Assam. Am I reading that correctly? Because our vintage would be about 1.5 years to 2 years.

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Sunil Samdani, Bandhan Bank Limited - CFO [137]

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No, not really.

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Gaurav Jani, Centrum Broking Limited, Research Division - Research Analyst [138]

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So could you just explain how to look at it?

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Sunil Samdani, Bandhan Bank Limited - CFO [139]

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See, as I said, our total bank-wide 30 DPD number is INR 556 crores, out of which the Assam book is about INR 227 crores. And the increase, if you look at it from September quarter, it is INR 162 crores in Assam and at an overall pan-bank level, INR 172 crores.

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Operator [140]

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Next question is from the line of Digant Haria from Antique Stock Broking.

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Digant Haria, Antique Stockbroking Ltd., Research Division - Assistant VP, Equity Research [141]

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I just wanted to have one data keeping question. Could you just tell me what is the loan portfolio that we have in the state of Bihar and Orissa?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [142]

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One minute. We need some time. If you have some other questions, you can ask.

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Digant Haria, Antique Stockbroking Ltd., Research Division - Assistant VP, Equity Research [143]

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No, that's it. And I just wanted the previous year's portfolio also of those 2 states. That's it.

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Sunil Samdani, Bandhan Bank Limited - CFO [144]

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So Bihar is INR 4,053 crores, which previous year was INR 3,120 crores, which is a 30% year-on-year increase. Orissa is INR 945 crores, previous year was INR 659 crores.

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Operator [145]

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Next question is from the line of Manish Ostwal from Nirmal Bang Securities.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [146]

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I have 1 question on the Assam portfolio. We have a 16% portfolio in Assam. Against that, we have provided 3% provisioning. So you said if the current situation prevail, then there will be no incremental provisioning for this particular portfolio, but sir, our OTR rate in the Assam portfolio is 93%. And that is a 5% drop from the September 2019 rate. So basically, we need to provide 2% more if the current situation prevail and that amount works out to INR 1 crore, INR 3 crore plus. So can you explain these things here to me?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [147]

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Only I say that you see my 1 month total day on day basis my OTR. If you see that the 98% OTR suddenly gets down for the 78%. Again, next day, it has come up even 90%, again go down. So that means it is -- on the basis of environment, it is coming down and up. It is not showing that my customer is not interested to repay. For that reason, we are not counting in that way to this because this is the situation. If you see that 93.6%, that is also the situation. If you know that, that is not that much of the growth. That means the customer is very good. They are repaying -- trying to repay regular, but in that, they cannot come to the group meeting, they cannot come to this office to repay for that reason is happening. So for that reason, I'm not accounting everything will be like to come in 5% or 10% to my MFI book because my data is not showing in that. If you see that the last two point also earlier and that too also if you see that the demonization, and we have been seeing that there's another GST impact and if we go to this UP impact, all impact coming on that the 1 month to 3 months is the maximum it will be like. And automatically, again, then customer has come -- returned back and paying on this. So this is -- on the basis of that, we are -- very conservatively, we take some amount as a special provision.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [148]

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Sure, sir. And the second point on this, based on your ground assessment of Assam market, what is the best-case scenario of, again, the collection efficiency touching to the normal level? What is the time frame one should expect, given the current scenario?

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Chandra Shekhar Ghosh, Bandhan Bank Limited - Founder, MD, CEO & Director [149]

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You see that some of the point of the environment, I cannot like to say that from my side, but I see that day by day, it is improving on that. Whenever the normal position people movement will be done, then automatically, all the position of collection and loan disbursement happen in a regular basis. And it is if you see that in the today, correct. But we are -- this type of some situation, we saw that earlier also.

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Operator [150]

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Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Sunil Samdani, CFO, for closing comments.

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Sunil Samdani, Bandhan Bank Limited - CFO [151]

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Thank you, ladies and gentlemen. Thank you for taking your time out and for your questions on the earnings call. Thank you very much.

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Operator [152]

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Thank you. On behalf of Bandhan

(technical difficulty)