Thank you so much, and good afternoon to everyone, and welcome to the Q4 FY '26 and fiscal year-end '26 earnings conference call of Arman Financial Services Limited. On behalf of the company, I would like to extend a very warm welcome to all the participants joining us today.

I am joined on the call by Mr. Vivek Modi, ED and Group CFO, along with our Investor Relations team.

I hope all of you have had the opportunity to review our financial results, investor presentation, and press release, which have been uploaded to the stock exchanges as well as on the company website. On a broader level, the microfinance industry has gone through a challenging phase over the last several quarters, driven by a combination of macroeconomic pressures and sector-specific issues, which were discussed in great detail in the previous calls.

However, with the beginning of the second half of FY '26, we saw a perceptible shift. Collection efficiency trends improved meaningfully, borrower behavior showed signs of stabilization, and demand across the microfinance products, particularly in the rural geographies, began to revive.

While the operating environment is yet to fully normalize, we believe that the industry has moved beyond the most difficult phase and is now entering into the stable and disciplined growth cycle. That said, we must acknowledge that the broader economic environment remains uncertain.

Domestic stress in pockets of the economy persists, and there continues to be global uncertainty, including disruptions caused by the West Asia conflict. These factors continue to create headwinds and require careful monitoring.

However, the financial inclusion imperative and the underlying credit demand remains intact. Against this backdrop, I am pleased to share that after many quarters, Arman's AUM has crossed its record AUM to 2,728 crores in FY '26, representing a year-on-year growth of 22%, along with its highest-ever quarterly disbursements of ₹951 crores.

This growth, of course, has not happened overnight; rather, it has been achieved through consistent execution and disciplined efforts, which started many quarters earlier. Over the last several quarters, we have taken important structural and operational steps and decisions to strengthen the business and improve portfolio resilience.

One of the most significant changes is complete separation of credit and recovery functions from the branch operations. This realignment has now been successfully implemented across most branches and has delivered measurable improvements in accountability, monitoring, execution, discipline, and collection efficiencies.

This change has also allowed branch teams to focus more effectively on customer engagement and business sourcing. With dedicated recovery teams, we have better visibility into emerging portfolio stress and can intervene earlier.

This has meaningfully reduced loan losses across the portfolio. As a result, loan losses across the portfolio reduced meaningfully, leading to a moderation in write-offs and provisions, and supporting improved profitability.

Consolidated profit after tax for the quarter stood at 41 crores, registering a growth of 85% sequentially and 120% year-on-year, 220% year-on-year. For FY '26, profit after tax stood at 57 crores, reflecting a year-on-year growth of 9%.

In parallel, we also strengthened our portfolio protection framework. About 90% of our microfinance portfolio is now covered under the CGFMU scheme.

This provides an additional layer of protection and demonstrates our commitment to prudent risk management, especially considering the macro-level uncertainties at this stage. Along with the structural realignment, we also fundamentally strengthened our underwriting approach.

We moved away from traditional group-based JLG credit assessment model, which had its inherent limitations in assessing individual repayment capacity, and shifted towards a more individual-level credit evaluation. Under this new model, each customer is evaluated more closely based on his or her repayment capacity, household cash flows, credit history, and overall financial profile, rather than relying solely on group behavior dynamics.

These improvements have not come without cost. To be completely transparent about the trade-offs we have made, first, the rejection rates continue to remain elevated.

However, the quality of the disbursed portfolio has improved significantly. Second, operating cost has increased significantly, as I'm sure you have noticed.

The new credit model requires a larger team, more detailed underwriting, and better monitoring capabilities. These, I believe, are necessary investments to build a sustainable business in the long run.

Bringing these costs under control while maintaining the integrity of the credit process will remain our key focus area for FY '27. Despite these near-term pressures, we believe that the investments are essential to position us for sustainable growth in the next phase of the cycle.

Moving on to the performance of our microfinance business, the AUM stood at 1,999 crore—that's 1,999 crores—registering a growth of 19% on a year-on-year basis. Disbursements for Q4 FY '26 stood at 738 crores, reflecting a growth of 88% year-on-year and 62% sequentially.

Business momentum improved significantly during the second half of the year, resulting in a full-year disbursement of 7 1,798 crores. Gross total income for FY 20, gross total income for Q4 FY '26 stood at 117 crores, while for the full year it stood at 433 crores.

Supported by the improving operating environment and lower impairment cost, pre-provisioning operating profit improved to ₹41 crores for the quarter and 143 crores for the full year. Profit after tax for Q4 FY '26 stood at 29 crores, while full-year PAT stood at 13 crores.

Asset quality trends improved gradually throughout FY '26. Our GNPA stood at 3.4%, while our NNPA reduced to 0.95%.

These metrics reflect the benefits of our separated credit and recovery structure, disciplined credit assessment, and stronger monitoring and collection efforts. On the stand-alone front, MSME, 2W, and LAP businesses continue to witness steady traction during the year, supported by healthy demand across our operating geographies and consistent execution by our field teams.

During the year, we expanded our footprint into Uttar Pradesh—that is for the MSME portfolio—strengthened our LAP field teams, and launched a pilot for solar loans in Gujarat. We expect these initiatives to contribute meaningfully to the AUM growth over the next two to four quarters.

Stand-alone AUM grew by 30% year-on-year to 730 crores, with MSME segment contributing 76% of the overall portfolio, followed by the LAP and two-wheeler businesses. Disbursement momentum across all segments remained healthy, with quarterly disbursements standing at 213 crores, while full-year disbursements stood at 636 crores.

Asset quality across these portfolios remained stable, with GNPA for the MSME segment at 3.84% and two-wheeler segment at 3.9 5%. Collections were also strengthened across these segments.

In Q4 '26, collection efficiency for all segments stood above 96%, while 0-bucket or X-bucket collections were 99.5% plus for the whole quarter, reflecting delinquencies returning back to normal pre-cycle levels. Lastly, on the liquidity and capital position front, the company continues to remain well capitalized, with capital adequacy ratio of 27.86% for the subsidiary, Namra Finance, and 41% for the stand-alone business as of 31st March 2026.

The company continues to maintain a healthy liquidity profile, with available liquidity of 229 crores, comprising of cash, bank balances, liquid investments, undrawn CCs, FD OD limits, etc. In addition, we have undrawn sanctions of 275 crores from existing lenders as of March end, providing adequate financial flexibility to support future business growth.

As we look ahead to FY '27, our approach is to remain focused on responsible and disciplined growth. While we expect disbursement momentum to continue improving, growth will be pursued within clearly defined risk parameters and strong emphasis on portfolio quality over growth.

Maintaining collection efficiencies and monitoring asset quality metrics will continue to remain key priorities for us. At the same time, we will continue investing in our credit recovery and monitoring infrastructure to build a stronger and more resilient operating framework.

Improving operating efficiencies and rationalizing cost structures without compromising underwriting discipline or portfolio quality will also remain an important focus during the year. We believe the structural improvements undertaken over the past several quarters position us well to strengthen our market position and capitalize on growth opportunities in the evolving industry landscape.

With that, we can open up the floor for questions. Thank you very much.

Hi, am I audible?

Yes, please go ahead.

Perfect. Thank you so much for the opportunity, and congratulations for

good numbers.

I have three questions. Firstly, how should we think about your cost of borrowings trajectory for FY '27?

What is your outlook for the same? If you could also quantify it because a meaningful part of the book is on a fixed-rate basis, is there a near-term NIM compression risk if borrowing costs rise or they remain elevated?

Borrowing costs have been steadily declining, I think. Look, the cost of borrowing for the past six months or so, the marginal cost has been declining.

Our average cost of borrowing continues to be approximately 12%, while the marginal cost in the last two quarters would have been about 11.75% odd. What you're referring to is the likelihood of the MCLR going up and the downward stress on interest rates.

I think if that was to really start happening in a bigger way, we can say that we are not completely insulated on that. Having said that, you must also kind of look at that microfinance for the last two years, including Namra, which is the larger contributor to the entire AUM, performance was not probably the best that one would expect.

Now as things improve, I think there are reasons for us to also look at advantages in terms of cost of borrowing going down from that aspect. In that two-way, one thing that might pull it down, the other in terms of our performance having improved, likely to kind of keep the cost of borrowing at the same levels or probably looking at a lower level.

I think we seem to be pretty comfortable at the current cost of borrowing, not really making any major changes from that layout.

Got it. From the presentation, I see that yields have come off in Q4 versus the last quarter.

I'm trying to understand over the last one to two months have you taken any repricing on both the and MFI book? What is your sort of stabilized NIM outlook for FY '27?

Yields have gone up, you mean?

I'm talking about consolidated level.

Yeah. As the product mixes change, obviously you will find some level of distribution because, for example, if you look at the stand-alone business, the LAP products are significantly lower costs than, for example, the MSME products.

The product mixes will affect the yields. In the same way, as far as the microfinance products are concerned, the products are priced differently for lower-risk customers, individual levels, versus JLG customers versus different kinds of customers.

That mix will continue to change. We have not adjusted the interest rates in the last quarter, although we did in the previous quarter.

The quarter before in Q3, we did modify it marginally. What you're probably seeing is some timing differences and the product mix changes.

Got it. My final question is, with the consolidated ROA at approximately 2.3%, what is your outlook or aspirations on ROA for FY '27, given that your margins now appear to have stabilized?

Where do you see that incremental opportunity, improvement in ROA? Should we think about it from the lens of margin expansion or operating leverage from OPEX or lower credit cost?

All three of them. Not withstanding any major global disruptions, which is not just a microfinance problem or NBFC problem, but largely for the whole economy.

Not withstanding any disruptions caused to that, we expect healthy growth in the ROA. I don't want to place an exact figure, to be honest, but definitely 3.5%, 4% plus is sort of easy to expect, all things considered, if our growth trajectory remains consistent.

Got it. For ROE?

ROE is a function of leveraging as well. Again, I don't want to quote exact numbers.

To add to that, I think the leverage in the last two years have been pretty low, right?

The leverages are likely to move upwards as the disbursements and the overall microfinance and unsecured lending picks up as we're seeing in the last four, five months. With that, the leverage should help the overall ROE to move up.

We have a number that we are targeting. I'm just a little hesitant to say it out loud, that's all.

Sure. Thank you so much for answering my questions, and wishing you all the best.

Thank you.

Hello.

Please go ahead.

Hi, Aalok, and congratulations team for the results. My first question is on the OPEX you did touch upon in your opening remarks.

Now that transition to a more sustainable OPEX is largely done, how should we think about cost to asset for the year? Then at what scale of AUM do you think it goes to a steady-state number if you could just talk about how you think of OPEX to asset ratio?

Yeah. No.

Definitely can talk about that. A lot of people ask about cost to income, which I'm not very familiar with, but yeah.

Cost to assets, definitely. Right now we are at one of the highest levels.

If you look at microfinance, we are probably around 9% or so, which is higher than it has ever been. I think at our lowest point, probably we were, Vivek, probably close to 4.5%, 5% or so?

5%.

5%. Quite a bit of a jump.

That jump happened due to multiple reasons. Number one, portfolio was declining, but we did not see the number of employees going down.

In fact, the number of employees increased significantly even in a situation where the portfolio was declining. That is for two reasons: number one, we needed obviously people to go collect the money during the credit cycle, so that was the recovery officers; and second was the separation of the credit people, which is the BCMs or the branch credit managers.

All of that added substantial cost on the OPEX side. Previously people had asked me about this, and I said that right now is not the time to worry about operating cost.

There will come a time to worry about it, and frankly speaking, that time is now. We have luckily managed sorting out the asset quality issues, and now we will concentrate on bringing the OPEX under control.

Largely speaking, naturally as AUM grows, as a percentage terms, when the denominator increases, the OPEX will come down. Again, I don't think that we will ever manage going back to our previous OPEX.

It may be possible to bring it down to let's say around 6% in the short to medium term. This year, we are probably targeting to bring it around 7-odd percent.

That is the target that we have set ourselves. From 9% to 7%.

Perfect. My second question is on your products like MSME and LAP.

Now that they have kind of attained a sustainable size, how should we think of the growth, especially on the MSME side, now that you're running it at a sizable amount? In terms of growth, what are you picking up in terms of on-ground reality?

Because this book comes with a lot of underwriting effort all through. If you can talk about No.

LAP loans side, we reached break-even this year, started seeing some money there on the LAP side. That portfolio is relatively stickier because it is long-term, as you are aware.

The tenure is much larger. All in all, happy with the LAP product.

Obviously, it's not like microfinance. It's a competitive environment, A.

It requires specific type of customer, like your cash flows to match, a person willing to secure their residence or commercial property or what have you, and dependent on the paperwork being clean as well, there are a lot of conditions. Definitely we can expect it to grow by 20%, 25%, but not like a huge jump or anything like that.

MSME as well, we are targeting somewhere around 25-odd percent growth in FY '27. Can we push it more?

Of course we can. The question that when we were deciding the targets and everything with the team, the question was that things have improved.

Why have they improved? Is the ground-level situation much better than it was, or are we selecting better?

I think overwhelmingly the answer was that we are simply selecting better, but the ground-level situation remains I don't want to say complicated, but that there's a lot of questions. There's a lot of uncertainties.

It's very hard to predict what tomorrow, next month, next quarter is going to be like with all these disruptive global elements and other things going on. This is probably not the year to push growth or push growth hard, at least.

Of course, we will keep recalibrating as the months and quarters go on.

Perfect. My last question, Aalok, is we've already crossed our peak AUM.

Should FY '27 now actually In FY '27, can we cross our peak profitability also?

I wish. I hope.

[laughter] I don't know. That's almost a direct one.

I wish we could say yes or no. [laughter] But yeah, there are uncertainties.

That's what it is. Unlikely, but we'll get it close.

Perfect. Thank you so much for answering my questions, and best of luck.

Thank you.

Thank you for the opportunity, sir. I wanted to know on the asset quality front how the April and May collection efficiency trends were.

Going forward, could you please provide some color on how are you seeing the trends in MFI and MSME given the inflationary pressure arising?

As far as disbursement volumes in April and May, predictably, they were lower than Q4 Q4, but that is always the case in financial services. Q1 is always lower than Q4.

Surprisingly, the asset or, 0 DPD and everything has been stable, there has not been any drop there despite a very, very hot summer and a lot of other issues, petrol running out and LPG issues and all of that stuff. It's a good surprise, but it is a surprise that we have not seen much of a drop in that in in the at least early delinquencies.

Sir.

Let's hope it's not a delayed impact.

Hi, Aalok. Hi, guys.

Just wanted to touch upon how collections are coming in the delayed buckets, given now that DPD 0 has settled down. Any chance later this year that we'll start seeing some level of interest reversals as some of the older customers are getting collected?

A lot of write-backs are already happening. Do we disclose that?

We

did. The presentation probably in the annual report.

In the annual report and otherwise, we kind of give the net write-offs. Srinath, what we're seeing is write-off collections are fairly good.

As we move forward, I think the collections in the harder buckets should consistently improve as obviously customers are also getting choked for fresh credit, and there is a reason for them to kind of also clear up. We keep on having customers coming up for more settlement cases than we've seen in the past.

If that is your question, yes.

Normally there's a second year after the problem is solved, because of the interest reversal, sometime credit cost even goes to 0 or negative. You get a net write-back into the P&L, just wanted to check if you guys have seen that kind of a situation somewhere, especially given on a static book over the last two years, the NPAs were really high, right?

Right.

On loan against property, disbursements are kind of flattened out in the last 6 months. How are we seeing that particularly?

We did want to foray in South India and get some business from Andhra, Telangana. How was the progress there?

How's the progress on distribution of the product? I'm aware that it just takes a lot of time to find these customers, but want to understand from a growth perspective how you're looking at LAP property.

As I mentioned to one of the previous callers, growth and disbursement in this business, as expected, is not like microfinance, where you open up a shop and, typically, you'll get customers because it's unsecured. This is secured and it's competitive, and everybody's kind of jumping into this product.

That's why you are seeing a little bit of that flat. It is increased competition.

A lot of NBFCs are coming into this product. A lot of the MFIs are also trying to come into this product.

Competition's fine. We'll work with it and happy to have a competition problem than quality problem, honestly.

That is the reality.

On distribution of this product, where are we in South? Have you been able to open some branches?

We have penetrated. We are doing quite a bit of volumes in Telangana also, but it's a very mature market and there is a lot of competition.

It's, again, not very easy to break into those markets. As the South markets are much more

saturated, especially in terms of LAP and secured loans, and gold loans and other types of loans, than let's say western India or northern India.

Last one, are we looking at Uttar Pradesh for LAP? Have we been able to open up that particular bucket?

Any luck?

Right now we're just expanding MSME. We have opened up a few branches.

We'll open up more this quarter. Once that stabilizes, we'll more than likely go into that market as well.

Perfect. Congratulations, guys.

Hope you have a good FY '27.

Thank you.

Hi. Good afternoon.

I just wanted to understand, in individual micro loans, which we are scaling up, does the MFIN guardrails apply or is it out of the purview of MFIN guardrails?

If you're classifying it as a retail loan, it is outside the purview. If you're classifying it as a micro loan, then it is within the purview.

How are we treating it, then?

It depends. If it's meeting If it's meeting qualifying asset criteria, we are treating it as a micro loan, and it the guardrails apply.

If it's not a qualifying loan, then it's enters the 40 enters under non-qualifying or as a retail.

Sorry, your voice was breaking in between. Can you repeat?

I'm sorry. What I'm saying is that it depends on customer profile.

If it's a true micro customer, which means if it's meeting the criteria of RBI as a qualifying asset, then that automatically becomes as a micro loan, and therefore MFIN guardrails apply, which we are following. If it does not meet it, then it becomes a retail loan on our books, and that falls as a non-qualifying asset.

In many cases, the guardrails are still there, they still might be valid under the guardrails, as in you are still meeting the criteria, but depends largely if it's classified as retail or a microfinance.

Okay. Do we have loosened some filters as compared to JLG loans in IBL?

Let's say Arman+2, Arman+3, what are our internal filters for this kind of loans, then?

We have many filters, we are not relying on this simplistic one-size-fits-all credit policies. Largely, the BCMs are in place to evaluate a customer, and based on their occupation, what their assessed cash flows are, and based on those cash flows, we offer a loan.

Arguably, at the expense of sounding arrogant, our system is far superior than the so-called one-size type

guardrails. Then to add to that, we've also kind of, in certain ways, tightened because when we're doing business which are probably outside the purview of the guardrails, we're also the fact that these customers are not new to credit.

These are pristine customers in terms of their bureau scores, let's say 700 plus. In terms of their direct collection contract, these are all e-NACH or UPI mandate.

Yeah.

Those are additional that you may call it filter, or in terms of the collection efficiency that you want to build up, we're taking those necessary steps as well.

Frankly speaking, I don't know if I can say this in sort of an open forum, but let me be very honest with you that the MFI industry has to change. Earlier, it was, as I said, a one-size-fits-all credit policy where, even if you look at the guardrails today, if you are a borrower in a country as large and complicated as India, you're a good customer at 2 lakh, but at 2 lakh 1,000, you become bad.

If you've borrowed from whatever two, three MFIs, you're good; any more, you become bad. If you have an EMI of ₹12,500, you're good; ₹12,600, you're bad.

It's too simplistic. That is true in Gujarat or Kerala or Bihar and Jharkhand, all the same.

I'm not saying the guardrails are bad. I voted in favor of the guardrails, as I've said earlier as well, because that is what was required to deleverage the overleveraging that had occurred.

In the long term, we have to move past these kind of tailor the credit to an individual customer. There might be many customers who can afford a much higher EMI than ₹12,500, and there'll be many that cannot even afford ₹6,000.

Who's to judge what is absolutely correct for everybody, right?

Got it. Other question is, assuming that FY '27 is the normalized year, how should we look at the credit cost?

Should it be in range of 2.5%, 3%, or more than that?

I think that's in the ballpark a good number of 3%. I think we should be able to pull that off.

There's the macros remaining

Last question is

Sure.

Thank you for the opportunity, sir. Am I audible?

Yes. Yeah.

Sir, first question on the OPEX side. Since you have said that we have tweaked the model a little bit, could you help us understand what are the levers that we have in our hand to get that cost under control?

What could we do from our side?

In the finance industry, the easiest thing to do to solve all your problems is to grow the book. Whether you are facing asset quality issues or OPEX issues, the easiest way to do it is to increase the denominator.

The more complex way is, of course, to drive efficiencies harder. We plan to do both: get more work out of people in a more efficient way through the use of technology.

Obviously, high volumes are achievable, as proven by my team during Q4, where it was probably a record quarter for us both in terms of volume and growth. Just execute that properly.

Over and above that, if you do that properly, then the AUM will naturally grow, and the denominator effect will cut down cost. Definitely, we are not planning any layoffs or anything like that to cut cost.

We've never done that. I've never done it in the last 16 years, and definitely we don't plan to do that.

Got it, sir. Currently, sir, it's at around 8% if I look at consolidated level for FY '26.

What are the aspiration levels that we would aim for to bring it down?

On the micro side, it's probably closer to 9% or so if I'm not mistaken. We'll probably try to get that down to 7%.

At our peak levels, we were probably at about 5%. Whether that is achievable now, I don't think so.

But 6% is definitely achievable in the medium term. For this year, probably around 7% sounds like a nice, good figure, achievable figure.

Understood, sir. Understood.

Sir, LAP product has seen a little bit spike on PAR 30 to 90 and GNPAs. Is there any reason that we should be concerned about that?

Yes,

if you see a spike, what you need to understand is that it's a relatively new portfolio. Yes, you've seen some few cases getting into the PAR 90 in LAP product.

In LAP? I didn't think we had much of a problem.

No. Yes, every NPA is a problem.

Then, the GNPA is up 7

0.7%, 7.7%?

No, 0.7.

0.7%. Okay.

Probably four or five cases there. Team is handling those cases.

Understood, sir. What would be the levels of GNPAs and credit costs that we would be comfortable in this portfolio as we scale at 20%, 25%?

I don't know. I don't have enough experience with this portfolio.

I don't know what is standard. People have told me it's anywhere between 1% and 5%, depending on the type of customers and what type of cycles you're in.

In any lending product, it's never going to be 0, secured and unsecured. Your security is only as good as your ability to repossess it and also to liquidate it.

Now this product, we are not really betting on the fact that you will manage repossessing and liquidating. Definitely not going to be 0 or 1%.

Probably 2% is a good long-term number that we should be happy with.

Understood, sir. Understood.

Sir, what could be the

Thank you so much for the opportunity. Just a quick one on the operating expenses for this quarter.

Does that include any one-offs like for instance, the CGFMU premium or anything which is particularly coming in this quarter?

It does include CGFMU premiums, but that is no longer one-off. At least until the program is active, we are going to cover everything 100%, so that will be a part of the overall cost.

This would be an annual recurrence, right, or a quarterly one?

There's an annual component and a quarterly component as well. Quarterly will be the new disbursements.

I don't think that we've capitalized those, right?

The annual one let's say what becomes payable or applicable for FY '27, so that gets covered equally for all the four quarters of '27. There would be a quarterly component, which would be applicable to the new disbursements that we do.

Right.

That is dependent on the amount of new disbursements.

That would also be capitalized, I believe.

No, that's only for the quarter for the new disbursements for that first year. It's a prorated amount.

Okay.

Hence, it's only applicable to that quarter.

Got it. Yeah.

Understood. Thank you so much.

I guess one of the expenses related salaries also, no? Just to answer his question, there was some cost related to that new labor code and everything.

It was. If you're referring to that, I think for both the companies taken together, there is a labor code impact, which is gratuity.

Yeah. Back-to-back, it's about ₹1.5 crores.

Something like that.

Got it, sir. Thank you so much.

That's very helpful.

Hi, Aalok. Just on the LAP business, I had a question.

We are seeing a fairly healthy disbursements there, but the book growth is not significant. For example, over the last two quarters, there have been 35 crores of disbursements, but the loan book has grown by only 5 crores.

What is happening here?

Amit, the loan book has not grown significantly because there was this 10 crore of

100%. There was

one or a couple of large ticket loans that we've done, which has seen some early prepayments. Closures.

Secured loans were there, but they were closed earlier, the disbursement was higher, but then the AUM declined.

These loans are all small ticket loans, right? In the

Again, there were a couple of loans which were large ticket loans, and these were kind of less than six months and got repaid.

Got it. Thanks.

What's the

Finally got captured in the AUM in a particular quarter because they were there on that quarter. Probably should have let them out of the disbursement reports anyway.

Anyway,

we'll probably adjust it next time.

Okay. The OPEX for this year was around 115 crores on a consolidated basis.

What kind of OPEX are we budgeting in for FY '27?

You're saying in absolute terms? Absolute terms,

and what kind of growth on OPEX front?

Amit, on absolute terms, probably would be slightly awkward to say, because it'll depend on how many branches eventually we open up and how things really pan out. Largely, as Aalok was saying earlier, the target is to maintain it or bring it down to about 7%.

Thank you very much.

Yes. One is you mentioned that April, May, so far, is looking on track and not seeing any worsening in quality.

My question is, even if it were to worsen, given that there is a CGFMU protection for at least 90-odd percent of the microfinance book, wouldn't that give a lot of protection in the case the quality gets bad?

Absolutely, yes. Correct.

As long as you get the claims, it should cover about 75 72% of everything. 72%.

Yes, that risk hedge is always there in the form of CGFMU.

Right. The reason I'm raising that is in the past cycles prior to the CGFMU guarantees, there was a large risk of higher NPAs.

Should we assume that now the NPAs will not go beyond a certain threshold?

Without getting too technical here, actually the percent NPAs should increase because until you file the claim, you're not allowed to write it off. Is that correct, Vivek?

Am I saying that correctly? The net NPAs will be lower.

Your provision coverage will remain intact, but let's say if the customer was to go bad, then obviously they'll be sitting on your book till the time you get the claim.

Yeah. Understood.

Okay. The other question I had regarding

I'm glad you asked that question because I was just thinking about that maybe a few weeks ago that given how the framework of CGFMU works,

the net NPA would be more important.

The gross NPA will unfortunately go up because I'm not allowed to write off the assets until the claims are done, and that might not happen for a year until they become NPA.

Got it. Noted.

Aalok, the other question I had was regarding Elevation Capital. There seems to be I think Elevation Capital seems to be exiting their position, and they're still have an 8-odd percent stake left.

Do you have a sense by what time or within how much time will they exit their entire position?

I think they are making choice trades, I guess, in the market. There is no pressure on their side to exit as quick as possible, or no pressure from us or anything like that.

I don't believe that they have given me a timeframe. It could be quarters; it could be years.

I don't think that they're in any bit of a rush. That said, I think all investors eventually need to exit.

That is just how the industry works. They came in in 2016.

It's been about 10 years. They've been great investors.

We are quite happy with them. Overall, zero complaints.

I believe Mridul, who was a nominee director in Arman board, had resigned in anticipation of exiting slowly. That was about 2 years ago, I believe.

It's no big secret that they are slowly exiting. As far as the timeframe is concerned, I don't believe they're in any rush.

Noted. Thank you, and wishing you all the best.

Thank you.

Hi, see, I have question regarding NNPA. It's going up quarter-on-quarter.

I think from 0.7% to 0.95%. I think we commented about it, but I missed that comment.

I couldn't hear it clearly. If you can just give your view why NNPA is increasing and why we are not providing

Why NNPA has increased by 20 bps? Actually, right now, the NNPA might look slightly higher for one simple reason that for the last two years, has seen a lot of early-stage write-offs given the overall asset quality concerns.

Based on the performance of individual loan accounts not just with us, but usually a lot of others, because when we write off, we also kind of look at how they have been performing at this point of time with other lenders as well. Hence, whatever NPA actually sits on the books might be of lower aging, leading to a lower provisioning requirement based on the expected loss on those cases.

Hence, a bit of increase. Again, if some of these loans are covered under the CGFMU, that kind of comfort would also set in for a lower provisioning requirement.

Hence, a bit of a spike that you might see. Still, it kind of across all segments continue to be lower than 1% for all of them.

Do we see that there is a need for providing for these NPAs in coming quarters? Because as of now, I'm seeing that the credit cost is pretty low.

Maybe there might be some recovery or write-offs. It seems very low as of now.

Do you think that provisioning will be increased in coming quarters just to beef up this means for NNPA?

Credit costs that you are seeing in this quarter is a function of many things. There will be certain provision reversals.

There will be certain cases which are covered under CGFMU which might not require a full provisioning. There will be certain write-backs as well, assets which were previously written off but collected.

As one of the previous callers also said, in many cases, you see a negative or a sort of a contra impairment as well, which unfortunately is not the case with Arman. It's a function of many, many things.

A lower figure is definitely a good sign, especially after so many quarters of sweating over it. Let's see.

I think, as I said, it's a function of many things. It's not like, "Oh, let's just provide more."

It looks too low; let's make it higher, or there's enough profit; let's do this. The accounting standards are not that simple anymore, where a lot of things are in our control to do that.

There are ECL models, there are CGFMU requirements. There are many, many factors.

Understood, sir. Thank you.

Thank you. Most of my questions have been answered.

I have no further questions. Thank you.

Thank you.

Thanks for the opportunity again. Aalok, I just wanted to check with you.

You said the rejection levels are continue to be very high, especially on the underwriting side. Just wanted to check with you in terms of how is your sales team kind of absorbing this kind of pushback when there is so much of reversal on ground in terms of your X-bucket being at 99.5%, there's positivity on the ground?

How do you think of your sales team's motivation kind of in the new environment where there is a credit officer sitting?

Yeah. Personally speaking, it went better than I expected.

Largely, it is for, I would say, selfish reasons. The ground team largely went through a sort of a hell in the last couple of years.

Any initiative that makes their life simpler in terms of collecting money is welcomed by them as long as the memories of the past two years remain fresh. I would imagine that once things get better for the next 6 to 12 months, you are right that pushbacks may start coming from the sales team saying that, "Oh, out of every 100 cases, if I bring in and 75% are rejected, then what's the point, right?"

I think all of these things have a lot to do with culture and tones than any magic formula. At the expense of tooting our own horn, our culture is very, very good in terms of the ground-level team being on board with risk measures as long as it makes sense to them whatever they're doing, right?

We take a lot of feedback from them as well. Anything that is not adding meaningful value in terms of risk assessment, we try our best to take it out.

I, for one, hate red tape. If it doesn't make any sense of doing it just because we did it in the past, that doesn't mean that we should keep doing it.

For example, I'll tell you that the norm for 30 years in microfinance that was that third-cycle customer is better than second, and fourth-cycle customer is better than third. Through numerous cycles, I have found no evidence of that.

While it's important from a customer retention perspective, we don't put so much emphasis from a risk perspective anymore. Just because somebody's been with you for four cycles, that does not automatically make them.

Now we did get pushback that, "Oh, this is a fourth-cycle customer. Why are you rejecting them or why are you not approving a higher loan amount?"

Those kinds of pushbacks come quite often, and that is up to us to educate them, train them, or communicate with them that these are the specific reasons why that is happening. Yes, you are right.

Nothing is simple. There are challenges to convince them.

In the finance business, little bit of fights between sales and credit is not necessarily a bad thing.

Fair enough. Yeah.

Lastly, on your aspiration of 5,000 crore of AUM, which we had spoken about couple of years back, now that we are past the difficult period in the industry, is that path now clear for Arman as on a consolidated basis to achieve in the next 18 to 24 months?

The last cycle has made me a bit superstitious, I'm not going to say anything. [laughter] That aspiration amount still remains, but when and how we achieve it is always [laughter] We better talk about it at some point of time.

Let's let this war and LPG and petrol and all of these things settle over, and then probably we'll have a better discussion around 5,000 crores.

Sure. Thank you so much.

Hi, sir. I just wanted to understand, what is our provision and write-off policy for DPD 90-plus cases?

Provision and write-off policy for 90-plus? That's all you, Vivek.

A simple answer: our provision coverage ratio on NPAs is about 92%.

That is based on the

ECL model, right? What is the probability of default and the other aspects to it, because when the customer comes in to default in terms of the age or the tenure of the loan, just to give a case in somebody default on a 24-month loan, defaulting in any third month itself will probably require a higher provisioning percentage, and the defaulting is in the 18th installment.

I'm not mistaken, Vivek, we have ECL charts certified and are being re-certified annually, and that takes care of What happens after that?

Understood. Thank you.

Sure.

Hello?

Hello, am I audible?

Vinay. Now you are, yeah.

Yeah. Hi.

Hi. Yes.

If you could throw some light on what is the on-ground competitive scenario that we are seeing. You briefly touched upon it saying that you would rather have competition pressure than price pressure.

Generally, what has typically happened after bad cycles is that people who have burnt their fingers withdraw from the market. Unfortunately, they come back towards the peak.

Right now, is the cycle turning, are we seeing lesser competition due to withdrawal of the large NBFCs or the multi-asset NBFCs, specifically in MFI? That was my first point to understand.

Yeah.

I'll answer the first point, otherwise I'll forget it. The competition I was referring to to one of the previous callers was regarding micro LAP.

Competition is always in flux. There was a time 6 months ago where everybody was talking about diversifying, reducing MFI book, and many other things.

I think I'm not sure if I said it in one of the concalls, but that's music to my ears, that when everybody's jumping into a business, that is when you should be more cautious, and when everybody's talking about getting out of something, that is something that is a great thing for as a businessman to see that okay, you lack less competition. On the converse, when people were talking about diversifying, they were talking about getting into some of the other segments that we have, like MSME or micro LAP.

In that sense, there was much increased competition in the sort of individual MSME small ticket loans that everybody seems to be doing now, calling it different names, but in essence it remains a similar product. A lot of people, including SFBs and everybody, have started going into these small ticket LAP loans as well.

There is much higher competition there. In the MFI space, yes and no.

I think unfortunately or fortunately, I think as a defense mechanism, I've always said that people have very short memories, and that includes myself as well, probably, that few good quarters and everybody says, "Ah, it was COVID or it was demon or whatever this was, and life goes on." While people were talking about giving up or getting out of MFI, many people are pushing up volumes back to pre-crisis level now.

There are significant competitors who are facing some issue or another, whether it's liquidity or capital or other things. From that side, there is much lower competition.

I don't know. It's one thing to say and it's another thing to do.

At least in the fourth quarter, I did see a lot of larger players increasing their volumes quite a bit.

Okay. Because if I just zoom out a little, assuming that the total addressable market remains more or less same or it has, in fact, grown over last few years, and the total MFI book has actually shrunk from 4.5 lakh crores to less than 4, and we are now talking of circumspect growth numbers of anywhere between 20% to 30%, whereas in the past we have grown at upwards of 50%, 60%, 70% also in some quarters.

The thought was that this lends some longevity to the business if lending is done prudently. Can we think about it from a structural perspective on these lines?

Yeah, 100%. I think if there were many lessons to be learned, and I think hopefully people have absorbed them.

I know I have. I think all said and done, we are perhaps slightly better off for it in a strange sort of way.

I'm not exactly sure how to answer that, Vinay, but

yeah, no, yeah. I think

things better than they were, 100%.

Yeah. Are

things better than ever were? It's relative.

Depends on what is your comparison threshold.

Sure, sure. Because just to round that point off, what I was also thinking is that we have been hit by externalities very often till now.

While there have been accidents at company levels, in individual institutions, at an industry level, what has happened in the last year is kind of self-goal by everybody. Now that all of them have learned from that, probably internally there are stronger mechanisms in place.

Then now we can go back to business-as-usual where we work with known externalities and then hope some unknown externality doesn't hit us. That just that's my comment on that.

Absolutely.

As long

as you're prepared, that's what this is about. Right.

My second point was you can just throw some light on how we are thinking of the solar vertical, which customers are we targeting, what product are we financing, some color around that?

Yeah. This solar sort of venture started with there is a government program in place wherein for qualifying there is a subsidy in place.

Depends on what state you are in, can be as high as maybe ₹70,000, ₹75,000 of subsidy that you get from the government for putting rooftop solar. I believe it's up to 3 kVA is the most ideal ratio to get your thing.

Looking at the numbers, it's sort of an easy to convince a customer that, "Listen, your EMI will be equal or less than your electric bill, and in 3 years or whatever, you'll get free electricity." While there is a lot of competition in the urban spaces, I did not find that there was enough distribution or enough competition in the rural spaces, right?

That is the beginning of the pilot. Overall it's too early to tell, I'm not sure if I want to add anything to that beside the reasoning of why we started the pilot.

Sure,

sure. Okay.

The yields continue to be in line with our other products, and our underwriting practices continue to be similar to other products?

Just if you think about it, what is the profile of customer who would voluntarily invest money for a rooftop solar, right? This is not like unsecured personal loan and clearly the people who want to do it in the rural side will automatically be slightly a bit more responsible.

They're slightly better off. They have the ability to think long-term, right?

Many other factors. We are not particularly concerned about the asset quality itself.

However, it's more the finding the customers that is probably going to be the biggest issue, finding the distribution of dealers, because all of these different manufacturers, you have Adani and Waaree and and many, many other players. They don't do it themselves.

They have a whole distribution channel in place, and there is a lot of confusion. There are thousands of these small to large players.

Sorting them out and working with them will probably be the biggest challenge.

Okay. Okay.

Like you said, maybe a couple of quarters down the line, we may have better discussion around this.

We will probably need a couple of quarters at least.

Sure, sure. My last point was regarding employees, because again, about a year back, there were we had talked about some pressure on the employees when they go to collect.

Then, life was generally tough for them. Are those kinds of pressures still continuing or have they abated to some extent because there were a lot of churning between organizations also with employees leaving us and all that?

Correct. No.

Obviously that collection pressure, especially 0 DPD X-bucket, has come down significantly. As far as later-bucket collection, now we have recovery officers.

So 100% that pressure has come down. The digital itself has moved to about 35%.

Digital collection itself has moved to 35%. For individual loan portfolio, 70% plus.

All in all, that's much better in terms of incentives and bonuses and R&Rs, lot is relative, but they've made much more money than they have before with better volumes and better collections and otherwise meeting targets and other things. I think it's fair to say that it's much better for them now than it was let's say 12 months ago or even 6 months ago.

Very good, sir. Like you said, culture is very important, and that is something that we have maintained over so many years in the past.

Thank you and all the best from my side.

Thank you. As far as culture, it becomes more and more difficult to maintain with such high attrition because it doesn't get a chance to permeate.

Very true. Very true.

Alok and

Thank you.

Thank you so much. Bye.

Thank you.

Yeah. No, thanks to everyone for joining this call, and please reach out to us or investor relations team directly should you have any further queries.

Thank you for joining this call, and have a great evening ahead. Thank you.