On PSLC - last quarter 40% of MFI book was PSL compliant. How much has that inched up?
Presently still around 40%. However, we intend to dial that up. Post this quarter, we will be comfortably placed in terms of PSL.
Is it not possible to pass on higher funding costs to customers, particularly in EEB where there is scope to raise yields and protect margins?
It is a balancing act. In the corporate/wholesale book growing 38%, the bank participates in consortium lending with the best names in the industry, where interest rates cannot be fully passed on as it is competitive. But the credit quality improves significantly. In EEB, we are expecting 5%-10% growth. If environment is good, we may look at 10%; if vulnerability is noticed, we will contain growth and some cost.
Wholesale banking margins are inherently dilutive to the business. Given margin pressure, why are you prioritizing this growth?
Wholesale banking entry is through vanilla advances but the goal is wallet share - other income through LCs, forex, cash management, and other fee products. The bank recently entered forex business. Satish Kumar (Wholesale Banking Head): rates in wholesale are comparable to or better than industry average. We are building the full suite of products to generate fee income and forex income, not just NII. Rajeev: While EEB gives higher rate/return, it brings volatility from external vulnerabilities. Strategy is for higher secured mix with stable revenues. Will augment with other income capabilities. As we near the secured mix target, the ability to grow unsecured (EEB) slightly more will emerge to balance the mix. Rajinder: Wholesale comes with full ecosystem - corporate salary, vendor payments; plan is to cover the full ecosystem.
On the guidance revision to 1.2%-1.4% ROA - what conservatism is built here? Is it asset quality risk or purely tighter funding that may prevent expected NIM improvement? And if liquidity improves (FCNR deposits), could it offset some of these pressures?
The revised ROA guidance is entirely due to external factors - no internal factors have changed. Credit cost continues to decline (2.0% to 1.8%). Two key external concerns: (1) energy crisis from West Asia conflict affecting the microfinance sector and durable liquidity in the system - even without repo rate increase, banks including larger ones have started raising deposit rates, putting pressure on cost of funds; (2) tech costs have risen 65% YoY due to supply chain constraints from the Middle East war - chip prices, servers, cloud costs have all risen. The NIM improvement we expected may get impacted as savings bank costs have already risen 20-25 bps. We started ROA at 1% and are working on improvement, but wanted to be transparent. Rajeev added: for medium term, aspiration remains to achieve earlier guidance; external factors impacting this particular financial year.
What portfolio growth are you building for EEB book? And the slippages breakup across segments?
Liquidity remains comfortable - even with CD ratio of 94%, we maintained LCR of 140%. FCNRB mobilized INR 30 crores. On NIM, despite challenges we maintained 6.2% this quarter but going forward, there may be some increase in cost of funds. Portfolio mix strategy unchanged - 33%-35% EEB and 65% non-EEB. Non-EEB grew 27% YoY this quarter; EEB marginally down but moderation much lower vs prior quarters. Strategy remains 40% unsecured / 60% secured. Rajeev added: total bank slippages were INR 1,079 crores, EEB INR 604 crores, remainder from non-EEB.
Have we started hiking yields in microfinance like our competitors? If so, by how much? And are we planning further hikes?
Not in this quarter. No hike during Q1FY27. In Q4FY26 (from February 2026), we hiked by 100 basis points due to higher provisions, but no further hike since then. No plans for further hiking currently. Rajeev confirmed: 1% hike which happened from February.
Retail growth and mortgages slowed significantly this quarter - retail almost flat and mortgage book slightly declined. Is this a cautious stance due to macro/geopolitical environment?
Somewhat cautious growth, yes. In housing, we completely revamped the structure - segregated 3 verticals - and teething problems from this restructuring affected housing finance growth. Rajeev: On retail front, the OD against term deposits is the only product showing decline and it is not part of strategic focus. Rest of retail book grew ~5% sequentially. Secured products like CV/CE, auto and gold loans maintained momentum. Growth has reduced from double-digit to single-digit this quarter.
ROA is currently 1%, adjusted for INR 61 crores one-time gratuity it becomes 1.1%. What is the trajectory to 1.4%? NIM is unlikely to improve and credit costs are already at our earlier guided range of 1.7-1.8%. So where does improvement come from?
Two factors: (1) other income - expect 10-20 bps improvement from third-party distribution and processing fees; (2) further marginal improvement in credit cost as portfolio quality improves. The earlier guidance assumed further NIM improvement, which is now challenged by external factors. We are not building any NIM upside. Holding the current 6.2% NIM would be a great achievement. Partha added: approximately 20 bps expected from other income and some further pruning on credit cost.
Even after hiking MFI yields by 100 bps, we are still not confident NIM can expand given EEB is 35% of the portfolio?
Focus last year was on quality rather than just top-line numbers to avoid creating large NPAs later. We have completely revamped the microfinance model with a new credit underwriting system and guardrails. This enhances book quality but growth comes gradually. We have retarded the deceleration - growth will come but we will keep EEB book capped at maximum 35% and aim for 33%-34% share. Modest calibrated growth envisaged. Rajeev: while rate has gone up, volume impact not coming through as EEB growth is cautious given external risks. As risk reduces, MFI growth can be stepped up.
SMA-0 has increased a bit. Apart from holiday impact, was there any other reason? And what is the SMA-0 trajectory going forward?
Two effects in April: (1) West Bengal elections, and (2) three consecutive business days were holidays. Even though some repayments happened, the total quantum was yet to be repaid, so the book stayed in SMA-0. SMA-1 did not see a rise - forward rolling from SMA-0 has been arrested. May and June collection efficiency was ~99% and continues at that trend. No other reason for the SMA-0 increase. Surajit Roy Choudhury added: the stable SMA-0 book is holding; holiday EMI misses are recovering; delinquency management measures in place; forward slippage is not happening; confident slippages will not go further.
Vintage chart shows clear improvement in newer vintages and older vintages plateauing. So should credit cost have decent scope to improve from here?
Yes. Rajeev confirmed expecting improvement in credit cost. Vintage chart (Page 24 of investor deck) clearly shows improvement coming through in recent vintages. Older vintages getting plateaued and not deteriorating.
If EEB mix is stable and grows roughly in line with overall loan growth, that should support NIM even at higher funding cost of 6-7%. So why the guidance cut?
Non-EEB grew 27% YoY; EEB will be contained at 33% of total loan book. Key challenge is cost of funds. We got the benefit of repo rate cuts in Q4 last year and Q1 this year as term deposits matured with a lag. But competition is already increasing interest rates - even bigger stable banks raising FD rates. In some segments we need to increase too. So NIM advantage will not be available for the full financial year. Also opex cost already reached 4.3% vs guided 4.2%, and this will continue as all vendors - tech, hardware, servers, cloud, AMC charges - have increased costs. Rajeev quantified: approximately 30 bps stretch on NIMs, 10 bps on opex = 40 bps total revision. Earlier expected NIM to go from 5.8% in Q2 to eventually 6.5% by exit Q4FY27; now focus is just to maintain current level.
What credit growth are we expecting for the full year - should be 15-16%? And what is the tech cost as a percentage of opex?
On credit growth: guided 14% for full year FY27; EEB 5%-10%, non-EEB 20%+. Q1 non-EEB grew 27%, overall 16% - in line or slightly better. Challenge is EEB which remained flat YoY in Q1; will try to step up as environment improves. On IT cost: currently around 8% of total opex. Partha added: including depreciation, IT cost is ~9.5% of total opex. Industry benchmark for mature banks is 10%. Given investment requirements, will stay within 10% and aim to bring down to 8% as investments deliver returns.
ROA guidance was lowered by 40 bps - 20 bps could be explained by margin pressure. What explains the other 20 bps? And given FCNR-related flows expected, why still expect funding cost pressure? What changed between 4Q concall and now?
Original guidance was given in December 2024. EEB was recovering and we expected industry growth; recovery came mid-November 2025 but industry EEB growth still yet to come. Then West Asia crisis continued longer than expected; we hoped it would end but it hasn't. The energy crisis impacts the microfinance sector most. On deposit costs: the durable liquidity which should be INR 2.5 lakh crores is only around INR 1 trillion, creating pressure on deposit rates; even bigger banks increased deposit rates recently. The savings pattern of Indian households has also changed. Rajeev quantified: 30 bps stretch from NIMs, 10 bps from opex = 40 bps total. Earlier expected NIMs to improve progressively toward 6.5%; now focus is maintaining current level. Even if treaty is signed, actual economic impact felt 2-3 months later. Savings bank cost of funds already up ~20 bps QoQ.
On the credit cost front - if the energy crisis continues, how does that impact the microfinance segment delinquencies?
Till now the country is managing well - commercial gas cylinder availability is somewhat rationalized but not severely disrupted. There has been rationalization but the country is coping. This may lead to cost escalation that the segment cannot pass on. We may not expect delinquency impact near-term but cannot be overly aggressive. Rajeev: credit cost guidance of 1.6%-1.8% continues to remain unchanged.
We have built the secured book fast over 3-4 years but incomes have not kept pace with opex reaching ~INR 2,200 crores a quarter. Are we satisfied with secured assets built? Can we focus on efficiency - DSA costs, collection agency fees, cost-to-income at 62%?
We are taking steps in all areas. To start the secured business, we had to rely on DSAs initially, but now we are developing our own marketing expertise through strong LOS (Loan Origination System). Once LOS is strong, branches can be activated as sales points for retail and housing assets - DSA cost would come down. The 4,400 BUs in metro/urban areas can also be made sourcing centers. Tech cost in early years was primarily on CBS (only 3 years back). Now investments are in LOS and CRS. Products coming: Legacy, Elite, Elite+, new corporate salary packages, credit card launching in the near term. Rajeev: Working on efficiencies in secured book - driving cross-sell through branches, already doing INR 900 crores/month from branch channel vs INR 200 crores earlier. Rajinder Kumar Babbar: branch channel activation started, reducing DSA dependency. Cost-to-income will likely remain similar level for next 1 year before tapering from FY28 onwards.
Is there any headroom to push back IT costs for a couple of quarters?
Difficult to push back. Last 3 years: invested in new products (wholesale, retail, housing), governance tools, scalability, and DCDR/automated DR capabilities. These costs are ongoing and going up due to energy shortage and chip prices. The pace of growth seen over last 3 years may taper down slowly, and after 18 months or so, the outcome of these investments will come in the form of productivity gains. Rajeev: We want to get IT investment capabilities in at the earliest so that we can start seeing returns; the focus is actually on accelerating IT investment to generate returns sooner, not slowing down.
On Slide 23, the June collection efficiency shown is lower than the quarter average - does this mean collection has actually deteriorated over the quarter?
No. The quarterly collection efficiency includes in-quarter recovery of slippages, which makes it look slightly higher than a single-month number. It's a technical difference, not a real deterioration. Like-for-like comparison matters.
Are there any one-off items in NII or other income this quarter?
Nothing on the income side. On expense side, INR 61 crores gratuity provision due to the New Wage Act - this is a one-timer.
Gold loans declined this quarter even as the industry is doing very well. What drove that? And retail growth slowed to almost flat QoQ from earlier double-digit.
On gold loans: we implemented the new RBI circular which required a 180-degree change in our system. This impacted initial sourcing in April until mid-May. Now back to normal sourcing. Q2 onwards, gold loans will recover. On retail growth: Q1 is typically a softer quarter even in prior years (single-digit growth then too). Q2 onwards will be similar to previous quarters. The double-digit QoQ growth trend will resume.
Recoveries and upgrades this quarter are better than Q4 and better than most of FY26 quarters. What drove this? And is there a disconnect between cautious MFI outlook and these strong recovery numbers?
Recovery numbers include approximately INR 120 crores of cash recovery from the ARC sale of housing NPA portfolio (INR 291 crores sold to ARC). So the elevated recovery number is partially ARC-related. Partha: credit cost will not slow down - recoveries will continue at same pace or better. The concern is on cost of funds, not on credit quality. Credit cost will continue to improve and recoveries too.
Is the cautious MFI growth stance a conscious decision to reduce MFI mix, or are we letting it flow based on macro environment?
We are the leader in EEB and will remain the leader. No concern about growth per se, but no aggressive growth either. Bandwidth of 5%-10% EEB growth guided. If situation improves, may grow at 10%. Overall, my book will remain at 33% of total exposure. It is a calibrated, cautious stance tied to external environment.