LIC Housing Finance : HFL Q2 FY24 CONCALL TRANSCRIPT

"LIC Housing Finance Limited

Q2 FY '24 Investors Conference Call"

November 02, 2023

MANAGEMENT: MR. TRIBHUWAN ADHIKARI - MANAGING DIRECTOR

AND CHIEF EXECUTIVE OFFICER --LIC HOUSING

FINANCE LIMITED

MR. SUDIPTO SIL - CHIEF FINANCIAL OFFICER - LIC

HOUSING FINANCE LIMITED

MODERATOR: MR. PRAVEEN AGARWAL - AXIS CAPITAL LIMITED

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LIC Housing Finance Limited

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Moderator:	Ladies and gentlemen, good day, and welcome to the LIC Housing Finance Q2 FY '24 Investors
	Conference Call hosted by Axis Capital Limited. As a reminder, all participant lines will be in
	the listen-only mode and there will be an opportunity for you to ask questions after the
	presentation concludes. Should you need assistance during the conference call, please signal an
	operator by pressing star then zero on your touch-tone phone. Please note that this conference is
	being recorded.
	I now hand the conference over to Mr. Praveen Agarwal from Axis Capital Limited. Thank you,
	and over to you, sir.
Praveen Agarwal:	Thank you, Zico. Good afternoon, everyone, and welcome to the earnings call. We have with us
	Mr. Tribhuwan Adhikari, MD and CEO; and Mr. Sudipto Sil, CFO, from the management team.
	I would request MD and CEO to give us a brief on the results. Post that, we'll open the floor for
	Q&A. Over to you, sir.
Tribhuwan Adhikari:	Thank you, Praveen. Very good afternoon. Good afternoon, and welcome to the post earnings
	conference call of LIC Housing Finance Limited. As you are aware, LICHFL declared its Q2
	FY '24 results yesterday. Before I start the highlights of the Q2 results, I just like to outline a
	few developments in the economy over the quarter.
	RBI kept the policy rates unchanged in its August and October meetings. However, temporary
	incremental CRR was introduced in August, MPC meeting to tighten the liquidity in order to
	bring down inflation. The inflation numbers during the quarter were slightly higher above the
	RBI's targeted range.
	In the October MPC meeting, the RBI Governor hinted that RBI could opt for OMO sales auction
	of G-Sec to mop up excess liquidity. Due to the high inflationary pressures and tight liquidity,
	the interest rate remains elevated at elevated levels in the quarter with almost a flat curve.
	Now I would like to share the key highlights of the results of the quarter. The total revenue from
	operations of the company were INR6,753 crores against INR5,086 crores for the corresponding
	quarter of the previous year, up by 33%.
	The outstanding loan portfolio stood at INR2,77,987 crores against INR2,62,336 crores as on
	30th of September 2022, reflecting a growth of 6%. Out of this, the individual home loan
	portfolio stood at INR2,34,509 crores as against INR2,16,771 crores, up by 8%. And this home
	loans portfolio comprises 84% of the total portfolio. Total disbursements for the quarter were
	INR14,665 crores against INR16,786 crores in the previous quarter last year.
	Home loans were -- during the quarter, home loans were INR12,516 crores as against INR14,300
	crores. And project loan disbursement was INR433 crores against INR407 crores for the same
	period in the previous year. So project loan growth was -- disbursement was slightly up by 6%.
	The disbursement for the quarter reflects a 35% growth over Q1 of FY '24, though it still remains
	below the Q2 FY '23.
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As I had shared in the post results call of the first quarter on the 3rd of August initially in the beginning of the year due to a complete revamp of the technology, we had some technology- related issues, which had affected the numbers in Q1 and the first month of Q2.

But now these technological issues have been resolved, and ever since August and in the month of September and even in October, we are witnessing a month-to-month improvement in the -- improvement and the trend is pretty much more visible in October where the sanctioned figures have clocked almost 15% to 20% Y-o-Y growth.

So I see this as a very positive reflection that -- of the portfolio growth in the coming quarters, and I believe we should grow at a much higher rate as to what we've been doing so far in the 2 months of the current -- 2 quarters of the first -- of the current financial year.

Net interest income stood at INR2,107 crores as against INR1,150 crores for the same period in the previous year, which is up by 83%. Net interest margins for the current quarter stood at 3.04% as against 1.78% for Q2 of financial year '23.

We have been able to maintain the NIM above 3% for two consecutive quarters in a row. PBT is -- for the quarter was INR1,480.06 crores as against INR378.85 crores in the previous year, registering a growth of 291%. PAT for the quarter stood at INR1,188.05 crores as against INR304.87 crores for the same period in the previous year, a growth of 290%. In terms of asset quality, the Stage 3 exposure at default as on 30th of September current year stood at 4.33% as against 4.90% as at 30th September of last year.

Total provisions as on 30th September current year stood at INR6,512 crores, reflecting a provision coverage of 41% as against 44% in the quarter last year. With our continuous and focused efforts on recovery, we have been able to achieve significant reduction in NPA in Q2. Also in the current quarter, we have also gone in for a technical write-off of INR925 crores. All these loans were carrying 100% provision. Recovery efforts were put on maximum focus during the quarter.

A lot of focus was on the feet on the street, going and meeting the delinquent customers, motivating them to pay back. And there was a net reduction in Stage 3 sequentially without considering the write-off also. Further improvement is likely to come in the coming quarters. And the Stage 2 accounts also have witnessed significant improvement with our rigorous recovery and all of efforts.

On the funding side, the cost of funds, which stood at 7.66 as compared to 7.62, slightly uptick of 4 basis points. Incremental cost of funds stood at 7.73 for Q2 of FY '24. During the quarter, the short-term benchmark 364-dayT-bill moved from 6.79 to 7.18 and 10-yearG-Sec also witnessed significant increase in the yields.

Despite the increase, the increase in the weighted average cost of funds was restricted to about four basis points. The company also renegotiated on the existing funding availed from various banks and was able to obtain better pricing.

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	LIC Housing Finance Limited
	November 02, 2023
	The margin for the quarter is 3.04%. On the interest rate scenario, likely that interest rates will
	remain elevated for a long period of time, considering the inflation situation. So with this brief
	introduction, I would like to invite you for the queries. Thank you.
Moderator:	Thank you very much. We will now begin with question-and-answer session. The first question
	is from the line of Mohit Jain from Tara Capital Partners.
Mohit Jain:	Sir, I have two questions for you. First one is regarding the overall loan growth, sir. I heard that
	you said that the system issues have now been resolved and the book is now going to grow at a
	good pace. So sir, in this situation, should we -- are we going to stick to our guidance of 12% to
	15%?
Tribhuwan Adhikari:	Yes. Our basic guidance at the beginning of the year and even at the con-call of -- at the end of
	Q1 10% to 12%, we stick by the guidance.
Mohit Jain:	Okay. Because I think that the ask rate now for the remaining 6 months is going to be almost
	like 5% per quarter that we need to grow. So we are confident of seeing that number.
Tribhuwan Adhikari:	Yes, Mohit. We do understand that asking rate has, of course, gone up because of our slightly
	lower-than-expected performance in Q1 and Q2. But we are well poised. We are well poised.
	We are witnessing significant improvement in the situation. The sanction numbers are pretty
	comforting, especially in October. Yes, there is a gap between -- gap of almost 20% between the
	sanctioned and the disbursements. So we believe this gap is going to be bridged and already in
	October, we have witnessed a significant growth. I think this will continue for the next 2 months.
	And I think the quarter 3 will be a good quarter for us.
Mohit Jain:	Okay. Okay. Sir my second question is regarding the credit cost. Sir, on a quarter-on-quarter
	basis, it has increased from 50 basis points to 60 basis points. And I guess you've explained that
	the write-offs were 100% provided basis, so I don't think that will have a real impact. Sir what
	is the -- is it because of seasonality that the credit cost has increased? And do we stick to that
	original guidance you said that our credit cost is supposed to come down to 40 to 50 basis point
	because Q1 was already higher at around 70 -- I think -- sorry, Q1 was at 50 basis points, this
	time also it's around 50 basis point.
Tribhuwan Adhikari:	Yes. Mohit, I'll ask Sudipto Sil, our CFO, to take this.
Sudipto Sil:	Actually, if you see the published accounts, in there is a note which we have put. There basically
	a charge of INR105 crores approximately, INR104 crores, which is a one-off because this is
	basically pertaining to some of the repossessed assets where we have reclassified from the assets
	held for sale to loans. So for that, we had to -- we had made an additional provision of INR104
	crores net. So if you remove that INR104 crores net, then probably the real credit cost charge
	for this particular quarter will be reduced.
Mohit Jain:	And we don't expect such charges in the subsequent quarters. I think we will not have a...
Tribhuwan Adhikari:	You never know, Mohit.

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Sudipto Sil:	No. This is a onetime one-off.
Moderator:	Our next question is from the line of Gaurav Sharma from HSBC Securities. Please go ahead..
Gaurav Sharma:	Yes. Sir, just a couple of questions. One is I just want to know your incremental lending rate and
	incremental cost of borrowing for quarter 2? That is one. And second, sir, my question is
	pertaining to PCR. So like a couple of quarters, we mentioned that we have moved to 52%, 50%
	PCR. Now it has again come back to 42%. So just wanted to know the time and the -- again,
	we'll be targeting that 50% PCR or it can remain at the current levels only?
Tribhuwan Adhikari:	No, I'll take the part about the PCR, Gaurav. Yes, the PCR has slightly come down. In Q2, it
	was 42 -- sorry, Q1 of current year, of the current financial year, it was 41. It has -- 42, it has
	now come down to 41. So there has been a 100 basis point reduction. This is partly because of
	these write-offs which we have done.
	Yes, the RBI mandate is that we should aim for a PCR of approximately around 50%. Of course,
	we do understand that all our lending is totally covered by -- totally covered by securities and
	mortgages. So compared to the banks, we are slightly, I would say, more comfortable as far as
	the collaterals are concerned. But still, it is our endeavor.
	Yes, 41%, 42%, we believe, as a management, we are comfortable. Yes, we would like to take
	it up to 50% as mandated by -- or as requested by RBI governor. Of course, for banks, it is, I
	believe, 60%. I will keep it on the similar levels initially and then scale it up depending upon
	recovery. Yes, we would definitely like to have more comfort on the PCR side would try to
	attain 50% as quickly as possible.
Sudipto Sil:	Yes, I might add to that. For example, the -- if you actually add back the write-off amount of
	about close to INR925 crores, then you'll actually find that the PCR level is higher than what it
	is optically shown here, number one.
	Number two is that we are expecting improvements on the recovery front, which will
	automatically reduce the outstanding NPL size and amount and that itself will lead to an
	improvement in the PCR otherwise also.
Tribhuwan Adhikari:	Gaurav, just to comment on that. On the recovery front, yes, there a lot has been done. We've
	really hit the streets. Our team is already hitting the streets in a big way approaching customers.
	We are also exploring whatever options we have, the legal options we have. We are exploring
	all of them. So in fact, everything is going together. There has been a significant improvement
	in the recovery effort in the quarter.
	Receivables part, we are also doing well. Now the only thing is that, yes, 2 issues there are -- we
	are -- what we see in the horizon are a few big cases. Project loan has been our Achilles heel, if
	I may say that, almost 40% NPA in the project loan side.
	Yes, we are targeting the big cases, and a lot of the cases are in NCLT and IBC. We can see a
	few big cases that come into resolution in the horizon. So that -- and of course, we have -- we
	are also pursuing the OTS route aggressively. And yes, one thing which I had said in the first
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November 02, 2023

quarter that we were exploring the ARC route, so long until the end of the first quarter, we had

	not explored or not ventured into the ARC route.
	In the current quarter, yes, we have taken a pool of loans to the ARCs who should be coming
	back to us shortly. So taking that, I think in the remaining part of the quarter in the coming
	quarters, we are going to go aggressively and take the ARC route for the lumpy and sticky loans
	for which we see no resolution.
Gaurav Sharma:	Understood, sir. And one question, number one, that is incremental lending rate and cost of
	borrowing.
Tribhuwan Adhikari:	Incremental lending rate and cost of borrowing, Sudipto?
Sudipto Sil:	Yes. Yes. See incremental cost of fund is around 7.73 and incremental lending rates if
	everything put together is -- I mean, largely now as you've been knowing, largely it is in the
	retail side that we are lending. But if you aggregate with a little bit of project loans and other
	assets that we are doing, it is around 9.4 roughly.
Gaurav Sharma:	Sir, incremental cost of borrowing I was asking, actually incremental cost of fund you
	mentioned.
Sudipto Sil:	Incremental cost of borrowing 7.7 to 7.73.
Gaurav Sharma:	Okay. So it is same as incremental cost of fund and incremental cost of borrowing at the same
	rate, right?
Sudipto Sil:	Yes, yes, yes.
Moderator:	Our next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Raghav Garg:	Sir, just a couple of questions. One is, what was the disbursement amount for the month of
	September?
Tribhuwan Adhikari:	One question only or do you have some more?
Raghav Garg:	Yes. So my other question is with respect to the last quarter, you had spoken about some NCLT
	recoveries, I think you just touched upon it in the previous question. If you can provide some
	timeline as to when can one expect that these recoveries or resolutions would materialize and
	we would see some benefit?
	And then my third question is, what is your margin outlook for the second half? Given that we're
	already trending above 3% for the first half, something that we haven't seen in the last many
	years, what would be your expectation as far as margin is concerned and whether we can sustain
	at this level or not? Those are my 3 questions.
Tribhuwan Adhikari:	Okay. Yes. Raghav, the first question was about disbursement figures for September. September,
	the total disbursement was INR4,813 crores as compared to INR5,509 of last year. Yes, there
	was a slight degrowth. So this was it.
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Coming to NCLT, as I said, NCLT, this is a legal framework. Yes, from the current status of the cases, we see in the horizon that these cases could get resolved and resolution could come through probably in 2 to 3 months' time. But again, legal, you know, you can never predict what is going to happen on the legal front. So yes, we do see some big cases.

There are other -- we are in talks with various other big delinquent borrowers especially on the project loan side. They are expressing interest in OTS, which we are following up. So that also we see a few good loans coming sort of getting resolved.

Overall, if I may put it to a figure, I believe somewhere in the region of INR400 crores to INR500 crores of sticky and lumpy loans which are existing in our books today, I expect them to come for -- to come up -- to be resolved rather not come up, to be totally resolved in the current quarter.

Now coming to the NIM. Yes, the NIM, it's at 3.04% in the current quarter, yes, 3.21% in Q1, but that was, I believe, as I said in the con-call of 3rd of August, I think that was the peak, 3.21% was the peak. And I had clearly indicated that we would not be able to sustain it. And slowly, we expect the NIMs to come down.

And that is precisely what has happened. So from 3.21%, we are at 3.04%. The guidance we had given you was in the region of 2.6 -- 2.5, 2.6. Yes, I think I still maintain that guidance, and I think we should be able to achieve the guidance of probably 2.6 to 2.8 in the current financial.

Raghav Garg:Sir, just 1 follow-up question. Sir, September disbursement is about INR4,800 crores. And if you look at for the full quarter, that's about INR14,700 almost INR15,000 crores. Earlier during the call, you had mentioned that the disbursements have been picking up month-on-month. So this INR5,000 crores of disbursement in September versus INR15,000 crores for the whole quarter, it doesn't sit right when you say that there has been monthly improvement or month-on- month improvement. Can you explain a bit more on that?

Tribhuwan Adhikari: No. If I go by -- yes, if I just give you a figure, I don't have the exact figure. But if I tell you, July was around about INR4,500 crores, right? August also, I believe, was somewhere near that. So compared to that INR4,880 crores, some progress we are seeing.

If you look at the figures in Q1, it was INR3,000 crores for, I believe, INR3,000-odd crores for April and for June, it was around about INR4,000 crores-odd. So looking at those numbers, I see an improvement.

And another factor which we -- I am also considering is my sanctions, right? I believe right now, my sanction to disbursement ratio is around about 80%. That means what I am sanctioning only 80% of them I'm able to disburse.

I expect in this quarter, this to be much, much, much higher. That is what we've been after with the marketing teams. And I believe with the first festive season around the corner and some special, I would say, festive offerings, which we have given to our customers, special days, etcetera, definitely I am very optimistic about the business part of it in Q3.

Raghav Garg:Sir, would October disbursements be lower than September, would you say that? Or...

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Tribhuwan Adhikari:	No, no, no.
Raghav Garg:	Would it be materially higher than September?
Tribhuwan Adhikari:	Definitely, it will be higher than September. September -- my September disbursement figure
	was INR4,813 crores as I told you, right? And October, I would definitely expect -- yes, October,
	October is already over. October disbursements are about INR5,000 crores. I don't have the exact
	figure right now, it is INR5,100 crores-something, right? So there has been an improvement in
	that. And October, I see a significant increase in the sanctions. There's a 15 -- I think its 17-point
	something, I don't remember exactly, 17% growth year-on-year.
Moderator:	Our next question is from the line of Nischint Chawathe from Kotak Institutional Equities.
	Please go ahead.
Nischint Chawathe:	Just one question from my side. Yes, if I look at the GNPL, we have seen almost a INR1,700
	crores sequential decline in GNPL. I believe INR900-odd crores comes in because of technical
	write-offs, what is the balance?
Sudipto Sil:	Yes. Nischint, actually the technical write-off on the principal side is around INR925 crores.
	There is also an element of some reduction. I mean this is also a write-off which is pertaining to
	the income on the Stage 3 assets.
Nischint Chawathe:	So can you give a breakup in terms of what it is? I mean if you can just sort of help us reconcile
	1,600 and 900?
Sudipto Sil:	Sorry?
Nischint Chawathe:	Can you help us reconcile the...
Sudipto Sil:	Seven loan accounts on the project side, which itself is around INR699 crores, you can take
	INR700 crores. The balance INR225 crores pertains to a good number of retail accounts.
Nischint Chawathe:	The point I'm trying to make is that can you reconcile the INR1,675 crores and INR900 crores,
	what is the difference? I think that's what I'm saying.
Sudipto Sil:	Yes. So out of INR1,600 crores, actually, as I told you INR925 crores pertains to the principal
	portion of the loans written-off, then there is also an amount of interest, which was there in the
	E&D that is the exposure and defaults that is close to around INR500 crores that has also been
	written-off.
Nischint Chawathe:	And then the balance could be some recovery? Is there any...
Sudipto Sil:	There is some actual recovery on ground.
Nischint Chawathe:	And how much would that be?
Sudipto Sil:	Maybe around INR200 crores to INR300 crores approximately.

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Moderator:	Our next question is from the line of Kunal Shah from Citi Group. Please go ahead.
Kunal Shah:	Yes. So sorry to take forward that question. So in terms of the recovery or actual improvement
	in Stage 3 that seems to be like around about 200 or maybe stage -- plus Stage 3 is that amount.
	Last time, you highlighted that we will see unwinding of another part of stress, which was there
	due to disruption.
	So is there more left for Q3 and we should see the further improvement both in terms of Stage
	2 and Stage 3. And similarly, with write-off, is it largely done? Or we will see more write-offs
	coming into Q3 and Q4 as well?
Sudipto Sil:	Yes, you have -- the first part of the question. See, the actual improvement you will get to see in
	Stage 2. Because Stage 2 is actual improvement, which upgrades to Stage 1. So that is something
	that you kindly note that is one improvement, which is there, actual recovery from Stage 3
	accounts, complete recovery through closures, etcetera, that also, as I mentioned in the previous
	answer, that also is there.
	As far as the write-off is concerned, now these accounts, which have been written off are the
	ones which have been fully -- wholly written-off. Now this will -- the size of this, obviously,
	will not be every quarter. It will not be such a big size, but some small, small -- some few hundred
	crores of accounts which have been fully written-off, I mean, fully provided for 100%
	provisioning, that will keep on continuing because these are only technical write-offs. And the
	follow-up action, legal action, NCLT action, everything continues as it is.
Kunal Shah:	Okay. But that quantum would be hardly like INR100-odd crores, not fully extent of like...
Sudipto Sil:	See, actually, for the last 3 quarters, I think we had not done any significant write-offs. So you
	can say to some extent that there is also some kind of a pileup of last couple of quarters, at least.
Kunal Shah:	Okay. And reduction in Stage 2, you are highlighting that is more in terms of upgrades into Stage
	1 rather than flow through in Stage 3?
Sudipto Sil:	No, no, this is upgrade to Stage 1.
Kunal Shah:	Okay. A larger part of the reduction, which has been there in Stage 2 assets?
Sudipto Sil:	So Stage 3 has been -- Stage 3, even without considering the write-offs that we discussed, even
	without considering the write-offs, there is an improvement. Stage 2, there is an improvement
	in terms of upgrades to Stage 1.
Kunal Shah:	Yes. Okay. Because if I look at Stage 3 purely, the difference and if I add on to the maybe the
	write-off then there is some increase, maybe not much INR120-odd crores kind of an increase,
	which is there in Stage 3. So just wanted to get whether it's more...
Sudipto Sil:	There's actually an increase -- I mean, there is a reduction in Stage 3 by approximately around
	INR100 crores, INR150 crores or so.

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Kunal Shah:	Okay. And secondly, in terms of the repricing, so now given that the growth is also around about
	6-odd percent, 1% sequential, has there been a lot of repricing requests, which are coming in
	and then maybe we are pricing it lower. So would there be some proportion because it's have
	also come up during the quarter. So any particular portion of the book, wherein we saw the
	repricing lower in this quarter?
Tribhuwan Adhikari:	Yes. Well, if I -- let me clarify this. Well, I told you that in Q1, we had gone in for a technological
	upgrade. And due to that, we run into some problems, some challenges. One of the challenges
	was rewriting. So in Q1, there was literally no rewriting option available to our customers.
	So resultantly, in Q2, the entire rewriting -- in fact, in Q2, in Q1, there is -- the rewriting was 0.
	In Q2, the rewriting was to the tune of INR9,291.55 crores. So there was a huge impact of
	rewriting which probably affected our margins.
Kunal Shah:	Okay. That was a INR9,000 crores of a book?
Tribhuwan Adhikari:	Yes.
Kunal Shah:	Okay. Okay. And this would have got repriced to what extent maybe people are bargaining for
	50, 100 basis points, how would that be?
Sudipto Sil:	Yes, of course, it depends on where they were. The repricing would be probably in the region of
	9%, 8.75% to 9%, approximately up to 200 basis points repricing would have taken place.
Kunal Shah:	Okay. 200 basis points repricing.
Tribhuwan Adhikari:	That is the range.
Sudipto Sil:	That is the range.
Sudipto Sil:	That is not the average.
Kunal Shah:	Yes. Got that. And now just last question in terms of margin versus growth. The preference
	would be more in terms of sustaining the margins rather than growing? Or maybe now we will
	see the uptick in the growth in a sense at some cost of margins because now it is settling at more
	than 3%?
Tribhuwan Adhikari:	Yes, agreed, this is Hobson's choice. We go for growth, go for margins, exactly. But no, I think
	we'll concentrate on both. We concentrate on the book on growth. We will be looking at getting
	the margins as well as showing growth because we need to grow the loan book, that ultimately
	would translate into better margins.
Moderator:	Our next question is from the line of A.M. Lodha from Sanmati Consultants. Please go ahead.
A.M. Lodha:	There is really a small request. You just simply file a letter to the exchange where the
	presentation has been uploaded and press release is uploaded on the website. We had to go the
	website and there is all these other companies are filing the presentation and the press release
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