Hey, good evening. Hi, come in. Ladies and gentlemen. All of you. Yes, we will. I'm sorry.
Thank you. Ladies and gentlemen, good evening and welcome to the Bajaj Finance Limited Q4 FY25 earnings call hosted by Morgan Stanley. This event is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley disclosure website at www.morganstanley.com/researchdisclosures. Please note that this call and your questions will be recorded and may, in certain circumstances, be distributed to clients and/or made publicly available. By participating in this event, you consent to such recording, distribution, and publication. All participants will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. I'll now hand the conference over to Mr. Subramaniam Iyer from Morgan Stanley. Thank you, and over to you, sir.
Thank you, Kenneth. Good evening, everyone. This is Subramaniam Iyer from Morgan Stanley. Thank you very much for joining us for the Bajaj Finance Q4 FY25 earnings call. To discuss the results, I'm pleased to welcome Mr. Rajeev Jain, Vice Chairman; Mr. Anup Saha, Managing Director; Mr. Sandeep Jain, COO and CFO; and other senior members of the management team. On behalf of Morgan Stanley, I thank Bajaj Finance management for giving us the opportunity to host you. I now invite Rajeev to take us through the key financial highlights for the quarter, post which we will open the floor for Q&A. Over to you, Rajeev.
Thank you, Subramaniam. Thank you, Morgan Stanley, for hosting us. I have my colleagues here. I have lots to cover. I'll try and cover in the next 15-20 minutes. I'll refer to the investor deck, which is being uploaded on the Bajaj Finance website. Let's just jump in. I'm on panel four. If I take a quarter view, in general, I would say a good quarter on volume, AUM, OPEX, and trade cost. Even excluding the additional ECL provision, which I'll cover a little bit in detail in further slides, the additional ECL provision that we've taken for annual model redevelopment was up 18%. ROA and ROE were steady in line with the last three quarters. AUM growth came in at INR 18,618 crore to INR 416,061 crore. We booked a record 10.7 million loans in Q4 and added 4.7 million new customers.
Customer franchise stood at just below 102 million. Bajaj Finance has now across 70 million customers and has 70-75 million customers. The FinAI transformation, which we talked about, is progressing well, and I'll provide some updates on that as well. AUM grew 26%. OPEX for the quarter came in at 33.1%, continues to continue its downward trajectory, which will continue in the next year as well. PBT came in. The PBT growth, there are two one-timers, which I'm covering in a little bit of detail. PBT came in with a growth of 11% at INR 5,647 crore. PAT came in at a growth of 19%. I'll give you the reconciliation for both these numbers in two slides later. PAT came in at INR 4,546 crore, a growth of 19%. ROE came in at 19.1% versus a year ago of 20.5%.
Net NPA came in at 44 basis points. Let's just now cover the one-timers. There are two one-timers in Q4. In Q4, the company annually conducted and conducted again the refresh of its ECL model, which principally incorporates the last 12 months' portfolio performance and forward-looking macro outlook. Given the higher flow-forward rates that we have actually seen through the year and elevated trade costs in the last three quarters, the redevelopment of the ECL model resulted in an additional ECL provision of INR 359 crore, and primarily, rather mostly, in stage one assets. That's one impact in the P&L, in the trade cost line. The second impact is in the PAT line, which is that the company has reevaluated its income tax position on deductibility of certain expenditures based on favorable court and tribunal orders in recent years.
Accordingly, in the process, the company reversed INR 249 crore in tax expenses from previous years and INR 99 crore from the current year, resulting in an overall tax reduction of INR 348 crore in Q4. If you look at the table below, I'm on panel five, you'll principally see that expected credit loss reported is INR 2,329 crore, which on a percentage of average AUM basis is 2.33%. Adjusted for the one-time ECL impact, it is INR 970 crore and is 1.97%. PBT is INR 5,647 crore, which is 11% growth, but adjusted number for the ECL is actually which is one-time. For the quarter, it's really 11, but I'm just giving you a directional input. It's up 18%. PAT is up reported as 19%, but it's actually up 17%.
These are the two one-timers, one in the credit cost line, another in the tax line. Okay. That's one update to provide. There are a set of three corporate actions that the board has taken today. The board of directors today have recommended, subject to shareholders' approval, of course, the following corporate actions. One is subdivision of face value of shares from INR 2 to INR 1. We are doing a split. The board of directors also recommended four fully paid bonus shares for every one fully paid equity share of the company.
It will virtually be a 1 to 10 impact on the number of shares and per share. The board of directors, subject to shareholders' approval. That is one action or rather two actions recommended by the board and subject to shareholders' approval. Point number two is, subject to shareholders' approval, a final dividend of INR 44 per equity share has been recommended, amounts to 18.88% of standalone profit.
Excluding the exceptional gain, as you would recall, we had exceptional gain on account of dilution in BHFL on account of its listing. Excluding that exceptional gain, the board has recommended just a tax bill of 19%, which is really in line with our long-term dividend payout policy, a 19% dividend payout for the current year. Point number three, the board of directors today have approved distribution of a special interim dividend of INR 12 per equity share from the exceptional gain, which the company resulted from the sale of investments in BHFL on account of IPO listing in September 2024. These are three large actions. The bonus and special interim dividends principally reflect the strong financial position of the company in the robust reserve and positive growth outlook.
We do want to, to all investors on the call, do want to acknowledge and express gratitude to all the investors and shareholders for their continued and unwavering trust and support. These are three corporate actions being recommended. The third one is not a recommendation. The first two are recommendations. The third one is within the ambit of the board to make a decision. Let's quickly go to some financial data. AUM, we talked about. AUM growth, we talked about. New loans, we talked about. 4.7 million loans for the quarter, we talked about. Customer franchise, we talked about. In terms of geographic footprint, the company is now mostly done with the geographic footprint. That's why if you can see, we added only four new locations. Where addition is happening is in Gold Loan and MFI branches.
The company opened 137 standalone Gold Loan branches in the quarter that went by and added 30 MFI branches. Overall, Gold Loan branches are now 964 and MFI branches are now 333. Liquidity buffer, given the rally in the Treasury market, we've been adding a lot of long-term borrowing to our overall borrowing program, stood at INR 18,754 crore. Cost of funds came in at 7.99%, a marginal increase of three basis points. Overall, from a direction standpoint, we expect cost of funds to gradually go down to 7.75-7.85% by end of fiscal year 2026. Anup will cover this point in a little bit more detail when we provide management assessment for fiscal year 2026. Overall deposits booked grew by 19% and on a consolidated basis came in at 20% for the fiscal March 2025. In terms of I'm on panel eight, NIM grew 22%. Net total income grew 23%.
OPEX to NIM improved to 33.1. Employee headcount stood at 64,000 people. Addition rate came in at 16.8% for the year, marginally higher than last year. One important update to provide, which is point number 14, which is that the company onboarded 44,500 people from outsourced manpower to a fixed-term contract employment model in certain of our businesses. We principally see that this action should lead to improvement in productivity and should also enhance our customer service standards. Let me now cover the important line item, which is trade cost. Loan loss and provisions, as I earlier said, was INR 2,329 crore. We made an additional provision of INR 359 crore on account of model redevelopment and primarily went to stage one assets. Adjusted for this, loan loss was INR 1,970 crore and would come in at 1.97%.
In Q4, the net increase in stage two and stage three assets, which are constantly going down, if you actually map it over the last four quarters, stage two and stage three assets are constantly going down, came down to INR 289 crore. Stage two increased by INR 784 crore and stage three decreased by INR 495 crore. Even if you just look at this metric, we can say that there's some level of improvement on an ongoing basis, but right now, quarter at a time.
GNPA and NNPA came in at 96 basis points and 44 basis points against 85 basis points and 37 basis points. Continues to be amongst the lowest in the industry. Profitability, consolidated pre-provision profit grew 24%. PBT and PAT I've already talked about. ROA came in at 4.6%. ROE came in at 19.1%. Capital adequacy was pretty strong at 21.93, of that tier one was 21.09.
S&P has upgraded the company's standalone outlook to BBB- (Positive) from BBB- (Stable) . Just a small update that okay. BFS, which had warrants which were maturing, has exercised the option and that money has come into the company. Just some additional updates in terms of managerial, I mean, senior management personnel appointments. Last year, we started the process of Anup moving as GMD and three of our senior officers moved as Chief Operating Officers in line with that direction. We have also taken a decision to create three new positions of given the growth and complexity of the firm. We have created three new Deputy CEO positions. They will all report to Anup. Manish Jain, who runs our B2B business, is being promoted to Deputy CEO. Sidhant Dadwal , who runs our B2C and SME business, is being promoted to Deputy CEO.
Ashish, who runs our wire lending MFI and strategic partnership business, is being elevated to Deputy CEO. All of them receive expanded responsibilities, which are outlined here. As a result of this change, we will principally have a management council, which will have a seven-member team, three Chief Operating Officers, and three Deputy CEOs who would help navigate the company and take it to greater heights. Just as a last point, the company in the fourth quarter, in the quarter gone by, took a 12% stake in a company called Protect t.ai, investing INR 650,000,000. It is a five-year-old company. It is a cybersecurity product company. We are amongst the large customers of theirs and it specializes in mobile app security solutions. It would help us send them the complete technology roadmap in the cybersecurity space. That is on panel 10. No.
Q4, BHFL, very quickly, you would already be aware, very good quarter for BHFL on AUM, profit, and asset quality. AUM grew 26%. GNPA came in at 29 basis points. The PAT grew by 54%. ROA came in at 1.4%. Very good quarter for BHFL. Their PBC stood at 61.28% against the regulatory requirement of 60%. On all metrics, they had a very good quarter. Their AUM came in just a tad below INR 115,000 crore. OPEX tune-in continues to go down. PBT grew 48%. They had similar benefits in PBT and PAT on account of the deductibility of certain expenditures. There is some impact benefit here as well in PBT to PAT. PAT grew by 54%. ROA came in at 12.1%. NPA was at 11 basis points. For FinTech, good quarter for MTF, AUM, PBT, PAT, and new customer addition.
They delivered an overall MTF AUM of INR 4,505 crore and added 71,000 customers in the current quarter. Overall franchise just stood a tad below a million customers. MTF AUM grew by 18%. Total income grew 107%. PBT grew by LBD on a small base, grew by 77% to INR 46 crore. PAT grew by 64% to INR 36 crore. Overall franchise stood at tad below one million customers, grew by 40% year on year. Quickly on FY2025, while you know it, I'll just cover one panel. I would call overall FY2025 a mixed year for us as a firm. Good year on volumes, AUM growth, customer acquisition, operating efficiencies, and pre-provisioning profit. Elevated credit cost resulted in subdued profit growth. That is why it is a mixed year. All the way up to credit cost, it's a good story. Including the credit cost, it's a mixed year story.
We hope to change that as we get into FY 2026. On a full year basis, if you look at it, AUM I have talked about. OPEX tune-in overall came in at 33.2. PBT came in at INR 22,080 crore, a growth of 14%. PAT grew by 16% to INR 16,779 crore. ROE came in at 19.2. Net NPA came in at 44 basis points. Last year, we started to provide a management assessment of what we see the year to be. At this juncture, I would just hand over to take you to FY 2025 management assessment and FY 2026 management assessment for BHF.
Thank you, Rajeev. Anup here. As Rajeev called out, we have put up the management assessment last year. As a management, say what we do and do what we say, this is the report card of our management assessment. The company delivered on its FY2025 assessment on customer franchise, AUM growth, OPEX to NTI, ROA, GNPA, and NNPA. Credit cost was a clear miss as per our assessment. The company took significant rate action to FY2025 and is optimistic about its impact for P&L FY2026. The company also saw margin compression of 49 basis points versus the assessment we had given of 30-40 basis points due to delay in interest rate cuts as compared to the internal projection. As a result, the profit growth was subdued. If you move to the next slide, in a way, we have called out all the metrics we spoke about.
In terms of customer acquisition, we came in strong, 12-14 million. We had called out, we did about 18.88 million. That came strong. That's the green. AUM growth, 26-28%, we came at 26%. That's the green. Net interest margin, I called out, that's in a way a red, 49 basis points in terms of the delayed rate cut. OPEX to NTI, we called out as 20-40 basis points. We actually delivered 80 basis points. I think that's significant progress there. I will talk about it as we get to FY2026 on this specific metric. Credit cost, we said 175-185 basis points. This is where we are not happy about it. That's 2.07%. This is excluding the ECL cost. To that extent, 2.07%. Profitability, we had just said that it would be cautiously optimistic. It came at 15%. That's the red.
ROA, 4.6-4.8, we remain in that corridor, 4.6. And ROE to remain subdued due to surplus capital, that came at 19.1. That's the green. So ROA is green. ROE is green. GNPA, we said less than 1.2. It came at 0.96. That's the green. Net NPA, less than 0.4, came at 0.44. That's the green. We are in a business of credit. We miss credit. We don't like it. Moving to next slide. This is essentially the management assessment we are providing for FY2026. The customer franchise, they remain confident to add 14-16 million customers in FY2026. The AUM growth estimates of AUM remain at 24-25%, aided by new lines of businesses launched in the last two to three years. Net interest margin, the company has moderated pricing in select unsecured businesses.
Cost of fund is estimated to go down by 10-15 basis points in FY2026. Overall, we estimate need to remain stable in FY2026. Fees and other income, the company has moderated its fees and charges and stopped its co-branded card business. The company estimates its fee and charges to grow by 13-15% in FY2026. OPEX to NTI is estimated to improve by 40-50 basis points from our current level. Some of that, we are talking about our FinAI progress. Credit cost for FY2026, the company estimates the loan loss to average AUM in the corridor of 185-195 basis points. Profitability, the company is optimistic from last year where they called out as cautiously optimistic. They are changing it to optimistic about profit growth in FY2026. Return on asset is estimated to be in the range of 4.4-4.6%. Return on equity given excess capital.
ROE metric is estimated to be between 19-20% for FY2026. Gross NPA and net NPA is estimated to remain lower than long-term guidance. FinAI, we have called this out in our LRF, and the company will deploy FinAI use cases across revenue, cost, customer engagement, underwriting, productivity, and controllership. The company estimates to deploy about 100 FinAI applications in FY2026, and we remain committed to the plan.
We can probably just go quickly to we want to cover thanks, Anup. I just want to cover go to guidance, long term. Just two or three changes that we made before we open up for questions. Yeah. I'm on panel 33. There's a change here, so it's important I anchor that. The only change you principally see here is return on assets, which used to be 4.6-4.8%. We are creating a little wider ROA range of 4.3-4.7%. And ROE, from a long-term guidance standpoint, pre-COVID were 19-21. We end up with 21-23. And we think this is one of the last remaining residues of COVID that we think on a long-term basis will compound between 19 and 21%. So these are two changes from 4.6-4.8 versus 4.3-4.7 and 21-23 to 19-21.
This is a long-term stroke, medium-term guidance. We find there's improvement. We will update that to the investors' side. I think that's mostly just quickly on tools GNPA and NPA, the provisioning panels. The rest of the panels are routine in nature. Crossfill franchise continues to move strongly. It's at 64.45 million. That's on panel 57. 63.3% of the customers on an aggregate basis within our cross-sell level. The opportunity remains very, very large. The PPC remains pretty strong. Just the last panel I'll cover on provisioning. This is I'm on panel 65. Across portfolios, the movement on a year-on-year basis that you principally see, the largest movement is in two-wheel and three-wheeler finance. Partially, we ignore that because the portfolio is winding down. The majority of the portfolio belongs to our previous captive financing business, and that's going to wind up more.
That will fully wind down by March, June 2026. Otherwise, on a year-on-year basis, you see some level of movement here. 57 basis points to 59 basis points in GNPA for overall and phase finance. Advanced B2C loans, 1.03 to 1.17, and so on and so forth. You see marginal movement between on a year-on-year basis and adding up to as a number being 85 basis points GNPA to 96 basis points. Similar aggregate movement you see in NNPA from 37 to 44 basis points.
That is really all we have to share. Lots of change, lots of. We are well into the new year. Happy to answer questions. I just want to make one point before I open it up to questions that from next quarter onwards, Anup as Managing Director will do the investor call. I'll, of course, always be there to assist him, but we will trade places from Q1 onwards. Open to questions.
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad now. If you change your mind, please press star 2. When preparing to ask your question, please ensure your phone is unmuted locally. Before asking the question, please introduce yourself, providing your name and your organization name. Please limit yourself to a maximum of two questions so we can accommodate as many as possible. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Thank you. We will now take our first question from Chintan Joshi from Autonomous.
Hey, good evening. I wanted to start with panel 24. Thank you for panel 23 and 24. It's great to see that you are constantly judging yourselves against what you expect. If I could go into a little bit more detail for FY2026, starting with AUM and then following on into NIM. On AUM, if you give us a refresh of where do you think growth will be easier to find and where growth will be challenging to find over FY2026, that would be helpful. On NIM, quick data keeping, what is the exact NIM, reported NIM for the current quarter? Why should we not expect some NIM expansion with falling rates? That's what we would typically expect of you. What's different this time around? Thank you.
Yeah. One is on AUM. Another is on NIM.
Yeah. Hi. This is Anup here. I think at an overall level, we remain very small. As we call out, our aggregate market share is only 2.14% of India's total credit. If I look at from a count share, that number goes to about 7-7.5%. Across all businesses of ours, other than the B2B business where we have a 54% plus market share, our market share remains small. As we plan to grow, I think the growth will come across all businesses. In addition to that, we are seeing very good growth in some of our new businesses in terms of the secured businesses we started in the last few years. We are seeing very robust growth in gold loan business.
In totality, as we look at growth, we want to ensure that we operate in the corridor of what we have led to in terms of all products. Relative market share, I think, allows us to continue to grow. Our franchise addition this year also came at about 17-18 million. As long as we continue to grow our new franchise and as long as we continue to stay on our acquire and crossfill frame, I think growth is reasonably there. Coming to your second point on NIM, why should it not increase? I think we called out a couple of points. We did some moderation in terms of some specific unsecured businesses, which has in terms of NIM, there has been some compression, which we called out.
At the same time, we believe the cost of fund benefit for the full year, we would get about 10-15 basis points benefit on that. Net net, we anticipate that our overall NIM will remain stable. That is the position at this stage in terms of NIM compression. If cost of fund goes down much more than what we have planned in our current scheme of things, this can show some improvement. Our current assessment, it will remain stable. Yeah, current.
Are you saying that you're being a little conservative on the cost of funds? Are you saying you're being a little conservative out here, or is this fair?
I mean, probably conservative to the extent of 5-7 basis points. Just to be fair in all candor. It is not like it will be instead of 10-15, it could be 30-40 basis points. Let me just step back and make a point that we are very clear that liquidity risk is not a risk that we take. We lock in long-term liabilities as and when we can. I think that while it protects and strengthens the overall balance sheet, it also takes longer to pass through. I think that is just one added point I want to make. We are confident of 10-15 basis points. It could go to 20-25 basis points, but that is the final.
The important point I want to make, which is written in the panel there, is that is point number three, four, sorry, that on fees and other income, we have moderated our fees and charges. That's why you see the growth is forecasted to be 13-15% here versus a 24-25% growth. This has a little higher impact than even the cost of fund impact. It's important I make that point or land that point to be clear. It's done in the interest of sustainability and longevity of the business, and we think it's the right thing to do. That's why we've taken this action. Yeah.
As soon as I understand that question.
The reported NIM number?
Yeah. Just one second. I understand that this question of cost of fund will come from other guys as well. Let me give some more texture. I think in terms of overall mix of borrowings, about 75% of borrowings are fixed-rate borrowings between FDs, NCDs, every rate. That is about 75% borrowing. They are typically longer-term money that we have locked in. Repricing will take time. It will happen slowly and gradually. Bank money, we are hoping should get repriced much more quickly. Incrementally, have we started seeing benefit in terms of NCD rate and CP rate? Answer is yes. We have seen softening in NCD (Non-Convertible Debenture) rate by about 40-45 basis points in the last about 30 days. CPs have also improved about 70-80 basis points in the last 30 days. Things are moving in the right direction.
RBI is also taking a lot of actions in terms of ensuring abundant liquidity. We remain a much cooler situation. Idea is to lock in as much we can lock in to reduce burn rate in times to come. That is the important point that RBI was calling out, liquidity risk management. As a result, we have taken a conservative number, I would say, a 5-10 basis point could still accrue to us if the environment continues to remain the way it is today.
The reported NIM number?
We know.
Just for the.
Liquidity report, NIM number. Let me tell you that the quarter four NIM number is in fact lower than the full year NIM number for FY25, which means, as Anup made a point, NIM to be stable in FY26, there is some catch-up has to happen in the next year. That is the only point that I would put on the table. We are confident that we'll catch up. Just to make the last point.
Thank you. We will now take our second question from Abhishek Murarka from HSBC.
Yeah. Hello. Am I audible?
Yes, Abhishek.
Yeah. Hi. Hi, Rajeev. Hi, everyone. My question is on this ECL model refresh. What kind of history do you take? Do you take five years, six years, and why has there been additional provision? Is it that FY 2021 or 2022, which were, or 2020 and 2021, which were higher credit costs, those have got added, and next year's refresh will probably see some exclusion there? If you can give some sense, that will be useful.
No, it's a fair question. ECL, as you would know, is a complicated modeling process. Stage 1 typically looks at 12-month performance and 12-month forward-looking view in terms of provision. As Rajeev was communicating as part of opening remarks, we have seen elevated trade costs in the last three quarters, particularly. Quarter four last year was okay. Quarter one, quarter two, quarter three was elevated trade costs. As we ingest this information into the ECL model building, ECL model assumes that the past is a reflection of future. As a result, it shows up a higher number of provision, a higher amount of provisioning requirement for phase one. Your point is correct. If things were to improve in FY2026, should one expect releases to come in future? Answer is yes. As far as the model processing, we do look at this information. Point number one.
Point number two, we do look at longer-term information, which is five, seven, eight-year horizon information, mainly for the purpose of stage two and stage three, which is for evaluating PD, LGDs, and EADs for those portfolios. As you will notice, stage two has seen marginal increase in the coverage issue. That probably is an indication of recent litigation that everyone has witnessed. That is point number two. Point number three, stage three seems to be holding up quite well because stage three only has one value element, which is LGD. Because the customer has gone into delinquency, PD and EAD is already 100%. The only element that can move is LGD. Given that, we look at longer-term averages for casting the LGD number. It has not shown any kind of significant worsening. As a result, stage three continues to hold well.
One and two is where we have to do catch-up. More catch-up in stage one, that is stage two. And aggregate standardized provision. Yeah. Aggregate standardized provision, as a result, which used to be 69 basis points until last quarter, has gone up to 77 basis points. If you were to do a math, majority of the provisioning impact is coming in that quarter, in stage one itself.
Right. So basically, for stage one and stage two, you have taken out short, especially stage one. You have taken a shorter period. So last three quarters' impact is what is getting projected forward, if I have to understand it.
Yes. Yes. Yes. Yes. The bias is more of last one-year performance in building the stage one provision. I think the other point is we do an annual refresh of the model. It's related to that extent. It's a catch-up. If I were to do, if I were to do theoretical discussion, I will say this could be a situation for confusing underlay. As I am prudent management, prudent company, we would not discuss about underlays. As a result, we have allowed the model to flow a higher provisioning for stage one. We are more than happy to consume it in the current quarter.
Okay. Understood. If I back-calculate, your write-off works out to around INR 1,700 crore, is that correct for the quarter? Ballpark?
That number is not necessarily correct. My calculation says that the number is INR 2,100 crore for the quarter.
Okay. INR 2,100. Okay.
Right of works.
All right. Just finally, some commentary on growth in rural B2C and some of the, yeah, basically rural B2C, how do you see that? I think in the 2Q call, you had said that if things go fine for the next couple of quarters, then that portfolio could probably grow at 20-25% in FY2026. Do you see that kind of outlook now? Are you comfortable in that segment going forward?
Let me just point one view on that. I think that's an important input. Anup will give view on FY26. As we did the redevelopment of the models, in fact, the rural personal business did not require any additional provisioning. Because as we have started seeing some worsening in the portfolio in the last year, which is FY2024, the catch-up provisioning was already taken in FY2024 itself. The entire impact of [U ncertain] INR 59 crore that we are discussing has no contribution coming from rural B2C business. Just to place it for ease of reference, Anup will give guidance on FY2026. We had called out the rural B2C business two years back used to grow at about 36%. We did see some stress in the portfolios. You took series of actions. It came down to about 5% growth rate.
From there on, it has started growing back very nicely. The other thing we are seeing is the early vintage. 3 MOB, 6 MOB on rural B2C is improving. As Sandeep spoke about, even the ECL, that is also clearly calling out. We remain very confident from here to grow the rural B2C business. We also significantly strengthened our debt management capability in rural. As I say, the point around the risk point of rural B2C growing back all over again, it is also backed by our rural B2B business remained very, very rock solid during the period. Our incremental customer base there has grown. That gives us a fair bit of confidence on growing rural B2B from here on.
Just one added point that Anup made, I would like to reinforce that principally across the firm, there are only three key metrics from a risk standpoint that we are really looking for, apart from every other metric, is how is the book color of the book changing? That how is three months on books, six months on books, nine months on books, and 12 months on books changing? Because we are a fast-churning book. The BFS standalone book churns in 18-19 months. Okay? That's really been the that's how the book churns. As long as the 3 MOB, 6 MOB, 9 MOB, and 12 MOB change, which we are watching since August, September very closely, and the metric that we are looking at is pre-COVID. In certain instances, lower than pre-COVID.
It is just a matter of churning the book, and we should look at sometime in the current fiscal losses to be significantly lower. I thought since Anup made the point on vintage metrics, I just anchor that point.
Sure. Sure. Thanks. Thanks so much, Rajeev and Anup and Sandeep for taking that. I would also like to congratulate Manish, Sadhan, and Harjeet for their appointment as Deputy CEOs. Congratulations, and thanks a lot for taking my questions.
Thanks, Abhishek. Thank you.
Thank you. We will now have our next question from Kunal Shah from Citigroup. As a reminder, please limit yourself to a maximum of one question so we can accommodate as many as possible. Your line is now open. Thank you.
Yes. Yeah. The question on growth, particularly 24-25%-odd, it seems like some things in stance. Till last time, we were pretty confident of achieving the long-term guidance of 25% plus. No doubt, I think you indicated in terms of customer franchise, new businesses. Then why particularly 24-25% growth for the next year? Which are the segments wherein you expect some kind of a pullback on the growth side?
Lighter way analysis, make a point at 420,000. A 25% growth would mean INR 120,000 crore reduction in the—it is even more—INR 105,000. INR 105,000 crore net reduction. I think for the first time, it will be INR 100,000 crore net reduction in a—but I'll let Anup answer that.
I think the point around growth.
Reactive small in terms of the market share, yeah.
Agree. That was very good. Yeah. Good, good, good point. Yeah.
You said market share is still 2.14, which gives you more confidence, yeah.
Correct. Correct. No, I think the point around we still remain very small in terms of our contribution to the overall credit. As a design level, we grow at about 2.x of nominal GDP and about two times of the growth of the industry. For us, very clearly, if I were to make a choice between growth, credit, and profitability, we are a risk business. The point we are not happy with this year, as we called out, is that credit did not play out to our appetite. Our core objective at this stage is first to get to the credit cost corridor, which we have laid out. The early vintage is looking good. We have significantly fortified our debt management capability. We get there first.
I think that's the first thing. Once we get there, we are not saying we will not grow. We see opportunity. We will seize it. We're also utilizing this time, as we called out, the FinAI strategy is to significantly get operating leverage in terms of our cost structure. Because I think that it's very important to reshape the P&L, that focus on the cost-to-income ratio, bring it down, do the transformation between the Fin components of it and the FinAI component, and then restart the growth. Because with those metrics, the growth would look a little very different than in the current. I think stay with the credit first, get the OPEX to NIM, sharpen through FinAII transformation, and we see growth, we will take it. I think that's the stand we are taking.
Is that a little different than—but as Rajeev said, at this side, 25% definitely looks to be a rightful long-term sustainable growth.
Okay. Got it. If I can question one more question.
Credit and control. Sorry, sorry. We get credit and control, as Anup said. I mean, there's sufficient capital, sufficient liquidity. We are a fully diversified group. We have lots of new businesses. At one level, I agree. Opportunities outweigh risk to the 24-25% growth. I think, as Anup said, we are a credit business. We want to make sure credit first and then growth. We'll fix that. We are pretty confident of that. It's just a matter of quarter here or quarter there.
Yeah. When you give that—when you give that credit cost guidance of 1.85-1.95%, you still believe it is relatively higher to grow at more than 25%? Or is it like the holding stage two, which has got increased in this quarter, that's something which is worrying you in terms of particular rise in reasonably strong Q4? Is that the reason?
Yeah. The book has to turn fully churned. That's point number one. I mean, I would foresee that by third or fourth quarter, we should be lower than I would forecast in a reasonable manner, lower than our pre-COVID levels. I mean, you know. That's unless and until something dramatically changes in the macro environment over which we have limited control. Otherwise, I foresee third and the fourth quarter, the numbers should look lower than our pre-COVID numbers. Take that as a—one credit score. Assessment at this point in time. Yes. Yes. One credit score. Take that as an assessment at this point in time, and we go with the flow. As we make the point, a couple of points we already spoke about unsecured, this set of actions.
Even the 3PL action, which we have taken in the last few quarters, we are now back to pre-COVID level on 3PL, which had gone up to 12%, is back to 6-7%. In rural, it is down to 2.5-3%. Tremendous actions. Those are showing benefits. The other is two-wheeler, three-wheeler, which is the captive business. Because we have stopped incremental doing business, it is a winding down book. If you look at the credit cost, a large part of the credit costs are sitting there. The incremental two-wheeler business open architecture, the texture of that business is very different. It is half the loss. Yeah. It is half the losses because it is a mix of four bikes and scooters, and 50% of that is scooters.
Got it. Got it. Okay. Thanks. Thanks. That clarifies and all the rest. Yeah.
Thank you. We have our next question from Zhao Wu Shao from IIFL Securities.
Hello?
Yeah. Go ahead. Go ahead.
Hello?
Yeah. Am I audible?
Yeah. Go ahead. We can hear you.
Yes. Thank you. Sorry. Yeah. Thank you for the opportunity. Yeah. Thank you for the opportunity. Rajeev, just two questions. I would say one, when I look at the asset quality panels on page 69 onwards, right, in all the panels, the amber sign remains where it is in the previous quarter. And when I see, say, the stage two and the stage three, that has been kind of still inching up. Basically, what gives us this confidence that, say, next year it is going to be much better? Apart from the fact that maybe there may be some ECL release, as you mentioned, towards the end of the year, is there the early trends that you are seeing? If you can give some bit more color on that. Go ahead.
Yeah. I did not say ECL release. I said if things were to improve significantly, maybe the model can show ECL release number as well. That's not certain. The model has to show that number in the next year as we deliver, if I don't mistake. That's not the one. You had a point on this, Rajeev. Look, principally, what gives us confidence is what are the early vintages saying? We churn, as I said, the book is 18-19 months. We are seven-eight months into the tightening that we started to do. Three MOB, six MOB, nine MOB are beginning to look. We don't have twelve MOB because we started to take actions from August. We still don't have twelve MOB. Those are being tightened to levels, as I said, across the board, across portfolios, to levels lower than even pre-COVID. That's really what is giving us the confidence.
What is giving us the confidence means I'm very confident because they say it's structurally lower or better customer that we are acquiring now. The leverage levels of those customers are significantly lower. That is what is giving us the confidence. I will connect this dot. I will connect this dot to the earlier point that Kunal was asking that as we get that into control, maybe the growth could be higher. This is the priority at this point in time. This is credit. If you look at current year in terms of roll-up to average year, just one point. If you look at current year from roll-up to average year, as Rajeev called out, 2.07% is the number for full year. Cost offer actually came at 1.97%. Just think for that additional provision on ECL model development, it came in at 1.97%.
That's one good sign that we are seeing that after a few quarters, we have started seeing the number go down. That's point number one. Point number two, the major issue that we faced, and that's true for the industry as well in general, is across unsecured businesses, more personal loan than anything else. The auto finance business is two-wheeler, three-wheeler financing business, which has been run down most of it. Used car financing is a significant action we have taken. I think we had discussed that in the previous call as well, that nearly one-third of the business we had let go in the use car financing business to keep portfolio under control.
The kind of action that we have taken in terms of repurposing the PLCS business, both rural and urban, increasing the affordability of EMI for the customer, lowering the ticket size, and other actions across all businesses, lowering exposure for customers should definitely have a bearing in terms of how we get the great outcome for the next year. That's just an additional point.
Got it. Very clear. Sandeep, one more for you. When you say that the NIMs are going to be kind of stable, you highlighted the point that the exit quarter NIMs were materially lower. On a year-over-year basis, when I look at next year, we will also have the hit from the Bajaj Housing Finance kind of portfolio flowing through at a consolidated level. On a year-over-year basis, are we confident that the NIMs will be flat?
Yeah. I did make a point saying that if 10-15 basis points of cost of an improvement comes through, we should be able to maintain NIM at the current level. If it does not flow through or the flow-through is higher, the numbers can be marginally plus and minus. At this point in time, the bias is towards more benefit in terms of cost of fund given the kind of improvements that we have seen in the money market for us and for the industry as well. Keeping that view in mind, it is more of positive at this point, but we will see for the real time.
Just a clarification, the cost of fund benefit that you are guiding for, you are assuming what, 75 basis points of rate cuts or 100 basis points?
I'm looking at current cost of fund environment where the yields have come down considerably in the last 30 days across NCDs as well as commercial paper market. Commercial paper contribution, though, is low. I think that's the only thing that I'm considering at this point in time. I'm assuming that the liquidity environment will remain positive, which is where I think RBI has been taking lots of actions in the last couple of months. Keeping that in mind, there's a positive bias towards cost of fund. No, but since February, which is when our planning cycle happens, we have baked in so far three rate cuts. Now, if it's higher to the earlier point, depending on which way the economy is headed and depending on the actions by RBI, we have so far baked in front-loaded rate cuts to June.
Got it. It makes sense. Thank you very much for taking all my questions and all the best, team. Thank you. Thank you.
Thank you. We will now take our next question from Kunal Shah from Kotak Capital. Please go ahead. Yes, Kunal. You cannot hear us. Hello, Kunal. Your line is open. Please check if you have muted yourself. Thank you.
Hi. Can you hear me? Hello?
Yeah. We can hear you.
Can you hear me?
Yeah. We can hear you.
Yeah. Sorry. Yeah. When I look at consolidated long-term guidance you gave last quarter and this quarter, AUM growth remains same, profit growth remains same, GNPA, NNPA, everything, all corridors remain same. How do you internalize ROA corridor widening and return on equity corridor widening? Because even if you account for dilution of Bajaj Housing Finance, INR 40,000 crore, how do you explain this?
Yeah. Kunal, if you look at the current year's ROAs, it has been ranging from 4.5% to 4.6%. The 4.3-4.7 corridor does articulate that very clearly. That's point number one. In terms of ROA, we are mindful of the fact that in the last almost more than a year now, we have been sitting on surplus or additional capital. We did a QIP of nearly INR 10,000 crore. We had inflows that came in of INR 6,500 crore on listing of BHFL on consolidated basis.
We are mindful of the fact that surplus capital does put pressure on ROA. Existing for that, the number would look a little better. Keeping that in mind, for the medium-term basis, the guidance is 19%-21% kind of ROA. The immediate next-year view is easy 19%-20% kind of corridor, which I think Anup highlighted during his assessment for FR26. [Uncertain], any plan to use over the next two years? Sorry.
Over the next two years, we still have to bring our stake down from a regulatory requirement standpoint to 75% in BHFL. That will create more capital. Yeah. That will create more capital. That is why we thought it would be prudent on our part to outline to shareholders that as a result of significantly surplus capital, we foresee long-term guidance to change from 21, 22 to 19, 21. To the point, and we've done the math, if you knock off on both sides, the excess capital and the cost of interest, because interest comes as a raw material in our business, that number will probably be 60-70 basis points. 70-90 basis points. I mean, knock off both sides. Take the excess capital, take its cost away, and we would see instead of 19.1%, in 19.7, 19.8% ROE.
Any plan to use this excess capital?
Sorry?
Any plan to use this excess capital?
Yeah. Plans, principally, I mean, we generally like to build businesses. That is our orientation as a firm. We continue to remain organic in nature, but we continue to explore. Unfortunately, even as we explore, as operating managers, we come to a conclusion that if we can take three years to build that size of business, why not build? The bias remains towards building than buying. Unless an event happens which we will announce to the investors before we do it, I would say organic is our way to build business. Thank you. All the best. Of course, we are giving dividend today. I think that's another way to improve ROE.
That's from the exceptional gain.
Yeah. That's from the exceptional gain, but just personally light away.
Thank you. All the best.
Thank you.
Thank you. We will now take our last question from Avinash Singh from Emkay Global. You may go ahead.
Yeah. Thanks for the opportunity. Just again, going back to the credit cost guidance, that is 1.85-1.95%, slightly higher than what you had initially guided for 2025. And considering the fact, if I look versus pre-COVID, I mean, you have a material composition coming from Bajaj Housing Finance or mortgage. That's kind of a very low credit cost. If there is a kind of in this five years, there's structural shift that, okay, as you go more and more to grow your capital franchises, somewhere there is a kind of you're going down the credit score.
What's happening? I mean, despite, I mean, mortgages nearly reaching 30% of your AUM, the credit cost, what was the pre-COVID level, now what you are kind of forecasting, that's on the higher side. Is it just for that or it's just for the mortgage, so at least materially higher. What is explaining sort of that position? Thank you.
I just want to correct you that on a consolidated basis, even if you look at five years ago, mortgages were 31% of the book, even today it's 31% of the book. Actually, you would find that over five years, and going back to earlier questions that you were asking, that then we were saying that opportunity remains very large, it is true that all lines of our businesses have continued to compound at the same level. Just to correct that, even in 2019-2020, I distinctly remember the number was 31% mortgages were. Today also it's at 31.1%. Mix has not moved much at all, actually. I just want to make the point, and then I'll hand it over to Anup to add to it.
I think as Rajeev clearly called out, when you are calling out the number for full year basis, we do believe we are still not fully out of the woods in terms of certain businesses like urban personal loan because the early vintages are showing fine, but we still have a portfolio which has to mature, the earlier portfolio. That's one part of it. I think the second, as we continue to act on it, the numbers, the second half of the year, we believe will come in much better than the full year average what we have called out. In a way, it's a gradual quarter on quarter, we'll see the benefits which will start coming in.
In terms of mix change, we are not expected to dramatically change the mix at all because what we have called out, even in our LRF, the segment mix which we run between various businesses at most can shift 1-1.5% sideways. That is not going to change that. I think the other big thing which I also called out is the captive two-wheeler and three-wheeler. As that book starts winding down, you will start seeing benefits of that because we did see elevated credit cost in some of those portfolios as well.
It gives you 5% of the book and 12-14% of the credit cost structurally over years. That book is in a wind down mode very clearly. It is down to INR 10,000 crore now from INR 17,000 crore a year ago.
INR 10,000.
INR 10,000 crore. We have got INR 4,500 by March 2026. The captive book. That is one big change that will happen, and it is accretive from a credit cost standpoint.
Yeah.
Okay. Thank you.
Thank you.
Thank you. That was the last question we can take today. I would now like to hand the conference over to Mr. Subramaniam Iyer for any closing remarks. Thank you.
Thank you, Rajeev, Anup, Sandeep, and the rest of the management team. Anup, Rajeev, Anup, do you want to make any closing comments? No. You've answered all the questions. Thank you so much for listening in. Thank you.
Thank you.
Thank you, Subramaniam. Thank you, Sandeep Jain.
Thank you.