Bandhan Bank Limited analyst Q&A

The first question is from the line of Kunal Shah from Citigroup.

Yes. So firstly, with respect to disbursements, maybe of almost like INR10,000-odd crores, which is down. If you can highlight in terms of how much is on account of implementation of Guardrail 2.0 and how the rejection rates have moved? And any particular geographical trends, if you can just indicate that? And how much was because of maybe the conservative approach towards growing the EEB portfolio? So that's the first question. And second question, when we look at it in terms of the vintage analysis, which you provide on the disbursements, which is on Slide 21. So when we look at it, like even say, disbursements of Q1FY25 and Q2FY25, that's rising compared to what we have disclos ed maybe over a period that's now crossing almost like 4-odd percent. So in fact, it seems like after maybe 12 months kind of a vintage, we still see 4% slipping into NPA across the pools, okay, right, from 3Q to maybe almost like Q1 of 3QFY24 to Q1 FY25. So is that like this is like the general nature wherein we will keep seeing like 4%, 5% of NPAs even from the recently written pools or maybe there was anything specific to read into this year?

This is Vishal here. I'll take your question. The first part of your question spoke about in terms of the EEB disbursals coming down. First quarter every year, there is a seasonality which gets the disbursal down. So this particular year, if we have to compare it to the previous year, which we had in year FY25, our disbursals in Q1FY26 stood at 10,708 crores in EEB, and that number corresponding in Q1FY25 was 13,721. So obviously, the disburs als moderated because of the guardrail s, which got implemented and these guardrails are good in nature from a long-term perspective. But obviously, there has been some impact on the short term, there has been a moderated growth in disbursement because of the lender norms and in terms of the rejection, which has gone up - Primarily due to 3 lender norms and also that nobody is onboarding more than 60 DPD in their books at total and secured exposure of 2 lakhs. On the second point or question on the vintage, if you see...

Sorry, just on this part -- sorry, on just this part, if you can highlight rejection rate trends as well that would really help.

Sure. So 16% to 18% of our rejections are also coming in where there has been an overall industry default. So nobody is able to lend in 16% to 18% of the customers , they are not being given loans by anyone now considering that everybody of this 16% - 18% population has moved towards 60 DPD. And if we spoke about the geography, for us because we are more recent in compared to some of the established players in Tamil Nadu and Karnataka, our disbursals with Tamil Nadu, Karnataka though it's a small base is also not growing out there. And some parts where we are trying to go further is also a little bit of an impediment specifically in the growth parts of UP and Gujarat. Clear geographies which are really not growing for us, and it's also true of the industry if you'll see. On the part of your vintage analysis, if you see Slide 21, we peaked at 5.2% for Q4FY24. I think this trajectory is because of the over leverage issue we s aw in the industry everywhere, everybody else also had worser number s compared to these of ours. And I think this will keep on coming down because the recent book, which is coming out to be much better off of Q4FY24 and Q1FY25. So I foresee that this will -- some of will be in the range of 3% NPA, not in the range of 4.5%, 5%, in times to come.

Okay. So this still seems to be because of the guardrails.

Exactly. And I would like to further add that if you see last year, Q1 was an exception. It was an exceptional performance for Bandhan Bank. So almost, post Q1FY25, we could not also foresee that suddenly, the EEB segment would reverse and it will cause worry for us from a risk perspective. So it is where this year, if you look, -- the slippages were almost 5.2 % and from there, we are actually coming down mainly because EEB slippages have been in double-digit in last few quarters. So there, we are actually coming down. So sequentially, you'll see there has been some improvement. But compared to a year -on-year basis, it would not be a n apt comparison because last year, it was completely an exceptional period. I think the best Q1 the bank has ever had.

Next question is from the line of Anand Dama from Emkay Global.

Sir, first question is on your SMA -0, where I think you said that you started billing on the holidays and that's the reason the SMA portfolio has gone up. Can you explain like how is that happening and what is the industry practice? Secondly, your SMA-1 and 2 portfolio has actually gone up now. So what explains that market moment? Is it specifically states likes West Bengal or Assam or there is something more to it? Number one. Number two question is that when do you see your 5% of the Bandhan Plus 3 portfolio unwinding, whether it will take another about 6 months for that portfolio to unwind, whether ultimately, theoretically, it has to go down to 0, right? Also when that unwinding will happen?

Okay. I'll take this question again. In terms of our SMA going higher, this number has primarily happened because like what Rajeev was speaking about raising instalment demands on the holidays, which was a requirement to maintain the consistency amongst the products - demand on holiday was being raised from 31st of March. And then we had 4 days in the month of April, where we started raising demand on holidays. And that's why you see there is an elevation on SMA-0, which, however, is pretty much recoverable. That is not something which is so much for us to worry upon. If you see SMA -1 and 2 largely, they have been stable. SMA-1 has been stable, and SMA-2 is, in fact, improved and in terms of the overall number, percentage -wise, is the same, simply because that 's for the EEB segment - which degrew in Q1FY26. And overall, our book of SMA -2 has come down, in fact. It's been INR480 crores compared to INR510 crores last quarter. And SMA-0, like I explained for those 4 weekly holidays in the month of April as well as in May , which had got billed for the first time, and that impact was mainly in West Bengal and to some extent in Assam, that is something, which we'll have to live with for one more quarter. And every month, we have been improving on that estimate number, which also had moved further up, but we are trying to control it and that number in times of period to come will also come down from the current level.

I think just to supplement on that, it has continued to remain within the SMA-0. It has not moved on to SMA -1 and SMA -2. And as Vishal said, there are efforts in terms of how that can be recovered.

So that culture is now changing in the ground also. So we have also now started collecting the installments in advance. And number two is that, yes, we just want to tell all the investors who are there next quarter September also, the Eastern part will be celebrating the festivals and there will be a block holidays on account of Durga Puja and others so we may see a little bit more rise in the SMA-0. But that's not a concern because these are all recoverable. And as Rajeev has said, it remains within the SMA-0 book.

My second question was about when do you see 5% of your Bandhan Plus 3 portfolio unwinding?

You were speaking about Bandhan Plus 3, that is 5%. Now over the period of, I believe, next 2 quarters, these numbers will come down to sub 2 %-3% because now we have restricted the guardrails from April. So whatever is remaining over the next 2 to 3 quarters as we have an actualization of 18 -month loan either 1 year or 2 years. So I think between the next 2 to 3 quarters, it will come down to below 3% because we are not getting any onboarding new with Bandhan Plus 3, so only disbursement is max to Bandhan Plus 2.

So only at best 1 and Plus 2.

And already, I just want to emphasize that today, 90% of our portfolio is Bandhan Plus 2 and 60% is only Bandhan and Bandhan Plus 1 is another 21%. So 81% is Bandhan Plus 1 and 90% is Bandhan Plus 2.

Sir, and even in your retail portfolio, there is some increase in the NPA that we have seen on a quarter-on-quarter basis, obviously, Y -o-Y it is far more higher, INR2.7 bn going up to about INR3.3 bn. Your housing also we have seen the NPA is moving up from INR7.2 bn in March '25 to about INR8.1 bn. So what explains the increase in the housing and the retail portfolio NPAs?

Here on this side, on the retail portfolio, the old book, which is like mostly in the unsecured side, that is showing little stress, and we have never written off anything on those unsecured. We continue our efforts to get some collection from there. So the recent upside which is seen, it is only the unsecured book, which we have done a lot of course correction during the last 1-1.5 years and recent book, which is a vintage analysis is showing a better performance there. So this is only the book, which is FY22 and beyond.

That's the Card book, right?

I think just to supplement on that, a large portion of the retail assets is really secured. There is only a small portion, which is in PL, which is the unsecured piece, and I think that's where there is some bit of an increase in the delinquency that you have seen, which are the old cases. Subhash Samant: Yes, from the housing. In housing too, we have witnessed certain old portfolios, which have trickled down over there, certain geography specifics also which are -- which saw the trends, but now the trends are lowering.

Next question is from the line of Mahrukh Adajania from Nuvama Wealth.

Good evening. I had a couple of questions. Firstly, again, on the SMA-0. So given that these are very low income groups, there is a lot of certainty that it does not roll forward. Is that the right way to put it? Because they are low income, right? So -- I mean, usually, it's a difficult guess on whether they do roll forward or not. So that's my first question. And my -- should I -- okay, you can answer that later on...

So we have got on the EEB segment where our data proves that our SMA-1 and 2 remains stable for us, while SMA -0 got slightly elevated in the same month itself, getting recovered. so collection efficiency has inched up you can see. So basically the holiday impact, actually the increase is that..

I'll just say that we have started these things, collecting also on the holidays where we cannot make any collection, but the demands are made. So obviously, in any geography, if you see there is a holiday and if my people are not there for collection, almost 1/6 of the portfolio in that particular geography will become SMA-0 as we work on a weekly collection model. So this has an impact. And when -- because states like West Bengal and Northeast where we have a larger presence. So there are some certain festival holidays or other local festivals or something there that obviously leads to the increase in SMA -0, and it looks quite large. But there's nothing concerning. So that is what I said, that there is no concern because these are recoverable and these are getting recovered. So what we are now trying is that we are trying to collect in advance, but it will require us, I would say, a cultural change, not only for our staff, but also for the borrowers. Because till now, they have been habituated to pay only on the due date or at the end of the period. That is to extend the 48 months to 52 months. So now this change is actually happening. It will take some time to stabilize. But nothing as a matter of concern as far the SMA-0 is concerned. And SMA- 2 has come down and SMA-1 also, it is stable more or less.

Okay. And my other question is that what is your general feedback on industry discipline? Of course, guardrails have been implemented, but some players are again complaining about aggressive behaviour of some other lenders. So what is your take on industry discipline? And in that environment, of course, you partly answered, so when do you see your microfinance -- EEB disbursal scaling up?

One thing I'd just say, while Vishal will tell about the industry perspective, that we are disciplined and we will continue to be disciplined. So the guardrails we are following it very meticulously and we will continue. Industry -wise also, it has affected the performance of all because more or less the major players, are implementing the guardrails, but yes. Mostly.

Rajinder Kumar Babbar here. Most of the players are implementing the guardrails. So only means the plus or minus only few ones, but all the larger players are aligned with the objective and they are making the changes.

No. I mean aggression in relending is what I'm getting at, not in terms of guardrails?

Okay. So let me take this one, and I'll just supplement what Partha sir and Rajinder spoke about. So for us, like what we spoke, we have been disciplined from 2 nd April, guardrails 2.0 got implemented. We have been following very religiously and diligently. Now somebody is trying to play aggressively in the long run, this may not be great for that particular entity. So as a rule, what I've seen is as SRO association is working in terms of ensuring that guardrails, which have been designed are followed on the ground by all the 82 regulated entities who have signed up for this. So there is also a report, which is being published every quarter, whoever has not been following the guardrails appropriately. So, it will all come up into light once this report is rolled out by the SRO. But having said all of this, whatever I get to hear from now, whatever entities have signed up, everybody is following through the discipline pretty much the way guardrails have got designed.

So then when do you see your disbursal scaling up? I know that your growth will be slower than other segments, but still?

So I think it will still take a quarter more for everybody to stabilize the guardrail like I spoke earlier as well, 16% to 18% of the customers who are above 60 DPD, nobody will be able to lend in to them as all of us have signed up to that guardrail. So 16% to 18% customers, obviously, which are existing are no longer eligible for loans. However, having said this, considering the new borrowers which are coming up because everybody now is trying to make the portfolio quality better. The focus has been there from the all industry players. However, by quarter 2 end, I believe where the monsoon season gets over and the festive season kicks in, the momentum also shift towards more disbursal and sustainable disbursement. So my guess is maybe one -- this quarter more with more time frame for us to be more cautious and then quarter 3 onwards, the disbursal will step up. It may not step up to the way it was stepped up before like 30% - 40% compounded annual growth. It will be in the region of 10% to 15% growth from quarter 3 onwards.

Next question is from line of Piran Engineer from CLSA India.

Just a few follow-ups on MFI. Firstly, have you all or the industry hike MFI yields, yields and processing fees?

No. We have not hiked.

No yield hike, no processing fee hike.

And no cut either?

No cuts there, and we have not hiked anything.

Understood. And then secondly, on this holiday thing, can you just once again explain it, so let's say, there was a holiday on 10th April and she had to pay, but she couldn't pay, then what happens, say, on 11th don't you all go and collect it?

So let me tell that earlier what was happening on a holiday, the instalment demand was not being raised. But as you know, that we need to -- we, now being a bank, we need to comply with the consistency across the products . So the thing is that even on a holiday like in other segments also, we now raise the instalment demand. So demand is raised, but my people are not available for collection because that day is the holiday. So earlier this loan was getting balloon at the end of the period. So a 4 8-weeks loans would have become a 52-weeks, but now we have to pay within a 52-weeks we have designed and we have to pay on all the time. So what was happening initially the borrowers or even my people also on the ground, they were also not in the habit or culture of taking the payment in advance or at the end, so it was obviously becoming an SMA-0 because it was getting collected on the next day. So now we are trying to get it collected a week advance for that day. That is our effort. It will take some time to stabilize. Also, we are exploring of course -- we have not decided that whether we can do something similar to the bond market that a holiday on a particular day, the next working day becomes collecting day for that year, but that is, of course, a little bit difficult because this segment, as you know, the works on the practice, the systems, the culture built over the years for that year. So we are now majorly aiming that if we can collect a substantial portion in advance of the instalment, then bring down the SMA-0. So that's why I said that whenever block holidays do appear, like in September, we are expecting that my SMA-0 will shoot up because of the Durga Puja festival celebrations at block of holidays in almost all the Eastern states. But ultimately, this does not pose to be very much concerned because collection efficiency is more than 99%. And this -- loans also get recovered.

Piran, I'll just add -- Ratan here. I'll just add a little bit more to what Mr. Sengupta said. See, in a normal retail loan, if it is, let's say, housing finance loan, generally, the bank will raise an SI demand and it will go and hit the savings account and recover from the account. In case of EEB loan, our group meetings, the loan officer will carry a tab on any day and then show that you have got INR1,000 instalment to be paid which means that if on a particular holiday, the loan officer is not landing into a group meeting or group meeting is not happening. The practice was that you don't raise the demand. And the next week, you go and collect it. Now that we have now ensured that we are raising the demand every day. That's number one. But we have created two more practices. One is we have now launched our QR code capability, which means that the borrower c an now pay online remotely as well; and other thing is that , we are also creating a practice of discipline that, can we collect the money in advance if it is Monday instalment, Monday being a holiday, can I collect it on a Saturday and request the borrower to keep the money in that savings account so that we can pull on a Monday. That is the second thing that we are doing. And the overall amount, if you see on the INR53,000 crores book, the SMA -0 increase is just about INR150 crores. So these are all like collectible amounts. So that's the point about holiday. Have I clarified, Piran?

Partly. So okay, I understand that digitization will help it -- help collections. My question was simple, let's say, 3 months in a quarter, 12 weeks, okay, let's keep it simple. The borrower pays every Monday. Now on one Monday, it was a holiday. So you al ways to collect only 11 instalments? Is my understanding correct? Not 12 instalments? For those borrowers...

So, I thought on the next month, you would collect double, but with...

No. We were not raising demand. So obviously, demand rate is 11 times a quarter , we were collecting 11 instalments. Now we are raising 12 demand in a quarter and we are collecting either in advance, a week before or on that particular day, we are not able to collect, we have to go to the following week to collect. And that's why that zero to six days comes into play. And that is what we -- please understand, on a INR53,000 cover book INR140 crores - INR150 crores addition means 0.27% or 0.28% addition. And that was also -- if you see the SMA-1 and 2 has not -- who have not paid us, that 0.28%, which is there have been paying us every time. What they have not paid is a backlog of 1 week or 2 weeks. Whenever the holiday...

When we collect a week in advance, it doesn't become SMA -0. If we paid the next week, then it's SMA-0, but gets collected, but it's only the initial fees when this holiday is happening, there is a backlog to clear out, right, which is exactly why it's continuing in the SMA -0. But it will take sometime because borrowers in the habit of paying only on the day of their week. Getting 2 weekly payments on the following week is also not easy and that's one of the reasons that it...

It will take some time to stabilize.

And like what sir also spoke about in the month of September holiday period of 4, 5 days together in Eastern part will have another spike up.

Just one more point to clarify, whereas QR code is there as an incremental initiative, the center meetings will continue. So I think that discipline will continue...

Piran. Sorry to interrupt you, can I request to come back for a follow-up question please?

One very quick question, take 30 seconds. Just what's your trajectory on NIMs, if you can guide us?

So NIM will get moderated as we note that we have just passed with 25 basis points of repo rate cut. And now this quarter, we are passing another 75 basis points. But two good things out there. My only 50% of the advances will get affected because 50% - 52% of my books are still in the fixed rate. So that's advantage I'm getting positive. Number two is that my cost of fund, as I've told you, Rajeev has already told that sequentially because of the cut in the deposit rates, we have got a benefit of 19 basis point decrease in the cost of funds. And as and when the fixed deposits would be matu red, this will be increasing because the immediate effect is only on the saving's bank, not on the fixed deposits. So that can, a little bit will be compensated. But let me give a clear picture. NIM would be moderated, and we have to put it with additional business so that the quantum of profit increases.

So four factors to think about, which will impact the NIMs. One is clearly the repo effect. So I think 45% of our book is repo linked and there, there could be some bit of impact. However, we have reduced our savings rate and we've seen the benefit of that come from this quarter already, 19 basis points improvement in the cost of deposits. And as the term deposits come for renewal, we will see benefit of that coming through in quarter 3, quarter 4. The third is on slippages. As slippages continue to come down, we should see a benefit or an offset happening on that particular front. And the fourth is as we are growing secured books faster than the EEB book, I think that mix change will have an impact. So I think these four factors. We don't have a specific guidance, but I think these four factors what needs to be monitored.

Next question is from the Harsh Modi from JPMorgan.

Two questions. First on margins, as you just explained, if I look at the mix change on the asset side with more of secured and less of E EB, even in third and fourth quarter with the FD effect coming in, do we still get sequential reduction in margin? So second quarter, definitely margin goes down, if I understand you correctly. Does that continue in third and fourth quarter as well sequentially, that's first? Second, this increased competition of some of the players kind of gaining the gentlemen's code and competing a bit aggressively, which segments, which states do we see this behavior? Is there -- is it behavior in terms of credit underwriting standards? Is it in terms of ticket size, is it in terms of pricing? If you could give a bit more clarity around how the competitive landscape is evolving despite the guardrails 2.0?

Maybe I'll take the first one on the NIM. I think I've already talked about the key factors which are there. Look, I think you're right, we should -- we will be able to see, I think, some bit of a compression further in the next quarter. However, we should be able to see some level of stabilization in the second half of this year because of the offsets that we expect, especially in the slippages that should try to improve. So I think that is about trajectory that we are looking at from a NIMs perspective. But at the same time, there are other levers that we're looking at on how do we actually increase our other income, which you've already seen a 33% YoY growth in this particular quarter that we have done and any further opportunities that we see in terms of improving our cost of funds, right, which will help because we are doing a lot of targeted push towards increasing our CASA mix as well. So there will be a multiple factors and levers that we'll be using in terms of how do we offset any further compression that comes to. On the second question...

I want to understand that Rajeev slightly more, because the gap between your secured yield and your EEB is quite large. And yes, we've got rate cuts, and all of that has happened and hence, your cost of fund will improve. But is it enough? Or as you said, you need a structural shift in much higher CASA balances and so on and so forth for you to even have a stabilization of NIM in second half or knowing at least what we know and where the state of play is a fair assumption is to expect further NIM compression in second half from second quarter levels?

No. So maybe -- yes, I can take that. So firstly, I think on the EEB, what we had guided the market is that we will be looking at growth on albeit on a moderate basis and secured book will grow on a faster basis. The first quarter, actually, we've seen a d ecline on a year-on-year basis in the EEB book. We expect that to start reversing out marginally the next quarter and then a bit more significantly, they are henceforth. So as the EEB book continues to improve, we'll definitely get some benefit of that to happen. While we are clearly aligned towards improving our secured share and the secured mix over the next couple of years, we've already made good headway. We've alread y got 52% of our book has secured already. So I think we're running a little ahead of time on that particular front. I think trajectory is quite good. So we have a lever and we have some headroom to be able to start growing our EEB book and the opportunities provided.

To add to Rajeev, so what you have said is also correct that we are also focusing in the mix of deposits. So more focus will be given from this quarter to garner CASA deposits. Yes, this is right, we have tried within the last quarter for fixed deposits be cause we wanted some stability in our books and that we have been successful in just 40 days, we could garner INR4,200 crores of incremental deposits positive. This quarter, the focus is on CASA. We need to make a mix change in the mix of funds. So as when this CASA will be increased for the year, definitely, it will further reduce our cost of funds.

So it's 2 points on the other side of -- just to add. One, clearly, is that 3/4th of our banking outlets, which are distributing this EEB loan. We largely see they're out of the problem in the larger sense, which means they will be going forward doing business as usual. Of course, not grow at the pace considering that we have the guard rails to follow. Second, clearly, the second half of the year is generally good for the industry. And therefore, we expect to see a significant uptick from here on. Now as far as the guardrail is concerned, our belief is that what we hear from the industry SRO is that most of the players, the significant and the large and medium players have implemented, given that the last cycle overheating really impacted the entire industry in a big way. Our belief is that people will follow the discipline. And therefore, we don't see that at least a re asonably larger medium players will derail, I mean, going forward soon. So to that extent, that's our belief. That's what we get to hear from the SRO as well.

I'll just supplement in terms of the number to get some flavor and color to this whole discussion. Yes, industry portfolio overall has come down by 13% -14% overall, if you have to compare year-on-year. From March '24 of 4,24,000 crores we are down to 3,67,000 crores in May. June figures of the industry are not published yet. That means 13% -14% of the industry level has come down. In terms of active loans also, it's more than 16%-17%. So it's not that anyone which I have been hearing is aggressively going. The only thing that has come out recently is in terms of the qualification criteria of 60% -40% now, qualifying criteria, so 60 can be micro for even NBFC -MFI, and that is something which everybody has to watch out for.

Sorry, could you explain that a bit more? When you say watch out for the...

So like I said, overall, the industry numbers have come down. I have not heard from any particular player or geography where we have grown. On the portion of 60% - 40% qualification criteria is mainly for NBFC -MFI who are now eligible to do non -MFI loans up to 40%. So we have to now watch out for individual loans, guardrails maybe coming into play rather than just picking into microfinance loans. Aggressively, there would be institutions who would like to provide the individual loans because there are no guardrails there, okay? We have guardrails only for microfinance loans. So that's something for those entities to really figure out in terms of how do they want to build their book of individual loans or non -microfinance loans. Is that clear or have you got the point?

Yes, I understood. Thank you so much.

The next question is from the line of M.B. Mahesh from Kotak Securities. The line for the participants dropped, we move on to the next participant. Next question is from the line of Jai Mundhra from ICICI Securities.

First, a small clarification, Vishal. So you said that -- now that the qualifying criteria has been changed. So there may be further tightness on the individual loan side, right, not the group EEB, but I mean in your parlance, the individual MFI loans, is that the understanding?

So what Vishal was just telling that, now NBFC-MFI can do 40% non-micro business. So there will be a little bit of aggression in the individual loans further like we have got a SBAL in our books. So similar to that such schemes are there. Now in this particular loan, there are no guardrails as of now. The industry would also like to see that it does not face the same experience as microfinance loan when due to leveraging a large part of the lenders, borrowers, we can engage. So that's somewhat was just indicating that maybe going forward, we may have certain guidelines for this segment too.

Correct. So I mean, honestly, if I understand, if I look at our EEB book, while at the system level, at the aggregate level for Bandhan, the EEB book has been declining, but still the individual portion is still reasonably healthy, right? So I mean there is some moderation you may -- if there is a further tightness there, right, then there could be one outcome there.

So I would like to say that the individual loan book is gearing better than the overall group loan book even in our side. My only contention here was there are now qualification criteria for other entities being like you spoke about aggressiveness, it coul d be aggressive on the other parts of non-micro book which other entities will try to go because there are no guardrails there currently...

So are there means -- are there heads of -- a lot of other business sub-segment, including as well, right? That is how you are seeing this?

So they can now do 40% of non-micro. So there may be some sort of aggressiveness to book the individual loans.

Sure. And on the credit cost side, right? So has anything changed in the sense that while the slippages are lower, and I think in the opening commentary, you had mentioned that -- I mean the credit costs are slightly lower, but still on improving direction. So has there anything changed in your thought process wherein we had said that first half will have relatively higher credit costs and then it should start towards normalization going into the second half. Is there anything changes there? Or is it broadly the...

What we have -- our guidance, what we have told earlier remains the same. So we said that credit cost will be remaining almost at the same thing in Q1. But thankfully, and we have a little bit lower credit cost compared to March quarter. So that is a good indication Q2 will be a little bit better. Q3, Q4, we are expecting so that overall credit cost of 2.5% as per the guidance we have given we will try to maintain that. And till now, that is our aim. We have not changed that kind.

Yes. I think just to supplement, we had mentioned that we will be able to see some marginal improvement in Q1 compared to Q4. That's exactly what we've seen as well. And that's the trajectory we expect marginal improvement in Q2 and with a more significant recovery by Q3, which is the second half.

Correct. And that…

Jai Mundhra. Sorry to interrupt you. I will please request to come back for a follow -up. Next question is from the line of Ankit Bihani from Nomura.

I just wanted to understand that while our margins have declined 30 bps Q -o-Q, loan book has declined around 2.5% Q-o-Q. What explains the net interest income being flat on a Q-o-Q basis? That would be my first question.

Yes. I think as I mentioned earlier, we actually have some improvement in the cost of funds. So our actions relating to the reduction in the savings account rates have led to almost 19 basis points reduction in the cost of deposits. And I think that has be en able to help us in terms of reducing the -- what we are seeing in the gross yield. The second thing is also sequentially seen the slippages come down marginally from roughly INR1,700-odd crores to about INR1,540 crores the exact number. So from INR1,748 crores to INR1,553 crores and that lower slippages also translates into some benefit.

It's basically the lower slippages that happened and the cost of funds here -- And the marginal due to the cost of funds.

Okay. And another, I might have missed it earlier. So of the INR1,550 crores slippages, how much would be from the MFI segment?

INR1089 crores.

From the EEB segment?

From the EEB is INR1089 crores.

Next question is from the line of Punit from Macquarie Capital.

Just two questions on the EEB asset quality front. So when I was looking at your vintage book, I was surprised that in Q4FY25, I'm just seeing where you have given a disbursement of 151 billion. And it shows like an NPA of 0.1%. Now I know it's negligible 0.1% but I just don't understand that it's something that is disbursed in Q4FY25? And if he is not paying three instalments, that just makes it like immediately NPA after disbursement. How -- I know 0.1% is negligible, but just one clarity on that. Is it a collection issue or what is that? Because it seems like just -- like it's disburs ed Q4FY25 and it's been classified as NPA the next quarter. So any clarity on that? Secondly, on -- yes. I wait for this, and then I'll move on to the second question, yes.

I think your point is that it. It's largely due to some cross linkage and the NPA becoming due to that which is what is causing this. It's a fairly marginal aspect, and that's the deal something that's they are focusing in terms of recurring as well.

There are Jan loans also here because it is JFM, So Jan-, we have a 12-month tenure, loan for 50% of our loans. So 6 months have elapsed from Jan. So point one, some portion would also be from a January month loan could be. And like what Rajeev said, most of it is coming primarily from a cross-linkage loans.

Sorry, cross-linkage, I didn't get that.

Cross-linkage. Some other loan would go default...

If there is a multiple loans so -- one loan becomes NPA, the entire portfolio...

Okay. But I thought we had stopped -- that went on NPA later?

It could be co-borrower as well. It could be co-borrower linkage or any other loan linkage.

Got it. Yes. I get that. Also, when I look at just -- this is just on the past 2 quarter behavior. When I look at the SMA -1 and 2 and when I track the flow, so say like this quarter, the GNPA has been constant and like 47.2% to 47.5% book. And SMA -1 and 2 last quarter was around 5.1 billion, 5.2 billion. That makes it an aggregate of 10 billion, 10.3 billion. We have written off kind of 10.5 -- our technical write-offs are around 10.5 billion this quarter, which is assuming all EEB, right, from the EEB book. So is it true that the SMA-1, SMA-2, the entire flow is into the NPA and then we are writing it off? And this has been for the past 2 quarters. Am I getting that thing right or if you could correct me if something is wrong with that?

So I can explain that. So of the 10.5 bn, almost 9.5 bn is EEB. So a large portion is that. So typically for anything that we look at in terms of a technical write-off, it is for a significant level of vintage, which has been there. So we first have a lot of recovery efforts that we do. And only after a constable period has elapsed, there we look at what exactly needs to be written out, right? So it's not something we could...Nothing from here would have got written off. So it would be at least a longer vintage of portfolio that we look at.

Punit, I'll request to come back for a follow -up question. The next question is from the line of Manish Agarwalla from PhillipCapital.

Sorry, Manish, could you repeat that question?

Your yield on investments have increased on a sequential basis. So despite your investment book declining on a sequential basis, there's a quite a bit of jump on investment income. So the calculated yield looks quite steep -- in a potentially declining interest rate environment. So can you please explain that?

Sure -- so you see the surplus is in deposits because these are advance growth has been muted. So obviously, the funds have been deployed in investments, but investments also, we are building up the trading book mostly so if you look this quarter also, we have made substantial fee income from the investment portfolio from the treasury portfolio. So that has come because...

Sorry to interrupt, sir, if I look out in outstanding investment book that have declined on a sequential basis. My question was pertaining to your yield on investment. So the calculated yield on investments have increased by almost 70 basis points on a sequential basis. So what explains that? I understand...

Yes, I can explain that. I think on a sequential basis, the yield actually has not increased. It has slightly reduced from about 6.6% to about 6.45%. On an average basis, our investment book has actually gone up. So I think period to period end, period end you might be seeing a reduction, but on an average basis, it has actually gone up.

Manish, do you have any follow-up questions?

No. I'm done.

Next question is from the line of Abhishek from HSBC.

So the first question is on the EEB disbursement that you are doing now, especially the group loan disbursements. Is it mostly to existing customers? Or are you looking for open market acquisition, new customer acquisition as well. So what is the strategy there?

So we are doing both. It's not that only we are going to existing borrowers, 86% -87% is the existing borrowers and 13%-14% is coming from the new borrowers or whatever we have been disbursing. But like I said, guardrails are implemented for both set of borrowers.

Sure, of course. But this 86%-87% is it now higher than, say, last couple of quarters? Or will it be coming lower?

We have been doing 85% of existing borrowers typically and garner 15% from the new borrowers. The numbers remain pretty much similar.

Okay. So -- and in the beginning of the call, I think you called out a few geographies where you are not growing and that for your growth is limited to just a few. Can you clarify where is it that you are comfortable to grow and where you're slowing down?

It's not like that. Our stronghold have remained in East and West Bengal, Bihar, Assam, UP that still remains a strong hold for us. So we are not really able to grow in southern parts of India, specifically Tamilnadu, Karnataka because like with the guardrails of 3 lenders down, most of the players, they already have got 3 lender now going for themselves. Unlike for other competitions, for them to come to Bengal. So for us, growth is a little challenging in Karnataka, Tamilnadu with all those political interference as well. So that's a place where we want to grow, but we are finding it tough to go there.

Rather than geography wise, I can say more -- pointing as a BU wise is that out of the 4,400 views, 3,100 are quite okay. So there, we are focusing the growth already. So it is across geographies on it. And more or less, because there the two states, they had issues in the recent past. Obviously, the growth is a little bit muted those two states.

So on a full year basis, this year, in FY26, what kind of disbursements or, let's say, AUM growth are you targeting? It would still be, I don't know, 10% YoY or -- what are you thinking? How do you see the trajectory?

I think it will be somewhere between 5% to 8% of growth for us in this year FY26. And because the first quarter has been muted, and it is, in fact, has gone down. I think the second half of the year will be better. And you have to accommodate and compensate for the first half of de-growth.

Yes, what Vishal mentioned of 5% to 8% is for the EEB portfolio.

Yes, EEB portfolio. And overall, then we should be able to target a 10% kind of growth rate for everything put together?

More than that because our non -EEB is growing at a much faster pace of almost 26%, 27% as we said.

Overall 15% to 17% target is the growth target.

Okay. And second question would be on cost of borrowing -- cost of deposits actually. Just on the term deposit re -pricing, can you give some sense of the duration of TD and how fast you expect the deposit rate cuts to start showing up in terms of your overall deposit cost drops.

So I can say we have started -- we first cut down the cost in the month of April, of both savings and term deposits. The effect of savings is being seen. But some deposits as and when they get matured. But in our case, the maximum resides in the one year b ack end. So you can say max - - within next March, I think we will get the full benefit of this rate cut on this term deposit. Because the maximum almost 60% to 70% resides in the 1-year bucket…

So just to supplement what said, so savings rate was reduced by almost 30 to 80 basis points. And we saw the impact immediately in the first quarter itself, 19 basis points reduction overall on terms deposits -- overall, on the cost of deposits. On the term deposits, I think 20 to 30 basis point reduction has happened in multiple buckets. Some we did in April, and further more we did in June. And I think we should see the impact from Q3 onwards.

Thank you. We would like to thank all of you to join for this call and would hope that you continue to place the trust with the bank. Thank you.

Thank you very much. On behalf of Bandhan Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.