Ladies and gentlemen, good day and welcome to the Q3 and 9 Months FY25 Earnings Conference Call of Ujjivan Small Finance Bank, hosted by IIFL Securities. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rikin Shah from IIFL Securities. Thank you, and over to you, sir.
Thank you, Deepika. Good evening, everyone, and a very warm welcome to Ujjivan Small Finance Bank 3Q FY25 Results Call. To discuss the 3Q results and the outlook for the results, we have with us the management team represented by Mr. Sanjeev Nautiyal, MD and CEO, Ms. Carol Furtado, Executive Director, Mr. Martin P.S., Chief Operating Officer, Mr. Ashish Goel, Chief Credit Officer, Mr. Vibhas Chandra, Head of Microbanking, and Mr. Balakrishna Kamath, Chief Financial Officer. With this, we'll pass on the line to the CEO. Over to you, Mr. Nautiyal, for your remarks.
Thank you, Rikin. Good evening and welcome to our Q3 Financial Year 25 Earnings Call. Please note all references made during this address on Q2, Q3, and Q4 pertain to Financial Year 24-25. Our strategy to diversify the portfolio towards a more secure book has seen accelerated results, now contributing 39% to the total loan book by end of Q3, led by affordable housing, MSME, and FIG. Our overall secured book grew by 13% QoQ, 33% YTD, and 52% YoY. In microfinance, we saw consistent improvement in collection efficiency month-on-month during the quarter. States like West Bengal, Uttar Pradesh, Bihar, and Rajasthan that earlier showed signs of stress are now witnessing improvement in collection efficiency. We expect a better performance in Q4, with higher disbursements seen in the first three weeks of January compared to similar periods in any month since July 2024.
The bank took a call to reduce interest rates in group loans and individual loans by approximately 115 basis points and 75 basis points, respectively, with effect from 1st January 2025. This will not have a major impact on profitability for a couple of factors, namely stable cost of funds with expected margin improvements due to rate cuts, strong growth expected in high-yielding products like micro-mortgages, vehicle loans, and Secured Agri, offsetting the yield impact to some extent. With interest rates one of the lowest in microfinance, along with the lender cap due to guardrails, this will ensure acquisition of quality borrowers. Micro-group loans witnessed disbursement of INR 2,029 crore in Q3, marking a 16% QoQ decline. As of December 24, these loans constitute 45% of the total loan portfolio. Contribution of repeat customers to overall disbursement has risen from 61% to 73% QoQ.
To capitalize on growth opportunities, we have enhanced our pre-qualified group loan offerings in states with higher potential and robust collection performance. Individual loans portfolio comprises 15% of our loan book and is focused on graduating group loan customers with good repayment track record. It is expected to grow at a faster pace compared to group loans, having grown by 21% YoY. For IL repeat customers, we have implemented a simplified self-service digital journey. This allows us to offer pre-qualified loans to existing customers, a key strategy for improving customer retention. Affordable housing and micro-mortgages comprising 21% of loan book demonstrate sustained growth. In December, disbursement exceeded INR 300 crore, marking a significant milestone. This book has reached INR 6,393 crore as of December 24, exhibiting a strong 11% QoQ and 45% YoY growth, expected to close at INR 7,000 crore as of March 31, 2025.
Talking separately on affordable housing book, our highest volume contributing secured business has grown to a book size of ₹5,867 crore, up 9% QoQ and 37% YoY. Micro Mortgages, a high-yielding secured segment, have shown promising performance, growing at 34% QoQ. This has a good mix of customers graduated from individual loans and also from the open market. Our revamped approach to MSME business is contributing to the momentum, growing by 12% QoQ and 21% YoY to reach INR 1,694 crore. Growth has come from all products with LAPs, working capital, and supply chain finance. Disbursements crossed INR 150 crore in December 2024. The new MSME book has nil NPA. FIG book continues to scale and reach INR 2,257 crore as of December 2024, contributing 7% to the total loan book. This book grew by 11% QoQ and 57% YoY.
Vehicle finance business witnessed an impressive growth, reaching a book size of INR 375 crore and now contributes over 1% of our asset book, growing by 43% QoQ and 155% YoY. Gold loan business has experienced significant expansion, with its availability increasing from 63 branches in March 2024 to 198 branches in December 2024. This book stands at INR 115 crore in December 2024. Secured Agri, which includes livestock and KPC, has shown significant QoQ growth of 27%, reaching a book of INR 459 crore. Overall, investments that were made last financial year onwards towards our product diversification strategy are yielding results.
Secured book is showing promising growth of around 40% over March 2024. In Q3, 46% of disbursements resulted from secured products compared to 30% in the same quarter last financial year. On asset quality, we saw encouraging signs of improving Bucket X collections in the group and individual loans.
We increased our collection headcount by adding 334 staff, taking the headcount to 2,260 as of end of December 2024. That helped us in improving resolution in SMA-1 and higher buckets. West Bengal, Uttar Pradesh, and Bihar are showing good improvements month-on-month, along with other states such as Punjab, Haryana, and Maharashtra. This is reflected in our bucket 1 collections at 99.2% for Q3. Slippages from GL and IL book came in at INR 298 crore in Q3 versus INR 197 crore in Q2.
Additionally, the bank effected an ARC transaction of INR 270 crore in Q3, INR 207 crore from NPA book, and INR 63 crore from written-off portfolio. We hold 100% provision in the subscribed security receipts. Asset quality in the secured book has been significantly better. The MSME new book, which forms 48% of the MSME book, has little NPA. Housing and micro-mortgage portfolio continues to remain strong with 1.1% GNPA.
the overall book, our GNPAs and NNPA's, as of December 2024, stand at 2.7% and 0.6%, respectively, despite challenges specific to microfinance. We maintain our credit cost guidance at 2.3%-2.5% for the year. Bad debt recovery continued to be strong, collecting over INR 29 crore in the quarter. Bank's total deposits reached INR 34,494 crore, marking a 16% YoY growth. Notably, CASA deposits saw a 15% YoY increase, reaching INR 8,662 crore, which is 25% of overall book. Retail deposits stood at INR 25,074 crore, accounting for 73% of total deposits and demonstrating a 24% growth over December 2023. Retail deposits continued to stay above 70% consistently in the last eight months. The bank has relied upon strategies to enhance ease and convenience for our customers to accelerate granular deposit base, especially CASA.
Under the booking of digital banking products, the bank has introduced Digital Current Account in addition to Digital Savings and Digital Fixed Deposits. The bank is effecting structural changes to have increased focus in onboarding and servicing a larger share of customers under affluent, non-resident, corporate salaries, and traders categories, enhancing customer acquisition through improved lead management services and customer management tools, strengthening relationship management via CRM and other tools to better manage existing customer base. We are confident of improving CASA ratio and also reducing the cost of funds going forward. Ujjivan is driving transformative change powered by analytics to accelerate business growth, foster credit assessment, enhancing productivity, identifying new geographies for expansion, and relevant product offerings. On digital banking, our Digital Current Account launched in Q3 has a simplified journey in which account opening can be completed under 60 minutes.
Digital Fixed Deposits and Digital Savings Accounts have access from around 250 locations where we do not have branches. The bank's own UPI app, Ujjivan Pay, is undergoing testing and will be launched in Q4. On financials and margins, the new quarter is 8.6%. The contraction in yields on the overall portfolio is down to 18.2% in Q3 versus 18.9% in Q2 due to growing contribution from secured assets. Cost of funds moved up marginally by 6 basis points to 7.57% in Q3 versus 7.51% in Q2, largely attributed to retirement of IBPC book. Operating costs increased only 1% during the quarter versus 10% increase seen in Q2 over Q1. Other income was impacted due to lower processing fee, reduced insurance income, and provisions on security receipts arising due to ARC transactions.
Credit cost for the bank was at INR 223 crore in Q3, higher than INR 151 crore recorded in Q2. In addition to this, we have taken an accelerated provision of INR 30 crore. PAT for the quarter was INR 109 crore and subsequently adjusted ROA and adjusted ROE for Q3 are 1.1% and 15.1%, respectively. I am also delighted to announce that the board has recorded approval to move the application for voluntary transition to universal banking in its meeting held today. We will be submitting the application to RBI shortly. Lastly, I would like to summarize the bank's key focus areas for the last quarter. Loan book growth will be led by secured business, which is poised to grow by around 50% during financial year 25 and contribute around 40%-42% by financial year end. Group loan and individual loan book to see better disbursements during Q4.
Credit costs to remain range-bound within 2.3%-2.5% as per our earlier guidance. Focus efforts towards improvement in CASA ratio with reduced cost of funds. Before I conclude, I would like to introduce Mr. Balakrishna Kamath, who has joined as CFO. He holds a varied experience over 30 years in corporate finance and corporate governance in various listed entities, including the Tata Group. His profound experience will add strength to our organization. In a similar vein, I would also like to introduce Mr. Hitendra Jha , as Head of Retail Liabilities and TASC. He brings over 23 years of banking experience with him. For the last 17 years, he was with Kotak Mahindra Bank, and his last role with Kotak was national head branch banking, emerging markets.
Prior to Kotak, he has also worked with ICICI Bank and IDBI Bank, and I wish both these incumbents huge success in Ujjivan Small Finance Bank. Thank you. Now I hand over the mic to you, Rikin. Thank you, please.
Operator, we can open the call for Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question and also request to limit their questions to two per participant. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah, hi, good evening. Hope I'm on board. My first question is on the NPA collection efficiency, which has improved in December. Have you seen the trend continuing in January? Besides adding people for collection, are we also seeing any improvement in center meeting attendance or field officer retention? Just a follow-up on this, have we also started seeing any improvement in resolutions and rollbacks in the SMA buckets in the recent months?
Yeah, our NPA collections have seen a month-on-month improvement. July, August, and September, we did see a reduction in Bucket X collection efficiency. October, November, and December have seen a month-on-month improvement. We are expecting that the same trend will continue January onwards. In terms of inter-meeting attendance, we see the same trend as what we had in the earlier quarter, about 60% attendance in inter-meetings.
The loan officer retention and the resolutions in the soft buckets, are they also improving?
Yes. Our SMA resolution, SMA zero resolution, is in the range of about 30%. It has improved from about 25%. SMA 1 and 2, which were at 25% and 21%. SMA 1 has improved from 25% to 35%, and SMA 2 has improved from 21%- 35%. Across the SMA buckets, we have seen an improvement. This is also, as we have mentioned, we have increased the collection fee. That is also leading to a lot of efficiency in the SMA collections. Correct.
My second question is on the credit cost. When we are maintaining credit costs currently at 2.3%-2.5%, it implies a good decline in the fourth quarter.
So, I mean, is there, when we are trying to rule out the possibility of taking any additional provision or accelerating the current provision policy, would that be correct? And what levels of PCR will be comfortable with maintaining? Because I can see that in this quarter, the PCR will improve, but we have also shifted floating provisions from standard to the NPA bucket. So if you can also comment on what level of PCR will be comfortable maintaining and whether the credit costs are inclined then to go down in Q4 versus Q3.
In terms of PCR, the mandate is at 70%, and we've been consistently maintaining a PCR above 70% for a number of quarters now. We will continue to maintain a PCR between 70% and 75% going forward also.
In terms of credit costs, since the NPAs had gone up in Q2 and Q3, there will be a slightly higher credit cost in Q3 and Q4, but I think that will start to get normalized as we go forward. To counter this, we have also taken some additional provisions in Q3, accelerated provisions in Q3 to the extent of about 30%, so that these accelerated provisions help us feel out the expected increase that we were expecting in Q4. So largely, we're now getting utilization.
Okay. Thank you and best of luck.
Thank you. Ladies and gentlemen, we will request you to kindly limit your questions to three per participant. The next question is from the line of Ramesh from ICICI. Please go ahead. Ramesh, please go ahead with the question. Your line is unmuted.
Yeah, hi. Congrats on the setup. Just two things from my side.
One, on the PAR zero bucket, so if we look at the group loans, it is at 6.6%, IL it is at 4.5%. Now, since you are also mentioning that collection is improving month-on-month, it is right to assume that the PAR level, like current numbers, have peaked out and going ahead from Q4 onwards, we'll start seeing PAR portfolio coming down, given we'll have right of assurance.
So this is a function of how the industry would show the numbers. We have seen a good improvement, and we are hoping that there is going to be more reduction .
So. Sorry, sir. I can't hear you, sir.
Is it a lot better now? Are you able to hear us?
No, sir.
Ramesh, are you able to hear?
No, no, sir.
Is this better?
Slightly better.
Sounding very distant .
Okay. Is this better? I'll come closer to the mic.
Yes, please.
Yes, yes, yes. Okay. Ramesh, so PAR numbers, there will be some stability of PAR during this quarter. So we don't expect an increase in PAR numbers at the speed at which the PAR was increasing, which stabilized during this quarter.
Okay. So in other words, the stress, let's say the incremental stress formation has picked out. I mean, is that the fair assumption?
Yes. So see, the incremental stress post-July, August, September, that is when the stress has started to actually build up. October, November, December were months where the PAR numbers continued to grow. We expect that these PAR numbers will stabilize here and start to show a declining trend in the next maybe two or three months.
Okay. And sir, would you like to share January collection data?
It is a little early for the January collection data because we have numbers released maybe a couple of days back. If we look at bucket X collections on microbanking, they are better than the same date, the sample numbers.
Okay. And if I just reconfirm, Rikin, if I heard you correctly in your opening remarks, you did mention that Jan collection is the best in the entire fiscal year. I mean, is that the comment you made in your opening remarks?
Started just referring to the disbursement numbers. We started to see good demand in the market in the month of January. In fact, we started to see that towards the end of December. See, in this case, we've seen that after a gap of funding in the market, there is a bounce back which happens. And we see this bounce back happening for the last four weeks.
Our January disbursement numbers that we've seen so far are better than what we have seen during this year so far. [audio distortion] .
Got it. And just this last thing, in terms of the SRO guardrails, are we following four-lender guardrail or we have already implemented the three-lender guardrail?
We are following the four-lender guardrail. The three-lender guardrail would come into effect on 1st of April. However, the other guardrails of Two Lakh indebtedness and funding to SMA customers, these we are already following.
Got it. Okay.
What we have additionally done for the new-to-bank customers, we have implemented the three-lender guardrail.
Okay. So for repeat loans, we are following four, but for new-to-company customers, we are following three.
Yes. New-to-bank customers, we have implemented the three-lender guardrail in the beginning of January as well.
Okay. Okay. Thank you. Thank you.
Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good evening, sir. And thank you for giving the opportunity. Just as a feedback, sir, it would have been great had we stuck to the regular time because we hardly got any time to see this lengthy presentation of yours. So most of the questions that I understand to ask have to be answered without looking at the presentation itself. So I would appreciate if we can stick to timelines from the next quarters. Secondly, sir, on the overall collection efficiency for the book, on the secured side, did you see any stress in this and including January? Are you seeing any spillovers of some of the stress in the microfinance on the secured book?
No. In fact, our collection efficiency for the affordable housing and for MSME affordable and microfinance has been consistently above bucket 0 collections for affordable housing in the range of 99.4%-99.5%. For MSME, it is above 99%. For Retail Finance, it is above 99%. And we have not seen any decline. In fact, we've seen a margin of improvement in Q3 over Q2. So these secure products, the bucket 0 collection has been consistent and improving.
So overall collections have also been good. QoQ, sir?
Overall, see, when you look at the overall collection efficiency, you will see a dip because the PAR numbers are normal. So when the PAR numbers go up, the collection efficiency on the SMA and NPA buckets is lower, which weighs down on the overall collection efficiency.
And similar trends, sir, for January? Hello?
I would say it's again very early. Hello.
January, I would say it is early, but on 20th of January, the efficiency in microfinance is better than 20th of December is what I could say. Okay. Okay.
And no, I was asking about secured products, sir.
Secured products, we maintain a very consistent Bucket X efficiency. So it continues to be in the range of 99%-99.5%.
Okay. And sir, this guidance on the credit cost, 2.3%-2.5%, now I did not get the chance to sort of calculate, but how much have we done till nine months against this number that we are referring to? And is it adjusted for all the ARC sale, etc., or how should we read this number? If you can give us an absolute number, that would be great. How much have we done till now and what we are guiding for?
So we have a nine-month credit cost of 1.55% for nine months, YTD December. In numbers, it would be INR 478 crores.
Hello? Hello, sir. Your voice is very feeble.
Okay. Were you able to hear the first sentence?
You said 1.55% you have done.
Yes. Yes. And in terms of value, the first nine months was INR 483 crores.
And sir, this is including accelerated provision and ARC sale, the loss that we have incurred there?
Yes. It includes both ARC sale as well as accelerated provision.
So then in the last quarter, basically, you are guiding for 0.8%-1% credit cost.
Yes. 0.8%. 0.8%-0.9%. That is right. Okay.
And any guidance that you would want to give of how things can be for FY26?
It would be a little premature to give a guidance for FY26.
We can come back to you during the first quarter for a guidance for the full year. But as of now, it will be a little premature.
Okay, sir. Thank you and all the best.
Thank you. The next question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, one clarification first. On slide number 23, the collection efficiency that you have reported, this is for the overall book, right, including delinquent customers?
You're referring to the group loans lender-wise trend?
Yes.
That is slide number 23?
Yes, sir.
Okay. Go ahead, please.
I'm asking, this is including the delinquent book, right? This is total collection efficiency. Am I right?
Yes. This is total collection efficiency. That is right. Okay.
Understood. And slide number 21, the collection efficiency table that you have reported. There is this on the normal collection also, there is some overdue collection collection. What is that, sir? For group loan and individual loan?
Additional collection includes overdue collection. The additional collection is what you're referring to?
No, sir. I mean, second column, after due, there is collection where there is a tick mark, and then there is additional collection separately. So what is this overdue collection collection, sir?
Overdue collection. We will refer to overdue collection. So collections which are due for the month and collections which are arrears for previous month. Overdue collection.
Okay. Understood, sir.
Overdue records are arrears.
Understood, sir. And sir, the last question is, sir, in terms of if I see the yield on the affordable housing side, that has come down significantly, I mean, 40 basis points on a QoQ basis.
Where do you see this yield settling in? Point one and the point two is overall margin. What would be your guidance on margin going ahead now, given that probably your secured book is going faster than the overall MFI book? So how do you see the margin trajectory probably for next six to eight quarters?
Yeah. The housing yield has come down during the quarter. Can you hear me? Hello.
Yes, sir?
Sir, you're sounding from a distance. We cannot hear you clearly.
Yeah. Is it clear now?
Yes, it is. Please go ahead.
Hello. Okay. Thanks. The housing yield has come down during the quarter due to two, three factors. The main one being is it's a floating rate. And the EBLR has come down during this quarter due to which all the loans have been repriced, and that has impacted this.
The second is you also have to de-recognize the interest for the slippages during the quarter. That also has an effect. So, just one more factor.
What EBLR has come down? What EBLR?
So there is a base rate based on which it's a floating rate. So the floating rate base has come down by 50 digits. So that's affected the entire book. And that's why the rate has come down. That is one point. Second one is penal interest no longer can be charged as per the new RBI regulation. So it has been reclassified as penal charges. So it is not coming under this head anymore. And finally, there is an INR 9 crore adjustment for interest which has been de-recognized due to slippages during the quarter. These are the three factors.
Okay. And sir, overall margin trajectory, how do you see that?
It will be going steady at whatever rate it is now. It will be consistent going forward.
Okay. And sir, on this Micro Mortgages PAR number, I think that is also going up from 20 basis points to something like 60 basis points over the last two quarters. So do you see this trend continuing in January also? And are there overlap between your customer and your MFI customer?
So the Micro Mortgages PAR is actually a very low number. 0.4%, 0.5%, 0.6% are actually very, very low numbers. We see that the quality of the book has been exceptionally good. So these kind of numbers are quite competitive and very, very reasonable. In terms of overlap, we have about 40%-45% of our customers who then graduated from individual loans to Micro Mortgages. And about 60%, 55%-60% are open market customers.
Sure, sir.
Thanks for answering all my questions.
And the individual customers who move to Micro Mortgages have at least four to five years of experience in our relationship with GL. So that has given us a very good comfort in terms of underwriting those customers.
Sure, sir. Thank you so much.
Thank you. The next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity, sir. First question is on the secure segment. What is the medium-term strategy with respect to secure? Do you see share of secure going up in FY26, and to what level do you expect share of secure going up?
So currently, secure book stands at around 39%. And this will be year-on-year growth. Our secure portfolio in housing, MSME, and the newer business lines like gold, vehicle finance, secured equity, Micro Mortgages have started contributing well.
We were supposed to hit the 60/40 mark in FY26, but with the pace at which we are going with the secured asset portfolio, we should be hitting that much earlier. And yeah.
But secured will be 60% by FY26, or?
It is 40%, which was supposed to be done in FY26, but we are hitting that much earlier. Secured is 40%, and unsecured is 60%.
Sure. Sure. And do you expect it to further increase in FY26, or at 60/40, you will stop?
Yes. Yes. We will be increasing the secured portion. And our newer business lines are contributing very well to this book.
Sure. And can you share the profitability of the secured book in terms of ROA? Because as the share of secured goes up, whether the ROA of the bank will see a compression over the next two to three years.
So if you can share the ROA of secured book, that would help. ROA secured book or ROA of housing, MSME, whichever is convenient.
Yes. We will get back on this a little later.
Okay. Okay. Yeah. Yeah. That's up to you. Yes. Sure. Thank you for your help. If you can just share the ROA of the secured book on whatever transfer pricing that we use internally, that would be useful. Thank you.
Will do that. Thank you.
The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead.
Yeah. I'm audible. Yes, you are. Please go ahead. Yeah. Thank you. Yeah. Thank you very much for this opportunity. Sir, just first step, I wanted to understand, I mean, this nine months, we have grown by about 10%, right?
You mentioned that 40%, you are seeing some demand coming back and some traction on your disbursement. So overall for this year, what sort of growth range you are looking at?
Overall growth, all considered, we should be growing by around 9%. But individual side, individual loans, we would be growing somewhere around 12% or so. On group loans, we are not actually giving any guidance because it still has been volatile and a little hard to understand. But we have seen good traction going forward. So the Q4 is going to be better than the earlier quarters as far as the group loan business is concerned. And on IL side, we'll be doing much better.
Okay. And at the company level, you said 9% growth is what we are looking at?
Overall, on a rough and ready basis, 8%-9% would be the overall book growth for the entire financial year for all the segments.
Okay. So this quarter on quarter, we are expecting some decline. I mean, I don't know. The base would be higher, right, of fourth quarter. So that way, yeah. Okay.
Yes. Yes.
Yes, and so what sort of? Micro finance in the last quarter, which has done micro finance in
the last quarter, this year, obviously would have done much, much better, right, bringing in the volumes.
Okay. Okay. Understood. And what sort of cost to income? I mean, we saw some increase in the cost to income ratio, right? So how do we see that going forward?
Can you hear me? Is it clear?
Yes.
There are two factors here. Can you hear me? Is it clear?
Yes, it's clear, sir. Please go ahead.
There are two factors here. One is the operating cost as a percentage on the average assets have actually come down during this quarter. If you look at page number 29, for Q3, it is 6.2%, whereas the earlier quarter was 6.4%. So due to the position in the microfinance industry, the company has put in place a good cost control plan, and it is reflecting in that. Whereas the total cost to income ratio has gone up only due to the reason that we invested some money for growing some of our good businesses, which are the secured business. And the manpower and the branches which we had invested on, for instance, we hired around 2,500-odd employees during the year. So that has reflected on the manpower cost.
But that is all for the secured business side, where we have shown a 50% growth, and that has paid off. There are two or three other factors. We are working on a universal banking license, so we hired some consultants. So we have spent around 6 crores on that. We have also done some branding during this quarter, which is around 10 crores. That is also to be referenced. So most of these costs are relating to the company's future plans, whereas all other routine costs and operating costs are well under control. Yeah. And finally, if you note, the income also has come down. It is a percentage is always denominator and numerator. So denominator also is a little down, which has also impacted the cost to income ratio.
Okay. But then at the absolute level, how do we see that?
I mean, I think if you take your operating expenses, it was close to about INR 700 crore this quarter, right?
Yes.
So how do we see at the absolute level? I mean, is that the going forward rate one can see, or we can see some decline in this?
Yeah. It will be steady for some time to come. That's all. And it may slowly come down also this quarter because there could be we had a wait and see. But it will be more or less steady. That's what we see.
Understood. And we have done around INR 270 crore of sales, right? I mean, in this quarter, stressed loan assets?
Yes.
So was there any loss booked in it? I mean, in this quarter, on that sale?
So when we do a VIP sale, we do full provision [audio distortion] .
So there was a loss of about INR 26 crore.
Okay. So that is included in your provision already, right?
That has come into other income. That has come into expenses. Yeah. Other income.
Okay. So that has come into other income. Okay. Okay. Okay. Okay. Understood. Understood. Fair enough. Okay. I think that would be from my side. I got it. I got it. I understood. Yeah. That would be it from my side. Thank you very much.
Yes.
Thank you. The next question is from the line of Ritika Dua from Bandhan Mutual Fund. Please go ahead.
Perfect. Thank you for the opportunity. So two questions. Just trying to understand the industry trends better. Firstly, when you say that the demand revival happened in January, could you just share some trends around that? What exactly?
Because the perception is that it's actually not so much a demand issue, but more so like the fact that everybody had to meet the first regulatory guideline, and that would have also meant some bit of growth coming up. So when you say demand coming back, what do you mean by that? That's the first question. And the sustainability, longer question, but so obviously, because to the previous caller, you said that obviously we are not giving the guidance for 2026, which is fair. Still, is it fair to say that maybe because you've still not moved on to the 3-Lender, which obviously some of the other banks at least have? So when you actually move, 2026 should not be obviously a normal year on credit costs again.
And secondly, sorry to draw parallels because I know it's not exactly the same book which one bank has versus the other. But still, the kind of commentary which we hear from two prominent banks is that the slippages of third quarter could be the similar, which could be there in the fourth quarter. And some say that obviously the pain could be even there in the first quarter as well also. You had obviously one of the first ones to call out the pain, so maybe that is something we obviously acknowledge. But still, just maybe if you want to still draw some examples to say that how it's fourth quarter shaping to be so well over third quarter for us. So two questions. Thank you.
Thank you for the question. I may ask you to repeat the question number three again. I may forget.
But on your question number one, how we are seeing increased demand in the month of January, as we said that we started witnessing from the month of December, mid-December only. And it is something which has to do with the locations you are present and the states you are present. As we are seeing that overall, the turbulence in the microfinance industry is fading, but it is not fading equally in all the states. The time period is different. And this has also hit different organizations and different customer segments very, very differently. For us, the earlier states which were creating issues like Punjab, Haryana, Rajasthan, Uttar Pradesh, Bihar, Jharkhand, West Bengal, these states are doing much better in the last few months. We have seen improved collections, and we see increased demand in these states.
At the same time, we would also like to mention that states like some pockets of Tamil Nadu, some pockets in Karnataka, Kerala, and some pockets in Odisha, for us, we still could see the bottom, and we are careful there. But as we are seeing increased demand in the majority of the states we are present, we see improved dealing in the month of January so far. That is something which we will also see happening in the coming three months. That is something which we are able to see in the quarter. What was the second question?
When you partially answered it, I was trying to understand that I acknowledge that your book is different from the other banks. But another bank has given a very guidance kind of a thing that even a fourth quarter shortage could be as high as third quarter.
And so that's one point. And the second point is that I was saying that if you could just maybe draw some parallels as to why you think fourth quarter is performed, that coming out to be much better than third for you. And the second additional point to this was that because you're still to move to the [3L], do you think that maybe 26 can actually still see initial cost to profit changes still. And see higher charge-offs because of maybe moving to the [audio distortion] ?
So in terms of charge-offs, charge-offs come with a lag of about 90 days, 90 to 120, 150 days from the time that an account gets into an NPA. So charge-offs will happen because our slippages started to increase in Q2 and Q3. So there is a lag effect of that.
So shortages, as we see, are going to be steady. They will come down marginally, but not significantly. In terms of growth, Mr. Nautiyal's speech had said that we want to be among the preferred lenders. So we have actually reduced our interest rates to be more competitive than the market. We were competitive. We want to be more competitive. And we want to be a preferred lender. And this is in preparation to the 3-Lender round , which would happen starting April. So in anticipation of that, we want to work with our customers, give them better offerings so that we can continue with our set of customers even after the 3-Lender round kicks in.
Thank you so much.
Participants are requested to please ask the questions. To participants. The next question is from the line of Ritesh from DAM Capital Advisors. Please go ahead.
Hi, sir. Good evening. So just on the slide 23, you've given group loans lender-wise trends. Just wanted to understand the slide. So basically, when we look at PAR, lender-wise PAR for Ujjivan 4+ and above at 26, so that 26 basically is somewhere from June or September, right? So basically, 7.6% would have caused a 26% PAR is how that has to be read, right?
Sorry. The first table, lender-wise borrower trend, refers to what is the percentage of borrowers. Let us say November end, we have 45% borrowers who are unique to Ujjivan, and then unique to Ujjivan plus 1, 2, 3, and 4. So 6.6% of our borrowers are Ujjivan plus 4 and above. The delinquency of this set of borrowers is 26.6%. And the delinquency of the PAR number of unique to Ujjivan is 3.9%.
So you would see that there is a wide variance between customers who are unique to Ujjivan and customers who have taken loans from multiple lenders.
Right. So what I was just trying to allude to is. Sorry. What I was saying is the 7.6% which you had in June and Ujjivan 4+ and above would have slipped over time, and that would have become PAR, right? So what I'm saying is that 7.6% has come down to 6.6%, but then a lot of that has slipped to PAR in that way, which has also GNPA's, right? So that is how we have to look at it. Or is it very independent that 6.6% of that 26% is PAR?
No. So 6.6% of our customers, out of every 100 customers, 6.6% are multiple lenders. And 26% of those 6.6% have moved to PAR. Got it. Okay.
And the rest of that, part of that, also the reduction which shows also would have repaid the loans, right? So that is how also it would have dropped, right?
Yes. Yes. Yes. It would have repaid the loans. So this number of Ujjivan + 4 would continue to come down because Ujjivan + 4 is no longer part of the lending policy.
Correct. Sir, second question was on the similar slide only. Basically, when you, how do you basically put in the numbers here if somebody in the lender side or the other lender side would have been what repaid on the loan? So just hypothetically, if somebody has repaid a loan at some other lender, how will this come in as a percentage here? Will it be a cutoff, or is it like every time you do a bureau check and then come out to a number?
So we do a bureau check every time we get a bureau wash on a monthly basis. And all the numbers that we follow are based on the bureau scrub that we do on a monthly basis. So these numbers are updated with every month.
Okay. Got it, sir. Thank you so much. This was my question. Thank you. All the best.
Thank you. The next question is from the line of Arvind R from Sundaram Alternates. Please go ahead.
Hi, everyone. Thank you so much for the opportunity. Sir, like when I see this slide, I can see the collection efficiency coming down, but when I look at it along with the expected collection efficiency, so it means that in the non-overdue collection accounts, the collection efficiency is being stable whereas in the overdue collection accounts is where we see we are seeing the forecast shortages. Is that the right way to understand this?
So the value of the PAR has gone up. So you look at the SMA book and the NPA book. Since the value has gone up, they are weighing down on the overall collection efficiency. So even if the Bucket X collection efficiency has gone up, since the SMA PAR has gone up in value, that is bringing down the overall collection efficiency.
So we can see that GNPA PAR is 6%. So that's where the issue is there about the book, right?
Yes. Yes.
Okay. So the collection efficiency is a weighted average of Bucket X, SMA, and NPA.
So as the PAR goes up, the overall collection efficiency also comes down.
Yes. Yes. Yes. Sir, I can see the portfolio yield of MSME itself has come down significantly in a quarter-on-quarter basis.
I understand what you have mentioned in the affordable housing. But a similar thing happened in MSME also?
Yes. Yes. Yes. The same similar thing happened [audio distortion] in the MSME. It is because of the change in the accounting treatment that we also saw a decline and also the decrease in the EBLR.
Okay. Okay. And sir, this portfolio 14%-15% outside the guard rails, does it impact our growth subsequent quarters? Because as per number of borrowers outside the guard rails, I'm taking into account the second set of guard rails also. I can see roughly 13%-14% of the borrowers are outside the guard rails. So does it mean it will affect the subsequent quarters of growth, at least in the negative in one year point of view?
So see, here, yes, there are 6% and over 14% customers who are 3 or more.
Apart from the event, another way to look at it is that unlike even in PAR, in microfinance, microfinance customers will also have to choose three lenders going forward. They will try to choose the best one in terms of interest, in terms of offering, in terms of product, in terms of graduation processes, in terms of easy policies, etc. That is something we have built over a period of time. We expect these customers to choose three, and we will use one of them. That is something we are looking forward to and something which we will be very strongly communicating to our customers as well. We have reduced our interest rate sensitivity and our processes, our product graduation programs. These are excellent.
That is something which gives us confidence that not only these customers will be with us and retain, but also good customers from the industry will also come to us.
Sure. Sure. Sure. Since in MFI, you see slightly better disbursements in January, it means that the PAR ratios won't go up any further. Is that the right thing to take away from?
Yeah. As we said, the PAR numbers did stabilize from here on. The denominator effect will start to come. The PAR numbers, while there was an increase in PAR, it was also getting contributed by the decline in the overall book. Now the book decline would get handled because of disbursement value increasing. [audio distortion] .
Understood. Understood. Thank you so much, sir. Thank you so much for the opportunity. Thank you.
The next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Hi, team. Good evening and congratulations. First question is on slide number 26, where you have shown the PAR performance for Ujjivan versus industry, and there is a very significant gap in those numbers between you and the industry across the large states. Just a qualitative question here. When you look at these borrowers, would you say that their performance with you is better than it is at the industry level, or would you rather say that you have a borrower base which is of a different quality altogether if you were to understand the difference in performance?
There are various things behind this.
First of all, with the slide, I was also trying to refer that though we are talking about that we are doing well in some of the states and we are still to see bottom in some of the states, but overall, in all the states we operate, we are much, much better than the average industry. That is the first point, number one. Second, it is true when you start operation in any district or any area, your group selections, your customer selections play a very important role in overall quality of your portfolio. That is what we also saw in previous crises also, during pandemic, during demonetization, before that, in other crises also. And that is very, very visible now as well. As we see the statewide performance also, it is very, very different, almost 2.5 times down compared to industry, state by state.
That is very, very visible. The reason behind this was, as I mentioned, the quality of customer required, the branches you open, the white spaces you find, and then your credit policies around customer selection, underwriting is very important. That is something which we have been able to build over the period of time. Also, the IL graduation program and even further graduations, that is something which I would say that now, after years of experience with graduation program and filtering of customers, is doing very well. If you look at our GL performance and then look at IL performance, IL is doing better than GL. Our HL program is doing better than IL, and that proves that our graduation program and our filtering process, our data analytics, is working fine. These are some of the reasons why you see these numbers.
Thank you, sir. Just one follow-up on this.
Would you have done any analysis to understand how the performance of your borrowers is with you versus how it is for the rest of the industry? Any color from there? Because I understand the first point which you made, one is that customer selection itself is different. But are the same customers behaving better with you versus industry? Is there any way to prove that?
Yes. We do customers paying to us, not paying to others, and customers paying to others and not paying to us. And what I would say that overall, customers paying to us, not paying to others is a little better. At the same time, in geographies where it becomes a little kind of community issue, etc., where you don't have control. There you will see that these communities don't pay to anybody. So that is something.
But overall level, we see our customers behaving better for us compared to others.
Got it, sir. Thanks. And one last data keeping question. If I go to slide number 23, the chart on the table on the top left, where you have shown 8.0% and 6.6% for Ujjivan plus 3 and Ujjivan plus 4 and above as of November, is there a Rupee equivalent of this number?
We can get back to you.
We can do the math and send it to you.
Sure, sir. Perfect. Thank you a lot, sir. And congratulations.
Thank you.
Thank you. Ladies and gentlemen, we request you to kindly limit your question to one per participant. The next question is from the line of Abhishek Murarka from HSBC. Please go ahead. Yeah.
Hi. Good evening. So sorry to come back to this slide 23.
For this Ujjivan + 3, the table on the left and Ujjivan + 4, would it be a fair assumption that the portfolio mix would roughly be similar as the borrower mix? Or would there be a difference in ticket size for Ujjivan + 3 and Ujjivan + 4?
No. No. You would see only a decimal point difference there. So borrower and value would roughly be the same.
Okay. Great. So given that you have not applied the three-lender guardrail yet, and because this Ujjivan + 3 is more or less stable over the last five, six months, so fair to assume that these customers are also getting repeat loans or renewal loans as of now?
Yes, they are. Yes, they are. Based on the credit policy that we have, any customer who is eligible for a repeat loan gets a repeat loan.
So this is again based on the policy parameters. But they are all getting repeat loans as of now. And one more thing is that three-lender is one thing. Then you have indebtedness limit. We also have a policy that we don't lend to customers. So far, we have not lent to customers who are even one DPD with others. So those policies also take into account when customers' past behavior, and that helps you choose customers better.
But if okay. So if that is the case, then the PAR trend that is going up, right, and the moment you hit April and you probably stop lending or stop giving renewal loans to these customers, then that PAR trend can also go up as sharply as what you see in Ujjivan + 4 and above.
That means that could lead to more credit costs in 1Q and possibly even in 2Q. How do we read this?
When you look at Ujjivan + 3, for example, there is an 8% contribution to book. These customers, good customers from here, it would be our job to retain those customers and continue the relationship and strengthen the relationship with them. Customers who are in PAR, that could be a little bit of a disturbance because the relationship may not be renewed. But that effect, I would assume, has already happened during the last one or two quarters. There could be a marginal impact, yes, but not a very significant impact.
Because if I just think about it, the book size, let's say 8% and 6.5%, so similar book size.
But that book size will have the same experience that these 6.5% had from September or from July to November. So if you see the PAR movement, it really shot up after June, right? 10 went to 19, and then further increased to 22 and 25. I'm thinking this 13 will have that same experience from April, and then that goes up with a similar trend. So that's where I'm coming from.
So we don't know whether this will go up to what extent. What we see is we've already started to communicate to customers, and this is what we have done for us. April onwards, you will have only three lenders. So if you continue your relationship with us, we will give you better interest rates. So this is something that we have communicated to customers.
What we have also told them is if you have smaller loans with other lenders, kindly repay them so that you can continue your relationship with us. So these are the steps that we are taking on the field as of now. Some customers, would they flip? There is a possibility that the PAR number may go up. But we will try our best. That would be the effort that we would make to continue with the asset quality. Is there a chance of this number going up? Yes, there is a chance. But to what extent is very difficult to say as of now. From our side, what we would do is retain our good customers and give them the best service and a reduced interest rate. Understood.
Okay. Okay. Thanks. Thanks, Abhishek.
Thank you. The next question is from the line of Sagar Shah from Spark Capital.
Please go ahead.
Good evening, sir. Thank you for the opportunity. First of all, my question was related to the industry level. You have clearly highlighted in the PPT as well as on the call that how you have fared better than the industry as far as the microfinance collection is concerned. But I wanted to have a little bit of a long-term view that going forward, how do you look at the group loan structure, the group loans disbursements going ahead? How do you look at the business going ahead? After this all stabilizes in the next two quarters, do you see some sort of visibility in resumption of disbursement growth as far as this business is concerned for Ujjivan as well as the industry? Or how do you see? That is my first question. Yeah.
As you mentioned that we have already seen green shoots in many of the large states where we are operating. At industry level also, these states are large. At the same time, there are a few other states which will normalize, say, in the next two, three months. This is what we see. At the same time, as you're also asking about what will be the structure in microfinance going forward, what I would say that we have so far seen is that the entire customer aspirations have changed a lot in the last three, four years. Especially after the pandemic. At the same time, if you look at the kind of regulations that are coming, I would say simple regulations in the form of rule 1.0 and then 2.0, customers will be limited to three lenders.
At the same time, as aspirations are changing, many customers are now trying to move from GL to individual lending. And that is something which we would say that we have an advantage there because we have very old and refined graduation programs. We have more than 5,000 crores of portfolio already in individual lending. And we see a lot of potential in GL to IL graduation. At the same time, the same customer segment, we also see that customers graduating to other products that we have within that. And also the soft skill opportunities that we have around, as we have a bank, we are also offering other products to the customer segment as well. At the same time, as we go forward, we have seen this in past crises also that some kind of consolidation may also happen, and we will see large players getting the market.
Okay. Okay. So you see consolidation. My second question would be on the NIMs. As we are moving towards almost 40% of secured, I know you have highlighted that there will be no change in the NIMs. But logically, when your group loans are decreasing, when you're focusing totally on the secured book, which is yielding you much lower, almost 500 basis points lower than the unsecured book, so what's your color on the NIMs? Will the NIMs fall below 9%, at least in FY 26 and FY 27, when there will be balance 50/50 between a secured and unsecured portfolio?
Yes. The NIMs will fall below 9%. But what we have done is that our book, our secured assets book, we also have products like the Retail Finance, the home loan. All these are high-yielding products. So this should help us in compensating the decline in the unsecured portfolio.
We have Micro Mortgages. We have Retail Finance, which are at very high, which are very high-yielding products. So we should be able to maintain the limit around less than 9.
Okay. Okay. Sure. And my last question was related to which we categorize as other loans. Now we are offering Gold Loans at almost, you highlighted at around 128 branches. So what's your outlook regarding vehicle and Gold Loans? Will the proportion for these two significantly increase? And can you specify a number?
So Gold Loans are not 128. We are live in 198 branches. And both from Gold Loans as well as Retail Finance, we see these two businesses as promising business incoming in the medium term, next three to five years.
And we plan to offer the gold loan as well as Retail Finance, expand this business to branches that we operate currently at this point of time in various states. Yes, these two businesses are very, very promising for us. We have already seen that our housing business is one of the most prominent secured businesses that we have. MSME has started taking in. At the same time, these two businesses are putting weight in the future. This gives us confidence that going forward, our secured versus unsecured ratio will move forward.
Thank you. Ladies and gentlemen, we request you to please limit the questions to one per participant. Next question is from the line of Amey Kulkarni from Canara Robeco Asset Management. Please go ahead. Amey Kulkarni, please go ahead with the question.
Hello. Can you hear me? Yeah. Can you hear me, sir?
Yes. Please go ahead. Yeah.
Thank you for giving me the opportunity. My question is regarding the interest rate. Is there any direct, indirect indication from RBI or Ministry of Finance to reduce interest rates in the microlending segment, either to Ujjivan or to the industry?
So the pricing of the risk is the discretion of individual lenders. RBI is very clear about it. And what they would like to see is that the risk-based pricing is based on appropriate inputs. And that is all what RBI looks at. So all entities would have looked at their pricing mechanisms and their competitive landscape and the business considerations. And based on these factors, they would either increase or reduce their rates of interest in different points in time. But RBI would not question the rate of interest, but it can only look at how you have calculated it. Thank you.
The next question is from the line of Sonal Minhas from Prescient Capital. Please go ahead.
Hi, sir. Am I audible?
Yes, you are. Please go ahead.
I'm on slide number 21. Just a bookkeeping question. The chart on top, which talks about collection efficiency. If I see month-on-month, your collection efficiency for group loans and for individual loans is going down from October to December. Am I reading this data correctly?
Yes. Okay. Group loans as well as individual loans showing lower.
Yeah. Month-on-month is going down. Could you explain the reason for this number going down? If you could just explain this in detail.
Sometimes that I have said that as the bar goes up, collection efficiency is a weighted average of non-delinquent customers, customers in SMA buckets, and NPAs.
So as the PAR has gone, the average comes down because the SMA and the NPA collection efficiency numbers are normally much below. So therefore, the overall collection efficiency gets impacted. Okay.
And as you were saying to that participant that your PAR is peaking, this number is expected to improve from the December numbers as we speak. Is that correct? When you talk about January, February, March?
Yes. So as we said, the PAR is, we are seeing stability in the PAR now. In the last four, five months, there was an increase in PAR. That is starting to stabilize now.
Okay. I get it. All right. That's about it from my side. Thank you.
Thank you. Ladies and gentlemen, this will be the last question for today, which is from the line of Shailesh Kanani from Centrum Broking. Please go ahead.
Thanks a lot for the opportunity.
Sir, again, on slide number 23, I understand our individual lending are basically the group loan customers who are graduated. So when we see Ujjivan + 3 and Ujjivan 4, have we done any working in terms of those customers who can be graduated towards individual lending? And they might be having an income level more than the threshold of INR 3 lakhs. And so they can be tagged as non-MFI. And those are a good set of customers which can continue with Ujjivan?
Yes. Yes. And this is something which we do and which we have been doing for long now. We have the customers, we choose customers on the basis of their repayment capacity, their loan ticket sales requirement, and their family-level income. And on the basis of that, we graduate customers from GL to IL.
We go right in this category also where customers are looking for loans from three or four different institutions. We will try to consolidate their loans and give them IL loans. That's a good customer. So repayment history is good with us, with others. Definitely yes.
So my question was, have we done some kind of working on that already? Because we are kind of reaching the threshold, right? April 1st is the date. So any ballpark number, any idea on that? This percentage out of this 14% output would kind of qualify for individual lending. So they can still be customers of Ujjivan even after first cycle.
So it's a continuous process. If you look at even Ujjivan 4 and above, the repayment rate is 79%. That means that the majority of customers are paying.
The customers who are paying on time, the customers who are paying on time to others also, and customers having income. That is the process we follow and graduate with customers.
Sorry. Just to clarify, so they will still remain customers of Ujjivan post 1st April, but they will be customers, right?
Not necessarily. If they are part of the filter process and they can be given another loan in terms of IL, that is, they will still continue with Ujjivan.
Okay. Okay. That clarifies. Thanks a lot. Thank you. And best of luck.
Thank you. Ladies and gentlemen, as this was the last question for today, I would now like to hand the conference over to the management for closing comments.
Thank you for the very, very energetic interactions.
As a guidance, as my concluding remarks, I would like to state that our secured book by the year-end would be 40%+ . The YoY growth on the secured book would be around 50%. The individual business growth should be around 10% for the entire year. Overall growth could be hovering between 8% - 9% on the overall book. Credit cost, we continue with our guidance of 2.3%- 2.5%. Deposit growth will be in line with the requirements for the asset book in order to maintain a credit-deposit ratio of around 89% or so. The need for the full year should be between 8.6%- 8.8%. And improving the CASA ratio would be one focus area for us in this quarter, the last quarter, as well as going forward. Thank you.
Thank you. On behalf of IIFL Securities, that concludes this conference.
Thank you for joining us, and you can now disconnect your line.