Good evening, everyone, and welcome to the 2Q FY 2027 earnings conference call of Bajaj Housing Finance. 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 the entire senior management team. We will have opening comments from the management team, post which we will open the floor for Q&A. With that, I will now hand over 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 and welcome to the BHFL Q2 earning calls to all. I have the entire senior management team members with me. We have uploaded investor presentation on our website and stock exchanges. I hope you got a chance to go through the same. I will focus on key updates from the same presentation for the quarter, which should take around 10 minutes- 12 minutes, and then we will open the forum for the Q&A. Beginning, I am on panel number three on the presentation. Last quarter witnessed two significant milestones for the company. We crossed a landmark INR 1.5 lakh crore AUM, driven by strong and diversified growth. Along with that, Sambhav loans crossed monthly disbursal run rate of INR 500 crore during the quarter. Overall good quarter across growth, asset quality and profitability.
Disbursement increased by 25% on YoY basis, and AUM growth also was 25% on YoY basis. PAT growth was 18% YoY to INR 980 crore in Q2, while ROA was 2.2% and ROE improved to 12.7%. Operating efficiency continues to improve with OpEx -to -NTI ratio at 19.1% as against 19.7%, which was in Q2 last year. Asset quality remains stable with GNPA of 29 basis points and NNPA of 12 basis points, same in line with last quarter. And operational networks stood at 223 branches across 182 locations. Capital adequacy was 21.24%, and principal business criteria stood at 60.49% as of 30th September 2026, against the 60% regulatory criterion. I am moving to the next panel, which are quarterly financial indicators. AUM total stood at INR 1.58 lakh crore as of 30th September, and our quarterly AUM addition was close to INR 8,580 crore this quarter, against INR 6,329 crore in Q2 of last year.
Product growth across anchor products was good. Home loans AUM improved to 22% growth in Q2 against 20% in last quarter, while LRD growth was also strong at 39% against 41% growth in Q1. LAP grew 26% and DF grew 13% on YoY basis. AUM mix remained well diversified with a higher Home Loan composition at 53.9%. Disbursement momentum was good during the last quarter with 25% growth, moving from INR 15,900 crore to INR 19,900 crore in Q2 FY 2027. I am moving to panel number five. The cost of funds reduced by 17 basis points on sequential basis from 7.2% in Q1 to close to 7% in Q2 FY 2027. It was mainly due to conversion of fixed rate sensitivities to floating -rate instrument. We always used to follow this strategy, and we had accelerated that strategy in last Q2.
Borrowing mix continued to have a higher money market mix at 56%, followed by bank lines at 35% and NHB at 9%. Total gross spreads improved by 7 basis points, driven largely by Cost of Funds moderation of 17 basis points. Thereby, it was able to offset 10 basis points portfolio yield reduction. NIM moderated slightly by 10 basis points sequentially to 3.7% to Q2 FY 2027. OpEx -to -NTI, as already called out, improved 57 basis points from 19.7% in Q2 FY 2026 to 19.1% in Q2 FY 2027. Moving to the next panel. Asset quality was stable during the quarter with GNPA flat on sequential basis at 29 basis points and NNPA at 12 basis points. Credit cost overall moderated by 6 basis points on YoY basis to 10 basis points in Q2 FY 2027 against 16 basis points in Q2 FY 2026.
Thereby, PAT increased by 18% YoY to INR 757 crore from INR 643 crore in the same quarter last year. Annualized ROA, 2.2% in the current quarter. It was 2.3% in the last year YoY in Q2 FY 2026, while ROE improved from 12.2% in last year to 12.7% in the current year Q2. Now I'll go to panel number 21. Most of the metrics in this panel have already been covered on the previous panels. Net NTI growth was 15%, if I have to just call out separately what has not been called out on a YoY basis from INR 1,090 crore to INR 1,254 crore, and PBT at 18%, INR 980 crore. Coming to half yearly performance, NTI grew 16% to INR 2,429 crore in H1, while OpEx growth was 10% on YoY basis to INR 470 crore.
Both PBT and PAT growth was 20% to INR 1,908 crore and INR 1,472 crore respectively for first half of the year. OpEx -to -NTI improved from 20.4% in H1 FY 2026 to 19.3% in H1 FY 2027, and credit cost was 8 basis points in H1 FY 2027. ROA for the half year also stood at 2.2% and ROE at 12.6% in H1 FY 2027. I'll move to panel number 23. As already called out, portfolio yield moderated by 10 basis points sequentially from 8.9% in Q1 to 8.8% in Q2, while cost of funds dropped from 7.2% to 7% in Q2. Overall gross spread inched up by 7 basis points on sequential basis to 1.8% in Q2 against 1.7% in Q1. I have already talked about other metrics which are depicted on this panel. I'll come to the next panel for treasury.
The borrowing mix continues to be diversified, but with higher composition of NCDs at 50.8%, which has improved 430 basis points sequentially, which has offset the moderation of 280 basis points in bank borrowing, 90 basis points in commercial paper and 60 basis points in NHB. The overall refinancing mix for the company. Coming to panel number 29. AUM mix continued to remain diversified with sequential increment in LRD by 90 basis points against moderation of 70 basis points in developer finance and 20 basis points in Home Loans. Now on panel number 31, which is covering Sambhav Housing updates. Business crossed a critical milestone of INR 500 crore monthly disbursal during the last quarter, with quarterly improvement in disbursal growth. Now Sambhav constitutes 16% of overall Home Loan originations in Q2. It is progressing well across all metrics, with B2C team deepening its penetration and new sourcing channels for B2B and B2C are shaping well.
ATS remains stable at INR 28 lakh, and customer having bureau score greater than 750 increased to 65%. Salaried customers continue to have a higher mix of 66% even in this business. Moving to panel 36, which is on asset quality. Stage one assets improved marginally by 1 basis point sequentially from 99.39% to 99.40%, with similar reduction in stage two from 32 basis points to 31 basis points, while GNPA was constant at 29 basis points. Provisioning coverage ratio continue to remain healthy with stage three coverage at close to 60% at 59.8%. Moving to the next panel, which is the last panel I will cover before we open the forum for questions. Product level GNPA. Home Loans stood at 36 basis points in Q2 against 34 basis points in Q1, marginally up. LAP GNPA moderated by 1 basis point sequentially to 61 basis points.
LRD GNPA of 2 basis points due to movement of one retail LRD account to NPA during the quarter, which was in stage two last quarter, which moved to stage three, excluding which portfolio quantity continue to remain strong. Developer finance GNPA was flat at 12 basis points. Overall, NNPA flat at 12 basis points on sequential basis with 1 basis point increment in Home Loans to 16 basis points, 4 basis points reduction in LAP to 21 basis points, and LRD NNPA at 1 basis point and DF NNPA moderation of 3 basis points sequentially. That is all from my end on the updates from the quarter. Happy to take questions. Over to you, Ajit.
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 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. First question is from the line of Kunal Shah from Citi. Please go ahead.
Yeah. Hi. Thanks for taking the question. So couple of questions. One is on developer finance book. Anything to read into it? Was it like higher repayments which have happened during the quarter, or we have seen the slowdown in the disbursal momentum itself out there? Because after a long, we had seen the decline in the portfolio on a sequential basis, and what would be the strategy out there on the developer book? And the second question is on overall margin trajectory, given that now there is lot of liquidity with the banks as well. And within the prime side, have we started to see active competition with respect to the rates? And would there be more pressure given that repo rate is also being hiked? So we will see the pressure on the Cost of Funds.
While maybe on the yields, would there be a limited pricing power to entirely pass it on? Would the margin pressure be relatively higher than what we had anticipated earlier? These are the two questions.
Thanks, Kunal. Just to answer the question. The first question was on the DF book. It was much higher repayments during the quarter, coupled with slower disbursements, both. But larger part was higher repayment, which is a project-led cash flow. So cash flow momentum was significantly higher. That is what resulted to the book to there. Our strategy remains to grow the book. It is not a strategic call or a conscious call from the company to reduce the growth in this portfolio. In fact, in the first 6 months of the year, our sanctions in this business have increased significantly compared to the last year's same first half. But in this business, sanctions translate to disbursements and the AUM growth at a lag basis. Going forward, you should see the business composition increasing.
We want to grow this business at a rate of around 15%-17% of the portfolio. That has always been our stated stance, and we should see that stance back sooner than later. That's on the DF.
Sorry, just in terms of lower disbursements, was it like tightening of the guardrails or something? Or maybe it was just in the normal course of a business?
Normal course. I called out specifically there is no conscious strategy of the company, and in fact, we remain committed to, at a strategic level, to grow this business significantly at a higher pace than the company pace. It was just a higher attrition coupled with lower disbursals, which has resulted into 13%. We hope that we should be back to the growth trajectory very well in quarter three and quarter four in this business. Because it remains our largest funnel for Home Loans business as well as it remains our largest profit driver. So there is no strategy or a cautious stance at the company end. On the margin trajectory, things are yet to play out. The repo mix rightfully will result into pressure in terms of Cost of Funds going up.
How much translation happens in the field from the yield perspective on the acquisition pricing, we are yet to see that because this is the repo hike that happened seven, eight days back. Generally, by 20th or 25th of the month, after 15 days of the repo hike, is when you start seeing the real acquisition pricing movement by the other leading prime player, which is the banks in this case, how they pass on. If the pass on through the acquisition pricing is lower, we may see higher BT pressure, which will impact AUM growth because that is what happened in the last scenario of the interest rate movement. We cannot give a firm view as of today because we have to see the market response to the repo rate hike.
The banks increasing the MCLR very fast after the repo hike gives us an indicator saying that probably there will be a movement in the acquisition price, as well in the housing loan as well, because we have seen leading PSU banks have increased the MCLR very fast as soon as the repo hike was there. It gives us an indicator saying that where they will be heading, but we have to wait and watch because of a liquidity, what is there in the system for a fresh acquisition. That they have to decide. We will get to know that in the next five, seven days, Kunal, in the market. But if the acquisition pricing pass-through is not there, it can result into higher attrition pressure on the prime side of the book.
To offset that, what we have always stated or had been stating for the last four, five quarters, we will continue to expand our presence in the near-prime. We will accelerate that if we see in next two, three months, more pricing pressure coming in the prime. To offset and maintain the growth stance, we will accelerate more on the near-prime side so as to we can continue to balance.
And as we swap from fixed rate to floating rate, is it like larger part of the optimization already done? How sustainable would this 7% Cost of Funds be otherwise? Maybe I think now since we have swapped it to floating and incrementally repo rate are also getting high. Obviously Cost of Funds would definitely inch up from the current level.
Yes. Largely we are optimized balance sheet with interest rate to asset to liability floating almost completely matched. The flow-through of a repo hike to the Cost of Funds should be to the extent of close to 80%, 82% of the hikes which will happen, and the similar flow-through will happen in the portfolio as far as it is concerned. There will not be any margin compression because of that. That margin compression can be only on the acquisition side, which is on the acquisition side, if the acquisition pricing doesn't move up in line with the repo hikes or the repo hike there. As far as the portfolio is concerned, portfolio will move in line with the Cost of Funds. Portfolio rate hikes will move in line with the Cost of Funds movement.
Okay. Thanks. That clarifies. All the best for the future quarters.
Thanks, Kunal.
Thank you. Next question is from the line of Viral Shah from IIFL Capital Services. Please go ahead.
Yeah. Hi, Atul and Gaurav. Thanks for the opportunity. I had two questions. First is with regards to the Insurance Commission. I understand, of course, this is a draft. What I wanted to understand is, of course, first, is there any scope for, say, the representation bearing some fruits? More importantly, generally what we hear is that most of the peers talk about being able to offset this via, say, processing fees or something else. That is also a function of the competitive pressure. Do you anticipate such kind of, say, offsets being available to BHFL? That is my first question. The second piece is, Atul, on the Sambhav segment piece. I know you mentioned that in the event of, say, competitive pressures being more elevated, you anyway are scaling up the Sambhav piece.
Now, over here, as I understand, we have a novel, say, business model, wherein we have this more of a hub-and-spoke model, unlike what we have seen for some of the peers. How has the experience been? Do you anticipate or, say, are you geared up to do a rapid scale-up of this book? If so, what is the kind of targets we can look at, say, over the medium term?
Thanks, Viral. So two questions you have asked. First is on the Insurance Commission. I will not like to hazard a guess on how the regulator will respond on the representations, what has been made by the various industry players on the Commission. If we have to assume that the final guidelines are the same as the draft guidelines or with a minor modification, the impact on the income would be there. That is visible because that is visible from the numbers as well, which is a cross-sell income in the financial. In Sambhav segment, some offset will happen through the higher processing fees and a bit of a higher margin because that is what industry will pass through. That is what we will pass through. In the prime segment, some impact can be offset with better efficiencies, better productivity, some a bit of a higher fee but not fully.
However, I will call out, Viral, here is that the higher fee or the higher margin will play in a bit of a longer term. If the guidelines are there in the shorter run, which is an indirect accounting because fees doesn't get accounted for upfront, unlike a cross-sell income. The impact on the short-term profitability will be to the extent of there, because we will offset the P&L impact at an IGAAP level because we see P&L internally both IGAAP and Ind AS, while the regulatory accounts or the financial accounts are only in Ind AS. IGAAPs, some bit of offset is possible. Ind AS full offset, we will have to see how does the industry move. But if the Insurance Commission are the way they are, for Ind AS accounting for short-term, for one year, I don't think it's feasible to offset that impact.
What we are seeing that if we have to call out specifically, there's a 10%-11% of the PBT which is generated from the cross-sell income, which is the income in conversation. I think 4%-5% can be offset by various methods, whether higher efficiencies or there. Balance 6%-7% impact on the PBT is likely to be there, which will also have an impact on OpEx -to -NTI in the next year. Because if your NTI goes down, the OpEx -to -NTI metric, what we had been always calling out that we bring it down by 1% every year, we may have a flattish OpEx -to -NTI metric next year, assuming these guidelines come. I think that's more than required detailing I have given or you asked for.
Yes. It's quite detailed. Yes.
Okay.
Thank you.
Second question you had was on Sambhav segment. We follow a centralized underwriting model for Sambhav, and to a certain extent, regionalized operation center. It has worked very well for us. Our confidence on the business is growing by the day. We have been looking to accelerate. In fact, that is the path what we have chosen, and we had already in the year beginning, had said that by year-end, we should be at INR 600 crore monthly disbursal run rate. This is current trend. I do not see a reason that why we should not be touching or crossing that INR 600 crore run rate. As far as accelerating is concerned, Viral, we would like to accelerate it much more. But this business, I think we are already accelerating it in a reasonably fast pace. We will continue to grow this.
We have said in the medium next year, we will take it to around 20% of the Home Loan mix. In a longer term, longer term means I am saying three years or three and a half year, four years, we will take it to 30% of our Home Loan mix. The growth will continue to be there in the business for next three, four years, significantly ahead of the prime growth for us to keep on balancing the mix from a margin protection point.
Right. Got it. Atul, just one more question, if I may. Probably more so for Gaurav. With regards to the Cost of Funds side. Now, I understand you did explain the entire Four Ps and the outlook, but just I wanted to understand, given that in this, the prior say the rate cut cycle, we have seen an inadequate transmission by the banks, right? I am specifically concentrating just on the bank piece. Do you anticipate in your negotiations, of course, this is something that you would be negotiating on the way up as well. Do you have some room to negotiate on the spreads and extract that kind of benefit which otherwise was not passed through in this cycle on the way up?
Viral, we largely borrow only on EBLR. The mix of our MCLR borrowing is close to 1% or 2% only in our. If I say NHB refi because NHB refinance is on NHB PLR which in any case is a mix of a. Which is efficient funding always because of a mix of a portfolio, which is a fixed for a longer term and normal refinance, which is on a PLR. We do not have any mix of a. It is insignificant, 1% or 2%.
2.5%.
2.5% of our liabilities. The rest of our liabilities are always on EBLR. That is why I said close to 80% of the repo hike, we will see transmitted to the Cost of Funds as the repo hike has. Because we are largely on the EBLR, that is why our cost of funds had been efficient always. We are largely on EBLR.
Right. No, just on this piece, what I was referring to is the spread piece. Are you able to, say, negotiate the spread, say, lower on this way up rate hike?
We will have to wait to see that if it is a one hike or a two hike or a three hike, four hike scenario. As the scenario evolves, I do not think there is any scope of negotiation on the first hike. The negotiation scope also opens up from what is available in the money market on the upfront basis versus what your existing liabilities are priced at. Today, in last four, five days because of overall treasury market and overall money market, I think there is. I will not call there a scope available right now. This is this hike, and this is the money market position, what is there post the policy for last seven, eight days. Vijay, am I right?
Yeah.
Our treasurer is there, so I was just asking. But it will evolve. It is too early right now for us to say. If there is a scope available, if the fresh borrowings are at a lower price than the existing borrowing, there is always a scope for negotiation.
Got it. Thanks very much, Atul, and all the very best.
Thanks.
Thank you. Participants, remember press star and one to ask the question. Next question is from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.
Hi, Atul. Hi, Gaurav. So two quick questions.
Shubhranshu, sorry to interrupt you. Your voice is not coming very clear. Can you speak through the handset, please?
Right. I am speaking from the handset. Can you hear me now?
Yeah.
Much better. Thank you.
Right. Hi, Atul. Hi, Gaurav. Two quick questions. The first one is around the PBC criteria. What percentage of our book now is Home Loans, pure Home Loans? What is the denominator that we use here? Is it just the AUM or are we adding the investments and cash as well in the denominator to calculate the PBC ratio? Second is that in the ticket size that we operate, do we think that with banks being flushed with FCNR, we are going to see hyper competition? Of course, some of the banks have also increased the rates by 20 basis points-25 basis points for the initial course of Home Loans. How do we look at competition from PSU and private banks going forward in the ticket sizes that we operate and then prime housing? Thanks. These are my two questions.
Thanks, Shubhranshu. As far as PBC criteria is concerned, we have called out in the presentation, we are 60.49% as of 30 September and 50.6% if you have to take individual Home Loan. There are two criterias, 50% and 60%. 50% being individual Home Loan and 60% being our housing assets. We are 50.6% in the individual Home Loans as a criteria. This is AR criteria. These are not AUM criteria. The regulatory criterias are inclusive of all investments, everything, all assets. This is the regulated.
Tangible assets.
Tangible assets. The PBC update, what we provide in any investor call is as per the regulatory definition. It is not as per our definition. All the numbers, whenever, whatever are provided for PBC are in line with regulatory definition. IHL definition of numerator being in the way regulatory combines the IHL without minus any VAS loan or any non-top-up loan or minus that. The denominator is all total tangible assets of the company. That is on the question number one. On the second side, like I called out just in the previous call as well, acquisition pricing pass-through from the public sector banks or the private sector banks. I think we will get to know more in the next 8 days-10 days. The repo hike has happened there. Normally people wait for each other to move high.
One or two banks have moved by 15 basis points- 20 basis points is to my knowledge, 15 basis points , 20 basis points . The broader movement in the market and also older sanctions exhaust. When do they decide in ALCO and when do they move? It will be by 24th, 25th I think the picture will be clearer in the market. FCNR or no FCNR, I think public sector banks and private sector bank, we consider competitive pressure in pricing in prime as a feature, not as a novelty. Something would keep on happening for the pricing pressure in the prime to be extremely high, and that is why we started moving our focus on both, while keep on growing prime, but grow Sambhav simultaneously for us to keep on competing in the prime, to keep on delivering the growth which we are delivering.
Along with that, offsetting the margin pressure, what keeps on coming from the prime. 14%- 16% in Q1- Q2, we have moved in competition of Sambhav. Like I was calling out in the previous question, I think by year-end, we should be close to 20%. Then over a medium term, we will take it to 30% kind of a mix of Sambhav.
Understood. Just one follow-up question. Basically, 50.6% on the AR, which would imply that we are lower than 50% of our individual Home Loans if we take just pure AUM as the denominator. Is that a fair understanding?
Can be. Because PBC is on-
Sir, AUM mix, Shubhranshu, we are at 53.9%.
No, but that is-
No. That 50.6% for
Yeah. Shubhranshu, you are right. Home Loan AUM is 54%, but IHL AUM is not calculated. If I go by the larger mix of the assigned out assets are non-HL, which is the purpose of our assignment out, because Home Loan growth during last five, six quarters had been lagging the company growth. At an AUM level, it would not be 50% or slightly tagged below 50%, because assignment out largely in last six quarters had been only non-Home Loan assets. But the measurement or the regulatory measurement is only AR. You are asking a question which is outside the regulatory definition. AUM is assigned out is a strategy what we have always followed and we had always called out to maintain PBC.
Right. In this individual Home Loan, we used to call out what is top-up loans as well, right? There must be some
Individual Home Loans, Shubhranshu, as a regulatory definition, doesn't have anything other than money paid purely for buying a home.
Understood.
No top-up, no fees, no VAS. Nothing. That is why if I have to look at an AR level, Home Loans is 58%, at an AR level.
Understood.
But 58% related to IHL of 50.6% because everything else is stripped out when the regulatory definition of IHL is applied.
Understood. This was very helpful, Atul. Thank you so much, Gaurav. I'll take the rest of the questions offline. Thanks.
Thanks.
Thanks so much.
Thank you. Participants, you may press star and one to ask a question. Next question is from the line of Gaurav Sharma from HSBC. Please go ahead.
Hello, am I audible?
You are audible.
Yes. Go ahead.
You are audible. Yeah.
Sir, thank you for taking my question. A couple of questions. First, on the fee income side, sir, we have seen a sharp uptick in fee income in this quarter. Just wanted to understand, maybe we are seeing a pickup in Sambhav loans, which could have a higher fee income. Is this the reason or something else? How we see fee income panning out as a proportion of the ROE tree going forward? That is one. Secondly, sir, can you please call off your incremental rates in NCD as well as the bank borrowing and how you are seeing the benefit? I think NCDs are currently lower prices compared to bank. Could you please elaborate on this?
Second question I will answer, Gaurav, and then I will request Gaurav to answer the first part, which is an incremental rate in NCD, which we last did it on, I think before the policy one day, before the policy one. There, a 10-year money post hedging was costing at around 7.04% for us. That was the incremental post-policy after six, because the last issuance, what we did was on a sixth. Of course, that we have not borrowed anything, and I do not think after policy we have borrowed anything from the bank as well. Pre-policy, the NCD money was cheaper than the bank. That is where when you look at the mix of the borrowing or the treasury mix, in last one year, you will see a sharp uptick in the NCD borrowing versus the bank borrowing line, which has gone down.
The bank borrowing had been lower focus for last six to nine months because I think post January. Post January, February, money market had been cheaper and a longer money available for us to borrow. On the fee income, I will request Gaurav to explain.
Yeah. So fee income predominantly is higher because of higher insurance income. Also this quarter, we had some higher foreclosure income. These are the two reasons why fees income is higher. Fee and commission line is higher. Insurance again, as Sambhav loans are growing, the attachment rates also are higher there. That is the reason, along with the disbursal and AUM growth there. So 25% growth in disbursals, but also because of higher contribution coming from Sambhav loans.
Got it. Very helpful. Thank you so much.
Thank you. Next question is from line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Good evening, sir. Thank you for taking my question. Just to understand this interest rate and the margin line better. Atul sir, you have been saying, right, that we will maybe get to know after 24th, 25th what are the other peers and largely banks doing. I am guessing this you are talking about the newer originations, right?
Correct.
What is it that they are planning to do?
See, portfolio-
But-
We need to reprice in line with our cost of funds movement. Portfolio repricing is in line with the cost of funds movement. For the acquisition price-
Right
-what I called out in the first question was that portfolio price pass-through will be there in line with the cost of funds. What can cause a margin compression further is if acquisition pricing doesn't move, and it can cause a bit of an attrition pressure, additional attrition pressure, if acquisition pricing in the market doesn't move in line with the rate movement. That's what I exactly called out.
Right. Which essentially means that till now, we have not made any PLR changes.
There is a 25%-30% of the book which is linked to repo. That will get reset at the repo date.
Yes.
Typically, seven days after repo policy date is what is over there. For our internal book, which is a FRR book, we have made a 15 basis points increase today, which will be effective next week. 15 basis points increase is done, and the rest of the increase will happen basis. Because the pass-through in the Cost of Funds is also on a staggered basis. What is getting through in October and November is getting passed through on the asset side. As what will come through in November and December as liabilities get repriced, will get passed on as there. From a transmission point of view on the assets portfolio, the transmission will be in line with the Cost of Funds . There will not be any compression in the margin because of the Cost of Funds movement on portfolio versus pass-through in the portfolio.
Compression, what I talked about, can be if the acquisition price doesn't move in line with the Cost of Funds movement.
Got it. This is useful. This is all I wanted to understand. Thank you so much for taking my question.
Thanks.
Thank you. Next question is from line of Gaurav Khandelwal from JPMorgan. Please go ahead.
Yeah. Hi, good evening. Thanks for taking my questions. I just wanted to, again, touch a bit on the interest rate questions. Let us say in a scenario where cost of funds for us move up, and let us say after 20 days, 30 days. Cost of funds move up, but the acquisition rates are still staying low because of whatever reason, led by large banks in the primary mortgage space. In that case, how will we try to address the trade-off between growth and profitability?
Gaurav, if the Cost of Funds moves up, like I called out, portfolio pricing moves up. That is in line with whatever Cost of Funds moves up. The margins which get crunched, which would be if, let us say, new acquisition pricing from the banks is not moving in line with our Cost of Funds movement. In that scenario, the balancing has to happen at the company end to maintain overall margin, because in acquisition pricing, you have to match or compete with the same larger player. Then the rebalancing in terms of the acquisition engine, that do we accelerate more non-prime, or do we accelerate more LAP a bit, or we accelerate more construction finance?
In any case, at a company level, there is a margin available, which is what I called out in answer to the first question, saying DF we have gone down in last two quarters, while our sanctions are very healthy, momentum is healthy. There is an uptick which will, at a company level in the margin offset which will come because the highest margin business today has been least growing in the current first half, so that gives us, in any case, a leeway to offset a bit of a margin pressure if in the prime acquisition pricing doesn't move in line. Portfolio pricing moves, so at best, there can be 2 basis points- 3 basis points kind of a movement here and there if the acquisition pricing doesn't move in line. More impact can come through with a higher attrition, which we saw during last year.
Our AUM growth came down to 23% because of the higher attrition. That is why we have not even changed our yearly guidance, 21%- 23%, what we have done, while in the quarter one we were 24% and we are as of now 25%. We are yet to see the impact in the market because acquisition pricing not moving can lead to a higher attrition pressure, again, largely on the prime housing and some extent LRD, because both of these are most price-sensitive customers. We will just hold our AUM growth forecast to watch out from how does the market play out.
Got it. In this scenario, sir, then the Home Loan growth will be slightly slower compared to rest of the portfolio, and then we will have to assign out more loans. Is that understanding correct?
That we do on a monthly basis. The non-Home Loan asset assignment out for the last 18 months- 20 months has been a monthly phenomenon.
Got it. Okay. The other couple of housekeeping questions. Income on de-recognized loans keep dropping every quarter for the last few quarters. Can I understand that better?
Gaurav, can you
Sure. It is basically quantum of assignment, which we do in a particular quarter. Generally, this quarter, the income is around INR 40 crores. Last quarter was INR 68 crores. That is predominantly driven by lower assignment, which we did in this quarter. It was around 1,400 odd crores of INR 1,428 crores of assignment, which we did in this quarter, versus 2,600 odd crores of assignment we did last quarter. Broadly, as we had talked about earlier also, we look at PBC and ALM strategies to define how much of assignment we will continue to do on a quarterly basis. That is why it will keep moving. But in general, we are in the 11%-13% corridor always on the off-book side.
Income on de-recognized loan also, Gaurav, moves in line with what type of assets you have assigned out. When you assign out LRD assets, the income booking is less compared to when you assign out LAP assets. There is a bit of a dynamics and how much of a old assigned book has run down also impacts the new income booking, because as the old book run down, you have to write off whatever income you had booked at that time. There are multiple moving pieces. The asset strategy, the liability strategy remains same. As Gaurav has called out, 11%-13% of the book will get assigned out, and the assignment is a strategy we follow for maintaining PBC, followed by ALM, followed by income booking. Income booking number can change basis of various underlying dynamics, which is the previous book rundown.
What was the book which has run down the previous book which has run down in the current quarter? What is the type of asset which has been assigned out, and what was the acquisition price of that asset? Because the gap between the acquisition price and the assignment assigned out price is only what gets booked as an income.
Got it, sir. Thanks for that. Another housekeeping question is, when I look at the fee-related expenses, and if I, let's say, plot it against the fee income, so effectively, fee-related expenses divided by fee income, that ratio also keeps dropping. What is driving that reduction there?
Sorry.
Fee-related expenses is marginal. Those are basically the charges we pay for portfolios we assign. That's a smaller number that will continue to remain range bound. That won't increase significantly. Fee income is where we continue to see expansion driven by insurance income broadly, which drives that line item on the income side. Expense side won't move significantly, Gaurav.
Got it. Thanks. Just sorry, the final question. The salary expenses have been increasing quite a bit in last two quarters. This quarter it was 19% up year-on-year. Is this clean salary cost or are there any adjustments there as well?
No, this is a salary cost because this last year, when you look at a year-on-year, last one and a half year, we have been investing very heavily in Sambhav and our non-top six market structure, what we had called out last year. You will keep on seeing a bit of a salary cost increase going up year-on-year even for next four quarters, because as we are building out the businesses, which is on the Sambhav side, it's a manpower-intensive business. So there's no other one-timer adjustment or a catch-up. Nothing.
It is basically with the increase in headcounts, effectively.
Increase in headcount or increase in expenses related to the manpower, the senior teams which are coming on board, and YoY will always be. In next one year, I think after that it will stabilize on a YoY basis.
Got it.
Because when you look at a YoY, the previous quarter, the previous year doesn't have a full 100% impact-
Yeah
-of the people who have come on board. And like we had called out earlier, this year we will continue to invest deep in the near-prime and top six plus, and next year we will still continue to invest very deeply in affordable.
Perfect, sir. Thank you so much.
Thank you.
Thank you. Next question is from the line of Renish from ICICI Securities. Please go ahead.
Yeah. Hi, guys. Congratulations on a good set of numbers. Just two things here. One, around this interest rate cycle. Historically, have you guys seen any correlation between housing demand during a rising rate cycle?
Hi, Renish. First answer, I think it is simpler. The housing sale in the country was highest in calendar year 2024, where the interest rate was highest in the recent six, seven years.
Okay.
Housing demand had been a bit sluggish in 2025, 2026, when the disbursements grew in industry at 1% or close to 0%, when the interest rates were cut significantly.
Okay
I believe housing demand is a core demand or core need. It is driven more less of interest because every customer understands it's a variable rate. Today, you don't buy a house because interest rate is low because you know during the currency of the loan, the rate can go up or it can go down. At least the evolved buyer or largely the segment of the customer we deal with understand that very well. It is largely driven from the expectation of a real estate price hike where the Home Loan demand or housing demand moves up or down. If you're not expecting the prices to go up, you will always see it sluggish irrespective of the interest rate cycle.
If the market expectation is the house prices will go up, the person will want to lock in today rather than wait for the perfect interest rate of a 50 basis points or a 75 basis points for him to go and buy a house because the pricing differential can be very high by the time he wants to buy the house. Interest rate movement-
Got it.
-to my understanding or to my whatever we have seen over the year is largely linked to home price expectation, not Home Loans prices.
Got it. So you're saying the demand elasticity is higher with asset price than the interest rate?
Yeah. Expectation of asset price inflation or not.
Got it. Related to that, have you also seen any correlation between, let us say, the higher repayment rate when interest rates are going up or that also doesn't change the customer behavior?
The higher repayment rate comes through the BT in any interest rate destabilized environment, whether rates are going down or rates are going up. They remain lower only when the interest rates are stable over a longer period. Any interest rate cycle, whether up or down, will see how it is higher repayment rate because of a balance transfer. If I have to give you an example, this is a bureau data. You'll see quarter one of the current financial year, Home Loan industry disbursements growth is 18%, where basis RBI data, Home Loan AUM growth is 10% in industry. That tells you that it is largely balance transfer, which is moving the needle. The repayment rate of a customer themselves paying down or going up or down doesn't move in correlation to the interest rate cycle because that is again not there.
The BT out rates move in any interest rate destabilization or a non-stable phase.
Got it. I am just trying to understand, let us say if customers start anticipating rates to go up, then rather they prepay loans and are lowering their EMI. I am just trying to understand from that perspective.
Customers will, in the Home Loan what we have seen a consistent trend. Even when, let us say last year, the interest rates were the lowest. The part prepayment rates were highest last year for us in our portfolio. Because customers-
Got it.
-will pay you the part payment, whatever surplus they have, irrespective of the interest rate. Interest rate for a homeownership and a Home Loan pay down or a Home Loan take-up, largely, I have not seen it related to the interest rate because given the variability of the interest rate. Where the interest rate would be lower in the industry when even the income generation also is lower and customer first wants to pay off the Home Loan irrespective whether Home Loan rates are higher or are lower. That is why behavioral-
Got it.
-maturities of Home Loans always remains far lower than whatever the booking tenures are there because the priority of Indian customer, at least we have always seen to pay down Home Loan faster, much faster, irrespective of the interest rate scenario.
Got it. This is very helpful. Just a last bookkeeping question maybe to Gaurav. What is the floating and fixed rate asset liability mix for us?
It is like, I think I called out in the earlier question, 88% is both asset and the liability side.
Asset and the liability side. I just missed our commentary on the PLR hike. Have we hiked PLR rate in the month of October after the repo rate hike?
Yeah, 15 basis points.
15 basis points. Okay.
Which will be effective next week. The decision has been taken by ALCO. Effective will be later.
Okay.
Being effective today. Sorry. Being effective. Yeah. Effective. I forgot.
Got it. The floating rate assets, these assets are linked to what? Is it linked to the PLR or is it linked to the external benchmark or it is mixed?
25%, 30% of the assets are linked to the repo and balance are linked to the internal floating rate.
Which is obviously linked to PLR.
Yeah.
Okay.
From the asset side, out of the 88% assets, largely 54% of the total, which will mean 62% of the floating rates assets are linked to PLR, balance are linked to external benchmark.
Got it. What is the borrowing which is linked to EBLR? I mean the repo or-
Largely other than 2.5%, everything is EBLR for us.
Got it. Okay. This is very helpful, sir. Thank you and best of luck.
Thank you, Renish.
Thank you. Next question is from Raghav Garg from Ambit Capital. Please go ahead.
Hi. Good evening. Am I audible?
Yeah, Raghav.
Yes, go ahead.
It will be better if-
Okay
-you can speak a bit closer or louder. You are audible, but we will have to strain our ears.
Is this better now?
Yeah, this is much better.
Okay. I was looking at your Sambhav portfolio. You are saying that it is 16% of the total acquisition and Home Loan. Is this in terms of value or volume?
In value. Mortgage is a value activity, Raghav Garg.
Correct.
Any number we give is in value.
Sure.
But count method, this will be much more.
Sure. I think last quarter, the Sambhav acquisition mix was 14% in Home Loans.
Yeah.
Now, when I try to back calculate the total HL acquisition, there is a decline in this quarter. This quarter, I think the HL acquisition is INR 9,500 crores. Last quarter it was INR 9,800 crores. What is the reason for the HL originations or acquisition declining quarter-on-quarter? In such a scenario, how do you really pass on the interest rates to the customer when the demand is sort of weak or even when you look at the real estate data, the demand is a bit soft. I just wanted to understand that bit.
We don't pay heed too much in a quarter-on-quarter sum. Because at a YoY level, because the quarter-on-quarter, there are movements which will always happen because they're depending upon the season. YoY, I think Home Loan overall aggregate disbursements will remain strong. That's why you see the 22% AUM growth. Which is after a long time in Home Loan, we had a 22% AUM growth. The disbursal absolute number YoY is less relevant. Largely relevant is the AUM growth. AUM growth can happen because of two factors. Either the disbursements keep on growing very fast, which was last year. Last year, disbursements were growing very fast, but the attrition was growing faster. It was not there.
If the quarter two, the attrition was a bit softer and the disbursements were also a bit softer because of a seasonality impact to a certain extent. But AUM growth was fine. The Home Loans and any other business in mortgage, we largely track on AUM growth rather than on a disbursal. Disbursals we quote as a one time in the commentary quarter update when we give. Because there are a lot of questions which were always coming on the investor calls on the disbursements. While internally as a company, the only metric we track, whether for business performance or anything, is the AUM growth.
Understood. This number in HL, which I think you for the industry said is up 18% YoY. How much was the growth for you? When I look at this INR 9,500 crore number in HL, how is this versus, say, second quarter of last year?
Just one minute. I'll have to take YoY disbursements to Home Loans in quarter-on-quarter. Like I said, that since we don't track this on a daily basis, but we'll have the number. I'll find that number. If you have another question you can ask by the time Raghav.
Yeah. I just have one more question. 28 lakh ticket size, is that on portfolio as in AUM or is that the disbursal ticket?
Through the door. It is through the door. Acquisition.
Okay. Understood. Sure. That's all from my side. Thank you.
A Home Loan disbursal growth is 24% YoY
Understood.
Which is in line with the portfolio disbursal growth 25%.
Sure.
Raghav, do you have any follow-up question?
No, I am good. Thank you.
Thank you. Next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.
Hi. Thanks for taking my question. You gave a guidance last quarter, your management assessment for 2027. Would you want to revise it, especially in the backdrop of NIM, mix of funds in this quarter?
Hi, Nischint. We will not revise the guidance as of now because there is a bit of moving pieces. AUM growth is much faster than the guidance, if that is what you are referring to. But like I called out in two questions earlier, we are yet to watch out what is the interest rate change regime does to the acquisition pricing. Because in the acquisition pricing, it doesn't move in line with the portfolio pricing. We can see, again, an elevated attrition pressure, which can result into, again, AUM growth moving down. In terms of a margin, what we called out around 25 basis points, kind of a NIM compression.
As of today, our calculation would be that we should be in the, broadly the range, even if we stress test it to a certain extent of acquisition pricing not growing in line with cost to the extent of only it grows 60%-70%, then one, two basis points further can be the NTI pressure. So basis the moving pieces and basis is the interest rate. First cycle just happened and we don't know the future scenarios. We would desist from revising the growth estimates, what we have given, because there are two main basis.
Volume can be lower because if, let us say, larger players do not flow through in the acquisition prices, and the BT pressure can be higher, which can lead to 25% going down to 22%, 23%. That's why AUM. I'm not saying this is what is going to happen, but we don't know how it will play out. Because last year we had seen that higher BT out result had resulted into 2%, 3% of a suppression of AUM growth. That's why AUM growth not being there. On the margins, we gave a 2.1%- 2.3% kind of a ROA range. We are at 2.2%. Broadly, here and there is what our estimate would be as of now. There can be 2 basis points, 3 basis points of additional compression, which can be if the acquisition pricing pressure is much more severe.
But that is, I think it doesn't call for us to revise the guidance as of today.
Broadly, your guidance of 20 basis points, 25 basis points margin compression for the year, which obviously means a fair amount of heavy lifting in the second half of the year, probably much more than 25 basis points, 30 basis points, 40 basis points on a sequential basis. I think what that essentially bakes in is that the acquisition pricing doesn't really live up to the pace at which the benchmark rates are going up. I think that's what broadly we are trying to indicate.
17 basis points of a drop has already happened in the year versus last year, if you have to take out of 25 basis points.
What we said. 17 basis points has happened. As we keep on seeing, there is a moderation in the portfolio yield because the new through the door versus what goes out has been lower. The spread was able to hold back in the Q2. It was a one-time impact, which we said because of a Cost of Funds drop was higher. As we factor in from here onward, because asset and liabilities are perfectly balanced at 88 there. There is no protection. Additionally, the margin compression will come through the liability movement. Natural compression, which will keep on happening because of a newer asset being lower price than the older asset and the attriting assets being higher price than the coming in asset, will mean that 25 basis points will happen. It is not being a conservative assessment decision, if I have to say that.
In fact, I am calling out one or two basis points further hit can be there in case the acquisition pricing pressure is significant.
Got it.
Have I-
Yeah, no, I understood. That is very clear. Just one thing, this 20 basis points reduction in cost of borrowing. This is a one-off impact or is it something which is now the starting point for the next quarter?
This is starting point. This is a one-time impact, which is there, which was because of a one-off maturity of certain high-priced earlier borrowings, which happened and the substitution happened at a lower rate. Second, a bit of a past book, old book also we converted to a floating. Part of it was due to that. Part of it is because of a change strategy of not in the last one quarter, we largely were in the money market and converting it there rather than borrowing through the bank, which were a bit higher price. This would be the base for any trajectory movement up. Quarter three trajectory will be up because one repo hike has already happened. If December hike also happens, it should be there. What we estimate, if there are three hikes, let us say between October, December, February, is just a hypothetical scenario.
We should see increase in costs from now to exit around 61 basis points. I called out around 80% of the repo hike should flow through the Cost of Funds. If every 25 basis points, around 20 basis points should flow through the Cost of Funds, which will be what will flow through the portfolio as well on the assets side.
Got it. 7% exit September could probably be 7.6% exit March, assuming the 25 basis points, 25 basis points. That is what I think you are trying to say.
Yes. So 75-
Got it.
should result into 61 basis points- 62 basis points kind of a It does not factor in the new marginal cost of borrowing. So 2 basis points- 3 basis points plus minuses can be there because of the new borrowing which will come. We are talking the portfolio through the portfolio impact. The additional new borrowing, it will depend upon the market scenario. How is the market scenario? How is the new borrowings available? That will be a minor impact on the overall cost of fund. Major impact is on the portfolio flow through from the repo hike, which will be 60 basis points- 61 basis points if there are three hikes.
Perfect. Got it. Thank you very much and all the best.
Thanks.
Thank you. Next follow-up question is from the line of Gaurav Khandelwal from JPMorgan. Please go ahead.
Hi. Thanks for taking my follow-up question. I only want to understand what is the incremental loan yield today pre the rate hike, which was at 8.1 last quarter. Just want to understand where is that number today?
Gaurav, pre-hike?
Yeah. Pre-hike to now.
No. Pre-hike, the incremental loan hike yield, what was the-
Incremental loan. Yeah.
Q2 versus Q1.
It was similar at 8.1 quarter.
Okay. Got it. So far, we haven't taken a call on the new acquisition rates.
That's gone into effect from today because the PLR hike has happened today, so the new pricing also has gone into effect from today.
Okay. That's another 15 basis points.
Close to 15 basis points- 20 basis points. On the new acquisition, portfolio is 15 basis points.
Okay. Got it.
New acquisition is 15 basis points-20 basis points, and we will recalibrate it as we see the market, how does it move.
Got it, sir. Okay. Thank you so much.
Thank you very much. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you all very much for being on the call and giving us a patient listening. Thank you from my side and all the management team to Ajit and all the participants on the call. Thank you.
Thank you very much. On behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.