MFI stress and credit-card correction narratives fully resolved by Q4FY26.

One question on this credit cost again, on this unsecured MFI, credit card, personal loan, I can understand. But, Sanjay sir, structurally, if I see for last 6, 7, 8 years, your retail credit cost has always been 70 basis point or lower, barring the COVID year. Let us say, since FY '18. But for last 3, 4, 5 quarters, it is only running up and high. So, the question is structurally, what has changed? I mean, in the face of growth, have you structurally loosened some risk filter or have done something like that? And would it be fair to assume that probably that 60, 70 basis point credit cost in the secured retail is not possible anymore?

No, no, I appreciate your question. So, I think two things. One, I would strongly advocate that this business goes through cycles. And unfortunately, a couple of years, the kind of market segment we deal in, there is some pressure in those markets because economy is not doing well. We have also become pan-India franchise, team needs some time to settle down. So, it mix of all things. So, but I completely agree that we remain as one of the strongest franchise in terms of collection and asset quality in this segment. But I don't think now, because of our size, scale, and the kind of footprint we have now, because that time we were way too small, things can be managed more macro level. But now, at this size, scale, with the pan-India presence, and with this kind of economy trends, we should expect the little bit elevated credit cost, which may be in the range of 75- 80. But last year, we thought that this year, we might be at 85- 90. But in secured asset, you will see a lot much improvement, maybe next year onwards, not this year, in that range. [Vivek Tripathi]: there was a complete change in the, even the provisioning norms also. You talk, if you're comparing with FY17, 18, 19, obviously, the PCR on the secured assets was different. Because we had a very historical data of the net credit loss. But on a bank platform, obviously, the provisioning norms changes, and we had to change accordingly. [Sanjay on underwriting]: Rather, I would say we have become more stringent like, previous days, it was more about NBFC kind of culture. Now, we have actually adopted the whole arm's length kind of working where sales don't have credit powers, credit guys don't have a sales target or anything.

So, firstly, maybe what changed post maybe the commentary in the last earnings call? Maybe wasn't it very visible with respect to the stress in MFI? Or were there any incremental stress pockets which came in after the last earnings call? And even this entire stress on the Southern book, okay, maybe how big was that element in the overall slippage and the credit cost? And what actually led to that?

Yes. So, Kunal, Vivek here. One, we had the collection efficiencies in non-OD in microfinance were trending upward of 97% by March. [Prince Tiwari]: 98.7%. [Vivek]: Yeah, 98.7% in March. And there was some anticipation that this would sustain in Q1. It did not happen. It's not that it's with us, the industry. Those collection efficiencies could not hold. But there is a green shoot. If we look at from April, May, June, and July, it's looking upward again. So, it just pushed by one quarter. Further, on that portfolio, what we ensured that incremental disbursement are happening with the government guarantee, which is CGFMU. So, in Q1, whatever we did, it's 97% is covered by those guarantees. So, we would have a cap in terms of the credit cost anyway. On the mortgage, Southern Mortgage piece, as I said, fundamentally, it was a very granular book with differentiated yield. It was at 18.5%. There was a transition of team. Obviously, some amount of churn happens when you transition. That would have led to some elevation in terms of decline in collection efficiency. And plus, this was not a very old business with Fincare. So, in terms of the learning and building the infrastructure of collection and legal recovery has been done by us now. So, we are very, very confident that we will be able to pull it back in just a couple of quarters because it's not that there is no security, there is no customer. [Sanjay Agarwal]: we are talking more granular in terms of MFI or in terms of southern markets about MBL. But overall, we strongly believe, again, that we were expecting around 85 bps or 90 bps on total asset, our credit cost. That we are just saying that it may go up by 10 bps. And the reasons are like this, which is MFI and maybe southern market. Otherwise, we believe that H2 will be very strong in terms of recovery.

Sir, first question is on your loan growth outlook for FY '26. Now that you're seeing some signs of stress in some of these segments, how do you think about your outlook for loan growth in '26?

Hi Ashlesh, Prince here. So, when we did the last call, we had guided that, we want to peg our growth given the size to the economic activity in the country. And we had said that we look forward to grow anywhere between 2 to 2.5x of nominal GDP. Some of the stress was expected. I think when we did that (Q4) call, we very clearly articulated that stress on the unsecured side would take a couple of quarters to resolve itself before it kind of picks up the growth pace. And that was factored in. I don't think fundamentally anything changes there. We will still target anything between 2 to 2.5x of nominal GDP growth. Even on this quarter on a year-on-year basis, we have grown by 18%. And you know Q1 is a seasonally weak quarter. So I think growth will pick up. But from our perspective, we are very, very clear that the heavy lifting on the growth from our side will be done by vehicle financing, will be done by commercial banking and gold loans. All of these portfolios can grow anywhere between 20%- 25%, that's the target that we are doing like vehicles this quarter as well has grown 26% Y-o-Y. As far as mortgages are concerned, which is the other bigger portfolio you know that we have been growing at about 15% for the last three years on a CAGR basis. I think immediate target on the mortgages side is to take that business from 15% to 17% - 18% growth this year and maybe 20% plus in the subsequent years. The only surprise has been the microfinance, because our view was that probably it should start growing a bit. But again it has de-grown by 6% this quarter as well. We do think that this is the bottom. [Follow-up on credit card revolver]: [Gaurav Jain]: I think the last year the ~37% that you saw, that was a mistake. So that was just a mistake that got carried. So the correct number for March 25 is 35%. And we had uploaded a revised presentation on that as well. [Vivek Tripathi]: in terms of whatever stress we see in this book, the majority of that puts coming from identified pool where we did some limit decrease function. And that pool is reducing every month. We've already indicated, in absolute term, the credit cost has peaked. It would start coming down from this month, this quarter onward and we would see substantial decrease. The work has already started, but takes a couple of months to implement. And then the degrowth on the book, probably we'll try to arrest in maybe Q3 onward. [Vivek on mortgages south book]: We have 15% book in Southern market. It is just a sub-segment of the entire book, which is very, very minuscule. And it's on high yield.

Hi, thanks for taking my question. First question is on opex growth. So it's at 4% Y-o-Y, which is really a smaller franchise that is growing. So what explains that and other operating expenses, I think, down on a Y-o-Y basis. So what is happening there?

So, Param, hi, Prince here. So as we have -- if you look at on our last full year commentary as we have articulated multiple calls, there was a lot of internal focus around productivity and efficiency gains. And we also cut down a lot of cost expenses, rationalized a lot of expenses around our entire digital marketing. The entire marketing above the line marketing and branding was not really taken. Also, the fact that the credit card issuances have kind of slowed down. So that also led to some saving. So it has been a very focused and disciplined effort by the entire team for last full year in terms of trying to control the other opex. As far as Manpower is concerned, you know, overall opex has grown by 10% Y-oY. And we have added people. We are adding people wherever it is necessary. But you'll also understand that the franchise has come to a certain scale. There is also some amount of synergy which came from the merger, in terms of people opex. [Gaurav Jain]: just to add, the previous guidance that we had given on cost to income ratio is for that number to stay below 60%. And last year, I think we ended at around 57% or so. So I think our endeavour is to stay below 60% on a cost to income basis, and on a cost to opex basis, the target would be to do better than last year, which was I think 4.3% or something. [Vivek on retail secured credit cost]: It's largely a seasonal impact and we already called out the few sub-segments within that, there were some elevated slippages in credit costs, but our franchise, our strength to execute those products and ability to underwrite and understand those segments remains very high. [Sanjay Agarwal]: in my opinion, the quarter 1 growth and quarter 1 credit cost cannot be analysed. [Follow-up on credit cost increase]: that too, we were very, we were knowing about in last quarter call that quarter 1, quarter 2 will remain elevated. And as Vivek told you that in absolute amount, the credit card cost is already peaked. And we are saying that MFI also, we believe that quarter 2 it should be the quarter where the credit cost will be peaked.

I have a couple of questions. One is around the credit card portfolio only, like while Sanjayji mentioned that the credit cost has peaked, but as I see like the pain that this portfolio has given is like more than MFI, at least in this quarter. And even in the prior quarters, we have seen very high credit costs. So how do you in the medium term look at this business? How quickly will we want to rebound from this? And what is the medium term strategy on the credit card now?

Yes, hi, Nitin. So, you're absolutely right that credit card credit cost is giving us more pain than MFI credit cost. MFI business remains still profitable for this year after this elevated credit cost, or maybe de-grown of that book. But so a couple of corrections has already happened. There's a leadership change there. So our product head, Arvind has become the credit card business head. This business has again been folded with Yogesh Jain, who's our now COO. He's based out of Jaipur and he's an old veteran in the bank and he understands this business. So I believe that under his leadership, lot much correction will happen. And already from last one year itself, we have done a lot, many corrections in terms of our acquisition, underwriting standards, collection standards, operative metrices. So and that is why we all believe that the quarter 1 already we have the credit cost peaked in terms of absolute amount. So this year, it will remain like this. The idea is to really understand with a new lens and with a new, fresh approach. As of now, the idea is to remain again to control the whole losses and come on the BEP first and then look for the growth. So I would want time from my investors that they should support us in this journey, and give us some more time to really come and clearly say or articulate our future strategy around it. [Follow-up on wheel business]: the wheel business is the oldest business in AU, and it's now close to 30 years. It's a well-rounded business for us in terms of diversification, pricing the risk, the credit orientation, the collection orientation remains sharpest in this book. So we are not saying that, we will not grow this business this year. But the environment is tough. We know that the sale is not happening. But because of the used financing capability, the diversification around product range, be it SCV, LCV, tractors, new cars, taxis, and of course, with Southern market coming up, we are opening up in East also. And that is why in this quarter, we have grown ourselves by 26% and the team remain very, very confident that they will achieve the target for this year too. [Margin follow-up]: when repo rate kicks in, the reduction in repo rate happens, it will have a negative impact on our margins because of immediate transmission happening in our yields. But I strongly believe this year we will partially recover our margins by quarter three, quarter four. But I think the full recovery will happen next year.

Yeah. Hi. Good evening, team. Just wanted to check when we say our 1.8% ROA for '27, have we also built or have we basically tried to build in a cross-cycle MFI credit cost of 2.5% to 3%, which we had maintained before the cycle as well? And will we also build some on the CC business post risk stabilises?

Good. I think largely you are absolutely on our assumption, because by next year, our entire MFI book will be covered under credit guarantee. So the maximum credit cost, if the environment remains like this, I'm again repeating, if the environment remains like this, where the MFI is having a cost of 7%, 8%, then our credit cost should not be above 3% to 3.5%. And of course, the credit card business also by that time will be in better shape. And so it depends on these two variables also to achieve 1.8% kind of ROA. [Follow-up on credit cost composition]: [Vivek Tripathi]: it's a mix of always, it's a bucket movement, as well as it's coming from the unsecured piece. [Prince Tiwari]: The credit cost, the collection efficiency dip that you're seeing, Pritesh, in this particular quarter, we have given that chart on quarter-on-quarter, how the MFI collection has dipped on the zero bucket. And what happens is that typically comes and hits you in the next particular quarter. So the slippages from MFI, we are expecting to go slightly higher than what we were initially envisaging, let's say a quarter back. And that's partly the reason because of this particular quarter. As that happens, obviously, we'll have to make some provisions. And that's where the credit cost assumptions has been revised. But as we said, as Vivek also said that, incrementally every month has been better. So May has been better than April, June has been better than May. And so far, whatever we have seen in July, it's been much better than June. [PCR follow-up]: [Gaurav Jain]: PCR is sort of a function of provisioning policy. So I think it will continue to be driven by that. And depending on the mix of the GNPA within the asset book. Because your secured book carries lower provision than your unsecured. So depending on where the NPAs are coming from the PCR could vary.