Jana Small Finance Bank Limited (JSFB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jana Small Finance Bank Q3 and 9 Months FY '25 Earnings Conference Call hosted by Investec Capital Services India Private Limited. [Operator Instructions] I now hand the conference over to Mr. Nidhesh Jain from Investec. Thank you, and over to you, sir.

Thank you, Steve. Good afternoon, everyone. Welcome to Q3 FY '25 Earnings Conference Call of Jana Small Finance Bank. To discuss the financial performance of Jana Small Finance Bank and to address your queries, we have the best top management team of -- from Jana Small Finance Bank. The management team is represented by Mr. Ajay Kanwal, Managing Director and Chief Executive Officer. I would now like to hand over the call to Mr. Ajay Kanwal for his opening comments. Over to you, sir.

Nidhesh, thank you very much, and welcome, everyone. Like last time, I would focus on the investor presentation we have uploaded, and I'll be referring to the pages of the investor presentation when I speak. So let me start by using Slide #3. So we had a very strong quarter 3, where both gross NPA and net NPA declined. And I would really like to -- us to go through the specific numbers with me, which is in the box. So first, regulatory provision in Q3 has come down to INR 81 crores versus INR 149 crores of Q2. And if investors, analysts who are on this call, remember what I said last time, I did say that Q2 has seen the peak of our challenges. And the drop in regulatory provision, INR 149 crores to INR 81 crores, is from that purpose. Second, we are providing extra provision so that our net NPA remains below 1%, and that is primarily due to our need to apply for a universal bank in May this year. As you all know, to apply for a universal bank, you have to meet conditions of gross NPA below 3%, net NPA below 1% for 2 years -- 2 consecutive years. We met it last year. And to make sure that we meet it this year, we'll keep providing the excellent provision. So in quarter 3, we have done that for INR 93 crores. However, if you see the net NPA has fallen to 0.91% versus 0.95% in Q2. Our PBT post the regulatory and accelerated provision is INR 105 crores, which, of course, is higher than Q2 of INR 88 crores. If you add back our deferred tax asset, which is lower in Q3 from Q2, our PAT is at INR 111 crores and INR 97 crores -- versus INR 97 crores of Q2. For people who would like to calculate what would have happened to PAT or ROA or ROE if there was no accelerated provision done by the bank, I've also given those numbers. Our adjusted PAT, just adding back accelerated provision and taking away DTA, would have been INR 204 crores, our ROA would be 2.4% and ROE would be 20.7%. So very important that we understand accelerated provision, the need for us to do it. And of course, both gross NPA and net NPA is dropping. I will show you credit cost in detail on the next page. But on the very high level, it's been a fabulous quarter with a drop in regulatory provision, with an increase in PBT. And if you go down to the balance sheet, we have seen a solid growth in secured loans, 36% year-on-year, and our secured book stands at 68% from 60% in the March ending -- financial year ending. Our unsecured book has declined 7% year-on-year, given stress in the MFI business. And from last quarter, we have initiated CGTMSE for the micro enterprises who are in business; and for the rest of the MFI book, CGFMU. And I will share with you how much we already put under the guarantee program. Our deposits continue to grow well, and our LCR is at 279%. Our book value has improved to INR 380 per share, which I thought I will share so that we are very specific about it. So very important to remember from the first page, it's been a declining gross NPA and net NPA. And if one were to remove the accelerated provision taken by the bank, PAT would be at INR 204 crores. Page #4 of the presentation deck is our credit quality. The credit cost Q1, INR 196 crores; Q2, INR 210 crores; Q3, down to INR 174 crores. In INR 174 crores, accelerated provision itself is INR 93 crores. So one is, accelerated credit cost has dropped. If I take away accelerated provisioning and recoveries then the net credit cost is just INR 44 crores. So again, I would like to repeat for folks who are attending our analyst calls regularly. We have seen a drop in our credit cost in Q3 and the peak challenge is behind us. And then I've also given -- because many of us want to know what happened to the gross NPA during the period and so what to anticipate. So here, we are on the opening gross NPA, we opened at INR 755 crores. We added about INR 437 crores. And we had recoveries and write offs of INR 434 crores. We are flattish on closing gross NPA. Now what is the portion of gross NPA and net NPA which is secured and unsecured, we certainly will cover before I go into Q&A. So the main thing to remember from here is a drop in credit cost in absolute terms. And if you take away the accelerated provisioning, it's even much lower. Our PCR continues to be very healthy at 66.94%, and when I say very healthy because 66.94% is assuming -- or rather given a secured book of 68%. The other two points I want to cover, which are Q3 developments, which is now Slide #5. We have taken roughly CGTMSE, which covers 13.3% of our portfolio. And by March '25, we will hope to reach about 25% to 30% of portfolio under both the guarantee programs. I want to emphasize that us taking guarantee program is just to make sure that anything unforeseen in the future does not shake us from a credit cost. We are conservative in how we lend, much more stringent than the MFIN criteria. We do believe our book is performing much better than the industry. But I did want to make sure that we were extra careful given the environment. The second thing that I've pointed out here is the cost-to-income ratio. And for all the folks, I have actually done OpEx to total business, which is what is my asset book and deposit book. I've divided that by total cost. And there, you can see it is 0.9%, 0.92%, 0.91% per quarter. So really, our cost is not going up, it is in line with the AUM growth. The challenge being the NIM is dropping because unsecured book is dropping, and that is stressing the cost-to-income. So moment we stabilize our unsecured MFI book, which we expect to do in quarter 4, which is it doesn't drop any further, just remains where it is or goes positive, our cost-to-income will start getting better. So we should expect cost-to-income to start getting better. There is nothing extraordinary on cost that is happening. It is just a change of mix between secured, unsecured. And we have seen an expected steep decline in unsecured given the environment. So I just want to give comfort to everyone that we have our eyes focused on cost. And this is just a mathematical thing which will get aligned as the MFI book stops degrowing. And of course, will get even better as it starts growing. Finally, I want to show CASA. Now we took a step on 3rd of October of cutting our CASA pricing because we did feel that there was a lot of expensive CASA coming in, which to our mind, was not the best CASA to retain. Having done that, I've shared with you what was our cost of CASA as of September end, it was 4.8%. It has now fallen to 4.44% in the quarter alone purely because we have taken a bit upper end of CASA. The result is that our CASA ratio is down to 18.43%, which dropped on 3rd of October a lot of the expensive CASA which migrated to other banks. We could recover from a retail bank, from retail CASA, but not all of it. We'll certainly make CASA positive as we go into quarter 4. Our LCR continues to be very healthy. We are very liquid, so there are no challenges around that. So big takeaway from here is we are at 68% secured. We are on trajectory to become 80% secured. At 20% in unsecured, we as a bank would like to put that under guarantee programs so that there is no event risk that we will run once we do that. Secondly, the cost/income is showing an increase, not because of some extraordinary cost, primarily a drop in the MFI. And third is we have aligned our CASA rates. We do think that this may be a short-term dip, but certainly the healthiest thing to do for CASA growth. I will now move on to Slide #9. Very important to see our asset book and see how the asset book is really growing in the areas we want them to go. So affordable housing for 9 months with an average ticket size of INR 11.9 lakhs has grown at 25%. Our micro LAP, which is average ticket size of INR 6.4 lakhs, has grown by 14.3%. Our MSME loans has grown 17.4%. Our two-wheelers by 73.9%. Our gold loans at 104.9%. So all the core businesses, our -- in secured are really growing in a very healthy business in a very healthy rate. We continue to expect to see a strong growth in secured in quarter 4, too. Unsecured, as you can see in the 9 months, has degrown by 11%. And I do expect that, quarter 4, we should at least at the minimum hold back any further decline. And that is not for any other reason. We do believe that our focus on our business, the criteria we have applied gives us comfort in making sure that we hold the book at this point and start growing it because it's -- the new book obviously is doing very well. I want to now move on very swiftly to Slide #14, which will show you our anchor bank. I just want to make a very important point. We've always said that the future of us is making sure that the aspirational customer, the middle of India, gets a home bank, and we want to be their anchor bank. For people following our anchor bank slide, which is there in every quarter, you'll see that gold loan penetration in home loan and LAP customers has increased from 1.8% last quarter to 2%. Our TD penetration, which was at 19%, had gone to 20%. Our preapproved business loan, which is at 15%, has gone to 16.5%. Doing this is super important for us because this is where we will get operating leverage, this is where we will get a competitive moat, and this is where our customers really treat us as a bank. Once we get more and more of these customers, we will get better and better credit quality. And that is the reason we put up this slide and we keep focus on it, and I'm glad to present to you that there is real positive change here. I will now move on to the next slide, which is on the deposit side. I want to cover 2, 3 points here. First, our CD ratio is 102% for two reasons. One really is we had a FDOD growth on the last week, which was unexpected, which has been paid down, which is why if you see the last -- the page on secured assets, there's a big jump in FDOD growth, which is for this quarter. Otherwise, it could have been at around 98% or 99%. Second, we always keep it in the 90s because we do know -- all of us know that we have refinance lines of NHB, SIDBI and NABARD. We have taken additional INR 730 crores of NHB and SIDBI money, which is 10-year and 5-year money, at very good pricing. But we do it because it does help ALM getting long-term rates. So on the liquidity side, a few things to remember. LCR at 279%. We are very liquid. We don't have a challenge of doing -- we are maintaining CD ratio at a slightly elevated level only because we do not want too much cash on the balance sheet, which tends to be a drag. And the reason why this happened is purely because we do get refinance lines from NHB, SIDBI, NABARD, which we do think is very healthy from a tenor mismatch angle. Next, I would like to move down to Slide #20 -- 19, sorry. And I really want to reaffirm that, if you take away accelerated provisioning, you take away DTA, we end up at a 2.3% ROA, which is the true value of the bank. And we would certainly be in the 2-plus range once we kind of finish the net NPA less than 1% and gross NPA less than 3%. Once that is sorted out, we'll be there. Slide #20 gives you a net NPA breakup between secured, unsecured and total, where you will see that nearly 79% of net NPA is with secured loans. The secured loans have property backing it with an LTV of 46%. So there is not much one should expect in terms of credit cost going forward. I really want to repeat on the credit cost. We had said that in Q2. It will come down in Q3. We have seen the worst and we certainly have put this behind us. I don't want to give an illusion that it is not hard work. It still is a lot of hard work, and we are very focused on making sure that we continue and persist with that and keep this credit cost at the lowest point as we go along. I have a P&L slide, which is Slide #21. Our PBT of INR 350 crores in this tough environment has been the highest we've ever done. So INR 350 crores -- INR 354 crores PBT is after INR 208 crores of accelerated provisioning. And of course, with the help of INR 24 crores of deferred tax asset. And very important for all of us to know this because there was certain trajectory you may be expecting from us and rightly so in terms of profits. I just want to share that we are maintaining that trajectory. It's just that we have to make sure our net NPA is to below 1%, which is where we are to accelerated provisioning. The management and the Board remain consistent and everybody is on board as they used to be. And with that, I just want to give one or two highlights before I close and open it for Q&A. Number one, credit costs have dropped. If I take away accelerated provisioning, which is required to maintain net NPA below 1%, we are really at the extreme low end of provisioning anticipated. The worst is behind us in Q2 itself, which is what we have signaled, and now you can see the numbers. Our secured growth is growing very strongly, and so we should be in the 35% range in the full year finishes on secured growth. We would like to grow our unsecured book in Q4, at the minimum, keep it stable. We are very focused on costs, though we think mathematically, the better answers will appear any which way in Q4. And LCR remains strong, our deposit growth remains strong, and we are very liquid. With that, thank you so much, and happy to take on questions.

[Operator Instructions] The first question is from the line of Manish from Nirmal Bang.

Stable set of performance in tough macro environment, so congratulations to the team. So my question on the microfinance business. So in your opinion, where the stage of the pain in the industry, number one? And secondly, when you say the quarter 4, we'll see some growth or stable unsecured book. So I mean, are you seeing collection trends in the current book is improving? And can you talk about from October, November, December, how the trend of collection? That is the question number one, sir.

So Manish, thank you. Let me tell you what I think. First, having an industry answer may not be possible anymore. I think whether it's SFBs or it's MFIs, now you will see divergent performances. And two things will decide that. Number one is who has what composition of book, and that becomes very important. So secured book can also be of various natures. Our secured book is largely property-backed, so we should have a different answer. Again, MFI, we have never done a lot of growth. So if you take our 2018 book to our December 2024 book, our CAGR would have been around 1%. So really, you should not see much of a challenge because our book has grown slowly. It's not that there is no challenge, but the amount of challenge would be less. So I really don't have a good answer for you saying what is to be expected by industry. I think we will have to go by the books. Now where are we on MFI industry? I must tell you that reaching 99% by the 20, 22nd of the -- 20th or 22nd of the month is still very hard. We kind of stay at 98.5%, 98.6%. That's a collection percentage of B0 I'm talking of. I'm not adding anything else except what is demand in B0 and what is collected in B0. So -- and we still keep fighting till the month end to reach the 98.5%, 98.6%. I don't think so that is changing in a hurry. But having said that, we are consistently at 98.5%, 98.6%. We can see the new book that we have disbursed through the year is performing well. Whatever we could have seen as challenging, we think most of it has already passed. So I do think that we have comfort to now at least keep the book flat, if not grow it, and that is a step we are going to take in Q4. I hope this helps. But you see very importantly, I did say in Q2 that we have seen the peak, but -- and we may be probably among X number of players who will probably say that in Q2. The different players will have different depending on what kind of books they have.

Understood. And the second question to Abhilash. I remember on the end of the quarter 4 earnings analyst meet, you shared the operating expense growth will be 8% to 10% for the year. But if I look at the 9-month number, it's growth of 19.5%. So given the pressure on the credit cost, how do you see the growth in the OpEx growth versus your guidance range of 8% to 10%?

So the OpEx growth, I think it's in line with the AUM growth. So what has happened is, if you see we -- Ajay covered it also in the slide earlier. So the OpEx is going in line with the AUM. So we had given an earlier guidance of 8% to 10%. This is that scenario not considering any additional collection costs and additional marketing spend, which would have been required during the year. So that being said, probably -- so that is the reason there has been a slight blip during the current year. So Ajay, you want to add?

See Manish. Math is very simple if you take Page #5. We have people in microfinance, about 8,000 of them. But the book is negative for the year for about roughly 11%. Now this book would have been positive 5% or 6%, which is what -- if there was no stress, that would have been a normal year, then our cost of income would have probably been around 55% and we would have justified this cost increase. Now the challenge is we have the people who are doing collections now and not doing any incremental business, which is why you have elevated costs and rightly so because you obviously have more collectors than what we anticipated. And the collectors are not doing new business, so cost/income is getting a bit challenged. I don't think so we are increasing collection capacity anymore. I think we are already having enough and more that we need, so you should not see a cost increase. And like I mentioned, that if you stabilize the unsecured book in Q4, which means at the same level that is today or even slightly positive, you will see a pushback again, and cost/income will go down. The reason I put a very specific box is I just want you to know that we're very conscious of it. We used to always very proud of our cost-to-income. And we would like to bring it back to the 55% level because our longer-term aim is to get to the 50% to 53%. But right now, it's the collection progress is more important to us, which is where we added the bodies. Second, as you know, there has been a bit of attrition across the industry which just caused a bit of a jump in the people cost and probably a harder push towards collections talent being higher than it normally is in every year. If you add the two up, that will explain why our cost is higher. But then I would have anticipated this question, and it does bother us, which is why we put up that box. And we certainly would like to see a better cost/income as we get into Q4.

And last question on a slightly longer-term perspective. So you mentioned in analyst meet that we aim to achieve the secured book of 80%. Our margins keep on declining because of the rise of unsecured book and decline in the MFI book. So if I ask you, what should one should model your sustainable ROA, given the cost metrics and the pricing of the credit cost and the NIM profile on a sustainable basis?

So Manish, first is, again I would like us -- because this year is a bit of an unexpected year, Slide #5. Slide #5 gives you our NIM at 7.6%. And it tells you that if the MFI book had stayed, further grow, even if had stayed at the March levels, my NIM would be 8%, okay? Which means my secured book NIM is actually holding up where it needs to hold up. 8% was our NIM in March. 8% would have been my NIM in December. Forget growth, if I just held the microfinance nook flat to March. So that is what I want to give you comfort, that even though we are turning secured, we have micro LAP, we have gold loans, we have two-wheelers, we have affordable housing, our NIMs are very healthy. So that's rule #1, or rather point number one. Manish, 3 years, our model was that our NIMs would drop 30 basis points -- sorry, 50 basis points as we turn 80% secured. I want to tell you the point-to-point. So we assumed 60%, in March '24, we'll get to 80%. So 20% change in secured. 50% drop -- 50 basis points drop in NIM. CASA will improve from 20 to 30, so 20 basis points help from CASA. Net NIM negative would have been 30 basis points over 3 years. So you are not seeing that 30 basis points today. What you're really seeing today is the CASA, the microfinance book going down from INR 9,800 crores to INR 8,800 crores. But the secured impact is not in, that's what the secured book has done very well. And in fact, it's holding NIM exactly as it was in March. There is no decline in secured NIMs, it's just a decline in unsecured.

The next question is from the line of Saumil Shah from Paras Investments.

Sir, we have guided for a 30% PAT growth for this year, which means we have to almost do around INR 500 crores of profit for next quarter. So how far it is achievable? Of course, we will be taking some DTA benefits in next quarter, but still it's a very tall task. So would you like to revise our guidance?

Yes. So listen, I didn't put any more guidance because I think quarter 4, one can calculate. But let me just step back a bit. See, if you take Slide #3, adjusted PAT. That is at INR 586 crores for the DTA completely. You just think that if I didn't have to put accelerated provision, I was in the number that we had guided towards or probably slightly better. And the reason I put it up is exactly for that, saying, our business model, had there been no need to be net NPA below 1%, we certainly would have been at a 500-plus number. It would not be exactly what it is because we may not want net NPA to go much higher. But certainly, I would have been better than it. And which is what I'm showing, saying if you just step back and think about the franchise, ability to produce PAT, it's much higher. And I do think that now that the worst is behind us, we had a very strong quarter. We have seen our credit cost decline. I think our acceleration in PBT in quarter 4 will certainly be higher than what it has seen in Q3.

Okay. Okay. And sir, as per the last quarter, we had INR 740 crores of DTA. So can we know how are we going to use it? I mean, is there any calculation for next 2 years?

So as per our original calculation, we would have used most of our DTA except the last INR 100 crores when we end '27. This year, obviously, we will leave a bit DTA on the table. We do want to sit down now, and we are going to do that as we start again in next year, that how we'll use most of our DTA, because we have 2 more years to use it up. We have some ideas in our mind and we'll certainly be working on it. We will share it with you all when we come for next year. So when we open up next year, when we do full year March '25, we will do two things for you all. And of course, for us, one is to make sure that we give you guidance for next year which is very straightforward. Our guidance on asset 20%, we'll meet. Our guidance on deposit growth of 20%, we'll meet. If you give us the benefit of adding back accelerated provisions, when we are meeting the ROAs, ROEs, et cetera. But we will come back with guidance for next year when we do March '25. We will also share with you how do we plan to use up the DTA because we do have a small gap which has come up from this year.

One just an bookkeeping question. For the current year, I mean, I just wanted to calculate on the PSL certificate. So see, when we become a universal bank, our PSL requirement will be at 40% from 75%. So how much additional benefit can we get on the sale of PSL certificate?

So see, PSL certificate won't give us much benefit. I'll tell you why. The larger PSL book, when you turn from a 75% to 40%, will be the surplus MSME micro enterprise, which doesn't get you too much value when we sell it, maybe 10 basis points, 20 basis points. So you can yield about a INR 30 crores, INR 40 crores at best, not anything more significant. Because the real money in PSLC is when you sell the SMF, which is small and marginal farmer, which anyway we are surplus. And we make use of that PSLC sale even today as an SFB. So one is there is not going to be a big jump in profit from 75% PSL to 40% PSL. I do think that you should, at least in our heads, we are budgeting a 25 basis point minimum drop in cost of deposits when we turn into a universal bank. And we do expect the velocity of growth of both CASA and deposit will be much better when we drop the word small finance. These are the two things in our mind that we are contemplating. There are other cases, like your capital adequacy may drop, et cetera, et cetera. But INR 25 lakhs, 50% book has to below INR 25 lakhs, will change then. But those, we don't think are impactful. I don't think that we're going to cut down our capital adequacy, or we can do a lot of big loans. I think everything here will be the same. But I think for us, the main change will give us certainly a big advantage on both velocity and cost of deposits.

The next question is from the line of Rahul Bhangadia from Luck Investment Managers.

First question is on your Slide #4, which you have kind of covered before. Just -- if you could just give us a sense. The additions during this period have broadly been in the same range as previous quarter, but the regulatory requirement of provisioning has come down. So just give us a sense of what is the recovery is all about, INR 430-odd crores, because your recoveries under other income is also not a very big number. So just to give us a sense of what -- and where do we expect this INR 400 crore-odd number gross NPA addition to kind of go in the future?

Right. So two things. One is it also has technical write-offs and recoveries both in the INR 434 crores line. So that's the first important piece. In terms of recoveries out of INR 434 crores, that would be about...

Write-off is around INR 109 cores.

INR 109 crores. Rest is all recoveries?

Yes.

And the recoveries comes in 2 lines. One is in the credit cost and second is the other income. So we do anticipate that both will continue as we go into Q4. We would be able to take technical write-off as we do full provisions. And we will continue to get good recoveries, which we have seen an acceleration of in Q3. We do think Q4 will sustain that. We are hoping and we're working towards addition, which is INR 437 crores, we should bring down that a bit more in Q4. And we should end up with a closing GNPA number which is flattish to lower than where it is right now.

So given the nature -- sorry, please continue, sir.

Please go ahead.

So given the way in which the book is kind of evolving towards an 80% secured book, this -- what is your expectation of what the credit cost would look like? Because from what I -- from what we see in the -- one of the slides where you have given the gross NPA numbers, even for your affordable home and the micro LAP book, they have gone up quarter-on-quarter from Q2 to Q3. What is your expectation generally on that book?

So let me take one by one. First is we did say that our credit cost this year will be 1.6% to 1.7%. And given where we are in Q3, we will end up with a 1.6%, 1.7% cost. And very important is to also look at Slide #20, which gives you a sense of where the challenge is, if at all, can appear. Where you can see 79% of net NPAs in the secured piece, which tends to be -- it is more a timing issue than whether you'll get your money back, and LGDs are very low. In our 3-year model which I explained earlier that we have assumed a secured of 80%, we have modeled a 1.5% credit cost.

Okay. Okay. Right. And sir, last question before I go back to the queue. Any extraordinaries in the current quarter in terms of interest write-back or anything like that?

I'm looking at Abhilash. No, nothing that should change. I think the only extraordinary, I must say that what we have not anticipated, we tried, but couldn't succeed. We were hoping to stabilize the microfinance book in Q3. But somehow, the focus on collections continue to be high. We had a good October, but again, November, December, hard work. So our disbursement didn't keep up to what we thought we could do. Other than that, we -- in our working also, we didn't find anything else which looked odd.

The next question is from the line of Kamal from Investec Capital Services.

Congrats on a good set of numbers. Like firstly, like following up on the question of the previous participant, like could you highlight the reasons why there was an increase in the GNPA in the secured segments of micro LAP and affordable housing?

Right. So it's just -- for us, very specifically, two states are showing a bit of extra challenge. And I don't know whether this is industry-wide or Jana-specific. One is in the state of Odisha, second is we've seen slight pickup in West Bengal. We have taken actions to address those. And we do believe that we should see this gross NPA certainly getting more -- better than where it is right now. But nothing that, if the question is around are you seeing a spillover from microfinance into micro LAP? The answer is no. We don't have too much overlap and we don't see the micro LAP responding also like that, neither affordable housing. But we do think there are two geographies where we need to tighten up our shop and our act, and which is what we are focused on doing. Nothing other than that is giving us any discomfort, which is why if you even see quarter-on-quarter advances growth, which is on Page 9, we continue growing affordable housing and micro LAP at a very healthy clip of quarterly growth of 7% and 5% -- or rather 6%. So nothing that would worry us, but a little bit of hard work in two geographies.

Okay. Got it. And was my understanding correct, that the write-offs during Q3 is INR 109 crores?

That is correct. Abhilash mentioned that. And listen, see, first, I want to tell everyone that this -- all feeling anxious about what microfinance can do, what does the numbers look like, is all behind us. Given a choice, we would certainly like to make sure NPAs does remain below 1% because we want to become a universal bank. So we are doing our best to get to the right point. And Q3 has been, to our mind, extremely good. Because the numbers we kept talking about in Q2 saying this is a peak, we've actually shown the numbers. If you take our credit cost, it's actually shown, including accelerated provision also, which is a very large number. If you take our Slide #4, credit cost is at INR 174 crores versus INR 210 crores of last quarter here. And that INR 174 crores is INR 93 crores of accelerated provision. So yes, you are right, the technical write-off was INR 109 crores, and the rest were recoveries.

So what was the number during last quarter?

Technical write-off? Just give us a minute, we'll just check.

Okay. Sure. Sir, also, if I could just...

Abhilash is saying there was no technical write-off. Only this quarter, we had technical write-off.

Okay. Got it, sir. Also, sir, if you could just help us out, like what is the blended credit cost and ROAs for your secured book and unsecured book?

Okay, blended credit cost. Why don't we take our next question while Abhilash quickly calculates that.

Okay. Like this is all from me, sir. It would be great if you could just get back to us on the credit cost and ROA numbers.

The next question is from the line of Darshil Jhaveri from Crown Capital.

Firstly, congratulations on a great set of results. So sir, just wanted to know with regards to like now our PAT growth, like on a reported basis, we'll not be able to do a 30% growth. So what kind of PAT can we expect next quarter? Like it will be similar on what we have reported, like INR 110 crores, INR 111 crores?

No, certainly, it should be better, for a simple reason. Whatever asset we've added this quarter will give us extra income next quarter. We certainly would like to grow, at least stabilize, our unsecured book. So that will also add to the profits. We are not expecting any higher credit cost for sure, so I think that should also be positive. We also know that quarter 4 is anyway good for all banks, it's the best quarter in every year, which means a lot of disbursement goes up and certainly leads to a lot of fee income. So I mean, if I just use those 3 parameters of bigger balance sheet going into Q4, unsecured hopefully stabilizing, and higher disbursement in Q4, I do expect my cost of deposit to go down in Q4. And that, I can see happening because we've repriced our CASA. We have also repriced our deposits. So I would anticipate much higher PBT and PAT, and I would certainly like to keep net NPA below 1% and gross NPA below 3% as I go into -- as I finish the quarter. I can say that with great comfort because we are on the 31st of January and we are really having a clear view of what we are expecting.

Fair enough, sir. That's very helpful, sir. So sir, the accelerated provision those will maybe end in FY '26, right? Like how long will we continue these accelerated provisions? Because they're dampening our book quite a lot. So just wanted to -- like after we apply for the universal banking license, will it continue in Q1 also? Or how would it go through, sir?

I think the unwinding will happen over the next 3 or 4 quarters. It won't happen in abrupt matter. But what will happen is the addition to the accelerated provision will diminish as we go into next year. So certainly -- because right now, the total corpus of accelerated provision is INR 208 crores. Let's say we take another INR 60 crores, INR 70 crores, INR 80 crores in quarter 4. So we will be closer to like INR 275 crores to INR 300 crores of accelerated provision we are carrying into next year. So obviously, we'll use up those provisions. But certainly, I don't see why we should add more to them. And remember, as your unsecured book stabilizes, right, the need for provisioning anyway comes down. Secured doesn't take too much provision. And like I said, the small blips in secured will get sorted out. So I do see that the carry of accelerated provision, which means my PAT has reduced this year, it won't happen next year. And to make sure that what that number is, I put that clearly in Slide #1, so that there is clarity in everybody's mind on what to expect with our franchise.

Correct, sir. Yes. Any kind of guidance that you would like to give for FY '26 right now?

So listen, asset growth 20%, liability growth 100%, 20%. I mean, that we said for this year, we will achieve it. We will certainly put up a similar guidance for next year. I don't think so that will worry us. I think what we want to give around PAT and ROAs, ROEs, we just want to take time to finish this year and see the impact of how the release of accelerated provision happens, et cetera, just to be very clear about it. And then we'll certainly come back to you when we declare the March results. What I can confirm to you right now is asset and liability growth will continue, secured group growth will continue. We would certainly like to grow our unsecured book also. We will not like to see a decline in it. So all 3 are going to happen. We will try and grow CASA even harder. And like you have seen, we've grown the CASA cost down. That strategy won't change. So I think these are the some of the given you should assume that Jana has a strategy, and that won't change.

The next question is from the line of Shailesh Kanani from Centrum Broking.

Sir, can you point out any strategy which we have deployed in the third quarter means, apart from [indiscernible] collection efforts? Because our performance seems to be very well in terms of vis-a-vis, [indiscernible].

Shailesh, very good question. Sorry. Finish your question, sorry. You are breaking up.

Sorry. Is it better? Do you want me to repeat the question?

No, I got it. Just I'm repeating it. You are asking why is our performance better? Did we apply any special strategy in Q3, right?

And any states you would like to call out where our performance has kind of sequentially improved dramatically? Or anything you would like to call out? Any states which are performing well?

Right. I just want to take you and everybody else on this call to a slide, which is Slide #11. So first, out of INR 8,899 crores total unsecured book, INR 5,124 is individual loans. I do not think we will get too many other MFIs or SFBs, which are a high proportion of individual loans. We have been doing individual loans because we were in urban microfinance. We moved to individual loans way back in 2018. So one thing about individual loans is they are a lot more urban in nature. And you can see we've given a breakup where our agri and non-agri is. But we give individual loans to people who have finished one cycle of bridge loan. And number two, after the underwriters visits them, and this is a visit by an underwriter of credit to figure out what their cash flows are before we give them the loan because typically the individual loans are higher. So I think one of the reasons our book is better is two. One, it's individual loans, we have done underwriting. Two, individual loans collection behavior is far better now than group because in individual loans, there is no ganging up of people saying, "Okay, let's get together and not pay." Or "Let's put up a barricade outside the village saying no MFIs are allowed." That all doesn't happen in individual loans. There is no ring leader here. There is a customer and there is a bank. And second is customer is going through a credit cycle, knows what credit is. And third, underwriter has visibility of it. I think we were making -- giving the market this clear indication even in Q2 but we didn't have the numbers to back it up because Q2 did see an increase. And we kept saying that, listen, to our mind, we have seen the worst of it. And the start point of evaluating us versus what will happen in the industry should start from this page, seeing what is your book made up of? INR 5,124 crores is individual loans. INR 1,643 crores is BC where we have service guarantees, which means if I don't get my money collected by them and it turns NPA, they are responsible in a financial sense, right? So if you add these two, you can see why my credit cost should be lower, both because we had service guarantees from BCs with roughly 20% of my book. Individual loans is INR 5,124 crores of INR 8,000 crores, which is roughly 55% -- 75% of book is very different from a regular MFI or an SFB, I would think, and which is why you would expect differential performance. And we are very convinced we will continue this strategy. Yes, we had a few hiccups with 3 BCs. We know what to do differently now. But remember, out of the 17 BCs, 14 were very good. So the 3 we have taught us lesson, we'll fix it, and then we'll move on.

So just to add up, means -- sorry to harp on this. But even in -- so I was looking for sequential performance. See, individual share was high for us even in second quarter, right? Maybe a few bps here and there. But even in second quarter, we will have more than 50% share in individual lending. So just wanted to know if we have done. Because individual book per se has seen a marked improvement Q-on-Q. So I was just wondering if something has happened over here.

So one is some of it would be technical write-off because, you heard Abhilash, that we have not done technical write-off in Q2. We have done in Q3. So some of the GNPA drop has got to do with the technical write-offs. So you are right, it looks better than Q2, and I think one of the reasons would certainly be the tech write-off. But if you step back and say, listen, even if you look at Q2 numbers now, they're around 4%-odd for individual loans. And I think individual loan will show, across MFIs and SFBs and banks, better performance than group loans. And I think, again, unless somebody has done it in a very odd way, if you have done a credit decisioning, these are customers who are credit experienced, I do think we will get a better experience in IL than we will get in group loans. And I do think that more of the industry will turn towards IL as an answer because battles are broken, there is no ring leaders around this, and you will find that customer behavior with the bank or a financial institution, when it's one-on-one, will end up being better.

Fair enough, sir. Any shout-out for any state in terms of performance?

So where are we working very hard, I'm looking at Raman now. We were working very hard in Bihar. We have certainly a challenge in pockets of UP, but not all over. So I wouldn't call out that state in general. There are a few districts there. We certainly are seeing stress in Odisha, and that we can see both in MFI and even our housing book. So there is a general level of challenge in Odisha. I think other than 3 small pockets of West Bengal, nothing significant, but we've never had a big part of our exposure there. Yes, I mean that is what I would call out.

Fair enough, sir. That's helpful. Sir, my second question was with respect to BC book. So BC book has again seen a noticeable decline sequential basis. And GNPA is also -- sorry?

The big reason again is -- see, BC book first is improving. So that's the rule #1. But some of it is may be any tech write-offs taken here could be the reason. But yes, you should take away that, and when you look at the credit cost, the one assumption you should certainly make sure is, there, that the unsecured has been the worst, including the BC book.

Okay. Sir, just last question from my side. So in our individual lending and GLG customers, what other products we would have in terms of overlap apart from the unsecured loan? Do we have an overlap with affordable housing or any other product for our customers?

Here is what, I mean, you must know. We have 3,000 feet on street to the affordable housing, micro LAP. These 3,000 people are reporting to a business manager who runs affordable housing, micro LAP business. And most of them -- or rather I would say all of them, are either banks or NBFC who do housing or LAP. There is no overlap of sales force between microfinance and affordable housing and micro LAP. So that's rule #1. The credit underwriting of affordable housing and micro LAP is done by a separate set of underwriters, which has a scorecard and physical visits, valuation, legal that we would follow. I also want to clarify that our micro LAP is not moral obligation by customers. It is SARFAESI-able property. So even though it is INR 6.5 lakhs, we don't have a product which says, "Please deposit or power of attorney this property transaction, and we'll give you a loan." Other properties which a legal lawyer has signed, yes, and we can do SARFAESI action on it. So that's mine. So I want to clarify this because if there is like how much is the impact of microfinance on this in our book should not be high. Are there any microfinance customers in affordable housing and micro LAP? Yes, because there are certainly a lot of microfinance who are good. This would be about 5% or 6% at best of the affordable housing, micro LAP book. We have tested their performance. And the good news is that our microfinance, micro LAP customers, who are from microfinance background -- sorry, affordable housing, micro LAP, customers who are from the microfinance background, their performance is very good, but they are not a large chunk.

And predominantly, there would be only one secured already -- only one unsecured product for this customer, right, be it individual or GLG?

So we only have one unsecured in the bank only. We have no other unsecured business only. Our entire bank only does microfinance where you can get a GLG. If you're a GLG graduate, you'll get individual loan. There is no other unsecured product only in the bank.

[Operator Instructions] The next question is from the line of Sarvesh Gupta from Maximal Capital Private Limited.

Congratulations on a good set of numbers. Sir, most of the questions have been answered. Just one thing, if you can give some more clarity. Hello?

Yes, go ahead, sorry.

Yes. So this 2.3% adjusted ROA that we have earned for 9M. Now once the tax benefits go away, this can also come down by around 25%. So -- and then you explained that there can be a 30 basis point impact due to the -- due to us reaching 80% sort of a secured book. So net-net, where do we see, maybe in 2, 3 years, where do we see the ROA and ROE stabilizing, post, our tax benefits are also over?

Yes. So that's a good question. So 3 years later, and you rightly pointed our NIM will be a compression of 30 bps. It will be 80% secured. What we have not put in our numbers 3 years from now is we will also have a credit guarantee on unsecured. We'll build the model of that now. But in the past model that we have done, where we have turned 80% secured with a drop of NIM, our ROA would be 1.8% to 2% range and ROE between 16% to 17%. That is a steady-state model that we had imagined will happen. And also, I must add that CASA had become 30%. So there were 3 variables, 80% secured, CASA at 30%, drop in NIM of 30 bps. And then ROA would be 1.8% to 2%, cost/income would be about 53%, and ROE would be 16% to 17%. The one variable that I would like to now add is now have a credit guarantee program. It does have a cost, but it also has an upside to us if something does go wrong. So we'll just put that model in. And when we see you again after March results, we'll bring that forward to all of you. I do think that it's important for us also to do it. But I must admit that we have been too busy around trying to bring around this stability and turnaround in the credit cost. Now that we have a bit more breathing space, we will certainly complete that and share with you folks when we bring the March results.

Okay. And on the CASA cost, so this time, you had reduced it in October. And I believe we pay a decent sort of a savings rate beyond INR 5 lakhs and INR 10 lakhs. So as we grow, do we sort of expect to be a top tier sort of a savings bank interest rate player? Or do we have intention to sort of reduce it? And given that now at this time, you have reduced, so your CASA has also dropped. So how do we look at this entire scenario, if you can throw some color on that.

Yes. So what we felt was at the top end, when you're offering a 7.8% or some other extreme CASA rate, we tend to get very large tickets. And fundamentally, we looked at it and said, "Listen, this does help us grow our CASA. But is this the kind of CASA that we want to build ourselves?" Because once you start going that route, then you get more and more of that because that is a bit easy to get, right? You're really paying money and getting a good CASA. So we said, "Look at the upper end, let's kind of cap it to a point." It is not that we're going to reduce our price and become uncompetitive, but that extreme end, we don't want. There are banks which -- I mean, we don't -- we know where our CASA went and which bank actually got it away and what price. But we think that is too extreme a price. And our buyers say, listen, there is more hard work. We'll open branches, RMs. If you see our presentation, there is a lot of segmental offers we have started. We are seeing very good traction from it. So at some point, we think that there is a -- our CASA pricing has to be very competitive, but there is some competition that we didn't want to play and which is why we cut it off. Listen, I put this slide again showing cost decline because there is a CASA decline in the industry. So people may think that Jana's CASA is down like the rest of the industry or in part, et cetera. I just want to make sure that, listen, our CASA decline is purely on a price drop. We have recovered some of the money gone out. Recovered means, the wholesale money or wholesale CASA has gone and retail CASA has come in. But we have not really reached the point of matching it off. We're going to work hard and get past that. Yes, sorry. Nidhesh, Abhilash has an update for one of the previous questions. Someone had asked a question, we said we'll get back to you by calculating it.

On the credit cost between segments for Q3, secured, if I remove the accelerated provision, the regulated provision was INR 23 crores, unsecured INR 56 crores. That is our credit cost for Q3. So that one answer was pending, so that, I've given here.

The next question is from the line of Chintan Shah from ICICI Securities.

So just firstly, on the PCR. So far in this quarter, we have ended up our secured PCR to 48% from 29% in the previous quarter. So probably what could be the same? Is there any change in the PD assumptions or LGD assumptions? Or how is it?

These are very simple. Listen, I have no other place whatever I provision in unsecured, I'm taking a technical write-off, right? There are less secured book. We have to keep net NPA below 1%, I have no other way but to increase PCR there.

Okay. So you have to keep net NPL below 1%, this has been done.

Yes, of course. You see, when we started calendar year, we are 18%. In terms of our suggested that value, to make it like 20% to 30% because that is what the industry is. So we made a 28% last time. But now we are in another room, we have to make it 48%. I worry that when we put the next money in this quarter to, given that NPA below 1%, this may become 58% or 68% also. But yes, that's the way it's going to go now.

Sure, sir. And I don't know if I missed this, but have you mentioned the micro finance slippages for the quarter, which was like around INR 230 crores in the last quarter?

No, Abhilash is doing the number. Just give me a minute.

Sure. And also one more number. So I think did we mentioned the collection [indiscernible] for the last 3 months? So would you recall any numbers there work? Could you please provide? And also on the January, how has been the collection trends so far for the unsecured portfolio specifically? And even on the secured front, are we seeing any price or any steep decline in the collection of [indiscernible]?

One is on the secured side, I mentioned a few geographies where you can see uptick, which I think is more to do with us than an industry in general, where we have to tighten up both our collections effort and some of the credit parameters. So I think that is one. But these topics are ongoing. So we continue our growth path. Nothing is alarming us, but just some work to be done, and we fix it. On the unsecured side, I do think January, February and March, between the 30th of the month or 31st of the month, we'll be running hard to reach the 99%. I don't think that anything has got streamlined that we'll reach 99% or 98.5%, which we have been doing by the 20th or 22nd. I don't think the stability is there, either certainly in the way customers are responding and how the industry is looking at things. So I think that hard work will continue. Only thing now I can see is people are more confident of it than they were in the previous quarter, which is why I feel the disbursals will pick up even more and the book will flatten out. But we do think that we are very, very attentive on micro finance still. But the only good news for us is, given the shape of our book, we haven't had the damage that one would have anticipated. And this is what I can -- you all can see in this Q3 results. But yes, nothing on secured which showed -- and I've been very clear here. There's nothing there that is above and some impacting. I think there's 2 geographies, actually, which is challenging us.

Sure. And sir, so we have already made INR 208 crores of accelerated provision so far and probably another INR 60 crores, INR 70 crores, as per mentioned, would be done in Q4. So roughly INR 300 crores of baggage. So what will make us reverse this accelerated provisions in Q4? So what could be that trigger for the reversal of these provisions?

So it will be happening over the next year rather than next -- first quarter of next year. And will be driven by -- and so very simply put, there is a need to keep net NPA below 1%. And to keep the net NPA below 1% when you have slippages, there is only one way, is to keep provisioning for it. So I do think as the slippages are getting more and more normalized, we will need less and less provisioning. And then some of these customers, after some point, will need a 100% provisioning, we will not need to put any more provision because we're already provisioned for it. And thirdly, on unsecured side, whatever is INR 208 crores we see unsecured, that would be -- that we fully use, that either we'll collect the money or we'll use it further for provisioning. So obviously, I need the provisions still be a bit lower, but all depends on. So the Q3 provisioning will probably unwind around Q2, Q3 next year. What we provisioned about, I think, around INR 60 crores in Q1, that is probably what will be available in Q1 next year. So it is -- that kind of phasing will happen. But important, Chintan, is we did give a set of numbers that one should expect from the bank. I do think that if you add the actual provision, a lot of it is visible. So when you do forward numbers, if you would say then that the bank doesn't have to put an accelerated provision, it already has incurred in surplus. What will the numbers look like? And so it makes life very easy for you. And hence -- and to be very upfront about it, I put in Slide #3, saying assuming we don't do any excess provision, what would the bank look like, thinking to give a better sense of what next year will look like.

Sure. So probably, it could be better if there is a reversal as well on credit cost line...

Of course. So I will just give it to you in March. If I made a statement here which I wasn't very clear about -- when I sit with you with March results, I'll give you a clear sense of where the reversal will happen. We cannot continue with beyond the point. But the speed of reversal and which quarters will it come, just give me an opportunity to do it right. One thing you should know for sure is when we finish this year, we're right now PAT around INR 360-odd crores. We have 1 more quarter to go. You can take any reasonable addition to that which is better than Q3. So you know what PAT will finish with. Yes, we'll carry about INR 300 crores of accelerated provision. So you can do a fair estimate for next year now, which means that we will not have accelerated provision. And plus, some of this provision will get released, if not all of it. So you can take a fair guess of where the numbers will land.

Sure, sir -- yes, sorry.

And just lastly on -- no, I said from our side, that proper guidance, we'll give you when we meet with March results.

Sure, sir. Sure, sir. And sir, lastly, on the credit guarantee scheme. So when is the recovery? Any timelines on the recovery? When can we expect that? And what could be the quantum of price? Any thoughts there?

No. So I'm hoping, Chintan, there is no recovery because if you have just started guaranteeing now, if they turn NPA, we'll have to request the solution to give us the money. It's a fresh disbursement [Foreign Language] guarantee. [Foreign Language]. I'm hoping I'll never go back to them for money. But whatever we'll see, it'll probably happen next year if we -- some of these will turn NPA. I think what you will see, Chintan, is next few quarters, we'll keep adding to our CGTMSE and CGFMU guarantee programs so that any event risk on unsecured will not disturb us too much. It will, of course, disturb us a bit, but it will be very marginal. So what we have seen this year, I don't want to see it any other year.

So it's more of a kind of an insurance taken against the portfolio, right?

100%, 100%. And given that we have seen no external event, yet we saw stress in the book, right? That means there is possibility of future stress without an event. Our takeaway for all our investors has been a persistent, consistent book where we are predictable. We've got disturbed now, we have taken our medicine, and we want to make sure that we don't get disturbed in future. There's enough and more business to do. Our books are performing well. We are in 180 cities. We've got 24,000 people. Our products are all seen COVID in their existence. We are very comfortable with the growth and what we are doing. So I want to take away one amount of event risk. I thought BC was one opportunity. And as we said, BC has worked well, the 3 haven't. But I do want to also add up to the CGTMSE and CGFMU. I also must tell you that, even my BC book, I'm also guaranteeing that while I'm building my own book also. So we are doing the entire unsecured book with BC and non-BC so that there is -- even from a BC, there is much more safety in the future if something odd happens which in the numbers you can see.

Sure, sir. Sure. And just lastly, on the MFI slippages number [indiscernible] handy?

INR 230 crores, yes.

So that is flat on Q-o-Q basis, right?

Yes, yes.

The next question is from the line of Ashlesh Sonje from Kotak Securities.

Sir, a few data-keeping questions. Firstly, how can -- how do you account for the FLDG on the BC book in MFI?

So simple, it goes to NPA. There is a deposit which is available under the service guarantee program, and we take the deposit and we apply it. So what happens in my net NPA, my credit cost base down. So 2 things, gross NPA goes up. That, I can't change. Net NPA, because I take the money and apply it, the net NPA remains stable, which means it remains lower, and the credit cost also doesn't take that into account. Roughly, we would have taken about INR 110-odd crores out of the various deposits available with us during business.

That comes as a provision reversal then?

No provision made, so no reversal required. So moment it goes to NPA, I apply the deposit.

Okay. And secondly, can you share the SMA book in MFI as on December and September?

So if you see what's sitting in the -- I would use this group. We haven't done the SMA breakup, but we did want to give you a sense of what's flowing in, which is what we have done in Slide #4, where our closing gross NPA is about INR 758 crores, right? And if you take slide -- sorry, give me a second. Yes. So please, Slide #20. Right. So Slide #20 will tell you that INR 758 crores, INR 382 crores is secured, INR 225 crores is unsecured, and INR 151 crores is BC. Mostly, the unsecured and the BC book got a PCR of 86% and 98%, so no trouble coming from here. The secured book has, like Chintan asked earlier, 46% PCR. So really, that is a high PCR mainly to keep net NPA below 1%. But LTV is 46%, so this should not worry us. So the real will be what happens to, then what is the need for provisioning in Q4. The only slippages is coming from unsecured because I think secured, we can do I think more feedback on the action we have taken in Q3. So that should be the only number that you should put in your model.

Okay, sir. And lastly, can you share the microfinance disbursements in this quarter and the previous one?

Yes, I can. I have Abhilash has it ready. He'll give it in a second.

And Y-o-Y also, if possible.

I can tell you Y-o-Y is negative, about 19-odd percent, but I'll just give you the exact number. And while he's giving numbers, listen, level CGTMSE and CGFMU, one of the risk mitigation was also reinvesting the BC approach, which is why I said INR 110-odd crores that we have reduced from our credit cost. It is a result of us giving higher income to the BC for all these years. And in a stress moment, we did think that they would not have a challenge. But if they have a challenge, they will have to account for it themselves, which they have done.

INR 1,800 crores is disbursement in micro finance for this quarter against INR 1,350 crores of last -- against INR 1,338 crores of last quarter.

Abhilash, can you come again, please? I could not hear you.

INR 1,800 crores is Q3, INR 1,338 crores is Q2.

Q2 is INR 1,338 crores, and INR 1,809 crores. But what was it in Q3 of last year?

Q3 of last year, INR 1,970 crores.

INR 1,970 crores.

Sir, and the write-offs which you had this quarter of INR 109 crores, that would be completely from MFI?

Correct. Correct, which is why you should kind of use that to figure out why we'd not be able to grow even though we were taking in growth.

The next question is from the line of Sagar Shah from Spark PWM.

Congratulations for at least stable set of numbers in this kind of environment. Actually, I had a couple of questions. So my -- now the first one was related to the data-keeping question. What were the interest reversals in this quarter, especially on the MFI segment?

So around INR 50 crores of interest reversal which has happened year-to-date, actually. That is year-to-date. For the quarter, it's around INR 18 crores for the quarter.

For the quarter, it was INR 18 crores? Hello? Hello?

Sorry. Yes, INR 18 crores for the quarter.

Okay. INR 18 crores for the quarter for MFI segment, right?

Right.

Okay, sure. Now second was related to slippage ratio. You already highlighted the number before, that in this quarter, actually, our slippage ratio still is relatively a little high at around 6%. So was it INR 230 crores you highlighted was predominantly based on for MFI business. So for another -- so another in the second half was totally related to the secured segment. So can you highlight that which of the secured segments actually are the slippage ratio was relatively higher?

So if you look at our gross NPA level, this is a slide on Page 9, this is the micro LAP. Like I mentioned, 2, 3 geographies which are giving us a bit of a challenge. We have seen gross NPA increase in micro LAP and slightly in affordable housing. So there just 2 points. MSME loans are very stable. And in fact, two-wheeler has dropped back. Gold loans anyway is technical. So a bit of micro LAP which we have seen a slippage, and specifically in the 3 geographies and not the book in general across the country.

Okay. So micro LAP. And that is completely secured business, right, the micro LAP business?

Yes, I specified earlier, this is entirely SARFAESI application property business with a 33% LTV. With an LTV, which we have given, if you can see on Page 9 last column, it's 32.8%, which is 33%. So it's a matter of timing issue. But we are not seeing anything where it is kind of a few geographies, we could do a bit better, which we are now just tightening, that's about it.

Okay. So there's no major reason to worry at least on that, there's no major overlap with MFI. It's not related to much to MFI business?

So I have to be very clear that, listen, this is why we see the quarter-on-quarter was 5.8%. I would have retracted back or slowed down the growth if I find that, listen, I am entering an area where I'm uncomfortable with. We don't have the discomfort. And I want to be like extremely easy with this, that. So if we see sign of trouble, we would be running away from it and I would have already announced it to you folks, like, listen, here is what I can see a problem coming. I don't see a problem coming. It's 1 or 2 geographies, we'll fix it.

Okay. Sure, sir. Sir, and lastly, on the PCR, the PCR for the secured segment, what is the PCR for the secured segments as on this Q3 FY '25?

Slide #20, 48.3% unsecured. It gives you INR 758 crores gross NPA, the breakup. It tells you 79% of net NPA is all secured. So really not much damages, so only worry about unsecured slippage in Q4, that's all that could be hitting our credit cost. You minus your recoveries, then I think we're in good shape anyway. And we have a large amount of PCR. But like I mentioned earlier to Chintan, that most of the PCR unwinding will happen next year. Yes.

And just if I can squeeze on the last set, that you made a statement that we have seen the bottom as far as the micro finance business is concerned. So by Q4, can we expect a sequential uptick in disbursements in this particular MFI segment?

100% because anyway, Q4 is always strong in Q4, you know that, right?

Exactly.

That is not what worries us. Can I grow enough that my book will become like I have no negative growth or become positive? That is my big ask to myself. And Sudhir, who runs our business, sitting right here in front of me, our work is there. But listen, here is the classical piece. If you source group loans, your rejection rate is 70% to 80% now, batches. So we don't want to grow and end up with problems also. So we are very hard on what we are doing. So for example, my existing customer, if he is not in a metro city and has more than INR 50,000 outstanding balance with any MFI, I'm not giving him money. By saying this -- I'm only telling you that, listen, I can grow much faster, but I don't want to grow when I'm not certain that this is going to turn out right credit. So I'm saying this again. Non-metro city, more than INR 50,000 offered exposure, good customer of Jana, he will not get a repeat loan because we are not ready now until the industry is pretty much sorted out, which I don't think that we have sorted out right now. So we have put stringent conditions. We will continue with those. If we are slightly more challenged on growth, I would rather live with that, but I don't want to add up till we are very clear of what we are seeing in the market. And in spite of having a credit guarantee, because my credit guarantees are to be used in the event risk, not in taking more risk and saying, okay, whatever comes on top will be covered. That is not our bias.

The next question is from the line of Anant Mundra from Mytemple Capital.

Sir, we are at a slightly higher LCR. So just wanted to understand, why are we carrying higher liquidity? And when do we expect this to normalize? And I'm guessing this will have some impact on our NIMs as well. There could be some uptick in NIMs. So is that understanding correct?

So you're 100% correct. Our LCR is very, very high. We did try to bring it down. We made some progress in Q2, but back in Q3. See, what we tend to do is when we do bulk deposit, we tend to ask all the bulk depositors to take like 5, 10 basis point extra, but make it non-callable. Some of our sales force is very comfortable with that, and it gives us strength in whatever bulk we take here. We have launched a few products which should increase our retail deposits, reduce bulk in general. Once that happens, LCR will also come down. So the way we think is bulk has a reason why it is called bulk. So the best thing is when you take bulk, make it non-callable. Once you make it non-callable, then you can sleep easy. And we've also given the breakup of how much is 1 year plus, we have roughly about 70% of all bulk are more than 1 year also. But we are conscious of that. We do know that we will save some money if we get it right, and we'll attempt to do that in quarter 4.

Got it. Got it. Sir, what is the -- so we've done fairly well as compared to our peers when it comes to managing this MFI cycle. But what really is the next challenge that you're seeing in terms of meeting your long-term guidance of having a steady-state ROA of 1.8% to 2%? Is it the mobilization of CASA, where you have to get to 30%? Or is it -- there's been some increase in the NPA on the secured side. So is that also bothering you? So what is really bothering you now given that the cycle is behind and you're past the peak?

So in affordable housing, micro LAP, MSME, I think we are doing fine. In MSME, we are incrementally seeing sales invoice and purchase invoice discounting. So our focus is building credit structure, early warning around that. So I think that's the #1. I think on micro LAP and affordable housing, we just in 180 cities, just the operations run well here. I just mentioned we have 3,000 people. So always, it is like you to keep your hand on the machine all the time. You can't assume everything is fine. So I think just making sure we're executing well is all that is required. It doesn't bother me -- you should. We are among the players who have a micro finance business. We have a micro LAP, we have access to credit bureau. We know what the overlaps are, who's doing what, not just with us. I know my micro finance customers have taken micro LAP with somebody else, how they're behaving. If taken from me, how they're behaving. That is not our real worry. What I really like to do is first get the cost/income back because that's been our strength, and we've got a bit of a hiccup now. So I want to get cost/income right. And that will come from unsecured going back to its INR 10,000 crores levels. And if that is slower, then I think we have to work harder on the secured side so that the cost/income becomes better. So I think that is my -- one of my focus areas. Doing product diversification in MSME is our second area. I don't think we will take the eye off the ball on collections, whether MFI or non-MFI, because I think that is core in this environment. I think that won't change. On CASA, we have segmental offers, and we've even shown those segmented offers in one of the slides. It is just making sure that we really focus on retail growth here. I think there is a bit of hard work, but we'll continue doing that, and we expect that to continue. So those would be our real top areas, CASA growth, MSME into sales invoice, purchase invoice, making sure that we keep our hand on execution in secured. MFI collection doesn't get easy ever. And finally, making sure that we get the cost/income back on track because that is something which we think cost is a certainty, revenue as a hope. So cost has to come right.

Got it. Got it. Just one final question. Could you briefly just explain the economics of CGTMSE and CGFMU?

Yes. So CGTMSE cost is 1% of the disbursed amount from 1 year. Next year, we pay on whatever is the balance outstanding. Then the first 3% of the gross NPA. So let's say, INR 100 you guarantee, INR 5 goes into NPA. 3% of INR 5, which will be INR 0.15, is your cost. After that, 75% of the balance amount will be paid by the CGFMU. They could change your cost of guarantees, your delinquencies, whatever it is. So that is the economics. I think beyond a certain point, very early, about 1%, 1.5%, you're fine, you start getting some money back. On CGTMSE, 0.3% is the cost. It is only for micro enterprise. So you need to get a registration and it has to be a small business. And you get money back once it goes NPA. Only thing is I think the current condition they have applied is you get money back equal to 2x of the premium you pay for that year. So unless you don't have like a real bad year, then most of your money of NPAs on the CGTMSE book will come back, and that would be our bias.

And this is not in a pool. This is on a specific loan that is award?

Yes, yes. So there is a proper format where you get in all the details, you put Aadhaar number, you put Udyam numbers, you provide all the details, everything has to match. And once that is done, you upload to the system, the system accepts it, then you pay the guarantee fee, and then it becomes guaranteed. So it's a very formalized and very automated process, and there's enough checks and balances to make sure that you get done rightly. And I think it's very well organized by the National Guarantee Corporation.

And due to interest of time, this will be our last question. It's from the line of Vikram Subramanian from Marshall Wace.

Glad to see the current ongoing stress environment being managed very well, and also glad to note that credit quality peak stress is behind. But just a couple of questions, is more a follow-up on a couple of other participants before. Can you give a sense of how the SMA has moved between September and December, and how the collection efficiencies have moved in the past 4 months? Are these majorly to get a gauge of how the on-ground realties are? Because even though you are calling out peak stress behind, slippages still seem to be flat Q-o-Q. And you also call out that the overall environment still remains challenging. So just to get a sense of more like forward flows. So if we can get an idea of the SMAs or the collection efficiency, that will give up better picture for us.

So one is collection efficiency, unsecured at 99 -- sorry, 98.6%, 98.5%, consistent across October, November, December. Our push to get to 99% was not very successful and some reason rather, I always get pushback. This is why I keep saying that it's still going to be focused on -- from our side on micro finance because we would like to see a 99-plus. So that's a good #1. Also, I said that micro finance, Vikram, has -- normally, we'll reach 99% around 27th, 28th. Now we are fighting to do it 20th, 20st. I don't see that will do much. So I suspect we'll be a bit more relaxed in Q1 next year rather than Q4 this year. So hard yards will continue. We are geared up for that. We have put the collector in place. We should be there. Our SMA has reduced in Q3 over Q2. Do you want to add something there?

[indiscernible]

So I don't see a challenge. Also, recoveries are much better than in Q3 versus Q2 and Q1. So which means we are getting better traction than we got earlier. It also means that the collection force is much more settled now. Because once you start hiring people, by the time they understand the system and they start reaching out to customers, finding out where they live, we of course have backlog to everybody, so we know exactly how to find our customers. Well, it takes some time for people to settle. I think their settling period is over. So why I said the work is behind us, and I said that in the last quarterly meeting. See the shape of the book here. And like I keep -- if you take secured book also, if my book was not properly backed, I have a different version. I would have said, let's say, my book loan is vehicle finance. I'd have another future, how it would look. Similar in MFI, if I had no group loans, I would have probably take in another quarter I see because I think that group loan is not so settled likely, from whatever I gather from our MFI business. That's what I think. Fortunately, Q3 turned out right. Like I said, the only thing that I was hoping but I couldn't achieve in Q3, was to really stabilize my unsecured book to where it was at the end of September. I thought we'll make it happen, but somehow, our field force hadn't got the confidence to do more disbursements. So we'll continue working on that. And once you get that right, I think most of the issues are well settled. I know it's a bit of a long-ish thing, but I believe that, Vikram, what gives you a good sense of what we're expecting in Q4 and next year.

That is very helpful. Just to follow up on that, just so I'm clear. So our book mix and our recovery efforts and potential give us confidence to give out this comment that credit quality peak is behind us. It's more to do with how we have been dealing with and how our book has progressed. Am I right in assuming that?

Yes, absolutely. And so the peak is not a hope, but a reality. If you take actual credit cost, which is what we have given in Slide #4, it is lower in Q3. If you take Slide #4, even assuming a higher accelerated provision, my total credit was INR 174 crores, it is lower than INR 210 crores of last quarter. And so perfect, INR 196 crores versus the INR 210 crores come down to INR 174 crores. INR 174 crores is INR 93 crores of accelerated provision, which is higher than the INR 61 crores of last quarter. You see it in Slide #4. So I just want to give not just how I feel, but these are actual numbers which tell you that is behind us. Now net NPA is 0.91%. Supposed I had made it 0.95%, that was our chosen path. Then yes, PBT would be higher, our PAT would have been higher by INR 15 crores, INR 20 crores. You can net INR 15 crores, INR 20 crores, you can always -- as things are more exuberant, we can show them. Right now, let's be more conservative.

Thank you. Ladies and gentlemen, that was the last question for today's conference call. I now hand the conference over to the management for closing comments.

Thank you. In closing, I just want all of us to know that our bias and focus towards secured has really helped us a lot, and it only increases our conviction that we should get to 80% secured. Secondly, our focus on making sure that MFI is not just operational risk business, but has credit risk and should be treated as such, which is where the whole genesis, where individual loans really began. I think we are also, in our mind, very clear, it was the right answer, and we will sustain on that part. So I think that will not change. I think currently, we are very committed on making sure that we deliver strong cost/income, and we are working very hard for that because we do believe that, that certainty, which was our strength, remains our strength. Finally, I must say that we took a hard yard on pricing on CASA because I did feel that I as we continue going, at some point, we will have to make this call, so better earlier than later. I know that our branch team, led by Shrini, is committed to making sure that CASA does reach its growth path, and we are investing behind it. And we are very confident that Q4 will see a much better CASA number than what we saw in Q3. I think other than that, we would certainly like to apply for a universal banking name. I think the advantage it will give us with our employees, with our customers, with our deposit rates, that deposit velocity will be tremendous. So we certainly would like to keep the net NPA below 1%, gross NPA below 3%, and put up a good case to the regulators to find us suitable to get the license. More for you folks when we come with the March results, and thank you for your support and belief in this tough environment.

On behalf of Investec Capital Services India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.