Capital Small Finance Bank Limited (CAPITALSFB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Capital Small Finance Bank Limited Q2 and H1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being record. I now hand the conference over to Mr. Sarvjit Singh Samra, MD and CEO, Capital Small Finance Bank. Thank you, and over to you, Mr. Samra.

Thank you, Angel. Good morning, everyone, and thank you for joining us on Capital Small Finance Bank Earnings Call for the Second Quarter and First Half of Financial Year '27. I hope you and your families are keeping well. Our financial results and the investor presentation are already on the stock exchanges and on our website. Let me quickly introduce the team with me on the call today. I have with me Mr. Munish Jain, our Executive Director; Aseem Mahajan, our Chief Financial Officer; Raghav Aggarwal, Chief Credit Officer for Branch Banking; Sahil Vijay, our Chief Treasury Officer and Investor Relations League; Bharti Babutta from our Investor Relations team and our IR Advisor SGA. I will begin with an overview of the operating environment and macroeconomic developments during the quarter 2 and the first half of the financial year '27, followed by a detailed discussion on bank's performance and outlook. Let me begin, as usually, I do with a few words on the environment we are operating in. Because the sector is entering pace, wherein the quality of growth, the strength of your deposit franchise and how will you navigate a shifting rate cycle really start to matter. In the first half of the year has been a healthy one for the system. Credit growth stayed strong on the back of Retail and MSME demand and Deposit mobilization has picked up well. At end of the September banking industry credit grew at around 19.4% year-on-year against deposit growth of about 17.8%. The other way, the development was of course monetary policy. In its October review, the Reserve Bank raised the repo rate by 25 basis points to 5.50% and moved its chance to calibrate tightening. This was on the back of some emerging inflationary pressures, higher energy and food prices alongside an economy that is still growing well. The signal from the Central Bank is fairly clear, for now rate cuts are off the table and the path had will depend upon how inflation and growth play out. First, as bankers, this shifts the portal. Until recently, the question was how quickly rates would come down. Now it's about managing our rate environment that may stay higher for longer. The cost of deposits, how our liability book reprices and our ability to protect lending spreads will be the things that drive profitability from here. And through all of it, disciplined underwriting, comfortable equity and picking the right loans will be what lets us keep growing without letting asset quality slip. These are not new discipline for us. They are how we have always run the bank. And in an environment like this, granular Retail deposit real customer relations more than ever. For a bank like ours, routine semi-urban and rural markets, the ability to raise deposits through our branch network, we have built over decades. And to put with customers, we already know is general and durable advantage. So when I look at where we stand, I'm confident our model is well suited to this environment. a deep presence in core markets and almost entirely secured loan book and our relationship way of banking give a solid base to keep growing while staying measured on risk. Our priority is quite simple, remain the same, grow the franchise, strengthen the deposit base and protect the quality of the balance sheet. With that backdrop, let me take you through how the bank performed in the second quarter of the first half of financial year '27. I will touch on the headline numbers and then hand over to Munish for further details. Our gross advances stood at INR 9,755 crores as of September 30, '26, up 23.4% year-on-year, and 7.5% over the previous quarter. Disbursements for the quarter were INR 1,095 crores, up 36% year-on-year. On the liability side, total deposits grew to INR 10,831 crores, up 16.2% year-on-year and 2.2% over the previous quarter. CASA stood that INR 3,734 crores or 34.5% of total deposits, compared with 33.9% a year ago. Gross NPA declined to 2.3% at the end of September '26, compared with 2.47% in June '26 and 2.70% a year ago. Average credit-to-deposit ratio stood at 85.4% during the quarter compared with 81.5% in the corresponding period last year. Looking ahead, our priorities are clear, keep the momentum going in our core lending segments, make the deposit franchise deeper and more stable, improved productivity and stay firmly focused on asset quality. In a shifting rate environment, we believe discipline, consistent execution will count far more than simply chasing scale. On that note, let me hand over to Munish, who will take you through our financial and operating performance in more detail. Over to you, Munish.

Thank you, Mr. Samra, and good morning, and warm welcome to you all on the call. Let me walk you through the key business and financial highlights for the quarter and the half year ending September 30, 2026 and then spend a little time on the progress we are making on our strategic priorities and vision 2029 road map. Business performance and advance profile. Starting with advances, as of September 30, our gross advances stood at INR 9,755 crores. That is a growth of 23% year-on-year and 7.5% over the previous quarter and acceleration from where we were in Q1, and the reflection of study execution, healthy demand across our core segments. Disbursement stayed strong throughout the quarter and stood at INR 1,095 crores, up 36% year-on-year. that tells the demand is holding up well across our segments and that our destruction and underwriting engine is working efficiently. Our book remains firmly secured and around 97% is secured, over 76.7% of the portfolio and 89% of excluding a noncorporate book, is backed back immovable property or own FDRs. This is very much by design. And the single biggest season over asset quality hold up the way it does. The book is also granular with the average ticket size of about INR 19.53 lakhs against INR 17.1 lakhs in Q2 FY '26 and well diversified. As of September 30, our portfolio continue to remain well diversified and Business Loan segment is presently the largest segment, which increased to 28% of the book against 23% a year back which was 27% at the end of the last quarter. Mortgage were about 24% of the advances, a little lower than 26% a year back and 25% in quarter back. Agriculture, 26% against 27% a quarter back. And corporate exposure stayed deliberately constant at around 40% where we lend only well-rated borrower. On asset quality and risk management. Let me turn to the asset quality and which I know always a big focus area for us. Gross NPA come in at 2.36%, an improvement of 11 basis points over the previous quarter and 34 basis points over a year ago. Net NPA improved to 1.12% from 1.14% last quarter and 1.38% a year back. I would highlight this, this improvement has come in a quarter that has its own share of weather-related stress in our core geography, which to us is the clearest validation of our secured, carefully underwritten approach. Credit cost for the quarter was 0.1%, broadly in line. Just as importantly, our early warning indicators are [indiscernible] SMA1 and SMA2. Accounts were around 3.31% of the advances down from 4.78% a quarter back and 4.42% a year back. That reflects proactive collection and much closer monitoring of the book. And as we grow, protecting asset quality stays right at the top of our list. We will keep lending the way we always have secured, granular, with careful customer selection and strong collection and we are increasingly using data and technology to sharpen our early warning systems. All of this keeps us firm on track towards our goal of taking net NPA below 1% without letting growth come at the top the balance sheet. Deposit liability in franchise. Coming to the liability side, our total deposit crossed INR 10,831 crores, up a healthy 16% year-on-year and 2.2% on quarter-on-quarter basis. Which to us is really a manager of the trust our customers continue to place in us and the strength of our Retail franchise. Our average credit-to-deposit ratio for the half year was 85.4%, up from 81.5% a year ago, which shows we are deploying our funds efficiently. CASA stood at 34.5%. It is a much lower than what we had last quarter, and that is seasonal and in line with what the whole industry is seeing in a high term deposit rate environment. But it remains higher than a year ago. That is 33.9% a year back and this continue to anchor the stability of our funding. The cost of deposits stood at 5.68%, against 5.92% a year back now. Going forward, building over granular Retail Deposit base stage one of our key priority, especially as we enter newer market. We will keep deepening customer relationships, pushing CASA and fine-tuning our funding mix. Together with disciplined liability management, we believe this is what we protect our margins and profitability as the balance sheet grows. Let me come to the profitability. Pre-provision operating profit was INR 68 crores, up 31% year-on-year and profit after tax is at INR 92 crores, which is at INR 46 crores, up about 31%. That is a healthy outcome driven by steady operations and continued cost discipline. Our net interest margin held steady at 4.24% against 4.04% a year back in a quarter where the rate environment actually turned, improving margins speaks to the resilience of our core earnings, and we allocated from the repricing of the term deposit we had flagged in the last calls. Our net interest income grew by 24% on a year-on-year basis and stood at INR 139 crores against INR 112 crores in Q2 FY '26. Noninterest income grew 25% to INR 30 crores against INR 24 crores in Q2 FY '26. On efficiency, our cost-to-income ratio is 59.8%, an improvement from 61.7% last year even as we continue to invest in branches, technology and people. In other words, the operating leverage benefit is expected to begin soon. return on assets stood at 1.39% against 1.26% a year back and 1.3% a quarter back, while return on equity at against 10.22% a year back and 11.2% a quarter back, supported by consistent profitability and prudent balance sheet management. Improving our profitability and return ratio is just central part or road map as our newer branches, seasons, relationship deepens and our business case, we expect operating leverage and productivity gains to contribute more and more the earnings. Let me spend a moment on geographical diversification, which continue build nicely. As of September, our network stood at 222 branches across 5 states and 2 unit territory, strengthening our footprint in rural and semi-urban markets that remains central to our long-term growth. It is worth mentioning that deposit share in the home state has increased to 1.3% of the industry as on June 30, 2026, against 1.17% as on March 31, 2025. Markets outside Punjab are becoming a real growth engine for us. Advances there grew by over 39% year-on-year this quarter, comfortably ahead of our overall loan growth of 235, that tells us over model travels well beyond our home market. These markets now make up to 26% of our advances and 8% of our deposit, which tells customers in these new geographies are increasingly choosing to bank with us. We are having 47 branches outside Panjab, that is 21% of our network, and they're contributing 36% of our advances. Encouragingly, business per branch in these markets, that is the out of Punjab market are continuing to show upward trajectory with business per branch has started hitting INR 80 crore plus for branches with the longevity of 5 years and above, against INR 72 crores at the end of Q4 FY '26. Over expansion still deliberate. We go into markets where we can generally replicate our relationship-led model without diluting underwriting standards, and we are equally focused on getting more out of our existing branches and deepening every customer relationship we have. We have 77% branches in SURU, which contribute 75% to the deposit. And interestingly, 23% of our urban and macro branches contributing 46% to the advances. A quick word on capital and liquidity, both of them remained strong. Our capital adequacy ratio closed at 20.8% with Tier 1 capital at 18.5% giving us ample [indiscernible] to fund our growth with no immediate need to raise the fresh capital. Our average liquidity coverage ratio stays strong at around 216%, which give us sufficient leg growth for the road. We will continue to keep comfortable capital and liquidity buffer as we grow, so that every bit of balance sheet expansion rests on a resilient footing. Before I close, let me briefly retreat where we are headed under our Vision 2029 roadmap. We continue to target a loan book of over INR 16,000 crore-plus and a network of more than 300 branches by FY '29. The way we get there is clear. Go deeper, getting more stronger in our existing market, target expansions beyond Punjab, make branches more productive and keep investing on processing and sales. There are really three things that drive this one. First, accelerating growth with lifting the contribution from our newer markets; second, improving operating leverage as our branches mature our business game scale; and third, one we never compromise on keeping the balance sheet clean through secured, granular lending and discipline underwriting. Importantly, this is not about scale for its own sake, it is about making sure growth turns into sustainable, profitable and better return ratios. And we believe our relationship-led model strong retail deposit franchise, improving diversification and disciplined approach to risk give us a solid foundation to deliver exactly that. With this, we will be happy to take your questions, and I request the operator to open the floor. Thank you and wishing you all happy and prosperous festivity.

[Operator Instructions] The first question comes from the line of Jiten Parmar with Aurum Edge.

Congratulations to the team on a very good set of numbers. Can you hear me? Am I audible, please?

Yes, you are completely audible, Mr. Parmar.

So my question is specifically on digitally than Agriculture sector, here, the monsoons have not been very good. Now do we see any impact on that? Our collection efficiency has been very, very good in the -- but do we see it going down a bit because of these sectors? If you can throw some color, what are the -- because the back from should come now.

Yes. I just take this question and gave you a bit backward also. If we talk about the agriculture, what we do in agriculture, we are a land in agriculture to the middle income group within Agriculture segment. That is the farmer whose financial need is anything between INR 5 lakh to INR 25 lakhs. And with farmer who is a progressive farmer that is cultivating to or 3 crops in a year. And our Agriculture segment is primarily presently concentrated in Punjab and Haryana. Now if we talk about the agriculture geography in which we operate. In addition to the rain water, if I talk about other irrigation opportunities available in Punjab, Haryana, one is the [indiscernible] over the last 2 to 3 years, we see a very good progress. The canal waters has start reaching to the farm level. Second, after we've seen a very good rainfall, which resulted in increasing the water tables. And with that thing in sight and with availability of tube wells and the irrigation facilities through Punjab and Haryana, the deficit rainfall, the impact on the agriculture was not visible in the geography in which we are lending the Agriculture. Just where we keep on hearing some impact in some other segments of the country. And the same is also being visible from our slippage as well as SMA1 and SMA2. Even if we talk about the current year, we have a gross slippage for H1, full H1, 1.11% on annualized and net slippage of 0.24%, with our credit cost of 0.18% for Q2 and 0.24% for the H1. So with our SMA profiling, continue to show an improvement trend with our SMA1 and 2 continue to be the lowest ever. Now we have the SMA1 and 2 of 3.31% against 4.42% a year back. And at the end of the last year, the same number was 4.92%. So all the data points are pointing that there is no challenge which we are seeing on the Agriculture side from the deficit rainfall. And we have seen such cycles earlier also. Even if we look history, we have seen the same cycle in FY '23 when there was a deficit rainfall, then we see a much larger cycle in FY '16. If we look into the data flow of those years, which is available on Slide #12 of our presentation. But in those periods, we are able to hold formally on our credit cost as well as the slippages. So with our understanding of the market and careful selection of the borrower profile, I believe, and over secured lending franchise is helping us keeping our asset quality in control with -- despite the various macro and natural calametical variables. This is what overtake and depending upon the data and otherwise.

Perfect. Perfect. So my second question is on basically the geographical spread. So we have major any of our branches in Punjab and Haryana is probably the state where we have seen some more maturity compared to the other states and all. Now if you can throw some light -- see, I can say that we have been superb in Punjab, there is no doubt about that. But what I want to see or understand can be replicated. And maybe Haryana will give a picture on that, that things are happening. Your numbers on other states are quite decent. The only thing I want to know is, what is the status of deposits, cost of funds in the other states as compared to Punjab. And also, I want what is the potential of Punjab and Haryana especially at least from a growth perspective, Punjab can hold how many branches or potential of how many branches and same for Haryana. If you can throw some light on this, that will be great.

Surely. Firstly, as I understand some of my investors are looking forward for more drill about Punjab versus out of Punjab, so my request if you can please turn to the Page 26 of our presentation, in which we have given some more details about both the Punjab and out-of-Punjab businesses and the crosses various other aspects. Let me -- if we talk about Punjab versus out of Punjab, we are presently having 21% branches out of Punjab, which is contributing 25.7% to our advances and 8.2% over deposit. If we talk about the quarter, we've grown 23% on a bank level basis on advances and Punjab book has grown 19% and out of Punjab book has grown at 39%. And deposit grown 16% on a bank level basis, Punjab book has grown 17% and out of Punjab back 12%. And if we talk about the other quality metrics our GNPA in Punjab is 2.88 and out of Punjab, it is 0.87 and bank level, it is 2.36. CASA bank level being 34.48%. Punjab, it is 35.3%, out of Punjab it is 25.32%. So if you talk about the Punjab versus out of Punjab and if we talk about even the branch productivity. Branch productivity out of Punjab is now making up to the productivity within Punjab. So all the metrics are moving in the right direction, both within the state of Punjab and out of State of Punjab. But with this, I want to share one more important data points. Even within the state of Punjab, our market share, if I talk about the deposit first, our deposit market share against the whole of the industry has improved to 1.3% which was 1.17% at the end of 31st of March 2025. So over last 15 months, we improved this market share by 13 basis points. I'm not talking about incremental. I'm just talking about the outstanding. So outstanding being a longevity-based number, so we are gaining over momentum. And Punjab is a liability book of INR 7.45 lakh crore. Haryana being a liability book of 10 lakh crores role deposit. So these 2 states have a huge money, and we just need a small little movement to take our aspiration. So the opportunity available in the geography in which we are phenomenally high, and we are gaining the momentum both within and out of Punjab, and we are keeping our INR open to get the opportunity wherever it comes.

Perfect. Perfect. And one question, last one. Do we use CGMFMU and if yes, what is the coverage and what is the cost?

As far as the present status is concerned, we are primarily a secured lender. So being a secured under CTMS is not required by us because we are not an unsecured lender. So our book is purely collateralized. If I exclude the corporate loan book, we have a 92% collateralized loan. So CTMS is not what we are required and neither we are doing. But this, we are keeping an eye open for any enhancements to a client to who may be very old with us. We are evaluating various possibility that how we can leverage it without increasing the estimates. So that's again, I say we are not comfortable in going in a stand-alone unsecured business. We want to continue to be a secured franchise where we see the enough opportunity and potential to grow this year, which we are demonstrating now with each passing quarter.

Next question comes from the line of Shreyas Pimple from Nomura.

My first question was on net interest margins. both on asset side and liability side. First, on asset side, how much of the book that we have currently is repo rates? And as we see increase in repo rates, how much improvement in yields we can see? On the liability side, is there still cost of pressure -- cost of fund pressure the environment? Or how are we looking at cost of deposits, as repo rates increase, what will be the difference between increase in yields and increase in cost of deposits, so that [indiscernible] our NIMs. So if you can help me explain that, please?

Surely. If I come to firstly, the statistical point, if we talk about the loan advances. [indiscernible] advances for Q2 FY '27 remain at 11% against 11% last year Q2. So we have seen a repo rate hike in October, so the benefit of that has not been pulled into the [indiscernible] in Q2, that will be coming in the coming period. But if we talk about the cost of deposit, cost of deposit has improved by 23 basis points, which was around 5.9% in last year Q2, which is now 5.68%. So there is a good improvement in the cost of deposit from Q2 versus Q2, that is the year on bigger bigger. And so accordingly, our net interest margin has increased to 4.24% against 4.04% last year Q2 and 4.21% at last quarter. Since the benefit of the pricing of the -- repricing of the deposits has accrued primarily in Q1. So we are not seeing much benefit coming in the current quarter from the deposit repricing, but we are able to form our [indiscernible] advantage, which is 10 basis point improvement from the last quarter. So that is the where the movement happen. Now if I talk about the intrastate environment, you turn and however balance sheet look like. If we talk about the balance sheet, we have around 52% fixed rate advantage and 48% floating rate advances. So say around 50-50 each. So 50-50 each is typically unit fixed and floating. And if I talk about the floating, floating is a fuel balance of the MCLR linked as well as the linked with EBR. So EBR linked portfolio will be typically around 13% to 14% of the portfolio is EBR-linked which is the EBR where the benefit will be immediately pulling in. And the MCLR-linked portfolio will be adding reprice as and when we're repricing our deposits. So that will be getting the benefit passed on to the advances. So in an upward intrastate environment, what is the benefit for a balance sheet like us. When a deposit is typically for a fixed rate and even if we're increasing the deposit cost, that will be coming for the incremental book, manage in the advances. In addition to the incremental advances, the benefit will be also pulling into the existing 50% of the book gradually. So it will be always an advantageous balance sheet in the upward interest rate regime, in midterm until the time it gets stabilized on the both-side of the balance sheet. So [indiscernible] increase, we can see some benefit with the 25 basis points impact, which we'll be implementing from 1st November, since we follow a month-end philosophy, the EBR change in the month is implemented immediately at the beginning of the next month. So with the 1st of November, auto increase will be happening to all the portfolio of the link with EBR for that particular site.

That is very helpful. Second question was on growth. The INR 16,000 crore target that we have set for ourselves for FY '29, if I look at the run rate of 23%, 23.5% for, let's say, FY '27, the 2-year run rate over FY '27 to '29 then becomes around 23 -- 22% to 23%. With the balance sheet size that we have and the loan book size that we have currently of around INR 9,700 crores, do you think -- don't you think this is slightly conservative on our side? Do you think that we can grow faster than 22% given the size that we have?

As far as the forecast is concerned, current in the beginning of the year, we've given a guidance of 20% to 22%, and we are talking to H1 and 23%. So we look forward for a positive business to the growth engine. Just since the growth in bankers, our growth is variable, which is linked with a lot of macro factors. And predicting a macro factor for the 3 year is a difficult task given the present environment. This, we are growth hungry and we want to achieve -- overachieve what we committed. So with that thing in sight, firstly, we are quite confident of what we are committed for FY '29 and rather our run rate is better than the overall run rate, since Q2 FY '26 to the FY '29. Our run rate is better than the run rate which is required. So let me put it very clearly. We're a growth hungry organization. and we believe the complete foundation is available to grow. We have the whole system, all the processes, all the team, all the infra, all the capabilities. So with the the macro environmental comfort, if there some good market opportunity come, there will be a good growth will be coming. So we are not keeping this number to restrict our growth, but the challenge is to rather to overload. So that is how we look at this particular number. So yes, we are a growth hungry and look forward for growing the balance sheet at the most appropriate growth rate.

Sure. So that's helpful. My next question was on the Universal Bank aspiration. I know it's a long drawn process. And we are at the initial stages of scaling up the bank, but some of the banks that have started with us in the year back back in the day, have scaled their books being small finance banks to a very large extent. And also are on the verge of getting universal banking less. I just wanted to understand your aspirations on becoming a universal bank and Pan-India bank, which is recognized in the entire country. And what are the steps, if at all, that we are taking -- like we'll have to expand our product portfolio, not just stick with the secured loans, et cetera. What are the aspirations? Where do we see the bank maybe 10 years down the line, if you can throw some light on that?

Let me put one thing. Getting a universal license is one of the biggest aspiration. Me and my whole of the team, including my big boss, we all are carrying. So we aspire to the universal bank. So overall strategy and over alignment or business alignment is in that direction. If I talk about our thoughts about it, we believe to get this universal bank, we need a couple of things. One, right systems and processes which we are confident and we are confident that we are in the right shape. Second, diversification we are a fully diversified lending portfolio rather than a monoline business, we have a 4 to 5 different buckets, not the products. So each catering to a different economic need and different segment of the people. May it be Business segment, may it be the Agriculture segment, may it be the Mortgage segment, may it be the Consumption segment, may it be with the Corporate lending segment. So we have been presenting all the buckets in all the functionalities. So diversification, and we have continued to improve our diversification with each passing quarter, strengthening our underwriting capabilities for every diversification need. So that we are well equipped to take that particular universal banking thing. Third is skill. So we have given a vision of FY '29 that where we want to to be INR 16,000-odd crores. So if I'm talking about the AGM to be INR 16,000 odd-crores, it translate into a balance sheet of anything between INR 21,000 crores to INR 23,000 odd-crores. So with above INR 21,000 crores to INR 23,000 crores is one side of the balance sheet. I believe it's the rightful size to go and apply to the regulator for the universal bank. So we believe by FY '29 when we achieved the scale, we achieved the efficiency ratios that is [indiscernible] plus 15% plus ROE size of branches 300-plus branches business of more than 1/3 of the balance sheet, more than INR 21,000 crore, INR 25,000 crores types. So that is the right size to go to the regulator to look for further over aspiration of the next stage of the journey. So that's the way Vision 2029 is very important for us. So we want to rather than just giving a top line number, we have given the number, which includes the quality metrics, profitability, rational analysis, best distribution and unit diversity. So all those metrics been put in place Vision 2029 is a stepping stone towards the next expiration that is a universal bank. So we are quite expedient and over whole of the efforts and targets are making us reach towards universal and to give that particular the growth we are talking. And -- but one thing I'd like to mention, in the entire until we get the universal, the present model in which we are operating as a small finance bank, given we are a granular and middle-income group-based lender, with the market available significantly for middle income group. The present model is not restrictive over growth. So we are believe FY '29, we can scale in the present model in a very significant and efficient manner and look and aspiring to convert ourselves. Universal Bank post FY '29 when all these matrices come. So that is our thoughts about it, about the Universal Bank. And I also request Mr. Samra. Please add on something if I'm missing something on this.

No, that is how we aspire. We feel that from here till the vision of '29, nothing stops us for a growth metric. So I think as Munish has said that would be more appropriate time, but we feel that to go for the next level, that is the universal bank license.

Next question comes from the line of Sagar Shah with Spark PWS.

And first of all, congratulations to the management of capital Small Finance for posting such a great set of numbers. And secondly, external disclosures. Sir, my first question was related to our diversification. Diversification has been on a very great path, actually. Outside -- I'm talking of outside Punjab. Now almost 23% to 24% of our advances constative outside Punjab actually. So now on our Vision 2029, what kind of ratio are we targeting outside within Punjab and outside Punjab, what kind of ratio in terms of advanced well deposits are we targeting? That is my first question. And my second question was related to our consumption and other loans. When we talk of auto loans, gold loans, still our interest yield actually is much lower than even our corporate loans or even our actually on -- even as some have loans. So what is the reason? Is the reason about competitive intensity or is it something else? Because normally, these are very high, a little bit high yielding rules as compared to what we have seen in the industry. These are my two questions, sir.

Mr. Shah. First of all, if I come to the ton #1. As part of our Vision 2029, we are targeting to that we need to have 30% plus branches outside the state of Punjab. Today, it is 21%. Over 21% of the branch accomplish present out of the state of Punjab, and we intend to increase it to 30% by FY '29. So consequently, there will be a parallel movement in our advantage today, if I talk about advances, which is 27% -- 25.7% out of Punjab with 21% branches. So we believe that with the 30% branches out of Punjab, our out of Punjab book shall be anything between 35 -- or anything between 32% to 37-odd percent. That is what we believe by FY '29 will be the ballpark number. Point number two, if I talk about the consumption, let me tell you what we do in consumption, consumption, which is presently constituting 7% of the portfolio, which typically the second or the third book. What I mean by this, consumption is not our start point. Consumption is the second or the third to our existing customer, who may be of a business loan customer who may be a mortgage customer may be our agri customer or who may be availing some facilities from us already. So this is the vision that our vision is to be the primary banker for our customer that we can take care of all financial needs. So accordingly, this is the lending to tested clients rather than an untested and a new universe. It is a second, third book, which may not be collateralized, but he had some other collateralized exposure with me and which is working satisfactorily over a long period. So that's why the yield here is relatively lower and since it is not a very high given product. So this has continued to be 7% for a while now. If we talk about this metro portfolio, it is 7% constant from FY '24 or '25 onwards and it. So with a very mind, it continued to share 7%. And this also includes a very sizable portion of the loan against [indiscernible] so if I talk about this 7%, they will be around 1.5% to 2%, which will be loan against our own FDRs. So which pulling down that particular yield down. So overall, we are quite mindful of the pricing that the pricing included out of the 7%, around 25% to 30% being FDA loan, which will be 7.5% to 8%. So with that thing in the site. So this is the pricing look like this. But this is a lower risk, add-on product and which you can look into. If you look at our Slide #9 on the presentation. You look at the net NPE of the consumption lending is [ 0.47 ] and across all the life cycles, which tells you the story, what sort of [indiscernible] so that is the way.

Sir, I got your point related to your Tradepoint business actually. It's a cross-sell product that you're referring to. But my point was, don't you think that it's now time for the bank where we have actually already tested certain geographies where we have a good know-how about the geography to directly with a customer through dealer financing for auto loans or gold loans actually for fresh customers rather than testing the old customers? Do you think it's now time for the bank actually to go for to move for some [indiscernible] approach rather than going for existing customers?

Mr. Shah, we are quite watchful of this. And we are running some pilot projects internally already, that what to -- how to expand it, how to expand it and faster in this particular subsets within this particular product. So we are also being that I'm not authorized to say more details about that particular thing. But I can tell you, we are already working on this to look forward for testing the panel, within subproducts within this particular lending. And we are evaluating a lot of such stuff to accelerate our growth. So as I said, we have a growth of reorganization, but also I'd like to clarify. In addition to the consumption, we are -- we have a lot of markets, which are growing now very steadily. And we want to ensure that consumption loans start growing at a bit faster than that also. So consumption loan, which is growing 6.89% quarter-on-quarter and 21.9% year-on-year. I know the base is true. So this growth is almost equal to the growth of the of the portfolio. So it is growing as per the portfolio being out of product. Yes, we are motif of it and evaluating all the options and opportunities available within the products.

Next question comes from the line of Shreepal Doshi with Equirus.

Congrats on a decent quarter. My question was on the draft circular by -- so how do you see impacting us because one of our thesis for ROA expansion was also driven by or aided by improving other income or improving the overall other income component. So how do you see this draft circular in our overall aspiration being let's say, impact or it could be derailed.

First of all, let me put 2, 3 points here. Since [indiscernible] is still dark stage. -- let it come to be in a -- from a discussion paper to a restage first. So today, we are in a discussion paper document to a drastic document. So that is the one journey, and we have already started working on the same. If you look into the Q2. Q2 our Bank Commission has come to this #2 and our other fee income as start surpassing the [indiscernible] our banker commission out of the INR 30 crores on non-fund is 10.2% and our other fee income are INR 20 crores plus. So Banca is constituting around 33% of the nonbank. And within the bank, it is not just about the insurance, it is include all the products, [indiscernible] such products are available, TSS. All these products are part of this particular which we are in for our partners. So we are quite watchful of this, and we have already started working internally on the various options and opportunities available to diversify or to other product lines other fee income and how to reduce the dependency on this. But just presently, instead of changing the gear in right now, internally opted to wait for the current quarter end and see how the regulatory environment looks like, maybe a draft comes, which will give us some time [indiscernible] but we fully recognize this aspect that our fee income, which is presently is 0.92. We are -- which is 0.92 against 0.82 last quarter and 0.86 last year's same quarter. So we are already -- the increase is coming not from the banca, but increase is coming from the other fee income. So we are quite watchful and mindful of this and internal deliberations and alternate poses have already been started and work has already been marked but we will look forward for a gear change as and when some drag at least come so that we got a ability. See, what is actually going to happen so that we can move it. We being a retail franchise distribution is there. But this partial income, there may be some component change in the percentage of the earnings, but which will also increase the volume. So I will not see that it is a complete impact. Yes, there will be some impact, but not material for the balance sheet like us, and especially when we were in a going Inger. So that is my thought about it, and I'm waiting for a draft at least. Not if the final, at least the drop start will come and so that we can look into what is happening.

Got it. Sir, currently, how much does it contribute to our ROA?