Ladies and gentlemen, good day and welcome to Can Fin Homes Q2 FY 2025 earnings conference call. 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nitesh Jain from Investec Capital Services. Thank you, and over to you, sir.
Thank you, Sifa. Good afternoon, everyone. Welcome to the quarter two FY twenty-five earnings conference call of Can Fin Homes Limited. To discuss the financial performance of Can Fin Homes and to address your queries, we have with us Mr. Suresh Iyer, MD and CEO, Mr. Vikram Saha, and Deputy MD, Mr. Apurav Agarwal, CFO, Mr. Prakash, General Manager, and Mr. Prashant Joshi from Can Fin Homes Limited. I would now like to hand over the call to Mr. Iyer for his opening comments. Over to you, sir.
Yeah. Thank you, Nitesh. Good afternoon to everyone, and thank you for taking the time out to join the call. I'll just touch upon a few important aspects regarding the performance of this quarter, and then we can open it for queries. In terms of the first thing is in terms of disbursement, we've had a good quarter. There's been a good, you know, satisfactory improvement in terms of the disbursement growth over Q1. In terms of compared to Q1, there's a growth of, you know, 28%, and compared to Q2 of last year, there's an 18% growth in the disbursement. In sanctions also, we've seen a good growth.
Last quarter, we had indicated that there are two particular states, that is, Telangana and Andhra Pradesh, where we have had a negative growth or the growth has not been up to the mark. So, from those two states also, in this quarter, we've had Andhra Pradesh, which has turned around, and it is in the green in this quarter. So only Telangana, we are having a bit of a problem, and we are going a little slow because the same issues of registration and there are some, you know, incidents regarding demolitions and all of unauthorized properties, because of which the sentiment is a little low.
Other than that, in terms of the AUM growth, we have had an improvement compared to Q1, where we ended at 9% AUM growth. We have improved it to 10%. Going forward, we expect that by the end of the third quarter, this AUM growth should be in the region of 11-12%, and then going forward by end of fourth quarter, it should be around 13-14%, or we'll try to at least cross that. In terms of the spreads and NIMs, we've had a very stable quarter. Our cost, our yield has remained stable at 10.12%, and in terms of our cost of borrowing, as indicated in the last quarter, I think we were expecting a one or two basis points improvement, which we have witnessed.
Therefore, the spread has improved by two basis points, and NIM also has improved. In terms of the credit cost, of course, we have had a reduction in our absolute value of NPAs, because of which our Stage 3 provisioning has come down. There's a marginal increase in our Stage 2, you know, provisioning. We are working on that. That is one area where we need to work on our delivery in the Q3. And in terms of... But however, we are sticking to the same guidance in terms of ten to twelve basis points, in terms of our credit cost. OpEx has been a slight increase.
Mainly there is this one aspect, which is, of course, a cyclical aspect, wherein in the second quarter we announced the promotions and increments and all, but over and above that, in this quarter, we've had a slight aspect in respect of actuarial valuation, wherein we've had, because of a discounting rate, we've had about three crores of higher costs coming in, and as we had indicated in the last quarter also, that we are stressing on the SARFAESI actions, so because of that, there's approximately a one crore expenses which has gone up because of our legal expenses for SARFAESI and all.
And also there is a small increase because of our you know communications because we set up our marketing team. We also activated our social media advertising and everything. So there's been a small about 80-90 lakhs increase because of our communication cost as well. So these are the major highlights in terms of the performance. I think along with each of these aspects, I've also guided as regards to what we are looking for in the coming quarters. In terms of the spread, we don't expect any deterioration going forward also, because in terms of our sanctions also, we still hold a good amount of sanctions, which are at very competitive rates.
One, another aspect which has recently happened is that we have also got a sanction from NHB for a refinance sanction, which will be at a cost lower than what we are borrowing from banks and NCD and everything. So that also should help us in the third quarter. And, so we don't expect any deterioration in our spread, and we continue to have the same guidance of 2.5% plus spread and 3.5% plus NIM. So that's the nutshell, in a nutshell, the performance of the quarter and the guidance for the next quarters. I thank you once again, and I leave it open to the floor for queries.
Thank you so much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may press Star and One on their touchtone telephone. If you wish to remove yourself from the question queue, you may press Star and Two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. So we have the first question from the line of Mr. Rajiv Mehta. Please go ahead, sir.
Yeah. Hi, congratulations on strong performance. So my first question is on the increase seen in SMA zero and one, particularly in Q2. So Q1 was understandable, but Q2, we have seen even higher increase in SMA zero and one. It also indicates a collection drop at the first place. So just wanted to understand why it happened, and is it also in some way linked to, I mean, were these accounts more on the side of self-employed home loan or LAP? And if you can comment about the reversibility of this increase in the coming quarters.
Yeah. Thank you, Rajiv. This increase in SMA zero has been not much, but however, the SMA zero is mainly on account of a small regulatory change, where you know, we had this you know, tendency of customers paying some small amounts in advance, and it used to be up to one EMI as advance because of the payments which were received from the customer. So some one or two small bits, like one cheque bounce and we have to redeposit it or something of that sort. Those kind of customers would generally, you know, the amount will get covered from the advance. So there was always that impact. But one of the recent circulars said that any excess amount has to be credited to the principal.
So to that extent, that small flexibility has gone, but that is more of a cyclical thing, because what we are seeing is that when the next batch hits, that whatever INR 50, INR 100, INR 200, small, small amount gets adjusted and they are cleared. So SMA zero is not a problem. SMA one, yes, there has been a slight, slight increase, as I indicated. In fact, what we have observed is that our SENP, we have had a slight improvement. The improvement that has come in our NPA also is mainly in interest of the SENP category, where we have seen. So there is no that, you know, kind of concern that we see in terms of a segmental issue which can affect our collections.
But yes, about 102 crores approximately are increase in our SMA one plus SMA two, which is what we need to work on in this quarter. So this third quarter, we will definitely be focusing on bringing this down. But we don't see a problem in this sense, as I indicated, because we more of a, you know, a little like extra effort we'll have to put it. That's fine.
Got it, sir. And, also, what explained that we were able to hold on the portfolio yield. So I mean, firstly, we can give out the incremental lending rates in salaried home loans, self-employed home loan and LAP on a blended basis. So what is the incremental lending rate here? And is there any other factor, you know, besides the product mix which is supporting yield as well on the portfolio basis?
See, in terms of our product-wise pricing and all, there's been no change in Q2 over Q1. So the main reason for this yield holding up is only because, you know, there's been a slight improvement in our, as we had already indicated, that there's a scope for us to improve a little bit of our SENP. And also there is a little bit of a scope to improve on our LAP. Though, although LAP has not been increased much, it's a very, very marginal thing. But our SENP, which used to be around 28%, now we are having about somewhere in the range of 35%-38% is the incremental SENP category lending that is happening. To that extent, our, you know, 0.5% extra that we used to charge for the SENP over salaried segment, that is helping us in holding up our yield.
Okay. And just lastly, if you can just tell us the mix of bank loans in terms of the benchmarking, MCLR, repo and the other shorter end benchmarks, the composition of bank loans, please.
Yeah. See, last quarter, we had a 40/40, you know, breakup of bank term loans linked to repo and MCLR. We've had some, you know, MCLR-linked loans. We have either, you know, repriced or we have repaid, and that is why now and move to repo-linked loans. So we have about 45% of our bank term loans, which are linked to repo, 35% linked to MCLR, and the balance we have T-bills and all those things. So basically only thirty. That MCLR-linked loans are now reduced from 40% to 35%.
And would we be allowed to use the NHB sanction in repaying the MCLR-linked bank loans? I mean, is that allowed, or it has to be only used for refinancing of the asset? So, I mean, can we have that arbitrage in our favor when the money comes?
No, it is for incremental creation of portfolio. That will just have to be there for incremental portfolio that we'll be assigning and creating.
Okay. Not only existing MCLR loans. Okay.
No, no.
Okay. Thank you so much.
We will be able to use some other, you know, that flexibility is there to use, because we have another INR 2,000 crores sanction, so that definitely, you know, will help us to, you know, clear some more things which we can use to repay the MCLR-linked high-cost loans.
Understood. Thank you.
Thank you.
Thank you so much, sir. We have the next question from Mr. Shreepal Doshi from Equirus. Please go ahead, sir.
Congress
Sorry to interrupt, sir. Your voice is not clear.
Yeah, sure. Am I audible now?
Much better, sir.
Yeah. So my question was on pricing and margins. So given the portfolio mix, you know, marginally shifting towards better yielding, and also, you know, there might be some possibility of portfolio repricing. So do you believe that we can actually do a better margin this year than last year?
Yeah. Thank you, Shreepal. First of all, see, in terms of the pricing, going forward, yes, we will have a little better yielding portfolio which will get created. So that is there, but we'll have to see how we are able to reprice. In fact, it is more likely that we will be able to benefit from the repricing of the liability side rather than from the asset side. That is more likely possible.
As I just mentioned in the, to the earlier question also, that our MCLR linked loans and some of our high cost loans, now that we have a higher sanctions on hand, we will be able to, you know, maybe reprice or repay some of our high cost borrowings and MCLR linked loans. Going forward, when the rates start coming down, yes, that will benefit us. On the yield side, not as much as from the liability side.
Got it. Got it, sir. And then second, just on this SMA one and two pool. So as you highlighted that it is not much of a concern, but, so because typically what we see is that from one Q to two Q, the seasonality sort of moderates and, you know, collections start to improve. But despite that, you know, this quarter we're also not seeing that. So, what are the aspects that you are seeing which is giving you comfort that even in Q2 we'll be able to sort of co-recover this accounts?
As I said, you know, this slight change in this guideline, where we are not able to keep an advance or anything, that is in fact giving us a slight you know flexibility that we had is gone. So, you know, therefore, the flow back is also if it happens, we are not able to, you know, come back and some customers always have that seasonality or some delays they keep making, and collection has to be a little more you know extensive for some of the segments and small pockets. So those are the ones where we are having it, but we will be deploying more people and we will be, you know, taking some more things. In fact, we have already started taking certain actions for those kind of things.
So, I think it should not be. My comfort comes from the fact that, from two points actually, as to why we believe that our NPA and gross NPA, our collections will improve. One is that, you know, in terms of our restructured portfolio, our collections have come down considerably and our NPA has also reduced, which was in Q1 at 18% of the outstanding restructured book, has come down to 17-point-something% in the restructured book. So, that is one thing.
The second thing is, you know, in terms of, as I mentioned earlier also, our collections or the reduction which has come in our portfolio, that is coming more from the SENP segment, which is generally considered to be a little more sticky. So these are the two aspects why we believe that, you know, it should not, you know, have an impact. And, to some extent, yes, the, you know, collection efforts we are, that we are putting will also bring in some support. So that's basically the three reasons why I believe, we are confident that, this will not have a problem.
Got it, sir. Got it. Thank you so much, sir, for the detailed answer, and good luck for the next quarter, sir.
Yeah. Thank you.
Thank you so much, sir. We have next question from Mr. Abhijit Tibrewal from Motilal Oswal. Please go ahead, sir.
Yeah, thank you, and good afternoon, everyone. Sir, just two, three things. Firstly, I mean, just trying to understand, while this has been a good quarter, I'm just trying to understand how should we look at the industry in general? Why I ask this is, today if you look at the small ticket size or what we call as the affordable housing segment, there we are seeing growth sustain. But it's. On the other side, we look at, I mean, some of the large HFCs who are into slightly higher ticket sizes, where there is indeed tightness in terms of growth.
So, I mean, if you could just explain this dichotomy, which is there, from an industry perspective. Then a related question that, while for the full year, FY 2025, you guided for 13%-14% kind of a loan growth, I mean, how is it going to translate into disbursement momentum for the next two quarters? And then will we be gunning for higher loan growth from next year onwards?
Yeah, sure. See, first of all, as to your first question regarding the segment that affordable housing companies are doing better and the higher ticket loan companies are having an issue. Actually, if you look at our quarterly performance, in fact, that same trend which we had in the first quarter is continuing, wherein our twenty lakh plus segment is where we are seeing the growth. And even if you look at the simple fact that the cost of construction also today, even in the smaller tier two towns, the property values are not anywhere below twenty-five lakhs. So affordable segment, it's a different segment that, you know, you have a, you know, a segment of unbanked or maybe all those kind of appraised income, where formal income segment is not there at all.
But in our case, in fact, it's a twenty lakh plus segment where we are seeing the growth. So I don't see any, any issue in that. And, as I also mentioned in the first part itself, in the opening remarks, that our growth is in fact, we have witnessed across geographies except for the state of Telangana. So even, Andhra Pradesh, we are seeing the same trend, that across the board we are seeing, improve. The growth has come from the twenty lakh plus segment. So I don't see, maybe it is could be some other reason, and, we don't see that kind of a thing. Even in terms of sanctions, if you see, our growth has been very strong in the Q2 compared to Q1.
That's the reason we believe that there is a good amount of scope, and we don't expect the thing to come down. That is the first part. And in terms of the, your, the guidance that we are talking about, 13%-14%, see, normally, first quarter, sorry, first half, it's, 45%, and second half, we witness normally 55% of the disbursement happening. That's the general trend, the second half is always better. Now, if you go by that, we have already done about INR 4,500 crores close, that we have done in the first half.
Going by that argument, another INR 5,500 crores is anyway, what it should happen even if you go by the past cyclical trend. That, plus whatever extra books that we are making, is what we believe will bring us to something more than INR 10,000 crores by the end of the year, which is what should get us the 13%-14% kind of a growth. I hope I have answered your question, Abhijit.
Yes, sir, you have answered. So when you are expecting a similar growth trajectory in the next, or the medium term, I mean, beyond FY 2025 as well?
Beyond twenty-five also, I believe, you know, this trend should continue because we are putting in place a lot of things like, you know, one is we are broad-basing the geographical presence. In last year also, we opened branches, mostly toward the north and west. This year also, we are doing it. So basically, one step we are taking is we are broad-basing the geographical presence. The second thing we are doing is, you know, we have opened up segments like, as I mentioned, this SENP is slightly improving.
We are also open to a little bit more of LAP, although which is right now only about 5%, and this quarter has not been much. But as I mentioned, we have initiated the activities for marketing. We have also set up a small marketing team and all. So going forward, all those things should translate into better business and a more sustainable business going forward beyond FY twenty-five also.
Got it, sir. And sir, the second question I had was, I mean, again, on asset quality, lot of discussion has already happened on, SMA one and SMA two. But, I mean, my question was more generic, given that in the last maybe one or two quarters, right, there are banks, there are NBFCs, right? We've started talking about a more of a broad-based kind of a stress that we are seeing in, both in retail and SME. However, having said that, right, I mean, we are not seeing, we are not talking about that stress, in the housing segment or the mortgage segment today. So just trying to understand, I mean, are there any indicators which would suggest that some of this stress, which is there in unsecured today, can spill over to the secured segments as well, like mortgages?
In terms of the unsecured segment, obviously, there has also been some regulatory tightening, and that also would obviously have impacted the, you know, the repayments and everything, because a lot of it is more, you know, one loan leads to another, which is exactly what the RBI pointed out. In terms of a housing loan, however, that particular tendency is not there. So I believe, you know, you cannot compare, you know, the unsecured loan, vis-a-vis the housing loan, and particularly when you are talking about a self-occupied residential house that we are talking about.
Unlike, you know, the personal loans and, short-term loans, which are more for, consumption or for, you know, investment and, or speculation or whatever. So these are two completely different segments. So housing loan should traditionally also, you know, reflect a better and repayment compared to the personal loan and short-term loans, and that is precisely what, since our self-occupied residential is what we are mainly focusing on. Therefore, that is something which is not yet reflected.
Got it, and then my last question was, I mean, while you've already given out your bank term loans, what is the mix between repo, MCLR, and T-bills? Just trying to understand, I mean, hypothetically speaking, right, let's say if there is a 25 basis points cut in the repo rates, I mean, how will and over what duration will that translate in our liabilities? In other words, out of 25, what proportion will reflect in our lower cost of borrowings and over what period? And commensurately, I mean, just, I mean, having seen so many cycles, typically, is it the case that, I mean, in the initial part of a rate cut cycle, margins will be under pressure and then, it, they will pick up as things go along?
See, as we mentioned, about 60% plus of our borrowing is on the, through bank term loans, and about 45% of that is linked to repo. So any reduction in repo will immediately translate in about 25% of our book on the liability side, which will experience a 25 basis points benefit. So which means, you know, if 25 basis points reduction is there, then we will be in a position to pass on somewhere in the range of about 10 basis points max to the down the line to our customers. And we have already moved effective January, last January, we moved our you know reset cycle from annual to quarterly. So on a quarterly basis, we'll also pass on.
We have in the past also been very fair, and we have passed on immediately without much of a lag. So at most, if at all, there is something, it will be for a quarter that we may be enjoying a little bit of a benefit in terms of interest rate. As soon as the repo rate cut is announced, the banks will have to immediately pass it on to us, and we will, at the next reset cycle, which is in a quarterly cycle, also pass it on to our customers, obviously on a pro rata basis, which is ten paisa to twenty-five paisa kind of a thing.
Got it. So, sir, I mean, just to clarify that, is that, I mean, when there is a twenty-five basis point cut, depending on how it affects your cost of borrowings, on a pro rata basis, on a proportionate basis, you will be passing it on? Because our home loans are not really linked to repo.
Yeah, we are not, we are not required to be, to link it to EBR.
Got it. Got it. This is, this is all from my side. So congratulations on a good quarter, and, and wish you and your team the very best.
Thank you. Thank you, Abhijit.
Thank you so much, sir. We have next question from the line of Ms. Shweta from Elara. Please go ahead, ma'am.
Thank you, sir, for the opportunity, and congratulations on a good quarter. I just have one question: so while you were alluding to growth targets of 12-14%, one, what is the growth target for next year? Two, how much steadiness do you see on the repayment scenario, and if you could throw some color on BT out cases? Thank you.
Yeah. I just, I think I missed the second question, not very clear, but I'll just answer. See, first of all, in terms of our BT out, it is just sorry. We have a total close to 3.75% quarterly repayment, which is happening, which comes to somewhere around 15% for the entire year. Breaking up into our how much is part repayment, how much is, you know, amortization, and the rest is closures and BT out. Our BT out, out of the 15% is about 4%. 4-4.5% is out of the closures and BT out. The remaining 10-10.5% is either part prepayment, where customers continue to service their balance portion of the loan, or amortization impact, which is there.
Growth is 6-14.
And growth for next year, I think we would continue to have about 15%-17% is what we would aim in terms of the AUM growth.
Sure, sir. Thank you so much, and good luck.
Thank you.
Thank you. We have next question from Pawan Kumar, from Ratnatraya Capital. Please go ahead, sir.
Sir, I wanted to understand what are the new geographies that we are entering, in terms of number of branches. Do you have plans to increase the number of branches? And what is the strength of our sales force team as of now, and what are our internal targets about how much of the new business can be sourced through our own sales team? Please.
Sure. See, in terms of our branch expansion, we are planning for another 15 additional branches in this financial year, and this would be mostly in the north and western geographies. In terms of our sales force, we don't have a dedicated sales force in a large sales force. We have just started a marketing team, sales team that is, and we have a very small team. We're just experimenting in the north and west mainly. So in a couple of states, we are doing it. So we don't have much of a sales force presently in the on ground kind of a thing, which we will, however, will be building as we go forward.
So this is a small pilot which we have done, and this has started showing some results. In the long run, we expect about 20% of the business to come through this sales channel. And so things should come down from the present 80% to about 60%. That's the breakup. 60/40 is our goal, which we expect to achieve in the next two years by FY 2027. We expect to bring it down to 60/40.
Okay. Okay. No, but are you, are you planning to hire new people in the market for our marketing as of now?
We will be either from our existing teams, wherever possible, wherever you know productivity limits are allowing us, we will take from our existing teams also. Otherwise, yes, we are open to, in fact, slowly build our sales force through lateral hiring.
Okay. Okay, and, one last thing, what are the new states that we are entering?
Sorry? I can't hear.
The new states you are talking about in North India that you are entering. So I was just curious on what are the-
We are not looking at new states. We are already present in almost all the states in the West and the North. We will be expanding or going deeper in these geographies, basically. Like last year, we are already there. Like last year, we opened branches in Bikaner, Pali, then we have in Ratlam, Ujjain, we had in Saharanpur and Meerut, and so on. So basically, we'll be in the existing geographies. We are looking at deepening our presence and opening offices in tier two towns.
Okay. No, okay, sir. Thank you. I'll get back with you.
Thank you. Thank you, Pawan.
Thank you so much. We have next question from Anusha Raheja, from Dalal & Broacha. Please go ahead.
Is it audible?
Yes.
Yeah. So, what is the incremental, you know, average ticket size of the loan?
Average ticket size, we've not seen much of an increase in our ticket size. It's still hovering around INR 25 lakhs.
Okay. On a blended basis, what will be the average ticket size?
That's what, on a blended rate, it is about 25 lakhs. But we are seeing more of a rise in the 20-30 and 30+ segment. Yes, it is, so it's a little in the decimal increase would be there, but otherwise it is in the 20-30 and 30+ segment only we are seeing a growth. Average ticket size is around 25, which should inch up to around 27 in a year's time or something.
Okay. And, sir, on the margins, if I have to sum it up, you said that there could be positive traction on the margin side that will come more from liability repricing. But you know, in a declining interest rate scenario, we are in a competitive world, so even banks are also there in a similar set of, you know, loans. So if banks bring down their rates on the home loans, is it not possible that you will also have to bring it down and so that might result in the stable margin profile?
See, there are two things to this. First is that, you know, our reliance on deposits is a very, very small percentage. We have a less than 1% or thereabouts in terms of our deposit reliance. So therefore, our main cost of borrowing is impacted mainly because of the bank borrowings, NHB refinance and NCDs. Okay? Whereas in terms of the banks and some of the larger players, their reliance on deposits as a source of funding is much, much higher.
As a result of which, today, looking at the rates at which the deposits are being raised, definitely the incremental cost of borrowing is unlikely to come down. So the flexibility to reduce the rates, I feel it will be a little less for some of the bigger players as compared to us. And in our case anyway, we, you know, if the competition is not reducing the rates, obviously we would not reduce the incremental lending rate, except for the whatever rate benefit we have to pass on to our existing customers.
Okay. So any qualitative expense, how much could we see a margin, you know, traction or expansion, some broad, you know, view there?
See, our endeavor would be to, you know, repay some of our high-cost bank borrowings or things like that, but of course, I wouldn't, I mean, I don't have a number right now readily available as to how much it will be, because it is obviously also a matter of how much we can discuss with the bank, because it's a long-term relationship we have, and so it's not going to be very aggressive, but yes, our endeavor is going to be there. We'll try to negotiate and, if possible, if bank's willing, we will be able to reduce it. Otherwise, we will have to also look at it, but I don't have a figure, but that is one avenue which is open to us to kind of bring down our cost of funds.
Okay, sir. And just one last thing on the, you know, mix of the loans between self-employed and salaried. We are seeing a good traction on the self-employed segment. So any ideal mix that you are aiming between the two?
Yes. Actually, we had about 72% salaried and 28% self-employed. But incrementally it is right now around 35% or thereabout, 35, 38% is coming to self-employed. But on the overall mix, we are still closer to the same 70-30 or thereabouts only. We are open to go up to 65% in the salaried and 35% in the self-employed in the near-term range. And in the next two to three years, we are open up to. We are okay up to thirty, 65, 35. On the AUM basis, of course.
Okay, just one last question. I can squeeze in. Sir, you said that there, you know, you'll be opening closer to around fifteen new branches in current fiscal. So, can we expect a similar sort of trajectory over the next two to three years' time frame, that this expansion will continue in FY twenty-six and twenty-seven as well?
Yes. We are looking at around up to 300 branches by FY 2028. So we will be looking at around 15, 20 branches in the next years as well.
Okay, sir. Yeah. Thank you.
Thank you.
Thank you so much. We have next question from Antariksha from ICICI Pru. Please go ahead, ma'am.
Hello, yeah. Am I audible?
Yes, you are audible.
Yeah. Just one small question, this is regarding this fourth October draft circular by the RBI, regarding similar lending by group entities for banks, where they're proposing not to do similar activities under different related group entities. Any conversation with your parent or any discussion on comment that you would offer?
Not yet, because right now it is still at a draft stage, so I believe all the banks have been given time till November twenty-first or something to give their feedback.
Okay.
I believe there is already a risk that, you know, looking to the kind of... There is also a little bit of ambiguity in terms of, which all segments it covers, because it is not only going to affect housing finance companies, it's also going to affect all the personal loans or this, vehicle loan companies. It's also going to affect, insurance holdings and stuff like that. So maybe, you know, some more clarity will be definitely sought. There definitely is going to be some more, discussions which may happen before we finally see something coming out of it.
Okay. Got it. Thank you.
That's all. Thank you.
Thank you. We have next question from Kushan Parikh from Morgan Stanley. Please go ahead.
Hi, sir. Congrats on the good quarter, and thank you for taking my question. I have two questions, largely around the asset mix. So, obviously, you said that you are comfortable with taking salaried down to 55% and 45% self-employed. Do we have a similar target mix that we are looking at between housing and non-housing, essentially, LAP? And just also from a data point perspective, within LAP, could you help us with the collateral share, as in how much would be against residential property and how much against commercial? That's my first question. I should just put in my second question as well?
Yeah, first I answer this, if it is okay. So first thing, thank you, Kushan, for your everything. In terms of the projected mix, for LAP, as I said, for salaried self-employed, we are okay with 65-35. For LAP, right now we are around 5%. We would be okay going up to about 7%, because eventually, in terms of our, excluding, you know, after eliminating the CRE portion of the housing portfolio also, the pure housing, we would like to kind of keep it up to around 70%. So keeping that in mind, we have a scope to around 2%-3% of extra leeway that we are currently having, of which we would like to have LAP going up from 5% to 7%. So that is one thing.
And in terms of your LAP breakup, actually, most of it would be housing. Though I don't have an exact number right now, but I think we would we are mostly doing only against LAP also is purely against residential only. Commercial LAP and even commercial lending itself for us is very, very small. So out of the 5%, I think it. I don't think it will be more than 0.5%, but I don't have the exact number to be right now offhand.
Understood. That answers my question. And if I can follow up with my second question. To understand basically on the Telangana, do you see the-
Your voice is not clear. Can you please repeat the question?
Is it clear now? Am I audible?
Yes, sir. Much better.
Yeah. So, on Telangana, on the Telangana situation, just wanted to understand if you started seeing an improvement in Q3. I mean, when you say, when you I mean target 100 billion-plus disbursements for the full year FY25, does that any improvement in the Telangana situation, or that is irrespective of the current situation there?
Yeah. See, in Telangana, we have at least Q2 has been quite stable, although we've not had a positive growth, so there is no this thing. But, you know, last quarter, we had this issue, so after that, I myself have visited also. So basically, there is a little bit of, you know, discomfort among the developer-builder segment and all, because there have been some demolitions and stuff like that. Obviously, it doesn't affect everybody, but still there is a slight, you know, cautious approach that is taken by the developers. So the present, what we are looking at in terms of this, disbursement target that we have given, we are, looking at a steady state Telangana performance.
What is there in Q2, Q1. So obviously, if it improves, that will help us. But I don't know how long this will take, because normally, you know, these kind of things are generally clarified well in advance or quite quickly by the government. But this has gone on for... This is the second quarter we are experiencing this kind of a thing. So, I mean, if it improves, it will definitely help us. Does that answer your question, Kushan?
Yeah, thanks. That answers my question. Thank you.
Thank you so much. We have next question from Omkar Shinde, who is an individual investor. Please, go ahead.
Yeah, thank you for taking my question. I wanted to understand, you have mentioned that there is a technology upgrade that is initiated and which will go live by next quarter. So what is this technology change that you are doing, and how is it going to help the business, in what sense is it?
See, we have at present LOS/LMS package, which we are upgrading in terms of, you know, we are upgrading. That is the first phase of our technology transfer that we are doing it. So that is something which we have already implemented, in the sense that it is already tested. The UAT has been completed. Our parallel run across branches has also been completed. So that is going to be implemented now. Now, once that happens, of course, it has, it will enable us to, in fact, add a lot of other third-party solutions also to it, which already we have quite a few of the smaller modules we have already implemented. Like, we had, with the last two to three quarters, we have implemented the tie-up with Valocity, which is for valuation.
We have tied up with this solution for a little bit of a CRM and marketing. So a lot of things we are already doing. We are. So these are the things which will be possible. So this is the first phase of the upgrade, for which some of the cost implementation cost aspect has already been incorporated into our estimates. Because, you know, this was started from January 2024 onwards, so in Q4 of last year, plus Q1 and Q2 of this year, the impact of the cost impact, which is about three-quarters, three crores per quarter increase, that has already been factored in.
Understood. So is this like some platform-based, like, Salesforce or Oracle, something like this? Or this is something entirely different on... It is existing, and on top of it, we are upgrading?
No, this is an existing one, which we have been using for the last, many years, almost a decade, kind of a thing. On that, we are upgrading because, you know, the vendor is also, with the help of the vendor, we have upgraded quite a few aspects in that solution. Even in the UI, UX, we have made a lot of changes. We have kind of made it a little easy for the users to use.
And we've also enabled a lot of features like, you know, they have their own CRMs, they have their own kind of thing. So all those things we have, done it. Vendor management, we have implemented. Reconciliation modules, we have implemented. Some of these things we have already implemented, but these are an enhancement that we are doing, which is now going live in this month. That will allow us to add quite a few new modules as well.
Okay. So understood.
Old one. Yeah.
Understood, understood. So what will be the, how, what are you looking to gain from? So will this improve the productivity or, how will this impact the business going forward? That is also wanted to understand.
Sure. See, there are two benefits basically which come from it. One is, of course, as I mentioned, the UI, UX. So, from the user point of view, you know, a lot of things are already, you know, incorporated. We are also, once this is implemented, we'll be able to streamline a lot of things which are presently being done manually, so that should help us in terms of the productivity. Like once this is done, the CRM module can be incorporated.
The Karza module, which is now being done manually, can be incorporated. Of course, we have done the Karza, and we have done this Velocity, and all those SI's we've already done, but those are operated separately. This can also be incorporated into the same existing module. The flow, which is there, which also will become a little more seamless. This will help the users also to kind of improve. There'll be an improvement in our TAT to the customers also.
Okay. So what is the current TAT now, and how well we see it going?
See, right now, also the current TAT would be around, for a salaried customer, about three to four days, and for the self-employed, it would be a little longer, maybe about seven to 10 days. So we are expecting, you know, from there also, you know, if a salaried customer and a high-profile customer and everything is absolutely clear, I think the TAT should come down by another, one or two days.
Okay. And finally, with respect to incrementally, we are seeing our disbursements being towards to more than thirty lakhs, so the share is increasing. What I wanted to understand is, do we then see any benefits coming from the PMAY scheme, or will that not affect the business much? Because that the scheme focuses more on the twenty-five lakhs and below segment, and we are seeing more traction in the twenty lakhs above and thirty lakhs above. So, wanted to understand that.
See the PMAY, once it gets implemented and gets, you know, rolled out in a full manner, the demand for home loans also marginally improve. Although, you know, this scheme has a much lower benefit compared to the previous PMAY CLSS 1.0 . The CLSS 2.0 has a slightly lower benefit, and it is spread over five years. So yes, there could be some benefit which could come from it. In the past, whenever customers have come, this would definitely help. The other thing is in PMAY 2.0 , the government is also looking at a portal from which the customers themselves can select the vendor or the lender with whom they want to go to.
So they have to choose three to five lenders whom they want to go to, and the data of the customer will go to those customers here. So in fact, right now it is more of a sales-driven kind of approach, where we are doing twenty-plus segment and all, which is more a directionally, we are you know trying to focus on that segment. But here there will be a lot of you know inbound kind of a demand, which will come to us through the portal once it gets implemented. So there, yes, it can help a little bit, but how soon they are able to implement it, we don't know. We'll have to wait and watch. The scheme itself gets these operations from the first of September only.
Thank you. Just two data clarifying points. What is the login to sanction ratio and the sanction to disbursement ratio?
No, login to sanction ratio.
Yes, yes.
Once the sanction is there, it is obviously linked to the stage of construction and to the kind of product. So that is something which we cannot change. If the customer takes two months for to go to the next stage of construction, then obviously the next disbursement will happen after two months only. We are talking about the login to sanction data.
Yes, yes, login-to-sanction. What is the ratio? What, if application was of, say, X amount, how much of it is sanctioned, and I wanted to understand that.
You are talking about the funnel. The funnel, yes-
Yes, yes, funnel, funnel.
If you, if you see our data also, that we have over 90% of the cases are getting sanctioned. If you see the sanctions right now, in our presentation, our sanctions have been almost INR 2,600 crores and disbursements have been INR 2,380 crores. So that's almost like a 90-95% is the flow through.
Thank you. Thank you.
Thank you so much. We have next question from Jigar Jani, from BNK Securities. Please go ahead.
Yeah, hi. Thanks for taking my question, and congratulations on a good set of numbers.
Thank you.
Just a couple of questions. On the OpEx front, because you said that most of the tech you have spent over the last three quarters, you have done three crores every quarter, do we see any material change in the cost to income ratios going ahead? Do we expect an improvement? And I believe there was another big project wherein we were trying to kind of revamp the entire IT system also. Any update on that?
Because I believe that you were talking about that as well. And whether that could be taken up in FY 2026, and correspondingly, what would be our cost to income assumptions for the FY 2026? Similarly, for credit costs, this year, we have seen a significantly lower credit cost of 10 to 12 basis. Do we maintain the same guidance for FY 2026 as well on the credit cost front? Yeah, these are my two questions. Thank you.
Sure. See, in terms of IT costs, the changes that we made in the last two to three quarters, they have already been there. As I said, the major component is the upgradation of the present package, the LOS/LMS package, which is approximately about INR 3 crore per quarter, and that has already come into the picture from January onwards. Yes, there are a lot of small packages which we are, you know, also incorporating, which we are also doing it. A lot of it is, you know, it already comes in with the, it's part of the upgrade that we are already doing. So it will not have very much impact in terms of the cost going forward, at least not the phase one that we have seen, which has already been factored in. Okay?
Second thing you mentioned is, your question was regarding the major IT transformation project, which we have done. So we had an RFP which was floated, and that, we have already received six bids for it, and, we are right now under the evaluation stage. We expect to close that, by end of December and, you know, award the contract to one of the SIs. Once that is done, the project is estimated to take about 9-12 months. So it is not, you know, I would say probably somewhere in the Q3 of next financial year is when we will see it implemented. Obviously, I don't know the cost because, you know, until we open the bids, we don't know what is the cost expected.
But at least what we believe is that, you know, a major component would be the CapEx. The OpEx would be somewhere around about 30-odd crores, 30-40 crores would be the actual cost which will be there. Presently, we are already spending about 15 crores as OpEx in terms of the IT. So if it goes to about 40 also, about 20-25 crores is what we expect the incremental OpEx on an annual basis to go up. Once the new scheme is implemented, sorry, the new IT project is implemented by the end of December 2025. So that is the point.
As regards the credit cost, well, yes, traditionally, looking to the kind of portfolio, the kind of NPA ratios and all that we've had, well, our gross NPAs have always been below 1%, and we are right now also in the same phase. So going forward also, I think that it should eventually work out to around 10-12 basis points, in terms of credit cost only.
For the project which we had mentioned last time. The CapEx estimate was about 60 crores, right? For the IT project.
That was so initially when we had looked at the first RFP, our budget was around which we had announced in 2022, which we actually didn't go through. At that time, the cost was yes about INR 60 crores would be the CapEx, and then about INR 25-30 crores approximately for a period of 7 years would be the OpEx. That is what was the initial approval which we had taken from the board, and which was the kind of expectation there.
But as I said, since then, two years have kind of elapsed, so we are not sure as to what would be the cost. But, yes, I mean, if you look at the simple, you know, but the IT costs have gone up, so we are not sure whether it will be in the range of around INR 300 crores instead of INR 250 crores, or it would be around INR 350 crores. So that would be the kind of range. I don't expect it to be beyond that.
So INR 250-300 crore should be the total cost.
This is the INR 300 crores or something is what I'm saying about, is the OpEx plus CapEx over a period of the next seven years, is what I'm talking about.
Okay.
Because we have 60 plus 30 over six years, or it was somewhere around 250 crores, which probably could be around 300 crores. So if that happens, probably instead of 40 crores, it could may might be about 45 crores also.
I get you, so largely, it will be in the OpEx mode, is what I understand, because it is over seven years and we are expecting INR 30-INR 40 crores of OpEx per year, so it's mainly in the OpEx mode, in which you will be doing this.
The OpEx, it will be, as I said, around 25, with the 35-40 crores, which is currently around 15 crores. So that would be the impact, yeah.
Yeah. And sir, lastly, just on this PMAY scheme, can you just show growth and color? Because I was speaking to someone, and they were saying that now probably the government is thinking of giving the subsidy directly into the customer's account, as against adjusting it from the principal of the loan. So, have you got any growth and color whether that is how it will happen or it will be like how it was running in the past, that it will be adjusted from the principal outstanding?
No, it will be from the principal only. That is how it is going to be.
Mm-hmm.
This time we recently had. Because what has happened is the government has now released the draft MOU also, and the government is expecting to kind of execute this in the next month or so. So if that happens, I mean, it is that is what it is. But what indication during that meeting, which we had was that, you know, the government will continue to make the payment to the PLIs, and the PLIs will have to give an immediate transfer to the customer's loan account, and the entire amount will go towards principal, which in fact was the case in the previous version of CLSS also, where the entire amount had to go towards principal and cannot be adjusted towards outstandings or any overdues or anything of that sort.
Right, and this will be split into five parts. So the principal rundown will be a little bit slower than what it was? earlier, in the earlier Q1.
Not only will the rundown be less, but, you know, this time the government has done two very, very positive things for the industry. One is that if the customer transfers the loan during the period of the you know PMAY scheme or when the payment the balance payments will not be made. So if the customer has to avail the entire benefit of the PMAY, then the customer will have to continue the loan for a period of five years with the same institution. So suppose somebody has taken a PMAY benefit from me, and after the end of two years, they have moved the loan to some other lender, then in that case, they will not get the remaining three years benefits.
The other lender also cannot claim the benefit for that particular loan. So that is the one benefit that has happened. And second thing is that the government has also stipulated that the loan has to be a perfectly regular service account. If the customer starts defaulting, then the balance benefit under the PMAY will not accrue to the customer. Therefore, this should also bring in a little bit of, you know, discipline in the customers as well.
Right. And this default is 90 plus, right now?
I guess they have said default, so we will have to see whether it is, you know, even SME accounts or it is only NPA.
Okay. Okay, understood. This is very helpful, sir. Thank you so much for this information.
Thank you. Thank you.
Thank you so much. We have next question from Pawan Kumar from Ratnatraya Capital. Please go ahead, sir.
This year, in the sense, IT costs, we are saying operational costs will be around INR 40 crore per year, out of which, currently we are already incurring INR 15 crore. So you, so the incremental cost that we will incur is INR 25 crore per year. Is that right?
That is correct. That is correct. Once it is implemented, the OpEx will go up by around INR 25 crore in a year. So, presently, our total OpEx, I mean, total cost, is around INR 200 crore for the entire year. So if you look at our 25 crore, then to that extent, you can imagine that slightly it will go up. So that one or two years, when they immediately start kicking in, at that time, the cost to income ratio slightly have a, you know, higher value. It will, it will definitely go up. Then once, obviously, it will get absorbed over a period.
How do you expect this tool which will be benefited in terms of, is it in terms of efficiency? How does this work?
You're talking about the new IT transformation project, where you're talking about?
Yes. I yes.
Yeah. See, obviously, the present package, as I had mentioned, is already about a decade older in our company. And therefore, there are a lot of you know, packages and you know, modules, additions, and small things which have been subsequently added, and it is there. So new package, when we look at it, it will be a completely new LOS, LMS, along with all the other you know, added you know, OEMs also will be there. It will have a treasury module, it will have a you know, DMS module, it will have. So everything will come in in the same go.
So therefore, you know, you know, the system itself will become a little more flexible, because right now it's a lot of patches, a lot of you know, management and monitoring and all those things, issues are there, so once this new package comes, obviously, it will help because it will be a seamless kind of a thing, and all the packages will be integrated upfront and will operate over the same UI, UX for the customer.
Okay. And any guidance you can give on what is going to be the cost to income this year and for full FY 2025 and say from FY 2027 onwards, because then this IT project is implemented. Any numbers we have done on that?
As I said, you know, the cost goes up, it will be about INR 25 crores.
Mm-hmm.
Presently, our total cost is around two hundred. About if today it is seventeen, then it should go about eighteen point seven.
Okay. And for this year, are we saying, the cost to income will be around 18%, or, is it going to be lesser? Because in the first half, we have done better. See, this was basically on account of the expenses that we have incurred during this year, this quarter, because of actuarial costs of some 3 crores and some legal expenses and marketing expenses. So this is one-time cost, and we expect that the cost income ratio should be in the region of 16-16½%, till the time the new IT system is there. Otherwise, it should be in the range of 17%-18%.
If, that is, once it is implemented.
Implemented. Okay, got it. Thank you.
Thank you so much. We have next question from Chinmay Nema, from Prescient Capital. Please go ahead.
Hi, sir. Good afternoon. Two questions from my side. Firstly, could you provide some color on the restructured books? So, how much is the stage one, Stage 2, Stage 3? How much is the share of LAP, housing, and how much is salaried and how much is self-employed? Some general qualitative trends around this. And secondly, a while back, I think you were talking about some builder tie-ups, and is that something that you are still working on?
Yeah. See, in terms of our restructured book, see, across the board, I mean, we, in terms of SMA zero, SMA one, and SMA two, as well as in NPA, we have seen an improvement in the Q2 compared to Q1 in absolute value itself, and obviously, it translated into percentage terms as well. Okay, now, I don't have the breakup in terms of the, you know, salaried and self-employed and all. And anyway, frankly speaking, I mean, it's been more than almost a year since the restructure book has completely come out of restructuring. So right now it is as good as the regular portfolio. But yes, we do have a slide in our presentation where we have given the breakup of the NPA.
But in terms of SMA zero, one, and two, I mean, offhand, I don't have it, but I can tell you that, across the board, in terms of SMA zero, SMA one, SMA two, there has been an improvement in the restructured pool. And, as I earlier mentioned, the first part of this con call, that, you know, we have also seen the difference or the improvement that has been witnessed in the restructured pool also is mainly in the CMP category.
Got it. Got it. And on the builder tie-up?
Yeah, on the builder tie, yes, we are still focused. We are still pushing that. Although, you know, we've not had a great success in that. We have started, as I said, we are about 30 people in the marketing sales team, and we have started. We are getting some response. Q2, we have already started some builder ties and we have. As of now, it's a very, very small number, only 20 kind of ties that we have had with builders, because we started off in the second quarter only. And we expect that, you know, by end of the Q3, we should have more than 50 kind of APF ties with builders.
These are, as I said, only in two states that we are mainly looking at to start with as a pilot, because the first attempt, which we did even last year, we tried to make an attempt, but it was not very, very successful. We have done a little more concentrated and a little more focused with this, only in two pilot, as a pilot project in two states, where we have now started getting some success. Though it's a very small number. Going forward, we will now, you know, improve further and then replicate it across all the geographies.
Got it. Got it. Thank you.
Thank you so much. Ladies and gentlemen, we will take this as our last question for today. I would like to now hand the conference over to management for closing comments. Please go ahead, sir.
Yeah. Thank you. Thank you. First of all, a very big thank you to all of you for joining this conference. I hope we have been able to answer, but even otherwise, if at all there are any queries, you are most welcome to get in touch. I also thank the team at Nitesh and his team for organizing this call and to Chorus for managing this entire investor call. Thank you. Thank you, everyone.
Thank you so much, sir. On behalf of Investec Capital Services, this concludes this conference. Thank you for joining us. You may now disconnect your lines.
Thank you.