Your consolidated profits have grown nearly 19%, but there has also been a decline on the sequential basis. Your net interest income has also been below expectations and the gold loan book has declined. What led to this dampening of spirits?
In our primary business more than two-third is lending against jewellery. Jewellery is a metal where we have seen a sharp correction in price fluctuation. So, while lending against any metal, we should be conscious about managing the prices. Our first priority had been managing those prices. So, we believe that we have managed a bit well.
Had this high LTV not been waived out, we would have faced the situation of our receivables overshooting the current price. For the players who are offering one month, one year product are relatively protected in the prices that is the reason. Now after facing out that high LTV items we start up growing. Now we are growing and we are targeting high ticket loans also through differential pricing, etc. We have seen the result and we are hopeful of a growth of around 15%.
Some of your borrowers faced liquidity pressures, could you give us a sense of what the asset quality stress was during the quarter?
We have fully provided and we have taken a very conservative stand in this regard while phasing out the NPAs that have gone bad. We expected the auctions to be some 3-4% of the disbursals in gold loan, but fortunately it was less than 2% of our disbursal; the August auction. Our ECL provisioning reported is very low because of that. In microfinance we have provided adequately and we have been very conservative with the write off after 180 days. The 90 days is a return of custody, so the provision has also reduced. Our reported profit is with that only.
It is clearly a tough environment to operate in, but seemingly your peers have performed better than you have. Are you finding it difficult? Is it more challenging to acquire customers at this point?
If you look at the last 10 years, you would see the same growth rate. Our growth rate and the largest competition, their growth rate also is similar. See, after demonetisation also we were very conservative in maintaining our book clean. So, after demonetisation also there was some decline which we have corrected thereafter. Also, after the demonetisation you take 10 years history, you will see the same growth.
If you see what we are seeing, telling the customer three months means he has got three months after the three months. So, what they need to do is to remit full interest thereby and mark this to the new LTV, so that they can continue any number of years. That is their choice only, so it is like in EMI. If everything is accumulated out of your time, their chances of complete default and loss of asset is very high. That is why to make it convenient, to make it more affordable, what we are saying is you remit interest and mark the loan to the new LTV level at periodical intervals at the maximum of once in two years.
What is your outlook on your gold loan book for FY22 and FY23? Can we expect the gold loan book growth of about 12% to 13% going forward?
We are very confident that we have been demonstrating what is a normal growth rate of 12% to 15% all these years. So, that it will be maintained; we are really confident. From next nine months of the financial year, we are hopeful of growing at the rate of 15% from the base of Q1. We have seen that sort of growth given the market. On the consolidated portfolio we have a CAGR of 20% and ROE of 20% which we are maintaining for all these years.
You mentioned that you are going to be bringing in capital from outside the MFI book. Could you elaborate on that?
We have a very high capital adequacy at the consolidated level which is around 35%, but still because of risk planning we may limit our capital allocation for unsecured business. We wanted to stick to our capital allocation to be around 15% of our net worth. So, for that purpose — for managing the risks — in an unsecured lending, that is the only purpose we wanted to bring the capital for growth.
We do not have any plan to do that in the next one year at least. The right time is when we are able to demonstrate that we are managing our MFI well; better than the market. That will be the appropriate time to place capital there just to maintain that capital allocation ratio.