Northern ARC Capital Ltd — Q4 FY26

Northern ARC Capital Ltd Q4 FY2025-26 Earnings Conference Call https://www.youtube.com/watch?v=wArEBP82cuM Published: 5 days ago

0:01 1 second Ladies and gentlemen, good day and welcome to the Northern A Capital Q4 FY26 earnings conference call hosted by Motila Los Financial Services Limited. 0:11 11 seconds As a reminder, all participant clients will be in the listenon mode and there will be an opportunity for you to ask questions after the presentation 0:18 18 seconds concludes. Should you need assistance during this conference, please signal an operator by pressing star then zero on your touchstone phone. Please note that 0:27 27 seconds this conference is being recorded. I now hand the conference over to Mr. Abijit Tibraal from Motila Losal Financial Services. Thank you and over to you sir. 0:38 38 seconds Yes. Uh thank you doctor. Good evening everyone. I am Abijital from Motila Losal and it is our pleasure to welcome you all to this earnings call. Thank you 0:46 46 seconds very much for joining us for the Northern Capital call to discuss their Q4 FIR26 earnings. To discuss the 0:54 54 seconds company's earnings, I am pleased to welcome Mr. Ashi Shmehotra managing director and chief executive officer Mr. 1:02 1 minute, 2 seconds Atul Treval Chief Financial Officer Mr. 1:06 1 minute, 6 seconds Parada Sarati Ralandi group risk officer and governance head and Mr. Chetan 1:12 1 minute, 12 seconds Parma, head investor relations. On behalf of Motila Losal, we thank the senior management and the investor 1:20 1 minute, 20 seconds relations team of Northern Capital for giving us this opportunity to host them today. I now invite Mr. Meuptra for his 1:29 1 minute, 29 seconds opening remarks post which we will open the floor for a Q&A. With that, over to you, sir. 1:35 1 minute, 35 seconds Hey, thank you Aijit. Thank you for the kind introduction. Uh good evening everyone and I'm really delighted to welcome all of you today evening. I know 1:43 1 minute, 43 seconds it's little late in the evening to discuss Northern Arts performance for the quarter ending 31st March 2026. 1:51 1 minute, 51 seconds I'm also joined by my colleague um as Aijit said earlier by Aul our CFO Parasarti 1:59 1 minute, 59 seconds Ralandi our group risk and governance head STA strategy head and Chitan Burma head of investor relationship. 2:08 2 minutes, 8 seconds I think fair to start the call saying over the last 15 years northern ox very successfully navigated the multiple 2:14 2 minutes, 14 seconds macroeconomic challenges including covid geopolitical disruption mfi over leveraging cycles evolving regulatory 2:23 2 minutes, 23 seconds landscape despite this these headwinds northern arc has demonstrated strong resilience delivering consistent growth 2:32 2 minutes, 32 seconds both in terms of business uh and profitability. 2:36 2 minutes, 36 seconds Our asset center management has grown um over the last five years at a kaggler of about 26% taking us to the milestone of 2:45 2 minutes, 45 seconds 16,594 as on 31st of March led by multiffold growth in our directto business segment 2:54 2 minutes, 54 seconds uh whose contribution increased from 19% going back to FY 21 to about 59% in FY26. 3:04 3 minutes, 4 seconds This shift has been driven uh uh given us almost 380 basis points of expansion in a net interest margin from 5.6% to 9.4% in FY26. 3:18 3 minutes, 18 seconds Importantly, this growth has remained discipline quality led with NPA consistently maintained below 1%. 3:27 3 minutes, 27 seconds This discipline risk calibrated AUM growth has translated into strong earnings performance with profit after 3:35 3 minutes, 35 seconds tax on a 5-year average grown at about kagger of 43% to about 406 crores on a 3:42 3 minutes, 42 seconds fullear basis in FY26 underscoring the resilience scalability and profitability of our stated business model. 3:52 3 minutes, 52 seconds Coming to 2026 uh this year was dynamic marked by tailwinds and headwinds with regulatory 3:59 3 minutes, 59 seconds development was supportive and macroeconomic challenges and gradually improving trade environment ensure that we traded with 4:06 4 minutes, 6 seconds caution. Ad midst of this backdrop, I'm very pleased to announce that we continue to build on the momentum with Northern Capital reporting highest ever 4:15 4 minutes, 15 seconds quarterly uh quarterly profit of 133 crores taking our overall profit to about 406 crores respectively. 4:24 4 minutes, 24 seconds Our AON has grown by about 22% on a year on year basis and about 10% on quarter 4:31 4 minutes, 31 seconds on over the previous quarter to reach 16,500 outpacing the industry reflecting the sustained momentum and growth driven by 4:40 4 minutes, 40 seconds direct to customer business which is now about 59% of our total assets under management. Our direct to customer 4:47 4 minutes, 47 seconds business grew by about 39% on a year onear basis reaching past 9,800 crores 4:54 4 minutes, 54 seconds in line with a strategy to grow this business. 4:58 4 minutes, 58 seconds Uh we have three lines of businesses in direct to consumer. Uh one is the consumer finance uh business which 5:05 5 minutes, 5 seconds continued the sustained growth driven by the demand in the consumption. The AUM has grown to now about 5,000 kores plus. 5:14 5 minutes, 14 seconds During the quarter we've added uh we added few more partners uh further strengthening our distribution capabilities. 70% of our customers are 5:23 5 minutes, 23 seconds repeat uh customers which demonstrate powerful proof of underwriting quality and customer pickiness on our platform. 5:33 5 minutes, 33 seconds uh as a company we remain focused on gathering risk adjusted yield of approximately 15% above in this business 5:41 5 minutes, 41 seconds which is reflected in a consistent performance over the last 3 years at about six 5:48 5 minutes, 48 seconds additionally much needed regulatory clarity on availing FLG benefit while computing ECL provisions on digital 5:56 5 minutes, 56 seconds learning is expected to provide stability in business profitability. 6:00 6 minutes Some of you may recollect that last year March we had to take extraordinary provision with the clarity coming on 4th 6:07 6 minutes, 7 seconds of February. This now puts the business on a very very strong footing. The household consumption in India nearly 6:14 6 minutes, 14 seconds doubled from 2 uh to 2.4 trillion during 2014 to 2024 6:22 6 minutes, 22 seconds growing at a faster pace than the major economies such as China, United States and so on. This growth has been driven by the rising middle class demographic 6:31 6 minutes, 31 seconds advantages, increasing digital and financial inclusion and rapid evolution of e-commerce and retail ecosystem. Uh 6:38 6 minutes, 38 seconds our census is the household consumption is further expected to reach about 3.4 trillion by 2030 creating significant 6:46 6 minutes, 46 seconds credit opportunities across the consumer uh consumption ecosystem. 6:51 6 minutes, 51 seconds The second line of business and direct to business to customer is lending to MSME. Our MSME business continues to be 6:58 6 minutes, 58 seconds a growth engine for Northern Arc with portfolio growing at about 43% on yearon-year basis currently at ending 31st March 26 at 3,691. 7:09 7 minutes, 9 seconds The growth is being driven by expansion of foot physical footprint including additional of 17 new branches during FY26 and improved productivity across 7:19 7 minutes, 19 seconds existing branches. The portfolio quantity continue to strengthen with Xbucket collection efficiency improving from 97.8% 7:28 7 minutes, 28 seconds in September 25 to 99 98.8% 7:31 7 minutes, 31 seconds [clears throat] 7:32 7 minutes, 32 seconds in December 25 further to 99.4% in March 26. 7:38 7 minutes, 38 seconds Improving customer including collection coupled with 100% registered mortgage structures for our loan against property 7:45 7 minutes, 45 seconds ensure we continue to build a very strong uh land loan against property business for the small businesses targeting the smaller businesses. While 7:55 7 minutes, 55 seconds credit supply to MSN sector has increased meaningfully the segment still faces an addressable credit gap of 8:02 8 minutes, 2 seconds nearly 24% estimated to be about 30 lakh crores. Given this large untapped opportunity, our continued investment in 8:11 8 minutes, 11 seconds distribution, talent, infrastructure, technology will position us well to deliver discipline risk calibrated growth in 8:19 8 minutes, 19 seconds MSME segment over the coming quarters and years. 8:23 8 minutes, 23 seconds The third line of business is rural finance. We recorded highest ever quarterly dispersement of about 305 8:29 8 minutes, 29 seconds crores in Q4 reflecting strong 17% quarteron-quarter growth. Uh as you will 8:36 8 minutes, 36 seconds recollect we had slowed down this dispersal over the last few quarters. As a consequence of that our assets under 8:43 8 minutes, 43 seconds management grew by about 8% to about,000 crores. During this quarter we expanded our footprint with addition of 64 8:50 8 minutes, 50 seconds branches taking a rural network to about 342 branches. 8:55 8 minutes, 55 seconds Again here we've seen a significant improvement in ex in collection efficiency. Our expected collection 9:02 9 minutes, 2 seconds efficiency continued to shows a consistent improvement increasing from 98.7% in September 25 to 99.4% 9:11 9 minutes, 11 seconds [clears throat] in December 25 and further improved to 99.6% in March 26. 9:20 9 minutes, 20 seconds Some of you will recollect that states like Karnataka where collection efficiencies was impacted by ordinance issued in 525 has also improved from 94.5% to about 99.5%. 9:37 9 minutes, 37 seconds The credit cost uh have consistently improved quarteron quarter to reach 1.3% in Q426 9:45 9 minutes, 45 seconds with fullear credit costs declining from 6.7 to 4.9 in FY26. The GMCA remain 9:51 9 minutes, 51 seconds negligible at about four basis points as of March 26. Additionally, uh it's good 9:58 9 minutes, 58 seconds I must reiterate that 84% of our MAP 5 book is covered under CGFMU providing strong risk protection. The continued 10:08 10 minutes, 8 seconds investment in branch expansion and sustained improvement in collection efficiency with higher CGFMU coverage provide us with confidence to scale this 10:16 10 minutes, 16 seconds business in a calibrated and prudent manner as we go forward. And further it's important for me to highlight and 10:23 10 minutes, 23 seconds reiterate 100% of our rural loans are written underwritten using our proprietary score portfolio score and 10:30 10 minutes, 30 seconds that gives us a lot more edge uh in ensuring that we have right selection metrics of customers. 10:38 10 minutes, 38 seconds Moving on to our credit solution business, we continue to benefit from strong loyal expanding uh base of about 10:46 10 minutes, 46 seconds 365 originating partners whom we work with. 10:50 10 minutes, 50 seconds More importantly, the quality of above network remained robust and fair to highlight that 90% of our partners are 10:58 10 minutes, 58 seconds rated tripleB and above reflecting their credit strength and underwriting discipline. More importantly our partner 11:05 11 minutes, 5 seconds remain have healthy balance sheet with approximately 95% having capital efficacy of more than 20%. Providing 11:13 11 minutes, 13 seconds resilient supportive and sustainable growth across the great ecosystem in India 11:21 11 minutes, 21 seconds a feebased business is a key differentiator for northern arc that complements our lending operations within the crate solution platform. A 11:30 11 minutes, 30 seconds placement volume for FY26 was about 11,800 crores with placement fee growing to about 22% yearonear to about 31 11:39 11 minutes, 39 seconds crores. Further a credit funds uh assets under management is about 3,000 crores 11:46 11 minutes, 46 seconds uh which garnered the fee of about 38 crores in SY26. 11:51 11 minutes, 51 seconds This performance underscore our strategic focus in building a comprehensive credit solution ecosystem leveraging capital light and stream 11:59 11 minutes, 59 seconds along with the balance sheet lending model. The company continue to place strong emphasis on credit risk 12:05 12 minutes, 5 seconds management and leverage uh AI and machine learning driven underwriting model which complemented by a continuous 12:13 12 minutes, 13 seconds field monitoring. Over over the years we've built a robust data ecosystem comprising of 550 12:20 12 minutes, 20 seconds million data points enabling development of 300 plus underwriting model across our businesses. Our risk framework is 12:29 12 minutes, 29 seconds further strengthened by dedicated team of 100 plus professionals. 12:33 12 minutes, 33 seconds In addition to centralized technologyled monitoring a risk undertakes on ground visit of nearly 25% of districts where 12:40 12 minutes, 40 seconds we and our partner operates each year providing valuable insights in local market dynamics and emerging risk. To 12:49 12 minutes, 49 seconds put it in context our portfolio spread at about 680 districts and i.e. that means over 220 odd districts. We cover 12:57 12 minutes, 57 seconds in detail covering multiple partners and our own branch network. So it gives us a far more granular touch and feel of what's happening in the market. 13:07 13 minutes, 7 seconds Company also follows a conservative provisioning policy 100% provisions on consumer or all unsecured loans or 90 13:15 13 minutes, 15 seconds plus days past due. Uh while this approach may lead to relatively higher near-term credit costs compared to 13:22 13 minutes, 22 seconds payers, it materially reduces the carry forward delinquent pool and lowers further provisioning requirements. 13:32 13 minutes, 32 seconds These initiatives are resulted in resilient and well diversified loan book with net NPA consistently being maintained below 1% over the years. 13:43 13 minutes, 43 seconds During the quarter, RBI issued the guidelines on treatment of default loss guarantee in computation of ECL 13:51 13 minutes, 51 seconds permitting NBSC to factor in the cash collateral as FLD thereby aligning the regulatory approach with NDS requirement 14:00 14 minutes as a prudent measure. Company created a management overlay for potential unforeseen events given the current macroeconomic environment and what we are witnessing uh in the West Asia. 14:11 14 minutes, 11 seconds Operationally, the collection efficiencies continue to improve across the key retail portfolio with MSME label finance. Uh our collection efficiency 14:20 14 minutes, 20 seconds reaching 99.4 and 99.6% respectively on Xpocket. 14:26 14 minutes, 26 seconds Following robust collection performance, stage two assets have shown consistent improvement, declining from 2.6% in 14:33 14 minutes, 33 seconds September to about 1.8% in December 25 and further to 1.5% in March 26. 14:41 14 minutes, 41 seconds This reduction reflects moderation in early bucket stress and continued improvement in overall asset quality. 14:48 14 minutes, 48 seconds Consequently, credit cost for quarter 4 has improved from 2.2 about 2.2% while fully credit cost stood at about 2.8% in 14:57 14 minutes, 57 seconds line with the guidance we have issued earlier. 15:01 15 minutes, 1 second As a company, we further strengthen our collection capability through implementation of strong collection systems. platform enhances collection 15:09 15 minutes, 9 seconds tracking, improves field force productivity and enable sharp adult delinquency monitoring and support datadriven recovery strategies. 15:18 15 minutes, 18 seconds We believe this will further improve connection efficiency, strengthen portfolio quality and support scalable growth across the retail lending 15:26 15 minutes, 26 seconds segment. Overall performance for 26 was resilient despite the challenges being uh challenges beginning of the year 15:35 15 minutes, 35 seconds arising out of the Karnataka micro finance ordinance. We have entered the new fiscal year on a strong footing with 15:42 15 minutes, 42 seconds dispersal momentum sustaining at the level seen in the recent months and remain confident of delivering a robust growth trajectory for FY27. 15:52 15 minutes, 52 seconds Looking ahead, we remain watchful of evolving risk including geopolitical tension in West Asia, potential impact 15:59 15 minutes, 59 seconds on weather and monsoons. We believe the company's well positioned to sustain its growth momentum through a calibrated 16:07 16 minutes, 7 seconds risk management and discipline execution while continuing to protect uh the profitability and the portfolio quality. 16:15 16 minutes, 15 seconds With that, I'm going to request my colleague uh Atul, our CFO, to walk you through our financial results in detail. 16:22 16 minutes, 22 seconds Thank you. 16:25 16 minutes, 25 seconds Uh thank you Ashish and good evening everyone. I appreciate you joining us for the Northern Q4 FY26 earnings call. 16:33 16 minutes, 33 seconds Uh let me start with two important milestones that we have crossed during the year. First our assets under management stood at uh 16,594 16:42 16 minutes, 42 seconds crores reflecting a growth of 22% yearonear and 10% Q on Q. Secondly we have crossed p of rups 400 crores in FI26. 16:53 16 minutes, 53 seconds So within the AUM mix the direct to customer business contributed 59% with MSME finance at 22% consumer finance at about 30% and MFI at 6%. 17:04 17 minutes, 4 seconds uh the net interest income for Q4 FI26 the net interest income grew by 21% YI 17:12 17 minutes, 12 seconds to 387 crores for FI26 NI grew by 20% YI to 1376 KES and NIMS improved by 25 basis points year on year to 9.4%. 17:24 17 minutes, 24 seconds The cost of fund for FI26 decreased by 48 basis points year on year to 8.5%. 17:32 17 minutes, 32 seconds uh cost for Q4 FI26 was at 8.5%. 17:37 17 minutes, 37 seconds The incremental cost of fund for quarter 4 was uh at around 8.6%. 17:42 17 minutes, 42 seconds The net revenue including the fee income for FI26 grew 19% YI to 1484 crores and 17:51 17 minutes, 51 seconds for Q4 FI26 grew by 18% YI to 414 crores. Our opex ratio for FI26 and Q4 18:01 18 minutes, 1 second FI26 was flat at 3.6 and 3.7% respectively. We have added 66 branches and merged two branches during the 18:09 18 minutes, 9 seconds quarter. Pre-provisioning operating profit for FI26 grew by 21% YI to 956 18:17 18 minutes, 17 seconds crores. For quarter 4, FI26, it grew by 17% YI to 269 KES. GNPA and NNPA 18:25 18 minutes, 25 seconds improved quarter on quarter to 12% and 6% uh respectively. 18:31 18 minutes, 31 seconds Credit cost improved from 3.2% in FI25 to 2.8% in FI26 which is in line with the guidance given in the previous call. 18:42 18 minutes, 42 seconds Credit cost uh for Q4 FI26 improved from 3.5% in Q3 FI26 to 2.2% in Q4 FI26. 18:53 18 minutes, 53 seconds Profit after tax for FY26 increased by 33% YI to 200 to 406 crores. For quarter 19:01 19 minutes, 1 second 4, it increased by 2251% YI and 32% quarteron quarter to 133 crores. 19:10 19 minutes, 10 seconds ROA for FI26 grew by 34 basis points. Y to 2.8%. ROA for Q4 increased by 66 basis points. Q1 Q to 3.3%. 19:24 19 minutes, 24 seconds ROE for the FI26 increased by 110 basis points to 11.1%. 19:31 19 minutes, 31 seconds And ROE for quarter 4 increased by 326 basis points to 14%. 19:37 19 minutes, 37 seconds On the liabilities front in line with our debt strategy and AUM growth plan, we continue to diversify our funding base with a clear focus on long-term 19:46 19 minutes, 46 seconds sources. Liquidity remains comfortable with positive cumulative mismatch across all time buckets. As of March 31st, we 19:54 19 minutes, 54 seconds held a surplus of close to 1250 crores with a good mix of cash and bank balance and undrawn sanctions from various banks 20:01 20 minutes, 1 second and institutions. Total warrants at the end of the quarter stood at 12,258 crores with around 60% linked to 20:09 20 minutes, 9 seconds variable interest rate positioning us well to benefit from the ongoing decline in interest rates. Our funding mix 20:16 20 minutes, 16 seconds remains well diversified with 25% sourced from offshore and DFI partners and the balance from domestic banks and institutions. 20:27 20 minutes, 27 seconds Our incremental cost of fund in quarter 4 was 8.6% down from 9.3% same period last year. Tangible net worth stood at 20:36 20 minutes, 36 seconds 3,896 crores which grew by 13% Y. So we have strengthened the balance sheet uh materially. Our debt equity ratio 20:45 20 minutes, 45 seconds improved from 3.9X in March 24 to 3.1x as of March 26. Capital adequacy remains 20:53 20 minutes, 53 seconds quite strong at 22.6% well above the regulatory requirement [clears throat] giving us ample headroom to grow the balance sheet over the next 21:00 21 minutes two to three years. Thank you so much and we now open for Q&A. 21:07 21 minutes, 7 seconds Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone 21:15 21 minutes, 15 seconds telephone. If you wish to remove yourselves from the question, you may press star and two. Participants are requested to please use handsets while 21:23 21 minutes, 23 seconds asking a question. Ladies and gentlemen, we will now wait for a moment while the question assembles. 21:34 21 minutes, 34 seconds Our first question is from the line of green edge wealth. Please go ahead. 21:41 21 minutes, 41 seconds Yeah. Yeah. Thank you for the opportunity and uh Ashishan team congratulations. Last quarter we hit a century we are now comfortably 21:48 21 minutes, 48 seconds comfortably above that number. So so you know like I I'll start with one question like you know uh it seems like we had you know like our flight has taken off 21:56 21 minutes, 56 seconds but you know now with the macro situation which is evolving what kind of guidance would we like to give for FI27? 22:05 22 minutes, 5 seconds Hey thank you for loan growth and ROAS you know the two Yeah. Yeah. Yeah. No, thank you very much. Uh I think we as we look at it 22:14 22 minutes, 14 seconds given the disciplined execution and focus on risk and what we are investing in building capabilities both in terms of collection, risk management, AI and 22:23 22 minutes, 23 seconds other stuff. Uh our sense is that we should be able to grow a business at about three times of GDP. So look at 22:31 22 minutes, 31 seconds anywhere between 22 to 25%. Uh and that's our commitment to the street on a forward-looking basis. unless we see 22:38 22 minutes, 38 seconds something massive. We've obviously recalibrated some segment sectors to ensure we stay prudent uh on where we 22:46 22 minutes, 46 seconds think the risk could be higher. uh and I think from where we ended on a fullear basis that my objective is to get to three plus uh return on assets and like 22:56 22 minutes, 56 seconds we said over the next 8% quarters get to uh mid- teens and late teens ROE and we are pretty disciplined focus on what we 23:05 23 minutes, 5 seconds want to do and how we want to achieve the good thing is that the founding block across the three lines is set uh 23:12 23 minutes, 12 seconds obviously given the great solution now is a very very comprehensive play with ability to participate from balance 23:19 23 minutes, 19 seconds sheet, new sets of funds being launched, uh building a bonds platform, a placement business, very unique 23:26 23 minutes, 26 seconds capability unlike anyone else with securitization, you know, interesting to highlight, we almost did 10,000 cr of securitization last year. 23:35 23 minutes, 35 seconds So all of that creates very strong competitive notes for what we do. Uh discipline, execution and buildout on 23:42 23 minutes, 42 seconds the digital side. uh uh I think shows that the growth in that sector and ability to ensure that we generate the 23:50 23 minutes, 50 seconds risk adjusted return of upward of 15% as to my mind this requires very sharp focus our tech capabilities risk 23:57 23 minutes, 57 seconds capabilities there demands what we do uh building out of the uh MSME which is a very important sector but being more 24:07 24 minutes, 7 seconds cautious with it given there is a larger number of player wanting to participate more importantly also in Some of the 24:14 24 minutes, 14 seconds segments uh sectors you could see higher bit of stress in a shorter period of time and so ensure your risk underwriting principles there are 24:22 24 minutes, 22 seconds aligned and rural weird we were in way back in 24 we started bringing this down to where we had we actually brought it 24:30 24 minutes, 30 seconds down from 15800 to down to about 550 and we now building it back and we've seen the performance there gives us a confidence to build it back we ensure uh 24:40 24 minutes, 40 seconds irrespective of what kind of the loan is it goes through our fully proprietary scorecards which gives us lot more 24:46 24 minutes, 46 seconds confidence apart from CGSMU end of the day when you originate loan you would have originated to ensure that you get right set of risk adjusted return so I 24:55 24 minutes, 55 seconds think if you continue to stay on course on our strategy on building comprehensive solution and direct to customer business building on the 25:05 25 minutes, 5 seconds competitive modes on the free franchise that our path is pretty clearly laid down to where we are today where we want 25:12 25 minutes, 12 seconds to get to next fiscal, the following fiscal and there and thereafter. Uh I think uh you know this is in line with 25:19 25 minutes, 19 seconds what we've said strategically and in the past. How do we get to mid to late teens and I think that path is set out for us here. 25:27 25 minutes, 27 seconds Okay. Thanks. Thanks a quite detailed. 25:29 25 minutes, 29 seconds uh uh you know I think you you touched upon two points in your uh comments which I just wanted to check that uh see this MSME especially the merchant 25:38 25 minutes, 38 seconds lending part within the MSME and this whole consumer direct to consumer finance that has probably grown at 50% this year. Uh so just wanted to check 25:47 25 minutes, 47 seconds like you know uh like you know is there any like you know risk building up or you know because you know that's a segment where I think our average ticket 25:54 25 minutes, 54 seconds size is hardly 20 30,000 rupees. So, so if you can just give some color on you know why 50% and you know what are the 26:01 26 minutes, 1 second risk measures and what opportunities do you see? 26:05 26 minutes, 5 seconds Okay. So we we underwrite on the consumer finance side correct which is essentially linked to the consumption loans about 25 to 26,000 loans that is 26:14 26 minutes, 14 seconds each loans underwritten through our scorecard and we we are very sharply focused on the risk adjusting. We then 26:21 26 minutes, 21 seconds have multiple cohorts to ensure that we balance that risk across customer segments, core card distribution of the 26:28 26 minutes, 28 seconds quality of new flow coming in. What gives us a confidence in in what we've done and how we built it is two parts. 26:36 26 minutes, 36 seconds How a stock of book is performing. More importantly, what is the quality of the customers coming to you every day through the door? That's your future. 26:46 26 minutes, 46 seconds And what you have in the book is what you have in the book. And I think if you look at it uh you know that business on a riskadjusted basis making 15% is a 26:56 26 minutes, 56 seconds great business and we continue to invest in it uh and build this business right uh MSME we actually recalibrated given 27:04 27 minutes, 4 seconds we saw two things uh one is the overlap of little bit between the MSI and other sectors. So we we our average ticket 27:12 27 minutes, 12 seconds size about 12 to 15 lakhs. We don't operate in you know 0 to five or less than seven lakhs loans because we want 27:19 27 minutes, 19 seconds certain size and quality of customers to come in. We we happy to operate at 18 17 and a half 18 plus kind of yield we're 27:27 27 minutes, 27 seconds not chasing 24% deal that uh business and given uh you know while you estimate the incomes which I specifically wrote 27:35 27 minutes, 35 seconds but we register the mortgage so it's not a imperfect or estimated income with an imperfect collateral. It is an estimated 27:43 27 minutes, 43 seconds income with a perfect collateral. Uh and that gives us a confidence that quality of book over a period of time will 27:51 27 minutes, 51 seconds create a strong annuity franchise for Northern I think that's where it is. Uh we could have grown faster but uh and also we were starting from a small base 27:59 27 minutes, 59 seconds so it's unfair to compare us to other players. We all this business collectively is bought 9,500 K 9,800 K. 28:07 28 minutes, 7 seconds So when you start from a grow smaller base your growth numbers looks higher but in reality is the market is huge and we have to ensure we stay focused uh 28:16 28 minutes, 16 seconds both in terms of our risk principles and how do we connect engage uh with our customers I think those two pieces 28:24 28 minutes, 24 seconds perfect thanks thanks Ashish just one suggestion to you and the team that you know in the mer you know in our MSME we can probably separate out that merchant 28:32 28 minutes, 32 seconds lending part because you know that's a digital piece rest everything is you know a physical world business. So you know if we can do that you know that 28:41 28 minutes, 41 seconds good feedback we'll obviously look at it but that's also an important piece where we calibrated a lot correct between the nature of merchants can be very 28:50 28 minutes, 50 seconds different but good feedback noted we'll try and see how do we restack as we get into the new fiscal year thanks perfect perfect wish you all the best 28:57 28 minutes, 57 seconds and you know last just one question for Atul is that you know is there any oneoff in the results like you know is that right back or something or this is 29:06 29 minutes, 6 seconds like pure organic uh you know pure pure organic uh you know except for the DG that we spoke about but apart from that there is 29:14 29 minutes, 14 seconds nothing pure organic will continue to provide so there is no one off as far as the credit cost and others are concerned 29:22 29 minutes, 22 seconds perfect congratulations to the team thank you so much thank you thank you thank you our next question is from the 29:30 29 minutes, 30 seconds line of Raghav with Ambit Capital please go ahead hey hi good evening and thanks for 29:37 29 minutes, 37 seconds Uh I just have a few questions. One uh see I understand that in the intermediate retail lending piece you 29:45 29 minutes, 45 seconds through that piece you have developed expertise in finance and affordable housing finance over a period of time. 29:52 29 minutes, 52 seconds Uh do you plan to launch any of these products say maybe next one two years or maybe over the medium term? uh if not 29:59 29 minutes, 59 seconds these then do you have plans to launch any other new setup uh you know in addition to again many MSI and consumer finance that you're doing uh already 30:08 30 minutes, 8 seconds which will help you on on you know which build on your retail lending. So that's my first question. 30:15 30 minutes, 15 seconds Oh, thanks. Uh, it's a relevant question. Obviously, two things will happen. In consumer finance, we'll try and bring more capabilities to create a 30:23 30 minutes, 23 seconds convenient financing solution whereby customers is transacting and needs a financing solution. We working with partner can provide that financing 30:31 30 minutes, 31 seconds solution to the case. The second uh we uh you know in the current network of branch we can obviously do affordable 30:39 30 minutes, 39 seconds housing. We want to ensure that the lab our current loan against property does reach certain size and scale and then we 30:46 30 minutes, 46 seconds can open that product. My learning over the years is the time you open the on the affordable housing segment then the 30:54 30 minutes, 54 seconds focus on the business loans comes down and we want to stay sharply focused right now. That product is anyway 31:01 31 minutes, 1 second approved uh by us and by both at some point in time point in time we will launch it as a network matures over a period of time. 31:11 31 minutes, 11 seconds Understood. Um the other question is that your coverage overall or even if I look at on a statewide basis has been 31:19 31 minutes, 19 seconds coming [clears throat] down. Uh how should one read that? Why is that happening? 31:25 31 minutes, 25 seconds Oh sorry why did I get para uh talk about this? Yeah, as you would have heard the Reserve Bank 31:34 31 minutes, 34 seconds of RBI has uh amended the guideline to provide the benefit of uh DAG that is available on our portfolio uh to take in in the financials. 31:44 31 minutes, 44 seconds uh we did get some benefit from that because of which the expected losses which are covered by the FL which in the end anyway would not have been a credit 31:53 31 minutes, 53 seconds loss to us uh is something that we didn't have to pro the the ECL required for that portfolio has come down uh as 32:01 32 minutes, 1 second the mix of that in stage two uh stage two assets is is pretty high uh so 32:08 32 minutes, 8 seconds basically these are 31 to 90day sort of DPD loans uh which were actually backed backed by the FLD that is available for 32:16 32 minutes, 16 seconds that portfolio. However, the benefit of that was not available earlier. Uh post the RBI guideline which came in February 26. Uh we could take benefit of that 32:25 32 minutes, 25 seconds because of which optically uh the PCL coverage has come down for the stage two. However, this benefit was always 32:34 32 minutes, 34 seconds available to us and the credit losses in any way would not have come to us. 32:39 32 minutes, 39 seconds uh but but this say retail coverage is 12% uh you're seeing the reduction of 24% from the December quarter is because 32:48 32 minutes, 48 seconds of the RBI guidelines but say even when I look at uh or compare this with what 32:55 32 minutes, 55 seconds you had in 24 or 25 because that's when the guidelines came but if I compare it to 24 then it's 33:02 33 minutes, 2 seconds lower right and even on stage three the coverage has been coming down uh ideally I don't think that that would the RBI guidelines will impact stage three. Uh 33:11 33 minutes, 11 seconds please correct me if I'm wrong but uh but yeah that is where I I wanted to understand as to why the ECL3 coverage 33:19 33 minutes, 19 seconds has been coming down and why is stage two lower than FY24 level. 33:25 33 minutes, 25 seconds Uh again uh stage two is lower because of the mix change. uh stage 2 in 2324 was not really coming from the not the 33:33 33 minutes, 33 seconds proportion of the the portfolios covered by FDG much lower uh because of which the the requirements for ECL was higher 33:42 33 minutes, 42 seconds at that peri at that period of time for a period of time uh more than 50 almost 50% of the portfolio that is now in 33:49 33 minutes, 49 seconds stage that that is 31 to 90 DPD is covered by FLG because of which the LCL requirement has now come down to the 33:57 33 minutes, 57 seconds coming to stage B again the earlier uh what we had as state three assets were unsecured. Now the mix has changed and 34:06 34 minutes, 6 seconds now whatever we are carrying as state assets are mainly coming from MSN secured where obviously you get the benefit of the collateral that is 34:13 34 minutes, 13 seconds available because of which the coverage requirement for that is much lower. 34:20 34 minutes, 20 seconds Understood. Understood. uh and uh just to confirm I think Ashish mentioned mid to high fees are only 7 to 8 quarters 34:29 34 minutes, 29 seconds right so you could be looking at a 15 to 18% change in next two years is that is that the fair assumption 34:37 34 minutes, 37 seconds about 8 to uh 8 to 10 quarters that's the target okay yeah in about two and a half years you should be looking at about 15 to 18% 34:46 34 minutes, 46 seconds 15 to 17 okay sure uh that will all come Thanks a lot for answering questions. 34:55 34 minutes, 55 seconds Thank you. 34:58 34 minutes, 58 seconds Thank you ladies and gentlemen. In order that the management is able to address questions from all participants in the queue, we request you to please restrict 35:05 35 minutes, 5 seconds yourselves to two questions only. You may rejoin the queue if you have any further questions. Our next question is from the line of Chintan Sha from ICICA Securities. Please go ahead. 35:17 35 minutes, 17 seconds Uh yeah uh thank you for the opportunity and uh congratulations on a very strong set of numbers. Uh 35:26 35 minutes, 26 seconds now the credit score has been quite uh sorry to interrupt Chintan but your line is bad. 35:32 35 minutes, 32 seconds Yeah sorry uh yeah congratulations on the quarter on very strong set of numbers and thank you for the opportunity. So firstly on the credit 35:40 35 minutes, 40 seconds course so it has declined quite meaningfully in this quarter and we ended the year around 2.8% 8 percentage. 35:46 35 minutes, 46 seconds So what kind of number are we targeting for FI27? 35:50 35 minutes, 50 seconds And uh just for clarification, this credit cost of 2.8% is now the net credit cost after addressing for the FLD 35:58 35 minutes, 58 seconds provision. Uh yeah, that's the first question. 36:01 36 minutes, 1 second Yeah. Uh number one, yeah, the the overall year rate cost of 2.8% is after taking after 36:08 36 minutes, 8 seconds adjusting for the ALG benefit. And uh going forward also we would expect the trade cost to be in the range of 2.7 to 36:15 36 minutes, 15 seconds 2.8%. that is what is the plan projection 36:22 36 minutes, 22 seconds and on the uh borrowing speed uh so now first of all I've seen a quite a some decline in this year it is now at 8.7 36:31 36 minutes, 31 seconds versus 9.3 last year u but probably now with the rate pause rate cut pause do we 36:39 36 minutes, 39 seconds expect this to bottom out um or is further moderation expected in the uh coming quarters as Yeah, 36:48 36 minutes, 48 seconds please. Yeah. So, Chintan uh you know in our past calls we have been uh you know mentioning that uh we have been doing 36:54 36 minutes, 54 seconds lot of uh variable interest rate uh uh borrowing but I think uh for the last one quarter uh you know we have seen the 37:02 37 minutes, 2 seconds interest rate bottoming out and that's the reason we have been adding more and more fixed rate. So in fact our uh share of the fixed rate has now gone up from 37:11 37 minutes, 11 seconds uh uh around uh 30% to around 40% of our overall borrowing. So we are doing more NCDS, we are doing more uh ECB transactions in the last four quarters. 37:21 37 minutes, 21 seconds Market has been tough you know we have seen liquidity tighten. We have seen the GC rates going up by close to 50 basis points. We have also seen the hedge cost 37:30 37 minutes, 30 seconds going up significantly uh over the last couple of months. But I think in spite of that we have been able to maintain our cost of borrowings uh you know quite 37:39 37 minutes, 39 seconds uh effectively. Uh we have borrowed close to uh around 8,000 crores during the year. Our borrowing is now almost at 37:46 37 minutes, 46 seconds 12,900 crores. Uh but we are definitely we are seeing the interest rate you know bottoming out and uh couple of quarters 37:55 37 minutes, 55 seconds I think now we should see the RBI also uh you know increasing rates. uh we have also not seen too much of transmission 38:02 38 minutes, 2 seconds happened uh from the RB from the banking sector post uh the reduction of the uh repor rates by the RBI. So I think 38:10 38 minutes, 10 seconds overall uh this has been a good year for us as far as the treasury management is concerned. We have uh uh you know brought down the cost of fund 38:17 38 minutes, 17 seconds incrementally uh from 9.3% last year to uh 8.7% and on the overall book our cost of fund has come down by 50 basis points. 38:29 38 minutes, 29 seconds Yeah. So but from FI27 perspective uh do we expect some moderation in the margins given the rise in the cost of funds or 38:35 38 minutes, 35 seconds volt that be set up by uh the benefit of so I think we will definitely not see a reduction in the cost of fund but uh we 38:43 38 minutes, 43 seconds will be able to hold on to uh the numbers that we have demonstrated this year so maybe we will not see any 38:50 38 minutes, 50 seconds further uh you know reduction but but I think 8.5 to 8.6% is something we'll be able to hold. 38:58 38 minutes, 58 seconds Sure. So to highlight as as the mix continues to improve from 59 to you know targeted 65% 39:07 39 minutes, 7 seconds you will see some bit of expansion uh in names more importantly as we see the MSI 39:14 39 minutes, 14 seconds and other markets stabilizing and pre-electing and that's uh that's what we seeing in our portfolio uh you know I 39:22 39 minutes, 22 seconds also see it gives us a lot more tailwinds in our placement business and other freelines uh and So you know I I 39:29 39 minutes, 29 seconds will be fairly bullish as we look at these things unfolding assuming that the current West Asia crisis get resolved 39:38 39 minutes, 38 seconds over this quarter and so on because the underlying portfolio MFI which used to be large part of a great solution 39:45 39 minutes, 45 seconds business also will give us a much needed uh tailwind. 39:51 39 minutes, 51 seconds So this is very helpful. Thank you and all the best for us. Thank you. Thank you. Thank you. 39:58 39 minutes, 58 seconds Thank you. Our next question is from the line of Pavan Kumar from Ael Wise. 40:03 40 minutes, 3 seconds Please go ahead Chaitan. Everyone thank you so much for the opportunity and really great set of results. Uh hope I'm audible. 40:12 40 minutes, 12 seconds Yeah, thank you. 40:14 40 minutes, 14 seconds Yeah. So, uh across the parameters that you have given guidance on meeting 60% D2C or you know the 3% ROA across the 40:24 40 minutes, 24 seconds parameters you have done like a tremendous job. uh to congrats on that. 40:28 40 minutes, 28 seconds A couple of questions on the credit cost front right so last year when the RBA regulation has come in we had to make an 40:37 40 minutes, 37 seconds additional provision of 80 crores per on the FLG but this year the reversal is only 25 crores or 29 crores and 40:46 40 minutes, 46 seconds so why is the number so much lower this year compared to whatever right back that we could get last year that's one 40:54 40 minutes, 54 seconds part second part is no if I adjust for that and the additional the provision that you have made the actual credit cost this quarter is only 50 crores. Is that understanding correct? 41:05 41 minutes, 5 seconds Oh you want to but before you go I think the way we we look at it you know in the 41:13 41 minutes, 13 seconds last March to 30th when this notice happened on between uh uh with regards to DG 41:21 41 minutes, 21 seconds using that benefit. So our position was that as an abundant caution we creating this reserve we knew at some point we'll 41:29 41 minutes, 29 seconds get to the regulations the interpretation will seek will will get clarified over a period of time this happened if you adjust for that I think 41:38 41 minutes, 38 seconds we will hold to 2.7 to 2.8 hate uh and father you might want to walk through you might want to walk through the film 41:45 41 minutes, 45 seconds map so that you know the clarity around just a few clarifications number one is the 29 crores number that you are seeing 41:54 41 minutes, 54 seconds is only for the Q4 not the full year number uh second is the 80 crores was the requirement at that point of time 42:02 42 minutes, 2 seconds and uh the amount of provision that we took in uh Q4 of 25 was 68 crores adjust 42:10 42 minutes, 10 seconds said for all this the actual the credit cost without uh without the overlay and adjusted for all this would have been 42:18 42 minutes, 18 seconds closer to around 120 crores which would have been uh much closer to the 3% 2.9 42:24 42 minutes, 24 seconds to 3% which we would have otherwise got so this quarter number would have been 42:32 42 minutes, 32 seconds 120 course approximately but I think you need to adjust for what what you took as one time because there 42:39 42 minutes, 39 seconds and how this clarity exists. So that's why we think on a study straightforward looking you should be able to hold 2.7 2. Yeah. 42:47 42 minutes, 47 seconds Yeah. Uh got it sir. And uh in one of the questions earlier uh you have mentioned that most of the credit cost in MSME is coming from the secured lab. 42:58 42 minutes, 58 seconds Uh and earlier in the presentation not really no what I mentioned is that the stage three asset 43:06 43 minutes, 6 seconds because we have because we have a our accounting policy is to write off the unsecured retail loans at at 90 DPD. The 43:14 43 minutes, 14 seconds asset build up in stage three happens to be the MSME secured because of which the ECL requirement for that is not. 43:23 43 minutes, 23 seconds Understood. So earlier on a quarterly basis you used to give credit cost by segment. This year I mean this quarter 43:30 43 minutes, 30 seconds in the presentation I see it for the full year but uh if I don't know if I'm not seeing it but I can't see the quarterly. 43:40 43 minutes, 40 seconds Okay. It be great if you can give it on the quarterly basis as well. That would be Yeah. Uh and one last thing on the 43:49 43 minutes, 49 seconds MSME lab I know you mentioned that you are not seeing any impact from the war or the conflict related issues but are 43:57 43 minutes, 57 seconds you how are you seeing going forward like in terms of the credit quality uh peace and in terms of disbburments ramp 44:05 44 minutes, 5 seconds up. Yeah, that's it from my end. the potential conflicted let's call the entire MSME universe 44:12 44 minutes, 12 seconds and between gas petrol pump chemical pesticide uh pump correct all of that is 44:22 44 minutes, 22 seconds less than 2% of our correctly like I said in my early comment that we've also calibrated it 44:30 44 minutes, 30 seconds from Feb onwards from the advent of this event uh across whether it was financing 44:38 44 minutes, 38 seconds the merchants whether it is secured lending whether it is so I think that gives us a confidence saying why we 44:45 44 minutes, 45 seconds remain calibrated uh in terms of uh in terms of the way we go about building asset [music] stay 44:53 44 minutes, 53 seconds very sharply focused on the quality of book thank you all the best I'll come back in the queue thank you 45:02 45 minutes, 2 seconds thank you our next question is from the line of koshik Aarwal from I come please go ahead. 45:11 45 minutes, 11 seconds Yeah. Hi sir, thank you for the opportunity. Hope I'm audible. So you're audible. You may proceed. 45:20 45 minutes, 20 seconds Yeah. Yeah. So I have two questions. So firstly on slide number 16 referring to the consumer finance business where the 45:28 45 minutes, 28 seconds net number you have mentioned are broadly sticky at around 15 odd percent. 45:33 45 minutes, 33 seconds In the last slide I was seeing that this number was roughly uh the the targeted range which you indicated was marginally 45:40 45 minutes, 40 seconds higher. So just wanted to know has there been any uh reduction on the EU side over here. Second piece on the consumer 45:47 45 minutes, 47 seconds finance business only what I wanted to understand is uh from the partners which you have mentioned there are roughly 28 partners. So anything if you can mention 45:56 45 minutes, 56 seconds around the color if uh there is any concentrated exposure towards any particular partner like I wanted to understand whether the book is 46:04 46 minutes, 4 seconds reasonably diversified or not and uh if you can mention something on the asset quality piece as well and then the 46:11 46 minutes, 11 seconds second question is on the borrowing side. So on the borrowing mix I can see that from December to March quarter you 46:18 46 minutes, 18 seconds have your borrowing mix from the banking channel has gone down. This seems to be slightly counterintuitive because broadly the market yields have moved up. 46:27 46 minutes, 27 seconds So and even on the banking data when we see that uh lending towards NBFCs has actually gone up. So what what's the 46:35 46 minutes, 35 seconds strategy in terms of uh raising money from the uh borrowing side and uh on the cost of fun side if you can broadly give some color on these two uh questions. 46:47 46 minutes, 47 seconds Oh yeah sure. uh we've always said uh that the risk adjusted yield on the consumer finance book will hover between 15 to 16%. 46:58 46 minutes, 58 seconds If you refer to some of the previous conversation and my original comment, we continue to calibrate where we in a customer selection, the way we select 47:06 47 minutes, 6 seconds and underwrite each customer which comes in through the door. But consciously over the last uh if I look at it over 47:14 47 minutes, 14 seconds the last 24 months few things we've consciously avoided and you know actually brought it down to almost zero. 47:21 47 minutes, 21 seconds One is the short term. We want to ensure a little bit of sticky for 15 18 months kind of a book rather than short-term 47:28 47 minutes, 28 seconds book which we thought well gives us high yield but also comes with a higher cost. 47:33 47 minutes, 33 seconds Uh the second we've also put a cap on the uh on the end APR given our reputation for nature of business we do. 47:42 47 minutes, 42 seconds Uh so obviously we let go of some segments which we thought may not be long-term accredititive in line with the 47:50 47 minutes, 50 seconds northern arc values and principles. I think on the liability side I'm going to ask Atul to talk but uh you know it's a 47:57 47 minutes, 57 seconds very interesting answer you should get from him. 48:00 48 minutes So you know to Chintan's question uh I had actually answered that we have been increasing our share of fixed rate 48:08 48 minutes, 8 seconds instruments because we believe that the interest rate has bottomed up. So in the last few months we have been doing more of capital market issuances and also a 48:16 48 minutes, 16 seconds lot of offshore borrowing which both of them have a fixed rate uh you know uh interest rate. So uh so our share has 48:25 48 minutes, 25 seconds gone up as far as the fixed rate is concerned and the bank borrowings has also come down. So the bank borrowings used to be close to 52% of my total 48:33 48 minutes, 33 seconds borrowing in March 25. this has consciously come down to around 45% uh as we speak in March 26. So I think uh 48:42 48 minutes, 42 seconds uh you know we should be quite okay with uh uh with a lower bank borrowing and lower dependency on bank borrowing and rather we would like to diversify more 48:51 48 minutes, 51 seconds on the offshore which has been going up for us as well as on the capital market. 48:56 48 minutes, 56 seconds uh we have also been able to do lot of uh transactions under the securization route especially the PTC transactions and I think diversification will be key 49:05 49 minutes, 5 seconds uh going forward as well just one last question on the consumer 49:13 49 minutes, 13 seconds uh business side uh what would be your risk adjusted return or the ROA on this piece of business I believe that this 49:20 49 minutes, 20 seconds would be substantially higher than the overall business ROA yes it is I said The schedule is 15% 49:29 49 minutes, 29 seconds 3 to 15% the return on assets will be obviously much higher if you look at it close to what 4%. 49:41 49 minutes, 41 seconds That's sorry. So what number you mention? Close to 4%. 49:48 49 minutes, 48 seconds Thank you. Thank you so much. That's it from Thank you ladies and gentlemen. We will take that as our last question for 49:55 49 minutes, 55 seconds today. I would now like to hand the conference over to the management for closing comments. Over to you sir. 50:03 50 minutes, 3 seconds So I just want to thank everyone for participating and joining us today evening. I know it's late on Friday evening. Hence we wanted to respect the 50:10 50 minutes, 10 seconds time. Thank you all and we happy Chayan and I and William Pa will be happy to engage if you have any other question to 50:18 50 minutes, 18 seconds answer. Chaitan will connect and I'm sure we able to answer all your questions. Thank you all. Have a great weekend and a great year ahead. 50:27 50 minutes, 27 seconds Thank you. On behalf of Motila Los Financial Services and Northern Arc, that concludes this conference. Thank 50:34 50 minutes, 34 seconds you all for joining us. You may now disconnect your lines.