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Edited Transcript of CHLA.NS earnings conference call or presentation 4-Jun-20 4:30am GMT

Q4 2020 Cholamandalam Investment and Finance Company Ltd Earnings Call

Aug 19, 2020 (Thomson StreetEvents) -- Edited Transcript of Cholamandalam Investment and Finance Company Ltd earnings conference call or presentation Thursday, June 4, 2020 at 4:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Arul Selvan D.

Cholamandalam Investment and Finance Company Limited - Executive VP & CFO

* Arun Alagappan

Cholamandalam Investment and Finance Company Limited - MD & Executive Director

* Ravindra Kumar Kundu

Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director

* Rupinder Singh

Cholamandalam Investment and Finance Company Limited - Senior VP & Business Head – Home Equity

* Shaji Varghese

Cholamandalam Investment and Finance Company Limited - President of Housing Finance

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Conference Call Participants

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* Amit Premchandani

UTI Asset Management Company Limited - Fund Manager

* Amyn Pirani

CLSA Limited, Research Division - Research Analyst

* Anirvan Sarkar

Principal Asset Management Pvt. Ltd. - Fund Manager

* Bharat Shah

ASK Investment Managers Limited - Executive Director

* Bhavik Dave;Nippon India Mutual Fund;Analyst

* Darpin Shah

HDFC Securities Limited, Research Division - Equity Analyst

* Jignesh Shial

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

* Nayan Sheth

Franklin Advisers, Inc. - Portfolio Manager

* Nidhesh Jain

Investec Bank plc, Research Division - Analyst

* Nischint Chawathe

Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst

* Piran Engineer

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Prashant Sridhar;SBI Mutual Funds;Analyst

* Rohan Mandora

Equirus Securities Private Limited, Research Division - Analyst

* Roshan Rodrigues;ICICI Prudential;Analyst

* Shubhranshu Mishra

BOB Capital Markets Limited, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Cholamandalam Investment and Finance Company Limited Q4 FY '20 Earnings Conference Call hosted by Kotak Securities Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities Limited. Thank you, and over to you, Mr. Chawathe.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [2]

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Thank you. Welcome, everybody, to the 4Q FY '20 earnings conference call of Cholamandalam Investment and Finance Company Limited. To discuss the performance of Chola and share business updates, we have with us today, Mr. Arun Alagappan, Managing Director; Mr. Arul Selvan, Executive Vice President and CFO; Mr. Ravindra Kundu, Executive Director; Mr. Shaji Varghese, President, Housing Finance; and Mr. Rupinder Singh, Senior Vice President and Business Head, Home Equity and SME.

I now -- I would now like to hand over the call to Arun for his opening comments.

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [3]

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A very good morning to everyone. I take pleasure in presenting to you the Q4 and full year performance of the company for the financial year FY '20. As a key update, in relevance to the ongoing COVID-19-related lockdown, I'm happy to inform you that over 90% of our branches across the country have commenced operations post lifting of the lockdown in most parts of the country. As a responsible business entity, we have been fully compliant with the government guidelines and have followed due process in restarting our on-ground operations.

The COVID-19 pandemic has managed to impact the lives and livelihood of people and businesses across the globe. During these testing times, the foremost focus of the company has been to provide sufficient support to its employees, customers and all other stakeholders. The Chola leadership team is committed to navigating this crisis successfully. The company has been actively focusing on realigning its business strategy in the near term to mitigate the impact of COVID-19 on the performance. We have developed scenarios to assess the impact of COVID-19 on disbursement, NCL and PBT. We have readied the business execution strategies for the identified scenarios. We have built adequate liquidity to offer moratorium to most of our customers while not having availed any moratorium from our lenders. We had been in constant interaction with auto OEMs in assessing their strategies and planning our action to sync with their moves.

Some of the key interventions include preplanning product-wise, geography-wise disbursement strategy; revamping credit policies to ensure sourcing quality; identification of segments, which are at relatively higher risk of deterioration and strengthening the collections teams.

In addition, the company is also judiciously using this time to invest in enhancing capabilities for long-term growth. Over the past few weeks, multiple digital enhancements have been accelerated into implementation. To quote a few, end-to-end digitization, digital integration with auto OEMs, enhancing digital integration with channel partners, setting up alternative digital collection modes, evaluating operation -- evaluating options for remote investigation of field assets during -- using video PD, instituting digital KYC process, et cetera, are ongoing at the moment. The company shall fully leverage these enhancements in the coming quarters in order to amplify our competitive advantage.

As a matter of abundant caution, the company has factored in possibility of delay in customer payments post moratorium in case economic slowdown is long drawn. Accordingly, the company has created a onetime contingency provision of INR 284 crore towards loan agreements where moratorium has been offered. Over and above this, the company has also created a macro provision of INR 250 crores to meet contingencies that may arise post moratorium due to the global recession and economic slowdown. In total, the company has created an additional provision of INR 534 crores to meet any contingencies that may arise in future due to the COVID-19 shutdown. The total provisions of the company stand at INR 1,523 crore as of March '20. The Stage 3 PCR stands at 41.5%.

The company performance, Q4 and full performance -- full year performance. Asset under management grew by 16% at INR 66,943 crore as compared to INR 57,560 crore in FY '19. Aggregate disbursements for the quarter ended March '20 were at INR 5,663 crores as against INR 8,893 crores in the previous year, registering a decline of 36%.

Aggregate disbursements for the year ended March '20 were at INR 29,091 crore against INR 30,450 crore in the previous year, registering a decline of 4%. The drop was primarily due to the lockdown on account of COVID-19 and also attributable to the auto slowdown, which was accentuated in Q4.

Profit after tax before onetime provisions were at INR 418 crore for the quarter ended March 2020 and INR 1,387 crore for the full year, registering a growth of 43% and 17%, respectively. On a comparable basis, profit after tax for the quarter ended March 2020 were at INR 43 crore and for the year ended March 2020 were at INR 1,052 crore after creating onetime provision of INR 504 crore to cover contingencies due to COVID-19 and macroeconomic downturn.

PBT-ROTA for FY '20 before adjusting onetime COVID-19 and macro provisions was at 3.5% as against 3.7% in FY '19. PBT-ROTA for the quarter before adjusting onetime COVID-19 and macro provisions was at 3.7% for the quarter as against 3.5% in the same quarter in FY '19. Return on equity was at 15.2% after onetime provision towards COVID-19 and macros. Return on equity before onetime provision stood at 20% for FY '20 against 20.9% in FY '19.

Nonperforming assets. Asset quality as on March '20 for Stage 3 assets has stood at 3.8% with adequate provision coverage of 41.5% ECL provision. Additional COVID-19 and macro provisions for Stage 3 assets was INR 225 crore; for Stage 1 and 2 is INR 309 crore.

Moratorium. Pursuant to the moratorium announced by RBI on EMI repayments, initially till May 20 and further extended to August 20, the company has framed a Board-approved policy and accordingly offered moratorium to its customers. Nearly 76% of our customers have availed moratorium considering the uncertainty over the period of lockdown, which has now been further extended as well as revival of the economic growth post release of lockdown.

Vehicle Finance. Following are the key pointers on the performance of our Vehicle Finance business in FY '20. Assets under management for Vehicle Finance business grew by 9% to INR 44,206 crores in FY '20 compared to INR 40,606 crores in FY '19 in spite of the auto slowdown and COVID-19 lockdown. Vehicle Finance business has clocked a volume of INR 4,703 crore for the quarter ended March 2020 as against INR 7,383 crore in the previous year. For the full year, the business has done a disbursement of INR 23,387 crore as against INR 24,983 crore in the previous year, registering a decline of 6% year-on-year. There were severe -- there was severe decline in the auto industry across product segments, including HCV, LCV, MLCV, CAR/MUV and 2-wheelers. With higher disbursements from used, 3-wheeler and 2-wheeler products, we were able to offset drop in the other traditional segments. This enabled us to restrict the degrowth in overall disbursement to 6%.

The PBT on a comparable basis before considering the onetime provision of COVID-19 was INR 1,342 crores as against INR 1,269 crores in FY '19, registering a growth of 6%. After considering the onetime provision of INR 398 crores towards COVID-19, the PBT for VF business dropped to INR 945 crores. The Vehicle Finance division continued its focus on maintaining asset quality through an aggressive collection strategy, which has helped it restricting gross Stage 3 assets to 2.91% despite FY '20 being a very challenging year.

Home Equity business. Moving on to the Home Equity business. Amidst the challenging macroeconomic situation, AUM for the Home Equity business managed to grow by 11% from INR 11,626 crores in FY '19 to INR 12,960 crores in FY '20. Disbursement for the year recorded a decline of 5% over previous year. The PBT during the year was INR 244 crores as against INR 305 crores in the previous year. The drop in PBT was primarily on account of additional provision of INR 91 crore made for bracing the COVID-19 impact. PBT before considering additional provisions were at INR 334 crore, registering a growth of 10%.

Capital adequacy. The capital adequacy ratio of the company as on March 31, 2020, was at 20.7% as against regulatory requirement of 15%. During Q4, the company raised INR 900 crore of equity capital by issuing 2,81,000 -- sorry, 2,81,25,000 shares of face value INR 2 at a price of INR 320 per share, through a QIP process, which were oversubscribed by nearly 4x by marquee investors, both domestic and international. This was followed through by a preferential issue of 93,45,794 shares at INR 321 per share to the promoters, resulting in further addition of INR 300 crores to the net worth. Thus, the total net worth increase on account of capital issue was INR 1,200 crores during the quarter.

The liquidity position. The company has not availed moratorium so far on its borrowings, and it does not intend to avail any moratorium benefit. The company has closed March with a cash balance of INR 6,446 crores and also has sanctioned lines of INR 4,462 crores. Currently, the company has cash in hand and sanctioned line of around INR 10,000 crores as of May 31, 2020. This adequately covers the need of the ALM process with no negative cumulative mismatches across all-time buckets. Even after extending the moratorium to its customers, for second phase, the cash position of the company is adequate to meet all its maturities and fixed obligations till September 2020.

The year gone by saw multiple headwinds for the business. But as a silver lining, the challenges have also forced us to look into the processes and systems within the company and improve efficiencies wherever possible. This has helped us find new avenues of cost reduction possibilities, impact of which shall be visible in the coming quarters. In addition, the company has committed itself to significant transformation efforts in order to build long-term capabilities and emerge stronger out of this crisis period. These initiatives, I'm sure, will hold us good -- in good stead when the dust settles down and economy -- and the economy improves.

Thank you all for patiently listening. My colleagues and I would be happy to answer your queries now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question is from the line of Jignesh Shial from Emkay Global.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [2]

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Just quickly, 2 or 3 data points because I didn't get it. The moratorium is total 76%. Can you give us the bifurcation between Vehicle and your Home Equity?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [3]

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Yes, this is Arul here. 76% is from a value term. The Vehicle Finance on a similar basis is at around 79% and Home Equity will be 66%.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [4]

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Home Equity would be 20....

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [5]

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66%.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [6]

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66%. Okay. Understood. And secondly, in the same manner, can you give me Stage 3 for vehicle or equity number, as well as percentage? Or if it is there in presentation, just refer to the slide, that will also do.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [7]

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We generally don't give breakup between the businesses. The overall Stage 3 number is given in the presentation.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [8]

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Okay. Understood. And can I get the gross NPA absolute numbers on total basis and net NPA absolute number? Do you still mention it? I've got the percentages.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [9]

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No, it is given there in the value terms also, Stage 3 number is given. It is in Slide 29, if you see the presentation.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [10]

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Sir, the gross NPA number and stage 3 number are different, right? Or this is the same number?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [11]

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No. After RBI has come up with now guidelines on Ind AS-related presentations also, now Stage 3 is the number we go back. Gross NPA numbers generally will be even lower than this because it does not take into consideration the income -- the interest income overdue. Actually, this is a much better version. This is the larger one.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [12]

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Okay. Now a few questions. This is more related to overall performance and all. How is -- 76% is total morat right now, but how now since May 18 the things have started opening up and all, how you're seeing that morat book is looking? Are you seeing the repayments happening right now or morat is continuing for the second phase as well? Could you give some color on this?

And second, I just have a question on margin profile. So we've seen a dip in the -- a sharp dip sequentially on the yield side as well. And now any specific reason for the dip on yield as well as how we are seeing the margin profile going forward? Borrowings would be rising because you're not taking a -- I mean your moratorium from the bank. So how the margin profile will shape up for the next 2 or 3 quarters? That's it from my side.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [13]

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Ravi, would you want to answer that?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [14]

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Yes, yes, yes. So we have been tracking all these moratorium delinquent customers. Because moratorium nondelinquent customer, we are not having anything to collect. But the past dues of the moratorium customer as on February 29, we are actually chasing them. And we saw good improvement in terms of 1 or 2 parameter which we religiously follow. One parameter is NRRB. So what is the meaning of NRRB? It is a normalization and rollback. So normalization or rollback. If the customer is in 2 buckets, and he actually pays only one EMI, it is considered as rollback. If he pays 2 EMIs, then it is considered as normalized. So NRRB, up to February before moratorium for 1 to 2 bucket, at a overall level for Vehicle Finance, which was 11% in February, which actually in the month of May has gone up to 26%. So NRRB is going up. Why it is going up? Because the customers do not have current month dues and their billing is stopped. So the past dues, they are paying. So they are going back to the normalcy or they are going down from the bucket where they are. This is 1 to 2. So 2 to 3 also similarly, the NRRB is good. It is actually 31% in May. 3 to 4 has also gone up from 20% to 31%. This is with respect to the moratorium delinquent customer.

Now coming to the nonmoratorium delinquent customer, so in the nonmoratorium delinquent customer, it is important to follow or track the roll forward rather than the NRRB. NRRB is also important, but their current month billing is happening. So the roll forward is important, which we are actually holding the customer in the same bucket. So I saw that actually, in the month of February for the nonmoratorium customers, the roll forward was 6%. It has come down to 1.6% for 1 to 2 bucket. And similarly, for 2 to 3, it has actually come down from 19% to 3%. So therefore, the roll-forward rate for nonmoratorium delinquent customer has come down and NRRB, normalization and rollback, for the moratorium delinquent customer has improved. So these are 2 good parameter, which is actually a good sign for portfolio to coming into the normalcy. And this has happened during the pure lockdown period.

What is the meaning of pure lockdown, means that lockdown was there. Nothing was actually allowed, only the essential goods were getting transported by the customer. And still especially in the rural market, people were doing the job. For example, customers were taking the rice from FCI godown to delivering it to rice mill or in the places where they have to supply. So such customer only could utilize it. So the utilization level were very low. In spite of that, a lot of customers have paid money. What we are expecting that from June month, the utilization will improve and the customer who are actually into the moratorium delinquent customer will be able to pay their past dues much better than the what they've paid in the month of May. That is what is the tracking the moratorium customer.

During this period, we have contacted, as Arun mentioned, more than 10 lakh customers we have contacted. All 10 lakh customer whom we have given moratorium, we have actually -- initially, we were not able to go out to the market. So we actually asked our, say, collection executive, sales executive to contact the customer over phone and got the WhatsApp message from them with respect to the extension of moratorium or requesting the moratorium facility and also inquired their well-being and also found whether their vehicle has basically come back to their hometown or still there on the road. So 90% customer, their vehicle came back in the first lockdown period itself. And subsequently, those vehicles, which were left out, came back in 3-month time. So in short, we are actually closely monitoring our customers, and we are in touch with them. And I feel personally that things are improving significantly.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [15]

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Okay. But are these morat customers now coming back and paying in advance or no such trend is visible right now? I mean in spite of they are into moratorium, now the things are improving, so instead of continuing moratorium, they're paying back. Any such situation is visible or nothing as of now at least?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [16]

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So you are talking about moratorium nondelinquent customers, are they actually coming back and paying their EMI ahead of the time, which is actually close to the end of the contract. Initially, very few, but there are some customers, but they are in thousand as of now. But I am expecting that -- no, we need to educate them that what is the impact on the interest. So we are actually planning, as Arun said that we are doing a lot of -- we are working a lot of digital initiatives. So in this month, we are going to give the statement of account digitally to each and every person, so that they can understand what is the EMI, what is the interest, the impact on them on account of taking the extension or taking the moratorium facility and then we will blast the SMS also to look into it and come back to us if they want to pay us to reduce their interest burden. And then we'll further educate them. And once they start also using the vehicle or deploying the vehicle when they start getting their cash flow improved, I'm expecting that they will come forward to repay their EMIs, what they have taken as of now to the end of the contract.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [17]

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Around margins, any...

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Operator [18]

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Sorry to interrupt you, I request you to come back in the question queue for a follow-up question.

(Operator Instructions) Next question is from the line of Rohan Mandora from Equirus Securities.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [19]

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Sir, on Slide #26, where we are giving the bifurcation in terms of the provisioning. Sir, for the current year, for normal provision for Stage 3, we've kept it like around 31%, which was around 37% kind of a trend earlier. So what's the thought process here? Will we see this increasing? Or what is that is covered under COVID? So that is one.

Second is on Slide #33 and 34, where we are indicating the outlook for the industry. For FY '21, we are indicating that the growth now -- in the [final sales] number would be lesser than FY '19. So some color on what is our thought process here because this is as per the CRISIL. So are we in sync with that expectation?

And thirdly, the scheme that we had rolled out with -- in partnership with Maruti, we are offering 2-month EMI upfront -- EMI waiver upfront -- EMI moratorium upfront to those loans. So what gives us comfort in giving loans to these segment of customers when they are already facing some kind of cash crunch? So what's your thought process behind this partnership and this kind of structure?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [20]

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Yes. So Ravi here, I will just reply on the Maruti scheme. See, Maruti scheme is nothing but it is just the holiday period for the EMI to start. So always, we actually give 30 days holiday period for the normal customer. Every loan is actually funded like that. If you take the loan in the month of June, on, say, suppose today, your installment will start on 5th of July. That is a 30 days moratorium. In this case, we have given them 2-month holiday. So the installment will start from August. And these customers are not having any cash crunch. They were actually having a plan and they were basically planning to buy the vehicle. And mostly, these are entry-level Maruti car wherein the customers are situated in the rural market, wherein the rural economy is not that impacted. And we are not diluting any norm with respect to the LTV or documentation or cash flows or bank statement or KYC or field investigation. The only thing which we are giving opportunity instead of paying from July 5, your installment will start from August 5.

As far as the provisioning concerned, I think the CFO will reply you.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [21]

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Yes. On the provisioning side, as you know, for Ind AS, we need to go by the empirical evidence of the last given default. As you would have also observed, over the last 2 years, our losses have been coming down. And this is reflected in the LGD dropping over the period, and that is why it has come down to 31%. However, that is exactly the reason why we have also created this macro provision. While we had an empirical evidence of progressively lower losses, given the current circumstances, we wanted to be sure that these losses will not come back, and we will not have a higher amount of losses in the coming period. And towards this, we have created the provisions and moved up the provision coverage to 41%. If the losses are contained, we will roll back to the normalcy what we have earlier been seeing.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [22]

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And, sir, on the industry outlook, Slides 33, 34.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [23]

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Ravi, industry outlook...

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [24]

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Yes, I'm just coming to industry outlook on. In fact, we have given it to the -- in our investor presentation. However, I would like to reiterate that the -- we expect that there is going to be faster recovery with respect to the rural sector. And it is because there has been a good rabi harvest, and this is going to support the tractor sales. You know very well our 80% of our businesses happen in the rural market. Our branches are mostly situated in Tier 2, Tier 3, Tier 4 towns. So therefore, obviously, any increase in the disbursement in -- any increase in the sales in tractor business will increase our disbursement. Just to inform you, for the month of May, industry -- as far as tractor industry is concerned, tractor industry has sold the same number what they sold last year in the month of May. So therefore, tractor industry is looking better.

Now coming to the light commercial vehicle, the light commercial vehicle, the range is very long. It is wide. It starts from 2.5 tonne to below 16 tonne. If you segregate this light commercial vehicle into 3 segments, one is the pickup segment and then the traditional LCV 407 type vehicle, 4 tonne to 7 tonne and then the vehicle which are basically intermediatory commercial vehicle. So out of these 3 segments, the pickup segment is going to do very well because they are having an opportunity to improve both the side in the small commercial vehicle and the light commercial vehicle side, and they are used for the last-mile transportation. And again, these are vehicles being used mostly in the rural market. So obviously, we will get benefited out of it.

Used commercial vehicle will do better because there has been a significant increase in the prices of the vehicle after the BS-VI norm rolled out by the manufacturer. The prices have gone up by 20% almost. So therefore, used vehicle is actually going to be sold at a better price and as well as it is going to be useful for the customer from the EMI affordability point of view. And all these customers who have been having an extra vehicle in terms of their -- increased their fleet during 2018/'19, they are also in the process of reducing their fleet because of the GDP and macroeconomic conditions. So those vehicles will come in the market for sale and as well as people will buy it more than buying the new vehicle.

When it comes to 3-wheeler and small commercial vehicle, it has actually been -- the demand, too, will be the least impacted due to the nature of the deployment of the last-mile transportation. However, the passenger 3-wheeler may get a hit in the Q1 and Q2, and then after that, it will improve.

As far as the heavy commercial vehicle and construction equipment is concerned, initially, you will see that it will have a huge impact on this because it depends on the GDP, it depends on the industrial production, it depends on the mining activity and all. And all these things are going to be subdued at least up till the rainy season. And post Diwali, November onward, things will start happening. It depends on the road and infrastructural investment of the government, so we need to just wait and watch to see what happens after October and November. But till that time, I don't think heavy commercial vehicle, construction equipment is going to do better. It is going to be subdued only.

Passenger car, the entry-level cars are going to do better. However, the mid-segment and premium car is not going to be better. And that is what we have seen -- projected by many analysts.

2-wheeler sale also, the entry-level 2-wheeler sales will go up, but the midsize 2-wheeler, which is extensive INR 1 lakh above, may not actually improve. So these are the expectation as of now. And since most of the things going to happen in our space where our strength is there, our core areas there, so therefore, we're likely to get benefited. That is what we are expecting.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [25]

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Sir, just one data-keeping question. What percent of your customers by value would have opted for moratorium at the end of March, April and May, respectively? And what was the absolute collections in April and May, if you can share these 2 data ones?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [26]

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Come again?

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [27]

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What percentage of customer by value would have opted for moratorium at the end of March, April and May, respectively? So like what is 76% right now we will do, I think, at the end of May, but what was the number in April and March?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [28]

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So this is the same number actually. We have done in one-shot all the customers.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [29]

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Ravi here -- sorry, this is Arul here. In March, it was a little lower because the moratorium was extended to the fag end of the month. So March collections were better because we have multiple billing dates and the billing happened before even the moratorium was announced. Those billings we had collected and we retained them. So the March moratorium availment per se was in the range of around 45%, if I'm not mistaken. But April and May, they have been almost same. Because once we announced, that number remained the same, that is the same 76% what we are seeing now.

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Operator [30]

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(Operator Instructions) Next question is from the line of Bharat Shah from ASK Investment Managers.

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Bharat Shah, ASK Investment Managers Limited - Executive Director [31]

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You were earlier explaining about behavior of the delinquent customers either who availed of moratorium or who did not avail of the moratorium. And my line actually went blank. So I couldn't really follow. Will you kindly explain that again?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [32]

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Yes, yes, yes. This is Ravindra Kundu. Moratorium delinquent customer, whoever past due as on 29th February, we are actually tracking their performance with respect to NRRB. NRRB is normalization or rollback. The customer who basically reduced their one EMI and roll back to [their loan] account, they're called as rollback and the customer who basically paid all their dues and become normal customers, they're called as normalized. So both put together, this parameter, we have been tracking significantly. And then we saw that as compared to, say, February, the moratorium was not there our NRRB for 1 to 2 bucket used to be, say, 10%, 11%, which has since gone up to 26% in the month of May, just we closed and 2 to 3 also is improved. 3 to 4 is also improved from 20% to 30%.

When it comes to nonmoratorium customer, wherein the current month billing is happening, wherein important is that we should able be to roll back. But then important is that to not allow those customers to roll forward. Because they have 2 important things to handle. One that the current month due and the past due. So we saw that the roll forward rate in terms of nonmoratorium delinquent customer in the month of February, suppose you take 1 to 2, which was at 6%, has come down to 1.6%. Similarly, in 2 to 3, it has come down from 19% to 3.38%. And then again, it has come down from 13.29% to 4.6%. So all the customers are paying, and it is actually -- we have met the customer. This situation is there when the customers' vehicles are partially used during these last 3 months. And we are expecting that in the month of June, July, August, these vehicles will be further used. And during the month also, they will continue to avail the moratorium. That means their current month EMI will not bill, and therefore, they will have opportunity to clear their dues. So we are expecting that by August 30 when the moratorium gets over, a lot of customers would have completed their repayment of the past dues as on February 29.

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Bharat Shah, ASK Investment Managers Limited - Executive Director [33]

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I got that much better now. And secondly, I mean, INR 284 crore, which is a specific COVID provision and INR 250 crore macro that you have provided for. So by that you mean it is unspecific general provision that you have made?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [34]

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Sorry, sir?

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Bharat Shah, ASK Investment Managers Limited - Executive Director [35]

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I mean the INR 250 crore macro provision is an additional kind of a lump sum provision that you have made?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [36]

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Yes. So to -- if you see Slide 28, we have given the breakups also. Wherever we have Stage 3 assets, for that, this is more focused towards Stage 3 assets because we are looking at -- in case there is a probability that the loss given default of these assets is increased over the next few months after the moratorium is lifted, we want to be protected against the troubles.

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Bharat Shah, ASK Investment Managers Limited - Executive Director [37]

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Yes. I have that slide before me. But what my question was, it's a generalized provision lump sum that you have made, right?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [38]

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It's the generalized provision for all the Stage 3 assets, yes.

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Operator [39]

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Next question is from the line of Amit Kumar Premchandani from UTI.

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Amit Premchandani, UTI Asset Management Company Limited - Fund Manager [40]

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You had raised capital recently before the COVID started impacting operations. That capital raising was very limited. Do you think you may require another bout of capital raise?

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [41]

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No, we don't think there is any plans immediately of any capital raise. Our capital adequacy is quite strong. We are at around 20% plus overall, and even in the Tier 1, we are at 15% plus. In generally, we -- yes?

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Amit Premchandani, UTI Asset Management Company Limited - Fund Manager [42]

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And on the second moratorium, this 76% number is likely to continue for the next 3 months again? Or you will be more subjective for the second moratorium?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [43]

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No. Second moratorium will mostly the reflect the first moratorium level, as we were -- as Ravi was saying earlier, we are trying to educate the customers also by giving them statement of account and then the calculators to find out what will be the impact of this -- availing this moratorium. So if the customer gets to earn money, they can quickly close down this and then exit the moratorium. That feature is what we are giving. The fact is also that as compared to May beginning versus now, there has been a lift-up of the ban on transportation and a lot of vehicles have started plying. So there is an earning potential that is being seen by the customers as against the initial period of May when there was fear that there is no end to the lockdown extensions. So considering these things, the environment is changing, and accordingly, the customers' requirement to avail moratorium will also change. So it's -- we are already at almost the peak level of availment. So we don't see much increase herefrom.

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Amit Premchandani, UTI Asset Management Company Limited - Fund Manager [44]

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Just the feedback on the capital part, if you look at the overall leverage number as compared to the other auto financier, your leverage even after the raising is slightly on the higher side. So maybe a rights issue would be a good form to raise capital in the current environment given 76% is under moratorium and we don't know how much will default?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [45]

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See the leveraging has got 2 implications. The leveraging, you have to net off the cash in hand. Because if you net off INR 6,500 crores of cash in hand, which unfortunately does not take place in either the new debt or the denominator when you are doing the debt/equity. Also the fact that the leveraging will slightly get pumped up in the current period, considering that we're are having no inflows on account of collection, while -- because of the moratorium. So we will wait and watch. As I said, we have internal norms to monitor the capital adequacy, both at the Tier 1 level and at an overall level. As and when we meet this across the thresholds, we will initiate action, just like how we did in the last year.

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Operator [46]

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Next question is from the line of Bhavik Dave from Nippon India Mutual Fund.

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Bhavik Dave;Nippon India Mutual Fund;Analyst, [47]

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Sir, I have a couple of questions. One is based on your collection infrastructure. So considering the moratorium rates are quite high, and we have not seen such levels in our history, how does our current collection infrastructure or collection team take care of this entire onetime event that we are seeing for the company?

And second is on the cost to assets front, where we have like done a reasonable job over the last 2 years where the cost to assets have come down from 3% to 2.6%, do we have any further room to improve this by rationalizing cost to some extent?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [48]

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So Ravi here, as far as the Vehicle Finance is concerned, most of the customers we have -- I mentioned that we have already met them twice. Once we have actually met them when we were -- we have contacted them over phone and got the consent letter. And then after that, we went to them for collecting the digital consent letter. And then also, we started actually following with them for collecting the money.

We have more than 7,000 collection executives and similar number in sales executives. The number of the vehicle sales is actually down as of now. Both sales and credit department have been directed to meet the customer to understand their need and also educate them on the moratorium fees. We have 4,000 managers, all of them basically working fully on the collection as of now because sales activities are significantly lower. So -- and all of them -- all of us -- all of these people are actually within the Chola itself and working for either Chola CIFCL or Chola Business Services Limited. So therefore, we are quite -- things are under control and we are making the customers.

I have given the behavior of the customer with respect to moratorium and nonmoratorium customer from the normalization rollback and the roll forward point of view. That also shows that the customers are paying as of now. Our estimate is that by August, when the moratorium period will get over by the time, lot of customer who have 1 or 2 or 3 installment due, even will come back. Customers will pay and then they will reduce their bucket and they will improve their delinquency level. That is from the collection side.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [49]

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If we're referring on the cost to assets?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [50]

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Yes, cost to assets. Cost of asset you have seen that we have been continuously working on increasing our productivity and also reducing the cost side. During the last year itself, our headcount have gone down because we have seen that in the middle of the year itself, we realized that the number of vehicle sale has come down significantly. So automatically based on that, that has been reduced.

And secondly is that we have also taken a lot of measures to cut down the other operating expenses. For example, travel, conveyance, petty cash expenses for running the branches, branch running cost, electricity costs, communication cost. So line by line item, we are going, by branch by branch, we have today, Microsoft Team, wherein we are conducting meeting and showing them their P&L line line-by-line by the branch. And significantly, it is working. Actually, a lot of benefit will be visible in the coming -- in this financial year.

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Bhavik Dave;Nippon India Mutual Fund;Analyst, [51]

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Sure, sir. So -- or it's fair to assume that this number can like improve a little more from the 3.6% going ahead?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [52]

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The percentage will significantly go up or not, but fundamentally, we are working on each line item. Some line items, values are very low. For example, if we, let's say, x amount of rental on account of branches. So that will come down by, I suppose, 10% by changing the offices from big to small. But that will not reduce your OpEx to asset ratio from 2.6% to 2.4%. It will reduce. So in essence, we are working on reducing the cost, but we need to also have the cost which is required to run the show. And we need to also serve our OEMs by providing our manpower irrespective if they're selling 1 vehicle or 10 vehicles because I cannot just remove the manpower. Tomorrow, if he starts selling 10 vehicles, I will not be in a position to again recruit and train the person and bring that person to convert the cases, and we'll lose the opportunity in the future. So it's like balancing act. Whatever best we can do in terms of cutting down the cost or rather optimizing the cost, we are doing it. You will see the better results.

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Operator [53]

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Next question is from the line of Prashant Sridhar from SBI Mutual Funds.

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Prashant Sridhar;SBI Mutual Funds;Analyst, [54]

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Sir, I just wanted 2 data points. For the month of March, April and May, what would be the bounce rates you're seeing? And what would be the actual collections in crores that you're seeing?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [55]

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We don't give bounce rate details. The collections we have already given when we gave the cash flows, when we projected it in April. We can -- I can repeat it. We have done around INR 600 crores of collection as against INR 2,700 crores in April.

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Operator [56]

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Next question is from the line of Nayan from Franklin Templeton.

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Nayan Sheth, Franklin Advisers, Inc. - Portfolio Manager [57]

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The ALM table that you have given in the presentation, is that adjusted for the 6-month moratorium?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [58]

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Yes.

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Nayan Sheth, Franklin Advisers, Inc. - Portfolio Manager [59]

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Okay. Got it. And sir, in terms of refinancing and top-up, is there some sort of scheme or loan structures? Are you seeing demand from your customers for refinance, so that they can get back into business? And what is your thought process around what kind of customers will you be willing to get back to?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [60]

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So as far as the refinancing the existing customer, it is a BAU, business as usual. As and when they want fund for their working capital or wants to repair their vehicle or rather paying the taxes, road taxes, insurance, they go for that. And every year -- every month, we do it normally. So as of now, the disbursement itself is lower, and these vehicles have not been operating to the fullest capacity. Once that -- they start operating it, obviously, they will come back for the refinance, which is nothing but taking loan after the principal outstanding goes down to the comfort level. Suppose the customer has taken INR 10 lakh, and after 3 years or 2 years, see that their purse has come down to, say, INR 6 lakh, so we additionally give INR 1 lakh or INR 2 lakh, which that person can actually utilize it for purchasing tire or repairing or refurbishing their truck or paying their taxes and all dues, which is a normal course, which happens as it is, and it is going to start happening from them -- in the future also.

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Nayan Sheth, Franklin Advisers, Inc. - Portfolio Manager [61]

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The -- you gave the morat numbers on Home Equity and the Vehicle Finance. But that third part of the business, which is very small, could you just give some color on which is the larger part of that business and what's the moratorium level on that?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [62]

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Shaji, do you want to...

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Shaji Varghese, Cholamandalam Investment and Finance Company Limited - President of Housing Finance [63]

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Arul, can I take that? Yes. This is Shaji Varghese here from home loans. The largest part of that business is home loans. Almost 76 percentage customers have chosen for -- 73 percentage customers have chosen for moratorium and remaining 26 percentage customers are -- paid due EMI. That's where the moratorium stands in home loans.

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Nayan Sheth, Franklin Advisers, Inc. - Portfolio Manager [64]

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Okay. And these are standard home loans products? Or are these like low-ticket size home loans?

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Shaji Varghese, Cholamandalam Investment and Finance Company Limited - President of Housing Finance [65]

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Okay. The segment which we service is middle-income group, predominantly the end-use consumer -- end-use service, mostly around Tiers 2, 3 and 4 cities. So we mostly do only with self-construction or ready property purchase, predominantly for end use. We don't -- we only have standard straight forward home loans product.

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Nayan Sheth, Franklin Advisers, Inc. - Portfolio Manager [66]

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Okay. Got it. And the customer profile in this segment, would that largely be salaried?

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Shaji Varghese, Cholamandalam Investment and Finance Company Limited - President of Housing Finance [67]

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No, largely are self-employed, more than 90%, 93% of the customer is self-employed here. And yes, also the formal income segment. That's where we are focusing now.

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Operator [68]

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Next question is from the line of Shubhranshu Mishra from BOB Capital Markets.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [69]

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Couple of questions. First question is with regards to, we're taking -- not taking the moratorium from banks. Is it more of a posturing? Or is it that we don't want to take moratorium because the banks are not offering? Can you provide some light on that?

And the second question is with regards to the home loan. Now in FY '12, we had introduced the SME loans and it could not scale up after FY '12 as much as we had expected. What gives you the confidence that we'll be able to scale up the home loans? And if we do have a plan, what is the level of scaling up that we have the intent to?

The third question is in your 2-wheelers, Royal Enfield and Honda, they're low margin products as compared to the rest of the 2-wheelers. So why are we entering or why are we doing low margin products? These are my 3 questions.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [70]

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Okay. I'll answer the first question and then I'll request to Shaji and Ravi to answer the second and third one. So on the moratorium part, the thing is it is a sort of a posturing also. And the more important thing is, these are like repayment of an installment due. If -- shifting it by 3 months is not going to help me greatly in ALM. So no point in shifting it simply for 3 months, as well go and borrow a longer tenure loan and again strengthen my ALM going forward. And these are already being planned, and as I said, there are lines of borrowings which have been scheduled to be borrowed. So we will go for longer-tenure loans to support the ALM for a higher end maturity. Now, can I request Shaji...

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [71]

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Has the banks offered your moratorium? Have they given you moratorium and you said no?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [72]

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Yes. Initially, they did not. There was some confusion, but then all the banks were not offering to any NBFCs. But subsequently, a lot of banks have started offering, but we are still not continuing to take it.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [73]

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And they were PSU banks or private banks?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [74]

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Both.

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Shaji Varghese, Cholamandalam Investment and Finance Company Limited - President of Housing Finance [75]

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This is Shaji from home loans. For home loans, let me first talk about the opportunity which we are seeing. So the focus will be to serve the middle-income families, mostly -- most part normally known as the affordable housing, and which is estimated to be around INR 3 lakh crore. Now Chola has established orientation and book management practice to serve the middle-income group families, especially in Tier 3 and 4. Now the way we are looking at this is to deliver these home loans with an ease and convenience to this segment that is more -- with a digitally-oriented target operating model. So we are seeing -- at least estimated a good opportunities there. The -- so the transaction type focus that I just talked about, stay away broadly from the underconstruction book in the Tier 1 cities, when it comes to the business projection, which is -- will be more of a forward-looking in nature, so which we are kind of saying away at this point, what will be the projection size of the business. But what we want to tell you now is we have already reached out to around 100 and -- pretty close to 200 branches where we have created a sourcing capacity. We are in the process of setting up the right distribution, technology platforms, standard operating procedures, all those fundamentals to sustain this business and scale up. That's the focus now. So let's see how this will (inaudible) as the time comes.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [76]

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And how would it be any different from the scaling up of SME business that we have spoken off in FY '12 because we haven't been able to scale it up as much?

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Shaji Varghese, Cholamandalam Investment and Finance Company Limited - President of Housing Finance [77]

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Right. The opportunities are different, that Ravi commented on that the -- the previous comment on the SME. When it comes to the home loans business, I don't think it is comparable. There is a large opportunity waiting across 2, 3 and 4 cities for housing loans. And we expect, even when it comes to demand pickup, Tier 3 and 4 should be good enough and Chola is good at it. So that's how we look forward on housing.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [78]

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Sure. My third question?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [79]

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I think you asked about the 2-wheeler thing?

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [80]

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Yes, Royal Enfield and Honda, they are low-margin products and why are we doing them and even the Royal Enfield, if we repossess it, the liquidity for that particular vehicle is also low. So I just want to understand the rationale of 2-wheeler business.

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [81]

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So residual value of the vehicle, which we repurchase is actually better across all brands. That is not the case because it depends upon the make model variants and the customer category and the geography. That is the combination we have to understand that a particular vehicle in a particular market with respect to the customer utilized and after that repossessed and what is the value coming.

For example, Royal Enfield in Kerala, if you repossess, you will get a better realization. So accordingly, our distribution is based on that. So we follow the BDM, business decision making. We just do not do all product, irrespective of the 2-wheeler, 4-wheeler, we don't do everything everywhere. It is all going by the make model variants and customer category and geography, depend upon the probability of default and what has been our expected credit loss in the past for the particular segment. So that's one. So we maintain that. And thereby, we achieve our goal with respect to the NCL and ECL and the loss given default.

Coming to the margin, which is yield you're talking maybe, that is basically -- we just started 2-wheelers a few years back, and it is better to do the lower-yield and low-risk category of the customer wherein you know default rates are lower. And then once we actually get into the complete hold in the vehicle, then we can actually expand it with respect to the customer segment, geography and other products, other brands. So that is the philosophy we follow. We do not just like that increase every year and go start doing the business. We cautiously move a step, baby step and then do it.

And therefore, our objective is to achieve the, first, the best quality of portfolio with respect to the customer category and the mix of the brand as well as the product as well as the geography. So going by that, our experience has been very good. And as of now, our portfolio quality is much better than industry. So therefore, we are actually in the right track.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [82]

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Just 2 data-keeping questions. What's the...

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Operator [83]

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Sorry to interrupt you. I request you to come back in the question queue for a follow-up question.

(Operator Instructions) Next question is from the line of Darpin Shah from HDFC Securities.

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Darpin Shah, HDFC Securities Limited, Research Division - Equity Analyst [84]

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Most of my questions have been answered, but if you can throw some light on this MSME scheme, what proportion of the book will be eligible and how are you planning to take it forward, that would be helpful.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [85]

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Sorry, it's not quite audible. Hello?

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Operator [86]

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Sorry. Darpin, may I request you to speak a little louder?

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Darpin Shah, HDFC Securities Limited, Research Division - Equity Analyst [87]

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Yes. So can you hear me now?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [88]

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Yes.

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Darpin Shah, HDFC Securities Limited, Research Division - Equity Analyst [89]

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So most of the questions have been answered, but if you can throw some light on this MSME scheme, what proportion of the book will be eligible for it? And how are you planning to take it forward?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [90]

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Moratorium scheme?

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Darpin Shah, HDFC Securities Limited, Research Division - Equity Analyst [91]

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No, MSME, M-S-M-E scheme.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [92]

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MSME, okay, okay, okay. The extended credit guarantee scheme. Yes, that we are -- we will -- it will be eligible mostly for the Home Equity segment and maybe to some of the SRTOs. We are right now getting into the process of registering ourself as the member lending institution. It needed a Board resolution, we got it past yesterday, and we will register ourselves. And depending on the demand that the MSME segment which whom we are currently holding loans, because that is one of the guidelines, we will take up what is the requirement. This is yet to be assessed and we're right now seeking the demand from the teams. Rupinder, you want to add anything?

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Rupinder Singh, Cholamandalam Investment and Finance Company Limited - Senior VP & Business Head – Home Equity [93]

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Yes. Actually, this scheme is for the customers which are in SMA-1 and SMA-0 basically. So this will cover most of the customers, which are less than 90 DPD. That is one. Secondly, you can go up to the 20% of the existing loan, subject to the total exposure should not be beyond INR 25 crore. So with these 2, 3 cushions what this scheme says, most of the Home Equity customers and also some part of VF as well as home loan customers will be eligible into it. What we need to -- we are working on is internal policy keeping in mind what are the LTV we have to give here because, for a long term, we have to keep all things in mind, though this scheme is 100% guaranteed by the government. So there are a large chunk of customers which will be eligible. And I think that 20% -- instead of 20%, it will be around 12% to 15% overall it will go up on the basis of eligibility and the other criteria which we can see. But yes, another 10 to 12 days, we would be in position to go deeper -- to evaluate further and be in market to offer to the customers.

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Darpin Shah, HDFC Securities Limited, Research Division - Equity Analyst [94]

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Okay. And 1 question to Kundu sir. After the lockdown has opened or partial lockdown is lifted, what activities we are seeing on ground? Where -- which products are seeing much of a demand or inquiries? If you can throw some color there?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [95]

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So as I mentioned, we have forecasted this thing, I mean, in the month of April, but fortunately, it is actually looking similar. And it is mentioned in the presentation also. It look like rural market, upcountry market, Tier 3, Tier 4 towns are coming in normalcy. 90% -- more than 90% branches are up and running, and therefore, some disbursement started happening with respect to 2-wheeler, tractor, 3-wheeler, small commercial vehicle in the pickup segment. And then it will be followed with used business also once you start working to the fullest capacity. And maybe this last thing will happen which we can actually wait for some more time, after 5, 6 months.

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Operator [96]

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Next question is from the line of Piran Engineer from Motilal Oswal Financial Service.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [97]

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Congrats on the quarter. I just have a couple of questions. Firstly, in the initial comments, you mentioned about revamping credit policies and strengthening collections team. So if you could elaborate on that?

And secondly, if you don't mind, can you just explain the meaning of this NRRB. So I don't want the data points, but I want to understand when you say it was 11% in February and it has gone up to 26% in May, what does it actually mean? And what is the denominator? So I don't really understand that.

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [98]

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No, the denominator is those customers who have been having dues and those customers -- NR plus RB is equal to normalization plus rollback put together. So there are 2 different parameters. Rollback, the customer has got 3 EMI due. He has paid 1 EMI. So his bucket has been rolled back to the previous bucket. And the customer has got 3 EMI due, and he has paid all 3 EMI. So both put together, the customers are those customers paying either 1 EMI or overall EMI. That put together has gone up as against the February trend. And this is the overall delinquent customer as on February versus as on May. So the denominator is -- definition of denominator is same only.

As far as the collection strengthening is concerned, we have been actually, you know that, in-house having the entire collection team as well as the collection manager. During this period, our sales teams and other team members are also along with the collection, meeting the customer to ensure that they explain them properly about the moratorium facility and then the impact of the interest and all those things, so that the customer can come forward and pay their past dues ahead of the time. Than their -- the EMI which is going to be due in the future, that also if they can come forward and pay, all these things.

So we have strengthened our collection by adding more manpower in terms of sales and salespeople are doing their own job also with respect to sales activity, whichever product segment that is happening as of now. And in addition to that, they are meeting all the customers. So we have allocated all delinquent, nondelinquent moratorium, nonmoratorium customer, among all 15,000 people all of them who're actually going them, they have already contacted them once, and then now they are connecting them for collecting the moratorium request physically and the ACH form for future and also explaining them and also collecting the money.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [99]

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Okay. And on credit policies, when you say revamp, is it like lowering of LTV or change of loans tenure?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [100]

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LTV cannot be reduced because the customer has got certain money to invest in the vehicle at the beginning of the purchase. So what we can do is that we can -- do the analysis at which customer segment with respect to make model variant and geography, these 3 variables put together, which is doing better, which is not doing better. And therefore, decision making is important where we should put money, where we should not put. And wherever we have to put, we have to see that the probability of default is lowest and the risk is the lowest. So that is what is the data based analytics we are using it and then educating our people to focus more and less with respect to the market. That is one.

Second is that we are also seeing that if you -- if there is a cash flow going down in a particular market with respect to any brand and the make model variant, so how can we basically discuss with the OEM to understand that, how much support money they can give us in terms of extending the loan because they've said we have not all those things. So there are 2 level. One is that decision making and also trying to reduce our risk by increasing the delinquency further.

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Operator [101]

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(Operator Instructions) Next question is from the line of Roshan from ICICI Prudential.

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Roshan Rodrigues;ICICI Prudential;Analyst, [102]

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Just on this NRRB bid, so what you're saying is despite moratorium, your delinquency trends have improved basically, right?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [103]

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Yes. Moratorium is for the current month. The moratorium is for, like, for example, if you take 1.0, it was applicable for March, April, May. Some customer has taken 3, 4, 5, some customers have taken 4, 5, some customer has taken only 5 or whatever is the combination of 3, 4, 5. 3, 4, 5 is March, April, May. Now the customer who have delinquency as on 29th February, I am talking about those customers who have paid in what sense, how much they have paid, what is the normalization amount, how much is the rollback with respect to the customer who are in delinquency.

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Roshan Rodrigues;ICICI Prudential;Analyst, [104]

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So pertaining to that bucket, as of now, you're saying what are the trends, right?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [105]

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Yes.

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Roshan Rodrigues;ICICI Prudential;Analyst, [106]

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From that pool of customers. That'll obviously will improve, right. So with time, it will invariably improve, right?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [107]

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It will further improve, yes. If the customer -- the current month billing is not happening and customers continue to pay the past dues, then obviously, the customer will be coming into the normalized condition. So therefore, delinquency will become 0.

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Roshan Rodrigues;ICICI Prudential;Analyst, [108]

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By August, if it improves, it's -- you're saying that it is referring to -- you're referring to the February end bucket. So February end delinquent customers. It is not the -- okay. Understood. Okay.

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Operator [109]

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Next question is from the line of Anirvan Sarkar from Principal Asset Management.

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Anirvan Sarkar, Principal Asset Management Pvt. Ltd. - Fund Manager [110]

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Sir, one basic question. I'm looking at your Slide 27. So what does it mean when you say that a part of your Stage 3 assets are in moratorium? Because technically, that's not allowed, as I understand. So what does it mean exactly?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [111]

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Stage 3 assets?

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Anirvan Sarkar, Principal Asset Management Pvt. Ltd. - Fund Manager [112]

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INR 268 crore number. The last

(technical difficulty)

with the Stage 3 classification.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [113]

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No. Stage 3 is allowed. Why is it not allowed? It is...

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Anirvan Sarkar, Principal Asset Management Pvt. Ltd. - Fund Manager [114]

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Of the -- it is actually standard as of Feb 29. That was the...

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [115]

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Moratorium extension can be given. You cannot reclassify them as a -- you cannot do a DPD freeze on them. So if you look at the RBI guidelines, extending moratorium is not restricted. The asset classification and provisioning is what has been determined from a standard assets point of view. So internally, we have given -- taken a Board policy, saying that 180 days and above, we will not extend moratorium. So customers who are 180 days and above, we have not extended moratorium. But 90 to 180 falls in Stage 3. For that, we have given the moratorium. For that, we have created the additional provisions.

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Anirvan Sarkar, Principal Asset Management Pvt. Ltd. - Fund Manager [116]

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Sure, sure. And just one data-keeping question. What is the breakdown of the GST in Stage 3 assets between Vehicle Finance and Home Equity?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [117]

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1 minute. Sorry, around INR 1,356 crore is Vehicle Finance.

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Anirvan Sarkar, Principal Asset Management Pvt. Ltd. - Fund Manager [118]

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Sorry, 1,000?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [119]

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INR 1,356 crores is Vehicle Finance.

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Operator [120]

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Next question is from the line of Nidhesh from Investec Capital.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [121]

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Sir, on the moratorium, just one clarification, whether you have used opt-in strategy for moratorium where you have asked customers who are availing moratorium or you have given moratorium by default? And the way I understood is that in the moratorium 2.0, you still believe that a large portion of this 76% book will continue to be in moratorium. Is that correct?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [122]

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Yes. We expect many of them to continue. But I think it is like we need to see. Now as I said, we're educating them on the implications of the incremental interest, et cetera. But if they feel insecure about the economic situation and they want to keep utilizing this moratorium, they will try and utilize it. Because for them, this is an opportunity to not come under CIBIL, et cetera, because that has been specifically given by RBI. So they will try and utilize it.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [123]

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And secondly, sir, if you can give some color on the Home Equity side just similarly -- similar to what you have discussed on the Vehicle Finance side in terms of rollback? If there is any color in (inaudible) how the collections are happening on Home Equity, that would be useful.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [124]

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Rupinder, you want to?

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Rupinder Singh, Cholamandalam Investment and Finance Company Limited - Senior VP & Business Head – Home Equity [125]

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Yes. In home equity, typically, most of these customers, they have -- we have an instrument which actually take on a one single date in a month, basically. So moratorium has been offered to the customer who were not able to clear the EMI. That is the first and foremost. So almost in number of customers, 40% of customers are clearing automatically from account itself. Remaining, we are approaching them and requesting if they can pay to a certain extent or they need a moratorium. So those choices were given. And it was like most of the customer in current scenario, moratorium has been provided.

Now coming back again, till Feb 29, there were customers who were in Stage 2 or Stage 3 concern, in a sense, they have 1 or 2 EMIs due. So our -- we have a set of those customers. And our intention is to collect from those customers in this time, typically, so that by the time we are through with this moratorium period, at least we can reduce as far as possible to the maximum extent. Compared to VF, these customers are very less because number of customers in HE is very less, not even 10% of the VF customer in that sense, right?

So all the branches which includes sales, credit collection, they're on the job, they are in touch with this customer. And we are seeing traction because there is an opportunity for them also. Typically, for the customers who have 1 EMI outstanding, that they have got a moratorium. And in the meantime, they are getting this extension for this couple of months. So they are able to pay at least 1 EMI. So we are finding lot of rollbacks happening in that sense.

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Operator [126]

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The next question is from the line of Mohit Gupta from CLSA.

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Amyn Pirani, CLSA Limited, Research Division - Research Analyst [127]

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Sir, this is Amyn Pirani from CLSA. So just going back to the Maruti scheme. So you're saying that generally, you offer a 30-day holiday and it's just extended to a 60-day holiday in this particular scheme?

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [128]

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That's correct.

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Amyn Pirani, CLSA Limited, Research Division - Research Analyst [129]

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And the loan-to-value is being mentioned as 90% in your -- on-road, that also is in line with what it was in the past few months or...

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [130]

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That is normally we offer.

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Amyn Pirani, CLSA Limited, Research Division - Research Analyst [131]

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Okay, okay, okay. And just -- so in such a case, given the situation has been a bit tight and you're offering an extra month of EMI holiday, would it be fair to say that your underwriting process would be a bit more stringent or you do not see any big stress among borrowers for a Maruti car right now?

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [132]

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Obviously, the filtration process has been tightened, as I mentioned, that by using the data analytics, which market, which customers are paying, which customer categories are doing -- behavior is very good. So this is not -- although the scheme has been rolled out, but we have all the rights to basically select the customer based on our preference. And we are using it -- those very prudently to arrive at a conclusion, that if I select a customer with respect to the market and the customer category and the strength of the customer, we should not -- the probability of default of such customers should be the lowest.

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Amyn Pirani, CLSA Limited, Research Division - Research Analyst [133]

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Okay, Okay. And normally, whenever you sign such schemes with OEMs, is there any element of risk-sharing or subvention from the OEM that...

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [134]

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It actually varies from customer to -- customer category to customer category and the product segment and also in the segment what we are actually going to do the business. This is the most lucrative segment, which is the -- probability of default and hence your net credit losses are lower. But yes, you're right, we may do that.

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Amyn Pirani, CLSA Limited, Research Division - Research Analyst [135]

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But in this case, that is not there.

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [136]

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That is not there, yes.

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Amyn Pirani, CLSA Limited, Research Division - Research Analyst [137]

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Okay. Cool. So if I can push in one more question very quickly. You mentioned that in used vehicle market, there should be some more demand because MCV, LCV prices have gone up post BS-VI. But at the same time, there's also a risk of repossession which could increase the supply of these vehicles in the market. So how does the pricing environment play out in your view? Because on the one hand, there is demand, but there is increased supply also potentially.

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [138]

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No. I didn't follow that. What -- how it is happening? What is the demand and supply?

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Amyn Pirani, CLSA Limited, Research Division - Research Analyst [139]

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So basically, you mentioned that people who are wanting to buy a truck now or expand their fleet may go for used vehicles because the BS-VI prices of new vehicles have gone up. At the same time, there is a lot of stress amongst truck operators. A lot of vehicles which were sold in the last 1 to 2 years, may come in the market through repossession by financial institutions like yourself also. So the supply of used vehicles also goes up. So how in your view does the pricing environment for used trucks play out in that scenario?

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [140]

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First of all, the vehicle sales have significantly come down last year as against the previous year. It is down by 50%. To whatever demand side, it has basically increased the total industry volume, it has been reduced by reducing the overall sales by OEMs itself, and that has been done last year. Second is that repossession or higher delinquency has already occurred in the industry last year. Now the delinquency started improving from this financial year in the beginning of -- from the Q4. And we have seen that January, February portfolio quality or the repayment capacity has improved. So I don't think that repossession will increase further. However, the demand from the new vehicle side has shrunk like anything. Like, for example, 150,000 vehicles have been sold last year as again 3 lakh unit, I'm talking about the heavy commercial vehicle. And this year, it is going to be either flat or it is going to further reduce. So the vacuum is getting created by drop in sales of new vehicle. And therefore, there is a scope for heavy used vehicle to be sold. So I don't think the demand-supply -- supply will be very high, and therefore, it will reduce the prices of the used vehicle. Rather, there is a 20%, 30% of gap between the new vehicle and the owned vehicle cost. And since the EMI affordability is better in the used, it will have a better resale value.

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Operator [141]

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Ladies and gentlemen, due to time constraint, that was the last question for today. I will now hand the conference over to Mr. Nischint Chawathe for closing comments.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [142]

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Thank you, everyone, for joining us in this call today. And thank you -- we thank the management for giving us an opportunity to host the call. Thank you.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [143]

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Thank you.

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [144]

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Thank you.

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Ravindra Kumar Kundu, Cholamandalam Investment and Finance Company Limited - President, Business Head of Vehicle Finance & Executive Director [145]

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Thank you.

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Rupinder Singh, Cholamandalam Investment and Finance Company Limited - Senior VP & Business Head – Home Equity [146]

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Thank you very much.

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Operator [147]

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On behalf of Kotak Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.