Ladies and gentlemen, good day and welcome to Bajaj Housing Finance Limited Q2 FY26 earnings conference call hosted by Access Capital Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Praveen Agarwal from Access Capital Limited. Thank you, and over to you, Mr. Agarwal.
Thank you, Niraj. Good evening, everyone, and welcome to this earnings call of Bajaj Housing Finance Limited. Today, with us, we have the management team led by Mr. Atul Jain. Along with him, we have Mr. Gaurav Kalani, CFO, and other senior members of the team. I would request Mr. Atul to share his initial remarks, post which we'll open the floor for Q&A. Over to you, sir.
Thank you, Praveen, and the Access team for hosting this call. Good evening to all the participants. I am Atul Jain. I have with me all senior colleagues of Bajaj Housing Finance: Gaurav, Jasminder, Vipin, Pavan, Dushan, Neeraj, and Gagar. And Vijay. I'll take 15-20 minutes first to cover important panels of investor deck, which has been uploaded on our website, and afterwards, we'll have questions and answers. First panel I'd like to take is panel number three. Another stable quarter for AUM, profitability, and credit cost. This was amidst heightened competitive intensity as well as decreasing interest rate scenario. AUM grew by 24% on YOY basis and stood at INR 1,26,749 crore as of 30th September. PAC increased by 18% with annualized ROA at 2.3%. Asset quality remained healthy with improvement in GNPA at 0.26% and in NNPA at 0.12%. Annualized credit cost at 18 basis points.
Operating efficiency also improved during the quarter, and OPEX to NTI stood at 19.6% against 20.5% in Q2 of last year. Geographical coverage of Bajaj Housing Finance Limited loans spans across 176 locations with a network of 220 branches. Annualized ROE for the quarter came in at 12.2%. Capital position with CAR at 26.12% remained healthy, and PBC criteria, which is a regulatory criteria, was at 61.21% against a regulatory threshold of 60%. I'm moving to the next panel. I've already covered AUM growth, which grew 24%. When we look at a product-level AUM, home loans grew by 19%, LAP by 29%, LRD by 35%, and Developer Finance by 25%. AUM for the quarter in absolute terms increased by INR 6,329 crore. This was against INR 5,497 crore, which is close to INR 5,500 crore in Q2 FY25.
The portfolio composition also continued to remain well-diversified with home loans at 55%, LAP at 10%, and LRD in excess of 21%, and DS at sub-12%. Disbursements for the quarter, they grew by 32% from INR 12,000 crore in Q2 FY2025 to close to INR 16,000 crore, INR 15,914 crore in Q2 FY2026. Moving to the next panel. Cost of funds improved during the quarter and stood at 7.4%, having 50 basis points reduction on year-on-year basis against 7.9% in Q2 FY2025. On sequential basis, cost of funds saw a reduction of 35 basis points on account of policy rate transmission on existing borrowing as well as incremental borrowing at lower rate. Borrowing mix remained well-diversified with a higher mix of money market borrowing. Overall borrowing mix was 54% through money market instruments, 37% through bank borrowing, and 9% of NHB refinance.
Gross spread was flat for the quarter at 1.9% against 1.9% of Q2 FY25. However, on a sequential basis, gross spread was 10 basis points higher because this was due to higher flow-through benefit on cost of funds versus movement across portfolio areas. However, this is likely to get normalized going forward, basis some pass-through in the portfolios has happened due to October 25 and with the expectation of another rate cut in December as the markets are predicting. Net interest margin is holding at 4% on a sequential basis, while at a year-over-year basis, it dropped by 10 basis points. I've already talked about OPEX to NTA in an earlier panel, which has dropped to 19.6% in Q2. Digital initiatives continue to further improve with our EA agreement penetration at 94% and online customer onboarding penetration at 93% in September 2025. I'm moving to panel six.
Asset quality remained healthy during the quarter with improvement in GNPA by 4 basis points to 26 basis points in Q2 FY26 and also NNPA by 1 basis point at 12 basis points. Annualized credit cost stood at 18 basis points in Q2 FY26 against 2 basis points in Q2 FY25. The normalized credit cost, because in Q2 FY25, in fact, in H1 FY25, we had overlay release, which we had created during the COVID period. If we would exclude the overlay release in Q2 FY25, the annualized credit cost would have been 14 basis points. In terms of profitability, PAC for the quarter grew by 18% from INR 546 crore in Q2 FY25 to INR 643 crore in Q2 FY26. Annualized ROA at 2.3% against 2.5% in Q2 FY25, and annualized ROE at 12.2% against 13.3%. The ROE has been lower in the current year because of three factors. One, capital raised then in FY25.
Second, there was no overlay release in the current year against last year's overlay release. Also, current year, we have lower income from derecognized loans versus last year. Sum total from net profits of the net worth has further increased to INR 21,170 crore as of 30 December 2025. I'm now jumping to panel number 18. Majority of quarterly metrics have been discussed. Net income grew by 34% in Q2 FY26, while the net total income grew by 22%, going to lower income on fair value changes as well as lower assignment income. That was what I was calling out earlier. Because of a lower assignment income, the ROE was lower, and consequently, that's where net total income is looking at a lower growth at 22%. PBT and PAC grew both at 18%. In terms of half-yearly financials, net total income increased by 24% during H1 FY26.
Operating expenses grew 21%, and pre-provisioning operating profit grew 24%. Overall PAC for H1 has grown by 19%. OPEX to NTI has improved by 40 basis points for H1 versus H1 FY2025. Credit cost for H1 has been 17 basis points against 4 basis points in H1 FY2025, but that was due to overlay release of INR 50 crore in the first half of the year at a cumulative level, INR 25 crore, INR 25 crore in each of the quarters in the last year. Annualized ROA 2.3% and ROE of 11.9%. Moving to panel 20. Portfolio yield moderated by 22 basis points on the sequential basis and 60 basis points on a year-over-year basis at 9.3% in Q2 FY2026, while cost of funds dropped by 35 basis points on sequential basis and 55 basis points on a year-over-year basis to 7.4%. Overall gross spread for the quarter increased by 10 basis points on sequential basis.
However, it was flat versus the last year's basis. OPEX to NTI, we have talked about 90 basis points reduction on year-on-year basis from Q2 to Q3. NIM moderation of 10 basis points on a year-on-year basis, largely led by a drop in income from assignment and other income. Asset quality and profitability metrics have already been covered. I'll move to panel 21 on the borrowing mix. Borrowing mix continues to remain well-diversified, supported by borrowing relationship with 17 banks. Mixed NCD share in the overall borrowing mix further increased by 2.6% on sequential basis, while CP mix increased by 3.1%, offsetting moderation in bank borrowing share by 4.7% and in NHB refinance by 1%. This was due to incremental borrowing largely from money market instruments considering the cost benefit. Going to panel 24. Depiction of the portfolio mix between products.
This remains within our guided range, while on sequential basis, Lease Rental Discounting improved by 1.1%, home loan deteriorated by 70 basis points, and LAP by 20 basis points, and developer finance by 10 basis points. Moving to panel 29. On sequential basis, stage one assets have improved by 3 basis points to 99.39% in Q2 FY26. Stage two were flat at 34 basis points. GNPA improved by 4 basis points to 26 basis points and NNPA by 1 basis point to 12 basis points. Provisioning coverage remained healthy at close to 56% in line with the previous quarter. I'll jump to panel number 31, which is the last panel I would want to cover. Product-level asset quality. Provisioning coverage ratio remains in excess of 50% across product line. Home loans GNPA improved by 4 basis points to 32 basis points in Q2, 2 basis points in LAP at 59 basis points, and developer finance NPAs remained flat.
Overall NPA improvement has called out by 1 basis point. This is what I would have wanted to share from my end for the quarter. Happy to take questions between me and the management team from the. Thank you.
Thank you very much. We'll now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the Philip Capital branch. Please go ahead.
Hi, Atul. Hi, Gaurav. Good evening. This competition, especially from PSU banks and something, is particularly with the rate cuts, right? How are we building a strategy?
Speak a little louder, please.
Just one second. Hi, can you hear me now?
Yeah, we can hear you now.
Thank you.
Right. Hi, Atul. Hi, Gaurav. This competition from PSU banks is something which is cyclical, which happens every rate cut cycle. How are we building a strategy so that we can circumvent this, especially because we operate in the prime home loan segment? That is question number one. Second is that the home loans have reduced to roughly around 55% of the portfolio. We also used to do top-up. What is the pure home loan and what is the top-up in that 55%? If we can spell out the yields on each of the categories: home loan, LAP, LRD, and developer finance. Thanks.
Thanks, Subramanyam. You asked three questions. The first question is the competition for PSUs. We take in prime home loan now the competition is going to the PSU rather than the novelty. You called out saying that the competition heats up during the declining interest rate scenario. If you are looking at the last two and a half, two to three years, the intense competition is the norm. As we make our plan for the future, we are now taking it as a feature rather than an aberration or which will go down. Now, as a prime player, as a player who is focused on the prime mortgages, this is our, we need to modify our strategies accordingly to be able to compete through the market. If you look at our disbursement growth, it had been far ahead of the industry growth.
Industry home loan disbursement growth, year-over- year, had been in the range of 6%-7%. This is whatever bureau data we can access at a broad level. The numbers are not yet close, while our disbursement growth in home loan also had been far higher than the industry disbursement growth. We are here to compete. We keep on modifying our strategy. We called out in the last quarter saying that deepening the presence and increasing width of our customer segmentation, deepening our presence in each micro market and the market is a strategy we follow, which is a strategy we will continue to follow for continuing to grow in the home loan despite the competition from the public sector bank. You asked a question on the HL contribution. 55% is in the HL book. The IHL contribution, which.
Is a regulatory PBC criteria, we were at 50.45% as of the 30th of December. The rest of it was either a top-up or the fee land or the insurance land, which is not considered as an individual home loan. The regulatory criteria is 50% on that. On the yield product-wise. The yield product-wise at a portfolio IRR at HL had been at 8.6%, LAP at 10.3%, LRD at close to 8.1%-8.2%, developer finance close to 11.5%. At an aggregate level, we come at 9.26% is the yield what we come at the portfolio. Now, HL is also a mix of a prime and a non-prime, but I'm telling you at an aggregate level.
Just if I can squeeze in one last question. You did mention about deepening the presence into each micro market. Are we also increasing our payouts to various developers or various connectors or large national DSAs?
Our COA remains flattish, Subramanyam, because the payouts are not the only. Our home loan market is largely commoditized. Most of the payout structures are also common. It is not likely that by increasing the payouts, you can increase the market share. It is by making more product nuanced, which is catering to the market and having a deeper presence in each of the markets is the approach we take. Increasing payout will not result into the higher market share is our assessment, and which is not what we follow. We remain absolutely in line with the payouts what is offered by the market or leading player. There is no increase in COA over last year or over last quarter.
In the queue, best of luck for ensuing quarters.
Sorry?
I'll come back in the queue. Best of luck for ensuing quarters.
Thank you.
Thank you. Participants, you may press star and one to ask a question. Ladies and gentlemen, you may press star and one to ask a question. Next question is from the line of Veeral Shah from IIFL Capital. Please go ahead.
Yeah. Hi, Atul and Gaurav and team. Thanks for the opportunity and congrats on a good set of numbers. Atul, I wanted to know, so I'm looking at the guidance that you have put out on the panel 16. It remains unchanged primarily on the margin front. Now, for the two first half of this year or the two quarters, we have kind of delivered a flattish kind of a margin. We are guiding for a 15-20 basis points kind of a decline for the full year perspective. Are we expecting such a sharp decline in the second half, or this is just more of a just continuation of the guidance, and we are likely to basically beat these numbers?
On margins, I'll request Gaurav to address this because on the.
Yeah. On a full year basis, Veeral, we are expecting to be in this guidance range only because of the compression we are seeing driven by attrition pressure across the portfolio, especially in the home loan side, also in the construction finance side. That attrition pressure followed with another rate cut expectation in December is what we are factoring in, and that's where we are looking at year-on-year level, this kind of a compression which we have guided for.
As of today, our estimate remains, Veeral, in this range. However, as the time shifts up, we are able to do better. That is where we look at. Our estimate as of today is standard the same what we have guided for.
Gaurav, just a bit on that. I think what you mentioned is basically an expectation of another 25 basis points kind of a rate cut in this fiscal. I think last quarter, when we gave that number, I do not think we were baking in that kind of expectation. Does it mean that at an underlying basis, we are kind of, probably, say, despite, say, a 125 basis points rate cut instead of 100 basis points, we are likely to kind of, say, beat the numbers we had guided for in the previous quarter? Would that be the right way to look at it?
What we have looked at, even in the, our guidance is not changed. There has been some improvement in the performance metric in terms of a growth in disbursement because we had not estimated that kind of a growth in disbursements, what has happened. However, on the negative side, with the expectation of another rate cut, and when we look at the benefit in the COF, what we'll get passed on versus the rate cut impact, which may be there in the market, it's a bit of an estimation because we remain a market-focused business. The pass-through in the market will be what will be guided by. That's where it's an estimate.
You can say that we, in that sense, if last quarter, we were projecting these numbers without a rate cut, at the end of this quarter, we are projecting the same margins with one rate cut baked in in the numbers. To that extent, you can quantify it as saying that our improvement in our confidence on the margins over one quarter.
Here on.
Veeral, the benefit on cost of fund would be marginal versus that. If the portfolio attrition pressure continues to remain that way, we may see the pressure on the yields continuing. That is where we are continuing with the guidance. Predominant part of the COF benefit is already passed through. Now, we may have around 10 basis points of further benefit, which we may see through the balance part of the year. Considering.
Go ahead.
The rate cut.
Okay. Basically, considering the rate cut, you expect another only 10 basis points kind of a decline in cost of funds?
Yes.
Gaurav, just again on this point.
Rate cut also, Veeral, we are expecting in December. To come in and then that to kick in on the cost of fund, Q3 would have gone. Q4 is where we'll see balance. So that's where.
Right. Just from a mathematical standpoint, Gaurav, this number, if I have to say, take in say a 10 or a 15 basis points full year kind of. We anticipate probably.
Sorry, we lost your voice, Veeral.
In between.
Look, can you repeat the question? We lost your voice in between.
Yes. Sorry. Am I audible now?
Yeah, yeah. You're audible. You're audible.
Yeah. I'm just saying that if I look at now these numbers and say if I assume say a 10 or 15 basis points kind of a decline for the full year with this revised kind of. Say the market dynamics, is it right to say that in the second half, we may actually see more like say 20-25 basis points kind of a decline from the first half or say the 2Q levels?
Not very clear, Veeral, but it has both factors on yield as well as cost of fund. I have explained cost of fund. As the yields, because of both reasons on attrition as well as new acquisition coming at lower price, with another rate cut we are expecting, and with the acquisition challenges which we are seeing in the market. On the public sector banks being aggressive, etc., we have factored in a certain yield compression on the overall portfolio, and that's where we are guiding for these numbers.
It's a combination of, Veeral, estimated compression in the acquisition pricing to the yield compression and reducing out of that the COF benefit which will come.
With respect to what kind of partly answered in the previous participant's question, was on the affordable and near-time business. What I want to understand with respect to the slowing down, we are saying that we are taking it slow. Is this because we are taking it slow as a deliberate decision to understand the customer in that segment, or are we seeing any demand or specific asset quality related issues? Some of the players that are in this segment of the affordable housing and near-time, they are seeing some asset quality issues in the lower ticket size. Although our ticket size is not as low as these other players, but since we are in that range, in that ballpark range, your view and assessment on that segment?
No, this is not led. This is not leading from any view on the asset quality or any stress what we are seeing or the demand compression. It was just we started this business 15-18 months as practice or the prudent risk management will do. We want to take it slow. Build. We are also onboarding the entire team. This is an entire ground sub build that also takes time for us to build. Like I said in the previous question, now we feel confident of trying to rapidly scale it up. That is why we will, that is where we are, and we expect this business to be much more ahead next year.
Understood. Understood. With respect to the fall in the direct income, the assignment income, was this by design or by default? I mean, I was wanting to understand, is this like a one-off, or will we see this as kind of a stabilized number in the going ahead quarters?
That's likely when we said the yearly guidance during the last quarter, we said now, so assignment we do for two reasons. One reason is assignment is the treasury strategy. We are excess of capital. We have excess of our capital, and we took a conscious decision in the current year to not do assignment for treasury strategy because as a treasury has a means of fund. Otherwise, we had been normally falling 12-13% of our assets as a kind of strategy, even as a treasury strategy for an ALM match. If you look at our ALM, we went long last year. Our ALM, even at the five-year bucket plus, is quite comfortable even on the borrowed asset. The need. Conscious decision was to not pursue for treasury ALM match assignment in the current year.
The second part of second reason for assignment for us is always that if we are falling short of a PBC because if there is more opportunity to acquire non-HL assets, and if we are able to assign them out, we like to take the opportunity to assign out the assets, maintaining PBC as well as in the process having a higher ALM where the benefit flows through. That we will be open even in the second half of the year, depending upon if we have an ability to mobilize more non-HL business based on our ability to assign that. First part of treasury is a conscious strategy to run it down. That is why you see much lesser in Q1 and Q2, and we called out last year in the assessment also, we have said that NTA is expected to be lower because of this.
If in Q3 and Q4, this will depend upon requirement. If there is a requirement to assign out, we'll do an assignment out. We can look at a higher income. The income can be high. That's where we are. I hope I have answered your question, Veeral.
Yes, yes. Thank you. That's about my time. Thank you.
Thank you, participants. You may press star and one to ask a question. Next question is from the line of Viral Shah from HSBC. Please go ahead.
Hello. Am I audible?
Yeah, you are audible, Veeral.
Yeah. Thank you for the opportunity. I have a question around the competition and just wanted to understand more about it. What would be your BT in or out rate in the overall home loan segment? Second, on the affordable housing side, what would be your BT in, and also your ALM size?
Veeral, at an overall level, because we do not measure it in the segment-wise BT in and BT out, at an overall home loan acquisition for the company, our BT in is 15% approximately of our overall HL acquisition, which is perfectly in line with the industry. Industry 16-17% is the BT in. Ours is 15%. At a segment level, we do not break it. Key segment is there, but. Aggregate level since it is 15%, it will bear. I think it will be largely for all the segments which is there.
Okay. And BT out?
BT out is a factor of attrition, which is now at attrition, there is. At an aggregate level, if I look at it, that our repayment rates in the Q2 FY26 look at 27-28% in aggregate, but it's a combination of various products. At a home loan level, it is a 21-22% kind of an annualized attrition, what we have seen, 20-21%, which is the elevated attrition because of the pricing pressure in the market. My guess is because it's a part of both, which is customer paying. On its own as well, but that would be a 20-30% part. At a 20% attrition, I can annualize attrition, I can look at maybe 14-15% as a BT out rate from our book. Both BT in and BT out are different metrics of percentage.
It may look at a 15%, but I'll request you not to assume both are same because 15% portfolio is on a different number, which is on our HL portfolio. 15% BT in, we are talking about our through the whole acquisition. Broadly, industry level, 16-17% is the acquisition. BT out at an industry level, I don't have a rightful number readily or available because banks do not generally have a detailed HL or a focused metrics available.
Sure. This 21-22%, how would this compare, say, last year or two years back? Just wanted to understand the pace for the increase in.
Last year, it would have been in the range of 15-16%.
Oh, okay. So from 15-16% upwards of 2022? And you would say mostly this would be going to PSU banks or even large private banks would be something would be part of it?
Largely PSU.
Largely. Okay, got it. Sir, what would be your AUM in affordable housing?
Can we track AUM in two contexts? One is a prime and a non-prime. Non-prime includes affordable. So the balance sheet mix in home loan today would be 86, 14 roughly. 86 will be prime and 14 would be non-prime, including affordable.
Okay. Sure, sir. Thank you so much for this.
Thanks.
Thank you. Participants, you may press star and one to ask a question. Next follow-up question is from line of Siraj Khan from S&N Capital. Please go ahead.
Yeah. Thank you for the follow-up. How can I modify? First question was with respect to a follow-up on was with the NII plus fee income. The fee income has gone up. Are we seeing more cross-selling and will that be a slight driver for the NIM plus fee? Not the NIM, but the NIM plus fee will drive higher. With the fee and commission income being ramped up? Is that a conscious strategy or will it be stable?
Broadly, this is insurance income which is driving that number apart from other charges, etc., which is like bounce charges, foreclosure charges, switch charges, etc., etc. Predominant is the insurance income. It grows in line with the growth in business. Apart from the non-prime business, which will have higher penetration, but otherwise, overall, it will remain in line with the growth of business.
Okay. Because on a viable basis, that number seemed quite high. I thought maybe something else is also driving. Secondly, with respect to the affordable business, again, affordable and the near-time thing.
Just to clarify, on a viable basis, it is looking at a double. If you look at Q4 FY25, I think Q2 FY25 was a bit lower. We have to go back why it was much lower. If you look at from Q4 FY25 to Q2 FY26, the number is not that different.
Understood. Understood. Again, from the SBU, what will be the yield difference over that book from our normal book? As we see that the rates would go down, one of our recently listed peers said that we try to use our cost of borrowing advantage and try to bring in customers and lock them in our book for a lower rate, kind of saying that they'll undercut the competition. With that point, how do you see that difference in yield over both the books compressing, and will that materially improve the NIMs and the yield of the book? Is that possible?
See, each acquisition for each segment is at a point of time driven by the competitive intensity and also what market is available. We do not try to price ourselves lower to answer that question. There, we try to optimize the price, what is available in the market. This is a proposition and the segment what we are addressing. On an aggregate level, the yield in, if I collapse the entire non-prime business, including affordable, yield will be a differential of close to 1.25-1.5%. From the pure prime business. From the prime business, the aggregate yield will be differential by around 1.25-1.5%.
1.25-1.5% will be above the affordable near-time business over the time. Have you got that correct?
Yes. Yes. Yes.
What we are essentially saying is we will not try to undercut or we will try to price it as per the merit and as per the demand scenario.
Yes. Yes. As per the demand, because there is no, we do not believe in cutting the price, but we believe in always being competitive in the market.
Understood. Understood.
Thank you. Thank you very much.
Thank you. Participants, you may press star and one to ask a question. Next question is from line of Satinder Singh from Eon Investments. Please go ahead.
Yeah. Thanks for the opportunity. My question is around the assignment strategy. Given that our gearing currently is below our target gearing of 7-8, I was wondering if assignment makes great sense. Assignment does help us increase our ROA, but then it does not help on the ROE side. What is the metric we are targeting? Is it ROA over ROE, or is it ROE? That is the first part. The second is, given the outlook that we have on the market, what is the time frame within which we should hit that, say, 7-8 gearing or, let's say, median 7.5 gearing?
Satyan, there are two parts. We do assignment, like I was answering when I was answering the earlier question over assignment strategy on the net total income front. We do assignment because of two factors, not ROA or ROE driven, but one from a treasury strategy from an ALM match perspective. Mortgage, because the asset booking is of a much larger duration while your liabilities are of a much shorter duration comparatively. It is always a sound strategy in our assessment in a mortgage to have a certain percentage of assets always being assigned out to have a perfect ALM match. That is what we have been from inception. If you look at our six-year, seven-year record, we had always been assigning out 12-13% of the assets, whether leverage being high or leverage being low. It is coming from treasury strategy.
Having said that, last year, since we went long on the bond side and our ALM match was corrected, we called out that in the current year, we are not falling assignment out from a treasury strategy because our leverage is low, precisely to the reason what you called out. Because of the leverage being low, we said that we will do assignment not for the treasury strategy, and our ALM match has happened because leverage can still be low, but there is such an ALM gap. We prefer to do a more assignment so that we do not build a tenor risk in the balance sheet. The tenor risk is not the point as of today. Treasury strategy is not there for assigning from an ALM point of view. However, the second part of the assignment remains on the PBC, which is on the non-home loan assignment.
If we have an ability or opportunity because we have a home loan book is growing at 19%, aggregate we have grown at 24%. That means our home loan book is growing at a faster phase, and home loan is 55%. If it is growing at 19%, that means the other part of the book is growing at a 30-odd %. Now, if I'm able to grow a non-home loan portion more, but to meet the PBC criteria, we have an opportunity to assign and get the spread. It's not a question of a leverage or not because then the opportunity is not there to do that business in the non-home loan because then you get constrained by your growth in home loan book to grow the non-home loan business.
Have I been able to explain you clearly, Satinder, or do you want me to elaborate further?
No, no. I think that's very clear. I think very articulate. When do we hope to hit the seven and a half kind of a gearing, okay, based on the outlook that you have?
I think two years is the time frame where we should be. It will depend upon the growth numbers, of course, but when we give a medium-term growth guidance, I think two years to two and a half years is the time frame where we should look at achieving that. Sustainability ratio, which is what we say target ratio of a leverage ratio.
Okay. Right. And one final question. Given that we should be now nearing the end of the rate-cutting cycle. How optimistic are we that we should be able to revert to our medium-term guidance in FY2027?
You're talking about the AUM growth?
The medium-term guidance in terms of AUM growth and we, okay, primarily AUM growth, I think, yeah.
We cut our guidance for the current year based on the higher attrition pressure, which as of today is not looking to come down. We guided for that last year with the current last quarter, saying that the current year growth is looking to be lower because of the higher attrition pressure. However, as the company focus remains on growing disbursements, which you can see in quarter one and quarter two, the disbursements have grown faster than what they were growing last year. Our AUM growth is slightly muted because of the higher attrition pressure. As the attrition pressure weans off with the rate stabilization in the market, with one more rate cut let us say in December, you can expect stabilization in the market in three-four months.
As we continue to focus on growing disbursements, we feel that by next year, then we can come back to our normalized or the medium-term guidance growth in AUM because disbursements continue to grow the way we are doing it now. Attrition pressures come down, the AUM growth comes back on track in line with the medium-term guidance what we have given.
Okay. On the OPEX to NTI, what kind of time frame do you see as of today in terms of coming back to a 14-16% target?
Fourteen to sixteen was not a coming back. Fourteen to sixteen was always a three- to four-year aspiration number, three- to four-year trajectory. I think that we remain tragic on that. In a lower-interest rate scenario, the reduction in a viaway basis will be either flattish or a 1-1.5%. As the cycle turns, with the income expansion, because OPEX to NPI has two parts. One is the income expansion. Second is the OPEX growth. We'll always be OPEX efficient. As we continue to grow, I think next three to four years, we should clearly see the 14-15% kind of OPEX to NPI numbers.
Okay. Fine. Thank you very much. Great set of results. All the best. Thank you.
Thank you. Thank you.
Thank you. Next question is from the line of Bobby Jeraman from Froons Investments. Please go ahead.
Yeah. You mentioned there was a lot of competition in the home loan segment. How is it in lease rental discounting and developer loans?
Sorry. I couldn't get your question clearly, Bobby. Can you do me a favor and repeat the question?
What is the level of competition in lease rental discounting and developer loans? Is it as much as it is in home loans?
Lease rental discounting, the level of competition would be higher than the home loan as well because these are all, one, the customers are quite evolved. They have access to each of the large lending institutions and each of the large lending institutions, specifically banks. This is a product which is not offered by housing finance companies. I think probably we might be the only company which is offering this at scale. This is a published result, whatever we have seen. All banks, including all public sector banks, large public sector banks, and including all large private sector banks, this is a product of choice. The competition is significantly, you can say, in line with what is as a home loan. For developer finance, competition is more from.
Some housing finance companies, NBFCs, and in recent parts, what we have seen largely from even some private credit funds through the AIF structure. While AIFs work on a normally higher trajectory, but as they take exposure at the beginning of the project, the project funding also gets locked in through that structure. That is where competition on the construction finance comes. Construction finance, we are not guided by any competition. Bobby, we do that. This is opportunity available. I think there is enough opportunity availability in the market. It is a risk construct driven rather than the competition or the pricing driven. Lease rental discounting is a market competition driven, but construction finance is risk-driven from an acquisition point of view.
I understand. Also, taking a longer perspective over the next 10 years or so, the whole idea behind NBFCs is that there will be so much demand that the banks will not be able to cater to it, and you can offer a solution, right, because your cost of funds are higher. That is the basic premise, right, for NBFCs. You are not seeing anything like that now because the GDP growth is around 6.5-7%. You are not seeing the real estate demand, which will not encourage as much pricing competition.
Bobby, if I get your question right, but first, I would have a slightly different opinion than you in terms of what is the reason of an HFC being existent rather than a bank. In our assessment and the way we look at the construct of our company, we do not look at it as doing a credit or meeting the credit demand, which bank is not able to meet because our larger part of the balance sheet is in the prime segment, which is whether a prime home loan or a lease rental discounting there, which is all banks, all large banks, public, private are aggressively present. We do not look at as doing the business there because, and we believe from a cost of fund perspective, for a well-run company, for a good credit, which is what we are, which is rated highest in.
India as a domestic credit rating, your cost of fund can be higher at a coupon rate level versus a bank because bank may have, can say, a CASA benefit coming in through their coupon rate. When we look at their all expenses put together to mobilize the treasury or mobilize the CASA and the other related compliance costs, I do not think a well-run company at a AAA level is at a disadvantage versus a bank to be able to compete in the prime space. If that would have been the case, Bobby, then what we have seen for years, for decades in the country, HDFC Limited was leader in mortgages, not even State Bank of India. State Bank of India, I think, became the largest player close to 2017-2018, if my memory is right.
From 20, 30 years, HDFC was the dominant player, and including when State Bank of India crossed it, it remained the second by a near margin. Cost of funds is not very different for a well-run, high-quality credit company is my assessment, and we continue to remain focused, and next 10 years also, we'll continue to build a business. For scale, low risk, in line with what banking is there, with offering all mortgage products to balance risk and return. GDP growth will mean the market will continue to grow at a much larger level. Second, the GDP mortgage as a GDP penetration also is lower in country, and as the country per capita is increasing, we believe there is a sufficient scope from there.
Looking at a long-term average, because if you look at the home loan market, it has always grown on a plus-minus 12-13% kind of a AUM growth, which has been there last 10-15 years. We believe it can slightly go up from here onward. That means opportunity can be higher rather than lower as we move forward from here.
Okay. I understand. As we move with affordable loans, your risk, your credit cost might likely be higher. How does that align with your low-risk model, which is one of your guiding principles?
When we guide for our medium-term GNPAs as well, we always guide for, Bobby, from last week, said 40-60 basis points because that's what the model is constructed for. We are today lower, and we like to be lower in there. The model we construct is for that 40-60 basis points of a GNPA and 20-25 basis points of a credit cost. That makes it a mix. See, our model is scale, low risk, and medium return, or a reasonable return. We do not say it's a scale, low risk, and low return. Because if we have to be a scale, low risk, and low return, we do not need to do a non-prime business or a construction finance business. We have to deliver a reasonable return.
That is where some mix of a or a relevant mix of a non-prime business and a construction finance is essential for the balance sheet mix. The dominant part of the balance sheet will always remain prime plus lease rental discounting, which are lowest or least risk assets. It is a part of a sum of parts in that sense in the company. One of the fourth pillar of strategic differentiator of the company also, which we put out in our deck always, is also we are a full mortgage product suite company. We are not one segment of a mortgage, which is there. We will always offer all products in mortgages. Relevant weight on each of the segment can be plus and minus basis risk-return calculation at that point of a time.
Okay. Understood. Thank you very much.
Thank you. A reminder to all the participants, you may press star and one to ask a question. Next question is from the line of Siraj Khan from S&N Capital. Please go ahead.
Thanks again for the follow-up. One question more on the business and other notes on the business. On the business, the LRD business, I mean, it's already at more than 15% of the business, 20%. Where do you see this settling? I mean, do we have a mind where we cap it out or anything with respect to that?
No, Siraj, because we have a capping of a 60% residential business, 40% non-residential. This is our opportunity available and the returns available. If it gives better returns, there is the capping is only the regulatory capping. There also, like I called out in earlier question, if you have an ability to assign out, we will continue to grow because this business fits perfectly with our concept of a scale, low risk, reasonable return. This meets all the three boxes on the criteria what we have. It is a scale business. It is a low-risk business. It gives a reasonable return because of a low OpEx. There is no cap what we have other than the regulatory cap, which is on a non-home loan business.
Okay. Understood. If we put scale because it's a very high-growth business, I was just wanting to ask, have we internally set any cap like 25% or 30%? There is no issue with respect to the concentration specifically.
It will not go beyond that because 40% is your total non-residential business, which can be between LAP, construction finance, and lease rental discounting. I think there will be an automatic feeling. It will come at an AR level, not at an AUM level. AUM level, it can have a different day because if you have an ability to assign, you can continue to grow more. Lastly, I'll say 20-25% beyond will be. Is not a visibility. If there is an opportunity, we like to grow. If we have an opportunity to grow and also assign out, because on a standalone basis, it cannot grow to 30%. That will mean construction finance and LAP have to go down to zero if it is or 10% at an AR level. AUM level, there is no cap for us.
If we have an ability to keep on mobilizing.
Understood. Understood. Okay. The second question was more so on, we've seen in the HFC space, specifically in these, what do you say, affordable housing space, where a lot of, there has been this PE-backed sell-side overhang of the PE player exiting. In our case, that's not the case, but we have a high holding with respect to Bajaj Finance holding 88%. My question is indirectly with respect to the minimum shareholding. I was also reading up a consultation paper that is saying that the minimum shareholding timelines with respect to which that has to be met at the 25% public shareholding. Anything with respect to that? Because from what I understand now, with the market cap of INR 50,000 crore to INR 1 lakh crore, within three years from listing, 25% has to be achieved. We've been listed for like a year or so.
The guidelines have already come. It's not a consultation with the Rannik here. We have time till September 29 now to. It's not gestured yet, but the guidelines have come, so it will get gestured. The guidelines have come, so we'll have time till September 29 for the parent to. By the time, I think we'll require one additional round of a capital, a primary capital, and basis. The other, it will be decided by the BAPL board because it's a decision given by parent to dilute. They are not in a hurry to dilute because we have not got any indication from the.
I understand. That's just wanting to understand from respect to. I'm not sure. I'm sure that they will not be selling out, but how will that come down? I mean, most probably it will be through a QIP, but that will be much later.
It is FY2029. September 29 is four years from now.
Yes. Yes. No worries. Just that was it. Thank you.
Thank you very much. As there are no further questions, I will now hand the conference over to the management for closing comments.
Thank you all for your patient listening. Thank you all for joining us on the call. That's all from us, all of us here for that. Thank you.
Thank you very much. On behalf of Access Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.