Ladies and gentlemen, good day and welcome to the Fedbank Financial Services Q1 FY 2026 conference call hosted by Equirus Securities. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinion, and expectation of the company as on date of this call. These statements are not a guarantee of future performance and involve risk and uncertainty 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, Viren. Good evening, everyone. I welcome you all to the Q1 FY 2026 earnings call of Fedbank Financial Services. Today, we have the senior management team of Fedbank Financial, represented by Mr. Parvez Mulla, MD and CEO, Mr. C.V. Ganesh, CFO, Mr. Vikram Rathi, Chief Risk Officer, Mr. Jagadeesh Rao, Chief Business Officer for Gold Loans, Mr. Shardul Kadam, Chief Business Officer for Small Ticket LAP, and Mr. K. Suresh, Chief Business Officer for Medium Ticket LAP. 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 Q1 FY 2026 post-results earning call. When we last connected during our Q4 FY 2025 earnings discussion, I had addressed the direction in which we aim to rebuild the financial year FY 2026. Our priorities continue to be conserve and allocate capital to businesses with high ROA and ROE to move towards a fully secured lending portfolio. Reinforce our twin strategy focusing on gold and LAP business. Four, expand gold business through branch expansion and increase doorstep coverage. We expect to open gold loan branches in over 100 new markets this financial year. Five, 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.
Sorry, high yield ST LAP business and low-risk MT LAP business. Seven, persist in enhancing our collection infrastructure to effectively manage delinquencies. Eight, establish leadership in ST LAP business and build team for growth and quality. Nine, expand MT LAP with minimal capital allocation. Ten, increase the core income while reducing reliance on DA income. Use DA as a capital allocation strategy. Move towards a frugal cost structure and ensure that our credit costs remain range bound within the 1% ± 10 basis points. With respect to these priorities, we have taken the following action in Q1 FY 2026. Our senior leadership has been onboarded in collections and the field team is being strengthened, with full completion expected by early Q2. We have verticalized the collection framework, adding additional resources to both the call center and legal team, as well as the field teams.
We have strengthened our leadership and field team in the ST LAP business. Consequently, we expect to see steady rise in business activity in the quarters ahead. Our ST LAP business has successfully transitioned to a system-driven file flow architecture powered by our BRE, leveraging API-driven workflows, thereby enhancing consistency of policy execution. This architecture also establishes the foundation for deploying credit scorecards, risk models targeted for rollout by Q3 FY 2026. A similar deployment is currently under evaluation for MT LAP segment with a pilot planned in the coming quarters. In our collaborative initiative involving gold and ST LAP business, we have successfully merged and co-located 23 branches. That is 23 of our MSE LAP branches have moved into 23 gold branch premises and released the MSE LAP premises. We will persist in our efforts to merge and co-locate more branches.
During this quarter, as promised, we have completed 100% assignment of our business loan portfolio of INR 770 crores. It was executed and de-recognized from our AUM. This capital release will be deployed in secured businesses. We have transferred INR 25 crores of non-performing assets during the quarter to an ARC via 85/15 SR structure. We have also completed the maiden issue of $100 million in ECB. On the gold business, we had a good quarter with the AUM growing 39% YoY and tonnage growing 10% YoY. Our LTV on AUM stands at 64%. Our initiatives on DSGL have paid off well, where we have grown 81% YoY. Our MT LAP business grew while maintaining stable yields. Our credit cost for Q1 is 0.8%. As we implement corrective measures, we anticipate certain flows will persist in the short term, but are expected to stabilize by the year-end.
We foresee a return to normalcy by the end of the year, which will contribute to a more stable and predictable performance in the future. Some of the key business numbers are as follows. AUM reached INR 15,697 crore and accretion of INR 2,509 crores in Q1 FY 2026, translating to a growth of 19% YoY. Gold reached INR 6,332 crores and AUM growth of 39% YoY. Tonnage growth for the year came in at 10% YoY to 11.2 tons. Mortgage AUM reached INR 8,539 crores and AUM growth of 29.7% YoY. Disbursals of INR 5,933 crores in Q1 FY 2026, up 18.5% YoY. On the profitability side, our net interest income grew 7.4% YoY to INR 268.2 crores. Our operating profit experienced a decline of 0.5% YoY. Our operating profit stood at INR 128.2 crores.
We made a choice to lessen reliance on DA income, which was INR 22 crores in Q1 FY 2025 compared to a INR -5 crores in this quarter, which has reflected in our operating profit. Our credit cost for the quarter stood at 0.8%. Our net profit stood at INR 75 crores in Q1 FY 2026, up 6.8% YoY. Gross stage three stands at 2% versus 2% in the previous quarter. I will now hand over to C.V. Ganesh to take you through the numbers in a little more detail.
Yes. Thank you, Parvez. Thanks everyone for your participation on the call. Q1 has been a lower business quarter for us as the MSME loans reflect the seasonality. While Parvez covered
Hello.
Hello? Yeah. While Parvez covered the core performance, let me share some perspectives on the quarter to understand it better. The large unsecured business loan assignment of INR 770 crores, which constituted roughly 75%-77% of the existing book, has been done with a full credit risk transfer of this portfolio, and all servicing on this portfolio going forward will also be done by the purchasing counterparty, resulting in a mitigation of costs as well. With this, as of June 30, the changed loan book mix is as under: gold 44%, secured mortgage 54%, and unsecured business loans of approximately 2%. The actual number is 2.3%, which is INR 270 crores on a loan book of INR 11,689 crores. This transaction facilitated the release of capital for the higher ROA businesses, which we want to scale.
As a result, the capital adequacy as of June 30 has gone up by about 49 basis points, from 21.9% to 22.4%. While this transaction was done at a small premium, we had to book certain one-off charges with reference to the origination costs on these loans, which are amortized in the books over the life of the loan. These one-off write-off of origination costs reflect in the interest income line and have impacted the yields optically by about 37 basis points. Since the above transaction has resulted in the loans being de-recognized from our AUM, optically again, you will see a flat to marginally negative AUM on a sequential comparison to March 25. Our overall AUM as of June 30 was INR 15,697 crores, and it reflects a year-on-year AUM growth of 19%. However, ex business loans, the year-on-year growth is 33%. Now on the NIMs and spread.
I explained the one-time impact of 37 basis points on the yield because of the origination costs on unsecured loans, which we have taken a charge for. Adjusted for this, our normative yields would have been 16.6%, and the spreads would also have been higher by this amount. We have continued our focus on core income growth and done a lesser direct assignment on the mortgage book. This has resulted in net gains from direct assignment coming as a negative number, which reflects the deceleration in direct assignment. While both of these numbers have resulted in a spread compression in the quarter, we expect the spreads to be more normative from next quarter onwards. Now on the OpEx side. The OpEx grew 9% year-on-year. The operating costs for the quarter reflect a lower origination cost due to overall lesser originations in Q1.
However, they also factored certain cost rationalization measures taken in this quarter, which were done to create room for an OpEx expansion from the new branch investments, which we plan to do in this fiscal. One example of the rationalization measures is the co-location of 23 branches and consolidation of three branches, which Mr. Parvez Mulla articulated. As we continue on the branch expansion journey to capitalize on the opportunity before us, we expect the OpEx to go up to more normative levels, but driven by more capacity-driven spend. On the treasury side, on a quarter-on-quarter basis, our weighted average interest cost on overall borrowings has gone down by 16 basis points from 8.72% to 8.56%. This decline has been facilitated by resets on the external benchmarking borrowings as well as a diversification of the resource mix by substituting local currency long-term debt by external commercial borrowings.
We did our maiden external commercial borrowing this quarter. It is the first of a few, and it now constitutes 8.5% of our overall borrowing mix. Even on a fully hedged basis, this comes at approximately 70 basis points- 80 basis points lower than our local borrowing. Currently, around 83% of our total borrowings are floating rate in nature. Of these, 45% of our borrowings are linked to external linked benchmarks and another 39% to MCLR.
As interest rates come down, we will see the benefit of this in our cost of funds and spreads. Lastly, our incremental borrowing cost for quarter one was at an average of sub eight, compared to 8.55 in the quarter four 2025. The deleverage from our BL assignment has resulted in our debt equity ratio decreasing from 4.03 in March 2025 to 3.89 as of Q1 FY 2026. With that, I hand it over to the operator for any questions you may have.
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 touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Renish from ICICI Securities. Please go ahead.
Hello. Yeah. Hi, team. Just one feedback. I think we lost our first 15 minutes of opening remarks by Parvez. I do not know if that is a problem with everyone, but I was there on the call since beginning, but I joined at maybe 6:45 or so. I completely missed Parvez's opening remarks. But I will continue with my questions. I am sorry if it is a repetition. So two, three things. One on this medium ticket LAP business. Where do we stand in terms of restructuring of ST LAP vertical? And sequential fall in disbursement is just due to seasonality, or we turn cautious due to the current noise about increasing stress in this product?
Yeah. Hi, Renish. Really sorry about the technical glitch. I will ask the operator to check. But I will repeat my opening remarks at the end if needed.
No, no. I think we will discuss one on one. Yeah. We do not want to sort of waste time for others. Yeah. Please.
Yeah. As far as the ST LAP business is concerned, we had discussed during my Q3 as well as my Q4 earnings call. We had highlighted that we are doing a leadership change. We have done that. We said that we will invest into people. We have done that. We were supposed to do the BRE change. We have done that. The grassroot level people, which I had said that it will take us Q1 plus some part of Q2 to the field level filling.
That is where we are. We have almost completed percent of the recruitment there. So as far as manpower and change and systems and processes and the incentives are concerned, we have changed all that. The business growth for us, we had dropped our business numbers in September
Correct
to a level. From there on, we have been picking it up, and our pickup has been steady in that sense.
Right
extra additional tightening which we have done in this quarter. It's going in-
Got it.
the same progress. Whatever tightening was done, we had done it last quarter and previous quarter.
Got it.
Because some of the other players are seeing that stress. We had seen that stress earlier. But we had our own issues also to correct. So we had corrected on those parameters, both in terms of industry as well as BRE. We have not done
Got it.
further tightening this month. The business growth will pick up as our people mature into their roles.
Got it. So drop in disbursement in this quarter is just because of seasonality, nothing else?
Yes, it is the Q4, Q1 effect.
Correct.
Q4 was a new team, so it pushed in Q1. You will again see Q2 picking up over Q1.
Got it. My second question is on the gold loan side. In the past one year, when we look at quarter disbursement run rate, it has actually doubled from INR 2,600 crore in Q2 FY 2025 to almost now crossing INR 5,000 -odd crore in Q1. Interestingly, when we look at the branch network, we have not added a significant branches in last quarter as well as last two, three years. So what is driving this sudden surge in gold loan disbursement? It is purely by productivity gain or are we missing any structural changes which you might have done?
There are two parts to this. I will give you an initial answer, then I will ask Jagadeesh to add it. One is, i n the last two years, if you have seen, there has been 10%-15% tonnage growth. We might be one of the few companies which has shown consistent tonnage growth while there has been a price growth, but tonnage growth has been 10%-15%. In fact, higher than 15% in one of the years. There is that substantial growth which has happened. I agree with you. Last two years, the number of branches growth has not been much, but this year we plan to put upwards of 100 branches. If you remember, we had said that first we will do the experiment of co-locating the MSE branches with the gold, and we were focused on getting that correct.
In this quarter, we have identified premises for gold branches, but that execution did not materialize as much as we had thought. Q2, you will see substantial opening of gold loan branches, and we will continue to expand our network through gold branches. Those branches will be put in context of FY 2026 and FY 2027 growth. Our growth which has come, has come from productivity and tonnage. Obviously, we have been aided by price. Price plus tonnage has been the growth.
Got it. A marginal drop in LTV during this quarter, what is the reason? Otherwise, we have thought it will go up because of the revised RBI guidelines.
Yeah. See, two things are an issue there. If you remember, when you had asked me this question in post December 2, we had complied with the draft guidelines of December. We were pretty strict on us and we had complied with those guidelines.
Right.
The revised guidelines which came in were a little more relaxed than the December guidelines.
Correct.
That is beneficial to us. We felt that at a portfolio level, even at a sourcing level, although the LTV benefit is there, we have not extracted the full benefit because there is a price effect which is playing.
Mm-hmm. Got it.
We are satisfied with the growth which has come in. We have not further done anything with the LTV.
Right. But just a clarification, but in system, we have sort of factored the new guidelines, right?
Yes. No.
Okay.
Just to clarify, we are now following the draft guidelines which we are following 75% LTV to be maintained at the overall tenor of the loans. Okay?
Okay. We have not yet moved to 85% LTV?
Yes. The new guidelines-
Got it.
has to be adopted in full. You cannot go just by adopting only LTV. There are multiple things, moving items. We are in development stage, and we expect to go live as soon as possible.
Okay. Got it. Lastly, on the profitability front. Since we are largely done with business restructuring at least in terms of secured versus unsecured. How do you see some of the ROE metrics moving in near term, let's say NIMs and more importantly, credit cost? Ultimately, where do you see ROE settling in near term? Maybe exit quarter of FY 2026?
Renish, that guidance I gave you similar in Q3 as well as Q4 and the guidance remains same because we had factored in the BL when we mentioned in Q4 too. We had said that we will focus on a secured construct and we have factored that. If you remember, I had mentioned that we are going through a certain stress on the ST LAP side, and that would give us certain GNPA flows. But we will still manage the credit cost within the 1% range.
Okay.
Now, the full financial year FY 2026 will take into account the fact that I am restructuring the BL piece of which about INR 770 crores has gone out, but the balance still remains with me. I will have to manage the credit cost for that. Plus, I have some of the flows which I will have to manage. The credit cost will remain range-bound, 1% ± 10 basis points. The GNPA, as I had said, will move up and down, but that's where the credit cost will remain.
Got it.
The NIMs and spreads will be range-bound, but net total income, again, the way you had constructed, it will remain in that range only, Renish.
Range, you mean Q1, I mean this quarter exit or?
No, for FY 2026. This quarter, there will be certain items which are one-off items. That is why you will see certain items which are depressed and certain items which are slightly appreciated. What I am saying is
I see.
Yeah, for FY 2026, if you look at our Q4 FY 2025 numbers, the net total income could be in that range. Against that, the credit cost could be in the 1% range and the cost to income which we had said would go down, but again, we are going to put branches, so it will remain stable in that range.
Got it. I do have one more question, but I do not know whether I have time or not. Maybe I will come back in the queue.
Thank you, Renish.
Thank you, sir, and best of luck.
Thank you. The next question is from the line of Digant Haria from GreenEdge Wealth. Please go ahead.
Yeah. Hi, team. Firstly, congrats on the good performance, especially gold loan side. My question is that earlier, let's say a year back, gold used to be around, say, 35%-40%. Now, with the kind of construct we have, and the macros are so favorable for gold loans, our gold loan exposure may even go up to, say, 55%-60%, if our small LAP and the mortgage business does not keep pace. I think it's very difficult for mortgage business to keep pace with gold loans this year. Any thoughts on this? Are we going to restrict ourself on gold loans or will we let whatever our system allows that growth, we'll take it in the gold loan space?
Yeah. Thank you, Digant. I will refer to my Q4 call where we had given a guidance in terms of the mix and when the BL is out of our portfolio, the mix for gold changes. There is that portfolio mix which will change in the range of 43%-45% for gold. I had guided that it will remain between that 45%-49%. Mortgages will cover the balance. That is our medium ticket LAP business and small ticket LAP business.
Our small ticket LAP business growth will pick up. Even if that growth might not catch up with the gold loan growth, the medium ticket LAP growth is still there. Furthermore, for our gold loan business, we have about 15%-18% of CLM. Wherever this mix moves in a particular direction, we have that CLM percentage also there. We will be in that range between 45%-48%.
Okay. Thanks for this clarification. My second question is that, we sold down around INR 770 crores of business loans. Will there be any credit cost associated with that? The remaining book or the guidance which you just gave to Renish in the previous question, that includes whatever good, bad can happen in the business loan. Is that right assumption?
Yes. We are keeping that credit cost range bound, taking in those surprises. Say, for example, in Q1, we had expected the balance BL, which is on our books to give a particular credit cost, but it actually gave us a little more, but we still managed it. When I am saying it is 1% plus or minus , we have sort of projected what can BL do and we have factored that in.
All right. Great. Thank you for this opportunity and wish you all the best.
Thank you.
Thank you.
Thank you, Digant.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Yash Dantewadia from Dante Equity. Please go ahead.
Yeah. Hi. Congratulations on a decent set of numbers. My question is again, a continuation of the previous question of somebody who asked. Let's say your gold loan goes up higher, which it's clearly going up, the gold loan mix. What kind of exit ROA, ROE are we going to see this financial year?
See, Yash.
Yes.
The Q4 ROA that we had indicated, I had answered this question by giving an indication that the ROAs in FY 2026 will be range-bound. There is an offset which we will get from the cost of funds, but we are also trying to reduce the DA income. So there is that plus and minus which is happening there, and that's where we believe that the net total income will be somewhere close to what we showed in ±1 0 basis points, somewhere close to what we showed in Q4. Our cost to income will be in the range what it was in Q4 again.
Our credit cost will be 1% ± 10 basis points. So that is how we are expecting our FY 2026 to move around. There are two, three investments, although there is some items on the cost side that we are working on.
We will reduce the operating cost, but there are certain investment on branches, 150 gold branches that we want to put across in FY 2026. That is why the cost to income will remain flat. There is a flow which is happening from the ST LAP business in the previous quarter, which we have guided and that flow, we believe will be managed and the BL flow will be managed with a 1% credit cost. So that's the range that the ROA will be.
You were saying something about investments. You were saying something about some unrealized investments, right?
I don't think so.
Investments in branches.
I mentioned about investing in branches, gold branches.
Okay. What kind of gold loan market because I think Muthoot Finance and other larger players have guided for a 20% growth or thereabouts. What kind of demand are you seeing on ground? Year-on-year growth, FY 2026.
We are guided with our 25% year-on-year growth in gold with the current branches in place. Whatever new branches that are going to come in, that will give us the data.
Great. Last question. Any new segment that we plan to enter? Something like a portfolio. A lot of NBFCs are giving loans based on equity portfolios and those kind of things. Bajaj Finance, for example. Are we planning to enter new segments this year?
Yash, we are focused on rebuilding our ST LAP business, growing our gold business, growing our MT LAP business. We believe we want to be one of the companies which is focused on LAP business. There are other companies which are also doing LAP. We want to be focused on LAP and build a proposition here. We want to ensure that our management bandwidth is focused on these three products, and we bring them to a very decent, healthy profitability. We won't be looking at other products right now till we fix what we want to achieve.
Great. I'll get in the queue. I have a couple more questions. I'll get in the queue. Thank you so much.
Thank you. The next question is from the line of Mayank Mistry from JM Financial. Please go ahead.
Hi, sir. Thanks for the opportunity. I have three questions. First is mainly on the mortgages book. Our mortgages book safely has improved, I mean, on a quarter-on-quarter basis. Hello?
Yes, Mayank, I am listening to you.
So against what the markets right now and given the assuming lenders or most of the lenders usually catering to these segments, they have shown some stress. Surprisingly, this has actually showed some improvement in our book. What has driven this? Second, also on this book, how is it doing in Karnataka? Are we seeing any stress coming in from there? That is one. Secondly, you mentioned something about the additional charge which has led to your yield of 16.6%. We actually missed the opening commentary. Maybe that was the end of that part which spoke about it. Wanted to know what was that?
Okay. Thank you, Mayank, for the question. We were one of the few companies which had talked about the stress in our ST LAP business, but it was more driven with the challenges that we were facing in Q3 and Q4. We are trying to revive that business. We had certain flows in Q3, Q4. We are dealing with those flows in Q1 also. We have had elevated flows. Those are reflecting in our stage two, stage three, but there will be certain actions that we have taken. We have taken a one-time hit. We have done an SR structure. That is why you see certain way in which the GNPA is looking. There is that stress, but we are dealing with it, and we have tried to manage our credit cost within 1% ± 10 basis points while we are dealing with the stress.
We have done structural changes on the ST LAP side in Q3. This was what we had updated, and we have progressed well there and our disbursals have been picking up. We have tightened our BRE and we have done certain industry level mapping where we want to focus on. We are pretty focused on growing this business very cautiously. On the yield side, I think you were talking about in my opening remarks, I mentioned that we had done assignment of business loan portfolio of about INR 770 crores which was executed and derecognized from our AUM. That capital release we will deploy in secured business. I also mentioned that we had completed a maiden issue of $100 million in ECB. These two was mentioned. If there is anything else I have missed out
Yeah
which you wanted to know.
No, sir. But just on the continuing with that mortgages book. Can you give us a stage 2 number particular to that segment? And maybe what was that in the previous quarter?
Yes. CVG, we have that number here right now?
Now we have it particular to that segment.
No, we have it at a mortgage level.
Yeah, we are disclosing at a mortgage level.
Yeah.
What will that be? At a mortgage level, Q1 FY 2026, our gross stage three is 3.4%. Q4, it was 3.5%. Net stage three will be Q1 FY 2026 is 1.9%, and Q4 FY 2025 was 1.9%.
No, on the stage two, sir.
So stage two, we don't disclose. We normally don't reveal that information. But that being said, it has not moved much in between the two quarters. Right? But again, I would like to highlight, our mortgage is a mix of medium ticket and small ticket. So it attributes stability to the delinquency numbers. So that's where I will leave it.
Okay, sir. And secondly, the branch mix I am seeing, I think the numbers on the branch mix and on the geographical mix, I think the numbers are actually significantly different from last quarter. So if I am correct—
So what we have done, Mayank, is the branch and I think this was missed in my opening remarks. As a strategy, we had said that we will do a collaborative initiative between our gold business and our ST LAP business. So we have successfully merged and co-located 23 branches. That is 23 branches of our ST LAP business have moved into 23 gold branch premises. So we have co-located them and relieved the ST LAP premises. And we will continue this effort of co-locating these branches. So you will have these branches being double-counted. That means they will serve gold customers also, and they will serve our ST LAP customers also.
Yes, sir. That I got. Actually, I was talking on the geographical mix of branches. I think that the 135 branches are in the north, right? Not in the west. And the mix is, I think, somewhat different from last quarter. That's why.
Mayank, let me check that and get back if we have done some.
Sure, sir. No problem.
The mix has not changed between west and north, but if there is some error on our part, we will correct it.
Okay, sir. Great. All the best, sir.
Thank you so much.
Thank you. The next question is from the line of Aditya from Securities Investment Management. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, my question was on employee costs. Our employee count has increased QoQ, but our employee costs have fallen. What is the reason for the same?
As I explained earlier, there is a certain part of origination costs which are given as employee incentives, right? We have changed the structure, and I think the employee costs reflect lower originations in the quarter. That's the primary.
Understood.
Yeah.
Understood. How should we build this employee cost going forward? 90 crores should be the 100?
Okay. Thank you for that question. As Parvez articulated in his opening remarks, we are building up for capacity expansion and we are recruiting people for these new branches. We will not fall short of capitalizing on the gold loan opportunity. Many of the people will start coming on board from Q2. You will see the muscle getting built up here and consequently, you will see the employee cost coming back to a more normative number. Also, as origination picks up, obviously Q1 is not normative for the rest of the year. You will see the employee cost coming back. I would urge you not to read too much into the employee cost play.
Hello.
Hello, am I audible?
Yes.
Yeah. How big was the business loan team for us, and what are we going to do with the employees in that department?
We had a 90-member sales team. Including the credit team, we had 90 members there. The entire set of team, we have either moved them into other verticals where they were given a choice whether they wanted to move into other verticals, or they have chosen where we've aided them to find another assignment outside the organization, and we've given them long period to do that. We've given them both the options, and right now we have about five employees remaining. Many of these employees were laterals and I think what you also see an effect of. We stopped new originations in unsecured business loans in December. Right? Now we are six, seven months away from that. Much of that cost has gone away.
Understood. Now, sir, you mentioned that 83% of our borrowings are floating. How are we placed on the advances side? How much is fixed? How much is floating?
The entire gold loans is fixed, but it gets reset because it's shorter tenors. Similarly, on the small ticket LAP, the small ticket LAPs are almost entirely fixed in nature. Right? The medium ticket LAP is the one which is floating in nature right now, and that constitutes about 30%, 31% of the mix right now. Roughly the residual other than medium ticket LAP, everything else is fixed.
What is the frequency of repricing the medium ticket LAP loans? Is it based on repo only? Does it get repriced on next day? How is it getting repriced?
We normally do it annually. We normally do it annually once we see a more stable pattern.
Got it. Understood.
No, I think from where you are getting, I think we will be benefited from this mix which we have. And that was giving us comfort in terms of establishing new floors on the ROA every quarter.
Got it. And in your opening remarks also, I think you mentioned that your incremental borrowing costs are below 8% now. Is that correct?
That is correct.
Okay. Sure, sir. Thanks for answering my questions.
Thank you. The next question is from the line of Renish from ICICI Securities. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity once again. Again, I am just going through your slide on this geographical mix. Now, I do not know as you already mentioned and there was error, but just wanted to double-check that. On the west zone, we are scaling gold loan business, but at the same time, we are scaling down mortgage. Is that the trend or there is error in that slide?
Sorry, Renish. Scaling down what? Mortgage.
Gold. Mortgage business and we are scaling the gold loan business. I will just tell you which slide I am referring to. I am referring to your page number 23 of PDF.
Okay.
Now, if you look at gold loans, the orange bar, the share of west branches has actually gone up from 30 odd percent in 2023 to 47, roughly 5% increase over last two to three years. Similarly, when you look at mortgage loan, the same has gone down by 5 %-odd . So essentially, it means that we are going slow in west in mortgage, but at the same time we are going fast in gold loan in west.
Yes. See, Renish.
He is talking about both of them. It is not language.
You are talking about the geographical AUM mix.
Correct. Yeah.
The AUM, yeah.
Okay. Yeah, I am talking about geographical AUM mix. Yeah, right.
Yeah. The AUM could be, because, see, in the western market, if I have grown faster in gold loan, that is how it will reflect. If you have heard us two, three years ago, we had consciously said that the southern markets in gold, we will not expand as much. We will expand in the-
Correct
gold in the northern markets and western markets, and that is what we have done, and that is what is reflecting on the gold yields. Similarly, in the mortgage side, you will see us penetrating our AUM in those white spaces where others have not penetrated deep. So that is how that strategy over the years has been played.
Got it. So it is a well-thought strategy, right? I mean, there is-
Yes. It is basically opportunistic in the sense of seeing that we have a proposition. If you have southern states which are already invested by certain other players who have done well there, we might as well focus on Maharashtra and Gujarat, which will give us an expansion much better. The Gujarat market behaves differently for gold and differently for our small ticket LAP. It might be a favored business for gold, but Maharashtra might be a favored business location for me in the ST LAP side. That is how we would do it.
Got it. Okay. Very well said.
I will just also add that Parvez in his opening remarks mentioned that we will chase profitable growth, not just growth.
Okay.
Right. We will keep recalibrating the markets and the growth in those markets depending on how the credit behavior is panning out and how the profitability or the yield is playing out there.
Got it. Maybe just last question then. This is more from a strategic and slightly medium to long-term perspective. But let us say assuming 45% gold, 55% mortgage and obviously sub 1% credit cost, are we aspired to deliver more than 15% ROE or maybe in our mind, that's the path we are taking?
Can I answer that, Renish?
Yeah.
Very clearly our leverage is at an all-time low at 3.89.
Right.
As we keep growing the book business, the leverage will keep going up. That's your multiplier on the ROE. On the ROE, we are establishing new floors. Q4 we ended at 2.2, Q1 is 2.3.
Right.
Our whole strategy has been to fortify the balance sheet and lend more certainty on our return metrics, right? And minimize
Got it.
cyclicality on the earnings. I think if you consider the trajectory, you will be able to extrapolate how the leverage will grow, how the margin expansions will play out, and how the ROEs will work. I think that will lead you to a number like the one you seem to be indicating within a certain time.
Got it. No, this is very helpful, sir, and that is all.
Thank you.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. The next question is from the line of Avnish Tiwari from Vaikarya. Please go ahead.
Hi. You said around INR 935 crore DPD and around INR 96 crore DPD. How much of these would be from business loans, which is largely your residual book?
Avnish, I couldn't hear your question properly. Can you repeat it, please?
Sure. For example, you give this 30+ DPD and 1+ DPD on a portfolio level, and this looks like around INR 596 crore if I calculate on 30+ DPD, around INR 935 crore on 1+ DPD ballpark numbers. You have around INR 270 crore of business loans and AUF around INR 600+ crore as AUM. I just want to see how much of your book you have right now in business loans, how much of it is sitting in 30+ DPD or 1+ DPD ballpark. That's a book you would try to manage in terms of credit cost, right? Effectively.
Yeah. Avnish, I don't know the crore numbers, but I can give you an indication that in the 30+ DPD, about 0.4% - 0.5% will be BL.
0.4% - 0.5% of overall loan book, is it?
That is incremental, which is coming there is because of that BL.
So this 0.4% - 0.5% is percentage of overall AUM or percentage of just BL AUM, like what is 0.4% - 0.5%?
You are seeing our portfolio quality indicators in our investor presentation where we have shown the 30+ DPD.
Right. Oh, okay. So in 30+ DPD, percentage numbers you are seeing, out of that, 0.4%- 0.5% is because of BL. Is that what you are saying?
Yeah, that is correct. And also if you see somewhere in the sell-down slide, we are mentioning that the residual loan book on business loans is INR 270 crore.
Right.
That runs down quite rapidly. So that's a decreasing number, right?
Right.
Many of them are of recent vintage.
Okay.
Yeah. Just to correct Avnish, I'm just doing the calculation on the fly as you are asking me.
No problem.
Of the 5.1%
Right.
Around 35 basis points- 40 basis points is BL.
Got it. 35 basis points- 50 basis points of overall portfolio is BL sitting in this 30+ DPD.
Yeah.
Great. Second question I have is, whatever you have, let's say AUM number is INR 618 crore and AUF is INR 270 crore. The difference between the two, is there any risk on you if something goes bad on those, or that is the guy who has been assigned that loan to?
All of what has been sold, we have a risk only to the extent of what is retained in our books, which is coming in the INR 270 crore number. The balance is the portion to the assignee. There is a full transfer of credit risk, and there is zero credit enhancement or FLDG in any of these assignments. To answer your question, there is no credit risk for now.
Great. Lastly, this INR 270 crore which is right now on your books, typically monthly or quarterly, how much is the rate you are receiving money at? Or how many quarters it takes for you to earn? Of course, you will see how much eventually it flows to the Great call. Let's say, roughly, what is the duration which these books will turn down or itself?
See, by March 2026, you can visualize that this INR 270 crore will go down to about INR 100 crore to INR 120 crore. That INR 120 crore will go down slowly, but this INR 270 crore will go down to about INR 120 crore.
Okay, great. Thank you. These are the questions I had.
Thank you so much, Avnish.
Thank you. The next question is from the line of [Patanjali] from Nuvama. Please go ahead.
Hi. I had one question on MT LAP side. Have you reduced off-book sell down in MT LAP? I am asking this because you have disbursed about INR 450 crores in MT LAP, but AUM increased by around INR 420 crores. So wanted to understand, have you reduced off-book in MT?
Yeah. The off-book on MT LAP will depend on what is available in the market and what is our strategy for that quarter. So in this quarter, we would have done a little bit lesser than the previous quarter.
Yeah.
Also, as I explained, [Patanjali], there was a capital release on the BL. I think one of our themes has been that we will use DA strictly as a capital conservation strategy. Since we anyway had the release on capital from BL, we didn't need to do too much of MT LAP assignment.
Understood. It has nothing to do with asset quality, right? Asset quality is fine in terms of prepayment behavior.
Nothing at all. See, our loan book is now entirely monetizable. It is a lever we have, how much and when, and we will choose to exercise that option based on how we want to calibrate our strategy.
Understood. That's all.
Thank you. The next question is from the line of Shreepal Doshi. Please go ahead.
Hi, sir. Thank you for the opportunity. My question was on MT LAP and ST LAP. Going ahead, how are we looking at growing these two segments? Especially when do we see the ST LAP revival coming in? Because this quarter, the MT LAP growth has been pretty healthy. What has driven that? The second part was on the ST LAP portfolio.
The MT LAP healthy growth will continue. Whatever this quarter you are seeing, it will continue. It has a cyclicality. Q1 will be different from Q4, but year-on-year basis, you will see that growth. MT LAP is a seasoned business. It has seen multiple years. We have a very good portfolio book, which is building up there. It will continue with that growth rate. Our ST LAP business, as we mentioned, it is going through its own rebuild phase. As I told you on a monthly basis, we were doing lesser number of disbursements in September. Since that time, from that low, we picked it up. We reached a peak in March, April, and then for Q1, again, it has its seasonality. It is picking up.
We see our ST LAP business also doing the same growth rate like MT LAP going forward. These two businesses will have that growth rate. We are just being cautious a little bit because the market environment has been a little cautious on the ST LAP side. But we have built in the BRE engine and we have done away with certain industries which had given us those problems. We see a decent growth rate ahead for our ST LAP business.
Got it. Sir, just to what you highlighted in your latter part of the comment. When you talk about the environment at the industry level or let's say system level, what are some of the, let's say, industries or let's say some of the geographies or some of the customer profiles wherein you are seeing the rejection rates being elevated or, yeah. Just some color on that.
Shreepal, I would not want to give you a color because, see, what has happened is we are trying to rebuild our book, and our book has an issue about certain challenges that we faced in our collection infrastructure. So it has the mixture and taint of that, and that is predominant. So the market kind of a feedback. For example, the market might face certain challenges in particular state. We might face it in some other state, and the state that market is talking about for us could be a mixture of our own issue plus the market issue. So that's why it's very difficult for us to give you a market-related information in that distinctive manner. Once we settle down our flows by Q3, we should be able to give you that answer much more clearly.
Got it, sir. That was very helpful. I think that's it from my end. So yeah, thank you.
Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Operator, I understand there was some glitch. Is there anything I need to do? I need to repeat my opening comments or?
Sir, you might just want to give some color of it, and then truly we can conclude the call. I think that will be helpful.
Yeah. Since I understand there was a glitch and some of you didn't hear the opening comments, I will just highlight some that we continue on our priorities of conserving and allocating capital to businesses with high ROE. We had promised that we will move to a fully secured lending portfolio, and we've done that. We mentioned that we will focus on our twin engine strategy of doubling on gold and LAP businesses, the high yield ST LAP business and low risk MT LAP business. We will expand our gold business through branch expansion. We've done that. We have also guided that we'll be opening 150 branches. We will continue to foster synergies between our gold and LAP operations. We've given you an update that we've merged 23 branches. That means co-located the 23 branches.
Our ST LAP branches, the premises has been released and those have been now co-located with gold premises. We are persisting in enhancing our collection infrastructure to manage delinquency. We are continuing to expand our MT LAP business with minimum capital allocation. We are reducing our reliance on DA income, using DA as a capital allocation strategy rather than a profit strategy. We had promised that we will ensure the credit cost remains 1% ± 10 basis points, and we've adhered to that in this quarter. We've said that we have done 100% assignment of our business loan portfolio of INR 770 crores, which was executed and de-recognized from our AUM. This capital release was essential because we wanted to deploy it in our secured business. We have transferred INR 25 crores of non-performing assets during the quarter to an ARC via 85:15 SR structure.
We have completed a maiden issue of USD 100 million in ECB. Our gold business had a very good quarter. AUM grew 39% and tonnage grew 10%. Our MT LAP business grew while maintaining stable yields. Overall, our net profit stood at about INR 75 crores, which is up 6.8%. All in all, we are trying to walk the talk and we are trying to focus on the promises that we made to you in Q3 and Q4. We are trying to rebuild, and we are focusing on building a good high ROA franchise. Thank you.
Thank you, sir. Thank you. Thank you for giving us the opportunity to host the call. Thank you to all participants for being there on the call. Thank you.
Yeah, thank you, Shreepal. Thank you, everyone.
On behalf of Equirus Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.