U.S. Markets closed

Edited Transcript of EQUITAS.NSE earnings conference call or presentation 31-Jan-20 3:00am GMT

Q3 2020 Equitas Holdings Ltd Earnings Call

CHENNAI Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Equitas Holdings Ltd earnings conference call or presentation Friday, January 31, 2020 at 3:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* A. John Alex

Equitas Holdings Limited - CEO & Director

* Bhadresh Bhalchandra Pathak

Equitas Small Finance Bank Limited - President of MSE Banking

* H. K. N. Raghavan

Equitas Holdings Limited - CEO of Equitas Micro Finance Limited

* Murali Vaidyanathan

Equitas Holdings Limited - President and Country Head of Branch Banking, Liabilities, Products & Wealth

* N. Sridharan

Equitas Small Finance Bank Limited - CFO

* Pathangi Narasimhan Vasudevan

Equitas Small Finance Bank Limited - MD, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Anand Bhavnani

Unifi Capital Pvt. Ltd. - Analyst

* Anirvan Sarkar;Principal Asset Management Pvt. Ltd;Fund Manager

* Jehan Kersi Bhadha

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

* K. SivaKumar

Unifi Capital Pvt. Ltd. - Assistant VP & Fund Manager

* M.B. Mahesh

Kotak Securities (Institutional Equities) - Senior Analyst

* Manish Ostwal

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

* Nidhesh Jain

Investec Bank plc, Research Division - Analyst

* Pavan Ahluwalia

Laburnum Capital Advisors Private Limited - MD & Director

* Praful Kumar

Pinpoint Asset Management Limited - Portfolio Manager

* Rohan Mandora

Equirus Securities Private Limited, Research Division - Analyst

* Sameer Bhise

JM Financial Institutional Securities Limited, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, good day, and welcome to the Equitas Holding Limited Q3 FY '20 Earnings Conference Call. We have with us today Mr. John Alex, ED and CEO, Equitas Holding Limited; Mr. P. N. Vasudevan, MD and CEO, Equitas Small Finance Bank Limited; Mr. Sridharan N, CFO, Equitas Small Finance Bank; Ms. Srimathy Raghunathan, CFO, Equitas Holding Limited; Mr. H. K. N. Raghavan, Senior President, Inclusive Banking and Vehicle Finance; Mr. Murali Vaidyanathan, President and Country Head, Branch Banking, Liabilities, Products and Wealth; Mr. Bhadresh Pathak, President, SME Banking; Mr. Ramasubramanian, Head, Corporate Banking; Mr. Alok Gupta, Chief Risk Officer; Mr. Natarajan M., EVB Treasury; and Mr. Dheeraj M, Head Strategy and IR.

(Operator Instructions) Please note that this conference is being recorded. I would now like to hand the conference over to Mr. John Alex. Thank you, and over to you, sir.

--------------------------------------------------------------------------------

A. John Alex, Equitas Holdings Limited - CEO & Director [2]

--------------------------------------------------------------------------------

A very good morning to everyone. Welcome to the Equitas Holdings Q3 earning call. Well, we had a good quarter. Our total income for 9 months for FY '20 was at INR 2,131 crore compared to INR 1,738 crore in 9 months for the year 2019. I'd like just to add that, in tandem with this rapid growth, Equitas has deployed a wide range of social initiatives to ensure comprehensive development of low-income households that it serves through a host of interventions. Around 1 lakh beneficiaries during the quarter attended health camp. We provided 3,003 spectacles and conducted about 600 cataract operations. We helped place around 9,700 unemployed youth to improve the income of the families, connected 71 financial literacy camps in rural areas along with NABARD and RBI on digital literacy. Notable to mention here that Equitas was awarded the National CSR Award in October 2019 -- for the year 2019 by Ministry of Corporate Affairs, which oversees the CSR mandate. Another notable point is that Equitas allocates about 5% of its profits to do all the CSR initiatives.

Now I would like to invite Mr. P. N. Vasudevan to provide the commentary on the bank's performance.

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Alex. Good morning to all of you, and thank you for dialing into our call so early in the morning. As you are aware, we have filed the DRHP for the upcoming IPO, and this DRHP was filed on 16th of December '19, and we are awaiting SEBI clearance for the same. And since we are in the IPO stage, we are not expected to give any guidance or talk anything about the future. So we would also request that in the question-and-answer -- Q&A session, we would request that to kindly restrict your questions only to the last quarter and really do not ask us about the next quarter as we will not be in a position to answer the same.

During the quarter, the bank also did a private placement and raised INR 250 crores of primary capital. On the business front, the bank continues to do well. Advances grew 37% year-on-year, net income grew 23% year-on-year and PAT grew by about 51% to INR 94 crores. Cost-to-income improved by 280 basis points. Last quarter, it was 69%. That has moved down to about 66.2% in the last quarter. Cost of funds on quarterly average basis was at 9 -- 7.96% compared to 8.23% in the previous quarter. Return ratios also saw improvement with ROA at 2.11% and ROE at 14.86%. It's notable that after becoming a bank, this is the first quarter where the ROE of the bank has actually crossed the 2% level.

Our portfolio is now well diversified and brings a lot of stability to the bank. Small Business Loans, which are secured by house property and is targeted to serving the unserved and underserved segments, constitutes around 40% of our portfolio and continues to see a strong growth. 60% of our customers in Small Business Loans are new to credit, which signifies a significant untapped potential of this segment in the markets that we serve.

Our second largest portfolio is vehicle finance, which grew 32% year-on-year. New commercial vehicles has grown to 29% of the total commercial vehicle book. We have signed up as preferred financier with many commercial vehicle manufacturers in the country. As you are aware, in the new commercial vehicles, we are financing currently only the light commercial vehicles and the small commercial vehicles. We have not started financing the heavy commercial vehicles yet in the new commercial category.

The sale of HCVs, the sale of new heavy commercial vehicles, has actually fallen by about 37% for the 9 months ended December '19, while the sale of our light commercial and small commercial vehicles has fallen by about 11% and 9%, respectively. This indicates that availability of goods for long-haul are probably less than what it used to be, leading to demand drops in the new heavy commercial vehicle, while availability of goods for the intracity and intercity transportation is probably not much expected as can be seen by a much lower drop in the sale of LCVs and HCVs. In our used commercial vehicle financing, we continue to monitor the portfolio closely, and we continue to take sufficient proactive steps to ensure that quality of assets and net earnings are protected.

Moving on to microfinance. In Maharashtra, specifically in 4 districts, we saw some issues last quarter, primarily due to the floods, which took place in some parts of Maharashtra last quarter and also some political disturbances. In the rest of the country where we operate, which is basically southwest and north, (inaudible) sign of any risk building up at this point in time. As indicated in the last quarter, we have started cross-selling recurring deposit to our microfinance customers. We have now more than 3 lakh microfinance borrowers who have availed of this recurring deposit scheme with us.

The corporate and MSE finance continues to see growth. Corporate loan, which is primarily lending to NBFCs, has grown to about INR 760 crores, while the MSE working capital loans has grown to about INR 560 crores by end of last quarter. On liabilities, our focus on retail term deposit continues. Retail deposits have touched INR 3,000 crores. And overall deposit, including CD crossed INR 10,400 crores. We recently launched Equitas Elite, which is a priority banking and wealth management program. The initial response has been good with about 1,700 customers being enlisted within a couple of months of the launch. The CASA balance remains flat over the last 3 quarters, while the retail TD has grown well.

During the quarter, the bank focused heavily on below-the-line activities for lead generation across the branch network on liabilities. Several activities were conducted in the quarter at branch catchment areas. The bank will continue to invest in these activities in and around the branch catchment area to promote the brand awareness and brand recall within the local community where the branch is located.

I would also like to introduce (inaudible) Vaidyanathan, who has joined as President and Country Head, Branch Banking Liability Product and Wealth. Earlier, he was associated with banks such as Kotak, ICICI and Citibank. On our digital and alternate business, the bank's APA library is ready to extend nearly about 100-plus APA to our services, such as payments, account opening and other value-added services. During the quarter, we have issued around 80,000 FASTag stickers, of which 5,000 were issued digitally through our selfie FASTag portal, which is an online portal where people can log in and order a FASTag online and it gets delivered to their house directly by courier. We also got NPCI approval for acquiring of toll plazas as an acquirer of the FASTag. And we have just completed a POC with a toll plaza in Mumbai.

With this, I would like to hand over to operator, and we'll be happy to take questions from your end. As you are aware, the markets will open by 9:15. So I'm afraid that we may have to close this session somewhere towards the 9:15 mark. Thank you, and back to you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We take the first question from the line of Manish Ostwal from Nirmal Bang.

--------------------------------------------------------------------------------

Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [2]

--------------------------------------------------------------------------------

I have a question on our slippages trend for last few quarters. I'm referring Slide #23. So there has been a steady increase in slippages over the last 4, 5 quarters. So can you tell us which are the segments contributing to the slippages? And secondly, what is our assessment of the book in terms of slippages trend?

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [3]

--------------------------------------------------------------------------------

Yes. So there has been an increase in the slippage in the last quarter. I'll hand over to Raghavan shortly to give you further details on that. But generally, what we see is that the level of slippage is fairly in line with the level of growth in the advances. And -- so that is not causing so much of a concern from our end. And we don't see any particular stress points across any of our products. But I'll hand over to Raghavan to give you a specific idea in terms of slippage of the last quarter.

--------------------------------------------------------------------------------

H. K. N. Raghavan, Equitas Holdings Limited - CEO of Equitas Micro Finance Limited [4]

--------------------------------------------------------------------------------

So the slippages, if you look at the over quarter 2 to quarter 3 is that is around about INR 18.66 crores.

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [5]

--------------------------------------------------------------------------------

Gross.

--------------------------------------------------------------------------------

H. K. N. Raghavan, Equitas Holdings Limited - CEO of Equitas Micro Finance Limited [6]

--------------------------------------------------------------------------------

Gross. And while looking at the product-wise, it's -- we had issues in -- as MD was talking about issues that we had in Maharasthra, especially in microfinance. This is a new entrant. Otherwise, it was quite stable. And this was driven by political issues in the district of Malegaon and then Dhule and Pachora. There are 3 districts where we had slippages in microfinance. And widely, you know that Kolhapur and then Sangli are the 2 districts which are heavily impacted due to the floods and -- because of which, there has been an increase in microfinance. But other product-wise, look at it, it is in line with whatever -- it was there in the couple of last quarters, which is there.

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [7]

--------------------------------------------------------------------------------

And also, if you see on the net slippage basis, in the last 3 quarters, it's hovered around the INR 40 crore level. So somewhere part of it gets record and some of the very old ones get written-off, but many of them get record. And the net slippage has remained kind of flat over the last 3 quarters.

--------------------------------------------------------------------------------

Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [8]

--------------------------------------------------------------------------------

Sure, sir. All the best for the IPO.

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [9]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

We take the next question from the line of Anand Singh from Unifi Capital.

--------------------------------------------------------------------------------

Anand Bhavnani, Unifi Capital Pvt. Ltd. - Analyst [11]

--------------------------------------------------------------------------------

Sir, with regards to the microfinance portfolio, you mentioned some districts of Maharashtra had some trouble. With regards to any other states, such as Karnataka, have you seen any emerging signs of trouble?

--------------------------------------------------------------------------------

H. K. N. Raghavan, Equitas Holdings Limited - CEO of Equitas Micro Finance Limited [12]

--------------------------------------------------------------------------------

In Karnataka, the -- currently, if you look at the issues, that is in coastal Karnataka, which is Mangaluru, Udupi and Kundapura, that belt has been affected due to some political unrest there, where we don't operate. We don't have any portfolio. We don't have business there. Otherwise, in Karnataka, where we have operated, we have not seen any stress as of now.

--------------------------------------------------------------------------------

Anand Bhavnani, Unifi Capital Pvt. Ltd. - Analyst [13]

--------------------------------------------------------------------------------

Sure. And secondly, with regards to our overall performance in the quarter, any particular -- we had a legacy portfolio, which we were unwinding. Any particular commentary you can give on how that portfolio is panning out, it's the personal loan portfolio?

--------------------------------------------------------------------------------

H. K. N. Raghavan, Equitas Holdings Limited - CEO of Equitas Micro Finance Limited [14]

--------------------------------------------------------------------------------

Unsecured business.

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [15]

--------------------------------------------------------------------------------

On the -- we don't have a personal loan at all. But we did have the unsecured business loans, which we stopped about 1.5 years back. And that's running down. So the NPAs in that are kind of stabilized and that's not growing any longer. And over time, we hope to recover some of it at least. But that's a business that was stopped long back, about 1.5 years back. But otherwise, there's no legacy book. Otherwise, everything else is only current and live book.

--------------------------------------------------------------------------------

Anand Bhavnani, Unifi Capital Pvt. Ltd. - Analyst [16]

--------------------------------------------------------------------------------

Sure. And is it unwinding as you expected in this particular quarter? Or is it at a slower pace, at a quicker pace?

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [17]

--------------------------------------------------------------------------------

No. Actually, since we are not funding it for the last 1.5 years, it's still running down based on the repayments. And it's now currently about INR 200 crores. And probably in another 1 year or so, it may run down fully because it's typically a 3-year loan, so maybe another 1 year, maybe it has to -- it has probably time to go.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

We take the next question from the line of Akshay Jain from JM Financial.

--------------------------------------------------------------------------------

Sameer Bhise, JM Financial Institutional Securities Limited, Research Division - Research Analyst [19]

--------------------------------------------------------------------------------

This is Sameer here. Just 2 questions quickly. What is the number of TD customers right now?

--------------------------------------------------------------------------------

Murali Vaidyanathan, Equitas Holdings Limited - President and Country Head of Branch Banking, Liabilities, Products & Wealth [20]

--------------------------------------------------------------------------------

This is Murali here. So in TD, you have to break it into 2 components, bulk and retail, correct? So let's stick to retail at this point of time. Retail, we have close to 13% of our total CASA portfolio who are having retail TD as a customer. So if you want absolute customer base, we have 5 lakh customers, out of which close to 65,000 people are absolute retail TD customers.

--------------------------------------------------------------------------------

Sameer Bhise, JM Financial Institutional Securities Limited, Research Division - Research Analyst [21]

--------------------------------------------------------------------------------

Okay. And secondly, when I look at the Small Business Loans growth, it's running at around 45%. Can you comment on whether the growth is from the newer INR 25 lakh plus category or in the smaller less than INR 10 lakh type category loans?

--------------------------------------------------------------------------------

H. K. N. Raghavan, Equitas Holdings Limited - CEO of Equitas Micro Finance Limited [22]

--------------------------------------------------------------------------------

The category of growth in terms of product, which is driven more by above INR 5 lakhs. INR 25 lakhs is lesser in the product mix. It is between INR 5 lakhs to INR 15 lakhs. So the above INR 5 lakhs ticket sizes are in growth and the -- which is a smaller ticket size, is growing at 10% to 12%.

--------------------------------------------------------------------------------

Sameer Bhise, JM Financial Institutional Securities Limited, Research Division - Research Analyst [23]

--------------------------------------------------------------------------------

Less than INR 5 lakhs is growing at 10% to 12%?

--------------------------------------------------------------------------------

H. K. N. Raghavan, Equitas Holdings Limited - CEO of Equitas Micro Finance Limited [24]

--------------------------------------------------------------------------------

Sorry, the less than INR 5 lakh, I just correct it, it's 20%.

--------------------------------------------------------------------------------

Sameer Bhise, JM Financial Institutional Securities Limited, Research Division - Research Analyst [25]

--------------------------------------------------------------------------------

Yes, that's growing at 20%. Okay.

--------------------------------------------------------------------------------

H. K. N. Raghavan, Equitas Holdings Limited - CEO of Equitas Micro Finance Limited [26]

--------------------------------------------------------------------------------

Yes. Sorry. Okay.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

We take the next question from the line of SivaKumar from Unifi Capital.

--------------------------------------------------------------------------------

K. SivaKumar, Unifi Capital Pvt. Ltd. - Assistant VP & Fund Manager [28]

--------------------------------------------------------------------------------

Sir, can you give us some sense on how you're managing the risk associated with the Small Business Loans category? Because we see that there is an uptick in the G&P trend over there. So given the current economic trends, do you see new risk emerging there? And how you're managing your current book and even the growth going forward?

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [29]

--------------------------------------------------------------------------------

Yes. So the Small Business Loans, as you know, spans right from INR 50,000 to INR 25 lakh. That's the span of the product. And that is principally addressing people who are in the -- self-employed people in the informal economy. So there is obviously a certain level of risk in that because they are informal, so you don't get too much of documentary evidence of their income, et cetera. So there's a lot of cash flow based-credit assessment, which is required to be done, and that can lead to a certain level of risk if you don't do that properly. So that's something that we have been doing now for about 8 years, since 2012 we launched that. So it's been about an 8-year business for us. And some of this credit processes and -- there's a lot of operating risk in the business also. So we are putting a lot of control metrics to manage both cash flow-based credit risk assessment and operating risk, which follows from that.

And if you see our NPA for the small business, our average loan ticket size for the entire Small Business Loan put together, which is 40% of our book, the average ticket size is somewhere in the range of around INR 6 lakh to INR 7 lakh. That's our average ticket size. And you know -- as you know, the India market for that kind of a product, the NPA levels probably are at a certain level for the market. But our NPA touchwood has continued to be extremely good. On an overall basis, a Small Business Loan NPA is under 2%, which we believe is very good. How sustainable is that going forward, I wouldn't want to comment, except to say that there's a lot of effort from our side to try and contain it within certain acceptable levels but that's a business from an inherent risk perspective is price that with an assumption of an NPA of around 4%. Right now, of course, it's much less than that. But it's priced from a perspective of inherent risk. If you look at it, it's actually assumed to be a product with about 4% NPA. So that's basically the nature of that business.

--------------------------------------------------------------------------------

K. SivaKumar, Unifi Capital Pvt. Ltd. - Assistant VP & Fund Manager [30]

--------------------------------------------------------------------------------

Sir, and what explains the improvement in the NIM per se? The spreads have also increased, right, on a sequential basis?

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [31]

--------------------------------------------------------------------------------

Yes. There's a small reduction in the cost of funds also during the quarter. And -- so that's probably led to the increase in the NIM.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

Next question is from the line of Rohan Mandora from Equirus Securities.

--------------------------------------------------------------------------------

Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [33]

--------------------------------------------------------------------------------

Sir, on the customer deposits, like sequentially the growth has been pretty subdued, and even in the CASA, in the 9 months, the growth is not coming up. So anything if you could just share some comments why the -- even the customer deposit growth was weak.

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [34]

--------------------------------------------------------------------------------

We have grown focus on retail TD. We have focused on a number of customers to be coming in as a strategy. So if you see our retail TD percentage has gone up by 153%. So the issue was there on CASA growth. It's sequential. We have earlier used to post CASA TD type. We have taken the route that we enter with the customer through TD and then now we'll grow CASA. So in this bargain, we have grown the TD portfolio very well.

--------------------------------------------------------------------------------

Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [35]

--------------------------------------------------------------------------------

Actually how was the customer addition in the TD, retail TD? Can you provide some numbers on that?

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [36]

--------------------------------------------------------------------------------

Yes, yes. We have close to -- if you say, recurring deposits (inaudible) close to 3.5 lakhs, 4 lakhs of customers. And on retail TD basis, 13%, as I said, close to 65,000 customers we have added.

--------------------------------------------------------------------------------

Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [37]

--------------------------------------------------------------------------------

This is addition during the quarter?

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [38]

--------------------------------------------------------------------------------

No, this is addition during a period of last 2 quarters.

--------------------------------------------------------------------------------

Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [39]

--------------------------------------------------------------------------------

Sure, sir. And sir, on the IBPC, the INR 650 crores of portfolio, which we have sold, what is the nature of this?

--------------------------------------------------------------------------------

Murali Vaidyanathan, Equitas Holdings Limited - President and Country Head of Branch Banking, Liabilities, Products & Wealth [40]

--------------------------------------------------------------------------------

So basically, these were sold, they were all not priority sector, non-priority sector loans we sold.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

Mr. Mandora, does that answer your question?

--------------------------------------------------------------------------------

Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [42]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Operator [43]

--------------------------------------------------------------------------------

We take the next question from the line of Nidhesh Jain from Investec Capital.

--------------------------------------------------------------------------------

Nidhesh Jain, Investec Bank plc, Research Division - Analyst [44]

--------------------------------------------------------------------------------

Sir, firstly, on operating expense, the employee cost has grown 27% Y-o-Y and 7%, 8% sequentially. So any explanation why there is a sharp growth in employee expense?

--------------------------------------------------------------------------------

N. Sridharan, Equitas Small Finance Bank Limited - CFO [45]

--------------------------------------------------------------------------------

This is Sridharan here. The employee expense has gone up, the reason, actually, there is an increase in the employee growth from Q1, Q2 by 328 people, and we have given in the Slide #14. And Q2 to Q3, 247 people. So the thing is that whatever in Q2, people who have joined, the full cost will have impact on the Q3 as well as people joined during the quarter in Q3.

--------------------------------------------------------------------------------

Nidhesh Jain, Investec Bank plc, Research Division - Analyst [46]

--------------------------------------------------------------------------------

Sure, sure. The other OpEx has also grown quite well on a sequential basis?

--------------------------------------------------------------------------------

N. Sridharan, Equitas Small Finance Bank Limited - CFO [47]

--------------------------------------------------------------------------------

Other OpEx also it's gone up by like INR 13.28 crores, actually. Basically, one is the expenses in relation to volume in the growth of business across this one, actually, all the expenses.

--------------------------------------------------------------------------------

Nidhesh Jain, Investec Bank plc, Research Division - Analyst [48]

--------------------------------------------------------------------------------

Sure, sure. Secondly, if I look at the disbursement growth, it has picked up quite well in this quarter while the slippage run rate is also high -- in Q1 and Q2, you were slightly cautious on the macroeconomic environment. So what has given us confidence to grow in this quarter, specifically, especially when we are hearing quite cautious voices from other peers and banks?

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [49]

--------------------------------------------------------------------------------

Yes. So if you look at it, there is lot of floods in different parts of the country, towards the end of the first quarter and the beginning of second quarter. There are a lot of floods in different parts of the country. I think that really did have an impact on the disbursement of ours. And of course, there was an election during the first quarter. So obviously, some of our businesses, like microfinance, we do tend to slow it down during those phases. And also, typically, the first quarter and second quarter are seasonal from a commercial vehicle business. So there is some seasonality, which is always something that we'll see in the first 2 quarters. And third quarter, typically, one is, of course, the monsoons are over practically everywhere in the country. And then the -- it's a festive season and typically things do pick up in the third quarter. So it's kind of, I would say, following general trends in the market.

--------------------------------------------------------------------------------

Nidhesh Jain, Investec Bank plc, Research Division - Analyst [50]

--------------------------------------------------------------------------------

Sure, sir. And on tax rate as well as PSLC, your tax rate looks pretty low in this quarter. Is it a sustainable run rate? It is looking at around 19%, 20% for the quarter. And on PSLC also, we reported around INR 14 crores of PSLC. So do we expect more income to come in future? Or should we expect it a sustainable run rate? Or any commentary on that will be useful.

--------------------------------------------------------------------------------

N. Sridharan, Equitas Small Finance Bank Limited - CFO [51]

--------------------------------------------------------------------------------

Sridharan here. The first question on the tax rate, actually, if we recall, we have moved to the new rates in Q2, and we have taken a write-down on the DTA assets to the extent of INR 25 crores. And we have taken -- instead of taking a proportionate basis on a quarter-on-quarter basis, we haven taken the full hit in Q2. So the resulting thing is the benefits started coming in. This will flow in the next 2 quarters, that is Q3 and Q4. That is the reason the low tax rate. And second one, on the PSLC, INR 4.6 crores will -- out of the INR 18 crores, which is sold, will go to Q4, actually.

--------------------------------------------------------------------------------

Nidhesh Jain, Investec Bank plc, Research Division - Analyst [52]

--------------------------------------------------------------------------------

And tax rate, so we should expect this 20% tax rate or 25% tax rate because that's -- this quarter, the tax rate looks very low at 20%.

--------------------------------------------------------------------------------

N. Sridharan, Equitas Small Finance Bank Limited - CFO [53]

--------------------------------------------------------------------------------

I'm unable to comment, but there will be savings in tax because of the new rates actually. So it can anywhere -- it will be a little lesser than the 25%, and that's all I can say.

--------------------------------------------------------------------------------

Operator [54]

--------------------------------------------------------------------------------

We take the next question from the line of Pavan Ahluwalia from Laburnum Capital.

--------------------------------------------------------------------------------

Pavan Ahluwalia, Laburnum Capital Advisors Private Limited - MD & Director [55]

--------------------------------------------------------------------------------

Just a question on the vehicle finance side of things. So the commentary we're hearing from a number of banks is that the portfolios there are experiencing some stress and we had the larger banks talk about MHCVs. And Bajaj Finance also said that in their smaller goods carrier loan portfolio they were seeing stress. Any commentary on what you are seeing? And how that portfolio may evolve on -- in the context of an economic slowdown? And also, you mentioned last time that you had a large number of borrowers who are basically CIBIL 0, and that the legacy book was -- had a lot of first-time users, but you were sort of moving down the risk of where a lot of the incremental lending was to people buying a second, third, fourth truck. How does the book break down, say, by CIBIL scores for the VF business? And directionally, should we expect to see that over time that business will earn lower yields, but the average CIBIL score will rise as you do more business with people buying second or third truck?

--------------------------------------------------------------------------------

H. K. N. Raghavan, Equitas Holdings Limited - CEO of Equitas Micro Finance Limited [56]

--------------------------------------------------------------------------------

Yes. First clarification is that the used commercial vehicle is a business which is you have -- you become -- the driver profile who becomes an owner. So there's no change as far as the approach is concerned. And as you look at this particular business, you will have drivers with a 0 CIBIL score. They are first-time borrowers. So that will continue to be there as long as we are there in the used commercial vehicle. So that's very important. And that's the strength that we have. As far as the market is concerned, I would like to divide it into 3 segments, which is a short haul, which is SCV 50, 60 kilometers radius; LCV, which is around about 200, 350 kilometers; and then above 500, which is an M&HV, you look at it. So what we see is that, as what MD was also quoting in the opening remarks is that the -- we see a kind of stress in the M&HV business, which contributes roughly around now, around about 65% of the business, right? And then the rest of the business contributes is short-haul vehicle, which is HCV and LCV. And we are not seeing any stress as far as the SCV and then LCV as of today. And it continues to operate and it's a local market, that's what it is there. And also in the product mix, we are looking at how do we kind of manage the product mix between M&HV and LCV and SCV. I think we have effected some changes in this, which we'll continue to see some better traction in terms of the SCV and LCV. And as far as interest rates are concerned, used commercial vehicle is still not very sensitive to the interest rates and -- because, as I said, as it is you're funding the clients for the first time. So what is very important is that the behavior of the drivers are very important to become that. That's very, very critical. And from a product perspective, we are trying to look at a relocation of the mix of the products.

--------------------------------------------------------------------------------

Pavan Ahluwalia, Laburnum Capital Advisors Private Limited - MD & Director [57]

--------------------------------------------------------------------------------

So the product mix may change, but it will still be heavily weighted towards the drivers who are first-time owners with kind of 0 CIBIL score?

--------------------------------------------------------------------------------

H. K. N. Raghavan, Equitas Holdings Limited - CEO of Equitas Micro Finance Limited [58]

--------------------------------------------------------------------------------

That will continue to be. That's the segment. That's where the business lines. And here, we have not seen that -- even today, currently, as we speak, when we disburse loans to the driver's profile, CIBIL, they come for the first time. 65% of the people, they come for the first time and then buy a vehicle. So they will not have any CIBIL score at all.

--------------------------------------------------------------------------------

Operator [59]

--------------------------------------------------------------------------------

Next question is from the line of M.B. Mahesh from Kotak Securities.

--------------------------------------------------------------------------------

M.B. Mahesh, Kotak Securities (Institutional Equities) - Senior Analyst [60]

--------------------------------------------------------------------------------

Sir, a question for Sridharan. Would you -- when you have a write-off, which has been made in the portfolio, does that account for an additional benefit on the tax rate? Or under the new tax regime, you can't take this benefit?

--------------------------------------------------------------------------------

N. Sridharan, Equitas Small Finance Bank Limited - CFO [61]

--------------------------------------------------------------------------------

Yes. Sridharan here. See, whenever we do a write-off, we have the benefit under the income tax, the 7.5%, an additional benefit. So we take the benefit under the write-off and we do actually. In a provision, as you know, it only get into the deferred tax element, actually.

--------------------------------------------------------------------------------

M.B. Mahesh, Kotak Securities (Institutional Equities) - Senior Analyst [62]

--------------------------------------------------------------------------------

Perfect. So does that partly explain why you have a lower tax rate as well?

--------------------------------------------------------------------------------

N. Sridharan, Equitas Small Finance Bank Limited - CFO [63]

--------------------------------------------------------------------------------

So -- but it's only a quarter-on-quarter basis. We calculate the tax rate on a quarter-on-quarter basis. So every quarter, whenever there is the write-off, that is annualized and tax rates are applied on an average basis.

--------------------------------------------------------------------------------

M.B. Mahesh, Kotak Securities (Institutional Equities) - Senior Analyst [64]

--------------------------------------------------------------------------------

Perfect. Okay. Second question to Bhadresh. If he can just kind of explain how has been the -- you've done fairly well on the recoveries fund this quarter and as well as upgrades. If you can just broadly comment as to how are you seeing it? What is -- when you're putting assets in the market for sale, how has been the underlying environment? And also when you're looking at the customer profile out here, what is the general traction that you see in terms of revenue growth of the underlying customers?

--------------------------------------------------------------------------------

Bhadresh Bhalchandra Pathak, Equitas Small Finance Bank Limited - President of MSE Banking [65]

--------------------------------------------------------------------------------

See. As far as selling of the repossessed assets is concerned, we haven't had any opportunity to do it so far. However, just as a general comment, we are adequately collateralized. We have more than 100% security cover on all our secured working capital portfolio. Now as far as the revenue growth is concerned, if you see our composition, it is 47% on the trading, 27% manufacturing and 27% services. Looking to the current environment, we find more comfort in doing a highly secured kind of portfolio, where the collateral coverage is more than 100%. So that explains the composition of the portfolio. So the growth is going to come from ticket sizes of INR 50 lakhs to INR 1 crores. That is a typical ticket size that we are focusing on. We are a little bit of cautious looking to the current environment on certain manufacturing sectors, which are a little high value as far as working capital is concerned. We are highly focused on smaller ticket sizes and building up a granular portfolio with a better collateral security.

--------------------------------------------------------------------------------

M.B. Mahesh, Kotak Securities (Institutional Equities) - Senior Analyst [66]

--------------------------------------------------------------------------------

Perfect. And sir, just to clarify, these recoveries of INR 35 crores that you have reported and -- which segment is contributing to the most in this? Is it the CVs? Is it the...

--------------------------------------------------------------------------------

Pathangi Narasimhan Vasudevan, Equitas Small Finance Bank Limited - MD, CEO & Director [67]

--------------------------------------------------------------------------------

It's both CV as well as Small Business Loans.

--------------------------------------------------------------------------------

Operator [68]

--------------------------------------------------------------------------------

We take the next question from the line of Anirvan Sarkar from Principal Mutual Fund.

--------------------------------------------------------------------------------

Anirvan Sarkar;Principal Asset Management Pvt. Ltd;Fund Manager, [69]

--------------------------------------------------------------------------------

My questions have been answered.

--------------------------------------------------------------------------------

Operator [70]

--------------------------------------------------------------------------------

We take the next question from the line of Praful Kumar from Pinpoint AMC.

--------------------------------------------------------------------------------

Praful Kumar, Pinpoint Asset Management Limited - Portfolio Manager [71]

--------------------------------------------------------------------------------

Congratulations on the good set of numbers. Just one question. Is there any confusion in terms of the coverage ratio? Because in terms of the DRHP and the reported numbers, is there any disconnect there?

--------------------------------------------------------------------------------

Bhadresh Bhalchandra Pathak, Equitas Small Finance Bank Limited - President of MSE Banking [72]

--------------------------------------------------------------------------------

There's no change in the provision coverage. Just for some clarification, the presentation is in line with what we have stated in the DRHP. So the GNPA numbers are on advances, including the IBPC, whereas NNPA is on advances excluding the IBPC, which is why, optically, it looks like our -- there'll be some change in our provision coverage.

--------------------------------------------------------------------------------

Praful Kumar, Pinpoint Asset Management Limited - Portfolio Manager [73]

--------------------------------------------------------------------------------

So the coverage is stable Q-on-Q, that's the way it is?

--------------------------------------------------------------------------------

Bhadresh Bhalchandra Pathak, Equitas Small Finance Bank Limited - President of MSE Banking [74]

--------------------------------------------------------------------------------

Yes, yes. There's been no change in the PCR.

--------------------------------------------------------------------------------

Operator [75]

--------------------------------------------------------------------------------

We take the next question from the line of Jehan Bhadha from Nirmal Bang.

--------------------------------------------------------------------------------

Jehan Kersi Bhadha, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [76]

--------------------------------------------------------------------------------

Sir, you just mentioned on the MSE that ticket sizes there you will be targeting of INR 50 lakhs to INR 1 crores. And even in earlier calls, you have indicated that this will be the growth area for the company. So if you can just throw some light on what are those things which differentiate -- which will differentiate our offering from the already many banks which are offering such kind of products as well as NBFCs, and the market seems to be crowded. So how will we be differentiating?

--------------------------------------------------------------------------------

A. John Alex, Equitas Holdings Limited - CEO & Director [77]

--------------------------------------------------------------------------------

Yes, see, we find a lot of inefficiencies in that particular segment of sub INR 1 crores ticket size. So as far as certain categories of banks are concerned, which are weakened on account of their finances and they are in the state of merger, we target the customers of those banks for takeovers. Our primary focus is on acquiring customers who are uninitiated to working capital. So they are found in the NBFC segment, wherein they would have borrowed something in the form of a loan against property, but they are now graduated into borrowing working capital finance. And so these are the primary 2 segments from where we are having our takeover strategy, the weak public sector banks, the old generation private banks who have weakened, plus the new-to-bank customers who are uninitiated to working capital. Now how do we differentiate is that we have a dedicated relationship team in the field who are hand-holding these customers, and they are sort of mentoring these customers. Plus, we have also set up a virtual relationship management unit, which is taking care at the portfolio level, which looks into the customer service requests and services these customers as well as takes care of the portfolio quality and underlying compliances in a remote manner. So yes, digitization, we are on track. So we are acquiring customers, and we have a loan origination system, and we are taking -- making use of technology in managing these customers.

--------------------------------------------------------------------------------

Operator [78]

--------------------------------------------------------------------------------

We take the next question from the line of [Akhil Jain], individual investor.

--------------------------------------------------------------------------------

Unidentified Participant, [79]

--------------------------------------------------------------------------------

I wanted to know, the new CB loan book is about INR 2,500 crores. How much of the loan book comprises finance of used cycles close to 15 years old? I mean there's a lot of talk about 15-year-old commercial vehicles being phased out in the government scrappage policy, which is due to move. Would that impact the repayment of a used vehicle loan book?

--------------------------------------------------------------------------------

H. K. N. Raghavan, Equitas Holdings Limited - CEO of Equitas Micro Finance Limited [80]

--------------------------------------------------------------------------------

No, we don't have any funding for vehicles of 15 years. And it's all about -- we look at, at least 10 years, not beyond that.

--------------------------------------------------------------------------------

Operator [81]

--------------------------------------------------------------------------------

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. John Alex for his closing comments.

--------------------------------------------------------------------------------

A. John Alex, Equitas Holdings Limited - CEO & Director [82]

--------------------------------------------------------------------------------

Well, on behalf of the management, I would like to thank each one of you for the interest in our performance and also for joining the call. We look forward to your continued interest in our organization and participation. Thank you very much.

--------------------------------------------------------------------------------

Operator [83]

--------------------------------------------------------------------------------

Thank you. On behalf of Equitas Holdings Limited, we conclude today's conference. Thank you all for joining us. You may now disconnect your lines.