Utkarsh Small Finance Bank (NSE:UTKARSHBNK) Q2 2027 Earnings Call

0:01 Ladies and gentlemen, good day, and welcome to the q two and h one FY twenty seven earnings conference call of Utkarsh SFP hosted by ICIC Securities Limited. As a reminder, all participants will be in a listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal no plates or by pressing star then zero on your dash tone phone. Please note that this conference is being recorded. I would now hand the conference over to mister Ramesh from ICSE Securities. Thank you, and over to you, sir. Yeah. Thank you,. Thank you. Good evening, everyone, and welcome to Utkarsh Small Finance Bank q two FY twenty seven earnings call. On behalf of ISA Securities, I would like to thank for giving us the opportunity to host this call.

0:54 Today, we have with us the entire top management team of Utkarsh Small Bank Limited presented by Mr. Guvind Singh, Managing Director and CEO Mr. Sanjay Kumar, Director Mr. Amit Acharya, Chief Risk Officer Mr. Manmohan Shethi, Chief Financial Officer Mr. Virendar Sharma, Head, Microbanking Mr. Sadhup Bush, Head, Investment Banking and Mr. Abhay Kattarya, Head of Finance. I will now hand over the call to Gowini for his opening remarks, and then we'll open the call for Q and A. Over to you, sir. Yes. Thank you very much, Ernest. Thanks a lot. As always, yes. Yes, good evening, everyone, and thank you for joining us for our quarter two FY 'twenty seven earnings call. Let me begin by reflecting on the evolving operating environment for Utkarsh Small Finance Bank. Our business momentum is recovering. Fresh stress formation has reduced substantially.

1:46 Collection efficiency remains strong. Credit costs have moderated and funding costs are declining, and the contribution of diversified businesses is increasing. At the same time, our operating profitability improving every succeeding quarter. These are important developments because they demonstrate that improvement is not dependent on any single factor, but it's being supported by multiple levers moving in the right direction. Elbit of our growth has been a little slow but steady, and the same is ready to pick pace now. Our pre provisioning operating profit increased to 85 crore in quarter two FY 'twenty seven compared with an operating loss of INR 3 crore in quarter two FY 'twenty six, registering a sequential improvement of 34% over quarter one FY 'twenty seven.

2:31 For H1 FY 'twenty seven, PPAP stood at INR 149 crore. Alongside this, credit costs have reduced sharply to 2.8% in H1 FY 'twenty seven from 9.1% in H1 FY 'twenty six. Consequently, the bank's net loss declined by close to 80% Y o Y to INR 27 crore to INR 70 crore in quarter two FY 'twenty seven and INR 104 crore for H1 FY 'twenty seven. While the reported loss in quarter two was higher than quarter one, the previous quarter benefited from certain one off items like CGMFU provisional reversal and ARC transaction. Adjusting for these nonrecurring items, the underlying net loss in quarter two was significantly lower sequentially.

3:19 The combination of improving operating earnings and a substantial moderation in credit costs is strengthening the underlying earnings profile of the bank. The improvement in portfolio performance further reinforced this trend. Collection efficiency in the ex bucket of JLT segment remained strong at 99.6% during the quarter compared with 98.6% in quarter two of FY 'twenty six. The SME pool within Microbanking has contracted to 1.7% from 4.9% in September 2025. Fresh NPAs slippages net of recoveries and upgradation declined to 175 crore in quarter two FY twenty twenty seven against INR $4.15 crore in corresponding quarter last year. For H1 FY 'twenty seven, this stood at INR 300 crore compared with INR $8.10 crore in H1 FY 'twenty six.

4:09 Consequently, G and P as a percentage of gross loss portfolio improved to 5.9% as on September 26, reflecting an improvement of almost six thirty basis points year on year. These developments indicate that strengthen collection infrastructure, enhanced monitoring and more disciplined credit practices are transferring into lower incremental stress and better portfolio performance. Another important positive is the recovery in business activity. Total disbursement during H1 FY twenty twenty seven grew by 52% year on year with JLT disbursement increasing by 2% and non JLT disbursement registering growth of 94%. This supported gross loan portfolio growth by 7.5% year on year and 2.3 sequentially.

4:57 The improvement reflects a gradual restoration of our business momentum while maintaining a calibrated approach towards customer selection and underwriting. Our focus remains on growing the portfolio through quality incremental lending rather than purchasing volumes at expense of risk adjusted returns. On the liability side, the bank has made meaningful progress in sensing its deposit franchise. Total deposits grew by 7% year on year, supported by 14% growth in CASA deposits and 12% growth in retail term deposits. The CASA plus retail term deposit ratio improved to 82% from 78% a year ago, while the CASA ratio reached 21.4% as of September 2026. This improvement in funding composition already reflecting our cost of funds, which declined by 50 basis points year on year to 7.4% in H1 FY 'twenty seven.

5:50 With the benefits of deposit repricing and the improving liquidity mix expected to flow through progressively, we see further in support to funding cost and margin stability. Taken together, improving business momentum, lower grade cost and declining funding costs are providing a stronger foundation for sustained earnings improvement. Let me now touch upon the structural changes underway in our business model. Portfolio diversification continues to be our most important strategic and priorities. The JLT portfolio, which constituted 88% of the gross loan portfolio in March 2020 and ninety percent, including BC JLT exposure, has now reduced to twenty four percent and twenty six percent, including BC JLG exposure.

6:41 In contrast, secured lending has increased to 52% of the gross loan portfolio from 47% a year ago. This transformation is reducing dependence on traditional group lending and creating a more balanced portfolio with multiple growth and earning drivers. Within Microbanking, our Microbanking business loan portfolio product continues to gain traction. The product enables us to graduate customers with demonstrated repayment discipline into individual lending relationship. Further, we have expanded the product to cater to new to bank customers as well. The micro banking business loan portfolio registered growth of 146% year on year and 15% sequentially during quarter two FY 'twenty seven and now represents 35% of our microbanking portfolio.

7:27 With penetration currently around 20% of our customer base, there remains considerable opportunity to scale this business further. We believe MBPL will play an important role in strengthening customer relationship, improving product penetration and diversification of the micro banking franchise. Our other lending business are also contributing to the portfolio growth. The MSME portfolio expanded by around 8% year on year to INR 4,489 crore with micro led contribution to deliver disbursement yield of 18%. The housing loan portfolio grew by 4% year on year to $9.84 crore, while the BBG, the Business Banking Group portfolio recorded strong growth of 13% year on year. In the Commercial Vehicle and Commercial Equipment segment, we are maintaining a calibrated approach towards asset selection with used vehicles accounting for around 30% of disbursement.

8:20 We're also expanding gold load penetration through our digital loan origination system, which is expected to improve turnaround time, process controls and operation efficiency. These businesses collectively provide opportunity to deepen our presence across customer segment while creating a more diversified and stable earnings base. To further strengthen the quality of incremental 8% of our microfinance book relating to disbursement up to quarter four FY 'twenty six is already covered under the scheme, increasing up to 80% almost 80% upon including H1 FY 'twenty seven disbursement.

9:08 The CCFMA window is currently not open for fresh loan guarantees as the scheme is undergoing the government approval process for its next phase. We expect the window is about to reopen soon and have already accrued the requisite 1% guarantee fee towards the eligible disbursement. This additional risk protection, together with strengthening underwriting and portfolio monitoring, supports our effort to build a more resilient microfinance franchise. From a capital liquidity perspective, bank continues to maintain comfortable buffers. As on September 2026, surplus liquidity stood at around 2,540 crore. The LCR was 177% and CD ratio stood at 81%. Capital adequacy remained at 17% comfortably above the regulatory requirements.

9:56 The bank had planned to raise INR 500 crore through NCDs during the current financial year. Office INR 300 crore was raised in September 2026 to support growth initiatives and reinforce capital adequacy. Additionally, on 08/13/2026, the bank exercised the call option and redeemed its INR 195 crore Tier two in CDs ahead of scheduled majority after obtaining the requisite regulatory approvals. These initiatives reflect our focus on maintaining adequate capital strengthen while optimizing the overall funding structure. On the proposed amalgamation of the holding company, Utkarsh Small Limited, Finance an end to the bank. The NCLT during its hearing on 10/22/2026, took note of the NOCs and responses received from the concerned regulatory authority.

10:44 The matter is scheduled for its next hearing on 11/19/2026. The reverse merger is expected to be completed over the next few months, subject to NCLT proceedings. Operational efficiency and technology led transformation remain important enablers of our strategy. We have strengthened the collections infrastructure, operationalized our specialized call center for overdue accounts and enhanced branch level monitoring and customer engagement. Training programs for new frontline employees have been reinforced with particular emphasis on center meetings, customer onboarding and consistent field level execution. Our collection in workforce supported JLG and MBBN business now exceeds 1,400 personnel. For the secured portfolio, our focus is on containing fresh slippages and improving recovery from the existing NPAs.

11:32 We have strength and collection teams, field coverage and account level monitoring, while also strengthening litigation and recovery framework, also with focused efforts on reversal and settlements. These initiatives are helping improving execution standards and strengthening recovery outcome across the portfolio. Through the Utkarsh two zero two point zero technology transfer project, we are progressively integrating automation, data driven decision making and stronger monitoring mechanism across the organization. These are underwriting tools are helping identify and avoid over leveraged borrowers, while thesis agree, control parameters, mapping is enhancing visible across the credit life cycle. Bank also launched its new core banking system during the quarter. In parallel, we are improving the quality of new account sourcing and leveraging largely focused general banking branches to cross sell asset products, thereby increasing product penetration and customer wallet share.

12:31 Our cost optimization strategy center on improving productivity rather than expanding through additional branch infrastructure. Employee headcount was rationalized by close to 1,100 year on year, while the existing branch network is being leveraged more effectively. Workflow automation, digitization of customer journeys, reduction in manual intervention and simplification of product and processes are expected to further improve turnaround time, service quality and operational efficiency. Looking ahead, our focus will remain on sustaining the improvement in collections, further reducing stress formation, expanding secured lending and accelerating growth across diversified asset classes. We will remain we will continue to strengthen our deposit franchise, optimizing funding cost and improving operating productivity while maintaining disciplined underwriting and prudent risk management.

13:26 Our medium term still our medium term aspiration remain focused on achieving our book loan book growth of around 25% to 30%, increasing secured lending to around 55% of the portfolio, maintaining NIM of around 88% and delivering a ROE of 15% for FY 2028. We believe that the structural changes undertaken across all our business, coupled with improving operational operating indicators, provide a strong foundation for achieving these objectives. To conclude FY 'twenty seven represents a pivotal milestone in the bank's journey to restore sustainable earnings and strengthen the financial foundation, having closed FY '26 with a substantial loss. The bank has since executed a focused business revival strategy and that has positioned the current financial year for a return to profitability.

14:18 Our continued focus is on sustaining this positive momentum and building a stronger, more resilient and well diversified franchise that delivers consistent and long term value to all the stakeholders. With that, I would now like to hand over the call to the call for Q and A session. Thank you very much. Thank you very much. We will now begin the question and answer If you wish to remove yourself from question queue, you may press star and two. Participants are requested to use handsets for asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembled.

15:22 First question is from the line of Raj, an individual investor. Can you hear me? Yes, sir. Hello, Rima. So I was seeing the results, and I could see that there is a considerable improvements on the NPA deposits and on the core revenue. So just two questions. One is on the provisions part. Like last quarter, we were seeing that it was around 109,000,000 And in the current quarter, it was increased to 100 INR166 million. Even though there are improvement areas on reducing the secured like non secured loans and multiple improvement areas, the provision part increased in the current quarter, so which directly reflecting on the final loss of around INR70 crores, so minus INR70 crores. So the first question is on the provision part and the second question is on the upcoming quarters, can we expect profitability on reduction in the provision?

16:36 Yes. Good evening, Mr. Raj. Mr. Raj, I guess if you recollect the results of Q1 and we had started earlier from January 25 covering our entire micro banking portfolio under the CGWifu guarantee scheme and that obviously is a premium cost. What we did in Q1 that once you have a premium cost, you have an ability to give a provision of only 28% of the provisioning that is required and 73% provision credit you can take because the portfolio is guaranteed. Now that provisioning that we did in Q1, as you see, it was INR 109 crores as you speak. But actually, had we not taken the credit, my real cost provisioning is INR 190 crores. So in that sense, it's INR 190 crores plus INR 109 crores, now it should become INR 166 crores. So actually, the credit cost has come down. So just that one off credit that was taken in Q1 and that was taken pursuant to the regulatory norms available for credit available for the CGM of few covers that we have. Had we not taken that, then the provisioning as we speak would have been higher by INR 75 crores.

17:51 And there was also a INR 65 crores of ARC sale. So if I add both that, then my provision line that you see is 109 in the previous quarter would have reflected at $2.50 or $2.40. So it's a provision of $2.40 coming down to 166. And therefore, what I'm trying to say that there is also a continued kind of an improvement in provision beginning from almost last Q4 onwards, you will see complete provisioning reversal happening. In fact, at a point in time, our big provisioning was in MB portfolio four zero one, which was in Q2 FY twenty twenty six with today in Q2 FY twenty twenty seven is just INR92 crores. And therefore the point that I'm saying that there is a complete trend drop on slippages, even our collection efficiency has remained above 99%, which is ex bucket, above 99.6%, 99.5% through and through almost last six, seven months. So the point that I'm trying to drive, there is a significant improvement as part of the commentary Govindji gave.

18:56 On the other point, in terms of profitability, yes, certainly, I think we are looking much better trajectory from here onwards. As we mentioned that next year, we do expect that our numbers will be much better the way we mentioned. And certainly, coming days will be much better in terms of profitability also. Sure. Yes. Thank you. Okay. Thanks. Thank you. The next question is from the line of Sabar Shah from Spark PMS. Please go ahead. Thank you for the opportunity. First of all, congratulations to the management for at least posting the for holding the ship actually for holding better set of earnings.

19:43 So my first question was related to our sequential uptick in slippages actually. Now it means in this quarter, we did see slippages actually inching up to $2.39 crores. So it was up on a sequential basis as well. So can you highlight that which of the segments is actually facing stress in this scenario? Or is it because of drought or West Asia crisis? What is the reason? Can you throw some light on that, sir? That is my first question. Amit, this is Hai. So there's only one segment before Amit is our CRO, he'll speak about the overall NPA. I want to make only one statement. As it brought and these people have very temporary impact on sometime collections, especially in the LNG collections, especially when it happened in the higher in those days. So it has not impacted the NPA trajectory as far as NPA trajectory in a very in any significant manner. So that's not the reason for any drop. In fact, in the last section, collection efficiency remains almost same level.

20:51 Some geography, there might have been some delay in collection, but overall, it remains the same level. But Amit can talk about the overall trajectory part. Yes. So just to share the breakup of $2.39 crores, if you'll see from MFI MB business, it came INR 66 crores out of INR $2.39 crores and non MB was around INR 173 crores. Out of that, CVC contributed INR 30 crores, MSME contributed INR 64 crores And WSL was out clear at this time that we had INR 33 crores fresh slippages, though we recovered INR 8 crores also. And in this WSL, if you'll see, this is a book of now close to six years old, almost five years to be operated at a nil NPA basis.

21:40 But as the book gets matured, it is bound to have some delinquencies there. But all these be it this WSL I'm talking about or CVC or MSME are backed by securities. So either by mobile properties or by the vehicle itself. And we have that collateral security efficiently covered and all the recovery processes are on the track. But even though it takes some time, so that is why you see the recovery a little slower. Otherwise, all in control as such. Okay. So is it the reason behind the increase in provisioning, sir?

22:27 From INR 109,000,000 to INR 166,000,000, is it the reason for higher slippages that will is that the reason for providing more in this quarter? The credit I cost going just explained a while ago and try to once again explain is that if you really look at 109 crore of the provision, which is Q1, there we have taken a credit of CGMU benefit that is available under the RBI regulation. And that credit is pursuant to the premium and the coverage that we have in the guarantee, and that credit was INR 75 crore. So if that credit would have not been there in Q1, this INR 109 would have been gone up by INR 75 crore. And as well as I mentioned that in Q1, we did mention we did an ARC deal of INR 65 crore. So INR 75 to INR 65 crore, you add this INR 140 crore is a June event, quarter one event, which is just given a credit and therefore, a 140 plus being 109 had these two credits not been taken. And it was, as I said, mentioned of act of ARC and the benefits available under the RBA norms. Actual provision would have been around $2.49 crores. Now INR $2.49 crores, you have to compare with INR 166 crores, which is where there is absolutely a normal event of the hedges or the credit cost.

23:48 Okay. Okay. Fine, sir. I got your point. My second question was related to your other retail loans actually. The other retail loans has seen a good pickup in the disbursements actually. So means I wanted to understand in the other retail loans, which are the segments actually this bank is targeting, especially towards the secured space? In secured large, the what we call the we have a multiple type of where the largest space will be where we talk of lab. Lab can happen in multiple ways. So we talk of micro lab, which is below 25 lakh, then the normal lab, which is 25 lakh upwards, in fact. And then we sometimes we have a prime lab also, which is crore plus. Plus we also have a business banking group. Again, all the loans are covered through back collateral only, hard collateral only.

24:41 So the biggest focus for the bank remains that we are able to secure through hard collateral. And little bit also, we are trying through gold also. Our gold portfolio is around 400 gold plus right now. So efforts are that we should have either property or gold backed. The moment we are talking about secured part. So there are two clients. But in lag, you are aware that there is a bigger size, segment changes. So that is with us also currently. And in future also, I mean, obviously, we have a micro banking, which is almost onethree of our portfolio right now. But beside this, lab will be the biggest segment in various forms for us. Okay. So within the secured space, MSME affordable and CV loans, why is our disbursement or even our portfolio is not growing, sir, especially if you compare to the March 26 numbers and September 26 numbers, we have seen hardly any growth in these three segments actually. So why is the reason for that? So are we targeting only lab or which is the what is the reason actually that we are lacking lagging behind in these three segments?

25:55 So I mean, I'll not use the word only lap, but yes, lap is the primary driver for us. As I mentioned, we have micro, we have mid segment, normal segment and then we have a premium segment as well as SME, where we are getting to lab only. The disbursement for the last actually quarter two got little impacted because we launched our new CBS. And during that period, sometimes the business gets a little slow. So August month became a little slow and because that's a dispersion number that goes a little lower. That got that reflected in the lower growth for, you can say, MSME and as we have a portfolio. But I think our focus remains at these portfolios. And we are almost from 90 odd locations we are operating for MSME and agile type of loan. And you'll see a good pickup in these cases also.

26:52 Okay. And just my last question now related to our digital initiatives. You have highlighted in one of the slides that the kind of measures that you have taken actually, especially on the AI side. So for especially for underwriting for our MFI customers or even for regards to MBBN loans, what are the AI led digital initiatives actually exactly have we taken? Have we developed a separate app for our customers, for our vendors? What exactly are they actually are they functionalities that you have done? So see, the AI usage is largely we have been calibrated as you will see the other news is also that RBI is giving thrust on putting framework on the cyber threat generating from AI usage as well. So we have been very calibrated in our approach. It is the internal usage. In our internal processes, we have defined certain use cases where we can do using the technology on the underwriting part, on the due diligence part. It is not for the customer directly, but it is for using for our own underwriting space, doing some RCO activities, some other getting the summary on the bureau reports, putting those rules in the rule engine and using those product norms automated.

28:18 So all that stuff we have worked. We were working on the rule engine, LOS, all that stuff already on the JLG side. We have moved on to a retail lending loans also completely on the LOS. And a lot of things have been automated using the leverage on banking, using the perfume, the banking analysis, using the save risk where you get all the financial or the other details about the companies, etcetera. So that is how we are using it in a calibrated manner. Okay. And just last suggestion from my side, sir, I highlighted in the quarter as well. In this quarter, unfortunately, you haven't actually done. If you can highlight the segmental wise asset quality in the slides, in the MSME, CV and especially housing, what is the GNP, net NP of the particular segment that would be quite good, sir, for at least for clarity for investors?

29:16 And how are we progressing on the secured loans? Point taken, point taken. We'll ensure that part. Sorry, we missed it, but we'll ensure that part, yes. The next question is from the line of Kunal Kochal from PhillipCapital India. Yeah. Can you hear me? Yeah. Yeah. Please go ahead. Yeah. So my question is related to the equity raise plans and also from the asset quality point of view from the provision coverage that we have, how much would be covered under the Stage one and the Stage two?

30:04 So maybe our CRO and CFO will talk about the second part. On the first part, obviously, we are at 17% capital adequacy. We have adequate coverage for this year, and our idea is not to raise capital immediately. I mean that's there's no plan to raise immediately capital. I'm talking equity capital. As we mentioned in my earnings initial opening remarks also, we raised INR 300 crores as Tier two capital during quarter two. We still plan to we have approval for INR 500 crore. So our plan is to raise INR 200 crore odd quarter Tier two capital during this quarter based on obviously market conditions. But we will not be going to equity market immediately unless there is some very specific transaction or something like that.

30:52 And we will be looking going for equity sometime next financial year only, not this financial year. We may not be requiring this. And you can talk about it. Overall provision coverage ratio and if you need, I will give the breakup on secured or MB and unsecured as well. So the overall PCR for September quarter stood around 55.5%. Out of that, if you'll see our MFI book PCR was 67.7%. And on the secured book, it stood around 36%. And on the unsecured book, overall unsecured, including the retail unsecured, it stood around 65.1%.

31:45 Okay. But just on the overall book, like on the Stage one and Stage two assets, like how much would be the coverage there? See, ECL, if you will see that, ECL is not applicable to small finance banks. So that we do not create provisions based on that methodology, but we create as per the direct norms, which are driven by the regulatory norms as per RBA circular. And whatever standard provisions are there or NPA provisions are there. On NPA provisions, if you'll see, we do a little higher as compared to the regulatory norms. And it moves on every quarter as the bucket moves. The bucket movement within the NPA happens.

32:32 So every quarter, it then increases. Okay. Got it. Thank you. Thank you. The next question is from the line of Vinay Nankarmi from Headway Investments Private Limited. Please go ahead. Yeah. I... See, my focus is basically on your branch network. You have one of the biggest branch network among the small finance banks. Why is the throughput from the bank so low branches? Because your quarterly I mean, your past is now past. But going forward, at least having a 2.3% quarter on quarter growth for a for a branch network of 1,100, while your other peers are growing at 5.5%, 6% quarter on quarter.

33:24 What exactly is stopping you from growing faster there? No, I think there's nothing which is stopping us. But we had challenges, which are higher than many of our peers, and so you are aware of this part. And some of the portfolio, last year, we had some AIC transition, which will move out from our portfolio also. The growth net of ARC would have been certainly higher than what we are showing. But I take your point, and in fact, that is what we are trying to do right now. We have the largest one of the largest network. And it's a major network because we have not opened any branch during the last eighteen months plus now. So a major one. And that's why when I say 25% to 30% growth, it will come automatically from the technology, from the manpower, from the product and services we have got and from the network we have today, extensive network. And you'll see significant improvement on a month on month basis, quarter on quarter basis and year on year basis, henceforth.

34:20 Because it has taken some time to stabilize various things. And we also have a good product, whatever is required for a small finance bank. All which are relevant products are also there available technology, we have changed wherever it was required or upgraded wherever it is required. So that's why you'll see a significant improvement from here onwards. Just wanted to add, I mean, if you really look at FY 2026 and largely as we spoke about MFI, it was more collection, collection first and then the disbursement. But if you really look, the green shoots have already began from the last year. And this is probably to say that this was actually creates a good interest, a curable AUM.

35:06 We grew by disbursement in Q4, 30% Y o Y, which means Q4 over the previous Q4. We followed it by growth in the disbursement in Q1 at 50%, which is again Y o Y Q1 this Q1 to the previous Q1, and it was almost 72% in the non MFI book. And in Q2, we grew by 55% disbursement. Of that, the non MFI book grew by 77%. I guess when you said set of branches, yes, we have about seven seventy types in the MFI and we have around three thirty in general banking branches. But the traction of growth has already come back. As I told you, this green shoots and you will see the momentum coming up as the quarters come. I guess I can also add that if I really look at H2 FY 'twenty six over H1 FY 'twenty six, generally, the H2 disbursements are visibly higher.

36:02 I guess it was almost 60% of incremental disbursement deposit in H2 FY twenty twenty six over H1 FY twenty twenty six. Even this H2, which is the 0.5 coming, we will see those disbursements keeping space to what we have done earlier. And now the opportunities are there. So we will look forward for a disbursement growth, keeping up the pace and the portfolio grade that Yoongi mentioned around 25% to 30% for the full year basis. So you're expecting F27 to be full year growth to be around what, 10%, 15%? No, no. We mentioned 25% to 30% is our growth expectation for this year. So it will be 25% plus.

36:48 Okay. Because you have done 7.5% as of now, H1 to H1. So you're expecting a real bumper growth in the next quarter next half? Yes. Yes. Were actually yes. Have done last year also. And then catches up with the previous year. Yes. That's good to hear. Now the second thing is what it's little increasing is when I look at your secured portfolio increasing steadily and rapidly in fact, your yield on advances also is going up. If I can't understand this Generally, when you see secured going up, your yield on advance has either stagnates or slightly tapers down. What is driving this yield on advances with your secured book also growing? So this is yield on portfolio advances.

37:37 It's a combination of microfinance yield and yield of non micro banking as well as we see that disbursement is going up including micro banking. If you really see there was a degrowth over early two quarters of last year. And therefore, when you do an embedded growth, you will see yield in advance growing up. Okay. So you have given your Wholesale Banking yield on advances, but I don't see any mention of Retail Banking. Is it possible for you to share that numbers? Yes, certainly, we'll share. We'll share. We'll share, yes, yes, certainly. Okay. Okay. I think that's it for me. I'll jump back in the queue for any further questions.

38:26 Sure, sure. Thank you. Thank you. The next question is from the line of Darshish Zawiri from Crown Capital. Please go ahead. Hello. Hi. Thank you so much for taking my question, sir. Sir, I just wanted to ask in regarding what ROA target for this year and next year, sir? Sorry, just repeat your question. ROA? ROA target for this year and next year, sir. So we generally, I guess, when we say ROE, it's one way to replace. So we have said that we will be an ROE of 15% in FY 2028 because that is a building of profitability for FY 2027.

39:17 I remember mentioning a two digit ROE in exit of FY 2027, which will become the base for the next year ROE of 15%. I mean, I have not worked out the ROA as we speak, but I guess that is an overall indication of the returns on the equity number. Fair enough, sir. And sir, just wanted to understand, right, in the current scenario where repo rate is we've been able to reduce our cost of funds. But if there are more hikes, right, will there be pressure on cost of funds, and will our target of 8% NIM come under certain pressure? Because right now, we are at 6.3. Right? With the increase of secured, that will also not be very NIM accretive.

40:07 Right? So what is our path to reaching our targeted NIM, sir? So two things will happen. One is that some of the costs will also get passed on to customer because almost 50 of our portfolio, I mean, broadly speaking, will be under floating rate of interest. So when the rate of interest for deposit go up. And second, because we have also completed a cycle where the rate of interest were lower. So the repricing of fixed deposit will take some time, even if the rates go up tomorrow because we are not dependent on a market borrowing. Our market borrowing is nil. I mean, for almost many years now, we have not any market borrowing. So normally, when you have a strong market or high market borrowing, your cost of an immediately gets impacted. But because you have largely term deposits, almost 80% plus year term deposits only.

40:55 And they are the till the tenure is over, the rate remains the same. So the hit because of the increasing rate of interest will not come immediately. That is one part. And second, the cost of funds in many of the cases will be passed on to the customer also. So that's another aspect that will happen. So obviously, I mean, when this remains on a sustained basis, there will be some impact. But overall, NIM will be productive either because of lower cost of funds or because of the passing on of the cost to the customer, end customer. Okay. Okay. That's helpful, sir. And sir, just wanted to understand like secured, what are the yields that you are getting currently, sir? The rough also will do. Right?

41:50 Armen, this is your disbursement deal that I'm talking. Your retail MSME is giving me around 13%. Housing loan is about 11%. Your commercial vehicle and construction equipment is around 12.15%, wholesale is around again 10.9% to 11%, personal loan is 16% and gold loan is around 12%. Okay. Fair enough. Yes, that's it from my side. Thank you so much. All the best. Thank you. The next question is from the line of Aklesh Soni from Kotak Securities.

42:36 Please go ahead. Thank you, ma'am. Good evening. Sir, just a few questions on... From my side. Firstly, on the asset quality side, the... If I heard the numbers correctly, the previous slippages have remained high. When should we expect these slippages to come off meaningfully? Because right now, it's likely the slippage ratio seems to be somewhere around 12 annualized. Hi, Abhish. Amit, this is Kai. So if you will see the wheels where slippages in the previous quarters were pretty high, which has come down from INR 44 crores levels to last two quarters were INR 27 crores, a marginally higher this quarter was around INR 30 crores. But at the same time, recovery and upgradations have also been increased.

43:23 And when initially, we had a spurt in the delinquencies, last time also, I think I updated that we did a lot of policy and product norms intervention. And we do track the portfolio, which we are building up post those interventions. And if you will see from April 25 onwards, around INR 400 crore is the outstanding whatever we disbursed beginning April 25. And out of that gross NPA or slippages, SME two, if you'll see it is below close to 1.2% and NPA is below 1% out of that particular portfolio. So whatever slippages still comes from the legacy book and we have strengthened the entire collection network framework in terms of reposition of the vehicles. The collection agencies have also been appointed. So that we have a better collection and recovery percentage from the NPS coming out of those legacy book.

44:27 And you would expect the next quarter slippage to come off meaningfully? Or you expect this to continue for some more time? It should come down. It should come down because if you'll see the we so for CVC, the starting buckets are very, very important that what are the flow rates from your zero DPD or SMA one bucket to SMA two. And that is where last two months, we have seen that we are able to do much better and the flow rate from SMA one to SMA two has come down drastically. And collection team is pretty much focused on those buckets So that flow into NPA should be very, very minimal going forward. Understood, sir. Sir, second one is on MFI, the 67.7% PCR that you have quoted, does that include the CDF MU guarantee?

45:16 And if you can also share any color on the state wise collection trends that you are seeing in the month of October, if there is any deterioration over there? Yes. So, Sanjeet, please. So, Ashish, 67.5% includes CGM FU guarantee. The only point I want to be giving is that, that guarantee is up to the first thirty first March. After April 1 since the point as I heard on earlier introductory earnings call that Donji mentioned, we had to open the premium for the 0.5. And therefore, whatever you say CGMFU credit that we have taken is only up to March, but it includes the CGMFU adjustments.

46:06 This is Vairinder. Just to give you a perspective, we are still holding on to the collection efficiencies and except a little drop on the Maharashtra side, where we have less than 5% of the portfolio. We are sustaining on the collections and our collections look stable, and we hope we don't foresee any changes in the or any deterioration in the collections as majority even in after the impact of, say, some floods in Bihar in the last month, we have been able to bounce back and we don't see any unforeseen event happening. So looking forward to a stable collection efficiency in microfinance piece. Understood, sir. And would be great if you can quantify the Maharashtra numbers on the collections front?

47:00 See, we have a portfolio of around 5% of our book percentage was close to 99 sorry, 8.83%, which was for the month of October, whereas prior to that, we were averaging around 99.5% for full year. Understood, sir. Sir, and just lastly, if you can indicate how the ROE tree improves from here? Sorry, can you repeat the question? So earlier, I did mention about the ROE guidance. Would want to look at ROE more perspective than ROE. And again, as I mentioned about CGM, we took a bit and also we look at ROE more closely, which we say that we will exit two digit in Q4 this year and for the whole year 15% ROE.

47:58 Sorry, just talking about FY 2027, if I have to build it in the model, which lines do you think would show an improvement broadly? Mean, Ashish, all the lines. We spoke about the NIM going up and you would assume that even as we speak from a 5.1% of in Q2 FY 'twenty six, we are at 6.3%. So you will have an interest deal, you will have a cost, which will add up to the NIM. You also have an advantage of higher disbursement, which will give you a good other income because processing fee will go up. We did mention and I reiterate that the cost of expansion is zero because we want to do the productivity of the existing infrastructure and with additional benefits that is derived from the core banking system and the LOAs that we just spoke about, it is improving the productivity and the debt.

48:55 The most important part, if you really look at the dropping the or to say sorting out the entire past legacy book paying. In fact, on a half year basis, my provision, which was INR $8.72 crore for the half year last year is INR $2.75 crore. So there has been a constant drop in credit cost. My credit cost at a point in time, you would have noticed Ashish as a part of your analytic research that you do. From a 9.7%, we are at INR 3.3 I just clarified again that Q1 when it's showing a credit cost of 2.3, while it is increased to 3.3% in the current quarter, it appears that the credit cost has gone up. But if I were to add back in my earlier answer to one of our colleagues' question, if I had to add back the benefits taken on the CGM issue and ARCs, actually my credit cost was 5.1% in Q1, which is improved to 3.3%.

49:54 We are looking at the trajectory improving even in Q3, Q4. As a result of all of these factors, this should lead to ROA and ROE both moving from say negative zone to a positive door bit by bit. Understood, sir. Thank you, sir, for answering all my questions. Thanks a lot, Ashish. You. The next follow-up question is from the line of Mune from Hudbay Investments Private Limited. Yes. Just two questions. You have now built a substantial write off book. What is your recovery target for H2 and for FY 'twenty eight? Because your recovery so far has not been anything substantial compared to the book that you hold.

50:54 So on the recovery side, we have been able to get around 50 crores in this financial year. And we expect that to be slightly growing higher in H2 for this piece. Normally, in the last two quarters, we nearly will be able to close to do I won't like numbers, but substantially higher in the next two quarters. We'll be recovering that part of it. And what is your total write off book? So on J and J side, if you see the if we exclude the ARC part, which we did for the write off as well as a combination, I think the total write off book for JLG available would be close to around crores to INR800 crores kind of.

51:50 And non JLG? Non GLG, not so much because hardly the unsecured portion, the legacy book, which we must have done the write offs. That's the book on secured side, it happens very minimal. That should be entire if I take all the ten years horizon of the bank. So must be close to another 60 crores, 70 crores. Though I will have to check, but I'm just giving you a ballpark number. Okay. So not a very large sum. So around INR 700 crores, 800 crores, you're recovering roughly around INR 50 to 100 crores in a year. Yes. Just to add what Virendra said, so there is a large collection team now deployed on the MFI side also. And their core target, apart from doing the normal NPA recovery or bucket flow movement control, but they have a huge focus on this legacy book of write off.

52:57 And to crack down these customers in terms of settlements or in terms of getting the entire recovery also. So both the parts and that is being tracked by Girender and his entire collection leadership team. Okay. The next Sorry. Question was just on the cumulative total cumulative write off that we have done on the books since inception, that's about eight fifty five And last thing was on the cost to income ratio. If we are expecting a bumper H2, if you're targeting 20% growth from 7.5, I'm expecting a real good SG and for you.

53:50 How would you look at your cost to income ratio because your cost will not go up, right, what you said just now? So what kind of cost to income ratio are you expecting exit FY 2027? What would be projected for FY 2028? So you are right. I guess it was at a point in time almost 110% and you will appreciate that it's a factor of income that determines the cost versus the income over the previous quarters has been low by virtue of all the reasons of the changes and all that. I guess the cost correction has already happened. So now it's going to be a traction on the income with the cost remaining same. We had in Q3 FY twenty six one hundred and ten percent cost to income ratio, which has already improved to 84%.

54:36 And we are looking at further improving this over the next quarter, 0.5 hoping to get this around 70% in 75% in this year and maybe going back to 60 to 65 to 70 because then we will have to catch up for the growth as we speak as we go along in the next year. But around 60 to 65 could be a sustainable one in FY 2028. Yes. That would improve your ROA and ROE also. Certainly. Thank you very much, sir. All the best for your H2 numbers looking forward. Thank you. I'm very happy to give you your team. Thank you. You.

55:23 The next question is from the line of Devora Zaj from Avash Capital. Please go ahead. Hello, am I audible? Yes, yes, please go ahead. Sir. Thank you for the update on Q2. My question is around Q2 FY 'twenty seven provision is while the pre provisioning operating profit has gone up from INR 65 crores to INR 85 crores quarter on quarter from Q1 to Q2 because of the provisioning expense, your PBT is looking worse off. If you can help us understand or contextualize the Q2 provisioning, why it has gone up? And what is the outlook going forward?

56:21 So Q2 provisioning looks gone up or seems to be incrementally higher than Q1. But as I mentioned again that there is the in Q1 if we really add back and rightsizing of the provision on account of CGM, a few benefits that we took in the ARP deal we did. I repeat that INR109 crore of the provisioning in Q1 is actually to be added by INR140 crores, it's actually INR240 crores. So my provisioning our provisioning Q1 was INR240 crores, which is actually improved to INR166 crores, it's actually improved by INR90 crores and it's not gone up. This is kind of to correct the events that we spoke in Q1.

57:08 Similarly, did mention again that my credit cost is INR2.3 crores, which has gone up in INR3.3 crores in Q2. But technically, if I add back the events that I just mentioned, which is the credit and my credit cost is 5,100,000 which has improved to $3,300,000 So provisioning across the last five, six quarters and particularly little bit sales remaining in the micro banking otherwise we can through and through improved significantly. Am I could I answer your question? Got it. So I'm getting that HQ provisioning, you've already done most of your cleanup and HQ provisioning will be much lower actually. Yes, it will be on the improvement trajectory. We have declined.

57:57 Trend, yes. Thank you, sir. Yes. Okay. Thank you. Thank you. The next follow-up question is from the line of Sagar Shah from Spark PMS. Please go ahead. Yeah. First of all, thank you for the opportunity. Sir, my question was related to our CGFMA scheme, actually. Now until Q1 FY 'twenty seven, you highlighted that the incremental disbursements in from January 25 to Q1 FY 'twenty seven, 80% of the loans were covered actually for GLG as well as NBBN. So for... What is the figure as of as of September 30, sir, out of the total loan book that we have for group loans that stands at $47.47 crores and MBBN stands at $25.86 crores?

58:53 So what is the actually what is the book that is covered under this scheme as on today? It's close to INR6500 crores which is covered under SG and close to 6,500 crores. INR 7,000 crores. This is September 30 of this year. Okay. Yes, 6,500 crores. Correct, correct. That's the right figure. Okay. Have had any out of that, how much has gone into NPA, sir? And have you claimed that amount for the under this team at least till date? $20.09 crores is the NPA out of the CGM FU covered portfolio.

59:44 Okay. So when are we planning to claim, sir? So we have done we have put up our first claim because we started last year mid January. So the claim got due only in this quarter and I think close to... So we have already submitted for claim, which is under process with the agency. So around INR 80 crore plus is already submitted for our claim. Okay, fine. My sir, our my last question was related to our employee strength actually. Our in this particular quarter as well, our head count actually went low to almost 18,300.

1:00:33 So now since we are rationalizing our employees and moving to collections, so I think that is a driver, if I'm not wrong, for the lower cost to income ratio as well. So what is the headcount that are we targeting at least for the end of the year? And how are you planning to put into for disbursement centers, especially for MSME, CV and MSM the affordable housing front? Yes. So we have done a lot of rationalization employee and in some places, we might have increased also based on the requirement. So normally, typically what happens now, there are a lot of, you can say, non business departments where we must have done the rationalized part. Sometimes in the operations department type of places where we have done a lot of automation. So there are a lot of rationalization in those places. And sometime we buy the people, excess people in the middle management, so that rationalization also be done. So going forward, I think our number may not be significantly different from what it is today.

1:01:37 There may be some increases at the IFRS level. For example, in terms of collections, especially in the micro banking part, there will be some increase in the collections part. But more or less, the number should be in the same range for next six months' time also. We don't expect much significant change in this 100,200 number plusminus on the current number. And the plus, if at all it happens, it will happen in the FY segment. If you don't see segment where we require people to go to either for collection or for bringing the Fresh business. But in the middle and senior management, we are not looking any increase in the manpower at all. If at all, there may be at the effort level in some cases. But probably the same range will be there. There is significant increase in the employee cost or employee number will not be significant.

1:02:26 So is it safe to assume, sir, that our H2 FY 'twenty seven in the recovery will be largely led by income and not by reduction in OpEx? So OpEx reduction, we have done a lot of initiatives during last not only the employee cost part, but even on the on various expenses, which undergo increase of any institution. We have done a lot of work on that part. So the plus will be that the employee cost will not go up. I mean, largely in the same range. I mean, percent, 2% plus minus is always there. Similarly, the OpEx will remain almost in the same range. But our business number will go up. So I think in terms of ratio and in terms of overall percentage, these will come down because the denominator the numerator and denominator effect, the ratios will come down.

1:03:16 Absolute number may not come down significantly from here because we have already done that part during the last two years. Okay. Fine, sir. Thank you so much. And happy to evaluate you the entire team. Thank you. You too. Thank you. As that was the last question for the day, I would now hand the conference over to the management for closing comments. Over to you, sir. Okay. Thank you very much. Thank you very much, the IC team, and thank you all the investors for coming on this call and your all support throughout this period. There have been tough time, we all know that part. But now we are seeing that the trajectory is much, much better, and we can see much better performance on a month on month basis and quarter on quarter basis on all the parameters we discussed today also. So once again, thank you very much, and happy to all those who joined this call. Thank you very much.

1:04:06 Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.