Home First Finance Company India Limited (HOMEFIRST.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Home First Finance Company India Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Deepak Khetan, Head, Investor Relations of Home First Finance Company India Limited. Thank you, and over to you, sir.

Thank you, Rio. Good afternoon, ladies and gentlemen. Welcome to Home First Finance Company's earnings conference call to discuss the financial results for the quarter ended June 30, 2025. We hope you have had the chance to review our investor presentation and press release, both of which are available on our website and the stock exchanges. As per our practice, we have also uploaded an excel sheet containing historical data on our website for your easy reference. From the management, we have with us today, Mr. Manoj Viswanathan, Managing Director and Chief Executive Officer; and Ms. Nutan Gaba Patwari, Chief Financial Officer. With that, I now invite Manoj to share his insight on overall performance. Over to you, sir.

Thank you, Deepak. Good afternoon, everyone, and thank you for joining us today. Quarter 1 FY '26 was marked by 2 important events in our history. First, we raised INR 1,250 crores through our first QIP, which has significantly increased our net worth and further strengthened our capital base. Also, our long-term credit rating was upgraded to AA stable by ICRA, India Ratings and CARE. Both these events further enhance our ability to build a strong and large housing finance franchise. Now let me walk you through quarter 1 FY '26 highlights. AUM growth remained strong, growing at 28.6% year-on-year and 6% quarter-on-quarter to reach INR 13,479 crores. Disbursements for the quarter stood at INR 1,243 crores, which was the second highest in our history. The previous highest was in quarter 4 FY '25, which is seasonally a strong quarter. Disbursements in April was slower than expected. However, May onwards, we are moving on expected lines. The shortfall of about INR 50 crores will be covered in H2 of the year. Our disbursal guidance for FY '26 remains in the range of INR 5,600 crores to INR 5,800 crores. We have grown strongly in Madhya Pradesh, Maharashtra and Gujarat. Growth in Tamil Nadu and Telangana, which are 2 other large markets was muted in quarter 1. However, we are confident of a rebound in these regions in the rest of the year. Home First branch expansion strategy is based on a contiguous expansion into large and high-density affordable housing finance markets. During the quarter, we added 3 new physical branches, taking the total to 158 branches as of 30th June 2025. We added 75 employees during the quarter, taking the total employee strength to 1,709 as of June '25. We intend to add 6 new branches in quarter 2. Our origination market share in the 5 to 25 lakh ticket size in the locations we are present in based on bureau data has gone up from 1.5% in FY '22 to 2.3% in FY '25. We continue to retain a strong origination yield of 13.4% despite an 84% share of individual housing loans. This is a significant growth lever at our disposal in a falling interest rate environment. Asset quality saw a seasonal uptick in 1 plus DPD and 30-plus DPD. However, we expect the numbers to normalize over the next 2 quarters. 1 plus DPD is at 5.4%, up by 90 basis points on a quarter-on-quarter basis. 30-plus DPD is at 3.5%, up by 50 basis points on a quarter-on-quarter basis. Gross Stage 3 is at 1.8%, up by 10 basis points on a quarter-on-quarter basis. The above seasonal uptick was more pronounced in 2 regions, Surat and Coimbatore and Tiruppur. We have already seen a turnaround in Surat in July. We are expecting Coimbatore also to be resolved in the next few months. Our credit cost is at 40 basis points. We continue to maintain a credit cost guidance of 30 to 40 basis points, ensuring disciplined risk management even as we scale. Technology remains central to our execution and continues to give us competitive edge. Home First embarked on the journey of exploring AI/ML technologies more than 5 years ago. In quarter 1, we launched Pulse, which is an omnichannel conversational AI platform, which enables integrated customer conversations across various channels like voice, WhatsApp, SMS, e-mail, et cetera. It is functional in 7 Indian languages and uses AI to facilitate business process flows and provides actionable insights through advanced transcription and analytics. Pulse use cases span across lead generation, customer verification, underwriting, collections and customer service. During the quarter, we also went live with our internally developed enterprise-grade document management system and treasury management system. The core benefit of developing these applications in-house is that these are tailor-made to suit our business flows. And more importantly, we remain agile to adapt to changing business requirements. Digital adoption continues to be strong and a key area of our focus as we grow. 78% of our approvals in quarter 1 were facilitated by the account aggregator framework. More than 80% of our loans are digitally fulfilled through agreements and E-NACH mandates. And 96% of our customers are registered on our mobile app with 88% of service requests now raised digitally. During quarter 1, we got 70 additional green home certified, taking the total to 190. Our efforts and dedication towards responsible and sustainable financing are evident from our ESG scores. During the quarter, Morningstar Sustainalytics has reaffirmed our low-risk ESG rating. SES ESG Research has assigned a score of 80.8 in 2025 versus 78.9 in 2024. And CRISIL has assigned a score of 64, up from 63, implying strong rating. I would like to share a quick update on the PMAY 2 scheme. I'm happy to share that 7 customers have already received the first tranche of subsidy with another 7 approved and awaiting funds. We expect the scheme to pick up traction with increasing customer awareness and streamlining of the process. With recent cuts in policy rates and the government's continued focus on CapEx growth, increasing disposable income and housing for all, we remain confident of a strong demand for housing and housing finance. Given our strong and unique business model, we are well positioned to harness this multi-decade growth opportunity. With that, I now hand it over to Nutan to take you through the financials in more detail. Over to you, Nutan.

Thank you, Manoj. Good afternoon, everyone. Let us start with the key financial metrics. Total income for the quarter stood at INR 455 crores, up by 33.4% Y-o-Y and 9.4% Q-o-Q. For Q1, our spreads, excluding co-lending was 5.1%. Cost of borrowing, excluding co-lending maintained at 8.4%. Disbursement yields were at 13.4%, in line with 13.3% in Q4 FY '25. Net interest margin for Q1 was 5.2%, up from 5.1% in the previous quarter. Cost to income at 32 -- apologies, 34.2% in Q1 decreased 150 basis points on a Q-o-Q basis. Operating expenses to assets was at 2.7% for the quarter, in line with our expectations. We expect this ratio to remain range bound within 2.6% to 2.7% as we focus on growth and expansion. Our profit after tax increased to INR 119 crores, up by 35.5% Y-o-Y and 13.6% Q-o-Q with return on assets of 3.7% and return on equity of 14.9%. Pro forma pre-money ROE adjusted for QIP for Q1 was at 16.6%. Moving to provisions and asset quality. Credit cost for Q1 stood at 40 basis points. We continue to maintain our annual credit cost guidance of 30 to 40 basis points. We continue to adopt a conservative approach to provisioning, maintaining a provision overlay over and above ECL requirements. As of June '25, our total provision coverage is 43.1%. Moving to balance sheet and capital position. Our borrowing profile continues to be well diversified and cost effective, reflecting our prudent financial management. 60% of borrowings come from private and public banks, 16% from NHB, 19% from assignment and co-lending and balance from NCBs, ECB and NBFCs. During Q1, we executed direct assignment transaction worth INR 184 crores. Our disbursement on the co-lending increased by 87.5% Y-o-Y and 43.3% Q-o-Q to INR 78 crores for Q1, taking the co-lending book to INR 434 crores or 3.2% of the total AUM. Co-lending will continue to be an important part of our strategy to strengthen our ability to cater to higher ticket size segments. We aim to take co-lending contribution to 10% of disbursements as we scale. Our Q1 reported cost of borrowing is competitive at 8.4%, excluding co-lending, enabling us to maintain healthy spreads. With the recent rate cuts and an improved long-term rating, we expect the cost of borrowing to improve in Q2. Our June and July marginal cost of borrowing is sub 8%, giving us significant confidence that we can deliver benefit in COGS in the next 2 quarters. Coming to capital adequacy and liquidity. Our capital adequacy ratio as of June '25 stands at 49.6% with Tier 1 at 49.2%. Our net worth stands at INR 3,855 crores, up by 76.2% Y-o-Y and 52.9% Q-o-Q. Book value per share as of June '25 is INR 373. Our strong balance sheet with high capital base underlines our readiness to take on the growth ambitions of the company. With that, we conclude our opening remarks and are now happy to take your questions.

[Operator Instructions] first question is from Suraj Das from Sundaram Mutual Fund.

Sir, the question is on disbursement. This quarter disbursement has been weak. I think you called out a couple of places where probably there was seasonal impact. But sir, if I look at your guidance and what effectively you were saying is that over the next 9 months, the disbursement growth will be something like 24%, 25% on a Y-o-Y basis. But if I look at your disbursement this year -- this quarter, it has been only 7%. And even if I, let's say, adjust for the co-lending business, it is hardly 4%, 4%, 5%. So sir, I mean, the question is in terms of disbursement, what are the challenges? I mean, in your couple of geography also, not only the ones that you have called out for, but also, let us say, in UP and Uttarakhand, I think the AUM growth is slowing down and all that thing. So if you can give us more color in terms of disbursement and then what has been the pain point for this quarter and how you are planning it? If you can give us a bit more color on that?

So as I mentioned, disbursement only in April was slower than expected number. So I think just the year opened on a slower note. See, generally, Q1 has a lower -- much lower number than the industry compared to Q4. Till now, we have always been slightly above, if you -- except for last year where we were about 5% higher than Q1 -- Q4. If you see previous years, that is '24 over '23, '23 over '22, et cetera, you will see that we are just 1% or 2% higher than Q4 in Q1. So generally, it is a seasonally low quarter. Other than that, frankly speaking, yes, April was slightly slower than expected. That's why I said there's a INR 40 crores, INR 50 crores kind of difference than what we expected. But otherwise, May onwards, we are moving on expected lines only, in line with what we have planned for the year, which is about INR 5,600 crores to INR 5,800 crores of disbursal. If you see our history also in the past, there have been -- if you see FY '23, for example, quarter 1 was low, but then quarter 2, quarter 3, there was a jump or rather quarter 3, quarter 4, there was a jump. So you'll have to look at it through the year. Other than that, actually, there is nothing additional to add. As I mentioned, in Tamil Nadu and Telangana, there were 2 large markets again, the Q1 was a little muted, which is why we kind of came lower than expected. But this trend is likely to get corrected, and we should be on -- moving on expected lines in the future. There is nothing structurally which is difficulty in disbursements or anything which we are seeing on the ground.

Okay, sure. And sir, if I may ask, what was your April disbursement this year versus historical run rate? I mean if the April was slower, is it meaningfully slower?

Yes. I mean it was lower than what we expected. So we -- first quarter, we had to -- we were looking at maintaining about close to between INR 430 crores to INR 450 crores kind of a run rate, but April alone came a bit lower. So I think it was around INR 380 crores. So that about INR 40 crores to INR 50 crores of difference came in April itself. We caught up in May -- May and June, we caught up, but then -- and even July, the trends are good. So I think it was just a blip in April.

Okay. Sure. And one last question from my side, sir, in terms of asset quality, again, I mean, partly seasonal, I can understand. But again, this quarter, if I see the gross increase in Stage 2, Stage 3 plus write-off, that number has been quite elevated. Is it the new branches that you have opened over the last 1 or 2 years that is getting matured and hence, you are seeing the pain now or what it is? Or do you think there is only seasonal?

See, there is -- see, seasonally, there is a 30, 40 basis points impact in general. So that's why I've also called out that other than the seasonal, we had a couple of markets where we had more than the seasonal impact generally that we see in quarter 1, which was Surat and Tiruppur. I mean these are markets which employ a large number of people. And I think a little bit of the sluggishness in the economy and the credit squeeze in the economy has led to a little higher than normal uptick in delinquency, but by the same token. I mean these are basically people who get employed in factories, et cetera. So they end up catching up in a couple of months. So they were not able to pay in June, for example. But in July, now when -- for example, in Surat, we are seeing a turnaround. So a lot of the -- many of the people who did not pay in June are now paying 2, 2 installments in July, for example. So it's just something that we feel is under control.

Okay. Sure. And sir, on a full year credit cost basis, what kind of credit cost you are expecting this quarter -- this year for the full year?

30 to 40 basis points is what we have always mentioned because there are always ups and downs in this business. So 30 to 40 basis points, we should be in that range only, not expecting higher than that.

Next question is from Renish from ICICI.

Sir, just 2, 3 things from my side. Obviously, sorry to coming back to the disbursement front. So when we look at in absolute terms, obviously, it is hovering around INR 1,150 crores to INR 1,250 crores despite we adding 25 new branches, adding more than 400 people in past 1 year. So obviously, the scale up is sort of below the expectation. And what gives you that confidence that we'll catch up this lower disbursement in April, in, let's say, May, June, July because 2 things. So obviously, Coimbatore, Tiruppur, you said will take some time for a full recovery. And also, I don't know what's your view on Karnataka and Telangana. But what are the feedbacks you are getting from the ground, which gives you that confidence that we'll be able to sort of recover this loss disbursement in April?

So 2 things. One is that, as I mentioned, May and June were normal in terms of what we expected. So since we bounced back in May and June and even in July until hit whatever numbers we have. So that gives us the confidence that this was -- April was a temporary blip. So April, if we had -- for example, in April, let's say, we had clocked the same number as May, then I think we would not be having this conversation probably, but it was much shorter. I mean it's -- like I said, it was only INR 380 crores. So that was -- so that is what gives us the confidence that 3 months in a row, we have been able to move in a different -- I mean, move as expected. So there is no structural issue or anything like that. That is one. And secondly, if we look at the overall industry, we saw -- I mean, we've also compared ourselves -- our quarter 1 with the rest of the industry. So in fact, in full year FY '25 as well as quarter 1 versus quarter 4, if we compare ourselves with some of our peers or other larger industry, the drop has been much more substantial. So which is -- so in our case, it was a 2% drop compared to quarter which we accept is not something that we expected. We were expecting a 2%, 3% increase on quarter 4. But if you look at overall industry, the industry drop is even more -- it's much more substantial than us. So that's what gives us the confidence that -- so we are much better off and we are -- anyway, we have already corrected that trend in May, June and July. So that is what gives us the confidence that we should be able to meet our overall year numbers.

Got it. And sir, would you like to share your July disbursement number?

July disbursement number is -- I mean, we are still 5 days away from month end. So it will be difficult to share that number.

Okay. Okay. Sir, secondly, on this small ticket LAP piece. So obviously, we are hearing multiple players highlighting stress in this portfolio. And of late, we have been sort of scaling up this book aggressively in recent past. So what's your sense on this LAP book? And would you want to continue this growth path in this product given the current scenario?

So in LAP, our -- see, we have not -- we have always been very picky about what we are picking up in LAP, what we are onboarding in LAP because we never had a pressure to grow that book. And a large -- I mean -- and it is anyway not a large contributor to our overall growth. So we are not feeling worried about the LAP portfolio as such because -- and it is actually not giving us any additional stress in spite of all the noise in the market. So I see -- because the contribution to disbursement is only about 16% or 17%. 80% plus is still coming from individual housing loans. So which is why we are not worried about the LAP portfolio.

Okay. And have you sort of analyzed your stock in LAP, I mean, in terms of, let's say, number of customers having more than 3 loans? Or any data would you like to share which can sort of give us some comfort on the health of this portfolio currently?

Yes, we have done that. So we did it a few months ago. And I think at the time, the discussion was more around MFI business and how it impacts, et cetera. So we did a mapping of whether our customers are MFI customers. So we only found about 1%-odd overlap of our customers with the MFI segment. As far as other loans are concerned, there has always been an overlap. I mean if you see the bureau penetration of our portfolio, it is 85% so -- which means 85% of the customers are already coming to us with some kind of a bureau score, which they must have obtained because they already have some kind of small ticket loan, which they have borrowed. So that has always been there, and that number is only increasing every day. So that 85% -- I mean because that's almost the entire portfolio. So difficult to say what is impacting, not impacting. Maybe like I said, in some of these markets like Surat, Tiruppur, et cetera, where the -- where we are dealing with lower income category people, like people like factory workers, et cetera, there is probably some impact of that, but it is very so little that difficult for us to attribute everything to that.

Got it. Got it. And just a last data keeping question, maybe for Nutan. So what's the realized yield under co-lending and also yields for loan in more than INR 25 lakh ticket size, which is 14% of AUM?

Realized yield on co-lending will be just around 10%. That is what basically price to the borrowers. What we end up earning is much more if you go through the unit economics principle, but essentially what we charge to the borrower is about 10%. And what was your second question?

Yields for loans in more than INR 25 lakh ticket size, which is 14% of AUM?

About 50 to 75 basis points lower. So around, let's say, 12%.

Next question is from Abhijit Tibrewal from Motilal Oswal.

First thing, I just want to understand this increase in 1 plus DPD that we saw about 90 basis points Q-o-Q. For us as well, was the slippage much more pronounced in the month of April and then in the months of May and June, things kept getting better? Or is that the case for us as well?

The slippage was high in April, yes. In May, we kind of pulled back. Then there was some slippage in June as well.

Got it. And July, again, the same thing, I mean, trending along similar lines as June? Or is there a recovery?

July is much better than June. I mean it's much better than May also.

Got it. Got it. And you've already spelled that out, but all I'm trying to understand is what the industry saw in the month of April was a little unusual of sorts. And to be honest, there's not too much of an explanation of why that happened in April. I'm talking at the industry level so as for us. In your view, is it just macro weakness, tightness in customer cash flows, which is resulting into this? Or is it something else?

So there would have been some collection -- I mean, some weakness at the customer level. But at least internally, I think it was the collection efficiency reduction as well, just our inability to collect from these customers in April for various reasons. So customers being on leave, employees being on leave, a bit of collect -- I mean, it's basically a collection efficiency issue. I don't think there was any -- I mean, there would have been marginal difficulty that customers faced because if the entire industry has faced something that probably there was some marginal difficulty that customers face. But that was, I think, more of unavailability of customers, fewer employees on the job and so on.

Got it. And then the second question I had was around Karnataka. Manoj, just trying to understand, we all know because of e-Khata issues, things have been weak -- the momentum has been weak in Karnataka. So just trying to understand, I mean, Karnataka is not among our top 5 markets. And despite that, I mean, I see the growth that we are seeing in Karnataka for the last 3, 4 quarters, right, that has been weaker than our top 5 markets.

Correct.

So if you could just help us understand what's happening in Karnataka on the ground? And when are we expecting things to recover in Karnataka?

See, Karnataka is -- there are multiple issues in Karnataka. One is, of course, that we are concentrated more in Bangalore. I mean almost our entire business comes from Bangalore, right -- Bangalore and surrounding areas. I mean we don't have an extensive distribution across Karnataka. And secondly, just the e-Khata issues there, which has impacted our volumes over the last, I think, 3 quarters now. Not getting -- I mean, it's not -- still not resolved. That process is slow. And of course, the whole -- the employee dynamics in Bangalore are also very, very different compared to rest of India. So I think all of these factors are there, which is why it is not one of our key markets. So -- I mean, we will probably get better bang for the buck in many of the other markets. So we have to solve these things one by one. It will take some time for these things to get resolved. I mean, of course, if the e-Khata gets resolved, the numbers will come back because we have a strong presence in Bangalore. But in terms of distribution across the state, et cetera, those are things that we need to -- it's more long term and we need to solve for that.

Got it. And Manoj last question for you, while you said long term. So that reminds me, I mean, if you could just speak a little bit about what's our market share like today? Over the next maybe 3 to 4 years, what's our aspiration like in terms of market share? And if you could just also briefly speak about geographies that you will be focusing on? I understand for the last 2 years, right, we've been talking about some newer geographies that we've been focusing on in the last couple of years. So if you could just briefly speak about some of our market share aspirations. And within that, I mean, large part of it, where will they come from?

Yes. So market share -- as I mentioned on the call, our market share, if you see over the last 3-year period, this wasn't market share -- origination market share. It's gone up from 1.5% in FY '22 to 2.3% now in FY '25. So there is a market share gain. And our ambition is to take this number to closer to 5%, say, in the next 4 to 5 years. And in terms of markets, so last year, if you remember, we spoke about kind of focusing on newer markets like our MP, Rajasthan, UP, Uttarakhand. So out of those 4 markets, we have had a reasonable success in Uttarakhand, Rajasthan and MP or had a very good success in these 3 markets. As far as UP is concerned, we have -- we anyway did not go as aggressively as the other 3 because UP is a large market, very -- still a little more rural than the other markets. So we have been cautiously expanding distribution in UP. So we will continue to do that. So probably we will see more action in UP over the next maybe 2 to 3 years rather than immediately. But in MP and Rajasthan, you can see that our share of those -- AUM share of those states have gone up, and they have become fairly significant markets for us now. As far as other markets are concerned, we again did a good turnaround in Maharashtra. Maharashtra, if you see a couple of years ago, the AUM share of Maharashtra was reducing, but now it's again started turning around and the AUM share is increasing. It is a very large market, and it is becoming significant for us now. And Tamil Nadu and Telangana, we had some issues over the last 2 quarters in terms of leadership, et cetera -- in terms of people, leadership team and so on, which we have now rectified. So this year, we should definitely see an uptick in those markets. So these are going to -- these are the largest markets. So Gujarat, Maharashtra, Tamil Nadu, Andhra and Telangana put together and MP. And these are our largest markets, followed by Rajasthan. And then, of course, we will -- we have Chhattisgarh. We have UP, Uttarakhand, which are smaller for us and Karnataka.

Got it Manoj. And one last question for Nutan. I mean just looking at your borrowing mix, right, we are increasing our borrowings from public banks now versus the private banks. So if you could just help us understand a little bit about are we getting lower cost borrowings from public banks, which is where that inclination to borrow from public banks? Or how should we think about this?

Yes. So essentially, it's a function of where the draw down is happening on that particular quarter. We did the large draw down from SBI in quarter 1. That is why if you see the public banks have gone up from 34% to 36%. As a strategy, we are kind of not very choosy between a public sector bank or a private sector bank. If I were to lay down top 1, 2, 3, the first thing that we focus on is tenor. And second is diversification, third is pricing. And second and third, probably depending on the market situation can be either way. But tenor is sacrosanct for us. We don't do short-term borrowing below 5 years. We don't do that. So when you consider that, depending on where we are getting all these 3 rights, we will borrow and draw down essentially depends on what time period we get to draw down depending on the capital charge and so on. This particular quarter, we have drawn down from SBI and last quarter also it was SBI. And now we have completed that large line. So now you will see some expansion in the private bank line. So it will keep interchanging really speaking.

Got it. But the pricing is broadly the same, be it private or public?

Yes. The benchmark for the pricing could be different, but the landed cost is broadly the same.

Next question is from Chandrasekhar from Fidelity.

I had a few questions. Manoj, I think over a period of time, the productivity metrics on a per employee basis have actually come down a little bit. I mean, maybe you want to spend some time on where you're deploying people? Are you beefing up some more of the back end? Or is there a reason why the productivity has come down just because you've added a lot of branches? That's question one. Second is on spreads, given that we've had the rating upgrade. What is it -- I mean, in the previous cycle when rates went down, we did see a brief period of spread expansion because you said the customers weren't particularly sensitive. But I noticed you've done, I think, a 35 bps cut from August -- starting August. So how should we just think of spread more near term in that context and more over the longer term? And in Maharashtra, just take us through -- I mean, what's happening because it's very -- pretty much a sharp jump, which has happened in any markets there? And then lastly, just on early delinquencies, obviously, has been inching up. Do you -- from the commentary, you said, do you sense that, that's topped out and then coming off over the course of this year?

Yes. Thanks, Chandra. So on the productivity side, see, it has been -- productivity has been fairly constant. So if you're just referring to probably quarter 1 -- dip in quarter 1, it is because, again -- because of the dip in numbers. So in quarter 1...

No, this is more over a period of time, not specifically just -- I understand quarter 1 is a little seasonal, but I mean, we used to have disbursals per employee for the quarter of INR 75 lakhs, INR 80 lakhs. It's down to INR 70 lakhs, INR 73 lakhs. I mean that's not moved up despite sort of ticket sizes over a period of time coming sort of case -- INR 75 lakhs down to INR 72 lakhs. So it's just some...

You're talking about the AUM per employee, I think, if I'm not mistaken.

Yes, the cases -- the outstanding cases per employee are a little lower now. Disbursals per employee are a little lower now. That's been a sort of trend over a period of time, not specifically one quarter related.

So yes. So disbursement per employee, see, largely we benchmark of about INR 3 crores to INR 3.5 crores a year, which is broadly we are in the same ballpark, except that 1 or 2 quarters when the employees join. Like quarter 4 and quarter 1 is when large number of employees join and the employee count goes up. So at that time -- and the volume is also correspondingly lower. So at that time, there is a slight reduction. But I think it should broadly be in that range of about INR 3 crores, INR 3.5 crores per employee per year. So we are not seeing that going down. We will continue to maintain it at those levels. And as far as spread is concerned, again, as I mentioned on the call, we have actually tried to maintain the yield at about 13.4% in spite of the overall reduction -- reducing trend in interest rates. So that is one lever that we have with us, and we can kind of use that to build up disbursals as we go forward. As we start seeing the transmission and as we start seeing the cost of borrowing coming down, we can actually use that to build up volumes. So we have not actually reduced the -- done any repricing as of now. I think I heard you mention 35 basis points...

Yes, this is August last year. Sorry, that's my mistake, sorry.

Yes. So we have not done that. So we still have those levers with us. We can use -- especially on the origination side, if you see last quarter also, we maintained the origination yield of about 13.4%. So that is a lever -- a strong lever that we have with us, which we can use to build up volumes going forward. On Maharashtra, yes, there has been definitely a turnaround. So last year -- last 2 years, we were working on building the team -- rebuilding the team, getting our positioning in the market, et cetera. So those things have worked well. And we are now, again, at a 20% to 30% kind of -- I think a 30% AUM growth in Maharashtra, I mean, which used to be much lower earlier since a couple of years ago. So I think last year, I mean -- so we managed to get into that 30-plus percentage of AUM growth in Maharashtra. So similarly -- which is why we are -- I mean, Maharashtra is one of the tough markets where Bombay and Pune are really very formal markets with large players, et cetera. And here, if we have managed to turn this around and get to a 30% plus kind of an AUM growth, that gives us a lot of confidence that we can kind of do the same kind of business and same kind of turnaround in some of the other markets where there is some slowdown. On the delinquency side, I think which was your fourth point, yes, quarter 1 always is -- the delinquency goes a little higher, but except in 1 or 2 markets where we saw more than the seasonal uptick. But then the good news is that in July, for example, in Surat, we have had -- we are seeing a good pullback. Like I said, a lot of customers are making good the payment, which they missed in June also. So we don't feel worried at all about that uptick. We should be able to pull back on that.

Next question is from Amit Ganatra from Invesco.

Yes. question is for Nutan. Your cost of borrowings quarter-on-quarter is almost same. From when should you start getting some benefit of your rating upgrade as well as the general interest rate cuts?

Right. So Amit, if you see it's flat quarter-on-quarter. June and July, our marginal cost of borrowing is below 8%. And I'm expecting quarter 2 reported cost of borrowing to be 20 basis points lower. So we should start seeing that benefit. And hopefully, by Q4, this 8.4% should be more like 8%.

Okay. But this is largely on account of general interest rate cut? Or is there any extra benefit that you are now getting on account of rating upgrade?

See, the spreads have reduced. When we are negotiating with the banks, the spread that used to get added has started to come down by 15 to 20 basis points. But of course, the overall rate cycle has also come down. So it does get mixed up to some extent. So having a proper bifurcation, which is, let's say, auditable will be very difficult.

The only thing is that shouldn't your cost of borrowing improve more than just general interest rate cuts? Or is it that your hunger is so high in the sense that you are still growing fast. So that -- and anyways, you mentioned that it's a tenure and then you mentioned one more thing and then pricing is the last thing that you guys look at?

Right. So Amit, the thing is that I don't -- the issue is not the size of borrowing that we are looking to do either this year or next year. We are small in the relative scheme of things. But what happens is that the benchmark for each of the lines that we draw down, for example, ranges between repo, T-bill to a 3-month MCLR all the way to a 12-month MCLR. And let's say, if you're working with a large public sector bank, they will stick to an MCLR-based pricing only. And then the lowest MCLR is a 1 month. Versus a private sector bank, depending on which bank you may be referring to, you can focus on a repo-based pricing also. And ultimately, what boils down to is today's landed cost. But what gets reported is if I have done a transaction, let's say, 6 months out and the MCLR has not moved down, though the overall policy rate has moved down and G-Sec has moved down, so it takes time. So the only bank that has taken down the MCLR meaningfully today is SBI. Nobody else has done that. So transition takes time. What we are trying -- ensuring is that our marginal cost of borrowing is below it.

Okay. And have you done any corresponding actions on the yield side?

Not yet. So what we had discussed to date is that we will first want to see the cost of borrowing line go down and then take the call. So we have passed that decision for either middle of Q3 or early Q4. So Q2, we are not looking to make any changes.

Okay. And lastly, your generally disbursement to some extent, slowing down was there. It's not only this quarter, it has been there for more than 1 quarter now. So just one question there that is it on account of rising competitive intensity? Or is it on account of -- so you mentioned a couple of markets. So -- or is it only very, very geography based? Or is it on account of higher rejections at your end because asset quality basically is also important. So -- and what would be the reasons that one can attribute?

So Amit, I think other than April, frankly, we don't see it as a disbursement slowdown because last year, I think this discussion again came up because in Q1, we had grown quite aggressively. And then Q2 and Q3, we kind of just consolidated. So there were questions around why the disbursal is kind of flattish across Q2, Q3, but that was more intentional in some ways. And then Q4, again, we saw a decent jump, almost 10% on Q3. So followed by -- I think April was the only disappointing month, if you ask us internally. Otherwise, May, June, July, are going as we have planned. So we don't see it as a stress on disbursement or difficulty in disbursement.

Next question is from Anand Bhavnani from WO.

Two questions. One is if you can tell us approximately what percentage of our disbursement in the last 1 year would be to under construction apartments under the CLP, construction-linked plan, framework?

So under construction on the AUM is -- generally around 12% to 14% is generally under construction. As you can see from the chart, which shows the pre-EMI versus EMI. Tell you the chart number. Yes, Page #14. So we show this under construction risk in this Page 14. So 13% is under construction, which is in pre-EMI mode, where customers are still not fully -- I mean, the loan is fully not fully disbursed. And 87% of the AUM is fully disbursed.

And second, when I look at the payment rates, it seems our payment rate has come down in a sense that maybe the BT out has come down in this particular quarter. Anything that you can share with us, which explains this trend?

It's a Q1 phenomenon, Anand...

Yes, Q1, to some extent, the overall industry is not as aggressive as Q4. So the BT out rate comes down a little bit.

Next question is from Nidhesh Jain from Investec.

First question again is on growth. So if I do numbers to deliver 20% disbursement growth for the full year, we have to do INR 500 crores disbursement per month from here onwards. And my sense is that we did around INR 430 crores, INR 440 crores disbursement in May and June. So how do you plan to increase the disbursement run rate to INR 500 crores per month?

Yes. So basically, that requires us to have 2 quarters where we have maybe a 7% to 10% kind of a growth rate on previous quarter, which we have done in the past. And now the organization is much larger with much wider distribution. So getting that additional INR 40 crores, INR 50 crores, we don't see it as a big challenge, especially in a falling interest rate environment. So I think broadly, what we are saying is that this quarter, we do about INR 1,350 crores kind of a number. Then next quarter, we do about like INR 1,450 crores and then INR 1,550 kind of a number. We should get there ballpark.

Okay. And secondly, so since our RM looks after collection as well as disbursement sourcing, so when 1 DPD increases, the load on the RM for follow-up, et cetera, will also increase. So in that context, how do you plan the bandwidth of the RM? And how many cases does the RM handle on collections? And so to make sure that our sourcing engine remains intact, how do we plan the bandwidth for the RM?

So bandwidth for the RM -- so RM is expected to deliver about 5 loans in a month, which translates into about INR 50 lakhs, INR 60 lakhs of disbursal. So that's on the disbursal side. And then on the collection side, they generally handle about 15 to 20 overdue customers. So that number has been kind of static over time. So we don't see -- I mean, we don't see -- we don't actually see a bandwidth problem for the employees. Plus a lot of tools have been made available over a period of time, like there is e-signature process, the electronic -- I mean, payments through UPI. So actual effort has actually diminished, which is why the bandwidth is available for them to do the activity. So when I say 20 customers, who are overdue, is allocated to a relationship manager. Typically, if I call those customers on phone, out of 20, about 10 would make a payment without any physical visit. So I just need to send them a link and they will make the payment through UPI, et cetera. So effectively, I'm left with only 10 customers whom I have to visit to convince them to pay. Bandwidth has never been an issue.

Sure. And third question is on 1 plus DPD. So is it a regional problem? You mentioned Surat a couple of times. So is it more confined to Surat where we have seen this 1 DPD rise or it's -- we are seeing it across geographies?

So I mentioned the 2 regions where there was a more significant increase. So out of the total, let's say, 16 or 17 regions that we have carved the country into, there were about 5 to 6 regions where there was a more than normal uptick in April and June. Out of these 5 to 6 regions, there were 2 regions which were more pronounced, which is Surat and this Coimbatore, Tiruppur. The remaining 10 regions, frankly, the numbers were very benign. I mean, there was no uptick at all.

Okay. Okay. And there also, we are now seeing improvement in the month of July? Is what...

That's right. That's right. In July, there's a substantial improvement in Surat.

And in other geographies as well, right, Coimbatore and Tiruppur?

Coimbatore, Tiruppur not as much as Surat, but it should improve over the next 2, 3 months.

Sure. And last question is, what is the count of active connectors for the quarter?

3,600.

3,600? That number has also tapered off. I think this number was 3,600 -- more than 3,700 in Q3 of last year. This number has also...

Q4 number was a little higher, yes, so -- which is also kind of -- I mean, it's again flows from the fact that the disbursal was lower than last quarter because this is a number -- I mean, this is directly correlated to the disbursal. So the way we calculate this number is basically connectors who have contributed to a disbursal in that quarter. So since the disbursal was 2% lower, this number is also slightly lower than last quarter.

And sir, are these connectors linked to the company or they're linked to the -- your RMs? Basically, is our business model still dependent on employees and RMs or even irrespective of the RM, these connectors will keep giving us business?

Irrespective of the RM, connectors will keep giving business because they are linked to us. I mean there's a contract signed with the company. And if an RM exits, then we know that a particular connector is -- he needs to be reallocated to a new RM. So that information is available to us. So we end up reallocating the connector and then some other RM will look after that relationship.

[Operator Instructions] The next question is from [ Boon Han Ong ] from Lion Global Investors.

I'm new to the company, but I have 2 questions. The first question is regarding the fee income. The fee income has been growing very strong. I just want to know if this growth is sustainable. This is the first question. The second one would be in terms of your cost-to-income ratio. We have seen good improvement in the recent quarter. Do we have a target in terms of our cost-to-income ratio in the near term? Yes.

So thank you for your questions. So the fee income has gone up because we have seen some mix improvement in our insurance commissions partners. Yes, it is sustainable. We had guided a few quarters back that the insurance commission will range between INR 15 crores to INR 20 crores a quarter. So we were holding to that number. So INR 15 crores to INR 20 crores is what should expect every quarter on that particular line. Cost income has gone down. What we are anchoring the conversation to is operating cost to total assets, which is at 2.7%. What we are guiding is 2.6% to 2.7% for the full year, considering that we are still investing for growth. We are also adding branches and people. So 2.6% to 2.7% is there. We are broadly focusing for the rest of the year.

Right. What about the near term? I mean, the near term, medium term, what do you expect in terms of cost income ratio?

If you take a 3-year view, a medium-term view, we should definitely go more towards 2.5%.