Can Fin Homes Limited (511196) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the Quarter 2 FY '26 Earnings Conference Call of Can Fin Homes Limited hosted by Investec Capital. We will start with the management commentary followed by a Q&A session. To discuss the financial performance of Can Fin Homes and to address your queries, we have Mr. -- we have with us Mr. Suresh Iyer, MD and CEO; Mr. Vikram Saha, Deputy MD; Mr. Prakash, President; and Shri Abhishek Mishra, Chief Financial Officer of the company. I would now like to hand over the call to Mr. Suresh Iyer for his opening comments. Over to you, sir.

Thank you, Nidhesh. Very good morning to all of you, and a very happy Diwali to all of you. So thank you for joining the earnings call. We'll just take you through the brief highlights of the performance. In terms of the disbursement for Q2, we have crossed -- the company had given a guidance of INR 2,500 crores, and we have achieved that. And in terms of disbursement, for the first time in a quarter -- in the second quarter, we have crossed the number of INR 2,500 crores in terms of disbursement. In fact, in Q1 also, it was the first time that for any of the Q1s in a year, we had crossed the number of INR 2,000 crores. And in Q2, again, we have achieved INR 2,500 crores, which is a positive number in terms of the sense that we also have a good pipeline in hand. The second, in terms of disbursement, we have also had a good performance in Karnataka as well as Telangana, where we -- the company has had problems in the past. Karnataka, in fact, in the month of September, we have touched a number of INR 270 crores, whereas last year in Q2, we had touched INR 278 crores, and were roughly doing about INR 275 crores on an average. So we are almost back to that number. And the state has recently announced a couple of -- made a couple of announcements. One is that e-khata properties can also be converted to a-khata. And second thing is even for other properties, -- sorry, e-khata will be possible within 15 days' time. So that is -- that article has also come. So we are positive that Karnataka should continue this kind of a trajectory. And if that -- with that, we should definitely be positive by the end of the third quarter itself in Karnataka for our YTD business. In terms of Telangana, the negative was much higher. It was almost 30%. We have been able to bring down the negative growth in Telangana from 30% to 27%. And month-on-month in Telangana also, like in Karnataka, we've had a positive growth month -- each month being better than the previous. But Telangana will take a little longer time. So probably in Q4 is when we will move into the green. In terms of AUM, we've had a slight higher -- slightly higher prepayments because of which our AUM growth has been a little lower. In fact, it has slightly dropped below 9%. However, this INR 200 crore additional prepayment that was witnessed is not entirely because of takeover also. Detailed analysis shows that it's mainly -- while INR 120 crore prepayment and loan closures have increased, which may not necessarily also be because of takeovers, but -- closures have increased by INR 120 crores, but the remaining INR 80 crores is because of customers paying more than the regular EMIs and reducing their liabilities, but the loans are still live in our books. So that gives an indication that probably the cash with the line in the hands of the people has improved. So we see that it might help us in terms of the collections as well if the general cash on the system or the availability of cash with the customers has increased. And that prepayment of this INR 120 crore loan closures is predominantly or mainly 40% of that is mainly in one particular state of Telangana, where we have witnessed a surprisingly higher prepayments. In terms of delinquency, our -- as we had indicated or as we had guided that we would like to bring the number below INR 3,900 crores. So we have achieved that as well. And our overall delinquency has come to INR 3,850 crores approximately. So that's almost INR 130 crore reduction in absolute value in delinquency. And this delinquency has been almost across the board because SMA-0 has also reduced. SMA-2 has also reduced compared to last quarter and NPA also, there is a marginal reduction. As a result of this, our credit costs have been very, very low. In fact, only for the growth, we have had to provide for the provisioning of INR 3 crores. Otherwise, in terms of the delinquent accounts, there is almost nil kind of a provisioning that we have had to make in this quarter. Going forward, in Q3 also, we expect that our delinquencies might slightly come down. The reduction in our SMA-0 means that we will be able to devote more time for higher buckets as well. And we expect, as we had indicated last year, we have seen the result in Q2 -- in our SMA-2 reduction. In SMA-1 and 2, we also expect that in Q3, we might slightly be able to bring it down. So we are targeting around 3,750 kind of -- so almost another INR 100 crore reduction in SMA in Q3. So which means that in Q3 also, our expectation for our credit cost is going to be quite low. Not to mention that our NPAs will obviously come down. March is also a month, which will see a lot of reduction in Q4. So that may again help in Q4. But at least in Q3, our expectation is that we should be able to bring down our delinquency by another INR 100 crores in absolute value. The quarter highlight, of course, has been our improvement in NIM. The spread has also improved from 2.62% as at the end of Q1 to 2.79% as at the end of Q2, and our NIM has also crossed 4%. Mainly, this has been driven by the fact that we have achieved the entire 100 basis points benefit in our repo rate cut and across all our bank borrowings. As at the end of the last quarter, that is Q1 earnings call, we had indicated that there is at least one large term loan where we are yet to receive the benefit, which we received in July and August. So that has also helped us. Going forward, we have received NHB sanction, a refinance sanction of INR 1,500 crores. And the indicative rate that we see -- that we have been informed is approximately 6.8% for that on a blended rate, including the affordable housing and regular refinance. So that means in -- we will get some rate advantage because of this refinance borrowing also in Q3. And not to mention that effective July, NHB has also announced their PLR rate cut of 30 basis points. All our variable rates, which is approximately around INR 3,000 crores of NHB refinance in the regular category is on variable or floating rates. So over the next 2 quarters, this 30 basis points will also be experienced in our books. However, in the current quarter, we had almost 8% of our loans moving from annual reset to quarterly reset. And as of the end of the second quarter, we have 59% of our loans still continuing in annual reset, which means this 59% in the next couple of quarters should also move to quarterly reset, and there would be a slight rate benefit which we will pass on to such customers. So I guess this NHB refinance rate benefit as well as this PLR rate cut of NHB might probably be offset by this movement from annual reset to quarterly reset. But we at least feel that we can safely move to a guidance of 2.75 for spread and 3.75 for NIM going forward. And a little higher, we have kept a slightly conservative because -- in terms of NIM because we feel that even if required, we may -- it will give us a little buffer to offer an attractive rate in Q4 to push the business. So keeping that in mind, I think we would still like to keep it at 3.75 for NIM and 2.75 for spread. Going forward, one major announcement during our achievement or event during the quarter has been our IT transformation front. Our IT transformation, which is scheduled to go live in Q3, it was supposed to be in 2 parts. The first part, which is the implementation of some of the modules like our SD-WAN, our mailing solutions, Active Directory, also in terms of our ALM borrowing and treasury modules that were scheduled to go live on 30th of September. And we are very pleased to share that this has happened as per the schedule. And all these modules, that is SD-WAN implementation across all our branches, mailing solutions across all our users, our Active Directory and treasury borrowing and ALM module has been implemented on 30th of September. We are now working towards the second phase, which is a major phase, which is our LOS, LMS, HRMS and our deposits module along with the accounts package, which is scheduled to happen in the Q3. So we are -- as of now, we are working towards that, and things are under control, and we'll come back to you as and when it is implemented. For the third quarter, in terms of guidance, as indicated, our spread and NIMs, we would like to restate it at around 2.75 and 3.75. Delinquency, since our total delinquencies have been coming down and Q3 also, we expect it to be down. So our credit cost, I guess, would be a little less in Q3, similar to Q2. So that should help in -- overall, our credit cost for the year also are likely to be lower than our guidance of 15 bps. Disbursement, as we have an IT transformation schedule for this quarter, we would like to take that into account that while everything has been under control as of now in terms of the IT transformation. But this quarter, we will also be required to give training across -- in tranches to our staff. We will also be required to go live. So that will affect a couple of days. So while with -- a INR 2,500 crores disbursement in Q2, one would have expected it to move up to INR 2,800 crores or thereabouts in Q3, but we would like to make -- to push for INR 2,500 crores, which will be more realistic because we have to take cognizance of the fact that there's an IT transformation. So for Q3, we will push for INR 2,500 crores. However, our sales team impact has been positive. It has been doing well. And this quarter also, they have contributed to almost 7% of the incremental business. And our productivity of the sales staff has also been quite healthy. So therefore, while Q3, we are looking at a slightly moderated disbursement target. But in Q4, we will push it up so that we hold our guidance in terms of 12% to 13% AUM growth and 10,500 overall for the year disbursement. So that's in short our brief of the highlights or highlights of the Q2 performance. Once again, wishing all of you a very happy Diwali, and I'll leave it for question and answers. Thank you.

[Operator Instructions] As of the first question is from Sukriti.

My question is since Can Fin Homes has outlined its focus on expanding affordable housing finance, what are the biggest execution challenges you foresee in scaling this segment, especially in terms of credit quality, regional penetration and regulatory alignment. How is the organization preparing to overcome these while maintaining growth momentum in its customer trust?

Sure. See, actually, the challenges or I would say, for this affordable housing business or housing business per se also, I think it is ground presence or feet on street, which is a critical aspect. And so far, Can Fin has not had a sales team or a feet-on-street channel, and it's been more reliant on the DSA channel. So while the DSA channel has been very good for us, but our growth from our own sourcing has been a challenge, which now we are implementing. We are correcting that situation. And we have been increasing our sales team as well. So that is one thing. In terms of the overall housing industry as per se, if you were to look at it, I think geographical expansion or presence is definitely 1 factor which pushes a growth, 3% to 4% growth comes from increase in our branch network, which we have also been doing. This year, in fact, in H1 itself, we have opened 14 branches. And last year, in Q4, practically, we opened another 15. So in the last 6 to 8, 9 months, we have actually opened 29 branches, which will also help us in giving this growth. So presence on the ground, both in terms of branch network as well as in terms of feet on street is one challenge, which has to be there. Otherwise, in terms of our potential, I think there is a good potential. In fact, even in Tier 2 towns and all, there is a good amount of potential, and I don't see that as a major challenge for us. But I think these are the only things that I believe. In the pure affordable segment, if you look at it, that is in the below 15 lakh segment, then there would be -- it is a different -- slightly different ball game. Supply there becomes a major component. And supply, we have observed is something which is purely determined by the kind of government incentives which come. So whenever the government had introduced a very strong CLSS and it was doing well, the affordable segment and the below 20 lakh or below INR 15 lakh segment was doing very well. And in 2022, when the CLSS was withdrawn, post that, this growth in the affordable below 15 lakh segment has been coming down. So I think that is -- if you look at the below INR 15 lakhs. And for above INR 15 lakh and the regular segment or the average 2 BHK kind of a segment and this thing there, it is purely the geographical presence and feet-on-street.

And my final and last question is around margins. Now with the rising cost of funds and competitive pressure in the retail lending, how are you planning to protect the margins, especially in terms of liability mix, branch productivity and operating cost control. What kind of financial planning has been put in place to sustain the profitability without compromising growth?

See, in case of liability side, we have had a good franchisee for both bank borrowings, NHB refinance and debentures. In case of bank borrowings, we took a conscious call about 2 years back that we will move all our MCLR-linked loans to repo-linked loans because even when the repo rate cuts are announced, the MCLRs do not come down into the same kind of a thing. In fact, they don't actually come down because banks also have to protect their spread. So we consciously moved, and that has helped us in our liability or cost of borrowing management. The second, of course, thing is that we have -- for our NCD also, we have got a second rating also dual rating for the additional INR 10,000 crores, which was approved by our shareholders. And that also has been a AAA rating we have received during this quarter. So now we have a double rating. So we will be in a position to go for a slightly longer tenure or 5-year kind of debentures also. But of course, that will be slightly higher, but we will take a conscious call in keeping our ALM also in mind. The second thing is in terms of our NHB refinance. There, in fact, we -- since we are dealing with this affordable segment, we are able to take the full advantage of the affordable housing fund refinance that is available. So in this INR 1,500 crores that we have received the sanction, 40% has to be classified under the -- has to be qualifying under the affordable housing fund. So that's about INR 600 crores, which we are very confident we should be able to do because that's the segment we are mainly dealing. So that is one advantage we will have. So going forward, I believe we should not have a problem in at least the cost of borrowing. Today, the bank term loans that we are raising, the highest cost is around 7.10%, it's the incremental sanctions that we are receiving. That is for a long-term rate of interest. If it is for a short term or WCDL kind of a limit that is being sanctioned, it is even lower than 7%, below 7%. So in fact, our highest cost borrowing from banks is around 7.10%. That is one. In terms of -- as I mentioned earlier, our blended cost for incremental refinance should be around 6.8. So that leaves NCDs. So we have a slight flexibility to look at that. In terms of guidance, as I had earlier mentioned, our current NIM is around 4.02 as at the end of Q2, but we would guide for 3.75 because that gives us a little buffer to slightly offer some good rate in Q4 to push business. So that's what it is.

The next question is from Shreepal Doshi.

My question was pertaining to lending rates. So, so far, we had taken as on July, I think, 25 basis point rate cut. Anything further that we are planning to do on the asset side, let's say, with respect to passing on the rate benefit? And so overall -- so the implication of the same on the margins in Q3 and Q4? And also, you highlighted that 59% of the or -- 59% of our loan book is still at annual reset, so which will also shift to quarterly reset. So just some color -- a little bit more detail on that front as well.

Sure, sure. See, actually, in the last quarter guidance -- earnings call, we had mentioned that we would -- we may probably look at a rate cut of another 10 basis points in the month of September. So we passed on 10 basis points to our existing and new customers in May, another 15 basis points in July. So were looking at something. But as you -- as you know that the bond rate slightly went up by about 7 to 8 basis points because of the geopolitical situation. So we felt that we'll hold on to the rates. And I think since no other NBFC or HFC other than us and LIC has done the rate reduction for existing customers, I think the market is also fine with that. So I guess we will probably look at that. However, yes, as I mentioned, there will be some movement because this quarter, we have seen now 8% of our customers move from annual reset to quarterly reset. So if this trend continues, another about 8% to 10% will again move in Q3. So in which case, there will be some impact, which will be offset, as I said, by our NHB borrowing, which we would like to do. And so I guess that will take care. But in Q4, we might look at some kind of a rate cut depending on our prepayments and our disbursements to see if we can push growth because we would like to definitely ensure that it's there. And Q4 generally also sees some kind of offers from all the players in terms of maybe some year-end offer or processing fee waivers and things like that. So we will react depending on what -- how the market behaves.

Got it. That is helpful. And sir, the second question was on, let's say, the momentum in Karnataka and also Telangana for us, particularly, wherein we've also seen higher prepayments. So are we back to INR 300 crore disbursement per month in Karnataka. And also in Telangana, how do you see things shaping up incrementally with respect to getting back to INR 140 crores, INR 150 crores disbursement per month? Or we will try to compensate the loss here by growing in some other northern states? Just some thought process on this front?

Sure. See, in case of Karnataka, INR 300 crores now is definitely possible in kind of a monthly disbursement. We would -- that is what we will be aiming for, if not now, at least by Q4. Because this month, and that is in the month of September, we have touched INR 270 crores for Karnataka disbursement alone. And last year in Q2, we had done an average of INR 275 crores, and we had touched INR 278 crores. So therefore, we are almost back to that kind of a number now. And with the 2 announcements that I just shared, we feel that the registrations will also happen faster. And in this quarter, with this kind of a INR 270 crore, INR 280 crore kind of a disbursement also, we will easily be able to not only move back to the green, but we should be able to do a 3% to 4% YTD growth in Karnataka by the end of third quarter itself. Because last year in Q3 was badly hit because of our -- were almost doing INR 150 crores, INR 160 crores only average disbursement in Karnataka because of the e-khata. So if we are able to do INR 280 crore average disbursement per month in Karnataka, it will be a big support for us, and we should be able to do that. Karnataka definitely is looking positive. Again, the announcements have come, and let's see how soon the government is able to implement it, and we should be able to do that. Telangana also, in fact, in this month, in September, were able to cross INR 100 crore for the month of Telangana. But Telangana, I would still feel that INR 140 crores is not a number we would want to touch. We would-be -- we'll be happy with INR 120 crore, INR 125 crores. Because that is a state where our delinquencies are also, as I had mentioned, slightly moved up. So we would like to focus on that as well. And Telangana, right now, the hydra impact, while it is still -- at least it is not there in terms of the fear of the customers, but at least in the growth, we need to still see the construction activity improving or picking up to the old levels because at the end of the day, it is only what is constructed can be financed and things like that. So for us, it also depends on how the state pushes in terms of the construction activity. So Telangana, we will be positive by Q4, but at least we may not touch INR 140 crores. I think we'll be happy with about INR 125 crore average disbursement per month in Q4. As far as the other zones are concerned, we have a good growth coming across all our other zones. Our North and East Zone continue to be doing around 30% kind of a growth is there. And Tamil Nadu and West zones are also now doing 25% growth. In fact, West Zone this quarter has had a good growth, and that has helped in fact, pushing it up also in the 25% bracket kind of thing. But last quarter, we had -- it was around 18% to 20% was the growth in West Zone, which now has picked up around 25%.

This is very helpful. Sir, just one last question. On the liability side, are we looking at any foreign borrowing platform or avenue to -- on the liability side. Or we are very well, let's say, equipped with the domestic platform that we have.

See, if you're talking about ECBs, we are, as of the moment, not looking at ECBs. However, I think there is a good scope, and we have been talking to a couple of foreign banks who are interested in green funding. So obviously, for that, we need to identify portfolio and be able to show them the actual funding that we are doing for green housing and all, which we have actually started because we need to also have some sizable amount of data to show in terms of our green lending. So that we have been for the last 1 year, capturing in our books in terms of what is in our valuation reports and all as to what are the green funding actions that the customers are doing in terms of rooftop solar or rainwater harvesting or LED lighting and all those kind of things we are capturing. So we'll be talking to them and see how if we can explore some kind of green funding from foreign banks. That is something which we'll probably look at, but not in terms of ECB, at least not at the moment.

Got it. That is very helpful, sir. Thank you. Happy Diwali to the entire family.

Very happy Diwali to you.

The next question is from Suraj Das.

I think a few questions have already been answered. But just again, I mean, coming back to this Karnataka, sir, if you can give the absolute amount of Karnataka disbursement this quarter versus last quarter or Y-o-Y?

See, Karnataka, this quarter, I'll give you the number. I think as I said, we have done -- every month, we have done more than INR 250 crores. So I think the average would be somewhere around INR 260 crores for this quarter in Karnataka. And in September, we touched INR 270 crores. So month-on-month, I'll probably be able to -- I'll give you separately on a month-on-month but I guess it will be around INR 260 crores, because we started with INR 250 crores in July and then moved up. So yes, we -- I think it would be around -- between -- a little less than INR 260 crores is what would be the figure.

Sure, sir. Understood. In terms of BT out or BT in, have you seen any change in the trend there?

See, not as much in other states, but Telangana, as I mentioned, we have about INR 120 crores. So see, BT, we have been capturing the data of prepayment, whether it's a part prepayment or full prepayment. In many cases, customers have also given the number that they are prepaying out of their own funds. But still, wherever there is a loan closure, we at least from -- on this side, have considered it as a prepayment or a BT out. So totally, our loan closures have increased by INR 120 crores in this quarter. while our total prepayments have increased by INR 200 crores, the loan closures where the account is no more with us, it's only about INR 120 crores. The remaining INR 80 crores is where the customers have made some excess payment, but the account is still with us. So this INR 120 crore is spread out, but mainly out of that INR 120 crores, almost 40% is in one single state of Telangana. And we believe that we had taken a tough stand with some of our DSAs in Telangana, and we had deactivated a lot of them post the fraud we experienced in '23, '24. And that is the effect where the DSAs are moving out the book to some other players because now some other players have also become active in Telangana, which was not the case last year because of the Hydra issue. So I guess now they are having an option to move it to other lenders. And I believe that is what has happened mainly in our case, where Telangana, we have had BT outs much higher. Other states also, we have seen some BT out, but it is only about INR 8 crores, INR 10 crores, INR 14 crores, something like that. So it's not a major thing in any particular state, except in the case of Telangana. And INR 80 crores, as I said, the increase is mainly where the loan accounts are still with us. Now this is a slightly -- I would like to read it as the cash or the surplus within the hands of the customers is now on the higher side because we've also seen an increase in our deposit portfolio in spite of fast cutting rates on 1st of July. So in spite of us dropping our deposit rates, we -- our deposit, although by a small number has also picked up. So that shows that the cash in the hands of the customers probably is increasing or the surplus funds or cash flow is improving. So I think that is -- can be looked at both ways. That should help us in our collections also, but to some extent, that would have an impact on our delinquency. This quarter, we are looking at a little more slicing and dicing of our portfolio to see how we can retain the book, whether we can move some of our customers from -- who are making a prepayment to rather move to a deposit and save their capital and things like that. So we are looking at all those measures. We will be putting some more effort in retaining the book. But yes, it has slightly increased across the board, but mainly in the state of Telangana.

And sir, on the margin, I think next couple of quarters, you gave guidance on margin, but how do you see FY '27 margins how much further, let us say, rate cut you want to pass on, on the asset side and then probably on the liability side, how much benefit you might see. So how do you see FY '27 margins going ahead?

See, frankly speaking, the kind of these geopolitical things that are happening, there has been a little bit of volatility. So we have actually not passed on this thing. But if keeping in mind that inflation has been so low and if the repo rate cuts do come, then in that case, yes, we will pass on to our customers at that point in time. And so another 10 basis points or something, we can definitely look at if the next rate cut happens. But as of now, the -- what we see is that in Q4, liquidity pressure will also result in slightly the borrowing costs going up. So we don't want to act in haste and do some of this thing, which will affect our spread in Q4.

Sure. But you -- can you see margins moving north of 375 basis points going into FY '27?

I believe we have already received the entire benefit of the repo rate cut in all our bank borrowings. So going forward, further reduction in our cost of borrowing, barring for our NHB borrowing is not much -- there's not much scope left. So -- and yield, obviously, we'll have to see that we are competitive in the market. So I don't think there's a possibility much to further increase our NIMs and spreads.

Sure. And sir, last question on the OpEx side. Obviously, I think we have been investing in the franchisee a lot for the next leg of growth. And if I look at OpEx as a percentage of AUM or assets for the last couple of years, it is slightly inching up only. How do you see OpEx to AUM or OpEx to asset, whatever metrics you will look at. Going ahead, given that further you are trying to increase the in-house sourcing via marketing, digital and all of that.

Sure. See, in case of OpEx, we have invested in 2 things. One, of course, in our own sales team. The second is in terms of our IT, okay? The IT is going to result in an additional cost, net cost increase of about INR 40 crores from next year onwards. So next year, at least our cost-to-income ratio, we expect should be around 19.5% or 19% to 19.5% is what it will be next year because current year, whatever spending we are doing is getting capitalized because it is still in the implementation phase. So that is one thing. In terms of our sales team, of course, we are investing in our sales team. We are investing in a branch expansion as well. But I think that is not something which is going to be a major impact. And having said that, from next year, at least, once our IT is implemented, we should see some good reduction in our productivity, and we may be able to release some staff. So the staff -- increase in staff strength because of this may probably -- we may be able to move within our teams to sales rather than having to recruit from the market because we'll see some improvement in our efficiency and productivity because of the IT implementation.

The next question is from Patweraj.

So I have a question on the -- or the co-lending arrangements that we have. So were going to incorporate a policy in 3Q, that is what I had heard from the previous con call. So if there's any update on that. That's the first question.

No. In fact, that's a good point. In fact, we had indicated, but we have not done in this quarter, we have not been able to get the policy done. I think we will push it for the Q3 only. We have not been able to do that. But as of now, we are seeing a good growth for organic growth itself coming. So we have not -- we've not gone for that inorganic growth as of the moment. But yes, there is a good opportunity, and we will be looking at that in Q3 or Q4 maybe.

Yes. So the next question was on the employee count. So if you can just give us a number for 1Q and 2Q and what is the growth in the employee. And also the salary rebasing that happens, what is the cycle that we follow? Is it in Q2 or in Q1?

See, the salary increase is just like in other PSUs and all, our salary hikes happened once in -- used to happen once in 5 years, which we have now changed it to once in 3 years. So we had it in the -- in the beginning of FY '26. So we -- in the first quarter itself, we implemented it. And the idea is that every year -- whenever it happens, that is once in 3 years, it will happen in the first quarter of the year. So we've already had that impact in the first quarter. And in Q2, it's just been the same as Q1 in terms of the salary expenses and all. There's not much of a change. So that is already incorporated into our this thing. In terms of our total team strength, we have about 1,312 people.

1,317.

1,317, sorry 1,317, which was 1,134 in September '24 and which was 1,184 in March '25.

Yes. Got it. And the last question is, if you can just elaborate on the road map that you've shared with us, the road map 2028, if there's any points, any AUM target that you have as such.

Yes, sure. So we have given that a slide in our presentation where we have given the 4 pillars where we would like to work on and where we are moving in terms of each of these 4 pillars. That is the geographical concentration, South versus rest of India, product mix, segment and sourcing. So now the one point that you mentioned is about the AUM growth. So this year, we are looking at 12% to 13% AUM growth. But next year onwards, we would definitely like to work at 15% at least kind of AUM growth. That's the kind of growth that we are looking at in terms of -- for the -- so FY '27 and FY '28 it should be 15% AUM growth.

The next question is from Kushan Parikh.

Just again on the margins. So we spoke about certain PLR cuts, et cetera, that we got on the NHB side, which is the only bit of borrowing cost reduction that you expect now going forward, which should be a few basis at West. were at about 2.9 spread in 2Q, and we are guiding for 2.75. Should we expect that over the next 2 quarters as we push for growth in Q4, we should be at that 2.75 and that should largely be driven by lower yields. Is that the thought process? And from a longer-term perspective, you also said that F '27, we may pass on another 10 basis points. So should we expect that next year on 265 -- a spread of 265 is more sustainable over the long term? If you could help us understand.

So if you actually look at it, our spread at end of Q2 is 2.79, but our stand-alone Q2 spread is around 2.93. So that being the case, same way in terms of our margin. Our for the quarter margin is 4.02, whereas for Q1 plus Q2 put together, it is 3.83. So basically, what -- there is a little bit of a buffer -- in terms of our this thing because if the same kind of borrowing continues in Q3 as in Q2, where we are able to raise that 7.17 as against the blend -- the entire 6-month borrowing cost of 7.29, then in that case, yes, there is a little buffer there also available. But as I have mentioned that this 2.75 and 3.75 that we have guided is more as keeping a little buffer that in case we have to offer something, then we will want to react and we would want to offer it so that we can also achieve some bit of a growth. So that's basically the kind of thing. Whereas having said that, today, in Q2 also, we have seen a good amount of organic growth opportunity. And we would like to, therefore, see that if it continues, I think we may it's more of a buffer that we would like to hold on to. And second, as regards to your 10 basis points cut, what I mentioned was that if the repo rate cuts come through, then we would be able to pass on something to our customers. So which means that, again, like we have followed the policy in this year, we will first experience it on the liability side where our entire bank borrowings are linked to repo rate. So when the repo rate cut is announced, we will first experience it in terms of our bank borrowings, which is almost 55%, 57% of our liability side. And then therefore, it will allow us to offer a 10% customer -- pass on to our customers, which, therefore, may not impact our spread in that sense. So if it is 2.75 and 3.75 at the end of Q4, then Q1 will not start at 2.65 because we will first experience then pass on.

Understood. So the way to think about this is 2.75 is the base. Given the benefits that you have seen are seeing in 2Q, it could be higher also for full year.

It could be in the sense that, yes, there is a little -- if the rates hold, then as I said that our banks, we are borrowing at 7.10, that is the highest long-term borrowing. Short-term borrowings are even below 7%. Our NHB borrowing in this quarter will be at a blended rate of 6.8%. So therefore, our incremental borrowing also will be at a rate below our current cost of borrowing rate, which means, yes, there is a little bit of buffer, which we can use to look at something.

The next question is from Abhijit Tibrewal.

Just 2 things I'm trying to understand. First things first, I mean, earlier in the call, you spoke about 10,000.

Sorry, we can't hear you.

Yes, is it better now?

Yes, yes, please continue. Yes.

So sir, I was asking earlier in the call, you shared that you are guiding for INR 10,500 crores of disbursements in FY '26, right? Is that understanding right, 12% to 13%.

That is correct. That is correct.

See Q3, we are still guiding for INR 2,500 crores given the IT transformation. I mean what numbers are we thinking for FY -- 4Q FY '26. That has to be substantially higher than INR 3,000 crores, right?

That is correct. See, actually, the confidence comes from the fact that, one, our branch expansion, unlike in the previous 2 years, we've already brought it front-ended it right now. So 14 branches out of the 15 that we had planned have already opened and operational with the staff and the offices and everything there. So that should also help us in getting in H2 some business. The second thing is our sales team, which we also increased the staff strength from 39 in end of Q1 to now about 100, which is effectively about 94 or something. That is also starting to deliver as against INR 101 crore, which the sales team was able to source in Q1. This quarter, they have delivered about INR 185 crores. And that also considering that the productivity levels also, which dropped because we added people in the month of June have again come back to the level in the month of September. So which means that within 3 months, we've been able to improve the productivity levels of the new staff as well. So that is what is giving us the confidence that we should be able to do it. And as I said, I mean, because of an IT implementation, we would -- we are looking at around INR 2,500. But I mean, ideally speaking, we should have done about INR 2,800 crores now and about INR 3,200 crores or INR 3,300 crores in Q4. But we may have to push a little more in Q4. That will be helped by the fact that we will have a little bit of efficiency in terms of our IT, which has been there. And therefore, we are quite positive, we should be able to push in Q4.

Got it, sir. And then, sir, I mean, last question I had was on margins and space. We've already had a lot of discussions in this call on spread and margins. But 2 sub-questions here. One is, I mean, like you rightly shared, sir, except for maybe in LIC and maybe a Bajaj Housing. No one else have really taken rate cuts among HFCs, PLR cuts among HFCs. So suffice to say that, a, there is not too much of irrational competition, which is there among HFCs at least, right? And the other thing is, I mean, there is no, I mean, real pressure from RBI either, right, to pass on rate cuts. That is one. And the other thing is, I mean, like you acknowledged, except for NHB, where we will see some benefit in the coming quarters. So I wanted to understand customers who are on annual resets until now, and please correct me if I'm wrong. But my understanding was customers who are on annual resets, right, they are on rolling basis, not that everyone gets reset at the same time, depending on when they have taken that loan, they will have a reset, right? So what proportion of customers have already seen some resets, you said, right, a little less than 60% are on annual resets now. But even those annual reset customers would have seen their rates being reset is what I'm trying to ask. So if you could help us understand out of the total book, right, what proportion of customers have already seen some resets, right? And to that extent, right, whenever the full set of customers see at least one cycle of resets, right? Suffice to say that going forward, I mean, like you said, I mean, in addition to some of the buffer that you are keeping for yourself to push growth in 4Q. From here, the margins compress, right, for the next few quarters, margins and spreads compress for the next few quarters because of these customers who will also see resets who are currently on annual.

Sure. So firstly, what you have mentioned about this rate cut, whether there is irrational pricing. So there is -- you're right, there is not -- majorly nobody is rushing to kind of pass on the rates or anybody is rushing to give the kind of offers that used to be seen earlier because everybody is now conscious about the profitability, and there is a lot of pressure to also maintain and do this. So that way, in fact, as a responsible corporate, we have been one of the very, very few to actually pass on to our customers, which I'm sure we will get the benefit. Our customers will also appreciate. As regards to the second, yes, there is not a kind of a pressure from RBI, but there is a general feeling that people should do it. So all the PSU banks have done it, LIC has done it. So have -- we have done it and LIC Housing has done it. But in case when it comes to NBFCs and HFCs who are not directly coming under the RBI or anything like that, there, in fact, yes, definitely, the RBI is not kind of putting so much pressure for any rate cut. And as I have mentioned, I think I've been mentioning again and again that the RBI has taken a view that since the prepayment penalty has been removed and customers can move from one lender to another lender without any cost implication, therefore, whether you pass on or not, customers will take a conscious call and will move. And to that extent, the RBI has also brought in the key fact statement, which has to be sent every quarter, the updated quarterly statement and everything has to be done. So basically, the transparency is being increased. and everybody is following that guideline. And because of which now the customers are more aware and they are in a position to take a decision and they are free to move without any prepayment penalty. So I guess the RBI should be at least the objective, if not entirely met, it's at least met in the sense that customers have the flexibility now. So that is not so much of a problem. The third, as regards the annual reset, this quarter, we had -- as at the beginning of the year, we had 72% customers who were at annual reset. In the first quarter, it moved down to 67%, which means that only about 5% customers moved from annual to quarterly. And whoever moved from annual to quarterly got the entire benefit of the lower rates. Same way in this quarter from 67%, it has come down to 59%. So about 8% customers have moved into it. Now the remaining 59% who are there, they also, as you rightly said, move in a month-on-month basis. So it's not that the entire customer set will move in one single month. So if the disbursement was done in the month of April, then the next April, the reset will happen. Those who have taken in the month of August, it will happen in the next August and so on. So right now, from July, as we speak, already 1/4 or 1/4 of the customers have already seen the reduction in their rate even in the annual reset category. And therefore, going forward, whatever the 59% or the 3/4 of the customers are left, they will also do on a divided basis. So it's not that entire pressure is going to come in one particular month. Plus this, whatever pass on we have to do to our customers will be offset by the reduction in our NHB PLR and in our lower cost borrowing that we will do in this quarter because our maximum rate at which we are borrowing from banks is 7.10 and NHB refinance will come at 6.8, which is lower than the 7.29 cost of borrowing that we have reported for end of Q2.

Got it. So basically, the takeaway is, I mean, like you had said earlier, and I'm just reiterating that, spreads and margins can largely be maintained at these levels, given that your incremental cost of borrowings will also be lower than your cost of goods sold.

Correct. So unless we go for a rate cut to our customers, which is presently not called for or which is not actually in demand by the customers or else if some sudden spike or some situation happens where the borrowing costs go up. Other than that, today, we don't see -- I mean, as of the moment, it appears to be a very comfortable sense that we will be able to hold on to the spread.

The next question is from [ Shreyas Ghatani ].

I just had a couple of questions. So the first one was on the strategic road map. So I see that one of the biggest changes that we'll be seeing is going from the salaried professional mix going lower to self-employed. So how do you see this in terms of the credit quality that we have currently versus what you would foresee in the future? Like it seems like we should be seeing some kind of deterioration from now, but I could be wrong if you could just give some color on that overall, even the geographic mix and the housing to non-housing ratio going lower. So if you could give some color on how do you see credit quality?

See, actually, 2 things here in terms of our SENP. One, this reduction in our NPA that we have seen in this quarter has entirely been in our SENP book. That is, in fact, our salaried book, our gross NPA in our salaried portfolio is around 0.68%, whereas in case of our NPA in our SENP is higher than 1%. That's why our blended rate is 0.94. But in this quarter, whatever that INR 378 crores has come down to INR 372 crores, the reduction has been in the SENP category NPA in absolute value. So that is one thing which indicates that as I -- which actually all supports the fact that general cash flow in the market seems to be slightly improving because, one, the SENP repayment has started coming. The prepayment or the excess payment made by the customers is also slightly increased, plus our deposit base has gone up. So that is slightly an indication of that. That is point number one. And second point is that we have an internal credit scoring methodology. So basically, it is not that we only look at the category and though we are charging 0.5% higher, but we do have our CIBIL score and all other parameters that we look at. Today, if I have to give you the figure, our -- in terms of our CIBIL score category, we have almost 86% of our customers who are having a CIBIL score of more than 700. This is both in case of salaried and self-employed. This is the kind of trend. So kind of reflects that the quality of the customers that we are onboarding is also fairly good. So I would believe that it should not reflect so much in terms of delinquency, although traditionally, it has always been that SENP NPAs have been a little higher than salaried segment NPAs.

Got it. Right. Yes, that's where my question was coming from because typically, we see higher delinquencies there. The second question is actually around the short-term like IT transformation that you had. So I'm trying to understand what kind of retraining is needed that we would see a reduction because most of our sales comes from DSAs. So like do they need to be retrained? Or I'm trying to understand the reduction in the guidance for this quarter. If you could give some details on that.

Okay. See, actually, the current IT package that we are having has been in place from 2011. So that clearly shows that for the last 12 to 14 years, the team has been only working on one single software. okay? And therefore, a lot of changes are expected in terms of not only the UI/UX, but also in terms of the process flow, the methodology of doing any of the transactions that our staff have been doing. So that is something which will require a little bit of getting used to. That is one thing. And that will also mean we'll have to give all the staff clear training in terms of the entire new UI/UX, the new flow of transactions and everything. Secondly, we are also adding a lot of additional features into this, obviously, because it's a latest up-to-date kind of a market software that we have -- we are onboarding. So obviously, that will mean that a lot of new learning will also be there for the staff. So it is just getting used to the kind of thing. Otherwise, basics of the business don't change. And so that is where the training will be required where our teams will have to go through all those things. And there could be some teething problems like in terms of some wrong way of doing things, system is stuck. We'll have to be guided of the helpless -- we'll have to step in and tell them how to now get through this particular activity and all. So basically, those things where we will have to do it. Obviously, when the training happens, at least -- I mean, the implementation happens, at least there will be 1 or 2 days where there will be a rollover from the old package to the new package. So there will be a system downtime also. Obviously, we will try to align it with a kind of a Saturday, Sunday kind of a thing where it's a holiday, and we will try to do it in that sense. But still, that kind of a buffer is something we'll have to factor in those things. IT transformations, while fingers crossed, we would like to have it everything going fine, but you never know you'll have to slightly -- they can act funny.

Got it. Got it. That's very helpful. And my last question is on the geographic mix. So just trying to understand what is driving us just in the North, not the East, West? And are we like indicating like -- that we don't want to grow. It's just a diversification that we are doing? Or is this that we are almost saturated from what we can do in the southern markets because, I mean, there's a lot of room anyway. So since we know that kind of market for a long period of time, why -- what's the purpose of just North and not the other regions if it's just diversification?

No, it's not only that we are opening only North and in the West. Actually, we have opened branches in Tamil Nadu also. We have opened branches in Andhra Pradesh also. So it's not that we are not opening in the South. But considering that if you look at the breakup, we have the number of branches in the South is much higher compared to that 4 states are having almost 70% of the branches or 65% of the branches, whereas entire large states, including Maharashtra, including Delhi, including Gujarat, MP, Rajasthan and all and UP, which is now doing very well. In spite of all those large states also, the number of branches was a little less. So we are having more number of branches opening in the North and West, but not that we are not expanding in the southern geography. Only Telangana and Karnataka, we have consciously not gone for an expansion because today, the growth itself is a little bit of an issue because of the e-khata issue and because of the Hydra issue. So obviously, it doesn't make sense to now open more branches here. But as now the growth is picking up, in fact, we are looking at some more branches in Karnataka and Telangana also now. So going forward, we will be looking at some more branches in these 2 states.

The last question for the day is from Kamal.

While most of my questions have been answered, just a couple of questions. Firstly, what is our incremental lending rate to the customers? And going forward, what is the strategy while we give loans to our customers, we make them be at quarterly reset? Or is it annual reset? Or do they have some option of opting where do we want to reset our rate of interest?

See, in case of the incremental lending rate -- sorry, I suppose you finished your question, right? So incremental lending rate, we -- our lowest rate for the best customer in the housing category starts from 8.7%. were earlier doing at 8.95% was the lowest rate. Now 25 basis points that we passed on in 2 tranches. Now our lowest rate is 8.7%. And our rating is that for obviously for -- when it comes from housing to a non-housing, there's a slight extra -- rate of interest is slightly higher. If it again, from a salaried to a self-employed, there's a slight higher, we are doing it. And third, again, if it's a product difference, which is LAP or top-up, then again, there is a slight higher. So depending on the combination of this, we do it. So 8.7% is the lowest. And I guess the highest would be around 11.5%, although we do have a rate cut of 12.5%, but looking to the profile of the customers, I think all of them fall below 11.5%. We don't have the customers below 700 or 650 CIBIL score. So that is the -- in terms of the lending rate. That's why the blended cost, if you see comes to around 10.08 is the blended lending rate on the incremental side. because we have about 60% of the customers under salaried, 40% under self-employed. So that is the mix. So on the self-employed, the 0.5% higher is also there. As regards to reset, in fact, from January 2024, we have changed the policy. All new customers are compulsorily on quarterly reset only. We are not giving the option over there for a quarterly or annual reset. It's only a quarterly reset. But existing customers as on 31st of December 2023, there -- those customers for moving into quarterly reset will have to go for some slight documentation, and they'll have to opt for it, which we keep sending reminders every quarter, every month to these customers, SMSs and WhatsApp. And whenever they come to our office or whenever their reset is due, we again contact them to give them an option to reset to quarterly reset. So that is where we have seen that 72 coming to 67 coming to 59 quarter-on-quarter. That is the position. But new customers are all on quarterly reset. Existing customers will move slowly over a period of time.

Okay. If I could squeeze in one more. What was the BT out rate for the current quarter? And this quarter, our credit cost was very low. Apologies, I joined a bit late. So if you could just give some color on the provisions and how do we expect it to pan out for the rest of the year?

Okay. So right now, if I have to look at the balance transfer, which is takeover of loans, balance transfer or even where customers have said that we want to close the loan out of our own funds, we have considered this as a balance transfer because the customer may be saying this, but actually, it may be a takeover. So considering all that, totally out of the INR 1,661 crores, about INR 390 crores is where it is because of this reason. Otherwise, in terms of customers making part prepayment but continuing the loan with us, obviously, that cannot be a takeover. And the remaining thing is where the customers have sold their property and bought another property, that also obviously is a genuine transaction, not a BT out. So keeping those in -- excluding all those things, the takeover, balance transfer and everything is approximately around INR 390 crores. which was around INR 275 crores in the previous quarter. So here, about INR 120 crores has gone up, mainly about INR 45-odd crores, mainly increases in Telangana state, which I mentioned earlier. So this is -- so while INR 1,661 crores is the total amortization plus part prepayment plus loan closure, the actual loan closure is about INR 390 crores out of the INR 1,661 crores. That is one. And the second point, sorry, I missed out. I didn't -- you mentioned one more point.

Yes. The provisions this quarter was...

Yes. So in terms of provisioning, as I said, we have had a reduction in our total delinquency across the boards in terms of SMA-0 has also come down in Q2 over Q1. SMA-2 has also come down in Q2 over Q1 and NPA has also reduced by around INR 6-odd crores in Q2 over Q1. So as a result of this, the incremental ECL provision for the delinquent portfolio has not been much. Only that INR 3 crores that has happened is mainly because we have -- our book has already grown from by around INR 850 crores, INR 900 crores in the quarter. So obviously, we have to have some provisioning for the growth part of it. So that is what it is. So if our delinquency further comes down across the boards in Q3 over Q2, which is what we are looking at. Then in that case, in Q3 also, the provisioning may not be a high number. It could be for growth that we will have to make a provision.

Thank you all the participants. This concludes our Q&A session. I would now like to hand over the call to Mr. Suresh Iyer for his closing comments. Thank you.

Yes. Thank you, Nidhesh, and thank you to everyone for joining the earnings call of Can Fin Homes for Q2 results. As explained, it has been very interactive. And we have our CFO also here, Abhishek, or myself, we are there. So any further queries also, you can get back to us. And otherwise, it's been a very interactive thing, and I hope you have been able to answer all your queries. Once again, I wish all of you and your families a very Happy Diwali. Thank you.