Ladies and gentlemen, good day and welcome to SBFC Finance Ltd Q2NH1FY26 earnings conference call hosted by ICICI Securities Ltd. As a reminder, all participant lines will be in the listen only mode and there is 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 Renish from ICICI Securities Ltd. Thank you. And over to you sir.
Yeah, thank you, Ikra. Hi. Good afternoon everyone. Welcome to SBFC Finance Q2FY26 earnings call. On behalf of ICICI Securities, I would like to join SBFC management team for giving us the opportunity to host this call. Today we have with us the entire top management team of SBFC represented by Mr. Aseem Dhru, Managing Director and CEO, Ms. Namrata Sajnani, Executive Director, Mr. Narayan Barasia, CFO, Mr. Sanket Agrawal , Chief Strategy Officer, and Mr. Rajiv Thakker , Chief Risk Officer. I will now hand over the call to Mr. Dhru for his opening remarks. And then we'll open the Q & A. Over to you sir.
Thank you. Thank you Renish and good afternoon everyone. The challenge of any business build, you know, is that while one is building for the decades, one is accounting for in quarters. If I ask you what is your plan for the evening today, you are likely to be very specific. I am going to watch a movie, a play, go to a party. If I asked you about next week, you may have something a little more general. The next quarter details start to blur. The next year you will probably say more directional thing and the next decade and we get into the territory of hope. Similar challenge a company faces when it looks ahead a quarter, a decade and a century. The challenge for any management is to get both the next decade and the next quarter right.
At SBFC, when we look at how the most abused word in startup decks called the total addressable market, the TAM stands, we feel very bullish about the future. The total MSME book of loans between INR 500,000-INR 3 million, which is our target segment. The total book which includes banks, NBFCs, all kind of lenders between INR 500,000-INR 3 million is about INR 4 trillion as we speak. And this has been growing at a CAGR of 24%, meaning it's doubling every three years. The best thing is as far back as I look, these numbers have held. Which means through peaks and drops, through interest rates and delinquency cycles. The market growth has neither accelerated nor decelerated. When one looked at the decade ahead, one can safely presume that the market will grow at the CAGR of 20%, which means it is double in about four years.
From INR 4 trillion that it is r ight now, it will go to probably INR 8 trillion by four years from today. Now as we know, growth cycles are produced by interest rate cycles. India right now is one of the lowest inflation volatility in the world. This produces a low interest rate volatility which feeds into lower growth volatility. Even if you don't want to get too technical, let's just know this. It is not the quantum of the move but the volatility that kills you. A low growth volatility is a really good place to be. On top of this, India in my view is a long term trend of low real interest rates. We have decidedly entered a cycle of low real interest rates. A low inflation interest rate growth, tragic volatility and a low real interest rate trend is music to a banker's ear. The long term trend is for India. For India is very clear.
It is up. In business as in life, it is very critical to get the long term trend right. While you may get the decade right, it would be posthumously for the management unless they get the quarters right. When we look at the more immediate we shift from the telescope to the microscope and there is never any beauty one can find under a microscope. The near term view is a chaotic bazaar with so much noise and cacophony that it gets very difficult to preserve your enthusiasm.
To those of you who have followed o ur earnings call over the years and at the risk of becoming an I told you so expert, we had seen and called out the shorter term trough. In April 2024 post -COVID Indian lenders had kept the bar open for too long and alcohol and money both have unlimited demand if they are easy to get on credit. The RBA was watching this too and in the second half of fiscal 2025 it read out the riot act on the unsecured lenders first and then the microfinance sector next. We're in the business of lending loans that will need to get repaid every month over a long period of time. The business segment we lend to has uneven cash flows and operates in an undisciplined way. A few days back the screen in our office displayed our live loan book rising in real time.
As you know, we crossed its loans getting disbursed across 220 branches. I usually see this excitement when an important cricket final is underway to a nail-biting finish. A loud cheer and applause broke out as we crossed INR 10,000 crore of AUM. Now on a lighter note, I know the knife that came out to cut the cake that's been wheeled in is on my throat too. We can truly celebrate only when the monies come back. We are the only business that expects sales returns to happen. These high-yielding loans price in the incipient risk in them. Our job and razor that way is to price and manage this risk. Last quarter in line with peers, we too had a large flow in our one plus portfolio. The previous quarter, the June quarter, this quarter.
While the tide hasn't fully stemmed, the intensity of the flow has calmed and we are still very watchful for we need to first stem the flow and then try to reverse it. There are a lot of numbers when a finance company puts out its results. But a first amounts equal or the moral of the story is return on equity. What is the return made by the shareholders who trusted us managing their money? We had constructed an ROA tree on the Dupont curve. The power plants step up the voltage for long distance transmission and step it down to substations and finally delivering it to your own. When you flick a switch the bulb comes on. Reporting this ROE of 14% this quarter for all of us at SBFC is how Edison would have felt when his bulb came on in 1879.
This damn thing is working moment in finance it is never so easy. We could arrive at this ROE by using a high leverage and that isn't the ideal solution. One has to ideally reach it on a very low leverage which means that you need to deliver a high ROA at north of 4.5%. We are achieving 14% ROE at a debt-to-equity of under 2. I was looking at our first earnings call in September 2023 where we had delivered an ROA of 3.8 and an ROE of 10.4. Happy to see that we have doubled our quarterly profits since then. That was just after our listing. We have ample capital and as we build to reasonable leverage it should have a salutary effect on our ROEs going forward. We have two tailwinds powering our client.
Incremental borrowing cost is down 80 basis points over the book cost at the beginning of this fiscal. Over time this will keep feeding into the P&L. Cost of operations has come down 112 basis points since our IPO and incremental benefits will keep feeding into the P&L. As we make investments for growth at a reduced pace of reduction, I would also like to draw your attention to the headwind we face. Tough credit environment. Credit cost has gone up to 1.29%, our PCR is at 46% well above our stated intent to keep it north of 40% and we do not take into account interest on NPAs and we do not upfront any income to DA or any co-origination to reduce our future earnings volatility.
I would want investors to know that while we are doing the best we can, we are solving a difficult problem and the risks are evenly balanced. The yields on our business fairly compensate us for the elevated risk and we won't sleep easy till the flow into OnePlus is fully steadfast. What has changed over the years are the two risks that did not exist to this level earlier: political risk and climate risk. Karnataka is a classic case in point where a superb portfolio till January 2025 got rudely shaken up in two months and this now is going to take several quarters to fix once it starts to flow. We remain cautiously optimistic about delivering a 5%-7% quarter-on-quarter growth. Credit cost could from this point inch up 10-15 basis points before they peak out.
We have further tightened our credit screens, stopped lending below INR 7 00,00 and raised the gate of entry to a CIBIL of INR 700,000 at a minimum level and we now watch out for banking behavior and over-levered customers in a more tighter way than we did before. We thank you for your trust and with this I hand you over to Narayan who understands numbers far better than I ever will.
Thank you. Hi, good afternoon. Our AUM as of September is INR 9,938 crore and as Aseem said we achieved INR 10,000 crore now and this is with a growth of 29% on a year-on-year basis and 6% on a quarter-on-quarter basis. With 100% of our books secured by properties and Gold, we have a very minor unsecured book left which is hardly i n terms of percentage.
Our MSME AUM, which is 82% of our AUM, grew by 29% on a year-on-year basis and 6% on a quarter-on-quarter basis. We have added five branches during the quarter with a total branch count at 220 as of September 2025. In terms of yield, spreads, and OpEx, the yields for the quarter is 18.01% with an improvement of 2 basis points on a quarter-on-quarter basis and 32 basis points on a year-on-year basis. Our cost of borrowing is at 8.96% for the quarter with a reduction of 36 basis points on a year-on-year basis and also on a quarter-on-quarter basis. Consequently, the spread for the quarter is 9.05% with an improvement of 38 basis points on a quarter-on-quarter basis and 68 b asis point on a YY basis.
Our OpEx continue to improve due to enhanced operating leverage and has improved again by 19 basis points on a QoQ basis and 20 basis points on a YY basis. This is in spite of a consistent increase in branch network. In terms of asset quality, our GNP is rangebound in Q2 at 2.77% with PCR at 46.17% with credit cost at 1.29% for the quarter. In terms of capital and return ratio, our capital adequacy ratio is 34.05% with tangible net worth of INR 3,174 crore as of September 25. Our Return on Average AUM for the quarter is 4.56% with Return on Average Tangible Equity further improving from 13.53% in Q1 to 14.09% in Q2. We made a PAT of INR 109 crore for the quarter thereby reporting a growth of 30% on a YY basis and 8% on QQ basis.
With this I open the floor for question and answer.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch tone 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. The first question is from the line of Abhishek Gulati from Gulati Wealth. Please go ahead.
Hi sir. Actually the numbers are great. I want to ask what's the future outlook? Actually on my opening remarks, if you have said so.
I mean I gave a fairly long monologue on what outlook is for us. The outlook continues to be what we had guided, no change in guidance. We hope to continue to grow at 5-7% AUM quarter on quarter and we hope that the credit cost here will start getting range bound but may increase another 10-15 basis points from here. Apart from that it is business as usual where we have crossed 14% ROE and as more things go our way in terms of what has been said as operating leverage, hopefully the IT will have the effect on ROE.
Understood. In terms of are we focusing on higher ticket size loan because most of the NBFCs currently are focusing on higher ticket size loan because of the NPA risk. We are also witnessing the same thing.
Higher ticket sizes are typically range bound and they are, you know, from INR 500,000 to INR 3,000,000 is a sweet spot. What we had mentioned in our last call for last quarter was that we will move away from the lower ticket size where we feel that the stress is building up, which is the sub INR 700,000. If you look at our average ticket size for this particular quarter, that has moved up marginally from closer to INR 900,000 to INR 1,020,000 for this. That is largely also because of a higher co-origination with ICICI. To answer your question, our large tickets, the way we define, is more between INR 1,000,000 and INR 3,000,000.
Understood. One more thing, in terms of the NPS, that is still the great cost we are also guiding would be, could interrupt. We are seeing a stress in a particular type of loan, particular customer behavior that we have found in which we are seeing the more risk.
Let me break this into two parts. One is a segment and one is a geography. If I were to look at a segment, the segment that we had called out not last quarter but probably a year back is that we are seeing stress building up on the lower ticket size so that call out holds and that's something that we've shied away from doing. As a result, you see our volumes also dropping in quarter two compared to the previous quarter. To call out specific geographies, as Aseem mentioned, a specific state in south where we mentioned that due to an ordinance issue, clearly the portfolio color has not been what it was till about January and March. It is a combination of both. That is the reason we said that we're not out of the woods as yet.
We will see some bit of pain continuing before we see the trend reversal.
Understood. Just last thing, how long are we seeing the trend to be continued in the rising NPAs? Anything that this is your experience that you can see.
It's very difficult to. I mean if we could see the sunset and if we could time it, it would have been perfect. I would have given you that answer. All that we can tell you is that quarter two was slightly better than quarter one. Is it going to end in quarter three or in quarter four? That is going to be a wild guess. We would not want to commit to that. All that we can do is if you are in that kind of an environment you will be a little watchful, you will tighten your credit filters. You cannot really avoid the credit cost completely, but you can obviously soften the blow.
Understood. That's it from my end. Thank you.
Thank you. The next question is from the line of Nidhesh from Investec. Please go ahead.
Thanks for the opportunity and conversations for a good set of numbers. First question is on the stress, quality stress that we are seeing. Is it only Karnataka specific or are we witnessing the stress in other geographies as well?
In terms of our portfolio, we have Karnataka where we hold close to around 11-12% although we have gone a little slow. Obviously, there is a legacy book or a large portion of the book there. The trends in the remaining two states, which is Andhra , Telangana, are pretty much holding on. I think Karnataka is one state where we will be a little watchful. We are present in Tamil Nadu but the portfolio is not very large.
Sure. How are you seeing trends on the customer leverage? As we have again started seeing very sharp growth in the unsecured segment, which has been a bit weak for one year. Again, in this quarter we have seen a lot of lenders growing unsecured book pretty sharply. How are we seeing customer leverage trend specifically in your customer base?
Yeah, so I think what we are now trying to do probably if you look at our investor slides you'll see our CIBIL scores which you know, which were more than 700, that's inching up by almost 200 basis points. We were close to around 86% on the portfolio that's moved to almost 88%. If I were to talk about the new disbursements almost I think 95-96% of the customers onboarded are more than 700 and some of them more than 725. Now typically what we look out or what we call out are those set of prime customers within the affordable category where the number of loans at least at the time of boarding is relatively less. So what we're trying to do is trying to filter out over-leveraged customers. It has an impact on our volumes. You see our volumes down by almost 6% odd.
I guess that's the right thing for us to do. Even after we put out those filters our overall growth projections do not change. You know we are disbursing close to around INR 800 crore in a quarter that if we were to just stay where we are, that's INR 3,200 crore in a year that will still be 20% than the previous year. I think we're pretty much comfortable where we are. Despite tightening our underwriting filters for prime customers in the affordable space.
Sure. We had tightened the underwriting filters last year. We have further tightened them in this quarter.
Yeah, we further tightened them in this quarter.
This is a continuous process because t he way we get some triggers last q uarter also we had tightened some of t he norms and even this quarter we have tightened some norms. There is a continuous process and of course whatever learnings we get on the portfolio, we just try to plug it.
Sure. Last question is on. From a medium term perspective, do you have plans to add more products apart from MSME and Gold loans?
No, I think within the ticket sizes you have, you know that's a pretty long range. Right. You know when we say that we anything between INR 500,000 and INR 3 million. A INR 3 million customer or somewhere about gives you a yield which is slightly lower. As you keep nearing between INR 800,000 and INR 1 million the yields are a lot different. These are different segments, different products within which what we play. It's a combination of geographies. I think there's enough and more for us to do in the distribution that we have laid and the pipe that we've laid across these 15-16 states. I don't think from a medium term we will add any more products. Yes, our investment in the distribution will continue to be there because we still feel that a lot of states are underserved and our distribution in some of the geographies are yet to sweat in.
That's it from my side. Thank you.
Thank you. The next question is from the line of Prithviraj Patil from Investec. Please go ahead.
Yeah, so thanks for the opportunity. Just one question. On the micro lab portfolio that you mentioned that we stopped doing under INR 700,000, I just wanted to know how do we look at the write backs or recoveries from the small ticket portfolio? What is a tenure when we can expect a write back or is it just a write off?
No. I think it's going to be a little unfair to say that your LGD on that is almost 100%. That doesn't work that way. It goes through its process. Yes, the time that it takes for the small ticket portfolio which is sub INR 700,000 is fairly longer. I would probably just give you some sense that if I am doing something under surface at a scale of one then probably if it's a smaller ticket, which is sub seven, sub INR 600,000 , then the timeline is almost twice of what probably you would have on a surface side. Yes, there is time value of money that you would probably consider and that's the enhanced credit cost that comes along with it. That also gets compensated with a high yield. Having said that, our percentage portfolio on the overall book that we have is fairly small.
We really aren't, you know, too concerned as to what is the amount of, you know, credit cost that's going to come from that portfolio.
Just to add the covers in these, this segment particularly. Our NDVs would be some 50. That also helps us down the line.
Okay, thank you. Just one more question. What are the number of branches through which we're doing Gold loans and how do we plan to scale it?
We are currently closer to 185 odd branches out of 220 branches where we offer Gold incrementally. You would see, you know, branches, more number of branches coming in for Gold. My sense is that in the next two quarters we should add close to around 15 branches, you know, for Gold.
Thank you. Thank you.
Thank you. Before we take the next question, a reminder to all. You may press star and one to ask a question. The next question is from the line of [Prakal Goyal] from [Anywar Securities]. Please go ahead.
Hi everyone. Thanks for taking my questions. I have three questions. First is to Aseem . Aseem, we saw in the PID disclosures that your personal holdings came down meaningfully over the last quarter. Could you please share some context? Was it mainly a personal diversification or a liquidity decision? Should we expect any further such transactions?
No, it is, you know, since eight years. All the money that I have ever made is in this stock and t he p urpose is to create liquidity for myself.
All right, guys, fair. Second, on asset quality, while GNP has stabilized on a Q-on-Q basis, the OnePlus DPD bucket has been inching up for about 10-11 quarters. What level of OnePlus do you consider healthy for this kind of portfolio mix?
There is no absolute level. I mean, as I said in my opening commentary, this is a level that we are concerned with and watching it. The velocity of the fall has come down, but it is still not stemmed out completely. We are hopeful that we should see improvement in that. Clearly, it is not a level that is something that we are comfortable with or we have to manage it, handle it, and bring it down. There are certain specific things that have added to it. Some we could not control, the Karnataka portfolio that I mentioned, and then some which we think we can control through better credit buying, which we will do, which is something that we have been doing every quarter. We will keep tightening the credit screens until we get to a more comfortable position.
Understood. Just one last question on excellent improvement on cost income ratio. We are growing revenues and profits at about 30% but employee count seems to be up only about 10%. Is there any timing or leg effect here or should we read this as a structural operating leverage coming through?
I think, you know, what we've been doing is there has been a distribution that's been laid. There's been an investment in employees that we've been doing. What we've always called out, that we will not be in a hurry to add branches unless and until my existing set of distributions starts to sweat. Just to probably take my point further is if you look at probably Slide 15 or Slide 16 where we give a split of our distribution, you'll see that now over a period of time almost 60% of our branches are more than three years with an average AUM of more than INR 60 crore-INR 65 crore. Just to give you a sense that the moment the branches are more than INR 40 crore they cross an ROE of close to around 15% and beyond.
You have a set of branches, goes to almost 25% of the branches, which are between one to three years where we feel that there's still a lot of work to be done. That's more like INR 25 crore per branch. That's also a significant ROE of close to 10%-11%. Then you have the balance 15% which are less than 12 months. I think the whole idea is that there is a period where we feel that we'd like to consolidate and see that how are the branches performing? How are we sweating this distribution? Is the cost really making it up? Because one thing, what we started which was contrary to our segment is that we started with an extremely high OpEx.
While we had promised that over a period of time it's going to keep coming off, we were conscious that the unit economics at a branch level clearly needs to deliver and that's how it needs to sum up. Now I think with every passing quarter as the distribution's beginning to spread, as the numbers keep on growing, there's more confidence for us that this model is working. The unit economics at a branch level is beginning to throw up the required income that was projected and gives us a confidence to invest further in our franchise. That's how, you know, in the opening commentary we mentioned that our OpEx, what we have guided that we will try and bring it down every year, is something that we're living up to.
Got it, got it. T hanks. That's it on my side.
Thank you. The next question is from the line of Harshit Toshniwal from Premji Investment. Please go ahead.
Hi sir. Congratulations for a great start. Again I hope I'm audible Sir, two questions. One is that if I look at our employee base, if you can also help us that how much would that be for Gold loan business amongst them. That is one question and the second was on the operating leverage piece that so the operating leverage improvement which we have seen how much also would you want to ascribe towards Gold loan being there in now more branches and the efficiency which is coming up with the, with the i n general, the price increase in the AUM increase. So that was one, and probably just one to it, and continuation of the last question, that the branch addition target which we should look at from here on to achieve that 5%-7% QQ growth. I had one more question if time permits.
Yeah, I think one of the probably the dumbest things that probably we'd like to follow is that keep increasing the number of people and the number of branches to chase growth. I think the idea is that there has to be some bit of efficiency that needs to come in for us to deliver a superior, you know, at least at a PPOP level it has to be a lot better. So if my AUM is growing or my income is growing at the next level, my PPOP should probably be better off that and that's where the operating efficiencies come in. Having said that, I think what we've guided is that we would probably add 20-25 branches in a year.
That's something that we are comfortable with in select states where we seem to be getting our businesses right at the right yields and at the right cost. Coming to answer your question on Gold, we have close to around 185 odd branches. There are close to around 8-10 people in a branch that comes in, so roughly around 1,500-1,600 odd employees including the front end and the back end would be on the Gold side.
Understood sir. One more thing if I can ask that probably this might have been answered in previous calls, but just pardoning the naivety, when we look at the disbursement growth, we saw Q4 of probably a mathematical slowdown. I think there was some change in the way the recognition happened, and last two quarters since the base is again normalized, we are seeing a better growth. If when we look at the 20% year-over-year growth, is there anything in the accounting that does not make it like to like, if you can just help clear this basic question.
No, no, I think what you're referring is to the disbursals for last year in the range of INR 675 crore to, you know, INR 700 crore. There was a dip in the last quarter. Last year, first quarter, which is June 2024, where there was a circular which mentioned that you would disburse based on, you know, based on the actual receipt in the customer's account. There was one reset which happened and then subsequent numbers started to inch up. You know what appeared. That was also unfortunately a period where we said that we are beginning to see early signs of stress coming in for a smaller segment. That is the reason you did not really see a big bump up coming up in the subsequent quarter.
You would probably at best see a bit of a straight line that came in and there was some bit of an uptick which probably happened between quarter three and quarter four and then you saw a tick in quarter one. That is what we intend to do. What we mentioned earlier, I do not think we are in a hurry for really capturing a high market share in a segment where probably we will spend a lot of time trying to get our money back. I think the whole idea was that at a current run rate of disbursal, we need to be very comfortable that we do not really break any operating risk or a credit risk or a human capital risk. As long as we are adhering to all three at a comfortable pace, we should be okay.
Just to answer your question, there is nothing that has changed in the way we were accounting. Everything is like to like compared to last year versus this year. Also to give you further comfort, I think our distribution, what we have is good enough to generate anything closer to INR 300 crore a month. That is almost INR 900 crore. I think it is by design that we have decided to walk away from some parts of geography where we are not originating or some category of customers that we are not comfortable onboarding.
Okay, okay. One thing, and this is not related to the numbers, but in general as an industry, do you think that the surface advantage which is there for HFC, do you envisage a situation that can come for NBFCs or should we look at that being a very big advantage in terms of the way we operate? I think currently it's INR 2 million loan value above which we'll be able to get. Do you think that this is one aspect where government or the regulator is also looking?
I can't comment on what the regulator is doing, but I can certainly say that it is a level playing field. You know that NBFC is deserved to be on, and there is a regulatory arbitrage against the NBFC, and I hope that it gets recognized and removed.
Understood. It will be a meaningful difference because that regulatory arbitrage is actually a reasonably arbitrage.
Yes, yes, it's a very meaningful one. The time frame of resolution can be more than 3x to 3.5x of SBFC.
Okay, got it. Perfect. Thanks a lot, sir. All the best.
Thank you. The next question is from the line of Mayank Mistry from JM Financial. Please go ahead.
Hi sir. Thanks for the opportunity. My question is mainly on the MSME disbursement, so largely it has remained stable during this quarter given that you have tightened your underwriting a little, which has led to a little lower growth in disbursal. When I bake in, you know, only if I bake in 3%-4% sequential growth in this disbursal, I have been able to, you know, gain 5.5% sequential growth f or next two quarters. I'm just trying to decode, I mean will the run rate move up f rom here or with the tightened dispersal w ith the run rate we remain stable over the near term?
I think the disbursal o utlook is going to be a function about how the zero plus is behaving and how are the credit parameters behaving. I think as I mentioned earlier we have a capacity whether it is in terms of number of people or number of branches to really ramp it up. I do not think we are yet in a position to go ahead and do that. As I mentioned earlier that we have already gone ahead and tightened the filters. All I can tell you is that that is almost a 10% drop from our run rate. If we are actually disbursing 800, all I can tell you is that we are leaving almost 10% on the table if we were to filter out all the underwriting norms that we have left behind.
I do not think we are chasing growth at the cost of, you know, credit or at the cost of an operating risk that may come along with it. If that means that probably, you know, we will slash marginally, probably come off in terms of our ME growth but our guidance on the 5%-7% or a 25%-30% will still continue to hold up.
Yeah, hello, sorry. How much has it impacted our rejection rates then in last quarter?
Earlier our rejections, in fact let me swing it the other way. I think our approval rates earlier used to be in the range 45%-50% odd. That’s in stuff that’s probably gone down to below 40% odd.
And this i s in spite of the fact that t he login printer itself is, so it is plus plus. Plus, you do not allow logins beyond.
Okay, sir, thanks. Thanks a lot and all the best.
Thank you. The next question is from the line of Abhishek Gilati from Abhishek Wealth. Please go ahead.
Actually my question is how much leverage we are planning to go like currently as I can see we are 3x leverage. What is our leverage target for at least two or three years down the line that we are targeting?
Our debt-to-equity is sub 2 while asset-to-equity is 3. Debt-to-equity is up to. You know, from a banking covenant point of view we are permitted to go t o debt-to-equity of 5 but what w e believe is anywhere between 3 and 4 is somewhere we will go to the market and start raising equity capital. As of now we are sub two at least we'd like to reach to three and then revisit this.
Understood. Eventually the ROE target that we are targeting.
Yeah, we are, we'll let it come as an outcome. We not targeting any ROE. You know, we had guided a 15 ROE tree. Let us first build to that, you know, then we will talk of plans ahead. At the moment, 15%.
All right. One more thing in terms of during the tough time also we are able to manage to grow like around 6% quarter on quarter and 30% year on year. During these times the companies that used to guide that the same growth are like also not able to do the same. What are we doing differently? Just want to try to understand what we are doing differently that we are able to deliver in the tough environment as well.
Nothing different. We are trying to do the same boring thing and improve at it. We are making our mistakes, correcting, learning. You know, we are at it. It is, I mean nothing is for sure but we are trying our best, you know, God has been kind. We have the best team in the business, you know. They are sometimes surprising us also with what they are able to do. As we keep cutting and keep increasing our credit screens, they are still managing to get in more and do the numbers, you know. I would give the full credit to the team, both business and credit, which is making it happen.
Understood. No, great work. Thanks to the entire team.
Thank you. The next question is from the line of Prithviraj Patil from Investec. Please go ahead.
Yeah, sorry for coming back in the queue. I just wanted to know how do we think of the borrowings? What percentage of the borrowings is fixed rate borrowings and what percentage of the advances fixed rate? And then how much of the repo benefit have we seen on the borrowing side?
Okay, so we have matched the asset and liability pretty well on the asset side. First, the entire secured MSME portfolio is on a floating rate Gold interest. Gold business is a very short tenure business ranging from 6-12 months and there's a fixed interest rate. But you know, since the tenure is small, it hardly doesn't matter. From a liability side, we tend to keep everything floating just to match the asset side well. Virtually almost about 90% of the loan will be on the floating side. To your other question onto how much has been passed on into the, so 100 basis point repo reduction has led to almost about 80 basis point reduction on MCLR by private sector bank and public sector bank is there to follow? There has been a very minor reduction there.
To that extent the flow is still happening, the transmission is still happening. We have baked in and captured certain reduction in the repo already in the financial and we believe that we will capture certain more part of the reduction as we go along to future.
Okay, thank you.
Thank you. Ladies and gentlemen, anyone who wishes to ask a question may press star and one on the touchstone telephone. The next question is from the line of Manav Shah, an individual investor. Please go ahead.
Sir, continuing on the previous participant question, sir, he told regarding the spreads and the margin. What will be your outlook so it can improve from here on as well?
No, you know, we are already above our guided range and do not anticipate any further increases from here.
It will be stable around this level, right around 9% of spreads for FY2026.
Yes.
Okay, sir. Thank you.
Thank you. The next question is from the line of Akasha from [Five Star]. Please go ahead.
Hi sir. Congratulations for a great set of numbers. I wanted to understand the Karnataka issue. I mean several unsecured lenders have mentioned that conditions are improving for them on the ground. What are our expectations going forward?
No, I can't comment on the unsecured lenders as such. All I can tell you is that what are we seeing on the ground with respect to the secured on the smaller tickets? If I were to actually flesh it out further, I would say that the smaller tickets aren't showing sign of improvement as yet. Yes, there is some bit of improvement and stabilization on the slightly larger tickets, but that's what it is. What we had mentioned, the positive is that it's not worsening. We are yet to see that a lot of customers who had flown actually get back to current. We're able to normal, we're able to stabilize them, but we're not able to get them back to current. That's the reason we said that we will be cautious in those markets.
Okay, what is the total exposure in Karnataka?
Around 12% odd.
Okay. One last question, sir. I mean is there further scope for the Gold loan mix from current levels in our total AUM?
It would move u p a percentage here or there.
Okay sir. Thank you.
Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thank you for joining the call. If there are any further questions, please do reach out to me. Thank you.
Thank you very much, sir. On behalf of SBFC Finance Ltd, that concludes this conference. Thank you for joining us and you may now disconnect your lines.