Karnataka 'political risk' retired after Q1FY26.

I understand that this is a decision by the Board to do this. But is there any timeline wherein they will periodically want to re-evaluate whether this is the new normal -- could we say a year or two, three years down the line or this is cast in stone?

Rajeev Jain: I want to correct you, this is by management, point number one. Two, fully supported and ratified by the Board. Three, we've taken a view that this is how we'll run for two to three years and then take a view. Your question is correct. And guidance we will give along with Q4.

On the MSME side, you've explained for the last couple of quarters that whatever we've been seeing in unsecured MSME is predominantly because of customer overhead. Was there some problem or some customer cohorts which were also impacted by tariffs and which could get better now that this U.S. tariff reduction got announced yesterday?

Rajeev Jain: We saw some -- not material. So, it is yet to play through. We are mostly -- as I was making a point that over the next two quarters, we think we'll be done. But as you're looking at the 3 MOB, 6 MOB, 9 MOB of the MSME business, we think by June quarter or so, that business should also be back in -- between July and September quarter, that business should also be back in the 20s growth. Sandeep Jain: We had called out this last quarter as well that looking at the portfolio, looking at the information at industry level, leverage, location, bureau and so on and so forth, we have taken a set of policy actions on underwriting and credit policy, which led to about 25%-30% reduction in volume. We are clear that until the time that we see full revival of the portfolio, we call it incipient stress, but we have to see full revival of the portfolio. Early readings are looking good. We would like to continue to hold the credit policy as tight as possible. Maybe sometime in Q1-Q2 next year as we see full revival, we are more than happy to grow the business again.

Just to confirm, when you say the stake sale gain in the consol financials is below the line, so it's part of the net worth. It just directly goes into the net worth, is it? And the full INR 1,400 crores or is there a tax impact?

Sandeep Jain: Piran, you're right. It goes and directly sits in the reserves. It doesn't come in the P&L at all. The entire amount net of tax goes and sits in the reserve line. And it's obvious -- in the consolidated financial statement, Bajaj Finance, Bajaj Housing Finance and Bajaj Financial Securities is one entity. I cannot make profit by selling myself. So that goes and fits in the reserve rightfully by accounting standard as well.

Now that you've put a floor on your LGDs in various segments, does this also mean you will accelerate the transition from this floor to 100% provision? Or in other words, would you accelerate your write-off policy also because of this?

Sandeep Jain: As regards write-off policy is concerned, Piran, we are -- which is reasonably prudent. We ensure that all kinds of secured, unsecured loans get written off at six installments overdue, barring mortgages, which has a very long tail and some of the other businesses, which are -- which have a high amount of -- or high reliable value on the collateral front. So, barring those businesses, we do write-off at six months overdue. At this point in time, we have defined the floor that we find appropriate. For some of the business, we would have defined the floor at 75%-80%. For some other businesses which are secured in nature, have very strong collateral, the floor maybe 40%-50%. We'll keep revisiting it on an annual basis and wherever we feel appropriate to intervene and enhance the LGD coverage, we would probably take those actions.

Your fee income growth of 30% Y-o-Y is pretty strong compared to what we've seen in a very long time. And that too when the festive season was partly in 2Q, partly in 3Q. So how do we -- is there some one-off or is this the rate of growth that one should expect?

Rajeev Jain: Piran, this should gravitate closer to -- from the next fiscal gravitate closer to between 18% and 20%. It's just normalizing is what we would say. Sandeep Jain: There were one-timers in the last year, we had some INR 80 crores of gain sitting in the other operating income on account of sale of written-off portfolios. We don't have any such gains in the current quarter. In fact, if at all, there was one-timers, the one-timers were sitting in the last year same time rather than the current quarter. There's no one-timer. This is core growth. As we get into FY '27 onwards, this number should be in the range of, say, 17% - 20% growth on a Y-o-Y basis.

Just a follow-up. So, you're saying that pre-COVID till now -- from 2019 till now, our market share probably in this segment has been in this range only, under 10%, right?

Rajeev Jain: Yes. Between 7% and 10% is what it gravitated around. Mind you, Shivani, if I may make a point, we know the competitive intensity in '19-'20, and we know the competitive intensity now. I would say it's 3x of the entire public sector banking ecosystem didn't participate in urban B2C, rural B2C at all, I may say so, or was much smaller participant. It is the largest personal loan lender in India in terms of market share is SBI today and so on and so forth. So, the competitive intensity has magnified significantly, not just across personal loans, across each one of these lines of businesses. We've continued to grow. That's one part, continue to maintain market share, second part and continue to ensure that we sustain the return on assets and return on equity.

So, then that probably explains the revision in the LGD floors. Would that be correct? What you were talking about the 3x increase in competitive intensity out there?

Rajeev Jain: Partially, it's true. If there is only one red flag that I would have is that the overall consumer leverage remains an area of concern. It's not directly attributable Shivani, I would just make a point. But if there is only one red flag that I continue to have is that consumer leverage continues to remain an area of concern. Thankfully, on a year-on-year basis, as far as the bureau data shows, it's not grown. It's flat. After a while, it's flat on an aggregate basis. We'll wait for March numbers to come by June or so. But it seems at this point of time on a year-on-year basis for first eight months, consumer leverage is flat. So that's a good sign. Sandeep Jain: Just on the LGD piece, as you see Slide #54, where we have provided provisioning coverage ratio by business. We've already taken the urban B2C to 80% provision coverage ratio. Even if there's a worsening that we see in the market, ECL keeps going up. We may not see impact in our portfolio because of the actions that we have taken. We are done, I would say, at 80% PCR ratio.

Just my question on the gold loan. What will be the strategy for next year, if you're going to share now? Or will you share it in fourth quarter?

Rajeev Jain: Sustained distribution expansion, that's one part. We will continue to expand. We foresee business continue to grow strongly. But gold prices have -- so we will do what is in our control, which is distribution expansion. As AI transformation happens, our existing branches will continue -- but customers have no need to walk in. 3% of the franchise used to walk in, given what we've delivered on app and the digital transformation and now on the BOT, less than 0.6% is walking in. Our existing branches will continue to morph into gold loan branches. We will continue to expand on a sustainable basis, our gold loan branches. The benchmark ROE and ROA metrics are in line with what the best in the industry are delivering. Could it grow at the same rate of the current year? Could be. Could it grow a little slower? Could be. It's a little volatile right now -- from USD 5,500 to USD 4,500 in one week, it makes it even hard for me to do a budget planning session.

Can I come back on the ECL? Perhaps an academic point, but why was LGD different in Stage 1 and Stage 2? I would have thought it would be the PD that would be different and not the LGD. And presumably, that means that like a future credit cycle might look different. Also, on the 165-175 basis point credit loss guidance -- is that more like a business outlook because things are looking better? Or is there something more tangible that you are seeing in the business?

Rajeev Jain: I've used the word quite optimistic if you see in my investor deck as well. So, we are quite optimistic. As I said, we are looking for the last 12 months on 3 MOB, 6 MOB and 9 MOB metrics. That's one part. The second part, which is important for -- you may say what also gives you the confidence on 165 to 175 is also our AF portfolio, which is 1% of the balance sheet, but still 8% - 9% of the credit cost, in the third quarter would be down to INR 1,700 crores of balance sheet by September. If there's no balance sheet, there's no credit cost. It's 1.14% of the balance sheet and 9% of the credit cost and 14% of the GNPA in absolute numbers. This balance sheet will be done and over with by September. Even as we exit March, it will be left with INR 4,200-odd crores. So that is a natural watch that's happening. In addition, the core businesses, we are tracking 3, 6, 9 MOB gives us quite a high degree of confidence in being able to do. Quite honestly, I am not that much of a macro person. I am a micro person. I think we control who we give unless and until it's an event. Event is different, COVID was an event. Demonitization was an event. Non-event, I would like to believe we control what we choose to do. To your point on LGD, understanding is absolutely right. The LGD that we apply applies across all stages uniformly. So, when I give an example of 80% as a number, that 80% not only applies for Stage 3, it applies to Stage 2 and Stage 1 as well. What moves the provisioning number in Stage 1 and 2 is the probability of default and exposure at the time of default. These are all calculated using data based on a complicated model that risk team runs for doing development of ECL models. However, the LGD rates whether it is Stage 1, Stage 2 or entry into Stage 3 remains exactly the same across businesses by business lines.

One last one on LRS since we didn't get a chance to question on that. What were the main deltas for you, both positive and negatives as you did your LRS to the last year?

Rajeev Jain: All LRS in general or any management strategy is on a continuum. At a design level, acceleration of AI is on a continuum. If you are 4, you're going to take it to 7. The big thing which will define the company over the next three to five years is the customer-centric strategy that we have principally outlined because that gives us INR 5 lakh to whatever, INR 11 lakh, INR 12 lakh crore balance sheet outlook, gives us existing customers easy to do business with, whether sell or cross-sell, gives us Opex benefits and gives us credit cost benefit. So as much as we've been focused on hunting on the continuum and farming, we increased the weight of farming as virtually from -- I would say, we were 60-40 hunting farming. We'll probably go to 40-60 hunting farming in the next three to four years. As you get to 200 million customers, as our data said, India is only 302 million households. And by FY '30, we foresee we'll be doing 100 million loans a year and we would have had 200 million franchise. That's 20% of active households in India, we would have ever lend to at a point in time by FY '30. That would have been a good 22-23 years of a strategy running, which is 60-40 acquire, cross-sell. It goes to cross-sell and acquire for the next probably 10 years. We are not going from hunting to farming. We were hunting and farming. We're just slowly gravitating to more -- to what the needs of the business are and shift the mix.