Ladies and gentlemen, good day, and welcome to L&T Finance Limited Q2 FY 2025 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. We have with us today Mr. Sudipta Roy, Managing Director and CEO, Mr. Sachinn Joshi, CFO, and Mr. Raju Dodti, COO, and other members of the senior management team. Before we proceed, as a standard disclaimer, no unpublished price sensitive information will be shared during the call. Only publicly available documents will be referred to for discussions during the interaction. Sensitive information will be shared in the call, during the interaction in the call.
While all efforts will be made to ensure that no unpublished price sensitive information will be shared, in case of any inadvertent disclosure, the same would, in any case, form part of the recording of the call. Further, some of the statements made on today's call may be forward-looking in nature. A note to this effect is provided in the Q2 results presentation sent out to all of you earlier. I would now like to invite Mr. Sudipta Roy to share his thoughts on the company's performance and the strategy of the company's ongoing forward. Thank you, and over to you, sir.
Thank you. A very good morning to all of you. I welcome you all to the investor call for the second quarter of FY 2025. With me on the call are our CFO, Mr. Sachinn Joshi, our Chief Operating Officer, Mr. Raju Dodti, and the Senior Management Team of L&T Finance. Today's call is divided into two sections, taken up sequentially by myself and our CFO, Mr. Sachinn Joshi, who will be talking about the overall business metrics and the financial performance at length. Post our opening commentary, we'll be happy to take questions on the call.
I would like to start the call by sharing the highlights of this quarter's performance, wherein we have registered a quarterly consolidated PAT of INR 696 crore, a growth of 17% year-on-year, while maintaining a satisfactory trajectory in our quarter two disbursements, ending with an overall disbursement growth of 11% YoY, with retail disbursements standing at INR 15,092 crore, a growth of 12% YoY, and 2% sequential growth over Q1 FY 2025. Our retail book now stands at INR 88,925 crore, a growth of 28% YoY. These numbers reflect the strength of the retail business franchise that we have created over the years, which has been further sharpened by our five-pillar execution strategy. I'm happy to state that the company's execution momentum to transform into a granular retail financial services provider continues unabated.
Having met Lakshya 2026 goals at the retail level two years in advance, in Q3 FY 2024, we have reoriented ourselves for convergence at the consolidated level by FY 2026, as detailed in the last quarter's earnings call. Accordingly, our quarterly performance as against the new targets for Lakshya 2026 are as follows: Our Lakshya goal was to achieve utilization of greater than 95%. I'm pleased to share that we have surpassed this target with 96% utilization at the end of this quarter. Against a retail book growth target of 25% CAGR in Q2 FY 2025, our growth stood at 28% YoY. While we have improved portfolio quality by sustaining retail GS3 and NS3 within the threshold levels, we have now tasked ourselves to convert consolidated GS3 and NS3 below 3% and 1%, respectively.
The corresponding numbers stood at 3.19% and 0.96% at the end of Q2 FY 2025. On the ROA front, we have moved from tracking retail ROA to consolidated ROA in the range of 2.8%- 3%, as per our original Lakshya 2026 targets. Our consolidated ROA for Q2 FY 2025 stood at 2.6%, up by 18 basis points year-on-year, which in the last quarter last year, same quarter, stood at 2.42%. I'd like to draw your attention to slide number five of the investor presentation, where this has been delineated in detail. I would now like to quickly run you through the key highlights of our performance in Q2 FY 2025.
Quarterly consolidated PAT of INR 696 crore in Q2 FY 2025, a growth of 17% year-on-year. Quarterly retail disbursements of INR 15,092 crore, a growth of 12% year-on-year. In spite of a challenging operating environment, our acquisition engine and persistent execution strategy ensured that the disbursements exhibited a sequential growth of 2% over the last quarter. Quarter two FY 2025 retail books stood at INR 88,975 crore, up by 28% year-on-year. Consolidated book growth has picked up pace, growing at 18% year-on-year, reaching INR 90,015 crore in Q2 FY 2025. The on-book wholesale assets closed at INR 4,040 crore at the end of Q2 FY 2025, which is approximately 4% of the overall book.
This quarter marks the completion of one year of our five-pillar transformation strategy, and it continues to be central to our roadmap to the future, details of which are available from slide 11 to slide 24 of the investor presentation. Consolidated GS3 and NS3 numbers came in close to the target metrics of 3% and 1%, at 3.19% and 0.96%, respectively. The slight erosion in GS3 performance over Q1 FY 2025 is largely on account of the macro operating environment deterioration in the Rural Business Finance vertical in certain pockets, rationalization of tractor repossession policy in early buckets, and some localized adversities in the two-wheeler business.
Collections efficiencies in our Rural Business Finance vertical was maintained at 99.43% for September 2024, which is a 13 basis points erosion over the corresponding figure of 99.56% for June 2024. I would now like to give you some flavor on the macroeconomic scenario and the sectoral outlook before proceeding to the five pillars of our execution strategy. The spread and width of rainfall distribution this year from Southwest Monsoon has been unprecedented, with rainfall being at 1.2% of long period average this year, and most of the parts of the country have received adequate or more than adequate rainfall. This augurs well for the restoration of depleted water tables and reservoir levels in most parts of the country.
The success of the Southwest Monsoon bodes well for the possible resumption of consumer demand in rural areas and improvement of rural liquidity post the arrival of the Kharif crop and a possible bumper Rabi cropping season. This could have a positive implication for our Rural Business Finance and farm equipment finance verticals in H2 FY 2025. We have already seen the green shoots of improved tractor uptake in the month of October, and we're hopeful that the trend sustains and positively impacts the entire rural sector. We would like to share that we have seen localized impact on collection efficiencies in the Rural Business Finance vertical due to widespread floods in certain geographical pockets, namely North Bihar, Gujarat and parts of Western India.
We also saw disturbances from certain unscrupulous elements hampering our collection efforts in the Northeastern UP and headwinds in Odisha on account of temporary disruption in social welfare schemes. I'm pleased to share that our RBF team was able to proactively address these issues, minimizing the impact on the business overall. I would also like to reiterate that the incidence of our customers with chronic overleverage is one of the lowest in the industry, with customers having more than four external associations, standing at about 5.4% of our total RBF outstanding book. Granular details of our customer leverage have been given on slide 17 of our investor presentation. However, we are seized of the fact that the industry is passing through a period of deleveraging, which might have a ripple effect continuing into Q3 FY 2025 and Q4 FY 2025, thereby moderating our growth outlook.
I'd like to inform that we did not need to dip into our macroprudential provisions specifically created for the Rural Business Finance vertical in Q2 FY 2025. We would continuously assess our collection outcomes in the impacted geographies highlighted above and keep our options open on differing possible slippages through existing macroprudential provisions in H2 FY 2025 As far as the global economy is concerned, it has weakened over the last quarters, with some of the major economies, including U.S., China and the Eurozone, now shifting their focus from targeting inflation to fostering growth momentum. The start of Fed's calibrated quantitative easing cycle, along with RBI's signaling of a neutral accommodation stance, indicates a movement towards a more benign policy rate regime globally and in India in the coming years.
Pockets of worry remain due to conflict zones remaining red hot in Europe and Middle East and demand constant attention due to possible spillover impacts into the Indian economy in case of a sustained worsening of the conflicts. In spite of certain uncertain global and macro geopolitical situation, the domestic growth story remains intact, despite some sluggishness in high-frequency indicators as rural consumption and private investment demand start to gain momentum. We hope that a higher government expenditure in the second half of the year and the bountiful rains should add further fillip. As mentioned earlier, I would now like to give a brief update on the five pillars of execution that we had enumerated one year back and continue to be in implementation mode against the same. Number one, customer acquisition.
The focus has been sustained on maintaining customer acquisition momentum in a challenging macro environment, while doing the necessary credit adjustments to maintain future portfolio quality. Accordingly, rationalizations have been made in dealer network in both two-wheeler and tractor and farm equipment business in Q2 of FY 2025, and focus has been sustained on new customer acquisition in the Rural Business Finance vertical to tap into non-leveraged customers by expanding new village footprint. Consequently, the cross-sell penetration in Rural Business Finance has been calibrated downwards to exclude customers of higher risk profiles. Details of the same are available in slide 12 and 13 of the investor presentation deck. Number two, sharpening credit underwriting. Project Cyclops, our three-dimensional credit engine that was operationalized in Q1 FY 2025, has now been scaled up to cover 55% of the two-wheeler monthly throughput.
Two additional scorecards, the fraud scorecard and the dealer scorecard, have been implemented in Q2 FY 2025, taking the number of scorecards in deployment to 16 only for the two-wheeler business. The initial results remain encouraging, with through-the-door net bounce numbers for fresh acquisitions being approximately 125 basis points lower than those underwritten by legacy algorithms. Project Cyclops will be implemented for tractor business in Q3 FY 2025, followed by other lines of business, notably personal loans and SME business loans in Q4 FY 2025. Futuristic digital architecture. The work on upgrading the technical capabilities and IT framework remained unabated in Q2. On the large partnerships initiatives, deep integration with CRED enabled us to go live on personal loan sourcing within expected timelines. Progress has been made in optimizing cloud expenses and building robust disaster recovery infrastructure, alongside beefing up the cyber security capabilities.
The organization has embarked on the task of housing the entire core IT, data sciences and operations capabilities in an integrated facility in Navi Mumbai, slated to go live in Q4 FY 2025. L&T Finance is also happy to announce that the inaugural edition of RAISE, India's premier BFSI-focused artificial intelligence conference, featuring luminary speakers, will be held in Mumbai on the 26th of November 2024, showcasing practical use cases of AI in financial services domain to BFSI industry and Fintech participants. We urge you to visit the website www.ltfraise.com and register for the same. Brand visibility. Over the past few quarters, we have invested in building visibility around high traffic customer points like airports and inside advertising on the urban side, and wall paintings and mailers on the rural side, and marked our presence in the Global Fintech Fest.
We'll be launching integrated marketing campaigns for two-wheeler and SME-focused products in the coming months. We are pleased to inform that we have signed a contract with Jasprit Bumrah as a brand ambassador for L&T Finance products. Capability building. In line with our objective of boosting the human capital of L&T Finance with an execution bias towards various initiatives, the regional business structure was operationalized in Q2 FY 2025 to provide more granular distribution and risk control on ground, aid cross-sell and inter-business synergies, and reduce response times to tap emerging market opportunities. Four senior professionals from the banking sector have been onboarding in Q2 FY 2025 to transition L&T Finance from a business silo-driven organization to a more participative matrix organization structure, with far more granular senior supervision on ground in the four geographical regions of the country.
During the quarter, we also launched our first model branch in Madurai, Tamil Nadu, for elevated customer experience and brand visibility, and we'll continue to replicate this templated design across all our new and legacy branches over the next few quarters. Details of the new organization structure and the model branch are provided on slide 24 of our investor presentation. The organization also continued on its people development objective, emanating out of the Great Place to Work survey conducted in April 2024 , to transition the organization into a truly differentiated and employee-focused workplace. In addition, I would like to provide a half-yearly update on our wholesale assets and security receipts portfolio. As guided earlier, we continue to maintain that we are on track in ensuring the orderly rundown of this book over time.
Many of our real estate assets in the ARCs, especially those in residential projects, have gathered significant momentum towards resolution, with the resumption of construction and increasing velocity of sale of units to end users. As part of the ongoing process to enable faster resolution, we may be required to transfer one on-book assets to ARC in Q3 FY 2025. This in no way diminishes our expectations of eventually recovering more than the net carrying value on our books. We'd like to reiterate that our provision coverage and one-off counter-cyclical prudential provision of assets accrued in Q4 FY 2024 would be more than sufficient to deal with the resolution of these assets. Now, Mr. Sachinn Joshi will take you through the financial updates for the quarter.
Thank you, Sudipta. As always, I will be walking all of you through the financial performance of the company for the quarter, so starting with quarterly performance, our quarterly consolidated NIM plus fee remains strong at 10.86%, owing to change in the portfolio mix and weighted average cost of borrowing, improving by five basis points on a sequential basis on account of astute liability management. Our quarterly consol PAT at INR 696 crore was up 17% year -on -year. Healthy quarterly retail disbursements of INR 15,092 crore were up 12% year- on- year. Our retail book stands at INR 88,975 crore, which is up 28% year- on- year, on the back of healthy retail disbursements during the current quarter. Our consol book stands at INR 93,015 crore. This is up 18% year- on- year.
Consolidated ROA stands at 2.6%, which is up 18% year- on- year, and on the same lines, Consolidated ROE at 11.65% is up 84 basis points year- on- year. Talking about rural retail businesses, starting with Rural Business Finance, this business registered a quarterly disbursement of INR 5,435 crore, down by 5% year- on- year. The book size has reached about INR 26,500 crore, which is up 22% year- on- year in the second quarter. In farmer finance, disbursements stood at INR 1,782 crore in the second quarter, up by 16% year- on- year.
This led to the book reaching a size of INR 14,488 crore, reflecting a growth rate of 9% year-o n- year. As far as urban finance is concerned, which comprises of two-wheelers, personal loans, home loans, LAP, this whole piece saw a 29% year-on-year jump in overall quarterly disbursements. As a result, the overall book size increased to INR 41,578 crore in the second quarter, translating into a 33% year-on-year growth. The two-wheeler business registered quarterly disbursement of INR 2,393 crore in the quarter. Disbursements were up 32% from 1,817 crore in the same quarter last year. 60% of these disbursements were contributed by prime customers during the quarter. The book size increased to INR 12,699 crore, which is up 33% year-on-year.
As far as personal loans are concerned, we achieved disbursements of INR 1,361 crore. Last year, we had done about the same, INR 1,308 crore, and the book size stood at INR 7,178 crore, an increase of 11% year-on-year. During the quarter, growth in this segment was aided by expansion of physical distribution through the DSA channel, focusing on salaried prime customers. Moving on to housing, it achieved quarterly disbursements of INR 2,531 crore, up 46% year-on-year. Last year, same time, we had done INR 1,734 crore. The book size crossed INR 20,000 crore milestone. The book finally closed at INR 21,731 crore, an increase of 42% year-on-year. The momentum was sustained in the business through strategic measures, including collaborative launches with prime developers across top locations.
Additionally, the launch of L&T's, the Complete Home Loan offering across 11 locations, drove higher lead generation, which should lead to tangible results over the next few quarters. The home decor finance package of the Complete Home Loans program has seen a good customer acceptance, and we expect increased penetration of this add-on to lead to greater customer stickiness, as well as higher portfolio yields. On the SME Finance front, our quarter two disbursements stood at INR 1,244 crore, up 43% year-on-year. The books stood at INR 5,190 crore at the end of September 30th, 2024. The strong growth in business volumes was aided by building additional channels to diversify the existing sourcing products. We are in the final stages of launching our supply chain product in Q3 FY 2025.
I will now hand over the call back to Sudipta to make his closing comments.
Thank you, Sachinn. In summary of my opening note, I would like to maintain that Q2 FY 2025 remained one of the most challenging operating quarters post-COVID in the BFSI sector. We expect Q3 FY 2025 to be as intense a quarter as Q2 FY 2025, with a normalization runway visible only in Q4 FY 2025. We are confident that we have enough buffers and safeguards available to ensure a consistent outcome in Q3 FY 2025, even as we continue to operate in a difficult credit environment. On the back of a good monsoon, we remain cautiously optimistic about improving rural and urban demand and credit outcomes in Q3 FY 2025, and we will remain focused on execution of our transformation agenda across all lines of business. I thank you all for joining the call and for your patient hearing. The floor is now open for questions.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Kunal Shah with Citi. Please go ahead.
Yeah. Hi. So first question is, overall on the credit cost front. So when we look at it, the ECL provisions have actually come off. So would it be fair to assume that there would have been a significant write-off? And if you can just quantify the amount of overall write-off and write-off in the MFI portfolio, that would be helpful. Yeah.
Hi, Kunal. Good morning. This is Sachinn here.
Yeah. Hi.
Yeah. As far as, you know, the overall credit cost is concerned, it has gone up, no doubt, and the PCRs have also come down. Actually, the impact has been, you know, as Sudipta mentioned in the, you know, initial comments, there has been some impact, whether it is rural business loans. There has been some, you know, challenge we also had, on the rural as far as farm is concerned, and some issues on the two-wheeler. So it's a mixed bag, I would say. It's not just relating to microfinance. The write-off is actually, you know, once the 100% provisioning is made across any product or any assets, the write-off actually becomes a accounting entry for us, right?
So there will be 100% provisioned assets, which are still part of GS3, and you know, every quarter, the write-offs keep happening. So we really don't share the actual write-off number.
... but the PCR reduction is primarily on account of some write-off, which you are right, and addition of certain Stage 1, Stage 2 assets, which would have moved, you know, rolled forward to 90+ . Naturally, these have a lower provision compared to the 100% provision, which was on the written off assets. So that has led to a reduction in the overall PCR. But we believe that our PCR has been pretty helpful at 75%- 76%, which has come down by a few percentage points.
If you have seen, we have been mentioning this also during our earlier discussions and on various calls, that we have been maintaining a very, very conservative approach, and whether it's PCR, whether it's macroprudential provisions that we create, all these, you know, the additional overlays that we have, all these are meant typically for a rainy day. So, you know, these are difficult times, no doubt. You know, something which was 75%-76% going down to 71% and all is really not, we don't think it's something really worth worrying at this point, because we believe that it's a matter of couple of quarters, and we will, it should be business as usual.
Yeah, and write-off would have had an impact even in terms of slightly lower increase in stage two and stage three as well, because maybe otherwise, when you look at it in such a challenging environment, Gross Stage 3 and Gross Stage 2 is up hardly by, like, say, fourteen odd basis points, both put together.
Yeah, that's right.
Yeah. And, secondly, on the MFI side, so hearing the commentary from the peers, it seems like Bihar is going through some kind of a strain. You also highlighted floods have impacted the northern part of Bihar. But there, if we look at the SMA two pool or SMA one pool, that has gone up quite significantly, which suggests some flow through into Q3 as well. Okay. So now looking at the overall environment in the MFI, are we worried? You also indicated like Q3 would be challenging, but then in that case, are we looking to utilize some of the macroprudential provisioning getting into Q3, given the size which is flowing in? And a general commentary on the overall MFI would be very helpful, yeah.
Yeah. Specifically on Bihar, you know, though we don't normally give statewide collection efficiencies, but I will say because there has been some floods in Bihar, especially in North Bihar, we ended our September collection efficiency in North Bihar at about 99.5%, right? So, so basically what I want to say is that in spite of floods, in spite of whatever disruptions coming, you know, our focus on collections and our people's focus on collections continues unabated, right? So, and we expect that in October, the situation improved as the floodwaters recede. It is true that the industry is passing through a period of deleveraging, and obviously, as the industry passes through a period of deleveraging, it shows up in numbers of the players in the microfinance industry.
However, I would like to put on record a couple of things, right? And frankly, we have seen some commentaries on our performance which need clarification. Right. The first thing that I would like to say is that L&T Finance as an organization, especially in the Rural Business Finance vertical, we do not lend to a single customer who is zero DPD, right? So that is the first thing that I will need to point out. The second thing is that, you know, we, our overall guardrails are always vigorously maintained. That means we underwrite not only the customer, but we underwrite the customer's family as well. So we calculate leverage at a family level.
The second thing is that if a customer's overall AUM goes above INR 2 lakh at any point in the cycle, right? Whether if he's a fresh customer or if the customer is eligible for a repeat, but the leverage is more than INR 2 lakh, that customer goes out of the lending window. So that means, you know, we make sure that when we lend to a customer, the overall leverage of the customer is below INR 2 lakh. And I would also like to point out that some of these guardrails have been introduced by MFIN as late as, you know, June, July of this year. However, L&T Finance has maintained, been maintaining these guardrails since 2020 , right? So it's not that, you know, these guardrails are coming to us suddenly new. We have been doing it for the last four years. A couple of more things.
You know, first and foremost thing, our pool rates in the microfinance vertical is 40%, right? However, once our sales guy goes and sources the particular file, then there's an independent check by a branch process manager, which is a completely different vertical, which. And then last but not the least, about 15% of all our disbursements are checked by our Risk Control Unit. So, you know, it's a three-tier process through which our customers come across, because our focus has always been to bring in non-leveraged customers. The other thing which I would like to state is that we realized early in actually early this year and the latter part of last year, that the industry is probably getting into a situation of leverage.
That is why we upped our efforts into new customer, non-leveraged customer acquisition from September last year. And from January of this year, we started cutting out close to INR 75 crore-INR 100 crore of repeat disbursements, right? Because we felt that those customers were on the borderline of getting leveraged. And this exercise has been continuing for us since January of this year. And, sort of last but not the least, we have brought down our average, accounts per collector sharply from about 570 or 560 odd to about 480, right? Which means we have put in about 100, actually 1,000 additional collectors in the field, and we did it early on. So our-...
If the average collectors sort of accounts per collector ratios actually drop, which helps our collectors also to address the sort of issue, the flow issues, much more effectively. So overall, it has not been, you know, a single axis action. It has been a multi-axis action, and I would like to say that the discipline with which the business has been built is not a one-year phenomena. It's a three, four, five-year phenomena, right? So which obviously, when the industry is in stress, through deleveraging, obviously, you know, we are sure in an industry there will be a ricochet impact on us. There will be some leaching on us. You know, we are not immune to it.
And on top of that, because of the monsoons and the floods, et cetera, you know, it has added to a little bit of additional pain through what the industry has been going through. But I can assure you that our business is fully capacitized to handle this. And last but not the least, we have INR 975 crore of provisions which has been kept aside as macroprudential provisions, which we have not touched this quarter. However, as Sachinn said in this call, right, if, for example, you know, if you have an umbrella and it's raining outside, right? Any logical person will open the umbrella to prevent himself or herself from getting wet, right? So we have this umbrella. We are not saying that we will use it, but the fact is that, you know, that value, that option is on the table.
But however, as of now, you know, our collection teams are working and our business teams are working to ensure that we have the best outcome possible through these difficult circumstances.
Sure. Just one thing, one clarification. Macroprudential is INR 977 crore , because last time we highlighted closer to INR 1,100 crore . So not sure, and you mentioned, like, there is no utilization of macroprudential at all.
Prudential provision allocated to microfinance is INR 975 crore. Overall, INR 1,100 crore is OTR overlays, et cetera. So that is separate from microfinance. Microfinance, pure microfinance is INR 975 crore.
Okay. Okay, thanks. Thanks, and all the best. Yeah.
PCR in our Rural Business Finance is close to 100%. It's not 100%.
Yeah. So 90 +, everything is anyway, 100% provided, so.
Okay, got it. Got it. Okay. Thank you.
Thank you. A reminder to all the participants, please restrict yourself to two questions. Next question comes from the line of Hardik Shah with Goldman Sachs. Please go ahead.
Yeah, hi, this is Rahul here. Hi, Sudipta. Hi, Sachinn. A couple of questions. One is, you know, appreciate the detailed explanation that you gave just a while back on the macroprudential and the PCR and the portfolio that is in underwriting. But just wanted to understand the PCR bit again. The stage two also saw a bit, so wanted to understand how do you all kind of think about stage two provisions and stage three provisions, and where does this provision coverage needs to go before you start opening an umbrella, which is a macroprudential provisions? How should we think about? Because your guide, your commentary about the outlook also was a bit soft, at least in the third quarter. So how should we think about the utilization or the PCR strategy from here on?
Yeah, Rahul, this is Sachinn here. So, you know, initially, Sudipta made a mention that, the deterioration, in Gross Stage 3, it was primarily, through the micro operating environment deteriorating on Rural Business Finance vertical, a rationalization of tractor repo policy and some localized adversities in two-wheeler business, right? So it was not just about... Yeah, there has surely been challenges externally in the microfinance segment, but that's, you know, about 30% or 26% of our overall book. There are certain other challenges which, he spelled out on the call. Now, as far as PCRs are concerned, and, you know, you talked about stage two. Now, stage two percentage actually includes the macroprudential provision, which is sitting over there. We have not enhanced this macroprudential provision. It has been INR 975 crore, and the book has been growing.
So in percentage terms, you will find that there will be a decline as far as stage two is concerned. The utilization, the overall PCR that we spoke about, just to repeat, we have gone from 75% to 71% on the aggregate basis, more to do with some write-offs of 100% provided portfolio. Not necessarily that the whole piece has been completely written off. It's an accounting, you know-
Mm-hmm.
Decision which is taken. More to do with cash flows rather than anything else. You know, as far as taxation is concerned, already we take a hit whenever write-off happens, that there is a cash inflow for us. You know, the 71% is primarily because of new assets which were, say, in stage two, moving into stage three. For macroprudential, for micro loans, as Sudipta mentioned just a while back, anything which is 90+, we do 100% provision, but that's not true, because you also have a very same book, like home loan LAP, you have a book like two-wheeler, tractor. Everyone, the ECL model decides what will be the percentage provision required for a specific stage three asset.
And hence, this movement from stage one, two to stage three and 100% book being, you know, which has been provided, being written off, leads to these changes. Now, when there is, you know, wherewithal, we ensure that we maintain the PCR at a particular level. But you know, like we spoke about overly just, just some time back. But at this point of time, the requirement was not there. If you look at the peer group comparative financials, broadly, a 50%-55% PCR is a pretty comfortable situation to be in. We have always tried to be conservative. As and when the, you know, P&L permits, we can always rebuild.
As we had mentioned in couple of calls back, couple of quarters back, that this macroprudential provision also, which is currently on rural business loans, we would take a call on whether, you know, as the unsecured book starts growing, whether this whole macroprudential provision should be applied to the full unsecured book, but that will be over a period of time. I hope I have addressed.
So very, very helpful explanation, Sachinn. And just if I were to have a follow-on to this, your credit cost that you talked about, I think the news channels are flashing some of the comments that it will stay elevated for the next one or two quarters more. Does it take into account any further buildup of macro-prudential, or it will be completely to respond to any potential flow through into stage three provisions?
You know, if the challenge in micro loan piece actually increases any further, then as Sudipta mentioned, we always have a choice to dip into the macro, you know, macroprudential provisions and utilize part of it. As you know, he also mentioned that we are better placed compared to the industry. Our numbers are much better. Our collection efficiencies seem to be in control, and if post-Diwali things really improve, you know, there may possibly be a need for macroprudential provision utilization, but at a much lower level. But if things worsen from here, yeah, we keep that option open.
All right. Secondly, on the MFI portfolio, these are the details given in the presentation. We understand, zero plus is about 3.5% of the portfolio, right? MFI portfolio. Is it possible to get the granular cuts, as to how much is zero to 30, 30 to 60, and so on and so forth?
See, normally, we don't give such granular cuts. So, you know, we have... What we have done is that this time around, we have put the association-wide cut, which is in-
Yeah.
Slide 17. Slide, yeah?
Seventeen.
Which is in slide 17 of the presentation, so that's what we have given, and I, you know, I believe that the entire market is poised now for... This is our belief, that on the back of a strong monsoon, the entire market is poised now for a gradual recovery, right? We have seen very good tractor demand in the first, you know, half of October, and we remain hopeful that, you know, the tightness that we saw in the market, especially in certain geographies, will start dissipating towards the latter half of Q3, and probably sharply improve our Q4, so as I said, we remain very optimistic of a soft landing between the latter part of Q3 and the early part of Q4, I would say.
Got it. Got it. Very helpful. Thanks, Sudipta and Sachinn.
Thank you so much.
Thank you. Next question comes from the line of Mahrukh Adajania with Nuvama. Please go ahead.
Yeah, hi. So is it possible to give any cut on what proportion of total credit cost was attributable to rural MFI? I mean, would it all be driven by rural MFI and farmer finance this quarter? Because nothing really bad is happening on the corporate front or other businesses. So, because everyone's kind of indicating some level of credit cost for the MFI business. So if you could share those details.
So, uh-
Yeah, sorry, sorry.
Yeah, you want to continue? Please, please continue.
No, no, you please continue. I'll ask my second question.
Okay. So on the you know, breakup of credit cost, of course, we don't share, but I'll just give you a general response to this.
Mm-hmm.
You know, we spoke about micro loans. We spoke about farmer finance and two-wheeler finance. You know, naturally, it's slightly higher for micro finance, followed by farmer and followed by two-wheeler. So it's a mixed bag, I would say. It's, you know, it's not just a composition of one particular book really going back.
See, Mahrukh, you would recall that, you know, there were industry-wide reports of difficulties in collections in April and May, right? Which was reported by many players across the industry, right? So now, obviously, you can understand that if INR 100 flow at any point in time, you know, not the entire amount flows back, right? And not the entire amount is collected back. So obviously, some portion of that has flown, right, in Q2, and we have seen stabilization in the latter part of Q2. But obviously, you know, the credit cost components are, as Sachinn said, all components of this.
Got it. And my next question is that in the first few days of October, say, has the collection efficiency deteriorated or stable or only marginally down? Any such inputs?
This is with respect to-
In micro. In micro, yeah, in micro only, not nothing else.
Okay. So barring Bihar, the flood-affected villages in Bihar, you know, collection efficiencies has remained relatively stable in the first half of October.
Okay. Good. Thanks a lot. Thank you.
Thank you. Next question comes from the line of Avinash Singh with Emkay Global. Please go ahead.
... Yeah, good morning. A couple of questions. The first one is that there is a reasonable improvement in OpEx ratio, particularly the non-employee OpEx. Now, can you help us understand what is sort of improving, and is this sustainable? And even if you were to sort of ramp up your employee headcount further, will this sort of ratio sustainably improve or not? That's one. And second, just on this microfinance again, continuing, I mean, you are suggesting that, I mean, Q3 should be likely bottom with Q4 or early Q4 recovery.
Given the fact that, I mean, many of the peers, I mean, the banking as well as non-banking, who have sort of started acknowledging the pain earlier, are they still kind of not giving a very, very clear-cut sort of deadline to end the pain? What makes you... Of course, you have explained, you have given detailed data, but eventually, if the geography, the customer segments are undergoing pain, what sort of gives you confidence that your pain will be sort of end in one and a half quarter? Thank you.
So, the first question, Sachinn will take. I'll take the second question.
So as far as OpEx is concerned, I think, you know, every quarter -on- quarter, then you may see some improvement or, you know, some increase in OpEx. This is primarily to do with investment that we are making, either in IT, you know, various technology, investments are being made. We are also undertaking certain branding activity, plus rollout of new branches and all. So these are the major components of expenses which we are currently, seeing. So quarter- on- quarter, you may see some, kind of increase, decrease. So I don't think you should really, try to, get some meaning out of it. We have mentioned that we would like to be, you know, the OpEx plus credit cost, we would like to keep it in the range of about 7%.
You know, at this point of time, we believe that a couple of quarters we will have some challenges as far as credit cost is concerned because of the external environment. We have, you know, the branding and all will be taken as a you know investment, depending on the external environment. There is no point in really going out and going you know very aggressively with our branding and advertising when the market itself is a challenging you know piece. 7% is, I think, the overall you know range that we give ourselves. It can be plus or minus a few basis points here or there. Nothing specific to really you know make any assumptions if you're if you're thinking of modeling it.
I think you should continue to model it on, in the same lines, because, when we talked about the ROE three, we spoke about, you know, in the NIM plus fee in the range of about 10.75-11.25. Naturally, in these times, we may possibly see a, NIM plus fee, range coming down from about 10.5-11, maybe for a few couple of quarters till the time the challenge is addressed. The OpEx plus credit cost being in the range of 7%, it can be plus or minus something. But the ROA trajectory in the medium to long term, we would want to pursue the Lakshya 2026 goal of being in the range of 2.8-3.
Maybe a few quarters of some turbulence we will try to deal with during that.
Thanks, Sachinn. I'll take the second question. So obviously, a couple of things has and then I gave some commentary on how our underwriting and our management of the entire Rural Business Finance vertical is classified to focus on more predictable customers. Now, a couple of why we think, you know, there might be a soft landing, and I use that term. First and foremost thing, we have had good monsoons, right? And the first signs are available in improved tractor demand. So we'll have to wait for the commentary from the various FMCG companies as to what level of demand that they are seeing, right, to put two plus two together. But the fact is that normally monsoons lifts income, and these monsoons have been really good.
So we are hopeful that towards the latter... Kharif crop arrivals seems encouraging. We are tracking the arrivals and this is the water table levels, we think Rabi crop will be a bumper crop, right? So we do believe that rural incomes will improve. Secondly, obviously, you know, the social schemes, the government social schemes have started flowing again, right? They had a temporary hiatus on the background of the elections. They have started flowing again, which will again improve rural liquidity. Last, MFIN has come out with the norms, right? So MFIN norms got implemented from June, July. So players have started adhering to the MFIN norms. So, you know, once, so basically the, the leverage adding, obviously has stopped. And we have to understand that most of these loans are 24 months loans.
The problem really started in January, you know, December, January of this year, you know, this calendar year. So actually, if you see, we are already 12 months, almost, not 12 months, but maybe about nine to 10 months into the problem, right? So a lot of deleveraging already has happened. Maybe some tail end deleveraging is still left. That might happen over, you know, Q3 and the earlier part of Q4. But I do guess that, you know, maybe 60%-70% of the deleveraging has already gone through. So and overall, you know, I think each and every player has become cautious. Overall leverage has been coming down. And so I do believe that with all these factors playing in...
We actually remain hopeful that there will be a soft landing in the latter part of Q3 and the earlier part of Q4. However, you know, there has been a significant amount for the industry that has flown into, you know, portfolio at risk zero, right? And that will continue from a financial point of view, that will continue to flow and cause impact on the downstream PNLs between Q3 and Q4.
Okay, thanks.
Thank you. Next question comes from the line of Sameer Bhise with JM Financial Research.
Yeah, hi. Thanks for the opportunity. I just had one question on the home loan piece. I see the ticket size on the lap has kind of inched up meaningfully. Just wanted to get some sense here, and it is, I'm asking because it's, say, higher than the HLE average ticket size.
Yeah, so the team has been focusing on LAP, and the team has been focusing on LAP primarily in the urban areas. So, the LAP, and, you know, the LAP proportion of the entire portfolio also has slightly gone up. We have been also focusing, you know, on another product of ours, which is rural LAP, in which, you know, our book size is about INR 178 crore and, you know, average ticket size was over INR 5.5 lakh, INR 5 lakh -INR 6 lakh odd. So overall, on a weighted average basis, there has been a focus on pushing yields upwards on the retail portfolio, both in our urban LAP as well as on our micro LAP product, to just balance the yields a bit. So that is-
What kind of yields would be there, urban and rural?
Sorry?
What yields would you be earning right now on urban and rural LAP?
So urban will be about 10%, 10%, 10%- 10.5%. Rural lap, you know, the yields can go up anywhere between 17%- 18%.
Okay. Okay, this is helpful. That's all from my side. Thank you.
Thank you. Next question comes from the line of Nischint Chawathe with Kotak Institutional Equities. Please go ahead.
Hi, thanks for taking my questions.
Nischint, I am barely able to hear you. You know, can you, I don't know, use a-
Yeah. Am I better now? Is it better now?
Yeah, better.
Yeah, yeah. Yeah, sorry about that. Just a couple of questions. One is, you know, your fee income was almost flat. You know, is it to do with the micro loans business, or are there any other factors out here?
No, not really. Sachinn, you want to look at that?
Yeah. Yeah. So, fee income, of course, has a composition of, processing fee on disbursements. So if disbursements are slightly subdued, naturally for the rural business loans has, you know, higher levels of processing fee income. Number two is the cross-sell income, which is the CLI, credit linked insurance. With the, you know, the disbursement, the new disbursements coming down, naturally, this also gets impacted. Year-on-year basis, one more factor is that, you know, Q2 FY 2024, there was a one-off item of, you know, interest on income tax refund, which led to, you know, the overall fee income increasing, in the previous year same time, which has actually, not been part of it. So that's also one of the reasons.
But otherwise, in general, I think the trajectory-wise, we are, it's a, you know-
Yeah.
Directionally, it's 1.92%, fee income, which we feel is a very healthy, fee income as a percentage.
Have you called out how much was the quantum in the base year for the income tax refund?
Should be about anywhere, I think it was about INR 15 crore-INR 20 crore.
Okay. Not very meaningful. Okay, got it. Got it.
Okay.
Sure. You know, you also mentioned that, you know, we discussed a little bit about tractors and, you know, the stress from first quarter sort of, you know, flowing into slightly higher credit costs this quarter. But what exactly happened on two-wheelers? I believe you mentioned, you know, something about localized adjacencies. So, just curious what, you know, what actually happened?
Certain markets in two-wheeler that really performed like not with according to our expectations. So, you know, for example, markets like. And this was primarily deterioration that happened in April and May, right? And I'll give you one example. For example, Surat, suddenly we saw galloping delinquencies, you know, in two-wheelers, right? So as I said, localized adjacencies mean there are certain pockets in which we saw heavier flows in the month of April and May. Again, you know, this is not us, but the industry saw it, right? But if you see, you know, we continue to fare much better than industry in terms of our overall sort of full credit costs and our index delinquency. So in two-wheeler, we are about 87% of the delinquency of industry, right?
And if you see our collection efficiencies actually have been continuously improving from about 97.1% to above 98% by the end of Q4 FY 2025. So whatever sort of slight deterioration that we saw in April and May in last quarter, you know, that has stabilized and in you know on a pathway to a sort of resolution. We have pushed up the prime share of our two-wheeler business to almost 60% prime share right now. And if you even can see in slide 20, where we have given, you know, our prime share and disbursements compared to same time last year, and prime share on book compared to same time last year. So you know our...
I would say that, you know, a majority, quite a significant portion of our two-wheeler business is now prime two-wheeler. And this has been done to make sure that, you know, some of these localized adjacencies that we see are better managed in the future. And because of our new three-dimensional credit engine, Cyclops is completely now upscaled on our two-wheeler business. 55% of two-wheeler business is now going through Cyclops. By the end of November, maybe early December, 100% will flip over to Cyclops, and early signs are very good. You know, the Cyclops first net bounce is 125 basis points lower than from our legacy algorithm.
Obviously, you know, there has been a lot of work which has been done to even sort of prevent any sort of this sudden one or two month block that happens in the future.
Probably, you know, going forward, you know, your guidance for second half, which tends to be a little more guarded, is largely from microloans. I think these two segments we believe are sort of-
It is largely from microloans. You know, again, I would like to point out, and thanks for asking the question, largely I point out that the sort of the worries on microloans for us is less. Okay, yeah, there is worry from, you know, sort of recourse impacts on the overall ecosystem for people who have borrowed from others, right? And are leveraged. There is a little bit of worry from that, but we are more worried about, you know, the impact of this environmental impact, like, you know, Bihar floods. You know, there is some unscrupulous elements operating in the northeastern UP, right, who are sort of hampering collection efforts, the resumption of the social schemes Odisha, et cetera.
So our pain is more from those areas. You know, because of our guardrails and because of our assiduous focus on avoiding non-leveraged customers and always making sure that only one customer has one loan at a point in time from L&T Finance, I think we have been able to sort of not be in the eye of the storm, if I were to use that particular term, right? But, you know, when a storm happens, you know, there are, like, gusts of wind that come to the far, farthest periphery as well, and, you know, so we are not immune to that.
Sure. And just finally, one, you know, with all of this, you know, where does, you know, where do we go on, you know, loan growth, you know, for a company, as a whole and let's say even for the microfinance piece over the next couple of quarters?
See, our guidance is that 25% loan growth as per our Lakshya objectives. Now, obviously, if there is a one or two quarter calibration, you know, we will have to go through that, because, you know, we have braked on the MFI and Rural Business Finance disbursements. And for sake of greater caution, we have braked on it, right? I would say that, you know, on the festive season, we are seeing good demand in tractor. On the festive season, we are seeing, you know, for the last one week, we are seeing good old demand in two-wheeler. Lot of new housing project launches are happening. We have been working on building our development, developer finance vertical. And if you look at our personal loans, our personal loans have significantly grown this quarter -on- quarter, right?
And, we have gone and this quarter we'll be also adding new digital partners and very large digital partners on our personal loans portfolio. So again, personal loans will go on a risk-calibrated fashion. We have braked on one lines of business, but the fact is that on a risk-calibrated way, we remain continuing growing on the other lines of business and take benefit of the festive momentum. So I cannot, at this point, at the beginning of the quarter, pinpoint and say where we will end up at the end of the quarter, but you will be seeing that apart from Rural Business Finance vertical, where caution rules the roost, for all other businesses, there will be a growth bias in this quarter and the coming quarter as well.
So, broadly, remain in the corridor is what you would say?
Yes. Yes.
Perfect. Those were my questions. Thank you very much, and all the best.
Thank you so much.
Thank you. Next question comes from the line of Abhijit Tibrewal with Motilal Oswal. Please go ahead.
Yeah, thank you. Good morning, everyone. So just wanted to understand, I mean, while this results as well as our commentary shows that we've been better off than a lot of other peers in microfinance, I think, I mean, one of the things, right, and so just a suggestion that some of the metrics which are also shared by our peers, right? Like collection efficiency, including arrears, excluding arrears, because the collection efficiencies that we share, which is zero DPD customers, right? That somehow, right, I mean, unless we are comparable with our peers, will not give that much confidence. And while I appreciate you have said in some of the call that we do not share the certain management's GS3 or certain management's credit costs, right?
I mean, when the environment is such, right, where the sector itself is going through a phase, we have almost 1/3 , almost 30% of our book coming from microfinance side. I mean, sharing some of these details, right, I mean, during maybe one or two quarters, right? Will help all of us kind of gain better confidence, higher confidence in L&T's microfinance book. So if you could please consider that maybe in the coming quarters. But, sir, the question that I had really was on this statement that we made in the fact that Q3 will be a challenging quarter and Q4 things like improving. So, I mean, I'm just trying to understand, if you see today, unsecured itself, right?
I mean, what started with credit cards, spilled over to personal loans, is now spilling over to microfinance now, right? And if you look at, credit cards and personal loans, the pain is still not over yet. So, unsecured credit cycling, what we are seeing in Rural Business Finance now, right? And at the sectoral level, do you think it is just a hope today or moving the goal post where we think that maybe the problem will get resolved by Q4? Or, I mean, how to read it is what I'm trying to understand, because once you, when everyone posted their earnings call, right? Everyone says, yeah, things look like will start improving from Q2. Having seen Q2, now we are saying maybe things will start improving, from Q4.
So I'm just trying to understand, I mean, is it like just things getting delayed and we'll see when it comes, or is there another way to look at this? This is my only question.
See, the thing which is there is that, the first thing obviously which gives us hope is good monsoons. The first thing which gives us hope is good monsoons, and the first green shoots of, a very rural product, which is tractors demand going up, right? So that gives us good hope. The second thing is that, you see, all these are 24 months loan, right? And, as I said, we realized that the industry was, you know, going to get into inclement weather as early as January of this year. So the fact is that, you know, though it started showing up in results sometime around May, June, but the fact is that the signs were visible in January only. You know, signs were... The early signs were visible in January.
So the fact is that the industry actually has now gone for a period of deleveraging for about close to nine to 10 months, right? So, and since it's a 24-month year, the book runs off very fast, and which is the nature in any unsecured product. Yeah, typically, unsecured product peaks and peaks, you know, the back portion of the book peaks very fast, typically within a period of six to 12 months. So by December, we would be already been 12 months or almost nine months into the leveraging cycle. So that gives us sort of reasonable amount of hope that, you know, there will be a soft landing in the latter part of Q3 and the early part of Q4, right?
I mean, the question is that is certainly something, you know, if, for example, rains were bad, we would have said that, "Oh, no, we really don't think that this might elongate." The only thing that because monsoons have been good, the kharif arrivals are good, social flows have started, we expect a bumper Rabi crop. If on the back of those things, things don't improve, then when will they improve, right? So, you know, and lenders are becoming more responsible. Deleveraging has started across the entire industry. So, you know, I do believe that things will move towards normalcy in the early part of Q4.
Got it, sir. This is useful and just one last thing, while we've spoken a lot on tractors, two-wheelers, even microfinance, so personal loans, like you rightly said, which started growing again, we are expecting some big, large, digital partners to come on board, in the next couple of quarters. Just trying to understand, I mean, banks, which reported last week, large personal loan players, right, on the NBFC side, still seem stretched in personal loan portfolios. Are we comfortable there now, and maybe that is a sign that we've started growing again?
Yes. So if you see, we really slowed down personal loans sometime last year. We last Q3 of FY 2024, we slowed down our personal loans. So if you see Q2 on FY 2024, we did about INR 1,300 crore or INR 1,350 crore or one of these. After that, we dropped it to as low as INR 700 crore. You know, we dropped the volumes by 50% because we wanted to rework the way we wanted to do personal loans, right? And now in personal loans, we are completely focused on the prime segment again, you know, and the salaried segment, prime salaried segment. You know, and frankly, we are very happy with the new portfolio that we have garnered, which is showing excellent credit outcome. So and that has given us confidence to start scaling it up once again.
But you will see that this will not be a mad scale-up. This will be a gradual, calibrated, you know, risk-focused scale-up. Obviously, personal loans is an essential component and ingredient of any retail lender's balance sheet, right? Because this is a good product to do from a need perspective. And frankly, if you are, if you maintain your guardrails well and don't go crazy in disbursements, then actually the outcome can be very, very good. So we are now focused on a very risk-calibrated scale-up, with the large amounts of data thrown in, in the underwriting process. Cyclops, our new credit engine, will be pushed into underwriting personal loans, where, you know, we'll be using multiple lines of data, digitally to underwrite a customer.
So we are very confident of being able to scale up this business with an excellent credit and return outcome for the business.
Got it, sir. That's all from my side, and wish you and your team the very best.
Abhijit, just on the first point that you mentioned in terms of disclosure.
Yes, sir.
Last couple of quarters, if you see, especially on the Rural Business Finance, we have gone and, you know, provided more than whatever we otherwise keep sharing in terms of information. This quarter, we have talked about, you know, we've given a bucketing of the number of associations that we have across the book. You know, the collection efficiencies, you are right. There are different methodologies used by different players. So I think what is important is to look at is how the collection efficiency has changed between the two quarters. Because if you look at only the differential, the methodology could be whatever, but the differential will actually spell out what has been either the deterioration or improvement in the overall quality of book. I think the, you know, there are some...
And plus, there is also an industry related, you know, in fact-
Yeah, and Abhijit, you know, I'll point out to the slide 18, where we have given the 12-month on book performance from July 2023 to July-
Yes, sir.
So that is, we are at 23% of industry. If industry is indexed at 100, we are at 23%, and this is TransUnion CIBIL data. If you look at slide 18-
Absolutely.
It will give you a sense.
Yes, sir, I've seen that. Yes, yes, absolutely. So, I mean, sir, the disclosures that you have given out is indeed increasing.
... and every quarter, then that's appreciable. My limited request for you is if some of the data points which are reported by peers as well, right? If you start reporting them, if possible, right? I mean, it will just give all of us greater confidence in what you have articulated, that our experience in this credit cycle in microfinance is better than peers. That's the limited point that I was making. Thank you so much.
We take this on board, benchmark ourselves against the others, and then we will see. See, our level of disclosures has significantly gone up over the last couple of quarters, across all our lines of business. But definitely we'll take the solution on board and see to the best how what we can do.
Sure.
Thank you. Next question comes from the line of Alok Srivastava with UBS. Please go ahead.
Yeah. Hi, Sudipta, hi, Sachinn. I'm just going back to your, the macro buffer part. I was just trying to understand if there is any quantifiable metric internally that you will look at, let's say, or externally, like collection efficiency before using it, or it is fully subjective? And, secondly, as things are today, let's say things worsen slightly and your base case of improvement end of 3 Q, early 4 Q doesn't happen, do you think this INR 950 crore odd that we are carrying, is that good enough for whatever stress could come up in microfinance?
Yeah. Thank you, Alok. Yes, Sachinn, yeah.
Yeah, the macroprudential provisions that have been created, this is based on a board-approved policy. So creation of macroprudential provisions as well as utilization has to be approved by, you know, we need a sign-off of the board. So the way it has been defined is, the macroprudential provisions have been created to deal with specific events, events like flood, famine, political instability, industry-wide credit events. You know, the, one of the events which we saw was COVID, right? I mean, when we created this policy, we, we did not know that something like COVID would really happen. But yeah, those are the kind of events which cannot be, you know, modulated or modeled in our ECL, are the ones which get covered. You know, Sudipta talked about the increasing leverages.
Now, if the increasing leverage is just limited to a particular geography, it's not relevant. But if it's going to spread across the country and it spreads across the whole industry, it's going to get impacted. This also will, you know, very clearly become part of a macroprudential event. So, it is. We have to see. You know, we have spoken about Bihar floods. At this point of time, the collection efficiencies, you know, have not deteriorated to a level where I really need to dip into the... but otherwise, that will be a, you know, a clear-cut example of me being eligible to dip into it and get the board consent to utilize it.
But Sachinn, just following up on that then, does that mean that only the part which has been impacted by an event, against that only you can use, or you can use against the entire MFI book?
No, we can't use it against the entire MFI book.
Okay, got it, and second question I had was that, you know, the circular, the action that RBI took last week against four NBFCs. So have we had any communication on interest rates being charged by us? And also, does our MFI interest rate continue to be 24%?
No. See, our MFI interest is now in a band of 18%-24%. The more mature that the customer gets, you know, the starting interest rate is 24%, but the more mature a customer gets, especially in cycle three and cycle four, you know, the customer moves down the rate of interest. The second thing is that, you know, on our personal loans business, et cetera, we are focused on our prime customers, where we give in interest rates from, say, 12% to a band of about 16%-17% is what we do. So no, we haven't received any communication, you know, regarding anything.
The 24%, Alok, was being charged for over a decade. You know, and based on the RBI, you know, guidance, in fact, everyone has moved into risk-calibrated kind of structure.
So we have interest rates which range from 18%- 24%, and depending on the, you know, riskiness of the customer, depending on whether the customer is in the first cycle, second cycle, third cycle, and her behavior, the interest rate gets decided.
Okay. Okay, got it, Sachinn. Thanks. Those are my questions.
Thank you.
Yeah. Thank you. Next question comes from the line of Shripal Doshi with Equirus. Please go ahead.
Hi, sir. Good morning, and thank you for giving me the opportunity. The question was on, you know, how are the collection efficiencies trending in states like Karnataka and Tamil Nadu for us, and any update for the trends in October month?
See, October month, I mean, we candidly, in October month, we said we are holding at efficiencies of previous month, right? Except North Bihar, we are impacted by flood. In Karnataka, you know, the collection efficiency, though we do not give out specifics, but at this time I will give out. In Karnataka, our collection efficiency in September was 99.6%. And Tamil Nadu, our collection efficiency in September 2024 was 99.45%. There is zero dependency collection efficiency.
These are like, I mean, this is June quarter. How are these like trending broadly?
... As I said, I don't know, there was one particular call which had said, they said these are holding patterns. These are holding patterns, more very stable.
Okay. Okay, got it. And so just one more question on this write-off. So what is the board approved write-off policy for the microloan category?
No, the board approved the provisioning policy, which states that whenever the asset becomes 90+ DPD, you need to provide 100% against the rural business loans. The write-off policy is, you know, as I mentioned earlier, more of a technical issue. It's for the CFO office to decide based on the... It's more of a cash flow issue, right? Because once the asset gets written off, that does not mean that the business stops following up for those collections. There is actually no difference as far as the collection team is concerned. The collection team continues to keep following, because 90 days is a small period that way, right? As far as RBF is concerned.
Mm-hmm. Right.
So the follow-up continues whether the asset has been written off, and there in fact every month we keep receiving, you know, monies even out of the asset which has been fully provided for. So there are teams which actually work specifically on 90 +. There are teams which work on, you know, 30+ , 60+ . There are specific coordinated efforts made to ensure that there are, you know, we don't leave the customer just because we have provided it in the books.
Got it. And we don't consider that number, the pool of customers which has been written off or say, which is 100% provided for in collection efficiency?
No, this is zero DPD, as Sudipta just mentioned. It's a zero DPD customer whose billings have been done and the collections out of those, of the billing.
Got it. Got it. Got it. Okay. Thank you, sir. Thank you, and good luck for the next quarter.
Thank you. Next question comes from the line of Chintan Shah with ICICI Securities. Please go ahead.
Yeah, hello. Thank you for the opportunity. So, I just had a question again on the Rural Business Finance. So, yeah, as we don't give the segment-wise breakup of slippage, but if you look at the additions to stage three for the Rural Business Finance business specifically, as for Q4 FY 2024 and Q2 FY 2025, so how much could be the approximate rise in absolute number and percentage if also you could quantify that so that we could just get a sense, okay, how is the, how much stress are also we getting on our books? So any rough idea on that would be helpful.
See, actually, if you look at, if you're wanting to know the stress on the book, you should actually look at slide 17, which talks about, you know, 5.4% of the loan book of LTF is, you know, LTF plus more than four DPDs. Then there we have actually even given a further breakup of more than four DPDs, five DPDs, six DPDs. So it will show very clearly that the same level is pretty limited.
The reason why we've done this bucketing is also to ensure that, as I just mentioned earlier, you know, that the focus can be that we actually mark out in our system the most leveraged customers, and the focus of the collection team is first to be the first one in the queue, because if there are six lenders, I would want to be the first in the queue to go and collect. This discipline that we, you know, maintain has actually helped us ensure that the collection efficiencies, though they have dipped, have not dipped to the levels which we see in the industry.
Sure. Sure. And sir, if I heard it correctly, MD sir also mentioned that we would be working on building the developer finance vertical. So apart from retail, also, are we planning to venture into any other businesses?
No, no, no, no, not developer finance vertical. I'm saying that the developer, basically, the APF origination team, where basically we work with the developers to sell house to retail customers, you know.
Developer channel.
So developer channel, basically.
Yeah.
It is the part of the home loan channel working with the large developers.
Sure, sure, sure. So nothing on the corporate side, yeah?
No, no, no.
Yeah, I think that's it. Yeah, that's it from my side. Thank you for the opportunity.
Thank you.
Thank you. Last question comes from the line of Gao Zhixuan with Schonfeld. Please go ahead.
Hey, thank you for the opportunity. Just some data keeping question. Do you mind sharing, you know, what's our interest reversal, you know, and this quarter and also last quarter? Because the margin seems to be coming down there. I suppose it should be somewhat affected by the increasing difference, so.
Yes, so this... I mean, you are referring to the yields or you are referring to the NIMs?
The yield is coming down, obviously, because of the rates. Yeah. Just wanted to confirm if the interest reversal in there, yeah?
Sure, sure. So, so as far as yields are concerned, the, you know, the wholesale book was actually coming down dramatically over last four to six quarters. And as the book was moving more, trending more towards retail, the yields were, you know, increasing. You would have noticed that last, you know, last quarter and this quarter especially, the wholesale book has dropped-
... No activity. You would have seen that the disbursement this quarter have been more towards HL and LAP. We wanted to be conservative and do secure business, and hence you see that the yield has got a bit impacted. Once the challenges in the you know the microloan segment actually comes down, we will see the disbursements firing up again. To support the microloan business, we also have personal loans, SME, you know, these are the businesses. Micro LAP, which we have started also, book is small. The potential to grow this secured book is also very high.
So as we go forward, we will keep seeing the change in the yield within a particular band, and rather than talking about the yields, because it is equally important to look at how the interest costs pan out. This quarter we have, you know, been able to bring down the weighted average costs by about five basis points, so 7.85% in the previous quarter, it's come down to 7.80%. So rather than looking at the yields, it's good for a company like us to monitor the NIM plus fee as a monetizable metric.
We have already communicated the band within which we would like to be, which is in normalized times about 10.75%-11.25%, and in difficult times like this, perhaps between 10.5%-11%.
Got it. But I guess on the next part, on the disbursement, I just want to understand the, you know, the interest reversal increased materially this quarter sequentially, that also impacted our yield temporarily a bit. I just want to understand that.
Sorry, I did not get. Can you please repeat the question? Can you please repeat the question?
Yeah. So I just want to understand, the interest reversal increased materially this quarter, sequentially, that which also, you know, impacted our yield on top of the mix change in disbursement that you were talking about.
Yeah, yeah, yeah. So interest reversal-
Can you quantify that if it's possible, please?
Yeah, interest reversal impact would be about five to six basis points.
How much was it last quarter?
Last quarter would be lower than this, slightly lower than this.
Got it. Just one more on the slide 17. You know, I appreciate the breakdown on the external benchmarks. Just want to understand for the 5% of the SME book that is not, you know, complying with the underwriting guardrails, what's the collection efficiency there for the month of September?
Which product you're talking about? Collection efficiency?
No, I think he's talking to,
Sorry, the audio line is not very clear, so we're just not able to get the full gist of the question. If you can repeat the question once again?
Sorry. So I'm referring to slide 17. So we have about 5% of the-
Yes.
MFI book that is not compliant in the-
Was about 97.5% odd. Which one?
Okay.
Yeah, yeah. So that bucket, the buckets are the people more than... You are asking collection efficiency of the bucket of people more than 97, more than four DPD. Is that the question?
Yes. Which is 97.5%.
7.5%.
What was that in, I think, June?
Was it in June? In June, yes.
March. I just want to get compare the comparison.
Yeah. So June it was about same, about 98.45%, or 98.4% odd. The March number, I don't have handy with me right now. Maybe we can give it to you offline.
Sure. Thank you.
Yeah. Okay.
Thank you. We have reached the end of question and answer session. I would now like to hand the conference over to Sudipta Roy for closing comments.
So thank you, you know, and thank you for joining the call. As I said, on the, on the beginning in the opening comments, that, you know, we expect Q3, FY 2025 to be as intense a quarter as, Q2. However, you know, what we are very confident about is that, that our teams are very, very well prepared and well, well equipped to take care of the challenges on ground. In terms of, our work on the five pillars, it continues unabated. We remain focused on ensuring building our other lines of business with a focus on risk and ensuring great, great outcome in the coming years. I would like to qualify the phase that we are passing through as phase of inclement weather, rather...
I would also like to reiterate that we as an organization are perfectly capable of dealing with this. You know, we will work very hard to ensure a consistent outcome in Q3 FY 2025. We will be happy to meet all of you on a one-on-one basis whenever, you know, time permits and allows us to give a further granular view of our lines of business and progress. The other thing which I wanted to tell you is that on November 26th, we have our first AI conference, where we will be sharing some of our developments on AI side as well, which we have implemented, and including also our overall discussion on applicability of AI to BFSI segment. Registrations are open on www.ltfraise.com.
Now, if your schedule permits, we would like to register for it and attend the same. Thank you so much for attending the call.
Thank you. On behalf of L&T Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.