Ladies and gentlemen, good day and welcome to the Tata Capital Q4 FY 2026 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 and then zero on your touchtone phone. I now hand the conference over to Mr. Sandeep Tripathi, Head of Strategy and Investor Relations at Tata Capital. Thank you, and over to you, sir.
Thank you, Sagar. Good evening, everyone, and welcome to Tata Capital's Q4 FY 2026 earnings call. We hope you have had the opportunity to review our financial results, press release, and investor presentation filed with stock exchanges. Joining me today are Mr. Rajiv Sabharwal, MD & CEO, Mr. Rakesh Bhatia, CFO, and our senior leadership team. I'll first invite Rajiv to share his perspectives on our performance for the quarter, following which we'll open the floor for questions. With that, over to you, Rajiv.
Thank you, Sandeep. Thank you everyone for joining the call. Let me start with the macro environment, and then I'll move on to the performance. India's economy delivered steady growth in FY 2026, with real GDP estimated at around 7.6%, underpinned by resilient domestic consumption. Inflation moderated for most of the year, with headline CPI averaging below RBI's medium-term target, though price pressures began to firm up towards the year-end. From a policy perspective, FY 2026 continued to be RBI's easing cycle, which began in February 2025. A cumulative 125 basis points of repo rate reduction, supported by active liquidity management, helped balance growth support with financial stability. Liquidity conditions tightened towards March, leading to some hardening in rates, but these pressures have since shown signs of easing.
March being the end of the year also saw, as always, peaking of credit demand, with system credit expanding to 16% year-on-year, led by steady demand in retail and select wholesale segments. Looking ahead, growth momentum could moderate amid a more uncertain external environment. Geopolitical developments, particularly the continuing conflict in West Asia, carry implications for inflation, energy prices, and global financial conditions, and we continue to monitor developments closely. In parallel, evolving El Niño conditions remain an important watch point given their potential impact on food inflation and rural demand. Now, let me turn to the key highlights for the quarter, both on consolidated basis and excluding motor finance. We're always communicating both on an overall basis and also excluding motor finance, and we will do so in this quarterly call, too.
Excluding motor finance business, our AUM stood at INR 2.52 lakh crore, growing 28% year-on-year and 8% sequentially, driven by sustained momentum across our core segments. Profit after tax for the quarter was INR 1,459 crore, excluding non-recurring items, up 51% year-on-year and 14% sequentially. This was supported by lower credit costs at 0.8% and continued improvement in asset quality, with net NPA declining by 10 basis points to 0.5%. Return on assets improved by 40 basis points year-on-year and 20 basis points sequentially to 2.5%, which is at the higher end of our guidance. Return on equity improved by 40 basis points year-on-year to 14.6% in quarter four of FY 2026. For the full year FY 2026, profit after tax, excluding non-recurring items, grew 36%, exceeding our guidance of 32%-35%, with return on assets improving by 20 basis points to 2.2%.
Now talking about our performance, including motor finance business. Our assets under management stood at INR 2.77 lakh crore, up 20% year-on-year and up 6% sequentially. For the quarter, credit costs improved to 0.9%, down 30 basis points from quarter three of FY 2026, and PAT grew 16% sequentially, excluding non-recurring items, to INR 1,502 crore. Return on assets improved by 20 basis points quarter-on-quarter to 2.3%, and ROE improved by 80 basis points from quarter three to 13.9% in quarter four of FY 2026. Overall, our quarter four and FY 2026 performance is well aligned with our guidance across all metrics. I will now walk you through our performance across five key themes, followed by updates on our technology and digital initiatives and our housing finance and motor finance business. First, talking about the book growth.
I'm pleased to share that we have delivered on our targeted AUM growth, recording a 20% year-on-year increase in line with a guided range of 18%-20%. Importantly, this growth continues to be well balanced across segments, products, and geographies. Excluding the motor finance business, our AUM growth was even stronger at 28% year-on-year, exceeding our guidance of 22%-25%. Within this, our housing finance segment continued its strong momentum, with the housing finance company delivering a 29% year-on-year growth. Our core focus remains firmly on retail and SME lending, which together continue to account for 86% of our AUM, providing a structurally granular and resilient growth profile. We also saw a modest increase in corporate exposures during quarter four of FY 2026, reflecting our ability to selectively participate in high-quality opportunities within a well-diversified portfolio.
Quarter four set a new benchmark, with disbursements crossing INR 50,000 crore, a first for the company and a testament to our growing scale. Year-on-year, quarter four disbursements grew 32% and were 12% higher sequentially. Retail momentum remains strong with healthy sequential expansion in the book. Our unsecured retail disbursements continued its momentum, growing at 50% year-on-year in quarter four of FY 2026, on the back of improving asset quality trends. With unsecured retail currently at 10.3% of AUM, we continue to see significant headroom towards our target of scaling this to 15%, and we remain firmly on track to achieve this. As of March, our distribution comprised 1,477 branches across 27 states and union territories. This, combined with our digital capabilities, enables us to scale efficiently while deepening our presence across both existing and under-penetrated markets, serving a growing customer base of 8.4 million now.
Overall, our growth remains consistent, well-diversified, and anchored in quality, positioning the portfolio strongly for the next phase of expansion. The second theme I want to cover is asset quality. Asset quality in Q4 has been the strongest over the recent quarters. We saw a meaningful improvement across metrics. Slippages declined to their lowest levels over the last eight quarters, including that in unsecured retail segment, reflecting the continued quality of our underwriting and effectiveness of our collections infrastructure. As covered in slide 16 of our investor presentation, slippages in personal loans and microfinance have declined 60% and 70% respectively. Excluding the motor finance business, Gross Stage 3 assets continue to remain strong at 1.5%, Net Stage 3 at 0.5%, and provision coverage ratio at 65.1%. Credit costs declined to 0.8% for the quarter, reflecting a 20 basis points improvement over quarter three.
Including the motor finance business, our Gross Stage 3 assets were 2% compared to 2.2% in the previous quarter, Net Stage 3 at 0.9%, and provision coverage ratio at 56.2%, all showing quarter-on-quarter improvement. Credit costs improved by 30 basis points to 0.9% during the quarter. The metrics on credit costs and Net Stage 3 are in line with our guidance for quarter four FY 2026 and for the full year FY 2026. As far as risk from geopolitical environment is concerned, we have not observed any material stress in our portfolio across commercial vehicles as well as MSME segments. That said, we continue to monitor the developments closely. We are virtually spending time on this on a weekly basis to see where things are progressing. Overall, we remain confident in the trajectory of our asset quality and are committed to sustaining these improvements in the quarters ahead.
Third theme I want to touch upon today is cost of funds. Our AAA credit rating underpins a well-diversified and stable funding profile. Through a disciplined ALM framework, we continue to optimize our borrowing mix while proactively managing liquidity. For quarter four, our overall cost of funds stood at 7.1%, reflecting a five basis points reduction from quarter three levels. In line with recent global developments, we have seen an uptick in funding costs on incremental borrowings. We continue to proactively manage our liability profile and remain well-positioned to maintain stability in our overall cost of funds going forward. We carry a total liquidity buffer of approximately INR 29,500 crores, and we have ample headroom to pursue growth opportunities and absorb market volatility without compromising on financial discipline. Next theme is margins. We continue to operate with stable margin corridor with total income in quarter four at 6.5%.
Yields have remained healthy, supported by disciplined pricing and a calibrated shift towards higher-yielding segments. At the same time, we continue to maintain a balanced mix across higher-yielding products, including unsecured retail, affordable housing, and secured business loans, alongside steady growth in fee-based income. Our continued emphasis on portfolio granularity and mix optimization has further supported margin stability even as we scale the book. During the last month of the quarter, we saw some mark-to-mark movements in our investments, reflecting broader market conditions during the period. These, we believe, are temporary valuation adjustments with no impact on long-term view on the investments. Now talking about operating leverage. The investments we have made over the last few years across technology, data infrastructure, and distribution expansion are translating into structural improvements in efficiency and scalability.
We are seeing tangible gains in productivity, turnaround times, and overall operating efficiency, and we expect the positive trajectory to continue as these investments scale further. Our headcount growth has remained well calibrated and aligned with business requirements, with incremental hiring happening largely in front-end roles in sales and collections. This enables us to support growth while continuing to enhance productivity and drive operating leverage across the organization. Our on-roll employees stood at 29,816 as of March end. For FY 2026, the cost-to-income ratio stood at 38.3%, representing an improvement of 335 basis points over FY 2025 and remaining comfortable within our guided range of 38%-39%. On our balance sheet remains strong, well capitalized, providing a strong foundation to support our growth ambitions.
As of March 2026, our capital adequacy remains robust at 19%, well above regulatory requirements, and is supported by a strong common equity Tier 1 ratio, reflecting the underlying strength and resilience of our capital position. Our debt-to-equity ratio stood at approximately 5.3x as of March 2026. A quick summary of our AI initiatives. Our AI initiatives initially focused on point solutions such as in call center and customer service. We are now scaling these capabilities across the lending value chain and moving towards more integrated end-to-end deployment that we expect will drive measurable improvements in operating metrics across businesses. We have a number of flagship initiatives live today, and let me highlight a few of them.
Our underwriting assist platform, among the first in the industry, has reduced credit memo preparation time from 2 days- 20 minutes in our SME business, thereby improving productivity of the underwriting team by 30%. The adoption rate of underwriting assist platform today stands at 85%. Our unified voice hub operates across sales, service, and collections in 11 languages. 90% of welcome calls are automated and AI-driven early bucket calling is delivering 30% EMI collection of the allocated pool. Our document intelligence engine has processed over INR 2 crore documents and currently runs with 80+ operational bots, improving productivity of operations team by 35%. Talking a little bit about our housing business. Tata Capital Housing Finance continued its strong performance trajectory in Q4 of FY 2026, delivering healthy growth alongside improving profitability.
Our AUM grew 29% year-on-year to INR 86,653 crore, while profit after tax increased 34% year-on-year, reflecting both scale expansion and sustained earnings quality. Our strategic focus on affordable home loans, affordable loans against property, and Prime LAP enables us to drive margin expansion, portfolio diversification, and scale. Net AUM of affordable housing segment grew by 25% year-on-year. We are now operating through a network of 350 branches supporting deeper market penetration. Our focus on automation, GenAI, and tighter operational control has resulted in improvement of cost-to-income ratio by 320 basis points from 34.3% in FY 2025 to 31.1% in FY 2026. In fact, this cost to income dropped below 30% in quarter four of FY 2026. Asset quality continues to be our core strength.
Credit costs remain stable at 0.1%, while net NPA stood at 0.3%, positioning us amongst the best performing players in the housing finance sector. Tata Capital Housing Finance delivered a strong PAT growth of 34% year-on-year in quarter four of FY 2026 and 23% for the full year of FY 2026. Return on assets for quarter four stood at 2.6% and for FY 2026, ROA for the full year stood at 2.5%, highlighting the strength and sustainability of our earnings profile. Little bit about our motor finance business. As you would remember, we achieved a breakeven in motor finance business in quarter three of FY 2026, backed by seasonal strength and lower credit costs, profit after tax for quarter four in motor finance business was INR 43 crore. The AUM stood at INR 25,390 crore, a sequential decline of 4%, reflecting our fitness first approach.
Even though positive growth in AUM is lagging by about a quarter, underlying momentum is improving. Disbursement grew 32% sequentially in quarter four, and we expect this to build as business stabilizes. The integration is on track and signs of progress are now visible in numbers. If we talk about our portfolio mix in motor finance business, our non-Tata OEM share in new commercial vehicle disbursements for quarter four has reached 26%, reflecting early success in our multi-OEM strategy. We are increasing exposure to used commercial vehicles and small and mid commercial vehicles while reducing our heavy commercial vehicle concentration. Credit costs are declining with fewer slippages driven by tighter underwriting and stronger collections. Branch rationalization, focused manpower deployment, and IT integration are improving efficiency. The business is now aligned to Tata Capital's model with dedicated sales, credit and collection verticals, strengthened.
We've strengthened underwriting and collections, which is showing in the book quality across cycles. With these actions in place, we expect growth to resume from the first half of FY 2027. Looking ahead, we expect steady ROA improvement through FY 2027, and we are targeting to reach an ROA of 2% by FY 2028, as we had communicated before. Our focus now is on delivering consistent high-quality outcomes as the transformation matures. In the end, I would say FY 2026 reflected disciplined execution and strong fundamentals across growth, asset quality and profitability.
As we enter FY 2027, we remain focused on sustainable quality-led growth, supported by our distribution and technology strengths. With momentum in retail and housing, improving motor finance volumes, and a strong capital and liquidity position, we are well placed to deliver on our FY 2028 guidance. We thank our investors, analysts and partners and teams for the continued support. We'd be happy to take your questions now.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and then one on their touchtone phone. 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. Our first question comes from the line of Raghav from Ambit Capital. Please go ahead.
Hi. Thanks for the opportunity and congratulations on the number. I have three questions. One, I think you just mentioned that there were some slippages in the CV finance portfolio in the fourth quarter. When I'm doing my numbers and my calculations, that indicates that there have been some net recoveries in that portfolio of about INR 35 crore. Can you verify what was the net amount, whether it's a net slippage or a net recovery, in the CV finance portfolio?
Actually, slippages have gone down and recoveries have improved. That is the reason, if you look at our motor finance business, I'll just try to point out to that slide. Actually, we have mentioned that for the motor finance business, our Net Stage 3 assets have come down. In fact, as far as profitability is concerned, for quarter four in motor finance business, we have earned a profit of INR 43 crore. I would say a good portion of that has been contributed by higher recoveries and lower slippages.
Negative, slippage negative.
Actually our credit costs are negative.
Net slippage.
Net slippages are negative, sorry.
Okay. That's what I was trying to understand, that negative net slippages means there have been net recoveries, right? In this...
Absolutely.
Understood. Fair. Can you touch upon how you're looking at growth in the CV finance portfolio in FY 2027? CV volumes have been very good in the second half. Ideally, you should be capitalizing on these volumes for the industry. Right? Just some thoughts on how do you plan to capture this cycle from FY 2027 onwards?
As far as the coming year is concerned, you're right that there is strong momentum in the commercial vehicle business. In fact, for the first time in March, we crossed a four-figure number as far as disbursements are concerned, and we expect this momentum to continue. However, we do have a matured book in the commercial vehicle business on which we have fair amount of repayments happening. While we will grow our disbursements, the impact on the overall book growth may be more closer to 10% as far as the book is concerned. Our disbursements will grow at close to about 80%+. That's what we have planned in next year. Because of the matured book, there are a lot of repayments also which are happening. Consequently, the book growth will be lower.
7%.
Going into 2028, maybe that 10% can pick up to a higher number.
Correct. You are right.
But-
While our disbursements will grow, book will grow slower.
Understood. Can I ask my second question?
Sure.
You seem to be pushing a lot more on corporate lending, that's visible in the numbers. I think last quarter also, it was there. Unsecured growth is also coming by. One is low margin product, the other one is a high margin. For 2027, what are you thinking on product strategy and what will you guide for in terms of spread expansion, given that the yields have also started to pick up? One bit on what is the product strategy, and I want to understand that more from a yield expansion perspective, if there's going to be any. Then the second one is, how are you looking at cost of funds? Yes, and that surely answers my question on this, guys.
Cost of funds is, I would say, a moving scale. Tough to predict what is going to happen, but based on what we have seen and our estimated cost of funds for the next year, FY 2027, should be lower than the cost of funds for FY 2026. Now, how much lower? Time will tell, but we expect it to be lower than FY 2026 on an overall basis because a lot of liabilities have got repriced last year. As far as margins, growth and margins, both I will talk about. As far as growth is concerned, let me first talk about, I did mention about what's going to happen on motor finance business. Motor finance is also a high-margin business for us. The other unsecured businesses, personal loans, business loans, and microfinance, we have given it on slide 16, what's the momentum on disbursement growth there.
While disbursements have started to grow in that business from over the last, I would say, 6-8 months . In personal loans, the impact on the book is less visible now because there were a lot of repayments also on a matured book. You will see the impact on the book in FY 2027, where you will see significant improvement in book growth also. Same is true for business loans. Business loans, we expect also the book to grow at a pace better than our overall book growth rate, and same is true for microfinance. For all these three businesses, the book growth will be higher than the overall growth rate of Tata Capital. You will see an improvement in margins and growth there.
Similarly, in the housing finance business, we've grown last year at about 29% in the housing finance company, and we expect to grow at a similar pace in the coming year. With that, we believe that the proportion of retail business will marginally improve in our overall proportion for the coming year. This retail and SME, which forms about 86% for FY 2026, should inch up in FY 2027. As far as FY 2026 is concerned, just to give you a sense, our Housing Finance company grew by about 29%. Our retail secured grew by about 28%. These were businesses which have shown strong growth. SME growth picked up in quarter three and quarter four. We did see a degrowth in our books by about 24% in motor finance business, and part of it was made up by retail and housing and part by the corporate business.
We did see an opportunity in the corporate business of looking at very high credit rated companies, and we did use that opportunity. On an overall basis, 86% is retail and SME, which we expect to inch up, more so because of retail, and retail includes housing in the coming year.
Thanks. That's all from my side, and thanks for the answers.
Thank you. Your next question comes from the line of Viral Shah from IIFL Capital. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Rajiv, I had two questions. One is if you can explain the, say, relatively weaker non-interest income in this quarter. Like, what are the internals of it and what drove that? Secondly, basically, I think it's a derivative of your response to the previous question. Now, currently in the rate cycle that we are in, there will be probably more opportunities that may come up in the, say, SME and corporate segment. Given that we also would want to say from a mixed perspective, want to grow the retail book as well, what will be your priority to look at, say, in terms of overall profitability and, say, NIMS and spreads? Or to basically, say, push up furthermore on growth at an overall level?
As far as growth is concerned, we've given a guidance of 23%-25%, and we want to remain in that range. Obviously, if we get an opportunity to do better, we will look at it, but we want to remain in that range. As far as NIMS are concerned, our strategy has been to grow some of the high-yielding products more than the others. Last year, we did suffer on that count because our unsecured business did not grow because we had course-corrected ourselves in FY 2025, and the impact was visible in book growth in FY 2026. Similarly, our motor finance business, which is also a high-yielding business, actually degrew by about 24% last year. We believe all of this will get corrected in FY 2027. We expect in FY 2027 motor finance business to grow. It will grow.
We also, because of the disbursements which have picked up in the unsecured business, we expect unsecured business to grow at a faster pace than our overall book growth. Similarly, our affordable housing within housing is growing at a faster pace, and we will see that also helping us in our NIMs. It is because of all of these products, our NIMs, we expect them to grow. Last year, they did get impacted because two high NIM businesses, unsecured as well as motor finance, did not see a book growth, I would say. That has started to change from the last quarter, and it should get better. The other thing which I want to point out is sometimes we do not get a true picture of the NIM if we look at a two-point average versus a daily average.
While on a two point average, the NIM looks flat, on a daily average, it shows a 10 basis points improvement. Some of these figures and the run rate for Q4 is even better for us. To that extent, some of these numbers do not come out as clearly, but they do become visible when you see the income growth versus the average book growth. As far as margins are concerned, we expect them to improve in the coming year because quarter four also is better for us on margins compared to the full year. As far as your other point, Viral, on non-interest income, while on the core fee side, that has been showing a good trend for us, both in terms of loan linked fee or in terms of insurance cross-sell or syndication. All of those segments have grown very well for us.
We have seen an impact on mark to market on our investments, and that is more so on the investments on the private equity side. As you would know, actually March end saw a decline on the stock market, and that impact was visible on our listed investments and some of the other investments, because we do a valuation on a quarterly basis. Multiples obviously came down for every industry, virtually, in March end. We are not actually perturbed by it, because we do believe that markets will come back. In some segments, they've already come back. For the others, we expect markets to improve, and this will only give us an upside in the coming quarters.
Got it. This is very clear. Rajiv , if I may, can I ask one more question?
Sure, Viral.
Rajiv, if you can give some more color from, say, an asset quality perspective across some of the other segments. I would say especially how the mortgage piece is behaving, I would say now that the growth rates and the book is seasoned even more. Secondly, with regards to, say, the bounce rates, what was the bounce rate that you saw in the month of April? I know you said that overall level you don't see any stress, but would you want to quantify that, and is it within the normal ranges?
Let me cover, Viral, segment by segment. You'll get a better picture on the same. As far as corporate and SME are concerned, there is no challenge which we are seeing. In fact, SME is one sector which we review every week post this whole VOD issue which has come in. We review all our clients to see whether there is any stress. We have not observed anything which will give us or alarm us in any way. To that extent, I would say we've seen no stress build up or anything happening on corporate and SME, and we believe we hardly have any credit cost there, and we expect the same to continue in the future, too. As far as housing is concerned, which is the largest segment for us, the housing finance company, our credit costs for the year have been 10 basis points.
In fact, if I look at the trends, I see no reason why things should be any different going forward. As far as retail is concerned, that's the place on the unsecured side where we had seen stress in FY 2025. There, as we had mentioned before, we started seeing a loading of credit costs happening from Q2. Q2 was lower than Q1, Q3 was lower than Q2, and Q4 was lower than Q3. In all of them, we've seen an improvement, and same is true for motor finance. In fact, we had a great quarter. Quarter three was good, but quarter three was even better for Motor Finance business. Though in Motor Finance, I would only say we need to watch for quarter one and quarter two because quarter three, quarter four usually are better.
Looking at our early indicators of the quality of book we have created, we do not foresee any significant impact. As far as your question on bounce rates were concerned, we were also concerned about it, and we looked at the numbers for the month of April. If I have to be very honest with you, actually, we have seen a bounce rate coming down in April compared to quarter four of last year. There are no signs.
As we had communicated before, Viral, our approach on collections does not start from the stage when the bouncing happens. Our approach on collection starts before the bouncing happens. From that perspective, we are very focused on bringing down bounce rates. If I have to tell you, bounce rates have been coming down quarter-on-quarter, and that is where our focus is. If we can arrest it at the upfront stage, then I'm in a better position as far as collections are concerned to manage the flow forward.
Got it. This is very helpful. Thank you so much, Rajiv Sabharwal. All the best.
Thank you.
Thank you. The next question comes from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
Hi. Thanks for taking my question. Looking at your growth trajectory ahead, the single largest segment is home loans, which has grown at around 16% this year. Given the fact that you're looking at around 23%-25% loan growth next year with probably the share of retail going up, I would expect that home loans being the largest segment probably needs to grow at a faster pace than where it is today. We do understand that personal loans and business loans will probably accelerate given the momentum that we are seeing. What kind of a loan growth do you really see for home loans and why is it sort of in between levels right now?
Let me cover it in parts, Nischint. We look at home loans in some distinct segments. One is obviously the prime loans, both home loan and Prime LAP. The other is affordable housing, and the third is micro housing. If we look at these products, our prime home loan and LAP is growing at 21%+ . Our micro housing is growing at over 50%, and our affordable housing is growing at close to about 25%. These are very healthy rates for us. In fact, over the last, I would say, six months, and also as per our plan for next year, we are adding a fair number of branches or going to more locations, I would say, for affordable housing and micro housing, and we expect these segments to grow more.
Our approach, as far as housing is concerned, to also look at a new segment, which we're getting into, which is the near-prime segment. Because we do not want to compete at the 7.25% and 7.2% rates being offered by other players. Our approach is to make the near prime bigger, make the affordable housing even bigger, and make the micro housing also bigger, so that we can get the right names along with the right credit cost. Anyway, the operating efficiency is kicking in virtually every year and you're seeing an improvement. We do believe that we have an opportunity to further improve it using all our initiatives on technology. You will see a bigger increase in each one of them, and that's our plan for the next year.
Got it. Within the housing finance subsidiary, what would be the ratio of home loans and LAP? I believe you need to have around 60% home loans.
The ratio is 60%. We are closer to about 61%-62% in that.
It's lower 61%.
We are between 61%-62%.
I believe that incrementally, the growth in home loans and LAP should be at a similar proportion, assuming that you need to maintain the same 60%, 61% going forward. Now, this year's growth in home loans was around 16%, LAP was 36%. Probably need to catch up on home loans. Right? I think that's what I was kind of coming to.
Correct. You are right. Within that also, our effort will be to grow affordable housing more. That was the only other point. I take your point on the first thing which you mentioned. I was only clarifying where we want more growth.
Fair point. No, I think the point I was coming to is that, is it something that you are seeing more VTs outs which could be arrested, or is it something that you probably need to expand more to really scale that up? I think that's what I was coming to.
Nischint, what happens, and you know this market well, you've seen this for a very long period of time. Whenever the rate drops happen, the pressure on VTs increases. When the rate drops are not there or rate movements are less, the BT pressure reduces. Last year, the BT pressure was very high. While we lost portfolio also, we did gain a portfolio where BTs came to us. It was true on that. What we are looking at in FY 2027, one, we do believe that the BT pressures will be lesser in FY 2027. The other thing is, we are very focused on doing our bit on originating more. We are expanding to more branches, because today, while at Tata Capital we may have 1,400 branches, within Housing Finance we are there in just short of 400 locations.
We have ample opportunity for us to also geographically expand, which we are doing. The work started six months back, and we will see the results of the same. It started to show in March, and they will continue to show more in future. It will be more through geographical expansion. Also, we believe less pressure on BT in FY 2027.
Got it. This is helpful. Just as you move ahead from April to May and so on, are we sort of seeing any tightening in the screens? The way the overall macro is, and I think you've pretty well highlighted some of the challenges in your opening comments. Are you sort of tightening the screens? Would you say that maybe for a quarter or so, the pace at which your unsecured book is going, you may want to kind of mellow down a bit? I understand the data points are very clear. They're not showing anything. Given the way the overall macro is, are you sort of taking a pause before leaping ahead or business as usual as it is?
No. Nischint, our approach is as follows. One, we look at what's happening in the market. As I mentioned to you, our risk, credit, and business team virtually spend every week time on reviewing how things are progressing. The biggest segments which we are looking at is the SME segment and the commercial vehicle segment, how they pan out, especially if the fuel rates also go up, which may impact commercial vehicle segment. What we have done, I would say a month back or so, is look at in which subsegments of this we should tighten our approach. Meaning either look at lower leverage or look at higher credit score or look at tighter scorecards. We've looked at within MSME, in which subsegments we should do so, and that communication has gone to the credit team.
The approach is that we should tighten our norms in these subsegments. For the others, we should continue to watch, but continue to also grow. At the moment, very difficult for me to say whether we will see an impact on the overall growth or not, because we are also expanding geographically. We are hoping that if we do lose out because of tightening, we will also gain because of geographical expansion.
Got it. This is helpful. Just last one, even on construction equipment, I think you seem to have tightened a bit, right, this quarter?
So-
Is that just too much reading in the numbers?
See, when I, Nischint, say commercial vehicle, for me, I look at commercial vehicle and construction equipment together with a similar lens, because there's a fair amount of overlap between the two. We look at that segment because both are earning assets. There's a fair amount of overlap in customer segments also there.
Sure. Got it. This is very helpful. Thank you very much, and all the best.
Thanks, Nischint.
Thank you. The next question comes from the line of Shreya Shivani from Nomura. Please go ahead.
Yeah. Hi. Thank you for the opportunity, and congratulations on a good set of numbers. I had two questions. My first question is on the personal loan and the business loan segment. The GS3 numbers that we've shown in our table over there, exactly going back to the point sir was making, that there are certain subsegments probably you are looking to probably be slower in. Fair to say that probably PL and BL would be one of those segments. Qualitatively, if you can make comments around which kind of customer segment or business profile are we seeing stress or are we continuing to see stress on? My second question is on the fee income. Just a clarification over here. Your fee income for the corporate book would obviously be at a lower rate versus, say, if your SME and your retail book would have grown, right?
Correct. The corporate book fee not only comes from the loans, but also comes from syndication. I won't say that it is lesser.
Right. Because it seems like that has slowed down a bit for fourth quarter. I just wanted to understand, is it because the corporate side, the retail probably didn't grow as fast, or how should I understand the fee and commission line item?
Sometimes what may happen. You may, if you have some disbursements, some amount of peaking which may happen, that may also lead to, as a percentage, into a different number. If I look at our overall fee, it is the same in quarter three versus quarter four. It was about 1.1% and still remains 1.1%. It is the same. The trend is the same as far as fee is concerned. We've not seen a drop. Now, what was your first question?
PL, BL subsidy.
PL, BL.
PL and BL. Yeah.
Actually, our PL and BL are two distinct segments. PL is largely to salaried employees, and BL is to self-employed segment. In each one of them, actually, we have seen a drop in slippages. If you notice our slide 16, it actually shows that the slippages in PL are much more, because PL is a segment which had suffered more, as you would remember, two years back, than the BL segment. The more visible improvement is in PL also. As far as sub-segments within that are concerned, we have a huge number of sub-segments which are risk tracked on a regular basis.
As I told you, nothing at the moment is showing, but segments like hotels and a few others where we have tightened or travel related, these are the areas where we have tightened a little bit on our policy, as I was mentioning to you in the MSME segment. It's always a moving thing because it's not only we need to watch out for the primary impact, but the secondary and the tertiary impact, which is there because of this war, also keeps surfacing as time progresses. It's something which we anticipate, but we also look at what is happening on the ground and if there's something more to be done. The whole idea is how quick can we be in communicating and taking an action on that.
Right. That makes sense. Just one follow-up on your branch strategy and your disbursements per branch. Obviously, with the kind of addition that you have done over the past three years, it was on a declining trend. Optically, it looks that it has picked up this year, but is it fair to say that the retail disbursements as per retail branch has picked up or this is just looking optically better because your corporate and other book has scaled up quite well? Are you still increasing on the retail disbursement per branch?
If you look at the year which just went by, we did not add too many branches on the retail side, and that will obviously, with our disbursements growing, it will always mean that per branch our numbers have gone up. Our approach over the last year, which we had stated before, was that we may not have all products present in all branches. Our effort before we add new branches would be how can we populate more products in each branch so that we can, I would say, leverage on the cost which we've already incurred for the branch. Going forward also, while we are expanding, we first look at can we get in the branches more products before we physically expand.
We didn't add new branches in any significant way in FY 2026, but in FY 2027, it will not be the pace which we had done over the last three years, but it will be a reasonable number of addition to our branch network, I would say, going forward. So we can expect a 10%-15% increase in our branch network.
Right. Sir, in your branches, your 350 housing branches and the remaining 1,477 total branches, the products can overlap, right? Some of the...
Yes
Retail products can be present in the housing loan branches, right?
Yes. This is exactly what I'm saying. Rather than going to new locations, we are adding more product in each branch, which is also helping us on the operating efficiency.
Right. Yes. This is very helpful. Thank you, and all the best.
Thank you so much.
Thank you. Ladies and gentlemen, we request all the participants to limit their questions to one each per participant and rejoin the queue for any follow-up questions. Our next question comes from the line of Avinash Singh from Emkay Global Financial Services Limited. Please go ahead.
Yeah, hi. Good evening. Thanks for the opportunity. Rajiv, if I look at FY 2028 profitability, let me just take 1.6% odd . That's a 60 basis point of movement from where we are today. Now, broadly, 25 basis points, 30 basis point it seems you are extending from the cost to income, and where today our paid cost is flat. That leaves kind of a nearly 50 basis point to be explained by the margins, and that is where you are kind of also alluding to the unsecured product increasing. Now, here are a couple of questions. If we look at the credit cost side, today our housing is at 10 basis point. Now, if you go more into the affordable and near prime. Is that 10 basis point looks kind of unsustainable.
Of course, there is going to be overall benefit from you on the motor vehicle side, but then when you are going to increase this unsecured piece, that kind of will start to balance out. At the aggregate level, the direction you are taking in the housing as well as in the unsecured side, this kind of credit cost, is that kind of manageable because that's kind of even for a diversified lender like you, pretty under 1% is kind of not seen in the non-banking financial side. Secondly, related to that only, your OpEx, if you kind of for the area which you want to grow more, whether it's housing or unsecured, again, these are relatively more OpEx intensive. You're already pretty efficient in cost to income, you still think that, okay, this improvement is kind of doable.
Avinash, let me cover this. What we try to do is, get into as much detail as possible. If we give out a number, we have very strong basis on which we are giving out those numbers. That is where our effort goes in. Let me cover each of the points which you mentioned about. See, if you look at our history, and you look at before this increase in unsecured credit cost went up, our credit costs were always in the range of about 70 basis points or so. Despite all of what used to happen, it may be 10 basis points off here or there, but they were in that range.
It did increase, one, because we saw higher costs in the industry happening on unsecured, and two, because of the merger of Tata Motors Finance and Tata Motors Finance had higher credit costs. Even if you look at the FY 2026 numbers, our credit costs are 1.2%. Now, based on the nature of portfolio which we have, the high amount of mortgages, the low amount of unsecured book which we have, we do believe that the right credit cost for us would be sub 1% and which is the guidance which we have given. That means 20%-25% we can still shave off, and still that credit cost will be higher than what we used to have earlier of closer to about 70 basis points. We do not believe that there is a number which we can't achieve.
That gives us an opportunity to bring down credit cost by that much number, 20 basis points-25 basis points. As far as operating cost is concerned, you are seeing the advantage which is coming because of scale and because of use of technology. I did mention that we are very focused on using AI. In fact, our approach is this, that virtually we want to train almost all of our manpower to understand the advantage, manpower and womanpower, to understand the advantage of AI. If you would talk to our team, everybody does believe that AI can make a huge difference. Because of digitization, AI, and other things, we do believe that the estimate which we have taken on operating costs, if all goes well, we may be able to do even better than that. At least I'm sticking to only what we have communicated.
We believe there is an opportunity for us to bring down our costs by further from where we are by about 15 basis points or so. If you factor in the impact of credit cost and the impact of operating cost, that itself is about 40 basis points or so. The balance will come from NIM plus fee. For NIM plus fee, it is happening because of the mix of products rather than us taking more risks in each business. I know you did speak about if you go to more unsecured or if you go to more affordable housing. Even if I talk about more unsecured, actually, we are today at closer to about 10%. Even if I increase it by another 2%, it will not be large.
It will just be 12%, which will be lesser than what I used to have in my peak. The opportunity for me to grow without impacting credit cost exists. Second is on affordable. If you would remember, we've always said, for us, we are looking at the better quality of affordable. We are, in terms of origination, among the top in terms of different affordable housing companies. And we do originate at a slightly lower cost, pick up a better quality because our cost of fund and our operating leverage allows us to do so. I hope, Avinash, I answered your question.
Yeah. Clear. Thank you.
Thank you. Your next question comes from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.
Hi. Good evening. Thank you for the opportunity. The question is around the reconciliation of the LAP number. When I look at the LAP number above, it is somewhere in one of the slides above, it's at around INR 38,000 crore. When I look at the Tata Capital Housing, it's at around INR 17,000 crore-INR 18,000 crore. Just wanted to understand what is the difference between the two and why are we running two different LAP books? Second is, you did mention about the OpEx, but with guidance around 23%-24% kind of a growth levels in 2027, 2028 or in the medium term, how do we look at OpEx growth or maybe OpEx to assets going forward in the next one, two years? Thanks.
If you would look at our LAP book, we do loan against property in both the books, the NBFC and the housing finance company. We feel it's a large market, and in terms of portfolio quality, both the portfolios have done very well. We do believe that both these entities have an opportunity to do so. They are two separate teams which work on it. We just ensure that on credit policies, we don't compromise. We want to stick to that strategy and want to continue to do so in the future too. As far as your question on OpEx to assets is concerned, if you look at our guidance for FY 2028, we have said that cost to income should be between 33%-34%, and we do believe that is achievable.
See what is happening, if you look at NBFCs, both banks also, I think. In NBFC, close to 50% of the cost is people cost, and the balance is the other costs. As you know, other costs are obviously, a lot of efficiency is coming in them because of, I would say digitization, automation, using robotics or GenAI. You're clearly seeing the benefits. As far as people is concerned, what we are realizing that increasingly, the only two places where we feel any significant addition on people will happen will be on sales and collections rather than all functions, because a lot of automation is happening in the other areas. That's the reason which we believe will drive these benefits on cost to income or cost to average assets.
If I can just have one follow-up question in the LAP. If we were to book up a LAP today, how would we decide whether it gets booked on the NBFC book versus the HFC book? The way I look at it is the duplication of costs and team at both the places, right, having two separate teams, having two separate policies. If you could just take this up. Thanks.
Shubhranshu, as far as policies are concerned, the overall risk team at Tata Capital also oversees the risk at Tata Capital Housing Finance. While there are dedicated people for risk in Tata Capital Housing, but Tata Capital risk team oversees that. We do ensure that there's no arbitrage on the policy side. As far as booking is concerned, we have two separate sales team and two separate credit teams, even the ops is separate, so it's completely distinct operations. What is originated by one is booked by one. What is originated by the other team is booked by the other team. To that extent, as far as training is concerned, we ensure that similar training is imparted. From a risk in the credit side, we try to ensure uniformity there. In terms of origination, these are two separate teams.
In Bombay, both the teams are operating or maybe in Guntur, both the teams are operating or we have distributed geographies.
Correct. No. There are overlapping markets. There are distinct markets also, which exist because the two teams may be present, the number of locations they are present in could be different for the two teams. Yes, in certain locations, they will be there in both the areas.
Understood. I have few other questions. I'll take this offline. Thank you so much. Best of luck for the earnings quarters.
Yeah. Just a minute. I think my colleague Sarosh, who heads the Housing Finance company, wants to add.
Yeah. Just one thing I would like to mention out here, that when we are in the Housing Finance company, the team which sources the home loans is the same team which sources the LAP also. There is, you have a very strong productivity improvement because at times, you have a self-employed customer, you have a salaried customer, and at that point of time, your productivity improves because you can go in for multiple loans for a particular customer. From that perspective also and what Rajiv added, it makes a lot of sense for the same team which sources the home loans to also look at LAP because it improves the productivity on the field.
This was really great. Thanks. I'll still take a few questions offline. Best of luck. Thanks.
Sure.
Thank you. The next question comes from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Hi, good evening. Operator am I me audible?
Yes, Abhijit.
Yes, sir, you're audible.
Yeah. Thanks. Hi, Rajiv Sabharwal. Just two follow-ups on what you have shared with us in this earnings call. First thing is, a couple of times you mentioned that we've not seen anything alarming in either SME, CV or unsecured PLBL segments in the month of April, which is very good to hear. Just wanted some more nuance around this. When you speak to the field teams, are they telling us that the customers, the businesses, the SMEs that we serve, they're not impacted by the war at all? Their businesses are not impacted by the war at all? Or is it that there are already some first, second order impacts that have started coming now, but just that the customers are maybe resilient and they've been paying their EMIs in the month of April, just like we saw in the month of March as well?
That was my first question. Yes, sir, you want to go ahead, please tell.
No, Abhijit, what I wanted to say is that the way to look at it is two ways. One is where certain markets you hear about, whether it was Morbi or whether it was Surat or certain markets which come into the news where you look at those things. The first thing is to talk to those business as well as collection teams in those markets to see whether we have had any impact. Two is to look at generally on the portfolio, what are you seeing, when you are getting a feedback from your own teams who are talking to the clients. There are obviously customers which me or my colleagues also meet on a regular basis to get a sense from them.
Based on the feedback from all of them, the view which we have ascertained, one, is this that all entities, all SMEs have a linkage to large companies. In almost all of them, they have been supported by the larger company in terms of helping them out in sourcing of raw material and so on and so forth. That has not led to a situation where businesses have shut or anything of that nature has happened. What has happened in certain cases is, depending on the product, the raw material costs have moved up. Wherever raw material costs have moved up, what people are saying is that they are able to pass on those costs. You will obviously see an impact on the inflation side because of all of that.
As far as those specific markets for Surat and Morbi, which came in the news, which we have looked at, there we looked at both our loan stage or our collections. As I had mentioned to you, in April, actually, we have not seen any impact. The way things are moving, April is looking almost as good as March.
Got it, sir. This is useful, and then the other follow-up I had is, earlier in the call you had shared and guided that FY 2027 you expect your cost of funds to be lower than in FY 2026. I'm just trying to understand, you also acknowledged this and a few other large NBFCs that we speak to have acknowledged that March, particularly, the cost of borrowings were significantly higher than the portfolio cost of borrowings.
Do you think March was an aberration of sorts and because of some tightness in liquidity, the cost went up and then in April have they reverted back? Or in April, the cost of borrowings are at similar levels as in March? Subsequently, if incremental cost of borrowings are coming in higher than what we saw until, let's say, January, February, then what is it that is telling us that cost of funds in FY 2027 can be lower than in FY 2026?
Abhijit, I'll say, we should break it up into two parts, the stock and the incremental. If you look at the stock per se, when the interest rates started dropping, the benefit started accruing over the year. It is not that every lender's or every borrower's cost of fund is linked to 100% to repo rate, and it changes immediately as the repo rate changes. There is, for example, if you have already raised three-year NCDs, then you will replace them with a fresh set of NCDs when the previous ones mature. That is when on maturity, the incremental cost will determine your cost of fund. That is one.
Based on the same, we do believe that monies which have been raised in FY 2026 or some part of FY 2025 will keep running for FY 2027 and may not need to be fully replaced, and they will remain at the lower cost because they have fixed rate borrowings. Okay. One is this whole stock versus incremental logic, and what will change for you is the incremental and not the stock. The second is, as far as your other question on March. Yes, March will see an increase. However, when you talk about April, in April, the short-term costs have come off while the long-term costs have still not come off compared to what they used to be in December, January. That's the way I will put it. Now, how they will shape up in the coming months, we will need to watch.
Based on what we have as of now and based on our assessment, that's the number I gave to you because of the stock and incremental also. However we continue to watch, as I said, always that if we feel that cost of funds will grow or cost of funds will come down, we will also have to pass it on or take it or increase from our borrowers.
Got it. That's all from my side. Thank you very much for patiently answering my questions, and I wish you and your team the very best.
Thank you so much.
Thank you. Your next question comes from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. Thanks. Most of the questions have been answered. Just a couple of things. Firstly, in terms of the corporate lending, if you can just let us know the profile of it, at what yield it is happening compared to that of the overall book yield, and what would be the average maturity of this portfolio? That would be helpful. Secondly, as you indicated, maybe any which ways, there were some of the industries which we are closely monitoring. If you can quantify in terms of maybe that would have been the red, amber, and green, and what would be that proportion within the overall SME pool, which is getting closely monitored or which are vulnerable to some of the higher input prices or the energy-related sensitivities or the exchange volatility. That would be really helpful within the overall SME portfolio as well as the other portfolio.
Yeah. Thank you.
Thanks. Kunal, as far as corporate is concerned, corporate has three parts to it. One is the clean energy business, which we do. Second is the opportunistic corporate lending, which we do. And the third is some part of developer funding, which we do there. If I have to talk about this, then as far as quality of portfolio is concerned, whether it's developer funding, whether it's clean energy or in corporate, what we do.
When I say opportunistic, we do not look at plain vanilla funding in corporates where we will be competing with banks. We look at lending to very high-rated corporates. They may be AAA or AA sort of corporates, where we may have an opportunity to lend. It could be short-term, which could be 1 year. It could be long-term, which could be 3 years-4 years, typically. That is what we look at there on the corporate side. In terms of yields also.
Sorry. Just the question was, yeah, maybe I understand in terms of the segments which we operate. I just wanted to know which segments are driving this growth. If there is, let's say, the increase which has happened in the overall portfolio of, say, almost INR 15,000 crore over last one year or, say, INR 5,000 crore in this quarter, which particular segment is driving this growth?
It would be well spread out. I would say it's there in clean energy, where we are seeing there is a lot of demand for credit where new projects are coming up. It's there in developer finance, and it is there in, you name probably the top 10 corporates of the country and half of them will be there. I don't want to name clients, but there is growth happening in all of these areas. As far as yield is concerned, our approach is slightly different there. What we look at is return on assets rather than yield. While any other business may give us a higher yield, in corporates, the yield may be more closer to maybe 11%. In developer, it may be more closer to 12%-13%. More important, their return on assets is very good.
They are all sort of 2.5% and above. Above can be much higher also, depending on the opportunity and the tenor and the fee which you get on the transaction. Our approach is to look at ROEs which are strong there, and that is how we measure it rather than just looking at the rate, because the OpEx is pretty low in these businesses. As far as your other question on red and amber and this, actually everybody defines red, amber very differently. It's just that when we reviewed it, and if red means if we expect this client to move to a delinquent position.
When I say delinquent, I'm not talking about just 90+, even when it moved to a 30 days-60 days or 60 days-90 days, we did not see because of what any such client in our book. However, there are clients which we want to watch more closely, but we do not expect, at the moment based on our assessment, any of those clients in the SME sector to move forward on the, I would say, the buckets.
Okay. In quantification, that would not be large out of the INR 75,000 crores of SME.
That's it.
What we are watching closely, that would not be a big pool?
No. See, because the biggest segment for us is supply chain, for example, which is 60-120 day funding.
Got it. Got it, yeah. That answers the question. Thank you.
Thank you. Your next question comes from the line of Gaurav Purohit from Systematix. Please go ahead.
Hi. Good evening, sir, and thank you for the opportunity. My question is around the motor finance review. There was a legacy borrowing of around INR 25,000 crore-INR 26,000 crore in FY 2025. I want to understand how much of that has already been repriced, and what proportion is pending after the merger. That is question number one. The second question is around the underwriting changes that you have made in the motor finance business post-merger, particularly around risk filters and maybe the rejection rates that you're seeing there because of the changes, the pricing discipline that you're trying to invite there. If you have made any changes in the dealer incentive structure. These are the two questions. Thank you.
Gaurav, as far as both the questions are concerned, one, as far as repricing is concerned, that activity we completed in the first few months of the merger. For that, we didn't take much time. The only place where I would say it took maybe 6-8 months was where the reset date was after that period. Wherever we didn't have challenges on the reset date, either we repriced or we repaid it and borrowed afresh from someone else at a lower rate. Repricing is all done during the last financial year, FY 2026, or I would say 95% would have been done. Anything which is left would be only because the reset date is different. Otherwise, it's all done. As far as underwriting is concerned, a lot of changes were made in the underwriting policy in number of ways. The policy changed.
We looked at scorecards. We got certain people from outside also on the credit underwriting side. We ensured that credit and sales were made distinct so that the purity of the function is respected. Plus, we introduced a fair amount of analytics so that we can detect things early if there is any challenge. While delinquencies may take a longer time to come, but we monitor everything. We monitor right from bounce rates, the average score at which we originate, the 30+ at 3 months, 6 months, 9 months, 60+ at 12 months, and so on and so forth. We do a fair amount of monitoring on this, which makes us feel good about what we have originated over the last, I would say, 15 months-18 months.
As far as rejection rates are concerned, actually, we are not a big fan of this whole thing called rejection rate because it really depends on how you measure it. Our whole objective is at the front end, can we put in certain controls that things which are definitely going to get rejected, we don't even allow them to come into our system, that the sieving happens at the front end, and if the sieving happens at the front end, then your rejection rates could be different from the overall rejection rates. Our effort of the team there is to put a sieve as early as possible and measure it more by what you are seeing on the book in terms of bounce rates or early 30+ and so on and so forth.
If I can squeeze in one more follow-up question.
Yeah.
This year has been, basically you've degrown the book, motor finance book. What is the kind of message that you're passing to the dealers or your sales people are passing to the dealers, given that a lot of churn would have also happened in the front-end team after merger, like you said, you had rationalized manpower. In terms of market share, how do you see that progressing? Because there is already a lot of competition at the dealership. A lot of the peers are also giving trade finance to support their volume. How do you see the entire situation, and would you be doing trade finance too just to gain market share?
Gaurav, I completely admit the market is very competitive. Actually, there is no product in India in financial services where you don't see competition. Our approach is very simple, that look, as far as risk and credit is concerned, we will decide what we want to keep on our books and what we want to originate. The sales team will have to work harder to originate based on that quality which we want. For us, in the motor finance business, actually, our volumes had gone down even before the merger had happened. If you look at from the last April, May, we have only been growing now. What dealers are seeing is that the phase of the
Correction.
The phase of volumes going down on a monthly basis is over. Now, for the last 6-8 months, they are only seeing incremental increase in volumes. To that extent, what you were saying is history for us. Now the current new history is that we are growing. As far as our approach towards dealer finance or giving credit to channels are concerned, we do it purely based on merit.
We've been in this business of providing credit to dealers for the last 10+ years . Even when we were not large in commercial vehicles, we still were providing dealer financing. It's a business. Supply chain financing is a strong business for us. We basically are leveraging the same to do more of retail business. If it merits that we support retail business by providing trade finance, which we believe is also profitable for us, we will definitely look at those opportunities too.
That would be slightly margin dilutive, right, sir?
No. See, if you look at the channel finance business, our current channel finance business gives us a yield of 11%+ . That is usually, I would say, 60 days-90 days business. If you look at the margins in that business for liabilities of that profile, there's no reason why we will not make very healthy ROAs. See, it's a portfolio yield. There will be dealers whom you will be offering a slightly lower rate. There will be dealers for whom you will be offering a slightly higher rate also.
Got it, sir. Thank you for patiently answering my questions, and all the best for you.
Thank you so much, Gaurav.
Thank you. Your next question comes from Adwait from Go Digit Life Insurance Limited. Please go ahead.
Hi. Can you hear me?
Yes, Adwait.
Most of my questions have been answered. Just one question on our FY 2028 guidance. For FY 2028, we have guided for an ROA band of 2.5%-2.7%. I understand that the cost to income would play a crucial role in us meeting that guidance. In that context, just wanted to understand if you could give some color on the levers that we are looking to bank on to bridge the gap between the current cost to income versus the target by FY 2028.
One is, we've mentioned that we want to leverage our existing branch infrastructure more efficiently to get more production per branch, which will help us. Two is, which is something which we religiously drive within the organization, is to look at how we can digitize more, how we can use data more, how we can use unstructured data more, and now it is all getting ingested more through GenAI. A lot of projects on that side which we are doing, which are helping us. Third is clear benefit of scale. As your scale improves, that also leads to benefit on our cost to average assets. It is going to be all of them, but I would say the biggest is obviously technology, digitization, and now increasingly more AI being used.
Got it. That's helpful. Just one quick follow-up. Initially you gave some important color on our loan book mix and how we are looking at respective chunks of our books in terms of asset quality and all. Just one slightly forward-looking question. If one observes in the past few months, there is some fair degree of layoffs in IT services space. In that context, from our prime to semi-prime home loan book, I wanted to understand if we are tracking any particular early warning indicators or how we started to price in this particular risk while doing incremental disbursements, how we are looking at it.
If you look at our approach there. One is, this is not something new. This is something which has been spoken about for the last, I would say, 12 months-18 months. Right from that stage, we had put some enhanced due diligence for this segment, and we've been following that. The other is, a lot of the, I would say, whatever word you use, LGD, whatever we call that by, has been there for larger companies, I would say, prime companies, where probably, loans have been given out at a single digit or close to single digit.
We do not have a very high presence in that segment per se. That is where I would say, most of the larger banks would be present in. When we have looked at our personal loan portfolio, which would include all salaried employees, that's the number which, that's where I had referred to earlier also, that our bounce rates have been coming down. That's the first indicator of what's happening.
That's complete.
Thank you.
Thank you. Your next question comes from the line of Omkar Shinde from A Capital. Please go ahead.
Hi. Thank you for the opportunity. I just have one clarification and one question. First is regarding the average yield that you've given in the annexure. That is the AUM yield or the disbursement yield?
AUM yield.
The AUM yield has dropped by, say, 90 basis during the year. The question related to that is, you mentioned that we saw a little bit of tightness in the market during April and early parts of March because of incremental borrowing costs are higher. The regulator, RBI, NHB, they are all behind HFCs and NBFCs to pass on the rates and move the cost towards the customers. My question is twofold. One is, how much of the book is fixed or floating? Because if it is external benchmark linked floating book, then we can easily move the needle on the pricing and therefore not get impacted too much by the cost of borrowing. That is part one. What is giving us the confidence?
Because, for example, if even our affordable housing book is at slightly better customers of the affordable segment, then with one of the peers that had recently announced results was somewhere in the region of 11.5% incremental yields. Are we in that same ballpark or are we slightly higher? Because structurally, if the yields are going down, then will it be possible for us to maintain better ROAs or even increase the yields if there is a requirement?
As far as yields are concerned, two things there, that one should look at yield as well as the drop in cost of funds. Both should be looked at together. What we are seeing there is while cost of funds are also coming down, we are passing on the benefits, so the yields are also coming down. The other point which I had mentioned to it earlier, which probably comes out more clearly is this, that when you look at the 2-point average versus daily average, on a daily average, we are seeing that the drop in yields is [Inaudible] not more than the drop in cost of funds. While on a 2-point average, it looks more than that. That's the reason your net income will increase at a faster pace than your average book.
Yes, there is a pass on of yield, which is happening because of interest rates coming down. So is our cost of funds. That is also coming down. Sometimes the daily average gives a better picture than the 2-point average. That's on margins. The other point which I want to say is that what we had mentioned earlier, that we are trying to increase the mix of products towards more high-yielding products, which I would say would be very different in FY 2027 over FY 2026, because in FY 2026, our unsecured book did not grow any significantly. Since the disbursements have started to grow, you will see the book growth happening in FY 2027. The second thing is motor finance also, which is a high-yield book, was de-growing in FY 2026, which will not happen in FY 2027.
Omkar, I could just add here that in the housing finance and particularly affordable, more than 98% of the book is floating. One thing which I would like to speak about here is the yield that you spoke about on our affordable segment for the last financial year is around 12.10% on the book. Our NIM plus fee, which was in the region of 6.7%, has improved to 7.6% in this financial year. We've been only able to grow our NIM plus fee in the affordable housing finance business.
Just to add on to what Sarosh mentioned, if I look at my greater than one year liabilities, which have balance tenors of more than one year, and we look at the proportion of that and the proportion of our assets. Basically, they are more or less same on fixed and floating.
Understood. That's good to hear that. Both the NIM plus fee and the floating fixed is good. Our yields are also materially higher compared to the peers, which gives me great clarity.
Thank you, Omkar.
Thank you. Next question comes from the line of Vikram Subramanian from Marshall Wace. Please go ahead.
Hello. Am I audible?
Yes, Vikram, you are audible.
Hi, sir. Thanks for taking the question and congrats on a good set of numbers. Very glad to see the growth and the asset quality turnaround. Most of the questions have been answered. Just wanted to clarify a little bit more on yields, specifically because you mentioned the daily and the 2-point average a couple of times. Just to clarify, on both yields and on cost of borrowings, or on yields, the daily average is a materially higher number than the 2-point average. This is what you are mentioning, right?
Yeah.
While on cost of borrowings, it is not as much of a delta. Is that the right understanding?
No. There is obviously, on yield, the delta is higher than cost, but the delta exists in both places.
Yeah, exactly. On a daily average basis, the yield fall is much lower than the cost of borrowing fall.
Correct. No.
So then-
Yeah. yield fall is lower than the cost of it.
Got it. Just extrapolating that mathematically, I know it will be difficult to quantify, but just asking directionally, if I extrapolate that just mathematically, 1Q or 1H yields should see a reversal immediately, just based on that. Is that the right understanding?
The gap will reduce between the 2 point and
Vikram, can you come back on the question once more? It's not very clear.
Because the daily average of yields is higher than the 2-point average of yields, 1Q yields on a two-point average basis should be better than four Q yields, right? Meaning I'm saying there should be a reversal in the 2-point average number immediately, assuming everything else remains the same. Obviously, we have just started 1Q. Assuming everything else remains the same, that's how it should move, right?
Yeah.
Got it. Just wanted that clarification, because there is just quite a bit of movement, but also your explanation was quite concise on that. But just wanted to clarify it a second time. Thank you. Thanks a lot.
Thank you.
Thank you. Ladies and gentlemen, we'll take that as the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir.
Thank you so much. Thank you everyone for joining the call. I think from our perspective, a lot of good things happened in FY 2026. We were happy that we could meet all of the guidance which we had given. In fact, the way we ended the last couple of quarters, we do believe that the opportunity for us to grow and to move towards our guidance in FY 2028 is very strong. In between this whole thing on the war has happened, we do believe that in certain segments, we need to be more cautious, and we are already doing so.
Despite that, we believe because of our presence in almost all products and opportunity to add some new products too, plus the opportunity to expand geographically, we are well-placed to meet the guidance which we have given. Thanks everyone for the faith which you have placed on us. We just want to tell you that we are all working towards keeping up that faith. Thank you so much.
Thank you. On behalf of Tata Capital, that concludes this conference. Thank you for joining us and you may now disconnect your lines.