Ladies and gentlemen, good day and welcome to the CreditAccess Grameen Limited Q1 FY 2026 Conference Call hosted by Equirus Securities. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company as on the date of this call. These statements are not the guarantee of future performance and involve risk and uncertainty that are difficult to predict. I now hand the conference over to Mr. Shreepal Doshi for Equirus Securities. Thank you, and over to you, sir.
Good evening everyone. I welcome you all to Q1 FY 2026 earnings call of CreditAccess Grameen Limited. Today we have the top management of CreditAccess Grameen Limited represented by Mr. Ganesh Narayanan, CEO, and Mr. Guru Raj Rao, Chief Operating Officer, Mr. Nilesh Dalvi, Chief Financial Officer, and Mr. Sahib Sharma, Head of Investor Relations. I would now like to hand over the call to Mr. Ganesh for his opening remarks, post which we can open the forum for question- and- answer. Over to you, sir.
Thank you, Shreepal. A very good evening to all of you. We are pleased to welcome you to the Conference Call to discuss our First Quarter FY 2026 Business Performance. We began FY 2026 with a positive momentum, setting the tone for the year ahead. Our Q1 FY 2026 performance has created a new benchmark, achieving the highest ever first quarter disbursement in our history.
This is a testament to our resilience and agility that define us, given that we are coming off the back of a challenging credit cycle. Before we deep dive into the first quarter performance, I will encourage all of you to go through our FY 2025 integrated annual report themed Being Sustainable and Responsible, available on our website. This report reinforces the principles that define us while capturing the full spectrum of our financial performance, business strategy, progress in our ESG journey, and commitment to robust corporate governance. We have witnessed broad-based decline in PAR accretion rates across our operating geographies with a strong ground level execution and disciplined approach to customer engagement. The PAR15+ accretion rate stood at 0.46% in June 2025 compared to 1.34% in November 2024.
Karnataka is gradually inching towards stabilization with new PAR15+ accretion rate significantly being controlled at 0.58% for the month of June 2025 from a peak of 2% in February 2025. The gradual stabilization in asset quality over the past three quarters has enabled renewed focus on our growth. Our employee base grew from 20,970 employees in March 2025 to 21,333 employees by end of June 2025 while maintaining lower annualized attrition rate of 27.1% in Q1 FY 2026. This has resulted in improved customer servicing and supporting our asset quality outcomes. We have strengthened our market position amid multiple headwinds, increasing our AUM-based market share by 70 basis points during FY 2025 to reach 6.9% of the overall microfinance industry. This gain reflects the consistency of our approach with a continuous new- to- credit customers and a strong commitment to supporting our borrowers through every stage of their credit journey.
We added 2.16 lakh borrowers in Q1 FY 2026 of which 43% were new to credit, maintaining a consistent trend quarter after quarter. As a result, 33% or 1/3 of the borrower base is unique with CreditAccess Grameen as of June 2025 compared to 26% in August 2024. The branch expansion is progressing well with 54 branches opened in Q1 FY 2026 across a mix of vintage markets and newer geographies. Our retail finance portfolio, the strategic growth lever, witnessed significant increase in YoY share from 2.9% to 6.8% at end of June 2025. We are pursuing a calibrated growth in the segment with strong focus on maintaining asset quality. At the same time, it is important to highlight the increasing share of three- year- loans in GL book rising to 44.3% in Q1 FY 2026 from 33.3% in Q1 FY 2025.
While the strength reflects the improvement in serviceability and long- term retention, the probability of us hand- holding these customers into retail finance increases meaningfully given our evolve with customer philosophy. Our internal policies on placing limits on credit exposure even before MFI guidelines were implemented have resulted in a natural and steady deleveraging trend. Referring to Slides 10 and 11, GLP of borrowers with greater than three lenders stood at 11.1% in June 2025 versus 25.3% in August 2024. The GLP of borrowers with greater than INR 200,000 unsecured indebtedness stood at 9.5% as of June 2025 compared to 19.1% in August 2024. Further, the average total unsecured debt of CreditAccess Grameen borrowers has declined 14% year on year while the average monthly obligation has declined by 6% year on year.
PAR15+ in case of borrowers with four lenders stood at 14.3% as of mid- June 2025 versus 12.6% in March 2025. Similarly, PAR15+ in case of borrowers with more than four lenders stood at 31.1% as of June 2025 versus 27.8% end of March 2025. This shows that delinquencies have largely crystallized in case of borrowers with greater than three lenders while 80% of these customers continue to make regular payments. Out of the overall PAR15+ of 6.4%, 35% was on account of greater than three lenders. Similarly, out of overall PAR60+ of 4.1%, 36% was on account of borrowers with greater than three lenders. Our accelerated write-off journey which commenced in Q3 FY 2025 is steadily driving us towards balance sheet normalization.
In Q1 FY 2026 we undertook write-off of INR 693 crore, which included an accelerated write-off of INR 603 crore related to 180 plus non-paying accounts, leading to an additional credit cost of INR 193 crore for the quarter. As highlighted in Slide 6, the share of credit cost due to new PAR accretion has consistently declined since Q3 FY 2025, whereas credit cost on account of write-offs has increased. This has been in line with the Company's aim towards balance sheet normalization through conservative provisioning and accelerated write-offs. Overall, the Company continued to hold 133 bps or INR 331 crore higher provisions over PAR90, 323 bps or INR 833 crore higher provisions compared to IRAC prudential norms, and INR 74 crore higher provisions compared to NBFC provisioning norms. Our collection efficiency excluding arrears stood at 93.2% for Q1 FY 2026, while being 93.5% for the month of June 2025.
PAR90 stood at 3.29%, GNPA of 4.70%, and net NPA of 1.78%, both predominantly measured at 60 plus DPD. Net interest income grew 7% quarter on quarter to INR 937 crore, with portfolio yield at 20.3% and interest spread of 10.6%. We observed a decline of 8 bps in our average cost of borrowings to 9.7% at the end of Q1 FY 2026, having remained stable at 9.8% over the previous seven quarters. During Q1 FY 2026 we raised INR 2,570 crore, which included partial drawdowns from our maiden USD 100 million multi-currency syndicated social loan comprising Japanese Yen and U.S. Dollar denominated commitments. This transaction is particularly significant as it was priced comparable to our domestic borrowing rates and notably lower than our average cost of borrowing. We raised money from leading banks from South Asia and Far East, reflecting our strong ESG credentials and consistent impact-driven record.
We remain confident of building on this momentum as we work towards our strategic objective of achieving 25% to 30% foreign borrowings by financial year 2028. NIM remains steady at 12.8% for Q1 FY 2026, cost to income ratio stood at 33.5%, while PPOP stood at INR 653 crore. In Q1 FY 2026 the liquidity levels including cash and cash equivalents were adequate at INR 2,025 crore, amounting to 7.3% of the total assets. Additionally, we have sanctions in hand of INR 3,093 crore and another INR 6,500 crore worth of sanctions in pipeline. The capital adequacy remains comfortable at 25.5%. We delivered a PAT of INR 60 crore in Q1 FY 2026, leading to ROA of 0.9% and an ROE of 3.4%. The microfinance sector is showing signs of stabilization, supported by implementation of MFIN guardrails and improved lending discipline across the ecosystem.
Looking ahead, the outlook for FY 2026 remains encouraging with favorable monsoon forecast and strengthening rural sentiment laying the groundwork for sectoral revival. Our strong business momentum and stabilizing asset quality positioned us well to deliver robust profitability in the second half of FY 2026 as guided. Thank you for your attention and time. We now open the forum for questions and answers.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press STAR and 1 on their touch tone telephone. If you wish to remove yourself from the question queue, you may press STAR and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mr. Renish from ICICI. Please go ahead, sir.
Yeah, hi. Congrats on a good set of numbers. Just two, three questions from my side. First, on this PAR15 accretion data, it is very clear that, you know, except Karnataka, most of the states are either stabilized or maybe better than, you know, the June 2024 levels. When we look at Karnataka specifically, you know, PAR15 accretion rate is still, you know, significantly higher at 58 basis points versus 16 basis points in June 2024. Also, you know, when we look at PAR0, which has increased to 9.2% in June. What is happening at the ground level? What are the factors, you know, which are causing this delay and does this also pose any risk to our, you know, Karnataka guidance of 1% to 1.25% which we shared last quarter?
At ground level, the situation is consistently improving.
If you see the chart we have, on a month-on-month basis we have shown improvement in Karnataka also. I agree that it is not at a normal level. We are hoping that by end of Q2 we should see further drop in new PAR accretion in Karnataka. We will have to kind of watch Q3 to see where this will settle down. We will have to see whether it goes back to the earlier trends of 15-20 bps or it is going to kind of settle down slightly higher. At least the monthly trend is showing that it is consistently, every month, probably on a weekly basis also, it is showing very strong sense of recovery. The nature of PAR is still the same, that certain section of customers are using the ordinance to kind of request for some more time.
However, what is encouraging is that you are seeing in the early buckets, more than 40% of customers, that is before 60 days, more than 40% of customers are partially paying. While you are accruing new PAR, the old PAR is also performing through partial payments. It should kind of balance out during this quarter is what we feel.
These partial payment customers are only for Karnataka, right?
No, overall as a company also we have 40%. Karnataka is also similarly trending
for the new PAR accretion, you are saying?
Yes. Less than 60 days PAR partial paying customers at a company level as well as Karnataka is roughly around 40.5%.
Got it, got it. Does this pose any risk to our credit cost guidance in Karnataka, what we shared in Q4 of 1 to 1.25%?
We would want to keep it there.
However, like I said, we will have to see how Q2 pans out and how we stabilize in Q3. The only comforting factor is every month we are seeing progress and we'll have to see how this kind of tapers down over the next few months.
Got it, got it. Second question is on the retail finance. You also mentioned in your opening remarks about strategically scaling up of this book. Can you share a little more detail about which product is driving this growth, which geography, how are the setup, I mean internally, who is getting this business, etc.
Sure. Broadly today retail finance comprises of graduated customers taking unsecured business loans. It also comprises of mortgage loans, i.e. secured business loans as well as affordable home loans. Today as we speak most of the book that is more than INR 1,000 crore. Currently this is INR 1,300 crore.
INR 1,300, right. Yeah. The unsecured business loan book is around INR 1,300 crore which is the graduated customers taking unsecured business loans. This is predominantly done in our core geographies which is Karnataka, Maharashtra, Tamil Nadu, MP and d uring the year we will scale this up to a few more branches. Right. As of last year we had rolled this out in around 400, close to 500 branches. As of now we've rolled this out in around 735 branches. This is one part of the retail finance. With respect to mortgage loans that book stands at roughly around INR 250 crore, right? INR 250 crore. This is the secured business loans and home loan stands at INR 100 odd crore as we speak.
Okay, got it, got it. Just a follow up on that. This entrepreneur business loan, what is the tenure?
This is three year tenor predominantly.
You're talking about unsecured business loan, right?
Yeah. Yes sir. Yes.
This is predominantly three year tenor.
Any data to share on six month on book performance or anything?
This unsecured business loans as of last quarter we were roughly at a PAR30 of close to 2% and we are range bound. I think we've seen a slight increase here predominantly because this book is also in Karnataka. We are around 75 bps higher than Q4. We see that also stabilizing in the coming quarter.
What is the PAR30 you said, two basis points?
Last quarter we said it is sub 2%. Now it's inched up by 75-80 bps.
Oh okay, okay, got it. Just the last thing, sir, there was a media article suggesting many players are increasing their lending rates in MFI. Are we also contemplating any rate hike or how is it?
We've not increased rates for the past few quarters. That media article was quoting what is published on the website as well as comparing it with portfolio yield. On a QoQ basis, our average lending rates have not increased.
We are not seeing,
no, we are not in the near future.
Got it. Thank you so much, sir, and best of luck.
Thank you.
Thank you, sir. The next question is from the line of Abhishek from AB Capital. Please go ahead, sir.
Yeah, am I audible?
Yes, sir, you're audible.
Yeah, I know you already spoke, but just again wanted to ask this one. Like, you think we are the challenging portion of the credit cycle? We have already crossed it.
Right.
We can again grow confidently, aggressively like our plan.
Yes, that is the confidence that we are seeing consistently month on month. That is why we have been publishing monthly updates. Every month we are seeing improvement with a certain amount of operation that happened in April because of year closure and holidays, and that is translating to slightly elevated PAR in May also. I think consistently, if I see as a trend, we are inching towards normalcy.
Any other state other than Karnataka that you would like to flag as of now where stress must be?
No, all other states have really come back quite strongly.
Thank you.
Thank you, sir. The next question is from the line of Shreya Shivani from CLSA. Please go ahead, ma'am.
Y eah. Thank you for the opportunity. I have three questions. My first question is on one of your peers had commented in their result call that they are facing some challenges in growing the MFI book in Karnataka and Tamil Nadu. Now I understand this is your home turf, so can you help some color you can give about on what kind of growth and new customer acquisition has been seen in these two geographies in the past quarter? I know in the PPT you give us that data for the past one year, but just for the quarter. That's my first question. My second question is on the employee cost. I understand that you had been, your employee count was increasing from fourth quarter itself.
The employee cost has come in at an elevated rate. What should be the run rate? How should we build it for the year? Was it that more variable was paid out this year? Some color on that would be useful over here. My third question is I think you partly mentioned but I still wanted to understand that last time you had mentioned that in your stage three, your provision coverage is at a 50, 60% whatever level it is because on the partially paying account you had kept lower PCR. What has been the behavioral trend of this partially paying account? Do we foresee the need to provide more or it's an improving trend? These are my three questions. Thank you.
Okay, on the first question, we don't see any specific difference in customer acquisition with respect to challenges in Karnataka, Tamil Nadu, it is like any other state. We are normatively growing across all states. With respect to OpEx, the OpEx in Q4 is slightly lower because we had revisions. We have revised the provisions with respect to annual performance bonus. Given the moderation, the performance of the company, we moderated that also. Hence, there's a revision in the provisions accordingly. That is kind of showing you that elevated cost, sorry, elevated OpEx in Q1 also. Q4 we added people and Q1 also we've added people. These two put together is kind of contributing to higher OpEx. With growth starting, you should see that this is inching lesser than 5% as we move forward. On the third question, stage three, stage three provisioning. Today we are at roughly around 63%.
It is slightly lower than the last quarter because the Karnataka book where majority of the districts are classified as low risk has flown forward to stage three. Hence you are seeing a slight provision. Otherwise, there is no change in provisioning model assets. Right.
Even with the partially paying accounts, you're still comfortable with the level of provisions that you have kept, right?
Yes, yes. We are quite strong. You would know that we provide state free at 60 days, not 90 days. There is already a very high amount of provisioning in all three stages compared to whatever we are able to see in the market.
Got it. Just one follow up. The reason why I am stressing on Karnataka and Tamil Nadu is because you have given us a range of 14 to 18% growth. Right. Any slowdown over there would make me decide whether it's, you know, it.
Will help us understand whether the growth.
Is more towards 14 and more towards 18. Do you think your peers' experience of not a very normative growth in that geography could just be because that is not their home turf or their home geography or something of that sort? Do you think competition has calmed down in many of the geographies? Any comment around that?
With respect to Karnataka, I think the confidence will start coming in as people start seeing their fresh PAR accretion come down. In our case, because we are seeing it coming under control month on month, our book will also grow as we move forward. For different players, it could actually pan out at slightly different point of time. I see that it will strongly come back in some time.
Got it. This is very useful, and thank you and all the best.
Thank you.
Participants, before we move to the next question, please press star and one on your touchstone phone for asking the question. Our next question is from Ms. Shweta D from Elara. Please go ahead, ma'am.
Thank you, sir, for the opportunity. A couple of questions. The sanctions which you are holding, say around INR 3,000 crore, and the pipeline of closer to INR 6,000 crore, can you provide the composition across JLG versus individual or retail finance loans? For this INR 350 crore of provisions which have been made towards new PAR accretion, if you can provide some color on the customer cohort. Lastly, while the employee attrition has been declining and over 300 bps now quarter on quarter, can you provide any color on any geographic-related concentration here in terms of employee attrition? Thank you.
I think for us I'll take the third question first. With respect to attrition over the last two quarters we've been able to kind of stabilize headcount across all states. However, we do see slightly higher attrition in the state of Tamil Nadu, which is more or less, I am seeing this as a pattern across BFSI, not necessarily microfinance, but we keep a slightly higher bench there to kind of manage attrition. Otherwise, the rest of the country is quite stable for us. With respect to the borrowing related question, the sanction in hand, I'm asking Nilesh to dig on that.
So Shweta, with respect to the sanctions in hand and sanctions in pipeline, largely all these funding lines have an underlying as microfinance loans.
We have not yet started availing loans keeping retail finance as underlying because that book is still in a growth phase and once we reach a certain disbursement quantum on a monthly basis, then we will look at hypothecating retail finance assets for our funding. As of now, the funding is purely the microfinance book. Your second question on the provisions on the new PAR, the provisioning is again in line with our ECL policy. As you are aware, we are taking a district-based provisioning approach and depending upon the classification of the district, the provisioning is done. As of now, the new PAR accretion, we have anyways provided the new PAR accretion across various states for your information and depending on in which district this new PAR comes, whether it is in a low risk, medium risk or high risk, basis that the provisioning rate will be determined.
Largely as of now we are not seeing any major deviations. It's been a normative trend over last few months.
Understood. Thank you so much. Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead, sir.
Thanks for the opportunity. The first question is on customer count which has been written off this quarter and how should we think about active customer growth? When do you expect that to happen? What is the expectation to reach active customer base by the end of this financial year?
Right. Broadly, I think by end of Q2 most part of the write-off would have happened and we are confident of adding roughly around 1 lakh customers on an average per month for this financial year. Hopefully, we should be able to kind of maintain this trend and settle down around how much we should see growth in the third and fourth quarter in the customer base because the write-offs will be largely done.
If you see normatively in the second half, even if we add say 6 lakh customers, it will have 6 lakh customers on a base of 45, which is around close to 15% growth. There will also be a normative attrition of maybe around 6 to 7% in the second half. We should see around 5 to 7% growth in the borrower base on an overall basis.
Sure. What is the count of customers which has been written off in this quarter?
4.6 lakh. Year- on- year, the single quarter is 4.6. 4.6 lakh. We wrote off
in Q1.
[crosstalk] my bad, it's on a trailing twelve month basis. We have written off 4.6 lakh borrowers. In first quarter, we have written off 1.8 lakh.
1.8 lakh. Okay, sure. What is the quantum of interest income written off in the quarter?
Around INR 88 crore.
INR 88 crore.
That should also reduce after Q3. Right. As your write-offs slow down, that interest income written off should also reduce from Q3 onwards.
Yes, largely in Q2 we should see a similar figure but from Q3 onwards it should taper off.
In terms of cost of fund, how should you see the trajectory of cost of fund going forward?
Cost of funds, directionally they should improve. However, today what we are seeing is that our borrowings are linked to MCLR and usually the reset happens on an annual basis at different points in time. While the repo has fallen by 100 bps, it takes at least two quarters for the transmission to happen in MCLR. We should see some benefit flowing in. In Q1 we already saw around 8 bps of benefit.
The larger benefit should come by end of the financial year and in the first quarter of next year.
Okay, sure. Thank you. That's it for my side.
Thank you.
Thank you. The next question is from the line of Arvind R from Sundaram Alternates. Please go ahead.
Thank you so much for the opportunity. Considering the accelerated provisioning we have made, you know, of INR 193 crore in this first quarter, are we still confident of, you know, like sticking to, I mean, like are we still confident of, you know, getting to the guidance of credit cost of 5% and up to 6%? That is my first question. The second question, like, you know, with respect to higher OpEx, I understand, like, you know, we have made multiple efforts in terms of centering collections and, you know, maintaining higher bench strength in Tamil Nadu geography because of higher attrition rate. Do you think this will improve as, you know, the growth picks up? That is the second question.
Yeah. So, first question, we, on the guidance on credit cost, because we are seeing month-on-month improvement, we believe that we should be able to reach that.
Q2 will give us better confidence if we continue to improve the performance on this and kind of reinforce that we should be able to make this on the OpEx side. Like I said, Q3, sorry, Q3 and Q4, you will see it dropping and hence by end of the year it should drop down below 5%. Currently it is high because of two things, like I said. One is because of higher employees added in Q4 and as well as Q1, and also because of the effect that in Q4 provisions for APB were reversed to kind of rationalize the budget for the same. That has kind of made Q4 employee cost lower and we've also added increment provisions in Q1. That has also kind of contributed to higher OpEx.
Sure, sir, but just one follow-up question on credit cost.
You mentioned that, you know, the lower credit cost in the second half, but it has to be as low as 3%, 4% for us to get to a point of 5% to 6% of credit cost for the full year. That's the reason.
Yeah, the confidence for us is that given that the monsoons are better and field level issues have reduced, we are looking at lower migrations and a significant improvement in performance in Q3 and Q4 and hence we are saying that it should be maintainable.
Sure. If I can just ask one more question. This is with respect to regulatory, you know, relaxation in terms of, you know, MFI, you know, as a percentage of the overall portfolio, you know, being reduced from 75% to 60%.
Does it mean that, like, you know, the industry will have much more of individual, you know, MFI, basically unsecured, you know, loans, you know, offered to the, you know, like a good set of customers as a overall at the industry level? Will that happen with CreditAccess Grameen also, like, you know, higher portion of—yeah.
Right. You would have seen that we've already laid out a 2028 plan where we've said that we will diversify into these asset classes, and over a period of the next few years we will reach roughly around 12 to 15% of diversification. Similarly, with this higher room, I think a lot of players will step in to experiment into adjacent asset classes. Could be mortgage, some of them could be other asset classes that they are confident about. I think this will grow in a phased manner.
I don't see a significant ramp up across this because all of this means investment, thought process, technology, credit policy, etc. I think this will be a phased growth, but it would be over a period of time. Probably most MFIs would see diversification in their portfolio per se, but I don't see it going up very quickly. It should take a phased growth.
Sure. Thank you so much. Thank you.
Thank you. The next question is from the line of Rajiv Mehta from Yes Securities. Go ahead please.
Go ahead, sir.
Sure. Hi, good evening. Congratulations on very good numbers. Firstly, on collections, if you can comment on July collection efficiency trend so far and also what we see is this reduction in the PAR15 accretion rate across markets. Is it also correlating or aligning with the fact that central meeting attendance is now coming back?
Yeah.
Center meeting collections are improving. Can you also give us some sense around it?
Sure. See, July collections I would say have been stable as per our expectation and hopefully it should remain strong in August and September also. Hear the word Karnataka. Okay. Karnataka. Okay. Karnataka is improving. Overall, I think we've been stable in July also. With respect to center meeting attendance today, we know that attendance has dipped to a substitution. It is not as per historical level. We've always maintained that center attendance today has no direct linkage to repayment. Most of our repayments are coming through center meetings. Like we said earlier, early morning center meetings have better attendance. Post 9:00 A.M. center meetings have, we've seen that the center meeting attendance has dropped. We're also seeing an uptick in digital collections.
We reached roughly around 16% of our collections are coming through digital modes now. We will have to see how this, but I don't see that as a challenge as long as you're investing to see what is happening and kind of, you know, complement it with digital modes of connecting with the customer. Digitialization is something that is contributing. Second is the amount of women getting employed has also significantly increased in rural markets. That is also resulting. Still, the early morning center meeting attendance is quite encouraging. Post 9:00 A.M. is something that has been falling, but we don't see it so far as an implication to our repayments. Most of our repayments are happening through Center Meetings and today if you see, almost our daily Collection Efficiency as well as monthly collection efficiency is similar.
If you are not getting money in the meetings, this is not tenable, it's not maintainable.
You can comment on the rejection rate after the April guardrail. You know, what is it you know now versus what it was before the Guardrail came in April.
Right.
How do you see the rejection rate going forward? Because the industry's leverage, the customer leverage is also correcting. Do you think that in the second half the rejection rates will kind of ease off allowing you to add more customers? Because the leverage would have settled by then and that will also help you for growth.
Right. So far after the Guardrail II, which I think we picked up around February, not in April, most of the industry picked up a little early.
The rejection rates have gone up by around 5 to 10% and we think according to what you are saying also our assumption is also that post Q2 because de leveraging would have dropped, it's possible that we could see slightly better approval rates. It may not be significantly different because you will also have to reach out much wider. If you're spreading out wider, probably you will have more customers and then it should balance out. You could see a slight increase in approval rates as we think as we see in Q3, Q4.
Just one last thing on our guidance and our guidance is between first half and second half and second half we are talking about Q3, Q4 being near 4.5% ROA and around 18% ROEs.
In that sense, are we here assuming that the number of customers per loan office in that metric will improve and give us some operating leverage, some cost leverage here because I think as you said lending rate, maybe you're not changing, cost of fund will gradually improve. So NIM, you've already guided credit cost. I think you've already guided where we can land in the second half. Are we assuming some leverage from this metric that the cost can be better absorbed with the growth coming price?
Right. We should see that because post Q2 the drop because of accelerated write-off would kind of slow down. You will see that the averages are inching up along with growth of new customers.
See Rajiv, I'll add a couple of points here on the operating, I mean on the OpEx to AUM question.
Largely as you see our AUM is still flat at what it was in FY 2024 so we are still at around INR 26,000 and maybe it stays at this level for another quarter because of the accelerated write-offs. While the disbursements are healthy, customer additions are happening. Maybe because the accelerated write-off the denominator is at INR 26,000 and in second half obviously it will grow in line with whatever disbursements we are envisaging. It is more of a base effect in first half wherein our employee expenses on a YoY basis obviously they will go up because we will have our annual increments will be in place and plus whatever employee addition we did in the fourth quarter, almost 1,000 new employees were added in fourth quarter so obviously their salary contribution will also reflect in this year.
There is a normative increase in the operating expenses and also historically the branch expansion we have typically conducted in the first half. Even in Q1 we have added around 50 plus branches and we'll primarily complete our branch expansion in the second quarter. Even that leads to certain front- loading of expenses which usually gets adjusted in the second half. This OpEx, which is today around 5.1, may stay at that level in Q2 and then Q3 and Q4 as the growth picks up we should see that ratio again dropping below 5.
Just to add to the point of customers per Kendra Manager, currently it stands at around 320 and the main reason being accelerated write-off we are taking, which is resulting in a lower customer base. We do expect that post September, when the accelerated write-off is completed, this number will revert back to our historical application.
By year end it should reach the historical averages, which will provide a better efficiency in terms of productivity for employment.
Got it. Thank you so much. Yeah. Sorry. Thank you. Yeah, yeah. Thank you.
Thank you. The next question is from the line of Himanshu Taluz from Aditya Birla Sun Life AMC Limited. Please go ahead.
Hello sir. Thanks for the opportunity. Just a few questions at my end. Sir, if I just take whatever the new PAR accretion, what is currently 0.46%, and if I assume that this stays at the current levels for another quarter, is it right? Because the credit cost which you have showed in the first quarter is 2.2%. If I assume that for the quarter your forward flow rate would be 1.5% , and if you make 63- 65% of the PCR, probably 1% credit cost is required on a non-annualized basis for the no and plus the write-offs which can potentially, so can we say that in the second quarter your credit cost can revert to levels of 1.5% on a non-annualized and then third, fourth quarter potentially where we can see a massive improvement of below 1%. Below 1%.
Is that understanding right?
Yeah, Himanshu. So largely if things go as per what we are envisaging, this is the trajectory we should see. As you see, even in the first quarter while there was certain provisioning with respect to the new PAR which came in the first quarter, there was also a secondary impact of the PAR which came in the fourth quarter and which kind of flowed into the advance buckets in the first quarter. That's where in the first quarter there has been a little elevated impact on the new PAR- related provisioning.
Now when we go in the second quarter, obviously since the new PAR accretion in Q1 has been lower than what it was in Q4, the secondary impact of that will be lesser in Q2 and the primary impact of the new PAR which comes in Q2, obviously it will have a similar kind of provisioning. We should see this 572 number, it will keep declining.
The idea is to understand the pace of the decline. What my math says that from going ahead quarters, assuming if your flow rate doesn't increase and stays at even at the current to a declining project, your credit cost should materially decline from the coming quarters now.
Yeah, that's what I mean.
If we look at our guidance, we are saying that obviously first half the credit cost will be elevated and in the second half the run rate will be 3-3.5% . The three, three and a half percent is a run rate. The quarterly cost will be below 1%. Fair.
Thank you. Thanks a lot for this clarification. Second is on the growth guidance. Can you help us what kind of the portfolio are you trying to build on your retail finance? Because that proportion in the mix is also rising. Assuming the two years forward, FY 2026 and FY 2027, where you see this mix will going to be. If you can also help us what kind of the portfolio you are trying to build in this.
Right, so right now, because our mortgage is a long journey, the book today is a little more of unsecured loans will grow faster. Your mortgage will take time to grow. Once both businesses are established, the mortgage business will run down slower whereas the unsecured business loan will run down faster. Over the medium term you should see that today I think 70% is unsecured business loans whereas 30% is secure, 25, 25 approximately. This should keep changing over the next few years. That's how we envisage and in the medium term should kind of reach around 50- 50.
Sorry, around 15%. Over the medium term
around 50, 50. Around half each.
Okay, got it, got it, got it, got it. Where you think this mix of retail finance share can go from 3% last year to 7% currently?
Can this head towards 12, 15% in the two years time frame?
What we have guided is around by 2028, end of the year 2028 we should reach anywhere between 12% to 15% and we are confident of reaching that number.
Sorry, what percent?
12% to 15% is what we've guided for 2028. Fair, fair, fair, fair.
Secondly, lastly, given this Guardrail 1 and 2 , probably we see potentially 20% of the borrowers has gone completely out of the system on a sustainable basis. What sort of the growth one can expect assumingly the second half become not normalize? If you have to really guide the growth on your MFI book what you believe on a sustainable basis you can deliver.
I think in a normal scenario MFI books should grow in the early teens, maybe around 13% to 15%.
Along with retail, we projected that the overall growth should be 20% plus, 20%- 25% kind of range. It will moderate to around 10% to 15% in the Microfinance side.
Correct? Correct, correct. Thanks a lot sir. Thanks a lot for your for answering. Thanks.
Thank you very much.
Thank you. The next question, Mr. Abhishek from HSBC, please go ahead.
Yeah, thank you. Hi, good evening everyone. My first question is on Bihar. You've actually carved it out in your GLP, branches and all, and there's a clear slowdown. Is this just until November, until the elections are over, and then you think there's some growth potential, or you think that it's too overheated and therefore this consolidation in the AUM? Just wanted to check what's your thoughts regarding that.
Bihar, we had actually slowed down last year because we saw a certain amount of abrasion in the credit cost in Bihar. We had kind of strengthened the team, added people, and we've started growing business there. It has nothing to do with the environment there. It is a lot more internal in our view that we saw that we were slightly higher credit cost in Bihar even compared to industry.
We had to kind of slow down to see what's going on, correct our policies, people, and we started growth there. It's nothing to do with election or overheat at this point. We are very small compared to the industry there. I think we should be growing at some pace from now. Can you highlight what change you made for yourself? No. We had a slightly higher attrition. Normally with higher attrition you will have higher credit cost. We had to evolve a certain amount of people strategy there, and we strengthened the bench there, and we are okay now.
Okay, perfect. The other question is about this year's branch addition plan and hiring plan. Can you share that?
Every year on an average we do around 200. This year also we should do around 8%- 10%. Roughly around 200 branches we should add.
This year we've done 54 in Q1, and we will spread this out over the next couple of quarters.
Okay. Hiring of employees,
typically we start a branch with around five Field Officers and one Branch Manager. If you include the rest of it, you can count six, four. You can average assume six per branch because you also have support functions like auditors and all of them coming in. You can assume that kind of increase.
You would also be hiring for the Retail Finance functions, which you are growing much more, and those are relatively smaller.
Retail today is not material. We have around 110 branches. Probably we'll add around 10- 15 branches. That will also bake into this branch count.
No, I was, Ganesh, I was asking more from a hiring perspective, the employee addition point of view.
There is one which you explained which is JLG related, but then retail finance related. How many do you need to add? That is where you need to really invest.
What I was saying is that the branch count that we said of 200 also includes expansion in Retail Finance Branches, and we start off the retail branches also with a similar headcount. What we are working on is to see how we convert our Group Loan Branches to contribute to Mortgage, for which we may add a slight number of manpower because right now it is on a pilot stage. It should be similar if you assume around 6 per count per branch; we should be in that range. We should not be more than that.
Abhishek, for Retail Finance, the scale up will be coming from the existing branches because the Mortgage Book was, I mean the Individual Unsecured Loans were piloted four years back, but Mortgage Loans were piloted two years back. Now they will enter into a scale up mode, and the existing 100 branches itself, wherein there is already an existing 1000- member team. The existing branches will be driving the scale up in this business. While the new branch addition will be there, quite obviously the larger component of growth will be coming from existing branches.
It will primarily be these two products, right? Individual and Home Loans. You're not looking to scale up any other product materially. Right now
the retail finance branches only do mortgage today, be it home loan or Secure Business Loans.
As you know, we do Unsecured Business Loans through the Group Loan Branches, but through much more stronger Underwriting norms there. There is a small pilot of Two-Wheeler, which we could see some amount of scale up during this year, but may not be materially different, materially high number.
Right, yeah, understood. Yeah. The 12-15% will basically be on the back of Mortgage and Individual.
Yes,
perfect. Got it, got it. Thanks so much and all the best. Thank you.
Thank you,
Thank you. The next question is from the line of Abhishek from AB Capital. Please go ahead.
Hello. Yes, Abhishek. Yeah, just wanted to ask, like one of your competitors had commented in their con call, I think the last con call, questioning the viability of the traditional Joint Lending Group business model in future. Do you have any doubt about it in future? Just wanted your broad opinion.
See, I think we have kind of stated our position on the earlier also. The only change that we are seeing, Abhishek, is that the probability of the customer's life in the JLG Model could be shorter. We still don't see that the JLG liability model will become unviable. However, we believe that once a customer comes into the formal financial system, today we have customers who are 15 years, 20 years also with us. The vintage of the customer in Microfinance could get moderated over a period of time.
They come in through the JLG model, probably spend two, three years, create a credit history, and once they have a credit history, probably move up the ladder and move towards Individual Loan. This is what we envisage. Otherwise, I don't see today an alternative to JLG for this profile of customers to run very successfully. Right. This model, I think, will be an entry point, but then the graduation can become faster.
Okay, thank you. Thanks.
As there are no further questions from the participants, I now hand the conference over to Mr. Shreepal Doshi for closing comments.
Thank you, Shruti, and thanks to the management of CreditAccess Grameen Limited for giving us the opportunity to host the call. Thank you, sir. Thanks to all participants for being there on the call.
Thank you all for your continuous support. Look forward to it. Thank you.
Thank you
On behalf of Equirus Securities. That concludes this conference. Thank you for joining us. You may now disconnect your lines.