Ladies and gentlemen, good day and welcome to the Poonawalla Fincorp Limited Q4 FY 24-25 and FY 25 earnings conference call. We have with us today on the call Mr. Arvind Kapil, Managing Director and Chief Executive Officer. Mr. Sunil Samdani, Executive Director. Mr. Shriram Iyer, Chief Credit and Analytics Officer. And other senior management officials. As a reminder, all possible 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. I now hand the conference over to Mr. Arvind Kapil, Managing Director and Chief Executive Officer of Poonawalla Fincorp Limited. Thank you, and over to yourself.
Thank you. A very good evening to all of you. Let me begin by summarizing our last 10 months: guidance versus actual what's happened on the ground, followed by a brief update on our performance during this quarter, and the details on a couple of initiatives which we believe will add immense value to our building blocks in business: distribution, tech, AI, digital journeys, one of the key initiatives that we have, and execution of various other launches. Within the 10 months behind us, I am clearly witnessing three key critical strengths emerging as differentiators for Poonawalla Fincorp. I thought maybe it's a good time for me to share that with you, and this is vis-à-vis the competing landscape in the market.
Firstly, our digital journeys, in-house AI-developed models, and there's a whole lot of AI visibility that I'll give you today, more precisely, including the update on what we had launched earlier. Risk analytics. All these three will enable us to use data and insights across businesses from sourcing to underwriting and collections, which will, in my view, make technology a competitive advantage for us. Secondly, deep product and risk expertise that we have built in the organization on various asset classes with decades of experience and proven capabilities. What we find is that our very seasoned Management Team is a very big strength for us. The above two points will create a competitive edge for us by making us most agile and quality assessment of external customers.
I think in this competing landscape, the strength of using technology, digital journeys, AI for a quality assessment of an external customer in an agile way will be a very strong competing edge across product basket. Thirdly, culture of passion driving execution and results with speed and scale is how I would summarize how the overriding culture is for the organization. I'm already witnessing these strengths emanating, which are visible in our AUM growth that we've achieved this quarter. This has also been possible as our acceptance and credibility with various distribution partners is on a high in both digital plus physical mode. Let me briefly take you through a quick snapshot of the guidance versus actual on key drivers that we've done over the last 10 months.
In quarter one, financial year 2024-25, we had given an AUM guidance of 30%-35% for the financial year 2024-25 and 35%-40% thereafter. I'm happy to share with you that our AUM has grown by 42.5% year on year and 15% quarter on quarter, and landing up to be 35.631 as of 31st March. So I think despite the fact that initially we took the STPL down, we recalibrated, brought it back, we managed to get our AUM growth, and that's probably a signal of how the respect that this team commands in the distribution world. That's the limited point I wanted to park with you. Our strategy focuses on achieving sustainable profit. That's what we have very clearly set out to do, and therefore this year it'll be more biased towards robust AUM growth.
Just to reiterate, our guidance of very robust profitability, which we had given last time on the financial year 2026-27, stands strong, and hence it would be safe for us to say that our confidence is high on the AUM. Total disbursements for quarter four, financial year 2024-25, stands at 9,378 gross, up by around 31-odd% quarter on quarter. Another guidance that we had given was the launch of six businesses in the first quarter of this financial year, which would have actually been end of June. I'm happy to share that as a team we planned well in advance in the last six months and have systematically managed to launch all six businesses that are already live in the market as I talk to you.
Our aim will be to have a higher focus on the quality of processes for the first four to six months in line with our risk-first approach, and then gradually scale it up and bring momentum. I'm happy to share that one of our standout initiatives, PL Prime, which we launched in August 2024, has scaled from 0 to 120 gross by December and about 200-plus gross in March. Just to give you a ground-level sense of how certain businesses that we launched, even the very competing ones, we're managing to hold it with a certain momentum. That's nearly double in just one quarter. This isn't just a number. It reflects the trust we're building in the middle-income segment. It is initial stages, of course, but I also want to assure you that 75% work is at category A companies, 72 we do take-home salaries above INR 75,000.
So to give you a sense that we are prioritizing our risk-first approach even at the ground level, just the way we're talking about it. It's a clear sign that we are attracting financially stronger and more responsible borrowers. We've also launched industry-first 24/ 7 digital journeys for our external customers. We expect this to build quarter on quarter, but I see the real gains over the next three to four quarters. I have a belief that this will become a very strong competitive advantage, not just for the personal loans, including the business loans that we might land up launching in the next three to four months. On the unsecured side, a 24/ 7 journey is going to be an innovation route where we build our risk appetite step by step, gradually, but very progressively. Our businesses have seen healthy credit calibration growth.
To give you a sense of some of our existing businesses, LAP is now at 8,466 gross book, having grown at around 107-odd% year on year and 24% quarter on quarter. Incremental growth has come at a healthy LTV of 51%, so we are adequately, sensibly lending. Similarly, business loan has grown by 47-odd% year on year, 14-odd% quarter on quarter at 57.28 gross. The profiles that we have lent to are vintage businesses with healthy robust cash flows. Regarding operating cost, we've already guided for approximately 50-odd gross per quarter as an incremental investment. We have successfully launched six businesses till date, with plans to launch another 400 branches in the next four quarters. As a result, our operating costs will show an increase in the first two quarters.
However, by quarter four of financial year 2026-27, that's this year, we're fairly confident that we are anticipating that our operating cost as a percentage to AUM will be stabilizing at very prudent levels, reflecting operational efficiencies and scalability. Our confidence on the AUM is fairly strong, and hence I state the same. On the retail side, having credit calibrated our book, we are turning the corner on the risk-adjusted performance. For the digital personal loan, or you can call it the new STPL portfolio, the risk-calibrated approach check balances have tapered down substantially by approximately one-third, and we are very excited about this because there's a fair amount of work we've done on this. We're slowly, gradually, and yes, prudently, stepping towards a higher monthly growth rate. We had said that last time, and we're stepping it up.
Similarly, as mentioned during the last call, we're shifting the nature and profile of used vehicle portfolio by keeping risk-first approach. Gradually, we witness a shift in the mix of used vehicle sourcing. We'll also introduce a risk-based scorecard to drive smarter decisions and stronger portfolios. The whole idea is sustained and quality growth, even in this very growth. Let me, at this stage, take you through a quick snapshot of all newly launched products and give you a sense of our level of readiness. I'm talking about the six that we have launched over the last one and a half months. Starting with gold loan, while our digital products are scaling rapidly, we've also doubled down on our physical presence, especially through our gold loan business. Gold Loan adds strength to our secured bouquet of products. We're looking at 400 branches by the end of the financial year.
We would span across states like Gujarat, Maharashtra, Rajasthan, and Haryana predominantly, where we see strong market potential. The idea behind expansion is to build strategic hubs in tier-two, tier-three cities, locations that are underserved but rich in opportunity. These branches will be more than just gold loan centers. They will function as multi-product distribution points, helping us increase our share of the secured lending. Similarly, let's look at a quick snapshot of commercial vehicles. With an aim to bolster India's infrastructure, logistics, and supply chain sectors, we've launched commercial loans - Commercial Vehicle Loans, sorry - and have commenced disbursement in three key markets: Pune, Mumbai, and Kolkata in the first month of the launch.
We're offering a tailored solution in the new and used commercial vehicle space for financing the small, light, and heavy commercial vehicle operators. We're offering a technology solution focused on delivering seamless onboarding experience to customers.
In the next few weeks, we'll be rolling out mobility solutions with 25-plus integrations through secure sources to validate KYC: customer details, asset details, bureau banking details, valuation, and fraud checks. Key leadership teams across business and credit have been hired and onboarded. Further, to augment our distribution, we've enabled 100-plus channels from strategic and CV markets. So this gives you a sense of these two businesses. A quick one on education loans: we've seen very encouraging response. It's just been 45 days, and over 300 customer files at a ground level have already been logged in. We've got 25 educational consultants already tied up. In financial year 2025-2026, we aim to scale up our network to over 500 educational consultants ballpark, and we will play a pivotal role in helping us - these consultants, sorry - will play a pivotal role in helping us take this vertical to the next level.
We already have built a 100-member strong dedicated education loan sales team, and through this engine, we plan to sanction and support approximately 3,000-4,000 students within this financial year in pursuing their higher education dreams. Yes, we have made it digital-first, and yes, it's partly digital. We are offering an industry-first instant sanction solution, which no one in the industry has, including fairly large players in the market, and I think we're building on that model along with setting up the foundation for education loan business. Moving on to consumer durability, a space that holds immense potential for everyday customer engagement and growth. The early momentum has been quite promising. We are setting ourselves an ambitious yet achievable goal. We're looking at 210 locations across 10-12,000 dealer points by the end of the financial year.
This will give us fantastic visibility, and the business model will create a fantastic customer franchise. We've also introduced a PFIN EMI Card, which is designed to give customers access to pre-approved CD offers that they can utilize at their convenience at our dealer touchpoints. This is a huge step in my limited view, creating flexibility and accessibility in the way customers finance their everyday appliances and electronics. Shopkeeper loans, yes, we've provided tailored financial solutions to small retailers and Kirana stores. In first phase, we are operational at 44 locations and institutionalizing assistance for a customer-centric approach. At this junction, let me quickly pause and move on to a very important vector for us to stay cutting edge. Let me begin by sharing the marketing and the role of AI and subsequent projects of AI.
I think this is a very important initiative for us because we're going to look at tech as a very strong competitive edge for Poonawalla Fincorp. Marketing is going to be one of the critical departments where AI will play a critical role for us. While the financial service industry has adopted digital engagement in a big way, customers are flooded with messages all the way from multiple organizations, and there's a clear fatigue setting in. We've learned over the years that the key to successful conversion lies in how effectively we communicate to our audience. So the extent of personalization and relevance in our messages is no longer optimal. I think it's a very important standard in today's markets. To give you a sense of building a full suite of artificial intelligence with generative and non-generative capabilities across marketing lifecycle.
These capabilities enable us to reimagine our customer engagement and marketing campaigns with higher productivity, creativity, and precision. I'd like to share a quick example, a few examples of how we're leveraging the AI technology platform to improve our marketing efficacy. AI-driven customer targeting, that's one important area we're focusing on. One of the most significant advancements we've made in the area of customer targeting. By utilizing AI, we have created a highly granular micro-segment that mirrors our best customers. This allows us to attract a high share of applications from top-quality prospects. Our algorithms analyze vast amounts of data to identify patterns and characteristics that define our ideal customers, enabling us to target similar profiles and position.
This data-driven approach ensures that we are reaching the right audience at the right time, resulting in improved conversion rates and better customer acquisition outcomes.
At scale performance, we're looking at marketing optimization. In the realm of digital marketing, we are conducting over 100 experiments across our web and app platforms. These experiments involve various lines of communication tailored to specific customers, locations, languages, and other vectors. This continuous optimization process will help us reduce the cost of acquisition in the long run. By leveraging AI, we can dynamically adjust our strategies based on real-time data and insights. This also gives us a huge strength of increasing our digital lending business end-to-end done on our websites and on our app. This can be a game changer, like I said, over the next three to four quarters. Building a comprehensive martech stack, yes, we're scaling our customer base. We're investing in a full suite of marketing technology tools designed to maximize customer lifecycle value.
These tools enable us to perform end-to-end channel measurements, campaign automation, and delivery. Currently, we're running over 80 retargeting campaigns daily across our acquisition funnel, zero human intervention. This automation not only increases efficiency but also allows us to maintain a high level of personalization and relevance in our messaging. We're continuously strengthening the stack to reach the benchmark standards of consumer tech companies. Our goal is to build a robust, scalable, data-driven marketing ecosystem. That's the crux. Another important area is website transformation, and AI can be used for that. We've recently undertaken a complete overhaul of our website design to meet best-in-class design and personalization capabilities. This transformation aims to provide a seamless, engaging experience for our customers.
New capabilities to give you a sense like self-serve customer portal, QR code-based referral journeys, and credit score checks powered by the bureaus CIBIL and Experian.
These features empower customers with greater control and convenience. Transparency has been a cornerstone of this transformation. Customers now will have complete visibility into their journey. Looking ahead in phase two, we plan to further enhance our websites with a multilingual interface, a 24-hour support powered by conversational AI, five new languages for broader inclusivity, an integrated data platform with hyper-personalization for real-time and tailored recommendation, and an AI-powered interview system to streamline recruitment. These are the four fundamental ones for our website transformation between what we've already done. As I engage with my marketing team, I'm gaining deeper insights in today's consumers. They are no longer passively looking at traditional ads, but are instead consuming content in diverse forms across multiple platforms.
We fully recognize that at Poonawalla Fincorp.
This shift in behavior requires us to adapt as an organization to meet our customers where they are with content that resonates. Generative AI is playing a pivotal role in this transformation for us. It's helping us scale our content creation processes, enabling us to produce high-quality personalization content across formats, text, images, videos, and more, and unprecedented speed and cost efficiency. This allows us to engage with our customers in a meaningful way while also driving our ad productivity. While we're excited about the transformation potential of AI, we're also mindful of the associated risks, and we're managing them with full responsibility. As I've said, advanced analytics and AI are clearly emerging as key strengths, which we play a big role in all the models which we are creating and building in-house.
We're driving the AI-first approach across functions, and as we scale the organization, leveraging our internal capabilities and strategic partnerships, these future-ready initiatives will lead to increasing operating efficiencies and productivities. We had, for a quick snapshot again, we had announced seven precise AI projects in the last earnings call. Let me give you a quick update on the progress. I began with credit underwriting. We had deployed AI-powered tools to streamline operational aspects of the underwriting process. These tools assist in reading, validating, and organizing inputs, data, along with taking care of the basic communication to customer and field investigation agencies. This helps in improving turnaround time and productivity for credit managers in retail lending, thereby accelerating human decisioning and enhancing risk management.
We have already shared that this is leading to a 35-40% increase in credit managers' efficiency, and we've already launched the first phase of this.
In debt management, in the aim of enhancing efficiency, we now have the capability to have micro-strategies along with customer profiles, communication channels, and engaging timings on a unified platform. This transformed the collection journey by reducing manual effort and enhancing efficiency to predictive models, delivering around two to three times sharper risk assessments, and we're able to hit the customer or reach the customer much faster. In audit, we have collaborated with ServiceNow to deploy generative AI solutions for improving audit and governance. This is with an aim to enhance accuracy and reliability of our audit outcomes. The AI-powered analytics shall provide predictive insights, enable us to forecast potential risks, and take proactive governance measures.
In the compliance function too, we've also introduced AI-based regulatory requirement scanning and give the summary to the compliance team with a recommendation that suggests updates to existing policies or the creation of new policies for relevant functions. This reduces any chance of delay in implementation. So whether it's operating efficiencies or accuracy, each of the projects we're successfully executing. This brings me to another important function for us, HR. As I've already shared details during my last call, we are utilizing AI tools like ML, LLM, computer vision in the area of talent acquisition recruitment. We have reduced our time to one-tenth and increased our offer capacity by 10x. Further, as we continue to focus on improving the engagement and experience of our employees, the other AI initiative for us is the launch of MS Teams-based employee conversational agents.
It will help resolve employee queries with a plan to make it agentic so that the agent can aid in acting on behalf of the employees. In our ongoing endeavor to have a customer-first culture, our customer service department, as part of the roadmap, has introduced quality assessment tools for calls and emails, ensuring that time and efforts are saved. Review, assessment, and feedback are being well-managed, helping us improve customer experience and aiding in the reduction of complaints and repeat calls. We've also done a fair work to identify 18 further incremental projects across departments: credit, internal audit, HR, admin, infra, analytics, and IT, customer service, operations, and other departments.
They're based on the feedback received from the ground, which will improve productivity, bring in efficiency over a period of time. This is how we're building our in-house model and going about identifying and building the AI models.
Let me quickly give you a short sense on these 17-18 projects. To begin with, on the analytics department, the team's working on automation of model design, orchestrated from data preview, preliminary insights to optimal algorithms, selection across the family of traditional machine learning and AI algorithms. The workflow is designed to save time for the analytics team while at the same time evaluating multiple algorithms, select recommended basis, performance comparison. This, with an agentic architecture at the submission stage, will support reporting and documentation. This is to be expected to deliver by Q2 FY26. In customer service, like I said before, improving customer service. We are creating a model of AI-first initiatives covering topics like predictive analytics will help us to be used to analyze and anticipate customer needs, requirements. We're talking about human-agent assist.
Leveraging a contextual UI is expected to enhance productivity by providing agents with seamless access to all relevant information. We're talking about customer service AI agents with voice and chat created to ensure the customers get consistent customer service standards. Incoming calls to call agents, call center agents will decrease systematically with enhanced productivity, leading to a more autonomous process that requires less human intervention. We're expecting all three to be completed by quarter three financial year 2026, and one or the predictive analytics by quarter two of this year. To further strengthen our risk management and credit and risk department, we're coming up with AI-based support tools for faster and standardized data interpretation, optimizing document parsing and validating to assist credit team and decision workflows, enhanced multi-medium customers and stakeholder communication, automation as an underwriting process.
These three interventions are slated to be implemented by quarter four financial year FY26. The internal audit and compliance department, we quickly get into. Our aim is to quickly flag unexpected behaviors and transactions, reducing potential frauds and errors in our models that we are creating, and this is to help us in automating the review process and minimizing false positives with more refined pattern detection. To be launched in quarter two financial year FY26, we aim to proactively manage the portfolio by detecting early signs of issues and leveraging on predictive insights and timely portfolio adjustments. This will be launched in quarter three of this financial year. We will develop suspicious transaction report with the help of AI, ML, LLM, which will help reduce manual workload by automatically flagging potential suspicious transactions and model building.
To be launched by quarter three financial year 2026, we believe in improving the employee experience to level up the engagement. The first ongoing one is to build an early warning system, which will analyze input variables related to employees, including sentiment analysis, and to be able to predict the probability of attrition at an individual level employee. This could be very useful as a dipstick. The AI system will keep on learning from every event. That's the important part. So a couple of quarters down the line, I expect this to start giving us much more multiple learnings on which we can build new models. This is likely to be implemented in quarter two of 2026. The second one is skill-building and enhancement assistance for employees as well. To be launched and implemented by quarter three 2026.
Since we plan to launch 400 gold loan branches in the current financial year, we will introduce AI-driven solutions for infrastructure teams, which will check the final draft of the hard-copy agreements received, alert to any deviations, and reduce manual effort. This will be implemented in quarter one financial year 2026. Similarly, the AI system will assist legal documentation vetting as well. By the time we go live, it will be quarter two 2026 financial year. In IT as well, we're building in two broad areas with the launch of new product lines like education loans, commercial vehicle loans, and shopkeeper loans. It's increasingly critical to track the performance and progress of each product line. This will mean increasing requirements in our reporting capability. With the objective of optimizing and reducing turnaround time for reporting so that businesses are empowered, operational teams are enabled to generate reports.
It's envisaged to launch DART Genie, which would enable the business and operations team to directly send report requests to data lake in a natural language and, in return, get the desired reports without any IT intervention. This will basically make it much more quick on the go. This envisioned solution is an integrating copilot with the existing toolkit, which would enhance the efficiency of the development teams to build and deploy much faster. This would increase IT teams' output per unit of investment in the resource pool while reducing the overall cost of development and deployment. This is expected to go live by quarter four financial year 2026. Finally, in operations, AI tools will be implemented for RC limit management. To give you a sense, that will analyze diverse data, including the post-disbursal document details, branch RC limits, and other critical factors.
This enables accurate complaints recommendations and automatically adjusting the risk limits. This will help the organization systematically process large volumes of data and add seamlessly to organizational requirement to go live by quarter two financial year 2026. In operations, governance, auto, and DQI reports will be used for predicting and enhancing accuracy of credit information company reporting. Leveraging AI-driven methodologies, this can streamline and optimize data management processes, ensuring that customer data is precise and up-to-date. It will identify discrepancies, rectify them, and proactively. To be expected to go live by quarter two financial year 2026. Now, let me give you a quick sense on collections. Over the past few quarters, we have significantly enhanced our collection processes and now are focused on fortifying our progress.
In the last six months, we've improved forward collection efficiency by 9%-10% in one of the toughest product lines, and early bucket flows have moderated by more than 40%. This gives us great confidence. Three pillars, I believe, have given a lot of strength to our collections: extensive use of advanced analytics, technology advancements, integrating digital and physical collection stack, strategy, and line teams embracing these changes. Effective data usage has shown that prioritizing and risk-grading of borrowers enhances operational efficiency substantially.
Our bounce rates and collection efficiencies rank well with our internal risk scores, and we now reach customers 2x faster. The collection team has fully adopted technology, including the field app, real-time productivity monitoring, and persona-based digital engagement. We are also in the final stages of implementing industry-first technology for the real-time allocation systems.
With these advancements, we are well-positioned for the new product launches that we've discussed. A quick minute or so on the important element of debt strategy that we are raising on the liability management side. Robust liability management is critical to our business and growth and profitability. We are fully geared up to be able to raise the quantum required to achieve our growth rates. We shall continue to diversify our sourcing of borrowing as well as broaden the lender and investor base to have adequate liquidity available. I've already achieved diversification across instruments like bank loans, ECB, and commercial paper. Now, an important element of our debt strategy is to have clear and significant focus on raising long-term funds through NCDs over the next three to five years. We have recently raised INR 1,525 crores through NCDs in April 2025, which was in the public domain.
This issue was a fantastic success with competitive pricing and participation from top five mutual funds and a bank. With this, NCD contribution increased now up to 12% of the total borrowings, as against 6% as of March 2025. Our debt strategy will have a bias to long-term funding through NCDs, and our strategy will be a prudent balance of long-term funds and cost of borrowing. Our priority will be biased towards long-term funds. That's the last point I wanted to park on the liability side. With that, I've covered almost all the vectors. Thanks to your patience, I did cover the AI piece a little in excess, but I thought it's important because it's important for the company. With this, I would like to hand over to Shriram to give you a flavor of risk management and where we stand.
Thank you, Arvind.
Good evening, ladies and gentlemen. The lending landscape has witnessed recent changes via regulatory guidelines aiming to enhance transparency, protecting consumers, and harmonizing lending norms across financial institutions. This, coupled with a steep repo cut of 50 basis points in the last two quarters, intends to boost our country's economic growth. With this emerging backdrop, Poonawalla Fincorp is geared and well-positioned from a risk management standpoint. We are ensuring a well-calibrated AUM growth with risk diversification through launches of varied products, along with consistently strengthening the existing product suites. Now, let me give you a glimpse of the asset quality. Our first EMI bounces improved over the last quarter by more than 25%. Sequentially, our overall credit cost, which was INR 348 crores in Q3 FY25, came down to INR 253 crores in Q4 FY25, resulting in a significant reduction in the credit cost by 27%.
The erstwhile STPL portfolio, which was at 21% of the total on-book AUM as of September 24, had come down to about 15% as of December 24, and further now it is down to about 8% as of March 2025. It is important to note that 80% of the residual book is zero DPD, and we do not expect any increased stress on the residual book. Last quarter, we had INR 520 crores of write-off in the erstwhile STPL, which included INR 163 crores of accelerated write-off. I would like you all to take the note that there is no accelerated write-off in Q4 FY25, and the policy write-off is only INR 141 crores. Our overall credit cost for erstwhile STPL has come down to INR 137 crores in Q4 FY25 as compared to INR 200 crores in Q3 FY25. That is a reduction of 33% over the previous quarter.
This makes it quite clear that the erstwhile STPL issue has been addressed, and with significant improvement in collection efficiency, we are in control of the residual book. As I move on, I would like to apprise you all on the key building blocks the team has focused on by re-emphasizing sustainable profitability through a calibrated risk management approach. First and foremost, with respect to risk framework, the rigorous recalibration taken up by the risk team with month-on-month tracking and cohort-level decision variations on the existing book has meticulously yielded reduction in the early delinquency, and I spoke about this on the first EMI bounces earlier. The team is closely monitoring our Prime PL24x7 that was launched, industry-first end-to-end digital product, which is tailored with enhanced underwriting norms to augment the credit decision journeys.
The decision engine is supported by insights driven by alternate data, digitized information, company risk calculation, and much more. You will notice a strategic move on the secured product launches, covering gold loans, commercial vehicles, educational, lower and above the existing secured product. That is a clear drive to improve the secured mix in the overall year. Point number two, furthering the focus on strengthening and enhancing efficiency of the physical credit underwriting framework, PFL launched an industry-first AI-powered credit decisioning aimed at boosting the credit manager's productivity by 40% in retail lending. In partnership with IIT Bombay, this solution combines artificial and human intelligence to automate the credit evaluation processes.
By analyzing multiple data points, the solution helps credit managers to make quicker decisions while ensuring accuracy, efficiency, and scalability. In the next phase, PFL aims to evolve the current AI functionality to more sophisticated self-learning AI model.
This will leverage powerful deep learning algorithms, enabling autonomous decision-making and continuous system improvement through pattern recognition. Multimodal communication capabilities will further solidify PFL's leadership position in technology-driven financial services, providing agility while ensuring the best risk management practices. On the credit and fraud risk decisions, we are leveraging multiple solutions at a cohort level, driven by varied sources of information across credit history, alternative data, banking information, via account aggregator, GST, partnership data, and much more. In-house calibrated models are augmenting the risk management framework, supporting decision around auto rejection, differential credit swimlanes, higher deviation authority, exposure limitation, and pricing.
The analytics team has institutionalized a process of continuous model recalibrations used at various decision points across different products to align the evolving product mix.
Given the complexity and the velocity of data being utilized, the teams are moving the design structure from traditional models to machine learning algorithms. Finally, our pivotal transformation initiatives in debt management have significantly bolstered our confidence. Now, let me detail some key initiatives already deployed in debt management. On the collection side, our in-house analytics capabilities have enabled us to design and deploy sharper machine learning models to assess not only repayment propensity at the borrower level, but models to identify optimal channel of customer engagement across the customer collection lifecycle. To be specific, at the early bucket stage, sizable proportion of the customer cohorts are engaged digitally only for resolution, supporting cost-efficient channels.
The technology synchronization with business goals has supported monitoring near real-time portfolio performance, giving agility to take corrective intervention on the go. And this is extremely important in the debt management practices.
Well-thought-through views of key input and output metrics get refreshed almost every 30 minutes. These dashboards are clickable with actionable insights, enabling even the ground-level collections team to make timely data-driven decisions and optimize performance at every stage. I am humbled by the pace at which our collection team has adopted some of the best-in-class technologies to improve productivity, speed, and precision to connect with the customer. Our digital collection campaigns are getting sharper to balance the cost of engagement versus payment performance metric. We have introduced campaign management tools allowing us to orchestrate digital and telecalling campaigns without human intervention, saving critical product time and ensuring error-free strategy implementation.
We are also monitoring our digital campaign performance in real time, refining our deployment plans with multi-prong personalized strategies.
Additionally, we are in the implementation of humanless field agent allocation system that reduces the time taken from three to four days to under a few hours to complete allocation. And this, as of now, we are the ones who are going to implement that, enabling faster customer engagement, post-delinquency across digital, telecalling, or field channels. Centralization of standardization of the processes reduces subjective decision-making and human errors, thus ensuring fairness and consistency. This data-driven approach, blended with digital process adoption, optimizes resource utilization efficiency, and that's where we will be able to bring in resource management. Lastly, GenAI is enabling us to monitor the call across agents with a focused scorecard and training guidance, replacing traditional limited manual sampling process.
The scorecard provides insights into engagement quality, identifies areas of improvement, and drives targeted upskilling.
This reinforces compliance and accountability across the collection engagement channel, and this is extremely important in collections. Now, over the next few quarters, we will be moving towards the adoption of a few advanced workflows, and I want to cover this. A, GenAI-based actionable using near real-time performance insights for our line management teams. Managers will be able to sharpen their focus on areas requiring immediate attention by concentrating on micro clusters on the leaderboard. Two, digital adaptation of state-of-the-art legal module. This will enable us to initiate paperwork digitally and monitor the impact of legal recourse in real time.
This will reduce the long processing time due to manual efforts and enhance the seriousness of such actions for delinquent borrowers. The campaign management engine that we discussed earlier will autonomously consume and analyze data across every customer interaction, including digital communications, telecalling, field operations, and legal actions.
The tool will determine the best action for each customer without the need for manual intervention. This is an enabler for the strategy team to deploy 100 plus micro strategies that are aligned with the customer profiles, preferred communication channels, and optimal engagement timings. As I conclude, I would like to share that we are excited about the future, and we are confident in our team's ability and unwavering commitment in continually delivering remarkable results by leveraging the tech advantage and focusing on risk-first principles.
Thank you, and I would like to hand over to Sunil Samdani.
Thank you, Shriram, and good evening, everyone. Let me take you all to the quarterly and full-year financial highlights. The asset under management stood at INR 35,631 crores, reporting strong growth of 42.5% year-on-year and 15% quarter-on-quarter, with good momentum across all our product lines.
In terms of our AUM mix, contribution from MSME was 36%, followed by Personal and Consumer Finance at 23%, Loan Against Property and Pre-owned Cars at 24 and 14%, respectively. Our on-book secured to unsecured mix was 57 by 43, compared to 54 by 46 in previous quarter and 49 by 51 in the same quarter last year. In line with our debt strategy and projected AUM growth, we have further diversified our liability book with focus on long-term funds. The share of long-term borrowing has gone up by 207 basis points quarter-on-quarter. Going forward, the share of long-term borrowing is expected to improve further with greater focus on NCDs. In fact, in April of 2025, we raised INR 1,525 crores through NCD issuance subscribed by top five mutual funds and a bank.
The share of variable-rate borrowings in our total liability stood at 70%, which puts us in the advantageous position with the declining interest rate environment in this election. Our net interest income for the quarter stood at INR 715 crores, up 12% year-on-year, and at INR 2,708 crores for the full year FY25, which is up 23% year-on-year. Pre-provisioning operating profit during the quarter was at INR 333 crores, as against INR 373 crores last quarter. The PPOP in the quarter was lower due to investments in new businesses and the change in mix with buyers towards secured book. The PPOP for the full year of FY25 was INR 1,417 crores, up 2% year-over-year. OpEx to average AUM was 4.8% for the quarter and 4.6% for the full year of FY25.
During the quarter, the credit costs reduced by 27% quarter-on-quarter at INR 253 crores against INR 348 crores in the previous quarter. Our profitability has continued to improve in the quarter with a profit after tax of INR 62 crores, as against INR 19 crores in Q3 of FY25. The asset quality remains stable with gross NPA at 1.84% and net NPA of 0.85% for the Q4 of FY25. The provisioning coverage ratio stood at 54.47%. Cost of borrowing remained flat quarter-on-quarter at 8.07%, despite an increase in share of long-term borrowings. Our debt-to-equity ratio stood at 3.2 times. This gives us enough headroom for our growth. Our capital adequacy continues to be healthy and comfortably above the regulatory requirement at 22.94%, of which the Tier 1 capital is 21.67%. The LCR, the liquidity coverage ratio, stood at 126% as of March 31, 2025.
On the liquidity front, we remain comfortable with positive cumulative mismatch across all buckets and a surplus liquidity of INR 4,686 crores as of March 31, 2025. Thank you, and I would now like to open the floor for question and answer session.
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, we will wait for a moment while the question queue assembles. The first question comes from the line of Roy Menes from Flag Point Capital. Please go ahead.
Hi, good evening. Is my mic audible?
Yes, please go ahead.
Yeah, all right. All right.
So just two questions from my side. The first question is that, obviously, we are seeing a significant divergence between the asset AUM growth and the NII growth. Can you give us a guidance or some sort of indication in terms of how will it trend going forward? Because I'm assuming that you are investing in secure businesses, mortgage customers, etc., because of which the divergence is quite high. But FY27, FY28, how would it trend? It's something that I wanted to ask was my first question.
Sure. I think not a specific guidance, but I'll give you an answer which will give clarity. AUM growth, because you see our diversification and our acceptance in the market of distributions. So we are sticking to whatever guidance we're given on the AUM growth. It is moving better than expected, and it should continue on a robust scale from here on quarter-on-quarter.
Now, why do you find a difference in NII? Because if you recall, I had said that the earlier STPL, which was at a very high rate, which was creating a high interest, NII at that time were boosting it. We had for six, seven months slowed it down considerably from 1,000 to 150, 200 levels and recalibrated it. But over the last two months, it started to inch upward because the bounce rate there has actually improved considerably to one-third level. It's a very robust business for us now, and we have now started calibrating it upward. The future guidance is it's going to inch upwards, but we're not giving any specific number to it right now.
That gap will start getting narrower, and it will be a strong strength for us because we've managed not only to calibrate it well, it's actually turning out to be a big strength area for us from here on, not just for one year, but probably for a couple of years.
Sure. That is helpful. Thank you so much. My second question is, obviously, this year the credit costs have been elevated. Again, I want you to understand, I think I missed it, but what is the write-off for the full year? And for FY27, I'm leaving aside FY26 because that might be a stabilizing year. For FY27, any guidance on the credit costs and full-year write-off numbers if you can share that?
So our full-year write-off numbers are INR 1,548 crores. However, if you look at the quarter four, the write-offs have significantly come down as compared to the write-offs which we had done in Q2 and Q3. Right. Coming to the question in terms of credit growth. See, in the last 10 months, all our credit underwriting for incremental businesses which we have risk recalibrated, every signs are showing better than industry trend. However, I would like to see the seasoning it out in the next three to six months before we put it out as a regular information to all of you. Just to give you a sense, every business that we have come in after the 10 months that we've been here, the calibration is showing better than industry across products. Be very clear because Risk-First is not just English for us.
This is the way the business. We not only have capability to grow AUM. We have very serious capability to conduct risk guardrails well calibrated enough that you will see scale of business and risk well calibrated. So in this area, as an MD, I can tell you that we'll only get better and better, and we'll probably strive to be the best in class on risk.
Sure. That is helpful. Thank you and all the best.
Thanks, Sir. Thank you. The next question comes from the line of Chintan Shah from ICICI Securities. Please go ahead.
Yeah. Hi. Thank you for the opportunity. So firstly, on the OpEx piece, so I think strong growth. OpEx to AUM has also inched up for this quarter, and we have guided that it would be higher for another two quarters post which, it settles down. Also, any broad ballpark number on what could be the prudent level which we are looking at OpEx would settle in this ballpark range? So that would be helpful. Yeah. First is on that.
Sir, just that we are sorry,
You finished. Sorry. I thought you finished. Sorry. Over to you. Yeah.
Sorry. Sir, should I ask?
Is the question over?
Yeah. No, no. Wait.
No, no. Let me answer the operating cost piece first, and you can ask your next question. Would that be fair? See, on the operating costs, we've already guided for around INR 50-odd crores a quarter. Now, the minute you launch six businesses and you launch 400 new, there will be a temporary percentage to AUM increase while AUM is going to be very robust.
But as a direction a year down the line, which means March, 12 months later, we are internally aspiring to see a decline of the operating cost to the percentage of AUM. So I've said a prudent measure, prudent levels reflecting operational efficiencies and scale. Internally, we put on ourselves that we probably should be in a position to have an operating cost with a slight declining trend.
Sure. And secondly, on the capital, if I look at the capital consumption, so we have almost consumed 1,100 crores capital during the year, and now we are around 22% on capital adequacy. So in this year, can we see, given the strong growth momentum which you're looking at and the limited ROE profile, do we expect any fundraising in the near term?
I think if I look at the crystal ball, then we probably would look at early next year. Sure.
Early next year means calendar year, yeah, right?
Yes. We'll see calendar year to financial year.
Okay. Sure.
We're not giving any guidance on that, Chintan.
Let's just keep it open.
Sure. That is fair.
And just lastly, on this environment, if we see too many players we have been reporting some asset quality dec line there. But given that we are growing at a very stronger pace and are getting market share, also do we see any risk to our profitability if things are to go bad, do we trim our loan growth estimates from here on? Could that be a possibility?
If you look carefully at the minute details, other than the fact that this management team has a fantastic credibility with the distribution, which is playing out very well with our growth. We are also, if you notice carefully, investing in digital journeys. We're investing in 24 hours by 7 across the salaries. We're working on something on the business loan, which are probably the first of its kind. We've launched six businesses. All these six businesses, even if you look at the base effect, you might see the percentage of AUM growth on the robust level. And the whole idea of diversification was, one, from a risk perspective, which is priority one. When you have 10-12 products, the diversified risk is substantially more manageable at all times in years to come.
And the second is, if you want sustained profits and sustained growth, you need a representative of pool of businesses to help you grow. So our confidence is that the base we are at and the kind of products we've launched, I think the guidance is, if you notice also, Chintan, every guidance that we gave even 10 months ago, despite the multiple challenges, as a team, I think we've stood by or exceeded most of them. And that's going to be our endeavor from here on as well. We see robust growth ahead. And I think if the economy is operating at healthy rates the way it is right now, I don't see any concern.
Sure. And just lastly, one last quarter, which will get stronger,
Both on the quality of risk and asset building.
And just one last. Sorry.
Over to you.
Yeah. Sorry.
And just one last thing on the ROA for FY 2027. So any ballpark range on what kind of ROE are we looking for FY 2027 or 2026, given that it would be a robust year? And are the ROA range probably for the secured businesses? And if you could just give any ballpark range of.
The ROAs will, in my view, keep improving because remember one thing I've said that our new STPL book also, we've started building, which is fairly decent ROAs. Our business loans are moving up quarter and quarter. So I think we are very optimistic. I've given a clear guidance of three, three and a half in three years from the day I joined. It's 10 months gone, so you can subtract and do the math. We're looking at three, three and a half. So I think you will at some point start inching upwards.
The AUMs I can assure you are all being constructed at 3+% ROAs and fairly robust, sensitive to the ROA models that we are trying to build. So I think it's more about mixing of the portfolios and gradually, with every quarter, getting better.
Sure. I think this is very helpful. Yeah. I think that's it from my side. Thank you.
Even our guidance for profit for 2026, 2027 looks clear and strong, which we had given last quarter. I'm just reassuring that it looks fairly on robust scale.
Yeah. This will be largely on the back of lower OpEx and improving credit costs, right?
Yeah. OpEx in four quarters, I think we should, I think, measure us in OpEx in my limited view every March for the next five years. We'd like to keep it efficiency improving every year.
That's going to be our internal passion, internal what we assess as something we could pull off. And I think we are working on a very well-calibrated model and fairly tightly measured. And every step that we take, we're trying to make sure that our commitment stands strong. Now, with 10 months, you can measure us as all the commitments we gave and what we've achieved so far.
Sure. Thank you for answering all my questions. Thank you and all the best.
Thank you, Chintan. I think I can take one more, I guess.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and one. The next question comes from the line of Abhijit Tibrewal from Motilal Oswal Financial Services Limited. Please go ahead.
Yeah. Thank you for taking my call and, of course, taking my question. I wanted to understand two things, sir.
First thing first, I mean, how are we thinking about distribution? I recall when we had put out the press release for the launch of our Gold Loan business, we had spoken about, I mean, 300 to 400 branches that we plan to add. But how are we thinking about approaching the distribution for the other five newer businesses that we have launched? That's the first question. And the second thing is, so when you joined, you had spoken about OpEx to the tune of about 50 crores higher for the next six quarters. Is it going to be the same trajectory, or are we looking at maybe accelerated OpEx for the first few quarters? And which is where we talk about OpEx to AUM declining significantly by the exit quarter, Q4 of this fiscal year?
All right. Let me start with the second question because I gave some color to it just some time back. I think on the operating cost, it might go slightly higher in the next two quarters, and then it'll start tapering down, is my assessment, and like I said, quarter four this financial year, we should be able to get fairly prudent levels vis-à-vis this March to next March, and we should be on pretty solid expectations in terms of efficiencies and scalability that we are trying. That's one. Your first question was regarding distribution of each of the businesses. See, each of the businesses, if you see carefully, has a very distinct distribution. For example, branches of which we are opening are going to be Gold Loan branches. So even if you see these branches, they have a headline of Gold Loan. So they're going to be focused Gold Loan branch.
If you look at each of the business, consumer durable is more at a point of sale. We're focusing on tier two, tier three cities. And we've received very robust feedback and promising staff that we've had. Our risk calibration is very tight. So at the point of sale, I've said around 10 to 12 thousand outlets is what I'm looking at within the four quarters. It'll give us massive visibility and business. If you look at Kirana stores, it's going to be shopkeeper loans. We could have one to three people, depending on the catchment, running a unified direct channel, just sitting there, not customer-facing, but utilizing the space for business loan LAP and Kirana store, which we will utilize it for good ROE combined business. And commercial vehicle, obviously, the business runs at dealerships. And that's the point of sale.
Like you have consumer durable dealers, commercial vehicles are specific. We've given you an idea about a couple of them that we've already started business in a robust manner, and we're scaling that up. So similarly, I think each business has a very precise plan. On the personal side, we are focusing a lot not only on the DSA network, but we are very excited about the 24 hours by 7 product for top corporates and the scale we are building. So as I talk to you, we're already seeing business happening every month on an end-to-end fully digital. And if you see the micro details of the industry, most banks, for that matter, most of the industry players are not able to pull this off. At Poonawalla Fincorp, we've already managed to walk this road for an external customer.
And, like I said, one of the biggest trends of Poonawalla Fincorp will be using digital journeys, risk-first approach, risk analytics, and AI, our assessment of external customers with technology. I think that's going to be a very strong tech competing edge for us. And this is not a theory anymore. We can see this monthly, daily business run rates have started kicking in. So I hope that gives you a quick sense. That's so. And just one follow-up on. Yeah. I'm sorry. I said we are not seeing any surprises. We are close to what we decided to achieve and what guidance we're giving you. Seems to be we're walking that road. Statistics will all fall in place as long as we keep galloping on whatever we are promising you. I see that as a strength. Now, with 10 months down the line, it's much easier to see ahead.
It's a clear road ahead for us now, the way I see it in my limited view. Sorry. Over to you.
Got it. And just one last question that I had on the opening remarks that we gave. I think during the call, we shared that 80% of the residual STPL book is now zero DPD, and we are not expecting any additional stress from the residual STPL book. So suffice to say that, I mean, going forward, maybe in the next couple of quarters, there will be no accelerated cost or higher credit costs coming out of the residual STPL book. I think if you carefully go through the transcripts of what you explained, two things in my understanding, which we looked fairly confident on. One is we have not done anything which is called accelerated write-off. We've just had normal flows.
There's been no surprises result per se in terms of the way we move quarter and quarter, in terms of whatever guidance we give and whatever confidence so far we've been exuding. I think the work that's behind us is limited, as I told you. The credit cost activity in the quarter is visibly down. He said 80%, if I'm not mistaken. He's looking zero DPD offer, which is probably 7.9% or 8% of the total. So that used to be, I think, 24, 22 or something. 21. 21, and it is down there. I'm expecting that to rapidly reduce as we proceed in this quarter. I think we are looking. I heard him say that this is. We look totally in control. I think collection efficiency is rapidly improving.
And I think the best test is you've seen the credit cost decline itself probably validates that. So to answer your question is, I think the work is behind us. And like I said, the horses for courses. And I think we're galloping with a clear view ahead is my assessment.
Got it. And that's all from my side. And thank you very much. And I wish you an evening delight. Thank you so much.
Thank you. I think thank you. Ladies and gentlemen. Thank you. Thank you. Ladies and gentlemen, we take that as a last question and conclude the conference of Poonawalla Fincorp Limited. Thank you for joining us. And you may now disconnect your line.