Ladies and gentlemen, good day and welcome to Home First Finance Company India Limited Q3 FY 2025 earnings conference call. 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. Deepak Khetan, Head of Investor Relations of Home First Finance Company India Limited. Thank you, and over to you, sir.
Thank you, Yashasri. Good evening, everyone, and a warm welcome to Home First Q3 FY 2025 earnings call. We appreciate your time and participation today. I am Deepak Khetan, and I have joined Home First Finance as Head, Investor Relations with effect from January 25. I'm excited to build a high-quality investor relations franchise for Home First Finance. I hope you have had the opportunity to review our investor presentation and press release, which are available on our website and the stock exchanges. Additionally, we have uploaded an Excel fact sheet with historical data on our website for your reference. On today's call, Home First Finance is represented by our MD and CEO, Mr. Manoj Viswanathan, and our CFO, Ms. Nutan Gaba Patwari. We will begin the call with an opening remarks from Manoj, followed by Nutan, which will be followed by a Q&A session. With that, I now invite Mr.
Manoj Viswanathan to share his insights on our overall performance. Over to you, Manoj.
Thank you, Deepak. All the best to you. To continue with building a highly respected investor relations practice, let me start with quarter three performance highlights. We are pleased with the company's strong performance during the quarter, as we continue to maintain strong AUM growth of 30%+ and profitability with an ROE of 16.6%. We continue to expand our distribution footprint deeper into our existing markets, as well as new geographies. 69 branches have been added over the last 11 quarters, which is near doubling the branch count in three years from 80 as of March 2022 to 149 as of December 2024. Of these 69 branches, 45 were in new markets and 24 in existing markets. In quarter three of FY 2025, we have added seven new branches: two in Gujarat, one in Eastern Rajasthan, Telangana, Tamil Nadu, Karnataka, and Andhra Pradesh, and eight touchpoints.
With physical and digital branches, we now operate across 359 touchpoints in 141 districts spread over 13 states and union territories. We look forward to adding around 10 branches in the ongoing quarter. Quarterly disbursements were at INR 1,193 crore, about INR 20 crore-INR 25 crore lower than expected. About INR 10 crore-INR 15 crore of impact is because of the Karnataka E-Khata issue, and another about INR 10 crore-INR 12 crore because of tighter credit filters adopted by us during this quarter. Things are stable now, and we are confident about a solid quarter four. As part of our distribution investment, we have also added to our people strength. Total employee strength has grown from 1,249 as of March 2024 to 1,704 as of December 2024.
Our approach to training right after hiring from campuses continues to get more robust, and we are now able to comfortably hire and train higher numbers of frontline employees. Focus on asset quality remains strong, with early-stage delinquencies remaining largely range-bound. 1+ DPD stands at 4.8%, 30+ at 3.1%, and the Gross Stage 3 NPA is at 1.7%. Our credit cost stands at 30 basis points. There is a minor seasonal uptick in early delinquencies, and a part of this can also be attributed to the overall macro environment. As you can see, our GNPA is stable year-on-year, as well as quarter-on-quarter, and we are confident about the asset quality, and there is nothing to be worried about.
The profit after tax for the quarter stood at INR 97 crore, an increase of 24% on a year-on-year basis, delivering an ROE of 16.6%, an increase of 10 basis points compared to the last quarter. Our well-diversified borrowing profile has enabled us to manage borrowing costs effectively, maintaining spreads at 5.2% in line with our guidance. Technology remains central to our strategies. Account Aggregator adoption has improved to 61% for new approvals, a significant improvement over the previous quarter. We continue to exploit opportunities in data analytics and keep optimizing and tracking our operational processes and productivity. 96% of our customers are registered on our app as of December 24, and 88% of service requests are being raised on the app.
I would also like to inform that the company has now crossed INR 12,000 crore in AUM, and though the capital of the company is well above the regulatory requirements, the company is planning the next phase of growth well in advance, and with respect to the same, the board has approved raising equity capital of up to INR 1,250 crore. Since listing, our growth has been non-dilutive so far, and we continue to use the capital judiciously. This decision of the board reflects strong confidence in our ability to drive growth and gain market share in the affordable housing finance segment. Our S&P Global ESG score has also improved significantly from 34 in FY 2023 to 45 in FY 2024, reflecting our dedication towards environmental, social, and governance excellence.
I'm also pleased to inform you that the board of directors has approved the elevation of Ajay Khetan, our Chief Business Officer, to the post of Deputy Chief Executive Officer. In this new role, Ajay will assume responsibility over strategic alliances and marketing functions in addition to his current role. Now I'll hand over the call to Nutan to take you through the financials and other highlights. Nutan, over to you.
Thank you, Manoj. Good evening, everyone. Let us start with the key financial metrics. Starting with spreads, our spread excluding co-lending is at 5.2%. As we had expected, the cost of borrowing excluding co-lending has gone up marginally to 8.4%. Despite continuous increases in deposit rates by banks and consequent MCLR, the cost of borrowing still remains below 8.5%, which is a reflection of the strength of the funding profile of the company. Net interest margin for Q3 was at 4.9%. Things have compressed by 24 basis points on a QoQ basis. About 11 basis points of this is contributed by increase in ex-co-lending cost of borrowing and the rest on account of higher liquidity levels, gearing, and realized yields. In line with Q2, fees and commission income continue to witness good growth. This is driven by full quarter effect of the insurance commission.
We expect the insurance commission to be in the range of INR 15 crore-INR 18 crore per quarter going ahead. Operating cost to assets was at 2.6% for the quarter, in line with our expectations, and marginally lower than the previous two quarters. We expect this ratio to remain range-bound within 2.7%-2.8% as we focus on growth and expansion. Moving on to provisions and asset quality, credit cost for quarter three is at 30 basis points. Nine-month FY 2025 credit cost is 26 basis points. Our nine-month FY 2025 credit cost is lower than our nine-month FY 2024 credit cost of 38 basis points, despite a 33% higher book. We continue to maintain a conservative medium-term credit cost guidance of 30-40 basis points as we focus on growth. We continue to adopt a conservative approach to provisioning, maintaining a provision overlay above ECL requirements.
Moving to balance sheet and capital position, our balance sheet remains robust, providing a solid foundation to support the company's growth plan. Our borrowing profile continues to be well-diversified and cost-effective, reflecting our prudent financial management. 59% of the borrowings come from public and private sector banks, 17% from NHB, 16% from assignment and co-lending, and balance from NBFCs and ECB. Our cost of borrowing is competitive at 8.4%, enabling us to maintain spreads. Our current rating is AA- from leading rating agencies. As per our current liquidity management strategy, we executed a direct assignment transaction worth INR 170 crore during the quarter. We continue to focus on co-lending as well and looking to scale with newer partners. We expect co-lending to contribute around 10% of disbursements in the medium term.
Moving to capital adequacy and liquidity, our total capital adequacy risk-adjusted assets ratio stands at 33.1%, with Tier 1 at 32.7%. We have made some one-time adjustments to this approach in line with discussion with our new auditors. This is majorly led by DA interest drift, which is impacted by 1.8%, and ESOP reserve account, which is impacted by 80 basis points. Our organic cap ital consumption, led by growth, net of capital accretion, is 75 basis points per quarter. As of December 24, our net worth stands at INR 2,408 crore, with a book value per share of INR 269, reflecting our strong capital position. Debt to equity is at 3.8x. Manoj has already covered that our board has approved the equity raise of INR 1,250 crore. I would like to add that our leverage is now nearing 5x. Internally, we are comfortable around 6x.
Thus, we would need to raise equity funds over the course of the next six to nine months as we continue to strive towards a March AUM of INR 20,000 crore. I'm excited to work on this very strategic project at the company and support Home First's future growth trajectory. Overall, our business remains on a strong ground, underpinned by a diverse borrowing portfolio, a robust capital foundation, and prudent risk management. We are dedicated to leveraging technology, growing our distribution network, and optimizing operational efficiency to achieve sustainable growth and value creation for our stakeholders. With that, we conclude our opening remarks, and now happy to take your questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take a first question from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah, hi. Good evening, Manoj and Nutan. Can you elaborate on the tightening of credit filters you spoke about, and shouldn't it have a more lasting impact on your approval volumes than? And which markets were more impacted by this tightening of underwriting?
Tightening of underwriting, some product-specific filters we have put. It would be very nuanced to go into the details in this call. But this is something that we implemented a few months ago, which is that it has impacted our volumes to the extent of maybe around INR 10 crore-INR 15 crore for the quarter. And some of the impact has also come, as I mentioned, through because of the Karnataka issue, about INR 10 crore-INR 15 crore from there. So this is a number that we should now be able to compensate from the markets in the coming months. So I think the impact would now taper off.
Okay. Okay. One housekeeping question is, what is the BT-in as a percentage of disbursement, and what has been the trend here in recent quarters?
BT-in is insignificant in all scheme of things. It's generally less than 1% of our disbursals, and that's generally been the trend.
And how much of the flows that you have seen in this quarter, we have seen some meaningful addition in stage two and even stage three when you add back the write-offs. How much of these flows can reverse in Q4, and whether have you seen this better collections in January? Can you throw some light on that?
Yeah. So if you see last year also, in comparison to last year, if you see our 30-day past due, it is only 10 basis points higher. So generally, there is a moment in quarter three because partly impacted by Diwali holidays and so on. So some of that impact is there this quarter also. Quarter four, there is again a good improvement. So it should, as of now, our expectation is it should completely reverse.
Got it. And the linkage of bank borrowings with various benchmarks? This is the last question. Thank you.
Yeah. So bank borrowings, the benchmarks could differ between public sector banks, private sector banks. It's a combination of MCLR and external benchmarks, generally repo rate.
Sure. Any percentages by any chance?
From the bank borrowing, about 20% of it will be on external benchmarks, which will include repo and T-bill, and everything else will be on an MCLR, which will be 1/3 about three-month MCLR, another 1/3 on six-month, and finally on 12-month MCLR.
Okay. Thank you and best of luck.
Thank you, Rajiv.
Thank you. We'll take a next question from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Thank you for taking the question, and good afternoon, everyone. Just wanted to understand why you have already kind of commented on asset quality, part of it explained by macro environment. I mean, request if you can give some more nuances around this 30 basis points with deterioration in 1+ DPD and 30+ DPD. You also said earlier to the last participant that some of it could have also been because of the festive season and the fact that you expect a good improvement in Q2. But I mean, have you had a chance to kind of look through, I mean, which are these customer segments? If at all, any geographies where you are seeing this deterioration?
There is no geography-specific deterioration. I mean, in the sense of at an overall level, specific states, etc. Of course, across branches, there are always pluses and minuses between quarters, so see that 300 basis points, sorry, 30 basis points movement comes from basically about 200. If there are 200 customers who don't pay at the end of the quarter, it impacts us by 30 basis points, so it's a number that can be reversed. So it also all depends upon the last day, whether it is a holiday and so on and so forth, so some movement is also because of that. Maybe partially, maybe out of the 30, maybe five, 10 basis points can be attributed to a kind of weak environment, etc., also.
But anecdotally or even from our teams on the ground, we are really not getting any negative feedback in terms of difficulty in collections, customers going through stress, and so on. So that kind of feedback is something that we have not yet got. And even this month, if we look at the collections, we are almost at the end of the month. It's all looking pretty good, as good as any other good months in the past. So that is why I mentioned that we are not seeing any cause for worry. It's just a moment of probably 100, 200 customers at the end of the quarter.
Got it. And have you had a chance to look at bureau data? What proportion of our customers would have an MFI loan or another retail unsecured loan?
Yes, we have. We have done that analysis. So microfinance loans, as we have always mentioned, is a very small percentage. It's, I think, 1% or 2% of our 1%, actually. 1% of our customers have microfinance loans. Other loans, of course, we have always said that our customers are, I mean, now almost 80% of our customers have a Bureau score. So they would either have a consumer durable or a two-wheeler or a personal loan. And I think generally, so if you take consumer durables, about 20% of our customers would have a consumer durable loan. Same for two-wheelers, same for personal loans. So about 15%-20% of our customers would have one of these loans. And overall, about 80% of our customers have some loan or the other. And that's how they get a Bureau score.
But those loans, the repayment installment per month is generally in the region of maybe INR 3,000-INR 5,000 a month, which we would have already taken into account at the time the customer came to us for a loan as part of the FOIR. So it should not generally impact the customer's repayment track. And these are loans that get paid off also in between 6-18 months, after which the customer's budget comes back to normalcy. So we are not seeing any impact of the other loans in the customer's repayment report. In any case, in the hierarchy of repayment for the customer, the home loan is always at the highest point. So the default will start for some other loan, but the home loan will always be a priority for the customer.
Got it. And my second question was for Nutan, while you explained that out of the 24 basis points minimum compression, almost 13 basis points came from higher liquidity. Just trying to understand, I mean, is this the new normal for the liquidity, or at some point in time, we will look to kind of run down this liquidity and come down at lower levels?
Abhijit, let me just kind of help you read the breakup again. Out of 24, 11 basis points was the increased cost of borrowing. 7 basis points is liquidity and leverage put together because the balance sheet is getting more and more levered through debt. So that is the 7 basis points. The liquidity between quarter two and quarter three has not moved much. So there is not much movement. The remaining 7 basis points, which is 24- 11- 7, is coming from a lower realized yield. So essentially, what happens is when you calculate the NIM, depending on when the loan has got booked in the balance sheet, the realized yields also move. And so it's a very nuanced breakup of 11 + 7 + 7.
Got it. Going forward, I mean, liquidity, I mean, expected to remain at current levels, or at some point in time, we will look to?
March quarter tends to be the quarter, as you are aware, where we do take drawdowns as we close the year. So towards the end of March, we should be slightly higher, but through the quarter, we should be able to maintain our previous run rate.
Got it. And thank you. And one last question for Manoj again. Just trying to understand, I mean, this question around competitive intensity from banks has always been there. I just wanted to kind of pick your brains on the fact that recently, almost all the large HFCs in the country have been talking about entering this affordable and near-prime segments. And I mean, at this point in time, it looks like, I mean, they're very, very serious about it, right? I mean, have we started seeing some impact of this in the affordable segment? Basically, what I'm trying to understand is there a case that, I mean, over a course of time, we can see some structural compression from where we are today?
Actually, difficult to say at this point of time, but I mean, if I were to just look at some of the two or three of the large entities that are talking about affordable housing, it's actually there is a wide spectrum when they talk about affordable housing. So what we say is affordable housing, we talk about less than INR 25 lakh. Average ticket size being INR 10 lakh -INR 12 lakh, INR 12 lakh-INR 13 lakh, etc. But if you see some of their commentary, it's more like probably closer to INR 20 lakh is the affordable category for them. And correspondingly, obviously, the yield at which they're operating in that segment will be lesser. So I think there are different we're talking about different buckets here. So we'll have to kind of wait and see how much is the impact on our bucket, which is, let's say, the INR 5 lakh-INR 25 lakh range.
As of now, I would say, I mean, the buckets are different. I mean, the buckets in which these entities are operating would be probably different. And in the 0 lakh- 25 lakh bucket, hopefully, there should not be that much impact.
Got it. That's all from my side. Thank you for taking my questions, and I wish you and your team the very best.
Thank you, Abhijit.
Thank you. We'll take our next question from the line of Renish Bhuva from ICICI Securities. Please go ahead.
Yeah. Hi, team. Congrats on the steady set of numbers. So just two questions from my side. One on the LAP. So we have seen last few quarters, LAP growth has been much faster than HL. So where do you see a LAP share settling in at near term? And given the current operating environment, wherein you also mentioned that we have tightened case filters, so how comfortable we are growing this LAP book at a faster pace? So yeah, that's my first question.
See, LAP is growing at a faster pace also because of this very small base. I mean, so we have always been very conservative on LAP, and it's always been kind of 10%-15% of our book. So on a small base, the growth looks faster, and the numbers look much bigger. See, our view on LAP is that currently, we are at about 15% AUM, and we are comfortable to take it up to 20%. So as we expand that from 15%-20%, obviously, the growth in LAP will look higher than the growth in home loans. But that is really our appetite currently, that we want to be comfortable taking it up to 20% in the near term. So maybe in the next two to three years, we are looking at a 20% LAP contribution and an 80% coming from housing.
Okay. And secondly, on the disbursement side, so of course, you did mention about INR 20 crore- INR 25 crore of business loss due to a couple of reasons. But even if we look at, let's say, first three quarters of absolute run rate, which is somewhere between INR 1,150 crore-INR 1,200 crore, so what is happening here? I mean, also when I calculate, it appears that home loan disbursement is actually degrowing. I don't know. I mean, that's my estimate. So correct me if I'm wrong. But yeah, so I just wanted to understand what is happening on the disbursement front and, more importantly, on the HL disbursement front.
See, overall disbursement growth is around 20%.
I'm looking at sequential numbers.
Yeah. So sequential numbers, as we mentioned, last two quarters have been slightly lower because of I mean, last quarter specifically, or quarter three specifically, was because of I mean, we were expecting a number which was about maybe 25 crore-30 crore higher, but that did not happen because of the stated reasons. I mean, if the number was 25 crore-30 crore higher, we would have, it would have been a, I think, sequential growth of about 4%-5%, which finally stood at about 1% or 1.5%, which we think that should get corrected in the quarter also.
Okay. And any comment on the HL disbursement front?
Yeah. So like I said, the average disbursement so our design is based on an AUM growth. So AUM growth of 30% + is what we are targeting. So to achieve an AUM growth of 30%+ , I think the disbursement growth is working out to around close to 20%. So the HL growth will be maybe 16%-17%, and the LAP growth is maybe 20%, 23%, 24% thereabouts, giving an average of about 19%-20% disbursement growth. So that will, in turn, give us an AUM growth of 30%. So that is our design, and that is the way the plan has been made for this year.
Got it. And maybe if I can just within our last question on the asset yield side, again, so circling back to the LAP product, as we've already seen our LAP product growing from 10%- 15% now, and maybe another two years, it will reach 20%. And actually, the self-employed segment contribution is also inching up. But somehow, this is not getting reflected in the asset yield. So any comment on that?
Asset yield, we are trying to maintain it at about 13.5%. And see, I think what we will see is that in the next maybe few quarters, as the borrowing cost, hopefully, as it goes down, the asset yield will not go down to that extent. It's how we are basically looking at it.
Okay. Thank you, and best of luck, sir.
Thank you, Renish.
We'll take our next question from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. Thanks for taking the question. So when we look at it again on the yield side of it, so we increased the rates in August, but again, that's not reflecting in terms of the yields overall. Maybe sequentially, when you look at it, that is not reflected. And even balance transfer has gone up to upwards of seven-odd percent. So any correlation with the increase in the rates which have been there, that it has led to a slightly higher balance transfer as well?
No, the rate increase was. We passed down only 35 basis points to a group of customers who have not actually gone through a rate increase previously. So I would say there was no direct correlation between this minor uptick in balance transfers to that rate increase. Balance transfer fluctuates in that 6%-8% range we have seen quarter to quarter. It's largely external factors, how aggressive competitors are, and so on and so forth, and how effective our own internal retention methodology is going. Not related, at least in this case, not related to the 35 basis points increase that we carried out.
Okay, and this 35 basis points would be effective for what proportion of the AUM?
So we did the increase in August. So yeah, for this quarter, there would be a full impact of the 35 basis points. But the 35 basis points was only carried out only on a portion of the base. So I think about 40% of the entire customer base.
Okay. And still, that is the flat. And this would have been effective for full quarter of this year. Okay. And secondly, in terms of the growth in MP and UP in particular, so these have been the newer geographies. We have seen that we have doubled the AUM over past seven, eight quarters, and now a sizable one at 800-900 odd crore. Do we expect to sustain a similar kind of growth rate, looking at the branch presence as well as the district penetration, or there is still a scope in this segment because a larger part of the growth is also being led by these two states? So do we expect it to continue, or there would be more investments required in these states to further at least maintain the momentum of 30%+ AUM growth?
Yeah. See, I think about a year ago, we mentioned that our new focus states would be MP, UP, and Rajasthan because these are emerging states which have crossed a certain threshold of per capita income and are now showing signs of becoming large affordable housing markets. So that thought remains, and the strategy remains. So we continue to invest in these markets, and we want to obviously expand our market share in these markets. So we have a much stronger presence in MP because we started there earlier, and we have a more deeper presence. In UP, it will require more investment because currently, we are present only in four cities in UP. So we will require far more investment to penetrate UP. But UP is also a much more fragmented market, and we will do it in phases.
Yes, we are definitely committed towards investing more in these markets and increasing our presence in these markets.
Okay. And just in terms of the rise in 1+ DPD, any trends across the geography, maybe in the coastal states of Gujarat, Maharashtra, Tamil Nadu, is it holding on relatively well? And the rise which we have been seeing that is across the newer states, is that the trend?
No, there is no statewide trend. It's mostly branch-specific.
Okay. Okay. But no specific states as such, yeah?
Yeah. No specific states.
Maybe there are higher levels.
Yeah. So I mean, in the newer markets, Rajasthan, MP continue to do much better than the rest of India, and so we don't have any concern as such.
Okay. Cool. Yeah. Thanks and all the best. Yeah.
Thank you, Kunal.
Thank you. We'll take our next question from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity. First question is on employee count. I observed that employee per branch has increased materially this quarter. So what's going on there, and how do you see that number tracking going forward?
Again, the employee number moves depending upon the batches of employees who join. There would be a bunch of employees who would have joined in the quarter. The number goes up slightly but kind of gets averaged out over the quarters. Ideally, we should look at it year to year because in some quarters, some months, there are more number of employees joining. There is an increase in employee per branch.
Okay. Secondly, since we have now crossed 10,000 crore of AUM, is there any update on credit rating upgrade? What are the conversations with credit rating agencies that we are having?
Nidhesh, as you would have seen, we are also thinking about enhancing the capital on the balance sheet. Once the capital is behind us, that would be an appropriate time to engage on this and also take it to closure from the rating agency side. Give or take, I would say, six, nine months for both the activities to get closed. It's something that is a plan that we're working with.
Okay, so next question is on co-lending. Co-lending, the momentum that we are showing has been slowing down, and I think last quarter, we have one of the lowest co-lending disbursements, so any reason for that?
So we had done two tier ups, and we were progressing reasonably well. There have been some changes in the policy-related aspects. So we are working with a new partner at the moment. And hopefully, in another two quarters, we should be able to pull back the losses as well as show growth on this line.
Okay. And as we think about next year, if we are planning 30% growth on AUM next year, then disbursement growth should also be upwards of 25%. So because the 20% disbursement growth continuing next year, probably we will not be able to deliver 30% AUM growth. So how are we planning for that?
Yeah. So the aim is to deliver, say, 27%-30% AUM growth. So accordingly, we will plan the disbursals as well. The aim is to get to so this year, the average disbursal per month was around INR 400 crore. Next year, we are looking to average close to INR 500 crore. I mean, that was the original plan.
Okay. And last question is the count of active connectors in the quarter.
Count is about 3,600 active connectors. 3,646.
3,600 active connectors.
3,646 connectors.
Okay. These were active during the quarter?
Active during the quarter, yes.
Okay. Thank you, sir. That's it from my side.
Thank you. We'll take our next question from the line of Shreepal Doshi from Equirus. Please go ahead.
Hi sir. Thank you for giving me the opportunity. My first question was on this tightening of underwriting norms. So what parameters did we come across as to sort of tighten these underwriting norms?
So we basically get, I mean, we have our own early warning signals and analysis of various portfolios, etc. So based on some inputs that we have got for certain products, we have tightened the norms. We have tightened, or rather, we have increased the number of filters in the process to basically scrutinize it better, and so that also results in a bit of slowdown in the disbursal for some period, and after that, it kind of comes back to normal.
So is it specific to any specific customer profile that we would have sort of seen these trends?
With certain products. So we have a multitude of. I mean, so we have products like construction, retail, apartments, etc., right? So it's a combination of certain products, LTVs, type of properties, etc. Quite nuanced. So I don't want to go into the details at this point. But for certain categories, we have implemented certain extra filters and more exhaustive processes to clear the approval.
Got it. Got it. Okay. And the second question was the NHB borrowing related. So we would have drawn down our borrowings from our sanctioned pool from NHB. So what is the rate of interest that we are able to get from NHB?
See, but it's broadly in line with where the banks are. It's not significantly different.
Okay. So the benefit is no more there in terms of the differential between the two?
For what we are getting now, this should change ideally once the rates go down. But as of now, yeah, you're right. The difference is not significant.
Got it. The last question is on the branch expansion strategy. So what would it be in FY 2026, and which states would we be targeting incrementally?
So, branch expansion, see, largely in a year, we try to target about 30-40 branches. So, a similar number will be there next year as well. And as I mentioned, our aim is to penetrate deeper into the three new emerging markets, which is UP, MP, and Rajasthan. So, we would have a good proportion of branches coming up in those states. Of course, our core markets are also there where there are branches being added in existing locations. So, I would say broadly 50/50 in terms of new markets versus existing markets.
Got it. And so just one follow-up there. In the existing market, are we focusing in the same tier one, tier two locations, or since we are trying to penetrate more, we would also look at tier three and tier four geographies?
There again, the strategy is kind of 50/50. 50% of the branch expansion happens, or 40% happens in existing markets where we already have branches. Addition of new branches in a larger city. About 50% of the branches get opened up in new locations, new cities.
Got it. Got it. Thank you, sir. I have more questions. I'll come in the Q. Thank you.
Thank you. We'll take our next question from the line of Arvind R. from Sundaram Alternates. Please go ahead.
Thank you so much for the opportunities, and congratulations on the strong book. So you mentioned about early warning signals that led to credit underwriting being tightened. I'd like to understand what kind of early warning signals you can give brief about it, whether it is income levels, growth is lower, or a higher leverage among the customers, or is it any particular cohort which is showing any troubling signs?
Yeah. Generally, it is because of some early, let us say, signals that we get on certain pools of portfolios. And also, sometimes we get information from the market. So, say some other entity being impacted by something, etc. So we pick up clues from those and then implement these changes.
So even though we don't see any issues in our portfolio, we are seeing a customer similar to us, but being serviced by other lenders, there we are seeing some signs of.
Both, yeah, so see, the occurrences in our portfolio are not significant enough to impact the portfolio, but there would be sporadic one-off instances that have happened somewhere which give us clues or give us signals, and plus, like I said, we listen to things that have happened to others in the market as well.
Also, do you see especially in the geographies we operate, do you see either real income growth being impacted or higher leverage among the customers in the geographies we operate?
No, we are not getting inputs from the ground teams related to this, or they are not experiencing any difficulty in collections because customers are over-leveraged, so yeah, so as of now, nothing like that has percolated to us at this point.
Sure. The fee income growth has been very good, even though the disbursement growth has been slightly lower. I would like to understand what is it being contributed by. Is it insurance brokerage which is helping here or something else?
So we had started the entire insurance partnerships mid of last quarter. So this quarter, we've got the full benefit of that. So that's what you see in the fee and commission line. So this number is now a more stable number going ahead quarter on quarter.
Can you tell me what is the number from insurance brokerage?
Around INR 15 crore-INR 18 crore per quarter.
Okay. Yeah, yeah. Sure. Sure. Yeah. Thank you. Thank you so much.
Thank you. The next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Hi. Thanks for the opportunity and congrats on your results. I just have one question. When I look at the longer-term trends on your gross slippage ratio, since FY 2018, the ratio has always increased YoY except maybe in FY 2023 when it declined, and then I assume that this trend would feed into your PD and LTV calculations. But when I look at the trend on your stage three coverage over last several quarters, right, about eight, 10 quarters, the stage three coverage has been coming down. Normally, I would think that because the trend has been adverse, the coverage ratio should increase or at least not decline, so can you help me understand how to read this? That's the only question that I have.
No problem. So Raghav, when you look at the stage three from FY 2018, like you mentioned, there are various things happening. We are discussing seven years or eight years. So one, the stage three calculation itself changed in December 2021 when the RBI came up with the once NPA, always NPA classification. So the numbers prior to that are not like for like to that extent. That's one. So in the new computation, you also have a large bucket sitting there which is less than 90 DPD where you don't have to take a full provision. You have to take a part provision. That's number one reason. The second reason is the composition of the book. When you calculate PD and LGD, you calculate based on your past performance. So the PD portion, COVID times showed a different outcome. And finally, the LGD is very dependent on your product.
So if you have an apartment product with a 90% LTV, your LGD is higher versus we have a LAP with a 30% LTV. So your LGDs are very different. As we have been discussing all through the call today that the LAP has been increasing, the self-construction has been increasing where the LGDs are very low because the LTVs are low to begin with. The mixed or the, let me say, the weighted average LGD of the book has been coming down. And that is what is reflected in the provisions. So this is the whole science behind these numbers. I hope this answers your question.
Yes, that's very clear. That was all from my side. Thank you.
Thank you. We'll take the next question from the line of Pavan Kumar from RatnaTraya Capital. Please go ahead.
Hi team. I wanted to understand what is the kind of debt equity that we are looking forward maybe two or three years hence since we are trying to raise money. And also, this INR 20,000 crore target, by when we are trying to hit? And also, are we comfortable lending in the current environment in terms of I'm talking about almost doubling the book maybe next two to three years? How do we look at that overall? And any rationale I mean, I just wanted to understand your rationale behind raising this new incremental loan.
Yeah, sure. So INR 20,000 crore is a number that we're looking to hit by March 27. That's about nine quarters from now. In terms of the debt equity, we are at 3.8, 3.9 depending on if you look at average or closing. We, let's say, rating agencies are comfortable with 5. So what we have done is to take an enabling resolution from the board which allows us to raise this capital in the next 12 months such that depending on the advice from the investment banks, depending on the conversation with investors, we have enough time to take this money in. As far as lending in this environment is concerned, maybe I can request Manoj to share his views on that.
Yeah. So as we have been discussing, so we are not seeing such a major adverse trend as far as lending is concerned. And we are not getting any such ground-level feedback also from our teams. So we are fairly optimistic in terms of our ability to grow and build market share in this affordable housing segment.
Okay. One more thing. What do we think are the normalized BT rates? Because since this quarter, I think there was a good amount of jump there.
Yeah. It moves between 6%-8%. So that's generally the range we have seen. The maximum that we have seen is 8%, I think, a few quarters ago when there was a series of rate changes that were done or rate increases that were done. But broadly, it's in the 6%-7%, 6%-8% range. So it should remain in that range only.
Since we are planning to raise money, is there any chance of LTVs going up maybe not in one year but in a two-year kind of horizon? Or would it be neutralized by whatever yield decline we might take?
Sorry, can you repeat your question?
Since we are planning to raise new money, would there be any chance of seeing the NIMs going higher, or we would pass on whatever benefit we might get from raising new money through declining the yields?
No, absolutely. The NIM will definitely go up, and the ROA should also go up with the leverage coming down. I think the way to look at yield and cost of borrowing for this company is looking at spreads. So the spreads will remain in the 5%-5.25% range that we have been guiding all along. The outcome of NIM depends on how the balance sheet is structured from an equity perspective. So that is just a calculation, and we will continue to keep guiding back to spreads as far as the business portfolio conversations are concerned.
Okay. And have we looked at by when we can hit this current ROE back since we are raising the money?
Once we raise the capital, let's say just as a scenario discussion, let's say six months' time, we are coming close to 17% ROE as we speak. We should go down to 15.5% and then aim to pick up back to 17%-17.5% in about 8-10 quarters. An average three-year ROE for an investor should be in the 16%-16.5% range. That's the model that we are looking to work with. What we have done to arrive at this model is also important to discuss. We've looked at Bajaj, Home First Finance, and Chola as two institutions for the last 20-25 years and how they have managed their growth and how they have come to the market every three years and raised capital three to four years, broadly speaking.
That's the model we hope to work with.
Okay. Thanks so much. That was very useful.
Thank you.
Thank you. We'll take our next question from the line of Krishnan ASV from HDFC Securities. Please go ahead.
Yeah. Hi. So I think many thanks for taking my question. A couple of things. One, there was something you mentioned about having seen a spike, about a 30-day spike as far as your 30 DPDs are concerned. I just wanted to understand what are you hearing from the ground in terms of what are the reasons why people are defaulting? Is it cash flow? Is it variability in cash flows? Is it because there is leverage building up elsewhere? Because you seem to indicate that's not what you're hearing. But I just wanted to understand when you have these conversations on ground, what are you especially because you also said in terms of the hierarchy of repayment, this will be really up top. So just throw some light on what insights you are giving closer to ground. So seeing that.
Generally, the reasons our customers default are largely sometimes there are mismatches in cash flows. Somebody has not got a salary for a month, and they'll get it the next month, or they are between jobs. So that month, the cash flow is a bit impacted. Or there are some emergency expenses that have come up, so school fees, time, or there is a medical expense, etc. So generally, these are the reasons customers delay. So what we normally see in the 1+ DPD, or let us say between zero to 60 days, kind of a default is largely because of these cash flow mismatch reasons. Beyond 60 days, of course, there could be more serious reasons like a permanent impact to the income, a permanent impact to life, etc. So those are generally the reasons our customers default.
But like I said, of late, since this whole macro issue has started happening, our teams have still not come back and said that customers are over-leveraged or overburdened with existing EMIs and they're not able to pay, etc. That kind of anecdotal information or anecdotal news is not something that will still come to us.
Understood. Understood. The other question I had was around LAP, given that that's incrementally a segment where you're likely to build more presence and take the share up from 15%-20%, that will grow faster than the rest of your home loan book. How is the competitive dynamics, especially in the geographies where you're targeting to grow your LAP?
Because of our limited presence in LAP and lower share of LAP, actually, first of all, our performance on LAP is very good. The repayment track record on LAP has been very good. Also, for us to incrementally change that ratio from 15-20 is not a big deal because we are operating on a low base. And I think because many of the players in the market have already maxed out their capacity, we are still in a position to kind of pick and choose our customers.
Krishnan?
Thank you. Thank you. I'm done.
Thank you. We'll take our next question from the line of Shailesh Kanani from Centrum Broking. Please go ahead.
Good afternoon, everyone. Thanks for the opportunity. My other questions are answered. Just one question, Manoj. In earlier calls, we always have guided for a growth, AUM growth of 30% +. Did I hear you correctly when you said 27%-30%? Are we lowering the guidance on the AUM growth plan?
the plan that we mentioned, which is the INR 20,000 crore plan as of FY 2027, that actually works out to between 27% - 30% growth for this period, between 24 to 27. So INR 20,000.
It was not for 26 per se?
Sorry?
So it was not for particular FY 2026 per se. It was in general for the next two years.
Yeah. Next two to three years average from that perspective is how I mentioned.
Okay. Okay. Thanks a lot. So just one more thing. On disbursement fund, earlier we had guided that we are ramping up the capacity with the addition of branches and employees. We were expecting somewhere in the range of INR 2,500 crore-INR 3,000 crore of disbursements in the second half. That guidance still holds, or that is going to be revised downwards considering the macro environment?
So our target for the year was about INR 4,800 crore. So we are broadly on track for that.
Okay, sir. That's all from my side. Thanks a lot. .
Thank you. Next question is from the line of Chinmay Nema from Prescient Capital. Please go ahead.
Good evening, team. I wanted some color on the asset quality of the co-lending book and the direct assignment side. If you could share the stage three numbers for the same.
So Co-lending book is fairly new. I don't think there is any meaningful Stage 3 sitting there. Assignment book we've been doing for a long period of time. It will be way below our own balance sheet numbers, probably two-thirds of where our current own balance sheet numbers are, broadly speaking.
Oh, got it. So the stage three number is lower than that of what we have on our books. Is that understanding correct?
That's right.
Got it. And on the SMA side, behaviorally, do you see something different on these books compared to what we have on our books?
Look, the co-lending book works within a product that we have decided together with the bank, which arguably could be slightly better in terms of profile.
Yeah. I mean, by design, the co-lending book should perform better. I mean, as Manoj said, it is still early days for us to reach a conclusion. Also, as of now, the delinquencies are very low there. But by design, because these are formal customers and in a higher income bracket and higher ticket size, so ideally, they should perform better than the core affordable housing or traditional affordable housing portfolios. But it's still early days to reach that conclusion. Ideally, technically, that's how it should go. Same for the assignment book because assignment is actually I mean, the assignment happens after a certain minimum holding period during which the repayment track is observed, and then the assignment is done. So it is generally marginally better than the affordable housing portfolio.
Got it, sir. And secondly, just wanted to understand what is the right vintage to look at in terms of assessing the gross NPAs? So typically, after how many months do they peak out on average or in general?
They peak out after 36-42 months.
Got it, sir. Thank you.
Thank you. Next question is from the line of Hardik Doshi from White Whale Partners. Please go ahead.
Yeah. Can you hear me?
Yes, Hardik.
Yeah. Hi. So I just wanted to ask a bit of a longer-term question. Given the target, INR 20,000 crore, once you get to that kind of a scale in the affordable housing, growth can get challenging just looking at other companies within the affordable housing space that are working that scale. How are you thinking beyond FY 2027? Let's say FY 2027, FY 2030, would you look to diversify into other products? Or what is the plan?
We are working on a long-term strategic plan. So we do a three-year kind of a plan and discuss with the board. So broadly, our aim is to get to I mean, so like you already said, yes, we have to relook at what the product mix will be and certain other strategies, etc. Still in kind of discussion stage, but broadly, we are looking at INR 35,000 crore kind of a number by 2030.
35,000 by 2030. Okay. And that would include.
35.
Yeah, 35, and that would include, I guess, introduction of new products.
Yeah. So I think broadly, without getting into too much detail, it will basically be a higher share of co-lending compared to what we are talking about now. Slightly higher share of LAP and slightly higher share of co-lending is the way I would put it right now.
Got it. Okay. Thanks so much.
Thank you. We'll move on to the next question from the line of Jatin Sangwan from Burman Capital. Please go ahead.
Hi. Thanks for taking my question. My question is around co-lending. If I look at co-lending transactions, they once reached 7%-8% of disbursement. Now they are back to 2.5% -3% % of disbursements, and they are continuously falling down sequentially. So are there any issues that we are facing with the current partners? And when do we expect these co-lending transactions to pick up?
Yeah. Co-lending, because we have to work with the banks and the partner lending banks, there are always some push and pull in terms of their product policies and changes. Because it's not just our changes. They also change their product policies from time to time. So that impacts the volume from time to time. But these are hiccups that will be there, and we will iron them out, and we will again pick up the volumes.
Okay. Thank you. And just one bookkeeping question. Our effective tax rate in this quarter was around 25%. So what actually would be our effective tax rate going forward for the next year?
So just to cover the reason behind the higher tax rate, see, as we discussed that there is an insurance commission which is higher. So as the non-housing-linked income goes higher, the exemption that we get on maintaining the provisions for NHB also reduces. So when you do all of these calculations going forward, we expect this to be around 24.5%.
Got it. Thank you.
Thank you. Next question is from the line of Jignesh Shial from InCred Research. Please go ahead.
Yeah. Hi. Sorry, I logged in a little late. So I'm very sorry in case if I'm asking the same question again. But my first question is more on margins. If I see our spreads, as basically I've seen a decline of roughly around 10 sequentially. There is a higher dip in margins. So anything that I'm missing out here, what could be the reason for it? That is one. And second, obviously, though we are aspiring to grow pretty decently, 27%-30%, we are talking about next two to three years and raising money and all. But technically, our disbursement had remained more or less flat if I see last three quarters. So anything that we are getting concerned about or any specific reasons for it, that is second.
Third, obviously, you highlighted that basically the primary reason we are still not seeing over-leveraging for the NPAs, but bounces have seen a sequential kind of a rise. So it's purely still you're seeing it's only because of shortage of liquidity or shortage of cash flow that is causing it. And you are still not seeing anything different than this. So I still want to get a little bit more color on it, that what could be the reason behind it. These are my three questions.
Yeah. So, take the first question on margin. So, the NIM comparison of 24 basis points, I think you're referring to. So, it has multiple components. Part of it is also because of the leverage increase, so 4.8 going up to 4.9, partly because of cost of borrowing. So, broadly, you can divide it into three parts. So, about 7-8 basis points each. So, there is a cost of borrowing impact. There is a yield, I mean, slight margin, slight yield, actually compression of about 7-8 basis points. And the cost of borrowing movement of about 8-10 basis points. So, that is the reason for the 24 basis points movement. On the disbursal, like I said, the first half is something that we were very pleased with because the first quarter, we actually had a much higher jump in disbursals compared to previous years.
The first quarter is generally muted, but this time, the first quarter was good. So we had about a 5% quarter-on-quarter jump in disbursals compared to the last quarter of last year. And as a result of which, quarter two was a bit muted because already quarter one, there was a jump. Quarter three, of course, as we already admitted that we have done some changes, and there was an impact of about INR 30 crore-INR 40 crore because of that, which would get rectified in the coming quarter. So nothing which is long-term. It would be, I would say, just a temporary blip, and we should be on track as far as disbursals are concerned. As far as the delinquencies are concerned, again, we are really not seeing any structural issue on the ground.
Collections, if it's actually tracked day-to-day, daily collections throughout the month in how the collection is moving every month, we are not seeing any difference in the way customers are paying, and we are still getting the same kind of traction across months. I mean, collection in January this month is as good as any other previous month. The slight movement in delinquency happens because maybe a few extra customers won't pay at the end of the quarter or end of the month. Otherwise, structurally, we are really not seeing any stress at all.
Okay. Listen, look, I'm asking on disbursement. Firstly, what you're highlighting, obviously, 1 Q, you had seen the jump, and then second and third quarter had been more or less flat. Even if I see for your , I'm just purely adding up last three quarters and then comparing it with FY 2024, our growth had been generally, we have tended to grow in the range of somewhere around 30%+. But if you see it, it would be somewhere in FY 2022, FY 2023, if I add it up correctly. So do you think so by year-end, we'll be going back to 30% kind of disbursement growth number, or do you think this will be the similar range where we'll be growing for this particular financial year? And then again, we can see a rise probably next year. That is one. On asset quality.
If you can just give me a color on the defaults, what we are seeing, is it up? Is it coming up more from the new geographies which we are entering, or is it still from our old markets where we had a significantly stronger presence like Western states and all? A little bit more color on it if you can give it up.
Yeah. So delinquencies, see, as I said, we're not seeing any state-specific problem or state-specific issue. For us, generally, because we are fairly diversified across states. I mean, if you see states, our distribution of AUM is between 5%-15% across 12 states. And only one state, Gujarat, actually contributes to about 30%. So we don't have any concentration. It is pretty fairly diversified presence. So we don't really have a state-specific issue at this point. It is largely there are sporadic or isolated branches in certain states which give trouble. So there is really a state-specific issue that is there at this point of time.
Is it coming up from the new book more compared to the older book or any vintage, if you can give color on that? Or it is, again, old book and new book all same?
Yeah. Vintages are actually holding. So the trends are the same, which is why you're seeing our GNPA trends are also fairly static. See, our growth has been around 30% consistently for the last 16 quarters. And the GNPA has also been in that 1.6%-1.8% range for the last 16 quarters. So I mean, vintage-wise, there is really no change that we are seeing. And as far as the disbursal is concerned, you were talking about 30%. So 30% is, see, the design is for a 30% AUM growth. So the disbursal growth will be slightly lower, maybe between 20%-25%.
Understood. Understood. Right. Yeah. That's quite helpful. Thank you. And all the best.
Thank you. The next question is from the line of Ravi Naredi from Naredi Investments. Please go ahead.
Manoj, you and your team doing fantastic. Insurance commission income is also fantastic, and you have started a new one. Sir, what is the cost of connectors to Home First as a whole? Can you tell that figure?
The cost of paying the connectors?
Yeah. Yeah. Yeah.
We pay about 0.4%-0.5% of the disbursed amount to the connectors.
0.4-0.5. Can you give in nine months how much we charge bad debts from profit and loss account, and how many homes we auction in nine months?
Sorry. What was the first question?
Write-off .
Write- off.
In write- off. How much did we write off from profit and loss account, and how many homes we auctioned?
Yes, sir. So write-off was about 8 crore in the first nine months. 8 crore.
711 accounts.
Right. And.
711 accounts.
Yeah. About 711 accounts have been auctioned.
Okay. Sir, a last one. ECB borrowing, we are hedging foreign currency. And if it is okay, how much borrowing cost we assume to company?
The ECB that we have is hedged fully for currency and fully also for interest rate fluctuations at the moment. The current cost of borrowing to the company is slightly lower than where the banks are.
Okay. Okay. Thank you very much.
Thank you, sir.
Thank you. We'll take the next question from the line of Divyansh Gupta from Latent Advisors LLP. Please go ahead.
Yeah. Hey, a question that someone also had asked. So the trend for stage 3 ECL coming down, what I mentioned that the LGD is coming down because the LTVs are coming down, right?
Because the mix is improving toward lower LTV loans.
But if I see the investor presentation and LTV on book, I see the LTVs are going up. So if I see, let's say, March 2020, first quarter of FY 2022 was where it was 47.4. We are at 47.1. And March of 2023 was, let's say, where it was 45.7. So let's say last one and a half or eight quarters, the LTV has been going up. So I could not get that relation of how we are seeing that LGD is going low because LTV is going low.
No. So when you actually look at the LGD, you have to look at the LGD on the losses that you have actually incurred, not what is on your book. When you have a higher proportion, so naturally speaking, your losses will be higher from your higher LTV book. And that is what is already coming through the LGD calculations.
So I didn't get it. So you are saying that the loans that were given earlier were of a lower LTV, and they are going into NPAs, and therefore the LGD is going down?
No. So let me say five years ago versus now. Let's look at that time period, and then you should be able to appreciate the point better. So let's say if I had only three products and I was doing apartment, self-construction, and land, and the mix was 50, 30, 20, right? And that mix has changed today to, say, 30, 40, and 30, right? So there is a change in mix. But what will come through my LGD calculations is that I incurred higher losses in the past than today because the LGD book has a different mix compared to the book that I'm seeing in the portfolio.
It's not only LTV, but it's also, let's say, the change of collateral mix is what you are saying.
And many other factors. Yes.
Got it and you gave it as an example, but if you can just, let's say, give me with a concrete view that, let's say, what has changed because LTV is not the reason, so then what is the actual change that we have seen? That we are giving more apartments, we are doing more self-construction.
We're doing more self-construction, we're doing more LAP.
LAP typically has a higher NPA, is what I understand. They have a lower NPA.
Higher NPA, but lower LGD.
Lower LGD.
Because LTV is lower, not LTV is lower. So we recover the entire amount.
Got it. Understood, and the second was on Stage 1 ECL, so Stage 1 ECL is basically saying that in the next 12 months, what we see is loans which will go into NPAs. Now, if let's say we say that the economy is in more stress and whatever the narratives are being mentioned, then ideally, your Stage 1 ECL rate should go up. But if I see it, let's say, from first quarter of March 25, or even March 24, third quarter, FY 2024, third quarter, it was 0.27. It has come down to 0.24.
It has come down. The reason for it to come down is we used to have a lot of overlay on Stage 1. So what we had done through COVID is to take a significant amount of overlay, and we would take it on particular parts of customer irrespective of the stages they were sitting in. So you would see a higher provision in Stage 1 as well, but as better times have prevailed, maybe in the last quarter of last financial year, first quarter of this financial year, and now, Stage 1 performance has improved in terms of the flow rates. Our auditors are of the view that this should reflect entirely from what's coming through the model, and overlay on Stage 1 is something that they are not comfortable with.
So we have moved away from the overlay on Stage 1, which we were carrying in the past, to either Stage 2 or Stage 3, or rather reduced the overlay and trying to build the ECL through the model directly.
Got it. And what would be the reason for volatility on Stage 2 ECL? 7.85% in first quarter, 10.1%, 9.6%. Others are directionally going down, and Stage 2 is swinging.
So between Q1 to Q2, there has been a change in the discounting assumptions that we took in Q1 to Q2. And Q2 to Q3 is a reflection just of the higher base of Stage 2 loans. This should go back to where it was in Q2 over time.
Understood. Understood. And just a couple of more questions. So the QIP amount that we are raising, INR 1,250 crore, whenever we raise, it is for what period of time from our visibility? Is it three years, as you mentioned, for Chola or Bajaj, or is it more longer?
Three to four years.
Three to four years. Got it. Understood. And what would be the curent FOIR for our fresh disbursals?
40%.
40%. And this, I'm assuming, is coming down from?
No. This is held pretty much constant.
Got it. Understood. Understood. Got it. That's all the questions that I had. Thank you.
Thank you. The next question is from the line of Pavan Kumar from RatnaTraya Capital. Please go ahead.
Hi, team. I just wanted to understand in co-lending specifically, what is the kind of portion of the book we plan to retain? And are the yields on the co-lending book higher than what we actually do in our own book? How does that work? And do we also plan to introduce? I understand we have currently two or three partners. Any targets on the number of partners we intend going forward? Anything of that nature?
Co-lending book basically 20% of the book we retain, 20% of the loan we retain, and 80% of the loan is passed on to the partner, co-lending partner. So margin is the margin on the entire loan generally tends to be around between 1%-1.5%. So, for example, the rate on a co-lending loan will be around 10%, which will give us about 1%-1.25% margin because we are paying our cost of borrowing is, let's say, 8.5% or 8.75% on the co-lending piece. So 1.25% is what we earn. But we earn the 1.25% on the entire loan, whereas only 20% of the loan sits with us. So, effectively, we get a multiplier effect on the 1% or 1.25% that we are earning. That's how the co-lending piece works.
As far as partners are concerned, we already have two partners, and we are working with a third one. So we don't have a target in terms of number of partners. We want to make sure that whichever partners we're working with, we have a substantial share and share of business going with them.
Most of these partners which we would target would be the PSBs or, I mean, is there any specific preference in that particular nature?
Yeah. We have two PSBs and one private bank.
Okay. Thank you.
Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Manoj Viswanathan for closing comments. Over to you, sir.
Thank you, everyone, for participating and engaging in the call. We hope we have been able to answer all the questions to your satisfaction. In case you want to reach out for further questions, you can reach out to Deepak Khetan or write to us on investor.relations@homefirstindia.com. Thank you very much.
Thank you. On behalf of Home First Finance Company India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.