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Edited Transcript of L&TFH.NSE earnings conference call or presentation 22-Oct-19 5:30am GMT

Q2 2020 L&T Finance Holdings Ltd Earnings Call

Mumbai Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of L&T Finance Holdings Ltd earnings conference call or presentation Tuesday, October 22, 2019 at 5:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dinanath Mohandas Dubhashi

L&T Finance Holdings Limited - CEO, MD & Whole-Time Director

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Conference Call Participants

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* Amit Premchandani

UTI Asset Management Company Limited - Fund Manager

* Anitha Rangan

Hsbc Asset Management (India) Private Limited - VP of Fixed Income

* Karthik Chellappa

Buena Vista Fund Management, LLC - Investment Analyst

* Kunal Shah

Edelweiss Securities Ltd., Research Division - Associate Director

* Rohan Mandora

Equirus Securities Private Limited, Research Division - Analyst

* Umang Shah

HSBC, Research Division - Analyst of Financials

* Yash Gupta;Prince Poly Plast Private Limited

* Shiv Muttoo

Citigate Dewe Rogerson Ltd. - Investors Relation

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the L&T Finance Holdings Q2 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Shiv Muttoo from CDR India. Thank you, and over to you, sir.

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Shiv Muttoo, Citigate Dewe Rogerson Ltd. - Investors Relation [2]

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Thank you, Stanford. Good morning, everyone, and thank you for joining us for L&T Finance Holdings Q2 FY '20 Earnings Conference Call. We have with us today Mr. Dinanath Dubhashi, Managing Director and CEO; and other members of the senior management team.

Before we proceed, as a standard disclaimer, some of the statements made on today's call may be forward looking in nature, and a note to that effect is provided in the Q2 results presentation sent out to all of you earlier.

I would now like to invite Mr. Dinanath Dubhashi to share his thoughts on the company's performance and the strategies of the company going forward. Over to you, sir.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [3]

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Thank you, Shiv. Good morning to all of you, and welcome to the conference call -- analyst call for the second quarter.

In a quarter where there has been a lot of news flow, mostly negative for the sector, LTFH is happy to report good results. We have tried to handle the negatives by staying prepared in advance, concentrating on doing the basics right and keeping our focus single-mindedly on the execution of our strategy blueprint, which was the revised strategy blueprint which was unveiled about 6 months back.

There have also been a couple of good measures taken by the government and some good developments in the underlying sectors that we operate in. And we have been able to take good advantage of these to improve our profitability, health of balance sheet and business strengths.

Let me first quickly summarize the highlights of the quarterly numbers. And then I will speak about the developments, more importantly, the outlook in the sectors that we finance and the effect of the same one-offs in the near future.

Our profit after tax for the quarter before a onetime DTA, that is deferred tax asset, impact is INR 647 crores, which is a 15% Y-o-Y growth over quarter 2 of FY '19. The fundamentals which contributed to this were the following: Our focused book has grown by 19% Y-o-Y, with rural and housing contributing 24% each and Infra Finance contributed 13%. With this, the rural and housing businesses now add up to 53% of the total book, in line with our retailization strategy.

You will also remember that in line with our strategy, we further -- to further concentrate on businesses where we have a clear Right to Win, we have classified structured finance and DCM as defocused earlier this year.

As we had demonstrated in the past, too, you will remember that 3 years back, we had put about 16 businesses on defocus, and we have been able to run them down rapidly. In the same way, we have been able to run down this defocused portfolio pretty rapidly by 45% Y-o-Y from about INR 13,200 crores last year to INR 7,200 crores. It has been by a mix of strategies. DCM, of course, as we believe, they are mostly liquid securities, can be sold, can be offloaded in the market. And structured finance, of course, you have to -- there are scheduled repayments, and you have to manage to get prepayments by various strategies.

On the liability side, as always, we continue to maintain good liquidity with positive gaps in all buckets up to a year and adequate liquidity, even assuming the 1-in-10 scenario in the first month bucket. We have further reduced our CP percentage to 10% even though our cash flows, especially from rural, allow for a much higher percentage, just to be extra cautious in today's environment.

We also diversified our funding mix further, mainly through ECBs, preference shares to HNIs and taking full advantage of RBI's decision to allow loans from banks for -- on lending to agri sector to be classified as priority sector loans for the bank. We were able to raise more than INR 1,400 crores through this route, through just the PSL route, and intend to raise much more in the second half.

As far as ECBs are concerned, you will remember that we raised an ECB in the last quarter from IFC. In a similar way, we raised $100 million ECB from AIIB, Asian Infrastructure Investment Bank. Why am I pointing this now specifically is that the first-ever loan given by AIIB to an NBFC in India. So these are some of the marquee loans we were able to raise.

Despite reducing the percentage of CPs to just 10%, our cost of funds remains well in control at 8.61%. Our strategy always has been to protect our top line in the form of NIMs plus fees through effective transmission of pricing wherever applicable and mostly fees through cross-sell. Our business model is built for maintaining NIMs plus fees in the narrow range of 6.5% to 7%.

In Q2 FY '20, we were able to keep NIMs plus fees at about 6.86%. Over several quarters now through interest rates and business cycles, we have shown resilience and our pricing power by maintaining this range of margins. And this gives us tremendous confidence in the strength that we have built in our businesses.

Asset quality has remained well in control. There is a small increase in farm GS3 mainly due to cyclical factors and also some temporary issues in flood affected areas. We expect this to come down again next quarter. The lower provision coverage in rural is actually an indicator of this because seasonally as billing which has happened 3 months back just become impaired in, say, September and March, obviously, the aging of these fresh NPAs will be just above 90% -- 90 days and hence, the provision required for that is absolutely negligible. And hence, you will see provision coverage also seasonally coming down as the GS3 goes up. But we are pretty confident that this has happened, by the way, only in farm, not even in total rural. And we are confident that we will see a reverse trend in December itself. Thus, a steady performance across the entire ROE tree has effectively helped us deliver a 15% growth in profits, of course helped by a lower tax rate as well.

This brings me to 3 specific developments I would like to highlight for this quarter. First is the change in tax rate from 34.94% to 25.17%. LTFH has decided to opt for this lower tax rate. While this will lead to substantial benefit every quarter from now, there is a onetime impact of reversal of DTA, that is deferred tax assets, which we carry due to substantial provisions created in order to strengthen the balance sheet over the last 3 years. This has led to a onetime impact of INR 473 crores, and we have chosen to take the entire hit in Q2 itself.

While this is a -- this hit is onetime and we are quite happy that we took this call, we will benefit substantially from now on every quarter. The ROE for the quarter before this onetime impact is 18.13%. Now there is another small adjustment that you might have to take into account, is in this quarter, obviously we have benefited for the tax -- lower tax rate not only for this quarter but also for Q1. Even if you adjust the benefit of lower tax for Q1 which we had to take in Q2, the ROE works out to 16.2%. So the steady-state ROE has been maintained upwards of 16%.

The second specific development I would like to point out is the sale of our Wealth Management business. While we have built a profitable business model, it still accounts for less than 1% of our revenues and profits. With the change in various regulations, the business requires a full suite of in-house products and services, necessitating a larger wealth platform. LTFH has entered into a definitive agreement to sell 100% stake of L&T Capital Markets, that is the vehicle doing our domestic wealth business, to IIFL Wealth. The transaction is in process. Regulatory approvals are awaited. We hope to close this transaction in Q3.

The third, and perhaps the most important development I would like to highlight, is that in this climate, where a number of NBFCs are being downgraded, CARE, ICRA and India Ratings have reaffirmed the AAA rating for LTFH and all its lending subsidiaries in August and September of this year. Additionally, on the 4th of October, we were assigned a AAA rating by CRISIL as well. AAA ratings from 4 rating agencies indicates a strong and diversified presence across sectors, focused and predictable business model, strengthened risk profile and asset quality and, last but certainly not the least, the strategic importance and the strong support to the financial services business by our parent, L&T.

Now let's briefly cover each business and the outlook for the same. Let's start with rural. The overall slowdown in the economy has also affected this sector. We in the first half concentrated on maintaining our business strengths and competitive position in such a scenario. The tractor market saw a degrowth of about 10%. We kept our market share by concentrating on capturing higher counter share of our chosen dealers through a differentiated value proposition. Now this is important. And it -- whenever I have spoken one-to-one to any of you, we have explained the way we do budgeting. And our budgets, while, of course, we make a yearly budget, our budget given to every branch is very dynamic budget. We change it every quarter; in some areas, even monthly. And we specify that based on our analytics which dealer, which model, at what LTV we want to do business. All this is centrally decided based on how the portfolio of that particular dealer, that particular model is doing. And hence, whether the rain is good, rain is bad, market is good, market is bad, we are able to concentrate on specific dealers as we know where to take our counter share quite high. So we don't go by the oft-repeated things like, now the growth is too high or the growth is low, let's lie low, no.

We -- both in farm and in Two-Wheeler, we know precisely which dealer, which model, at what LTV we want to do business. And that we can invest there, we can put people there, we can increase our -- strengthen our network there, and that's how we maintain our market share or maintain our growth.

So very simple, growth is the resultant of increase in counter share in each of the dealers that we do business and we concentrate on, and then it adds up to a number. And if that is growth, good enough. If that is not growth, so be it because we will always be sure of the asset quality that we built because this kind of concentration.

We've also increased business in addition to this by focusing on refinance, top-up and used tractors. We use data analytics extensively for OEM classification and categorization of geographies into focused, calibrated growth and hold the geography. Periodic recalibration of underwriting models and use of analytics in collection saw our 0 DPD portfolio staying steadily above 80%.

In Two-Wheelers, the industry saw major a degrowth of about 20%. We are focused on capturing higher counter shares of chosen dealers, and our disbursement growth remains flat while book grew by about 41%. Like in tractor, here too our diversified OEM mix, recalibration of our geographies and, most importantly, continuous fine-tuning of credit scorecards has helped us maintain our market share, increase in fact market share and maintain portfolio quality.

We are already on our Gen 4 scorecard and already testing our first behavioral scorecard here. So while we use analytics in all our businesses, Two-Wheelers clearly is way ahead in -- over the other products in use of analytics. We believe that our technological edge that we have developed in this business will keep us differentiated in this market.

In Micro Loans, while our disbursements remained flat, book grew by about 23%, and you will see a fair bit of disbursement growth. For the first quarter, we had mentioned that we were going slow due to elections in the first quarter national elections. And obviously, that has -- we have shown that the run rate of about INR 900 crores to INR 1,000 crores per month we have brought back in the second quarter.

We focused on underpenetrated geographies and underleveraged customers. While this according to us is a big risk factor in developing or the leveraging of customers, and hence, the ability to go deep analytics and digital process flow for keeping expenses low is going to be the differentiating factor. Just as an illustration, we added about 5.8 lakh customers -- new customers in this quarter, out of which 40% were new to credit. We have also started new geographies like Punjab and Haryana, and this will start contributing from Q3. So just to reiterate this fact, 40% of our new acquisition in MLs are new to credit.

On-time collection ratio remains excellent at 99.4%. We have concentrated disproportionate amount of energy on further reducing operational risk in this business and are making the model increasingly robust. While the monsoon in this -- right now everybody's feeling positive about the monsoon, it's Diwali, it's still raining. So while this monsoon is generally overall considered to be positive, there are nuances. This monsoon, we have seen the century's driest June and century's wettest September. The monsoon has been so diverse. And floods have caused difficulties in several areas. While saying that, the important factor is this has resulted in excellent reservoirs and ground water levels in large parts of the country. Mood is overall upbeat, and we are seeing a good demand on the field.

While the growth will pick up this festive season, it is unlikely to be in the positive area. So while I am giving a positive indication in this festive season, we are already seeing good movement from dealers, it is unlikely to be positive Y-o-Y as last festive season saw the best-ever demand for tractors in festive season, the best-ever. So it is unlikely that they will be positive this year with the prospect of delay. But having said that, Q3 will be far better than the monthly averages of H1. With the prospect of a delayed but good kharif and a bumper rabi, we expect FY '21 to be excellent in all our base industries. And all of our base industries disbursements we expect to be in the positive territory in FY '21.

With the strengths we have been constantly building on the ground, we expect a pickup in our disbursement in H2 and the positive momentum to be well and truly back in FY '21. And we expect definitely to further gain market share and disproportionately gain from this increase in demand in FY '21.

In Housing, while the overall mood remains negative, we would like to point out some statistics. Like there are lots of negative statistics, you are all very aware of that, I'm not going to repeat those. I will put a few things which we need to ponder upon. While residential sales have grown by 8%, new housing supply has fallen by 13%. Why the supply has fallen? It's obvious funding to real estate sector, et cetera is slowing down. Inventory overhang trends has reduced from 43 months to 31 months. While the unsold stock in 6 major cities is still high, it has reduced by around 19%. It is interesting to find that projects launched after January '18 are showing a better absorption. Obviously, the reason looks like they are better structured projects, they are smaller and lower ticket sizes, and those are selling faster.

With reputed and strong builders taking over projects, there has been a tremendous consolidation, and I have a number over the last 8 years, the number of builders have actually reduced by half, and if you take certain geographies, the number of builders are actually reduced by 80% and 85%. So lots of consolidation has taken place with projects moving in stronger.

Our home loan disbursement, the retail home loan disbursement has seen a growth of around 8%, with majority of the disbursement in salaried segment. We continue to be very selective in our LAP business. In Retail Housing, we continue to concentrate on getting our client mix right and sourcing mix right. 74% of home loans now are sourced directly without any dealership.

As I've always said, we are very proud of the skills in terms of choice of projects, early warning signals and resolution mechanisms that we have built in our real estate financing business. Real estate financing, as I always say, is not a spectator sport, and you need to build differential skills to be able to do this business well. We recognize the elevated risks in the sector.

While we believe that our parentage and knowledge uses differential skills to handle this risk, we will continue to be very selective in further real estate disbursements in the near future. In 97% of our projects, we are the sole lenders, and our focus will clearly be on completing these projects. We are closely monitoring each of our projects with close involvement of our parent. Our real estate exposure is about -- real estate financing exposure is about 15% to 16% of our total loan book and will continue to remain in that range max, will not go beyond this.

In all our construction finance cases, monthly interest is being received from project cash flows. And principal prepayments have been received in 92 out of 114 projects, well ahead on schedule. There is a lot of questions about moratorium and all this. Obviously, every project in construction period has to have repayments moratorium. The way we construct it is that interest is -- has to be received on a monthly basis. And we also put what is called early repayments or sweeping mechanism from the escrow account. And as many as 92 projects out of 114 that we are doing, the remaining being in very early stage, and where the sweeping has not yet started, 92 projects prepayments have actually started. In fact, in the first half of FY '20, more than INR 1,600 crores have been received in form of prepayments and repayments. So that shows that the portfolio keeps churning, and all of this is of course prepayment, repayments. Last time somebody had asked questions about refinancing, as I said, this market we'll refinance in. So obviously, all the prepayments and repayments that we show are actual prepayments and repayments.

In Infra Finance, we continue to focus on roads, renewables and transmission sectors. We continue to maintain our market leadership in our focused sectors with a strong pipeline. Even in a challenging market, we have registered a sell-down volume of INR 1,700 crores, indicating that the strength we have built in our underwriting and sell-down capabilities. With IDF as the growth balance sheet and the infrastructure finance company as the churn balance sheet, we believe that we have an excellent profitable business model. With an exit from structured finance, DCM, et cetera, we will be able to focus more on our key strengths in Infra Finance.

There are lots of questions still going on about the Andhra portfolio. We confirm that our Andhra portfolio continues to be on 0 DPD. The Dussehra, the sum is still untouched, any working capital line is still untouched, which shows that the promoters are obviously servicing the repayment obligations. The way it is done, of course, of course by choice of promoters, number one, which [had brief class strength]. But most importantly, a pooling mechanism that we put in place that normally, when a promoter with a large renewable platform is funded, we pool their receivables, the extra receivable -- the extra cash from their other projects as well, and we can use for repayments of any projects which may be in temporary difficulty. While we believe that Andhra solution will come pretty soon, at this point of time, obviously there are still some question marks over it for the overall solution, but our portfolio continues to be a 0 DPD. There are quarterly and monthly payments in this, and entire payments continue to be received.

With this, I will just quickly conclude and open to questions. We look at these results positively with conserving business trends, gaining market share, 19% growth in core businesses, 6.9% NIMs plus fees, steady asset quality and ROE of 18%, adjusted to around 16.2%. Moreover, our capital adequacy stands at almost 19% and under IGAAP actually at 20%, which makes us believe that we have adequate equity capital to fund our growth in the future.

Reaffirmation of AAA ratings by 3 rating agencies and obtaining the new AAA rating from CRISIL, coupled with our strong parentage, puts us in an advantageous position for raising the required debt capital for further growth as well. Our model of staying liquid, strong underwriting, EWS and use of analytics has helped us to stay strong in this time.

We believe that second half is certainly likely to be better than H1 in terms of demand of credit, and the growth will be back in many of our underlying sectors in FY '21 and we will be ready to gain from it ahead of competition with strong business and balance sheet strengths. We will all the while make sure that this growth remains healthy, that is it comes without sacrificing margins, OpEx and credit costs.

I will stop here and wait for your questions to give you any further clarifications.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Kunal Shah from Edelweiss.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [2]

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Yes, congratulations for a operationally good set of numbers. Firstly, in terms of asset quality, so broadly, when we look at across the segments, it seems stable apart from rural. But if we just do the adjustments, it seems like in the defocused business, it has gone up by almost 300-odd crores. So is it like 1 or 2 couple of accounts. And if we are continuing to unwind the bespoke, maybe out of the balance, apportioning it is there on 7,000-odd crores, do we see further stress buildup in this particular segment?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [3]

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We don't think so. You're absolutely right. So all your conclusions are right. So rural, let me speak about. Rural, very clearly, the billings in rural happen around June whenever there is a 6-monthly billing, happen in June and December, which corresponds with the cash cycle in the -- in farm and with the GS3 recognition now coming to 90 days. You remember that before it came to 90 days, the peak seems to be in December and June. Now the peaks have moved to September and March. So we have studied this [infra] increase very, very carefully. It is only in farm that I can confirm it, it is not in micro loans and in Two-Wheelers. And that too, it is looking at the age of the NPAs. It is very temporary, and we are sticking our neck out by saying in December, they will come back in control. So that's as far as rural. So I am not reading too much into it.

You are absolutely right, if you do the math, there will be 1 or 2 assets which have moved to GS3 in the defocused business. We don't see a huge deterioration there. As you have seen, we have been able to reduce the defocused group quite substantially. Of course, the speed of reduction will not be this dramatic in future. We are expecting this INR 7,500 crores also to come down now to -- right now? (inaudible) INR 7,200 crores to come down to close to INR 5,000 crores by end of March and that to continue. So you are right about INR 300 crores increase in GS3, which is (inaudible). Does that answer your question, Kunal?

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [4]

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Yes, so just wanted to get a sense in terms of this INR 300 crores, how collateralized it is. And the sense we are running down the portfolio, how would be the recoverability of this INR 300-odd crores and what could be the anticipated haircut on this?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [5]

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Okay. We are all the time retail provisions based on -- so I'm not going to talk about any specific account or NIM on the call, but very clearly, we [growing concerned]. And every quarter, provisions are taken on every account based on what we look at now, what we see as underlying recoverability. So you would see uptick even in the credit cost rate, our credit costs are [1% or] 2%, 2.5%. I'm just giving you some numbers to put together. Normally, our credit costs are between 2% to 2.1%. This quarter, credit costs are at 2.5%, which obviously shows the fairly large provisions taken in this particular account in the defocused business. And quarter-on-quarter, as we reassess the recoverability of each account, we will never stop sort of providing, but, having said that, we don't expect any huge -- I said that last time, any sudden shocks coming in this.

We continue to get (inaudible), I mean, there was another company which in spite of being 1.5x debt/equity ratio, defaulted, one -- a couple of months back, we have about INR 180 crores exposure to them. We expect things to get better there. But given -- other than this absolute one-off surprises we get, we are very much in control of the portfolio and have taken adequate provisions with that.

I also talked about the wealth sale event. And in Q3, we will book a good amount of profits in our wealth business and will either make specific provisions or general provisions on these profits. We will not sort of report [PAT] out of that cost. So as far as provisions are concerned, we will be always -- very prudently and adequately go ahead.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [6]

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Sure. And given this kind of an environment looking at our entire project development book, no doubt there is enough of disclosure which provides the comfort in terms 92 out of 114 prepaying. But are we drawing out any watch list or maybe some concerned accounts we are getting the provisioning and there will be a windfall gain in Q3 as well which will be utilized. But any quantum which we can see either on the infra and the real estate book?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [7]

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Real estate, it is very clear we used to have early warning signals, and we still have. But very clearly today, we have formed a committee which has our senior people as well as L&T's very senior people, so head of real estate business and people like that. This committee is reviewed very, very periodically, every once in a month by the group CFO of L&T and myself. This committee and why I'm talking about this is forget any watch list. We look at every account, whether it is regular, not regular, which stage, every account in details is reviewed. There are templates. Each account is reviewed, and any early warning signals is early action is taken. Now the early action in anticipate -- and L&T is 100% involved, okay? It's not just saying when there is a problem, L&T will come in, et cetera. L&T is totally involved in monitoring every real estate account, no? This is -- I don't know whether it will continue beyond a year or something. We acknowledge that this is the time that we are to be 200% sure that our portfolio is good, and this is our way of taking the problem by its -- bull by its horns. We will look at every account. And any early improvement that needs to be done, simple like appointment of a strong selling agent, for example, a strong selling agent or changing the construct -- or changing the contractor, bringing in some consultant from L&T to make sure that things go well, putting a CFO or other audit firm to look at a certain -- the escrow account if we believe that it needs to be looked at properly from this level to either L&T taking over the (inaudible) or we bringing in some other developer of similar repute to get into [DM or a GDA] for this -- for the project. So it's the overall plan so that's what I would like to say.

Last time I had talked about, about 6 or 7 accounts, which are more than 0 DPD which stay between, say, 0, 1 to about 70, 75 DPD, they largely continue to be the similar number. A couple of accounts have gone out of that, couple of accounts have come in. But as far as the overall amount is concerned, which is non-zero DPD, it continues to be same, in fact, reduced a little bit.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [8]

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Okay. And lastly, just one data point. Can you quantify what proportion would be towards the projects which are less than 70% constructed?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [9]

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I will get back to you on this. Very specific data, I will get back to you.

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Operator [10]

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The next question is from the line of Karthik Chellappa from Buena Vista Fund Management.

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

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Congrats on the good quarter. Just 2 questions on my side, one each on Two-Wheelers and Micro Loans. If I were to look at our Two-Wheelers, relative to the fourth quarter, the ticket size has actually gone up from INR 50,000 to about -- INR 52,000 to about INR 60,000. Has there been any change in the average tenor? You spoke about mining the data a bit more, developing dealer relationships a bit more. But a 15% increase in average ticket size in 2 quarters looks a bit high. Any color on that?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [12]

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So number one, as you know, the price of 2-wheelers itself has gone up drastically, so I can only tell you that if you take that overall portfolio, okay, over the last 2 quarters that you mentioned, the average LTV has been around 75%. In fact to be exact, we want to be very precise, my average LTV was 74.5% 2 quarters back, and now it's 75.5%. So it has increased by 1%, the LTV, which is also depending more on mix of products, models, et cetera, we do. There are certain models where there'll slightly higher LTV, certain models with lower LTV.

So lower LTV has gone up drastically, so largely speaking, it is a function of just price increases, number one. And this 1% LTV, its increase can be put to different models, doing safer models, and as we get more and more confident in our credit models. So that's what explains it. But I would think 90% of your question can be answered simply because of price increases.

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

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The second one on Micro Loans, in the last quarter, you had alluded to certain geographies where you are avoiding let's say like West Bengal or so. Currently, are there any geographies which you have added to that list where you are a little more cautious either because of a temporary flood issue or over-leveraging or so?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [14]

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Okay. So we are not avoiding, we have reduced, okay? It's like this. So let me take a few steps back and say how we do it. Well, we don't do it really state-wise. But what I told last time, West Bengal, is just because many areas in that state was a problem. And also, we have seen somewhat -- some political overhangs because of the behavior of certain politicians in that state, okay? So that when there is a political overhang, it just goes beyond analytics essentially because that is a risk that analytics can't capture, unfortunately. So that is why I pointed out West Bengal separately. The way we do is a varied meeting center where is on here our (inaudible). We think that the (inaudible) analysis of our portfolio as well as everybody in this portfolio. Now the good thing about Micro Loans business, very counterintuitively, Micro Loans business is a business where the maximum data is available, right? Very counterintuitive. I mean many people and many players don't like to say this because they still believe that it is bottom of the pyramid, feel good, CSR kind of business; we don't believe that at all. We do CSR separately. Micro Loans is a very commercial proposition. And most importantly, it is one retail business where availability of data is just fantastic. And based on that we can do very clearly the following things: of course, how -- do a good realistic model on the total indebtedness of each of the person that comes; and how is that person's credit record in terms of payments; and not only that, when a new to credit person comes, creating a good look-alikes, that's what is largely possible. So that is how credit is done. So we don't go into classifying states as high risk, low risk generally, unless we see a political overtone in that.

So now to answer your question, we are not seeing any huge political undertone or overtone in any other state. In fact, even West Bengal has gone a little quiet there as far as politics is concerned. Having said this, we have reduced -- over the last 1 year, we have reduced the proportion of West Bengal, it's around 10% to 7%; proportion of Orissa has come down to 14% to 6%. So Orissa largely has come down because of over-leveraging in that area. So these are 2 very specific states that we have reduced.

And additions have happened, of course, new areas like Jharkhand, additions have happened; Chhattisgarh additions have happened; (inaudible) additions have happened. That's where the proportion to book has actually gone up. And Orissa and West Bengal has come down. And as I said in my opening remarks, Punjab and Haryana is where we have set the network already. We have not yet done disbursement work. We will start disbursements in the third quarter. Our method is we put full network, the leadership, collection teams, everything, mostly IT audit teams, all those we put in a particular state, and only then we start. So Punjab and Haryana will see a good addition. We are working.

As I always said, based on this, our renewal percentage model businesses are like 25% because of so much data that we get about over-lending or over-leveraging of our customers. Actually, 75% of our own customers we reject. We are looking at certain schemes where we can approach these customers early and do a top-up maybe in the midterm, where they are still under leveraged. So that is a scheme we have to penetrate.

We are going deeper and looking at more new to credit customers. 40% of new acquisitions have been new to credit. I think this is a very important statistic. So this way we try and manage the risk.

As far as floods are concerned, yes, flood-affected areas, they are the center of the drop in collection efficiencies and largely (inaudible). I can confirm that in October, again, the collection efficiency in the quarter. And we are back at regular collection efficiency close to 99.4%.

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

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Perfect. Just one follow-up. If I were to look at our micro book again, our disbursements are up 2%, whereas our AUM is up 23%. Or to put it in another way, in the second quarter of last year, if I take that disbursement amount of about INR 2,800-odd crore and annualize it, it comes to more or less our AUM, which means it's a 12-months cycle. But if I take the disbursement amount for the second quarter of this year, which is INR 2,839 crores, and annualize it, it's slightly lower than our outstanding AUM. And given that you mentioned that the repayment rate is still around 99.5, does it mean the duration of the loans has been extended?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [16]

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I don't know. I will maybe need you to understand the math. Our duration -- overall duration remains 24 months. It's not 1 year. One year was the case when the ticket sizes were really very low. Most of our loans are 24 months. They have been for 24 months at least for the last 2 years. So I will understand the math from you may be unusual. But very clearly, the difference between disbursement growth and book growth is just the math coming out of a monthly amortizing product. And if disbursements remain at this level or a little less than this, the book growth will actually come down. So our attempt will be to increase disbursements to more than INR 3,000 crores so that the book growth doesn't come down.

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

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Perfect. So just one additional data point. You mentioned that 40% of the incremental loans are your borrowers are new to credit. On an outstanding stock of customer basis, what would that ratio be?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [18]

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Do you use that data? Not necessarily -- not immediately with me. I will give it to you. But what I understand your question is, customers on balance sheet to date who were new to credit when acquired, right?

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

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Yes. I mean in a way, I'm trying to put this 40% ratio that you gave in context to the existing stock of your customers.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [20]

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So we have 63 lakh customers as of now. And what you want to know is how many of them are new to credit when acquired because the moment after I acquire them, they are not new to credit, right? Okay? I will even get back to you with that.

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Operator [21]

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The next question is from Umang Shah from HSBC Securities.

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Umang Shah, HSBC, Research Division - Analyst of Financials [22]

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Congratulations on a good quarter to your team. Just 2 questions. One is clearly, our ratings have been reaffirmed, and now that we have got CRISIL AAA, if I combine that with the fall of interest rates in the system, is it fair to expect that in the second half or maybe early first half next year, we should start seeing that cost of funds also coming down?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [23]

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I would hope so. I would hope so. But I will give certain -- what we are conservatively deriving of it and there are mathematics behind that. And I hope that actually, what turns out is better than what I'm guiding. So we are conservatively guiding that at the end of the year, we may be at around 8.7 or 8.7 -- between 8.7 and 8.75. The reason I will tell you. The reason is that, yes, you're right that because of the AAA and especially the latest one we have got, our cost of funds in each of the categories or each of the sourcing should come down. There is no doubt about it. But you see how we are reading CP, number one, okay? And if we maintain this 90% long term, obviously, it is going to be -- law of the greater average is going to be higher than what it was last year when CPs where more than 16%, 17%. That is number one.

Second, we will go retail, more and more. In fact, we should do our next retail issue very, very soon. And I will go to retail more and more. We would like to pay a little more for the retail customer vis-a-vis what are normally available for private placements. There is a cost of diversification, there is a cost of retailization. It will be -- it adds that much strength to cash, that much risk free or that much dependability on the balance sheet, on the liability side. So while you're absolutely right that each -- there is one more thing. I will do more [PFS]. So because of that, the fund cost will come down, okay?

So it is a mix of all that. We hope that we will be able to bring it down below this level. I'm just conservatively guiding that it may be maybe 10 percentage points lower than this. But definitely, the rise, and even though that rise was also pretty modest, just 30 basis points over the last 1 year, we are not going to see that kind of rise in the second half surely.

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Umang Shah, HSBC, Research Division - Analyst of Financials [24]

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Okay. Okay. That's helpful. My second question is regarding the asset quality. So I appreciate that you have said that you wouldn't want to talk about specific accounts. But let's say based on your assessment and based on some of the names that have been floating around and some of the names which we have already discussed in the past, the names like [Bvan,] Supertech and so on and so forth, probably from next quarter onwards, if you could just give us a very brief sort of a GS test to what's our exposure to these names cumulatively, not individually. And what we have already provided against all of these accounts given the fact that we have already started to kind of buildup provisions against some of these names, maybe not all, that can also probably give us a little more comfort on the asset quality front.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [25]

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Sure. I would still say that -- so, a couple of ways I would like to react to this. Number one, there are 3 names that we have discussed in the past, and I will give you update on these 3 names first. So IL&FS, you know that we had 6 projects, 6 SPVs. One of them, which was a small one, is totally repaid. So now we have 5, okay? Out of 5, 4 are now green. So out of our 1,700 something exposure, now about 1,600 out of 4 is green. So 94% is green. One, which is on a small exposure, about INR 100 crores, this still continues to be amber for some silly reason -- reason. And we are still working on that, but the most important thing to consider is 94% of our IL&FS exposure is now green.

Now those green projects as well as these amber projects, these have been received by IL&FS for the sale. And we believe that those deals are more than adequate to get the payments of the secured credit history. So according to the IL&FS, we are through. So that is number one. It might take a couple of months more or maybe even this year, but we should be okay in IL&FS.

The second was Supertech. We have been updating pretty regularly on Supertech. Our -- I must admit that the sale velocity has come down from what it was before. The construction velocity continues. Our project, we are making sure that our projects continue and continue being constructed and completed. Most importantly, I believe I have said this last time, that our early warning signals help us to approach any developer before the market and get additional securities from the developer as the particular project starts getting in some kind of difficulty. So that way from Supertech as well, we have got quite a few adequate securities like a mall or hotel, some land bank, et cetera. And using all this, I would not like to give too much details on the call because all this becomes confidential information as well because these term sheets, some of them are signed, some of them are getting signed. But with this, by the end of the year, we believe that there will be substantial reduction in the exposure that we have. And when I say substantial, I mean really substantial, around 30%, 40% reduction in the exposure that we have. And then we can see the same project with a 30%, 40% less outstanding, the strength of the project will just start looking very different, okay?

The housing finance company, I don't believe I have given the name out but obviously, you can guess it. We have provided about 50%. Lots of development happening there. We believe that this percent, the provision is adequate. In fact, the resolution plan which was given by the management and is being discussed, we may be able to write back some of the flows based on the resolution plan. So you don't ask me about the other developments which are happening recently, okay? But based on that resolution plan, we may be able to write back something, but obviously, there are developments happening, and we are not in a hurry to write back anything. We will see how it works. But we believe we are adequately provided on that.

Now also, these are the 3 names I have talked about so I'm giving update on that. I would only request that -- names are thrown about here and there. Lots of data is also taken out from various registry and things like that. Most of the times, that data is wrong. And it is wrong for us in 2 reasons. I will give you one very simple reason is that if 2 of my subsidiaries have created security for the same loan, that security is counted twice. And hence, analysts reach a conclusion that our exposure is double than what it actually is. So just pointing out the mistake.

Secondly, anybody who has led unsecured to that particular promoter, it will not come. So all our exposures are secured, and hence it comes. Secondly, there is a difference between outstanding and sanctioned. Always on the register of companies, the sanctioned loan will come. Whereas outstanding at any point of time will be much lower than that. So that's overall. And I would like to only end by saying that we will be very quick to recognize GS3. We will be very quick to provide our most importantly, the early warning signals will help us resolve many things. Either we can discuss asset by asset which I'm not -- definitely not going to discuss on a call or we can look back when ratings are being downgraded off NBFCs at a drop of an hat, right? I think everybody who has some exposure or a realistic exposure has been practically downgraded. In this atmosphere, our ratings remaining AAA by all the 3 rating agencies that we were -- we were having before. I've been going ahead and -- but why did we go to CRISIL? It's not as if we needed 1 more rating for raising money. We also went as a sort of certificate, we can't open our books to everyone, right? So we can open to rating agencies, we can open to -- of course, large banks have also gone through who have ticket sizes of more than INR 5,000 crores with us. They have also gone through and sanctioned this kind of money. And last but not the least, people like IFC and AIIB, if they have gone through the book and after that given us a AAA rating or given us money, I would really take that at least on the public forum.

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Umang Shah, HSBC, Research Division - Analyst of Financials [26]

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Understand, this is quite helpful. And just last question, have we already signed or are we exploring signing any co-origination agreements with any of the banks?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [27]

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Not yet. Because we believe at this point of time, we are having enough and more liquidity to grow our retail book, right? So as you would see, the retail businesses at this point of time are negative, right? I would ideally like the retail disbursements to be much higher and hence the retail book growth to be much higher. I want to do retail addition of my balance sheet at a faster pace. So we don't see a reason at this point of time to do a co-origination agreement. It's not as if there is a category of retail which are not finding money for or which I don't want to keep on my balance sheet for. So I -- the capital adequacy is close to 20%. So at this point of time, don't really see a case for doing it. Future, who knows, let's see.

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Operator [28]

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The next question is from the line of Amit Premchandani from UTI Mutual Fund.

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Amit Premchandani, UTI Asset Management Company Limited - Fund Manager [29]

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Sir, just a question on the housing side. There you have a network of around 4,300. And if you even assign 25% of that network to the retail and LAP part, the remaining network is around 3,200. Against that, you have INR 15,000 crores to INR 16,000 crores of developer exposure. So are rating agencies comfortable with 5x to 6x leverage of a developer book?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [30]

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See, it's not as if -- how do I put it. Rating agencies don't look at how much leverage is to each kind of book obviously, that is number one. Number two is there are -- rating agencies will go through each of the account, will see the behavior of each of the account, will see its behavior how money is coming back in each of the account and give ratings accordingly. So to answer your question, I don't think that for a particular book what is the kind of leverage or capital adequacy that people have had a look at. They are looked at in the housing finance or that is the HFC subsidiary, the overall leverage is 5.71%. And yes, as you say, if retail, you take at the leverage to 8 or 9, well, on the real estate the leverage will work out to be much, much lower.

And to answer your question whether they are comfortable? We have got the highest rating, right? So I guess they are comfortable.

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Amit Premchandani, UTI Asset Management Company Limited - Fund Manager [31]

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Sir, among the projects that you have funded on the real estate side, how many have seen stoppage in construction?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [32]

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Stoppage? No, 0. We will not allow it. Any stoppage in construction.

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Amit Premchandani, UTI Asset Management Company Limited - Fund Manager [33]

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And how -- of this INR 15,000 crores, INR 16,000 crores exposure, what percentage is, say, LRD, mall, et cetera? And what percentage is not completed projects or construction still continuing?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [34]

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Construction is still continuing in -- especially in late stage, will be a lot. I'm not giving you very specific numbers yet. Commercial of the book is around 15% to 17%. Of new disbursement commercial is around 50% -- 66%. Of new disbursement commercial is around 66%. After a project is completed, typically, most of the time, we should be getting that on our NIM. So if you see the portfolio, a last part of it will be under construction because if the project is completed totally, 100% complete, and we have not got all the money till now, we should move in, look at it as an early warning signal and move it and appoint a strong selling agent, get it sold and get our money back.

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Amit Premchandani, UTI Asset Management Company Limited - Fund Manager [35]

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And sir, how much of the project is exposed to Lower Parel?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [36]

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Zero. Lower Parel 0. I'm giving you lots of answers on the call, but, yes, that's all backup answered. Obviously, you have lots of questions for real estate, contact Anuj. He will give you some more -- without giving you specific numbers, we'll give you some color on the portfolio. You will be -- see it like this, right? Real estate today is a sector that either you can see ghosts everywhere. You should see risk everywhere. We are also seeing risk everywhere. You should be always on top of your game, top of your -- most careful, (foreign language). We have to be very, very careful in everything that we do invest. At the same time, you can't see ghosts everywhere. There are buildings getting completed, irrespective of what you people believe. There are apartments getting sold. The point is there are certain developers of buildings that are getting completed. There are certain type of apartments which are getting sold. I mean, why anyone else as in you take the best of developers. You will see the 4 and 5 bedroom going really extremely slowly. And the 1 and 2 bedrooms flying off the shelf, right? And that's -- and this is primary data. Here, our group is in this business, right, both for development as well as in construction. And that's -- this is primary data. I can't be more specific on the call, but we have data of -- project-wise in at least the large city.

And I can tell you this, that there are projects which are moving. And there are projects that are not moving. It's important that how you have chosen the projects, how will you make sure that we have -- we are sole financiers so projects, don't stop for the lack of money. 97% we are sole financiers. The remaining 3%, we are with the largest HFC in the country. So we don't see any issue of projects stopping because of lack of funds. But any other reason of projects stopping, we will not let it happen. There are cases where, say, for example, a couple of projects, a particular construction company, construction -- constructor, not developer, came in trouble. Let me say then, in Gammon. One particular project Gammon was constructing. We got it replaced in a jiffy. That's the capability that we have because of L&T and we can get it done. So we actually got the contractor replaced and construction started at full swing.

So a -- so to, just to make a point, either we can see ghosts everywhere or you can actually crystallize risk, what are the risk, what are promoter risk, what are project risks, what are funding risks, et cetera, what are approval risks and work on each one of them and make sure that your portfolio remains healthy.

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Operator [37]

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The next question is from the line of Rohan Mandora with Equirus Securities.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [38]

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Sir, all our question are answered. Thank you.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [39]

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Okay. Thank you.

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Operator [40]

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The next question is from the line of Yash Gupta from Prince Poly Plast.

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Yash Gupta;Prince Poly Plast Private Limited, [41]

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Congrats on the good sets of number. Other fees and other income has shown a growth of around to be 18.5% quarter-on-quarter, and this is the highest growth in the last 8 quarters. So if you can explain what drives this growth and what's your outlook for this for the next 1 year?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [42]

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So we concentrate on many things. I will just -- I have not spoken to you before, so let me just take you back in past. We started this, a push on fees 3 years back. And largely, that time fees is to come from wholesale, which was from underwriting fees, advisory fees, and then getting the advisory fees on 100% and then selling down around 70%, 80% of the exposure, and, thus, keeping the fees. After that, the retail business has started catching up. And we have done extremely well, especially in retail in cross-sell. So number one, we have a principal in retail. But our processing fees or the -- yes, basically, the processing or application fee that we take from our customers have always been net positive. Net positive meaning what does -- the money that we spend in dealers' paybacks or doing any refi or whatever, on the ground -- on legal checks on the ground. That will always be less than the processing fee that we get. So we always have a net positive processing fees. That is number one.

And then as we got into strong data analytics, we have increased our cross-selling [implement proceed]. So maybe just 1 year back, if I used to sell about 1.8 products to each of my customer, today, that number is close to 3 or it's about 2.85 or something to be precise. And these are basically protection products, insurance products. Initially, we used to do only credit life. We have moved through now doing actual life insurance, we are doing critical illness. They are -- we're doing roadside assistance. So many things which actually help the customer as well as [counter sweeps,] we are doing it. And basically, that is leading to this, I would say, a virtuous cycle where our overall fees actually pay for our OpEx. And I think we could thrive in that. I believe it's not only one of -- maybe a couple of NBFCs, where fees pay totally for OpEx. And we will continue to be it in this range.

However, having said that, our guidance is always for NIMs plus fees because guiding on just fees quarter-on-quarter is a very risky business. I consider my word to be very important. All of you have shown the trust in my word. So I'm not going to guide you. But NIMs plus fees, we will definitely be able to guide. We will always maintain it, in -- we will never be below 6.5%. And we would like to maintain it from 6.5% to 7%. And which leads, if you just calculate, go down the ROE tree, it will take up to around 2.2%, 2.3% ROA and around 16% ROE, 16%, 16.5%.

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Yash Gupta;Prince Poly Plast Private Limited, [43]

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Okay. Got the point. And second one, sir, what's your assessment on the liquidity side? Any liquidity went to the market after the action taken by the FM? And is there any improvement the ability to off loan for the customer?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [44]

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Okay. So this is different, okay? Let us not try and connect -- let us give the FM a break, okay? Let us not try and connect the effect of each one of our announcement on what is happening in the market. (foreign language) it's never like that, okay? Is liquidity today way, way more better than what it was 9 months back? Oh, certainly, there is no doubt about that. Not only liquidity in the system, even liquidity available in the market is way better than what it was 9 months back, there is no doubt about it. But there is -- there are some nuances. There is a lot of slide to safety first of all, okay? So if, let's say, if x number of NBFCs, and I'm first talking about sources of funds for NBFCs, okay? And then I will talk about NBFC disbursements [on the clients]. And spare me for a long answer because this is very, very important. Number one, okay. Usually, NBFCs, they have x number of NBFCs who are getting money, today it's maybe x by 4 -- 1/4 or 25% of it which is getting money. That is number one.

Number two, bank -- overall bank funding will be limited, especially to large NBFC's belonging to large groups till these group limits or a limit starts clarified by RBI. Till then, there will be limits on how much -- how L&T group or any other group will be able to borrow. That is number two.

The biggest issue in NBFC liquidity today is mutual funds, who used to be the main source of NCD are themselves getting less amount of money in their credit funds, number one, and in the long-term credit funds. And number two, the limits of NBFCs there with the [SEBI] assets, has also come down.

Now what does it mean, was that while the overall money available to NBFC's is coming down, there is a slide to safety, that is number one. Number two, good NBFCs with good parentage, with good ratings, will go and look and diversify so that we de-risk ourselves from any blips in liquidity. So diversification can be in form of retail, it can be in form of parent funds. We have already raised ECBs. There is an article today that (inaudible) seem to know before us what we have. As for foreign bonds, et cetera, surely we have but as we now grown -- have got the highest domestic ratings from all agencies, we will now move our international rating and raise foreign bonds. So that's doing all this.

There is certainly no dearth of liquidity on the -- for good NBFCs. And I'm not talking only about ourselves. Definitely, all good AAA NBFCs with good parentage are getting money. That is number one.

Now where are we lending? And there I will talk about ourselves. So number one, any retail business, whether it is retail housing or rural businesses or any new retail business that we will launch. By the way, we have just piloted our personal loans business mainly on loyalty, that is on our own database, done lots of amenities on our own database and selling personal loans to them. But I will talk more about it in last -- in next quarter. At that time, I will be having the thunder to talk about it. But any retail product, there is no dearth of liquidity. (foreign language) so there is no question, right?

Number two, real estate, we are anyway being very selective. As we have said, our overall limit on real estate to total book, real estate is 17%, 17.5% of this to total book. We are already at about 15.5%. So we are going to be very, very selective in real estate business because, largely, we will concentrate on completing our own projects, right? So that's as far as real estate is concerned.

Infra, again, we will be very selective. We are only in about 2 or 3 areas and -- of Infra, and we will be very selective in the disbursement we always have been. Our infra book has actually grown as the funded sell-down has been little -- overall, our overall sell-down has been very good, but the funded slowdown or sell-down is little lower. So that completes all my focused book.

What is happening also for us is this rapid reduction in the defocused book is also making money available for the focused book to grow. So a long answer to your small question, but the conclusion is that I don't think that -- we have passed the time that any disbursement that we want to do we will not be able to do because money not being available. It's as simple as that.

So from now on, I will not come and give the excuse (foreign language). Disbursement may work because either demand was less or we saw that risks were high. So those will be the reasons, not lack of money.

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Operator [45]

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Ladies and gentlemen, we'll take the last question from the line of Anitha Rangan from HSBC Asset Management.

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Anitha Rangan, Hsbc Asset Management (India) Private Limited - VP of Fixed Income [46]

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One thing, sir, is I understand was that post these demands, one of the securitized papers actually defaulting. Are you going to see any difficulty overall in securitizing instruments as a whole? Are you seeing that already? Or do you see a -- see any challenge going forward?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [47]

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So for us, it is easy. We are not -- we have 0 securitized, practically 0. There are somethings that we have securitized to 3 years back just to try out our hand in the market. I've given this answer in terms of co-sourcing some time back. But I want to grow my retail book rapidly. I don't see availability of money as a constraint for that. I never say never again. I'm not saying that I will never do securitization. I'm only saying that in the near term, there is less incentive for us to do securitization. We were actually looking at securitizing some of our PSL portfolio. When RBI gave this permission further on lending. So now money is available while keeping our PSL portfolio on our books. So it doesn't affect us really.

How the market will develop, I don't think I want to comment. But I believe that the time that you just buy a securitized paper and then forget about it, people may be little more watchful on the asset quality, on the quality of the sourcing company and may be -- and they also look at portfolio locations, et cetera.

I will tell you this particular HFC where we had bonds. Before this whole thing became a national issue, we were also looking at buying certain [recent detail assets] from the HFC and extinguish our bonds. Long time that, bilateral. It didn't happen. It didn't work out better. But the way we were looking at is not securitized paper but actually taking our portfolio. And hence, we were looking at a good portfolio and the portfolio in locations that we can service. So more and more I think the buyer of the security, we start looking at the serviceability of this portfolio if something goes wrong with the originator. So that may be slow changes happening in the market. It doesn't affect us at this point of time or in the near future.

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Anitha Rangan, Hsbc Asset Management (India) Private Limited - VP of Fixed Income [48]

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Okay. I had a couple of more questions. So my second question is on the liquidity side. I just wanted to understand, in the slide where you've given about ALM, comparing Q1 and Q2, which is now your overall re-priceable assets is almost the same and slightly come down. But your cumulative positive gap has increased substantially from INR 15,000 to INR 22,000. So how does that work? Or has your assumptions overall changed? Can you give me some color on that?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [49]

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Which slide, 5, 10, is it right?

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Anitha Rangan, Hsbc Asset Management (India) Private Limited - VP of Fixed Income [50]

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Slide 2.1, Slide 10, that's right, yes.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [51]

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Okay, you're comparing it with Q1. So more assumptions have changed, okay? Somebody will explain this to you offline. No assumptions, I'd say. These are standard slides here. Right from September 21, 2018, we have kept the same slide. So only numbers has changed.

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Anitha Rangan, Hsbc Asset Management (India) Private Limited - VP of Fixed Income [52]

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Okay. Okay. And just one more question, is there...

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Operator [53]

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Sorry to interrupt. Ms. Rangan, may we request you to come back for a follow-up, please?

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Anitha Rangan, Hsbc Asset Management (India) Private Limited - VP of Fixed Income [54]

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I thought this was the last question, that's why -- yes.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [55]

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Let her continue. It's okay.

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Anitha Rangan, Hsbc Asset Management (India) Private Limited - VP of Fixed Income [56]

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Okay. Just one last question, sorry. You also spoke about L&T's involvement being very strong, which is also very good to know. Is this like some thought process which has changed with L&T and with yourself that you're getting involved together as a company? Because in the past, I feel I was understanding that you work very independently and so on, so just wanted to understand that perspective also.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [57]

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Yes, absolutely. I mean we have a strong parent. Let me tell you, my daughter, my daughter is a very independent young lady, and which she manages everything on her own. But when she requires my help, I'm always available, right? So this is the time that we require our parent's help. And that's what the meaning of the parent is, meaning of a group is. So normally speaking, we will not trouble them. This is a -- not only this company, any subsidiary, any division of L&T will normally work independently but in situations where specific attention is required. Because we always talk about group strengths, right? Now these strengths can't always remain in the showcase, where there are group strengths that we believe. There are times when the group strength has to come on the field and actually help on the group strength.

And today, it helps in raising money. It helps in resolving assets, it helps in developing more and more monitoring metrics on the ground. And I can tell you one thing. I'm -- we are very proud, independent professionals, but at this point of time, extremely thankful and grateful that we have a parent like L&T.

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Operator [58]

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Thank you. So ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [59]

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Okay. I think I have concluded already. We are very happy with the Q2 results. Look to H2 and especially FY '21 with renewed hope, not only just hope but our findings on the ground also indicate towards good growth, higher disbursements, and good profitability, balance sheet strength and, most importantly, the business trends that we have continued to invest in through bad times. So this where companies get differentiated, good companies get differentiated from others. Throughout these bad times, we have not stopped investing in our strengths, which is network, analytics, digital, even for 1 day. We have invested increased amount of money to all this, and we are sure that as disbursement growth catches up, we will gain disproportionately from that.

So with this renewed hope, the renewed positivity, let me wish all of you a very happy Diwali, a very, very happy new year. Hopefully, this festive season we'll shake off all the negativity which seems to be fashionable now not only in the sector but also in the country. Let goddess Lakshmi be with all of you. Thank you.

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Operator [60]

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Thank you very much, sir. Ladies and gentlemen, on behalf of L&T Finance Holdings, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.