Ladies and gentlemen, good day and welcome to Utkarsh Small Finance Bank Q3 FY 2026 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during 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, Rudra. Good evening, everyone, and Welcome to the Q3 FY 2026 Results Conference Call of Utkarsh Small Finance Bank. I would like to thank the management for giving us the opportunity to host their call. From the management side, we have Mr. Govind Prasad Agrawal, Managing Director and CEO, Mr. Sarjukumar Praveen Simaria, Chief Financial Officer, Mr. Amit Acharya, Chief Risk Officer, Mr. Virender Sharma, Head Microbanking, and Mr. Saurabh Ghosh, Head Consumer Banking. Yeah, so now without further ado, I would like to hand over the floor to the MD, sir, for his opening remarks, post which we can open the floor for questions. Thank you, and over to you, sir.
Yeah, thank you, Chintan. Thanks a lot. So good evening to all of you, and thank you very much for taking time to join us for our Quarter 3 FY 2026 earnings call. This third quarter of FY 2026 has been a period of recalibration, resilience, and cautious optimism. The operating environment continues to evolve, shaped by regulatory transition under MFIN Guardrail 2.0 and the lingering effects of legacy stress. While these dynamics have presented near-term challenges, they have also reinforced the importance of discipline, diversification, and forward-looking transformation in our business model. We are navigating through a landscape that demands agility. The regulatory recalibrations introduced, particularly the borrower-level leverage restrictions, have reshaped the microfinance ecosystem. These changes, while designed to foster long-term resilience, have temporarily slowed recovery sentiment and kept overdue accounts elevated.
Yet, as we have consistently emphasized, our strategy is not about chasing short-term growth at the expense of stability. It is about building a fundamentally stronger institution, one that can withstand cycles, deliver sustainable returns, and create enduring value for all the stakeholders. Our approach this quarter has been deliberate. We have chosen stability over speed, quality over quantity, and resilience over short-term expansion. The same is reflected in the contraction of our JLG portfolio, which declined by approximately 16% during the quarter. While this has contributed to a 3.9% year-on-year reduction in our overall gross loan book, it is a conscious recalibration designed to strengthen collections, moderate risk, and lay the foundation for sustainable growth. At the same time, we are encouraged by the strong performance of our microbanking business loans, MBBL portfolio, which grew by 80% year-on-year and 38% quarter-on-quarter, now represents 19% of our microbanking loan book.
This segment, targeted at graduating JLG customers with proven repayment discipline, has demonstrated superior recovery quality and collection efficiency. With penetration still below 10%, we see significant headroom for expansion, and we expect MBBL to become a cornerstone of our microbanking strategy in the years ahead. Operational discipline has been reinforced through several initiatives. We have expanded our collection workforce for JLG and MBBL business to nearly 1,300 as on 25 December, operationalized a centralized call center for overdue accounts, and split larger microbanking branches to improve oversight. These measures are structural interventions designed to embed resilience at the grassroots level. Training programs for new frontline staff focused on core processes such as center meetings and customer onboarding are ensuring that execution remains consistent and robust, reflecting our improved ex-bucket collection efficiency of 19.1% in Quarter 3 FY 2026.
Beyond microfinance, our non-JLG lending business has maintained healthy momentum, growing by 28% year-on-year and 8% quarter-on-quarter. MSME loans expanded by 24% year-on-year to INR 4-75 crore, supported by our newly started Micro LAP segment, with this segment yield of around 18%. Housing loans grew by 13% year-on-year to INR 965 crore, while our BBG business banking group portfolio, fully secured against immovable collateral, grew by 22% year-on-year. These segments not only diversify our portfolio but also deliver attractive yields and reinforce our favor towards secured assets. In the CE and CV segment, the loan book contracted by 3% year-on-year to INR 1,102 crore. However, disbursement yield improved by over 30 basis points, rising from 12.5% in Quarter 3 FY 2025 to 12.8% in Quarter 3 FY 2026.
Notably, the share of used vehicles in disbursement increased to around 35% in Quarter 3 FY 2026 from less than 15% a year ago, reflecting our overall strategic pivot towards more resilient asset classes. This diversification is not incidental. It is intentional. Our JLG exposure has been consciously moderated to around 33%, including BC JLG around 35% of the gross loan book as on 25 December, down from nearly 88% and including BC JLG 90% in March 2020. Secured lending now comprises 50% of our overall loan book, up from 41% a year ago. This structural shift will eventually lead to a fundamentally stronger bank with less cyclicality in credit cost and multiple avenues for growth beyond JLG loans.
We are seeing healthy traction on cross-sell on both sides, asset products, that is, MSME, housing, and microloans, through our liability-focused general banking branches and deposit accounts for our asset customers, essentially more product per customer. This multi-product engagement is enhancing customer stickiness and improving wallet share. With a healthier, diversified portfolio and improved underwriting standards, the bank is getting resilient and is now poised for a better trajectory for the period coming ahead. Through a more disciplined lending approach, we are already focusing on streamlining the portfolio growth. On the liability front, we delivered 5% year-on-year growth in the total deposits, driven by strong traction in retail term deposits, which grew by 24% year-on-year and 3% quarter-on-quarter.
Our CASA deposits increased by 16% year-on-year and 3% quarter-on-quarter, resulting in an improved CASA plus RTD ratio of 82% as on December 2025 from 70% as of December 2024, reflecting our conscious effort to reduce reliance on bulk deposits and build a granular, low-cost deposit franchise. CASA ratio has improved to around 22% as on December 2025. In line with RBI repo rate cuts, we have trimmed interest rates for savings as well as for term deposits across various buckets in a phased manner, ensuring a balanced approach to market competitiveness, cost-of-fund optimization, and overall margin stability. These calibrated actions have driven a gradual reduction in our overall cost-of-fund by around 20 basis points quarter-on-quarter from 8.3% in Quarter 2 FY 2026 to 8.1% in Quarter 3 FY 2026, and it is expected to reduce further as repricing takes effect.
The bank continued to deepen its liability franchise through focused product segmentation and targeted customer outreach, driving penetration in newer, innovative offerings. The quarter also marked the launch of NRI services, which has delivered encouraging traction within its first month. Alongside product expansion, the bank enhanced service experience by strengthening digital capabilities to elevate customer experience. The overall strategy remains centered on improving the quality of account sourcing, with stronger emphasis on value-added acquisition and greater product penetration per customer. We are consciously aligning deposit growth with disbursement pace, ensuring that liquidity remains prudent and sustainable. Deposit growth to accelerate in line with revival in disbursement, which has shown a meaningful improvement in Quarter 3 FY 2026. This pickup in disbursement is expected to improve the portfolio base in the coming quarter, which is supporting the stronger deposit trajectory.
Our CD ratio declined to 79% as on 25 December, against 92% as on December 24. We ended the quarter with surplus liquidity of approximately INR 4,700 crore, which is higher than our usual liquidity requirement, and an LCR ratio of 207%. In terms of risk diversification, we registered with CGFMU for credit guarantee coverage on our eligible JLG and MBBL portfolio, with effect from January 17, 2025. Accordingly, incremental JLG and MBBL disbursements from then onwards are getting covered under credit guarantee, which will help de-risk our exposure and support portfolio stability. Around 35% of our microfinance book for disbursement till Quarter 2 FY 2026 is already covered under CGFMU, and counting Quarter 3 FY 2026 disbursement, around 50% of microfinance book is covered. 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.
Pre-qualified loans to existing customers with no delinquencies are streamlining field operations and exploring innovations across products like unsecured business loans, individual loans, etc., which will enable us to gain a higher wallet share of our existing customers with a strong repayment track record, while preserving credit discipline and robust risk management. Asset quality remains a critical focus. We believe stress has abated. Ex-bucket collection efficiency in the JLG segment improved to 99.5% in the month of December 2025, up from 98.7% in the month of September 2025, the highest in three quarters of FY 2026. Fresh NP slippages have reduced significantly during Quarter 3 FY 2026 as compared to Quarter 3 FY 2025. These green shoots are indicating that our corrective actions are beginning to take hold. Overall, SMA pools have also reduced in Quarter 3 FY 2026. We acknowledge, however, that legacy stress remains, and it is still to be provided for.
This has kept credit costs elevated and weighed on near-term profitability, resulting in a net loss of INR 375 crore for the quarter. However, we see that fresh NPA accretion is declining meaningfully for the few months, with asset quality improving further from Quarter 4 onwards as a consequence of these measures. Despite the losses, our capital requirement ratio remained strong at 20.1% as on December 31, 2025, comfortably above the regulated thresholds. The successful rights issue of INR 950 crore in November 2025 has further strengthened our tier-one capital base to meet our future capital requirements, underscoring investor confidence in our long-term strategy. During the quarter, the filing of petition with NCLT is completed on December 26, 2025, for approval of the scheme of amalgamation of holding company into the bank, that is, reverse merger. The first hearing has happened on January 15, 2026, and the order is awaited.
Our Utkarsh 2.0 technology transformation project is already delivering benefits in automation, productivity, and risk control. Digital underwriting is helping us avoid lending to over-leveraged borrowers, while 360-degree control parameter mapping is strengthening monitoring across the credit cycle. These initiatives are not just about efficiency; they are about future readiness. We also recognize the importance of our people. During the quarter, we incurred a one-time impact of INR 9 crore due to new labor law codes, LTIPs, and ESOP grants, etc., pertaining to employee benefits obligations. While this has weighed on near-term profitability, it reflects our commitment to compliance and employee welfare. Training programs, productivity initiatives, and organizational agility remain central to our transformation journey. Looking ahead, FY 2026 is shaping up to be a year of strategic recalibration, where we are prioritizing operational efficiency, disciplined execution, and organizational agility.
For the next 2-3 years, the bank targets loan book growth of 25%-30% with a well-diversified portfolio, with secured lending comprising more than 50%. By the end of FY 2025, we aim to maintain a NIM of around 8.5% and deliver an ROE of about 15%, as mentioned in the previous calls, also supported by efficient operations and moderate growth. With 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 2028.
In conclusion, Quarter 3 FY 2026 has been a quarter of challenges but also of progress. We have moderated risks, strengthened collections, diversified portfolios, and reinforced our capital base. We are building a bank that is resilient, disciplined, and future-ready. The trajectory we are shaping is one of sustainable growth and long-term value creation. We thank you for your continued confidence and support. With this, let us move to the Q&A session. Thank you for your patience listening.
Thank you very much. We will now begin the Q&A 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. Our first question is from the line of Deepak Podar from Sapphire Capital. Please go ahead.
Yeah, I'm audible, sir.
Yes, yes, we are audible. Please go ahead.
Yeah, thank you very much for this opportunity, sir. So I just wanted to understand now on the credit cost. I mean, you mentioned though near-term challenges are there, but over the period, you expect improvement, and even the stress in MFI book is reducing. So what's the steady state credit cost we are looking at, and how should the credit cost trajectory we look at in coming quarters, in the fourth quarter and in FY 2027?
Yeah, hi. This is Sir Jhu here, CFO. FY 2027 and even FY 2028, I guess we are looking at around 3%-3.5% credit cost because we will have GNP and NP both at a tolerable level. 28 certainly will be under 2.5% of credit cost. This is part of the measure that led us to believe that with the pain going behind us, we will be back to ROE of 15% on the back of the envelope.
Sorry to interrupt you, sir, but there seems a lot of disturbance in the background.
Let me repeat that. Hello?
Yeah, please repeat yourself.
Yeah, I was saying we are looking at a credit cost of 3%-3.5% for the coming year.
FY 2028, 2.5%?
Yes. That is back in.
What about ROE and ROAs, sir, for both of this year?
So I guess we would, as we mentioned, Govindji mentioned that for 2028, it's something that we are going to mention the guidance of ROE of around 15%. And that could be, again, it's a two-year guide, 2028 guidance and ROA of around 1.75%.
At 15% ROE, you are looking at ROA of 1.75%, right?
That's right.
What about next year, FY 2027?
FY 2027 could be around 10-ish. That's the number we are looking at, which is ROE.
No, so I missed that number. I mean, can you tell me?
10% ROE.
10% ROE. Okay, okay.
Gradual improvement, and as I said, 2028 will be the back-to-normal years.
28 is the normal year that we are looking at, right?
That is right.
Okay, okay, okay.
While 2027 also, because we are looking for profitability in 2027 itself, the trajectory will go back to profitability of good old days at 2024 in 2028.
Understood. Sure, sure. I think that would be it from my side. All the best to you. Thank you.
Yeah, thank you.
Thank you. Our next question comes from the line of Avnish Tiwari from Vaikariya Change LLP. Please go ahead.
Can you articulate the level of CET1 you will be comfortable with when you come for next capital raise? Right now, it's like 17.1, I saw from your.
No, it's 20.1.
The current year of capital requirements is 20.1%.
By tier one, it's 17.1. That's right. 17.1.
Yeah, I'm actually focusing on Tier 1. It's 17.1. So until what level you can go? As you will grow, you will consume capital. So until what level you can go before you have to raise capital again?
I think at least for next 12 months, we don't have to go to market for capital. This will be because, I mean, as you mentioned, wash is over. We'll be back in the trajectory of profitability next quarter, I mean, Quarter 1 of next year. So some support for capital will come from there. So our estimate is that for next 12 months, we need not to go to market for capital.
Do you have in your modeling what's the minimum it will reach before it? What's the lowest it will go, this Tier 1? In your planning cycle, where 12 months, you don't need to raise capital, but as you grow, you will consume some capital, right?
Yeah, typically, overall, we will be in the range of 17%-17.5% from this 20. I mean, we don't want to go below that. And I mean, though we don't have any specific number for Quarter 1, sorry, tier one, but around 15% of tier one, around 17.5% of overall capital. That is what we intend to be. Do not go below that level.
Great. This Tier 1 of 2004-33, let's say if your net worth, if I look at your balance sheet, what explains the difference? If you can just give me a broad, high-level idea, what items basically create that difference?
Yeah, but I guess the net worth that you are looking maybe from the financial is the net worth that is RBI computed. There are risk weightages and haircuts out there. The book net worth is INR 3,000 crore as we speak.
Correct. So what are the key major haircuts, which I saw the RBI calculation accounts?
That's basically risk weightage by products that goes. There is a formula for each product, and that becomes the reason for a haircut. That's the CRR computation by RBI. Generally, you would have around, say, 70%-80% of the net worth, which will be equal to CRR net worth.
Got it. Now, coming to this slippage component, so last quarter, you had about INR 26 crore of slippages. And your collection efficiencies have materially improved for you. So what is the kind of monthly run rate you are currently running at with this 90.5% collection efficiency? But you do have an SMA pool, which is about INR 240 crore. So how much is the monthly slippages you are experiencing in December or in January, whichever data you have?
So there has been a significant change and, I mean, positive change. I mean, October was a little tough month for us, and we saw, I mean, it was almost at the similar level of Quarter 2, the efficiency. But from November onwards, we have seen a significant improvement in what we call X bucket or 0 DPD. So it has not been below 99.5% in any of these months, say November, December, or January. I mean, that is a range. It is above 99.5% overall. So we have seen a good improvement.
In fact, this quarter, I mean, some of the negative impact in terms of stress level or in terms of provisioning or in terms of profitability, some impact got, I mean, higher impact got because of the October, where there was a series of holidays, and the collection got a little impacted for that particular month because of you are aware there are three large festivals out there during that period. So that explains the reason for, you can say, a little poorer October for us.
But if you look beyond that, in terms of overall collections, in terms of disbursement, in terms of net worth collection, I think all parameters, things have improved significantly. As I mentioned, it has not been below 99.5% in any of the periods after that. In fact, January has been even better than that. We are expecting that we are almost at the normal level of 99.6%+ right now, and which continues to be there.
Got it. Do you have a number on a monthly basis? Sorry, go on.
Obviously, the slippages also come down because of that. Some of the numbers, if I look at, if JLG October slippage is 1-90 worth, around INR 370.8 crore. By January, it has come down to INR 163 crore. You can imagine the numbers have really significantly come down. That is a change we have on a consistent basis.
This is a JLG 1 to 90 pool you just mentioned?
Yeah, JLG 1-90 pool, yeah.
Okay. It has significantly reduced between October and January.
Significantly, significantly. Even 1-30, because of October, we had a challenge. It was almost INR 170 crore. Now it is below INR 50 crore, actually. And normal course means INR 50 crore, you are able to manage on your daily operations also. I can use the word near normal as far as the stress level in JLG is concerned.
Got it. So only the thing you have to take care of is the existing SMA pool and existing net NPA, which you need to provide for. Is that fair to you?
Existing net NPA, we have taken care of that, wherever there has been partial provision. I think that is what because these are almost normal numbers for, I mean, for any microfinance institution or any SFB. Yes, but we need to take care of. Also, we are finding improvements. But yes, that is your absolute right.
Okay. You also did this ARC sale of two accounts. Can you explain what are they? These are like which pools they will belong to?
Sorry, ARC sale. No, I think we have not done that.
We have not done that.
But it was previous quarter.
Previous quarter.
Previous quarter.
This quarter, are you able to see any ARC sale because?
No, not this quarter. Nine months only I saw. So maybe this is.
Yeah, yeah, nine months is there. It was done in the previous quarter, which is an INR 11 crore of income on the other side, other income line, which is a realization from sale of Aviom Asset Securities .
Right, right. But these were like which segments these accounts belong to? Were they retail, wholesale? Were they these accounts that you sold?
It was one of the NBFC portfolio, Aviom Housing Finance. So that was one case, and that is where we did one ARC sale.
In the current book you have on this NBFC portfolio, what are your observations in terms of any account which is in the monitoring phase or anything? No, no. Our PAR 1 is 0 for our NBFC book. Entire book is on 0 PAR. PAR 1, I'm talking PAR 1, not any other PAR. So there's not even a single day PAR in any of my NBFC book today.
Is there any rating change in any of these NBFCs?
It keeps on changing.
Let me say negative side, not the positive side.
Ha, so there has been one case of there is one NBFC where they have been downgraded to double B. Except that, if you will see, by choice, we do not increase much of the NBFC portfolio, and we are maintaining below 8% for the last more than 12 months, the entire portfolio. Our portfolio, close to 70%, is up to rating A and above companies only.
Got it. Which NBFC was that which you are downgraded to triple B?
Tru Cap was the company.
Okay, okay. Thank you. Very helpful, and wish you really best.
Yeah, thank you, sir.
Thank you.
Thank you. Our next question comes from the line of Sagar from Spark Capital. Please go ahead.
Yeah, thank you so much for the opportunity. Now I have some few questions, sir. My first question was related to our deposit growth, actually, in this quarter. Our deposit growth sequentially has actually declined. So what are the reasons for the same, may I know? Actually, is this a very low sequential growth? That was my first question.
Yeah, so normally in deposit growth, as I mentioned in my initial, I mean, speech also, because there had been less deployment of money because of degrowth of microfinance, our funds requirement was very, very low. If you see our and what we did, we have, you can say, restructured the whole liability business. In a sense, there are more than INR 2,000 crore of institutional term deposit we have repaid, and we have not renewed those cases. Whereas our retail term deposit in CASA has gone up by almost the same amount. So the idea was not to increase because, as I mentioned, we are almost more than 4,500 is my liquid cash as on 31st December. So we don't want to increase our deposit base, but we are changing the mix of deposit from institutional to retail, in fact. That is what we have done during this period. And obviously.
But sir, you have borrowed more than INR 400 crore, sir, in the quarter sequentially, if you see. I understand that because of the lack of asset growth, the deposit growth is very tepid. I understand that point. Then what was the need for incremental borrowing sequentially, actually, over INR 400 crore? INR 421.14 crore, to be precise.
I'll just check, but this must be some treasury transactions for maybe on the balance sheet date. But otherwise, we are not into borrowing at all. I mean, there must be some transaction done by treasury for some, you can say, sub-counter transactions. Maybe give me a few minutes. I think I'll be able to respond to that also. But we are not into borrowing at all. In fact, not today. For a few years now, we have not borrowed anything in the market. It might be some bilateral transaction on those one or two days. That is the only reason. Might for one day or two days. But otherwise, we don't require this at all.
Because, okay, I got your point in that. You can give the clarity later, actually, because that will have a negative bearing on the cost of funds, and that was my concern. Now, my second question is, what is the GNP and PCR on our JLG and our CV portfolio?
Yeah, so on JLG portfolio, our overall PCR stands around 68.5%. On CVC portfolio, the PCR is around 34%, being the secured portfolio. That is how it is.
Okay, so the SMA, the NPA of 25%, so we have provided around 68% of the assets, right? 68% of the assets. So in the next few quarters, are we looking to provide 100% of that?
Yeah, so see, we have the policy where once they are on JLG, especially, once the account turns into NPA, we provide higher than the prescribed norms as per IRAC, and we have been following this for years. As per those norms, a little higher provisioning we already do as per the IRAC norms. We follow that and will keep on increasing every quarter when the bucket movement happens. The 15% gets added in each of the buckets. That is how the provisioning will keep on increasing.
You write off after 365 days?
Correct. Yeah, 90% JLP for 365 days. You're right.
Okay, so it had in the microbanking portfolio, what is the exposure of Utkarsh Plus Three Lenders right now, sir? What is the portion? What is the percentage of the assets?
On Utkarsh Plus Three Lenders, we are more than 3 lenders is close to 7% now in our own portfolio.
So out of INR 6,046 crore, around 7% is Utkarsh Plus Three, so around INR 423 crore, right?
Yeah, yeah.
Okay, so what is the asset quality on that? Means how is the book shaping in that front, sir? Can you provide a color?
It was 25%. It is past year, OnePlus is close to 25%.
No, no. What was the last one year back?
December, it was 25%.
25%.
Yeah.
Which has come down to 7% as you get to it.
Yeah, correct. It has come down to 7% now.
Okay. And in the other unsecured retail lending, you are actually incremental disbursement seeing a decline year-on-year. If you talk of CE and CV portfolio, from 187, it has come down to 57. From housing, it is from 102, it has come down to 78. And around for MSME, it has also relatively come down. But as compared to microbanking, it has actually been almost 2.4x growth in the disbursement growth, I'm saying, microbanking business loans.
And JLG, obviously, the disbursements have been coming down. So your other retail lending is also actually not growing right now. So when you talk of ROE of 10% for FI27 and 15% for FI28, which is in line with some good banks, so which segments actually are exactly going to help you in that metric? Related to that question, how is the digital underwriting going to shape, and how has that helped you actually in the other segments, and how it is going to help in the future?
Yeah, so in terms of product, so yes, I mean, when I mean, there is a big focus on the collections and JLG entry period. Now we are seeing a good traction as far as the non-JLG disbursement is also concerned. It is improving month-on-month basis. I mean, just broad numbers, obviously, we don't have detailed numbers. But if you look at when we talk of October last year, we have around INR 800 crore disbursement. But by November, we have around INR 1,000 crore. It's a mix of all these things, INR 1,100 crore in the month of December, and January had been more than INR 1,200 crore. So there is a now I think we are back on the track as far as the disbursement concerned, and we are seeing a month-on-month increase. That is one part. Second part is that the loan in various forms has been our key product.
Like we mentioned small loan. I mean, loan when I say micro loan, it is around where the sweet spot is INR 8 lakh-INR 10 lakh type of cases. So that is what we have been doing. We have started the gold loans. Besides the loans in form of MSME, HL, retail loan, and even when I talk of BBG, this is also a loan product. So loan is certainly going to be a large product from Utkarsh side going forward also.
And the growth because these products are having a very low base right now, and we expect that these will be growing much, much faster than even the JLG and microbanking type of books, those are with us. So largely loans driven by in various things, as I mentioned, micro loan and other things is what we will be focusing upon. Besides, obviously, we have a belief in microbanking part also, largely starting with JLG and then going to individual lending also.
Okay, so in our housing of INR 965 crore outstanding portfolio, how much is affordable housing, sir?
So it should be the we are present right now more than 80 centers, and the majority of them are covered under tier two, tier three centers. So if what we call affordable housing is up to INR 25 lakhs or INR 30 lakhs of the loan amount, and that should constitute around 30%.
30%. Okay. You didn't answer one question, sir. What is the GNP of our C and CV loans, sir? You mentioned about PCR.
Yeah, as on December, it was 12. I think 12.2% was the gross NPA as on December.
For commercial equipment and commercial vehicle loans?
Putting together. Yeah.
So are we running down that portfolio, sir? Because it has also from compared to FY 2025 and nine-month FY 2026, it's down also by around more than 10%.
Yeah, so what we have done, we are not growing that book right now, and we have done a few changes in the underwriting and process part. And we are seeing that the portfolio that we have created during last maybe for 12-15 months, it is behaving properly. There are old portfolio where we had done a lot of changes. And that's why growth may not be there because whatever are the collections, we are trying to keep with disbursement within that level only. We have done quite a number of including we are doing lower ticket and higher yield secondhand vehicles also in the same segment. We have stopped some of the geographies where we are finding it is the delinquencies are higher. And we are seeing good results for this.
I mean, our expectation is next one quarter or so, we should see the decline of stress level or the NPA level for wheels also. Especially, as I mentioned, whatever new portfolio we have created during last 15-odd months, it is behaving very well. This is the older portfolio in which we have made a lot of changes now. We have created a separate team to take care of that also. In fact, after JLG, I mean, this is one segment where we had little challenges, which we are addressing right now. And we are seeing a good traction for a few months in that also.
This is a completely secure portfolio?
Yeah, against the hypothecation of the vehicle, so asset-backed finance.
Okay, okay. Fine, sir. I'll now have some few questions. I'll take it offline, sir. Thanks so much. All the best, sir.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Shreya Chatterjee from Aequitas Investment Consultancy . Please go ahead.
Thank you, sir, for taking my question. I have two questions. One is regarding your cost-to-income ratio. Where do you see it going forward in FY 2027 and FY 2028? And what will be the share of your JLG versus non-JLG portfolio in FY 2027 and 28?
I'll take this. Yeah, so cost-to-income ratio, you would obviously, since you asked for 27, 28, you certainly understand that the income, the denominator, given the scale is low and the OpEx high. We are looking at a cost-to-income ratio somewhere around 75% kind of, which is 110 today, bringing it down to, say, 57% in FY 2028. So trajectory will come down from 110 to, say, 65, 75 to 57 in FY 2028. We are looking at doing the same at the same cost, higher top line. We are not interested in; we are not going to invest anything in expansion in terms of branches. So it's productivity and at the same cost, higher disbursement and lower cost that will see us the cost-to-income ratio coming down.
No branches would be added. No branches.
Sorry?
Sorry. No branches would be added. It's just the productivity going up of the branches.
Yeah, just to add that, since 2021 after COVID, we had opened quite a number of branches. Currently, we have more than 1,100 branches across the country. 331, we have general banking branches, around 770-plus branches, which are the microbanking branches. So we have enough network of branches in 27 states and UTs. And many of the product line and in fact, we don't intend to go for new product lines also through branches because we have enough number of product lines. So our idea is, and that is what we have been discussing, that we will not add branches right now other than in case we have to split some branches where a large branch of microbanking. Otherwise, we don't intend to open new branches.
Most of the, we'll have a limited number of branches where we are operating for our MSME or HL or for wheels and those businesses. Wherever we have to expand, we'll try to open we add those locations from the existing branches for those businesses also. So that is the idea. We understand that this will be able to get a big cost optimization also because I don't have to open I don't have any additional cost other than the manpower cost for opening new locations for my existing businesses. So that is what we expect. Once my cost of funds comes down next two years' time, also my cost of operations will come down through the strategy. That is what we are working on right now.
What about JLG, yeah?
Yeah, to your second question, JLG, I think should be around 30% of the portfolio as you go along, somewhere around 30% or mid-25% to 30%. Only the JLG portfolio went up.
Got it, sir. And so what about the NEEMs going forward? Since you are increasing the share of retail deposits and CASA deposits, how do you see the NEEM going forward in FI27 and 28?
So 28, we have indicated around 8.5% type of NEEM, as I mentioned, because our cost of fund is expected to go down from here. We have already seen a little reduction. When our fixed deposit also got repriced, this will further go down. So that is one part. As I mentioned, the operational efficiency on multiple counts because we launched our transformation project 2.0 where a lot of things are getting automated, and we'll get benefits of that. Plus, as I mentioned, we are not going to open branches, but do expect that 25%-30% growth in the balance sheet in next two years' time, annual growth in balance sheet.
So without adding much in terms of manpower, in fact, even we had enough manpower for middle and senior management at the bank level. Whatever manpower is required will be at the front line only, first two levels only. So my cost of funds cost of fund will come down, my cost of operations will come down, and overall efficiency will go up. And that will compensate for the differential. So our expectation is in the range of 8.5% or so NIM if you look towards the end of FY 2028.
Got it, sir. Got it, sir. Thank you.
Thank you.
Thank you. Our next question comes from the line of Bhumin from Equirus Securities. Please go ahead.
Yeah. Good evening. So when can we start that gross AUM growing? Can we expect that in quarter four?
Sorry, can you just repeat? We could not hear properly. Can you repeat the question, please?
Yeah. So when can we start seeing the growth in terms of the AUM? Can we expect that in quarter four or quarter one?
No, no. As far as AUM growth is concerned, we'll see from this quarter itself. In fact, in January also, we have seen, I mean, good growth, maybe around close to INR 250-300 crore of AUM growth. I mean, at least on pre-write-off basis, we should see a good growth in the quarter four because now our JLG is also growing. I mean, because the pain is over, JLG is growing, microbanking is overall growing, and other portfolio are also growing. So we should expect a good growth in quarter, I mean, very difficult to define what is a good growth, but we should have a reasonable growth in quarter four. And obviously, quarter one will be much better from that perspective. And this growth is expected in all segments, including the JLG segment, where we are degrowing for many quarters now.
Okay. So are we expecting any loss on PBT basis for quarter four, or it should be in green?
So quarter four, I mean, maybe it is a little too early to talk about the numbers. We do expect that, as I mentioned, the provisions are coming down significantly. The portfolio growth is going to happen. The balance sheet will grow from here, and all the ratios will improve significantly. But what will be the final number in terms of PBT or PAT, I think it's very difficult to tell today.
Okay. I'm just asking if it will be in positive or negative. Can we give color on, sir?
I'm sorry, sir, but it may be difficult today too because we are still in the middle of. I'm just only 1 month is over. I think 2 months are there. And we are seeing that there should be the trajectory should be much, much better from here onward. That is what I can tell today.
Sure. Sure. Thank you.
Yeah.
Thank you. Our next question comes from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Hi, sir. Good evening. Going, sir, firstly, a few questions on the MFI portfolio. This 99.6% collection efficiency, roughly, that you are running at in January, do you expect any disruption to that in February or March? That is one. Along with that, if you can share the microfinance slippages in the quarter and the PCR for the entire MFI book, including JLG and individual.
Okay. As far as, I mean, PCR, I'll ask Sarju and Amitraw. But one thing I'm sure, Ashlesh, now, the way we have seen cycles and we have seen month-on-month because now we not, I mean, this may be monthly against demand, but we are tracking this on a daily basis. Our experience is it should not go below 19.5% from now onwards. That is what we can, I mean, assure all the investors now because we have seen all these things after that.
The geographies where we are present, and we don't see any disruption coming in because of the stability of all the activities. Normally, in quarter four, GFMs are normally better ones. So we don't expect any disruption coming on. So we are hopeful of quite a stable collection efficiencies. Also, we have a decent attrition under control and the manpower there. So we are hopeful of continuing with the same numbers in that sense. And the PCR coverage is close to on the JLG book is close to 68.3% . He asked including MBBL. So the entire MB book, as on 25 December, PCR stood at 69%.
Yes. Understood, sir. And along with that, if we can also share microfinance slippages. While you do that, let me ask one more. On the MFI book, the disbursements in the JLG book were still weak in this quarter. Do you expect that also to pick up? And secondly, the MBBL portfolio is seeing good disbursements. Do these MFIN guardrails apply to that business as well?
Yeah. Okay. So your first question, no, MBBL sorry, JLG portfolio will also start seeing a positive turn, and that has started happening in this quarter. So we will see a book growth over there because that's what we are looking at, number one. So MBBL is a slightly different product where the guidelines are different. And it's an individual credit assessed program. So it is not a program which is governed through that MFI guidelines, but more of a credit and business model, which is that's how we assess the customer on a FOIR-based thing. So it doesn't come under that part of the business.
And just to add, in MBBL, the credit underwriting is separate from the business and the sourcing team. So it is led by a national credit head and the full-fledged zonal, regional area manager. Credit manager structure is there. For each and every case, the credit guy goes and conducts the personal discussion and assessment of income and expenses. And then he does the entire underwriting and the eligibility part also. So it's very separate from the business.
Got it, sir. So in this staff cost, which has been quite high, now that your ex-bucket collections and SME book in microfinance have declined quite materially, do you expect the staff cost to also decline meaningfully in the next quarter?
So Ashlesh, I want to break it into two parts. One part is when I'm talking about my overall cost, this cost has gone up in recent past because one, there are some additional costs involved. There are some incentive costs involved. There is a collection cost involved also. And our sense is that the cost for JLG will not go down. I'm talking employee cost for a simple reason because now we have a collections team. In fact, our expectation is that I should be able to it will stabilize here only, but I should be able to get a much better collection because now one portion is taken care. I mean, my normal collection has got stabilized. So we are focusing through a big way in the write-off and NPA collections.
So our idea is I'll not try to control cost on the employee for JLG or for MB. Rather, I'll try to get revenue of these people, which is expected to be much, much better in terms of P&L and in terms of overall trajectory. It should play much better for us. And I mean, it's difficult to talk of numbers only, but my sense is on each month basis, my collection from NPA and write-off will go up significantly from here. So my cost of employee may not go down because of that reason. And one more thing, what will also happen, Ashlesh, our portfolio number will grow as we have just mentioned. We have seen in the month of January that portfolio has first time actually grown after almost my sense is almost 12, 13 months gap. So we have started growing that portfolio also.
Understood, sir. Last question from my side on the liability side, the cost of term deposits, which you report for nine months, FY 2024, that is higher than the 1H number. What is the reason for that one? Along with that, if you can just give the MFI slippages number, please.
So one of the reasons, if you know, that we are reducing the institutional side of the borrowing, they generally are short-term at lower fund. Once you reduce that, your coverage of TD becomes retail, which comes at a bit higher rate. So that's a.
Long-term.
Long-term. That's necessary because even we are moving from unsecured to secured. From ALM point of view, also, we need to do more retail and keep that stable. But the impact largely comes because you have drastically or, as you know, the decline in the institution is significant. Calibrated thought process because obviously, as disbursement pickup, we'll go back to that bucket of borrowing. But at the moment, that's the reason for the cost being a bit elevated given that the short-term fund that we have taken also, that we have at the moment stopped taking. You wanted also you wanted this slippages in?
In microfinance. Combined JLG plus individual is also okay if you can share.
This you need for quarter three?
Yes, sir.
Yeah. So it was close to INR 266 crore. No, JLG was INR 272 crore out of INR 426 crore.
That includes individual also?
MBBL milake hai, aur uske alawa hai kuch nahi?
MBBL
MBBL quarter three, right? Ashlesh, will confirm you. I'm just not able to figure out MBBL separately. Yes.
Yeah, and connect with you separately, sir. Thank you very much.
Yeah. Sure. We'll do that.
Yeah. Thanks, Ashlesh. Thank you.
Thank you. Our next question comes from the line of Avnish Tiwari from Vaikariya Change LLP. Please go ahead.
Hi. In your microfinance NPH, how much of the covered by CGFMU scheme? And for that, do you intend to make some provision or keep it as it is because it's covered under guarantees?
So close to 50% of our portfolio is covered under that right now because we started around a year back. Within one year, my current portfolio and it is for both for JLG as well as for business I mean, individual business loans, around 50% of portfolio is covered. Currently, we don't take any benefit of in terms of from the provisioning angle. We make provisioning as no provision. There is no coverage at all. We are not taking any benefit of that. That we continue to that is our you can see use as our policy. We'll not take advantage of that. Whenever something happens, we'll have to look at that part. But currently, we are not taking any benefit of that.
50% of your book is covered. What about the INR 751 crore net NPA? How much of those are covered by CGFMU?
There may not be any significant number. I don't have the exact number right now, but I can share separately also. You can message us. We'll separately share because most of our NPAs are from the legacy book. So in our new book, anyway, NPA levels are very, very low. And we are seeing those if you look at MOB 8, 9, 10, 11, obviously, there will be some NPA, but the NPA numbers are very low. These are most of our NPAs are from the legacy book. But I don't have the exact breakup right now in front of me.
Okay. And this micro.
Sorry to interrupt you, sir, but if you have a follow-up question, please rejoin the.
Sure.
Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.
Okay. Thanks, Shikha , and thanks everyone for joining this call. As I mentioned, we are in the right trajectory right now. We have seen good traction, good growth in all aspects, in all parameters. And that is what is expected to continue from here in terms of disbursement, in terms of bringing cost of fund down, bringing cost of operations down, and growing our conventional joint JLG book as well as the new book that we have started. So that is what we're expecting, and that is how we have seen January month also. So this trajectory will continue. And thanks very much for your this patience listening, this interaction, as well as for your support. So look forward. Yeah. Thank you very much.
Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.