Suryoday Small Finance Bank Limited ($SURYODAY)

Ladies and gentlemen, good day, and welcome to the Suryoday Small Finance Bank Limited for Q4 and FY '26 Earnings Conference Call hosted by Arihant Capital Markets Limited. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Juhi Manwani from Arihant Capital Markets Limited. Thank you, and over to you, ma'am.

Hello, and good afternoon, everyone. On behalf of the Arihant Capital Markets, I thank you all for joining into the Q4 and full year FY '26 Earnings Conference Call for Suryoday Small Finance Management. Today, the management, we have Mr. Baskar Babu Ramachandran, MD and CEO; Mr. Hemant Shah, Executive Director; Mr. Kanishka Chaudhary, Chief Financial Officer; Mr. Himadri Das, Investor Relations. So without any further beginning, I will hand over the call to the Baskar Babu Ramachandran to their opening remarks. Over to you, sir.

Thank you, Juhi. Good morning, everyone, and thank you for joining us for the Surrey Small Finance Bank Q4 and FY '26 Earnings Conference Call. I extend my best wishes to all of you. And since they appreciate you have continued interest and engagement with the bank. Our financial results and the investor presentation are available on the stock exchanges and on our website. And us, we have had an opportunity to go through them. Taking you through the bank's performance for Q4 and FY '26. FY '26 has been a year of disciplined execution and gradual stabilization for both product microfinance industry. The year was characterized by tighter underwriting elevated credit costs at the beginning of the year and a sharper focus on portfolio quality across the sector. While the challenges continued during the year, we have started seeing gradual improvement in collections borrower behavior and overall business momentum over the past few months. The fourth quarter, in particular, has been encouraging for the bank. On the inclusive finance side, disposals have largely returned to earlier run rate of INR 500 crores per month of disbursement when slippages reduced meaningfully to approximately INR 74 crores from INR 116 crores in the previous quarter. Collection efficiency also continued to improve with the current book for inclusive finance portfolio inching towards 99.7%. As highlighted earlier, our strategic shift from the JLG model towards individual lending continues to gain traction. Importantly, close to 99% of the inclusive finance portfolio remains covered under the CGF scheme providing strong capital protection during periods of unforeseen industry stress. The CDM initiative has played a significant growth during the stress cycle and has provided mitigation of approximately INR 650 crores in terms of P&L impact. The car loan disbursements during FY '26 remained healthy, supported by continued traction in new to bank customers. on the retail asset front, momentum across commercial vehicles and mortgages continued during the quarter. The commercial vehicle finance portfolio grew from INR 1,336 crores in March 2025, so a INR 1,819 crores in March 2026, registering a healthy year-on-year growth of 36%. Collection efficiency and asset quality in the portfolio remains stable during the year. Our focus continues to remain on calibrated expansion across secured retail asset segments while selectively scaling construction. Mortgage book, including micro home loan portfolio expanded from INR 2,187 crores in March 2025 to INR 3,013 crores as of March '26, growing by 38% year-on-year. The strategy of focusing cash flow based underwriting companies to deliver steady and sustainable growth. Asset quality trends are gradually stabilizing. As of March 2026, our GNPA ratio stood at 6.5%. The CSC continues to play a critical role in safeguarding the bank's balance sheet with a 100% claim success rate on eligible portfolio since inception. As of March '26, GNPA was INR 864 crores in GNPA was INR 542 crores against which INR 508 crores is receivable from CGM. On the liability side, our deposits expanded to INR 1,994 crores as of March 2026, reflecting a year-on-year growth of 32.3% from INR 1,580 crores. While deposit growth remained below our earlier guidance, it demands a line with the pace of non-NPA advanced growth. Retail deposits continue to strengthen with their share improving to 86%. Our CASA ratio stood at 22.6%, underscoring improving deposit granularity and franchise debt. Digital continues to be a key growth driver for our bank. Digitally sourced deposits continued to contribute meaningfully to incremental deposit accretion and our gaining momentum, enabling us to acquire customers at significantly lower acquisition costs and with high stability. On the digital asset side, we believe credit on PA has the potential to become an important customer acquiring engine for our bank. We are seeing strong traction in this segment with more than 90% of the customers onboarded through this platform having CIBIL scores about 325, reflecting the quality of the customer franchise being built, along with the secured credit cards, digital MSME loans and digital deposits, these offerings are making us build a fully integrated digital banking ecosystem. We now have a prequalified base of customers across these digital products, creating a very strong opportunity for future cross-sell and deeper customer engagement. Moving to our financial performance. Net total income for FY '26 increased by 10.2% year-on-year from INR 1,323 crores to INR 1,458 crores. Profit after tax for the year stood at INR 152 crores versus INR 115 crores last year. Our bank continues to maintain a strong capital adequacy ratio of 20.5%, well above the regulatory requirement of 15%, providing adequate headroom for future growth. Overall with a largely CGFMU covered unsecured book, a growing base of granular retail assets across CVs, mortgages and MHL strengthening deposit ranges in the robust digital infrastructure. We believe is only on the right path to building a resilient long-term institution. Many of the strategic initiatives undertaken over the products, including the transition from SG to Vikas loans and the build-out of our digital asset ecosystem anchored around products such as create on UPI, secured cards and digital deposits are now beginning to show results, with the growth momentum coupled with disciplined credit process improvement and cost efficiency and digital uptake, we believe FY '27 in the year of building momentum and consistency setting the stage for healthier and consistent growth and profitability. Thank you for your time. We'll now be happy to take your questions. Over to Juhi.

[Operator Instructions] We will take the first question from the line of [indiscernible] Private Limited.

I have 2 questions. My first question to Mr. Raman, in your point of view, how is the bank preparing to capture evolving demand in financial in financial inclusion and retail lending, while thoughtfully addressing this credit risk and competitive pressures? And what strategic levers will you be putting into place that would be differentiating the bank in the coming quarters? That's my first question. I'll ask my second question after this.

Thank you, Sukrit. So we have built our inclusive finance portfolio around JLG earlier. And as we saw that the customers are graduating and have taken 2 or 3 cycles, which is around 70% of the overall customer base of micro finance industry. We start to introduce Vikas is an NGO -- what the individual loan does is in terms of underwriting at the individual level, broadly, and more importantly, in terms of having a customer relationship, which is dependent on the customer behavior repayment and their economic growth. So we currently have 70% of our overall portfolio in inclusive finance and individual loan and that's growing at a healthy rate of around 40%, 45% year-on-year. With this base foundation, which we built, we have started kind of buying products, I would say, rather than selling products to the customer in terms of PMGSY. Apart from the usual credit life, which cover comes with the loan on an optional basis. These customers are not only microfinance customer, which would have been the case for 10 years back, they are evaluating this to micro home loans, micro Lab two-wheelers, used cars, and we have introduced all these products over a period of time. And what's really expecting this is not to relate to a full-fledged scale immediately but keep on reducing and which we're fairly confident that will cover the customers with multi products, not only on asset side, but also on the liability side. This is broadly in terms of our inclusion -- on the rest of the portfolio, which are also retail, which is mortgages and CV -- as you see, both have on Italian.

My second question to Mr. Kanika, as the bank continues to benefit from growth in deposits and lending, how are you prioritizing capital allocation between branch expansion, technology investments and shareholder returns and what long-term cost efficiencies are being put in place to safeguard margins amid rising funding and compliance costs?

Yes. As you may be aware, at this particular point in time, our capital adequacy is about 20%. So we have a bit of a and that certainly helps us. In terms of capital allocation, I think, first, obviously, to the banking book, second to the expansion and to ensure that we are able to scale from here on, the operating leverage becomes extremely important for us. And in the last 2 years, especially we have consciously ensured that our corporate headcount and corporate costs are muted, and we are not growing the headcount there. Most of our headcount additions are on the frontline line of business functions, and our branch expansions are also extremely rationalized and economical. We focus on having branches of realistic costing and not very fashionable costing, and that ensures that we are able to operate our -- go live with our branches at the earliest and get working.

We will take the next question from the line of Shailesh Kanani from Asian Market Securities.

Congratulations on performance. The slippages numbers were quite heartening in line with what we have been guiding a couple of quarters back. So my question is the slippages on the book. That decline in RA book pages seems to be a little minimal, right, from INR 39 crores to INR 40 crores. So my question is, is in the strongest quarter in the year, that fourth quarter, it is nearing 1.8% of our book. So how should we think about this number on the steady stands it -- or this is the number we should go with and is what we are getting from this?

I think at this point in time, there are 2 focus areas for us. So if you look at the commercial vehicle portfolio, there is 1 localized issue in the state of Orissa, which we are trying to address even as we speak, and large part of it is contained. Apart from that, if you look at the CV portfolio, it's possibly 1 of the best in the industry, far better than the industry standards. When it comes to mortgage, again, we now have a mix of deal sizes above INR 2 crores and the deal sizes in the range of up to INR 2 crores. There are a couple of slippages on the high ticket cases, which we are currently in the process of resolving and getting resolutions through third. So over the next 2 quarters, we see that our par numbers for these 2 headline secured asset businesses will come down.

So how should we think about the steady state number over in this? Because II, I'm incrementally getting from you and from other peers side as well that down. So how should we think about RA in terms of second half when the things normalize at CV and mortgage level?

I would look at anywhere between 1.25% for the portfolio overall put together.

The whole.

Yes. The retail asset.

Total book on.

Yes.

Sir, my second question was with respect to the digital liability franchise. So there seems to be a significant moment of incremental deposit share has been increasing. So how should we anticipate the shift towards digital sourcing to impact our OpEx and could you give some constative benefits coming out of this channel?

Sorry to interrupt in between, sir. I would request you to kindly mute your line as there's background issues.

Digital, we've focused on digital deposits much, much ahead in terms of others coming on board. So we currently see a traction which is around close to 50% of our incremental deposits, which is completely granular. Average ticket sales of around 1.25 lakhs, constituting at least 2 deposits on an average per customer. So with me the customer test the platform and see the convenience in terms of both bookings as well as in terms of -- ending in a behavioral pattern what we see is that they come in with a smaller deposit, even pre-closing it. And once that experience is comfortable or customer experience is good, then they start increasing the deposits. And what we have seen is an average is around 1.25 lakhs. The cost of acquiring is substantially lower than in physical channels. We will still continue to have lots of physical branches in presence from a touch point of view. But easing even organically through our own platform and through other partners platform will constitute a reasonable portion. And as long as it is granular and as long as the profile of the customers are good quality, which is what we see even from their behavior and pattern, we would like to focus on it. But however, what we will take care does not have a dependency on 1 or 2 platforms on such way we are present in quite a few platforms. And it looks like this will be the way to grow in terms of brand deposits. And the next big thing that we get to build on that in terms of what other products can be cross sell the customer by for the customers. That's a phase that we'll be entering into this year and onwards.

Sir, anything to point out the savings plan with respect to OpEx over here because I'm assuming that this channel should be cheaper in terms of honoring deposits?

Yes. At this particular point in time, the way the arrangements are in place, this works out to be relatively economical. So we will continue to double down on this. I think the digital deposit channel has been 1 of our success stories, and it will continue to be a significant contributor to the deposit inflows, right? If you look at things as the things stand today, about 50% of our net incremental flows are coming from the digital channel, and that will continue for this year as well.

Fair enough. Just 1 last question from my side. In terms of CCP, what can we expect in FY '27 in first half and second half?

I think for this year, we will have 3 cohorts, which will qualify for claims in this current financial year. At this particular point in time, we are looking at the first cohort that is to be claimed somewhere between Q1, all things going well. And overall, I think we will be claiming somewhere in the region of INR 450 crores to INR 550 crores.

We will take the next question from the line of Saumil Shah from Paras Investments.

Congrats on a very good set of numbers. Sir, we are guiding for 1.2% ROA for this June quarter and then gradually increasing to 1.6% by Q4 of this year. So how confident are we to achieve these targets because Q4 being the strongest quarter, we have an ROE of 1.1%. And now for June, we are guiding for 1.2%.

Right. So I think a couple of things come into play in Q1. So the first is that the paying book base increases for Q1 vis-a-vis what we had in Q4, right? Plus also the fact that with our -- hopefully, all things going well and our CGF claims going through. Our paying book as a percentage of the total book will increase because the impaired book will go off. So at this particular point in time, I think 1.2% is quite achievable. You would also need to keep in mind that in Q1 is typically the time when you have most of the PSLC sales. So to that extent, a 1.2% ROA in Q1 vis-a-vis 1.1% in Q4 this year shouldn't be a challenge.

And on the slippages also, our liquids have reduced from INR 155 crore in Q3 to INR 106 crores in Q4. So how do we see this number going forward? Can we see further downside in coming quarters?

Yes. We would be targeting somewhere -- anywhere between INR 75 crores to INR 90 crores as a whole for the bank on a quarter-on-quarter basis, right? So that will be the kind of target that we'll be working on for the entire banking book as a whole.

Okay. So from INR 36 crores, we are expecting INR 75 crores to INR 90 crores.

Yes.

Okay. And on the CGM, I mean, I think you answered to the previous part is. But for Q1, how much amount are we going to claim?

We will program that, as of now, around INR 510 crores is favorable of which around '28 is claimable only in the next year as we speak. So around INR 450 crores will time it out likely but quite a bit of that will be in Q1. We had to really decide in terms of whether we claim in Q1 or we choose to claim in Q2. But as KC mentioned, there are INR 3 cohorts. So we have the flexibility in terms of choosing which cohort we want to kind of claim during the first quarter.

Okay. But the major portion would be in Q1?

For Q2 of this.

Okay. And if may I ask 1 more question?

Sure.

Yes. So basically, our cost to income, what would be our guidance? Because at 73%, we are still very high.

Includes the premium which we pay on CGM -- so that's also computed in the past. We don't take it separately as accretive cost accounting way to do that. KC?

Yes. I think on a full year basis in the coming year, we will be targeting somewhere around 67% to 68%. So the goal is to come below 70% for sure.

Okay. And towards the CGFMU you cover, how much are we going to spend for this year? Because I think quarter -- every quarter, we are spending around INR 23 crores as of now.

It will be in the range of around INR 100 crores, INR 110 crores.

We will take the next question from the line of Shubhranshu Mishra from Philip Capital.

Question is around the credit on UBI. What is the monthly disbursement that we are seeing on this particular product? And what is the semi-rate here? Also, how do we look at this in terms of asset quality recognition because the product is a short-term product of maybe 30, 45 days. So -- and the asset quality recognition is at 90 days. So if someone defaults on the 31st day, but somehow gets regular only 35th day, is it recognized in the IRAC norm of 30 days and 90 days? Or how do we look at this asset quality? And if you can speak about the semi rates, 0 plus, 30 plus in this particular project.

This is a new product. So currently, what we are seeing is a closer to 97%, 98% of that is paid, not necessarily on the exact due date. It's a very small ticket. Currently, the average ticket size, which is discussed by the limit is approximately around 10 grams. So the large scaling of product in terms of customers, the risk that we take is limited. And what the customers behave is known on the 30th day, which is 30 to 45th day, currently, the way we're running is that it is the delinquency generated out of every month. The nonpaying beyond 30 days is less than the overall fee income decision rate. We keep watching for it while it's a scalable product. This is 1 of the industry first. We'll be very, very careful in terms of monitoring on a month on month basis. There is a possibility that we will be introducing certainly we're introducing the EMI product for our seasoned customers in which case, probably part of the portfolio, which is a PMA. As of now, it is like a charge cut, and I think it's great at the end of the due date, along with a grace period. Currently, we see no around the 1.5% in the and it's not a product which builds up on AUM on a month on month because it gets repaid in the starts. Currently is an approximate level INR 200 crores is what we have as an outstanding at the end of the building cycle every month. And every month, it is moving up. In terms of a recognition now what's the KC.

Yes, added recognition is just like a term loan, right? So you will have the 90-day nonpaying criteria for the termination of NPA.

Right. And what is the utilization of this particular credit line? How many -- what percentage of customers be utilizing it and of the total limit, how much is getting utilized? And who owns this customer? Do we own it as 197 communication loans. Can we do any kind of cross-sell of our own asset liability products to this particular customer?

As you know, the regulations insist with the customers be owned by the bank, the entire CKYC is done through our platform. The customer is technically owned by us. So obviously, we'll not cross sell CCL OU again to this customer or any of those products. But on a broad basis, we are complete the ownership is with us. The customer relationship experiences will be obviously who are 197 because this is 1 of the products that they cater to the customers. That is across all the platforms, whether it's the digital. There is -- while the customer is owned, there are no restrictions in terms of gross sales, we would not cross-sell on the similar product that we have sourced from the customer. 30% of the customers, for instance, like say some time back, we had 10 lakh customers who are prequalified on find of lack who have taken the sanction, which means that they have done they have accepted the terms and conditions, of which approximately 3 lakh customers have utilized. And the average utilization, while it keeps moving up on tomo new product. Currently, it's around 30% of this sanction, of the people who have each limit at once.

Right. How there was something contrary which you said on the ATM call, they said that they only customer. However, right now, what you said is that the only customer. So I think I'll have to take this particular part offline.

[indiscernible]

We will take the next question from the line of Ankur Kumar from Alpha Capital.

My question is a repeat of a previous participants. You said Q4 is generally the best quarter and still you are expecting 1Q ROE to be better than this number? So I couldn't understand that part. Sir, can you please explain that?

No. As we exit Q4 and move to Q1, my paying book in Q1 will be much higher than Q4. And the second thing is that Q1 is also typically when most of the PSL sales occur. -- and that will provide an uptick to the income and which is the reason why we expect that we will have a higher ROA in Q1 vis-a-vis Q4.

Got it, sir. And sir, in terms of economy, there are some headwinds in terms of as a monsoon also and just war-related crude hikes. So how are we seeing our book behaving in April and March.

As of now, we don't see us back for 2 reasons. One, most of the customers we cater to auto income households who are in the service of former derive products. The impact of that happens, obviously, with a lag on both sides. Even if the good times turn and then the growth is high, but there is always a lag impact in terms of the low-income households. The only segment which can get impacted, which will be the commercial vehicle there's an increase in diesel prices substantially beyond 10% or 15%, likely that could be an impact, which we have not seen in whatever experience we had around 5% to 10%, and beyond that, it does really impact specifically in terms of large fleet operators. In terms of mortgages, there are quite a few customers who are MSME though not into real large manufacturing. -- that would be impact on them on an indirect basis. As we speak today, well, we do not see much of an impact. We'll be cautious about it in terms of watching out for the impact of the war, if any.

Sure, sir. And on this year, we have good enough growth expectations. So when can we expect a fundraiser it's like not going to come in coming months to 2 years?

Fund raises, I think, yes, it's something that we are constantly evaluating. And given that at this particular point in time, we continue to see our sales growing at 30% plus and our CRA are around 20%, which is our internal comfort zone. We would look to raise funds at a particular point in time in course of the year as things stand now.

Given our price to book also is less than 1. So I think that will be not good enough for current shareholders. So given if we want to raise right now.

Yes. Obviously, we are fully conscious in terms of the shareholders' solution and the impact here. But however, as you know, any financial institution, 1 of the core for it to grow on a sustainable basis is to really have adequate capital than required, which are demonstrated right from the time we were a capital because they had and the core liquidity has an required. All of this really shows up when there are testing times. We always fortify ourselves, that's the first priority. And we are not going to be obviously raising money, which is dilutive for the existing shareholders, but this will all be enabling. But we have space for Tier 2. Our intent would be to kind of not do both of that primarily. And the markets are markets which we will not be able to guess what it is. But if we are sustaining the performance as is, I'm sure we'll be able to raise money at a decent price, which will be only beneficial for the existing shareholders and also for the new incoming shareholders. There is a little question for ahead. But I think what we are really focused in terms of delivering what we are fairly confident in terms of Q1, entering into Q2. We did not burn all the candles in Q4. We kind of make sure that we are able in a position that we're able to sustain the performance of Q4, quite a bit of that into Q1 and start building up for the remaining quarters of the year.

We will take the next question from the line of Dara Jhaveri from Crown Capital.

Firstly, congratulations on a great set of results, sir. Just wanted to harp a bit about our asset quality, sir, you're guiding for around 3% GNP, right, that would be a significant reduction from our Q4 GNPA, right? So would that be that an exit run rate in terms of Q4 GNPA FY '27 would be significantly lower than 3%? Would it be around 2%, 1%, how would the movement be sir, if you could help us explain that, sir?

So 1 element of that will, obviously, the claims that we will be making in course of the year, and those claims once we realized will help us write off our NPLs, right? And the second is, obviously, the incremental NPA that we have in mind for the year where we are -- as we said earlier, we are targeting to be in the range of INR 75 crores to INR 90 crores in a quarter..

Fair enough. And just wondered now end on the claims. So how quick is the government and giving us the claim, right? It just example is late if you make it in end of quarter -- then what is the time line that government does because getting money from cement becomes a very tedious process. So I just wanted to know in your experience how fast have been claims being processed and the money hits us, sir?

It's a great guarantee trust. So we are not claiming parity from the government. It's a fully under trust part. So our experience really has been good. Will not -- they will have obviously their own internal turnaround times for making the time, which I presume will be around 60 days. So our experience has been well within that turnaround time, and we do not really expect anything to be substantially different than what it was in the past.

Okay. Fair enough, sir. And sir, just we have mentioned 2x PAT in our presentation. So does that mean that you're targeting more than -- around INR 300 crores of PAT in FY '27? Just wanted to confirm that, sir.

Yes. I mean that's the kind of target that we have in mind. So with the credit cycle in the MFI industry behind our back, I think that's the kind of number that we are targeting as a bank for 20.

That's great to answer. And just attending another call. So I want to know, they were speaking about like pressure in terms of cost of deposits increasing and deals also been decreasing. So what do you see the competitive environment right now in both of these aspects? Do we feel there could be any pressure in either cost of funds or in terms of are deals getting lower, sir?

Cost of funds are definitely hardened. It's becoming increasingly difficult to raise money. We have noted that the elevated rates of Q4 haven't quite come down the way they typically come down in the earlier previous years -- so there is a rush for deposits, especially among the small finance bank and the midsized banks as well. So that's, I think, a part of our deposit raising life in a bank these days that's likely to continue. So for us as a bank, what accordingly we have done is that from a funding point of view, we use a mix of deposits and refinancing. We are possibly 1 of the few small finance banks that actively utilize our refinancing lines, and we shall continue to do so.

Okay. So basically, we can continue our NIMs, right, what we have done in FY '26, sir?

Yes. So I think given the kind of mix that we have at this particular point in time, it's unlikely to change in a big way. So I think the NIM will be maintained at this level.

We will take the next question from the line of Rahul Kumar from Vaikarya Fund.

Just 1 question. basis your learnings from the past. What has been the impact of the farm loan waivers on the asset quality for the business?

That's a part of the cycle that we've all grown up with and customers also have really seen the promises versus what gets achieved. So overall, I think there has been a fair amount of maturity where even preelections, if there are any levers which are announced at the industry has not seen any impact in Karnataka has not seen in any of the states where it has even gone to elections, including VR. So we'll -- this part of the section. Sometimes it gets aggravated in specific pockets. In terms of loan waivers and so on. Even Karnataka as you would see across the board, it has come back in 6 months' time as people realize with the waiver discussions are good for a couple of weeks, but doesn't really help them in terms of sustaining that as to credit. So while it is a challenge, and we can't really wish it away. But the fact is that at least all of us are mature enough to handle those cycles as in as they come.

Okay. But let's say, during the past farm loan waiver in Maharashtra, what was your experience on the asset quality?

In some pockets, color, we would have seen an impact. But is it really widespread, it would broadly probably see an impact on around 10% of it. Wherever there are local heavy campaigns, which go on or kind of miss campaigns, I would say this. So that we will see an impact. But usually, they all come back. I mean industry has not seen any huge impact in the last 2 cycles in the last 6 years, whether it is a demon, whether it's a COVID or whether even today, the micro finance when it happened because of various reasons which in the system for getting it up, but it does per I don't think there's any point to it in terms of any political integration.

Okay. The second question which I had was, I think if I see the retail 50 to 90 bucket that has increased pretty sharply versus quarter 3 -- so which are the segments where you're seeing the stress.

So retail set, the way we need to look at is we did a large write-off of ARC in last year Q4. So the numbers are traditionally low. So that's where it looks little inflicted, point one. And overall, the market is highly elevated on CV -- though our metrics are significantly lower, 2x lower than the market sees stress. -- but that is 1 pocket. And mortgage is from the world portfolio convenes and MXL, MHL Karnataka about 4% of the portfolio but elevated stress in Karnataka. But again, it's not bad. Now even 9 customers, nearly 40% of them are paying regularly. So these are the pockets of stress.

Actually ask me about the Stage 2 assets versus Q3, not necessarily versus last year.

Yes. So you have to see, like Sashi was mentioning. One was the Three things. One is the little bit of seats that we have seen in last quarter. The MH part which we have seen in Karnataka. But what you have to see is a credit loss -- so credit loss nowhere in all the portfolio, it doesn't -- it wouldn't excite in CV not more than 0.75 and not in mortgage or MH loss it won't -- in mortgage at least, it won't be more than 0.5%. And in MHL, it can be maximum 1% to 1.5%. So there's an elevation, but I think trade costs will be under control.

So you do expect this Stage 2 to gradually improve from this quarter onwards?

We must be able to -- Yes. Yes. Yes. 60 to 90 bucket collection divisions is actually significantly improved in the last 2 months. So that is also 1 of the reasons why Stage 2 is a little elevated. We need to now do roll that instead of collecting on a we need to start collecting 2 and 3.

Third question, I think what would be the quantum of the CGFMU claim in the quarter 1?

As we mentioned that we have to decide in terms of timing to Q1 or Q2. But lately, the majority of the eligible claims will be came within these 2 quarters.

Okay. And total quantum would be somewhere around INR 500?

INR 75 would be eligible -- so depending on when we make a claim. I suppose you make in 1 cohort, eligible claim is next number, and we chose to do it in Q1. The remaining which we are not eligible, we are not claiming can be claimed only in the subsequent year. Time at 1 on a very prudent basis, you can say, INR 4 as a number -- fund main can go up to 475.

Understood. And the last question, I think our yields have also increased pretty sharply versus quarter 3 by 50 bps. So is there any one-off in the interest income?

No. So you will notice that there has been a significant increase in our paying book, and that reflects in the yield that you see Q4 versus Q3. And I see the GNPA ratio for quarter 3 and quarter 4, it's pretty flat. So the mix of inclusion bias loan mix have also shot up. That's the primary reason. If you see the contributing only is paying the peso and within the paying book, the higher yield paying book. Those are the factors that there has been an uptick in terms of the NPA collection that has now moved to around returns, what was around INR 5 crores, INR 6 crores has moved to around INR 15 crores during the last quarter. will broadly sustain at around INR 12 crores. Part of that, what we collect is also interest component. So that would have added a little bit in terms of the increase in yields, which is now -- as you know, it's a larger book, we keep collecting at least for through the year, we see at least collecting closer to INR 150 crores to INR 180 crores out of that. And a reasonable portion of that would be the interest income.

Understood. Can I take the last your last question also?

Sure, please.

So just on credit costs, 2 parts. I think our slippages have declined pretty sharply 40% versus quarter 3, right? But the credit cost continues to be flat on a quarter-on-quarter basis. So part on this floating provision, more tense as we led to this? And 2, I think -- I think for, let's say, FY '27 versus 1.4% credit cost in the quarter 4. What is the level of credit costs which we are targeting?

So primarily for Q4, it's floating provisions and nothing else, which is the reason why you see floating credit cost to be flat quarter-on-quarter. And I think for a whole of next year, I am looking at somewhere around 1% of credit cost.

Okay. So then in that context, do you think the target of 1.2% ROA is a bit more conservative in your view?

Just coming out of the cycle, 1 of the key assumptions is that broadly the asset quality carries through. And as for the previous speaker us. is that to the impact of the water really be seen including in our segment. So I would say that it is time realistic because there's any upside we could. But I think we wanted to be clear that what we are reasonably certain within conference level of 90%. -- is what we are really protected.

We will take the next question from the line of Harshit Kara from Robo Capital.

I just wanted to understand that the INR 3 crores of PAT that we are guiding -- and the INR 450 crores of CGM claim that we are seeing. So how much of the INR 3 crores of PAT is affected by that claim? INR 300 crores.

No. So this is more a balance sheet impact, right, because the claim that is realized essentially helps us write off our -- so every claim that you make results in the reduction of your headline GNPA number, but it is unlikely to impact your P&L.

We will take the next question from the line of Amey Kulkarni from Candor Asset Management LLP.

The entire team for making steady progress over the last 4 to 6 quarters. I had 2 questions. One is, have we already submitted our claim for CGI in April for 1 of the cohorts -- and -- if not, what is preventing us from claiming at least 1 of the cohorts immediately in April itself. And the second question is, why have we postponed the raising of funds we could have at least raised tire 2 immediately, right?

On CGI think you give a pretty detailed kind of the working seems an account, we can claim only after the base 1 plus base year, first year is for the base, second year is for the cotton year. And third year is become and the 6 months that account would have been an NPA for us to make a -- so given all of that, we can able to do that exercise in terms of what is very optimal and also the timing. So currently, we have a reasonably kind of comfortable situation that we will figure it out whether it be Q1 where we can get a reasonably higher claim because the claim is only once in a year for a particular cohort. And as likely that is the highest claim for us with the cohort of 25 so FY '24 will be lower in FY '26 will be significantly lower. So we have to choose to claim FY '25. We would like to at least time that whatever has become NPA till February or March, we had to limit we can make the claim only in the month of September. So we will figure it out as of now, whether it's April. So we are not better, you can say that. In May, not likely, whether it will make in June or whether it make in the subsequent quarter and each month, we are really had to decide.

Yes. On the funding question. Yes, like you said, yes, having regard and been cognizant to the price to book, our preference will be for Tier 2 to begin with. And that's something that is most likely to happen first. But insofar as equity raise is concerned, it will be a more detailed discussion and deliberation because we need to take care of our incumbent shareholders at the same time.

It has not been deferred -- the Board said that can we have a far more in terms of how much can we Tier 2 -- just to confirm, right now, we haven't submitted any CGM claim right now. We will decide in due course, maybe in 1 to 3 months, we'll decide.

We will take the next question from the line of Arvin Cha from Capital.

Yes, question on the NIM that we expect to achieve over the course of this financial year. So given that the playbook is going to increase significantly as we go through the various cohorts for the then remaining flat is a very connotative estimate because whatever income you make on that will be an additional addition to the net interest income rate? So from that perspective, what is it that we -- are you expecting some increase in deposit of funds to offset all that?

No, I don't think that is likely. I think our NIMs will be range bound between 8% to 9%. And because one, the paying book will now continue to increase since the credit cycle in fires behind us. And we will be able to protect that amount of that kind of because if you look at our mix as well, we are more or less there. We don't see further significant changes in our mix between MFI and non-MFI.

So my simple question is mathematically. If your 5% of your book is NPA, right? -- and nonpaying. -- over the course of this year, that 5% if added to our paying book against which we don't have any incremental cost of funding. Then you should disproportionate increase, right, mathematically Yes, you are right. There will be an uptick in NIM because if you look at NIMs as they are today, they are around suppressed by around 50 or thereabouts.

Your Voice is not audible.

My second question is what is the typical the secured book because you've seen as at other callers have pointed out, there's been an uptick in the 31 to 60 and the 90-plus markets. So just wanted to understand the last given default on the mortgages.

Mortgages the credit cost ultimately will come out. It's much lower than the GNPA, so it may not necessarily be in commercial vehicle, if the customer slips and do you want a repossession or the lack of trading of the vehicle. I would say that while there has been a big role to went we would like to maintain this and focus in terms of resolving some of the mortgage cases, which are in NPA. Using FAC in terms of the reserve we have strengthened over the last year because it was a new portfolio the last couple of years, the legal thing has been strengthened. And if we're able to do what you recover within the 6 to 9 months' time given that we fund the micro home loan is around INR 600 crore portfolio. We do not take surpasses and sale as the first option at all. So we have the very fact that we are funded and likely to be the first home of a low income also. The nudges in terms of making them come back to the regular thing where in terms of using season click butter. So for the other mortgages, which is LAP, were as KC mentioned, there are a couple of high ticket not really high ticket on INR 3 crores plus. A couple of cases which were fairly content in terms of resolving and the net slippages will be much, much lower. And overall, what we are looking at as a bank is in term not to exceed around INR 90 crores in terms of on a month -- quarter-on-quarter basis in terms of the seepage.

We will take an Individual Investor. We have the next follow-up question from the line of Rahul Kumar from Vaikarya Fund.

The previous comment you made was this resulting on the loan armload. Was that regarding farm loan waivers impact on your MFI book? Or it was regarding MFI loan reverses that promised don't necessarily impact the overall business in pockets as it around samplers or NFI loan waivers?

Sometimes there still over happens. The farm nonvoting anointed which is portion 1 state. So other than that, I think in the state, which have seen dementia business for longer. We have not had a significant -- we're not saying -- not any impact, not any significant impact rail business and partly in pockets, they sometimes become aggravated -- we saw in some of our saw Colaco during the demon and subsegment of this market. So the way the industry has become reasonably mature, not to really kind of including the customers.

Have you made any impact so far any pockets?

Not in the industry. I can talk about broadly even the industry because is available, and hence, obviously not on us as well when I say across the industry. So we haven't seen an impact and hopefully will not.

Great. So far, no impact on you or the industry you know of?

As we understand. Absolutely.

We will take the next question from the line of Jagdheep Singh, Individual Investor.

Very good set of numbers, and thank you for sharing the guidance in a annual way. Sir, I wanted to ask you, do we have leverage to increase the ticket size for the IL customers?

We do, sir. We do as we've done on a regionally calibrated manner. So we have certainly increased period of time. The intent distance we are dealing with individual customers as we really referred to, there is always this possibility, but it can't really operate on the same mold as earlier, which is 1 year loan to year long. Customers are confident at the time of taking a loan and then even on my slip, it becomes a stress. So we are really focusing in the that is moving towards 3 years for it at one. We'll selectively introduce and as gain experience in the next 2 quarters. We look at or at least a portion of our portfolio, which is about INR 1 lakh -- we are not use that lever as a simple one. Costs remain the same, higher the interest Ticket-size higher the profit. We haven't daily played that need liver at all. We will do it very, very cautiously.

Okay. And sir, in 1 of the calls, we were listening to another industry company, and they had indicated that there is a lot of unmet demand -- it seems that some few players have exited or they are not growing aggressively because of funds or god-knows-what. So do we have lever to go further in our.

Sir, which all of this porter is what we have done in our guidance. So I think the consistent growth is our focus. So we will grow -- we're targeting to grow at around 2% to 3% of asset size, which obviously means that we grow on the inclusive finance side as well. So that we have not gone but as you know, they're all the large -- as we know, the large have access to all the liquidity that they can fund as per the risk appetite. It is a smaller MFIs which would have not impacted which is the top 10% or 15% or 19% market share. So given that the demand -- unmet demand being huge is not something we have not seen at this point of time.

we will take the next follow-up question from the line of Harshit Kara from Robo Capital.

I just wanted to understand that what kind of credit cost are we looking at for FY '27 and '28.

I think for the next coming year, our credit cost will be somewhere in the region of 70 to 80 bps. And that's what we have in mind at this particular point in time.

Okay, sir. And we were also looking at some fund raise, right? So like are we going to do it? Are you planning it in FY '20? Like what exactly are we looking at it?

So there are a couple of factors. One is obviously our internal threshold -- and that's about 20% of CRA where we are somewhere there. The second is, obviously, taking care of our incumbent shareholders, and we are cognizant of the fact that currently, we are trading at a discount to the book. The third is all options available to us. And like I said a while before, Tier 2 will be the most likely option that we trigger when we go for a fundraise as a first step.

And thank you very much. Ladies and gentlemen, that was the last question for today. And with that concludes the question-and-answer session. I now hand the conference over to Mr. Juhi Manwani for closing comments. Thank you.

Thank you. On behalf of Arihant Capital, I thank you all for joining this call. I now hand over the call to the management for their closing remarks.

Thank you all for taking time all on participating on our call. Look forward to continue the engagement. Thank you very much.

Thank you, members of the management. On behalf of Arihant Capital Markets Limited, we conclude this conference. Thank you all for joining us. And you may now disconnect your lines. Thank you.