Ladies and gentlemen, good day and welcome to the Shriram Finance Limited Q3 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. If you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. I now hand the conference over to Mr. Umesh G. Revankar, Executive Vice Chairman, Shriram Finance Limited. Thank you, and over to you, sir.
Yeah, thank you. Good evening, friends from India and Asia, and a warm welcome to all of you. Greetings also to those who joined from the western part of the world. To present our Q3 FY 2025 earnings call today, I have with me our Managing Director and CEO, Mr. Y.S. Chakravarti, Managing Director and CFO, Mr. Parag Sharma, Mr. S. Sunder, Joint Managing Director, and Mr. Sanjay Mundra, our Investor Relations Head. It has been a good third quarter of the year for Shriram Finance under current circumstances. Let us look at the broad economic indicators that have direct or indirect impact on our business. The Indian GDP expanded little slowly to 5.4% from previous year in the quarter of September 2024 from 6.7% and much below the market expectation of around 6.5%.
On inflation, India's inflation eased to 5.22% in December from 5.48% in November, whereas the wholesale price index surged to 2.37% in December compared to 1.89% in November, indicating likely long-term pressure on wholesale prices. As far as the RBI policy is concerned, it has remained unchanged for 11 consecutive times. However, the RBI cut the Cash Reserve Ratio by 50 basis points to 4% to improve the liquidity in the system. The good rainfall monsoon and the Kharif and Rabi crop is giving some positive indicators for the rural market, and we do see good credit demand coming from the rural and also overall economy improving in the rural market for us. On GST collection, it has been growing at 7.3% year-on-year to INR 1.77 lakh crore for the month of December.
This reflects little slowdown, and also it has some impact on government spending is what we believe. However, we expect as the budget session is coming, government has already started announcing new projects and implementation of the existing projects. So I believe that it should give some boost. Now coming to the auto industry, overall market looked flat as far as M&HCV is concerned. There was a small decline in the heavy vehicle to 1.3% from 91,292 as against 91,440 units. LCV sales recorded marginal increase of 2.7% in Q3 2025, which stands at 1.48 against 1.44 units. Passenger vehicle recorded a good growth of 4.5% in Q3 with the INR 10.5 lakh units against INR 10.2 lakh units. Two-wheelers again recorded a good growth of 3%, sales of INR 48.75 lakhs against 47.31. Three-wheelers continued to grow decently. However, the numbers remained flat for the quarter with 1.89 against 1.88.
Tractors recorded a robust growth of 20.15% with INR 2.44 lakh units against 2.03 lakh units in Q3 FY 2024. Construction equipment again showed a positive growth with 8% increase with 35,768 units against 33,121 units. With the continuing good results, the board has declared interim dividend of 125%, that is 2.5% per share. The record date for the entitlement thereof has been fixed as January 31st, 2025. I shall now ask my colleague, Mr. Chakravarti, to take through the operational performance.
Thank you. I welcome all of you to our Q3 FY 2025 earnings call, and I hope you have had the opportunity to have a look at the investor presentation, which has been posted on the website and other stock exchanges. We have registered a disbursement growth of 15.82% year- on- year. Our disbursements in Q3 FY 2025 this year aggregated to INR 43,766 crores versus INR 37,787 crores in Q3 FY 2024. Our AUM, as of 31st December 2024, registered a growth of 18.78% over Q3 FY 2024 and a 4.7% sequentially. Our AUM stood at INR 2,54,469.69 crores as against 2,14,213.47 crores a year ago and INR 2,43,042.55 crores in Q2 FY 2025. Our net interest income in Q3 FY 2025 registered a growth of 14.31% year-on-year. We earned a net interest income of INR 5,822.69 crores in Q3 FY 2025 this year as compared to INR 5,093.93 crores in Q3 FY 2024.
Our NIM was 8.48% as against 8.99% in Q3 FY 2024 and 8.74% in Q2 FY 2025. Our PAT grew by 96.32% in Q3 FY 2025, including one-time gain of INR 1,489.39 crores net of tax for sale of our stake in subsidiary, Shriram Housing Finance Limited. It stands at INR 3,569.76 crores as against INR 1,818.33 crores recorded in the same period as the previous year. However, excluding one-time gain of INR 1,489.39 crores, which is net of tax for sale of our stake in the subsidiary, the profit after tax increased by 14.41% and stands at INR 2,080.37 crores as against INR 1,818.33 crores in the same period as the previous year. Our earnings per share for the quarter stood at 18.99, including one-time gain, as against 9.68 in Q3 FY 2024 and 11.02 in Q2 FY 2025.
Including one-time gain, the earnings per share increased by 14.36% and stands at 11.07 as against 9.68 recorded in the same period of the previous year. On our asset quality, Gross Stage 3 in Q3 FY 2025 stood at 5.38% and Net Stage 3 at 2.68% as against 5.66% gross and 2.72% net in Q3 FY 2024 and 5.32% gross and 2.64% in Q2 FY 2025. Our credit cost for Q3 FY 2025 stood at 1.85% as against 2.15% for Q3 FY 2024 and 1.84% for Q2 FY 2025. Our cost-to-income ratio was 28.59% in the Q3 FY 2025 as against 27.04% recorded in Q3 FY 2024. Our cost-to-income ratio in Q2 FY 2025 was 27.95%. I shall now request our Managing Director and CFO, Mr. Parag Sharma, to inform you about our resource raising activities.
Hello everyone. On the liability side, total debt outstanding as of December was 2,023, up from 2,007,000 in the September quarter.
The liabilities are broken into several sources, equally spread almost, with the retail deposit being at 24%, the bank borrowing at around 21%, the offshore borrowing, both loan and bond, at around 19%. This has increased substantially because of the large loan transaction what we have done in the current quarter, which was $1.22 billion. The securitization is at 17%, and the capital market is around 17%. This is more or less similar to the previous quarter, but for the ECB slightly being up and banks being slightly lower. The cost of liability is at 8.95, which is marginally down from the previous quarter, which was 8.97. The incremental cost of fund continues to be at around 8.9 versus a similar number in the previous quarter. The leverage ratio is at 4.06, up from 3.99 in the previous quarter.
The LCR is at 265%, up from 234% in the previous quarter. Because of the large transaction of ECB, the liquidity has shot up from INR 17,000 crores to INR 27,000 crores, which is almost equivalent to our next six months' liability. This excess liquidity will be moderated over next two quarters and will go back to our earlier policy of three months of liability to be in liquid assets. The ALM buckets have been positive, and up to six months, the cumulative surplus is in excess of INR 65,000 crores. Overall, fund mobilization continues to be strong, and we have been able to maintain or slightly reduce the cost of fund for us. I keep the forum open for Q&A. You can ask your questions. Thank you.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone phone. 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. Our first question comes from the line of Chintan Joshi from Autonomous. Please go ahead.
Hi. Can you hear me?
Yeah, please.
Yeah. Hi. Good evening. Can I start with a few questions on NII? NIMs have come down this quarter. I can see that you've had an increase in ECB loans and borrowings, and there's an increase in cash balance. Could you give us some sense of yields on these so that we can kind of think about how much of this might reverse in the next quarter as you deploy that cash? And then also, if I can understand, on securitization, which is up 14% quarter on quarter, what are the P&L effects of this? It will depress your NII, but increase the other income. Just trying to understand what the impact of that securitization is. Thank you.
As regards the NIM, it has been mainly because of the negative carry that has happened because we are carrying excess liquidity. So once, as Mr. Parag was mentioning in the previous thing, once it normalizes back to the earlier levels of INR 17,000-18,000 crores, so it should come back to normalcy. And when it comes to the income booked on securitization in NBFC, since we follow the Ind AS norms, even though we securitize, we defer the income over a period of time. And only the assignment income is booked upfront, and that is a small component.
Okay. So on the NIM, how much of the NIM fall is due to excess liquidity? How much should we expect it to recover next quarter?
Roughly around 20 basis points is all on account of the fall in the NIM because of the negative carry that we had to bear. Marginally, it should improve depending upon the liquidity position as on the current quarter.
So that would still imply like a six basis point underlying NIM deterioration in the quarter. So what is driving kind of that incremental? Apart from the excess liquidity, are there other drivers of the NIM deterioration, or is that rounding error and we should expect that much volatility?
It also depends upon asset mix because normally in the fourth quarter, we do have demand for new vehicle loan, and new vehicle loan will be at a lower yield. So that also has a bearing. So it all depends upon how much we end up with a new vehicle to used vehicle ratio. So we cannot really predict, but as Sunder rightly put it, the liquidity will be used, the excess liquidity will be used so that there will be some improvement in the net interest margin.
Okay. Excellent. And then I have one other area to ask about on kind of asset quality. So we've seen values of vehicles, commercial vehicles, passenger vehicles. Generally, vehicle valuations have gone up in the last few years. Does that mean that for you or the industry that LTVs have gone up or there have been higher disbursements against that higher valuations, or do you kind of look at it on historical valuations? Just want to understand your practices, industry practices, given that we've had this increase in valuations.
I'm not able to get it fully. Can you phrase it?
Yeah, so we have seen an increase in the prices of CVs, passenger vehicles. Generally, all vehicle prices have gone up post-COVID. Are you disbursing more loans against that higher valuation?
Yes. See, what is happening is on the overall commercial vehicle, if you look at the overall sales, especially on second-hand vehicle transactions, have been a little flattish. So number of transactions, number of loan-wise, it has not gone up, but ticket size has gone up. But we have increased the passenger vehicle. Passenger vehicle is where we have added a lot of new numbers, and we are growing both in numbers and in volume as far as the passenger vehicle is concerned. Similarly, with the construction equipment is concerned, we are able to grow there. So the other segments, we are adding new customers.
But the LTV thresholds have not been increased because of the increasing valuations. You are basically keeping your LTV constant.
The LTV has remained same, but price has gone up. The average increase in the price of vehicle is around 30% over the last three years. So that has gone up, but LTV has not gone up. LTV remains 70% on used vehicles.
Thank you.
Thank you. The next question comes from the line of Raghav Garg from Ambit Capital. Please go ahead.
Sir, hi. Good evening and thanks for the opportunity. Just to harp on this again, to what levels would you bring back the liquidity? So when I look at the cash and investments, cash percentage of assets, it's been increasing for the last couple of quarters and seems more in line with historical trends that you've had. So if you can guide to a number as to how much can it come down, will it be a significant number?
No, no. I think two things there. One is we always maintain three months of future liabilities into liquid assets, and when the size goes up, overall cash and bank balance will go up. This quarter, because of this one-off large mobilization, the overall liquidity is high. When it will come down, I think largely we will moderate our borrowing in this quarter and next quarter. But to go back to three months of liquidity, I think it will take us one or two quarters. And this quarter onwards, there will be some improvement here. Liquidity will be down.
Understood. My next question is with respect to asset quality. So what I've seen in, especially the commercial vehicle segment, is that the quarter-on-quarter increase in stage three assets is pretty significant. It's about 5%-6% compared to the trend that you had in previous quarters, about 1%-2%. Why is it that the increase has been so sharp in this quarter? Any specific reason that you can point to?
No, see, normally we focus on credit cost. If you look at the credit cost, it has remained at 1.85%. So Gross Stage 3 or Net Stage 3, small increase or less, it is basically because of how the economy functions. So we are happy to maintain a credit cost less than 2% at any point of time. And I believe our overall asset quality is reasonably strong and continues to remain strong. And normally fourth quarter, there will be some bounce back. Whatever the cash flow mismatches of the customers, they'll pay off.
Understood. Sir, another question with respect to asset quality only, especially in the MSME piece. There also, when I look at the quarter-on-quarter increase in stage two or say the stage three assets, that's about 10%-12%. And it's been fairly high. It was fairly high even in last quarter, whereas the incremental addition to the overall portfolio seems to be coming down. I'm talking about the MSME portfolio. Again, what is happening? Why are we seeing such high forward flows in the MSME book?
See, once again, no. In the segment which we are in, we are into small ticket MSME lending, where there are some cash flow mismatches temporarily for the customers, but it normally gets improved. So as I was telling you, normally fourth quarter, everyone tries to improve. So I believe whatever small aberration has there, that gets corrected in the fourth quarter. But I don't really see a structural, what you call, decline in the asset quality. I feel it is temporary, mainly because of seasonal and cash flow mismatches.
Understood. Sir, do I have time for one more question, one last question?
Yeah.
Sir, if you can just comment, we've been hearing from a lot of other lenders that have reported Q3 earnings so far that there is some pain in the commercial vehicle segment. Some have cited that probably there is some lesser spending on infra by the government, something that you also alluded to. FMCG companies have stated that the consumption continues to moderate. So in light of these two trends, how do you see the operator profitability or fleet utilization? I know you've put out some data in your monthly bulletin, but just some qualitative commentary from your side in terms of how the operator profitability is doing right now will really help. Thanks, and that's all from my side.
Yeah. See, basically what happens is when the large number of new entrants come into the business and when the economy slows down, and that's the time there is less demand for vehicle utilization and the revenue comes down. And this time around, if you see, the new entrant into vehicle ownership is much slower. And therefore, there is sufficient demand for existing owners. So I don't really see the idling of a vehicle in any part of the country. There is the full utilization. And also because of the other measures like good roads and GST, toll-free, all the operating economics of vehicles have improved significantly in the last two years. That continues to be an advantage and less number of new entrants being there in the business because vehicle prices have gone up. And also the, what I call, used vehicle prices are very strong.
So overall, I feel that is a very positive for the existing owners, and that will remain positive maybe for another couple of years unless a lot of new players come and the revenue generation comes down or the economy slows down significantly impacting them. So I don't really see both the possibility. Neither a lot of new players will come in, nor there is a slowdown in the economy. So I feel the vehicle operators do enjoy good operational economics, and their repayment has been reasonably good all the time without much of fluctuation in the last three quarters or four quarters.
Sir, one last question. How much of your business, say, would be coming from, or how many of your customers would have deployed vehicles in Karnataka Mines? Or what would be your exposure to Karnataka Mines?
Karnataka Mines is now negligible. Maybe if you had asked me in 2008, it was quite a significant number. But from then, when all the mining issue came, most of the customers have exited from that activity. And we also reduced our lending to mining to very, very minimum possible. So I can tell you that Karnataka, we have barely any exposure in mining activity.
Understood. Thanks a lot, sir. Thank you.
Thank you. The next question comes from Bhavin Shah from Sameeksha Capital. Please go ahead.
Hi, sir. Good evening. Congratulations on good set of numbers. So my question is on gold loan. So sequentially, AUM has declined and asset quality has also worsened in this portfolio. So can you give some color on this portfolio?
Yeah, so this is Chakravarti. Basically, there was a sequential two quarters degrowth in the AUM, but we should see an uptick in the next quarter, I mean, the fourth quarter, and also going forward the next financial year. As far as asset quality is concerned, gold is really.
The Stage 3 has been more or less flat, I would say, in terms of amount. Q2 number, it was INR 118 crores, and now, in fact, it has come down to INR 112 crores. Since the denominator has come down, it is looking slightly percentage-wise going up, but for that, nothing. And anyway, the portfolio is so small, it may not be unduly concerned.
Again, as far as gold is concerned, the NPA is not a concern because it's basically, the credit cost is virtually zero there. But as far as AUM is concerned, we should start seeing growth from this quarter onwards.
So can we expect double-digit growth from this quarter, or we will go slow on this product?
No, we are pushing. We are pushing. We would ideally like to grow double-digit only. We want to grow. We are pushing.
And sir, another question was on OpEx. So sequentially, also it has increased. So what can be the range where we will operate in going forward, or will it remain elevated also?
Okay. See, we had added around 1,614 employees in the current, 41 employees in the current quarter. And the staff cost has increased by around INR 64 crores. And there were other overheads which have gone up by INR 62 crores, totaling to INR 126 crores of OpEx increase. And no doubt, yeah, compared to the previous quarter, there has been some increase in the cost-to-income ratio, which we are confident that in the quarters to come, it should come around 28%.
Okay. Okay. Thank you so much. That's it from my side.
Thank you. The next question comes from Karan Desai from Asian Market Securities. Please go ahead.
Not audible.
Desai, your line is unmuted. Please proceed with your question. As there is no response from the line of current participant, we'll move on to the next question. The next question comes from the line of Aditi Naval from RSPN Ventures. Please go ahead.
Yeah. Hi sir. Thanks for taking my question. So I have two questions. One is more of a data-keeping question. Have you called out the EAT and the cost of borrowing for the quarter? And second, I'll ask once you answer the first question.
Yeah. So we did mention about incremental cost of borrowing being at around 8.9% only, and the overall cost of liability is at 8.95%.
And EAT would be?
PAT's in the same range as the previous quarter.
Okay. And secondly, sir, I just wanted to understand, so from June quarter to until now, nine months, the borrowings have actually sharply increased. Again, I understand that it's ECB borrowings that you've done. So any reason why are we going so sharply on increasing our borrowings? Again, just correlating it with the fact that our OpEx has also increased. So is it something like we are trying to get into some new product or new territory? And also the fact that HFC is now being sold, so is it something to read into, or it's?
No. What about the other sources of fund, the domestic sources of fund being be it deposits, term loans, securitization? That can be done on a monthly basis. But when it comes to offshore borrowing, this will be once in six months and larger quantum. That is the only reason this quarter suddenly looks that there has been an increase in overall funds borrowed and the liabilities and liquidity. But that will be once in six months event, which is not a monthly event. The regular sources for us will continue to be the domestic borrowing, be it term loans, securitization, or FD, which will not be very significantly higher quarter on quarter. ECBs, whenever we do, it will be slightly bulky, but that will be once or twice a year.
Got it. But any new product that we are trying to enter into or anything that we are sort of going to go aggressively in terms of the products?
No, no new product. However, we have announced EV lending vertical, that is Green Financing. So focus is trying to build a separate vertical and focus on building the business there so that there is a focus and also there is separate supervision and credit policy for that. So that is something which we are trying. But it will be gradual growth. We don't intend to grow very quickly there.
Got it. So what is the outstanding book of Green Financing, or it's negligible?
It just started. December 20th, we announced. So this quarter will be the first quarter for that particular vertical. However, we have been doing some EV financing as normal course of business. But this vertical will create separate, what you call, credit policy and supervision.
That will be next to mine. So thanks so much.
Thank you. The next question comes from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. Thanks and congratulations. So firstly, maybe quite a contradictory remark coming in from the industry participants with respect to the fleet utilization and the operators' cash flow. So no doubt you alluded to the fact that maybe it's sustaining, but even when we look at your bulletin over the past couple of months, it's clearly indicating that fleet utilization has remained subdued. In fact, even in some of the major routes, truck rentals' rise have not been that high and not much of an increase year to date. So how is this entire operators' cash flow getting managed? And maybe at least in terms of the delinquency levels, we are seeing it holding up pretty well.
Kunal, that particular statement was given by one of the association heads, and that has been just reprinted there. So it has nothing to do with the general utilization of vehicles. So when we look at individual operators and the operation economics across the country, it has been quite good. Utilization levels are very good, and there are not much of complaints. There may be some temporary in certain geography that should not become that. All India numbers as far as the utilization is concerned. And as I was telling you, since there are less entrants, the existing players have a good play in the sense their economics are better, operational economics are better, and they have good demand. You would not see, probably you just travel on the highway, you will never see idling of a vehicle anywhere.
In the past, whenever economic slowdown was there, you could see hundreds of vehicles being parked, waiting for something, that kind of a scenario. But today, you will never see any of the busy highway you travel. You will never see. So I'm happy to take you to some of these busy highways so that you can watch by yourself.
Yeah, absolutely. But any segment wherein you would be worried about in terms of either where the operations are or maybe particularly with respect to our customer segment? Any segment be it in terms of first-time users, small fleet operators, or even in terms of with respect to utilization on construction side? Anything that would worry you?
See, right now, when I looked at some, what you call, in the August or September when there were heavy rains, the infrastructure activity and mining activity came to some kind of a slowdown. And that is an every-year phenomenon. It is not that it happens only in this year. Every year when there are heavy rains or extended heavy rains, there is a slowdown. And that time, if you ask anyone, they'll say, "I have no business," because that particular sector or segment always behaves that way. But if you ask now, November or December, you will see that utilization levels are very high. And mining today is getting a renewed, what you call, demand. Many of the large conglomerates like JSW or Tata, everyone are in the full swing, if you see the mining and both iron, aluminum, and coal.
So I don't really see anywhere that kind of a situation where less utilization or less payment. And everywhere things are becoming much better. And also, after the Supreme Court giving a verdict on the state government's stake in the leasing of mines, even the state government has also become active now. In the past, they were dormant because since it is in the court, they were not really taking a lot of interest. Today, both central and state are working on activating the mines. So I think going ahead, things will become much better.
You would be confident on the overall credit cost guidance?
Yes, yes. Credit Cost has been all-time best, Kunal. We are less than 2% consistently for two quarters.
Sure. And lastly, in terms of MSMEs, so on a growing book, again, I think last time also, Chakravarti sir highlighted that obviously it's being rolled out across most of the branches, and that is leading to the growth. And most of the deployment is also towards the service and the trading industry. So that's not posing a lot of worry. But when we still look at it on a growing book of more than 50-odd%, GS2 plus GS3 is almost 12%. So if you look at the legacy book, then it seems to be slightly higher. So any concerns out there on the MSME side or maybe the unsecured business side?
See, basically here in MSME, we've been seeing it for the last 15, 20 years, but the same pattern. What happens is your stage two, stage one and two, there should be higher slippages, but when it comes to stage three, it gets corrected. So I think it's part of the course. There is nothing extraordinary that is moved this quarter or this year. So not really a big worry there, Kunal, because if you look at the Gross Stage 3, it's almost normally, it's typically under control, not much of a movement there. So it is, how do I put this? I think it's the segment that we operate in and the segment that we lend to, the slippages from stage one, stage two is normal.
At the stage three level is where I think our team becomes active and the customer also becomes active in trying to pay back.
Okay.
So that's not a way we have come to accept this as normal over the years.
Sure. Okay, okay. And lastly, just data points on PD, LGD, and disbursement breakup?
Yeah. I'll just review that. The stage one PD was 9.05, as against 9.06 in the previous quarter. Stage two PD was 20.74, as against 20.98. And the LGD was 38.75, as against 38.59. And the disbursements, you can be in touch with Sanjay. He will help you out.
Okay. Sure. Okay. Thank you.
Thank you. The next question comes from the line of Saurabh Kumar from JP Morgan. Please go ahead.
Sir, just one question. On your OpEx, should we assume this level of cost you are set to remain, or is there scope for operating leverage in the next year? Thank you.
We expect it to moderate going forward.
In terms of YOY, should it be higher than AUM growth or lower?
Now, we would see we will be able to maintain it around 28% because we always have given a forward guidance between 27%-28%. So maybe this year it will be around 28%. Going forward, it will moderate further.
So just cost income, basically, there's a rate cut you could basically benefit a bit from on your margins. So I just want to know just in terms of your absolute cost growth, how should we think about it? Is it since it's linked to how your assets grow, or should it be slightly lower? That's the question.
Yeah, it will be slightly lower than the asset growth.
Okay. All right. Thank you.
Thank you. The next question comes from Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Hi, good evening. Sir, this degrowth in Gold Loan, while you'd explained something before, but is it also related to any change of practices on the ground in the business? I mean, because in the very same quarter, the regulator had also highlighted a few things for the industry which warranted correction. So is this degrowth related to any operational adjustment being done in the model or in the practices? Is that more?
It's to do with operational thing. Basically, traditionally, a lot of our portfolio is also referral business and our customers, and the festival season, typically, we have it happens in our particularly our portfolio. Festival season, people redeem and then come back and pledge it later, so we think we'll see this pick up. That's why I said we'll see it picking up in the fourth quarter.
Okay. And, sir.
Operationally, there is nothing, no changes.
Got it. Got it. And, sir, on the personal loans, the book was degrowing in the preceding three quarters, and in this quarter, again, there is some growth. While also in this quarter, you have seen some material increase in stage two also. So is there any change of growth approach here, and what is making us comfortable to grow it again?
See, as I said, the initial itself that the delinquencies have nothing to do with us slowing down. We are okay with the, I mean, it's improving over a period of time. So one quarter plus 10-15 basis points plus or minus is not something that really worries us. The reason why we want, I mean, since there was a lot of noise in the market, we went slower. Again, as I also explained earlier, also last call, also that 95% of this book is from our customers. So we are existing customers. We have a continued growth. It's just that there was so much noise, we slowed down the business for a couple of quarters.
But then there was also a lot of demand, and we found that we also realized that when we are not giving the money, the customer is going somewhere else and taking the money, and we are losing the customer. So we again, I mean, initiated this exercise of reaching out to the customers. We will continue to grow this book.
Okay. Okay. And just one clarification. When I look at the employee cost growth, it is growing much higher than the employee count. So you have a large business team. So is it because of good AUM growth, higher amount of variables and incentives that have been distributed, or is there any underlying change in the incentive structure which has been raised and which is why the actual employee cost is going behind of employee number?
So, disbursement also higher compared to last quarter to this quarter.
Correct.
So obviously, the variable pay also goes up. Plus, we have added about 1,500 people. Basically, incentives also, a lot of incentives was the reason why it has gone up.
Understood. Understood. Thank you, and best wishes.
Thank you. The next question comes from Abhishek Jain from AlfAccurate Advisors. Please go ahead.
Thanks for the opportunity and congrats for a strong set of numbers. Sir, as you mentioned that kharif expectation is high. Used vehicle prices are also firm. It is favorable for the new CV demand. But M&HCV demand remains sluggish in past nine months. So how do you see recovery in the fourth quarter and FY26?
See, M&HCV number, it has been more flatish. You're right. It's mainly because, as I was explaining you, the infra spend by the government had slowed down. One is because of the elections. Then there's heavy rainfall. And again, there were the state-level elections in the month of October, November. This together had slowed down overall the government spend. But if you look at December and November, December, it has picked up. There are new projects that have been activated. And I believe the last quarter now is going to be a bigger quarter, and there will be demand coming back. So M&HCV, basically, all these infra projects consume a lot of new vehicles because of steel and cement movement and also the earthwork that goes on. So I think this quarter, you can see good demand for heavy vehicles.
That should continue if the government spending continues over the period.
So any benefit do you see due to the scrappage policy that will be implemented by the government in the coming quarter?
No scrappage policy. Government has already announced a policy which is voluntary scrappage, not compulsory scrappage. So there will not be any change in the policy. I don't think that has anything to do with the sales of vehicles.
Okay, sir, and my last question on the passenger vehicle side that in this quarter, we have seen a very strong number in the retail side, and that's why inventory has come down, so how do you see growth in the passenger vehicle in the coming quarter or the year 2026?
The passenger vehicle will continue to grow. There is an unmet demand, I should say, mainly because the government spending, especially state government, state undertaking spending on the public transportation is coming down. Last six to seven years, you would not have noticed any new buses on the road. So that is really creating the demand by the private players. So private players, both for their personal mobility and also for public transportation, is going up. Especially, the demand is coming from the suburban market and also slowly moving into rural markets. So I feel the passenger vehicle growth will continue to be there for next maybe three to four years because of the same.
What is your strategy to gain the market share in the passenger vehicle financing? Struggling?
See, we are gaining the market share. We are a very small player when it comes to passenger vehicle financing. And the market is very, very large. So I think we'll continue to grow. We are growing year-on-year by more than 20%, and that will continue to remain for a long time.
Thank you, sir. That's all from my side.
Thank you. The next question comes from Preethi R.S. from UTI AMC. Please go ahead.
Hi. Good evening. So can you explain the difference in trends that you're observing in used vehicles, commercial vehicles, and new CV, and what could be the possible reasons? One on asset quality and two on demand.
See, the used vehicle numbers have not really gone up, mainly because there are not enough supply of used vehicles in the transaction in the market. The number of vehicles sold, they are less from 2020 onwards, and there is one year prior to COVID, then COVID came, so there are not enough vehicles in the market, and therefore, the market is very tight, and the diesel prices are very high, so number of transactions are limited. Therefore, actually, our growth is mainly because of higher ticket size, and that has helped us to grow, but going forward, as last two years, vehicle sales have been good, I believe next four, five years, there will be much higher transaction on used vehicles. That will help us to keep growing.
So I believe next three to five years will be very good for us in used vehicle financing because number of transactions will go up significantly. And with addition, new vehicle sales also will go up if the GDP growth continues to remain robust.
Got it. And on the asset quality trend, sir?
Asset quality, it has been all-time good, mainly because diesel vehicles have been very strong. We don't really have much loss on sale of any depreciating asset, and therefore, it has been good. So I think that will continue to remain strong. We are below 2%. That has been the long-term average for us for more than 10 years, and I think that is a good signal for us.
So my question was, in the short to medium term, are you seeing stress in used vehicles lower than that of new vehicles?
What? Used vehicles?
Trust in used vehicles.
No, no. I don't say less or more. It all depends on the application. Used vehicles are mostly used for secondary application, last-mile reach, and new vehicles are used for long-distance transportation. Both are linked to each other. There may not be a big difference between two.
Understood. Thank you, sir. Thank you.
Thank you. The next question comes from Suraj Das from Sundaram Mutual Fund. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. I have joined a bit late, so I don't know if the question has been asked already or not, so pardon me for that thing. So the question is on the two-wheeler side. So the growth has been pretty robust, and then even this quarter, on a QOQ basis, the growth has been very strong at 18%. So I mean, what is the outlook here? Because if I see, let us say, the bank are triggering the two-wheeler segment, citing asset quality problems and all that thing. But your growth has been very robust, while there has been some slight uptick in the QOQ numbers in terms of asset quality also. But how do you see that this growth, let us say, shaping up in FY26 over the next two to three quarters?
So that would be my first question, and then I have a follow-up.
So on the two-wheeler, the target is if the market is growing at 5%. Typically, what we target is double the market growth plus 2% minimum. So if it's growing at 5%, we look at 12% growth. Because typically, what happens is it is still the finance versus cash is still a 50-50. Maybe in a couple of states, it is 70-30, which is basically 70% finance and 30% cash, but the rest of the country, it is 50-50. So the scope is there because the cash customers can become your customers. So we actually aspire for double-digit growth. One. So as far as asset quality is concerned, no. See, it's typical fiscal season where small blips are we are used to the small blips, and then they become normal in the following quarters. So that is not really a concern.
As for other players coming in and going out, if you look at the evolution of two-wheeler finance in this country, there are a lot of players who have come and started business, went out, again trying to come back after a few years. It's quite normal in the two-wheeler business. There are players who have come in and gone out, and then people see, other point is low I mean, the small-ticket businesses are basically it is a collection business and not a lending business. So unless you have your strategies, very strong collection mechanism and teams in place, it is difficult over a long period of time to sustain. I think what we have been able to do is get it, I think, got it right.
So that's the reason why I think we're there for the last 25 years in this business and continue to be in the business and lead the business.
Sure, sir. Got it. And sir, I mean, is this already a, I know, our repeat customer whom we are lending to, and hence probably we are more comfortable, or these are customers, let us say, new-to-company type of customers which we are acquiring in this segment?
See, typical two-wheeler replacement is five years minimum. I mean, particularly, see, we fund most of our bikes are commuter bikes, and what we fund to is basically a lot of small businessmen, self-employed people. So repeat customers would not much. Probably about 5% would be repeat customers.
Okay, so rest of the 95% customers would be new-to-company.
And new customers.
New-to-Shriram customers.
New-to-Shriram.
Okay. And sir, I mean, what kind of CIBIL score they would typically have?
See, typically, I wouldn't say CIBIL score. I'm not a big fan of CIBIL score, but we start at 550 minimum, and we start at 550. To just give you an indication, 60% of my customers have minus I mean, which is no longer there, but earlier it used to be minus one, which means they do not have adequate credit history. That is basically new-to-credit.
Okay. Okay. Sure. Got it. And the last question, sir, would be on the, let us say, overall provisioning side. So while, I mean, there has been slight uptick, but still we are maintaining something like 2% type of credit cost. But if I see the overall coverage, ECL coverage on stage one, two, three, that is, the percentage is still increasing. So do you think this number will continue to inch up, and the asset quality performance will be overall stable, or at some point of time, maybe you would rationalize this number to, let us say, earlier levels? Because some of your stage one and two and three coverage ratios are probably would be highest in the last many quarters.
Yeah. See, on the stage three, first thing, it will be more or less in the similar line. And coming to the stage one and two, yearly we run that last five years' data. So the current year's data gets added up. Based on that, whatever is the PD LGD, then we start applying from the next quarter onward. So we need to wait and see.
Sure. This PD LGD reset, I mean, when does it happen? I mean, every quarter or?
Once in a year. In March quarter, we do that.
Okay. Sure. Understood. Thank you, sir, for answering all my questions.
Thank you. The next question comes from Sharat Dua from Amundi. Please go ahead.
Hi. Thank you for the time. Can I just ask to go back to the NIM, the net interest margin, and just clarify that given the seasonality, you would expect that NIM to still be weaker in Q4 than we've seen in the third quarter, even if we use up some of the liquidity?
No. See, as we said, the higher liquidity which is built up will get utilized. So NIM will improve.
Even with the seasonality of new vehicle sales being greater in the fourth quarter?
Yeah. There will be more new vehicles, and therefore, there will be some mix. But how that mix will turn out, we are not very clear in the beginning of the quarter because new vehicle demand comes only in March. So that will have some impact, but it will have more impact in the first quarter of next year, not in the fourth quarter because most of these new vehicles get booked in the end of quarter. So it should not have major impact in the fourth quarter.
Okay. And just on the big picture, I mean, obviously, you've gone into some detail about what you're seeing in different product lines and asset quality-wise. A lot of other players in the financial space are obviously slowing down given the cycle that they're seeing and the experiences they're getting right now. So the message is that you will not be doing that. Is that clear? You could expect to continue to grow at sort of mid-teen level for the next financial year at least?
Yes. Currently, I'm quite positive on the same because there is still expectation that Indian GDP on an average will grow more than 6.5. If that is the case, definitely we'll be growing at mid-teen level.
Okay. Great. Thank you. And the last one, maybe just on the staff numbers. So you mentioned you've hired like 5,000 or so this year so far. So will we still be seeing significant increases in employee numbers?
No. We are trying to have some freeze on this. We'll be reworking the productivity levels. I'm trying to focus on productivity. And also, our digital app is helping us to some extent in giving some of the customer services across a digital platform. As and when more adoption of digital platforms by the customers, we should be able to really slow down on hiring.
Okay. Thank you.
Thank you. Ladies and gentlemen, we would take that as a last question for today. I now hand the conference over to the management for closing comments.
Thank you all. It is a good set of numbers and results, I believe, under the current circumstances, and we look forward for the biggest quarter in the next quarter, typically in India. This last quarter being again to March is a large quarter, and typically, all the numbers improve, so we would like to meet you again with a good set of numbers next quarter. Thank you very much.
Thank you. On behalf of Shriram Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.