Ladies and gentlemen, good day and welcome to the Home First Finance Company India Limited Q2 FY26 earnings conference call. As a reminder, all participant clients 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. Sunil Anjana, Head of Treasury and Investor Relations of Home First Finance Company India Limited. Thank you, and over to you, sir.
Thank you, Subnali. Good evening, ladies and gentlemen. Welcome to Home First Finance Company's earnings conference call to discuss the financial results for the quarter ended September 30th, 2025. I am Sunil Anjana. I head the treasury function at Home First, and I have been with the company since 2017. While I continue to lead our treasury team, I'm excited to now also steer our investor relations efforts. We hope you have had the chance to review our investor presentation and press release, both of which are available on our website and the stock exchanges. As per our practice, we have also uploaded an Excel factsheet containing historical data on our website for your easy reference. From the management, we have with us today Mr. Manoj Viswanathan, MD and CEO, and Ms. Nutan Gaba Patwari, CFO. With that, I now invite Mr. Viswanathan to share his insights on overall performance.
Over to you, sir.
Thank you, Sunil. Congratulations on assuming the additional responsibility of the investor relations role. Looking forward to working with you as we build a best-in-class investor relations function at Home First. Good evening, everyone, and thank you for joining us today. Let me share the quarter two FY26 highlights. The AUM growth remains strong, growing at 26.3% year-on-year and 5.2% quarter-on-quarter to reach INR 14,178 gross. We continue to broaden our distribution footprint, strategically adding to our presence in existing markets. In the last three years, we have expanded our distribution from 249 touch points to 366 touch points, up 47%. Branch count has also increased from 101 branches to 163 branches, up 61%. Of these 62 new branches, 36 branches were established in our focus states of Gujarat, Maharashtra, Tamil Nadu, APNT, and Karnataka, and 26 in the emerging and other states.
In this quarter, we added five branches, with the latest additions comprising three in Maharashtra, one in Andhra Pradesh, and one in Gujarat. We plan to add four to five new branches in the upcoming quarter. Disbursements for the quarter stood at INR 1,289 gross, up 9.6% year-on-year and 3.7% quarter-on-quarter. Overall, disbursement momentum has remained healthy despite subdued macroeconomic environment stemming from prolonged monsoon and tariff uncertainty. Our origination yield continues to be healthy at 13.3% despite an 83% share of individual housing loans. This is a significant growth lever at our disposal in a reducing interest rate environment. Asset quality metrics have remained healthy and range-bound. We continue to focus on early buckets and resolutions. One-plus DPD is at 5.5%, 30-plus DPD is at 3.7%, and gross stage three is at 1.9%.
In the previous quarter, we had noted a marginal rise in delinquencies, with a more pronounced impact in Surat and Coimbatore Tiruppur. This quarter, Surat has shown signs of recovery, while Coimbatore Tiruppur continued to see some challenges, largely driven by tariff-related impact on businesses. Our credit costs remained at 40 basis points. Technology forms the backbone of our company. We complement it by a focus on developing in-house solutions that drive innovations and operational efficiency. We recently adopted an in-house developed treasury management system designed to strengthen liquidity risk management, streamline manual operations, and enhance regulatory compliance. It also supports advanced cash flow forecasting and scenario analysis, enabling more effective funding strategies, optimized returns, and reduced idle cash. Digital adoption continues to be strong and a key area of our focus as we grow. 83% of our approvals in quarter two were facilitated via the account aggregator framework.
More than 80% of our loans are digitally fulfilled through e-agreements and e-NACH mandates. 96% of our customers registered on the mobile app, with 87% of the service requests now raised digitally. During quarter two, we got 50 additional green homes certified, taking the total to 240. I'm pleased to share that Morningstar Sustainalytics reaffirmed our low ESG risk category with an improved score of 13.6 versus 16.2 last year. This reflects our commitment towards sustainability and good governance. PMAY-2 scheme saw further traction. As of date, we have received over 3,500 customer applications. Of these, 38 customers have already received their first tranche of the subsidy, with an additional 53 cases approved, where subsidy will get credited shortly. We expect the scheme to pick up traction with increase in customer awareness and streamlining of the process.
As we enter H-2, we remain optimistic about our business momentum on the back of improving macro environment, easing interest rate cycle, benign inflationary trajectory, and proactive government and regulatory measures. With that, I now hand it over to Nutan to take you through the financials in more detail. Over to you, Nutan.
Thank you, Manoj. Good evening, everyone. Starting with the key financial metrics, total income for the quarter stood at INR 479 crores, up 28% year-on-year and 5.2% quarter-on-quarter. With proactive management, we were able to reduce our cost of borrowing, excluding co-lending, by 30 basis points at 8.1%, supporting our excluding co-lending spread of 5.3%. Disbursement yields for the quarter were at 13.3%. Net interest margin for Q2 was 5.4%, up from 5.2% in the previous quarter. Cost-to-income and OpEx Q2 decreased 220 basis points on a quarter-on-quarter basis. OpEx to assets were at 2.6% for the quarter, in line with our expectations. We expect this ratio to remain range-bound within 2.6% to 2.7% as we focus on growth and expansion. Our profit after tax increased to INR 132 crores, up 43% year-on-year and 10.9% quarter-on-quarter, with return on assets of 3.8% and return on equity of 13.4%.
Our pre-money adjusted ROE for Q2 stands at 16.7%. Moving to provisions and asset quality, credit cost for Q1 stood at 40 basis points. We continue to adopt a conservative approach to provisioning, maintaining a provision overlay above ECL requirements. As of September 25, our total provision coverage is 40.8%. Moving to balance sheet and capital position, our funding profile continues to be well-diversified and cost-effective, reflecting our prudential financial management. 60% of funding comes from public and private sector banks, 15% from NHB, 19% from assignment and co-lending, and balance from NCDs, ECBs, and NCDs. During Q2, we executed direct assignment transactions of INR 175 crores. Our disbursements under co-lending business increased by 179% year-on-year and 24% quarter-on-quarter to INR 97 crores for Q2, taking co-lending book to INR 508 crores, or 3.6% of the total AUM.
Co-lending will continue to be an important part of our strategy to strengthen our ability to cater to higher ticket size segments. We aim to take co-lending contribution to 10% of disbursements as we scale. Our cost of borrowing has already reduced by 30 basis points, driven by downward shift in benchmark rates, with incremental borrowing now being secured at even more competitive rates. In the upcoming quarters, we expect further improvement in our cost of borrowing, enabling us to maintain our healthy spreads. Coming to capital adequacy and liquidity, our Capital Risk-Weighted Ratio as of September stands at 48.4%, with Tier 1 at 48%. Our net worth stands at INR 4,014 crores, up 75% year-on-year and 4% quarter-on-quarter. Book value per share as of September is INR 388. Our strong balance sheet with high capital adequacy underlines our readiness to take on the growth ambitions of the company.
With that, we conclude our remarks and are 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 the 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. The first question is from the line of Renish from ICICI. Please go ahead.
Yeah, hi. Congratulations on a good set of numbers. Just two things. One, the bounce rate data, which is now surpassing 17%, highest since COVID. And I'm just wondering, despite generally second half being better, bounce rate increasing in October implying some weakness at the AUM level. I just wanted to understand what is happening on the asset quality front and, factoring the October trend, what is your outlook on the credit cost?
So, on the bounce year, it was slightly higher than expected, but then our recovery during the month did not reflect that. We had good recoveries during the month. So, our first bucket recovery, which is generally kind of a barometer which we use, was actually pretty good. It was better than what we had seen in the last couple of months. So, maybe just more of a seasonal update. And I think there was some confusion in terms of the dates also because I think the date of presentation was kind of extended by one day in October, if I'm not mistaken, because fourth was a Saturday. So, I think we ended up presenting on sixth or something like that. So, there was some confusion on the presentation date. So, as a result of it, there was some update.
I mean, keeping aside the operational thing, there is no weakness in downline is what you are trying to highlight, right?
Yeah. So in terms of recovery, the recovery was normal or even better than normal. So we think that it was just a seasonal update.
Got it. And any color on this, let's say, incremental higher close in October? I mean, roughly your 16.3 bounce rate increased to 17.4 bounce rate. So that 1% increase month-on-month basis works out to be INR 150-odd crores. So this INR 150-odd crores is coming from which segment? I mean, is there any specifics would you like to share, or this is general uptake?
No, I don't think there was any regional skew in terms of bounce rate. It was sporadic here and there. So there was no such seasonal, I mean, sorry, regional skew of the bounce rate. Recovery, as I mentioned, recovery, as I mentioned, in some of the markets, the recovery was good. Like Gujarat, generally in this Diwali month, the recovery sometimes suffers, but this time the recovery was good. But in some of the other tariff-impacted markets, it was a little slow.
Got it. So are we confident of maintaining 30 basis points -40 basis points of credit cost for the full year?
Yeah, we should be in that 40 basis points ballpark. I think next two quarters, it will be. I mean, we'll have to do some hard work in terms of pulling back the collection numbers. So whatever uptake we saw in the first quarter, some of that is flowing into higher buckets. So we'll have to work hard on trying to pull that back. But I think we should be able to do that by March.
Got it. And just secondly from the disbursement, right? So last quarter, we did highlight that we were short of few crores because of seasonality and sort of lower disbursement in April. And July has already seen improvement. I think you are expecting better disbursement in Q2, but it sort of remains slightly lower than the expected level. So would you like to share any color on the disbursement point?
Disbursement growth. Last quarter, if you see, the year-on-year growth was around 7%, and we had a discussion on disbursement. This quarter, the number has improved. We are close to 10% year-on-year on the disbursement. Still slightly lower than what we expected, but given the conditions in the market, we are happy with that number. We have also done a lot of internal reconfiguration, etc., in terms of some of the segments and so on. Given all those changes that we have made, we are happy with this number. And I think with some tailwinds coming in the second half, we should come better than the numbers that we have come in quarter two.
So I mean, just to follow up on that, so you mean rejection rate has gone up in Q2?
Sorry, Renish, can you repeat that?
I'm saying the rejection rate in that case would have gone up, right?
Yes.
Correct, correct, correct. So certain segments we have I mean, you can say rejection rate has gone up, or in some cases, we have kind of conveyed to the market that these are certain segments that we will not be onboarding in the future. So yeah, both aspects.
Okay. Mr. Viswan, thank you and best of luck.
Thank you. The next question is from Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah, good evening. Good evening. Thank you for taking my question. Am I audible?
Yeah.
Hi, Abhijit. Yes.
Yes, yes.
Yeah, hi. Hi, Manoj. So just trying to understand, I mean, if I look at this quarter, right, you will also acknowledge disbursements were a touch lower than maybe what we would have targeted at the beginning of the quarter. The BT outs are inching up. Likewise, when we look at the asset quality, the stage two, stage three has inched up. The respective provision covers have come down. So is this something that you're seeing industry-wide, or do you think this is to do with the customer segment and the geography, which is more, I would say, urban, metros, peripheries of metros? So are you seeing something which is more pronounced, like you said, Manoj, maybe Surat, you mentioned, Coimbatore you , Tiruppur mentioned.
I remember in your opening remark, you also shared that Surat has seen some improvements, but Coimbatore and Tiruppur kind of continue to exhibit some weakness, like you shared on the back of tariff uncertainty. So just trying to understand, I mean, is it something specific to us, the customer segments, the way we are positioned geographically, or is it something that you're seeing across the industry?
So I would say that it is obviously not specific to us. It is, I would say, more industry-wide phenomenon. Across last year, if you see, we had the entire commentary on MFI and MSME segment, etc., going through a tough phase. And we always maintain that the impact on us is going to be much lesser. But a little bit of that impact, and last two quarters also, we said that a little bit of that impact is probably also going to blow over us in the coming quarters. So it's a bit of that which I think is coming through. In a way, we are uniquely placed because we operate more, we are slightly more urban in our distribution. We get a larger proportion of our business from urban areas. So to that extent, we are a little more insulated.
But then to some of these loans that we have done in some of the smaller places, etc., are getting impacted, especially in the tariff-impacted area, so there is the impact of tariffs in the leather industry, which is in and around Chennai, and in the textile industry in and around Coimbatore and Tiruppur. So those markets are getting impacted, and there is an uptick there in terms of delinquency, but at closer look, we feel that, like I said, we should be able to kind of pull this back in the next two quarters. It doesn't look like a very big challenge to us. But yes, it will require maybe three, four months of work to pull this back. It is a reflection of the whole challenge the industry is facing. If you see, many of the other companies have also reported varying degrees of uptick and delinquencies.
So it's more of a reflection of that. But we don't see it as a very big challenge. We should be able to pull this back.
Got it, Manoj. And just follow up on that bit that you explained before I asked you my last question. So fair to conclude that, I mean, whatever asset quality weakness that we've seen during this quarter was concentrated in that leather industry around Chennai and a little bit of maybe textile industry around Tiruppur, maybe Selauni Road. So I mean, largely restricted here. All that I'm trying to understand is, is this more local in nature, or I mean, is it some spillovers that we are seeing? Like you mentioned, last year, we saw MFI spill into Micro LAP. So all of us are naturally worried that are there some spillovers that we are seeing from Micro LAP into a little bit of affordable housing now?
Yeah. So some spillover is there, Abhijit. But if it was only the spillover, probably it would have been less. There would have been a lesser impact. But I think the spillover got kind of amplified by the tariff issue as well. So in some places, and even in Surat, there is a bit of uncertainty. We are having to work a little harder to get the same recoveries which would have probably come easily, etc. So everywhere, I mean, there was already a kind of overhang of the MFI and the SME, MSME segment, and the credit squeeze that was going on, which we were able to manage. But then there was also the kind of got accentuated by this whole tariff uncertainty. And so in some places, the impact became even larger. It got amplified. So that is really what it is.
And also, I mean, some of it is also spilling over to the disbursement side because when you see a clear impact in certain segments, then you obviously don't want to underwrite those segments. While obviously what we underwrite today is going to probably show up after two years. But then when you're seeing a certain segment getting impacted, you obviously want to kind of put some stops and put some, what do you call it, restrictions on those segments. So that is really what is impacting the disbursement to some extent.
Got it, Manoj. So just to conclude that, I mean, on the disbursement side, some lower numbers in disbursements that we've seen is also a conscious choice, like you mentioned, right, that you are making today, given that, I mean, maybe there are some slippages that we are seeing in some pockets. So maybe we are also choosing to go a little slow, right, in some of these markets?
Correct. Correct. Yeah. Correct. So see, Ben, because this delinquency is showing up, we are also able to figure out that there are certain segments which are getting impacted. So those segments, we are obviously putting certain restrictions. So it is a proactive you can say a bit of proactive caution that we are applying.
Got it. Thank you, Manoj. And just one last question for you, Pat. I mean, I think very good improvement that you've seen in cost of borrowings in the quarter. Your incremental cost of borrowings continue to trend kind of lower than your portfolio cost of borrowings. How should we look at spreads and margins evolving in the second half?
The cost of borrowing will come down. We are aiming to get it under 8%, let's say, by March. We also want to actively look at pricing, both on origination as well as on the backbook. We do not have a specific decision on the backbook as of now. However, the spread, we should be able to maintain in the 5% - 5.25% that we've always guided. As far as NIMs are concerned, they will marginally expand from here with now a large part of the cash consumption done post the QIP and leverage also picking up. NIMs will expand faster than spreads.
Got it. And because we're not taking any PLR cuts yet, right? I mean, any plans of taking it in maybe December after the policy rate cut, or at least we are confident that maybe we take it only in the fourth quarter, the PLR rate cut, if any?
Abhijit, there's a lot of discussion internally. Frankly, this is a price-sensitive matter, so we cannot comment about it on a call. But yes, the policy rate will definitely be an input into the discussions.
Got it. This is useful. Thank you so much, Nutan. Thank you, Manoj. All the very best to you and you.
Thank you.
Thank you.
Thank you. The next question comes from the line of Kushan Parikh from Morgan Stanley. Please go ahead.
Yeah. Hi. Thanks for taking my questions. Two questions, both for Nutan. Actually, so just looking at the reported borrowing cost, which has gone from 8.4% in 1Q to 8.1% in 2Q. When I compare that to basically my calculations, I mean, we have the quarterly averages, we don't see a similar drop in the borrowing cost, so just reverse calculating that, when I take the interest expense for the quarter and the reported borrowing cost for the quarter and compute out the average borrowings during the quarter, what I'm seeing is that on a quarter-on-quarter basis, there is about 5% QOQ increase in the average borrowings versus the period-end number increasing by only about 2.7% QOQ. Actually, this was even in the previous quarter, in 1Q, there was about a 5% increase in the computed average borrowings versus the period-end borrowing decline of 1.6%.
So, just trying to understand the missing piece over here. I mean, why the average borrowings are growing at a faster pace than the period-end borrowing. And also, I mean, if you could give us some directional sense around this piece. Should I ask my second question as well, or you would like to answer this?
Yeah, please go ahead.
Okay. So my second question is around the asset quality and the provision coverage. So over the last few quarters, we've seen provision coverage coming down across the different stages, whether it's stage three, stage two, or even stage one provisioning. I understand that this is more computational and driven by the ECL model and the experience that we have for the data that we are using for the ECL model. But directionally, if you could give us some guidance as to where do you see these coverage numbers settling at, and I mean, does this go back up going forward given the current environment that we're seeing in terms of asset quality? And those are my two questions.
Thanks, Kushan. So let's start with the first one. I think there is a reconciliation that you're trying to do between the reported cost of borrowing and what's coming through the P&L. Now, what is coming in the P&L is actually the daily charge that gets debited, let's say, to the company based on the outstanding of that particular day. So it's the actual that we have paid. What comes on the reported borrowing is a weighted average of all the lines we have through the quarter. So the comparison like-for-like is not identical. The benefit in the P&L will, of course, come with a slight lag. Specific numbers, I will call you separately and go through the reconciliation and sort that out. I don't see there should be any material issues there. It's just a reconciliation could be as simple as a two-point average to a daily average.
That's my initial thought. Your second question on asset quality and resultant provision coverage, yes, the provision coverage we have seen, and this point was discussed last quarter as well. So there are two aspects that I wanted to call out. One, we are watchful on asset quality and selection efficiency at a unit customer level is still around 97%. If we are seeing that the collection efficiency is materially dropping and if there is a concern on a large impact coming in the near future, then we should be changing our ECL or overlays in between quarters. Otherwise, the ECL true-up typically will be done in March. Secondly, we also already have a decent amount of overlay. Now, as you can imagine, if the overall NPA has increased and we have not added additional overlay, the percentage is looking lower.
So 50% has come down to 21% for stage three, not a material change. Again, the number that we have always kind of tried to link this conversation to is the 80 basis points of ECL provision on the total book. So we are still at 80 basis points for last many, many quarters. Therefore, we did not feel the need for any significant change on this. But come March, if we are seeing that our LGDs are throwing up a totally different number, or if the underlying performance on collection efficiency is looking much weaker, I mean, like what Manoj said, it looks under control. But we will also go through the financial true-up at that point of time. Does that address both your questions?
Yeah. No. Yeah. That's understood, and for the reconciliation, we can follow up. Thank you.
I will, yeah, we will do that. Yes.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address all the questions from the participants in the conference call, we request you to kindly limit your questions to per participant. Should you have a follow-up question, please return the queue again. The next question comes from the line of Nitesh Jain from Investec. Please go ahead.
Thanks for the opportunity. First question is on disbursement. So how are the trends in terms of market share in your statewide market share in the segment where you operate, which is INR 5 lakh-INR 25 lakh? Because disbursement-wise, we are seeing a bit of moderation for last three quarters. But in terms of market share, any trend you want to call out across states where we operate?
Yeah. Market share has, if you see a three-year period, market share has moved up from 1.5% to about 2.2%. This is across all the markets that we are operating in. Of course, in some of the specific markets, our market share is touching, I mean, somewhere between 4%-5% in some of the markets where we operated for a longer period. So if you take our Indore or Surat or Ahmedabad and Nagpur and places like that, our market share is closer to 5%. Otherwise, on an all-India basis, across all markets where we operate, it is 2.2%. It's increased from 1.5% to 2.2%.
How are the trends in near-term, last three, four quarters? Because longer-term, we have gained market share, but have we also gained market share in last four quarters, let's say?
See, quarter to quarter, yeah. So quarter to quarter, actually, the market share improvement will be very subtle, very nominal, because we also keep adding new markets. So to some extent, that kind of pulls down the ratio. So we generally see, because if you're seeing, it's a 70 basis points increase over a three-year period. So quarter to quarter, it will be literally in basis points.
Sure. And second question is on the operating expenses. Your OpEx to AUM ratio has been gradually coming down. How should we see the trend going forward? And any medium-term guidance on the OpEx to AUM ratio?
So, OpEx to AUM, we have been running. I mean, fairly, our numbers are fairly low compared to the average industry numbers. So, we are not really trying to optimize it from here. Of course, on a longer-term basis, or even on a medium-term basis, it will keep going down as the AUM scales up. But we are not trying to optimize it at this point. Our focus is more on ensuring growth.
Nitesh, there, I'll just like to add. As and when our disbursements start to move upwards, the productivity will start to show, and operating cost itself will improve. I think, therefore, the focus is to understand the market, look at where we want to proactively manage credit quality, and then do the right quality of disbursements. That's, I think, how we would like to put it at the moment. The next two quarters, we'll be around making sure we do right disbursements.
Sure. And last question is that in terms of branch expansion, we have not been adding branches in UP and Uttarakhand, which I think we thought that it's a growth market for us. And I think in Rajasthan also, the branch count has been broadly flat in last four quarters. So these two geographies, any change in strategy in these two geographies?
UP, as we called out the change in strategy, after our initial foray into UP, we have kind of taken a pause. We would like to kind of understand the market better before we kind of expand more aggressively there. So that's the reason you're not seeing any new branches coming up there. Plus, UP is also fairly, I mean, the market is largely in four or five cities. I mean, the larger market is in four or five cities. After that, it becomes very small. So we would rather first consolidate in those four or five cities before we kind of go more deeper. In Rajasthan, again, we are present in all the key markets. So now our strategy will be to kind of deepen our share in those markets.
Because in Rajasthan, again, if you take the top 10 cities, majority of the business is done in the top 10 cities. So we would, again, try to deepen our presence in those cities before we go any further.
Sure. Thank you. That's it from my side.
Thank you, Nitesh.
Thank you. The next question comes from the line of Shreepal Doshi from Equirus . Please go ahead.
Hi sir. Thank you for giving me the opportunity. My question was pertinent to the geographies that you highlighted, which were the stress source for us in 1Q. Has there been any addition to that list apart from, let's say, Surat, Coimbatore, and Tiruppur? So is it because the 1 +, 30 plus, and GST, all these indicators have deteriorated only? So was there any further addition there? And secondly, apart from the leather and the textile industry, any other industry that you see where the stress is building up? Because the tariff-related impact still persists. So which are the industries where you see there could be further deterioration and which could get added to the list that you have highlighted with this textile and leather industry?
So the concentrated delinquency impact is only in these markets because there is a large population in these markets which are dependent on that particular sector. In most of the other places, there is no such concentrated set of customers who are dependent on a particular segment, which is why we are not seeing such a deep impact in other places. So it's largely these markets. So, I mean, export-related markets are basically Gujarat, I mean, which is Surat, which is the gemstone jewelry. I mean, basically diamond exports. There is some amount of diamond, I mean, sorry, some amount of gemstone jewelry export from Rajasthan as well, but we are not seeing any impact there. And then there is the leather industry, which is outside in the periphery of Chennai. Then there is textile, and then there is shrimps.
Shrimps is basically southern part of Tamil Nadu and some coastal areas in Andhra. Our exposure in those markets is also lesser, so which is why we are not seeing much impact on those, so which is why the key impact is in Tamil Nadu in that belt, Coimbatore-Tiruppur belt, and outside of Chennai, and Surat is something that we flagged off, although we are still not seeing the impact there. I mean, if this tariff prolongs for a longer period, then yes, there could be some impact on Surat. As of now, the impact has not come through.
Got it, sir. So in that case, for the full year, we had guided for a INR 5,600-INR 5,800 crore disbursement. I mean, because of this, now we would have, on a conservative basis, I think, with prudence playing out, we are slowing down our disbursements as well. So where do you see the disbursement for the full year stabilizing and also the impact on credit cost? We still continue to maintain the 30 basis points -40 basis points, or do we see some breach there for the full year?
See, on credit cost, we are still looking at 40 basis points for the full year. And as far as disbursal is concerned, I think we are still recalibrating, and we would not like to give a specific number at this point of time. We would like to see how this quarter goes. If as a lot of some of the GST impact and other changes and overall second half tailwinds come, then we'll probably have a different disbursal figure. But broadly, we are guiding to that 25% + AUM growth. So this quarter, it was 26%. So broadly, we are guiding to a 25% + AUM growth for the year.
Got it, sir. So I just have one last question, which is pertinent to your commentary that since we are present in urban markets, we are relatively better positioned. So in rural, let's say in tier three, four, five geographies, you see the stress moderating, or is it still at an elevated level?
So see, we don't have very strong rural presence. It's more of a semi-rural or periphery of city periphery kind of a presence that we have. And so can't really comment on the rural sector.
Okay. Okay, sir. Got it. Thank you. And good luck with the next quarter, sir. Thank you.
Thank you, Shreepal.
Thank you. The next question is from the line of Raghav from Ambit Capital. Please go ahead.
See, hi. Good evening. I just have a couple of questions. So one is, when I look at your bounce rate data that you report, right, the bounce for the whole quarter tends to be about 40 basis points - 70 basis points higher than the number that you report in the first month of the quarter. So since your October 25 bounce rate is at 17.5%, 17.4%, do you expect that this could get closer to 18% for the third quarter? And then a related question is that should this be a worry for the industry, the increase in bounce rates are generally being slippages? That's my first question.
No, we are not, I mean, we're not really digging into a trend like that. First month is generally first month, yes. Last few quarters, the first month was generally lower, and then it inched up. But that's not a, I mean, there is no such pattern as such.
Manoj, when I look at the last five quarters, right, the overall quarterly bounce rate was about 40 basis points -50 basis points higher than the first month bounce rate of that quarter, which is where my question was coming from. Just wanted some clarity there.
Yeah, we understand your question.
Yeah, understood. Understood. Understood. I was just saying we don't see any such pattern as such that the first month is kind of an indicator of what is going to come kind of a thing. Generally, in quarter three, there is a Diwali impact, which is unpredictable. So we are hopeful that November and, I mean, November and December, the bounce rate should moderate.
Okay. Sure. Second question is, can you comment on how your attrition is trending? I noticed that your employee count has been stagnant at around 1,700 for the last, I think, four or five quarters. But despite that, see, disbursement value and volume per employee is lower than what you had about two quarters ago, or three quarters ago. So is attrition impacting your employee productivity? And if yes, how do you plan to solve for it? That's one question. And then another related question is that given your NPAs and bounce rates are up and collection efforts have also gone up, how is the team on the ground able to manage between collection and sales? I'm assuming that because of higher collections, the sales effort would have come down. So do you think that that can be a risk to your growth for the year?
So attrition has slightly inched up. I mean, we used to be trending at around 30%, but last quarter it was 34%. So it's slightly inched up. But for productivity, the number is basically a derivative of, I mean, it's basically the disbursement. So since we have moderated disbursements, the productivity is also looking a bit lower. As far as collection load is concerned, see, I mean, we are basically talking about 50 basis points increase in the overall collection numbers. So that would be effectively 500 customers -1000 customers in the entire country as an incremental collection load, which means maybe one or two loans per employee. So not significant to kind of really change their workload dynamics on the ground. I mean, it's not a very significant change.
I mean, we are talking about a one-day past due, which has moved from about four and a half to five and a half, which is basically 1%. So 1% on about 130,000 customers is about 1,300 customers. So that is literally only one extra loan per employee to collect.
Understood. That was also my second. Congrats on the numbers. Thank you.
Thank you.
Thank you. The next question comes from the line of Arvind Ramachandran from Sundaram Alternates. Please go ahead.
Thank you so much for the opportunity. Again, the question is on the asset quality side. This collection efficiency data we offer every quarter. Again, we compare to FY24. It has dipped by almost 1% for the past several quarters. What is contributing to that? Or was it like in FY24 was a bit more optimistic kind of a season? I mean, things are much better there, and things are normalizing. What is happening there on collection efficiency? Both on total collection efficiency and the unique collection efficiency, we have seen that dip compared to FY24 and compared to the last four quarters. I'm just trying to get a sense there. Also another question is, you also mentioned that rejection rate has moved up.
I'm trying to get a sense of what kind of—is it particular geographies where we talked about their issues are there, like Coimbatore-Tiruppur, Chennai peripheries, or Surat to some extent? Is it those regions where the rejection rates have gone up, or is it some particular customer cohort which we were offering loans? Now we are going out of that particular segment. Yeah.
I'll let you ask the second question. I did not gather the first question properly. So as far as the cohorts which we have kind of tempered down are concerned, I mean, it's a combination. It's a combination of customer, I mean, some of the regional factors are there. Tamil Nadu is one of the locations where we are looking at things. There are bureau score-related items. There are property types. So it's a combination of factors where we have, so we have our analytics where we look at various cohorts and we kind of look at the delinquencies, how they're moving. And based on that, we have taken some calls of restricting certain cohorts. So it's a combination of all of these factors which I mentioned. So on the first question, I did not. [crosstalk]
Sorry, you can answer that question.
C ould answer delinquency.
Yeah. So the collection efficiency, what we have seen during FY24, it was close to 99%. Now it has come down to 98% or even slightly below that. I'm just trying to get a sense what is happening there. Why is our collection efficiency suddenly dropping very slowly, but marginally where it is falling? That's why I'm trying to understand that.
That is coming. Basically, the collection efficiency dropping is reflecting in the delinquency numbers. If you see last October or last September, for comparison, 98.5 % was the collection efficiency, whereas this September it was 97.9 % . It's dropped by about 50 basis points, 50 basis points - 60 basis points. That is really reflecting in the one-plus days past due effectively. It's gone up by 40 basis points , 50 basis points, which is what we are saying that it's an impact of the overall industry, some of the impact of the semi-urban sector, plus tariff impact, etc. All of these factors kind of working at the same time has resulted in that 50 basis points , 60 basis points movement in impact on collection efficiency and corresponding impact on the delinquencies.
Thank you. Thank you so much.
Thank you. The next question is from the line of Shweta from Elara Capital. Please go ahead.
Thank you, sir, for the opportunity. So I have three questions. So one of our peers invariably highlighted challenges in lower ticket segments, and we have almost 20%+ kind of exposure in less than one million ticket size. So any pronounced challenges here in this particular customer cohort, and any restrategizing in terms of shifting ticket sizes or where the growth particularly would lie going forward? That's my first question. Second, ma'am, did I get it right that the cost of funds, larger part of improvement is there? Of course, we have guided slightly higher net interest margins already, but given the fact that our BT Outs have been slightly on the higher side, around 7.6%, so that will give us a little lower legroom, right, for aggressive repricing on the yield side, and larger part of cost of funds improvement has come by.
So in this context, how will you see the incremental growth versus NIM kind of scenario shaping up? And lastly, so you did highlight about OpEx to assets remaining almost steady going forward. And any plans, because considering the kind of architecture and technology we have, any plans there wherein you can tweak five per loan officer per month so that it helps you enhance your productivity since you've been very strong, you can easily do that in terms of the whole setup. Yeah, thanks. Those were my three questions.
Yeah. So first question to just clarify, I think the question was whether lower ticket is causing challenges in collections, etc. So we can't really just classify it in very simple terms as lower ticket, but it's probably a combination of factors: ticket size, type of property, type of location, type of bureau score, etc. So combination of some of these things is the other cohorts that we are looking at. Specifically in smaller lower ticket size, we are not facing a challenge as a whole in the lower ticket size segment. The second question was, I think, BDO and corresponding impact on the margins. Nothing more to cover?
Sure, so the BTR portion is a small portion, Shweta, but the cost of borrowing benefit as well as the benefit of reduced cash will give us enough headroom to expand NIMs, so what we are saying is that while we will maintain spreads, which will be an outcome of improvement in cost of borrowing, better pricing to customers, it includes the BTR impact. The benefit coming from better managed cash and leverage will allow us to expand net interest margin in the quarters coming ahead. Your third question was on operating cost to assets being steady and productivity drivers. Yes, we are working on them, and that's what Manoj commented about, a more medium-term outlook. Manoj, if you want to detail that out.
Yeah. So we are working on some of those things, but again, these will take time to kind of show impact. But yes, in the medium term, we are, that is one of the things that we are working towards, which is reducing the cost of doing business. So OpEx to assets, over time, you should see the impact of some of these tech and AI interventions flowing through.
Thank you, sir, and all the best.
Thank you, Shweta.
Thank you. The next question comes from the line of Anusha Raheja from Dalal & Broacha. Please go ahead.
Yeah. Thanks for taking my question. So my question pertains to the asset quality side. So you said that Coimbatore, Uttar Pradesh, and Surat are witnessing relatively higher delinquencies. So apart from these states or cities, you feel that other cities are showing the performance there is satisfactory, or they are showing rising concerns? Any of the states wherein you feel currently delinquency might rise?
There are no state-specific such issues other than what I mentioned in Tamil Nadu. In other states, we don't have any state-specific issues. Maybe certain geographies within the state, certain branches within the state, which is always kind of part of business as usual delinquencies.
Okay, so looking at the current juncture, you feel that NPAs can go off the mark sizably, or a small rise is there can be marginal small rise at the way that we are seeing currently, or no concern of going off the mark by a very high margin?
So as I mentioned, I think it will take us a couple of quarters to bring this back to an earlier situation. Generally, in quarter four anyway, there is an improvement, a drastic improvement. But it will probably take a few months to pull this back to earlier levels.
Okay. Also, during the quarter, we had seen that higher growth has been seen in the higher ticket size loans, like INR 15 lakhs -INR 20 lakhs , INR 20 lakhs - INR 25 lakhs ticket size segment. So any change in the strategy, or is that because NPAs have come in, so there is a change in strategy to grow higher in the high ticket size segment?
No, not a change in strategy, but it's just more of a movement or migration linked to the overall change in the market situation. So at a very small ticket size, properties are no longer available. There is an inflation as well as overall impact of people's incomes going up. So that is really playing out on the ticket size as well. So the same type of customers are now going in for larger properties, larger ticket sizes. So what used to be earlier at INR 10 lakh and is now +15 lakh. So that migration is gradually happening. That's all. We are not consciously going after the higher profile customer. It's the same customer whose incomes have gone up over time, and who are now aspiring for slightly larger properties.
Okay. And just one last thing. So assume that if the asset quality performance is satisfactory or it improves, then previous growth rates that we have seen in the AUM, you can retrace back to those levels?
So AUM growth, in any case, we have broadly in the ballpark. I mean, we were at 20%, we are heading toward 25%+ only. So we used to say or deliver around 30%, but broadly 25% + is something that we are confident of.
No, assume that if asset quality performance is better than your expectation, we can go back to 30%+ out of growth?
So probably we should be able to give a more convincing commentary maybe after this quarter or after two quarters.
Sure. Sure, sure, sir. Thanks.
Thank you. The next question is from the line of Siraj Khan from Ascendency Capital. Please go ahead.
Hello. Thank you for taking my question. I have a good set of numbers, sir. A few statistics before I ask my question. What is the individual housing loan portfolio as of September?
83%.
83%? What is the active connector count and the number of files sanctioned by them in H1 and the BTIN rate?
BTIN is negligible under 1%. Active connector is 3657.
57. And the number of files in H1 that we have done through the connectors?
About 80% of the business comes through connector. So that number is given here in page number.
Around 9,000 files.
Yeah. Page number 13 of the presentation deck. About 77% of the business comes through connectors. Yeah.
Wonderful, wonderful. Thank you very much. Now coming to the questions. Firstly, what I wanted to understand was with respect to the cost of borrowing and the benefit that we have seen, 30 basis points. This is a large deal because of the movement in the rates that we have received from our borrowing mix, or is there a part of it from our credit rating upgrade also? And how much of additional benefit over and above the general repricing in our borrowing to our different lines? How much more benefits are we supposed to receive with respect to the credit rating upgrade?
Sorry, can you say that again? I didn't follow your question.
We got a credit rating upgrade. How much of the 30 basis points is it entirely purely because of the repricing of our borrowing side, or is there an element of the credit rating upgrade in that? And how much more of a benefit of the credit rating upgrade will we get going forward? What is like 10 basis points , 15 basis points , 20 basis points more? Is it available on the cards purely because of the credit rating upgrade?
Yeah. So the only way to estimate that is prior to the repo rate cuts, there was a difference between us and the next rating category of about 10 basis points -20 basis points. So one can assume that is the benefit that we will get, and that benefit will come to us over time. That will not come to us immediately. So one can assume that the 30 basis points benefit that we have is probably 20 basis points from rate cut and 10 basis points from credit rating upgrades. There is no better way to estimate this.
Okay. So I think we are optimally placed with respect to the borrowing cost. I mean, we don't see much of a downward pressure on the borrowing piece.
No, we do, which is what I mentioned in the first few questions, that we do expect this to come under 8% by March.
Under 8% by March. Okay. Great. And with respect to the asset quality, I mean, a lot of questions have come. But what I wanted to understand was with 1+ DPD also continuously every quarter for the last three quarters, it has gone up, and we are above 5%. So how do you see that trending? I mean, on a longer-term basis, do we see it coming back to, say, closer to 4%, or it will stay steady around the 5% mark in, say, one-year period time or 18 months? I mean, how long do you think this whole tariff and all of the things will take to come back to normalcy?
I think longer-term, where that number will trend is something that we'll have to probably relook at maybe after one or two quarters, so because when some of these things happen, it takes some time for these things to pull back. Broadly, I would say if you were to ask me for a very long-term trend, I would say it should remain in that 5% ballpark number.
1+ DPD and 30+ DPD?
30 + between 3 - 3.5 in that range, it should be on a long-term basis.
And just two quick couple of points. The assignment volume that we are doing around INR 170 crores - INR 180 crores, and approximately, as per the facts sheet that I can see, is about 12 point something, close to 13% of our total gross loan book. So will this remain steady state, or do you see this increasing as we go ahead? And finally, with respect to the branch additions, what is the quarterly branch addition that we look at for, say, two, three quarters down the line? And any specific states that we are targeting?
Assignment, yes, this will remain steady in this broad INR 150 crore - INR 200 crore range per quarter. This is what we had mentioned earlier also. Branch count, again, around that 5 branches per quarter -7 branches per quarter is what we have been maintaining as a guidance.
So branch expansion should be, yeah, will be kind of equally split between our focus and emerging states. So emerging states between MP and Rajasthan, we should have most of the expansion. And focus states, which were the six states which we were present earlier, Gujarat, Maharashtra, Andhra, Telangana, and Tamil Nadu, and Karnataka to some extent.
Wonderful. Got it. Got it. Thank you very much.
Thank you. The next question comes from the line of Aditya Pal from MSA Capital Partners . Please go ahead.
Hi. Am I audible?
Yes, please proceed.
Yeah. Thank you so much for the opportunity. Congratulations on the great set of operational performance. Just wanted to quickly understand when I look at your focus states and emerging states, the growth rate, YOY, sequentially have been decreasing. And for focus states, we've come closer to 22% of growth rate. And you already highlighted the case of Tamil Nadu and Gujarat growth rate peaking out, and Tamil Nadu facing an internal issue, which you will solve maybe in the next couple of quarters. How should we lean into it, maybe say over an 18 months -24 months timeline?
So see, there's no, it's not that there is some pattern like that. I mean, if you see, for example, if you were to, let's say, go back four quarters, you would have seen that in Maharashtra, the growth had tapered off to 10% and 14%. But now it has again come back to 30%+. And again, if you rewind maybe to four to six quarters, Tamil Nadu was growing very fast, but then kind of it tapered a little bit. So to some extent, it depends upon leadership in the state, our ability to kind of some of the tactical things that happen in the state at that point of time. Somebody has offered a scheme in the market, as a result of which we lose a bit of market share. So our growth comes down there.
So these are business ups and downs which happen on a tactical basis. So Gujarat today is around 20%-22%. But there is nothing stopping us from probably reaching 30% in Gujarat maybe in a few quarters. Because our share is still 3%-4% in Gujarat. So there are still 96% of customers who are taking loans from somewhere else. And there is a possibility that we can capture that share. So till our share reaches something very, very significant, there is opportunity in every state to grow at 30%.
Understood. And when I look at the product-wise, that is our individual housing loans, LAP for commercial, and our LAP business. Again, in IHL business, the product, the growth is again tapering off. How should one read it? Is it a base effect? Is it the new normal? Or is it just a momentary pause before we resume back to our 25% or 25%+ growth rate?
Yeah. So it's a reflection of the overall numbers, right? So because overall, the AUM growth is at 26%. And because of the base effect, the LAP is at a slightly higher rate. And because of that, the housing is showing slightly lower than 25%. So it's a reflection of the overall numbers. As the overall numbers pick up, that number also will move up.
Understood. Last question from my side. Just wanted to just try to solve for growth. So any green shoot that you're seeing now that we are one month in this quarter compared to the second quarter exit? Any green shoot that you're seeing that you want to call out?
I actually don't want to call out any green shoots because last quarter was weak of green shoots. So I think.
No, but just qualitative commentary would be helpful.
Yeah. So I think this quarter, we'll wait for the quarter to let the quarter speak for itself. Because there are so many things which are happening on a tactical basis and which are impacting things on the ground, right? So I would say let's just wait for this quarter to.
No, the question that I'm trying to answer is because your operational performance, your cost measures, everything has been off the charts, has been phenomenal. Just trying to solve for the growth aspect. That is it.
Yeah, Aditya, thank you. You know what? On the macro side, there's a lot of positives, so there's GST, there's early news of the tariff coming to a closure, but like Manoj said, we will want to rather have a stellar quarter rather than talk about it much earlier, so allow us 40 days more, probably, and we are good to go.
Okay. Thank you so much, and wishing you and the team all the very best. Great work. Keep up the great work. Thank you so much.
Thank you, Aditya, for giving us so much confidence.
Thank you. The next question comes from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.
Hi, Manoj. I have a comment on the outlook. Just want to understand how you intend to address these attritions?
I'm so sorry, sir, to interrupt in between. Your voice is not audible.
Hi, is this better?
Yes, sir. Please proceed.
Yes.
Right, right, right. So just wanted to understand what is the team size to address this attrition of BT out? And how many files do we really see on a monthly basis of which how many files really go out? Because there would be a difference in the fees also. This guy has to pay the fees at the other financier as well, which also would be steep. So do we explain the entire match? And what would be the reasons of this BT out?
Yeah. So right now, we have a three-member team which is addressing this problem. We are trying different tactics to address the BT out. So we have a tiered plan. As you mentioned, there are multiple things which are communicated to the customer. So I mean, our first pitch is to convey that they will be incurring charges, various kinds of charges at the other end. And hence, it obviously does not work out. Then secondly, we also convey that we can provide a top-up. And then the last part is basically if we can provide some kind of a pricing break or small pricing break to retain the customer. So there is a tiered approach that we adopt with each customer. And some part of it is done at the branches.
And then we also have a central team of three people who are doing this on a continuous basis. So let us see. It has given us some benefit or impact in the last few quarters. But then the BT out action is also intensified. So earlier, the BT outs were largely to the nationalized banks or larger banks. But of late, there are a lot of our own peers who are very aggressively doing BTs. So that has also intensified. But we are still able to protect to some extent. And we are also stepping up the activity at our end. And so hopefully, in coming quarters, we should be able to see some impact.
How many files are we seeing for this BT out right now? And how many customers really take the leap of going out on a monthly basis?
See, right now, I would say, I mean, see, difficult to put a kind of it's not a very clear funnel in that sense. Because the customers, there are many customers who approach us for account statements. Some of them end up doing a balance transfer. So I would say from the time we know that there is an actual balance transfer, I would say our hit rate is probably maybe 20%-25% at this point.
So, say that and 75% of the customers take that keep of going to.
Yeah. I'm saying 75% of them are go ahead with the balance transfer. 25% we are able to retain.
Hello?
Yeah. So what I was saying is 75% go ahead with the balance transfer, and 25% we are able to retain.
Hello?
Hello?
Are you on the line?
Yeah, yeah. I'm on the line. Sorry, it got disrupted. So what I was asking is that 25% go out and 25% is what we arrest?
Correct.
Okay. And just one last question. What would be the reason of the 75% people going out? Is just the dip in the interest rate? Is that the only reason? What would be that leap of what is that big reason for this leap of rate that they're taking?
Yeah. The reduction in interest rate is one of the key factors. Second is also our ability to reach the customer at the right point. Because the customer is already very, very deeply invested in the new loan. Then they would find it difficult. I mean, even if we are able to convince them, they'll find it kind of difficult to I mean, we'll find it difficult to retain them. I mean, they would have probably paid the fee over there or made some investment in that transaction. So then they become too invested in that transaction to backtrack.
Understood. Understood. I look forward to interacting with you in seeing what is possible.
Thank you.
Thank you. The next question is from the line of Siraj Khan from Ascendency Capital . Please go ahead.
Yeah. Thank you for the follow-up. With respect to the quarterly run rate, I mean, we have been since the March quarter, we have been around the INR 400-INR 450 crore per month run rate. So with H2 being a stronger quarter, can we see like INR 450-INR 500 or maybe higher disbursement rate? Would that be fair to assume?
I know you are indirectly asking you what is the number, but as I mentioned, we'll let this quarter pass, and then we'll give you a better guidance.
Understood. And a quick one on the other income with respect to the fees. The insurance income has seen a good increase. So are we trying to leverage with respect to the fees, commission, and other incomes to boost the NIMs? And how will that NIM trajectory? So NII plus the fee income, specifically the fee, not the other income. But how will the NII plus fee income go in the coming quarters with respect to specifically with respect to the fee and commission income? Please give some color on that.
Siraj, the fee and the insurance commission income will likely remain in this INR 18-20 crore range broadly. We already discussed the NII and the impact on NIMs. NIMs are likely to expand as an outcome of now reduced cash on the balance sheet as well as improvement in leverage. We should start to see that. This commission line will broadly remain the same ballpark.
Okay. So as a percentage of the total income, will it remain in the same steady state rate, or will it increase? I mean, as a percentage basis?
No. It will remain the same.
Sorry? Sorry. I did not get it.
It will remain the same.
Understood. Understood. Thank you very much. That was helpful.
Thank you. Ladies and gentlemen, as there are no further participants, that was the last question for today. I would now like to hand the conference over to Mr. Manoj Viswanathan for closing comments. Thank you, and over to you, sir.
Thank you everyone for participating and engaging in the call. We hope we have been able to answer the questions to your satisfaction. In case you want to reach out for further questions, you can always reach out to Sunil Anjana or write to us at 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 today, and you may now disconnect your lines.