Shriram Finance Limited (511218) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Shriram Finance Limited Q1 FY '25-'26 Results Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Umesh G. Revankar, Executive Vice Chairman, Shriram Finance Limited. Thank you, and over to you, sir.

Yes. Thank you. Good evening, friends from India and Asia, and warm welcome to all of you. Greetings also to those who have joined the call from Western part of the world. To present our Q1 FY '26 earnings call today, I have with me our Managing Director and CEO, Mr. Chakravarti, Managing Director and CFO; Mr. Parag Sharma; S. Sunder, Joint Managing Director; and Sanjay Kumar Mundra, who's our Investor Relationship Head. It has been a good first quarter for the year for Shriram Finance under current circumstances. Let us first look at broad economic indicator that has a direct or indirect impact on our business. First is the GDP. GDP for the full financial year was 6.5%, making India world's largest major economy. And we are expected to grow on similar growth rate for the -- during this financial year. On the inflation, the consumer inflation continued to ease in June, hitting a lower-than-expected 2.10 against 3.34 in March. We have reached this level lowest after 3 -- sorry, 6 years, driven by falling prices of vegetable and food items. India's annual inflation fell to 20 months low -- wholesale inflation to minus 0.13% against 3.43% in June '24. Now let us go to RBI policy. The key takeaway from the 2025 RBI monetary policy -- June 2025 Monetary Policy are: repo rate cut by 50 basis points to 5.5%. Policy stance changed to neutral. CRR cut by 100 bps to 3%. GDP forecast for FY '26 ,6.5%. CPI inflation estimates reduced to 3.7% from 4% earlier. The rural economy and monsoon. The Southwest monsoon has been forecasted 9% above normal across India. Overall, monsoon has been normal to excess in nearly 80% of country's meteorological subdivisions. The Department of Agriculture & Farmers Welfare has released latest data on Kharif crop. The data shows area of coverage reached is 597.86 lakh hectare as on 11th July, marking an increase of 37.27 hectare compared to the same period previous year. The rural consumption is poised to remain a bright spot in Indian economy, supporting growth in ongoing fiscal year. The inflation-adjusted consumption growth of 7.1% outpaced the broader economic expansion of 6.5%, reflecting a rural consumption recovery. The GST collection has shown a good growth of INR 6.2 lakh crore to INR 1.85 lakh crores compared to INR 1.74 lakh crores in the previous year. It is a slump in June, 2 back-to-back months above INR 2 lakh crores in April and May. The GST revenue dropped to low single digit in June, primarily due to low mop-up from domestic transaction, indicating moderation in economic activity, which could be possibly due to early onset of monsoon. And the auto industry, if you look at the -- on the sales side, the total CV sales declined by 0.6% in Q1 '26 -- for quarter '26, which stands at 2.23 lakh units against 2.25 lakh units. Within CV, M&HCV sales recorded degrowth of 2.3%. The number stands 83.638 (sic) [ 83,638 ] against 85,590. LCV sales recorded flat sales, which stands at 1.4 lakh units against 1.39 lakh. Passenger vehicle recorded a degrowth of 1.4%, which stands at 10.12 lakh units against 10.26 lakh units. Two-wheeler sales recorded degrowth of 6.2% with sales of 46.75 lakh units against 49.86 lakh units. Three-wheeler sales recorded a flat sales of 1.65 against 1.65 in the previous year. Tractors have recorded a growth of 6.3% with 2.1 lakh units against 1.98 lakh units. Construction equipment marginally declined with 28,687 units being sold against 28,902 units. I shall now ask my colleague, Mr. Chakravarti, to take through the operational performance.

Thank you. Good evening. I welcome all of you to our quarter 1 FY '26 earnings call, and I hope you had the opportunity to peruse our earnings and the related investor presentation, which has been posted on the website of the stock exchanges. We have registered a disbursement growth of 13.01% year-on-year. Our disbursements in Q1 FY '26 this year aggregated to INR 41,816.75 crores versus INR [ 37,001.65 ] crores in Q1 FY '25. Our asset under management as on 30th June 2025 registered a growth of 16.62% over Q1 FY '25 and of 3.44% sequentially. Our AUM stood at INR 2,72,249.01 crores as against INR 2,33,443.66 crores a year ago and INR 2,63,190.27 crores in Q4 FY '25. Our net interest income in Q1 FY '26 registered a growth of 12.55% year-on-year. We earned a net interest income of INR 6,026.43 crores in Q1 FY '26 this year compared to INR 5,354.47 crores in Q1 FY '25. Our net interest margin was 8.11% as against 8.79% in Q1 FY '25 and 8.25% in Q4 FY '25. Our profit after tax grew by 8.84% in Q1 FY '26 over Q1 FY '25 and by over 0.76% over Q4 FY '25. We have registered a PAT of INR 2,155.73 crores for Q1 FY '26 as compared to INR 1,980.59 crores in Q1 FY '25 and INR 2,139.39 crores in Q4 FY '25. Our earnings per share for the quarter stood at INR 11.46 as against INR 10.54 in Q1 FY '25 and INR 11.38 in Q4 FY '25. On our asset quality, gross Stage 3 in Q1 FY '26 stood at 4.3% and net Stage (sic) [ Stage 3 ] at 2.57%. These numbers show an improvement over the corresponding period of 5.39% gross and 2.71% net in Q1 FY '25 and 4.55% of gross and 2.64% net in Q4 FY '25. Our credit cost on total assets for Q1 FY '26 stood at 1.64% as against 1.87% for Q1 FY '25 and 2.07% for Q4 FY '25. Our cost-to-income ratio was 29.29% in Q1 FY '26 as against 27.45% recorded in Q1 FY '25. Our cost-to-income ratio in Q4 FY '25 was 27.65%. I shall now request our Managing Director and CFO, Mr. Parag Sharma, to inform you about our resource-raising activities, after which our joint Managing Director, Mr. Sunder will, brief you about our accounting and regulatory aspects.

Thank you, and good evening, everyone. On the total liabilities, we have close to around INR 2,42,900 crores of liabilities broken up into the ECB loans at 13.92% and bonds -- ECB bonds at 6.48%. Overall, securitization outstanding is close to around 16% of our liabilities. The capital market -- domestic capital market at 17.33%, and retail deposit has shown a positive uptick at 25.95% and the bank and the institutional term loans at 21% of our liabilities. The cost of liabilities have come down by 7 basis points in the current quarter from 8.95% to 8.88% now, and we do expect this to further come down. The leverage stands at 4.15x versus 4.16x as of March end number. The liquidity coverage ratio is at 268.74% versus 286.12% as of March. Overall liquidity continues to be slightly on the higher side, which is covering 5 months of our liability repayment. We will work towards reducing this liquidity, and this has some negative carry, that will come down in the next 4 to 5 months' time. The fund mobilization for the quarter was slightly muted. The only big inflow was the retail deposits. The incremental cost of fund has come down substantially from March quarter, which was 8.86%, it has come down to 8.37%, and we do expect this to further come down. The incremental cost and the overall cost will definitely be reflected. The ALM buckets continue to be positive across all the buckets. And up to 1 year, we will have a cumulative surplus of more than INR 59,000-odd crores. With this, I hand over to Mr. Sunder.

Good evening, everyone. The employee count as on 30th June was 79,186 as against 79,872 in the March quarter. The Stage 3 was at 4.53% and the Stage 1 probability of default was 8.82% and Stage 2 PD was 21.35%. And the segment-wise disbursement was: Commercial vehicles, we did INR 16,917 crores; passenger vehicles, we did INR 8,162 crores; construction equipment, we did INR 526 crores; farm equipment, we did INR 1,273 crores; MSME, INR 6,358 crores; 2-wheelers, INR 3,081 crores; gold, INR 3,291 crores; personal loan, INR 2,205 crores, totaling to INR 41,816 crores. So with this, I hand over -- yes, we will open the floor for the questions. Thank you.

[Operator Instructions] Our first question comes from the line of Chintan from Autonomous.

My first one is on asset quality. There's a 40 basis point increase in GS2 assets. Could you throw some color on where this is coming from, whether this is seasonal in nature or something we should worry about? And how do you expect that to evolve? And related to that, if you could also talk about your cost of risk guidance, what do you think about that for the full year? And then I've got one more on the NII.

Yes. As you rightly put it, it is more of a seasonal. This time, the onset of monsoon was a little early than they expected. And typically, monsoon arrives in the mid-June. This time, it was in the last week of May in many parts of the country. So there were some, what you call, the business disruption here and there. So that's the reason Stage 2 went up. But it is very marginal. Our customers normally move between Stage 1 and Stage 2, and they have cash flow mismatch -- whenever cash flow mismatches. But what is important is the credit cost. The credit cost did not go up. Credit cost has actually improved. So we did not really read too much into the movement of Stage 2 increase. And the second question was?

And the guidance on credit cost?

Credit cost, overall, it will remain under 2% for us for the full year.

Under 2% on AUM plus cash and investments?

Total asset.

Okay. Total assets. And the second question was on NII. Is there any kind of fair value gains from parking liquidity with mutual funds? Your peer reported one. I'm just wondering if your reported NII, not the presentation one, but the reported NII, if it is understated for any specific factors, for example, this fair value gain? That would be one question on NII. And the second one would be, there is no direct assignment income in your management NII this quarter. So I'm just wondering if you could call out 1 or 2 main items between the difference between reported and management NII just for the benefit of investors.

The net gain on the fair value changes was mainly on account of the profit that we earned on the mutual fund investment. For the current quarter, it is INR 134.66 crores. The similar figure for the previous quarter was INR 111.27 crores. And as far as the assignment income is concerned, since we have not done any assignment deals in the current quarter, no income was recognized. Similar figure in the previous quarter was INR 13.60 crores. And apart from that, the interest income only is forming part of the -- and the other operating income is also grouped under the -- for the purpose of net interest income.

Okay. So the fair -- so the NII is understated by the difference between INR 134.6 crores and INR 111.2 crores. Is that how I should think about the reported NII?

The reported NII includes INR 134.66 crores for the current quarter and INR 111.2 crores was...

In the presentation, not in the release. I'm talking about the reported numbers.

Yes. It is included, yes. What I would suggest is you can reach out to Mr. Mundra post this call, and he will give the reconciliation...

Okay. And no other one-off factors in NII to think about, right?

No, no. Nothing, nothing.

Our next question comes from the line of Raghav Garg from AMBIT Capital.

I had some 3, 4 questions. One, first is on the MSME growth front. So I see that your quarter-on-quarter growth has come down to 3.5%, 4%, and there is a sudden moderation in MSME business accretion this quarter. You've been guiding for around 15% growth overall. So my first question is why is there sudden accretion -- why is there a sudden slowdown in the MSME growth this quarter? And then the other question is, assuming that or annualizing this quarter the run rate on MSME growth, do you see a risk to your full year AUM growth estimate on an overall basis?

So we are still -- we are -- sorry, this is Chakravarti here. So we are focused on growing this book. The only reason why it is slowed down -- actually, there was a slowdown in the demand for -- in the first quarter because, see, the fourth quarter festival season -- third and fourth quarter festival season, typically demand picks up from the second quarter in preparation for the third -- festival season. First quarter is normally slow, but you'll see the pickup in the next 2 quarters. We are still on the course for the guidance to meet the guidance numbers.

Sir, if I compare this to the quarter-on-quarter accretion in, say, 1Q FY '25, at that time, it was about 10% in this book, and this time, it's 4%. And hence, the question because the growth rate or the sequential accretion has more than halved. Where do you see the full year...

So if you look into year-on-year, sequentially, normally 3 and 4 quarters are big. You can't compare. You have to see only year-on-year.

Sir, I was looking at 1Q FY '25, which is around 10% sequential accretion.

Yes. So as I explained to you, there is a slowdown in the first quarter, but we are confident that we will make up for the slack in the second and third quarters.

Understood. Fair enough. The other question is that you mentioned that there is some moderation in economic activity, but I think you partly answered that when you said that your credit cost will be under 2%. But I'll still go ahead. How is the trucking activity doing on the ground? Are operator cash flows improving? How is the situation at the ground level?

The trucking activity is quite healthy, I should say. See, one of the biggest advantage or disadvantage is the -- since the cost has gone up in the last 3 years, the new customer walking into trucking business have come down. So the existing players have a reasonably good business. Their revenue is good. The freight rates are good and their overall utilization levels are good. So that is not -- the situation has not changed for tractors at all. Normally, what happens is when there is excess capacity and economy slow down, then there is a challenge. But this time around, even though there is a little slowdown in the economy, since there is no excess capacity, the trucking activities are going on smoothly. Temporarily, as I was telling you, if there are seasonality, because of excess rains in certain locations, there could be some disruption and some delay. And that doesn't really, what you call, create the, what you call, credit cost. There may be some movement into Stage 2 because of the delay in or mismatch in cash flow, but that doesn't end up with the credit cost. So we believe the demand is good because for us, the disbursement growth was good in CV in the first quarter. And I expect the same to come because the demand from the rural segment is -- rural market is really growing.

Our next question comes from the line of Shweta Daptardar from Elara Capital.

A couple of questions. Just taking further the previous participant's question. So while you mentioned that the operator economics remains undisrupted, but how about the operator cash flows, how are they faring, especially on the used CV segment side?

See, used CV segment has been doing quite well. In fact, our growth -- disbursement growth is in the used CV is quite good. The resale values have not dropped anywhere across the country. So the value of the asset remaining strong, that helps the customer to -- not only to earn and also to encash after repaying the loan, and he will retain the vehicle throughout with him. So these are all the advantages. So we are not seeing any weaknesses in the trucking market value or in the revenue earning for secondhand or new. Both are doing quite good.

Okay. And sir, just taking it further, how has been the color on repossession side or movement quarter-on-quarter?

There is no change in the repositioning. Most of the companies in the last couple of years have slowed down or have not repossessed many vehicles, mainly because the resale value being higher, the customers are not defaulting, that is the scenario. So reposition numbers have not gone up. There could be in 1 or 2 geographies, it would have gone up marginally, but it is insignificant considering the all-India position.

Sir, third question is on MSME. While you did elaborate on the growth momentum, which will be retained, but one of the peers has highlighted pertinent concerns on asset quality on MSME and also banks have been highlighting regional challenges. So what has been your experience on the ground as far as delinquency/asset quality is concerned from the MSME side?

See, our focus has been smaller ticket and to trading sector and services sector. We are not really lending into manufacturing sector in the MSME. Therefore, the businesses remains reasonably steady because especially wholesalers, shopkeepers, that kind of a segment we are addressing. And we have not really seen much fluctuation in their earnings or cash flow mismatches. So we are looking at it as a very steady business. And we believe that this will continue to grow as we create more reach. Now MSME lending is there in around 2/3 of our branches. Rest 1/3 of the branches, we have to reach. We are creating that reach. And as we create a reach, we'll keep expanding our business.

Sure. And sir, one bookkeeping question on your disbursement number.

Disbursement numbers, you want. Sunder?

Ma'am, can we give you offline?

Sure.

Our next question comes from the line of Shubhranshu Mishra from PhillipCapital.

So how are we looking at the car market, especially at the entry level? What are the various demand drivers we see through the year during the festive season as well? Given the fact that we are more rural and semi-urban focused, are we seeing inventory buildup in entry-level cars? Also in terms of SCVs, LCVs, are we seeing asset quality spikes, any transition of customers to e-3-wheelers or any other type of vehicle or any cash flow challenges there? Third question is around gold finance. Given the fact that regulators have now allowed agri gold loans for banks, which can be unsecured as well. Are we seeing some kind of a transition back of agri gold loan customers who came to our fold and will go back to banks?

See, basically, on entry-level car, as you rightly put it, the entry-level car demand, especially new vehicle sales, are on lower side, but the demand for used car is increasing. The entry-level car demand used to be mostly in the semi-urban and rural market, now we are seeing there is a shift to, what you call, higher vehicle, which is compact SUVs. So people are preferring the secondhand compact SUVs or new compact SUVs. So the aspiration class are wanting to move up to the next-level cars. So the entry-level car demand has come down and people who are seeking to buy entry-level cars typically go for secondhand cars. So the -- there are, what you call, the entry-level car demand or sales have come down and likely to remain because India is moving for more compact SUV and medium-sized SUV is what we understand from the preference by the buyer. As far as the LCVs and SUVs are concerned. Last year, LCV did not really grow much because the previous year, the rural economy was not really expanding or the demand from the rural economy was a little less. But since last 6 months, the rural economy is doing well. We expect the LCV sales to go up. That's one thing. And also, the e-commerce activities are now spreading into Tier 2 and 3 towns. And therefore, I believe LCV and SCV demand will go up. It will grow faster than heavy vehicle is my belief. And the resale value remains very strong in this market. As far as the gold loan is concerned, we believe more business will flow in from informal sector to formal sector because there is -- there has been little -- the RBI new guidelines have been a little liberal for small ticket loans. So we believe that there is an opportunity for NBFC and bank to grow faster because the more gold loan proposals will move from informal sector like farm broker and money lender to the formal sector.

Right. Just 2 more questions. One is still unanswered, what is the -- what will be our drivers of car growth in the next 2 to 3 quarters? And in terms of MSMEs, what are -- how many of our customers have more than 3 loans, any kind of loans? When we do a PD, they might have a hand loan as well. Some of them might have a personal loan, a few might have a credit card. So what percentage of our MSME customers would have 3-plus loans?

See, we rarely see our customer base having more than 2 loans. Maximum, he will have 1 loan with us, another loan is the gold loan. We have not really seen people having -- of course, hand loan is something which we will not know. But the personal loan or unsecured loan is not known because we do our scrub in the credit agencies, we don't come across. So that's one thing. And you asked on the?

Drivers of growth for our car...

See, basically, we believe the major drivers for car, especially in this semi-urban, rural area is the state governments have not invested in public transportation in the last 5, 6 years. And therefore, it is making more people buying either their own car or the operators buying the car and operating in the semi-urban and rural area. So that is creating bigger demand for the passenger vehicle in the smaller towns. And we are able to grow in that market consistently over the period. Even though last quarter, the growth rate was a little lesser compared to the previous year. But we feel that, that growth will come back because there is an unmet demand of public transportation not being available for the large population.

Right. And if you can spell out the disbursement split, please?

Okay. The total disbursement for the quarter was INR 41,816 crores. The split between the segments were: CV, split was INR 16,917 crores; passenger vehicles, INR 8,162 crores; construction equipment, INR 526 crores; farm equipment INR 1,273 crores; MSME, INR 6,357 crores; 2-wheelers, INR 3,081 crores; gold loan, INR 3,291 crores; and personal loans, INR 2,205 crores.

Right. Can you repeat the farm loan?

Farm loan was INR 1,273 crores.

Our next question comes from the line of Abhishek Kumar Jain from AlfAccurate.

Sir, my first question on the NIM front. So in this quarter, it declined 14 bps quarter-on-quarter. How do you expect margin to behave in the rest of the quarters, FY '26, with falling cost of the funds?

See, there is multiple factors which we feel confident of improving our NIM. First, our incremental borrowing cost is at 8.36% and our cost in the book is 8.86%. So there is a significant lower cost we are able to raise resources. We also have reduced our deposit rate. From the first week of August, the deposit rates will come down by around 40 basis points. So across, we feel that the 40 basis point reduction in incremental borrowing will bring down the cost to us over the period. Even though we have 85% of our borrowing in fixed terms and 15% floating, so that transition will take some time because the 15% floating, the bank will pass on immediately whenever there is a reduction in rate, but 85% will take time. So over the 6 months to 1 year, we would be able to bring down our borrowing cost and that we'll be able to improve our net interest margin. We are confident that we will reach to 8.5% net interest margin for the full financial year over the -- by the end of the year.

Okay, sir. And my second question on the credit cost, the guidance is 2.2% to 2.4%. And in this quarter, basically, it is around 2%. So just wanted to understand what is the full year guidance? Will you lower the guidance post this number?

Credit cost will remain around 2% for the total assets.

Okay. 2% for the full year?

Yes, full year, full year.

Okay. And my next question on the CV side that the AUM growth was 12.3%. So how was the growth used CV versus the new CV? And what is the guidance for the full year?

See, we have a reasonably good demand coming for CV, especially in the rural market for used vehicles. Even the new vehicle demand had gone up in the Q4 for us. And also there was some fall-off demand coming in April. We believe that, again, the demand will come back for new CV post -- during Ganesh Chaturthi and that will keep continuing. So -- but used vehicle demand will continue to remain because of our strong reach since we have 3,220 branches across the country, and we have a reach. And in the used vehicle, many transactions would come to us directly because we have built that brand over the period for more than 40 years.

Okay. And my last question on that in the passenger vehicle side. In this quarter, the industry declined. Despite that, your growth was very much strong and impressive of around 23%. So just wanted to understand what is the reason behind this? Is it because of the premiumization and the higher ASP because of the change in the mix in the passenger vehicle or you are gaining market share in this particular segment?

No, we are obviously gaining -- I don't say gaining market share. This market is -- virtually is unattended. There are not many players in secondhand car financing, especially in the semi-urban and rural area, and we are able to really grow on that. And also, as I was telling you, there is an increased demand coming from the semi-urban and rural market because of lack of transportation -- public transportation available to them. So we are able to grow. And also, there is one big advantage for us that many of our customers who are -- who bought a 2-wheeler from us, they migrate to become car owners over the period. They have aspiration. And that is a customer which is an in-house customer for us. So there will be a certain percentage of customer, aspirational class who will move from 2-wheeler to 4-wheeler. So I think that is a ready-made customer within the house for us to grow the business. So we should be able to grow healthy rate in the passenger vehicle, especially in the car segment over the period.

Our next question comes from the line of Vansh Solanki from RSPN Ventures.

Very good numbers. I have 2 questions mainly. The first is that you have also told that there is excess liquidity in quarter 4 end. And also, you have also said that there is a 5-month excess liquidity as of now. So what are the planning if you say in the quarter 2 or 3 that this will be continued or not? And what about additional borrowing you will take on quarter 2 or 3, if you can just guide?

We will be definitely utilizing the excess liquidity that's available by slowing down the further borrowing for this quarter. And we will bring down from 5 months to 3 months, maybe in 3 to 4 months from now. But further plan, Parag, can you elaborate on further plans?

No. In fact, that is it. We'll bring down our borrowing plans in next 3, 4 months. And in fact, looking at options of higher-costing debt to be repaid, that is what we will focus upon. But I think nothing much to add there. We'll look at the opportunities. Wherever the cost of fund is lower, those only sources will be looked at and the borrowing will be moderated. And overall liquidity, we always had the objective of maintaining 3 months of liability repayment into liquid asset, that will continue. But as of now, yes, it has to be come down from 5 to 3.

Okay. And the second question is about yield, if you can specify for each segment for quarter 4?

Okay. Yields, you can just be in touch with Mr. Mundra. He'll be able to help you out offline.

Our next question comes from the line of Abhishek M. from HSBC.

So the first question is on cash position, again. If I look at the total outflows in your ALM statement, your 3 months liquidity, I think, works out to roughly INR 20,000 crores. So basically, this outstanding INR 25,000 crores of cash position plus maybe some part of investments which you would be counting towards this, this should come down to INR 20,000 crores, INR 25,000 crores or how should we think about it? Where should this balance be ideally for a balance sheet of, say, today's size?

Yes. So what you're saying is right, we will bring it to 3 months of liability repayment. If you are looking at the ALM, there can be some bulk repayment, which can be there in subsequent -- in particular months because of the bullet repayment of entities what we have -- would have taken. But what a steady-state number will be at around INR 18,000 crores to INR 19,000 crores of liabilities in 3 months is what we normally plan, and that will be the number we'll be targeting to maintain.

But that INR 18,000 crores, INR 20,000 crores, sir, is cash only, right? So not cash plus investments, which one should we think about?

Yes, it will be -- normally, what we do is, it will be bifurcated into both, cash and investment. Investments are with mutual funds only, liquid schemes of mutual funds or...

So the question actually really, sorry, is that cash plus investment today is INR 38,000 crores, INR 39,000 crores, that INR 39,000 crores should come down to INR 20,000 crores or...

No, we should not look at the balance sheet number because that will also include -- I will not count everything as liquidity because that will have SLR component, that will have lien marked component also. The liquidity which is free from any encumbrance is what we count for liquidity purposes.

So how much is excess? Like what will you eventually run down? Is it INR 10,000 crores, INR 5,000 crores?

It will be close to around INR 10,000 crores, which run down.

And what time frame, sir? Because last 3, 4 quarters, we've been having this conversation and there's a big negative [indiscernible] NIM.

No, it went up in the month of January is when we did large borrowing, particularly December end and January is when we did. And we said it will take 3 to 4 quarters for -- 2 to 3 quarters for this to come down. So as of now, we are pretty confident that next 3 or 4 months is what we will target and look at lower borrowing and also, if possible, if we are able to repay some high cost is what we'll target.

Understood. Sir, second question is on NIM. Umesh sir, you said 8.5% NIM for '26, so is it full year '26 or is it by fourth quarter of '26, which one...

By fourth quarter.

Okay. So the average NIM would be around 8.2%, 8.3%-or-so for the year, for the full year?

Yes, it depends. If the third and fourth quarter is bigger, then the average can be different. So we would aim to reach 8.5% by the year-end.

By the fourth quarter, that is the quarterly target. Average will be accordingly.

Yes.

Okay. Third question, sir, is on GS2 going up. So this quarter, almost 9%, 10% Q-o-Q increase in overall GS2 and if you look at some individual segments, it's even higher. Does this mean that next quarter, we should see the forward flow into GS3 from this and therefore, your credit costs can go up? Or are you seeing like fairly good recovery potential in whatever is flowing forward? So if you can talk about that a bit?

See, most of our customers are known customer or where we can reach and our executives are in touch with those customers. We are confident of rolling back most of the customers. It may be a temporary cash flow mismatches, which we're confident that we'll be able to reach out to them and address their challenges and we're able to recover. So I don't really see that flowing into GS3. Normally, people who go from GS1 to 2 come back to 1 sometimes or to 0 bucket. So that effort is always on and the activities and actions are taken accordingly. And especially on the vehicles and all, we go for a reposition, so that we address that issue fully.

Right. Actually, the forward flow is building up. So last quarter, it was 6% Q-o-Q; this quarter, it's 10% Q-o-Q. So at some point, it will start spilling over into GS3, which has not happened so far. So that's why I'm just wondering...

The actions we take -- immediate action. There is always a follow-up and there is a touch with the customer directly. So we are not dependent on outside -- outsourced agents for reaching to the customer. We have in-house executives who will reach out to the customer.

Right, sir. And this quarter, write-off would be around INR 500 crores, roughly, just the number, if you can share?

Yes, one second. For the current quarter, it is INR 448 crores and provisions are INR 838 crores, totaling to INR 1,286 crores.

Your next question comes from the line of Rajiv Mehta from Yes Securities.

Congrats on good numbers. My question again is on the flow rate. So flows from Stage 1 to Stage 2 are happening, but they are being -- they are not moving forward into Stage 3. And -- so for example, in this quarter, as you said, because of onset of early monsoon and some disturbance getting created, you did see incremental new flows from Stage 1 to Stage 2. But the existing Stage 2 pool never flowed forward into Stage 3. So can you explain why the flow rate between Stage 2 and Stage 3 is much lesser despite the outside disturbances? And what all collection actions and mechanisms are being taken when the account slips into Stage 2? And also whether any remediation is offered to the customer who has moved into Stage 2?

See, normally, we meet the customer, address his issue and sensitize him in improving his credit score by bringing him back to Stage 1. That's the first step we take. If we feel the customer has a permanent mismatch, then we will resort to reposition. If you look at our total asset book, 65% is passenger and commercial vehicle, another 7% is the 2-wheeler. All this can be repossessed and we can sell and -- either collect the money from the customer, make it nil or we can sell the vehicle. So we have immediate liquidatable asset in our hand. Therefore, it doesn't flow into Stage 3.

Okay. But no remediation in terms of change in the loan structure or anything of that sort...

No. We do not do that. We do not do that. Certainly, we can't do that.

Sorry, also, it is not really needed because it's a temporary mismatch of cash flow. The customer is not a defaulter, willful defaulter. It's a temporary mismatch and the guys come back and pay you. So it's not really case for restructuring.

Okay. So the same logic makes you confident that the current Stage 2 will also not forward flow so much into Stage 3 going forward, right?

Exactly. Exactly. We have seen this -- even in worst of times, we have seen the customers skipping a couple of installments, but then start paying the current installment. So -- I mean, it's an experience we have seen over the last 30, 35 years.

Okay. And the second question is on the growth in the CV financing portfolio, which is predominantly used, right? So now the traction is being maintained at 3% to 4% Q-on-Q and 12%, 13% Y-o-Y. But I was just wondering because in the last 2, 3 quarters, at least, the price appreciation or the resale prices have not gone up, but your traction of growth continues. So is it now more volume-driven in the recent quarters and less value-driven? And if it is more volume-driven, then has there been any changes in the way you are sourcing on the ground and whether any lending policies have been kind of slightly relaxed?

It's both value and volume, both because what happens is, the loan which was sourced 4 years back are getting matured now and the new loan is getting given. So definitely, there will be an increase in value year-on-year, every year in spite of the new vehicle prices not going up in the last year, so that's one thing. And second, our reach has always going up. If you see last year also, we added 165 branches. This year also first quarter, we added 5 branches. So as we create more reach, we are able to grow our business. And the other most important factor is the smaller lenders are not able to grow their business because they are not able to raise the liability side. So we are able to raise liability, and therefore, we are able to take market share from the market. For example, there are around 9,000 small NBFCs. And many of them do not have any ability to raise resources to gear their leverage on the balance sheet. We are able to do that. So there's always, what you call, our ability to grow in the market and maybe take the market share also from the small lenders.

Okay. Just one last thing, sir. Your fee and commission cost line has been growing at 30%, 40% Y-o-Y for the last 3, 4 quarters. So why it is growing so fast, the fee and commission cost line? And employee cost this quarter was higher versus previous quarter. There was a jump of 7%, 8%. Did we run any scheme -- incentive scheme, which we generally run in a quarterly format?

So the staff cost has increased primarily on account of the increment that were due in the current year, April '25, and also the annual bonuses, which were paid. So this is the main reason for the increase in the staff cost. And the fee and commission income you're talking about?

No cost, cost.

Cost, okay. The commission expenses, okay, it is primarily our commission paid to the deposit agents. As there has been an increase in the deposit inflow in the first quarter of this financial year, there has been some increase in the cost.

Our next question comes from the line of Sonal from Asian Market Securities.

Sir, my first question is on the NIMs. So just wanted to check, have we reduced yields in any of the products or the yields continue to remain the same as last year?

The yields have been stable, similar to the last year's yield. There has not been any increase in the yield.

So the entire impact is just because of negative carry on NIMs?

Yes, correct.

Okay. Second one. Sir, what is your strategy on deposits going ahead? Because we are still raising it. If you could just tell us what is the landed cost of deposits that you're raising? What is it as compared to NCDs and bank borrowings?

See, deposit, if you look at our growth in the first quarter, the growth has been around 10% Q-on-Q growth in the sense that has grown by 10% -- portfolio has grown by 10%. And whenever we announced the rate reduction, there has been more inflow to lock into longer duration by the depositor. So we have again reduced the rate from the first week of August by 40 basis points. So effectively, our cost for deposit interest rate annually comes to 7.6% now from -- which was around 8%-plus -- 8.5% in the beginning of the financial year. So there has been a significant reduction in the interest rate. So the total cost of deposit, including the intermediate cost, stands at around 8.8% in the books now. It will go down to around 8.4%, 8.3% from -- 8.3% from the next maybe August, yes, after -- next quarter, it will be around 8.3% total cost. And when compared with the other liability, it will be much cheaper because bank borrowing will be still higher than that.

And NCDs, sir?

NCD rate is lower.

NCD rate now is running at around 7.75%, 7.80% range, but that is the incremental borrowing rates.

So sir, my question was more that why are we focusing more on deposits because we're already carrying...

Now incremental rate for deposits will be 7.5% -- 7.60%, but it will be in line with what we are doing in capital market. So not much of difference there.

See, the other thing also is -- Shriram as a group, see, we look at depositors because they have been -- there are depositors, generational depositors who are with us. And most of our deposits, almost 55% of our deposit is from senior citizens. So we -- as a philosophy, we wouldn't mind if it costs 10, 15 bps more than what we can get from the market also. So that's a call that we have taken consciously. And also, it's a diversified -- diversification of our portfolio, borrowing portfolio also. And the deposits are sticky.

Right. Sir, the other question was on fee income. So we've seen decline in that line item. So if you could just explain what exactly happened there? So I think last quarter, it was about...

Yes, in the last quarter number, we had received collection commission on account of DA transaction, which was amounting to INR 170 crores, which is not there in the current quarter.

Okay. So this is like about 0.25% of disbursements is something we should look at going ahead?

I think there is no linkage between the disbursement and this one. This is more to do with the assignment transaction that we had done a couple of years back.

Okay. Got it. And sir, just two questions more. One was on personal loan. We are seeing about 24% decline in disbursements. So -- and even -- I don't know if I got that number correct, but in construction equipment, from INR 2,180 crores, it's down to INR 526 crores. So is it because of higher delinquency even in this segment in construction equipment that we've become a little more cautious in terms of sourcing? Is there anything else that we shouldn't read too much into this number?

No, construction equipment is basically -- the construction activities slowed down much earlier than expected because of early onset of monsoon. So most of them got postponed. So you will see bigger demand that will come in the month of August and September, mostly in September. So it is just a postponement. And we also felt that it is better we wait for the right time to increase our construction equipment disbursement.

Right. And sir, on personal loan?

Personal loan, there is no degrowth.

I'm looking at the Q-o-Q number...

Yes. No, we are -- our focus on personal loan is not diluted. It is still continuing.

Okay. Maybe I'll take this offline.

Our next follow-up question comes from the line of Chintan from Autonomous.

Just wanted to follow up. You said that 8.5% NIM will be an exit NIM for FY '26. But previously, you had said 8.5%, 8.6% will be the full year NIM. So which one is it? Just want to get this right because there's obviously a big difference between the two guidances.

8.5% for full year, when I say as exit, we will close the year at 8.5%, 8.6%, I said.

Yes. Okay. So I just want to -- okay. So that is an exit NIM, it is not for the full year average.

Yes, yes, yes. But see, our effort will be there to improve the margin by reducing the borrowing cost. As we are able to reduce the borrowing cost, the gap -- the margin will improve.

Ladies and gentlemen, we'll take that as a last question for today. I now hand the conference over to Mr. Umesh G. Revankar for closing comments.

Thank you. Thank you for joining this call. As many of you said, we had a good quarter -- first quarter and second quarter should be much better is what we believe because the good economic condition in the rural market. And since we are having a large presence in the semi-urban, rural market, we should be able to perform much better. So wish you all the best, and we'll meet in the next quarter. Thank you.

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