MUFG INR396.18bn / 20% stake closed April 8.

There is a 40 basis point increase in GS2 assets. Could you throw some color on where this is coming from? Whether this is seasonal in nature or something we should worry about? And how do you expect that to evolve? And related to that, if you could also talk about your cost of risk guidance.

As you rightly put it, it is more of a seasonal. This time the onset of monsoon was little early than they expected. Typically, monsoon arrives in the mid-June. This time it was in the last week of May in many parts of the country. So, there were some business disruptions here and there. That is the reason Stage-2 went up. But it is very marginal. Our customers normally move between Stage-1 and Stage-2 and they have cash flow mismatches whenever cash flow mismatches. But what is important is the credit cost. The credit cost did not go up. The credit cost has actually improved. So, we did not really read too much into the movement of Stage-2 increase. Overall, it will remain under 2% for us for the full year.

Is there any kind of fair value gains from parking liquidity with mutual funds? Your peer reported one. I am just wondering if your reported NII, not the presentation one, but the reported NII, if it is understated for any specific factors. And the second one would be, there is no direct assignment income in your management NII this quarter.

The net gain on the fair value changes was mainly on account of the profit that we earned on the mutual fund investments. For the current quarter, it is Rs. 134.66 crores. The similar figure for the previous quarter was Rs. 111.27 crores. And as far as the assignment income is concerned, since we have not done any assignment deals in the current quarter, no income was recognized. Similar figure in the previous quarter was Rs. 13.60 crores. And apart from that, the interest income only is performing part and the other operating income is also grouped for the purpose of net interest income.

On the MSME growth plan. Your quarter-on-quarter growth has come down to 3.5%-4%. And there is a sudden moderation in MSME business accretion this quarter. You've been guiding for around 15% growth overall. Why is there sudden slowdown in the MSME growth this quarter? And do you see a risk to your full year AUM growth estimates?

This is Chakravarti here. So, we are focused on growing this book. The only reason why it is slowed down, actually there was a slowdown in the demand for, in the first quarter, because, see, the fourth quarter, festival season, third and fourth quarter festival season, typically the demand picks up from the second quarter, in preparation for the third quarter festival season. First quarter is normally slow, but you will see the pickup in the next two quarters. We are still, on the course, for the guidance, to meet the guidance numbers.

How is the trucking activity doing on the ground? Our operator cash flow is improving, how is the situation at the ground level?

The trucking activity is quite healthy, I should say. See, one of the biggest advantage or disadvantage is, since the cost has gone up in the last three years, the new customer walking into trucking business have come down. So, the existing players have a reasonably good business. Their revenue is good, the freight rates are good, and their overall utilization levels are good. So, the situation has not changed for truckers at all. Normally what happens is, when there is excess capacity, and economy slowed down, then there is a challenge. But this time around, even though there is little slowdown in the economy, since there is no excess capacity, the trucking activities are going on smoothly. Temporarily, as I was telling you, if there is seasonality, because of excess rains in certain locations, there could be some disruption and some delay. And that doesn't really create the credit cost. There may be some movement into Stage-2, because of the delay or mismatch in cash flow. But that doesn't end up with credit cost. So, we believe the demand is good, because for us the disbursement growth was good in CV, in the first quarter.

While you mentioned that the operator economics remains undisrupted, but how about the operator cash flows? How are they faring, especially on the used CV segment side?

See, used CV segment has been doing quite well. In fact, our growth, disbursement growth in used CV is quite good. The resale values have not dropped anywhere across the country. So, the value of the asset remaining strong, that helps the customer to, not only to earn and also to encash, after repaying the loan. And he will retain the vehicle throughout with him. So, these are all the advantages. So, we are not seeing any weaknesses in the trucking market value or in the revenue earning for second hand or new. Both are doing quite good.

How has been the color on repossession side or movement quarter-on-quarter?

There is no change in the repossession. Most of the companies in the last couple of years have slowed down or have not repossessed many vehicles, mainly because the resale value being higher, the customers are not defaulting. That is the scenario. So, repossession numbers have not gone up. There could be in one or two geographies, it would have gone up marginally, but it is insignificant considering the all India position.

On MSME - one of the peers has highlighted pertinent concerns on asset quality on MSME and also banks have been highlighting regional challenges. So, what has been your experience on the ground as far as delinquency/asset quality is concerned from the MSME side?

See, our focus has been a smaller ticket and to trading sector and services sector. We are not really lending into manufacturing sector in the MSME. Therefore, the businesses remain reasonably steady because especially if wholesalers, shopkeepers, that kind of a segment we are addressing. And we have not really seen much fluctuation in their earning or cash flow mismatches. So, we are looking at it as a very steady business and we believe that this will continue to grow as we create more reach. Now, MSME lending is there in around two-third of our branches. Rest one-third of the branches we are yet to reach. We are creating that reach and as we create a reach, we will keep expanding our business.

How are we looking at the car market, especially at the entry level? What are the various demand drivers we see through the year during the festive season as well? Are we seeing inventory build-up and entry-level cars? Also, in terms of SPVs, LCVs, are we seeing asset quality spikes? On gold finance - given the fact that regulators have now allowed equity gold loans for banks, are we seeing some kind of a transition back of agri gold loan customers?

See, basically, on entry-level cars, as you rightly put it, the entry-level car demand, especially new vehicle sales, are on the lower side. But the demand for used cars is increasing. The entry-level car demand used to be mostly in the semi-urban and rural market. Now, we are seeing there is a shift to a higher vehicle, which is compact SUVs. So, people are preferring second-hand compact SUVs or new compact SUVs. So, the aspiration class are wanting to move up to the next-level cars. So, the entry-level car demand has come down. As far as the LCVs and SUVs are concerned, last year LCV did not really grow much because the previous year the rural economy was not really expanding. But since last six months, the rural economy is doing well, we expect the LCV sales to go up. And also, the e-commerce activities are now spreading into tier 2 and 3 towns. And therefore, I believe LCV and SUV demand will go up. It will grow faster than heavy vehicle is my belief. As far as the gold loan is concerned, we believe more business will flow in from informal sector to formal sector because there has been little the RBI new guidelines have been little liberal for small-ticket loans. So, we believe that there is an opportunity for NBFC and banks to grow faster because more gold loan proposals will move from informal sector like pawnbroker and moneylender to the formal sector.

On the NIM fund. So, in this quarter, it declined 14 bps quarter-on-quarter. How do you expect margin to behave in the rest of the quarter, say FY26, with falling cost of the funds?

There is a multiple factor which we feel confident of improving our NIM. First, our incremental borrowing cost is at 8.36% and our cost in the book is 8.86%. So, there is significantly lower cost we are able to raise resources. We also have reduced our deposit rate from the first week of August. The deposit rates will come down by around 40 basis points. So, across, we feel that the 40 basis point reduction in incremental borrowing will bring down the cost to us over the period. Even though we have 85% of our borrowing in fixed terms and 15% floating, so that transition will take some time because the 15% floating, the bank will pass on immediately whenever there is a reduction in rate. But 85% will take time. So, over the six months to one year, we would be able to bring down our borrowing cost and that will be able to improve our net interest margin. We are confident that we will reach to 8.5% net interest margin for the full financial year by the end of the year.

On the credit cost, the guidance is 2.2 to 2.4 and in this quarter basically it is around 2%. What is the full year guidance? Will you lower down the guidance post this number?

The credit cost will remain around 2% for the total assets.

In the passenger vehicle side, in this quarter the industry decline despite that your growth was very much strong and impressive of around 23%. What is the reason behind this? Is it because of the premiumization or you are gaining market share?

No, we are obviously gaining, I don't say gaining market share, this market is virtually unattended. There are not many players in second hand car financing especially in the suburban rural area and we are able to really grow on that and also as I was telling you there is an increased demand coming from the semi-urban and rural market because of lack of transportation, public transportation available to them. So, we are able to grow and also there is one big advantage for us that many of our customers who are, who bought two-wheeler from us, they migrate to become car owners over the period. They have aspiration and that is a customer which is an in house customer for us. So, there will be certain percentage of customers, aspirational class will move from two-wheeler to four-wheeler. So, I think that is a ready-made customer within the house for us to grow the business.

You have also told that there is excess liquidity in Quarter 4 and also you have also said that there is a five month excess liquidity as of now. What are the planning if you say in the Quarter 2 or 3 that this will be continued or not and what about the additional borrowing you will take on a Quarter 2 or 3?

Now we will be definitely utilizing the excess liquidity that is available by slowing down the further borrowing for this quarter and we will bring down from five months to three months maybe in three to four months from now.

On cash position again. If I look at the total outflows in your ALM statement, your three months liquidity I think works out to roughly Rs. 20,000 crores. So, basically this outstanding Rs. 25,000 crore of cash position plus maybe some part of investments which you would be counting towards this, this should come down to 2025 eventually? Or how should we think about it?

Yes, so what you're saying is right. We will bring it to three months of liability repayment. If you're looking at the ALM, there can be some bulk repayment which can be there in subsequent particular months because of the bullet repayment of entities what we have would have taken. But the steady state number will be at around Rs. 18,000 crores to Rs. 19,000 crores of liabilities in three months is what we normally plan and that will be the number we will be targeting to maintain.

Cash plus investment today is Rs. 38,000 crores-Rs. 39,000 crores. That 39,000 should come down to 20 odd? How much is excess? Like what will you eventually run down? And what time frame?

It will be close to around Rs. 10,000 crores which will run down.

On NIMs. Umesh sir, you said 8.5% NIM for '26. So, is it full year '26 or is it by 4th Quarter of '26, which one?

By 4th Quarter.

On GS2 going up. So, this quarter almost 9%-10% QOQ increase in overall GS2 and if you look at some individual segments it is even higher. Does this mean that next quarter we should see the forward flow into GS3 from this and therefore your credit costs can go up? Or are you seeing fairly good recovery potential in whatever is flowing forward?

Most of our customers are known customers or where we can reach and our executives are in touch with those customers. We are confident of rolling back most of the customers. It may be a temporary cash flow mismatches which we are confident that we will be able to reach out to them and address their challenges and be able to recover. So, I don't really see that flowing into GS3. Normally people who go from GS1 to GS2 come back to '1' sometimes or to '0' bucket. So, that effort is always on and the activities and actions are taken accordingly and especially on the vehicles and all we go for repossession so that we address that issue fully.

My question again is on the flow rate. So, flows from Stage-1 to Stage-2 are happening. But they are not moving forward into Stage-3. Can you explain why the flow rate between Stage-2 and Stage-3 is much lesser despite the outside disturbances and what all collection actions and mechanisms are being taken when the account slips into Stage-2 and also whether any remediation is offered to the customer who has moved into Stage-2?

See, normally we meet the customer, address his issue and sensitize him in improving his credit score by bringing him back to Stage-1. That's the first step we take. If we feel the customer has a permanent mismatch then we will resort to repossession. If you look at our total asset book 65% is passenger and commercial vehicle, another 7% is the two-wheeler. All this can be repossessed and we can sell and either collect the money from the customer make it nil or we can sell the vehicle. So, we have immediate liquidatable asset in our hand therefore it doesn't flow into Stage-3.

Now the second question is on the growth in the CV financing portfolio which is predominantly used. So, now the traction is being maintained at 3%-4% Q-on-Q and 12%-13% Y-on-Y. Is it now more volume driven in the recent quarters and less value driven and if it is more volume driven then has there been any changes in the way you are sourcing on the ground and whether any lending policies have been kind of slightly relaxed?

Now it is both value and volume both because what happens is, the loan which was sourced 4 years back are getting matured now and a new loan is getting given. So, definitely there will be an increase in value year-on-year. Every year in spite of the new vehicle prices not going up in the last year. So, that is one thing and second, our reach has always going up. If you see last year also we added 165 branches this year also first quarter we added 5 branches. So, as we create more reach we are able to grow our business and the other most important factor is the smaller lenders are not able to grow their business because they are not able to raise the liability side. So, we are able to raise liability and therefore we are able to take market share from the market. For example there are around 9,000 small NBFCs and many of them do not have any ability to raise resources to leverage on the balance sheet. We are able to do that.

Your fee and commission cost line has been growing at 30%-40% Y-on-Y in the last 3-4 quarters. Why is it growing so fast? And employee cost this quarter was higher than the previous quarter. There was a jump of 7%-8%. Did we run any incentive scheme?

The staff cost has increased primarily on account of the increment that were due in the current year, April '25 and also the annual bonuses which were paid. So, this is the main reason for the increase in the staff cost. The commission expenses, it is primarily are commission paid by the deposit agents. There has been an increase in the deposit inflow in the first quarter of this financial year. There has been some increase in the cost.

On the NIMs. I just wanted to check have you reduced yields in any of the products or the yields continue to remain the same as last year?

The yield has been stable similar to the last year yield. There has not been any decrease in the yield.

What is your strategy on deposits going ahead? Because we are still raising it. If you could just tell us what is the landed cost of deposits that you are raising? What is it as compared to NCDs and Bank borrowings?

See, deposit, if you look at our growth in the first quarter, the growth has been around 10% Q-on-Q growth. That is grown by 10%. Portfolio has grown by 10%. And whenever we announced the rate reduction, there has been more inflow to lock into longer duration by the depositor. So, we have again reduced the rate from the first week of August by 40 basis point. So, effectively our cost for deposit interest rate comes to 7.6 now, which was around 8% plus 8.5 in the beginning of the financial year. So, there has been significant reduction in the interest rate. So, the total cost of deposit including the intermediate cost stands at around 8.8 in the books now. It will go down to around 8.4, 8.3 from the next, maybe August. The next quarter it will be around 8.3 total cost. And when compared with the other liability, it will be much cheaper because bank borrowing will be still higher than that.

Why are we focusing more on deposits because we are already carrying excess?

Now incremental rate for deposit will be 7.50-7.60. It will be in line with what we are doing in capital market. So, not much of difference there. See, the other thing also is, Shriram as a Group, see we look at depositors because there have been, there are depositors, generational depositors who are with us and most of our deposits, almost 55% of our deposit is from senior citizens. So, we, as a philosophy, we wouldn't mind if it costs 10-15 bps more than what we can get from the market also. That's a call that we have taken consciously. And it's a diversified, diversification of our borrowing portfolio and the deposits are sticky.

On fee income. So, we have seen decline in that line item. So, if you could just explain what exactly happened there? So, I think last quarter it was about Rs. 330 crores, this quarter it was Rs. 100 crores?

In the last quarter number, we had received collection commission on account of DA transaction, which was amounting to Rs. 170 crores, which is not there in the current quarter.

On personal loan. We are seeing about 24% decline in disbursements. And in construction equipment, from Rs. 2,180 crores, it's down to Rs. 526 crores. So, is it because of higher delinquency, in this segment, in construction equipment, that we become a little more cautious in terms of sourcing?

No, construction equipment is basically the construction activities slowed down much earlier than expected because of early onset of monsoon. So, most of them got postponed. So, you will see a bigger demand that will come in the month of August and September, mostly in September. So, it is just a postponement and we also felt that it is better we wait for the right time to increase our construction equipment disbursement. Personal loan, there is no de growth. Our focus on personal loan is not diluted, it is continuing.

You said that 8.5% NIM will be an exit NIM for FY'26, but previously you had said 8.5-8.6 will be the full year NIM. So, which one is it?

8.5 for full year, when I said exit, we will close the year at 8.5-8.6 I said. Yes, but see, our effort will be there to improve the margin by reducing the borrowing cost. As we are able to reduce the borrowing cost, the margin will improve.