Ladies and gentlemen, good day and welcome to L&T Finance Limited Q4 FY25 and full year FY25 earnings conference call. We have with us today Mr. Sudipta Roy, Managing Director and CEO; Mr. Sachinn Joshi, CFO; 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 Before we proceed, as a standard disclaimer, no unpublished price-sensitive information will be shared during the call.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 discussion during interaction 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 While all efforts would be made to ensure that no unpublished price-sensitive information will be shared, in case of any inadvertent disclosure, the same would, in any case, form part of the recording of the call.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 Q4 and FY results presentation sent out to all of you earlier.
As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star and zero on your touch-tone phone. Please note that this conference is being recorded. 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.
Thank you, Nidhu. A very good morning, everyone. I welcome you all to the investor call for Q4 FY25 and the close of the financial year 2025. Today, with me on the call are our CFO, Mr. Sachinn Joshi, and the senior management team of L&T Finance. Similar to our previous calls, today's call is divided into two sections, taken up sequentially by myself, followed by our CFO, Mr. Sachinn Joshi, who will be talking about the overall business metrics and financial performance. Post-documentary, we'll be happy to take questions on the call. Before we delve into the highlights of the quarter, I would like to give you some flavor of the current macroeconomic scenario and the sectoral outlook.
With the global environment, tariff and trade war dominating the economic headlines, closer home in India, we're looking at prospects of a strong recovery on the back of a very good monsoon last year, record kharif and rabi crop harvests, and improvements in rural liquidity aided by tailwinds from lower inflation and easing of the interest rate cycle. The growth outlook for India, as predicted by IMF, remains relatively stable at 6.2% in 2025, supported by private consumption, particularly in rural areas. Underlying momentum remains robust, driven by better consumer demand, higher exports growth, increase in government expenditure, and strong agricultural performance. Rural demand is continually improving on the back of record kharif production and favorable agricultural conditions. Total kharif food grain production is estimated at 7% higher compared to last year and 9% higher than average kharif production in the last five years.
Estimates of ruby production are running over five-year average levels as well. Along with expected better than average curry arrivals this year and initial forecast of a normal monsoon in the current fiscal, it will set the stage for further arrival in the rural economy. A strong rural demand backed by a rebound in agricultural production, an anticipated easing of food inflation, and a stable macroeconomic environment augur well for near-term growth outlook. Private consumption will also be supported by the tax benefits announced in the Indian budget, with higher budgetary allocations towards employment-generating schemes and easing monetary policy by the Reserve Bank of India. The central bank's recent liquidity infusion measures and lower risk weights for non-banking financial companies will help transmit the benefits from a softer monetary policy to the broader economy.
However, the impact of adverse weather shocks such as heat waves and altered rainfall patterns on agricultural output remains monitorable at this point. The recent trade tariff-related measures have also exacerbated uncertainties, posing new headwinds for global growth and inflation. We remain watchful of the fast-changing global environment and believe that strong domestic demand, benign inflationary conditions, and sustained policy support should help us navigate the volatile global environment. Coming to this quarter's highlight, I would like to share that the operating environment in the microfinance sector remained challenging during the quarter, with some state-specific events like the Karnataka ordinance, about which I will speak in greater detail during the course of the call. However, despite the operating challenges, our diversified franchise has enabled us to achieve the highest-ever annual PET of INR 2,644 crore, registering a growth of 14% year-on-year and the highest-ever annual ROA of 2.44%.
A robust business model coupled with responsible growth across all retail segments led to an overall quarterly disbursement of INR 14,899 crore in the current quarter compared to INR 15,044 crore in the corresponding quarter in the previous financial year. This was achieved despite the risk-calibrated disbursement strategy followed especially in the rural finance vertical, business finance vertical, and the two-wheeler vertical. The retail book now stands at INR 95,180 crore, a growth of 19% year-on-year, while the overall book size reached INR 97,762 crore in 2025, registering a 14% year-on-year growth. The growth reflects the strength of the retail business franchise, aided by a strong execution engine, proactive portfolio management, and prudent risk management. We will continue to focus on making our retail growth trajectory sustainable and predictable.
I would like to take some time here to share an update on the various strategic and technology projects and technology initiatives we have taken during the course of the year. Project Cyclops, our proprietary AI/ML-based curate writing engine that was operationalized in Q1 FY2025, has now been extended to the tractor business as well and is currently live with 24 Scope cards after a 100% scale-up in two-wheeler dealerships. We aim to implement it in the personal loan business in Q1 FY2026 and in SME finance by Q2 FY2026. We would like to update that in order to independently review the efficacy of our two-wheeler underwriting for Project Cyclops, the portfolio was analyzed through TransUnion CIBIL's proprietary credit vision algorithm.
We are pleased to share that the analysis clearly demonstrated a shift of origination to a lower-risk portfolio underwritten through Cyclops Engine for the period August 2024 to March 2025 as compared to a non-Cyclops legacy portfolio, with estimated credit costs paring downwards by an estimated 100-150 basis points. This drop in risk costs and subsequent improvement in overall asset quality will augment the overall profitability of the two-wheeler portfolio going forward. We are hopeful that the full impact of Cyclops on the two-wheeler business in terms of improved all-round metrics should be visible by Q4 FY2026 as the newly generated Cyclops portfolio replaces the old legacy portfolio. Our next transformative technology initiative for FY2026 will be operationalizing the beta version of Project Nostradamus, a state-of-the-art, first-in-industry AI-driven automated real-time portfolio and credit risk management engine leveraging traditional as well as alternate data.
We estimate to bring it to production by the end of Q2 fy 2026. Additionally, we launched the beta version of a third generation of our mobile platform.
Sorry to interrupt you, sir. We lost your audio. Ladies and gentlemen, please stay connected. I'll be rejoining the management back to the call. Ladies and gentlemen, please stay connected while we rejoin the management back to the call. Participants, please stay connected while we join the management back to the call. Ladies and gentlemen, we have the management line reconnected. Sir, go ahead.
Yeah, hi. Sorry, my sincere apologies for the disruption. Unfortunately, there seems to be a telephone connectivity outage in our area, so it's quite unfortunate it happened during the call. My apologies to everyone. I will start sort of rewinding the commentary from an estimated time period where I had probably lost the audience. Kindly bear with me for the time being. I will start an update on the lecture goals. The first milestone was to achieve the utilization of 95% by FY2026. We achieved the utilization of 97% in the last quarter, and it remained at this level this quarter despite calibrated disbursements in the RDF and two-wheeler businesses.
Other businesses within our robust retail franchise supported us well in this time in maintaining the utilization trajectory with a 16% year-on-year growth in Pharma Finance disbursements and a 42% year-on-year growth in Personal Loans disbursements and a 37% year-on-year growth in SME Finance disbursements. In Home Loans business, we clocked a 27% year-on-year growth in disbursements in spite of an overflow of close to INR 800 crore of disbursed checks to the next quarter on account of delayed banking of checks by customers in line with the revised Reserve Bank of India guidelines. On the loan book growth front, despite consciously choosing to slow down disbursements in segments where risk-reward was not in our favor, our retail book growth stood at 19% year-on-year, a growth rate that we are satisfied with given the challenging environment that we witnessed in FY 2025.
Simultaneously, in other business segments such as Pharma Finance, housing finance, Personal Loans, and SME Finance, we have maintained a healthy growth trajectory based on our confidence in our tech-powered underwriting capabilities and the market potential. We continue to maintain our focus on shifting towards more prime and near-prime customers, which led to the prime customer share in our Two-Wheeler disbursements increasing to 82% in the month of March 2025, which stood at 53% at the end of March 2024. Our journey towards building a prime-dominant portfolio, which showcases resilience across business cycles, continues with a strong focus on credit and risk trends. On the asset quality front, we maintained retail GS3 and NS3 at levels closer to the threshold levels of GS3 less than 3% and NS3 less than 1% despite the macro challenges and the segment-specific challenges in the microfinance segment.
Our consolidated GS3 stood at 3.29% while NS3 was at 0.97%, which is below the lecture threshold of 1%. The fourth and last milestone on the ROA front, as you are aware, we have moved from tracking retail ROA to console ROA in the range of 2.8%-3% as per our original lecture 2026 targets. We have registered the highest-ever annual ROA of 2.44%, up by 12 basis points year-on-year. This has been achieved despite microfinance industry challenges and risk-calibrated disbursement across all lines of business. We remain committed to delivering the lecture ROA goals, and the continuous improvement in ROA trajectory should resume as the segment headwinds in the microfinance sector dissipate.
As you are aware, over the quarter or over the course of 2025, there have been operational and trade-quality challenges in the unsecured consumer lending businesses in India, particularly in the microfinance sector owing to increased leverage and impact of macro events like prolonged heat waves, severe floods in several states, and a temporary slowdown of cash flow for rural employment schemes during general elections. This led to increased trade costs in our RGL and MFI portfolio, thus warranting a case for utilization of macro-potential provisions as intimated in the investor communication for last year. As guided previously, post-approval by the audit committee and the board, we have utilized a sum total of INR 400 crore of macro-potential provisions for full year 2025, INR 100 crore in Q3 2025, and INR 300 crore in Q4 2025.
The actual utilization of INR 400 crore is the lower end of the guided range of utilization, which was possible on account of a relentless focus on restoring collection efficiency in the rural group loans and MFI portfolio. With this, we move into the next financial year with an adequate buffer of unutilized macro-potential provisions of INR 575 crore. This quarter witnessed an industry event in the form of an ordinance towards prevention of coercive practices for unregistered financiers in Karnataka. Due to this, in a recousal effect, collection efficiencies of registered microfinance players also witnessed pressure in February 2025. Our RBF team proactively took on-ground measures to protect our Karnataka portfolio, resulting in the collection efficiencies showing signs of steady improvement throughout March and April. We expect the Karnataka collection efficiencies to stabilize to normalized levels by early Q2 FY26.
Please refer to slide number 38 of the investor presentation for the improvement in our trajectory of our Karnataka RBF collection efficiency. Over the weekend, we received information about a new bill being tabled in the Tamil Nadu Assembly with an objective towards controlling unregulated lending. Primary case, this bill, unlike Karnataka, seems to have a broader scope than an MFI focus only and exempts RBI-regulated entities and is targeted solely at unregulated entities. Given our experience in Karnataka over the last three months, we are confident that this will not pose any significant challenges for us in the operations of the RGL and MFI business in Tamil Nadu. Our March 2025 collection efficiency in Tamil Nadu was 99.6%, which is just 10 basis points lower than our normalized trajectory of 99.7%.
We are confident of maintaining this trajectory going forward, though there might be a couple of months of readjustment period in between, as in the case of Karnataka. Needless to mention, we are closely monitoring the situation and will work closely with MFIN and the other industry participants to mitigate any possible impact to the fullest extent. As I had mentioned in the last quarter, I would like to reiterate that the onset of MFIN 2.0 guardrails, as applicable from 1 April 2025, is an overall long-term positive for the microfinance industry and will ultimately lead to a recovery of the credit profile of the sector, albeit at a marginal credit cost to growth.
The impact of the guardrails in terms of credit cost for L&T Finance is expected to be limited as the leverage level of L&T Finance customers has gone down since the proposed announcement, as illustrated in slide number 22 of our investor presentation. We are hopeful of a return to our normalized collection efficiency in the rural group loans and MFI business by early Q2 FY2026. As mentioned earlier, I would now like to give a brief update on the five pillars of execution that we had enumerated over a year back and continue to be in implementation mode against the same. Customer acquisition. The focus continues to be on maintaining customer acquisition momentum both vertically and horizontally while proactively implementing trade adjustments to ensure sustained portfolio quality. To ensure focus on acquiring new non-leveraged MFI customers, the team focused on deepening reach into new non-covered villages.
Hence, the number of new villages or the zero disbursement villages activated for the rural group loans and MFI RBF business stood at 25,401 in Q4 FY25, as against 19,975 villages in the last quarter, a growth of 27%. This has helped us in maintaining disbursement momentum to new non-leveraged customers in the RGL and MFI business. We are also expanding our geographical footprint in Assam, Western Uttar Pradesh, and Rajasthan. This quarter, we have added a total of 530,000 new customers. Alongside this reach expansion, we performed calibrated channel optimization in two-wheeler business with sustained focus on better quality and under-leveraged customer acquisition. Further details around customer acquisition and repeat share are available on slide 16 and 17 of the investor presentation. Sharpening of trade underwriting. I've already spoken at length on the impact of our proprietary trade underwriting engine Project Cyclops on the two-wheeler business.
It has now been extended to the tax finance business as it currently lies in 21st cohort after having been scaled to 100% two-wheeler dealerships. In addition to this, the Cyclops underwriting engine will be implemented for the personal loans business in Q1 FY2026 and SME business by Q2 FY2026. Futuristic digital architecture. We have continued work on upgrading our technical capabilities, and our focus on continually strengthening our IT framework remains unabated. I've already spoken about the Project Cyclops, Project Nostradamus, and upgrades to our Planet app, and we have also launched our new website, www.ltfinance.com. Brand visibility. We continue to focus on targeted engagement through a multi-channel and a multi-product brand building with Jaspreet Bumrah as our brand ambassador. We have partnered with L&T Group for the MMRD Atal Setu Marathon in 2025. During this quarter, we have launched an integrated marketing campaign, Business Sloan after Business.
A game changer for our SME Finance business. We targeted marketing campaigns for SME audiences in seven cities: Mumbai, Delhi, Jaipur, Ahmedabad, Kolkata, Bangalore, and Hyderabad. We are also focused on airport brandings in multiple cities to enable us to engage with a captive audience base. As we move ahead, you will see a set of integrated marketing campaigns and targeted branding exercises for other lines of businesses in the upcoming quarters. On the capability building front, as you are aware, we have taken a series of measures during the year. During the quarter, we institutionalized our long-range planning process, about which I had mentioned in the last quarter. This process, launched across all verticals, will ensure that each function develops and aligns our forward-looking challenge strategies linked to business priorities.
In line with our higher-type strategy, we have hired a batch of talented and motivated management trainees, out of which 40% of the positions were sourced from tier-one colleges, including top IITs and IIMs. Speaking of employee initiatives, we launched employee engagement surveys, including the reintroduction of the Great Place to Work survey, to enable the management to effectively listen to the voice of its employees. Additionally, we focused on providing continuous learning opportunities to our employees to excel in the organization. In line with the same, we collaborated with Symbiosis School of Online and Digital Learning to offer employees access to high-quality industry-relevant programs. Now, I would also like to give you an update on the wholesale business and the related investments and security receipts with Asset Reconstruction Companies. The wholesale book has been reduced from INR 5,528 crore in FY2024 to INR 2,582 crore in FY2025, a reduction of 53% year-on-year.
Security receipts book has also been reduced from INR 6,770 crore in FY 2024 to INR 5,862 crore in FY 2025, mainly due to monetization of assets driven by active stakeholder negotiation, completion of projects, and subsequent sale of constructed units and recovery measures implemented through legal action. With wholesale book reduction progressing satisfactorily, we'll continue to work with the ARCs in focusing efforts towards the reduction in security receipts. Now, let me take you through our performance in our new product initiatives, as shared in the last call, where we have been successfully scaling our MicroLab, Warehouse Digital Finance, and Supply Chain Finance products. In the MicroLab domain, we have expanded our geo presence across six states in southern and western geographies and further expanding footprint in Rajasthan and Madhya Pradesh to scale up the business.
The asset book has crossed the milestone of INR 450 crore in Q4 2025 on the back of strong credit underwriting to build a sustainable high-yield secured portfolio. Similarly, our Warehouse Digital Finance business launched to address post-harvest needs within the agricultural value chain, which uses a digitally accessed process, resulting in superior turnaround times for sanction, disbursement, and commodity release. This business under the common finance vertical has achieved cumulative disbursements of INR 500 crore in 2025. Last year, our supply chain business under the SME Finance vertical was launched in Q3 2025, which offered dealer and vendor finance, and while at a nascent stage, we hold a positive outlook towards this potential to scale profitably.
As you are aware, during Q4 FY25, we announced L&T Finance's foray into gold loans through the acquisition of the gold loan business of Paul Merchants Finance Private Limited on a slump sale basis. Our philosophy on inorganic growth has been guided by three considerations. Firstly, addressing a critical capability gap. Secondly, easily integrable business and people profile. And last but not the least, available at reasonable valuation. Given a large number of our customers have been availing of gold loans, we had been keen to enter this segment to complement our existing product portfolio and also tap its significant cross-sale and upsell opportunities. The proposed acquisition of the gold loans business of Paul Merchants Finance Private Limited on a slump sale basis meets all three of our criteria outlined above.
We signed definitive agreements for this purchase on 7 February 2025, and an integration plan and governance framework has been put in place to enable us to achieve a closing by Q2 FY26. We expect the gold loan business to add significant value to our retail business franchise and the business to become a major secured high-yielding revenue line for L&T Finance going forward. I will now request Mr. Sachinn Joshi, our CFO, to take you through the financial update.
Thank you, Sridhar. As always, I'll be walking you through the financial performance of the company for the quarter. First, starting with quarterly, consolidated NIM plus fees stood at 10.15% versus 10.33% for Q3 FY25 on account of conscious shift in disbursement and bookmaking due to a challenging credit scenario in RBF.
This includes a negative impact of 23 basis points on account of a refund of around INR 550,000,000 for broken period interest to certain customers as per advice of RBF. There is also a one-off item of tax gain of around INR 350,000,000 on account of closure of certain historical tax gains. Incorporating all these, the consolidated PAT for the quarter was INR 6,360,000,000. Quarterly retail disbursement stood at INR 14,899,000,000. Retail book stands at INR 95,180,000,000, up 19% year-on-year. Our consolidated book stands at INR 97,762,000,000, up 14% year-on-year. Consolidated ROA stands at 2.22%, up 3 basis points year-on-year, and consolidated ROE at 10.13%, up by 60 basis points year-on-year. Now, coming to annual performance, our consolidated PAT for FY2025 stands at INR 26,440,000,000, up 14% year-on-year. Similarly, consolidated NIM plus fee stood at 10.59%. Highest-ever annual retail disbursement of INR 60,040,000,000, up 11% year-on-year.
Consolidated ROA comes to 2.44%, which is up 12 basis points year-on-year. Similarly, consolidated ROE stands at 10.87%, up 52 basis points year-on-year. Now, talking about retail businesses, rural business finance, the business registered a quarterly disbursement of INR 5,114 crore, down by 11% year-on-year, and the annual disbursement stood at INR 20,921 crore, down by 3% year-on-year. This was mainly on account of a risk-calibrated disbursement strategy. The book size reached INR 26,320 crore, up 0.3% quarter-on-quarter and up 6% year-on-year in Q4 FY2025. Talking about pharma finance, in this vertical, the quarterly disbursement stood at INR 1,755 crore in Q4, which was up 15% year-on-year, while the annual disbursement stood at INR 7,935 crore, up 16% year-on-year.
We had carried out multiple changes along with credit calibrations in this business during the year, which allowed us to take full advantage of a favorable monsoon and optimal rural liquidity, thereby leading to a double-digit growth. The book size reached INR 15,219 crore, reflecting a growth rate of 10% year-on-year. Coming to urban finance, the segment, which comprises two-wheeler, personal loan, and home loan lab businesses, saw a 2% year-on-year jump in overall quarterly disbursement and 22% jump in annual disbursement. As a result, overall book size increased to INR 45,897 crore in the fourth quarter of 2025, translating into a 27% year-on-year growth. The two-wheeler business registered quarterly disbursement of INR 1,857 crore in the quarter, down 26% year-on-year, and annual disbursement stood at INR 9,285 crore. This was up 8%. The book size increased to INR 12,321 crore, up 10% year-on-year.
Notably, 82% of these two-wheeler disbursements in March were in the prime segment. This reflects our focus on quality growth and risk-adjusted return. In the personal loan business, we achieved our highest-ever quarterly disbursement of INR 1,915 crore, translating into a growth of 98% year-on-year, and the annual disbursement stood at INR 6,096 crore. This was up 42%, with the book size of INR 8,648 crore, an increase of 34% year-on-year. The double-digit growth is due to the expansion of physical distribution through the DSA channel, which focused on salaried prime customers, and scale-up of the FinTech partnerships, which now contribute 22% of the quarterly disbursement. Moving on to housing, we achieved quarterly disbursement of INR 2,332 crore. This was down by 7% year-on-year, and annual disbursement stood at INR 9,582 crore, with book size of INR 24,929 crore, an increase of 35% year-on-year.
Growth in this segment aided by new partnerships and a strong network of distribution channels. In SME business, quarterly disbursement stood at INR 1,528 crore, up 26% year-on-year, and annual disbursement stood at INR 5,000 crore, up by 37%. The book stood at INR 6,524 crore, up 67%. The growth in business volumes was aided through an increase in direct source and existing strong network of distribution channels. Now, let me hand over the call back to Sridhara to make his closing statement.
Thank you, Sachinn. The year gone by saw considerable headwinds, especially in the microfinance business, however, we remained resilient while showcasing our ability to thrive even in a challenging environment.
We are optimistic that FY 2026 will present a far more benign operating environment, which will help us scale up business momentum riding on the back of significant improvements across all five pillars of execution that the organization has implemented in the recent quarters. We expect our disbursement momentum to gain pace in FY 2026, especially in our urban businesses and our rural businesses in H2 FY 2026. We are hopeful of a 20%+ growth in book size during the coming financial year. We are also hopeful that our rural group loans and MFI business will resume its growth trajectory from quarter one FY 2026, picking up pace in H2 FY 2026 on the back of an already forecasted better-than-normal monsoon. Growth in all lines of business will remain the primary agenda in FY 2026 after having completed the credit administration framework rehaul through full implementation of Cyclops introduction on Nostradamus.
Hence, we expect the growth momentum to pick up significantly from H2 FY2026 in a risk-calibrated manner. In the backdrop of existing market conditions, we expect NIM plus fees to trend in the range of 10%-10.5% as yield changes made in FY2025 reflect in the ongoing bookmix realignment. This year, we will also be focusing on building OPEX efficiencies in our collections and credit administration vertical, which will be a byproduct of our Cyclops implementation. We will also focus on augmenting productivity of our sales channels through a concerted exercise, including the deployment of multi-product Sampoona branches. Operating expenses are expected to trend along the same lines as FY2025 as L&T Finance continues in investment in guided core technology-related initiatives.
As the asset book subsequently underwritten by Project Cyclops and the other structural credit policy measures implemented in our various businesses take hold, we expect it to positively start reflecting in decline of credit costs between Q3 and Q4 of FY2026. This should, in turn, reflect favorably on the return on assets profile ranging between 2.4%-2.5% for FY2026, with sequential improvement in H2 over H1 FY2026. Having guided as above, we remain cautious about emerging geopolitical risks and would like to maintain that the above guidance does not take into account any unforeseen developments. I would like to end by saying that, as always, we remain committed to building a sustainable risk-calibrated franchise that leverages technology and deep customer understanding to deliver consistent value to all our shareholders.
I would also like to put on record our heartfelt thanks and deep appreciation to the analysts and the investor community for encouraging us through our transformation journey. I thank you all for the patient hearing. We apologize again for the temporary disruption in between, which was completely out of our control. The floor is now open to questions.
Thank you very much. We will now begin with the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchstone 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. Participants, you may press star and one to ask a question.
A request to all the participants: kindly use handsets while asking a question. If the audio is unclear, we will be asked to come back for a follow-up. The first question is from the line of Kunal Shah from Seti Group. Please go ahead.
Yeah, hi. Firstly, on credit cost side, if you can just highlight with respect to the various product segments contributing to the overall credit cost of INR 600 crore. Last time, maybe MFI was closer to INR 160 crore. How much is the MFI this quarter? Even on two-wheeler and consumer loans, you indicated that it will take a couple of quarters to see the full benefit. How has the behavior been in Q4 on, say, two-wheelers and consumer loans?
Kunal, this is Sachinn here. As you are aware, we really do not give breakup product-wise on the call.
I can broadly give you a trend, and it continues to be on the same lines as in the earlier quarters. We had mentioned on the call that, yes, microloan, of course, is the key business where we are looking at higher credit costs because of the reduction in collection efficiency. That is one part where we have also mentioned that we have utilized INR 300 crore to take care of that incremental credit cost. Apart from that, we have also seen credit costs emerging out of farm. Directionally, it is slightly lower compared to the previous quarter. We have two-wheeler and personal loan. These are the three businesses where we've seen a higher credit cost.
As we had mentioned on the earlier call, I am just reiterating that one or two more quarters, and then we should be actually looking at H2, which will be much better in terms of overall credit costs directionally because Cyclops implementation on two-wheeler is completed. In Q3 and Q4, we will start seeing the impact of that because the book will get seasoned. We are also in the process of implementing it for farm as we speak, followed by PL and SME. Directionally, H2 will be better than H1 in terms of the overall credit costs.
Yeah, Kunal, I'd like to add to what Sachinn said.
If you refer to slide 26 of the index representation, where we have given the index representation of two-wheeler portfolio bounce, you can see what was at 101% or 101% in April 2024, the index bounce is now at about 85%. We see a significant cleanup of the two-wheeler portfolio in terms of the portfolio metrics. Obviously, the first metric you take into account is the portfolio bounce. As I had spoken earlier, when we validated our two-wheeler portfolio credit metrics, especially the ones that are sourced through the Cyclops engine for the CIBIL credit vision algorithm, from a high-level perspective, the sort of the portfolio that behaves in a high-risk, slightly higher-risk fashion in a non-Cyclops legacy portfolio was about 11%, which has currently dropped to a level of about 3% or 3 or 4% odd when we underwrite it through the Cyclops portfolio.
That is giving us much, much better headline credit metrics. Obviously, our prime share in two-wheeler disbursements is up to 82%. If you look at slide 27, our farm equipment, again, the net non-starters, right, which is the first PMI bounce, right, from an index of 159%, which was in April 2024, is down to 38%. That means if you had 1,000 customers, you have 159 customers out of the 1,000 customers sort of bounce their checks. Currently, we have only 38 customers who bounce their checks. Basically, from 159 to 38, that journey in the farm business has actually sort of given us a lot of leeway to sort of ramp up disbursements in a credit-calibrated fashion.
In our personal loans business, we continue to operate on the prime and near-prime segments, especially the entire disbursements that are coming through our large partners, which is predominantly Cred, PhonePe, as well as Amazon, continues to be absolute prime customer, prime salaried customers. Our data channel operates on prime salaried customers. We have seen a significant downward trend in sort of the through-the-door risk metrics, right, in our personal loans business as well. As I maintained, as Cyclops gets implemented, now it's getting implemented in the farm business. It is getting implemented in the personal business, personal loans business this quarter, and the SME business next quarter. As all of them get implemented and the overall portfolio quality becomes origination becomes far from a cleaner.
Because of the much tighter credit metrics followed over the last 12 months across all lines of business, we expect a very normalized credit cost trajectory in H2 FY2026. In H1 FY2026, there might be some residual impact from the flows that we have seen in FY2025 from our RBF business. As I said, barring Karnataka, we saw a collections efficiency of 99.6% plus for rest of India, right? I would say our microloan business is also very strongly moving towards normalcy. We expect a very normal BAU H2 FY2026, of which H1 and during H1 FY2026, with every passing quarter, you will see significant milestones for improvement in that as well.
Sure. The second question is on NIM plus fee. Obviously, you indicated that there was some impact of refund on the interest policy, which was there towards the regulatory direction.
Otherwise, maybe would there be further pressure as we look to maybe at least on the MFI side that portfolio would be coming off? Could there be further risk to this NIM plus fee, or maybe you are confident of the guidance of 10-10.5%?
I think 10-10.5% guidance we stick to. We already gave clarification on what was the incremental one-time impact, which will go up. As the disbursement in the microloan fee starts growing, as things come back to normality, you will start seeing that because it is now a question of change of mix within the retail, right? We have also made a mention that gold loan business acquisition also will happen in the early part of Q2.
That happening, MicroLab business growing, Personal Loans growing, all these pieces put together, I think we have a fair visibility in terms of maintenance of NIM plus fee in this range. Whatever now the range which has come down to this level, I think from the point of view of ROA three, the positive impact will have to start flowing from the operating expenses, efficiencies that we need to bring in, and the credit cost. The overall ROA impact in the positive direction will happen more from operating expenses, the efficiencies we're building. Because as Sudipta mentioned, we are also moving towards prime. That would mean that anyway, directionally, the NIM plus fee would remain in this tight range of 10-10.5. Yeah.
One of the things which is not always visible is that sometimes the cost of credit is also there's an invisible iceberg of credit administration costs that lies below the cost of credit. Now, as the portfolio continues to clean up, because we have taken significant efforts in FY 2025 in building those credit frameworks that sort of builds a very robust credit-calibrated portfolio, we expect sort of some succession in our credit administration costs also as we move over FY 2026, right? It will start getting visible as I have continuously maintained in H2 FY 2026. In terms of our growth momentum, to answer your question, I do believe that we have seen the bottoming out of the RBF business industry crisis.
As I mentioned in the call, I do believe that the impact from the implementation of FN 2.0 guardrails will be limited, especially for us, because the number of leveraged customers that we have in FJ Plus two segments is quite minimal now going forward. We will see the rural business finance, especially the microfinance business, gaining its disbursement momentum on the back of good monsoons as well as a good estimated good credit crop this year as well, right? We expect us to sort of get to normality by the beginning of the festive season of FY2026.
We are also focusing on our high-yield secured businesses like MicroLab, the integration of the Gold Loans business with 131 branches, and we intend to sort of deploy another close to 100-150 branches depending upon how fast we can do it, right, over the period of FY2026. We will also add another high-yield secured portfolio to our entire disbursement mix. Our Personal Loans business continues to grow strongly. We have seen that we have grown our Personal Loans business over 98% on a full-year basis and about 42% on a quarter-on-quarter basis. Big Tech partnerships along with Amazon, PhonePe, and Cred continue to scale. We will add a couple of more other large Big Tech partners this quarter.
Obviously, the funnel that is coming from these partners are mostly prime and near-prime customers with a reasonable cost of acquisition and a very, very predictable risk cost profile at acceptable yields. Overall, I expect the disbursement momentum in the two-wheeler business. In the home loans business, obviously, we will take a calibrated view in the home loans business, moving more towards loan against property and probably sort of tempering down the sort of the home loan disbursement process just to balance out the yields. Overall, on the cost of funds side, also we expect more or less a stable sort of weighted average cost of borrowing as compared to this quarter, at least being there for the next two quarters. As the sort of the RBI rate cuts, we expect another two rate cuts to come on.
As that monetary policy transition starts happening, and if we get some movement in cost of funds towards H2 FY2026, that will be anyway accretive towards our ROA profile. Here in a nutshell, to summarize, we are more or less confident of the guided ROA profile. Obviously, the caveat is that we are not sort of factoring in any succession or disruption due to any emerging geopolitical risk. That is entirely something for which we cannot focus as of now. Things remaining normal at BAU levels, we are reasonably confident of the outcomes that we have talked about in the call. Thanks.
Thanks for such a detailed answer. Thanks and all the best.
Thank you.
Thank you.
Next question is from Rahul Jain from Goldman Sachs. Please go ahead.
Yeah. Hi. Good afternoon. And thank you for a detailed presentation.
I actually had two or three questions. The first one to start with is, can you just help us understand how this credit cost of 2.5% in this quarter or 3.8% including the buffer, if you were to break it down between MFI and non-MFI, that will be useful color to get. Second is, on a similar note, we see disbursement within the rural book across the board kind of declining. Is this because of the change in business structure that we are doing, i.e., moving up the consumer cohort, or you're generally cautious on some of these segments, for example, two-wheeler disbursements are also down? Third, I'm asking all these questions in one go, but there's MFI linkage as I'm asking all these questions. Third is MFI, there's now back-to-back new states who are joining the chorus of putting out the ordinance.
There is a central government ordinance bill also that was put up for public comments called as BULA, banning of unauthorized lending activities. If that gets also implemented, what kind of impact do you see for MFI? Do you see that if these things keep coming through, would you still focus on growing MFI? How are you going to run the business in this volatile environment from the government side? These three questions, yeah. Thank you.
Yeah. Rahul, I'll answer probably the last question first. I think, again, this Tamil Nadu sort of bill, as I said in my call, I think it's a more broader scope than MFI-only scope. What it does is that it is probably aimed at restricting unregulated lending and also unregulated digital lending as well.
It impacts again, we have to see what is the final statute that finally gets passed. Again, I do believe that as we have seen in Karnataka, this is probably a transitory impact, three-four months impact that we can see as we are seeing in Karnataka.
In Karnataka, we saw the impact in February. After February, with every passing month, our collection efficiency started improving by about 50-60 basis points every month, right? As I said, we expect Karnataka to get back to normal by end of quarter one, FY2026. Tamil Nadu, as I said in the call, our collection efficiency is at 99.6%. Given the experience that we saw in Karnataka, I'm very, very hopeful and very, very confident that the industry will be very, very proactive in dealing with any fallout, having sort of learned from the Karnataka experience.
I'm not denying that. That's helpful. Just on that point, in that transitory phase, would you look to press the pedal again, or will you wait to see how the response comes from the customer side? See, Rahul, again, during the period, if you look at our MFI disbursements between Q3 FY2025 and Q4 FY2025. Q4 FY2025, we had Karnataka. In Q3, we did INR 4,462 crore of disbursement in RBF. In RBF, we did INR 4,965 crore of disbursement in Q4. Actually, on a sequential basis, our RBF disbursements have grown. As we speak, we intend to maintain a risk-calibrated strategy.
That means non-leveraged customers, customers who are exclusive to L&T Finance, or customers that are only L&T Finance plus one, and we assume that they are non-leveraged and non-credit hungry, we will maintain business as usual, as well as I have said that we are expanding into western, we are expanding into western Uttar Pradesh, we are expanding into Rajasthan. If there is a small squeeze in some part of the country, we have an enormously large franchise to compensate for that squeeze in other parts as well, right? The fact is that the other parts, the collection efficiencies are almost back to normal. As I said, barring Karnataka, our collection efficiency is pan-India at about 99.6%. I am being very, very honest.
Though the Tamil Nadu development is obviously concerning, we probably will not lose sleep over it, because it is something that we have seen in Karnataka. We have seen the rapid improvement in collection efficiency that happens. I believe that the impact probably will be not as widespread as we saw in Karnataka because this is not only MFI only, but this is targeted at the entire digital lending universe. Obviously, RBI entities are exempt from it. To go to the first part of your question, I probably do not fully agree with the statement that we are tempering our disbursements in our rural entities, rural businesses. For example, if you look at our farm business, our farm business grew at 16% on a year-on-year basis.
Q4 generally is a sluggish quarter for the farm business on the back of a very robust quarter that they say during Diwali. During the tractor business, the biggest month, the biggest quarter is quarter one and Q2. These are the two biggest quarters followed by Q3. Q4 in tractor is generally sluggish, right? You will see on the back of a good monsoon and on the back of price increases that have been announced by most of the tractor OEMs, we are looking forward to good disbursements in tractors. Coming to the tempering of our two-wheeler, and I'm glad you asked this question on the two-wheeler business, as I told you, we have implemented Cyclops fully for the two-wheeler business from December 13. That is when all our dealers cut over to Cyclops.
Now, what Cyclops has done, if you see a legacy non-Cyclops portfolio, as per CIBIL's Credit Vision algorithm, a legacy non-Cyclops portfolio tended to have anywhere between 10 to 13% of high-risk customers. Now, what we have done is that we saw in Q4, which is in January, February, March, right, that 10 to 13% high-risk, relatively higher-risk customers have shrunk to 3%, whereas the share of the medium-risk and the absolutely low-risk customers have actually increased. What has happened is that this shrinkage of 10 to 13% of high-risk customers to 3% has shaved off about INR 100-110 crore of our monthly disbursements, leading to a tempering of INR 300 crore of disbursements across the quarter. That is the drop that you are seeing.
We are very happy to let it go because this cohort of customers come with anywhere between a projected 11 to 12% loss rate, right? We are very happy to let go, right? Having said that, now that the entire model has stabilized and we know that from a third-party validation, we know that the entire engine is working well, the entire team is now working to scale up disbursements in prime and near-prime segments in the two-wheeler segments because we are very, very sure of knowing what we are doing, right? This slight decrease in volume of two-wheeler disbursements is intentional, right? You will see the recalibration of this upward over quarter one and Q2, FY2026. Personal loans, anyway, I have said that we are growing very, very strongly, right? Estimate finance, we have grown 37% on a year-on-year basis.
Our gold loans business will come in. In a year, gold loans have been the strongest growth asset class category last year, right? Overall, we are very, very confident that FY2026 will be a reasonably strong growth year for us, especially in H2. H1, we will still be a little careful because as we see the last tail end of the MFI sort of industry issue, and we are very, very confident that if we have a good monsoon, H2 is going to be a very, very decent half in terms of growth rates.
That's very helpful. Can I just ask one more follow-on question? Very, very encouraged to hear about this question. Sorry? You asked about a question of credit cost. You asked about a question of credit cost, sequential credit. So that's Sachinn is answering.
Rahul, on the credit cost, I already responded to Kunal. It's the same question that you have asked. I would just reiterate that as far as credit cost is concerned, this quarter, we have perhaps seen the worst as far as micro loans is concerned. That's why we also utilized the INR 300 crore. This quarter was also the fourth quarter, and it was time for us to revisit our ETL model. Hence, I would like to go public with the statement that in the previous quarters, we had mentioned that we will have three to four quarters of higher delinquency levels in farm, two-wheeler, and PL. This quarter, we have seen that farm credit costs have stabilized and actually have gone down a bit. On the PL, they have stabilized at the previous quarter level.
In two-wheeler, we will still need two more quarters to actually come to the normalcy. Hence, we mentioned that because 52% of the overall book now is prime, next two more quarters, and we will be out of the slightly higher level of credit cost on the two-wheeler piece. Taking these into account, sorry. I purposely asked this question because I recall you had given an estimate of about INR 1,000 crore of loan losses for the MFI portfolio in fiscal 2025. Did we stay within that? Would you want to give some more color? Yes, yes. Our overall credit cost is well within the INR 1,000 crore that we have stated on when we had also met up on the digital day. We have stuck to that number. We believe that, in fact, this was perhaps the worst.
Of course, Tamil Nadu already mentioned about, but looking at our Karnataka experience, we do not really see any major impact coming out of it, which will worsen our situation compared to Q4. Very helpful. Sorry for stretching and adding one more question, if you may. What is the normalized credit cost? This is why we are looking at as a result of Cyclops and MFI being recalling fiscal 2025 being the worst year for MFI. What is your normalized credit cost that we can look at in 2H of this year? Also, I think at what stage do you start to see benefits of Cyclops coming through in terms of the scale and the operating leverage that the company might start to derive?
Yeah. Rahul, first thing is that we are not doing Cyclops on MFI.
We are doing Cyclops on all other because MFI, the digital footprint is very low for the customers. It's difficult for the machine to work. Overall, for the year, we are looking anywhere between 2.3 to 2.5% of credit cost outlook. Next year, as most of this sort of initiatives that we are doing, because Nostradamus is yet to come, will be in Q2, September to FY2026 is when it goes live, the automated portfolio management engine, we are looking at about 2% steady-state credit cost going forward. That is what our target is. That's including any further rundown in the macro potential, 2.3, 2.5? Yeah. It will be, Rahul, it will be more directionally towards 2.3% because if there is any utilization required, we continue with INR 575 crore. We will have to see how quickly we are at 99.64% if you exclude Karnataka.
We are very close to normalcy if you exclude Karnataka. We will see what comes out of the Tamil Nadu bill. Without taking into account anything on the Tamil Nadu because it has just come out, we are looking more towards 2.3. Taking into account if there is anything incremental which comes in terms of roll forward because you still are away from about 30-35 basis points from 100%. That 30-35 basis points roll forward, which will happen, will have to be dealt with in some way. Part of it will be taken through the macro potential provisions if need be, and the balance will be the normal credit cost. That is how it will be done. Rahul, here I will add to what Sachinn said and delving on my experience of over 25 years in this business in sort of lending businesses.
What happens is that typically after a credit cycle, when a credit cycle starts, lenders push upwards the credit lending guardrails. Typically, a credit cycle, mostly in unsecured, takes a period of anywhere between 9-15 months to run through. During this process, the lenders take upwards their credit guardrails. What happens is that after a credit cycle runs through, you actually have a period of lower than normal credit cost because during the period you have taken your guardrails up and the bad portfolio washes off. Suddenly, for a period of 12-15 months, you have where you have lower than normal credit cost. Credit cost, again, picks up and normalizes. This industry will go through the same trajectory as well, right? That is why we are reasonably confident of what we are guiding.
Obviously, our caveat is that any geopolitical fallout, any geopolitical, we just not factor that into today.
So helpful. Thank you so much for patiently answering my questions and good luck for the future quarters.
Yeah. Thank you so much.
Thank you very much. I request all the participants kindly listen to one question per participant. The management can address all the participants' questions. We join for a follow-up. Next question is from Nishan Chavares from Kotak. Please go ahead.
Hi. Thanks for taking my question. Yeah. Thanks for taking my question. Just curious, why was there some slowdown in the urban businesses? I believe in the home loans and lab.
Home loan and lab, we haven't had a slowdown. Actually, what happened is no, no, no. See, Nishan, what happened was that we had INR 800 crore of disbursed checks, which we couldn't reach.
The customers are not banked. The new Reserve Bank of India guideline says that you onboard the loan on system, right, only when the check gets banked. Basically, INR 800 crore of unbanked checks, disbursement unbanked checks, were not included in this quarter's disbursement. Okay. There is no slowdown for trade, what you're trying to say? No, there is no slowdown. See, what has happened is this is the first quarter that this has come into being. Now, what will happen is that now this will become a quarterly real rate. Now, these INR 800 crore will move to next quarter. Next quarter, we will have some flow over to the next quarter. This will happen. For the first quarter, we took a hit this quarter. It's not a one-time impact. It's a one-time impact.
No, no. I got it. There is no slowdown. Sorry.
Have you called out the—sorry, the second question is, have you called out the portfolio in Tamil Nadu in micro loans?
Called out in the sense that what is the portfolio size we have?
That's right.
The portfolio size in Tamil Nadu is about INR 6,000 crore we have is our portfolio size in Tamil Nadu, right? And our collection efficiency continues to be 99.6% plus. That's our portfolio.
Yeah. Third quarter, small question. In the farm business, you said that we had a higher credit cost. If I look at the industry trend, and I think even your delinquency trend, it sort of seems to suggest that farm actually had a good quarter. I get that consistent trend across place.
Nishin, I mentioned that this quarter, farm has actually improved, barring farm. Farm has improved compared to the previous quarter.
The PL has been about the same, which means it has stabilized. Two-wheeler, we need a couple of more quarters to get out of those. Sure. One final question in terms of—for our record, our farm credit metrics have been cleaning with every passing quarter. The metrics are looking good. We are anyway—we are anyway in terms of when we look at the industry representation, our industry representation on farm credit cost is, I think, at about 85% of—which slide? 87%. It is about 87%. If you look at slide 27, our farm net non-starter rates are at an index basis. What it was on April 24, it is at 38% of that. Our farm businesses have been rapidly cleaning up in terms of their credit metrics with every passing quarter.
In fact, we are very, very confident about this business right now. The structural readjustments that we had to do, both from a sales perspective, from a collections perspective, and from a credit perspective, we have done, it's finished, and it has started delivering results. If we have a good monsoon this year, which is projected, I think the farm business will do very, very well this year.
That's good. Just finally, going forward in FY2027, what kind of growth rate are we really looking at? Microfinance business, is it going to be higher than the industry, sorry, company-level growth? Or would you want to kind of, from a risk management point of view, keep it at a lower level?
Nishin, the question is for FY2027 or 2026? You said FY2027. 2027. Yeah.
FY27 is—see, Nishin, what we have guided is that we will grow between 20 to 25% overall as an organization. That is what we will grow at. Right now, some businesses might grow at 30%. Some businesses might grow a little slower. Overall, I believe the safe speed for the growth of the MFI business is somewhere between 15 to 20% is the safe speed, right? Because you try to grow at any speed more than that, you end up with asset quality issues, etc., which I'm sure many of our competitors would have realized by now. The industry will settle to such growth rates. I see in FY27, anywhere between a 15 to 20% growth rate for the MFI industry. Some might grow much on a lower base, might grow faster. We are very large.
For us to maintain that growth rate is a task in itself. We will try to achieve those growth rates in FY27. I think the FY27 growth rate that we will get in FY27 will in general be visible from H2 FY26. Q4 FY26 will be generally indicative of the growth rates that will be achieved towards Q2 FY27. Again, for our business, rainfall becomes a major criteria. That remains the joker in the pack. That caveat notwithstanding, I do believe a very, very normal year in FY27 as well.
Directionally, we seem to be kind of moving a little bit more skewed towards urban businesses than rural. I think that is my broad reading. In the sense that the share of urban businesses has grown primarily because we have tempered disbursements in the RBI business, right?
Also, the fact is that if you see the gold loan business when it comes in, and because our MFI customers have borrowed INR 15,000 crore worth of gold loans, suddenly you might see the rural component of the gold loan might suddenly become quite large, right? The MicroLab business, which is primarily semi-urban rural, also might start growing, right? It will continue a sort of calibrated ratios. We are very, very clear. We are not seeking a particular urban rural slate or etc. We are not seeking it. What we are seeking is risk-calibrated growth, right? Wherever risk-calibrated growth is available, whether be it urban or rural, we will chase that.
That's perfect. Thank you very much and all the best.
Yeah. Thank you.
Thank you. Next question is from Land of Nishan Toshinath from Braingain Invest. Please go ahead.
Hi, sir.
Am I audible?
Yes, you're audible.
The question was on the tie-ups with Amazon, PhonePe, etc., for the personal loan sourcing. Now, if you can give some, because I think when we look at the different players, people have struggled to grow this book and maintain the credit cost simultaneously. I agree to your point that we are very focused on the prime segment customer itself. If you can also guide some color on the arrangement, that who bears the credit cost, the kind of cost of sourcing this business, is there a sharing in the credit cost, etc., and some more color on the nature of the business on those personal loan sourcing.
Yeah. I'll give a color to the extent I can, right? There is a multi-year arrangement where most of these partners, except origination partners, there is no sharing of credit cost.
The one that we do—sorry, I missed the last line.
There is no sharing of credit cost.
Okay. Right?
The one with Cred is on a co-lending model with 90/10 co-lending model. The one with PhonePe and Amazon is only purely origination basis, right? The way we do this is that we have a strong customer profile in mind and a target risk cost in mind. What we do is that we overlay this customer profile, and we have—that is the science that we do. We have certain metrics or certain what I call signals which are available for this customer type. When this is overlaid on their customer basis, they come up with a set of target customers. Those customers are targeted through their digital platforms, which obviously goes through the conversion funnel through us.
Just to give you some sense, our average ticket prices for this is about INR 250,000, right? Our average is close to 15% on this platform. And our average profiting range is anywhere between 1.5%-2%, depending upon the platform. As of now, we have done about close to INR 600 crore of disbursements. If you see the scale-up between January, January, we did INR 99 crore, and we did INR 215 crore all in the month of March. You can see that in three months, the volumes have doubled this platform. In fact, we can do more. We are going slow because we want to be absolutely risk-calibrated. What we do is that once the origination comes in, we look at what are the gross non-starters, what are the net non-starters.
I am happy to sort of inform you that the net non-starters in the portfolio generated so far is close to nil because we maintain a very, very close watch on the quality that we are onboarding to. Having said that, we will be—and please understand that still we have not implemented Cyclops on top of this. Cyclops is going to get implemented on the personal loan portfolio this quarter. We have seen the scorecards, how they are working. We are deeply optimistic about this. Last but not the least, I, in my previous stint, have worked with Amazon for five years. I have a deep understanding of the nature of the portfolio and what works and what does not work.
We are very, very confident of scaling up in a very risk-calibrated fashion and taking wind in our sails from the distribution power of these massive platforms, right? Correspondingly, what we also want to do is that as this platform scale-up in a risk-calibrated fashion in the prime segment, we will also temper our disbursements in the other segments where we might not have a favorable risk reward. The ultimate goal is that in our personal loans business, we want to mirror a private sector bank's personal loan system, which is largely salaried and very high-income self-employed, right? Between this, we really do not want to play in the STPL segment. We really do not want to—because what happens is that in a credit event, the losses from these segments become unmanageable, right? That is the philosophy of L&T Finance overall.
We want to move to a very predictable risk cost regime because what is not visible to people is that when things start tanking, they not only tank on the credit cost side, they also tank on the OPEX side, which is normally not visible because your cost of credit administration is equal, if not more than your credit cost. The hidden icebergs are always not visible. Obviously, our focus is to make sure that we build a very, very—to use the word—a bulletproof portfolio in terms of credit cost over a period of time.
Got it. Just two questions there. One is the yield, which you mentioned, 16%, and maybe some growth increase. If I just add all, then it's a 17 to 18% in link books.
If you can also—for the customer segment, which we are trying, I mean, how are we being able to manage this yield? The second is, is the tenure of the product very small, which is what allows us to maintain that yield? Or how should we look at this?
No. Say two things. The tenure of the product is average 28 months, if my memory serves me right. So 28-30 months. These are prime personal loans. To understand two things, customers like journeys which are less friction and customer journeys—very well-oiled journeys. The beauty of working with these platforms is that you are able to build very intuitive journeys where most of the heavy lifting on credit underwriting has been done previously, and the customer has just to go to the KYC hoop to get the loan.
Typically, the speed of disbursements has—the customer has a premium—pays a premium of about anywhere between 100-150 basis points in terms of rate on a trade-off of speed of disbursements. Typically, you will see that digital channels, if administered well, tend to get anywhere between 100-150 basis points yield of the same customer if you were to come to a physical channel, where he has the wherewithal to negotiate with the DSA, etc., and all that stuff, right? We are able to maintain the yield. As of now, we are able to maintain the yield, and we are able to entertain it quite tightly. The OPEX on these channels is also quite low because obviously, we do not have any sales force deployed, and we have a reasonable origination cost agreed with some of these partners.
Thank you.
Harshad, I'll request to come back for a follow-up question, please.
Sure. Thank you.
Thank you. I request to all the participants kindly restrict to one question per participant and join the queue again for a follow-up. Next question is from Nishweta from Elara Capital. Please go ahead.
Thank you, sir, for the opportunity. I am referring to slides 16 and 17 of the presentation. You partially answered to the previous participant, but I was looking at personal loans to existing customers. Now, in a challenging year of 2025, where most of the players have been focusing on or curtailing NTC customer cohorts, we are seeing this consistent decline in existing customer profile penetration. Also, you mentioned that a lot of operational efficiency benefits will flow through fintech partnerships.
Again, most of your peers have been scaling down the fintech partnerships, especially on the personal loan front. From the similar slide, while you categorically called out risk in the MFI segment, even in your opening remarks, and also especially with guardrails in order, why have rural group loans and MFI businesses exhibited substantial surge in new customer acquisition? I mean, especially when you also mentioned that implementation of Cyclops is sort of not feasible in this particular customer profile, and naturally so. These are the two questions.
Yeah. Thanks, Rita, for the questions. I'll answer your first question. Why personal loans in slide 17 has gone down from 49%- 40%, right? In a percentage sense, it has gone down.
In the absolute amount, it has not gone down because what has happened is that the acquisition of new-to-organization customers from some of our digital channels has gone up. From a percentage point, it has come down. That is the reason for this. Basically, it's just a denominator effect, right, where it has gone down. The quantum of disbursements in terms of actual value of disbursements has actually not gone down, right? That's the first answer to that question. Again, to answer your question, why we are doing NTC when others are scaling up NTC and fintech partnerships, etc., right? The fact is that we are very, very clear that our target segment, we do first thing. We don't do STPL. Our average ticket size on personal loans even through all our partners is above INR 200,000, right?
Average is above INR 250,000, right, with a 28 to 30 months tenure. We really do not do the small STPL personal loans that we do. We do not do that. The second thing is that if you see, look, many of our partners, right, for example, Amazon, we are the only provider. The fact is that in Amazon also, we are very, very clear that we go above the absolutely pristine customers, right? Given the fact that—the fact is that we really do not do new-to-credit customers. We do new-to-LTS customers, but most of the customers have a significant bureau track. We are able to underwrite them vis-à-vis the significant bureau track. With Cyclops, we are not only using the bureau track; we will be using the entire alternate data track to underwrite them. We are very, very confident of what we are doing.
We cannot comment on what others are doing or what has been the experience on others. As I said, we have done about almost close to INR 600 crore of origination in our large partners over the last four months, and the delinquencies are closing, right? We are very, very certain of what we are doing, and we know what exactly we are doing. In terms of the RDF customers, as I said, one of our objectives is that when the entire industry is going through an asset quality issue, one obviously is that one obviously has to look at non-leverage customers because if you look at most of our competitors, especially in the microfinance industry, their book sizes have shrunk over the last year.
We are probably one of the—maybe as per information available with me, we are probably the only player whose book size has grown by about 6% on a full-year basis, right, in the microfinance business. We have to go to segments where we get non-leverage customers. That is why in our new village coverage, we have increased by about 25% on a quarter-on-quarter basis because if we do not go granular into distribution, we will not get the new non-leverage customers. Anyway, we are expanding our funnel into our hitherto non-distributed areas like Western Uttar Pradesh and Rajasthan, right? There is no deviation from our core underwriting philosophy and the core guardrails that we have been following in the RDF business since 2022. We are actually not really deviating from anything.
We are just making our distribution more granular and more sharp in search of non-leverage customers. If we get non-leverage customers that pass through our credit guardrails, we will do that business. We will not shy away from that business because finally, we have to deliver growth, right? We cannot suddenly say that we shut this business and we run away. We cannot do that. Within our difficult circumstances, we have to operate. We have to look at opportunities of growth within difficult circumstances, and that is exactly what we have done. Just in terms of numbers, Rita, we have 290,000 new customers, and the addition has happened from new markets. This is Western Uttar Pradesh, Maharashtra, Andhra Pradesh, and Telangana. The total amount of disbursements here is INR 1,112 crore. Clearly, these are all low-leverage customers, and we will not lose this opportunity.
In fact, after being the best in the industry, it doesn't make sense for us to just keep worrying about. We identify the right set of customers and actually go ahead in the space. In fact, this is going to be one of the key advantages for good players who have been the least impacted. We will be able to buck the trend and actually get up and grow faster because the opportunity for good players will be much higher. Competition will be very low going forward. In fact, I would like to add to what Ritin said, our AP and Telangana collection, which is 100%.
Yeah. Right on, sir. Best luck for all your future endeavors. Thank you.
Thank you.
Thank you. Participants, kindly restrict to one question per participant. Next question is from the line of Abhijit Abreval from Motilal Oswald. Please go ahead.
Yes, sir. Good afternoon.
Thank you for taking my question. Just one clarification. You spoke about the SR book in your opening remarks, which has declined by almost INR 900 crore from March to March. Two things I wanted to understand. One is, I mean, in bringing down this book, what is the hit that we have to take? And out of this residual INR 500-900 crore of net SR that we have on the balance sheet, over what time period will this run down? And what is the impact that is expected? When I say impact, I am trying to understand both the things. Either it could be a P&L drag, or if you are actually expecting recoveries from this SR book, please help us with that as well.
Yeah. Yeah. Continue. First thing is, yes, this quarter we have, on a year-on-year basis, we have seen a reduction.
The overall reduction actually for the year is about INR 9 billion-odd. Your question was on whether it will have any impact. See, our average balance is about INR 58 billion. Yeah, INR 58 billion is net carrying value on the book, which is covered about 58 to 59%. It is sufficiently provided. Now, this money is stuck. The resolutions will happen. We do not expect any significant resolutions happening in FY2026, but FY2027 and 2028, we will see a lot of reduction, which will release capital and hence the impact on the interest cost because there is an interest cost element sitting over there. At least 30-40 basis points is the cost, which will actually come down as the full book starts getting released. We have also seen a wholesale book coming down from about INR 55 billion to INR 25 billion year-on-year basis. That also is releasing capital.
Yes, wholesale book now is the issues that we used to have. They're coming down significantly, and I think it will only—as the resolutions start happening, we should, as mentioned in the earlier calls also, there should be some good news also coming up in 2027, 2028 in terms of release of some provisions.
Got it. Just one more clarification. Earlier during the call, a couple of times when we guided for credit cost of 2.3 to 2.4%, what kind of macro-provision utilization are factoring in for the MFI business? Yeah. Sorry. Can you repeat the question? Considering earlier in the call when we guided for 2.3 to 2.4% of credit cost in FY2026, what is the quantum of macro-provision utilization from the MFI business that we are factoring in?
See, we have not—actually, we have to wait for how things pan out.
There is no point in making an assumption. Once the Karnataka collection efficiencies come back to some kind of normality, we will be having better visibility. We have also now to look at Tamil Nadu. All I can give you in terms of assurance is INR 575 crore is much more than what we may actually end up needing. From your point of view, in terms of modeling, you can safely assume that 2.3, 2.4, whatever is the credit cost. It will come first. It will not come and hit the P&L.
Got it. Got it. Lastly, whatever impact that we saw in Karnataka in the month of February, they will actually start hitting the P&L sometime in the first and the second quarter.
If at all there is some disruption in Tamil Nadu, suffice it to say that whatever we see in 1Q will actually hit the P&L of the microfinance business in 2Q and 3Q.
I would like to clarify this. The Karnataka sluggishness in collection efficiency was not because of leverage issue or was not because customers did not have money. It was because customers had a clarity issue. Customers were confused about whether the regulation is applicable to them or not. Their collections will happen in the Karnataka business, but they will come with a delay. It might be possible that some portion might flow, but they will come with a back-ended strong resource. This is what our belief is, right? That is why our collection efficiency, if you see, is improving by 50 to 60 basis points with every passing month in Karnataka.
I believe—and this is my—I believe that the Tamil Nadu impact will not be as widespread or as problematic as the Karnataka impact because if you look at Karnataka, Karnataka already had trouble growing in this industry before the legislation came in. It is because of the trouble that the legislation came in. We had serious issues in Gulbarga. We had serious issues in the part of Northwestern Karnataka. There were already some issues that were visible, right? In Tamil Nadu, as of now, there is no major issue in any district or in a sub-administrative area, right? There can be—we are not denying the fact that there can be some impact, right? Given the fact that the guideline has a far more wider scope as whatever the preliminary reading understanding, obviously, is evolving, to understand it much more fully, right?
We will have to—it is my belief that probably we'll have a much more smoother landing in Tamil Nadu than what we saw in Karnataka. Ritin wants to add something. Just to add, I'm just referring to the bill, the draft which has come. It actually mentions that this act shall apply to all money lending institutions except banks, non-banking financial institutions registered with RBI. That is point number one. Number two is by way of limitation, the categories of this act relating to compulsory action against the borrower shall apply to banks, NBFCs registered with RBI. Now, this part is, I believe, clarification is being sought by MFIN because this compulsory action has not been defined in the bill. That is where we stand at this point of time. In terms of behavior of customers and all, Ritin already mentioned how we expect.
Just doing the second step, I think better sense will prevail because the customers also realize that non-payment would mean that the bureau scores worsen, and then there is a challenge when they want to seek finances going forward.
Got it. This is useful, and thanks for that, Kalan. I wish you a good evening, Ridhu.
Thank you.
Thank you.
Thank you. Next question is from Abhinash Singh from MK Global. Please go ahead.
Yeah. Hi, Kalan. Just question again on the security part. You started with a INR 6,700-odd crore, ended at INR 5,800 crore. If you can help with the sort of a flow because if I see in the year about INR 776 crore of 8 loans you have sold to ARC, some bit of that SRs would have got added. What was the quantum of existing SRs that got resolved during years?
On this, the MPA sales, could you help with the kind of underlying assets, of course, from the wholesale book? The reason why I am asking, the net book value of these loans was INR 550 crore-odd, whereas the consideration for the sale to ARC is some INR 833 crore-odd. That is where again I'm getting a bit confused that, okay, what kind of loans were there? That getting kind of a transfer at a higher than book value. Okay, thanks. The net SRs as they stood on 31 March 2024 were about INR 6,800 crore. What has actually got resolved on a net basis is about INR 900 crore-odd. That is how we have this INR 5,900 crore coming. In the year, you had addition, and this addition because you have some eight loans sold to ARC.
Of course, there would have been addition. That's why I wanted to know that from the existing book, how much got resolved and what sort of amount you received. The addition for these eight accounts, I wanted some more color because when I see in the disclosure, these have been sold to ARC at a value much higher than the net book value of loans. I wanted some more color on the quantum. In terms of gross value, about INR 1,350 crore is what has been issued. The net SRs which have got added is about INR 400-odd crore. That's how the net amount of INR 900 comes. Resolution has been much higher, if that's what your question is. Yeah. Around this sale to ARC, that happened at a much higher value than your net book value.
What was the sort of underlying asset? Yeah. That was just one asset which I just gave you the number. The number is too small compared to the resolutions. Resolutions of 1,400 and addition of about 400. That is where.
Okay.
Okay. Thank you.
Thank you. Next question is from Ridhuan Gao from Swanfield. Please go ahead.
Thank you so much for the opportunity. My first question is on the growth outlook. For two-wheeler and MFI for FY26, what kind of range of growth should we look at? MFI for growth for you want for only MFI for FY26? Yes. MFI and two-wheeler. I just want to understand what kind of growth should we expect. MFI for FY26, we have to see how Q1 goes.
We think in MFI and FY2026, we'll end up with a growth somewhere between 10 to 15% growth for the full year is what we are hopeful as of now, between a 10 to 15% growth. For the two-wheeler business, we are hopeful of a growth between 15 to 20% is what we are hopeful of on the two-wheeler business. Got it. I just want to reconcile that with our NIMCA seek guidance, right? Because these are the higher-yield products, and we are guiding overall growth of 20%. There is still a negative mix happening FY2026 plus within two-wheeler, disbursement prime is 82%. For now, around, you're saying that on the book mix is about 50% prime. What are the levers to prevent our NIMCA fee to further fall or offset this negative mix in FY2026?
See, we obviously will be scaling up our gold loan business. Our gold loan business is coming in. As you know, gold loan business is a very high-yield secured product. We will be scaling up our MicroLab business as well, which is also a high-yield secured product. Our personal loan business will scale up. Our personal loan's average yield between the DSA and our large partnership is upwards of 17%. The personal loan business will also be scaling up. Throughout the year, we will also be working on certain fee-generating initiatives. We will be starting to work on fee-generating initiatives. As of now, I would not like to elaborate on that. As and when we are ready, we would like to elaborate on that. Overall, we expect that.
The 10%-15% growth rate that we have guided on MFI, etc., is obviously on a conservative basis because we do not want to grow that business at a level which is far, far higher than what is sustainable and again adds into a lot of leverage. The two-wheeler business, we are very confident of growth provided the segment, that industry also grows strongly. For example, if we see a very strong growth of the industry in FY2026, I am sure with a 15%-20% that we can guide it, can be more. However, right now, we would like to guide at about 15%-20% growth in the two-wheeler business. We have certain fee-generating initiatives which we have in store. That will be a working one for the year.
Overall, I do believe and as Ritin has guided through a mix of high-yield secured products, a mix of our existing growth products, as well as a little of tampering down of our home loan disbursements and focusing more on lab, as well as some space that we might get from the two rate cuts that we might come in, will help us sort of maintain the industry in the target range. Got it. If I look at two to three years out, let's say upper end, let's say 10.5, is 10.5 a medium-term range we should think about as well? I think we will have to wait for the mix to settle down because there are a few new products we'll have to see what kind of growth trajectory they pick up. We have personal loan. We have SME. We are also wanting to get into secured SME.
We have a Gold Loans business which will be coming up, and then MicroLab plus the growth in micro-loans. Those are new fee products. The new fee product that we are working on, which will get implemented in the beginning of next financial year. There are lots of opportunities and options that we will work on. We will have to wait because we are still in this process of stabilizing the book. Once we stabilize with the right kind of mix, because we also need to ensure that the secured unsecured piece also works for us. It is not just going to be NIM plus fee in isolation. We will have to also look at what is the kind of impact it has on our operating expenses, which have to bend downwards, and the credit costs.
Whatever impact, if we are going to continue in the prime range of customers, then naturally the operating expenses and credit costs would tend to be lower, much lower than possibly what you see currently.
Got it. The last question is, you have been very helpful guiding us on FY 2025 MFI credit cost before. If we assume FY 2026, sorry, second half 2026 to be normalized MFI credit cost, what kind of first half 2026 MFI credit cost before using buffer should we think about? Any rough range that we can expect there? We will get back to you on this because we have to first wait for the market to actually stabilize a bit. Normalized credit cost, I mean, I can just give you our example. In FY 2024, we had an overall INR 88 crore cost. Compared to that in FY 2025, we have anywhere between INR 900-1,000 crore.
Assuming that things come back to normalcy, the credit cost requirement will be low. Actual credit cost requirement will start tapering down. I think we need to factor in about 2 to 2.5% safety as the normalized credit cost, which will, and that's what we had done earlier to create a macro-potential provision of INR 975 crore.
Got it. This is very clear. Thank you so much.
Thank you.
Thank you. Next question is from Ranuchin Panchha from ICICI Securities. Please go ahead.
Thank you for the opportunity. Sir, just hopping again on the credit cost. I just wanted to understand this macro-potential buffer of INR 575 crore, is it only for MFI and not for any other segment, right? That's only for MFI. Yeah. Sure.
Just to clarify, that 230-250 with credit cost assumption does not include any utilization from macro-potential. If we utilize anything from macro-potential, that would be over and above that 230-250 guidance?
No, no, no. We are factoring in some utilization, of course, but the percentage utilization is expected to keep coming down. As I mentioned, the collection efficiencies, excluding Karnataka, are at 99.64%. The actual requirement will come down as we progress into the future months. It is very difficult for us to point out a particular number. Since we have the macro-potential provisions, we also have comfort from the audit committee and the board that, since the nature of this event is such that it qualifies for utilization, we will utilize further if there is a need.
Sure. Sure. Just one thing.
Actually, sir, lastly, on the OPEX front, OPEX, probably this year, we believe that has been relatively on the lower end as compared to FY 2024, OPEX to FX, particularly to slow business. That could see some pickup in FY 2026 as we pick up on the loan growth front?
No. In fact, Sujith sir mentioned in his initial call transcript, if you look at very clearly, the operating expenses will be one focus area for us this year. We will try to increase the productivity. Whatever steps we have taken in FY 2025 and the work that is happening on Project Cyclops and the work which has begun on Project Nostradamus, all these things are going to actually help us in terms of bringing down the operating expenses. One of the key components of this operating expenses is selection cost.
That is going to be a huge amount of rationalization which will happen over there. No doubt there will be some investment which will happen in the technology space as well as growing the branch network. That will actually also help us in terms of increasing the top line. The operating expenses increase on investment will start giving us returns partially. Some of it will be in the form of capital expenditure. On the productivity front, we will start seeing efficiencies coming in, and the operating expenses should remain in control. Hello?
Sure. Sure. I think this is very helpful.
Yeah.
Okay. Thank you. Hello. Yeah. This is very good.
Thank you. Thank you very much. Ladies and gentlemen, we'll take that as a last question. Now I hand the conference over to Mr. Sudipta Roy for closing comments. Yeah.
Thank you, everyone.
We really appreciate the time spent by all of you with us. FY25 was a challenging year. FY25, I think the entire L&T Finance team worked really, really hard to deliver an acceptable outcome even through these difficult circumstances. As we speak, though there are certain sort of issues regarding geopolitics, etc., and overall global trade and tariff-related issues, we do believe that closer home, I think, given things remaining constant, FY26 will be a year in which we will see restoration of normalcy in most lines of business.
On the back of a good monsoon, sort of an accommodative stance taken by the Reserve Bank of India in regards to monetary policy, as well as improving liquidity, improving consumption sentiments, as well as an overall sort of tempering and position of the sort of the overhang on credit that had built on the economy, I do believe that FY2026 will be a year of calibrated growth for the entire financial services industry, of which obviously we will also be a part. Many of the initiatives that we have started in FY2025 are almost towards the end of completion. We will see the fruits of that coming through in numbers. As I have maintained in meetings with many of you, it will start becoming visible in H2 FY2026. Our team remains growth-focused. Our team remains execution-focused and extremely credit-minded with a focus on bottom line.
The distribution alignment that we have done with the introduction of the regional business infrastructure also makes sure that our granular distribution on ground is far, far more stronger than it was ever before. Through the year, we'll be working on scaling our new products, especially maintaining our supremacy and leadership in our existing core line of products. We're also working on a set of new products, obviously with the objective of improving our fee lines. I'm hopeful that the numbers that we have guided for, everything remaining constant and the environment remaining constant, will be something that we should be able to achieve. Thank you again and wish all of you a good day.
Thank you very much. On behalf of L&T Finance Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.
Thank you.
Thank you.