Gentlemen, good day and welcome to Utkarsh Small Finance Bank Q2 FY 2026 earnings conference call. As a reminder, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this 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. Chintan Shah from ICICI Securities Limited. Thank you, and over to you, sir.
Yeah, thank you, Hamshad. Good evening, everyone, and welcome to the Q2 FY 2026 results conference call of Utkarsh Small Finance Bank. I would like to thank the management of Utkarsh Small Finance Bank for giving us the opportunity to host the earnings call. From the management, we have Mr. Govind Singh, Managing Director and Chief Executive Officer, Mr. Pramod Kumar Dubey, Full-time Director, Mr. Sarjukumar Pravin Simaria, Chief Financial Officer, Mr. Amit Acharya, Chief Risk Officer, Mr. Virendra Sharma, Head- Micro Banking, and Mr. Saurabh Ghosh, Head- Consumer Banking. Yeah, so now, without further ado, I would like to hand over the call to the management. Thank you, and over to you, sir.
Yeah, thank you, Chintan. Thanks a lot. Thank you, everyone, for taking the time to join us for our Q2 FY 2026 earnings call. As we reflect on the second quarter of FY 2026, it is evident that the operating landscape continues to evolve, shaped by both regulatory recalibrations and legacy stress factors. The quarter was marked by a deliberate shift in strategy, balancing caution with forward momentum. Our focus has remained on strengthening the fundamentals even as we navigate through transitional headwinds that have impacted certain segments of our portfolio. One of the most significant developments this year has been the rollout of the revised regulatory framework under MFIN Guardrail 2.0, effective April 1, 2025, which limits borrower-level leverage to a maximum of three lenders, introducing a structured shift in microfinance lending dynamics.
While the intent is to foster long-term portfolio resilience, the immediate consequence has been a slower-than-expected recovery in the collection sentiment. The adjustment process has taken longer to stabilize, and overdue accounts have remained elevated, reflecting both the regulatory transition and residual stress from the prior fiscal. In response, we have intensified our efforts to reinforce field-level discipline. A specialized call center dedicated to overdue accounts has been operationalized, and we have expanded our collection workforce, almost 1,200 as of September 25.
Additionally, we continue to split larger Microbanking branches to improve oversight and control. We are also working on back-to-basics programs to train new frontline staff on core processes such as center meetings and customer onboarding, ensuring a more robust and consistent execution framework. The overall gross loan book contracted by 2.3% year-on-year is primarily impacted by a sharp decline in the JLG portfolio. The Joint Liability Group, JLG business, continues to experience headwinds, with disbursements slowing as we deliberately shift focus towards strengthening collections rather than prioritizing expansion. This strategic recalibration led to an approximately 11% contraction in the JLG loan book during the quarter, contributing to a 2.3% year-on-year decline in our overall gross loan portfolio.
However, fresh NPA slippages have reduced significantly during H1 FY 2026 as compared to the second half of FY 2025, indicating that our corrective actions are beginning to take hold. We remain cautious in this segment, focusing on long-term stability rather than short-term growth. Despite the challenges in JLG, our Micro Banking Personal Loan MBPL portfolio has emerged as a bright spot, targeted at graduating JLG customers with a strong repayment track record. This segment grew by 39% year-on-year and now constitutes 13% of our Microbanking Loan Book. With penetrations still below 6%, we see considerable headroom for expansion.
The MBPL portfolio has demonstrated better asset quality and collection efficiency, and we expect its share to increase meaningfully in the quarters ahead. Over the past year, the bank has undertaken several structural shifts in its operation, including the adoption of digital underwriting as a key operational transformation, avoiding lending to over-leveraged borrowers with multiple lender exposure, and diversifying portfolio. This structural shift will eventually lead to a fundamentally stronger bank with less cyclicality in terms of credit cost and will provide multiple avenues for us to grow beyond JLG loans. We have taken proactive steps to align with this transformation. Our JLG exposure has been consistently moderated to 39%, and including BC JLG, it is 41% of the gross loan book as of September 2025, down from 88%, including BC JLG, 90% in March 2020.
We expect this mix to reduce further over time as we pivot toward secured lending, which now comprises 47% of our overall loan book, increased from 38% as of September 24 and is likely to increase further. Our non-JLG lending business has maintained healthy momentum, growing by 30% year-on-year and 4% quarter-on-quarter. With our deepened focus on secured asset businesses, MSME loan book expanded by 33% year-on-year to INR 4,164 crore, while optimizing disbursement yield, which improved by around 100 basis points from 12.4% in Q2 FY 2025 to 13.4% in Q2 FY 2026. Within this, the Micro-LAP segment has shown promising traction with disbursement yield around 18%. Given our strong franchise and geographical reach, we anticipate continued growth in this product line.
Housing loans also grew by 21% year-on-year to ₹947 crore, supported by improved disbursement yields up by over 40 basis points from 10.9% in Q2 FY 2025 to 11.3% in Q2 FY 2026. In the CV and CE segment, the loan book rose 6% year-on-year to ₹1144 crore. Notably, the share of used vehicle disbursement increased to around 40% in Q2 FY 2026 from less than 10% in the same period last year, reflecting our strategic pivot toward more resilient asset classes. The BBG lending portfolio, entirely secured against immovable collateral, grew by approximately 32% year-on-year. These segments continue to perform well, driven by our disciplined approach to underwriting and risk management, also enhancing portfolio diversification and delivering attractive yields.
We are seeing much better traction on cross-sell on both sides, asset products, that is, MSME, housing, and Micro-LAP through our liability-focused general banking branches and deposit accounts for our asset customers, essentially more products per customer. This multi-product engagement is enhancing customer stickiness and improving wallet share. With healthier diversification, diversified portfolios, and improved underwriting standards, the bank is getting resilient and is now poised for a better trajectory in the second half of FY 2026. Through a more disciplined lending approach, we are already focusing on streamlining the portfolio growth, while the impact is likely to persist for another one quarter, but the business is expected to stabilize in the next few months, and better collection efficiency is anticipated by then. On the liabilities front, total deposits remain flat quarter-on-quarter.
However, we delivered 10% year-on-year growth in total deposits, driven by strong traction in retail term deposits, which grew by 29% year-on-year and 5% quarter-on-quarter. Our CASA deposits increased by 17% year-on-year and 6% quarter-on-quarter, resulting in an improved CASA plus retail term deposit ratio of 78% as of September 2025 from 68% as of September 2024. We are consistently reducing reliance on bulk deposits while retail flows remain strong, supported by deeper cross-sell initiative. We intentionally calibrated deposit moderation during the quarter to align with our moderated disbursement pace, maintaining a strategic focus on sustainable and consistent deposit growth, driven by a well-diversified and granular low-cost retail deposit portfolio. Deposits growth to accelerate in line with the revival in the disbursement. In line with RBI reported cuts, we have trimmed interest rates for savings as well as for retail term deposits.
These calibrated actions are expected to drive a gradual reduction in our overall cost of funds. Our CD ratio declined to 79% as of September 25, against 93% as of September 24, and after netting off refinance borrowings from advances, CD ratio declines to 72% as of September 25, reflecting our prudent liquidity management. In terms of risk diversification, we registered with CGFMU for credit guarantee coverage on our eligible unsecured JLG and MBPL portfolio, effective from January 17, 2025. Accordingly, incremental JLG and MBPL disbursements from then onwards are getting covered under credit guarantee, which will help de-risk our exposure and support portfolio stability. We ended the quarter with a surplus liquidity of around INR 4,400 crore, which is higher than our usual liquidity requirement, and an LCR ratio of 224%. We have no short-term borrowings on our balance sheet. On asset quality, we believe stress has peaked.
The ex-bucket collection efficiency in JLG segment has improved to 98.7% in the month of September 2025, as compared to 98.6% in the month of June 2025. We have tightened underwriting and reduced exposure to riskier segments. MFI stress is moderating, aided by calibrated disbursement and improved borrower discipline under new guardrails. We expect asset quality to improve meaningfully from quarter 3 onwards. Pre-qualified loans to existing customers with no delinquencies are streamlining field operations and exploring innovation across products like unsecured business loans, individual loans, etc., which will enable us to gain a higher wallet share of our existing customers with strong repayment track record, while preserving credit discipline and robust risk management. With the help of these measures, fresh NPA accretion will start to decline meaningfully in the next few months.
However, we acknowledge that legacy stress is still to be provided for, which will keep the credit cost slightly elevated in the near term. This will weigh on our near-term profitability as we navigate through this phase, and carry forward stress from earlier periods translated into a net loss of ₹348 crore for Q2 FY 2026. Despite the losses, our capital deficit ratio remained at 17.2% as of September 30, 2025, comfortably above the regulatory threshold. In alignment with the bank's commitment to long-term valuation, the bank has successfully raised equity capital for an amount aggregating ₹950 crore for augmenting its Tier 1 capital base to meet its future requirements through the rights issue in November 2025. We thank all our investors for reflecting confidence in the bank's strategic roadmap and future potential.
Concurrently, we have also secured all requisite statutory approval for the proposed reverse merger of the holding company with the bank. With these approvals in place, we are now assessing the optimal sequencing of petition filing with the NCLT application. We are also undertaking a business transformation project to make our technology architecture and business processes future-ready for our growth plan. The bank has already embarked on its Utkarsh 2.0 technology transformation project, with several sub-projects already live and yielding benefits.
These benefits include improved operational efficiency, higher productivity, automation, and 360-degree control parameter mapping throughout the entire cycle, from sourcing and disbursement to record-keeping and granular monitoring. Looking ahead, FY 2026 is shaping up to a difficult year, but it is also a year of strategic recalibration, where prioritizing operational efficiency, discipline execution, and operational agility.
For the next two to three years period, the bank targets a loan book growth of around 25% with a well-diversified portfolio with secured lending share of more than 50%. The focus will be on strong asset quality, cost efficiency, and prudent risk control. The bank aims to maintain a NIM of around 8.5% and deliver a return on equity of about 15%, supported by efficient operation and moderated growth towards the end of FY 2028. While sectoral headwinds and regulatory transitions may continue to influence near-term performance, we remain confident in the resilience of our franchise and the strategic direction we have charted for FY 2027 and FY 2028. Thank you very much for your patient listening. Now we can move to the question and answer session. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mayank, an Individual Investor. Please go ahead.
Yeah, hi sir. Thank you for the opportunity. So I just want to ask one question. So we recently saw the government of Bihar announcing this INR 10,000 to women. So are we seeing any sort of, is it creating any sort of problem for the bank because it will be beneficial? I think broadly speaking, it will be neutral from our perspective.
Yeah, it may have a positive impact on the borrower level, their own, you can say, well-being or their livelihood level. But as far as our efficiency of operations is concerned, I don't foresee much impact because of that. A slight positive impact maybe because people will be a little better off, but otherwise, not much impact of that. And from the hardcore, our day-to-day operations angle, I mean, obviously, it is good for the people who have got it.
Okay. And are you planning to, you have issued a fresh issue and you have issued the rights. So in future, are you planning to do more equity dilution or is it fine for two, three years?
So broadly speaking, from our side, the current range of INR 950 crore is good enough for the next 24 months. I mean, you can say till September 27. I mean, that is how the plans are from our side. We don't intend to go to market for the next two years' time.
Okay, sir. And last question, you said that this JLG is picked out. So from quarter 3 onwards, we will be seeing improvement in net profit and everything, right?
So as I mentioned in my opening remarks also, what we expect that the stress level, the delinquencies certainly have started. We are seeing that coming down, especially if you look at the month of November also, we have seen them coming down. So the trajectory in terms of stress, such as in terms of NPA accretion, in terms of profitability, we do expect that quarter 3 will be a little better than previous quarters. And quarter 4 onwards, we can see much better trajectory as far as these efficiency ratios are concerned.
Okay, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Vinit Agarwal from Adity Birla Money. Please go ahead.
Hello. Hi, sir. Thank you for the opportunity. So, I have a couple of questions, sir. So, firstly, currently, we have around 1,100 odd branches, which is higher compared to some of our peers with higher book size than us. So, going forward, what is our stance? Do we continue to increase our branches at around 15% odd kind of growth rate, or do we plan to consolidate and focus on improving productivity?
So, certainly, our plan is to move to consolidate. In fact, this year, we have not opened branches. And as you yourself mentioned, we have enough number of branches. In fact, last one year or so, whatever new branch we have opened, it is for a better control as far as the JLG business is concerned.
Otherwise, our idea is to consolidate because we have a large network of branches across the country now, and we are across the country in all the relevant states. We are already there. So we don't intend to open many branches from now onwards. Better to make those branches operationally efficient because we opened quite a number of branches during the last three, three and a half years. Post-COVID, actually, we opened quite a number of branches. So our first focus is right now to make them branches, give a from the business side, give a sizable business of these branches, make them more operationally efficient branches. So that is the focus. We may not be opening many branches now, at least in the near future.
Out of the total number of branches currently, how much will be only deposit taking only?
So you are aware that we have two types of branches. When we say general banking branches, these are the branches which are deposit-led branches. So today, out of around 1,100 branches, 331 hardcore deposit-led branches. Obviously, as a bank, even the other branches also can take deposits. But from the strategy angle or from the business angle, these are 331 branches across the country which are normally at the large cities, large centers, metro locations, or very prominent places. They are focused for the liability part. So these are 331 branches as of date.
Understood. And secondly, sir, we have faced high employee attrition last one year. So I wanted to understand how is the scenario now?
So I mean, so I think it was not only with us, but it was the industry phenomenon also. Must have seen that part, especially at the entry level, at the lower level, we have seen that part. We are seeing that especially in this, you can say, this quarter, and henceforth, we expect that this will stabilize. Normally, it is higher in Q1, and that is true for other banks and other financial institutions also, and ours is not among that high.
Obviously, it is higher than what it used to in the past. It is a little higher than our past records. But we are certainly seeing a better response, and the attrition rates are certainly coming down. I may not have the exact number right now, but these are certainly coming down, and we do expect that quarter 3 and quarter 4 will be much better from that angle.
Understood, and sir, lastly, the last one, so how much was the impact on yields due to interest reversals?
Yeah. So interest reversals for this quarter was about impacting in absolute terms about 27 crores would have been better off had the slippages for this quarter been not there. So it's about 27 crores impacting my Q2 results.
Understood. Thank you so much, sir. I'll call back.
Thank you. Thank you. Ladies and gentlemen, in order to ask a question, you may press star and one. I repeat, to ask a question, please press star and one now. The next question is from the line of Sagar from Spark Capital. Please go ahead.
Thank you so much for the opportunity, sir. My first question was related to the PCR. What is the PCR on the MFI book that we are holding right now, sir? It's 68% PCR we are holding. Under the JLG book, sir?
Yes.
So I think it is less than the RBI prescribed limit. I think the RBI's supervision is around 80%, right, if I'm not wrong? So may I know the reason why are we not providing enough, actually, so that at least we can clear our books before we start our new growth journey, sir?
So I guess, I mean, not that I recollect if there is any RBI norm to that. In fact, what we are making a provision over and above the IRAC or the RBI norms. So our provision scale is higher, by the way. So that's the first kind of clarity that I thought I will bring here on this call. Secondly, we have a roadmap of, as I said, policy. When an account goes NPA, we start with 40% immediately, any account being on 91st day. And then we do 15% in subsequent quarters. So there is a run rate rule book.
As it goes along, I guess this should be a bit higher in the coming quarter. You will see further provisioning coming in terms of cushion as we go along in quarter 3. Is it safe to assume that in quarter 3, we'll go from 65% to 80% as far as the unsecured portfolio microfinance for the NPAs without technical write-off? That's something written on the books. We will have to deliberate and then go there. Obviously, as I said, we have a rule in terms of the policies that we have. In case we choose to do what you just mentioned, it may amount to an accelerated provision. We'll have to look for adequate approvals and then probably during the course of the quarter decide on that.
Okay. My second question was related to means in the unsecured portfolio. Almost 80% of our majority of the portfolio is concentrated in Bihar and UP for us, actually. So what are the, can you throw some light that what is the situation on the ground in both these two states? Is it at least improving? What is the collection efficiency? And how do we see the MFI portfolio going ahead, actually? Will we see some disbursement growth going ahead?
So I think generally, we have seen UP and Bihar are good places for microfinance. There are a lot of requirements. There are a lot of, you can use the opportunity, and there is a requirement. That's why there is opportunity. And we have seen in the past also. This time, during this last, you can say 18 months' time, we have seen a little higher slippages in some of these states. You mentioned some of two states, basically, where we have a large concentration. And UP and Bihar, because our headquarters is Varanasi, and UP and Bihar, that is where we have started our operations in the beginning.
So we have a large number of customers there. Even the ticket size is higher in that case. And that is the reason why we have a little higher concentration in Bihar and UP. If you look at the ground-level operations, yeah, initially, we had a little challenge in this geography, and that's why you have seen the elevated NPA level. Maybe these have been a little higher than from some of the other places. But of late, we are seeing that normalcy is coming. I can use the word.
These may be, if you look at the ex-bucket collections, if you talk of, say, a month from now, I think we are on 99% plus now across, in fact. If you look at Bihar, if you look at UP and the adjoining area, all places, it is now 99% plus as far as the ex-bucket collections are concerned, so it is improving. Certainly, it is improving. See, you also asked about the disbursement part, so we have a, and that is not with us only. That is why you can see that almost 20%-25% decrease in the overall microfinance number of clients based and the AUM also across the country. The reason is because of the guard rails. A lot of customers became ineligible for disbursement because they might be having some delinquencies, some other with other partners, with other funders.
That is why it is a little difficult right now to, you can say, disburse to the extent that need to happen in the past. Our idea, now people are also looking at new-to-credit, new-to-bank, and also the cleanup you are seeing for the last 15, 16 months' time. Our sense is that, of course, I can talk on behalf of how the industry or the sector is shaping. So my sense is next two to three months' time, we should see almost regular type of disbursement. I mean, it's very difficult to predict. It's the exact quanta, but disbursement will become very regular in the next two to three months' time. That is the indication we are seeing from the market or from the ground.
So it is that would be for Utkarsh also, right?
That is true for all the players, including Utkarsh. And in fact, Utkarsh being a bank, sometimes smaller players might be having some challenge in terms of getting funding also. So for banks or for larger entities, that should not be a problem. So my sense is from next two to three months' time, we should see a normal type of disbursement also for JLG book, which was not there for the last 15 months or so.
Okay, sir. So what is the slippage amount, sir, in this quarter? Can you please specify? Gross slippages?
Yeah. Our CRO will just give the number.
Yeah. Yeah. So addition in this quarter was around INR 463 crores, and recovery and upgradations were close to INR 48, 49 crores. So just one request from my side, sir. Can you please, from next quarter, can you please specify the numbers in the investor presentation, including the write-offs and slippages, so that we can have an idea about the GNPA
As? Sure. But I think there is a movement. There is a movement on slide 30, which tells you about additions quarter by quarter. We can see slide 30 of the investor presentation. I think it is already.
Yes, sir. Yes. Yes, sir. In the last quarter, it wasn't, so that's why I was asking.
So it has been recorded now.
Thank you. Okay. Okay. And sir, my last question was related to our secured advances. We have been growing very well in that segment. Almost 47% of the total loan book is concentrated there. What I wanted to ask in that retail lend, basically within the MSME, housing, gold, CV & CE loans, which of the, what would be the mix going ahead in the next year, actually, when we see some higher disbursement growth also in this segment? Secondly, what would be the mix going ahead in FY 2027 and FY between unsecured and secured? How do you see the bank going ahead?
If you look at the bank going ahead, broadly, the way I mentioned that we do expect that growth for secured will be higher than the growth for unsecured or for JLG type of growth. For unsecured, the growth may be around 15%-18%, and for secured, it may be in the range of 30%-35% because these are newer businesses and smaller businesses that we have just started. So that is what is expected, and that you will see the, that's why you'll see that every year the secured is going up a little bit and unsecured portion is coming down.
That is what we expect. In terms of MSME, Micro-LAP, housing, so our focus has been more on the lab type of businesses where I get a property as a security. I'll put it this way. It can be in multiple forms. Sometimes it can, even when I'm talking about BBG portfolio, it is 100% secured by the property, underlying property. So we have a bigger focus on that. I think CV/CE businesses will be a moderate growth from our side. We are not looking very hyper growth from these type of businesses. But wherever there is a property security, I think that will be the bigger focus as far as Utkarsh's next two-to-three years' journey is concerned.
Okay. Okay. Fine. And just last one from me, that will we see our net NPA going down since you are saying that the provisioning will go up even in the next quarter? So can we see the net NPA inching below?
Yes. Certainly, we can assure you that our net NPA levels will start coming down on a monthly basis or a quarter-on-quarter basis from now. That you will certainly see from quarter-on-quarter.
Okay. Okay. Fine. Sir. Thank you so much and all the best.
Thank you.
Thank you. The next question is from the line of Rahul Kumar from Valcreate Investment Managers. Please go ahead. Yeah. Hi.
Can you explain the slippages between MFI and non-MFI segment for the quarter and the last quarter?
Just for a second, yeah.
Yeah. So for JLG business, it was INR 324 crore in the quarter two. And for non-JLG business putting together, it was around INR 134 crore. Okay. Okay. And what was it last quarter?
Last quarter, JLG was close to INR 330 crore, and non-JLG business was INR 122 crore.
Okay. Okay. Okay. And one question on the collection efficiency, actually, what you disclosed in this quarter was it was mostly around 98.6%, 98.7%. So I mean, we have seen for most of the other lenders, actually, this collection efficiency has definitely improved in the quarter. Can you throw some light on what exactly is happening over here? I mean, why hasn't it improved for us?
So hi, this is Virendra. I just wanted to clarify. Yes, we were in the two biggest pockets where the delinquency has been higher, which was bigger impacted markets like Bihar. In line with, we have seen some correction post-corrective measures. And yes, we were slower in that part of the geography for some period of time, but now we will be on par with the industry in this market. So yes, there was some system or limitations earlier, but covered it. And going forward, it will be on par or better off in that market. That's what we have seen because there is a slight rebound in both UP and Bihar markets in this month.
Okay. Okay.
And on the disbursement side, obviously, this quarter also, I think MFI disbursements have actually gone down. So I mean, when do we expect this number to improve?
Or I mean, do we expect, let's say, next two quarters to more consolidated around this number, and then maybe from FY 2027 onwards it will go? So as I mentioned, our assessment is that for next three, four months onward, we should see a better in terms of disbursement or at least portfolio will start growing. And as I mentioned, the disbursement was lower because of the guard rails. A lot of people became ineligible for disbursement. But one thing I'm sure I know, the growth what we have seen in JLG will be a moderate growth. When we're looking next two, three years' time, I think maybe around 15%-16% type of growth is what we can expect in the JLG business.
Okay. Okay. But if you look at overall mix of our loan book, can we say that we have sort of reached the bottom of our MFI share declining in the overall area? Or?
I mean, we have almost reached there. I mean, it's very difficult to pinpoint this, but certainly where we are right now, we expect that now portfolio in terms of collection efficiency, as Virendra mentioned, that we are already seeing almost across now 99% plus for this month, and this will certainly grow. In fact, I'm talking across, it is 99% plus. So overall, it is a little better than that only. So we expect that collection efficiency is growing. Similarly, we are also seeing a traction in the disbursement. It has not reached to the level where you can say my portfolio is not regrowing.
But my sense is in the next one or two months' time, it will reach a stage where portfolio will not come down from there. So that is what we expect as far as the JLG disbursements are concerned. Okay. Okay. And if I look at the non-MFI book, I mean, is there a target at which we want to grow this business? So as I mentioned, broadly speaking, the JLG 15%-16% type of growth, that is a range, I mean, 2% plus minus. Similarly, for non-JLG, maybe 30% or maybe a little higher than that. That is the type of growth we expect for the non-JLG. So certainly, that's why the share of non-JLG will keep growing, and share of JLG in the overall book will obviously number should grow from here, but overall share will come down as far as JLG is concerned.
This is the growth rate we expect. As I mentioned, blended growth around 25% or so, that is what we expect for the bank in next, if you look at FY 2027 or FY 2028. That is what we expect. Okay. Okay. For the non-MFI book, would I be right in concluding that for past two quarters, our growth rate has been, I mean, 1%-2%? I mean, am I doing something wrong over here? No, no, nothing. I mean, we are not doing anything wrong. Maybe it was a little slower in the initial phase, and we have seen it past also. As I mentioned here, also we expect that this will pick up in this quarter onwards. Normally, our quarter one in past also has been a little slow, and we expect this to pick from here.
We are not looking any additional type of products. You are aware that the type of products we are having, our idea is to scale those products. Where the property-backed products in the asset side are our prime focus from our side. Obviously, we are doing gold loan also. Even we are doing the secured credit card also backed by fixed deposits. We are also doing housing. We are doing BBG, where again, we are doing the business banking group. We are doing small, you can say, working capital loans or term loans for the MSME segment, SME segment. I think these are some of the segments which we have chosen, and our idea is to grow these segments only.
Okay. Okay. Okay. Yeah. No problem. Thank you.
Thank you. Thank you. Ladies and gentlemen, in order to ask a question, please press star and one. I repeat, to ask a question, please press star and one. The next question is from the line of Franklin from Reliance General Insurance. Please go ahead.
Yeah. Thanks for taking my question. Have we done any ARC sales in this quarter? So not in the bulk side, but we had one NBFC borrower account with us, Aviom India Housing, which we have sold to ISARC in this quarter, in the month of September. What would be the gross value for this asset and how much provision we would have made?
Yeah. So the outstanding was around INR 24 crore, and we had already provided fully for it in the previous quarter itself. And in this quarter, we did that ARC transaction.
Okay. Okay. And what would be our cumulative write-offs that we would have done in the last maybe two years?
Since inception of the bank, I mean, last two years. Last financial year, we did around INR 224 crore of write-offs. In this particular H1 till H1, we have done INR 366 crore. Out of that, INR 311 crore came in in this quarter only.
Okay. Okay. Historically, what is our recovery that we get from write-offs? From this cumulative amount, also what kind of recovery are we expecting? Over what time frame can we expect recovery?
Normally, it obviously depends upon the type of class of assets also. If it is JLG, then we have seen in past, it ranges from 12%-15%, 12%-25%, 20% type of recovery. I'm talking once from the write-off book. Even in case of demand book, we get even some recovery today also. That is how it happens. But for the other asset classes, the recovery rates are higher. Sometimes it may go to 35%-40% also for the other asset classes. Blended may be around 20% or so if you look from that perspective. Broad number, maybe around 20% from the write-off books.
So can we expect a similar recovery from the assets that have gone into write-offs last couple of years?
Yeah, certainly yes. Certainly yes. In fact, I mean, obviously, it's too early to talk about this part. But in past, for example, in case of JLG, we never had a collection stream. Now there is a focused collection stream. The results can be better also. Obviously, I mean, we are yet to experience that part. But that's my expectation that the results can be even better this time because of the dedicated collection team for JLG portfolio also. Even for other unsecured loans, we have a dedicated team. So results may be even better also.
Okay. And lastly, can you share a credit cost guidance? Because we are clocking around INR 1,400 crore of NPA provision in the last couple of quarters. We just wanted to understand whether this run rate is likely to continue or how is it going to?
So as we just mentioned about the collection force headcount that we have increased, in fact, we have increased from at a level of 400 to 1,200 headcount now. And with improvisation in terms of improvement, normalization, both in terms of the disbursement being happening in the new book, all that combined effect of a credit cost is certainly going to be far better in quarter 3 and almost normalization from quarter 4 onwards.
And what is your sustainable credit cost guidance? Normalized number?
I guess we'll give a guidance once we have complete quarter 4 guardrail impact embedded by quarter 3 results, and then that would be a better time to give a guidance for subsequent growth.
Okay. Okay. Fair enough. Thanks a lot.
Thank you. The next question is from the line of Arun, an Individual Investor. Please go ahead.
Hi. Thank you for the opportunity. I have a question with respect to the regional focus of the business, so it's more to do with north. Is there any plans to expand in the south of India like Karnataka, Tamil Nadu, and Andhra Pradesh in the future?
So no, I mean, yes, because we had a headquarters in Varanasi, UP. We have an initial concentration in Uttar Pradesh and the northern part. But if you look at today, we are across the country wherein 27 states and UTs. All the south states, including Puducherry and, I mean, things like places like even Goa are covered by us. We are in Andhra Pradesh, we are in Telangana, Kerala, Tamil Nadu. All places are covered by us. It was in the second phase. First phase was more towards the north and followed by west.
We have more than 50 branches right now in southern states. 46. 46 branches are in the southern states. In fact, other than JLG, we are doing all type of businesses from that area also. We are doing LAP business. We are doing MSME business. We are doing affordable housing also. Obviously, liability side, we are doing all businesses. Gold loans, we are doing from that area. South also, we have started big way. And obviously, we are there in the eastern part of the country also, like Odisha and West Bengal and those states. So the footprints, yes, it might have taken a little longer time, but we are currently already a player with little skew in favor of maybe west and north because those were there we had started. As far as our operations are concerned, those are started early. But we are across already a player now.
Thank you.
Thank you. Ladies and gentlemen, in order to ask a question, please press star and one. The next question is from the line of Saurabh Jain, an Individual Investor.
Please go ahead. Thanks for the opportunity. I want to understand your JLG portfolio. Out of the gross NPA, which is around INR 2,276 crore, out of that, how much is the JLG portfolio? And the entire NPA of the JLG, is it unsecured or somehow it is covered under the CGFMU?
So as far as security is concerned, we mentioned in my opening remarks also, from January 17 of this year, our new portfolio of JLG and Microbanking Business Loans. So the entire unsecured part is covered under the guarantee scheme. And today, it may be around INR 2,000 crore plus, which is part of this. Around 25% of our portfolio is covered under the guarantee scheme because this has just started. As far as the breakup of this concern, sir, usual, around INR 1,850 crore is the JLG portfolio of NPA out of 2,274.
Okay. Sir, can you give me an idea that out of that standard JLG portfolio, how much amount is under stress that is under the special mention account, that's SMA-2?
Yeah. So overall, 5% is under SMA-0 plus 1 plus 2 overall of the portfolio. Plus 23% is in NPA.
Sir, 5% is in SMA-0 and 23% is NPA?
No, no, no. SMA-0 plus SMA-1 plus SMA-2, all three put together, 4.8%.
SMA-0 plus 1 is 5%. And SMA-3?
Including SMA-3.
Okay. Including SMA-3.
Yeah.
Overall of the SMA advance, it's 5% of the overall JLG portfolio. Correct?
Yeah. 4.88% of the size. 4.88%.
Okay. Thank you.
Thank you. The next question is from the line of Chintan Shah from ICICI Securities. Please go ahead. Yeah. So sir, on the guidance front for which we have mentioned where in case 15% ROE, it would be there by 28. So sir, what kind of credit cost are we assuming for this ROE?
So by FY, what kind of credit cost and what are the margins which we are assuming if you could, yeah, throw some light on that? Thanks.
So as we, I mean, whatever the disbursement that are happening from January, it is the CGFMU insured. And the new disbursement is also happening under the cleaner, less than three lender rule. New regime. The new regime, as we call Guardrail 2.0. With this combination and the normalization of collection efficiency should be very, very evident as these both factors combine. We are looking with secured and unsecured composition, max credit cost of up to 2% on a steady state basis.
Sure. And anything on the margins on that front?
So there are a couple of factors here. One, as the cost of funds and we take the benefit of repo rates, we presume the cost of funds will go down, which will contribute to the NIM. We also have the revival that is worth mentioning once all the slippages get normalized, so that should add. And with the growth in the retail book at a higher yield, in fact, as earlier mentioned, our two or three products have given us almost 40 to 100 basis points higher. I already began to see higher yield. If I take combination of all combined, we should be looking again sometime at FY 2028 at 8.5% NIM is what our execution plans are.
Sure. And sir, on the CGFMU scheme, so now you mean to say from January 17, 100% of our incremental disbursements are via CGFMU. And if you could just help us understand the math, how does the scheme mechanics exactly work? How much has to be borne by us and how much is the premium to be paid? Yeah, some working on that would be helpful.
Yeah. So the entire disbursement, which is eligible for the scheme, we are taking cover for that. And normally, we have seen that 93%-95% of our disbursement is covered under the scheme. That is part one. Overall, premium cost would be in the range of 1%-1.2% of the AUM per annum. So that is the cost which is expected.
And also sir, once sorry.
Yeah. So overall, what will be the reimbursed by the agency? So whatever will be the economic loss, 3% first will be borne by the lender. And for balance, 97%, 25% will be borne by us. And balance 75% will be borne by the agency. So overall, we can say 72-73% will be reimbursed by the agency.
Understood. So just for a hypothetical example, if INR 100 is the disbursement and of that, if 10% is the GNPA, means the slippages. So of that 3%, so 10%, that is 0.3 will be borne by us and the remaining 9.7 will be shared 75-25.
Correct. Correct. Correct.
Okay. And so, yeah. And so, sir, is there a maximum? There would be a maximum cap, right? Of the INR 100 maximum, like 10-15% GNPA will be borne by them. So what is that cap on this?
15%. 15% of the portfolio.
Okay. Okay. Okay. Sure. Sure. Sure. So that way, this largely then basically helps us maintain our credit cost well within range for the MFI and non-MFI. Sir, what would be the credit cost for the non-MFI portfolio, the non-JLG portfolio this year for two quarters?
If you could break the credit cost for first half into JLG and non-JLG. For this quarter, the non-JLG credit cost stood around 2.3%.
That's an annualized number, right?
Yeah. It was a little higher because of the challenge in the Wheels business. Actually, you must have seen that this quarter too was a little challenging. Obviously, we are making more efforts towards that also. It was a little elevated for the Wheels business, actually. That's why it is looking a little on the higher side for this quarter.
And so what was that number in Q1, sir?
In Q1, it was around 2.2%. It's okay. 10 basis points higher.
Yeah. Sure. And sir, just one last question from my side. From the once an MFI account slips into becomes a one plus, how much percentage of that flow forward comes to how much of that flow forward goes to 90 plus? Once an account becomes one plus, like INR 100 becomes one plus, then like typically 60-70 flows into 90 plus or 30-40, or what could be that number, any rough estimate?
There would be three buckets after that, one to 30, 30 to 60, and 60 to 90. Every bucket will have its own collection efficiency. One to 30 normally would have a collection efficiency of 50%-60%. Then 30 to 60 would have collection efficiency of 40%-50%. Again, in 60 to 90, our collection efficiency is in the range of 55%-65%. That is how we try to manage. The balance will flow into 90 plus. Again, after it flows into 90 plus, collection continues. We have, as we mentioned, more than 20% being collected from that amount in the next 24 months.
Sir, what's the write-off policy for 90 plus for the JLG portfolio?
So it is post NPA recognition. The account should have passed more than 365 days. Then it qualifies for technical write-off.
Sure. I think that's it from my side. Thank you for the detailed answers. I wish you and the team all the very best for the future quarter.
Thank you. Thank you.
Thank you. The next question is from the line of Sagar from Spark Capital. Please go ahead. Yeah. Thanks for the follow-up. Sir, I have a few questions. Our SMA one and two book is going up, sir.
From March, it has gone up to 4% to now 4.4%. So basically, is it because of the wheels portfolio or still the stress in the JLG is emerging, sir?
JLG is largely caused. I think earlier my colleague mentioned about the total provision of which almost 90% belongs to the JLG book. Likewise, this is largely attributable to the JLG delinquencies that we are seeing in the Q2. So sir, what exactly has happened that in the month of February and March, collection efficiency for zero bucket in JLG had improved substantially. But again, after implementation of the Guardrail 2.0 from April onwards, collection efficiency declined a little bit. And that's the reason it is 4.4%. But in quarter 3, we have seen that again we will be back to the normal. So you will see by quarters onwards, it should be in the range of what we saw in the month of March.
So basically, but okay, my next question related to that is how much out of our MFI portfolio we have a lender plus three portfolio enough? Lender plus three plus would be 16%, 16.8%. So 16.8% and lender plus three means includes Utkarsh, right? That means more than three lenders, including Utkarsh.
Yes. Correct. Correct.
So that is 16.8% of the portfolio. So that comes up to around, sir, it's out of our 8,271 crores, almost more than 17%. So still that portfolio, what is the collection efficiency in that portfolio, sir?
So sir, this portfolio includes all the bucket customers. Few of them are already into NPA or they are into the SMA bucket.
Okay. So almost you can say out of that INR 1,300 crore portfolio, how much are into NPA, sir?
This would be, you see, it would be a little higher on the overall book of MB, obviously, because these are the lender borrowers who got out of the Guardrail. So obviously, their repayment behavior got changed drastically after implementation in August. So that would be this portion would be around plus four, I would tell you rather. Plus three is under control, but plus four would be around 25%, 26%. Lender plus four.
Yeah. So that means around five lenders, right? I ncluding Utkarsh.
Yeah.
So how much that is 25% of the portfolio?
Of that bucket, not the overall portfolio. You asked out of that portfolio, how much would be in the?
Yeah, out of the MFI portfolio, right? That I'm saying, sir.
No, no, no, no. The portfolio of plus four lenders, which my colleague just told you that 16% comprises of such nature. Out of that 16% portfolio, 25% borrowers are under NPA.
Okay. Out of that 16, 25 are those physically. 25% are those. So how is that portfolio performing in terms of collection efficiency, including arrears?
I think we may not have the exact data right now, but when we have seen, I mean, there is a straight inverse relationship between the number of borrowers and the portfolio quality. Higher the number of borrowers, that we have established. I don't have the exact numbers right now, but.
Okay. Okay. Fine. Sir.
Wherever we have T plus, sorry, Utkarsh plus 4, 5, 6, in fact, there we have seen the stress NPA and SMA is higher than our normal one.
Okay. Fine. Sir. So basically, last question for what is the net NPA of the secured portfolio, sir? Gross and net NPA?
Just one second. Let me see.
Yeah. Sure, sir. Sure.
Actually, we track product-wise rather than secured and unsecured because many products have secured as well as maybe a little bit of unsecured .
But I think, sir, your MSME housing and CV is mostly secured, right? 95% plus you have mentioned in the investor presentation, sir.
Correct. Correct. Yes. Yes. Absolutely.
Yeah.
Thank you. The next question is from the line of Raj Ganapati, an Individual Investor. Please go ahead.
Thanks for the opportunity. My understanding with the executive investor presentation is that the bank's performance and recovery would be good in the next one to two quarters. Wanted to know the executive's opinion whether we can expect a positive path in the next two quarters so that it would be immediately reflecting on the stock price recovery as well.
So broadly speaking, as I mentioned, we have still seen some stress. So obviously, quarter three, we're still looking into the stress of past because Guardrail started from last 14, 15 months. Some of the stress has already been covered. Some is yet to be covered. So still, there may be little challenges in quarter three. I mean, obviously, not the type of things we have seen in past, but little challenges because we still have to provide for some of the delinquencies, some of the NPAs. But we do expect that quarter four onwards should be much, much better from that perspective, from the profitability and overall growth and the quality of book angle. Quarter four onwards should be much, much better.
For sure. Thanks for the details, and all the best for the coming quarters.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Yeah. Thanks, everyone, and thanks, ICICI Securities, for organizing this. Thanks all the investors for your questions, your responses, and your, you can say, confidence in the team of Utkarsh. As I mentioned in the beginning itself, that we had some challenging time for the last four to five quarters, but we are coming towards the end of that period. And as mentioned, we have committed to bounce back, and we have seen that things are starting improving. And next two quarters will be certainly critical from our side also.
We have proper plans and good plans in place, and I think execution is right now. You should see much, much better performance, much, much better traction from Utkarsh going forward. Once again, thank you very much to all of you for joining this call, and look forward to interacting with you on a regular basis. Thank you.
Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect the line. Thank you. Thank you.