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

Ladies and gentlemen, good day, and welcome to the Jana Small Finance Bank Q1 and FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chintan Shah from ICICI Securities. Thank you, and over to you, sir.

Yes. Thank you, Shruthi. Good evening, everyone, and welcome to the Q1 FY 2026 Results Conference Call for Jana Small Finance Bank. First of all, I would like to thank Jana Small Finance Bank management for giving us the opportunity to host their quarterly earnings conference call. From the management, we have with us Mr. Ajay Kanwal, Managing Director and Chief Executive Officer; Mr. Abhilash Sandur, Chief Financial Officer; and other team members from the senior management. So now without further delay, I would now like to hand over the floor to the management. Thank you, and over to you, Ajay sir.

Thank you, Chintan, and good evening to all of you. I will make reference to the investor presentation that we've uploaded. I'll even refer to the page numbers. Let me start by the first page of our application to Universal Bank, which happened on 9th of June, and that's a very important step for us as we broad-base our both product and customer base. I'll swiftly move to Page #3, which gives you a sense of which state has how many branches and also to give you the information that we've added 8 new branches in quarter 1. We plan to open 70 branches this year. We're conscious on cost, so 30 of these will be new branches, and the balance 40 will be relocations of existing branches, so it can serve a wider customer base. First quarter has seen 3 product focuses from us, which you can see on the right-hand side: one is our ASBA launch, second is the Solitaire Savings Account for women and third is our digital offering called iVanii, which essentially is a sound box on all the merchants and traders can use on their phones. So you really don't need a sound box, you just use our app and our app converts your phone into a sound box at 0 cost. So overall, we are continuing to see growth in customers. We are ensuring that we are on track to launch our strategic products, and we are increasing our branch network on very specific locations, conscious that it has to give us fastest value. I go to Page #4, and I want to talk a bit about quarter 1. It's been a tough quarter because what we did think originally that the MFI stress was a bump in a hole. Unfortunately, the bump was followed by a pothole, but we are more than determined to make sure that we cross this very swiftly, and let me talk about that. So first is on secured assets. As you know, when we finished March, we were around 70% of secured. Secured assets touch wood is firing very well. When I say firing very well, it means that we will expect 35% to 40% growth this year as we have been doing in secured assets for some time. Our margin in the first quarter are steady. So there is no drop in margins. In fact, there is no drop in gross yield for the bank. It continues to be 16.5%, and we'll talk about that. Our credit costs in first quarter on the secured side and slippages are pretty much in line with expectations, very close to Q4, which is on the better quarters. Importantly, we did inform that we had invested in increasing our headcount in secured business last year, mainly in micro housing, affordable housing. We had added roughly about 1,400 people fresh last year. We had hired supply chain people. We had increased some more on the 2-wheeler side. So the focus on the entire hiring that we did last year is on improving their productivity. We'll see nominal cost growth in secured only when we are hiring a used car and marginal increase about 150, 200 people in gold. So big deals on secured side is it's running well. We're very comfortable with what we see in terms of what's coming through in credit costs, our gaining share and costs will pretty much done and dusted for the year. Unsecured, we had all 3 lines working against us for the last 12 months. And if you add this quarter, it's now been roughly 15 months. First for the revenue challenge where we saw a drop in unsecured book last year, roughly about 10%. Our book has dropped by another 2.5% this quarter. But we do see, given that we are at midst of July, that we should see a flat to slight increase in this quarter. So I feel at least one side of revenue, which is seeing the book drop and revenue go down, we will see some improvement in the coming quarter, which is Q2. Our criteria are extremely tight of onboarding. So that is one of the reasons we are not able to grow faster. But to our mind, this tight criteria is a short-term pain. We do think that the industry is not completely cleared up. We would like to make sure that we are very on the tight end of our credit criteria for new onboarding. On the credit cost, while we did know that every April is a negative, we continue to see fresh flows. We had seen a pickup of fresh flow to NPA in the quarter 4. We did see a marginal increase in quarter 1. Now that's not -- that wasn't a good thing for us because -- purely because Q4 was not a low flow. So Q1 this year has similar. The way we look at it is, Q2 the flow will come down. But in Q3, we see a significant slowdown. So for the second line, which is credit cost to meaningfully reduce, it will be quarter 3. We continue putting our portfolio under the guarantee program and 36% of the unsecured portfolio is under the guarantee program. The third lever here was the cost, because when NPA started rising and so did delinquency, we had to add people in collections. Those costs have plateaued. So if you look at secured or unsecured, we don't see any cost increase following what we see as a current run rate. On the deposit side, we took our time in pushing the deposit out as we did see an interest rate cut coming. Our growth has picked up from May. We've also done pricing cuts on deposits, roughly -- not roughly, exactly it was 8.25% in March, is now at 7.75%, so we have done a 50 basis point cut. We do expect to certainly meet our 20% target on deposit growth with CASA at 20%. And we would see the cost of deposit pricing getting positively impacted from Q2 onwards. We've already spoken about our branches and about the segment launches. I'll move on to Slide #5, which shows the PAT of the bank. Our regulatory provision is INR 46 crores. It is lower than last year -- last quarter of INR 76 crores. We have increased our accelerated provision to INR 150 crores. This ensures that both gross NPA remains below 3%, net NPA remains below 1%, and we are well capitalized. It's fair to assume that the regulatory provision is lower because we did have accelerated provision done last year, which has been used up. So our PAT is at INR 102 crores. If you add back the accelerated provision, it should look at INR 250 crores. Our gross NPA at 2.8%. Net NPA remains at 0.9% with PCR, which is at 69.1% for the secured, which, as you all know, is on the higher side. But as you do accelerated provision, there are little choices left. You have to provision secured because secured is the biggest portion of our balance sheet. So naturally, when we really want to keep gross NPA and net NPA below 1%, we have no choice, but to increase more secured PCR. Then unsecured continues at 89.7%, very similar to what it was in quarter 4. So overall, if you look at the numbers, it has been 2, 3 key challenges here. One has been, of course, the NPA, which has forced us to put some more accelerated provision. It has been the revenue shortfall from a negative unsecured book. Other than those 2 parameters, which are largely industry specific, though we did think we will get out of this position faster, and Raman who is with me and looks after our Microfinance business will talk more about when we go into Q&A. Those are really the 2 challenges that we see in quarter 1, not new challenges, but we didn't think that quarter 1 would not resolve it. We continue to put more effort behind it. We would say from quarter 2 now that we would see -- start seeing a drop and the book stabilizing and unsecured. I'll swiftly move to Page #7. That's the important page we talk of every time. Our affordable housing Micro LAP is at INR 12,000 crores. If you take our -- we did have an exit on ODFD roughly about INR 600-odd crores. If you take secured growth, excluding this ODFD, we're at 6%. So we are very steady in our growth. Our big businesses of affordable housing, two-wheeler loans, gold loans are doing very well. I just want to on this page, just give a clear expectation what we should anticipate when we finish the first half. The total secured advances now show that in Q1 we have done 3%. This should show up to 12% to 13% minimum when we finish this quarter. A small blip in MSME, which is nothing to do with the business. The planned exits happened and last 1 or 2 of the larger supply chain customers' onboarding got a bit delayed and MSME loans, which shows a quarter-on-quarter of minus 1.3%, you'll probably see a 10% to 12% growth as we finish the first quarter -- sorry, the first half. So overall, very important on this page is our secured business, which is now 71%, most likely will be in the 72%, 73% range when you finish first half. Our secured business, which shows a 3% first quarter growth, will show most likely a 12% to 13% growth. And if our plans and what we see currently works the way we are working, our unsecured advances growth, which is negative 2.5% should at least become 0 when we finish the first half. So by giving you the expectation of the first half, which is very near and very obvious, I really want to reiterate that the guidance given on 20% asset growth, we are certainly on track to meet that in the shape that we've always talked of, which is moving secured to 80%, while we would like unsecured to remain at 20%, which is our plan for some time. I'll move on to an important slide we always talk about which is Slide #10, where while we do talk on lot of products, our competitive advantage, our operating leverage always has been more business with the same customer. And as you can see very clearly from Page 10 that whether it is CASA or preapproved business loans or gold penetration, on every single parameter, there is more and more absorption of multiple products by customers across the bank. I want to now talk of Page 11. This is the one we show each time. We have added a new important box on Page 11. You can see that INR 2,535 crores of our portfolio is guaranteed till March 2025. The NPA in this book is about INR 6.6 crores. And we should be seeing some recovery from this starting August '25, and the balance, which is a bigger book of CGMFU from July 2026. But I do want to flag this off that as we look ahead, we do expect unsecured book to grow, we do expect NPA to get better, we do expect our own recoveries to improve and we also expect a guarantee to start giving a minor benefit this year and bigger benefits in the following year. We continue providing our or keeping -- submitting our books for guarantee program. And right now, we have reached 36% of our total unsecured book under the guarantee programs. Our run rate shows that we should be closer to 45% to 50% of the book under the guarantee program by end of this quarter. I want to then swiftly move on to our deposit page, Page #13. We are very liquid. Liquidity is not our concern. We are able to grow very fast. We really put more growth, more focus on growing deposits effective May when we did cut the rates. We first got from 8.25% to 8.05% and the second cut we did from 8.05% to 7.75% which is in vogue now. CASA quarter-on-quarter has not grown, it's flattish, but we do expect to see a double-digit number before when we finish the first half. And I can say that with great amount of confidence because most of that growth, we already seen in our numbers as we sit here in June -- sorry, July. So as we sit here on nearly the last week of July coming up, we would see a double-digit CASA growth for the first half by itself. Time deposits, we can clearly see the pricing is coming lower. So 2 things we can expect. In quarter 2, when you finish the first half, our cost of deposits should show a drop. Our CASA should show a double digit, and we would like to reiterate our guidance for a 20% growth on the business side -- on the liability business side. Now I want to do a quick stop on Page 15. Again, on the digital, there is clear focus. We are doing everything digital that comes in our mind. And iVanii is a classical example where we have innovated for our customers where they don't have to spend on sound boxes and can use their mobile phones. And there are a lot of other features which are very valuable on it. I want to move next to Page #19, which is the financials page. Here, you can see on the right-hand side, yield and NIMs. The yield on the book continues to be 16.5%. Our NIMs are lower because a portion of our book which we have sold in OMO were at higher yield, our investment book and the yield has come down because, obviously, when you reinvest it, the same yield doesn't exist, but the customer yield hasn't shifted. As we go into Q2, we will see a drop in cost of deposits and cost of funding that should add to this number. And of course, with unsecured, gaining back the 2.5% loss of portfolio, that should also make the NIM better, and we should, if all goes well, certainly cross the 7% in a very decisive way in terms of net interest margins. I want to talk of Page #20, and this talks about our credit cost. We have shown it earlier, which is INR 46 crores is a regulatory provision. We have done an accelerated provision of INR 150 crores before declaring a PAT of INR 100 crores. After considering our recoveries under other income of INR 31 crores and of course, minusing INR 150 crores which is for a variety of reasons, our credit cost looks at INR 15 crores. Explanation of gross NPA and net NPA is given below. I must say that of the INR 196 crores of credit cost, 90% is used for unsecured assets. Only a very small portion has gone towards secured because the book, on the secured side, in the first quarter, was literally as good as quarter 4, marginal drop. You can see our gross NPA and net NPA numbers on this page and how we have arrived at the number. Clearly, the big addition is coming from the unsecured change in the quarter 1. I'll move to Page #21. Here you can see net NPA of secured is at INR 165 crores. It's dropped from last quarter. It used to be INR 176 crores. So like I said, secured is really working very well for us. Unsecured is well provisioned, and we continue to hope and we are working towards a drop in Q2, though we will see a significant drop in Q3. You can see our P&L page very clearly here. We have seen increase of other income in quarter 1. We normally have better income in quarter 1. There has been a change in accounting where we have normally on a PSLC when we sell, we, till last year, were using the entire income in the first quarter. From this year onwards, we are amortizing it into 4 quarters. So there is another INR 50-odd crores of PSLC sale, which will come in quarter 2, quarter 3, quarter 4, roughly about INR 18 crores each. That's the only change. And other than that, we've had a very good other income, which actually helped us improve our accelerated provisioning further. As we move on to the balance sheet page, which is Page #19, we continue to have good cash balances, so we are very liquid. For the folks who have noticed it earlier on the deposit page, our LCR is at 171%. We did speak in the last few investor calls that we would like to normalize our LCR below 200% as our liquidity position improves. We are doing so -- sorry, balance sheet page is #23, and I'm reading of 23 page, my apologies. We continue getting long-term financing from SIDBI, NABARD and NHB. And we do take small amounts because as you know, we are very liquid. So we don't really need to take too much borrowings any longer though, given the cost of deposit and the length of deposit which helps our ALM, we do take small amounts every now and then. That's the guidance page. I think AUM and deposits were very confident. PAT, let's give us a quarter, we'll talk more about when we reach there, and that will directly impact the ROAs and the ROEs. There is nothing significant change beyond that on which I would like to mention. So I really would like to close now so that we can open ourselves to question and answers. In closing, I can only tell you that it's been a tough quarter, purely because of the MFI stress. Other than that, we've had a good execution, very clear of growing our strategic path on secured. That hasn't changed. Customer path hasn't changed. The digital path hasn't changed. And we finally see light at the end of the tunnel with Q2 being better in MFI versus Q1 and Q3 being significantly different. With that, I will stop and open the floor for questions. Thank you.

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

My question on the margin side. You talked about in your commentary, the margin has not declined, but it has declined from 7.4% to 6.9%. And in this quarter, we continue to see pressure on your unsecured book, which has declined by 2-odd percent. And today only there is a company similar in the sector declared numbers and they're both in terms of book that is flat, in terms of NII growth is 7% and there's a decline in the credit addition to the gross NPA. So when I look at Jana Small Finance Bank's performance, it is -- industry players are showing some improvement in the metrics, but in Jana, there's no improvement in the metrics, whether it's NII, whether it is margin, where it is asset quality. So what is your comment on that? Why is the -- there is some green shoot in some players in the industry, but we are not seeing in Jana? And so what is your comment on that thing?

So Manish, fortunately for us, our unsecured book is only 30%. So if you are comparing to green shoots of somebody who is probably 100% MFI, it could be different. Because at the end of the day, our customer yield is at 16.5%, that hasn't changed. Our book is down 2.5%, and it's possible some dedicated MFI player has seen an increase, but like I said, it's different strokes for different folks. Because, listen, if I want to grow the book, I have to reduce the credit norms a bit and I can grow the book faster. I've chosen not to do that because I don't think so we are ready for that right now. As you know that if growth is an objective, it certainly can be achieved. But it could be a bit expensive later, and that is not where we would like to be. So I would suggest, Manish, that we should look at a comparison for like-to-like players. So if you go to our slide and see that the customer yield at 16.5% is still the same, it does show you that all the pricing is holding up. Green shoots, absolutely, we should expect green shoots, Manish. It will come from -- as unsecured book grows. It will come as we see Q2 and this should happen in Q2. We should see Q2 certainly NPA getting lower and like I said, significant drop in Q3. And very importantly for us, like I mentioned, our secured growth rate in absolute terms at 12% to 13% when we finish first half are the real green shoots because they are more sustainable in longer term and certainly a safer business that we would like to bank on.

Okay. Second question on the cost increase side, sir. So like 26.4% growth in employee expenses and 7.3% quarter-to-quarter. So this cost is mainly annual appraisal, salary revision or there is a further increase of the collection team for the effort, so -- and because the volume growth is not that high, so the cost on employees side is a bit higher side compared to the -- even other expenses growth is 4.7%. It is also when you look at the balance sheet growth, 2.3% only?

Yes. So I think it's a fair question on cost, which is why, Manish, when we started the first slide itself, I said our cost is going to be plateaued here or nominal increase in secured side because we are kind of fully loaded for the year. Yes, the first cost increase on the people side is the hiring we did in Q4 for collections and Q3 for collections last year. So they are flowing through into our cost into this year. There is a salary increase, which we normally expect. But other than that, there is no other specific cost. On cost increase on the other side, we did have to buy some PSL certificates, which if you see the sale of the PSL comes on the income line, but if you buy anything, it goes in the cost line, so that is a bit of one-off in the first quarter. Sorry, why don't you?

Yes. Other OpEx, there's no increase. The increase is through -- which, Ajay mentioned, that's the only OpEx increase over the last quarter. Main increase is coming from the payroll, which is directly linked to the appraisal cycle.

So other OpEx is really flat, INR 214 crores to INR 215 crores. So that hasn't changed from the numbers and the numbers, Abhilash just put in front of me. So there's no real change there. It's basically payroll. And payroll, like I mentioned earlier, because we had obviously accelerated our hiring both in collections and our secured business. We are kind of full capacity now, which is why you can see like, for example, affordable housing has seen a very strong first quarter growth. If you probably look at a peer group, which has 6.5% growth in affordable housing in quarter 1 itself. So you can see the results of hire people equal to higher volume in Q1. And you will see as we go ahead when the cost is flattish, slightly negative as we go into the various quarters, what we anticipate.

The last question I have is bit of strategic in nature. So we -- there are 3 banks have applied Universal Bank license, including you. So my question to the management team is what is -- we all understand the Universal Bank license has long-term benefits. But the point is the current focus should be to shape the business more profitable because we are growing the balance sheet, but the profit is not coming. I'm not talking about the PAT level, I'm talking about even NII is not increasing at all. For last so many quarters, it's quite flattish, from quarter 2 onwards. INR 593 crores was the quarter 2 FY '25, now it's INR 595 crores. So I mean, growth without increasing profit, how can you justify that thing?

So Manish, I think we should not mix it up by which I mean, listen, from last quarter, when MFI stress has begun, we have seen the book drop by 10%. And when you see a 10% drop in book roughly about INR 1,000 crores at 25% yield, it's unlikely that we will be able to recover that in the short term from a secured growth of assets. So I want to assure you that none of us are growing for the sake of growing. But at the same time, if there is stress in MFI, there is a little chance that we will make that up from -- in a 9-month or a 12-month time frame from secured growth where the margins are, of course, smaller. But as you know very well, this is the right business to grow. As far as Universal Bank is concerned, it doesn't change our focus on our business at all. Universal Bank application, as you're aware, Manish, is based on a few criterias decided by RBI, which frankly, are pretty much BAU, whether it's gross NPA, net NPA, diversification of asset, net worth or capital adequacy. So none of it -- so just to make sure that you should not feel that our application of Universal Bank has caused us any reason to do anything different than what we would have done normally. Second, Universal Bank is not a long-term benefit. I would say, it is a very immediate benefit the moment you get it. It should certainly improve the velocity of CASA and deposits into the bank. It should very immediately change the cost of deposits that we get as a bank. There are some benefits I will not put a number to, whether it is employees or investors or customers at large or what they think about the bank and its brand, which will have indirect benefits. So I really want to clarify 2 things to you because if you see our numbers, you can see very clearly that the secured NIMs haven't dropped. The secured business has grown. The only impact on NII is unsecured negative growth. So I do not think we should misassume NII growth as anything else. And second, on Universal, I do think it is very valuable as a license to be a Universal Bank. And it is not defocusing us. And the benefits would be from the day that we are awarded that license.

The next question is from the line of Ganesh Nagarsekar from Bharat Bet Research.

Sir, my first question is regarding our two-wheeler book. So that is one part of the business that we are growing quite aggressively. And historically, in some of the other peers that operate in this segment, credit costs, et cetera, could be a challenge, right? So I wanted to check how we are trying to ensure that the kind of lending that we're doing here is kind of quite secure. And I think in one of our earlier interactions, you had mentioned that a lot of these loans are kind of cross-sell to the housing clients as well. So is the collateral for the housing used for this as well? Or how do you typically think about that?

Yes. So first, let me -- so thanks for the question. Let me first clarify the two-wheeler piece. See, we operate roughly in 185 cities as a bank. And when we launched two-wheeler, we began with the first 30 cities, then we took it to 60 cities. I think the last I remember, we have put a stop around 120. We have not even reached 180 cities that we are available in. So when you see growth, it is not about us being aggressive, it is us about going to new cities where the bank exists and we're introducing a new product. I'm saying this because, when you grow fast, you can assume that somebody is either overaggressive or taking some light decision on credit, which is why gross NPA has been holding up very well, but we've been pacing our growth based on a number of cities here, not because we took any credit, which is extra. Second is, do we give two-wheeler loans to our good customers, whether they are Micro LAP or affordable housing or they are even our good MFI customers, our good gold loan customers, savings account, of course, we do, roughly 15%, 20% of the book is there, and that book is, of course, advantage because we obviously have more insight into the customer than somebody who walks in as a fresh customer to us. So my takeaway for you is, listen, we have seen this book. This business was launched after wave 1 of COVID. So we did see some not-so-good numbers post wave 2. It's been a few years. Our scorecard, which we use in addition to the bureau for two-wheeler is our second-generation scorecard. So we've had a first score card, we remodified it and made it better. We are on #2 now. So nothing that we can see in our two-wheeler business is stopping us to say it will grow. It will continue growing purely because we'll expand geographically. And we should continue to see good numbers, and nothing should make us feel very differently about it.

Understood. Got it, sir. Sir, my second question is regarding our CASA. So that I noticed is kind of growing a bit slowly, and that's been a challenge for us for a few quarters now, despite us having relatively good open branches, et cetera. And I think you had also mentioned that you're not kind of looking to just grow that by kind of giving higher rates, et cetera. So broadly, how are you thinking about the CASA piece? And I think you mentioned growth starting Q2, Q3, the CASA book will kind of start growing quite well. So incrementally, what are you doing that will kind of change the rate of growth in CASA? And how do you think we should think about that a few quarters down?

Good. So listen, first, you're very generous. Our CASA growth is 0% in the first quarter. So every reason for us to say not so delighted about it. But see, first is CASA growth was through affluent segments. And to attract affluent segments, we launched a series of segmental offers. The last one was Solitaire, which was a specific segment for women. Prior to that, we have launched Legend for senior citizens. We have launched premium banking and before that, we have launched Exclusive. We've also done NR where we have to do a full launch, but that's the last piece it will go in. So a series of segmental offers, some specific branch opening, which is why I said we'll open 30 new branches this year. We have done similar numbers last year for new locations. And of course, more work. We are well endowed in mobile banking and internet banking. So I'll give you some numbers. I'll give you a sense of why it will be different this year. See, last year, we grew the deposit book by 32%. This is time deposit. We grew CASA by 18% last year. But the deposit book grew much faster than CASA book. So CASA percentage came down. Here, we want to do a slight reversal, which is, we would like to grow CASA at least 25%. And we would like to see time deposit to grow less than 25%, so there are percentage changes. Like I said, we are now in nearly end of July, I would think. We can see that we will at least add 10% to CASA growth for first half. I think that will give all of us enough confidence that we will grow at the 25% range on CASA for this year. Now that the money market is liquid and there is no need for us to be conservative on deposit side, we would not increase our time deposit growth at that pace as we did last year. We can also see that the LCR, which was around 250-odd percent last year, is down to 170%. So clearly, the change in the market liquidity has prompted us to make sure that we try and now save some basis points on callable versus noncallable deposits, which we've also done for the first quarter. So all in all, I would give you comfort saying we are liquid. We are in the right environment to grow because it's a low-cost environment starting. Hopefully, get probably a bit more lower cost, if at all, but we're happy where we are, and we would like to see some CASA and time deposit growth, and you will certainly see it by end of September.

Understood. Perfect. And if I could just squeeze in one last question. So I think it's just been a month or so since you applied for the Universal Bank license. But any comments from the regulator till now about any challenges that they will have or any issues that they have? Or any comments that you've heard back from the regulator on the Universal license front?

There is very active engagement. There is nothing that we've heard is the problem. As you know, they have given a hurdle of who can apply. We met the hurdle, we've applied. We have put a 5-year plan. There is active engagement. And there is nothing which tells us now that is anything different than what we knew 2 months back.

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

So my question was with respect to BC book. I believe there is a rundown in the book quarter-on-quarter, still [indiscernible] or the GNPA keeps on adding. So how are we placed over there? And can you throw some color on that?

So Shailesh, the BC book is dropping because the BC book uses the same credit criteria as the bank uses, which is, if you have more than INR 50,000 unsecured outstanding with any player outside of us, then we are not giving the person unsecured loans. This makes us very conservative to the 2 lakh guardrail put up by the MFIN. And because that's the norm that the bank would like to use so that we really don't build again an over-leverage book for the sake of growth, we do see the book -- the BC books not growing. The second reason, the BC books are not growing is the larger BCs who had NPA challenges are still focused on collections here. And it will be unfair for us to kind of push them for growth when we know that the collection cycle for them hasn't bottomed there. And I can see that, that should bottom out for them also, at least one of them has already bottomed in Q1, the other 2 I would expect in Q2, and then we will see an overall growth. I must tell you that having learned from the BC experience, we are still continuing with the BC growth. And we have the extra guardrails that we have to put around BCs, which were not credit guardrails, but slowing down their growth, not letting BCs grow faster than an X amount, that's the additional guardrail that we'll put from -- going from hereon. I must also tell you that every BC who was our BC before the crisis had NPA challenges, continues to be our BC, which means that they would like to get their money back of what they have lost from customers and they would like to continue the partnership, and we're very fully supportive of it. So none of the BCs have said, "My FLDG is bursted, so thank you very much, it's your problem now." They're very actively working on solving the issues.

But just on the quality front, 18% GNPA, I understand, even if it's a rundown, still the amount is kind of increasing quarter-on-quarter. How -- what do you think when this increase in GNPA would kind of press? And how is the power book over there because quarter-on-quarter, there is a consistent increase still?

Yes, see, the book has run down much faster than our book. As you can see, their book was around INR 2,500 crores, it's down to roughly -- give me a second. So Shailesh, they've dropped 30%, we dropped 10%. So their book has dropped much faster and which is why they are -- so that is one of the main reasons of gross NPA increase. Like I said, there were 3 -- only 3 BCs challenged. One has stabilized, which means he's not adding to gross NPA. Second, the other 2 need to stabilize and once they do, then you will see the change. Our anticipation is by Q2, you will see the change. We will hopefully see some growth in BC book along with us. I think they've also got used to a different credit criteria than they were used to in the past. It means a realignment of what is the amount of rejection rate and where do you focus and whom do you say yes, whom do you say no. Because all of us are used to a much easier criteria, credit criteria which was applied last year. So that adjustment factor to my mind is over. And you should see Q2 as a BC, different answer.

Okay. And just to conclude with this part, what gives us the confidence that second quarter would be better? Means, are we seeing any uptick? Because I remember fourth quarter also, the commentary was in general than the first quarter or the months ending to the quarter was kind of good in terms of pickup and general macro commentary was kind of positive. Any quantitative numbers you can provide which gives us this confidence that the second quarter should be better?

So Shailesh, I'll give you April B0 MFI collection is around 96.4%, May was about 98.9% and June is 98.7%. So if you just see the April 3-odd percent drop in the B0, that has kind of been our challenge, which is why we say the significant drop of NPA will only happen in Q3. We will see a drop in Q2 though, but not as significant as what we will see in Q3. And the B0 numbers give us that confidence. On the disbursal side, as we sit here finishing July, this will be the highest disbursal month we've had this year. So it is higher than what we had in April, May and June. So that gives us confidence that the book will start turning positive. And Shailesh, I must say, even now we are going to remain conservative in the credit criteria we do to onboard customers. I did hear from the other analysts that people are probably showing more growth or faster growth, but we will still be more cautious here.

Okay. Just a last question from my side. One, I have seen a huge uptick in terms of term loans to NBFCs on quarter-on-quarter basis. Still it is small in terms of overall scheme of things, but still INR 2,000 crores is the NBFC book now. What is the yield what we get over there? And also on Micro LAP, there are certain pockets which are showing stress. Any color if you can throw on that?

So first, NBFC, roughly around 1987 as like 6% to 7% of our total book. Second NBFC has been not a single day delinquent, forget NPA in the last 7 years. So we're very mindful. If you watch our last -- first quarter last year also, see, first quarter is normally slow growth of assets. And we tend to pick up the NBFC lending in the first quarter, second quarter and then we slow down Q3, Q4, certainly because our own lending picks up a lot. So there is no other reason except that we have liquidity. We have good clients. The yield is around 12% on the NBFC book. We know our NBFCs because we are in the same business. So we know exactly what our clients are doing because we always compete with all of them in the market. Comfortable doing that. And purely, we've always said this, we still would say that it's more tactical answer to the balance sheet rather than a strategic answer. So that view on NBFC hasn't changed because we've got enough of our own business to grow. So it's more a timing issue. On Micro LAP, listen, we don't see any generic issue, and I would say, some people did ask me last time also, MFIs are becoming Micro LAP customers, do you see stress, et cetera. No, we did not see that in the past, we did not see it in the first quarter also, and we're very happy with what we have seen in the unsecured delinquency in the first quarter. So nothing as -- in fact, we were happy with the way what numbers we did see. We always have some geographies which bother us a bit more than other geographies. We are in 25 states, so not all states perform similarly. There's lot to do with some execution on the ground. So states where we have a challenge, then we tighten the credit criteria, we look at our processes, we look at our leadership, we make changes. We've done that to a few geographies last year. I'll give you the specific names. We did have a small challenge in Odisha, for example, which we now see is behind us. We had a minor blip in a few districts in Gujarat. It's now behind us. And we certainly did grow slow in Karnataka in Q1, given all the external factors that were happening. We did see a small blip in the smaller loans in Karnataka. Again, we've addressed that. But nothing which is a larger Micro LAP issue of something that should cause us to be cautious or change criteria or be anything harder. I must also tell you that our third-generation scorecard for affordable housing and Micro LAP, that is a scorecard which is used in addition to using credit bureau will go live next month. So if at all, we would have an even better book going forward because our new scorecard is obviously much better than the last scorecard.

The next question is from the line of Rahul Kumar from Vaikarya.

Sir, for the unsecured business, what was the SMA 1 and 2 for this quarter? And can you tell us the corresponding figure for the last quarter as well?

While the folks dig out the number, do you have a follow-up question or any other question other than the unsecured book?

Actually, I had one more data questions, but I also wanted to know the split of the slippages and provisions between the secured and unsecured which we have done for this quarter?

Yes. So like I said, 90% of all the provisions have gone to unsecured, 10% has gone to secured. That's an easy one. In terms of slippages, we are nearly flattish to quarter 4 unsecured. On unsecured, the deterioration is roughly about 15% to 20% over quarter 4, and that is mainly coming out of the April B0 of 96 then flowing in. So those are the 2 quick points. Having said that, as you know, that since we have been providing very regularly accelerated provision, we're well covered on the provision side which you can see in the PCR numbers.

Okay. And sir, do we also have the similar figure for the write-off between secured and unsecured?

Yes, give me a second. Just one second, Abhilash, our CFO is here, he will just tell you the numbers.

Sir, meanwhile, actually, I also wanted to understand what proportion of our book is actually repo-linked? And how much have we already passed in, in terms of the spread?

Sorry, can you repeat the question.

What portion of the book is repo-linked...

And how much we've already...

Very marginal portion is repo-linked because we do give the customer at the end of 39 months to choose whether they want to continue fixed or they want to do a repo-linked. So I would think less than 20% would be repo-linked -- sorry, 6%. Abhilash is correcting me, is repo-linked. External -- T-Bill linked, 6% is the number. On the write-offs, roughly about INR 100 crores on unsecured and about INR 10 crores on secured or the tech write-offs.

Okay. And sir, if you look at the NIMs for this quarter, we have seen that it has declined 50 bps while our yields are broadly flat or just 10 basis points down and the cost of fund is broadly flat, right? So why are the NIMs declined 50 basis points?

So which is why I did try, but maybe Abhilash, you can help me. See -- go ahead, Abhilash.

So when we sold investments this quarter, in the quarter 1, we booked a profit of almost INR 49 crores as trading income. So when we sell these investments, the high-yielding investment goes up and when we purchase again, the yields are low. So that will give an impact on the overall NIMs because when you calculate the NIM, it also includes the investment book. So that is the reason there's a drop in NIM. Whereas we have booked a INR 49 crore upfront income as a trading income in the other income for the last quarter.

So 3 things happened, AFS sale, HTM sale and OMOs, that gave us an opportunity to book this INR 49 crores, so they are nothing else but that. Will this NIMs improve from Q2 just because of us buying different yields, different securities? No, the securities are low yield. So what should happen in Q2 really is our cost of funds should come down, our unsecured should grow and our NPA should go lower. As you know, all these are high yield, at least unsecured is very high yield. So getting NIMs back up to where it were in Q1 or rather Q4 would be very easy. The positive side is repo book, roughly about 6%. Secured hasn't seen any drop in yields and so -- which is 70% of our business. So we should not see any other impact from a yield perspective. Our bias, it should improve in Q2.

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

Sir, since last 3, 4 quarters, we are doing accelerated provisions just so that our NNPAs remain below 1%. So I would like to know till when we will continue doing this. And as the accelerated provisions which we are doing, that should also -- there should also be reversal for this, right, but we aren't seeing any reversals.

You're absolutely right. See, the problem is like this. Normally, if you don't have -- if your slippages stop, then accelerated provision is like -- is helping you change the percentage. Right now, what we're facing is accelerated provision as some of it is already being used up by slippages. So once the slippage is slow down, then the accelerated provision will just be a bunch. So when will it slow down? I think it will certainly slow down by Q2, it will be lower than Q1, and Q3 will be lower than Q2. For no other reason, our slippages will be lower here. So I think those are the real -- in a normal circumstance, say, there was no MFI stress, then we would need not put so much accelerated provision, then hitting the 3%, 1% mark would have been far easier. But now we are complicated with 2 things. One is there is an MFI slippage. And we did think before the Karnataka issue began in Q4, that we've probably see the worst. But unfortunately, it did continue in Q4, it has continued in Q1. Now we're seeing Q2 decline and we expect Q3 then a significant drop because then it would have covered up all the April flows. So yes, accelerated provision will decline certainly because we will have less slippages and then we don't need to put so much money to reach the 3%, 1%.

Yes. But then if we are seeing this as an accelerated provision, then -- and if you feel that out of this, only 50% is going to come back, then this would be a normal course of provision, why you're mentioning it as accelerated provision? Because see, as a shareholder, even this quarter, when we are seeing your presentation, you are mentioning INR 252 crores of PAT if we add accelerated provisions. So I mean, as a shareholder, we feel that this accelerated provision will come back to us, maybe 2 quarters or 3 quarters down the line.

So 2 things. One is, we have to -- for sake of giving transparency, we have to define what is regulatory and accelerated, which is why we put them as very separate measures. Two is when we did start accelerated provision last year, there was hardly -- at least in our heads, it wasn't clear that we'll continue using it into this year, which is where the case has ended up being. Otherwise, we would have not need to put so much accelerated provision for sure, even in the first quarter. Very difficult to predict last year what would happen this year. Otherwise, like I said, it would not be so much. I don't know a better answer, how can I put an accelerated provision, which is okay, out of this accelerated provision, so much will get used and so much will get unused, probably we will have a much more clearer path when we see Q2 and we see it like the final MFI stress is bedded done. That will be easier for us to define and say, okay, this one is like making ratio below 1%, don't see use of it. See, so there is no better way of us putting this as transparently as you put it. I think going forward is guarantee money coming in, less need of accelerated provision, and third is more recoveries by the bank in general because typically, when delinquency improves, then people get more focused on recoveries. When you're busy trying to stop B0 from flowing, then you don't have as much time for recoveries. So I think 3 things would change nearly simultaneously, and we should see that from Q2 onwards.

Okay. Okay. So basically, once we get the Universal Banking License, say, maybe 1, 2, 3 quarters down the line, so these accelerated provisions you won't be doing it?

So first, accelerated provision is good in a stress environment. It shows that we have enough buffer. And I'd rather build a buffer and release them later rather than start with a less buffer. So I know that we do talk of 3% and 1% for Universal Bank. But very importantly for both you as an investors and me as the CEO, it is good to have some buffers when there is a stress environment going on. If you don't use the buffer, we'll gladly release it and then -- but do I want to have a -- so it's a timing issue, right? I don't do accelerated provision, I'll let net NPA become 1.2%, I do recovery and bring it below 1%. That means, I can declare more profits, provision less. And then I give time to solve it. What we are doing now is rather than giving it that time, we are upfront putting up the cash, and then saying that time will solve it. Now that time will be visible to all of us because we've been doing this for some time. As you know, we did INR 300 crores last year, we put INR 150 crores now, it's INR 450 crores accelerated provision. It will be visible. We were hoping it is visible early this year, but hasn't happened. So I think we just need a bit of patience. But what I'm trying to say also is suppose I get Universal Bank and there is MFI stress continues, there is no point of me not trying to give extra buffer provisions if I can see the stress in the environment. I would still do it.

Okay. And sir, my final question, sir, our NIMs have come down drastically. I mean, it's current timing -- as the previous participant also asked, you said 6.9%. So what do you see -- where do you see NIM stabilizing in this current year?

So we see around 7.2%, 7.3% being the NIM, including the first quarter, 6.9%.

Okay. Okay. Because in the previous call, I think you were mentioning 7.8% to 8% NIMs, I mean, we can achieve for this year? So are you reducing our guidance on NIMs?

So I have not given a guidance on NIMs, though I must have stated on the call. Let me tell you this. Let's say, we grow INR 1,000 crores of unsecured in the next 9 months, net growth, we'll be back to 7.8%, that is all it takes. So NIM is a function of how much 25% asset you're putting on there. And our NIM challenge, like I mentioned, we have been tracking it since last year. We have not seen a drop in NIMs on secured at all. All you've seen is a drop in unsecured book. And second is the interest reversal when you have NPAs. So those are the 2 reasons why NIMs have come down. Moment those 2 change, your NIMs go back up. So for us, the issue is just solving the MFI NIM issue. Nothing on the secured side, which we grow very rapidly is telling us that there is any NIM challenge coming out of secured book. And it's very easy. You just add up INR 1,000 crores to my unsecured book and you will see the NIM will just shoot up.

Due to time constraints, that was the last question. I would now like to hand the conference over to Mr. Ajay for the closing comments. Thank you, and over to you, sir.

Thank you so much. Thanks, everyone, for attending and your questions. I hope we've addressed them well. In closing, I just want to tell a few things which are very important. First is, Universal Bank is very important. It's a very big change for the bank, and we'll continue focusing and making sure that we do everything that we can to get a positive response. Second, MFI did fox us. We didn't anticipate MFI will continue longer. We do remain conservative on MFI. We are conscious that our remaining conservative may give us a bit of less income, but I'd rather have that solved today rather than for income grow my MFI book and then regret again next year. So I really, as a management team, think that is the best and a safer path and a more longer-term path to go by, that won't shift. Third, our secured book is doing extremely well. We continue to grow that handsomely. It's performing very well. And we do think that this MFI stress is only making us feel that the faster we move to an 80% secured with the balance unsecured book as guaranteed, I think we'll be in the best position as a bank. It does mean that we will have a few tough questions from you folks which we've had in this quarter and the last quarter. But rest assured, we are very determined to make sure that we do build a very strong and resilient bank. Thank you so much.

Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.