Ladies and gentlemen, good day and welcome to the AU Small Finance Bank Q2 FY27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. I now hand the conference over to Mr. Prince Tiwari, Head of Investor Relations and FIG, AU Small Finance Bank. Thank you, and over to you, sir.
Thank you, Rutuja. Good afternoon, everyone, and welcome to AU Small Finance Bank's earnings call for the second quarter of financial year 2026/2027. We thank you all for joining the call this evening. On today's call from management, we have our Founder, MD, and CEO, Mr. Sanjay Agarwal; our Executive Director, Mr. Vivek Tripathi; our CFO, Mr. Gaurav Jain; and IR team. CFO sir will start today's call with 15-20 minute opening remarks highlighting the bank's performance, positioning, and outlook. We will follow the opening remarks with 40-45 minutes of Q&A from participating investors and analysts. For the benefit of all participants, and so that we can take everyone's questions, we would humbly request everyone to keep the number of questions restricted to two per participant and join back in the queue in case you have further questions.
For any data keeping questions, you may kindly reach out to the IR team anytime post this call. With that, I now request Gaurav to share his opening remarks.
Thank you, Prince. Good evening, everyone, and thank you for joining us for our Q2 FY 2027 earnings call. Q2 was our 38th quarter as a commercial bank, and over the past decade, we have navigated a dynamic operating environment while strengthening our balance sheet, building multiple growth engines, investing in technology and talent, and maintaining a sharp focus on risk management and governance. Q2 was another quarter where the bank demonstrated resilience and strong operating performance amidst a challenging macroeconomic backdrop. The operating environment in this quarter continued to be influenced by geopolitical risks and monetary policy tightening, with MPC raising policy rates by 25 basis points to 5.5% and shifting stance to calibrated tightening. While domestic activity and credit demand remain healthy, we remain watchful of the implications on liquidity, deposit pricing, loan yield, and demand.
Now let me walk you through the key highlights of our performance in Q2. Our deposits grew strongly by 29% year-on-year and 8% quarter-on-quarter versus banking system growth of 18% year-on-year. This was despite not meaningfully participating in the strong FCNR inflows in the banking system due to our limited overseas footprint. We garnered around $230 million of FCNR deposits on a gross basis in Q2. CASA deposits continued to see strong growth at 29% year-on-year and 11% quarter-on-quarter, with CASA ratio sequentially improving 70 basis points to 29.5% from 28.8% in Q1. Loan portfolio grew 25% year-on-year and 7% quarter-on-quarter against banking sector credit growth of 19%. Secured assets, which remain the foundation of our lending franchise, grew by 26% year-on-year and 5% quarter-on-quarter.
Unsecured businesses grew 23% year-on-year and 8% quarter-on-quarter, led by microfinance and personal loans. Disbursement for the quarter was up by 33% year-on-year, driven by broad-based growth across businesses. This balance sheet growth translated into healthy operating performance. Net interest income increased by 32% year-on-year on the back of strong growth in loan portfolio and 33 basis points YoY expansion in margins. Sequentially, margin declined by nine basis points to 5.8%, driven by higher share of investment, total assets, and seasonality. Sequential loan spreads remained broadly stable, with decline in loan yields of 9 basis points largely being offset by 7 basis points decline in cost of funds. Fee income grew by 16% year-on-year, driven by healthy business volumes. Treasury profits were lower on a YoY basis, leading to muted total other income growth of 8% year-on-year.
Operating expenses increased by 26% year-on-year, driven by growth in disbursement volumes and continued investments in distribution, brand, and technology. Operating leverage continues to play out on underlying basis, with cost to assets ratio excluding guarantee premium improving from 4.1% in Q1 to 3.9% this quarter. We expect cost to assets ratio to improve year-on-year on a full year basis. Core PPOP grew by 31% year-on-year to INR 1,480 crores, whereas provisions declined by 25% to INR 359 crores, largely led by normalization in unsecured businesses. Asset quality metrics remained stable during the quarter. Slippage ratio improved on a year-on-year basis to 2.6% versus 3.3% a year ago, supported by improvement in unsecured businesses, while slippages in the secure assets remained stable.
GNPA ratio declined by 42 basis points year-on-year to 1.99%, and credit cost, including guarantee premium, declined by 45 basis points year-on-year to 0.8%. Profit after tax grew 53% year-on-year to INR 858 crores compared to INR 561 crores in Q2 FY 2026. ROA for the quarter improved to 1.7% versus 1.4% in Q2 last year, and ROE improved to 16.1% versus 12.4% in Q2 last year. For the first half of FY 2027, profit after tax improved by 45% year-on-year to INR 1,654 crores compared to INR 1,142 crores in H1 FY 2026. Similarly, ROA and ROE improved to 1.7% and 15.8% respectively, compared to 1.4% and 12.9% for the same period last year. In terms of other strategic updates, we continue to invest in our people, distribution, branding and technology to strengthen our foundation for the next phase of our growth.
During the quarter, we added around 2,400 employees, largely in customer facing roles to support our increased distribution, with 45 new deposit branches and 100 plus asset centers added in Q2. We also strengthened our senior leadership team with Mr. Anil Agarwal joining as Senior Executive Group Head to lead our commercial and institutional banking business. Mr. Amol Padhye formally assumed the role of Chief Risk Officer. We have also stepped up our brand investments across television, print and digital media, with association with "Kaun Banega Crorepati" being a prominent investment. This month, we also inaugurated our new corporate office in Mumbai, marking an important milestone in our journey. In the next few months, our entire senior leadership will be co-located in this office, bringing us even closer to the broader financial ecosystem.
In terms of our credit rating, on 1st October, ICRA ratings upgraded our credit rating outlook to positive from stable, while reaffirming our long-term rating at double A. Coming to our technology and AI initiative. As announced last quarter, our tech strategy is organized across three pillars of run, build and transform, with dedicated teams and leadership for each area. Run and build capabilities are enabling the bank to scale faster while serving customers more intelligently at lower cost and in uniformity. Transform pillar is focused on ensuring AI adoption at scale and moving AI from individual use cases to an enterprise operating model. Our deterministic agentic AI platform is a framework of responsible AI, human in the loop governance, model explainability, full auditability, zero trust security with real-time risk monitoring. This enterprise-wide automation is driving straight through processing and process.
Our investments in data lakehouse and analytics platform have started to show some traction. For example, our cross-sell platform together with voice AI enabled 5% of our total disbursement in Q2. Importantly, this automated customer coverage led to 50% operating cost savings, led by voice AI disbursement. Additionally, the scorecard and underwriting models delivered INR 500 crore plus of disbursement in unsecured loans during the quarter. Agentic AI LOS for gold loans is showing promise, with over 2,500 loans disbursed till date, delivering faster turnaround times and superior customer service across 40 branches. Increasingly, the bank is focusing on scaling agentic AI journey to these mortgages and commercial loans while redesigning five priority back office and control functions as AI native workflows. Overall, our technology investments remain focused on delivering measurable business outcomes while creating a scalable foundation for sustainable growth and long-term differentiation.
Now let me provide some color on our key businesses, starting with deposits. Our liability franchise is classified under two broad verticals, branch banking and commercial and institutional banking. Branch banking forms around 60% of our total deposits and focuses on relationship-led customer acquisition and servicing. Commercial and institutional banking now comprises all other deposit verticals, including government banking, commercial and wholesale banking, FIG and capital markets, where the mandate is to build a stronger current account led deposit franchise through deeper solution led engagement across transactional banking, cash management, Forex and institutional banking. In Q2, total deposits grew 29% year-on-year, supported by strong growth of 55% in CASA balances and 23% in CASA balances. On a daily average basis, CASA balances grew 16% year-on-year, whereas CASA balances were up 24% year-on-year.
New CASA account acquisition during Q2 also remained strong with 45% year-on-year growth in acquisition of premium accounts. During the quarter, bank also received SEBI approval for providing UPI sponsorship services under the ASBA framework for IPOs and public issues. This has strengthened our capital markets and transaction banking proposition and helped bank position itself as banker to an issue for public market issuances. The strong deposit performance reflects several strategies coming together, sharper segmentation, dedicated liability channels, wider distribution, stronger brand, and an improved customer proposition. These capabilities, built over several years, are now translating into stronger acquisition and more granular broad-based growth. We are encouraged by the progress but remain focused on sustaining it with the right mix, pricing discipline and quality of deposits. Moving on to our assets franchise.
Retail secured assets comprising these mortgages and gold loans form 66% of our portfolio and grew 22% year-on-year and 5% quarter-on-quarter. Within retail, Wheels crossed the INR 50,000 crore milestone this quarter and grew 27% year-on-year and 6% quarter-on-quarter to reach INR 51,000 crores. Growth was driven by strong demand in the new borrower segment, as well as increasing disbursement traction across newer geographies. Gold loan business grew 102% year-on-year and 4% quarter-on-quarter to INR 4,700 crores. Mortgage business comprising micro business loans and affordable housing grew by 12% year-on-year and 2% quarter-on-quarter, with growth largely being led by MBL and LAP business, where disbursements are up 17% year-on-year.
As mentioned in the past, we are not looking to chase affordable housing loan growth given our cost of funds and the competitive intensity in the segment. Moving on to commercial banking. This business grew 39% year-on-year and 8% quarter-on-quarter to INR 35,300 crores, with broad-based growth across subverticals. Transaction banking and Forex income grew by 51% year-on-year, reflecting improving product penetration and stronger customer engagement. With growth remaining robust, focus in commercial banking is to become progressively self-funded with every lending supply chain and corporate banking relationship having a current account, CMS or collections and payments proposition attached. Now moving on to unsecured businesses. Our inclusive banking franchise, which primarily includes MFI, grew 23% year-on-year and 6% quarter-on-quarter. Collection efficiency was stable at 99.6%, and 99% of the book is covered under the CGFMU guarantee scheme.
Our digital unsecured portfolio also reported a strong growth of 23% year-on-year and 14% quarter-on-quarter. Personal loans grew by 81% year-on-year and 31% quarter-on-quarter off a low base, supported by analytics-led cross-sell and calibrated new to bank acquisition. The credit card book saw marginal growth with INR 1.5 lakh new cards issued in the quarter. To conclude, Q2 reflects continued progress across our deposit franchise, lending businesses and profitability. As we look ahead, institution ahead of its scale by strengthening governance, leadership, and organizational capabilities while simplifying processes and leveraging technology, data, and AI to improve customer experience and productivity. While we remain watchful of the operating environment, the investments we have made in our businesses, teams, and distribution provide us a strong foundation to pursue growth with discipline, granularity, and consistency.
We remain confident in our ability to compound sustainability, deliver predictable performance, and create long-term value for all our stakeholders. I would like to thank our teams for their commitment and all our stakeholders for their continued trust in us. With that, I will now hand it over to Prince for Q&A.
Thank you, Gaurav. Rutuja, we can now open the floor for question and answers.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may please 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 Akshay Jain from Autonomous . Please go ahead.
Hi, sir, and thank you for the opportunity. Sir, two questions. First, on your margins. I can see that your margins have declined by 9 basis points quarter-on-quarter, and you have attributed higher investments as the reason behind it. My question is on this liquidity. You have seen a deposit growth of 8% Q-o-Q, and even if we adjust it for FCNR, it is strong at 6.7%. What is driving this strong deposit growth? Is it some one-off or is it because the larger banks have vacated the domestic deposit space for FCNR? What should be the sustainable deposit growth incrementally and also the margins?
Hi, Akshay. Prince here. Thank you for the question. I think on our overall deposit, we have been commenting for some time that as a bank, we have been investing heavily, both in our distribution as well as technology and getting processes right, make it easier for the customer to onboard themselves to bank with us. What you are seeing is net-net a result of that. I don't think there is any one-offs there. There could definitely be some transactional current account flows which came through last quarter. I would not say it's a one-off. It's something that we have been working upon as a bank, and we have started to see some bit of result of that, and that's why you see the CASA ratio in the quarter going up by almost 70 basis points on a quarter-over-quarter basis.
I think if you recollect, our public guidance has always been that our deposits will continue to grow faster than or in line with our loan growth. On our loan growth, given that this quarter, because loan growth didn't have any FCNR component. Loan growth has grown at about 25% on a year-over-year basis. Deposits have just followed that. There's nothing specific to call out there, I would say. It's more the granular work that the team is doing, and that puts us a lot more confident going into this next cycle.
What should be the sustainable deposit growth? Should we assume the current run rate of, say, 26%-27% as sustainable, or should it cool down a bit incrementally? Even on the CASA front.
Yeah. Akshay, Sanjay Agarwal this side. No, I think the whole endurance of organization is just to look for a sustainable deposit growth, right? You already commented that we want to relate it with the overall nominal GDP growth of the country. The country is growing this year in the range of 8%, and which we are expecting around 25%+. This half year-over-year 29% growth can be little bit more than what we expected. I think the whole architecture of building a deposit franchise has been really clearly laid down in the organization strategy. We have a retail branch banking franchise, we have a commercial banking franchise, government banking franchise. Overall, we believe that from last nine years now, 38 quarters, we really have worked every day on our deposit franchise.
And now it is the time and it is really paying in for us.
Yeah. Also, if I can add, Akshay Jain, if you see the average balances, I think we have given the daily average balance also for current account and savings account. That also reflects, I think Gaurav Jain covered it in his speech. On a YoY basis, you are seeing both current account growing at about 60% on an average basis and savings accounts also growing 24%. That also tells you that this is more transactional money rather than any one-off.
Our target is to grow in the range of 25% year-on-year. It should depend on the debt market and the overall condition. We are very happy to see our growth irrespective of our not doing so well in our FCNR quality.
Understood, sir. Second question is on asset quality. This quarter has been pretty robust on asset quality. What would be the outlook on asset quality? Given the El Niño and the uncertain macro, plus many of your peers have warned of the impact of drought, especially in certain regions in Central India. How should we expect asset quality to behave incrementally and any change to credit cost guidance?
Yeah. Akshay. So of course, there are that many vulnerabilities which we are all going through. But the silver lining is this, that our six-month credit cost is around 73 basis points or 74 basis points. We have given a guidance of close to 90 basis points, so we have enough room for any kind of vulnerabilities or one-off. But largely, some of the districts or states might be facing challenges due to drought or high oil prices and auto, whatever, right? But the data has not shown any kind of stress till now. But yes, finger crossed, let's see how quarter three behaves because whatever will be there will be coming to quarter three. I do not expect any surprises in quarter four, to be honest. But Vivek, you want to add on something?
Yeah. Largely, what we anticipate. So far, till September, everything has been in line. And what we anticipate that we would be within our guided range. So we do not anticipate that we will be reaching in. So in terms of product also, I would say one of the most vulnerable product has a very wide coverage now. 99% of that book is covered under CGFMU, so we do not worry that much.
Is it safe to assume that your SMA levels as well as the collection efficiency are still pretty robust and you are yet to see any deterioration over there?
Absolutely.
Yes.
Absolutely, yes.
Thank you, sir. Those are my questions.
Thanks, Akshay. Thank you.
Thank you. The next question is from the line of Jayant Kharote from Axis Capital. Please go ahead. I am sorry to interrupt you, Mr. Jayant. We are unable to hear you.
Hello, am I audible now?
Yes.
Hello. Yeah. Congrats for the good set of numbers. First question is on slippages. If you could help us understand which segments have seen an inch up Q2 versus Q1 in terms of slippages. That is first question. I will come back with my second.
Jayant, both Q1 and Q2 sequentially is not comparable. Typically, it is not apple-to-apple comparison. To have a right comparison, you have to compare it with the last year Q2 because the tractor is the one product where you have a billing cycle twice in a year, right? This quarter you had a tractor billing, and tractor billing will have a little bit of impact on your overall slippages, right? It has a seasonality because it is linked with the crop cycles. I would say, if you look at the improvement area from last couple of quarters, that has largely been from the unsecured side. Our credit card and microfinance franchise has stabilized.
It is absolutely in shape. On the secured retail asset or commercial asset, there has never been a challenge for us. That always has been a rain power. We do not see any sort of a reason to ascertain that any change in the slippages. It is more of a seasonal and more of a tractability.
Understood.
Get the-
Sorry, you can continue if you want. I can go on to the second one.
No, go ahead, Jayant. Next question.
Okay. Second was on the insurance fee income impact. While there is some ROA impact to that tune, we have been guiding for this 1.8% ROA outlook consistently. Given that this could be maybe 7, 8 basis points of impact, what levers do you have to ensure that our ROA profile remains stable going ahead? Why I'm asking this is, as I can see, you're shoring up deposits or liabilities as you scale up. That is going to weigh on your NIMs, right? Probably right strategy to invest on the liability side from the medium-term perspective. How do you manage the ROA profile with this surplus liquidity on the deposit side continuing for the next two, three years, and then that insurance hit coming?
Yeah. So look, when you speak about the ROA outlook in the sort of, say, medium-term. Clearly, there will be some headwind from this insurance fee income consultation paper. It remains to be seen what is the final shape in which this is ultimately passed. But irrespective of that, there'll be some impact. What I want to add is, there are other line items within the other income line, which are growing on a secular basis. So we have a Forex business which we started a couple of years back, that is gaining quarter on quarter. We also have credit card issuance is bouncing back. So that is also aiding sort of my other income fee pools. We're also growing our trade finance business. So there are other fee pools which will help offset some of the headwinds from the insurance side of things.
In terms of other components of the ROA three, w e have been discussing extensively the operating efficiency as a key driver on a multi-year basis. When you look at our cost to assets ratio of about 4%, that compares with other mid-size banks who are operating between, say, 2.5%- 3.5%. I feel confident that on a multi-year basis, we should be looking for sequential improvements on this, despite continuing to invest in our franchise. Then on credit costs, we have said that long-term, you should expect 90 to 100 basis points of credit costs on a through the cycle basis. So, that will depend on how each year is playing out. Those are some of the key drivers.
The final one, again, I don't want to comment on quarter- on- quarter, but we have a deposits franchise which is gaining momentum and traction with each passing quarter. Prince spoke about, and I mentioned in my opening remarks, how we are adding propositions which are for differentiated segments, how we are investing in our distribution, in our technology, and in our brand. My deposit franchise will improve, which should help me lower the cost of funds differential versus other peer mid-size banks over a medium-term outlook. I think those are some of the things which will help. These are some of the known things which we think we should have. Then there's always stuff which comes out of the woodwork, both on the negative side and positive side.
We remain hopeful that there are other stuff like the UPI, MDR, income line, et cetera, which will start to come into play. Multiple things to offset this.
Sorry to interrupt. May I request Mr. Jayant to please rejoin the queue? We have other participants waiting for turn. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, we would request you to please limit your question to two per participant. The next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. Hi. Thanks for taking the question. Particularly on the deposit side from two contexts. One is we have grown at a pace faster at almost 28%-29% odd, and other banks are flushed with liquidity from FCNR. What would be our deposit rate strategy? Would we continue with this 80-90 basis points of premium on the term deposit side? Or given that other banks would not be very aggressive, would we look at tweaking the deposit rate? What would be our deposit rate strategy in the current environment?
Yeah. Kunal, Sanjay this side. I think 80, 90 or maybe 100 basis points premium to other banks, we want to be on that strategy only because we haven't seen any rates coming down because of FCNR deposits. It was largely on the, I would say, wholesale deposits where some cut happened. We also calibrated ourselves. That is why our cost of money for quarter 2
has come down. In a larger sense, we need to build our deposit franchise and we need to build with some kind of price, and that we really want to be like this till we get a new platform and we settle on the new platform. I think deposit franchise remains our top priority and we will not play around with market-driven forces or events. Rather, we want to be on our own path and create more and more end customer and treat them holistically or serve them holistically so that in the long run, our franchise became more stable and sustainable.
Okay. In rising rate, if other banks don't react in terms of increasing the rates, we might still react, looking at maybe our growth profile and maybe our strategy which is there. We will not be more market determined.
No. I am not saying this. I have ju st saying this because we have had our strategy, which is always based on some market datas and all those things, but it is not driven by not many optics numbers. Whether we are pricing our 100 basis more or we are pricing with some other body. It is our own strategy where we want to raise our money. That will continue. If money becomes expensive, we need to build our deposits franchise around that. But our deposits franchise is now becoming more and more, I would say, visible. It is gaining the traction. We are building our franchise more in sense of that people are trusting us and knowing us more and more. So the cost of acquisition and the effort in acquisition is now going down.
That is the way I am explaining where what we have done around deposit franchise is one of the example where how we can calibrate both the cost and the growth. So it is a balance of both. Let us not read too much, and I would say we go along with the requirement of the business.
Got it. Secondly, on OpEx to asset. So this quarter, again, we saw quite a significant jump on OpEx side, 7% quarter-on-quarter. When we look at overhead cost, that has gone up by almost 11 odd percent quarter-on-quarter, 35% year-on-year. So currently it is still in line with the overall AUM growth and we keep talking about the OpEx efficiency. So when should we actually start seeing this efficiency? I understand we have added branches, added employees over past couple of quarters, but when ideally this operating efficiency would start to play?
Look, there are two impacts. When we look at the 25% year-on-year increase in costs. So there is an underlying cost which is supporting the existing business and then there is investment which is going for improving the platform need through technology, distribution or branding. So the 25% is a net result of that. But if you look at on a cost income ratio or on a cost to assets ratio, we are either stable or improving on that. So on an ROA three basis, I think we improved on a year-on-year basis when you look at Q2 numbers.
Okay, got it. Okay. Thanks for answering the questions.
Thank you. Next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Thanks for the opportunity and congrats on good results. I have two questions. One is on the gold loan growth. We have been earlier reporting pretty strong growth, 100%+ , but this quarter is a little outlier in that strong growth context. Is there anything to read into this from this quarterly growth perspective? Second is again, going back on the margin. In general, there has been a concern about the fixed rate nature of the bank and how the rate cycle is playing out. So what levers do we see to maintain margins and is there any risk that we are looking at that can play out on the margins if the competition for deposit items going further? Because the book will take some time to reprice. So how is the management looking at that?
Nitin, I will maybe first comment on margin and then ask Sanjay to comment on gold loans. So margins, I think if you see our margins this quarter, the loan spreads have been similar. If you compare quarter-on-quarter basis. While the cost of funds have gone down by about 7 basis points, we have also seen some decline in the yield because of the mix change. That is what we had articulated last time as well. So I think the larger part of the NIM decline has been coming from the higher liquidity that we have mandate or basically the higher investment book that we have run as a percentage of total assets. Then there has always been that day count impact, which keeps altering between quarters. So this quarter, I think there was an extra day count. So that had impact of 3, 4 basis points.
But if I go forward and if I look forward, then I think a couple of key components to the NIM. One is obviously on the cost of funds. On cost of funds, as we articulated this quarter, the cost of funds benefited from transactions current account balances, which had gone up significantly. As somebody else said in the call earlier that the system liquidity is drying up from the FCNR, there was a lot of system liquidity that also helped. But I think that has started to dry up and the rates have started to go up. Especially in the short-t erm, you can clearly see rates going up.
This probably will put capping in terms of further improvement in our cost of funds. So going forward, it will be more a function of liquidity and deposit competition, which will determine the trajectory of cost of funds. I think to answer your question that we peg our deposit cost to the mid-sized banks. So if they react, we will necessarily be forced to react given the platform and disadvantage that we currently have. As far as the yield on bonds is concerned, I think that was your question, that 30% of our book is floating rate and 70%-
Yeah
is fixed rate. So this 30% floating rate book that recent repo hike that has happened of 25 basis points, that will get transmitted over the next three to four months. It typically takes about three to four months or one full quarter. So the full impact will be visible next quarter. But it will start happening from this month onwards. In case any future rate hikes happen, then that will further go on to support the yield on this 30% of the book. As far as the 70% of the book is concerned, which is fixed rate, I think there we will have to just go with the market, and if there could be any pickup in the disbursement yields in the market, then I think that should start reflecting at our end as well. We will follow that upward pressure.
Otherwise, it is a function of what the asset mix is going to be. As you know that this time, I think unsecured book is also available to us, which was not really there last time, and it has started to come off the cycle and started to do well. So if you ask me a very point-blank question that are we better prepared compared to the last interest rate cycle, the answer is yes. Why I say that, I say that because of two or three reasons, and I think we talked about some of them on the call. One, the overall floating rate book, which is now 30%, provides some cushion. Second, if you look at the deposit rate tenure itself, what we have done is we had elongated our retail deposit tenure, the peak rate from 18 months- 36 months.
That should also help. The biggest point that I want to highlight, or the second biggest point is the interest rates in the system haven't gone down to the extent the repo rate cut has happened. If you look at the last three quarters since December quarter last year, even though the RBI cut the repo rate by 125 basis points, the deposit rates haven't really reacted that strongly. We do believe that when the rates start to go up, probably some of that is already baked into the market price. The last point, I think as a deposit franchise, we are in a much better position than we were in 2022 when the last interest rate cycle kicked in. The franchise is much bigger. We are investing in our branches.
We are a pan-India franchise, and obviously there could be a tailwind from the platform transition as well. I would say all in all, we do think that we are in a much better position to traverse this mini cycle as compared to where we were last time.
Got that. Thanks, Gaurav , for the detailed explanation. The second question was on the gold loans.
Yeah. Hi, Nitin. Vivek here. See, gold loan, if I have to just look at the year-on-year growth, it is pretty strong. It's more than 100%, though we are starting from a very small base. It remains a highly attractive franchise for us, and there is a whole lot of distribution available to us to grow this book. Whatever moderation we are seeing in the near- term is just because it's a reversal of gold loan prices which has impacted two things. One, the renewals. The second, the BP portfolio from the industry. I don't think that we have to read too much into it. There is a whole lot of distribution which is available for us, and our focus remains on this product where we see that we have a strong headroom for growth available to us to grow this book.
We will continue to keep on investing on the distribution of this product.
Right. Vivek, any possible to share any color around the LTVs in this product?
LTV remains range-bound. There is a proper mechanism. There is a breach happens of the margin call, et cetera. So it is well-defined. At a portfolio level, it is about 75%. That remains, which was there in the last quarter, which is there in this quarter. So there is hardly any difference. What it does, if the metal prices are not increasing, the possibility for you to renew that customer or take the top-up loans or do a BT from somewhere else reduces and hence you are seeing industry-wide it will slow down.
Got that. Thank you so much.
Thanks, Nitin.
Thank you. The next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Hi, Nitin. Good evening. A few questions from my side. I will just list them out there. Firstly, on the CASA deposits, the bank has seen a very commendable acceleration in the past few quarters.
Sorry, Ashlesh. Ashlesh, cannot hear you properly. Can you just pick up the handset?
Yeah. I am just listing out a few questions. Firstly, on the CASA deposits-
Sorry to interrupt you, Ashlesh, but your voice is breaking in between.
Okay. Is this better?
Are you connected on a handset mode?
Yes, I am on a handset right now. Is this better
Is this better? Hello?
Hello? Cannot hear you, Ashlesh.
Ashlesh, we would request you, Ashlesh, to please come in a proper reception area. We would request you to please rejoin the queue because we are unable to hear you, sir.
Sure. Okay. I'll do that.
Thank you. In the meanwhile, we'll move to the next participant, Mr. Piran Engineer from CLSA. Please go ahead with your question.
Yeah. Hi, team. Thanks for taking my question. Just going back to one of the earlier participant's question. I understand slippage can be seasonal and you should not compare Q1 with Q2. But if I take this year's 2Q and I compare it with before MFI crisis, so let's say 2023 or 2022, it is still slightly higher. Again, is there something to read into it? Is it just transitory? How do we read this, especially in an environment where all banks are reporting very low slippage numbers? How do we read this?
I think the comparison of 2022, when you are coming out of a very different cycle where most of the NPAs were hardly recognized and the acceleration of the asset quality happened. This is very different. Second, the composition of the book. We had a very small some of the book like tractor, which I said that it has only two cycles of representation. There is a six-monthly billing. If you have a billing in June, slippages would happen in September. That book today is about 12%-13% of my Wheels book. That will have a cyclic impact. Whenever there is a representation. June and December, both are the cycles when the billing happens, and subsequently in September and as well as March, you will have a tractor slippage. There is no comparison.
I think just to conclude on this topic, because we have already answered. I think it is not explained.
Mr. Piran Engineer.
Hi, Piran. Sorry, I missed your name. I would think, Piran, we have already answered this slippage question, I think, on several occasions. I will just say one last point on this and then we will probably not be able to take any further questions on this topic. Very simplistically, I think there is nothing to read there within the last three or four years. Numbers are not really comparable. We should compare what Vivek said year on year. That is the more relatable trend because there is always an element of seasonality into our portfolio. Again, it is unfair to compare with the banks. Banks lend to a completely different segment in a completely different yield curve. Our segment is entirely more self-employed and earn and pay segment.
I would say when we looked at our internal data, when we looked at year-on-year comparison, adjusting for seasonality, there is nothing underlying there which points out any early warning signals.
Got it. Okay. That is done. And just secondly, in your initial comments also, you mentioned that you are not chasing affordable housing finance due to higher cost of funds. But just wanted your thoughts on two things. One is, yes, your cost of funds are not comparable to a regular big bank.
Not only cost of funds, we said competition as well.
But how do you think about the total cross-sell potential of that customer and, let us call it simply put, the lifetime value? It is a large market, affordable housing. In fact, we have started one of the largest NBFCs a decade back.
No, I think you are right. Our communication would have been taken wrongly. What we said that on an isolation basis, we do not want to build more housing book, and that too an affordable housing book. But if our existing customer who is having a good bank balance with us or relationship with us, we want to provide them a mortgage loan on the current market rates or maybe lower than that. And we already started that. But that cross-sell of the book won't give you a large mortgage book because we are not attempting on a very secular basis. So that was our commentary. It was not raised upon our existing customer.
Got it. Okay, and just one last question, if I may please send-
I am sorry to interrupt, Mr. Engineer. We are unable to hear you, sir.
Okay. Sorry. My question was the commercial banking book. What is the mix between fixed and floating rate loans?
Commercial banking, most all of it is floating rate.
Sorry, could you repeat that?
The entire book is floating.
Okay. Got it. Yeah. Okay, that is it from my end. Thanks and all the best.
Thank you. The next question is from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Hi, good evening. Thank you for giving the opportunity. My question is on the mortgages piece and mortgages book, which is a large book, but the growth there has been slow for a while. So how can the growth revive there? Second is on the Wheels portfolio or the Wheels segment, which is your auto loans and commercial vehicle loans. How has the festive period gone in terms of demand and what can be the growth outlook? Are you seeing that the growth can actually come up on a larger base? Hence, if these two segments don't really grow well, can we then sustain this 25%-26% growth momentum in the coming quarter?
Okay. Wheels business absolutely in good shape and form and shape. We are growing by 27%, 28% year-on-year, and the festive demand is strong there. It will only go up from there because there is Diwali coming up next month and all those stuff. I don't think there is a challenge for us to grow in that sense, and we don't want to grow above our level also. We have a large bucket from two-wheeler to entire commercial or a personal range. That is largely sorted, and we want to become one of the most prime lender in this segment. As far as mortgage is concerned, it has three part of it. One is more MBL or LAP. The older market of us is growing in the north of 15%.
We don't want to grow our housing book much, but there also the growth rate is around 10%, 10%. But in southern markets where we acquired business through Fincare Small Finance Bank, we really want to again rebuild in that market with the strategy of AU as one unit. It may take some time in southern market because we want to build with our own culture and values and our own strategy. But we are really focusing on our mortgage business and we are hopeful that the distribution we have across country, we should touch in the range of 20% by next year. We are pretty fine with that range because other book, which is commercial banking or unsecured piece, is growing more than 25%. Overall, we are targeting again in the range of 2 to 2.5 times to nominal GDP rate side.
We have enough bucket available with us, and we can grow any of them to maintain that growth rate.
Mm-hmm. Got that. Any comments on collection efficiencies in October in spaces like microfinance, small business loans, and tractor finance? One more related question is on the PCR. We have seen a PCR decline. When you guide for a credit cost of say 90 basis points for the whole year, are you also looking at restoring the PCR a bit, raising PCR in the coming quarter?
Yeah. [Swathup], we do not actually target PCR. It is all about the policy and the provisioning. We have become actually more stringent. If you look at the end of Q1, we have given the disclosures as well that we had become more stringent on as well as provisioning as well as on the write-off. It is not function of targeted PCR. The PCR had come down because we had written off some of the book with the alignment because there was an unsecured book, there was a two-wheeler book. Within the unsecured piece, there were three, four books which had a little differentiated write-off policy. We aligned everything, all the books in one line. Hence, you add more of that. Second, as your security guaranteed book is increasing, which is about 78% of the total overall book, it would look lower.
When you add back the guaranteed portion, it would be actually much higher. It would be about 67%-68%. Yeah.
And in terms of the-
Got it.
Giving the colors of October, that is something within the middle of month won't be possible. As we said that till September 30, we had no impact. There are certain things t o watch out for the whole country, we are also watching out, and there is nothing to read in between that.
Got it. Thank you. Best of luck.
Thank you. The next question is on the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Hi, team. Good evening. Can you hear me now?
Yes, you are audible, sir.
Okay. Sir, just a few questions from my side. I will list them out. Firstly, on the CASA deposits, the growth has been quite commendable in the past few quarters. It would be great if you can share the cost of SA deposits and term deposits for this quarter. I believe the last quarter disclosure was 505 in SA and 727 TD. That is one. Secondly, if you can talk about the trend in slippages in the mortgages business, specifically on a quarter-on-quarter and year-on-year basis. Third one, general banking fees have declined year-on-year in this quarter. Can you explain the reason there and also remind us if there is any seasonality in the booking of any of the fees inside this item? Lastly, CGFMU, if you can call out the INR cost in this quarter and the previous quarter.
Sorry, what was the last one, Ashlesh?
CGFMU premium cost.
Yeah, some of these are very descriptive questions. I do not think we disclose some of these data. I would suggest, whatever is already publicly disclosed, we will keep our answers to that. Savings cost, we do not disclose it, but I think you had asked this question last quarter as well. The rate continues to be similar to what we had told you last quarter. There is no material change there. Then as far as the mortgage book is concerned, slippage.
Got it.
Yeah. Mortgage, I will not quantify but give you a directional answer that it is better off quarter-on-quarter, it is better off year-on-year. On the fee side, I think it is just seasonality. There is nothing else to read into it.
Okay. Can you just elaborate a bit more because on a year-on-year basis, I am wondering what is the seasonality here?
No, no. I think last year, same quarter, we probably had some more income on insurance. On a full year basis, our view is that that should get adjusted. There is nothing more there. I think if you see all the other lines, in terms of processing fees, that is up 17%. If you look at the credit card fee, if you look at the transaction fee, both are up more than 50%. I think it is only the banking feel where largely the cross-sell income goes. There, again, our view was that this quarter was a bit slow and we remain on track to deliver on a full year basis. Nothing much to read there.
Understood. Perfect. Thank you. Those were all the questions I had.
Yeah. Thanks so much, Ashlesh.
Thank you. Ladies and gentlemen, as that was the last question for today, I now hand the conference over to Mr. Prince Tiwari for closing comments.
Thank you, Rutuja, and thank you everyone for joining the call today and for your questions and for all your support. In case you have any further questions, kindly reach out to th e IR team. This is Prince signing off on behalf of AU Management and thank you so much. Look forward to joining you next quarter.
Thank you very much. Ladies and gentlemen, on behalf of management of AU Small Finance Bank, we conclude this conference. Thank you all for joining us and you may now disconnect your lines. Thank you.