Conference Call with Magma Fincorp Management and Analysts on Q4FY20 and Full Year Earnings Performance and Outlook. Listen to the full earnings transcript.
Call Participants: Mr. Sanjay Chamria - Vice Chairman And Managing Director, Mr. Manish Jaiswal - Managing Director & Chief Executive Officer, Mr. Deepak Patkar – Group CRP, Rajive Kumaraswami - Managing Director, Kailash Baheti - Group CFO
Key Highlights from the Management
It's a pleasure to welcome all of you on this investor call today to discuss our fourth quarter results. Before that, I am sorry and apologise for the delay which happened due to the technical reasons uploading our investor presentation and I hope you all have been able to download as we speak on the call. So gentlemen and ladies, we have been going through a once in a century event in the form of COVID-19 and its ripple effect is beyond anyone's comprehension with raging debates of lives versus livelihood.
Jury is still out on whether and how as a country we have handled it and when we will return to normalcy in our lives and livelihood. India has experienced Covid-19 as well differently in cities and rural towns. And the top 13 cities accounted for more than 65% of the total positive cases. And therefore, response to Unlock 1.0 has also been quite different in rural markets versus urban cities, metros and has been the mindset of the populous living in these markets.
Coming to financial sector and more particularly NBFCs, we have suffered the longest and the harshest times since September 2018 ever since the collapse of IL&FS, followed by DHFL and Yes Bank and many middle, small NBFCs during the 2019, resulting in confidence crisis amongst the lenders and rating agencies. And before the sector could recover from the same, COVID struck a fatal blow to the entire humanity and caused irreparable damage to the entire economy. With limited fiscal measures in its hands, the government has been juggling various challenges of providing food and other welfare measures for migrant labor and poor, as also economic stimulus to the ever reliable MSME segment and also doing some balancing act of fiscal deficit containment and inflation control.
While we have witnessed multi-year low GDP of 4.2 during FY20 and 41 quarter low of 3.1% during Q4 and projected minus 3.2% to 5% for FY21 and the negative outlook on the lowest investment-grade rating, there are distinct positives in the form of forex reserves at more than $500 billion, record harvest of rabi crop and the normal monsoon predicted for the calendar year 2020, and most importantly, negligible impact of Covid-19 in the hinterland of our country. In times like this, we all have to fend for ourselves and our survival instincts have to assume center stage and the entire corporate sector across industry groups has tightened its belt to ride over this most difficult periods in our lives through survive, revive and thrive mode.
At Magma too, we have adopted key principles of this motto of survive, revive and thrive along the following objectives - first and foremost is the employee safety and the welfare programs, followed by customer engagement and support in these times of crisis, third is capital preservation, followed by prudent liquidity management, strict OpEx control, followed by portfolio quality and finally digitized platform for contactless lending and collections. Coming to the first one, employee safety and welfare. We have been providing 24/7 support through an emergency response team of 85 persons to 9,000 plus people for any health-related issues as well as for their families and moved in to work from homes during the lockdown period. Now with Unlock 1.0 underway and more than 70% of our branches being located in the rural and the semi-rural markets, more than 95% of our over 7,500 field staff are in the field interacting with the customers and supervisory staff and managers have been operating from their homes and going to office as required and using the secured networks to access the data and reports, which are available throughout 24/7.
Coming to customer engagement and support, we have established personal contact with more than 3 lakh live customers during April and May to inquire about their own and family health, impact of lockdown on deployment of assets, cash flow situation and how we can support them. Our field executives and call center executives reached out to these customers across phone calls, SMS, Whatsapp, email, etc. and tabulated the feedback through the questionnaire and assisted the customers to avail benefit from the various supportive schemes of moratorium, interest subvention and providing further financial support, its cost implications and the collecting installments where the customers have started operations during the last 4 weeks.
Coming to the digital initiatives. As you are aware, Magma had launched this ambitious project on digitalization called Navodaya in early 2019 and timing could not have been better to launch the cloud-native LOS with this scorecard-enabled credit rule engine. And while it has been already implemented in SME business, a similar new LOS has been launched for the mortgage in March, and it will get stabilized with business resumption in June 2020. The ABF LOS rollout is underway, and all the third-party API integrations with FinTech are complete with automated data collection.
We have enhanced digital collection efforts through mobile payment gateways and can accept payments via UPI, debit cards or net banking and apps including Paytm, Google Pay, etc. Customer education on uses of digital medium to pay has helped collections during the lockdown.
As of now, over 75% of our collections are through digital modes, which has already led to gains in the field team productivity. These allowances have allowed digital processing of loans, and we have introduced robotic process automation technology for intelligent automation of back-office processes to boost efficiency and accuracy at lower customer operations. Earlier options of digitalization helped proactively manage COVID-19 situations and ensured seamless transition of business continuity planning without any productivity and security issues.
We have offered moratorium to all our ABF customers with opt-out scheme, while offered moratorium with opt-in scheme for the mortgage and the SME customers. We have decided to offer moratorium 2.0 from June to August only to those customers whose cash flows are still impacted due to disruption in business activity. As a result, 26% of our customers have opted for a moratorium for all the 3 months, while 64% for 2 months and 73% for only 1 month. As a result, collection efficiency has been adjusted for the moratorium cases, and it has shown improvement month on month. It was 112% in March, followed by 94% in April and 112% in May. We have resumed the month of June as a normal month without any moratorium extension. And so far, our collection efficiency till June 16, on an MTD basis is 54%, and it compares favourably with the March MTD of 72%. It reaffirms our belief and conviction that the rural and the semi rural India will recover much quicker compared to the urban India and metro cities.
We have suffered on account of credit losses during the year 2019-2020 owing to the poor economic activity and vehicle industry not doing well. And our improvement in quarter 4 suffered a jolt due to the lockdown in the last 10 days of the fiscal year. We have strengthened provisioning as on March 20 and increased the Stage 1 and 2 ECL from 2% to 2.2% and also created onetime Covid-19 provisioning amounting to INR 117 crores in Q4.
We are reasonably confident that the additional provisioning created for Covid-19 scenario should be sufficient to take care of the slippages, if any, during FY21, and with rural India bouncing back to normalcy by October, we will be able to preserve the portfolio quality.