Ladies and gentlemen, good day and welcome to Shriram Finance Limited Q1 FY 2025-FY 2026 Results 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Umesh G. Revankar, Executive Vice Chairman, Shriram Finance Limited. Thank you, and over to you, sir.
Thank you. Good evening, friends from India and Asia, and warm welcome to all of you. Greetings also to those who have joined the call from western parts of the world. To present our Q1 FY 2026 earnings call today, I have with me our Managing Director and CEO, Mr. Y S Chakravarti, Managing Director and CFO, Mr. Parag Sharma, Subramanian Sunder, Joint Managing Director, and Sanjay Kumar Mundra, who is our Investor Relations Head. It has been a good first quarter for the year for Shriram Finance under current circumstances. Let us first look at broad economic indicators that have a direct or indirect impact on our business. First is the GDP. GDP for the full financial year was 6.5%, making India the world's largest major economy, and we are expected to grow on similar growth rates during this financial year.
On the inflation, the consumer inflation continued to ease in June, hitting a lower than expected 2.10% against 3.34% in March. We have reached this level, lowest after six years, driven by falling prices of vegetable and food items. India's annual inflation fell to 20-month low. Wholesale inflation to minus 0.13% against 3.43% in June 2024. Now, let us go to RBI policy. The key takeaway from the 2025 RBI monetary policy, June 2025 monetary policy, are: repo rate cut by 50 basis points to 5.5%. Policy stance changed to neutral. CRR cut by 100 basis points to 3%. GDP forecast for FY 2026 6.5%. CPI inflation estimate reduced to 3.7% from 4% earlier. The rural economy and monsoon, the southwest monsoon has been forecasted 9% above normal across India. Overall, monsoon has been normal to excess in nearly 80% of country's meteorological subdivisions.
The Department of Excellence and Farmer Welfare has released latest data on kharif crops. The data shows area of coverage reached 597.86 lakh hectares as of 11 July, marking an increase of 37.27 lakh hectares compared to the same period previous year. The rural consumption is poised to remain a bright spot in Indian economy, supporting growth in the ongoing fiscal year. The inflation-adjusted consumption growth of 7.1% outpaced the broader economic expansion of 6.5%, reflecting a rural consumption recovery. The GST collection has shown a good growth of 6.2% to INR 1.85 lakh crore compared to INR 1.74 lakh crore in the previous year. It is a slump in June to back-to-back months above INR 2 lakh crore in April and May.
The GST revenue dropped to low single digit in June, primarily due to low mop-up from domestic transaction, indicating moderation in economic activity, which could be possibly due to early onset of monsoon. The auto industry, if you look at the sales side, the total commercial vehicle sales declined by 0.6% in Q1 FY 2026, which stands at 2.23 lakh units against 2.25 lakh units. Within commercial vehicles, medium and small commercial vehicle sales recorded degrowth of 2.3%. The number stands 83,638 against 85,590. Light commercial vehicle sales recorded flat sales, which stands at 1.4 lakh units against 1.39 lakh units. Passenger vehicle recorded a degrowth of 1.4%, which stands at INR 10.12 units against 10.26 lakh units. Two-wheeler sales recorded degrowth of 6.2%, with sales of 46.75 lakh units against 49.86 lakh units.
Three-wheeler sales recorded a flat sales of 1.65 lakh units against 1.65 lakh units in the previous year. Tractors have recorded a growth of 6.3%, with 2.1 lakh units against 1.98 lakh units. Construction equipment marginally declined, with 28,687 units being sold against 28,902 units. I shall now ask my colleague, Mr. Chakravarti, to take through the operational performance.
Thank you. Good evening. I welcome all of you to our quarter one FY 2026 earnings call, and I hope you have had the opportunity to peruse our earnings and the related Investor Presentation, which has been posted on the website of the stock exchanges. We have registered a disbursement growth of 13.01% year-on-year. Our disbursements in Q1 FY 2026 this year aggregated INR 41,816.75 crore versus INR 37,001.65 crore in Q1 FY 2025. Our Assets Under Management has on 30 June 2025 registered a growth of 16.62% over Q1 FY2025 and of 3.44% sequentially. Our AUM stood at INR 2,72,249.01 crore as against INR 2,33,443.66 crore a year ago and INR 2,63,190.27 crore in Q4 FY 2025. Our net interest income in Q1 FY 2026 registered a growth of 12.55% year-on-year. We earned a net interest income of INR 6,026.43 crore in Q1 FY 2026 this year compared to INR 5,354.47 crore in Q1 FY 2025.
Our net interest margin was 8.11% as against 8.79% in Q1 FY 2025 and 8.25% in Q4 FY 2025. Our profit after tax grew by 8.84% in Q1 FY 2026 over Q1 FY 2025 and by over 0.76% over Q4 FY 2025. We have registered a PAT of INR 2,155.73 crore for Q1 FY 2026 as compared to INR 1,980.59 crore in Q1 FY 2025 and INR 2,139.39 crore in Q4 FY 2025. Our earnings per share for the quarter stood at INR 11.46 as against INR 10.54 in Q1 FY 2025 and INR 11.38 in Q4 FY 2025. On our asset quality, gross stage III in Q1 FY 2026 stood at 4.3% and net stage at 2.57%. These numbers show an improvement over the corresponding period of 5.39% gross and 2.71% net in Q1 FY 2025 and 4.55% gross and 2.64% net in Q4 FY 2025.
Our credit cost on total assets for Q1 FY 2026 stood at 1.64% as against 1.87% for Q1 FY 2025 and 2.07% for Q4 FY 2025. Our cost to income ratio was 29.29% in Q1 FY 2026 as against 27.45% recorded in Q1 FY 2025. Our cost to income ratio in Q4 FY 2025 was 27.65%. I shall now request our Managing Director and CFO, Mr. Parag Sharma, to inform you about our resource raising activities, after which our Joint Managing Director, Mr. Subramanian Sunder, will brief you about accounting and regulatory aspects.
Thank you and good evening, everyone. On the total liabilities, we have close to around INR 2,42,900 crore of liabilities broken up into the ECB loans at 13.92% and bonds, ECB bonds at 6.48%. Overall securitization outstanding is close to around 16% of our liabilities. The capital market, domestic capital market at 17.33% and retail deposit has shown a positive uptake at 25.95%, and the bank and the institutional term loans at 21% of our liabilities. The cost of liabilities have come down by 7 basis points in the current quarter from 8.95% to 8.88% now, and we do expect this to further come down. The leverage stands at 4.15x versus 4.16 as of March end number. The liquidity coverage ratio is at 268.74% versus 286.12% as of March. Overall liquidity continues to be slightly on the higher side, which is covering five months of our liability repayment.
We will work towards reducing this liquidity, and this has some negative carry that will come down in the next four to five months' time. The fund mobilization for the quarter was slightly muted. The only big inflow was the retail deposits. The incremental cost of fund has come down substantially from March quarter, which was 8.86%. It has come down to 8.37%, and we do expect this to further come down. The incremental cost and the overall cost will definitely be reflected. The ALM buckets continue to be positive across all the buckets, and up to one year, we will have a cumulative surplus of more than INR 59,000 crore. With this, I hand over to Mr. Sunder.
Good evening, everyone. The employee count as of 30 June was 79,186 as against 79,822 in the March quarter. The stage III was at 4.53%, and the stage I probability of default was 8.82%, and stage II PD was 21.35%. Segment-wise disbursement was commercial vehicles we did INR 16,917 crore, passenger vehicles we did INR 8,162 crore, construction equipment we did INR 526 crore, farm equipment we did INR 273 crore, MSME INR 6,358 crore, two-wheelers INR 3,081 crore, gold INR 3,291 crore, personal loans INR 2,205 crore, totaling to INR 41,816 crore. With this, I hand over. Yeah, we open the floor for the 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 then one on the touch-tone phone. If you wish to remove yourself from the question queue, you may press star then 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 from Autonomous. Please go ahead.
Hi, thank you for taking my questions. My first one is on asset quality. There is a 40 basis point increase in GS2 assets. Could you throw some color on where this is coming from, whether this is seasonal in nature or something we should worry about, and how do you expect that to evolve? If you could also talk about your cost of risk guidance, what do you think about that for the full year? I have got one more on the NI.
Yeah, I'll be rightly put it. It is more or less seasonal. This time, the onset of monsoon was a little early than they expected. Typically, monsoon arrives in mid-June. This time, it was in the last week of May in many parts of the country. There were some, what we call, the business disruption here and there. That is the reason stage II went up. It is very marginal. Our customers normally move between stage I and stage II, and they have cash flow mismatch whenever cash flow mismatches. What is important is the credit cost. The credit cost did not go up. The credit cost has actually improved. We did not really read too much into the moment of stage II increase. The second.
The guidance on credit cost?
Credit cost overall, it will remain under 2% for the full year.
Under 2% on AUM plus cash and investments?
Total asset.
Okay, total asset. The second question was on NII. Is there any kind of fair value gains from parking liquidity with mutual funds? Your P&L reported one. I am just wondering if your reported NII, not the presentation one, but the reported NII, if it is understated for any specific factors, for example, this fair value gain, that would be one question on NII. The second one would be, there is no direct assignment income in your management NII this quarter. I am just wondering if you could call out one or two main items between the difference between reported and management NII just for the benefit of investors.
The net gain on the fair value changes was mainly on account of the profit that we earned on the mutual fund investments. For the current quarter, it is INR 134.66 crore. The similar figure for the previous quarter was INR 111.27 crore. As far as the assignment income is concerned, since we have not done any assignment in the current quarter, no income was recognized. The similar figure in the previous quarter was INR 13.60 crore. Apart from that, the interest income only is forming part of the, and the other operating income is also grouped under the, for the purpose of net interest income.
Okay, so the NII is understated by the difference between INR 134.6 crore and INR 111.2 crore. Is that how I should think about the reported NII?
The reported NII includes INR 134.66 crore for the current quarter. INR 111.2 crore.
In the presentation, not in the release.
In the presentation.
I'm talking about the reported NII.
The release number is included, yeah. What I would suggest is you can reach out to Mr. Mundra of this call, and he will give you the results.
Okay. And no other one-off factors in NII to think about, right?
No, nothing.
Okay, thank you. Thank you.
Our next question comes from the line of Raghav Gark from Ambit Capital. Please go ahead.
Sir, good evening. I had some simple questions. One first is on the MSME growth plan. I see that your quarter-on-quarter growth has come down to 3.5%, and there is a sudden moderation in MSME business accretion this quarter. You've been riding for around 15% growth overall. My first question is, why is there sudden accretion? Why is there sudden slowdown in the MSME growth this quarter? The other question is, assuming that or analyzing this quarter, the run rate on MSME growth, do you see a risk to your full year AUM growth estimate on an overall basis?
We are still, sorry, this is Chakravarti here. We are focused on growing this book. The only reason why it is slowdown, actually, there was a slowdown in the demand in the first quarter because. See, the fourth quarter fiscal season, third and fourth quarter fiscal season, typically the demand picks up from the second quarter in preparation for the third fiscal season. First quarter is normally slow, but you'll see the pickup in the next two quarters. We are still on the course for the guidance to meet the guidance numbers.
Sir, if I compare this to the quarter-on-quarter accretion, we say 1Q FY 20 25, at that time it was about 10% in this book. This time it is 4%. NC question, because we growth rate or just sequential accretion has more than half. Where do you see the growth for the MSME?
Year on year, sequentially, normally three and four quarters are big. You can't compare. You have to see only year on year.
Sir, I was looking at 1Q FY 20 25, which is around 10% sequential accretion.
Yeah. Yeah, I will explain to you. There is a slowdown in the first quarter, but we are confident that we will make up for the slack in the second and third quarters.
Understood. Sir, the other question is that you mentioned that there is some moderation in economic activity, but I think you partly answered that when you said that the trade cost will be under 2%. I'll still go ahead. How is the trucking activity doing on the ground? Are operator cash flows improving? How is the situation at the ground level?
The trucking activity is quite healthy, I should say. See, one of the biggest advantages or disadvantages is, since the cost has gone up in the last three years, the new customers walking into trucking business have come down. So the existing players have a reasonably good business. Their revenue is good, the freight rates are good, and their overall utilization levels are good. That situation has not changed for truckers at all. Normally, what happens is when there is excess capacity and economic slowdown, then there is a challenge. This time around, even though there is a little slowdown in the economy, since there is no excess capacity, the trucking activities are going on smoothly. Temporarily, as I was telling you, if there are seasonality issues because of excess rains in certain locations, there could be some disruption and some delay.
That does not really, what we call, create the, what we call, credit cost. There may be some movement into stage II because of the delay or mismatch in cash flow, but that does not end up with the credit cost. We believe the demand is good because for us, the disbursement growth was good in CV in the first quarter, and I expect the same to come because the demand from the rural segment, the rural market, is really growing.
Understood. Those were all my questions. Thank you.
Thank you. Our next question comes from the line of Shweta Daptardar from Elara Capital. Please go ahead.
Thank you, sir, for the opportunity. Couple of questions. Just taking further the previous participant's question. While you mentioned that the operator economics remains undisrupted, how about the operator cash flows? How are they faring, especially on the used CV segment side?
See, used CV segment has been doing quite well. In fact, our growth, disbursement growth in the used CV is quite good. The retail values have not dropped anywhere across the country. The value of the asset remaining strong, that helps the customer to not only to earn and also to encash after they pay the loan, and he will retain the vehicle throughout with him. These are all the advantages. We are not seeing any weaknesses in the trucking market or value or in the revenue earning for secondhand or new. Both are doing quite good.
Okay. And sir, just taking it further, how has been the color on repossession side or movement quarter on quarter?
There is no change in the repossession. Most of the companies in the last couple of years have slowed down or have not repossessed many vehicles, mainly because the retail value being higher, the customers are not defaulting. That is the scenario. So repossession numbers have not gone up. There could be in one or two geographies it would have gone up marginally, but it is insignificant considering the all-India position.
Sir, third question is on MSME. While you did elaborate on the growth momentum, which will be retained, but one of the peers has highlighted pertinent concerns on asset quality on MSME, and also banks have been highlighting regional challenges. What has been your experience on the ground as far as delinquency/asset quality is concerned from the MSME side?
See, our focus has been a smaller ticket and to trading sector and services sector. We are not really lending into manufacturing sector in the MSME. Therefore, the businesses remain reasonably steady because. Especially if wholesalers, shopkeepers, that kind of a segment we are addressing. We have not really seen much fluctuation in their earning or cash flow mismatches. We are looking at a very steady business, and we believe that this will continue to grow as we create more reach. Now, MSME lending is there in around two-thirds of our branches. Rest one-third of the branches we have to reach. We are creating that reach. As we create a reach, we'll keep expanding our business.
Sure. Sir, one bookkeeping question on your disbursement number. Thank you.
Disbursement numbers, you want. Sunder?
We can you give you offline?
Sure. Thank you so much, sir, for the answers.
Thank you.
Thank you. Our next question comes from the line of Shubhranshu Mishra from Philip Capital. Please go ahead.
Hi, good evening. We are looking at the car market, especially at the entry level. What are the various demand drivers we see through the year during the festive season as well? Given the fact that we are more rural and semi-urban focused, are we seeing inventory buildup in entry-level cars? Also, in terms of STVs, LTVs, are we seeing asset quality spikes, any transition of customers to E3 wheelers or any other type of vehicle, or any cash flow challenges there? The third question is around gold finance. Given the fact that regulators have now allowed aggregate gold loans for banks, which can be unsecured as well, are we seeing some kind of a transition back of aggregate gold loan customers who came to our fold and will go back to banks? Thanks.
See, basically on entry-level cars, as you correctly put it, the entry-level car demand, especially new vehicle sales, are on the lower side. On the lower side. But the demand for used cars is increasing. The entry-level car demand used to be mostly in the semi-urban and rural market. Now we are seeing there is a shift to what we call higher vehicle, which is compact SUVs. People are preferring secondhand compact SUVs or new compact SUVs. The aspiration class are wanting to move up to the next level cars. The entry-level car demand has come down. People who are seeking to buy entry-level cars typically go for secondhand cars. There are what we call the entry-level car demand or sales have come down and likely to remain because India is moving for more compact SUV and medium-sized SUV is what we understand from the preference by the buyers.
As far as the LTVs and STVs are concerned, last year LTV did not really grow much because the previous year the rural economy was not really expanding or the demand from the rural economy was a little less. Since the last six months, rural economy is doing well. We expect the LTV sales to go up. That is one thing. Also, the e-commerce activities are now spreading into tier two and three towns. Therefore, I believe LTV and STV demand will go up. It will grow faster than heavy vehicle is my belief. The retail value remains very strong in this market. As far as the gold loan is concerned, we believe more business will flow in from informal sector to formal sector because there has been little. The RBI new guidelines have been a little liberal for small-ticket loans.
We believe that there is an opportunity for NBFC and banks to grow faster because the more gold loan proposals will move from informal sector like farm broker and money lender to the formal sector.
Great. Just two more questions. One is, I think I've answered. What will be our drivers of car growth in the next two to three quarters? In terms of MSME, how many of our customers have more than three loans? Any kind of loans. When we do a PD, they might have a hand loan as well. Some of them might have a personal loan. A few might have a credit card. What percentage of our MSME customers would have three-plus loans?
See, we rarely see our customer base having more than two loans. Maximum, we will have one loan with us, and the loan is the gold loan. We have not really seen people having—of course, hand loan is something which we will not know. A personal loan or unsecured loan is not known because in the, our scrub in the, credit agencies, we do not come across. That is one thing. You asked on the.
Drivers of growth for our car.
Basically, we believe the major drivers for a car, especially in the semi-urban rural area, is the state governments have not invested in public transportation in the last five-six years. Therefore, it is making more people buying either their own car or the operators buying the car and operating in the semi-urban rural area. That is creating bigger demand for the passenger vehicle in the smaller towns. We are able to grow in that market consistently over the period. Even though last quarter, the growth rate was a little lesser compared to the previous year, we feel that that growth will come back because there is an unmet demand of public transportation not being available for the large population.
Great. If you can tell us the disbursement split, please.
Okay. The total disbursement for the quarter was INR 41,816 crore. The split between the segments were CV, it was INR 16,917 crore, passenger vehicles INR 8,162 crore, construction equipment INR 526 crore, farm equipment INR 1,273 crore, MSME INR 6,357 crore, two-wheelers INR 3,081 crore, gold loan INR 3,291 crore, and personal loans INR 2,205 crore.
Great. Can you repeat the farm loan?
Farm loan was INR 1,273 crore.
I see.
Thank you. Our next question comes from the line of Abhishek Kumar Jain from Alf Accurate. Please go ahead.
Thanks for the opportunity. My first question on the NIM fund. So in this quarter, it declined 40 basis points quarter on quarter. How do you expect margin to behave in the rest of the quarter for 2026 with falling cost of the fund?
There are multiple factors which we feel confident of improving our NIM. First, our incremental borrowing cost is at 8.36%. And our cost in the book is 8.86. So there is a significant lower cost we are able to raise resources. We also have reduced our deposit rate. From the first week of August, the deposit rates will come down by around 40 basis points. Across, we feel that the 40 basis point reduction in incremental borrowing will bring down the cost to us over the period. Even though we have 85% of our borrowing in fixed terms and 15% floating, that transition will take some time because the 15% floating, the bank will pass on immediately whenever there is a reduction in the rate. But 85% will take time.
Over the six months to one year, we would be able to bring down our borrowing cost, and that will be able to improve our net interest margin. We are confident that we will reach to 8.5% net interest margin for the full financial year. By the end of the year.
Okay. My second question on the cost, the guidance is 2.2%-2.4%. In this quarter, basically, it is around 2%. I just wanted to understand what is the full-year guidance. Will you lower down the guidance for this number?
Credit cost will remain around 2% for the total assets.
Okay. 2% for the full year?
Yeah, full year.
Okay. My next question on the CV side, the AUM growth was 12.3%. How was the growth you see versus the new CV? What is the guidance for the full year?
See, we have a reasonably good demand coming for CV, especially in the rural market for used vehicles. Even the new vehicle demand had gone up in the Q4 for us. Also, there was some follow-up demand coming in April. We believe that, again, the demand will come back for new CV during the next shift of T, and that will keep continuing. Used vehicle demand will continue to remain because of our strong reach. Since we have 3,220 branches across the country, and we have a reach, and in the used vehicle, many transactions would come to us directly because we have built that brand over the period for more than 40 years.
Okay. My last question on that, in the passenger vehicle side, in this quarter, the industry declined. Despite that, your growth was very much strong and impressive, of around 23%. I just wanted to understand what is the reason behind this. Is it because of the premiumization and the higher ASP because of the change in the mix in the passenger vehicles, or you are gaining market share in this particular segment?
We are obviously gaining. I don't say gaining market share. This market virtually is unattended. There are not many players in secondhand car financing, especially in the semi-urban rural area. We are able to really grow on that. Also, as I was telling you, there is an increased demand coming from the semi-urban rural market because of lack of public transportation available to them. We are able to grow. Also, there is one big advantage for us that many of our customers who bought a two-wheeler from us, they migrate to become car owners over the period. They have aspiration. That is a customer which is an in-house customer for us. There will be a certain percentage of customers. Aspirational class will move from two-wheeler to four-wheeler. I think that is a ready-made customer within the house for us to grow the business.
We should be able to grow healthy rates in the passenger vehicles, especially in the car segment over the period.
Thank you for that question.
Thank you. Our next question comes from the line of Vansh Solanki from RSPN Ventures. Please go ahead.
Hello, sir. Very good numbers. I have two questions, mainly. The first is that you have also told that there is excess liquidity in quarter four. You have also said that there is a five-month excess liquidity as of now. What are the plans if you think the quarter two or three that this will be continued or not? What about the additional borrowing you will take on quarter two or three if you can just guide us?
We will be definitely utilizing the excess liquidity that's available by slowing down the further borrowing for this quarter. We will bring down from five months to three months, maybe in three to four months from now. Further plan. Parag, can you elaborate on further plan?
No, in fact, that is it. We'll bring down our borrowing plan in the next three to four months. In fact, looking at options of higher cost and debt to be repaid, that is what we will focus upon. I think, must to add there, we'll look at the opportunities wherever the cost of fund is lower, those only sources will be looked at, and the borrowing will be moderated. Overall liquidity, we always had the objective of maintaining three months of liability repayment to liquid asset. That will continue. As of now, yes, it has to come down from five to three.
Okay. The second question is about the yield, if you can specify for each segment for quarter four.
Okay. Yield, you can just be in touch with Mr. Mundra. He'll be able to help you offline.
Okay. Okay. Thank you, sir. Thank you.
Thank you. Our next question comes from the line of Abhishek M from HSBC. Please go ahead.
Yeah, thank you. The first question is on cash position again. If I look at the total outflows in your ALM statement, your three-month liquidity, I think, works out to roughly INR 20,000 crore. Basically, this outstanding INR 25,000 crore of cash position, plus maybe some part of investments which you would be counting towards this, this should come down to INR 20,000 crore-INR 25,000 eventually, or how should we think about it? Where should this balance be, ideally, for a balance sheet of, say, today's size?
Yeah. The water thing is right. We will bring it to three months of liability repayment. If you are looking at the ALM, there can be some bulk repayment which can be there. In particular months because of the bullet repayment of entities, what we have, what I have discussed. What the CD state number will be at around INR 18,000 crore-INR 19,000 crore of liabilities in three months is what we normally plan. That will be the number we will be targeting to maintain.
That INR 18,000 crore-INR 20,000 crore is cash only, right? So not cash-plus investments. Which one should we think about?
Yeah. Normally, what we do is it will be bifurcated into both cash and investment. Investments are with mutual funds only, liquid schemes or mutual funds. Or we'll be doing that.
The question actually, really sorry, is that cash-plus investment today is INR 38,000 crore-INR 39,000 crore. That INR 39,000 crore should come down to INR 20,000 crore?
No, we should not look at the balance sheet number because that will also include, I will not count everything as liquidity because that will have SLR component. That will have a lead marked component also. So liquidity, which is free from any encumbrance, free from any encumbrance, is what we count for liquidity purposes.
How much is excess? What will you eventually run down? Is it INR 10,000 crore?
It will be close to around INR 10,000 crore it will run down.
INR 10,000 crore. What time frame, sir? Because last three, four quarters, we've been having this conversation, and there's a big negative that is going up in NIM.
No, it went up in the month of January is when we did large borrowing, particularly December end and January is when we did. We said it will take three to four quarters for two to three quarters for this to come down. As of now, we are pretty confident that next three or four months is what we will target and look at lower borrowing. Also, if possible, if we are able to repay some high cost, is what we will target.
Understood. So the second question is on NIM. Umesh, you said 8.5% NIM for 2026. So is it full year 2026, or is it by fourth quarter of 2026? Which one?
By fourth quarter.
By fourth quarter.
By fourth quarter.
Okay. So the average NIM would be around 8.2%, 8.3% or so for the year, for the full year?
Yeah. It depends. If the third and fourth quarter is bigger, then the average can be different. We would aim to reach 8.5% by the year-end.
By the fourth quarter. That is the quarterly target. Average can be, average will be accordingly. Okay. Okay. Third question, sir, is on GS2 going up. So this quarter, almost 9-10% QOQ increase in overall GS2. And if you look at some individual segments, it's even higher. Does this mean that next quarter, we should see the forward flow into GS3 from this? And therefore, your credit costs can go up. Or are you seeing fairly good recovery potential in whatever's flowing forward? Okay. If you can talk about that a bit.
Most of our customers are known customers or where we can reach, and our executives are in touch with those customers. We are confident of rolling back most of the customers. It may be a temporary tax mismatch, which we are confident that we will be able to reach out to them and address their challenges and be able to recover. I do not really see that flowing into GS3. Normally, people who go from GS1 to 2 come back to 1 sometimes or to Zero Bucket. That effort is always on. Activities and actions are taken accordingly. Especially on the vehicles and all, we go for a repossession so that we address that issue fully.
Right. Actually, the forward flow is building up. Last quarter, it was 6% Q-o-Q. This quarter is 10% Q-o-Q. At some point, it will start spilling over into GS3, which has not happened so far. That is why I am just wondering.
That is actions we take. Immediate action. There is always a follow-up, and there is touch with the customer directly. We are not dependent on outsourced agents for reaching to the customer. We have in-house executives who will reach out to the customer.
Right, sir. Thank you. This quarter, write-off would be around INR 500 crore roughly. Just the number, if you can share.
Yeah. One second.
For the current quarter, it is INR 448 crore. Provisions are INR 838 crore, total to INR 1,286 crore. Got it. Got it. Thank you so much. All the best. Thank you.
Thank you. Your next question comes from the line of Rajiv Mehta from Yes Bank. Please go ahead.
Yeah. Hi, good evening. Congrats on good numbers. My question again is on the flow rate. Flows from stage one to stage two are happening, but they are being. They are not moving forward into stage three. For example, in this quarter, as you said, because of onset of early monsoon and some disturbance getting created, you did see incremental new flows from stage one to stage two. The existing stage two pool never flowed forward into stage three. Can you explain why the flow rate between stage two and stage three is much lesser despite the outside disturbances? What all collection actions and mechanisms are being taken when the account slips into stage two? Also, whether any remediation is offered to the customer who has moved into stage two?
See, normally, we meet the customer, address this issue, and sensitize him, and improve his credit score by bringing him back to stage one. That's the first step we take. If we feel the customer has a permanent mismatch, then we will resort to repossession. If you look at our total asset book, 65% is passenger and commercial vehicle. Another 7% is the two-wheeler. All this can be repossessed, and we can sell and either collect the money from the customer, make it nil, or we can sell the vehicle. We have immediate liquidatable asset in our hands. Therefore, it doesn't flow into stage three.
Okay. No remediation in terms of changing in the loan structure or anything of that sort is being offered?
We can't do that. Sorry. Also, it is not really needed because it's a temporary mismatch of cash flow. The customer is not a defaulter, willful defaulter. It's a temporary mismatch, and those guys come back and pay you. So it's not really a case for restructuring.
Okay. So the same logic makes you confident that the current stage two will also not forward flow so much into stage three going forward, right?
Exactly. Exactly. We have seen this. Even in the worst of times, we have seen the customers skipping a couple of installments but then start paying the current installment. I mean, it's an experience we have seen over the last 30-35 years.
Okay. Okay. Now, the second question is on the growth in the CV financing portfolio, which is predominantly used, right? Now the traction is being maintained at 3%-4% Q-on-Q and 12%-13% Y-o-Y. I was just wondering because in the last two, three quarters at least, the price appreciation or the resale prices have not gone up. Your traction of growth continues. Is it now more volume-driven in the recent quarters and less value-driven? If it is more volume-driven, then has there been any changes in the way you are sourcing on the ground and whether any lending policies have been kind of slightly relaxed?
No. It's both value and volume. Because what happens is, the loans which are sourced four years back are getting matured now, and a new loan is getting given. So definitely, there will be an increase in value year on year, every year, in spite of the new vehicle prices not going up in the last year. That's one thing. Second, our reach is always going up. If you see, last year also, we added 165 branches. This year also, first quarter, we added five branches. As we create more reach, we are able to grow our business. The other most important factor is, the smaller lenders are not able to grow their business because they are not able to raise the liability side. We are able to raise liability, and therefore, we are able to take market share from the market.
For example, there are around 9,000 small NBFCs, and many of them do not have any ability to raise resources to get their leverage on the balance sheet. We are able to do that. There is always a, what do you call it, our ability to grow in the market and maybe take the market share also from these small lenders.
Okay. Just one last thing, sir. Your fee and commission cost line has been growing at 30%-40% Y-on- Y for the last three-four quarters. Why is it growing so fast, the fee and commission cost line? Employee cost this quarter was higher versus previous quarter. There was a jump of 7%-8%. Did we run any incentive scheme which we generally run in a quarterly format?
The staff cost has increased primarily on a quarterly increment that was due in the current year, April 2025, and also the annual bonuses which were paid. This is the main reason for the increase in the staff cost. The fee and the commission income you are talking about?
No, cost.
Cost. Okay. The commission expenses, okay, it is primarily our commission paid to the deposit agents. As there has been an increase in the deposit inflow in the first quarter of this financial year, there has been some increase in the cost.
Almost doubled the deposit cost.
Yeah. Thank you. Thank you so much. Best of luck.
Thank you.
Thank you. Our next question comes from the line of Sonal from Asian Market Security. Please go ahead.
Yeah. Hi, sir. So my first question is on the NIMs. So just wanted to check, have we reduced yields in any of the products, or the yields continue to remain the same as last year?
Yields have been stable, similar to the last year's yield. There has not been any impact.
The entire impact is just because of negative carry on NIMs?
Yeah. Correct.
Okay. Second one, sir, what is your strategy on deposits going ahead? Because the way we are still raising is, if you could just tell us what is the landed cost of deposits that you're raising, what is it as compared to SCDs and bank borrowings?
See. Deposit, if you look at our growth in the first quarter. The growth has been around 10% Q on Q growth in the sense that it's grown by 10%. Portfolio has grown by 10%. Whenever we announced the rate reduction, there has been more inflow to lock into longer duration by the depositor. We have, again, reduced the rate from the first week of August by 40 basis points. Effectively, our cost for the deposit interest rate annually comes to 7.6% now, which was around 8%-8.5% in the beginning of the financial year. There has been significant reduction in the interest rate. The total cost of deposit, including the intermediate cost, stands at around 8.8% in the books now. It will go down to around 8.3% from the next, maybe, August, yeah. After the next quarter, it will be around 8.3% total cost.
When compared with the other liability, it will be much cheaper because bank borrowing will be still higher than that.
NCDs, sir?
NCD rate is lower. NCDs rate now is running at around 7.75%-7.80% range. But that is the incremental borrowing rate.
Sir, my question was more that why are we focusing more on deposits? Because we are already carrying the.
Now we have incremental rate for deposit will be 7.5% , 7.60% That will be in line with what we are doing in capital market. Not much of a difference there.
See, the other thing also is as Shriram as a group. See, we look at depositors because there are depositors, generational depositors who are with us. Most of our deposits, almost 55% of our deposit is from senior citizens. We, as a philosophy, we wouldn't mind if it costs 10, 15 basis points more than what we can get from the market also. That's a call that we have taken consciously. Diversity and also, it's a diversification of our portfolio, borrowing portfolio also. The deposits are picky.
Right. Sir, the other question was on fee income. We have seen a decline in that line item. If you could just explain what exactly happened there. I think last quarter it was about INR 330 crore.
Last quarter. Yeah. Last quarter, there was an. In the last quarter number, we had received a collection commission on account of . DA transaction, which was amounting to INR 170 crore, which is not there in the current quarter.
Okay. So this is like about 0.25% of this business is something we should look at going ahead?
I think there's no linkage between the disbursement and this one. This is more to do with the assignment transaction that we had done a couple of years back.
Okay. Got it. Got it. And, sir, just two questions more. One was on personal loan. We are seeing about 24% decline in disbursement. And even, I do not know if I got that number correct, but in construction equipment, from INR 2,180 crore, it is down to INR 526 crore. Is it because of higher delinquency in the segment in construction equipment that we have become a little more cautious in terms of sourcing? Is there anything else that we should not read too much into this number?
No, construction equipment is basically the construction activities slowed down much earlier than expected because of early onset of monsoon. Most of them got postponed. You will see bigger demand that will come in the month of August and September, mostly in September. It is just a postponement. We also felt that it is better we wait for the right time to increase our construction equipment disbursement.
Right. Sir, on personal loans?
Personal loans, there is no degrowth. I'm looking at a degrowth. Degrowth has gone up. Yeah. No, no, no. Our focus on personal loan is not diluted. It is continuing.
Okay. Maybe I'll take this offline. Thank you so much.
Thank you. Our next follow-up question comes from the line of Chintan from Autonomous. Please go ahead.
Hi, thank you. Just wanted to follow up. You said that 8.5% NIM will be an exit NIM for FY 2026, but previously you had said 8.5%, 8.6% will be the full year NIM. Which one is it? Just want to get this right because there is obviously a big difference between the two guidances.
8.5% for full year. When I say exit, include the year at 8.5%. Year at 8.5%. We'll close the year at 8.5%-8.6%, I said.
Yes. Okay. So just want to, okay. So that is an exit NIM. It is not for the full year average.
Yes, yes, yes. See, our effort will be there to improve the margin by reducing the borrowing cost. As we are able to reduce the borrowing cost, the gap, the margin will improve.
Thank you.
Thank you. Ladies and gentlemen, we'll take that as the last question for today. I now hand the conference over to Mr. Umesh Revankar for closing comments.
Thank you. Thank you for joining this call. As many of you said, we had a good quarter, first quarter. Second quarter should be much better is what we believe because the good economic condition in the rural market. Since we are having a large presence in the semi-urban rural market, we should be able to perform much better. Wish you all the best, and we'll meet in the next quarter. Thank you.
Thank you. On behalf of Shriram Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.