And one last question in terms of the movement in yields, if you can share how that has been during the quarter? Cost of funds clearly like 30-40 basis points of improvement, but how have yields moved during the quarter?
So, if you look at our NIM plus income, that has been steady at about 6.5%. And as you know, we see in the market, there is a fair amount of competitive activity in the market. And we have also looked at how we can pass on the benefit of lower cost to our new customers too. So, our NIMs have been steady. What we have stated is that over a period of time, we do expect these NIMs to grow and the growth there will accrue on account of three counts. One is obviously the shift which we are trying to make by increasing the proportion of high-yield businesses in our portfolio, some amount of increase in fee income, and some further decrease in credit cost, which we expect in the rest of the year.
And just growth guidance that you gave, that was for H2, the contribution, how about FY'27? What would be the major contributors in FY'27?
So, we have not given an exact guidance on the product per se, but I will talk about the ones which will be in terms of growth, the larger segments for us. Clearly, they will be Housing business, which has continued to grow at over 30% if you look at the past few years. We also expect the growth to be robust in Retail and SME. Corporate also has been doing well for us, especially the Emerging and Mid-Corporate businesses. But in terms of, if I have to put the pecking order of growth, they will be Housing followed by Retail, followed by SME, and I would say Emerging and Mid-Corporate to be at a similar level.
First, a data-keeping question. What was the total disbursement during the quarter? I was not able to find it in the presentation.
So, we have not stated it here. We will share with you separately, or we will share it later. Qualitatively, since AUM QoQ growth is around 2.7% in this quarter versus 3% last quarter, I would say, as I mentioned to you in the presentation, the Q1 growth was higher, and we saw not the same thing being reported in Q2. Q2 has actually started becoming better from the last 8 days or 9 days from the GST cut rate, and that momentum continues. So, in terms of disbursement growth, I would say Q1 was better than Q2. Rakesh added: But just to supplement, Rajiv, the Q2 growth on disbursals sequentially is 15%.
Calculated yield is down by roughly 25 basis points Q-on-Q. I did not get your clarification earlier very clearly. What is the reason for this decline in yield, and where will it eventually settle down, or in which quarter it will stop declining further?
No, no. I did not mention a decline in yield. There is no decline in yield. What we said was the NIM plus other income has been steady at 6.5%. There is no decline.
When I look at the Motor Finance, given the way you have given the guidance on the profitability part, where you expect to reach 2% RoA in 3 years timeframe, how do you basically, if you can also call out what sort of the growth that you would like to see in the Motor Finance business? When the AUM growth is likely to start seeing the growth trajectory versus the de-growth?
So as far as Motor Finance business is concerned, as mentioned, we are clearly on the path of transformation. And we expect the business volumes to reach a stage where our book will become flat and stop degrowing in Quarter 4 of this year. And we are hopeful of starting to grow this book from Quarter 1 of next year. In terms of the growth rate which we want there, I do not want to at the moment talk about any number there. Because if you notice, our strategy always is to focus on fitness first before growth. So we would like to ensure that we get to the right metrics on both operating efficiency as well as on credit cost before we start accelerating while we will start growing, but we will do a growth rate which we believe is appropriate for the moment. So it will really depend on the business metrics at that point of time. So I do not want to give a number on growth at this point of time.
Shall we understand that the stress has peaked even in this segment? And how incremental basis one will see the asset quality in this segment? And also, do you believe that the 32% PCR within the segment is sufficient or is there a need to further strengthen the PCR for this segment? And thirdly, within your guidance of 22%-25%, what you have given the guidance of a 3 year, if you can explain how you wanted to see this growth between Retail, SME and Corporate.
As far as credit costs are concerned, we have said that the credit costs are stable. They have still not started to go down in any significant manner. While slippages have started to show an improvement, we would want to watch it for some period of time before we pass a full judgment. We do believe that it will not grow, but how soon it will start coming down and at what rate, give us a quarter for us to tell you more about it. On PCR, we have always been prudent on that. If you notice, on an overall basis, our Retail Unsecured is just about 12% of our total book. Still our PCRs are among the highest levels in the industry, which means that everywhere we have been prudent. So in terms of your question on the relevant PCR for Commercial Vehicle business, I want to say that we will continue to watch it. And if we feel there is a need to do it, we will look at increasing. But at the moment we feel it is appropriate. Rakesh added: we are working on various levers on this Motor Finance business, which includes changing the product mix, where we are increasing the proportion of the used Commercial Vehicle and also shifting away from the Heavy Commercial Vehicle to the Small and the Intermediate Commercial Vehicle, and also increasing the proportion of the non-Tata OEM, which comes. So if you look at the trajectory from now, we are expecting the total NIM plus fee income to go up by 50 basis point, credit cost to come down by 60 to 70 basis point, and the cost to average assets to optimize by another 30 to 40 basis points.
With respect to the yield, as you have mentioned, for affordable and the Secured business loan, what is the yield difference, sir? If my book yield is say 11% or X, what is the difference between the yield of these 2 products?
Rajiv said: Actually, we have not shared the yield for specific products. Sarosh added: So, our Affordable book yields are more by 300 basis points approximately. We have also got into micro, where the yield differences are much higher. On the year-on-year for Affordable Housing, 11,200 has reached 15,000.
On the aspect with respect to the credit cost, what was the write-off number for this quarter and previous quarter? So for Q2 FY'25, Q1 FY'26 and Q2 FY'26, the numbers that we have disclosed, the write-off number?
Actually, we have not given out the write-off numbers. The only thing which we would like to say is that nothing is out of order in terms of our strategy. And as far as write-off is concerned, we only write-off those loans which have been fully provided for, which means 100% provided for. When asked to share that fully provided for number: We have not shared that. We primarily do this to optimize on tax.
Getting on to the guidance, so what you have indicated to get towards maybe by end of Q4, almost closer to 2.3% to 2.4% RoA, and over a 3-year journey, maybe 2.5% to 2.7% odd. Would it be fair to assume that maybe credit cost may not be a big lever? Would the larger part of this RoA driver be the cost ratios and the fee income? Is that observation right or are there any more levers to take it up by say 30 to 40 odd basis points from where we end in Q4?
So, actually, if you look at what we have been stating, it's going to be a combination of multiple things. The biggest contribution is going to come from NIM plus fee, which is going to be the largest contributor as far as expansion is concerned. Along with that, we expect operating leverage to also play in and credit cost. We do believe that from where we will be at the end of FY'26 to where we will be at the end of FY'28, about 25 to 35 basis points will come from NIM plus fee, about 10 to 15 basis points will come from operating leverage, and about 15 to 20 basis points will come from credit cost. So, this is on the post-tax basis.
So, credit cost, you are saying it will be 15 basis points, and for FY '26, we have indicated it is 1.2%. So, maybe your assumption with respect to the steady-state credit cost, once we see the normalization of the Tata Motor Finance credit cost, would it be still like closer to maybe 0.9% to 1%, or do you expect it to settle even lower?
So, as far as seasoning of the book is concerned all the products in which we are present in, we have been there for a long period of time. So, we have seen business cycles in those products. Motor Finance was the new acquisition which happened, and where we got our final approvals in May of this year. If you look at our past numbers for the last 3 years, the average credit cost for the last 3 years for Tata Capital, excluding Motor Finance, was about 0.6%. What we are saying is, as we move ahead, including Motor Finance, our credit cost will be less than 1%. So, when I stated for FY'26, this number and compared it with FY'28, we still believe there is an opportunity for us to bring it down by about 15 to 20 basis points. On an overall basis, it will be less than 1%, including Motor Finance.
Just wanted to understand the growth guidance which you gave for 25%. It is for FY'26 and FY'27? And also wanted to understand how we decompose this, as in which businesses would contribute majorly to this particular growth. And second is, when we are talking about the credit cost improvement of around 15 to 20 basis points, what kind of write-offs are we factoring in FY'26 and FY'27?
You know, talking about growth, for the current year, we have given a guidance on a consolidated basis of 18% to 20% and excluding Motor Finance of about 22% to 25%. We expect H2 of the current year to be better than H1 of the current year. In terms of 3-year guidance, we have spoken about 23% to 25% growth rate. Rakesh added: as Rajiv mentioned, the growth in H2 will be better than H1. If you look at the H2 growth and deconstruct it, the contribution will come 37% from the Home Loan and the LAP business; around 21% from the SME business; around 18% from the Corporate business; and Retail business will contribute around 25%. We expect Motor Finance to be flattish. In terms of credit costs, as mentioned to you, we will see, compared to where we are, we still believe there is an opportunity for us over the medium term to come down by about 15 to 20 basis points. And I could not understand what you wanted to know from write-off, because currently what we do as a write-off is only for assets which are fully provisioned. So, that really does not impact the credit costs, Shubhranshu.
Looking at your Slide number 22, in Personal and Business Loan, Two-wheeler loan, and obviously Motor Finance business, GS2 and GS3 both have gone up sequentially. By when can we see these asset quality metrices, GS3, GS2 coming down in this segment, Personal Loan, Business Loan, and Two-wheeler loan, et cetera?
So Ajit, I will break it up into two parts. What we have shown here is the Stage 3 assets. The total provisions on any asset class happens both on standard assets, which is 0 to 90, and on Stage 3, which is 90 plus. We have clearly seen a decline in terms of credit costs on the standard assets. And that is what I mentioned to you has led to also our overall credit costs coming down by 30 basis points compared to Q1 of this year. As far as Stage 3 is concerned, since the standard asset buckets have gone down, that will flow into a lower number in Stage 3 over the next quarter or two. What you should also note is, since there was stress last year in the Retail Unsecured, we had slowed down our disbursements, and consequently, the book growth also almost came down to nil. So, even if there is no denominator impact benefit on the percentage of NPA. So, we believe since the Stage 1 and Stage 2 assets are improving, it will lead to a Stage 3 reduction over the next quarter or two. Rakesh added: Yes, I will just add, Rajiv, specifically to your question on the Personal Loans and the Business Loans, if you refer to the Slide 22, you will see that it has increased from 5.2% to 5.5% in June, which is in Q1, and there is a 20 basis points increase in Q2. So, I just want to give a comfort that, as Rajiv mentioned, that credit cost on the Retail Unsecured loans has peaked, and the slippages in Q2 are lower than Q1. So, I think we have seen the peak, and as Rajiv mentioned, going forward, we will see the credit cost trending lower.
We spoke about credit cost declining for us, 30 basis points Q-o-Q, whether we include or exclude Motor Finance, so which is appreciable. So, if you could just throw some light on these 2 segments in particular, your CV and the Motor Finance segment, as well as the Unsecured Business Loan segment. Because I just heard that in the previous participant's question, you said that we are seeing stress peaking out, and credit costs should decline. But only 3 months back, there was so much of hue and cry suddenly in the unsecured business loan segment.
So, let me just give you a little bit of background where the stress was, and where we have seen a decrease. Actually, for us, the stress was there on the Retail Unsecured side, which is personal Loan, Business Loans, as well as Microfinance and on the Commercial Vehicle side. As far as Personal Loans, Business loans and Microfinance is concerned, in each of these areas, we have seen credit costs of Q2 being lower than credit costs of Q1, and same is the trend on the slippage side. As far as Motor Finance is concerned, our credit costs have remained almost flat. However, we have seen some improvement in slippages there. So, that's the current scenario. Rakesh added: the percentage of Motor Finance looks higher because the book has de-grown, in case you are looking at the percentage number.
On this GST rate cut, earlier in the call you shared that there was very good momentum that we started seeing from the last week of September. But what all of us are trying to wrap our heads around is whether this momentum can continue. So, just trying to understand, this GST rate cut that we have seen, has it really spurred consumption and demand for vehicles as well as consumer durables?
So, I will give you the current feel which I have from my team. On Two-wheelers, the momentum has been extremely good. Actually, from what we understand, the growth rates compared to the similar period last month have been 30% to 50%. So, it's been pretty high. And the momentum on Two-wheeler continues. As far as Passenger Vehicles is concerned, that momentum is also strong and it continues. As far as Commercial Vehicle is concerned, we have seen this momentum to be strong in the small and medium Commercial Vehicle segment, the last mile bid. There, the momentum is extremely strong. On the heavy Commercial Vehicle, this is still, I would say, not too much of a significant impact. As far as Consumer Durables is concerned, that has also been positive and it continues to be positive. So, the feel which I have is that this momentum is expected to continue in the areas in which it has shown a positive trend, for Q3 and we expect in Q4 too.
Lastly, in our Housing subsidiary, are we foreseeing any senior management changes?
There are no changes in the senior management there. There is one person moving out from us, but we have a strong team below and that won't impact us in any way.
In the last 2 years we have seen significant branches that you have added, as well as now with Tata Motor Finance branches also came in, do you believe this is the one primary reason because incremental basis we don't need the pace of the branch what we have added in the last 2 years? And this is the primary reason for the significant operating leverage that you are expecting in the business?
So Himanshu, I would say 2 things because of which operating leverage will play out for us and has started to play out, let me put it this way. One clearly is that we have very aggressively grown our branch infrastructure over the last 3 years, which we don't need to do and you are right there. We don't need to add too many branches there. So that will help us. Second also is the fact that our investments in technology, digital, as well as now what we are doing on the Gen AI space have already started to give us benefits. And we believe that this will also accelerate in the future. We truly believe that a combination of these 2 is something which will help us. Obviously, the benefit of the book growing also, especially in Housing, also will help us.
Just wanted to understand one comment which you made that on a 3-year basis, we are expecting a 30 to 35 basis point improvement in NIM plus fee. With the mix not changing materially, just wanted to understand how the NIM plus fee intensity on a pre-tax basis can go up 40-45 basis point if you could give some understanding around it.
So, when I mentioned Mohit on the mix, I was referring to the broad mix of Retail, Housing, SME and Corporate. But within that, there is some change in character which is happening. For example, in the Housing Finance business, our proportion of Affordable Housing is growing. We have also got ourselves into both micro housing as well as LAP. So, while the overall housing finance company's proportion may remain the same, but within that the proportion of high yield products will grow. Similarly, in the Retail business also, we have got into new products like secured business loans and few other products, where we expect their proportion in the overall Retail business to grow. Similarly, in the SME business, we are growing our Leasing business which gives us much higher returns, much faster than some of the other businesses, which will also give us better returns.
With respect to the comment that you made on the previous participant's question, in the housing finance company, so where do you see this share of Affordable Housing going up in the specific housing finance subsidiary? It's currently at 19% and with us saying that it would reach around 1 lakh crore in the mid of FY '27. What will be the breakup of this? How much of a percentage will be affordable and the other stuff?
Right. So, see today in our INR 75,000 crores of AUM, our affordable plus micro, the AUM is roughly INR 15,000 crores. That growth for this year as well as next year will be increasing by more than 30%, which will grow more than the other asset classes within the HFC. So, clearly the AUM of Affordable Housing finance was hardly INR 3,000 crores 3 years back, which has reached now almost INR 15,000 crores out of the INR 75,000 crores. The growth rate is in excess of 30%. With that growth, we will ensure that the company also grows well, but within that, the Affordable Housing finance growth rates would be higher.
My question is related to Affordable Housing. If we see the whole industry is chasing to Affordable Housing sector. So, are we seeing any yield pressure when we are expanding to Tier 3 and Tier 4 markets?
So, actually, if I have to comment on our strategy, our whole thought process is that we should take advantage of where our strengths are. Our strengths are in having one of the lowest cost of funds. Our strengths lie in creating digital journeys which are strong, which can help us keep our operating costs lower. So, when we operate in these markets and we are competing with other players, we would like to offer rates which are slightly better than them, get the best of customers and keep the credit costs low and don't compromise on collateral quality. So, just to give you a sense, if in Affordable Housing the other players are operating at 14%, we will be happy to operate at 12% to 13%, get the best of customers, don't compromise on collateral quality and still grow.
My second question is towards the Consumer Loan, where the ticket size is less than a lakh. This market is growing very significantly. It is growing at 30%-40% per annum where the yields are very much high with 35%-36% odd of the yield. So, what is your opinion? We will explore this market or we will not explore this market?
So, if you would look at our strategy, our strategy always is to wet our feet in that market. Only if we are comfortable, we will scale that business. That's our strategy in every business which we enter into. Now, as far as the small ticket personal loans is concerned, we have looked at that business and chosen not to be present in any significant manner in that business. We feel that it has high risks and we do not intend to be any significant player in that business which operates at 36% or so.