Dear friends and gentlemen, good day and welcome to the Aavas Financiers Limited Q4 FY25 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as of the date of this call. These statements are not the 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 assistance during the conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rakesh Shinde, Head Investor Relations of Aavas Financiers Limited. Thank you, and over to you, sir.
Good evening, everyone. I extend a very warm welcome to all participants, and thank you for joining us today on our earnings call to discuss the financial and operational performance of our company for Q4 and the full year FY25. The results and the investor presentation have been uploaded on the stock exchanges and are also available on our company website. I hope you have had a chance to review them. Joining me today is the entire management team of Aavas. We will begin this call with the opening remarks from our MD, Sachinder Bhinder, CFO, Ghanshyam Rawat, and CRO, Ashutosh Atre. This will be followed by a Q&A session. With that, let me now hand over the call to Sachinder. Over to you, Sachinder.
Thank you, Rakesh, and good evening, everyone, and a very happy new financial year to all of you. Thank you all for joining us this evening. I truly appreciate your presence and continued support. We are proud to share that during this quarter, we achieved a significant milestone, crossing the 200 billion mark in AUM. This is more than just a number. It reflects our unwavering support, guidance, and valuable feedback. It also reinforces our commitment to making affordable housing finance and MSME credit more accessible to thousands of families and businesses across Bharat. Quarter four, FY 25, was marked by strong operational performance. We witnessed healthy traction in customer logins and a robust pickup in the disbursement, which grew 27% QoQ. During the quarter, we achieved our highest-ever volumes, crossing 55,000 in logins and INR 20 billion in disbursements for the first time.
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. As we step into the new financial year, our focus is clear: to fully leverage the state-of-art platforms by strengthening governance, accelerating scale, optimizing costs, and enhancing operational efficiencies across the organization. Ladies and gentlemen, with that preamble, I shall now take you through the quarterly performance and our assessment of the outlook. We have delivered AUM growth of 18% YoY, reaching an AUM of 204 billion. In Q4 FY25, we disbursed loans worth around INR 20 billion, whereas in FY25, we had disbursed 61.2 billion, a growth of around 10%. Our net profit for FY25 grew by 17% YoY to INR 5.74 billion.
Our net worth continues to compound quarter after quarter at a rate of around 16% YoY. Our calculated spread has improved by 15 basis sequentially to 5.87% in Q4 FY25. Our reported NIMs expanded by 37 basis points during the quarter to 8.11%. Our focus continues to underwrite quality business with risk-adjusted return. As a result, our incremental business yield has gone up by 22 basis points in FY25. At the beginning of the financial year, we had guided that we'll bring down OPEX to asset ratio by 25 basis points this year. I am happy to report we have delivered a reduction in OPEX to asset ratio by 26 basis points year-over-year to 3.32% in FY25 as a result of our cost optimization strategy. Our asset quality continues to be strong, with one-plus DPD of less than 4% at 3.39% as of March 2025. Our GNPA was 1.08%, down 6 basis points QoQ.
Credit costs improved further to 15 basis points in FY 25 versus 16 basis points in FY 24. We continue to guide credit costs of below 25 basis points on a sustainable basis. ROA remained stable at 3.27%, and ROE jumped by 18 basis points year-over-year to 14.12% in FY 25. We continue to strengthen our distribution network by opening 30 new branches during FY 25. Going ahead, we aim to accelerate our branch expansion strategy in the first half of FY 2026. The required capacity is already in place to support this planned scale-up. In addition to expanding our branch network, we continue to prioritize value-accretive partnerships that enhance our digital channels, CAC and EMITRA ecosystem channel partners, enabling us to tap into new customer segments, particularly new-to-credit and new-to-mortgage customers. The new PMAY 2.0 scheme ensures impact till the last mile in a more efficient way and benefits our customers immensely.
The scheme aligns well with our mission to provide affordable housing finance, and we expect it to drive high demand in the products, further supporting our growth and expansion across Bharat. We are committed to deliver quality and profitable business growth driven by tech-led operating efficiency and cost optimization. I am confident that with our strong risk management practices, diversified distribution reach, and execution capabilities of our time-tested team, we'll achieve our milestones and deliver value to our stakeholders. With that, ladies and gentlemen, I would now hand over to our CFO, Ghanshyam Rawat, to discuss the financial details.
Thank you, Sachinder ji. Good evening, everyone, and a warm welcome to our earning call. First, to provide an update on borrowing sites. In terms of liability, we have one of the best, well-diversified liability franchises. We have been always borrowing, innovative, and exploring new avenues for sourcing. This year also, we raised MCDs amounting to INR 6.3 billion from multiple institutional investors. We will channelize these funds towards retail loans for individuals and the promotion of green home construction, underscoring our unwavering commitment to sustainable and inclusive development. We continued to borrow judiciously and raised around INR 61.8 billion at 8.42% for FY 2025. Our average tenure of borrowing continued to be higher than assets, with a positive ALM across the bucket. Total outstanding borrowing as of 31 March 2025 is INR 179 billion.
Overall borrowing mix as of 31st March 2025 is 51% from term loans, 25% from assignment, 14% from National Housing Bank refinancing, and 10% from debt capital market. Lender support continued to remain extremely strong as Aavas evolved. There is access to diversified and cost-effective long-term financing. We maintain a strong relationship with the development finance institutions. To meet long-term business growth, we have progressed on a co-learning target with the PSU Bank. As of 31st March 2025, we maintain sufficient liquidity in the form of cash and cash equivalents, an unavailed CC limit of INR 16.52 billion, and documented unavailed sanction of INR 13.47 billion. In terms of financial performance, our net profit for Q4 FY25 grew by 8% year-on-year to INR 1.54 billion, led by robust growth in operating income on account of healthy improvement in operating leverage.
During the quarter, our spread moderated by 5 basis points sequentially to 4.89% on account of softening AUM yield by five basis points to 13.13%, while our cost of borrowing remained unchanged at 8.24%. We have 36% of our borrowing linked to EBLR such as Repo Rate, T-Bill, MIBOR, and 21% linked to three-month MCLRs, which will allow us faster repricing of 56% borrowing in line with the interest rate trend. Our NIM in absolute terms has increased by 14% year-on-year in Q4 2025 and 13% year-on-year in FY25. Our margin NIM as a percentage of total assets during Q4 2025 stood at 8.11% and at 7.64% during FY25. ROA for the quarter stood at 3.37% in Q4 2025, whereas ROE at 14.4% in Q4 2025. We are well-capitalized with a net worth of INR 43.61 billion and CAR at 44.5%.
The total number of live accounts stood at 246,000 plus, translating into 13% year-on-year growth. Now, I would like to hand over the line to our CRO, Mr. Ashutosh Atre, to discuss asset quality.
Thank you, Ghanshyam ji. Good evening, everyone. I am pleased to share the key portfolio risk parameters with you. Asset quality and provision: Aavas is strongly positioned to continue delivering industry-leading asset quality. Our asset quality remains within the guided range, with one day past due 12.5% at 3.39% in Q4 FY25, and gross stage three and net stage three under 1.25% stood at 1.08% and 0.73%, respectively. In terms of geography, average one-plus DPD and GNPA in our vintage states remained within 4% and 1.25% of AUM, respectively, whereas other emerging states, one DPD and GNPA remained well below 3% and 1% of AUM, respectively. Similarly, in terms of ticket size of more than INR 15 million, one-plus DPD and GNPA remained well below 4% and 1%, whereas in the case of ticket size less than INR 15 million, one DPD and GNPA remained below 4.5% and 1.5%, respectively. Excuse me.
Our total ECL provisioning, including that of COVID-19 impact, as well as the Resolution Framework 2.0, stood at INR 1.01 billion as of 31st March 2025. With this, I open the floor for Q&A.
Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. We have our first question from the line of Renish from ICICI. Please go ahead.
Yeah, hi, sir. Congress on a good set of numbers. Sir, just two questions from my side. One on the asset yields. Sir, when we look at the asset yields, it has been sitting around a very narrow range between 13.1% to 13.15% for the last 10 quarters, despite waving into new seller rates, etc. Now, since we are entering an easing rate cycle and having a 70% floating rate book, how do you see asset yields settling in near term? Also, as you have been highlighting since past many quarters about changing sourcing strategy with more focus on small ticket loan, moving to risk-based pricing, etc., when do you see this sort of reflecting in yields and ultimately reaching a 5% spread?
Thanks, Renish. I think, as earlier guided by us, our constant endeavor has to increase the disbursement yields, and that's also structurally by really looking at the risk-adjusted returns. As we've shared that over the last one year, we've increased by around 22 basis points. I think it's about more the segment rather than the play out on the interest rates, which is there. We've had a mix of adjustment according to the product mix, the loan category type, and using the state-of-art BRE engines for getting the risk-adjusted pricing returns in the right format. Renish, as you would appreciate, the disbursement yields over the last couple of years have been lower than the AUM yield, and a catch-up becomes very difficult in such a loan growth AUM, which we have built over the last couple of years.
Our endeavor continues to build across on an incremental disbursement yield. As we speak, we will take another three to four quarters to really build that in a right framework where we try to be around the AUM disbursement yield on an incremental disbursement yields as we continue to increase and step up our efforts.
Okay.
I mean, you know, this is more important from a SWIGHT perspective because 70% floating rate book will sort of will continue to impact our yields going ahead. Strategically, how will you address that?
Strategically, I think it's about the disbursement yields to be really sticking out. I think that will actually help across the spreads where in a falling rate interest scenario, it's about whether we'll be able to source the customer at that interest rate. The answer is yes. As a team, as management, we are fully confident about the fact of our disbursement yields, so to say. I think in that, even in the falling rate scenario, as you speak, Renish, the lowering of the cost of borrowing, we will continue to build our disbursement yield as I spoke across on three parameters. One is the product type. Second is the product segment. When we say product segment is less than INR 1,000,000, currently at around 32%-33%, an inch up of around 3% really gets the metrics right for us.
Renish, what Sachinder said, our entire loan book, which is 70% of the floating rate, is linked to our PLR, basically. Our PLR is dependent on our cost of borrowing. If we see cost of borrowing, also 70% liability is on floating rate. Out of that, 56% is a floating rate, which is linked to repo-linked, T-bill-linked, and less than three-month MCLR. The remaining 20% is linked to six-month, one-year MCLR, basically. As we have a positive impact on cost of borrowing, it will be, let's say, it will pass on the floating rate asset side, basically. We don't think in the falling market scenario, there will be any negative impact on the spread. In the past, also, we have seen in parts of the scene, it always helps to protect some spread.
Okay. Maybe just a follow-up on that, Ghanshyam sir. I mean, as you rightly said, maybe on a blanket basis, 25%-30% borrowing is linked to PLR and maybe three-month MCLR. When we look at the 50 basis point of reported cut and when we look at the cost of borrowing, it remains static on sequential basis. I'm just wondering why the rate cut is not reflecting on cost of borrowing, let's say, even a 5 basis point?
Yeah. Let's say in the first quarter, in the quarter four, we see only 25 basis point repo cut. My repo borrowing immediately got impacted in a positive manner. In the next month, then reset came in the month of April. We have seen a positive impact there in that. NIM is going yet to reduce in this quarter. They will start to reflect the interest rate scenario in this quarter. We are very confident in going forward. It will have a very positive trajectory on cost of borrowing side.
Okay. Okay. Got it. Just the last question on the stock cost. We have seen a sharp increase of more than 20% sequentially. Anything specific to read into this?
See, Renish, if you look at it, we have increased 30 branches during the year. The last 25 branches got operational in quarter four. That is the one which has increased the branch strength, the consequent employee deployment in those branches. Going forward, we are trying now to get front loading of the branches in H1. It is more to do with the resource and capacity planning for the branches which we opened.
Got it. Got it. Nothing one-off or nothing any?
No, Renish. I think whatever you see, OPEX increase, including manpower cost increase in the quarter four, is an investment in the company for the take care of future growth in the company. It's the manpower, it's the extension of the branches towards the major. Or third, importantly, in this quarter, business has grown by around 30% from quarter three to quarter four, which has a variable cost, which is a variable cost linked to the business group, sales team incentive, and other variable expenses.
Yeah. Got it. Got it, sir. Okay. Thank you and best of luck, sir.
Thanks. Thanks.
Thank you. We have our next question from the line of Shreya Shivani from CLSA. Please go ahead.
Yeah. Hi. Thank you for the opportunity and congratulations on a good set of numbers. My first question is, if you see your stage three provision coverage, incrementally, it has been rising, and this time it was above 32%. How to look at it? Where should this number stabilize? Or some math, if you can help us understand on this number. My second question is, usually in your fourth quarter, you have a negative net slippage. Either your gross slippages are lower or you have better recoveries which come through. This time, I know it's not a big positive number. It's still an improvement QOQ, but it is still a it's not a negative number. Am I missing something over here, or has some recoveries not come through, or something has happened on that front? These are my two questions. Thank you.
Thanks for that question. First, I'm taking a slippage part. You refer our stage one, we have shown a good amount of improvement, which is coming less than 4%. Our guidance is 5%, which gives us a confidence that in another one or two quarters, we will come back to less than 1% of our gross NPA. We are confident. I think nothing too much read out of that in our gross NPA level. That's one part. Second piece, your stage three increase in the provision. As I mentioned in the last quarter phone call, we have moved to new system, Bolton. It's an international-level computation of probability of default and ECL methodology, in which now we moved two important changes we made in the system. Now, the new system takes care of every month's slippages, rollback, and roll forward. Earlier, it's due to point of time, basically.
Secondly, economic changes in the behavior changes in the economic scenario, basically, which also got factored into the system. After putting those two factors in the system, last month also, last quarter also, it goes, it increased a little bit. Balance has increased as made in the March 2025 in this quarter. Going forward, we see it will remain in the same range of 32-33% of stage three as a provision requirement.
Correct. Okay. Yeah, that is correct. You have changed the ECL methodology in 3Q. Going ahead, it should be at, sorry, 33, 34, did you say? Level?
Yeah. Somewhere between you can take somewhere between 30-34%.
Okay. Okay. Okay. Yeah. That is useful. Thank you so much for answering.
Thank you.
Thank you. The next question is from the line of Shweta from Elara Capital. Please go ahead.
Thank you, sir, for the opportunity. It's a couple of questions. Now that we are 20,000 odd crore of overall AUM, and you also frequently mentioned in opening remarks about scalability focus. Definitely, it's presumed that scalability challenges sort of pan out above 200 odd billion AUM. If I look at, and the larger part of scalability is determined by branch expansion network. If I look at new branches that were opened for the whole of 2025, they were largely concentrated or rather fully concentrated in your existing states, whereas you had mentioned earlier that there will be focus also on entering into newer territories. I think that would be the way forward for achieving further scalability. If you can elaborate on that. Second is, have we benefited more from securitization volumes as far as margins are concerned?
Because that run rate quarterly basis is only climbing. Third question is, how is the MSME scenario sort of pan out? Because I remember the micro SMEs. I remember last quarter, you sort of had mentioned some cautious, you made a cautious commentary that you're monitoring trends, and there has been strain on macros, per se. You mentioned you have stayed guarded. Any scenario change, especially in the MSME segment? Yeah, those are my three questions.
Yeah. Thanks, Shweta. And thanks. I think it's a great one to have crossed 20,000 for AUM. As we build, the focus is on risk-adjusted returns. On the expansion side, when Shweta, you highlighted, in the quarter four, it was within the existing states. Even within the existing states, if you look at it, it was 10 plus branches in Karnataka. As we have always guided that in a range of three to four years, we open up a new state. In this current year, we'll have one of the another southern states, Tamil Nadu, getting opened up with it. We started one branch last year in Hosur just to understand the periphery of there. That's about our expansion strategy as we move forward in the southern states and continue to expand in their existing states.
Unlike last year, which was a rare ending, which was in quarter four, we will try to front end this time in H1. That is on the branch expansion side and our confidence to really grow in from scale and reach about INR 50,000 crore mark in the next coming five years. We are confident with our geography strength, with our liability franchise, and with our branch expansion and technology implementation, we will be able to achieve this mark. On MSME and overall HL home loan, I think if you look at it, we have been optimistically, cautiously optimistic if you look at it. This stems from the fact that there are certain segments in the industry where we see the rising delinquency in MFI, unsecured, and rising over-leverage of customers and waterfall effects, which can come across because of certain global changes in the tariff form.
It's too early to do it, but we've been very cautiously optimistic on those segments. We will watch out for the segments emerging, the areas based on risk-adjusted returns emerging. Accordingly, what we feel across, which is right from an institution perspective, we will step up our accelerator. The case in point, as we highlighted, is that in the last quarter, we were at 55,000 overall login. If you look at it, we had taken a cautious stance of looking at the underwriting perspective, tighten our credit controls, tighten the segment. Our login to sanction ratios were around 38%. That's an optimistic, cautious stance which we have taken, understanding the situation which is there at the local markets and the local geographies.
As and when it opens up, we will really like to pan out and accelerate in the committee. We are optimistic on the way we've underwritten, and we will accelerate in the coming months. On the third question which you had, Shweta, Ghanshyam, you will answer. Shweta, assignment is one of the important funding tools. Whenever we have a fortunate time in pricing, we do assignments. It helps greatly in the ALM management because the entire tenor, all loans are assigned to the bank. If you see on full year basis, last year we have a net upfronting and unwinding net worth INR 43 crore. This year, it is INR 46 crore, just 8-9% increase on overall basis on a full year basis, whereas our total income, interest income, has grown almost at 18-20%. All assignment income is outcome.
The main focus was to get a best deal for assignment from the banks and lending big partners and to manage our funding program as per our ALCO management.
Okay. Sure. Thank you. Best luck.
Thanks, Shweta. Thank you.
Thank you. We have our next question from the line of Raghav Garg from Ambit Capital. Please go ahead.
Sir, hi. Good evening and congrats on the quarter results. I have two questions. One is, your home loan reimbursements for the quarter are about 3% lower compared to last year. Why is that the case? Is it because you've tightened your underwriting criteria? If that's the case, then can you indicate to what extent have your approval ratios come down? That's my first question.
Yeah. Thanks, Raghav. We were just talking that despite the login being at 55,000, our conventional login to sanction ratio, which you were hovering around 42%, for the quarter, it was around 38%. This translated into a lower disbursement despite the fact that we had a right income. As you said, looking at the scenario which is emerging, we were cautiously optimistic about to underwrite in the segments which we saw. On your part of HL growth, there has been a growth of around more than 5% on the full year basis, what you were referring. I think that this is so if you're seeing.
Sir, I will refer to for the quarter, I will refer to.
Quarter.
Yeah.
Sorry. Got it. We continue to trend in a way which is cautiously optimistic, considering that as you are fully aware about the local scenarios in the geographies and rising delinquencies in the MFI, we are cautiously optimistic. We will continue to trend in that range, and we continue with our endeavor to be around 20% for the year. That would be our endeavor in the coming time.
On the fixed rate side, again, that brings me to my second question. I think this has been partly answered previously. In the last six or seven years, barring the COVID year, you've usually seen net recoveries in the fourth quarter, but this time there was a slippage, a minor one. Also, when you look at the stock of GNPA in the fourth quarter, it's usually lower by about 5-10% quarter on quarter versus 3Q. This time, it's actually marginally up. Can you please talk if there are any collection issues or repayment issues which you are facing, or maybe at the industry level, and for what reason?
As I explained earlier, our bouncing trend is in control. It's similar to what we see earlier. Our one-day pass-through already came down to less than 4%, which gives us confidence that our rollback of NPA will happen in the next one to two quarters. We didn't see specifically any challenge in any particular state. It's almost a similar behavior across the states. We are very confident it will come back to less than 1% in the next one to two quarters.
Understood. Sir, my last question on funding costs. Incrementally, I think you're raising at 8.5% versus book costs of about 8.2%. I'm also considering that 70% of the assets are floating right now. Do you think that incremental costs being higher than book costs and yields coming down because of the depot rates cuts, your spreads could decline further from here on from 8.9%?
I think, yeah, incremental post in the because last year was an interest-rising scenario in which fresh borrowing cost was definitely higher than my own book, let's say, older liability book, which is seen in the still quarter four. We are seeing and observing this trend will get changed in the coming quarter, where the new borrowing will be par or lesser than my total liability book. Older liability book also gets reset in faster mode as we see the repo cut and MCLR rate cut, T-bill rate cuts that will give a further positive towards my old liability book. I hope that clarifies your question.
Sir, it does. Your assets will also get repriced lower towards the end.
Yeah. Yeah. As I mentioned earlier, my assets are linked to our PLR. Our PLR is computed based on the cost of borrowing, basically. Obviously, there is always a lag impact of what we see, our change in the PLR and the change in the cost of borrowing.
Yeah. I do not think PLR is linked to funding costs, right? Did I hear that right?
Pardon?
Did I hear it right that your PLR is linked to your funding costs?
Yes. Yes. You are very much right.
Eventually, then if the PLR, if the cost of funds has to come down, then PLR will also come down, right? And then to that extent.
It's not that 100% linkage. There is always a time lag impact in that scenario.
See, Raghav, there are two points. One is the time lag impact which Ghanshyamji was referring. Secondly is the disbursement yield with which you underwrite the business. I think in the earlier conversation also, I guided that we will continue to hold on to our disbursement yield despite in a lowering rate scenario. That is on account of structural adjustments on the product type and the product segment per se. As we speak about less than INR 1.5 million, less than INR 1 million, where you have the yields which are not so interest-sensitive, but it is about how you underwrite and how you manage the risk out on the risk-adjusted returns. Okay.
Just one last question. The total employee count as of fourth, if you can mention that, please. Both of.
Yeah. That's around.
Yeah. So that is 7,223. This is an increase because we had had the year-ended branch expansion in quarter four, as a result of which this was the addition which was there. The increase in the field force at the front line, which is our RO, is because we are dependent on the full hog sourcing from a direct source. That had an immediate impact on increase in our login. For the first time, we saw the quantum of logins at around 55,000. As we already entered into the new financial year, the ecosystem tariffs which we have done would require the field force to complete and execute the leads which get generated from our eco channel partners like CSC, e-Mitra, and India Post Bank.
Sir, this 7,200 is totally off plus on roll or just on roll?
Yeah. This is the one which is the total employee strength which is there of ours, 7,223.
Okay.
Thank you. We have our next question from the line of Nischint Chawathe from Kotak Institutional Equity. Please go ahead.
Yeah. Hi. Just wanted to get a little bit of a sense on growth trajectory. This time, we have kind of come off a little bit versus the 20% growth guidance that we have been talking about. How should we see the trend in disbursements and loan growth going forward?
Nischint, it was in the quarter four, we continued to guide around 20% of the growth. I understand there's a certain amount of slippage which is there from a growth perspective on the AUM. It is about INR 120 crore-INR 125 crore short to reach that kind of level. We had in quarter four, despite that we had stopped, we were very cautious on the kind of underwriting which we have done. As a result of which, there was, against a normal 42% login to sanction ratio, we were at around 38%. As we stepped into the new financial year, we are confident with the increase in the kind of logins and improvement in certain areas where the geographies and the overall credit behavior will show off, we'll be able to accelerate our path in this financial year and in the coming quarters, actually.
I was just curious, I mean, how do we sort of reconcile this? I mean, I know we need to sort of protect our spreads because of which we are kind of going a little more granular, going a little bit down the risk curve. At the same time, probably what you seem to be indicating is that this may not be the best time to do it. Your login to disbursement ratio has, sorry, login to sanction ratio has come down. Arguably, if you kind of continue to go down the curve or go down lower tickets, this ratio will kind of remain low or maybe come off as well. How do we really reconcile the conflict between growth and margins?
I think from a margin perspective, we are very clear that we want to, whatever we build across in the last year, we want to further scale up on the margins. Herein, when we talk about, we are confident that we will get across to more than 20% of disbursement growth in the current year. I think that will give us confidence to really get back to our guided 20% CAGR, what we've always guided on that path. Again, in that, Nischint, it is about the product segments which we are focusing on. I think the learning experience which we got in the last year will actually reflect across in getting the quality and getting the customer type right, which we've learned in the last one year.
We are confident based on our underwriting practices, our distribution strategy, and our incoming input, which is there, which will be more refined, giving us confidence of growth of around 20% plus on the disbursement, finally enabling on the AUM growth on the guided path of 20%.
Finally, quite a few of your peers have focused on fee income, insurance distribution, etc. Do we see any of those levers that you'll be working on?
We will be on a from a customer perspective and a fair practice board, and what is right for the customer, we will continue to do and play out on that, which is rightfully securing the customer from a perspective of credit insurance in case of any eventuality, the financial burden of paying the EMIs does not dovetail on the customer. Certain part of the fee income really gives a little spike when you are there in the less than 1,000,000, less than 1,500,000 income for sure. We will try and push what is right for us from a fee income perspective and insurance coverage, which covers the credit insurance for the customer more from a protection perspective rather than being a pure revenue source.
Sure. So fair to say that fee income and other income kind of broadly goes and grows in line with loan growth.
Yeah. Secondly, the ones which we've invested in the new states and the last couple of branches in the last quarter four, which was year ended, 24 of them which came across in the quarter four, which will start firing in this year. Those are year ended, Nischint. There also, we expect that growth to really come in from the additional 30 in the last year, but quarter four was 24. That also will help us to really build the disbursement and the growth momentum.
Got it. Got it. Thank you very much and all the best.
Thanks, Nischint.
Thank you. We have our next question from the line of Abhijit Debrewal from Motilal Oswal. Please go ahead.
Yeah. Good evening and thank you for taking my question. I'm just kind of circling back to the provision cover that we have increased this quarter. For a long time, I mean, this number used to be in that range of, I would say, 27-30% thereabouts, right? By the way, we did share that we have changed the methodology. My question here is, today, when we look at the large housing finance companies who are predominantly operating in the prime segment, they are all maintaining provision covers of, I would say, 40-55%, some of them even 60%. While if I look at all the affordable housing finance companies, most of them have, until let's say last quarter, even you had provision cover of about 30%.
I mean, I see provision covers of about 25-30%, and now with this changing methodology, it's increased to about 32%. Do you think there is a case that over the course of time, you as well as all your affordable housing finance peers will have to increase their provision covers towards that 40-45-50%?
Abhijit, this is a we all adopted ECL methodology. ECL methodology is based on your past few years' behavior, basically. In our model, we took a seven-year behavior methodology, real-time, real how the asset has flown even various buckets of time at different points of time. When an asset becomes NPA, how many days it takes to roll back as a standard asset, how many days time it takes to close that asset, basically. What loss we make when we recover that asset, basically. Always also will be considered net present value of a time value also got factored in this loss report, basically. It is based on individual each company. Last seven, eight years, our behavior of book is didn't show more than this result. We already built in, and we don't see it going to be, let's say, any major change we're going to see.
Based on behavior, we are confident it will remain between 32-34% somewhere of my NPA provision. On an overall basis, it will remain somewhere like overall today we are at 0.66%. It will remain less than 0.7%.
Got it, Sachinder. Thank you. The second question that I had is, I mean, if I look at the runoff in the book, looks slightly elevated. While you did acknowledge that there is an endeavor to maintain the disbursement yields by strategizing on the product type, the product segment. Just trying to understand, I mean, having seen already two rate cuts, maybe a third one in the offering in the near term, has anything changed in terms of aggression of your HFC peers or PSU banks which would warrant that maybe going forward there could be either higher basis point pressure or pressure on yields to retain customers?
I think, Abhijit, there are two parts to it. One part is that in the segments which we serve, we do not have PSU and others really competing. As we speak, we are around 20% of new-to-credit and 92% is new-to-mortgage customers. I think from a segment perspective, from a competition perspective, and the market perspective, the PSUs and the bigger range housing finance companies do not really compete in the segments. That's one. Second is the segments which we serve have an average EMI range of 12,500 and an average ticket size of 1,145,000 to 1,175,000. In that, a marginal increase in the EMI doesn't have such a big bearing cost when it comes to the rate increase or being so much of interest sensitive in the segments which we serve.
Thirdly, from a perspective of having already been there on the rate cycle and the yields which are already low, I think the chances of probability of the BT actually reduces. That's one. Secondly, I think we work very intensely on our models to really predict the customer behavior from a perspective of the customer's chances of doing a balance transfer. So the customer behavior earlier, the model was reactive. Then we got it to a steady-state model. Now it is proactive, really giving us a 30- to 60-day period before the customer really thinks about looking at a BT. As a result of it, if you look at our BT outs, they have been steady and not gone beyond 6%.
That is what is resulting in the higher runoff in the book?
No, no, no. I think there may be some gap. Otherwise, overall, basically, we see runoff is, last year, was 17.2% of our opening AUM. This year also it is 17.4% of opening AUM. I do not think so is there any change in, obviously, assets getting older. So, normal EMI, in EMI, the principal components get increases. Beyond that, we did not see any change in our prepayment behavior in the overall book.
Got it, and t he last question that I had, while we already discussed a lot on spreads, I'm just trying to understand going forward, I mean, are we going to work with the base case spreads of 5% or is there at least an internal target to increase it further in the coming quarters and years?
Our first target and first our efforts are there to go back to 5% plus spread. That is, we are working around that. As Sachinder Bhinder mentioned, our disbursement yield has already got improved 25 basis points. We are making continuous efforts there to increase our disbursement yield. Abhijit, you are doing analysis of this space last so many years, and you will appreciate that. In Aavas also, if you refer my earlier falling market interest rate scenario in which in 2019 we were at a 5% spread, when interest rate falling market, we were able to have an increase of 50 basis points. I am not confirming, I am not committing this that same viewer will be in the coming year falling market, but generally it gives a positive impact on the spread that we want to mention.
Got it. Got it. Yes, sir. That is well appreciated. Thank you so much, Ghanshyam. That's all from me.
Thank you. Thanks, Abhijit.
Thanks, sir.
Thank you. We have our next question from the line of Yash from Citigroup. Please go ahead.
Oh, hi sir. Thanks for the opportunity. Sir, on the log-in to sanctioned ratio which you mentioned, which has come down from the 42% to 38% level, any specific geographies contributing to it, and what trends or indicators would suggest it normalizing up to, say, maybe to 40% in a couple of quarters or something like that?
Yes, these are a couple of states which are in the western part of India, specifically where we see this, and some parts where we were cautious on the MFI kind of exposure and where we see the over-leveraging happening. I think these are the broad segments and the states where we felt that it is the time to really look at it, what is right to be underwritten with the risk-adjusted return. As we move into the coming months, when we see the behavior to be right, we will accelerate and we will step up.
Okay. Got it, sir. From the margins, again, just to check, about 36% of the book is linked to repo, which would have faster repricing, but fair to assume the other rest of the almost 50% book will take, there would be some time lag and yields or sorry, margins could be under pressure in one edge because of the time lag and eventually catch up?
Yeah, yeah. Your assessment looks okay, but we have almost 40% borrowing, 50% borrowing. In fact, 56% borrowing is linked to repo, link, AP link, three-month MCLR, where we see faster impact, and then remaining borrowings will eventually, when banks will start to translate a repo cut in their MCLR cut, will have a positive impact on us.
Got it. Last year, the OPEX with federal debt will again be elevated in the one edge as well. Just wanted to check if you have called out any specific number of branches for the full year or for one edge?
I think it's more at a stabilization level of OPEX to AUM. On a full-year basis, as you mentioned, there will be growth impact on OPEX side. There will be the technology transformation will also have a positive impact. In full-year basis, definitely we will have a saving 10-20 basis points.
Okay. So 10-20 basis point saving on the OPEX for the five years?
On full-year basis.
Yeah, OPEX versus. Got it. That's it from me. Thank you.
Thank you. We have our next question from the line of Kushan Parikh from Morgan Stanley. Please go ahead.
Thanks for taking my question. This is more on, again, the margins. Just wanted to understand what is the current differential between the disbursement yields and the book yields. Also, I mean, I understand that we'll probably bridge this gap in the next three to four quarters, but is there a strategy to increase the disbursement yield over the book yield? I mean, what would our threshold be? I mean, will we just look for 5% plus kind of spreads, or can we go even higher than that?
There are two parts to it. We continued our approach to increase our disbursement yield, and as we spoke, we increased by 22 basis points in the current year. Again, this is a mix of both risk-adjusted returns on the product segment. The customer type, when I talk about less than 10x, less than 15x, that's where we are trying to step up where you get risk-adjusted returns at a higher rate. There's an inch up on the disbursement yields really to help us to get to a level where we will be nearing our AUM yield that's being guided, and our endeavor is there. We've seen that marginal increase by about 25 basis points actually happening this year.
Now, this is aided by, again, we talked about that certain of our DRE-related stuff where we are able to get the pricing risk right based on the customer type and the risk which we are underwriting. So the mix of these three things actually have helped us, and we will continue to build on those segments and those areas where we are able to inch up right with the right kind of risk-adjusted returns.
Understood. That should mean that these spreads will continue to increase even beyond 5%, or probably the mix will be stabilized at around the 5% threshold?
We have guided for the 5%. Our endeavor is based to really inch up our disbursement yields in the right proportion with risk-adjusted returns. Any fallout or any momentum which we get because of cost of bearing would be an added advantage which will be there as what earlier Ghanshyam Rawat talked about in the falling rate interest scenario. We had some spikes which happened because of the lower cost of borrowing.
Understood. Okay. Thank you. That's all. That was my question.
Yeah. Thanks.
Thank you. We'll take our last question from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Hi, good evening. Just a couple of things. Sir, you spoke about incremental business yield being higher at 22 basis points in FY25 versus previous year, but this will also have a product mix benefit in play. If I were to ask you about incremental business yield in a pure home loan, how much has that improved in FY25 versus, say, FY24?
I think sequentially on the different product mix, the product type, we had an inch up. This averaged out to really increasing in the overall yield. This was around 17 basis points if I were to talk about on a normal HL portion, which had an increase in this. Yeah. The one is the mix, and second is about the incremental increase in the segments of HL, which really helped us to get the yields up.
Correct. Are you seeing right now competition moving down their incremental lending yield as yet, either in home loan or lab, or do you believe that they will only move down once they see their own cost of funds going down?
I think in the segments which we operate, they are primarily new-to-credit segments and new-to-mortgage segments. In these segments, we do not see unlike a prime segment where you have the rate and the rate-sensitive customer and being the playout which happens in that market. I think we are in the segments which we serve. Still, the space is good enough and the segment is good enough that you do not see that kind of competition which you see in the normal prime markets where it becomes interest-sensitive or rate-sensitive customer depending upon the area where they operate in tier-one markets.
Your pricing, your DRE-led efficient pricing of segments should not mean that you will lose some incremental market share if there is an opportunity, right?
No, it will actually further add up. See, it will help us to do the right risk-adjusted return at the right kind of inching up the disbursement yield and building up the momentum on the disbursement with increased disbursement yields.
Okay. Just one last thing. Are we targeting any specific disbursement growth for home loan? Just for home loan? I mean, you said that you want to grow disbursement by 20% for next year, ballpark. If I were to ask you within 20% ballpark number, what is the target for home loan?
In the entire loan book and the assets and mix, basically, we have an endeavor to maintain at a home loan between MSME and non-lab loan mix is a 65-35% ratio at a loan book level.
Okay. Get that. Thank you and best of luck, sir.
Yeah.
Thank you. Ladies and gentlemen, this will be the last question for today, and I now hand the conference over to Mr. Sachinder Bhinder for closing comments. Over to you, sir.
Ladies and gentlemen, as we conclude today's earning 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 loyalty of our customers has been instrumental in our growth. We aspire to reach a milestone of INR 500 billion in assets under management in the coming five years and broaden our horizons as a Pan-India player. I express my deepest gratitude to all our regulators, 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. Thanks. God bless.
Thank you, sir. On behalf of Aavas Financiers Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.