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Edited Transcript of M&MFIN.NSE earnings conference call or presentation 28-Jan-20 11:30am GMT

Q3 2020 Mahindra and Mahindra Financial Services Ltd Earnings Call

Mumbai Jan 31, 2020 (Thomson StreetEvents) -- Edited Transcript of Mahindra and Mahindra Financial Services Ltd earnings conference call or presentation Tuesday, January 28, 2020 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dinesh Prajapati

Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs

* Ramesh Iyer

Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD

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Conference Call Participants

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* Abhishek Murarka

IIFL Research - VP

* Adarsh Parasrampuria

Nomura Securities Co. Ltd., Research Division - Executive Director & Banking Analyst

* Aditya Jain

Citigroup Inc, Research Division - Assistant VP & Senior Research Associate

* Alpesh Mehta

Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst

* Anirvan Sarkar;Principal Asset Management Private Limited;Fund Manager

* Jignesh Shial

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

* Kunal Shah

Edelweiss Securities Ltd., Research Division - Associate Director

* Mayur Parkeria

Wealth Managers Pty Limited - Head of PMS & Fund Manager

* Nidhesh Jain

Investec Bank plc, Research Division - Analyst

* Nischint Chawathe

Kotak Securities (Institutional Equities) - Senior Analyst

* Piran Engineer

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Sanket Chheda

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Udit Kariwala

AMBIT Capital Private Limited, Research Division - Research Analyst

* Umang Shah

HSBC, Research Division - Analyst of Financials

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Presentation

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Operator [1]

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

I now hand the conference over to Mr. Abhishek Murarka from IIFL Securities. Thank you, and over to you, sir.

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Abhishek Murarka, IIFL Research - VP [2]

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Thank you, Raymond. Good evening, everybody, and welcome to the con call. From the management team, we have Mr. Ramesh Iyer, Vice Chairman and Managing Director; Mr. V. Ravi, Executive Director and Chief Financial Officer; Mr. Dinesh Prajapati, Senior Vice President, Treasury and Corporate Affairs; Vishal -- Mr. Vishal Agarwal, Deputy GM, Treasury and Investor Relations; and Mr. Rakesh Bildani, Deputy GM, Treasury and Investor Relations.

I would hand over the call to Mr. Iyer, request him to make some opening remarks, and then we can go on to Q&A. Thank you, and over to you, sir.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [3]

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Good evening, and thank you for joining this call. So as you'd have seen the numbers already, so I'm not going to deal with individual numbers out there. But summarily, we think that the quarter has gone well for us, given what's happening in the environment. We feel that it's gone to a pitch that we were looking at, what we wanted to is what we have reached really to achieve.

To kind of set the context, I think the overall sentiment from the business continues to remain a little subdued. And it comes from various angles. I think it starts with Hudly's in the auto space. It starts with transiting to BS-VI from BS-IV and, therefore, the whole focus is on reducing the inventory levels and not really looking at large numbers. But even otherwise, we do see that the buying sentiments are yet not picking up. And I think it's kind of a mix of various things which causing that again, which is -- another extended monsoon delayed the farm cash (inaudible) and more speaking from the rural market perspective, and also that the [infra] story is yet to adequately open up for the cash flows to improve. But we do see signals of some positivity around all of that.

To us, more specific, I think in spite of volume pressures that we've witnessed at the marketplace, given our deeper reach, given our presence in all product lines, we've been able to gain some momentum. And as against the industry degrowth story, we've been able to maintain some very marginal growth. Though not much to celebrate, but at least it's not a negative for sure.

In as far as the collections are concerned, again, what we have seen something very unique is, and I talked about it even last time, most of the time in the past we have seen from the rural market, when the business is good, even the collections are good, and that's a reflection of the overall cash flow in the market. But in this round, what we've been continuously seeing is even though the business sentiments are weak, but the customers are surely wanting to discharge their liability, which means the customers do have cash flow, and they're putting it to better use of discharging their liability rather than wanting to acquire assets. So that's helped us maintain our NPA position, and we've gone back to almost the last kind of a December level of NPA position in spite of the fact that the sentiment overall has not been that conducive to this kind of outcome.

Also on the liquidity front, I think we are very, very comfortably placed in our ability to raise funds and also ability to raise funds at a very, very competitive price and, therefore, the borrowing cost has seen continuous decline. And that has helped us maintain or improve our net interest margins. And I think the product mix is the other reason why we've been able to see some improvement there. I think we are clearly seeing the preowned vehicle segment showing traction, and that always comes at a higher yield and the net, therefore, helps improve that.

But if I have to speak where do we see all this going forward, I think there's still wait-and-watch kind of a situation. We still want to wait and see how the BS-VI really pans out. And once the BS-VI models do come in, they start getting accepted, then we will start seeing the volumes pick up better.

In as far as tractors are concerned, I think the next season is expected to be even much better, for simple reason that the farm cash flows will improve. The water levels are good. The next crop season is definitely expected to be far superior. So if I have to put all this together, we would think very strongly that the growth, if any, we had to talk, we would rather pitch on, is it next festival season where we would start seeing things to look much, much better.

Our concentration is continuously going to be on ensuring asset quality protection. Our focus is going to be ensuring tightening of process, looking at costs and bringing them down continuously. I think we have taken some very strong initiative, and that's helped bring down some costs. And I think the benefit of that would unfold actually in the following year most seriously.

I think we also believe that we don't have to look at India as one story, but we would rather like to look at it state-by-state, and there are some very clear signals from certain states where we would like to focus and which would help us grow better. And they would be possibly UP, Bihar, Madhya Pradesh, Gujarat, and we have yet to wait and see what happens to Maharashtra and the other southern states. But it is going to be a story that we can't really talk of overall as one story, but rather look at state-by-state.

Our bet, as I said, we will continue to invest in the technology space. We will continue to invest around our consumers, improve the experience with the consumers much better. And we think there is enough opportunity there to in fact grow our business through our existing consumers by even offering to them different sets of product and not necessarily the products from the same auto and the tractor family. And we have made some beginning there in the form of small-ticket loans to existing customer with excellent track record of the past. And we think that will help us not just grow the balance sheet to an extent, but more importantly improve our profitability and the productivity and reducing costs. I think that's the approach that we're going to take.

But for the year specific, if we have to speak, I think we would more concentrate on ensuring asset quality improvement and taking a position on aggressive provisioning if required and whichever way required. Just to kind of bring one highlight to that, I think in this quarter, we have taken a view to -- by assessing certain consumers, and we have taken some additional provision as may be required. And that is already factored into our financials. And also that there are 1 or 2 one-timers, which Dinesh or somebody would explain as we go along. But I think, overall, we have taken some additional provision of INR 90-odd crores and 2 one-timers totaling to something like about INR 35 crores, which means the PBT is factoring about INR 120 crores on additional items, which are just one-timer.

Overall, I think we are happy with what's happened out as a performance, given the overall environment out there. But summarily, we think the sentiments are yet to get very positive. I think every one is on a very, very cautious kind of a position out there. And as I said, asset acquisition is not their urgency, but people are conserving cash or discharging liability. That's the feeling that we have when we interact with consumer (inaudible).

So far as our subsidiaries are concerned, I think they have also maintained that performance. You would have seen the housing numbers as well. I think the quarter had a growth of 14-odd percent -- 15% -- 17% growth in profitability. But they still continue to have the pressure of NPA in that single state of Maharashtra, and we do believe that improvements are seen, but not really galloping fast to show substantial improvement. But as we have said always in the past, this kind of buildup takes about a couple of quarters before we can say that all problems out there is over. So I think in the next couple of quarters, you would continue to see improvement in that book happening.

So for as the insurance distribution business is concerned, we have made investments in the digital space, and that's brought maybe some pressure on our [PAT], but minus that investment, I think we also have had a good double-digit growth happening there.

So overall, I would kind of want to summarize to say that it would still be a little wait-and-watch kind of a situation, not rush into growth. I think growth would not be our very urgent priority, but ensuring controls, ensuring asset quality improvement, ensuring process revisit and ensuring cost reduction would be the approach that we would take for the period. While we may not miss out on any possible opportunity of growth, we will ensure that the market shares are not lost. We'll ensure that our multiproduct approach and with a little more focus on the preowned vehicle, we do get benefit of whatever little growth that we can.

Out of all the product lines that we are in, I think the biggest pressure that we currently seem to see is from the commercial vehicle segment. While for every other product we've been able to control and curtail the NPA for sure, but as we all know, the way the commercial vehicle industry behavior has been, we will have to give them a little more extra time before anything positive can really emerge out of that.

But totally, all put together, I think the overall sentiment to turn extremely positive will depend on a few more government actions, the budget is one of them, and we can wait and see what do we hear from the budget and how positive that drives the whole market. But with the infra opening up, with the farm cash flow likely to improve in the next couple of quarters, we would think that by next September, October, one can start seeing some better results to start coming from the semi-urban/rural market.

I would stop here with this as the summary and then open up for questions, and then we have the team here who will take the questions as they come along. Thank you.

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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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Congratulations for a good set of numbers. Sir, just on the provisioning side, I wanted to understand the overall collection efficiency in the market. There has been some jump in the GNPLs of (inaudible). I think primarily you highlighted across the product, it seems to be more on the commercial vehicle. But besides that, if in any of the product segments or geography we are seeing the [inch-up]. And there is some reclassification of maybe, in terms of gross Stage 3 assets, between the business assets and the total assets. So I just wanted to get the sense of it as to what that reclassification is.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [3]

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No, I think reclassification is more simpler. Earlier, the percentages were represented on the total assets size.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [4]

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Balance sheet.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [5]

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Balance sheet size. But now we've kind of taken only the business assets to represent the NPA arising out of that. So that would happen to even the comparative years. So therefore, there is not a big change from that perspective. But it's just that the nonbusiness assets like company's assets, vehicles, computers, et cetera, et cetera, or investments that we make would all be left out, and only the assets which represents the clear business is what is being considered.

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

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Sir, it's only merely loans now?

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [7]

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Yes, it's all lending activity.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [8]

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All lending.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [9]

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See, primarily, if you see after the LCR guidelines and the liquidity crisis, the liquid pool of investments have increased in the company. So it was, to some extent, distorting the picture of the true NPA percentage terms. Absolute terms, it was always available, but in percentage terms on a total asset basis. So it was prudent to move to the business asset basis.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [10]

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And so far as the category of NPA, et cetera, is concerned or specific to any particular geography is concerned, I think it's not any particular geography and, as I said, it's only the category of an asset and that also the heavy commercial vehicle and the kind of family of heavy commercial vehicle, including [tippers], et cetera. And it has 2 types of reasons what brings this impact. One is the customer not able to recover their money from various contracting segment, including the government payments, et cetera, et cetera. So delay on their side to make their recovery, which they are delaying the recovery to us as well. The other is, of course, the overall industry pressure of the lack of load factor, therefore, the ability to deploy vehicle and earning [up out] of that. But this, I would think this is nothing new as far as the commercial vehicle segment is concerned. I think they are just cyclic impact and one would start seeing the improvement as the economy starts to improve. You will also see the improvement to these kind of asset quality very surely.

But as otherwise, I think from a geography perspective, we are not seeing a very great difference between any particular state versus any other state. But one more factor that all of us need to keep in mind also is the kind of -- some kind of disturbances that we see out of certain actions that's being initiated by [government]. And that reduces the number of days of operations in different pockets at different points of time. So that has also caused some pressure in the third quarter, which we believe, as we move along into the fourth quarter, that kind of (inaudible) loss in number of days possibly may substantially reduce.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [11]

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Yes. And generally, when we see the sentiments during the festive season, it's not been that great, plus the BS-VI transitioning, [there is not --] also not happening on the expected lines. So here on, maybe in terms of the asset quality, do we see further pressure? No doubt Q4 is relatively better. But if I have to look at it in terms of the month-on-month collection efficiency, are we [seeing the --] some further deterioration out there?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [12]

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So when you say month-on-month, moving into the fourth quarter or next year?

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [13]

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No, sir. If I have to look at it October, November, December and Jan, how has been the trend? Maybe is it on the improving side or it is maybe 1 or 2 months it was better, but now further it is deteriorating because...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [14]

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No. So as I said, if you were to normalize it for the number of days that we operated in December, right? Because we did lose some number of days in Northeastern states, in Jammu, Kashmir, et cetera, et cetera. But if that was to be normalized, we didn't see too much of deterioration. I think you must also read my comments where I said that, this time around, customers have the money and they rather want to discuss liability and not really pick up assets.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [15]

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Okay. So -- but in terms of like how Q4 would be and how we would end in terms of the collection efficiency, how are we seeing it?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [16]

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I think we would not be over-bullish to say it would be far superior to any previous year. But I don't see them to be too different from any previous year as well.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [17]

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Okay. Okay. And the INR 90 crores of provisioning was -- what was...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [18]

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I think you will be put off the queue. We are debating actually.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [19]

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Just this INR 90 crores of provisioning (inaudible).

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [20]

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INR 90 crores of provisions?

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [21]

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Additional ones...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [22]

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No. So we've kind of assessed certain customer class and who have not been paying for a little longer time than normal. And we have taken a forward-looking on them to say how would they really behave in it, and we have made that additional provision.

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Operator [23]

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(Operator Instructions) The next question is from the line of [Darshan Mane] from [LAR] Consultants.

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Unidentified Analyst, [24]

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So are we facing any issues in North or Eastern region? Because we have significant exposure over there. So has anything improved or deteriorated, I mean, from 1st of January till now?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [25]

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No, no, not -- from 1st of January till now, nothing significant has changed. But definitely because of the new political direction on CAA, et cetera, we do find that there were some agitations in different states at different points of time and, therefore, the number of days that were available to really have some execution of activity did suffer.

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Operator [26]

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The next question is from the line of Udit Kariwala from AMBIT Capital.

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Udit Kariwala, AMBIT Capital Private Limited, Research Division - Research Analyst [27]

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I just wanted to get some sense around the provisions. The number is around 20%, 21%, if I calculate the way we've been doing it. So do you think this number should hold up through the year? Or given that we are seeing some challenges around the commercial vehicle segment, which you mentioned earlier in the call, there is a chance that this number moves up?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [28]

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No. So we don't see that happen in the fourth quarter for any further deterioration of where we are. We -- our [belief] that it should only improve and not deteriorate.

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Operator [29]

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The next question is from the line of Alpesh Mehta from Motilal Oswal Securities.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [30]

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Second quarter also you had a contingency provision of around INR 42 crores. So did we utilize anything out of that? And what is the outstanding contingency provision now?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [31]

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No, no. So we have not used anything out of that. In fact, our ECL number has actually gone up a little from 29-odd percent to 30-odd percent.

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Unidentified Company Representative, [32]

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(inaudible)

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [33]

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Yes. So the one which we took at INR 42 crore was more forward-looking on how the behavior of the economic factor or the agri factor is likely to be. And then we took that, and that has got kind of -- we didn't have to make anything additional on that front in this quarter with the collection improvement that we saw. But we've not drawn anything out of that for sure. In -- as a matter of fact, as I said, Stage 3 has slightly moved up, based on the past history, from 29-odd percent to 30% or so.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [34]

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Okay. And are there any write-offs during the quarter? Or the foreclosure losses any amount...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [35]

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We do it -- I think in September, we did that write-off.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [36]

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And March.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [37]

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And possibly in March that we will do.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [38]

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Okay. And just to -- if I can squeeze in one more question. How are the trends that you are seeing in terms of the used vehicle financing, the resale rates and the demand right now? Because as a percentage of the incremental disbursement, that number is like 18%, 19% on a constant basis. So...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [39]

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So we had said that, that's our focus and that's our growth engine. And we did believe that it will go between 15% and 20%. I mean since the overall disbursement has been low, it looks like almost close to 20%. But if the disbursement was to be normalized at 15% growth, then I think the preowned would look like something around 13%, 15%.

So far as the price is concerned, I think it is how we assess the value of a vehicle that we are financing. So it's left up to us to understand what really the true value of that asset is, and we are not guided by some kind of a [matrix] to say all vehicles at the same price types.

And so far as demand is concerned, I think given currently that the overall cost of operations will and continue to remain under pressure, there will always be a demand for preowned vehicle, in such circumstances where people have certain activity in hand but cannot or does not want to invest in a new vehicle, will look for a preowned vehicle from a use perspective.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [40]

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No, my question was more on the sides of, basically, the new vehicle prices are definitely (inaudible). So are the used vehicle prices also seeing pressure? And whatever the assumptions that you had on the loss given default at the time of repossession, are you seeing those losses increasing or it's more or less in line with the expectations and...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [41]

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I think it's lined with expectation for simple reason that if your NTVs are well maintained at 75%, 77%, right, and if the customers' vehicles are repossessed after they have repaid some installment, then even if the drop in resale price due to various new vehicle discounts, et cetera, does not have a huge impact on the preowned vehicle (inaudible). The real impact will be if you're over-financed or very close to 100% financed, then you will have a direct impact.

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Operator [42]

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The next question is from the line of Adarsh P. from Nomura.

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Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director & Banking Analyst [43]

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Sir, you did mention in your opening remarks about the cost initiatives. And if you note in the last 5, 7 years, that your cost numbers have actually inched up rather than going down. So if you can talk about what are these initiatives and, over the next 2, 3 years, what kind of cost to asset or on what metric should one measure the improvement that should come.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [44]

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So first and foremost is the overall cost that we are running currently is also to accommodate and possibly handle a growth rate of 15%, 20%. So to that extent, until the overall market improves, disbursement and things like that improve, we won't see substantial drop to the rate happening. When we talk of cost improvement, I think we very clearly talk about each line item that gets reviewed to say what of this where there can be some rationalization that can be done. And we have done that to almost every line item of the cost side.

Also, we have to look at what are the processes that can be readdressed, and we don't need to run those processes, given all that has changed out there. And the third is what of it can be moved to a technology platform from -- instead of physically handling them. Put all this together, there will clearly be -- if you talk of a next 3-year horizon, I think if you have today a cost of 3% to asset of 3-plus percent to asset, I think we can surely show improvement of at least 50, 60 basis points if all this gets put to practice and then things start to stabilize.

Very specific to what has happened now, I think in this quarter, we have had a saving out of all this to the extent of about INR 25 crores, INR 30 crores that would have come in. And if the whole year is looked at going forward, we could see a benefit in the same direction quarter-on-quarter. But they are more to ensure that any wasteful expenditure or any expenditure which are irrelevant from a current perspective are the ones which are being addressed and nullified. And there are serious review of various methods by which this can be saved, either by process change or moving them to technology and which is what cumulatively will help us save at least 50, 60 basis point over a period of time.

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Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director & Banking Analyst [45]

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Understood. And sir, I'll just reflect or dwell on this again. Is -- like -- it's good that the company is taking initiatives to bring the costs down. Apart from, say, disbursements which probably would have lagged maybe in the last 2, 3 quarters, but was okay before that, right? FY '19, '18 were pretty decent years. When you think about strategy on cost and everything, could you reflect why you didn't have some improvement where business growth was okay, right? Like what led to costs not coming down and, hence, what will change incrementally?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [46]

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No, no. So very clearly, as I said, this is a very variable model. So if the business increases, and we open number of branches, we add number of people, then the costs will stay up. And it stays at 3% because the asset also grows accordingly. The typical problem is you have invested in that cost and then your asset doesn't grow and, therefore, the percentage starts to look very different. As otherwise, if you kind of look at -- since you've talked up the period a couple of years back, you look that we have added something like maybe 300, 400 branches during that period. And that will all come at a variable cost. Our fixed cost is only around the zonal office and the head office. Rest are all a very variable model. I mean just imagine a situation that the cost is same and the business starts to grow at 25% in the following year. Without any effort, the cost will come down by 50, 60 basis points or maybe more. So we must always understand that we always remain overinvested for a future readiness, and that cost is close to about 40, 50 basis points. And we can't be so flexible that we can incur the cost when there is an opportunity and reduce the cost when there is none. Because what do we lend today has to be recovered. So if you break down our total cost, 60% -- 70% of the cost will be recovery based and 30% will be business based. But the 30% business cost will substantially contribute if the business by a market force starts to improve by 25%, 30%. So you must take it in the overall perspective. And then recovery is an outcome, again, of the market behavior, right? I mean if you look at -- let's say the next year monsoons go bad, next year market doesn't improve, and we have to put 2x, 3x the effort from where we are, then all the variable cost of recovery will go up. The conveyance cost, the traveling cost, all of that will catch up. So I think what we do is, we consider a range of 2.8% to 3.1% as the range which we have to price the customer with, and from there whatever reduction or saving we can make adds to the bottom line directly.

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Operator [47]

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The next question is from the line of Umang Shah from HSBC Securities.

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Umang Shah, HSBC, Research Division - Analyst of Financials [48]

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I just had 2 questions. In your opening remarks, you made a comment that there were roughly about INR 120 crore of one-offs during the quarter. So what was the balance one-off apart from the INR 90 crore provision?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [49]

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The INR 94 crore was that. And I think about INR 90-odd crore is coming from some kind of a tax demand which we have negotiated and closed.

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Umang Shah, HSBC, Research Division - Analyst of Financials [50]

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Okay, okay. And sir, my second question was, the INR 94 crore provision would be a part of our Stage 3 provision coverage, right?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [51]

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That's right.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [52]

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Yes.

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Umang Shah, HSBC, Research Division - Analyst of Financials [53]

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Okay, okay. And just to confirm, no write-offs have been made during this quarter?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [54]

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That's also right.

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Operator [55]

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The next question is from the line of Anirvan Sarkar from Principal India.

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Anirvan Sarkar;Principal Asset Management Private Limited;Fund Manager, [56]

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One question. So could you tell us what percentage of your car disbursements for the quarter were made during the festive season?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [57]

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What percentage of car disbursement during festive season?

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [58]

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Only festive season.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [59]

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[Oh, god.] So this is a guess number, may not be exact, exact number. But I think if we were -- if we take the 3 months' volume, at least about 50% of the volume would be during the festival season. Fortunate that festival season was both months, October and November. So if you kind of even it out, I would think that 25% will be December and the balance 75% would be distributed between November -- I mean October and November.

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Anirvan Sarkar;Principal Asset Management Private Limited;Fund Manager, [60]

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All right. Sure, sir. And regarding your comment on the...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [61]

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Just out of interest, why is that specific number is interesting?

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Anirvan Sarkar;Principal Asset Management Private Limited;Fund Manager, [62]

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No, this is just to gauge...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [63]

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How the future will look like if festival is not there. All right. Okay.

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Anirvan Sarkar;Principal Asset Management Private Limited;Fund Manager, [64]

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Yes, kind of. Adjusting for the festive demand.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [65]

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So you must use the word. Festival was average, which means it is like any normal month. It was not an overflowing festival demand because everyone was in the inventory correction, no fresh billing happening from OEMs, and some of the vehicles were also stocked out, and they couldn't fulfill that demand, et cetera, et cetera. So the festival being average is coming from a comment of the previous 2 quarters. The market sentiments were so weak for retail that everyone was expecting that festival will be a boom, but it was not to be. It actually was an average.

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Anirvan Sarkar;Principal Asset Management Private Limited;Fund Manager, [66]

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Right, right. Sure. That's helpful. And one more question, on the contingent provisions of INR 90 crore that we have made, 940 -- INR 94 crore, so does this have a segment color to this? The problematic customers that you saw, is this from a particular segment or is this across segments?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [67]

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I think it is across segment and a few geographies.

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Anirvan Sarkar;Principal Asset Management Private Limited;Fund Manager, [68]

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Across geographies or...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [69]

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I think a little more largely may come from south possibly, and we'll have color from every state, but if I had to put a percentage, I would think that it's large coming from the southern markets.

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Anirvan Sarkar;Principal Asset Management Private Limited;Fund Manager, [70]

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All right. All right. Fair enough. And sir, one last question. I see your employee count has gone down by 500 in this quarter. So have you been...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [71]

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Gone down over previous quarter?

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Anirvan Sarkar;Principal Asset Management Private Limited;Fund Manager, [72]

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Yes, yes.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [73]

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Okay?

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Anirvan Sarkar;Principal Asset Management Private Limited;Fund Manager, [74]

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So is there -- I mean have you done any kind of rationalization? Or how should we look at this?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [75]

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I think the people who would have naturally resigned and all that, we would not have been able to replace them immediately. That's all.

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Operator [76]

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The next question is from the line of the Nidhesh Jain from Investec.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [77]

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Sir, firstly, on the provision coverage ratio, do we have any plan to increase it further or we will continue to go with the ECL norms?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [78]

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No. So we do have a process to keep continuously reviewing them at every stage and -- which is why even in this quarter we have pushed up a little by adding INR 94 crores and whatever, whatever. And we would have the similar approach every quarter. We would kind of look at where else and what else. Because ultimately, the Ind AS approach does not allow you to make any kind of an ad hoc provision per se, right? We need to have a rationale for why do we do that. And we will, therefore, look at every quarter what best can be done and try and do how do we improve the coverage continuously or how do we reduce the NPA substantially.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [79]

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So we should expect this PCR to continuously go up and tend towards 30% over time? Or...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [80]

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Yes, we would be happy if we can start moving towards that if the market conditions don't improve. See, ultimately, if we start seeing a natural recovery process, then we are not overly worried about is the coverage adequate or otherwise. But if you see extended pressure from the market, that's a company we would also take conscious view and see how do we start making higher provisions.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [81]

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And secondly, then in the housing finance business, I would -- still GNPA remains quite elevated, and I think it's -- may continue to go up on a sequential basis. So when do you see this correction happening in the GNPAs in the housing finance?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [82]

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At least what our review tells us is that, if you take even in this quarter, while it does [look have] gone up, but if you were to split the quarter by 3 different months independently, December actually has shown a lot of correction over October and November. So there seems to me there is an improvement that's visible, but I want to be absolutely sure and clear that what is built up over a period is not in a hurry going to come down in the next 1 or 2 quarters. But will we start seeing a declining trend going forward? I would want to bet that it may look that way. Surely, the fourth quarter will see the decline, and we'll try and curtail it at that level, but it has a few market forces working where the farm cash flows have to improve in Maharashtra if that had to happen. If Maharashtra goes through some pressure point, either politically or economically, then once again we will continue to have an explanation and not an execution.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [83]

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Sure, sure. And lastly, in terms of margins, we have seen some improvement in margins in this quarter. Do you -- should we expect much -- further improvement in margins going forward?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [84]

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Improvement in margin comes from improvement in our borrowing costs. And as and how our old liability keeps maturing, I think the new liability comes at a low price, and we'll start -- continue to keep getting the benefit. But that is, again, a very volatile situation. We may think today it's all coming down. Who knows due to some action outside in the next quarter when we'll start seeing the pressure once again out there. But given the trend, I think the answer is yes. Changing liability mix or changing past liability into a new one will show us the trend of declining borrowing costs leading to margin improvement.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [85]

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And at the same time, we are increasing share of preowned vehicles. We have [defocused] on the NBFC book, and CV growth also [there] seems to be muted in the near future. So that should also help margins, right? Or...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [86]

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Yes, CV muted is a market force again. I mean the overall vehicle sales have come down substantially, and that will continue to be so and, therefore, you will see a flattish or a declining trend in the CV business. And let's be clear, by value, the preowned vehicle will never have an ability to offset the declining value of commercial vehicles because the price differences are too high. But yes, the lending yields are very different for both of this product. And therefore, as and how the preowned vehicle volumes continue to keep picking up, we would see some improvement in the average yield on a product mix basis.

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Operator [87]

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The next question is from the line of Sanket Chheda from B&K Securities.

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Sanket Chheda, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [88]

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Sir, just one clarification. I heard you saying on some earlier questions that it should not deteriorate from here on and it should get better. Was that on asset quality?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [89]

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Yes, yes, yes. That's right.

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Operator [90]

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The next question is from the line of Mayur Parkeria from Wealth Managers.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [91]

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Are any players, because of the current situation, have increased the LTVs in the recent? Because we read someone -- 1 or 2 players have increased LTVs on car financing. So is it the case? And...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [92]

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Tell me the name of the player, I'll provide their telephone number. How can I answer for them, you tell me?

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [93]

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No, no. I have -- so are you seeing in the market that LTVs are being increased then to compensate for the growth or to compensate for the current market situation?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [94]

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We only know that we don't increase and so says every...

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [95]

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[We are] seeing any competitive pressure as of now, at least?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [96]

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At least dealer pressure is not there. Competitive pressure was never there. Normally, LTV is an outcome of a dealer pressure, neither competition nor customer. And therefore, somebody who is fresh and new, who is trying to gain market share, will fall into the hands of dealer requirement. And seasoned player who have been in this market for so long will not necessarily have that pressure.

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Operator [97]

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The next question is from the line of [Ketan Shah] from Equirus.

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Unidentified Analyst, [98]

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Sir, in your opening comments, you mentioned that you [are now] moving into non-auto loans as well. So if you can articulate your strategy there and target segment, that would be great.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [99]

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So we've launched a small ticket loan for our existing customers, and those customers are who've repaid our loans at least for 12 months without a default or more than 12 months without a default. And we try and meet their maybe temporary requirement, health education or any kind of such requirement (inaudible). And normally, these loans are for a period of 6- to 12-month kind of a repayment, max may extend up to 18 months kind of a situation. And definitely, they are in the form of a personal loan, but collateralized with the current security that we have because the current asset value is much higher than the principal outstanding of a prime -- the premier loan. And therefore, even with this small ticket given to them, the asset protects the loan on both sides. And typical loan size is anywhere up to INR 50,000, INR 75,000 kind of a requirement. And they are for a shorter period of time and at a much better yield than the original lending rates. So about 18%, 20% would be the range.

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Unidentified Analyst, [100]

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And in terms of your product mix, obviously, it has become quite varied over time. Are all the products being offered from all the branches? Or is there some penetration there left?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [101]

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No, no, no. I think it's being offered from all the location, except that the variation in terms of percentages would obviously be different in different branches.

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Operator [102]

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The next question is from the line of Nischint Chawathe from Kotak Securities.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [103]

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[A couple of questions]…

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [104]

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Nischint, your voice is not coming.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [105]

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Can you be a little more louder, please?

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [106]

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So just a couple of questions. If you could [reconcile] this INR 400 crores of provisions in the P&L with increase in outstanding ECL of around INR 268 crores.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [107]

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Outstanding of what, sorry?

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [108]

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So if you look at the outstanding ECL on your balance sheet, it has gone up from the quarter -- I mean, between the second and the third quarter, it has gone up by around INR 268 crores.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [109]

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That's right. Yes.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [110]

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But if I look at the provision for credit cost on P&L, that's around INR 400-odd crores.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [111]

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There is a (inaudible).

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Unidentified Company Representative, [112]

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Net of termination and bad debt recovery, INR 140 crores.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [113]

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So if you kind of remove the termination loss and bad debt recovery from those losses, then it's only INR 140 crores.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [114]

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Okay. So that's basically the difference?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [115]

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That's right.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [116]

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Sure. And the extra provisions, I wanted to just double clarify, that's a part of Stage 3?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [117]

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That is right. INR 94 crores is a part of Stage 3.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [118]

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And I think typically, you review your PDs and LGDs in the first and the third quarter, right? So I'm assuming you've done that.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [119]

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June, December. That's right.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [120]

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Right.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [121]

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So this is -- it is done this time around, so I guess we are set for next 2 quarters in that case.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [122]

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That is right. That is right.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [123]

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Which is what [Mr. Iyer] commented in his statement also, our LGD, which was 29 point...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [124]

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Something has gone to 30 point...

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [125]

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[Moved to INR 30] in the current quarter -- current -- December reported.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [126]

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Sure. And just one final one on loan securitization. Just trying to understand how should one really think about it. Can you increase the ratio of loan securitization in the overall funding hereon? And I guess it is incrementally the cheapest cost of funding for you or it's always the cheapest cost of fund for you. So...

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [127]

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Yes, it's always cheaper from the point of view of the PSL classification. We have been always trying to maintain up to 15% of our liability mix from the securitization source as a liability program. However, this time around, given the bond market remaining on the shallow side or remaining on sidelines, probably we may look at increasing up to 20% of our liability mix.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [128]

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Okay. So that ratio can further go up, but there is -- okay. There is no prescription from any rating agency or any lender...

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [129]

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No, no, nothing like that.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [130]

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No. Nothing of that type.

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Operator [131]

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The next question is from the line of Jignesh Shial from Emkay Global.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [132]

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Yes. My apologies, I just missed the opening comments this time. Can I get the total slippage and recovery and write-off number for the quarter and for 9 months?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [133]

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So 9 -- you want the slippage...

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [134]

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Slippage number for the quarter -- recovery, slippage and write-off for this quarter as well as for the 9 months.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [135]

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(inaudible) So we will share with you. Right now we have just asked somebody to pull it out. We'll share with you that number.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [136]

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You can come back in the queue or independently maybe Dinesh can give it to you also.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [137]

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Sure. And second question is that I'm seeing there is some surge happening in the NPAs on the -- on your home loan book, specifically in Maharashtra. Now a few of the players have indicated because of this monsoon -- Q2 monsoon in southern Maharashtra, there have been issues happening out there. And same is the case with coastal Karnataka also. Some issues are happening. Are you seeing the similar areas where the problems are happening? And number two, is this crisis fully pertaining to home finance? Or Maharashtra is also seeing CV finance also getting stuck out there? This is my second question.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [138]

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So CV finance per se may not have a same impact that housing is seeing through. Because the CV finance is more an outcome of large fleet operator, extra capacity, lower load. So they don't have direct relationship, therefore, to be kind of monsoon, extended monsoon, cooperative banks nonfunctioning in the past, et cetera, et cetera. But housing has this specific problem because the segment that they work with is also that -- not a very high investing segment. It's a low-end segment where they have their income almost kind of depending on these kind of sources. And therefore, any impact to agri source, et cetera, has an impact on their income. And we would not want to relate this to every class of asset. So if you kind of look at -- I don't know if you were in one of the questions that I answered, if you look at October, November, December, 3 months, December saw an improvement in recovery even in Maharashtra, whereas October saw it go down further because of the extended rain going -- overstretching. So that has that direct impact.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [139]

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Understood. And if I understood it correct, you said that your overall festive season had been more or less an average one, and you are seeing a growth -- growth pickup might happen in the next festive season. Is my understanding correct?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [140]

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That is -- yes, yes, yes.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [141]

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(inaudible) So there is a subdued growth might stay for a couple of quarters, at least 1 or 2 quarters from now.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [142]

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I mean the reason for us saying that is BS-IV. Nobody is now really billing BS-IV, and the inventory levels have come down. And if all inventory gets cleaned up in the next couple of months up to March, it is going to be a volume lower than what we saw in the last quarter, right? So that's one clear answer. The second is that BS-VI billing will start to happen, but customer sentiments to start picking up BS-VI at that price will also be a wait and watch. They will also try and wait to see how the performance of the product is, what are the operating cost behavior in terms of fuel price, et cetera, et cetera. If all of this had to be normalizing, our belief is that it would go into the next quarter -- next festival season for sure.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [143]

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To answer your first question, for a 9-month period, provision charge was [INR 600 -- INR 650 crores], and for the current quarter, it was INR 259 crores.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [144]

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This is what? Addition or...

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [145]

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[Provision] charge for the period.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [146]

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Okay. Can I get the addition to NPA for the quarter?

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [147]

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[Slippages part] we will share with you.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [148]

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All right. We'll do this. Just concluding, what -- just correct me, the growth is remaining subdued. However, margins are improving for us. And the credit cost, kind of a one-off of INR 180 crores. Otherwise, the trend is more or less flat sequentially. Is...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [149]

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One-off is INR 94 crores, not INR 180 crores.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [150]

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Okay, INR 94 crores is the one-off. And apart from it, more or less, the credit cost [environment has been] sequentially spread or rather improving.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [151]

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That is right.

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Operator [152]

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The next question is from the line of Piran Engineer from Motilal Oswal Securities.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [153]

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(inaudible) quarter, I just have a couple of questions. Firstly, over the last 6 months or so, what sort of rate hikes have we taken across the portfolio? Just given the environment where we have more liquidity than others, I'm guessing that we can bargain better. So to that extent, have you taken any rate hikes?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [154]

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I mean if I say yes, all the product heads sitting around me will beat me. There is no scope for increasing any price to the market at this stage where OEMs are giving away everything, dealers are giving away everything. There is absolutely no scope for increasing lending rate. Yes, what we have done well is we have not dropped the rate in spite of our borrowing cost coming down.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [155]

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Okay. And so in this environment, have, like, dealer commissions increased?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [156]

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Dealer commission [asset] -- no, no, no increase. No, no, no. No increase.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [157]

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Fair enough. Sir, my second question is, what is the geographic mix of our HFC subsidiary? Like what percentage of the book is in, like, say, Maharashtra and the other...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [158]

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Maharashtra is about 40%, 45%.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [159]

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Okay. And what are the other states?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [160]

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Tamil Nadu would be about 20% and rest will be almost even. Another 8 -- 7, 8 states will have an equal number of 5%, 7% each types.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [161]

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That's largely in South India, is it?

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [162]

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No...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [163]

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No, no, no. We are there in MP. We are there in Rajasthan, Gujarat. UP, Bihar is new introduction with maybe 3%, 5% kind of a number or maybe low. But South, yes, we are there in Andhra, Karnataka, Tamil Nadu and Kerala. Kerala is the lowest of the 4, and Tamil Nadu is the highest of the 4.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [164]

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Understood. And sir, just last question is, out of your overall portfolio now or disbursements, what percentage is already BS-VI compliant? Because I believe Maruti has rolled out all BS-VI models already and...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [165]

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I think Maruti has rolled out VI models from November onwards, right? And therefore, it will not be a very significant portion. Because I'll tell you the reason for that also is, largely, it is urban billing which has happened, and we are not a significant player urban.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [166]

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Okay. So bulk of your disbursements also this quarter were to BS-IV vehicles in cars and [UVs].

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [167]

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Even next quarter, we would almost see it that way, except new-age vehicles like Kia Motors, et cetera, which already comes with BS-VI and whatever number that we do will be a BS-VI, but very, very miniscule number on the overall basis.

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Operator [168]

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The next question is from the line of Aditya Jain from Citigroup.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [169]

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So from your comment on LGD, has increased to 30%, marginal increase, I guess. But in 4Q, when we do a write-off, the coverage -- reported coverage ratio will likely fall, right?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [170]

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That's right.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [171]

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Okay. And then the additional provision that was made in 2Q, I think that was in Stage 1 and 2. [That is] -- is that still within those stages? Or has it moved to stage 3?

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [172]

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It is in the same stage because...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [173]

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Same stage. In fact, you would see improvement happening there also.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [174]

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It's on the portfolio basis, and that was done through a PD uptick, subsumed in new ratios.

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Operator [175]

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The next question is from the line of Adarsh P. from Nomura.

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Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director & Banking Analyst [176]

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Sir, just a quick question. The last couple of quarters, you'll have had a decent securitization where, I think, income gets upfronted. So is some part of the margin expansion related to...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [177]

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So before you complete the question, I want to tell you that upfronting of income and securitization is [gone slowly long back].

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [178]

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That upfronting is permitted only in assignment [transition]. And we have never done -- we are not doing secure assignment route sell down. We have done all our deals only securitization route.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [179]

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The asset also remains and the income also has accounted in the...

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [180]

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Amortization basis.

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Unidentified Company Representative, [181]

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Amortization. Everything is normal.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [182]

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It remains in a book only, even post securitization...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [183]

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It has purely become a liquidity support program and not any kind of a profit management program.

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Operator [184]

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The next question is from the line of Mayur Parkeria from Wealth Managers.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [185]

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Sir, actually, I just got confused about that one-time INR 35 crore impact. You said it was (inaudible) tax-related something. And was it in provision? Because earlier, I think the first provision...

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [186]

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[No, no, no. Provision lower.] It is now charged because it was a disputed claim we have negotiated, and we have made a provision as to how much we will have to pay. Therefore, it is charged to P&L.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [187]

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Okay. And it will be part of the tax provisions?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [188]

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No, no, no. It's not income tax, it's an indirect tax. So it's a part of...

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [189]

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Service tax.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [190]

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(foreign language) It is indirect tax provisions which is -- okay. So which is -- which will be in the expenses?

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [191]

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[Correct.]

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [192]

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Otherwise, we will not have sold, no?

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [193]

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Yes, yes. Okay. And secondly, sir, so to just understand it properly, if we look at some of the comments which you are saying, so on one side, we are seeing improvement in preowned share. We are seeing new other loans which you are -- personal kind of loans which is at -- which are at a higher yields while that proportion share may be very less. So that is the second thing. The third is reducing -- reduction in the borrowing cost as it stands now. The fourth is improvement in the securitization percentage which you may look for this year. So will it not mean that the overall NIM should improve much larger, even with no improvement, no growth uptick?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [194]

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Percentage-wise, yes. But under the revenue growth by volume, absolute value of NIM's improvement will not be as high, right?

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [195]

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Right, right, right. But qualitatively, the NIM should see a sustained improvement, right?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [196]

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Which we have seen already, right? Borrowing cost is the largest cost. And if that shows a declining trend, then definitely, we will see improvement in NIMs.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [197]

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Okay. And if the growth plays out, then that will be further cherry on the [cake]?

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [198]

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Depending upon which product brings that growth.

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Operator [199]

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That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.

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Ramesh Iyer, Mahindra & Mahindra Financial Services Limited - Vice-Chairman & MD [200]

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I think from our side, we thank everyone for participating, and [we sure] hope that we have answered everyone's question to their satisfaction.

Thank you.

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Dinesh Prajapati, Mahindra & Mahindra Financial Services Limited - VP of Treasury & Corporate Affairs [201]

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Thank you.

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Operator [202]

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Thank you very much. On behalf of IIFL Securities Limited, that concludes this conference.

Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.