Ladies and gentlemen, good day and welcome to the Fedbank Financial Services Q3 FY 2026 conference call hosted by Equirus Securities. As a reminder, all participant lines will be in a 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 touch-tone phone. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations the company has on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Shreepal Doshi from Equirus Securities. Thank you and over to you, sir.
Thank you, [uncertain]. Good morning, everyone. We welcome you all to the earnings conference call of Fedbank Financial Services to discuss the Q3 FY 2026 performance of the company. Today, we have the management of the company represented by Mr. Parvez Mulla, MD & CEO, Mr. C.V. Ganesh, CFO, Mr. Shardul Kadam, CBO for Small Ticket LAP business, Mr. K. Suresh, CBO for Medium Ticket LAP business, and Mr. Jagadeesh, CBO for Gold Loan business. We also have Mr. Lokesh, who has recently joined here as the Investor Relations head. I would now like to hand over the call to Mr. Parvez for his opening remarks, post which we can open the forum for question and answer. Over to you, sir.
Thank you, Shreepal. Good evening, everyone. I would like to extend a warm welcome to all of you for joining the Q3 FY 2026 post-results earning call. I am joined by our CFO, Mr. C.V. Ganesh; our three CBOs, Mr. Shardul Kadam, Mr. Jagadeesh Rao, Mr. Suresh Kumar; our Chief Risk Officer, Mr. Vikram Rathi; and Mr. Lokesh Pareek, our new Head of Investor Relations. The priorities for your company remain the same, which we had articulated at the start of the year. Namely, one, conserve and allocate capital to businesses with high ROA and ROE. Focus on our twin-engine strategy of Gold and LAP business. To move towards a fully secured lending portfolio. Expand gold business through branch expansion and increase doorstep coverage. Continue to foster synergies between our Gold and LAP operations.
Six, within LAP, we will concentrate on a combination of high-yield ST LAP and low-risk MT LAP. Seven, expand MT LAP with minimum capital allocation. Eight, we had faced challenges in our ST LAP business. We were rebuilding it over the year. Rebuild ST LAP and establish leadership and build team for growth and quality. Nine, continue strengthening our collection infrastructure to effectively manage delinquencies. 10, aim for increased core income while reducing reliance on DA income. Use DA as a capital allocation strategy. 11, move towards a frugal cost structure. 12, ensure that credit costs remain 1%± 10 basis points. With respect to these priorities and more, we have taken the following actions in Q3 FY 2026. On the gold business, we have recorded a remarkable quarter with the AUM growing 52% year-over-year and tonnage growing 5.1%. Our LTVs on AUM stand at 59.3%.
Last quarter, we got a lot of questions, and we had spoken about our seasonality in this particular business. This quarter, we have disbursed INR 7,853 crores in Gold Loans, marking the highest amount ever achieved by the company in a single quarter. Consequently, this has led to a net AUM growth of INR 1,174 crores. We have opened 54 new gold branches this quarter, bringing our total new branches to 113 for the year. In accordance with our guidance, we will keep opening new branches in the upcoming quarters. Despite opening 54 new branches, our AUM per branch has reached INR 13.3 crores, reflecting an increase of INR 0.91 crore per branch during this quarter. In our collaborative initiative involving gold and ST LAP, we have successfully merged an additional 14 branches. This means we have co-located 63 branches this year.
That is 63 branches of ST LAP have moved into 63 gold branch premises and released the ST LAP premises. We will persist efforts to merge and co-locate more branches. Despite facing yield pressure, the MT LAP business continues to perform consistently, disbursing INR 545 crores this quarter while maintaining its yields. In light of the pressures within the ST LAP market and the increased rate cost faced by the company previously, the company has fortified its credit policies and successfully transitioned to the system-driven BRE. This quarter, ST LAP division has disbursed INR 208 crores. As promised, our unsecured lending portfolio continues to diminish, now constituting merely 0.6% of our on-book assets. The senior leadership has been successfully onboarded in collections during Q1 and Q2. We have further strengthened the field team now.
We have verticalized the collection framework incorporating additional resources for both call center as well as the legal and recovery teams. Our credit cost, as promised, stays below 1%. This quarter, we have clocked about 0.9%. In line with our priority of increasing core income and decreasing DA income, our net income from DA has decreased to INR 1 crore for the nine months FY 2026 compared to INR 62 crores for the same period last year. While we continue to implement corrective measures in our ST LAP business, we anticipate certain flows which will persist as advised earlier and as guided earlier. Once these stabilize in the near term, it will contribute to a model. Our business AUM reached INR 17,500 crores, translating to a growth of 17% year-over-year. If you exclude the BL business, it will be about 32% year-over-year.
Gold reached INR 7,905 crores and AUM growth of about 52% year-over-year. Tonnage growth for the year came in at 5% year-over-year, touching 11.2 tons in totality. Our mortgage AUM reached INR 9,084 crores and AUM growth of 20% year-over-year. Our disbursements of INR 8,606 crores in Q3 FY 2026, up 96% year-over-year. On the profitability and asset quality, our net interest income grew 16.8% year-over-year to INR 318.9 crores. Our operating profit grew 11.7% year-over-year to INR 149.4 crores. Our credit cost for Q3 stands at 0.9%. Our net profit stood at INR 87.9 crores in Q3 FY 2026. Gross Stage III stands at 2.1% versus 1.9% last quarter. I will now hand over to Mr. C.V. Ganesh to take you through the numbers in detail.
Thank you, Parvez, and thank you everyone for your participation on the call. Sharing a few points to aid in better interpretation of the results. Firstly, from an asset growth perspective, our AUM ex business loans, which we divested, have grown 32.5% year-on-year and 9% quarter-on-quarter. The Gold Loan originations have been the standout performer in this quarter. Our Gold Loan AUM had grown INR 850 crores in the first six months of this fiscal. In the last three months alone, which is Q3, the Gold AUM grew INR 1,174 crores. Our 113 new branches for Gold Loans are hitting the ground running and giving us the confidence to continue this journey of branch addition.
Of the loan book of INR 12,945 crores as of December 30th, unsecured business loans have gone down to under 0.6%, down from 10% at the beginning of the fiscal, resulting in 99.4% of the loan book now being fully secured either against property or gold. In this quarter, we have originated INR 545 crores of Medium Ticket LAP and done a direct assignment/co-lending of INR 313 crores of the same. However, as guided in the earlier calls, with the NIM expansion aiding core income growth, we are consciously reducing our DA income. I am reiterating again, it is a choice we are exercising. Consequently, we have done lesser direct assignments in Q3 at INR 313 crore compared to INR 578 crore in the previous quarter. We may continue to do lesser direct assignments in Q4 and the medium term and migrate to co-lending.
On the OpEx side, our OpEx for the quarter is up 21 basis points, primarily due to an increase in employee costs due to new branch staffing in the 113 new branches, higher incentives on the Gold Loan originations, and a one-time impact of the labour code regulations of INR 3.9 crores. This impact is reflected both on the OpEx and the operating profit. Consequently, our cost to income has come off a little worse, by about 10 basis points. Other expenses have also gone up due to new branch-related rent and operational expenses, higher advertising and travel spend during the quarter, and higher depreciation as we increase the branch infrastructure. On the asset quality, our delinquencies in the one-plus have gone down from 7.5%- 7.1%, and the 30+ has also gone down from 4.6%- 4.5%.
However, we had higher forward flows from stage two to stage three, resulting in our Gross Stage III going up to 2.1% from 1.9% last quarter. These are adequately provided for in the quarter. In spite of this, we have been able to keep credit costs flat at 0.9%. On the PCR front, our PCR last quarter had dropped due to an ARC sale of deeper bucket NPAs, which had a higher provision coverage. In this quarter, our PCR has marginally gone up to 32.3% from a little under 32%. On the treasury side, on the quarter-on-quarter basis, our weighted average interest cost of total borrowings has gone down 32 basis points from 8.19%- 7.87%. This consistent decline in the weighted average cost has been facilitated by resets on the external benchmark link borrowings and lower rates on new borrowings.
Since our new Gold Loan originations carry shorter tenure than our LAP product, it has allowed us to borrow more at the shorter end with lower rates. To lock in spreads in a declining interest rate scenario, we have increased our fixed rate borrowings from 11% of total borrowings to 29% of total borrowings. This gives more visibility on the spread going forward. On the floating rate borrowings of 71%, 41% is external benchmark based and 30% is linked to MCLR. Our incremental cost of borrowing in Q3 FY 2026 was a little under 7.6%. Our debt equity ratio has increased from 3.78x in September 2025 to 3.99x as of December 2025. In summary, over the last four quarters, we have sequentially continued on the journey of steady, consistent, and a gradually growing ROA and ROE trajectory.
The ROA over the last four quarters has grown from 2.2%- 2.5%, and ROE has expanded 130 basis points from 11.4%- 12.7%, aiding in confidence on our new strategy and appetite to invest more in capacity addition. With that, I hand it over to the operator for questions.
Thank you very much. We will now begin the question and answer. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Digant Haria with GreenEdge Wealth. Please go ahead.
Fortunately. Sir, last quarter I had asked that, when will Lakshmi Ji shine on our Gold Loan portfolio. So good to see that the AUM growth was good, but I think the shine has still not fallen on our income and operating leverage. If I see our old branches would have probably reached an AUM of say INR 15 crore, INR 16 crores per branch, the older ones. But the income line item and the operating leverage is still not visible. Do we see it coming in the next one or two quarters?
Yeah, Digant. You will see it happening. Normally what happens is when we do such kind of large originations, there is an upfront cost of incentives and other spend, which is incurred at the beginning. It is recognized upfront in the month of origination. But the earnings of these loans are back-ended, so it will play out gradually.
Okay.
Digant, [crosstalk].
Yeah.
Digant, thank you so much for I remember that question when you had asked us that why we grew only 6% and when others were growing 10% quarter-on-quarter in the Gold Loan side, I told you about the seasonality. You can see that seasonality playing out differently for different companies, although they are in the same gold business, because geographically we are in different sectors which expand differently and behave differently. So that seasonality typically plays out for us in Q3, Q4.
Right. Mr. Parvez, one more question I had was, we see the yield on the Gold Loan portfolio, the reported ones in our presentation show that we are down from, say from 19.1%- 18.3%. So, is this like a competition effect or maybe we did some schemes because we saw a peak, a good season for us? Or generally, how should we expect this yield thing to move? Is it already that there is yield pressure in the market or we still have enough room to do our business at our terms and conditions?
No. See, at a portfolio level, when you do a substantial amount of disbursal in a particular quarter, and that has been an exceptional disbursal quarter, there will be a differential yield, which we will play with, and we will play with a little bit. It is a line call when you look at certain states where we want to play that yield. I am not so worried about it. As the mix of the new business is slightly higher in this particular quarter, it shows in that fashion. But overall level, at an entity level, I am not so worried because that compression, it is not going to affect us in substantial basis points there. It is a mix issue. If the disbursals would have been about INR 300 crore-INR 400 crore, you wouldn't have seen that kind of a depression.
Okay. Get it. One last question will be, we have grown very well, say 16%-17% quarter-over-quarter. I think a lot of competition would also be doing that. In our assessment, it just feels that next three, four quarters will be the time when we have to really utilize our asset. We have such a brilliant Gold Loan asset, good processes, good number of branches, good employees. I just wanted to understand if this momentum for us continues in that particular fashion and maybe we reach INR 15 crore-INR 16 crore of AUM per branch in the coming two, three quarters, because competition is really catching up and maybe we have a year's time where competition will really not be very high and we can just fortify our market. I just wanted to hear your thoughts on the next 12 months for this Gold Loan piece.
Yeah. In the start of the year also, I had mentioned to you that the growth will be in line with the Fedfina strategy. We will be conscious of the price momentum. I had mentioned to you that we will be focused on tonnage growth. Fedfina as a strategy year-on-year over the last five years has shown tonnage growth. If you look at last five years, we have shown a 10%-12% CAGR on tonnage growth every year. This year also, in the first two quarters, the tonnage growth you wouldn't have seen, but year-on-year again, you will see a 10% tonnage growth. The focus is on tonnage growth. The focus is to take the price momentum, but not to ride on it as much as we are conscious of the fact that the price momentum is very high.
That is why you see the combination of LTV and price playing out. We have not capitalized on the LTV. The LTV has allowed to go down. We are conscious of that. While the growth has to happen, we need to be conscious that growth has to be in line with what our operational process is, as well as the risk that we want to look at, the price fluctuations that we want to look at. All in all, it has to fall in line with what we are expecting with the gold business to do. And you will see that momentum continuing. We will capitalize on the momentum.
But what I am trying to essentially say is, a single company which is doing only Gold Loans is very different from a company which is doing a twin product, and we will get the advantages of doing a twin product. That is how you will have to see our company.
Yeah. But we will not stop our Gold Loans to maintain that, right? Because if we continue this normal run rate also, we will cross 50% in terms of Gold Loan AUM. So, we will not stop it just because we want to cap gold at below 50 % or anything. Nothing like that, right?
No, there is no thought in that side. It is only going to be the cautiousness on the price side.
Okay, perfect.
Price and LTV side. Otherwise, our actions over the past quarters have shown you that we've not been worried on that front.
I just want to add, Digant, our Gold Loan growth will be unconstrained. The character of the product mix does not determine how much we grow our Gold Loan or otherwise. It will continue to grow on a faster momentum than the rest of the businesses.
Perfect. Thank you both so much for the answers. I'll come back.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, you may press star and one. The next question comes from the line of Nischint Chawathe with Kotak. Please go ahead.
Yeah, thanks for taking my questions. Actually, two questions from my side. One was if you could give some outlook or trajectory of stress loans in mortgages, I think essentially the Small Ticket LAP business. How do we see it trending up from here onwards in the fourth quarter and the next financial year? The second is, in terms of how do we, the sequential movement in yields over the last three quarters, it is kind of yo-yoing a bit.
Yeah. Nischint, thank you for the question. On the Small Ticket LAP business, just to give a context, a year ago, we had mentioned about the stress in the Small Ticket LAP business specifically for our company, and we had guided the team here about what we are doing in terms of action and why our portfolio saw that particular stress. We had said that there will be certain actions and the kind of GNPA that you could see over the next three, four quarters, that is still FY 2026. We had said that the GNPA would move up or down, but we will try and maintain the credit cost below 1% at an entity level.
While the flows on the ST LAP continue from the old book, we have transitioned quite a bit of this old book, which was handled by. We had a manpower shortage on the collection side, and whenever you have a manpower shortage on the collection side, agencies handle these collections. We have transitioned from that piece to in-housing that collection. Whenever you do these transitions, there is that movement happens, and which is what we have faced over the past two, three quarters. That trajectory you will see in Q2, and you have seen in Q3 and Q4. It is the same vintage portfolio, which is giving us those flows. We are in complete control of those flows because there is a predictability which we had seen. We had seen the kind of the GNPA that is coming out now.
We had predicted that is the GNPA which will flow in Q3 and Q4. So, we had guided you accordingly. That is where we think that once we get this complete in-house, which would happen by Q4, the predictability should be much, much better on the stress loan side. This fresh sourcing, which is happening on ST LAP, is giving us much better numbers on the 12 MOB and the 15 MOB as well as the 18 MOB. That portfolio is looking much better. Obviously, it is coming off a new BRE. Obviously, it is with lesser seasonality, but we are confident of that number flowing completely differently. That is on the stress loan. Yields, CVG, you want to give color?
Yes, sorry. Thank you, Nischint, for asking that question. One thing I wanted to caution everybody is that our yields as appeared in the investor deck are vitiated by the DA income number, and that is precisely why we are focusing on core income and core yield.
Optically, while it may appear that yields have dropped by 20 basis points quarter-on-quarter between Q2 and Q3, that is merely because of the fact that in Q2 we had 20 basis points of DA income, which is not there consciously in Q3. So, eliminating for DA income, the core yield is the same. There has been no yield reduction, and our focus continues to be on core yield. We will continue to drive that, and I would request everybody to look at the yield excluding the impact of DA income.
Okay. I think this is very helpful. Thank you very much, and all the best.
Thank you.
Thank you, Nischint.
Thank you. Participants, you are requested to limit your questions to two per participant. The next question comes from the line of Pavan with Edelweiss. Please go ahead. Mr. Pavan, your line has been unmuted. Please go ahead with your question.
Hi. Thank you, sir. Thank you for the opportunity. Two questions on the Small Ticket LAP. One, you mentioned earlier that you were facing some issues in Tamil Nadu in terms of the personnel. Have those been resolved? That is one. Will that lead to growth in the coming quarters? Second question is on the yield compression bit that you have said. Maybe on the calculated yields, I definitely take your point, but on the origination yields also, the ones that are disclosed in the presentation, there seems to be 80 basis points reduction over the last three quarters in the Small Ticket LAP vis-a-vis only 20 basis points reduction in the Medium Ticket LAP. Could you please explain that? Going forward, how are you seeing the on-the-ground economy in terms of the people's willingness to borrow or ability to borrow? Yeah, those are my questions. Thank you.
Pavan, thank you so much for your question. On the yield front, apart from the one I explained on the Gold Loan side as well as the explanation which CVG gave on yield, two additional colors. One, on the Small Ticket LAP business, definitely there is an environment which is behaving in a particular manner for lower ticket below INR 5 lakhs. There have been companies which operate in this particular segment who have reported. There is that MFI piece which was happening over the past few quarters that has affected that particular segment, which is below INR 5 lakhs. Some people who have looked at this business on the ST LAP side also have seen a little bit of stress on the INR 7 lakh- INR 5 lakh segment, the spillover of the MFI on that particular segment.
When we've been conscious of that over the last two quarters, you've seen a slight movement of the ticket size for ST LAP for us. We've reduced the exposure for that INR 5 lakh- INR 7 lakh, and that's why you see the ticket size moving up. As the ticket size has moved up, yield has dropped for the ST LAP business there. There is definitely a pressure on yield even on the MT LAP segment. Across the board in the industry, there is a pressure on MT LAP. We have not dropped the yield as much as other players in the market have dropped. We've continued to hold the yield on the Medium Ticket LAP. The ST LAP yield, as I said, is only being conscious of the environment. I think as the environment eases out, you will see the trajectory coming back there.
Your second question was on Tamil Nadu. We will still wait for Q4 for the business to pick up in Tamil Nadu. The Tamil Nadu business has picked up but not to the -expectation that we wanted. As I had mentioned to you last quarter when specifically asked on one particular state, yes, our business had dropped in a particular state of Tamil Nadu. We are picking it up. It has moved about 20%-30%, but still some way to go. We expect Q4 and Q1 for it to come back to the disbursal normalcy. The delinquencies there are in control, but the disbursal normalcy for it to come back, we're still a little bit cautious there in Tamil Nadu. I'll just add one more thing on the yield on the ST LAP. What you see on the deck is the origination yield in the last three months.
That is only INR 200 crores. If you see on the book, the yield has not even gone down by, in fact, it's gone down by less than 10 basis points on the overall Small Ticket LAP book.
I've got it, sir. Thank you for that. I will come back.
Thank you. The next question comes from the line of Shubhranshu Mishra with PhillipCapital. Please go ahead.
Hi, Parvez. Hi, Ganesh. Good morning. Thanks for the opportunity. So two quick questions. The first one is, we've seen a sharp spike in the Gold Loan AUM. If you can just have it split between what's been the contribution from our new branches here and what's been the contribution from the increase in the ticket sizes. Second is that with the rising gold prices, do we still expect 10%-12% CAGR in the tonnage growth? Because that seems unlikely, because I will get lower amount of gold collateral for the same amount of gold loans. And the third is, because we are slightly heavier on the disbursal in gold loans, which will also reflect on the AUM in subsequent quarters. Are we going to change the borrowing mix, which is slightly heavier on the longer tenure?
I understand during a rate cut cycle we tend to borrow slightly longer tenure. But are we going to make it commensurate to the Gold Loan tenure in the AUM? Thanks.
Thank you, Shubhranshu. I will just request Jagadeesh to give you a flavor on the new branches and the old branches growth. Jagadeesh, are you there?
I hope I am audible, right?
Yes.
You are.
Shubhranshu, we have opened 58 branches in the last quarter, and that has contributed to the growth. If you see the overall contribution of INR 18,100 odd crores that we recorded in this quarter, 30% of the growth is contributed by the new branches and balance 70% is still coming from the existing branches. That is on one front on the contribution. Second, your question was on the pure weight growth and its consistency. We see that happening because of where we stand today because our average per branch footfall is hovering around INR 12.5 crores- INR 15 crores, and we still see a big room to reach around INR 20 crores over the years to come. That is what our aspiration is, and we see tonnage growth playing a key role precisely because there is opportunity in the market. That is one.
Second, our incentive structures, our KRAs, we have a target in incentive, which is linked to the pure weight growth of the branch. So, every branch, every employee is driven and incentivized based on the tonnage growth that they do in the branch. That is what our focus from day one, and that is resulting in such a growth. I agree with you. While the price is increasing, there will be chances that customers will pledge lesser gold. There is a new acquisition which is happening, which is an engine for us to substantiate and balance that trend. We see consistency, and we are confident that we will be seeing 10%-12% of tonnage growth year-on-year.
Thank you.
CVG, you want to give a flavor on the borrowings?
Yeah. Shubhranshu, fully with you. We are going to do exactly what you have said. There is an opportunity there to have a skew towards the shorter end. That is exactly what we will do. We already added the NIM expansion going forward.
Just one question on the Gold Loan part for the tonnage growth. With rising prices or even the prices at similar levels that we see today, if we have a tonnage growth which keeps going on, then we are infringing on the bank ticket sizes, which means that it will be yield dilutive, right? Is that a fair understanding?
Sorry, I missed your last point. Can you please repeat?
If we are bent on doing tonnage growth for Gold Loans at similar prices or rising gold prices, we would infringe on the bank's turf, right? Which generally do higher ticket size in Gold Loans, which means that it will be yield dilutive for our Gold Loan business. Is that a fair understanding?
No. Basically, the retail ticket size is actually growing. Probably a guy who is eligible for INR 1.5 lakh is today eligible for INR 2 lakh to INR 2.2 lakh with the same gold, but doesn't seem to be trending towards a bank's turf. If there is a trend, then the yield pressure will be managed through the CLM partnership, CLM models that persist and we will try to encash on that. Otherwise, as an NBFC, as an AUM strategy, we still rely on the retail, and retail is seeing traction. We see pure weight coming from the retail book.
Wonderful. Those are my questions. I will come back for the rest of them to you. Thanks.
Thank you, Shubhranshu.
The next question comes from the line of Chintan Shah with ICICI Securities. Please go ahead.
Yeah. Thank you for the opportunity and congratulations on a strong set of numbers. I had one thing on this labour code impact. I think we already mentioned the impact is around INR 3.9 crores for this quarter. Is that a one-time impact or do we see any recurring impact as well going ahead due to that? That is the first thing. Secondly, on this Gold Loan, now almost we are 45% on the overall portfolio. Even if that exceeds, say around 50% or so, that is not a challenge, right? Thirdly, on this borrowing cost, we have seen a steep decline of almost 60 basis points quarter-over-quarter. Do we see anything more to come on that or not? Yeah, thanks.
Yeah. I will take the borrowing cost first. I think the 60 basis points fall quarter-over-quarter is not repeatable. It is a two-point average, so there may be a skew there. I would urge you to go by the quarterly borrowing cost sheets, where we reported a 33 basis points reduction from 8.17% to, I think 7.87%. I think that is what you should look at. There are opportunities there because as I said, 41% of our borrowings are still external benchmark linked. The balance are MCLR linked. As of now, 71% of our borrowings continue to be floating rate. As and when the transmission continues to keep happening, there is an opportunity there, though we would be sanguine about it. Now, in terms of the labour code, the biggest impact has been paid.
The biggest impact has been the one-time catch-up in terms of all the retiral benefits, like gratuity, leave encashment, et cetera, due to the basic needing to get hiked to 50% of the CTC. So that exercise has been done. Now, going forward, how the salaries get revisited, does it get passed on, does it get adjusted, is something which we will watch how the rest of the industry adjusts to it. We believe we have the wage cycle in April to look at that and have a little more information on how peers are handling it. What we do will be relative to what the peers do. Now, on the Gold Loan. As of now, there is no board limit or internal limit we have that it should not cross the Lakshman Rekha of 50%. So, we do not have any Lakshman Rekha.
Ultimately, we are a LAP-first company, but Gold Loan is a very strong secondary product. Right now it is doing very well. It would be perfectly acceptable and encouraged if it were to, in the short term or medium term, take the lead. But overall, as texture, we would remain a LAP company.
Sure. Okay. Thank you. That is from my side. Yeah.
Thank you. The next question comes from the line of Sonal Minhas with Prescient Capital . Please go ahead. Ms. Sonal, your line has been unmuted. Please go ahead with your question. Thanks. Sonal Minhas, your line has been unmuted. Please go ahead with your question.
Hi. Am I audible?
Yes, sir. Please go ahead.
Okay. All right. My question is with regard to Gold Loan, sir. I have two questions. First of all, just wanted to understand since your yields are around 18%, 19%, I am presuming, and please correct me if I am wrong, you are competing with the likes of Muthoot, Manappuram and couple of other scaled-up Gold Loan companies. How are you seeing competition vis-a-vis the non-banking scaled-up Gold Loan players? We have seen commentary by these players where basically there is a directional indication that the yields are expected to come down given the competition. So that is one. Second question was with regard to your LTV. The LTV seems to be a bit higher compared to the non-banking players. So just wanted a subjective feedback from you on that since it is observation. That is all from my side. Yeah.
Yeah. See, as far as competition is concerned, these set of eight, nine players have been operating in this market for the past 10 years.
Yes.
There have been certain geographies where each predominates. Obviously, there are one or two players who are very large, and they operate at a different scale. But the other players tend to predominate in particular geographies. We have seen growth in the Western and Northern geographies much more than what we have seen in Southern geographies. You will see that in our investor presentation also. Our growth [crosstalk].
Yes.
Essentially comes from those geographies. Our new branches also come from those geographies. As far as yield pressure is concerned, see, whenever the price goes to the levels that it has gone earlier also whenever the price has shot up, there will be new players coming in.
Those competition and the yield pressures will happen for a short-term period. But typically, Gold Loan being a vernacular business, it is dealt by each large player very locally. That means in the state of Gujarat you will deal with the Gujarat market and you will play the yield there. In the Maharashtra market you will deal very separately, depending on what the competition is there and who is the predominant player. You do not match your yields with every player. You match it with the predominant player and how you are operating. Again, what tends to happen is Gold Loan being a very local business, geographically where you are located in that particular city and that particular town also matters.
[uncertain]..
The competition also is very localized in terms of yield. Banks operate a very different yield. But their location is also very different in that particular city itself. Jagadeesh, you want to add anything on the Gold Loan side or the LTV side?
Yeah. I wanted to address the second point on the LTV. The concern that is raised by you is right on the LTV. Our LTV seems to be on a higher end. But I would like to correct you, it is not higher. It is much conservative compared to any other NBFC player. If you take our onboarding LTV, it is in the tune of around 70%-71%. Today, our regulator has allowed us to go up to 85% for certain ticket size, 80% for another ticket size. But we are a little cautious because we don't want to take the advantage of the price or the LTV and like the yield. We are more conscious and more conservative. Our onboarding LTV has reduced.
We are even onboarding customers at a much lesser than 1% or 2% lesser than the max cap. On the portfolio LTV, we are standing very comfortably at 59%, which is declined. So, I don't think [crosstalk].
Okay.
We are on higher end. We are conservative or max at par with the largest player. So that's how [crosstalk].
No, I understand. I picked up a number.
Yeah. [crosstalk].
I picked up a number from the deck. Thanks for clarifying that. I will fall back into queue. Thanks for answering my question. Thank you.
Yeah. Thank you.
Thank you.
The next question comes from the line of Meghna Luthra with InCred Equities. Please go ahead.
Hi. Thank you for the opportunity. I just had two questions. One is, what percentage of the LAP book is old vintage? The second question I had is that you mentioned you wanted to move from DA to co-lending. Can you throw some more color on that? What proportion of the AUM would that be or anything else? Hello?
The percentage on the old vintage will be anything sourced before FY 2024 is old vintage. The sourcing which has happened after FY 2024, we track it separately and we put it as a new book, and that is what is showing us good color. This old vintage book will have its own play. Amongst the old vintage also, there will be one or two years which we are tracking very closely. Over the past two, three quarters, we have addressed those flows in the buckets that you have seen. You have seen our Q1, Q2, Q3 movements, and most of the flows are coming from those two, three years that we are tracking very closely. Plus, there are certain geography mixes which we are tracking. As we go forward, the new mix will increase, and the old mix will come down.
As far as the DA to co-lending is concerned, CVG, this was something which you mentioned.
Yeah. Sorry, Meghna, what was the question again on DA to co-lending?
Sir, you mentioned that you want to cut down on DA and move to co-lending.
Yeah.
Yeah.
Yeah. From January 1, there are the new co-lending guidelines which are applicable.
Yeah.
Now there is an accounting change in which the co-lending one happens compared to the kind of accounting which used to happen for DA. That is all I was trying to signal. The moving of the lower-yield assets off-book would continue to happen. It is just that the accounting might differ going forward, which is why I was pointing more for everybody to bear attention to the core yields and core interest income, and maybe eliminate the impact of the DA income therefrom. Okay.
This will be [crosstalk].
On the first question. Sorry. Yeah, go ahead.
No, go ahead. Sorry.
No, on the first question also, there are very specific geographical cohorts of the back book where the pain is lingering. I think it would be unfair to color the entire back book with that. Yeah.
This would be a normalized level for the DA income or the, say, the co-lending income that we will see, right?
We will watch it, Meghna. I think I wouldn't want to say that statement.
Okay. Sure. Lastly, can you highlight which geographies are throwing up pain right now?
These cohorts that we had talked about, we had initially also mentioned in our first Q discussion that there are geographies of Maharashtra and Tamil Nadu where we had seen that elevated stress, which was in Q3 FY 2025, and those were the geographies we had focused. Within these geographies also, we had certain pockets. Again, Meghna, not to color it, these are not something which the other players had faced. It was our specific problem for these two states. It was not a state-specific issue. It was a Fedfina state-specific issue.
Got it. Thank you so much. That is all.
Thank you. The next question comes from the line of Prolin Nandu with Edelweiss. Please go ahead.
Yeah. Hi, team. Hi, Parvez, and hi, Ganesh. A couple of questions from my end. One is, you talked about the drag on cost to income because of higher intensity of disbursal, right? That is specifically coming from Gold Loan side of things where you mentioned the AUM growth in last three months. My question is that, on cost to income, obviously there is this drag because of this, but then we are co-locating the branches, and at some point of time, operating leverage should also come into the picture. So where are we in that cycle of cost to income? Because we will continue to have a very high growth in Gold Loan going forward as well, right? Do we still continue to see that drag because of higher disbursal coming in Gold Loan?
Or maybe this quarter might be something different. Going forward, there could be the lesser of an impact on cost to income because of higher disbursement.
Prolin, thank you for that question. See, what I would urge is, we want to retain flexibility in all the levers in the ROA tree. I think the guidance we would give is what I had outlined at the end of my narrative, that we have delivered over the last four quarters a consistent, predictable, and increasing ROA. I think that perhaps is the guidance you want to take. That subsumes OpEx, that subsumes credit costs within those parameters, where that subsumes a DA income or otherwise. That subsumes core yield. Within all of that, I think that would be the objective we would continue on.
Prolin, just to add to what CVG is saying. Again, at the start of the year, when the guidance was asked, I had mentioned that this year we will be focusing on the credit cost. FY 2025, we had returned a credit cost of 1.8%, and we were very conscious that this year, FY 2026, we wanted to keep it below 1%, and that is the 80 basis points which you will see reflecting in our ROA three. This is the guidance which I had given a year ago. Having said that, I had said that on the OpEx side, we will do a lot of work in this particular year, but it will only reflect in FY 2027. FY 2026 is an investment year because we are taking a challenging task of rebuilding the ST LAP business. There is going to be investment on the collection side.
We went ahead and invested into the Gold Loan branches. We went ahead and did investment in areas of the Small Ticket LAP business. These three areas have moved the cost to income up. The other elements on the cost to income, whatever we have reduced. So it is A, there is some reduction and some upside, and that is why it has remained flat. In fact, I had guided it in such a manner a year ago that cost to income for FY 2026 will remain flat because we are going to do these additional costs and we will do the saving. As we go in FY 2027, these will start reflecting. When we are merging the Small Ticket LAP business branches, as well as when we are—definitely there is a shaving off which is happening.
But it is getting neutralized by the new branches that we are putting in. Also, the fact that the leases take time for it to fructify, so you only get a three-month effect or a six-month effect in a particular year. Next year, you will see the full effect playing in. That is why further I had mentioned that you will see an effect next year on the cost to income side. Basically trying to say that FY 2026 we wanted to address the credit cost. The cost to income and the OpEx to average assets we will address in FY 2027, which is where you will see the upside on the ROA trajectory further than what we have delivered in FY 2026.
Thank you so much, Parvez, for that. I get your point. The second question would be on this GNPA in the mortgage division. While you have alluded to this, just to summarize, is it fair that large part of the increase in GNPA that we are seeing, is it because of the older book? Could you just help us understand how is the performance on the asset quality side between newer and older book or some of the not the entire older book as you highlighted in the previous answer as well is where we were seeing an issue. But if you can just help us understand how has been the performance on GNPA side on the newer book.
Yeah. So, there is a substantial difference on the newer book than the older book when we look at the 12 MOB and the 18 MOB's numbers. There is almost 100 basis points difference to 150 basis points difference between what we are seeing on these two books. Even in the older book, there are certain pockets and certain vintages which we have faced a challenging situation. Again, those challenging situations, Prolin, I will repeat, was not necessarily an environment issue. It was our issue. Our collection team's inadequacy. We had not invested as much in the collection infrastructure, which we should have been doing a year ago or two years ago. But that caused that flow to happen. ST LAP business is a heavily invested collections business, which we corrected over the past ione year. So last one year has gone in this particular collection.
Now we are also seeing a lot of whichever NPAs which we had moved the buckets in Q1 and Q2, we are seeing NPA recoveries happening here. Because you have to also understand that many times when the customer is in early buckets, recovery when he moves into bucket two and bucket three, recovery becomes difficult. It is advantageous for the company to move it into NPA because then the legal process is much easier on the NPA side. The recovery is much better after you drop the case into NPA. That is why we believe that we are getting certain good recoveries also which are happening now. So that is the color on the GNPA side on the old book and the new book.
Yeah. Maybe I will just add on to that. Roughly the way to dissect the problem a little better is that of the mortgage book, roughly on the AUM side, it is a 60%, 40% split between Medium Ticket LAP and Small Ticket LAP. Medium Ticket LAP is pristine. There is no problem. Out of that 40% of the mortgage book, there is a further split between old book and new book. That is not public information. Within that old book further, there is a geographical split. Actually, you are talking about a not so large part of the bad book. That is the comfort we give you.
Yeah. Prolin, further to give you that comfort is when we had looked at one year ago and when we had seen the problem and when we had guided on the problem, that is why we said that we were able to give you a guidance on the credit cost. That is what is going to be the P&L charge of this. In spite of the GNPA being volatile, we will be able to hold the credit cost below 1%. Because that time also, one year ago, I got questions that if the GNPA move up, the credit cost will also be unpredictable. We had said that we know the cohorts which we are working on. We can understand what kind of recoveries will happen. We are also dealing with movement of the portfolio from the agency side to in-house.
It also has to be done in a structured manner because you understand that when you get an allocation which is done to an outsource agency, when you are moving it in-house, there are droppings which happen, and every quarter you need to handle those. As you select the cohorts in particular states, when they move from the agency to inside, you can predict what is the expected numbers which are going to flow. That is why we had guided accordingly and we are on. What I can say is whatever is happening on the GNPA side is exactly the way we had predicted it and we had guided on the same.
Thank you so much, Parvez and Ganesh, for this. All the very best.
Thank you.
Thank you. The next question comes from the line of Vedant Maheswari with Intellivest Family Office. Please go ahead.
Hi, sir. Just a couple of questions I have with regards to the way we calculate the. For reduction in gold, I understood the tonnage part, but is there a lag in the price at which we take for computation of our Gold Loan AUM growth?
Did I lose connection in between? I could not hear your question properly in continuous flow. Jagadeesh, did you catch it?
Okay.
No, I did not.
What I mean is, as a whole, with our tonnage growth and everything, I want to understand at what particular for our AUM computation, what price of gold we take? Is there a lag of the gold price which we take and due to which we see the growth, or as a whole, we take it at the live prices at the moment?
Yeah. To answer it is based on the regulatory lines. We take the 30 days average of the Gold Loan prices. We have declared Q3 LTV. LTV is based on the 30 days average Gold Loan price as on December 31.
Okay. Got it, sir. Just a couple of things. You said the AUM is backended, and we see that because the Gold Loan ticket sizes are as a whole, like the Gold Loan, we see the revenue recognition a little bit backended, right? Around six to eight months is the average tenure. Given that we have been experiencing a large tonnage and AUM growth over the last one year and the Gold Loan price has also been quite high, as a whole how does it translate into our revenue recognition policies? I just want to understand that flavor. As we have seen over the last 18 months that the AUM growth and all has been quite strong, but as a whole the translation doesn't seem that high compared to just the top line. Just wanted to understand these policies a little bit more.
No. Basically, Yes, go ahead, Jagadeesh.
No, I think the backended point was not on the revenue recognition. Backended point was on the book that we are building.
Okay. Got it.
For the quarter that has been thrown around, the majority of the book has happened in the month of November and December. The results, the earnings of that will happen in the subsequent quarters. Yeah.
Got it. Yeah.
Apart from that, the Gold Loan is structured in such a way that you onboard a customer at a rate, and there are options to the customers to pay interest at a, say, after six months, seven months at a higher rate. So that's where [crossstalk].
Okay.
We'll play and we see that happening in the character of Gold Loan with any player. This is an industry fact. I think maybe he was referring to my point. The point I made earlier in the call is that, see, the origination costs, the incentives, some of the other origination costs are incurred, recognized in the month of origination. So effectively [crosstalk].
Okay.
We cannot amortize the origination cost over the life of the Gold Loan.
Got it.
The cost is getting recognized upfront, the revenue comes over the next many months. That is all I was trying to say.
Okay, fine. I think I have understood this now. Thank you so much, sir.
Thank you. The next question comes from the line of Sandeep Joshi with Unifi Capital. Please go ahead.
Yeah. Hi, thanks for the opportunity. I had a question on the credit cost. See, for this financial year, we have given a credit cost guidance of about 1%± 10 basis points. But I just want to understand from you, what are you thinking for the next credit cost for FY 2027 in the light that now the proportion of Gold Loans have actually increased, the infected book has almost run down, and most of the collection infrastructure will be ready by Q4. So, in this context, do you wish to give any guidance on credit cost for FY 2027?
Yeah, Sandeep. Hi. We have, at the start of the year, guided on a particular credit cost because that was the most important item on the agenda when we had seen an elevated GNPA and elevated credit cost on the ST LAP business. That is why we felt it was necessary to guide on the credit cost. I think next year we want to keep it in a predictable zone. As we had mentioned in our strategy that we moved out of the BL unsecured business because we wanted to bring predictability to the credit cost. That is the objective, and we want to get into that zone. So, by Q4, once we see the numbers on Q4, we should be able to give you a guidance on the credit cost, and it should be very predictable for you.
But I think what will be important for you next year for FY 2027 will be our guidance on the OpEx to average assets, because that will be a crucial number where we will show some numbers. These two, alternatively, we will definitely give you a guidance on Q4. But I think this year was an important year where we gave you a particular guidance, and we wanted to live up to that number. Next year, I think it will be more predictable at your end itself. The OpEx number will be more crucial, I think. But anyways, in Q4, I will give it to you.
Sure. Thank you. That is it from my side.
Thank you. The next question comes from the line of Rahul Kumar with Vaikarya. Please go ahead.
Yeah. Hi. Just one question on the slippages front. Going forward, do we expect the slippages to remain status quo or improve from here, especially in the mortgage?
Yeah. See, as far as the slippages are concerned, FY 2026, quarter one to quarter four, we are handling the issue of Small Ticket LAP business which affected us as a company. Environment might have been included inside it, but it was our issue and we had said that it will take us a year. We will take that year and that is where you will see these slippages. We have as much as possible tried to keep it non-volatile. We have given a prediction on the credit cost, and we have sustained it and maintained it. On the slippages side, I think FY 2027 should give you a more predictable line on the slippages based on whatever flows we have seen this year.
Because as I said, the characteristics of the old book and the certain vintages should play out, and we should have a better predictability to those slippages. Plus, as I said, we will have a recovery team which will neutralize some of those slippages for us. There will be a predictability. FY 2026 end is where you will— FY 2026 will get utilized in these slippages. FY 2027 should be of predictable nature.
Okay. Thank you.
Thank you. Ladies and gentlemen, this was the last question for today. I now hand the conference over to the management for closing comments.
Thank you so much for the call. Really appreciate. The closing comments which we want to give is, last year, we had given certain guidances and certain priorities. Over the last four quarters, we have stuck to those guidances. We have stuck to those numbers which we had promised. Q1, Q2, Q3, we have moved the needle in terms of the parameters which we had promised, especially on the ROA side, on the credit cost side. We had promised that we will work on a complete secured construct. We have stuck to that. We had said we would double down on these two Gold Loan and mortgage business. We have stuck to that. Certainly, we have been helped by the price momentum on the gold side, but we have been very conservative in terms of focusing on tonnage growth as well as on the LTV side.
Keeping in mind the risk parameters, keeping in mind the processes, we have consciously grown these two businesses. On the ST LAP side also, we had said that we will rebuild this business. We have been doing it brick by brick. We are not in a hurry, but we are conscious of the growth that we want in this particular business. We are focused on this business. We are investing into this business. We believe this is a business which we can do very well. Focusing on these two businesses and creating an expertise in these two businesses is the core DNA with which we want to move forward. Thank you so much.
Thank you. On behalf of Equirus Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.