L&T Finance Limited ($LTF)

Ladies and gentlemen, good day, and welcome to the L&T Finance Limited Q4 FY '26 and Full Year '26 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 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 Before we proceed, as a standard disclaimer, no unpublished price-sensitive information will be shared during the call.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 interaction in the call. While all efforts would be made to ensure that no unpublished price-sensitive information will be shared in case of any inadavant, disclosure, the same would, in any case, form part of the recording of the call.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 Q4 results presentation uploaded. I would now like to invite Mr. Sudipta Roy to share his thoughts on the company's performance and the strategy of the company going forward. Thank you, and over to you, sir.

Thank you. A very good morning, everyone. I welcome you all to the investor call for Q4 FY '26 and the close of the financial year -- today with me on the call are our CFO, Mr. Sachinn Joshi; and our Chief Operating Officer, Mr. Raju Dodti, along with the senior management team of L&T Finance. As you may have gleaned through the exchange notification, I'm pleased to welcome Mr. Sachinn Joshi and Mr. Raju Dodti as whole-time directors designated onto the Board of L&T Finance, obviously subject to necessary approvals. Similar to our previous calls, today's call is divided into 2 sections, taken up sequentially by myself, followed by our CFO, Mr. Sachinn Joshi, who will be talking about the overall business metrics and financial performance. In today's call, we shall focus on the performance update for Q4 FY '26 and FY '26, alongside sharing our road map for our 5-year strategic plan, Lakshya 2031. Post our commentary, we'll be happy to take questions on the call. Before we delve into the highlights of the quarter, I would like to give you some pointers on the current metro economic scenario and sectoral outlook which becomes important given the volatile global scenario and the ongoing energy market disruptions. And its ongoing geopolitical tensions and volatile global conditions, India's economic activity continues to be resilient. The economy has performed better than expected throughout the year, laying the groundwork for continuous upward revision to forecasts. According to NSO, second advanced estimates, with the new base year being 2022/'23 Real GDP growth is placed at 7.6% in FY '26, up from 7.1% in 2024, '25. The pickup has been led by steady private consumption, both in urban and rural and sustained investments in sectors like construction, power, production of electronics and capital goods, et cetera. Domestic demand remained strong, supported by both rural and urban demand, GST rationalization and monetary easing. Structural reforms favorable financial conditions and the government's thrust on infrastructure spending have aided investment activity and bodes well for sustained strength in demand conditions. The government's focus on scaling up domestic manufacturing in several strategic and frontier sectors augers well for India's long-term growth trajectory. Against this broadly resilient backdrop, spillovers from the ongoing West Asia conflict post potential downside risk. However, as per RBI's assessment, strong fundamentals, including sustained growth, low inflation and fiscal consolidation provides India the wherewithal to withstand the adverse impact of heightened global uncertainties. The IMF has also raised India's FY '27 GDP growth forecast highlighting resilience despite global risks and the miles tensions and high oil prices, keeping India among the fastest-growing major economies yet again. While the duration and intensity of the West is share conflict and its broader macroeconomic implications yet to be fully uncertain, we remain hopeful that the resilient domestic demand and coordinated policy support will provide the wherewithal to withstand the adverse impact of such global uncertainties. Coming to this quarter's highlights, I'm pleased to inform you that we have contributed FY '26 with our highest ever annual profit after tax of INR 3,003 crores, up by 14% year-on-year before a onetime impact of Labor Court of INR 21 crores post tax in quarter 3 FY '26. Our quarterly profit after tax for quarter 4 FY '26 stands at INR 807 crores, up 27% year-on-year. This has been cheap on the back of highest ever quarterly retail disbursements of INR 24,107 crores, up 62% year-on-year with contributions received from all our lines of business. For context, we had posted retail disbursements of INR 14,899 crores in the corresponding quarter in the previous financial year. The significant thrust of disbursement momentum year-on-year has been the result of our continuous focus on risk-calibrated growth in all lines of business during FY '26, duly supported by our next-gen credit administration framework cycles. The retail book now stands at INR 119,508 crores, reflecting a growth of 26% year-on-year, while the overall book size reached INR 1 lakh 21,728 crores in FY '26 and an ROA of 2.4%, reflecting a growth of 18 basis points year-on-year in quarter 4 FY '26. This quarter, we registered a strong growth in total income, which grew 26% year-on-year and 4% Q-o-Q with a PPOP growth of 31% year-on-year aided by an increase in our NIMs and fees to 10.47%, a sequential increase of 6 basis points, largely driven by a sharp focus on heat optimization across businesses, fee improvement and efficient liability management. In the last call, I had emphasized upon our trajectory of bearing credit cost on account of implementation of structural credit policy measures in our businesses and the realization of positive dividends of the early implementation of cyclops in 2-wheeler SME and farm businesses. I'm pleased to inform that consequently, credit costs moderated to 2.6% in or 19 basis points reduction from the previous quarter. I would like to take some time to share a brief update on the broad themes implying in our guidance last year. In the corresponding quarter the previous year when we spelt out the guidance for FY '26, I had focused on 4 broad streams. Resumption of the growth trajectory in our rural group loans and FM business growth being the primary general across all our lines of businesses. granular focus on building OpEx efficiencies in our collections and created administration verticals as a byproduct of Cyclops implementation, and enhancing productivity of our sales channels. I'm pleased to state that we have tirelessly worked on these 4 things throughout FY '26 and the profitability and the growth that you see today are a result of the continuous efforts of our teams, making significant progress on these initiatives. Our RGL and MFI business has showed sustained resilience an uptick in both disbursement volumes and the complete restoration of collection efficiencies to the precrisis level of 99.8% plus. As for productivity enhancement is concerned, we are granularly focused on improving productivity and throughput across all lines of business using digital tracking tools. For instance, in our microfinance business, the productivity per field level officer increased to 16.1 lakhs in quarter 4 FY '26 from INR 11.7 lakhs in quarter 4 FY '25, up 38% year-on-year. While our personal loans business, the productivity has increased to INR 1.6 crores per sales and in quarter 4 FY '26 from INR 1 crore in quarter 4 FY '25, up by 60%. And the 2-wheeler business displayed an increase of 36% from INR 1,400,000 to INR 19 lakhs. Similarly, our retail housing business, the throughput per employee registered an increase of 11% to INR 1.96 crores in quarter 4 FY '26 and our SME business registered a productivity increase of 66% to INR 3.11 crores from INR 2.93 crores in quarter 4 FY '25. In the farm business, the productivity increased from INR 57 to INR 63 lakhs, up by 11% in quarter 4 FY '26. We continuously benchmark our productivity ratios with our peer group. And while we compare favorably, we will continue to strive to improve further. We have taken concerted measures with the help of our digital tracking tools to enhance optimization of deployment of manpower while also providing opportunities to use them for cross-selling other products. This, coupled with the opening of our multiproduct ampulla branches will help us to augment productivity and bring in operational efficiencies while helping us to focus on cross-sell in a concerted manner. As all of you are aware, L&T Finance as an organization has been investing consistently in building and deploying proprietary AI tools to help us sell underwrite, collect and operate more efficiently. We consider ourselves as 1 of the pioneers in adoption of AI at scale in an Indian BFSI sector and we intend to keep this strategic lead as the world moves towards increased adoption of AI led efficiency. To this end, we'll continue to invest in the latest AI tools, both hardware and software and make an attempt to acquire market-leading talent to retain our execution lead. Our annual AI conference raised is already considered the most definitive very conference in the BFSI sector in India, and we'll continue to strive to maintain the thought and execution leadership in this space. To substantiate our position as India's leading AI enabled organization in the BFSI sector, we will start giving performance metrics on our AI initiatives on a half yearly basis, starting with this result cycle. Would like to draw your attention to Slide #20 on the investor presentation where we have given the early performance metric of our Cyclops 2-wheeler portfolio benchmarked against industry over a period of 10 months. We're pleased to note that Cyclops has outperformed the industry by a wide margin during the aforementioned observation window. Slide #21 gives details on the effectiveness of the AI interventions in our collections vertical, especially in measurable activities like pre-delinquency management and self-cure. It is to be noted that our successful air-driven free delinquency management and self-care resolution process has significantly lowered our cost of collection across all our urban finance products. The number of ACO pilots and tools used by our operating departments are mushroom. And we have given a complete listing of the successful implementations in Slide #22. Our Helios copilot for SME underwriting has significantly reduced the underwriting TAT for our SME clients and we expect to improve this event further with deployment of additional modules in Q1 FY '27. We also intend to impart on a pan organization can DNA upgrade exercise this year, where our operating managers and distribution workforce will be equipped with AI productivity tools and training to use the same efficiently. Project Nostradamus, lntFinances air-driven automated real-time portfolio management engine that went completely live in the two-wheeler finance business in November 25 has started delivering measurable outcomes in predicting and containing portfolio risk at a granular micro market level, and we expect to implement it in our personal loans business in Q1 FY '27. This will be followed with the implementation of Nostradamus in the rural business finance vertical in Q2 FY '27 and subsequently in the SME and farm businesses. As we have concluded Lakshya 2026 and now embarking on Lakshya '31, we would like to give you a final update on Lakshya '26 metrics and the aspirational goals for Against the target of utilization of greater 95% by FY '26, we have achieved a retailization of 98% at the end of the plan. We have outperformed the retail book growth target of 25% CAGR across the plan by talking a CAGR of 28% across the Lakshya '26 plan. The organization achieved the asset quality goals with our console GS3 and Nest standing at 2.88% and and 0.96%, respectively, against our target of GSI of less than 3% and industry of less than 1%. With regard to the last goal of achieving ROE of 2.8% to 3% in we achieved an ROE of 2.4% in quarter 4 FY '26. During the large part of the strategic plans tenure, we remain on track to achieve our Lakshya ROA target of 2.8% to 3%. However, we faced certain headwinds on account of the micro finance crisis, which set us back on this front by a few quarters. We are hopeful that we will achieve this RA goal by the exit of Q4 FY '27. I would now like to share our Lakshya 2031 goals, which will serve as our North Star for our next phase of institutional transformation designed to establish LNG finance as India's premier AI-enabled risk first [ de-fit ] multiproduct retail financier of choice. This plan is a result of rigorous bottom of granular business analysis and exhaustive peer benchmarking, ensuring that our growth opportunities are risk-calibrated while taking advantage of the market share gain in the opportunities that we have identified. We are focusing on tech-enabled granular execution to sharpen our competitive edge allowing us to maintain dominant market leadership in our Fulcrum business segments while developing sufficient market presence in our new business lines. The measurable goals for Lakshya '31 are as follows: as shared in Slide #9 of the analyst presentation. We will attempt a book growth CAGR of 20% plus over the Lakshya period. will endeavor to drive credit costs down to a level of 2% or less. We will target to achieve our return on assets in the range of 3% to 3.2%. We will strive to deliver return on equity in the range of 16% to 18%. The successful achievement of the strange targets of Lakshya 2026 plan period gives us the confidence of achieving the goals we have set for ourselves in the 5-year Lakshya '31 plan period. I'd also like to take this opportunity to brief ion the go-forward plan on FY '27. As we enter FY '27, the first year of our 5-year strategic plan, Lakshya '31, we expect the momentum gain in FY '26 to sustain with AUM growth of over 20% supported by robust consumer demand in urban finance, gold loans and our rural franchise while maintaining a calibrated and quality-led approach to expansion. From a profitability and ROA standpoint, the investments that we have made over the last few quarters position us well for operating leverage to play out meaningfully in FY '27. We expect our NIMs and fees to remain stable in our guided range of 10% to 10.5%, while credit costs should trend lower in the range of 2% to 2.2% by Q4 FY '27 as newer portfolio season and our AI-led underwriting frameworks mature further. At the same time, we'll continue to add rapidly to our gold loans distribution footprint and our multiproduct [ Simple ] branches while deepening cross-sell opportunities across our customer base of close to 3 crore customers. We will also expand our 2-wheeler and farm equipment distribution footprint by covering our [ Hideto ] uncovered dealer base. Will build and operationalize an AI-based cross-sell and service engine this year, thus completing the modular intelligence framework for our technology architecture as first detailed during the Investor Digital Day in November 2024. Overall, we see FY '27 as a year where the foundation built over the last 12 to 18 months begins to deliver consistent high-quality growth with lower credit cost profiles leading to improved profitability and return metrics. As I mentioned earlier, in the -- by the last quarter of FY '27, we are targeting to achieve an ROE of at least 2.8%. As announced to our exchange declaration on Friday, the board approved the setup of a payments platform by L&T Finance to take advantage of the rapidly evolved digital payments and commerce landscape in India and to build a responsive and personalized payment framework for our rural and urban customers. The focus will be to infuse the strong AI expertise gathered by net finance into the payments domain through an agentic commerce paradigm. The organization has already started laying the blueprint for the same and expects to operationalize the platform by Q2 FY '27. The payments business was strategically served as attachment for new customer acquisition, diversification of fee revenues and simultaneously will capture reach transaction data for use in our lending businesses through our proprietary AI tools. We'll keep you periodically updated on the progress of this initiative. As mentioned earlier, I would now like to give you a brief update on the 5 pillars of execution that we had enumerated in October 2023 and continue to be in implementation mode against the same. Customer acquisition. The focus continues to be on maintaining customer acquisition momentum, both vertically and horizontally while proactively implementing credit adjustments to ensure sustained portfolio quality. To ensure focus on acquiring new nonleveraged MFI customers, the team focused on deepening reach into new noncovered villages. Hence, the number of new villages 0 disbursement villages activated for the rural group loans and the MSI verticals stood at 28,335 villages in Q4 FY '26 as against 27,146 villages in Q3 FY '26. We're also expanding our geographical footprint to UP, Maharashtra, and Andhra Pradesh and FM. This quarter, we have added a total of 8.3 lakh new customer, which is the highest ever. And with this, our overall customer franchise stands at about 2.8 crore unique customers at the end of FY '26. The 2-Wheeler Finance segment also saw renewed growth by reactivating dealers to target prime customers. Further details around customer acquisition and repeat are available on Slides 27 and 28 of the investor presentation. Sharpening credit underwriting. I've already spoken at length on the impact of our proprietary credit underwriting engine, project Cyclops, which is now live in 2-wheeler, farm, SME and personal loans and will be further extended to home loans and rural business finance in FY '27. Future is digital architecture. We continue working on upgrading our technical capabilities and our focus on continuously strengthen our IT framework remains unabated. I've already spoken about the project factored project Nostradamus. This year, we saw the launch of 20-plus new digital journeys among which the HL new 2.0 journeys led to 2x productivity and the 3x in our Pharmapotal as well. We enhanced credit governance through the [ Sat ] app and an EWS investigation portal for early warnings. These advancements have built a highly efficient, scalable and secure digital infrastructure for our retail future. Brand visibility. We continue to focus on targeted engagement to multichannel and multiproduct brand building with Jasprit Bumrah as our brand ambassador. We expanded brand visibility through targeted branch initiatives and event participation, including the branding of 200 new gold loan branches and the presence of a flagship business loan industry event to also reach captive audiences, we also have implemented airport branding across multiple cities. Capability building. On the capability building front, as you are aware, we have taken a series of measures during the year. During the quarter, we have completed our annual long-range planning cycle across all verticals, reinforcing the alignment of function level talent strategies with our overarching business objectives. On the employee initiative front, we launched the employee engagement service, including the third addition of the great Place towards survey to enable the management to effectively listen to the voice of its employees. Additionally, golden expansion remains on track with 330 branches live as of quarter 4 FY '26. Notably, 30 of these new locations are integrated into a multiproduct Sampoorna branch network. We intend to deploy 400-plus new gold loan branches this year, of which at least 100 would be Sampoorna branches. This reflects to fostering this reflects our commitment to fostering a high-performance culture and scaling our physical presence to serve our customers better. Now I would like to give you an update on the wholesale business and the related investments and security receipts with -- the wholesale book has been reduced from INR 2,582 crores in FY '25 to INR 2,220 crores in FY '26, a reduction of 14% year-on-year. The net security receipts book has also been reduced from INR 5,862 crores in FY '25 to INR 4,808 crores in FY '26, down 18% year-on-year, mainly due to monetization of assets driven by active stakeholder negotiation, completion of projects and subsequent sale of constructed units and recovery measures implemented through legal action. Details of the same are available on the Slide #15 of our investor presentation. With wholesale ARC book production progressing satisfactorily, we continue to work with ARC's focusing efforts towards further reduction in outstanding assets. I will now request Mr. Sachinn Joshi, our CFO, to take you through the financial updates.

Thank you, Sudipta. As always, I'll be walking you through the financial performance of the company for the quarter. First, talking about the quarterly performance. Consolidated NIM plus fees for the quarter stood at 10.47% versus 10.15% for Q4 FY '25 and 10.41% for Q3 FY '20. Consol PAT for the quarter was INR 807 crores, up 27% year-on-year. Quarterly retail disbursement stood at INR 24,107 crores, up 62% Y-o-Y. Retail book stands at INR 11,508 crores, up 26% Y-o-Y and our consolidated book stands at INR 121,728 crores, up 25% year-on-year. Console ROA stands at 2.40%, up 18 basis points year-on-year. Consolidated ROE stands at 11.71%, up 158 basis points Y-o-Y. . Now coming to annual performance. Consolidated PAT at INR 2,981 crores, up 13% Y-o-Y. If we exclude the onetime impact of labor code, which was there in quarter 3 FY '26, PAT stood at INR 3,003 crores, our highest ever. Consolidated NIM plus fees at 10.33% versus 10.59% for FY '25 highest ever annual retail disbursements of INR 3,213 crores, up 39% year-on-year. Consolidated ROA after onetime exceptional items stood at 2.37%, down 7 basis points year-on-year. Before onetime exceptional item, it is 2.39%. Consolidated ROE at 11.25%, up 38 basis points year-on-year before onetime exceptional item, it is 11.3%. Now before I move on to our retail business performance, I would like to briefly talk about our annual ECL model refresh. We have already provided a detailed impact of annual ECL model refresh on Slide 13 but would like to just reiterate the same. The company undertakes a refresh of the ECL model annually, including recalibration of probability of default is PD as well as [ log-norLJD ] methodologies across stages. The model refresh also incorporates updated assumptions and forward-looking risk parameters. This year, ECL model reflash has resulted in a release of ECL provisions of INR 301 crores. These were carried as management over and above the provisions required as per ECL model. INR 290 crores were in stage 3 and INR 11 crores in Stage 2. There is a corresponding increase in ECL provisioning of INR 301 crores in Stage 1. Additionally, as part of this exercise, INR 125 crores of macro potential provisions have also been subsumed within the ECL model. This leads to improved provision coverage on performing Stage 1 book which constitutes a substantial around 96% of the total exposures from 0.52% in Q3 FY '26 to 0.80% in Q4 FY '26. The PCR on Stage 2 assets improved marginally from 23.3% in quarter 3 FY '26 to 23.59% in quarter 4 FY '27. Correspondingly, the PCR on Stage 3 assets comes down from 73% to 68%, which is an adequate level of coverage and does not in any way diminish or impact existing coverage requirement as per model within Stage 3. Overall, this does not have any P&L impact, which exhibits structural consistency and balance sheet for the year. This exercise strengthens the company's credit risk framework and reflects its continued focus on prudent credit risk management. Talking about retail businesses now. First 1 is rural business finance which registered quarterly disbursements of INR 7,028 crores, up by 41% year-on-year, and annual disbursements stood at INR 25,882 crores, up 24% year-on-year. mainly on account of improved collection efficiencies and sectoral trends. The book size reached INR 30,805 crores, up 6.3% quarter-on-quarter and 17% year-on-year in Q4 FY '26. In the Farms finance vertical, quarterly disbursements stood at INR 2,037 crores in Q4 FY '26, up 16% Y-o-Y. While the annual disbursements stood at INR 8,674 crores, up 9% Y-o-Y. The book size reached INR 16,970 crores, reflecting a growth rate of 12% year-on-year. Talking about urban Finance, which comprises 2-wheeler personal loans and home loan lab business saw a 61% year-on-year jump in overall quarterly disbursements INR 9,850 crores and a 38% jump in annual disbursements totaling to INR 314 crores. As a result, the overall book size increased to INR 59,048 crores in Q4 FY '26, translating into a 29% year-on-year growth. The 2-wheeler business registered quarterly disbursement of INR 2,930 crores in the quarter, up 58% Y-o-Y and annual disbursements stood at INR 10,787 crores, up 16% Y-o-Y. The book size increased to INR 14,372 crores, up 17% Y-o-Y, with 90% plus of March 26 2-wheeler disbursement. In the prime segment we continue to prioritize high-quality growth and optimize risk-adjusted returns. In the personal loan business, we achieved our highest ever quarterly disbursement of INR 3,786 crores translating into a growth of 98% Y-o-Y and annual disbursements stood at INR 12,220 crores, up by 100% Y-o-Y, with the book size of INR 14,616 crores an increase of 70% year-on-year. The double-digit growth is attributed to the scale-up of digital channels. In the housing loan business, we achieved quarterly disbursements of INR 3,134 crores, up 34% year-on-year, and annual disbursements stood at INR 11,507 crores, up 20% year-on-year. The book size reached INR 30,009 crores, an increase of 20% year-on-year. In the SME business, quarterly disbursement stood at INR 1,838 crores, up 20% year-on-year and annual disbursements stood at INR 6,130 crores, up 23% year-on-year. The book stood at INR 8,057 crores, up 30% year-on-year. The growth in business volumes was aided through an increase in direct sourcing and an existing strong network of distribution channels. In the gold loan business, quarterly disbursement stood at INR 2,779 crores, up by 97% quarter-on-quarter, and the total annual disbursements for FY '26 reached INR 6,700 crores. The closing book reached INR 2,845 crores at the end of the year, representing a significant growth of 63.5% quarter-on-quarter. Let me now hand over the call back to Sudipta to make his closing statements.

Thank you, Sachinn. In summary, our performance in quarter 4 FY '26 has been satisfactory -- and the overall performance for FY '26 has been up to our expectations despite a difficult start due to the Karnataka microfinance order lance issue. -- we have started the new financial lay on a strong footing with disbursement momentum keeping pace with the previous one, and we are reasonably confident of a strong growth trajectory in FY '27. As we go forward in FY '27 with the backdrop of the West Asia geopolitical tensions and the possibility of eliconditions later during the monsoon season, -- we are hopeful that we can maintain upward momentum in risk-calibrated growth and profitability in FY '27 and beyond as we continue our journey of executing the Luxury 2031 plan. I thank you all for patient hearing. The floor is now open to questions.

[Operator Instructions] We take the first question from the line of Shreya Shivani from Nomura.

Congratulations on a good quarter, a good year. So my 1 question is actually going to be about the of the West Asia wall. In terms of we have all these AI capabilities and I are probably able to see the data quite upfront versus many other players. Is there any areas of concerns that you can highlight, whether it be across your SME book, whether it be across your personal loan book. Also going ahead this year, there are a couple of headwinds in terms of the rural economy can face because of El Nino, there are headwinds of the war continuing to cause disruption or maybe causing inflation later in the year, et cetera. So how are we thinking about the full year across certain critical segments, which are susceptible to the monsoon impact, for example. So that's my 1 question.

Thank you so much for the question. So at the outset, let me tell you that though the West share crisis continues to go on. the domestic consumers have been largely shielded from any energy shock as of now, barring the little disruption on LPG supplies that we saw. However, there are -- there have been sort of tightened supply of industrial gases, et cetera, which has also impacted some of the SMEs. As of now, we really do not see any significant worsening, either for an impact rising out of the West Asia prices on any of our portfolios, whether be it SME or any other portfolio like rural business enters vertical or tractors or 2-wheelers. As of now, there is no visible impact. However, we continue to be cautious. One of the things that we remain on continue to be cautious is the fertilizer supply because the [ curate ] season is down the corner and and many of the input stocks for fertilizer production as well as some of the common use fertilizers originate and transit to the Middle Eastern corridors. So if the crisis does not resolve in time for the [ care sowing ] season, then we might see some sort of construction of supply fertilizer availability there, which might have downward impact on yields on some of the agriculture produce later during the. So these are all second order or third order impacts. Obviously, we are cognizant of the energy shock that might come at some point in time because the oil prices -- the oil prices continue to be at a higher level. So we obviously are looking at being cautious in our approach to the urban unsecured lending, especially in the SME business as well as in the personal loans business. But I would like to point out that our focus for the last 2 years have been more of prime customers. And we do believe that our prime customers have a larger factor of safety in terms of dealing with the vagaries of economic cycles are then the more sensitive below prime or near prime customers. However, we remain vigilant. Our portfolio management engine Nostredame, which is in 2-wheel is already giving us measurable benefits. We're implementing it in personal loans as well. So we will probably be able to see any risk pocket developing much, much earlier than maybe others. So in conclusion, we remain vigilant. As of now, there is no immediate signals that we are seeing or worsening of grade parameters that is directly related to the West Asia prices, but we have to monitor the space continuously.

Right. And just a follow-up here, your 20% plus 20% AUM growth guidance for FY '27 is inclusive of all these risks that -- all these concerns that you've talked about, right? -- we have taken everything into concern.

See, the fact is that as of now, we remain committed to that 20%-plus growth guidance. However, if there are unseen geopolitical shocks that might happen later during the year, those are not factored into the guidance. However, as of now, we stand by the 20%-plus guidance.

We take the next question from the line of Kunal Shah from Citigroup.

So a couple of questions. Firstly, you have spoken about the AI and deficiencies, which it can bring in -- just if you can touch upon within the overall guidance, both near term as well as maybe 2031 guidance with respect to how the cost ratios should pan out be in terms of cost to income as well as cost to assets -- that would be helpful. And second question is on ECL model refresh. So the contingency buffer has been subsumed and I presume it was in the Stage 2. So ideally, when we look at the release from the Stage 2, then ex of contingency, it wouldn't have been anything related to PD or LGD that can be clarified, that will be useful because there is hardly INR 11-odd crores and INR 125 crores was continuity. And so we don't carry any contingency as of today within the ECL. That clarification would also be helpful there. .

Yes Kunal, thank you. So let me take the second question first. On the macro prudential provision utilization, the Stage 1, 2, 3 when the recalibration has been done. -- anyways, when we show the slide on Stage 1, 2, 3, yes, you're right, INR 125 crores was part of Stage 2 itself. As we have recalibrated the INR 125 crores has been subsumed primarily taking in account the last 4 to 5 quarter challenges that have happened at the micro loan sector. The requirement naturally increases because ECL model runs at a lag. We have actually, this quarter come out of this whole challenge with the March ending at 99.80% collection efficiency, right? But the INR 125 crores, which was remaining in any way part and parcel earlier, it was separately available. Now it is part and parcel of T1 and 2 as part of the ECL model itself. So it's not gone anywhere. Anyway, it would be -- it is just tendering the same piece. It's just an eco at it. Going forward, as we step into the next financial year, whenever there is a possibility and a requirement, we will anyway continue building macro potential provisions, which will take care of the future events. So this is as far as the macro potential is concerned. In terms of the Lakshya '31, the OpEx to book range I think we are looking at a range of 3.75% to 4% range, primarily keeping in mind the investment that will be required because over the next 5 years, there will be further investments in technology, which will be required investments in setting up branches, gold loan micro loans, microlap, these are the businesses which we will continue investing in and the brand's network setting up the price network comes at a cost. So we have continued to factor these deals when we build the '31 projections. So I hope I have answered

Term cost ratios. Near-term cost ratio will be -- it will be same or maybe some positivity. .

Yes. So as far as the operating expenses are concerned, we -- this -- if you talk about we intend to -- assuming that the external conditions remain normal, we continue to plan setting up about 150 to 200 micro loan branches, further 150 to 200 micro lab branches and about 400 to 500 gold loan branches. Now these will come at a cost. And hence, we've said that the credit cost trajectory coming down. exit, we are expecting exit Q4 FY '27, we are expecting it to come down to a range of 2% to 2.2%. So keeping the reduction in credit cost in mind, and the investments to continue in FY '27. I think we are looking for an ROA target of 2.8% to be achieved by exit FY '27. Basically, the Lakshya '26 target of 2.8 to 3. We expect to achieve with a lag of about 4 quarters because we are out of the crisis now and we should start moving towards achieving that target.

We take the next question from the line of Pranuj Shah from 3P Investment Managers.

So first is just on the fee income, which is relatively tepid compared to your disbursement growth of 61% and 6%. So is the MTM losses that is pulling this down? Or what is this exactly?

No, fee income does not include any MTM losses. Primarily, there is an amount of liquidity income. So depending on the liquidity that is kept we have the income coming in as part of the interest cost. And if there is a negative carry on that that comes over here. So otherwise, the disbursement trajectory, the processing fee and the CLI income remain rebounding.

But do you expect this to grow in that 20% range in line with your AUM and disbursement target for next year. The fee income?

I think fee income has -- we continue to remain in the range of about 1.7 to 1.8, 1.9. There are quarters where we receive something more quarters where we receive something less. So I think the range rather than looking at stand-alone fee income, we always give a range for the NIM plus fee because ultimately, it's a patent parcel of whatever fee income that we garner depends ultimately on disbursement on a specific business micro loan will give a particular range of fee we gold on financing is something else. So to remain within the trajectory of 10% to 10.5% is what we have assured and we have been maintaining that. This quarter, we have done 10.47%. So some plus/minus a few basis points here and there will keep happening. We can't really monitor on exactly what will be the fee income, but broadly, this range should continue.

Understood. And lastly, just 1 clarification, like you reported NIMs versus the tax rate base of print averages, there's quite a bit of delta. So you reported is on daily average assets. Am I correct there?

No. reported. What we do is we do end of the period averages.

Okay. Understood. I'm getting a bit delta of that, but I'll take this offline perhaps.

We take the next question from the line of Avinash Singh from Emkay Global Financial Services Limited.

A couple of questions. As 1 is more on -- I mean, of course, you are kind of leading there and leveraging it. My question is more on the -- that medium-term impact of IM markets. I mean, the hiring scenario in IT looks muted at the moment or certainty is there. And even if you were to look at finance sales, sector world, the was growth has been slowing and hiring is also relatively slow. Now these 2 sector typically very key for your target of the 2-wheelers as well as appeal -- now if these 2 sectors are kind of a bit clouded here, -- now how do you see the risk in terms of your growth security over the medium term because these 2 are kind of delicate to your -- the 2-wheelers and force loan growth are recreatable to you growth trajectory and plans, but we have this big sort of uncertainty coming in. So I mean on 1 hand, of helping an option time, but this is kind of getting a cloud. So that's 1. Second, again, I guess, you hadn't discussed -- from this FY '31, -- so broadly, if I see -- I mean, if I were to remove this drag on earnings from the security receipts and see the credit cost improvement. By and large, it looks like that, okay, in terms of even over the medium term 4, 5 years, plan like me plus C changes and OpEx changes basically offsetting. I mean there is very little play from these 2 parts are playing from credit cost and some tildra going on. So now if you were to continuously invest in technology, I mean, why it is so that even exit, I mean, after 4, 5 years, we do not see that OpEx per to come into picture. And this branch 150 each for microfinance microlap and 400 for gold, is you open in how many years? And will there be some overlapping branches. .

Okay. I'll take the first question. The first question is the fact is that there a lot of headline moderation in hiring by some other -- some of the sort of the bigger in IT firms as reported in the media, were 1 of the things we should be cognizant of that much of that slack is also being picked up by the huge expansion of GCCs in India. So the fact is that -- and we are in the hiring market almost every day, it's still difficult to get qualified talent as it was 2 years back. right? So maybe there might be a little bump in the freshly minted engineers getting hired into some of those other big Indian IT services firms. But the hiring by the GCCs expanding is quite strong. So according to our assessment, we really do not expect the IT staffing or hiring industry to completely fall off a cliff at least for the next 12 to 18 months. And the fact is that because we have been very early in adopting AI based tools, and now we have a significant AI development team as well. Our realization is that -- the front end of development is only 15%. To make AI solutions useful for use in the frontline or for use by operating managers, you require a heavy engineering wrapper around it. And that requires software engineers and developers to put it together in a usable format. So I do believe that -- and this is -- obviously, this is my own personal opinion. Some of the gloom and doom regarding job losses from AI like being an unstoppable stream has been probably a little over low right? Yes, there will be some losses because of efficiency gains, et cetera. But I do believe that some of those will be deployed into tools, tools development or manufacturing of AI-enabled solutions. So overall, I do believe that there will be a marginal impact and not a massive impact. But okay, the caveat is that we'll have to see as it plays out. My guess is as good as yours and no 1 can predict with 100% certainty as to what will happen. Having said that, we are cognizant of wherever there are like last scale job losses off late, there was a large-scale job cuts by 1 large global U.S. player, right, in the IT segment. And so our underwriting sort of paradigm as well as underwriting processes, especially in SME or personal loans, et cetera, remain cognizant to search efforts, right? And we incorporate such things into a decisioning process. For example, if you did advanced news of a particular large heavy amount of job losses in a particular IT services companies, right, or downsizing in an IT services company, automatically, any application coming from that company for a personal loan or for a credit facility goes through an additional amount of security. right? So those things are built into the underwriting process. The second -- as part of the second question you were asking whether on the gold loan branches. The gold loan match has 400-plus gold loan branches is for deployment only in this year. That means from 1st of April till 31st March 1st April 26 to 31 March 2027 in between this period. We'll deploy this microlab branches, and we'll deploy this 400-plus gold loan branches. So the rate of deployment of gold loan branches will be at a rate of almost 1 to 1.2 a day. right? And so that is -- to answer the question. The third thing is that obviously, the OpEx and the cost trajectory will evolve over the period of the Lakshya '31 framework. So currently, we are at about 2.64%. You can see then our slippages. Our slippages have been coming down. our slippages same quarter last year were about INR 900 crores plus. This quarter, it is INR 402 crores, right? We have given the impact of Cyclops on our 2-wheeler portfolio, where you can see our 30-plus number at 10 months from the observation period is 2.8% with the industry average is 7.1%. So actually our Cyclops portfolio to wheel a portfolio, which is like almost INR 11,000 crores right now is -- but the observation window book, which is about INR 250 crores is outperforming the industry by almost a factor of almost a factor of 2, right? So -- we remain very, very confident on the trajectory of pairing our credit cost during the Lakshya cycle to sub-2%. That is why we felt confident enough to put in that part of the luxury guidelines. And the fact is that you are right, to a certain extent, the ROA expansion will come from some part of the efficiency that is arising out of OpEx as well as we will build headline efficiency in our OpEx plus credits. If you had been part of the analyst call previously, at 1 point in time, we used to guide saying that our OpEx per spread cost will be in the core 6.5% to 7%. Now we have moved back to a corridor of 6% to 6.5%. And during the Lakshya period, we expect that to be in the corridor of 5.75% to 6%. So that is where we expect that to be in the quarter. So obviously, -- there will be efficiencies built in the OpEx line, there will be efficiencies built in the credit cost line. And obviously, we will try to hold our NIMs and fees in the corridor of 10% to 10.5%. There was a question on fees. We have launched the payments business primarily because we want to diversify our fee revenues, right? We are cognizant of the fact that our primary fees comes from insurance revenues as well as some origination fees. So we want to diversify our fee revenue pipeline. So that is why with the reason the payments business has been launched, our payments business is proposed to be launched. So we are working on diversifying our fee revenues as well. So that is why -- for the near term, our guidance on NIM plus fees remain at 10% to 10.5% for the near term, right? So we are very confident that given the fact that the structurally, the changes that we have done to the businesses and the way we do our businesses, right, will help us navigate the Lakshya '31 period and deliver those metrics that we have put on -- put on the paper.

We take the next question from the line of Chintan Shah from ICICI Securities.

Congratulations on the quarter. So sir, firstly, on the Lakshya 2031 an ROE guidance of 16% to 18% -- so in that, are we considering any benefit from the car portfolio as in any provision reversal, which are which we could expect from that? Or what is kind of the recovery rates on the pool. So this quarter, I think we have . This year, we have a reduction of almost INR 1,000 crores in the asset book. So has that gone anything towards the provision and any add back on the capital front, the other question? .

Yes. So first thing is, yes, we have not taken into account any gains coming out of portfolio because earlier we had guided that as and when such gains come in, we will actually utilize the those credits to take care of the further macro potential provisions to be created. And once we have sufficient provisions created for micro loan, we may also consider creating provisions for the unsecured portfolio overall. So that's a top up which has not been factored in over here. And as far as the current credits are concerned, you would have seen that the overall portfolio used to have the SR portfolio, used to have about 59% provision. That has now gone up to 64%. So till the time the ARC has more than 1 asset, the release of these credits to P&L is not possible. So whatever credits have been received have actually just gone to create more buffer for the balanced assets which are currently going in for resolution. So we will -- over a period of time, there will be a redemption of -- as and at that point of time, credits will come in, and we will, like had guided earlier, we will utilize the monies to take care of the creation of additional macro potential provision. Yes. But this question is is that 3% to 2.2% -- it does not does not include -- that has not entered -- also -- but 1 of the important points to note is that -- the portfolio still gives us a drag, right? Because we have to still provide further funding costs for the portfolios with AS. So as and when the portfolio is reserved, the drag results to a large extent, which releases a marginal ROE into our entire earnings stream. If you were to look at -- so if you were to look at stand-alone basis, our retail portfolio is actually exhibiting ROA level at a level higher than our consolidated ROE, right? So as the drag reduces, Yes, there is a secular benefit that will come into the ROI profile as well, right? So to that extent, yes, the resolution of the ASI portfolio will aid our ROA expansion definitely.

Sure. So just on that retail portfolio, ROA stand-alone ,which you mentioned is higher than the overall so how much would be the delta with the retail portfolio will be having where the control.

So rather than talking about the delta on retail, I would like to just talk about what is the money that is stuck. We have INR 2,200 crores of portfolio on the book, the loan book the wholesale portfolio and about INR 4,800 crores of SR portfolio. [indiscernible] so totally about INR 7,000 crores, right? Yes, INR 7,000 crores is the money which will get released over a period of time. And right now, the 4,800 crore does not give me any interest income because they are part of SR, use giving me around 11% to 12% kind of yield, you can do the calculation here. This money will get released and will get redeployed in high-yielding retail business.

Understood. Is it fair to expect that this will get resolved in 3 years in an at least? .

Yes, 3 to 4 years. So there may be a long tail, but yes, larger resolutions, there has been a movement positive movement which we are seeing. Ultimately, it's with NCLT. So if anyone's guess -- but yes, next 2 to 3 years, a significant part of the assets will come up for evolution.

Yes. Let me add to what Sachinn said Chintan. In many of the assets, there has been significant progress over the past 1 year. And we are reliably positive about the trajectory of that. But it will take another 3 to 4 years. It will take another 3 to 4 years. Because for 1 of the assets, for example, I want to give an example, the JV has just been signed last quarter. Now once the JD has been signed last quarter, the construction period is at least 2, 2.5 years. right? And so it will take about 4 years for the 4 to 4.5 years for the full project to get delivered. So the delivery will come across the next 3 to 4 years is what we look at. And so -- we have a team. We have a reasonably focused team that keeps on working on this. And so far, the outcome has been positive.

Fair enough. That is -- and just 1 last question on the fee income part. So I think in order to boost fee income. So are we looking at any opportunities to further expand into co-lending -- and are we doing any co-lending as of now? So what are the thoughts on that? .

See, co-lending, we do on the personnel side, but on a very selective basis with only a couple of partners. Collending always remains on the plan for us on the table for us. there can be opportunities in home loans to do co-lending, there can be opportunity. Personal loans, obviously, the opportunity arises. In SME, there can be an opportunity to do core lending on a product like warehouse receipt finance, there can be opportunity to do co-lending. So the only thing about this is that co-lending frameworks are slightly complex to implement as well as it requires a little bit of tech integration as well as monitoring. So if we find the co-lending -- see, we have not starved of capital right? So we will do co-lending whenever we get access to newer customer pools, right? And the partner also once -- say, in the control of the customer experience process, right? So there are various considerations that go into co-lending. -- or the partner does not have enough capital to deploy to do a certain amount of product to its customer base. So -- there are horses for courses. Yes, we remain open to doing co-lending frameworks, but obviously, at terms which we think are favorable to our business philosophy.

We take the next question from the line of Anuj Singla from JPMorgan. .

Sir, my question is on the ECL refresh, while you have elaborated quite a bit on that. On the Stage II PCR cut, is there a change in LGD or PD assumptions there? .

-- the PD, LGD, there are 2 ways within the industry. There are certain players who have PDs, which keep increasing -- which have an increasing threat trend as they move stages. And there are some players who also have the LGDs moving -- showing an increasing trend. There are other players in the industry who have us moving PD, but the LGD is static, which means that LGD is decided at a portfolio level. And accordingly, the overall LGD is applied to every asset side from -- so it's fixed for all the 3 stages. So when we have done this exercise over the last 2 years, we have actually been recalibrating the Stage 1, 2 and 3 PD LGD this year for the -- based on the impact of FY '26, we have revisited this -- and accordingly, the Stage 1, if you look at -- what has actually happened is that the overlays, which were kept in Stage 3, which were over and above whatever was the requirement as per ECL model with the difference of PCR between 74% and 68%. That differential was nothing but the management over less. They have got released as part of this or exercise. And the 96% of the portfolio, which is in Stage There, we have actually enhanced the overall PCR plus from 0.52% to 0.80%. So right on day 1, as the loan gets sanctioned and disbursed, 80 basis points is set aside if you are aware in the RBI prudential norms, this used to be a minimum requirement of 40 bps. It's actually double that number. And the LGD across the stages has been fixed. That's the result why we see that right from day 1, the stage 1 carries 80 basis points Stage 2 also, there is a small increase which has happened from about 2.23% to 2.47%. And Stage 3, there has been released. So this release of provisions out of does not, in any way, bring down the provision coverage in terms of what is required for that portfolio. I hope I have -- I'm clear on that.

So my question is if there is a GDP change for Stage 1. So let's say, for the incremental portfolio buildup in 2 do take -- will you be providing at 80 basis points incrementally as well or it will be 50. So you've created a buffer between this 30 basis points of incremental buffer, but that's a onetime buffer. Or have you changed the assumptions that every incremental asset buildup will now need to be provided at 80 basis points or -- it will be. It will be. It will be a there's a permanent change in assumption then. So does that Yes.

Also, there are still certain overlays continuing in Stage 3. So we have not fully exhausted the overlays, which are part of Stage 3. Number two, if you have seen that last 4 to 5 quarters, the whole rural business loans business has gone through a crisis. okay? So just simple arithmetic, if you exclude 1 good year and you add 1 difficult tier to the overall ECL model, you will find that the PDG will increase, okay? Now the actual behavior of our portfolio QC has only been improving. We have actually gone back to the precrisis levels. Our collection efficiencies are back to 99.8%, which means the actual requirement as part of the credit cost will come down significantly, whereas the ECL model requirements will continue for some time just as a pure arithmetic. So -- so that's also 1 of the factors which leads to this increment. In a way, it actually creates -- if my asset book is going to be improving with every quarter this will actually create only cushion in the system. And that's what we ultimately intend to. We used to hold INR 975 crores of macro potential provision at 1 point of time. And in a way, by the acceleration of stage 1 provisions, it only helps us create that cushion at the early stages of -- so the standard asset gets a higher coverage by the time some roll forward happen. We have also shared the role how the roll forwards have been slowing down. And that actually shows very clearly that the overall portfolio across all businesses is only improving. And the overall requirement for provisions will go down in reality. But when we look at the provisions to be created, it is broadly dependent on the ECL model. The Cyclops impact partial impact through the segmentation and all has been already considered -- as we move into the next financial year, you will see the further impacts coming in and which will help us improvise is on the overall credit costs. And that's why we we are pretty bullish on how we will end this financial year, FY '27. And we've taken an aggressive target, I would say, in terms of bringing down the credit cost to range of 2% to 2.2%.

Okay. So just to clarify, this does not -- the change in this quarter does not have an impact on the next quarter -- next year credit cost outlook. Because mathematically, it should, I just want to clarify, on the Stage 1, you are now factoring at 80 basis points versus 50 basis points till -- now we have increased the positioning of stage buildup, which will incrementally will be adding in FY '27. Does it change in any way the outlook of credit cost for FY '27.

No, no. No. See, the reason for that is the actual roll forward, if they slow down, the hit to P&L is expected to come down significantly. So the provision, the requirement based on the book increase will go up but more than compensated by the reduction in the roll forward.

We take the next question from the line of Abhijit Tibrewal from Motilal all Financial Services Limited.

Sir, just to clarify what you just answered that we now plan to keep Stage 1 provision cover at 80 basis points. I was under the impression that this quarter because you have had a release from Stage 3 rather than taking the benefit of that in the P&L, we chose to be prudent and we parked it in Stage 1 but if we start providing on Stage 1 at 80 basis points, it essentially means that our PD and LGD assumptions are now telling us to provide on Stage 1 at 80 basis points. So which is not just a steel model refresh. In other words, starting whatever release we had from Stage 3 in Stage 1 which is our ECL model now telling us that provisions on Stage 1 is required at 80 basis points. Is that understanding correct? .

No, no. So which is the way it works is that if the LG is like I was mentioning earlier, either you have an increasing trend in the loss given default, the way you have it for PDs, then you will have a lower provision created for Stage 1 slightly higher in Stage 2. And then finally, higher in -- much higher in Stage 3. The way the model was worked out was Stage 3 actually the ECL model used to give a particular result and the incremental provisions. If you look at our PCR historically also, you would see that our PCR for Stage 3 assets have been always on the higher side. We have been in that 70% to 75% range when other in the peer group, you will see that similar businesses, the PCRs have been kept in the range of 50, 55 to for some time. And they have now been increased to 60%, 65%. So 68% PCR, like I was mentioning, also includes some parts of the overlay. So we believe 60% to 65% is a reasonable requirement, which comes in and which with Cyclop implementation -- and we have also shared some early results on that. The expectation is that the ECL models will naturally be recalibrating once again in September and next March, and we will be revisiting this because, see, I don't think anyone else in the industry is currently working on the credit cost fees through implementation of a tool like Cyclops which has started giving early results. We are -- we will possibly see the full-fledged result in FY '28 because the full book would have moved into through the Cyclops underwriting. So there are early results, which have come in, which very clearly showcase Sudipta earlier explained on 1 of the questions how the 2-wheeler piece has been working out similar thing we have been noticing on farm as well as personal loan. But the full effect of it naturally will happen only after the book get -- the new book gets seasoned. And the ECL model refresh, we do once in 4 quarters. As we revisit the ECL model next time, you will naturally see that there is an improvement in that. And for next 4 quarters is what -- we will continue with this 80 basis points. If there is a need in September, we will see because it's up to us. If the results are really good and we can recalibrate the models in September, end of September, we will do that. No, I hope I have

Yes, sir, that clarifies. So basically speaking, till the time we do a next what was refresh, which could happen in September or March will continue with Stage 1 at 50 basis points and maybe potentially in September or March, Stage 3, depending on how we see Cyclops benefiting the asset quality the Stage 3 PCL could further come down to 60%, 65% because like you mentioned, you're still carrying some overlays in Stage 3 [indiscernible] There is a possibility that.

No, no, 1 second. The last part, if you have noticed, over almost 2 to 3 years, we have been carrying PCRs in the range of 70%, 75%. So the recalibration exercise once it has been done. -- it was right now just a significant part of Stage 1 provisions moving to state -- for stage 3 provisions moving to Stage 1 -- but this whole exercise now is not going to have such significant impacts. And if like on 1 side, I am talking about creating additional macro potential provisions. So the intent is not to really bring it down further from here. We will be in the -- in this range only. The PCR will be kept in the same range.

Got it. sir. That is useful. And then I had 1 last question for Sudipta sir. Just 1 thing. This luxury goals are very, very exploration. It's very heartening to see that we are at least expiring to get to credit costs, which are less than 2% a change in the product mix have a bigger role to play in bringing down credit costs to below because the way we are thinking about it is by the exit quarter FY '27, we were thinking of taking down credit cost to 2% to 2.2%. This essentially means that this less than 2% credit cost that we are thinking about as part of Lakshya 2031 is not very far away, could come in FY '28 or by FY '28 and -- so just trying to understand, will it be more a function of the product mix changing? Or like Sachinn was mentioning, the full impact of Cyclops will start showing up from FY '28 almost will that play a major role or will product mix play a bigger role in getting us to less than 2% credit cost. Because the way the mix is today, some of these products, factors, 2-wheelers, including MSME, these are inherently, if I look at the industry higher credit cost segments. So if you could just help us understand this .

Yes. So see, 1 of the things which is there is that the impact on credit costs will be primarily driven by customer selection through cycles. So -- and because the way we have implemented Cyclops is that we have implemented cyclo in the credit aggressive segments earlier. So 2-wheeler followed by followed by -- so as you rightly said, these are the what I call the aggressive trade products. And so obviously, we wanted to implement cycles first on this. just to make sure that we are very, very certain about the credit cost trajectory of this business going forward. And the early indicators -- we have given the 30-plus numbers out. We see the 90-plus numbers on Austria. They are very, very encouraging, which gives us the confidence that if you see a prime throughput on our 2-wheeler business, prime throughput on our 2-wheeler business, while we are 2-wheeler business, monthly origination has grown from INR 650 crores to almost INR 1,000 crores. My prime contribution has gone up from about 65% to almost 90%, right? So I'm able to pull at that scale also -- so we are reasonably confident about the credit cost trajectory, which we primarily cycles driven customer selection. So in a way, you are right, some of this might happen -- if everything goes well, this is a caveat is everything. Sometimes we hope for the best, but sometimes there is a spanner in the works Karnataka, microfinance industry ordinance issue was nowhere in the blue. -- nowhere it came out of the blue, right, in the month of February last year. And it was nowhere factored into any of our clients. right, which delayed the recovery of the entire microfinance industry by almost 6 months, right? So second is [ forever, ] things remaining normal which is a tougher these days, right? So we are reasonably confident that even within those sales, et cetera, in terms of environment, we are reasonably confident of reaching that less than 2% trajectory by FY '28 as rightly pointed by you. Now which quarter that might happen is something that I can't point out, right? But sometime during FY '28, we should be in touching distance of that 2% or below credit cost trajectory, right? After that, it's a question of maintenance and see how far we can optimize it even further. So that is why we have stuck out our neck and say that it should be less than 2%, right? So that is what we have stuck on neck. How much less than 2% is a matter of execution and full maturation of our surplus portfolio a mix of economy, geopolitical factors, et cetera, everything thrown in, right? But we are reasonably confident of getting to that 2% or below trajectory by somewhere in FY '28.

We take the next question from the line of Deepak [indiscernible] from Bandhan AMC.

One thing I couldn't understand is [indiscernible]. So does this have something...

[indiscernible] I'm sorry to interrupt you there, but -- we take the next question from the line of Hardik Shah from MLP.

Congratulations, Sudipta, on good set of numbers. My only question is on the credit cost assumption. So what are we assuming in terms of through the cycle credit cost for 2-wheeler and personal loans for us to go from 2.6% to less than 2% from a structural standpoint.

See, we don't give business-wise credit cost estimates we don't give out because this is like too dependent on market conditions, et cetera. So what we have given out is a 30-plus number as part of our Cyclops INR 3,250 crores book. So you might want to calculate it from there, 30-plus number on -- the 10-month observation window is about 2.8%. So there's an assumption of a 90-plus from there and there's an assumption of loss given default from 90 right? So basis this chart on that INR 3,250 crore portfolio, probably at this point in time, the caveat, this is not a fully mature portfolio yet. It has to go through 24 months for it to fully mature. It has gone through only 10 months by now, right? At a full-scale cost, you're probably looking at a -- in this portfolio, you're probably looking in the 2-wheeler portfolio, you're probably looking at a sub-2%. But again, these are not mature portfolios. So -- but we -- obviously, there are certain businesses which are lower credit cost businesses like mortgage, et cetera, gold loans, there are certain businesses we have slightly high credit cost business like MFI as well as 2-wheeler Overall, at a balance level, we still sign up to that 2% to 2.2% corridor by quarter 4 FY '27. And over the luxury period, so 2% is what we are summing up on. But having said that, -- the initial trends on the Cycles portfolios, especially in SME, tractors and 2-wheelers are very, very encouraging, which gives us a confidence to stick out or mean give it from.

Got it. And how about personal loans, given that our incremental share is increasing from the partnership loans.

It's the personal loan industry low state, especially for players especially for players who have a large amount of salaried customers in the portfolio will range in the corridor between 2% to 3%, right? So -- our objective will be to land in that quarter as well.

We take the next question from the line of Abhishek Muraca from HSBC. .

Congratulations for the quarter. So can you give a sense of at least your key segments like farm equipment 2-wheeler microfinance consumer, is the disbursement yield higher than the portfolio yield at this point of time?

Thanks, Abhishek. Micro finance, all of you guys know, the disbursement portfolios, but the other Other stuff. See, I'll tell you other stuff. Personal loans, we continue to have -- see is we don't give individual business wise. But I'll give you some pointers, right? Personal loans, we are higher than industry salaried average by almost 2 to 2.5 percentage points, primarily because of the online origination, we are able to get a little bit higher yield. This are maintained earlier, and I stand by it. Two-wheeler, the industry operates between 16% to 18% overall yield levels. So we are still at that level, and we are able to maintain these levels in 1 dealership with a very large prime, very high-ticket bikes, it might be slightly lower, 1 dealership with a slightly lower ticket mice, be slightly.

Yes, sorry. Sorry, just broadly, would it be higher than your portfolio even if it is not -- I mean, I just wanted to get that range even if you don't give a number. Is it higher or lower at this point of time?

Yes, it is higher.

I'm just trying to see where your -- if there is no portfolio where there can be an yield improvement as you build the book So that is what I'm trying to --

the yield improvement, the yield improvement, we are all continuously trying yield improvement in parcel loans. We are trying -- home loans we got hammered quite a bit last year. loans has got quite a much last year, home loans, we have moved quite a bit to a loan against property. So if you look at our sort of mix of home loans to lap, we were about 80-20, about 12 to 18 months back. Right now, we have about 60-40, maybe 55%, Right 55, 45%. 55% Home loan is 45% land. So we are trying to push is up, right? Micro-Lap is a business where we have reasonably high yield -- and micro lab, our book size is to INR 1,000 crores that we have disclosed for the first time this time right? And we are setting up almost 200 microlab branches this year. So we focusing on microlap. And in microlap, our collection efficiency continues to hold at 99.9% plus right? So that portfolio is doing very well. Even in tractors, right? We are trying to push our yields upwards in two-wheeler, we have been able to improve our yields slightly upwards over the last quarter, right? So Overall, the pushes on improvement of bicross.

Okay. Because I think using site crops and all your customer selection tools you're getting into better quality customers even within those portfolios. So then to push up your yields, how do you do that? Is it I mean just trying to connect the dots.

Yes. So basically, the only way you can do that is by changing the mix in the right manner, right? And that is the reason why gold loans was introduced. Gold loan, we expect -- so if we look at how to -- how will we fare in terms of our book mix, say, by FY '31, our micro loan -- the whole rural business finance piece will be somewhere in the range of about 20%. 15% of the total mix will be for businesses like personal loans, gold loans, which is a very small piece right today. And you will have farm and 2-wheeler somewhere in the 10% to 12% kind of range. Then you will have what is left. SME is again going to be about 10-odd percent. So the mix itself is going to really do the work. And it's already doing. To your question on whether the disbursement yields are higher, it is -- yes, it is higher because of the change in mix, which is happening. And as the higher-yielding book starts growing proportionately, the overall yields will start moving up. And that's where you see that our ability to manage the overall NIM plus fee within the 10% to 10.5% corridor is not just a function of lowering of weighted average cost, but also managing to stabilize the yields through acceleration of higher-yielding businesses. So we had challenge in 4 to 5 quarters when the rural business finance had to be slowed down. But with that coming into play and gold loans getting accelerated, micro lab will get a big push, personal loans -- you have already seen 98% growth you saw. So these are all pieces which are naturally higher. Mortgages will grow perhaps we saw a 20% growth over there. And that was 1 piece which used to actually -- we had to do it because it was secured, but the yields over there especially now in the reducing interest rate cycles, the yields come under pressure. That also will -- when the interest rate cycle changes, there will be an advantage on mortgages also. And we are also talking about getting into economical housing. So all in all, there is always an attempt to ensure that we have the right kind of mix for book growth so as to ensure that the overall yields don't really get -- come under pressure that we have to -- we are forced to again look at sub-prime kind of customers. It's very clear that we've changed that trajectory, and we will continue to be in the prime space and ensure that the collection costs as well as credit costs don't go back to the older level. .

Got it. Got it. And just the slippage number that you've disclosed, INR 400 crores for the quarter, how much of it would be in MFI right now?

We don't give a breakup, but it has been coming down significantly. I mean you can actually look at -- we had Jan and Feb 99.75. 99.8 is in March. So the corresponding number, I think December was in for 99.6%. So the roll forwards are the differential of about 40, 45 bps.

Right. So because I was just thinking that at INR 400 crores for the quarter, the annualized number works out to approximately 1.6%. It looks like a very good number and probably with the kind of book mix you have and looking forward with Cyclops implementation catching up in more -- a larger part of the book, would this 1.6 million come down? Or is it like cyclically a very low number, a very strong number already? .

Abhishek, 1 thing which you should keep in mind is that there has been also a big truck. There is a project on the collections piece as well. And there is every chief executive is currently pushing for recoveries of whatever monies were provided for. So we may write off in the books is a technical write-off, but every chief executive is painstakingly trying to get every rupee back. So the collections of the older receivables are also part and parcel of the final role forward right? Because they get netted off against the monies that we have to finally provide for -- so there is -- there are targets taken by every business. And we are -- we have been very successful in terms of doing the collections as well. Yes. Having said that, yes, the trajectory is very encouraging for us. And let's see how FY '27 time -- we remain -- see, the customer selection for the last 24 months has been of an order of magnitude better quality, right? And that is what is growing in terms of the credit numbers. And the fact is that we are not even even diluting the customer quality that we have been acquiring over the last 24 months, even a wee bit -- in fact, we are trying to see if there's an opportunity to optimize it even further, right, while doing volumes, right? So -- and the tools that we have, Nostredame, for example, now on 2-wheel apps, helps us to pinpoint 1 dealership in a district, which is going back. It is so precise right? And so it helps us to attack it much faster and address it much faster before it even becomes a problem. So in a way, things are moving in the right direction. The geopolitical headwinds is the flying environment. So we are being cautious. Let's see where it takes us in FY '27.

We take the next question from the line of Suraj Das from Sundaram Mutual Fund.

Most of my questions have been addressed, but a couple of follow-ups. You mentioned that your LGDs are consistent across all stages. Did I hear that correctly?

Yes, that's right. Yes, that's right.

Okay. So can you share the LGD assumption for Stage 3? And then

No, no, no. We can't -- we don't share all those details Sheetal models are proprietary to every organization. So we just can't diverge those details.

Sure. So just directionally, if I look at your Stage 2 stage over the last 2, 3 years, that number is coming down very significantly. I think Stage 3 PCL has come down to 67, 68,and you were saying that you also have some additional buffer there over and over what is required. So does it mean that your LGD number is also coming down because of maybe project Cyclops and so on and so forth. -- whatever you are doing. But your LGD number is also coming down, so you are recovering much higher now versus what you used to recover 2, 3 years back. Would that be a fair assume because that's how the ECL model will work, right?

So Suraj, I think what you should do is you should also look at making peer group comparison as to what is the actual loss given default business by business that is required, which will itself enable you in concluding that the PCR that we have been holding for so long have always been higher. In fact, when we kept it at the 70%, 75% level, there have been conversations, which I have personally had people used to question that are we expecting some challenges because of which we are keeping the PCR very high. And my response to that used to be that we always have been conservative. We would set aside in bad times so that whenever there are any -- in good times, so that whenever there are any challenges in that end, it comes in handy. And the microfinance prices is a very good example of how setting aside the provisions -- a potential provisions helped us in difficult times. Same thing comes in as far as the Stage 3 provisions are concerned, which is the PCR, which everyone usually looks at. So across the industry, the actual -- the money which is required as per the ECL model is in that range of about 60% to 65%. And hence, the incremental is nothing but the overlay -- but as we move forward, this -- all these assumptions also keep changing depending on the quality of book that you're building, right? So our expectation is that the Cyclops underwritten portfolio will actually only keep improving the portfolio quality and hence, the Stage 3 percentages have to come down. And once the roll forward slowdown, even the Stage 1, Stage 2 requirements will come down. There are -- if you look at -- there are players in the market who have a very secured book and who are very comfortable with the 40% -- so it all depends on the kind of mix and how you have created a track record for yourself. We are right now in the process of creating that track record and hence, the -- plus the change in the assumption -- so we are at a juncture where there are certain segments of portfolio we have -- which have already moved to cyclop and created through that underwriting. There are older portfolios -- and then there is a portfolio which has recently come out of a crisis. So it's -- because it's a mix of all these. This is just the result that you're looking at. Simultaneously, we have been focusing on collections like I mentioned earlier. So ultimately, ECL model, you're right, it's a function of what you lend and how much you end up spending to recover it, which comes in the form of collection cost -- and if the roll forward slow down, the collection cost goes down and even the credit cost improves. So directionally, that's why we believe that the -- if you just look compared last 4 to 5 quarters, you will see that the credit cost has started coming down directionally. And this quarter, again, about 10 basis points lower compared to the previous quarter. And we believe that we have a journey to complete we are at 2.6 core, we have to go to a range of 2% to 2.2 by end of FY '27. And I think we are fairly comfortable at this point of time. based on the book that we have and the -- what do you say, the slippages that we are actually being able to factor for the next 4 to 6 quarters.

Ladies and gentlemen, we take that as the last question and conclude the question-and-answer session. I now hand the conference over to Mr. Sudipta Roy for his closing comments. .

Thank you. I thank all of you for our patient sharing and participating in our quarterly results call. I trust we have been able to address all your queries. As always, please do reach out to our Investor Relations team in case any of your questions has been left unanswered. We'll be happy to discuss the same with you. Thank you again, and wish all of you a good financial year '27.

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

Thank you.