Ladies and gentlemen, good day and welcome to the L&T Finance Limited Q2 FY 2026 earnings conference call. As a reminder, all participant lines will remain 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 the operator by pressing star, then zero on your touch-tone telephone. 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 Before we proceed, as a standard disclaimer, no unpublished price-sensitive information will be shared during the call.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 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While all efforts would be made to ensure that no unpublished price-sensitive information will be shared, in case of any inadvertent disclosure, the same would, in any case, form part of the recording of the call.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 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.
Thank you. A very good morning, everyone. I welcome you all to the investor call for Q2 FY 2026. Joining me today on the call are our CFO, Mr. Sachinn Joshi, our Chief Operating Officer, Mr. Raju Dodti, and other members of the senior management team of L&T Finance. On behalf of the entire L&T Finance team, I would like to extend our festive wishes to you and your families and the broader investor community. 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.
During my interaction with you over the course of the last two years, I've spoken about the various investments we are making in strengthening the company and upgrading our capabilities across all domains, including the various transformative initiatives taken by us. In this call, I will provide further details about the results we are seeing from those initiatives and their long-term impact on the business. As far as our core business franchise is concerned, it stands in good shape, which is evidenced by the numbers posted by us in Q2 FY 2026, and I'm hopeful that in the remainder of FY 2026 this performance trajectory will continue. Post our commentary, 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 sectoral outlook.
India's recent credit rating upgrades reflect growing global confidence in the country's economic resilience and growth prospects amidst heightened trade uncertainties. Growth remains resilient on the back of private consumption aided by rural demand and fixed investment supported by private and government CapEx. Headline inflation has also seen significant moderation during H1 2025-2026, mainly due to a sharp correction in food prices, and is projected to remain close to the lower end of RBI's target band for FY 2025-2026. Agriculture sector prospects remain favorable despite flooding caused by heavy rainfall in several states, including the grain-bowl states like Punjab, where crops have been destroyed and rainfall deficiency in east and northeast India have impacted crops. This favorable prospect is supported by above-normal monsoons in most regions, adequate reservoir levels, and supportive policy interventions.
Rainfall over the country as a whole during the 2025 southwest monsoon season was above average at 108% of its long-period average, albeit unevenly distributed. The areas sown under key credit crops like rice, pulses, sugarcane, coarse cereals, etc., are 1%-6% higher than last year. Reservoir levels stand at 90%, exceeding the levels recorded a year ago, as well as the decadal average. Intense rains toward the end of the season in pockets of Karnataka, Telangana, Maharashtra, Gujarat, Rajasthan, and Punjab have impacted standing crops in some parts. However, the early trend of mandi arrivals indicates a delay but a healthy crop output overall. Prompt relief measures for the farmers and higher MSP prices should provide further support. As far as rural demand is concerned, it continues to remain buoyant with upbeat tractor and motorcycle sales and strong growth in fast-moving consumer goods in rural areas.
The GST 2.0 reforms are expected to boost further private consumption and domestic demand. Revival in the discretionary spending of households in both rural and urban areas is already reflecting in higher festive sales volumes and consumer sentiments and should support credit expansion in the quarters ahead. With liquidity conditions improving during the first half of FY 2026, domestic financial markets remain resilient and relatively stable. Monetary policy, along with liquidity easing measures, has contributed to favorable financial conditions by influencing both money and bond markets. Concomitantly, credit demand has witnessed an uptick in the recent months as well. Going ahead, lower inflation, rising capacity utilization, and congenial financial conditions continue to support the growth outlook.
The government's continued thrust on capital expenditure, GST 2.0 reforms, and improving trade conditions should boost aggregate demand conditions in the near term and help to sustain strong momentum in the NBFC sector with healthy credit demand. To start off with this quarter's highlight, I'd like to share that the microfinance sector has shown green shoots of recovery this quarter, and we have seen sustained resilience and uptick in both disbursement volumes and collection efficiencies in our microfinance portfolio. The performance of the LTF portfolio is a result of strong credit underwriting and stringent association norms implemented over years and further sharpened over the course of the last few quarters.
I'm happy to share that directionally, the overall credit cost for the organization has started its downward trajectory owing to the various process interventions and implementations of Cyclops in fulcrum businesses like two-wheeler and farm loans and expected to tend towards normalization in the second half of FY 2026. I will speak about them in greater detail during the course of the call. I'm pleased to inform you that we have achieved a quarterly consolidated PAT of INR 735 crores, registering a growth of 5% QOQ and 6% year-on-year, with the retail book crossing the INR 1 lakh crore milestone, now standing at INR 1,104,607 crores, reflecting a growth of 18% year-on-year. The consolidated book size registered an increase of 15% year-on-year, reaching INR 1,070,906 crore, while ROA came in at 2.41% in quarter two FY26.
Given the fact that quarter two for BFSI is traditionally a weak quarter, we are pleased to inform that we recorded our highest-ever quarterly disbursement of INR 18,896 crores, a growth of 25% year-on-year and 8% QOQ, driven by a strong performance across all of our business lines. I'd like to point out that this growth in Q2 FY 2026 is driven by organic business expansion, and we expect the additional boost from GST 2.0, especially in the two-wheeler and farm segments, to be registered in Q3 FY 2026. Our rural business finance disbursements achieved normalization during the quarter, with a disbursement of INR 6,316 crore, up 12% QOQ and 16% year-on-year, based on continued improvement in collection efficiencies, giving us the confidence to expand disbursements and markets while continuing to follow a stringent sourcing and portfolio norms.
Our two-wheeler business saw QOQ disbursement growth of 18%, and personal loans disbursement expanded by 50% QOQ, driven by increased funnel uptake from our big tech partnerships. For more details, please refer to slide number 53 of the investor presentation. Next, I would like to provide an update on the impact of the Karnataka ordinance. Last quarter, I had mentioned that we had started seeing uptick in collection efficiencies and a positive momentum in growth from Karnataka across monthly and quarterly tenors. The quarter saw a 70 basis points improvement in monthly collection efficiency, with the increase from 98.48% in June 2025 to 99.18% in September 2025. We expect collection efficiency will continue to trend upwards in Karnataka in Q3 FY 2026. The pan-India zero DPD collection efficiency improved by 15 basis points to 99.5% from 99.35% during the previous quarter.
I would now like to give you an update on the performance of the newly acquired gold loans business. I'm happy to share that the gold loan segment acquired significant momentum during the quarter, outperforming our expectations, with a quarterly disbursement of INR 983 crores and the highest-ever monthly disbursements of INR 423 crores in the month of September. In the coming quarters, we are working on expanding our geo-presence across the country through branch expansion with 200 new branches focused on areas with high cross-sell potential. In this regard, our model integration of gold finance branches into multi-product Sampoorna branches augurs well with our aspiration to become a leading pan-India gold finance player. By the end of FY 2026, we plan on establishing a distribution strength of 330+ gold loans branches.
Coming to our large partnerships initiatives, continuing with the momentum established with Amazon Pay, CRED, and PhonePe, the overall personal loans disbursement for the quarter from big tech partnerships, including that from our newest partner, Google Pay, reached INR 1,138 crores, pushing our overall personal loans disbursement for Q2 up 50% QOQ and up 140% year-on-year at INR 2,918 crore. While the uptick is steep, I would like to highlight that we have been keeping a strong focus on credit and risk guardrails while we continue to extensively leverage partner trust signals. I'm confident that we will continue to scale up this business in a risk-calibrated manner and expand our origination momentum with existing players while fostering partnerships with a few more big tech players.
You would recall that I had made announcement in Q1 FY 2025 of the deployment of the beta version of Cyclops, our AI-powered digital underwriting engine, and since then, Cyclops now powers 100% of the underwriting in two-wheeler, farm, and SME businesses. It will be implemented in personal loans in Q3 FY 2026, and we are readying the decks for implementation in RBF and mortgage business in FY 2027. The leading credit performance indicators from Cyclops underwritten portfolios in the above lines of business remain extremely encouraging, and our technology teams have been hard at work to improve the versions of Cyclops with every passing quarter. It is to be noted that we are currently in version three of the software, whose processing capacity has improved from 100 transactions per second at launch to 1,400 transactions per second at present.
We continue to see encouraging trends with sharply lower portfolio bounce outcomes and net non-starter trends in the Cyclops underwritten two-wheeler portfolio in comparison to the non-Cyclops portfolio, while there has been a sharp reduction in net non-starters for tractor customers through identified dealership rationalization in the Farm Finance portfolio. The total number of cases disbursed in the two-wheeler vertical through Cyclops engine crossed INR 7.5 lakhs during the quarter, while more than 21,000 cases were disbursed in the pharma finance segment through Cyclops. As a consequence, the net non-starter for two-wheeler portfolio reduced to 0.47% for September 2025 from 2.36% in December 2024, which has also contributed to a reduction in overall gross credit cost for LTF during the quarter. We will be sharing deeper insights into portfolio performance of Cyclops portfolios in our digital investor day scheduled on November 6, 2025.
We are confident that disbursements through this engine scale up across businesses. Our portfolio quality will get significantly enhanced with lower bounce rates and catching the early non-starters, thereby leading to a reduction in the overall credit cost trajectory for the organization. Our next transformative initiative, Project Nostradamus, a state-of-the-art, first-in-industry, AI-driven automated real-time portfolio management engine leveraging traditional as well as qualitative data, went live in beta mode in two-wheeler finance in August 2025, with data dashboards for early warning and proactive portfolio management to monitor performance down to an individual micro-market cluster. We will be also giving previews of Nostradamus during our investor digital day on November 6. I'm confident that we'll be able to make Nostradamus live for all lines of business by the end of the year.
I'm happy to share that our investments in cutting-edge technology and strengthened credit frameworks and underwriting have started showing early signs of impact in the gross credit cost trajectory for the organization. We have been progressing towards a fundamentally stronger credit cost paradigm, with credit cost before utilization of macro-prudential provisions reducing from 3.8% to 2.98% between quarter four FY 2025 and quarter two FY 2026. Please refer slide number eight in the investor presentation. Consequently, with the projection of further improvement in credit profile after full scale-up of Cyclops and Nostradamus, we expect overall credit cost to trend lower in the medium term. In my last call, I had mentioned L&T Finance being assigned its first-ever international rating.
I'm happy to share that we received a rating upgrade from S&P on August 14, 2025, with the long-term rating moving from BBB- positive to BBB stable, and the short-term rating moving from A3 to A2, a result of the upgrade in India's sovereign rating. These ratings are investment-grade and are now on par with India's sovereign trade rating. This favorable assessment significantly enhances our ability to access global capital markets, thereby enabling further diversification of the liability franchise and the deepening of our lender base. Now, I would like to share an update on our quarterly performance against the Lakshya 2026 goals. The first milestone was to achieve utilization of greater than 95% by FY 2026. We achieved a utilization of 98% in the last quarter, and it remained at the same level during Q2 FY 2026, with the retail book size crossing INR 1 lakh crore mark.
The second milestone on the loan book growth front, we had set also the retail book growth target of 25%, against which we had achieved a CAGR growth of 27% between Q4 FY 2022 to Q2 FY 2026. On the third milestone, which is on the asset quality front, we maintained retail GS3 and NS3 levels closer to the threshold levels of GS3 at 3% and NS3 at 1%, despite the macro challenges and segment-specific challenges in the microfinance segment, and our consolidated GS3 and NS3 stood at 3.29% and 1%, respectively. On the fourth and the last milestone of ROA, we have achieved an ROA of 2.41% in quarter two FY 2026. We remain committed to continuous improvement in the ROA trajectory as the segment headwinds in the microfinance sector dissipate and the downstream benefits of better credit processes and control in underwriting through Cyclops start materializing.
I'm confident that the improving collection efficiencies in the microfinance portfolio, including the recovery in Karnataka, will not require utilization of any further amount from the macro-prudential provisions from Q3 FY 2026 onwards. During this quarter, the board approved utilization of INR 150 crore of macro-prudential provisions, and after the utilization of the said provisions to the extent of INR 150 crore, the residual macro-prudential provision at the end of Q2 FY 2026 stands at INR 125 crores. As mentioned earlier, I would now like to give a brief update on the five pillars of execution that we had enumerated in October 2023 and continue to be in implementation mode against the same. Customer acquisition, our focus remains on broadening our customer funnel, both by deepening our reach in existing segments and broadening our geographical and digital footprint through partnerships.
In the RBF vertical, apart from focusing on retaining our trade-trusted customers, we continue to acquire new non-leveraged MFI customers through geo-diversification, leading to an uptick in activation of new villages, zero-disbursement villages during the quarter. We are also expanding our geographical footprint in states of UP, Maharashtra, and Andhra Pradesh. With overall improvement in credit risk environment in the country, our customer acquisition velocity moved northwards across all lines of business in Q2 FY 2026, and we expect this progressive trajectory to continue over the rest of the year. Further details around customer acquisition and repeat share are available in slides 14 and 15 of the investor presentation. Sharpening credit underwriting, the continuous expansion, improvement, and validation of Project Cyclops scorecards remain paramount for us. Project Cyclops is fully implemented and operational for two-wheeler, farm equipment, and SME businesses.
The implementation for personal loans was scheduled for Q3 FY 2026, while rollouts for home loans and L&T and rural group loans and MFI are planned for fiscal FY 2027. Our model risk management and machine learning operations teams are now fully functional, giving us a strong structural framework to implement and monitor an increased density of algorithms and scorecards across various lines of business. Futuristic digital architecture. We continue to work on upgrading our technical capabilities, and our focus on continuously strengthening our IT framework remains unabated. I have already spoken about Project Cyclops and Project Nostradamus. I'd like to make a special mention of our Planet app, which has emerged as a powerful digital channel for our customers while serving as an important servicing tool.
Our Planet app has crossed over 2 crore downloads till date, and it received the award for the best digital experience in finance at the Global FinTech Fest 2025. I'm confident that through this app, we'll consistently harness cutting-edge technology to simultaneously enhance customer experience as well as improve our operational metrics. Please refer to slide number 60 and 61 in the investor presentation for operating metrics on the Planet app. Brand visibility. We continue to capitalize on our integrated marketing campaigns, leveraging our brand ambassador, Jasprit Bumrah. During the quarter, we also ran campaigns for our two-wheeler and pharma finance businesses while participating as an associate sponsor in the Asia Cup 2025.
I'm delighted to announce that the second edition of our flagship BFSI event, RAISE, with the theme "Accelerating Financial Services with AI," is scheduled to take place on the 7th of November at the Jio World Centre in Mumbai and will be bigger and better with a very interesting lineup of international and national speakers and technologists. We urge you to visit the event website, www.ltfraise.com, and register for the same. On the capability front, we are committed to fostering an environment where every employee feels valued, empowered, and inspired, making us truly an employer of choice in the financial services sector. On this front, we continue to strengthen our organizational capabilities through robust employee recognition programs.
This includes the Champions League, recognizing our 200 top-performing employees across the country, and the Zonal Star Awards, honoring over 1,100 top-performing employees across our key regions, ensuring continued motivation and development of our employees. I will now request Mr. Sachinn Joshi, our CFO, to take you through the financial updates.
Thank you, Sudipta. As always, I'll be walking you through the financial performance of the company for the quarter. Consolidated NIM plus Fee for the second quarter remained stable at 10.22% on a QOQ basis and down by 64 basis points on a year-on-year basis. Consolidated PAT for the quarter at INR 735 crore was up 6% year-on-year and 5% quarter-on-quarter. The quarterly retail disbursement stood at INR 18,883 crore, which was up 25% year-on-year and 8% quarter-on-quarter. Retail book stands at INR 104,607 crore. This is up 18% year-on-year and 5% quarter-on-quarter. Our consolidated book stands at INR 107,096 crore.
This is up 15% year-on-year and 5% quarter-on-quarter. Our consolidated ROA stands at 2.41%, down 19 basis points year-on-year, but up 4 basis points quarter-on-quarter. Similarly, the consolidated ROE at 11.33% was down 31 basis points year-on-year, but up 47 basis points on a quarter-on-quarter basis. Let me take you through the retail businesses. Starting with Rural Business Finance, this business registered a quarterly disbursement of INR 6,316 crore, delivering a strong momentum with a growth of 16% year-on-year and 12% quarter-on-quarter.
The book size reached INR 27,460 crore, up 3% both year-on-year as well as quarter-on-quarter. Pharma Finance vertical, the quarterly disbursement stood at INR 1,654 crore in Q2, down by 7% year-on-year and 25% quarter-on-quarter. Postponement of purchases owing to GST rate rationalization anticipation led to a lower uptake in the month of September. The book overall reached INR 15,943 crore, reflecting a growth rate of 10% year-on-year and 1% quarter-on-quarter.
Talking about urban finance, which comprises two-wheeler, personal loan, and home loan, to begin with, the two-wheeler business registered quarterly disbursement of INR 2,502 crore in the quarter. This was up 5% year-on-year and 18% quarter-on-quarter. The book size increased to INR 13,013 crore, up 3% YOY and 6% QO. Notably, 88% of two-wheeler disbursements in September 2025 was to the prime segment, as against 53% for the month of March 2024. This clearly reflects our focus on quality growth and risk-adjusted returns. In the personal loan business, we achieved a quarterly disbursement of INR 2,918 crore, translating into a growth of 114% year-on-year and 50% quarter-on-quarter, with the book size reaching INR 10,878 crore. This was an increase of 52% year-on-year and 16% quarter-on-quarter, attributed to the successful scale-up of the big tech partnerships.
Moving on to housing, we achieved quarterly disbursements of INR 2,713 crore, up 7% year-on-year, and a degrowth of 2% quarter-on-quarter, with the book size ending at INR 27,407 crore, an increase of 26% year-on-year and 4% quarter-on-quarter. Growth in the segment was supported by newer partnerships and a strong network of distribution channels. In the SME business, quarterly disbursements stood at INR 1,468 crore, up by 18% year-on-year and 15% quarter-on-quarter. The book stood at INR 7,465 crore, which was up 44% year-on-year and 7% quarter-on-quarter. The focus continues to be on building diversifying sourcing channels and expanding sourcing funnels through new partnerships to boost disbursements. Finally, in the gold loan business, quarterly disbursements stood at INR 983 crore, and the closing book stood at INR 1,475 crore at the end of quarter two FY 2026. Let me now hand over the call back to Sudipta to make his closing statements.
Thank you, Sachinn.
In closing, I'd like to state that our teams remain fully focused on capitalizing on the strong base that we have built over the last few quarters and increase the acquisition velocity in the coming quarters. The impact of many of our credit and technology initiatives will start becoming more visible in our financials from Q4 FY 2026, and the full scale will play out in the next financial year. Our investments towards best-in-class technology that can act as a force multiplier for our businesses will continue unabated as we continue to work towards achieving the long-term business goals, which will be outlined in our Lakshya 2031 plan in April 2026. I thank you all for joining us today. I once again wish you all a very happy Diwali, and I would like to throw the floor open now for questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, in the interest of time and fairness to others, we request you to restrict to one question per participant and rejoin the question queue. One moment, please, while the question queue assembles. The first question comes from the line of Praful Kumar from DYMON ASIA . Please go ahead.
Hi, Sudipta. Hi, Sachinn. Hi, everyone.
Hi. Hi. Hi.
I'm audible? Congratulations, sir, on great execution.
Sir, my first question is that given that macro-prudential provisions are largely used, and next year will be much better given all the underlying macro drivers and each of the geographies tackling it very well, would it be prudent for us to rebuild the provisions in the bad times as they have helped you in good times as they have helped you in bad times?
Yeah, thanks, Praful, for that question. As we have indicated in some one-on-one conversations earlier, we would be looking at rebuilding back the macro-prudential provisions as and when we have the opportunity of doing that. So, as an organization, we are committed to rebuilding it back. However, we would like to rebuild it back from some of the realizations from our ARC portfolios, which some of them are in very advanced stages of resolution.
And we probably will have some realizations from them over the next 18-24 months period. And whatever over-realizations that we have from them will go towards building the macro-prudential kitty once again. So, it will not be an immediate exercise. We'll kick off that exercise immediately, but because these assets will keep on resolving over the next near-term horizon. But as and when they resolve, we will continue to build the macro-prudential provisions from that over-realizations.
Understood. Understood. And sir, one small question. You had a super treasury management, and the cost of fund is reflecting one of the first NBFCs to reflect meaningfully. Despite that, NIM plus P is flat Q and Q. Is this more that risk-elaborated returns that you are contemplating in terms of business model? That's the way to look at it?
Yeah. Sachinn, could you explain that?
Yeah, sure.
NIM plus P, if you look at each component of the NIM, the yields, as we have spoken over various calls over the last from the time we began our Lakshya 2026 journey, initially, the NIM actually went up because the yields started going up since we were moving towards retail. A time came about one and a half years back when the overall retailization sort of got over around 95% we had reached, after which the further increase in yields was not possible because retail book replacing wholesale book led to that increase. Post that last four, five quarters, we have seen that our microfinance sector has gone through a challenge, and the disbursements also were very calibrated. This led to other businesses growing more than the rural business finance, which naturally meant that the change in mix resulted in the yields coming under slight pressure.
But as we have seen in this quarter, the rural business finance, the disbursements have again picked up, and we believe we have now come through a major part of that crisis. Our collection efficiencies are already 99.50% as of September. And as this book continues to grow, the pressure will naturally ease. We have also begun from last quarter the journey of growing our gold loan business. This quarter was also very good. We did about INR 923 crores. The September month actually was about INR 400+ crore . So, as these higher-yielding book starts growing, we will see the pressure on yields coming down. We believe that NIM plus P in the range of 10%-10.5% seems to be possible. I'm thankful for the interest rate cycle to really change, and we are now in the downward cycle.
RBI has already given a 100 basis point repo cut. There are also talks about further rate cuts coming in. Yeah, because of the way we grow our liability book, the PSL advantage that we have, the mix of that book in terms of short, medium, and long-term assets helps us in terms of building up a shorter-term book as well in the form of commercial paper. The shorter end of the curve, you've seen that the interest rates have been lower, and we are yet to fully take advantage of that. If you look at the composition of CPs in this quarter, the number is just about 7%. Average may be about 8%-9%, but yeah, there is a scope to grow this book right up to 13%-15%.
This, as well as the full benefit of the rate cut, has not yet been passed on by all the banks. So, we believe that there will be still some room to have a reduction in weighted average cost, but a significant part of it has actually come in. The third component of this is the fees component. The fees this quarter have been down by about 18 basis points on a quarter-on-quarter basis. But I think the range is very clear. From 1.75%- 1.9% has been the range, and if we continue within that range, I think we should be able to manage the overall NIM plus fee in the range of 10%- 10.5%.
Yeah, and I'd like to just add to what Sachinn said is that our business units are continuously being tasked to improve their yields across their disbursements.
And so, there is a very sharp focus on making sure that we maintain the yields with the upward bias across all our lines of business while maintaining asset quality as well. So, overall, yes, as I would like to echo what Sachinn said, our objective is to maintain it within the corridor of 10%-10.5%, and we are reasonably confident that we should be able to do that.
Fair enough. Thank you. All the best.
Thank you.
Thank you. The next question comes from the line of Mahrukh Adajania from Nuvama Wealth Management. Please go ahead.
Yeah, hi. Congratulations. Hi. Congratulations to you and your team. I just had a few questions. Firstly, the housing disbursements are a little soft on a sequential basis. So, is it that we really want to focus on other segments because they are higher yielding?
That's my first question. And then, in general, there has been a great surprise in the BFSI segment. Do you see this sustaining? I mean, what's your view? And if you could give some color on fees, I know that you said that because of MFI, they are depressed, but for better-yielding products, would you like to move up the credit risk curve? Would you like to sacrifice some yields? Is that the way to look at some fees? Is that the way to look at it? Because the benefit on credit costs can be substantially higher.
Yeah, I'll take them one by one. The first question was about home loans. Obviously, as you can understand that post the rate cut, there has been significant downward pressure on the revision of the HL rates as well, as well as the market has transmitted.
The market has become very competitive, especially for home loans. So, what we have been doing is that we have been judicious in terms of not entering into a full-blown rate war and operating in segments where we'll still get the rate efficiency and focusing more against loan against property. So, overall, our loan against property disbursements have gone up, and our pure home loan disbursements actually have sort of remained on an even keel, which has led to a little bit of moderation in the overall mortgage portfolio growth. And we expect that this will remain in this state for the next couple of quarters. Right? Obviously, we will look at a way by which we can sort of take our or maintain our home loan yields as well. But obviously, the market is very competitive and sort of downward-facing in terms of rates.
So, that is the reason for that. The second question was this: I didn't get you saying that the growth has been surprising. I didn't catch that. BFSI growth, you said?
No, no. In general, so not too many results have come, but there have been banking business updates. Right? And all of them have reported better than expected growth. So, there is a growth surprise in the BFSI segment. Do you see it sustaining? Is my question.
Yes, Mahrukh. I see it sustaining. Obviously, you see if you see the last 18 months, the regulator has been extremely cautious on growth, and the regulator had been pressing the brakes on growth for quite some time. However, I think the sort of asset quality clouds, which were also there on many of the segments like personal loans, microfinance, have reasonably resolved.
And that is why you can see that some of the growth spurt is coming back. Our microfinance business, if you see the disbursement this quarter, has been INR 6,300 crores. The previous highest of our microfinance disbursement was in March 2024 when we crossed INR 2,000 crores. And this quarter, both in the month of August as well as in the month of September, both months we have done INR 2,000 + crores . So, obviously, there is a demand in the market, and there is space in the market for organizations to grow.
For example, if you look at our two-wheeler disbursements, on a QOQ basis, they have grown by 12%. Our personal loans disbursement on a QOQ basis has grown upwards of 100%. Right? And primarily, that is because of our focus on our digital channels, and all of them have fired in. So, yes, there is a growth bias.
I would like to add to that that the numbers for this quarter really do not reflect the GST 2.0 volumes. And if I look at the trajectory in October, especially in our two-wheeler and our farm business, there are an order of magnitude different from what we saw in September. Right? And I do believe this is not only for us, but this will be seen overall in the industry as consumer sentiment improves, as overall asset quality cloud lifts, and as well as there's a massive push towards consumption thanks to the GST 2.0 reforms and overall customer sentiment improving. So, I do believe H2 for BFSI will be a very strong quarter for growth. And I expect this trend to continue in the latter part of H2 and maybe into FY 2027 as well. Right? Your third question was on fees. Right?
Moving up the price risk.
Yeah. So, and again, so see, we are very, very clear. The fact is that we will do business, and I have guided on several occasions that as an organization, we want to build a cycle-resilient business. Now, what do you mean by cycle-resilient business? Cycle-resilient business is that as and when the business moves to cycles or the economy moves to cycles, right, there will be crests and troughs in the credit risk sort of trajectory. You have to sort of box the crests and troughs in a tight, narrow band so that even when the cycle turns, the risk cost of your portfolio does not go beyond a particular pain threshold. And for that, you can deliver that only when you have about roughly 80%-85% portfolio. That is the back-of-the-envelope sort of calculation that we have in what I call cycle-resilient customers. Right?
Yes, obviously, as you move up the cycle, there will be a little bit of downward bias on yields, etc., because better-quality customers will probably expect a little bit of lower rates. But again, there are ways of balancing that. Customers on digital delivery channels tend to be a little less rate-agnostic than customers on physical delivery channels. Overall, obviously, it's a continuous optimization exercise, and I'm quite happy to note that our teams have been sort of faring quite well on this. On the back of the implementation of Cyclops, right, it also helps us fine-tune the segments.
That means if I have a couple of segments, I am able to pinpoint the risk cost that would arise out of that segment and price it accordingly so that the risk-adjusted yield that is expected of us operates in a tight trajectory, and the credit cost also operates in a tight trajectory. So, this is the philosophy going forward, and this is something that as we gain experience more through Cyclops. Cyclops has been in operation for about 14 months now, 14, 15 months now. Right? As we gain more experience, this science will become far, far more sharper and will help us maintain a very, very tight trajectory going forward. Thank you.
Thank you.
Mahrukh, just to add, as part of this strategy, in fact, just to bring the pressure down on our dependence only on the rural business finance, we have acquired gold loan business, and that will be one of the key trust areas because that's a secure book and reasonably good yields. So, we would like to try and balance out. Your question was also on the housing piece, whether it will be whether we are soft-pedaling that. But the fact is that housing book being secured, it's absolutely necessary to be a part of your balance sheet, but at the same time, you cannot accelerate the growth to a level where your NIM plus fee starts getting impacted. So, it will surely be a significant part of the book.
It is a significant part, but it has to be supported well by a mix of both secured as well as unsecured books, reasonably high-yielding portfolio so that we are in a position to give decent ROAs and ROEs that we have targeted for.
Okay. Thank you so much. Thanks a lot.
Thanks, Mahrukh. Thank you.
The next question comes from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. Congratulations for a good set of numbers. Firstly, maybe in terms of the credit cost trajectory, so earlier also you had indicated that by end of FY 2026, we would be closer to 2.3%-2.51%, and this would be without, I would believe, now the utilization of the buffer. But as you indicated, the larger part of the benefit of all these investments on the credit and the writing side will reflect in FY 2027.
How should we eventually look at the normalized credit cost over the medium term?
Thanks, Kunal. What we would like as an organization to aim for a 2% credit cost trajectory. That is what we would aim for, a 2% credit cost trajectory. So, over the medium term, the numbers will tend towards that. Obviously, on a one-off blips with what I call a number of high-velocity businesses like two-wheeler, microfinance, and some of the climate-dependent businesses, right, on which we literally, as an organization, have no control, like farm business, etc. Right? These have a little bit of cyclicality in this. So, our objective through our credit models is to pick out the cyclicality as much as possible. But we do believe that over the near term, that means in FY 2027, we'll trend closer to that 2% target.
It's very difficult for me to put my finger on and say which quarter we will hit there. Right? But directionally, you will see the movement. You will see directionally the movement. We are already seeing the movement through the early indicators of our Cyclops portfolio underwritten. And as you can see, the three businesses I would call the high-velocity businesses, like two-wheeler, farm, as well as now in SME, they are already under Cyclops. We're implementing personal loans this quarter, over the next quarter, and probably the first half of FY 2027, we'll see the implementation in home loans, loan against property, as well as rural business finance. So, overall, I do believe that through those interventions and through the automated portfolio monitoring that we have, which allow us to see risks much earlier than it becomes apparent. Right?
So, we should be able to trend closer to that 2% risk cost trajectory.
Yeah. And you shared the numbers with respect to bounce rates in two-wheeler and net non- starters in farm equipment. But if you want to understand maybe how the credit cost behavior in these two particular segments has been, we have earlier indicated by September, we should see it picking out, and thereafter, second half should see a much better improvement out on those fronts. So, if you can highlight maybe apart from those early indicators, how is the credit cost in these two segments? Where is it settling? And for 2% number, what are we expecting these two segments to contribute in terms of the overall credit cost? Yeah.
Kunal, probably going into a couple of sort of data points over the call, this call might be difficult, but I would urge you to attend our Investor Digital Day, where we will give the investors a flavor of this. Right? So, we will try to give some granular flavor of this, which I believe will paint a much more coherent picture than me giving some numbers on the call, which might not give the full picture. So, I would request you that the answers to this will be provided on the 6th of November 2025 in our Investor Digital Day.
Sure. And if one last question I can squeeze in. So, particularly on the growth, like again, LEP, SME, consumer loans, everything is growing quite significantly. So, do we see this scale-up continuing?
Are we confident with respect to overall personal loans, SME, and LEP, given maybe there are maybe tariff concerns out there, personal loans, not very sure if it has maybe most of them are indicating it is stabilizing and improving? But what is the scale-up, and what is the proportion which we can take in these three particular portfolios?
See, again, this is what I would say is that we will have risk-calibrated growth. Right? So, the fact is that to understand that what we have originally guided, we have originally guided is that a growth rate between 20%-25%. This is what we have guided. Right? So, again, at times, there are gaps in the market when everything is benign, and you can have a little bit of high trajectory of growth.
However, our growth is, as we have said in many occasions, that we are a risk-first, technology-first company. Right? And the fact is that our growth appetite is tempered by the indications of market risk or emerging risk that we continuously see. So, as of now, we see good growth potential ahead, and we are reasonably confident, thanks to Cyclops, of sort of tapping that growth, right, without letting any risk hotspots developing in our portfolio. Right? So, back of GST 2.0, we see a good spurt in farm business sectors. We see a good spurt in two-wheelers. But again, when we are participating in that spurt, we are very, very clear that we only take that segment of customers that matches our risk profile. Now, if that gives us a 20% growth, so be it. If that gives us a 25% growth, so be it. Right?
But the fact is that, yeah, so please understand, here we are not chasing any particular growth number. Right? What we are chasing is risk-calibrated growth. Now, if the risk-calibrated growth makes us hit a particular number, that is the number that we will report to the market. Right? So, but given the fact that we are seeing good customer sentiment, good consumption sentiment, and the GST 2.0, especially in the two-wheeler segment pushing disbursements, and it's not only about GST 2.0, for your own personal loans, personal loans are digital channels, have fired really well because the fact is that the extensive model building that we do with each of these partners, right, with a particular risk cost in mind, right, helps us sort of catch a customer of a particular credit profile.
Given the fact that if these digital channels start firing, because you have to understand that in acquisition, the digital channels, if properly deliver, if they properly deliver the customer experience, is the least frictionless way of acquisition. And sometimes, if the channels are operating at their full stack efficiency, then your growth can be very, very high without compromising on risk. So, overall, many factors are here at play. But again, I would like to send the message that we are not chasing any headline growth number. We have guided for an growth for the full year between 20%-25%. We are confident that we'll hit that. But given if there are gaps in the market, if there are benign spots in the market, if their markets where risk-calibrated growth is strong, we will not shy away from participating in that.
Sure. Got it. Thanks.
Thanks and all the best. Yeah.
Thanks. Thank you.
Thank you.
The next question comes from the line of Kaitav Shah from Anand Rathi. Please go ahead.
Hello.
Yeah. Hi, Kaitav.
Yes. So, congratulations on a good set of numbers. So, if you can share about when you started the journey and as of today, some technological changes that have happened and which you would like to highlight. Digital Day coming up, but just for our meeting, a couple of highlighted points that you would like to that stand out for you, that would be great for us.
See, I think the biggest sort of change has been our underwriting through our Cyclops underwriting engine. So, it is pretty state-of-the-art already in version three. And I'll be very, very honest. When we started building it, and we will give double clicks on some of the results during our Digital Day.
When we started building it, we probably did not anticipate the impact of that on some of these high-frequency portfolios so quick. Right? So, some of the results came in very quick and fast, which helped us also optimize that channel very, very fast. Right? and has given the customer, actually, the confidence to scale up our volumes as well this festive period. So, that has been really a transformative initiative. And it's not that it is delivering results only in the two-wheeler business. It is delivering in farm. SME has gone live. We are seeing the leading indicators in SME also within two months, right, in terms of reduced net non-starter numbers. Right? So, and I'm 100% certain that it will give the benefit in personal loans as well and SME and MFI and mortgage as it gets implemented in those going forward.
The next tool, which is Nostradamus, which is our automated portfolio management engine, again, I do believe that it is something the market is probably not fully aware of what has been built, and we will take the covers off it during our Digital Day. So, you will see sort of the beta version of it during the Digital Day, and we'll be demoing it as well. So, that has been another significant achievement. The introduction of our copilots for underwriting, especially the GenAI-based SME copilot, right, wherein a file which used to previously take about anywhere between three to four hours to underwrite is currently being underwritten in sub-30 minutes. Right? And to the extent that the SME copilot also tells the underwriter for the PD questions, it also sort of indicates.
It's a new rollout that has happened. It went live about a couple of days back. Overall, the stabilization of the core engine platform, the movement to our omni-platform Salesforce for all our lines of business, barring microfinance as of now. Also, for example, our Planet app. Our Planet app, in terms of servicing, has been extremely transformative. A large amount of our servicing and sort of cross-sell and acquisition is now carried through our Planet app. I'm not so sure whether all of you are aware that our Planet app got awarded the best digital finance experience application in FY 2025 in India in the Global FinTech Fest. We have spent quite a lot of time, effort, and energy in sort of building Planet to absolutely global standards in terms of user experience and user interface.
That was a vindication of that in receiving that during the Global FinTech Fest. This is not the stop. The fact is that our GenAI-based collection sort of initiatives, including our entire collections calling through voice bots, has sort of matured over the last two to three months, and we expect to scale it up much further and deploy it in customer service as well as in collections with even more frequency across all our lines of business. Overall, I think for us, technology is moving forward on all facets in credit underwriting, in acquisition, in customer servicing, in collections, as well as simplifying the operating processes within the organization as well. As I said, the philosophy of being technology-first is taken very seriously by people in the organization right now.
And as an organization, we are focused on lifting the tech DNA of the entire organization. So, in a way, I think over the last 24 months, this transformation has gone out quite well.
Okay. Thank you so much, sir, for that. No, I have to.
Thank you so much, Kaitav.
Thank you. The next question comes from the line of Avinash Singh from Emkay Global Financial Services Ltd. Please go ahead.
Hi. Good afternoon. Thanks for the opportunity. A couple of questions. First one is on operating expenses. So, there is kind of a material improvement there. Also, if you can sort of guide, I mean, going ahead once things sort of normalize, you have kind of a different rate of your, I mean, like your digital sourcing picks up and all kind of things happen. Where is the kind of a steady state?
Apparently, this OpEx [inaudible] will look likely in FY 2027. I just wanted to know the sustenance of this kind of improvement. And the second, the 2% credit cost guidance you are referring to over medium term, is that kind of assuming some changes to your product mix, or is it largely based on the current product mix which you have and with all these kind of your cyclops eventually going to all the product lines and that leading to the improvement? Thanks.
Thanks, Avinash, for your question. Firstly, let me address the operating expenses-related question. The OpEx, if you recall, we have guided that our OpEx plus credit cost, which started off as a 7% kind of thing. Slowly and steadily, you would have seen that it has been coming down. It was actually 4% OpEx plus 3% credit cost.
Credit cost, you have already seen that we actually guided it down to around 2.3%-2.5%. The operating expenses, there are two components to it. One is the business-as-usual expenses, and the other is the investment that we have been making. You see quarter-on-quarter some changes happening in terms of percentages, more to do with the investments which have been, which don't happen absolutely on a week, two-week, or a month-to-month basis. We have been investing in setting up branches. Last quarter, we have actually set up 84 rural LAP branches. We also set up meeting centers about over 150 meeting centers. We have also acquired the gold loan business. So, that has also impacted in terms of the incremental OpEx plus the goodwill that was paid, the premium that was paid to acquire that business. So, all these are components which go in.
Of course, the investments in technology. Sudipta spoke about how we have been investing in building up Cyclops, Nostradamus, and all. I think it's a mixed bag. We will continue to be in this growth phase for at least the next 15-18 months minimum. There will be investment because we have to ensure that the future remains intact in terms of building up top line. The businesses which we build now, especially the last two to three years, we have built up on SME, micro loan, personal loans, and now we have acquired gold loans. There will be investments in continuing to build on these businesses, plus expansion that we take up for these businesses will need some both operating expenses as well as capital expenditure.
The range now will surely come down from 4% to 4% plus 3% to somewhere around 7% will come down to about 6.5% and then to 6%. As these investments stop, you will see this directionally, the operating expenses coming even below 4%. But I think there is some time for it because it's very easy to bring down that cost, but then we have to keep the future in mind. On the credit cost piece and the ROA target that we have talked about, yes, the key businesses we are already into. We will be starting to work on our Lakshya 31 plan shortly. We should be done with it with the board approvals by April next year. We would perhaps at that point of time come up with some new businesses.
But what we talk about at this point, a significant part of the ROA tree that we spoke about would be or is a construct based on the current businesses that have enough potential to grow. I hope I have answered your question.
Yeah. Yeah. Yeah. Yeah. Very clear. Thank you. So, that 7 going to eventually 6.5, eventually to 6. So, probably, are you referring like the 6 kind of a thing in FY 2027 or beyond?
Yeah. 2027, it's quite possible. Like I said, as of now, there is some visibility on what investments we want to make, right? But as we move into the next year, if we take a call on introducing some business, then yes, there will be investments required.
So, rather than going by the percentages, I would suggest that we need to look at where the investments are going in and whether they are going to help us in terms of, A, maintaining the ROA ROE trajectory and then building on it.
See, one of the things that we have to understand here is that a large proportion of the cost profile of an NBFC also is collections costs, right? And the fact is that as the credit tiers and as the portfolio quality improves, you see a pari passu dip in collections costs. So, what happens is that it's a multiplier impact. Your credit cost reduces, your collections cost also reduces. And the speed at which your credit cost reduces, pari passu your collections cost will also reduce at that same speed, right?
So, what we expect is that over the medium term, as our portfolio credit cost comes down, right, you will see a release in the credit cost as well, collections cost as well. And this too will overall push us to, as Sachin n guided, from that 7% to a 6% trajectory. And we do believe that achieving that somewhere during FY 2027 is possible. But again, it is contingent on how the market behaves, what is the environmental condition at that point in time, if there are long-term risks which we do not know right now develops. So, it is too early to comment on this, but I do believe that the opportunity of traveling this is very, very strong, and we should see it sooner than later.
Got it. Thank you. Thank you.
Thank you. The next question comes from the line of Bhavik Dave from Nippon India Mutual Fund.
Please go ahead.
Hi. Sorry for repeating my question because I'm more on the call for the first 30 minutes.
Bhavik, I'm sorry. There's too much background noise.
Okay. Two questions. One is on consumer business, right? I mean, that's not well. I just wanted to understand when you came up with the investment, what is the commensurate cost? Because when I looked at the cost per item that's dipping down and the incremental growth is coming from consumers, I believe that the payouts are reasonable in terms of originating the business via partners, right? So, I just want to understand how is that chugging along when the growth is higher there and the costs are inching down? That's one. And second question is on, again, on the Stage 2 provisioning, what is the reason for the Stage 2 provisioning coming down quarter -on -quarter and declining trend?
Is it because of the better outcome that you're seeing on Cyclops and underwriting, or is it what is the story there? It would be interesting to hear that. Thank you.
Yeah. So, Sachinn.
Yeah. Hi, Bhavik. The first question with regard to the personal loan business, the personal loan business, as Sudipta mentioned, this quarter, almost 40% of the disbursements have happened through the financial partnership that we have tied up. The commercials on that are different for each partner, but very clearly, the commercials are much lower than the normal DSA costs which otherwise are incurred. So, you will see that the costs of doing this business are much lower, as well as the fact that the funnel through the customers that come through the funnel are much better in terms of quality because they are more salary prime kind of customers, more bank-like.
Number two, the stage two provisioning that you talked about, stage two provisioning, stage one and two had the macro-prudential provision sitting over there, and as we have been utilizing, the cover from stage one and two has been going down. So, it's just arithmetic.
So, for this one, clarifying on the previous answer is on the cost that we incur on acquiring these loans and consumers, that is all expensed out in the quarter itself, right? Like you have to pay 1% to the.
Yeah. So, I'd like to add to what Sachinn said. What we do is that typically on digital channels, you tend to get a little bit of higher realization than you would get from the same customer on a physical channel, right?
For example, if the customer is willing to give you a 13% rate of interest, agree to a 13% rate of interest on a physical channel, the same customer, when delivered digitally, probably will agree to 14%, 14 .5%, primarily because the speed of delivery is much, much higher to the customer. So, generally, on digital channels, you tend to have a little bit higher realization. And the second thing is that the digital channels are, I would say, if you look at expenses of channels, right? Your DSA channel or DSA channel is the most expensive channel followed by the digital channel, which is the partnership channels. Organic digital channels are actually the most expensive, right, where you get organic leads, generate organic leads from Google or from Facebook, etc.
But the direct partnership channels are in the middle cost level, right, which means that they are cheaper than the DSA. And obviously, the quality that comes along with it, primarily because of the various data room exercise and the consumption of trust signals from some of these partners, quality is on an order of magnitude different, right? So, from a P&L standpoint, risk-adjusted standpoint, these cohorts are far, far more better than probably even the DSA cohorts. And the last channel is obviously which you originate on your own is the cheapest is your own customer base, right, or your own cost customer base. So, these are the three sort of cohorts through which you acquire customers. Again, for us, it is very important to maintain a fine balance between both because we would also not like to maintain a concentration of origination in one channel.
We would like to distribute the origination across a couple of channels, right? So, that's why you will find us operating in the DSA channel. You will find us operating in the digital channel as well as you'll find us operating in our own channel as well as our pre-approve d channel. But overall, the objective for all of us is to make sure that the origination cost is as low as possible and obviously, again, with an eye on quality.
Perfect. Thank you. Thank you so much. All the best.
Thanks. Thanks. Thanks.
Thank you. Ladies and gentlemen, in the interest of time and fairness to others, we request you to restrict to one question per participant. We take the next question from the line of Prithviraj Patil from Investec. Please go ahead.
Yeah. So, my one question is on the MFI part.
If I look at the zero DPD collection efficiency that's been mentioned, it's largely in line with what was the last quarter, last couple of months. It's 99.5%. Do we expect this to be the new normal in the MFI lending space, or is it supposed to get better from your—if you could just throw some light on how to look at this?
See, the zero DPD collection efficiency, obviously, is at 99.5%, but there is some improvement over what it was last quarter.
Can I have the last 99.35, right? The zero DPD collection efficiency for Pan India was 99.35% at the end of last quarter. It is about 99.5%. There has been a 15 basis points improvement over the last three months' period. See, again, we are improving slowly in this, right?
The pace of improvement will probably slow down going forward. But again, a large discriminant on this was Karnataka, on which we have given the data on Karnataka during the call. Karnataka, we have seen a significant improvement over the last quarter, right? Over the last quarter in Karnataka, we have moved from about 98.18% to 99.03%, right? And we ended September with 99.18%. This is available in slide 38 of our investor presentation. We expect this to move further. Over a period of time, which is as we between Q3 and Q4, we'll move to about 99.6%. We hope we'll move to about 99.6%. However, we have to see how it pans out in the market. But yes, to answer your question, there will be an upward bias to this particular number. But the climb up from this particular level will be slow.
Okay. Thank you.
And if I can just ask another question on the cost of funds?
Yeah. Yeah.
So, the cost of funds has come down dramatically. So, I just wanted to know what is the reason behind that? Because if we look at the fixed floating split that you have given for the one-year gap, the repricing assets are higher than the liability. So, I just wanted to know why the cost of funds have come down.
So, a couple of reasons. We had actually gone for some ECB borrowings in the fag end of Q1, but the drawdowns and all have happened in tranches. Those have come in at better rates. There have been. You would have seen the overall mix where we have the direct bank loans PSL and bank loans non-PSL.
There are loans which actually come up which are linked to, I would say, either the T-bills or a variable rate, which leads to reduction. Number three is the commercial paper rate, the short-term rate. We just made a mention of the fact that gold loan business has also picked up. So, our ability to actually, the ALM permits us to have more short-term assets and correspondingly short-term liabilities in the one-year bucket, which enables us in also taking advantage of the short-term rates. So, it's a mixed bag, and add to it the liquidity that has to be kept. RBI has been keeping enough liquidity in the system of about INR 1.5 trillion-INR 2 trillion on an ongoing basis, that also ensures that we don't have to keep liquidity the way we otherwise keep when external situation is a bit tense.
It's a mix of all these things which has actually resulted in a reduction in the overall weighted average cost.
Okay. Thank you. Thank you.
Thank you. The next question comes from the line of Shreepal Doshi from Equirus Securities. Please go ahead.
Hi, sir. Congrats on a good set of numbers. My question was on personal loans again. So, in that, what is the customer profile that we're targeting, the CIBIL benchmark, and also the pricing that we have at a blanket level for that segment? And just hopping on the channel partners, so what are the typical payouts there for DSA and for the online channel?
So, our focus on personal loans is pure salaried customers, right? That is our focus area, right? So, we want to build a portfolio that is 80%-85% salaried, right, on the personal loan side.
For example, if you look at our DSA channel, we do not show customers who are non-salaried, right? Similarly, on our digital channels, the focus is on acquiring salaried customers. That's from a customer segment point of view. You can say the average pricing of a personal loans product, it varies by channel, but the average pricing varies between 15.5%-16.5%. This is the average pricing of a personal loans portfolio. And in terms of payouts, the DSA channel typically has a payout of 3%, which is not known, which is now known widely in the market. But the fact is that for digital channels, with every digital partner, we have a different arrangement, right? There are some partners who operate on a low origination fee and a share of profits for portfolio break-even. There are varying models that we have.
It will be very difficult for me to paint in one particular sort of band, right?
Okay. So, then 15.5%-16% is a yield bracket. So, then what is the CIBIL benchmark that we have for these customers? And also, so, 27% of these customers are existing customers when we are doing cross-sell, I guess. So, that—so what would be the original or, let's say, the base case product that these guys would have taken from us?
Yeah. The base case because the cross-sell customers are mostly seasonal vintage two-wheeler customers. So, the majority of our cross-sell comes from seasonal vintage two-wheeler customers. And if you would want to know what is the average CIBIL benchmark score, it would be 750+ is what we would be targeting for most of the customers, right?
Again, if a customer has a much higher score, probably they will get a little bit of risk-adjusted rate. But the average would be about CIBIL 750 +.
Got it. Got it. Thank you so much for answering my question. Good luck with the next one.
Thanks. Thanks.
Thank you. The next question comes from the line of Chintan Shah from ICICI Securities. Please go ahead.
Yeah. Thank you for the opportunity. Congratulations on the performance, steady state performance. Firstly, just hopping on the credit cost part again. We believe that probably it could be around 2% odd over the medium term. Also, how are we looking at the portfolio? For the medium term, say, by FY 2027. Given that now MFI, we already have the guardrail, right? It would be a slow-moving portfolio for us.
So, what would be the typical other portfolios which would be growing at a faster pace? And how would that compensate for the yield part? Yeah. That's the first question.
See, over a period in time, we want to move to a secured, unsecured profile of about 65-35 over a period of time. But currently, we are our first port of call would be about a 60-40 level would be our first port of call. So, gold loans that we acquired, obviously, is a secured high-yield portfolio. As you heard earlier in the call, that we'll be doing 200 more branches during this period in time. So, we will be sort of deploying these 200 branches in the latter part of the year, right? And then, obviously, we have our sort of metrics into high risk, medium risk, and low risk.
So, overall, the way we look at the portfolio is that gold loans will continue to grow. Gold loans is a fully secured, high ROA, low-risk product. It's actually probably the lowest-risk product as of now, right? Then you have mortgage. But mortgage, again, we will balance the growth on mortgage primarily because of the downward rate considerations that we have. Personal loans, the one we originate, personal is obviously we will originate in a risk-calibrated fashion. MFI, I believe that the geographies that we are expanding, we'll see reasonable growth. I think on a steady-state basis, 15% growth on a year-on-year basis on MFI is still possible, right? I'm not advocating that MFI should grow at a 25%-30% level as we saw in the previous two years. But I do believe that a 15% growth rate on MFI is a safe speed to grow.
SME, if you see post-implementation of Cyclops, we are very, very confident of our credit program in SME. So, SME business, especially the prime SME business, is what we will continue to grow. And 2-wheeler gives us a lot of confidence right now given the leading indicators from Cyclops are fully visible to us, and we know that the science of acquiring risk-calibrated prime customers is working. We will continue to accelerate that. And on the 2-wheeler business, the 2-wheeler business has been tasked with, within those paradigms, to take the rate step northwards by delivering a much better experience to customers, right? And on the tractor business also, we are seeing a lot of credit efficiencies, a lot of collections cost efficiencies.
And given the fact that we have healthy reservoir levels, we have good GST 2.0 benefits where the headline GST on tractors have been slashed from 18% to 5%, right? I do believe that this segment will see very good growth rate in H2 and even going forward into FY 2027 as well. So, overall, all categories of our businesses will continue the strong growth trajectory upwards. And as I said earlier in the question, the focus on maintaining the sort of the yields on all these businesses is very, very strong. And we'll try to maintain that.
Sure. And just one last thing from my end. I think we had earlier guided for around 2.8% exit ROA by Q4 FY 2027. So, this still holds, right? And does this include any benefit from the SR recovery? Yeah.
No.
See, the 2.8%-3% ROA that we have said that we expect to hit somewhere around exit FY 2027 is without factoring in any SR benefits. It is on an organic basis.
Sure. Sure. Yeah. That's it from my side. I'll get back to you. Thank you.
Thank you. The next question comes from the line of Shweta from Elara Capital. Please go ahead.
Thank you, sir, for the opportunity. And congratulations on a good set of numbers. So, I just have one question. Given the fact that we have implemented Project Cyclops now on the MSME financing verticals as well, sir, can you tell us in terms of demonstration of improvement in asset quality parameters, say, bounce rate reductions, etc., and any headwinds do you still see persisting in MSME portfolio? And how overall trends are stacking up in the industry? Thank you. That's my one question.
Thanks, Shweta. I know the SME business. Cyclops full implementation has happened only 45 days back. There has been a smaller sort of, and when we implement this, we go in a phased fashion. We take a small portfolio, we implement it, and then over a period of time, over which is three, four months' time, we sort of flip the entire portfolio into Cyclops. So, the leading indicators or bounce rates, etc., on the SME portfolio, SME underwritten Cyclops portfolio, Cyclops underwritten portfolio is encouraging. But I would say it is too early for me to give any indication that it is working well. Probably by the time we move into the digital day on the 6th of November, we'll have some early reads.
So, on the 6th of November, probably we'll be able to answer this question of yours in a better degree of confidence than immediately, that whether there is a meaningful difference. We have seen a small cohort. There is a meaningful difference in a small cohort. But by 6th of November, we probably will see a full month of underwriting coming through. Probably we'll be able to give more nuanced details there.
So, and overall on the SME segment, yes, we saw some risk develop on the outside margin, especially on SME ticket sizes of INR 25 lakhs and below. But if you see our average ticket size on SME is between the range of INR 65 to INR 70 lakhs, sorry, INR 29 lakhs, sorry. INR 29 lakhs. Let me lap this INR 65 lakhs. Yeah, INR 29 lakhs. So, we operate on the UBL, especially we operate on the higher end of the spectrum.
And we saw some of this risk on the margin developing almost six months back. And we acted at that particular point in time and tightened our guardrails. So, as of now, we see dissipation of some of those initial risk indicators that we had seen. And after Cyclops has got implemented, we are pretty confident of the risk trajectory going forward.
Got it, sir. That's very helpful. Thank you.
Thank you so much.
Thank you. We take the next question from the line of Abhijit Tibrewal from Motilal Oswal Financial Services Limited. Please go ahead.
Yeah. Thank you for taking my question. Good afternoon, sir. So, just trying to understand just like in the previous few participants, you gave a very detailed commentary on how we are looking at growth across our different segments.
If you could also cover what are the asset quality trends, again, qualitatively in the various product segments where we are.
Abhijit, I do apologize to interrupt you there. Your voice is not audible.
We can't hear you.
Abhijit, did you apologize to interrupt you there?
I didn't understand. Sir,
Abhijit has left the call and the question queue. Letting the gentleman, we take that as the last question and conclude the question-and-answer session. I now hand the conference over to Mr. Sudipta Roy for his closing comments.
Thank you. Thank you for joining us on the call. Before I close, I would like to invite all of you for our digital investor day on the 6th of November. The invites for that will be going out shortly from our investor relations team.
On the 7th of November, also, we have RAISE, which is our AI conference, which is organized by L&T Finance. And this year, we have got a marquee lineup of speakers. And this year is going to be bigger and better than last year. And we have Pitch Point this year, which is the AI startup competition as well. All the details and the agenda is available on ltfraise.com. All our investors will be auto-registered for RAISE as well, right? And we will be happy if you can share part of the time out of your busy schedules with us on 7th of November as well, where in the demo section, we will be showcasing some of our sort of tech developments as well, which are in live production.
This quarter, obviously, has been the quarter in which we continue our normalization trend towards some of the business lines which had seen some headwinds in the previous couple of quarters. On the back of GST 2.0 and on the back of the good monsoons, I think we are going to see very good consumer sentiments in H2, which will lead to greater uptake of products and services, and which will obviously boil down into better trade demand. And we are hopeful as an organization we'll be able to participate in that risk-calibrated fashion. I wish all of you and all of your families a very happy Diwali and best wishes for the festive season ahead. Thank you so much. And I look forward to meeting many of you on the 6th of November at our digital investor day. Thank you so much.
Thank you.
On behalf of L&T Finance Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your line.