Ladies and gentlemen, good day and welcome to Arman Financial Services Limited Q2 FY26 earnings conference call hosted by Phillip Capital. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aman Vishwakarma from Phillip Capital. Thank you, and over to you, sir.
Thank you, Ms. Khan. Good afternoon, everyone. On behalf of Phillip Capital Private Client Group, I welcome you all to the Q2 FY2026 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. Patel for his opening remarks, and we will then open the floor for the question and answer session. Over to you, Mr. Patel.
Yeah, thank you so much, and a very good afternoon to everyone, and thank you for joining us today. On behalf of Arman Financial Services Limited, I extend a warm welcome to all of you to our Q2 and H1 FY2026 earnings call. I'm joined by our Group CFO, Mr. Vivek Modi, and the investor relations team from SGA. I trust you all had the opportunity to review our results, the investor presentation, and the press release, which are all available on the stock exchanges and our company website. Over the past five to six quarters, the microfinance industry has navigated a challenging period marked by elevated credit stress, regulatory reforms, and significant write-offs and provisionings. However, now we are beginning to witness the early signs of recovery.
The September quarter reflected a moderation in bad loans ratio and an improvement in collection efficiencies, supported by the gradual restoration of borrower discipline. That said, this stabilization in asset quality has not come without its trade-offs. The tighter regulatory guardrails and prudent risk management practices have effectively curtailed over-leverage in the system, but also resulted in a slowdown in fresh disbursements. Against this backdrop, H2 and H1 2026 have been about steady progress and rebuilding momentum for Arman. The groundwork we laid through disciplined execution, sharper risk controls, and structural reforms implemented last year.
This call is now being recorded.
The structural reforms implemented last year are now beginning to yield tangible results. We are witnessing positive signs across all key operating parameters, from AUM and disbursement traction to asset quality and collection efficiency. Our microfinance portfolio has started showing signs of recovery, while our non-MFI segments, which are MSME, two-wheeler, and LAP, continue to deliver consistent momentum. We continue to maintain a calibrated approach in our microfinance business while steadily expanding our presence in MSME, two-wheeler, and LAP segments. Our focus is on strengthening portfolio quality, enhancing credit underwriting processes. Sorry, I forgot to mute it. Excuse me. Our focus on strengthening portfolio quality, enhancing credit and underwriting processes, and driving operational efficiency has positioned us well to capitalize on the ongoing recovery. While the external environment continues to evolve, the underlying trends in our business remain firmly positive.
We are encouraged by the resilience demonstrated by our borrowers and teams on the ground, and we remain confident in continuing this momentum as we move into the second half of the year. Our consolidated AUM stood at INR 21.30 billion as of September 2025, in line with our conscious strategy of prioritizing portfolio quality and risk discipline over headline growth. While this remains lower on a year-on-year basis, the portfolio is now showing encouraging signs of stabilization and a gradual return to growth. Impairment costs have been trending down for three consecutive quarters, from INR 890 million in Q4 FY2025 to INR 380 million in Q2 FY2026, reflecting healthier repayment behavior and stronger early-stage controls. Disbursements during H1 FY2026 stood at INR 8.65 billion compared to INR 8.31 billion in the same period last year, largely remaining flat on a year-on-year basis.
For the Q2 FY2026, disbursements were INR 4.75 billion, representing a 26% increase year-on-year and a 21% sequential growth over Q1 FY2026. Gross total income for H1 FY2026 stood at INR 3.10 billion, down by 15% year-on-year basis. For the Q2 FY2026, it increased by 5% sequentially to INR 1.59 billion and down by 12% over the same quarter previous year. Net total income for H1 FY2026 stood at INR 2.08 billion, a year-on-year degrowth of 11%. For Q2 FY2026, it increased by 11% sequentially to INR 1.10 billion and saw a degrowth of 6% the same quarter the previous year. Pre-provisioning operating profit, or PPOP, for H1 FY2026 stood at INR 1.12 billion, year-on-year degrowth of 31%. For Q2 FY2026, it remained flat on a sequential basis of INR 560 million and saw a degrowth of 28% over the same quarter the previous year.
For H1 FY2026, we reported a loss of INR 6.6 crore, and for Q2 FY2026, we registered a profit of INR 8 crore compared to INR 14.6 crore in Q1 FY2026. Excuse me, compared to a INR 14.6 crore loss. So profit of INR 8 crore compared to INR 14.6 crore loss in Q1 of FY2026. Operationally, asset quality metrics have shown visible improvement. Overall collection efficiency improved to 95.6% in September, supported by stronger borrower discipline and improved field-level monitoring. Asset quality has started to show steady improvement, supported by discipline measures we have taken in place over the last few quarters. Our consolidated GNPA stands at 3.69% and NNPA of 0.53%, reflecting signs of normalization. As of September 30, capital adequacy was 38.73% for the standalone entity and 57.78% for Namra Finance, its only own subsidiary.
Both well above regulatory requirements, and we also have a healthy liquidity position with INR 2.38 billion in cash and bank balances, liquid investments, and undrawn CC limits. Now moving on to the subsidiary Namra Finance. Our MFI subsidiary ended September 2025 with an AUM of INR 15.07 billion. This is, of course, lower year-on-year, but now showing encouraging signs of stabilization over the last two months. Collection efficiency improved in September with zero bucket, strengthening to almost 99%. The portfolio created after September 2024 has a 99.4% zero DPD repayment rate, which is as per our expectations. Disbursements for Namra Finance during H1 FY2026 stood at INR 6.05 billion, compared to INR 6.25 billion in the same period last year for six months. For Q2 FY2026, disbursements were INR 3.35 billion, representing a 25% increase year-on-year and a 24% sequential growth over Q1 FY2026.
This is despite the logins versus disbursements percentages still being only about 20%. Gross total income for H1 FY2025 stood at INR 209 crore, and for Q2 FY2026 stood at INR 107 crore, with a sequential growth of 6% over Q1 FY2026 and down by 22% over Q2 FY2025. Net total income for H1 FY2026 stood at INR 132 crore, down by 22% year-on-year basis. The Q2 FY2026 increased by 18% on a sequential basis to INR 72 crore, with a degrowth of 15% over Q2 FY2025. PPOP for H1 FY2026 stood at INR 67 crore. PPOP for Q2 FY2026 grew by 14% sequentially to INR 36 crore and down by 38% over Q2 FY2025. Reported a loss of INR 28 crore in H1 FY2026 and close to break-even for Q2 FY2025, with a marginal loss of INR 0.9 crore. Sequentially, we have narrowed down the losses.
In microfinance, GNPA stands at 3.77%, improved by 26 basis points, and NNPA stands at 0.26%, an improvement of 39 basis points compared to H1 FY2025. Key driver for this improvement has been the governance and process reforms we have implemented last year. The separation of credit underwriting from recovery functions, which is now operational across 196 or 50% of the branches. This structural change has strengthened accountability, enhanced risk oversight, and ensured greater consistency in collection performance. The early results from these branches under a new framework have been encouraging, reinforcing our confidence in the long-term benefits of this model as we continue to scale it across the network. As of September 2025, about 67% of our microfinance portfolio is covered under CGFMU guarantee scheme, providing an additional layer of comfort and risk protection.
Overall, we believe the worst of the credit cycle is behind us, and the portfolio is now positioned for a more stable and sustainable footing. Coming to our standalone business, which is MSME, LAP, and two-wheeler, the non-MFI business continues to perform in line with expectations and remains our growth engine in these testing times. AUM grew by 29% year-on-year to INR 623 crore, with disbursements for H1 2026 rising by 26% to INR 260 crore compared to H1 2025. Disbursements for Q2 2026 have grown by 34% on a year-on-year basis to INR 140 crore and saw a 17% growth on a sequential basis. Total gross income for H1 2025 stood at INR 103 crore, registering a year-on-year growth of 20% over H1 2025, and for Q2 2026 stood at INR 52 crore, grown by 21% over Q2 2025. It remained flat on a sequential basis.
Net total income for H1 FY2026 stood at INR 770 million, registering a year-on-year growth of 20%. For Q2 FY2026, it stood at 22% on a year-on-year basis to INR 380 million over Q2 FY2025, remaining flat on a sequential basis. PPOP for H1 FY2026 stood at INR 440 million, registering a growth of 8% year-on-year compared to H1 FY2025. PPOP for Q2 FY2026 grew by 8% as well over Q2 FY2025 numbers to INR 200 million and down by 12% on a sequential basis. Profit after tax for H1 FY2026 stood at INR 210 million, registering a growth of 4% over H1 FY2025. For Q2 FY2026, profit grew by 12% on a year-on-year basis to INR 90 million. On asset quality, GNPA stood at 3.86% for MSME, 4.99% for two-wheeler, and for LAP, it was 0.16%.
Collection efficiency in September stood at 95.4% for MSME, 95.8% for two-wheeler, and, of course, MFI book, which we discussed earlier, was 95.6%. We continue to strengthen our presence and deepen our reach. We now operate across 11 states with a network of 509 branches serving over 600,000 customers. During the first half of fiscal year 2026, MSME and LAP disbursements maintained healthy momentum, while we intentionally moderated microfinance disbursements to INR 605 crore as a part of our strategy to stabilize the portfolio and ensure asset quality sustainability. While this calibrated approach may have tempered near-term growth, it is reinforcing the long-term resilience and strength of our business model. As we look ahead to the second half of fiscal year 2026, we expect the momentum to strengthen further, with improvements becoming more visible and broad-based across our businesses.
We anticipate continued stabilization in the microfinance asset quality, sustained strength in collection, and further moderation in credit cost. We are well positioned to benefit from improving rural sentiment and a more supportive policy environment. The groundwork we have laid through disciplined execution, sharper governance, and structural reform is now beginning to translate into tangible results. As we move forward, our focus remains on building scale with quality, delivering durable, profitable, and sustainable growth while continuing to create long-term value for all our stakeholders.
Thank you very much, and Ms. Khan, we can now open the floor for questions. Sure, sir. Thank you so much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hands while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line Prithi Viraj Patel from Industech. Please go ahead.
Hello. Yes. Thanks for the opportunity. I had a couple of questions. The first question was on the capitalization. I see that Namra has a higher capitalization than the holding company. I just wanted to know, do we expect to go back to the prior growth rates in the microfinance business, or do we look to diversify the Namra book going forward? That's the first question.
That's actually a good question. As the portfolio declines, the overall capital adequacy will appear to be better. This was money that was pumped down from the old co into the subsidiary. Now, as the portfolio picks up again, I think both those numbers will kind of become more normalized or equivalent as the portfolio increases. Not given it much thought of what we will do in case it does not grow or anything like that. Right now, the hope is that things will resume back to normal.
Okay. The second question that I had was on the unsecured MFI portfolio. You mentioned that 67% of our MFI portfolio is CGFMU insured. Have we taken any CGTMSE insurance on our MSME portfolio?
Another excellent question. It is in the works right now. Yeah. Just an update on that. The CGFMU cover itself is applicable to NBFCs also. For the unsecured loans that are under a threshold limit of INR 200,000, they can be covered under CGFMU. Though there is a separate category for getting registered there.
Arman has been given the registration for the same somewhere in September itself. We kind of hope to start subscribing to it as we move in quarter two. It's slightly more expensive for a non-MFI book. Now, let's not get into why that is the case. I mean, it is what it is. We'll have to think a little bit more about the MFI portfolio, whether we want to cover it or not. Right now, it seems that we are in favor of doing it. That registration got approved, as Vivek said, just in September. Anything that we want to cover for this quarter, which is Q3, we don't really have to decide until January or February of 2026. We'll make that call in the next couple of months, whether we want to do it or not.
Got it. Thank you. Just squeezing in one last question on the LAP portfolio. I just wanted to know, our ATS has increased, and the yields have come down on the LAP portfolio. I just wanted to know how are we thinking of growing this portfolio going forward?
Obviously, the yields on the LAP are going to be, considering that it's secured, lower overall. Hopefully, the OpEx should be lower as well, and the risk should be lower as well, and the credit cost should be lower as well. I think, listen, I mean, we've been talking about creating LAP for a while. I think finally, this last credit cycle made us realize that it's important to diversify the book. In comparison to, let's say, pure unsecured MSME, the yields look much, much lower.
Hopefully, a well-diversified portfolio will create a more healthy company and healthy balance sheet. Additionally, I think OpEx will, over a period of time, be much lower for the secured LAP. From that standpoint, I think NIM is more important than just the yield.
Yeah. Yeah. No, my question was that the yields had come down sequentially over the past couple of quarters, and the average ticket size had increased, I think. I just wanted to know, have we recalibrated that portfolio?
Sorry. Sorry. No. Basically, in the LAP pool, the higher the ticket size is, obviously, the interest—the customers, the interest will come down. The larger tickets will have sort of lower interest rates.
Okay. Okay. It is not because we are seeing stress in the lower ticket size. It's not because of that that we have recalibrated the portfolio, right?
Partially, yes and no, because these are early days in LAP. And till the time we kind of reach a 5,000-10,000 customer-based numbers, you will have to kind of keep yourself a bit agile on these yields as long as they do not go below your threshold limits of, let's say, 18%. I'll not do any case below 18%. So a threshold there has to be defined. But largely, as we move from, say, about 3.5-4 lakh average ticket when we started it off to about 5 lakh to about 7 lakh today, you're doing slightly larger tickets, and obviously, that market has funding availability. And the customers are price sensitive. I mean, it's not like micro or MSME where I have complete ability to control pricing. There's a lot of competition, so every case is important to us to close. There is some bit of negotiation that we also allow.
Got it. Thank you. Thank you.
Thank you. The next question is from the line of Ronak Chheda from Awriga Capital. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Hope I'm audible.
Yes. Thank you, Ronak. Hi.
Yeah. Hi, Alok. It's really heartening to hear that things have improved. I just wanted to get more color on the growth part of the book now. In the previous cycles, whenever we would come out of a crisis, Arman typically would step the paddle on the growth, and the numbers would really be a little aggressive than the street. In your commentary, you mentioned stable growth. Is this different this time? Are you approaching this cycle a little differently?
See, the previous credit cycles were slightly different where they were caused by external events, whether it was Dimon or COVID. This time, it is slightly different. What I personally feel is the lesson to be learned is that go calibrated. Do not go crazy. Honestly, I do not know what the growth pattern will look like. Typically speaking, whenever we are recovering from a crisis, we are well-positioned to grow faster than many of our peers. On average, there might be a few companies, maybe better-run companies who are doing better than us, and that is fair. Many times, there are many more companies who have still not come out of the crisis. Their liquidity is low. They are managing leadership issues, liquidity issues, attrition issues, many other things.
We have sort of an ability to kind of grab market share. That will be the goal this time where hopefully we can repeat that. There might be a temporary accelerated growth on the AUM. In the long run, I think the lesson learned here is that, I mean, do not go too crazy. I do not think there is any industry in the world that can sustain 35-40% growth indefinitely. A slow and calibrated approach is probably more of a long-term goal here. That said, the great part about India is that people have very short-term memories. Good or bad news, it may be that in a year or two, people will forget whatever happened and kind of go back to the usual antics, myself included. Who knows? Let's see.
Thanks for this. My second question is on the asset quality, especially on the MSME side, where some of the listed companies have flagged off some asset quality issues due to the spillover from MFI. Are you seeing that stress still in your markets where you are present? Are they MSME side?
Yes. Yes, of course. I think that is—
Is that improving?
I don't think it's improving. It's probably at this point, I would call it stable. I said it in the last con call, and I said it in the previous con call as well. At least for three quarters, that MSME is not immune to the overall macroeconomics of the rural segment, especially for us. The term MSME is actually very broad. When somebody says MFI, they know exactly what you're talking about. MSME is micro, small, and medium. It can be urban.
It can be rural. It can be secured, unsecured, whatever it is. There are many flavors of MSME. The kind of MSME that we are doing, which is small-ticket rural MSME loans, unsecured, that is obviously not going to be immune to whatever is happening in MFI. As I said, for whatever reason, the damage which was there in MSME is significantly lower than MFI. There is a theory for that, but I'll kind of hold on to that thought. There is definitely stress there, not as much as MFI, and it's something that we are tracking closely. That's why it's important not to get carried away in any business, any of our segments.
Thank you. Alok, just one last question is on the yields because some of the peers have taken a hike on the yields trying to capture the risk for the business. Are you also looking at that vector where to price the risk better, you might have to take a hike on your yields? Any thoughts there?
That is something on the table. However, we have avoided it so far because pricing is very sensitive to regulators and many other external stakeholders. As much as we can manage without raising the pricing, I think that will be a better strategic decision. It is not off the table. I mean, it comes—I am okay with that.
Thank you. Thank you so much for answering my question. Best of luck to your team.
Yeah. Thank you.
Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good afternoon, sir, and thanks for giving the opportunity. Sir, continuing on the previous MSME question, we are seeing higher MTAs and higher credit costs. How do you see it settling, and if you can give some color on the provisions that we have undertaken in this book across the stages? How do we, Vivek, can you help him with that? Different stages, what is he asking about MSME?
On the MSME front, I think that the GNPA number is saying 3.8 or something. We are carrying about 90% provisions on those, almost 90%. As compared to that, again, the good part is that largely the 1-90 buckets have come down marginally in the last quarter. These are more or less stable. Even if that continues to be close around 3%, then there is a scope for improvement. In that stage, which we would probably call stage two, the provision coverage would be about 45-50%. Yeah. I think in the presentation number 32 as well, 30-90 movements for the different divisions are there. GNPA numbers are there. Movements are there. Sarvesh, I hope that answers.
Yeah. Do you expect these numbers to hold on to these levels? Like you mentioned that it is stabilized at these levels. Also, you have not grown it much. MFI disbursement growth rate is 20%, but here in MSME, we have maybe done only 12-13%. I mean, do you still see this number inching up, and that is why the disbursement growth rate is lowered in it? Or how do you see the going forward?
If I'm not mistaken, Sarvesh, if you're trying to say it, I mean, the unsecured MSME growth rate as compared to the overall growth rate for Arman is slightly lower. Are you trying to say that?
The AUM grew at 29% year on year, right, on the Arman level? Yes, sir. I was mentioning about disbursement growth rate, which was 12-13% only. I mean, do we see more stress coming in? That is why we are holding on this.
12-13% on a, so disbursements also was 34% on a Q2 same period previous year. I mean, I guess he's mostly splitting last year's micro and. That's what I'm trying to reach out. Sarvesh, are you trying to say the unsecured MSME is lower? I mean.
Yeah. Unsecured MSME disbursement growth rate, sir. 86 has gone to 99, right?
Yeah. From that standpoint, you're partially right in spotting that. As we kind of embark upon our journey on the secured LAP, a lot of our good customers who performed well in their earlier cycles kind of move upwards into secured LAP. That is a lot of customers. As long as we were not doing LAP, we would have probably converted them into high-ticket unsecured MSME earlier before we started LAP. To that extent, the growth numbers taken together for the LAP and MSME would really give a true picture for the field operations rather than just looking at only the unsecured MSME.
Yeah. I think we are looking at the whole picture. The LAP is also technically MSME only. It is just secured.
Yeah. Yeah. Because. Right. Anyway, I think just unsecured MSME grew 14%. I mean, it is what it is, right? We are not trying to do so hard. Sarvesh, to further add to that, what is also happening is that geographically, this year, we have taken our footprint to north. We have opened up a few branches in Uttar Pradesh in the last quarter and will try to kind of expand our footprint as the year goes by in that geography. To a certain extent, the MSME will get a good pump-up because of the geographical outreach getting increased. Again, the strategy is to kind of look at the overall secured and unsecured. When we say secured, the LAP taken together as how much is the growth in total rather than just a few million dollars. I mean, one of the previous callers also was, I said, "MSME has performed significantly better than MFI." I have my theories why, but I will not get into it.
See, why it has performed better is because we took a sort of a calibrated approach to growth without a lot of pressure. We were more concentrating on quality. When the opportunities were there, we grew. We were never really pressured that it's not growth, [Foreign language] . To a certain extent, that protected us over multiple cycles, I should say. I'm not really, really going to push disbursements in MSME, of course. Also, the fact, as you mentioned, that that segment is also under some level of stress. Right now is not really the time to push so hard on the disbursements.
Okay. The same question for the MFI also. Now we have grown our disbursements this quarter. Do you think that the environment is now clear for you to press the accelerator from here on? Or are you still waiting for some more data points to emerge to give you the clarity for the same? See, how does one push the disbursements?
I mean, even today, I'm trying to disburse. If there's a good customer who wants a loan, my job is to give him that loan. The only way you can really bump up the disbursement is kind of go easy on the underwriting or change your underwriting strategies here and there. Stop being so much selective. We are monitoring those data points based on scoring and qualitative and quantitative factors of how they are performing. I don't think we're ready yet to say, "Okay, it's been a great time to hit the accelerator." No. I mean, this crisis has always been about two steps forward and one step back.
Yes, in the last quarter, we have taken two steps forward. Who knows when the next step back will be? No, I do not think we are ready to floor it at this point. I am a lot more comfortable to go faster, let's just put it that way.
Finally, on the cost-to-income ratio, which has also gone up partially because you are building out this. When do you see these metrics normalizing?
Only when the growth returns. I mean, the company has been put through enormous stress. Itself has gone through. The sector has gone through enormous stress. Portfolio. Cost-to-income is a function of income and cost. Now, income is declining because AUM is declining and also because people are not paying. It is very difficult to control those costs because you need people to go out and collect the money.
I mean, if I have 400 branches, I cannot say, "Okay, the portfolio has declined 20%, so let's reduce the staff by 20%," right? That is one part. Second, I needed more people to collect the money. That is the second part. Third part is we have started BCM structure. That will add some operating costs as well. Fourth part is we are battling efficiency, which is obviously something that we have talked about in the past. At this point, very difficult to control operating costs. Much easier to grow interest income, I feel, at this point.
Okay. Thank you and all this.
Thank you. The next question is from the line of Srinath V from Bellwether. Please go ahead.
Hi, Alok. I missed the first 10-15 minutes. If I repeat something, sorry. I just wanted to understand about a year back, maybe a little less, we put a credit officer in the MFI business also. So wanted your feedback on how you're feeling about that measure and the book that has originated after that move in those branches. Or any anecdotal feedback you have on what has been the ongoing performance after this measure?
Yeah. So I mean, we compared BCM versus non-BCM disbursements. So largely, I think there is a 40% lower delinquencies in the BCM-originated cases versus non-BCM-originated cases. So there is clearly a correlation. Now, whether the cost of the BCM justifies that is a later date. I'm not going to think about it at this point. But definitely, there is an advantage. And that advantage is increasing as the experience increases.
Would it be fair to assume that with the credit officer, outcomes are somewhat similar to MSME outcomes from a collection perspective or loss perspective?
That's an interesting question. I've not thought of it along those lines. Yes, I don't see why it should be similar overall. Let me tell you, having BCMs at this point is not only about reducing the overall credit cost. Having that extra function available allows me to venture into other products as well that we are already doing in the form of IL and higher tickets and everything. The microfinance of tomorrow is not going to be guardrail-based. It's not going to be one-size-fits-all base. [Foreign language] automatically customer becomes bad. No. I don't believe that.
I think there are good customers at even INR 500,000 outstanding, and there are bad customers at even INR 50,000. You cannot create one rule to underwrite every single MFI customer in India. The BCMs, I feel, will serve more of a—it will allow better strategic calls later on. Today, already, we are doing it in IL loans and other things where customers that we find who are 750-plus credit scores, eight-year history, never a single day late, run good business. Why should I reject that customer? I mean, that's an amazing customer. You need that ground-level people to give you that confidence, right?
Unless until that conflict of interest exists between operations and credit, you will never be able to make that decision sitting at FO, "Okay, whether that guy is good or not." I mean, you'll just have to create kind of a one-size-fits-all approach. Got it. Let me kind of summarize and reimagine this in my mind. Basically, we will have branches. The branches will have a credit officer, and they may work on multiple product lines. Say I'm not naming a product. Let's say a 50,000 ticket size, INR 100,000, INR 150,000, INR 200,000, INR 250,000. Laddered ticket sizes, they'll be able to lean in on all of these products and add a layer of protection to the book. Is that how all of this will get reimagined like three, four, five years later? See, there is absolutely.
I think overall, the debate is still going on even within the industry about the JLG model itself. Temporary stress was there. Now, whether you can conclude whether the JLG model is broken, over, diluted, whatever term you want to use, the debate is going. I think some people you'll find more optimistic. Some you'll find pessimistic, even among the listed states. What I feel is that I don't think anybody will deny that the microfinance industry made amazing progress, and myself included, the company included, made amazing progress under JLG for 15 years. The company has advanced under the JLG structure. For 15 years, it's been a one-trick pony, right? I think strategically, you have to think, "Okay, what's really next? Are we saying that the only product in microfinance available to you is a group-based lending?" I don't think so.
Situations like this, credit cycles like this, really make you think, "Okay, what is the long term for the industry if you look at two years, three years, five years down the road, even ten years down the road? What would the industry look like?" What I personally feel is that given what I see in the rural segment, what I have seen how rural was in, let's say, ten years ago or even seven years ago and what it is today, I do believe that you need to be adaptable and agile, and you cannot rely on only one product. With BCMs being there, I believe it will give more flexibility, and it will create the right credit culture on the ground level to experiment and implement different products, whether it is individual loans, high ticket, low ticket, whatever it may be.
Got it. Perfect. Two data-keeping questions. One is the individual loans that we are reporting in the PPT, this would be nothing but an MSME loan originated by the MFI team, right? It will mimic those kind of ticket sizes and credit profiles. Would that be a fair understanding?
I think it's probably a fair understanding. Vivek, do you disagree?
Yeah, fair understanding. Additionally, we are also experimenting with the thought that many a times we are losing JLG customers because center formation of four is not happening. I mean, till what time can you keep on reducing the center sizes? If these are great customers, fourth-class cycle customers, then I earlier used to let them go. Now, maybe through this, we're kind of trying to address that through an IL, individual loan. Yeah. These are individual loans, qualifying assets.
There could be individual loans, non-qualifying, which are the way you suggested. There is going to be, for the next couple of years, some level of overlap and confusion. Believe me, sometimes I am as confused as you are. That is just the reality. Even MFIs today, I said this again, and I will say it again, you have your traditionalists who have grown up on the ground and are still gung-ho on JLG. You have the realist who said it was great. What is next? I do not know where I fall in. I am actually scared to pick one side or another. I am trying to choose both and see what happens.
Perfect. Perfect. Thanks, guys. Thanks for the very detailed answers. I will get back to the question here. Thank you.
Thank you. Participants are requested to limit the question to two questions per participant. Do you have a follow-up question? We request you to rejoin the queue. The next question is from the line of Amit Mantri from 2Point2 Capital. Please go ahead.
Hi Alok. What is the current and incremental borrowing cost? The second question, what percent is the par 1-30 book for the microfinance business? Par 1-30 at this point will be about 1.1%, something like that. About 1.5%, you said. No, no, no. Sorry. 1-30. 1-30 will turn out to be approximately 1.2-1.3%. About INR 20 crore. Last month, a month before that, it was 1.1%.
Yeah, somewhere around that line, I think. Your first question is cost of borrowing, incremental cost of borrowing, all costed out, turns out to be around 12%. Okay.
Okay. The current on-book would be aggregate would be how much?
On-book portfolio of what? Micro? Micro. On-book portfolio for micro is approximately INR 1,100 crore, INR 1,060 crore, INR 1,060 crore. As far as Arman is concerned, out of the INR 623 crore, I think INR 620 crore, much rather INR 621 crore, is on-book only.
I'm asking what would be the interest cost or current borrowing cost of the current book, basically?
The current book. Of the overall cost of borrowing. The overall cost will turn out to be about 12.5% or thereabout.
Okay. Okay. Thank you very much.
I don't think I quite understood his question. This was about the borrowing cost. Incremental borrowing cost.
Borrowing cost of off-book or on-book separately, is that t he total book. Total book. Anyway, thank you.
Thank you. The next question is from the line of Anant Mundra from Myt emple Capital. Please go ahead.
Hello. Thank you for the opportunity. Just wanted to understand how are the trends shaping up in October and November? Because I remember in Q4, also, we had seen very good recovery, but then Q1 was slightly subdued, and Q2 has been strong again. Just wanted to understand how Q3 shaped up so far. That was the first question.
Yeah. That is what I said also, I think, a couple of questions ago that this crisis has always been about making two steps forward and one step back. We have taken two steps forward. Diwali was good. Festive was good. I mean, September, October both were high in terms of disbursement. Demand was quite high. Despite having overall login versus disbursement was only 20%. Only 20% of logins we are still disbursing, which is very, very low.
Still, the disbursement, I think, in MFI was 140, 1. About almost 140, but one of the highest in the last six-seven months, I think. Six-seven months. It is quite good. Overall, as the disbursements pick up with the denominator effect, you keep getting benefits of better repayments and lower, well, operating costs also because AUM increases. As long as this continues, I am optimistic that things should get better by as early as beginning of Q4. It depends on how November, December pans out. Now that the festive season is over, let's see if there is any pent-up kind of hidden skeletons or something in the economy. I do not know. I am optimistic at this point.
Again, just to add to that, Alok, this quarter three would also be faced against a very low quarter three numbers for the sector last year.
To that extent, I think October being good gives us a kind of a bump up for quarter three. That way, from a comparative basis, year-over-year basis, quarter three could turn out to be technically much better. I think once we reach, Vivek, in MFI, if we are reaching, let's say, about INR 180 crore of disbursements in a month, I'll be happy. I think that's a good number at today's operational thing. We are at INR 140 crore. We need to reach INR 180 crore. Good, bad, whatever it is, I don't know. You make the call. In that way, I think that number kind of connects to the first question that somebody asked in terms of the capital adequacy being very high in number. That will get it.
Got it. Got it. Thank you for the detailed answer. The second question was on the SRs that we have. How is the recovery going there? What is the current outstanding SR? What was the provision that we carry against it? I still do not understand all of that. Vivek, you do it. I still do not.
Firstly, the entire SR that we invested in to begin with in March 2025 was about INR 31 crore. On the pool, there has been a recovery of about INR 8.5 crore in the last six months. Obviously, the structure requires a trust piece and all those things after accounting for that. The INR 31 crore of SRs today stand at, as of September, standard about INR 25.5 crore. To that extent, I think the recovery on the pool is fairly as we would have wished to. The pool also went through that first rating process.
The rating that has been assigned to the pool is RR1, which means that the expected recovery from the pool is going to be 100-150% of the book value. It is going in the right direction to a certain extent.
Do we carry any extra provisions? It is INR 25.5 crore on the books as well. Do we carry any extra provisions against that, or is it at INR 25.5 crore? Technically, there is no requirement, A. Generally, we feel that the recovery on the pool has been fairly good. We are not required. If I had to carry a provision, why would I do this transaction in the first place?
Alok, he is right in a way because, no, no, because I still do not completely understand all the ratings. The rating itself does not require it, A. The other way around is that this pool had INR 185 crore, which was sold in March 2025, for the write-offs, which are early write-offs done in 2024-2025 itself. We've seen some really good recoveries out of it. From the technical side of it, we're not required to make any additional provisions on that. These were completely written-off pools. From that standpoint, at least, we don't see any additional provisioning required at this point of time. If at all there is a necessity, we will not shy away from doing any type of provisioning if and when required.
Got it. Got it. If I may just squeeze in one final question, sir, release any provisions that we were carrying in stage two? What was the provision that we were carrying in stage two of the MFI book in Q1 versus what are we carrying now? Have we reduced the provision, increased, is it stable? Could you give some idea on that?
Typically, what would happen is that stage two now, this could be a slightly longish answer, but still kind of bear with me. Of the entire book that we have created, there is about 67% of the book which is coming from the CGFMU. CGFMU has a guarantee cover of 72.5%, right? On that, the provisioning requirement would really drastically come down because 72.5% is covered. Hence, whatever books that have been originated and got into CGFMU and are part of the CGFMU, your provisioning requirements will come down.
Got it. Got it. On a like-to-like, the non-CGFMU portfolio would be similar, right? The stage two cover that we have.
Otherwise, stage two. Stage two, my provisioning requirement, depending on buckets, I'm just giving you a broader scenario that if my stage two coverage is about 45%, what requires to be provided for will keep on carrying similar kind of cover.
Okay. Okay. Got it, sir. That's fine. Thank you.
Thank you. The next question is from the line of Girish Shetty from Girik Capital. Please go ahead.
Hi, Alok. Congrats for the success. Just wanted to check on your understanding. Just wanted to get an understanding because I see a yield of 34%, which is for your microfinance, which is 72%. Excuse me, I'm having a hard time hearing you. I think the voice is loud enough, but not clear. Is it clear now? Yeah. Hello? Okay. Just wanted to understand on your MFMU book. When you see the yield of 34%, which is your MFI, sorry, on MFMU of 34%, MFI of 22%, does it indicate a more riskier customer, or how should we look at that product?
I do not know if time has taught us anything. They are probably less riskier than the MFI customers. No, it is not a function of risk. It is a function of supply and demand and what the customer can tolerate and many other factors. Fortunately, it started as being a function of risk. Today, it is not really. I mean, the customers that we deal with really are not very, very price sensitive. People have been asking me this question for years, and I have always said that I am simply a Gujarati entrepreneur, and if I can charge a certain amount, I will. I am not scared to. If competition comes in and I'm forced to cut rates, I'm not afraid of that either.
Okay. Because just intuitively, I was thinking, if I'm a customer, my ability to repay or how much I make from the business and then pay out the 34% interest, is that feasible for the customer? How much that see, that works at that logic does not really work at the micro level because you are not accounting for their labor that goes in. And this question used to come to me all the time about even microfinance customers, what kind of small enterprises are they running where they can afford to pay you 24% or 25% or whatever it may be.
The answer I used to always give is that if somebody buys INR 10,000 worth of inventory of vegetables and they walk around all day and sell INR 11,000 worth of that, they made INR 1,000 that day. That is a 10% return in a day. Again, these are all the poor fishmonger stories and stuff that used to go. Of course, you are right. On a macro scale at the Arman level or even at large scales, this equation does not work because what kind of businesses give you returns of 34% will be able to offer the interest back. At the micro level, the returns are high enough.
Just one more question on your ROAs. You have given the presentation your cross-cycle ROAs, right? You went to a peak of 5.8-5.9% ROAs as well. Now with your company now, it is very diversified. You have MFMU, you have individual business loans. The last product has come in. How should we look at in a normalized or even at peak, what can be the ROA, even with your insurance that you have done now and the spending in setting up the collection?
I was not completely clear, but I mean, just to whatever we heard of. Are you asking about ROAs? ROAs.
Yes. Yes. Any way with your new structure in terms of company well-diversified, does your ROA get impacted? In the past, it had gone up to a peak of 5.8-5.9 kind of an ROA. How should we look at it now going forward?
I wish I could. I wish I had a good answer. I mean, I would say take a good guess and go with it. Honestly, there are a lot of aspirationally, especially like any other organization with that kind of winter, I think, aspirationally, we have always been kind of trying to look at an ROA for anywhere between 3-4%, which is realistic. Some years could have been mega years. Like 5.8. 5.8. But largely, I think on a consistent basis, our ROA of 4 is something. Three and a half, four and a half. Four is what? Is doable. What is doable and I think acceptable generally by the regulators also here. Yeah. Projected numbers are always funny. I always say, "Okay, what do you want to hear? I can explain it however you wish." The fact of the matter is there are too many things in flux. I can give you a good range, let's say 3-4.5%, but let's see. Things will get stable. I think you'll have a better idea probably as early as fourth quarter where the new kind of realities are setting up.
Thank you. Thank you, sir.
Thank you. The next question is from the line of Sushil Kumar Shah from Swastika Capital. Please go ahead.
Yeah. Hello. Am I audible?
Yes.
Yeah. I mean, could you share the collection efficiency for the month of October?
Zero DPD or overall?
Overall.
So overall, non-written-off is I think it shared 95.8. 95.8% till September. With October. With October 8. Largely, it turned out to be in similar lines, not too crazily above or below. 20 basis points higher, maybe. Maybe. Definitely higher, not lower.
Okay. Yeah. And on the bookkeeping side, the tax number appeared high. So what's happening there?
That was my first question when I got the provisional financials to what happens is there is a deferred tax that kind of keeps on building up when you're doing provisioning. So if you have very high provision numbers at a point of time, the entire provision is not allowed as tax, so you develop a deferred tax asset. But let's say if you were to write it off or the provisions were not required anymore, then the provision reversal would lead to a situation where. Then we have deferred tax. Deferred tax liability that I mean, the reversal will happen. Hence, your PVT numbers are generally much better.
Yeah, that's correct. Than the PAC number. We've been talking about PAC, but we should be talking about PVT because PVT looks a lot better than the PAC. But again, Alok, you can't really run away from the deferred tax kind of a situation because that kind of helped you earlier. Now, to that extent, you'll have to see the same thing. That's in taxes. Yeah.
Understood. If I can squeeze in one more question, what is the breakup of provisions? Breakup of provisions.
What does that mean? I mean, in terms of stages?
No, not stages, but maybe write-offs, standard divisions, recovery.
Out of the total impairment, he's asking what is provision and write-off. The total write-offs and provisions, I mean, if you have any other questions, just if you can come up with that while I try to hunt out the number.
That was my last. Thank you, Alok.
Yeah. I'll come back to your answer in a minute.
Thank you. The next question is from the line of Amit Goyal from Dream Big Wealth Managers. Please go ahead.
Hello?
Yes, Mr. Amit. Yeah, please go ahead. Please go ahead.
Yeah. Good afternoon, sir. Just I have a small question. You can also call it an advice sort of. Sir, in the future, in the next coming two, four years, I think there will only be two types of companies: one which uses AI for their business and one which does not use AI for their business. Even using AI, one employee can do work of 10 employees. Slowly and steadily, AI will be affecting all of the businesses in the future. I just wanted to ask whether you have any planning of incorporating AI into your business flows and models of financing decisions?
I think, I mean, you could be right. I take AI as an amazing tool as good as the internet. As long as you require people on the ground to knock on doors, AI is not going to do that. Where it can help us is on stuff like evaluations, backend processes, IT tracking. And to many extent, we have been doing that. I'll just give you an example. We tried three times unsuccessfully to use ML-based algorithms, machine learning-based algorithms to create a model to evaluate customers, right? Seems like a no-brainer. We have 15 years of data, what kind of customer performed well. But even in those cases, the Gini coefficients that they say were super weak. I was not able to get it. And over the long run, I have learned that you cannot model human behavior. So with due respect to you, sir, I think you are right about AI being a very important factor in our daily lives in the coming years. I think there are right places to use it in my business today. And wherever those places are, we will use it. As the technology evolves, if there are other places to use it, I'm committed to using that as well. Certainly, I'm not going to jump the gun and do anything without being convinced to take the right move.
My best wishes to you, sir. I seriously hope that you try one more time and you are able to finally crack the AI model because as we can see that in the next two to four years itself, AI will help you a lot in decreasing your costs and increasing your efficiencies. Best wishes to you, sir. Thank you, sir.
Before we just take the next question. That's the last question. No, there was another, I mean, that could also be there. The earlier question, there was the breakup of the provisions. For the consolidated, the write-off was about INR 134 crore for the H1. There were reversals of credit losses to the extent of INR 29.62 crore. That kind of makes up for the entire provision come write-off of INR 104 crore.78. Good. We took provisions in the past. We are using that. I mean, that's exactly the reason why the deferred tax issue. Okay.
Thank you. As that was the last question for today, I'd now hand the conference over to Mr. Aman for the closing comments. Over to you, sir.
Yeah. On behalf of Phillip Capital, we thank all the participants for your valuable time, and especially the team of Arman Financial Services. Before we close the call, I would like to hand over the conference to Mr. Patel for his closing remarks. Over to you, sir.
No, thank you, everyone, for being part of the call. I hope we have tried our best to answer all your questions in a candid way. If you need any more information, please feel free to contact the investor relations team. I appreciate everybody's time, and have a good afternoon.
Thank you. On behalf of Phillip Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.