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Edited Transcript of SHRIRAMCIT.NSE earnings conference call or presentation 26-Oct-19 5:30am GMT

Q2 2020 Shriram City Union Finance Ltd Earnings Call

Nov 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Shriram City Union Finance Ltd earnings conference call or presentation Saturday, October 26, 2019 at 5:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jai Singh Ponde

Shriram City Union Finance Limited - VP of IR

* Ramasubramanian Chandrasekar

Shriram City Union Finance Limited - CFO

* Yalamati Srinivasa Chakravarti

Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director

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Conference Call Participants

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* Abhijit Tibrewal

ICICI Securities Limited, Research Division - Research Analyst

* Anil Tulsiram;ContrarianValue Edge;Analyst

* Govindaraj Prabhu;ICRA;Senior Analyst

* Jignesh Shial

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

* Karthik Chellappa

Buena Vista Fund Management, LLC - Investment Analyst

* Nischint Chawathe

Kotak Securities (Institutional Equities) - Senior Analyst

* Prakhar Agarwal

Edelweiss Securities Ltd., Research Division - Research Analyst

* Saikiran Pulavarthi

Haitong International Research Limited - Research Analyst

* Nischint Chawathe

Kotak Securities (Institutional Equities) - Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day and welcome to the Shriram City Union Finance Limited Q2 FY '20 Earnings Conference Call hosted by Kotak Securities Limited. (Operator Instructions) I would now like to hand the conference over to Mr. Nischint Chawathe from Kotak Securities. Thank you, and over to you, sir.

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

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Hello, everyone. Welcome to 2Q FY '20 Earnings Conference Call of Shriram City Union Finance. To discuss the financial performance of SCUF and to address your queries, we have with us today, Mr. Y. S. Chakravarti, Managing Director and CEO; Mr. R. Chandrasekar, Executive Director and CFO; and Mr. Jai Singh Ponde, Vice President, Investor Relations. I would now like to hand over the call to Mr. Chakravarti for his opening comments.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [3]

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Hi, friends. This is Chakravarti here. Good morning, and very happy Diwali to all of you, and I welcome you all to this earning call of Shriram City for the second quarter and half year ended 30th September 2019.

First, a synopsis of our performance for the full year. I don't have to tell you, but it has undoubtedly been one of the tougher quarter for us, and particularly with demand-side issues in -- on the 2-wheeler side and overall scenario of tighter and more expensive liquidity. And combine this, we have been -- we are actually -- were a little cautious in our lending as well as to be -- as we knew that October Diwali season, we need to have enough liquidity to meet the demand in -- expected demand in the 2-wheeler disbursement side. Consequently, our disbursements are down by about 17% in the quarter and also because we maintain a shorter tenor loan book. The runoffs, while are in line with earlier quarters, resulted in a marginal drop in the AUM sequentially, while being flat on the -- flat year-on-year. However, I'm glad to note that our efforts at improving our asset quality continues to be successful with our Stage 3 assets having decline from 8.83% in the last quarter to 8.69% in the current one, while we have maintained our PCR.

Our OpEx also has come down by 5.5% this quarter, and cost-to-income continues to be in control. We have also taken advantage of the lower corporate tax rate, and our net profit is higher by 12% for the quarter and by 15% for the half year. As always, our strength continues to be in funding the small businesses and accordingly, the SME book is about 59%. Having said that, my -- our observations about our target market in the recent month is that see, on the SME side, there is a -- the demand continues to be there, particularly in the INR 10 lakh to INR 15 lakh loan segment, there is -- demand is there. Demand continues to be robust there. But -- however, we have actually due to -- owing to the little tightness in the liquidity market, we have moderated our disbursement in that segment. Two-wheeler, September, was not a very -- I mean the quarter was not a very good quarter for 2-wheeler, both for the manufacturers and for the financiers.

We have actually -- growth over the last quarter was also very moderated. It's a very moderate growth, if you look at the numbers. September -- I mean, the month of October was positive and we hope to end our Q3 with sort of actually a positive growth here. We are expecting the -- as I said, the inquiries have picked up and, of course, the deliveries have picked up, which is a good Dhanteras -- Dhanteras was good, so we are anticipating -- next 2 days, we are anticipating to deliver another 25,000 to 30,000 vehicles.

So going forward, we will have to see how the -- particularly the November, December month pans out because of model change, and of course, the coming BS-VI norms.

On the liquidity front, we are seeing banks being more receptive and also proactive in initiating fresh credit lines. As you've seen, we have held on to ROEs, ROA and net interest margins and also have improved our ROEs. Our leverage continues to be low, so we believe there is enough headroom for further to improve all the key parameters.

Now we are open for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We take the first question from the line of Kunal Shah from Edelweiss.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [2]

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Sir, this is Prakhar from Edelweiss. A couple of questions. First on growth. Sir, we have seen a tough quarter indeed in terms of growth across products. So what part of growth -- so is this because of liquidity pressure at our end or probably demand scenario by itself is weak? Which factor would you attribute that to? First. The second part is in terms of recent, as I said, the October month has been relatively better, but our channel check suggests that probably the festive demand has been relatively softer than what most of these guys have been anticipating. What is your take on this?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [3]

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Kunal, the first question -- on your first question -- sorry, Prakhar, sorry (technical difficulty) it is both demand as well as also our liquidity, both have played a part in this. On the SME side, we have actually -- there is enough demand, but we have slowed down that -- we've become a little more cautious looking at the environment and even though the demand was there. But also, yes, to answer your question, yes, there is also -- the liquidity was a little tight there. Two-wheeler, we were actually -- we had set aside money for 2-wheeler, but then the demand tapered off in the 2-Wheeler market. And...

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [4]

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Yes, on anticipated demand?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [5]

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Can you repeat your second question? It was not very clear.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [6]

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So I was saying that we have seen a softer -- so what -- hello?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [7]

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Yes. Please, go ahead.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [8]

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Our channel check does suggest that probably the festive demand this time around has been relatively softer than what we have seen in earlier years. What is your take on that because we are seeing that October has been relatively better off, but our channel check suggests that demand has been relatively softer across the board this particular festive season both in terms of -- till Dhanteras our channel check suggests that demand has been relatively very soft. So what is your take on that?

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Operator [9]

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Participants, please stay connected. We are just trying to reconnect the management back to the conference. I would request participants to please stay online.

(Operator Instructions)

We have the management back on the call. Sir, you may please go ahead with the question. We have the question from Kunal Shah.

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [10]

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Sir, just to continue -- yes, so sir I was asking about demand during this festive season. So our channel check suggests that probably this time around the demand across the industry has been very soft when we compare to what has happened earlier in terms of festive season. While we are saying that October has pretty much panned out well for us, what is your outlook in terms of festive season demand? First. Second, how do you see that FY '20 ending in terms of growth targets?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [11]

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Prakhar, was your first question regarding demand specific to a particular segment or are you asking about overall demand?

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Prakhar Agarwal, Edelweiss Securities Ltd., Research Division - Research Analyst [12]

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Overall, in general, sir.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [13]

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Okay. Yes. On the growth -- looking at what has happened in the first half and with an expectation that the second half could be better, we are looking at about 10% overall growth in the AUM, Prakhar. And on the demand side, there is a good amount of demand on the personal loan, SME -- small ticket SME loan side. Two-wheeler, October was okay, but if you ask me to -- if you ask me, I wouldn't call it a -- I'll put it this way, my '17, '18 number, if I look my '17, '18 numbers today, '18, '19 was a bad season, festival season. This festival season is not (technical difficulty) '18, '19. Not as robust as '17, '18.

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Operator [14]

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We take the next question from the line of Karthik Chellappa from Buena Vista Fund.

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

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Two questions from my side. Firstly, if I were to look at our write-off amount this quarter at about INR 200-odd crore, that seems to be like a new high, both in absolute terms and as a percentage of our AUM. Any specific trends that you noticed this quarter for you to have such a high write-off?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [16]

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Yes, I will ask Chandu to answer this.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [17]

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Yes. Good morning, sir. The write-off, there is no specific reason because what happened is during this quarter, the rundown -- the general rundown is slightly more when compared to the previous quarters. And we have brought in -- so there is nothing specific, but it is a routine. So I don't think there's anything specific except the rundown is more and we thought that in specific areas there was some -- we got into the details of each thing and we came with a new write-off policy, and -- so it's just INR 20 crores, INR 25 crores more. So specifically, overall, if you see the provision and write-off, you would have seen, provision has come down because basically, all these things which in the write-off is already part of the provisions. So it has just moved from provisions to write-offs. So overall, if you see higher provisions and write-offs provision, I think it is in line with what in the earlier quarters we estimated.

Another thing you have to understand is, the recovery in write-off also is now improving compared to the earlier year. Generally, we had INR 15 crores, INR 20 crores, now it's INR 30 crores to INR 40 crores, which goes into the income account. So...

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [18]

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Got it. Okay. Okay. And as far as the business loans portfolio, in the opening remarks, sir, you had alluded to that you're being a little more cautious. At a more micro level -- at a more micro markets level, what do you need to see for you to start growing meaningfully again in the business loan portfolio? Can you...

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [19]

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To be honest with you, Karthik, my solutions have been robust. They are holding up well. The portfolio quality also has been holding up well. It's just an apprehension in that term, but if the liquidity situation improves, we will actually push -- it is just an apprehension and let us wait for a couple of quarters and see what the -- how the scenario shapes up, even though there is a good demand there. And of course, if the liquidity also was tight, we had to channel the available resources to products that we felt should contribute, I mean -- we have channeled some of the liquidity available towards personal loans and to the 2-wheeler market. If the liquidity situation improves, we will actually push the gold loan SME also.

Other point is, even though we have raised about INR 2,200 crores in the last quarter, almost close to about INR 1,000 crores, INR 1,200 crores have gone to replace short-term debt. So now that we are over that hump on the short-term debt side, we have actually -- as a policy, we have decided we will also not raise any more short-term debt. And -- so if you see that CP now has come down to about INR 500 crores. Whatever CP is there, you have 1 year CP, so that is there. And we have actually closed out almost close to INR 2,000-plus crores of CP. So what's happening is the new long term -- longer-term borrowings are replacing some of our short-term borrowing. So we were actually -- some of the money raised has gone that -- gone there, so there's a slight liquidity tightness during the quarter.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [20]

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So to put it in another way, the order of priority where you are trying to schedule your disbursements based on the liquidity availability is basically 2-wheeler and then personal loans and then if the liquidity further improves, then business loans, and if it further improves, then your gold loan. Is that a good way to think about your prioritization?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [21]

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Correct.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [22]

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Okay. And sir, lastly, can you give me what were the number of vehicles financed this quarter, the 2-wheelers?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [23]

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Sure. This quarter was 2 lakh -- close to 2 lahk 73,000 vehicles.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [24]

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Okay. And I believe same quarter last year was about 292. Would that be right?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [25]

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You're right.

Sorry, sorry, Karthik?

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [26]

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Yes. Yes, sir.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [27]

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Karthik, I am sorry. I think I gave you the last quarter number was 2 lakh 74,000. And this quarter, sorry, 2.3 lakhs.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [28]

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2.3 lakhs. Okay. So then it is materially down year-on-year then because I think last year second quarter was about 292.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [29]

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Correct, correct.

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Operator [30]

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Next question is from the line of Govind Prabhu from ICRA.

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Govindaraj Prabhu;ICRA;Senior Analyst, [31]

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My first question is with respect to the balance sheet number. So there is a separate line item called right-of-use assets for about INR 150 crores. So just want to know, get a sense on what is the nature of the asset? And the second one will be on the quantum of debt availed during the Q2. You mentioned about INR 2,000 crores, so of it INR 1,500 crore will be the short-term CP debt raised, is it? Or could you clarify on the quantum of debt availed and particularly the held on portion through direct assignment?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [32]

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Basically, coming back to your second question, we -- during this quarter, we raised close to around INR 300 crores of term loan and we got around INR 500 crores of assigned loans, and close to around INR 900 crores of securitization. Most of the securitization, they are all (inaudible). So basically we -- whatever we mobilized during the quarter close to around INR 1,900 crores through banks and other things and INR 500 crores through (inaudible) will be close to around 30, 32 months. So as a backdrop, on the principle, we thought because of continuous (inaudible) we have decided to go only for long term borrowings, and now it will be short-term borrowings. So what happened during the last 1 or 2 -- in fact, if you look into our past 1 or 2 or 3 quarters, we are continuously maintaining the CP, which was close to INR 2,800 crores. During the end of Q3, it has now come down to just INR 500 crores. And so we don't want to replace the CPs, as I said, we decided not to go into short term which -- temporarily which may affect our disbursement, but it is longer -- and we thought it is more healthier practice to get into long term in the current market situation.

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Govindaraj Prabhu;ICRA;Senior Analyst, [33]

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Okay. Fine. And regarding the right-of-use assets, about INR 150 crores is there, which I presume is not there in the previous year. So this will be on account of...

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [34]

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The write-off will be close to not INR 150 crores, it will be close to INR 200 crores.

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Govindaraj Prabhu;ICRA;Senior Analyst, [35]

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Right-of-use assets.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [36]

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Yes, yes. Basically, write-off, what happened, as I told you, see, there are -- most of the write-off has moved from the provisions because if you see overall put together, write-off and provision should be there. It is somewhere around INR 197 crores or INR 198 crores. So overall, if you look into the P&L impact, it's around 2.6%.

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Govindaraj Prabhu;ICRA;Senior Analyst, [37]

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I know, sir. My question is -- sorry, sir. Sorry to interrupt. My question is with regards to the balance sheet, there is a specific line item mentioned as right-of-use assets. So this is about INR 150 crores, which has not been there in the previous year. So maybe I'll take this separately off-line.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [38]

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Yes, we'll take it separately.

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Govindaraj Prabhu;ICRA;Senior Analyst, [39]

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Sure, sure. Yes, okay. And lastly, on the asset quality part, so the gross Stage 3 number has declined; however, it's -- I mean if we internally -- what is the sense on the State 2 number? How has it trended from March level or from March to June to September? Has there been any improvement? Or how do you see that traction in general?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [40]

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If you see our 3 continuously from March level, it is coming down. So in fact, over the last 1 year, I think, around 70, 80 basis points, it has come down. So Stage 3 is improving and gross more or less and coverage is holding up. If you look into Stage 1 and 2 because Stage 3 is all moving to Stage 2. So there is a good correction. Correction mechanism is in -- almost last 1 year has continuously keeps on decreasing quarter to quarter. It is reflected in the gross NPA number and the net NPA number. And with reference to the right-of, the regulatory and statutory, which we will answer it -- I'll take it separately. So we'll give it separately...

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Operator [41]

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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 [42]

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So Chakravarti sir, I had a question for you and I think we have discussed this in the past as well. If I understand correctly, I mean, the segment that we operate in, the demand looks good. Like you suggested, SME demand looks good. Two-wheeler, again, will depend on the new 2-wheeler sales from the auto OEMs, and personal loan demand remains good, loan gold demand remains good. So if I understand correctly, the problem that you are facing today is more on the liquidity side. So I mean, can you just elaborate a little bit that? I mean what are the different instruments? What are the problems that you're facing? And why are you not exploring more of securitization now, which some of your peers have already done or are doing at a very healthy rate?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [43]

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Abhijit, to answer your question, see, Chandrasekar has already mentioned that we have raised more than INR 2,200 crores this quarter. Out of that close to about INR 930 crores is securitization, about INR 500 crores of direct assignment and about INR 150 crores of -- INR 140 crores of NCD and then about (technical difficulty) retail fixed deposits and there's a term loan of INR 300 crores. So it's not that we have left any avenue unexplored. We are working on all of that, but what happened is, as I said, one reason was we have consciously taken a decision that we will replace all our short-term debt. So we have actually -- out of the INR 2,200 crores fresh mobilization, we have utilized closed to about INR 1,000-plus crores towards retirement of short-term debt, that is including -- that is CPs and some of the short-term NCD -- private NCDs issued to mutual funds.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [44]

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Right, sir. So sir, now what you're suggesting is that CPs are down to about INR 500 crores now and that too you're suggesting they are 1-year CPs. So I don't think in the next 2 quarters, we will have any more short-term obligations that we need to repay. So I mean if we were able to mobilize the same quantum, let's say, about INR 2,200 crores to INR 2,500 crores over the next couple of quarters as well, the quarterly run rate, I mean, do you think our disbursements can pick up meaningfully in the next 2 quarters.

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Operator [45]

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Sir, I am so sorry to interrupt. Requesting you to please stay online while we try to reconnect the management. Requesting the participants to please stay connected. Please do not disconnect your lines. We're trying to reconnect the management back to the conference. Thank you.

(Operator Instructions)

We have the management reconnected. We also have Mr. Abhijit Tibrewal. Sir, you may please go ahead with your question and if you could repeat yourself, please? We have the management back.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [46]

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Mr. Chakravarti, so what I was asking you is, now that our CPs are down to about INR 500 crores and that too you are suggesting are 1-year CPs, so we don't have any more short-term CPs that we need to repay over the next 2 quarters. So let's say, if our liquidity mobilization remains around at INR 2,200 crores to INR 2,500 crores quarterly over the next 2 quarters, can -- do you think our disbursements can pick up meaningfully now?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [47]

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Yes. That's right. That's what I have mentioned earlier also that now we are at 2% growth. We are hoping to close the year with at least minimum of 10% growth. 1, 2 years out of -- whatever the residual INR 500 crores CP, that will also become 0 by March. So basically we are now working with banks on -- I mean banks had also have been proactive, so they're working on...

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [48]

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So yes, basically, INR 500 crores of CP, which is outstanding in our books is from banks. So if it is the same bank, 2 banks which is outstanding, if they're willing to give once again long-term CPs, we may take it, otherwise, we may not be interested. So basically, as of September 30, all borrowings we have in the books is long term.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [49]

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Right, sir. And sir, could you please repeat the...

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [50]

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Sorry. I think that is also reflected on the ALM statement, which -- if you have a look at it, you can see that the -- continuously, we have a cumulative mismatch right through...

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [51]

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Positive mismatch.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [52]

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Positive mismatch, right through.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [53]

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Right, sir, right. Okay. And sir, can you just repeat the number of vehicles financed that we did in the last quarter and Q2 of the previous year?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [54]

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3,20,000 -- 3,30,000 2-wheelers that were funded. And last quarter, it was 2,74,000.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [55]

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Okay, sir. And sir, if I heard it right, during your opening comments, did you suggest that the Diwali looks good and you're looking to deliver about 25,000 to 30,000 vehicles in Diwali.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [56]

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Additional to what we have already delivered.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [57]

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Okay. So 25,000 to 30,000 is what you have already delivered and...

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [58]

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No, no, no. Abhijit, I have not given what I've delivered so far, but what I'm saying is, in addition to whatever I've delivered so far, next 2, 3 days, we are likely to deliver another 25,000, 30,000 vehicles is what I said. So in addition, cumulatively, we should cross about 1.1 lakhs, 1.2 lakhs 2-wheelers for this entire market segment.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division - Research Analyst [59]

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I got it, sir. And sir, how -- I mean how was the Dussehra sales?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [60]

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Dussehra, nothing. Not much. Only Diwali has picked up.

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Operator [61]

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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 [62]

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Quickly just understanding it correct. You basically have raised INR 2,200 crores during the quarter, of which INR 900 crores is through securitization, and roughly, you paid INR 500 crores to bank -- I mean sorry, roughly you squared up a bit of CP and you're planning to pay off additional INR 500 crores of CP by March and convert that into long-term. Is that my understanding correct?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [63]

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Yes, you are right. Unless the banks are willing to roll over for -- the CP for at least a year. We are not in the market for short-term.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [64]

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Understood. And that is precisely the reason why your cost of funds are sequentially inching up because you are moving from short-term to long-term?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [65]

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From short-term to long-term, and also we have also moved into lot more retail deposits.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [66]

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So that indicates if this trend continues in the second half, you will see a little bit more surge in cost of funds side?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [67]

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See, I'll put it this way. We are looking at probably -- the cost of funds could be at this level, it may not go up, but it will not come down is what we are clear.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [68]

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So what -- how is your overall view on the banking side? Well, you said even I'm hearing from transport as well that the banks have become little more receptive. Can you give little more color on this? Is it PSU banks which are a little bit reluctant earlier, and they are now coming down and started lending? How is the experience with private banks and all? Can you just briefly give some trends over there?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [69]

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Yes. We understand it's -- well, thank you, Shial. Kind of understand the question. Banks are, let's see, mostly, if you see, interestingly, banks are even more now lending money to us, and public sector, private sector, foreign bank, all going for actually more positive I mean, giving, lending money to NBFC. So some banks prefer savings, some banks prefer securitization, some banks prefer servicing, depending upon different banks. So according to the needs of the bank, we are very positive. So banks are quite okay in this market. We hope even in Q3 and Q4, we'll be able to mobilize lot of money from the banking sector.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [70]

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Understood. So does -- I don't want names and all, but overall, are those banks forcing you to convert their CPs into long term? Or it is your conscious decision of doing this?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [71]

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It is our management decisions. The point is, as you know, that -- for last 1 year, continuously, we have done a lot of things in our business consciously management has decided that we should get into only long-term borrowings, and we should not get into short-term borrowings. Borrow -- short-term borrowings and giving instead of depending on the results of 2 years, so as we're moving in short term and even long term. So we debated to -- we don't want any ALM business. So we are very -- we are -- so the management has taken a decision to borrow only long-term management loans.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [72]

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Understood. Number two, have I understood it correct that you have highlighted that there has been a positive moment whereby stage 3 is getting improved to stage 2? Or it is my...

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [73]

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Stage 3.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [74]

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Stage 3...

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [75]

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So basically, you are seeing improvement in the asset quality trends.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [76]

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

Yes, correct.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [77]

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So that accordingly, you should have gone -- you should have had some reversal on the provisioning side as well, right?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [78]

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Yes. That is what I told you earlier, when the possible bad debts came, the provision actually is doing well because whenever the -- preferably some of the provision is used to [indiscernible] debt. So if you see this quarter, 2.5, 2.6 is not our original budget. I think we are quite comfortable with what we have projected. And even as compared to previous year, that is very good improvement.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [79]

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So there is a write-off -- just as you can say, this write-off is more to do with getting a tax advantage or my understanding is incorrect? I mean this write-off has been taken to get a tax advantage and then the -- whenever recovery happens, you pay tax accordingly. Is this correct?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [80]

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So yes, not only tax in fact, even in the earlier thing that you -- once you -- even in the earlier thing also whether it's bad debt provision we did it in the P&L, and we are raising the debt that is what we are -- if you see our taxation benefit, you don't have a deferred provisioning on this.

So which -- we're prudent in doing this, which we are able to get from the income tax also. So the issue is not that. The issue is, consciously, we -- there is debt, we want to have a -- we have a policy as write-off. We go by that, where we look at individual cases and do it. So it's not just -- so overall, we look into provisioning and it's not that in India it's coming in, the largest equity funds because it's not -- no more idea. Idea is -- India is not far from how our book begins, how we stage our Indian products, how superior it will be, on that basis we do it. So we do it essentially whether it's on budget. And overall as I told quality of book has improved.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [81]

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Understood. Now 2 questions to you Mr. Chakravarti on the business side. One, I understood that basically there is a demand for SME. You're getting conscious. And accordingly, you're putting more feet on The Street for two-wheeler and all. But even housing seems to be slowing down pretty heavily, the disbursements are in double digits, if I see the presentation correctly. How that particular segment is doing? And any particular reason for the slowdown in the housing segment?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [82]

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Actually, what happened was, they had -- the housing had a big commitment in the month of September, repayment commitment. So since the liquidity was tight, they defended the -- to go slow on the disbursement, which is to meet this commitment. That's the primary reason why in the quarter disbursement has come down. But now that they've become comfortable on the liquidity front, we are expecting a INR 300 crores disbursement in the third quarter.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [83]

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Okay. So that is more of a technicality from your side, rather than a demand environment deteriorating...

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [84]

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Exactly. Then to close that INR 300 crore disbursement in the third quarter and end up with probably around INR 2,300 crores of AUM by end of the year with about close to 25% growth on the AUM.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [85]

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That sounds good. And secondly, how is the experience overall in rural versus urban? I mean, I know it's too much to be rather than subjective as an objective. But are you seeing that, that finally rural is slowing down considerably in last 6 months compared to urban? And how is the trend now? For the next 6 months, we're expecting that rural does -- monsoon is going to help rural picking up? Or you still see the sluggishness to stay?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [86]

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See, to be honest with you, my market is -- 70% market is rural than urban. Then there's a second market. And that is what is extending as even today. I don't see -- I mean, from our side, we have not seen much of a slowdown there. And I expect it to -- the coming 2 quarters also, we expect that market for me to do well.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [87]

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Okay. And just lastly, if now suppose that corporate tax cuts has already been announced, you already moved 4% plus, sort of, an ROA, very decent ROEs and all. To remain competitive or to get a little better quality assets, do you even think of passing on this advantage to end customers by cutting down on the yield side and all because your ultimate ROEs still be managed, but considering the tax cut advantage has come up or nothing like that in your mind?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [88]

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See. The kind of segment of customers that I'm operating in, whether I reduce it by 1% or 2% my running rate is not negative [indiscernible]..

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [89]

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Understood. It's more to do with the demand side.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [90]

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Yes.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [91]

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So this rural will -- I mean, the monsoons will definitely help you out. I mean, that's my understanding. Is it correct? I mean, good monsoon or delayed monsoon will bring in the demand in November and December?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [92]

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But right now most of the country is now grappling with excess monsoon. So let us see how this pans out.

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Operator [93]

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Next question is from the line of Saikiran Pulavarthi from Haitong Securities.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [94]

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Just understanding. You mentioned that you have not seen any kind of environmental challenges, especially in your home market, and you have got a comfortable liquidity and also you are seeing the asset quality trends improving primarily on the stage 3 and then benefited. Sir, why such a caution in these kinds of things? They should ideally result in you being little more aggressive on growth. Also, coupled with, you've got some benefit on the tax rate as well. What is that which is holding you back in terms of growing now?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [95]

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Liquidity. Because that's -- liquidity does -- we are working with banks. Hopefully -- see proposals which were taking about 45 to 60 days today is taking anywhere from 3 months to 4 months now to materialize. It is materializing, but it is taking its time. So -- I mean, I don't blame the banks. They're actually doing a lot more due diligence now in the sense they have some external auditors coming in, checking, crosschecking. So their credit seems coming and looking at books and the customer request and all of that. So it's taking time. It's just that the liquidity is what is actually making me go slow right now.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [96]

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But you already mentioned that banks have been more receptive and proactive in extending credit lines, which is...

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [97]

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Yes. That's right. There are lot of proposals that the bank offsets, which we are working on. And as and when, they'll materialize they'll push. But at the same time, the price proposals are there at the banks that I cannot overextend...

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Operator [98]

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Hello, members of the management? Sir, just give me a minute. Participants, please stay connected. We are just trying to reconnect the management back to the conference. Ladies and gentleman, thank you for patiently holding the line, we have the management back on call. So we had the question from the line of Saikiran. Please go ahead.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [99]

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You were answering I think we got moved out. If you can just continue.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [100]

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What happens is, I have proposals lined up with various banks, which is undergoing -- and financial institutions, which are undergoing their own scrutiny and work that's happening. Now I also have commitments to -- repayment commitments, that means, obviously, I would like to have a buffer with me and not utilize all my cash and disbursement, expecting that this evaluations or applications with banks will turn into disbursement.

So what happen -- in effect, what I'm saying is, I need to have a buffer so that I conserve some cash. So I do a cautious lending and not overextend myself because if the proposals get delayed by a week, 10 days, I don't want to -- I want to make sure that we have enough money to meet our commitments on a continuous basis, right? So the first priority is sir making a repayment commitment, second priority would be disbursement. That's how -- that's the reason why we have actually had cash flow -- kept about INR 1,000 crores plus cash and not disbursed.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [101]

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And even if you see our ALM, just...

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [102]

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We're actually -- the other point is that we wanted to make sure that all our ALM has a positive mismatch throughout the bucket.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [103]

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Got it, sir. Sir, on the -- second thing on the SME side and MSME side, we keep hearing that there is lot of stress, especially at the bottom of the, what I can say, value chain. What are you seeing? And what you -- and you also, in one of the earlier questions mentioned that there is a significant demand, which is there -- from their levels. Can you explain what you are seeing in this segment primarily from the demand's perspective and their own cash flow behavioral perspective?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [104]

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See our average ticket size, as you know, is around INR 10 lakhs today. So what we're looking at is that between INR 5 lakhs to INR 15 lakhs segment, we are seeing lot of demand there. And I'm not seeing too much of a stress in that portfolio. And we have about 80% of the AUM and SME actually conflicts of revenue and self-employed personnel. Again in the sense, trading and service sector. So we have a little bit exposure to manufacturing sector. So in this trading and service sectors, I'm not -- we are not seeing much of a stress, particularly in the semi-urban and rural market.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [105]

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Got it, sir. And one final question. Is the Gold Loans, the Stage 3 loans on sequential business also have seen a deterioration? a little counterintuitive, considering the gold prices are moving up. Would you like to comment on that?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [106]

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It's basically -- mostly, it is -- because it used to be about 130, 150 days earlier tenure as loan. It just moved up a -- I think it's moved up about 50 basis points, but then we are not really worried about it because this is a phenomenon where on the receipt of notice have not come back in place. So this should be a temporary phenomenon.

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Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [107]

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Got it, sir. And sorry, one more last question if I can squeeze in. This quarter, the tax rate has been lower than what -- the 25.2%. What is that it going to be for the next couple of quarters? It will be closer to the marginal tax rate or what will be the rate?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [108]

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Yes, actually just -- No, you don't have to -- tax is not coming down to 25.62%, but we expect the full year to be around 27.54% or 27.55% as we stated because there's some deferred in the books. So -- But the full year we will be paying close to around 27.5%. But next year, we will get -- we'll come back to the 25.62%. So -- but we are getting a good benefit, in fact that is why our ROA and other things are improving compared to our previous year, in fact, it's much better because of the lower taxation.

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Operator [109]

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Next question is from the line of Anil Tulsiram from ContrarianValue Edge.

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Anil Tulsiram;ContrarianValue Edge;Analyst, [110]

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So my question is, according to disclosure on MCA website, there appears to be some bulky advances of more than INR 50 crores to Coffee Day Enterprises, Shriram Properties and [Palwal Engineering]. So can you please explain the rational thinking process for these bulky loans?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [111]

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What? Coffee Day Enterprises?

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Anil Tulsiram;ContrarianValue Edge;Analyst, [112]

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Yes.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [113]

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What else you said and?

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Anil Tulsiram;ContrarianValue Edge;Analyst, [114]

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Coffee Day, Shriram Properties and [Palwal] Engineering?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [115]

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No, I'm sorry. I don't know where you're [indiscernible]..

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Anil Tulsiram;ContrarianValue Edge;Analyst, [116]

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This is also the disclosures on MCA website where they disclosed a charge created by the company in the favor of Shriram City Union?

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Unidentified Company Representative, [117]

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MCA website.

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Jai Singh Ponde, Shriram City Union Finance Limited - VP of IR [118]

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Is that Mr. Tulsiram?

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Anil Tulsiram;ContrarianValue Edge;Analyst, [119]

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Yes.

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Jai Singh Ponde, Shriram City Union Finance Limited - VP of IR [120]

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Mr. Tulsiram, this is Jai Singh. I will comment on this. And let me tell you that, we have no exposure to some of the names that you mentioned here. But all the same, let us reconnect on Monday or Tuesday with statements of earnings.

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Anil Tulsiram;ContrarianValue Edge;Analyst, [121]

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Okay, sir and the second question is, the provision coverage used to be 60% to 65% under Indian GAAP in March 2019. This has declined to 45% under the Ind AS. So can you please explain the rationale and our thinking process behind that?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [122]

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Yes. See with reference to -- because now we are following the Ind AS. [indiscernible].

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Anil Tulsiram;ContrarianValue Edge;Analyst, [123]

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Yes.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [124]

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It's on 46%, 47%, now we can come down just somewhat. So this is as per Ind AS. That previously, 60% to 65% is our IGAAP. So now we are using last -- for last 1.5 years, we are following the Ind AS. So it was right around 46%, 47%, now it is around 43.48%. It is steady in that state only, for the last 5, 6 quarters.

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Anil Tulsiram;ContrarianValue Edge;Analyst, [125]

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Okay, and sir in the December 2017 Analyst Meeting, you said that the company is still debating whether to grow the gold advances or not, whether to expand in the new states or not. So what are the strategy for next 3 to 5 years for gold advances?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [126]

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If you are looking at -- if you are asking at 3 to 5 years, yes, we will expand gold, into gold after -- we are looking at expanding into new territories for gold, at least post probably 2022.

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Anil Tulsiram;ContrarianValue Edge;Analyst, [127]

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No, see why I'm asking is because since 2013, our gold advances on a year-over-year basis has been declining. It's not just we're going to -- and the gold loan NBFCs have already crossed the 2017 -- 2013 peak. So is there some change in our thinking process? Do you find gold loans to be very risky or what -- that's what I tried to -- want to understand?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [128]

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Oh, no, no. It has nothing to do with risk perception. Gold Loan is one of the greatest products, no two ways about it. The thing here was we were, like, funding aggregators of gold earlier loan here, which we have stopped now.

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Anil Tulsiram;ContrarianValue Edge;Analyst, [129]

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Sorry, come back, again.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [130]

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We're focusing on the retail side of the Gold Loan, where a portion of our -- large portion of our AUM earlier used to be also from funding to the aggregators.

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Anil Tulsiram;ContrarianValue Edge;Analyst, [131]

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Okay. Got it. Got it. And sir, earlier we also mentioned that once the SME customer completes 1 or 2 cycles with us, there is a high propensity for him to move to the other NBFCs because of the lower interest rate, and you were planning to introduce the new products, so any progress on that front?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [132]

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We have already introduced a product between 14% to 17% rate and some of the customers have migrated there.

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Anil Tulsiram;ContrarianValue Edge;Analyst, [133]

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So what proportion of our book is under that 14% to 17% of SME book?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [134]

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Right now it is less than -- I mean I would say, it's less than 5%.

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Anil Tulsiram;ContrarianValue Edge;Analyst, [135]

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Less than 5%. Okay. Sir and then last question from my side. In the -- again, in the earlier December 2017 Analyst Meeting, if I remember well, it was mentioned that under the new credit process, our gross NPA is almost 4%, 5% only. And it's almost 1.5 years passed but if I look at the gross NPA of MSME, it's still 9%. And when I also compare with the small finance banks like Equitas and -- who's been doing for last 4, 5 years, same ticket size, same yield, its gross NPA is 3%, 4%. I understand and appreciate our credit cost is very low, but still why the gross NPA remains high? Can you explain on that front?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [136]

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No, I think what you need to understand is -- I don't know whether they're already in the paying segment because I have not seen similar people operating in this segment, but the kind of customers that we operate in. So the gross NP -- yes, the gross NPAs will continue to remain at that level. Probably if you -- down probably another 12 to 18 months, we should be able to bring it to around -- it should come down to about 7%, 7.5% or even lower. And I've never mentioned this -- I don't -- where did you get -- I mean, I don't think I've ever mentioned that we are at -- we will be at 4%.

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Anil Tulsiram;ContrarianValue Edge;Analyst, [137]

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No, no, not 4%. I was listening to the December 2017 Analyst Day recording again, and I think Lakshmi mentioned that under the new credit process, which we have introduced, the gross NPA is almost half of the existing levels.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [138]

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What Lakshmi said was that the new book, the incremental book is at better or above 400, 500 basis points, right?

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Anil Tulsiram;ContrarianValue Edge;Analyst, [139]

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Yes, yes, yes.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [140]

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That is what we've mentioned on the incremental book. That's the reason why I'm saying probably in 18 to 20 months, we should see a overall drop in the GNPA going forward, which is overall book will be mostly replaced by that time. Sorry, sorry, and to answer your question, we had no exposure to [Palwal] Engineering, Shriram Properties or CCD but since you've mentioned our MCA website, we'll go ahead and check it and come back to you again.

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Anil Tulsiram;ContrarianValue Edge;Analyst, [141]

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Okay, sir. Sir, I'll send you the snapshot of the thing which I got from there. And sir, Coffee Day was also reported in the newspaper also that Shriram City Union has exposure to Coffee Day. So that's why I am asking this question.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [142]

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That was a -- sometime back, that was a very short exposure, which was closed even before that was -- even on the day of reporting, there was no exposure.

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Operator [143]

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Next question is from the line of (inaudible) Mishra from [UDF].

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Unidentified Analyst, [144]

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What could be your gross stage 2 number?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [145]

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No, we actually -- generally for -- stage 1 and 2 put together, it's around INR 846 crores is the provision for [76,000] crores, and we have around 3.2%.

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Unidentified Analyst, [146]

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Okay. Second question will be sir on the -- around INR 800 crores, INR 850 crores of cash on your book. How much of that would be encumbered?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [147]

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Encumbered?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [148]

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

No, everything is...

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [149]

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Free cash.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [150]

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

Free cash.

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Unidentified Analyst, [151]

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Basically whenever you are doing a securitization you have to keep some EBITDA or something.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [152]

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

That's not...

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [153]

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

That's not cash.

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Unidentified Analyst, [154]

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

So that's not the cash and liquid investments and everything put together, whatever you have, so what percentage of that would be encumbered? That's what my question was.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [155]

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

Nothing, nothing wrong...

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [156]

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

One second, one second.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [157]

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

Talking about securitization?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [158]

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

The margin on securitization.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [159]

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

(inaudible)

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [160]

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

That was a fixed deposit.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [161]

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

Yes. [That is EBITDA], and this is free money, which you're referring in the, I think, INR 1,000 crores, it's fixed deposit even for -- fixed deposit (foreign language) That is all encumbered and given. That is not shown in the P&L.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [162]

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

This money is free money. No encumberment on this. This is cash available in the bank.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [163]

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

10%, what is securitization, fixed deposit, 15%. That separate INR 500 crores is already (inaudible). That is separate, which we don't take for the purpose of this calculation.

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Operator [164]

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We take the next question from the line of Govind Prabhu from ICRA.

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Govindaraj Prabhu;ICRA;Senior Analyst, [165]

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Yes, sir, we generally -- we lost even default number if you look at. Across segments, barring the gold segment, which is 2% to 3%. The other segments have been in the range of 40% to 50%. The logic behind is that the asset class is secured. But one thing is there on the personal loan front alone, we're still -- the last (inaudible) number, if you look at the last 1-year trend also, it has been hovering around 40%, 42% level. So I understand that this is an unsecured loan wherein based on the cash flows within that. But...

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Operator [166]

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I'm sorry to interrupt the question. Sir, we are just trying to reconnect to the management. Be patient. Please hold on. (Operator Instructions) Ladies and gentleman, thank you for patiently holding the line, we have the management reconnected. Mr. Govind Prabhu, you may please go ahead with your question.

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Govindaraj Prabhu;ICRA;Senior Analyst, [167]

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Yes, my question is basically on the loan, given the default part. So if you look at the last 4 to 6 quarter strengths, so barring the Gold Loan segment, which has the loss given default of 2%, 3%, the other segments have all been holding between that 45%, 50% level. While the other segments are secured, the Personal Loan segment alone, if you see, it is largely the unsecured and basically cash flow is (inaudible). So the number at 40%, I just wanted to understand the rationale behind this. Like, is it -- I mean, what kind of collateral or what kind of recoveries are we seeing in this? Is it 40% are we seeing in that segment? Or is it actually a kind of a secured segment also with some kind of backup in this segment?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [168]

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Basically, whatever we have given it product wise, except gold other things are generally are around 40% to 50% is what the ECL safety we lose. So what we are trying -- the calculation is like this. Subsequently, how much out of INR 100 we lose. But it's stated on the formula on the discounting method. So have to also keep in mind the overall picture that we operate around 19%, 20% really. So overall, credit cost is what important which is this quarter is 2.62 and in the previous quarter, it was 2.58, and last -- compared to last year, which was around 3.1, 3.2, our credit cost has improved by 50 basis point. That's the overall picture there is and even on stage 3 has improved by 70, 80 basis points over the last 1 year.

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Govindaraj Prabhu;ICRA;Senior Analyst, [169]

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Okay.

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Operator [170]

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Prabhu, do you have some further questions?

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Govindaraj Prabhu;ICRA;Senior Analyst, [171]

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No, that's it from me.

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Operator [172]

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Thank you. So ladies and gentlemen, that is the last question for today. I'd now like to hand the conference over to Mr. Nischint Chawathe for closing comments. Over to you, sir.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [173]

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Thank you, everybody, for joining us for the call today. Wish you all a very happy Diwali, and thanks to management for giving this opportunity to host the call.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited - MD, CEO & Non-Independent Executive Director [174]

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Thank you.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited - CFO [175]

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Thank you.

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Operator [176]

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Thank you very much. Ladies and gentlemen, on behalf of Kotak Securities, that concludes this conference. Thank you for joining. You may disconnect your lines now.