Ladies and gentlemen, good day and welcome to the Q1 FY2026 earnings conference call for Bajaj Housing Finance Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ajit Kumar from JM Financial. Thank you, and over to you, Mr. Ajit Kumar.
Thank you, Darwin. Good evening everyone, and welcome to the 1Q FY2026 earnings conference call of Bajaj Housing Finance. First of all, I would like to thank the management of Bajaj Housing Finance for giving us this opportunity to host the call. From the management team today, we have Mr. Atul Jain, Managing Director, Mr. Gaurav Kalani, Chief Financial Officer, and other senior members of the management team. We will have opening comments from the management team, post which we will open the floor for Q&A. With that, I would like to transfer the call to Mr. Atul Jain for his opening remarks. Over to you, sir.
Thank you, Ajit, and JM team for hosting us. A very good evening to all people joining on the call. I have with me Gaurav, who is our CFO, and all the senior members of the team to be present here to answer any questions which you have once we have gone through the invested deck over the next 10-15 minutes. I'll quickly highlight the important aspects or important panels on the deck, and then we'll open the forum for question and answers. I'll move to panel number three first. Overall, Q1 was a balanced quarter with an AUM growth of 24%, which was driven by moderation in real estate market coupled with intense competitive pricing resulting in higher attrition. PAT grew by 21%, and ROA of 2.3% was in line with Q1 FY2025.
Asset quality remained healthy with GNPA at 30 basis points and N NPA at 13 basis points, respectively. OpEx to NTI remained flat at 21.2% against 21% in Q1 FY2025. In terms of geographical coverage, we operate through a network of 217 branches across 175 locations. Annualized ROE for the quarter came at 11.6%, and annualized credit cost was 0.16%. Capital adequacy remains comfortable, aided by capital raised during the last year with CRAR at 26.9%, and PBC ratio, which is a principal business criteria for being an HFC as defined by Reserve Bank of India, was at 61.71%, above the regulatory requirement of 60%. I'll move to panel number four now. I've covered overall AUM growth on the previous panel. At product level, home loans grew by 21%, LAP by 30%, lease rental discounting by 29%, and developer financing by 32%.
During the quarter, AUM grew by INR 5,736 crore against INR 5,701 crore in Q1 FY2025. Portfolio mix continues to remain well-diversified with HL mix of 55.8%, LAP of 10.5%, lease rental discounting at 20.4%, and DF at 11.9%. In terms of disbursement, company disbursed INR 14,651 crore in Q1 FY2026 against INR 12,004 crore in Q1 FY2025, a growth of 22%. I'll move to the next panel. Cost of funds on sequential basis saw a reduction of 21 basis points and stood at 7.7% in Q1 FY2026 versus 7.9% in Q4 FY2025. This was owing to incremental borrowings at lower rate coupled with repo rate transmission benefit on existing borrowing. Borrowing mix remained well-diversified between various instruments where money market stood at 53%, bank borrowings at 37%, and NHB refinance at 10%.
Broad spread for the quarter was flat at 1.8% on sequential basis with reduction in portfolio yield, which got offset with reduction in cost of funds. Net interest margin stood at 4%, and that too also was in line with Q4FY 2025. OpEx to NTI was flat at 21.2% in Q1FY 2026. Company's digital initiatives continue to get traction with e-agreement penetration now at 93% and improved penetration in digital customer onboarding journey now at 88% in June 2025. I'll move to panel number six. Healthy asset quality during the quarter with GNPA of 30 basis points and NNPA of 13 basis points as of 30th of June 2025. Annualized credit cost stood at 16 basis points in Q1 FY2026 against five basis points in Q1 FY2025.
However, if we exclude overlay release of INR 250 million in Q1 FY2025, normalized credit cost would have been at 17 basis points in Q1 FY2025. So, 16 basis points in Q1 FY2026 versus 17 basis points normalized in Q1 FY2025. Profit after tax grew by 21% to INR 5.83 billion in Q1 FY2026 against INR 4.83 billion in Q1 FY2025. Annualized ROA for the quarter was 2.3%, which was in line with Q1 FY2025. Annualized ROE was 11.6% in Q1 due to excess capital post capital raises done in FY2025. Overall net worth stood at INR 20.508 billion as of 30th of June 2025. Now, I'm jumping straight to panel number 15. These are key financial indicators for medium-term guidance, but they have not changed from the previous quarter type. I'll move to panel number 17. I've covered the majority of the metrics in the previous slides.
However, during the quarter, net total income grew by 25% as an additional metric. Operating expenses grew by 26%. Overall PAT came at INR 583 billion against INR 483 billion. Moving to panel 19. As evident, portfolio yield reduced by 20 basis points on sequential basis and 30 basis points on year-on-year basis and stood at 9.5% in Q1 FY2026. While cost of funds also witnessed a reduction of 20 basis points on sequential as well as year-on-year basis to 7.7% in Q1 FY2026. Thus, on a sequential basis, the broad spread was flat at 1.8%. However, there was a reduction of 10 basis points over Q1 FY2025 because of a 30 basis points reduction on the portfolio yield. The cost of funds reduced by 20 basis points.
OpEx to NTI, as we called out, was flat at 21.2% due to investment in SBU and non-metro markets, as we called out during last quarter investor day. Now, I've already covered asset quality, ROA, and ROE on the previous panels. We move to panel number 20. Well-diversified borrowing mix, which is borrowing backed by borrowing relationship with 17 banks. NCD mix had inched up 5% sequentially. Corresponding reduction in bank borrowing by 4.5% and NHB refinance by 0.40%. This resulted from we borrowed more long-term long-tenor NCD during the quarter gone by to optimize cost of funds. Move to panel number 23. Overall well-diversified AUM mix witnessed movement between products while staying within our guided range. LRD mix improved sequentially by 1.3% and reduction in developer finance by 60 basis points, home loan by 40 basis points, and LAP by 20 basis points. Moving to panel 28.
GNPA and NNPA has been covered on earlier panels. Stage 1 assets had slight reduction of 3 basis points on sequential basis to 99.36% at Q1 FY2026 with increment of 2 basis points in Stage 2 assets at 0.34% and 1 basis point in GNPA at 0.30%. Provisioning coverage ratio remained healthy at 56.25%. Moving to panel 30. In terms of product-wise GNPA, marginal increment of 2 basis points in home loans at 0.36% in Q1 FY2026 while improvement of 4 basis points in LAP at 0.61%. Overall GNPA thus inched up by 1 basis point. Overall NNPA inched up by 2 basis points to 13 basis points as of 30th of June. Moving to panel 31. This is a new panel which we have added for the first time. As we have started focusing on invested deck.
While the medium-term guidance continues to remain intact as called out in the earlier panel, given the rate reductions which have happened since February 25, we have added this new panel in the current quarter on management assessment of key financial indicators for FY2026. Due to heightened competitive activity, pricing on the acquisition, higher portfolio attrition, and benign real estate market, AUM growth assessment for FY2026 is now expected to be in the range of 21% to 23%. In terms of operating efficiency, as the company has been investing in the newly launched SBU and the non-metro market coupled with NIM moderation due to lower rate scenario, OpEx to NTI remains expected to be flat in the corridor of 20%-21% in FY2026 in line with what we delivered last year. These metrics are also expected to hold across portfolio and remain within our medium-term guided range.
Coming to profitability, NII is expected to remain stable and in line with FY2025. While NIM or NTI may moderate by 15-20 basis points, this is because of two factors. One is reduction in investment income, which was higher in last year due to excess investment post two rounds of a capital raise, and also lower income on derecognized loans because we have planned for lower assignment in the current year versus what we did in last year. Now, ROA is expected to remain range-bound at 2%-2.2%, which is in line with our medium-term guidance and with ROE moderation of 11%-12%, which is resulting from equity overhang of a capital raise of FY2025. Now, this is all on important updates for quarters from my side. Me and the management team are happy to take questions from the forum. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. The first question is from the line of Dhaval from DSP. Please go ahead.
Yeah. Hi. Thanks for the opportunity. I just wanted to check a couple of things. First is on the guidance for FY2026. Effectively, we have cut down our AUM expectation by approximately 300 basis points versus our previous assessment. In terms of margin, there is another 5 basis points of impact, mainly because of the additional repo. I mean, last time I think you remember, I think you said 70 basis points. Now it is already 100 basis points. Another 5 basis points of margin compression and no improvement in OpEx because of the additional investment, which is basically offset by the 5 basis points net cost benefit compared to your earlier expectation and hence the ROA in the 2.2 corridor. Is the broad guidance understanding correct or is there any change? That is the first question.
Broadly correct, Dhaval. 21%-23% against at medium term over 24%-26% is AUM growth trajectory is correct. Margins, we are likely to see a completion of 5 to 10 basis points, which is what is called out. Improvement in OpEx, while on a ratio, you will not see improvement. But on an operating efficiency point of view, I'll only like to call out that we will continue to improve because improvement is not visible because one, investments is one part, but the second is also moderation in NIM and NTI, like we called out, because of a lower assignment. Because OpEx to NTI ratio has two parts. One is a growth in income, second is the OpEx. OpEx efficiency, we continue to drive despite the investments what we are making. But because of a moderation in NIM as well, like if I have to give an example, if the NII to NTI would have been the same in this quarter one FY2026, the way it was in FY2025, from our OpEx to NTI would have looked at 19% against 21.2%. So operating efficiency is continuing to be there despite our continuing to invest. But NIM moderation or NTI moderation will mean that the OpEx to NTI line will look flat as far as the ratios outcome is concerned. I hope I've been able to answer your question, Dhaval.
Understood. Yeah. No, this is very useful. Just one other thing which I wanted to touch base is on the growth expectation. Typically, we see this in every rate cycle that there is a lead lag between the competitive environment, where someone benefits on the cost of fund better than others. Over a period of time, it catches up. Do you see this somewhere in the second half of this year and maybe early 2027, you see the catch-up happen from a competitive dynamics perspective? I mean, what are the ways to basically go back to our medium-term growth expectation? I mean, just wanted to hear your thoughts on that.
Our hope would be that by end of quarter three or so, we should be able to go back to, that's why we have not changed our medium-term guidance. Why we have changed the assessment for the current year. The reason for that is because of very intense competitive activity. As you can see, the disbursements grew by 22% on a YoY, but AUM growth was same or flat in terms of an absolute number. Because of a heightened competitive activity due to rate cut pressure in the segments what we operate, we estimate that will still flow through for one or two quarters or after that, we are expected to come back to the normal trajectory what we think. That's what we assess as of today.
What would be our incremental spreads? Where would we be today and your expectation for the full year?
NII is expected to remain flat in compared to what last year was there. Growth spread at 1.8% plus minus 4-5 basis points here and there is what we continue to maintain because that we control through the change in the product mix or change in the segment because that's where we want to be in the corridor. NTI will go down because of, like we called out, lower investment income in the current year versus last year because of an overhang for excess capital last year was much higher and we keep on consuming every month as we go forward. Second is a lower assignment income.
Got it. No, this is very useful. Thanks. All the best.
Thanks Dhaval.
Thank you. The next question is from the line of Raghav from Ambit Capital. Please go ahead.
Hi. Good evening. I just have a few questions. One is on the LAP growth. That's been pretty strong for the last many quarters. I just wanted to understand. What are you doing to deliver this kind of growth in the LAP portfolio? Is it expansion into newer states or new customer profiles? I just want to get some. Just want to get better color on this. That's my first question.
Raghav, the way we look at LAP and LAP and lease rental discounting, we look at an interchangeable segment basis as a risk-return profile. We had called out, I think, two quarters back, stating that as the return ratios become favorable, risk-return ratios become favorable for LAP portfolio, we can increase our weight on the LAP, which is what we had done versus. Because there is a home loan portfolio because of a PBC requirement, then there is a non-home loan portfolio where LAP and LRD both fit. It is basically opportunity. We see an opportunity which is risk-return metrics being more positive in LAP versus LRD, we will increase that ratio. We are data-dependent and the market competitive activity dependent. Because LAP, the pricing had rectified to a certain extent in the market in last two quarters what we saw. That is why we could grow LAP more. If there is a. It will depend upon risk-return ratios, Raghav. We remain u nderstood. We remain committed to grow whichever part of the business makes better business sense for the company.
What would be your disbursement yield on the LAP portfolio and versus say whatever you're charging in the home loan portfolio? How much higher would it be?
Approximately on a thumb rule basis, I think it will be higher by 100-120 basis points. I'll just give a minute. I'll ask Gaurav to check the data exactly.
Understood.
My approximate ballpark figure will be 100 to 120 basis points.
Between the portfolio and.
Portfolio yield of HL2 lab.
HL2 lab. 1%.
100 basis points. Which I said 100 to 120 basis points.
Okay. My other question is on the employee OpEx rate. When I just look at your employee OpEx and then divide that by the average number of employees, that number, which is sort of an indicator of salary expense, has been growing at a rate of 30% for the last many quarters. What is driving such growth in the salary costs? Where do you foresee this trend or growth rate settling? When do you see this growth rate coming down? Because 30% for the last many quarters is a pretty steep growth rate, right? I just wanted to understand why is this the case?
Okay. Good question. Employee cost has year-on-year grown 20%. From INR 113 crore to INR 135 crore. Are you looking at the same number, Raghav?
It's a different number because 30% is not the number what we have. 20% is the number what we have. In fact, last year, it was a flattish versus last year. If you have to, last year was a flattish number versus the previous year number. Last two years put together, we would have seen close to 20% kind of a growth in the salary cost. To answer that question, where is the growth coming in the recent quarters, we have seen in the salary is coming largely from the investments what we have done in SBU, what as we called out, and also the non-metro market. Also, it would continue to be done for the next six months.
I'll say at least next two to three quarters, it will continue to be there because as we continue to expand non-metros, I'll say maybe another one quarter to two quarters where we continue to invest to reach as a reasonable size. SBU probably will continue to invest not only in the current year but in the next year as well as we continue to expand our geographic presence and the customer segmentation. At an overall level, it will not impact materially in the company OpEx lines that we are mindful of. That's where I called out OpEx to NTI ratios, the efficiencies, operating efficiencies will continue to build despite our building or making this investment, which is as a NIM moderation tapers off, you will again start seeing the operating efficiencies coming in.
Understood. I was just referring to this employee count, which seems to be about 10% lower YoY. I think your explanation held a lot. Can I move to the next question?
Yeah. Please. Hello.
Yeah. Okay. So I just wanted to clarify whether you said that NIM may moderate by 5-10 basis points. Is that what I heard? Is that the correct understanding?
It will moderate to 10 basis points, roughly. 5 to 10 basis points.
Okay. One explanation was that you will do lower assignments. The other one was lower investment income. What is the reason for this?
Lower investment last year, it is YoY comparative what we are doing last year since we had done an excess capital because we did two rounds of a capital raise. One was in the rights issue what we raised in April, and then there is a public issue of INR 3,560 crore what we did there. Consequently, we were carrying much higher levels of investments. As the capital got consumed, the issue proceeds got deployed. The current year YoY, the investments are going to be lower. Coupled with the yields on the investment of the current year is going to be lower because of a lower interest rate regime. Both the factors put together, there will be a lower investment income, which is visible in the Q1 to Q1 FY2025 to Q1 FY2026 as well. If you look at the differential between after NII to NTI, the differential is NII is above, but NTI is lower versus Q1 to Q1.
Okay. I will say for example, if I look at cash and investment side, if I look at it for this quarter and compare it to one Q1 FY 2025, cash and investments, I'd say percentage of borrowing of total assets, it seems to be same YoY. There's not a material difference.
Raghav, you're looking at a 30th of June figure. When we look at the investment, it's an average investment and average cash carry during the quarter. At the quarter end, the figure can be the same, but average investments for the quarter can be very different even when the same number is the same.
Okay. Thank you a lot for those explanations.
Thanks, Raghav.
Thank you. Our next question comes from the line of Nischint Chawathe from Kotak. Please go ahead.
Hi, t hanks for taking my question. If I look at the growth rate in home loans, and that's kind of consistently sort of slowing down from 30% in the first quarter of last year, now going all the way to around 20-20.5%. I am curious, is this because of just heightened competition, or is it to do with the fact that demand has not yet picked up? What is it that is happening over here? I know you do not give a breakup of disbursements, but some color in terms of whether there is any growth in disbursements or not.
Nischint, the growth rate in HL has come down due to, I have noted it, three factors. One is a real estate market has been showing some moderation over the last two to three quarters, as evident from various reports, what you would have seen as well as what published in newspapers. Even when you look at the bureau data for home loan disbursals in the last two quarters, last two-three quarters versus earlier, there is virtually no disbursal growth. There is an AUM growth, but no disbursal growth at an industry level. When the industry growth is not there in disbursements, for you to continue to grow disbursals at the pace what you are growing becomes difficult because you have to take the part from someone else. To answer the question in that sense, the disbursal growth is still happening in the retail side f or Q1 versus last Q1, we would have had a 12% disbursal growth as far as home loans are concerned. It is higher attrition because of a competitive pricing, which is one part. Second part is the market being slower than what it used to be, specifically YOY. That is what is resulting into the growth being low.
Got it. Any sense in terms of, I know you explained the competitive dynamics changing aspect, but any sense in terms of any revival in demand that you would probably expect?
There are two parts. Demand for a size of a demand perspective, I think we are a small player. As of now, we have a good highway to cater. As we continue to expand in our segmentation of near-time and affordable, we will continue to grow the disbursals as well as the AUM, even if the demand, let us say, remains sideways. What we see in Q3, which I said as an answer to the first question, we see by Q3 the pricing disruption and accordingly the portfolio attritions to stabilize, which will mean that we expect or we should be back on the mode by Q3 or so as per our estimate in case there is no further large pricing disruptions in the market, which we do not estimate to be, but I am just deviating that if there is no large further pricing disruption in the market, growth even remaining sideways, I think we can revert to our original growth numbers even if the growth overall industry level remains sideways.
Got it. Now, in terms of rate transmissions, you would have done two cuts, right? If I recollect rightly and if you could just sort of spell that out once again for us.
Third cut was done on 1st of July. There are two parts to the rate transmission. One part is that there is a significant amount of a book which is linked to external benchmark, even in the asset side. There the rate transmission happens as per the benchmark which is agreed and passed on. One is linked to our internal benchmark. Internal benchmark where the prime salary book, we have passed on three cuts till now from the rate cut cycle, which is totaling a total amount of 45 basis points on the existing portfolios on internal PLR. On the external repo link benchmark portfolio, which is also significant in our case, there is a full 100 basis points of a transmission which has happened.
45 is fully passed on or 45 will be reflected from or how much will be reflected from the next quarter?
45, 20 is passed on on 1st of July. What we are factoring in for the ROAs for the coming quarters or for the full year is factoring in what we have passed on on 1st of July because there is an incremental cost benefit also which is going to accrue in the Q2. We expect our cost of funds to go down further by close to 20-25 basis points in the Q2 itself. It will hold, the NII will hold. There is a reduction in the portfolio yield as you will see the next quarter or after that result, but there will be a corresponding reduction in the cost of fund also what you'll be able to see.
Got it. Got it. This is very helpful. Thank you very much. All the best.
Thank you. Our next question comes from the line of Prithviraj Patil from Investec. Please go ahead.
Yeah. My question is on the yield and the disbursement growth. If you could just spell out the incremental yield on the HL and LAP portfolio and the disbursement growth as well for the HL and LAP portfolio for this quarter.
At the retail portfolio, like I called out in Nischint also, the disbursal growth was 12% versus Q1 FY2025. Incremental yield at the HL level, just give me a minute. I'll check from.
8.76 in HL.
In HL, aggregate average yield is 8.76% for the quarter gone by. Incoming, i ncoming portfolio, i ncoming. But it's an aggregate of because we operate from 7.5% onward. On the prime, most of the customer, we operate at 7.5%, which is after the June rate cut. April by June is an aggregate of April. The pricing was different. May was different. As of today, it will be lower than what was at Q1.
Okay. Yeah. And for the LAP part?
Corresponding reduction in cost of funds as well. Sorry.
Yeah. Yeah. For the LAP as well, the loan against property part, the disbursement growth and the incremental yield?
Disbursal growth will be. Yeah. I'll have to at a product level, that's why we gave at a retail level, I think, but it will be in the similar range because there is not, it's largely HL, which is more dominant. In terms of yield, it will remain between 9.6, 100-120 basis points higher than what it is in HL because it is a portfolio yield as well as the incoming portfolio yield. If 8.7 was the incoming portfolio for HL, 8.76 average in the last quarter, it will be roughly in range of 9.7-9.9.
Okay. Thank you. That's it from my side.
Thank you. The next question comes from the line of Abhijit Tibrewal from Motilal Oswal . Please go ahead.
Yeah. Hi. Am I audible?
Yeah, Abhijit. Hi. You're audible.
Yeah. Hi. Hi sir. Good evening. The first thing is just a clarification. You have repeated that twice already, but this disbursement growth of 12% that you spoke about, is it HL disbursement growth or is it your retail disbursement growth, which includes your HL and LAP?
Between HL and LAP, it will be similar almost.
Okay, o kay. But this is both HL and LAP put together?
Yes. Retail, r etail, r etail.
Retail. Got it. You spoke about that the lowest rate which is being offered by BHFL in HL is currently 7.75%.
7.49%.
Just trying to understand. 7 point?
49.
7.49%? That's the lowest rate which is being offered by us. Sir, I mean, from what I could understand, right, this moderation in growth guidance is also factoring in competitive pricing on acquisition of new loans. What is the rate that is being offered by competition, perhaps because of which, looking at the risk-return metrics, we are having to let go of some of that business?
There are various companies and various banks which are offering at a different price. That data is there in the public domain carried by most of the newspapers. The rates are varying from 7.3-7.35% from largely public sector banks to 7.8-7.9% from a few private sector banks. When we also say when we start at 7.49%, it is a spectrum which starts with, but there is a depending on the customer bureau, customer various attributes, aspects, income range, the rate varies. 7.49% is for the best of best customer, and there is a staircase on the type of a customer and also the income profile, bureau profile which applies. The lowest range in the market today would be starting at 7.3-7.35%, which is largely all public sector banks. Going up to for the real prime customer, up to 7.75-7.8%, between 7.35-7.7% for the topmost customer, then there is a range which keeps on going down. Yes, the rate pressure or competitive intensity is very significant in the market.
Got it, sir. The second question I had was on the stage 3 PCR. I saw it's declined. I mean, understandably, still remains healthy, but has declined about 4% QOQ. Just trying to understand, went up in the fourth quarter, has declined again. I mean, what is happening there on the stage 3 PCR line?
Abhijit, it is a function of at the stage where the case because there's an ECL model on various DPDs, various cases which moves. There is a differential of LGD and the provisioning rates which get applied. There is no change between the provisioning policy of the company between March to June. It's a function of an outcome of, it's a function of an outcome of because there are cases which is as per our policy, we go and provide extra than our ECL model if the risk assess is to be there. The provisioning coverage can look like elevated if there is a risk assessment on an additional risk from a few customers which is outside or in addition to the ECL versus in a quarter if they're now assessed the customers to be having higher risk than the ECL model assessment. ECL model remains stable, Abhijit.
There is an assessment-based additional provisioning in some quarter which can risk can take on a few of the account which can result into PCR moving to a certain extent. Like we have guided also in the medium range, as we continue to grow, as we break bigger and unfortunately, while not wanting us, NP pool also will grow bigger. These swings in PCR ranges will not be there because today NPA pool is total INR 300 crores odd. The provisioning coverage can swing on basis few cases assessment of risk being higher. Please mind it, we are not saying that below ECL we can provide. It is above ECL risk assessment which can vary.
Got it, sir. Thanks for that. Sir, last question. Again, circling back on margin.
Abhijit, just to close loop.
Sorry.
LGD for us as an ECL model is 40%. So anything above 40% is then is an additional risk assessed on the accounts which is there. In the long range, at some point of time, it can even be a 40%, but not if the risk has not assessed any particular individually case to be more riskier than the ECL model. Just to close, t he fact that is where the range can be s winging between basis risk assessment on an individual account.
Got it. Just to clarify on that, what you suggested is, I mean, 40% PCR is good enough based on the LGDs that we have, but, I mean, based on your additional risk assessment, right, there are higher PCRs that you are carrying on certain.
As for the ECL model, we are required to have 40% provisioning coverage. However, we take a conservative view and the risk and collection teams, data management teams take a calibrated call on where do they see if the long-term risk additionally is going to provide for, they recommend for additional provision which then results into a higher PCR.
Got it, sir. This is useful. And sir, just last question, circling back again on margin and the PLR discussion that we've already had in the call. So sir, total three PLR rate cuts totaling to 45 basis points, including the last 20 basis points PLR cut which you did on July 1st.
Yes.
So just trying to understand, sir. A, I mean, how often is the ALCO meeting done and at what frequency can PLR rate cuts be done in the future? I think, I mean, there will be a component of competitive intensity and the portfolio attrition that you are seeing, which will dictate that. That was first part. The second part was, sir, in the last earnings call, you'd guided for margin compression of 10-15 basis points. And also kind of added there that some bit of it can be mitigated through a change in product mix or a product mix improvement. This time around, we have guided for a 15-20 basis points margin compression this year. So now that mitigation through improvement in product mix will no longer hold this year, is it?
No. So Abhijit, two answers. First, on the ALCO frequency, ALCO happens every month. However, there is an ALCO subcommittee which is a management committee which is headed by me, which happens twice a month. The ALCO, in that sense, twice a subcommittee and subcommittee is empowered to take calls basis the emerging data and basis the movement in the cost and the market competitive there. We are pretty agile there. It is technically three times in a month also, there can be a movement which is feasible on the basis of ALCO subcommittee decision, which is empowered as per ALCO process.
Second, on the margin compression, when we are saying 15-20 basis points, like I called out in the earlier question, it is largely due to what we are saying elevated from a 10-15 basis points to 15-20 basis points is because of a reduction in other income due to lower investment income NVSA is in the current year with rate reduction, lower investment income, and also lower cash being carried because of a lower there. We have toned down our assessment of assignment, what we are going to assign out in the portfolio. If the growth overall is lower, projected to be lower, then we do not want to assign out that much portion because we will want to build more capital efficiency.
Those are the two factors which is resulting into, while the mitigation in terms of a product mix is still playing out. That is why NIIs we are projecting to hold in line with the last year. In fact, I will say that we are being more optimistic on holding the line. That is why we are saying whether cost of fund reduction coupled with mix shift will hold the NII line. NTI line is impacted because of those two factors what we have called out. I hope I have.
Got it, sir. This is clear. Yes, sir. This is absolutely clear. Thank you very much. Sir, I wish you and your team the very best.
Thank you, Abhijit. Thank you.
Thank you. Our next question is from the line of Viral Shah from IIFL Capital. Please go ahead.
Yeah. Hi. Thank you for the opportunity. I have a couple of questions. One is on the margin. I think it's more of a clarificatory, I would say, question. You mentioned 5-10 basis points kind of a margin compression or minimum compression. That is incremental, right, versus 10-15 you had mentioned earlier?
Yes. Yes. Yes.
Okay. Secondly, Atul, you mentioned and the reasons that were mentioned is, A, because of the lower DA income which we have. Secondly, of course, the cash levels which are there. Over there, I just want to understand how does this impact the minimum or the core NII which is there? That will be forming part of your NTI, right, the non-interest income.
Yeah. Where I called out specifically, NII we are expecting to hold is NTI. That is what is even called out specifically in panel number 31, that NII for FY 2026 is largely expected to be stable and in line with FY 2025. However, NIM, which is NTI or NIM, as you call it, because NII is expected to be stable, there is a NIM or NTI which is going to be moderated by FY 2026, which is that is exactly after NII, these two incomes come after NII. That is what we have called.
Got it. Basically, the NIM that you are defining is basically the NTI as a percentage of the assets.
Yes.
Not the core interest income and the expense there.
That's what we have called out specifically as NII. NII is expected to be stable. That's what we have called out.
Got it. Secondly, over here, Atul, if I look at it, given the rate reduction, there will be also a higher relatively treasury income also, right? If we strip that out on a core basis, the NIM as you define or the, say, NTI, that will be slightly lower, right?
We do not have a treasury income line in that sense. The treasury income line is only the cash carry, what we carry as extra money to invest in, and that is whether as a LCR requirement of either T-bill or a GSEC or money market mutual fund. We do not run a treasury portfolio in any manner because we are an operating company. There is no treasury portfolio of investments that we run. There is no treasury.
What I meant is basically whatever the cash and the investment book that we have, that will be some gains because of the rate cuts, the GSEC rate reductions, right? The mark to market that will happen.
Because the total investment carried at the end of the quarter is INR 3,000 crore, which is a mix of T-bill, GSEC, money market mutual funds, or there is the yield jump up in terms of because and that is not a book which we carry for a long term. We keep on liquid because that is a book we run for LCR requirement. We do not run a treasury investment book so as to say for gain or a loss. We carry the investments only for the purpose of maintaining LCR ratios, and they keep on getting liquidated or booked basis the cash requirement of the company. There is no permanent investment book in the company.
Got it. I think the second question is, I would say, more on the growth front. You mentioned, of course, the reasons for, say, the near-term sluggishness, which are there. How confident are you, say, when we get into FY 2027? You will still have, I would say, there is always a lead-lag effect, given that for, I would say, close to one and a half years, we would have had lower disbursement growth. How confident are you that FY 2027 will go back to, say, a 2024 kind of at least an even growth versus, say, not even talking of 2025 or 2026?
We are confident as of today that we will be going back to the growth path by Q3 of the current year itself because that's what we look at. As you see, our disbursement growths are not that big a problem today because of hyper-competitive activity. That's what we said at even Q1 at a retail level also, we grew disbursements versus last year by 12%. The growth has been absolutely flat because of higher attrition, which is a factor of more intense competitive pricing and also the rate cut cycle which has happened at a very elevated level, or you can say 100 basis points cut between February to June. The impact of it is we expect to stabilize over the next two, three, four months, or at a max at five-six months kind of a level.
Thereon, as the attrition gets normalized, we expect or we assess to be back on our normalized growth path. It's not even FY2027 what we are talking about. We are talking about in four, five, six months. As the attrition pressures get normalized, we should be back on our normal growth path.
On a disbursement basis, you are saying. For book growth for this year, it will be 21-23%?
Disbursements have still grown. Even in the current quarter, we expect the disbursements to grow significantly over last year. However, the AUM is not growing because AUM has remained flattish. Growth has remained flattish versus last year because of a much higher attrition. As attrition stops growing or attrition gets normalized, the AUM growth, we are likely to see back coming to the normalcy.
Got it. Very clear, Atul. Just last question from my end. Given that we will be, say, assigning lesser quantum of portfolio in this year, will we also, or rather, will that also impact at the margin our credit costs? Because generally, there is a provision relief that happens when we assign. Does that kind of, say, accelerate our movement towards the medium-term credit costs?
Yes. Yes. We believe that's a good problem to have because it's a stage one asset provisioning. As long as it's not, say, while the credit cost is a factor of a stage one plus stage two, stage three, you rightly called out. If you assign out, you see a lower credit cost, which is actually not a lower credit cost, but it's a good asset provisioning not being there. Non-assignment will mean there will be a higher stage one provisioning, which consequently may look like a higher credit cost through the P&L.
Got it. Very clear, Atul. Thank you and all the very best.
Thank you.
Thank you. The next question is from the line of Shubhranshu Mishra from PhillipCapital . Please go ahead.
Hi, Atul. Hi, Gaurav. Agreed.
Hi Shubhranshu.
Two or three questions. The first one is, what would be 65-70% of the HL portfolio as a yield or what would be that number? I understand that we are not giving the lowest rate to everyone. Second is that you did speak about some degree of slowness in the real estate.
I could not get the question right. Can you clarify what you mean when you said 65%?
A bulk of our portfolio, whatever that number is, 50%, 60%, what would be that blended yield? Not on the entire portfolio. What is basically our comfort yield or a mid 80% range for our portfolio, HL portfolio?
Hi Shubhranshu. Gaurav, it would be a home loan overall would be around 9% at a portfolio level.
Shubhranshu, it is difficult to cut a portfolio at a 50% level and say that whatever it is looking at the mix of the overall portfolio.
No, no.
Overall portfolio, so HL yield is at a portfolio yield is around 9%.
Around 9% as of 30th of June, which is the number which is given.
Right. In that 55% that you give out, what is pure HL and what is proper?
See, pure HL has to be above 50% as per the regulated requirement. The exact number would be IHL number as nearest on 30th of June. 50.7 or 50.79 or 50.8 is a percent.
50.9%.
50.9% is a pure IHL portion out of the 55.8%. Balance would be not only top-up, it will also be part of a fee LAN or an insurance cross-seller.
9% is mix of both. This 9% yield is of both home loan plus top-up included.
So 50.9.
Right. What is the pure home loan yield?
It will be difficult to segregate, Shubhranshu, but it won't be materially different because generally, that's because if you are talking about out of a 5%, other than IHL portion, which is a pure home loan, there is a portion would be your cross-sell line or the fee LAN. Top-up line would be in close to 3-3.5% of the portfolio. Whatever yield, normally top-up loans comes at 100 basis points higher yield or equal into LAP yield approximately. At an overall home loan, it is not going to push up the yield too much. 3% of the book is not going to drive a 50% book to a significant level. At a broad level, 100 basis points is the differential between top-up price to the pure home loan price. Segregated.
Right. Right. There is a lot of investor chatter around regulation around top-ups. Are we facing any regulatory dictates or pressure from regulators to reduce the top-up or let go of the top-up entirely?
Regulators have been guiding over the last one and a half years, which through the normal newspaper or through there to be mindful of the top-up. That is where they had increased the risk rate around one year back. Apart from that, there has not been any specific communication, at least not to us, because like we called out, the top-up is not a very significant part of our business. We at least have never received any specific conversation or have been part of a chat on a specific basis on a top-up applicability. Overall, at a systemic level, Reserve Bank of India had earlier guided companies, all companies, all NBFCs, HFCs, to be banks to be cautious about top-up. That is where they have increased the risk weight on the top-up loans from 100% basis points to 125%. Apart from that, we have not heard any other chatter recently or definitely not had any specific conversation with any regulator or supervisor, which is NH B in our case.
Right. Given the fact that there is a softness in the real estate market, which has been rightly called out, do we foresee any pricing wars from other HFCs, PSU banks, private banks? Is there a possibility of this leading to mispricing of home loans going forward in the next five to six quarters?
I missed, Shubhranshu, the first line of your question. Second line, I understood clearly you are saying mispricing, but in what context so that I am able to understand?
Softness in the real estate market. Will this lead to mispricing by almost every player, PSU bank, private bank, HFC?
Softness of a market always results into more competitive intensity, what which we are looking at. Because if you look at the credit growth in the economy overall, it is much softer than what it should be. There is already a reflection in the pricing competitiveness or price offering in the home loan. There is a reflection of already a softer overall credit growth there. Which is a normal scenario, which is an industry cycle. If there is any more softness in the demand, can there be more pricing pressure? Yes. It is an industry phenomenon, which is a normal cyclical phenomenon.
There can be mispricing if there is more softness?
I'm stopping short of saying that we believe that the current pricing is also not fully appropriate. That is a function of current softness of a demand for credit overall. Because if you look at the overall credit growth in the system, that is lower, which is resulting into a bit of a, in our assessment, much lower pricing for the home loan portfolio in the market. I will not call it a mispricing, but I'll say the pricing in the home loans are much more softer in our assessment because of a overall softness in the demand for credit in the bank, in the system.
Right. Just one last question on near prime and affordable. What about the demand there? Instead of building it out organically, can we think of going co-lending with smaller HFCs?
Shubhranshu, we generally prefer to build organically, and that's what we will build organically. Co-lending is not fully evolved because whatever we generally see, co-lending, which is a CLM, t wo, by the banks and the HFCs, we as a HFC can't do CLM. Two, w e have to do CLM One only, which is quite, which has not moved significantly at least for us as mortgage space, which is a heavier underwritten product in the industry overall. We can operate there, but we don't think there is much scope to, very high scope there to grow. We will build organically only. That's what we are looking to build organically.
The demand in those areas, near prime and affordable?
Demand remains robust. There is enough market space. Since in any case, we have started only, we do not feel constraint of the market demand. We are moving cautiously because there is a new area which we ventured into 14-15 months back. We are, in our assessment, progressing well.
Right. This was very helpful, Atul and Gaurav. Thank you so much. Best of luck for the coming quarters.
Thanks, Shubhranshu.
Thank you. We have Renish from ICICI Securities with the next question. Please go ahead.
Yeah, hi, sir. And I congrats on a good set of numbers. Just two things from my side. One on this LAP piece. While this portfolio has been growing at a decent pace, when we look at the average ticket size, the same has gone up by almost 20% over the last two to three quarters from INR 6 million in Q2 FY2025 to INR 7.2 million by Q1. Which essentially means that the bulk of the growth is actually driven by the ticket size increase and maybe indicating subdued volume growth. I just wanted to understand, what are the probable reasons for low volume? I mean, is it linked to the cash flow problem or something else?
Renish, the average ticket size, you could have because we remain a player in the prime mortgage, whether that is in a LAP or a home loan. Barring the new vertical in near prime, what we have started. The ticket size can swing between because we remain largely in the ticket sizes of 40 to 50 Lakh to around INR 2 to 2.5 to INR 3 crores is the average ticket size where we operate. That is the core. The average ticket size movement is for that. One reason for LAP ATS movement is also we used to earlier do in a way what we call affordable LAP also to some extent as a part of our rural vertical, which we have stopped doing in the last six-seven months.
That volume in terms of a quantum was not very high, but number of cases would have been bringing down the average ticket size at a company level. Now that we stopped doing around six-seven months back as we started pressing pattern on affordable home loan because we want to build first there in largely home loan portfolio, then maybe start, restart that smaller ticket LAP or I'm not calling it a micro LAP because micro LAP has different connotations in terms of yields. We were never in that 24%, 25% kind of a segment. We were doing smaller ticket LAPs in the upcountry market earlier, which we are now doing from last six to nine months. That can be one factor. Value-wise, that business was never material as a balance sheet.
Got it. If I may ask, what's the strategic decision behind moving to a higher ticket size?
We have not moved to higher ticket size. We remain in that segment. There is a market movement as well. Overall, if you look at any product, whether it's a home loan or a LAP, in the market, there is a demand for largely a more higher ticket, which is a we are a function of a market. Since we operate in the prime space, that's the ticket size movement.
Okay.
Discontinuing or not doing in upcountry smaller ticket LAP, which we were doing, like I said, that was because we are now. As we pivoted our and we moved the business of affordable and near prime into the new SBU as we set up last year, we assessed that initially first we have to focus much more on the building a home loan channel. We being an HFC, also we required to focus on an HL. And then we said that later on we will build the smaller ticket LAP business also in that SBU as we grow forward. There is no strategy behind it. It's just an assessment at that point of a time as we are reorienting or recalibrating the entire affordable or near prime business as an SBU, what we should prioritize.
Got it. Got it. This is very helpful. My second question is on the acquisition rate. I mean, the BT out rate. Obviously, this quarter, it has gone up. When we look at and you also did mention about increasing competition. Now, let's say if in the next four to five months, if this BT out rate further increases, do you feel any downside risk to your already revised growth guidance in FY 2026?
In our assessment, we have factored in the downward risk, what we are seeing as of today from. We have assessed it in our way on a conservative manner. Conservative manner means that we have assessed the situation to remain elevated for the next four to five months, which is a factor in the growth position. We do not see a further risk there until there is another shake-up in the market in terms of a, w e do not see that additional 50 basis points rate cut coming in, but we are not the one who decides that.
Correct.
That I can't predict. That is not factored. This is whatever we have seen. We believe that on a conservative basis, we have factored in the max negative side, what we can have.
Got it. Let's say, I mean, just a follow-up on that. We are not factoring any further rate cut in the next four to five months when we might have done our stress test on BT out.
We are factoring in one more rate cut for our stress test scenario over 25 days, additionally coming in during the year.
Got it. Got it. This is very helpful, sir. Thank you and best of luck.
Thank you.
Thank you. Ladies and gentlemen, in order that the management is able to address questions from all participants in the queue, we request you to please restrict yourselves to two questions only. You may rejoin the queue if you have further questions. Our next question comes from the line of Piran Engineer from CLSA. Please go ahead.
Yeah. Hi, team. Congrats on the quarter and thanks for taking my question. Just a follow-up, or maybe it's been partly discussed. Firstly, the gap between our medium-term growth of 25% and, say, near term of 20-21%, how much of that is attributed to just a weaker real estate sector?
In the difference is 24-26 to 21-23, which is a differential, let us say, a 300 basis points kind of a differential, not 4 and 5. It is largely to do with the higher competitive, lower pricing, higher acquisition. Less to do with the lower demand. I called out in an earlier question also that demand is, because of given our relative size being slower, demand will not lead to our. Lower demand or a stagnation of demand should not lead to our, would not have led to our revising the growth projections. It is the competitive pricing, the activity, and resulting into higher acquisition, which is resulting into our guiding for 300 basis points assessment downward in the current condition.
But then that, Atul, that leads me to the question, what will change in six months? Because when we say by third quarter, you know .
What happens is there is always a much higher acquisition or a much higher movement or a disruption in the market when the rate cut happens, and there is a pressure which gets built up. Over a period, it disappears and then it gets normalized. That is a normal scenario. That is what we are saying, that if there is no further shock in the system of a very high rate cut or more than expected rate movements, what is there, which is expected to normalize in the next four to five months.
No, so what we are basically saying is banks get aggressive when rates are cut. There is a sort of pent-up aggression, if I can use that word.
Movement of portfolio is much higher for an extremely rate-sensitive customer. The movement is much faster or much bigger later on, because in any case, we are also passing on the portfolio, then the customers are more stable as we go, and the portfolio also keeps on substituting. There is an older, if there was a customer at a higher rate that keeps on going out, there is a newer customer which is coming in, which is at a lower rate. Yet rate tends to get normalized in four to five months. It's nothing to do with the competitive banks being more active at the initial level than not being active. It's a phenomenon in terms of a more rate-sensitive or a more rate-seeker customer moving out faster, and the substitution of a customer being a which is coming in at a new pricing. The ratio of a new priced customer going up versus the customers going out. It's a mathematical formula. Nothing.
Basically, what you're saying is whoever has to leave will leave immediately, and those who stayed back, stay back with the BFHC or HFC.
There is always an exit which keeps on happening. There's a normal scenario. The elevations will get normalized in four to five months scenario.
Understood. Okay, okay.
The substitution gets normalized in four to five months. That's what I'm saying.
Got it. That makes sense. Okay, fair enough. Just secondly, for Gaurav, just over the last one year, rates were fairly high, but we actually reduced our share of bank borrowings and borrowed more from NCDs. It's a bit counterintuitive because I would have expected when rates are high, keep more floating rate borrowing so that we benefit once rates start getting cut. It's actually been the other way around. What am I missing here?
Basically, we look at incremental borrowing rates between NCD and bank lines at the time we are borrowing. Since the price differential has been better on the NCD side, while we've been borrowing after factoring in the reductions which may come because banks get repriced basis MCLR movements, which we have not seen much happening at that time. We factor all that in and looking at those movements versus what acquisition level we are getting pricing on NCD versus bank lines is what we take as a call at that point in time. As of now, we've been seeing that the differential has been beneficial more towards the NCD side. That's why we've been focusing more on NCD borrowings.
What would that differential be set today? A fresh bank line from a PSU bank, what would you say?
This quarter differential would have been around 20 basis points.
20 basis points. Okay. Okay. That's it from my end. Thank you and wish you all the best.
Thank you. Our next question is from the line of Abhishek Murarka f rom HSBC. Please go ahead. Abhishek Murarka, your line has been unmuted. You may proceed with your question. We're not receiving a response from the current participant. Yes. Abhishek? Yes, you are audible.
Yeah. Sorry. Yeah, thanks. Thanks. Sorry about that. Thanks for taking my question. Just, in your home loan book, what is the percentage or absolute amount of affordable and near prime? If you can share that.
Abhishek, in our home loan book, the ratio would be around 16%, which is a non-prime book, and 84% would be the prime and near prime book. We segregate between prime and near prime on one side and non-prime and affordable on one side. 84, 16 would be the approximate mix in the book between prime, near prime. Because prime, near prime is a bit of an overlap, that's why there is a categorization. We do a non-prime, affordable, near prime, prime. Prime, near prime would be around 86%. 14% would be 84 and 16. 84 and 16. Abhishek?
Thank you. The current participant seems to have dropped from the queue. We will take that as our last question for today, ladies and gentlemen. I would now like to hand the conference over to Mr. Ajit Kumar for closing comments. Over to you, sir.
Thank you all for joining the call today, and thank you to the management team of Bajaj Housing Finance for giving us the opportunity to host this call. Any closing remarks, Atul?
No. Thank you very much for all the participants for patient listening, and thank you, Ajit, once again for giving us the opportunity and for hosting. Thank you all.
Thank you.
Thank you. On behalf of Bajaj Housing Finance Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.