Ladies and gentlemen, good day and welcome to the Repco Home Finance Q3 FY 2025 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rajiv Mehta from YES SECURITIES. Thank you, and over to you, sir.
Yeah. Good evening, everyone. Welcome to the Q3 FY 2025 earnings call of Repco Home Finance. We thank the management for giving us the opportunity to host them once again. From the company, we are joined by Mr. K. Swaminathan, MD and CEO; Mr. T. Karunakaran, Chief Operating Officer; Mr. P.K. Vaidyanathan, Chief Development Officer; Mr. M. Raja, Chief Business Officer; Ms. Shanthi Srikanth, Chief Financial Officer. I would request Mr. Swaminathan to give us an overview on the company’s performance, post which we’ll open for Q&A. Over to you, sir.
Thanks, Rajiv. Hope I am audible. Good evening, everybody. We welcome you all to the earnings call of Repco Home Finance for the quarter ended December 31, 2024. Thank you once again for joining on this call. We are happy to announce that we have been able to maintain the growth trend seen in the last few quarters in Q3 2025 as well. The company is progressing satisfactorily on its business parameters. The structural changes that have been in process across the organization, like delegation of powers, implementation of new software, et cetera, are yielding results. We were able to achieve disbursements of INR 761 crores against INR 759 crores in Q3 FY 2024. Our sanctions stood at INR 806 crores as compared to INR 777 crores in Q3 FY 2024, registering growth of 4% year-over-year.
Our AUM stands at INR 14,155 crores, an increase of 7.35% year-over-year. We acknowledge that the disbursement numbers could have been better year-over-year, but for our preference towards more housing loans than non-housing loans. The changes in regulations in Karnataka led to a drop in our business in that region. We also did some process changes in our underwriting, which had some disruptions. With the likely settling of the pending issues and with additional sales force taking initiations, we are confident of improved performance in coming quarters. Capital adequacy ratio of the company remains strong with 32.5%. The ratio of exposure between non-salaried and salaried segment stood at 52.1% and 47.9% respectively.
The share of non-housing loans, that is home equity, stood about 26.5% of loan book, and housing loans contributed to about 73.5% of the book. Book quality. We were able to reduce the GNPA from INR 552 crores in Q2 to INR 546 crores in Q3, which is 3.9% of our AUM, and net NPA stood at INR 209 crores at 1.5%. GNPA numbers have come down by INR 72 crores year-over-year organically. We have a total provision of INR 489 crores with a provision coverage ratio of 61.8% for stage 3 assets. Our systematic and relentless action on NPA accounts would continue. As of December 31, 2024, we hold INR 468 crores of restricted portfolio outstanding.
Of it, approximately INR 149 crores are in stage 3, and the remaining are in stage 1 and 2. Our stage 2 numbers overall is at 11%, which will be brought down below 10% by March 2025. Borrowings. The cost of funds for the company is 8.7% and is in line with the similar rated categories. The borrowing limits remain at 82% from banks and 9% each from NHB and Repco Bank. We have got a sanction from NHB this year after a gap of three years, which would be availed next quarter. Our NIM for Q3 FY 2025 is at 5.5%, up from 5.3% in Q3 FY 2024.
The company has been able to maintain a spread of 3.7% for the quarter by raising yields to 12.76% despite facing stiff competition at our pricing levels. The dip in the profitability quarter-over-quarter is due to the benefits we had in the last quarter, like dividend income and a reversal of provisions. The net profit grew 7% year-over-year, amounted to INR 107 crores for Q3 as against INR 99 crores for Q3 FY 2024 and INR 113 crores for Q2 FY 2025. Our ROA and ROE stood at 3.1% and 14.6% respectively for Q3 FY 2025 as against respective figures of 3.3% and 16%. Cost-to-income ratio for the quarter reduced marginally to 36% as against 26.4% of the previous quarter. The credit cost till December 2024 is -0.14%.
New software. Phase one of the project comprising LLMS and EGL is stabilized. Phase two of the project comprising of software relating to support functions are in various stages of implementation and testing. A total of approximately INR 28.8 crores have been spent so far on software. As of December 31, 2024, we have 230 touchpoints across 12 states and one Union Territory comprising of 186 branches and 44 satellite centers with two additional asset quality branches. We are expanding our branch presence in Karnataka, Andhra Pradesh, Telangana, Maharashtra, and few regions of Tamil Nadu. We will be touching 235 outlets by March 2025. I will summarize the key financial highlights for the quarter before opening the floor. The loan book stood at INR 14,155 crores, registering 7.35% year-over-year growth. Tax for the quarter was INR 107 crores.
ROA and ROE are at 3.1% and 14.6% respectively. The core profitability has remained strong with a solid spread and margin of 3.7% and 5.5% respectively. The gross NPA has shrunk to 3.9% with a provision coverage ratio of 61.8% and a net NPA of 1.5%. Way forward, the company is on track on its profitability figures. In the last quarter, that is the March quarter, our focus will be on improving the growth numbers substantially and the reduction in NPA numbers. Going by the current trend, we are likely to surpass INR 3,300 crores organically on the disbursement front and an AUM of approximately INR 14,600 crores by March 2025. Our GNPA numbers are likely to be at around INR 530 crores. We thank each and every one of you for immense interest in our company's growth story.
On a personal front, my tenure as MD and CEO of this company will be over next week, and I thank all of you for the continued interest you showed in this company. Now I open the call for any clarifications that may come from all of you. Thank you. Thanks, Rajiv.
Thank you very much, sir. We will now begin with 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 take the first question from the line of Rishikesh from RoboCapital. Please go ahead.
Yeah, hi. Thank you for the opportunity. Sir, what is our disbursement and loan book target for FY 2026?
FY 2026 still not yet finalized. There will be a special board meeting next month, where all these numbers will be finalized. It is still on discussion stage.
Any internal targets we have that we currently are disbursing INR 800 per quarter. If I am not wrong, earlier we had a target of incrementally disbursing INR 500 crores more every quarter. Could you throw light on this number, please?
Rishikesh, unless we are sure with the numbers, I will not be able to reveal. But definitely we will be targeting a far better number than what we had previously.
From our current disbursement number, what is the split between branches and DSAs?
Last quarter, DSA performance was 42%. They contributed 42%. DSC, 2%. Our sales force who have joined, they have contributed 25%, and the branch direct disbursement is 31%.
Okay. Any credit cost guidance that you have for FY 2025 and FY 2026?
FY 2025 there will not be any additional credit cost. That's what I think we should be able to manage. There will not be any problem as far as FY 2025. FY 2026, going by the current trend, I think we should be that should not be a big hit on credit cost.
Okay. Thank you.
Thank you.
Thank you. The next question is from the line of Kaustav Bubna from BMSPL Capital. Please go ahead.
Yeah. Hi, sir. Just wanted to understand because over the last few calls you stated that your soft target for disbursements at the end of this year was around INR 3,700 crores. If I just go by the numbers that we've been posting, you'd be missing your estimate by around 15%, and disbursements would be close to flat versus last year. What did we get wrong in our estimates? Why were we so confident of growing handsomely over FY 2024 and we are only going to end flat? What was And moving ahead, when I've spoken to you said that, this is the second part of the question, then my question is then answered as the first one.
My second part is, when we had met in the past and spoken, you spoke about how you should be cautious when giving loans because you don't want to have the possibility of another NPA cycle because of irresponsible lending. Now you're leaving and someone else is coming in charge. What is his, we would love to hear from him. Is he as cautious as you? Will he be more growth-oriented? Just wanted to understand these points.
Why growth is flat is for this current year. Of course, there were some external factors like this Karnataka thing that I have been telling you. More importantly, we felt that we should grow more on the home loan front, not on the non-home loan front. Consciously, we took a call that we will reduce our disbursements on that non-home loan. Maybe because had we loosened that particular string, maybe we could have done another INR 100 crores- INR 200 crores like last year. That was one of the reasons why it is more or less flat. That is the main reason. In fact, from NHB side also, we are getting information that we should grow more on home loan fronts being a housing finance company. Even though we are still below the 40% benchmark that the regulator has given.
But still, we have been told not to increase our non-home loan portfolio. Consciously, we are concentrating on more and more of home loan numbers. In fact, the last quarter, disbursement of home loan was 64%, as against 60% year-on-year or even the previous quarter. Consciously, this stress on home loans or importance being given to home loan compared to non-home loan is one of the reasons why our numbers are not growing. Of course, there are some external reasons which I already explained in my initial remarks. The second one, I do not want to say we are cautious. We want to be careful that the cycle should not get repeated. That is the only thing. I think we have also given a slide in this particular thing.
What is the number as far as stage 3 and stage 1 and 2 of the recent book vis-à-vis the old book. You would have seen the new book that is right from April 2022. It is performing highly satisfactorily. We want to maintain so that this company is on a firmer, stronger path going forward. So whether I am there or the new person is there, the structural are in place. I am quite confident that whoever takes up this particular assignment with the team already moved towards cautious growth. I will not even say cautious growth, stronger growth. Definitely the company will be going better and going stronger.
Okay. Thank you.
Thank you, sir. The next question is from the line of Anand Mundra from Soar Wealth. Please go ahead.
Good afternoon, sir. Sir, I wanted to check how much loan is sanctioned by the National Housing Bank, sir.
INR 150 crores, sir.
INR 150 crores. Sir, how much disbursement was impacted because of Karnataka issues, sir, in absolute amount?
I am unable to quantify. It can be anywhere around INR 50 crores at least.
Has that resolved now, sir? This will continue in March quarter also?
No, that is beyond my capacity. I am unable to tell you. Hopefully it should be over very soon.
Sir, in the month of January the impact continues, sir?
Yeah. It is still there. It will take some time because they want to convert everything electronically, the entire database into an electronic form. You can imagine a city like Bangalore, including its areas around Bangalore city. If all the land records are to be converted into electronic mode, I think it will take quite some time.
Okay, understood, sir. Sir, one more thing. In Gujarat also, the year-on-year growth is very less, 2%. Kerala also 2%. Karnataka 5%, that's okay because there's some problem. What is the reason for lower growth in Gujarat and Kerala, sir?
Kerala, consciously, we are not giving big ticket loans and all that, Kerala. Gujarat should not be a problem. Gujarat will continue to grow. Because earlier there were problems in Gujarat in our company, but now there is no issue. Gujarat will grow. We have put a state head also there. We are now recruiting. Gujarat will not be a problem.
Sir, as earlier participant was saying, we are missing our guidance big time, and till last quarter, we were very confident that we would be able to meet the INR 3,700 crore disbursement target. Suddenly things have changed so much that we are reporting flat numbers in next quarter also. I'm not sure what guidance you want to give for next quarter, sir, or current quarter, sir.
Anand, see, I am leaving this office in Mumbai, so it's not right on my part to give some guidance numbers, but going by the present trend and based on the discussions we have with our business verticals, we are confident of reaching anywhere between INR 950 crore- INR 1,000 crore.
Our new MD & CEO is also there, sir, on the conference call. He can give some guidance, sir. He and M. Raja is also there.
Yeah, current quarter. He is in line with me. So anywhere between INR 950 crores-INR 1,000 crores of disbursement, we can expect this quarter. We are seeing some positive trends. Let us hope, barring any unforeseen circumstances, I think we should be in a position.
Okay. Sir, our cost of debt is very high, [8.73%] average cost. It is very difficult because our NIMs are very good, our cost is very high. What actions we are taking to reduce the cost, sir?
For the present AA- rating, I don't think we will be in a position to reduce further. Only thing is because of the recent RBI rate cut, yes, we will also be benefited. That will help us in reducing our cost.
Thank you, sir.
Otherwise, with the concentration of bank borrowings, this National Housing Bank borrowing may help us a bit. All this put together, there may be a reduction. The repo rate cut and the National Housing Bank thing will help us in rate cut. For this, I think at the rate that we are borrowing, I think it is quite competitive for AA- NBFC.
Okay. Thank you, sir. Thanks a lot.
Thank you, sir. Before we take the next question, a reminder to all the participants. If you wish to ask a question, you may press star and one on your touchtone telephone. Ladies and gentlemen, if you wish to ask a question, you may press star and one on your touchtone telephone. The next question is from the line of Saurabh Dhole from True Beacon Investment Advisors. Please go ahead.
Yeah, sure. Thank you so much for this opportunity. I just have one question. Mr. K. Swaminathan, it is in your tenure. In the last one and half years, we have kind of upped the headcount by almost 50%. We have added quite a few number of branches compared to what the trend was in the past. I am just curious as to how will this or at what point in time will this start reflecting in loan book growth as well? It has been a while since the company came into this expansion mode. We have not seen any material uptake in the loan book size. Right? How do you see that going forward?
Okay. I can tell you as far as the new branches are concerned, especially the branches in Tamil Nadu have started contributing. Maybe branches outside Tamil Nadu, it is taking time to increase their numbers. The loan book growth not in tandem with the branch expansion is not only because of this, but also because of the BT outs that is happening, bulk repayments that are happening. These are all factors which is affecting our book growth.
Right. Just a follow-up. Now parallelly what we are seeing, at least in some of the other players who are obviously not there in housing, but let us say microfinance. They are seeing a very rapid attrition. What is the risk that individuals who were part of microfinance players or microfinance companies, what is the risk that they might have joined let us go and a housing finance company like yours and who might not have any knowledge about the home finance business? How selective have we been in recruiting because the expansion has been pretty rapid, right? How are we protecting against that and what kind of people are we recruiting?
Okay. Mostly we are recruiting, especially in the sales as well as the collection front. We are recruiting people who have got experience in housing finance. Microfinance is a different ball game. Whenever we recruit in our core area, we recruit people only with experience in housing. This microfinancing issue will not have an impact on our recruitment.
Sure, sir. Got it. Thank you.
Thanks.
Thank you. A reminder to the participants, if you wish to ask a question, you may press star and one on your touchtone phone. The next question is from the line of Rudraksh Kalra from MB Investments. Please go ahead.
Hi. Good evening. Hello?
Yeah, good evening. Good evening, Rudraksh.
Yeah. My question is the recent repo rate. What part of our book is the repo rate linked and the other fixed interest rate? My second question is embedded in the first question that what is better for us, for the company and for the clients and for the customers that the rate further gets cut or it should be more along the lines of the fixed-rate interest?
See, as far as the liability side is concerned, 90% of our loans are MCLR links. Only around 10% is repo links or EBLR, External Benchmark Lending Rate. Okay. So only when the banks change their MCLR, the rate cuts will be passed on to us on the liability side. On the asset side, almost our entire book is floating. As and when this MCLR reduction is passed on to us by the banker, we will be taking a view, we will be passing on. We will try to maintain the present spread of around 3.3%. We do not have much of a fixed lending.
All right. Thank you so much.
Thanks.
Thank you. The next question is from the line of Mehul Pathak, an Independent Investor. Please go ahead.
Sir, can you hear me?
Yeah. Yes, Mehul.
Yeah. Sir, I have two questions to ask you. First is, sir, the loan-to-asset value for all your lending is 50%. I have a fundamental question. Historically, if you go last 10, 15 years, eventually what is the write-off? Because if 50% is the margin of safety you have on your loans, whatever you look as NPAs should not worry an investor. Would you not be recovering 100%?
I could not get you. Your point is what will be the write-off eventually. Is it right?
Yeah. My point is that if loan-to-asset value is 50% and if you are retaining that policy of loan-to-asset value of 50%, then what is the eventual historical write-off we should assume for the company?
Okay. See, this loan-to-asset value of 50% that you are mentioning is an average one. Our new book, we are giving loans as per norms. See, less than 30 lakhs means 90% or 80%, whatever is the regulated norms as far as home loan is concerned. Of course, non-home loans may maintain a higher margin. This 50% that you are talking is an average one. As far as actual write-off is concerned, this company so far not have written off more than INR 10 crores or INR 15 crores. Very small number only has been actual write-off of principal. Maybe we would have sacrificed some of our interest, but as far as principal is concerned, we are very conservative. In all our NPA things, we do not write off much of principal.
So sir, what should we assume? Historical value based on your experience, what will be the eventual write-off after recovering and all the efforts?
Sir, maybe it should be very less. See, INR 545 crores is our present day NPA. Even by the worst case scenario, I think we will have a haircut of maybe 10%-15%. Unless the future we take some aggressive stand of cleaning our entire books by selling to some ARC and all that. If we go by the same way that we are now trading, especially by going for auction or entering into some sort of an OTS agreement with the borrowers. In all these agreements, as far as in all the auction sales, our principal is kept intact. If the same trend continues in the future also, the company may not have a big hit on the principal.
Okay, fine. Understood, sir. Sir, my second question—
INR 40, 50 crores of book write-off.
Okay. So that is roughly around 8% is what you are telling, of GNPA.
Yeah, of GNPA. And if you take the AUM, it will be negligible. Not even 1%.
Okay, fine. Sir, my second question is that the net worth of the company in 2018 was INR 1,325 crores. Today, March 2024, it is around INR 3,000 crores. 2018, the total debt of the company was INR 8,000 crores. Today it is INR 2,000 crores. What has happened is that while retaining dividends, the shareholder funds have gone up close to INR 1,600 crores. But the debt in your book has not gone up. It has gone up from INR 8,000 crores to INR 10,000 crores, INR 10,700 crores. Why are we so conservative? Isn't there scope to borrow more and be more aggressive and lend more?
Sir, borrow more, yes. We can keep on borrowing provided our lending or the AUM also goes up, we do not mind borrowing. But you should also understand there is a rating agency. If we keep on borrowing more, they will not like to have such a scenario, especially from AA-, especially based on our past track record. The rating agencies are also seeing what should be our leverage and all that. Of course, today our leverage is very less. Maybe around five or six, the rating agencies may be comfortable. If you borrow too much, I think there may be an issue from the rating agency. This is one side. Second side on our equity is getting bloated up because I think once our disbursements start improving or galloping, which we expect any time soon, I think this particular thing will get resolved.
Whether the equity can come down, whether we can be more liberal of rewarding the investor, rewarding the shareholders and all is a call to be taken by the board.
Yes, sir, but my observation is that you are down from. You were 6.5x levered in 2018. Today, you are levered just 3.5x . Business growth, therefore, if you look at the money that you are retaining is significantly lower.
Mehul Pathak, you are right. But situation has also changed, no, post 2017 after COVID and all that. Even lenders are a little more conservative, okay? Especially for NBFC. They are also having a Reserve Bank has increased the risk weightage for an NBFC and HFC and all that. So all these reasons are also playing.
Okay, fine, sir. Thank you.
Thanks, sir.
Thank you. A reminder to all the participants. If you wish to join the question queue, you may press star and one. The next question is from the line of Kaustav Bubna. The next question is from the line of Pratik Dedhiya, an Individual Investor. Please go ahead.
Hi. Am I audible?
Yes, sir. Please go ahead.
Yeah. Thank you. Thank you for the opportunity. While you mentioned that your loan growth is constrained, can you throw some light on your asset quality? How are you planning to manage your GNPA and NNPA going ahead? My second question is in terms of your point of contact additions. Would that also get moderated going ahead until we see loan growth happen?
Okay. See GNPA numbers, I can give you an assurance, at least it will keep coming down. You would have also seen steadily the numbers are coming down and the new book is holding well. If the same trend continues, definitely when our Overdue numbers of, let us say, pre-COVID NPAs are eventually paid or eventually settled and all that, there will be a steep reduction in our GNPA numbers. To that extent, I am confident. The second point is on point of contact. Yes, we will keep on growing, especially in non-Tamil Nadu areas, we will keep growing. Places like Andhra, Telangana, or the west, we will keep growing. That is the strategy. The book will increase based on our point of contacts increase in the points of contact.
Okay. Sir, I have a follow-up to this too.
Yeah, Pratik.
No, go ahead. Sorry. Hello?
Yeah.
Okay. Sorry, should I?
Pratik sir, please go ahead with your question. Yes, we are able to hear you, sir. Please go ahead.
Okay. Yeah. Does it not make sense to slow down your point of contact until you see loan growth happening? Because then you keep incurring cost, but then there is no income to it.
I think you want us to reduce the numbers of points of contact. Is it? Because I—
No, I am not saying reduce it. I am saying slowing it down. Because until you see loan growth happening, you still can manage cost.
Oh, it is like the chicken and egg. Unless I open more and more branches, I cannot have the numbers increasing, especially in areas where there is potential. Definitely, at least for some more years, at least for one or two more years, I think our points of contact will keep increasing.
Okay, got it. One last question I had in terms of the new loan that you disbursed, can you throw some light on what kind of yields are you getting currently?
Sir, we are now around 12%. Yield average is 12% with a spread of around 3.4%.
Okay.
Going forward, the yield may remain same, but spread may, there may be slight contraction in spreads.
Okay. Why would that be? Contraction in spreads.
Hello?
Yeah. Why would we see a contraction in spreads?
Yeah, because we may stress more on the quality of our book, so definitely there will be a pressure on our yield. To that extent, there may be a contraction.
Okay, got it. All right.
We will be doing more and more of housing loans. That too in the salaried or documented segment. Naturally, I cannot increase the rates beyond a point.
Okay, got it. Fair enough. All right. Thank you.
Thank you.
Thank you. The next question is from the line of Anand Mundra from Soar Wealth. Please go ahead.
Sir, thank you for the opportunity again. Sir, when are we going ahead, when are we applying for improving our credit rating, sir?
No. See, it is not like applying, sir. They do a review periodically. So there will be a shorter review every six months and an annual review every one year. So they did review some three months back. Definitely after sometime there will be a review. So based on the numbers, they will take a call.
Okay. And sir, what is the reason for increase in NIM for this quarter, sir, to 5.5%?
It is a small thing. From 5.11% to 5.21% you are saying.
Okay. Yeah. Otherwise, sir, spread, sir. Spread will not have any leverage benefit. What is the reason for this?
Yeah. I could understand. We revised our MCLR sometime in November. The effect of that same increase has happened. November and December, the effect of that same revision has happened. That is the reason for our NIM going up.
The line for the current question has got disconnected. We will take the next question from the line of Kaustav Bubna from BMSPL Capital. Please go ahead.
Yeah. What is your guidance on NIMs, given that if we assume that the RBI will reduce rates further into the year?
Guidance for what, Mr. Kaustav?
Guidance for NIMs.
Please.
Net interest margins. Factoring in, let's say, 75 basis points rate cut in this year. If you were to assume that.
Our borrowing also will come down.
Yeah. If you could give a detailed description of floating versus fixed book and those things.
See, both sides is more floating. On the liability side, 90% is floating. On the asset side, almost 100% is floating. Any reduction, it will also get passed on. Net to net, there may not be much of an impact.
Okay, cool. Thanks.
There will be a lag in our subsiding. See, today I get an MCLR reduction. By the time we refix our lending rate, it may take some time. It will be actually beneficial to us.
Okay. Understood. Cool. Thanks.
Yeah, thanks.
Thank you. The next question is from the line of Rajiv Mehta from YES SECURITIES. Please go ahead.
Yeah, sir, I have a few questions. Sir, did you say that the impact from Karnataka issue in Q3 was around INR 100 odd crore? Isn't that large in the context of the contribution in the book?
No, I did say that I do not have the numbers. It should be around INR 50 crores. Around INR 50 crores.
Okay. Sir, this rough guidance that you are giving that due to disbursement of INR 950 crores in 4Q. While we are also playing around with tweaking the mix of home loan and LAP and to really replace a LAP, we need more home loans from a volume perspective. So can you give us more confidence that you have already done a certain number as we. Can you give out some numbers of January, maybe even February so far, what kind of disbursements are already achieved, which will provide us confidence that despite Karnataka being an issue and you navigating from LAP to home loan, your overall volumes are going strong.
Rajiv, I do not know whether I am right in giving those numbers. I do not know about the price sensitivity and all that. But at least February, year-on-year, I am seeing improvement compared to the last quarter as well as last year. So that is the only confidence that I can give as of now. Hopefully, March. For example, last year, March, we did INR 400+ crores . I think by the momentum that we are seeing, it should be better. February was also better and almost all the festivals are all off, so not many holidays. So these are all the things which gives us confidence that we should be around INR 962 crores.
Okay. Sir, you also gave out the disbursement mix. You said that DSA is 42%, and then you said that the sales force vertical, your own sales force is 25%, and then branch directly sources 31%. So the sales force vertical is something that we had set up in the last one and a half years, right? That is giving you almost fresh and additional volume of 25%. If I were to remove that volume, if I were to even say, remove the DSA volume, then the branch direct sourcing has actually not grown in the last five, six quarters. Is that right? Why is that the case that the branch productivity is not improving despite all the efforts that we are putting in terms of direct sourcing by branches?
Okay. See, what was being told as a branch disbursement in the previous quarter, previous years, when this sales vertical was not available, the same is now being bifurcated between the branch and the sales force.
Okay.
See, earlier nobody called as a BSM. The branch sales manager position was not at all there earlier. Now there is a branch sales manager position. In addition, the branch manager is also doing, branch head is also doing. Earlier, both the things were done not only by the branch head, by all the other staff who are now in other verticals. Now there is a specific vertical branch sales manager, so we are able to find out what is his contribution, his or her contribution. Earlier, this 25 plus 31 used to be 50, now it is around 56 percentage sales.
Okay.
Going forward, I think this sales vertical should contribute that much more. So maybe percentage terms this direct branch may come down and the BSM vertical on percentage sales may go up.
Okay. And sir—
Hope I have been able to answer.
No, I get that. There is some reclassification, and when you look at it in the aggregate terms, there is an improvement, including the new sales force. I get the point. And this NPAs recoveries, the NPA target, the number you spoke was INR 530 crores by March.
Yeah.
Okay. Sir, any difficulty here because you know that the macro is very tight. When you are pursuing recoveries, for example, Q3, we had a lesser recovery it seems, and which is why the NPAs reduction was only INR 6 crore. In Q4, what is the kind of efforts that we have lined up so that we are able to reduce the NPA by INR 30 crore-INR 40 crore despite this very tight macro environment for the borrowers?
I agree with you compared to last year, yes, the environment is bit tight, and we are not able to reduce our NPA numbers as fast as we could do last year. But two or three plus points that we are visiting for current quarter. We are planning to do two mega auctions this month. In fact, tomorrow there is one and February 28th there is one more where we will be doing something like 300 properties on auction. So we are pressurizing the borrowers. If not success in the auction, at least coming to us for negotiation on all these accounts. This is one point. Second one, in the first and second quarter, sorry, second and third quarter, we had sanctioned a large number of OTS proposals. These sanctions have not actually materialized. We have already given the sanctions and all that.
People are mobilizing, especially some bulk big OTS proposals have been sanctioned. We are confident that we will get around INR 30 crores- INR 40 crores through this particular thing. With all this, I am taking into account smaller slippages in the fourth quarter. Normally, in the fourth quarter, the slippages will be very minimal compared to the second and third quarters. Taking all this into account, our recovery section is saying that there will be a net reduction of INR 30 crores.
Okay. Just one clarification. When you talk about OTS proposals of INR 30 crores-INR 40 crores, generally, when I look at your PCR and ECL coverage on stage 3, you are holding 62% cover. What is the kind of waiver, principal waiver or haircut that we are offering to the borrower to come and settle? To what extent do we offer a haircut?
I think I answered a similar thing in the previous question also. Principal waiver will be very minimal. A principal haircut is a rarity, except in exceptional circumstances like a death of a borrower or some calamity in the family and all that. Principal waiver is a very rare thing. Maybe accounts of more than 2,900 days old and all that, we give a nominal haircut of maybe 5% or something.
Interest may, yes. There are three components, principal, interest, and the penal income. Penal income and interest we give waivers, but not in interest. Not in principal.
Understood. This INR 30 or INR 40 crores of settlements will give back provision releases, right? Significant provision releases.
Yeah. Yes. You can do your backup and your calculations.
Thank you. I will try and come back for more questions.
Thank you.
Thank you.
Thank you. Before we take the next question, a reminder to the participants, if you have questions, please press star and one on your touch-tone telephone. The next question is from the line of Sanjana from Nuvama. Please go ahead.
Yeah. Hi. Good evening, sir. Just a question on BT outs. At present, certain case we are seeing and what would be the strategy to control these BT outs. Also, when we had met T. Karunakaran, I think somewhere in the month of December, he had given a rough guidance of around disbursement target of around INR 1,500 crores for FY 2026. Are we planning to stick to that level or it would be probably lesser looking at the current scenario and the issues which are happening in Karnataka? Yeah. So this is it from my side.
As far as BT outs are concerned, I will add BT outs as well as bulk repayments or prepayments. It is nowadays around INR 100 crores per month.
Okay.
Okay. We cannot do. Beyond a point, I don't think it is possible for us to contain unless the environment changes in the corporate lending. See, most of our BTOs are to banks. There, because of their CASA and all that, they are able to offer quite a good rate to our customers. So at 8.7% or even lesser than that, 8.6%. So it makes sense for a customer to switch over to a bank from around 10.5% or 11% that we are charging. Despite giving some top-up loans, despite offering some interest concessions and all that, still it is difficult for us to contain the BTOs or the bulk prepayments beyond a point. So what is to be done as far as this company is concerned is to match that with the improved or galloping disbursements.
That is how we can match these BTOs. Similarly, we can also do similar aggressive BT-ins. That is happening. In fact, we are matching BTOs with the BT-ins. BT-ins are also happening around INR 100 crores per month. Now coming to your second question. We hope this Karnataka issue will get resolved either by this quarter or at the maximum by first quarter of next year. So Karnataka will bounce back. We will get the actual numbers. We have also opened new centers in Karnataka, especially on the outskirts of Bangalore. All these centers are likely to contribute in the year 2026.
Okay. Thank you so much.
Thanks.
Thank you. We have a follow-up question from the line of Rajiv Mehta from YES SECURITIES. Please go ahead.
Yeah, just last two things from my side. Sir, when I look at the employee cost quarterly run rate, in the last two years, it has gone up by 30%, the quarterly employee cost run rate. But when I look at the employee base, it has gone up by 50%. So what explains this, that a lot of new addition has happened at the junior level with lower salaries, or is there any other angle to read into here?
You are perfectly right. Most of the inductions have happened only at the junior level, at the trainee level or at the action manager level or at the executive level. So at the junior level is also happening. Maybe in the sales or the collection front where we have taken some experts from people with some experience from the market. Yes, there is a cost increase. But that is getting offset by people who are training. So people with more than five years, if they are going out, it is a saving for the company. So net to net, there is not much of an increase in the establishment cost. Even this quarter, you would have seen there is a small dip in the establishment cost even though the numbers have gone up.
Correct. And just last thing on this push from the NHB to us to do more incrementally more home loans and less of LAP. So how far do you have to go in terms of altering the mix? And can you also call out the individual blended incremental lending rates for home loan and LAP and how far the mix needs to be tweaked to satisfy NHB?
Okay. See, NHB has not given us any specific numbers and all. In a general term, they have said housing finance companies, the annual year-on-year growth should be more on home loans than on non-home loans. They say that you cannot keep on increasing your AUM only through non-home loan growth. That is not acceptable. So indirectly, they have indicated. Not only that, it is also right, being a housing finance company, we are here, we are borrowing from NHB and all that. So they expect us to give more and more housing loans. Housing stock should go up. That is the purpose for which NHB has been set up. So it is right. They are also saying that you increase more of your home loans.
Now, how we can tweak the thing is, I think if you are going to do more and more of home loans, maybe I can reduce the home loan interest rate and increase the non-home loan rate so that the yield remains more or less same. If that has to be overcome, I think the new management will take a call on that.
Okay. And sir, incremental lending rates blended for home loan and LAP?
Today, 10.1% is the minimum, and for some exceptionally good borrowers, we even lend it at 9.5% as far as home loans are concerned.
Okay.
Pure LAP is now around 14%. Pure LAP. But see, so it is called a CRE- RH and all that. It comes in between, say, it is around 10.5% and all.
Okay, sir. Thank you for answering my questions.
Thank you. Ladies and gentlemen, we take that as the last question for today. I would now like to hand the conference over to the management for closing comments.
Thanks, Seema. Thanks, Rajiv. And thanks for all the participants who took interest in this company and asked all the questions. I am confident that this company will grow based on the structures that we have created in the last two or three years. Quite possibly in 2026 and 2027, this company will reach newer heights. I once again thank all the participants as well as the organizers who have arranged this analyst call. Thank you.
Thank you, members of the management. On behalf of YES SECURITIES, that concludes this conference. Thank you for joining us and you may now disconnect your lines.