Utkarsh Small Finance Bank Limited (UTKARSHBNK.BO) Q2 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Utkarsh Small Finance Bank Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chintan Shah from ICICI Securities Limited. Thank you. And over to you, sir.

Yes. Thank you, Hamshad. Good evening, everyone, and welcome to the Q2 FY '26 Results Conference Call of Utkarsh Small Finance Bank. I would like to thank the management of Utkarsh Small Finance Bank for giving us the opportunity to host their earnings call. From the management, we have Mr. Govind Singh, Managing Director and Chief Executive Officer; Mr. Pramod Kumar Dubey, Whole Time Director; Mr. Sarjukumar Pravin Simaria, Chief Financial Officer; Mr. Amit Acharya, Chief Risk Officer; Mr. Virender Sharma, Head, Micro Banking; and Mr. Sourabh Ghosh, Head, Consumer Banking. Yes. So, now, without further ado, I would like to hand over the call to the management. Thank you, and over to you, sir.

Yes. Thank you, Chintan. Thanks a lot. Thank you, everyone, for taking the time to join us for our quarter 2 FY '26 earnings call. As we reflect on the second quarter of FY '26, it is evident that operating landscape continues to evolve, shaped by both regulatory recalibrations and legacy stress factors. The quarter was marked by a deliberate shift in strategy, balancing caution with forward momentum. Our focus has remained on strengthening the fundamentals, even as we navigate through transitional headwinds that have impacted certain segments of our portfolio. One of the most significant development this year has been the rollout of the Revised Regulatory Framework under MFIN Guardrail 2.0, effective April 1, 2025, which limits borrower level leverage to a maximum of 3 lenders, introduce a structured shift in microfinance lending dynamics. While the intent is to foster long-term portfolio resilience, the immediate consequence has been a slower than expected recovery in the collections sentiment. The adjustment process has taken longer to stabilize, and overdue accounts have remained elevated, reflecting both the regulatory transition and residual stress from the prior fiscal. In response, we have intensified our efforts to reinforce field-level discipline. A specialized call center dedicated to overdue accounts has been operationalized. And we have expanded our collection workforce, almost 1,200 as on September '25. Additionally, we continue to split larger micro-banking branches to improve oversight and control. We are also working on back to basics programs to train new frontline staff on core processes such as center meetings and customer onboarding, ensuring a more robust and consistent execution framework. The overall gross loan book contracted by 2.3% year-on-year, primarily impacted by a sharp decline in the JLG portfolio. The Joint Liabilities Group, JLG, business continues to experience headwinds with disbursement slowing, as we deliberately shift focus towards strengthening collections rather than prioritizing expansion. This strategic recalibration led to an approximately 11% contraction in the JLG loan book during the quarter, contributing to a 2.3% -- year decline in our overall gross loan portfolio. However, fresh NPA slippages have reduced significantly during H1 FY '26, as compared to the second half of FY '25, indicative that our corrective actions are beginning to take hold. We remain cautious in this segment, focusing on long-term stability rather than short-term growth. Despite the challenges in JLG, our micro-banking business loans, MBBL, portfolio has emerged as a bright spot, targeted at graduating JLG customers with strong repayment track record. This segment grew by 39% year-on-year, and now, constitutes 13% of our micro-banking loan book. With penetration still below 6%, we see considerable headroom for expansion. The MBBL portfolio has demonstrated better asset quality and collection efficiency, and we expect this share to increase meaningfully in the quarters ahead. Over the past years, the bank has undertaken several structural shifts in its operation, including the adoption of digital underwriting as a key operational transformation avoiding lending to over-leverage borrowers with multiple lender exposures and diversifying portfolio. This structural shift will eventually lead to a fundamentally stronger bank with less cyclicality in terms of credit cost and will provide multiple avenues for us to grow beyond JLG loans. We have taken proactive steps to align with this transformation. Our JLG exposure has been consistently moderated to 39%. And including BC JLG it is 41% of the gross loan book as on September '25, down from 88%, including BC JLG 90% in March '20. We expect this mix to reduce further over time, as we pivot towards secured lending, which now comprises 47% of our overall loan book, increased from 13% as on September '24 and is likely to increase further. Our non-JLG lending business have maintained healthy momentum, growing by 30% year-on-year and 4% quarter-on-quarter. With our deepened focus on secured asset businesses, MSME loan book expanded by 33% year-on-year to INR 4,164 crores, while optimizing disbursement yields, which improved by around 100 basis points from 24 -- 12.4% in quarter 2 FY '25 to 13.4% in quarter 2 FY '26. Within this, the Micro LAP segment has shown promising traction with disbursement yield around 18%. Given our strong franchise and geographical reach, we anticipate continued growth in this product line. Housing loans also grew by 21% year-on-year to INR 947 crores, supported by improved disbursement yields, up by over 40 basis points from 10.9% in Q2 FY '25 to 11.3% in Q2 FY '26. In the CV and CE segment, the loan book rose 6% year-on-year to INR 1,144 crores. Notably, the share of used vehicle disbursement increased to around 40% in quarter 2 FY '26 from less than 10% in the same period last year, reflecting our strategic pivot towards more resilient asset classes. The BBG lending portfolio, entirely secured against immobile collaterals, grew by approximately 32% year-on-year. These segments continue to perform well, driven by our disciplined approach to underwriting and risk management, while also enhancing portfolio diversification and delivering attractive yields. We are seeing much better traction on process on both sides, assets, products, that is MSME, housing and Micro LAP through our liability-focused general banking branches and deposit accounts for our asset customers, essentially more products per customer. This multiproduct engagement is enhancing customer stickiness and improving wallet share. With healthier diversification -- diversified portfolios and improved underwriting standards, the bank is getting resilient and is now poised for a better trajectory in the second half of FY '26. Through a more disciplined lending approach, we are already focusing on streamlining the portfolio growth, while the impact is likely to persist for another 1 quarter, but the business is expected to stabilize in the next few months and better collection efficiency is anticipated by then. On the liabilities front, total deposits remained flat quarter-on-quarter. However, we delivered 10% year-on-year growth in total deposits, driven by strong traction in retail term deposits, which grew by 29% year-on-year and 5% quarter-on-quarter. Our CASA deposits increased by 17% year-on-year and 6% quarter-on-quarter, resulting in an improved CASA plus retail term deposit ratio of 78% as on September '25 from 68% as on September '24. We are consciously reducing reliance on bulk deposits, while retail flows remain strong, supported by deeper cross-sell initiatives. We intentionally calibrated deposit moderation during the quarter to align with our moderated disbursement pace, maintaining a strategic shift -- strategic focus on sustainable and consistent deposit growth, driven by a well-diversified and granular low-cost retail deposit portfolio, deposits growth to accelerate in line with the revival in the disbursement. In line with the RBI repo rate cuts, we have improved -- we have trimmed interest rates for savings as well as for retail term deposits. These calibrated actions are expected to drive a gradual reduction in our overall cost of funds. Our CD ratio declined to 79% as on September '25 against 93% as on September '24. And after netting of refinance borrowings from advances, CD ratio declines to 72% as on September '25, reflecting our prudent liquidity management. In terms of risk diversification, we registered with CGFMU for credit guarantee coverage on our eligible unsecured JLG and MBBL portfolio effective from January 17, 2025. Accordingly, incremental JLG and MBBL disbursement from then onwards are getting covered under credit guarantee, which will help derisk our exposure and support portfolio stability. We ended the quarter with a surplus liquidity of around INR 4,400 crores, which is higher than our usual liquidity requirement and an LCR ratio of 224%. We have no short-term borrowings on our balance sheet. On asset quality, we believe stress has peaked. The X-bucket collection efficiency in JLG segment has improved to 98.7% in the month of September 2025 as compared to 98.6% in the month of June 2025. We have tightened underwriting and reduced exposure to riskier segments. MFI's stress is moderating, aided by calibrated disbursement and improved borrower discipline under new guardrails. We expect asset quality to improve meaningfully from quarter 3 onwards. Prequalified loans to existing customers with no delinquencies are streamlining field operations and exploring innovation across products, like unsecured business loans, individual loans, et cetera, which will enable us to gain a higher wallet share of our existing customers with strong repayment track record, while preserving credit discipline and robust risk management. With the help of these measures, fresh NPA accretion will start to decline meaningfully in the next few months. However, we acknowledge that legacy stress is still to be provided for, which will keep the credit costs slightly elevated in the near term. This will weigh on our -- this weigh on near-term profitability, as we navigate through this phase and we carry forward stress from earlier periods translated into -- and the carryforward stress from earlier periods translated into a net loss of INR 348 crores for quarter 2 FY '26. Despite the losses, our capital adequacy ratio remained at 17.2% as on September 30, 2025, comfortably above the regulatory threshold. In alignment with bank's commitment to long-term value creation, the bank has successfully raised equity capital for an amount aggregating INR 950 crores for augmenting its Tier 1 capital, based to meet its future requirements through the rights issue in November '25. We thank all our investors for reflecting confidence in the bank's strategic road map and future potential. Concurrently, we have also secured all requisite statutory approval for the proposed reverse merger of the holding company with the bank. With these approvals in place, we are now assessing the optimal sequencing of petition filing with the NCLT application. We are also undertaking a business transformation project to make our technology architecture and business processes future ready for our growth plan. The bank has already embarked on its Utkarsh 2.0 technology transformation project with several subprojects already live and yielding benefits. These benefits include improved operational efficiency, higher productivity, automation and 360-degree controlled parameter mapping throughout the entire cycle from sourcing and disbursement to recordkeeping and granular monitoring. Looking ahead, FY '26 is shaping up to a difficult year, but is also a year of strategic recalibration. We are prioritizing operational efficiency, disciplined execution and operational agility. For the next 2 to 3 years period, bank targets a loan growth -- loan book growth of around 25% with a well-diversified portfolio with secured lending share of more than 50%. The focus will be on strong asset quality, cost efficiency and prudent risk control. The bank aims to maintain a NIM of around 8.5% and deliver a return on equity of about 15%, supported by efficient operations and moderated growth towards the end of FY '28. While sectoral headwinds and regulatory transitions may continue to influence near-term performance, we remain confident in the resilience of our franchise and the strategic direction we have charted for FY '27 and FY '28. Thank you very much for your patient listening. Now, we can move to the question-and-answer session.

[Operator Instructions] The first question is from the line of Mayank, an Individual Investor.

I just want to ask 1 question. So we recently saw government of Bihar announcing this INR 10,000 to women. So are we seeing any sort of like -- is it creating any sort of problem for bank because -- or like it will be beneficial?

I think broadly speaking, it will be neutral from our perspective. Yes, it may have a positive impact on the borrower level, their own, you can say, well-being or their livelihood level. But as far as our efficiency of operations is concerned, I don't foresee much impact because of that. A slight positive impact may be because people will be a little better off. But otherwise, not much impact of that from the hardcore, our day-to-day operation angle. I mean, obviously, it is good for the people who have got it.

Okay. And are you planning to like -- you have issued a fresh issue and you have issued the rights, so in future, are you planning to do more equity dilution? Or like is it fine for 2, 3 years?

So broadly speaking, from our side, the current range of INR 950 crores is good enough for next 24 months. I mean, we can say until September '27. I mean, that is how the plans are from our side. We don't intend to go to market for the next 2 years' time.

Okay, sir. And last question, like you said that this JLG has peaked out, so from quarter 3 onwards, we will be seeing improvement in net profit and everything, right?

So our -- I mentioned in my opening remarks also, what we expect that the stress level, the delinquencies certainly have started -- we are seeing that coming down, especially if you look at the month of November also, we have seen them coming down. So the trajectory in terms of stress assets in terms of NPA accretion in terms of profitability, we do expect that quarter 3 will be a little better than previous quarters. And quarter 4 onwards, we can see much better trajectory as far as these efficiency ratios are concerned.

The next question is from the line of Vinit Agarwal from Aditya Birla Money.

Sir, I have a couple of questions, sir. So firstly, currently, we have around 1,100 odd branches, which is higher compared to some of our peers with higher book size than us. So going forward, what is our chance, like do we continue to increase our branches at around 15% odd kind of growth rate? Or do we plan to consolidate and focus on improving productivity?

So certainly, our plan is to move to consolidate. In fact, this year, we are -- we have not opened branches. And we have -- as you yourself mentioned, we have enough number of branches. In fact, a few -- last 1 year or so, whatever new branch we have opened, it is for a better control as far as the JLG business is concerned. Otherwise, our idea is to consolidate because we have a large network of branches across the country now, and we are across the country. In all the relevant states, we are already there. So we don't open -- intend to open many branches from now onwards. Better to make those branches operationally efficient because we opened quite a number of branches during the last 3, 3.5 years. Post COVID, actually, we opened quite a number of branches. So our first focus is right now to make them branches, give -- from the business side, give us a sizable business of these branches, make them more operationally efficient branches. So that is a focus. We may not be opening many branches now, at least in the near future.

And out of the total number of branches currently, how much will be only deposit taking only?

So you are aware that we have 2 type of branches. One, we say general banking branches, these are the branches which are deposit-led branches. So today, out of around 1,100 branches, 331 hardcore deposit-led branches. Obviously, as a bank, even the other branch also can take deposits. But from the strategy angle or from the business angle, these are 331 branches across the country, which are normally at the large cities, large centers, metro locations or very prominent places. These are focused for the liability part. So these are 331 branches as on date.

Understood. And secondly, sir, like we have faced high employee attrition last 1 year. So I wanted to understand, how is the scenario now?

So I mean -- so I think it was not only with us, but it was the industry phenomenon also, you must have seen that part, especially at the entry level, at the lower level, we have seen that part. We are seeing that especially in this -- you can say, this quarter, and henceforth, we expect that this will stabilize. Normally, it is higher in quarter 1, and that is true for other banks and other financial institutions also. And ours is not among the -- that high. Obviously, it is higher than what it used to be in past. It is a little higher than our past records. But we are certainly seeing a better response, and the attrition rates are certainly coming down. I may not have the exact number right now, but these are certainly coming down. And we do expect that quarter 3 and quarter 4 will be much better from that angle.

Understood. And sir, lastly, like data keeping one, so how much was the impact on yields due to interest reversal?

Sarju?

Yes. So interest reversal for this quarter was about impacting -- in absolute terms, about INR 27 crores would have been better off had the slippages for this quarter been not there. So it's about INR 27 crores impacting my Q2 results.

[Operator Instructions] The next question is from the line of Sagar from Spark Capital.

My first question was related to the PCR. What is the PCR on the MFI book that we are holding right now, sir?

It's 68% PCR we are holding...

In the JLG book, sir.

Yes.

So I think, sir, it is less than the RBI prescribed limit. I think the RBI's supervision is around 80%, right, if I'm not wrong. So may I know the reason why are we not providing enough actually so that at least we can clear books before we start our new growth journey, sir?

So I guess, it's -- I mean, not that I recollect if there is any RBI norm to that. In fact, what we are making a provision over and above the IRAC or the RBI norms. So our provision scale is higher, by the way. So that's the first kind of clarity that I thought I will bring here on this call. Secondly, we have a road map of, as I said, policy, when an account goes NPA, we start with 40% immediately any account being on 91st day and then will be 15% in subsequent quarters. So there is a run rate rule book. And as it goes along, I guess, this should be a bit higher in the coming quarter, and you will see further provisioning coming in terms of cushion as we go along in Q3.

So is it safe to assume that in -- by Q3, we will go from 65% to 80% as far as the unsecured portfolio MFI, I'm saying, for the NPA without technical write-off?

That's the -- something written on the book. We'll have to deliberate and then go there. Obviously, as I said, that we have a rule in terms of the policies that we have. In case we choose to do what you just mentioned, it may amount to an accelerated provision. We'll have to look for adequate approvals, and then, probably during the course of the quarter decide on that.

Okay. So my second question was related to, means, in the unsecured portfolio, almost 80% of our majority of the portfolio is concentrated in Bihar and UP for us, actually. So what are the -- can you throw some light that what is the situation on ground in both these 2 states? Is it at least improving? What is the collection efficiency? And how do we see the MFI portfolio going ahead, actually? Did we see some disbursement growth going ahead?

So I think generally, we have seen UP and Bihar a good place for microfinance. There are a lot of requirements. There are a lot of -- you can use the opportunity, and there is a requirement, and that's why there is opportunity. And we have seen in the past also. This time, during this last, you can say, 18 months' time, we have seen little higher slippages in some of these states. You mentioned some of -- 2 states, basically, where we have a large concentration. And -- UP, Bihar -- because our headquarter is in Varanasi, and UP and Bihar, that is where we have started our operation in the beginning. So we have a large number of customers there, even the ticket size is higher in that case. And that is the reason why we have little higher concentration in Bihar and UP. If you look at the ground level operations, yes, we had -- initially, we had a little challenge in this geography, and that's why you had seen the elevated NPA level. Maybe these have been a little higher than from some of the other places. But of late, we are seeing that normalcy is coming, I can use the word. These may be -- if you look at the X-bucket collections or if you talk of, say, month of November, I think these are all 99% plus now across, in fact. If you look at Bihar, if you look at UP and the adjoining area, all places, it is now 99% plus as per the expected collections are concerned. So it is improving -- certainly it is improving. See you also asked about the disbursement part. So we have -- and that is not with us only. That is why you can see that almost 20% to 25% decrease in the overall microfinance number of client base and the AUM also across. The reason is because of the guardrails a lot of customers became ineligible for disbursement because they might be having some delinquencies from other -- with other partners, with other funder. That is why it is a little difficult right now to, you can say, disperse to the extent that used to happen in the past. Our idea is now people are also looking at new to credit, new to bank, and also, the cleanup is -- you are seeing for the last 15, 16 months' time. Our sense is that -- of course, I can talk on behalf of how the industry or this sector is shaping. So my sense is next 2 to 3 months' time, we should see almost regular type of disbursement. I mean, it's very difficult to predict the exact quantum, but disbursement will become very regular in next 2 to 3 months' time. That is the indication we are seeing from the market or from the government.

So at least that would be for Utkarsh also, right?

That is true for all the players, including Utkarsh. And in fact, Utkarsh being a bank, sometimes smaller players might be having some challenge in terms of getting funding also. So for banks or for larger entities that should not be a problem. So my sense is from next 2, 3 months' time, we should see a normal type of disbursement also for JLG book, which was not there for the last 15 months or so.

Okay, sir. So what is the slippage amount, sir, in this quarter? Can you please specify, gross slippages?

Yes. Our CRO will just give the numbers, yes.

Yes. The addition in this quarter was around INR 463 crores, and recovery and upgradations were close to INR 48 crores, INR 49 crores.

So just 1 request from my side, sir. Can you please -- from next quarter, can you please specify the numbers in the investor presentation, including the write-offs and slippages so that we can have an idea about the [ JPS ]?

Sure. But I think...

There is a movement. There is a movement on Slide 30, which tells you about additions quarter-by-quarter.

We can see Slide 30 of the investor presentation. I think it is already...

Yes, sir. Yes, sir. In the last quarter, it wasn't so that's why I was asking.

It has been recorded now.

Okay. Okay. And sir, my last question was related to our secured advances. We have been growing very well in that segment, almost 47% of the total loan book is concentrated there. So what I wanted to ask, in that retail lending, basically, within the MSME housing, gold, CC loans, which of the -- means, what would be the mix going ahead in the next year? Actually, when we'll see some higher disbursement growth also in this segment? And secondly, what would be the mix going ahead in FY '27 and FY '28 between secured and unsecured? How do you see going ahead?

So if you look at the bank, going ahead, broadly, the way I mentioned that we do expect that growth for secured will be higher than the growth for unsecured or for JLG type of growth. For unsecured, the growth may be say around 15%, 18%, and the -- growth for unsecured can be 15%, 18%. And for secured, it may be in the range of, say, 30% to 35% because they are newer businesses and smaller businesses that we have just started. So that is what is expected and that you will see the -- that's why you'll see that every year the secured is going up a little bit and unsecured portion is coming down. That is what we expect. In terms of MSME, Micro LAP, housing, so our focus has been more on the LAP type of businesses where I get a property as a security, I'll put it this way. It can be in multiple forms. Sometimes it can -- even when I'm talking about BBG portfolio, it is 100% secured by the property -- underlying property. So we have a bigger focus on that. I think CE/CV businesses will be moderate growth on our side. We are not looking very hyper growth from these type of businesses. But wherever there is a property security, I think that will be the bigger focus as far as Utkarsh's next 2 to 3 years' journey is concerned.

Okay. Okay. Fine, sir. And just last 1 from me, that will we see our net NPA going down since you were saying that the provisioning will go up even in the next quarter, so can we see the net NPA inching below?

Yes, certainly, we can assure you that our net NPA levels will start coming down on month-on-month basis or year-on-year -- on a quarter-on-quarter basis from now. That you'll certainly see from quarter-on-quarter.

The next question is from the line of Rahul Kumar from Vaikarya Fund.

Could you explain the slippages between MFI and non-MFI segments for the quarter and the last quarter?

Yes. Just for a second. Yes.

So for JLG business, it was INR 324 crores in the quarter 2. And for non-JLG business, putting together, it was around INR 134 crores.

Okay. Okay. And what was it last quarter?

Last quarter, JLG was close to INR 330-odd crores, and non-JLG business was INR 122 crores.

Okay. Okay. And 1 question on the collection efficiency. Actually, what you disclosed in this quarter was -- it was mostly around 98.6%, 98.7%, so -- I mean, we have seen for most of the other lenders, actually, this collection efficiency has definitely improved in the quarter. Can you throw some light on what exactly is happening over here? I mean, why hasn't it improved for us?

This is Virender. I just wanted to clarify, yes, we -- see, we were in the 2 biggest pockets where the delinquency has been higher, which were bigger impacted markets like Bihar. In line with -- we have seen some correction post our corrective measures. And yes, we were slower in that part of the geography for some period of time. But now, we will be at par with the industry in this market. Yes, there was some system limitations earlier, but we have covered it. And going forward, it will be at par or better off in that market. That's what we are seeing because there is a slight rebound in both UP and Bihar markets in this month.

Okay. Okay. And on the disbursement side, obviously, this quarter also, I think MFI disbursements have actually gone down. So -- I mean, when do we expect this number to improve? Or I mean, do we expect, let's say, next 2 quarters to more consolidate around this number and then maybe from FY '27 onwards it will go?

So, as I mentioned, our assessment is that for next 3, 4 months onwards, we should see a better in terms of disbursement or at least portfolio will start growing. And as I mentioned, the disbursements are lower because of the guardrails, a lot of people became ineligible for disbursement. And -- but one thing I'm sure now, the growth what we have seen in JLG will be a moderated growth. When we're looking next 2, 3 years' time, I think maybe around 15% to -- 15%, 16% type of growth is what we can expect in the JLG business.

Okay. Okay. So -- but if you look at overall mix of our loan book, can you say that we have sort of reached the bottom of our MFI share declining in the overall AUM? Or...

I think -- I mean, we have almost reached there. I mean, it's very difficult to pinpoint this, but certainly, where we are right now, we expect that in our portfolio in terms of collection efficiency, as Virender mentioned, that we're already seeing almost across 99% plus for this month, and this will certainly grow. In fact, I'm talking across it is 99% plus. So overall it is a little better than that only. So we expect that collection efficiencies is growing. Similarly, we are also seeing a traction in the disbursement. It has not reached to the level where you can say, my portfolio is not degrowing. But my sense is in the next 1 or 2 months' time, it will reach a stage where our portfolio will not come down from there. So that is what we expect as far as the JLG disbursements are concerned.

Okay. Okay. And if I look at the non-MFI book, I mean, is there a target at which we can -- we want to grow this business?

So as I mentioned, broadly speaking, the JLG 15%, 16% type of growth, that is a range, I mean, 2% plus/minus. Similarly, for non-JLG, maybe 30% or maybe a little higher than that, that is the type of growth we expect for the non-JLG. So certainly, that's why the share of non-JLG will be -- will keep growing and share of JLG in the overall book will -- obviously numbers should grow from here, but overall share should -- share will come down as far as JLG is concerned. And this is the growth rate we expect. And as I mentioned, blended growth is of around 25% or so. That is what we expect for the bank in next -- if you look at FY '27 or FY '28, that is what we expect.

Okay. Okay. For the non-MFI book, would I be right in concluding that for past 2 quarters, our growth rate has been 1% to 2%? I mean, am I doing something wrong over here?

No, no, nothing. I mean, we are not doing anything wrong. Maybe it was a little slower in the initial phase. And we have seen in the past also. And as I mentioned here also, we expect that this will pick up in this quarter onwards. Normally, our quarter 1 in past also has been a little slow, and we expect this to pick from here. So -- and we are not looking any additional type of products. You are aware that these are type of products we are having. Our idea is to scale those products. And where the loan -- the property-backed products in the asset side are our prime focus from our side. Obviously, we are doing gold loan also. Even we are doing a secured credit card also backed by fixed deposits. We are also doing housing. We are doing BBG, where, again, we are doing the business banking group. We are doing small, you can say, working capital loans or term loans for the MSME segment, the SME segment. I think these are some of the segments, which we have chosen, and our idea is to grow these segments only.

[Operator Instructions] The next question is from the line of Franklin from Reliance General Insurance.

Have we done any ARC sales in this quarter?

So not in the bulk side, but we had 1 NBFC borrower account with us, ABM India Housing, which we have sold to one of the ARC India SME asset reconstruction company in this quarter, in the month of September.

What would be the gross value for this asset? And how much provision we would have made?

Yes. So the outstanding was around INR 24 crores, and we had already provided fully for it in the previous quarter itself. And in this quarter, we did that ARC transaction.

Okay. Okay. And what would have -- what would be our cumulative write-offs that we would have done in the last maybe 2 years?

So see, since inception of the bank -- last 2 years -- so last financial year, we did around INR 224-odd crores of write-off. And in this particular H1 -- till H1, we have done INR 366 crores, out of that INR 311 crores came in, in this quarter only.

Okay. Okay. And how much of -- historically, what is our recovery that we get from write-offs? And from this cumulative amount also, what kind of recovery are we expecting? And over what timeframe can we expect recovery?

So normally, it obviously depends upon the type of -- class of assets also. So if it is JLG, then we have seen in past it ranges from 12% to 15% -- 12% to 25%, 20% type of recovery. I'm talking from the write-off book. And even in case of demand book, we will get even some recovery today also. So that is how it happens. But for the other asset classes, the recovery rates are higher. Sometimes it may go to 35% to 40% also for the other asset classes. Blended maybe around 20% or so if you look from that perspective, broad number will be around 20% from the write-off books.

So can we expect a similar recovery from the assets that have gone into write-off last couple of years?

Yes. Certainly, yes. Certainly, yes. In fact -- I mean, obviously, it's too early to talk about this part, but in the past -- for example, in case of JLG, we never had a collections team. Now, there is a focused collections team. The results can be better also. Obviously, I mean, we are yet to experience that part. But that's my expectation that results can be even better this time because of the dedicated collections team for JLG portfolio also. Even for other unsecured loans, we have a dedicated team. So results may be even better also.

Okay. And lastly, can you share credit cost guidance because we are clocking around INR 1,300 crores, INR 1,400 crores of NPA provisions in the last couple of quarters? So just wanted to understand whether this run rate is likely to continue. Or how is it going to go?

So as we just mentioned about the collection force headcount that we have increased, in fact, we have increased from at a level of 400 to 1,200 headcount now. And with improvisation in terms of improvement, normalization, both in terms of the disbursement being happening in the new book, all that combined effect of our credit cost is certainly going to be far better in Q3 and almost normalization from Q4 onwards.

And what is your sustainable credit cost guidance, normalized number?

I guess, we'll give a guidance once we have complete Q or Guardrail 2.0 impact embedded by Q3 results, and then, that would be a better time to give a guidance for subsequent growth.

The next question is from the line of Arun, an individual investor.

I have a question with respect to the regional focus of the business, so it's more to do with North. Is there any plans to expand in the south of India, like Karnataka, Tamil Nadu and Andhra Pradesh in the future?

So -- I mean, yes, because we had a headquarter in Varanasi, UP, so we have an initial concentration in Uttar Pradesh and around -- in the northern part. But if we look at today, we are across the country. We're in 27 states and UTs, and all these south states, including Pondicherry and -- I mean, things like -- places like even Goa are covered by us. We're in Andhra. We're in Telangana, Kerala, Tamil Nadu. All places are covered by us. And obviously, it was in the second phase. First phase was more towards the North and -- followed by West, and we have more than 50 branches right now in southern states -- sorry, 46 branches are in the southern states. And in fact, other than JLG, we are doing all type of businesses on that area also. So I'm doing LAP business. I'm doing MSME business. We are doing affordable housing also. And obviously, liability side, we are doing all businesses. Gold loan, we are doing from that area. So South also, we have started a big way. And obviously, we are there in the eastern part of the country also, like Odisha and West Bengal and those states. So the footprints, yes, it might have taken a little longer time, but we are currently all India player with little skew in favor of maybe West and North because those were -- there, we had started. As far as our operations are concerned, those have started early, but we're across, all India player now.

[Operator Instructions] The next question is from the line of Saurabh Jain, an individual investor.

I want to understand your JLG portfolio. Out of the gross NPA, which is around INR 2,276 crores, out of that, how much is the JLG portfolio? And the entire NPA of the JLG, is it unsecured or somehow it is covered under the CGTMSE?

So as far as security is concerned, we mentioned in the opening remarks also, from January 17 of this year, our new portfolio of JLG and micro-banking business loans, so entire unsecured part is closed. It is covered under the guarantee scheme. And today, it may be around INR 2,000 crore plus, which is a part of this. Around 25% of our portfolio is covered under the guarantee scheme because this has just started. As far as the breakout of this is concerned, Sarju or...

Around INR 1,850 crores is the JLG portfolio of NPA out of INR 2,274 crores.

Okay. Sir, can you give me an idea that out of the standard JLG portfolio, how much is -- how much amount is under stress, that is under the special mention account, SMA3?

Yes. So overall, 5% is under SMA0 plus 1, plus 2 over the portfolio, plus 23% is in NPA.

Sir, 5% is in SMA0 and 23% is NPA.

No, no.

From SMA0 plus SMA1, plus SMA2, all 3 put together, 4.88%.

SMA0 plus 1 is 5%. And SMA3?

Including SMA3.

Okay, including SMA3.

Yes.

Yes. Overall, of the SMA advance, it's 5% of the overall JLG portfolio, correct?

Yes, 4.88% to be precise.

4.88%. Okay, sir.

The next question is from the line of Chintan Shah from ICICI Securities.

Yes. So sir, on the guidance front, sir, which we have some mention wherein case 15% ROE, it will be there by '28. So sir, what kind of credit cost are we assuming for this ROE? So by FY'28, what kind of credit costs and what are the margins which we are assuming, if you could throw some light on that?

So we are -- as we -- I mean, whatever the disbursements that are happening from January, it is CGFMU ensured. And the new disbursement is also happening under the cleaner, less than 3 lender rule, the new regime, as we call Guardrail 2.0. With this combination and the normalization of -- collection efficiency should be very, very evident as these both the factors combined, we are looking with secured and unsecured composition, a max credit cost of up to 2% on a steady state basis.

Sure. And anything on the margins on that front?

So there are a couple of factors here. One, as the cost of funds, and we take the benefit of repo rates, we presume the cost of funds will go down, which will contribute to the NIM. We also have the revival, the disbursements, and once all the slippages get normalized, so that should add, and with the growth in the retail book at a higher yield, in fact, as earlier mentioned, our 2, 3 products have given us almost 40 to 100 basis points higher -- already began to see higher yield. If I take a combination of all combined, we should be looking again sometime FY '28 at 8.5% NIM is what we are -- our execution plans are.

Sure. And sir, on the CGFMU scheme, also now you mean to say from January 17, 100% of our incremental disbursements are via CGFMU. And if you could just help us understand the math, how does the scheme mechanics exactly work? How much has to be borne by us? And how much is the premium to be paid? Yes, some working on that would be helpful.

Yes. So the entire disbursement, which is eligible for the scheme, we are taking cover for that. And normally, we have seen that 93% to 95% of our disbursement is covered under the scheme, that is part 1. Overall, premium cost would be in the range of 1% to 1.2% of the AUM per annum. So that is the cost, which is expected. Yes. So overall, what will be reimbursed by the agency? So whatever will be the economic loss, 3% first will be borne by the lender. And for balance, 97%, 25% will be borne by us. And balance 75% will be borne by the agency. So overall, we can say 72% to 73% will be reimbursed by the agency.

Understood. So just for a hypothetical example, if INR 100 is the disbursement, and of that, if 10% is the GNPA, it means the slippages, so of that 3% [Foreign Language] so 10 [Foreign Language] 3%, that is 0.3% will be borne by us and the remaining 9.7% will be shared, 75-25.

Correct.

Correct, correct. You are right.

Okay. And sir -- yes. And sir, is there a maximum -- there would be a maximum cap, right, of the INR 100 maximum, like 10% or 15% GNPA will be borne by them, so what is that cap on this?

15%.

15%, 15% of the portfolio.

Okay. Okay. Sure. Sure, sir. So on that way, this largely then basically helps us maintain our credit cost well within range for the MFI, and non-MFI -- so what will be the, sir, our credit cost for the non-MFI portfolio to non-JLG portfolio this year, first 2 quarters, if you could break the credit cost for first half into JLG and non-JLG?

So for this quarter, the non-JLG credit cost stood around 2.3%.

That's an annualized number, right?

Yes.

It was a little higher because of the challenge in the Wheels business. Actually, you must have seen that this quarter 2 was a little challenging. We are -- obviously, we are making more efforts towards that also. So it was a little elevated for the Wheels business actually. That's why it is looking a little on higher side for this quarter.

And sir, what would be that number in Q1, sir?

In Q1, it was around 2.2%.

Okay. So 10 bps higher.

Yes.

Sure. And sir, just 1 last question from my side, so from the par, once an MFI account slips into -- becomes a 1 plus, so how much percentage of that flow forward comes to -- or how much of that flow forward goes to 90 plus? So once an account becomes 1 plus, so like INR 100 becomes 1 plus, then -- so like typically INR 60, INR 70 flows into 90 plus or INR 30, INR 40, what could be that number, any rough estimates, please?

So there would be 3 buckets after that, 1 to 30, 30 to 60 and 60 to 90. And every bucket will have its own collection efficiency. So 1 to 30 normally would have the collection efficiency of 50% to 60%, then 30 to 60 would have collection efficiency of 40% to 50%. And again, in 60 to 90, our collection efficiency is in the range of 55% to 65%. So that is how we try to manage. And the balance will flow into 90 plus. Again, after it flows into 90-plus, collection continues. And we have, as we mentioned, more than 20% being collected from that amount in next 24 months.

Sure. And sir, what's the write-off policy for 90-plus for the JLG portfolio?

So it is -- post-NPA recognition, the account should have passed more than 365 days, then it qualifies for technical write-off.

The next question is from the line of Sagar from Spark Capital.

Sir, I have some few questions. Our SMA1 and 2 book is going up, sir, from March, it has gone up to 4% to now 4.4%. So basically, is it because of the Wheels portfolio or still the stress in the JLG is emerging, sir?

JLG is largely cause. I think earlier, my colleague mentioned about the total provision, out of which almost 90% belongs to the JLG group. Likewise, this is largely attributable to the JLG delinquencies that we are seeing in the Q2.

So what exactly has happened that in the month of February and March, collection efficiency for 0 bucket in JLG had improved substantially. But again, after the implementation of the Guardrail 2.0 from April onwards, collection efficiency declined a little bit, and that's the reason it is 4.4%. But in Q3, we have seen that, again, we are -- we'll be back to the normal. So you will see by quarter 3 onwards, it should be in the range of what we saw in the month of March.

So basically -- but -- okay, my next question on -- related to that is, how much are -- out of our MFI portfolio, we have a lender plus 3 portfolio in us?

Lender plus 3 plus would be 16% -- 16.8%.

So 16.8%, and lender plus 3 means includes Utkarsh, right? So that means more than 3 lenders, including Utkarsh.

Yes. Yes.

Correct. Correct.

So that is 16.8% of the portfolio. So that comes up to around, sir, it's -- out of our INR 8,271 crores, almost -- more than 17%. So still that portfolio, what is the collection efficiency in that portfolio, sir?

So sir, this portfolio includes all the bucket customers. A few of them are already into NPA or they are into the SMA bucket.

Okay. So almost you can say out of that INR 1,300 crore portfolio, how much are into NPA, sir?

This would be -- you see, it would be a little higher on the overall book of NPA, obviously, because these are the lender -- borrowers who got out of the guardrails. So obviously, their repayment behavior got changed drastically after implementation in August. So that would be -- this portion would be around plus 4, I would tell you rather. Plus 3 is under control, but plus 4 would be around 25%, 26%.

Lender plus 4.

Yes.

So that means around 5 lenders, right, including Utkarsh?

Yes.

So how much that is, 25% of the portfolio?

Of that bucket, not the overall portfolio. You asked out of that portfolio, how much would be in the NPA?

Yes, out of the MFI portfolio, right? That I'm saying, sir.

No, no, no. The portfolio of Utkarsh plus 4 lenders, which my colleague just told you that 16% comprises of such nature. Out of 16% portfolio, 25% borrowers are under NPA.

Okay. Out of that 16%, 25% are those basically -- 25% are those, which are -- so how is that portfolio performing in terms of collection efficiency, including arrears?

I think, we may not have the exact data right now, but our trend we have seen -- I mean, there is a straight -- inverse relationship between the number of borrowers and the portfolio quality, higher the number of borrowers -- that we have established. I don't have the exact numbers right now, but -- wherever we have 3 plus -- sorry, Utkarsh plus 4, 5, 6, in fact, there we have seen the stress NPA and SMA is higher than our normal portfolio.

Okay. Fine, sir. So basically -- so last question from me, so what is the net NPA of the secured portfolio, sir, gross and net NPA?

Just 1 second. Let me see.

Actually, we track product-wise rather than secured and unsecured because many products have secured as well as maybe a little bit of unsecured.

But I think, sir, your MSME, housing and CV is mostly secured, right? 95% plus you have mentioned in the investor presentation, sir.

Correct. Correct.

Yes, yes, absolutely.

The next question is from the line of Raj Ganapathi, an Individual Investor.

My understanding with the executive investor presentation is that the bank's performance and recovery would be good in the next 1 to 2 quarters. So wanted to know the executive's opinion whether we can expect a positive PAT in the next 2 quarters so that it will be immediately reflecting on the stock price recovery as well?

So broadly speaking, as I mentioned, there is no -- we have still seen some stress. So obviously, quarter 3, we're still looking into the stress of past because guardrail started from last 14, 15 months. Some of the stress has already been covered. Some is yet to be covered. So still there may be little challenges in quarter 3. I mean, obviously, not the type of things we have seen in the past, but there will be challenges because we still have to provide for some of the delinquency, some of the NPAs. But we do expect that quarter 4 onwards should be much, much better from that perspective, from the profitability and overall growth and -- growth and the quality of book concerned -- book angle, quarter 4 onwards would be much, much better.

Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Thanks, everyone, and thanks, I-Sec for organizing this. Thanks all the investors for your questions, your responses and your, you can say, confidence in the team Utkarsh. As I mentioned in the beginning itself that we had some challenging time for last 4 to 5 quarters, but we are coming towards the end of that period. And as mentioned, we have committed to bounce back. And we have seen that things are started improving. And next 2 quarters will be certainly critical from our side also. And we have proper plans and good plans in place. And I think execution is right now on. And you should see much, much better performance, much, much better traction from Utkarsh going forward. So once again, thank you very much to all of you for joining this call and look forward to interacting with you on a regular basis. Thank you.

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