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

Can I start with your provisioning cost this quarter slightly higher than consensus was expecting? Could you tell us how do you see the asset quality trends playing out over the next year? And what kind of seasonal patterns do you expect next year?

Yes, thank you. See, basically, Chintan, the last 2 quarters, you would have seen or you would have heard that Indian economy is slowing down a little and had certain pockets of stress building up. Even though for us, most of our loans are secured assets, we did not have any of such an impact. There were certain geographies, remote areas, where it had built up. So that's a temporary one. And I believe it is figured out by this time. And we don't really see, because the rural economy is doing well. Back to back, if you have observed that even this IMD prediction for this in this year also , the rains are likely to be above normal. So we expect the rural stress whatever building will get addressed because of a better economic situation in the rural area. Urban areas have slowed down a little because government spent on infrastructure has slowed down and therefore not creating enough opportunity for credit growth in the urban. So overall we feel that the credit cost of what, 2.0 7 in the last quarter and the overall for the full year it is 1.91 is reasonabl y good and well managed. I don't really see any further increased stress or increased credit cost for the next financial year because the rural is playing out well and we expect the infrastructure spent by government to come back and even the credit demand and the overall credit situation to improve further.

if the economic slowdown continues to be if economic activity continues to be weak, would you think there could be some impact on your operations or are you making this assumption that the real rural economy being better will buffer you against any urban slowdown?

Yes, rural economy will definitely buffer because most of our operations is in the rural. If you look at our branch network, nearly 85% of our branch network is in semi-urban and rural, which has some kind of what to call linking to the rural and the agricultural economy. So we are very confident that we should not have broader challenges.

And my second question then is o n the NII. Could you help us understand, how do you take the financial decision between direct assignment and keeping the loans on balance sheet?

No, we have not done any large direct assignment transaction. The outstanding I was mentioning as of March '24 was Rs. 3,200 crores and that is a similar number as of this March '25 also. So no large transaction of DA done during the year itself.

My first question is on the CV portfolio growth which has come down to about 10% to 11%. In this few quarters, it was around 13%-14%. What is the reason for that?

If you look at the CV sales, you'll see that the sale has been flat year-on-year this year. So overall, expansion of the C V segment was not there this year because infrastructure spent by the government was much lesser than the anticipated. That's one reason. And second, there are not enough transactions in the used vehicle market because number of vehicles available for transactions are less. As last 4 years, the sales have been much lower. Right from 2019 to 2021, the CV sales have been less. So what we anticipate is, since the sales have improved from 2022 onwards, the number of used vehicle transactions will go up in the subsequent year. That is 26, 27, 28. So our focus being used vehicle financing, we expect that to grow much faster. Whatever the growth what you are seeing now is because of the ticket size being higher as the resell values of each of the asset class have gone up. So we expect the growth to come in the subsequent year, next 3 years. But right now we feel that 10% growth is quite good considering the lack of transactions or lesser number of transactions as number of vehicles in the market is much lower.

Sir, for FY'26, would you say that this number will still be around 10%, 10.5% or it could be higher, say 12%, 13% or 14%?

We are looking at 12% to 15% growth in the next financial year.

And on the MSME piece, what kind of growth do you expect that this one piece which has grown pretty strongly for you last few quarters, even this time? Do you expect that this growth rat e would continue and grow at 30% by FY'25?

Sorry, this is Chakravarti here. I think our guidance on MSME would be between 18 %-20% of growth for the financial year.

And for last question, I understand there have been slippages in this quarter, even the gross Stage-2 numbers have increased by about 20 basis points. I know you partly answered that this is where the credit cost is likely to peak, but any expectation that the credit cost at this level could remain at this level, or do you think that it can come down substantially?

We are working for credit cost to come down because we feel that the rural economy doing well should help us to bring down the credit cost. So we always give a guidance that we will try to maintain around 2% and hopefully we should be able to bring it below 2% of credit cost.

Can I have the total write-off number for the 4th quarter and the 3rd quarter as well please? Including your the total write-off for this quarter, the 4 th quarter and 3rd quarter?

Yes, write-off for the current quarter is Rs. 3,162 crores and the write-back of the provision was Rs. 1,603 crores. The total provisions in credit cost number is Rs. 1,559 crores for the current quarter. For the previous quarter, the write-off number was Rs. 501 crores and the provision was Rs. 825 crores totaling to Rs. 1,326 hit to the P&L.

Firstly, what triggered this technical write-off division of Rs. 24 billion? Is it in some way related to your PD and LGD reset annually, which you do in March quarter? And also, c an you help us with the composition of this write -off so that we can look at the growth at the product level in the right context?

This is Rs. 2,345 crores was nothing to do with the PD and LGD which we have assessed for the current quarter. It is mainly a decision taken based on the coverage being continued for the last 5 to 6 years just before the COVID we started having a coverage of more than 50%. And we used to continue with that. To achieve that, we used to maintain 100% provision on certain assets and those assets we technically wrote off in the current quarter after deliberation at the board and that was the basis on the background for technically writing off those assets. In the investor update itself, the breakup of Rs. 2,345 crores product wise has been given.

Now, see, we have also seen some increase or I would say a material increase in the Stage-2 for passenger vehicles and MSME segments in 4Q. But you also spoke about the stress peaking now. But how do you contain the forward flow of these accounts because see Q1 is typically weak in terms of collections and even recoveries of NPA. Hence, can we see an increase in NPA in Q1 or will we be able to contain the flow of these accounts which are mistakes too?

We are very certain that you will not see much of a forward flow in the Q1 of these accounts into Stage-3. See the kind of a segment of customers that we deal with we have been seeing this for a period of last few years that they keep moving between Stage-1 and Stage-2. We do not see any stress points as of today. The stress point is basically, the worry would be will they slip into Stage-3, but that I will be assure that the feedback that we got from the ground is that, that will not happen. Some of this flow back or stay where they are.

And this gold loan portfolio has been continuously shrinking. I mean, Q4 had a benefit of much higher gold prices as well. I mean, previous quarter, I think we spoke about higher pledge releases, but in Q4, we have seen further shrinkage in the portfolio despite much higher gold prices entail when submit. So can you explain what is happening in the gold loan portfolio despite the fact that we are adding distribution there as well?

Not only distribution, in fact disbursements also were up Q -on-Q, quarter-on-quarter, but the redemptions have outpaced the disbursement. So that is the rea son why you see a drop in the AUM. But we think we are on a growing curve in terms of disbursement and this year you will see an a ddition to the AU M. To be honest with you, there is not hing specific. It's more of a pressure on redemption.

And on the business team count number, it has been flattish or it has been growing very slowly in the last 2-3 quarters. So, I mean, is it the productivity coming through or are there some challenges related to attrition?

No. Attrition has been steady. It is the same. It has not increased or I would say it has also not decreased. It is basically a reason of better productivity.

Firstly, just a clarification on one of the previous questions. You had mentioned 12% to 15% growth for some segment. Was that used commercial vehicles?

Yes, it is overall for CV, commercial vehicles. Passenger vehicle, we are growing at 20 % and we are confident of growing at 20%. Commercial vehicle will be between 12 to 15. MSME will be around 20, 20 plus, I can say. And other segments also will be growing at around 20%. The CV will be growing gradually.

But sir, my question here then is, if the new CV sales are weak, will that impact used CV sales because typically people exchange their truck. So they will buy a new truck and they will sell that old truck. But if they are not going to buy a new truck, they will not sell their old truck. So how does that work? Let's assume a new CV sales don't grow. This is just an assumption. How will that play out?

Basically, what happens is you are right in the sense the new vehicle sales is also dependent on used vehicle transaction. But the number of new vehicle sold between 19 to 21 was very low. So there is not enough supply of used vehicle in the market . The used vehicle market did not grow in the last year and maybe previous last year, which is expected to grow because supply will come into the market. So there is one is replacement of a vehicle and second one is additional growth because of the economic activity. What I am saying to say is, replacement demand will continue to remain. When there is a flat sales, replacement demand will come. The extra vehicle that is required for higher economic growth, that will not happen.

Sir, just on personal loans, are we getting confidence back now to start growing? Because we were de-growing for few quarters. Now, last 1 or 2 quarters, we pushed the pedal on growth. Just wanted to get a sense of what we are seeing to get this confidence?

No, to be honest with you, I think last 2 calls, last 2 investor calls also, I made it very clear that the slowing down is not because we are worried about the quality. It is also because the regulator was expressing concern on the personal loan growth in the industry and we thought it is better to be on the safe side so we slowed it down. And the reason why we are back on the pedal now is we have not seen any reason to be concerned in the last two quarters, number one. Number two, the industry as a whole I think looks like that the delinquency is also peaked. And primarily, we did not find any reason to be worried and so we are pushing it back.

Understood. And sir, just last thing, maybe an accounting thing, but our employee cost is down quite meaningfully by about Rs. 70 crores quarter-on-quarter. Was there a one -off last quarter or is there some sort of provision reversal this quarter?

The last quarter was on the higher side because during the festival scheme for two wheelers and other retail products, we were running some incentive schemes for the employees which got accrued and paid in the previous quarter itself and that component is not there in the current quarter and hence compared to the previous quarter it is on the lower side.

So on the passenger vehicles front, the Stage-2 continues to spike pretty materially. Now that you've mentioned that there is this movement keeps happening between Stage-2, Stage-3. But in this quarter in particular, we also saw write off amounts for passenger vehicles slightly on the higher side. Of course the Stage-3 improvement could be attributed to that , but what could be the reason for a continued material spike in passenger vehicles Stage-2?

See basically most of the passenger vehicle which we are financing has been in the rural segment and certain rural segment had some impact because of the slowdown in the economy and that too in the central part of India. Now that things are back to the normal, I don't really see any further deterioration. When I say central part of India, it is basically around Ch hattisgarh, MP and some part of Bihar. So, now things are much better. I don't really see any scope for increase.

Secondly, how has been the repossession activity panning out for this quarter in particular?

The repossession has not really increased because what has happened is the customer's repayment has been good in the sense they have been bouncing back and paying. So we don't really see a higher repossession anywhere in the industry for that matter. So most of the vehicular segment, the reposition has been at very low.

And just one last clarification on growth. So are we now guiding 15% kind of the growth because we were pretty confident on 18%. We have also been building a strong liability profile despite putting margins on the pressure. So why, I mean, did I get it right? Why grow that 15 % only?

We have been giving a 15% growth as a medium term growth. And the last 2 years also we had given 15%, but if the economy is growing well and if it can absorb and there is better demand, then it will grow faster. So as of now I feel 15% growth at current projection of the government where the government itself is talking about 6.5% GDP growth and the other economists are talking about 6% GDP growth. 15% is a fair growth we are expecting but if the growth is faster and the credit growth is better, then we will grow faster.

And sir, just bookkeeping question. Sorry, sir. What are the IRRs for two-wheeler loans?

Between 16% to 22%.

My question is on margin size. So you highlighted in the earlier comment that because of high liquidity on balance sheet that they impacted our margins. So what is the normalized liquidity as a percentage in balance sheet that we want to maintain going ahead and what basis point of impact was there in margin for this call?

Yes, the liquidity what we used to always tell was that 3 months of future liabilities to be maintained as liquid assets and the number wise it used to be close to around Rs. 19,000 crores. That number is now around Rs. 31,000 crores. That is up from 19 to 31. This is close to around 6 months of our future liabilities that has to normalize to 3 months over a period of next 2 quarters. An impact on NIM is because of higher liquidity.

So basically going ahead in the next couple of quarters, this 20 -25 basis point will flow in and the benefit of the repo rate cut will also sort of flow in. So what is the kind of NIM that we are looking at for exit of 1H FY'26?

See, we are guiding for an 8.45, 8.5, 8.6 kind of a NIM. Again, obviously if I get a rate benefit, some of it I would like to pass it on to my customer also. We would like to peg our NIM at about 8.6.

My question is on MSME. Can you give some color on MSME, what percentage of the book is secured and what is the nature of security, what is the average ticket size and what is the average yield that we are earning on that portfolio?

Book is secured, majority of the book is secure d, more than I think it will be between 70 % to 80% of the book is secured. As far as security is concerned, most of the time, I mean most of the security would be either a house property or a commercial property, either a shop or something like that. So it is basically, most of it is immobile assets. And sorry your follow up was you wanted to know the IRR?

Yes sir, IRR and the average ticket size of this book.

Average ticket size is about 7 lakhs , sorry it will be between 5 to 6 l akhs and IRRs range anywhere between again 16% to 24%.

Have you seen any differences in terms geography in terms of Stage-2, Stage-3 movement?

See, it is basically nothing specific. I mean, it is not specific to a particular geography but to certain extent I would say it is borders of UP, Bihar, MP. The border villages got affected. The border areas got affected.

So firstly, on the overall post the write offs, now coverage is almost 43% odd. So how we would like to maintain maybe we would like to maintain it around these levels or would there be any plan to take it any further? How we would look at it on the next stage? And related question is on the tax benefit. Has there been the tax benefit? Has it entirely accrued in this quarter or we will see tax benefit in the coming quarter?

See, basically we had a provisioning cover of around 51% that has come down to 43 because of the numerator impact. If you look at our provisioning prior to COVID, it used to be around 36% to 40 %. And during the COVID, we increased the provisioning. Then we were guided to maintain at 50 because the COVID impact or post -COVID impact was unknown. Now, since the business is as usual and economy is doing good, we feel that we can manage with the current provision coverage and I don't really see any reason to increase the provisioning from here. And the overall tax benefit is one time.

Secondly, when we look at it in terms of the interest expenses over last couple of quarters, no doubt we indicated that pressure on margins has been due to excess liquidity, but interest expense somehow has been rising quite significantly. Is there any one -off some cost related to raising of the Forex which is getting booked over there or maybe hedging cost w hich is getting involved on this Forex borrowing which is leading to higher interest expenses?

Nothing of one -off. As I mentioned , overall cost of labor , it remains the same . It is only the overall quantum of debt which has gone up because an d that has translated to higher liquidity also over quantum of debt which has gone up which is leading to higher interest costs.

No, the only thing was like it is up like 10%-11% quarter-on-quarter. Last quarter also, it was up like 8%-9%. If you look at the movement on the debt on the borrowing side that has been relatively low. So here we get to know that at least in terms of the overall cost of funds, it is remaining stable at 8.95, 8.97, not much up movement, but still like interest expense s are growing at a pace faster than the borrowing growth. So just wanted to check on that, yes. Because that is also another element which is leading to some pressure on margins?

No, it is only because of higher debt and higher liquidity, because of which there is higher debt only because of which there is a higher interest expense.

Just one question again. Sorry for the subtle impact to the credit cost part . But as you highlighted that the write-off in this quarter was 100% provided and hence there was no penal impact. But when we look at the credit cost for this quarter, you know, sort of moving up to 2.4, much higher than our guidance range . Obviously, this must be due to higher Stage-2 or higher power close. So what has actually led to this kind of a higher provision in Q4 specifically? And what sort of lead indicators you see that confidence that in Q1, Q2, credit cost will not be elevated and we will be able to retrospect to our guidance?

In the current quarter, even though the impact of the Rs. 2,345 crore one-time technical write-off which was anyway provided, there is no impact in the P&L. But having said that, compared to the previous quarter, there has been an increase in the debit to the P&L to the extent of Rs. 233 crores. This primarily has occurred because of there has been some increase in the Stage-3 even though when you compare between the previous quarter 5.38% to 4.55, there is no increase. But if you remove this one -time write-off, had we followed the earlier quarter same policy it would have been 5.41, so there has been an increase of 3 basis point in Stage-3 and obviously on that increased portfolio, we need to maintain that provision. And in Stage-1 and Stage-2 also, there has been an increase in asset size contributing to higher provisioning requirement. This total cost is comparatively when you compare with Q3, it is higher but not materially higher.

So quick question is on the recoverability since these are all fixed assets, these are all proper assets that you would have written off . Just understanding the recoverability of the technically written-off accounts and how old are these accounts? Like have you been carrying these for many years or these are like fresh, like very old which you can't recover or?

No, it is a combination of old as well as maybe around a couple of years old assets also. So it's not very old assets. And if you see our bad assets recovery quarter-on-quarter, it has been in the range of Rs. 100, Rs. 150 crores in few quarters. And the current quarter, in fact, it is 209. So out of this, there will be definitely some recoverability will definitely happen.

actually, just to one of the previous questions itself, that if we look at our calculated cost of funds, that number comes up 25, 30 basis points higher than last quarter. I get that there might be some difference in the average?

Yes, that is primarily because of the average. The 1.2 billion worth is borrowing which happened in the last week of December. Even though it was, if you calculate that closing balances, it reduces the cost of funds for the particular quarter. But for the entire quarter, we had to provide for that interest. And hence, if you compare..

Sir, if you can just help us that given the rate cut possibilities, how should we build that reduction in the sense that what percent of your book will get repriced relatively or if you can help us with the guidance as to how should we look at the cost to fund trajectory?

Because roughly 30% of the book will mature, that is, will reprice this year. And this will have different components of bank borrowing, the retail borrowing, and also the capital market borrowing. The capital market will adjust much faster, which is clos e to around 20% of the liability. The bank will take some time. And the retail, we have announced reduction, but that is around 20 basis point which will have a benefit over next 2-2.5 years. So I will say gradually we will see the cost coming down one on the count of the borrowing cost itself and other is on the account of liquidity coming down. So I will say around overall for the year, we will target close to around 15 to 20 basis point benefit in the cost.

I think last quarter or couple of quarters, you have been saying that cost to income would trend around 29 %-30% slightly elevated maybe because of the investments you are making. Do you see that coming off in the next year or so 3, 4 quarters, or it's likely to trend at 30, 31, 29, that range?

Yes, it should be hovering around between 27% to 28%.

So I heard you say that repossessions have not happened, right? But when I look at Shriram Automall's revenue for last 2 quarters, they have been up 12% and 27% YoY, 12% in this quarter, 27 % in the 3rd quarter, compared to a decline in the quarters preceding to that. This trend also coincides with the increasing stress in the CD loan, the curve system. Can you please explain why the Automall revenues have been growing if repossessions are not happening?

See, Automall, the Shriram's portfolio or Shriram's repossessed asset in the Automall is not really significant. They have tie up with all the banks and all the NBFCs. So overall, if you look at the repossession rate, it is still at a lower rate. And in S hriram portfolio, it is much lower. So, Automall growth is also due to the direct customer putting the vehicle on the platform , not the 100% of the vehicle that is on the platform of the Automall is not repossessed. It is also direct customer putting their vehicle for exchange of vehicle. So, they are increasing their presence and as they add more number of Automall and increase their presence, t heir business volume will keep growing up.