Ladies and gentlemen, good evening and welcome to the Aavas Financiers Limited Q1 FY 2026 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 on 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 a touch-tone phone. Please note that this conference is being recorded. I would 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, Muskan. Good evening, everyone. I extend a very warm welcome to all participants, and thank you for joining us on today's earnings call to discuss the financial and operational performance of our company for Q1 FY 2026, along with the business outlook going forward. The results and the investor presentation have been uploaded to the stock exchanges and are also available on our company website. I hope you 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. Thank you all for joining us this evening. I truly appreciate your presence and continued support. Q1 FY2026 was a landmark quarter for Aavas , marking a pivotal moment in our journey. We successfully concluded a change in the promoter process and are proud to welcome CVC Capital Partners as our new promoter. The trust and conviction shown by CVC in Aavas is a strong testament to the strength of our franchise and the vast opportunity in the affordable housing finance sector in India. Their global perspective, institutional depth, and strategic insight will position Aavas to accelerate into its next phase of growth and innovation. I would like to take this opportunity to express my sincere gratitude to the visionary leadership of our former promoters, Kedaara Capital and Partners Group.
Under their stewardship, what began as an ambitious proof of concept has grown into a scalable institution, one that has transformed lives and made affordable homeownership a reality for thousands of families. The quarter also marks a significant milestone in our commitment to governance, transparency, and putting the customer at the center of everything we do. We've taken a historic step by transitioning to a realization-based model for disbursement recognition, a forward-looking and conservative approach that reflects our intent to stay one step ahead, aligning not just with regulatory expectations but with their true spirit. The change offers a more accurate view of underlying business performance, strengthens transparency, and reinforces our long-standing focus on quality over quantity. On the demand front, we are encouraged by the strong traction, login volume grew by 17% YoY, indicating a robust underlying housing demand.
In markets where we hold a higher share, we are witnessing a healthy appreciation in real estate prices, further underscoring structural demand strength. On the credit front, we continue to maintain a cautiously optimistic stance on underwriting. While we have not observed any material deterioration in our own asset quality, we remain vigilant given cautionary signals reported by some peers in specific customer segments, geographies, and risk profiles. In this context, the drop in our function ratio is a deliberate outcome of our calibrated risk strategy and not a reflection of demand. Our strategic focus remains on optimizing yield and credit quality. We achieved a 35 basis points YoY improvement in the yield this quarter, driven by targeted initiatives to enhance portfolio mix and pricing. Recent trends are encouraging. Disbursement growth in July reached approximately 16% YoY, demonstrating positive momentum and reinforcing our confidence in gaining further traction in the coming quarters.
We continue to maintain best-in-class credit metrics and are actively evaluating our credit framework to ensure it remains robust and responsive to evolving market dynamics. This disciplined approach helps us balance growth, yield, and asset quality, positioning us well for the quarters ahead. Considering the perceived stress in certain sectors of the salaried class, we remain focused on the self-employed segment, where we continue to see a better risk-reward profile. Additionally, our strategy focuses more on loans exceeding 5 lakh , which typically exhibit stronger asset quality trends and portfolio behavior. Government initiatives such as the interest subsidy scheme under PMAY 2.0, combined with a supportive interest rate environment, continue to bolster home buyer sentiment and improve affordability. I am pleased to report that over 450 Aavas customers have benefited from these schemes, receiving subsidies totaling more than INR 15 million.
We also want to acknowledge the NHB for its continued leadership in promoting transparency, governance, inclusion, diversity, and capability building in the sector. We are proud to share Aavas has won the Product Innovation Award at the NHB 's inaugural Housing Finance Excellence Awards 2025. Returning to our operations, while the transition to realization-based accounting has meaningfully impacted our sanction-to-disbursement ratio, we are now seeing signs of normalization. In fact, July disbursement grew 16% YoY, reflecting a gradual return to our business-as-usual levels. Our AUM grew 16% YoY, despite a softer disbursement quarter impacted by a change in disbursement recognition in quarter one. Based on the current trends, we now expect a full-year growth in the range of 18%- 20%.
While we remain confident of a rebound starting quarter two, we will have better visibility on overall growth as we progress further into the year and continue to pursue our objectives with prudent discipline. In terms of our distribution strategy, we are beginning to see positive results from our diversified approach. We have successfully empaneled digital partners such as CAC, E-Mitra, and India Post Payments Bank, all of which are contributing to a robust and diverse lead generation pipeline. I am pleased to share that within less than a year of onboarding CAC, we are already receiving more than 1,000 monthly logins, a strong indicator of potential in this partnership. Additionally, we are continuing to strengthen our distribution network with plans to open 10 new branches in September.
As highlighted earlier, our strategy this year is to front-load branch expansion in the first half rather than concentrating opening in the second half, as in the previous years. I am also pleased to share that we are entering a new state in Tamil Nadu, and all 10 of these upcoming branches will be located there. As we look ahead, our long-term strategic priorities remain clear: to fully leverage our strong digital and operation platforms, further strengthen governance, drive scale efficiently, optimize cost, and enhance productivity across the organization. With that preamble, I would like to take you through our quarterly performance. We have delivered an AUM growth of 16% YoY, reaching an AUM of INR 207 billion. During quarter one, FY 2025, we disbursed loans worth INR 11.5 billion, maintaining our focus on quality origination.
Our net profits for quarter one, FY 2025, grew by 10% YoY to INR 1.4 billion, led by robust 16% YO\oY growth in NII on account of healthy improvement in spreads. Our net worth continues to compound steadily, growing at 16% YoY with the strength of our capital position, driven by consistent compounding internal accruals. Our spread improved sequentially by 22 basis points to 5.11, while our calculated spread grew by 16 basis points to 6.03 in quarter one, FY 2025. Reported NIMs expanded by 16 basis points during the quarter to 7.48%. Continued focus on low-ticket, high-quality underwriting has led to a 35 basis points increase in the incremental business yields. The OpEx to asset ratio declined sequentially by 25 basis points to 3.46%. On a YoY basis, the increase is primarily due to a higher ESOP cost. Adjusted for this, the ratio would have been 3.34%.
Our asset quality continues to be pristine with one plus DPD of less than 5% at 4.15% as of June 2025, while GNPA was 1.22%. The sequential uptick in the delinquency is seasonal and has already moderated, with one plus DPD falling below 4% in July. Credit costs remain with a guidance of 24 basis points. We continue to maintain our guidance of keeping credit costs below 25 basis points on a sustainable basis. ROA stood at 2.94%, while ROE at 12.56%, reflecting the impact of strategic investment and ESOP-related investment in talent. We remain committed to delivering quality, profitable, and sustainable growth powered by technology, efficiency, and cost optimization. With a robust risk management framework, deep and diversified distribution network, and the strong execution capabilities of our experienced team, we are confident of achieving our strategic milestones and delivering the long-term value to all stakeholders.
With that, ladies and gentlemen, I conclude my prepared remarks, and 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 annual report. To provide updates, first, we are covering a borrowing. I am pleased to share that we have received a fresh sanction from National Housing Bank, a gap of a full one year, and we successfully completed a drawdown of INR 2 billion in this quarter. This will further provide cushion to cost of borrowing and strengthen our funding position. Our ability to reduce cost of funds reflects the strength of our one of the most well-diversified and resilient liability franchises in the industry. We stayed true to our strategy of innovation in the sourcing. We anticipated a potential easing in interest rates and proactively shifted a meaningful portion of our borrowings to EBL-linked instruments. This forward-looking approach is now delivering results, with our liabilities repricing faster than those of many peers.
As a result, we have already seen a 22 basis points reduction in the overall cost of borrowing from EBL-linked borrowings, with incremental borrowing now being raised at even more competitive rates. We expect continued downward rates of interest on our overall cost of funds. We scale up borrowing through these channels. We continue to borrow, judiciously raising around INR 17.03 billion at 7.82% for quarter one, FY26. In this quarter, we raised NCDs amounting to INR 4 billion from marquee institutions. Our average tenure of borrowing continues to be longer than that of our assets, ensuring a very positive ALM across all the markets. As of 30th June 2025, total outstanding borrowing stood at INR 182.86 billion. The borrowing mix as of 31st March, 2022 comprised of 49% from term loan, 25% from assignment, 14% for NHB refinancing, 11% on debt capital market.
We have 38% borrowing linked to external benchmarks such as REPO, TBIL, and MYBOR, 20% linked to sub-three-month MCLR, enabling faster repricing of nearly 58% of our total borrowing, in line with the interest rate movements. Lender supports remain strong as Aavas continues to evolve. We maintain access to diversified and cost-effective long-term funding. Our relationship with development finance institutions remains robust, supporting our strategic funding goals. As of 30th June 2025, we maintain ample liquidity and including cash and cash equivalent of an unavailed cascaded limit of INR 18.77 billion, documented unavailed sanction limit of INR 25.98 billion. During the quarter, our cost of borrowing declined by 22 basis points quarter over quarter to 8.02%, driven by proactive liability management and repricing benefits. Now, profitability and capital position. Our net interest margin in absolute term grew by 16% year -on -year in quarter one, FY 2026.
Net interest margin as a percentage of total asset expanded by 17 basis points year on year to 7.48% in Q1, FY 2026. We remain well capitalized with a net worth of INR 45.1 billion, and capital to risk-weighted assets ratio CAR is 43.2%, significantly above the regulatory requirement. Now, I would hand over to our CRO, Mr. Ashutosh Atre, to discuss the asset's 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 well below 5% at 4.15% in Q1, FY 2026, and gross stage III and net stage III is under 1.25%, stood at 1.22% and 0.84%, respectively. We did observe some seasonal uptick in delinquencies during the quarter, as is typical in the first quarter. However, one plus DPD levels have already shown normalization trends in July, reinforcing our confidence in the stability and resilience of the portfolio.
In terms of geography, average one plus DPD and GNP in our home state continues to remain well below 4% and 1% of AUM, respectively, whereas some emerging states of the North continue to have one plus DPD and GNP well below 3% and 1% of AUM, respectively. Similarly, in terms of ticket size of more than INR 500,000, one plus DPD and GNP remain well below 4% and 1% of AUM. Our total ECL provisioning, including that for COVID-19 impacts as well as resolution framework 2.0, stood at INR 1.14 billion as of June 30, 2025. Our disciplined underwriting standards, coupled with proactive risk management framework, have enabled us to stay ahead of emerging macroeconomic challenges. While several peers have reported asset quality pressure due to sectoral or regional headwinds, our portfolio has remained resilient.
We continue to follow a rigorous credit assessment process, stress-tested across multiple economic scenarios, and remain selectively calibrated in our exposure to high-risk segments. This approach has helped us preserve asset quality, which continues to rank among the best in the industry. Barring few isolated pockets, we are not seeing any broad-based credit quality concerns. Our early warning systems remain stable, and with credit performance well under control, we expect growth to start picking up in the coming quarters. With this, I open the floor for Q&A session.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hands up for asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Kunal Shah from Citi group. Please go ahead.
Hi, Sachinder Ji. Of the impact of disbursements, you indicated because of change in the recognition, the way now we are doing it, suppose the credit to the customers. Would this have the recurring effect over the next two, three quarters and for the entire fiscal as well? Do we expect that whatever business maybe we were not able to book in one quarter, that would happen in two quarters and three quarters, and we could see a relatively higher rate of disbursements over the next two quarters? Just to clarify, this 18%- 20% which you highlighted for FY 2026, that was with respect to disbursement growth or AUM growth?
Yeah, thanks, Kunal. To answer on the 18%- 20%, that is the AUM growth which I referred to. Secondly, you are spot on on saying that whatever we've had because of this realization as one of the metrics, we will cover that up in quarter two and quarter three. This is a rolling impact which happens because we had, including the check that if we would look at, we would have had a double-digit kind of scenario on the disbursement. As we trend into the new quarters, which is quarter two and quarter three, we will see that it's settling down.
When you say July disbursements are growing at 16% odd, what is the run rate now in terms of the absolute number?
On a run rate, we are anywhere between close to INR 600 million, if I were to really put that in perspective. INR 550 million to INR 600 million is the current run rate which is there.
In July, we have got to INR 550- INR 600 crore.
That is a normal range, yeah. That's the range. As we speak, we have 16% YoY. These are, Kunal, these are fully check-realized which we are referring to.
Yeah. Compared to maybe less than INR 400 crore, which is there on an average for one quarter, we are back to INR 550- INR 600 [or close].
Yeah, spot on.
Yeah. Secondly, maybe we saw one of the peers getting the credit rating upgrade. How are our discussions with the same credit?
Hello, Mr. Kunal? Yes, our management line has been connected. Yes, sir, go ahead.
Sir, Kunal was there on the call. Are we referring to Kunal's question on the credit rating upgrade?
Yeah, yeah, Kunal is.
Can you connect it to Kunal?
Hold on, sir. Just give me two minutes.
Yeah, in the meantime, we can talk about what the question was. It was related to a credit rating upgrade. We are in discussions, and I'll have Ghanshyam Ji really speak on what are the kind of questions.
Yes, sir.
Kunal, please.
One other check with respect to credit rating.
deliver value to all stakeholders.
Yeah, we can hear you now.
Yeah. As Aavas, we are almost already close to INR 200 billion of AUM, basically. Asset quality is pristine. We have one plus and 90 plus. Our lifetime write-off is one of the best in the industry. We have just 11 basis points less than that. On the liability side, we are one of the best franchises. We have the liability side. By seeing all these things, we are quite optimistic, and we are engaging with the rating agencies. Our existing rating agencies are CARE and ICRA. We are engaging with both of them. We are hopeful they will take up our case positively. Ultimately, we want to say all rating agencies are very independent rating agencies. It is their own decisions while assessing each and every company. As a management, we feel confident our case is due for a rating positive lookup in the coming quarter.
Great, great. Okay. Yeah, thanks, thanks.
Thanks, Kunal.
Thank you. The next question is from the line of Shreepal Doshi from Equiris. Please go ahead.
Hi, sir. Good evening, and thank you for giving me the opportunity. My question was on asset quality trends. While there are some weak looks as you highlighted visible in the month of July, if you look at the one-key performance, your sixth year one-key performances, the DPD deterioration has been much higher. What would you attribute this relatively higher deterioration in the DPD movement or even, let's say, GST plus GST numbers? I think you also highlighted there are some pockets where relatively the deterioration has been much higher. Which are these?
Thanks, Shepal. There is a 15 basis points sequential increase in the GSA, and this is largely seasonal in nature. Historically, Q1 tends to show some movement in delinquencies due to timing factors, and typically, we see recovery starting in Q2 with normalization by Q3 and Q4 well within our guided range. As for the one plus DPD, it has risen approximately 75 basis points, which is 50 basis points YoY. Again, this is primarily seasonal. Encouragingly, we've already seen a reversal in July, which has closed below the 4% mark, indicating the trend is stabilizing. From a geographic lens, we had highlighted a few markets where delinquency showed some spike in response. We have proactively tightened credit norms in those areas. I would like to emphasize that there's nothing alarming. We understand these markets well and are familiar with their cyclical patterns.
Furthermore, we've already seen early resolutions happening in the current quarter and are confident of a rollback in delinquencies in quarter two. Lastly, since we report GNP on the loan book, and given that the book size doesn't grow meaningfully this quarter, there is always a two to three basis points impact from a denominator effect, which has slightly exaggerated the GNP ratio.
Got it. Which pockets are the, if you could highlight, that would be very helpful.
Yeah, on the pocket specific, as earlier spoken by our CRO, we are seeing some part of that in Maharashtra, MP, and a little bit on Karnataka.
Got it. Got it. Sir, my next question was to Ghanshyam sir, what percentage of our bank borrowing is linked to REPO and TBIL? I recall you said it's higher percentages, but what percentage is it?
We are around 38% linked to REPO, and let's say TBIL and other EBL-linked benchmarks, which is truly driven by how the rate of interest is moving, interest rate scenario.
Is 62% linked with the MCLR?
Not 100%. Out of that balance, it's roughly 24%, 25% linked to up to three months MCLR, basically. One month MCLR. Those are faster moving buckets when interest rate banks start to pass on the transition, REPO link on the MCLR front, basically.
Shreepal, 38% is linked to EBLR, 22% is fixed, and 40% is linked to MCLR.
Okay. Okay. Got it. One last question. On the NHB borrowing front, what was the rate that you were able to, you know, garner these funds?
NHB is a, when they give the loan, there are various schemes under they provide. [PMAY] is there, Women Ownership Empowerment Fund they have, basically. On an average, it comes roughly 7% or sub 7% depending upon the, what rate they are giving that quarter.
Okay, because I think previous quarters you had highlighted that there was not material difference between, let's say, market-linked borrowing versus the NHB because the NHB itself did not have much of the funds from under schemes. I think now you're saying that there is some benefit under all these schemes, is it?
NHB borrowing is always an important piece of funding, but it is a long-term borrowing. After reduction reported all these things, three-year, seven-year, AA, AA plus rated papers also brought down to at 7.5% in the market, basically.
Okay. Okay. Got it, sir. This is very helpful. Thank you. Good luck for the next one.
Thank you.
Thanks, Shreepal.
Thank you. The next question is from the line of Chintan Shah from ICICI Securities. Please go ahead.
Hello.
Hello.
Yes, sir. Yeah.
Hello.
Yes, sir. Yeah. Yeah.
On the disbursement front, given that we have moved to a realization-based model, had we not moved to this model, what would have been the disbursements for the quarter?
Yeah, Chintan Ji. As highlighted in my opening remarks, Chintan , the primary reason for the impact this quarter has been the operational shift, and now we recognize the disbursement. Starting Q1, we had moved to check realization-based recognition process. This means as we now record disbursement only once the funds are actually credited to the customer's account rather than at the time of check issuance. This change has led to the significant drop in our sanction-to-disbursement conversion ratio, which declined 10 basis points to 75%. Typically, once a check is handed over to the customer, it takes about 15- 30 days to get credited, depending upon the specific cases and specific geographies and the type of transaction.
As a result, Chintan Ji, any check which is issued close to the 15th or the 20th of the month may not get realized within the same month, effectively pushing the month end for recognition purpose earlier than actual calendar month end. Having said this, it is also important that certain product categories such as MSME and lab vendor and NHL segment were not impacted. They operate on 100% RTGS disbursement. In home loan products like self-construction, plot plus construction also saw limited impact. However, categories like builder purchase, resale purchase were more severely affected due to the check-based disbursement structure. From a business activity perspective, if we would have had the same one, we would have been in a double-digit growth. Yeah.
Sorry, double-digit growth on the disbursement versus 5% YoY decline, right?
Yeah, right. Spot on.
That's on YoY basis. Okay. Sure. Got it. Sir, on this builder finance, how much contribution in our disbursement would be from the builder finance?
This is not about builder finance. It is a purchase where the person is buying based on the allotment by the builder or a resale purchase. As you would appreciate, this takes its own time, and by the time the check realization happens, it has a definite period of anything where it ranges from 15- 45 days, depending upon the geography, the location, and the type of transactions.
Yeah, I mean to say that builder finance only means wherever you are financing to the customer who has purchased this from the builder. Typically, this disbursement would be like 15%- 20% of the total disbursement.
It's about 5%- 10%, not more than that because we are there in self-construction individual house and primarily in tier three, tier five markets. This is not one of the builder supply-like kind of markets that we focus on.
Sorry, I just missed that number. You mean 5% to 10%, right?
Yeah.
Okay, that's it from my side. Thank you.
Yeah. Thanks, Ashutosh.
Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Thank you for taking my questions and good evening, sir. Sir, two things. Some of my questions could be a repetition because the line dropped a couple of times. Please excuse me in case it's a repetition. The first thing is just trying to understand from what you have reported in terms of yields, it looks like we have not done any PLR changes during the quarter. Just trying to understand in July and August, have we made any PLR changes?
We have not made any PLR changes in the quarter.
Got it. What's the thought process like now? I mean, will we also be reviewing sometime in the third quarter, as most of your peers have shared? Is that the same thought process we also have, that PLRs will be reviewed sometime in the third quarter?
Yeah. As you see, our cost of borrowing, we have seen a 22 basis point improvement. We want to see another one more quarter how the payout entire cost of borrowing. Accordingly, I think we will take, as you rightly said, somewhere second quarter and/or in third quarter, we will see how it is an overall transition of a reduction in interest rate by regular by RBI is paying out in overall cost of borrowing, overall lending profile base. Accordingly, we will decide at that point of time.
Got it, Ansham Ji. The only other question, Sachinder sir, that I had was on asset quality. It has already been discussed by a few participants earlier. What I'm trying to understand, sir, is we have always come across as an affordable housing franchise, which has the best collection infrastructure or collection franchise. Despite that, a 75 basis points deterioration in one plus DPD, if my memory serves me right, only during the second COVID wave did we see some such kind of deterioration. Beyond the seasonality, right, and you also shared that things are looking better. The one plus DPD number has declined below 4% in July. We've seen this kind of deterioration, which was more pronounced than just seasonality, in this quarter.
Can you share with us in this broader forum what is it that exactly led to this in your view, and what is now kind of leading to recovery? A lot of times we hear this is because of macroeconomy, a weak macro, right? Macros have not really improved in the last maybe one or two months. What is it that led to this? In your view, what is kind of leading to the recovery now?
See, on the part of one plus, when you're referring to the COVID, it had ranged beyond 7%- 8%. We never crossed 5% on our side as far as the one plus is concerned. As we speak, I already highlighted in the month of July, which I've gone and recorded to say that we've actually pulled back in one plus DPD levels have really shown normalization in July. There is a confidence in stability and resilience. That's point number one. Point number two, in some of the geographies which I have highlighted, our average, which is our home state, which is a bulk of our AUM, plus the northern states where one plus is below 4%, GNP is below 1% of this.
Some of the states which I earlier highlighted in the call, which is Maharashtra, some parts of MP, and a little bit of Karnataka, have really shown the spike. Some part was seasonal, and some part where we've actually pulled back on the credit side and really tightening our norms to the segment which we serve, actually. Specifically, if I were to talk about it, this is below in the less than INR 500,000 below segment, which we've seen the elevated levels.
Got it. Sir, just a follow-up there. In the state of Gujarat, particularly Surat or somewhere, we're not seeing anything unusual?
No, we're not seeing anything, any unusual or material deterioration as far as that is concerned, whether it is Surat or whether it is any of the locations in Gujarat. We are cognizant of the fact, and we are confident of really pulling it back as we trend in this quarter. Some of the green shoots, as already highlighted, are the one plus blowback which has happened. Quarter one typically seasonally actually had moved up. There are two or three factors which led to that. July is really the data, and our numbers really talk about what we've really put in and our efforts really fructifying into crystallizing the efforts and pulling it back.
As a credit first and as a risk first institution, we always believe quality over quantity. If you look at it from the perspective of these states, our sanction ratios will be way below the other home states and the states where we have functioned. We have tightened our credit bucket. We have tightened our qualifiers when it comes to the segments, the geographies, and the products. Got it, sir. Lastly, if I can ask, you shared that this is a one-time impact, and we understand something similar in Q1 of last year where RBI had come out with a circular, right, wherein we said that only after the check is handed over should we recognize disbursement. I'm glad this is one step forward now where we say only when the money gets credited to the customer's account is where we will show it as disbursement.
Just trying to understand on a rolling basis, while Q2, Q3 will be better, whatever we lost out in Q1, how will that be made up? Because whatever you maybe hand over in terms of checks in the month of February or March, they will eventually get encashed or credited only in April next year.
I think as you start building upon that KP of check, which is cut depending upon the transaction, there is a rollover period which starts moving across. It's not that the disbursement is lost. When we say that there's already a check, there's a transaction which has to be completed depending upon the type of transaction, as resale, as a builder purchase, as a part of those transactions, it takes its own time. Unlike the normal time, we would have been wary of the fact that there were no check cuts. If there were no disbursements, really on the level of check cuts not happening would have been a concerning fact. You build across a pipeline, and you build that pipeline, and the pipeline has a rollover impact coming across depending upon when it gets credited and when it gets realized in customer's account.
The quarter one had an impact, but quarter two, quarter three onwards, it will have a rolling impact which would be there. Aavas has always believed on governance and quality first, and I think this is a historic step to really go across and get this on a thick. It's a big change for the distribution for the teams and for us as well. We believe what is right from an institutional perspective, from a governance perspective, from a fair practice for a customer transparency, it's a bold step by Aavas as an institution.
Yes, sir. That's all from my side. Thank you very much for patiently answering my questions, and I wish you and your team the very best.
Thanks.
Thank you. The next question is from the line of Bhavesh Kanani from Svan Investments. Please go ahead. Yes, Mr. Bhavesh, go with the question, please.
Audible?
Yeah, yeah, Bhavesh.
Yeah. Yeah.
Sir, just curious on this realization impacting the disbursement. While we are using check as an instrument to disburse the money, any reason why we are not pushing out disbursement to, let's say, an EFT, IMPS route so that the credit is faster? The period that you mentioned, 10, 15 days before which the check is credited, that sounds unusually longer than one would expect. This is one. A second, more of a clarification. You mentioned that the one plus DPD sequential increase we have seen is already normalizing in July. Should we expect Q2 one plus DPD number to be flat year -on -year?
I'll answer your two questions. The first question is on the type of transaction. If you look at, I highlighted, when the transaction type is typically an MSME or a lab or a top-off, wherein the RTGS plays or where the construction is, their self-construction, the first disbursement tranche is happening, those are the ones which we go through as far as RTGS is concerned. The nature of transaction when it is a resale, and as you will appreciate, resale adds its own time between the buyer and the seller negotiating, the time when he gets a token for registration, all of that. It's a long-drawn process which really builds across when it comes to building the check, getting issued, getting realized. It is subject to the transaction really going through. That is the nature of the transaction of resale or in the case of fresh builder purchase.
These are the typical two transactions where you have to really hold on to the time. Certain geographies like Gujarat, Maharashtra, and other places like Karnataka were there where E-Kata and others had long-standing queues when it came to completing the transaction. Those are the very nature of the geographies and the nature of the places which you really operate in. Primarily, the type of transaction and the nature of the normal sub-register office really defines how much time it will take. The positive side, if you look at it, even with that, neither do we charge any interest to the customer, nor we realize that for another disbursement perspective. We are neutral on that, actually.
Got it.
The second question of yours on one-day DPD. One-day DPD July is lower than the last year Q2. I already highlighted that it is below 4%. With our efforts and understanding of risk and credit and part of, we are confident of rolling it back and being in a guided range of less than 5%.
I appreciate the confidence you have of rolling it back. I just want to get it specific that when we say roll back, are we confident of rolling it back to Q2 last year?
Yeah, that's what we, yeah. We said that we remain in the guided range of less than 5%. One of the green shoots clearly talked about the July numbers have gone across on record to tell the July numbers of already being there on record. That gives us a confidence on the part of our effort.
Sir, just a last one on the same point. When you explained the geographical perspective of where this one plus DPD deterioration is coming from, any common thread from borrowers' profile perspective, you know, which could have led to this sequential movement?
I think one thing which is clear cut spanning out is less than INR 500,000 if I were to look at in these geographies. That's not the case in the other geographies like Rajasthan, Haryana, Delhi, and UP, which I mentioned. These are the geographies in Maharashtra, MP, and Karnataka, so to say, which is less than INR 500,000, which we've seen the spike in elevated levels when it comes to the ticket size.
Any common thread on occupation type of the borrower, which may be more impacted than the others?
Nothing as specific which we really have been able to figure that out. It is actually less than INR 500,000 per segment, which is getting in smaller cities in that smaller ticket size, which is there.
Got it, sir. Wonderful. Thank you for the answers and wishing you best of the day.
Thanks, Ansham.
Thank you. The next question is from the line of Raghav from Ambit Capital. Please go ahead.
Greetings and thanks for the opportunity. I have two questions. One, I noticed that your employees per branch, that number has been going up since the last two quarters, which is leading to higher growth in employee expenses also. I wanted to understand what is your strategy in terms of branch staffing and why have you increased people at the branches since the last few quarters? That's my first question. My other question, in the same backdrop, how do you continue to deliver on office efficiency? Because now you're saying 80%, 20% AUM growth, but with probably a higher employee base. Those are my two questions. Thank you.
Sure. Thanks, Raghav. On your question of the employee increase, if you look at quarter four, we added the branches in the last quarter four that had an increase in our employee strength. Going forward, we will add new branches in Tamil Nadu as I spoke on the call. This front loading of the thing is not where we've already had the branches, so we had to put the manpower in place. It really aligns with our growth.
Sorry to interject you, but you know I have been looking at this trend of employees per branch, which is a simple calculation of employees divided by branches. Some quarters ago, that number used to be, say, 15, 16. Now it has come up to 18. Hence the question on employee status.
Unlike the earlier ten years, yeah, yeah, right, Raghav, I really appreciate your question. If you look at the, we never had the earlier types of digital fulfillment like CAC, E-Mitra, and the India Post Payments Bank. The CAC is the one which is a new type which is there and which has started giving us green shoots. That required, from a fulfillment perspective, the staff to be there to handle that channel and to engage and to get the business out of that channel. I think that's one part as far as digital channels are concerned, addition of the manpower. Secondly is on the branch side. These two cumulative added actually have increased the manpower, and we have not added manpower compared to, if you look at last two years, we never added manpower, Raghav.
If we continued the one, this is the time when the channel addition happened and the branch addition happened. Last two years, we've been into a transformation and transition phase. We've completed with that. Now with growth and expansion of the states and the geographies in place, that's going to be our focus areas.
Sir, understood. Coming back to the original question, while good to see that we're adding employees and we're adding channels, it is also resulting in a higher growth in the employee cost versus the AUM growth, which is basically the office efficiency management that we understand, right? I wanted to understand from that perspective also that we're guiding for AUM growth, but also with a higher employee base and probably higher employee cost.
Yeah. Raghav, we will really appreciate when you put across the branch. As a franchise, in the last two years, we were flat on the employee side. Once we've added the channels, we have added the branches, we've added the employees as a result of which, their conversions or their productivity doesn't set in in the first couple of months, right? I think we'll have to give the time for the channel as well as the branches to complete and increase the productivity rate. I look at it as an investment in our employee base, which we'll be able to monetize in the coming quarters. We are pretty confident on that. We continue our view of cost optimization, which we've actually continued to monitor across, saying that we'll try to be operationally efficient. This is the current investment which is there to support the business growth.
Thank you for that answer, Sachinder Ji. Thank you.
Thanks, Raghav.
Thank you. The next question is from the line of Harshit T from Premji Invest. Please go ahead.
Hello. Hi, sir. Am I audible?
Yeah.
Hi. Thanks a lot. Sir, I think I just had one question to understand it better, that there would be a point of time from which we would have changed the disbursement recognition, say somewhere in the start of the Q1 if I assume. Am I right in the assumption that our Q2 number will be higher than regular because there'll be some flow through from the Q1, end of the Q1 flows, and Q2 will remain the way it is? In that context, should we assume that if we, for example, look at the H1 disbursal post Q2 versus the H1 disbursal last year, then it will be a like-to-like comparison itself? Am I reading it right that it's just a Q1 disbursal shifting to Q2? That is the only impact of the change, and H1 versus H1 will be the same comparison?
Yeah, you are spot on, and you articulated it very well. The one which is rollover of quarter one will have an impact and a rolling positive impact on quarter two, and the real comparison would be H1 versus H1. Spot on on your value of evaluation and articulation of the quantum of the rollover.
I should say, sir, just on the July number, which you said 600 growth.
I said 600.
Right. That is having that advantage of some flow through from June.
Right, right.
Okay. Got it. The second, yeah, sorry.
As you rightly pointed out, there is some part of check cut. As I talked about, it takes somewhere between 15- 30 days and some transactions 30- 45 days. Some which got in the month of May got in June. Some part of the latter end of May got in the first week of July. The June really transformed and rolled back to the month of August. There is a rolling impact which really comes in.
Got it. I'm just trying to see that to clarify myself and why, which is, will it be like-to-like comparison or not is what I'm thinking because will it be or not is the one question. Second, sir, also to add to it, if you look at the industry, other players, I'm not asking names or et cetera, but are we the only one who are following this right now, or has the industry already shifted to a large extent? I'm not sure if some other player would have commented on this point, but just wanted to get your understanding.
We can't comment on the industry. I think everybody has their own way. As Aavas, we always believe in a best level of governance and fair practice when we deal with our customers. We discuss at a board level, and the board has also guided us. It's better to transit from check to real money when we put in the pocket of a customer on that day we did the disbursement as well as we charge the interest from that day.
Okay.
It has an immediate impact on the business. As Sachinder Ji, I think, mentioned, and I think one or two, three, four questions have come on this topic, and I think we tried from our side to answer that question. It has impacted our business in this quarter. After it created an opening buffer, it keeps rolling buffer will help us to maintain our business in quarter over quarter every.
Got it. Sir, one final thing, sorry, if I may ask, just one last question. That our employee per branch of 18, to Raghav's question, there is a slight increase, but I'm saying that if I compare it to any other peer, that number is around 11, 12 at best. I think even for the peers also, that 11, 12 number is, I'm saying, is that the highest one. Why would it be that? I'm just trying to understand, is there a rationalization program or what could be the reasons that our employee per branch is so high to that extent?
If you look at it, ours is a direct distribution model. The majority is direct distribution. In the direct distribution model, the employee on roles would be higher than what typically intermediate-led or channel-led kind of distribution would happen. That's a primary difference when you compare to the cohort which you are really comparing with. This has a positive impact if you look at it from a perspective of two things I would really highlight: the quality which we demonstrate over a period of the last 13 years, and second is on our BT out. Because it's direct source, the control of the customer does is much more pronounced with us. As a result of which, our BT out percentage is the lowest at 4.9%. I think somewhere.
Sir, I'm just looking at the calculated repayment rate, sir. If I just do a basic calculation, then that 16, 17% of annualized run rate repayment rate is something which is very similar across all players. I'm just trying to differentiate. I'm not sure within that repayment, obviously, it will be some BT out, some regular payments. I'm just trying to understand that, and even if you look at the other peers, the intermediate channel would be a part, but direct would be a larger part of the sourcing is what our understanding was there. I'm just trying to understand that from your perspective, is this 18 just a matter of the business model, or there is more to do with it and more related to efficiency which we have room to improve in that case?
I think there are two points. One point is on the BT out. If you compare it with the cohort which is there, I think, and you would really have the numbers, and I can really tell you with confidence that we would be the lowest at 4.9% of the BT out. Secondly, from a perspective of the referring about 18% of that, that's a function of how much is the part prepayment and those really happening fast. The comparison is the normal rundown, which is on the tenure. Second is the part prepayment, and third is the BT out. That component, which we are very watchful and we are mindful of, is the lowest, which is at 4.9%. As you really build the digital channels, others which are direct source, but sourced to a what requires manpower and requires a field force really to complete that.
Certain part of it really starts investing earlier than finally giving you that productivity.
Got it. Fair point, sir. Thanks a lot for your time.
Thanks.
Thank you. The next question is from the line of Sanket Chheda from DAM Capital. Please go ahead.
Yeah, I saw just two earlier on the previous question that this Q1 disbursement was weaker than last Q1. If you put together the first draft for last year and this year, you mentioned that it would be similar. Is that right?
What is a similar?
What's similar? Sanket, come again.
First quarter disbursement is slightly lower than last year, first quarter. As Harshit highlighted, maybe if you include Q2, then first half of this year will be similar to first half of last year in terms of disbursement to which we're aware.
No, no, we talked about that comparable ones will come across where you have the rollover of the first quarter coming to quarter two. We've not told that H1 will be equivalent to H1 of the last year, if that is the impression which you are holding. H1 to H1 will be higher. We've gone out and told about the July to July comparison which was there. I went on INR 550- INR 600 crore disbursement which is held, which is 16% compared to the previous July, actually, if you were to really look at it.
Yeah.
Okay. This July, the disbursement has grown 16% over last July.
We are confident because of this rollover and others in July, August, September. We are confident of a growth which is in the range of double-digit growth.
Okay. The full-year loanable guidance you relate to would be 18%- 20%. The similar on that, we should assume on the disbursement?
Yeah. See, we have guided the AUM growth, and we are confident with our kind of efforts in quarter two really giving us a good upside. We will continue to be in the range of 18%- 20% on the AUM side.
Okay. Is this for this year or maybe going ahead also, is this the new normalized level of growth guidance that you would carry?
I think once we stabilize, see, if you look at the quarter one, quarter one really cover-up doesn't happen as you really would appreciate. As we cut into the next financial year, we come back to our high guidance of between 20%- 25% once this everything settles down. I think if you look at it last couple of years, the tech transformation, the transition, and this bold step of doing what is right from a fair practice code and customer transparency, all that settling down, that impact would get finally over in the current financial year. In the next financial year, we will look at 20%- 25% of AUM growth.
Got it. Lastly, last year went into, say, the tech upgradation, and we did expect some operating efficiency to kick in, maybe going ahead. Do you see that coming anytime soon in this year? If yes, how much of OpEx benefit that we should assume, maybe this year or next year?
I think we continuously focus and guide across getting the tech transformation and something which we've done over a period of time. You look at the three clear-cut demonstrable ones where the TAT, which has come down from 13 days to 6 days, are normal. Had this tech transformation not been there, doing this online disbursement, realization disbursement would never have been possible for us. I think that is a move forward which is helping us to do what we are doing at this period of time because of the underlying tech which is available to us, giving us good governance, compliance, and customer transparency for our transitioning. With everything done and dusted with us from a tech transformation perspective, from a perspective of transition, we are there to really get that growth coming back and going ahead.
We are doing whatever is required from a cost optimization perspective, as we start seeing that green shoots really coming across, we will continue to guide that. We will work across towards the cost optimization bill, which is led by technology, keeping risk and quality intact.
Sure, that was helpful.
Thanks, Ankit.
Thank you. Ladies and gentlemen, as far as the last question for the read, I will now hand the contents over to the management for the closing comments. Over to you, sir.
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. 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 time ahead. God bless.
Thank you. On behalf of Aavas Financiers Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.