Ladies and gentlemen, good day and welcome to the Q3 FY25 earnings conference call of Aditya Birla Capital Ltd. As a reminder, all participant lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zero on a touch-tone phone. I now hand the conference over to Ms. Vishakha Mulye, CEO, Aditya Birla Capital. Thank you and over to you, ma'am.
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Good evening everyone and welcome to the earnings call of Aditya Birla Capital for Q3 of FY 2025. Joining me today are 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 key financial highlights followed by the discussion on performance of our key businesses by our business CEOs. The Indian macroeconomic environment remains very challenging with moderating urban demand, tight liquidity conditions, high capital market volatility, slow capex offtake and depreciation in rupee. The GDP growth rate of the Indian economy declined sharply in Q2 FY 2025 while the CPI inflation cooled down marginally in December. Food inflationary pressures continue. RBI continues to maintain a neutral stance in monetary policy in order to revive economic growth, boost consumption and demand.
The government has announced various measures in the Union budget such as income tax relief for salaried individual, increased credit guarantee limit for MSMEs, along with the various other measures aimed at rural and urban development, agriculture and infrastructure growth. At Aditya Birla Capital we continue to focus on driving quality and profitable growth by leveraging data, digital and technology. We follow a customer centric approach to build a deep understanding of the needs of our customers and provide them simple and holistic financial solutions in the seamless way. Prudent risk management practices form the bedrock of our approach which has enabled us to protect capital and deliver risk calibrated and sustainable returns across our businesses. We also continue to strengthen our omnichannel based distribution network. Coming to the performance highlights for the Q1
Growth and profitability. The consolidated profit after tax is INR 708 crore in the current quarter compared to INR 730 crore in Q3 last year. The total consolidated revenue grew by 10% year on year to INR 10,949 crore. We are focused on growing our portfolio with a strong emphasis on return of capital given the early warning signals and challenges in the operating and macro environment we have had indicated earlier. We have been calibrating our NBFC portfolio by reducing our exposure to the smaller ticket side unsecured personal loans and increasing the proportion of secured business loans over the past few quarters. Further, looking at the market opportunities, we have also accelerated the growth of our HFC portfolio.
These steps have held us in a good stead over the past few quarters where we have demonstrated strong asset quality trends with an improvement in stage 2 and stage 3 loans. Our NBFC portfolio grew by 21% year on year and 4% sequentially to about INR 1.19 trillion. The secured business loans to SMEs grew by 37% year on year and 4% sequentially. The corporate and mid corporate portfolio grew by 31% year on year and 7% sequentially. The overall gross stage 2 and 3 loans in NBFC business declined by about 60 basis points year on year and remained flat sequentially at 4.25% as of December end. Our gross stage 3 PCR was 45.6 as of December end at a similar level compared to the previous quarter. Our credit cost was 1.36% in Q3 which is well within our normalized threshold of 1.5%.
We will continue to calibrate our portfolio with a focus on return of capital. The profit after tax of the NBFC business grew by 5% year on year to INR 600 crore. The ROA and ROE were 2.1% and 13.87% respectively in Q3. Coming to our HFC business, we have built significant capacity over the past few quarters by making investments in digital properties, technology, people and distribution. I am delighted to share that we have crossed the monthly disbursement run rate of INR 1,500 crores. This has resulted in our HFC portfolio growing by 62% year on year to INR 26,714 crore as of December end. The Indian housing sector continues to offer growth opportunities and is also aided by various government measures such as expansion of PMAY and investments in affordable urban housing.
We believe the investment which we have made will enable us to capture these opportunities and further accelerate our growth in the HFC portfolio. The credit quality in HFC portfolio remains robust with Stage 2 and Stage 3 loans declining by 177 basis points year on year and 45 basis points sequentially to 1.77% as of December end. Moving to asset management business, our mutual fund average AUM grew by 23% year on year to about INR 3.83 trillion. In Q3 of FY25 the profit after tax grew by 7% year on year to INR 224 crore. Moving on to the insurance businesses, the growth in the life insurance business continues to remain strong. The individual first year premium grew by 31% year on year in nine months of FY25 and we are among the top three players in the private industry in terms of growth.
We have commenced sourcing in Axis Bank counters and our mindshare in the Bank of Maharashtra and IDFC First Bank counters continue to grow. We continue to be in the top quartile in the industry in terms of 13th and 61st month persistency. As we had mentioned in our previous quarter's earnings call, we have taken steps to realign our commission structure, made changes in the product pricing and increased rider attachment to mitigate the impact of the new surrender guidelines. These changes along with the high persistency levels have helped us to attain a VNB margin of 10.8% in the nine months of FY 2025. Our endeavor is to close FY25 with the VNB margin of about 17%-18%. In the health insurance business, we continue to be the fastest growing standalone health insurer.
Our gross written premium grew by 39% year on year in nine months of FY25. Driven by a differentiated health-first model and data-enabled approach towards customer acquisition. Our market share among SAHIs has increased by about 140 basis points year on year to 12% in nine months of FY 2025. 2. Omnichannel architecture for distribution. Our omnichannel architecture allows customers to choose the channel of their choice and interact with us seamlessly across digital platforms, branches and VRMs, fostering engagement and loyalty. Our D2C platform ABCD went live in April 2024. It offers a comprehensive portfolio of more than 24 products and services such as payments, loans, insurance investments and helps our customers to fulfill their financial needs.
Our motto behind the design of UI UX of the app has been everything Finance as simple as ABCD. ABCD has witnessed a robust response with more than 4.1 million customer acquisition till date. We are seeing a strong traction in payments with more than two million VPAs created till date. We had mentioned in our previous quarter's earnings call that we will be launching a revised servicing app for our existing customers in the next three to six months. We are happy to share that this app has gone live in December. It has been built on a modular platform offering a unified and common servicing infrastructure across all our businesses and has a single sign off with ABCD. It allows us to leverage our existing customer base for cross sell and upsell our comprehensive B2B platform for MSME ecosystem.
Udyog Plus continues to scale up quite well with more than 2.2 million registrations. Udyog Plus has reached an AUM of 3,300 crore rupees and it has now contributed about 25% of the disbursement and total portfolio of unsecured business loans. We have further enhanced our integration with ABCD Ecosystem to provide credit and supply chain financing solution to our dealers and vendors. ABCD Ecosystem now contributes about 50% of disbursement on Udyog Plus. We have more than 2 lakh channel partners and we deeply value vital role that they have played in distributing our products. Our B2B digital integrated platform of our channel partner Stellar has gone live in January. It offers them a consolidated one view dashboard of their businesses. It helps them to manage the leads and track them till conversion and enable them to grow their business volume.
It will help us to increase our product penetration among the existing customers. We have 1,482 branches across all our businesses as of December end. We are focused on capturing white spaces and driving penetration into tier 3 and tier 4 towns and new customer segments. About 60% of our branches are co-located across more than 1,240 locations. 3. Strategic initiatives, our Board of Directors approved an amalgamation of Aditya Birla Finance with Aditya Birla Capital in March 2024 subject to regulatory and other approvals. We are happy to share that the proposed amalgamation has been approved by the shareholders in January. We have made an application before NCLT Ahmedabad and expect the amalgamation to be completed by 31st March 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.
Thank you Vishakha and good evening to all of you. The total consolidated revenue grew by 10% year on year to INR 10,949 crore during the quarter. The consolidated profit after tax was INR 708 crore in the current quarter compared to INR 736 crore in Q3 of last year. In our NBFC business, the total loan portfolio grew by 21% year on year and 24% sequentially to about INR 1.19 trillion. NIM including fee income was 6% for the quarter. The credit quality of NBFC business continues to be healthy with a credit cost of 1.36% in Q3. Our housing finance business continues to see strong momentum. The loan portfolio grew by 62% year on year to INR 26,714 crore during Q3 FY25. We further infused equity capital amounting to INR 300 crore in our HFC subsidiary taking the cumulative infusion during the year to INR 900 crore.
This infusion was done to support the growth momentum and maximize our share of opportunity which Vishakha mentioned earlier. Coming to our AMC business, the average AUM increased by 23% year on year to INR 3.8 trillion in the current quarter of which equity AUM which was approximately 47% alternate AUM also grew by 32% year on year to more than INR 16.5 thousand crore in Q3FY25. In the life insurance business our first year premium increased by 31% year on year and group new business grew by 32% year on year. Pleased to share that the VNB margin expanded sequentially to 10.8% in nine months FY25. In our health insurance business, our unique and differentiated health first model helped us to deliver a growth of 39% year on year in gross underwritten premium during nine months of FY25.
Our combined ratio has improved from 121% in nine months FY20 to 114% in nine months FY25. I now hand over to Rakesh to cover the NBFC business performance in detail.
Thanks Vijay and good evening everyone. In our NBFC business we saw a 21% year on year and 4% sequential growth in our AUM taking it to 119,437 crore in Q3. We continue to focus on the MSME segment and the business loans to MSME grew at 32% year on year which is better than the industry. This segment continues to comprise 55% of our overall portfolio and is a focus area of growth for us. In this segment secured business loans grew 37% year on year. Our disbursement in Q3 was at 15,233 crores of which 36% was contributed by secured business loans to MSME.
More than 53% of our sourcing and business loans is done via direct channel and we foresee this to inch upward with continued scale up of our B2B platform for MSMEs. Udyog Plus. Number of MSMEs using Udyog Plus has been sequentially increasing and we now have more than 22 lakh MSMEs registered on the platform up from 16 lakh registrations as of last quarter. More than 20% of disbursement in unsecured business loan segment in Q3 has been sourced through Udyog Plus platform. In personal and consumer loan segment the industry continues to witness a slowdown in growth to 13.8% year on year in H1 of FY25 compared to near 30% growth levels for the same period last year. This drop is largely driven by caution on high-risk segment and given the tightening measures we have pursued earlier in the year.
Our growth in this segment will continue to be calibrated given the changes in the macro environment. We took advantage of the market opportunity to tactically calibrate our portfolio mix by reducing our exposure to small size unsecured personal and consumer loans and increasing the proportion of secured business loans over the last few quarters. In fact, 80% of our disbursement to MSMEs in Q3 has come from the secured business loan segment which has grown by 37% year on year and the segment mix has improved to 83% compared to 80% last year.
As a result, the overall secured portfolio at an entity level has improved from 69% last year to 74% in Q4 Q3 this year. During the last one year our portfolio mix has undergone a change where share of loans to MSME has increased to 55% in Q3 from 50% a year earlier. Share of personal and consumer loans to overall AUM now stands at 13% compared to 20% last year. We continue to operate at a very efficient cost income ratio level of 31%. Our OpEx to AUM ratio improved to 1.9% in Q3 from 2.24% last year and this has largely been driven by operating leverage as we continue to sweat the new branches opened in last 12 to 18 months to shield distribution.
The credit cost has increased by 11 basis points quarter on quarter to 1.36%, which is well within our stated guidance of 1.5%. Profit after tax for the quarter grew by 5% year on year and stood at INR 600 crores. We continue to closely monitor our portfolio and asset quality continues to remain strong. The gross Stage 3 loans are at 2.27%, which has declined 32 basis points year on year. Our Stage 3 is well provided with a PCR of 46% with the overall 74% of our overall loan book being secured. Moving forward we remain focused 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 platform with new product offerings and increased investment in distribution across emerging regions aimed at driving growth in the personal and consumer segment.
We continue pursuing the strategy of acquiring customers through platform-based approaches via our branches ABG Ecosystem and ABCD App. All digital customer acquisition process on the app and Udyog Plus are designed for end-to-end control covering everything from underwriting to connections, ensuring complete customer ownership. As we scale up, strengthen our capabilities and invest in technology, our primary commitment remains to deliver sustainable returns in the upcoming quarters. 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'll now present ABHFL's performance for Q3 FY25. I'm very happy to share that we've achieved an all-time high disbursement for the 6th consecutive quarter reaching 4,001.05 crores. Business from ABG ecosystem has contributed 13% of its disbursement up from 9-10% in the recent quarters. GNPA has now reduced to below 1% marking a consistent decline in absolute GNPA and reaching its lowest level in the past 15 quarters. Key highlights for Q3 FY25 are as follows. The recorded highest ever home loan disbursements of 4,750 crores which is an increase of 136% YoY and 18%. Our AUM now stands as of December 24th at 26,700 crores, an increase of 62% YoY and 15% QoQ. Our customer base is now at 82,300 and has grown by 36% YoY with the average ticket size of the retail segment at 28 lakhs.
We also recorded the highest ever PAT of INR 110 crores which is an increase of 10% YoY. Stage 2 and 3 has reduced to 1.77% which is a reduction of 177 basis points YoY and 45 basis points QoQ. ROA for the quarter is 1.42% and ROE is at 10.66%. For more detailed financial information please refer to slide 28 of the presentation. I would now like to provide a brief update on a few pillars of our growth. First, on portfolio quality. As mentioned earlier, the NPA has reduced both in absolute and in percentage terms which is now at 0.99% in Q3 FY25 a reduction of 109 basis points YoY and 30 basis points QoQ. For more details on portfolio quality, please refer to slide 26 of the presentation.
Focusing on digital reinvention, data and analytics, which is a core for our strategy, we will realize technology and data remaining central to our strategy as reflected in the growing platform adoption and initiatives like Account Aggregator, which now stands at 35% plus. We have successfully implemented several models across the customer journey from demand generation to collection. Application Scorecard and Collection Scorecard have already started delivering yield reflected in the portfolio quality. Lastly, in terms of our liability management strategy, the comparative cost of borrowing of 7.7%. The company's borrowing profile continues to be well diversified and cost effective. I'm happy to share that we have successfully raised NCDs amounting to INR 830 crores from IFC in December 2024. These funds will be utilized towards providing housing loans to low income and middle income groups with a particular focus on encouraging home ownership among women.
A portion will also be allocated to supporting MSMEs, especially women led enterprises to drive growth and economic progress. In a sense we continue to demonstrate strong performance across all areas including book growth, digital transformation, asset quality and liability management. Thank you all for your attention and with this I now hand over to Bala, MD and CEO of our asset management company.
Thank you, Pankaj. To give a quick highlight on our AMC performance for FY25. The overall assets under management including alternate assets stood at INR 4 lakh crore representing a 23% year on year growth. Our mutual fund quarterly average AUM is INR 3.84 lakh crore growing by 23% year on year and quarterly equity average assets stood at INR 171 crore growing by 32% year on year. Our SIP book grew by 38% to INR 1,382 crore from INR 1,005 crore in December 2023 to INR 1,382 crore in December 2024.
We also added about 670,000 new SIPs, a three times increase compared to the previous year. Total investor folios today at 1 crore 25 lakh with around 24 lakh new folios added during the nine month period of FY 2025. The uptick in equity investment performance driven by improved perceptions and stronger narratives has helped us gain traction in equity net sales during the quarter. During the quarter we launched ABSL AMC Conglomerate Fund which garnered about INR 1,300 crore. We also conceptualized and launched the industry first 6-month index fund which has garnered close to about INR 800 crores and growing for the current month on the alternate business plan to meet the growing needs of HNIs and family offices. We continue to strengthen our team and enhance our PMS and AIF offerings both in equity and fixed income.
Our PMS AUM % grew by 41% year on year to INR 3,853 crores from INR 2,631 crores. Our offshore business grew by 28% from INR 994 crores to INR 2,638 crores which includes close to about 400 crores of net inflows. We have expanded from India dedicated funds to digital platform. In line with the vision to scale the passive business, we continue to offer a diverse product portfolio to our investors delivering strong returns. As of December 24th our passive assets totaled INR 7,600 crores with a customer base of over 10.68 lakh folios . With the potential product currently available, we plan to expand further the new fund launches in the coming quarters.
Our financials for the quarter were. Quarterly revenue from operations was about INR 445 crores versus INR 342 crores in Q3 FY24 up by 30% year on year while quarterly operating profit was at INR 262 crores versus INR 184 crores in Q3 FY24 up 42% year on year. With this I hand it over to Kamlesh Rao MD and CEO as well.
Thank you Bala and good evening to all of you. The overall life insurance industry saw robust growth in the nine-month financial year 25 period. Individual first-year premium grew for the overall industry by 14% and for the private players by 19%. For ABSLI during the same period the growth was at 31%. With healthy growth across proprietary and partnership channels, our new business policies have grown by 28%.
December 2024 for the baseline, the proprietary channel saw robust growth of 34% fueled by both improved productivity as well as the capacity that we added over the last year. Our new tie-ups in Bank of Maharashtra and IDFC First Bank continue to have positive traction every quarter and Axis Bank is expected to touch close to INR 100 crores by the year-end. These combined with our existing eight bank partners saw growth of 30% in YTD December 2025 for ABSLI. In the group life insurance segment, the private industry grew by 9%. Overall industry grew by 7% and ABSLI registered a growth rate of 32%. Better growth was contributed by superior performance both in the fund as well as in the credit life business. Our group business AUM is around 25,880 crores and contributes to 27% of ABSLI's overall AUM.
Our total premium for the year is INR 13,605 crores, has registered a growth of 23% over last year with a two-year CAGR of 60.16%. This growth came from new business as well as renewal premium growing at 13%. Our digital collections now account for 82% of our annual premium. We continue to work on customer lifetime value, which is reflected in our upsell ratio reached 28% and helped productivity growth in both our proprietary as well as partnership channels. In the product mix of the individual business, traditional business including protection contributed 65% and unit-linked was 35%. On the group insurance business side in the credit life space we have slowed down our micro finance business counter while growth is being observed in all the other retail counters. Our capital business attachments have grown significantly in the last nine months of this year.
Quality parameters continue to trend better across all areas. Persistency across all buckets did well 13 months at 87% and 61st at 67% which will make us top quartile in the industry. Our consistent efforts on bringing cost efficiency along with optimal investments into the business has resulted in an OpEx to premium ratio at 20% versus 19.8% last year same time. Our total assets under management now stands at INR 97,286 crores. YoY growth of 19%. 25% of this area is in equity and the balance 75% in debt. We continue to outperform in our investment performance in respect to benchmarks across all three categories of equity, debt or balance fund either from a one year or a four five year perspective. Our digital adoption across various areas is demonstrated in slide 44.
100% of new business customers are now onboarded digitally, 83% of our services are now available digitally covering 67% of our customer transactions and our customer self- service ratio now stands at 93%. Event Live is our new service CRM powered by Salesforce from mid November. As we move ahead, we will continue to be best in class in our digital infrastructure across prospecting and onboarding, in sales, underwriting and customer service as well as claims. I'm happy to share that we have been awarded the Best Life Insurer by Fortune India in their January 25th edition for our last year's performance in terms of both business growth as well as quality parameters like persistency and claim settlement ratios. We also raised capital via rights issue in December 2024 to the tune of INR 311 crore. Both existing shareholders have subscribed to this issue.
Our solvency continues to remain at a healthy rate of 194%. As we said last quarter, our focus has been on beefing up distribution by increasing capacity in our proprietary channels covering both agency as well as our direct business and investments in capacity in our newly acquired bank partners which helped us garner incremental mindshare. Our net margin which was the first six months was at 7.4% has now expanded to the nine-month financial year 25 period to 10.8% versus 15.6% last year. At the same time we saw significant expansion of margins in Q3 with Q4 being the largest quarter of the year. We see even more expansion of margins in this quarter and continue to maintain our earlier guidance of 17%-18% net margins for the year on regulations.
We have relaunched major top-selling products in compliance with the new surrender regulations in April as directed by the regulator. We have also realigned commission structures with the distributors. As mentioned last quarter, we do not foresee any adverse impact on new business margins on account of the change. With this, I'll hand over to Mayank for details of the health insurance.
Thank you, Kamlesh. Let me now share. An overview of the performance of our health insurance business. Strong Q3, we continue to build on the first half FY25 growth momentum. In the first nine months of FY25 without the multi-year accounting norms, we achieved a gross premium of 3,505 crores experiencing a strong 46% YoY growth. Our Q3 growth accelerated to 59% versus 43% and growth experienced in Q2 further strengthening our position as the fastest growing SAHI player during the quarter and the many previous quarters as well. Performance is further amplified given the new long-term accounting regulations introduced by the regulator in Q3. Under the long-term accounting norms, nine months GWP with a YoY growth of 39% is at 337 crores. Similarly, Q3 GWP is at 101 with a YoY growth of 39%.
Our market share thus in SAHI has increased from 10.7 to 12%, a YoY increase of 138 basis points. Growth continues to be driven by our retail franchise diversified across all major distribution channels and the strength of our unique and differentiated business model. We're broadly channeled with an advisor count of over 1.34 lakh. Region experienced a 26% YoY growth. All our major bank and digital alliance partnerships have also experienced impressive growth leading to our retail franchise growing at 46% in nine months. Our flagship product Activ One has now completed one year since its launch in November 2023 and the product with seven variants continues.
To be one of the most comprehensive. Indemnity products in the industry and is enabling the organization to penetrate newer underpenetrated customer segments like the HNI customer base and people living with lifestyle conditions. The product continues to inspire other competition industry products as well. The corporate business experience has strategically controlled 47% YoY growth driven by a sharp focus on profitability through careful customer segmentation and a leading industry leading outpatient business. We are strategically concentrating on mid corporate and SME segments to continue to build a sustainable and profitable corporate business. The recent IRA guidelines on revenue recognition for long term policies represent an important regulatory shift. The unit economics of the business remain unchanged. However, the new accounting regulation do impact the accounting financials in the short to medium term until we migrate to IFRS.
Despite these regulatory adjustments, we are pleased to report our net loss for the nine-month period improving to INR 195 crore compared to INR 270 crore in the same period last year. We reported COR at 114% with a significant improvement over last year's number at 121%. But for the change in accounting norms, our nine-month COR would have ended at 110%. Our Health first model continues to scale and mature. The outcomes of some of the intervened cohorts are now visible and presented in Slide 55. The percent of customers influenced by participating in healthy behavior has now reached close to 25% on an enlarged customer base and they continue to exhibit lower loss ratios up to 40% at various cohort levels. Similarly, customers experiencing positive and behaviors based incentives also experience loss ratio of lower than the baseline.
We've invested in building these capabilities and managing customers with high health risk through a combination of product offerings and human digital capabilities to manage the disease burden of these set of customers, which does help in managing the long-term health risk of an aging portfolio. Through a combination of in-house coaches and partners, we've now intervened in more than 120 to improve their health vitals, leading to lower claim ratios. Our promise of insurance is centered on providing industry-leading experience, and our investments in business R&D and ML-driven claim auto adjudication engine continue to witness encouraging results. We continue to invest in our industry-leading Activ Health App, and the app now provides an opportunity for non-policyholders also to experience our customer's comprehensive app ecosystem. Our Activ app downloads have increased by 183% with the YoY MAU increased by 157%.
Looking ahead, we remain optimistic about the long term growth prospects of the health insurance sector and more. So given our differentiated and resilient business model, our vision will be to aggressively expand our franchise with maintaining best in class unit economics and a clear focus on profitability. I now hand it back to Vishakha for a closing remark. Thank you.
Thank you. Mayank. This concludes our remarks from our side. We are very happy to open the floor for any questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on your touch-tone 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 questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from Chintan Shah from ICICI Securities. Please go ahead.
Yeah, hi. Thank you for the opportunity. A couple of questions. Firstly, ma'am, on the HFC growth. A question to Pankaj sir. We have seen a robust growth of. 62% probably YoY basis. So what are the potential drivers? And so where should we see the. Growth over the medium term? What could be the sustainable growth and what are the key drivers for such a robust growth? Yeah, firstly on that. So I'll ask together or separately?
You may go ahead. Chintan, you can give all your questions. We'll answer them one by one.
Sure, sure. Yeah. Secondly on the PCR in the NBFC segment on stage three it is around 46.5% so probably it has. It is stable QoQ but seems to be declining. So now since we are moving to the secured segment so how should we see this PCR going ahead? So any what what could be the stable number there? And also the stage two has seen some inched up. So any thoughts there? And then it is on the ROA front for the NBFCP. So it is 2.1% ROA. So if you look at the margins over the last one year margins have compressed around 90 basis points yoy since probably we are moving to a secured mix versus the unsecured portfolio and running down the unsecured piece.
But then the credit cost has not declined, only like around 10 because why so the ROI has seen a massive hit. So what are the levers probably to expand and so apart from seeing the good growth in the personal consumer segment, any other? How should we see the ROI over the medium term? Yeah, that's it from me,
Chintan. Hi, Pankaj here. I'm taking the question on housing finance and then I will leave Rakesh to handle the next question. I think if you see the disbursements, so you know this is a culmination of several consistent quarters of growth that we've seen in disbursement. This quarter we saw 18% QoQ disbursement but if you see the last six to seven quarters you will see a similar trajectory. Now of course the trajectory is even more accelerated.
It's a pretty consistent approach in global disbursements. It is coming on the back of three or four important things. I think over the last calls that we've had over the quarters I've been speaking about it but I just reemphasize those things. I think over the last 18-24 months we have made investments in widening our distribution. The number of people that are there in sales, credit operations and the entire governance structure I think that has been channeled in quite meaningfully. That of course by creating capacity is leading to higher disbursements. Second is we have invested quite significantly in digital platforms both in terms of our sales processes and we have the best in terms customer relationship management that we're using ensuring that our salesman processes are best in class.
The second is we've been also speaking about FinVerse, which is an end-to-end platform that we have launched from prospecting to disbursements, and I'm very happy to share that. Not only is FinVerse being used by our team for sourcing applications, even our channel partners are also directly logging in our business on FinVerse that is clearly helping in decongesting the entire file flow and is giving face time for our teams to focus on meeting customers and also channel banks.
So, productivity is also one thing that we have seen significant growth. That's both on capacity and also the last thing that I want to share is that you can also, you know, speaking about the contribution of our disbursements coming in from the ABC and ABG ecosystem. And you know, in this quarter, you would have noticed that 13% of these disbursements actually are coming in from the ABC and ABG ecosystem. So, there are huge set of opportunities which are coming in through ABCD. So also our ABC led partners and also the ABG group ecosystem.
I think with a combination of the digital platforms and also the capacity that we've been able to build. I think we're also accelerating disbursement on that side. I think all we put together is resulting in growth across the prime and also the developer finance business for us. When it comes to the guidance, I think we've been seeking that we will be seeing similar trajectories of growth in the next few quarters, and that is where we are. I'll leave it to Rakesh for the next question.
Your first question was on PCR. That year on year the PCR has come down by 3-4%. That's primarily on the backdrop of change in the product mix. If you see secured book has gone up from 67% to 74% and that is the result that PCR is at 46%. So this PCR is quite stable. We have 74% of our loan book is secured by collateral, real estate collateral securities and all. And that reason even in the unsecured business we have CGTMSE guarantee as well. So that's the reason our PCR looks very, very comfortable. Your second question was on stage two. That stage two has gone up marginally. If you look at year on year it has come down but yes compared to the last quarter it's gone up marginally.
But by end of January we have been able to pull back all these loans which had moved. As you know, the definition of Stage 2 is 30 plus. So even a customer goes up to 31, 32 days it moves into Stage 2, it all has been pulled back. The third question was on margin in terms of that we have seen 28 basis points lower margin compared to the last quarter and 90-odd basis points compared to last year. This is Chintan again on the backdrop of change in the product mix. Yield and NIM are a function of product mix and AUM.
As I mentioned earlier, secured business has gone up from 67%-74% and that's the reason why you see also if you see our personal and consumer business which we had started in terms of tightening and dialing down post RBI's intervention on small ticket unsecured loans and some bit of partnership that's now started stabilizing and we would expect that to grow in the next couple of quarters. So that should help us. Also on the unsecured business which has similar yields and margin that piece also if you see has gone up, it's grown 12% year on year and 2% quarter on quarter that should also start scaling up in the next couple of quarters. So that should help improve and stabilize our margins and that should really result in the ROE.
Your question on credit cost: credit cost is in the range as we had always guided that it will be below 1.5%. It's at 1.36%, so it's in the range. And yes, over a period of time we will like to see that credit cost remain stable, margin expanding. That should help us improve our ROE.
Sure. I think. Thank you for a very detailed one. So probably. But any sense on the product mix? So if I may ask, what could be the product mix of from 67 to 74 we have moved to secured. So any ballpark number which we are. Looking beyond which we won't move the secured mix or it could. There is no such number in mind. Yeah.
If you look at today our personal and consumer has come down from 19-odd% (19-20%) to 13%. We would like to grow it back to 18-20%. Not immediately but in the medium term. Also on the business unsecured business segment if you look at that's grown 12% year on year we would like to grow that further. So that's how we are really looking at managing the margins.
And so, any ballpark number on the Margin, so could it decline further from? Hereon, or should we expect some stability around current levels of 6% area? That's the last question. Thank you.
I think we should see stability around these numbers before it improves.
Sure. That is very helpful. Thank you team. Thank you.
Thank you. Next question is from Anuj Singla from Bank of America. Please go ahead.
Yeah, thank you. Good evening, everyone. So I'll start with the housing finance business. So question for Pankaj, please. Firstly, if I look at the YoY growth, a lot of that has been driven by the non-housing segment, LAP, and construction finance. Housing is down by around 850 basis points, as per my calculations, to 57%. Can you give us some sense of where this can settle down? And you also have that criteria for the principal business. Where are we in that, and how much scope we have for further reducing the housing proportion in the overall mix.
Hi Pankaj here at the end of Q3FY24. If you look at what we have also displayed in the slide, we had a 65% which is showing, you know, on the housing in the bar graph that is there in the trend. It is now showing at around 58%. So your observation is to the right on that side. Having said that, I think like we've also maintained that, you know, we are a full stack operating in the housing HL and also developer finance portfolio all the three. So I think opportunities exist in, you know, all the three and, you know, we've been able to successfully ensure that we build a presence across all the three segments. I think that there are two things that we have to keep them in mind is first, the quality mix across segments is appropriate.
I think the numbers speak for themselves on the portfolio quality that we have been able to get to. So we are very, very conscious. And when the earlier question was being asked, while disbursements have grown, I think we are very focused and we use cybernetics right across the chain, right from onboarding. Look at the onboarding Z-score. There's also behavioral, you know, behavioral scorecard proprietary, which gives us a very good indication of the no-go criteria. Also we use deep analytics also on fraud management and also, you know, on flows, which is keeping us in the right shape, you know, to manage, you know, that part of your question on regulatory, you know, what are the percentages for affordable housing loans? The minimum threshold is 50% overall housing. The 60% criteria is the criteria.
On both the criteria, I think we are comfortable right now on the Indian housing loans. We are in that range bound, 53%-54%, kind of in your range and well above the 60% mark. So I think the opportunities are still there. But at the same time, you know, we have to keep looking at both SL and NAT and across all the segments to see the growth.
So will the mix change materially from here or it can settle down in the same level, which we've seen for Q3?
because 50% is the lowest. So we would want to remain in that 53%-55%, you know, percentage, you know, kind of a gradient.
Okay. And secondly, can you give us some sense on the margin risk from the rate cut if it comes through? How does on the liability side, what kind of flexibility you have on the variable costing and on the asset side as well.
Overall, if you see, you know, on the side of the asset side, 95% is variable, 5% is fixed and on the side of, you know, liability side, 39% is fixed and 61% is variable, 99%, you know, broadly 6% in NHB and 33% in NCDs. That is the, you know, broad breakup, you know, of the liability. But currently, if you see and you are there in the markets, you will know that, you know, there is a wide spread in the term loans and the NCDs. So there is, you know, clearly a favorable rate at which we are borrowing on NCD versus, you know, term loans. There are significant differences and that's not the market. So I think we're fully placed on that side and we've been able to factor that when we are managing our assets.
Got it, got it. Okay, second question is on the life insurance business. So you did talk about changes on the distribution commission side as well as product structure because of the surrender value regulations. Can you give us an idea if there is some impact of that surrender value regulation in this quarter margins as well or were you able to recoup everything out of that? And when we look at the product level margins because of the new products which you have launched, have you changed the IRR or is there a significant change in the product level margins which have happened after the surrender value regulations are put in place?
I answer your question in two parts. Obviously, when the new regulations all products had to be refiled and relaunched on 1st of October. So there would have been some timing mismatch between first ensuring all the products are on the table and then of course whatever we had to do with the standard regulation incorporation. So some loss of time would have got incorporated in that. Which is why I said that Q4 will look better because some bit of that we would have lost in Q3 from timing point of view. So it will only get better. I must say that margins have gone down on account of both. Impact would be on surrender regulations changing, we also on guarantee products. If the G-Sec is lower than what it used to be, that impact also comes in.
But for the second one, appropriate reduction in customer IRRs have been passed on again during the quarter, and again there would have been some timing loss in that process in the quarter which is fully established right now for the quarter that we speak about which will be Q4, so broadly on surrender only taken care of on account of G-Sec incorporated through the quarter, and you will see the expansion of NIM story that I was saying will fully reflect in Q4 of this year apart from the size of the volume that you.
Is it possible to quantify the independent impacts like for the surrender value if it were not to be there, what could be? You know, margins for TQ would have been high by let's say 15-20 basis points or whatever the number is. Similarly for the repricing impact on the non-par side, is it possible to quantify these two in independent buckets?
Possible, but like I said, it will have to get through every period of one month because, like I said, when 23 products get launched, you have to launch that first before deciding the drop in the rate. But I can reach out to you separately for details on that. Separately.
Sure. Thank you very much.
Thank you. Next question is from Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Good evening for taking my question. First question is on NBFCs. There are two sub questions there. First one is, if I look at our presentation, there has been a deceleration in disbursements in this quarter. So I remember hearing in our opening remarks we've been talking about calibration in our unsecured businesses and growing our secure business. So but if I look at the segments and presentation I see there is very broad-based deceleration in this quarter. So how should we read that? And the related question here in NBFCs again is that there have been NBFCs who've reported earlier during the quarter and who've been talking about completely dialing down their partnership businesses. So I mean just wanted to understand how are we thinking about our basically consumer lending business that we do through partnerships that is on NBFCs. I have one more question.
The second one is on the ABCD app. Again I see on your slides you talked about introducing credit line and UPI from the next quarter. So just wanted to understand if you can give some color of how we are thinking about that product. And lastly out of our disbursements in the HFC in the Q3 in nine months, what proportion of disbursements came from BTs? Those are my questions.
From where. Sorry,
can you repeat the third part? Third question,
the balance transfer in BT in, what proportion of disbursements? Same from BT
Abhijit, the first question on disbursement slowing down in Q3 , as you know there are different cycles in terms of the business through the year. So yes Q2 was stronger but if you compare year on year I think primarily the decrease is coming from the consumer segment which is 47% down year on year. Again Q4 will be better so we should be able to catch up on disbursements. So that's your first answer on consumer loans through partnerships. As I mentioned in my opening remark, we have built capability in terms of sourcing through branches. So now we have almost 450 branches through which we source consumer and MSME business. Also we have built our own digital journey for consumer loans which is our own direct consumer journey.
That's another piece which we are really building up and we have ecosystem is another one through which we are trying to build scale and third, fourth one is ABCD app. That's another platform through which we are sourcing and on the MSME side, the Udyog Plus. All of these four, five things is what will help us in terms of driving our consumer and small ticket MSME loans. Clearly that's how our strategy is clearly to own the customer, own the journey and clearly end to end ownership of the customers and the journey.
I did the second and third question, Pankaj. Here, the first question, the answer is a bit nuanced. Guidelines on UPI I just explained that to you. When a customer opens an ABCD app and he's creating a handle, the handle is your mobile number @ ABCD ID. Currently there are two options which come in for the customer. One is that you know, you link your bank account. So you link your existing bank accounts, you know which are there. That's one payment mode. The second is of course if you've got a RuPay credit card then you are able to connect a RuPay credit card. What credit line UPI means is that currently credit line on UPI is live with, you know, all the issuing banks.
So if you know you are a customer and for your respective account, if a bank has given you a credit line on UPI then when you are creating the UPI handle, the third option also which will come is that first option is bank account. Second option could be RuPay credit card if you have it. Third option would be the credit line which has been given here by issuing bank which you can link. Once you link it on the ABCD app then you can make payments from all the three. So that's the first you know, part of the story. So we will be going live with that functionality. So if let's say a customer has an Axis Bank account for example and he's already got a credit line from SBI Bank and he's also having a prepaid wallet in UPI.
When he opens up the app he will be able to he or she will link up the credit line. That's one. Second is we are also going one step further. There could be some customers who may not have the credit line, you know, from the bank. It's not pre-authorized. Working with the banks to ensure that the line can actually go to that particular bank and they can provide a credit line and then instantly we should be able to hook it up for credit, you know, credit line on UPI facility. If the credit line or UPI is not there open for NBFC.
In times to come, you know, we have also put in our request, you know, to make sure that, you know, that also gets done and that happens, then that line could also be an ABFL line which could, you know, make this completely in-house. Coming to the third question, which is BT in. Like you rightly are asking, we also track disbursements which come to us, you know, which is the first time. And also the BT proportion of retail disbursements, that number ended at 20% of the total.
Now can you repeat that please? What was BPM?
Yeah, disbursement that we do. That proportion is between 8%-10% of it in that we do.
Okay. And just one clarification. So on the NBFC, when we answered that the deleveraging is coming primarily from the personal and consumer loan segment, I'm just trying to understand there's nothing in the macro today that is worrying you because I see that even secured segments Q-on-Q, there has been some deceleration. So nothing in the macro today. Right, which is just worrying you is what I'm trying to say.
Also, as I mentioned, there are cycles throughout the year. If you look at there are four quarters and there are some quarters which are stronger and some quarters which is slightly muted. So that's the reason. Yes, if you look at our portfolio, performance over and through the cycle has been very, very strong on the MSME side and the secured portfolio side. So we don't have any concerns there. We don't see that as derailer. We want to continue with the growth opportunity. And I think if you look at the budget, the recent budget also from a consumer side, the income tax benefit which has come below 12 lakhs and also the and any guarantees and enablers which have come for the MSME. I think these are strong opportunities for players like us.
Thank you for answering your questions, and I wish you and your team the best.
Thank you.
Thank you. Next question is from Avinash Singh from Emkay Global Financial Services. Please go ahead.
Yeah, thanks for the opportunity. A couple of questions. The first one on your lending businesses against what I want to understand. I mean if I look from the profitability perspective and go back say four quarters in the NBFC, you were kind of delivering nearly 2.4 odd % kind of a ROE now at this juncture, of course that, you know, secured unsecured business winding down, that had an impact. But today kind of a, you are at 2.1 or % ROE now from here to say 2.5% because I recall even at a 2.4 odd % the ambition was to further improve eventually. I mean what was 3.
But now from this 2.1% if you are aiming for say 2.5-odd%, I mean how this road is going to be because if I look at the interest rate perspective, by and large I mean on the asset and liability side fixed and floating are matched. So I mean the rate cut cycle is also if at all not going to help there. So rather improvement has to come from. I mean largely I would expect from the margins because on the OpEx side you are already reasonably good. So how this journey and how long will this take again? Say maybe 2.1%-2.5% journey. That's on the NBFC side on HFC side. Now of course I mean you have been investing a lot in capacity building and that is delivering growth but that is also leading to sort of currently OpEx ratio is being elevated.
So, at what scale, what timeline—I mean, you would expect—and what is that optimal? Your OpEx to AUM or cost to income? I mean, currently you are running more close to 2.9% kind of OpEx to AUM and for HFC to be kind of a reasonably I would say respectable profitable, you need to significantly lower it down. So what could be the timeline at what scale? Probably you would be hitting that and what is that desired sort of OpEx to a yield? These are sort of a question for lending and just one housekeeping kind of a question. If you can just provide some color on the NCD transactions that you have done in this quarter in NBFC. I mean, what were the underlying asset? What sort of, you know, recoveries, cash or like what they structure with ABCD. Thanks.
First question was on your ROA, which is from 2.4% it has come down to 2.1%, and that's primarily a result of the margin compression which we spoke earlier as we change the product matrix and improve our disbursement and growth in personal and consumer and also the MSME unsecured. I think that margin expansion should happen. Also, if you look at the overall product mix at this point in time is almost 74-75% unsecured. That should also help us, actually, maybe in the near future in terms of bringing down the credit cost. So I think these are the two levers which should help us to go from 2.1% to 2.4-2.5%, so that's the question you had on ROA.
I'll go next. So I think the question that you had raised was not what is the long term? You know, how do we see the ROA moving up. So if you see the numbers I think currently the NIM is 4.94% and as you had mentioned the OpEx to average credit cost 19 basis points. We've been speaking about this that as the loan book will grow and to our question at what capacities the operating leverage, you know, will come in disbursements to book as a proportion of new disbursements to loan book keeps reducing because the book becomes larger. The current OpEx to average loan book which is 2.8% it's you know, bound to, you know, get to in the range of somewhere 1.6-1.7% in the next 18-24 months which is 110-121 basis points reduction.
Now we also expect that the NIM for FY24 both in comparative sensitivity cost of borrowing also changing a bit in the range of between 4.6 to over 5. So if that is the number, if 4.7 is the NIM, 4.65 the NII and 165 to 170 basis points is the OpEx with a similar kind of a credit cost the ROA post tax will be in the range of between 2 to 2.1. That is the, you know, guidance broadly that we are working towards and you know, those numbers should get achieved between the next 18 to 24 months. That is, you know where we are on this and I think the growth I already spoke about, you know, we want to continue the trajectory of growth so we expect that between the next 18, 24 months where the book size will be.
So that is where we are on the.
On the ARC front. There's no new transaction we have done. It's the profitability is due to the increase in the net asset value of the asset we are holding. So that's the reason for the profitability. Otherwise we've not done any new transaction in Q2.
Thank you. Next question is from Punit Bahlani from Macquarie Capital. Please go ahead.
Yeah, thanks for taking my questions. Mainly on the PCR bit, you said that, you know, because since you are going to, you know, a secured mode, the PCR is low. But as we, you know, plan to expand our personal loan business, is it fair to assume we'll be heading back towards the 50% PCR level? So what's the plan there? And accordingly, should we bake in maybe some 10 to 12 credit costs? Also, when I look at the unsecured business, the stage two and stage three has increased by around 30-20 basis points, so what's, like, are there any forward flows? Is there any cause of concern here in this business? And thirdly, on the overall stage two, like, your stage two has increased but the stage three has declined.
So while you clarified you know that then stage two you have managed to pull it off in January. But is the stage three decline because of higher write-offs or is it any other reason? Yeah, those are my three questions. Thank you.
First question on PCR: when we grow consumer and personal loans, whether the PCR will go back to 50%. See, the PCR is an outcome of the ECL model and in unsecured business grows. Yes, the PCR will grow. To answer your question, if personal and consumer and unsecured business grows, the PCR will grow. The second question which you had on the forward flow of to the unsecured. If you look at the personal and consumer, that has been quite stable in spite of book not growing and degrowing. I think that is quite stable. Both Stage 2 and Stage 3 on unsecured business; these are marginal increase in Stage 3, Stage 2 and Stage 3.
But that's on account of if you look at the forward flow in that segment is anywhere between INR 40-INR 60 crores on a quarterly basis and last quarter also the forward flow is INR 50 crores. So there is nothing new or nothing worrying which we are seeing. It's because of the denominator effect. You are seeing the percentages looking slightly higher.
Got it, got it. And since this is credit guaranteed, like what is the timeline? I think last quarter we had highlighted that 12-15 months, you know we get the recoveries and all. Is that also maybe a reason that the recoveries once they come in then you account and you know the number shrinks down. Something like that.
Yeah. So this is a question of a cash flow object B, and when and how this, and once the new financial year, I think there will be release of funds and also should be a yes. But to answer your question, there can be a question on the cash flows. It's only a timing issue.
Got it. Got it.
Thank you very much. Due to time constraints we'll have to take that as the last question. I would now like to hand the conference over to Ms. Vishakha Mulye for closing comments.
Thank you everybody for joining us. If there are any more questions, please feel free to reach out to any of us and we look forward to answering all your questions. Thank you so much.
Thank you very much. On behalf of Aditya Birla Capital Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.