Good day and welcome to the SBFC Finance Limited Q2 FY 2027 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. Gaurav Toshniwal from ICICI Securities. Thank you, and over to you, sir.
Yes. Thank you, Steve. Hi, good morning, everyone, and welcome to SBFC Finance Q2 FY 2027 earnings call. On behalf of ICICI Securities, I would like to thank 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, Executive Vice-Chairman, Mr. Mahesh Dayani, MD & CEO, Mr. Sanket Agrawal, Chief Financial Officer, and Mr. Rajiv Thakker, Chief Risk Officer. I will now hand over the call to Aseem for his opening remarks, and then we will open the floor for Q&A. Over to you, sir.
Thank you, Gaurav. Good morning, everyone. The world as we always knew it is in a kind of a reset. Geopolitics, geoeconomics, de-globalization, anti-immigration, and breakdown of a rules-based order that we have been used to. In addition, it is readjusting to the changes AI is bringing into everything, every domain of life. Volatility and disruption are the new normals. In India, the impact of the three Fs, fuel, fertilizer, and foreign exchange, on top of a super El Niño, is juxtaposed with a resilient domestic demand. There are 10 major schools of economic thought in the world: classical, neoclassical, Keynesian, Austrian, Marxism, et c.
But what we are seeing defies all things we have been taught. The Fed trying to force the 10-year down when it succeeds even temporarily, even gold and Bitcoin both go down, which could basically mean it is a risk off. The U.S. 10-year crossing 5%, any economic theory would tell you, would lead to a stock market crash, but that is not what we are seeing. Honestly, it is getting increasingly difficult to make sense of the macroeconomic reality of the world we live in. As we speak, economic cycles, political cycles, commodity cycles, currency, interest rate cycles, liquidity cycles are in motion, and these usually lead to an eventual credit cycle.
However, the causal relationships we have been taught in economic textbooks no longer work in a world where deficits and currency printing has gone out of control. Frankly and thankfully, for a company as small as SBFC, these questions are above our pay grade. We have to manage to keep our little boat safe in this tempestuous ocean. If you listen to the last three years of quarterly calls, we have always been cautious and continue to remain so.
Take, for example, interest rates. 10-year Indian G-Sec at 7.47% is up almost 65 basis points in this cycle, and so surely more rate hikes are coming. These aren't controllable for us. How we manage our borrowing cost and reprice our variable rate portfolio of loans is in our hands, and we will focus on the controllable. We don't have to worry so much about the health of the economy at our size. We just need to worry about choosing our customers better, using technology better, becoming more efficient producers, enabling us to deliver the ROAs, squeezing the OpEx and credit costs. In a world of constant flux and chaos, we are trying our best to continue to deliver boring results. With this, I hand over the call to Mahesh.
Thank you, Aseem. Good morning to all. There's never a dull moment in financial services. We began the year with a war that fueled inflation, and we ended up with a 25 basis rate increase. We are now debating the possibility of further rate increases, dealing with a deficient rainfall, watching cross-leverage build up in gold loans, and assessing a draft regulatory circular that may impact profitability. The last couple of years have felt like a Bollywood thriller. There are moments when your heart is in your mouth, the background music gets louder, and you wonder what the next twist will be.
But once the dust settles, you find yourself relishing the drama. We are building SBFC to deliver consistent quarterly performance despite the noise. This is our 36th consecutive quarter of execution since listing, and we have delivered sequential AUM and profit growth within a guided range of 5%-7% per quarter. It may not make for an exciting headline, but in lending, consistency is a competitive advantage. What made this quarter special was the 15% ROE on a low leverage of 2.3x while recognizing costs up front and not front-loading income. For years, this number sat in a cell in our Excel model. It is satisfying to see an aspiration translate into a reported performance.
Let me now return to the three priorities we outlined last quarter: growth, margins, efficiency and asset quality. On growth, we are witnessing an interesting shift in the lending landscape. With a more cautious approach to risk, private and public sector banks are increasingly moving towards higher ticket prime borrowers, where the credit profile is significantly stronger and pricing in single digits. Needless to add, there's very little blood on the report card. The micro MSMEs category, which is a sub INR 7 lakh category, has seen some stains on the progress report, with delinquencies touching more than 4% for the industry.
This creates a meaningful headroom in the INR 10 lakh-INR 25 lakh and a INR 25 lakh+ segment, which is where we have repositioned our business through our own book and co-lending. A direct co-origination model is like a large ship. It does not turn overnight. But once it changes direction, the momentum can be substantial. The change is to make the turn early enough and stay the course long enough to see the benefits.
MSME disbursements grew 6% in the quarter to INR 855 crore. This is the third straight quarter of growth since we repositioned our lending mix in quarter two last year. You cannot reliably predict every turn in the cycle, but you can prepare your business to respond to it. This is precisely what we have tried to do. MSME stood at INR 9,669 crore, growing at 18%, of which the on-book grew at 20% and the co-origination at 10%. We have repositioned our lending mix, strengthened our focus on secured MSME customers, and are now seeing the early benefits of that transition. Co-origination has returned to INR 112 crore from INR 78 crore last quarter.
This supports our growth ambition, even as the sub INR 7 lakh segment continues to run down. Gold loans have held up well. Each branch is adding approximately INR 40 lakh a month in net growth. That is roughly INR 1.2 crore per branch per quarter. We added overall INR 275 crore in quarter two. Gold has survived wars, inflation, currency crisis, and several financial cycles. Its resilience is one reason it remains an important asset class. But resilience should not be mistaken for immunity. We respect the product, understand its risks, and have no intention of over-leveraging it.
Overall, our AUMs stood at INR 12,592 crore, up 6% quarter-on-quarter and 27% year-on-year. We continue to guide for a 5%-7% growth on a quarterly basis from here on. Our approach to growth is straightforward. We want to grow where we have an edge, in segments where the risk-adjusted returns make sense, and at a pace our balance sheet can comfortably support. Margins and efficiency. Yields held up at 18%, up 10 basis points, while our cost of funds stood at 8.41%.
We maintained surplus liquidity of more than INR 1,000 crore through the quarter, thanks in part to the work of our CFO, Sanket. I would encourage you to question him hard on the details. Spreads came in at 9.6%, up from 9.4% last quarter and above our guided range of 9%. While this is a welcome outcome, please do not pencil in 9.6% in your models as the new norm, since competitive intensity in gold is rising and some pricing rationalization is likely. There is useful distinction between a number that looks good today and an economics model that continues to work tomorrow.
We would rather preserve the latter. On operating efficiency, before we get into numbers, let me spend a minute on how SBFC runs today because it is the foundation under everything else you will hear this morning. Our customer journey is digital by default and compliant by construction. In September, 100% of our customer KYCs were completed digitally, Aadhaar OTP or face authentication, and 87% of our disbursements were e-signed. Account aggregator was at 54%, all built into Sahayak, our in-house origination platform.
I want you to register what that means. Governance, compliance, and efficiency are no longer three functions we run in parallel. They are one outcome on the same platform. In September, 73% of our disbursements used AI-assisted personal discussions. 4,000 AI personal discussions in eight language. So a credit officer, whether he is in Hapur or one in Yelahanka, are working from the same quality of conversation. In October, our first full pre-due collection cycle was run entirely by AI voice. More than 4 lakh calls made to 35,000 accounts, 84% reached, 53% paid with no human caller absorbing the workload of roughly 60% team.
So when you look at the numbers that follow, I would ask you to see them for what they are. Not growth that technology made possible, but growth that technology made safe. OpEx declined to 4.07%, down 22 basis points quarter-on-quarter. On a half-year basis, it was 30 basis points lower year-on-year. We continue to guide for a 25 basis reduction in OpEx for FY 2027. The objective is not to become the cheapest operator in the market. It is to become a more efficient operator without compromising the quality of our franchise. Last quarter, I described the increase in zero plus delinquencies as our homework.
This quarter, the position has stabilized, and credit costs declined to 1.37% from 1.44%. We have also been deliberate in provisioning through the transition away from the micro MSME lending, building a provision of 2%, which is the highest in secured lending. Our preference is to make sure that we are properly equipped before the tide turns. We bought the umbrella while the sun was shining so that if a difficult winter arrives, we are prepared. Coming to what really matters. PAT. We ended PAT at INR 139 crore for the quarter, up 7% quarter-on-quarter and 27% year-on-year. ROA stood at 4.6% and ROE at 15.04%.
After all the headwinds, regulation, and badminton birds, the bottom line did what it always does. It turned up on time. The first rule of compounding is to never interrupt it unnecessarily. We have now delivered 36 consecutive quarters of growth, and we intend to protect the streak with the same discipline that built it. We will not chase excitement. We will deliver consistent, predictable, and deliberately boring outcomes. As Charlie Munger observed, "The big money is not in the buying and selling, but in the waiting." With that, I will hand over to Sanket to take you through the detailed financials.
Thank you, Mahesh. Good morning, everyone. I will cover borrowings in detail, combining it with margins before we move to other numbers. Given the macro environment post the Middle East war started in Q4 FY 2026, we expected tightening of liquidity and also sensed the reversal of interest rate environment. To this effect, we decided to keep more liquidity in our books. One, to ensure that no external shock derails our growth plan, and two, it gives a good cushion to negotiate with the lenders. Towards the end of Q1, as the market opened up from the war, we borrowed more than INR 2,000 crore and strengthened our borrowings with closing liquidity of INR 1,864 crore.
This quarter, we have continued to carry the excess liquidity with closing number of INR 1,782 crore. The average daily borrowings were close to INR 600 crore in Q1 and more towards INR 2,000 crore in Q2. Our LCR is at 194%. That's on the liquidity part. In terms of cost of funds, our borrowing cost is 8.41% for the quarter, which is 55 basis points down year-on-year and 1 basis point down quarter-on-quarter. As we stand with repo increase of 25 basis points, we will see some repricing of our book, which has a mix of benchmark it is linked to.
We have half our books linked to MCLR, close to 20% linked to repo rate, with other portion being T-bill and other external benchmarks with a small portion of fixed rate loan as well. On the asset side, we have largely a variable book on MSME loans, and therefore, we will be able to protect the P&L from the repricing of borrowing book. We therefore do not see a material compression of spreads for the reason of rate increase in the environment currently. Our yields are at 18%, which is currently above our guided range of 17.5%. Our spreads are at 9.63%, again, currently above our guided range of around 9%-9.25%. Moving on to the business.
Our AUM for September is at INR 12,592 crore with a growth of 27% year-on-year and 6% on quarter-on-quarter basis, with 100% of our book being secured. Our MSME AUM is at INR 9,669 crore, which is 77% of our AUM with a growth of 18% on year-on-year basis and 4.3% on quarter-on-quarter basis. Our MSME disbursement for the quarter stands at INR 855 crore with a growth of 6% on quarter-on-quarter basis. We've seen good momentum since December 2025 wherein we did INR 699 crore then moved to INR 785 crore which further increased to INR 809 crore in Q1 and INR 855 crore now.
We may see some increase in ticket size considering we've not been doing the below INR 7 lakh ticket segment. The loan against gold AUM is at INR 2,906 crore. We upfronted the branch expansion in H2 of FY 2026 and therefore, we've only added one branch during the quarter and six branches in the half year, bringing the total branch count to 257 as on September 2026. In terms of our cost, the OpEx was slightly elevated in Q1 due to the branches opened in Q4 2026 and the increments that were rolled out. As operating leverage kicks in, we are now 22 basis points lower quarter-on-quarter at 4.07% and will continue to see this reduction over the next two quarters.
Our GNPA is at 2.64%, which has reduced by 13 basis points year-on-year and 2 basis points quarter-on-quarter. We have a PCR of 42.24%, consistently above 40% over the last two to three years. Our trade cost for the quarter is 1.37%, which is 8 basis points lower than the last quarter. It seems that the last quarter was the peak of trade cost unless we see a significant impact of El Niño impacting in the immediate future. We do not currently see signs of it affecting the portfolio, but we continue to remain watchful even at a region level. It is worth noting that now our balance sheet provisioning is 2% of our loan assets.
In terms of return ratios, our return on average AUM is 4.58% with ROE is at 15.04% for the quarter. We have been conservative all through our journey when it comes to P&L. We never upfronted income from co-origination or similar transactions. We have kept PCR double of what the segment requires. We provide 2.3x of what the regulatory IRAC norms require. We now also carry excess liquidity in balance sheet, which has its own cost of carry. Despite all this, we have reached an ROE of more than 15% with debt equity only at 2.31x .
The idea has always been that can we upfront the mitigation of all the risks we can see, project it, provide for it, and yet make the returns? From here on, we can see expansion in our return metrics considering a long runway of growth before we need to raise further capital. Our PAT for the quarter is INR 139 crore, growing 27% on year-on-year basis and 7% on quarter-on-quarter basis. In terms of our capital position, our capital adequacy ratio is sufficient at 31% with tangible net worth of INR 3,789 crore as of September 2026.
We should be good till at least an AUM of INR 20,000 crore before we need to raise further capital. Summarizing the P&L for the quarter, yields are up, cost of fund is slightly down, OpEx have reduced, credit cost have reduced, and ROEs have improved. Despite the tough environment, we have revision in outlook of our ratings by Care Edge and India Ratings from stable to positive. With scale in our sight, robust unit economics model, conservative provisioning policy, and a well-diversified liability franchise, we continue to move forward in our journey of predictable compounding. With this, we open the floor for questions- and- answers.
Thank you, sir. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset 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 Ankit Kanodia with Zen Nivesh Advisors. Please go ahead.
Yeah. Thank you so much for taking my question and congratulations on such a good number at this kind of macro environment. I just have one question related to the gold loan, which we are having and which we are growing at a very good pace. It has now reached 23% of our AUM. I have a two-part one question. One is, our presentation is so good in terms of when it comes to details of our MSME loans. If we can provide more granular details about our gold loan AUM, in terms of stress, if you are seeing anything in any more details, that would be very good.
My second question, second part of the first, same question related to gold loan. We are hearing from other larger players who have recently entered in the gold and they have given a very cautious stance. If you can give more color as to how we see the industry moving and how are we calibrated, I think that would be very helpful. Thank you so much. That was my only question.
Yeah. I think, clearly you hear grandiose plans on the gold and obviously we are conscious of that and that's something that I had carried out in our commentary. If you would probably look through our entire journey and while gold moved from almost probably 100,000 to 140,000, we were conscious that we are not going to play this high volume, high value ride. You would see that probably compared to most of the peers in some way or the other, our growth, although higher, is relatively probably lower than some of the players who've given their results. That's largely on account of two, three factors. When you're chasing larger volume, there is some compromise on the price that one has to do.
That's something that we are a little conscious of. Ultimately, your pricing is linked towards your ticket sizes. We are very clear that this is the growth that is required at a branch, and in a rising gold scenario, in a rising LTV, which is now permitted by the regulator from April 1st. If you ask me, we are a little guarded and we probably don't share the same enthusiasm, probably what you highlighted. We would continue to remain guarded. It's a great product for us. We will continue to drive it, but we would like to drive it a lot more sensibly.
Yeah. My other part of the question was, if we can share more details on our presentation about the gold loan in terms of branch level details and in terms of how are we seeing, in terms of the asset quality and all.
The presentation covers the growth of the business. Largely we are in 257 branches, of which 236 branches we do gold loans. That covers the branches, how much do we do. Mahesh said that we are not in a hurry to grow gold a lot in terms of matrices if you see. How much business do we do? We do INR 80 crore a month of business from these 240 branches, which is roughly INR 40 lakh per branch is what the net disbursal that you do. That's on the growth matrices. In terms of yields, we are generally in the range of 18%-21%.
It is a product that has variability in terms of yield. Largely in the last one and a half months, what we've seen is there's a lot of competition that have come in. A lot of large players have promised to and in fact opened branches, some 500, some 1,000. There's a lot of competitive intensity that have come in the product. Once that happens, we've seen that three years back as well, that sometimes the yield gets destroyed, sometimes a lot of people get taken over and those impact your AUM growth.
Overall, for us, in our scheme of things, it continues to be in the range of 20%-25%. Given the price rise that happened in the last two years, it has reached 23%. Possibly it can go up to, say, 25%, but our MSME continues to be the flagship product. From a detailing perspective, the branches, the growth, et c, have been given. Yields continues to be in that range, sometimes at 18%, sometimes at 20%. That's the detailing on the gold.
I think what he meant is that can you include it as part of the presentation. We'll have a look at it and see how best we can accommodate that from the next time.
Thank you so much and all the best.
Thank you. The next question comes from the line of Prithviraj Patil with Investec. Please go ahead.
Yeah. I just had a couple of questions. First was on the asset quality. I see that the net slippage number that we calculate, which is GS2 + 3 slippages, it has been elevated over the past several quarters. This particular quarter, also quarter-on-quarter, it looks elevated. I just wanted to know what is the reasoning for this slippages number elevated. Also the ARC sale that we have done, is that a gold loan portfolio that we have done or is that an MSME portfolio? Also from a GS2, GS3 number, which is an uptick, that is because of gold loans or because of MSMEs, what I wanted to know on the asset quality side.
As you would have heard from a lot of gold loan players, what has happened post the RBI circular is there is a reset in the way the schemes are designed. Post that, if you look at, in fact, all the gold lenders, they are stage one and, in fact, sorry, one to 30 bucket or stage two and thereby some bit of it on stage three has increased. The customer behavior will take some time to change to come to the monthly repayment, and that is the delta between stage two of last quarter and this quarter. It is entirely driven from the gold loans.
Over a period, we think that will stabilize as the customer's behavior stabilizes because six months back, the customer was used to paying bullet payments. Now he has to pay the monthly interest payments. So that is the shift of stage two. In terms of ARC, it is a LAP portfolio, largely lower ticket portfolio, vintage portfolio that is being sold. Gold loans have not been sold.
Okay. Just a clarification. We are seeing improvement trends in the secured MSME business, right? Going forward for H2, because like you mentioned, the majority of slippages is because of gold.
I would not say a gross improvement, I would say stabilization. Like Mahesh mentioned last quarter that we had a homework on zero plus and delinquencies. This quarter, if you look at it, has stabilized. It takes some time to roll back. We are in process of the work around it, but I would not say a gross improvement, but it has stabilized and we look to be now comfortable.
Thank you. Sir, just one last question. Because of El Niño or because of any other macro issue, are we seeing any stress in any particular geography as such?
Because of the El Niño impact, we did a study of all our branches wherein the rainfall deficit is there, PIN code wise, and most of the yellow and red branches wherein there is a deficiency, we have reviewed it. And major impact overall also can be seen in the state of Maharashtra and Karnataka. Maharashtra, of course, our portfolio is not so significant and the impact is not there. On Karnataka side, since after the 18 cases wherein the delinquencies were moving up for us, we had tightened a lot of filters on the underwriting side.
We had also converted some of the branches as collection branches. So there is a lot of tightening which we already have done, which is helping us. And in fact, now the state of Karnataka is stabilizing. It is showing better outcomes going forward. As on today, there is no impact per se which we are seeing. Our overall bounce trends are also on a quarter-on-quarter basis across is showing improvements. So currently, of course, we are not seeing any negative signs. However, we are keeping a close eye on it because how does it impact going forward also is something which there is a constant watch on this aspect. But to answer your question, currently nothing which we are seeing on the risk side per se.
Okay. If I can ask one last question on the growth front.
Yeah.
Yeah. I just wanted to know, like our MSME growth has been slightly muted over this FY and we saw some issues in H2 as well last year. I just wanted to know, is H1 the inflection year from where we see this, do the disbursements pick up and sort of branch productivity pick up for our MSME portfolio, or do we see that happening in F 2028 as such?
What I mentioned in the opening remark was that when you are moving out or probably you are on a rundown for a sub INR 7 lakh or INR 8 lakh category, which was contributing almost probably INR 50 crore in your growth momentum, and you are now repositioning to slightly larger tickets. There is a transition of employees if you are on a direct model basis. It would take you probably a couple of quarters to stabilize and reposition.
If you look at the last three quarters, we have been running down the sub INR 7 lakh category and some of the geographies we were a bit cautious. That is the reason the momentum, as Rajiv mentioned in Karnataka and some other states we had paused. But now the momentum is back, the repositioning is done, the restocking in most of the locations is done. That is the reason we had said that we continue to guide for incremental growth both in AUM and disbursements from here.
Got it, sir. Thank you.
Thank you. Participants who wish to ask a question may press star and one. Our next question comes from the line of Mayank Mistry with Antique Stock Broking. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, just one question in terms of gold loans. We are doing around 67% of our LTV right now in the gold loans front. Just trying to figure out the sensitivity across gold price. Let's say since last six months, the gold prices have corrected around 17%-18%. Right now your LTV also looks right around nearby 70%. At around what level of correction should result in maybe some negative? There is a possibility that the gold price may correct further, right? If you have done any, I just want to know your thought around it.
If you see gold prices were at its peak on January 29th. Then, of course, it moved down. In the last quarter, per se, gold prices are more or less stable. Of course, October, we have seen some drop. Our LTVs, if you see even in the year prior, these things take time to stabilize because if you see a year prior, I am talking about June 25 and prior, the LTVs were in the range of 60s%. Last quarter we were at LTV of 70%, and now it has come down to 67%.
We also have done sensitivity analysis on our gold portfolio. If you ask me the risk, which is out of money is not so significant for us. Of course, this is something which we keep a track on regularly because if the gold price is correct, but if it corrects sharply in one go, then of course we would not have time to auction. Otherwise we follow a regular auction process so that it helps us to cover our risk. Yeah.
The auction happens on some—
Yeah, just to probably add to Rajiv's point. I think what we follow is a no tolerance level with respect to the way the LTVs are monitored and the MTMs breach are recalled. Once it goes beyond 85% and 90%, there is a process in which the borrowers are counseled to repay. If the repayment doesn't happen on time, then the auction is triggered. We are not in a business where we can predict where the gold prices would move tomorrow or in the week thereafter.
There is a window that is available for you to auction it within seven days to 30 days, depending upon the communication to the customer being delivered. I guess that's the time which is good enough. If you look at the entire history, you wouldn't see the gold price oscillate at 20% between a seven-day window or a fortnight window. You have sufficient margin available in terms of time to recover your costs and more, in case there are fluctuations in gold price.
The risk if we don't auction at a regular interval, I think then the risk we carry in our books. We have kept a policy of auctioning the gold, once what Mahesh told the cutoffs hit. That's why we are protected from that front at least.
The auction policy is actually 90 days after your NPA, right?
No. The way it works is that you will have to be ready with the auction process and you cannot really wait for the LTVs to hit 95% and the gold to drop because you will have to give a minimum time to the customer and that is a regulatory ask that you have to comply with. So you have to be auction ready. The decision to auction it when it turns 90%, that is the time that or the margin of time that you need to have with you, but you will have to be auction ready.
Okay. So there is no hard and fast rule that after 90 days you will auction it. If the LTV reaches around 90%-92%, you will start the auction process.
No, no. The auction happens. So he has to ensure that his LTVs are there within those particular norms. You have a right to recall if he does not pay up because if the account is out of order. But typically what we have seen is that the customers, the way they behave is that the customer, the moment it reaches 90%, 95% and the gold price is not dropping, they would come in and regularize the account. So in most cases what we have seen is that we end up auctioning only those gold borrowers where they have crossed 90%+ or they have turned delinquent.
Got it. Okay. And sir, what would be your churning rate in the gold loans? At what rate does your book rate refresh every quarter? Around 30%?
I am not clear on the question.
Only gold loans I am saying. Churn meaning? What does churn mean?
The average duration of the borrowers is close to six months. So that is the average duration.
No, the maturity. How much of the gold loans get matured every quarter?
Our 69% odd of portfolio is between 6- 12 months of tenure and balance is less than six months.
That's right.
Yeah. Cool. Okay. Fine. Thank you, sir. Thank you. All the best for the coming quarters. Thank you.
Thank you. The next question comes from the line of Nischint Chawathe with Kotak AMC. Please go ahead.
Hi, this is Nischint from Kotak Institutional Equities. Thanks for taking my question. This is actually on disbursements. When do you see the disbursements on the MSME book starting to pick up or accelerate?
Yeah. Nischint, I think what we'd called out early in the call was that we will see what we've done is close to probably 5%-6%. That's what we've been guiding that probably on a quarter-on-quarter basis is what we see moving, without changing any of the guidance on the AUM growth. That remains the way it is. But very specific, I think what was required to be done on the MSME has been done, and the growth from here on should stabilize and move.
Nischint, one data point which I just wanted to highlight to you on the MSME side. See, if you compare our last 14 odd quarters post-listing, the last quarter ended on September, we are on our highest disbursement on the MSME side.
Yeah, but I think what Nischint is saying that there's been ups and downs—
Yeah.
—and probably will you see a consistent move up from here? To that question, the answer is yes.
Probably we can expect a double-digit disbursement growth maybe in the second half of the year. That's a fair expectation. Thank you.
In a quarter, are you saying? Or for the second half?
No, I'm saying second half to second half. Second quarter was I think 5% year-over-year disbursement growth.
Yeah.
I am saying that second half to second half should ideally be at least in double digits.
Yeah, correct.
If I can ask, what proportion of loans were below that INR 7 lakh-INR 8 lakh which you are running down or which you are not doing anymore?
We are not originating below INR 7 lakh.
Yeah. What proportion of those would be?
That should be lower than, I think, around 6% of the overall book.
Okay. Of the AUM.
Of the AUM.
Okay. Just one final one. On the margins front, have you started to raise lending rates for your customers?
Yes. We did a PLR increase of 25 basis points this month. We paused the repo increase. We reassessed the cost of borrowing that can move up. What we observed at the last three years back is that close to 70%-80% of the repricing happens on the MCLR side over a period of time. So 2.5% of repo actually converted to 1.8%, 1.9% into the cost of funds. This time around, if you look at the trajectory of T-bills and the other variables, you look at close to 60 basis point is the movement in the last 50 days. We expect that cost of fund to go up, and therefore that pricing has been variable to the variable customer has been passed on in the month of October.
Got it. So that kind of gives you comfort that your margin should broadly be stable while your borrowing costs go up.
Yes. We will continue to hold on to the spreads.
Got it. Thank you very much.
Thank you.
The next question comes from the line of Nidhesh Jain with Investec. Please go ahead.
Thanks for the opportunity, sir. On gold loans, in case gold price remains stable for let's say next 12 months or may marginally dip, do you see any spillover effects on MSME business or any other segment? Because one of the worries that the market has that the segment has expanded very fast over the last couple of years, and these customers have probably been using gold loans for liquidity. In case incremental liquidity from gold loan stops, it can create spillover effects for other segments.
So probably I will just give you some industry data. The MSME customers, and this is largely for sub-INR 30 lakh borrowers. The total exposure that they have to gold loan is in single digits, probably 7% or 8% of them have a gold loan. And the number is not very different. For us, it is probably marginally lower. So the impact, I do not think it is going to be a significant impact in case that liquidity dries up. So it is not that there is a significant overlap on both, where the liquidity, if it shuts or the liquidity tap that shuts, then starts to come and impact the segment.
I think what we have called out for is that there is a clear distinction in how the sub-INR 10 lakh or how the sub-INR 7 lakh borrowers, independent of the overlap with gold are performing or that segment is performing. And that is something that we have reasonably run down with. So I do not think the linkage on the slightly higher ticket segment with gold loans is significantly large for us to worry about.
Sure, sir. That is it from my side.
Thank you. Ladies and gentlemen, if you wish to ask a question, you may press star and one. Our next question comes from the line of Pavan Kumar with Edelweiss Public Alternatives. Please go ahead.
Sir, thank you for the opportunity. Can you hear me?
Yeah.
Can you please give the 30-day DPD number just for MSME, how it has been moving over last three, four quarters directionally, and where do you see it? Just to get a sense on the credit quality comfort. That's it from my end. Thank you.
That's more reflective from the zero-plus number. If you look at the last three or four quarters, we obviously saw some bit of rise in zero-plus, especially in the June quarter where the zero-plus reached at its peak for us. This quarter it has stabilized. From a DPD perspective, zero-plus is an indication of where the portfolio is. We've seen a lot of NOC in the last one and a half years coming largely from Karnataka portfolio, coming largely from the maturity of the portfolio, also coming from some regulatory interventions on the unsecured side or on the microfinance side.
All those put together have given some strain in the last two years where zero plus, which used to be in the range of 7%, have moved beyond 9%. Those are the numbers that reflect the DPD. Over a period of last three to four months, we've realized and we've seen even in October that the numbers are stabilizing. To this effect, we've also hired a lot of people in collections.
We are close to now 850 to 900 people in collections across geographies to ensure that every borrower is reached, be irrespective of its ticket size, irrespective of the EMI size, et c. The color of the portfolio now have started to stabilize as you look at the overall outcome in the credit cost. You see there is a dip and we see some bit of stabilization, possibly some more reduction if the collection continues to be better.
In fact, quarter-on-quarter, 30+ would be similar, marginally different, in fact.
Got it, sir. Sir, just a follow-up on this. In terms of the steady state, once the rain impact stabilizes or the oil impact stabilizes, where do you see this number coming back to? Is it possible to go back to 7% that we have seen in FY 2026 or late FY 2025? Or would we be running more at like an 8%, 9% level?
See, it's a segment of a higher yield. When you get those returns of 17% yield, that product will have its own risk. So what you have to do is you price it smartly and ensure that you recover it to the best possible outcomes. If you go to a 13% yield segment, you will get a zero plus in the range of 4%- 6%. But the moment you move beyond 15%, you will get this range of 8%- 9% zero plus. Even the industry data of INR 4.5 lakh crore shows that the zero plus at the industry level for this particular ticket size is 11.5%.
To say that will it go below 7% will be a tall ask. We don't think it will reach there, but what it should happen, and from our own efficiency perspective, it should remain in the range of between 8% to where it is, 9.2%. It shouldn't actually go to double digits, which is where you will start seeing strain in the portfolio. So it may not go back to 7%, given the segment of the customer, but it should be in this range where it is.
Got it, sir. Please go ahead. You were saying something.
The impact of rising interest rate, crude is still not passed on to the consumer per se.
Yeah.
With El Niño looming around, I think those impact is yet to come.
All right. Sir, combining all this, keeping this 1+ DPD at 8%-9%, the credit cost number would probably be stabilizing around this number only, right? For a significant time, like the 1.4%-1.5% kind of a number. Because as you said, yeah.
See, what happened in the last one and a half years is that increase in zero plus actually got converted to the increase in credit cost. We were in the range of around 1%, we are now in the range of 1.4%, 1.5%. But what I mentioned in the opening remark is that 1.45% which we published last quarter possibly will be the peak on the current portfolio performance month-on-month what we are observing. We are at 1.37% now.
We should stabilize here or possibly reduce unless something drastically changes in the environment. A lot of waivers we are hearing has been announced at a state level due to the drought, et c. Something if materially changes, the guidance materially changes, but otherwise, we are stable. We are stable at one plus, we are stable at credit cost, may marginally be lower in fact.
Got it. So like 4.5% would, an ROA number that would be kind of like a guidance number that we can work with?
Yeah. If you look at last one and a half years, our debt equity have moved up, which is the leverage. When that happens, your absolute finance cost goes up and therefore your ROA generally compresses, and the ROEs move up. In our case, we've been able to hold on to more than 4.5% ROA for now more than seven, eight quarters despite increase in leverage. To say that we'll continue to hold on to 4.6% or 4.55% over the long period will be difficult, obviously, because your leverage goes up. But over a short period, we think we should be able to hold on to this. As the leverage goes up, you'll continue to see those benefits in the ROEs.
Got it, sir. Thank you so much for answering all my questions. Nothing else from my end.
Thank you.
Thank you. The next question comes from the line of Raghav Garg with Ambit Capital. Please go ahead.
Hi. Good morning. Am I audible?
Yes, sir, you're audible.
I just have one question. What is the number of collection officers for this quarter? I guess it was about 550 officers as of March end, FY 2026.
We are close to 700 on the front end and including supervisor, close to 850 people. Possibly close to 150- 200 people have been added in collections.
So 200 over the 550 as of the year-end, right?
Yeah. So 700 is the number as on today, the front end and all inclusive 850 collection team.
Understood. I think the number of employees that have been added since March end is about 600. I think, apart from this 200, the rest of the hiring would have been in sales, right? Is that the correct understanding?
Yeah. We opened some 20 branches in quarter four of FY 2026, and these were also gold branches. A lot of these employees have come in in gold loans. What we have seen is some bit of buffer there is important given the competitive intensity. There's a lot of poaching that's happening at the ground level, and the salaries that are being offered are significantly higher. What we've done is, it's a product where people and their relationship with the customer define your AUM and the productivity at a branch level. Just to have an extra cushion, we have continued to add people in gold loans, and that's the increase apart from the collection increase that you're seeing.
Understood. Thanks. Just one last question. For a collection officer, typically, what is the maximum bandwidth that he has in terms of, say, being able to manage a certain number of accounts effectively before, say, you start to allocate cases to another collection officer or before you start putting more capacity on collection?
It generally depends on the geography. What happens is if you are a collector in Assam, the cases are far off, you end up only doing, say, 25 or 30 cases. When you are in, say, south Karnataka or A.P. or Telangana, you end up doing even 50 cases per collector. It's a mix between the states. Generally, on an average, you will have 40- 45 cases that a collector can handle. But based on the geography, it changes based on the profile of the customer and the ticket sizes. Generally, north has a larger ticket size, you will have different strategy there. South has a smaller ticket size, you will have different strategy there. And based on the geography that changes, but average is between 40- 45.
Understood. 40- 45 touch points in a month for a collection officer, right? On an average.
Yes.
Okay. That's all from my side. Thank you.
Thank you, Raghav.
Thank you. As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
Thank you for joining in early in the morning. Have a good week.
Thank you, sir. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.