Ujjivan Small Finance Bank Limited (UJJIVANSFB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 months FY '25 Earnings Conference Call of Ujjivan Small Finance Bank, hosted by IIFL Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rikin Shah from IIFL Securities. Thank you, and over to you, sir.

Thank you, Rutuja. Good evening, everyone, and a very warm welcome to Ujjivan Small Finance 3Q FY '25 Results Call. To discuss the 3Q results and the outlook post the results. We have with us the management team represented by Mr. Sanjeev Nautiyal, MD and CEO; Ms. Carol Furtado, Executive Director; Mr. Martin P.S., Chief Operating Officer; Mr. Ashish Goel, Chief Credit Officer; Mr. Vibhas Chandra, Head, Micro Banking; and Mr. Sadananda Kamath, Chief Financial Officer. With this, we'll pass on the line to the CEO. Over to you, Mr. Nautiyal, for your remarks.

Thank you, Rikin. Good evening, and welcome to our Q3 financial year '25 earnings call. Please note all references made during this address on Q2, Q3, and Q4 pertains to financial year '24-'25. Our strategy to diversify the portfolio towards a more secured book has seen accelerated results, now contributing 39% to the total loan book by end of Q3 led by affordable housing, MSME and FIG. Our overall secured book grew by 13% Q-on-Q, 33% YTD and 52% Y-o-Y. In microfinance, we saw consistent improvement in collection efficiency month-on-month during the quarter. States like West Bengal, Uttar Pradesh, Bihar and Rajasthan that earlier showed signs of stress are now witnessing improvements in collection efficiency. We expect a better performance in Q4 with higher disbursements seen in the first 3 weeks of January compared to similar periods in any month in July 2024. Bank took a call to reduce interest rates in group loans and individual loans by approximately 115 bps and 75 bps, respectively, with effect from 1st January 2025. This will not have a major impact on profitability for a couple of factors mainly stable cost of funds with expected margin improvements due to rate cuts, strong growth expected in high-yielding products like micro mortgages, vehicle loans and secured agri offsetting the yield impact to some extent. With our interest rates, one of the lowest in microfinance, along with the lender cap due to guardrails, this will ensure acquisition of quality borrowers. Micro group loans witnessed disbursement of INR 2,029 crores in Q3, marking a 16% Q-o-Q decline. As of December '24, these loans constitute 45% of the total loan portfolio. Contribution of repeat customers to overall disbursement has risen from 61% to 73% Q-o-Q. To capitalize on growth opportunities, we have enhanced our prequalified group loan offering in states with higher potential and robust collection performance. Individual loans portfolio comprises 15% of our loan book and is focused on graduating group loan customers with good repayment track record. It is expected to grow at a faster pace compared to group loan, having grown by 21% Y-o-Y. For IL repeat customers, we have implemented a simplified self-service digital journey. This allows us to offer prequalified loans to existing customers, a key strategy for improving customer retention. Affordable housing and micro mortgages comprising 21% of loan book demonstrates sustained growth. In December, disbursement exceeded INR 300 crores marking a significant milestone. This book has reached INR 6,393 crores as of December '24, exhibiting a strong 11% Q-o-Q and 45% Y-o-Y growth, expecting to close at INR 7,000 crores as of March 31, 2025. Talking separately on affordable housing book, our highest volume contributing secured business has grown to a book size of INR 5,867 crores, up 9% Q-o-Q and 37% Y-o-Y. Micro mortgages, a high-yielding secured segment has shown promising performance, growing at 34% Q-o-Q. This has a good mix of customers graduated from individual loans and also from the open market. Our revamped approach to MSME business is contributing to the momentum, growing by 12% Q-o-Q and 21% Y-o-Y to reach INR 1,694 crores. Growth has come from all products with LAP working capital and supply chain finance. Disbursements crossed INR 150 crores in December '24. The new MSME book has nil NPA. FIG book continues to scale and reach INR 2,257 crores as of December '24, contributing 7% to the total loan book. This book grew by 11% Q-o-Q and 57% Y-o-Y. Vehicle Finance business witnessed an impressive growth, reaching a book size of INR 375 crores and now contributes over 1% of our asset book growing by 43% Q-o-Q and 155% Y-o-Y. Gold loan business has experienced significant expansion with its availability increasing from 63 branches in March '24 to 198 branches in December '24. This books stands at INR 115 crores in December '24. Secured Agri, which includes livestock and KPC has shown significant Q-on-Q growth of 27%, reaching a book of INR 459 crores. Overall, investments that were made last financial year onwards towards our product diversification strategy is yielding results. Secured book is showing promising growth of around 40% over March '24. In Q3, 46% of disbursement resulted from secured products compared to 30% in the same quarter last financial year. On asset quality, we saw encouraging signs of improving bucket x collections in the group and individual loans. We increased our collection headcount by adding 334 staff, taking the count to 2,260 of December 2024 end. That helped us in improving resolutions with SMEs oblique harder buckets. West Bengal, Uttar Pradesh and Bihar are showing good improvements month-on-month along with other states such as Punjab, Haryana and Maharashtra. This is reflecting in our bucket x collections at 99.2% for quarter 3. Slippages from GL and IL book came in at INR 298 crores in Q3 versus INR 197 crores in Q2. Additionally, the bank effected an ARC transaction of INR 270 crores in Q3, [ INR 207 crores ] from NPA book and INR 63 crores from written-off portfolio. We hold 100% provision in the subscribed security receipts. Asset quality in the secured book has been significantly better. The MSME new book, which forms 48% of the MSME book has nil NPA. Housing and micro mortgage portfolio continues to remain strong with 1.1 GNPA. At overall book, our GNPAs and NNPAs as on December '24 stand at 2.7% and 0.6 percentages respectively, despite challenges specifically to microfinance. We maintain our credit cost guidance at 2.3% to 2.5% for the year. Bad debt recovery continued to be strong, collecting over INR 29 crores in the quarter. Bank's total deposits reached INR 34,494 crores, marking a 16% Y-o-Y growth. Notably, CASA deposits saw a 15% Y-o-Y increase, reaching INR 8,662 crores, which is 25% of overall book. Retail deposits stood at INR 25,274 crores, accounting for 73% of total deposits and demonstrating a 24% growth over December '23. Retail deposits continued to stay above 70%, consistently in the last 8 months. The banking has relied upon strategies to enhance ease and convenience for our customers to accelerate granular deposit base, especially CASA. Among a bouquet of digital banking products, the bank has introduced digital current accounts in addition to digital savings and digital fixed deposits. Bank is effecting structural changes to have increased focus in onboarding and servicing larger share of customers under affluent, nonresidents, corporate salary and traders categories, enhancing customer acquisitions to improve lead management services and customer management tools, strengthening relationship management via CRM and other tools to better manage existing customer base. We are confident of improving CASA ratio and also reducing the cost of funds going forward. Ujjivan is driving transformative change powered by analytics to accelerate business growth, faster credit assessment, enhancing productivity, identifying new geographies for expansion and relevant product offerings. On digital banking, our digital current account launched in Q3 has a simplified journey in which account opening can be completed under 60 minutes. Digital fixed deposits and digital savings accounts have access from around 250 locations where we do not have branches. The bank's own UPI app, Ujjivan Pay, is undergoing testing and will be launched in Q4. On financials and margins, the NIM for the quarter is 8.6 percentages. The compression in yields on the overall portfolio is down to 18.2% in Q3 versus 18.9% in Q2 due to growing contribution from secured assets. Cost of funds moved up marginally by 6 basis points to 7.57% in Q3 versus 7.51% in Q2, largely attributed to retirement of IBPC book. Operating costs increased only 1% during the quarter versus 10% increase seen in Q2 over Q1. Other income was impacted due to lower processing fee, reduced insurance income and provisions on security receipts arising due to ARC transaction. Credit cost for the bank was at INR 223 crores in Q3, higher than INR 151 crores recorded in Q2. In addition to this, we have taken an accelerated provision of INR 30 crores. PAT for the quarter was INR 109 crores, and subsequently, adjusted ROA and adjusted ROE for Q3 are 1.1% and 15.1 percentages, respectively. I am also delighted to announce that the Board has accorded approval to move the application for voluntary transition to Universal Banking in its meeting held today. We will be submitting the application to RBI shortly. Lastly, I would like to summarize the bank's key focus areas for the last quarter. Loan book growth will be led by a secured business, which is poised to grow by around 50% during financial year '25 and contribute around 40% to 42% by financial year end. Group loan and individual loan book to see better disbursements during Q4. Credit costs remain range bound within 2.3 to 2.5 percentages as per our earlier guidance focused efforts towards improvement in CASA ratio with reduced cost of funds. Before I conclude, I would like to introduce Mr. Balakrishna Kamath, who has joined as CFO. He holds a varied experience over 30 years in corporate finance and corporate governance in various listed entities, including the Tata Group. His profound experience will add strength to our organization. In a similar vein, I would also like to introduce Mr. Hitendra Jha, as Head of Retail Liabilities and TASC. He brings over 23 years of banking experience with him. For the last 17 years, he was with Kotak Mahindra Bank and his last role with Kotak was National Head of Branch Banking, Emerging Markets. Prior to Kotak, he has also worked with ICICI Bank and IDBI Bank, and I wish both these incumbents huge success in Ujjivan Small Finance Bank. Thank you. Now I hand over the mike to you, Rikin. Thank you, please.

Operator, we can open the call for Q&A.

[Operator Instructions] The first question is from the line of Rajiv Mehta from Yes Securities.

So my first question is on the NDA collection efficiency, which has improved in December. So have you seen the trend continuing in January? And besides adding people for collection, are we also seeing any improvement in center meeting attendance or the loan officer attrition? And just a follow-up on this, have we also started seeing any improvement in resolutions and rollbacks in the SMA buckets in the recent months?

Yes. So our NDA collections have seen a month-on-month improvement. July, August and September, we did see a reduction in bucket x collection efficiency. October, November and December have seen a month-on-month improvement. We are expecting that the same trend will continue January onwards. In terms of center meeting attendance, we see the same trend as what we had in the earlier quarter, about 60% of attendance in center meetings.

And the loan officer attrition and the resolutions in the soft buckets, are they also improving?

Yes. So our SMA resolution -- SMA 0 resolution is in the range of about 30% which has improved from about 25% SMA 1 and 2, which were at 25% and 21%. SMA 1 has improved from 25% to 35%, and SMA 2 has improved from 21% to 35%. So across the SMA buckets, we have seen an improvement and this is also, as we've mentioned, we have increased the collection team. So that is also leading to a lot of efficiencies on the SMA collections.

Perfect. So my second question is on the credit cost. So when we are maintaining credit cost guided at 2.3% to 2.5%, it implies a good decline in the fourth quarter. So I mean so is there -- so then we are trying to rule out a possibility of taking any additional provision or accelerating the current provision policy. Would that be correct? And what levels of PCR will be comfortable with maintaining? Because I can see that in this quarter, the PCR improved but we have also shifted floating provisions from standard to the NPL bucket. So if you can also comment on what level of PCR you be comfortable maintaining and whether the credit cost, are you implying that it's going to go down in Q4 versus Q3?

So in terms of PCR, the mandate is at 70%. And we've been consistently maintaining a PCR above 70% for a number of quarters now. So we will continue to maintain a PCR between 70% and 75% going forward also. In terms of credit costs, since the NPAs had gone up in Q2 and Q3, there will be a slightly higher credit cost in Q3 and Q4. But I think that will start to get normalized as we go forward. To counter this, we have also taken some additional provisions in Q3 -- accelerated provisions in Q3 to the extent of about INR 30 crores. So that -- these accelerated provisions help us clean out the expected increase that we were expecting in Q4. So largely, it will now get neutralized.

[Operator Instructions] The next question is from the line of Renish from ICICI.

Congrats on the good set of numbers, sir. Just 2 things from my side. One, on the PAR 0 bucket. So if we look at the group loans, it is at 6.6%, IL it is at 4.5%, now since you are also mentioning that collection is improving month-on-month. It is right to assume that the PAR level like current numbers have picked out and going ahead from Q4 onwards, we'll start seeing PAR portfolio coming out, given we have write-offs as well?

So this is a function of how the industry would show the numbers. We have seen a good improvement, and we are hoping that there is going to be no disruption.

Sorry sir, I can't hear you, sir.

Are you able to hear me?

No, sir.

Is this better? I've come closer to the mic. Okay, Renish, so PAR numbers, there will be some stability of PAR during this quarter. So we don't expect an increase in PAR numbers, but the speed at which the PAR was increasing will stabilize during this quarter.

Okay. So in other words, the stress, let's say, the incremental stress formation has peaked out. I mean, is that the fair assumption?

Yes. So see, the incremental stress post July, August, September, that is when the stress has started to actually build up. October, November, December were months where the PAR numbers continue to grow. We expect that the PAR numbers will stabilize here on and start to show a declining trend in the next maybe 2 or 3 months.

Okay. And sir, would you like to share January collection data?

It is a little early for the January collection data because we have numbers only maybe a couple of days back. If we look at bucket x collections on micro banking, they are better than the same date December numbers.

Okay. And if I -- just a reconfirmation if I heard you correctly in your opening remarks, you did mention that Jan collection is the best in the entire fiscal year. I mean, is that the comment you made in your opening remarks?

Starting it was referring to the disbursement numbers. We have started to see good demand in the market in the month of January. In fact, we started to see that towards the end of December. See, in this, we've seen that after a gap of funding in the market, there is a bounce back which happens. And we see this bounce back happening for the last 4 weeks. So our January disbursement numbers that we've seen so far are better than what we have seen during this year so far. That is what Mr. Nautiyal was referencing.

Got it. And this is last thing. In terms of the SRO guardrails, are we following 4 lenders guardrail or we have already implementing the 3 lender guardrail?

So we are following 4 lender guardrails. The 3 lender guardrail would come into effect on 1st of April. However, the other guardrails of INR 2 lakh indebtedness and -- INR 2 lakh indebtedness and yes, to SME customers, these we are already following.

Got it. Okay.

What we have traditionally done for new-to-bank customers, we have implemented the 3 lender guardrails.

Okay. So for repeat loans, we are following 4, but for new to company customers, we are following 3.

Yes. New-to-bank customers, we have implemented the 3 lender guardrails in the beginning of Jan quarter.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Just as a feedback, sir. It would have been great had we stick to the regular time because we hardly got any time to see this lengthy presentation of yours. So most of the questions that the analysts have to ask have to be asked without looking at the presentation itself. So I would appreciate if we can stick to timelines from the next quarters. Secondly, sir, on the overall collection efficiency for the book, on the secured side, did you see any stress in this and including January? Are you seeing any spillovers of the -- some of the stress in the microfinance on your secured book?

No. In fact, our collection efficiency for the affordable housing and for MSME as well as vehicle finance has been consistently above bucket x collection for affordable housing is in the range of 99.4% to 99.5%. For MSME, it is above 99%. Vehicle finance is above 99%. And we have not seen any decline. In fact, we've seen a marginal improvement in Q3 over Q2. So these secured products, the bucket x collection has been consistent and improving.

And overall collections have also been good Q-o-Q, sir?

Overall, see, when you look at the overall collection efficiency, you will see a dip because the PAR numbers have gone up. So when the PAR numbers go up, the collection efficiency on the SMA and NPA buckets is lower, which weighs down on the overall collection efficiency.

And similar trends, sir, for January?

I would say it's again very early. January, I would say it is early, but on 20th of January, the efficiency in microfinance is better than 20th of December is what I could say.

Okay. Okay. And no, I was asking about secured products, sir.

Secured products, we maintain a very consistent bucket x efficiency. So it continues to be in the range of 99% to 99.5%.

Okay. And sir, this guidance on the credit cost, 2.3% to 2.5%. Now I did not get the chance to sort of calculate. But how much have we done until 9 months against this number that we are referring to? And is it adjusted for all the ARC sale, et cetera? Or how should we read this number? If you can give us an absolute number, that would be great. How much have we done until now and what we are guiding for?

So we have 9-month credit cost is 1.55% for 9 months YTD December. In numbers, it would be INR 478 crores, INR 478 crores.

Sir, your voice is very feeble.

Were you able to hear the first sentence?

You said 1.55% you have done.

Yes, yes. And in terms of value, the first 9 months was INR 483 crores.

And sir, this is including accelerated provision and ARC sale, the loss that we have incurred there?

Yes. It includes both ARC sale as well as accelerated provision.

So then in the last quarter, basically, you are guiding for 0.8% to 1% credit cost?

Yes, 0.8% to 0.9%. That is right.

Okay. And any guidance that you would want to give of how things can be for FY '26?

It will be a little premature to give a guidance for FY '26. We can come back to you during the first quarter for a guidance for the full year. But as of now, it will be a little premature.

The next question is from the line of Suraj Das from Sundaram Mutual Funds.

Sir, one clarification first on Slide #23. The collection efficiency that you have reported, this is for the overall book, right, including delinquent customers?

You're referring to the group loan lender wise trend?

Yes, sir.

That is Slide #23.

Yes, sir.

Okay. Go ahead, please.

No, I'm saying -- I'm asking this is including the delinquent book, right? This is total collection efficiency? Am I right?

Yes, it includes -- this is total collection efficiency. That is right.

Okay. Understood. And Slide #21, the collection efficiency table that you have reported, there is this -- on the normal collection also, there is some OD collection. What is that, sir, for group loan and individual loan?

Additional collection includes overdue collection. The additional collection is what you're referring to?

No, sir, then, I mean, second column, after due, there is collection where there is asterisk mark? And then there is additional collection separately. So what is this OD collection, sir?

Overdue collections. We were referring to overdue collections. So collections which are due for the month and collections which are earlier for 3 years, overdue collection. Overdue refers to arrears. Arrears.

Understood, sir. And sir, the last question is, sir, in terms of -- if I see the yield on the affordable housing side, that has come down significantly, I mean, 40 basis points on a Q-o-Q basis. Where do you see this yield settling in, point 1. And point 2 is overall margin. What would be your guidance on margin going ahead now, given that probably your secured book is growing faster than the overall MFI book? So how do you see the margin trajectory probably for next 6 to 8 quarters?

Yes, the housing yield has come down during the quarter. Can you hear me?

Yes, sir.

Sir, you're sounding from a distance. We cannot hear you clearly.

Yes. Is it clear now?

Yes, it is. Please go ahead.

The housing yield has come down during the quarter due to 2, 3 factors. The main one being is it's a floating rate. And the EBLR has come down during the month -- during this quarter due to which all the loans have been repriced and that has impacted this. And second is you also have to derecognize the interest for the slippages during the quarter. That also has been given effect.

Sorry sir, what EBLR has come down, what EBLR?

So there is a base rate based on which -- it's a floating rate. So floating rate, the base has come down by 50 bps. So that's affected the entire book, and that's why the rate has come down. That is one point. Second one is P&L interest no longer can be charged as per the new RBI regulation. So it has been reclassified as P&L charges. So it is not coming under this head anymore. And finally, there is a INR 9 crore adjustment for interest, which has been derecognized due to slippages during the quarter. These are the 3 factors.

Okay. And sir, overall margin trajectory, how do you see that?

No, it will be going steady at whatever rate it is now, it will be consistent going forward.

Okay. And sir, on this micro mortgages PAR number, I think that is also going up from 20 basis points to something like 60 basis points over the last 2 quarters. Sir, do you see this trend continuing in January also? And are there overlap between your MM customer and your MFI customer?

So the micro mortgage part is actually a very low number. 0.4%, 0.5%, 0.6% are actually very, very low numbers. We see that the quality of the book has been exceptionally good. So these kind of numbers are quite competitive and very, very reasonable. In terms of overlap, we have about 40% to 45% of our customers who get graduated from individual loans to micro mortgages and about 60% -- 55% to 60% are open market customers. And the individual loan customers who move to micro mortgages have at least 4 to 5 years of experience relationship with Ujjivan. So that is giving us a very good comfort in terms of underwriting those customers.

The next question is from the line of Nidhesh Jain from Investec.

First question is on the secured segment. What is the medium-term strategy with respect to secured? Do you see share of secured going up in FY '26? And to what level you expect share of secured going up?

So currently, secured group stands at around 39% and this will be year-on-year growth. Our secured portfolio in housing, MSME and the newer business lines like the gold, vehicle finance, secured agri, micro mortgages has started contributing well. We were supposed to hit the 60-40 mark in FY '26, but with the pace at which we are going with the secured asset portfolio, we should be hitting that much earlier. And -- yes.

Secured will be 60% by FY '26 or...

It is 40%, which was supposed to be done in FY '26, but we are hitting that much earlier. Secured is 40% and unsecured is 60%.

Sure. And do you expect it to further increase in FY '26 or at 60-40, you will stop?

Yes, we will be increasing the secured portion and our newer business lines are contributing very well to this book.

Sure. And can you share the profitability of the secured book in terms of ROA? Because as the share of secured goes up, whether the ROA of the bank will see a compression over the next 2 to 3 years. So if you can share the ROA of secured book, that will help secure -- ROA secured book or ROA of housing MSME, whichever is convenient?

Yes, we will get back on this a little later.

Sure. If you can just share the ROA of the secured book on whatever transfer pricing that we use internally, that would be useful.

We'll do that.

The next question is from the line of Deepak Poddar from Sapphire Capital.

Sir, just first up, I wanted to understand, I mean, this 9 months, we have grown by about 10%, right? And you mentioned that 4Q, you are seeing some demand coming back and some traction on your disbursement. So overall, for this year, what sort of growth range we are looking at?

Overall growth, all considered, we should be growing by around 9% or so. But individual side, the individual loans, we would be growing somewhere around 12% or so. On group loan, we are not actually giving any guidance because it still has been volatile and a little hard to understand. But we are seeing good traction going forward. So the Q4 is going to be better than the earlier quarters as far as the group business -- group loan business is concerned. And on IL side, we'll be doing much better.

And at company level, you said 9% growth is what we are looking at?

Overall, on a rough and ready basis, 8% to 9% would be the overall book growth for the entire financial year for all the segments.

Okay. So this quarter-on-quarter, we are expecting some decline. I mean -- no, your base would be higher, right, of fourth quarter, so that way, yes. Okay.

Yes. Microfinance in the last quarter this year, obviously would have done much, much better, right, bringing the volumes.

Okay. Okay. Understood. And what sort of cost to income, I mean, we saw some increase in the cost-to-income ratio, right? So how do we see that going forward?

There are 2 factors here. Do you hear me? Is it clear?

Yes, it's clear, sir.

There are 2 factors here. One is the operating cost as a percentage of the average assets has actually come down during this quarter. If you look at page #29. For Q3, it is 6.2%, whereas the earlier quarter was 6.4%. So due to tough position in the microfinance industry, the company has put in place a good cost control plan and which is reflecting in that, whereas the total cost to income ratio has gone up only due to the reason that we invested some money for growing some of our good businesses which are a secured business and the manpower and the branches, which we had invested on, for instance, we hired around 2,500-odd employees during the year. So that has reflected on the manpower cost. And that is all for the secured business side, where we have shown a 50% growth, and that has paid off. There are 2, 3 other factors. We are working on a Universal Banking license, so we hired some consultants. So we have spent around INR 6 crores on that. We have also done some branding during this quarter, which is around INR 10 crores. That is also to be record. So most of these costs are relating to the company's future plans, whereas all other routine costs and operating costs are well under control. And finally, if you know the income also has come down, it is a percentage is always denominator and numerator. So denominator also is a little down, which has also impacted the cost to income ratio.

But then at absolute, how do we see that? I mean, I think if you take your operating expenses, it was close to about INR 700 crores this quarter, right?

Yes.

So how do we see at the absolute level? I mean, is that the going forward rate one can see or we can see some decline in this?

Yes, it will be steady for some time to come. That's what -- it may slowly come down also this quarter because there could be -- we have to wait and see, but it will be more or less steady. That's what we see.

Understood. And we have done around INR 270 crores of sale, right? I mean, in this quarter, asset -- stressed loan assets?

Yes.

So was there any loss booked in it? I mean, in this quarter on that sale?

So when we do ARC sale, we are -- we do full provisioning on the SRs. So there was a loss of about INR 26 crores.

Okay. So that is included in your provision already, right?

That has come into other income.

That has come into expense.

Yes, other income.

Okay. So that has come in to other income. Okay, understood. Fair enough, sir. Okay. I think that would be it from my side.

The next question is from the line of Ritika Dua from Bandhan.

Sir, 2 questions. Just trying to understand that the industry trends better. Firstly, when you say that the demand revival happened in January, could you just share some trends around that? What exactly? Because the perception is that it's actually not so much a demand issue, but more so like the fact that everybody had to meet the first regulatory guideline and that would have also meant some bit of growth coming off. So when you say demand coming back, what do you mean by that? That's the first question. And the second is a little longer question, but -- so obviously, because to the previous caller, you said that obviously, we are not giving a guidance for '26, which is fair. Still is it fair to say that maybe because you've still not moved on to the 3 norm, which obviously some of the other banks at least have. So when you actually move '26 could not be -- obviously be a normal year on credit cost again? And secondly, sorry to draw parallels because I know it's not exactly the same book which one bank has versus the other. But still the kind of commentary which we hear from 2 prominent banks is that the slippages of third quarter could be similar, which could be there in the fourth quarter. And some say that obviously, the pain could be even there in the first quarter as well also. You had obviously amongst the first ones to call out the pain so maybe that is something we obviously acknowledge. But still, just maybe if you want to still draw some examples to say that how is fourth quarter shaping up to be well over third quarter for us? So 2 questions.

Yes. Thank you for the question. I may ask you to repeat the question #3 again. I may forget. But on your question #1, how we are seeing increased demand January -- in the month of January. As we said that we started witnessing from the month of December, mid-December only. And it is something which you have to do with the locations you are present and the state you are present. As we are saying that overall, the turbulence in the microfinance industry is fading, but it is not fading equally in all the states. The time period is different. And this has also hit different organizations and different customer segments very, very differently. For us, the earlier states which were creating issues like Punjab, Haryana, Rajasthan, Uttar Pradesh, Bihar, Jharkhand, West Bengal. These states are doing much better in the last 3 months. We have seen improved collections and we see increased demand in these states. At the same time, I would also like to mention that the states like some pocket of Tamil Nadu, some pocket in Karnataka, Kerala and some pockets in Odisha are for us are still to see -- we still to see the bottom, and we are careful there. But as we are seeing increased demand in majority of states we are present, we see improved basement in the month of January so far. That is something which is -- we will also see happening in the coming 3 months, that is something which we are able to see in the quarter. What was your second question?

Sir, you partially answered it. I was trying to understand that I acknowledge that your book is different from the other banks. But another bank has given a very -- guidance kind of the thing that even a fourth quarter slippage could be as high as third quarter. So that 1 point. And the second point is that I was saying that -- so if you could just maybe draw some parallels as to why you think fourth quarter is -- turning out be much better than third for you? And the second additional point on this was that because you're still to move to the 3-year deal do you think that maybe '26 will actually still see initial first 2 quarters can still see higher slippages because of maybe moving to the more and more comfort slippage?

So in terms of slippages, slippages come with a lag of about 90 days, 90 to 120, 150 days from the time that an account gets into a [indiscernible] part. So slippages will happen because our bar started to increase in Q2 and Q3. So that there is a lag effect of that. So slippages as we see are going to be steady. They may come down marginally, but not significant. In terms of growth, Mr. Nautiyal in his speech had said that we want to be amongst the preferred lenders. So we have actually reduced our interest rates to be more competitive in the market. We were competitive, we want to be more competitive. And we want to be a preferred lender. And this is in preparation to the 3 lender norm, which would happen starting April. So in anticipation of that, and we want to work with our customers, give them better offerings so that we can continue with our set of customers even after the 3 lender norm kicks in.

The next question is from the line of Pritesh Bumb from DAM Capital Advisors.

Sir, just on the Slide 23, you've given group loans lender-wise trends. Just wanted to understand the slide. So basically, when we look at PAR, lender-wise PAR for Ujjivan 4+ and above at 26%, so that 26% basically is of somewhere from June or September, right? So basically, 7.6% would have caused a 26% PAR is how that has to be read, right?

Sorry, the first table lender wise borrower trend refers to what is the percentage of borrowers let us say, November end, we have 45% borrowers were unique to Ujjivan and then you need Ujjivan+ 1, 2, 3 and 4. So 6.6% of our borrowers are Ujjivan+4 and above. A delinquency of this set of borrowers is 26.6%. And the delinquency of the PAR figure of unique to Ujjivan 3.9%. So you would see that there is a wide variance between customers who are unique to Ujjivan and customers who have taken loans from multiple lenders.

Right. No. So what I was just trying to allude is -- so what I was saying is the 7.6%, which you had in June as Ujjivan 4+ and above would have slipped over time and that would have become PAR, right? So -- so what I'm saying is that 7.6% has come down to 6.6%, but then a lot of that has slipped to PAR in that way, which has also GNPA, right? So that is how we have to look at it? Or is it very independent that 6.6% of that 26% is PAR?

No. So 6.6% of our customers out of every 100 customers, 6.6% are multiple lenders and 26% of those 6.6% have moved to PAR.

Got it. Okay. And the rest of that -- so part of that also the reduction which shows also would have repaid the loans, right? So that is how also it would have dropped, right?

Yes. We would either repeat the loan. So this number of Ujjivan+4 would continue to come down because Ujjivan+4 is no longer part of the lending policy.

Correct. Sir, second question was on the similar slide only. Basically when you -- how do you basically put the numbers here if somebody in the lender side or the other lender side would have been got repaid on the loan. So just hypothetically, if somebody has repaid a loan at some other vendor. How will this come in as a percentage here? Will it be a cutoff? Or is it like every time you do the bureau check and then come out to a number?

So we do a bureau check every time we get a bureau wash on a monthly -- and all the numbers that we follow are basis the bureau scrub hat we do on a monthly basis. So these numbers are updated, refreshed every month.

The next question is from the line of Aravind R. from Sundaram Alternates.

Sir, like when I see this slide, I can see the collection efficiency coming down. But when I look at along with the expected collection efficiency, so it means that like in the non-OD accounts, the collection efficiency is being stable, whereas in the overdue accounts is where like we are seeing the further slippages. Is that the right way to understand, sir?

So the value of the PAR has gone up. So if you look at the SME book and the NPA book, since the value has gone up, they are weighing down on the overall collection efficiency. So even if the bucket x collection efficiency has gone up, since the SMA PAR has gone up in parallel, that is bringing down the overall collection efficiency.

MFI PAR is 6%. So like that's where the issue is there like you're talking about, right?

Yes. So the collection efficiency is a weighted average of bucket x, SME and NPA. So as the PAR goes up, the overall collection efficiency also comes down.

Sir, I can see like the portfolio yield of MSME itself has come down significantly in this figure in a quarter-on-quarter basis. And I understand like what you have mentioned in affordable housing, but like a similar thing happened in MSME also?

Yes. The same -- similar thing happened even in the MSME, it is because of the change in the accounting treatment that we also saw a decline and also the decrease in the EBLR.

Okay. And sir, like this portfolio, like 14% to 15% outside the guardrails, like does it impact our growth in subsequent quarters because as per number of borrowers, outside the guardrails, I'm taking in to account the second set of guardrails also. I can see roughly 13%, 14% of the borrowers were outside the guardrails. So does it mean like it will affect the subsequent quarters of growth at least in the -- like at least in one year point of view?

So see, here, yes. there are 6% and overall 14% customers who are 3 or more. And apart from -- another way to look at it is that like ever in past in microfinance, microfinance customers will also have to choose 3 lenders going forward. And they will try to choose the best one in terms of interest, in terms of offering, in terms of product, in terms of graduation processes, in terms of easy policies, et cetera. And that is something we have built over a period of time. And we expect these customers to choose 3 and we will be 1 of them. That is something we are looking forward to and something which we very strongly communicating to our customers as well. We have reduced our interest rate recently and our processes, our product graduation program. We are excellent. And that is something which gives us confidence that not only these customers will retain -- will be with us and retain, but also customers -- good customers from the industry will also come to us.

Sure, sir. Since in MFI, you see like slightly better disbursements in January, like it means that the PAR ratios won't go any further. Is it the right thing to take away from?

Yes. As we said, the PAR numbers would stabilize from here on. And the denominator effect will also start the come in. So the PAR numbers while there was increase in PAR, it was also getting contributed by the decline in the overall book. So now the book decline would get -- would get handled because our disbursements are increasing. So the denominator effect will also start to show on the overall...

The next question is from the line of Ashlesh Sonje from Kotak Securities.

Congratulations. First question is on Slide #26, where you have shown the PAR performance for Ujjivan versus industry and there is a very significant gap in those numbers between you and the industry across the large states. Just a qualitative question here. When you look at these borrowers, you would say -- would you say that their performance with you is better than it is at the industry level? Or would you rather say that you have a borrower base, which is of a different quality altogether, if you were to understand the difference in performance?

There are various things behind this. First of all, yes, this slide I was also trying to refer that we are -- though we are talking about that, we are doing well in some other states, and we are not -- we are still to see bottoming in some of states. But overall, in all the states we operate, we are much, much better than the average industry. That is the first point, #1. Second, it is not -- it is when you start operations in any district or any area, your branch selection, your customer selection plays a very important role in overall quality of your portfolio. That is what we also saw in previous crisis also during pandemic, during demonetization before that in Andhra crisis also, and that is very, very visible now as well. As we see the state wise performance also it is very, very different, almost 2.5x down compared to industry, state by state that is very, very visible. This -- the reason behind this was, as I mentioned, the quality of customer you acquire, the branches you open, the wider spaces you find and then you pay policies, policies around customer connections, underwriting is very important. That is something which we have been able to build over the period of time. Also, the IL graduation program and even further graduation that is something which I would say that now after years of experience this graduation program and filtering of customers is doing very well. If you look at our GL performance and they look at IL performance, IL is being better than GL our MLAP program is doing better than IL and that proves that our graduation program and our filtering process, our data analytics is working fine. These are some of the reasons why you see these numbers.

Just one follow-up on this. Would you have done any analysis to understand how the performance of your borrowers is with you versus how it is for the rest of the industry? Any color from there? Because I understand the first point which you made, one is that customer selection itself is different. But are the same customers behaving better with you versus industry? Is there any way to prove that?

Yes. We do customers paying to us not paying to others and customers paying to others and not paying to us. And what I would say that overall customer paying to us, not paying to others, is a little better. But at the same time, in geographies where it becomes a little kind of community issue, et cetera, where you don't have control. And there, we'll see that these communities don't pay to anybody. So that is something so -- but overall level, we see our customers behaving better than -- better for us compared to others.

Got it, sir. And one last data keeping question. If I go to Slide #23, the chart on the -- the table on the top left where you have shown 8.0% and 6.6% for Ujjivan+3 and Ujjivan+4 and above is on November. Is there a rupee equivalent of this number?

We can get back to you.

We can do the math and send it to you.

The next question is from the line of Abhishek M. from HSBC.

So sorry to come back to the Slide 23. For this Ujjivan+3, the table on the left, and Ujjivan+4, would it be a fair assumption that the portfolio mix would roughly be similar as the borrower mix? Or would there be a difference in ticket size for Ujjivan+3 and Ujjivan+4?

No. You would see only a decimal point difference there. So borrowers and value would roughly be the same.

Okay. Great. So given that you have not applied the 3 lender guardrail yet and because this Ujjivan+3 is more or less stable over the last 5, 6 months, so fair to assume that these customers are also getting repeat loans or renewal loans as of now?

Yes, they are. As based on the credit policy that we have, any customer who is eligible for a repeat loan gets a repeat loan. So this is again based on the policy parameters, but they are all getting repeat loan. And one more thing is that 4 lender is one thing. Then you have indebtedness limit. You also have a policy that we don't lend to customers. So far, we have lend to customers who are even one [indiscernible] with others. So those policies also take into account when customer past behavior, and that helps you choose customer better.

But if -- okay, so if that is the case, then the PAR trend that is going up, right? And the moment you hit April and you probably stop lending or stop giving renewal loans to these customers, then that PAR trend can also go up as sharply as what you see in Ujjivan+4 and above. And that means that could lead to more credit costs in 1Q and possibly even in 2Q. So how do we read this?

So when you look at Ujjivan+3 example, there is an 8% contribution to book. These customers, good customers from here, we would -- it would be our job to retain those customers and continue the relationship and strengthen the relationship with them. Customers who are in PAR that could be a little bit of disturbance and because the relationship may not get renewed. But that effect, I would assume, has already happened during the last 1 or 2 quarters. So there could be a marginal impact, yes, but not a very significant impact.

Because if I just think about it, the book size, let's say, 8% and 6.5%, a similar book size, but that book size will have the same experience that these 6.5% had from September or from July to November. So if you see the PAR movement, it really shot up after June, right, 10% went to 19% and then further increased to 22% and 25%. I'm thinking this 13% will have that same experience by April, from April and then that goes up with a similar trend. So that's why -- that's where I'm coming from.

So it is -- we don't have -- we don't know whether this will go up to what extent. So what we see is we have already started to communicate to customers, and this is what we have done proactively is April onwards, you will have only 3 lenders. So if you continue our relationship with us, we will give you better interest rates. So this is something that we have communicated to customers. What we have also told them is if you have smaller loans with other lenders, kindly repay them so that you can continue relationship with us. So these are the steps that we are taking on the field as of now. Some customers, would they slip, there is a possibility that the PAR number may go up but we will try our best. That would be the effort that we would make to continue with the asset quality. Is there a chance of this number going up? Yes, there is a chance, but to what extent is very difficult to say as of now. We -- from our side, what we would do is retain our best customers and give them the best service and reviewing interest.

The next question is from the line of Sagar Shah from Spark PMW.

First of all, I would -- my question was related to the industry level. You have clearly highlighted that on the -- in the PPT as well as on the call that how you are fared better than the industry as far as the microfinance collection is concerned. But I wanted to have a little bit of a long-term view that going forward, how do you look at this the group loan structure, how the group loans disbursements going ahead? How do you look at the business going ahead? After this all stabilizes in the next 2 quarters, do you see some sort of visibility in resumption of disbursement growth as far as this business is concerned for Ujjivan as well as the industry? Or how do you see it? That is my first question.

Yes. So as we mentioned that we have already seen green shoots in many of the large states where we're operating at industry. Also, these states are large. At the same time, there are a few other states which will normalize, say, in the next 2, 3 months, this is what we feel. But at the same time, as you also asking about what will be the structure in microfinance going forward. So what I would say that we have so far seen is that the entire -- the customer aspirations have changed a lot in the last 3, 4 years especially after pandemic. At the same time, if you look at the kind of regulations that has come in, I would say, self regulations in form of RL1.0 and then 2.0 customers will be limited to 3 lenders. At the same time, as aspirations are changing, many customers are now trying to move to from GL to individual lending. And that is something which we would say that we have advantage there because we are very old and refined graduation program. We have more than INR 5,000 crores of portfolio already in individual lending. And we see a lot of potential in GL to IL graduation. At the same time, the same customer segment, we also see that customers graduating to other products that we have within bank at the same brand and also the cross-sell opportunities that we have around -- as we are a bank, we are also offering other products to the customer segment happen. At the same time, as we go forward, we have seen this in past crisis also that some kind of consolidation may also happen, and we will see large players getting in the market.

Okay. So you see consolidation, my second sir, would be on the NIM. As we are moving towards almost 40% of secured, I know you have highlighted that there will be no change in the NIMs. But logically, when your group loans is decreasing when you're focusing totally on the secured book, which is yielding you much lower, almost 500 bps lower than the unsecured book. So what's your color on the NIMs? Will the NIMs fall below 9% at least in FY '26 and FY '27 when there will be balanced 50-50 between secured and unsecured portfolio?

Yes. The NIMs will fall below 9%, but what we have done is that our book -- our secured asset book we also have products like the vehicle finance, the gold loans, all these are high-yielding products. So this should help us in compensating the decline in the unsecured portfolio. And we have micro mortgages, we have vehicle finance, which are at very high -- which are very high-yielding products. So we should be able to maintain the NIM at around less than 9%.

Okay. Sure, ma'am. And my last question was related to our -- which we categorize as other loans. Now we are offering gold loans at almost you highlighted at around 128 branches. So what's your outlook regarding vehicle and gold loans? Will the proportion for these 2 significantly increase? And can you specify a number?

So it is -- gold loan it not 128, we are live in 198 branches. And both from gold loan as well as vehicle finance, we see these 2 businesses as promising business in coming in its medium-term next 3 to 5 years. And we plan to have -- offer the gold loan as well vehicle finance and expand this business to branches that we operate currently at this point of time in various states. So yes, these 2 businesses are very, very promising for us. We already seeing that our housing business is one of the most prominent secured business that we have. MSE has started kicking in. At the same time, these 2 businesses and pulling weight in the future gives us confidence that going forward, our secured versus unsecured ratio will move forward.

[Operator Instructions] The next question is from the line of Amey Kulkarni from Candor Asset Management.

My question is regarding the interest rates. Is there any direct, indirect indication from RBI or Ministry of Finance to reduce interest rates in the micro lending segment either to Ujjivan or to the industry?

So the pricing of the risk is the discretion of individual lender. RBI is very clear about it. And what they would like to see is that the risk-based pricing is based on appropriate inputs. And that is all what RBI looks at. So all entities would have looked at their pricing mechanisms and their competitive landscape and the business consideration. And based on these factors, they would either increase or reduce their rates of interest in different points in time. But RBI would not question the rate of interest, but it can only look at how you have calculated it.

The next question is from the line of Sonal Minhas from Prescient Capital Investment Advisors.

Yes, I'm on Slide #21. Just a book keeping question, the chart on top, which talks about collection efficiency. If I see month-on-month, your collection efficiency for group loans and for individual loans is going down from October to December. Am I reading this data correctly?

Yes, group loan and individual loans is showing lower.

Yes, month-on-month is going down. Could you explain the reason for this number going down, if you could just explain this in detail?

Sometimes that I have said that as the PAR goes up, collection efficiency is a weighted average of nondelinquent customers, customers in SMA bucket and NPA. So as the PAR has -- the average comes down because the SMA and the NPA collection efficiency numbers are normally much bigger. So therefore the overall collection efficiency gets impacted.

Okay. And as you were saying to that participant that you PAR is peaking, this number is expected to improve from the December numbers as we speak. Is that correct when you talk about January, February, March?

Yes. So as we said, the PAR is seeing -- we are seeing stability in the PAR now. In the last 4, 5 months, there was increase in PAR, that is starting to stabilize now.

Ladies and gentlemen, this will be the last question for today, which is from the line of Shailesh Kanani from Centrum Broking.

Sir, again, on Slide #23, I understand our individual lending are basically the group loan customers who are graduated. So when we see Ujjivan+3 and Ujjivan+4, have you done any working in terms of those customers who can be graduated towards individual lending and they might be having an income level more than the threshold of INR 3 lakhs, and so they can be tagged as non-MFI and those are good set of customers which can continue with Ujjivan?

Yes. And this is something which we do and which we have been doing for a long now where the customers -- we choose customers on the basis of their repayment capacity, their loan, ticket size requirement and their family level income. And on the basis of that, we graduate customer from GL to IL. You are right, in this category, also where customers are looking for loan from 3 or 4 different institutions, we will try to consolidate their loans and give them IL loans. The good customers whose repayment is good with us, with others, definitely yes.

So my question was, have you done some kind of working on that already because we are kind of reaching the threshold that April 1 is the date. So any ballpark number, any idea on that, this percentage out of this 14%-odd pool would kind of qualify for individual lending. So they can still be customers of Ujjivan even after 1st April?

So as I said it is a continuous process, if you look at Ujjivan+4 and above, they are -- the repayment rate is 79%. That means that majority of customers are paying. The customers who are paying on time, the customers who are paying on time to others also and customers having income. That is the process we follow and graduate these customers.

Sorry, just to clarify. So they will still remain customers of Ujjivan post 1st April, but they will be -- customers, right?

Not necessarily, they are part of filter process and they can be given another loan in terms of IL that is, they will still continue with Ujjivan.

Ladies and gentlemen, as this was the last question for today, I would now like to hand the conference over to the management for the closing comments.

Thank you for the very, very energetic interactions. As a guidance -- as my concluding remarks, I would like to state that our secured book by the year-end would be 40% plus. The Y-o-Y growth on the secured book would be around 50%. The individual business growth should be around 12% for the entire year. Overall growth could be hovering between 8% to 9% on the overall book. Credit costs, we continue with our guidance of 2.3% to 2.5%. Our deposit growth will be in line with the requirements for the asset book in order to maintain a credit deposit ratio of around 89% or so. The NIM for the full year should be between 8.6 to 8.8 percentages and improving the CASA ratio would be one focus for us in this quarter, the last quarter as well as going forward. Thank you.

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