Capri Global Capital Limited ($531595)

Ladies and gentlemen, good day, and welcome to the Capri Global Capital Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hardik Doshi. Thank you, and over to you, sir.

Good afternoon, everyone, and warm welcome to Q4 FY '26 Earnings Call for Capri Global Capital Limited. This is Hardik Doshi, Head, Corporate Finance and Investor Relations. Before we begin, let me read out a brief disclaimer. The discussion on today's call regarding Capri Global Capital Limited's earnings performance is based on judgments derived from the results declared and information on business opportunities available to the company at this time. The company's performance is subject to risks, uncertainties and assumptions that could cause results to differ in future. In that context, participants on today's call are advised to consider the same while interpreting the results. The full disclaimer is available on Slide 63 of the earnings presentation, which is available on our website. Participants are requested to kindly take a note of the same. Format of today's call would be opening remarks by the management team, followed by Q&A. With that, let me now introduce the management team from Capri Global Capital present on the call. With us today, we have Mr. Rajesh Sharma, Managing Director and Promoter; Ms. Divya Suta, Executive Director, Business Strategy; Mr. Kishore Lodha, Chief Financial Officer; and Mr. Sanjeev Srivastava, Chief Risk Officer. I would now request our Managing Director, Mr. Rajesh Sharma, to present his opening remarks on the results. Over to you, sir.

Yes. Thank you, Hardik. Good evening, everyone. I hope you all are doing well. We announced our audited financial results for the fourth quarter of FY '26 on 30th April. I trust you have had the opportunity to go through our earnings presentation, which is also available on our website. Before I move on to the financial and operational highlights, I would like to touch upon the broader operating environment and the key developments during the quarter. Recent geopolitical situation triggered demand up due to supply chain disruptions and higher fuel and energy costs. However, India's economy continues to demonstrate resilience amid a mixed and uncertain global macroeconomic backdrop with domestic high-frequency indicators for March not reflecting much adverse impact. Amidst this soft macro environment, I'm delighted to share a key development in the history of Capri Global. The company has secured credit rating from 2 leading global rating agencies, long-term issuer default rating of BB- with a stable outlook by Fitch Ratings and Ba3 Corporate Family ratings with a stable outlook by Moody's ratings, marking a significant milestone in our growth journey and offering a strong validation of our business model, governance standards and risk management practices. These ratings reflect company's diversified and 100% secured lending portfolio, with strong asset quality, robust capitalization and focus on prudent lending and risk management processes. The stable outlook from both agencies underscore confidence in the company's ability to sustain its growth momentum while maintaining financial discipline. With this backdrop, I am pleased to say that Capri Global has delivered strong quarterly performance in Q4 FY '26, continuing its growth momentum and maintaining asset quality while delivering highest ever quarterly profit of INR 283 crores, a 59% increase year-on-year and full year profit of INR 949 crores, almost double from the last year. Also, we delivered marked improvement in asset quality this quarter with gross NPA declining to 0.9%. Now coming to our detailed business and earnings performance during the quarter. We continued our strong momentum across all lending businesses in fourth quarter FY '26. Our consolidated AUM stood at INR [ 36,623 ] crores, reflecting a robust 60% year-on-year growth and 20% quarter-on-quarter growth. Gold loans grew an impressive 111% year-on-year and MSME grew at healthy 23% year-on-year, while housing loans rose 43% year-on-year. Disbursements for the quarter rose 116% year-on-year to INR 18,145 crores on account of growing customer base and widening distribution network. Our growth remains granular, diversified and retail led with our customer base now exceeding 6.9 lakhs. For our gold loan business, we delivered a strong and well-balanced performance in line with our strategic objective of growth driven by branch expansion while maintaining focus on effective risk management. During the quarter, we further expanded our presence in high potential Southern and Eastern regions of India with a net addition of 89 new branches, mainly 36 in Telangana, 18 in Andhra Pradesh, 8 in Karnataka and 20 in Orissa to support the next phase of growth. Gold loan AUM saw robust growth to INR [ 60,965 ] crores, a sequential increase of 33% quarter-on-quarter, led by healthy customer demand and trust. Our aggregate branch productivity continues to see strong and has improved now from INR 14 crores per branch in previous quarter to INR 17 crores per branch. Our gold loan employee base increased only by 10% year-on-year, resulting in significant improvement in our employee productivity from INR 1.6 crores year earlier to INR 3.1 crores now. Considering the volatility in gold loan prices, we maintained conservative loan-to-value ratios on new disbursement while ensuring strong collection practices across the portfolio. Our efforts in controlling asset quality proved effective with gross NPA in gold loan stood amongst the best in the industry at 0.3%, underscoring our focus on management and portfolio quality. Overall, Q4 marked strong performance for the gold loan business, combining growth through geographical diversification alongside risk discipline and operational execution with 90% branches now operating above the breakeven threshold of INR 5 crore AUM per branch. Our MSME AUM grew to INR 6,465 crores, up 23% on year-on-year and disbursement stood at INR 2,550 crores for FY '26, up 65% year-on-year, led by steady execution and network expansion. Within MSME, our micro-led business continues to gain traction with AUM rising to INR 824 crores at the end of Q4 FY '26. This vertical enabled us to serve emerging self-employed borrowers with smaller ticket size requirements. In this segment, our immediate priority is to leverage robust technological interventions to boost sales productivity and enhance operating efficiency across the expanded network before moving into the next phase of branch expansion. Our housing AUM stood at INR 7,447 crores, delivering a year-on-year growth of 43%. We continue to see resilient demand across the affordable housing segment, where rising income levels and a stable interest rate regime are driving demand for housing loans. With foray into high potential South India market by entering states such as Andhra Pradesh in the previous quarter, we now have strengthened our presence in South India with 25 branches. The strategic expansion is step towards geographical diversification, increasing portfolio granularity and support yield expansion over time. Further, our yields in housing finance segment have increased consistently a result of our efforts to pivot the mix towards self-employed customer segment, which now comprise 74% of AUM. Our construction finance AUM saw healthy growth of 38% year-on-year to INR 5,708 crores, spread across 282 active projects with an average financial ticket size of INR 48 crores and outstanding portfolio ticket size of INR 20 crores. The book remains granular and well diversified by geography, reflecting our focus on working with midsized developers in metro and Tier 1 cities. We continue to emphasize disciplined underwriting through rigorous due diligence and escrow-based cash flow management, ensuring a risk containment approach. Our total branch network expanded to 1,429 locations in Q4 FY '26 with a net addition of 98 branches during the quarter and 318 branches during the year. We continue to invest in expanding our network and geographical footprint in line with our goal of becoming a large-scale pan-India retail lender. Let me now provide an update on our core earnings. Our blended yields and spreads on net advances remained healthy in the quarter at 16.3% and 7.1%, respectively, driven by increasing share of high-yield product and decline in cost of funds. Our net interest income for Q4 FY '26 stood at INR 596 crores, up 56% year-on-year and FY '26 stood at INR 1,998 crores, up 50% year-on-year, driven by strong loan book expansion. In line with our focus on building a diversified and resilient earnings profile, we continue to strengthen our noninterest income stream in Q4 FY '26, reinforcing our strategy of generating recurring quality income. Noninterest income grew 36% year-on-year to INR 247 crores, contributing 29% of our net total income for the quarter. This strong increase was largely driven by growth in commission on insurance distribution and co-lending fee income. In our insurance distribution business, we generated net fee income of INR 65 crores during the quarter and INR 153 crores for the full year. With the help of our upgraded fully digital end-to-end platform, Capri Care launched in Q3 -- third quarter, we can now issue policy real time with speed and convenience, thus significantly easing insurance adoption across our retail customer base and scale our insurance distribution. While our loan protection insurance has addressed life-related risk, we have embedded preventive health care and wellness solutions such as annual health screening and cashless consultation into the Capri Care ecosystem, evolving it from a claim-driven product offering into a proactive health and protection partner for our customers. Going forward, we will continue to strengthen our insurance offering for gold loans and MSME customers while expanding into cross-sell for retail health and motor insurance through digital channels. This digital-first and integrated approach is expected to drive higher insurance penetration, improve customer engagement and meaningfully enhance fee income contribution over time. Our co-lending AUM surged 91% year-on-year and 9% quarter-on-quarter to INR 7,783 crores, now accounting for 21% of total AUM, reflecting our strategy of capital-efficient growth. As you would be aware, new co-lending guidelines have come into effect from 1st Jan 2026 and as per that industry will start moving to new co-lending guidelines once existing contracts expire. Because of this, there could be a temporary slowdown in co-lending volume for a couple of quarters, but eventually, volume should come back. Going forward, we would also be exploring direct assignment route at a faster pace and higher volume as there is a good demand for the same from partner banks considering the PSL nature of our loan book as well as gold portfolio. Our co-lending and BA income for the quarter stood at INR 97 crores, up 76% year-on-year and down 16% quarter-on-quarter, driven by higher disbursal volume and deeper engagement with partner banks. Our car loan distribution business maintained its steady momentum with origination of INR 3,492 crores in Q4 FY '26, up 18% year-on-year and INR 11,910 crores in FY '26, up 13% year-on-year. With a growing footprint and deep relationship across 14 partner banks and financial institutions, we have built a scalable platform with Pan-India network in this segment with potential to monetize further for distribution of other products. On the expenses front, our operating expenses increased 7% quarter-on-quarter. This was mainly driven by net addition of 692 employees, up 5% quarter-on-quarter on account of new branch additions. Our continued focus on operating efficiency is visible with the cost-to-income ratio improving to 49.4% in Q4 FY '26 compared with 64.8% in Q4 FY '25. This sharp improvement signifies the benefit of investment in technology, a maturing branch network, rising productivity and improving operating leverage across our businesses. As a result of margin expansion, operating efficiency improvement and a strong traction in fee income, our pre-provision operating profit fell 68% year-on-year to INR 427 crores for the quarter and robust 97% year-on-year to INR 1,446 crores for full year. Further, we continued our strong profitability momentum in Q4 FY '26, delivering a robust PAT of INR 283 crores, up 59% year-on-year and INR 949 crores for FY '26 strong -- up strong 98% year-on-year. Our return ratios considerably improved during FY '26 with return on average equity at 16.5% versus 11.8% for previous year and return on average assets at 3.5% for the year versus 2.7% for the previous year. Now coming to our asset quality, we saw marked improvement in our asset quality across each of our business segments. Our gross Stage 2 assets decreased by INR 100 crores, driven by a reduction of INR 22 crores in MSME, INR 18 crores in gold, INR 53 crores in construction finance. The decline in construction finance is on account of strong collection efforts and rollback of 3 accounts. Our gross Stage 2 ratio for the quarter was down to 2.8% from 4% in previous quarter. Our gross Stage 3 asset decreased by INR 11 crores quarter-on-quarter, mainly driven by decrease in housing loan. Our gross Stage 3 ratio improved quarter-on-quarter by gold loan to 0.3%, for housing loan 1% and remained flat 3% for MSME and 0.3% for construction finance. At consolidated level, our gross Stage 3 ratio improved further to 0.9%, down sequentially by 61 basis while net Stage 3 ratio stood at 0.5%, down 35 basis sequentially, which is amongst the top quartile in the industry. Our impairment cost for the quarter stood at INR 54 crores. This is largely attributed to Stage 1 provisions on account of increase in the loan book and included prudent management overlay and provision to account for evolving macroeconomic conditions of INR 16 crores. Historically, our credit cost has remained in the range of 0.6% to 0.7% of the average total assets. At consolidated level, our provision coverage ratio on Stage 3 assets remained steady at 41.2% and our segment-wise PCR also remained healthy and amongst the best in the group. Let me now talk about our liability side. Our borrowings increased by 55% year-on-year and incremental borrowings sanction limits for the full year by around INR 10,950 crores. We added 15 new lender relationships this year, taking the active relationship now to 35 plus. We also continue to diversify our borrowing by mix by raising funds through other instruments such as nonconvertible debentures and commercial papers. During the year, we raised INR 2,187 crores from nonconvertible debentures and commercial papers. In addition, we also closed last week our second public NCD issuance for INR 489 crores with average tenure of 4 years. As a result of MCLR reduction in our active effort on repricing existing borrowings, our cost of borrowings declined further by 18 basis quarter-on-quarter. Our balance sheet remains robust with low leverage ratio of 3.3x, providing ample headroom to support growth across business segments. Our stand-alone capital adequacy ratio, CGCL is about 25.8% and 27.7% for our housing finance subsidiary. Our liquidity remains comfortable with over INR 3,964 crores in cash and bank balances, investments and undrawn credit lines across CGCL and CGHFL. On the technology front, this year, our focus was something fundamental or building fast that is to build right. 4 years ago, we made a deliberate structural choice to move away from being a traditional NBFC that operates on technology to becoming a platform native AI-first financial institution. What we have built is not a static endpoint, it is a scalable architecture that will continue to deepen operating leverage as we progressively embedded AI across the technology stack. Let me anchor this in the numbers first. As you all are aware, our AUM grew 60% year-on-year. Disbursement grew by 83%, while headcount grew just by 19%. The delta between disbursement growth and headcount growth is not incidental. It reflects technology and AI replacing linear growth with intelligent scale. And this is clearly visible in our financial outcomes. As mentioned, our cost-to-income ratio for the year has compressed to 49% from 60% year earlier and return on average assets expanded to 3.5% and return on average equity expanded to 16.5%. Capri today operates on real-time event-driven architecture where every customer interaction across sourcing, underwriting, servicing and collection is captured within our in-house lending ecosystem and instantly converted into decision-grade intelligence. In Q4 alone, we processed over 115,000 customers interaction through speech to text pipeline and executed more than 40,000 multilingual AI voice interaction, entirely autonomous and without human intervention. The real value, however, is not in the volume, it is in the conversion of interaction into intelligence. These interactions feed into a continuous learning feedback-driven system that generated over 285,000 structured intelligence output during the quarter, each one tagged scored and rooted into our credit risk and collection engine real time. We have fundamentally graduated from process-based lending to data empowered decisioning. Our bureau rule engine processed over 61,000 applications in Q4 alone. Our automated bank statement analysis pipeline completed over 29,000 assessment without human intervention. What this means in practice is that a growing share of our book is now witnessing reduced variability, compressed tax and improved portfolio behavior, coupled with consistency. During Q4 FY '26, our Capri loans customer app recorded over 31.5 lakh digital customer engagement. In terms of financial through output, the app facilitated transaction of approximately INR 784 crores during the quarter. For the full year FY '26, the app delivered over 85 lakhs customer engagement with an aggregate transaction value exceeding INR 1,700 crores. On the collection side, the system operates as a productive closed-loop framework. We triggered approximately 145,000 automated nudges every month driven by AI-led action models. Our platform is built on an API-first microservices-driven architecture, which handled over 310 million actional API calls in a single month across our various applications. Behind these external calls are billions of internal interactions that allows us to run the entire lending life cycles in real time. At this scale, we are no longer operating applications. We are running a unified intelligence platform that power fast, high-quality decisions at a scale. Let me now come to what we believe is the most important strategic milestone in this transformation journey. While most institutions today are consumers of AI, they integrate third-party LLMs, layer workflows on top and position that as transformation. Capri has moved into a different category. We have built and deployed our own specialized small language model, SSLM, that is domain train model, purpose-built for financial services use cases in India and already operating in production for collection communication across voice and messaging channels. Because it runs within a controlled closed-loop environment, it delivers our critical properties simultaneously, that is low latency, high domain accuracy, zero external data leakage and near-zero hallucination risk. Equally important, every output is auditable, explainable and aligned with regulatory expectations. This is not an incremental layer on top of existing system. It is a fundamental shift in how intelligence is created, controlled and deployed within the organization. I can now say that Capri technology and AI has become a mood and not merely a tool. On the ESG front, I am pleased to share that our ESG practices have been recognized by leading global independent rating agencies, including S&P Global and Morningstar Sustainalytics. Capri Global has achieved an S&P ESG score of 70, ranking 20th globally within its industry and seventh in the Asia Pacific region, the highest amongst our NBFC peers. We have also been recognized in the S&P Global Sustainability Yearbook as the highest scoring NBFC in its category, receiving the prestigious Industry Mover Award. Further, the company has established a sustainable financing framework independently validated by Sustainable Fitch through a second-party opinion rated good and has been assessed as low ESG risk by Morningstar Sustainalytics. These ratings place us firmly among the leaders in ESG practices within the NBFC sector and reflect our adherence to globally benchmarked standards. Importantly, these assessments are based on publicly available independently verified data, reinforcing the strength, transparency and resilience of our operating model. Before we open the floor for questions and answers, let me sum up. We delivered a strong performance in FY '26 with healthy AUM growth across our key lending segments, supported by a diversified and predominantly retail secured portfolio. Profitability improved during the year, driven by changing mix to high-yield products, improving margin, strong growth in fee-based income and operating leverage from our existing branch network, while asset quality remained resilient. With a strong capital position and continued investment in technology and distribution, we are well positioned to scale efficiently and are confident of achieving our AUM target of INR 55,000 crores and sustainable return on average equity of 16% to 18% and return on average assets to 4% to 4.5% by FY '28. We shall now be happy to take questions.

[Operator Instructions] The first question is from the line of Ishank Gupta from Choice Institutional Equities.

Sir, my first question is regarding our AUM mix -- gold loan AUM mix has already reached 46%. As of last quarter, we were targeting around 45% gold loan mix. So what would be our target for the gold loan mix?

Yes. Thank you. So gold loan mix looks like the way we are operating -- opening more branches. Gold loan mix can be reached about 50%.

Got it. Got it. And as of last quarter, you mentioned that you were going to -- go to RBI to seek permission to open new gold loan branches. But in RBI in policy have done the requirement to take the permission. So what is the target for new branch addition, gold loan branch addition over the next 2 years?

So next 2 years, we would like to add about 700 to 800 branches, including gold loan. Majority will be the gold loan branches. And now as you rightly said, we don't require any permission. So that will make us plan in a manner that we will be able to close branches in a very time-frame manner. This year, we should be able to add about 350 branches in gold loan alone and all these branches should be operational within this financial year.

Got it. Our yields on gold loans have again dropped sequentially by 90 bps. Last quarter, we were targeting 18% gold loan yield. So what would be the sustainable yield for the gold loan segment and overall blended yield?

So if you look at this growth have happened largely because we also followed a high co-lending and DA book. And in that, we have decided that to capture the market and also to open the new market, we lower the yield, but we are able to do downsell through the co-lending route. So meeting those banks criteria and some of the customers whom we would not otherwise lend, we have decided to land in the co-lending scheme. And overall, it is accretive to our overall profitability and contribution per branch. While the yield has gone down, that is compensated by much higher volume growth.

Sir, but the co-lending AUM in the gold loan segment has reduced sequentially from 39-odd percent to 31%. So going forward for -- specifically for gold loan, what would be the target in terms of co-lending?

So I think AJ company between the DA and co-lending, it will remain in the range of 20% is the target.

That is overall 20% to 25%?

Yes. No, 20%, not 25%. 20% overall AUM will remain in the co-lending and across mix of all MSME, gold and housing.

Understood. And my last question was regarding the cost of funds. So last quarter, we said that we will be targeting a reduction of 20 to 25 basis over the next year. But in the quarter itself, we have witnessed a reduction of 18 to 20 bps. So is there a possibility of further reduction? And if yes, how much over the course of next 2 years?

So overall basis, cost of funds have come down because we also changed the mix of borrowing by including the debentures and commercial paper. And I think this year, looking at the interest rate hike might happen post election and other things, I think we should be able to do about 10 to 20 basis. This year, we are not expecting much cost of borrowing go down. But even though we reduce 20 basis, that will be very good from our perspective.

So exit of around 9% to 9.1% for the year?

9% is -- conservatively, you can consider 9%.

And for '28, any further reduction?

'28, I think it will also -- we expect our -- some point of time credit rating upgrade to happen. And that will be in addition to this rate reduction. If the credit rating happens in the next 6 to 9 months, which we expect to, in that case, the further cost of fund will go down by another 20 basis.

I would like to add in one last question. So our sustainable credit cost could be 0.6% or 0.7% for the year because for the quarter, it came at 0.8%.

So sustainable, our credit cost will remain by and large, in the range of 0.7%. This increase has happened because we have taken that management overlay is guided by our Board, and we are very conservative that way. So we've taken about INR 16 crores additional management overlay due to macroeconomic environment. And barring that, if you look at our asset quality, it has been best in the quarter in the year. So -- and almost majority of the provisions have also come because of the new loan book. So there is no slippage it happened.

[Operator Instructions] The next question is from the line of Siddhesh from PL Capital.

Am I audible?

Yes, sir.

So sir, just wanted to understand on the car loan front, so what is the strategy to monetize? And what are the plans for starting other products in that entity?

So currently, car loan is a completely distribution business. We are currently distributing the leads generated by our team with about 12-plus institution and partner banks. And in the times to come, we'll add the more product like used car, credit card, personal loan and mortgages over the period of next 3 to 4 years. This year, we'll be adding the used car. And the advantage will be the same supervisory team and team of 1,800 people will be able to drive the same business. So that cost allocation will happen on the higher revenue. And next year, we will be able to see that about INR 20 crores of profit is able to deliver by the car loan entity alone. And idea is and target is the next 4, 5 years, this INR 20 crores has become to significant amount of INR 60 crores, INR 70 crores income, which is coming purely from the fee income. So in that direction, this year, we're adding another product from used car loan distribution through our partner banks.

Understood. And how do you see AUM mix changing at the company level?

So as of now, AUM mix is about 46% gold. I think gold will become about close to 50% and rest of the 3 segments of MSME, housing finance, construction finance will range between 16% to 18% each.

Okay. And so -- lastly, can you help me with your AUM, ROA and ROE targets for FY '27 in terms of guidance?

So as I said in my opening remarks also, our guidance for the FY '27, our aim will be to achieve an ROE about 4% and ROE not less than 16%.

The next question is from the line of Hardik Dara from Credit Advisor.

Am I audible? Just wanted to understand the strategy apart from gold loan on the other 3 verticals, MSME, HFC and construction finance, how aggressive are we planning to grow these other 3 verticals? And what can be the growth expectations? I agree that 16% to 18% is the tentative mix, but just wanted to understand that how aggressively will these 3 grow over the next 2 years?

So individually, I think this segment will also grow in the range about -- MSME will grow in the range of about 20%, 25%. Construction finance will also grow in the range of about 25% to 30% and housing will also grow in the 25% to 30%. So overall, if you look at our business mix is designed in a manner to grow in tandem with the overall growth. Gold has done wonderfully well because gold price increase also help in the faster growth. So we assume that price remains stable, we should be able to grow all the segments together. Gold can still rise more because there are a lot of branch addition also happening. But all other segments will rise in the range of about 25% to 30%.

The next question is from the line of Suhani Singh from Capital.

I wanted to understand how do you see origination growth trending in the car loan segment?

So car loan, if you see, we have seen about 18% growth. We expect our car loan will continue to grow in the range of 12% to 15% year-on-year. And next coming year, our more focus will be improving the margins rather than the volume growth alone. FY '26, we originated about INR 11,910 crores and which was up by 13% year-on-year.

Okay. Also, with pressure on fee margins despite higher growth volumes, where do you see margins stabilizing and profitability settling?

You are asking about the car loan or overall?

Sir, overall.

So overall, we clearly see there are 2 things. One is the operating scale is kicking in. So that efficiency is coming in where the cost/income ratio is coming down and our overall efficiency is going on because of the technology part as well. And another efficiency, I would say that gold loan branches, the old branches which are growing, which is already delivering the high profit because breakeven point is long back is crossed and more volume per branch AUM grows, the more profitability improve in the gold loan segment as well. So current our branch per AUM about INR 17 crores, and we make breakeven about INR 5 crores. I think per branch AUM basis, we are among the top 3 players in the country. And that speaks our profitability of the branch. So I think gold loan business will start delivering the higher profitability. This is the per branch AUM in the coming year. And as far as the MSME and home loan is concerned, home loan has achieved a base of about INR 7,500. So operating scale will kick in there also and their margin will significantly improve in the coming year. MSME has already stabilized and MSME margin will remain stable on the similar pattern what was in the current year.

[Operator Instructions] The next question is from the line of Prince Choudhary from

Sir, can you share more light on what are the changes of RBI for the new guidelines of co-lending and how this will impact our growth for a couple of quarters?

So RBI guideline, the co-lending comes on the part of one is more clarity. Second, on the loan of moratorium, they have advised that interest accrued should be included in the LTV. And third, the income assessment of the customer above loan of INR 250,000 should be done. So these are being implemented across our co-lending partners and technology integration will take some time. So we expect the company to resume at the full volume with their co-lending partners in the quarter of July to September. This by June, I think most of the players will go live. A couple of players have already gone live and the rest of the partners will go live by the next quarter. So I think the full volume we'll be able to see from the September quarter.

The next question is from the line of Sam from Capital.

I just have a couple of questions. Starting with what is the strategic rationale behind entering capital markets? And how do you see this contributing to fee income?

Yes. So fixed income, since we are being NBFC always maintain a high liquidity in our treasury. And some of those treasury most of the time remain in the negative carry because we put the money in the debt mutual fund where negative carry is sometimes even 2% and 2.5% to 3%. Again that we have decided to start this vertical where some part of the book, we will maintain in the treasury operation by buying the bond and down selling them and also helping some of the issuer to raise the bond from the bond market by managing their public issues. So it will contribute to the fee income as well as also to reducing our negative carry in our treasury income. So -- is incidental to what we are doing today. And I think next year, you will see that once we get license applied and [indiscernible] we have been told that by end of June, we can have that we will see coming in our [indiscernible] income target is the range of about INR 40 crores to INR 50 crores at gross level. At net level, it will be in the range of about INR 20 crores to INR 25 crores.

Okay, sir. Got it. And secondly, what is the current share of revenue contribution from fixed income and bond related activity?

So bond related activity contribution is likely that it reduces the negative carry first. So if we earmark about INR [ 600 ] crores to INR 800 crores book remain, and we expect to reduce almost 3% negative carry on this portfolio. So it helps contributing indirectly about INR 25 crores of income to the bottom line.

[Operator Instructions] The next question is from the line of an individual investor.

We are expanding a lot of branches. Currently, we have 1,400 branches and those old branches are going to become efficient in next year. And our target is around 700 branches. What is the PAT guidance we are giving for FY '27?

So we have given the PAT guidance of next year FY '27 about INR 1,300 crores.

The next question is from the line of from [indiscernible] HDFC ERGO.

Hello, sir. Am I audible?

Yes, you are audible.

My question is if you can give like the LTV on the book for the gold loans. So we have a disbursal LTV, but if you can provide the LTVs on the gold loans which are on the book currently?

So portfolio level LTV is about 66%. And on the new disbursement, portfolio LTV is about 70%.

Okay, understood. And on the overall AUM guidance I think previous quarter, we had said we would be doing around INR 55,000 crores of AUM by FY '28. So is there any update on that number? Because I think what we have said as a target for FY '26, we have surpassed that. So is there any upward guidance on the AUM front? And also in the overall -- so you have mentioned individually MSME would grow between 20%, 25% and construction finance and housing would grow between 25% to 30%. So in this kind of a mix, how do you see the gold loans also growing because we are adding branches. So how do you see that also growing if you can give that number?

Yes. So overall growth, we are targeting conservatively 25%. And we are giving a guidance of INR 46,000 crores by end of FY '27 and about INR 57,000 crores by FY '28. So we revised FY '28 guideline by about INR 2,000 crores. And gold loan is concerned, you are rightly said that, yes, we are adding more branches. So gold loan proportion overall will grow. Gold loan will grow in the range of about 25% to 30%. So overall growth may remain in 25% to 30% range, but conservatively, we are saying 25%. And gold within that segment will grow a little higher because we are adding more branches as well.

[Operator Instructions] The next question is from the line of from Centra Insight.

Sir, since the cost of borrowings are declining, how much scope remains further for expansion in spread?

So cost of borrowing further decline, I said earlier also that by the year-end, we are targeting about 20 basis points. And we -- another 20 basis points can also be achieved further from the rating upgrade from the 12 months from the rating upgrade happen. So I think we expect next 6 months, some positive news on that. But however, it depends on various other factors, and it doesn't remain in our complete control. But we hope that all the environment and macro environment remain positive. We can expect and aim for that.

Okay. And do we see any impact of recent macro situations on MSME book?

So far, we have not seen any deterioration in our collection efficiency or asset quality. So we have not seen any sign as far as till now is concerned.

Okay. And also the decline in capital adequacy appears mainly driven by subsidiary investments. So how do we think about this? Like how -- what will be the capital allocation going forward?

So going forward, we will increase the DA co-lending that will conserve some part of capital. And some point of time is required, we will raise Tier 2 capital also to shore up the capital base. So in a nutshell, about 18 to 24 months, our aim is to effectively utilize all the downselling tool of DA and co-lending and also raise Tier 2 capital. So capital requirement is taken care of.

The next question is from the line of Sharma from PG Capital.

I just want you to put some highlight on the strategic intent, like what is behind the proposed international bond issuance?

So international bond issuance with the purpose to diversify your resources of borrowing. And it will give us one more avenue to borrow the money, and it can be done every year. We being into lending business always require the debt capital and which is one of the major raw materials. So I think it is just opening that avenue, and we have got the international rating done. But we are a little cost conscious in terms of our cost of funds. And currently, because of the macroeconomic environment and West Asia crisis, the hedging cost has substantially gone up. So we are waiting that to settle down and hoping that happens in the next 2, 3, 4 months, whenever it happens, we intend to reach and access the market depending on the underlying situation.

Great, great. In addition with that question, I have one more question that what are the key drivers behind the improvement in GNPA and NNPA during the quarter?

So it is, of course, collection efficiency because a lot of emphasis is put not only on the technology, but also on the ground by right hiring, right push, right training program, right AI-enabled videos on various fronts and customer communication. So that has helped together across all verticals to improve our collection efficiency. And hence, our GNPA, net NPA numbers are like that.

The next question is from the line of from -- an individual investor.

So my question is currently, we are at 70% loan-to-value ratio. So what if the gold prices crash by 10% to 15%? And how you manage that?

So I think you have very relevant question in terms of current volatility. So gold loan prices will not fall in one single day. So assuming that gold loan prices fall 4% and customer LTVs reach by to that extent, either we give the customer ask him to additional money to bring back his loan-to-value within the norm of 75% or he has to give additional gold to pledge to bring the LTV back in the norm. And telling which we give a notice that within 14 days, if we don't take those goods, margin goods, we have right to auction the gold and recover money. So whenever it happens, our teams on ground do collection calling and able to recover the money. For example, INR 1 lakh -- gold have fallen, we have to recover INR 4,000 -- jewelry worth about INR 5,500 jewelry. And I think a mix of those are able to do in most of the cases. And in case the customer don't do, as I said, we have right to auction the gold and recover money. So we hope the gold will not fall 10%, 15% in single day.

Yes, sir. I just asked a hypothetical question, but...

The next question is from the line of Vignesh from Sequent Investment.

Just one question from my side. So I wanted to understand what is the kind of growth that we can see on the insurance income side and fee income as a whole in FY '25?

So I think insurance distribution is purely in line with our AUM growth target. So insurance income should also grow in the tandem of about 25% to 30%.

And overall, the fee income -- on the noninterest income...

Income will grow about 12% to 15%. Insurance income will grow in the line with our AUM growth of 25% to 30%. And co-lending income, I would say that it will remain more or less same as the last year because co-lending now DA for one quarter will be a little lower side. So there may not be any growth in the co-lending income, but that will be compensated by the DA. So more or less, it will remain the same.

Ladies and gentlemen, we take this as a last question. I now hand the conference over to Mr. Rajesh ji for closing comments. Rajesh sir, please go ahead.

I thank you for participating in the earnings call today. Should you have any questions, you can reach out to us or to our IR advisers, and we shall be happy to answer your queries. I reiterate we are on track to achieve an AUM of INR 55,000 crores by FY '28 with return on average equity of 16% to 18% and return on average assets of 4% to 4.5%. Thank you once again, and have a happy week ahead. Thank you.

Thank you. On behalf of MUFG, that concludes this conference. Thank you for joining us. You may now disconnect your lines.