Ladies and gentlemen, you are connected for the Shriram Finance Limited conference call. Please stay connected. This conference will begin shortly. Participants, you are connected for the Shriram Finance Limited conference call. Please stay connected. The conference will begin shortly. Thank you. Ladies and gentlemen, good day, and welcome to the Shriram Finance Limited Q1 FY 2027 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 and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Umesh Revankar, Executive Vice Chairman, Shriram Finance Limited. Thank you, and over to you, sir.
Thank you. Good evening, friends from India and Asia, and a warm welcome to everyone joining us from western part of the world. I am excited to share our Q1 FY 2027 earning call with you today, and I am joined by our Managing Director and CEO, Parag Sharma, Joint Managing Director and CFO, Sunder, and Mr. Sanjay Kumar Mundra, our Executive Director and Investor Relations Head. Looking back, the first quarter of the year has been positive one for Shriram Finance, especially given the current situation. Let us start by examining some broad economic indicators that affect our business directly or indirectly.
India's economy wrapped up FY 2025-2026 on a strong note, with the GDP growth picking up to 7.8% in the fourth quarter, which was a comfortable beat to the market expectation of 7.3% for the growth trajectory and revised full year real GDP growth rate of 7.7% with updated base year. However, RBI has lowered its economic growth forecast for FY 2027 to 6.6%. This adjustment comes as they are concerned about global conflicts, energy prices, and weather condition. India's retail inflation has increased to 4.38% in June, up from 3.93% in May. This rise is mainly due to higher fuel and food prices, which have increased because of supply disruption, driven by war in Middle East and delay in seasonal rains. India's wholesale price base inflation jumped to record 9.87% in June, up from 9.68% in May.
Fuel and power prices went up a lot, which really pushed this number higher. Food inflation also hit an 18-month high, which affected overall index. Coming to the recent RBI policy, there are main points from June 26th RBI monetary policy. Repo rate stays at 5.25%. Policy stance remains neutral. GDP forecast has been adjusted to 6.6% from earlier 6.9%. CPI inflation forecast has been raised to 5.1%, up from 4.6%. Coming to the rural economy, the biggest challenge for India's economy right now are geopolitical tension in West Asia and uneven rainfall from southwest monsoon. A big monsoon deficit, a changing monsoon path, inconsistent rainfall could cause problems for agriculture, inflation, and overall spending. The IMD recently lowered its forecast for 2026 southwest monsoon, predicting only 90% of usual rainfall.
This is happening as El Niño gets stronger, which might lead to even more rainfall problems during important planting season. The latest meteorological department data shows India's southwest monsoon is in a long dry spell, with total seasonal rainfall now 24% below normal between June 4-July 16. The good news is that the country has made some changes, like more irrigation, different ways for people to earn money in the countryside, which makes the whole economy stronger when it rains unpredictably compared to the past. Coming to the GST collection. India's GST collection went up by 13.9% year-on-year to INR 195,000 crore in June 2026, compared to INR 171,000 in same month last year. This increase was mainly because of more money coming in for both domestic and imported goods.
If you look at the whole April-June period of FY 2027, gross GST collections were INR 632,000 crore, which is 8.4% increase from INR 583,000 crore collected in the same period last year. Coming to the auto industry. On OEM sales side, this quarter has been very good for automobile sector following GST rate cut. It had a positive impact, leading to significant surge in sales. Commercial Vehicle sales increased by 14.1% in Q1 FY 2027 and stands at 265,000 units, as against 224,000 units in Q1 2026. Within CV, M&HCV grew at 18.3% and stands at 95,910 units against 84,040 units sold in Q1 2026. LCV sales recorded growth of 20.8% in Q1 FY 2027 and stands at 169,000 units versus 140,000 units sold in Q1 2026.
Passenger Vehicle sales in Q1 2027 recorded a growth of 25.9% and stands at 1,274,000 units as against 1,012,000 units in Q1 2026. Two-Wheeler Vehicle recorded growth of 20.3%, with sales of 5,629,000 units in Q1 as against 4,678,000 units. Three-Wheeler sales recorded growth of 29.7% in Q1 FY 2027, with sales of 214,000 units sold versus 165,000 units sold in Q1 2026. Tractor sales recorded growth of 21.6%, with 265,000 units sold against 218,000 units sold in Q1 2026. Construction Equipment recorded a growth of 8.8%, with 25,176 units being sold against 23,147 units and showing a growth after long or negative growth in the last financial year. Here, one highlight is the EV sales have gone up significantly, maybe due to the uncertainty about the fuel price, but very positive.
The PV sales, Passenger Vehicle sales increased by 94.8% to 84,665 units against 43,464 units sold in Q1 2026. Three-Wheeler sales for Q1 increased by 13.2% to 215,000 units against 190,000 units sold same period last year. Two-Wheeler Vehicle sales for Q1 2027 increased by 69.3% to 522,000 units against 308,000 units sold in Q1 2026. Now, I shall ask my colleague, Parag Sharma, to take to the operational performance.
Thank you. Welcome, everyone, to our Q1 FY 2027 earning call. I trust you had the opportunity to peruse our results and the related investor presentation, which have been posted on the website of stock exchanges. We registered a disbursement growth of 19.51% year-over-year. Our disbursement in Q1 FY 2027 this year aggregated to INR 49,974.49 crore versus INR 41,816.75 crore in Q1 FY 2026. Our asset under management, as on 30th June 2026, registered a growth of 15.26% over Q1 FY 2026 and of 3.81% sequentially. Our asset under management stood at INR 313,798.39 crore as against INR 272,249.01 crore a year ago and INR 302,273.75 crore in Q4 FY 2026. Our net interest income in Q1 FY 2027 registered a growth of 33.67% year-over-year. We earned a net interest income of INR 8,055.70 crore in Q1 FY 2027 this year as compared to INR 6,026.43 crore in Q1 FY 2026.
Our profit after tax grew by 59.79% and stands at INR 3,444.56 crore in Q1 FY 2027 as against INR 2,155.73 crore in Q1 FY 2026. The profit after tax was INR 3,013.57 crore in Q4 FY 2026. Our net interest margin in Q1 FY 2027 was 9.04% as against 8.11% in Q1 FY 2026 and 8.61% in Q4 FY 2026. Our earnings per share for the quarter stood at INR 14.83 as against INR 11.46 in Q1 FY 2026. On asset quality, Gross Stage 3 in Q1 FY 2027 stood at 4.64%, and Net Stage 3 at 2.33%, as against 4.53% gross and 2.57% net in Q1 FY 2026, and was 4.58% gross and 2.33% net in Q4 FY 2026. Our credit cost to total asset for Q1 FY 2027 stood at 1.66%, as against 1.64% for Q1 FY 2026 and 1.68% for Q4 FY 2026.
Our cost-to-income ratio was 25.48% in Q1 FY 2027 as against 29.29% recorded in Q1 FY 2026. The same was 25.32% in Q4 FY 2026. On the liability side, this quarter, we didn't borrow much, and overall liabilities have come down from INR 250,690 crore as of March to INR 232,639 crore because of use of capital in the current quarter, which was infused in April 2026. Overall liabilities have come down. The cost of liability has also come down from 8.59% - 8.56%. A three basis point reduction. The incremental cost is at 7.77%. The liquidity coverage ratio for the company was slightly at 262.54%, and liquidity is well-maintained for six months of liability repayment. The leverage ratio came down because of this large capital infusion, is at 2.14x versus 3.82x as of March. The capital adequacy ratio for the company was healthy at 34.17%.
I think with this, we can open the forum for question and answer.
Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and 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. Again, to register for a question, please press star and then one. Your first question comes from the line of Renish Hareshbhai Bhuva with ICICI. Please go ahead.
Yeah. Hi, sir. Congrats on a good set of numbers. Just two, three things, sir. First, on this AUM mix. From a two to three year perspective, how do you see the share of new vehicle financing shaping up in overall vehicle financing portfolio, and what is the current A risk-adjusted yield during this segment. I mean, it is better than the book risk-adjusted yield or at par or maybe slightly lower. Also, if you can share how internally you estimate the return metrics for new vehicle. As in, I just wanted to get a sense at product level, the new vehicle finance book ROE in a steady state basis will be upwards of 15%-16%, or it will be slightly lower.
Yeah. See, we are slowly increasing our new vehicle disbursement, focusing on existing customer upgrading.
Right.
See, our existing customer keep upgrading to new vehicle, and that's common. Everyone has the aspiration to upgrade to new vehicle, and we have been financing them. We are also maybe reaching out to our earlier customer. See, Shriram has been in this business for nearly 50 years. Many of our customers would have gone to the other players because we were not matching the interest rate in the past. Today, since we have capital and since our cost of borrowing is coming down, we are able to match the rates. Not only they match the rate, we are also able to service the customer much better. We are increasing our new vehicle portfolio. Right now, on the disbursement basis, it is around 16% of the disbursement is new vehicle.
Increasingly, it will go up next two to three years as we reach out to more number of our earlier customers.
Sir, any comment on the profitability in.
The profitability, since we are passing on the reduced cost of borrowing to the customer, overall margins will not come down. Our long-term margins of 8.5%, we will be able to manage.
Okay. Just second on the growth side. While we were a little cautious during our Q4 earnings call because of West Asia war, and hence we were not maybe guiding for higher numbers. As you did mention in your opening remarks that Q1, despite being a seasonal weak quarter, the volumes are better. Are we aspiring for 18%-20% growth in this year itself, or we may want to still wait for another quarter and then reassess the guidance?
We would like to wait for another quarter because the net impact of the deficit in monsoon is a little less known. We would like to wait for that. We are confident that we'll be able to grow more than 15%, at least for next quarter. Onwards, if things are much better, we feel that we'll be able to catch up and grow faster.
Got it. Can you just share the full year guidance on growth for this year at this point in time?
Our earlier guidance of 18% will hold good unless after second quarter we revise it.
Got it. Okay. That's it, sir. Thank you very much.
Thank you.
Thank you. Your next question comes from the line of Chintan with Autonomous. Please go ahead.
Hi. Thank you for taking my question. The first one is on asset quality. What kind of impacts are you currently seeing from the West Asia war? Are you seeing capacity utilization come down? Are you seeing signs of demand destruction? What signs are you currently seeing on the ground?
Basically, we were expecting that fuel price to go up steeply. Since the fuel price has not gone up steeply, the operating margin for the operators have not changed much. They are able to pass on the increase in cost to either shipper or the end customer. That has not changed much. The demand for the vehicle remains good because we have not seen any stress or vehicle idling anywhere, and there has been good demand for the vehicle, and that is reflected in the way the sales have gone up. If the utilization levels were a little lower, then sales would not have gone up by 20% year-on-year, which is actually a positive surprise to us.
It's holding up well just now. Okay. The second question is on margin. Your NIMs were 9% this quarter. How should we think about your NIMs over the next three, four quarters? How should we think about the excess liquidity that you have on your balance sheet? I'm kind of thinking about the next few quarters here rather than long term with the new vehicle finance. Let's leave that aside. Just kind of trying to think about how your balance sheet develops over the next three, four quarters.
See, immediate two quarters, I think the current NIM will hold good because we are still utilizing the capital. Over the medium term, definitely it will come down a little because our new vehicle mix will go up. Right now, whatever the benefit we are getting because of the lower cost of borrowing, to some extent, we are passing on to the new vehicle purchasers. I believe as new vehicle portfolio keep increasing within our Shriram, we will be able to manage the NIM at around 8.5% in the medium term.
This is where I have a problem with your guidance. I don't understand this 8.5% number. You're currently at 9%. You've got excess liquidity on balance sheet, so that will probably go a little bit higher. The mix shift, the way you're guiding on new vehicle loans, the mix is moving very slowly. How does the NIM then drop from, say, 9.1%, 9.2% back to 8.5%? That just seems very conservative. Is it fair that you're just being conservative in this guidance?
I'm talking about a medium term. Medium term is two to three years. In the short term, I said-
But unless the-
Yes.
No, fair enough. Unless the new vehicle book grows very fast, it is hard to see that much mix shift come through and then see 8.5% NIM again. Either your growth will really go fast, which you are not guiding to, you are guiding to more balanced growth, then the mix shift would be more like five years rather than two to three years. I can understand if you are being conservative.
See, we always have been conservative in our guidance. New vehicle, if you look at the mix, from 10% with our new vehicle volume, we have increased to around 16%, 17% now.
Okay.
It will keep increasing to around 20%-25% over the period. Definitely, new vehicle book will be around 30% of our book, 30% plus in our book, maybe in the medium term.
Understood. Okay. Finally, on the non-vehicle portfolios on asset quality, could you give us some sense what's happening in MSME, gold, PL, these areas we are seeing GS3 inch up a little bit. Can you provide some color on what's happening there?
Our gold portfolio is definitely growing very fast, we expect it to grow very large because we have started using many of our existing branches for gold loans. Currently, around 2,200 branches are made ready for gold loan activity. We expect the portfolio to double in the next three years, from around 2.5% of the overall book to around 5%, because we feel that there's a very big opportunity for us to grow in the gold. MSME book also, we have been traditionally lending in the southern market. Other markets were not really explored much. Since we have now branch network across the country, we will be able to grow our MSME book. Last year, we were little cautious because of the U.S. tariff, and little inconsistency in the policy, which many of the MSMEs were dependent on exports.
Now, since the MSMEs by and large are able to find new market and expand the market within India, we are confident of the growth in the MSME book. From around 15% of the portfolio, MSME will become around 20% of the book. Personal loan also, we would like to extend to other customers. Hitherto, we were focusing only on Commercial Vehicle customers. Now we will be offering this to other customers like gold, MSME customers also. The personal loan book also will keep growing. We try to, as much as possible, keep it within our known customers. We do not wish to make the outsourcing as a big way to move forward in a personal loan.
There's no worry about asset quality in gold and MSME at the moment, right? Because the GS3-
Gold, absolutely not. MSME, we have been cautious in the last one year. We are now pretty confident about the MSME asset quality.
Thank you. A final quick one. Any guidance on OpEx? Your revenues are now growing stronger because of the excess capital. Should we think about a stable cost-income ratio, or should we think about an improving cost-income ratio?
Stable, I should say.
Okay. Thank you.
Thank you. The next question comes from the line of Kunal Shah with Citigroup. Please go ahead.
Yeah. Thanks. Firstly, again, coming on to this entire deployment of liquidity question. If you look at it, money was utilized in terms of repaying the borrowings. Borrowings are down, and then there is some liquidity which is parked in the cash bank balances and the investments. Herein, do we assume that maybe now the repayment of the borrowing is largely done, we will not utilize the funds or excess liquidity to repay the borrowings and it will be more utilized towards the growth? How long would it take to utilize this entire excess liquidity out there, which is currently sheet?
Yeah, I think whatever liability repayment we targeted, we have achieved. We'll be looking at business growth only, utilization towards more of growth only. We previously also used to maintain slightly higher liquidity
Which will be close to around three months of our future liability repayment, which works out to close to around INR 17,000 crore-INR 18,000 crore. The balance, what we have surplus of that will definitely come down because of higher disbursement. We don't look at any utilization towards liability repayment. In fact, we'll be looking at mobilization towards the end of the quarter of fund mobilization also. Yes, what you're saying is right. No more liability repayment, more of growth and look at some mobilization towards the end of the quarter.
Got it. As this liquidity gets utilized into the growth, in fact, that should support the margins in the near term, and that's the reason you are confident that it will remain in this trajectory for a few quarters.
Correct.
Okay, got it. Secondly, in terms of the credit cost, given that it's holding on quite well and you indicated that there is no stress reflected in any of the segment, do we stay with the credit cost guidance or would there be any risk to whatever we are indicating? We are still hitting below our guidance of 2%. Any changes out there on the credit cost front?
I think it will hold good. Our guidance has been around 2%, so it will remain around that in the near term or even in the medium term.
Okay. No risk out there.
No.
Okay. MSME, we have started to see the inflection where it has started to grow quarter-on-quarter. As you are indicating, the MSME proportion will also inch up. Should we see the accelerated pace in MSME growth and getting towards the double-digit kind of a number on a year-on-year basis now? Will it still take some time before we get the comfort on the overall environment?
No, I think it will start growing now. We are pretty comfortable and confident. We would like to expand the market.
Sequential momentum on MSME will pick up.
Yes.
Okay, got it. Just last question in terms of the data point, breakup of disbursements. Yeah.
Yeah. PV for the current quarter was INR 19,556 crore. Passenger Vehicles, inr 11,018 crore. Construction equipment, INR 792 crore. Farm equipment, INR 947 crore. MSME, INR 6,184 crore. Two wheelers, INR 3,548 crore. Gold, INR 5,153 crore. Personal loans, INR 2,773 crore. Total, INR 49,974 crore.
Thank you. Thanks a lot. Yeah.
Thank you. The next question comes from the line of Adarsh with PB Capital. Please go ahead.
Good evening, sir. Am I audible?
Yes.
Yeah. I want to ask a question regarding the gold. As you know that our prime minister has requested our citizens to buy less gold. How this is going to affect the businesses for Shriram? Overall, I want to understand in the Middle East crisis and all, how this is going to affect the business of Shriram Finance?
Basically, gold against the existing jewelry. It is not against the buying of the gold. Gold, traditionally, is not used for raising resources or borrowing. People have been hesitant to part away with the gold. Thanks to some of the NBFCs who specialize in gold, they have highlighted the advantages of raising resource against gold at a lower cost. People who otherwise would have raised personal loan or hand loan, now they are raising against gold for all their requirements. I believe the gold holding in India is pretty large, so it will keep increasing. Also, there is a large number of pawnbrokers who are still in the business and doing pretty good. I think some of this business will flow into NBFCs.
In that way, I think it will turn out to be a good volume for everyone who is there in this business. West Asia crisis, even though there were certain challenges, especially in certain industry which was dependent on the petroleum product as their raw material, like plastic and all. There, the cost went up and there were some challenges for the manufacturers to pass it on to the end customers. I think that phase is over now. One time increase in cost is already passed on and people have started living with it and therefore, I think there may not be further surprise unless the retail fuel price goes up further. The government also have taken a lot of measures in managing this by the higher ethanol mix.
E20 is going to be a norm now, that is going to have, to some extent Less dependent on the import. I think overall, I feel the situation is quite comfortable and the economy is doing quite well and growing at the indicated level of what RBI indicated or forecasted at 6.6%. I believe that the economy is growing steady.
Thank you very much, and congratulations for the good set of numbers.
Thank you. Your next question comes from the line of Raghav Garg with Ambit Capital. Please go ahead.
Sir, good evening and thanks for the opportunity. I just have two questions. Most of my questions have been answered. One, I know you said that your incremental cost of funds is 7.77%. I just wanted to know what is the incremental cost of bank funds, if you can share that, please.
Yeah. We have not borrowed from banks in the current quarter, but when we start borrowing, I think it would be in the range of around 8%.
Around 8%, okay. Superb. The second question is on your MSME portfolio. I think at the time of the merger, the thought process was to expand the portfolio across the [inaudible] branches in the non-south states and regions. As of today, where are you? Has the product been rolled out across all those branches that you were targeting or there's still some more penetration to go there? That's the second question. Thank you.
No, I think it's a long way to go. There's a lot of scope and opportunity. Initially, we were mostly in the south. Now in the west, we have rolled it out. We need to grow more in the north and east, which we are looking at scaling up. We are also trying to have more specialized people in these areas. As we are able to get more specialized and experienced people, we should be able to grow that business across India.
Can you share some numbers, maybe in terms of a percentage of branches covered? What would be right now in the west, and then as you go into north, that will help us get some idea on what is the opportunity out there.
Not all branches we were doing. Even in the south, we were not using all branches for sourcing the MSME. We were focusing on the certain pockets where the MSME segment is pretty large. In other branches, it's mostly lending to small shopkeepers or trading activity. The manufacturing MSMEs and all are mostly focused in the what you call industrialized belt. There we need to build certain manpower, especially when you go to north and all, north, central. That is where we need to build business. We are covering most of the southern part now. If not from all branches, we are sourcing from all branches but processing in the few branches. It's a hub and spoke as far as the MSME goes.
Understood. That's all from my end. Thank you.
Thank you. The next question comes from the line of Rajiv Mehta with YES Securities. Please go ahead.
Yeah. Hi, good evening. Congratulations on good numbers. My first question is on this very resilient CV growth that we are seeing even in Q1. Is it largely reflecting that the demand on the ground has kind of stood up well despite the movement in material price and if the full pass on did not happen out in the quarter, but still, the demand for used vehicle was pretty healthy in your cohort or your vintage segment? Is it also a reflection of some decline in competitive intensity which benefited us? Did we use some flexibility in underwriting or pricing because our cost of funds is now moving down? Can you just elaborate on what have been some granular drivers of growth in used CV in this quarter?
If you look at the broad numbers, it's in line with the increase in sales itself. The CV sales have gone up by nearly 20%, both M&HCV and LCV put together. Naturally, any player in this market will grow by 20% very comfortably because market is growing at 20%. Even in used vehicle, the demand is quite good from the rural market. I think it's a very comfortable journey. We have not really made extra push for growing the CV. Yes, we have been doing more new vehicle. Naturally, our growth rate will be higher because the ticket size of new vehicles are pretty large.
Sir, for the remaining part of the year, would it be right to say that you are most comfortable as far as the growth outlook is concerned in CV per se? Because I think this segment grew well in Q4 last year as well as Q1 of this year. Would you expect this momentum of growth to last for the whole year?
See, with the current scenario in mind, yes, I feel the growth rate will be comfortable and we'll be able to go as per the guidelines. I would like to still wait till the second quarter for the actual impact of El Niño, because we would see whether agricultural output drops. Right now, the indication is that rice cultivation, there may not be a downtrend. It will be flat year-on-year. There will be some downtrend in the oilseeds and the pulses because central India got less rainfall, and that is the current estimation. I think if there is a prolonged rain, then there may be a delay in the output. There can be some kind of new surprises, like positive surprise, like rain continuing hold longer and good output. Of course, we need to wait for the rabi crop.
Ultimately, there is a little uncertainty towards the output and the rural income. That is the only challenge. We would like to wait and see. Otherwise, our guidance hold good.
Sir, this revival in growth in used PV. Last quarter, I think we went slow despite the market was pretty strong. Now in this quarter, I think we have accelerated growth when I look at how the portfolio has grown on quarter-over-quarter basis. What has changed in our approach between two quarters?
There's no change. As I was telling you, the new vehicle portfolio has gone up, so volume has gone up.
Just lastly, on the gold loan portfolio, how have we kind of adjusted with the new guidelines which came into play from 1st April? I think we have seen a good growth in portfolio in this quarter. At the same time, on the asset quality side, we have seen some forward flows. Stage 2 has gone up, and Stage 3 has also gone up in the gold loan portfolio. Any connection with the new regulations or any change in the way you shoot the business before and now for the regulations?
No, there's no fresh guidelines. The guidelines came a year back. I don't see any fresh guidelines recently, but I feel the portfolio is holding very good. There may be some change in the buckets because we are trying to promote more on the interest servicing gold loan. Normally, they are habituated to pay only bullet payment. We are trying to now make the customers more towards interest payment, and that's the only thing, I think changed. Anything else?
No, nothing.
Okay.
Okay, sir. Thank you and best of luck.
Thank you.
Thank you. The next question comes from the line of Aditya Vikram with DB Securities. Please go ahead.
Hi. Thank you for taking my question. Good evening, sir. Sir, I wanted to understand of your NIMs, which is at 9.04%. What percentage of this has come from the parked funds?
Around INR 500 crore of the NII which is being reflected is out of the parked fund. That INR 13,600 crore what we received as fresh capital, that has contributed to the INR 500 crore of additional interest income.
The guidance which you are giving for the shorter term, that the NIMs will hold at this level and considering the cautious commentary, because of the uncertain situation, that INR 500 will remain static for next quarter as well. This current quarter.
It will gradually come down. What we were indicating earlier is that the operational NIMs will hold at around 8.5%, and we continue to guide that. The benefit of the surplus liquidity, the equity that we had come in will gradually subside over a period of time.
My next question then, sir, with this Iran war again flaring up and the weather being uncertain and based on IMD prediction, August and September might actually lead to lower rainfall or El Niño impact getting heavier and heavier. Are we confident that the disbursements and everything else which we are guiding for, we won't have any negative surprise on that front?
No. Right now, we feel that we're pretty confident of a similar growth as first quarter.
Okay. Last and the final, sir, the new loan portfolio. Currently, you said, if I heard you correctly, 16% of the total numbers, or it has increased gradually. That ideally comes at a lower NIMs. Lower than the secondhand purchases.
Yeah.
Will that be NIM declarative for us, or do you see still we will be able to manage everything as it stands because of the surplus liquidity, the INR 500 coming from there?
Basically, lower borrowing cost is getting passed on to them. There may not be big change in the NIM because of that.
The only reason why I'm asking, sir, is because some of the peers have suggested that the funding is getting a little tighter, right? Funding costs are increasing. You don't see any challenge or any negativity coming in from that front because you are saying that our cost will go down, and in case if we take bank funding, it would be around 8%.
Yeah. In fact, previously we used to borrow as a double-rated entity. Now we are getting the benefit of rating. That itself gives us some benefit of lower cost.
Okay. For this quarter it was three basis points, right? For this quarter it was three basis points.
Three basis points is on the overall liabilities, which has come down.
Okay.
Talking about the incremental, we didn't borrow much, in fact. Overall liabilities have come down, and that is some high cost paid off and overall liability cost came down. When we do the incremental borrowing, which was at 7.70%, 7.80% levels, which will be much lower than the cost of liabilities on balance sheet, it is 8.56%.
Okay.
Incremental borrowing cost will be lower, and that is why we are confident about overall cost still coming down further.
Sir, the only thing I don't understand then is you have surplus liquidity within your books, right? You have again said that between August and October you will be raising new funds. What is that going to be used for?
No, in fact, what we said is the overall liquidity, which is more as of June, will be utilized for growth. We'll be utilizing excess liquidity in one and a half months, and then look at fresh borrowing.
Okay.
Only for growth.
Okay. Got it. Thank you so much, sir. Have a good day.
Thank you. The next question comes from the line of Bunty Chawla with ASK Wealth. Please go ahead.
Thank you, sir, for giving me the opportunity. Congratulations on a good set of numbers. My questions have been answered. Just two. First is that now we are seeing that their off-balance sheet as a percentage of total AUM is coming down consecutively from last few quarter. What is the thought process on this? Any change in the strategy? Are we not going for the securitization or assignment, or there is not much of a demand from the banking sector? How one should see this?
Since our overall borrowing program was subdued for the quarter, we have not done transactions of securitization or direct assignment. Both the transactions were not done. When we talk about fresh borrowing towards the end of the quarter, it will be in the form of securitization also. We will look at opportunities. I don't think there is any dearth of demand for securitized instruments. It's only that because we were carrying higher liquidity, we didn't borrow in any format, and that is why whatever portfolio was there was on a monthly amortizing basis has been paid off and not replaced with fresh transactions, which will happen towards the end of the quarter.
Okay. Secondly, as you said, the full year guidance still remains at 18%, and Q2 might be around 15%-16%. It seems to be slightly heavy demand from second half. On that basis, what we have done in terms of branch expansion, employer base expansion, because still we are guiding for the cost-to-income ratio as a stable entity. Any thought process or any data point of if you can share.
We will be adding some branches and definitely we'll increase the manpower. That will not come at additional cost. It is as volume goes up, that additional cost will be absorbed. We don't really see a big change in our operational cost or cost-income ratio.
Total branches to be added for full year FY 2027, if you can share that number.
Tentatively around 150 branches.
Okay. Lastly, sir, just one request. As we are now moving more towards new CV portfolio, if you can share in a presentation out of this, at least from the CV portfolio, what is the new and what is the old, used vehicle in the CV portfolio? That will be quite helpful. Thank you.
Sanjay will provide that information offline.
Okay. Thank you.
Thank you. The next question comes from Pranuj Shah with 3P Investment Managers. Please go ahead.
Hi. Thank you for taking my question. Just on your MSME book, coming back to the growth, I think you had INR 6,200 crore of dispersal this quarter. For the quarter-over-quarter growth to pick up, you would need to sizably move up from 2 Q and then hit a INR 7,000 crore run rate plus from 3 Q, 4 Q onwards. Is that the kind of number that we're looking at?
Yeah, definitely, yes.
Okay. Should your MSME growth for the full year be in line or higher than your overall book growth this particular year, FY 2027?
Overall book, we have given guidelines. Now it could be as per the guidelines.
Okay. No guidance as to whether MSME can surpass that 18% target for the overall book.
MSME growth will be definitely higher than this because we are projecting CV at around 15%. MSME book and gold will be faster.
Understood, sir. Perfect. Just second question on the growth itself, your construction equipment has steadily been coming off, and now it has been sub INR 1,000 crore disbursement for the last five quarters. What will give you confidence to pull this back up to that INR 2,000 crore run rate you used to have till FY 2025?
No. We are seeing that there is some demand slowly coming back because the sales of construction equipment in the first quarter has started positive from the negative growth. Last year, if you see all the four quarters, it was growing negative, but this quarter it is positive. We believe that there can be a demand coming back into construction equipment. We should be start growing that book from next quarter.
You don't see any lingering AQ concerns in that space that you wish to highlight?
No, we don't.
Okay.
We feel it's robust.
Understood. Got it. Perfect. Thanks a lot.
Thank you. The next question comes from Mayank Mistry with Antique Stock Broking. Please go ahead.
Hi, sir. Thanks for the opportunity, and congratulations on a good quarter. Most of my questions are answered. Just wanted to know your long-term view of this used vehicle demand. Since you highlighted that over near time, this E20-based petroleum has kept prices lower and the demand is right now good. There is also a theory that E20-based petroleum is impacting durability of the vehicles. Do you see this as a long-term risk in the inventory, especially which can also impact the borrowers' demand later on, since borrowers would not be keen on buying these used vehicles if the vehicles cannot be used for a longer tenure?
See, this is basically, I think, challenge with the cars. That's what I understand. I don't see that as having any impact as of now, because maybe people who have older personal car will have some challenges. The OEMs have said that their cars are capable of running on the E20, so we really don't have a clear picture on the same.
Okay, sir. Basically, I was asking this from maybe from a five to six years point of view.
Yeah, I agree, I really don't see any challenge there. Very old cars, we don't normally finance a car which are more than seven years. Trucks, we do. There's no problem with trucks there. It's basically on the personal cars. There may not be a big challenge, is what I feel.
Okay, sir. Yeah, that's all from my side. Thank you.
Thank you. Our next follow-up question comes from the line of Aditya Vikram from DB Securities. Please go ahead.
Sir, just one more thing. This quarter, our Stage 3 assets increased 18% year-over-year and 5.5% or approximately Yeah, 5.5% quarter-over-quarter, right? It seems some Stage 3 assets have increased on the CV side. What kind of challenges are you seeing? Because now we have funds, we are trying to clean up our books a little faster?
If you see the numbers, it is a marginal increase only. From 4.58% it has gone to 4.63%, the Stage 3. These seasonal impact are there, so I don't really see there's a big change.
Okay. I just wanted to clarify that because the number 18% looked higher, so just wanted to see if you're trying to clean up books a little faster than we ideally would. You think it's a seasonal impact, mostly nothing to do with the uncertain weather or the crisis as such?
Yeah.
Okay. Thank you so much, sir.
Thank you. Ladies and gentlemen, we will take that as our last question for today. I now hand the conference call over to Mr. Umesh Revankar for closing comments.
Thank you. We had a good quarter, I should say. Second quarter is normally a little tricky because depending upon the rainfalls, and of course, there is added uncertainty of West Asia crisis. We are very confident that company will do well and will come out with good set of numbers. Thank you for joining.
Thank you. Ladies and gentlemen, on behalf of Shriram Finance Limited, that concludes this conference. Thank you everyone for joining us. You may now disconnect your lines. Thank you.