Ladies and gentlemen, good day, and welcome to the Shriram Finance Limited Q2 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 touch-tone 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.
Yeah, thank you. Good evening, friends from India and Asia, and a warm welcome to all of you. Greetings also to those who have joined the call from the western part of the world. To present our Q2 FY 2027 call today, I have with me Managing Director and CEO, Mr. Parag Sharma, Joint Managing Director and CFO, S. Sunder, and Sanjay Kumar Mundra, Executive Director, Investor Relations. It has been a good second quarter of the year for Shriram Finance under current circumstances. Let us first look at the broad economic indicators that have a direct impact or indirect impact on our business. First, on the GDP growth. India's Q1 GDP growth of 7.8% in FY 2026/2027 has highlighted the resilience of the country's economy, with the data pointing towards strong consumption, rising investment, and sustained government capital expenditure as the key drivers of the expansion.
The stronger than expected performance has reinforced expectation of broad-based economic momentum across multiple sectors. The IMF has raised India's GDP growth forecast to 7% for 2026/2027, up from 6.4% in July. The revision in the estimate comes on the back of stronger than expected momentum, supported by a resilient domestic demand and robust services activity. India's headline retail inflation rose to 5.54% in September from 4.8% in August, adding pressure on the country's central bank to further tighten monetary policy. Inflation has been on the rise for 11 straight months in the world's fastest growing economy and has touched 22-month high in September. This increase is mainly due to higher fuel and food prices, which rose amid West Asia war-driven supply disruption and delay in seasonal rains. India's food inflation climbed to 7.74% in September from 5.97% month prior, with prices rising faster in rural areas than cities.
India's wholesale price-based inflation climbed to 11.39% in September from 9.92% in August. Among key drivers of wholesale inflation were mineral oils, food articles, crude petroleum, and natural gas, coal and lignite, basic metal, chemicals, textile, rubber, plastic product, and electric equipments. Now, coming to the key takeaway of RBI policy. Repo rate increased by 25 basis points to 5.5%. Policy stance shifted from neutral to calibrated tightening. GDP forecast revised upward to 7.1% for FY 2026/2027. CPI inflation forecast 2026/2027 raised marginally to 5.2%. Coming to the rural economy, which has a major impact on our business. The 2026 southwest monsoon concluded at 87% of long period average, with sharper shortfalls hitting regions like South Peninsula, Northeast Asia. India received its lowest rainfall in more than a decade owing to El Niño effect.
The below normal and erratic rainfall has triggered moisture stress, hurting major kharif crop like rice, soybean, corn, cotton, and pulses, coupled with fertilizer shortage due to war. That will lead to some food issues in coming months. India Drought Monitor said in September 2023 that 51.2% of India's geographical area was abnormally dry. India's weak monsoon is beginning to weigh on rural consumption ahead of crucial festive season, with companies seeing pressure on demand for entry-level two-wheeler and cars, discretionary FMCG products, and also consumer appliances. However, India's rural economy is becoming more resilient to weak monsoon, as growing share of non-crop activities, diversification into allied sectors, rising irrigation coverage and reduced dependence on the rains. The RBI report said empirical findings suggest that while rainfall shortfall remains important for agricultural output, their association with allied activities and other rural activity has moderated over time.
Other significant indicator is the GST collection. India's gross GST collection rose by 14.7% year-on-year to INR 2.04 lakh in September, compared to INR 1.77 lakh crore. On cumulative basis, gross GST revenue for April to September reached INR 12.46 lakh crore, compared with INR 11.17 lakh crore during corresponding period of 2025, 2026, increase of 11.6%. Increased government spend on infrastructure is one positive indication, and GST collection has really helped the infra spend.
OEM sales side, there has been a positive impact throughout the last one year post the GST rate cut. The commercial vehicle sales has increased by 28.7% in Q2 FY 2027, and stands at 3.09 lakh unit against 2.4 lakh units sold in the Q2 FY 2026. Within commercial vehicle, medium and heavy commercial vehicle sales recorded growth of 37% in Q2 FY 2027, and stands at 121,171 units against 88,431 units sold in Q2 FY 2026.
LCV's sales recorded a growth of 23.8% in Q2, and stands at 1.88 lakh unit versus 1.52 lakh unit sold in the Q2 previous year. Passenger vehicle has recorded highest growth of 30.7% and stands at 13.61 lakh unit against 10.41 lakh unit in Q2 2026. Two-wheeler again seen a record growth of 15.2% with sales of 64.33 lakh unit in Q2 against 55.86 lakh unit. Three-wheelers also have recorded a very good healthy growth of 23.6% in Q2 with sales of 2.85 lakh units sold versus 2.31 lakh units sold in Q2 2026. Tractor again has recorded a good growth of 18.26% with 2.91 lakh units sold as against 2.46 lakh units sold in Q2 2026. Construction equipment has started the growth after decline in growth in the previous year with a 23% growth with 29,289 units sold against 23,758 units sold in Q2 2026.
Coming to the EV, we are seeing a robust growth in EV throughout all the segments. In the passenger vehicle, it grew by 106% to 99,732 units against 48,250 units. In three-wheeler, it recorded 30.61% to 2.53 lakh unit against 1.94 lakh unit. Two-wheeler, it increased by 90.93% to 5.95 lakh unit against 3.11 lakh units in the previous year. Now I shall ask my colleague Parag to take us through the operational performance for the quarter.
Thank you. Good evening to everyone and welcome to our Q2 FY 2027 earnings call. I trust you had the opportunity to peruse our results and the related investor presentation, which has been posted on the website of the stock exchanges. We registered disbursement growth of 25.71% year-on-year. Our disbursement in Q2 FY 2027 this year aggregated to INR 54,079.02 crores versus INR 43,019.17 crores in Q2 FY 2026.
Our AUM as on 30th September 2026 registered a growth of 16.96% over Q2 FY 2026 and 4.85% sequentially. Our AUM stood at INR 329,002.72 crores as against INR 281,309.46 crores a year ago and INR 313,798.39 crores in Q1 FY 2027. Our net interest margin in Q2 FY 2027 registered a growth of 38.2% year-on-year. We earned a net interest income of INR 8,661.04 crores in Q2 FY 2027 this year as compared to INR 6,266.84 crore in Q2 FY 2026.
Our profit after tax grew at 59.37% and stands at INR 3,677.03 crore in Q2 FY 2027 as against INR 2,307.18 crore in Q2 FY 2026. The profit after tax was INR 3,444.56 crore in Q1 FY 2027. Our net interest margin in Q2 FY 2027 was 9.52% as against 8.19% in Q2 FY 2026 and 9.04% in Q1 FY 2027. Our earning per share for the quarter stood at INR 15.63 as against INR 12.27 in Q2 FY 2026 and INR 14.83 in Q1 FY 2027.
On our asset quality, gross Stage 3 in Q2 FY 2027 stood at 4.65% and net Stage 3 at 2.31% as against 4.57% gross and 2.49% net in Q2 FY 2026, and was 4.64% gross and 2.33% net in Q1 FY 2027. Our credit cost on total asset for Q2 FY 2027 stood at 2.03% as against 1.68% in Q2 FY 2026 and 1.66% for Q1 FY 2027.
Our cost-to-income ratio was 22.52% in Q2 FY 2027 as against 27.76% recorded in Q2 FY 2026. Our cost-to-income ratio in Q1 FY 2027 was 25.48%. The board also declared an interim dividend of INR 6.5 per share, that is 325%. The record date for the entitlement thereof has been fixed at October 29, 2026. On the liability side, the total liability stands at 236,271 broken up into public deposits, which is 31%, non-convertible debenture, that is capital market borrowing at 15.71%, ECB loan and bond at 16.5%, the domestic bank borrowing and institutional borrowing is at 21%, and securitization at 14%. The cost of liabilities on balance sheet is 8.41% versus 8.56% in the previous quarter, a reduction of 15 basis points, and from March, it is down by 18 basis points. The incremental cost of fund for the quarter was 7.3% versus 7.7% in the previous quarter.
The liquidity coverage ratio was 303% versus 262% in the previous quarter. The liquidity buffers continues to be strong to repay our next quarter's liability, and leverage ratio was 2.16 x versus 2.14 x in the previous quarter. In March was 3.82x. The capital adequacy ratio is at 33.24% versus 34% in the previous quarter. I think with this, we will open the forum for question-and-answer. Thank you.
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 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. Your first question comes from the line of Chintan with Autonomous. Please go ahead.
Hi, good evening. Thank you for taking my question. Could we start with asset quality? There is a step-up in Stage 2, Stage 3 loans across construction equipment, gold, MSME. Could you help us understand what is kind of creating this increase in Stage 2, Stage 3 loans? How do you see provisioning costs play out for the full-year? Your guidance from the previous quarter was around 200 basis points. What is your expectation given that we've seen some deterioration this quarter? That is my first question.
It is basically the seasonal and also from certain geography where there is less rainfalls. We do not expect this to be a widespread thing. It should contain itself in the festive period if the overall demand remains good. We do not really see any kind of alarming situation in increase in the Stage 2 or Stage 1. We have sufficient provisioning to manage this. Our guidance will remain at 2% credit cost. In the beginning itself, we said that in case of deficient rainfall, it can go up by around 30 basis point for a short period of time. It will be temporary. I do not really think it is across. It is mostly in the area where it has seasonal impact.
Okay. Just to be clear, on the credit cost, is the guidance still 2% for the full-year? Because you are already 2.5% this quarter, it must be higher than 2% for the current year, correct?
It is 2.03% .
Yeah.
On the loan book it is 2.3%. It is not 2.5%. I think it will remain at this level for next one or two quarters. Our overall guidance, we said that it is 2%, but in select areas and select products, it can go up to 30 basis point more.
Okay, fine. In the big scheme of things, where your margins are, these are not the biggest moves, but still thank you for the color. On the NIM and NII, there has been good development there. How should we think about NIMs going forward? What is your take on evolution of cost of funds over the next year? How should we think about your loan yields? If you could give some color there as well.
The net interest margin is because of the capital infusion, there is a temporary increase in the NIM. It is likely to remain at this level maybe for another one quarter or two, then slowly coming down. In the medium term, it should come to around 9%, then maybe in the long term it will come to around 8.5%.
Could you explain the drivers of that as well? What drives that movement?
See, basically what happens is as the fresh capital is there, the capital cost being less or no cost, the NIM expansion happens. As the interest rate environment also will play some role here, as the cost of fresh borrowing goes up, then NIM can come down to some extent. But we will be able to increase the lending rate from the fresh loans, not on the existing loan.
Okay. So it is the typical ALM that is causing moderation. Could you give some color on where your incremental cost of borrowing is likely to be over the coming quarters? We have already had one rate hike. I am sure that has been passed on to you with perhaps more rate hikes on the way. What is the starting point of cost of funds and then we can adjust it for incremental rate hikes?
Cost of liabilities on book is 8.4%, and I do not expect the incremental cost to be more than 8% as of now. Whether be it our bank borrowing or the retail borrowing and other instruments like securitization and all. But if the rate hike happens and capital market rates move up, I think that can slightly go up, which is as of now, close to around 15% of our liabilities. Incremental cost can slightly go up from 8% to around 8.30%-8.35% level. But still, that overall liability is being at 8.4%, I do not expect the overall liability cost to go up for us for the entire liability book.
Okay, thank you. One final question. On MSME, if you can give some more color on what is causing the increase in Stage 2, Stage 3 loans. What is happening in that product area? I know that you are trying to get into mid-ticket items product. Could you give some color in that MSME area?
See, MSME is a huge opportunity and we are getting into more geography. Initially, our MSME was mostly focused in the southern market. As post the merger, because MSME lending was done through earlier Shriram City Union book, then we are now expanding it to all India. We expect MSME book to grow much faster than other segments because of the bigger geographical reach. It is only bigger geography will give us higher growth, and that is how MSME book will be growing faster.
Okay. So it is more geographical, or you are also increasing your ticket sizes?
Ticket sizes—
—or combination.
No, it is a combination of both, but wherever we have a comfort, then ticket size will go up.
Okay, got it. Thank you so much.
Thank you. The next question comes from the line of Shishuan Gao with Sanford . Go ahead.
Hello. Am I audible?
Yeah.
Thanks for the opportunity. Just on growth strategy, in the current situation, given the uncertainty of lower income in the second half, are we still going aggressive to push growth, or are we thinking about maybe including tightening some filters? How should we think about growth for this year?
The growth, we have been cautious, even though our initial guidance was 18% growth. Looking at the impact of the war situation in West Asia and the weak monsoon, we have been growing a little less than that. In the first quarter, our growth was around 15%. In the second quarter, it was 17%. We will be growing anywhere between these two, 15%-17%. We are very cautious in our growth.
Got it. Sorry, just to double-confirm, your credit cost guidance for the current year is 200 basis points plus 30 basis points temporarily. So 230 basis points, right? We expect to come down after maybe a couple of quarters.
The credit cost, we had given a long-term guidance of 2%, but temporary, maybe certain geographies, it may go up by 30 basis points, 40 basis points is what we indicated. It being seasonal and monsoon being weak, we have seen a little increase in Stage 2 and Stage 1 in certain geography. I believe that it will be seasonal and it should get normalized to overall expectation of 2%.
Got it. Thank you so much.
Thank you. Your next question comes from the line of Piran Engineer with CITIC International. Please go ahead.
Yeah. Hi, team. Thanks for taking my questions and congrats on the quarter. Just one or two clarifications. Firstly, sir, this MSME lending growth, which has just suddenly picked up this quarter, is there an ECLGS portion of it also?
No, we are not availed any ECLGS.
This quarter, we have disbursed almost INR 10,000 crore. In the peak, it has been INR 7,500, and last few quarters, we are doing around INR 6,000 crore. Just a sudden 50% jump, what drove that?
See, we have been—
—in disbursements.
I know. So we have been informing in the previous quarter call also that we are focusing on MSME and we are reaching out to larger geography. Earlier, our focus was mostly in the southern market and to some extent in the western market. Now we are growing across India. So the MSME growth is mainly because of larger geography we are reaching out.
Okay. Fair. And sir, just on your other comment that you made that near term for one or two quarters NIM will be at these levels, and then in the medium term, it will decline to 9% because the equity capital gets utilized. But on the other hand, our borrowing cost will also keep going down, right? So net NIM should not decline.
No. We are talking about increasing interest cost. That is one thing. And also, as we lend to more new vehicles, where the yields are little lower, definitely there will be some NIM compression.
Okay. And just last one from Parag, sir. What proportion of our bank borrowings have been migrated to EBLR? Or we are still on MCLR with some banks?
We'll get back with the numbers through Sanjay.
Okay. Sure. Yeah. Thanks, and wish you all the best.
Thank you. Your next question comes from the line of Raghav Garg with Ambit Capital. Please go ahead.
Hi, good evening, and thanks for the opportunity. I just have two questions. One, in your total disbursements and your AUM, what is the contribution from new vehicles? And if you can split that between commercial vehicles and passenger vehicles.
The breakup of new and used will be provided through Sanjay. You can reach out to Sanjay. Pause the call. He will help you out.
Sure. What would be the yield differential between the new and used vehicle financing?
It is normal. It will depend upon segment to segment. It will be between 200 basis points-400 basis points.
Understood. One more question, if I can ask, please.
Yeah, please.
Okay. I hear you out on the asset quality bit. I look at the slippages, which have gone up some 50% YoY. You would attribute that entirely to the geographical disturbances because of, I think you are saying weak rainfall or less rainfall. Is that the only reason, or there is something else also to it?
It is largely due to that, and we cannot have a pinpoint reason everywhere. India is such a large country. There will be fluctuations in the income on various. Drought-prone areas, we see it little higher.
Understood. Any data that you can give how much of your slippages would have come from, say, the drought-prone states or areas, if you would have worked that out?
I don't have it right across. I will ask Sanjay to provide it.
Sure. That's all from my side. Thank you.
Thank you. The next question comes from the line of [inaudible] with Wealthify. Please go ahead.
Good evening, sir. Thank you for the opportunity. My question relates to the reports of alleged unauthorized loan account in Kerala. Could management clarify the current status of investigation and the root cause of this incident? Given the company branch expansion plan, what measures are being taken to ensure that expansion does not compromise KYC verification and employee oversight?
This question, we will take it offline. You may reach out to Sanjay, and then he will assist you in this.
Okay, fair enough. My second question is, what progress have you seen in the construction equipment segment since your previous guidance that the loan book could start growing from Q2 FY 2027? Is the recovery demand progressing as expected?
The construction equipment sales have grown up, and the demand is picking up now. Last year, our overall construction equipment book came down because the government spend on infrastructure came down and demand came down. Now, in the last quarter, we are seeing the government spend is going up, and slowly the demand for construction equipment is coming back.
Okay, fair enough. That is it from my side.
Thank you. Your next question comes from the line of Kunal Shah with Citi. Please go ahead.
Yeah. Hi, sir. Firstly, as you indicated in terms of the credit cost, it might be elevated for a couple of quarters, and we are seeing higher slippages in few of the geographies. What are the, maybe the tightness in the credit filters, if you had done in any of this, and should it actually impact the growth momentum? Because this quarter, when you look at it with the credit cost, still the growth is much higher. It's almost like 5% quarter-on-quarter. So would this lead to some kind of a moderation in the overall growth momentum as well with the tightness in the credit filters?
See, the seasonal impact has nothing to do with the credit filters. Credit filters will have normally proper credit filters done at, every geography have a separate credit filter. But a sudden, if at all I had done some loan at two years back and there is unseasonal negative impact because of certain reason, that will have some impact on the performance of the loan. So definitely, whenever the environment are little against, like economic activity is slowing down, only then we decrease our LTVs and tighten the lending. Otherwise, we don't really change the LTV norms. Our credit filters, for example, will remain almost same for the full-year, unless there are certain reasons to believe that the economy is slowing down, or a particular segment is not doing well. So we don't see any of that, and all the economic indicators say that India is growing well.
Credit demand is quite good. We are also witnessing the demand. In fact, the demand from rural was much higher in the last two quarters. Only now, in the last one month, we have been little cautious on certain drought-prone areas.
Okay. Overall, in terms of growth, you still indicated you would be growing at 15% to 17-odd% . Maybe this quarter-on-quarter run rate was 5-odd% . Generally, second half is better than that of first half. We are already more than 8% or so. What is making us guide slightly slower? Maybe even if we assume, like I said, this is 5% this quarter and it picks up in Q3 and then maybe similar level, then also it takes it to a slightly higher percentage. I was just trying to gauge whether maybe credit cost is slightly making you more conservative on the growth side, or this 15%-17% is relatively a conservative growth guidance.
See, basically because of the impact of the monsoon, we are little cautious in certain geographies. That is the main reason to give a conservative numbers.
Okay. How much would this drought-prone area be as a proportion of AUM, if we have to look at it?
I do not have the number, but generally the Maharashtra, Karnataka, Telangana are the largest hit now, and we have reasonably large size there. Exact numbers I can give through Sanjay.
Sure. Then in terms of the utilization of liquidity, to what extent are we done? When I look at cash plus investments, maybe it is down to like INR 31,000 crores, INR 32 ,000 crores from 38,000 crores. How much of utilization and what level we would be comfortable in this kind of a macro environment? In terms of borrowings, is it like now we should start to see the increase in the borrowings also coming through? Or maybe there is still the room to repay the borrowings going forward and manage the maybe overall, at least on the borrowings side, and not have too much of a impact on the funding cost.
Yeah, I think this quarter we have started our borrowing program, be it bonds, bank borrowing. It is back to the pre-March level. We have borrowed around INR 27,000 crores in the last quarter. Liquidity-wise, we have brought down the liquidity, and it is now at our three months of future liability level. Nothing of excess liquidity now, and our borrowing program will continue the way it was in the previous quarters.
Okay. So now it will be almost equivalent to the AUM growth. Whatever AUM, maybe now we will have to borrow and there is no excess liquidity which would be utilized towards the growth.
Correct. That is right.
Okay. Got it. Perfect. Thanks, and all the best.
Thank you. Your next question comes from the line of Shreepal Doshi with Equirus. Please go ahead.
Hi, sir. Thank you for giving me the opportunity. My question was on, again, on the increase in GS2 and GS3. Is it purely because of the drought situation in the states highlighted by you, or is it also because of the heavy monsoon or flood-like situation in the northern part of the country? If you have to attribute weight, how would it be, the impact?
See, flooding is something very normal in the monsoon season. It will not have any negative impact. It is temporary. Some two, three days impact will be there. That will not impact the overall progress or economic activity. The drought-prone areas only will have a lower income due to the aggregate output being lower. When the income slows down, consumption comes down, overall demand and economic activity comes down. These are the main reason where the businesses slow down and cash flow gets stressed, and people normally miss out on one or two EMI. That need not really worry us because most of our lending is against the asset. The asset values have remained very strong throughout. There is real value of every asset has been quite good, so nothing really to worry about a long-term prospect or increase in the credit cost.
Got it. The second question was on the construction equipment segment. While we have seen strong bounce back in disbursements, the GS2, GS3 indicators here also show an increase. What is it that is giving us comfort on the incremental side that we have got back to a high disbursement phase?
Repeat again, please.
In the construction equipment segment, sir, there is a strong bounce back in the disbursements. However, if you look at the GS2 and GS3, the asset quality indicators, that continue to go up. What is it that is giving us comfort or how to read into these two data points?
If you see the absolute amount, it is still coming down quarter-on-quarter, even though the disbursements have been better this quarter. The previous quarter's Gross Stage 3 was INR 874 crore absolute amount, and this quarter it is INR 862 crore. Similarly, Gross Stage 2, if you see, it's INR 953 crore previous quarter, this quarter is INR 963 crore. Not much of a difference as such. It's more of a denominator effect which is causing the spike in the percentages.
Okay. Got it. Got it, sir. Thank you so much for answering my question, sir.
Thank you. The next question comes from the line of Vivek Singh with [audio distortion] Security. Go ahead.
Hi, sir. My question is on the cost of funds. Earlier we had guided 100 basis points compression in cost of funds because of the various sectors. Does that guidance still stay or there is a revision on that part?
We also mentioned that in case the rates don't go up, we will be able to reduce. As of now, this quarter, it has come down by 15 basis points, and if rates further goes up and continue to remain even at the current level, we may not be able to reduce our borrowing costs. But we are confident of maintaining it at the current level.
Okay. And sir, in terms of the asset quality, if I look at the accretion from the MSME segment in terms of the GS3, it is coming at incrementally the accretion on GS3 from the MSME is quite higher compared to its share in the disbursement. Any color, what cohort or is there any specific geography which is not performing as per earlier or what we had envisaged earlier?
Pardon? No, basically, as I was explaining you, in certain geographies, the seasonal impact is there, and therefore there is an elevated Stage 2 and Stage 1. We believe it is a temporary one and it get normalized in the subsequent quarters.
And sir, what is the share of unsecured exposure in MSME?
Unsecured?
Yeah. Unsecured MSME.
28% is unsecured and [inaudible].
28% is unsecured.
Okay, got it. Thank you.
Thank you. The next question comes from the line of Abhishek Murarka with HSBC. Go ahead.
Yeah, sir. Good evening. Am I audible?
Yeah.
Yeah. My question is on gold, similar to what was just asked on MSME. The GS2, GS3 growth for the past three quarters, if you look at the QoQ movement, it is very high. I understand there will not be losses, so obviously I am not worried about that. But have you looked into reasons why GS2, GS3 are going up? I mean, apart from the macro reasons or rain-related reasons, any micro reasons specific to your book why GS2, GS3 are going up?
No, basically because we had introduced EMI and interest servicing gold loans.
Okay.
People are habituated to servicing only bullet repayment. We are trying to introduce because they can get a little more loan if they opt for EMI and interest. That is the only thing. Once people get used to it, then I think there may not be a challenge since they are used to only bullet payment. Their servicing is not on time. That is the main reason.
Sir, when a loan gets into delay, it gets into zero to 30 or 30 to 60. At that time, what is the measure you are taking? Because that is the time when you have to tell the customer that you have to pay on time and not delay, right? What do you do at that time? And why is it that you cannot arrest it even 90 days later? Because GS3 means that 90 days have passed at least. After you start calling these people—
Abhishek, we can always take action and sell the gold and appropriate it. We do not have any credit cost in the gold loan. Do you understand it?
No, I understand that, sir. I am not worried about losses that you said upfront.
Yeah, upfront. We have to educate the customer.
But in terms of the action, what is—
It is educating the customer. We have to educate the customer saying that interest has to be serviced every month. So the communication educating takes time.
Okay. So by when do you think this stabilizes?
No, it will stabilize. As we are now increasing our communication to the customer, it will stabilize and become normal. People will understand that paying EMI and interest servicing will help them in taking the gold loan much more. They also have higher amount of gold loan because LTVs are little higher for that, and also their credit score will improve when they pay on time.
Sure, sir. And sir, these customers you are lending to, these are existing customers for other products or these are freshly sourced customers?
It could be both. But we have exclusive branches also for gold loan, and we also have gold loan as a product in our existing branch. It could be both.
Predominantly INR 9,000 crores would be to [audio distortion] Do you have just a broad split to understand where this is going?
Pardon? INR 9,000?
Total—
INR 9,000 crore AUM.
Yeah, AUM.
Predominantly it was to fresh customers or what is the proportion of, let's say, existing customers to fresh customers? Just a broad ballpark figure.
I do not have number right now. Probably Sanjay will help you to get it.
Okay. All right, sir. Thank you. Thank you, and all the best.
Thank you.
Thank you. Your next question comes from the line of Renish with ICICI. Please go ahead.
Yeah. Hi, sir. Sir, just one thing on the margin trajectory. So, when can you expect the entire excess liquidity to get absorbed? When we look at the pre-deal margin trajectory which used to be between 8.5%- 9%, and then you were expecting the structural decline in the cost of fund by almost 100 basis points, I can understand that the rate cycle reversal might be a challenge on that. So first of all, how is this 9.5% NIM in near term moving, and structurally, where do you see ultimately NIM settling when the excess liquidity gets absorbed?
See, I cannot have the exact number because the Repo rate increase, they have done after long time now, and there is an indication that it may go up further in the next policy rate also. We do not know. If the food inflation does not go up, it may not go up. There are so many ifs and buts. Also, there is a view on the war being stopped, crude going down, so many things. How can I exactly tell you how it will move? It is not. That is why we are telling you in the medium term, it will come down to around 9%. In long term, it will settle down at around 8.5%. But exact timing is not possible to calculate.
Okay. So basically you are saying in a steady state, NIM would be 8%-8.5%. So factoring our entry into large tickets, new vehicle, et cetera. Is that the presumption?
The new vehicle will keep growing in our book because we would like to retain our customers. So that is one factor. But the other factors which is not in our control is the interest rate environment.
Correct. But in that case, does not our pricing policy factor those changes and still give us closer numbers to our, let us say, the planned NIM, et cetera, or such nature does not allow us that flexibility?
See, pricing I can do only for the new loan that I am booking. For existing loan, I can't do it.
I can price it only as the new loans. We don't have a floating rate scenario. NBFCs normally have fixed rate lending.
Got it. Okay, sir. Thank you, sir.
Thank you. Your next question comes from the line of [inaudible] with Emkay Research. Please go ahead.
Yeah, hi. Good evening. My first question is regarding the gold financing that has accelerated around 68% in this quarter. In previous quarter, the management had stated that the gold book will grow faster than the same. There are some signs of concerns in the gold loan segment. In fact, there has been some rising instances on the multiple borrowing against gold loans. Few of the companies have also stated that there has been, on an industry level, the gold loans are emerging as a red signal, and few of the banks have also deliberately moderated their gold loan growth. In fact, for the Stage 2 and Stage 3 assets for our company has also increased. Is there any signs of concerns that you are seeing on an industry level in terms of gold financing?
No. We don't really see any kind of a challenge as far as proper care is taken in identifying the customer or credit process, and also valuing the gold properly. As I was explaining you, the main reason for increase in the Stage 1, Stage 2 was the interest and EMI products, customers not understanding the product and waiting for the bullet payment. That's the main reason. We don't really see any challenge, and we feel that gold loan industry or opportunity in gold loan is very high. Therefore, I don't want to speak on behalf of the industry because we are having a small portfolio, but we feel that there's very bright opportunity in growing our gold portfolio.
Okay. In quarter one, the management has stated that their target for gold financing is to grow the book double in next three years from around 2.5% to around 5% of the book. Does that guidance remain intact or any kind of changes or revisions are there?
There's no change. We'll go as per the plan.
Okay. Just wanted to confirm regarding the AUM growth guidance for FY 2027, which has been cut to around 15%-17% from 18% earlier.
Yeah.
The credit cost guidance for FY 2027 that has increased to around 2.3% to a range of around 2.4% from 2% earlier.
I said there will be temporary increase of 30 basis points- 40 basis points and not for the full-year. I feel the full-year credit cost can be much lower than the 2.3% . Temporary, it may be for this quarter and next quarter.
Okay, got it. Just wanted to confirm one last thing. In the MSME segment, the stress is predominantly because of the drought-affected regions. There are not any other reasons for this stress in MSME?
I don't really see any other reasons, because other factors like increase in cost of raw material, increase in labor cost, all these things have been already factored. So only in certain geography there are some challenges because of seasonality.
Okay. Got it. Thank you so much.
Thank you. The next question comes from the line of Pranuj Shah with 3P Investment Managers. Please go ahead.
Hi. Thanks for taking my question. My first question is on the OpEx growth has been quite benign despite your disbursements picking up pretty sizably. So is there any reversal? What is driving that?
The previous quarter, we had the annual bonuses released for the back office team, and hence the staff cost was slightly elevated. The current quarter was more normalized. Having said that, the medium to long-term guidance will be the cost income will be around 25%.
Sorry, when you say 25%, it is on the current base of your NIMs, right? Because your NIMs also you are saying will come off pretty meaningfully in the medium term.
Yeah.
That is, you are considering an 8.5% NIM, right?
No, that is for a long term. That is what Mr. Revankar mentioned. In the medium term, it will be hovering around 9%, is what he had mentioned.
Understood. Even if I look at your OpEx to AUM, that has fallen off pretty meaningfully. If I were to just look at in terms of OpEx growth related to AUM growth, should that continue to trend downwards, or how should be the trajectory there?
It should be in the same level.
Sorry, your 2Q is at 2.5% level. Do you expect that kind of an OpEx to AUM to continue?
See, what will happen is that there will be additional cost on the technology front, and that may have an impact on the overall OpEx.
Okay. Second question is, can you disclose what is your disbursements in gold loan this quarter and what is your LTV this quarter and last quarter?
We have the disbursement number. I will just tell you. The current quarter gold disbursement was INR 5,443 crores.
Understood. What is the LTV on your book, including the interest accrued?
It should be around 72%-73%.
72%-73%. What would this be last quarter?
Should be the same region. There's nothing significant change in that. The disbursement for the previous quarter was INR 5,153 crore.
Yeah. Thank you. Thanks a lot. That's it from my end.
Thank you. The next question comes from Hardik Shah with MLP. Please go ahead.
Hi. Thank you for the opportunity, sir. My first question is, in terms of your assessment of the IRDAI circular that has come through, what could be the potential impact for us in terms of insurance income? Number one. And number two, to clarify the understanding on credit cost. You guide it for 2.3% for full-year. If you can kind of clarify in terms of how that would trend directionally from 2Q to 3Q, and how are you assessing it for the second half? Because your first half credit cost is around 2.1%. full-year 2.3% would imply around more than 2.4% credit cost for second half. So, how to think about this?
See, on the second question, I told very clearly that it will be temporarily elevated for this quarter and next quarter. We cannot be giving you, at this stage, a number 2.3% for the full-year. We can't be. So I said it is a temporary 30 basis points, 40 basis points for one or two quarters. So we would like to wait and see how it will impact. And generally, affected period only it goes up. That's one. And as far as the IRDAI is concerned, it's a draft guidelines. There's a representation from the manufacturers on the distribution income to the distributor because the growth in insurance is dependent on distributors. So major impact on the distributor's income will impact the growth in the insurance business. So I believe that IRDAI will look into it and probably come out with revised guidelines or revised rates.
So we are waiting for the same. However, given current state of affair, the income may come down by 50% of what it is now. But for Shriram Finance is concerned, the fee income due to distribution is very insignificant, very small portion of our total income. So we are not majorly impacted.
Can you quantify that?
The previous year, full-year, the insurance commission that we received was around INR 350 crores. If the proposed guideline comes, there may be around INR 100- odd crores of impact on that. For the size of our balance sheet, it is not material.
Understood. Very clear. Perfect. Thank you.
Thank you. Ladies and gentlemen, we will take that as our last question for today. I now hand the conference over to Mr. Umesh Revankar for closing comments.
Thank you everyone for joining. As you are aware, there were multiple headwinds for us in last two quarters. One, due to West Asia crisis, where the petroleum product prices went up and so many other raw material prices went up. Secondly, now, due to El Niño situation, monsoon being weak. In spite of that, the company has performed very well, and we are very confident to do much better in the busy season. Normally, second half of the year is much busier, and we are confident of outperforming and coming back to you again. Thank you very much.
Thank you. On behalf of Shriram Finance Limited, that concludes this conference. Thank you everyone for joining us, and you may now disconnect your lines. Thank you.