Ladies and gentlemen, good day and welcome to CreditAccess Grameen Limited Q4 FY 2025 Earnings Conference Call. 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 the conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Renish from ICICI Securities. Thank you, and over to you, sir.
Yeah, thank you, Tagar. Good evening, everyone, and welcome to CreditAccess Grameen's Q4 FY 2025 Earnings Call. On behalf of ICICI Securities, I would like to thank CreditAccess Grameen's management team for giving us the opportunity to host this call. Today, we have with us the entire top management team of CreditAccess Grameen, represented by Mr. Udaya Kumar Hebbar , Managing Director; Mr. Ganesh Narayanan, Chief Executive Officer; Mr. Nilesh Dalvi, Chief Financial Officer; and Mr. Sahib Sharma, DGM Investor Relations. I would like to hand over the call to Mr. Udaya Kumar for his opening remarks, and then we'll open the floor for Q&A. Over to you, sir.
Thank you, Renish. Good evening to all. Pleased to welcome you to the conference call to discuss our fourth quarter and FY 2025 business performance. This year has been transformative for the microfinance industry, defined by the stimulus unfolding of diverse internal and external challenges. The microfinance industry has been tested by a complex set of challenges, including extreme ETOs, operational limitations due to prolonged elections, growing customer over-leveraging, ringlet issues, tighter underrating resulting in multiple jumping guardrails, and temporary disruptions stemming from the Karnataka ordinance targeting unregulated lending practices. The rising delinquency trend in the microfinance industry, which began in April 2024, peaked in November 2024, subsequently reversing till March 2025. We are already witnessing new power acquisition rates largely getting normalized across all states, excluding Karnataka, whereas we expect the new power acquisition rate in Karnataka to normalize by the end of Q1 FY 2026.
Through every challenge, CA Grameen has emerged stronger, proving the resilience and sustainability of the model that we have created. We witnessed the declining new PAR accretion rate across all states while elevated delinquencies in Karnataka during Q4 FY 2025. In all states, the turnover story has been continuing since November second half, driven by reduced leveraging, improved ground-level situation, high customer connectivity, expansion of our employee base, enabling more frequent and disciplined follow-up. Combined with targeted support from our business support team, this strategy delivers stronger recovery outcomes across delinquent accounts. We observed an encouraging fraction of collections from PAR buckets, with 40% of our customers in PAR 1-60, and 10% of others in PAR 60+ , making partial payments. As guided, we strengthened our employee strength from 19,333 in December 2024 to 20,970 by the end of March 2025.
Importantly, we maintained a firm grip on employee retention, achieving an annualized attrition rate of 30.5% in Q4 FY 2025, amid high churn across the industry. The revised FY 2025 growth guidance of 7-8% issued in January 2025 was impacted by incremental stress emerging from Karnataka. This stress became visible from the last week of January 2025 because of operational ambiguities in anticipation of the ordinance, on-ground hostile environment, media and political sensitivities, and collection being limited to center meetings. It is important to highlight the role of MFIN in serving as a unified voice of the microfinance sector in such a situation. We proactively engaged with the Government of Karnataka, the RBI, and the stakeholders, demonstrating the sector's commitment to strong governance, customer protection, and regulatory compliance. Their leadership ensured that the ordinance focused on addressing unregulated entities with minimal impact on the legitimate operations of regulated institutions.
Despite these challenges, the majority of borrowers continued to repay, reflecting underlying customer resilience. However, disbursement momentum was affected as we prioritized our focus on portfolio stability over guided growth, with disbursement rates dropping to 57% in February and 65% in March as a proportion to the normal rate. While these factors altered the Q4 FY 2025 growth plans, they were necessary to navigate the evolving environment and to protect our portfolio quality. As a result, our growth, rate cost, and profitability parameters are not in line with the revised guidance. We added 2.61 lakh borrowers in Q4 FY 2025, of which 43% were new to credit, resulting in FY 2025 new borrower addition count at 7.49 lakh. The new-to-credit percentage trend has increased from 30-35% to 40-43% level over the past couple of quarters, demonstrating the underlying potential of the microfinance business across the country.
As a result, our unique borrower count has increased from 26.3% in August 2024 to 31.1% at the end of March 2025. We opened 100 branches during the year across well-established markets and newer geographies. Our evolving customer strategy is helping deepen our customer engagement, with retail finance reaching INR 1,543 crore, contributing 5.9% of the AUM compared to 2.7% a year ago. MFIN guardrails, coupled with our internal policies, including three-lender cap implemented in Karnataka from February 2025 itself, we have achieved significant deleveraging over the past seven months. The GLP of borrowers with more than three lenders declined from 25.3% in August 2024 to 14.7% in March 2025. The GLP of borrowers with over INR 2 lakh unsecured debtors declined from 19.1% in August 2024 to 10.8% in March 2025.
Further, the average total unsecured debt of CA Grameen borrowers has declined 14% YoY , while average monthly obligations have declined by 10% YoY . Now, I'm referring to slide 12. It is important to see PAR 15 both at the company level and excluding Karnataka. In case of borrowers with four lenders, PAR 15, excluding Karnataka, remained the same at 11.7% QoQ . Similarly, PAR 15, in case of borrowers with more than four lenders, excluding Karnataka, stood at 27% in Q4 FY 2025 versus 26.1% in Q3 FY 2025. Out of the overall PAR 15 of 6.6%, 41% is on account of borrowers with more than three lenders. Our accelerated rate of initiation in Q3 FY 2025, alongside a prudent closing strategy, has advanced the cleanup of stressed exposure within the book.
We have taken INR 4000 crore accelerated write-off in FY 2025 of non-paying loan accounts with 180 + DPD, resulting in additional credit cost of [INR 112 crore] . The total write-off FY 2025 stood at INR 1124 crore . Overall, the company continued to hold 1,700 basis points at about INR 456 crore, higher provision over PAR 90, 370 basis points or INR 915 crore higher provision compared to IRAC provisional norms, and INR 98 crore higher provision compared to NBFC provisioning norms. The credit cost stood at INR 583 crore for Q4 FY 2025 and INR 1929 crore, or 7.7%, for FY 2025. The deviation in the credit cost compared to the revised guidance was primarily due to the Karnataka issue. Our collection efficiency excluding area stood at 91.9% for Q4 FY 2025, while being 92.4% for the month of March 2025. PAR 90+ stood at 3.28%, GLP of 4.76%, and NNPA at 1.73%, both predominantly measured at 60 + DPD.
The net interest income grew 1.7% QoQ to INR 876 crore, with portfolio yield at 20.4% and interest spread of 10.3%. Our average cost of borrowing has remained stable at 9.8% for the last seven quarters. In Q4 FY 2025, we raised INR 3,144 crore, including $50 million through ECB route from International Finance Corporation. The share of foreign borrowing stood at 21% at the end of FY 2025, firmly moving towards FY 2028 medium-term strategy of sourcing 25-30% of funds from foreign source. NIM remained healthy at 12.7% for Q4 FY 2025, while 12.9% for FY 2025, in line with our revised guidance. Cost-to-income ratio was at 31.9%, while PPOP stood at INR 634 crore in Q4 FY 2025, INR 2,638 crore in FY 2025. Our accelerated rate of approach has certainly impacted Q4 FY 2025 profit, which stood at INR 47 crore, though it will help safeguard our profitability going ahead.
The liquidity levels, including cash and cash equivalents, remain adequate at INR 2,336 crore, amounting to 8.4% of total assets. Additionally, we have sanctions in hand of INR 3,618 crore and another INR 4,667 crore worth sanctions in pipeline. The capital equity remained comfortable at 25.5%. Amid multiple headwinds faced in FY 2025, we delivered ROA of 1.9% and ROE of 7.7%. Our cross-cycle performance of ROA of 3.6% and ROE of 14.4% over the past eight years is a testament to disciplined execution and consistent value creation. We are well- poised to well- poised for FY 2026 on the back of stabilizing asset quality and improving business momentum. As we look ahead in FY 2026, we must carefully balance both asset quality normalization as well as business growth.
With a more balanced competitive intensity in the industry supported by MFIN guardrails, we see good opportunity to leverage our strong balance sheet and capital position to drive business growth. Our retail finance division will prove to be a strong growth accelerator going forward. However, we also need to be cognizant of various industry challenges in the form of higher steady-state delinquencies, managing the productivity of loan officers, reduced credit supply for microfinance customers, and temporary impact of any potential state government regulation in the likes of Karnataka. Considering the evolving business environment, we are aiming for AUM growth of 14-18%, of which MFI growth will be 8-12%, and balance will come from retail finance. NIM of 12.6-12.8%, credit cost of 5.5-6%, ROA of 2.9-3.4%, and ROE of 11.8-13.3% in FY 2026.
Before I hand over the forum for the Q&A session, I would like to inform you all that I shall be retiring from my role of Managing Director on 25th June, 2025. With effect on 26 June, 2025, I shall be appointed as Non-Executive Nominee Director, subject to necessary approval from applicable authorities and shareholders. I shall also be appointed to the Managing Board of CreditAccess India BV, [double crew] to support the group. Further, our CEO, Mr. Ganesh Narayanan, shall be appointed as Managing Director and CEO for a period of five years with effect from 26 June, 2025, subject to necessary approval from the Reserve Bank of India as well as shareholders of the company. We look forward to your continued support as we take our company into the next higher targets of the growth. Thank you for your patience.
Thank you very much.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touchstone phone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Again, to register for a question, please press star then one. Our first question comes from the line of Rajiv Mehta from Yes Securities. Please go ahead.
Sir, hi. Hi. Good evening. Just a couple of things. Sir, when I look at the TCL coverage, I think they seem to have come down across stage I, II, and III assets in this quarter versus previous quarter.
If you think this through, some light about has there been any revision in the ECL model and then what levels of ECL coverage has been carried forward in the guidance of credit costs that we have given. Second is on when I look at, so even excluding Karnataka, when I look at the other geographies and when I look at their PAR accretion, monthly PAR 15 accretion rates, they are still 20-30 bps above, say, exactly one year back in March and April. When we give out a guidance of a certain credit cost, when you broker up the guidance of credit cost, are we factoring that this 20-30 bps of slightly above normal accretion trend to further normalize, or you have taken that this will be the new normal in the credit cost?
Thank you, Rajiv.
In the case of ECL coverage, there is a minute change where in the stage III borrowers who are paying more than 50% of the EMIs, we have taken a little lower credit cost based on our earlier what we call experiences. Therefore, you could see about 2% variation in the total ECL coverage. However, this coverage is based on [60-day] DPD, not 99 DPD. Therefore, there is no large variation. That is one on the ECL coverage. Second, other geographies, largely it is back to.
Even the ECL coverage on stage I and stage II assets have come down.
Rajiv, Nilesh here. On stage III, as Uday said, obviously on the partial paying customers, we have taken a lower ECL in line with the approach we had taken even in the earlier times.
In stage II, you see the ECL, it has come down because in stage II, there is a higher proportion of delinquency from Karnataka. And Karnataka historically has a higher number of low-risk and medium-risk districts. So that's where, as you know, that our ECL percentage is very basically the district-level risk profile. So that's where the stage II percentage has come down because it has a higher proportion of.
Low-risk customers and low-risk geographies. That is where the valuation because we do the district-level coverage, district coverage, the high-risk, the high delinquency come in the low-risk where the actual ECL is slightly lower compared to others. That's what the change. On the other geographies, what we said is it's largely come back to normalcy. However, if you see the when we give the guidance, you can see the slide where the guidance is mentioned.
We took 3-3.5% for the normal for this financial year, which actually captures us slightly elevated for this financial year. We captured that slightly higher for this financial year. Therefore, it is already captured within the guidance for the image. I think I captured that both.
Sir, there is a mention in the slide that you are seeing improvement in center meeting attendance. If you can just throw some light on what kind of an improvement you are seeing in terms of maybe percentage of attendance in the meeting. The employee addition we see have done in Q4. If you can highlight in which functions, where are these employees added, and in which geography?
Yeah. Largely, employees are added in particular Tamil Nadu. We had little higher attrition compared to earlier during Q3. Higher employees are within Tamil Nadu.
Whereas other geographies, they're fairly common because we didn't have any large attrition in any other states. Therefore, it's a normal attrition. We try to put little extra employees in all the places. If you see, we have almost 8% extra we have built in actually in all places. Therefore, which will help us to monitor more and then have a higher connectivity and to have a higher follow-up sales, which will have a benefit in the coming quarters. In case of center attendance, largely it's improved in all geography, including the geography like Bihar, UP, Jharkhand, Odisha. Also, we have seen a good improvement and the people coming back to center meetings and the payment in center is increasing actually. We have seen a visible improvement in all geographies.
Okay, sir. Thank you so much [in there].
Thank you.
Thank you.
Our next question comes from the line of Shreya Shivani from CLSA. Please go ahead.
Yeah. Hi. Thank you for the thank you for the opportunity. You have highlighted in your presentation about the focus on retail finance segment as well. I wanted to understand the ticket sizes in this segment have reached a certain level and they've been range-bound for the past four quarters. What is our outlook on how the retail finance segment's ticket sizes could move? Also, during this entire last couple of months' challenges, how has the retail finance book's asset quality behavior been or customer behavior been? If you can highlight these two things. Thank you.
Okay. Sure.
On retail finance side, the average ticket size for our unsecured business loan is around INR 1.7 lakh. And we believe that will be range-bound. And secured business loan, the average ticket size has been around INR 5.8 lakh.
That will also remain in this range. INR 5.5-INR 6 lakh is our model. We should remain in that range. Home loans, the average ticket size is around INR 6.8 lakh. That is where it will remain.
Sir.
PAR 0 is less than 2%. PAR 30 is around 1.5-1.9%. With respect to secured business loans, PAR 30 is around 0.89%. Home loans, it is a new book, so it is almost nil.
Got it. Got it. Sir, this segment, all of the.
Did I answer your question?
Yes, yes, you did. Just one follow-up over here. Hello?
I think we lost.
Hello? Hello? Hello, hello.
I think the talking is something. [crosstalk]
Are you able to hear us?
Yeah, I can hear you.
Yeah, [it is Linton].
It's actually more from phone to phone to phone.
Ladies and gentlemen, the line for the management seems to have disconnected. Please stay connected while we reconnect the management. Thank you. Ladies and gentlemen, we have the line for the management reconnected. Please go ahead, sir.
Yeah. Sorry, we got disconnected. I'll repeat what I said. On our unsecured business loans, the current average ticket size is around INR 1.7 lakh. We believe it will be range-bound around this number. The PAR 30 in this book is now 1.97%. It moved from around 1% to 1.97%, predominantly because of the Karnataka effect. In secured business loans, the average ticket size is around INR 5.8 lakh, and PAR 30 is around 0.89%. In home loans, the average ticket size is around INR 6.8 lakh, and since it's a new book with around INR 110 crore AUM, there's almost nil PAR.
I hope I answered your question.
Yes, sir, you did. Just one follow-up on this. I do believe you have always mentioned that retail finance is one segment. You are scaling up more in your lower-risk districts, which will be more Karnataka and Maharashtra, Tamil Nadu, etc. As of now, how much scope are you seeing for this business to be able to scale it up in any of your other geographies? Is there any comfort you are seeing in any other geographies, or should we just consider that it will continue in Karnataka and the lower?
What we had commented upon is that we will launch these businesses in our higher-penetrated geographies because there is a certain amount of customer base. The model revolves around evolving with the customers, right? From that perspective, the book is now in Karnataka, Maharashtra, Tamil Nadu, and Madhya Pradesh.
During the year, we would probably look at a few more districts and states where we have a higher presence.
Got it. [crosstalk]
For
example, the unsecured business loan is roughly in around 730 branches out of the 2,063 branches. So this is scaled up slightly. With every moving year, we will scale this up. All these products will move to newer states.
Got it. This is very useful. Thank you and all the best.
Thank you.
Thank you. Next question comes from the line of Shweta from Elara. Please go ahead.
Thank you, sir, for the opportunity. So a couple of questions. I was looking at Bihar geography slide and be it GLP or borrower base, that has declined significantly in Bihar. Even the branch network has remained steady state. PAR numbers and all are a function of base.
We are of the understanding that it is the over-leveraged borrower base that had caused mess in Bihar. Is there anything more to read that is bothering you wherein you are sort of declining your further penetration into Bihar? That is question number one. Second, can you provide some color on the borrowers with over three lenders accounting for 41% of overall PAR 15 as in from the regional geographic perspective or from the segment perspective? Third observation is the marginal cost of borrowings have spiked quarter- on- quarter. In fact, where we started off 9.3%, now it is INR 9.6%. How do you see this? Because you mentioned about liability mix being slightly nimble in your opening remarks. From that perspective, how are you perceiving marginal COB? Thank you.
Shweta, thank you for your question. Marginal cost is basically what we borrowed during the quarter.
There we borrowed significantly from the international fund, particularly IFC. Therefore, average cost of marginal cost for the quarter was a little higher than compared to the earlier borrowings. Still, it is lesser than the average cost of borrowing. Average cost of borrowing is 9.8%. Marginal cost, it's the borrowing what we made in Q4 is at 9.6%. Still, it will not impact the overall cost of borrowing. There is one large borrowing we did from international market. That is why it is slightly higher. Therefore, average was a little higher. Second question is about Bihar. Yes, Bihar portfolio has come down to some extent because we took wrong steps during September to March, kind of September to basically January to handle with [care] to protect the portfolio, higher management there, higher overview from a risk audit and control side. With which, and then also the retention team.
I think those steps actually we try to protect portfolio for quality instead of growing during that period. Therefore, there's just slight decrease in what we call total GLP. The reduction of customers is basically because of rate of, which is the accelerated rate. Majority part comes from that geography. Therefore, the number of customers came down. We already started growing. I think in the months of February-March, we started scaling up with the new controls, additional controls with a little lower ticket size. We implemented the new customer controls quite ahead of time before even everything got ready. I think it is growing well now. We are not withdrawing or reducing anything. We'll continue to grow and penetrate there, but with the higher controls and systems. We do not see any challenges. Things are better now.
There is one point on Bihar.
Bihar temporarily, we also had certain people challenges. We had manpower shortage. That has also been corrected now. That is why you will see the reversal in Bihar is quite strong.
Quite strong. Reversing trend of [delinquency] is quite strong, quite fast. We are quite fine there now. The other one is of the borrower with more than three lenders under PAR 15, right? It is 41% of PAR 15, which is a very insignificant number. It's not very high actually. It's coming down slowly. We see that's a rate that we actually provided that. Which state is higher? I don't know. Maybe largely in the [northern bank]. Do you have any data in that?
Yeah. Shweta, largely it will like what we have shared earlier. We have a higher proportion of unique borrowers in our core markets.
Obviously, in the newer markets wherein we have entered over the last two to three years, there is the proportion of borrowers having two or three or four lenders. That proportion is relatively higher there compared to our core market. Since you are referring to Bihar, yes, in Bihar, a larger number of customers will fall within the three or two four-year vintage. That is where those borrowers, in case they are having more than three lenders, the PAR contribution will be more. Overall PAR in Bihar, if you see, it is 12%. At a company- level, if the more than three lenders is accounting for, say, 40%, then in Bihar, it will be slightly higher. Overall, it is more of a broad-based, depending upon the vintage and the overlap we have across different states.
Got it. [crosstalk]
2.5% of overall customers. To be clear, Shweta, this set of customers is about 2.5% of the overall customers of the company.
The purpose of that data point, Shweta, was to highlight that the entire issue is not because of over-leveraged customers. The point was that 40% of the PAR is because of over-leveraging, but the balance 60% PAR is because of the business-as-usual factors in addition to various other factors we witnessed over the last 12 months in the form of income variations or heat waves, migrations, ring leader issues, etc. Various factors have been playing out in addition to over-leveraging. That is the point we wanted to make.
Thank you. Thank you for the elaboration and best of luck.
Thank you. Our next question comes from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Good evening, sir.
Thank you for taking my question. First thing, just trying to understand in our FY 2026 guidance, we spoke about this 8%-12% kind of growth in the group lending business, the JLG business. You also highlighted this is because of some accelerated write-offs which are expected in 1H. Just trying to understand why this year the growth is low. What rate can we start seeing the group lending business growing maybe from FY 2027 onwards? I am asking this because, I mean, we understand what the industry has gone through. To that extent now, I mean, after some of these threats from over-leveraging is behind, at what rate can the industry be growing? Within that, what could our growth look like in the group lending business?
Abhijit, hi, Nilesh here.
See, the guidance what we have given for next year in group lending, which is 8%-12%. Obviously, it will be to some extent, there will be an impact of write-offs what we will be taking. If you see, when we had given the guidance in the month of January, at that time we were anticipating that we would be doing the cleanup by, say, end of June. However, because of the Karnataka issue, maybe it will get extended by another quarter and it will go to September. Predominantly, whatever write-off which will happen in next financial year, the larger portion of that will happen in the first half. That is where you will see the overall growth will be a little flattish in the first half, excluding write-off.
Obviously, we will cover it up in the second half wherein the write-offs will be more of normative in nature. From the growth perspective, obviously, the customer additions, renewals, everything will happen. Yes, because of the write-off, you will see a flattish growth in group lending in the first half. It will catch up in the third and fourth quarter.
Got it.
Largely on a steady state basis, Abhijit, as we had said earlier, microfinance, 14-15% growth on a steady state basis is what we will always look for. Including retail finance, it will go to 18-20%. Next year, that 14-15% is a little lesser because as we come out of the current crisis and obviously the impact of write-off.
Got it. This is useful. The second question that I had was I joined a little late.
Have we already covered what we are seeing in Tamil Nadu after the introduction of the bill? Now, why I ask this is very often we try to understand that, I mean, what we saw in Karnataka, we saw some bit of it brewing, right, in media, whether we talk about some news around suicides in Karnataka and then the Karnataka ordinance. I think from what I gathered by speaking to a few other MFIs is also the fact that no one saw this Tamil Nadu bill coming while everyone acknowledges it is not really applicable to regulated entities or MFIs for that matter. The related question is, A, what is happening in Tamil Nadu today? What is it that you are seeing?
The other thing is, are there any other states except, let's say, Karnataka or Tamil Nadu where there are some problems today and going forward there could be some such ordinances or ordinances should get passed?
In Tamil Nadu today, ground level, there is absolutely no change or no impact as of date, right? However, we would be mindful. Probably we would be proactive to engage with customers better. At ground, there is absolutely no impact at this point in time. With respect if it's going to come in any other state, I think we'll have to kind of from our perspective, we don't see anything as a signal or sign anywhere at this point of time. We have to wait and watch.
Got it.
What's something you had yet to cover?
I mean, there's more noise, but we are not seeing any impact on your collection efficiencies or PAR acquisition just yet.
Absolutely nothing. We've not heard this from anybody else also. Not necessarily just us.
Got it, sir. The last question I had is, obviously, we can't control what happens in specific states, right? I mean, this whole mini credit cycle was to say that we went through this year, whether we call it because of over-leveraging, heat waves, right? Maybe Tamil Nadu, some unseasonal flooding, cyclones. Is at least that part excluding what is happening in specific states, at least that stress, is it now at least at the fag end or is it now behind us as we move into the next year?
How it looks like for us. Hence, we are seeing that probably we would have a good second half, right?
We have also had good months. There is no other sign at this point of time which is kind of worrying us or which is going to stress us apart from coming out of Karnataka at this point of time.
Got it, sir. This is useful. That is all from my side. I wish you and your team the very best.
Thank you, Abhijit.
Thank you. Our next question comes from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity, sir. First question is on the credit cost. What I gather is that on a steady state basis, also we are seeing that the credit cost of the business will be higher than what we were anticipating before this crisis.
How are we planning in terms of yields, margins to negate the impact of higher credit cost in future, let's say in financial year 2027 and beyond?
I think what we enlisted earlier also, I know in May 2024, that there could be higher elevated. For the next quarter, we assume that it will be about 3-3.5% for the financial year, which is normal credit cost for the year. That's what we are expecting. We need to review later after the year end, maybe three, four quarters down, we will review for the future years. Our district-based pricing and district-based, what you call, the ECL modeling will help us to have a reasonable, what you call, moderation of yields, which will not have too much negative impact to us.
Because if the credit cost goes up in a district, the price also will go up to some extent. Therefore, it will not impact on the yield. That is why our guidance, NIM and yield are not actually different. It remains the same. Impact is only to the extent of the, what you call, reversal because of [daily price ]. Otherwise, it remains the same. Therefore, we are not seeing too much impact of the pricing or our credit cost will impact on our yields.
I'm asking that in case the credit cost remains elevated at 3%-3.5%, whether there will be a yield increase on the new loans that you will be discussing because the risk has increased.
Already provided. It will not be on every loan. Based on the risk, higher risk, we would actually increase the price.
If there is a lower district, we may reduce the price also, right?
Also, the pricing model has a slightly longer tenor. It has to run through the tenor to show the impact in pricing. We may not react immediately, but we will have to see the time period in our pricing policy, how the pricing moves, and if there is anything that it is slowly passed.
Correct. Also, there is another impact in terms of the quarter borrowing impact. That is also a declining trend. I think reasonably we will be able to manage a decent stable NIM and yields.
Sure. Sure. Secondly, can you share the retail finance breakup in terms of secured and unsecured?
The unsecured AUM is INR 1,100 crore and t he secured business lending is INR 250 crore. Okay. The overall mortgage book is INR 350 crore.
Secured business lending is around INR 240 crore, and home loans is around INR 110 crore.
Sure.
Short term, INR 1,543 crore.
Sure. Sure. And this last question is that so we have shared a lot of data on customer leverage, etc. If we include other retail loans for our customer base, what percentage of our customers will have other retail loans other than microfinance and unsecured loans?
Overall, if I remember right, the overall retail [bureau imprint] is around 40% +. Majority of that has consistently remained for years in gold loan. The rest of them are single-digit numbers.
Okay. Sure. Sure. Thank you. That's it from my side. Thank you, sir.
Thank you. Our next question comes from the line of Chinmay Nema from Prescient Capital. Please go ahead.
Good evening, sir. Hope I'm audible.
Yep.
Sir, firstly, a slightly longer-term question.
Given that the stress now seems to be subsiding, how do you see or when do you see the PAR numbers basically reversing back to the normal levels as in the Q1 levels or what they were in quarter four last year?
I think whatever the PAR is created, it has to take its journey. That is why we said we will have probably a normative period in H2. H1 will remain elevated. H2 should start coming back to normal.
Got it. Secondly, if you wanted to confirm, if I understood correctly, basically the provisioning has come down during the quarter basically because you are expecting better recoveries in Karnataka. Is that understanding correct?
No, no. Two aspects. Two aspects in this. One, because the PAR in Karnataka has gone up. Karnataka traditionally had a lot of lower- risk districts. Hence the weightage has fallen, right?
There is a reduction there. Second, in stage III, like Uday said, if customers are paying more than 50%, we have assumed a slightly lower credit cost because this is current repayments coming into the system.
Also, the new PAR acquisition has come down comparatively compared to Q3. That also impacts, which reduced the overall new provision.
Understood, sir. Got it. Thank you.
Thank you. Next question comes from the line of Shreepal Doshi from Equirius. Please go ahead.
Hi sir. Thank you for giving me the opportunity. My question was on, firstly, by when do we see this more than three-lender and more than two-lakh ticket size customers, which currently stands at closer to 20.1% and 9.5%, dropping to our expected level? That is the first question, sir, or our targeted level rather.
No, it's difficult to have a targeted level here because you have short-term loan. We've seen seven months, there is almost 10% reduction. It is actually gone as the MPIN guardrails will continue to be there. It will automatically come down on a normal pace as they come back to regularize the loan with the payback and close their loan automatically comes down. Overall, it's already coming down. The journey has begun, going on well. Maybe two-three quarters, it will come down to an accepted level not only for us, but the whole industry also. It's just the industry targeted measures to deleverage the customers. I think it's already working well and continued to work well.
Okay. The second question was, we've given a guidance of 5.5-6% credit cost for 2026.
I mean, that does not have any buffer for any uncertainties that might come up in the state of Tamil Nadu from the ordinance that has come up. Do you think there would be variation if something of that nature comes up? If you think so, then should we not already provide that buffer in the guidance?
The talk about the ordinance has been there for the last one month almost. We are not seeing any impact on the ground either to us or anybody else. Therefore, we are not anticipating anything coming practically from Tamil Nadu. There is always a comparison of Karnataka to Tamil Nadu. Maybe I will take one minute to explain why this difference. In Karnataka, what happened, there was a heightened media, police, political intervention, everything before the ordinance. That led to the ordinance.
There was a hostile situation for a month actually. By that time, the delinquency was elevated and the ordinance came later. With the clarity, it slowly came down. In Tamil Nadu, there is no such situation at all. The government on its own maybe followed the Karnataka model and tried to implement by excluding upfront the REs and the banks. Therefore, we are not seeing any such heightened delinquency trend coming up there. Therefore, we are not believing that at this point of time, after witnessing almost [30] days of journey, we are not seeing any such events happening there.
Of course, as far as small variation here and there, we'll be able to manage because that is why we said that current what you call regular credit cost may be slightly higher, which is 3-3.5%, which should cover this kind of very small event. If a larger event, definitely the thing will change. This is subject to reasonable stable period.
Got it, sir. Got it. Just one last question. It's more structural in nature. What are the changes that you see? Every credit cycle so far has taught us something at industry level and also at organization level, right? This time around, what are the changes that you see are emerging maybe on, let's say, credit underwriting side, even on tenure structuring side, or even on the collection frequency side?
I mean, such as say maybe having credit manager at branch level, do you see such changes or such operational changes being brought in by players in the industry?
Yeah. I think broadly, every such cycle takes you back to basics, right? I think the fundamentals of microfinance are still intact. We need to work on strengthening process. There was a gap in regulation for different kinds of players that has also been kind of removed now. The industry is working together in this challenge. That is a very big positive thing in my view. Whatever steps we have taken, we are seeing it play out. We are also seeing that people are mindful of expansion. People are mindful of underwriting. People are taking significant steps towards better income assessment.
I think the fundamentals of lending will have to play a significant part also in microfinance as we move forward. With strong bureau data over the period of years, and like I said, since the industry is now working together under SROs, we can navigate this better and probably have better environment as we move forward. That is what comes to my mind. What else you want to add?
I think it is a joint effort by the industry, by regulator, and by the SROs actually. I think all of them are working closely to see how to navigate going forward. The guardrails are one of the outcomes. When I say guardrail, it is guardrail made by the industry itself. When you say MPIN, it is industry-made guardrail. The members are part of making the guardrail for themselves, right? I think that kind of consciousness is already there.
Not only the guardrails. Again, underwriting systems, many of them are probably improving the underwriting, even our case also. For example, we expanded our audit team to audit the branch at a frequency of even less than 45 days today, which is very hard actually. We have taken that kind of journey. To make it more strong, we implemented the weakness rule engine to accommodate the stronger control, stringent inflow, customers' checks. Many measures are adopted. I think similarly, many MFIs definitely would have made that. I think it is a joint effort of all stakeholders together. It is happening. I think these learnings definitely will be helpful for the future.
Got it, sir. Thank you so much for answering my questions. I'll come in the queue if I have more questions.
Thank you.
Thank you.
Next question comes from the line of Viral Shah from IIFL Capital. Please go ahead.
Yeah. Hi, sir. Thank you. Sir, two questions. One is I look at slide number 13, and I look at the state-wise PAR. So when I look at Tamil Nadu, over there, I see that for PAR 0, it has declined by around 80 basis points quarter- on- quarter. Whereas the PAR 90 has actually gone up by 130 basis points. And if I say just do a analysis of the flow-through rates, it seems that the flow-through rate seems to be much higher in Tamil Nadu, say, compared to even something like Bihar. Is there anything to read over here, or what is it?
Difficult to read because Tamil Nadu, the higher delinquency happened in January, which moved into the bucket. So whereas December, December actually, that moved in.
Whereas others from November, actually, the trend started early, little one month early. Maybe that March is in between. Probably that made little difference. Otherwise, by and large, the trend is that is common across the geography. Tamil Nadu, we faced little bad situation because of rains and everything in December, right? That all moved into PAR 90 in March 31. There are some competitions also there along with that, which are corrected. Maybe it's an accounting issue, right? We are not seeing any very different issue in Tamil Nadu.
Okay, sir. My second question is, when we talk of, say, near to normalized PAR accretion, see, even X of Karnataka, if you look at, say, in the month of April, it is still more than double of what it was last year. Is it something that we should be calling or talking of, say, close to normalization?
Because this is going to be a longer journey, right?
Yeah. I think we said the near normal is correct. April was a little aberration in the first half of the month due to a lot of holidays, a lot of festivals, a lot of employee holidays during that period. So little aberration. It is already coming back to normalcy in May itself already. It is just a temporary brief of 15 days of April. Otherwise, we are already back into normal.
If I recall, last year, in the first quarter, when the trends had started deteriorating, the explanation was even from an industry perspective that there were heat waves and elections. I would think that even in the days, it would have already been there.
No. No. I think let's compare to March - March. No April, we know that there is a small brief.
It is temporary. We are aware why it happened because of holidays and festivals and a couple of when there was a lot of employee holidays also there. Employee transfers also there. We are aware about it. By May 10th, May 14th, we are already back. If you look at May month, May 1 - May 14th, we are at 0.12% new accretion, actually. It has already come back to normalcy. It is a question of small brief in the April first half. Otherwise, we are definitely near normal compared to March last year or April last year.
Got it, sir. Sir, last question, more I would say a bit philosophical. In this cycle, what is different versus in the previous cycle, how we look at and analyze this? Historically, we always used to look at, say, PAR, right? When is the PAR peaking out?
How is it trending? Now, in this entire cycle, the conversations, sir, have moved to, say, incremental pace of PAR accretion, right? At the end of the day, the PAR is still keeping on increase. Are we, I would say, trying to say crystal gaze too much in future, say, if trends persist like this 12 months down the line, this is what it could look like? Because when we look at X bucket collection efficiency, by definition, sir, after nine months of pain, it has to improve, right? Because we are eliminating the delinquent customers from the base.
Correct. So X bucket collections need to come below, I mean, need to be above 99.5% to reach the near normalcy. That is what we are telling largely many states other than Karnataka, where more than 99.5-99.7% X bucket collections.
Why one using X bucket as a benchmark today? Because the current PAR in the system is much higher. If you put the PAR as a control, it's difficult to assess the actual efficiency because every PAR of even 0.1% actually increases the total PAR. Therefore, the X bucket becomes relevant today. Maybe once this entire journey of provision and write-off is completed, we will be back to a collection efficiency as a norm. Currently, probably X bucket collection is more relevant. When this whole journey completes, entire things are written off, then we are normal, and then we look at better ways, the collection efficiency or a PAR 0 kind of thing.
New PAR accretion rate is important for you to get a view of how things are moving.
Trending, yeah.
Fair enough, sir. I get it.
If we in the denominator in an X bucket collection efficiency scenario keep on removing the delinquent customers, after nine months, let's say 10%, 15%, or 20% of the delinquent customers, as they keep getting removed from the denominator, the X bucket number will keep improving, right? Because the book has not grown much in this period, right?
Yeah. In this period, it's not important to grow the book also, right? We need to be careful.
Fair enough. I agree. My question, sir, was more, I would say, I understand as a manager how you want to look at it, and probably this is the right metric. More so from, say, analyzing it, are we kind of trying to jump the gun?
We're all. From analogy point of view, you have all data. You have a collection efficiency.
You have PAR 0, PAR 60, PAR 90 +. You have X bucket. You have all the parameters available to you to analyze, right?
Right. Fair enough, sir. Thank you.
Thank you. Our next question comes from the line of Ashlesh Sonje from Kotak Securities. Please go ahead. Ashlesh, your line is unmuted. Please proceed with your question.
I think can you hear me?
Yes.
Hello.
Yeah. Yeah. Yeah. Please.
Okay. Hi, sir. Good evening. A few questions from my side. Firstly, can you share the X bucket collection efficiency number for the months of April and May thus far? I believe we had disclosed a number of about 99.3%, 99.4% overall for the month of March. So that is one. Secondly, in your understanding, why are you not so worried about incremental drop-off after the implementation of the three-lender cap in April?
Because even now, about 9% of your loan book is exposed to that set of borrowers. That's the second one. Lastly, more qualitative, when we speak to industry participants, we understand that there is a general challenge of uniquely identifying borrowers because different lenders tend to use different KYC documents. Additionally, it also seems like the redit bureau is not allowed to store or share the [Aadhaar] number of the borrowers. Where are you, and where is the industry in general today on solving that issue? Thanks. Those are all the questions.
Yeah. I think X bucket collections, PAR 0, you said 99.6% or?
No. On the overall book, it is around, say, 99.2%. If you exclude Karnataka, it is around, say, 99.5% in the month of April.
April, May till May, it will be better because, as you see, Ashlesh, as of 11th of May, we have added around, say, 12 basis points of PAR 0. If we continue the same trend, maybe for the full month, we add around, say, 25-30 basis points of PAR 0, which means that the collection X bucket will be around 99.7%.
It is including Karnataka.
Yeah. Including Karnataka. We need to see.
Normally, yeah, it is already there. Correct. That is one. Second is about the dropout and the incremental growth, right? We know that there will be about 6-7% of customers we may have to drop. The portfolio also does some actions. We have to drop almost 7% rate of income. We feel we have an opportunity if you look at the slide we talked about guidance.
We mentioned what are the challenges and what are the opportunities that we have. We feel we will be able to acquire customers. If you look at in the Q4, we acquired 2.61 lakh new customers with the 43% new-to-credit.
Sorry to interrupt you. Hello. This question was more around worrying about delinquencies because we will not be able to lend to some of these borrowers.
Ashlesh, regarding your question on delinquencies, largely as we have understood. No, his question is that number of lenders, borrowers where we have more lenders. That pool is still there around.
Yeah. It will be paying. 80% of them are paying.
Yeah. Ashlesh, as you see the slide on delinquencies, wherein excluding Karnataka, we see that even in case of borrowers with more than four lenders, the PAR has largely been stable.
This is something we have been saying earlier also, that the delinquencies have largely played out, and not the entire pool having multiple lenders is bad. There, we still have 80% customers who continue to make payments. Over a period of time, normatively, the customers who keep making payments, obviously, at some point in time, their one or the other loan gets closed, their overall outstanding falls below INR 2 lakh, and they again become eligible. This is not going to be a permanent loss for us. It is only a temporary adjustment wherein borrowers will have to wait for some time, get their obligations under control, and they again become eligible. Obviously, during this time, customers who might get into delinquency, they are getting into the delinquent bucket. That is something we have seen over the last six months.
Yeah. Yeah.
Also, some of it will have. Also, we need to recognize that these are all short-term loans. It's that price is actually coming down faster. Maybe this month they're not eligible. Three months down, they may be eligible because they would have paid as the three installments to all of them in the borrower. I think that's why I said 81% of those customers are all paying and good standards even today. I think most of them will remain, and by the time they come back for renewal, probably they will be back with eligibility. Therefore, we believe that this is not a big risk for us.
Understood, sir. The question comes because in the last few months, we have seen many lenders starting to disburse as well at a fairly robust momentum.
The fear is that, as in, how are we sure that the repayments which are coming through are purely because of recovery in incomes and not purely because of the access to disbursements?
I see it. So long as they're paying to all the lenders, and then when they come back for the renewal, if they're not, what you call, default with any other lenders and they're within the three-lender norm or within INR 2 lakh, we don't see a risk in renewing, right? That is point one. Second, find maybe some other lender. They borrow from somebody else and pay to us. But they are paying to me only one installment, not the entire loan.
Correct.
And they would have borrowed with no delinquency with anybody, and they're eligible to get the money. I don't think there's an issue there also.
Understood, sir. Okay.
Sir, the last one on borrower identification.
KYC, sorry. KYC, we have to go by only voter ID at this point of time because of the regulatory requirement. We actually implemented the entire portal checking long back. Every ID, the DDUP and the portal checking is done. To a large extent, it is. Only one impact we have observed earlier is the bureau—sorry, I think we lost.
No, sir, I can hear you. I can hear you.
KYC challenge gets.
KYC challenge. Identification of the new bureau.
Please call.
Yes, can you hear me? Hello?
Just give me one moment. Ladies and gentlemen, the line for the management seems to have been disconnected. Please stay connected while we reconnect the management back. Ladies and gentlemen, the line for the management has been reconnected. Please go ahead, sir.
Ashlesh, sorry, we had some technical problem.
I was talking about the bureau data, right? Voter ID is being validated through a voter ID portal before acquiring any customer or before giving any loan. Lastly, this is stable across industry today. One of the problems which we had, most of the banks used to give data once a month. By regulation, it became fortnight. That also is a higher frequency, which helps the identification faster if any multiple lending can be checked faster. Even the entire regulator, particularly MFIN, is tracking all the MFIN members about the KYC side as well as the multiple lender side as well as the leveraging side also. Then give you back the data if anyone breaches us.
Lastly.
There is good governance there. Therefore, there may not be too much of risk coming.
Of course, if others would have been there, it was very good for everybody. Unfortunately, that is not the case today. So we have to manage this voter ID.
Perfect, sir. Thank you.
Yes. Yes.
Thank you. The next question comes from the line of Hardik Shah from Goldman Sachs. Please go ahead.
Thank you for the opportunity, sir. Am I audible?
Yes, Hardik.
Yeah. Hardik.
Okay. Sir, I have two questions. One is on the growth. Appreciate you calling out group lending growth at 8-12% because of potential write-offs. If you were to think about FY 2027 in a normalized environment, how should we think about growth? If you could break that down into borrower growth and ticket size growth. Why I ask that particularly is because penetration levels in some of the large states have already reached at very high levels.
We are more than 90%, Karnataka, Tamil Nadu, 65%. What are the states that will drive that borrower growth if you could allude on that?
I think our microfinance growth would remain range bound between 8-20% even for FY 2027- 2028 house because we already said that our microfinance growth will remain lower, whereas non-microfinance growth would be a little higher to compensate that. Therefore, we believe that between 14-15% or 12-14% is feasible in microfinance by through new customers as well as retained customer renewals, which is still possible. We do not see a risk there. Geography-wise, I think there are still many large geographies unmet. If you look at the entire India, even the 80% of the MFI-covered districts, high districts, still. More than 30%, 30-40% of unmet demand there.
We can continue to address that in the deep rural. If you look at our businesses, deep rural, and it is still there is a high opportunity there. As you see right now, our new-to-credit is almost 43%, which is basically new customers, right? That means there is a huge opportunity here.
Got it. Sir, in terms of borrower and ticket size, fair to assume eight and four if you are calling 12% as the group lending? Or is this more going to be only borrower and ticket size kind of remains flat because we have already seen other levels?
Yeah. It is opportunity because we always work on retaining customers and growing, evolving with them. That means the retained customer will get a higher ticket size. Therefore, there will be two sets of growth. One is growth from the new customer.
The ticket size will be lower for the current year, but by 2027, they will get more. Correct? It is always a continuous journey. The growth will come from some percentage coming from the ticket size on a renewal, higher renewal, and then some set of growth will come from the, what you call, the new customers. 7%- 8% may be our customer growth. Is that about 10-15% will be the portfolio growth kind of thing on a range bound kind of thing.
Understood. Very clear, sir. Second question is.
I am talking about microfinance only. That is retained.
Yes. Yes. Yes. Of course. Yes. Am I audible, sir?
Yeah.
My second question is on the proposed bill by the central government on the banning of unauthorized lending act Pan India, which kind of looks like the reading looks like similar to Karnataka ordinance. Any early view on that? If at all, that was to be implemented, how could you navigate that?
We do not have much idea. Actually, when Karnataka government was doing this regulation, it did go through the draft guidelines of BOLA, actually. I think it is largely aligned with that. We have to see when we can see about it.
Okay.
Okay. Thank you, sir.
Thank you. Our next question comes from the line of Bhavesh Kanani from Svan Investments. Please go ahead.
Thank you for taking my question. Just a quick one.
Some colors on the individual loan composition we are looking at over the next couple of years and the yield differential between the group loan and individual.
Broadly, we have guided that incrementally, the growth in microfinance will slow down, and the retail will catch up. We have guided earlier that roughly around 2028, we will have anywhere between 12-15% of non-microfinance loans. Yield, as we said earlier also, most of the retail finance loans are either equal or slightly lower than microfinance loans, except for home loans, which is today averaging at around 16.9%. We will take some partnership route for home loans once we have some traction in book size and experience, thereby neutralizing any impact on yields.
Okay.
Would you like to call out within this 12%-15% individual loans, what kind of mix will be contributed by home loans?
So Bhavesh, overall, the retail finance, what we are looking at, maybe it might reach 15% of this. As of now, in this, the secured versus unsecured is around unsecured is 75%, secured is 25%. Maybe over the next couple of years, we aim to take it to around, say, 50%-50%. In the secured book, largely, it will be the secured business loans, affordable housing loans, and two-wheeler loans. Unsecured will be the individual business. Maybe it might settle somewhere around 50%-50% over the next two to three.
Okay. In essence, NIM implications, you do not see any major NIM implication because of the mixture.
No.
We do not see any major implication on NIM, whereas you will have an advantage of a cost implication, a better cost implication because there is no or a minimal acquisition cost because you are going to do majority of the business with the acquisition customer. There is advantage on office cost.
Bhavesh will try to be neutral at the PPT level. Since on the retail finance, individual business loans, it is all given to our existing customers. Even in the secured book, which is the secured business loans and affordable housing loans, we still have around 60% existing and 40% new. Across a larger portion of the retail finance, we will not have any sourcing cost. To that extent, our cost structures will be under control.
We will try to optimize our pricing to be competitive in the industry at the same time, ensure consistency on the PPT front. That is what we will try to maintain the ROAs across all the products.
Got it. Thanks for the response.
Thank you. Ladies and gentlemen, we will take that as the last question for today. I now hand the conference over to the management for closing comments.
Thank you, everybody, for patient listening. And thank you for questions also. For all for continuing our support, thank you very much. Good evening.
Thank you.
Thank you all.
On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.