Ladies and gentlemen, good day and welcome to the Q1 FY25 Earnings Conference Call of Aditya Birla Capital Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need any assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Vishakha Mulye, CEO, Aditya Birla Capital Limited. Over to you, ma'am.
Thank you so much. Good evening, everyone, and welcome to the Earnings Call of Aditya Birla Capital for Q1 FY 2025. Joining me today are my senior members of my team, Bala, Rakesh, Tushar, Pankaj, Kamlesh, Mayank, Pinky, Vijay, Ramesh, and Sanchita. I will cover our strategy and business performance, and Vijay will cover our key financial highlights, followed by a discussion on performance of our key businesses by our business CEOs. The Indian economy continues to remain resilient, showing a strong fundamentals, financial stability and growth momentum even in an unsettled global environment. The real GDP growth rate was 8.2% in FY 2024, and various factors such as improving productivity, technological development, and conducive policy environment provide a bright prospect for the Indian economy.
In the recent union budget, the government has announced various measures towards affordable housing, MSMEs, and digital public infrastructure, which will give further boost to the economy. At Aditya Birla Capital, we continue to focus on driving quality and profitability growth by leveraging data, digital and technology. Our unwavering commitment to customer centricity is a key element underpinning our strategy to grow our businesses. As I mentioned earlier, prudent risk management practices form the bedrock of our approach, which has enabled us to pursue growth, protect capital and deliver risk-calibrated and sustainable returns across our businesses. We continue to strengthen our omni-channel architecture. Coming to the performance highlights of our quarter, this quarter. First, growth and profitability. Consolidated profit after tax, excluding one-off item, grew by 15% year-on-year to INR 745 crore this quarter.
The total consolidated revenue grew by 26% year-on-year to INR 10,258 crore. Our NBFC portfolio grew by 25% year-on-year. We continue to remain focused on SME segment, and our business loans to SMEs grew by 39% year-on-year and 3% sequentially. As we have highlighted in our previous earnings calls, we have been calibrating our approach towards sourcing of our personal loan from digital partners over the past few quarters. As a result, we have seen a decline in our personal loan portfolio. However, we are focused on increasing our sourcing from direct channels, including our newly launched ABCD app. We expect the growth in the personal, personal loans to normalize and pick up in the quarters to come. The profit after tax for NBFC business grew by 20% year-on-year to INR 621 crore.
The ROA and ROE remains stable at 2.41% and 16.13% respectively. In our HFC business, we have built significant capacity over the past few quarters by making investments in digital properties, technology, people, and distribution. This has resulted in a robust growth of 31% year-on-year in our loan portfolio and the increase in our market share. The demand for housing continues to remain strong, and the recent announcement measures by government, such as expansion in PMAY and investment in affordable housing, will create an ample opportunity in our housing sector. We believe the investments made by us over the last year will enable us to capture these opportunities as we go forward. Our mutual fund average AUM grew by 19% year-on-year and crossed a mark of INR 3.5 trillion.
Monthly SIP flows increased by 39% year-on-year to INR 1,367 crore in the month of June. We have strengthened our investment and sales team. During the quarter, we successfully completed our NFO Quant Fund by raising more than INR 2,400 crore. It is currently the largest scheme in the Quant Fund category in the industry. The individual first year premium in our life insurance business grew by 19% year-on-year, which is a shade lower compared to the industry growth, mainly due to the muted growth that we have seen with one of our banca partners. However, our premium growth across proprietary channels remained robust at 33% year-on-year. With a new banca relationship going live, we expect the growth in banca channels to increase going forward. This will give boost to our overall premium growth as we go forward.
We will continue to make investments in our proprietary channels and diversify our distribution mix. We remain in the top quartile in terms of our 13th and 61st month persistency among the private players. The new surrender guidelines announced by IRDAI are likely to make life insurance products simpler, more transparent and attractive to the prospective customers, and it is expected to have a limited impact on the insurers with the high persistency levels. In our health insurance business, we saw a robust growth at 35% year-on-year in the gross written premium by our Health First and data-based approach. The retail premium grew by more than 50% year-on-year. Our market share in the private has increased by around 25 basis points sequentially, and about 90 basis points year-on-year, to 12.5% in the current quarter.
Number two is the prudent risk management with a focus on return of capital. Our prudent risk management practices have enabled us to pursue growth while protecting our capital. Proactive interventions and tightened underwriting norms made over the past few quarters to improve our customer collection have held us in good stead in this environment. The Gross Stage 2 and Stage 3 ratio for NBFC portfolio improved by 100 basis points year-on-year and 4 basis points sequentially to 4.45%. Our total credit cost in NBFC business was 1.43% in the current quarter, which is well within our stated guidance of 1.5%.
The credit quality in our HF business remains robust, with the gross Stage two and three ratio improving by 214 basis points year-on-year and 27 basis points sequentially to 2.64%. Talking about our omni-channel architecture for distribution. Our omni-channel architecture allows customers to choose the channel of their choice and interact with us seamlessly across our digital platforms, branches, BRMs, and fostering engagement and loyalty. During the quarter, we commercially launched our B2C platform, ABCD, which offers a comprehensive portfolio of more than 20 products and services such as payments, loans, insurance, and investments. Its unique feature, MyTrack, helps users to track their personal finance, credit history, and health. It helps customers to fulfill their financial needs and serves as an acquisition engine for us. We witnessed a strong response with about 800,000 registrations till date.
Our comprehensive B2B platform for MSME ecosystem, Udyog Plus, which was launched about a year ago, continue to scale up quite well. We now have 10 lakh registrations. We are also seeing an increase in adoption for, from our existing customer as well, and as a result, the total portfolio of Udyog Plus today crossed around INR 2,600 crore. We are seeing an uptake in the cross-sell of various products such as life insurance, health insurance, wellness solutions through our Udyog Plus platform. We have further enhanced our integration with ABG ecosystem to provide credit and supply chain financing solutions to cab dealers and vendors. While we continue to strengthen our digital offering, we are also expanding our branch network to continue to cover the white spaces.
Our overall branch count increased by 31 during the quarter, and we now have around 1,505 branches across our businesses at the end of June. In line with our one ABC approach, we continue to expand our co-located branches, which increased by 29 during the quarter to 825 branches across two hundred and twenty-one, 231 locations. Our board of directors have approved an amalgamation of Aditya Birla Finance with Aditya Birla Capital in March, subject to the regulatory and other approvals. We are happy to share that the proposed amalgamation has received no adverse observations from BSE and no objections from NSE, and we are now awaiting other approvals. In July, Aditya Birla Capital received an approval from IRDAI for sale of its stake of 50% in ABIBL.
The enterprise value of ABIBL, as per the transaction, is INR 455 crore. The transaction is expected to be completed in Q2 of FY 2025. Going forward, we will continue with our approach of driving quality and profitable growth. Now I request Vijay to briefly cover the financial performance of our key subsidiaries for the quarter. Over to you, Vijay.
Thank you, Vishakha, and good evening to all of you. The total consolidated revenue grew by 26% year-on-year to INR 10,238 crore during the quarter. Consolidated profit after tax, excluding one-off items, grew by 15% year-on-year to INR 745 crore. As Vishakha mentioned, in our NBFC business, the total loan portfolio grew by 25% year-on-year to INR 107,306 crore as of June end. The NBFC business had a healthy ROE of 2.41% and delivered an ROE of 16.13% in Q1 FY 2025. Our housing finance business continues to see very strong momentum. The loan portfolio grew by more than 40% year-on-year to INR 20,399 crore as of June end.
Our ROA was 1.44% in Q1 FY 2025. During Q1 2025, we infused equity capital amounting to INR 300 crore in our HFC subsidiary to support the growth momentum and maximize our share of opportunities. Coming to our AMC business, the average AUM increased by 6% sequentially and 19% year-on-year to INR 352,542 crore in the current quarter, of which, equity AUM expanded to 46%. In the life insurance business, our first year premium increased by 19% year-on-year, and group business premium grew by 41% year-on-year in Q1. The year-on-year growth in total premium was 28%....
In our health business, in our health insurance business, our unique and differentiated health first model helps us to deliver a growth of 35% year-on-year in gross written premium during Q1 of FY 2025. This is an industry-leading growth. The combined ratio improved from 118% in Q1 of last year to 112% in the current quarter. I'll now hand over to Rakesh Singh, MD & CEO, ABFL, to discuss the NBFC business performance in detail. Over to you, Rakesh.
Thanks, Vijay, and good evening, everyone. In our NBFC business, we saw a 25% year-on-year and 2% sequential growth in our AUM, taking it to INR 1,07,306 crore in quarter 1. We continue to focus on SME segment, where business loans to SMEs grew at a market leading rate of 39% year-on-year.
This segment now comprises 54% of our overall portfolio. A large share of growth in this segment has come from secured loans, which grew by 43% year-on-year. Our disbursements in quarter one was at INR 13,443 crore, with secured business loans to SMEs contributing 41%. More than 60% of our sourcing in business loans is done through direct channels, and we foresee this to inch upwards with continued scale-up on our B2B platform for MSME Udyog Plus. I'm happy to share that we now have more than 10 lakh MSMEs registered on this platform. As we have highlighted in our previous calls, we have taken several steps to calibrate sourcing from digital partners in the smaller ticket size segment.
We are in the process of scaling up our direct sourcing model, and I'm confident that the growth in this segment will pick up in the next few quarters. As Vishakha highlighted, we follow prudent risk management practices with emphasis on protecting our capital. We have tightened our scorecards and credit filters to improve the customer selections over the past few quarters. This approach has helped us in good stead in the current quarter. Our credit cost has remained stable at 1.43%, which is well within our stated guidance of 1.5%. Our asset quality has shown consistent improvement, with stage two and stage three books reducing by 101 basis points year-on-year and 4 basis points quarter-on-quarter to 4.45%.
The gross stage three loans also declined by 28 basis points year-on-year and remain stable sequentially at 2.54%. We have maintained our stage three PCR at merely 50%, which is higher by 289 basis points over quarter one of last year. Our banks registered a strong growth of 20% year-on-year and 6% quarter-on-quarter to INR 621 crores. The ROA for the quarter was 2.41. The return on equity for the quarter expanded by 28 basis points to 16.13. Our net interest margin was at 6.56, and cost to income ratio stood at 29.74%. Our tier one capital adequacy ratio stood at 14.48 and has improved by 35 basis points quarter-on-quarter.
Moving forward, our focus will be on developing a granular portfolio and increasing the mix of business loans to MSMEs. This will be supported by the scale-up of our Udyog Plus B2B platform, with new product offerings and increased investment in distribution across emerging regions being the driving growth. In the personal and consumer loan segment, our strategy will shift towards acquiring customers through platform-based approaches via our branches, ABG ecosystem, and the newly launched ABCD app. All digital customer acquisition processes on the app and Udyog Plus are designed for end-to-end control, covering everything from underwriting to collection, ensuring complete customer ownership. As we have mentioned in our previous earnings calls, we remain confident to grow the overall portfolio at a compounded annual growth of 25% over the next 2-3 years.
As we scale up, strengthen our capabilities, and invest in technology, our primary commitment remains to deliver sustainable returns in the upcoming quarter. With that, I will now hand over to Pankaj Gadgil, MD and CEO of Housing Finance Business.
Thank you, Rakesh, and good evening, everyone. I now present ABHFL's performance for Q1 FY 2025. I'm pleased to report that we've achieved highest ever disbursement and book growth in a single quarter since our introduction. GNPA has reduced both in absolute and percentage terms. It is now at its lowest level in the past twelve quarters. This underscores a consistent improvement in book growth and asset quality over the past three quarters. The highlights for Q1 FY 2024 are as follows: We recorded highest ever quarterly disbursement of INR 3,016 crores, which is an increase of 89% YOY and 5% QOQ. We've surpassed the twenty thousand crores mark in AUM, with a total of INR 20,399 crores as of June 2024, an increase of 41% YOY and 11% QOQ.
Our customer base now stands at 69,700 and has grown by 23% YOY, with a focus of maintaining granularity. The average ticket size is at INR 29 lakhs. Interest income to average on book is 4.8%, and our PBT for the quarter is INR 35 crore. Asset quality has improved, with stage three reducing to 1.6%, a reduction of 107 basis points year-on-year, and 22 basis points QOQ. We maintain a stage three PCR of 34.6%. ROA for the quarter is 1.44%, and ROE is at 11.04%. Going forward, we further continue to focus on accelerating book growth and strengthening asset quality, which will result in better operating leverage with improvement in the ROA over the next few quarters.
For more detailed financial information, please refer to slide 26 of the presentation. I would like to provide a brief update on the pillars of our group. Firstly, on portfolio quality, with an emphasis on quality at origination, 99% of our retail disbursements in Q1 FY 2025 are towards 700+ CIBIL or above credit. The contribution of 730+ CIBIL to origination is at 78%, which is significantly higher than the industry average of 14%. On our second pillar, distribution, sales CRM has facilitated last mile signing within 48 hours of the start of the month, using promising results with a 26% year-on-year increase in productivity. Also, I'm very happy to share that 10.5% of retail disbursements are generated from the ABG ecosystem in Q1 FY 2025. Moving on to the third pillar, digital reinvention.
We've achieved 100% adoption of unified digital lending platform, FinnOne, covering all stages right from prospecting to disbursement. This quarter, we also introduced a do-it-yourself customer onboarding journey for home loans up to INR 3 crore via WhatsApp, making us one of the first HFIs to offer this option. Lastly, on the fourth pillar, data and analytics, we have successfully deployed 10 data marts and developed 18 modules till date, spanning across the customer journey from demand generation to collection. The adoption of our initial models covering acquisition, fee delinquency management, and lead scoring is encouraging and aligned with our overall strategy. In summary, we remain committed to long-term growth and profitability while maintaining robust portfolio quality and a strong focus on customer centricity. Thank you for your attention. With that, I now hand over to Bala, MD and CEO of our asset management company.
Thank you, Pankaj. With respect to the quarter ending Q1 FY25 ABC business, overall average assets under management, including alternate assets, reached INR 368,000 crore, reflecting 19% year-on-year growth. Our managed quarterly average assets reached INR 320,000 crore, with equity quarterly average AUM moving to INR 106,000 crore. AUM numbers in the quarter crossed 1,300 mark, showing a 39% year-on-year increase from 987 crore in June 2023 to 1,367 crore in June 2024. We added around 8.39 lakh new SIPs, nearly three times increase from the previous year. We have witnessed a healthy growth in our mutual portfolio and added around 9 lakh new portfolios in the quarter, bringing our total service portfolio to 94 lakh.
Our quarterly portfolio growth was 9% compared to industry growth of 7%. In the alternate segment, PMS and AIF remains our key focus. We have strengthened our team and appointed a head of fixed income credit and aim to offer a variety of products, including Category three and Category two and Category three alternative investment, investment funds. Currently in our review for ABSL India Special Opportunities Fund, and we also have several products in the pipeline to be launched. Establishing our presence in GIFT City, we aim to manage and attract both investors into India, to meet growing needs of foreign investors. We are using GIFT City to launch a variety of innovative financial products, including sustainability, index linked funds, and thematic funds. And these products are designed to meet the evolving preferences of global investors and tap in this market.
We already launched funds like ABSL Global Emerging Market Equity Fund, ABSL Index Linked Fund, and ABSL India Opportunity Fund. We're also preparing to launch these funds, which will be including ABSL, fund, which is ESG Engagement Fund, and flexible fund, and global fund for inward remittance to India from NRI. On the passive front, as of June 2024, our passive assets total to approximately INR 29-900 crores. Our customer base has particularly grown to over 7.53 lakh portfolios, and our diverse product portfolios ownership over 44 products. We are focused on driving growth in the passive segment and enhance our core team by bringing in head of passive from abroad, because we have a rich experience in managing passive funds.
We're also looking at expanding our product offering to capture the opportunities in the thematic segment as well, where we have deep fund launches. Moving on to the financials, we at ABSL AMC have achieved our highest ever quarterly profitability in Q1 FY25. It is driven by an improvement in the overall asset mix and strong focus on cost management. Our total revenue is INR 481 crores versus INR 381 crores, grew by 24% year- on- year. Our profit after tax is at INR 232 crores and INR 183 crores over the last quarter-- last year, last year's same quarter, up by 26%. With this, I now hand over to Kamlesh Rao, MD and CEO of Aditya Birla Sun Life Insurance Company.
Thank you, Bala, and I'll spend the next few minutes on the performance of the life insurance business. The overall life insurance industry saw robust growth in Q1 of financial year 2025. Individual first year premium grew for the overall industry by 20%, and for the private players by 24%. As Vishakha mentioned, the individual SIP growth of ABSLI was 19% for this quarter.
... So for ABSLI, the proprietary channel saw robust growth of 33% on the back of both increased capacity as well as productivity improvement. Our direct business grew by over 100% over last year. The bancassurance channels registered a growth of 11%. Axis Bank has commenced sourcing for us in the month of July, and as it scales up, along with our other new tie-ups of IDFC First Bank and Bank of Maharashtra, we expect a higher growth in the bancassurance channels in quarter two. In the group life insurance business, the private industry grew by 7%. Overall industry grew by 25%, and ABSLI registered a growth rate of 41%. Better growth was contributed by superior performance, both in the fund as well as the credit life business.
We continue to remain number one in the ULIP AUM, ULIP AUM in the industry at an AUM size of more than INR 10,000 crore. Our total premium for the quarter of INR 3,986 crore has registered a growth rate of 28% over last year's same period, demonstrating our increasing business growth. This growth came from new business growth as well as renewal premium growing at 17%. Our digital collections now account for 78% of our renewal premium. We continue to work on customer lifetime value, which is reflected in our upsell ratio, which touched 32% and helped productivity growth in both proprietary as well as partnership channels. In the product mix of the individual business, traditional business, including protection, contributed 70% and ULIP was 30%.
The current quarter, in continuation of last year last quarter, has seen an uptick in the sale of ULIP business across the industry on account of buoyant equity markets. We expect our ULIP mix to remain on the same lines as this trend continues. We will continue to recalibrate our mix in line with the demand and our extensive product suite to cater to best interest of our customers. The reduction in G-Sec rates and higher ULIP mix has led to net VNB margins of 6.5% of this quarter versus 11.8% last year. The reforms in the product regulation brought about by IRDAI are a welcome step for the life insurance industry. Like Vishakha mentioned, will make life insurance products simpler and more transparent, as well as promote life insurance to new customers.
Based on these regulations, we may see an impact on margins generated in our traditional products. Possible mitigants for this impact include realigning commission structure, relooking at the channel mix, and reevaluating the product constructs. We will ensure that the measures we undertake will be in the best interest of our customers. We continue to maintain our guidance on the net VNB margins for the end of the year to be in the range of 18%-20%. Our quality parameters now trend better than last year across various areas. Persistency across all buckets did well, with 13th month at 88% and 61st month at 66%, which will make us top quartile in the industry. Our consistent efforts on bringing cost efficiency into the business has resulted in OpEx to premium ratio to 19.9% versus 20.9% last year.
Our assets under management now stand at INR 90,682 crore, with a YOY growth of 22%. 25% of this AUM is in equity and balance 75% is in debt. We continue to outperform in our investment performance in respective benchmarks across all three categories of equity, debt, or even balance funds, either from a 1-year or a 5-year perspective. Our digital adoption across various areas is demonstrated in slide 42. 100% of our new business customers are onboarded digitally now. 83% of our services are now available digitally, covering 67% of our customer transactions, and our customer self-service ratio now stands at 93%. As we move ahead, we will continue to invest in class in our digital infrastructure across prospecting and onboarding in sales, underwriting, and customer service, as well as claims.
With this, I'll hand over to Mayank, MD&CEO of the Health Insurance Company for health company details.
Thanks, Kamlesh, and let me now share an overview of the performance of our health insurance business. We had a very strong first quarter. We continue to build on the momentum that we saw in the second half of the previous financial year. In Q1 of this financial year, we achieved a gross premium of INR 1,041 crore, marking a robust 35% YOY growth. The strong standout again, SAHI, 25% YOY, and it is green core submission has passed inside that consistently over the last many years. Growth continues to be driven by robust performance in our retail franchise, which experienced a YOY growth of 51%. The retail growth continues to be diversified across various retail distribution channels. The proprietary channel, with an agent base of 1.2 lakh agents, registered a 41% YOY growth.
In addition, all our other major banks and digital line partnerships also experienced impressive growth, as has been given in the presentation. Our market share in SI in Q1 rose from 11.6% to 12.5%, a year-over-year increase of 92 basis points. Our strategic focus on diversifying our product portfolio led to the launch of Activ One in FY 2024, probably the most comprehensive indemnity product in the industry today. The product position as a theme of 100% health and 100% health insurance continues to be exceptionally well received by the market, helping us penetrate into newer customer segments, including the HNI segment and also segment comprising of people with existing chronic conditions. With an emphasis on product mix, our retail fixed benefit product contribution on an enlarged retail base is now at 20% compared to 16% previous year.
This will lead to positive impact on future profitability. The corporate business experience has uniquely controlled 20% YOY growth, driven by a sharp focus on profitability through careful customer segmentation, sell upsell strategies, corporate wellness initiatives, and our industry-leading outpatient business. We're strategically concentrating on the mid, corporate, and SME segments to continue to build one of the very few sustainable and profitable corporate and affinity business in the industry. By prioritizing both growth and profitability, we are building a resilient franchise. Our net loss compared to, improved to INR 51 crore in Q1 compared to INR 62 crore in the same period last year. The combined ratio also improved 112% from 118% in the previous year.
Given all the efforts that we have taken over the last 24 months, both our claims and expense ratios have trended positively at the company level, and we continue to maintain a very positive outlook, especially in the retail business, which is an important part of what we create value in the business. We continue to project strong growth in FY 25, coupled with consistent improvement in profitability towards the combined ratio of 1% in FY 26, as we had guided earlier. Our health first model continues to show signs of maturity, and outcomes of some of the intervening cohorts are now very visible. We're now able to scale up patient-centric preference, providing us valuable insights into consumer health. The consumers who are engaging with us on their health are now exhibiting lower loss ratios, ranging from 10% to 35% at various cohorts.
Likewise, consumers earning health returns experience loss ratios of up to 30% lower than the baseline case, which is shown in slide 52. Our effort now is to increase the engagement with a larger cohort of our customers. Similarly, we've invested in building deep capabilities in managing customers with a high health risk through a combination of first-of-its-kind product offerings and even through digital capacities to manage the disease burden of these customers. The customer engagement capabilities and insights are disclosed on slide 52. Through a combination of our in-house health coaches and our partners, we intervened in more than 100,000 high-risk lives to improve their health vitals, leading to a lower claims ratio. Our promise of insurance is centered on providing industry-leading experience, and by investment in state-of-the-art AI, ML, driven claims adjudication engine, we've witnessed encouraging results so far.
This will further enhance customer satisfaction and manage claims costs more effectively. We continue to invest in several key projects, leveraging data and analytics, focused on revenue enhancement, claims management, fraud management, and improving customer experience. They are in various stages of implementation and are shown in slide 57. Our multi-leading Activ Health app has been relaunched with 15+ premium services. The app now provides the opportunity to non-policyholders also to experience our comprehensive app ecosystem. The app downloads have increased by 131% year-over-year, and AUM has also increased by 70% year-over-year. Overall, and as we look ahead, we remain positive on the growth opportunities in the sector, also enabled by the multiple regulatory changes made over the last couple of years. Thank you, and I will now hand it back to Vishakha for a few conclusion.
Thank you, everybody, for joining us today evening, and we are very happy to take if there are any questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove 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 will wait for a moment while the question queue assembles. The first question is from the line of Chintan Shah from ICICI Securities. Please go ahead.
Hello. Yeah, ma'am, thank you for the opportunity and, congratulations on the quarter. So the first, ma'am, I had a question on the merger. So currently, what all approvals are pending, and, how much time do we anticipate? I think by March 2025, we expect the merger to be over. So, are we through with the timeline? And, secondly, related to the merger only, we have around 45% stake in AMC and around 36% stake in health insurance and 51% in Sun Life Insurance. So, any thoughts on, whether, the regulator or whether the RBI would be comfortable, with our main NBFC lending arm, having, almost 50/50% stake in other subsidiaries?
Usually, we have seen in case of some banks wherein RBI restrict the stake in insurance to 20%. So what are our thoughts on that? Yeah.
Okay. So first is on the status. As we said, we have already got an in-principle approval from both BSE and NSE, which is the first step. Going forward, now, first, we need to get no objection from RBI. After we get the no objection from RBI, our registered office is in Gujarat, so we will have to file the merger proposal in the NCLT of Gujarat, which is at Ahmedabad. And then, of course, as you know, that there is a process which the NCLT will go through. My expectation is, since this is the merger of our 100% subsidiary into ABC, typically the time required is shorter than the normal merger.
The second is both the companies have their registered office in Gujarat, so that makes it little more simpler, because both of them will be applying to the Ahmedabad NCLT. As you rightly said, our endeavor would be to complete the process by March 31st, 2025. And we will keep you informed about the progress in every quarter. So that's the first on the status on the merger. Talking about the specific approval, I don't want to preempt and really comment on how RBI will look at it. The only thing I would say is that regulation does not prohibit NBFCs to hold the percentages that we are holding today in the companies that you mentioned.
In case of banks, you know, typically, you know, there is a Banking Regulation Act, which prohibits the banks to hold in any company, with more than 30%. It can either be a subsidiary or the, you know, the, what you hold in any company has to be less than 30%. So that's the act, and therefore, whatever that you spoke about is applicable to the banks and not necessarily to NBFC. In our case, of course, in case of, as we had mentioned before, in case of insurance, we are allowed to hold, you know, more than 50% with a specific approval from the Reserve Bank of India. There is no prohibition. And in our board proposal, we have asked for that specific approval.
So again, we are very hopeful, and we have no reason to believe that, you know, they will have any objection to what we have made an application for. But again, we will keep you informed about the, you know, the progress on that front as well.
Sure, ma'am. That is actually very, quite helpful. Now, specifically on the NBFC business, so if you look at the growth in the NBFC business, it was around 2% QOQ, and still we are guiding for around 25% YY stagger over the next two, three years. So how do we look at it? What would be the main driver? Since we—if we look at the AUM mix, it seems that we are defocusing or we are growing slowly on the unsecured piece, and that is also high yield. So given that the margins also have given up quite a bit in the current quarter, so is that due to the unsecured mix change, and will that continue, or are we again going to build the unsecured mix?
Yeah, that's it.
So, if you look at, we have grown 25% year-on-year. Yes, sequentially, it is 2%, but that's a calibrated growth, which we had taken sometime in quarter three of last year. The small ticket unsecured loan, where the risk rates had gone up and also RBI had concern on this segment, and that's the reason we had recalibrated growth. And if you see in the last two, three quarters, we have dialed this segment down. But we, as we have committed, we continue to be very, very positive in terms of growing 25%+ year-on-year, with the focus, clear focus on SME segment, which we will continue to grow.
So if you look at our secured business has grown by 43% year-on-year, and in SME segment, if you look at, that's grown 29% year-on-year. And also, with the recalibration, which has already been done in the personal and consumer, and we have really built our direct sourcing channels, and I spoke that in the initial comments, that the branches which we are setting it up, the direct open market acquisition units, which we have built, the ABCD app, which we have launched, all of this will help us to grow our personal and consumer business. So yes, it's a recalibration in the last couple of quarters, but we expect this to grow and with the clear direct acquisition models which I spoke about.
Also, on the unsecured business also, we are very, very positive in terms of growth on the unsecured business, and that should help us in terms of mitigating the margin compression, which, you mentioned. Yes, the margins have, compressed because of the change in the product mix, but as we grow our unsecured, business and scale up our direct sourcing channel for personal and consumer, we should be able to manage our margins.
So that is quite helpful. So, sir, for FY 2024, we had a margin of 6.9. So, do we expect margins to stabilize around similar levels for 2025, or there will be some compression in the mix?
So it should be around these levels, is what we see, in this year. Yeah, in the next few quarters, it will be in this range as well.
Sure. This is quite helpful, and all the best for the future quarters. Thank you.
Thank you. Thank you.
Thank you. The next question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Hi. Thanks for the opportunity. Two questions. The first one is again on NBFC. Now, as you have some sort of a recalibrated growth, both in unsecured business and unsecured personal and consumer loans. Now, if you can just provide some color, I mean, how, I mean, post this recalibration or your change of strategy, more focus on there, how the growth, in terms of AUM growth in these two, unsecured business and unsecured personal, is going to look? And in this kind of a recalibration or running down some past books, how is this sort of, you know, delinquency or GS3, trajectory going? I mean, is this numbers what we are seeing, particularly, the GS3 numbers in these two segments, kind of peak or still, I mean-...
As a sort of a, till the time the growth comes back, the full throttle, it will kind of inch up further. So that is the first question on NBFC. I will come back with a licensed question later.
The first question was on the growth of these two segments, which is the personal consumer and unsecured business. In terms of, as I mentioned, we continue to be very bullish on both these segments. So personal consumer, we have built direct sourcing channels, and our focus will be completely dependent on acquiring customers directly rather than third party, third party. That's the reason why we, the recalibration we see, we are seeing in quarter one also. We have seen that our direct sourcing channels have started delivering. Our branches, which we have invested over the last couple of years, have started delivering results. So we see. And also last quarter we have launched ABCD app.
Initial, initial response is pretty good, and we are seeing conversion, especially on the consumer and personal loans, the conversion is pretty good. So these, platforms and these engines will fire up for us, in the personal and consumer segment. As per, if you see unsecured business, segment, as we have mentioned, this is our chosen segment. MSME is our chosen segment, and we continue to build, investment and platform for this segment. We launched, last year, B2B platform with Udyog Plus, and we have already seen almost 10.5 lakh MSMEs registered on this platform. The new customers are being onboarded on this platform, and on this platform, there is a complete seamless digital journey which we have built. Also, existing customers are adopting, to this platform and migrating on this platform.
So we again see that unsecured business segment will grow quite smartly for us in the coming quarters. In quarter one, there was also because of supply chain, which is more seasonal in nature, there was some repayments, large repayments. That's the reason you, you see some degrowth, larger repayments. But in the coming quarters, we look at very positive growth on this segment. In terms of the quality stage three, which you mentioned about personal and personal consumer and unsecured segment, both if you look at this is primarily because of the degrowth in the denominator. In terms of the normal flow, and we, we track it on a month-on-month basis and quarterly basis, the normal flow is quite stable.
So we don't see it solely in the percentage term, you see it's slightly higher stage three, but it's quite normal, what you're seeing in terms of a quarterly flow.
Okay. Okay, so I mean, you are saying that growth will sort of sequentially will start from this quarter in both the segments?
Yeah.
Okay. Coming on life insurance now in quarter one, if you were to look at the margins, of course, the margins have dipped quite a bit, could be due to maybe product mix changes some bit and also some bit due to the, you know, maybe relatively growth kind of coming under pressure in some banca channel. Now, still you are guiding, like, you know, for the full year, a very similar kind of margins. And that if we try to look particularly in the backdrop that, okay, from H2, you are going to sell new variety of the non-linked products with the new solvency norms in place.
So what is sort of giving you the confidence that you will be, by and large, able to come back to the same margin level? Is it that you are hoping a big shift in product mix, or is it that you are expecting, growth to come big time, providing sort of a, you know, cost absorption better? So what is sort of giving you this first quarter, there's a big shift, but for the full year, you are looking, confident to achieving the flat base kind of, or slightly, a minor decline in margins.
So, you know, first quarter for us is, if you look at even in the last three years, the first quarters in which you could have done 3%, but we still were able to reach 20, 20% plus NIM margins. So we actually catch up on our net NIM margins through the year, as you would have seen in a previous few years itself. You have to remember that, the G-Sec rates coming down, we also passed on reduction in some of our benefits to customers in our traditional products. Some bit of it has already happened as I speak, in the month of June, which is in line with what the industry has done.
Plus, incremental growth, like I said, we are thinking that the unit mix will continue to be 30%. But in the traditional products, because of the G-Sec rate coming down and whatever benefit we have passed lesser, so that's one element. Like I said, the absolute value of growth will catch up with banca channel also in subsequent quarters. Like I said, Axis has started in the month of mid-July, IDFC, Bank of Maharashtra. So absolute value of what we will be able to generate in terms of premiums will help us generate those margins. If you look at the guidance, it is still 18%+. Last year we were at about 20.2%.
If you are in the 18%-19% range, we are still saying there could be a loss of about 100-250 basis points, which we had said even before, and we are in line with that trajectory to be able to get that by the end of the year.
... Okay, got it. Thank you.
Thank you. The next question is from the line of Bhaskar Basu from Jefferies. Please go ahead.
Good evening. I had a couple of questions. Firstly, on the NBFC side, mainly around NBFC. So, this quarter also, you kind of brought about purchased loans of about 2%. Last quarter, there was about 2.2% of portfolio purchase. So, can you help us understand which segment were these loans purchased, and what is the strategy around loan purchases going forward?
We dispersed close to 14,000-15,000 crore INR in a quarter, and this is, if you look at, it's a small part of the overall disbursement number. But, in the way we look at it, this is... Your second question was which segment? Which is primarily secured loans, which is there. A very small part would be unsecured, but primarily secured is what we have. In terms of, what is our strategy, these are portfolio interventions we look at, in terms of whether it's assignment of portfolio or buy out of the portfolio. We look at both as an opportunity, and our ability to cherry-pick good quality portfolio, that's what we look at.
Yeah. I mean, basically, the point was, it's almost 2% of the book. I mean, so it's almost like 4% of book purchased in the last two quarters. Especially given that your own channels are building up, what is the driver for this, essentially? I mean, I would have probably expected more from the organic channel.
I would say it is, if you look at organic channel, almost 90% of the sourcing or disbursement, which is happening through the organic channel, this is a supplementary in terms of if you look at. And also, Bhaskar, if you look at the repayment on this segment, because if there is a PTC or a DA transaction, the repayment is quite fast. So, disbursement might be slightly, but the, as I said, the net growth is very small for the quarter, so it's not even 2,000. So almost 50-60% of that comes back from the old portfolio as a repayment.
And Bhaskar, another thing from a strategy perspective, see, one has to keep looking at opportunity in addition to the, you know, channel and the direct channel that we have, and we continue to leverage those channels. But if you look at the opportunity today in the market, because of the liquidity position which is there, there are certain franchisers which probably have no access to that liquidity, whereas a franchise like us has an access to that liquidity at a reasonable cost. Now, naturally, people have started, they have already built those channels where they are in a position to actually originate the assets. We look at this as a great opportunity with a franchise, who has an access to capital, particularly the, you know, the liability capital at a reasonable cost to leverage this opportunity.
So we'll continue to look for, you know, buying and selling of the portfolio in the market as an activity. Today, we believe there is an opportunity to buy. If in the future, if our appetite is completed and we have built such a good franchise, we probably will continue to churn our portfolio as we go forward on both sides.
Okay. So just, just following up on this, essentially, the spreads you make on these pools purchased, are they comparable, less or higher than your organic channel?
We always do our unit economics. Two or three things that we look at very clearly. One, we will never compromise on the quality, so it has to match our credit underwriting standards that we would have done for our own assets. Second, in terms of unit economics, whether it is return on assets or return on equity, it has to mark up and meet that minimum hurdle that we have around our assets. So these are the two things that we continue to do. We will do this in both our lending companies as we go forward.
So I have two more questions. I mean, one, on the OpEx side, OpEx has been obviously lower and, is it more seasonal? Is it something to do with more acquisition to purchases, or you expect some of it to normalize? So any guidance on the OpEx side?
This is for NBFC, Bhaskar?
Yeah, NBFCs, yeah.
So Bhaskar, if you look at last quarter, we had advertisement marketing costs, which were there. We had run a campaign, so there was a marketing cost in the last quarter. See, we have always operated in the range of 30%-31% cost-income ratio, and we will continue to operate in that range. Yes, there will be one quarter where some marketing expense comes out or some payout comes out, but it will normalize. So we will continue to operate in terms of guidance, 30%-31%, 31% cost-income ratio is what we have always operated at, and we will continue to operate at.
Okay. Just my final question, if I may. On the provision coverage, this has come down sequentially, so is there a recalibration of PD/LGD, or you expect it? What would be kind of the steady state provision coverage you expect from this book? And a related question is also around the write-offs this quarter, please.
If you look at our provision coverage is quite in line. I think your last quarter was 49.9%. This quarter is 49.5%. So very, very within same line, and it hasn't come down. If you look at, because also our portfolio is primarily secure, 70% of our portfolio is secure. So that's the reason this is a very good provision coverage for that segment. And if you look at for a higher risk segment, which is consumer and personal loans, there our provision coverage is almost 86%. So clearly in line with the unsecured business, which you see 35%-36%, there we have a credit guarantee on almost INR 4,300 crore of portfolio, we have credit guarantee on that portfolio.
So that's the reason why it is, the credit guarantee is on 50 is there. So it's been quite stable and there's no reduction in terms of,
Yeah, it's not. I take it on, just the write-off number, please.
So, it's not readily available, but we, Bhaskar, will come back to you.
Okay, thanks. Thanks a lot.
Thank you. The next question is from the line of Suresh Ganapathy, from Macquarie Capital. Please go ahead.
Yeah, hi. So I just had a question on your ROA targets in the medium term, right? So you had earlier guided that in the NBFC business, you wanted ROA to be 2.7%-3%. Now, that's on an annual basis, and as of now, that number is like 2.4% flat on for the past couple of quarters. Now you are guiding for stable margin, stable credit cost. Are you confident that you can meet this 2.7%-3% range? When it will happen? What are going to be the drivers? Because really it looks like, like we are not going to see that kind of a number any happening anytime soon. So any clarity on that would be great.
Suresh, we had always guided that we will come to 3% ROA in the next 2-3 years. Three years, that's the period which we had always guided, I mean. From that front, we still are confident that we will be able to deliver. Yes, there has been some recalibration in terms of change in the product mix, and that's on the backdrop of regulatory requirement, because the risk weights went up. There was some concern on small ticket unsecured loans, and that's the reason we took that very calibrated call. So we will continue to continue to be guide—we will continue to follow 3%, and we will deliver that in the time period which we had shown. And what will be the drivers?
If you look at, see, if we grow secured business instead of, let's say, personal and consumer, then my credit costs will offset the difference, because my credit cost will be lower in the secured business. So clearly, but as I mentioned earlier, that we are looking at growing both personal and consumer and also unsecured business. And if you look at unsecured business, comes primarily at the same yield range as of personal and consumer. So we still are following that. And yes, there's a recalibration for a few quarters which we took. Yeah, but we are confident that we will deliver.
Okay. Thank you.
Thank you. The next question is from the line of Nidhesh from Investec. Please go ahead.
Hello? Good evening, everyone. So, first is on NBFC. So, do you expect the share of unsecured remaining at 25% from here onwards, or we expect this share to reduce?
So if you look at personal and consumer, earlier, we had always guided that our cap on personal and consumer used to be 25% and fifty odd percent for MSME and 25 for corporate. But at this point in time, personal and consumer is at 15, now MSME, unsecured, secured is closer to 54, 55%, and remaining is corporate. So we will continue to work in that product mix, Nidhesh. At this point in time, as I said, because the last 3 quarters, we have calibrated the personal and consumer, which has come down. But as we leverage the platforms which we spoke about, the branches, the ABCD app, and our direct sourcing channels, we will build that up as well as we go forward.
What is the share of direct sourcing in unsecured today?
Just give me a minute. I have the number. So if you look at in personal and consumer, that digital, we source digitally 53% of our loans is through digital, direct is 20, and digital is 19%. At a company level, if you look at, direct is 69%, almost 70% of our business at a company level, we do it directly. This was 67% last quarter. So if you look at our direct sourcing has been increasing. In personal and consumer also, the last quarter we were at 22%, that's gone to 28%.... So, that's what we are really focusing on in terms of, acquiring customers directly.
Sure. Next is on life insurance. Can you quantify the impact of surrender value regulation on a gross basis on overall company, on a year basis of last year's margin? If we move to the new surrender value regime, what would be the impact on our margins?
So, like I said, there are two impacts. One, of course, is the impact on the fact that the first year surrender value is available to the customer right now, which was not available before. Industry obviously will respond to that differently in terms of looking at what kind of commission structures should be paid, whether it should be plugged back for whatever is not persistent. So that impact is not very large. The second impact comes on account of higher surrender values, which happen in the subsequent years. It is typically year 2, year 3 and year 4. If you look at our persistency numbers over the last few years, we top typically now are in the top quartile. 30th month is at 88. Even our 61st month now is at 66.
These are overall persistency. Actually, our persistency in the traditional part of our business is even higher than these numbers. So typically the impact on a portfolio basis could range, basis our mix that we have, of the product of traditional, roughly in the range of 100-200 basis points, inclusive of the impact on the first year money to be paid back to the customer. Which like I said, through multiple approaches, you know, relooking, realigning at structures on distribution, business mix, as well as what we want to do on our product offerings, we don't think that will have impact for us on the net VNB margins that we have guided of the financial time last for this year.
Sure, sure. So this 100-200 basis point impact that you mentioned is on a gross basis without making any changes to the structure?
On the product construct basis, it will be a little higher because of the, it impacts only 50-60% of the mix because it doesn't impact you on ULIP, or it doesn't impact you on protection or PAR. It doesn't impact you. It impacts you only on the non-PAR part of the business. That will roughly come back to about 150-200 basis points. Yeah.
Okay. Thank you. That's it from my side.
Thank you. The next follow-up question is from Suresh Ganapathy, from Macquarie Capital. Please go ahead.
Yeah, thanks. Sorry, I forgot to ask one more question, which is on capital. You know, you're growing at 25%, your ROE is at 15, 16%, and your capital adequacy is just at 16.5%. So just wanted to understand, what is your thought process here? Because it is very precipitously close to the 15% mark, right? And I think you need to keep some margin of safety. So are we looking at any kind of capital raising? What should be the amount? Any clarity on that please?
Yeah, Suresh, Vijay here. Suresh, as you are aware that we had raised INR 3,000 crore of equity capital, of which we include INR 1,600 crore in the NBFC in the last one year, and about INR 300 crore in the last quarter in HFC. Further, we did the OFS of our AMC, which got us another INR 600 crore. And also, we got the IRDAI approval to monetize the insurance broking firm, which will help us get another about INR 200 crore. So we have close to about INR 1,900 crore-INR 2,000 crore of equity capital right now, I think which will suffice us for next about 28 months of growth.
Also, as you know, that we have announced the amalgamation of ABCL and ABFL, and as we had mentioned in the last call, that helps us release a capital of close to about INR 3,500 crore. So I don't see CapEx in the near term should be an issue, and we'll be able to manage that.
Okay. But the stake in NBFC will go up, no? Again, you come back to the same float issue, if that is the case.
Sorry, come again?
No, because you will have to infuse money. The holding company infuses the stake in NBFC further goes up, right?
Hundred percent.
100% subsidiary, Suresh, so there is no,
Oh, okay, okay. Yeah, yeah, correct. Sorry for that. Yeah, sure. Yeah, clear.
Thank you.
Thank you. The next question is from the line of Sameer Bhise from JM Financial. Please go ahead.
Yeah, hi. Thanks for the opportunity. So the Stage 3 inch up in the NBFC is quite expected. Can you just elaborate what's causing the unsecured business loan delinquency inch up and some thought there, while it is guaranteed for yourself and should not cause any major credit issues, but I just wanted to understand your perspective.
So, if you look at the 3.4%, which you're seeing, if I exclude the guaranteed portfolio, my stage three is 1.5%. 1.5% stage three for 17%-18% yield loan book is a very, very good quality. So that's what I just want to share.
Any specific reason that you are saying, I mean, on a gross basis, even if we don't include guarantees?
What is it? Come again.
Guarantees.
No, so-
Any specific reason you wanted to highlight that? Why would one see an inch up in the delinquencies for the unsecured business loan book?
So if you look at, it's just the denominator effect here as well in quarter one, we have not... It is a very normal, normal, in terms of flow, which we are seeing both in personal and consumer and unsecured business. And this is the, the reason why we are waiting for the great, the guarantee money to come from CGTMSE, when we can let it off and write off whatever accounts which have gone bad. So that's, that's where it is. We don't see a 1.5% stage 3 or gross NPA, whatever you call it, for 18% yield product. This is more or less flattish, so it has not gone in absolute terms, gone up in absolute terms.
Just that the portfolio we have recalibrated, and therefore, you are seeing a little bit of a percentage. And even at a overall portfolio basis, if you look at year three, it remains even at around 27.5%.
Yeah, overall, it's right. Yeah. Yeah. This is helpful. Thank you and all the best.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I would now like to hand the conference over to Ms. Vishakha Mulye for closing comments. Please go ahead.
Thank you once again for joining us today evening. If there are any questions which are pending, please feel free to reach out to me or Vijay, Pramod, or Ashish. We'll be very, very happy to take any questions. So thank you. Look forward for continued interaction.
Thank you. On behalf of Aditya Birla Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.