CreditAccess Grameen Limited (CREDITACC.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the CreditAccess Grameen Limited Q3 FY '26 Earnings Conference Call hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Deepak Shinde from HDFC Securities. Thank you, and over to you, sir.

Good evening, everyone, and welcome to the Q3 FY '26 Earnings Call of CreditAccess Grameen. Today, we have with us the senior management team of CreditAccess Grameen, represented by Mr. Ganesh Narayanan, Managing Director and Chief Executive Officer; Mr. Gururaj Rao, Chief Operating Officer; Mr. Nilesh Dalvi, Chief Financial Officer; and Mr. Sahib Sharma, DGM, Investor Relations. On behalf of HDFC Securities, I would like to thank the CreditAccess Grameen management team for giving us this opportunity to host the call. I will now hand over the call to Mr. Ganesh Narayanan for his opening remarks, and then we will open up the floor for Q&A. Over to you, sir.

Thank you, Deepak. Just checking if it's audible for everybody once again. I'll go ahead?

Yes, sir, you are audible. You may proceed, sir.

Okay. Thank you. Thank you. Thank you all for joining the call today. Let me start by wishing you all a very happy and prosperous and fulfilling new year. Today, we are here to discuss our third quarter and the first 9 months of FY '26 business performance. Our performance this quarter reaffirms the strength and stability of our business model. We are witnessing a very clear normalization in the asset quality trends across operating geographies, enabling renewed focus on growth. Our X bucket collection efficiency stood at 99.71% in December '25, while monthly PAR 15 accretion declined sharply to 18 basis points in December '25 from 47 basis points in September '25. Jan '26 continues to show similar trends. The improvement is visible across our operating geographies with Karnataka showing a notable recovery with asset quality reverting to its historical levels, supported by tighter credit oversight. The disbursements for Q3 FY '26 stood at INR 5,767 crores, increasing by 13.4% Y-o-Y with the exit month December crossing INR 2,200 crores mark. As a result, we've seen sequential portfolio growth of 2.6% to INR 26,566 crores and 3.3% Q-o-Q adjusted for accelerated write-offs at INR 181 crores. Borrower acquisition remains central to our growth strategy as we added 2.1 lakh borrowers in Q3 FY '26 and 6.4 lakh during the 9-month FY '26 period, of which 50% came outside of the top 3 states. While October 2025 saw a temporary run in business momentum due to festive seasonality, the momentum accelerated meaningfully thereafter with December '25 recording 90,000 new borrower additions. We continue to maintain a healthy new-to-credit ratio of 39%, which is reflected in the increase in the share of unique borrowers to 43.4% in December '25 from 26.4% in August '24, positioning us well for quality growth ahead. We added 15 branches in the quarter, taking our infrastructure to 2,222 branches. The retail finance portfolio continued to scale steadily with its share now at 14.1% of AUM at the end of third quarter versus 11.1% in the second quarter, reflecting structural progress. While part of the increase is optically driven by slower normalization in the group lending book, importantly, the expansion is driven by a shift of quality vintage customers towards individual business loans to meet their growing credit need. Our employee base remained firm quarter-on-quarter at 21,701 employees at the end of December '25 and employee attrition moderating to 30.2% in the 9 months FY '26 versus 35.2% in 9 months FY '25. As indicated in Slide 10 of the investor presentation, the deleveraging trend has largely played out with MFIN guardrails in place over the last 6 quarters. The GLP of borrowers with greater than 3 lenders nearly stood at 4.9% in December '25 versus 25.3% in August '24, while the GLP of borrowers with greater than 2 lakh unsecured indebtedness stood at 7.8% as of September '25 compared to 19.5% in August '24. The average total unsecured debt of CA Grameen borrowers and the average monthly obligation have increased by 3% quarter-on-quarter. PAR 15 plus in case of borrowers with greater than 3 lenders stood at 20.4% as of mid-December versus 19.5% in mid-September. While PAR 15 plus with borrowers greater than 2 lakh indebtedness came down to 6.9% in mid-December from 9.7% in mid-September. The implementation of MFIN guardrails has meaningfully strengthened the overall quality of the microfinance ecosystem. As visible in Slide 11, PAR bucket 0 to 30, 30 to 60, 60 to 90 having clearly improved on a sequential basis, led by lower new PAR accretion, while PAR 90 witnessed forward flows in Q3 FY '26. We wrote off INR 259 crores worth of loans in Q3, which includes INR 181 crores of accelerated write-offs pertaining to 180 DPD nonpaying accounts, leading to additional credit cost of INR 59 crores in Q3 FY '26. The credit cost for Q3 FY '26 stood at INR 343 crores, which includes INR 59 crores due to accelerated write-off and INR 37 crores due to additional impact due to increase in ECL rates. The provisioning rates for the past quarters are stated in Slide 12, helping quantifying the increase in various stages. Excluding the impact of ECL provisioning rates and accelerated write-off, credit cost non-annualized stood at 96 bps for Q3 FY '26. This is in line with our new PAR 15 plus accretion of 109 basis points during Q3 FY '26. Our FY '27 credit cost guidance of 4% to 4.5% reflects a new PAR 15 accretion rate of 30, 35 basis points per month. If we are able to demonstrate a monthly PAR 15 plus accretion rate of 20 to 25 bps, it would translate in lower credit costs in the future. We shall monitor the monthly PAR trend for the next 3 to 4 months for revisiting our credit cost assumptions. We continue to hold 132 basis points or INR 335 crores higher provisions over PAR 90 and 280 bps and INR 733 crores higher provisions compared to IRAC prudential norms. Our collection efficiency, excluding arrears, stood at 95.5% in Q3 FY '26. PAR 90 stood at 2.94%, GNPA of 4.04% and net NPA of 1.36%, both predominantly measured at 60 DPD. The operating profitability continues to gain strength, driven by improving yields and lower average cost of borrowings. We incurred a onetime impact worth INR 18 crores on account of new labor codes pertaining to the employee benefit obligations. It is important to note that the company actually moved towards this 50% salary levels, including [ DA ] and basic to meet this guidance proactively, leading to very little impact during this quarter. Net interest income grew 13.4% year-on-year to INR 977 crores with portfolio yield of 21% versus 20.7% in Q2 FY '26. Our average cost of borrowings continues to trend lower, reflecting disciplined liability management, having declined 26 basis points quarter-on-quarter to 9.4% at the end of Q3 FY '26. In Q3 FY '26, we raised INR 3,917 crores with a marginal cost of borrowing, which stood at 8.9%. Our foreign borrowings stood healthy at 24.3%, moving closer to the medium-term target of 25% to 30% by FY '28 as we scale our business. We maintain ample liquidity at INR 2,397 crores, amounting to 8.4% of our total assets. Our funding position remains strong with INR 3,431 crores of sanctions in hand and INR 5,781 crores sanctions in pipeline. NIM increased by 60 basis points quarter-on-quarter to 13.9% in Q3 FY '26. Cost-to-income ratio stood at 34.1%, and adjusted figure at 32.3%, excluding the labor code impact. PPOP stood at INR 680 crores in Q3 FY '26, while adjusted figures stood at INR 699 crores. PAT doubled quarter-on-quarter to INR 252 crores, while adjusted figures stood at INR 266 crores, translating to an ROA and ROE of 3.5% and 13.8%, respectively. If the labor code impact is excluded, the ROA would have been 3.7% and ROE will be at 14.6%. We would also like to update you all on our Grameen Mahi, our customer at digital handle. With close to 1 million downloads, the platform is seeing strong adoption and reflects a meaningful shift in how our customers choose to engage with us. It enables instant digital loan eligibility checks for group loans, generates targeted reach for retail offerings and seamlessly integrates collections into a cashless ecosystem, playing a key role in achieving 20% digital collections at the end of December '25. This also helps us build more trust and transparency amongst our customers. With normalized asset quality, a stronger balance sheet and a motivated team, we are well positioned to achieve robust business growth and improving return ratios. Together, we are confident in nurturing business that consistently delivers returns, enhances stakeholder value and sets new benchmarks of excellence in our industry. Thank you for listening. We'll now open the forum for questions and answers. Thank you.

[Operator Instructions] Our first question comes from the line of Shreya Shivani from Nomura.

I had 3 questions. There are -- congratulations on a great set of improvement numbers that we are seeing in the quarter. I was just wondering, while Karnataka and Tamil Nadu have done -- the improvement has been quite good. Can you give some color about trends in Uttar Pradesh, Bihar and Madhya Pradesh compared to the April '24 number that you had given us last year, they are still probably 15, 20 basis points higher currently. So anything that has -- and what is the trend over there? That will be my first question. My second question is on the state of Karnataka. While you guys have reported great numbers, et cetera, some of the non-MFI lenders commentary earlier this quarter or maybe even closer to December was that the credit discipline in Karnataka state, which got disturbed after the MFI ordinance came into place, which impacted our retail loans also is still not back. So I am quite surprised with the great improvement that we are seeing in Karnataka. Some comments around that would be helpful. And my third question is that while you guys have done quite well on the cost of funds, there was a media article, and I can -- I understand it may be more relevant for some other NBFC-MFIs, which did mention that the bank borrowings, the lines are drying up for many NBFC-MFIs. Even if the lines are available, they are coming at a significantly higher cost of funds. So if you can speak to us about the -- any challenges or any areas that we are struggling with our bank borrowings or our bank relationships. Those are my 3 questions.

Okay. Thank you, Shreya. With respect to trends in states like UP, Bihar, MP, all states, as demonstrated in our slides, are continuously coming down. But however, we have also earlier indicated that our noncore states generally have slightly higher credit cost than our core states, right? So I think this is just playing out. It's just a matter of time. And we are consistently seeing that all states are trending downwards.

Just to add, Shreya, since you referred to the earlier data for the states. So as I see April, May, June '25, UP, Bihar was around -- sorry?

April '24 data, which you used to give in last year, you had given those numbers, April '24 data. So I was just comparing that.

Yes. Okay. Okay. Fair enough. So I think we are very much close to it, but I mean, we have come out of a large cycle. So give us some more -- maybe in the upcoming months, we should see this trend getting better. Yes. But if I compare it on a Y-o-Y basis before the crisis, those numbers were around 40 to 50 bps in UP, Bihar and MP, which is now in the range of 25 to 30 bps.

Yes, Y-o-Y is quite good. With respect to April '24, I felt there is still more improvement that is a possibility in these states, right?

Yes. So Karnataka spiked up faster. It's come back faster also. So that has also been a behavior that we've seen because that's a core state. Other states, I think all of them are trending downwards. It's just a matter of time. We'll have to see for the next 3, 4 months where it settles down. And with respect to credit discipline in Karnataka, I think we have strongly come back. We'll have to watch the next 2, 3 months. January is trending with a similar nature. And we are seeing such improvements across microfinance, mortgage as well as unsecured lending. Karnataka is coming back very, very strong to our normal levels. So it's only a question of time if others are indicating that it has not come back to normalcy. Maybe a few more months, the rest of them would also come. You should appreciate that Karnataka is our home state and probably every 30 kilometers, we have a branch, and we've been here for the last 20 years. And probably we have a little more connect than the rest of them. But I think the industry would follow. The third point with respect to bank borrowing, I think when the industry is going through a credit cycle, it is natural of the banks to kind of pull off a little. But fortunately, some of us have never had this situation because our diversification strategy has a very important role to play here. I think we are very -- one of the few NBFCs which has a bank term loan borrowing dependency of less than 60%. And we've been continuously able to access bank funds. It has not impacted us during the entire credit cycle, right? And we continue to access more funds as we move ahead.

Our next question comes from the line of Abhijit Tibrewal from Motilal Oswal.

Hope I'm audible.

Yes, Abhijit.

Sir, first thing on the industry, most other players talk about a very high rejection rate today, especially after the implementation of MFIN guardrails. So if you could just help us understand how have our rejection rates trended over the last maybe 2, 3 quarters? That is the first question that I had. The second question that I had was that maybe next year onwards, maybe FY '27 onwards, we'll look to start growing at 20%, 21%, thereabouts. So within this, what will be the split of the growth that will come from MFI and what growth can we expect from retail finance? Just trying to understand the way things are today very, very clearly, like you mentioned earlier, December, we saw very good improvement in PAR accretion and like you mentioned, continues in January as well. I'm hoping that gives you a lot of confidence to start accelerating on disbursements and growth. So which is where that question of how are you thinking about the split between MFI and retail finance? Or does it still remain fungible in terms of growth? And lastly, sir, I mean, you just mentioned about Karnataka came back very, very strongly. And like you rightly said, your home state as well. So I just had one observation and just wanted to pick your brains on this. Yourself as well as other few MFIs have been talking about very strong recovery in Karnataka collection efficiency. And the ones who are still not seeing improvement, can it be a little bit to do with the fact that MFIs have already written off a large part of the loans, which are problematic in nature and which is where on a 0 DPD collection efficiency or expected collection efficiency is looking very good, while for some others, right, who have not written off, they still are facing problems in Karnataka?

Yes. Okay. So let me try and answer all the 3. So I think the first and second are also slightly linked to each other. So rejection rates, definitely, yes, they have gone up. Our current approval rates for new borrowers, so that is new borrower entering CA Grameen is around 55%, 60%. And our existing renewal rates are around 45%, 50%. Just for comparison, this used to be around 65% before the guardrails, right? So it has fallen significantly. That also means that you will have to put more effort on acquiring customers to maintain some amount of growth rate in microfinance. And yes, since we are coming out of the cycle and another quarter of performance will give us the confidence to accelerate in the next year for sure. However, as we had indicated in our medium-term goal, the growth rate of microfinance would be lingering early teens and the rest of the growth will come from retail, right? And we are also seeing that retail, we are actually outperforming our guidance a little bit. We are growing a little more faster than what we anticipated. So it's possible that retail will have a little more share than what we anticipated in the growth trajectory. But that's something that we will see over the next few quarters, I think. And with respect to Karnataka, what was the question?

I'll just add it. So Abhijit, on Karnataka, you are saying that there are other players who have not done write-off. That's why the collections are looking lower. I believe that was your question.

So all I was just trying to understand is, I mean, there are today players who are there in predominantly the small ticket LAP segment who still talk about weakness in Karnataka. While if I look at us and a few other players who are present in MFI segment, they have been talking about Karnataka having come back in a big way. Can it so happen that a lot of the problematic pool for us in Karnataka has already been written off. So on an X bucket basis, collections are indeed looking good, while for some others, right, because the problem pool is still there, they're still not able to see that recovery?

I get your question, but I think you may also have to see what is the new PAR addition there again, I'm not sure. I don't have the data right now. For us, like I said, across retail, including mortgage as well as unsecured business loans, Karnataka is showing a sharp reversal. So like I said, it's taking time for some people, probably it's just a matter of time. But it does look like at ground, things are coming back to normalcy.

Got it, sir. And just one last clarification on your opening remarks. You had shared that this FY '27 credit cost guidance of 4% to 4.5% is factoring in monthly PAR accretion of about 30, 35 basis points. In case, like you mentioned if the PAR accretion is lower than that, then there are downside risks, right, to this credit cost guidance. This is all I wanted to...

Yes. So it's possible. So we'll need to watch it for a few more months. And probably by -- along with May, we will try and come back with a more clearer guidance. So it's too early. So it held good in Jan, Feb -- sorry, December and Jan. We'll have to watch it for a few more months to ensure that the pattern is stable and it is going to remain that. It looks like that, but we'll have to come back with some guidance in May.

Our next question is from the line of Nidhesh from Investec.

Sir, on the retail finance, can you give some more details on the portfolio...

Nidhesh, sorry to interrupt, but your volume is very low. I request you to please come closer to the mic.

Yes. So my question is on retail finance. Can you give some more color on retail finance that how much of the book is secured and how much is unsecured? And we have seen very strong growth in this business. If you can also share some data about client profile, how much is unique to CREDAG and what is the total, let's say, sector outstanding on those customers, et cetera?

Sure. So the retail finance portfolio today roughly comprises of around INR 3,780 crores, of which we have 2 types of unsecured loans extended to customers, graduating customers. One book is our product called Unnati loan, which is profile of customers are significantly higher income earning. They are able to demonstrate better cash flow. We are able to visibly see proper business premises, the scale and size, et cetera. So that book is around INR 1,700 crores. We also have a lighter version of the individual lending product, which is INR 1,600 crores. They could have higher income, but if we have certain difficulties in ensuring that it is demonstratable or the size of the income is not clear or it's not visible to the level that the customer is saying, we graduate them to a slightly lower ticket size. So that is around INR 1,600 crores. So both these books put together is around INR 3,300 crores. Both these books, PAR 30 is well under control, under 2% as we speak. We have INR 266 crores of mortgage business loans. We have a home loan book of roughly around INR 200 crores and a two-wheeler book of around INR 13 crores. So in secured loans, we are at a PAR 30 lower than 2% once again, right? So these books, while they are new, they have done around 2, 3 years with this, they're holding good so far, yes.

Sure. So secured portfolio will be around INR 500-odd crores?

Yes, it's INR 500 crores.

And secondly, can you give some guidance on the margins? I think margins should keep on improving. What is the trajectory that you foresee for next year in terms of margins?

You will take that?

Yes. So Nidhesh, we should see some improvement in margins because even as you saw in third quarter, the NIMs have improved because of -- I mean, there has been around 30 bps improvement in yield on account of lower interest reversals and the cost of borrowing is down by 20 bps. So maybe for next year, we should see the NIMs anywhere between maybe 14%, 14.5% in that rate -- in that range for some time because borrowing cost incrementally, we do see dropping by 10 bps every quarter for at least next 2 to 3 quarters, then it should settle down. And also one thing we need to understand is the current NIM profile is basis the current credit cost trend what we are seeing because we had taken a pricing increase in third quarter basis the current credit cost trend. So maybe going forward, if we are able to see a relatively lower credit cost trend, then obviously, it will translate into a lower pricing benefit to the customer. So from that perspective, we will try to maintain our ROAs in 4%, 4.5% range. And NIMs will vary depending upon how the underlying risk is shaping up. But as of now, considering the current trend, we believe NIM should be around 14% range for some time. And then they may again revert basis a change in pricing.

Our next question is from the line of Rajiv Mehta from Yes Securities.

Congrats on a very strong performance. Sir, my first question is on the new customer acquisition. That count is slightly even lower than Q2 and the industry has been continuously deleveraging. So when do we see this new customer acquisition picking up for us? Because eventually, that number has to go up and keep growing for us to even grow higher in the JLG model? Because, I mean, as we see that the ticket sizes of the portfolio is increasing largely because of bulk of the growth coming from the renewals of existing customers. But eventually, in the longer run, this lever has to pick up of new customer acquisition. So what is the outlook on that?

Okay. So I think new customer acquisition will pick up traction in Q4 itself. So we believe we should see some significant improvement as we move ahead because you have cleared historical PAR now and the field level sentiments are a lot more positive now and people have more time to do new business. There are specific efforts that are targeted towards increasing these numbers. And I think in Q4 itself, we should be able to demonstrate that the run rate is picking up.

And can you segregate December disbursement number? And can we further build on that number as a run rate in Q4?

Yes. So we did INR 2,200 crores in December. And we should hopefully do slightly better in Q3 -- sorry, in Q4 because Q4 generally comes with our best performance. So we will try and see if we can meet our historical Q4 numbers similar to those.

Okay. And just last thing on the credit cost. So this quarter's credit cost did have some impact because of higher ECL provisioning rate, which I believe will remain. But you also had some balance or residual accelerated write-off of INR 187 crores, which will not repeat in Q4, right? So that impact will not be there in Q4?

Yes. So we did accelerate write-off only in October. So it stopped from there, right? So we're not anticipating anything in Q4. However, we'll have...

Yes. Then the implied write-off for November, December, would that be the normal write-off run rate now?

Yes. So we should see probably Q4 will have similar credit cost as that of Q3. And it may take some more time to see where it stabilizes around.

Yes. So Rajiv, maybe I'll add a couple of points here. So largely, whatever new delinquencies, which came up in the first quarter, that is the month of April, May, June, those delinquencies will come for write-off in the fourth quarter because we do the write-off after 9 months. So you may get some indicative trend. It may be in line with whatever new PAR -- I mean, the new PAR, which came out in the Q1, maybe 70%, 80% of that may come for a write-off in fourth quarter. But I mean, anyways, we have 70% provisions on that. So the residual will come to the P&L. And yes, on the ECL front, maybe we should see -- as we had indicated in the second quarter call, we should see the Stage 1 provisioning inch up closer to 1.5%. So that should happen in fourth quarter.

Our next question is from the line of Shreepal Doshi from Equirus.

My question was on the retail portfolio...

Sorry to interrupt, Shreepal, but your line is not clear in between.

Yes. Am I audible now?

Yes, you're audible.

Yes. So sir, my question was on the retail portfolio. So that portfolio is quite diverse in terms of the product bouquet. So what is the kind of, let's say, the DuPont in terms of margins and credit cost and ROA on a BAU basis that we are trying to sort of reach to over the next 2 to 3 years' time period?

Okay. So I think we've discussed this earlier, Shreepal. Thank you for the question. So most of these products are very close to the pricing of microfinance, right? So except for housing, where the average interest rate is around 16.7%. And mortgage is anywhere north of 21%, similarly two-wheeler. So all of them should have similar margins as that of microfinance. But as we discussed, over a period of time, it will actually be a little more contributing once it reaches a certain amount of scale and we are able to kind of see the benefit of OpEx [indiscernible].

Got it. Got it. Got it. I'll just look at that aspect in the call. Just the other question was on the microfinance side. So what is the range of ticket size disbursement that we are doing for more than 6 years and 3 to 6 years customer vintage?

[indiscernible] It starts anywhere from 25,000, 35,000 depending on geography, and it can go all the way up till 1.75 lakhs depending on the vintage of the customer and the credit history. But I would also like to add customers with greater than 1 lakh outstanding is less than -- it's almost in a single-digit percentage. It is generally not that high.

So more than 1 lakh ticket size customers would be, as you said...

Yes, more than 1 lakh. Yes, yes. So it would be under 10% max.

It will be in single digit, Shreepal.