Ladies and gentlemen, good day and welcome to Q1 FY26 earnings conference call of Arman Financial Services Limited, hosted by Philip Capital India Private Limited. 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 continues. Should you need assistance during the conference call, please signal an operator by pressing *10 on your touchtone phone. Please note that this conference is being recorded. Please note this call may contain some of the forward-looking statements, which are completely based upon our beliefs, opinions, and expectations as of today. These statements are not the guarantees of our future performance and involve unforeseen risks and uncertainties. The company also undertakes no obligation to update any forward-looking statements to reflect developments that occur after a statement is made. I now hand the conference over to Mr.
Aman from Philip Capital India Private Limited. Thank you and over to you, sir.
Thank you, Shruti. Good evening, everyone. On behalf of Philip Capital India Private Limited, I welcome you all to the Q1 FY26 earnings conference call of Arman Financial Services Limited. From the management, we have Mr. Alok Patel, Joint Managing Director, and Mr. Vivek Modi, Chief Financial Officer. I now hand over the conference to Mr. Alok for his opening remarks, and we will then open the floor for the questions and answers. Over to you, Mr. Patel.
Yeah, good evening and thank you, everyone, for joining us today. On behalf of Arman Financial Services Limited, I extend a warm welcome to all of you to our Q1 FY26 earnings call. I'm, of course, joined by the Group CFO, Mr. Vivek Modi, and the Investor Relations team. I trust you all have had the opportunity to review our results, investor presentation, and press release, all of which are available on the stock exchanges and our company website. The microfinance sector continues to operate in a challenging environment. While defaults are decreasing and rural incomes recovering, the improvement is uneven across regions, and in some areas, repayment behavior is still impacted by local stress. In spite of these conditions, we have maintained a conservative stance in our MFI lending, with a core focus on improving portfolio quality from collections.
This has meant that for the past few quarters, we have slowed down on stress disbursement, intensifying our collection efforts, and embedding structural changes to strengthen the book. Our other segments, which are MSME, two-wheeler loans against property, Micro LAP, which are housed under our standalone entity, Arman, have been relatively insulated from these headwinds. They continue to post steady growth supported by healthy demand and relatively better asset quality in comparison, which in turn has helped cushion the impact of the microfinance portfolio. At the group level, the quarter reflected two contrasting trends: moderation in the MFI book and healthy momentum in the non-MFI businesses. Consolidated assets under management stood at INR 2,156 crores as of June 30, 2025, compared to INR 2,594 crores a year ago, reflecting a slowdown in the microfinance lending.
Disbursement for the quarter was INR 387 crores as against INR 459 crores in the same period last year. Gross total income was INR 151 crores, resulting in a net total income of INR 99 crores. This decline from the previous year reflects the volume impact in the MFI portfolio. Pre-provisioning operating profits stood at INR 55 crores. The quarter closed with a consolidated loss of INR 15 crores, largely due to the elevated credit cost in the MFI subsidiary. We view this as a short-term impact as a part of our longer-term recovery strategy. As far as microfinance, which is housed under Namra Finance, Namra's AUM closed at INR 1,554 crores compared to INR 2,129 crores last year, with a disbursement of INR 270 crores. GNPA stood at 3.43% and NNPA at 0.23%.
While the year-on-year decrease in the book and NII was anticipated, we are encouraged by improving operational matrices. In June, collection efficiency reached 95.3% and zero bucket flow forwards, early release indicator improved to about 98.8%. Total impairment cost for Namra was the lowest in the last three quarters. Q3 FY25 was about INR 68 crore. Q4 FY25 was about INR 82 crores. Q1 FY26 was down to INR 59 crores. One of the key structural reforms we have been implementing in recent months is the separation of credit underwriting and recovery functions at the MFI branch level. This change is already operational across about 180 branches, strengthening governance, enhancing accountability, and improving the quality of both origination and collections. Early indicators for this are all very positive in terms of asset quality. We are on track to complete the rollout across all branches by the second half of FY26.
Since November 2024, all new MFI disbursements have been covered under the CGFMU guarantee scheme, adding an extra layer of protection against potential credit losses. As of June 2025, almost 50% of our MFI AUM is covered under CGFMU, providing a meaningful cushion against potential credit losses should the conditions fail to improve. As far as the standalone business, which is MSME, two-wheeler, and MicroLab, our non-MFI businesses continue to perform in line with expectations and remain our growth engines. AUM grew at 29% year-on-year to INR 602 crores, with disbursements rising 10% to INR 117 crores. Net interest income rose 17% year-on-year, supported by healthy yields and a stable cost of funds. Pre-provisioning operating profits stood at INR 23 crores. Profit after tax was broadly stable at INR 12 crores.
On asset quality, GNPA stood at 3.8% for MSME, 4.7% for two-wheeler, and our Micro LAP portfolio, which was launched last year, now present across branches in Gujarat and Telangana, with a pilot in Madhya Pradesh, continues to maintain zero NPA. At the consolidated level, GNPA was 3.45% and NNPA at 0.5%. Collection efficiency in June stood at 95.5% for the group, 96.1% for MSME, 95.3% for two-wheeler, and 95.3% for MFI. Early bucket trends in MFI branches are encouraging, indicating that our credit reforms are beginning to yield results. Our balance sheet strength remains a key differentiator. As of June 30, capital adequacy was 38.24% for the standalone entity and almost 50% for Namra Finance, both well above regulatory requirements. We closed the quarter with INR 216,000 cash, liquid investments, and undrawn limits, in addition to INR 256 crores in sanctioned but undrawn facilities from the lender.
Our asset liability profile remains positive across all maturity buckets, ensuring both fixed stability and flexibility to capture growth opportunities when market conditions improve. In summary, Q1 FY2026 was about consolidating our base. In the MFI segment, we consciously tailored near-term growth for long-term stability, and the early results from our operational changes are encouraging. Our standalone business continues to demonstrate strong momentum, delivering growth and profitability both. We believe as the rural economy strengthens, supported by favorable monsoons and better agriculture outputs, the pace of recovery in our MFI business will accelerate in the second half of this year. With strong balance sheets, risk management, and diversified growth drivers, we are all positioned to benefit from this anticipated after. Thank you very much, and Shruti, we can open the floor for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone dial code. If you wish to remove yourself from the call center, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the call center assembles. The first question is from the line of Girish Shetty from Girik Capital.
Yeah, hi, folks. I'm sure we are happy with this. This is one question. Could you let him? How has been the time zero plus D310, overall MSME, as well as overall business in Chennai, and of course, SNS connection is also very complex.
Girish, maybe you can get off speakerphone. I'm not able to hear you clearly.
I'm not on speaker one. Can you hear me now?
Yeah, go ahead.
Yeah, just wanted to understand the trends in July and August. How similar is it in terms of collection efficiency?
Yeah, zero to two gig collection efficiency is improving month on month. We are at 98.8%. We have reached the path, but not all steady upturn. Sometimes you take two steps forward and half a step back also. Everything is going positively. August, I was a little afraid that due to a lot of holidays with Rakshabandhan and Independence Day and Janmashtami and a lot of national holidays and regional holidays with Ganesh and everything, it might be a tough month for collections. Right now, we are, as of the 14th, kind of the same place we were last month. Luckily, that has not impacted so far so much. We'll wait for the long weekend, of course, to get a better idea. Other than that, what was your question?
Also, any stress that you, because a lot of people have called out on stress in MSMEs. Are you seeing the same for your non-MFI portfolio? MSMEs have to be low.
I'd like to stress that MSME is also not immune to the overall macroeconomics that are playing out in rural. Forget about RFI, but I think all small ticket retail loans anywhere in whatever shape or form that you are doing are under some level of stress, some more than others. Obviously, MSME is more than others. MSME is not immune. Surprisingly, it's doing a lot better because we are operating in very similar to same areas and lending to customers maybe just one or two steps above MSME customers. Maybe due to our underwriting or collection efforts or, you know, some bit of luck also, I'm not sure. MSME has been behaving a lot better than expected. That said, yes, there are challenges in that book as well.
As we've clearly shown also in the impairment cost, if you compare it, previous quarters versus what it is this quarter, it's slowly been edging up. In that book, we have never really fallen on zero DPDs less than 99%. Throughout, I think last month we were at 99.2%. At cost, we don't lose a lot of traction there. God knows, I need some luck as well to make sure that doesn't happen.
Just like you mentioned about the CGFMU guarantee scheme and also setting up our special credit and collection diligence, in a normalized situation, how should we look into a business on an ROA basis when everything you see is in a normal state?
I mean, once we get back to normal, it's easily a 3.5% ROA business. You know, historically, we have, in the good years, reported even 4.5%, 5%. Bad years, of course, zero. On average, we do typically manage pulling out about 3.5% types of ROAs. Of course, there's a lot of variations in those from year to year given the fact that I guess now it's time to admit we are in a sort of a cyclical business. I think that we were put in denial, but it is what it is. We are in a down cycle right now, but hopefully in a couple of quarters that should turn around and, you know, it'll be back to normal and back to business.
This zero-to-zero mix of 70/30, what you have currently, how do you see that like two years, three years down the line?
Here is the thing. Part of our strategy, maybe this might be an ugly longest answer, but part of our strategy has been also to kind of figure out what's next. Right? If we are saying that the only purpose of JLG right now is to ensure that you are collecting from multiple people instead of one, let us assume that a JLG culture being completely diluted, as in it has reached a specific point. We have been doing a lot of different kinds of products in rural. One product is, of course, individual loans that we are doing. MSME products that we are doing. Micro LAP is, of course, there. We are trying to diversify away from group loans.
My hope is that group loans versus non-group loans, whatever you call them, individual loans or whatever it may be, hopefully that should be 50/50 even over the next three to four quarters. That's where my efforts will be. Essentially, we have to journey from a single product entity to a multi-product entity. All of these products will be interrelated, but you know this classic JLG group loan, I think that it will have to evolve beyond.
Thanks. Thank you .
Thank you. The next question is from the line of Karthik Srinivas from Unifi Mutual Fund. Please proceed.
Yeah. Thanks for the opportunity. I'm really involved. My question is, since the increase in cost-to-income ratio, we have gone all the way from 32%, 33% to 4 4%. I see this mainly because of the employee benefit expenses. Now that you have a presence of provisioning of service vertical in all your branches, just for my understanding, is it? In that case, where do we settle on steady-state basis ? That's the question.
No. Cost-to-income, or what we look at, is typically operating cost as a % of AUM. That has been increasing significantly. It's no big surprise, overall, as the denominator increases, as the AUMs decline, or if not just as the AUM declines, as the income declines, the operating cost as a % of its lightening denominator obviously will show it increasing, right? Over and above that, it's not only the percentages, but absolute values have also increased. That is, again, as a result of trying to tackle this crisis by hiring substantial recovery officers, around 500 of them, hiring the BCMs, as I said, the approved credit structure. That has also led to increased salary expense, increased travel costs, of course. All around, the operating cost has been increasing.
With a lower denominator, the investment on the employees in terms of the new vertical, the overall strengthening of the recovery team across the branches, I think we will, over a period of time, should start yielding better results once the entire cycle, in terms to an appropriate cycle towards the diversification.
For the last two quarters, specifically, employee benefit expenses have been steady. If you consider the third quarter, they're not increased substantially. I don't expect those expenses to increase substantially for the next two to three quarters.
Got it. Question in terms of debt-free ratio, now that we are operating at a very comfortable debt-free ratio, maybe two or three quarters down when the business is back into form, where do we expect our debt-free ratio to go? It's hard to be as equitable. We won't wait for the next round of calculation.
My answer remains kind of saying that we start looking at about 4.5x debt equity ratio. Five is something that I've become a little bit, although we have gone that far in the path, but that's something that I start getting slightly uncomfortable. Yeah, between 4, 4.5x.
Got it, sir. That's it from my side, and thank you. All the very best.
Thank you.
Thank you. The next question is from the line of Ronak Chheda from Awriga Capital. Please proceed.
Hi, Alok. My first question is on the vacuum in the industry itself. Is there a case to be made where the supply is shortage now because of the liquidity crunch, if most of the players are pulling out and not lending and the demand remains at a certain point? Has that vacuum created for you to be opportunistic and start picking up your customers which you feel comfortable in lending?
Part of the problem why the situation has not improved as fast as we would like it is that, frankly, the rural area is choked for credit right now. Over a period of nine months, we went from like INR 4.5 lakh crore, well, nine to twelve months, we went from a period, MFI portfolio of INR 4.5 lakh crore to INR 3.5 lakh crore or INR 3.6 lakh crore, something along those lines. That is a drastic decline over a one-year period, you know. We are seeing that geographically also. For example, in Gujarat, certain areas which have a higher credit demand because of guardrails and everything, that has been kind of a collateral damage. You could very easily correlate as soon as the fund flow stopped into those areas, overall delinquency started increasing as well, right? You can call it evergreening. You can call it whatever you like.
You can say, "Oh, people were just borrowing and paying somebody else." You can be like, "The credit was choked and they were not able to use this in their business," whatever. The fact is that the evidence is very strong that once you choke credit in an area, then the delinquency skyrockets. That is one of the problems that we are trying to sort. Obviously, if you look at increases in gold loan portfolio in the rural market, that has also substantially increased because, obviously, if people aren't getting money through MFIs, they'll have to find all three methods to get money, whether it's gold loans or money lenders or family and friends, whatever it may be. Definitely, once the situation improves, we are, you know, I'm just ready to pounce.
Until I get a clear indication that this is over and this is behind us, it will be very difficult to do that. The rejection rates are also ridiculously high. It's not a problem of inquiry. Last month, in the month of July, for every 100 inquiries, we made 19 disappointments. That is a rejection rate or whatever, you know, from inquiry until disappointment, we lost 81 customers out of 100. That really is, I mean, on one way, you know, I'm kind of showing off that, you know, we are so selective. On another way, that's really not a sustainable business model in the sense that you cannot get away by having so much rejection, right? Somewhere along the lines, I think the MFIs will have to get together.
As soon as there are some green shoots, we'll have to get together in a room and be like, "Okay, you know, it's time to start getting back to normal."
Yeah, but your ex-market number of 98.8% doesn't give you that confidence as yet?
Not yet. Not yet. Until I see like 99%+ for three months straight, I don't think I'm going to get that confidence. Because even 99%, frankly, is not a low number. I mean, maybe that might be the new reality that I have to accept. Historically, on average, if you look at between 2022 and, you know, April 2022 and March 2024, it was like around 99.35%, 99.4%, somewhere around that neighborhood. Even 99% isn't like, you know, worth popping open a bottle of champagne or anything like that, but it's something that I can live with. It's okay. The balance sheet and the P&L can absorb those credit costs.
Okay. Just the next one is on the growth in your MSME and LAP. It is quite intelligent. Can you talk about the core of customer? You did mention in an answer earlier that it is still part of the same geography. How are you kind of now thinking of scaling these businesses? The ticket size and the yields kind of put you in a similar bucket as the other MFI guys or other unsecured guys. How are you thinking of this product and where are you finding this customer? Could you just talk about some brief traits of these customers which kind of you feel comfortable lending? Alternatively, if you could comment.
I can't really comment on traits on top of my head. What do you mean by traits exactly? Like as far as their personality or what?
In terms of the cash flows, because you are underwriting these customers, is the same similar geographies. The ticket size is similar to like other MFI guys.
This one MFI was generous. Historically, it was relying on kind of macro credit checks, you know, kind of one-size-fits-all credit checks is what MFI was relying on. We were relying on the group dynamics and group liability and group culture, JLG. MSME always had a separate credit where we were evaluating each customer on their, his or her own, cash flows and other quality, whether it be credit score, cash flow, or the type of business they were in, or the type of house they lived in, or their history of what they had, or their banking statement. There were many other factors. Not everything was available to everybody, but we tried to get as much information as possible.
I think what you will find is, and this is actually what we are trying to do, is that more and more the MFI will move towards that kind of a credit, you know. That's what, in fact, what we are trying to do right now is that, kind of, empowered by the better success we had in MSME, even though they are in the same geographies, if you just take my seat and see that, okay, what did we do differently in MSME than we did in JLG? Why are the losses in MSME lower than where MFI is? There's only one real big distinguishment, that it has its own independent credit. Otherwise, there's not a lot of difference. The second difference is that we are a lot more conscious about making sure that the money is used for some income-generating activities, right?
Along with MFIs, that was always the case. Somewhere along the line, I'll take my share of blame for it. I think we lost our way in terms of making sure that the money was going towards real income-generating activity for the MFI side. That is where we kind of need to reach. I don't know, Vivek, anything to add?
Like you said, one thing that has been always a differentiator between the MFI and MSME is the independence of the credit and multiple variable checks and balances that have been created in the MSME because of the larger ticket size and the overall positioning of that product allows for a far more superior underwriting from the very beginning. The learning in the last 18 months has been that mainly designed for evaluating the microfinance customers on similar lines. You know, we are becoming more and more, you know, or a key of the art.
See, to answer your other question about, I get this question a lot that, oh, you know, MFI has its own fair share of issues right now. Why don't we just increase disbursements in MSME? Honestly, it won't be a good idea at all because what has protected me in MSME is also that I was never really pressured to grow that fast, right? In the MSME book, I kind of grew at my own pace. It would be kind of hypocritical to push that book right now and keep your fingers crossed and hope nothing bad happens there. That said, we are keeping a very, very close watch on MicroLab and MSME both because just like you guys have been hearing, obviously, I've also been hearing that there is a fair bit of issues going on in the MSME market at this point.
It seems that a lot of the MFI players are also moving towards these kinds of products, the individual MSME type products. I'm wary. I'm careful. You want to make sure that, a year down the line, we are not in the same spot as we are in MFI right now. I'm not trying to say that in any, I have no evidence for that, but it just seems that the level of household borrowing has gone up in the market versus real incomes being completely stagnant for the last four or five years. As I said to an earlier caller, it's not just going to be MFI. I feel if you are in the rural lending business or even semi-urban lending business, you are going to face issues unless these macroeconomic issues get solved.
This last one with Vivek, just on the credit scores, are we largely done in terms of the risk we were supposed to take for this test in the MFI book? Going forward, we should see this number trending down significantly.
What are these options? Whether you've seen the bottom in terms of the credit cost? Am I right?
Yes.
I think I wish there was an answer which could be done as a yes or a no, but that's not the case. I think the industry is still going through a bit of pain. Things have started to improve in the last, at least, two quarters in terms of the early indicators being in terms of the improvement in the zero bucket or the current bucket collection efficiencies. The entire process needs to take a look at the lower buckets as well and also accelerate to that extent for the entire.
Yeah, I was saying there were good indicators in March, and I turned out to be wrong. Ask me next quarter, I promise I'll give a better answer.
Thanks for answering my question.
Thank you. The next question is from the line of Shreepal Doshi from Equirus. Please proceed.
Hi, sir. Thank you for giving me the opportunity. Sir, my question was on, again, to what you saw in the earlier participant question when you said that in MSME, what has worked well for us is the income generating being the key evaluation criteria. Do you feel that, incrementally even in MFI, that the end-use monitoring will become even more important? Just its implication on the ROA because then, you know, typically we're talking about ROA per se. I just wanted to understand the operational changes which become much more, which will become much more prudent and let's say much more end-use-driven and also the implication on the profitability.
See, what I kind of learned over the last 10, 15 years of doing this is, once the loan goes out of your account and into the hands of the customer, doing any kind of monitoring after that is pretty useless because it doesn't really bring a lot of value to making sure that the customer pays back. Even in the MSME portfolio, I think whatever we do to ensure that the end-use is going to be correct is to try your best to underwrite them properly and make sure that they have some business. You know, like if MFI is like, "Oh, I need a loan. What do you need the loan for? I want to buy a tailoring machine." I mean, are they in the business of tailoring? Can they even stitch a button? Those kinds of things would be more helpful.
Frankly, whether it's a microloan or a macroloan, once the money is out of your hands and into theirs, what are you going to do about it? Even if they don't use it in a place where they said that they're going to use it. It's not an exact science. Let me just put it that way. You just have to make sure that the customer who's coming to you is genuine and, you know, they're purely going to use that towards their small business or whatever small venture that they're trying to do.
Got it. The implication on, let's say, maybe when the ROA is felt because as a model, we are moving towards that. I understand what you said. I think it is very tricky. As a practice, we are incorporating it, right?
The model of what Shreepal?
Meaning that as a business model, we are moving towards having, let's say, separate credit and doing more.
Yeah, absolutely. I think, as an industry, MFI as a model had its time. It was amazing. For 15 years, we had a lot of fun doing what we did, growing 30%, 40% year on year and making quite a bit of money also to boot. Nothing lasts forever. You have to reevaluate the models as the markets tend to shift. That's not just the finance business. That is any business. Even Muhammad Yunus has changed. Obviously, his model comes into.
The second question was on your indicators that you use that will give you comfort, you know, that the sea count of, let's say, stress is broadly behind or, let's say, in terms of even the credit score, we incrementally will see moderate in that. What indicators at that macro level or even at your level with respect to rejection rate or even, let's say, collection efficiency, if we could just enumerate a few factors that you are closely monitoring that gives you confidence?
No, I mean, yeah, we are monitoring zero DPD. We are monitoring at each bucket level what is the retainment rate. We are monitoring early delinquencies. We are monitoring late delinquencies. We are monitoring, I mean, we have quite a good business intelligence and analytics that looks at all kinds of factors on a regular basis. Certain employees, certain branches, which are having accelerated kind of defaults, in which case many times it is really the staff's fault, right? It's nothing to do with the customers, either giving it in the wrong hands or not doing enough underwriting or whatever it may be. Many factors are there, but let me be perfectly honest with you that I am quite okay with the trend that we are seeing in the asset quality.
Whatever that which has been created in the past, obviously, that will take its own course to kind of get off your books. Whatever stuff that we have originated since, you know, Q3 of FY2025, I'm quite happy with overall. I think my next challenge will be really to start getting the portfolio back up, right? Because we need the interest income. If you look at my balance sheet, my P&L this time, actually, the credit cost and everything has gone down, but interest income has gone down even faster than that. That will be the next challenge over the next coming quarters, to stop focusing completely on collections and quality and kind of now start doing a mixed kind of a concentration on increasing the overall AUM and also increasing, of course, as safely as possible.
People like me don't really want to deal with collections and quality issues, if you know what I mean. How to get that kind of balance will be really the key over the next couple of quarters.
Got it, sir. Got it. This is very helpful. Thank you, sir, and good luck for the next quarter.
Thank you.
Thank you. The next question is from the line of Shubham Jhawar from Dexter Capital Advisors. Please proceed.
Yeah. Hi, Alok. Hi, Vivek. Am I audible?
Yes, yes, please.
Yeah. I had two questions. The first was, sir, what is the write-off for the quarter both for Arman and Namra out of our total impairment?
Vivek, you also for Namra. Namra was approximately INR 60-odd crores. In fact, we have a provision right back, to that extent, within that INR 58 crores. For Arman, I think the write-off was approximately INR 4 crores.
4 crores for Arman?
Yeah.
Got it. My second question is, in case in the borrower, sorry?
Yeah. Let me also add that we are doing accelerated write-off in the number of books. Anywhere post 90 days, I think we are almost 90% provisioned, or for anything which is more than 180 days, it's 100% provisioned.
Provisioned.
I think we have written off pretty much everything over 180 days. Now, when we say write-off, I don't mean, you know, we don't write it off from our LMS. These are accounting write-offs. The purpose of the accelerated write-offs is also to make sure that the GMP, we don't trigger any covenants on the GST aspect. That is one of the reasons why we do accelerated write-offs. From a P&L perspective, it makes no difference whether, because whether you're doing 100% or provisioned.
Whether you're doing 100% provisions on 180 plus or you write off, it will be the same impact from the P&L.
Right, right. Absolutely.
Yeah.
Sir, the accelerated provision that we are talking about, right, that we are provisioning anything above 180+ DPD. How long have we been doing this? For the past three or four quarters, or how is it?
Accelerated write-offs as a strategy, we're doing it just three quarters or so.
Yeah, I mean, given that three quarters are largely, I mean, beginning from the 10th week of quarter.
Yeah.
Got it. My second question is, in case when a borrower defaults, how do we know that a borrower is only defaulting to us or are they also defaulting to, let's say, MFI2, MFI3, or lenders as well? Is there any way we are tracking that or anything on that core?
Yeah, we do obviously track that. There are two stages. I mean, your first level is tracking or having your team people kind of track that. If you see a sizable issue in a particular area, there are things like scrub analysis reports that are available from the bureaus, wherein you can really establish if a borrower or a particular group of borrowers is just not saying to us and paying some others.
Yeah, we have triggers available. Last month there was a branch in Bihar where there was a lot of accelerated defaults that were happening. We have these teams and audit teams that go in and check what went wrong and what's going on there.
How effective do, like, how is that exercise?
How effective is?
That exercise.
Look, monitoring and effort will have different results in different geographies and different, I mean, there could be multiple variables. You might have plugged in a particular area and there is an increase in the delinquencies. That may be addressed much faster.
Yeah, so o peration teams have a lot of experience to deal with a lot of kinds of situations. As a client, you are tending teams of risk and auditors. Usually that is post-mortem. After that, you just try to tackle it. Before that, the operation team usually does dealing with 8 out of 10 kinds of issues that come up with managing. Anyway, move on.
Hello.
Yeah, yeah, these were my questions. Thank you so much, Srinivas.
Next question, please.
Thank you. The next question is on the line of Ashlesh Sonje from Kotak Securities. Please proceed.
Hi, team. Good afternoon. A couple of questions. Firstly,
Sir, please, can you be a bit closer to your device? Or else can you use a handset?
Hi, can you hear me better now?
Yes, sir.
Okay. Firstly, can you talk about the increase in rejection ratio? Can you tell me what the rejection ratio was last quarter and what was the reason for the increased Q-on-Q? Was it primarily the three vendor gaps which impacted it?
Yeah, it was primarily the guardrails and increased defaults. Obviously, you know, 10%, 15%, 20% of the customers might be showing, depending on areas, might be showing their defaulters now or having overdue. I mean, default is a strong word, but if they have anything like that, we are rejecting them. Over and above that, the guardrails have also pushed up the rejections quite a bit.
Understood. This 81% number, what would it be last quarter, roughly?
It would be about 75%. Not a big dip, but still 6% is, from our perspective, 6% is quite a, I mean, it's significant enough. It doesn't sound a lot, but it is.
Yeah. Understood. When you spoke about borrowers trying to get access to liquidity through other products, in your borrowers also, you have, which are the main products where you have seen the borrowers borrowing from? How prevalent has this become now?
Which are the main borrowers that I have seen doing what?
In terms of products.
Yeah. Typically, a microfinance borrower largely tries to approach multiple lenders.
Yeah.
Right?
I mean, there are NPAs, right? I'm sorry, I wouldn't have data on that, anecdotal data, but I don't have any hard data on that.
Understood. Perfect. Those are all the questions I have. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of Amit Mantri from 2Point2 Capital. Please proceed.
Yeah. Hi, Alok. How much was the interest reversals this quarter?
Interest reversals, Vivek, what was the interest reversal?
Typically, on the NPAs, probably not too large, but about a couple of crores. If that's what you can do.
Yeah. The PAR 30 to 90 has shown a good decline, both on a percentage and absolute number basis in Namra. How is the PAR 1 to 30 trending Q-on-Q?
It's lowering. Q-on-Q, it's obviously coming down. Flow forward rates are also increasing, getting better slightly at all bucket levels except 180 plus. As I said, there is enough, you know, if I was a more optimistic man, I would be like, "Oh, things are looking up." Unfortunately, we've been here before where things go well for a month or two. That happened in the fourth quarter where January was slightly better, and then, or I'm sorry, January to February was slightly better, and then fact to March was better, and everybody was like, "Okay, we are done in that field." April again took a hit. I'm being a little cautious, but right now, things if you look at, let's say, June, July, things are only on an improving trend.
August, it's a little early to say as I said because there's a lot of holidays and other things going on this month. Let's see how we wind up with August. I should be able to answer better about how well things are probably by next quarter.
In terms of the consolidated loan book growing, when do you start to expect that growth to come back?
I'm hoping by at least September, at least the decline will stop. As far as growth, I don't really expect it at least until Q4.
I mean, just to add to it,
if you agree with the.
No, slightly adding to it, only the MSME and two-wheeler AUM are likely to grow because two-wheeler, we are getting into the festive season. I think in terms of September, October, November, that AUM is likely to, I mean, go again, just a 4% of the entire table, but that grows in these three months only.
Right.
Right. MSME, again, historically has given better, kind of investment levels in these festive months. To that extent, I think the Arman standalone has been going consistently for the last, I mean, multiple quarters, and we don't see too much of a challenge there. That's where the Arman book anywhere at 20% growth in Arman book, which was 20% only of the entire AUM, will not have a reasonable, I mean, not a very significant impact on the overall book. Still, things are moving forward there. Micro, we've had a good monsoon overall, as a country. Things probably look slightly better for microfinance as well. With our open affairs, I think we feel that quarter two and onward should start looking better from the reverse perspective.
Sure. Sure. Got it. Thank you.
Thank you. The next question is from the line of Abhishek from AB Capital. Please proceed.
Hello. Am I audible?
Yeah.
Yeah.
Yes. Some of our larger competitors have given some growth guidance for this year, see how much we can grow. Do you want to give any such numbers for this year?
No, absolutely not. I wish I knew myself.
Okay. Do you think we don't need to do more toll hoops going forward?
If your question is, okay, whether we are adequately provisioned, that answer I can quite confidently tell you that, yes, absolutely, we are adequately provisioned without getting into any kind of crazy tactics or anything like that. Yes, we are adequately provisioned at this point. I don't know. I think if your question was, okay, do we expect more provisions? I mean, yeah, in the business of lending money, there's always going to be provision. At what level is the question?
No, I meant to ask, do you think we will have another loss this quarter, we might have or?
Yeah, no, that's a tricky question. I hope not. I mean, to be honest, in our 32 years or 31 years of existence, we've only had losses in two quarters. I don't really want to make it a third quarter, but it might be close. Let's see.
Oh, thank you.
Thank you. The next question is from the line of Umang Shah from Banyan Tree Advisors. Please proceed.
Hi, sir. Am I audible?
Yep.
Yeah. Hi. Thank you for the opportunity. Sir, our disbursement ticket size has moved to almost INR 50,000 per borrower in MFI. For the longest, we were at a much lower level to the overall MFI industry. Now, when we are saying that we are at the cusp of the JLG model ending, how is it that our ticket size is increasing?
Because we have changed our model, right? We are basically assessed. We are kind of getting away from this one-size-fits-all model, which was the model earlier in JLG. We were saying this, "Oh, if you are a first cycle customer, you are good for INR 40,000. For second cycle, you might be good for INR 60,000. For third, you might be at INR 75,000. After that, I'll put you into some individual loan. If you have an EMI of INR 12,000, you are a good customer. If it's INR 13,000, you are bad. If you borrowed INR 190,000, you are a good customer. If you borrowed INR 210,000, you are bad. If you borrowed from three MFIs, you are bad.
If you borrowed from two, you are good." We are trying to move away from that and assess each customer based on his or her cash flow and FYI and other factors. Whatever loan that he or she will be eligible for, hopefully, it's more than INR 50,000 at this point, right? I mean, if I'm doing a proper underwriting, then it's no longer about first cycle INR 50,000 and second cycle INR 60,000. It's what each customer is good for.
Thank you, sir. There are three major players: Bounce, SFPs, and NBFC MFIs in this sector who've been lending vigorously since COVID, right? Among these three, do you think any one group has had underwriting which is worse or better than the other two?
To a certain extent, I understand that the processes in all three tend to be very different. The banks have a problem of reach, and they're probably the intent of going to the grassroots level.
I mean, Vivek, sorry to interrupt.
There'll be two kinds of banks here. One, that are operating through co-lending and DC modeling or DA. The second will be the ones like Indus sain, Bharat sain , or Kotak subsidiaries, or different kinds of some separate entities, but controlled by a bank. It depends.
Yeah, sure.
If you are, let's say, a DC or co-lending bank, then your processes will be very different versus, let's say, I don't know. I mean, that's a difficult question to answer. I would say rather than saying banks and others, there are some people who have good credit underwriting. The problem is the over-leveraging is an issue. You might assess a customer at, let's say, a loan of INR 50,000. Nothing is preventing a bank or an NBFC or SFB or whichever entity of coming and over-levering that customer. About 85% of defaults happen everywhere at once. People don't pick and choose their defaults. I know that's a common myth. There are people who say, "Oh, they'll pay a bank, but they won't pay an MFI because they are not scared of a bank." That is an urban legend, to be honest with you. It does happen.
There are isolated incidences, but it's not, I have not observed it in my years of doing this business. I don't know. I'm not sure how to answer your question.
No worries.
It's very difficult to kind of come to. Within banks, different banks have had completely different experiences there. It's scary.
All right, sir. Sir, just last question, if I could, Susan, for two parts. One was, how has been the attrition this quarter among the employees? With the separating the credit and DCs, are you getting any pushback from the field force because their incentives to an extent get capped somehow?
Yes, yes. I mean, yes to all of these. Obviously, attrition has also been very, very challenging throughout this entire crisis or whatever you call it.
Attrition last quarter, I believe, was about 45. I mean, annualized 45%.
It's slightly improved. Things have started to kind of improve to that extent. Yeah. In terms of basically, you know, the pushback because of our credit department, initially, like all changes in something, it met with some bit of resistance, but it's fine. It takes its own time. Training and, you know, normalization between departments is a regular process, and things are going into a pretty much a synchronized manner of functioning now.
Right.
Now, if your question is that, are your ground-level teams on average making less money per person than they were, let's say, March of 2024? The answer is, yeah, absolutely, they are. We've been trying to offset that the best we can by running R&R exercises and awards and contests and those other things so at least the good performers have that opportunity to earn or earn equivalent or more money. Unfortunately, that cannot be helped, especially at a time like this. It's really the same across the industry with every, with all the interviews and stuff that we do. It's really the same in banks, SFBs, NBFCs, and really everybody.
That's one of the reasons why the attrition is high as well because there are alternatives now which were not there 10 years ago, but now there are alternatives where people can earn more money or equivalent money with perhaps less work or less stress. We as MFIs need to be mindful of that. Nobody likes collecting, over to you. I mean, it may sound hard to believe since I'm in the business of that, but including myself, nobody really likes collecting money or recovering money. That becomes a big portion of an FO's job. Obviously, that's going to lead to high attrition. No matter how hard you try, until we solve the problem of these credit issues, the attrition is, we can lower it, but it's certainly not going to go away or return back to where it was.
Sure, sure. Thank you so much and all the best.
Thank you.
Thank you. Due to time constraint, that was the last question. I now hand the content over to Mr. Aman for the closing comments.
It's okay. I'll take the closing comment.
Yes, sir.
Anyway, sorry I couldn't answer more questions. I'm sure there's a lot more questions. If anybody has any pressing concerns or questions, feel free to email us or email the investor relations. We'll try our best to answer them. Otherwise, thanks to everybody for being part of this call and have a great evening. Bye.
Thank you, members of the management. On behalf of Philip Capital India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.