Yes, thank you for the opportunity. Congratulations on a good quarter, a good year. So my one question is actually going to be about the impact of the West Asia war. In terms of we have all these AI capabilities and are probably be able to see the data quite upfront versus many other players. Is there any areas of concerns that you can highlight, whether it be across your SME book, whether it be across your personal loan book? Also going ahead this year, there are a couple of headwinds in terms of the rural economy can face because of El Niño, there are headwinds of the war continuing to cause disruption or maybe causing inflation later in the year, etcetera. So how are we thinking about the full year across certain critical segments which are susceptible to the monsoon impact, for example? So that's my one question. Thank you.

Thank you so much for the question. So, at the outset, let me tell you that though the West Asia crisis continues to go on, the domestic consumers have been largely shielded from any energy shock as of now, barring the little disruption on LPG supplies that we saw. However, there are, there have been sort of tightened supply of industrial gases, etc. which has also impacted some of the SMEs. As of now, we really do not see any significant worsening either of any or impact rising out of the West Asia crisis on any of our portfolios, whether it be SME or any other portfolio like Rural Business Finance vertical or Tractors or Two wheelers. As of now, there is no visible impact. However, we continue to be cautious. One of the things that we remain -- continue to be cautious is the fertilizer supply because the Kharif season is down the corner and many of the input stock for fertilizer production as well as some of the commonly used fertilizers originate in and transit through the Middle East, Middle Eastern corridors. So, if the crisis does not resolve in time for the Kharif sowing season, then we might see some sort of constriction of supply, fertilizer availability there, which might have downward impact on yields on some of the agricultural produce later. So, these are all second-order or third-order impacts. Obviously, we are cognizant of the energy shock that might come at some point in time because the fuel prices, the oil prices continue to be at a higher level. So, we obviously are looking at being cautious in our approach to the urban unsecured lending, especially in the SME business as well as in the personal loans business. But I would like to point out that our focus for the last 2 years have been more of prime customers. And we do believe that our prime customers have a larger factor of safety, in terms of dealing with the vagaries of economic cycles than the more sensitive below-prime or near-prime customers. However, we remain vigilant. Our portfolio management engine Nostradamus, which is in Two-Wheeler is already giving us measurable benefits. We're implementing it in Personal Loans as well. So, we will probably be able to see any risk pocket developing much, much earlier than maybe others. So, in conclusion, we remain vigilant. As of now, there are no immediate signals that we are seeing of worsening of credit parameters that is directly related to the West Asia crisis, but we will have to monitor this space continuously.

Right. And just a follow-up here, your plus 20% AUM growth guidance for FY27 is inclusive of all these concerns that you've talked about, right?

We have taken everything into concern. See the fact is that as of now, we remain committed to that 20%+ growth guidance. However, if there are unseen geopolitical shocks that might happen, later during the year, those are not factored into the guidance. However, as of now we stand by the 20% + guidance.

Okay, that's, very helpful. Thank you and all the best.

Thank you.

Moderator

Thank you. We take the next question from the line of Kunal Shah from Citi Group. Please go ahead.

Yes, thanks. So, a couple of questions. Firstly, you have spoken about the AI and efficiencies which it can bring in. Just if you can touch upon within the overall guidance, both near -term as well as maybe 2031 guidance with respect to how the cost ratios should pan out, be it in terms of cost to income as well as cost to assets, that would be helpful. And second question is on ECL model refresh. So, the contingency buffer has been subsumed and I presume it was in the Stage 2. So ideally, when we look at the release from the Stage 2, then ex of contingency, it wouldn't have been anything related to PD or LGD, if that can be clarified. That will be useful because there is hardly ₹11 Cr odd and ₹125 Cr was contingency. And so, we don't carry any contingency as of today within the ECL. That clarification would also be helpful. Yes, thank you.

Yes, Hi Kunal, thank you. So, let me take the second question first. On the macro-prudential provisions utilization, the Stage 1, 2, and 3, when the recalibration has been done. Anyways, when we show this slide on Stage 1, 2, 3, yes, you're right, ₹125 Cr was part of Stage 2 itself. As we have recalibrated, just the – ₹125 Cr has been subsumed primarily taking into account the last four to five quarter challenges that have happened at the micro-loan sector. The requirement naturally increases because ECL model runs at a lag. We have actually this quarter come out of this whole challenge with March ending at 99.8 % collection efficiency, right? But the ₹125 Cr which was remaining is anyways part and parcel. Earlier it was separately available, now it is part and parcel of Stage 1 and 2 as part of the ECL model itself. So, it's not gone anywhere. Anyways, it is just strengthening the same piece. It's just changed the color, that's it. Going forward, as we step into the next financial year, whenever there is a possibility and a requirement, we will anyways continue building macro-prudential provisions which will take care of the future events. So, this is as far as the macro-prudential is concerned. In terms of the Lakshya 31, the opex to book range, I think we are looking at a range of 3.75% to 4% range, primarily keeping in mind the investments that will be required because over the next 5 years, there will be further investments in technology which will be required, investments in setting up branches, gold loan, micro-loan, micro-LAP, these are the businesses which we will continue investing in and the branch network -- setting up the branch network comes at a cost. So, we have continued to factor these in when we build the Lakshya 31 projections. So, I hope I have answered both.

Yes, and near-term cost ratios?

Near-term cost ratios will be...

Yes, it will be same or maybe you could see some positivity.

Yes, so as far as the operating expenses are concerned, if you talk about FY27, we intend to, assuming that the external conditions remain normal, we continue to plan setting up about 150 to 200 micro -loan branches, further 150 to 200 micro-LAP branches, and about 400 to 500 gold loan branches. Now these will come at a cost, and hence we've said that the credit cost trajectory coming down, exit we are expecting, exit Q4FY27, we are expecting it to come down to a range of 2% to 2.2%. So, keeping the reduction in credit cost in mind and investments to continue in FY27, I think we are looking for an RoA target of 2.8% to be achieved by exit FY27. Basically, the Lakshya 26 target of 2.8 % to 3%, we expect to achieve with a lag of about four quarters because we are out of the crisis now and we should start moving towards achieving that target.

Perfect. Thanks, yes, that's helpful.

Thank you.

Moderator

Thank you. We take the next question from the line of Pranuj Shah from 3P Investment Managers. Please go ahead.

Hi, thank you for the presentation and taking my question. So first one is just on the fee income. It is relatively tepid if I compared to your disbursements growth of 61% and 6%. So, is this MTM losses that is pulling this down or what is this exactly?

No, fee income does not include any MTM losses. Primarily there is an amount of liquidity income. So, depending on the liquidity that is kept, we have the income coming in as part of the interest cost. And if there is a negative carry on that, that comes over here. So otherwise, the disbursement trajectory, the processing fee and the CLI income remain range-bound in that.

But do you expect this to grow in that 20% range in line with your AUM and disbursement target for next year, the fee income?

I think fee income has continued to remain in the range of about 1.7% to 1.8%, 1.9%. There are quarters where we receive something more, quarters where we receive something less. So, I think the range, rather than looking at standalone fee income, we always give a range for the NIM s+Fees because ultimately it's a part and parcel of whatever fee income that we garner depends ultimately on disbursement on a specific business. Micro-loan will give a particular range of fee, gold loan financing gives something else. So, to remain within the trajectory of 10% to 10.5% is what we have assured and we have been maintaining that. This quarter we've done 10.47%. So, some plus-minus, few basis points here and there will keep happening. We can't really monitor on exactly what will be the fee income, but broadly this range should continue.

Understood. Thank you. And lastly, just one clarification, like, your reported NIMs versus the calculated based on period-end averages is quite a bit of delta. So, your reported is on daily average assets, am I correct there?

No, reported what we do is we do end-of-the-period averages.

Okay. Understood. I'm getting a bit delta, but I'll take this offline perhaps.

Sure.

Thank you.

Moderator

Thank you. We take the next question from the line of Avinash Singh from Emkay Global Financial Services Limited. Please go ahead.

Yes, hi. Thanks for the opportunity. A couple of questions. The first one is more on, I mean, AI. Of course, you are kind of leading there and leveraging it. My question is more on the, you know, that medium-term impact of AI in the job markets. I mean, the h iring scenario in IT looks muted at the moment, uncertainty is there. And even if you were to look at financials, as a sector overall, the wage growth has been slowing and hiring is also relatively slowing. Now these two sectors typically will be very, very key for your targets of the two-wheelers as well as the PL. Now if these two sectors are kind of a bit clouded here, now how do you see this risk in terms of your growth, asset quality over the medium term? Because these two are kind of a very critical to your growth, the two-wheelers and personal loan growth are very critical to your growth trajectory and plans, but we have this big sort of uncertainty coming in. So, I mean, on one hand, of course, AI is helping on the operation side, but this is kind of creating a cloud. So that's one. Second, again, I guess this has been discussed and answered. From this FY31, so broadly if I see, I mean, if I were to remove this drag on earnings from the security receipts and see the credit cost improvement, by and large, it looks like that, okay, in terms of even over the medium term 4-5 years, your play is like NIM plus fee changes and opex changes basically offsetting. I mean, there is very little play from these two parts. The large play is from credit cost and some, of course, SR (Security Receipts) drag going on. So now if you were to continuously invest in technology, I mean, why it is so that even at exit, I mean, after even 4 -5 years, you do not see that opex play to come into pictures? And this branch 150 each for microfinance, micro -LAP, and 400 for gold, is to be opened in how many years? And will there be some overlap in these branches? Thanks.

Okay, I'll take the first question. The first question is that the fact is that yes, there are a lot of headline moderation in hiring by some of the sort of the bigger Indian IT firms as reported in the media. However, one of the things we should be cogniz ant of is that much of that slack is also being picked up by the huge expansion of GCCs (Global Capability Centers) in India. So, the fact is that, and we are in the hiring market almost every day, it's still as difficult to get qualified talent as it was 2 years back, right? So, maybe there might be a little bump in the freshly minted engineers getting hired into some of those, som e of the big Indian IT services firms, but the hiring by the GCCs expanding is quite strong. So according to our assessment, we really do not expect the IT staffing or hiring industry to completely fall off a cliff, at least for the next 12 to 18 months. And the fact is that because we have been very, early in adopting AI -based tools, and now we h ave a significant AI development team as well, our realization is that the front end of AI development is only 15%. To make AI solutions useful for use in the frontline or for use by operating managers, you require a heavy engineering wrapper around it. And that requires software engineers and developers to put it together in a usable format. So, I do believe that, and this is obviously, this is my own personal opinion, some of the gloom and doom regarding job losses from AI like, being an unstoppable stream, has been probably a little overblown. Yes, there will be some losses because of efficienc y gains, etc., but I do believe that some of those will be deployed into tools development or manufacturing of AI-enabled solutions. So overall, I do believe, that there'll be a marginal impact and not a massive impact. But again, the caveat is that we'll have to see as it plays out. You know, my guess is as good as yours, and no one can predict with 100% certainty as to what will happen. Having said that, we are cognizant of wherever there are, like, large-scale job losses. Of late, there was a large-scale job cuts by one large global US player, right, in the IT segment. And so, our underwriting sort of paradigms as well as underwriting processes, especially in SME or personal loans, etc., remain cognizant to such risks. And, and we incorporate such things into our decisioning process. For example, if we get advance news of a particular large heavy amount of job losses in a particular IT services company, right, or downsizing in an IT services company, automatically any application coming from that company for a personal loan or for a credit facility goes through an additional amount of security. So, those things are built into the underwriting process. The second, as part of the second question you were asking whether, on the gold loan branches, 400 plus gold loan branches is for deployment only in this year. That means from 1st of April till 31st March of, 1st of April 26 to 31st March 2027, in between this period, we'll deploy these micro-LAP branches, and we'll deploy these 400 plus gold loan branches. So, the rate of deployment of gold loan branches will be at the rate of almost 1 to 1.2 a day. And so that is, to answer the question. The third thing is that obviously, opex and the credit cost trajectory will evolve over the period of the Lakshya 31 framework. So, you know, currently we are at about 2.64. You can see that, our slippages have been coming down. Our slippages same quarter last year were about ₹900 Cr plus, this quarter it is ₹402 Cr. We have given in slide 20 the impact of Cyclops on our two -wheeler portfolio where you can see our 30+ DPD portfolio at 10 months from the observation period is 2.8% where the industry average is 7.1%. So actually, our Cyclops portfolio, two -wheeler portfolio, which is like almost ₹11,000 Cr right now, is, but the observation window book, which is about ₹3,250 Cr, is outperforming the industry by almost a factor of, almost a factor of two. So, we remain very, very confident on the trajectory of paring our credit cost during the Lakshya cycle to sub 2%. That is why we felt confident enough to put it as part of the Lakshya guidelines. And the fact is that you are right, to a certain extent, the R oA expansion will come from some part of the efficiency that is arising out of opex, as well as we will build headline efficiency in our opex plus credit cost. As you, if you had been part of the analyst call previously, at one point in time, we used to guide saying that our opex plus credit cost will be in the corridor 6.5% to 7%. Now we have moved that to a corridor of 6% to 6.5%. And during the Lakshya period, we expect that to be in the corridor of 5.75% to 6%. So that is where we expect that to be in the corridor of. So obviously, there will be efficiencies built in the opex line, there will be efficiencies built in the credit cost line, and obviously we will try to hold our NIMs and fees in the corridor of 10% to 10.5%. There was a question on fees. We have launched the payments business primarily because we want to diversify our fee revenues. We are cognizant of the face that our primary fee comes from insurance revenues as well as from origination fees. So, we want to diversify our fee revenue pipelines. So that is why, the payments business has been launched, or payments business is proposed to be launched. So, we are working on diversifying our fee revenues as well. So that is why, for the near term, our guidance on NIM plus fees remain at 10% to 10.5% for the near term. So, we are very, very confident that given the fact that structurally the changes that we h ave done to the businesses and the way we do our businesses, right, will help us navigate the Lakshya 31 period and deliver those metrics that we have put on the paper.

Thank you, very clear.

Moderator

Thank you. We take the next question from the line of Chintan Shah from ICICI Securities. Please go ahead.

Yes, thank you for the opportunity and congratulations on the quarter. So, Sir, firstly on this Lakshya 2031 RoE guidance of 16% to 18%. So, in that are we considering any benefit from the SR portfolio as in any provision reversal which you are, which we could expect from that or what is kind of the recovery rates on the SR portfolio? So, this quarter I think we have, this year we have a reduction of almost ₹1,000 Cr in the SR book. So, has that gone anything towards the provision and any add -back on the capital front? Yes, that's the first question.

So, first thing is, we have not taken into account any gains coming out of SR portfolio because earlier we had guided that as and when such gains come in, we will actually utilize the, those credits to take care of the, further macro-prudential provisions to be created. And , once we have sufficient provisions created for micro-loan, we may also consider creating provisions for the unsecured portfolio overall. So, that's a top -up which has not been factored in over here. And as far as the current credits are concerned, you would have seen that the SR portfolio used to have about 59% provision, that has now gone up to 64%. So, till the time the ARC has more than one asset, the release of these credits to P&L is not possible. So, whatever credits have been received have actually just gone to, create more buffer for the balance assets which are currently going in for resolution. So, we will over a period of time, there will be a redemption of SRs and at that point of time the credits will come in and we will, like we had guided earlier, will utilize the moneys towards creation of additional macro-prudential provision.

His question is that 3% to 3.2% ROA, does it include...?

No, it does not include. That does not include. Also, but one of the important points to note is that the SR portfolio still gives us a drag. Because, we have to still provide for the funding cost for the portfolios with the ARCs. So as and when the portfo lios resolve, that drag resolves to a larger extent, which releases a marginal RoA into our entire earnings stream. So, if you had to look at standalone basis, our retail portfolio is actually exhibiting RoAs at a level higher than our consolidated RoAs. So as the drag reduces, yes, there is a secular benefit that will come into the R oA profile as well. So, to that extent, yes, the resolution of the SR portfolio will aid our R oA expansion definitely.

Sure, Sir. So, from that retail portfolio R oA, standalone RoA which you mentioned is higher than the overall, so how much would be the delta which retail portfolio R oA would be having over the consol ROA?

Rather than talking about the delta on retail, I would like to just talk about what is the money that is stuck. We have ₹2,200 Cr of portfolio on the book, the loan book, the wholesale portfolio, and about ₹4,800 Cr of SR portfolio. So totally about ₹7,000 Cr, right? ₹7,000 Cr is the, is the money which will get released over a period of time and right now the ₹4,800 Cr does not give me any interest income because they are part of SR; ₹2,200 Cr must be giving me around 11% to 12% kind of yields. You can do the calculations there. This money will get released and will get redeployed in high -yielding retail business.

Understood. And fair to expect that this will get resolved in three years' timeline atleast?

Yes, three to four years. So, there may be a long tail, but yes, larger resolutions, there has been a positive movement which we are seeing. Ultimately, it's with NCLT, so it's anyone's guess, but yes, next two to three years, significant part of the assets will come up for resolution.

Yes, let me add to what Sachinn says, Chintan. In many of the assets, there has been significant progress over the past one year. And we are reasonably positive about the trajectory of that. But it will take another three to four years because, for one of the assets, for example, if I were to give an example, the JDA has just been signed last quarter. Now once the JDA has been signed last quarter, the construction period is at least 2 to 2.5 years. And so, it will take about 4 to 4.5 years for the full project to get delivered. So, the delivery will come across the next three to four years is what we look at. And so, we have a team, we have a reasonably focused team that keeps on working on this, and so far, the outcome has been positive.

Fair enough. That is very helpful. And Sir, just one last question on the fee income part. So, I think in order to boost fee income, so are we looking at any opportunities to further expand into co -lending or are we doing any co-lending as of now? So, what are the thoughts on that?

See, co-lending we do on the personal loan side, but on a very selective basis with only a couple of partners. Co-lending always remains on the plan for us, on the table for us. There can be opportunities in home loans to do co -lending, there can be opport unities, personal loans obviously the opportunity arises, in SME there can be an opportunity to do co -lending, on a product like warehouse receipt finance, there can be opportunity to do co-lending. So, the only thing about this is that co-lending frameworks are slightly complex to implement as well as it requires a little bit of tech integration as well as monitoring. See, we are not starved of capital. Right? So, we will do co-lending wherever we get access to newer customer pools, right? And the partner also wants the say in the control of the customer experience process. Right? So, there are various considerations that go into co-lending or the partner does not have enough capital to deploy to do a certain amount of product to its customer base. So, there are horses for courses. Yes, we remain open to doing co -lending frameworks, but obviously at terms which, we think are favorable to our business philosophy.

Sure. That's it from my side. I'll come back in the queue. Thank you.

Thank you.

Moderator

Thank you. We take the next question from the line of Anuj Singla from JP Morgan. Please go ahead.

Yes, good afternoon, sir. Sir, my question is on the ECL refresh. While you have elaborated quite a bit on that, on the Stage 3 PCR cut, is there a change in LGD or PD assumptions there?

See, the PD LGD, there are two ways, within the industry there are certain players who have PDs which, which keep increasing, which have an increasing trend as they move stages, and there are some players who also have the LGD moving, showing an increasing trend. There are other players in the industry who have a moving PD but the LGD is static, which means that LGD is decided at a portfolio level and accordingly the overall LGD is applied to every asset right from -- so it's fixed for all the three stages. So, when we've done this exercise over last two years, we have actually been recalibrating the, Stage 1, 2, and 3 PD LGDs. This quarter -- this year for the, based on the impacts of FY26, we have revisited this and accordingly the Stage 1, if you look at what has actually happened is that the overlays which were kept in Stage 3, which were over and above whatever was requirement as per ECL model, with the difference of PCR between 74% and 68%, that differential was nothing but the management overlays, they have got released as part of this whole exercise and 96% of the portfolio which is in Stage 1, there we have actually enhanced the overall PCR from 0.52% to 0.80%. So right on day 1 as the loan gets sanctioned and disbursed, 80 basis points is set aside. In if you -- if you are aware in the RBI prudential norms, this used to be a minimum requirement of 40 bps. It's actually double that number. And the LGD across the stages has been fixed. That, that's the reason why you see that right from the Stage 1 carries 80 basis points, Stage 2 also there is a small increase which has happened from about 2.23% to 2.47%, and Stage 3 there has been a release. So, this release of provisions out of Stage 3 does not in any way bring down the provision coverage in terms of what is required for that portfolio. I hope I have, I'm clear on that.

So, my question is if there is an LGD or PD change for Stage 1, so let's say for the incremental portfolio build-up in FY27, do will you be providing at 80 basis points incrementally as well or it will be 50? So, you've created a buffer between this 30 basis points of incremental buffer, but that's a one -time buffer, or have you changed the assumptions that every incremental asset build -up will now need to be provided at 80 basis points as well?

It will be 80.

There is a change in, there is a permanent change in assumption then

Also, there are still certain overlays continuing in Stage 3. So, we have not fully exhausted the overlays which are part of Stage 3. Okay? Number two, if you have seen that last 4 to 5 quarters, the whole rural business loans business has gone through a crisis. Okay? So just simple arithmetic, if you exclude one good year and you add one difficult year to the overall ECL model, you will find that the PD LGDs will increase. Okay? Now the actual behavior of our portfolio if you see has only been improving. We have actually gone back to the pre-crisis levels, our collection efficiencies are back to 99.80%. Which means the actual requirement as part of the credit cost, will come down significantly whereas the ECL model requirements will continue for some time, yes, just as a pure arithmetic. So, that also is one of the factors which leads to this increment. In a way, it actually creates, if my asset book is going to be improving with every quarter, this will actually create only cushion in the system. And that's what we ultimately intend to. We used to hold ₹975 Cr of macro-prudential provision at one point of time, and in a way by, the acceleration of Stage 1 provision, it only helps us create that cushion at the early stages of life. So, the standard asset, gets a higher coverage. By the time some roll -forwards happen, we have also shared how the roll-forwards have been slowing down, & that actually shows very clearly that the overall portfolio across all businesses is only improving & the overall requirement for provisions will go down in reality, but when we look at the provisions to be created, it is purely dependent on the ECL model. The Cyclops impact, partial impact through the segmentation and all has been already considered. As we move into the next financial year, you will see the further impacts coming in and which will help us improvise on the overall credit cost. And that's why we are pretty, you know, bullish on how we will end this financial year FY27, and you know we've taken a, aggressive target I would say in terms of bringing down the credit cost to a range of 2% to 2.2%.

Okay. So just to clarify, this does not, the change in this quarter does not have an impact on the next quarter, next year credit cost outlook? Because mathematically it should. I just want to clarify if the Stage 1 you are now factoring at 80 basis points versus 50 basis points till 3Q, now we have increased the positioning on Stage 1 build-up, which incrementally will be adding in FY27. Does it change in any way the outlook of credit cost for FY27?

No. See, the reason for that is the , actual roll-forwards if they slow down, the hit to P&L is expected to come down significantly. So, the provisions requirement, you know, based on the book increase will go up, but more than compensated by the reduction in the roll-forwards.

Got it, got it. Pretty clear. Thank you. Thanks a lot.

Moderator

Thank you. We take the next question from the line of Abhijit Tibrewal from Motilal Oswal Financial Services Limited. Please go ahead.

Yes, thank you for taking my question. Good afternoon, Sir. Sachinn Sir, just to clarify what you just answered that we now plan to keep Stage 1 provision cover at 80 basis points. I was under the impression that this quarter because we have had a release from Stage 3, rather than taking the benefit of that in the P&L, we chose to be prudent and we parked it in Stage 1. But if we start providing on Stage 1 at 80 basis points, it essentially means that our PD and LGD assumptions are now telling us to provide on Stage 1 at 80 b ps. So, which is not just a ECL model refresh, in other words, partly whatever release we had from Stage 3 in Stage 1. This is our ECL model now telling us that provision on Stage 1 is required at 80 basis points. Is that understanding, correct?

No. So Abhijit, the way it works is that the, if the LGDs, like I was mentioning earlier, either you have an increasing trend in the loss given default the way you have it for PDs, then you will have a lower provision created for Stage 1, slightly higher in Stage 2 & then finally higher in, much higher in Stage 3. The way the model was worked out was Stage 3 actually, the ECL model used to give a particular result and the incremental provisions, if you look at our PCRs historically also, you would see that our PCRs for Stage 3 assets have been always on the higher side. We have been in that 70% to 75% range when other, the peer group you will see that similar businesses, the PCRs have been kept in the range of 50% - 55% for some time, and, you know, they have now been increased to 60% - 65%. So, 68% PCR, like I was mentioning, also includes some parts of the overlays. So, we believe 60% to 65% is a reasonable requirement which comes in and which with Cyclops implementation, and, you know, we have also shared some early results on that, the expectation is that the ECL models will naturally be recalibrating once again in Sep tember and next March. And we will, we will be revisiting this because, see, I don't think anyone else in the industry is currently working on the credit cost piece through implementation of a tool like Cyclops, which has started giving early results. We are, we will possibly see the full -fledged results in FY28 because the full book would have moved into through the Cyclops underwriting. So, there are early, you know, results which have come in, which very clearly showcase, Sudipta earlier explained on one of the question s how the two -wheeler piece has been working out. Similar thing we have been noticing on farm as well as personal loan, but the full effect of it naturally will happen only after the book gets, the new book gets seasoned. And the ECL model refresh we do once in four quarters. As we revisit the ECL model next time, you will naturally see that there is an improvement in that and for next four quarters is what, you know, we will continue with this 80-basis point. If there is a need in September, we will see because it's up to us. If the results are really good and we can recalibrate the models in September, end of September, we will do that. I hope I have clarified.

Just, Sir. Yes, Sir, that clarifies. So, basically speaking, till the time we do our next model refresh, it could happen in September or March, we'll continue with Stage 1 at 80 basis points. And, maybe potentially in September or March, Stage 3, depending on how we see Cyclops benefiting the asset quality, the Stage 3 PCR could further come down to 60% - 65% because like you mentioned, you're still carrying some overlays in Stage 3. So, there is a possibility that.

No, Abhijit, one second. The last part, if you have noticed over almost two to three years, we have been carrying PCR in the range of 70% to 75%. So, the recalibration exercise once it has been done, it, it was right now just, you know, significant part of Stage 1 provisions moving to Stage, sorry, Stage 3 provisions moving to Stage 1. But this whole exercise now is not going to have such significant impacts. And if, like on one side I am talking about creating additional macro-prudential provisions, so the intent is not to really bring it down further from here. We will be in the, in this range only. The PCRs will, will be kept in the same range.

Got it, Sachinn Sir. That is useful. And then I had one last question for Sudipta Sir. Hi Sir, good afternoon. Sir, just one thing, these Lakshya goals are very, very aspirational, it's very heartening to see that we are at least aspiring to get to credit costs which are less than 2%. Will a change in the product mix have a bigger role to play in bringing down credit costs to below 2%? Because the way we are thinking about it is by the exit quarter FY27, we were thinking of, of taking down credit costs to 2% to 2.2%. Which essentially means that this less than 2% credit cost that we are thinking about as part of Lakshya 2031 is not very far away. It could come in FY28 or by FY28 end. So just trying to understand, will it be more a function of the product mix changing or, or like Sachinn sir was mentioning, the full impact of Cyclops will start showing up from FY28 onwards? Will that play a major role, or will product mix play a bigger role in getting us to less than 2% credit cost? Because the way the mix is today, some of these products, tractors, two-wheelers, PL, including MSME, these are inherently, if I look at the industry, higher credit cost segments. So, if you could just help us understand this bit. Thank you so much.

Yes, so, see, one of the things which is there is that the impact on credit cost will be primarily driven by customer selection through Cyclops. So, and as you, because the way we have implemented Cyclops is that we have implemented Cyclops in the credit -aggressive segments earlier. So, you know, two - wheeler followed by, you know, tractor followed by SME. So, as you rightly said, you know, these are the, what I call the aggressive credit products, and so obviously we wanted to implement Cyclops first on this just to make sure that we are very, very certain about the credit cost trajectory of this business goin g forward. And the early indicators, we have given the 30+ numbers out, we see the 90+ numbers on Nostradamus, they are very, very encouraging, which gives us the confidence that, you know, if you see a prime throughput on our two -wheeler business, prime throughput on our two -wheeler business while we have two -wheeler business monthly originations have grown from ₹650 Cr to almost ₹1,000 Cr, my prime contribution has gone up from about 65% to almost 90%. Right? So, I am able to pull at that scale also. So, we are reasonably confident about the credit cost trajectory, which will be primarily Cyclops -driven customer selection. So, so in a way you are right, you know, some of this might happen, you know, the, if everything goes well. See the caveat is everythi ng, you know, sometimes, you know, we, hope for the best, but sometimes, you know, there is a spanner in the works. The Karnataka microfinance industry ordinance issue came out of the blue, right, in the month of February last year, and it was nowhere factored into any of our plans, right, which delayed the recovery of the entire microfinance industry by almost six months. Right? So, ceteris paribus, things remaining normal, which is a tough ask these days, right, so, you know, we are reasonably confident that, you know even within those see -saws etc in terms of environment , we are reasonably confident of reaching that less than 2% trajectory by FY28 as rightly pointed by you. Now which quarter that might happen is something that I can't point out. Right? But sometime during FY28, we should be in touching distance of that 2 % or below credit cost trajectory. Right? After that, you know, it's a question of maintenance and see how far we can optimize it even further. So that is why we have stuck out our neck and said that it should be less than 2 %. Right? So that is what we have stuck our neck, how much less than 2 % is a matter of execution and full maturation of our Cyclops portfolio, but a mix of economy, geopolitical factors, etc., everything thrown in. Right? But we are reasonably confident of getting to that 2% or below trajectory by somewhere in FY28.

Got it, sir. This is very useful. Thank you so much and I wish you and your team the very best.

Thanks.

Moderator

Thank you. We take the next question from the line of Deep Vakil from Bandhan AMC. Please go ahead.

Hello, good afternoon, sir. Am I audible?

Yes, good afternoon, yes.

Sir, one quick thing. I think the main, I mean, most of that I could understand is the new branches. So does this have something.,,,,,(inaudible)

Moderator

Deep, I'm sorry to interrupt you there, but there seems to be some background noise coming in.

Yes, just, is it better now? Hello?

No, there seems to be some ring, phone ring at the background.

Hello, hello, hello.

Deep, I think you will have to call back again. There is a….

Yes, okay. Sure.

Moderator

Thank you. We take the next question from the line of Hardik Shah from MLP. Please go ahead.

Thank you for the opportunity. Congratulations, Sudipt a, on good set of numbers. My only question is on the credit cost assumption. So, what are we assuming in terms of through -the-cycle credit cost for two-wheeler and personal loans for us to go from 2.6% to less than 2% from a structural standpoint?

See, we don't give business -wise credit cost estimates, we don't give out because, you know, this is like too dependent on market conditions, etc. So, what we have given out is the 30+ number as part of our Cyclops ₹3,250 Cr book. So, you might want to calculate it from there. 30 + number on 10-month observation window is about 2.8%. So, you know, there's an assumption of a 9 0+ from there and there's an assumption of a loss given default from 90+. Right? So, basis this chart on that ₹3,250 Cr portfolio, you know, probably at this point in time, caveat - this is not a fully mature portfolio yet, it has to go through 24 months for it to fully mature, you know, it has gone through only 10 months by now, right? At full-scale cost, you are probably looking at a, in this portfolio, you are probably looking in the two - wheeler portfolio, you are probably looking at a sub 2 % credit cost. But again, these are not matured portfolios. So, you know, we obviously there are certain businesses which are lower credit cost businesses like mortgage, etc, gold loans, there are certain businesses with slightly higher credit cost business like, you know, MFI as well as two-wheeler. Overall, at a balance sheet level, we still, we still sign up to that 2 % to 2.2% corridor by Q4 FY27 and over the Lakshya period, sub 2 % is what we are signing up on. But having said that, the initial trends on the Cyclops portfolios, especially in SME, tractor, and two -wheeler, are very, encouraging, which gives us the confidence to stick out our neck and give that commitment.

Yes, so see, the personal loans industry loss rate, especially for players, you know, especially for players who have a large amount of salaried customers in their portfolio, will range in the corridor between 2% to 3%. Right?

Understood.

So, our, our objective will be to land in that corridor as well.

Got it. Okay, perfect. Thank you. That's all.

Moderator

Thank you. We take the next question from the line of Abhishek Murarka from HSBC. Please go ahead.

Yes, hi Sudipta, Sachinn and team. Congratulations for the quarter. So, can you give a sense of at least your key segments like farm equipment, two -wheeler, microfinance, consumer, is the disbursement yield higher than the portfolio yield at this point of time?

Thanks, Abhishek. Microfinance, all of you guys know that the disbursement yield is more than the portfolio yield.

Not microfinance, but the other stuff.

Other stuff, see, I'll tell you, other stuff, you know, personal loans, we continue to have -- see, Abhishek, we don't give individual business-wise yields. But however, I will give you some pointers, right? Personal loans, we are higher than industry salaried average by almost 2% to 2.5% percentage points. Primarily because of the online origination, we are able to get a little bit higher yield. This I've maintained earlier and I stand by it. Two -wheeler, you know, the industry operates between 16 % to 18 % overall yield levels. So, you know, we are still at that level and, you know, and we are able to maintain these levels. In one dealership with a very large prime, you know, very high-ticket bikes, you know, it might be slightly lower, you know, one dealership with a slightly lower -ticket bikes, it'll be slightly, slightly higher. SME also continues to be.

Yes, it is higher.

We're just trying to see where your, if there is any portfolio where there can be an yield improvement as you build the book. So that is what I'm trying to?

I'll tell you, the yield improvement we are always continuously trying yield improvement in personal loans. We are trying home loans we got hammered quite a bit last year. Home loans, the, you know, we have moved quite a bit to loan against property. So, if you look at our sort of mix of home loans to LAP, we were about 80/20 about, you know, 12 to 18 months back. Right now, we are about 60/40, maybe 55/45. Right? 55/45, 55% home loans, 45% LAP. So, we are trying to push yields up, right? Micro -LAP is a business where we have reasonably high yield. And micro-LAP, you know, book size has crossed ₹1,000 Cr as you have, we have disclosed for the first time this time, right? And we are setting up almost 200 micro -LAP branches this year. So, we are focusing on micro -LAP, and in micro -LAP our collection efficiency continues to hold at, you know, 99.9%. Right? So that portfolio is doing very well. Even in tractors, right, we're trying to push our yields upwards in, in two-wheeler we have been able to improve our yields slightly upwards over the last quarter. Right? So overall the push is on improvement of yields across.

Okay, because I think using Cyclops and all your, you know, customer selection tools, you're getting into better quality customers even within those portfolios. So then to push up your yields, how do you do that? Is it. I mean, I'm just trying to connect the dots there?

Yes, yes. So, Abhishek, basically the only way you can do that is by changing the mix in the right manner, right? And that is the reason why gold loans was introduced. Gold loan we expect. so, if we look at how, how will we fare in terms of our book mix say by FY31, our micro -loan, you know. The whole rural business finance piece will be somewhere in the range of about 20 %. 15% of the total mix will be for businesses like personal loans, gold loans, which is a very small piece, right, today. And you will have farm and two-wheeler somewhere in that 10% to 12% kind of range. Then you will have, you know, what is left, SME is again going to be about 10% odd. So, the mix itself is going to really do the work and it's already doing. To your question on whether the disbursement yields are higher, it is yes, it is higher because of the change in mix which is happening. And as the higher -yielding book starts growing, proportionately the overall yields will start moving up. And that's where you see that our ability to manage the overall NIM plus fee within the 10% to 10 .5% corridor is not just a function of lowering of weighted average cost, but also managing to stabilize the yields through acceleration of higher-yielding businesses. So, we had challenge in four to five quarters when the rural business finance had to be slowed down. But with that coming into play and gold loans getting accelerated, micro -LAP will get a big push, personal loans you have already seen 98% growth you saw. So, these are all pieces which are naturally higher. Mortgages will grow, perhaps we saw 20% growth over there and that was one piece which used to actually -- we had to do it because it was secured. But the yields over there, especially now in the reducing interest rate cycle, the yields come under pressure. That also will once the interest rate cycle changes, there will be an advantage on mortgages also. And we are also talking about getting into eco nomical housing. So, all in all there is always an attempt to ensure that we have the right kind of mix for book growth. So as to ensure that the overall yields don't really -- get come under pressure that we forced to again look at sub -prime kind of customers. It's very clear that we've changed that trajectory and we will continue to be in the prime space and ensure that th e collections cost as well as credit costs don't go back to the older levels.

Got it. And just this slippage number that you've disclosed, ₹400 Cr for the quarter, how much of it would be MFI right now?

We don't give a break -up, but I mean it has been coming down significantly. I mean, you can actually look at -- we had Jan and Feb 99.7%, 99.75% and 99.8% is in March. So, the corresponding number I think December was 99.6%. So, the roll-forwards are the differential of about 40 bps, 45 bps.

Right. So, because I was just thinking that at ₹400 Cr for the quarter, the annualized number works out to approximately 1.6%. Looks like a very good number and probably with the kind of book mix you have and looking forward with Cyclops implementation catching up in more a larger part of the book, would this 1.6% come down or is it like cyclically a very low number, very strong number already?

No. So Abhishek, one thing which you should keep in mind is that there has been also a big thrust, there is a project on the collections piece as well. And there is every Chief Executive is currently pushing for recoveries of whatever moneys were provided for. So, we may write off in the books, it's a technical write-off. But every Chief Executive is painstakingly trying to get every rupee back. So, the collections of the older receivables are also part and parcel of the final roll-forwards, right? Because they get netted off against the moneys that we have to finally provide for. So, there are targets taken by every business and we have been very successful in terms of doing the collections as well.

Yes, having said that, yes, the trajectory is very encouraging for us and let's see how FY27 pans out. We remain -- see the customer selection for the last 24 months has been of a order of magnitude better quality. And that is what is flowing in terms of the credit numbers. And the fact is that we are not even diluting the customer quality that we have been acquiring over the last 24 months even a wee bit. In fact, we are trying to see if there is an opportunity to optimize it even further while doing volumes and the tools that we have, Nostradamus for example now on two-wheeler helps us to pinpoint one dealership in a district which is going bad. It is so precise. And so, it helps us to attack it much faster and address it much faster before it even becomes a problem. So, in a way, things are moving in the right direction. The geopolitical headwinds is a fly in the ointment. So, we are being cautious. Let's see where it takes us in FY27.

Thank you.

Moderator

Thank you. We take the next question from the line of Suraj Das from Sundaram Mutual Fund. Please go ahead.

Yes, hi Sir, thanks. Most of my questions have already been addressed, but a couple of follow-ups. You mentioned that your LGD assumptions are consistent across all stages. Did I hear that correctly?

Yes, that's right.

Okay, sure. Can you share the LGD assumption for Stage 3?

No, we can't -- we don't share all those details.

See, ECL models are proprietary to every organization, so we just can't divulge those details .

Sure. So just directionally, if I look at your Stage 2 and Stage 3 PCR over the last 2 years, 3 years, that number is coming down very significantly. I think Stage 3 PCR has come down to 67%, 68% and you are saying that you also have some additional buffer there over and above what is required. So, does it mean that your LGD number is also coming down because of maybe Project Cyclops and so and so forth, whatever you are doing? But your LGD number is also coming down, so you are recovering much higher now versus what you used to recover 2 years, 3 y ears back. Would that be a fair assumption because that's how the ECL model will work, right?

So Suraj, I think what you should do is you should also look at making peer group comparison as to what is the actual loss given default business by business that is required, which will itself enable you in concluding that the PCRs that we have been holding for so long have always been higher. In fact, when we kept it at those 70% to 75% levels, there have been conversations which I have personally had where people used to question that are we expecting some challenges because of which we are keeping the PCR very high. And my response to that us ed to be that we always have been conservative. We would set aside in bad times so that whenever there are any, in good times so that whenever there are any challenges in bad times, it comes in handy. And the microfinance crisis is a very good example of how setting aside the provisions, macro-prudential provisions helped us in difficult times. Same thing comes in as far as the Stage 3 provisions are concerned, which is the PCR which everyone usually looks at. So, across the industry the actual, the money which is required as per the ECL model is in that range of about 60% to 65% and hence the incremental is nothing but the overlay. But as we move forward, all these assumptions also keep changing depending on the quality of book that you are building. So, our expectation is that the Cyclops underwritten portfolio will actually only keep improving the portfolio quality and hence the Stage 3 percentages have to come down. And once the roll-forwards slow down, even the Stage 1, Stage 2 requirements will come down. There are -- if you look at, there are players in the market who have a very secured book and who are very comfortable with, say, 40% PCR. So, it all depends on the kind of mix and how you have created a track record for yourself. We are right now in the process of creating that track record and hence plus the change in the assumption. So, we are at a juncture where there are certain segments of portfolio we have, which have already moved to Cyclops and created through that underwriting, there are older portfolios and then there is a portfolio which has recently come out of a crisis. So, it's a -- because it's a mix of all these, this is just the result that you are looking at. Simultaneously, we have been focusing on collections like I mentioned earlier. So ultimately ECL model you're right, it's a function of what you lend and how much you end up spending to recover it, which comes in the form of collection cost. And if the roll -forwards slow down, that collection cost goes down and even the credit cost improves. So directionally that's why we believe that if you just compare last four to five quarters, you will see that the credit cost has started coming down directionally and this quarter again about 10 basis points lower compared to the previous quarter. And we believe that we have a journey to complete. We are at 2.64 %, we have to go to a range of 2% to 2.2% by end of FY27. And I think we are fairly comfortable at this point of time based on the book that we have and the slippages that we are actually being able to factor in for the next four to six quarters.

Sure. Thank you, Sachinn Sir. Yes, that's all from my side.

Thank you.

Moderator

Thank you. Ladies and gentlemen, we take that as the last question and conclude the question -and- answer session. I now hand the conference over to Mr. Sudipta Roy for his closing comments.

Thank you. I thank all of you for a patient hearing and participating in our quarterly results call. I trust we have been able to address all your queries. As always, please do reach out to our Investor Relations team in case any of your questions has been left unanswered. We'll be happy to discuss the same with you. Thank you again and wish all of you a good financial year FY27.

Moderator

Thank you. On behalf of L&T Finance Limited, that concludes this conference call. Thank you for joining us, and 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