SBFC Finance (NSE:SBFC) Q2 2027 Earnings Call

0:01 Ladies and gentlemen, good day, and welcome to the SBFC Finance Limited Q2 FY 'twenty seven Earnings Conference Call. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to mister Gaurav Toshniwal from ICIC Securities. Thank you, and over to you, sir. Yes. Thank you, Steve. Hi. Good morning, everyone, and welcome to SBFC Finance q two FY twenty seven earnings call. On behalf of ICICI Securities, I would like to thank SBFC management team for giving us the opportunity to host this call. Today, we have with us the entire top management team of SBFC, represented by Mr. Rasim Dhru, Executive Vice Chairman Mr. Mayesh Dayani, MD and CEO Mr. Sanket Agarwal, Chief Financial Officer and Mr. Rajiv Takkar, Chief Risk Officer.

1:06 I will now hand over the call to Assim for his opening remarks, and then we'll open the floor for Q and A. Over to you, sir. Thank you, Gaurav. Good morning, everyone. The world has been always knew it is in a kind of a reset. Geopolitics, geoeconomics, deglobalization, anti immigration and breakdown of a rules based order that we have been used to. In addition, it is readjusting to the changes AI is bringing into everything, every domain of life. Volatility and disruption are the new normals. In India, the impact of the three Fs, fuel, fertilizer and foreign exchange on top of a super El Nino is just opposed to be the resilient domestic demand. There are 10 major schools of economic thought in the world, classical, neoclassical, Keynesian, Austrian, Marxism, etcetera. But what we are seeing defies all things we have been taught.

1:58 The Fed trying to force the ten year down when it succeeds even temporarily, even gold and bitcoin both go down, which could basically mean it's a risk off. The U. S. Ten year crossing 5%, any economic theory would tell you would lead to a stock market crash, but that's not what we are seeing. Honestly, it's getting increasingly difficult to make sense of the macroeconomic reality of the world we live in. As we speak, economic cycles, political cycles, commodity cycles, currency, interest rate cycles, liquidity cycles are in motion. And these usually lead to an eventual credit cycle. However, the causal relationships we have been taught in economic textbooks no longer work in a world where deficits and currency printing has gone out of control. Frankly and thankfully, for a company as small as SBFC, these questions are above our pay grade.

2:46 We have to manage to keep our little board safe in this tempestuous ocean. If you listen to the last three years of quarterly calls, we have always been cautious and continue to remain so. Take for example, rates, ten year Indian GSEc at 7.47 is up almost 65 basis points in the cycle and more so surely more rate hikes are coming. These aren't controllable for us. What how we manage our borrowing cost and reprice our variable rate portfolio of loans is in our hands, and we will focus on the controllable. We don't have to worry so much about the health of the economy at our size. We just need to worry about choosing our customers better, using technology better, becoming more efficient producers, enabling us to deliver the ROAs, squeezing the OpEx and credit costs.

3:33 In a world of constant flux and chaos, we are trying our best to continue to deliver boring results. With this, I hand over the call to Mahesh. Thanks, Yasi. Good morning to all. There's never a dull moment in Financial Services. We began the year with a war that fueled inflation and we ended up with a 25 basis rate increase. We are now debating the possibility of further rate increases, dealing with a deficient rainfall, watching cross leverage buildup in gold loans and assessing a draft regulatory circular that may impact profitability. The last couple of years have felt like a Bollywood thriller. There are moments when your heart is in your mouth, the background music gets louder and you wonder what the next twist will be. But once the dust settles, you find yourself relishing the drama.

4:23 We are building SBFC to deliver consistent quarterly performance despite the noise. This is our thirty sixth consecutive quarter of execution since listing, and we have delivered sequential AUM and profit growth within our guided range of 5% to 7% per quarter. It may not make for an exciting headline, but in lending, consistency is a competitive advantage. What made this quarter special was the 15% ROE on a low leverage of 2.3%, while recognizing cost upfront and not front loading income. For years, this number sat in a cell in our excel model. It is satisfying to see an aspiration translate into a reported performance. Let me now return to the three priorities we outlined last quarter, growth, margins, efficiency and asset quality.

5:16 On growth, we are witnessing an interesting shift in the lending landscape. With a more cautious approach to risk, private and public sector banks are increasingly moving towards higher ticket prime borrowers, where the credit profile is significantly stronger and pricing in single digits. Needless to add, there's very little blood on the report card. The micro MSMEs category, which is a sub seven lakh category, has seen some stains on the progress report with delinquencies touching more than 4% for the industry. This creates a meaningful headroom in the INR 10 lakh to 25 lakh and a 25 lakh plus lakh segment, which is where we have repositioned our business through our own book and co lending. Our direct co origination model is like a large ship.

6:02 It does not turn overnight. But once it changes direction, the momentum can be substantial. The change is to make the turn early enough and stay the course long enough to see the benefits. MSME grew MSME disburses grew 6% in the quarter to INR $8.55 crores. This is the third straight quarter of growth since we repositioned our lending mix in quarter two last year. You cannot reliably predict every turn in the cycle, but you can prepare your business to respond to it. This is precisely what we have tried to do. MSME stood at INR 9,669 crores, growing at 18%, of which the on book grew at 20% and the core origination at 10%. We have repositioned our lending mix, strengthened our focus on secured MSME customers and are now seeing the early benefits of that transition.

6:55 Co origination has returned to INR112 crores from INR78 crores last quarter. This supports our growth ambition even as the sub INR7 lakh segment continues to run down. Gold loans have held up well. Each branch is adding approximately INR 40 lakhs a month in net growth. That's roughly INR 1.2 crores per branch per quarter. We added overall INR $2.75 crores in quarter two. Gold has survived wars, inflation, currency, crisis and several financial cycles. Its resilience is one reason it remains an important asset class, but resilience should not be mistaken for immunity. We respect the product, understand its risks and have no intention of overleveraging it.

7:41 Overall, our AUM stood at INR 12,592 crores, up 6% quarter on quarter and 27% year on year. We continue to guide for a 5% to 7% growth on a quarterly basis from year on. Our approach to growth is straightforward. We want to grow where we have an edge in segments where the risk adjusted returns make sense and at a pace our balance sheet can comfortably support. Margins and efficiency. Yields held up at 18%, up 10 basis points, while our cost of funds stood at 8.41%. We maintained surplus liquidity of more than INR 1,000 crores through the quarter, thanks in part to the work of our CFO, Sankit. I would encourage you to question him hard on the details.

8:28 Spreads came in at 9.6%, up from 9.4% last quarter and above our guided range of 9%. While this is a welcome outcome, please do not pencil in 9.6% in your models as the new norm since competitive intensity in gold is rising and some pricing rationalization is likely. There is useful distinction between a number that looks good today and an economic model that continues to work tomorrow, we would rather preserve the latter. On operating efficiency, before we get into numbers, let me spend a minute on how SBFC runs today because it is the foundation under everything else you will hear this morning. Our customer journey is digital by default and compliant by construction.

9:17 In September, 100% of our customer KYC were completed digitally. Aadhaar OTP or face authentication and 87% of our disbursals were resigned. Account aggregator was at 54%, all built into Sahayak, our in house origination platform. I want you to register what that means. Governance, compliance and efficiency are no longer three functions we run-in parallel. They are one outcome on the same platform. In September, seventy three percent of our disposals used AI assisted personal discussions, 4,000 AI personal discussions in eight language. So a credit officer, whether he's in Hapur or one in Yalanka, are working from the same quality of conversation.

10:04 In October, our first full pre due collection cycle was run entirely by AI Voice. More than four lakh calls made to 35,000 accounts, 84% reached, 53% paid with no human caller absorbing the workload of roughly 60% team. So when you look at the numbers that follow, I would ask you to see them for what they are, not growth that technology made possible, but growth that technology made safe. OpEx declined to 4.07%, down 22 bps quarter on quarter. On a half year basis, it was 30 basis points lower year on year. We continue to guide for a 25 basis reduction in OpEx for FY 'twenty seven.

10:50 The objective is not to become the cheapest operator in the market, it is to become a more efficient operator without compromising the quality of our franchise. Last quarter, I described the increase in zero plus delinquencies as a homework. This quarter, the position has stabilized and credit cost declined to 1.37% from 1.44%. We have also been deliberate in provisioning through the transition away from the micro and SME lending, building a provision of 2%, which is the highest in secured lending. Our preference is to make sure that we are properly equipped before the tide turns. We bought the umbrella while the sun was shining, so that if a difficult winter arrives, we are prepared. Coming to what really matters, PAT.

11:37 We ended PAT at INR139 crores for the quarter, up 7% quarter on quarter and 27% year on year. ROA stood at 4.6% and ROE at 15.04%. After all the headwinds, regulation and badminton berth, the bottom line did what it always does, it turned up on time. The first rule of compounding is to never interrupt it unnecessarily. We have now delivered thirty six consecutive quarters of growth, and we intend to protect the streak with the same discipline that built it. We will not chase excitement, we will deliver consistent, predictable and deliberately boring outcomes. As Charlie Munger observed, the big money is not in the buying and selling, but in the waiting. With that, I will hand over to Sanket to take you through the detailed financials.

12:27 Thank you, Mahesh. Good morning, everyone. I'll cover borrowings in detail combining it with margins before we move to other numbers. Given the macro environment post The Middle East was started in Q4 FY twenty twenty six, we expected tightening of liquidity and also finished the reversal of interest rate environment. To this effect, we decided to keep more liquidity in our books, one, to ensure that no external stock derails our growth plan and two, it gives a good cushion to negotiate with the lenders. Towards the end of Q1, as the market opened up from the bar, we borrowed more than INR 2,000 crores and strengthened our borrowings with closing liquidity of INR $18.64 crore. This quarter, we continue to carry the excess liquidity with closing number of INR $17.82 crore. The average daily borrowings were close to INR600 crore in Q1 and more towards INR2000 crore in Q2.

13:15 Our LCR is at 194%. So that's on the liquidity part. In terms of cost of funds, our borrowing cost is 8.41% for the quarter, which is 55 bps down year on year and one bps down quarter on quarter. Now as we stand with repo increase of 25 bps, we will see some repricing of our book, which has a mix of benchmark it is linked to. We have half of our book linked to MCLR close to 20% linked to repo rate with other portion being P bill and other external benchmarks with a small portion of fixed rate loan as well. On the asset side, we have largely a variable book on MSME loans and therefore we will be able to protect the P and L from the repricing of borrowing book. We therefore do not see a material compression of spreads for the reason of rate increase in the environment currently.

14:01 Our yields are at 18%, which is currently above our guided range of 17.5%. Our spreads are at 9.63%, again currently above our guided range of around 9% to 9.25%. Moving on to the business, our AUM for September is at INR12592 crores with a growth of 27% year on year and 6% on quarter on quarter basis with 100% of our book being secured. Our MSME AUM is at INR9669 crores which is 77% of our AUM with a growth of 18% on year on year basis and 4.3% on quarter on quarter basis. Our MSME disbursement for the quarter stands at INR855 crores with a growth of 6% on quarter on quarter basis. We've seen good momentum since December 2025 wherein we did INR699 crores then moved to INR785 crores which further increased to INR809 crores in Q1 and INR85 crores now. We may see some increase in ticket size considering you've not been doing the below seven lakh ticket segment.

15:02 The loan against gold AUM is at INR296 crores. We have funded the branch expansion in H2 of FY twenty twenty six and therefore we only added one branch during the quarter and six branches in the half year, bringing the total branch count to two fifty seven as on September 2026. In terms of our cost, the OpEx was slightly elevated in Q1 due to the branches opened in Q4 twenty twenty six and the increments that were rolled out. As operating leverage fixed in, we are now 22 bps lower quarter on quarter at 4.07% and we'll continue to see this reduction over the next two quarters. Our G and P is at 2.64%, which has reduced by 13 basis points year on year and two basis points quarter on quarter. We have a PCR of 42.24% consistently above 40 over the last two to three years.

15:53 Our credit cost for the quarter is 1.37%, which is eight bps lower than the last quarter. It seems that the last quarter was the peak of credit cost unless we see a significant impact of El Nino impacting in the immediate future. We do not currently see signs of it affecting the portfolio, but we continue to remain watchful even at a region level. It is worth noting that now our balance sheet provisioning is 2% of our loan assets. In terms of return ratios, our return on average AUM is 4.58% with ROEs at 15.04% for the quarter. We have been conservative all through our journey when it comes to P and L. We never up fronted income from core generation or similar transactions. We have kept PCR double of what the segment requires. We provide 2.3x of what the regulatory IRAC norms require. We now also carry excess liquidity in balance sheet, which has its own cost of carry. And despite all this, we reached ROE of more than 15% with debt equity only at 2.31x.

16:48 The idea has always been that can we upfront the mitigation of all the risks we can see, project it, provide for it and yet make the returns. From here on, we can see expansion in our return matrices considering a long runway of growth before we need to raise further capital. Our track for the quarter is INR139 crore growing 27% on year on year basis and 7% on quarter on quarter basis. In terms of our capital position, our capital adequacy ratio is sufficient at 31% with tangible net worth of crore as of September 2026. We should be good till at least an AUM of INR20000 crore before we need to raise further capital. So summarizing the P and L for the quarter, yields are up, cost of fund is slightly down, OpEx have reduced, credit costs have reduced and ROEs have improved.

17:34 Despite the tough environment, we have revision in outlook of our ratings by Care and India ratings from stable to positive. With scale in our tight, robust unit economics model, conservative provisioning policy and a well diversified liability franchise, we continue to move forward in our journey of predictable compounding. With this, we open the floor for questions and answers. Thank you, sir. We will now begin the question and answer session. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

18:35 The first question comes from the line of Ankit Kanodia with Zenivisch Advisors. Congratulations on such a good number at this kind of macro environment. So I just have one question related to the gold loan, which we are having and which we are growing at a very good pace. It has now reached 23% of our AUM. So I have a two part one question. One is, we our presentation is so good in terms of when it comes to details of our MSME loans. If you can provide more granular details about our gold loan AUM in terms of stress, if we are seeing anything in any more detail, that would be very good. And my second question, second part of the first same question related to Golden.

19:28 We are hearing from other larger players who have recently entered in the gold, and they have given a very cautious stance. If you can give more color as to how we see the industry moving and how are we calibrated, I think that would be very helpful. And thank you so much. That was my only question. Yes. So I think clearly, you hear grandiose plans on the gold. And obviously, we are conscious of that, and that's something that I had carried out in our commentary. So if you would probably look through our entire journey and why gold moved from almost probably 100,000 to 140,000, we were conscious that we are not going to play this high volume, high value ride.

20:18 So you would see that probably compared to most of the peers in some way or the other, our growth, although higher, is relatively probably lower than some of the players who've given their results. That's largely on account of two, three factors. When you're chasing larger volume, there is some compromise on the price that one has to do. So that's something that we are a little conscious of. Ultimately, your pricing is linked towards your ticket sizes. We are very clear that this is the growth that is required at a branch. And in a rising gold scenario, in a rising LTV, which is now permitted by the regulator from April 1. If you ask me, we are a little guarded and we probably not don't share the same enthusiasm probably what you highlighted.

21:09 But we would continue to remain guarded. It's a great product for us. We will continue to drive it, but we would like to drive it a lot more sensibly. Sir, my other part of the question was, if we can share more details on our presentation about the gold loan in terms of branch level details and in terms of how are we seeing in terms of the asset quality and all. So the presentation covers the growth of the business. The presentation... So largely, we are in two fifty seven branches of which two thirty six branches we do gold loans. So that covers the branch branches, how much do we do. And like Mahesh said that we are not in a hurry to grow gold a lot in terms of matrices if you see how much business do we do. We do 80 crore a month of business from these two forty branches, which is is roughly 40 lakh rupees per branch is what the net dispersal that you do. So that's on the growth matrices. In terms of yields, are generally in the range of 18 to 21%.

22:19 It is a product that has variability in terms of yield. Largely in the last one, one point five months what we've seen is there's a lot of competition that have come in. A lot of large players have promised and in fact opened branches some 500, some 1,000. So there's a lot of competitive intensity that have come in the product. Once that happens, we've seen that three years back as well that sometimes the yield gets destroyed, sometimes a lot of people get taken over and those impact your AUM growth. So overall for us in our scheme of things it continues to be in the range of 20%, 25% given the price rise that happened in the last two years, it has reached 23%, possibly it can go up to say 25, but our MSME continues to be the flagship product.

23:10 So from a detailing perspective, the branches, the growth etcetera being given, yields continues to be in that range, sometimes at 18, sometimes at 20. So that's the detailing on the whole. I think what he meant is that can you include it as part of the presentation. So we'll have a look at it and see how best we can accommodate that from the next time. Thank you so much and all the best. Thank you. The next question comes from the line of Prithviraj Patel with Investec. Please go ahead. Yeah. Hi. So I had just had a couple of questions. So first was on the asset quality. So I see that the next slippage number that we calculated, which is GS two plus three slippages, it's been elevated over the past several quarters.

23:59 So this particular call... Quarter... Also quarter on quarter, it looks elevated. So I just wanted to know what's the reasoning for this slippages number elevated. And also, the ERC sale that we've done, is that a gold loan portfolio that we've done, or is that a MSME portfolio? And also from a GS to GS three number, which is an uptick, that is because of gold loans or because of MSME is what I wanted on the asset quality side. Sir, as you would have heard from a sort of golden players, what has happened post the obvious circular is there is a reset in the way that schemes are designed. Post that, if you look at, in fact, all the gold lenders, stage one and in fact sorry, one to 30 bucket or stage two and thereby some bit of it on stage three has increased. Now the customer is the customer behavior will over a period take some time to change to come to the monthly repayment and the delta between stage two of last quarter and this quarter. It's entirely driven from the gold loans. Over a period, we think that will stabilize as the customer's behavior stabilizes because six months back the customer was used to paying a bullet payments. Now he has to pay the monthly interest payments.

25:15 So that's the shift of stage two. In terms of ARCs, it's a lab portfolio, largely lower ticket portfolio, vintage portfolio that's been sold. Gold loans have not been sold. Okay. So just a clarification, we are seeing improvement trends in the the secured MSME business, right, going forward for h two? Because, like you mentioned, the majority of slippages is because of gold. So I wouldn't say a gross improvement. I would say stabilization. Like, Mahesh mentioned last quarter that we had a homework on zero plus and the delinquency. This quarter if you look at it has stabilized. It takes some time to roll back. We are in process of the work around it, but I wouldn't say a gross improvement, but it has stabilized and we look to be now comfortable.

26:11 Thank you. So just one last question, because of El Nino or because of any other macro issue, are we seeing any stress in any particular geography as such? So, because of the El Nino impact, we did a study of all our branches wherein the rainfall deficit is there, PIN code wells and most of the yellow and red branches, wherein there is a deficiency, we have reviewed it. And major impact overall also when we see is in the state of Maharashtra and Karnataka. Now Maharashtra, for the portfolio, is also significant and the impact is not there. On Karnataka side, since after the Indian Gardens, wherein the delinquencies were moving up for us, we tightened a lot of filters on the underwriting side.

26:59 We had also converted some of the branches as collection branches. So there's a lot of tightening which we already have done, which is helping us. And in fact, now the state of Canada is stabilizing. It is showing better outcomes going forward. So as on today, there's no impact per se, which we are seeing. Our overall bond trends are also on a quarter on quarter basis across this showing improvement. So currently, of course, we are not seeing any negative signs. However, we are keeping a close eye on it because how does it impact going forward also is something which there is a constant watch on this aspect. But to answer your question, currently nothing which we are seeing on the risk side.

27:50 If I can ask one last question on the growth front. Yes. So... Yeah. So I just wanted to know, like, our MSME growth has been slightly muted over this FY, and we saw some issues in h two as well last year. So I just wanted to know, is is is h one the inflection here from where we see this the disbursements pick up and sort of branch productivity pick up for our MSME portfolio? Or do we see that happening in F 'twenty eight as such? So what I mentioned in the opening remark was that when you are moving out or probably you're on a rundown for a sub INR 7 lakh or INR 8 lakh category, which was contributing almost probably INR 50 crores in your growth momentum, and you are now repositioning to slightly larger ticket and there's a transition of employees if you are on a direct model basis, it would take you probably a couple of quarters to stabilize and reposition. So if you look at the last three quarters, we've been running down the sub-seven lakh category and some of the geographies we were a bit cautious.

29:02 And that's the reason the momentum, as Rajiv mentioned, in Karnataka and some of the states we had paused. But now the momentum is back, the repositioning is done, the restocking in most of the locations is done. So that's the reason we had said that we continue to guide for incremental growth both in AUM and disposals from here. Got it, sir. Thank you. Thank you. Thank you. Our next question comes from the line of Mayank Mistry with Antichock Broking. Please go ahead.

29:57 Hi, sir. Thanks for the opportunity. Sir, just one question on... In terms of gold loans. Like, we are doing around 67% of our LTV right now, right, in... On the gold loan side. So just trying to figure out the sensitivity of gross, you know, gold price. Let's say, you'll see in the last six months, the gold prices have corrected around 17, 18%. And right now, your LTV also looks right around seven... Nearly... Nearby 70%. Now at around what level of correction should result in maybe some negative... I mean, there is a possibility that the gold price may correct further. Right? So if you if you have done any... I don't I just want to know about that.

30:48 See, if you see gold prices were at peak in on January 29. So and then of course, it moved up sorry, moved down. But in the last quarter, per se, gold prices are more or less stable. And of course, October, we have seen some drop. Now our LTV, if you see even in the year prior, because everything these things take time to stabilize, because if you see a year prior, I'm talking about June 25 and prior, the LTVs were in the range of 60s. Now last quarter, were at a LTV of 70% and now it has come down to 67%. We also have done a sensitivity analysis on our gold portfolio.

31:37 And if you ask me the risk, which is like out of money is not so significant for us. But of course, this is something which we keep our track on regularly because if the gold price is correct, but if it corrects sharply in one go, then of course, we would not have time to auction. Otherwise, we are we follow a regular auction process so that it helps us to cover our risk. Just to... So the auction happens after... Yeah. Just to probably add to Rajiv's point, I think what we follow is a no tolerance level with respect to the way the LTVs are monitored and the MTMs breach are recalled.

32:22 So once it goes beyond eighty five and ninety, there is a process in which the borrowers are counseled to repay. And if the repayment doesn't happen on time, then the auction is triggered. We are not in a business where we can predict where the gold prices would move tomorrow or in the week thereafter. There is a window that is available for you to auction it within seven days to thirty days depending upon the communication to the customer being delivered. But I guess that's the time which is good enough. And if you look at the entire history, you wouldn't see the gold price oscillate at 20% between a seven day window or a fortnight window. So you have sufficient margin available in terms of time to recover your cost and more in case there are fluctuations in gold price.

33:16 So the risk if we don't auction at a regular intervals, I think then the risk we carry in our books. But we have kept a policy of auctioning the gold once what Mahesh told the cutoffs hit and that's why we are protected from that front at least. So the auction policy is actually ninety days after your NPA, right? No. So the way it works yes, so the way it works is that you will have to be ready with the auction process and you can't really wait for the LTVs to hit 95% and the goal to drop because you'll have to give a minimum time to the customer and that's the regulatory ask that you have to comply with. So you have to be auction ready. The decision to auction it when it turns 90, I mean, that is the time that or the margin of time that you need to have with you, but you will have to be auction ready.

34:13 Okay. So there is no hard and fast rule that after ninety days you will auction it. If the LTV reaches around 90, 92%, you will start the auction process. No. No. Right. So the so the auction happens... So he has to ensure that his LTVs are there within those particular norms. You have a right to recall if he doesn't pay up because if the account is out of order. But typically, what we have seen is that the customers, the way they behave is that the customer, the moment it reaches $19.95 and the gold price isn't dropping, they would come in and regularize the account. So in more cases, what we've seen is that we end up auctioning only those gold borrowers, where they've crossed 90 plus or they've turned delinquent.

35:02 Got it. Okay. And sir, what would be your churning rate in the gold loans? I mean, at what rate does your book rate refresh every quarter around 30%? I'm not clear on the question. Only only roll on them spacing. Churn meaning? What does churn mean? I mean, the average duration of the borrowers is close to close to six months. So that's the average duration. So the maturity, how much of the loan whole loans get matured every quarter? So basically, 69% of portfolio is between six to twelve months of tenure and balance is less than six months. And so you...

35:49 That's fair. Yeah. Okay. Okay. Okay. Fine. Thank you, sir. Thank you. And all the best for the coming quarters. Thank you. Thank you. The next question comes from the line of Nishin Chawathi with Kotak AMC. Please go ahead. Hi. This is Nishanth from Kotak Institution Equities. Thanks for taking my question. This is actually on disbursements. When do you see the disbursements on the MSME book starting to pick up or actually taking place? Yes. So Nishant, I think what we'd called out early in the call was that we will see what we've done is close to probably 5% to 6%. And that's what we've been guiding that probably on a quarter on quarter basis is what we see moving without changing any of the guidance on the AUM growth. So that remains the way it is. But very specific, I think what was required to be done on the MSME has been done and the growth from year on should stabilize and move.

36:55 So Nishant, one data point which I just wanted to highlight to you on the MSME side, if you compare our last fourteen odd quarters post listing, the last quarter ended on September, we are on the highest disbursement on the MSME side. Yes. But I think what Nishanth is saying that there's been ups and downs and probably it will you see a consistent move up from here? To question, the answer is yes. So probably we can expect a double digit disbursement work maybe in the second half of the year, that's a fair expectation. In a quarter, are you saying? Or for the second half? No. I'm saying second half to second half. I mean, first quarter second quarter was, I think, 5% YY disbursement growth. Yes, yes, yes. I'm saying that second half to second half should ideally be like at least in double digit. Yes, yes, yes, yes. Correct.

37:47 And if I can ask what proportion of loans were below that $7.08 lakhs which we are running down or which you are sort of not doing? We are not originating below 7 lakhs. So I think Yeah, yeah, what proportion of those loans would be? That should be lower than I think around 6% of the overall book. Okay. And just one final one on the margins front, have you started to raise lending rates for your customers? Yes. So we did a PLR increase of 25 basis points this month. Post the repo increase, we reassessed the cost of borrowing that can move up. What we observed at the last three years back is that close close to to 70% to 80% of the repricing happens on the MCLR side over a period of time. So 2.5% of repo actually converted to 1.8%, 1.9% into the cost of funds.

38:46 This time around, if you look at the trajectory of T bills and other variables, you look at close to 60 basis point is the movement in the last fifty days. So we expect that cost of fund to go up and therefore that pricing has been variable to the variable customer has been passed on in the month of October. Got it. So that kind of gives you comfort that your margin should broadly be stable while the borrowing costs are going up? Yes. So we'll continue to hold on to the spreads. Got it. Thank you very much. Thank you. The next question comes from the line of Mitesh Cheyenne with Investec.

39:34 Please go ahead. Thanks for the opportunity, sir. On loan loans, in case gold price remains stable for the next twelve months or may marginally dip, do you see any spillover effects on MSME business or any other segment? Because one of the worry that the market has that the segment has expanded very fast over the last couple of years, And these customers have probably been using gold loans for liquidity. And if in case incremental liquidity from gold loan stops, it can create spillover effects for other segments. So probably, I'll just give you some industry data. So MSME customers, and this is largely for sub-thirty lakh borrowers, I mean, the total exposure that they have to gold loan is in single digits, probably 7% or 8% of them have a gold loan.

40:28 And the number is not very different for us. It's probably marginally lower. So the impact, I don't think it's going to be a significant impact in case that liquidity dries up. So it's not that there is a significant overlap on both, whether liquidity fits shut for the liquidity tab that starts to come and impact the segment. I think what we have called out for is that there's a clear distinction in how the sub INR 10 lakh or how the sub INR 7 lakh borrowers independent of the overlap with gold are performing, how that segment is performing. And that's something that we've complete that we've marginally that we've reasonably run down with. So I don't think the linkage on the slightly higher ticket segment with gold loans is significantly large for us to worry about.

41:22 Sure, sir. That's it for my side. Thank you. Our next question comes from the line of Pawan Kumar with Edelweiss Public Alternate. Please go ahead. Sir, thank you for the opportunity. Can you hear me? Yes, yes. Yes. Can you please give the thirty day DPD number just for MSME, how it has been moving over the last three, four quarters directionally? And where do you see it? Like just to get a sense on the credit quality comfort.

42:14 That's it from my end. So that's more reflective from the zero plus number. So if you look at the last three or four quarters, we obviously saw some bit of rise in zero plus especially in the June quarter where we where the zero plus reached at its peak for us. This quarter it has stabilized. So from a DPD perspective, zero plus is an indication of where the portfolio is. We've seen a lot of knock in the last 1.5 coming largely from Karnataka portfolio, coming largely from the maturity of the portfolio, also coming from some regulatory interventions on the unsecured side or on the microfinance side. So all those put together have given some strain in the last two years where zero plus which used to be in the range of 7% have moved beyond 9%.

43:06 So those are the numbers that reflect the DPD, but over a period of last three to four months, we've realized and we've seen even in October that the numbers are stabilizing. To this effort, we've also hired a lot of people in collections. We're close to now eight fifty to 900 people in collections across geographies to ensure that every borrower is reached be irrespective of its ticket size, irrespective of the EMI size, etcetera. So the color of the portfolio now started to stabilize as you look at the overall outcome in the credit cost. You see there is a dip and we see some bit of stabilization, possibly some more reduction if the collection continues to be better.

43:52 In fact quarter on quarter credit price would be similar marginally different. Got it. Sir, just a follow-up on this. In terms of the steady state, like once the rain impact stabilizes or the oil impact stabilizes, where do you see this number coming back to? Like is it possible to go back to 7% that we have seen in like FY 'twenty six early or late FY '25? Or would we be running more at, like, eight, 9% level? Okay. It's a segment of a higher yield. Now you... When you compromise... When you when you get those returns of 17% yield, that product will have its own risk. So what you have to do is you price it smartly and ensure that you recover it to the best possible outcomes. Now if you go to a 13% yield segment, you will get a zero plus in the range of 4% to 6%. But the moment you move beyond 15%, you will get this range of 8% to nine percent zero plus. Even the industry data of 4.5 lakh crores shows that the zero plus at the industry level for this particular ticket size is 11.5%.

45:02 So to say that will it go below 7% will be a tall loss. We don't think it will reach there, but what it should happen and from our own efficiency perspective, should remain in the range of between 8% to where it is 9.2%. It shouldn't actually go to double digits, which is where you will start seeing strain in the portfolio. So it may not go back to 7% given the segment of the customer, but it should be in this range where it is. Got it. So just sorry, please go ahead. You were saying something. The impact of rising interest rate crude is still not causing the consumer per se. So with all you know, looming around, so I think those impact is yet to come.

45:52 So, like combining all this, like keeping this one plus the period like 8%, 9%, so the credit cost number would probably be stabilizing around this number only, right, for significant time, like the 1.4, 1.5% kind of a number. Because, as you said... Yeah. So this... What happened in the last one and a half years is that increase in zero plus actually got converted to the increase increase in credit cost. So we were in the range of around 1%. We are now in the range of 1.4%, 1.5%. But what we what I mentioned in the opening remarks is that 1.45 which we published last quarter possibly will be the peak on the current portfolio performance month on month what we're observing. We are at 1.37 now. We should stabilize there or possibly reduce unless something drastically change in the environment. Now a lot of waivers that we are hearing has been announced at a state level due to the drought, etcetera. So something materially changes, the guidance materially changes, but otherwise we are stable. We are stable at one plus, we are stable at credit cost, may marginally be lower in fact.

47:01 Got it. So like 4.5% would... I know ROA number, that would be kind of like a guidance number that we can work with? Yeah. So if look at last one point five years, our debt equity have moved up, which is the leverage. Now when that happens, your absolute finance cost goes up and therefore your ROA generally compresses and ROEs move up. In our case, we've been able to hold on to more than 4.5% ROA for now more than seven, eight quarters despite increase in leverage. So to say that we'll continue to hold on to 4.6% or 4.55% over the long period will be difficult obviously because the leverage goes up, but over a short period, we think we should be able to hold on to this. As the leverage goes up, you'll continue to see those benefits in the ROEs.

47:55 Got it. Thank you so much for answering all my questions. Nothing else from me. Thank you. Thank you. The next question comes from the line of Raghur Gharq with Ambit Capital. Please go ahead. Hi. Good morning. Am I audible? Yes, sir. You're audible. Okay. I just wanted to I just have one question. What is the number of collection officers for this quarter? I guess it was about five fifty officers as of March end, FY 'twenty six. So we are close to 700 on the front end and including supervisor close to eight fifty people. So possibly 200 to... Close to one fifty to 200 people have been added in collections. So 200 over the five fifty as of the year? Yes. 700 is the number as of today, the front end and all inclusive eight fifty collection team.

48:52 Understood. And then so I think the number of employees that have been added since March end is about 600. So I think apart from this 200, the rest of the hiring would have been in sales. Right? Is the correct understanding? Yes. So we opened some 20 branches in quarter four of FY twenty twenty six and these were also coaled branches. So a lot of these employees have come in, in gold loans. What we have seen is some bit of buffer there is important on the competitive intensity. There's a lot of coaching that's happening at the ground level and the salaries that are being offered are significantly higher. So what we've done is, it's a product where people and their relationship with the customer define your AUM and the productivity at a branch level. So just to have an extra cushion, we have continued to add people in whole loans and that's the increase apart from the collection increase that you're seeing.

49:51 Understood. Just one last question. For a typical a collection office, typically what is the maximum bandwidth that we had in terms of, say, being able to manage a certain number of accounts effectively before, say, you start to allocate cases to another collection officer before you start putting more capacity on collection? It generally next from of the cases per collector. So it's a mix between the states. Generally, on an average, you will have 40 to 45 cases that a collector can handle. But based on the geography, changes based on the profile of the customer and the ticket sizes. Generally, North has a larger ticket size, so you will have different strategy there. South has a smaller ticket size, you will have different strategy there. And based on the geography that changes, but average is between 40 to 45.

50:59 Understood. So 40 to 45 touch points in a month for a collection officer, right, on a... On an average? Yes. Okay. Okay. That's all from my side. Thank you. Thank you, Rahul. Thank you. As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments. Thank you for joining in early in the morning. Have a have a good week. Thank you, sir. On behalf of ICC Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.