Ladies and gentlemen, good day and welcome to the Aavas Financiers Limited Q3 FY25 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations the company has on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. 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, should you need assistance during the conference call, please signal an operator by pressing the star then zero on a touch-tone phone. I now hand the conference over to Mr. Rakesh Shinde, Head of Investor Relations of Aavas Financiers Limited. Thank you, and over to you, sir.
Thank you, Steve. Good evening, everyone. I extend a very warm welcome to all participants. Thank you for participating in the earnings call to discuss the performance of our company for Q3 and nine months FY25 and the business outlook going forward. The results and the presentation are available on the stock exchanges. We have also uploaded the fact sheet along with our results on our company website, and I hope everyone had a chance to look at it. With me today, I have the entire management team of Aavas. We will start this call with an opening remark by our MD, Sachinder Bhinder, CFO, Ghanshyam Rawat, and CRO, Ashutosh Atre, followed by Q&A session. With this introduction, I hand over the call to Sachinder. Over to you, Sachinder.
Thank you, Rakesh. And very good evening and happy 2025 to everyone. I'm delighted to welcome you all to our Q3 FY25 Earnings Call, and thank you for joining the call today late evening. Q3 FY25 has been a good quarter where we saw a strong traction in our sourcing and decent pickup in our disbursement, which grew 23% sequentially and 17% YOY. In terms of AUM growth, we have maintained our growth run rate of 20% YOY. We have completed upgradation of all major tech platforms, which are now stabilizing. This was one of the fastest tech implementations in the industry. We believe we have set the foundation for sustainable, scalable, and profitable growth. We are now focusing on leveraging the state-of-the-art tech platforms by strengthening governance, driving scale, optimizing costs, and boosting operating efficiencies across functions.
Ladies and gentlemen, with that preamble, I shall now take you through the quarterly performance and our assessment of the outlook. We have delivered an AUM growth of 20% YOY, reaching an AUM of INR 192 billion. In Q3 FY25, we disbursed loans worth around INR 16 billion, a growth of 17% YOY, with a cumulative disbursement of INR 41 billion for the nine-month period FY25. Our net profit for the nine-month FY25 grew by 21% YOY to INR 4.2 billion. Our net worth continues to compound quarter after quarter at the rate of around 16% YOY. Our calculated spreads have improved four basis points sequentially to 5.72 in Q3 FY25. Our NIMs expanded more than 10 basis points YOY, leaving the quarter to 7.75. Our focus continues to underwrite quality business with risk-adjusted returns. As a result, our incremental business yields have shown a growth of 25 basis points across products.
At the beginning of the financial year, we have guided that we'll bring down our OpEx to assets ratio by 20 basis points every year to reach a level below 3% in our continuous endeavor of cost optimization strategy. I'm happy to report a remarkable improvement in OpEx to asset ratio by 42 basis points YOY to 3.21% in nine-month FY25 as a result of our good optimized cost optimization strategy execution. Our asset quality continues to be pristine, with one-plus DPD of less than 4% at 3.85% as of December 2024. Our GNPAs were at 1.14%, which is quite seasonal in nature. Our endeavor to maintain the pristine asset quality continues. Credit costs improved further to 15 basis points in the nine-month period of FY25 versus 19 basis points in nine-month FY24. We continue to guide credit costs of below 25 basis points on a sustainable basis.
ROA improved by 4 basis points to 3.26%, and ROE improved by 61 basis points YOY to 14.06% in the nine-month FY25. During the year and the quarter, we have opened six new branches during the nine-month FY25, and we are opening another 20-plus branches in this quarter, predominantly in the states of Karnataka and Uttar Pradesh. We will be accelerating our branch expansion strategy by opening more branches in the calendar year. The new PMAY 2.0 ensures that impact will last mile in a more efficient way and benefit our customers immensely. We expect more budgetary allocation and supply of affordable housing in the upcoming union budget, enabling faster and deeper penetration of housing for all. We are committed to deliver quality and profitable business growth driven by tech-led operating efficiencies and cost optimization.
I'm confident that with our strong risk management practices, diversified distribution reach, and execution capabilities of our time-tested team, we will achieve our milestones and deliver value to our stakeholders. I would now hand over to our CFO, Ghanshyam Rawat, to discuss the financials in detail.
Thank you, Sachinder ji. Good evening, everyone, and warm welcome to our earnings call. To provide an update on borrowing first, in terms of liability, we have one of the best well-diversified liability franchises. We have always been innovative in exploring new avenues of sourcing, and I'm happy to share that we have successfully raised NCD amounting to INR 6.3 billion from IFC in Q3. This is the largest NCD raised by the company till date. This achievement will enable us to channel these funds towards promoting individual green home constructions, reinforcing our unwavering commitment to sustainable and inclusive development. We are a unique housing finance company where our tenor of liability is higher than behavioral tenor of assets. We continue to borrow judiciously, raised around INR 46.2 billion at 8.41% for nine months FY25. Total outstanding borrowing as of 31st December 2024 is due at INR 172 billion.
Overall borrowing mix as of 31st December 2024 is 50, 50.3% from term loans, 24.8% from assignment and securitization, 15.9% from National Housing Bank, and 9% from debt capital market. Lender supports continue to remain extremely strong as Aavas evolves. There is access to diversified and cost-effective long-term financing. We maintain a strong relationship and development with development finance institutions. To meet long-term business growth, we have progressed on co-lending tie-up with the PSU bank. As of 31st December 2024, we maintain a sufficient liquidity in the form of cash and cash equivalents, an undrawn cash credit limit of INR 18.95 billion, and undrawn sanction limit of INR 22.8 billion. In terms of financial performance, our net profit of Q3 FY25 grew by 26% year-on-year to INR 1.46 billion, led by robust growth in the net income coupled with a sharp improvement in operating leverage.
Our spread improved by 5 basis points to 4.94%, driven by 14 basis point expansion in the AUM yield to 13.8% on account of a 25 basis point increase in the BPLR in Q3 FY25, whereas our cost of borrowing increased by 9 basis points quarter-over-quarter to 8.24%. We have 32% of our bank borrowings linked with the EBLRs, such as T-Bill, Repo, MIBOR, and 19% are linked with the three-month MCLRs, which will allow us faster repricing of 51% total bank borrowing in case of rate cut scenarios. Our NIM in absolute terms has increased by 16% year-on-year in Q3 FY25. Our margins, NIM as a percentage of total assets during Q3 FY25 stood at 7.75% and 7.54% during nine-month FY25.
ROA of the quarter increased by 31 basis points year-on-year to 3.37% in Q3 FY25, whereas ROE improved by 115 basis points year-on-year to 14.21% in Q3. In terms of other parameters, we have well-capitalized with a net worth of INR 41.97 billion, and capital adequacy ratio is at 45.56%. The total number of live accounts stood at 236,000 plus, translating into 15% year-on-year growth. Employee count grew by 6% year-on-year at 6,284 as of December 2024, as against disbursement grew 11% year-on-year and AUM growth 20% year-on-year, which indicates our productivity enhancement by various efforts taken by the company. Now, I would hand over the line to our CRO, Shri Ashutosh Atre, to discuss the asset quality.
Thank you, Ghanshyam ji. Good evening, everyone. I am pleased to share the key portfolio risk parameters with you. Asset quality and provisioning.
Aavas is strongly positioned to continue delivering industry-leading asset quality. Our asset quality remains within the guided range with one-day past due below 4% at 3.85% as of Q3 FY25. The gross stage 3 and net stage 3 under 1.25% stood at 1.14% and 0.81%, respectively. In terms of geography, average one-plus days past due and GNPA in our vintage states remained well below 4% and 1% of AUM, respectively, whereas other emerging states, one-plus DPD and GNPA remained well below 3% and 1% of AUM, respectively. Similarly, in terms of ticket size of more than 15 lakhs, one-plus days past due and GNPA remained well below 4% and 0.8%, whereas in case of ticket size less than Rs 15 lakhs, one-plus days past due and GNPA remained below 4.5% and 1.25%, respectively.
Our total ECL provisioning, including that for COVID-19 impact as well as resolution framework 2.0, stood at INR 1.01 billion as of 31st December 2024. As per our quarterly exercise of bureau scrub analysis, we have only 6.7% customers having overlapped with MFI exposure. Out of this 6.7%, only 2.2% are into 90-plus days past due. With this, I open the floor for Q&A session. Thank you.
Thank you very much. We will now begin the Q&A session. Anyone who wishes to ask a question may press Star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press Star and two. Participants are requested to use hands-free while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Renish from ICICI Securities. Please go ahead.
Yeah, hi, sir. Congrats on a good set of numbers. Sir, I have two questions. One on the asset quality. So though 1+ DPD have fallen, but at the same time, there is a marginal increase in the GS3. So just wanted to understand, you know, it basically implies a higher forward flows in the delinquent bucket. So how is the underlying health of the portfolio looks like? And does this sort of pose risk to our near-term asset quality and credit cost guidance because of higher forward flows in this quarter from the delinquent pool?
Thanks, Renish. I think if you look at the one-plus, we continue to be at less than 4%, which is at 3.85%. I see a seasonal jump in the part of the seasonality of the increase in the GNPAs, which are getting reflected. I think it was a mix of a certain part of a seasonal festive in the last couple of quarters. But I think we are confident at this period of time to deliver the continue to maintain the pristine quality. So nothing as as far as any alarming or any disturbing parts of concern. So I think that's.
Okay. So sequentially, increase in GS3 is pure seasonal and it will sort of come back in Q4, right?
Right. That's right.
Okay. Okay. Sir, my second question is on the.
Yeah.
Yeah.
Yeah. And you would see again to reiterate that if you look at the one-plus, it's at 3.85. So I think that's another one which is a good indicator for us.
Sure, sir. Yes, sir. So second is on the AUM by ticket size. So what percentage of our AUM is more than 15 lakh ticket size? I know in terms of number of active loans, it is 15%. But in terms of AUM, it would be higher, right? So would you like to share that number? And also the yield difference between more than 15 lakhs and less than 15 lakhs?
Renish, it becomes a little bit circular. But as I was trying to put across, we would be in the range of around 40% when it comes to less than 15 lakhs. And that is where we continue to build our yields. And the yields are around 200 basis points higher than the norm. So that is the differentiation between the less than 15 lakhs and more than 15 lakhs.
Sir, can you please repeat that share in terms of AUM? I'm so sorry.
Renish, our 80%, 80% book is less than 25 lakhs, where we focus. Less than 15 lakhs, we have around 45% book is less than 15 lakhs. This is our own amount. The volume we have already given in our presentation, where 85% book is less than 15 lakhs.
Yeah.
If I take the slide number 17 on the investor presentation.
Yeah, but sir, bank number is in terms of active loans, right? So in terms of AUM, it will be higher. So I was just wanting to know that.
No, no. AUM is the same thing. Renish, active loan and AUM is. I updated you on count we have already given in our presentation, where 85% loans are less than 15 lakhs. And in value terms, 45% is less than 15 lakhs, and 80% is less than 25 lakhs.
Okay. Okay. Got it, sir. And 200 basis points is the yield difference.
Yes. Yes.
Okay. That's it from my side. Thank you and best of luck, sir.
Yeah. Thanks. Thanks, Renish.
The next question is from the line of Shweta from Elara Capital. Please go ahead.
Thank you, sir, for the opportunity. Just a couple of questions. Are we changing our guidance on growth front, or is it that 20% is now a new normal? And also just a related question there. If we aim for 20% even for this current fiscal, that would mean almost adding up INR 700-odd crores of book in next one quarter. I mean, of course, seasonally, second half has been very stronger. You have demonstrated that year earlier as well. But still, INR 700-odd crores of run rate is slightly on the higher side vis-à-vis our historical run rate. How do you sort of anticipate the impact of this? Question one. Question number two. I remember you have always been very articulate and impeccable in terms of BTs, restricting them to below 6%.
Now, in the current scheme of things, wherein many of the NBFCs, AHFCs, etc., I mean, the competition is quite gaining strength and intensifying. So how do you see this BT outreach pitch going forward and whether the current set of measures will sort of continue to help us curb below 6%? And one last question. So you mentioned last quarter and this quarter in the opening remarks as well that you are opening branches in Karnataka and UP. Now, I understand a larger part of our portfolio is below 15 lakhs and below 25 lakhs. But one of our peers, which has a portfolio of about 20 lakhs, has been facing tough terrain as far as Karnataka is concerned, especially because of e-Khata and other such challenges. I mean, ours is a contiguous model.
I remember you explained how we are expanding to Karnataka from Tamil Nadu in the last quarter contiguously. But still, are you facing any challenges considering the fact that you are sort of now moving into Karnataka belt? Thank you.
Yeah. So you have three questions. I'll address it one by one. First is about the growth on the AUM. We continue to guide on a 20%-25% of AUM growth. I think the traction which we got in the Q3 and the numbers in January really give us confidence of delivering the guided AUM growth of 20%-25%. And as we speak, we are expecting January to be at around 15%-20% on the growth trajectory. So that's one. Second, on the BT out, as you reflect, and we've been talking about our predictive models where AI has really played out very well. We are happy to note that the BT out percentage is at around 5.4%. So I think this is one of the best in class when it compares to the industry peers.
And a couple of factors really go into this. One is aided by our predictive models, which we are able to predict what is the probability and chance of a BT out. And I think that is what is perfected. That is second. Third is on the branch expansion model. I think what you reflected is e-Khata. As we see and as we speak, I think we are minimal at this period of time what Karnataka is. But going forward, as we talk to the people across, I think that easing out of e-Khatas are actually moving across. It started now really getting stabilized, actually. And as we go forward, we will see that really becoming stable over the period of time. So I think we are confident with that environment. By the time our branches are open up, it would be fully stable. And there's the government supply.
The other part, which is very initial part to really note, is we have a lot of affordable supply, which is there where Aavas is one of the strong bearers in that state. These are the properties which are directly allotted by the government authorities. And as we speak, Aavas has quite a good amount of presence in there. Karnataka has a good amount of stock as we speak across the various districts and places. We'll be able to maintain that along with the time this stabilizes as an initial output really to deliver good volumes.
Sure, sir. Just I'm squeezing in one light question. So any geographic challenges are we facing? I mean, this is outside MFI and what is happening, the noise around. But any geographic challenges in the markets which we are present?
So, as our CRO mentioned, he described about the one-plus ranges. Nothing as glaring or anything which is alarming at this period of time. That's what we've seen in our one-plus DPDs. And neither in the GNPAs. And what we are doing is we are cautiously optimistic and watching out wherever we feel there is a slight thing. We actually tighten our credit and underwriting norms.
Sure. Thank you so much for the elaborate answers.
Thanks, Shweta.
The next question is from the line of Yash from Citigroup. Please go ahead.
Hi, sir. Thanks for the opportunity. Just one question on the provisioning front again. We've seen some marginal increase in provisioning on GS3. However, on GS2, it has increased sharply. Any change in policies there or how do we see it moving? And sir, just to add on that, even our ECL provisioning is around 65 basis points for total AUM. Would we see it increasing as well? That's the question on provisioning.
So, I know, Ghanshyamji, to answer that on the ECL model comparison, how it stands out and what is the difference which I have made on that over two weeks.
Thank you, sir, Ghanshyam. On ECL, I think there are two questions on the ECL provisioning change between stage two and stage three. And all are nine month to nine month. If you during this quarter, we have moved our entire ECL provisioning model from our historical model to the bolt-on. It's a very universally accepted Deloitte model, basically, which when we go live under this, we have made three major changes in our provisioning norms. First thing, in earlier model, there used to be point-to-point NPA slippage need to consider in the earlier model. Now, in the new model, we consider every bucket flow of an NPA, bucket stage one to stage three, stage two to stage three. So every bucket movement the model consider.
Earlier, it was used to consider at a point of time, matlab quarter end to quarter end or year to year end when we do revisit our model, basically. Now, this new model do every month, we reconsider the fresh data. How much in this month has cases moved? How much case has gone backward, basically? So in the real time, the modeling flow rate approach is adopted in this new model, basically. The third important, I think in the earlier model, it was very difficult to adopt macroeconomic factor, basically. Now, in new model, we adopted Vasicek model, which is a macroeconomic factor where it got tested various economic factor, basically. The ultimate model has found the two factors very important for us, which he has adopted in the Vasicek model, basically.
Now, after doing these changes, this now ECL provisioning is is is what Ind AS described in their detailed guidance note, basically. So everything got now adopted, and it's one of the best ECL model we adopted here. There's one more question. Nine-month to nine-month ECL in the volume provision. In the last year, in the nine months, there were a few one-off items, basically, which were one-off items in the last nine months. One one was that we had the one subsidy where, because subsidy was difficult to, we applied to to to close that subsidy. So we had done one-time write-off of whatever the balance was there. It was around INR 1 crore. Secondly, we had a certain asset acquired for sale under SARFAESI, which we had provided in the last nine months.
So both item put together has around INR 4 crore extra provisioning in last year, nine months, which not during this nine month. I hope we clarified that.
Yes. Yes, sir. That's helpful. So would we also see this 65 basis point of provisioning on the overall portfolio also going up eventually?
No. I think when we went to model, it considered the entire portfolio, basically. So based on the current assessment, it will remain in the same level.
Got it. Got it, sir. And sir, second is on the margin. So we understand this BPLR hike taken in October for 25 basis points. So is that now completely accounted for, or would we also see some impact in the fourth quarter?
It got accounted.
Okay. Entirely.
It got accounted. But if you see, sequentially, we are making a better yield on our new disbursement quarter over quarter, quarter one, quarter two, quarter three. Every quarter, the yield is improving on our disbursement year-on-year basis. So that's the positive note, which will have a, let's say, not positive, but it will. There's now less difference between new business and the old business.
Right. Got it. So sir, the disbursement yield, which was around 30 basis points lower than the AUM yield, so has that difference narrowed now?
Yeah. It has narrowed down, Yash. And as Ravaji pointed, across various product segments and various parts, we continue to focus that. In the previous first question, when I referred to around 40%, I was referring to less than 10 lakhs focus area of 40% of our loans. So where I timed corrected. So our focus continues to be there on that when we get the risk-adjusted return yields. And we've seen an uptake quarter on quarter. And with the same endeavor, technology and those things are also helping us to really improve it in a right and scientific way.
Okay. Got it, sir. Thank you so much for the clarification. That's from my side.
Thanks, Yash.
The next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Sir, hi. Good evening and congrats on the results. My first question is I wanted to understand.
Sorry to interrupt. Mr. Raghav, can you speak a bit louder? The volume is coming very high.
Yeah. Is this better?
Yeah. Yeah. Please go ahead.
Okay. Sir, hi. Good evening. I had my first question where I want to understand a bit more on sourcing part. So has your DSA sourcing gone up? Or if you can give us a number, say, compared to last quarter or last year. The reason I ask is that after several quarters, the number of loan files disbursed per branch that has registered a positive growth rate. Otherwise, if I look at last few quarters, then it was mostly a declining trend. And at the same time, when I look at some of the cost economics metrics, such as OpEx per new file disbursed, that has also declined. So what is leading to such improvement? Is it because of higher sourcing from DSA channels?
Raghav, I think it is multitude of factors which are there, but it is not some of the digital channels which we have embarked on, which are typically the e-Mitra, CSC, and our acquisition through the WhatsApp chatbot, and the web from our own website. I think that as a percentage, the digital part has actually started contributing and firing. We continue to be a predominant direct sourcing franchise. And as we speak, I think on the employee count also, when we see that the employee count, whatever addition has happened on the ROs, which is our relationship officers at the ground. So we continue to be a dominant direct sourcing part. A certain part of digital channels which are actually started firing actually also have resulted in that mixture. We continue to be at 80%-85% of the direct sourcing part.
Understood. So I think say we are about, I think, 12 files per branch per month. Is this a run rate that one can assume going forward at least for the first nine months of a fiscal? I know Q4 generally tends to be higher. But at least for the first nine months, is 12 files disbursement per branch? Is that something that we can work with?
Raghav, I think if you look at we have widespread across 373 branches. So depending upon our understanding of the market, depending upon our location strategy, deciding on what are the risk metrics, we really and the kind of deployment of our resources and the market which we would like to really hold on to, I think those risk metrics really contribute to that. The positive side in the last nine months to report is that we've seen an increased RO productivity per file. I think those are the metrics we monitor. Because this direct averaging out becomes a little very different model altogether. So we divide it in a much micro-detailed one on the market side, looking at the geography, state, our vintage in the state, the credit portfolio behavior, and then really deciding what is that we really want as an output.
Understood. Now, fair enough, the only reason I was asking is basically data that's made available to us. Of course, you would have a much more nuanced view of how it works. But anyway, my last question is on the ticket size. See, when I look at the ticket size per quarter, right, sorry, for this quarter on disbursement, for last two quarters, that has increased at about 4% to 6% in each of the last two quarters on a quarter-on-quarter basis, not YOY. Right? So that's a pretty steep increase in ticket size. Why is this the case that the ticket size is increasing at, say, an average of 5% for each of the last two quarters?
I think if you look at the real estate inflation, it is not even meeting the real estate inflation, and if you talk about the kind of growth which has happened in the land rates in the states which we work across, that is higher than this. So if you adjust by that, I think it is below whatever is the retail real estate inflation which has got into the land pricing and the pricing which is prevalent in the markets which we operate. That's one. Secondly, some of the portions where we are present, where cost of construction is higher than what the normal one, and it is actually really inched up considering the kind of rural ability to spend and rural ability to really build good, better, and bigger houses, actually. So I think these two things have really contributed to one.
It is output which is there, which is not dependent on what we really drive for or we focus for. Our focus is clear-cut on the input which is there. Whatever comes across in the output and the rightfully so in the risk-adjusted metrics is what we really monitor for.
Sir, let me ask this in another way. So you are, I think, less than 15 lakh by value. The AUM mix is about 45%. What was this last year against 45% currently?
There's not much change. I think if you see on nine-month to nine-month, ticket size is just increased by 6%. If you see last year, December nine months, or this year, December nine months, there's a 6% increase in the overall ticket size, which we, which we feel is the inflation, property prices, rising income levels, all our factors are there, basically. And as far as the combination of ticket size is concerned, we are 1%-2% here or there. It doesn't make a big change in our business model.
Fair enough. Thanks a lot.
Thanks, Raghav.
Thanks, Raghav.
The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Good evening, everyone. And thank you for taking my question. So the first thing is, again, coming back to provisioning and asset quality, while Ghanshyamji did explain about the change in ECL model that we have done, and which is where maybe it would have led to a one-time change in the PCRs across the three stages. What I wanted to understand is, if I look at the last 10-quarter data, our stage three provision cover has very slowly and gradually been inching up. So while I understand this is an outcome of the ECL model that we have, but inherently, what is it kind of telling us about the risk metrics?
Abhijit, it generally remained between 27% to 29% in our ECL model for stage three provisioning. And as, as you know, company is a if you see last so many quarters, the aging of the portfolio was six years, seven years, eight years, 10 years. Now, today, we are at the 12-year, 13-year business operation, basically. So aging in ECL modeling, aging of the portfolio, aging of, let's say, NP assets is also increased at a level of your provisioning also, basically. Apart from that, I don't see any sort of, any sort of, let's say, any variation or disturbing factor in the ECL model.
Got it, Ghanshyamji. Thank you. So the second question that I had was obviously around the demand environment when you did say that looking at trends in 3Q and JAN, it gives us the confidence that maybe we can be at the lower end of our guided range of the AUM growth. But I'm just trying to understand more and more NBFCs and HFCs as they report. They have been talking about a weak macro environment and given the fact that we also have a presence in the MSME segment. I'm just trying to understand how are you kind of looking at, basically, the risk environment today? I mean, I recall you and Ashutosh have called out that at least looking at 1+, in GS3, you're not seeing any significant increase in risk. But how are you looking at the broader macro environment today?
Yeah. So Abhijit, there are two things. I think important to note is we are there in the part of MSME, which is micro MSMEs, is the one which is backed by our understanding of risk and doing a cash-flow-based underwriting and backed by self-occupied residential property. I think it's one very big differential when it comes to the very base of risk management practice. So the Tier 3 to Tier 5, wherever we are operating, we've seen those demands really being coming up. And as, as we speak about on a risk management framework, we cautiously monitor as to what are the trends which really show up. If we find anything on the segment-wise strain because of the macro environment having a waterfall effect on those economies or on those segments of customers, we actually hold on to that.
So at this period of time, what we speak, I think we are well guarded with a cautious approach of underwriting and continue to do that in a long-term period. And that will be our continuous basis of our robust risk management practice. That's one. Secondly, when you talk about the home loan demand, I think you have to look at it from the perspective of two parts. We are into Tier 3 to Tier 5, where it is self-construction, individual house. Again, a certain part of you would have really looked at PMAY 2.0 in two parts, which is the ISS, which is the interest subsidy scheme, where we've already received around 4,000-plus applications to us. And the affordability is where it is the ULB-led supply, which has really come in post all the elections being over. So the strong self-construction, individual consumption continuing to grow.
Second is the government focus on housing for all and the PMAY 2.0 really helping in the segments which are really focused at economically weaker sections where Aavas operates. And third is the urban-led supply from the affordable housing, again, a part of PMAY. I think these are the three strong factors for us to really say that where is the real demand coming and flowing in.
Got it. So incrementally, if you look at the last maybe three to six months, I mean, after the elections have been over, you would say the demand has improved, barring the seasonality.
Yeah. Demand has started. Demand, we see an uptick in the demand, and specifically on certain segments and verticals as I speak of the PMAY-led affordable supply, which is the other question which was there on the Karnataka. We say that as we are present in there, there is a supply which is there from the urban local bodies available. We're confident having done that business for more than we have 20,000-plus customers in that and done that business right from the time when we started off and when the supply really came in. We are confident of doing that because that's the hard work of having the liaison with the urban local bodies and building that business.
Since it's a specific vertical which focuses on that, we will be able to cater to the inventory supply which is really coming up and source it in a much more faster, granular, and quicker manner.
Got it. This is useful. And I just wanted to squeeze in one last question while this has partly been addressed earlier on on yields, where we did take, I think, a 25 basis points PLR hike in October, and that has reflected in our yields. Just trying to understand, in the past, we have seen all these PLR increases that you or other HFCs have taken. They're not really reflected in a sustained yield expansion, so as to say. And again, I think maybe that is because the disbursement yield is kind of remained below the book yields. What's the sense now you think these yields can be absorbed or, given the competitive intensity over the course of time, they will drift down?
I think you'll have to really look at the PLR increase was in line with our cost of borrowing increasing to size up on that side, and that was the market scenario which was there really to have had the the increase which is there. I think, as I've been talking earlier, that we continue to increase our disbursement yield on product metrics and again with risk-adjusted returns, so our endeavor really continues to do that. And as we speak on a nine-month period, we are above 25 bips compared to what we were there. And every quarter-on-quarter, we see that impact really on the disbursement yield coming. And secondly, on the PLR impact, what you were really referring to, we have a book which is 30% fixed. So implication comes only on the rest of the book, which is a floating-rate book which is there.
So I think it is important to really build in a right risk-adjusted manner or to increase the disbursement yields to really inch up. And we've seen that trajectory well in control and inching up as we progress on quarter-on-quarter basis. And again, with the scale of business, what we really aim for.
Got it. Thank you so much for patiently answering all my questions. I wish you and your team the very best.
Yeah. Thanks.
The next question is from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Good evening. Congrats on good results. I have a couple of questions. So this 30-odd% move to productivity from a reduction in login to sanctioned tag. So have we raised business targets for ROs and branches since they can execute much higher volumes now? And on the same lines, can one expect that disbursement growth be much higher in FY26 than the usual run rate of 17-18%?
Rajiv, can you are referring to which data? If you can again re-articulate the question, you are referring to the TAT or you are referring to the?
No, sanctioned TAT has come down, right, from 10-odd days to 7-odd days. Yeah. So the efficiency and productivity have gone up.
That you see reflected in the productivity metrics also from the perspective of disbursement coming up. I think we've seen that really improving from the 13-year period to 17-year period. That really speeds up the efficiency both from an underwriter perspective and from the side to really in a much faster and predictable manner what used to be there.
Okay. And if you're on asset quality, typically in Q4, we generally pull back 1+ DPD substantially every year. Are we confident of doing that this year as well? Because see, the business and liquidity backdrop for some of the delinquent customers could be challenging this year versus the preceding year. So are we looking for a very similar pullback that we generally deliver in 4Q?
I think if you look at, Rajiv, from a perspective of quarter 2 to quarter 3, I think 1+ DPD is already at around 3.85%, which is well below our guided range of 5%. We are below 4% at 3.85%. I think that's a good indicator for us. And we continue to be range-bound, and our endeavor is to really control and maintain the pristine quality, considering the way we underwrite and the way we really collect on that. And I think a couple of things there work across where technology actually has helped us to really predict the part of bouncing, the predictive part of customer behavior, and the part. So I think it gets front-ended when it comes to our collection efficiency to really have the right kind of predictive models by our AI, which is proprietary-led internal development.
So having perfected that, that becomes a good one. And you're happy to know that we even use voicebot and others to really go across collect. And we are very, very clear as to what is the range and what is the method of even the collection, what it would happen. So I think technology on that side really plays a part. So it's a mix of the right kind of technology, right kind of risk management practices, and the efficiencies which we really bring in to conquer and deliver the pristine quality as a franchise.
Okay. And one last thing is on the comment that you made that the incremental business yield has been improving every quarter and across products. So how is this being achieved? I mean, are we slightly pushing on rates or some other kind of pricing efficiencies we are tapping here?
I think, Rajiv, as I said, that again, it is risk-adjusted returns. I think wherein we've gone for, we've implemented loan origination system by SFDC. And I think therein there is a clear visibility on the the risk metrics, which really gives us a pricing input, which is because of that, it is really helping us to price it right according to the risk metrics. I think that's actually really played out in helping us to be much more predictable in the output which we are able to deliver. Again, segmental focus of focusing on less than Rs 10 lakhs, which where you get good yield, a focus on inching up where you find that you get a right risk-adjusted return by pricing it right.
I think these are the two things which are very important, and we've seen that moving across quarter-on-quarter, and our endeavor will continue to grow that again, cautiously with risk-adjusted returns.
Okay. Got it, so thank you and best of luck.
Thanks.
The next question is from the line of Shreepal Doshi from Equirus. Please go ahead.
Hi sir. Good evening and thank you for giving me the opportunity. So my question was on RM-level targets. So in newer geography, what sort of RM-level KRAs we set in terms of business sourcing versus matured branches? And the level of disbursement that we've done this quarter, do you aspire to maintain it going ahead, like the revival in disbursement?
No. As you know, Aavas, when entering the new geography, we take our own time to understand that market, people behavior, geographical behavior, the local population behavior, legal and technical titles. So immediately in the initial few quarters, we didn't give such any large target to them. The major focus was that there should not be any delinquencies in the initial quarter. There should not be slippage in the initial few quarters in any bucket. So so we as a company don't have philosophy initially in the new geography to give targets in those markets. But wherever we have the strength, where we have maturity, where definitely we strengthen our branches through process, policies, through understanding, through flowback learning, and then accordingly, we ask them the returns also by giving targets, basically.
As RO has a different maturity, RO who has done one year, two years plus in the system, they definitely have better better targets. RO who becomes new in the organization, they have a lower target in the system, basically.
So sir, especially for states like Karnataka versus Rajasthan and Gujarat and Maharashtra, I mean, because in Karnataka also, we've been there for almost a couple of years now. So what would be the differential in terms of branch-level efficiencies in terms of business?
Karnataka has now come up. We are in the fourth-year business operations. Branches which have completed three years plus, they are at par with our matured states like Rajasthan, MP, Gujarat, and the branches which we opened the last one-year branches, those branches are showing the progress as we designed.
Got it. Got it. And then on disbursement front, will this run rate continue or?
Is Karnataka as a whole doing disbursement growth better than our overall company growth.
Okay.
Much better. Much better. Much better. As well as performance also, quality front also, Karnataka is doing fantastically well for us.
Got it. Got it. And just the second part of the question was on disbursement side. So will we be able to continue with this disbursement momentum? Because in the last few quarters, there have been some ups and downs. So will we be able to continue now incrementally?
Yeah. So on that part, if you look at it, when you refer to ups and downs, it has always been an upper trajectory. And every quarter-on-quarter, we've seen that traction really moving across. And as earlier guided, that we see a good uptake and green shoots in January at this period of time. And we are confident of pushing that every quarter and build that scale with quality.
Got it, sir. Got it. Thank you so much, sir. Good luck for the next quarter.
Thanks. Thanks.
The next question is from the line of Shubhanshu Mishra from PhillipCapital. Please go ahead.
Hi. So what are the yield on book for home loans, LAP, and MSME? And what are the onboarding yields for these products?
Yeah. Home loan versus, let's say, non-home loan, which is MSME or LAP, there is always a difference of 250 basis points between home loan to non-home loan. Yes, MSME businesses give us another 75 basis points better pricing than the LAP portfolio. Out of non-home loan, we do around 75% business as an MSME business, which is our focus area on the MSME.
What is the home loan yield?
It remains in the range of between 11.5% to 12%.
This is on AUM. And what is on disbursement for the same?
As we mentioned, that is the difference between the new business versus our old business, AUM. Difference is 32-35 basis points as of now.
Okay, sir. Thank you.
Thanks.
The next question is from the line of Chandra from Fidelity. Please go ahead.
Hi. Good evening. Hi. Could you just share maybe the percentage of disbursements which you had this quarter below 10% yield and maybe what it was for the previous quarter? And directionally, I think you were trying to reduce it. So if I had to look at it maybe a year out, would you think it's a reasonable chance that the amount of what you're disbursing below a 10% yield or in single-digit retention would drop? That's one. Second is, there's been a spike after declining for a while. The spreads have finally pinched up a little bit. Do you think it's reasonable that at some point in time, you cross 5% and you settle back to maybe 5.20, 5.30 at some point in time? Is that a realistic possibility?
And lastly, what would you think you're sizing sort of the business for in terms of next year, just in terms of disbursements? I mean, is it maybe? I mean, obviously, first half was a little weak because we had some issues. But I mean, are we sizing for maybe a growth of disbursements of maybe 17%-18% on the base of this year? How should we think about it? Thank you.
Yeah. So you have three questions. First is on the yield, but we look at it from a ticket size perspective. I think that is the input which we really look at. On a ticket size of less than 10 lakhs, our endeavor continues to be in the range to cover up at around 35%.
As we speak, we are in the range of 30%-35% when it comes to a ticket size less than 10 lakhs, and this has a real right kind of risk-adjusted yielding up good spread as well as the yields. That's number one. Number two.
So that goes easier from 30 to 35 towards 35, you're saying. So saying gradually you want to increase the share below 10 lakhs.
Yeah. Our aim permanently is to get to the 45%. Currently, we are hovering between 30%-35% of the loans which are less than 10 lakhs in ticket size. So it's not on yield, it's on ticket size. Okay. That's one. Secondly, on the part of we are capacitized and we are looking at again on a guidance level of continued of AUM of between 20%-25%. So we continue our guidance on AUM of 20%-25%. And as we speak, I think our concentrated efforts to really get in the yields improvement of quarter-on-quarter basis, we will continue that in the next financial year also. Again, with the risk-adjusted returns metrics and robust risk management practices.
Sure. And on spreads, do you think that getting to 5.20 at some point is a realistic possibility?
See, Chandra, this is, I think, an outcome of the cost of borrowing. And if you would have seen, that is one part is there. I think we work on the input, what is that we will get. Whatever the difference between would be really the ones which, and we've always guided that we will really look at the kind of spread which was at around 5% which we've guided across. It all depends upon how does the economic environment on the macro side really spans out. If the rate comes in, I think we will have the benefit. And as what Ghanshyamji really talked about, we have EBLR, Repo-linked, T-Bill-linked kind of borrowings which will have an immediate impact on our cost of borrowing. I think that is a differential which we'll come across really spanning out on the increase in the spreads.
Got it. Thank you.
Thanks. Thanks, sir.
Thank you. The next question is from the line of Bunty Chawla from IDBI Capital. Please go ahead.
Thank you, sir. Thank you for giving me the opportunity and congrats on a good set of numbers. Sir, during this quarter, we have seen there has been an inch up in the cost of borrowings. Although you have shared that we have raised the INR 600 crore IFC at a competitive rate, which I believe it should be lower than the borrowings at the book level for you. So what is the reason behind increase in the cost of borrowings? What we have observed that there has been a minimal or no MCLR hike from the banks as said during this quarter. So then also there has been an increase in the cost of borrowing during this quarter. And how should shape up this cost during next quarter and FY26?
Yeah. Do you think in this quarter, overall cost of borrowing is increased by 9 basis points? Yes, you are right. INR 800 crore, INR 600 crore we borrow for IFC, which is much lesser than what average cost of borrowing. But as you know, we borrow a lot of money from banks, which is a one-year MCLR, six-month MCLR basically. So whatever money we borrowed a year back at, let's say, SBI MCLR, which used to be 8.3, 8.4, today that same MCLR is reached at 9% basically. So so that impact pass on when the liability reset in that quarter basically. So I think by the next year, most of the liability are getting repriced whatever we borrowed earlier in in different point of time basically. So more or less, we are seeing a stabilization in in cost of borrowing side, a few basis points here and there basically.
Because we hope if some cut comes, so that will be a positive note for us.
That's very helpful, sir. And previously you said because of the rate cut, we will be getting beneficial. Any rough sense if there is a 50 basis points rate cut, what kind of a positive impact we have on the spreads or the margins? Any rough cuts in here?
As I mentioned, our 50% borrowings are market-linked borrowings, which is a Repo-linked, T-Bill-linked, and less than three-month MCLR. We hope that should be a positive impact within three-month time frame. But it's difficult to predict how it will be translated once a rate cut is done.
Thank you. Thank you very much for that.
Thank you. Ladies and gentlemen, due to time constraint, this was the last question for today's conference call. I now hand the conference over to the management for their closing comments.
Thanks. Ladies and gentlemen, as we conclude today's earnings call, I want to express my heartfelt gratitude to each one of you for your participation and engagement. The dedication of our team, the trust of our shareholders, and the loyalty of our customers have been instrumental in our growth. We aspire to reach a milestone of INR 500 billion in assets under management in the next four-to-five years and broaden our horizon as a pan-India player and continue our cost optimization strategy. I express my deepest gratitude to all our regulators and stakeholders whose constant faith and support have been the wind beneath our wings. We remain optimistic about the future and are confident that our strategic initiatives will continue to drive sustainable growth and shareholder value.
If you have any further questions or require additional information, please feel free to reach out to Rakesh, our Head of Investor Relations. Thank you and have a wonderful year ahead. God bless.
On behalf of Aavas Financiers Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.