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Edited Transcript of REPCOHOME.NSE earnings conference call or presentation 14-Nov-19 10:00am GMT

Q2 2020 Repco Home Finance Ltd Earnings Call

Dec 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Repco Home Finance Ltd earnings conference call or presentation Thursday, November 14, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* T. Karunakaran

Repco Home Finance Limited - CFO

* Yashpal Gupta

Repco Home Finance Limited - CEO, MD & Executive Director

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Conference Call Participants

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* Aakash Dattani

HDFC Securities Limited, Research Division - Research Analyst

* Abhijit Tibrewal

ICICI Securities Limited, Research Division - Research Analyst

* Ankit Choudhary

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

* Dhaval Gada

DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials

* Hiral Desai

Anived Portfolio Managers Pvt. Ltd - Portfolio Manager

* Nikhil Walecha;Sundaram Asset Management;Analyst

* Ojasvi Khicha

Axis Capital Limited, Research Division - Assistant VP of BFSI

* Piran Engineer

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Rajiv Mehta

Yes Securities (India) Limited, Research Division - Research Analyst

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Presentation

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Operator [1]

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Yes. Hi, everyone. Good afternoon. Firstly, from [B&K] Securities, we would like to thank Repco Home Finance to -- for giving us this opportunity to host the call for second quarter earnings. To introduce the management, we have with us, Mr. Yashpal Gupta, the MD and CEO; Mr. Arun Mishra, the Chief Development Officer; Mr. T. Karunakaran, the Chief Financial Officer; Mrs. Poonam Sen, GM Credit; and Mr. Subramanian Balaganapathy, who is AGM Finance.

So without taking more time, Mr. Gupta, I would like to hand over the call to you for your opening remarks, post which we can take the questions.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [2]

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Okay. Thank you very much. Thank you for all the participants to connect to us for this conference call. As you know, this was another quarter of calibrated work for us, where we deliberately chased difficult-to-acquire salaried customers. The loans in the salaried segment saw a smart 75% recreation jump to INR 407 crores, whereas the non-salaried segment decreased within the quarter.

I would hasten to add that we are not moving away from our expertise. We'll continue to do nonsalaried customers also, but because of the market situations, where GDP growth is lower and the economy -- the income levels of non-salaried customers are under spread, we are deliberately moving to salaried customers.

The opportunity environment, as you know, continues to be challenging for us in the Q2, both in terms of demand and also in terms of the data wins at companies and on the banks. The combination of above-mentioned factors resulted in our G&P and EBITDA remaining same. But at the same time, the profit has increased substantially. We registered about 11% growth in the loan book as this result pressured some degrowth a loan [take over] with a comeback. In fact, during the quarter, the repayment rate that is the prepayment plus normal payment, was, again, higher at 19%. That was a challenge for us, but we maintained good pricing on the asset side. The average yield on home loan was 10.7% in Q2 as against 10.6% in Q1. On the LAP loan, it was 13% in Q2 as against 13.3%.

So weighted average yield, it improved by 11.2% to 11.3%, marginal improvement, but it improved somewhat.

During the quarter, we -- our under spread of 3.1% and margin of 3.4 -- 4.3%. Now, owing to pricing discipline and resilient operating performance and tax credit back because in June of this quarter, government [helped us] achieve the tax rate, our PATA fell by 51% year-on-year. It resulted in an ROE of 3.5% for the quarter 2 and ROE of 26.1% for the quarter 2.

Of course, these are one-time benefit, but we expect that, in future also, our ROA and ROE will be significantly higher than what they were earlier. Now, cost-to-income ratio, we are maintained at around 19.1%. That is what we promised that we will try to keep it below 20%, which we have done.

There is some reclassification of expenses also because of Ind AS that the [reminder] that with income rental, they are interest over own [provisionals] or lease, which is going to take to (inaudible) provide depreciation. That's why you would have noticed that depreciation costs have gone up, which is actually rental, but it has gone up. And it has added adverse impact on our P&L to the extent of worth INR 1 crore. But of course, later on, it will sort out itself, when the depreciation will be lower. But if it was not the case, our profit would have been higher by even INR 1 crore more.

The exposure to self-invest segment, or what we call it non-salaried segment, that remained highly at 53.4%. We -- which we have reduced, but still meets higher than our target of 50%. And this salaried customer of 46.6%, we want it to be around 50%, as I told you.

The LAP book remained almost flat with marginal improvement of -- to 18.5%. Our capital ratio adequacy ratio is quite comfortable at 25.1%. And the entire capital adequacy ratio is because of tier 1, and within the tier 1 also, common equity.

It is -- we don't have any additional tier 1 bonds or tier 2 bonds. Everything is common equity.

We have network of 148 branches and 27 satellite centers. In addition, we have created, as we know in the Q4 of last year, 2 asset recovery branches, 1 in Chinnai, 1 in Adyar, that are dealing exclusive with NPA.

Our employee strength is about 951. The liquidity, that is very important thing I wanted to share with you, that we have made a significant improvement in liquidity position. In fact, if you see as on 30th September, our own balance sheet liquidity, that is cash and cash equivalents, was more than INR 500 crores. Yes, I am telling more than INR 500 crores, which is almost 5% of our book site. Plus, during the quarter, we got ventures of more than INR 3,000 crores from various banks. They are some of the biggest banks in the country. We got ventures of INR 3,000 crores at a competitive rate when all the NBFAs or HFCs are facing liquidity problem. And out of that, INR 2,800 crores is undrawn as of 30th September. So we count on the liquidity, INR 500 crores, on balance sheet and INR 2,800 crores off balance sheet.

Thus, the cost of funds has gone down slightly to 8.6%. If you see in the Q4 of last year, it was 8.8%. Now we are at 8.6%, which has affected or rather reduced our cost of [funds] by about 15 to 20 bps in last 6 months we are seeing, plus with liquidity, and now, as I have shared earlier, we have linked our lending rate to a variable rate called MLR, which is the function of cost of funds, that's why we are able to maintain robust spread and NIM.

Now, turning file. Just highlight some of the key figures of half year ended 30th September before we open to the questions. The total income for the half year was INR 664 crores, which was up by 14% from the last year. The NIA was INR 251 crores, which has the increase of only 4.5% as we check a margin of 4.4%, slightly lower than the past because to -- in order to reduce the customers [who leave] or totally retain the customers, in some case, we have to reduce the rate of interest. The profit and protect as we compare half year it grew to 28% to INR 163 crores. The loan book, as I've already said, has nearly touched INR 11,500 crores. It is INR 11,496 crores at 11% growth year-on-year.

The GNPA touched 4.2%, which are almost flat. But as I've told many times, and again, will answer in the question, that our NPAs have a different pattern, that they -- even after they become NPA they continue to pay. It is not that we have to do not bring anything, and we are to view large amounts. It is not like that. That is why we are very different. The EPS revision was 1.4% as of September, 2019. If we see, it was 0.7% in September, 2018. And ROA and ROE for the half year was 2.9% and totaled at 6%. It is still very decent, though it was largely because of the tax reduction, but we hope that it will continue in the future also.

Now with this, I'd like to take your views, except for the last question that the guidance, because of the [unrecognizable] market, we -- still problems on the demand side. We are not revising our growth projection, which we have done earlier. That during the year, we expect it to yield anything between 12% to 15%.

Now we can take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Ankit Chehra (sic) [Choudhary] from B&K Securities.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [2]

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So sir, my question was, this quarter, we have witnessed the degrowth in almost all the geographies that we have like -- but some of the [beepers] are indicating the issues in states of like Karnataka and AP have started to tapering down. How is it panning out for us? And how -- what growth you foresee in next couple of quarters in our State?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [3]

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One is that your statement is not factually correct. Because when you look at book size, even on quarter-on-quarter, while we have grown only by 5% but this is not a degrowth.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [4]

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No. Degrowth. No slow down. I meant to say slow down. Sorry, my...

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [5]

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Yes. So we are a little reduced, you are right. But as I told you that our target is -- because there are seasonal patterns, there are seasonal issues like in Tamil Nadu, for example, there are certain months where people don't buy properties. So year-on-year, we expect growth to be 12% to 15%, and we are confident when doing it. We have already achieved -- if we compare September '18 to September '19, 11% book growth is there.

Of course, you can always say that is lower, we could have been higher. But as I told you, if you see the entire industry, the growth is lower. The banks are growing basically by acquiring the assets on the NBFAs and HFCs by offering lower rate of interest. If you look at overall housing demand, the growth has been muted. So there are factors, which are beyond our control. And still, there is demand, but then we are to compromise on quality. So we are giving quality over quantity. But we are sure even in this environment, 12% to 15% should be achieved.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [6]

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And sir, on the [recent main] strategy, are you losing out to the public interest? Are you losing out to smaller HFCs like (inaudible)?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [7]

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No, now, the competition from merger interests have reduced a lot, especially after the problems faced by some of the largest HFCs and also the liquidity issues faced by smaller HFCs. There are small cases, yes. But major competition, today, for us, in terms of takeover, is strongly banks.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [8]

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Okay. And in terms of (inaudible), generally we see a bump up in 1Q and then in 2Q, generally, there are recoveries, then that quality does get better in Q2. That is in this quarter, we have not increased the NPA, but it has remained flat in a way, what do you feel on that? Do you see challenges in recoveries? And how do you feel that quality panning out also in the next couple of quarters?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [9]

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Yes. Okay. So on the NPA, I maintain the same thing which I said earlier, that our NPAs are retail customers. They continue to pay. Only things are, because the NPA is a depreciation of 91 days. So sometimes they pay 2, 3 installments at a time, then they don't pay for 2, 3 months together. So to the point, [PSNA] come out of our NPA. That is how we fluctuate. And if you ask about -- when you look at NPA figure as an analyst, obviously, you are looking at figures which are below 90 days. So now, whether it will come or not in December, which I've said last time that we are targeting about 3% by March, so that is why we are maintaining the same figure that we should achieve 3% by March, but this figure will fluctuate because these are very small customers. Sometimes they have problems like, this time in quarter 2, they were -- apart from GDP issues, as you know, the -- for non-salaried segment there was cash issue. Then they were in issues, there were drought like situations in Tamil Nadu, then it followed with a sort of cyclone. So all these things affect. So it is very difficult to see. But we are hopeful that by March, we should achieve below 3%.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [10]

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Okay. And sir, one last question. Our profitability has been good this quarter because of the tax benefit that we had. Despite that, sir, why we dropped our PCR by 300 points. You mentioned it was like worth 30 points, and we have dropped it down to 28. Why such a huge downfall in PCR?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [11]

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See, one is that, if you understand Ind As, PCR is not summarize under Ind AS at all. Okay? It is not -- you should note down for NBFA from 1st April, 2018. We are [related] to Ind AS. In Ind AS, there is no terminal equal to PCR. In Ind AS, we have probability of default and a large given default. And we are, as I shared you earlier, we appointed Ian Riley as our adviser. Their [majority] model and whatever provisions come on that basis we calculate. In fact, the actual provision I expected at the issue are much lower. But in addition to that, we have identified some accounts where we feel there is a risk there of recoveries being delayed. So we have made 100% provision. Those are key specific provisions on that regard. And we had a huge argument with the auditors on that, that how can you make like this? How can you go discretionary, if you are to follow the model? So it is not that we have reduced the PCR. It is just that from -- I told you that NPAs, our NPAs keep on fluctuating. Some NPAs go out, some come in. So maybe those who have gone out had a more sort of probability of default or higher risk or default a lower risk loss given -- higher loss given default because of lower LTV -- sorry, I mean higher LTV. The new loans which have been agreed to NPLs are such where, because we have been defaulting only for 4 months, so probability of default is lower. And the loss given default is lower because the security, well, is higher. So ultimately these are output of the model. It's not any longer about substandard, doubtful 1, doubtful 2 and argument.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [12]

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Understand, sir. And so you said, the actual or given default...

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [13]

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No, I think request to others. To give time to others also.

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Operator [14]

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Our next question is from the line of Aakash Dattani from HDFC Securities.

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [15]

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My first question was, with respect to a comment that you made earlier that you are seeing a lot of aggression from banks, and that is leading to higher prepayments and balance transfers. Would you be able to specify possibly by naming them, which banks you're seeing this coming from?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [16]

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No, no, that will not happen. Maybe we'll cover those in the end, but that will not be proper.

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [17]

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Okay. But are these PSUs or private banks or...?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [18]

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Both, both.

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [19]

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Both. Okay.

And -- okay. And so my next question is on your gross stage 2 assets. Would you be able to quantify them? And also state how they have moved over year-on-year and quarter-on-quarter, please?

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T. Karunakaran, Repco Home Finance Limited - CFO [20]

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Yes, Aakash. We give these details every year. So if you look at our balance -- annual report, you will find the details.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [21]

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Because the hedge part -- our details, guidelines, we are supposed to publish it in our annual report every time after annual reports are...

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [22]

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I understand that, sir, but I just thought if I could get the numbers for the quarter?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [23]

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Yes. Of course, I know that you want that. But we don't disclose that as per policy.

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [24]

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Okay, okay, that's fair. And, sir, just a little bit on the growth in -- outside Tamil Nadu. If I look at a few other States, while the loan book is a lot smaller, let's say, Gujarat, for example. So growth has sort of slowed down a little there, if I look at quarter-on-quarter. So how would you suggest I interpret this?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [25]

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Yes. We see growth have slowed down, you are right. And that is -- I mean how do you end up with this is very difficult to say, but yes, the factors that are there is that the demand side there has been a procurement results also. Those have been affectively lower and because our base is lower. So it is pending the impact on the demand side. And hopefully, in the remaining Q3, Q4, we'll look at -- we are already looking at what are the areas and how we can push up the demand in those areas? And how we can achieve the higher growth? But in the overall, if you see, it has been 11% year-on-year. Quarter-on-quarter, it is 5%.

But we have confirmed our achieving 13% to 15%. As we have identified pocket. We can grow faster because one thing you have to understand is that our base is lower in this State. So even INR 20 crore loan will give you good growth. So it is not difficult to gauge.

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [26]

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Correct. Yes. So exactly why I was a little confused, but, okay, that kind of answers my question, sir.

And my last question is on -- so just to improve my understanding of the ECL model that you all follow, so sir, while you said that a lot of assets [50] sometime slip into Stage 3 are actually paying [them really] to get upgraded. But if I look at your quarterly ECL provision, sir, these seem to move in line with the movement in your Stage 3 assets. So eventually, if they are going to -- if these assets are going to get upgraded, would not your model factor that? And could we -- why would -- the provision is very so -- so much quarter-on-quarter?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [27]

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See, one is that ECL model is a static model. It's not a dynamic model. It does not factor in the upgradation part. When actual upgradation happens, some Stage 1 to 2 or 2 to 1 or 3 to 2 or 2 to 3, that time, which we'll take into account. What we do with that, because we also are aware, let me tell you actual data that as for the ECL model (inaudible) model, our cushion is about INR 80 crores, INR 90 crores higher. It would have been INR 80 crores, INR 90 crores lower, okay? But we say that probably we may not -- that will not be enough cushion. We need to have enough cushion so that INR 90 crores additional, we have actually selected cases where we've made -- where we'll create -- recovery could be -- which is subject to assessment. That is not the model assessment. Model assessment is lower by INR 90 crores. Then we have gone and taken review that this is probably our NPA for Stage 3 for longer time, and there maybe recovery may be time consuming. So let us make 100% provision. That is the discretion which we have used. So that is not part of the model. So maybe those figures, when they fluctuate, it is because of that discretionary figure. It is not the model figure.

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Operator [28]

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(Operator Instructions) The next question is from the line of Abhijit Tibrewal from ICICI Securities.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [29]

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Just had 2 questions. First thing is, I mean, on the taxation with -- if I see for H1, your tax rate is broadly around 17%, 18%. And you have typically been a full tax rate paying company until now. So what is the benefit that you got that from 25%, it's down to about 17%, 18%?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [30]

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Okay. So one is that, basically, the tax rate is 25% only, but we had it on -- in the past because of the provision of deferred tax liabilities which was created over a period of time in the past. So we only calculated as per new tax formula. We found that those deferred tax liabilities are no longer required. Now we have 2 options, either to add [earlier home loan] either to a portion of the deferred tax liability over 3 quarters or do it in the -- this quarter itself, the -- or this, as I said, that is due in this quarter itself. So it's a one-off entry. That is why, obviously, in the tax fluctuation in the P&L, that comes as an entry only. That is why it is reduced to 17%. But that is a one-off entry.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [31]

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Okay. And sir, did the auditors tell you what was the benefit from this adjustment that you got from the DTL adjustment?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [32]

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No, there is no benefit. It says P&L -- it's only adjusting P&L balance sheet. It's like that. This benefit is about INR 13 crores. We could have shown INR 4 crores benefit every 3 quarters, per quarter INR 4 point some crores, or I can quote in 1 quarter. It would not impact our tax outgo as such.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [33]

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I got it. I got it. So INR 13 crores is what you suggested.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [34]

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[INR 13.90 crores]?

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Unidentified Company Representative, [35]

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Yes.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [36]

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[INR 13.1 crores].

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Unidentified Company Representative, [37]

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[Close to it. INR 14.21].

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [38]

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[INR 13.21 crores] -- sorry, it is INR 15.21 crores.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [39]

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INR 15.21 crores. All right. And sir, the second question was around AUM growth. While you are guiding for around 12% to 15%, sir, I mean on what basis are we guiding that? Because even if I look at our disbursements, which were about, what, 1-3-7-0, INR 1,370 crores in the first half, how much disbursements can we really do in the second half? Sir, broadly, there are 2 -- just 2 moving variables there, right? One is the disbursement that you can do, and the other is at what rate can your loan book run off. So I mean what...

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [40]

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There is third variable also, which is the critical. That is -- rather third and fourth variable also. Third is that what will be a prepayment, and fourth will be what type of quality we want, okay, and at what rate. There are many variables, and that is why what we do is that, in these 2 quarters, because market was docile and there were many issues, we didn't want to -- we could have easily, let me tell you, grown our book by another INR 500 crores if we wanted. But that would have meant probably creating potential and therefore, future. So there are a lot of proposals who are coming to us, but we are saying no, we'll not do this because they are risky and all that.

So maybe we can -- I would say, last 2 quarter of this first financial year, half year, we were extremely cautious about credit quality and about the parameter setting. Where, in Q3, Q4, one is that hopefully government is taking so many steps. Hopefully, it will improve. And second, we can always realize or not somewhat. Not it may -- We may not go from, say, A toward BBB. We can always start -- I mean A to B. We can always go from A to BBB, isn't it? And then prepayment is there happening. We are trying to give them [top-up] loans. So it's a combination of factors. So having achieved 11%, I don't think 12% to 15% will be difficult. I mean, unless, of course, like GDP rate comes down to only 3%, that is something which is beyond our control.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [41]

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Right, right. And sir, what is your assumption on the loan book running off? And I say runoff, I am including what the normal repayments as well as the prepayments, which was 19% in the quarter. What is your assumption (inaudible)...

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [42]

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What we're expecting -- yes, correct. The last 2, 3 of last year, which was the worst period for us in terms of takeovers, the maximum got to about 22%. So our assumption was it was at least about 20% for the next 6 months.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [43]

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Okay. Great, sir. Just one last thing if I could just squeeze in. So you guided that you are planning to reach or you want to reach around 3% GNPA by the end of the year. Would that suggest that you're planning to, say, take some bigger write-offs in the second half?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [44]

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No, not at all. We don't do big write-offs.

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Operator [45]

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Our next question is from the line of Hiral Desai from Anived Portfolio Management.

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Hiral Desai, Anived Portfolio Managers Pvt. Ltd - Portfolio Manager [46]

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Gupta ji, a couple of quick questions. One was on the excess liquidity that you have on the balance sheet, which is at almost 5% right now. Will this be a continuing phenomena as we go along?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [47]

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It may -- will be a continuing phenomenon, may not be 500 always but because, as you know, RBI, we shouldn't have grown the liquidity framework for the NPA space, we do not go write down whether we are covering that or not and then second, especially rating agencies and the banks, they always are concerned. [They fluctuate] in between. 500 is the September end figure. It is not 500 as of to date. And in June, it was 200 but it will remain somewhere, sometimes 500, sometimes 200. So we'll keep some liquidity always in this bank book, yes.

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Hiral Desai, Anived Portfolio Managers Pvt. Ltd - Portfolio Manager [48]

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Yes, there is the growth that you're seeing in the salaried segment. Can you give us a flavor of what is the kind of customer profile that you are getting right now?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [49]

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So they are basically salaried or working, various companies of course and our government organization. We are not getting of course the white collar, very high-paid customer. But people who are drawing salaries generally in the range of INR 50,000 to INR 70,000 on an average. Some are higher. Some are lower. So generally, medium segment, internal designation or internal category, and the organizations are good because when the organization is not good, we don't classify as salaried.

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Hiral Desai, Anived Portfolio Managers Pvt. Ltd - Portfolio Manager [50]

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And lastly, in terms of the competition that you spoke about from some of the large banks, now from what we understand going by your past history, generally, the banks do not compete at this lower ticket size. So could you be a bit more specific on which banks are really competing in your key geographies?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [51]

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No, I'll not name them as I told you. But see when you say -- you were right that they don't compete on lower ticket size. But our book is always a mix of lower, middle and higher ticket size. Well, average is INR 14 lakhs, but the lower can be INR 8 lakhs to INR 10 lakhs. And most of the time, say, INR 20 lakhs but some tickets -- some loans are INR 25 lakhs, INR 50 lakhs, INR 1 crore, INR 2 crores, INR 3 crores. It is retail segment and even though they are -- see when if we do INR 25 lakhs, not INR 2 crores, it becomes vertical for us even though the size is very large, correct? So it is the competition that is coming in INR 30 lakhs [third] bracket, but because of that, we are not able to do much of higher ticket loans. So you are right. They are not competing in lower ticket size. But lower ticket size does not give us growth.

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Hiral Desai, Anived Portfolio Managers Pvt. Ltd - Portfolio Manager [52]

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And lastly, on the corporate tax cut that we've recently had, any thoughts on sort of relooking at the spread and the NIM targets?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [53]

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No. (inaudible)

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Hiral Desai, Anived Portfolio Managers Pvt. Ltd - Portfolio Manager [54]

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Would you like -- would you want to pass it on to the customers? What is the thought on that?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [55]

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See, well, as of now, we have not thought of anything on that because we have so many operational activities and all that. And even for amount, it is -- while percentage wise it is higher, through the model, it is very lower. For us, if you look at our PBT per quarter, like this quarter is about INR 100 crores. Even if we take benefit away, it is INR 8 crores. Now INR 8 crores, how do you pass on? By point 2 -- or 2 bps, 3 bps. So I mean, right now, we are not linking with that because it is not a significant amount for us. (inaudible) company, maybe you can reduce by -- price by 2%, 3%.

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Hiral Desai, Anived Portfolio Managers Pvt. Ltd - Portfolio Manager [56]

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Right. Makes sense.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [57]

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Indirectly, -- sorry, indirectly, let me tell you. It does have the impact because the MLR, as we calculate, takes into account the ROE. And we target about 15% ROE. So obviously, with reduction in tax rate, the pretax ROI will also come down -- ROE, I mean.

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Hiral Desai, Anived Portfolio Managers Pvt. Ltd - Portfolio Manager [58]

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No, no, sir, my question was actually linked to that. So despite the growth being slow for last couple of years, we are still at almost like a 20% ROE, which is why I was just wondering if you would want to be slightly more aggressive on the growth front?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [59]

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That is where I told you the important part is, that the -- our NPA, basically, they also give us recovery in that (inaudible) direct income. So if you reduce that figure, as you also know, in market, while it is easier to decrease but difficult to increase the ROI. And so decrease and then increase, that's the real problem. You cannot fluctuate based on ROE as a key and then say ROE is now 12%, so increase the rates. Now ROE is 20%, decrease the rate. We will take a long-term stable view.

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Hiral Desai, Anived Portfolio Managers Pvt. Ltd - Portfolio Manager [60]

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Makes sense. Makes sense. And sir, lastly on the issues that we've had in Tamil Nadu with respect to registrations and availability, all those factors are now completely behind us?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [61]

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I do not know whether completely, but they're largely behind us, yes.

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Operator [62]

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Our next question is from the line of Dhaval Gada from DSP Mutual Fund.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [63]

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Sir, 2 questions. One is, could you share the rejection ratio that we had for the quarter. And the second is, could you quantify the past due customers, so SMA-0 right now as of September end. Yes.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [64]

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As I told you -- told to another previous question, that, that information, we don't share; the second part that is, that, of course, once in a year, it is on the annual report.

Now as far as the rejection ratio is concerned, there are 2 stages. One is the lead generation that we will [evaluate the branches]; and secondly, proposal financial and direction of the [financial stage]. So there, rejection is about 10% as well [13%]. Right now, we don't have any robot beta system to check how many leads are generated and are converting into proposal. So that is why I cannot tell. But based on what informal information that we get from branches and the other officers at different levels, I would say it is about 35% to 40%, I think, lead stage to conversion stage.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [65]

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And normally, this is the range? Or this is higher, -- 35%, 40% is higher, lower, if you could just qualify?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [66]

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I would say it is almost in line with the industry average.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [67]

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Sorry, what, sir? I missed the comment.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [68]

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I say it is in line with the industry average for the HFC.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [69]

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No, no, I'm saying for Repco, this number is broadly in the same vicinity, like the same 30%, 35% or 40%?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [70]

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Yes, yes, correct.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [71]

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Or this was higher this quarter?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [72]

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No, no, for this, almost this range.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [73]

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So sir, then how should one think of your earlier comment that you made that you have been conservative and other comments that you made, and that's the reason you've grown less. Given that your rejection ratio seems -- doesn't seem to suggest that, so I mean what you -- what sort of data that one should look for to say that if you have been more conservative this time around and then you've not grown? So that is the question that I had, yes.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [74]

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Yes, understood. But then it has to be seen this way. See, you are taking the branch. Your target is to do more business. Now it is the management decision here to go slower, not encourage those businesses. So you, as a branch manager, may see this customer [do well business], but somewhere, [similarly,] you tell don't do, or you'll understand and not do. So when we say that the actual rejection ratio is 10% after proposal is finalized, what we mean to say probably is not finalized because they know this will not be accepted in the bank, in the head office. So when we talk of quality, quality is about final proposal.

Basically, I'll tell you what I mean by quality. Basically, the one important issue, as I highlight, the main thing is that for the people who are financing [all actives] as well giving loan to nonsalaried customer, is it actual income that is taken for assessment vis-a-vis the documented income. That is that somebody has a document of only, say, INR 50,000 income. Should we consider income -- but his actual income is higher. Now should we consider it as INR 75,000? Should we consider it as INR 1 lakh or only INR 50,000? That is where the difference comes. Now that ratio, I cannot share of course. However, that is our USP. But that ratio has shrunk in the last 6 months. The actual income taken for assessment, divided by documented income, for which proof is available with the customer, that has shrunk. That has come down.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [75]

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Okay. Okay. And sir, the other question that I had was on, if you look at last 3 years, the company has significantly sort of increased the share of salaried customers compared to nonsalaried customer. However, despite that spreads, if I look at 3 years back and today, broadly, you've maintained the spreads. Now what should one attribute this to? I mean if you were to sort of analyze it and sort of understand, I mean is it better pricing that you're getting in the segment in? Or I mean how should one think of this shift that has happened and this -- still the spreads have not come down?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [76]

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Yes. See, it is basically -- one is the ratio because the spread is not a function of the salaried and nonsalaried loan. It is also a function of the amount of [fund]. It is also a function of type of product like -- for some product like plot purchase, we charge a higher rate of interest. It is -- on LAP loan, we'll charge a higher rate of interest. There's no one charge, so many things and plus the -- when you talk about spread, our business is a margin-only cost of fund. So while we targeted that, between salaries also sometimes, like in small -- in the previous question I answered that banks are reluctant to fund lower ticket size loans at INR 10 lakh, INR 12 lakh.

Now you're maybe salaried customer, but INR 10 lakh, INR 12 lakh, if you go, many banks will not entertain. And there, will charge higher rate of interest. Don't mind. So it's a sort of mix of various parameters. It is very difficult to pinpoint a single reason for this.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [77]

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Understood. And just last question from my side is on the originations. I mean -- and I'm sorry if you've answered this earlier. But what's the percentage of originations during the quarter that came from DSAs or our sort of agents to whom we incentivize?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [78]

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It was 18% of the disbursement.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [79]

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And the same percentage last -- same period last year was how much in 2Q 2019?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [80]

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It was 14%, so it has increased slightly. It was 14%, 14% to 18% (inaudible).

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [81]

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14% in 2Q '19 is now 18%.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [82]

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Yes, correct.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [83]

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Okay. And sir, this SMA-0, I mean I know you said you'll disclose it in the annual, but just indicatively, it normally used to hover around 13% to 15%, the people who have defaulted. Is it around the same level, that range? Or has it gone up or come down? Some color there would be helpful.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [84]

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Yes. I told you we cannot share that, so I do not like to comment on that.

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Operator [85]

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Our 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 [86]

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Congrats on the quarter. I just have a couple of questions. Most of my questions have been answered. So firstly, did we take a write-off in the quarter? And if so, what was the amount?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [87]

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INR 9.32 crores.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [88]

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Okay. And this was majorly in LAP or in home loan?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [89]

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It was mix. INR 9.3 crores is small amount. So it was only -- which is basically the 100% provision cases, which we're lending on from some 2, 3 years. We thought that it will do write-off.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [90]

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Okay. And my next question is actually, as I said, what percentage of our NPLs would have a vintage of more than 2 years because I remember, around 2 years back, we had these large ticket LAP loans that had slipped into NPL. And I just want to know, finally, have we recovered those because our NPL number doesn't seem to be going down ever.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [91]

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Bala ji will pull that figure, the -- separately offline. About more than 2 years, right now I don't have that data.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [92]

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Okay. Okay. And do we still give INR 1 crore plus ticket loans? Because in your comments -- your -- the answers to one of the questions, you mentioned that you go up to INR 2 crores to INR 3 crores, so I was under...

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [93]

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No, it's only -- it's not that we don't give. Only thing is that we have reduced our reliance on that. But if there's a good customer with good either income or property income and property and maybe many of our existing customers, we do give. But yes, that number has reduced, but it is not stopped.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [94]

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Okay. Okay. And just lastly, what is our -- what tax rate should we model going forward for, say, FY '20 and FY '21? Are we going to take the Section 36(1)(viii) benefit or not?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [95]

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No, no, no, 25%, 25.1% is what you can model in. But yes, of course, it is subject to government. They are not similar with tax rule. So about 25.1%, you can model in, yes.

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Operator [96]

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(Operator Instructions) The next question is from Ojasvi Khicha from Axis Capital.

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Ojasvi Khicha, Axis Capital Limited, Research Division - Assistant VP of BFSI [97]

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The first one...

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Operator [98]

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Sir, could you speak a bit louder? Sir, your voice seems to be very low.

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Ojasvi Khicha, Axis Capital Limited, Research Division - Assistant VP of BFSI [99]

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Sure. Am I audible now?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [100]

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Yes. Please, go ahead.

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Ojasvi Khicha, Axis Capital Limited, Research Division - Assistant VP of BFSI [101]

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Okay. So my question is on liquidity. Since we have increased the, I mean, cash and cash equivalent as a percentage of balance sheet size, if you could help us understand how much of negative carry it would have and the resultant impact on margin if any.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [102]

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See, the -- as far as negative credit is concerned, it depends on about how long do we take because we -- generally, as I told you, it keeps on changing from sometimes 100, sometimes 75, so impact is very small. It is negligible on this margin. If you look at -- it will be maximum 2, 3 bps.

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Ojasvi Khicha, Axis Capital Limited, Research Division - Assistant VP of BFSI [103]

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Understood. Secondly, in your comments earlier, I believe you mentioned segment-wise yields. If you could just give those numbers, I missed it.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [104]

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Yes, correct. So the (inaudible) for the home loan, it is 10.7%, which was 10.6% in Q1. On LAP, it is 13.7%, which was 13.3% in Q1. Overall is 11.3%, which was 11.2% in the Q1.

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Operator [105]

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(Operator Instructions) As there are no further questions from the participants, I would now like to hand the floor back to Mr. Rajiv Mehta. Over to you, sir.

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Rajiv Mehta, Yes Securities (India) Limited, Research Division - Research Analyst [106]

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Thank you so much. But I think, I guess, we have got a few questions again, so if you want to take a couple of questions more.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [107]

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Okay, yes.

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Operator [108]

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Sure, sir. We have a question from the line of Nikhil Walecha from Sundaram Asset Management.

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Nikhil Walecha;Sundaram Asset Management;Analyst, [109]

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Sir, I understand that, currently, growth has slowed down in the entire industry, but I think there are some companies which are still adding a lot of branches to arrest that growth. So what is our plan to add further branches like both in Tamil Nadu and outside Tamil Nadu?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [110]

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See, we generally do about 10 to 15 branches per year. We have already added about 5 branches in the first half, and then 4 branches, we are going to add maybe in the next couple of months. Some are in Tamil Nadu. Some are in other parts. So we don't believe in adding too many branches together, so probably 10, 15 per year will continue.

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Nikhil Walecha;Sundaram Asset Management;Analyst, [111]

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Okay. And sir, you have said that, I think, that DSA proportion has increased to 28% right now.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [112]

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No, no, 18%, 18%, 18% not 20%, 18%. Yes.

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Nikhil Walecha;Sundaram Asset Management;Analyst, [113]

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Okay. And is it mainly Tamil Nadu or outside Tamil Nadu that we are using DSA?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [114]

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It's mostly outside Tamil Nadu, mostly outside Tamil Nadu, particularly in Gujarat and Maharashtra, but some are in Karnataka as well Andhra Pradesh also. And some are in Tamil Nadu also, but most of it is in Western India. That is Gujarat and Maharashtra, and to some extent, we opened some branches in Rajasthan also.

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Nikhil Walecha;Sundaram Asset Management;Analyst, [115]

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Sir, is it possible to give the disbursement and the repayment rate for Tamil Nadu and non-Tamil Nadu?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [116]

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Bala will give it away. (inaudible). Just 1 minute only. Otherwise, Bala will share it with you separately, yes.

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Nikhil Walecha;Sundaram Asset Management;Analyst, [117]

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Okay. And have you seen any write-back in this quarter?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [118]

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See, that is why I told you that many NPAs gets resolved. But the accounting that we follow is not like your bank that we have a separate NPA and that write-back happens because, ultimately, we'll go for net additions provisions. So obviously, when we say that net addition is small, obviously, it means that a lot of write-backs happened (inaudible). Also, I mean we can calculate that, but generally, we don't do as for that because of following ECL model. We want to find out account-wise -- we don't make account-wise provision. It is a bucket-wise provision. Are you getting me?

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Nikhil Walecha;Sundaram Asset Management;Analyst, [119]

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Yes, sir. And I think, sir, you also said that we -- our GNPA will reduce to 3% by the margin.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [120]

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Yes.

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Nikhil Walecha;Sundaram Asset Management;Analyst, [121]

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So in which category do we expect the large part of the collections happening? Either -- is it in salaried home loans, self-employed home loan or LAP? Which would see the...

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [122]

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That's -- it is very small anyway, so obviously, we expect nonsalaried and some are the LAP. But yes, we are going for all categories. So -- and as I told you that our analysis shows that they are not very -- not willing to pay. It is just like we have to do more follow-up. So it will be across the categories, but yes, obviously, because the higher NPAs are in LAP category and nonsalaried, so obviously most of the recoveries we expect from that.

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Operator [123]

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Our next question is from the line of Aakash Dattani from HDFC Securities.

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Aakash Dattani, HDFC Securities Limited, Research Division - Research Analyst [124]

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Thanks for taking my questions once again. I just have one question. So you mentioned that a significant proportion of your customers that are past 90 days, you are still seeing their loans. So would you be able to quantify what percentage of your GNPAs or GST, your gross Stage 3 conflicts are these accounts?

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [125]

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More than 50%.

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Operator [126]

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Ladies and gentlemen, that was the last question. I now hand the floor back to Mr. Rajiv Mehta. Over to you, sir.

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Rajiv Mehta, Yes Securities (India) Limited, Research Division - Research Analyst [127]

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Yes, yes. Thank you all for joining on this call. Thank you to the management, once again, for giving us this opportunity. Have a nice evening, everyone. Thank you.

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Yashpal Gupta, Repco Home Finance Limited - CEO, MD & Executive Director [128]

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Thank you.