L&T Finance Limited (LTF) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to L&T Finance Limited Q2 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. We have with us today, Mr. Sudipta Roy, Managing Director and CEO; Mr. Sachinn Joshi, CFO; and Mr. Raju Dodti, COO; and other members of the senior management team. Before we proceed, as a standard disclaimer, no unpublished price-sensitive information will be shared during the call. Only publicly available documents will be referred to for discussions during the interaction in the call. While all efforts will be made to ensure that no unpublished price-sensitive information will be shared, in case of any inadvertent disclosure, the same would in any case form part of the recording of the call. Further, some of the statements made on today's call may be forward-looking in nature. A note to this effect is provided in the Q2 results presentation sent out to all of you earlier. I would now like to invite Mr. Sudipta Roy to share his thoughts on the company's performance and the strategy of the company on going forward. Thank you, and over to you, sir.

Thank you. A very good morning to all of you. I welcome you all to the investor call for the second quarter of FY '25. With me on the call are our CFO, Mr. Sachinn Joshi; our Chief Operating Officer, Mr. Raju Dodti; and the senior management team of L&T Finance. Today's call is divided into 2 sections, taken up sequentially by myself and our CFO, Mr. Sachinn Joshi, who will be talking about the overall business metrics and the financial performance at length. Post our opening commentary, we'll be happy to take questions on the call. I would like to start the call by sharing the highlights of this quarter's performance, wherein we have registered a quarterly consol PAT of INR 696 crores, a growth of 17% year-on-year, while maintaining a satisfactory trajectory in our quarter 2 disbursements, ending with an overall disbursement growth of 11% Y-o-Y, with retail disbursements standing at INR 15,092 crores, a growth of 12% Y-o-Y and 2% sequential growth over Q1 FY '25. Our retail book now stands at INR 88,975 crores, a growth of 28% Y-o-Y. These numbers reflect the strength of the retail business franchise that we have created over the years, which has been further sharpened by our 5-pillar execution strategy. And I'm happy to state that the company's execution momentum to transform into a granular retail financial services provider continues unabated. Having met Lakshya 2026 Goals at the retail level 2 years in advance in Q3 FY '24, we have reoriented ourselves for convergence at the consolidated level by FY 2026 as detailed in the last quarter's earnings call. Accordingly, our quarterly performance as against the new targets for Lakshya 2026 are as follows: Our Lakshya goal was to achieve retailization of greater than 95%. I'm pleased to share that we have surpassed this target with 96% utilization at the end of this quarter. Against the retail book growth target of 25% CAGR in Q2 FY '25, our growth stood at 28% Y-o-Y. While we have improved portfolio quality by sustaining retail GS3 and NS3 within the threshold levels, we have now tasked ourselves to converge consol GS3 and NS3 below 3% and 1%, respectively. The corresponding numbers stood at 3.19% and 0.96% at the end of Q2 FY '25. On the ROA front, we have moved from tracking retail ROA to consol ROA in the range of 2.8% to 3% as per our original Lakshya 2026 targets. Our consol ROA for Q2 FY '25 stood at 2.6%, up by 18 basis points year-on-year, which, in the last quarter, same -- last year same quarter stood at 2.42%. I'd like to draw your attention to Slide #5 of the investor presentation where this has been delineated in detail. I would now like to quickly run you through the key highlights of our performance in Q2 FY '25: quarterly consol PAT at INR 696 crores in Q2 FY '25, a growth of 17% year-on-year; quarterly retail disbursements of INR 15,092 crores, a growth of 12% year-on-year. In spite of a challenging operating environment, our acquisition engine and persistent execution strategy ensured that the disbursement exhibited a sequential growth of 2% over the last quarter. Quarter 2 FY '25 retail book stood at INR 88,975 crores, up by 28% year-on-year. Consol book growth has picked up pace, growing at 18% year-on-year, reaching INR 93,015 crores in Q2 FY '25. The on-book wholesale assets closed at INR 4,040 crores at the end of Q2 FY '25, which is about approximately 4% of the overall book. This quarter marks the completion of 1 year of our 5-pillar transformation strategy, and it continues to be central to our road map to the future, details of which are available from Slide 11 to Slide 24 of the investor presentation. Consol GS3 and NS3 numbers came in close to the target metrics of 3% and 1% at 3.19% and 0.96%, respectively. The slight erosion in GS3 performance over Q1 FY '25 is largely on account of the macro operating environment deterioration in the Rural Business Finance vertical in certain pockets, rationalization of tractor repossession policy in early pockets, and some localized adjacencies in the two-wheeler business. Collections efficiencies in our Rural Business Finance vertical was maintained at 99.43% for September '24, which is a 13 basis points erosion over the corresponding figure of 99.56% for June '24. I would now like to give you some flavor on the macroeconomic scenario and the sectorial outlook before proceeding to the 5 pillars of our execution strategy. The spread and width of rainfall distribution this year from Southwest monsoon has been unprecedented, with rainfall being at 122% of long period average this year. And most of the parts of the country have received adequate or more than adequate rainfall. This augurs well for the restoration of depleted water tables and reservoir levels in most parts of the country. The success of the Southwest monsoon bodes well for the possible resumption of consumer demand in rural areas, an improvement of rural liquidity post the arrival of the kharif crop and a possible bumper rabi cropping season. This could have a positive implication for our Rural Business Finance and Farmer Finance verticals in H2 FY '25. We have already seen the green shoots of improved tractor offtake in the month of October and are hopeful that the trend sustains and positively impacts the entire rural sector. We would like to share that we have seen localized impact on collection efficiencies in the Rural Business Finance vertical due to widespread floods in certain geographical pockets, namely North Bihar, Gujarat and parts of West Bengal. We also saw disturbances from certain unscrupulous elements hampering our collection efforts in the Northeastern UP and headwinds in Odisha on account of temporary disruption in social welfare schemes. I'm pleased to share that our RBF team was able to proactively address these issues, minimizing the impact on the business overall. I would also like to reiterate that the incidence of our customers with chronic overleverage is one of the lowest in the industry, with customers having more than 4 external associations standing at about 5.4% of our total RBF outstanding book. Granular details of our customer leverage have been given on Slide 17 of our investor presentation. However, we are seized to the fact that the industry is passing through a period of deleveraging, which might have a ripple effect continuing into Q3 FY '25 and Q4 FY '25, thereby moderating our growth outlook. I'd like to inform that we did not need to dip into our macro-prudential provisions specifically created for the Rural Business Finance vertical in Q2 FY '25. We would continuously assess our collection outcomes in the impacted geographies highlighted above and keep our options open on differing possible slippages through existing macro-prudential provisions in H2 FY '25. As far as the global economy is concerned, it has weakened over the last quarters with some of the major economies, including U.S., China and the eurozone, now shifting their focus from targeting inflation to fostering growth momentum. The start of Fed's calibrated quantitative easing cycle, along with RBI's signaling of a neutral accommodation stance indicates a movement towards a more benign policy rate regime globally and in India, in the coming year. Pockets of worry remain due to conflict zones remaining red hot in Europe and Middle East and demand constant attention due to possible spillover impacts into the Indian economy in case of a sustained worsening of the conflicts. Despite the certain uncertain global and macro geopolitical situation, the domestic growth story remains intact, despite some sluggishness in high-frequency indicators as rural consumption and private investment demands start to gain momentum. We hope that a higher government expenditure in the second half of the year and the bountiful rains should add further [ fill-in. ] As mentioned earlier, I would now like to give a brief update on the 5 pillars of execution that we had enumerated 1 year back and continue to be in implementation mode against the same. Number one, customer acquisition. The focus has been sustained on maintaining customer acquisition momentum in a challenging macro environment, while doing the necessary credit adjustments to maintain future portfolio quality. Accordingly, rationalizations have been made in dealer network in both 2-wheeler and tractor and farm equipment business in Q2 FY '25, and focus has been sustained on new customer acquisition in the Rural Business Finance vertical to tap into non-leveraged customers by expanding new village footprint. Consequently, the cross-sell penetration in Rural Business Finance has been calibrated downwards to exclude customers of higher risk profiles. Details of the same are available in Slide 12 and 13 of the investor presentation deck. Number two, sharpening credit underwriting. Project Cyclops, our 3-dimensional credit engine that was operationalized in Q1 FY '25, has now been scaled up to cover 55% of the 2-wheeler monthly throughput. Two additional scorecards, the fraud scorecard and the dealer scorecard, have been implemented in Q2 FY '25, taking the number of scorecards in deployment to 16, only for the 2-wheeler business. The initial results remain encouraging with through-the-door net bounce numbers for fresh acquisitions being approximately 125 basis points lower than those underwritten by legacy algorithms. Project Cyclops will be implemented for tractor business in Q3 FY '25, followed by other lines of business, notably Personal Loans and SME business loans in Q4 FY '25. Futuristic digital architecture. The work on upgrading the technical capabilities and IT framework remained unabated in Q2. On the large partnerships initiatives, deep integration with CRED enabled us to go live on personal loan sourcing within expected time lines. Progress has been made in optimizing cloud usage expenses and building robust disaster recovery infrastructure alongside beefing up the cybersecurity capabilities. The organization has embarked on the task of housing the entire core IT, data sciences and operations capabilities in an integrated facility in Navi Mumbai slated to go live in Q4 FY '25. L&T Finance is also happy to announce that the inaugural edition of RAISE, India's premier BFSI-focused artificial intelligence conference featuring luminary speakers, will be held in Mumbai on the 26th of November 2024, showcasing practical use cases of AI in financial services domain to BFSI industry and fintech participants. We urge you to visit the website www.ltfraise.com and register for the same. Brand visibility. Over the past few quarters, we have invested in building visibility around high-traffic customer points like airports and in-flight advertising on the urban side and wall paintings and melas on the rural side and marked our presence in the global fintech space. We'll be launching integrated marketing campaigns for 2-wheeler and SME-focused products in the coming months. We are pleased to inform that we have signed a contract with Jasprit Bumrah as a brand ambassador for L&T Finance products. Capability building. In line with our objective of boosting the human capital of L&T Finance with an execution bias towards various initiatives, the regional businesses' structure was operationalized in Q2 FY '25 to provide more granular distribution and risk control on ground, aid cross-sell and inter-business synergies and reduce response times to tap emerging market opportunities. 4 senior professionals from the banking sector have been onboarded in Q2 FY '25, to transition L&T Finance from a business silo-driven organization to a more participative matrix organization structure with far more granular senior supervision on ground in the 4 geographical regions of the country. During the quarter, we also launched our first model branch in Madurai, Tamil Nadu for elevated customer experience and brand visibility, and we'll continue to replicate this templated design across all our new and legacy branches over the next few quarters. Details of the new organization structure and the model branch are provided on Slide 24 of our investor presentation. The organization also continued on its people development objectives, managing out of the Great Places to Work survey conducted in April 2024 to transition the organization into a truly differentiated and employee-focused workplace. In addition, I would like to provide a half yearly update on our wholesale assets and security receipts portfolio. As guided earlier, we continue to maintain that we are on track in ensuring the orderly rundown of this book over time. Many of our real estate assets in the ARCs, especially those in residential projects, have gathered significant momentum towards resolution, with the resumption of construction and increasing velocity of sale of units to end users. As part of the ongoing process to enable faster resolution, we may be required to transfer 1 on-book assets to ARC in Q3 FY '25. This in no way diminishes our expectations of eventually recovering more than the net carrying value on our books. We'd like to reiterate that our provision coverage and one-off additional prudential provision of SRs accrued in Q4 FY '24 would be more than sufficient to deal with the resolution of these assets. Now Mr. Sachinn Joshi will take you through the financial updates for the quarter.

Thank you, Sudipta. As always, I will be walking all of you through the financial performance of the company for the quarter. So starting with quarterly performance. Our quarterly control NIM plus fee remained strong at 10.86%, owing to a change in the portfolio mix and weighted average cost of borrowing, improving by 5 basis points on a sequential basis on account of astute liability management. Our quarterly consol PAT at INR 696 crores was up 17% year-on-year. Healthy quarterly retail disbursements of INR 15,092 crores were up 12% year-on-year. Our retail book stands at INR 88,975 crores, which is up 28% year-on-year on the back of healthy retail disbursements during the current quarter. Our consol book stands at INR 93,015 crores. This is up 18% year-on-year. Consol ROA stands at 2.6%, which is up 18% year-on-year. And on the same line, consol ROE at 11.65% is up 84 basis points year-on-year. Talking about rural retail businesses. Starting with Rural Business Finance, this business registered a quarterly disbursement of INR 5,435 crores, down by 5% year-on-year. The book size has reached about INR 26,500 crores, which is up 22% year-on-year in the second quarter. In Farmer Finance, disbursements stood at INR 1,782 crores in the second quarter, up by 16% year-on-year. This led to the book reaching a size of INR 14,488 crores, reflecting a growth rate of 9% year-on-year. As far as Urban Finance is concerned, which comprises of 2-wheelers, Personal Loans, home loan-LAP, this whole piece saw a 29% year-on-year jump in overall quarterly disbursements. As a result, the overall book size increased to INR 41,578 crores in the second quarter, translating into a 33% year-on-year growth. The 2-wheeler business registered quarterly disbursement of INR 2,393 crores in the quarter. Disbursements were up 32% from INR 1,817 crores in the same quarter last year. 60% of these disbursements were contributed by prime customers during the quarter. The book size increased to INR 12,699 crores, which is up 33% year-on-year. As far as Personal Loans are concerned, we achieved disbursements of INR 1,361 crores. Last year, we had done about the same, INR 1,308 crores and the book size stood at INR 7,178 crores, an increase of 11% year-on-year. During the quarter, growth in this segment was aided by expansion of physical distribution through the DSA channel, focusing on salaried prime customers. Moving on to Housing. It achieved quarterly disbursements of INR 2,531 crores, up 46% year-on-year. Last year, at the same time, we had done INR 1,734 crores. The book size crossed INR 20,000 crore milestone. The book finally closed at INR 21,731 crores, an increase of 42% year-on-year. The momentum was sustained in the business through strategic measures, including collaborative launches with prime developers across top locations. Additionally, the launch of LTF, the complete home loan offering across 11 locations drove higher lead generation, which should lead to tangible results over the next few quarters. The home decor finance package of the complete home loans program has seen a good customer acceptance, and we expect increased penetration of this add-on to lead to greater customers stickiness as well as higher portfolio yields. On the SME Finance front, our quarter 2 disbursements stood at INR 1,244 crores, up 43% year-on-year. The book stood at INR 5,190 crores at the end of September 30, 2024. The strong growth in business volumes was aided by building additional channels to diversify the existing sourcing funnels. We are in the final stages of launching our supply chain product in Q3 FY '25. I will now hand over the call back to Sudipta to make his closing comments.

Thank you, Sachinn. In summary of my opening note, I would like to maintain that Q2 FY '25 remained one of the most challenging operating quarters post-COVID in the BFSI sector. We expect Q3 FY '25 to be as intense a quarter as Q2 FY '25, with a normalization runway visible only in Q4 FY '25. We are confident that we have enough buffers and safeguards available to ensure a consistent outcome in Q3 FY '25, even as we continue to operate in a difficult credit environment. On the back of a good monsoon, we remain cautiously optimistic about improving rural and urban demand and greater outcomes in Q3 FY '25, and we will remain focused on execution of our transformation agenda across all lines of business. I thank you all for joining the call and for a patient hearing. The floor is now open for questions.

[Operator Instructions] The first question comes from the line of Kunal Shah with Citi.

Yes. So first question is overall on the credit cost front. So when we look at it, the ECL provisions have actually come off. So would it be fair to assume that there would have been a significant write-off? And if you can just quantify the amount of overall write-off and write-off in the MFI portfolio, that would be helpful, yes.

Kunal, this is Sachinn here. Yes, as far as the overall credit cost is concerned, it has gone up, no doubt. And the PCRs have also come down. Actually, the impact has been -- as Sudipta mentioned in the initial comments, there has been some impact whether it is rural business loans, there has been some challenge we also had on the repo as far as farm is concerned and some issues on the 2-wheeler. So it's a mixed bag, I would say. It's not just relating to microfinance. The write-off is actually -- once the 100% provisioning is made across any product or any assets, the write-off actually becomes an accounting entry for us, right? So there will be 100% provided assets, which are still part of GS3 and every quarter, the write-offs keep happening. So we really don't share the actual write-off number, but the PCR reduction is primarily on account of some write-off, which you're right and addition of certain Stage 1, Stage 2 assets, which would have moved, rolled forward it to 90-plus. Naturally, these have a lower provision compared to the 100% provision, which was on the written-off assets. So that has led to a reduction in the overall PCR, but we believe that our PCR has been pretty helpful at 75%, 76%, which has come down by a few percentage points. If you have seen, we have been mentioning this also during our earlier discussions and on various calls that we have been maintaining a very, very conservative approach and whether it's PCR, whether it's the macro potential provision that we create, all these, the additional overlays that we have, all these are meant typically for a rainy day. So we -- these are difficult times, no doubt. And something which was 75%, 76% going down to 71% and all is really not -- we really don't think it's something really worth worrying at this point because we believe that it's a matter of a couple of quarters, and we will -- it should be business as usual.

Yes. And write-off would have had an impact even in terms of slightly lower increase in Stage 2 and Stage 3 as well? Because maybe otherwise, when you look at it in such a challenging environment, GS3 and GS2 is up hardly by like, say, 14-odd basis points both put together.

Yes, that's right.

Yes. And secondly, on the MFI side. So hearing the comments from the peers, it seems like Bihar is going through some kind of a swing. You also highlighted floods have impacted the northern part of the Bihar. But there, if we look at the SMA-2 pool or SMA-1 pool, that has gone up quite significantly, which suggests some flow through into Q3 as well. Okay? So now looking at the overall environment in the MFI, are we worried? You also indicated like Q3 would be challenging. But then, in that case, are we looking to utilize some of the macro-prudential provisioning getting into Q3 given the stress which is flowing in. And the general commentary on the overall MFI would be very helpful, yes.

Yes. So on -- specifically on Bihar, though we don't normally give state-wise collection efficiencies, but I will say because there has been some floods in Bihar, especially in North Bihar, we ended our September collections efficiency in North Bihar at about 99.5%, right? So basically, what I want to say is that in spite of floods, in spite of whatever disruptions come in, our focus on collections and our people focus on collections, continues unabated, right? And we expect that in October, the situation improve as the flood waters recede. It is true that the industry is passing through a period of deleveraging. And obviously, as the industry passes through a period of deleveraging, it will show up in numbers of the players in the microfinance industry. However, I would like to put on record a couple of things, right? And frankly, we have seen some commentaries on our performance, which need clarification. The first thing that I would like to say is that in L&T Finance, as an organization, especially in the Rural Business Finance vertical, we do not lend to a single customer, who is 0 DPD, right? So that is the first thing that I need to -- I'll need to point out. The second thing is that we -- our overall guardrails are always viciously maintained. That means we underwrite not only the customer, but we underwrite the customer's family as well. So we calculate leverage at a family level. The second thing is that if a customer's overall AUM goes above 2 lakhs at any point in the cycle, right, whether if he is a fresh customer or if the customer is eligible for a repeat, but the leverage is more than 2 lakhs, that customer goes out of the lending window. So that means we make sure that when we lend to a customer, the overall leverage of the customer is below 2 lakhs. And I would also like to point out that some of these guardrails have been introduced by MFIN as late as June, July of this year. However, L&T Finance has been maintaining the guardrails since 2020, right? So it's not that these guardrails are coming to us suddenly new. We have been doing it for the last 4 years. A couple of more things. First and foremost thing, our approval rates in the microfinance vertical is 40%, right? Our -- once our sales guy goes and sources the particular file, then there's an independent check by a branch process manager, which is a completely different vertical, which -- and then last but not the least, about 15% of our -- all our disburses are checked by our risk control unit. So it's a 3-tier process through which our customers come across because our focus has always been to bring in non-leveraged customers. The other thing, which I would like to state is that we realized early -- it's actually early this year and the latter part of last year, that the industry is probably getting into a situation of leverage. That is why we upped our efforts into new customer non-leveraged customer acquisition from September last year. And from January of this year, we started cutting out close to INR 75 crores to INR 100 crores of repeat disbursements, right? Because we felt that those customers were on the border line of getting leveraged. And this exercise has been continuing for us since January of this year. And sort of last but not the least, we have brought down our average accounts per collector sharply from about 570 or 560 odd to about 480, right, which means we have put in about 100 -- actually 1,000 additional collectors in the field. And we did it early on. So our AC, average collector, sort of accounts per collector ratio has actually dropped, which helped our collectors also to address the sort of issue -- the flow issues much more effectively. So overall, it has not been a single-axis action. It has been a multi-axis action. And I would like to say is that the discipline with which the business has been built is not a 1-year phenomenon. It's a 3-, 4-, 5-year phenomenon, right? So which obviously, when the industry is in stress through deleveraging, obviously, we -- if you are in an industry, there will be a ricochet impact on us. There will be some reaching on us. We are not immune to it. And on top of that, because of the monsoons and the floods, et cetera, it has added to a little bit of additional pain of through what the industry has been going through. But I can assure you that our business is fully capacitized to handle this. And last, but not the least, we have INR 975 crores of provisions which has been kept aside as macro-prudential provisions, which we have not touched this quarter. However, as Sachinn said in this call, right, if, for example, if you have an umbrella, and it's raining outside, right, any logical person will open the umbrella to prevent himself or herself from getting wet, right? So we have this umbrella. We are not saying that we will use it, but the fact is that, that option is on the table. But however, as of now, our collection teams are working and our business teams are working to ensure that we have the best outcome possible through these difficult circumstances.

Sure. Just one thing, one clarification. Macro-prudential is INR 977 crores because last time, we highlighted closer to INR 1,100 crores. So not sure and you mentioned like there is no utilization of macro-prudential at all.

Macro-prudential provision allocated to microfinance is INR 975 crores. Overall, INR 1,100 crores is OTR outlets, et cetera. So that is separate from microfinance. Microfinance, pure microfinances is INR 975 crores. PCR in our Rural Business Finance is close to 100%, if not 100%.

So 90-plus everything is anyways 100% provided so -- on the like-for-like.

[Operator Instructions] Next question comes from the line of Hardik Shah with Goldman Sachs.

This is Rahul here. A couple of questions. One is, I appreciate the detailed explanation that you gave just a while back on the macro-prudential and the PCR and the portfolio that you've been underwriting. But just wanted to understand the PCR bit again. So Stage 2 also saw a dip. So I wanted to understand how do you all kind of think about Stage 2 provisions and Stage 3 provisions? And where does this provision coverage needs to go before you start opening an umbrella, which is your macro-prudential provisions? How should we think about? Because your commentary about the outlook also was a bit soft, at least in the third quarter. So how should we think about the utilization or the PCR trajectory from here on?

This is Sachinn here. So initially, Sudipta made a mention that the deterioration in GS3, it was primarily through the macro operating environment deteriorating on Rural Business Finance vertical, a rationalization of tractor repo policy and some localized adjacencies in 2-wheeler business, right? So it was not just about -- yes, there has surely been challenges externally in the microfinance segment. But that is about 30% of our -- or 26% of our overall book. There are certain other challenges, which he spelt out on the call. Now as far as PCRs are concerned and you talked about Stage 2, now Stage 2 percentage actually includes the macro-prudential provision, which is sitting over there. We have not enhanced this macro-prudential provision. It has been INR 975 crores, and the book has been growing. So in percentage terms, you will find that there will be a decline as far as Stage 2 is concerned. The utilization, the overall PCR that we spoke about, just to repeat, we have gone from 75% to 71% on the aggregate basis, more to do with some write-offs of 100% provided portfolio, not necessarily that the whole piece has been completely written off. It's an accounting decision, which is taken, more to do with cash flows rather than anything else. As far as taxation is concerned, already, we take a hit whenever write-off happens, that there is a cash inflow for us. The 71% is primarily because of new assets, which were, say, in Stage 2, moving into Stage 3, not and -- for micro loans, as Sudipta mentioned just a while back, anything which is 90 plus, we do 100% provision, but that's not true because you also have a very safe book like home loan-LAP, you have a book like 2-wheeler, tractor, everyone, the ECL model decides what will be the percentage provision required for a specific Stage 3 asset. And hence, this movement from Stage 1 to Stage 3 and 100% book being -- which has been provided being written off leads to these changes. Now when there is wherewithal, we ensure that we maintain the PCRs at a particular level. But like we spoke about overlay just some time back. But at this point of time, the requirement was not there. If you look at the peer group, comparative financials, if you look at, broadly a 50%, 55% PCR is a pretty comfortable situation to be in. We have always tried to be conservative. As and when the P&L permit, we can always rebuild. We had mentioned in a couple of calls back, a couple of quarters back, that this macro-prudential provision also, which is currently on rural business loans, we would take a call on whether -- as the unsecured book starts growing, whether this full macro-prudential provision should be applied to the full unsecured book, but that will be over a period of time. I hope I have clarified.

Very, very helpful explanation, Sachinn. And just if I were to have a follow-on with the -- your credit cost, you talked about, I think, the news channels were flashing some of the comments that it will stay elevated for the next 1 or 2 quarters more. Does it take into account any further buildup of macro-prudential? Or will it be completely to respond to any potential flow-through into Stage 3 provisions?

So if the challenge in micro loan piece actually increases any further, then as Sudipta mentioned, we always have a choice to dip into the macro-prudential provisions and utilize part of it. He also mentioned that we are better placed compared to the industry. Our numbers are much better. Our collection efficiencies seem to be in control. And if Diwali, post-Diwali, if things really improve, there may possibly be a need for macro-prudential provision utilization, but at a much lower level. But if things worsen from here, yes, we keep that option open.

All right. Secondly, on the MFI portfolio basis, your details given in the presentation, we understand 0 plus is about 3.5% of the portfolio, right, MFI portfolio. Is it possible to get the granular cuts as to how much is 0 to 30, 30 to 60 and so on and so forth?

Normally, we don't give such granular cuts, so we have -- what we have done is that this time around, we have put the association wise cut, which is in Slide 17 of -- which is in Slide 17 of the presentation. So that's what we have given. So -- and I believe that the entire market is poised now for -- this is our belief that on the back of a strong monsoon, the entire market is poised now for a gradual recovery, right? We have seen very good tractor demand in the first half of October. And we remain hopeful that the tightness that we saw in the market, especially in certain geographies will start dissipating towards the latter half of Q3 and probably sharply improve on Q4. So as I said, we remain very optimistic of, I would say, a soft landing between the latter part of Q3 and early part of Q4.

Next question comes from the line of Mahrukh Adajania with Nuvama.

So is it possible to give any cut on what proportion of total credit cost was attributable to rural MFI? I mean, would it all be driven by rural MFI and Farmer Finance this quarter because nothing really bad is happening on the corporate front or other businesses? So -- because everyone's kind of indicating some level of credit cost for the MFI business, so if you could share those details.

Yes. Yes, you want to continue, please continue.

No, no, you please continue. I'll ask my second question then.

Okay. So on the breakup of credit cost, of course, we don't share, but I'll just give you a general response to this. We spoke about micro loans. We spoke about Farmer Finance and 2-wheeler finance. Naturally, it's slightly higher for microfinance, followed by farmer and followed by tractor -- 2-wheeler. So it's a mixed bag, I would say. It's not just a composition of one particular book really going bad.

See Mahrukh, you would recall that there were industry-wide reports of difficulties in collections in April and May, right, which was reported by many players across the industry, right? So now obviously, you can understand that if INR 100 flow at any point in time, not the entire amount flows back, right? And not an entire amount is corrected back. So obviously, some portion of that has flown, right, in Q2, and we have seen stabilization in the latter part of Q2. But obviously, the credit cost components, as Sachinn said, are all components of this.

Got it. And my next question is that in the first few days of October, say, has the collection efficiency deteriorated or stable or only marginally down, any such inputs? In micro. Yes, in micro only. Nothing else.

Okay. So barring Bihar, the flood-affected villages in Bihar, our collection efficiencies has remained relatively stable in the first half of October.

Next question comes from the line of Avinash Singh with Emkay Global.

A couple of questions. The first one is that there is a reasonable improvement in OpEx ratio, particularly the nonemployee OpEx. Now can you help us understand what is sort of improving? And is this sustainable? And even if you were to sort of ramp up your employee head count further, will this sort of a ratio sustainably improve or not, that's one? And second, just on this microfinance, again, continuing. I mean, you are suggesting that, I mean, Q3 should be likely bottom with Q4 or early Q4 recovery. Given the fact that, I mean, many of the peers, I mean, the banking as well as nonbanking who have sort of started to acknowledging the pain earlier are still kind of not giving a very clear cut sort of a deadline to end the pain. What mix -- you -- of course, you have explained, you have given retail data, but eventually if the geographies, the customer segments are undergoing this, what sort of gives you confidence that your pain will be sort of end in 1, 1.5 quarter?

So the first question, Sachinn will take. I'll take the second question.

So as far as OpEx is concerned, I think, every quarter-on-quarter, there you may see some improvement or some increase in OpEx. This is primarily to do with investment that we are making, either in IT, various technology investments are being made. We are also undertaking certain branding activity, plus rollout of new branches. And also, these are the major components of expenses, which we are currently seeing. So quarter-on-quarter, you may see some kind of increase/decrease, so I don't think you should really try to get some meaning out of it. We have mentioned that we would like to be -- the OpEx plus credit cost, we would like to keep it in the range of about 7%. So at this point of time, we believe that a couple of quarters we will have some challenges as far as credit cost is concerned because of the external environment. We have -- the branding and all will be undertaken as an investment depending on the external environment. There is no point in really going out and go very aggressively with our branding and advertising when the market itself is a challenging piece. So 7% is, I think, the overall range that we keep ourself. It can be plus or minus a few basis points here or there. So nothing specific to really make any assumptions if you're thinking of modeling it. I think you should continue to model it in the same line because when we talked about the ROA tree, we spoke about the NIM plus fee in the range of about 10.75% to 11.25%. Naturally, in these times, we may possibly see a NIM plus fee range coming down from about 10.5% to 11%, maybe for a few -- couple of quarters 'til the time the challenge is addressed. The OpEx plus credit cost being in the range of 7%, it can be plus or minus something. But the ROA trajectory in the medium to long term, we would want to pursue the Lakshya '26 goal of being in the range of 2.8% to 3%. Maybe a few quarters of some turbulence, we will try to deal with during that.

Thanks, Sachinn. I'll take the second question. So obviously, a couple of things has -- and I gave some commentary on how our underwriting and our management of the entire Rural Business Finance vertical is classified to focus on more predictable customers. Now a couple of -- why we think there might be a soft landing and I use that term. First and foremost thing, we have had good monsoons, right? And the first sign that we will improve tractor demand, so we'll have to wait for the commentary from the various FMCG companies as to what level of demand that they are seeing, right, to put 2 plus 2 together. But the fact is that normally, monsoon slips in income and these monsoons have been really good. So we are hopeful that towards the latter -- kharif crop arrivals seems encouraging. We are tracking the arrivals. And basis, the water table levels, we think rabi crop will be a bumper crop, right? So we do believe that rural incomes will improve. Secondly, obviously, the social scheme, the government social schemes have started flowing again, right? They had a temporary hiatus on the background of the elections. They have started showing again, which will again improve rural liquidity. Last, MFIN has come out with the norms, right? So MFIN norms got implemented from June, July. So players have started adhering to the MFIN norms. So once -- so basically, the leverage adding, obviously, has stopped, and we have to understand that most of these loans are 24 months loans. And the problem really started in January -- December, January of this year, this calendar year. So actually, if you see, we are already 12 months almost -- not 12 months, but maybe about 9 to 10 months into the problem, right? So a lot of deleveraging already has happened. Maybe some tail-end deleveraging is still left, but that might happen over Q3 and the earlier part of Q4. But I do guess that maybe 60%, 70% of the deleveraging has already gone through. So -- and overall, I think, each and every player has become cautious. Overall leverage has been coming down. And so I do believe that with all these factors playing in, we actually remain hopeful that there will be a soft landing in the latter part of Q3 and the earlier part of Q4. However, there has been a significant amount for the industry that has flown into [ PAR ] plus 0, right? And that will continue -- from a financial point of view, that will continue to flow and cause impact on the downstream P&Ls between Q3 and Q4.

Next question comes from the line of Sameer Bhise with JM Financial.

I just had one question on the home loan fees. I see the ticket size on the LAP has kind of inched up meaningfully. Just wanted to get some sense here, and it is -- I'm asking because it's, say, higher than the DHL average ticket size.

So the team has been focusing on LAP and the team has been focusing on LAP primarily in the urban areas, so the LAP -- and the LAP proportion of the entire portfolio also has slightly gone up. We have been also focusing on another product of ours, which is rural LAP in which, our book size is now about INR 178 crores and average ticket size there, about INR 5 lakhs to INR 6 lakhs odd. So overall, on a weighted average basis, there has been a focus on pushing yields upwards on the electric portfolio, both in our urban LAP as well as on our micro LAP product to just balance the yields a bit. So that is...

And what kind of yield would be there, urban and rural?

Sorry?

What yields would you be earning right now on urban and rural LAP?

So urban will be about 10%...

Urban is about 10% to 10.5%.

10% to 10.5%. Rural LAP, the yields can go up anywhere between 17% to 18%.

Next question comes from the line of Nischint Chawathe with Kotak Institutional Equities.

Thanks for taking my question...

Nischint, I'm barely able to hear you. Can you, I don't know use...

Am I better now? It's better now?

Yes, better. Yes.

Yes, sorry about that. Just a couple of questions. One is your fee income was almost flat. Is it to do with the micro loans business? Or are there any other factors out here?

No, not really. Sachinn, do you want to take that?

Yes. So fee income, of course, has a composition of processing fee on disbursements. So if disbursements are slightly subdued, naturally, for the rural business loans has higher levels of processing fee income. Number two is the cross-sell income, which is the CLI, credit-linked insurance. With the disbursements, the new disbursements coming down, naturally, this also gets impacted. Year-on-year basis, one more factor is that Q2 FY '24, there was a one-off item of interest on income tax refund, which led to the overall fee income increasing in the previous year same time, which had actually not been part of it. So that's also one of the reasons. But otherwise, in general, I think the trajectory wise, we are healthy. It's a -- directionally, it's 1.92% fee income, which we feel is a very healthy fee income as a percentage.

Have you called out how much was the quantum in the base here, for the income tax refund?

Should be about anywhere -- I think it was about INR 15 crores to INR 20 crores.

Okay, not very meaningful. Okay, got it.

No, no.

Sure. You also mentioned that we discussed a little bit about tractors and the stress from first quarter sort of flowing into slightly higher credit cost this quarter. But what exactly happened on 2-wheelers? I believe you mentioned something about localized adjacencies, so just curious what actually happened.

See, there are certain markets in 2-wheeler that really performed like not according to our expectations. So for example, markets like suddenly -- and this was primarily a deterioration that happened in April and May, right? And I'll give you one example. For example, Surat, suddenly, we saw galloping delinquencies in 2-wheelers, right? So as I said, localized adjacencies mean there are certain pockets in which we saw heavier flows in the month of April and May. Again, this is not us, but the industry saw it, right? But if you see, we continue to fare much better than industry in terms of our overall sort of credit costs and our index delinquencies. So in 2-wheeler, we have about 87% of the delinquency of industry, right? And if you see our collection efficiencies actually, actually have been continuously improving from about 97.1% to about -- above 98% by the end of quarter 2 FY '25. So whatever sort of slight deterioration that we saw in April and May in last quarter, that has stabilized and that has on a pathway to a sort of resolution. We have pushed up the prime share of our 2-wheeler business to almost 60% prime share right now. And if you can see in Slide 20, where we have given our prime share and disbursements compared to the same time last year and prime share on book compared to same time last year. So I would say that majority -- quite a significant portion of our 2-wheeler business is now prime 2-wheeler. And this has been done to make sure that even some of these localized adjacencies that we see are better managed in the future. And because of our new 3-dimensional credit engine, Cyclops, is completely now upscaled on our 2-wheeler business, 55% of 2-wheeler business is now going through Cyclops. By the end of November, maybe early December, 100% will flip over to Cyclops. And early signs are very good. The Cyclops first net bounce is 125 basis points lower than from our legacy algorithm. So obviously, there has been a lot of work, which has been done to even sort of prevent any sort of this -- sort of this sudden 1- or 2-month blowout that happens in the future.

So probably, going forward, your guidance for second half, which tends to be a little more guarded, is largely from micro loans. I think, these 2 segments, you believe are sort of down?

It is largely from micro loans. It is largely from micro loans. It is largely from micro loans. And again, I would like to point out, and thanks for asking the question, largely, I point out that there is a lot of -- worries on micro loans for us is less. Okay, yes, there is worry from sort of ricochet impact on the overall ecosystem for people who have borrowed from others, right, and are leveraged. There is a little bit of worry from that. But we are more worried about the impact of this environmental impact, like Bihar floods. There is some unscrupulous elements operating in the Northeastern UP, right, who are sort of hampering collection efforts; the resumption of the social flows in Odisha, et cetera. So our pain is more from those areas. Because of our guardrails and because of our assiduous focus on avoiding non-leverage customers and always maintaining sure that only 1 customer has 1 loan at a point in time from L&T Finance, I think we have been able to sort of not be in the eye of the storm, if I were to use that particular term, right? But when a storm happens, there are like gusts of wind that comes to the farthest player as well. And so we are not immune to that.

Sure. And just final one. With all of this, where does -- where do we go on loan growth for our company as a whole and, let's say, even for the microfinance piece over the next couple of quarters?

See, our guidance is that 25% loan growth as part of Lakshya objectives. Now obviously, if there is a 1 or 2 quarter calibration, we will have to go through that because we have break down the MFI and Rural Business Finance disbursements. And for the sake of greater caution, we have break down it, right? I would say that we -- on the festive season, we are seeing good demand in tractor. On the festive season, we are seeing -- for the last one week, we are seeing good overall demand in 2-wheeler. Lot of new housing project launches are happening. We have been working on building our development -- developer finance vertical. And if you look at our Personal Loans, our Personal Loans have significantly grown this quarter-on-quarter, right? And we have gone -- and this quarter, we'll be also adding new digital partners and very large digital partners on our Personal Loans portfolio. So again, on Personal Loans, we'll go on a risk-calibrated fashion. We have break down one lines of business, but the fact is that on a risk-calibrated way, we remain continuing growing on the other lines of business and take benefit of the festive momentum. So I cannot, at this point, at the beginning of the quarter, pinpoint and say where we will end up at the end of the quarter. But you will be seeing that apart from Rural Business Finance vertical, where caution rules the roost, for all other businesses, there will be a growth bias in this quarter and the coming quarters as well.

So broadly remain in the corridor is what you will suggest?

Yes, yes.

Next question comes from the line of Abhijit Tibrewal with Motilal Oswal.

So just wanted to understand, I mean, while these results as well as our commentary shows that we've been better off than a lot of other peers in microfinance, I think, I mean, one of the things, right, and just a suggestion that some of the metrics, which are also shared by our peers, right, like collection efficiency including arrears, excluding arrears because the collection efficiencies that we share which is 0 DPD customers, right, that somehow, right, I mean, unless we are comparable with our peers, will not give that much confidence. And while I appreciate you have said reason on the call that we do not share segment-wise GST or segment-wise credit cost, right, I mean, when the environment is such, right, where the sector itself is going through a pain, we have almost 1/3, almost 30% of our book coming from microfinance, right? I mean, sharing some of these details, right, I mean, during maybe 1 or 2 quarters, right, will help all of us kind of gain better confidence, higher confidence in LTF's microfinance book. So if you could please consider that maybe in the coming quarters. But sir, the question that I had really was on this statement that we made in the fact that Q3 will be a challenging quarter and Q4 feels like things might improving. So I mean, I'm just trying to understand if you see today unsecured itself, right, I mean what started with credit cards spilled over to Personal Loans. It's now spilling over to microfinance now, right? And if you look at credit cards and Personal Loans, that pain is still not over yet. So our unsecured credit cycle what we are seeing in Rural Business Finance now, right? And at the sectoral level, do you think it is just a hope today or moving the goalpost where we think that maybe the problem will get resolved by Q4? Or I mean, how to read it is what I am trying to understand because 1Q, when everyone posted their earnings call, right, everyone said, yes, things look like we'll start improving from Q2. Having seen Q2, now we are saying, maybe things will start improving from Q4. So I'm just trying to understand. I mean, is it like just things getting delayed and we'll see when it comes? Or is there another way to look at this? This is my only question.

See the thing which is there is that -- the first thing, obviously, which gives us hope is good monsoons. The first thing which gives us hope is good monsoons. The first green shoots of a very rural product, which is tractors, demand going up, right? So that gives us good hope. The second thing is that, you see, all these are 24-month loan, right? And as I said, we realized that the industry was going to -- going into get into inclement weather as early as January of this year. So the fact is that though it started showing up in results sometime around May, June, but the fact is that the signs were visible in January only. The early signs were visible in January. So the fact is that the industry actually has now gone through a period of deleveraging for about close to 9 to 10 months, right? So -- and since it's a 24-month year, the book runs up very fast, and which is the nature in any unsecured product. Typically, unsecured product peaks and the bad portion of the book peaks very fast, typically within a period of 6 to 12 months. So by December, we would be already been 12 months or almost 9 months into the leveraging cycle. So that gives us sort of a reasonable amount of hope that there will be a soft landing in the latter part of Q3 and the early part of Q4, right? Right? However, the question is that if suddenly something -- if for example, rains were bad, we would have said that, "Oh, no, we really think that this might elongate." The only thing that because monsoons have been good, the kharif arrivals are good, social flows have started, we expect a bumper rabi crop. If on the back of those things, things don't improve, then when will they improve, right? And lenders are becoming more responsible. Deleveraging has started across the entire industry. So I do believe that things will move towards normalcy in the early part of Q4.

Got it, sir. This is useful. And just one last thing. While we've spoken a lot on tractors, 2-wheelers, even microfinance, the Personal Loans, like you rightly said, started growing again, you are expecting some good large digital partners to come on board in the next couple of quarters. Just trying to understand. I mean, banks, which reported last week, large personal loan players, right, on the NBFC side, still seeing stress in personal loan portfolio. Are we comfortable there now and maybe that is a sign that we've started growing again?

Yes. So if you see, we really slowed down Personal Loans sometime last year. I mean last Q3 of FY '24, we slowed down our Personal Loans. So if you see Q2 and FY '24, we did about INR 1,300 crores or INR 1,350 crores of whatever disbursement. After that we dropped it to as low as INR 700 crores. We dropped the volumes at 50% because we wanted to rework the way we wanted to do Personal Loans, right? And now in Personal Loans, we are completely focused on the prime segment, again, and the salaried segment, prime salary segment. And frankly, we are very happy with the new portfolio that we have garnered, which is showing excellent credit outcome. So -- and that has given us confidence to start scaling it up once again, but you will see that this will not be a mad scale-up. This will be a gradual calibrated risk-focused scale-up. Obviously, Personal Loans is an essential component and ingredient of any retail lender's balance sheet, right? Because this is a good product to do from a yield perspective. And frankly, if you are -- if you maintain your guardrails well and don't go crazy in disbursements, then actually, the outcome can be very, very good. So we are now focused on a very risk-calibrated scale-up with the large amounts of data thrown in, in the underwriting process. Cyclops, our new credit engine, will be pushed into underwriting personal loans, where we'll be using multiple lines of data digitally to underwrite our customers. So we are very confident of being able to scale up this business with an excellent credit and return outcome for the business.

Abhijit, just on the first point that you mentioned in terms of disclosure. I think the last couple of quarters, if you see, especially on the Rural Business Finance, we have gone and provided more than whatever we otherwise keep sharing in terms of information. This quarter, we have talked about, we've given the bucketing of the number of associations that we have across the book. The collection efficiencies, you are right; there are different methodologies used by different players. I think what is important to look at is how the collection efficiency has changed between the 2 quarters. Because if you look at only the differential, the methodology could be whatever, but the differential will actually spell out what has been either the deterioration or improvement in the overall quality of book. I think there are -- plus, there is also an industry-related...

Yes. And Abhijit, I'll point out to the Slide 18, where we have given the 12 month on book performance from July '23 to July -- so that is -- we are at 23% of industry. If industry is indexed at 100, we are at 23%, and this is TransUnion CIBIL data. If you look at Slide 18, it will give you a sense.

Yes, sir. I've seen that. Yes, yes, absolutely. So, I mean, sir, the disclosures that you have given out is indeed increasing every quarter, and that's appreciable. My limited request for you is, if some of the data points, which are reported by peers as well, right, if we start reporting them, if possible, right? I mean, it will just give all of us greater confidence in what you have articulated that our experience in this credit cycle in microfinance is better than peers. That's the limited point that I wanted to make.

Sure. Sure. I'm happy to take this on board, benchmark ourselves against the others, and then we will see. See, our level of disclosures have significantly gone up over the last couple of quarters across all our lines of business. But definitely, we'll take the suggestion on board and see to the best how and what we can do. Sure.

Next question comes from the line of Alok Srivastava with UBS.

Just going back to the macro buffer part, I was just trying to understand if there is any quantifiable metric internally that you will look at, let's say, or externally, like collection efficiency before using it? Or it is fully subjective? And secondly, as things are today, let's say, things worsen slightly and your base case of improvement end of 3Q, early 4Q doesn't happen, do you think this INR 950 crores odd that we are carrying, is that good enough for whatever stress could come up in microfinance?

Yes. Thank you, Alok. Sachinn here. Yes, see macro-prudential provisions that have been created, this is based on a Board-approved policy. So creation of macro-prudential provisions as well as utilization has to be approved by -- we need a sign-off of the Board. So the way it has been defined is the macro-prudential provisions have been created to deal with specific events, events like flood, famine, political instability, industry-wide credit events. One of the event, which we saw was COVID, right? I mean, when we created this policy, we did not know that something like COVID would really happen. But yes, those are the kind of events, which cannot be modulated or modeled in our ECL, are the ones which get covered. Sudipta talked about the increasing leverages. Now if the increasing leverage is into -- is just limited to a particular geography, it's not an event. But if it's going to spread across the country, and it spreads across, the whole industry is going to get impacted, this also will get -- very clearly become part of a macro-prudential event. So it is -- we have to see. We spoke about Bihar floods. At this point of time, the collection efficiencies have not deteriorated to a level where I really need to dip into these. But otherwise, that will be a clearcut example of me being eligible to dip into it and get the Board consent to utilize it.

But, Sachinn, just following up on that, then that does that mean that only the part which has been impacted by an event, against that only you can use or you can use against the entire MFI book?

No, we can't use it against the entire MFI book.

Okay. Got it. And second question I had was that the circular -- the action that RBI took last week against 4 NBFCs. So have we had any communication on interest rate being charged by us? And also, does our MFI interest rate continue to be 24%?

No. See, our MFI interest is now around a band of 18% to 24%, the more mature that the customer gets. The starting interest rate is 24%, but the more mature a customer gets, especially in cycle 3 and cycle 4, the customer moves down the rate of interest. The second thing is that on our Personal Loans business, et cetera, we are focused on our prime customers where we give an interest rates from say 12% to a band of about 16%, 17% is what we do. So no, we haven't received any communication regarding anything.

See, 24%, Alok, was being charged for over a decade. And based on the MFIN guidance, in fact, everyone has moved into risk-calibrated kind of structure. So we have interest rates, which range from 18% to 24%. And depending on the riskiness of the customer, depending on whether the customer is in the first cycle, second cycle, third cycle, and for behavior, the interest rate gets decided.

Next question comes from the line of Shreepal Doshi with Equirus.

The question was on how are the collection efficiencies trending in states like Karnataka and Tamil Nadu for us? And any update for the trends in October month?

See, October month, let me be very candid. October month, as I said, we are holding at efficiencies of previous month, right? Except North Bihar, we are mounted by floods. In Karnataka, the collections efficiency, though we do not give out specifics, but at this time, I will give out. In Karnataka, our collection efficiency in September was 99.6%. And Tamil Nadu, our collection efficiency in September '24 was 99.45%. There is 0 DPD collections efficiency.

So these are like -- I mean, basis June quarter, how are these like trending broadly?

As I said, I don't know there was one particular call, which we had said -- as I said, these are -- these are holding pattern. These are holding patterns, very stable.

Okay. Okay. Got it. And sir, just one more question on this write-off. So what is our Board-approved write-off policy for the micro loan category?

No, the Board approves the provisioning policy, which states that whenever the asset becomes 90-plus DPD, you need to provide 100% against the rural business loans. The write-off policy is -- as I mentioned earlier, is more of a technical issue. It's for the CFO and office to decide based on the -- let's say, it's more of a cash flow issue, right? Because once the asset gets written off, that does not mean that the business stops following up for those collections. There is actually no difference as far as the collection team is concerned. The collection team continues to keep following because 90 days is a small period that way, right, as far as RBF is concerned. But -- so the follow-up continues whether the asset has been written off. And there, in fact, every month, we keep receiving monies even out of the asset, which has been fully provided for. So there are teams which actually work specifically on 90-plus. There are teams, which work on 30-plus, 60-plus. There are specific coordinated efforts made to ensure that there are -- we don't see leave the customer just because we have provided it in the books.

Got it. And sir, we don't consider that number -- the pool of customers, which have been written off or, say, which is 100% provided for, in collection efficiency?

No, this is 0 DPD, as Sudipta just mentioned. It's a 0 DPD customer whose billings have been done and the collection out of those -- the billings.

Next question comes from the line of Chintan Shah with ICICI Securities.

So sir, I just had a question again on the Rural Business Finance. So yes, as we don't give the segment-wise breakup of slippages, but if you look at the additions to Stage 3 for this Rural Finance Business specifically, as for Q4 FY '24 and Q2 FY '25, so how much could be the rise in absolute number in percentage? Also, if you could quantify that so that we would just get a sense here on how much stress are also we're getting on our books. So any rough idea on that would be helpful.

See, actually, if you look at -- if you are wanting to know the stress on the book, you should actually look at Slide 17, which talks about 5.4% of the loan book of LTF is LTF plus more than 4 associations. And there, we have actually even given a further breakup of more than 4 association, 5 association, 6 association. So it will show very clearly that the pain level is pretty limited. And the reason why we have done this bucketing is also to ensure that I just mentioned earlier that the focus can be that we actually mark out in our system the leveraged -- most leveraged customers, and the focus of the collection team is first to -- to be the first one in the queue because if there are 6 lenders, I would want to be the first in the queue to go and collect. And this discipline that we maintain has actually helped us ensure that the collection efficiencies, though they have dipped, they have not dipped to the levels, which we see in the industry.

Sure, sure. And sir, if I heard it correctly, MD have also mentioned that we would be working to enter into -- working on building the developer finance vertical, so apart from retail also, are we planning to venture into any other businesses?

No, no, no. Not developer finance vertical. I'm saying that the developer, basically the APF origination team, where basically, we work with the developers to sell house to retail, retail customers. So developer channel basically. It is the part of the home loan channel working with the large developers.

Sure, sir. Sure. So nothing on the corporate side, yes?

No, no, no.

Last question comes from the line of [ Gal Shuan ] with Schonfeld.

Just some data keeping question. Do you mind sharing what's our interest reversal in our NII line this quarter and also last quarter? Because the margin seems to be coming down there, I suppose. It should be somewhat affected by the increase in reversal.

I mean you're referring to the yields or you're referring to the NIM?

The yield, right? The yield is coming down obviously because of some of the increase -- just trying to get a quantum of the interest reversal in there?

Sure, sir. So as far as yields are concerned, the wholesale book was actually coming down dramatically over next -- over last 4 to 6 quarters. And as the book was moving more -- trending more towards retail, the yields were increasing. You would have noticed that last quarter and this quarter, especially, the wholesale book has broadly remained around the 4% level. 96% of the book now is retail. So what will actually move the yield positively or negatively will depend on the kind of disbursements we do. Because the business -- the retail business comprises of various products, which are rural business loan, which is perhaps the highest yielding product for us, and home loan and LAP is the lowest yielding. You would have seen that the disbursement this quarter have been more towards HL and LAP. We wanted to be conservative and do secured business and, hence, you'll see that the yield has got a bit impacted. Once the challenges in the micro loan segment actually comes down, we will see the disbursement firing up again. To support the micro loan business, we also have Personal Loans, SME. These are the businesses. Micro LAP, which we have started also, book is small. The potential to grow this secured book is also very high. So as we go forward, we will keep seeing the change in the yield within a particular band. And rather than talking about the yields because it is equally important to look at how the interest costs pan out, this quarter, we have been able to bring down the weighted average cost down by about 5 basis points, so 7.85% in the previous quarter has come down to 7.80%. So rather than looking at the yield, it's good for a company like us to monitor the NIM plus fee as a monitorable metric. And we have already communicated the band within which we would like to be, which is, in normalized times, about 10.75% to 11.25%. And in difficult times like these, perhaps between 10.5% to 11%.

Got it, sir. I understand the mix part of the disbursement. I just want to understand the interest reversal increased materially this quarter sequentially, that also impacted our yield temporarily a bit. I just want to understand that.

Sorry, I did not get -- can you please repeat the question?

Can you please repeat the question?

Yes. So just wanted to understand the interest reversal increased materially this quarter sequentially, which also impacted our yield on top of the mix change in disbursement that you were talking about?

Yes, yes, yes. So interest reversal.

If you can quantify, if it's possible, please?

Yes. Interest reversal impact would be about 5 to 6 basis points.

And how much was that last quarter?

Last quarter would be lower that this, slightly lower than this.

Got it. And just last one on the Slide 17. I appreciate the breakup on the LTF plus external vendors. Just want to understand for the 5% of this final book that is not complying with the [indiscernible] guardrails, what's the collection efficiency there for the month of September?

Which product you are talking about, collection efficiency?

No, I think he is taking to RBF -- Sorry, the audio line is not very clear. So we're just not able to get the full gist of the question. If you can repeat the question once again.

Yes, sorry. I'm referring to Slide 17. So we have about 5% of the MFI book that is not compliant with the...

Efficiency in this particular segment for the month of September was about 97.5% odd. Which one? Yes, yes. So that bucket -- the buckets of the people more than -- you're asking collection efficiency of the bucket of people more than 97 -- more than 4 associations. Is that the question?

Yes, which is 97, right?

Yes, that's 97.5%.

And what was that in, let's say, June?

How was it in June?

Or March, March, I just want to get a historical comparison.

Yes. So June, it was about same, about 98.45% odd, 98.4% odd. The March number, I don't have handy with me right now. Maybe we can give it to you off-line.

Thank you. We have reached the end of question-and-answer session. I would now like to hand the conference over to Sudipta Roy for closing comments.

So thank you, and thank you for joining the call. As I said on the beginning in the opening comments that we expect Q3 FY '25 to be as intense a quarter as Q2. However, what we are very confident about is that our teams are very, very well prepared and well equipped to take care of the challenges on ground. In terms of our work on the 5 pillars, it continues unabated. We remain focused on ensuring, building our other lines of business with a focus on risk and ensuring great credit outcome in the coming years. I would like to qualify the phase that we are passing through as phase of inclement weather, rather -- and I would also like to reiterate that we, as an organization, are perfectly capable of dealing with this. So we will work very hard to ensure a consistent outcome in Q3 FY '25. And we will be happy to meet all of you on a one-on-one basis whenever time permits and allows us to give a further granular view of our overall lines of business and progress. The other thing which I wanted to tell you is that on June -- sorry, on November 26, we have our first AI conference, where we will be sharing some of our developments on AI side as well, which we have implemented and including also our overall discussion on applicability of AI to BFSI segment. Registrations are open on www.ltfraise.com. And if your schedule permits, we would like to register for it and attend the same. Thank you so much for attending the call.

Thank you. On behalf of L&T Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.