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

Ladies and gentlemen, good day, and welcome to the Q2 FY '27 Earnings Conference Call of Fedbank Financial Services hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shreepal Doshi from Equirus Securities. Thank you, and over to you, sir.

Thank you, Ellery. Good evening, everyone. We welcome you all to the earnings conference call of Fedbank Financial Services to discuss the Q2 FY '27 performance of the company. Today, we have the management of the company represented by Mr. Parvez Mulla, MD and CEO; Mr. S.V. Ganesh, CFO; along with other senior members of the management. I would now like to hand over the call to Mr. Lokesh Pareek, Investor Relations Head at PedeBank Financial Services. Over to you, Lokesh. Thank you.

Thank you, Shreepal. Good evening, everyone. I would like to welcome all of you for joining our Q2 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 call to our MD, Mr. Parvez Mulla for his opening remarks. Thank you, and over to you, sir.

Thank you, Shreepal. Thank you Lokesh. Good afternoon, everyone. I would like to extend a warm welcome to all of you for joining the Q2 FY '27 Post Results Earnings Call. I'm accompanied by Mr. S. Vignesh, Mr. Jagda, Mr. Shardul Kadam. Mr. Suresh Kumar, Mr. Vikram Rathi and Mr. Lokesh Pareek. For the last 6 quarters, we have articulated the same set of priorities and they remain unchanged. We continue to allocate capital to businesses that are on a strong and consistent return to continue to grow a fully secured book, to scale our twin engines of 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 cost below 1%. This consistency is the foundation on which we have built this business over the past 2 years. Against these priorities, the quarter has progressed well. Our total disbursements grew 28% Y-o-Y to INR 6,676 crores, and our AUM grew 37% Y-o-Y to INR 22,035 crores. On the business front, our gold loan business continued its growth trajectory. Disbursements stood at INR 5,822 crores, a growth of 31% Y-o-Y. And the gold AUM grew 77% Y-o-Y to INR 11,917 crores. Our doorstep gold loan offered -- offering maintained its momentum with AUM growing to INR 1,851 crores. Our AUM per branch after the branch opening stood at INR 16.9 crores and the gold tonnage grew 16% Y-o-Y. We continue to maintain a prudent risk profile with 68% LTV, well within the regulatory limits. We have opened 74 branches this quarter, taking our total gold branch count to 831 -- total branch count to 831. We expect to continue expand our branch network in H2. This quarter also marks our entry into Eastern India, expanding our geographical footprint into newer and promising markets. The revised gold lending LTV framework continues to work its way through the system. Our gold GNPA at 0.5% reflects this transition, not a structural credit concern. Our mortgage business delivered steady progress this quarter with disbursements growing 12% Y-o-Y to INR 855 crores and the AUM grew 13.5% Y-o-Y to INR 9,982 crores. Our focus remains on disciplined underwriting and portfolio quality. Within mortgage, our medium ticket lab disbursed INR 645 crores, reflecting 16% Y-o-Y increase while maintaining the yields at stable levels. Our small ticket LAP and housing business dispersed INR 210 crores as our investment in credit policy leadership and BRE-driven underwriting engine begins to translate into lower credit cost. Our on-book portfolio remains fully secured with the unsecured loans constituting less than 1% of our on-book assets. Turning to profitability and asset quality. Credit costs for the quarter came in at INR 27 crores, approximately 0.6% of the average total assets as on an annualized basis, continuing to track well within our guided range of around -- below 1%. The quarter concluded with a profit after tax of INR 130.8 crores, a Y-o-Y growth of 63% and ROA of 2.8% and an ROE of 17%. On the asset quality, our GNPA stood at 1.8%, moving from 1.6% in Q1. The movement is primarily attributable to the ongoing transition in gold loan lending practices and the flattish as we did our direct assignment and co-lending business normalized in the quarter. NNPA stands at 1.2%, with a provision coverage ratio at 35.4%. On a Y-o-Y basis, both the GNPA and NNPA have improved, the capital adequacy stands at 21% and book value per share stands at 84.4%. Taken together, the quarter reflects a business that is growing well with improving asset quality, resilient core earnings, our highest ever ROE at 17%, the foundation we have built over the past 2 years, a fully secured book, a scaled gold loan franchise, a stabilized mortgage business and a strengthened collection organization is now in place. And we believe it positions us well for the quarters ahead. I will now hand over to our CFO, Mr. Chattapuram Ganesh, to take you through the numbers in more detail

Yes. Thank you, Parvez. Thanks, everyone, for your participation on the call. Before we begin with the financial highlights, I would like to extend my warmest Navaratri greetings to all of our equity and debt stakeholders as well as all the participants on this call. Wishing all of you a joyful and successful festive season ahead. In spite of the turbulent headwinds over this quarter and lack of momentum in gold prices, we continue on our theme of building resilience across business cycles. Quarter 2 '27 has been our strongest quarter to date in terms of profitability and operating metrics. Over the last 8 quarters, we have been on the journey of building a business model which results in consistent noncyclical and predictable earnings. The linear upward trajectory of ROA and ROE expansion over the last 8 to 9 quarters is the validation of the resilience in that model. We shared last quarter that we had crossed the interim ROE milestone of 15%. I will reiterate four headline numbers that summarize our performance for quarter 2. The first one is on the ROA. The ROA expanded sequentially quarter-on-quarter by 24 bps to 2.8%. The last 9 quarters have seen ROA slowly but steadily inching up from 2.1% to 2.8%. The ROE expansion sequentially has been 153 bps quarter-on-quarter to 17% in Q2. This also represents a steady increase from 10.9% ROE to 17% ROE over the last 9 quarters. We remain optimistic on continuing on this trajectory. We started the fiscal with an AUM of a little over INR 20,000 crores. We crossed the milestone of INR 22,000 crores in September, representing a 9% increase in the first half of the year. The credit cost shrunk by 18 bps from 0.78% to 0.6% of total assets as the flows from the mortgage book have materially improved in aiding and lowering credit costs. Our growing ROE enhances our ability to fund the loan book expansion through internal accruals and puts us on an accelerating journey of book value compounding. Let me now walk you through a little more details on the numbers. First, on the P&L items. Core NII grew 5.2% quarter-on-quarter to INR 404.8 crores and 40.9% year-on-year. Pre operating profit of INR 205.1 crores is up 9.4% sequentially quarter-on-quarter and 47.5% year-on-year. Our credit costs declined to INR 27.1 crore in quarter 2, down 20.5% quarter-on-quarter from INR 34.1 crore in quarter 1 due to improving collection efficiencies on the mortgage book. Consequently, the PAT came in at INR 130.8 crores, up 14.3% quarter-on-quarter and approximately 63.1% year-on-year. Now on yields and the cost of borrowing. Our overall yield on the core loan book remained constant in quarter 2 compared to quarter 1 at 16.40 levels. The optical increase in yield by 29 bps is because the last quarter had a higher [ BA ] unwinding impact of around the same magnitude. On the cost of borrowing, in spite of headwinds, we were able to keep our weighted average cost of borrowing for quarter 2, flat at the same level as the previous 3 quarters at 7.80. This is represented in the funding profile slide in the deck, our fixed rate borrowings from 33% of the book. This, coupled with the MCLR-linked loans, which constitute another 24% of our borrowing and have had a lesser magnitude of transmission historically, give us some insulation against headwinds of increasing interest rates. We did direct assignments of approximately INR 700 crores of the gold loan book to deleverage. This aided by higher core lending in the gold portfolio, helped in bringing down the debt equity ratio from 4.9% to 4.6% and improved capital adequacy to 21%, up from 20.7% in quarter 1. Now on asset quality. Our mortgage delinquency numbers across stages are flat to better than the previous quarter. On the gold side, we had guided in quarter 1 that the shift to the periodic interest view model instead of the earlier [ bullet ] loan model was likely to result in technical delinquencies across stages going up as customer behavior may take some more time to adjust. The increase in stage 2% from 2.7% to 3.6% and in Stage 3 from 1.6% to 1.8% are entirely on account of this change construct in gold loans. We are sufficiently collateralized and do not see these optical indicators as indicating any enhanced risk on the portfolio. We have had a record low level of net slippages in the mortgage book. It has been our best quarter till date. The decrease in PCR from 38.4% to 35.5% is due to a higher proportion of gold loans in Stage 3. These gold loans carry a much lesser provisioning coverage per ECL. Our mortgage PCR continues at similar levels. Now on the operating leverage. OpEx as a percentage of average total assets in the ROA tree, stood at 4.9% in quarter 2 compared to 4.8% in quarter 1, reflecting the full quarter impact of the branch and headcount additions. This is materially down from 5.5% in FY '26. And the structural reduction in cost intensity over the medium term remains intact. Our cost to income came in at 52.5% in quarter 2, marginally better than the 52.8% in quarter 1. For context, the annualized cost to income in FY '26 was 57.2%. The step-up in operating expenses this quarter is primarily driven by the branch expansion program. In addition to the 74 branches we added in quarter 2, we propose to add at least another 150 branches in the second half of the year. While this will add to the investment OpEx, we are hopeful of containing any material increases in cost to income over current levels by focused effort on our BAU OpEx. To summarize, are expanding ROAs and ROEs and our focus on the productivity and operating leverage levers provide us with shock buffers to potential headwinds on the interest rates or any insurance distribution related changes. We remain deeply grateful for the continued support of our investors, both old and new, and all of you on this call who have been with us thus far on this journey. With that, I now hand it over to the floor for Q&A.

[Operator Instructions] The first question comes from the line of [indiscernible] with Phillip Capital.

So one quick question -- sorry, there are two questions. One is about the gold loan. How do we manage the growth plus the yields? Because the competitive intensity, not just from peer NBFCs, but also from banks, including PSU and private both are increasing by the day. A couple of peer NBFCs are resorting to very low rates in multiple states. So that is point number one. Point number 2 is do we have a product ready for income-generation loan and gold loans? And if yes, how -- what is the product rollout timeline and what are the various features of that particular product?

5 Thank you, Shubhranshu, for your question. As far as the growth and yield is concerned, specifically because of the competitive intensity in the gold loan market, we've been conscious of this for the past 3 quarters. In fact, this quarter, the competitive intensity in the gold loan market has played out. Q1 was -- the intensity was there, but Q2, the intensity was a heightened one. All the kinds of yields growth strategies, lending practices, everything was played out across geographies. So you will see that most of the NBFCs would have operated with different strategies in this particular market. What we believe is we have given a growth considering all those competitive intensity, considering all the yield pressures, we've given a particular growth in this quarter. And we will continue with our guidance in Q3 and Q4 as well because we have dealt with this kind of competition. And we believe it is a healthy competition to play with. The market is big enough. Definitely, it shows in the first year and second year when the intensity is high. But we've done this over the past 10, 12 years. We have certain pockets where we go aggressive, certain pockets where we do the yield play. If you notice, our quarter 1 and quarter 2, we might be one of the few companies which are in the gold loan business where our yield has dropped only by 10 basis points. Whereas if you compare many other companies, you can compare what is the strategy that they are playing. In spite of that, we've given a growth. If you see the LTV, we are still operating at 68%. So our strategy has been to focus on our growth, our yields, our markets, our target segment, and we operate in certain markets where we believe the growth is still possible. We will continue to guide to a decent growth in Q3 and Q4. Strategically also, our Q1, Q2 numbers, usually, we beat them in Q3 and Q4. Our seasonality is more in Q3 and Q4. So you will see that happening as we go forward. We already have an IGL product. We have been operating with it in Q2 also. So we had got it ready in April itself, and we are operating with it. As far as banks are concerned, the competitive intensity is in the NBFC sector. The banks play in a different orbit with a different yield segment. maybe the larger players feel the bank presence. We operate in a segments and geographies where our competition essentially is with the NBFC segment. And I think we are doing decently well there. But Q2 is a good indication for you to see how each of these players have operated, who is focused on growth, who's focused on yield? And what are the practices each of the player has played in the gold loan market? And what the strategic focus each of the player has played? So Q2 is a good indication for you to see how Q3 and Q4 will play.

I'll just add to what Parvez said, in addition to the new branches we added. Historically, the second half of the year is a much stronger period for us, which is giving us confidence that in spite of the headwinds you mentioned, we would be able to perform to our guidance, which we have been giving in the earlier quarters for this year on AUM growth.

So just to summarize this. We don't expect much of a spread compression despite the competitive intensity and the rate hikes. Is that a fair understanding? Second is that if you could explain what our income generation loan as what kind of LTVs we are offering, what kind of ticket size we're doing in the income generation loan?

See, as far as the yield is concerned, we -- for Q3 and Q4, we will all use all levers possible, whether it is yield, whether it is LTV and growth, it will be a combination. It will not be a single lever. The objective will be to maximize certain deliverables that we have. But as our guidance has continued, finally, it is the ROA number that we are guiding on. If there is some level of pressure on the yield, we'll figure out where we need to get it from. And we've done that over the past 8 quarters. You've seen our trajectory on how we've managed the ups and downs of yields. And we still have multiple levers to play to give you a good ROA trajectory. So that's how we will play it. I don't want to specifically give you a guidance because it is a dynamic market. Q3 will be an intense market. It will be wrong of me to give you a guidance that we will play with a flattish yield, it will be played according to the market dynamics. Geographically, we will play it very, very differently in each of the geographies. So that's how we will continue. As far as the IGL product structure is concerned, I will request Jagdish this to just elaborate, Jagdish, do you want to give a flavor how we're doing ICL?

Yes. So on the income-generating loans, we have multiple products, one is for agri loans and for the MSMEs and priority sectors. And on the LTV side, we structure it based on the cash flows. We don't go with only the LTV, but there is a capping of 85%. When I say 85%, the loans are structured 80% and 85%. That's how the product structure is and purely based on cash flows.

The next question comes from the line of Renish with ICICI Securities.

Congrats on a good set of numbers. Sir, just to thing again, sorry, coming back to the same question on the Stage 2, Stage 3 increase in this quarter. So we understand that the bulk of this is being driven by the gold loans. So just wanted to understand, in a steady-state basis, does one can assume the current Stage 3 and Stage 2 in a gold loan business will be a new normal?

Renish, thank you for your question. So you understand this business, you understand that there has been changes which have happened in the month of April. You are also aware that we had guided. And in fact, we were one of the first few companies to guide that the Stage 1, Stage 2 will be different for the [indiscernible]. We have continue to stick to that guidance. My piece of comfort to you is the mortgages Stage 1 and Stage 2 as well as Stage 3 is steady or in fact, declining for us. So my slippages as Chattapuram Ganesh pointed out, we are -- the slippages have gone down. The buckets have been going -- reducing we have a definite advantage on the mortgages side because of the investment that we have done on the collection infrastructure, and we are seeing those results there. As far as the gold piece is concerned, this is a move -- Stage 2 is technical in nature. You are aware, most of the gold loan product is a 3-month or 2.5-month behavioral tenor product. So this will not translate into a credit cost. It's only technical in nature. Customer is going through a behavioral change. NBFCs for the first time, are calling the customer and telling them that, look here, you've taken a quarterly product, why don't you pay you might quarterly, the customer is saying, for the last 10 years, I've not paid quarterly. It's okay if I pay a fourth month? And then there is definitely a different interest rate that the customer starts paying. So actually, it's not at all a piece which is worrying for us. The Stage 2, we think, is in a managed range. this guidance that we have given is the credit cost that we will manage will be way below 1%. We've directionally also showed you how it is going to go. And if you remember last year as well as the start of the year, I told you that the GNPAs will also be below 2%. So I'm giving you guidance on the GNPA, I'm giving you guidance on the credit cost. In between those tags, I think we'll have to let -- see some of these things are are some of the levers, which companies will use to operate in a very, very highly competitive Q2 gold environment. And each of the company will operate like this. We are one of the few first companies to give the results. So there will be some element of questions. But as you see more world companies coming up, you will see similar kind of numbers and results. So I think it's just technical in nature. The summary is that the GNPA and mortgages and the stages and mortgages are doing well. And I mean, I'm pretty happy with the numbers.

So Parvez, just a follow-up on that. I mean since this new regulation being implemented from April and now we are in September. So it is fair to assume that even the Q2 numbers fairly captures the change of customer behavior? And if that is the case, then the Stage 2 and gross NPA ideally has picked out at current level and maybe in Q3, Q4, there will not be further deterioration?

I don't think like that, Renish. It won't be a deterioration, I won't call it a deterioration. It is just a behavioral pattern because see, what will happen, Renish, is the volume of business, which happens in Q2 is very different from the volume and business, which happens in Q1, plus the early part of Q3 also the business will pick up. So there will be some numbers, which will happen on the Stage 2 side. So again, I'm telling you, directionally, I don't want to hold a number on the Stage 2 side because it will constrain the business. But it is not a number which one should worry about. It has noted in the sense because it's very easy for a gold loan company or any company which is doing gold loan business to easily get the recoverables through the auction process. We are fully geared for that. And just optically showing you a better number is not in the entire business interest of most of the companies. And where -- yes. So we will look at optimizing what are the deliverables. The deliverables are clearly maximizing profit, maximizing customer interest, maximizing, ensuring that we are doing within the regulation. And we are going through a transition of customer behavior. So I think it may take 1 or 2 more quarters before customer behaviors change.

I just add to what Parvez said, Renish, basically, these indicators, you should -- I would urge you to look at this in comparison to the peer gold loan companies because in -- if you try to make sense out of it, I would try to indicate that these would be optical optically misindicators rather than indicators. We have never had an auction loss on either principal or interest in the last 6 years. There is no intention to break that record. Management team is in control, and we are sure that we will not have any loss in terms of principal or interest. These are levers we will keep playing with. And I think to that extent, I would urge you not to hold us to a number that.

No, no, I think you're absolutely right, sir. So when we look at the credit cost and then when we look at the Stage 2 and station, it clearly suggests that what Pavesi trying to and it's just change in customer behavior and not necessarily it will result into a credit loss. So that is pretty much understood I mean a good job on that thing. Sir, my second question is on the small ticket lab. So when we look at the ticket size trends, it clearly suggests that we are moving to high ticket size lab within small ticket segment. So the drop in [indiscernible] is because of that? Or it is just because of integrated cycle, the segmental yield is coming down in small ticket life? And also, are we also switching to a bettoer customer segment and hence, chicken size is inching up?

Good thing to notice, Renish, thank you for that question. Small ticket business. on the ticket size. See, we moved to the -- we're earlier of 5 lakh above ticket size company on the small ticket lab. We moved it up towards the 7 lakh and 8 lakhs. You remember that we guided you that has played out in the average ticket size slightly moving up because now we are not doing anything below 8 lakhs. So that has moved a little bit of the needle. The yield drop is just a Q2 scenario in certain geographies. It is not related with the ticket size per se. It is coincidentally looking like that. Just that in some -- in Q2, mile lower yield state has done better business than my higher-yield state. So I have different yield states. Say, for example, state at 1 particular yield stage B does 1 particular yield till the time my other state picks up, this state did a better business. But as far as indications are concerned, as we had guided you on the small ticket lab business on the credit cost, it took us 3, 4 quarters to stabilize it. And today, we are proudly telling you that we are going on the bucket negatives on the credit cost on the small ticket lab side. So similarly, the -- on the growth side, on the small ticket lab business. We've picked it up. We have not been -- the pickup has not been that great, but it will definitely pick up in Q3, and you will see further better yields as well as the ticket sizes the normalized range. So the average ticket size could be in this range, but you will get a better yield and better disbursement in Q3 because now we've got the credit cost side normalized on the lab the pedal will be pressed on Q3 and Q4. I didn't tell you that in Q1 and Q2. But in Q3 and Q4, we will press the pedal. So you will see a different growth trajectory on ST lab there.

The next question comes from the line of Tenet Haria with GreenEdge Wealth.

Congratulations to all of you. It's good to see this trajectory of ROA just keeps improving. And then 2 questions from my side. In this gold loan no, at the industry level and at Fedfina level, like what percentage of new loans probably happen at full LTVs, which we can say 75-80 or 85%? And then what percentage of loans happen at in the bullet structure where you cannot give those full LTV, you have to give some discount to that LTV. If you can just highlight where the industry is going, where we are knowing because I think the stage to stage 3 question is also related to this.

I'll take that question, [ Dian ]. So gold, there is no differential LTV for an existing customer or a new acquisition. The customer demand, whether he is an existing he comes for a pledge or a second loan or a new customer walks into the branch, this requirement is higher LTE 90%, 95% of the customers choice is to get maximum loan for this maximum value for this loan. So there is no such discrimination. The LTV is decided based on the exposure of the customer. The momentum exposure of a customer is capped at 75%, he offer maximum LTV. Similarly, if it is 80% ops for maximum LTV, there is no differentiation between a new customer or an existing customer. the 20% of disposal, which is happening in income-generating loan. There, there is a choice for the -- for Fedfina to go into the cash flow assessment and based on cash flow assessment and purpose to decide on the differential LTV for a new customer. So that's there.

Yes for the -- so Jake, as you say, most people will opt for the highest available -- so then they will have to pay interest regularly or is this Stage 2 will go up at an industry level, that is the right understanding, right? Because if the -- that's the right understanding. Because it is just a technical thing, which will like come up, but obviously, it has no implications economically or ...

Yes. But what happens Digant is, as you are -- we are operating in the market, and I am -- when we are operating in the market, we are conscious of this. So if I'm giving a quarterly product even though there is no reason for me to -- so I'll minus 2% and play with that LTV and see how much of a take is happening for that LTV there. So the business growth happens, and we -- you try and push as many customers at that LTV. And that is why your portfolio is a mix of that 73%, 72%, 74% in that way. So it's not everybody at that highest one. So you will try and first pick up as many compositions as possible in each of these markets. So wherever you don't have heightened competition, you play with a 71% also.

Okay. Okay. Got it. That's very detailed. Second question is, Parvez, you mentioned that competition did play out, it was extreme this quarter. Like if you can just give some more color, you are that this competition, is it playing unfair in terms of just don't value the jewelry correctly? Or is it just that they give higher LTVs than magneted? Because just playing fair competition cannot really affect strong and inference players like us. So just wanted to know that is there an element of unfairness in the game people are being very aggressive because most new entrants often make that mistake.

Yes, [ Digant ], very, very tricky question, but what I will answer to you is most of the existing and old players who have been in this business for a long time. and who's been in the gold loan industry for 8 to 10 years and who've been operating will play fairly. And we'll do according to what is right as far as the regulation is concerned, and the other things are concerned. I can't talk about the others. But as far as the existing are because they've seen what happens when you do that, the industry has been there for some time. Five years ago, 6 years ago, it went through a yield cycle. So there are consequences for that. So the existing players know this, and they know these particular practices what it leads to.

And then last question is, we have done fantastic on the operating leverage front, it's been going down for each of the last 4 quarters, the cost to assets or cost to income. So just on there is more juice left or like should we stop here and probably increase more branches to capture more areas of gold loans? Or how are we thinking on this?

So definitely, there is a double work happening. So we are not stopping our focus on expanding our gold loan branches. If you see, we've done about 75 in the next quarter, you will see us pushing for a 100 branch number in the Q4. Again, we'll put for more number -- so as far as branch is concerned, it is not constrained by the cost to OpEx ratio. That is a number which we will continue to do because we believe that the gold loan business is a business which requires that distribution muscle, and we will do that through our branches. Secondly, we are 1 of the few companies which believes that our [ Estela ] business and gold loan business go hand-in-hand. You also are aware that last quarter, Jagdish is handling both the [ SDL ] business and gold business. So he is pushing both these businesses through these branches. So that increases our distribution muscle. So we are bullish on the branches. Our branches are not just [indiscernible] We are not making announcement that we will be putting so many branches. We are making announcement that we have already put these many branches, and those are the branches which have started giving us business. So there will be no constraint on putting money behind branches. As far as the OpEx ratio is concerned, we will continue our trajectory of reducing OpEx on the other side. Like, for example, if I'm telling you that Jagadesh is going to head both the verticals, he will try and optimize both these verticals to see where the benefit is going to come. He is going to push for certain verticals where the gold loan business will aid our small ticket lab business. And those are the synergies which will help us. In the past 2 years, we have shaved off a lot of costs, which have given us the value add. Going forward, we will continue on that trajectory. And when we are trying to guide to a particular Directionally, you know that we are targeting a pre ROA. And in spite of the yield pressure, we will try and leverage through the OpEx ratio and the credit cost to reach that pre ROA. So there is definitely within the company a heightened focus on reducing the OpEx, which is non-branch investment related and trying to use it as a lever to ensure that we get the money to put the branch OpEx.

[Operator Instructions] The next question comes from the line of Pavan Kumar with Edelweiss public alternatives..

Thanks for the opportunity. Congrats on the good numbers. One a couple of questions. On the yield front, right, particularly on the ST lab, we have seen over the last 5, 6 quarters, the yields have gone down from 16.1% to 14.9%, the origination of [ SD ] LAP. So it's kind of matching with the rate cut cycle. But how much of it is rate cuts? And how much of it is competition led. And as we are going into the rate hike cycle? How much we can expect the yields will go up? That's one question. Second question, there's a meaningful increase in the [ ST ] LAP disbursements you have kind of alluded in the earlier questions also, How can we -- what are the kind of numbers we can think about in H2 for the [ ST ] LAP pickup? Yes, those two.

Thank you, Pawan. Definitely, you will see us putting a good set of numbers on the AST LAP side. I can't give you a definite guidance, but I can tell you so much that it will be amongst the last 8 or 9 quarters, it will be the best quarter compared to the last 8 or 9 quarters. Secondly, as far as the yields are concerned on the small ticket LAP side, I agree with you. what you are pointing out, but you will see that trajectory also changing because it's not only about the ticket size, as I told you, there were -- we operate different -- see, we operate in about 6 states on a major basis and about 17 states otherwise. So 6 states contribute majorly to the small ticket LAP business. And some states we operate -- in each state we operate different yields because these are markets which determine that. So 1 or 2 state compositions increase in a particular disbursal in a particular quarter, the yield has changed that way. The last 4 quarters, we were getting out of the woods in terms of the quality as well as we were putting guardrails and we were changing the manpower and all that. That is where the yield has gone. But you will definitely see a different yield trajectory in Q3. Definitely, it will be more than Q2 as well as the disbursals will be more. So both you will see -- we will definitely live up to your expectations in Q3.

The next question comes from the line of Meghna Luthra with InCred Equities.

A few questions, one is on the borrowing piece. Can you please help with what proportion of our borrowing book is floating and fixed? And within bank borrowings, what is linked to repo and MCLR?

Yes. Thank you, Meghna for that question. our fixed rate borrowings are 33% of our total borrowing, right? Of the balance, 67%, 24% is MCLR-linked. So the residual is only EBLR linked, right? And so that gives us, we believe, some insulation against transmission. Also what also helps us that majority of our book, about 58% of the loan book is very small tenor gold loans, which means that there is an opportunity to reprice them on maturity. So technically, they are fixed [indiscernible]. So as I said, the whole attempt over the last 8, 9 quarters, what you see in terms of the ROA and ROE expansion is not by accident. It is by design. We have very painfully built a lot of resilience across each of the parameters and even the mix in borrowings reflects a certain element of resilience there. Obviously, there will be headwinds. We will watch it. We have some levers we will evaluate them, yes.

Got it. So is it fair to assume that any sort of compression on the cost of funds will be easily passed off and you should not see any robust compassion quarter?

No. So no, I think the way -- I will rephrase that is after 8 quarters of ROA and ROE expansion, we wouldn't want to show you a different trajectory. So I will just allow us to play with our levers without holding on to any. We will play in the respective markets, as Parvez said, depending on -- so if -- so we would not want to be bound down by any particular line item in the [indiscernible]. If there is a NIM compression, we will handle it by enhancing some other operating levers.