Ladies and gentlemen, good day, and welcome to Fedbank Financial Services Limited Q2 FY 2025 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. Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinion, and expectation of the company as on date of this call. These statements are not the guarantee of future performance and involve risk and uncertainty that are difficult to predict. I now hand the conference over to Mr. Shreepal Doshi. Thank you, and over to you, sir.
Thank you, Nivedita. Good evening, everyone. We have the management of Fedbank Financial Services to discuss the Q2 FY 2025 quarterly results. The management is represented by Mr. Anil Kothuri, MD and CEO, Mr. C.V. Ganesh, CFO, and Mr. Amit Singh, Head IR. I would not take much time and hand over the call to Mr. Anil Kothuri for his opening remarks, post which we can open the floor for question and answer. Over to you, sir.
Thanks, Shreepal. Good evening, everybody, and welcome. Thank you for joining the Q2 call to discuss the earnings of FedFina. Over a year ago, NBFCs were in a Goldilocks kind of situation. This was based on the trifecta of circumstances. One was growth, the second was what was expected to be a decline in interest rate environment, and the third was the benign end of the credit cycle. Of these three assumptions, one has played out, which is that growth is there, and the other two haven't played out the way we thought we would. Rates haven't come off over the past year, even though they still hold the promise over the next six to nine months. And the credit environment seems to have materially changed for now. In FedFina, it was a very busy quarter for us. First up, we've made steady progress on our twin engine strategy.
We've seen growth in the quarter. Our AUM grew to INR 14,220 crores at the end of Q2. This is a growth of 7.8% quarter-on-quarter. Both our businesses, working capital as well as gold loans, registered smart growth, growing 9% and 8.2% respectively. So growth is there for us. We also invested significantly in our future. We added 46 branches in the quarter gone by. Our presence now is in 665 branches across 18 states and union territories in the country. We've also added about 500 people in the quarter, and we now have 4,743 people at the end of Q2. Finally, we continue to improve our technology, and we fully implemented Salesforce in our small mortgage business, and this is across over 200 branches. All our throughput now is on Salesforce, which we use as a front-end system.
We've also made progress in terms of improving our asset quality. This is across buckets. Our one plus, 30 plus, and GNPA numbers are better quarter-on-quarter. Our Gross Stage III is now 1.9%. However, reflecting our view of the environment and feedback from what we see on the ground, we have taken an additional ECL provision of about INR 22 crore during the quarter. Our ECL and there on a slide in the deck is up from INR 122 crore to INR 151 crore or so. This reflects our view of the environment over the next few months. Finally, there have been several regulatory vicissitudes over the past six months. At FedFina, we have carefully analyzed whatever we've seen in terms of either circulars, news items, or informal feedback that we get and continue to benchmark our practices and our policies in light of whatever inputs we receive.
Adhering to regulation and ensuring that you stay on top of them is now more than a full-time job. We confirm that we are entirely in compliance with whatever regulations and informal feedback that are received from the market. Finally, in Q2, we've received a rating upgrade from CRISIL. We are now rated AA+. It's across CRISIL, India Ratings, and CARE, all the three rating agencies, we have a AA+ rating. We are among the dozen or so NBFCs which have a rating of similar or better. Our profit for the quarter was INR 64.55 crore. To take us through to the numbers behind this number and other details of our financials, I'll hand over to C.V. Ganesh, our CFO. Over to you, Ganesh.
Thank you, Anil. Thank you everyone for your participation on the call. The past quarter has been equally momentous for us as was Q1, and we continue to cross new milestones. Our disbursements continue to be elevated at INR 38 billion. Year-on-year, this represents a 30% growth. For the first time ever, we crossed an AUM growth in a quarter of INR 1,000 crore. Last quarter, it had come a tad under INR 1,000. In Q2, our AUM grew by INR 1,030 crore, which is our highest ever till date.
We closed the quarter with the gold loan tonnage of a little under 11 tons, which again, is a growth of 2.5 tons year-on-year. Another milestone we had is that from an average AUM per gold loan branch of INR 10 crore, we ended the quarter with an average AUM per branch of about INR 10.3 crore. These were the milestones. As Anil articulated, we now also have a AA+ from CRISIL from a long-term rating.
It positions us well from long-term borrowings because typically for long-term borrowings and bond offerings, people take the lowest of the long-term ratings. We were a little handicapped there, so this positions us well, given that all the three rating agencies now have assigned AA class. On the new origination side, we originated INR 3,810 crores of loans, of which INR 1,200 crores was MSME origination across the mortgage and unsecured business loans. INR 2,610 crores were gold loan originations. In terms of the P&L, our interest income grew 6% quarter-on-quarter at INR 479 crores, versus INR 452 crores in the previous quarter. This also represents a 28% growth year-on-year. Our net interest income also correspondingly grew 6% quarter-on-quarter and 28% year-on-year. Our fee and other income came off a tad higher.
Gross income also grew 6% year-on-year, but 32% sorry, 6% quarter-on-quarter, but 32% year-on-year. On the expense side, in quarter 1, we had guided that we are here for the long term and we will continue to invest in growth. We did that in the current quarter. We commissioned 46 new branches across gold loans and our small ticket mortgage and added incrementally about 400 staff on our rolls. These branches take about 12 to 15 months to break even, so there will be a drag in the initial quarters. Because of that and the higher originations, our expenses went up by about INR 18 crores quarter-on-quarter. Consequently, our cost to income has also moved up from 55.4 in Q1 to 58.6.
From a guidance, we believe that some expenses are good expenses because expense is in the nature of an investment in growth infrastructure. We do believe that the revenue benefit from this over the coming quarter will offset and bring the cost to income over a period of time to the level we started off in Q1. That being said, on the P&L side, our credit costs moved up 13% quarter-on-quarter, as Anil articulated. As we would have seen in the sector, especially on the smaller ticket mortgages, we see some stress building up, and we have conservatively taken a ECL overlay on that. We have hiked up our PCR. If you see our SEBI financials, which we have uploaded on the exchange, you will see that we have increased the PCR coverage by 250 basis points quarter-on-quarter. Our PAT came in at INR 64.5 crores.
This compares with INR 70.2 crores in quarter 1 and represents an 8% degrowth. However, on a year-on-year basis, this represents a 12% growth over the INR 57.8 crore we did in Q2 of 2024. That being said, I just also want to highlight that our twin engine strategy is working well, where we have had some headwinds in the MSME business. Our gold loans have performed handsomely in both Q1 and Q2. Across Q1 and Q2 in the first half of the year, we have crossed in terms of AUM growth more than what we did in the whole of FY 2024. The treasury side, on a quarter-on-quarter basis, our average blended interest cost, we have been able to bring down by 5 bps from 8.78% to 8.73%.
On the incremental cost of borrowing, while you would have seen all banks raise their MCLRs, we have actually been able to reduce our incremental cost of borrowing by 5 to 7 bps quarter-on-quarter. Our current incremental cost of borrowing is a tad under 8.60. Moreover, about 85% of our borrowings are on the floating rate benchmark, which should aid us when interest rates start going south. Roughly 40% of our borrowings are on external linked benchmarks. Incrementally, in Q2, 32% of our borrowings were linked to external benchmarks, and another 21% were short-term borrowings and resettable on maturity in terms of price. This positions us well. This, combined with the fact that in Q1 we had guided that 68% of all incremental borrowings were linked to external benchmarks like repo rate, T-bill rate, et cetera.
I think this puts us at the forefront as and when interest rates would go south. Our net worth as on September 13 crossed INR 2,400 crores. We came in at INR 2,402 crores. This was up from INR 2,322 crores in June 2024. Our book value per share as of 30th September stands at INR 64.60. With that, I hand over to the moderator for questions from the audience. Thank you.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the 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. The first question is from the line of Renish from ICICI. Please go ahead, sir.
Yeah. Hi, sir. Two, three questions from my side. First on this comment which you made on the stress in small ticket loan HL, and hence we have accelerated the provision under ECL. But when I look at the 1 plus DPD and 30 plus DPD, which fell sequentially, which lead indicators are you looking at which suggest that there is a stress building up in this sector?
I will tell you how we see it. You look at our provisioning. One of our core tenets is to take up the provisioning on the portfolio. We used to be at 1.4% at a point in time, and at the end of the last quarter, we fell to 1.2%. We have decided that we need to take it back up again, and it needs to happen piecemeal. That is one point.
The second is that we did achieve good outcomes in the quarter gone by. But that is a result of intensive activity on the field. The signals that we get is that people are finding it a little difficult to come up with their monthly EMI as opposed to before. That is the second data point. While one option could have been to just go ahead in light of the fact that the one-plus and 30-plus numbers have improved, we have chosen to just take up our provisioning and get to about 1.3% as overall.
No, but-
That in fact is a INR 22 crore impact. We have gone from INR 128.5 crore to INR 150.5 crore.
Yeah. Anil, just to follow up on that, the provision has to be driven by ECL model, right? Now when your lead indicators are improving, what parameters are we modifying? I mean, are we increasing PD or are we increasing LGDs to create overlay?
This is a discretionary management overlay, and as you can see on slide 43, it is across the buckets, across stage 1, stage 2, and stage 3. Okay? Now, we do an annual ECL refresh exercise. Okay. Typically, either in Q3 or Q4 every year. Last year, we did it in Q3. The year before that, we did it in Q4. And what that exercise will do is to reset the PDs and LGDs in light of our added experience over the previous 12 months. So that input is not yet baked into what we've done.
Got it. Okay, so last quarter, we sort of highlighted that for the full year, our credit cost will remain, I think around 80 basis points or so. Now when I look at the cost of credit cost, it is actually more than 1%. So how do you see that line item trending going ahead?
Fair point. Last quarter, I did say that our cost of credits through the year will be about 80 basis points, up from 60 basis points in the year gone by.
Correct.
At this point in time, it looks like it may be a little higher than 80 basis points, given what we are seeing. Now, as a step towards that, we have done a discretionary provisioning this quarter, and maybe we could see 90 basis points or even 100 basis points for the year
whole year
entirely. But it actually depends on how the environment plays out, and we are calling the environment as we see it right now.
I will just add there, Renish, also our stated intent is to take up our PCR gradually.
And to that extent, I think conservatively you should read it as being at least 100 basis points or a little more than that.
Okay. Then let's say if that is the case, if there is an intent to increase PCR, and I am assuming it will be more into mortgage business where we are at 22%, and then the peer set would be around 30% odd. So how one should look at it, then over next three quarters, we will continue to make this overlay to take PCR to 30% or how one should look at it?
Yeah. So see, basically, I think at least for Q3, there is visibility. As Anil articulated, we do this annual PD LGD refresh exercise. And as of now, I think we should go with a three-digit bps number, maybe 100, 110 bps number for Q3, Q4. So we are watchful. The idea is not to commit to a number, Renish.
Yeah, no, that is fine. I am not asking for any numbers, but directionally, then the intent will be to improve coverage.
That is correct.
Clear it if you want.
That is correct. Given the sectoral commentary,
right, we cannot claim to have better data than everybody else, which is why, we will have to acknowledge and take learnings from that data. Part of that is driving our strategy around the credit cost as well.
Got it. My second question is on the disbursement side, especially in the small ticket LAP and HL, wherein we saw the sequential dip. Is this the reflection of our cautious stance, since we are seeing the increasing stress in that segment, or how one should look at it? You are right. It is reflective of our stance. What we have done is to prioritize portfolio management and collections in some branches over disbursements, which is the reason we have got the outcomes that we did. That is the reason for that.
Okay. Would you like to share some more details? When we say we are seeing the increasing stress, is this, let us say, specific to any pockets, customer segment, or how is it?
This is reasonably across the board. We are a self-employed customers provider, a small loan provider, and all our customers are in informal businesses.
Right.
Now, post-COVID, there was a pullback in terms of cash flows and businesses coming back and all that. What we see is that the growth seems to have tapered off for these customers and their real incomes are not increasing. The second thing that I hear is that there has been expense inflation across the board. Informally, some price of oil has gone up from X to Y, the price of vegetables have gone up, all of those things. Regular dal pani kind of expenses seem to have increased. That is the second kind of feedback that I am picking up.
Okay.
This is the way it is.
Oh, okay. Maybe if you can just speak one last question on the RBI circular dated October 4, wherein, they will be sort of setting upon carry out lending activities under a single entity. Do you foresee any impact on us due to that? Of course, it is out for a comment. Of course, it has not been notified, et cetera, but any initial feedback would you like to give?
Yeah. You are right, Renish. This is a draft circular, and a similar draft circular came out in November 2020, you may recall. Okay. About NBFC subsidiaries of private banks. At that point in time, we had written back to the RBI, as I am sure some other market participants have done, and these provisions of that circular were not implemented.
Once again, I am sure our parent bank, as will other banks, write to the RBI and represent our case. The cut and thrust of what we will say is the fact that NBFCs and banks cater to different target markets, therefore, a mortgage loan done by a bank and a mortgage loan done by an NBFC are two different products, really. You cannot cover them under one umbrella of mortgage loans. Okay. That will be what our parent bank actually will try and represent. We will then see what the RBI has to say. That is our take on it right now.
And same is the case for gold loan as well?
On gold loan, look, whatever the circular has said, we benchmark our practices. Okay? And we are reasonably in compliance with what is there. On that there seems to be a limited kind of variability.
Okay. Right. Okay. That's it from my side. Thank you, and best of luck.
No, thanks so much, Renish.
Thank you.
Thank you for that question, sir. The next question is from the line of Pranav Gupta from Aionios Alpha Investment Management. Please go ahead, sir.
Hello.
Hi, Pranav.
Yeah. Hi. Good afternoon, and thanks for the opportunity. A couple of questions. First is, in terms of the costs that we incurred this quarter. Obviously, we understand that we have been investing in the distribution, and we opened about 46 branches this quarter. If you look at our overall guidance for the year, which you mentioned in last quarter, 50 branches on gold and 30 branches on the mortgage side. A large part of that is already sort of been done over this year. Is it fair to assume that, incrementally, we can see a big dip in costs in the second half? Do we still hold on to our guidance of 30 to 40 basis points reduction in cost to average assets through this year? That's the first question.
Okay. Yes. In fact, you look at it, your costs get reset in the first quarter when you have pay hikes for everybody who works in the organization. There is some small increase across the year for any hiring that you may do. The bulk of the increase has happened in Q2 because most of our hiring has happened. We opened 46 of our projected 80 branches. In Q3, there will be only a marginal increase in terms of people cost for the remaining branches that we will open. The intent is to get done with the branch opening agenda by the end of Q3. So, that is what it is.
In terms of cost as a percentage of AUM, it is reasonable that we may get to a 30 basis points kind of improvement across the year. It actually depends on how we pursue growth over the next two quarters. The first two quarters have been good. We've grown at 40% year-on-year kind of number. While that's ahead of what we intended for the course of the year, if we don't dramatically slow down, we should be able to get to those numbers.
Right. Just a follow-up question from the previous question on asset quality. If you look at, like you mentioned, there is some pain on the mortgage side. You mentioned that the reduction that we've seen in other indicators, which is 1 DPD, 30 DPD, is mainly due to the efforts that we have put in terms of collections. If you look at gold, asset quality has remained stable there. Not just for us, but probably at an industry level, with gold prices going up, LTVs getting better. Is it fair to assume that maybe we are being a little too conservative on the credit cost guidance of 100 basis points and maybe third quarter sort of surprises us positively? Or at least not third quarter, but the year itself.
The short answer is I hope you're right, but ours is a business of two halves. There's a gold loan business, there's a non-gold loan business. The gold loan business has zero to negligible credit costs. To the extent that gold loan forms an increasing portion of our on-book or AUM or balance sheet, we are well-served. We will not have credit costs on that.
On the non-gold loan side, look, there are two components to credit cost. One is what you crystallize, and the second is what you estimate and pursue through ECL. On the latter, it's a function of what your view of the environment is and what the feedback on your portfolio is in terms of PDs and LGDs. For now, I think we should continue to believe we will be at about 1%, and if there is an upside at some point in time, so be it. Okay? There is no need to think about it just now, is what I would say.
Right. I will just add there, Pranav, that see, there is internal data and there are external data as well, right? So we have to be cognizant of the external data telling us a story as well. And that is why the commentary and-
The reason I am asking this is because while on one side we are talking about some stress being built up or at least what data we are seeing, but our growth has not really eased off in that segment, right? So sort of sounding either counterintuitive or us being too cautious. That is the reason I am asking this question because our growth has been pretty strong in the mortgage piece as well.
You are right. I think what you should take away is that the management expects 1%. Okay? And there have been better one plus, 30 plus outcome in the previous quarters. However, those have been hard won, and I do not think that will change in at least Q3. Okay? And we will wait for Q4 to happen before we comment on what could happen on Q4.
Right. In that case, do we envisage some slowdown on the smaller ticket or medium ticket LAP side in terms of growth as we sort of either tighten standards or take it a little slow in the second half?
In Q3, definitely. Because as any organization would, we continually review our practices, see what kind of borrowers are stressed and all that, and we calibrate our approach. I can say that since we are already almost a month into Q3, there will be a marginal slowing down in this quarter. In Q4, depending on what it looks like while we enter Q4, we will be able to guide you.
Yeah. I will just maybe supplement what Anil Kothuri is saying there. See, I think one thing a little different about us is that we are not a single product company. We have four products. If you see the medium ticket, while there has been a slowdown in the small ticket portfolio, if you see our originations in the medium ticket LAP, it has gone up 50% quarter-on-quarter. Right? The year-on-year growth in that book is 130%. We have
Right
multiple levers. If we go slow on something, we have the opportunity to go fast on something else. That gives us confidence in terms of the resilience of the product suite.
Yeah. No, absolutely. Just one last question on the gold loan bit. We have seen disbursements come off on a quarter-on-quarter basis. Obviously, last quarter was probably an aberration on the upside. If you see the off the proportion, that has also come off on a quarter-on-quarter basis. Are we seeing any teething issues on the co-lending partnerships, or is this just a blip in the quarter and then you normalize from here?
The growth of gold loan is not a concern here. You should not look at disbursements, you should look at the growth in the balance sheet, because the borrowers tend to borrow multiple times and repay. From that standpoint, we are well-served. We had a blowout Q1 because of a dramatic increase in the price of gold at that point in time. That is point number one.
Okay.
Point number two is, you look at our co-lending volume. It has stayed roughly more or less static over the past quarter or so. That is because our partner banks are also processing all the regulations that the RBI is issuing. As we speak, we are talking to three new providers and we are inking in the midst of going live, in the process of going live with three new partners.
That should happen over the next couple of weeks. Okay? The hiatus that we have seen over the past quarter is because people are trying to come to grips with the altered reality, if any, for them. Otherwise, structurally, I do not see a slowing down of co-lending for gold loans because the banks are hungry to get as much gold loan as possible because it is a zero risk weight product for them. It is an arrangement that works very well for the bank as well as for the NBFC that partners it.
Understood, sir.
Let me add a little bit more to that commentary. In the regulatory context, RBI has been very studied in terms of their approach, and they have been soliciting a lot of data points from various providers. Normally, in such an environment when all regulated entities are a little unsure, right? Typically when you are unsure, you go slow. You remove your leg off the accelerator. I think that's only that much to it for Q2.
Understood. Could you just give the amount of tonnage on an absolute basis, if possible?
We were a little under 11 tons Q2 YoY. We were a little under 11 tons, yeah.
10.7.
10 point?
Seven.
Yeah, 10.7 is the number.
Oh, and maybe a Q2 year-over-year comparison, if possible.
QOQ was 10.2.
10.2 June.
Last June was 8.3.
8.3 in-
Last September.
Last September 23.
Sure, sir. Thank you so much.
Thank you.
Thank you for that question, sir. The next question is from the line of Ganesh Nagarsekar from Bharat Bet Research. Go ahead, please.
My question is regarding the business loan book. If you look at the average ticket size here, it has gone up quite substantially from, say, 2.25 million orders to almost 2.89, 2.8 million or so. I just broadly wanted to understand the reason for this drastic a jump, given that broadly we are a bit cautious on the credit environment. Broadly, how are we looking at the space and incremental lending in this subset of the switch?
Our business loans are catered to a segment which is the prime segment, which means these are customers who have a P&L, balance sheet, tax returns, and everything else. That is the segment that we cater to. That is point number one. Point number two is that we see that it is a risk ranked by ticket size. That is the second thing that we see. In terms of ticket size, our average ticket size for the quarter gone by was ₹23.4 lakh, which has been constant at least over the past six quarters. Q4 2023 was 23.1, 24.4, 24.3, 23.2, 23.4. I am just reading out data since Q4 2023. We are in Q2 2025. For the past seven quarters, it has been constant. It is not a change in target segment or something.
Understood.
Ganesh, maybe you.
Sorry. The number on the presentation is 3.86 million. I just wanted to make sense of that number.
One sec. I am sorry, which data slide are you on?
On slide 41.
Okay. Average ticket size for retail installment loans.
Right, sir.
This includes medium ticket loan against property, small ticket loan against property, as well as business loans, which means it includes all our non-gold businesses. Yeah.
Understood.
There is a medium ticket loan against property business that we have, where the average ticket size is about, I think, INR 60 lakh. Yeah?
Understood.
Yeah. Now I get it.
The bulk of the growth in the ticket size is coming in the medium ticket LAP, is it?
That is right.
As I articulated, that has gone up 50%. The originations have gone up 50% quarter-on-quarter.
Understood.
That is taken up the average at an installment loan level, it is taken up the average ticket size of the book per se. But on the unsecured business loan side, we continue to keep it steady or maybe a little lower than it used to be on a quarter-on-quarter basis.
Yeah.
If you see even the off-book arrangements on there has gone up to 33% in September from 30% in June.
Understood. Got it. That is it from my side, sir.
Thank you, Ga nesh.
Thank you for that question, sir. Ladies and gentlemen, to ask a question, please press star one now. The next question is from the line of Manav from Individual Investor. Please go ahead, sir.
Hello. Sir, can you give your guidance for the ROE and the ROA numbers because it is continuously decreasing from last two, three quarters?
I will try to answer that. Essentially, as you would have seen the sectoral commentary, while all of us would have liked interest rates to go down, interest rates continue to remain at elevated levels. Plus, there is a bit of funding squeeze in terms of bank lending to NBFCs, which is making liabilities costly. The environment, that combined with the commentary in terms of the increase in collection intensity on the ground and subsequent costs incidental there too, lead us to believe that we may need to downward revise our guidance from what we had given in Q1. As of now, we had delivered a 2.4% ROA in FY 2024.
I think conservatively, we will at least try to be steady on that for this financial year. Again, every quarter we will revise this. But as of now, looking at how Q1 and Q2 have trended and some of the other indicators, while we have had a robust asset growth, looking at some of the other indicators, it requires us to be a little more conservative in terms of this philosophy.
ROA in the Q1, you had given that it will be between 2.7% to 2.75%. So now you are telling that it will be around 2.5%, right?
We are saying we will try to maintain it at the FY 2024 level. FY 2024 was 2.4%.
Okay, sir. Thank you so much.
Thank you for that question, sir. The next question is from the line of Sandeep Joshi from Unifi Capital. Please go ahead, sir.
Thank you for the opportunity. I am just trying to understand our credit cost guidance. I guess for the first half, we are somewhere about 1.4-1.5 level, and I guess for the full financial year, we have guided between 90 basis points to 100 basis points. Is that correct?
That's right.
Yeah. Which means that for the second half, we are building a very minimal credit cost for the second half. So that will be led by resolutions, or can you just speak a little bit on this?
Yeah. Sandeep, I'll maybe just clarify. When Anil guided about 100 basis points, he meant on the ROA tree basis, not on the AUM basis. If you see on the ROA tree, on the ROA basis, I think our credit cost is coming off at a little under 1.3. I think you should look at that number in terms of that indicator.
Sure. Understood. Okay.
We believe that we are being, as one of our colleagues on the call said, maybe we are being a little more conservative with what we believe. We would like to be hopeful. That's where it is, yeah.
Sure. Done. Understood. Thank you.
Thank you for the question, sir. The next question is from the line of Renish from ICICI. Please go ahead, sir.
Yeah. Hi, sir. Just one question from my side on the growth. Given the situation is, and maybe we are also of the opinion that there is some stress building up in some of the product segments, be it unsecured loan or the small ticket loan segment. What is the guidance for growth maybe for FY 2025, and if you would like to share for 2026 as well?
We have four businesses, Renish. Let's look at them, look at try and build this growth up elementally, business by business. Now, as far as gold loan is concerned, it is in a good place. Okay. The growth will be determined by two things over the next six months. One, obviously, is the price of gold, which seems to have an upward bias. That is one.
Right.
The second is the fact that we will have 50 additional branches. Okay? Those branches did not exist or did not deliver in the first half of the year. So the second half of the year, they will be productive for me. Okay? So that is one. So the gold loan business is in a good place. It is robust. As soon as the new co-lending arrangements kick in, we will have the ability to press the pedal on originations even in a slightly lower yield segment. Okay, so that is as far as gold loan is concerned. Now, as far as medium-ticket loan against property is concerned, our originations have been increasing quarter on quarter, and we seem to have settled in on a sweet spot which optimizes yield, risk, and growth for us. Okay.
We are able to get all three in the cities that we do business in with the product that we sell. So that business has no issues. It should continue to grow, and the trajectory of origination and growth is there on a slide in the deck. Now, as far as unsecured is concerned, the feedback from our portfolio has been similar to the previous year, if not marginally better. Okay? In contrast to whatever the environment is articulating on unsecured performance, our unsecured portfolio has largely held. We are also seeing a lot of interest from banks to purchase our unsecured portfolio. In the first half of the year, we sold down as much as we originated, roughly. Okay, so that business is good.
The origination on that and the growth on that is calibrated by how much we want to keep unsecured as part of our overall AUM. So that is what determines this. Okay? These three businesses, there are no issues at all. Now, the small mortgage business, because of the sheer number of tickets and the spread that this business has, 18 states that we are present in, we are saying that there is no need to double down on growth the way we did last year. Last year, we had a near 80% increase in terms of AUM growth. That is not what we are shooting for in the current year. Okay? We are saying that we will be a little more measured and ensure that we get better portfolio outcomes than we did in the past.
Evidence of that is the 1 plus and 30 plus that you are seeing in the deck. We should try and better that in the coming quarter, and that will be a good place to be in. A couple of hundred crores of growth this way or that, we are reasonably sanguine as far as the unsecured lending business is concerned. Now, equally, we have continued to invest in the business.
We are building 30 new branches in the unsecured loan business because that is not for today. That is for the years to come. So that is how we see growth here. Also, we started this year with INR 12,000 crores, INR 12,100. We are at INR 14,200. Okay? So that is already, what? 40% kind of annualized growth that we are seeing now. Our guidance always has been that we will strive to do 25%, and anything over and above that will be opportunistic.
We have been opportunistic because gold has worked well for us for environmental kind of reasons. Okay. And that is the upside and the advantage of our twin engine model, and which we will use to compensate maybe some lower origination in the small mortgage business. Yeah. But overall, 30%-35%, I think is reasonably there for the taking in the current financial year.
Okay. Got it. This is very helpful, sir. Thank you.
Given that we have already finished the first two quarters and we have done INR 12,100 crores of growth.
Correct.
Sorry. Apparently, I said 30 branches in unsecured, 30 branches in small mortgage. I should clarify. Sorry.
Okay. So another 30 branches in second half, you think?
No. Apparently, when I spoke in my commentary, I said 30 branches in unsecured. I misspoke. I said we are opening 30 branches in the small mortgage business.
Got it. So this over and above 40 plus branches, what we added this quarter, right?
Yeah. We added 46 in the quarter gone by.
Correct.
Okay. Our target for the year is 80. So 80 minus 46 is 34.
Okay.
Got it. Okay. Thank you, sir.
Thank you.
Thank you for that question, sir. The next question is from the line of Sneha Ganatra from Star Union. Please go ahead, ma'am.
Hello. Regarding this, just wanted to know your thoughts on this, basically on the margin, the cost of funds. I just want to request as credit rating has upgraded, are we seeing that the cost of funds are expected to be peak out from here on? How do you see the second half of the cost of funds and basically on the margin 30 bps, can you guide us? Second question is, what are the OPEX that we are planning for additional 40 branches and additional overall 80 branches and additional 40 branches are expected to come. So what are the core benefit when we expect that the cost to income benefit that we get in cost?
Miss Sneha, we cannot hear you.
Yeah.
Can you please?
Yeah. First question is just wanted to know your thoughts. How is the cost of funds panning out? Are we seeing the peak in the cost of fund considering the rating agencies have upgraded? Second question is how do we see overall OPEX panning out and when we expect that operating leverage benefit that will occur in the upcoming quarters?
Okay. I will request Ganesh to answer question one on our cost of funds, and what we anticipate will happen in H2.
Thank you, Sneha, for the question. I think it is fair to say that I do not have a good answer for that yet because we have been hopeful that RBI will mirror what the Fed is doing. It will happen when it happens. Till then, the money market continues to be tight. Lending rates continue to be high. Q3, I think, will the cost of funds be lower than Q2? I do not think so. Okay. Q4 is a different game.
Based on what happens in the December policy, we may see a calibration. I think we should not pre-judge RBI. We will watch it every two months depending on how the RBI policy pans out. But at least for now, it seems reasonably clear that in Q3 we may at best be steady or maybe a little higher on the cost of funds than lower. Now, the second question was in terms of operating leverage. I will pass it on to Anil.
So, your second. Like I said, we are opening 80 branches in the course of the year. We finished with opening 46 and the remainder we have either opened in October or should finish by the end of November. Opening branches is a bit like going to the gym. You wish you had done it in the morning, so that the rest of the day is good. But it is not fun when you do it. In our gold loan trajectory this year, there was a huge tailwind in terms of the price of the gold. Our AUM per branch increased quite dramatically last year from about 7.5 crores to 10 crores or so. What we wish this year was that instead of 430 branches, we should have had 600 branches or 700 branches. That was our wish.
But then the time to have opened this was two years ago when it would have hit our P&L then. That is just how it is. We opened branches. Out of these 80 branches, 50 are for gold, 30 are for small mortgage. The small mortgage branches between opening, staffing, and achieving some level of maturity is a 15 to 18 months timeframe. Our thinking is that instead of banking upon growth in specific years, it should be a gently calibrated branch opening kind of strategy. So that is where we are.
In terms of approach, what we are seeing is that we will try and do it in a way that it least impacts our cost to income, which means we are not adding any senior cost, any supervisory cost, but we are adding branches in regions that we are already present in, which is why our headline of 18 states and union territories has not changed for at least almost a year now. So we are adding branches. The area manager and the business head and the regional manager all exist. So we will at least add only production staff and that should translate into origination very quickly and give us slightly better P&L outcomes.
Okay. And one more question. Once you mentioned the stress, are we witnessing any geography specific stress are we witnessing or it is been across India?
The stress is actually segment specific. We are seeing people who are paying mortgage loans at what was a 50% installment to income ratio over 2 years. Normally what happens is that the installment to income ratio declines because the installment stays the same and the income increases, let's say nominally by 10% every year, which is your inflation. Now what is happening is that the inflation that is hitting this segment is far in excess of nominal inflation. Therefore, the 50% that they had to repay the loan is now, let's say, less than 50% of the overall income. Structurally, that is what is happening. This is what I piece together from interactions with our field force and all that. That's the way I see it.
Because already we have achieved a strong set of the numbers. We would be continuing guidance of a 25%. We won't like to revise our guidance, of course.
Sorry, if I can ask you to repeat the question and from a bit further away from the phone.
Just wanted to know. Already they have achieved a strong set of numbers on the growth front. We won't be planning to revise our growth guidance above 25% plus for the next fiscal also?
The next fiscal is six months away. I think when I say 25%, that is on a medium term basis. We have had a good six months, and we have overshot that guidance. That is correct. But equally, we should be conscious that not every quarter will be like this. The price of gold can come down sometimes, or there may be some competitive intensity somewhere.
Lots of things can happen. I just think when you are guiding for the medium term, we should take 25% plus and we will try and stay ahead of the asking rate quarter on quarter, and maybe better outcomes will result like we have seen. As far as the next fiscal is concerned, it is six months away. Maybe the right time to discuss this would be either the next earnings call, where we can guide for six months ahead from there and so on. But for now, I think we have visibility to the current financial year.
Okay. Thank you and all the best. Hope to continue to deliver the similar set of numbers.
Thank you so much, Sneha. Thank you.
Thank you for that question, ma'am. The next question is from the line of Aditya from Security Investment Management. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, I had a question on your medium-ticket loan segment. Sir, who would be some of the players we would be competing against in this segment? Sir, here we are catering to higher quality customers, where the credit assessment is more income-based rather than cash flow-based. If you could just help us understand, do we have any advantage over smaller banks or small finance banks who are also in this segment, who would have a cost of fund advantage over us?
Sure. I do not know what the cost of funds of individual small finance banks is, but leaving that aside, the loan against property business is largely done by the private banks. Okay? They have, let us say, thousands of branches across the country. The way they seek to manage this large network of branches is by having some kind of a uniformity of approach. Okay? There is a standard product that you offer. Any deviations to that are approved. Their degree of standardization is far higher because that is the scale at which they need to manage. Where organization like FedFina does business is because the segment that we cater to does not fit into the standardized norms that various banks have. Which is why it is a slightly more intensive or diligent kind of underwriting that we need to do.
You cannot just take somebody's numbers, put it in a spreadsheet, send it up the chain for approval and go on. The upshot of this is that we get better yields from our customers, okay? For roughly the same level of risk. That is roughly what it is. That is the reason we do business. Like I mentioned, we have been in this business since 2011. We have disbursed about, I think, between INR 10,000 crores and INR 12,000 crores at this point in time till now. This segment has worked very well for us from a risk as well as revenue standpoint, yeah. The other thing is that the PSU bank system would like to do business but does not have the commensurate ability to originate loans.
Which is why they like to buy our portfolios and our DA transactions every quarter are testimony to this. We have, I think, almost 27% or so, of HOC which is what we have sold down to, for 20? 21. 20.8. 20.8% of our portfolio, which we have sold down. On an incremental basis, broadly, whatever we originate, we manage to sell down to counterparties. 24.2% is what we have on the mortgage business overall, yeah.
Understood, sir. Some of the smaller banks have started offering OD products to these smaller customers. We being an NBFC, we will not be able to provide this overdraw facility. Do you think this could hamper our growth in the future in this segment? This seems to be an attractive option for a borrower to have an OD facility instead of a term loan.
Correct. Broadly, I tell you why people end up taking a term loan. It is to finance expansion of business. In a nutshell, that is what they do. If somebody has got a shop, he wants to buy stock, he does that. Somebody has got two outlets selling Namkeen in Ahmedabad, he wants to put up a third outlet. That kind of expansion people take these loans for, and they are quite happy paying installments. Now, it is about INR 6.5 lakh-INR 7 lakh crore kind of AUM industry-wide. Sure, some part of it is OD. I have no numbers on how much is OD, but judgmentally, I do not think the fact that we do not offer OD will impact us. Thus far it has not, but the future is not ours to see yet.
Understood. In fact, just last question on this medium-ticket loan. What kind of ROEs we would be making in this segment?
This business is an extremely profitable one for us, and the ROEs that we get are One sec. ROEs that we get are above entity ROEs, yeah.
Okay.
Yeah. It makes sense for us.
Understood. In spite of the yields being 3%-4% lower, we are making better ROEs than the company level.
Correct.
Got it. Sure, sir. Thank you for answering my questions.
Thank you.
As there are no further questions, I would now like to hand the conference over to Mr. Shreepal Doshi for closing comment.
Thank you to all participants for being part of the call, and thank you to the management of Fedbank for giving us the opportunity to host this call. Thank you, sir, and thanks to everyone for being part of the call.
Yeah. Thank you, everyone. Thanks, everybody.