Fedbank Financial Services Limited (FEDFINA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Call of Fedbank Financial Services, hosted by Equirus Securities. [Operator Instructions]. I now hand the conference over to Mr. Shreepal Doshi from Equirus Securities. Thank you, and over to you, Mr. Shreepal Doshi.

Good afternoon, everyone. We welcome you all to the earnings conference call of Fedbank Financial Services to discuss the Q1 FY '27 performance of the company. Today, we have the management of the company represented by Mr. Pervez Mulla, MD and CEO; Mr. S.V. Ganesh, CFO; and along with them, we have other senior members of the management as well. I would now like to hand over the call to Mr. Lokesh Parikh, Head IR at Fedbank Financial Services. Over to you, Lokesh.

Thank you, Shreepal. Good afternoon, everyone. I would like to welcome all of you for joining our Q1 FY '27 Results Earnings Call. Before we start, I would like to highlight that -- some of the statements made on this call may be forward-looking in nature, including those related to our financial performance, business strategy and growth plans. These statements reflect our views as of today and may evolve with changing business and market dynamics. With this note, I now hand the conference over to our MD, Mr. Parevez Mullla for his opening remarks. Thank you, and over to you, sir.

Thank you, Lokesh. Good afternoon, everyone. I would like to extend a warm welcome to all of you for joining the Q1 FY '27 Post Results Earnings Call. I'm accompanied by Mr. C V Ganesh, Mr. Shardul Kadam, Mr. Jagadeesh Rao, Mr. Suresh Kumar, Mr. Vikram Rathi and Mr. Lokesh Park. For the last 5 quarters, we have articulated the same set of priorities and they remain unchanged. We -- we continue to allocate capital to businesses that earn a strong and consistent return to grow our fully secured book, to scale our twin engines on gold loans and LAP to grow our core income even as we consciously reduce our reliance on direct assignment, to transition to an efficient cost structure and to hold credit costs below 1%. This consistency is the foundation on which we have built -- rebuilt this business over the past 1 year. Against these priorities, -- our disbursements in this quarter increased 14% Y-o-Y to INR 6,750 crores and our AUM grew 35% Y-o-Y to INR 2,136 crores. Our gold loan business continued to lead this growth with disbursement rising 15% Y-o-Y to INR 6,087 crores and AUM increasing 77% Y-o-Y to INR 11,181 crores. Our doorstep gold loan offering maintained strong momentum, with AUM growing 96.5% Y-o-Y to INR 1,787 crores, and our AUM per branch stood at INR 17.7 crores. While gold tonnage remains stable, we continue to maintain a prudent risk profile with the LTV on AUM at 67.9%. Our mortgage business continued to demonstrate steady growth with disbursement increasing 4% Y-o-Y to INR 673 crores and AUM rising 14% Y-o-Y to INR 9,777 crores. Our focus remains firmly on prudent portfolio expansion and disciplined underwriting. This quarter, there has been a regulatory transition for the whole loan industry, which I expect will be a common theme across the sector in the season. Effective April 1, the RBI revised the LTV framework requiring onboarding LTV on bullet loans to be calculated on the total amount due at maturity. That is principal and interest together rather than on the principal alone. In response and to support our customers while maintaining prudent risk standards, we have adopted the periodic interest structure, and we continue to operate at LTVs below the regulatory limits. As customer repayment behavior is unlikely to change immediately. -- reported overdue levels are expected to remain elevated in the near term. We view it as a customer behavior and transition rather than an asset quality concern. On the shareholding front, Tuna fund LLP, a long-standing shareholder in the company has exited its entire holding of approximately 25.7 million equity shares, representing 6.86% of the company's paid up equity share capital through a block deal executed on the stock exchange. The shares have been acquired by Nomura India Equity Fund managed by Nomura Asset Management in its capacity as as a foreign portfolio investor. We remain deeply appreciative of TrueNorth support and partnership over the years, and we warmly welcome Nomura India Equity Fund as a shareholder as we look forward to their participation in the company's growth journey. There have been a few leadership developments during this quarter. We are joined by Mr. Jorge Oman. Mr. Jorge Oman has joined us as a business head for gold loans bringing over 30 years of experience. He has held leadership roles across leading banks and financial institutions with extensive experience in building lending and board businesses. He will report into Mr. Jagdish Rao, who is our CEO for Gold Loans and leases a whole loan business. Mr. Shardul Kadam, who has steered our small-ticket lab business through a challenging period and played a pivotal role in stabilizing it. He will move into a new role of Chief Transformation Officer. Shardul will be responsible for driving end-to-end business transformation by identifying opportunities for collaborative growth and driving efficiency across products. Mr. Jagdish Rao, who serves as our Chief Business Officer for Gold Loans and Higa CMO, will assume additional responsibility of CBO small ticket and home loans. Jagdish comes with a rich successful experience of incubating and scaling businesses. He will be heavily invested in enhancing resource utilization across our distribution infrastructure. These 2 businesses share a complementary fit and near similar target market customer and under Jagdish unified leadership, we are confident of unlocking greater synergies, scaling operations and driving growth to newer heights. Both these businesses are strong growth businesses, and we wish to invest equally in these businesses. Turning to profitability and asset quality. Despite a negative direct assignment income of INR 13 crores during the quarter, a direct consequence of a deliberate choice we made to reduce our reliance on direct assignment. The company continued to expand its core earnings, delivering a 33% increase in net income. Credit costs have remained stable at 0.8%, well within our guided range of below 1%. Asset quality, our GNPA moved to 1.6% from 1.9%. In Q4, our provision coverage increased to 38%. Net NPA stood at 1%. The quarter concluded with a PAT of INR 114.4 crores, a Y-o-Y growth of 52.5% and ROA of 2.6% and an ROE of 15%. Taken together, the quarter reflects a business that is growing well with improving asset quality and resilient core earnings. The foundation we have built over the past year, a fully secured book, a gold franchise, a stabilized small ticket lab and a strengthened collection organization is now in place. We believe it positions us well for the quarters ahead. I will now hand over to our CFO, Mr. C.V. Ganesh, to take you through the numbers in more detail.

Yes. Thank you, Pervez. Thanks, everyone, for your participation on the call. We have started the year on a strong operational beat in spite of Q1 being episodically sluggish for us. detailing on what has been covered so far. First, on the AUM growth. We had a modest AUM growth in Q1. AUM grew almost 5% sequentially quarter-on-quarter and 34.7% year-on-year. Gold loans remained the largest contributor to business growth, supported by branch expansion, customer acquisition initiatives and a strong demand across our various markets. Our gold loan AUM increased to INR 11,191 crores. up nearly 77% year-on-year. The mortgage AUM also remained on a healthy trajectory and closed at INR 9,777 crores growing approximately 15% year-on-year. Consequently, our total AUM crossed the INR 21,000 crore milestone during the quarter coming in at INR 21,136 crores. been a very different for us from the 4 quarters of last year, especially for our lead product, which is gold loans, with headwinds of declining domestic prices of 15% between Jan 31 to June 30. Additionally, there were disruptions in the business model due to a change in gold loan related regulations with effect from April 1. In spite of these 2 headwinds of adverse price movement and regulatory changes, we have delivered an 8.1% quarter-on-quarter sequential growth in our gold loan in. We have also been able to marginally grow gold tonnage in the quarter by 1% sequentially over Q4. Now on the operating income and profit. Our operating performance in Q1 has been strong. Our core net interest income grew 12.3% sequentially quarter-on-quarter and 40.6% year-on-year. We consciously de-grew our DA income. NII net of DA income increased 6.6% sequentially quarter-on-quarter and 38.7% year-on-year. So while our NII grew about 40%, operating expenses declined sequentially by 2.4%, resulting in a strong keep up growth of about 50% year-on-year, which I will cover separately. Now on the yields and cost of borrowing. The yields, excluding grew quarter-on-quarter sequentially by 10 bps grew 15.7% on the average loan book and 15% on the average total assets. We had advised in our last earnings call that we had conservatively banged up on liquidity in the quarter to counter volatility caused by the geopolitical situation in the Gulf. Now this tank up has stood us in good stead and while incremental borrowing costs in Q1 remained heightened by 20, 30 bps over Q4. We were able to actually bring in our weighted average cost of borrowing marginally lower by 3 bps quarter-on-quarter at 7.80%. That being said, we remain cautious in terms of outlook, but optimistic in terms of rates turning benign with the FCNRB flows coming in Q2 into the banking system. On the co-lending, due to transition-related issues with the new regulatory guidelines across our co-lending partners. A large part of what would otherwise have been CLM business was booked into our own balance sheet in Q1, resulting in leverage going up from 4.6 to 4.89. This has also resulted in the interest expense showing a rise of 10 bps in the ROE. We are hopeful that most of these issues will get streamlined over the next few months, and our co-lending business will get normalized. -- helping us deleverage in the next few quarters. Now on the asset quality. The new guidelines have made bullet loans less attractive for customers. While this has necessitated us to move to a periodic interest due structure from the optional interest servicing structure earlier. Customer repayment behavior will take some time to readjust resulting in reported overdue levels being elevated in the near term. Our increase in Stage 2 from 2.2% to 2.7% is entirely due to this readjustment. We do not see any asset quality concerns due to this rise with the gold collateral remaining highly realizable. However, we see the new rules as setting a new normal in terms of the reported delinquencies due to the new construct with the entire loan amount now getting reported as overdue, even if the customer misses a single interest servicing. On the asset quality, our GNPAs reduced 30 bps to 1.6% in Q1 from 1.9% in Q4. and net NPA also reduced 30 bps, falling marginally below 1% for the first time. While flows have remained at similar levels to Q4, the reduction is due to write-offs we have taken on the deeper bucket and higher provision NPAs as per our board-approved policy, which has resulted in the 30 bps drop in GNPA. Without the write-offs, the GNPA would have stood at 1.87%, which is the same level as March '26. Our provision coverage increased to 38.3% in Q1. This is because of the mortgage SKU in the GNPA book. Any gold loan flows would require a much lower provisioning, optically reducing the PCR going forward. Our credit costs are marginally up 6 bps quarter-on-quarter due to the combined effect of the above. However, it remains contained at the 0.8% level. Now on the LTVs. The increase in gold loan LTVs by about 7% is attributable primarily to the decline in gold prices. Our onboarding LTVs remain at levels similar to last quarter. We have not increased spec. Now on the profit and return metrics. The strong core income growth and controlled OpEx resulted in our pre-provisioning operating profit at INR 187.5 crores, growing 15.2% sequentially quarter-on-quarter and 50% year-on-year. Our PAT also grew 52.5% year-on-year. In the last quarter, we reported that we had crossed the psychological milestone of a quarterly profit of INR 100 crores. We have returned a PAT of INR 114.4 crores in Q1. Our quarterly EPS on a nonannualized basis also crossed INR 3 for the first time ever up from INR 2 in quarter 1 of last year. We remain optimistic on the sustainability of this number. 3 months ago, we announced our ROE breaking into the teams from the 12% reach. In Q1 '27, our ROE has also crossed the psychological milestone of 15% coming in at 15.4% -- this represents an expansion of 380 bps year-on-year in our ROE from 11.6% in Q1 '26. We remain deeply grateful to the support of all our investors and their faith in us including a lot of the new investors who have entered the capital table and are on the call today. Your support makes us stronger. Now on the operating leverage. We have admittedly had a history of stubborn OpEx. In our journey over the last 6 quarters to create a different organization from the past, we had in the last earnings call advised that our operating leverage is playing out slowly but surely and advised of green shoots. As the percentage -- as a percentage of average total assets, our OpEx had reduced in Q4 to 5.5% from 5.9% a year ago. For Q1, we have come in with an OpEx to average total assets of 4.8%, an improvement of 70 bps sequentially quarter-on-quarter. This creates space for us to invest in new branches in the current year and still give headroom for some investment OpEx increase, while at the same time attempting to sustain the ROE. Our cost to income has also shown an improvement of over 400 bps sequentially quarter-on-quarter, coming in at 52.8% from the annualized number of 57.2% in FY '26. While we keep a very keen eye on costs, I want to emphasize that the primary driver of these reductions remains the core income expansion. The improvement in costs seen during the quarter should also be viewed in the context of the seasonal nature of our business. Q1 is typically a relatively softer disbursement quarter compared to Q4 which results in a lower sourcing and business acquisition expense for us. As originations pick up meaningfully in the next few quarters, we would expect sourcing-related expenses and operating costs to also increase but corresponding to the business growth. We are building the business for the long term. And while we continue to measure -- continue to monitor and measure the cost metric, we only see this as a reaffirmation in terms of the investments we will seek to continue on our new growth drivers for the future. Lastly on capital adequacy, our CRAR came in at 20.71% compared to 22.4% in quarter 4. Some part of this reduction was attributable to the shrinkage in the co-lending book, which came on balance sheet. We are working on enhancing the number of partners and much of the incremental AUM growth during the year. would be done on a collaboration basis with CLM/DA partners to help us conserve capital and give us headroom for growth. We believe that Q1 FY '27 has set a strong foundation for the current fiscal. As the numbers over the last 4 quarters show we have attempted to build resilience and consistency in terms of asset quality, credit cost, and return metrics. We are deeply grateful for your support in this exercise. With that, we now hand it over to the floor for Q&A.

[Operator Instructions] The first question is from the line of Digant Haria from GreenEdge Welt.

Congratulations to Parveen and the entire team, including Jessbecause it was great to see the whatever you have been talking for the last 5 quarters play out quarter after quarter, so congratulations on that. I have 3 questions this time. First is, with these new guidelines setting in from April where we have to ensure that LTVs are maintained across the life of the loan. how have we positioned ourselves and how is this whole NBFC versus the bank's equation playing out because I believe banks can now give those income-generating loans, so they can give slightly higher LTV. So just any color on this particular how FedFina ipositioning itself?

Thank you so much for the question, and thank you so much for being with us consistently. See, you understand this gold business. This regulation change is -- earlier, the industry was doing bullet loans, the regulator has permitted that you can go up to 85% on certain ticket sizes in certain categories. But if you go 85% on bullet loans, then you have to subtract the interest rate upfront. That means you'll have to subtract 15% interest if you're charging, then the LTV sourcing LTV comes down. What has happened is because of that across the industry, most of the players we'll be looking at offering the customers quarterly products, which means that the quarterly dues will get created. So that is the change which has happened. As far as the IGL product is concerned and comparing with banks is concerned, we also have IGL, which is income-generating loan. We also do income-generating loans. So the NBFCs are well positioned to do those similar loans. As far as competition between banks and NBFCs are concerned, it remains same. The new guidelines is only affecting in terms of how the quarterly dues are reflecting into the 1 plus and 30 plus, which will optically show, but as you are aware, this is an auction-related product, it does not increase the asset risk. It is only an optical piece that this will happen and it is well managed by most of the gold loan companies as well as people who are doing gold as a primary business. It's -- and customer behavior also if you see earlier also customers who are paying monthly or quarterly interest. Now because of the dues getting created, there will be a little bit more push. So there the behaviors will also change. So NBFCs will also come above out with innovative products, which could be quarterly, half yearly and other products. And I think it's a game for innovation. We just have to be optically okay with this change.

Okay. Okay. Okay. Got it. My second question is around the gold price correction, which happened. So see, it was -- it seems like a large collection from the top, but I know that you guys lend on 30-day average rate. So at the top, nobody would have learned anything significant at the top of the gold price. But just in terms of, let's say, the gold price stays where it is in this particular year what kind of growth outlook do we see for ourselves and especially this combination of income-generating product plus our regular gold on product in the NBFC format. So just any thoughts there?

Yes. So Digant, our guidance remains the same, which we have been giving for the past quarter also, that if there is no price drop, and if the price remains flat also over the year, that means, let's say, let's look at March to next March, the price would have remained flat even then we would have given a gold AUM growth of about 25% to 30%. And that we are saying, first is will come through tonnage growth. As we have shown in the past 5 years, our tonnage growth has been consistently about 10% to 12%. Last year also we gave a tonnage growth of 12%. The first quarter and second quarter are usually sluggish on tonnage growth because there are festivities in the second quarter. There are withdrawals which happened. But Q3 and Q4, we pick up the tonnage growth. So there will be tonnage growth, which will come in. And if the price remains flat, there will be a little bit of LTV expansion and LTV expansion will happen on the quarterly or the half yearly products. As you are aware, the half yearly and quarterly product is a less risky product in terms of -- so if you are giving a bullet loan, you will give a lower LTV. But if the loan is getting serviced quarterly or half yearly, you will give a little bit of a higher LTV. That is how the industry is operating. So what you might see is that companies will have a different LTV this year even if the price remains flat. And if you've taken our guidance last year, when the price was going up, we kept the LTV lower only when the price has been flat, there could be a little bit of LTV, which could move up. Also, if you noticed last quarter since January, the price has dropped considerably, and the gold loan industry has absorbed that. Lastly, just to give a clarification. We lend on the last 30-day average or the spot price, whichever is lower. So we do a conservative lending. So if this last 30-day average price is INR 134 and the spot price is INR 129, then I will take INR 129 into my calculation, and I will lend at a lower price.

That's very real. And last question is I just heard that Mr. Jagadish will look at small loans and home housing loans as well. So will these be like new products or are you referring to the mortgage piece that we have -- that was 1 question.

Yes. No, thank you. See, Mr. Jagdish already has earlier also along with Shardul, he -- he is a veteran employee into FedFina. He was driving the lab business. He's done a lab business. He's done gold business. So he will continue to spearhead our gold business. he successfully scaled it up. He successfully from the scratch, scaled our gold business. He will take additional charge of our ST lab business. That means our existing ST lab branches which were distributing the 200 branches which were distributing the ST lab product. Jagadish will take charge of that. He will have Jorge Oman under him to drive the gold business. Similarly, there we have Ashish Rajput, who is our NSM, he drives our small ticket lab business. And I think the unification of Command will lead to a proposition, which we believe is a unique proposition, where our gold branches, we have almost 400, 500 gold branches where we don't do ST lab. So that is a resource utilization, which we believe will be very strong. Plus the target market for both these products is same. Thirdly, our penetration into either of the products has been less. -- we believe that penetration can increase. And fourth, we believe that the distribution for both these products is very similar and geographies we are operating. So there can be huge optimization plus scaling, which can be done there. And Jagadish was a person who comes in. See, Shardul came in when we had a difficult situation, he batted on a tough pitch, and he corrected most of the things. Now we want the combined element of gold as well as a ST lab to give us a different strike rate. And that is where we believe strategically it makes sense. And it also falls in line with the thought process that we have in the future of, say, 3 to 4 years down the line making the branch, the epicenter of everything. So it falls in well with what we are thinking.

Got it. Got it. Lastly, just a data point. Did we have any auctions this quarter? So what is the quantum of options if you would have done in?

No, it's very less. That's an accrued.

The next question is from the line of Chetan Gindodia from Mahindra Manulife Mutual Fund.

Yes -- many congratulations on very good core -- just had a few questions. Firstly, on the gold loan side, you've given how business has panned out. Similarly, on the medium ticket lab and the small labs, for the disbursements have been slightly relation also you have made a lot of business changes also. Any outlook if you can share how you're looking at the disbursement growth or overall growth for this year, what will be your aspiration over, say, 1 to 2 years? Or how you want to grow this entire last please?

Yes. Chetan, thank you so much. The medium ticket lab and the small ticket lap are part of our twin strategy, LAP and gold will be our segments, which are focus segments for us. And I have consistently said that -- we will continue to invest into these 2 segments and grow these 2 segments. The guidance that we have given for this year is that we will grow the entity at about 20% to 25%. So if gold without the price increase grows at 25% to 30%, the lab segment will also grow at 20%. Within that, the medium ticket lap or the small ticket lab, 1 might grow up faster than the other. -- and we are heavily invested in both these products. And as you're aware, both these products operate in different target segment, the medium ticket lap is a higher ticket size and operates and competes with different organizations, and it is more Tier 1, Tier 2 product, whereas a small ticket lab is a Tier 2, Tier 3, Tier 4 product and a lower ticket size. The medium ticket lab has been facing competitive intensity on the yield side. There is a huge pressure on the yield. So companies are playing with approval rates, yields and disbursals. We are maximizing on the yield so far, and that is how we've been operating in the first quarter, but it will be quarter-on-quarter play. There has been a substantial drop in yield by competition. We have not joined there yet. So -- and for us, the disbursal or the AUM growth is an outcome. We want to get good quality business there. On the small ticket lab side, we've had a drop in approval rates, and we have not let go of the yield. These are the 2 elements which have led to the disbursals showing what it is. We have come on the back of a rebuild business. We are watching -- we are sure to pick it up. As I said, it's a combination of approval rates and yield. And there have been enough -- there is enough expertise in the organization for us to know when we want to pick it up, looking at how the market is playing and which vernacular market is playing. So we will play it accordingly, but we will give your company the growth that we are expecting for the year. in the lab segment and the gold segment. But we are watchful in terms of what we are getting. There is a play of partners. There is a play of payout. There is a play of yield all these combinations. So each company will maximize 1 or 2. We have chosen to get disbursal as an output. The others, we have held very, very closely. That's the outcome. And I think that the new change is more a strategic change, more scale change, and that will benefit us in the longer term, and we've been taking decisions from a longer-term perspective.

Understood. That's 1 thing is the credit cost margin has inched up on a sequential basis. Is this a function of the write-offs that I think you were leading -- is that assumption of the write-offs we have taken? And what will be the quantum of that?

Yes. See, our regular credit cost has been around 0.7 -- so a little bit 10 basis points, it could be from there.

[Operator Instructions]. The next question is from the line of Rajiv Mehta CamSecurities.

You giving the opportunity and congrats on good numbers. I just want to understand this gold loan disbursement impact because of new regulations. I think there seems to be a very substantial impact at the operational level or at the volume level itself because when I look at the disbursements, they have grown by 15%, 20% Y-on-Y, but the gold price itself is up 35%, 40% Y-o-Y, and there's a 20% capacity growth also. -- from our standpoint. So just wanted to understand where is it has been more? Is it more on the more than INR 2.5 lakh loan segment, where the repayment assessment was also an additional friction or an eligibility filter, which RBI asked every entity to do. So if you can just tell us how quickly can we normalize from a volume standpoint in terms of operations from where we are and whether the it was more on the more than INR 2.5 lakh side?

So Rajeev, 2 ways to look at it. See, disbursements on the gold translates to a growth in the gold loan book. And if you look at our gold loan AUM growth is about 8% -- if I have to break that 8% for you, 1% has come from the tonnage side. And there has been a price drop. If you look at comparing between the quarters, there is a price drop. So of almost 4% to 5%. And the -- so if you will have a plus 1, minus 5% and about my LTV has booked up from 61 to 68. So that is the 7% that is 10%. So that's the math.

No. Actually, sir, I was actually asking from a low data point of view, from the new business activity, which is disbursement number -- and that number in this quarter versus the same number in the last year quarter is up 15%, 20%, but we had about 20% capacity growth and the gold prices are higher by 30%, 40%. So there seems to be a significant amount of volume hit in terms of operational hurdles because of the new regulations. Would that be the right interpretation?

No. No. See, because if you -- if I just give you 1 number and I'll ask Jagdish to add there, -- if you look at my gold disbursement, last whichever quarter you are comparing, if you're comparing that with the quarter 1 of last year, you see quarter 1 of last year, whatever disbursement I did and look at the growth in the AUM. So if I did about INR 5,000 crores of disbursement, I got a -- INR 400 crores of growth last quarter -- last year first quarter. And this time, with the INR 6,000 crore, I got a INR 800 crore growth in AUM. So the growth is a correct number. I'll ask Jai to add to your thing. But if you do the math with growth, you will get it correct.

So Rajiv, it's the reverse, which has happened. So if you compare last year's Q1, we have actually degrown in our tonnage -- and whatever growth that we have seen and the disposal that we have seen is purely the impact of the price movement, which happened in Q1. So -- and to answer you about the ticket sizes, the trend after regime for this quarter, Q1, so we are completely aligned to the new regime. Our systems are aligned. The assessment methodologies, the purpose-based lending consumption loan and income-generating loan. So everything is aligned and even the industry, I believe, is completely aligned in terms of the structure. But unlikely what we are seeing is there is a skew towards loans getting disposed at a ticket size more than INR 2.5 lakhs. So that is happening. So even though you have tightened your norms for lending plus being in LTV controls at INR 2.5 lakhs, anything about INR 2.5 lakhs, you can't give that 85% range or -- so that has played a lot. It has not impacted, in fact.

Okay. Okay. I'll just come back with 1 more questions, maybe I'll just come back to her.

The next question is from the line of Renish from ICICI Securities.

Congrats on a good set of numbers. Sir, just 1 thing on the credit cost part, right? So we are now settling at historical high level of 30%, 40% and especially significant part of our AUM is now gold. So I think PCR looks decent at this scale. So now considering the marginal uptick in core costs in Q1 despite 60 bps -- 600 basis point increase in -- so for the remainder of FY '27 quarter, logically, a credit cost should trend downwards, right, assuming there is no further increase in PCR. So what's your comment?

Yes. Renish, thank you for that question. So you're right. I think on the mortgage side, we do not perceive or expect any increase in credit cost. -- right? It is just that we remain watchful of this new structure. See, we have stopped doing bullet loans, okay. Our entire loan book, which was predominantly bullet loans is now almost entirely on an interest structure. Now effectively, it is a large book. And depending on the -- if the customer misses or interest servicing, the overdue creation, while the provisioning on that is lesser -- but there is a provisioning nevertheless, right, -- so that is an unknown. It's -- as I said, we are into a new normal. -- okay? We are also calibrating and understanding how this works. Now clearly, -- the collateral is very liquid. There is no reason for any stress, we believe, in the asset book because of -- just because of the interest payment, right? And so we remain watchful. So the only thing that can -- your hypothesis is correct. The only thing which may sort of affect it a little is how the gold delinquencies trend over the next few quarters. But whatever happens to us, we believe, will be related on a relative basis, similar to what happens to the rest of the peer group. So we will watch it.

Got it. Got it. So just a follow-up on that, sir. So when we look at the Stage 2 numbers, right, from last quarter to this quarter, there is an increase of 50 basis points -- and I'm sure, as we also mentioned on the call that it is entirely because of the regulatory change in gold business, right? So in that sense, the impact is already there, right, in the numbers.

Okay. So Ranish in the first quarter, the regime, we were all aligning to avoid the -- I mean the bullet repayment structure, what we brought in is the monthly repayment structure, monthly interest structure. So what happens is -- and now we have disbursed a set of numbers in Q1. And there is a skew towards monthly disbursements because of the LTV-related that customer gets. So what we have changed is we have changed it to our quarterly disbursement structure and even in the industry is innovating this. So moving from a bullet repayment to quarterly moving from bullet repayment to monthly. -- only has given us 2.

Overall, Renish, the credit cost guidance remains same. At the start of the year itself, we said the credit cost guidance will be sub-1%. And as far as the mortgage GNPAs are concerned, they are tracking well. We're not seeing anything on the West Asia prices hitting us as of now. I don't know how in Q2 monsoon effect in Q2, Q3. So we are well sub the guidance. And this gold thing also, I think -- we managed it well in the first quarter with the regular regulatory change happening. It's only an optical thing that it is showing in the Stage 1 and Stage 2 the flow into the NPA also is going to be very less compared to the way you see it in other products. And even if it does flow there, we have an effective auction mechanism. So I'm not so -- I'm not concerned about -- I'm not at all concerned about the asset quality risk on the gold loan side. And as far as mortgage is concerned, it is tracking well. So the guidance remains all our guidances, which we had given at the start of the year, continue to remain on the growth side, on the tonnage side, on the credit cost side and on the ROA side. So everything same intact.

Okay. Sir, just a last verification. So now since we are moving from higher tenure loan to a shorter tenured loan, specifically a monthly repayment loan. So does this will have any impact on blended yields or broadly will maintain spreads?

See, the yields, if you remember, last year also, we had said the yields will be not because of the mix. As I said, the yield pressure is coming more in the respective products, which is a lap is facing a yield pressure. I'm operating at a particular yield of about 12%, 12.5%. That is coming under pressure. And gold, I think we will try and see how the competition operates with a combination of LTV and yield. So individual products will have to behave particularly in those geographies. So I don't see a mix issue coming in, more of a product-related play, which will happen in Q1 and Q2. Q1, we have held it as we had promised in Q4 that we will hold the yields. Q2, it will be the operating dynamics, which will play, and we'll have to see how each product behaves. But as a mix wise, there won't be any challenges what we feel.

Got it. Got it. So just a shift from, let's say, 3 months, 6 months loan to 1-month loan will not have a material impact on assets is what you're in the right?

Correct.

The next question is from the line of Rahul Kumar from Vekaria Fine.

Just on the ST Lab segment or the mortgage actually, can you just help us understand the flow to stress for this quarter versus the previous quarter?

See, after the slippages in this quarter also have been quite similar to the earlier quarter as a percentage of the old book. So we have an old book which is behaving in a particular manner and that old book keeps shrinking on a quarter-on-quarter basis, and we monitor that percentage. And that percentage is similar or it is going in the expected trend. So we are not seeing any adverse movement in terms of the slippages quarter-on-quarter. Whenever there has been any adverse movement, we have been the first to call it out and tell you that there have been extra slippages on the small ticket lab, but we have not observed it. The old book is behaving in a particular manner, which we have guided you. And the new book is behaving much, much better and better -- and as the composition of the new book improves, we should benefit from it. So answering your question, straightaway there is no adverse movement on -- as far as the ST lab flow a concern.

Okay. Okay. Okay. And if you can help us understand the guidance on the OpEx to assets or OpEx to income, which our ratio, which you guided for this FY '27?

Yes. See, again, what we have guided, Rahul, for the year FY '26 start, I had guided that we will expand the ROA by about 20 to 30 bps over the average ROA that we had given last year. Last year, FY '26, we had given an average ROA of about 2.4%. So we had guided that we will do average much better. That is the 20 to 30 bps expansion. And that 20 to 30 bps expansion will happen with a combination of credit cost and cost to average assets. These are the 2 levers, which will play out. they might not play out quarter-to-quarter. There might be aberrations within the quarter. But on a yearly basis, that's how you will see it play out. So it could be a combination of 10 bps here and 20 bps into the other element, and that is where we are seeing and that is how our ROE has been moving.

Rahul Kasowould request you to rejoin the queue. The next question is from the line of Yash Dantara from Dante.

Yes. Congratulations on a great set of numbers. So I brought this question of last time also, right, on the AUM expansion In terms of segment. So for this financial year for the next 3 quarters, -- where are we seeing our gold AUM versus the rest of the AML where are we seeing as grow and where are we seeing the AUM reach?

So the -- if the price doesn't move, then we are expecting the gold AUM on a base of March 26, the gold AUM should grow by about 25% to 30%. And at an entity level, we are expecting to grow about 20% to 22%. And the mortgage AUM will grow between 15% to 20%.

No, I meant AUM gold AUM as a percentage of your total book. That's what I meant.

Okay. Yes. So that mix will be arithmetic yes, it will be slightly higher. -- as a mix. But you see, because if gold is growing higher, that mix will be higher.

No. If it stay stagnant then?

No, the mix gold percentage will be higher.

Right. But can you quantify higher, just assume gold has not moved familiar?

See, we track it as a percentage of our -- right now, I think on AUM, it is about 51.4%. So if I will just have to do the arithmetic. But if gold is growing at 2%, 3% higher than the other one, and that is 50% of the book. So maybe it will add another 2, 3 percentage point there.