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

Ladies and gentlemen, good day, and welcome to Ujjivan Small Finance Bank Q4 FY '25 Earnings Call hosted by ICICI Securities Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Renish Bhuva from ICICI Securities. Thank you, and over to you, sir.

Yes. Hi. Thank you. Good evening, everyone, and welcome to Ujjivan Small Finance Bank Q4 FY '25 Earnings Call. On behalf of ICICI Securities, I would like to thank Ujjivan SFB's management team for giving us the opportunity to host this call. Today, we have with us the entire top management team of Ujjivan SFB, is presented by Mr. Sanjeev Nautiyal, MD and CEO; Carol Furtado, Executive Director; Balakrishna Kamath, CFO; Ashish Goel, Chief Credit Officer; Martin P.S., Chief Operating Officer; Mr. Vibhas, Head Micro Banking; Hitendra Jha, Retail Liability and TASC Head; and Mr. Gaurav Shah, Lead Investor Relation. I will now hand over the call to Mr. Sanjeev for his opening remarks, and then we'll open the floor for Q&A. Over to you, sir.

Thank you, please. Good evening, and welcome to our Q4 earnings call. Please be informed that references made during this address to Q3 and Q4 pertains to financial year '24-'25. Q4 concludes an eventful year at Ujjivan. The year saw new leadership assumed the positions of MD and CEO, Executive Director, Chief Financial Officer and Head of Retail Liabilities, infusing in Ujjivan vast management experience and exposure across banking and financial industry. Bank successfully navigated the challenging business environment in the micro banking segment, maintaining one of the best in the industry portfolio quality. Strategic initiatives to diversify and build higher share of secured loan book saw significant progress, now contributing 44% of the loan portfolio, up from 30% last year. While the banking system liquidity continued to see challenges, this was managed at optimal levels with credit-to-deposit ratio improving to around 85%, and LCR managed comfortably around 120%. Further, in February '25, the bank took a major step forward by filing application with RBI to transition to a universal bank. Disbursements for Q4 have been the highest ever in the history of Ujjivan at INR 7,444 crore, up 39% Q-on-Q and 11% Y-o-Y. The gross loan book reached INR 32,122 crore, up 5% Q-on-Q and 8% Y-o-Y. The secured book crossed INR 13,988 crore up 17% Q-o-Q and 56% Y-o-Y. Following are the major highlights. Housing vertical saw robust disbursement in Q4 of INR 1,130 crore, up 39% Q-on-Q. The loan book reached INR 7,308 crore, up 14% Q-o-Q and 48% Y-o-Y, becoming a meaningfully significant player in the affordable housing space. MSME business witnessed an impressive growth during Q4, led by revamped and newer products of LAP, working capital and supply chain, the disbursement at INR 533 crore, up 61% Q-o-Q is all-time high, resulting in loan book reaching INR 2,047 crore, growth of 21% Q-o-Q and 45% Y-o-Y. Current account balances from MSME customers grew 70% Y-o-Y, showing traction in our strategy to build liability through MSME assets. FIG continued its growth journey reaching INR 2,785 crore, up 23% Q-o-Q. Another significant highlight was the performance of newer product lines of the bank, the disbursements for which contributed 11% to the bank's disbursements in Q4. Micro mortgages, higher-yielding lower ticket size product within housing now contributes INR 723 crore, growing 37% Q-o-Q and 258% Y-o-Y. Working capital and supply chain finance, the Business Banking segment now contributes more than 20% to MSME book. Vehicle Finance witnessed impressive growth reaching a book size of INR 468 crores, up 25% Q-o-Q and 166% Y-o-Y. Agri banking reached a loan book of INR 323 crores, up 66% Q-o-Q and 276% Y-o-Y. Gold loan gained momentum with disbursements up 69% Q-o-Q, taking the loan book to INR 196 crores as of March '25, up by 70% Q-o-Q. On the Micro Banking segment, as previously guided, there was robust growth in disbursement in Q4, up 38% Q-o-Q. Within Micro Banking, individual loan book grew 5% Q-o-Q, reaching INR 5,182 crore, now constituting 28% of the overall micro banking book as of March '25. The GL book degrew by 4% for the quarter, in line with cautious approach adopted for the year, reaching INR 13,090 crore. Disbursements grew to INR 2,787 crore, up 37% Q-o-Q, primarily led by disbursement to good existing customers, which contributed 84% in Q4 sourcing. The full implementation of MFIN Guardrail 2 has been completed with effect from April 1. The Micro Banking Bucket-X collection efficiency in all states other than Karnataka showed consistent improvement reaching 99.6% in March '25. The overall Bucket-X collection efficiency reached 99.5% in March despite Karnataka registering only 98.7%. The branch and customer-specific interventions were pivotal in managing the portfolio, making it one of the best in the industry under the current situation. We are confident that improvements in this segment, both from business and collections perspective, shall continue to ensue. Coming to the secured portfolio quality, housing GNPA reduced Y-o-Y to 1.1% as of March '25 from 1.5%. MSME saw drastic improvement, with GNPA reducing to 5.5% as of March '25 from 8.4% as of March '24. The '24 MOB MSME book has only 0.1% GNPA. Bank level NPA, gross NPA stood at 2.2% and net NPA at 0.5%. Bank effected in the ARC transaction of INR 365 crore in Q4, of which INR 295 crore was from provision portfolio and INR 70 crore from written-off portfolio. In terms of RBI guidelines, the bank utilized INR 69 crore towards ARC transaction from floating provision pool. As previously guided, credit cost for financial year '25 stood at 2.45% of average gross advances, including accelerated provision of INR 46 crore, while it was 2.12% net of bad debt recovery. Closing PCR for March '25 is at 78%. On the liability front, the total deposit book closed at INR 37,630 crore, up 9% Q-o-Q and 20% Y-o-Y. In Q4, impressive growth in CASA was witnessed, up 11% Q-o-Q, reaching INR 9,612 crore and now forming 25.5% of total deposits. Current account crossed an important milestone of INR 1,000 crore for the first time, reaching INR 1,118 crore as on March '25 with impressive growth of 35% Q-on-Q and 46% Y-o-Y. Retail TD plus CASA stood at INR 26,676 crore, accounting for 71% of total deposits, experiencing a 21% Y-o-Y growth. Cost of fund increased marginally by 1 basis points and is at 7.6% for quarter 4. On financials and margins, the total income for FY '25 at INR 7,201 crore is up 11% Y-o-Y. For the quarter, total income stood at INR 1,843 crores, up 5% Q-o-Q. Other income grew by 57% Q-o-Q, driven by processing fee, insurance income and treasury income. Interest expenses increased by only INR 5 crore Q-on-Q due to active liquidity management. However, OpEx increased by 11% Q-o-Q, mainly due to direct business expense on account of higher disbursement, investments in newer lines of businesses, full year expenses impact of the branches opened in financial year '24 and technology investments have led to increase in operating costs. Credit cost for financial year '25 at INR 748 crore includes the accelerated provision of INR 46 crore and is within the limit estimated before. Due to change in asset mix towards secured, NIM for the financial year '25 came in at 8.8%, down 25 basis points from March 2024. Cost-to-income ratio for the financial year '25 at 62%. With this, the full year PAT stands at INR 726 crore with ROA of 1.6% and ROE of 12.4%. Micro Banking portfolio saw improvement in asset quality in Q4, green shoots are visible and business momentum also picked up in Q4. However, micro banking business is still to completely navigate a couple of geography-specific issues and industry Guardrail 2 mandates. Accordingly, to allow evolving situation to stabilize and offer us clearer perspective, we shall be giving our guidance for the year, along with our Q1 financial year '26 results. Directionally, diversification of loan book would continue at fast pace, led by housing and MSME, ably supported by higher-yielding micro mortgage vehicle, agri and gold loan businesses, deposits will grow in line with asset growth, keeping the CD ratio around 88%. Thank you very much. Now I hand over to the moderator, Mr. Avirath.

[Operator Instructions]. The first question is from the line of Nidhesh Jain from Investec.

Is there interest income reversal this quarter and can you quantify that?

Yes. Interest reversal for the quarter because of the slippages would be in the range of roughly INR 17 crore to INR 18 crore for the quarter.

And sir, how should we look at yields or yields next year given that there will still be a migration from unsecured to secured in FY '26? So let's say, what -- how the trajectory of yields we should play -- we should build in FY '26 versus what we have seen in Q4?

Yes, Nidhesh. So see, with the secured mix increasing and the shift towards the secured, the yields will directionally get moderated a bit. Having said that, we are also working on increasing the share of our higher-yielding secured books of vehicle finance, which is giving us a yield of roughly 20%-plus; micro mortgages within housing vertical, which is also giving us a yield of 19%-plus; and also gold loan, which is also giving us a yield of roughly 14%-plus. And not only that, within the Micro Banking segment, we are also looking at increasing the share of individual loans, which is roughly 100 basis points-plus over group loan. So all these factors put together should be balancing out the NIM, the yields also for the next year.

But any range if you can give? Should we build 100-basis-point reduction over Q4 or less than 100-basis-point reduction over Q4 next year in terms of yields?

So as part of the MD speech, so we mentioned that we'll be giving the guidance for the year with the Q1 results. So we'll like to reframe right now.

Sure. And with respect to the credit cost, since your SMA book has started to reduce in microfinance, and it is now quite similar to -- or let's say, marginally higher than business-as-usual SMA book. As your asset quality experience and secured business also doing quite well. So do you see that FY '26, we should see a business as usual credit cost or do you still see that Q1, Q2 will be elevated credit cost because SMA book in microfinance has come down quite sharply or is quite under control now?

Yes, we have seen a good reduction in our SMA book. So we should see this trend, hopefully, going forward, continue as we have seen in Q4. In fact, the PAR seems to have peaked in December. However, there are 1 or 2 areas, which we are watching now. One is the impact of Guardrail 2.0 and a couple of geography-related things, which are currently evolving. So yes, there will be a difference between H1 and H2 credit cost, H1 being slightly higher than H2. However, we can come up with a firmer number by the end of Q1.

Next question is from the line of Rajiv Mehta from Yes Securities.

Firstly, when I look at the reported yield for group loans and individual loan combined that has actually slightly increased through Q-on-Q basis. I know there has been a change in methodology in terms of calculation, but there is an increase. But we had actually taken a price reduction from 1st January between 75 basis points and 115 basis points. So all the new disbursements, which we did must have come at a much lower price or this much lower price. So how come the yields have gone up Q-on-Q?

Yes. Rajiv. Yes, we have modified the methodology on the day-on-day basis. The yields have actually gone up because of the way calculation happens. So the -- we did an ARC transaction of amounting INR 365 crores, out of which roughly INR 300 crores was within the provision pool, which was still on balance sheet. So -- and the interest accrual does not happen. As we answered to the previous question also, the interest reversal happens due to book moving into slippages. So due to this, the denominator effect largely, we are seeing the increase in yield happening.

Okay. And on the price reduction, there is no calibration, right? We have gone ahead and implemented that much as we had planned?

Yes. Yes. Just to add, Rajiv, also, the mix of individual loan, which is a higher-yield...

Has gone up. Yes.

In micro banking has also gone up by 3 percentage points. So that is also helping the overall yield of the micro banking -- the segment. And yes, we have taken the rate increase also effective from 1st April and we have implemented that. Yes.

No, no. I mean, so from 1st January, we have taken a rate reduction of that quantum. And are you seeing that from 1st of April, have you also kind of again reinstated a part of that reduction?

Yes, Rajiv, you are right, we have actually increased from 1st of April for both GL and IL, which is [indiscernible] of the small discount, which we had given in the fourth quarter. So because now it's a good business now and everything is going well. So we thought we should come back to our old pricing. So we had given a discount for Q4 only, which we have withdrawn that's all.

Okay. Yes, sure. Sure. That clarifies. Sir, now the outlook on NIM, if you can share, literally, we are exiting NIM at 8.3%. The average for the whole year is 8.8%. And we are fast moving our mix towards secured products. And I'm sure even in the next year, the growth in secured products would be much higher versus MFI. I appreciate the fact that we have kind of tolled back the pricing gain in MFI, which will help us. But from a mix perspectives and as per what's your sense on how the cost of funds will move going ahead because I mean the bulk -- TD bulk pricing has actually come off. And have you taken any rate actions on the term deposits or SA rates [indiscernible]. If you can just kind of answer a bit, I mean all of these points and maybe give us some conclusion about -- some outlook about how the NIMs will play out?

Yes, Rajiv, we'll give you a broad sense on both the NIM side as well as the cost of funds side. NIM, yes, since the secured loan will be moving up in percentage, there will be some reduction, but not very material due to the fact that we have increased the rates again from 1st of April. That benefit will come, plus we have high-yielding products as explained earlier, which is a vehicle loan. The individual loan also is doing well, so that will sustain that. And now coming to the cost of fund side, yes, we have taken a reduction both on the SA side as well as on the TD side bulk deposit rates also have come down. And already 2 repo rate reductions have happened as per the RBI's rate action. And we estimate that our cost of fund will definitely come down by at least 25 to 30 bps over next year. Considering these 2 reductions, if any more happen, then it will be subject to that. So the NIM side, yes, we'll be more or less there, there will be only a small reduction as compared to this year.

Got that. And just one last thing from a slightly longer-term point of view in the next 2, 3 years, where are we in terms of the profitability of the secured businesses, housing finance, MSME finance business? I mean we've been doing this business for a while now, and there is good growth as well. So I mean, when do we achieve what level of ROA? I mean, is there some broader outlook on these secured products in terms of profitability roadmap?

Yes, we are working on it. We have recently, again, relaunched the vehicle loan, gold loan as a new product. So it will take around 18 to 24 months for it to come to a good profitability level. Yes, we should aim for 2% ROA for the new products also going forward. So we are working on that. Maybe over the next 2, 3 years, once it reaches a certain level, which we are aspiring to maybe gold loan around INR 1,000 crores, vehicle loan around INR 1,500 crores, at that time, it will start making good profits and will sustain going forward. So anything more you would like to know about that?

No. Maybe I'm sure, once you come out with your guidance and maybe more questioning I'll have -- more questions I'll have at that time. No, this is it. I mean this helps, right now. Best of luck.

The next question is from the line of [ Sagar Shah ] from Spark PWM.

My first question was regarding to our OpEx. In this quarter where employee that we had some sort of a this serious -- this off-road collection team increase also, but our employee expenditure also increased by almost 18% Y-o-Y and also sequentially it increased by almost in -- by 13%. So what led to the increase or is this just -- is it some sort of a one-off in these numbers or is it just a temporary blip can you explain about this? This is my first question?

Yes, I'll take that question. Yes, you rightly noted the OpEx has gone up. That is because we have made certain investments towards improving our secured book and on the liability business. And for that, we have hired some employees. And also on the collection side, you rightly observed, we increased our manpower due to the difficult market conditions. You might have noted our PAR and our credit cost is almost half of what is there in the market. So we have invested in that. So this is -- directionally, it will come down as our disbursals grow because last year, our disbursal in the unsecured side was a little muted, though the secured was doing good. But next year, both the segments should show growth, and we'll come out with more details of that when we give the guidance. And then the operating cost will -- as a percentage will get tempered going forward.

Okay. My second question, sir, was regarding our GL portfolio. Our GL portfolio obviously degrew also by sequentially, but I observed there were some sort of a disbursement growth even in IL and even in micro group loans actually. So first of all, can you give some color that in which geographies are you getting confidence actually? And will in the same geographies in FY '26, will we resume growth at least in this segment?

So in microfinance, in both GL and IL, first of all, IL is something which we -- which is our growth driver in microfinance for a long time. This is something which we have built over a period of time. And this is a product which we are doing everywhere because you get good customers everywhere. So it is a graduation product and which is well refined process, where we are doing customer graduation. And even in difficult market, it works because you have good customers there as well. As far as GL is concerned, GL has degrown a little bit in this financial year. But at the same time, when we look at geographies, we see that there are green shoots in various states, apart from 1 or 2 states and within those states, a few districts are affected. But apart from that, we are seeing that in Eastern part of the country, northern part of the country and even western part of the country is doing well for us. And we see growth coming from these geographies in the coming financial -- this financial year also.

Okay. So is it safe to assume, sir, can you specify the geographies in which you are seeing green shoots? And in FY '26, will we see a positive trajectory as far as group loans is concerned?

So we are looking at Eastern part, that means West Bengal, Bihar, Jharkhand, even Uttar Pradesh and in North part, Punjab issue is also over Punjab, Haryana, Rajasthan, Gujarat and Maharashtra. These are the states, where our presence is good and our portfolio is doing well. As far as South is concerned, you know that Karnataka, it will take some time to completely recover. And then we'll see some good volume [ gain ] also. But at the same time, in South, IL is something where we are looking at growth here as well.

Okay. Okay. Fine, sir. So my last question was regarding to our floating provisions, we utilized around INR 40 crores of worth of floating provision this quarter. We even did some INR 30 crores of accelerated provisions. Now my question was that we still hold around INR 130 crores of contingency provisions also, collectively, INR 181 crores, but around INR 130 crores we have easily had. So when we had such a huge credit cost in this quarter, so why didn't we use the somewhat provisions actually in this quarter to at least to contain our credit cost actually?

Okay. So in terms of floating provision, see, we have used INR 69 crores against the ARC sale, which we had done during this quarter. So the number is INR 69. We still hold about INR 150 crores of floating provision, which is earmarked towards GNPA and about INR 30 crores, which is earmarked towards Tier 2 capital. So of the INR 150 crores, we are currently using INR 130 crores for GNPA and NNPA calculation and INR 20 crores is unutilized. So as far as utilization of floating provision is concerned, we cannot directly utilize floating provision. These are made for the purpose of contingencies. And this can be done only after specific approval from RBI. So for the ARC transaction, the RBI guidelines allow the utilization of floating provisions. So this is what we have done in Q4.

Okay. Fine, sir. Now just last bit, if I can squeeze in more that I know you are not giving guidance, I'm not repeating that to give you any guidance for NIMs or yields. But as per my self calculation, our self-calculated yields as per the earmark yields that you have given in the presentation and the kind of disbursements that you are seeing in the secured front, the yields are coming approximately at around 18% to 19%. So is it safe to assume that at least we'll remain in this range or still it's not sure based on -- because of the portfolio mix that you had alluded to before that we will stay at around 50-50 between secured and unsecured. So is it safe to assume that the yields are -- will be in that range, which I just said?

I have already mentioned, we would like to give the guidance along with the Q1 results. So at this stage, we would not be able to elaborate any further on this subject. We'll give you the correct estimate along with the Q1 results.

[Operator Instructions] The next question is from the line of Shreepal Doshi from Equirus.

Sir, my question was on collection trends in April as we've already sort of concluded the month. So how has it been for microfinance given that the entry 2.0 Guardrails you have also got implemented with respect to lender [indiscernible].

So as you mentioned that apart from a few states, especially in South, we are seeing positive momentum in -- both in business and collection across the country. And our last quarter has been very, very good in terms of collections, and we are continuing that momentum in the month of April also, and we hope that this quarter will also be similar to or better than the last quarter.

Got it. Got it. The second question was on the loan book mix front. So we've launched newer products such as gold, among others. How are we seeing that share inching up in the next, let's say, 12 months time period because these products are also like not only secured, but also decently positioned when it comes to ROA profile. So what is our thought process in terms of their contribution by FY '26 end or by FY '27 end, if you could give some color there?

So we -- so gold loan is a new product for us. We started with almost a very small book, and we've scaled it up to about INR 200 crores during this year. This has got enabled by rollout of this business in 4 quarters. So every quarter, we started opening branches, and we now are currently present in about 200 branches. We will continue to open branches for gold loan during this quarter, largely in H1 and then some branches in H2 also. So continuously opening branches, continuously putting people for gold loan acquisition. This is the plan that we have in mind. By end of next year, FY '26, we expect that this book will be about 2.5% to 3% of the overall AUM.

So this is only gold, and vehicle, which is another like, I think, INR 470 crores, INR 480 crores that we have built. So I'm saying that new products as a category, how would that be contributing in, let's say, FY '26 and/or '27 because today, as we see that book is almost, I would say, INR 1,000 crores portfolio. So...

So these are very important new products that we have done in the last 18 months. Vehicle loan, for example, we now are touching INR 500 crores, but we've built a capacity to be able to disburse in the range of INR 70 crores to INR 80 crores during season times. So we've tested ourselves last season. And by season, I mean September, October, November and December, when the 2-wheeler sales are -- actually, August, September, October, November, when 2-wheeler sales are at their peak during the year. We have tested ourselves. We've touched INR 75 crores in a month. So this year also, we will go with the same momentum. This, of course, is a dealer-based business, not a branch-based one, unlike gold loans. So we have done tie-ups across dealerships. This year also, the distribution footprint will increase again. So the growth in vehicle loans, 2-wheeler will continue with the same pace this year also.

Got it. And just one data keeping question. What is the write-off for this quarter and full year?

Yes. So it was INR 362 crores for the full year.

The next question is from the line of Shailesh Kanani from Centrum Broking.

A couple of questions from my side. One, on the MFI segment, as we have alluded to in the opening remarks as well, there has been a good jump in disbursement. And overall also in the numbers also, it is getting reflected. So is it safe to assume or is it safe to understand that the worst in terms of credit cost and MFI cycle is over and FY '26, again, we would be seeing some growth, not maybe very high, but some growth for both GLG and IL? IL I know it's doing well, but even on the GLG front, can you throw some light on that?

So we -- in Q4, the increase in disbursements have come largely on the back of repeat customers. So we saw demand coming back in the market. You must have noticed that in Q2 as well as Q3, the disbursements for the industry was low. Q2 Y-o-Y disbursement was low by about 28% below normal and in Q3, it was down by about 35% below normal. So repeat customer demand had to come back, and that is what we saw happening during the quarter. Now in terms of -- I'm sorry, what was the second question?

In terms of, is the worst part is over for the MFI segment?

For the full year, yes. See, there has been muted disbursement for almost 9 months in the industry. So there is demand coming back. We will also see some new customer acquisition during the year. That has been something that we have not done over the last 9 months. And we will also see collection -- as collection efficiency improves, branches will start to acquire more customers because in the last maybe couple of quarters, branches have been spending a lot more time in collecting from overdue customers, and that has slowed down our new customer acquisition speed also. Plus we were a little more cautious. We were only servicing repeat customers all this time. So on both sides, yes, in terms of customers getting added, we will see some addition this year. And in terms of branches doing higher disbursements, we have already started seeing the trend, and we'll see that this trend will continue.

Sorry to harp on this, but just to understand what we are doing different than, say, other players because our disbursement, if I see on a year-on-year basis, GL and IL combined, it's nearly flattish, not a huge dip, right? Whereas many of the players have kind of, even on a year-on-year basis, depicted a huge decline. So any quantitative factor which you would like to throw out, means why this performance is a little bit better than the peers?

There are 2, 3 reasons to this, one of which is we have a very good geographic diversification. And because of the geography diversification, we've not got impacted in a big way in any of the states, whenever there -- so the lower concentration has been one of the reasons. The second, of course, is IL now contributing to 28% of the book. The impact of Guardrail 1 was largely on GL. So IL was -- had a lesser impact compared to GL. So that also helped us in maintaining asset quality. The third one is, as soon as we had started to see stress, we had divided our branches into green, amber and red based on their collection efficiency. And the disbursements, the pace at which they would grow or degrow was largely dependent on the categorization of these branches. So in green branches, we were doing business as normal because collections were normal. And in red branches, restrictions were put throughout the last 2 or 3 quarters. That also helped us in not taking additional risks in places, which were not doing well and continuing with disbursements as normal in green branches. So this was one of the reasons why the disbursement trend did not show a very steep decline.

Okay, sir. Sir, just last question, one question on the FIG front. I'm seeing a jump in the disbursement in FIG as well, considering I believe the yields would be one of the lowest, why we are having a growth over there? Any views on that?

So FIG has always been a strategic book for us. And we have been looking into disbursements a little differently. We have a good hold on the FIG book. So at the moment, yes, we see that the FIG book has grown. And we will ensure that this book is not more than 8% to 10% of our total portfolio. And we generally lend to NBFCs, which are engaged in MSME, vehicle finance, gold. And also, our focus area continues to be on the higher-rated entities, A+ and above. And we also have a spread of around 1.25% to 2.75% for these loans. It is based on the credit profile of the borrowers. And finally, this book has largely been having around A and A-rated entities. We have some good names also in this book. And we did a total disbursement of around INR 1,064 crores in Q3. So this book has always been a strategic book for us.

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

Just a clarification question. So the interest rate reduction, which we offered during like in the fourth quarter in individual and group lending, is it only a temporary thing now the interest rates have again reversed back to the normal rates?

Yes, you are right. We had given some discount for the fourth quarter because we wanted to improve the business. And now it is more or less restored back to the normal. The discount has been withdrawn. I think that is -- something is that even after increase in interest rate, we are one of the best interest offering organization in terms of microfinance loan in the market.

Yes, definitely, definitely sir. Also, do we see any repricing in any other part of the portfolio, like, in terms of increase or reduction?

No. As of now, we don't envisage any change in our pricing. We'll have to wait and see how it goes. But as of now, we don't have any such plans. Yes.

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

First question is a data keeping one. Can you just break out the slippages by segment? I just need the MFI slippage number, if you can share that?

One second, we'll pull it up.

Sir, in the meanwhile, if I can take the second one. The second one is on Slide #24 in the presentation, where you have shared the PAR trend for leveraged customers, Ujjivan Plus 1, 2 and 3 and so on. Over there, if you see the Ujjivan Plus 4 PAR number that has climbed up to 30-odd percent as on February, whereas the Ujjivan Plus 3 number is about 13%. Now that the 3 lender cap has been implemented, do you think that 13% number, which is for Ujjivan Plus 3, that can climb up to a 30% kind of level?

Ashlesh, in terms of breakage -- breakup of slippages, we had about 87% of the slippages coming in from micro banking for the quarter as for the 87% of the bank slippages came in from Micro Banking. In terms of Ujjivan Plus 3, Ujjivan Plus 4, we've seen a decline happening in Ujjivan Plus 3 in the last quarter. January, we seem to have seen a higher number. It was climbing up. In Feb, it came down and then March it has come down further. So we feel that this trend should continue. Because of Guardrail 2 implementation, there might be a month or 2 where we can find some disturbance. But overall, we don't see this number going up to 30%. It should be much lower than that.

Understood. And sir, just lastly, what is the total pool of written-off loans where you expect to make some recoveries?

So see, this is divided into 2 parts, Ashlesh. One is the old ones, which we had done immediately after COVID. And the second is the ones which we have done in the last 2 years. The sum of what we have done in the last 2 years is approximately INR 750 crores.

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

This is Sonal Minhas. Am I audible?

yes, Sonal.

Sir, my first question is with regard to the provisions basically. I'm on Slide #23. I just wanted to understand subjectively the provisions have actually come down. The provision coverage -- so basically reserves have come down from [ INR 804 crores ] to [ INR 710 crores ] and there has been a credit cost, which is reasonable in this quarter. So I wanted to understand that are you happy? Are you satisfied with whatever provisions we have as we speak right now? And this is directionally going into what we should see the provisions for FY '26 because the number has reduced meaningfully? So in FY -- Q1, Q2 FY '26, do we expect more provisioning -- disproportionate amount of provisioning, if you could just help directionally explain this?

So Sonal, we maintain our PCR above 70%. The PCR has come down from 80% to about 78% between Q3 and Q4. In addition to this, we also have INR 21 crores of unutilized floating provision, which can add a further buffer, if we utilize it. We've also done accelerated provision in March in addition to what we had done in December. This quarter, we have done about INR 42 crores. So in terms of PCR, I think we are fairly covered.

So even after considering the last one year has been kind of -- yes, I understand, sir. My question was that our PCR is roughly -- the absolute amount is roughly similar to where it was when this whole microfinance kind of stress started happening. And hence, we were at -- in March '24, we were at INR 690 crores. And right now, we are at INR 710 crores. So directionally, should we see this number go up significantly next year is broadly I wanted to understand, given this has been a year of stress, and we are roughly at the same point where we were in March '24.

So in terms of absolute provisions, the provisions will follow the provisioning norms. As and when slippages happen, provisions will keep going up as well as -- and whenever interventions happen, the provisions will keep coming down. One of the interventions that we did in Q4 was the ARC transaction. But for us, as a mandate, we will continue to maintain PCR above 70%.

Got it. Okay. Sir, my second question, which we wanted to ask, the majority of your MSME book and your affordable housing book, while the GNPA and the PAR numbers have come down Y-o-Y, any color there, any subjective guidance there you can give in terms of how that book is behaving, that will be helpful?

So in MSME, we relaunched the product in April '23. And post that, we have built a book of almost INR 1,200 crores. In this INR 1,200 crores on the 24 MOB book, we've not seen NPAs, we've seen very little PAR. NPAs are in the range of 0.1%. So the book is holding well for us. And the first 3 components: 1 is LAP; the second is working capital, which is overdraft products; and the third one is supply chain finance. So in all the 3 products, we've seen the 24 MOB book hold. In terms of reduction in NPA, the old book has contributed to the NPA, and that is what -- we have seen recoveries happening from there. And in the last year itself, we saw more than INR 35 crores to INR 37 crores of recoveries happened from the old book. We are currently -- we've done [indiscernible] in all the NPA accounts. Almost 33% of those are in advanced stages, so either waiting for auction or waiting for enforcement of security. So we see that this trend of reduction of NPA should continue in the old book. And old book is now reducing at a very fast pace, so the residual book is likely to have a higher NPA, but the slippages have now come under control with the new book now contributing to the overall MSME book.

Okay. So the newer book, as you said, is behaving well. So is there a time in future, maybe next 12 months, 18 months, where the old book has been reduced significantly in margins and this book basically starts -- there is a maturity curve basically beyond which it comes back to industry average or what would you see in MSME, which is typically 3% to 5% kind of NPA specifically?

No. So when we look at MSME book, it is -- the NPAs are now largely guided by the segments in which we operate. Our old book was of a INR 15 lakh ticket size. And the moment COVID happened, it was -- this ticket size was the one, which got impacted the most, the lower end of the segment. In the book that we have relaunched, we now operate with an average ticket size of about INR 55 lakhs to INR 60 lakhs on the LAP side. And on the working capital, which is overdraft, the average ticket size is close to about INR 1 crore. So it's a complete new segment that we are working with. So therefore, we feel that the asset quality, being dependent on the segment in which we are operating, should be much better than what we see across the industry.

The previous, okay. And what is an average for that industry in that ticket size? In that ticket size, what is the industry average...

No, again, depending on the segment -- we are operating in the INR 50 lakh-plus segment on LAP and INR 75 lakhs to INR 1 crore in working capital, maybe about INR 1.5 crores. So these segments are relatively unaffected by any small downturns that we see. So we should see this segment normally behave very well in the industry.

Okay. So industry average numbers there are also pretty low, less than 2%, less than 3% and that is the number I just want to understand.

Yes, yes. Yes, the industry numbers are also very low in this -- the delinquencies are low in these segments.

[Operator Instructions]. The next question is from the line of Sarvesh Gupta from Maximal Capital.

Congratulations on the good set of performance. Sir, most of my questions have been answered, but...

Sorry, we are not able to hear clearly. Could you -- sorry, we're not able to hear clearly.

Is it better. Are you able to hear now?

Yes.

Sir, my question was pertaining to Karnataka and Tamil Nadu, where these ordinances have been introduced or are in the place. So how are you seeing the situation, sir? Is it like -- so we have seen a dip in asset quality in all the other states and that did sort of bottomed out in the month of November and then steadily things have been improving, as you said, in 3 of the 4 regions of the country. So in these particular states after -- for example, in Karnataka, we saw a dip in Jan and then Feb. And now is it just improving just like every other region, but with a lag of 1 or 2 months, or are we seeing some other issues which we think will persist over some time? And same for Tamil Nadu, sir...

Sorry, Sarvesh, is this only for Karnataka? Yes, Karnataka we saw a dip in collection efficiency in February. And it did not come back to normal in the month of March. In March also, we had 98.7%. What we consider normal is in the range of 99.5% Bucket-X collection efficiency. So there have been about 7 or 8 districts in Karnataka, which have still not come back to normalcy. These may probably take another 2 to 3 months before they come back to normalcy. In most of the other districts in Karnataka, we have started to see improvement. So the Bucket-X collection efficiency, which has actually gone down to below 97% recovered to 98.6% only because most of the other districts started to respond well, but about 5 or 6 districts still did not respond in the month of March.

And what is happening on the ground? Is it like the borrowers are refusing to pay or are you not able to send your collectors to collect the money or there is some confusion between registered and unregistered entities? If you can throw some color on the ground situation in these districts that you are facing challenges?

So the risk around people going and meeting customers, that was a little elevated in the month of February. But we saw a significant reduction in that in the month of March. People were going and meeting customers, there was no resistance in going and meeting. However, as I was saying, in about 6 districts, 7 districts, there was lower repayment rates because people wanted some time to pay. Most of the narrative that we've been hearing is we will pay, but not now. There has been deferment of promises to pay, especially in the month of March.

Okay. And now in Tamil Nadu, if you can...

But on ground things are normal. On ground things are normal, now.

No, I was referring to Tamil Nadu. So Tamil Nadu, sir, what is happening and what you have seen in the month of April, if you can throw some light on that?

Tamil Nadu is just about a week old. It has not even reached people as of now because the developments are not more than a week old. There was -- in Karnataka, it had taken about 2 or 3 months of attention by people and it had various colors happening in various districts. In Tamil Nadu, I think this has been only a week. And the bill has already gone. It has already got passed. So this is -- in Tamil Nadu, we should see a much lesser disruption, if there is any because of no disturbance on the field in Karnataka, it was escalating. Here, it has been a very smooth situation.

Okay. Understood. And sir, the other question is on the OpEx piece. So I mean -- so our OpEx was even trending higher before in the earlier quarters of this financial year. Then I think we saw some moderation and then again, it has spiked up. So how do you see that trending out? Is it because we are running on a very low utilization for the secured business, which is causing this OpEx to be on the higher side, or there are some one-offs related to the collection because this -- even in the past post-COVID crisis, we had ramped up our collection team and that had resulted in some OpEx spike. So how much of this sort of an OpEx trend can be explained because of one-off...

Sorry to interrupt. Mr. Sarvesh, may we request that you return to the question queue for follow-up questions as there are several participants waiting for their turn. [Operator Instructions] The next question is from the line of Chinmay Nema from Prescient Capital.

Sir, I just had one question. Could you share how much -- out of the total provisions, how much are earmarked for the microfinance book?

Out of the floating provisions?

Sir, out of the total provisions, just trying to understand the split of the provisions between our other retail assets and the microfinance book?

We'll come back to you on that.

The next question is from the line of Rajiv Mehta from Yes Securities.

Just 2 things. Firstly, if you can just tell us what are the overall Tamil Nadu exposure at the bank level in terms of loan assets? And second is while -- see from a growth point of view, we are highlighting that individual loans in microfinance are not covered by the MFI and Guardrail and hence, you can grow them faster. But from a risk point of view, do we already have tight underwriting Guardrails in individual loans, which will keep the PAR always below the group loans? And if you can elaborate on those Guardrails that we have been -- that have been in place?

Sure, Rajiv. So Tamil Nadu contributes to about 14% of the overall assets for the bank, the total loans and advances for the bank. That includes microfinance and all the other retail assets. And in terms of individual loans, this business for us has been almost 16, 17 years old. We've been continuously improving our processes, continuously improving our underwriting standards. Most of this book, about 90% of the book in individual loans has been graduated from group loans. We have a team of about 550 credit officers, who independently assess every loan application on the ground when we have to sanction a loan. So there is a dual assessment of every customer and underwriting norms are again based on the industry, on the occupation of the customer. So this has worked well for us and the graduation of all the group loan customers happens typically after -- not before 36 months. So the bank already has experience of good credit behavior of customers before we graduate them to individual loans.

The last question for the day is from the line of Heet Khimawat from IIFL Securities.

Just a couple of questions. One is that we've seen some reclassification from the agri book to some individual loans and other loans. Can I know the reason for that? That is first. And secondly, with the MFIN 2.0 now coming in, which you've implemented from April, while we've seen some of your peers do it even before that, like maybe in the month of February or maybe even November '24 for some cases. So do you think that the growth might get impacted in some way when the Plus 3, Plus 4 borrowers come for the second loan or a repeat loan? So just those 2 questions, if you can give any perspective on.

So we have just -- on the first question, we have just reclassified the loan so that it reflects the grouping. So earlier, our agri and allied loans given for individual business -- individual loan purpose was clubbed under agri and allied. Now we have included it into individual loan. And the agri banking now reflects only about our agri banking secured portfolio.

As far as effect of Guardrail 2.0 is concerned, first of all, we believe that the impact of Guardrail 2.0 will be much lower than Guardrail 1.0 because they overlap with each other in terms of the different benchmark that we have set or different -- the way we have project our customers. Second point is that if you look at our overlap, the 3 lender and 4 lender, we are one of the lowest. And the loss there in terms of customer not be eligible for repeat loan will be much lower than the average industry. Among those customers also, we have good customers. We have good graduation program, not only IL, we have MLAP, we have other products also, where we have very smooth graduation program and customers can move to other products if they are eligible and their income supports. As far as -- this also opens up opportunity. As far as we go into the month of April and this quarter going forward after implementation of Guardrail 2.0 across the industry, customer will -- I mentioned this in the last quarter also that customer will also now choose the 3 best lender, where they can continue with and that gives an opportunity. If you have a basket of product to offer to your customers, your interest rate, your processes are faster, there are high chances that you can attract best customers in the market. So yes, there will be some -- we'll lose some customers, who will not be eligible as they already have loan from 4 and our loan is maturing first. But at the same time, we'll also have opportunity to attract good customers, best customers in the market as well. This is also from the point of view that with the kind of stress the industry has gone through, there will be some markets that will open up with some of the players not being able to disburse because of liquidity issue and that is something we are looking at.

Got it, sir. That's helpful. And just lastly, if I may ask on the universal banking license, any update on that side?

As you may be aware, we have filed for the universal banking license in February, and we await to hear from the RBI on this matter.

This was the last question for the day. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.