Thank you, Muskan. Good afternoon, everyone.

On behalf of PhillipCapital Private Client Group, I welcome you all to the Q2 FY26 Earnings Conference Call of Arman Financial Services Limited. From the management, we have Mr.

Alok Patel, Joint Managing Director, and Mr. Vivek Modi, Chief Financial Officer.

I now hand over the conference to Mr. Patel for his opening remarks, and we will then open the floor for the question-and-answer session.

Over to you, Mr. Patel.

Thank you so much, and a very good afternoon to everyone, and thank you for joining us today. On behalf of Arman Financial Services Limited, I extend a warm welcome to all of you to our Q2 and H1 FY26 earnings call.

I'm joined by group CFO Mr. Vivek Modi and the Investor Relations team from SGA.

I trust you all had the opportunity to review our results, the investor presentation, and the press release, which are all available on the stock exchanges and our company website. Over the past 5 to 6 quarters, the microfinance industry has navigated a challenging period marked by elevated credit stress, regulatory reforms, and significant write-offs and provisionings.

However, now we are beginning to witness the early signs of recovery. The September quarter reflected a moderation in bad loans ratio and an improvement in collection efficiencies, supported by the gradual restoration of borrower discipline.

That said, this stabilization in asset quality has not come without its trade-offs. The tighter regulatory guardrails and prudent risk management practices have effectively curtailed overleverage in the system, but also resulted in a slowdown in fresh disbursements.

Against this backdrop, H2 and H1 FY26 have been about steady progress and rebuilding momentum for Arman. The groundwork we laid through disciplined execution, sharper risk controls, and structural reforms implemented last year

the structural reforms implemented last year is now beginning to yield tangible results. We are witnessing positive signs across all key operating parameters, from AUM and disbursement traction to asset quality and collection efficiency.

Our microfinance portfolio has started showing signs of recovery, while our non-MFI segments, which are MSME, two-wheeler, and LAP, continue to deliver consistent momentum. We continue to maintain a calibrated approach in our microfinance business, while steadily expanding our presence in MSME, two-wheeler, and LAP segments.

Our focus on strengthening portfolio quality, enhancing credit underwriting processes, [Phone ringing: Sorry, I forgot to mute it. Excuse me.]

our focus on strengthening portfolio quality, enhancing credit and underwriting processes, and driving operational efficiency has positioned us well to capitalize on the ongoing recovery. While the external environment continues to evolve, the underlying trends in our business remain firmly positive.

We are encouraged by the resilience demonstrated by our borrowers and teams on the ground, and we remain confident of continuing this momentum as we move into the second half of the year. Our consolidated AUM stood at ₹2,130 crore as on September 2025, in line with our conscious strategy of prioritizing portfolio quality and risk discipline over headline growth.

While this remains lower on a year-on-year basis, the portfolio is now showing encouraging signs of stabilization and a gradual return to growth. Impairment costs have been trending down for three consecutive quarters, from ₹89 crore in Q4 FY25 to ₹38 crore in Q2 FY26, reflecting healthier repayment behavior and stronger early stage controls.

Disbursements during H1 FY26 stood at ₹865 crore compared to ₹831 crore in the same period last year, largely remaining flat on a year-on-year basis. For the Q2 FY26, disbursements were ₹475 crore, representing a 26% increase year-on-year and a 21% sequential growth over Q1 FY26.

Gross total income for H1 FY26 stood at ₹310 crore, down by 15% year-on-year basis. For the Q2 FY26, it increased by 5% sequentially to ₹159 crore and down by 12% over the same quarter previous year.

Net total income for H1 FY26 stood at ₹208 crore, a year-on-year de-growth of 11%. For Q2 FY26, increased by 11% sequentially to ₹110 crore and saw a de-growth of 6% the same quarter the previous year.

Pre-provisioning operating profit, or PPOP, for H1 FY26 stood at ₹112 crore, year-on-year de-growth of 31%. For Q2 FY26, remained flat on a sequential basis of ₹56 crore and saw a de-growth of 28% over the same quarter the previous year.

For H1 FY26, we reported a loss of ₹6.6 crore. For Q2 FY26, registered a profit of ₹8 crore compared to ₹14.6 crore in Q1 FY26 -- compared, excuse me, compared to a ₹14.6 crore loss.

Profit of ₹8 crore compared to ₹14.6 crore loss in Q1 of FY26. Operationally, asset quality metrics have shown visible improvement.

Overall collection efficiency improved to 95.6% in September, supported by stronger borrower discipline and improved field-level monitoring. Asset quality has started to show steady improvement, supported by disciplined measures we have taken in place over the last few quarters.

Our consolidated GNPA stands at 3.69% and NNPA of 0.53%, reflecting signs of normalization. As on September 30th, capital adequacy was 38.73% for the standalone entity and 57.78% for Namra Finance, its wholly owned subsidiary, both well above regulatory requirements.

We also have healthy liquidity position with ₹238 crore in cash and bank balances, liquid investments, and undrawn CC limits. Now moving on to the subsidiary, Namra Finance, our MFI subsidiary ended September 2025 with an AUM of ₹1,507 crore.

This is lower, of course lower year-on-year, but now showing encouraging signs of stabilization over the last 2 months. Collection efficiency improved in September with zero bucket strengthening to almost 99%.

The portfolio created after September 2024 has a 99.4% zero DPD repayment rate, which is as per our expectations. Disbursements for Namra Finance during H1 FY26 stood at ₹605 crore compared to ₹625 crore in the same period last year for six months.

For Q2 FY26, disbursements were ₹335 crore, representing a 25% increase year-on-year and a 24% sequential growth over Q1 FY26. This is despite the logins versus disbursements percentages still being only about 20%.

Gross total income for H1 FY25 stood at ₹209 crore, and for Q2 FY26 stood at ₹107 crore, with a sequential growth of 6% over Q1 FY26 and down by 22% over Q2 FY25. Net total income for H1 FY26 stood at ₹132 crore, down by 22% year-on-year basis.

The Q2 FY26 increased by 18% on a sequential basis to ₹72 crore, with a de-growth of 15% over Q2 FY25. PPOP for H1 FY26 stood at ₹67 crore.

PPOP for Q2 FY26 grew by 14% sequentially to ₹36 crore and down by 38% over Q2 FY25. Reported a loss of ₹28 crore in H1 FY26 and close to break even for Q2 FY25 at with a marginal loss of ₹90 lakh, sequentially we have narrowed down the losses.

In microfinance, GNPA stands at 3.77%, improved by 26 basis points, and NNPA stands at 0.26%, an improvement of 39 basis points compared to H1 FY25. Key driver for this improvement has been the governance and process reforms we have implemented last year.

The separation of credit underwriting from recovery functions, which is now operational across 196 or 50% of the branches. This structural change has strengthened accountability, enhanced risk oversight, and ensured greater consistency in collection performance.

The early results from these branches under a new framework have been encouraging, reinforcing our confidence in the long-term benefits of this model as we continue to scale scale it across the network. As of September 2025, about 67% of our microfinance portfolio is covered under CGFMU guarantee scheme, providing an additional layer of comfort and risk protection.

Overall, we believe the worst of the credit cycle is behind us, and the portfolio is now positioned for a more safe stable and sustainable footing. Coming to our standalone business, which is MSME, LAP, and two-wheeler, the non-MFI business continues to perform in line with expectations and remains our growth engines in these testing times.

AUM grew by 29% year-on-year to ₹623 crore, with disbursements for H1 FY26 rising to 26% to ₹260 crore compared to H1 FY25. Disbursements for Q2 FY26 has grown by 34% on a year-on-year basis to ₹140 crore and saw a 17% growth on a sequential basis.

Total gross income for H1 FY25 stood at ₹103 crore, registered registering a year-on-year growth of 20% over H1 FY25, and for Q2 FY26 stood at ₹52 crore, grown by 21% over Q2 FY25. It remained flat on a sequential basis.

Net total income for H1 FY26 stood at ₹77 crore, registering a year-on-year growth of 20%. For Q2 FY26, it stood at 22% on a year-on-year basis to ₹38 crore over Q2 FY25, remaining flat on a sequential basis.

PPOP for H1 FY26 stood at ₹44 crore, registering a growth of 8% year-on-year compared to H1 FY25. PPOP for Q2 FY26 grew by 8% as well over Q2 FY25 numbers to ₹20 crore and down by 12% on a sequential basis.

Profit after tax for H1 FY26 stood at ₹21 crore, registering a growth of 4% over H1 FY25. For Q2 FY26, profit grew by 12% on a year-on-year basis to ₹9 crore.

On asset quality, GNPA stood at 3.86% for MSME, 4.99% for two-wheeler, and for LAP it was 0.16%. Collection efficiency in September stood at 95.4% for MSME, 95.8% for two-wheeler, and of course, MFI book which we discussed earlier was 95.6%.

We continue to strengthen our presence and deeper deepen our reach. We now operate across 11 states with a network of 509 branches serving over 6 lakh customers.

During the first half of FY26, MSME and LAP disbursements maintained healthy momentum, while we intentionally moderated microfinance disbursements to ₹605 crore as a part of our strategy to stabilize the portfolio and ensure asset quality sustainability. While this calibrated approach may have tempered near-term growth, it is reinforcing the long-term resilience and strength of our business model.

As we look ahead to the second half of FY26, we expect the momentum to strengthen further, with improvements become becoming more visible and broad-based across our businesses. We anticipate continued stabilization in the microfinance asset quality, sustained strength in collection, and further moderation in credit cost.

We are well-positioned to benefit from improving rural sentiment and a more supportive policy environment. The groundwork we have laid through disciplined execution, sharper governance, and structural reform is now beginning to translate into tangible results.

As we move forward, our focus remains on building scale with quality, delivering durable, profitable, and sustainable growth, while continuing to create long-term value for all our stakeholders.

Hello. Yeah.

Thanks for the opportunity. I had a couple of questions.

The first question was on the capitalization. I see that Namra has a higher capitalization than the holding company.

I just wanted to know, do we expect to go back to the prior growth rates in the microfinance business, or do we look to diversify the Namra book going forward? That's the first question.

That's actually a good question. As the portfolio declines, the overall capital adequacy will appear to be better.

This was money that was pumped down from the holdco into the subsidiary. Now as the portfolio picks up again, I think both those numbers will kind of become more normalized or equivalent as the portfolio increases.

Not given it much thought about in case it doesn't grow or anything like that. Right now the hope is that things will resume back to normal.

Okay. The second question that I had was on the unsecured MSME portfolio.

You mentioned that 67% of our MFI portfolio is CGFMU insured. Have we taken any CGTMSE insurance on our MSME portfolio?

Yeah.

Another excellent question. It's in the works right now.

Just an update on that. The CGFMU cover itself is applicable to NBFCs also, and for the unsecured loans that are under a threshold limit of ₹2 lakh can be covered under the CGFMU.

Though there is a separate category for getting registered there. Arman has been given the registration for the same somewhere in September itself.

We kind of hope to start subscribing to it as we move in quarter 2. Slightly more expensive for non-MFI book.

Now let's not get into why that is the case. It is what it is.

We'll have to think a little bit more about the non-MFI portfolio, whether we want to cover it or not. Right now it seems that we are in favor of doing it, and so that registration got approved, as Vivek said, just in September.

Anything that we want to cover for this quarter, which is Q3, that we don't really have to decide until January or February of. Exactly, of '26.

We'll make that call in the next couple of months whether we want to do it or not.

Got it. Thank you.

Just squeezing in one last question on the LAP portfolio. I just wanted to know our ATS has increased and the yields have come down on the LAP portfolio.

I just wanted to know, how are we thinking of growing this portfolio going forward?

Obviously the yields on the LAP is going to be, considering that it's secured, it's going to be lower overall. Hopefully the opex should be lower as well, and the risk should be lower as well, and the credit cost should be lower as well.

I think listen, we've been talking about creating LAP for a while. I think finally this last credit cycle made us realize that it's important to diversify the book.

In comparison to let's say pure unsecured MSME, the yields look much much lower, but hopefully a well-diversified portfolio will create a more healthier company and healthier balance sheet. Additionally, I think opex will over a period of time be much lower for the secured LAP.

From that standpoint, I think NIM is more important than just the yield.

Yeah. Yeah.

No, my question was that the yields had come down sequentially over the past couple of quarters, and the average ticket size had increased, I think. I just wanted to know, have we recalibrated that portfolio?

No, basically in the LAP pool, basically the higher the ticket size is, obviously the interest will come down. The larger tickets will have sort of lower interest rates.

Okay. It's not because we're seeing stress in the lower ticket size.

It's not because of that that we've recalibrated the portfolio, right?

Partially yes and no, because these are early days in LAP. Till the time we kind of reach a 5,000, 10,000 customer base numbers, you will have to kind of keep yourself a bit agile on these yields, as long as they do not go below your threshold limit, let's say 18%, I'll not do any case below 18%.

A threshold there has to be defined, but largely as we move from say about 3.5 to 4 lakhs average ticket when we started it off, to about 5 lakhs to about 7 lakhs today, you're doing slightly larger tickets, and obviously that market is finding available at that. The customers are price sensitive.

It's not like micro or MSME where I have complete ability to control pricing. There's a lot of competition, and so every case is important to us to close.

There is some bit of negotiation that we also allow.

Got it. Thank you.

Thank you.

Hi. Thanks for the opportunity.

Hope I am audible.

Yes, thank you, Ronak. Hi.

Hi. Hi, Alok.

It's really heartening to hear that things have improved. I just wanted to get more color on the growth part of the book now.

In the previous cycles, whenever we would come out of a crisis, Arman typically would step the paddle on the growth, and the numbers would really be a little aggressive than the street. In your commentary, you mentioned stable growth.

Is this different this time? Are you approaching this cycle a little differently?

See, the previous credit cycles were slightly different, where they were caused by external events, whether it was demon or COVID. This time it is slightly different, and what I personally feel is that the lesson to be learned is that go calibrated.

Don't go crazy. Honestly, I don't know what the growth pattern will look like.

Typically speaking, whenever we are recovering from a crisis, we are well positioned to grow faster than many of our peers. On average, there might be a few companies maybe better-run companies who are doing better than us, and that's fair.

Many times, there are many more companies who have still not come out of the crisis, their liquidity is low, their managing leadership issues, liquidity issues, attrition issues, many other things. We have sort of a ability to kind of grab market share.

That will be the goal this time, where hopefully we can repeat that. There might be a temporary accelerated growth on the AUM.

In the long run, I think the lesson learned here is that don't go too crazy. I don't think there is any industry in the world that can sustain 35%, 40% growth indefinitely.

A slow and calibrated approach is probably more of a long-term goal here. Now that said, the great part about India is that people have very short-term memories.

Good or bad news, it may be that in a year or two, people will forget whatever happened and kind of go back to the usual antics, myself included. Who knows?

Let's see.

Thanks for this. My second question is on the asset quality, especially on the MSME side, where some of the listed companies have flagged off some asset quality issues due to the spillover from MFI.

Are you seeing that stress in your markets where you are present on the MSME side?

Yes, of course. I think

Is that improving?

I don't think it's improving. It's probably, at this point, I would call it stable.

I said it in the last concall, and I said it in the previous concall. At least for three quarters that MSME is not immune to the overall macroeconomics of the rural segment, especially for us.

The term MSME is actually very broad. When somebody says MFI, they know exactly what you are talking about.

MSME is micro, small, and medium. It can be urban, it can be rural, it can be secured, unsecured, whatever it is.

There are many flavors of MSME. The kind of MSME that we are doing, which is small-ticket rural MSME loans, unsecured, that is obviously not going to be immune to whatever is happening in MFI.

As I said last time, for whatever reason, the damage which was there in MSME is significantly lower than MFI. Theories for that, but I'll kind of hold on to that thought.

Definitely there is stress there, not as much as MFI, and it's something that we are tracking closely. That's why it's important carried away in any business, any of our segment.

Thank you. Alok, just one last question is on the yields, because some of the peers have taken a hike on the yields trying to capture the risk for the business.

Are you also looking at that vector where to price the risk better, you might have to take a hike on your yields? Any thoughts there?

That is something on the table. However, we have avoided it so far, because pricing is very sensitive to regulators and many other external stakeholders.

As much as we can manage without raising the pricing, I think that will be a better strategic decision. It's not off the table.

It comes, I'm open to it.

Thank you. Thank you so much for answering my questions.

Best of luck to your team.

Thank you.

Good afternoon, sir, and thanks for giving the opportunity. Sir, continuing on the previous MSME question, we have seen higher NPAs and higher credit costs.

How do you see settling in, and if you can give some color on the provisions that we have undertaken in this book across the stages? Vivek, can you help him with that?

Different stages, he's asking about MSME.

On the MSME front, I think that is the GNPA number, you're saying that 3.8 or something, are carrying about 90% provisions on those, almost 90%. As compared to that, again, these good part that largely the 1 to 90 buckets have come down marginally in the last quarter.

That's more or less stable. Even if that continues to be around close to around 3%, then there is a scope for improvement, and in that stage which we would probably call a stage two, the provision coverage would be about 45% to 50%.

I think the presentation number 32 as well, 30 to 90 movements for the different divisions are there. GNPA numbers and movements are there.

Sarvesh, I hope that answers.

Do you expect these numbers to hold on to these levels, like you mentioned that it is stabilized at these levels? Also you have not grown it much, MFI disbursement growth rate is 20%, but here in MSME we have grown maybe around only 12%, 13%.

Do you still see this number inching up, and that is why the disbursement growth rate is muted in this? Or how do you see going forward

Sarvesh, if you're trying to say, the unsecured MSME growth rate as compared to the overall growth rate for Arman is slightly lower. Are you trying to say that?

The AUM grew at 29% year-on-year, right? On the Arman level.

Sir, I was mentioning about disbursement growth rate, which was 12%, 13% only. Do we see stress coming in?

That is why we are holding on this?

Well, 13% on a So disbursements also was 34% on a Q2 same period previous year. I guess he must be splitting LAP.

LAP, so that's what I'm trying to reach out. Sarvesh, are you trying to say the unsecured MSME is lower

Unsecured MSME disbursement growth rate, sir. 86 has gone to 99, right?

From that standpoint, you're partially right in spotting that. That as we kind of embark upon our journey on the secured LAP, a lot of our good customers who've performed well in their earlier cycles kind of move upwards into secured LAPs.

Plus, a lot of customers, as long as we were not doing LAP, we would have probably converted them into a high-ticket unsecured MSME earlier before we started LAP. To that extent, the growth numbers taken together for the LAP and MSME would really give a true picture for the field operations, rather than just looking at only the unsecured MSME.

I think we are looking at it the whole picture. LAP is also technically MSME only.

It's just secured.

Yeah. Because Anyway, I think just unsecured MSME grew 14%.

Right. It is what it is, right?

We are not pushing so hard. Sarvesh, to further add to that, what is also happening is that geographically this year we have taken our footprint to North.

We have opened up few branches in UP in the last quarter, and we'll try to kind of expand our footprint as the year goes by in that geography. To certain extent, the MSME will get a good pump up because of the geographical outreach getting increased.

Again, the strategy is to kind of look at the overall secured and unsecured, when we say secured, the LAP taken together as how much is the growth in total rather than just singly looking at it. I said MSME has performed significantly better than MFI, and I have my theories why, but I won't get into it.

See, why it has performed better is because we took a sort of a calibrated approach to growth without a lot of pressure. We were more concentrating on quality, and so where the opportunities were there, we grew, but we were never really pressured that itna growth karna padega.

To a certain extent, that's protected us over multiple cycles, I should say. I'm not really really going to push disbursements in MSME.

Of course, and also the fact, as you mentioned, that that segment is also under some level of stress. Right now is not really the time to push so hard on the disbursements.

Okay. Sir, same question for the MFI also.

Now we have grown our disbursements this quarter, and so do you think that the environment is now clear for you to press the accelerator from here on, or are you still waiting for some more data points to emerge to give you that clarity for the same? See, how does one push the disbursements?

Even today, I'm trying to disburse, if there's a good customer who wants a loan, my job is to give him that loan. The only way you can really bump up the disbursement is kind of go easy on the underwriting or change your underwriting strategies here and there, stop being so much selective.

We are monitoring those data points based on scoring and qualitative and quantitative factors of how they are performing. I don't think we're ready yet to say that things are great and time to hit the accelerator.

No, this crisis has always been about two steps forward and one step back. Yes, in the last quarter, we have taken two steps forward, but who knows when the next step back will be.

No, I don't think we are ready to floor it at this point, but I'm a lot more comfortable to go faster. Let's just put it that way.

Okay. Sir,

finally on your cost to income ratio, which has also gone up partially because you're building out this. When do you see these metrics normalizing?

Only when the growth returns, see, because the company has been put through enormous stress. The sector itself has gone through.

The sector has gone through enormous stress. Cost to income is a function of income and cost.

Now, income is declining because AUM is declining and also because people are not paying you. It's very difficult to control those costs because you need people to go out and collect the money.

If I have 400 branches, I cannot say that the portfolio has declined 20%, let's reduce the staff by 20%, right? That's one part.

Second, I needed more people to collect the money. That's the second part.

Third part is we have started BCM structure, so that will add some operating costs as well. Fourth part is we are battling attrition, which is obviously something that we have talked about in the past.

At this point, very difficult to control operating costs, much easier to grow interest income, I feel, at this point.

Sir. Thank you, and all the best.

Hi, Alok. I missed the first 10, 15 minutes, if if I'm repeat something, sorry.

Just wanted to understand about a year back, maybe a little less, we put a credit officer in the MFI business also. Wanted your feedback on how you're feeling about that measure and the book that is originated after that move in those branches or any anecdotal feedback you have on what has been the on-ground performance after this measure?

We compared BCM versus non-BCM disbursements. Largely, I think there is a 40% lower delinquencies in the BCM-originated cases versus non-BCM-originated cases.

There is clearly a correlation. Now whether the cost of the BCM justifies, that is a later date.

That I'm not going to think about it at this point. Definitely there is an advantage, and that advantage is increasing as the experience increases.

Would it be fair to assume that with a credit officer, outcomes are somewhat similar to MSME outcomes from a collection perspective or loss perspective?

That's an interesting question. I've not thought of it along those lines, but yes, I don't see why it shouldn't be similar overall.

Let me tell you, having BCMs at this point is not only about reducing the overall credit cost. Having that extra function available allows me to venture into other products as well that we are already doing in form of IL and higher tickets and everything.

The microfinance of tomorrow is not going to be guardrail-based. It's not going to be one-size-fits-all based.

₹2 lakh borrow kiya hai to achha hai, ₹2,01,000, automatically customer becomes bad. No, I don't believe that.

I think there are good customers at even ₹5 lakh outstanding, and there are bad customers at even ₹50,000. You cannot create one rule to underwrite every single MFI customer in India.

The BCMs, I feel, will allow better strategic call later on. Today already we are doing it in IL loans and other things, where customers that we find who are 750+ credit scores, 8-year history, never a single day late, run good businesses, why should I reject that customer?

That's an amazing customer. You need that ground-level people to give you that confidence, right?

Otherwise, until that conflict of interest exists between operations and credit, you'll never be able to make that decision sitting at HO, okay, whether that guy is good or not. You'll just have to create kind of a one-size-fits-all approach.

Got it. Let me kind of summarize and reimagine this in my mind.

Basically, we will have branches. The branches will have a credit officer, and they may work on multiple product lines.

Say, I'm not naming a product, let's say a ₹50,000 ticket size, ₹1 lakh, ₹1.5 lakh, ₹2 lakh, ₹2.5 lakh. Laddered ticket sizes, they will be able to lean in on all of these products and add a layer of protection to the book.

Is that how all of this will get reimagined 3, 4, 5 years later? Absolutely.

Debate is still going on, even within the industry, about the JLG model itself. Temporary stress was there.

Now whether that you can conclude whether the JLG model is broken, over, diluted, whatever term you want to use. Debate is going, and I think some people you'll find more optimistic, some you'll find pessimistic, even amongst the listed space.

What I feel is that I don't think anybody will deny that the microfinance industry made amazing progress, and myself included, the company included, made amazing progress under JLG for 15 years. The company has advanced under the JLG structure.

For 15 years, it's been a one-trick pony, right? I think strategically you have to think that, okay, what's really next?

Are we saying that the only product in microfinance available to you is a group-based lending? I don't think so.

Situations like this, credit cycles like this really make you think that what is the long term for the industry if you look at 2 years, 3 years, 5 years down the road, even 10 years down the road? What would the industry look like?

What I personally feel is that, given what I see in the rural segment, what I have seen how rural was in let's say 10 years ago or even 7 years ago and what it is today, I do believe that you need to be adaptable and agile, and you cannot rely on only one product. With BCMs being there, I believe that it will give more flexibility, and it will create the right credit culture on the ground level to experiment and implement different products, whether it's individual loans, high-ticket, low-ticket, whatever it may be.

Got it. Perfect.

Two data-keeping questions. One is the individual loans that we are reporting in the PPT, this would be nothing but an MSME loan originated by the MFI team, right?

It would mimic those kind of ticket sizes and credit profiles. Would that be a fair understanding?

I think it's probably a fair understanding. Vivek, do you disagree?

Fair understanding. Additionally, we are also experimenting with the thought that many a times we are losing JLG customers because center formation of four is not happening.

Correct. Till what time can we keep on reducing the center sizes?

If these are great customers, fourth-plus cycle customers, then I'm earlier used to let them go, but now maybe to this we kind of try to address that through an IL, individual loan. Yeah.

These are individual loans qualifying assets. Yeah.

Then there could be individual loans non-qualifying, which are the way that you suggested. There is going to be for the next couple of years some level of overlap and confusion.

Believe me, sometimes I'm as confused as you are. That happens.

That is just the reality. Even MFIs today, I said this again and I'll say it again, that you have your traditionalists who have grown up on the ground and are still gung-ho on JLG.

You have the realists who said it was great, but what's next? I don't know where I fall in.

I'm actually scared to take one side or another. I'm trying to choose both and see what happens.

Perfect. Perfect.

Thanks, guys. Thanks for the very detailed answers.

I'll get back in the question queue. Thanks.

Hi, Alok. What is the current and incremental borrowing cost?

The second question, what percent is the PAR 1 to 30 book for the microfinance business? PAR 1 to 30 at this point will be about 1.1%, something like that.

Yeah, 1 to 30 about 1.5%, you could say. No, no.

No, no, sorry, for 1 to 30. 1 to 30.

1 to 30 will turn out to be approximately 1.2%, 1.3%. 1.1%, about ₹20-odd crore.

Last month year month before that, it was 1.8%.

Somewhere around that line, I think. Your first question Cost of borrowing, incremental cost of borrowing, all costed out, turns out to be around 12%.

Okay.

Okay. The current on-book aggregate would be how much?

On-book portfolio. Of what?

Micro or total consol? On-book portfolio for micro is approximately ₹1,100 crore, ₹1,060 crore, ₹1,060 crore.

As far as Arman is concerned, out of the ₹623 crore, I think ₹620 crore about ₹621 crore is on-book only. No,

I'm asking what would be the interest cost or current borrowing cost on the current book, basically,

the current borrowing cost? Of the overall cost of borrowing.

The overall cost would turn out to be about 12 12.5% or thereabout.

Okay. Okay.

Thanks, thank you very much.

I don't think I quite understood his question. This was about the borrowing cost.

Incremental borrowing Is he asking

borrowing cost of off-book or on-book separately, is that? No, the total book.

Total book. Anyway, theek hai.

Hello. Thank you for the opportunity.

Sir, just wanted to understand, how are the trends shaping up in October and November? Because I remember in Q4 also, we had seen very good recovery, but then Q1 was slightly subdued, and Q2's been strong again.

Just wanted to understand how Q3 is shaped up so far. That was the first question.

That's what I said also, I think couple of questions ago, that this crisis has always been about making two steps forward and one step back. We have taken two steps forward.

Diwali was good. Festive was good.

October September, October both were high in terms of disbursement. Demand was quite high, despite having overall logins versus disbursement was only 20%.

Only 20% of logins we are still disbursing, which is very very low. Still, the disbursement, I think, in MFI was ₹140, ₹1.

About ₹1 Almost ₹140, but one of the highest in the last 6, 7 months, 6 months. 7 months.

It's quite good. Overall, as the disbursements pick up with the denominator effect, you keep getting benefits of better repayments and lower operating costs also, because AUM increases.

As long as this continues, I'm optimistic that things should get better by as early as beginning of Q4. Depends on how November, December pans out.

Now that the festive season is over, let's see if there is any pent-up kind of hidden skeletons or something in the economy, I don't know, but I'm optimistic at this point.

Again, just to add to that, Alok, this quarter three would also be faced against a very low quarter three numbers for the sector last year. Yeah.

To that extent, I think October being good gives us a kind of a bump-up for the quarter quarter three. That way, from a comparative basis, YoY basis, quarter three could turn out to be Technically much better.

I think once we reach, Vivek, in MFI, if we are reaching let's say about ₹180 crore of disbursements in a month, I'll be happy. I think that's a good number at today's operational thing.

We are at ₹140, we need to reach ₹180. Good, bad, whatever it is, I don't know.

You make the call. In that way, I think that number kind of connects to the first question that somebody asked in terms of the capital adequacy being very high in Namra.

That will get in.

Got it. Got it, sir.

Thank you for the detailed answer. The second question was on the SRs that we have.

How is the recovery going there, and what is the current outstanding SR, and what was the provision that we carry against it? I still don't understand all of Vivek, you do it.

I still don't

The entire SR that we invested in to begin with in March '25 was about ₹31 crore. On the pool, there has been a recovery of about ₹8.5 crore in the last 6 months.

Obviously the structure requires trust fees and all those things. After accounting for that, the ₹31 crore of SRs as of September stand at about ₹25.5 crore.

Hence, to that extent, I think the recovery on the pool is fairly as you would have wished to. The pool also went through that first rating process, and the rating that has been assigned to the pool is RR1, which means that the expected recovery from the pool is going to be 100% to 150% of the book value.

It's going in the right direction to certain extent. Sir,

do we carry any extra provision? It's ₹25.5 crore on the books as well.

Do we carry any extra provision against that, or it's at ₹25.5 crore? Technically there is no requirement, A.

Then we feel that the recovery on the pool has been fairly good, we're not required. If I had to carry a provision, why would I do this transaction in the first place?

Right away, because No, no, because I still don't completely understand all the details. No, the rating itself does not require it, A.

The other way round is that this pool of ₹185 crore, which was sold in March '25, were the write-offs, which are early write-offs done in 2024-25 itself. We've seen some really good recoveries out of it, and from technical side of it, we're not required to make any additional provision for that.

These were completely written off pools, and from that standpoint, at least, we don't see any additional provisioning required at this point of time. If at all there is a necessity, we will not shy away from doing any provision if and when required.

Got it. Got it.

If I may just squeeze in one final question. Sir, have released any provisions that we were carrying in stage two?

What was the provision that we were carrying in stage two of the MFI book in Q1 versus what are we carrying now? Have we reduced the provision, increased, is it stable?

If we could get some idea on that.

Typically what would happen is that now, this could be slightly longish answer, but still kind of bear with me. Of the entire book that we've created, there's about 67% of the book which is coming from the CGFMU.

CGFMU has a guarantee cover of 72.5%, right? On that, the provisioning requirement would really drastically come down, because 72.5% is covered.

Hence, whatever books that have been originated and got into CGFMU are a part of the CGFMU, see, your provisioning requirements will come down.

Got it. Got it.

On a like-to-like, the non-CGFMU portfolio would be similar, right, the stage two cover that we

Otherwise stage two, my provisioning requirement depending on buckets and just giving you a broader scenario that if my stage two coverage is about 45%, what requires to be provided for will keep on carrying similar kind of cover.

Okay. Okay.

Got it, sir. That's it from mine.

Thank you.

Hi, Alok. Congrats on the numbers.

Just wanted to check on your MSME. Just wanted to get an understanding because if I see a yield of 34% versus say a microfinance [laughter] Excuse me, I'm having a hard time hearing you.

Is it clear now? Your voice is loud enough, but not clear enough.

Hello? A lot better.

Okay. Just wanted to understand on your MSME folk when we see the yield of 34% versus MSME of 34 versus MFI of 22%, does it indicate a more riskier customer, or how should we look at that product?

If time has taught us anything, they are probably less riskier than the MFI customers. No, it's not a function of risk.

It's a function of supply and demand and what the customer can tolerate and many other factors. Fortunately, it started as being a function of risk, but today it is not really.

The customers that we deal with really are not very very price-sensitive, and so people have been asking me this question for years, and I've always said that I'm simply a Gujarati entrepreneur, and if I can charge a certain amount, I will, but if competition comes in and I'm forced to cut rates, I'm not afraid of that either.

Okay. Because just intuitively I was thinking if I am a customer, my ability to repay or how much I make from the business and then pay out 34% interest, is that feasible for the customer?

How much that See, that logic does not really work at the micro level, because you're not accounting for their labor that goes in. This question used to come to me all the time about even microfinance customers, what kind of small enterprises are they running where they can afford to pay you 24% or 25% or whatever it may be.

The answer I used to always give is that if somebody buys ₹10,000 worth of inventory and of vegetables and they walk around all day and sell ₹11,000 worth of that, they made 1,000 bucks that day. That's a 10% return in a day.

Again, these were all the poor fishmonger stories and stuff that used to go. Of course, you are right.

On a macro scale, at the Arman level or at even at large scales, this equation doesn't work, because that kind of businesses give you returns of 34% to be able to offer the interest back. At the micro level, the returns are high enough.

Okay. Sir,

just one more question on your ROE, you've given in the presentation your cross-cycle ROEs, right, you went to a peak of 5.8%, 5.9% ROEs as well. Now with your company now well-diversified, you have MSME, you have individual business loans, the LAP product has come in.

How should we look at in a normalized or even at peak what can be the ROE, even with your insurance that you'll have running now and the spending in setting up the collection

team? Not completely clear, but just to whatever we heard of that, are you asking about ROE?

ROE.

Yes. Yes.

Any way with your new structure in terms of company well-diversified, does your ROE get impacted? In the past, it had gone up to a peak of 5.8, 5.9 kind of an ROE.

How should we look at it now going forward?

I wish I could. I wish I had a good answer.

I would say take a good guess and go with it. No, honestly, aspirationally like any other with our kind of vintage, I think aspirationally we've always been kind of trying to look at an ROA for anywhere between 3% to 4%.

Yeah. Which is realistic.

Some years could have mega years like 5.8%, 5.8%, but largely I think on a consistent basis an ROA of 4 is something 3.5%, 4%, 4 is what is doable. What is doable and I think acceptable generally by the regulators also here.

Yeah. Projected numbers are always funny.

I always say, okay, what do you want to hear? I can explain it however you wish.

The fact of the matter is that there are too many things in flux. I can give you a good range, let's say, 3% to 4.5%, but let's see.

Things will get stable, and I think you'll have a better ideal probably by as early as fourth quarter, where the more kind of realities are setting in.

Thank you. Thank you, sir.

Hello. Am I audible?

Yes.

Yeah. Could you share the collection efficiency for the month of October?

Zero DPD or overall?

Overall.

Overall, non-written-off is, I think it's shared, 95.8%. That is for September.

Till September. Achha, with October.

With October, it's largely turned out to be in similar lines, not too crazily above or below. 20 bps higher maybe.

Definitely higher, not lower.

Understood. On the bookkeeping side, the tax number appear high.

What's happening there?

That was my first question when I got the provisional financials too. No, what happens is there is a deferred tax that kind of keeps on building up, because when you're doing a provisionings, if you have very high provision numbers at a point of time, the entire provision is not allowed as tax, you develop a deferred tax asset.

Let's say if you were to write it off or the provisions were not required anymore, then the provision reversal would lead to a situation where That will be a deferred tax. Deferred tax liability that the reversal will happen.

Hence, your PBT numbers are generally much better

That's true actually. than the PAT number.

We've been talking about PAT, but we should be talking about PBT because PBT looks a lot better than the PAT. Then, but again, Alok, you can't really run away from the deferred tax kind of a situation, because that kind of helped you earlier.

Now to that extent, Death and taxes. you'll have to see the face again.

Death and taxes, yeah.

Understood. If I can squeeze in one more question, what is the break-up of provisions?

Break-up of provisions.

What does that mean? In terms of stages?

No, not stages, but maybe write-offs, standard provisions, recovery. Achha,

out of the total impairment, he's asking what is provisions and write-offs. The total write-offs and provisions, if you have any other questions, just you can come up with that while I try to hunt out the number.

That was my last question. Thank you, and

all the best. I'll come back to your answer in a minute for

Hello.

Yes, Mr. Amit.

Please go ahead. Please go ahead.

Good afternoon, sir. Just I have a small question.

You can also call it an advice sort of. Sir, in the future in the next coming 2, 4 years, I think there will only be two types of companies: one which use AI for their business and one which doesn't use AI for their business.

Even using AI, one employee can do work of 10 employees. Slowly and steadily, AI will be affecting all of the businesses in future.

Just wanted to ask whether you have any planning of incorporating AI into your business flows and models for financing decisions?

I think you could be right. I take AI as an amazing tool, as good as the internet.

As long as you require people on the ground to knock on doors, AI is not going to do that. Where it can help us is on stuff like evaluation, back-end processes, IT, tracking.

To many extent, we have been doing that. I'll just give you an example.

We tried three times unsuccessfully to use machine-learning-based algorithms to create a model to evaluate customers, right? Seems like a no-brainer.

We have 15 years of data, what kind of customer perform well. Even in those cases, the Gini coefficients that they say were super weak.

I was not able to get it. Over the long run, I have learned that you cannot model human behavior.

With due respect to you, sir, I think you're right about AI being a very important factor in our daily lives in the coming years. I think that there are right places to use it in my business today, and wherever those places are, we will use it.

As the technology evolves, if there are other places to use it, I'm committed to using that as well. Certainly, I'm not going to jump the gun and do anything without being convinced that it's the right move.

My best wishes to you, sir, and I seriously hope that you try one more time and you are able to finally crack the AI model, because as we can see that in the next 2 to 4 years itself, AI will help you a lot in decreasing your cost and increasing your efficiency. Best wishes to you, sir.

Thank you, sir.

Before we just take the next question, I think that's the last question. No, that could also be there, but the earlier question that was the breakup of the provisions.

For the consolidated, the write-offs was about ₹134 crore for the H1, and there were reversals of credit losses to the extent of ₹29.62 crore. That kind of makes up for the entire provision come write-off of ₹104.78 crore.

Good, we took provisions in the past. We are using them.

Exactly. That's the exact reason why the deferred tax.

Okay.

Yeah. On behalf of PhillipCapital, we thank all the participants for your valuable time, and especially the team of Arman Financial Services.

Before we close the call, I would like to hand over the conference to Mr. Patel for his closing remarks.

Over to you, sir.

No, thank you, everyone, for being part of the call. I hope we have tried our best to answer all your questions in a candid way, and if you need any more information, please feel free to contact the Investor Relations team.

Appreciate everybody's time, and have a good afternoon.