Ladies and gentlemen, good day and welcome to the FY26 Q1 earnings conference call hosted by HDB Financial Services. Please note this conference call is for analysts and investors only. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Patil from HDB Financial Services. Thank you, and over to you, Mr. Vishal.
Thank you, Sagar. I welcome all of you to the first earnings call of HDB Financial Services Limited for one Q of FY26. We have with us Mr. G. Ramesh, MD and CEO, along with Mr. Jaykumar Shah, the CFO and the senior management of the company. I believe all of you would have had a chance to peruse the financial results, investor presentation, and press release which has been filed with the stock exchanges earlier today and is also available on our website, hdbfs.com. We will start with the management remarks and then open up the call for Q&A. The audio recording of this call will be available on our website shortly after the call ends. I would now like to welcome Mr. G. Ramesh for his opening remarks. That will be followed by Mr. Jaykumar Shah, who will provide a brief on the financial results, followed by Q&A.
Thank you, Vishal, and a very good evening to all of you joining in. Let me begin by expressing my gratitude to the investor community, our customers, our stakeholders, including our regulators, and our parent, HDFC Bank, as we engage with them on our IPO journey. Thank you all. Being the first earnings call, I will take a few minutes to give a quick overview of the company and its operations before getting into the quarterly business updates. Started in 2007, we are one of India's largest diversified and retail-focused NBFCs with presence through more than 1,770 branches in more than 1,100 cities across India. As of June 30, 2025, we have total gross loans of value of over INR 1.09 lakh crore, a customer base of 20.1 million customers, with an average ticket size of INR 164,000, which emphasizes our truly granular and retail nature.
We offer lending products to our three business verticals: enterprise lending, asset finance, and consumer finance. Enterprise lending is the first business vertical started in 2008. It currently constitutes 39% of our gross loan book and is focused on lending a variety of secured and unsecured loans to business customers, both individuals and businesses, as well as certain types of salaried individuals. These loans are primarily delivered through our branch network, and these loans are aimed at providing finance for the growth and working capital requirements of our customers. Asset finance vertical, which we started in 2010, constitutes 38% of our book and is aimed at offering financing options to customers for acquiring new and used commercial vehicles, construction equipment, and tractors. These are income-generating assets.
We have a strong OEM partnership and dealer networks across the country, as well as a dedicated in-house sales team that spearheads our origination efforts in this vertical. Consumer finance vertical started in 2016. Today, it constitutes 23% of our book. Through this vertical, we aim at providing credit to individuals looking to finance their two-wheelers, consumer durables, digital products, and cars, or other lifestyle choices. Our large network of partnerships with OEMs and dealers across the country, aided by a sales team present at the point of sale, backed by digitally assisted journeys, forms a fulcrum of sourcing in this vertical. The secured book, which is loans secured by our collateral, accounts for 73% of our loan book, while unsecured book is 27%.
Broadly, our secured book consists of loan against property, gold loans in the enterprise lending vertical, entire asset finance vertical, and auto and two-wheeler loans in the consumer finance vertical. We have a diversified and well-established channel tailor-made for each of the products in our suite, including pan-India branch network, telecalling teams, OEM channels, and dealer network, DSS, and digital sourcing. I elaborated on our branch network, channel partners, and primary sourcing channels for each vertical earlier. In addition to that, over 80% of our branches are located beyond 20 larger cities of India, in line with our focus on providing credit to Aspiration India. Our 38,000-plus firm, seat on street, seat sales staff, help us understand the Indian micro-market and design tailor-made product offerings to fulfill customer needs.
While our physical network ensures a high touch and feel factor, our processes are tuned to digital or assisted digital journeys, ensuring quick turnaround time and a seamless customer experience. Our mobile app, which is called HDB On The Go, has crossed 10 million downloads. This makes us a truly physical company. Coming on to our credit and collections, we have a 360-degree credit assessment methodology, and the credit vertical is headed by a Chief Credit Officer, which is independent of the business origination verticals. Our hybrid credit underwriting model includes a centralized automated system with scorecards and rule-based decision-making for smaller ticket low-tenure loans and an independent assessment by the branch-based credit managers, including physical evaluations for larger ticket loans. These are aided by product and geography-specific scorecards.
Our proprietary underwriting and credit scoring engine is seasoned across credit cycles and is updated on a periodic basis by our investing in micro-markets. This enables faster credit decisions. Coming to collections, this function has been part of our operating model since our inception. We have an in-house team of 12,500-plus employees in our collections vertical, consisting of telecallers and feet on street, present at the branch, regional, and national levels, ensuring sensitivity to local languages and customs. The collections team uses multiple scorecards to monitor collections across buckets. Each customer in the bucket is assigned a risk score bank and has a predetermined collection strategy based on which further action is taken by the collections team. Over 95% of our collections happens through the banking channels. Our collection process is monitored and tracked through our collections application developed in-house with geo-tagging and e-receipt capabilities.
We have a central excellence with dedicated central collections team, which is responsible for training and quality checks of collections personnel, tracking and monitoring the quality of our collections process, and identifying centralized billing and option for asset disposals. In terms of our financing, our liabilities, we have an independent treasury department that is responsible for fundraising and liquidity management. We have diversified funding sources from various sources, including public, private sector, and foreign banks, mutual funds, insurance companies, pension funds, and financial institutions. We raise funds through MTDs, term loans, commercial paper, external commercial borrowing, subordinate debt, and perpetual debt. Our treasury operations are monitored by the ALCO, which oversees our liquidity, interest, and currency risks. To briefly touch upon our risk management, we have a robust risk management framework and a comprehensive risk management policy.
Our risk management team is led by our Chief Risk Officer, with oversight by the risk management committee of our board of directors. With that, I'd like to extend my heartfelt thanks to our 80,000-plus employees, many of whom have been with us for over 18 years. Coming to the quarterly business update, with an expected stable monsoon season, higher farm incomes, and consequent rural demand, we provide stimulus to rural consumption while helping moderate headline and food inflation. The recent rate reductions by the regulator augur well for growth, as economic momentum can be expected by private consumption and traction in fixed capital formation. Within consumer finance, Q1, which coincides with summer months, is typically a strong quarter for product segments like ACs and refrigerators, which is compressor products, as we call them, wherein traction this year was seen to be relatively lower.
Mortgage demand is expected to hold, especially with reduction in benchmark rates. Q1 generally tends to be a seasonally weak quarter for vehicle finance. Early indicators and volume probably indicate a relatively muted quarter this year compared to a year ago, with corresponding stress on asset quality. On that note, I will now hand over to Jaykumar, the CFO of the company, for an update on the financials.
Thank you, Ramesh, and thank you very much, everybody, for dialing in. Moving on to the financial performance for the quarter, our customer franchise grew to 20.1 million, an increase of 5% during the quarter and 20.4% year-on-year. The total gross loan book as of June 30, 2025, stood at INR 109,342 crore, growing 2.3% sequentially and 14.3% year-on-year. Secured loans, as Ramesh mentioned, comprised 73% of the total loan book. Disbursements for the quarter ended at June 30, 2025, was INR 15,171 crore, down 14% sequentially and 8.1% year-on-year. Our branch count, as Ramesh mentioned, stood at 1,771 branches spread across 1,166 cities and towns. Net interest income for the quarter was INR 2,092 crore, an increase of 6% quarter-on-quarter and 18.3% year-on-year. NIM for Q1 FY26 expanded to 7.7% versus 7.6% in Q4 FY25 and 7.6% in Q1 FY25.
Our cost-to-income ratio for the lending business was 42.7% in Q1 FY26, as compared to 42.9% in Q4 FY25 and 43.2% in Q1 FY25. Credit cost for the quarter was INR 670 crore, as compared to INR 634 crore in the prior quarter. In Q1 FY26, income or BPO services contributed to INR 14 crore, or 1.9% of our total PBT. Profit after tax for the quarter ended June 30, 2025, stood at INR 568 crore, as against INR 531 crore for the prior quarter. Gross stage III, which in our case as HDB is the same as gross NPA under IRAC norms, stood at 2.56% as of June 30, 2025, as against 2.26% as of March 31, 2025. Provision coverage on stage III stood at 56.7%. The return metrics are accounting for primary IPO receipts of INR 2,500 crore as of June 30, 2025.
ROA, as of the quarter end, stood at 1.94%, which includes assets of approximately INR 9,000 crore of OFS as of the quarter end. Adjusted for this, ROA would be 2.02%. ROE for the quarter ended June 30, 2025, annualized stood at 13.16%. Earnings per share for the quarter was INR 7.1, with a book value of INR 225.4. Our borrowing mix remains well-diversified, with 39% of our borrowings coming from NCDs, 39% from bank loans, and rest as a mix of CPs, ECB, PERP, and subdeb, as is visible from the earnings presentation that we've put up. We remain well-capitalized with a total CRAR of 20.18% as of June 30, 2025. With that, thank you once again to all our employees, the investing community, and all stakeholders and shareholders, including the regulators who have assisted us on our journey.
I will hand it back to the operator to help us open it up for Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star, then one on their touchstone phone. If you wish to remove yourself from the question queue, you may press star, then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead. Abhijit sir, your line is unmuted. Please proceed with your question.
Am I audible?
Yes, sir, you're audible. Please go ahead.
Yeah. I do not know if you heard me. I was trying to say, first of all, congratulations on your first earnings call. I just had two questions. First is, you put out your disbursement mix in the quarter. I was seeing that asset finance disbursements were down almost 15% year over year. I was just trying to understand if I look at the industry numbers, industry volumes, the volumes are not down to that extent. What is it that is leading to some weakness in terms of disbursement and growth in our asset finance vertical? Second, in terms of asset quality, our 30-plus DPD is up almost 90 basis points quarter over quarter. Some weakness that we are seeing in asset quality.
If you could just help us understand, this is more in the nature of the seasonality that we've seen in the first quarter, or is this more looking like some weakness in macro, which is contributing to it? Also, if you could help us understand, this weakness is more pronounced in vehicle financing or some other customer cohorts in consumer finance. Just these two questions. Thank you so much.
Thank you for that question, Abhijit. Specifically, if you look at relative to the book growth of about 15%, our net interest income grew by about 18.3% YOY. Our net interest margin also expanded from 7.7% to 7.6%, primarily on the back of higher yield, right? The impact of some of the rate reductions that are there in the system really will not show up in Q1. We expect them to start showing up in the subsequent quarters as we replace our debt and as our book grows and as we take on newer debt to replace the older debt, which might be at a higher rate, right? Specifically in commercial vehicles, what we're seeing is anywhere to seasonally be quarter.
One of the things that we have done is really reorient our strategy around our product mix, which started reflecting in some of our NI and NIM numbers in terms of the mix between the various asset classes within the commercial vehicle business, right? This recalibration is something that we started about a year ago, something that has started showing results in terms of net interest margins that we are starting to see inching up in our book, right? That is something that will play out over the next few months. That is largely where the asset finance space is at. Again, because it is a seasonally weak quarter, primarily some of our increase in the early stage delinquencies are in our sector loans, which is primarily in commercial vehicles.
We expect that to calibrate over the next few months as in terms of the seasonality and the way the business works. Anything else, Jay?
No, perfect. Gopik, and just one last thing as a follow-up. In terms of provisioning cover, if I am seeing this correctly, our provisioning covers from stage one and stage two have declined sequentially. Just trying to understand, is this more a function of the ECL model? Because I mean, all I'm trying to understand is if the macros are still weak, what is kind of going into the ECL model for it to churn out lower provision covers on your stage one and stage two loans?
Abhijit, in terms of how we do our modeling overall ECL, we have very granular book in terms of overall loans. We work on a base model. Our overall provision, as you would see, are 3.3%, which is the same as last quarter. Our PCR is a constant. Some of the interplays that work is purely on account of book mix at every stage that works its way through. Some of the weakness that we've seen, as Ramesh highlighted, has been on the CV side, which is a secured product.
Got it. Got it. That's all. Maybe I'll come back in the session too. Thank you so much.
Thank you so much.
Thank you. Our next question comes from the line of Rajiv Mehta from Yes Securities. Please go ahead.
Yeah, hi and good evening. Thank you for giving me this opportunity. Again, just coming back to the disbursement degrowth in the CV financing portfolio, it seems, and I think from the ticket size, average ticket size, it seems that we predominantly do used vehicle financing in that product. Now, this degrowth and disbursement in business on Y and Y basis would have been driven by seeing genuine slowdown in demand of used vehicles on the ground, or was it because of factors like unsustainable competition or maybe pricing not being in line with your expectations?
Two things, Rajiv. One is you're right. There has been some weakness in the CV segment as a whole, and that's coming through. Secondly, we don't really finance large vehicles. On the HCV space, etc., we're very, very small. I mean, that's large in terms of how the economy has fared and how the business is. There hasn't been any other specifics that we would highlight. Yeah.
Okay. In the enterprise lending segment, also the disbursements are down on a year-on-year basis. Is it driven by that or the unsecured business loans, or in both segments, have we seen the business being lower versus last year?
Two things there. On the overall enterprise lending side, on the unsecured business loan is where we had consciously slowed down a couple of quarters ago. We're making sure as the economy turns around, we watch it closely. As things turn around, we will move forward on that. That's a space we're very well entrenched into. We're keeping a close eye on that one. On the last front, I think there has been reasonable growth in line with how the overall markets move, this is the way I would put it.
Okay. Can you share the 1 to 30 DPD bucket at the company level in absolute terms or percentage terms, how that has moved between June and March? Has it also significantly gone up sequentially, which is generally the case from a seasonality point of view, but is that bucket also still heavy as we get into the second quarter?
What I'll do is, I mean, there is a slide which very clearly states the stage one. Let me just look through that, and I'll come back to you. Probably we'll try and see if we can come back by the end of the call, or we'll then address it. Yeah.
Sure, sir. Thank you. Thanks so much, Abhijit.
Thank you. Our next question comes from the line of Renish from ICICI Securities. Please go ahead.
Yeah, hi sir. I'm from a group set of members. Just two questions. One on the asset yield side with expanding 30 basis points expansion sequentially. Just wanted to understand following that cycle what is driving this 30 basis points expansion and sequentially. Is it driven by the asset mix change, or we have increased the lending?
Sorry, Renish. Renish, my apologies. Can you go a little slow? We are stopping the interview.
Sorry, I'm picking up the speaker because we can't really hear you.
Yeah, yeah.
Is it better now, sir?
Yeah, it's better.
Yeah.
Yeah. First question on the asset yield side, which expanded almost 30 basis points sequentially. Just wanted to understand in a following rate cycle what is driving this asset yield expansion. I mean, is it driven by the asset mix change, or we have increased lending rates in some of these segments?
Renish, there are two factors which are driving the yield expansion. One is that within each product that we do, there is a pretty large range of pricing that we have depending on the borrower profile and the asset profile, right? For example, simplistic example, commercial vehicles, heavy commercial vehicles to a fleet versus a used commercial vehicle, which is five years old to a first-time borrower. There is a fairly large range of pricing that you have. In some of the products that we have, we have tweaked the product mix in terms of yield expansion at the product level. That is what is really driving the yield expansion. Pricing is really a function of what we finally deliver as the product mix in each product. That is what is really driving the yield expansion.
Okay. Is it fair to assume that maybe 10-20 basis points here and there, but broadly, asset yield will remain at around 15%, I mean, in near term?
Renish, Jaya, our yields are approximately 14.1, 14.2, which is what we hold on to, right?
Okay.
Not sure where you look at 15% from, but that's the yield, right? And the NIMs is what we really have been very focused on. That's 7.7, which is what we've been very focused on as a whole.
Okay. Okay. Secondly, on the credit cost front, this quarter, credit cost remains sticky at 2.5%, which is understandable given typical seasonality. When we look at even on annual basis, the same is higher by 70 basis points. I just wanted to understand which product is sort of getting the stress. Where do we stand in terms of asset quality cycle in the products which are under stress currently? When can we expect the normalization of credit cost in some of these segments?
In terms of credit cost, I would say it's largely in line with our expectations in terms of where we went in the quarter. I think that is the first important statement there. In terms of products, we had, even during previous interactions with the broader community, stated that there has been past stress in unsecured business loans and a little bit on CV, which we expect to stabilize, as Ramesh said, over the coming months. We will watch that space closely and move from there.
Okay. Okay. So apart from secured BL and CV, there is no other segment which is sort of showing any sign of stress. Is that fair to agree?
We have not seen any, how would I put it, unwarranted spikes anywhere is the way I would put it.
Okay. Just to follow up on that, in CV.
Renish, we'll take one question.
Yeah, sure. I'll come back in the Q.
Yeah.
Yeah. Okay.
Thank you.
Thank you. Our next question comes from the line of Virul Shah from IIFL Capital. Please go ahead.
Yeah, hi. First of all, thank you and congratulations on the first quarter. I had two questions. One is you mentioned that you expect that especially the consumer piece of the business and somewhat in the CV with the current stress, which is there, it should kind of say or is close to peaking out and it should start improving in the next few months. When I look at the consumer finance disbursements, which is almost now flattish on a year-over-year basis and a sequential basis, we have seen a growth. Are we already starting to, say, push the pedal of, say, growth or slightly loosening the filters over there?
Just to clarify, Virul, the consumer finance business is doing quite well. I think where we had a lower ticket size compared to what we would have anticipated is primarily because certain products that sell quite in a large volume during the quarter, we had lower traction on those products, primarily the compressor products which account for larger ticket size. Otherwise, you see, I think customer engagement has been quite strong during the quarter. As you mentioned, we are now 20.2 million customers, up 0.9 million customers in the quarter. In terms of customer traction, it's been quite healthy. I think where we have, I think the two product categories where we said our credit cost has had an elevation in the last couple of quarters is one, commercial vehicles, and second is unsecured business loans.
Consumer finance categories, otherwise, from both from a growth and quality perspective, is doing quite well.
Okay. Got it. You mentioned about the unsecured business loans. Over there also, you expect, say, a similar kind of recovery in the second half? Is that something that may take some more time?
We will watch it closely. As I mentioned, I think it has obviously the macros also playing out in it. It is a space we will watch closely. It is currently stabilizing in a decent form. Let us look through the coming months.
Got it. My second question is with regards to basically our OpEx. This is more, I would say, when I look at us and compare it with some of our peers, somehow the productivity levels seem to be a bit weaker on a relative basis when I look at, say, either a per branch or a per employee. I'm looking at just the lending business, not the overall business. Over here, do we see a pathway of structurally, say, the operating leverage now from here on playing out as we kind of keep growing? What is that extent of operating leverage that we can see over the next two, three years?
Virul, I'll give you our side of it. The most important thing we need to look at us as HDB is we're a very focused retail-only entity, right, with an average loan size of around INR 160,000-165,000, right? And individual 20 large customers, if you take, it's only 0.32%. Now, that level of granularity, when you operate through the network, it is going to be at a slightly different cost base in terms of how others might operate. I'm no expert to comment on anybody else. We believe at this level of how we're operating, obviously, every management would look to improvising on things and getting better efficiency. At this stage, if you look specifically in the current quarter, our cost-income ratio has improved by almost 20 basis points compared to the prior quarter.
We are very seized of the fact that costs play an important role in the overall ROI metric. At this point in time, I think we are working through the branch network, the retail network that we have, and our focus always remains on delivering the overall ROI.
Okay. Just a bit, the guidance in terms of the OpEx specifically over the medium term?
I think we'll take it at a future point in time. I think there is lots of interplay in the overall macroeconomy. I don't think it's fair to provide a guidance in specific.
Got it. Thank you and all the very best.
Thank you so much.
Thank you. Our next question comes from the line of Suresh Ganapati from Macquarie. Please go ahead.
Yeah. Just a little bit on what do you think will be the eventual sustainable credit cost? Because we are already at 2.5% for this quarter, and the last year, full year was 2.1%. We are already operating at a high level. Your numbers are much higher than peers. Also at the ROI level at 1.9%, again, it is much, much lower than peers. Is the business model inherently having higher credit costs and therefore lower ROI? We have touched 3% ROI also in the past. We want to know where the reality is and where things should eventually settle because you are currently operating at 1.9% ROI. That is one point. That is the first question. Maybe then I will go for the second one.
Okay.
Suresh, I'll try and answer your questions. On the credit cost level, as I said, Q1 has been weaker and slightly almost in line with expectations. We expect things to move in the right direction from here on and stabilize through Q2 and then improve going forward. That's our current working assumption and the piece that we're working on. That's one. On the ROI front, as I mentioned, the way to look at 1.9 is really 2.02 because of the INR 9,000 crores sitting there. As credit cost starts to improve, you'll automatically see an improvement in ROI. Another important thing, Suresh, note is that on the rate reduction, as Ramesh mentioned, the benefits of that haven't really come through at this point in time for us. That's something that you will see in terms of NIM expansion over the coming quarters.
Okay. Just my last question, just a qualitative understanding since you guys, of course, run the business. What is explaining the CV slowdown? Is the government not spending? Is the rural incomes weaker? Because we see rural incomes being very buoyant. Last year, monsoon was fantastic. Still, we have had this kind of an outcome in the CV space. Is it over-leveraging? Any kind of qualitative assessment that you can give on what has gone wrong here?
It's very difficult for us to give a color on how and what drives certain volumes, right? For example, one of the things that we think happened, for example, in the compressor space was that the unseasonal rains, it wasn't too hot, and that led to certain lower traction that we saw on compressor product financing. That's relatively easier to sort of guess. Very difficult to guess what's driving vehicle sales at any point of time. Again, there are many factors, including availability and revenues that are coming. I think one of the things that happened in the last few years is that vehicle prices have gone up quite sharply, also led by many technological changes. For example, one of the things is that I think the newer vehicles require an air-conditioned cabin.
It's the production requirement, and that will automatically increase prices, which means that vehicles are being deployed for longer than they used to be in the past. Also, maybe because vehicles are much more sturdy in terms of quality and capability as compared to maybe a couple of decades back. Actually, something that we're watching and monitoring, one of the things that we have done internally is really focus on aligning our segment-wise strategy in asset finance, which I explained also contributes to our NIM expansion. On the yield side, right, as I said, our NIM has expanded because our yields have improved, not because of benefit of cost of funds, which will start coming from Q2 onwards.
Ramesh, that can increase credit costs also, right, because you're moving up the risk curve?
Yeah. We look at it from a risk-adjusted return. I think we're okay with the increase in credit costs as long as the risk-adjusted return is favorable.
Sure. Okay. Okay. That's clear. Thank you.
Thank you.
Thank you. A reminder to all the participants, if you wish to register for a question, you may press star then one to join the question queue. Our next question comes from Subhanshu Mishra from PhillipCapital. Please go ahead.
Hi. Good evening. A few questions. First one is we are still in a startup phase, right? If I look at the product portfolio, only LAP and MS are the ones that are really seeing business. And then anywhere between two to four years. Are we going to see closure of any businesses or addition of any new business lines going forward? That's the first. Second is around the customer segment. Out of the 20 million customers that we have, how many do we bank on a monthly basis? Which is match-fitting their bank accounts? What is the percentage of repeat customers in this 20 million? The third question is around the ECL, which is at 56%. Despite a large proportion of our business being secured, 56% in ECL methodology was basically loosed to the LGB.
Are we carrying excess provision or are LGB at around 50% plus?
Sorry, Suresh. I think we caught some of your questions. Some of them were not very clear. I'll just repeat the question so that we're on the same page. Any closure or new businesses that we're planning to start? That was your first question. Second question, we caught out stuff from current customers, and then I think we lost some of it.
Right, right. From the current customer side or customer within the 20 million, how many are we banking on a monthly basis? What is the percentage of repeat customers here? The third question was around the PCR. We are at 56% PCR despite a higher proportion of secured business. An ECL would mean basically LGD. Is our LGD at 50% plus or are we carrying excess provision?
Okay. On PCR today, Subhanshu, what we've done is we've calibrated it based on what we believe are the right levels to carry, right? Of course, there's a model that goes up a number, and then we look at it in terms of the overall market and individual product-wise, and we carry provisions accordingly. That's on the PCR.
There's excess provisions there?
As I mentioned, I think there will be some amount of product-wise, specific book-wise that we look at on a quarterly basis, and we maintain provisions to make sure the risks are well covered. Yeah.
In terms of product mix, Subhanshu, we do evaluate new credit products all the time. As and when we have a new product out, we'll put it out to the market. At this point of time, there's no product that we are considering for closure. That's not in the plan right now. We are broadly comfortable with the product mix that we are and working towards making sure that we are not dependent on any one product or any one category to an extent that it impacts our balance sheet. In terms of repeat customers, that really depends on some of the products. For example, within our consumer finance segment, and if you've seen our business presentation, we have a deck on all our products, right? In consumer finance, there's a product.
Slide 17.
Slide 17, which talks about our products. Relationship PL, which is a product which accounts for about 7% of the AUM, is only for existing customers of the company. That business is 100% existing customer-only product. Otherwise, from just a market opportunity perspective, more than 60% of our customers would be new to HDB customers at any point of time, right? We do not lend money to customers who run our bank accounts. The first option for collections is through our bank account. Only if the customer is unable to pay or has missed the payment through the bank account do we pursue other collection modes.
How many customers do we bank on a monthly basis?
That would be in excess of 10 million.
Right.
That 99% is.
Oh, so only if we bank all our customers? I mean, yeah, that's the question.
We are banking 20 million customers on a monthly basis. 20 million EMI?
Sorry, sorry.
Subhanshu, sir, your line was not quite audible. Could you please repeat the question once again?
That is fine, Subhanshu.
How many bank accounts do we present with match?
Sorry.
We match all of them.
All of us.
All of them. We collect a match mandate from every customer that we work with.
No, 20 million match mandates every month is what I'm asking.
Twenty million is the life-to-date customers that we have, right? That is the overall customers.
How many do we bank on a monthly basis? How many match presentations on a monthly basis out of the 20 million?
I think let me come back to you on that one, right? As I said, overall, from a banking point of view, we bank all our customers. In specific, in terms of the breakup, I think we will look into it and come back. Okay?
Thank you. Thank you.
Thank you so much.
Thank you. Our next question comes from the line of Pranuj from JPMorgan. Please go ahead.
Hello. Thank you for taking my question. Coming back to the CV bit of it, I think you commented on what is driving the volume slowdown. If I come back to the asset quality in terms of operator profitability, can you give us some sense of how you expect it to move? You did allude to the point that the cost of ownership has materially gone up over the last few years. While freight rates may not have kept up pace with that, they move more in line with the diesel moment. Again, any outlook on operator profitability and vehicle utilization level? What gives you the confidence that this could improve in the coming quarters? Thank you.
Most of our customers are relatively small transporters, right? I mean, typically a vehicle or two. I think their business model is fairly independent of how fleets and large operators work. These are essentially jobbers or people picking up loads locally. They have tires locally with people, and they're working through moving the goods from one place to another either within a district or within a state. Our exposure to large fleets is quite small. Indeed, business is not really a cost per kilometer, but it's more an availability. It's typically a per trip or per project kind of pricing that these businesses work on and not really a cost per kilometer kind of model. To that extent, it's a fairly different model that customers that we work with.
I mean, our exposure to fleets and those kind of customers who work on large contracts is quite small. I mean, that's really how we think about it.
Are you observing any impact on, are you observing that operator profitability is getting adversely impacted even for these small road transport operators because the cost of vehicles have moved up? You also said it depends on the availability of trips. On the vehicle utilization front, on a year-over-year basis, are you noticing any improvements happening?
Pranuj, as Ramesh mentioned, our book is very granular. It's slightly different to the segment I believe you may be looking at in terms of these two large operators. I think what we can do is connect offline to maybe understand better, and you can connect with our IR team, and then we can take it forward. Okay?
Sure. Thank you.
Thank you so much.
Thank you. Our next question comes from the line of Avinash Singh from MK Global. Please go ahead.
Yeah. Hi. Good evening. Thanks for the opportunity. A couple of questions. The first one, again, coming to that, your asset quality or credit cost. I mean, of course, you alluded partly to the seasonality of Q1, but I mean, if we were to look at numbers since March 2024, quarter by quarter, I mean, the gross NPAs have gone up, and credit cost also has been sharp. Overall, I mean, where do you see, I mean, given your customer mix, your business segments, at what time, I mean, or at what levels do you think this is going to peak out? Because the question is that, okay, now, I mean, of course, March 2024, a pretty low level of credit cost. Now we are near 2.5%.
At what point, I mean, given the macro scenario or particular to your business strategy, where do you see this peaking out? Because this is not typical seasonality. Because even if you look quarter on quarter, it has been just inching up over the last five quarters. At what level once can you start to see sort of that, okay, that has peaked out, and it should improve? That is one. Second, if I, of course, you partly, I guess, touched upon this question. If you look at your profitability metric at the end of the day, I mean, right now, it is a bit subpar. Now, what would be just kind of your realistic goal in terms of ROA and improvement from here?
I mean, if you can just break it down into sort of what kind of improvement you expect from NIM and what kind of expectation, I mean, improvement expectation is from credit cost. Because, I mean, given your kind of business model, OpEx will not likely see much improvement. So what kind of improvement do you see in terms of NIM and credit cost? And what is sort of your target ROA, if one can say? Thanks.
Thanks a lot, Avinash. Avinash, a couple of things. NPAs in terms of where we are, if you see our last couple of quarters, it's been in terms of credit cost, it's stabilized. Overall, the question around peaking, etc., it's a lot more of how the overall economy functions than economic activity moves, right? I wouldn't want to double-guess something, but most people that I talk to seem to be more optimistic in terms of how the next couple of quarters will play out and move forward. Let's hope and let's work from there in terms of the overall economic activity in the country and things moving from there. That's one.
In terms of profitability and moving forward, a couple of things we mentioned to a question which came earlier from one of your colleagues was that on the NIM side, the benefits of our rate reduction, which has happened on the repo side, has not really come through. That we see coming through from Q2 onwards. The other important thing, right? A couple of things you look at in that mix, 77% almost, so 75-76% of our book is largely secured and is also fixed rate, right? Very important. Whereas today, we have taken some benefit, and if you look at last quarter versus this quarter, our bank borrowings, which are completely EBLR-linked, have increased. We have taken some benefits there, and that should help us in terms of the overall profitability.
Second component, as I mentioned, on the asset quality side, as things start to improve, the credit cost moderates. Both those are key parameters in terms of the NIM and credit cost, and that should play itself out in terms of ROA improvement.
Okay. Thank you.
Thank you so much.
Thank you. Our next question comes from the line of Shweta from Elara Securities. Please go ahead.
Thank you, sir, for the opportunity and congratulations on the first quarterly earnings. Three questions from my side. While you alluded to the fact that not all woes are behind trans-secure loans, what is your assessment of the new book behavior formation? I am also coming from the fact that considering stage two, stage three, year-on-year basis have seen stocks spike. Of course, you have attributed this to persistent CV weakness, but then any particular portfolio dominating this stage two spike? Second, just a related question, any legacy or pandemic-led challenges assets lingering in stage two or stage three? Third question, what is your AUM growth guidance, and what are the levers considering there has been, again, stock change in disbursement mix for this particular quarter sequential basis? Thank you.
Shweta, a couple of things. In terms of the new book behavior on unsecured, as I mentioned, things have stabilized over the last few months, and we're watching it closely to make sure it's sustainable and take it forward from there. In terms of the spike into delinquencies of stage two as such, has come through on the CV side, as Ramesh alluded to earlier as well. We are very hopeful that things move through in the right direction, which is what is expected. In terms of legacy, we don't have any legacy issues as such. In terms of guidance, we have basically a policy of not providing guidance as such. I'll keep it at that. We look at the overall economic growth as the primary indicator in terms of how things move forward.
Thank you. That's very helpful.
Thank you.
Thank you. Our next question comes from the line of Hiran from CLSA. Please go ahead.
Yeah. Hi. Thank you for comment on the successful IPO. Just a couple of questions on your liability side.
Sorry to interrupt.
Sorry.
Your line is not clear.
Okay. Is it better now?
This is much better.
Yeah. Hi. Just congratulations firstly. Secondly, some questions on your liability side. When it comes to bank borrowings, what's the mix between NCLR and RepoLinked or TBLinked borrowings?
Ninety plus percent or 95% of our entire borrowings is EBLR-linked.
Okay. Okay. When your bank lines are coming up for renewal, are banks now taking an additional spread? Let's say Repo's down 100 basis points, they can't afford it. Are they increasing the spread by, say, 25 basis points or whatever? Or is it the same spread over Repo?
This is something we work through with each of our banking partners, and we have very long-term relationships with all our banks whom we work through.
Okay. Okay. Let me ask in another way. Is it fair to say that the EBLR book sustainably reprices downwards by 100 basis points? Are you conscious of that, or?
Even the EBLR book surely reprices in line with the markets.
Okay. Okay. Fair enough. Yeah. Okay. Thank you so much and all the best.
Thank you.
Thank you. Our next question comes from the line of Rajiv Mehta from Yes Securities. Please go ahead.
No, I think my question is partially answered, but just one thing. In terms of in the current environment, when the asset quality trends are not very supportive in CV, what would be our growth approach? Are we cutting back, or I mean, are we not taking our earlier share of volumes at the dealerships? Is there any change in our approach of business in CV or any other product? Have we changed maybe our filters or policies which will kind of slightly moderate our growth further in the coming few quarters? As a response to the asset quality, what is happening here?
Rajiv, again, it's something that we look through very holistically, obviously, at the ground, there will be granular strategies on various products, sub-segments, etc. I think the main focus on the CV business as a whole, one thing that Ramesh did mention, that we're also looking at doing more of used as a strategic piece, and we'll work from there.
Sure. Sure. Thank you.
Thank you.
Thank you. Our next question comes from the line of Burnish Gurk from Magma Ventures. Please go ahead.
Yeah. Thank you for the opportunity, sir. Just a couple of questions. Firstly, on your provisioning coverage, if I look at on VAIO, VAIO basis, stage one coverage has gone down from, say, 2% to 1.5%. And similarly, stage two coverage has gone down. Stage three has gone down. Just want to understand, is there any policy change, or what is driving this changing provisioning level? Yeah.
Thanks a lot, Pranuj. If you look at our overall provision, the way I'd like you to look at it is on the book, we had a 3.3% provision. Today, also, we had a 3.3%, so from March to June. ECLs have remained a constant or actually slightly in stock. Our book is very granular, Burnish, and a lot depends on the book mix in terms of which product moves and which fashion. We follow a consistent model, and things could move a little bit in terms of different stages as well. We don't have any large assets, as I mentioned. Our top 20 borrowers is 0.32%, right? That's how I would want to look at it.
Yeah. I understand that on QOQ basis, there is not much change. However, on YOY, YOY basis, for example, June 2024 versus June 2025, that shift is quite significant across the bucket. I just want to know if there is any policy change on year-to-year basis.
I think, as I mentioned, overall, the way I would want you to look at it is more QOQ because things have moved in the overall economy over the last 12 months. What would be best in terms of a trade comparison, our overall PDLGDs that get considered, etc., would be a March to June would be a better comparison. Yeah.
Okay. Understood. Understood. Just a second question on your asset quality. If I look at your segmental asset quality from your annual report disclosure, it seems that we have seen sharper deterioration in GNPA vehicle finance NPA compared to peers. Even for the last three, four years, our asset quality performance in vehicle finance seems to be lagging the peers. What is the reason for this? Is it product-specific? Is it geography-specific? What changes are you making to improve this performance? Yeah.
I think we alluded to earlier in the call that there has been weakness in the CV segment, right? I mean, in terms of the higher stress in the book, we're very seized of that opportunity in terms of work in progress that we're working on.
Okay. Thanks. That's it from my side. Thank you.
Thank you so much.
Thank you. Ladies and gentlemen, we are at the end of the allotted time. I now hand the conference over to Mr. Jaykumar Shah for closing comments.
Thank you very much. Really appreciate all of you taking the time today to hear us out. Thank you. Thank you so much.
Thank you. On behalf of HDB Financial Services, that concludes this conference. Thank you for joining us. You may now.