Ladies and gentlemen, good day, and welcome to the Q4 and annual FY 2026 earnings conference call hosted by Piramal Finance Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. The results materials are available on exchanges and the company's website, and you may refer to them during the discussion. Please note that today's discussion may include certain forward-looking statements which must be viewed in conjunction with the risk and uncertainties that the company faces. These statements are based on management's current expectations and are subject to uncertainty and changes.
On the call today we have with us Mr. Anand Piramal, Executive Chairman, Mr. Jairam Sridharan, MD and CEO, Mr. Rupen Jhaveri, Group President, Mr. Yesh Nadkarni, CEO, Wholesale Lending, Mr. Vikash Singhla, CFO, and Mr. Ravi Singh, Head of Investor Relations and Strategy. I now hand the conference over to Mr. Anand Piramal for his comments. Thank you, and over to you, sir.
Good afternoon, everyone, and thank you for joining us today on this call to discuss the March quarter and full year FY 2026 results of Piramal Finance. As you all know, during the last few weeks of this quarter, geopolitical disruptions in the Gulf have created a volatile global macroeconomic environment. Crude oil prices have risen sharply. There have been also concerns around the availability of refined products such as LPG. We believe ongoing diplomatic developments and a potential de-escalation could limit the overall macro impact on India. At this stage, the effect on India's economy, financial services sector appears contained, reflecting underlying resilience. Retail petrol and diesel prices have largely remained stable. This pricing discipline has played a critical role in containing near-term inflation, preserving domestic demand, and avoiding a spike in retail loan pricing.
The government's timely interventions to support exporters have helped cushion the impact from ongoing maritime challenges. Overall, while geopolitical risks remain a key monitorable, India's macroeconomic stability, policy responsiveness, and domestic demand strength continues to support the growth outlook. Coming to our results, the company delivered a strong quarter and ended FY 2026 with several achievements. I'm happy to report that we surpassed our targets we set for ourselves at the start of the year. Our total AUM grew 25% year-on-year and crossed the INR 1 lakh crore mark. We have completed our AUM mix transition with a legacy book down 59% year-on-year to INR 2,807 crore versus the target of reducing it to INR 3,000-INR 3,500 crore.
The legacy book is now less than 3% of the total AUM versus 66% of our AUM four years ago. This has been perhaps the largest and fastest rundown of any wholesale book in our industry. Equally unprecedented has been the scale-up of our retail business. In FY 2026, it grew 33% year-on-year to INR 85,885 crore. It now forms 85% of total AUM. Ours has been the fastest scale-up of any retail business among NBFCs. We took four years in going from INR 20,000 crore to INR 85,885 crore, something that other retail NBFCs before us took 5-10 years to do. More importantly, while growing this book, we have sharply lowered our OPEX ratios and have kept a tight control on risk.
In Q4 FY 2026, the retail asset quality significantly improved across all products. Along with our wholesale 2.0 AUM, which grew 38% year-on-year, our growth AUM increased by 33% year-on-year versus the 30% target. Asset quality of wholesale 2.0 continues to remain robust with 0 NPAs in this book. After breaking even in FY 2024, the growth business has steadily been improving its profitability. In Q4, we exited at ROAUM of 2.1% versus 1.7% in Q4 FY 2025. For FY 2026, we have reported a consolidated net profit of INR 1,506 crores versus the target of INR 1,300 crores-INR 1,500 crores. This was up 3x year-on-year. In this quarter, both our domestic and foreign credit ratings witnessed a round of upgrades.
Our domestic long-term debt is now rated AA+ by all three leading credit agencies versus AA rating at the last quarter end. In Q4, we received deferred consideration proceeds of $148 million towards the sale of Piramal Imaging. We also concluded the stake sale of Shriram Life Insurance worth INR 600 crores. We also added INR 10,110 crores to our assessed tax losses, totaling assessed tax losses to INR 24,600 crores. Overall, in the last two years, we have been consistent in improving our profitability along with healthy AUM growth and stability of risk and earnings. As an upper layer AA+-rated retail-led diversified NBFC, we are privileged to serve over 5 million customers across semi-urban India, combining physical distribution with technology and AI in our processes.
We remain confident in our ability to deliver steady and healthy earnings growth. With that, I'll hand over to Jairam to share more details on the results.
Thank you, Anand. Good evening, everyone. Earlier this year, you might recall that we introduced our framework for value creation and.
I'm sorry to interrupt, sir. We are unable to hear you.
Sorry about that. Thank you, Anand. Good evening, everyone. Earlier this year, you might recall that we introduced our framework for value creation and long-term alignment with our shareholders. To refresh our memories, the framework had three drivers of value creation, growth, profitability, and predictability. Supporting these value drivers, we talked about building a future-proof AI-native company. I'd like to start my comments with an evaluation of our Q4 FY 2026 performance against this framework. Let's start with growth, which you can see on page 4 of our investor presentation. You see here that our AUM was up 33% year-on-year in our growth book. On a consolidated basis, AUM was up 25% year-on-year, and we ended the year at INR 1,01,230 crore.
We thus stay very much on track for our stated goal of INR 1.5 lakh crore by FY 2028. The second vector was profitability, on which I'd like to direct your attention to slide 5. The return on AUM of our growth business increased further, as Anand mentioned, to 2.1% in Q4 versus the 1.7% we were at in the same quarter last year. Leverage, which is AUM to equity, also continued to increase, and we are now up at 3.6x in Q4 compared to 3x same quarter last year. We continue to progress towards our goal of 4.5x-5x. The third vector in our value creation framework was predictability, on which I'd like to draw your attention to slide 6.
In the fourth quarter, the growth business delivered a PBT of INR 495 crore, keeping up the steady and predictable trajectory of the last 8 quarters. The stability and predictability are also visible in our credit risk outcomes, with retail 90-plus delinquencies down 20 basis points quarter-on-quarter to 0.6%. Growth business credit cost was also down marginally quarter-on-quarter to 1.5%. More importantly, as you can see on the page, the performance was extremely steady over the last 4 years. Let's now get into our specific business performance metrics. On the growth business, our retail AUM growth remained strong. We ended the fourth quarter with a retail AUM growth of 33% year-on-year.
Disbursement in retail recovered from a moderate Q3 and were up 34% year-on-year to INR 13,101 crore. Our mortgage business, comprising housing loans and LAP, grew by 32% year-on-year to INR 57,837 crore. Mortgages account for 57% of the total AUM of the company and 67% of the retail AUM. If you look at slide 24, we have provided this quarter some additional disclosures on subsegments within our HL and LAP businesses. Over the years, we have expanded our presence in mass affluent home loans and larger ticket LAP Plus products. With our rating upgrade, our ability to serve these segments is significantly higher. Retail AUM growth was well diversified across our product categories, all growing at about 20%-50% year-on-year.
Wholesale 2.0 AUM was up 38% year-on-year in the fourth quarter, with both real estate and mid-market lending showing strong year-on-year trend. Growth AUM was collectively thus up 33% year-on-year to INR 98,423 crore. If you look at slide 30, our retail customer franchise grew by 22% year-on-year to 5.7 million. As Anand referred earlier, we've crossed 5 million as our customer franchise this year. Our sourcing from cross sell in unsecured disbursements is around 30%, which we expect to materially improve over coming years. Our cross sell portfolio comes with significantly lower OpEx as well as credit costs. During the third quarter call, we had guided towards opening 100 new branches in the fourth quarter across three formats. We have successfully delivered on that plan.
After not expanding our branch network for seven quarters, we resumed branch expansion in Q4, for which I'd like to refer you to slide 28. In this quarter, we opened 26 full service branches, which we have now rechristened as urban branches. In addition to these, we've also opened 22 gold loan branches and added 60 rural branches, which we earlier called microfinance branches. We have now taken our rural network to 136 branches. In all, our total branch network has crossed 700 in this quarter and stands at 701. As shown on slides 25 and 27, we took meaningful steps forward in this quarter on gold loans and rural lending. Starting with slide 25, we launched phase one of our gold loans business with 22 branches in Maharashtra and Telangana. As of today, 13 of these gold loan branches are disbursement active.
We are innovating traditional gold loan product with unique tech and AI-based features. We expect to open 180 more gold loan branches in FY 2027 to take our gold loan branch count to approximately 200. We are spearheading our emerging rural strategy with micro loans as the first product through our 136 rural branches, which you see on slide 27. Our micro loans AUM was up 42% year- on- year from a small base to INR 1,384 crore. Moving on to margins. Our consolidated level NIM expanded 20 basis points quarter- on- quarter to 6.5%, which you will see on slide 15. You will also see on this slide that the consol NIM has been continuing to close the gap with our growth book NIM, which is 7%.
Cost of borrowing during the quarter declined by 11 basis points on a quarter-on-quarter basis to 8.84%. Along with actively working on our borrowing mix, the impact of credit rating upgrades should provide a tailwind to our cost of borrowing over the coming years. Domestic credit rating upgrade from AA to A A+ has the potential to lower our cost of borrowing by 50-80 basis points once we churn our current borrowing stack out and replace it with new borrowing. The AA+ rating also offers us access to certain parts of the lending market we could not access before, thus enhancing our ability to continue delivering industry-leading AUM growth. It can also aid expansion of return on AUM and potentially also allows us to lever our balance sheet higher versus what was possible with the AA rating.
All of this could lift steady-state ROEs by 3-4 percentage points. On retail income, total retail income as seen on slide 21 grew by 35 basis points quarter-on-quarter to 15.5% of loan book. Our yields on loans were stable. The retail processing fee amortization continues to catch up to support the overall fee income. There was, however, a reduction in our insurance fee in this quarter due to a change in commercials with our partner Pramerica Life. On OpEx, retail OpEx to AUM further came down by 21 basis points quarter-on-quarter to 3.6% per annum in quarter four. You will see this trend on slide 21. We have now consistently reduced our OpEx to AUM ratio for 3 years and have now entered the target range, which we had indicated some years earlier.
While we have restarted our branch expansion, the continued productivity gains for our employees and branches have the potential to take our retail OpEx to AUM a little bit lower than current levels over FY 2027. Tech and AI have been key enablers of our growth and productivity enhancement. While we have been sharing, in the past, the impact of AI across five key business areas, we are now starting to share additional input metrics as well. I'd like to draw your attention to slide number 7. Here we have tried to share a metric for overall use of GenAI techniques at Piramal. You will see that there is a strong growth in our total token usage across SLMs and LLMs in the course of this year, showing the high levels of AI adoption in the company.
In Q4, our total token volume was at 178 billion tokens in the quarter versus 63 billion in the first quarter of this year. This compares well with the best of global elite enterprise scale companies in terms of token usage for high frequency agentic AI and processing of massive amounts of document data. On slides 32 and 33 , we have shared some more details of our enterprise AI strategy, Piramal.ai. On slide 32, we introduce a new dashboard on the progress of AI, particularly gen AI use cases, across all key aspects of our business. As you can see, AI adoption cuts across sales, underwriting, collection, audit and compliance, CX, and people management. The next page, slide 33, covers our fourth quarter AI spotlight. Last quarter, we had featured collections in our AI spotlight. This quarter, we feature operations.
You can see on the slide that operations productivity has doubled in the last 2 years. Our AUM has doubled in this period, whereas our operations staff and headcount has remained roughly flat. Moving to risk. The risk performance of the company was solid, with GNPA down 32 basis points quarter- on- quarter and growth business credit cost down slightly quarter on quarter to 1.5%. Retail is 87% of our growth AUM, and it witnessed significant improvement in Q4 risk across all products. Asset quality and unsecured lending showed strong improvement in the last 4 months. Risk metrics here are broadly back to 2-year-ago levels. The microloan portfolio has almost completely normalized, as you see in our 90 DPD chart that we share every quarter.
In our semi-secured business, which is used cars, after three quarters of elevated risk metrics, we saw a steep fall in Q4. In mortgage business, risk continues to be quite steady. We had earlier flagged a part of this business as potentially problematic given increasing risk levels. This was around smaller ticket mortgages with MSME customers. Over this last quarter, however, we have seen this segment stabilize and perform noticeably better than before. We will, however, continue to track this segment closely. As you can see, headline risk metrics are all stable to improving in Q4. However, we are closely watching segments that could potentially be vulnerable to the ongoing conflict in the Middle East.
We had originally taken MSMEs in the F&B sector as the epicenter of potential vulnerability and impact, but we have since expanded our watchlist to include a broader set of sensitive sectors, including travel and logistics, textiles, gems and jewelry, food processing, et cetera. As of now, risk metrics here all appear contained. Bounce rates in these vulnerable sectors in April have come in at the same levels as March. We use AI to rapidly scan and classify hundreds of industry subsegments by their sensitivity to the Iran conflict, mapping direct impacts first and progressively identifying knock-on effects across connected sectors. This use of AI turns what would have been weeks of manual analysis into near real-time exercise, allowing us to move quickly from portfolio diagnosis to targeted product-level action. We have thus tightened fresh underwriting in these sensitive sectors.
We believe that customers from these sectors who also have moderate to high preexisting leverage are likely to be the most vulnerable. That is the segment where we are taking most of our credit actions right now. Overall, we have not seen any visible impact of the conflict on retail risk metrics yet. We remain, however, watchful and ready to act as necessary. On the liability side of potential impact of the conflict, we continue to maintain strong liquidity buffers. Our average quarterly LCR in Q4 was 450%. We have cash and cash equivalents of INR 8,640 crores, equivalent to 8% of all our assets. CPs form less than 1% of our liability stack as of March end.
This conservative position both minimizes our liquidity risk as well as maximizes the opportunity for us to benefit from falling rates at the short end. Finally, let me come back to the overall company. Having met all our stated targets for FY 2026, which Anand referred to earlier, we have refreshed our targets for FY 2027, which we have listed on slide number 17. We are sharing three pieces of our goals and guidance for the coming year. We expect another year of approximately 25% growth in total AUM. We expect consolidated profits to also grow at approximately 50%, and we expect to exit FY 2027 with a return on AUM of approximately 2.5% versus the 2.1% we reported in Q4 FY 2026. You'll notice here that we have not called out a separation in language between consolidated and growth.
That's because given the relatively small size of the legacy book, one should expect that somewhere along the course of this year, we would start reporting legacy as a separate segment. You should expect that to happen sometime during the course of this year, though we are not calling out a specific date on that yet. With that, I'll hand over the call to Yesh to discuss our wholesale business. Yesh?
Thanks, Jairam. As at March 2026, the Wholesale 2.0 book stood at INR 12,538 crore, which was a growth of about 38% year-on-year. Real estate to CMML mix stood at 73/27. Average ticket size of the book was INR 53 crore, and the average yield of the portfolio was stable at 14.4%. Asset quality remained robust with 0 NPAs in this book, as Anand mentioned earlier. During the year, we disbursed INR 9,292 crore with fresh sanctions across 135 deals. Repayments continued to be robust as we received INR 5,859 crore or about 63% equivalent of the disbursed amount during the year. In the fourth quarter, the repayments were particularly strong, amounting to almost 82% of the new disbursements.
While strong rates of repayments continue to be a major growth headwind for us, it also highlights that the portfolio seasoned very well and is performing well ahead of our underwriting. In fact, due to these significant prepayments, almost 50% of the contractual repayments due to us in FY 2027 have already been paid by our borrowers to us to date. On Wholesale 1.0 legacy book, we ended the book at INR 2,807 crore, which was a reduction of 59% during the year. This is now a very small part of our balance sheet, and we will continue to work on resolution of this book over the following quarters. Before handing over to Vikash, I will also say that we continue to monitor the impact of the Iran war on the real estate and CMML segments.
Since the war broke out in February, to date, our portfolio sales, collections, and other operating parameters have continued to remain very strong. We also feel good about the granularity and the diversified nature of our portfolio, but we'll continue to monitor our credits proactively as we progress from here. With this, over to you, Vikash.
Thank you, Yesh. Moving to our financial performance. In Q4 FY 2026, we reported consolidated net profit of INR 502 crore versus Q4 of FY 2025 net profit of INR 102 crore. Full year FY 2026 net profit was INR 1,506 crore versus INR 485 crore in FY 2025. Pro forma PBT for growth business stood at INR 495 crore in Q4 FY 2026, implying a growth of 61% year-on-year. Growth business OPEX grew by 12% year-on-year versus income growth of 24% year-on-year. Operating profit thus grew by 37% year-on-year to INR 850 crore. In Q4 FY 2026, we reported growth business credit cost of 1.5% versus 1.6% in Q3.
Our total GNPA and NPA were down 30 basis points quarter-on-quarter each to 2.3% and 1.6%, respectively. Our net worth stands at INR 28,191 crore. Our capital adequacy is very strong at 19.8% as of March 2026. Our profitability continues to improve, and we also have investments that can potentially be divested to unlock capital. Just as we have done in the past, we remain committed to maintaining comfortable margin of safety over regulatory capital requirement. We will use all the available levers at our disposal to ensure that. With these remarks, I would now like to open the floor for questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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. We'll take our first question from the line of Shreya Shivani from Nomura. Please go ahead.
Yeah. Hi. Thank you for the opportunity.
Hi, Shreya.
Hi. I have two questions. My first question is on the consolidated NIM and the growth NIM. The gap between these two has been narrowing. It's at about 50 basis points as of fourth quarter, right? 6.5% and 7% or so. The legacy book is now, like, very minimal. Where do we see our consolidated NIM? I'm assuming the growth NIM is where the consolidated NIM will reach. And then beyond that, what are the levers for expansion? I mean, I get your gold loan and MFI segment would be one of the major levers. My second question is on the legacy book. I mean, that scale down is quite impressive. Fair to say that majority of it is actually SRs and Stage one.
How should we think about the legacy book movement over the next two years? It's at about 3% or whatever, less than 3% of your AUM mix right now.
Yeah. Thank you, Shreya. First question, where is the consol NIM headed? Obviously, consol NIM and growth NIM will become effectively the same, you know, hopefully towards the latter half of this coming year as the legacy book becomes smaller and smaller. Now, Growth NIM, of course, today is about 7%. What are the levers on the growth book NIM itself? There are two main levers. One is exactly what you said, which is product mix on the asset side, which is increase in unsecured, which we have guided before. We would like unsecured to be about 400 basis points larger, 400-500 basis points larger in our mix compared to where we are right now.
Plus some of the new products that we are launching, particularly gold, which is secured but has high yield. Between the two of them, the mix story is gonna be a little bit margin accretive. Even more importantly, on the liability side, the A A+ rating has not yet shown its effect on our cost of borrowing.
I mentioned before, I expect the AA+ impact to be about 50-80 basis points over the course of the coming three years. Because three years is the time of churn of our liability side book. That should come in as well. Those are the two big levers, one on the asset side and one on the liability side, which should help lift our NIMs on an overall consolidated basis, once we have merged everything together. Now, to your question on the legacy book, we are at less than 3% of the portfolio here. You should see...
If we are talking about legacy book next year at this time, you'll be very, very surprised. We'll, it'll become irrelevant by the latter half of this year. By Q4 of this year, it should become so small to be irrelevant. That's why our statement earlier that you will just see us talk about one set of numbers rather than mix of legacy numbers by the end of this year.
Okay, that's great to hear. Just a follow-up on the scale-up of the unsecured book. Fair to say the unsecured book scale-up would be equally across digital loans, which is aggregated loans and your own sourced UBL book, or one would take precedence over the other, or you'd focus more on one and so any color on-
It depends a little bit on risk performance, Shreya. Like, as it happens, the last 2 quarters, digital loans have performed super well. If you see page 22, you look at the risk performance of digital loans, which is on the bottom left, it's been insane good. So currently we are somewhat bullish on that segment. If it turns, if that curve starts to turn, we'll be equally ruthless in actually starting to cut that and go even more towards branch business. If you see the salary PL chart on the same page, you'll see it's been rock steady. Right? It's been really, really strong. We love both our branch-based businesses as well as our digital businesses. Which takes precedence? That's a month-on-month, quarter-on-quarter call, depending on what the risk curves look like.
We don't have a philosophical bias on one versus the other.
It's easier to scale up digital loans faster than the branch-led salaried PL or UBL, right?
That is true, but it also tends to be more volatile. In bad times, you also cut it much more ruthlessly. You might recall that when digital was going through its peak in FY 2025, we had cut it by more than 60%. Volumes also disappear there very, very quickly.
Right. This is very useful. Congrats on a good set of numbers. Thank you and all the best.
Thank you, Shreya.
Thank you. Next question is from the line of Harshit Toshniwal from Premji Invest. Please go ahead.
Hi, Harshit.
Hi, sir. Good afternoon.
Yes.
Your audio is not clear, Harshit. Can you use your handset mode, please?
Sure. Hi. Is this better?
Much better.
Yes. Please go ahead.
Yeah. The question was two-pronged, sir. One was on the other income, profit fee income for the growth business itself. You mentioned the statement about some change in arrangement with the life insurance partner. But like if in general, I look at that number as a percentage of our retail growth AUM, that's now I think 0.5% for Q4. And obviously, there was some amortization impact which was also going on, if I'm not wrong. But where we should look at this number? Because given our asset mix, ideally 80-90 basis points, 70-80 basis points is something which is not unreasonable.
Yes.
That was one.
Your point is correct, Harshit. What we have in Q4 is low. It needs to go up. It will go up. There was a one-time event that we had in Q4, where we reversed some fee income in aid of our associate company, which is our life insurance company, for some technical reasons. I'd not like to go into that here. It's a one-time adjustment which we did to help them out, and it is a company where we own 50%, so there is value accruing eventually happening to us. We're not particularly worried about it. Your point on where that fee income should head is absolutely correct, and you will see normal service being restored very quickly.
Got it. The second question was on the piece. Right now we are standing at 2.1 on the growth AUM, and this is with 1.5% credit cost. Probably if we plan to end FY 2027 with 2.5, then I'm just trying to marry these two facts that
Yeah.
Our credit cost in general, you said that should be 1.92% as a steady-state one. Which is 40 basis points higher than today's number. Are we expecting FY 2027 credit cost to remain benign because of probably for whatever reasons? Or do you think that it's the margin and the cost levers and fee income levers, et cetera, which is helping you stick onto that 2.5% number? Because Q4 2.1% is on the back of that 40 basis points lower than sustainable credit cost.
Right. That's a great question, Harshit, and the answer is pretty much the second half of what you said. Yes, you're right that we have been surprised positively by how good the risk environment has been. I thought risk environment through the year was good. Q4 turned out to be even better. So yes, we are mildly positively surprised. You will also notice a fact in our presentation, and if you look at some of the new disclosures we have started, which is the sub-segment level disclosures on mortgages, et cetera, you will see that over this year, we have started doing a little bit of more prime-like business, right? You will see more of that coming forward, which will help our overall risk performance. Let's see how much we are able to do it, et cetera.
Importantly, see, there are three things that can change or that will change in our DuPont. OpEx to assets, which will continue to get better. We believe there's another 50 basis points of play there. Cost of borrowing, which as I mentioned before, has 50-80 basis points over a three-year period. Right? That should get better on a size interest rate cycle adjusted basis. Right? There is this credit cost, which will probably go in the opposite direction, which you know, if my earlier expectations are correct, it will probably kind of eat away some of the delta.
We believe there is enough play in the first two that we can hit 2.5 by Q4 of the coming year, even if there is some normalization of credit costs.
Great. Sir, and last question, Jairam, what so clearly legacy book is frankly going to be very irrelevant right now. Still, if I look at probably the write-offs of INR 1,500-INR 1,600 crore, which we have used from our gains and another 20. So it's a INR 3,000-INR 4,000 crore book. Should we in our minds expect some recoveries? It's gonna be a bounty itself, but at least on the current INR 2,800 crore, because I'm not sure barring Shriram Life we will not have much more capital gains left. In general, more from just a recovery point of view rather than recognition, that should we hope for some benefit on that side? Probably the last question just attached to this itself is on the capital adequacy.
We are right now at around 19.5%. Now if you mentioned slightly in the opening remarks of some of the levers which can free up some capital, but if you can help us elaborate that till what time we don't need capital with this kind of growth?
Yeah. Great questions, Harshit. On your first one, which is should we expect. I'm just paraphrasing you. Should we expect any sort of recoveries to come from all the provisions that we have made in the legacy book? You're saying that, hey, broadly, we expect no further recognition issues and no further hits. So probably no kind of negatives to the PNL going forward, but are there any positives to be had? The answer to that question is a qualified yes. We have been conservative in the way we have provided over the last few quarters because we had some opportunities and some one-off gains. We have used that.
It is reasonable to expect that as the unwind completes, between what we have on the book and a little bit of what we have off the books in the form of AIF, et cetera. There are INR a few hundred crores. I will not specify an exact amount. I'll just say that there are INR a few hundred crores of potential, kind of write-backs that you can expect. But I'm not specifying a number nor a specific time period. But you should expect that. I think there is something there in what you said in terms of the way we have gone about providing over the last few quarters. Your second question was on capital. Again, a great question. We ended the year and the quarter at 19.8%.
We have said in the past that while the regulatory requirement is 15%, if we get to the 17.5-18 kind of range, we will probably be looking at raising capital. In this quarter, if you see, our consumption has only been 50 basis points. Net consumption of capital has only been 50 basis points, which means we have some runway ahead of us when we are at about 20. We have like maybe 4 quarters of runway, 3-4 quarters of runway, depending on how you look at it and the kind of profitability we have in the coming year. We have some runway left. Let's see what we need to do. We have some other levers as well to take care of capital needs, if any.
You know, never say never on any of these things, but our current levels are healthy and consumption rates are still relatively modest. We should be able to get through a few quarters pretty easily.
Got it. Perfect. Great. Thanks a lot, sir. Congratulations.
Thank you.
Thank you. Next question is from the line of Avinash Singh from Emkay Global Financial Services. Please go ahead.
Yeah. Good evening. Thanks for the opportunity. A couple of questions. The first one continuing on the capital part. If we were to see that, you know, the balance sheet leverage, it is still pretty much on the lower side. From the net worth that is on the balance sheet, what all sort of adjustment on regulatory capital? Because it seems a pretty big number. I mean, is it kind of a, the deferred tax asset that upfronted income? That's a pretty, I would say, large number because the balance sheet leverage is, I mean, assets/equity is not yet 4x and the capital adequacy is relatively lower. That's one.
Particularly considering the fact that on the risk weight side also you will have a mortgage side that will not be that risk kind of a risk weight intensive. So that's one. The second one is on this thing, the tax. Now, given that you know, the accumulated tax losses are close to INR 25,000-odd crores. What is the kind of a timeline by which you need to kind of consume it? So just to get an idea that, okay, if that entire is going to provide you know, the tax relief. Thanks.
Thank you, Avinash. Great questions. The first one, the deductions from capital, there are three main deductions from net worth to get to net own funds. NOF is what goes into the numerator of CRAR calculation. Net worth is what you see on the balance sheet, INR 28,000 crore. What are the three deltas from here to NOF? The three deltas are there is one lot which is regular business as usual deduction, which you will see in any lending company. Things like, you know, cash position if we have for securitization some unamortized DSA fees, et cetera, or DSA payouts, et cetera. Some of that stuff will be sitting there. That's one element. The second element is DTA that has been created.
We have about INR 2,000 crore-ish of DT, 2,500 or 2,700 crores, INR 2,700 crore of total DTA that's on the balance sheet. That's number two. The third deduction is investments, right, which is all the Shriram General and, Five and some of these other things, all those investments. Those three things roughly equally distributed, about INR 2,500 crore-INR 2,700 crore each, right, is the number in all three of them. That's the delta between what you see as net worth and what you will calculate as net owned funds. Of these three, the first is pretty normal, right, business as usual. Even in the end state, you should always expect to see that.
The second one, which is DTA, exists in our case because we have so much accumulated losses, etc., so we get the benefit of that from a PBT to PAT standpoint, but you have to pay for it a little bit in the form of capital. That's the second one. The third one, which is the investments, is the one that can go away. As we keep divesting more and more of the assets, that part will go away. The gap that you see between net worth and NOA will narrow to that extent. It'll narrow by about a third of what it is right now. That's as far as capital is concerned. Your second question was. What was the question?
Tax.
Tax. You see, the total we have about INR 24,500 crores or so of accumulated tax losses. We have created about INR 2,100 crores of loss-related DTA, carry forward loss-related DTA. That INR 2,100 crores is roughly equivalent to, you know, 4x turnover. That's INR 8,400 crores. If you net off that, essentially you have INR 16,000 crores, give or take. Roughly INR 16,000 crores of future profits of the company are tax protected as far as P&L is concerned. That's the simplest way I can actually frame this. However long it takes for us to consume INR 16,000 odd crores, as long as that period is less than what is it? Seven years. Is that what-
2032.
2032. Till about 2032, then we can keep using it.
Just one again on this. In a normal course of business, as you kind of are now, your profit has started to go up and you start to sort of, how will this thing, this your carry forward losses move? It will keep creating DTA and I mean, will this DTA go on rising or kind of, it will be offsetting? How will the DTA kind of typically assuming the, you know, the typical 2.5% kind of forward trajectory?
Yeah. See, the way to kind of think about this is every quarter we will do an assessment of our virtual certainty of profits, which we will discuss with our auditors every year, roughly. We will discuss this with our auditors, and based on their advice, we will create DTA as necessary to offset. But from a P&L perspective, the way you will see it is that effectively your PBT and PAT will be pretty close to the same except for some line items which are taxable, like some dividend line items, et cetera, or some other line items might be taxable. But mostly you should see PBT equal to PAT for the foreseeable future.
Hence for the next kind of 16,000-odd crore of PBT, from a modeling perspective, you can keep a kind of effective tax rate in your model at a very low number. You know, unless something kind of dramatically changes from here. This is all with the current level of carry forward losses that we have. Any future carry forward losses that get created will add on to this. Every time we get tax authority's approval on some carry forward losses, they are valid from that point of time for-
8 years.
Eight years.
Got it. Thank you.
Thank you, Avinash.
Thank you. Before we take the next question, I would like to remind participants, to ask the question, please press star and one on your phones now. Next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.
Hey, thanks for taking my question. Maybe you touched upon this already, but you know, in terms of cost of funding, you know, what is the difference between incremental and average cost of funds?
Yeah. Our stock cost of borrowing is about 8.8%. In Q4, our incremental borrowing cost for long-term money was 8.4%. We didn't raise much short-term at all, so I don't know. My guess would be that short-term will be like 7.25 right now, if we went to the market and started raising short-term money. You can take any mix between short-term money at 7.25 and long-term money at 8.40. That should give you a little bit of a sense of where our Q1 will be. We are currently not raising anything short-term. We have only been doing long-term over the last four, five months.
In terms of your bucket, you know, I mean, if I have to just take a normalized bucket, how could that cost look like?
What do you mean the bucket?
That's AA+.
I said AA plus. Like that. See, this is still probably at the higher end of the entire AA plus range. If you look at the best in AA plus, they are probably 50 basis points better than this, maybe 60 basis points better than this on the long term.
Sure. Probably you touched upon this, but, you know, now as your cost of funding comes down, you know, how does that really sort of feed into your asset side strategy?
Yeah. Also
Do you see the role of population changing? Yeah, sorry. Yeah, sorry about that. Yeah.
Yeah. Two things there. We will take some of the delta into P&L, and we'll use some of the delta to drive growth. Effectively we will build some new businesses which we could not do, you know, when we were a A A. And that will help us actually drive growth. The rest we will essentially, you know, feed through to our DuPont and get closer to our 3% return on AUM goals that we have shared with you all. Both of those will happen. You've seen some early signs of that. You saw some of our high ticket lap and some of our mass affluent housing disclosures this time.
Those are more AA+ like businesses, right, which we have been in anticipation of what was to come. We have been building a little bit of that muscle, and as you can see, we've made some decent progress. You could see a little bit more of that in the times to come as well. We were a purely below prime player in the past. Now you could see us pivot and have a little bit of our portfolio, which is a bit more prime like.
Got it. The second question is, you know, walking the, you know, inorganic route, is there anything that you are sort of, you know, planning? I won't say on the cards, but are you really thinking on those lines?
Nothing has changed on this front. As we have said within the last couple of calls, I'll repeat, we are quite interested in M&A. The Piramal House has had a DNA of doing mergers and acquisitions and growing inorganically. We continue to be interested. However, if you look at the history of the Piramal House, you will also realize that we are value-based acquirers. We have limited interest in buying kind of perfect assets at fully priced-in value. You know, we'd rather find something which even if it's a little imperfect, but it is at a value pricing, we'd prefer that kind of a story.
The market has not been conducive for that kind of M&A in the last few quarters and last couple of years, but we remain interested. We remain interested in the spaces of microfinance, gold loans, MSME, any of these spaces, you know, we remain interested and we do look at a lot of deals, but nothing's imminent.
Nischint, does that answer your question?
Yeah. Actually, I think the management line has got cut off.
Oh, hi. Can you hear us?
Yeah.
Can you hear us?
Yeah, yeah. Yeah.
Sorry.
You're talking about. Yeah.
Sorry, I don't know where you lost us, so let me just quickly repeat. We remain interested in the spaces of microfinance, MSME, gold, et cetera. However, what we are looking for is an asset which is priced at value and not fully priced in. We are okay to look at slightly imperfect assets, where we believe with infusion of management, we can actually make the assets or take the assets to a better place. But it needs to be at value, which that strategy has not had much bite in the recent market because everything has been priced well, even assets in the MFI space, which is not our style of M&A.
We are still in the wait and watch mode, but we are looking at all transactions, but nothing is imminent.
Anything just on the promoter side, is there any sort of a, you know, kind of a holding, you know, thought process or threshold or something in mind?
The promoters have always held kind of 45 odd percent. The promoter holding currently is 46%. We're perfectly happy with that situation and promoters remain fully committed to supporting the company in whichever way it needs to proceed. No, there is, there's nothing very specific to talk about there.
No, I was just referring to, you know, any dilution that could happen because of a potential M&A.
Yeah. None of the M&As that would come our way in the segments that I mentioned are large enough to really merit anything. Like 8-10% here or there, man. Like, it's not gonna-
Oh, okay.
We are not looking for transformational M&A right now. We don't need one.
Got it. Thank you very much and all the best.
Thank you, Nischint.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone. Next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Good evening. Am I audible?
Yes, Abhijit.
Yeah. Hi, sir. Sir, just two things. One is on slide 17, we have articulated a target, which is that ROAUM for exit quarter Q4, we want to take it up from 2.1 to 2.5.
Right.
Just trying to understand the levers here. I mean, the question here is that, as we speak, we have said in the past that we are working on improving the yields, whether it comes to a change in product mix or even existing products in mortgages where we are trying to increase the yields. At the same time, this credit rating upgrade will give us some benefit on the cost of borrowing side. I recall you saying in your opening remarks, anywhere around 50-80 basis points. In addition to that, I mean, OpEx is something which has been kind of coming down through a lot of concerted efforts. I recall you pointing that we'll now be adding more branches.
In this presentation also, you have shared that we have forayed into gold lending now and plans to add more gold lending branches. I mean, fair to suggest that, large part of this, ROAUM expansion that we are talking about will come from, the margin side because your OpEx, I don't know how to think about it.
Yeah.
might remain elevated, right?
Yeah.
Given that you're already there in that band, the guidance that you had put out even after lowering that band in your AI Investor Day. Credit costs, I mean, given how the environment is, I think 1.5%, maybe well primed now, right? In terms of credit also. How do we think about the various levers.
Abhijit, listen. You're pointing out all three things. They are exactly the right things. You know, they. I do think there is more play in OpEx to assets. I believe that we have another kind of, you know, 50 odd basis points that we can still do. This is probably the last year or so that we can do this kind of OpEx narrative. I think the OpEx narrative is not over. We will continue to see that. Hold on to that. That will still be a meaningful part of the delta.
The second big favorable delta, of course, is the NIM story, which as you rightly say, is all gonna be driven as a cost of borrowing side from the liability side rather than on the asset side. On the asset side, yes, we will have a little bit more of unsecured and a little bit of gold, both of which is yield accretive. But we also have a little bit of this prime thing that we will start to do. On the whole, yield should go up, but even more so, the margin will go up a bit, grow a bit more than where we are as our cost of borrowing adjusts to the AA+ reality, right? Which we have not yet started.
We have not borrowed even a single bond issue we have not done in the market ever since we became AA+, because the markets have not been conducive. Over the next few years, you will see us go there. You should expect to see the cost of borrowing fall. Cost of borrowing and OPEX are the two big areas of favorability, and that's what should drive all the delta. On the credit cost side, even if there's a little bit of negative, i.e. 1.5% goes up a little bit from here, we'll still be able to absorb that through the first two that I mentioned, and hence we feel comfortable guiding toward 2.5% for exit quarter.
Got it. Thank you. The last question I had was, maybe just trying to clarify further why you already spoken or answered a couple of participants in this call. This unsecured segment, basically unsecured business loans and PN, I find it a little difficult to understand, that how is it that despite disruptions in various supply chains, I mean, you as well as other lenders who've reported until now have not seen any alarming impact of that. So, I mean, should we then conclude that maybe some second order, third order effects of whatever disruption that we are seeing from the West Asia war might come in the coming months? Or do you think that, customers and particularly self-employed and business customers are resilient and they have managed these disruptions very well?
The thing is, Abhijit, like they will. It is inconceivable. If the war continues for a while longer, it is inconceivable that you will see no effect here.
Thank you. We'll take our last question from the line of Vikram Damani from Damani Family Office. Please go ahead.
Hi, am I audible?
Yes, Vikram, you are. Go ahead.
Congratulations on a good set of numbers.
Thanks.
I have two questions. First is, could you explain the INR 900 crore, the two line items on the PL, the net loss on fair value changes at almost INR 1,000 crore-
Yeah.
The 590 crore impairment that you've taken. The second one was around your branch expansion. You've sort of gone from 570 to 700. Now you're going to 880 as per your presentation. Given that, any sort of change can we expect in the OpEx to AUM? Because new branches will take time to bring up to vintage.
Sure.
So far has done very well. On these two things. Thank you.
Yeah. No, no. Thanks for saying that, Vikram. See, on the first one, you know, you point to two items, which are write-downs, the markdowns we took in this quarter to make good use of the one-time gains that we got. You might recall that there are two important one-time gains that we received in this quarter. One was the deferred component of the Piramal Imaging sale. That is about INR 1,300 crore or thereabouts. There was a 300-odd crore, 250-odd crore gain on the sale of the Shriram Life Insurance business, right? We had that INR 1,500 crore.
We wanted to not take it through to P&L, but we wanted to kind of strengthen the balance sheet appropriately now that we got that bounty. The line items you're referring to are our ways of strengthening the balance sheet, i.e. identifying either areas where potentially in the future some losses could come, and to preempt that and actually take roll that to now and then take the hits now itself. Or areas where, in being sort of prudent, it is appropriate to just put something away even though there might be a chance that some of it might come back to you in the future.
I don't want to go into it in any more detail than that, but suffice to say that this has helped us clean up the old legacy book quite nicely and also created, you know, some pockets of conservatism in the balance sheet, which can help us on a rainy day in the future.
Can I assume that you just broadly increased your buffer more to do with the legacy in this case?
I think it's a fair way to talk about it. The way I'd say this is that we have the increase in our safety buffer is probably a third of the entire hit. The other two-thirds is probably stuff would have come to us anyway, but maybe over the next two years.
Okay. Good to know. Thank you.
Thank you. Oh, there was a second question on OpEx to assets and whether OpEx to assets is likely to increase because we are investing in new branches. The answer for next year is no. We have come up with our branch plan in such a way that our OpEx to assets will continue to fall. Let me restate something I said, I think in a previous call, that if it comes to choosing between a declining OpEx to assets ratio and putting up new branches, in this year our bias will still be towards the OpEx to assets curve. We want the OpEx to assets curve to come down for one more year. After that, we might be more comfortable for it to be stable, but we want it to come down for one more year.
I don't think it'll come to making that hard choice. If it does come to making that hard choice, we will choose in favor of the OpEx curve rather than in favor of branch openings. Let me also add that the areas where we are adding branches are gold and rural lending. A gold branch takes about one-third of the operating expense of a regular urban branch on an annualized basis, about one-third. A rural branch takes about one-tenth of the level of investments of an urban branch. These two categories where we are growing branches, they are actually much cheaper branches than what we regularly do in our full-service branches. We should be okay.
If my math is wrong and if we end up seeing that OPEX curve starts to move up, you will probably see us give up on the branch growth, but not give up on the OPEX curve.
Very, very useful. Thank you so much.
Thank you. I now hand the conference over to Mr. Jairam Sridharan for closing comments. Thank you, and over to you, sir.
Thank you very much, everybody. Have a great evening. Thanks for participating actively in our call. We look forward to hearing any more from you. If you have more questions, please do reach out to Ravi and the IR team and they'll be able to share more data with you. Thanks, and have a great evening.
Thank you, members of the management. On behalf of [audio distortion] , that concludes this conference. We thank you for joining us, and you may now disconnect your lines.