Aug 12, 2020 (Thomson StreetEvents) — Edited Transcript of Shriram City Union Finance Ltd earnings conference call or presentation Wednesday, August 12, 2020 at 4:30:00am GMT

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

PhillipCapital (India) Pvt. Ltd., Research Division – Analyst

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

Trivantage Capital Management India Pvt. Ltd – Senior Financial Sector Analyst

Ladies and gentlemen, good day, and welcome to the Shriram City Union Finance Q1 FY ’21 Earnings Conference Call hosted by ICICI Securities Limited. (Operator Instructions) Please note this conference is being recorded.

I now hand the conference over to Mr. Abhijit Tibrewal from ICICI Securities. Thank you, and over to you, sir.

Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [2]

Yes. Thanks, Vikram. Good morning, and a very warm welcome to all the investors and analysts who are joining us for the call today. We have the management of Shriram City Union Finance with us today, represented by Mr. Y.S. Chakravarti, Managing Director and CEO; and Mr. R. Chandrasekar, Executive Director and CFO. We will open the call with an opening remarks from Mr. Chakravarti, post which we will open this call for Q&A. Thank you, and over to you, sir.

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

Good morning, and welcome to all our investors and analyst friends who have logged in today for the earnings call of Shriram City Union Finance Limited for the first quarter of the financial year 2021.

While it would be — obviously, it’ll be difficult to predict when life will return to the pre-COVID stage, we are, at Shriram City, trying our best to return to business as usual mode and accordingly, majority of our — about 95{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} branches are operational and we also saw some traction in disbursements in the month of June. Between May and June, we have disbursed almost 1.18 lakh 2-wheelers and hopefully we’ll be able to sustain the momentum and expand our disbursement levels as we head into the crucial festival season.

However, we will ensure that such expansion is calibrated and rolled out only after we have met with our customers, especially MSME borrowers and assess their cash flow situations to the best of our ability. In other words, we will not be unduly aggressive in lending in the immediate term, but the approach will be very calibrated and cautious.

To look back at the quarter, despite lower disbursement levels, AUM degrew by relatively low rates of about 6.3{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} on year-on-year and 2.2{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} sequentially. However, the 2-wheeler look — loan book grew at 10{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} annually. There have been other positive developments in the quarter. For instance, we were able to reduce our OpEx by 18{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} annually and 20{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} sequentially, leading to an operating profit rise of 10.2{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} quarter-on-quarter and to a significantly lower cost-to-income ratio of 35{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}.

Our collection efficiency improved by the month — actually, month — by the month-on-month, say, 30{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in April to 52{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in May and 71{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in June. Maybe it’s also — I feel that the collection efficiency can also be considered as a true indicator of the health of the book and the overall business into the moratorium numbers. In the sense, as you see the collections improving, it means people who are initially affected or uncertain about what is happening in the business or lower volumes in business are slowly coming back into the business. So as I said, 30 — from 30{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} to 52{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} to 71{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} movement from April to June.

Impairment levels were maintained at Q4 levels and grossly stage number — gross stage III numbers continue to drop. We provided for an additional INR 180 crores of COVID-related provisioning in the quarter, and our aggregate provisioning and discount between Q4 FY ’20 and Q1 FY ’21 is now INR 606 crores. We have largely maintained our yields and NIMs. And there was a marginal improvement in cost of funds. During the quarter, we have raised INR 1,058 crores from banks and retail fixed deposits. Our fixed deposits, in fact, showed the highest ever gross mobilization in the month of June. We had liquidity reservoir of INR 1,732 crores, which we are comfortable with.

Our subsidiary, Shriram Housing Finance Limited, turned in another decent performance disburse — despite disbursements having been affected due to COVID. The housing division grew 23{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} year-on-year, and they, too, are seeing a gradual return to some sort of normalcy with 60{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of average monthly business volumes seen in the month of June.

They’ve continued on the path of improving asset quality and registered GNPAs of 2.3{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, their best performance in 5 years. Shriram Housing’s cost of funds, too, improved significantly to 9.3{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. There are enough reserve liquidity for operations until December 2020.

So the other point I would like to mention is now that Emergency Credit Guarantee Scheme is opened up for individuals also, where majority of our customers are — since majority of our customers are individual, we are also exploring the option of funding our customers under this route, which probably we will start off from the third week of this — of August.

One more point I would like to mention is that, if you remember, I think the last call, I’ve mentioned that we have obtained corporate agency license from IRDA for cross-sell of products to our customers. And I’m glad to inform that we have received close to INR 5 crores of fee income in the first quarter from the cross-sell of these products — of some of the insurance products.

So with this, the floor is open for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a first question from the line of Rajeev Agrawal from DoorDarshi Advisors.

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Rajeev Agrawal, [2]

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The first question, Mr. Chakravarti, you mentioned that now personal loans are eligible for something. It’s not clear of the sentence. You will start from third week of August? Can you explain what you were talking about?

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

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No, I did not say personal loans. I said business loans which are given to individuals now are eligible for funding under Emergency Credit Guarantee Scheme. Earlier it was not available. Now that they have amended provision and that even individual business owners are eligible for funding under the Emergency Credit Guarantee Scheme. That’s what I was mentioning, not the personal loans.

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Rajeev Agrawal, [4]

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Got it. And to what extent will that — so in our SME book, which is our biggest book, that could have a significant beneficial impact? Or can you just quantify what sort of impact that could have for us?

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

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See, this — we are not going to do this across the board and offer it across the board. We have — the lending will be very, how I would say, depends on the customers’ cash flows — current cash flows and his payment pattern earlier. So I’m not looking at a very large sum of disbursement in this. Because, again, 2 things. One is yield under this scheme is also lower, but I would like to do this — extend funding under the scheme to some of our good customers because if they need cash flow, I think it’s time that we stand by them. So probably, it won’t be — the scheme is available up to October. So we will be, say, on a 2 months — in 2 months, probably, we are looking at INR 300 crores to INR 400 crores of disbursement like this.

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Rajeev Agrawal, [6]

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Right. But I’m hoping that this will have a beneficial impact on the — on your nonperforming portion of the book in SME space, is that a fair way of looking at it?

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

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No. Why — I mean, if a customer is NPA, obviously, I’m not going to fund under the ECG Scheme.

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Rajeev Agrawal, [8]

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Got it. The second question is, your personal loans have come down. And is that one of the reasons why you’re nonperforming, the net nonperforming assets continue to be high in the personal loans?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [9]

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Yes, we’ve actually slowed down on personal loans, of course, not only this quarter, even the last quarter also, so which we will be starting off in another week’s time, we are initiating the business again. Earlier, we were focusing on just secured. Because see, we were conserving liquidity, and we are focused on only secured business. Now that it looks like there’s slight — we see that easing of — we see some easing on the liquidity side, so we will start off personal loans probably from third week.

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Rajeev Agrawal, [10]

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Okay. And you are starting to see sort of cash flow — your loan book for your customers?

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

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Sorry, I didn’t get you there. Sorry?

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Rajeev Agrawal, [12]

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Yes. I was saying, now do you see the cash flows reviving for most of your customers across various sections of the AUM that you have? Like can you just give a flavor of what you’re seeing?

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

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Yes. Some of the — yes, see, even — I think the proof of the pudding is in the eating, right? So when you look at the gradual improvement in the collection percentages, I feel that, see, even in June, we were at 71{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. And in July, we have almost reached close to 80{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} plus. So I think that’s a good indicator that the cash flow is coming back, right?

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Rajeev Agrawal, [14]

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Okay. And this restructuring scheme that RBI has announced, any initial take of yours on what exactly are you planning to do with that?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [15]

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See. I am actually — honestly, I mentioned this earlier also in my — our analyst calls also. I would rather give time for my customer to pay rather than restructuring the whole thing and create an optical wellbeing. So I mean — but again, early days that they have to come out with guidelines. We will see. But I’m personally, my set of customers, I would rather give them time to pay rather than restructuring the whole thing. Personally, that’s my view. But we will see — let’s see what RBI comes up with.

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Rajeev Agrawal, [16]

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Perfect. And this COVID provisions we have been taking over the last few quarters, do you think this will continue? Or what is your assessment for the next few quarters as you look forward?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [17]

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Probably — no, I can tell you only we are all waiting with crossed fingers on what is going to happen post the moratorium, right? So very uncertain to comment anything now. But let me put it this way. A couple of my customers, when I’ve talked to them, in fact, more than a couple of customers, they are worried that the rate of doubling that is happening in some of the territories. So though the cash flows are coming back to normal, some of those customers were saying they would like to hold on to some of the cash just in case again lockdowns happen. So we would definitely look at this — even the next quarter also, we will create some provision. We’ll be looking at very conservatively on this side. So yes, we will create provision next quarter also till we get as clear-cut clarity on the cash flows of the customers, particularly on the SME side.

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Operator [18]

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We have next question from the line of Chirag Sureka from DSP Mutual Funds.

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Unidentified Analyst, [19]

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This is Vivek here. It’s really heartening to see the pickup in collection efficiency. But given the fact that there’s — always on and off lockdown is going on, and the sentiment is fragile, I have 2 questions and 1 clarification, which I wanted. The first question is, how would you see your liquidity buffers going for the next few months, given the fact that the economic sentiment still seems fragile? Two, the strong pickup in collection efficiency is indeed a positive surprise. In terms of the customers, what is it that has allowed them to pick up their businesses really fast? And the third is the last clarification that I wanted that you had enough liquidity to pay debt till December of this year, right? So those are the 3 points.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [20]

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On the collections front, I think what has helped SCUF is basically because we are a small-ticket business loan company, number one. Number two, most of my customers are from trading and a little bit from service industries. Manufacturing less than 7{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 8{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} exposure. So I think it’s basically because the moment, the complete lockdown was lifted, most of my customers were back in business, and they were seeing some kind of cash flows in the businesses. I think the biggest — I think the positive factor was that the customer — the kind of customer segment that we were funding, which has helped us in this crucial time.

Liquidity, as I mentioned, we have about INR 1,700 crores of cash and banks — I mean balances with us. The December 2020, I’ve mentioned this for Shriram Housing Finance, which is a subsidiary of our company, which has buffers up to December 2020.

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Unidentified Analyst, [21]

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Okay, sir. Sir, in Shriram City Union, would you build up more liquidity buffers in terms of your repayments for the next — I mean, let’s say, up to 3 months will take up to March 2021. So what would be your liquidity policy, treasury policy for the next…

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [22]

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The policy is that we will have about INR 2,000 crores as a liquidity buffer.

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Unidentified Analyst, [23]

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Okay, sir. And there is no chunky repayments coming up in the next few quarters/

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [24]

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Normally, every quarter end, we do have some payments, but that is taken care of. That’s planned for.

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Operator [25]

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We have next question from the line of Saurabh Dhole from Trivantage Capital.

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Saurabh Dhole, Trivantage Capital Management India Pvt. Ltd – Senior Financial Sector Analyst [26]

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Yes. A couple of questions. First, if I see the employee count this quarter, there’s been a very sharp fall in that. So you were running at about 28,000, up and now it’s at about 26,000. So any reason as to why there has been a sharp decrease?

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

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We’re actually rationalizing manpower. One is, normal resignations were there, and we have actually stopped new recruitment and trying to reassign roles. Basically, that’s it. It’s basically reassigning roles. Normal attrition happening. No new hiring.

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Saurabh Dhole, Trivantage Capital Management India Pvt. Ltd – Senior Financial Sector Analyst [28]

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Okay. So this no new hiring policy would continue for the foreseeable quarters also? Is that a right assumption?

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

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At least — I would say, at least for 2 more quarters.

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Saurabh Dhole, Trivantage Capital Management India Pvt. Ltd – Senior Financial Sector Analyst [30]

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Okay. Okay. Okay. And sir, the second question was on collateral prices. If you could talk a little bit about how they are holding up, especially in your MSME portfolio, where 80{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of the book is collateralized. So any sense that you can give us there?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [31]

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Very honestly, as of now I’m not really worried about the collateral price. This is the — most of this — our average ticket sizes are about INR 12 lakhs, right? So the average LTV would be about 55{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 60{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} at best. So plus, when you’re lending, the initial lending was done basing on the cash flow and not on the collateral value, though you do look at collateral, but it’s secondary. So looking at both, I’m really not worried about the collateral prices as of today.

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Saurabh Dhole, Trivantage Capital Management India Pvt. Ltd – Senior Financial Sector Analyst [32]

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Okay. Okay. But in case cash flows get disrupted, collateral is your last resort, right?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [33]

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Correct. Right, right. But then you have average LTVs around 55{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 60{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, I think we should be comfortable with that.

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Saurabh Dhole, Trivantage Capital Management India Pvt. Ltd – Senior Financial Sector Analyst [34]

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Okay, sir. Okay. And sir, just 1 last question. I think in the last quarter, you said that you made a provision of about INR 400-odd crores for COVID. So I was just thinking where in the P&L statement does this figure appear? Because if I look at the total impairment…

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [35]

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Yes, it’s basically cost of impairment.

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

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It is there in our financial instruments, that INR 310 crores. In that, INR 84 crores — INR 226 crores is write-off and INR 84 crores is provisions, that INR 310 crores includes.

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Saurabh Dhole, Trivantage Capital Management India Pvt. Ltd – Senior Financial Sector Analyst [37]

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No. So the entire — the total figure was INR 400 crores something.

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Jai Singh Ponde, Shriram City Union Finance Limited – VP of IR [38]

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Saurabh, I’ll send you the details. The breakup, I will send across.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [39]

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So I think provision calculations, JP will give. It has to be calculated in a different way because the opening provision and the last COVID provisioning, plus current COVID provisioning and the closing provision. The closing provisioning and the opening provisioning is INR 84 crores plus write-off is INR 310 crores. So that’s a matter of calculation. I think JP will forward to you.

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Operator [40]

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We have next question from the line of Sanket Chheda from B&K Securities.

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Sanket Chheda, Batlivala & Karani Securities India Pvt. Ltd., Research Division – Research Analyst [41]

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Congrats on a pretty good set of numbers, operationally. My question was that, sir, it has been about more than 1.5 years and still, there is no — nothing on merger front. So is there any timeline when the merger would go through? And also, are there any other options being discussed that whether it would be a 3-way merger as planned earlier or whether it could be a 2-way merger or any other options as such?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [42]

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As of now, nothing being discussed whether at the company level or the board level on the merger side. So probably, as of now, nothing.

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Sanket Chheda, Batlivala & Karani Securities India Pvt. Ltd., Research Division – Research Analyst [43]

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So is there a possibility that the merger won’t go through or we would be allowed to remain a separate entity? Any remote possibility? Anything on that?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [44]

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Yes, probably, yes. Because I have not heard anything on the merger as of now. So probably, it’s in the cold storage.

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Operator [45]

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

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Pavan Ahluwalia, Laburnum Capital Advisors Private Limited – MD & Director [46]

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Just wanted to check on the credit quality situation. So I think you said that you would prefer to avoid restructuring and simply let customers take advantage of the moratorium, given that cash flows are normalizing. So I just wanted to confirm that we’d understood that correctly. So your view is that as the economy comes back to normal, most of your customers will be able to generate roughly what their normalized cash flows are and therefore maintain the EMIs that they were maintaining earlier, and the implication of a moratorium is the loan will just run a few installments longer. So you’d prefer to just take that route out rather than do some sort of restructuring because based on what you’re seeing right now, you’re quite comfortable that with even a moderate recovery, your customers are going to be able to meet their EMIs. Is that fair to say?

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

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Exactly, Pavan. You got it right.

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Operator [48]

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Your next question from the line of [Subrat Trivedi] from SBI Life.

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Unidentified Analyst, [49]

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First, on the collection efficiency front, you mentioned that it has reached 80{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in July. So does that include overdue collections also from previous months? Or that was just the scheduled collection for July, which has come in?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [50]

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Overdue collections are about — out of this 80{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, overdue collections would be about 3{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 4{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. Rest of it is demand for the month.

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Unidentified Analyst, [51]

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Okay. Okay. Second, on the liquidity front, so although collection efficiencies, et cetera, have improved, but if you clearly look at the cash and undrawn bank lines, then it covers around 2 months of repayment. Whereas normally, we have seen that NBFCs keep around 3 to 4 months at least of repayments because one doesn’t know if the collection efficiencies might fall, future lockdowns happen, et cetera. So what is your sense on maintaining liquidity going ahead?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [52]

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As I said, no, liquidity — sorry, Chandru, please go ahead.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [53]

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With reference to liquidity, as of today, we have comfortable 3, 4 months of liquidity with us. As I told you, we have more than INR 2,000 crores of liquidity buffer, plus we have quite a bit of withdrawals on hand…

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

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As of June, we had INR 1,700 crores, Chandru. So July number…

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [55]

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So we have quite a bit of next — 3, 4 months of liquidity buffer we have because the repayment of the next couple of months is not very high.

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Unidentified Analyst, [56]

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Okay. Okay. And just one last question from my side. So in terms of raising money from banks, how is that process now? Is it slow? Or you’re able to raise term loans, et cetera, easily? And the second part of it is…

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [57]

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Last month, we are able to raise INR 700 crores including retail and wholesale money in the month of June. I think we are also quite comfortable in getting money of INR 400 crores, INR 500 crores on the market, plus, we are also having able to do retail. But going forward, I think from September, we may be able to do a couple of securitization transaction on our 2-wheelers and other things. And we are discussing with 4, 5 banks. So I think raising money, we have a plan for raising INR 1,000 crores of liquidity month-on-month. I think we will be very comfortable going forward on the liquidity front. But in the liquidity, we don’t have any issues.

But we are only clear that we don’t want short-term liquidity, we are clearly focused on long-term liquidity because we have quite a buffer to manage short-term things. So we want money for disbursement. So we are looking for long-term money, which — only with — so we don’t have no issues getting a good relationship with the public sector bank and with regard to private sector banks, now we are discussing with 3 or 4 banks. So I think we don’t have problem for next couple of months.

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Operator [58]

——————————————————————————–

We have next question from the line of Nischint Chawathe from Kotak Securities.

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [59]

——————————————————————————–

Just a couple of questions, but before that, I didn’t get the number, how much did you raise in June?

——————————————————————————–

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

——————————————————————————–

What number?

——————————————————————————–

Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [61]

——————————————————————————–

Sir, how much quantum of funds did you raise in the month of June?

——————————————————————————–

Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [62]

——————————————————————————–

We raised INR 700 crores.

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [63]

——————————————————————————–

INR 700 crores, and this is from banks, is it?

——————————————————————————–

Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [64]

——————————————————————————–

Banks and retail. In fact, we have both from the banks. Also, we have some retail fixed deposits also. So both put together. The inflow of money from — yes, if you want the break up, it’s around INR 500 crores and around INR 275 crores, both breakup of retail and banks.

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [65]

——————————————————————————–

Sure. Just moving on, if I have to look at the SME Credit Guarantee Scheme, I think what you mentioned was that you’re looking at disbursements of around INR 300 crores, INR 400 crores. And if I have to consider that as 10{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of the loan amount, and you’re talking about broadly covering around INR 3,000 crores, INR 4,000 crore loans of — customers with around INR 3,000, INR 4,000 crores of loan outstanding. And the yield — and if my understanding is right, does the yield on the entire book go down to the government kind of the 14{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} yield level? Or is it only the improvement in yield that goes down?

——————————————————————————–

Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [66]

——————————————————————————–

It’s only the incremental lending that will go down. On this INR 300 crores, INR 400 crores.

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [67]

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Okay. Not the entire INR 3,000 crores or…

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [68]

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It’s only on the INR 300 crores, INR 400 crores.

——————————————————————————–

Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [69]

——————————————————————————–

Sure. Now on — if you could share some — give some color in terms of how many branches are operating in the month of June, July and maybe in early August?

——————————————————————————–

Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [70]

——————————————————————————–

Yes. To be honest with you, very difficult to pinpoint how many branches because it’s changing from week to week. In fact, on a steady-state basis, we have about 18, 20 branches, which are closed because they are in containment zones and they’ve still not come out. Rest of the areas, in some places, they are open from 8:00 to 11:00 in the morning. Some places, they are open from 10:00 to 2:00. It’s like partial opening, closure. They’re open for 1 week, and next week, some directive comes in, you’re closed for a week and then you go and open it again. So on — probably total shutdown in June and July would be about 20 branches.

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [71]

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In August, whatever last — last 10 days, [it would have been similar.]

——————————————————————————–

Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [72]

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Same. Same. Those branches still remain closed.

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [73]

——————————————————————————–

Sure. Could you share — I mean, you’ve mentioned the collection efficiency percentages? But could you share the absolute amount?

——————————————————————————–

Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [74]

——————————————————————————–

Yes, sure. Chandru, you have the number with you right now?

——————————————————————————–

Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [75]

——————————————————————————–

So if you want to the month of April, we have collected…

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Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [76]

——————————————————————————–

So you shared percentages for the 3 months, April, May, June. So if you could share the absolute amount and maybe just break up the absolute amount between gold and others?

——————————————————————————–

Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [77]

——————————————————————————–

In the month of April, we collected INR 560 crores, 30{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} collection. In the month of May, we collected close to INR 1,000 crores, it’s 52{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. And in the month of June, it’s INR 1,400 crores, at 71{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} collection.

——————————————————————————–

Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [78]

——————————————————————————–

And of this, how much could gold be like? I mean, out of INR 560 crores, let’s say?

——————————————————————————–

Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [79]

——————————————————————————–

Can you repeat it? Out of how much?

——————————————————————————–

Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst [80]

——————————————————————————–

Of the INR 560 crores, how much is collected from gold loans?

——————————————————————————–

Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [81]

——————————————————————————–

Gold loans, in fact, will be less — in fact, entire April month, there is no gold. Because entire April is national lockdown. There is no branch opened. So 100{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} is from nongold only in the month of April. But in the month of May, there was a gold loan collection, which was around — close to around INR 300 crores. In the month of June, we have around INR 400 crores of gold loan collections.

——————————————————————————–

Operator [82]

——————————————————————————–

We have next question from the line of Piran Engineer from Motilal Oswal Financial Services.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division – Research Analyst [83]

——————————————————————————–

I have a couple of questions. Firry, did I hear you right when you said collection efficiency in July is 80{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 8-0?

——————————————————————————–

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

——————————————————————————–

Yes, that’s right.

——————————————————————————–

Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [85]

——————————————————————————–

We have INR 1,550 crores collection.

——————————————————————————–

Piran Engineer, Motilal Oswal Securities Limited, Research Division – Research Analyst [86]

——————————————————————————–

Okay. Okay. And sir, my other 2 questions. Sir, firstly, what percentage of customers haven’t paid a single installment since the lockdown? And my second question is, I wanted to gather your thoughts on the recent RBI regulation allowing 90{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} LTV for gold loans for banks. So how does this play out in the, say, near to medium term in the next 12 to 18 months? And when customers move to bank, will they eventually stick to banks? Or can they come back to players like — so I just want to get your thoughts around that?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [87]

——————————————————————————–

Yes. Because of…

——————————————————————————–

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

——————————————————————————–

Chandru, let me take this question. So about 20 — between 20{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} to 22{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of my customers have taken the full moratorium. That is, they have not paid a single installment since April, okay? On the gold loan side, right now, RBI is allowing banks to lend up to 90{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. So we’ll have to see how aggressive banks will be. I mean, with all due respect, I don’t think most of the banks have appraisers on their roll where they have a permanent appraiser sitting in the branch, and as and when the customer walks in, they disburse. Most of the banks, you need to inform in advance that you want gold loan and then they call in an appraiser from outside. He comes in, appraises and then you’ll get the money. So it takes — there are a lot of waiting time there. So we’ll have to see how the customers would want that, one.

Two is, I’m not sure how many banks would really be willing to go up to 90{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, looking at the way the gold has shot up. The price of the gold has shot up and the way it has corrected — it’s corrected yesterday. So 90{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} may optically look very attractive or look like that. But then when it comes to policy, we’ll — I’m not sure majority of the banks would lend up to 90{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. So I’m not really probably worried about banks taking away business as of now.

——————————————————————————–

Piran Engineer, Motilal Oswal Securities Limited, Research Division – Research Analyst [89]

——————————————————————————–

Okay. And do you think if, say, the bottom 5{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 10{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of the customers move to banks will eventually sort of stick to those banks and don’t come back from April 1, 2021. Is that a possibility?

——————————————————————————–

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

——————————————————————————–

That is a possibility, but then this market is so huge. The market for gold loan is so big and so huge, it’s your ability to reach the customer that will determine whether customer is going to bank or to you. It’s also accessibility important.

——————————————————————————–

Operator [91]

——————————————————————————–

(Operator Instructions) We have next question from the line of Abhijit Tibrewal from ICICI Securities.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [92]

——————————————————————————–

Sir, again asking on the liquidity side. You raised about INR 550 crores in Q1 FY ’21. If I remember correctly, out of this, about INR 350 crores was from SIDBI, where the other INR 200 crores in the form of term loans from banks?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [93]

——————————————————————————–

Yes, yes.

——————————————————————————–

Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [94]

——————————————————————————–

Okay. Okay. And have you seen any newer lines of borrowings in the month of July and August? And idea of asking this is…

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [95]

——————————————————————————–

We have a couple of sanctions from a couple of banks, which we’ll be drawing over the next 10, 15 days.

——————————————————————————–

Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [96]

——————————————————————————–

Sir, the idea of asking this is, I mean, just trying to understand whether the current liquidity tightness can constrain some of your disbursements in the near term?

——————————————————————————–

Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [97]

——————————————————————————–

No. Because we are just waiting for the moratorium because the moratorium period is over — it’s still on. So under the 2-wheeler business, we are already doing. Gold, we are doing. SME customers, we have to assess. We are just waiting because we don’t want to be aggressive at this point of time in disbursing. So we’re just waiting for this moratorium to get over. Once the moratorium is over, I think we’ll come back to the normal aggressive mode of assessing the customers and then give. So liquidity is not going to be a constraint for disbursal.

——————————————————————————–

Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [98]

——————————————————————————–

Sure, sir. The second question I had was on your write-offs. The write-offs that you took during the quarter that they’re majorly in the personal loan segment?

——————————————————————————–

Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [99]

——————————————————————————–

No, no, no. The write-off is — basically, write-off is not in the personal loan segment. It is in all the products. And basically, we are trying to assess how our business — assess our business, how much credit loss in the business will be there. So it is across all products. It is nothing in personal loan. It includes all the SME, gold, 2-wheeler, every product. So we have a mechanism. There’s a board loan — bad debts policy we have. As per the policy, we do the write-offs.

——————————————————————————–

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

——————————————————————————–

Okay. There is nothing — no spike in any single product. That’s what Chandru is mentioning. {09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}

——————————————————————————–

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

——————————————————————————–

It’s across all products.

——————————————————————————–

Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [102]

——————————————————————————–

Okay. But what your GNPAs, I mean, have seen a good correction in personal loans?

——————————————————————————–

Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [103]

——————————————————————————–

No. That is basically because the last 2 quarters, we have not done any personal loans. So the book is running down. So the denominator effect is pushing up. But actually, the amount is — in terms of rupees, it is coming down. Because the denominator is going down, the percentage is going up. Once we start doing business from next month, I think, once again, it will start going down.

——————————————————————————–

Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [104]

——————————————————————————–

So essentially, the AUM of personal loans has come down primarily because of the collections that we have demonstrated?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [105]

——————————————————————————–

Collections and also because, as I told you, the AUM also is running down because there’s no fresh disbursement for the last 2 quarters, last 2.5 quarters.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [106]

——————————————————————————–

Okay. Sir, the last question that I had was on this ECGS scheme for individual MSME customers. You have already alluded to that, I mean, earlier in the call. Just wanted to understand, there is a capping of 14{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} on these loans under ECLGS. So wouldn’t that be dilutive on your yields and NIMs?

——————————————————————————–

Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [107]

——————————————————————————–

That’s why I told you. I mentioned that at best, we will do about INR 300 crores to INR 400 crores. On a book of about — on a book of INR 16,000 crores, INR 17,000 crores, INR 300 crore — it will be about INR 300 crores to INR 400 crores.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [108]

——————————————————————————–

Okay. Okay. All right. And sir, lastly, about this MSME restructuring scheme, which is there. I mean you have already said that you’ll actually want to give more time to the customers rather than restructure the account. So this MSME scheme was already there. It’s now been extended till March, where we’re already doing some restructuring? Or have we not been doing any restructuring?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [109]

——————————————————————————–

No, we have not done, we have not done anything.

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Operator [110]

——————————————————————————–

We have next question from the line of from Pradeep Agrawal PhillipCapital.

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Pradeep Agrawal, PhillipCapital (India) Pvt. Ltd., Research Division – Analyst [111]

——————————————————————————–

A couple of questions from my side. One is, how do you see your margins panning out going forward, especially in a scenario where some of the competition like Cholamandalam have become aggressive in 2-wheelers, you have banks coming into gold loan aggressively. So how do you see your margins and yields panning out? And what I understand is a few quarters back, we have reduced yields on 2-wheelers by about 2 to 3 percentage points. So how do we — how…

——————————————————————————–

Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [112]

——————————————————————————–

Sorry, I missed the last part. You said what the last 2, 3 quarters?

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Pradeep Agrawal, PhillipCapital (India) Pvt. Ltd., Research Division – Analyst [113]

——————————————————————————–

What I understand is, in the last quarter or so, we have reduced some interest charge on 2-wheelers by a couple of percentage points. So how does that stand as of now, are we still charging lower? Or are we back to normal rate of interest in 2-wheelers?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [114]

——————————————————————————–

See, typically, that is basically because of the festival season. In a festival season, we normally offer a discount on interest rate to the customers. So that’s what has happened earlier. So back to normal yield now. See, every year, during the festival season, Navratri and Diwali time, we offer a little lower rate to the customers, which is normal industry practice. Otherwise, there is no pressure on the yields as of now. So Cholamandalam or somebody getting aggressive doesn’t mean we’ll compromise on yields because 2-wheeler is a highly manpower-intensive business. And you need to protect your yields. If you don’t protect, then very easily, you’ll end up making losses. So that’s not a worry.

——————————————————————————–

Pradeep Agrawal, PhillipCapital (India) Pvt. Ltd., Research Division – Analyst [115]

——————————————————————————–

Okay. Okay. And second question is on collection efficiency, which you mentioned is about 80-odd percent. So I just want to understand the 20-odd percent where we have not collected, is any particular segment where the skewness is higher? I mean, while you have — in as far as SME…

——————————————————————————–

Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [116]

——————————————————————————–

Yes. SME, so, obviously, if you look at it, yes, SME, we are at about roughly less than 60{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of efficiency versus rest of the products. SME, we expect it to touch about 70{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} — I mean it’s about 70{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in July and probably normalized by end of September.

——————————————————————————–

Pradeep Agrawal, PhillipCapital (India) Pvt. Ltd., Research Division – Analyst [117]

——————————————————————————–

Okay. Okay. And just 1 data point. The INR 270 crores which we raised through banks in June, was it — at what rate?

——————————————————————————–

Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [118]

——————————————————————————–

Actually, the rates were actually lower rate. We took it from a couple of banks, where we took it from SIDBI at 6.2{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. And other — it’s a lower rate, all rates on other term loans, it’s around 9{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} and we got from SIDBI special scheme with 6.2{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}.

——————————————————————————–

Operator [119]

——————————————————————————–

We have next question from the line of Ankur Jain from Prayaas Capital.

——————————————————————————–

Ankur Jain, [120]

——————————————————————————–

I have 2 questions. The first question is on the cost-to-income ratio, which has dropped significantly from 40{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} to around 35{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. So just wanted to understand how sustainable is this drop? I mean, after 2 quarters, can we expect this cost-to-income ratio to go back?

——————————————————————————–

Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [121]

——————————————————————————–

No. We will be around — probably will be — once the business starts picking up, then we will have the visible cost coming in. So we should be around 37{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 38{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}.

——————————————————————————–

Ankur Jain, [122]

——————————————————————————–

Okay. So that reduction of 2{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} to 3{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} from the normal levels, can we say that is happening both on digitization in the…

——————————————————————————–

Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [123]

——————————————————————————–

Digitization, rationalization of manpower, reduction in some of the costs, reduction in rentals…

——————————————————————————–

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

——————————————————————————–

A lot of savings on promotion expense, traveling, so many heads.

——————————————————————————–

Ankur Jain, [125]

——————————————————————————–

Right. And the second question I have is on the branch network. So if I look at the company, for the almost 7, 8 years, I mean, we have — we used to have around 980 branches and over a period of time, the number of branches has come down to 947. So I wanted to understand how dependent is our business growth on the distribution reach, which is the number of branches that we have? When things normalize…

——————————————————————————–

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

——————————————————————————–

Yes, got it. Got it. We may — we are — Ankur, we constantly evaluate and rationalize the branch presence. So though I have only today, 947 branches, we are operating in close to 1,800, 1,900 locations. So basically, you operate on a hub-and-spoke model, where you have — the branch acts as a hub. So wherever we find that there is some other branch which can actually do the same — we can do the same work without branch, we rationalize and then close that branch. So unless we are moving to newer geographies, this branch network will not expand. So for example — I’ll give you an example. For example, in Delhi, we have — used to have about — Delhi and NCR, we used to have about 13, 14 branches. Today, we have only 9 because we have rationalized those branches, and we are using the other branch as a hub. So that’s how the calls are taken.

——————————————————————————–

Ankur Jain, [127]

——————————————————————————–

Right. And just last question on this AUM by geography. So North contributes less than 10{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. So over a medium-term basis, what are the thoughts on diversification and capturing more market share in the North and the Eastern geographies?

——————————————————————————–

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

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So East, we have just started slow — we have just started. We are there in Bihar, about 10, 12 branches in Bihar. West Bengal, 7, 8 branches. Orissa, we have a few branches. Assam, we have probably — next month, we’ll be starting off our first branch in Assam. So East, it will take some time. But North, we have enough penetration. Only thing is we need to increase our presence.

North, the reason why you see the business — see, we start — normally when we start our — particularly SME business when we start in new territory, we’ll start with a small-ticket business, that is less than INR 5 lakhs. Work on it for some time before we move into a larger ticket. So it will happen gradually. See, when you looked at our business, probably 5 years back — 5, 6 years back, even our 2-wheeler business was 70{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} South and 30{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} rest of the country. Today, it is the reverse. South contributes just 30{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in 2-wheeler business, whereas West and North contribute 70{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. So it will happen, but it is probably — in SME, it will be little — it will be slower than 2-wheeler because I need people to be trained in this business, and this is something which I don’t want to push very aggressively.

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Operator [129]

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We have next question from the line of Abhishek Murarka from IIFL.

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Abhishek Murarka, IIFL Research – VP [130]

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So my question is on gold loan, and basically the question is, how are you seeing the demand scenario play out? Are you witnessing a sort of withdrawal in, let’s say, the jewelry that is kept with you as prices go up, any sort of trends like that? And are you losing customers to banks because now the incentive gap is even wider if banks offer higher LTV, even 5{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 10{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} higher LTV than before. So how is that impacting demand?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [131]

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Too early, too early. Because this 90{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} has been around just 4, 5 days back, so it’s too early to see how will it impact. We may have some impact in the urban areas. In the sense — sorry, in the urban and rural areas. But then, the one point here is we have — the last 2 months, in fact, in the rural and semi-urban, there have been redemptions of gold loans. Basically because I think agriculture cash flows have improved. Urban area, it is not so. Not so much of it at all, but urban area, in fact, the business has improved compared to pre-COVID.

So as far as banks are posing threat of increased LTV, it is definitely faster. But then as I said earlier, it all depends on how efficiently a bank can turnaround, a customer who has come in for a gold loan. If somebody was sitting there for a half a day, obviously, it’s a (inaudible).

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Abhishek Murarka, IIFL Research – VP [132]

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Even — so of course, LTV is just one of the incremental things that have happened now. But even otherwise, in urban areas you’re saying, you’re not seeing sort of attrition of customers to banks or loss of…

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [133]

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As of now, no. But then going forward, if the banks aggressively promote the 90{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} LTV or 85{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} LTV, probably we may see some attrition. We’ll have to wait and watch.

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Abhishek Murarka, IIFL Research – VP [134]

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And any early feelers as to what they are doing?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [135]

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No. I mean, I’ve talked to a few bankers. They were skeptical of the 90{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} because they don’t want to risk getting caught on price fluctuation. In fact, if you see, see, I think there was close to, what, about 5{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} fluctuation yesterday — 4{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} to 5{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} yesterday?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [136]

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Yes.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [137]

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So that gives you — I mean, if you are a prudent banker, that should give you jitters.

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Operator [138]

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We have next question from the line of Subramanian Iyer from Morgan Stanley.

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Subramanian Iyer, Morgan Stanley, Research Division – Equity Analyst [139]

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Sir, you mentioned that 22{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of customers have taken full moratorium. Is this by value? So that is one question. And second thing is that, I’m assuming that this is completely the non-NPA portfolio, which has opted for moratorium. So based on that, what is your portfolio at risk in your current assessment out of this 22{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}?

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

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See, this 22{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of customers and about 25{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 26{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} of AUM on the morat, okay?

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Subramanian Iyer, Morgan Stanley, Research Division – Equity Analyst [141]

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Got it. Yes.

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

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So portfolio at risk, see, I’m not looking at to begin — probably, I’ll be looking at on an overall portfolio, probably about we are looking at about 0.9 to — I mean 90 to 100 basis points of credit cost — incremental credit costs.

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Subramanian Iyer, Morgan Stanley, Research Division – Equity Analyst [143]

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Okay. Okay. Got it. And just to clarify, so this 25{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} — 26{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} by value, this is completely the piece that was non-NPA, right, I mean, previously?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [144]

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Yes.

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

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For moratorium (technical difficulty)

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Subramanian Iyer, Morgan Stanley, Research Division – Equity Analyst [146]

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Yes, no, I just wanted to get it…

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

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Just wanted to cross check, right? Yes.

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Subramanian Iyer, Morgan Stanley, Research Division – Equity Analyst [148]

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Yes. Yes. And just a follow-up question, if I may ask. This is on your funding. So the funding has been tied for almost 2 years now, and you have not been growing your portfolio as well. Whereas if I see your headline numbers, I mean, both on capital and coverage, you seem pretty solid. So in your conversation with your — whereas what I see is that many other smaller retail niche NBFCs have actually been growing their balance sheet even in the last 2 years. So in your conversation with bankers and, say, the capital markets, what is the feedback that you get? Why are they unwilling to give you incremental funding?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [149]

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Incremental funding is actually, we — in fact, last year, we have a clear-cut plan that we want to get out of the commercial papers. We want to get into long-term things because every time, every year we get into something or other. So as a management policy, we always felt that we should be having clear-cut liquidity road map for the future. One of the liquidity road map is that we want to go on procuring only long-term funds and get into more — the plan is around 15{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 20{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} through securitization route. The term loans preferably 3 to 5 years, and retail money also 3 to 5 years. So we — our plan is short-term plan rather than — even in this quarter, I think we have — there are a couple of TLTRO money available for 3 months all, it seems. So we actually don’t want 3 months, 4 months money. We’re actually looking for 3 years or 4 years money because our book runs first. So it is a strategy which we feel short-term money should not be used for disbursement. So this is — so that we always look into the long term rather than short-term approach to liquidity and businesses.

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Operator [150]

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Your next question is from the line of Prashanth Sridhar from SBI Mutual Funds.

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Prashanth Sridhar, [151]

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Sir, just on this 80{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} collection efficiency. I wanted to check if there’s any significant difference in any particular state, district? And are you noticing any political interference on this aspect?

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

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No, no, no political interference at all. Nothing of that sort. See, significant impact in a particular state? No, nothing is there. Probably month-to-month, there is a difference. For example, in the month of — sorry, in the month of June, when you had lockdown in Chennai and 4 districts, in the last 10, 15 — 10 days, there was a slowdown in collection in that area, but which picked up in July. So basically, it is like nothing specific state.

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Prashanth Sridhar, [153]

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Sure. Sure. And just the other aspect was securitization is a good proportion of our liabilities. So now with disbursement slowing down, how do you see that part of the liabilities moving?

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [154]

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Yes. With referring to securitization, during this moratorium, I think banks may not be much willing. In fact, we have even 1 or 2 sanction orders, which we are waiting for the moratorium to get over. But now the banks are actually discussing with us wherever the customers have not taken moratorium for the last 4 months, who have paid it regularly, the banks are willing to do. So we may do 1 or 2 transaction in the month of September on 2-wheeler front.

So going forward, maybe Q3 and Q4, we will do securitization on our SME book. We do only on 2-wheeler and SME, but 2-wheeler has — already the collection has reached 90{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} plus. So we will start doing from September. But as I told you, SME, we’ll do it from Q3 and Q4. But the market is available if you want to convince the bank and we have to harness, collection efficiency has to reach a reasonable level, around 90{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} for the bank to fund securitization. Otherwise, banks may not be because the banks will be at risk. So we are discussing with the banks, and we’re already lined up for 4, 5 transactions, but we’re just waiting for the moratorium to get over.

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Operator [155]

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We have next question from the line of Rajeev Mehta from YES Securities.

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Rajeev Mehta, [156]

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A few questions. Sir, firstly, July collection efficiency, you said overall aggregate is 80{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. And it was just mentioned that 2-wheeler, it could be around 90{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} and small enterprise loans, it could be around 70{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}. Would that be right?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [157]

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No, no, no, I said less than 60{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} for July, yes, yes, yes. You’re right.

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Rajeev Mehta, [158]

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70{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, right? Okay. And so this nonpaying customers since April, you said about 20{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 22{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, customers have not paid, and that proportion will be much higher in case of small enterprise loans, it could be around 30{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 35{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [159]

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Yes, yes. You’re right, about 30{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, 35{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}.

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Rajeev Mehta, [160]

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Okay. Okay. And so these nonpaying customers, when you engage with them, can you give some color in terms of reasons for them not having — start making payments? Are they more in the affected areas or their occupation or their — doesn’t allow them — they have not recovered so much so far. And so I just wanted to understand from their occupation color perspective. And also whether what proportion of these nonpaying customers would have overdue as on 29th of February?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [161]

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As on 29th of February, this is — let me take your this thing first. On the occupation side, it is basically school, small clinics, doctors, doctors running small clinics, then travel services, some retail restaurants, basically restaurants and eateries. These are the guys who were — have taken the morat. And that number, I’ll have to get back to you. I will get back to you on that number. In the February…

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Rajeev Mehta, [162]

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Yes. Because I think the only thing that we’re worried about is that if the moratorium ending on August 31, if somebody has an overdue and you said that the normalization in SCL portfolio in terms of collection can only be reached by November. So intermittently, we can have slippages coming through between September and November if somebody has an overdue?

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [163]

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One more point that I would like to mention here is some of these customers, when we meet them, though they’ve started the businesses, cash flows are coming in, some of these customers were saying, since the morat is available, they want to avail of it. Because they want to shore up their liquidity. So you’re not — the thing is you don’t want to — you can’t press them also. Since you have given the moratorium and they have availed the moratorium, you just can’t press them. Even though they have liquidity, they’re saying we’ll wait out this period, and then we will pay you once the moratorium is over.

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Operator [164]

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Thank you very much, sir. Ladies and gentlemen, that was the last question. I’d now like to hand the conference over to Mr. Abhijit Tibrewal from ICICI Securities for closing comments. Over to you, sir.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [165]

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Yes. Thanks, Vikram. On behalf of ICICI Securities, I would like to thank the management of Shriram City for giving us this opportunity to host this earning call today and patiently answering all our questions, and to all the investors and analysts for a very enriching discussion. Thank you all.

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Yalamati Srinivasa Chakravarti, Shriram City Union Finance Limited – MD, CEO & Non-Independent Executive Director [166]

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Thank you all. Thank you.

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Ramasubramanian Chandrasekar, Shriram City Union Finance Limited – CFO [167]

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Okay. Thank you.

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Operator [168]

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Thank you very much, sir. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.