Ladies and gentlemen, good day and welcome to the Q2 FY 2027 earnings call of Jana Small Finance Bank, hosted by Systematix Group. 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 this conference call, please signal an operator by pressing star then zero on your touch-tone phone. I now hand the conference call over to Mr. Gaurav Purohit from Systematix Group. Thank you and over to you, sir.
Thank you, Iqra. Good afternoon, everyone, and welcome to Jana Small Finance Bank's Q2 FY 2027 earnings call. On behalf of Systematix Group, I would like to thank the Jana management team for giving us the opportunity to host this call. We are pleased to have with us today the bank's senior management team led by Mr. Ajay Kanwal, Managing Director and CEO, Mr. K S Raman, Executive Director, Mr. Abhilash Sandur, Chief Financial Officer, along with other members of the senior management team. With that, I would like to hand over the call to Ajay sir for his opening remarks, following which we will open the floor for questions. Over to you, sir.
Thank you so much and good evening to everyone. As always, we will refer to the investor deck which you have loaded on, and we will talk through a few specific slides, then we will welcome Q&A or other questions from all of you. Let's move to slide number three. In slide number three, there are very important few points to note. Q2 has been the highest-ever PBT we've had in our history. Having seen our Q2 performance, which now, if you add the Q1, it reaches INR 326 crores, which is equal to the PAT of last year of INR 326 crores. Hence, we would like to take our guidance up, which was originally increase of 80% in PAT to 100% of PAT. So we should double our PAT this year versus last year. Few of the key drivers which are getting us there.
First is our net interest margins has. One of the contributors to this net interest margin improvement, other than the various components which have gone into build the asset book, we obviously seen a growth of MFI which was a negative growth till last year. That has helped improve the NIMs. Of course, cost of funds is down from a 7.9% to a 7.4%. So a good combination of slightly better mix on the loan side and drop in cost of funds. I'm very glad to report that our best-ever PBT is accompanied by growth in secured assets, which has seen a secular improvement year-on-year, and now we stand at 73.7%. For folks who are joining this call the first time, we have several times said that our intention is to be around 80% of secure assets, and that we consider as a good answer.
I must say, while secured assets improvement in NIMs, our operating cost has seen a 15% year-on-year increase. On the right side, you can see a graph which explains that how the jaws is widening, which is cost trend rate is much lower than the revenues trend rate. That has become very healthy this quarter because NII has grown, the net interest income is up 35%, cost of 15%, so you have got a positive jaw of 20%. But very importantly, absolute cost in Q2 is lower than Q1. Marginally so, but yet we were able to erase cost. I can also tell you with great certainty that the likelihood of cost remaining muted and us getting more operating leverage for our business is a fairly, highly likely expectation that you should have. Cost under control, NIMs are getting better, secure assets are growing.
Finally, we should talk about how the quality of the book is, which is in terms of portfolio health. Gross NPA is down to 2.17%. Our NNPA is up at 1.08%. We normally do extra provision to drop NNPA below 1%. But this time we have chosen to wait because we have lodged our claims for the guarantee program, which is about INR 68 crores. That will comfortably get us below 1% the moment that claims are realized. So rather than provision now and then work around the whole accounting system next quarter again, once this claim comes, we have chosen that we will go to 1.08%, and then once the claim is received, which we already lodged, I think we will anyway come below 1%. All in all, a very, very healthy quarter.
But importantly, when it comes to cost, when it comes to NPA, when it comes to NIMs, it is signaling that we are going to have a very good year. I will now move to the next page number four. I have already mentioned the Gross NPA and how that is moderated. I want to draw your attention on this page to the chart below, which is on the SMA and slippages. So in quarter one, we had a marginal increase in SMA growth. It led to a slight increase in slippages, and we had two one-offs of: one is a secured loan, which has gone into NPA where we have collateral which covers it, and a small impact in the MFI book of drought, both in Assam, Maharashtra, and Karnataka, which impacted 0.3 of slippages.
Given that Q2 SMA has dropped over Q1, you should naturally expect that slippages will be lower in Q3. Secondly, with this one-off not being there, it will certainly be lower than Q2. That is something that I did want to give you a heads-up on how the book is looking and what we expect. And what it translates in terms of credit costs, I would take you to the next I would probably ask you to wait for page number six, but let me first cover page five, and this is an important page.
Ladies and gentlemen, the management line has been disconnected. Please hold while we get them back. Ladies and gentlemen, thank you for patiently holding. The management line is connected. Over to the management.
Yeah. Good evening again, folks. I am on page number five. A very important page. You can see our total unsecured book Gross NPA INR 673 crores. The provisions we have against is INR 377, leaving uncovered book of INR 296. But this INR 296 is completely under the guarantee program. In fact, the guarantee program is at INR 319 crores, of which I had mentioned earlier that we have already lodged INR 68 crores as claims, and the balance INR 251 we would lodge next year in Q3 again. From a variety of perspectives, I think one is obviously the collection efficiencies have gone up and has been at 99%, which we will talk of when we go to the asset page.
More importantly, the old slippages for which we have been paying guarantee commission over the last, I would say nearly now it is We began in November 2024, so it has been a good 18 to Yeah, nearly 18- 20 months we have been paying this commission. We are finally seeing some result of that, and that we will see this year and the following year. I think that is an important one. The other piece I want the investors to note is we had said that all the new disbursements we will continue putting under the guarantee program. The CGFMU program is right now not open for fresh guarantees to be added to it. The scheme is going through an approval process. But what we have done is we expect that to get re-opened soon. We have assumed that it will be open.
We have taken the 1% that is required to put in the program, and we have already accrued for it. So our results today that you see of INR 170 crores of profit already has an accrual, which is waiting to be used once the CGFMU program opens up. Our guidance of 100% growth in PAT also assumes that we will get our entire portfolio, even in the next half, under the CGFMU and CGTMSE programs. Having said that, I did want to give you the factual picture, which is right now the CGFMU portal is not open for the fresh ones, and once it opens, we will do the entire thing. But P&L-wise, we have already accounted for it, and there will be no change or impact other than what you have already seen in our numbers in terms of PAT and our guidance for the second half.
I should move to page number six. Here you can see the clear expectation from our end is we will be under 2% this financial year in terms of credit cost. If you add up the first half, it is 0.43% and 0.49%. That comes out to a 0.92% for the first half. We do expect second half, which is quarter three starting, slippages to get lower. I would expect that our second-half credit cost will be lower than the first half. Overall, certainly below 2%. I think that was the most important point here. I will now move on to page number eight, and this does discuss a few things about our advances. First is our growth is 22% year-on-year at INR 38,752 crores. Secure obviously growing faster at 24%.
Our disbursements in the second quarter, which is INR 4,414 crores, is 7% high year-on-year and 5% quarter-on-quarter. We don't normally add up the NBFC disbursements because they are lumpy, and any quarter can look a little bit odd because of it, and we have been doing that for some time. I want to talk a bit about the MFI book because I think that's been a key part of how things have turned around so dramatically for us. Other than the 99% collections, and you will see that on the next page, MFI book is not growing too fast. In an MFI market where we can see that the number of players are lower, there is less capital and liquidity for many players who are very active, normally you would expect an MFI book growth to be very strong.
Given that there have been enough and more customers who have not so good histories on the credit bureau, the MFI growth is a bit more subdued. The good news is also that our criteria is slightly tighter, and I've given a simple variable here. 97% of all my customers have less than or equal to two MFIs, versus 93% for the industry. Our collection efficiency already meant, and this time I must add that our 99% collection efficiency is not just on the Jana collections, but all our BCs. Our BC book has been one of the problems in the past, but I'm glad to report that they are also in the 99% bucket with us. Our gold loan had a slow quarter. Our Q1 was very strong. Q2 was flattish.
The primary reason here is that our big growth came in January 2026 to March 2026, and a big chunk of our 65%-70% of these loans were six-month loans. So they all came up for renewals and interest servicing in Q2 this year. With a drop in gold price, many of the folks had to pay their margins and solve their interest components, et cetera. So it's been a slow quarter from growth because the entire chain has been working hard on making sure that there's a very smooth transition given the change in gold prices, et cetera. We really have seen customers respond very responsibly. But of course, there is timing and work, which is why I think a lot of the salespeople have been busy getting this addressed. We should resume good growth starting Q3 again.
I did want to talk about vehicle loans because our vehicle loans, which were primarily 2-wheelers in the past, now include 2-wheelers and used cars. 2-wheelers are now offered in 135 cities and used cars in 50 cities. I did want to make a mention of it because the vehicle loans have a 76% year-on-year growth. It will maintain very robust growth, not for any change in credit criteria or any aggression on our side. We just are available in so many geographies. We just expand geographies, the growth will sustain. How many geographies are we present in for our affordable housing Micro LAP? We are in about 220 odd cities. That is the number of cities that 2-wheelers and used cars can get up to.
We normally give you a bar graph explaining which state concentration there is. We think that it has been so consistent for so long that we do not give you a half a page of that information. We have just added a line here, which says our top seven state concentration is at 57%, with the top three at 37%. That is a bit of preamble on our asset business. I would now like you to turn to page nine. Here is where our biggest asset book today in secured assets is affordable housing. It is growing at 28.2% year-on-year with our average ticket size of INR 11.9 lakhs. Micro LAP, we have slowed down. We intend to pick it up, but slowly and surely is our effort. That is our Micro LAP. MSME, I had signaled earlier, is going to be one of our fastest growth engines.
It has been 20.6% growth year-on-year. I would expect it to grow strongly and robustly. NBFC is 0.7%. Given that we have enough and more assets growing at our end, we are not really expecting to grow the NBFC term loans in any significant way. Vehicle loans, we already spoke of, 76%. Gold loans year-on-year, 81%, though, of course, quarter has been tepid at 0.3%. Others typically is employee loans and FDODs, nothing consequential from a P&L perspective. But we did have one large FDOD closure, which is why they are showing a quarter-on-quarter slide drop. Unsecured advances year-on-year is 17% growth. The quarterly growth is at negative 0.3%.
Like I said, given that we are tight on the credit criteria and there is a huge population which is possibly unable to borrow, we are not seeing aggressive growth here, which is absolutely fine by us. Because we do want to have only good growth, so we will keep trying to grow, but not diminishing our criteria and ensuring that whatever we grow, we put them in the guarantee program. I would now take your attention to slide number 11. Slide 11 is an important slide because this is where we kind of draw our strength as a competitive moat, where the entire sales force of the bank is focused on doing multiple relationship with customers. This page specifically for our investors who are seeing it first time is on the housing loan and micro loan book, where our average active relationship is four.
You can see a good dispersal of where all these relationships lie. Primarily from pre-approved business loans. You can see how gold loan penetration is improving. I think there is a lot more room there. Our 2-wheeler penetration is still low at 1.1%. Of course, our TD penetration, which was at 21, is at 19, but still very healthy. This is primary reason why we expect customers to use Jana as their preferred bank, and this is where we do expect operating leverage to really play a role with us. I will swiftly move to page number 13, which is the liabilities page. Year-on-year CASA growth is 13, TD is 18.5. We have worked to do on CASA, and we are committing that you will see a very different CASA growth in the second half.
We have been a bit more focused on the TD in the first half. Our total liability book is now at INR 38,221 crores. Irrespective of the TD and CASA growth rate, our cost of funds remains stable at 7.4%, both in Q1 and Q2, and is down from Q2 last year of 7.9. It has got a very healthy mix of non-callables, bulk, and retail. We have always maintained this, that our contractual bookings is never short-term. So 96.1% of deposits are one year and above. I just want to tell everyone that, yes, we have very strong plans to grow CASA. It has not picked up to our expectation in first half. But we are very comfortable both on liquidity and keep. Though the interest rates do not look very simplistic.
Interest rates are slightly harder in Q2 than Q1, but we do want to do our best to make sure that cost of funds remain where they are at this point of time. I will now move on to the financial slide, and I will ask Abhilash to take you through some key financial slides so that you get a good flavor of some of our ratios.
Thanks, Ajay. I am now in slide number 16, which is explaining the numbers for half year period. Like Ajay mentioned earlier, the quarter has been the highest ever PBT quarter for us. Half year profits is equal to last year full year profits of INR 326 crore. Our ROA has improved to 1.4%. Our ROE is currently close to 14%. Book value per share is at INR 455 per share. Our OPEX, while quarter-on-quarter has been flat. If I look at H1 against H1, that is around 15%-16% growth in OPEX. That is why we have been managed to have a PPOP growth of almost 27% year-on-year. Then we have continued to be comfortable in capital adequacy with 20% CRAR. NNPA, like Ajay mentioned, 1.08%. With the claim coming in, it will be below 1%. Share of secured assets is at 73.7%.
These are the key numbers which I wanted to cover in slide number 16. Moving on. Next slide which I want to also highlight is slide number 18. This is very critical where we have also disclosed the NIM yield on advances. We are able to hold on to the NIMs of previous quarter, and our NIMs have improved by 1% year-on-year, 6.5% for Q2 FY 2026. Currently, we are at 7.5%. The cost income ratio, if you see from Q1, which was 67%, has reduced to 64.3% for Q2. These are the three important points which I wanted to highlight, along with where we have seen an increase in ROE quarter-on-quarter, year-on-year, the ROE has improved. ROA has improved. The revenues are on upward trend. The jaws is widening in terms of OPEX versus income.
That's the other key element which I wanted to highlight in terms of financials. The cost income ratio currently is at 64%. We are moving towards a 60% benchmark, which we set out towards, and that probably will be over the few quarters coming up, while the jaws widens in terms of OPEX and income. Having said that, our total revenue currently has grown by 18% year-on-year. And quarter-on-quarter it's at 4% growth. I wanted to also bring up certain elements of P&L, which we have called out in slide number 20, which included processing fee, insurance income, and liability fee, where we have given the details of other income as well. These are the key metrics which I wanted to cover as part of P&L. The guidance one, please. Guidance, like we mentioned in the initial slide, Mr. Ajay Kanwal mentioned.
Guidance has been revised from 80% in profitability PAT growth to 100% in PAT growth. That considering the profits of H1 being equivalent to the profits of full year last year. We have revised the guidance, and we are confident that this is achievable by the looks of it, by what we have seen in the trends in the Q1 and Q2. While we are maintaining the guidance for both advances and deposits at 19%-21% for advances and 23%-25% for deposits.
We will open the floor for questions now. Thank you so much.
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. The first question is from the line of Jai Chauhan from Yes Securities. Please go ahead.
Good day. Am I audible?
Audible.
Yes, you are.
Thank you for the opportunity. I just wanted to ask, slippages for the GNPA and NNPA during the previous. From here, do we expect slippages to show a downward or upward trend over the coming quarters?
Yeah. I think few things, Jai, I must tell you, which is first, the primary challenge always in a book of a small finance bank where microfinance is always MFI, but MFIs touch wood went through 99% collection rates. Small addition we had in Q2 versus Q1 was primarily in some of the drought-affected areas, but nothing significant. That was one. Second, secured is moving very well, so there is no surprise coming off there. We had two margin one-offs in Q2. One was a mid-size loan, where we will have some time to make sure the collateral is fully sold and we recover our money. But meanwhile, it has come into our slippage, which is at a 0.2%. The drought has given us 0.3%. Both these are one-offs. They should drop off in the next quarter.
You can also see the SMA is also graduated down in Q2, which will again give lower slippages. Yes, slippages will go down in Q2. We've also told that the credit cost, in a way, has peaked out in Q2. If you look at our numbers, last year, Q3 was a turnaround time, where first time we started hitting 99% in MFI. A real bulk of flows of NPAs were largely in Q2. The full provisioning is done and dusted, and we've got lower and lower numbers coming up through the pipe, which needs provisioning. Yes, credit cost should be lower in the second half, and so also should be slippages.
Got it. My other question is on insurance income. Of the INR 45 crores in the first half, how much of this is linked to the credit life of advances and how much would be the income impact due to the consultation paper released by IRDAI?
Yeah. Just give us a second to answer that. One is about between 80%-90% would be trade life.
And 10%
And remaining. Sorry, go ahead.
So 80% to 90% has been credit life and 10%- 20% is retail product. That is what we have been trending towards. Second part is, with respect to the consultation paper, I think that was the second part which he was asking on the INR 45 crores impact. I think while we have done an initial assessment, we are als-
Yeah, go ahead, please.
While we have done an initial assessment, we have not yet completed the full assessment of it. We will get back once it is more clear what the guidelines would fall.
Yes. Listen, we are conscious that we have to prepare. We do not know what the final outcome of the consultations with IRDAI with all the players will be. But one thing is certain in our mind, that we will have to work on a very cost-efficient model on insurance as we go ahead. We are working on more AI-led processes on insurance so that we do get lower cost while we continue in increasing the insurance penetration for our customers. The positive for us is the customer base we serve, the insurance penetration is very low, so opportunity is a lot.
What this IRDAI new guidelines or expected guidelines has done is, it is kind of woken us up and saying, "Listen, yes, we will probably make lesser commission in the future, but then we should compensate that by increasing penetration in a much bigger way." Yes, we are preparing for that, and we would like to make sure that the impact of the change by IRDAI is minimalistic on our bank.
Got it. That is on my side. Thank you.
Thanks, Jai.
Thank you. Next question is from the line of Mayuresh from Invest4Edu Capital. Please go ahead.
Hi sir, can you hear me?
Audible.
Hi sir. [Inaudible ]. Congratulations for such a great set of results. My first question is that, we noticed that the cost-to-income ratio has reduced from 67% to 63% on a quarter-on-quarter basis. Is this decrease sustainable? Also, can you see the number come down below 60% in the coming quarters?
Mayuresh, first is, cost income is certainly going to remain here or get lower. One of the primary drivers, as you know, in all banks, of course, is people. Where we sit in September 30th versus March 26th, our headcount is lower, in spite of us growing in the asset and the liability businesses. We do not see a huge rush of hiring people. I would expect that the cost income here on will remain below where we have reported for September. That is primarily how I would think about it. Just so that you know, at March 2024 numbers on cost income were 57%. That was pre the stress in the MFI business. I would think that we are currently around 63.4% odd. I do not think so it will give us any happiness or pleasure unless we reach 57%.
That is our first goal. Having said that, I do not want to give a wrong impression that we are not investing. We continue investing in digital, in AI. You have also seen our clients. We are ahead on branch opening for this year that we had originally planned. We have three products coming up. I think largely our cost savings are coming from getting better productivity, putting in more automated RPA processes. A few of the calling both collections and cross-sell have moved to AI processes. That is where our real cost saves are coming from, and we will certainly expect it to sustain. Will it go below 60? I think it is achievable, but I would be cautious in saying this year likelihood probably is low. Yes, we would try our best.
Okay, sir. Wonderful. My next question is on the CASA growth, which has slightly reduced by 2% over the quarter. Could you explain the reason for this decrease and whether we can see a turnaround in the coming quarter? Also, do we expect just the cost of funds to remain more or less around 7.4%? Could we see any decrease in the same due to the hike in the repo rate?
Mayuresh, the CASA percentage is reduced by 2%. CASA absolute has grown 13% year-on-year. That is the first thing. Yes, there is a meaningful push at our end to make sure that our CASA balances pop up and we get back to the 20% odd number. That would have been a good way to kind of position ourselves for this year. We are investing. Specifics that we are doing to improve CASA is to do more focus on affluent banking. We do that through our segmental offers of Exclusive, of Legend, as well as Premier banking. Because truly, the CASA balances are available with the affluent in a significant way. We are expected to launch a digital version of onboarding for non-face-to-face CASA accounts. We expect to do that by January.
That would again bring in a lot more customers through the funnel. That gives an opportunity for us to then grow it much better than what we are doing today. We do acknowledge CASA is not our strength at this point of time. We are doing everything which is possibly available in our heads and efforts to make sure that we bring it up.
Okay, sir. Wonderful. My last question would be, are there any new product launches expected during this calendar in this year?
Mayuresh, there are a few product launches, I want to draw attention
Seven.
Everybody on page
Seven.
Page seven. Page seven tells you first the branches. We plan to open 78 branches. We have finished opening 40. We have also given you how many are new branches, how many branches we are splitting, and what the relocations are. On the product launch, this has been going on for some time, but we are finally getting there in terms of we are doing employee POC right now on Credit Line on UPI, so that should go live. We had focused on wealth management, so loans against shares and mutual funds will go live in November. trade FX. That means our AD-1 license going live, and we are doing export, imports, and FX trade. That will go live by December. These are the three primary ones.
On the digital side, you will certainly see us doing a digital onboarding program for SA customers, which will ensure that we are getting customers who are happy banking with a bank from a distance, and electronically or digitally, as I would say. We are putting enough controls that there is less or minimalistic amount of mule opportunities because that has been the challenge in that product in the past.
Okay, sir. Understood. That is it from my side and all the best for the future.
Thank you.
Thank you. Next question is from the line of [Rajiv Gare] from Equitas Wealth. Please go ahead.
Hello, audible?
Yes, yes.
Hi, sir. Good evening. My first question is, we have seen a marginal quarter-on-quarter decline in operating expenses for the first time in recent quarters. Should we view this as a sustainable trend going forward, or was the decline primarily driven by a time-related factor?
Rajiv, like I said a bit earlier, the primary driver of cost dropping was headcount, and actually one of the headcount reasons. The MFI stress came down, so we obviously had to put a lot of collectors into the MFI business. As you can see, the amount we are collecting as recoveries is also tapering, and so also is the headcount which are employed for deep bucket collections. Deep bucket collectors as a number have reduced, deep bucket collection has reduced, and so obviously we see some costs coming down. Some of the AI-led processes which are collections calling on both secured and unsecured, welcome calling for new customers, et cetera, those have kicked in and that has caused us to have some amount of reduction in headcount. We've also consciously focused more on our direct sourcing percentage improving over DSA sourcing.
That has reduced costs because the DSA cost, we book everything upfront. That cost has come down. So a variety of methods. I did say earlier, Rajiv, that our March 2024 cost income was 57. We're currently at 64.3%. We know that we are not where we would like to be. So yes, this trend of improving cost income has to continue, and it will continue.
Okay, sir. And sir, if you are able to cover the book under the CGFMU scheme, what will be the impact there? Also, when are we expecting the amount to be received for the claim lodged in Q3?
Right. The maximum time that we believe the National Credit Guarantee Trustee Company would possibly take is 2 months. So which means on the outer side, by end of November, we should get the money. Second is, if we don't cover the entire program under book. Let me first step back. Why are we covering? We want to avoid event risk. We are not diluting any credit criteria because we have a guarantee program. So yes, if for whatever reason this guarantee program doesn't work out, we would then take all the money that we have kept ready within our P&L, and probably keep it as a buffer, and continue doing good quality business in microfinance. Because fundamentally the way we do business and what business we do, we haven't changed that because it's a guarantee. So yes, the only risk we run in the future is an event risk.
On a credit risk side, we do think that the surplus money that we will save from not giving any commissions to the Guarantee Corporation, that buffer should hold us in good stead in the future.
Can I add?
One second. Raman wants to add.
Sir, I think one of the points Rajiv made earlier in the call was that 2 or less lenders is 97% for Jana versus 93% for the Sorry, the other way. Versus 93% for the rest of the industry. Clearly we have been and that is one of the reasons we said that we slowed down on acquisition as well. So the quality of the new origination continues to hold up and on a vintage basis, the new originations are performing as well, if not better. I just wanted to make that as well.
Thank you.
Okay. Sir, one last question on the deposit growth. Year-on-year deposit growth remained at 17%. How do you plan to accelerate deposit mobilization? Also, what are your forecasts for the remaining year, which is FY 2027 H2?
See, we have said we will grow deposits 23%-25%, and we do realize that we have a bit of a catch-up to do because our first half has not been in the 23%-25% range. But normally we have always seen that our first quarter is a bit slow, second picks up, and third and fourth we run very fast. Yes, I would still stick to my 23%-25% deposit growth rate. I think the two variables which are key for us. One is our CASA. We have to make sure our CASA percentage improves, certainly in the second half. Second is I do want to keep my cost of funds around where it is today. I think three variables are primary to us, 23%-25%, 7.4% cost, and CASA coming to the 20% range. How are we going to do it?
Not very complicated. It is just focusing on the affluent segment through our segmental offers, which are Exclusive, Premier banking, Legend, which work well in the market. It is just getting more clients, doing better service, more RMs. You have seen from our branch presence, we have 820 odd branches all over India, so we do not have a distribution issue. Our deposit pricing is fairly competitive. So yeah, we will certainly grow the deposit piece. Our focus really is how to get the CASA up and how to make sure price remains around where it is, which is around 7.4%. That is really our plan. But it is certainly, if you ask us, after collections, the next focus is on CASA. Those are the primary two drivers where most of the senior team actually spends time on.
Okay. Sir, and all the best from my side. Thank you.
Thank you.
Thank you. Next question is from the line of Bhavya Aggarwal from Share India Securities. Please go ahead.
Hi, sir. Am I audible?
Yes, audible.
Thank you so much for the opportunity. I have a couple of questions. First is, sir, we are seeing that the gold loan and Micro LAP book has remained flat over the quarter. Is that primarily due to seasonality or any deliberate moderation in these segments? Should we expect growth to pick up in the coming quarters?
I think gold is easier to answer. We had January to March 2026, was a big jump in our gold loan business. Typically 6-month products, so they all came up for renewals and maturities in Q2. We have seen a price drop in gold for sure. So there is obviously focus by customers and staff and operations at our end was to make sure that we do our margin calls and ensure that everybody's account is in order. That was done very successfully at our end. But I think the collateral damage was that there was less focus on building new businesses or rather new customers and which is in a flattish quarter. It will resume growth in Q3, because I think now we have really steadied the ship of all the renewals coming up. On Micro LAP, we have been a bit conservative on growing that since the MFI stresses began.
We do not have really a designed slow growth plan, but our credit criteria keeps the Micro LAP book in a slow growth mode. We have no intention of loosening our credit criteria. We are present in half number of cities. If you ask me honestly, I think our Micro LAP may not have a very solid growth, just like affordable housing at 28% or MSME at 20%. It may improve from where it is, which is 3%, may become maybe just 7%-8%, but I doubt it will do more than that. Gold, on the other hand, should go back to its 30%-40% growth rate, which means about 10% a quarter comfortably from Q3 is what we are basically thinking of.
Okay. Makes sense. Sir, you have also revised your guidance of PAT from 80%- 100% during the quarter. We understand that the bank has posted a profit for H1, which is equivalent to last year's profit. Are there any challenges or risk in achieving this revised guidance?
Still, listen, nothing on the horizon that we can see which should stop us from achieving similar profit at the minimum in second half versus first half. Normally, you would expect second half to be stronger than first half in terms of profits. I am saying that let us assume that we at least perform equal to first half. We will double from where we are today. Like I said, we do not see a problem in our credit costs, and I mentioned why, both in terms of how SMAs graduated down in Q2 and the slippages will get better than the Q2 and Q3, et cetera. I do not see a challenge in the asset growth piece because our products have been in the market for the last seven, eight years and are met with good success. Our distribution is solid.
It works well, so I do not see an asset growth issue. On the liability side, like I said, we have been doing a poor job, 20%-25% range growth every year. So I do not see a liability growth issue. So I do not really think that we should have a challenge of meeting the guidance of 100% growth year-on-year.
All right. Sir, last question from my end. We are looking at a steeper rate upcycle. How do you see your NIMs moving in the second half of this year? Is it expected to further increase or has it peaked at these levels?
I think, or rather our expectation is the NIMs will be around these levels now. Why I say so is like this. See, what drives NIM is what is the composition of our asset base. I do not see any real big drive in MFI, which is our primary large NIM business to go faster than. H2 will not be faster than H1 in MFI.
Okay.
I think from the asset side, the composition will remain largely similar. As you know, we have always said our secured business has to reach 80%, so we are at, whatever, 74% now. We will probably finish the year around 75%. That will not give the NIM lift. I did say that the market is not showing any signals of a weakening interest rate regime, so our cost of funds should not go down. If you just add up the two, I think if we maintain 7.5, I think we have done a good job.
Right. That answers my questions. Thank you so much, sir, for the opportunity and answering my questions patiently.
Thank you so much.
Thank you. Next question is from the line of [Vandana Shah] from Investor Capital. Please go ahead.
Hello. Good evening.
Hi.
Firstly, congratulations on the good set of numbers. I had a couple of questions. Firstly, our affordable housing, MSME loans and vehicle loans have been a key growth driver this quarter. I just wanted to understand that if you expect a similar portfolio mix to drive the asset growth in the financial year 2027, or do you anticipate any kind of changes in the growth mix across the segments?
Yeah. Let's start with the simplest one, the vehicle loans, Diwali season. This quarter, you will see a big jump in the 2-wheeler and used car portfolio. It will be our best quarter in that business. Typically, quarter four is also strong. I think you will see slightly better vehicle loans. Will that be also one of the primary drivers next year? The answer is yes. That's the easy one. MSME, I must tell you that we can see the effect of PLI, the Make in India, and there is real good growth in the small and medium enterprise in India. We're finding a lot of opportunities. We're very comfortable doing that business. We've got good experience. We've got excellent set of people.
MSME will be a, I would say, a 25%-30% growth rate business for us, if not more, for a sustainable period, both this year and the next year. I think that is also easy. Affordable housing, we have done 28% year-on-year. I did mention earlier that we are in about 220 cities. We have got roughly 3,000 people working in these 220 cities in business, that is in sales, who are sourcing and working with various kind of DSAs, connectors, et cetera. Do we expect that growth to sustain? We certainly do. Yes, these three businesses will continue perform very well in H2 and the following year. The one business which has been slightly low in Q2, and I talked about it a bit earlier, is gold. We expect gold to also come back. I think that should also get some energy.
We will be launching Credit Line on UPI, which inherently is a mass product. If our ideas really get the right traction, I think that will be a new, interesting business which we will be able to add and it will start providing or rather, if we start contributing to the bottom line from next year itself, because it is a very digital product, so it does not cost much, and we have already got the platform and we have done all the testing, et cetera. I think that is a big piece coming up. Wealth management is a good support for our liability business. That goes live.
I would not put that as a big business which will be developed, but certainly as affordable housing, MSME, vehicle loans, I would add gold loans to it, and I will probably give Credit Line on UPI as a dark horse, which may probably play a bigger role next year in the P&L.
Okay. Also on the geopolitical front, do you see any impact on a portfolio due to Iran war? Or do you intend on preparing for a prolonged war? Also, given the drought situation in Karnataka and Maharashtra, do you see any impact on the unsecured portfolio?
Okay. Let me start with the second question first. I think in Karnataka, we have about 29 districts, 226 talukas, and in Maharashtra we have about 34 districts, 265 talukas, which have been declared as drought affected. Combined with that, the SLBCs in these locations have also given us a guidance on moratoriums. But we are handling it on a case-to-case basis as we come. We will expect a little bit of maybe additional slippages on account of that, but I don't see that to be material. I think that's the second part of the question, which I'm answering first. As far as impact on the portfolio due to Iran war, at the moment, we're not really seeing any material impact from the geopolitical situation. Portfolio remains reasonably diversified across geographies and customer segments. MFI, of course, we've been steadily bringing down.
Today, it's at 26% of the gross loan book. Portfolio monitoring has been strengthened through early warning indicators and stress testing. In the event that the geopolitical situation deteriorates, I believe we are well-positioned to respond through calibrated underwriting as well as tighter portfolio monitoring and collection extra efforts. So those are the ways I would handle these two.
I'll just add to what Raman said. See a direct impact to people who are in the petroleum supply chain, or that particular industry. Impact of the same on the MSMEs that we work with has been marginal. It hasn't really. So probably our customer base is less in those industries and businesses. We have seen a few impacts on the shipping cost, especially on the rice industry, et cetera, where we have become cautious for some time. So yes, I would say the impact of Iran and the oil price shock that all of us are hoping goes away is more that certain industry we have stopped sourcing because we do see that unless there is no clarity on how this ends and when it ends, the mechanics of being successful.
If you're an exporter who's going to pay 2.5, 3 times on your shipping cost, you're not going to have any margins left. So yeah, I would say our constraint on some of the customer segment we were thinking we would do business with, that is not there. Existing book is not saying anything which is showing impact, and I'm really hoping for everybody's sake that this does get settled quickly but meanwhile we'll remain cautious.
Yeah. Okay. Lastly, although you have clarified on the exchanges, I wanted to understand what is the philosophy as circulated in the media for a merger, given the hard work that you have put in over the years?
We have said to the stock exchanges very clearly that if there is anything which comes to us as an opportunity to evaluate, we will evaluate it. If it makes strategic sense for the bank, it provides value to shareholders, we will then certainly take it to the board to consider it. That has been our position for some time, and it remains so today also.
Okay. That answers my question. Thank you.
Thank you. Ladies and gentlemen, in the interest of time, we will take that as the last question for today. I now hand it back to Mr. Ajay Kanwal for his closing comments. Over to you, sir.
Thank you everyone for participating and the questions. I am glad you asked that question last, which I thought you folks may ask first. Listen, for us, it has been a very steady journey of secured assets. We have always been signaling growth of PAT of 80%. We were pleasantly surprised, and I think what caught us by surprise very pleasantly is our cost management efforts paid off and we could see the first half, the 80% PAT increase year-on-year. We can now comfortably talk of 100%. I think that gives us a lot of confidence. I did mention that we do see strength in the economy. Even before the GDP numbers were revised upwards, we could really smell from all our teams that there is enough and more good opportunity of business which we can finance as a bank. That is working very well.
Yes, we did not have an advantage in raising our NRI deposits. Our product was not ready. Yes, we did have a slight disadvantage, so we have to work a bit harder on making sure that our resident deposit business props up even harder in the second half. We are conscious of that. Our CASA remains are not our strength, so we have to build that. But we are very committed, and with these results, even more confident that we are on the right trajectory, and we will produce a very strong year of performance, not just in P&L terms, but how it creates an even stronger foundation for the next few years. Thank you again, and happy Diwali in advance.
Thank you very much, sir. On behalf of Systematix Group, that concludes this conference. Thank you all for joining us today, and you may now disconnect your lines.