Ladies and gentlemen, good day, and welcome to the L&T Finance Ltd Q1 FY25 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 Before we proceed, as a standard disclaimer, no unpublished price-sensitive information will be shared during the call.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 interactions in the call.
While all efforts would be made to ensure that no unpublished price-sensitive information will be shared, in case of any inadvertent disclosure, the same would, in any case, form part of the recording of the call.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 Q1 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 going forward. Thank you, and over to you, sir.
A very good morning to all of you. I welcome you to the investor call for the first quarter of FY 25 for L&T Finance. With me on the call are our CFO, Mr. Sachinn Joshi, our Chief Operating Officer, Mr. Raju Dodti, and the senior management teams of L&T Finance. During my last interaction with you at the end of FY 24, I had informed all of you about the various investments that we are making for strengthening the company and upgrading our capabilities across domains. In this call, I will provide further details about the progress that we have made during the quarter.
As far as our core business franchise is concerned, it stands in a satisfactory shape, which is evidenced by the numbers posted by us in Q1 FY25, with the highest-ever quarterly PAT, and I'm hopeful that in FY25, our steady performance trajectory will continue. Today's call is divided into two sections, taken up sequentially by myself and our CFO, Mr. Sachinn Joshi, who'll be talking about the overall business metrics and the financial performance. Post our opening commentary, we'll be happy to take questions on the call. I'd like to start the call by sharing with all of you that our performance during the quarter has been up to our expectations and in line with the guidance provided by us in the last few quarters.
We have registered the highest-ever quarterly consolidated PAT of INR 686 crore, a growth of 29% year-on-year, on the back of healthy retail disbursements growth of 33% year-on-year, with retail quarterly disbursements standing at INR 14,839 crore. Our retail book now stands at INR 84,444 crore, a growth of 31% year-on-year. These numbers reflect the strength of the retail franchise that we have created over the years, which has been further sharpened by our five-pillar execution strategy, and I'm happy to state that the company is now sustainably accelerating its journey towards being a top-class, digitally enabled and a customer-focused retail franchisor. We are continuously working towards providing results that are predictable and sustainable quarter-on-quarter, and our Q1 result is another step in that direction.
Having met Lakshya 2026 goals at the retail level two years in advance in Q3 FY 2024, we reoriented ourselves for convergence at the consolidated level by FY 2026 and took new enhanced targets for ourselves. Our quarterly performance against the new targets are as follows: Our Lakshya goal was to achieve regionalization of 95%. I'm pleased to share that we reached the 95% levels this quarter. Our Lakshya goal was to maintain retail book growth at 25% CAGR. Against this, quarter one FY 2025, we have achieved a growth of 31% year-on-year, which was coincidentally exactly the same growth registered by us in the last quarter as well.
While we have maintained retail GS3 and NS3 levels within the threshold levels, retail GS3 at 2.79% and NS3 at 0.62% for quarter one FY25, we are working towards converging Consol GS3 and NS3 below 3% and 1% respectively. The corresponding Consol numbers stood at 3.14% and 0.79% at the end of Q1 FY25. On the ROA front, we have communicated in the quarter gone by that as far as tracking ROA is concerned, we are moving from tracking retail ROA to Consol ROA in the range of 2.8%-3%, as per our original Lakshya 2026 targets.
I'm happy to share that our consolidated ROA for Q1 FY25 stands at 2.68%, or 55 basis points year-on-year, which in the last year, same quarter, stood at 2.13%. In this regard, I would like to draw your attention to page number 5 of the investor presentation, wherein we have provided the journey of our ROA trajectory over the last 10 quarters in great detail since the Lakshya goals were adopted. You'll be happy to see that we have been making steady progress towards achieving our stated Lakshya 2026 goals. I would now like to quickly run you through the key highlights of our performance in Q1 FY25.... highest ever quarterly consolidated PAT of INR 686 crore, a growth of 29% year-on-year.
Quarterly retail disbursements at INR 14,839 crore, a growth of 32% year-on-year. Our acquisition engines and execution strategy ensured that the disbursements remained almost at the same level as last quarter, wherein we had posted the highest ever quarterly retail disbursement figures. Q1 FY25 retail books stood at INR 84,444 crore versus INR 64,274 crore in Q1 FY24, implying a growth of 31% on a year-on-year basis. Consol book growth has picked up pace, growing at 13% year-on-year, reaching INR 88,717 crore in Q1 FY25. As shared in the last three quarterly updates, the five-pillar strategy continues to be central to our roadmap to the future.
The organization continues to granularly execute the five-pillar strategy, details of which are available from slide number 11 in the investor presentation. Sustained focus towards improvement in credit parameters across businesses ensured GS3 and NS3 reaching 3.14% and 0.79%, respectively. The provision coverage ratio currently stands at a comfortable 75%, up from 71% during the same period last year. Now, I would like to give you some flavor on the macroeconomic scenario and progress on monsoon before proceeding to the five pillars of our execution strategy. As far as the global economy is concerned, growth forecast for 2024 has been raised in the recent months by multilateral organizations and rating agencies during Q1 FY25. These upward revisions reflect higher growth prospects, especially for India.
The country GDP growth outlook for FY25 was revised by the RBI from 7% to 7.2%, with S&P Global upgrading the Indian sovereign rating outlook to positive from stable. High-frequency indicators indicate a continued momentum in manufacturing and services sector activities so far in quarter 1, FY25. However, pockets of concern remain around ongoing weakness in rural demand, which is expected to recover as per the latest monsoon progression and distribution estimates for the country, coupled with the expectation of enhanced fiscal support to aid rural consumption. Urban consumption, on the contrary, is predicted to remain steady in FY25, albeit uneven. As far as retail growth momentum is concerned, retail loans in the non-agri space are projected to grow healthily during the year, aided by positive macro indicators and steady appetite for home loans, two-wheelers, and SME loans.
On the monsoon front, IMD has predicted a high probability, 61%, of above normal southwest monsoon rains in 2024, with La Niña conditions likely to develop during August to September 2024, with some areas in Northeast, Northwest, East, and Northeast likely to receive below normal rainfall. While monsoon progression and distribution remained skewed in June, it has gradually progressed in July. The active phase of the monsoon progress, which commenced in July, has already wiped out the overall 10% deficit witnessed in June. To conclude, a few challenges still persist for the NBFC sector in FY25, namely, access to funding at competitive rates, tight liquidity conditions, the higher for longer global policy rate regime, and elevated competitive pressure, especially from banks.
We will continue to keep a close watch on the emerging scenarios across products and customer segments to shape our policies and chart out the future course of action accordingly. As mentioned earlier, I would like, now like to dive deeper into the five pillars of execution, which will help us in creating a sustainable and predictable retail franchise. Customer acquisition. As far as the first execution pillar is concerned, we are continuously working on deepening the customer acquisition funnel horizontally, which means greater geographical coverage, as well as vertically, which means greater counter share and dealer points. And in this quarter as well, the numbers reflect the continued momentum of horizontal and vertical deepening.
For instance, the number of renewed villages or the zero disbursement villages activated for rural group loans and MFI stood at 21,832 in Q1 FY25, as against 21,524 villages in the last quarter. Similarly, our two-wheeler distribution points increased to 11,178 points, from 10,711 points in Q4 FY24. This granular distribution surface area increase has enabled us to continue our growth momentum in both RBF and two-wheeler businesses, while maintaining a healthy and a risk-calibrated portfolio. We have given out the relevant details for all lines of business in slide numbers 12 and 13 of the investor presentation. Sharpening credit underwriting. In the last quarter, I had mentioned that one of the most important focus areas for us is building and continuously sharpening our next-gen credit underwriting models.
The highlight of this quarter is the deployment of the beta version of our proprietary digital credit engine, Cyclops, the first of its kind engine in the industry, which facilitates a thorough credit underwriting on multiple multi-dimensional axes. The AI ML-powered underwriting engine facilitates an in-depth assessment of the customer's potential by ingesting bureau, account aggregator, and alternate trust signals at scale, using ML-based ensemble scorecards built after an extensive data analysis and overlay of historical credit performance data. The same has been explained in greater detail in page 14 of the investor presentation. The beta version of this engine, which is currently operating with 14 ML scorecards, have been deployed at various two-wheeler dealers in the country, and the initial trends are encouraging....
In the next phase, we intend to scale up deployment in the two-wheeler business, further amplify the data sources, and eventually implement it across all our lines of businesses, starting with personal loans, farmer finance, and SME finance by the end of this financial year. With Cyclops, we are hopeful that our underwriting capabilities will become more comprehensive and accurate, enabling us to make faster and more informed decisions at scale. I'm sure that this engine will significantly add to the underwriting depth of the company and help create a deeper moat in our outcome businesses. Additionally, you may refer to page number 15 and 16 of the investor presentation, wherein we have explained the strength of our credit guardrails in the rural business finance business, revolving around customer leverage and group indebtedness, which leads to enhanced portfolio resilience. Futuristic digital architecture.
We are committed to becoming one of the preeminent technology-driven lenders in the country. As detailed in the last quarter, our technology efforts are divided on four quadrants, namely, designing superior customer experience, application and process engineering, augmenting IT infrastructure, and strengthening information security. In the last quarter, the Brake App, our in-house collections application, went live. I had informed you that we had started working on a revamped customer portal and the next generation of our Planet app. It is heartening to share with all of you that the app, which has emerged as an important servicing tool for our customers, has achieved a significant milestone of crossing 10 million downloads in Q1 FY25. We also launched Planet 2.0, which is aimed at enhancing the experience for customers.
During the quarter, while we launched certain journeys, like DIY home loan, others were revamped, like the Rural Business Finance Sourcing app, and customized to meet the user expectations in line with our philosophy of customer centricity. We will constantly harness cutting-edge technology to simultaneously enhance the customer experience as well as improving our operational metrics. Brand visibility. In my last interaction with you, I had stated that we augment our brand visibility to build customer mindshare for L&T Finance in our operating lines of business. For the last few quarters, we have invested in building visibility around high-traffic customer points, like airports and in-flight advertising on the urban side, and wall paintings and melas on the rural side.
As I mentioned in the last call, our multilingual sonic identity, which was launched a few months back, is now being used both internally and externally for building greater recall and association with the brand. During the quarter, we launched our first integrated marketing campaign for our housing finance business, the Complete Home Loan, which generated sizable leads for us and aided in overall lift in awareness of our brand. The integrated Home Decor Finance proposition is the first of its kind in the industry and addresses a wide space in the home buying process for our customers. In the coming quarters, we'll be working on integrated marketing campaigns for our other lines of businesses, with the two-wheeler business being the next in line. Capability building.
On the capability building front, we have further strengthened our risk and compliance culture in the organization by creating a three-tier compliance structure, i.e., a central compliance, a business compliance, and a regional compliance structure reporting to the chief compliance officer. To ensure the robustness of our compliance framework, a separate compliance testing team has been created for continuous monitoring and testing. I'm happy to announce that we have been certified as a Great Place to Work for the period May 2024 to May 2025. The certification is based on our survey and feedback from over 21,000 employees and underscores our continuous dedication to create a workplace that fosters growth, development, and well-being for all our employees. At LTF, we are continuing to invest in our people and culture, thereby driving excellence in business, in business and all other related spheres.
This recognition also highlights our dedication to fostering diversity and inclusion, promoting employee engagement, and developing talent. We are proud of this recognition, and we'll continue to aim for excellence in all aspects of our organization. Now, I'll request our CFO, Mr. Sachinn Joshi, to take you through the financial updates for the quarter.
Thank you. Thank you, Sudipta. As always, I'll be walking you through the financial performance of the company for the quarter gone by. First, talking about the quarterly performance, our net interest margins, plus fee, at 11.08% versus 9.64%, is up 144 basis points year on year, owing to change in the portfolio mix and weighted average cost of borrowing remaining stable. Highest ever quarterly consolidated PAT at INR 686 crore, which was up 29% year on year. Healthy quarterly retail disbursement of INR 14,839 crore, up 33% year on year. Retail book stands at INR 84,444 crore, this is up 31% year on year, and this is on the back of healthy retail disbursements during the first quarter of FY 2025. Our consolidated book stands at INR 88,717 crore.
This is the first time we have shown a double-digit growth after a long period of time. This is up 13% year-on-year. Consolidated return on assets stands at 2.68%. This is up 55 basis points year-on-year, and our consolidated ROE is at 11.58%. This is up 186 basis points year-on-year. Talking about the businesses, first, I'll start with rural business finance, which registered highest ever quarterly disbursement of INR 5,773 crore, which was up 28% year-on-year. The book size crossed INR 25,000 crore milestone in the fourth quarter. In terms of farm finance, the disbursement stood at INR 1,903 crore in the first quarter. This was up 8% year-on-year and 24% quarter-on-quarter.
This has led to our book size reaching INR 14,204 crore, reflecting a growth rate of 8% year-on-year. With the current positive trajectory of the monsoons, we are hopeful that this business momentum will improve as compared to the previous year. Talking about urban finance, this segment, which comprises of two-wheeler, personal loans, home loan, LAP businesses, saw a 44% year-on-year jump in overall quarterly disbursements and a 32% Y-o-Y jump in book size, which increased from INR 29,261 crore in Q1 FY2024 last year to INR 38,653 crore in Q1 FY2025.
On two-wheelers, the two-wheeler business registered robust disbursements of INR 2,621 crore in the quarter, which is more than the disbursement that we made in the previous quarter, that is the third quarter of FY 2024, where we disbursed INR 2,540 crore. The disbursements were up 52% year-on-year from INR 1,726 crore in the same quarter last year. The growth for the segment was aided by activation of new dealership points during the quarter, as well as continued focus on time disbursements. Additionally, LTF achieved 150% year-on-year growth in the EV vehicles financed and achieved a strong reception for its offerings under the super bike segment. The book size here crossed INR 12,000 crore milestone. We are at INR 12,025, to be precise, up 31% year-on-year. Personal loans.
This business witnessed disbursements worth INR 1,178 crore, as against INR 1,162 crore last year same time, and the book size stood at INR 6,667 crore, an increase of 11% year-on-year. Risk-calibrated growth in this segment was aided by new digital processes and expansion of physical distribution through the DSA channel, focusing on salaried prime customers. Retail housing. The quarterly disbursements stood at INR 2,245 crore. This was up 73% year-on-year. The book size reached closer to INR 20,000 crore milestone, an increase of 42% year-on-year. Sustained business momentum in this business through collaborative launches with prime developers across top locations. Additionally, the launch of LTF, the complete home loan offering across eleven locations, grow higher lead generation, which should lead to tangible results over the next few quarters.
The home decor finance package of the Complete Home Loan 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. Talking about SME finance, our first quarter disbursements stood at INR 978 crore, up 61% year-on-year. The book size reached INR 4,471 crore in the fourth quarter. Strong growth in business volumes were aided by focus on building additional channels to diversify the existing sourcing partners. I'll now hand over the call back to Sudipta to make a closing statement.
Thanks, Sachinn. In conclusion, I'd like to state that in the quarter gone by, we are satisfied with our progress on achieving our Lakshya 2026 goals, and we'll continue to remain focused on granular execution of our strategy in the quarters to come. We'd like to open the floor now for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. 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. Our first question is from the line of Mahrukh Adajania from Nuvama. Please go ahead.
Yeah. Hi, sir. Congratulations! Hello?
Yeah, thanks, Mahrukh. We can hear you.
Yes. Hi. See, sir, I have a couple of questions. Congratulations, first of all. My first question is on the MFI business, right? That you of course articulated why your collections have been consistent through the years, and that's well articulated even in your presentations or when we discuss with you. However, all lenders have complained about collections this quarter, right? In the first quarter, because of elections and heat wave. Of course, there have been state-specific issues as well, but more so to do with collections and heat wave. So in these conditions, how did you incentivize your collections team better than others, you know, to achieve better outcomes? Because everyone is complaining about collection efficiency in the first quarter. So that's my first question on the MFI business.
Of course, the other one is that, I mean, what is possibly competition not being right to have issues in MFI over the last two quarters, which you've not seen? So these are my two questions on MFI. And then I just have some, one more follow-up question on SRs. So in security receipts, if you could give some color on when you think, a lot of realization will happen by which year, you know, how it's progressing. Any, any, any comments you can give, either on the fair valuation or visibility of realization of SR? That's my second, that's the second part of my question. Thanks.
Thanks, Mahrukh. You know, I'll take your first question first. Now, obviously, I would like to state that, you know, I think collections efficiency and collections discipline is a culture, right? And over the many years that L&T Finance has been present in the microfinance business, you know, the culture of discipline, collections efforts and discipline execution and granular execution on the ground has held us in good stead. And I think it has also helped us during this period as well. And plus, also, I would like to state the fact that our prudent credit assessment and our prudent credit guardrails, administration, where, you know, we not only take the household income, but also we follow association norms, also we follow leverage norms very, judiciously, also has helped us to maintain a pristine asset quality.
Almost 40% of our customers are our exclusive customers, so who are obviously non-leveraged. So, you know, if, if I look at our collection efficiency in the last quarter, our collection businesses are holding in the range of about 99.6, 99.7 levels, backed by the robust trade guardrails that we follow. With improved prospects of monsoons, and you know, you've seen the monsoons have been good, till about middle of July, and the progress is satisfactory. You know, I do believe that, you know, it will lead to sort of improvement into healthy rural credit demand as well as rural incomes.
We are hoping that the sort of indications of stress that might have been visible in our first couple of months probably will, you know, probably will dissipate on the back of a good monsoon. We expect that our portfolio quality will remain absolutely stable, and we are sort of confident of our expected growth trajectory for the rest of FY25. On your second question, you know, was about the SR assets. About the competition, you know, sir, I cannot comment on competition, and the fact is that, you know, everyone follows their own practices. We are focused on making sure that whichever MFI customers that we are on board are of low risk and, you know, non-leveraged quality.
And we have a very strong portfolio management practice, which actually keeps a watch on the leverage levels of the customer. And the moment we have sort of any signals of a customer getting leveraged beyond our thresholds, we stop disbursing to that customer. That actually discipline has helped us to maintain a sort of a very balanced portfolio and maintaining high collection efficiencies on ground. As regards to the SR book, as I said, you know, in the last investor call, that, you know, the resolution pathways are visible. Many of the projects which had been sort of lingering for a period of time, actually, construction has started. The secondary sale of the apartments in those under construction projects has started. We have the visibility of the cash flows.
But as you understand, you know, this is a long run-out process, right? It is not something, you know, that you flip a switch and you get an instant results, right? So we'll continue our efforts, and I do hope that over a period of maybe, you know, next, you know, anywhere between about 10 to 14 quarters, right? It will, that is what it will take, right, for us to sort of come to a overall sort of granular realization of these portfolios. As we have maintained in the call previously, we are hopeful that once this process is over, it will lead, lead to a net gain for LTFS.
You know, our sort of wholesale banking teams as well as our commercial real estate teams who are monitoring these projects. They remain engaged very granularly on the ground with the developers and the promoters of these projects. We are tracking everything in these projects very, very minutely and closely.
Thanks a lot. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please restrict your questions to one per participant. If you have any follow-up questions, you can rejoin the queue. Our next question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah. Hi, good morning. Thanks for the opportunity. Two bookkeeping questions. First one is on your cost of funding and interest cost linking. So if we were to look at the numbers for the quarter, your interest cost is close to INR 1,350-odd crore. That means that annualized it made INR 5,400-odd crore. And your Q-average cost of borrowing, you reported 7.85%. That, if you do the reverse math, it suggested more like a INR 70,000 crore borrowing, but your borrowing reported is INR 80,000-odd crore. And even if you do the average, I mean, the INR 70,000 crore calculation.
So where I mean, what is sort of I can understand the daily balance method, but still that, you know, your cost of funding and interest cost and the borrowing, I mean, struggling a bit to kind of link. That's one. The second one is, within the part of credit cost, that around INR 155 crore, you know, losses on the account of derecognition of assets. But if I see the disclosures in this quarter... There have been just one loan, a standard loan that you have sold, that is worth INR 200-odd crore.
So from where this INR 155 crore, if I understand correctly, typically the loans you are selling to ARC and all, typically will recognize it will go out of your loan book and sit in investor book, and that is, that I mean, you will recognize this INR 155 crore. So from where this is coming, if you can help? These are two questions. Thank you.
Okay, thank you, Avinash. The first question, let me take on the cost of borrowings. You know, the closing book, of course, total borrowings are at INR 80,295 crore, but the actual average borrowing, because the book has been, you know, growing over a period of time, the average borrowings for the quarter are just INR 69,100 crore. And this, if you look at, you know, in FY compared to the previous year, Q1 FY24, the average borrowings were just about INR 70,569 crore on a much lower book. The reason for that was in the last year, we had, you know, not completed the merger process.
We were running three different balance sheets, which meant that the liquidity was to be maintained across all the three balance sheets, as per the LCR norms. So the actual average borrowings being much lower, the overall growth, if you see, it is actually, you know, minus 2% growth, you know, on a YOY basis. And even over the quarter, it's just about 1%. And if you apply weighted average cost of 7.85%, you will get the results.
Yeah, yeah, that's clear. I mean, this INR 11,000 crore kind of a gap between what is a sort of a, I guess, in balance sheet and what is the daily average balance. That's, I mean, as a lot. That's what, that was my question. It's answered, I mean, but yeah, 10, 11,000 crore difference on a kind of 80,000 number, it was a pretty big difference. So yeah. The second question on that, loss on derecognition.
Avinash, can you repeat the second question? We couldn't really hear.
Yeah, yeah. So, I mean, you have kind of a different parts of your credit cost. So if I go with your Ind AS filing, there is INR 155 crore reported the loss on derecognition of loan at amortized cost. Generally, I would understand this would be typically when you are selling loans and getting SRs and all kind of a thing for that. But in this quarter, in the same filing, if I see, there is just one loan that you have sold, that also a standard loan for 200. I mean, that loan was 200. So from where this INR 155 crore line item is coming from? What have you de-recognized from loan book in your book? Thank you.
So there are different components which form part of the overall credit cost. One is the mark to market, which is there, you know, when you have fair valuation changes on account of fair value changes. Second, part is the ECL provisions that we make. And third part is part is the foreclosure losses that we have, which get incurred when we actually do the repossession and, foreclose. And, you know, whatever proceeds come, that also come as part of the credit cost. And, the ultimate gap between the, you know, the actual value on the books and what we recover comes in as a hit to the, P&L. So these are broadly the three components that come.
Got it, got it. Very clear. Thanks.
Yeah. Thank you.
Thank you. The next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
Just two questions. One is, if you could share some colors on the top state exposures in microfinance. And the second one is slightly more qualitative. You know, some of the banks and NBFCs are raising some concerns in the personal loan business, with higher delinquencies, increasing customer leverage. And I know we are going live on the new model. We are starting business with DSAs now, but you know, are we kind of tightening the screen and what is it that we are watching for? Thank you.
Yeah, so Nischint, I will take your first question. You know, we are, our top states are Tamil Nadu, Karnataka, Bihar. These are our mainly, you know, our three top states. And the fact is that, our asset quality in all these states remains stable. And what we have been trying to do over the last couple of quarters is sort of bring down the overdependence on a couple of states, and try to expand into the new, sort of geographies or territories, which are lesser penetrated and have, less MFI penetration and correspondingly less leverage. So that is what been our strategy is. So, that's the first question. The second question is, on personal loans.
Yeah, on personal loans, as I said, we are focused on, prime and near-prime, personal loans, especially on the salaried segment. And, our personal loans, if you see our, the new acquisition engine, the new credit engine, the new credit engine is not live on personal loans yet. It will become live on personal loans towards the, latter part of the year. But the fact is that overall, on a credit policy perspective, we have tightened most of the guardrails. As you can see, you know, our personal loans year-on-year sort of, growth is only, you know, 1% odd. And, so that is why, you know, on personal loans, we are being very, very cautious and judicious. And, the underwriting standards, especially for personal loans, have been increased.
Though previously, we used to underwrite personal loans completely on a sort of a machine algorithm basis. Now we have introduced manual underwriting on personal loans above particular ticket sizes, where post the machine BRE goes through and human being also looks at most of the loans and looks at most of the parameters.
... So we are very guarded in scaling up this particular portfolio, and whatever we do, we can assure you that it will be on a risk-calibrated basis and primarily to the salaried segment.
Perfect, thanks. Just one small question. What would be the average yield on loans in home loans?
Average yield would be about... Though we do not give out the exact numbers, they will be in the range of about, about close to about 9%.
Which is particularly the prime segment, prime or near prime?
Yes. Yes.
Perfect. Thank you very much. Those were my questions, and all the best.
Thank you. The next question is from the line of Chintan Shah from ICICI Securities. Please go ahead.
Yeah, thank you for the opportunity, and congratulations, sir, on a strong set of numbers. So, sir, my question is on the two-wheeler business. So on the two-wheeler, sir, the sector seems to be going, or two-wheeler sales seems to be growing around in single digits, wherein, whereas our growth is around more than 25% odd. So how do we expect the growth to sustain in the two-wheeler segment? That is first, and similarly, sir, on the microfinance, given that there have been some news on the collection efficiency and probably heat wave, and so because of that, are we also planning to somewhat slow down our growth in the microfinance? Or, so basically, what would be the growth vectors that will help us to grow more than 25%? Yeah.
Yeah, so I'll take the two-wheeler question first. Obviously, on two-wheelers, you know, India sells anywhere between, you know, 1.2 to 1.4 million two-wheelers per month. And, you know, I think, our focus on two-wheeler has been, you know, to make sure that we are present in the prime and the near prime segments, and primarily sort of we now sells away from the sort of the below-prime segments. Though new-to-credit continue to be a significant proportion of our through-the-door acquisitions as well, wherein, you know, our new credit engine Cyclops will come useful. As I said in my call, you know, our focus is on what I call the deepening and the surface area or increasing the surface area of distribution.
We are currently at about 35% penetration of the overall dealer universe. We want to take it to about 85% of the dealer universe, and our teams are focused on sort of onboarding more sort of dealers. We are also, you know, we are also working on, you know, building a loyalty program for our two-wheeler dealers, which obviously has sort of constructs built in, wherein, you know, we get a preferential sort of share from the dealer, in whichever dealers that we agree to onboard on us.
Plus, last but not the least, you know, the new credit engine, which we have deployed on a beta test pilot basis, also, you have to understand that a large proportion of the two-wheeler sort of approvals that are done in the dealerships, you know, sometimes the customer does not end up taking the loan from us, right? So which we call approved but not dispersed. One of our focus area is to reduce the approved but not dispersed sort of, and then by giving the right ticket size to the right customer. And we are hopeful that our new credit engine will also help us do that.
You know, while calibrated for, calibrating for risk, it will also throw up the right ticket size, which is sort of due to that particular customer, rather than a through-the-door, you know, you know, sort of a simple, business rules engine type of approach. We have invested in our two-wheeler distribution team as well. Our two-wheeler distribution team has grown. We have set up a separate EV channel. We have set up a separate prime bikes channel as well as a super bike channel as well. You have to keep in mind that, you know, two-wheeler sort of AUM expansion is not only a function of the number of two-wheelers that we finance, but also the average price of the two-wheelers that we finance.
If you see from the slide that we have put up in the investor deck, our average ticket size of the two-wheeler financed by us has been going up. So if you look at that particular two-wheeler, particular slide, you know, the average ticket has been going up, which obviously shows the focus that we have on the prime segment, as well as, you know, the AUM, the average financing amount, of more or more higher-end two-wheelers have increased. Yeah. So it's in slide 18, where you can see that from June 2023, where we had about INR 35,000 average ticket size, we are currently at INR 98,000 average ticket size. So it is on two-pronged approach.
First and foremost thing, increasing distribution, increasing quality, and making sure that we are, you know, reduce our rejections or reduce our sort of leakages by approved but not disbursed, and last but not the least, pushing the ticket sizes of the vehicles so that... You know, on the back of a good monsoon that we are seeing this year, I think, you know, overall the two-wheeler demand might increase as we move towards the festive period. We remain hopeful. If it really does, and the two-wheeler demand spurs on the back of a good monsoon, I think we will be sort of sufficiently well-capitalized by that time to take a large amount of that share, as and when that happens. So that's the first question. What was the second question?
On ML.
Yeah.
Growth expectations.
So growth expectation, ML, we are, we are very clear that we will, we will do risk-calibrated growth. You know, our vintage markets are, you know, Bihar, Tamil Nadu, Kerala. You know, Karnataka and Kerala. You know, these markets, obviously, we are focusing on, as I said, new villages as well as zero disbursement villages, is where we are sort of granularly tracking. We are also moving into new markets. You know, we are moving into Telangana, we are moving to Maharashtra, Western UP, and probably, later on in a couple of other new geographies as well. So our growth will come in the microfinance segment from expansion into hitherto uncovered villages in our existing territories, as well as completely virgin villages in the new territories.
So, you know, we are probably, during the course of the year, we'll send a set up anywhere between 250-300 new microfinance branches, and as you know, each and every microfinance branch, you know, in about 6-8 months of operations, starts generating about INR 1 crore of the top line. So we are also confident that, mix of, focus on, new geographies, as well as setting up new branches, as well as deepening up of our distribution channels, will help us sustain, the growth in our microfinance business. Regards to the asset quality in our microfinance business, as I stated earlier in, the previous question, it remains stable. Our collections discipline and our discipline of on-due date collections remains strong.
As of now, I can say that our asset quality sort of metrics that we see right now on ground are quite satisfactory.
Sure, sure, sir. That was very visual. Thank you, thank you for the detailed answer. Yeah, that's it from my side.
Thank you. The next question is from the line of Kunal Shah from Citi. Please go ahead.
Yeah. Hi, congratulations. So a couple of questions. Firstly, in terms of just taking forward the growth question, if we look at year-on-year against, like, say, INR 6,000 crore net addition to MFI, there has been INR 6,000 crore addition to home loan plus LAP as well. So when we look at the mix between the secured and unsecured on an on incremental basis, do we see now the secured proportion would be relatively on the higher side, given the various marketing campaigns also, which are being done on the home loan LAP and all?
So, you know, Kunal, the answer to that is that, we obviously are trying to calibrate our secured to unsecured sort of separation of our AUMs. And yes, the focus has been on home loans and Loan Against Property in the last maybe, you know, four or five months, thanks to our Complete Home Loan launch, and which is doing reasonably well in the market. But however, you know, you would notice also that our Personal Loans business has been recalibrated and we have been sort of making sure that the guardrails in this business are made far, far more stronger, and focus on valid customers as built.
So I do believe that, overall, for the next couple of quarters, you know, in terms of growth prospects, our RBF business will continue to grow. We will see recalibrated growth in our personal loans business, as well as we will see growth in our secured businesses, which is tractors. On the back of a good monsoons, home loan and loan against property, the market demand remains robust, as well as in terms of two-wheelers. Yeah. And we have started also rural, you know, Micro LAP, we have started, which we have piloted, Micro LAP. And, you know, we have. The pilot has been reasonably successful in, Tamil Nadu. We have close to 30 branches in Tamil Nadu, and we are scaling up in Maharashtra, Gujarat, Karnataka, Telangana. The Micro LAP business also we are scaling up.
It would be very hard for me to put a sort of a complete, sort of a percentage separation between secured and unsecured. But what I would like to believe is that, given that, you know, we expect reasonable to continue reasonable business growth momentum on all our lines of business, both secured and unsecured. I think the current separation that we have between secured and unsecured, I think that trajectory will continue for the next couple of quarters.
Okay. Okay. And, secondly, with respect to yields, so if we look at it in terms of what would be the difference between the incremental and the book yields, okay? Because we would still be having a larger part on the fixed rate side. So, given that margins have expanded almost like 70-odd bps, just want to get some sense in terms of-
Would be about 10-11, right, Sachin?
About 11.5.
11.5-12. Wholesale would be about 11.5-12, and overall retail would be, I would say, ballpark, it's an average of 10%-15%. 15%-16% odd.
About 16%?
Yeah.
This would be book yield?
Yeah.
Yeah.
Yeah, that's right. Yeah. And incremental on retail side?
See, directionally, Kunal, we don't see, you know, the earlier question actually will answer, depending on how the secured/unsecured piece pans out. You know, on an... Usually, what we try to do is that we first have a secured, especially the HL LAP, that is part of our strategy, that, the home loan piece is one which is first, grown on the balance sheet, and around it, then we are able to do the unsecured piece, grow the unsecured piece, which is, you know, rural business loans, rural, micro LAP.
SME.
SME and PL are the two, again, you know, growth businesses for us. So these will not grow unless we have a, you know, strong, secured asset base on the balance sheet. So it's going to be a mix. Directionally, we feel that, the yields will continue to be in this range, at least for next three to four quarters. We really don't see that, you know, we will continuously keep increasing either the home loan book or aggressively growing the rural business loans. So it will be calibrated, and we will ensure that the, the mix is maintained at a level where the overall NIM plus fee do not get impacted.
Yeah, so the other thing which I would like to add to what-
Mr. Shah, may we request you return to the question queue for any follow-up questions, as there are several other participants waiting for their turn?
Yeah.
Yeah.
So, you know, in addition to what Sachinn said, I would like to also add is that, you know, for example, in our home loan business, you know, our home decor finance product has actually seen a good amount of traction in the two months that we have operated. And, you know, it is at about 11% yield, introductory 11% yield. And, that, when it adds to the entire sort of home loan sort of portfolio, it obviously brings down the overall yield of the sort of AUMs, a couple of basis points higher. Yeah. So, you know, we obviously will be working on strategies to improve our yields. You know, we are looking at sort of seeing whether we can take our two-wheeler yields or notch up, right? Especially in some markets.
So it's a continuous process. But as Sachinn said, you know, it will be more or less in around this, on this ballpark area.
Okay. Yeah. Thank you.
Thank you. The next question is from the line of Abhishek Murarka from HSBC. Please go ahead.
Yeah, hi. Hi, Sudipta and team. Congratulations for the quarter. So a couple of questions. One on MFI again. So recently, MFIN has come out with some refreshed guardrails, right? In terms of number of lenders per customer, INR 2 lakh is the maximum MFI to a customer. Does this create any kind of slowdown for you in MFI? And you see a portfolio which is, you know, breaching these currently, and you have to run it down, something of that sort? Or incremental customers are, you know, breaching this, so that creates a constraint. So are you seeing any kind of slowdown because of this? The second question is sort of on two-wheelers.
So when you say, you know, what is the yield on prime, near prime versus, you know, the book yield on two-wheelers? So yeah, these two questions. Thanks.
Yeah. So, the first question, you know, I would like to point out that, you know, to start off with the new MFIN guardrails, which have been rolled out, does not impact us in any way, because anyway, we were following those guardrails. In fact, some of our guardrails are more stringent than that, right? For example, you know, we do not disburse to customers on JLG loans who are at any point at zero DPD, right? You know, we never, you know, it's like we onboard if only the customer is a zero DPD JLG customer. That's the first thing. We continued the association norms even after it was regulatory not required. We said, you know, maximum of three lenders, which are allowed, including HDF, right? So we continued that norm, right?
We continued the JLG indebtedness norms, right? Where we, you know, in any way our guardrail was about 2 max, right? So, plus, also what we do is that, you know, we have an 800 strong, you know, our risk control unit team, as well as a separate verification, which we call the branch process team. So whenever, though, you know, if our field level guy also goes and sources a customer, and whether the customer gets a preliminary approval, there's a backup process also to continuously check whether whatever the customer independent backup process to check whether the customer has said is correct or not, right? So, you know, before a customer goes through for disbursement, you know, multiple levels of are checked.
So, in fact, you know, we were party to the MFIN discussions as well, when these guardrails were set out. And we were happy to note that these guardrails, though it will be overall beneficial for the industry, right? And sort of protect the industry from any accidents going forward. For us, it will be business as usual, right? It doesn't impact any. These sort of guardrails are already in our business for the last many, many years, so it's not of a concern for us as well. With regards to your two-wheeler question, you know, our prime IRRs are around 15% range, and our non-prime IRRs are about 19% range. Our overall mix comes in at about 13.5%.
It comes, but I would also like to state the fact that, our prime portfolio, of which we are considerable right now in about 52%, has decent yields because, you know, the collections costs are much lower, the loss rates, the projected loss rates are much, much lower. So, you know, in terms of ROA basis, the prime portfolio, two-wheeler portfolio, ROAs are projecting sense, are, you know, sort of traversing on a satisfactory trajectory.
Got it. Got it. Thank you. Thank you for that.
Thank you. Our next question is from the line of Hardik Shah from Goldman Sachs. Please go ahead.
Thank you for the opportunity. Sir, I have a couple of questions. First is on the MFI. Am I audible, sir?
Yeah, you are audible. You are audible.
Yeah. First is on the MFI. You mentioned that your top states are Tamil Nadu, Karnataka, and Bihar. Bureau data is also suggesting that there is very high retail overlap for the MFI customers in Tamil Nadu and Karnataka particularly. Can you share some of the data points for your customers, if you've done any study of what is the retail overlap for the MFI borrowers?
So we have done significant amount of sort of bureau wash on retail overlap. And I can say that in majority of our markets, you know, close to 60% of our customers have, you know, negligible retail overlap, right? So the fact is that the retail leverage, and this is something that which even we have been doing for a long time, even when there was sort of it was not even in the limelight, so we have been doing it. So does that answer the question?
This is retail overlap you're talking about with your own portfolio as well as from the industry.
Yes.
So you're suggesting that-
Yes, absolutely.
Okay. And second, on the, on the, center meeting discipline, are you tracking kind of attendance? How does that look like, given that, we've had feedback from other competitors that the discipline is not the way it used to be before pre-COVID? Anything to share there, sir?
Our discipline levels are completely sort of rigorously. We have two people reports for collections. You know, the first 12 days of the month are dedicated to collections and, and, you know, people, and the next is for sourcing mostly. People report at work at 6:30 A.M. in the morning, you know, it is rigorously and digitally tracked, right? So, I do not know about, I cannot comment about industry, et cetera, and our on-due date collection remains at 96%. So-
Any number around center attendance you want to share, sir?
Discipline is persistent.
Any, any number around center attendance that you would like to share, sir, if you are tracking that?
We track center attendance numbers, but, you know, I won't like to go specifically into center attendance numbers, you know, on the call.
Okay.
I would like to state that, you know, discipline... and, you know, discipline is a mix of, the, the control that the business managers have on their business, as well as the overall HR discipline of the organization. Our people are extremely disciplined and whenever... and frankly, I haven't received, any sort of, adverse feedback on any lacks of discipline or lacks of attendance in, lack of attendance in any part of our, ecosystem. In fact, what we did was that we hiked the salaries of our, our BS employees, and we did a, did a salary correction in the month of, February, right? And post that, you know, our attrition levels have significantly dipped in this line of business.
Which shows that our employees are not only well taken care of, but they're motivated, and they're performing well to their expectations.
Understood. Sir, last question on the cost-to-income ratio and the provisioning that you have. How are you viewing cost-to-income ratio going forward from the current levels? And how comfortable are you with the provisioning that you are having right now on a whole year?
Cost-to-income ratio for this quarter is about 40% .
Okay.
You know, if you look at sequentially, we have gone down from about INR 980 crore to INR 956 crore. And that too-
Mm-hmm.
-on a quarter where we have invested significantly in marketing and above-the-line marketing. Now, obviously, our focus is on making sure that, you know, our, our, our cost trajectory remains stable, while we do not shy away from investing in the right areas that we need to invest in. We have told, that, you know, overall, as a block, our credit cost plus OpEx will be at about 7%, and we remain committed to that trajectory, though for this quarter, I think that number is close to 6.8%, right?
So, we are running several cost control initiatives right now in the organization, on the technology side, on the collection side, on the overall, sort of employee cost side, the travel side, et cetera, you know, and we are trying to see wherever we can get efficiencies, you know, we are, we are trying to get efficiencies on the cost side. So, you know, those efforts will continue. However, I would like to reiterate that our investments in technology, as well as our investments in brand building, will continue for the next couple of quarters, right? In terms of provision coverage ratio, I think we are comfortable. We are at about- 75% right now, and we think that is quite comfortable for the next, you know, the forward, go forward trajectory.
Understood. Thank you, sir.
Thank you. Ladies and gentlemen, we will take that as our last question for today. I would now like to hand the conference over to Mr. Sudipta Roy for closing comments.
Thank you everyone for joining our call. We remain optimistic about the future. I think the five-pillar and as part of the five-pillar execution, granular execution strategy towards our 2026 goals are truly in motion right now. The entire organization is focused on making sure that we deliver on all the five pillars of execution to the best extent that possible. We are hopeful that the environmental trends that we have been seeing, especially with regards to rainfall or monsoons, continue its positive trajectory that we have seen so far, because it is very important for our lines of business.
We are also remain mindful about the, the credit cost scenario of the entire industry, and how, how that is projecting, and we continue to monitor them and also continue to continuously invest in making sure that our credit guardrails and our credit administration guardrails become stronger with every passing quarter. We are very focused on compliance and control, and as I said during my opening comments, that we have created a separate, deeper compliance organization, including central compliance, business compliance, as well as regional compliance. We are now putting compliance people within every businesses, as well as, you know, who will work on the business compliance part, that whether the business is compliant with every rule that is applicable to that business, as well as regional compliance.
You know, wherein, you know, we are putting people in, regional compliance people in the four regions, so that, you know, on-ground, granular compliance monitoring also happens. We are very hopeful that, on the back of a good monsoon, and on the back of a good festive quarter, you know, FY 25, the continued, growth trajectory will remain. And we, as an organization, remain committed to our investors as well as our promoters to deliver, the return that is expected of us. Thank you, for attending the call, and we'll be happy to meet, many of you on a one-on-one basis as we, go through the rest of the quarters of this year.
Thank you. On behalf of L&T Finance Ltd, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.