Ladies and gentlemen, good day and welcome to the CreditAccess Grameen Limited Q2 FY 2027 earnings conference call hosted by Motilal Oswal Financial Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Tibrewal from Motilal Oswal Financial Services. Thank you, and over to you, sir.
Thank you, Robin. Good evening, everyone. I am Abhijit Tibrewal from Motilal Oswal, and it is our pleasure to welcome you all to this earnings call. Thank you very much for joining us for the CreditAccess Grameen call to discuss their Q2 FY 2027 earnings. To discuss the company's earnings, I am pleased to welcome Mr. Ganesh Narayanan, Managing Director and Chief Executive Officer, Mr. Gururaj Rao, Chief Operating Officer, Mr. Nilesh Dalvi, Chief Financial Officer, and Mr. Sahib Sharma, DGM - Investor Relations and Strategy. On behalf of Motilal Oswal, we thank the senior management and the investor relations team of CreditAccess Grameen for giving us this opportunity to host you today. I now invite Mr. Narayanan for his opening remarks, post which we will open the floor for a Q&A. With that, over to you, sir.
Thank you, Abhijit. A very good evening, everyone, and a very warm welcome to discuss our second quarter and first half of FY 2027 business performance. We reported our highest quarterly profit of INR 502 crore in this quarter, having grown fivefold over the past five years. Current financial year marks a clear turnaround, recording INR 995 crore PAT in the first half, as against INR 778 crore PAT during the previous financial year. Our H1 ROA stood at 5.9, and ROE stood at 23.8. We are delivering record profitability while remaining amongst the most competitively priced lenders across our product segments. Our lending franchise today spans across group loans, individual business loans, secured business loans, affordable housing loans, and two-wheeler finance, with growth margins and asset quality all moving in the right direction. Our AUM grew 19.5% year-on-year and 2.1% quarter-on-quarter to INR 30,946 crore.
Disbursement stood at INR 6,355 crore, up 19.4% year-on-year and 4.1% quarter-on-quarter, taking H1 disbursements to INR 12,461 crore. We added 2.3 lakh new borrowers, of which 35% were new to credit, taking our H1 additions to 4.9 lakh customers. We also opened 60 new branches during the quarter, expanding our network to 2,326 branches across 460 districts. Digital collections rose to 26.3% versus 18.1% a year ago. When we began building our retail franchise, our thesis was very simple. The customers we have served for years would need more than a group loan as their economic profile improves and financing needs expand. That thesis continues to be playing out at scale with regulatory support in place. Of the 4.5 lakh borrower base, 15% or 6.8 lakh borrowers belong to retail finance.
Retail finance AUM grew to INR 7,200 crore, now 23.3% of the total AUM, up from 20.6% in Q1 FY 2027. Within this, our secured book comprising of secured business loans, affordable housing loans, and two-wheeler loans grew 60.9% year-on-year to INR 695 crore. Our mortgage presence now spans across 300 GL and 128 retail finance branches, with two-wheeler loans offered through 950+ group loan branches. Our two-wheeler loan book witnessed strong traction, having crossed INR 60 crore compared to INR 20 crore in Q1. Further, our ability to meet evolving credit needs of our customers is also deepening their loyalty, with borrower retention rates improving from 85% in FY 2026 to 88% in H1 FY 2027. Alongside, we are also strengthening our collection ability with a dedicated collection team comprising of 500+ employees across operating geographies.
Our group loan portfolio stood at INR 23,746 crore as of September 2026, a marginal decline of 2% from the start of financial year 2027. This was on account of write-offs and graduation. Most of the INR 614 crore portfolio written off in H1 FY 2027 consisted of group loans. With write-offs normalizing and the seasonally stronger second half ahead, and increase in customer acquisition during H2, we expect the group loan book growth to return to guided levels. Commenting on our asset quality, we saw a temporary increase in monthly PAR accretion rate during August and September, driven by excess rainfall and flooding in certain regions of Bihar, U.P., Chhattisgarh, and Madhya Pradesh, along with seasonal festivities in a few geographies. However, despite this, our asset quality is back to pre-crisis levels at its best in the last 10 quarters.
Gross NPA stood at 1.79%, net NPA at 0.59%, and PAR 90+ at 1.11%, each improving sequentially. Collection efficiency, excluding arrears, stood at 97.9%, and X-bucket collection efficiency for September stood at 99.71%. Credit cost for the quarter stood at INR 299 crore, or 0.99% on a non-annualized basis, of which 0.70 or 70 basis points was driven by new PAR and 29 basis points due to increasing ECL provisioning rates. We further strengthened our ECL provisioning at 3.31% after building a macro-prudential buffer of 45 basis points or INR 137 crore. Our annualized H1 FY 2027 credit cost of 3.43% includes normative credit cost of 2.98% and 0.45% of macro-prudential buffer, which is well within our guided range.
Commenting on our margins, we saw our NIMs expand to 15.1% in Q2 from 14.4% in Q1, driven by lower interest reversals in group loan book, higher yielding individual loan book, stable cost of borrowing, and higher capital push. Our cost-to-income ratio improved to 28.2%, and PPOP grew 39.6% year-on-year and 11.2% quarter-on-quarter to INR 970 crore in Q2 FY 2027. Our marginal cost of borrowing stood at 9.1% in Q2 FY 2027, while average cost of borrowing was stable at 9.1%. Our capital position strengthened further with our capital adequacy at 26.9%, Tier 1 at 26.2%, and total equity base of INR 8,919 crore. On the liability side, diversifying our funding mix, coupled with focus on long tenor funds, remains our medium-term strategy. We signed $175 million ECB loan in October, syndicated by Standard Chartered Bank and DBS Bank.
Despite global macroeconomic uncertainty and strong competition in the ECB market from FCNR(B) deposit mobilization by banks, the transaction received a strong response at a competitive pricing, with 11 financial institutions participating from across Asia, Middle East, and Africa. We see this as a clear reflection of international lenders' continued confidence in our business model and governance standards. This is our fifth ECB syndication in the past five years. We also mobilized INR 940 crore of domestic NCDs through private placement process in this financial year. ECBs and NCDs help us both in liability diversification as well as securing longer tenor of funding to strengthen our ALM. Based on our strong H1 FY 2027 financial performance, we have raised our profitability guidance for FY 2027 ROA of 5.2%-5.8% versus 4%-4.8% earlier, and ROE of 21%-24% versus 16%-20% earlier.
We retain our AUM growth guidance of 20%-25%, supported by return to growth in group loan portfolio coupled with continued momentum in retail finance. We expect a NIM of 14.4%-14.7% as against 12.8%-13.2% guided earlier, driven by healthy asset quality, strong control over borrowing costs, and a higher capital position, even after factoring the 50 basis points rate reduction applicable from October onwards. We are best placed to protect our NIMs in an evolving macroeconomic environment. Our risk-adjusted NIMs are currently at highest levels. Further, we can maintain our borrowing cost range-bound, supported by diversified lender base, high-quality PSL book, and judicious borrowing mix between repo, MCLR, and fixed rates. Cost-to-income may range between 29%-30% as operating costs remain well under control despite inflationary trends.
We are retaining our credit cost guidance of 3%-4%, and it should comfortably cover for any volatility on account of evolving drought-related conditions in some operating geographies. We are seeing a few signs of drought-related challenges in October around certain pockets of Maharashtra, wherein the borrowers are requesting for additional time for repayment, including restructuring options. At this point of time, we are not seeing any on-ground impact in any other geographies. We also note that Northeast monsoons are expected to be normal, providing respite to Southern Peninsular India. We will focus on addressing the growing credit needs of our established seasoned customers with a proven track record of repayment across credit cycles through renewals, group loan servicing, and targeted graduation to individual secured lending products. New customer acquisition will be a key growth driver, with momentum expected to accelerate in the H2.
To conclude, CA Grameen today is stronger, more diversified, and more profitable than any point in its history, and we are executing with the discipline of a franchisee that has been tested through cycles. As we enter the seasonally stronger second half, we do so with momentum in our business, strength in our balance sheet, and full confidence in delivering the guidance we have set out today. We will now open the forum for questions. Thank you.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Renish with ICICI. Please go ahead.
Yeah. Hi, sir. Congratulations on a good set of numbers. Just two things. So one on this 50 basis points lending rate cut. When I look at the marginal cost of borrowing, which has already gone up by almost 25 basis points, 30 basis points sequentially. When there is a clear sign of likely increase in cost of borrowing going ahead, what is the thought process behind cutting lending rate now? I can understand the better profitability must be driving this, but when we see a broad kind of a scenario spanning out cost of borrowing likely to go up, just wanted to understand why to consider lending rate cut at this stage, not waiting for maybe one more quarter.
Right. So Renish, our current NIMs are at highest levels. As you know, the lending rate is guided by our pricing policy, which takes into account several factors, including your credit cost, including your cost of borrowing, as well as optics. Right?
Only lever today is if credit costs increase, that is when we can retain this pricing. The credit cost, since we are performing within the guided range and being driven by the pricing policy—
I see.
This will be range bound. We have earlier also indicated we will do a 50 basis points cut this quarter and probably 50 basis points in the next quarter. The marginal cost of borrowing increases slightly because of the mix of borrowing that we have taken right now and not necessarily indicating a higher increase.
Okay.
Point of time. We do acknowledge that the repo rates have gone up, but it will be gradually passed and that will go through. If, for example, the cost of borrowing goes up in next quarter, we have the right to reprice or not necessarily pass back the 50 basis points that is planned for the next quarter also. I think it is something that we are gone. At this point of time, we need to pass this 50 basis points to the customer given that the credit cost is held at ground.
Got it.
Renish, Nilesh here. I will add a couple of points here. Firstly, on the borrowing cost, we do have borrowings from a wide range of lenders. There are more than 80 lending institutions from whom we borrow. And obviously, the borrowing rates will be within a range. That is where the blended rate, what appears on a balance sheet, is around 9%.
Right.
In second quarter, obviously, we did a couple of NCD transactions. We had a couple of longer tenor funds which obviously will come at a slightly higher rate. But at the same time, what we have to also look at is the loans what we are replacing. Even in third quarter, we will see the marginal borrowing cost will be higher because we have done a $175 million ECB in the month of October, which will come at a higher rate. But it will also replace the $200 million ECB which is going to expire in the same month. And the new ECB, what we have taken, is at a lower rate compared to the previous ECB which is getting replaced.
Got it.
Now when I look at my borrowing for next six months, the amount what we are going to draw down is at a similar rate of the amount what we are going to repay. That is where we are of a view that our borrowing cost will stay in this 9.2%-9.3% range until March. While we do have certain repo-linked exposures, around 30% of our borrowings are fixed, 45% are linked to MCLR, and balance 30% are linked to—
Yes.
—even the loans which are linked to repo, they reprice at different points in time. It is not that it will immediately kind of add to the cost of borrowings.
Got it.
The MCLR-linked borrowings, typically they react with much lag. Today, given the liquidity in the system, we have seen instances in a couple of banks, the MCLR has even come down. From that perspective, as of now we have a visibility on the borrowing cost. Then as Renish said, if any upside risks on the cost of borrowings, then maybe every quarter when we relook at the lending rate, we can reprice it—
Got it. We have—
—visibility on the NIMs.
Got it. So we have flexibility to change our lending rate on quarterly basis—
Yes—
—the board approved.
Yes. So, like we had said previous quarter, we had said that we will pass on 50 basis points in third quarter, fourth quarter, and next year's Q1. So now we have taken a 50 basis points cut in the third quarter. Now the subsequent lending rate decisions will depend upon how the credit cost is evolving and how the borrowing cost is evolving. There is no compulsion that we have to pass on. It purely depends on the risk-adjusted NIM what we want to retain. Today, with a 14.5% to 15% NIMs, on a H1 basis, our NIM is 14.7%. So on a risk-adjusted basis, the NIM is closer to 11% or more than 11%.
We would want to retain a risk-adjusted NIM of 10%, so that it allows us to achieve our targeted ROA of 4% and up to 5% on a steady state basis. From that perspective, we have enough flexibility to manage our NIMs aligning with the evolving credit cost health.
Got it. Okay. T his is well understood. Thanks, Ganesh and Nilesh. Secondly, on this credit cost trajectory. Obviously, credit costs will remain between 3%-4% for sure. I think in that, the lower credit cost in Q1 will also help us. From a trend perspective, do you see Q3, Q4 credit cost inching up from Q2 levels? Because as you rightly mentioned, there are still some risk of drought-related regions and also maybe few of the largest players are also indicating the same thing. What do you guys expect internally, the credit cost in Q3, Q4 should trend upwards and still remain within guided range or how one should look at the trends going ahead?
Right. Renish, right now our expectation is that in Q3 it should probably inch up a little more. However—
Okay
—on an overall year basis, we still believe that we are significantly positioned to be within the guided range. Right. One, you also have festivals in October, November—
Correct.
—and certain drought-related situation emerging slowly in some districts of Maharashtra.
Correct
We don't see any stress right now, but as we all know that we will know for clear only in this quarter.
Got it.
Wait for how things evolve. But we estimated a certain inching up, but it is going to be range bound within the guided range.
Got it.
Renish, for the first half, the credit cost run rate is 3%. In the second half, even if it slightly inches up, maybe even if we go to 5% run rate, still for the full year, we should be within 4%. Today, like I said in my previous response, the NIMs will be helped. They are well enough to cover 4% kind of a credit cost and still deliver the ROAs what we are aiming for.
Correct. You are absolutely right, Nilesh. Broadly, what I just wanted to understand is that obviously FY 2027 will be taken care of, but if my credit cost trajectory continue to inch up, then at some point, it might create a risk for FY 2028, wherein maybe we are expecting a credit cost to remain at 3%. That is what we expect in a steady state basis. If my credit cost continues to inch up, then FY 2028 credit cost could remain more than 3%. Hence, I am more concerned about Q3, Q4 trajectory.
Right. I think we have to wait it out for Q3, Q4.
We have to position ourselves for next year. Like we said, because there are significant pricing advantage. Any inching up in credit cost can definitely be priced in what we are looking at.
Got it.
Renish, for example, if we take a scenario wherein the credit cost even stays elevated next year, in that case, we need not pass on any further price cuts.
Got it.
So like we had said in our previous calls, we have to pass on, say, 100 basis points- 150 basis points price cut, but we have already done 50 basis points, so we can stop there. This is how the credit cost is evolving. The profitability will be protected this year as well as next year.
Got it. Maybe, can I squeeze one more last question?
Yeah, go ahead.
Yeah. Being an industry leader, what is your assessment in any drought kind of a scenario historically, how does the credit loss actually spreads out? Obviously, interim, we can witness your portfolio going up. Ultimately, what kind of credit losses you guys have witnessed in historical events when there is a drought situation?
See, historically, we've not seen this kind of drought, number one. Historically, our data at least indicates that we've not had any significant impact because of drought.
This year we'll have to watch out because it's very widespread. Like I said, except for few districts in Maharashtra, we are not seeing stress anywhere. We'll have to watch out for now up to December. The big plus is at least the northeast monsoon is holding up. That is also a good reprieve to look out to, and we'll have to watch out how things evolve.
Got it. This is very helpful. Thank you and best of luck.
Thank you, Renish.
Thank you. Our next question comes from the line of Shreya Shivani with Nomura. Please go ahead.
Yeah, thank you for the opportunity. I have two questions. First is, again, going back to drought situation. So what are the operational changes that we are implementing at our branch level in Maharashtra where we are seeing drought situations? Any change in incentive structure for the loan officers? Any other process changes that you can highlight? Also, do we have any kind of credit guarantee schemes on our book which can protect us probably if certain portion of our book is impacted? That's my first question. Second question is the impact of the insurance regulation reform. Any commentary, the conversations that you have, if you've had any conversations with the regulator, anything that you can share with us on that matter. Thank you.
See, first on the drought situation right now, it is around a few districts in Maharashtra, especially in the central part of Maharashtra. Right. There probably we will not focus on sourcing new customers. We will focus on only our existing customers with respect to business. We've strengthened our presence on the collection side with additional resources from across different teams, and that is going to help us in the short term. With respect to guarantee, we have not yet availed a guarantee for microfinance. There is some budgetary approval which is pending. Though we've applied for it, we expect it to open up in a week or two. As and when it opens, we will start enrolling ourselves into that. That is where we are. But we do have a smaller amount of guarantee that we've initiated for individual lending through CGTMSE as well as PII.
And with respect to insurance, right now I think it is too early. We have not had any direct discussions with regulators. However, we will have to wait for the regulations to firm up. We believe that it will be slightly moderated from current levels. I am not sure about what levels it could be. But the impact we see is around 25 basis points, 30 basis points on our ROA, which I think we are better placed than anyone else in case we need to cover it through pricing to protect our ROAs.
Right. And so just one follow-up on the credit life piece. So when you attach the credit life on your policies, you are only covering the woman of the house, right?
Today it is a choice of the customer, both for herself as well as for the husband. But our preferred coverage would be for both the man and the woman. And predominantly we achieve it, right? There will be a few thousand customers probably who have got availed both or any one or something else.
Oh, okay. All right. And so just to follow up on the first bit in terms of the collection efforts that you are building in. While the drought situation has only been in Maharashtra, I believe in the second quarter some of your northern states would have also been impacted by floods, et cetera. So what has been the trajectory of behavior with the customers in those states? I just want to know whether the floods have been more temporary in nature. The drought situation may stretch out. Yeah.
Yes. Typically, floods are temporary in nature. We come back within two to three weeks.
Okay.
Which has been the scenario even this time.
All right.
There is no other effects at this point of time anywhere else.
All right. So it is only Maharashtra. We do not have a big exposure in A.P. and Telangana, right.
No.
Okay. Understood. Thank you, and all the best.
Thank you. Our next question comes from the line of Nidhesh Jain with Investec. Please go ahead.
Thanks for the opportunity, sir. Sir, can you quantify the number of districts which are impacted or percentage of portfolio which is exposed to those districts where we are seeing drought-related impact?
We are seeing currently. When I say impact today, there are customers who are coming out and asking for time or restructuring solutions. This is something which is developing. We are seeing this in around six districts, especially in central part of Maharashtra. That is where we are talking about.
What portion of portfolio will be coming from these districts approximately?
Right now, I think I do not have the data in hand. We can pick it up offline.
Sure.
This is very early signs, something we will have to watch out for.
Sure. Yeah, that is it from my side. Thank you.
Thank you, Nidesh.
Thank you. Our next question comes from the line of Rajiv Mehta with YES SECURITIES. Please go ahead.
Yeah. Hi, good evening. Congrats on good numbers for the quarter. See again on few other states like U.P. , Bihar and M.P., Tamil Nadu, we did see some inch up in PAR 15 accretion rate in September. Are you trying to imply that except for Maharashtra everything else has kind of cooled off in October? In October, the PAR 15 accretion in these states has kind of come back to usual levels.
Yes. More or less the September spike was because of floods, like I said, as well as festivities in that particular month. Other than Maharashtra, everywhere else we are normal this month.
Even Karnataka and Tamil Nadu, we haven't seen any spike as yet in October, right?
Only—
Correct. When I look at your credit cost guidance for the second half, which is implied because first half has already occurred, your write-offs will come down significantly because since you're just having INR 550 crore of NPA at this point in time. So write-off quantum will come down, so that credit cost will come down. The PAR 15 accretion so far is not changing except for a few districts of Maharashtra. Are you also trying to build in some more strengthening of ECL provisions in the current guidance level? If you can quantify that. Is there a plan to take stage one provision to a certain higher level from where we are?
Stage one currently is around 1.8%, right?
We have already taken a macro buffer of around 45 basis points, right? That is something which we already have, totaling to around INR 137 crores.
The stage one provisioning may inch up by maybe 5 basis points- 6 basis points every quarter in Q3 and Q4. This is the new data point setting.
Okay. That is it from my side. Thank you.
Thank you, Rajiv.
Sorry, can I just—
Okay, Rajiv.
Just one thing. I do not know whether if you can just clarify on the transaction which the promoter is trying to do, maybe some color if any idea about where are we, if you have any idea about what is the status of it maybe from a timeline point of view or the nature of it point of view, because I think that has been also a slight unnerving for a lot of people.
Right. See, as you know, currently the promoters are in active discussion for a strategic investor as a whole group. That is where it is. We should see some progress in the next couple of quarters.
Got it.
Is there anything else you are asking? This is what you are asking for, right?
Yeah. Sure. It is also subject to a rightful price discovery, right? There is no time-out element to it. If that is a clarification, if you can wait. Yeah.
Yes.
Okay. Yeah. Thank you.
Thank you. Our next question comes from the line of Piran Engineer with CITIC Securities International. Please go ahead. Piran Engineer, your line has been unmuted. You may proceed with your question.
Yeah. Hi, am I audible now?
Yes, you are, sir. Please go ahead.
Is it better? Yeah. Okay. Sorry, just before I get to my questions, a couple of clarifications. The strategic investor is at the holdco level, right? Of the promoter.
Yes.
Not at our level.
No, not at our level.
Got it. Also, sir, did I hear you say correctly that, or maybe I didn't hear it correctly or didn't understand it correctly, but it will be like a 25 basis points-3 0 basis points credit cost impact next quarter, higher credit cost?
No, 25 basis points- 30 basis points was the insurance commission contribution to ROA.
Yeah.
Yeah. That's what it was. That was a comment on insurance in case the commissions drop to indicated draft guidance, and we could have an impact—
Okay
—of 25 basis points-30 basis points on our ROA.
Okay. Got it. Could you just quantify when you say next quarter credit cost could inch up? Broadly, can you give a sense of how much you think?
See, right now what we are saying is that, even if we budget a certain amount of increase because of the drought situation, we do not see it go beyond our guidance in the lend area. Right now, if you remove the provisions, that is the buffer that we have created of 45 basis points, we are at around 2 point, roughly around 3% credit cost. Including the buffer, we are at around 3.45%. Even if we see an inch up in credit cost, we are not able to envisage a situation right now where our credit cost could cross our guidance. You should assume that it will be somewhere between 3.5%-4%.
3.5% - 4%. Got it. Firstly, coming to my question, the way we should think about the interplay between pricing of loans and cost of funds and credit cost is that over a cycle, you want to achieve a 4% - 4.5% ROA. Is that a fair statement?
Yeah. Piran, today, the way the pricing is structured is up to a certain credit cost, we can obviously price it, but obviously it's not an unlimited flexibility to price. You must have seen last year in FY 2026, with a 7% credit cost, we did a 2.7% ROA. Typically, up to 4.5% - 5% credit cost, we can pass it on and we can still protect our ROAs of around 4% and up to 5%. But if a credit cost spikes beyond 5%, then obviously we can't price it. Maybe up to that threshold, we can protect our ROAs in the range of 4% and up to 5%.
Understood.
That's where I said today on a risk-adjusted basis with a 14.5% NIM, we can absorb a 4.5% credit cost and still do a 5% ROA.
Got it. Secondly, can you talk a bit about your IGL book? It has grown really fast. Are you seeing similar delinquency trends there? Also if you can clarify, all these are existing customers who were never in stage two in the past?
I am just clarifying, it is not IGL, it is individual business loans.
Yeah. Sorry, I meant IGL. Yeah, individual loans.
This is basically a graduation product. These are your high vintage customers with better credit profile as well as credit scores. For example, our prime product for graduation, which is Unnati, has an average tenure of customers over seven years and an average credit score of more than 730. This book, at the peak of the credit cycle in the last year, as well as on a continuous basis, the PAR 30 has never crossed 3%. Yeah.
Okay. Even now it is fair to say that delinquencies in this book are much lower than the MFI.
Yes, it is much lower than MFI.
Got it. Yeah, okay. That's it from my end. Thanks, and wish you all the best.
Thank you.
Thank you. Our next question comes from the line of Abhishek Murarka with HSBC. Please go ahead.
Hello, am I audible?
Hi, Abhishek.
Yeah, hi, Ganesh. I have just two, three quick questions. One is, in terms of disbursements for microfinance players, we have seen a little bit of a slowdown or containment sort of this quarter. What are you observing on the ground? Is everybody sort of pulling back? Is that more pronounced in the states that are impacted? Is that still continuing or people are starting to disburse more? Just what are the dynamics right now in terms of the states that are impacted by the drought or flood?
You are talking about industry or you are talking about CreditAccess?
Industry. In your locations where you are—
Right.
—what is the competitive action currently?
What we have seen through the cycle, we can see that banks have significantly pulled back and MFIs have—
Okay.
—garnered better market share. That is a trend that is emerging. Your NBFCs have also garnered better market share. SFBs have contracted a little bit. Banks have significantly contracted on the microfinance side. Otherwise, I think it is business as usual. I do not see any contraction. In our case, because majority of the write-offs in H1 was from Pro Finance, and typically Q2, Q3 is your growth periods. You will see the microfinance book inch up in Q3, Q4. If I see the H1 or Q1, Q2 also, compared to historical disbursements have been quite strong in both these quarters.
Yeah. For you, I completely agree. Also, the people who are disbursing, is it just two or three large NBFCs or MFIs, or is it more broad-based?
I think currently as we start performing, like I said, historically also, the only reason probably growth is a little not visible is because of liquidity aspects to smaller NBFCs. The large ones continue to do normal business. As more liquidity kicks in, I think you should start seeing growth. That is where I see the challenge. Otherwise, I don't see—
Sure.
—any large players pulling back at this point.
Got it. Because if you think back to 2024, due to election heat wave or whatever other triggers, basically when everybody pulled back, there was a credit crunch, and that sort of led to a bit of a spiral.
Right.
You don't see that kind of a caution at the ground level, I see.
I don't see that kind of situation right now, and you may also have to take a slightly different interpretation of microfinance growth going forward because now it is getting distributed between individual and microfinance. So this graduation is something that everybody is kicking in. So we'll have to monitor both individual business loans. And if at all, we have data at some point of time, how many customers have moved from microfinance into individual, and hence what is the drop. So in my view, like us, industry also will be range bound in microfinance growth, and you will see retail growth probably.
Perfect. That brings me to IGL. Have you also taken any yield cuts in IGL product?
Yeah. This 50 basis points is across all our products.
Okay. Across products. Got it.
Except for mortgage and two-wheeler. Yeah.
Got it. How long will it take for the yield cut to flow through into actual yield reduction? That will take a couple of quarters at least to start showing up?
Four to six quarters.
Suffice to say, your yield broadly remains where it is this quarter, or maybe even goes up next quarter because of the momentum of the bank raise, then it starts coming down.
Yes. Yields have peaked out, Abhishek.
Exactly.
In 2Q, the yields have peaked out.
Okay. Got it.
The decline will happen over four to six quarters. The 50 basis points cut what we took, it will at least take 4 quarters for the entire 50 basis points cut to flow in.
Of course, yeah. Next quarter, again, you take a 50 basis points cut, that will also take four, so they are overlapping each other. Okay. That is understandable.
The subsequent rate cuts, Abhishek, the subsequent rate cuts will only happen if the credit cost holds at 3%. If there is any increase, then we may have to revisit.
Understood. Got it. Okay. Thanks so much. Those were my questions, and all the best. Congrats for the quarter.
Thank you, Abhishek.
Thank you. Our next question comes from the line of Ashlesh Sonje with Kotak Securities. Please go ahead.
Hi, team. Good evening. A few questions from my side. Firstly, just a clarification, the increase in PAR 15+ accretion that we have seen in this quarter, especially in a few states like M.P. That number is primarily due to the flood situation in those states. It has nothing to do with the drought situation this time. Is that understanding correct?
Yes, that's correct.
Okay. Understood, sir. Two more questions. Firstly, the kind of disbursement demand that you are seeing today from the customers, has the demand for, let's say, smaller ticket loans gone up in the last few months, or there is no such trend right now?
There is no specific pattern I can relate to.
Okay. Understood. Sir, and lastly, in your borrower base, when you look at the overall leverage of the borrower, not just for you, but across all MFI lenders, what proportion of borrowers would have roughly hit the INR 200,000 limit of leverage?
I do not have this data offhand.
Okay.
We can get back. Yeah.
Okay, sir. Perfect. Those were all the questions I had. Thank you very much.
Many have hit the limit.
Thank you. Our next question comes from the line of Shreepal Doshi with Equirus. Please go ahead.
Hi, sir. Good evening, and thank you for giving me the opportunity. My question was largely on, since you started acquiring new customers actively now, what sort of a trend are we seeing in terms of the customers having exposure to gold loan as a category? Are we seeing that the newer customers that we are acquiring, larger proportion of them have exposure to gold loan versus a trend that we were seeing probably two years back or three years back?
See, right now we did do some research on this data. Right now, what we're seeing is that it is stable at around 10%, 12% of our customers on a consistent basis. We're not seeing any upswing or those at this point of time.
This 10%-12% is for the new customers that we acquire or the existing customer pool that we—
On our overall customer base. I do not have a cut of new customers' exposure to gold loan at this point of time. But because we study this every month and the trend is range bound, I do not see that that is significantly increased.
That is broadly at 10%, 12% versus what we had seen probably two, three years back. That is holding up?
Yes.
Got it.
If I am able to understand your question right, why we do this research every month is also to see how the credit profiles are different for a pure microfinance customer as well as customers with retail exposure. Consistently for the last 12 months-14 months, we have seen that customers with retail exposure fare far better than that of a pure microfinance customer.
Got it. Second question was, largely towards FY 2028, how are we seeing that year shaping up in terms of growth? Because I believe margins, we will see moderation given our pricing strategy that we have. Overall loan growth as well as ROA trajectory, what is it that we are targeting?
It should be similar in my view. We may have to probably guide this towards Q4. I do not see a reason why we should have any stress on any of the margins that we are performing right now.
Growth also confident of holding it in the range of 20%-25%?
Yes, all the more today because you have a set of products that you picked up and you are accelerating all of this. Say for example, mortgage which used to be done out of 120 branches. We are doing today around 425 branches. We expect to scale up a few hundred branches every year as we gain more experience and train our employees in this. So growth will be a combination of microfinance and retail. Retail will grow faster. Microfinance, as we said in our strategic plan, could be range bound at a rate of anywhere between 10%-12%.
Got it, sir. Thank you so much for answering my questions and good luck.
Thank you.
Thank you. Our next question comes from the line of Anand Dama with Nuvama. Please go ahead.
Yeah. Thank you for the opportunity and congratulations for that good set of numbers. My question—
Thank you.
—was about your borrower growth. That seems to be in a single digit. Is it that you are not acquiring new customers and is that the problem that you are seeing for the entire microfinance industry, or is it that now you are focusing more on the average ticket size increase in position of the MFIN guidelines? If you can just explain how the borrower growth is going to be in the coming years and what is basically expected for borrower growth for now.
Right. Firstly, a lot of our efforts today is towards ensuring that Q3, Q4, we start showing significant increase in number of customers. There is a lot of effort going in that and that should hopefully improve. This is also a result of a higher graduation that is happening. One side, you are acquiring customers. Second side, you are also graduating more customers into retail. Microfinance side, I think the momentum will start in the next two quarters. It is a little bit of lag. Yeah, it is a little bit of lag, I agree. What I am saying, Q3, Q4, you should start seeing us publish better numbers in customer acquisition.
Okay. Because what is happening is that right now you are focusing more on average ticket size or giving loan to the existing customer, and that is basically also keeping your OpEx to AUM on a lower side.
Right.
To some extent, your ROAs also look far more higher. But if you enter into a cycle where the borrower growth does not come in, or if you go for a higher borrower growth and your OpEx shoots up and then your credit cost also comes in, you will get into a situation where possibly ROA will come down faster than one would expect it to be.
Which is true and in a certain way, in a certain angle, I agree with you. But what I am trying to implicate is that it is not that the focus on customer acquisition is not there. It is just that you have come out of very strong two years of credit cycle. It takes some time to catch up momentum. Hence that is taking some time.
Along with that, the company is also doing various other things with respect to graduating customers, new products, processes, technologies, et cetera. So which I think is more or less streamlined today and we are hoping that Q3 and Q4, we should actually see momentum in customer. Ideally, we would like to publish more than 1 lakh customers every month and that is a target that we are working on. We are right now around 80,000 customers per month.
Okay. Because I think most of that guidance that you have given, I think you are overshooting, but I think the borrower growth and the AUM growth is where I think you are still undershooting.
Right. Yeah.
Anand, Gururaj, even if you see last four quarters, we have added close to 10 lakh customers. Even in Q1 we added 2.5 lakh customers, Q2 we added 2.3 lakh customers. But it is not showing in the overall borrower numbers because of the write-off for [inaudible], the credit crunch we are just out. Most of the write-off has happened during last one year.
You don't see the borrower number going up because there is a natural attrition as well as a write-off impact on the number. From Q1 onwards, you can see little positive numbers coming in. In Q3 and Q4, it will be much more. I think from next quarter onwards you can see the borrower numbers also.
Yeah. See, also to keep in mind, we are working on two fronts now. One is that you're retaining your vintage customers longer. That means your customers attriting will get better. You're already seeing that we moved from 65 to 88. Second is that we kind of attrited 3 lakh customers because of write-off. With write-off kind of clearing up, subsequent quarters you will see lesser customers running down because of write-off. That should also help along with stronger acquisition.
Sure. Sir, the NPAs in the mortgage book seems to be now going up. Is it still within your tolerable level or you feel like that is to some extent a concern?
It is still within our tolerable limit, and we are quite bullish about this business at this point.
Okay. What is the broadly tolerable level in the mortgage book in terms of NPAs?
So see, for us, industry is I think roughly around PAR zeros are around—
Yeah, around 5%-8%.
Yeah, 5%-8% of this book, but we've built a model where we've currently budgeted around a 2% credit cost to the mortgage. So that is where we are working to.
Okay. Sir, that's comforting. Thanks a lot, sir.
Thank you. Our next question comes from the line of Sonal with Prescient Capital. Please go ahead.
Hi all, this is Sonal Minhas from Prescient Capital. I hope I am audible.
You are audible, sir. You may proceed.
Sure. I have just a small question. I am on slide 28 and I see the customers' MFI exposure, whereby CA Grameen Plus 3 has gone down from 17% to 15% quarter-on-quarter, and so has Plus 3. From a guardrail perspective or from a perspective of identifying new customers, is there a prudence there whereby we say that these kind of customers, CreditAccess Grameen Plus 3 will inch towards zero over time, and we will look for more higher quality customers?
Can you repeat the question? I did not get your question clearly.
I am slide number 28, sir.
You are talking about the 3%, the Grameen Plus 3. Yeah.
Yes. The number when I compare to last quarter, Grameen Plus 2 and Plus 3, the Plus 3 number has gone down basically.
Right.
Plus 2 has actually gone down too. Just wanted to understand from an operations perspective, what are you doing to guardrail the quality and the vintage of customers? That is broader the sense of the question I wanted to understand it.
I think this will gradually keep dropping. I am not sure that it will go to zero. It may remain probably at a certain level because there are various issues because of which it can be Grameen Plus 3 with respect to credit bureau, et cetera. But what I am seeing, gradually it will continue to go down. Second, I do not think there is a specific strategy to target customers who do not have enough penetration. The deeper you go, you will get better. With our contiguous approach, we have always been able to kind of get a good new-to-credit customers. That is an effort we will continue. As we open more branches and go deeper, we will continue to get a mix of both experienced as well as new-to-credit customer. New-to-credit customer in Q2 was around 35%.
Got it, sir. My second question is, sorry, is that as the earlier participant was saying that you were mentioning that banks have vacated the space, some NBFCs and SFBs have also vacated the space. Is that giving you the confidence to finding new, better, unique customers and the growth that you basically are envisaging over the course of next one year or so?
I do not think banks have vacated the space. They have slowed down.
Okay.
They have said that they are pretty outstanding. But I feel all of this is temporary, right? Because with repeated quarterly performances, the rest of them would also inch up gradually. It is what I feel. Temporarily, we do have an advantage of slightly lesser competition is how I put it.
Got it, sir. That is clear. Thank you. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Rishi Mody with Mody Advisory. Please go ahead.
Yeah. Hi, am I audible?
You are audible, sir. You may proceed.
Yeah. Just harping on a few points here. First is your customer count, right? I am seeing that a lot of it is going out through attrition, which means that, say, maybe a good quality customer is transferring to a lower lending rate lender in the MFI space. If I just do a rough calculation, your book has grown by 19%, your customer count has grown by 1%, which means customer concentration has grown by 18%. So just firstly, what steps are we taking to combat this attrition? Do we have any structural advantage or are we going to keep competing against lower rate lenders and lose customers in the future? Secondly, what risk management metrics have we taken to manage this customer concentration risk, like checks at household level debt versus household level income? Do we have data being actually captured with higher accuracy for this?
That is my first question. I will come to the second one after this.
Okay. Let me take the first one. First point, we are one of the lowest priced lenders in the microfinance industry, right? Hence, moving from us to somebody else for a lower interest rate is very unlikely. Number two, if you see our attrition, we have actually improved our retention from 85% to 88%. What could possibly happen, like I said, is because we have written off a lot of customers, so customer count is dropping, number one. Number two, customers could also be graduating, because of which your customer count could be dropping. Third would also be that customers are reaching guardrails because of which we are not able to lend, because the limits have exhausted. That can also be one reason.
If you see our clear strategy for the next five years is to ensure that your good quality customers are able to stay with us for a longer period of time by handholding them through graduation products. Which means they enter through microfinance and as they become better profile, then we graduate them to individual business loans and secured businesses. Even in those products that we have picked up, be it two-wheeler, mortgage, anything, we are quite competitive in the space from pricing perspective. In the last quarter, we have been able to bring around 90 customers from other mortgage players back into CA Grameen who were not with us earlier. Pricing-wise, we are well-placed. It is just a question of our acceleration towards individual lending. Like I said, because of heavier write-offs historically, the count also looks little lower.
Since our write-off is more or less done, now you should see acceleration of customer growth in the upcoming quarters.
When you represent this 675,000 attrition number of customer count, this also includes customers whom you cannot lend to because their borrowing limits are exceeded? What is this number defining? The 300,000 I understand is people whom you do not want to lend to. What is this remaining 700,000 to 675,000 number?
Which means that customers who have left us, also including customers whom we have not been able to renew or rollover because of breach of guardrails or number of lenders and limits exceeding. It could also have customers—
Okay, maybe—
—who don't want loan. It could also have customers who don't want loan because that is also a portion. Historically, when we analyze our attrition, we've seen that we used to have around 15% attrition. When we analyze that, around 7.5% move up, and that is the bucket we are trying to hold back. Other 7.5% either don't borrow or they have defaulted, because of which they're not getting a loan, and various other things.
Okay, fine. Maybe just split it next time into people who actually moved out versus people whom you aren't willing to lend more to, so we get a more clearer picture maybe where actually competition is affecting us versus where we're not getting affected. That's just one suggestion, if it's possible to do that.
We'll pick it up.
And if you could just come to the risk management piece. Sorry, I interrupted you.
From a risk management perspective, we have a very well-evolved policy where we don't cross greater than 2% in any district exposure. That kind of restricts your per district exposure to not more than 2% over a year, number one. Number two, we also have lending limits, basis different districts with respect to per capita income, with respect to repayment rates in that particular district, et cetera. And then we have product level controls for various products. Broadly customer level, so one is vintage level. If the customer has higher vintage, then you have higher limits. If the customer has lower vintage, you have lower limits. Then depending on the district we are present and the history of credit costs in those districts, there are also controls on what is the pricing, how much you can lend, et cetera.
No. I understand what our general credit underwriting is. What I'm trying to understand is that now because we are growing our book on the existing customers, right? We are going towards more individual loans rather than the group loans. Right? So people who were, say, borrowing INR 20,000, INR 10,000 are now getting affordable housing at INR 2 lakh, INR 3 lakh. First is then their capability to repay. Second is—
Okay. I got your question.
—like household level debt we are able to calculate or not?
Yes. Retail is a completely different ball game. When we graduate customers from microfinance to retail, the underwriting is a lot more sharper. We have specific credit teams who listen and spend more than an hour to understand the profile of the customer, their cash flow, et cetera. Credit scores also come into play. We factor all of these aspects before we take a call on a larger credit. Like say for example, our graduation path to Unnati Loan, like I said, the average credit score there is 730. The average vintage that they've spent with us is seven years. These are high quality, long vintage customers who are able to demonstrate better cash flow, without which they will not move. That is why though we have a 50 lakh customer base, this will grow at a much smaller pace.
It's not that everybody moves there. We are looking at around 6%-8% of our customers on a yearly basis getting converted into individual, but with a combination of secured and unsecured individuals.
Okay, fine. I have some more, but let's move on to the second question that I had is this credit guarantee scheme. If you could just explain to me the economics of it, how much does it cover in case of a default, and what is the cost? Who bears the cost eventually? Are we going to pass it on or are we going to pay the cost from our own OpEx or credit cost? I'm just trying to understand here.
Rishi, currently we do not have the guarantee scheme for microfinance.
You told me that you have not enrolled, but you all are in the process, right?
Yeah.
What will it end up being? Any idea?
Typically, under the CGFMU scheme, the annual premium cost is around 1.3%-1.5%. It covers around 75% of the losses which you claim for, and the total cap is 15% of the pool what you have insured.
Okay. This, I'm assuming all SFBs and banks would also be applying for?
Yes.
Ideally, I'm trying to understand how the competitive scenario and credit underwriting will change once this comes into play and hence competition for us should increase, right?
Yeah. This is already in play. A significant portion of banks, SFBs, have already covered their book through this scheme.
Okay. We haven't chosen to right now because we have better underwriting skills at this point.
Yes. But we are thinking this—
Okay, fine.
—could be a few thousand crores in the next few years and scale it up based on the experience.
Okay, fine. Great. That's it for me right now. I will reach out to the IR team in case I want more clarification. Thank you, guys.
Thank you so much.
Thank you. Ladies and gentlemen, we will take that as our last question for today. I would now like to hand the conference over to the management for any closing comments.
Thank you all for the trust and confidence you have had in CA Grameen. I think we have done two good quarters this year, and we are working towards ensuring the annual guidance we have given is met with, and we are fully confident that the next two quarters would also see strong performance from us. Thank you so much.
Thank you. On behalf of CreditAccess Grameen Limited and Motilal Oswal Financial Services Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.