Yes, thanks sir for such a detailed presentation and the opening remarks, particularly touching upon the entire AI initiatives. So, few questions. Firstly, in terms of the NIMs + Fees, so overall it still sustained at 10.47%, but there has been a decline in the NIMs if we really look at it, while other income has actually gone up. So, what are the components of it? Any impact of excess liquidity which would have been there? If you can just highlight what is leading to that kind of a deviation in NIMs+Fee income and the sustainable trajectory. The second question is on growth. So particularly on the Personal loan side, the growth has been quite strong. So, if we can highlight some guardrails and the profile that we are keeping in mind just to ensure that asset quality out there is sustained. While at the same point in time, we had seen some slower disbursements on the SME and Gold Loans compared to those of last quarter. So, is it something very new indicated that you have let go of some disbursements worth this in these two particular segments? Yes, those are the questions.
L&T Finance Limited analyst Q&A
Okay, Kunal, thank you, thank you for your comments. Let me first take up the NIMs+Fees related point. This is Sachinn here. So, we can see clearly that the NIMs have reduced by 24 basis points from 8.78% in Q4 to 8.54% in Q1FY27. The yields, if you look at, have actually gone up by one basis point, but our debt-equity has been rising, which is leading to interest costs going up by 25 basis points. Actually, Weighted Average Cost of Borrowi ng ( WACB) is up just 3 basis points between the two quarters, you know, moving from 7.17% to 7.20%. But debt-equity which was 3.73x, has gone to 3.97x, about 0.24x higher. One reason is of course increased borrowing to fund the growth and the other reason is also due to the geopolitical situation being a bit difficult on account of war in Iran , we had maintained slightly higher surplus liquidity of close to ₹4,200 Cr. The overall liquidity was ₹13,000 Cr +. So, the net result has been a reduction in NIM by 24 basis points. However, what is worth noting is that this surplus has been deployed in various instruments on which we have also earned an income and which has been booked under the head fee and other income. So, when you look at the NIM compression, you should actually look in totality and that's the reason we always request analysts and investors to actually look at the metric of NIM s + Fees and other income just to make a comparison, which has actually remained at exactly the same level. It's a coincidence, but previous quarter also it was 10.47%, this quarter also it is 10.47%. So there is this other income which actually includes some of the, you know, surpluses which were deployed, the income is coming in that fee and other income, correspondingly the interest cost is part of the NIM. So that's the reason you see this difference. I hope I have answered the quest ion.
Yes, and besides this there is no element in the other income of any maybe any SR recoveries or something which is there or maybe it's purely on… No, so Kunal, the ARCs we keep, you know, actually there is a fee which is paid to ARCs, but there are sometimes when we have small incentives and all. So other income nothing really worth, you know, talking about, let me put it this way.
Okay, thanks Sachinn. Kunal, on the growth question, Personal Loans continue to, you know, do well and that is primarily because the sort of the thorough and disciplined execution of our implementations with the digital partners. Now you see we have now got four digital partners, which is primarily CRED, GPay, PhonePe, as well as Amazon. And these are the main large ones, we have a couple of smaller ones as well, but these are the four main large ones. Now what happens is that we have been sort of working on smoothing the digital journeys and sort of removing friction from our workflows consistently quarter after quarter. And because these are platforms which have a large number of customers and we tend to focus on salaried customers. Our objective is to build a large salaried Personal Loans book, right . So, we focus on our salaried customers and with a largely frictionless optimized channel, as and when the visibility of our loan programs increases across these platforms, the volume tends to grow. Now we have been adding partner after partner and optimizing these partners’ velocity, so it has continued to grow. And we have been embedding Cyclops now into these journeys, right. And the fact is that Cyclops also has been embedded to many of these digital journeys and so we are very, very confident of the credit quality that is coming through. First thing which I mentioned was that our focus is only on building a salaried, a predominantly salaried -- we do loans to self-employed as well, but our focus is building on predominantly salaried book in our Personal loans business. We have strong guardrails, Cyclops has been implemented, you know, the credit parameters on the Personal loan business, what it was one year back vis -a-vis what it is right now, there is a significant improvement and the fact is each and every parameter, every credit parameter with every passing quarter is tending lower and becoming better with every passing quarter. So as of now, we remain, you know, satisfied with the trajectory of this business. Yes, you have seen some heady growth in percentage terms because of the base effect. You know, last year Q1FY26 our disbursement, compared to that, our disbursement has grown definitely, but again that is attributed to a much lower base. As the base grows larger, the percentage growth rates will reduce over the next couple of quarters. However, we remain committed to growing this business in a risk-calibrated fashion. On your question on SME and Gold Loans, yes, SME we have been cautious during this quarter primarily because, you know, we were cautious about the fallout of the, you know, West Asia war on certain business lines as well as certain sectors, so we have been cautious and we sort of on our own cut disbursements in some of the SME sort of cohorts. So, we have done that. Gold Finance again, you know, April was a month in which the new RBI guardrails came into effect where assessing customer basis a tiered loan demand became mandatory as per RBI guidelines and, you know, it is not only us, but the entire industry also saw an impact of adjustment to these new guidelines. As a result of that, you know, we erred on the side of side of caution just to make sure that we are completely compliant with the RBI guidelines. So just like across the industry, some of the origination volumes fell; we saw a fall in our origination volumes in the month of April. However, there has been continuous improvement in May and June, and I expect the Gold loans business to have a normal growth trajectory in Q2 FY27 because that period of adjustment and learning in Q1 FY27 is behind us. So, I hope that answers your question.
Sure, yes, that answers, yes. Thanks a lot.
Moderator
Thank you. Next question comes from the line of Shreya Shivani with Nomura. Please go ahead.
Yes, thank you for the opportunity and congratulations on a good set of numbers. Sir, first question is on the Personal loan book itself. What I can see is that obviously the Cyclops was embedded into this in Q2FY26, but your Nostradamus is only getting implemented in this quarter, right? Just wanted to understand how much, I mean I understand the control you would have had at the underwriting level, but without the monitoring AI engine, what kind of confidence do yo u have with the book you're underwriting? If you can give some color around not in the terms of salaried non -salaried, but in terms of what's the ticket size of the book that you've been putting out through these platforms. My second question is on the farm, the Tractor business. It any color on the slightly slower trend over there? Were we cautious? Are we taking geography-wise focus because you have mentioned monsoon, some states may have reservoir benefit etcetera, other states may not have those reservoir benefit and if the monsoon is slower, we may get hit. And third is on the cost of funds in terms on what are we going to do going ahead? I understand the first quarter we were piling up liquidity, etcetera, but going ahead what will be our strategy and how much decline in cost of fund can possibly happen through the next three quarters? Those are my three questions? Thank you.
Thank you. So, I will take the first two questions, first two parts and Sachinn will take the third part. So, on the Personal loans business, yes, Nostradamus has got just implemented. First average ticket size on our Personal loans business remains between ₹2.6 lakhs to ₹2.8 lakhs. So, I can confirm that we do not do small ticket Personal loans, we are not in that very small, very small ticket lending business. Out of which our large partners, which is basically our large digital partners have a significant part of the origination in which with every large digital partner we build individual scorecards. So, it is not that one scorecard for the all the originators. We look at the data and the cohort of customer each partner has and then we build those scorecards accordingly and then we also cherry -pick some of the customers from this particular cohort and then show our offers. So, in a way we underwrite the customer, pre -underwrite the customer and then also underwrite the customer when the customer goes through the digital journey just to make sure that our digital sort of acquisition is of a very, very high quality. Yes, Nostradamus has just got implemented, but the fact is that we have been seeing dropping risk levels in our Personal loans business because of the tightening of the credit guard rails. See, one of the things which we have done is that if you look at our Personal loans origination, our Personal loans origination, maybe 4 years back was 50-50 self-employed and salaried. Right now, it is largely salaried. So, as a basis of that pivot, the credit parameters on our Personal loans business has sort of improved continuously over quarter after quarter. And now with Cyclops and on top of that the monitoring through Nostradamus, we are very, very confident of maintaining a good headline outcome credit quality on our Personal loans business. In fact, our gross non -starters in Personal loans business is lower than 3% right now. That means for the number of customers whom we lent to, 100 customers, only in the first couple of months only about 3% of customers bounce their first cheques and again net non-starters is much, much lower. In fact, we are sort of tracking the lowest net non -starters in our Personal loans business in the last couple of quarters as of this month. So, we remain very, very confident on the trajectory of our Personal loans portfolio and we will grow it in a risk -calibrated fashion. And now that Nostradamus as well as both Cyclops are implemented, we are extremely sure that this will prevent us from biting off any sort of unnecessary risks in this business than what is warranted. On the Tractor business, you have to remember that quarter 1 in general is a little soft quarter for the Tractor business, barring the month of June, when prior to monsoons the business disbursements takeoff. However, this quarter as you know that monsoon was slightly delayed, so we saw some delayed takeoff in tractor volumes in the month of June. Like towards the latter part of June, tractor volumes started taking off as the rains finally arrived, but we will see good impact of the tractor volumes in the month of July and August as the monsoon keeps on spreading. So overall in the Tractor business, the risk numbers also remain very, very stable. The net non-starter in the Tractor business also keeps on going down and we are happy with the sort of risk trajectory risk of the Tractor business. So, I hope I have answered that particular first two parts of the question. Sachinn for the third part. Okay, on the third part on the interest rate scenario, I think is changing by the day. Frankly. the macroeconomic environment keeps changing and the liquidity requirements keep changing. So, what we had done is at the end of this quarter, first quarter itself we had brought down the liquidity, the surpluses to about ₹9,000 Cr levels, which is the norm for us. But there is no assurance that things will really be continuing to be normal. So, depending on the situation we will keep either increasing or maintaining the same levels as in the earlier quarters. But what the overall impact should be seen in terms of how Reserve Bank of India has actually assured that there will be enough liquidity which will be kept in the overall system. And if that is the case, then I think the interest rates, especially the overall yields will not spike and if there is no sudden spike, we would be in a position to continue borrowing through various instruments like PSL as well as borrowing through the other domestic financial institutions. We have got the rating for mobilizing funds internationally, I think this is not the time currently, but yes diversification is also possible in case the situation becomes favo urable. As far as the second quarter is concerned, we believe that directionally it may move up by 5 basis points, 7 basis points. Frankly, we will have to wait and watch the situation over the next few months. But on an aggregate basis, FY27 I think may go up by about 4 to 5 basis points on an overall basis. So yearly WACB may actually go up from 7.35% for FY26 to maybe about anywhere between 7.35% and 7.40% that is what we are currently envisaging.
Right. Okay, this is useful. Thank you so much and all the best.
Thank you.
Moderator
Thank you. Next question comes from the line of Avinash Singh with Emkay Global Financial Services Limited. Please go ahead.
Yes, Hi Sudipta, good morning. One question is on your RoA, RoE journey in Lakshya 2031. Broadly it expect kind of a R oA to improve 60 basis points from here on a pre -tax basis 80 basis points kind of expansion. Now over the journey, I mean how do you see the contribution from credit cost and opex to come because by and large it seems given the asset mix, the NIMs plus fees is already where it should be? So, I mean how do you see I mean this 80-basis points kind of a improvement to come from? I mean of course when S R (Security Receipt) gets kind of realized probably that will release something, but rest I mean if you can explain that okay how this 80-basis points expansion in PBT R oA is going to happen? And particularly that in the backdrop if at all there is going to be something from the insurance regulator on the commission part because insurance commissions are a reasonably healthy kind of proportion of your fee income? So that is first question. And second, if at all I mean at this juncture what is your reading on El Nino and its impact I mean if at all going to be on your rural portfolio growth and asset quality? I know it is too early and I mean rains has been kind of improving, yet I mean your assessment so far? Thanks.
Okay, thank you. I will take the second part of your question first and then we will come to the first. So, see I have been traveling around quite a bit for the last 2 months. And frankly, I see nothing wrong in the economy. In fact, I was in Jabalpur about three weeks back and wherever I went, in fact the particular Two Wheeler dealer which is also one of the largest auto dealers in Jabalpur , he said that he has had a record May and June, he just does not have stocks. I travel led to rural areas also, rural area - things are okay. It is not that we could see any significant headline risk emerging. Yes, rains are delayed, El Nino is supposed to lead us to a sort of a lower -than-average monsoon, that is what is projected. But the fact is that if I look at till 10th of July rainfall is only about 14% sort of deficient . Now the IMD projection is about 10% deficient and if I look at -- what we have done is that we are also very carefully projected the reservoir stocks all across the country and because of two back -to-back good monsoons before this year's monsoon, I think the reservoir levels are at an acceptable level across the country. Barring a couple of locations in South India, the reservoirs across the country are at an acceptable level. So, I do believe that even if we have a 90% monsoon, things are going to remain quite okay. Things are not going to fall out or break suddenly. And you have to understand one thing the Microfinance industry has come out of a major asset quality cycle. The Microfinance industry has deleveraged from a peak book size of ₹4,40,000 Cr to about ₹3,30,000 Cr right now. So, the industry has deleveraged ₹1,10,000 Cr and always remember that during a crisis period your underwriting guardrails go up. So, the book that you generate during the period is obviously of a much higher quality. So typically, after any asset quality cycle you typically have an 18 to 24 months of Goldilocks period where you really do not see any emergence of risk. In fact, in th e microfinance industry, in spite of whatever El Nino worries etc. have been there , I believe that it would be a pretty normal year and I do not see any emergence of pockets of risk anywhere. The industry is being responsible, the industry is adhering to the MFIN guidelines, the number of customers with more than, you know, three loans outstanding I think is lower than 5% as of now, right. In the industry. So overall the industry has deleveraged. So, I think the worries on this are overdone. Right? So, and whatever our travels have told us that the economy is robust, the economic activity is robust and I expect that to continue in spite of a little maybe, you know, monsoon can be a little subpar, but in spite of that things will continue as normal. The Tractor business, again, you know, there might be localized disturbances, but overall, we expect us to have a reasonably normal year. And you would note that Tractor business was the second business we implemented Cyclops after Two wheeler. So, Tractor business actually has been operating on Cyclops for almost 18 months now. And the headline results like Two Wheelers that we see of the Cyclops generated Tractor portfolio is quite good and in fact we had the first half -yearly collection cycle that went through on the Cyclops generated portfolio and the outcome is quite good. So overall we are reasonably confident that even if El Nino etc. marginally impacts the rainfall, you know, it will not have a very large impact on our portfolio and we are sufficiently well capacitated to handle it because of our prudent generation as well as, you know, the collections framework t hat we have already existing in most of the areas. On your question on R oA and R oE trajectory, yes, we need to improve about, you know, 80 basis points, from whatever point we are currently at to get into that Lakshya threshold of 3 % to 3.2%. Now out of that I do believe that 20 basis points will come from the disappearance of the drag of the ARC portfolio and that will happen over a couple of years from now. You know, many of the assets are resolving, but it's another two or three -year journey for us. So, 20 basis points will come from there. I do believe that about 30 to 40 basis points will come from efficiency in credit cost as well as credit -related cost, which I call the cost of credit administration, specifically collections cost etc. So that is where it will come from. Some might come from business expansion as well, right. A small bit can come from business expansion as well and that is how it will stack up. We are reasonably confident about achieving this by disciplined execution. We have been executing in a disciplined fashion so far and it is our commitment that we will continue the same similar close disciplined execution for the next five years during the Lakshya trajectory as well. Thirdly, on the question on insurance etc., yes, we are aware of some of these developments, but I'd like to point out that it is not only, you know, it is not only for us, it is for the industry. And I do believe that the insurance industry along with the regulator and as along with the, you know, end consumers of the insuran ce products, which is the BFSI industry, will come to some acceptable solutions and outcomes on this. That is also the reason that we have kicked off the build-out of our payments business because, you know, as you know, payments can be a large fee revenue generator, but it will continue to build for us, right. So, it will be at least two to two and a half years before significant payment revenues are, you know, fee revenue on the payments business are visible on our balance sheets. So, it is in a build -out phase, we are cognizant of some of the headline outcomes that might happen because of that because of regulatory norming and as a business we have factored that in into some of our plans and we will respond accordingly. But however, I'd like to point out that it is more of an industry issue, and it is not an issue for L&T Finance alone. Sachinn, you would like to take … No, I think you answered that. If there is any further question on this R oA issue then I can maybe talk about.
No, thanks. Thanks. Very clear.
Great. Thanks Abhinav.
Moderator
Thank you. Next question comes from the line of Abhijit Tibrewal with Motilal Oswal Financial Services Limited. Please go ahead.
Yes, good morning, sir. Thank you for taking my question. Just two things. One is while in the last question you just articulated what are the levers for R oA improvement, where you spoke about 20 bps coming from disappearance of the drag of the ARC portfolio and I think another 30 -40 basis points where you spoke about improvement in credit cost and decline in credit administration. So just trying to understand, I mean will this also include some improvement that we will see in opex over a period of time? I remember you talking about scale building in some efficiencies, but the fact that you kind of continue to invest, we are building this cross -sell engine that you spoke about in your opening remarks, you are I think also building your private cloud now which you mentioned over a period of five years is better or is more efficient. So, on the opex bit if you could just explain how is the trajectory looking like. And the other thing that you just mentioned sir is that you kicked off your payments business. So just trying to understand overall whatever we have seen of the payments business until now, it's not really been a business which has been accretive to RoAs for most organizations until now. So, are there pockets where you're looking to operate where the burn in the payments business will be much lower? And the other thing is until now we've seen most corporate or at least NBFCs acknowledge that they are using the payments business as a funnel fo r customer acquisition. So, if that is the case also for us, for which business is the payments engine going to act as a customer acquisition engine? Those two questions sir. Thank you so much.
Okay, thanks. You know, the first question again on the R oA tree, you know, obviously we are trying multiple things at once, you know, I would say it it's like executing in all fronts. One obviously very important is the cross -sell engine primarily because as you all are aware the acquisition costs of, you know, customers of selling products or deepening relationships with existing customers is probably one- fourth or one-fifth of acquiring a new customer. So, in terms of acquisition cost, obviously it is value accretive. Obviously from a risk perspective, also selling to our known credit -seasoned customer from a risk perspective is also value accretive, right? Because it helps us predict the credit cost outcomes far with far greater degree of certainty than getting a new customer off the street. So, from both sides, it's more value accretive. Secondly, obviously opex, opex is not limited to cost of credit or credit administration. Many of the agentic frameworks, for example, let's take this example, you know, our underwriting co-pilot or for example the legal co-pilot like ShigraM. Average time to underwrite a sort of or interpret, not underwrite, to interpret in case of a Micro LAP business, the entire title reports and, you know, the title search and do the proper title searches could take anywhere from four to eight hours. Now with ShigraM that is down to 30 minutes to an hour. So, like this, you know, many of the tools that we have, for example, you know, our mortgage co -pilot enables our sales guys to answer the query using their own prompt generation on the tool, rather than try to call back someone in the call center and try to get an answer to the query. Right. Or for example, you know, in our collections businesses, you know, our bot-driven self-cure rate is almost high as like 40% right now, especially in the Two Wheeler business the self -cure rate has gone up from 10% to 40%. Now we are not using any human being to do this call, we are only using machines, right . So overall, you know, we expect that some of this technology sort of deployment will reduce the need for head count, though head count needs to finally do the sale on ground, you know, especially in the high touch- and-feel rural businesses will remain, bu t I do believe that a large proportion of our urban businesses will see efficiencies in head count as well. So, over a period of time, I see a normalization in head count cost as well. It will be not be very sharp in the next couple of years, maybe in the next two to three quarters it will not be very sharp, but as we move into, you know, FY29 and FY30, the impact of all these sorts of implementations will be visible in our head count attrition as well. So, in a way, it will be across the organization. The private cloud that we talked about, now see, it's a sort of, again, it's a leap of faith as I talked about, you know, we are trying to build much earlier because the fact is that we have been trying to push the AI envelope much earlier than many other organizations, the cost issue that comes with large AI usage is also very, very well upon us. So, the fact is that because we have understood that this is something that we need to address at the beginning stage itself, otherwise it might end up undoing all the good that you want to do from a opex standpoint, we are starting to move towards building o ur own private cloud. However, can we run tier - one applications on private cloud? Probably the answer is no. But can we run our tier-three and tier-two applications on our private cloud? Probably the answer is yes. But again, it has to go through a period of, you know, reliability testing, a period of operational effectiveness before we can sort of say it is a success. Overall, we are trying multiple things on multiple fronts, we are not leaving any stone unturned. Maybe out of that 80% will be a success, 20% might not be a success. But however, we are very, very confident that if 80% are a success, you know, that trajectory of R oA improvement that we have committed is more likely to happen, you know, over the Lakshya 31 time frame. And we are very, very committed to it. In terms of the payments business, yes, I understand that payments business is on its margin, if you're trying to build the payments business as a solo business you know, it at times it might not be value accretive. You know, we have people with deep payments expertise within the organization, I have done payments myself for 25 years of my career, so I really understand this business very, very well, right. And so, our focus will be on parts of the payments business that are more value accretive - from a fee point of view and we will slowly provide more color to it as we go forward. We intend to build a payments business which is agentic in nature because we have a lot of expertise on the AI front, especially on agentic AI that our engineers are now building, we have decided to leapfrog the entire sort of normal payment and move into agentic commerce. And we do believe that the movement to agentic commerce will unlock certain revenue dimensions that are not yet hitherto explored by the industry it is our thesis. Now the question is we are trying to implement this thesis, the thesis implementation might be a great success, it might be a partial success, or it might be a failure. You know, we really cannot put our finger on it and say, but the fact is that given the experience that we have, we are reasonably confident of success. So overall over the next couple of quarters, we'll slowly start working on this business and see, our business is not to burn money to try to get customers. There are certain organizations who give cashbacks on UPI etc. and burn money and try to get customers, that is not our model. Our model is to independently go, first and foremost serve our own customers. And because we do not have a payments stack at this current point in time, there's a opex drag that we have been trying to facilitate payments for our customers. Now the first objective is to eliminate that opex drag by doing that ourselves in-house. Right. The second thing is to intelligently build solutions through the agentic commerce model where our customers as well as some maybe new to organization customers might find benefit in those agentic commerce solutions and sign on to us in terms of the servic es that we provide. And last but not the least, we will test hitherto unknown areas, especially in the prepaid payments area where we are very, very confident that there are revenue pools lying especially in the fees front, which can be tapped very, very effectively by the organization. So, payments will be a step-by-step build, it will not be an all-rushing build, it will be a careful calibrated build which will continue to build for the next three to four years because this is something that we are committed to in long term as a goal for d iversifying our fee revenues and this is something that we will deliver during the Lakshya 31 period. I hope I have answered your question.
Yes, Sudipta. That answers my questions. Thank you so much and I wish you and your team the very best
Yes, thank you for the opportunity and congratulations on the quarter. So just firstly on Personal loans again. So, I just wanted to understand who are the key competitors and how does our yield stack versus peers? If you could help on that. And secondly, what differentiates us on the Personal loan front, whether it is faster TAT or customer experience and the sourcing would be largely digital only, I assume. So yes, that's the first question on PL. And secondly on AI investments. So, could you just elaborate on your AI investments, so what is the current run rate of AI -related cost and what proportion is variable based on the usage? Yes.
Yes, okay. So, on the Personal Loans part, you know, our key competitors is actually everyone else in the BFSI sector, right. Those who do Personal loans, they are our competitors. Now there are there are models of operation - there are certain organizations, especially the large banks, who operate on their own customer base. And through the DSA channel. For us, we operate on our own customer base through the cross-sell to our, you know, credit-seasoned, you know, customers. We also operate marginally through DSA, if you see our DSA volumes, our DSA volumes are only 10% of our overall volumes. But the fact is that, you know, a large portion of our origination is through the digital partners who have a very large pool of customers as well as they're far more amenable to digital processes. They allow very fine customer selection primarily because they see a large amount of the customer data, right. So they're able to give us, you know, a far more nuanced underwriting approach, especially on a joint scorecard development with target loss rate, so we exactly know what is the customer underwriting and what is the target loss rate. And, you know, the scale -up has been primarily because of digital journeys and friction sort of removal across all our channels. Our average yield remains at about 16% and plus, though there are certain channels which deliver, you know, again, because we operate across the spectrum, our DSA channel will probably operate at a far lower rate. Because DSA channel we do prime salaried, our DSA channel will operate between 12% to 13%, some of our digital channels will operate at about 19%. Overall, our weighted average yield in the Personal loans business is about 16% odd, 16% plus is our weighted average yield in the Personal loans business. In terms of the AI implementations, now see, there are a couple of parts, right . The fact for example, you know, there are core builds. For example, the core build would be like a machine like Cyclops or a machine like Nostradamus . Which uses probably it doesn't use agentic AI on a query basis it uses agentic AI, for example, Nostradamus uses agentic AI-based query system, but the core of the machine is built using machine learning where actually you do not have token costs that muc h, but the fact is that you run that machine and you have a continuous model upgradation cost. Overall, we have spent roughly about ₹38 Cr to build Cyclops and overall we have spent roughly about ₹33 Cr for Nostradamus and ₹37 Cr for Cyclops, but the fact is that we are still in the process , for example, as I said, you know, for Microfinance as well as Mortgage, Cyclops will be implemented this year and Nostradamus will be implemented for other lines of business apart from Personal loans and Two Wheeler, so the cost on that continues, right. Overall, you know, our token consumption as, you know, we had given out some token consumption in the last part of last presentation, I think if my memory serves me right, 240 Cr tokens was the consumption, you know, last quarter. Now obviously we are on Google Cloud and we are a completely a Google Cloud, of you know, a GCP suite user, so obviously we have a sort of a preferential deal with Google on usage of some of the some of the AI tools, though we use Cl aude Code for use in some of our coding. See, right now I would say probably we can come back offline saying that what proportion of our total IT cost is variable AI cost, we can come back, you know, offline because I don't have that exact number available with me today. However, our overall IT cost is between about ₹100 to ₹120 Cr a quarter is our overall IT cost trajectory.
Just to add , the Cyclops, Nostradamus and all these new projects that we're working on, the total amount, you know, taking into account the previous year capitalizations also is around ₹102 Cr at this point and there is some work in progress, capital work in progress which is there for the projects which we are currently working on.
Yes, that answers, and probably I'll connect offline for the fixed and variable portion. Sure. Yes, thank you.
Moderator
Thank you. Next question comes from the line of Abhishek Murarka with HSBC. Please go ahead.
Yes, hello. Am I audible?
Yes, you're audible.
Yes. Hi, Sudipta, hi. Congratulations for the quarter. So, my question is on this wholesale NPA. So, this is a quarter where after many quarters it has gone up a bit, although it's a small amount. But the question I have is one, if I look at the wholesale book of ₹2,000 Cr, how should we think about the health of that book going forward? Second is in your guidance of credit cost coming down, have you factored any NPA coming from that book? And if not, then does that lead you to sort of rethink your guidance? And if you can share some color on the remaining book, I know it's small, it's just ₹2,000 Cr, but just that, any kind of color on the health of that book will be useful. Abhishek, let me take this, Sachinn here. The GS3 small increase that you are referring to, is actually part of a settlement that we have already done and whatever hit is to be taken has been already factored in. So, there is no further increase, it's actually transitioning between the two quarters, that's the reason why it is appearing as the GS3, but you will see the same amount actually getting knocked off in the next quarter. As far as the other assets on the book are concerned, they are all standard assets, so we do not really expect any hits coming out of that. On the ARC resolutions we have already spoken about in the previous quarter, but let me just add the positive side of it. The PCR on the SRs, the security receipts, when we started off on this resolution process was 58% and that has now actually gone and increased to 68%. And the reason for that is that as per the RBI regulations, till the time all the assets domiciled with an ARC, till the time all the assets do not get resolved, any receipts out of resolutions of the other assets, need to be actually kept as part of that ARC's reserves. So whatever resolutions are yet to happen, this goes and adds to that buffer. So, 15% -- 10% increase itself shows that there is a substantial buffer which has got created, which is actually not required because we do this mark -to-market on a regular basis. But we have that money and that's why we are very confident that, once the resolution start happening ARC by ARC, you will start seeing these credits coming into the P&L and our assurance has been that we will not take it to the P&L, but we will utilize them to create macro-prudential provision. So, I think that should give enough comfort to all of you.
Sure. So that is on the SR part. In the existing wholesale book, it's all standard, but in your guidance of credit cost that I just mentioned, in your guidance of credit cost, have you factored any slippage from this book or it is purely just the retail movement, and you're not, this book is too small and it will run off so?
No, no, no. Yes, it will just run off over a period of time, that's right. That's right.
It's not factoring in.
Abhishek, I will add to what Sachin says. Some of these assets etc. who are in the ARC we have seen significant movement in their resolutions . Without naming the asset, one particular asset which was in Bangalore got resolved in terms of the sort of the deadlock that was there between the developers and then it has got launched, the project is getting launched, right . And that project will take three years to finish, it's a massive project. So, the cover on that particular case is almost three times that we have, right. In terms of current valuation. So, most of these projects will take the next two to three years to resolve and our wholesale team, especially our resolution team, has reasonable confidence that over a period during the Lakshya period we'll end up getting a good amount of over-realizations than what the book value of some of these assets are. And as we have committed, we will not take any of the residual realizations from the book value of -- these over-realizations into the P&L, we'll try to create a buffer, if we get that particular opportunity. And as Sachinn said, we are already getting resolution some of these assets which have gone into that asset pool. Because the SR asset pool has a couple of other assets that cannot though, that particular SR pool cannot be closed. So, it obviously shows up in increased PCR on the overall SR pool. So, but again to reiterate, the credit cost assumption does not assume credit costs from -- as of now from any wholesale.
Yes, because the GS3 has only one asset which is Supertech, which the PCR currently is at about 61% and we believe, because we keep doing this fair valuation every quarter, and there is there has been no further requirement to make any further provisions, and that's the reason there is no need for factoring and hence it has not been done.
Okay, very clear. Just another quick question is on this rural group loans, the distribution network slide, right? So there the distribution network villages activated, that is a flow number or a stock because it has gone down 5,000?
This is on what, Slide 25?
Slide 25, yes.
Yes, what is the question?
Is this a flow number, right? Every quarter the number of villages activated?
Yes, every quarter, every quarter. See what happens is that we have 2,20,000 villages into which we go and distribute our microfinance products, right. Now some of those villages become inactive in a quarter, so the objective is to go and activate it once again. So, this number is new villages which are activated, which have been absolutely brand-new villages where previously we were not distributing, or a village where we were distributing prior to that but the fact is had gone become inactive, which we have gone ahead and activated once again.
Got it. Yes.
This is a monthly exercise.
Monthly, okay. Got it. Okay. Thank you so much and all the best.
Thanks.
Moderator
Thank you. Next question comes from the line of Viral Shah with IIFL Capital. Please go ahead.
Yes, hi. Thanks for the opportunity and congrats for the good set of results. I had actually two questions predominantly. One was Sachin n, just a clarification on two points. You mentioned about the liquidity part, initially you had at the beginning of the quarter. So, when I look at the LCR numbers between the two quarters, that shows a decline already of 18 percentage points. So, is it that during the course of the quarter it was high and then towards the end of the quarter it was reduced?
That's right, Viral. Because we, as the situation starts improving , we really do not need to keep depending on the conditions. Like just a day back again there has been some increase. So, the ALCO has given the authority to the management committee, which is a subset of ALCO, to take this decision on increase or decrease the liquidity to be kept on the books because ALCO cannot keep taking these decisions on an ongoing basis, they meet once a month. So, they have been given the authority to actually keep moving in and out if there is a need, if there is an external environment change which necessitates increasing the liquidity, then it is done. And it's basically a very proactively dealt with situation, so the management committee actually meets every week to take care of this.
Got it. And second, Sachi nn, clarification I wanted was on the cost of fund s side. You mentioned that you expect on a full-year basis say around five to seven bps kind of an increase for the full year. When I look at FY26 numbers, the cost of funds was 7.35% and Q1 we are standing at 7.2%, so does it mean that from Q1 levels the cost of funds will go up by nearly say 20-25 basis points? That is what we have budgeted for, but like if you had asked me the same question before the credit policy, I would have actually added five-ten basis points more because the situation was grim and there was an expectation. See the geopolitical situation is leading to global changes, right? And if the yields are going to go up internationally, then you have even Indian government, and the regulator will have no choice but to keep increasing the yields just to remain competitive. As things stood just two days back, the yields actually came down again. And you know, last two days again, there have been some challenges again between Iran and US. So, it has been a very volatile kind of situation. So, we have for the time being been very conservative and assumed that there could be one or two rate increases which may happen. Even if the repo rates don't go up, players like us get impacted negatively or positively depending on how the short -term will really go up or down. So, the short-term yields will go up without even changing the repo rates and we have no choice but to keep borrowing. That actually leads to increase in the cost, which happened in the previous quarter. Three basis points is the increase that we are showing. I'm sure that the peer group companies who do not have the benefit of PSL may actually have a higher increase. But same thing happens when situation turns favourable. For example, Reserve Bank of India has come up with the FCNR (B) scheme. And if we are able to mobilize huge amount of funds through that mode, ultimately it will be ‘AAA’ NBFCs like us who will finally benefit, because the money will come to us for incremental credit to be given. So, the situation being very volatile, that's the reason I've said that it could be in the range of 7.35% or 7.4%. But if things really get normalized, then you may see much more favourable number that we may come across in our next couple of quarters.
Got it. And just one last question, Sudipta, for you maybe. You have been guiding for the credit cost to structurally decline and for Q4FY27 you have been guiding now for 2% to 2.2% kind of a credit cost and thereafter it will still further decline. So, for FY28 what is the full year kind of cost? Do you think you can deliver? Can it be we can assume less than 2% credit cost?
See Viral, I am not a soothsayer, so I can't look at --- I can’t. You know, my first port of call is to get it to between 2% to 2.2%. That's my first port of call. Now the fact is that Cyclops has been effective, Cyclops has been delivering. Right? However, you know, we are all travelling through a geopolitical environment, which is volatile. We have certain worries on the monsoon front, though I do believe that those worries are overdone. Right? However, my first target is to get it to 2% to 2.2%. After that, we’ll see. After that, how far it goes below that is something that the numbers will tell. In fact, the trajectory of our assets will tell around the Q3 or Q4 of this financial year. If you were to ask me this question around the middle of Q4 of this financial year, I'll be probably able to give you a far more cogent answer. As of now, it's very difficult for me to give you an answer on that.
Fair enough, maybe not say the extent of decline, but then would it be fair to think that F Y28 could be at least like a 2% to 2.2% number?
For modelling exercise, yes, you can plug that in, because that is what we are committed to. If you have said that by Q4 we are between 2% to 2.2%, then obviously in FY28, if we have to maintain our good performance, we have to be in that trajectory or lower. Right? For your modelling purpose you can plug that number. But in Q4 please meet me, I will give you a far more nuanced answer at that point in time.
Sure, sure, definitely. Thank you so much and all the best.
Thanks.
Moderator
Thank you. Next question comes from the line of Shreepal Doshi with Equirus. Please go ahead.
Hi sir. Thank you for giving me the opportunity. My question was in continuation with the review of the previous participants wherein, if the cost of fund is likely to go up because of the uncertainties, what is the kind of implication that we see could happen? I understand that, you know, you highlighted the uncertainties around and the volatility around. But then what is it that we are sort of building in terms of the range that it could be in terms of NIM implications?
So, Shreepal, Sachinn here. In terms of NIMs implications, you know, we stick to the corridor of 10% to 10.5%, which we have given. There are different moving parts. Every quarter, you will at times find the cost of funds going up or down. The yields now have come to a level where depending on which business we really accelerate, the mix now decides on what is the kind of yield movement that we will see. There is only one asset book which actually has a variable interest rate where we could pass on if there is an interest rate change which is mortgages. But apart from that there are couple of levers in terms of the fee income, which can also be looked at and as Sudipta was mentioning earlier that we are working on the payment platform. We should start seeing some, you know, revenue flows although we have not factored in at this point of time, but from the next financial year we are surely going to see some revenue flows coming in. So, there are some moving parts, as the situation comes over, we will try to figure out how to deal with that. But the NIMs, you can stay assured that if you looked at last almost 2.5 years and 3 years, we have been giving the guidance and we have stuck by that.
So just a follow up there, so you talked about the loan book mix. We have seen Urban book gaining share in the overall loan book. So where do you see the mix shaping up, while you've been talking about FY27 and then FY28. Where do you see this parameter in terms of the loan book mix shaping up by FY27 end and then FY28 end?
So, you know, just since this is a question immediately coming after the post or the earlier one, the Gold loan book is going to be one of the thrust area, Micro-LAP will be another area, Personal loans will be a third area. And if you look at all these three are reasonably high yielding products, and we should be in a position to use these levers. And, you know, also, as far as the Micro finance, the Rural Business loan book is concerned we already had 99.8% collection efficiency. So, we are not talking about decelerating the growth. We are just talking about in percentage terms just because other books will grow this may go down to some extent. But otherwise, growth over there also will continue. So, that's the reason I said there are levers of ensuring that, the 10% to 10.5% corridor can be met depending on which business we accelerate in a particular course.
Got it sir, got it. Thank you so much sir for answering my questions and good luck for the next quarters.
Moderator
Thank you. Next question comes from the line of Piran Engineer, CLSA. Please go ahead.
Hi, team. Thank you for taking my question and congrats on the quarter. Just a couple of questions. These large digital partners you work with for the Personal loan business, do they also provide FLDG? And if so, how much? No, we don't work on a FLDG model with any one of them. So, it's completely our own credit. So, see at times working on FLDG models means compromising on credit parameters for the sake of volumes. With the philosophy, we don't do that, right? So, it is only we originate customers at our own credit terms and not at terms of our partners.
Understood.
So, we give an origination fee to the partner, nothing else.
Got it. And secondly, sir, did you mention in your opening remarks something about CGFMU?
Yes, yes. So, we started taking CGFMU coverage for our Micro Finance portfolio, especially, see, we have not taken it for 100% of our portfolio. So, we have done a sort of risk metrics analysis, and we are taking coverage on a certain section of our portfolio. The portfolio we think that are more prone to, you know, or softer portfolios which we think are prone to economic shocks or has some overhang of an event risk. That is where we are taking this coverage. Just like we are taking CGFMU, we are taking CGTMSE coverage for our SME business as well. Again, not on the entire SME book. The cohort of the SME book that we think is risky. So, when we underwrite our SME books through Cyclops, it divides the book into three segments, the segments which you call premium, core and value, and they are rank ordered according to their risk. It is only in the, primarily in the value segment, which is the lowest of the cohort, that we are taking a CGTMSE coverage, because that we consider as a sort of a vulnerable segment as well. So again, our objective of taking the CG FMU coverage as well as the CGTMSE coverage is to provide the optimum amount of protection with the least amount of addition to ongoing opex.
But sorry in MFI, how do you like what sort of -- can you give an example of a cohort, like would it be only borrowers?
It is difficult to give an example of a cohort but let me give you an example. You know. See, because each and every state has its own flavour, but there might be you know one particular you know state which is more prone to floods, right. Now there are two options. You can take CGFMU coverage, or you can take parametric insurance. All new customers for example -- any new customer who is coming all new to credit customer. You have not seen their credit before. They are completely zero cycle.? So those are the customer you would like to take CGFMU coverage. Now once those customers go through three years and have done one or two cycles with you, are good enough, you know their coverage, you are happy to let go of the CGFMU coverage because you know that this customer is credit seasoned, right? Also, we are moving around in certain -- expanding our business in new geographies like Rajasthan, Punjab, Haryana, MP, Gujarat, Maharashtra, Odisha. These are the locations where we are taking CGFMU coverage, because many of the customers that we are acqu iring in these locations are first time customers for us.
Just to add, since we are taking it for the first time, in this year itself, we will cover about 35% to 40% of the total disbursement that we make in the current year for Micro Finance.
Yes, micro finance. Okay, yes. This is pretty useful. Thank you. Wish you all the best.
Thank you so much.
Moderator
Thank you. Ladies and gentlemen, due to time constraint , we have reached the end of question -and- answer session. I now hand the conference over to Mr. Sudipta Roy for closing comments.
Thank you so much for joining the call and thank you for your feedback and participation. I trust we have been able to address all your queries. However, I think that such a short time frame is probably at times inadequate to address all the queries, so our Investor Relations team is always available to answer any queries and myself and my management team are always available to meet you one -on- one or in groups to answer any additional queries that you might have. Thank you for your participation and attendance and with this I would like to close the earnings call for Q1 FY27. Thank you so much and have a nice day.
Moderator
Thank you. On behalf of L&T Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. *Since the transcript has been derived from a voice recording tool, necessary corrections have been made to remove anomalies as well as manifest but inconsequential factual discrepancies, repetitions in Q&A which would have unintentionally crept in, if any