Thank you so much, Muskan. A very good afternoon to everybody.

Thank you for joining us today. On behalf of Arman Financial Services Limited, I extend a very warm welcome to all of you to our Q3 and 9-month ended FY26 earning call.

I am joined by our newest Executive Director and Group CFO, Mr. Vivek Modi, and the Investor Relations team from SGA.

I trust all of you 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. Hopefully also I'm audible to everybody because we're working on some new hardware here.

Muskan, please interrupt me if there's any problem with hearing me.

Before I move on to the business performance, I would like to highlight important leadership transition at Arman. Mr.

Jayendra Patel, the founder of Arman, has transitioned from the role of Vice Chairman and Managing Director, and now will continue as the Whole-Time Director. He wrote a letter explaining his decision to the shareholders, which is definitely a good read.

In this new capacity, he will remain closely associated with the company and actively engage with the board and senior management in providing strategic guidance, mentoring the leadership team, and ensuring a smooth transition with continuity and stability. For better or for worst, now I step into the role of Vice Chairman and Managing Director, of course, pending shareholder approval.

I've had the privilege of being with the company for over 16 years now, tried my best to learn everything from the bottom up. I deeply value the trust placed in me by the board and remain committed to carrying forward our legacy while steering Arman into the next phase of long-term, value-driven growth.

I am also pleased to share that Mr. Vivek Modi has been appointed as Executive Director, again pending shareholder approval, in addition to continuing as the Group CFO.

Vivek has been with the company for the past 8 years, and in his new role, he will help execute the strategic goals of the company. His financial discipline and structured approach will continue to strengthen our institutional framework as we enter the next phase of growth.

We congratulate Vivek on his new role and wish him best of luck on his added responsibilities. For sure, he will need it.

Moving on to the business performance, the past 1 and 1/2 years has had its own share of challenges, which I have discussed in excruciating details over the past 4 to 5 calls. The industry had to navigate a series of events, including overleveraging, low growth in real incomes in the rural household, changing JLG culture, regulatory uncertainties, regional political developments, and broader macroeconomic pressures.

While these factors created short-term uncertainty and affected industry sentiment, it also pushed the MFI companies to become more disciplined, risk-focused, and structurally stronger. During this period, MFI tightened underwriting standards, strengthened monitoring mechanisms, and recovery processes.

In many ways, this period helped the sector build a stronger systems and operate with deeper prudence. I'm happy to say that the industry continues to learn from every crisis and pushes forward.

Notably, much of that uncertainty has now eased. Now we are seeing clean, broad-based recovery taking shape.

Repayment behavior has improved across key geographies, collection efficiencies are much stronger, and fresh delinquencies have moderated to a great extent. Borrower cash flows on the ground remain subdued, but our systems have evolved to better assess household cash flows, and demand across our business segment is showing healthy, sustainable traction.

At Arman too, we took a step back, assessed the situation carefully, and focused on getting the fundamentals right again. Over the past few quarters, we tightened our underwriting, strengthened our recovery processes, and enhanced monitoring across verticals.

One important step we took was clearly separating the underwriting and recovery teams. This has brought better accountability, sharper credit decisions at the time of disbursement, and more focused follow-up on collections.

This structure is now in place across a majority of our branches, and we are already seeing the benefits in terms of more stable portfolio behavior and stronger execution on the ground. As a result, our business performance has strengthened.

Our consolidated AUM stood at ₹2,274 crores, registering a sequential growth of almost 7%, reflecting improving demand and calibrated disbursements. Disbursement momentum gathered pace across segments, with consolidated disbursements reaching ₹612 crores during the quarter, compared to ₹475 crores in Q2 FY26, marking a strong 30% sequential growth in disbursements.

This growth has been supported by sharper credit screening at the loan officer level and improved confidence on collections. Q4 seems to be shaping up even better.

On the financial front, gross total income for the quarter stood at ₹160 crores, remaining largely stable on a sequential basis. Gross total income for 9-month FY26 stood at ₹470 crores.

Pre-provisioning operating profit, or PPOP, stood at ₹55 crores in Q3 FY26 and ₹166 crores for 9-month ended FY26, reflecting steady operating performance even as we continue to invest in people and technology, strengthen our systems, and building long-term capabilities. We are improving on-ground conditions and stronger repayment discipline.

Impairment costs have moderated consistently over the past few quarters, declining from ₹76 crores in Q3 FY25 to ₹26 crores in Q3 FY26. This reduction reflects the benefits of tighter underwriting standards, better early-stage controls, and sustained focus on collections.

As a result, profitability has improved. While sequential growth may not always be the most appropriate metric to assess profitability, profit after tax for Q3 FY26 stood at ₹22 crores, registering a sequential increase of 177%.

For 9-month FY26, profit after taxes stood at ₹16 crores. This improvement, in our view, is a strong indicator of the broader normalizations, largely by our MFI business and other operating trends.

Asset quality trends have also strengthened. GNPA as of December 2025 stood at 3.4%, improving from 4.13% in Q3 FY25 and 3.69% in Q2 FY26, while NNPA stood at 0.77%.

Early delinquency indicators are also moving in the right direction, with PAR 30-90 bucket showing sequential improvement, particularly in the microfinance segment. Collection continues to show steady improvements, supported by tighter monitoring mechanisms and disciplined field execution.

Collection efficiencies improved to 96.3% in December compared to 96% in September 2025, reflecting strengthening borrower behavior and sustained recovery momentum. Operationally, we added 15 new branches this quarter, taking our total branch count to 524, while remaining focused on strengthening our presence in core geographies.

On the liquidity and capital front, the board has approved raising up to ₹500 crores through NCDs on a private placement basis, providing us with additional financial flexibility to support future growth. During the quarter, we also raised ₹522 crore of debt, further strengthening our balance sheet.

We remain very well-capitalized, with capital adequacy ratio of 38.3% for the standalone entity Arman and 52.3% for the subsidiary Namra Finance, both very comfortable and well above regulatory requirements. In addition, our liquidity position remains healthy, with ₹247 crores in cash and bank balances, liquid investments, undrawn CC limits, which ensures adequate headroom to support business expansion.

Now moving on to the subsidiary, Namra Finance, which is where the MFI portfolio is kept. Our MFI portfolio grew by 7.3% sequentially to ₹1,618 crores, supported by strong disbursements of ₹455 crore during Q3 FY26.

We are seeing strong traction in the new individual loan portfolio, which now stands at ₹285 crores. While growth has resumed, we have remained measured in our approach, ensuring that expansion is supported by disciplined underwriting and strong risk controls, especially in the current operating environment.

Gross total income for FY or Q3 FY26 stood at ₹107 crores, while for 9-month FY26, it stood at ₹316 crores. Pre-provisioning operating profit was for the quarter was ₹35 crores, reflecting a sequential decline of 2.2%.

For 9-month FY26, PPOP stood at ₹102 crores. PPOP should also start improving once AUM starts increase and generating more interest income.

Importantly, we returned to profitability for Namra this quarter after 4 consecutive quarters of loss losses, with profit after tax standing at ₹13 crores. For the 9-month period, we continue to report a loss of ₹16 crores as we steadily work through the stress seen in the earlier year, earlier in the year, sorry.

Our net interest margins have also begun to improve, with Q3 FY26 margins at 14.77%. This is driven by two factors: our ability to raise borrowing at competitive rates and new portfolio being built at healthier yield levels.

Asset quality trends continue to move in the right direction. GNPA stood at 3.4% and NNPA at 0.66%, reflecting improving portfolio stability.

Collections have strengthened on month-to-month basis, with December collection efficiency at 96.4% and X-bucket collections of 99.3% in the MFI book. Early trends for January and February also indicate continued improvements.

As of December 2025, 82% of our MFI MFI portfolio is covered under the CGFMU scheme, providing an additional layer of risk protection and balance sheet comfort. Overall, we believe we are past the most challenging phase, and now on a steady path of recovery, with improving fundamentals, stronger controls, and renewed confidence across the portfolio.

Now moving on to the standalone Arman business. During the quarter, we have piloted a new product offering solar loans.

This initiative started in November is aimed at supporting households and small businesses in adopting clean and sustainable energy solutions. The product carries an average ticket size of about ₹2 lakhs and has been rolled out across sorry, has been rolled out in selected areas across Gujarat.

The initial response has been encouraging. As of December 2025, we have disbursed approximately ₹56 lakhs under this portfolio in 2 months.

The product has a loan tenure ranging from 12 to 60 months, with an average tenure of approximately 30 months, offering a balanced mix of profitability and manageable repayment structure. Beyond this, our non-MFI portfolio continues to witness strong traction.

Disbursements during the quarter stood at ₹163 crores, comprising of ₹115 crores in the MSME book, ₹32 crores in the two-wheeler book, and ₹16 crores in the micro-LAP book. Our AUM stood at ₹657 crores, registering a year-on-year growth of 28%, with 74% of this portfolio in the MSME book now.

We continue to see healthy demand across these segments, supported by disciplined underwriting and improving on-ground confidence. For Q3 FY26, gross total income stood at ₹54 crores, registering a growth of 20.2% quarter-on-quarter and 3.6% year-on-year.

For the 9 months ended FY26, gross total income grew by 20.2% year-on-year to ₹157 crores. Pre-provisioning operating profit, or PPOP, for Q3 FY26 stood at ₹19 crores.

For the 9-month FY26, PPOP stood at ₹40 crores, reflecting largely stable performance on a year-on-year basis, despite significant headwinds. Profit after tax for the quarter stood at ₹9.4 crores, marking a sequential growth of 5.4%.

For the 9-month FY26, PAT stood at ₹31 crores, registering a modest growth of 1% year-on-year. Asset quality improved sequentially across our standalone portfolio.

As of December '25, GNPA for MSME stood at 3.74%, for the LAP book at 0.31%, and for the two-wheeler segment at 4.28%. Collections have also strengthened across these segments.

In December 2025, collection efficiency of the MSME portfolio stood at about 96%, while the two-wheeler portfolio reported collection efficiency of 95.6%, reflecting stable repayment behavior and disciplined follow-up. Largely, as the environment continues to improve, we remain focused on building a stronger and more resilient company.

With disciplined growth, prudent risk management, and committed team on the ground, we are confident of delivering sustainable performance in the quarters ahead. With that, I believe we can now open the floor for questions.

Thank you very much.

Thank you so much. Congratulations, team, for the good set of numbers and organizational changes.

I had two or three questions. First one being, what would be the percentage of the loan book that would represent the loans raised in FY26 now, sir?

What would be the percentage of the loan book that represents FY26 the loans that have been raised in FY26?

The loans that we have given out, how much of the AUM will contribute to loans that were disbursed in '26? Is that the question?

Did I get that right?

FY26, yeah, right. Vivek,

do you have that number? It would not be readily available, Kartik, but generally if I could give a good guesstimate, it would be around 70%.

Yeah, 65%-70% would be a good guess also from me. We can pull that number out and give it out to you later.

Sure. When you just mentioned about the collection efficiency, 96.4% for MFI, while the peers have reported collection efficiencies of 98% and above, what would be the difference in the calculation, sir?

How do we compute vis-a-vis the collection efficiency? How do we understand the collection efficiency in right metric, or how do we compare it?

That's the other question.

That's a good question. There are two kinds of collection efficiencies which are reported.

One is typically called a zero bucket collection efficiency, or other is a overall total across all buckets. The number that you are most likely seeing is the X-bucket or the zero bucket collection efficiency, for which ours is about 99.3%.

Got it, sir. Sure.

Understood, sir. Now, and so if I may ask one question, what are the key changes to your ECL model?

Versus vis-a-vis as it is now and see it going forward. Has our ECL model strengthened?

How have we strengthened our ECL model to accommodate such kind of shocks? What would be the key parameters that's changed in the ECL model?

In the ECL model, you are saying?

Right. In your assumptions,

yeah. All we can do is provide more management overlay.

Our ECL model is evaluated semi-annually, and whatever needs to change in that, once a account goes into 1+ DPD, that's when the ECL model kicks in, and then obviously there is some bit of provisioning which is there on the zero bucket as well. In addition, Aalok, if I can add, Yeah.

In '24-'25, when you really saw the asset quality deterioration, ECL is one way of ensuring covering yourself up for a probable future losses. As a strategy, it was also important for us to ensure that at a sector level, if the stress continues, then how do we safeguard ourselves?

That's wherein we were probably one of the few who took the leap of forward and started subscribing to the CGFMU coverage. As Aalok, during his opening remarks, commented that we already have 82% of our microfinance book in Namra been covered under the CGFMU cover, which kind of came into existence since October 2024.

Right. Right.

I think that's an excellent point, Vivek. Provisioning, I know a lot of people put a lot of emphasis on the provisioning figure, but from a non-accounting standpoint aside, only thing the provisioning helps is to smooth out income.

It's just a balance sheet figure. I guess that provides comfort to some people, but having adequate liquidity, sufficient capital available, and other factors play a lot bigger part for companies to get out of any jam that they find themselves in during a down cycle.

CGFMU was definitely one of those calls where if there was a way to sort of hedge away the risk by paying some premium, I think it was a no-brainer, and that's what we jumped into, and that is basically the insurance policy available to us today in case something drastically goes wrong again in a short period of time. Sir,

just a follow-up question. In that case, will your provision PCR come down now that your 82% of your book is now covered by the CGFMU scheme?

Yes, you're right. Because you're paying for the default guarantee cover, and you're covered for every ₹100 that you kind of take a coverage for, the default guarantee cover applies to about 75% of it.

Right.

That provisioning requirement to that extent will come down. Right.

In some ways, the opex would increase because you're paying for the cover, and subsequently your provisioning might decrease to the percentage that that cover is guaranteeing for those particular assets which are in default.

Got it, sir. Last question is on the growth rate, sir.

Now that the entire sector is on a steady state, coming out of the woods, just talking about the growth rate, how do you see, sir, now that the number of lenders is capped and then you have a high rejection ratio, going forward, what would be the strategy to grow then? Would you have to seek more and more penetration, how do you grow then, in terms of your strategy?

For the growth, see, there are a couple of things here. Let me say that hopefully, people like myself and the industry has learned enough lessons where just because the market is improving, you don't really go into not just unreasonable growth, you can grow fine, but not just put growth ahead of whatever the lessons that were learned during these crisis, right?

People have a tendency to sort of forgive and forget and move on after a couple of years, and so my fear is that that is exactly what's going to happen again, and hopefully that does not happen. Whatever growth comes in has to be calibrated.

It has to be well-thought-out. To answer your specific question, you're right.

As far as JLG and things are concerned, the culture has diluted. You're restricted in terms of number of MFIs and total leveraging and other factors.

Honestly, as a company, we have already started to redefine of what is microfinance, right, because it's not just the JLG model. That might be a model that is there and is still a substantial part of your books.

I personally feel that the future is in product innovation and better underwriting. If we are able to assess the customer better, and that's what we're trying to do with the BCM model, that's what we are trying to do with technology, with new algorithms and stuff that we are starting soon.

If we can assess the customer better, we don't need them in a group. We can service them individually.

We have been doing that in the MSME book as well for many many years successfully, perhaps even more successfully than the JLG model. I believe that the next phase of growth is going to come with innovating the product structure itself.

We are not saying reinvent the wheel and find new customers. The segment that you are servicing, can you evaluate them better and service them with different products, basically?

Sure, sir. Thanks a lot.

That's it. Wish you all the very best, sir.

Yeah. Thank you for the opportunity.

Sir, am I audible?

Yeah. Am I audible now?

A

I wanted to check, sir, what kind of growth rates would we be comfortable now the industry books has all been cleaned up and all of that?

That's an interesting question, and that's probably one that I also struggle with. Okay.

Is there a growth rate that we can target, or should the growth come naturally as a function of all the changes and all that we're trying to do? I would say in FY27, roughly speaking, I would be comfortable growing maybe 25%, just throwing a figure in the air.

I think we're going to stop doing those kinds of things that, okay, we want to grow at 40% and what do we need to get there. I think it needs to be a function of many many different things, and the growth figure has to be reverse-engineered in that perspective.

Usually right after a crisis, there are short-term opportunities available typically we have advantage of. You might see a sort of strong growth in the last quarter of this year, for example, when a lot of the MFIs are still kind of coming out of crisis, working through liquidity issues, leadership issues, and other things.

That creates sort of a temporary vacuum where we can sort of take over market share, and then typically that slows down, right? I don't have an exact growth percent to give you.

Certainly, I don't think we can expect growth out of the industry that the market has historically been used to, very honestly. That said, I think FY27 you can expect at least a 25% growth.

Understood, sir. Sir, would it be fair to assume that non-MFI book would grow at a much higher rate than MFI book going forward?

I would say the non-JLG would grow much much faster, whether that is in the subsidiary Namra or in the standalone Arman through MSME, LAP, and two-wheeler loans. Yes, I would say JLG will be a lot slower to grow and even I dare say de-grow.

While these other products will continue to grow faster.

Understood. Sir, for business going forward, what level of debt-to-equity would we be comfortable before getting into the market and raising more of equity and diluting?

What is the peak debt-to-equity that we foresee?

We are usually comfortable at about 4 and 1/2x, which we are which is a very wide a distance from where we are today, right? Now our debt-equity is less than 2, in fact, less than 1 and 1/2 for that matter.

Yeah. Having said that, with the new normal, I think the first milestone would be to reach a debt-equity of at least 3, 3 and 1/2.

Looking at the overall how market behaves, we might have to go forward. Largely we can say that as an organizational level, group level, till a AUM size of about 5,000, I think we should be comfortable with a capital adequacy of upwards of 25%.

Largely not really seeing that as a challenge in our growth.

Understood, sir. Last question, sir, from my side, would we be stepping up disbursements a lot on the MSME book now, or we will be focusing more on new products like one you mentioned this quarter we have done a pilot on solar rooftop, etc.?

What is going to be focus on non-MFI side?

There are no answers here, for sure. If I can grow the MSME book a lot faster, sure I'll take the opportunity to do that.

That product has always been sort of slow and steady kind of a growth for us, and that has worked very well for us during both COVID and whatever you call this new crisis. I would rather not take my chances.

I've been lucky with that product for the past many many years. I think the growth rate in the MSME book should be similar to whatever you have seen in the past 3-4 years.

Understood, sir. Thanks a lot.

Yeah. Hi, am I audible?

Hi, Aalok, congratulations on the disbursement growth. I had two questions.

One is on the pilots which we were running especially on say LAP products, etc. Just wanted to check on the progress.

Have we met internal benchmarks to kind of now see a significant scale-up on these products? In your past answers, you really mentioned about adding more products.

What is the status there, and will we use Namra's distribution kind of to go ahead and ramp up this product significantly?

Definitely the LAP is doing reasonably well. Little bit of sort of fear, which is a good fear in the micro-LAP and the affordable housing space, obviously there are murmurs of quality-related issues that may or may not happen in the short term.

We are steadily growing. I think, Vivek, what are we now?

About ₹6 and 1/2 crore disbursement on the LAP, and growing about, probably 5% to 10% every month. As far as we are concerned, we are on schedule for whatever we had envisaged for it.

I'm very cautious about blowing anything up. We'll continue with that slow and steady approach, and we'll see.

As far as performance goes, we are facing no significant issue so far in the LAP portfolio. It's about close to ₹90 crore now.

Close to ₹90 crores is the LAP book. Largely I think we're out of that project phase, because today we're kind of doing it across at least three states.

As we move north into UP, that way we can clearly say that it's definitely not a project phase, and we're looking at scaling it up in all these geographies where we're comfortable with. Right.

As far as some of the other pilots, I think we have mentioned we started in November the rooftop solar financing.

Again, that's just probably an experiment and also a limited opportunity in the market because there are government subsidies available directly to the customer, it has become a very popular option. What we found is that most of the marketing is being done in the urban metropolitan cities and Tier 1 cities.

I don't think that reach has developed in the rural yet for these rooftop solars, and arguably they probably need it more than the urban people. We have started this pilot.

Let's see where it goes. We have done very small volume so far, only about ₹56 lakhs.

The goal is in this quarter to reach about ₹1 crore of disbursement monthly by March, hopefully. We'll keep you posted on that.

My question was more on LAP. Given that it's at a critical size, can this go to ₹500 crores where MSME book is over next 2-3 years, given that if the internal benchmarks are met, you just roll it out across your different geographies where you already are doing unsecured?

The question was more on the LAP side.

It's definitely possible even going past that because the LAP ticket sizes are larger. And

The stickiness is higher

as well because of the portfolio, because the tenure is higher. Honestly speaking, from my perspective, you have to take a balanced approach because the opex is low in LAP as well, let's not compare it to MSME, but the margins are also lower in the secured book.

It's not a matter of being secured or unsecured. I think you have to take a calibrated approach.

Over 2-3 years, I think it's definitely possible for it to even surpass the MSME portfolio for the reasons which I said. I wouldn't really feel comfortable making long-term predictions at this point.

Fair enough. Second question is on MFI.

Given that the guardrails are in place now, a lot of the borrowers who may have defaulted in the last cycle are already out of the system. What do you check on the on-ground credit growth demand, and is that aggressive enough for us to step up on disbursement?

Is there enough growth? The second part is, are the FinTechs, etc., which were active in the last cycle, still relevant as competition, or you seeing some of the competition with various startups exiting the market and there are a handful of players now catering to this demand?

Just wanted to check on this front.

To answer your second question first, definitely there are a lot fewer players serving the same customers as we were today than they were, let's say, about 2 years ago or something. I would say, again I don't have any numbers to back it up, this is just the feedback which I received from operations team, that definitely their overall presence in the markets that we are servicing is significantly lower, number one.

Your first question was, remind me again, what was your first question? About

the growth. Oh, yeah, about the growth and [unclear],

yeah. That is, again, we struggle with these kinds of questions very often as well that during COVID you had a significant serviceable population drop out because of defaults.

During this cycle, you have another significant portion. The market is, from a client perspective, becoming smaller and smaller, because for most MFIs being a past defaulter is an auto reject, right?

No human eye has even look at it. The system will automatically reject the customer.

Over the long run, what do we do with these customers? I don't know.

It's a valid question that the industry needs to get together and try to figure out that if we keep removing customers who have ever defaulted from the overall pool of potential customers you have, that in it of itself is a problem. On the other hand, nobody's going to really risk giving loans to customers who had higher defaults, right?

That is one aspect of it, and that is something that we face on a day-to-day basis. That is what pushes up our rejection rate significantly as well.

You were asking about inquiries. The inquiries have increased.

The rejection rate has improved slightly by 2%-3%, where it was, let's say, about 80% earlier, now it is closer to 77%, 75%-77%. It's improved slightly, and the inquiries have also increased over the last 2 to 3 months.

I think our staff is now better trained or have better experience that which customers will have a higher chance of getting approved, and so that is what the pipeline gets pushed into the system as well. There are a lot of contributing factors that would determine how much we can and cannot disperse.

Obviously, past default is a huge issue that the industry would have to solve in the next year or two.

My last question is on your recoveries, given that now the disbursement Sir,

Sure, I'll come back in the queue. Thank you so much for answering my questions.

Hi, sir, hope I'm audible.

Yes, a little louder if you can, please.

Sure, sir. Sir, just wanted a little better understanding of the trend in PAR on the microfinance side.

One, if you could explain what has led to such a sharp decline in the 30 to 90 book in the last two quarters. Have the collections been better, or have the fresh inflows been significantly lower?

Secondly, the same trend is not visible on the 90+ book, which I believe is a book on which you would have had all the write-offs. If you could explain that as well.

The reduction in PAR figures is at the expense of overusing this, a function of many different things. Whatever pain points we saw were essentially disbursements made prior to March 2024.

Typically when you work with a 24-month cycle in the MFI pool, long story short, either those customers have mostly repaid you back or they have defaulted and we have written them off or are provided for and are already at 90+. Whatever new pool was created post September or November that we are tracking closely with new underwriting standards, with guardrails in place, with very very calibrated kind of disbursements,

we were looking at their performance and following up on their performance in terms of quality basis very very closely. The reduction is largely replacing bad customers with good customers.

That's number one. That's probably 80% of the reason.

The 20% is probably slightly better macroeconomics and better collection team on the ground level. Vivek, anything to add?

I don't know if Again just from a more statistical point of view, because you would have seen that the X-bucket collection efficiency or the zero bucket collection efficiencies have been constantly improving in the sector and also for Namra, which automatically means the slippage ratios into the 90 to 30 will in a phased manner come down,

because when the trouble was at the peak in, let's say, quarter two of the last fiscal, then the zero bucket collection efficiencies had come down to as low as 95. 97.5 or something.

Today, they're upwards of 99. That clearly means that you're adding so many less defaulters every month.

Correct. That's also a very interesting point.

Right, the zero DPDs is something that in the MFI pool you follow very closely. Usually speaking, again this is a very rough statistic, but a customer who goes into 1+ bucket, depending on what crisis it is, whether it's COVID or demon or others, there's about a 30% to 50% chance 30% to 40% 30% chance that it would eventually write them off, right?

They will keep going into different bucket into 30-60, 60-90. The idea is that you don't want things to slip into even 1+ bucket because then the probabilities are very high that eventually you will have to provide for them and write them off completely.

That has come down significantly as well, and for reasons which I just explained to you.

Sure, sir. Understood.

Thank you.

Yeah. Hi, sir.

Good afternoon and thank you for giving the opportunity. Sir, first question is on your opex.

For 9 months, we can see that the opex in absolute terms has increased by around 40-odd crores, and around 17-18 crore is being contributed by the MFI business. I'm guessing some part of it is related to the premiums that you might have paid.

If you can explain what has led to this sort of an increase in the opex and how we should look at opex ratios going forward.

Opex has definitely increased, there's no denying it. I've covered this in previous calls as well, but largely we added the whole BCM structure, which is expensive.

We separated operations completely from credit, and so that adds to the opex. We have a big recovery team which is in place, which is collecting good bit of money that otherwise would have gone into NPAs and provisioning and write-offs.

Definitely we are getting more value from them than what we are spending at this point for sure. That has also increased the overall opex related to employee cost.

As you mentioned, the CGFMU we have paid ₹7 crore this year in CGFMU. That has also increased opex.

All we can do is that at the level, you increase the portfolio, and therefore the interest income that you're earning at portfolio, and that will increase the PPOP. I don't think it is a good strategy today about reducing that absolute number of opex, but certainly from a percentage standpoint, it will slowly start coming down.

Even in the standalone piece, I think the opex has increased by almost 50%. MFI we understand collection teams and credit structure and premiums.

In standalone, what has contributed to this high opex?

Standalone, you're talking of Arman?

Yes.

Right. Standalone Arman, we kind of added team on the LAP, and there has been expansion of the Arman team itself into states like UP, Uttarakhand.

Expansion basically. It's basically expansion, and then we've added this entire solar energy or green energy team.

It's not a very very large team, but still that's something that has come up in the quarter three itself. No, I think if you look at it, we have opened new branches, we have opened new divisions.

Employee costs are going up just like many other companies in all over India, I don't have any better explanation than that. Additionally also to address why this number in absolute terms may not be very high, because two-wheeler itself is not a very big portfolio.

It's just about less than 10% or around 10% for the standalone. Quarter three is the highest performance quarter for the two-wheeler, and that's where the expense also kind of peaks for the thing.

I think he's talking about the 9 months. I know.

Yeah. Kind of both 9 months and 9 months, yeah.

Where should it settle, sir? Where are your opex ratios going to settle, if you can give some guidance on that?

I would love for them to at about 4 and a- At console level, let's say about probably 4 and 1/2 to about 5% of total AUM. Typically, I think the good new target to see.

Okay. Sir, this quarter, I think last quarter, we felt that, you are slowing down a little bit on the MSME piece and increasing other product segments more than MSME.

This quarter, I think, again we have seen a sharp increase in the MSME disbursements vis-a-vis other bucket other products. So

I said we are slowing down on MSME? Is that what you're saying?

No. Last quarter, I think going by the commentary, it looked like you are relatively preferring other products which are lower ticket lower yielding products within your standalone business.

This quarter, I think, again MSME has grown the most in the disbursements. Has there been any change there?

That is the first itself of quarter. We've never kind of wanting to slow down our unsecured Last quarter in fact we ramped up our branch network in newer states as well.

Maybe I say a lot of things. Sometimes I don't remember it, but It was probably It might have said it in a probably a context that I don't remember, but no, my intent was never to slow down MSME.

Let me clarify that very very

clearly. Sir.

Thank you and all the best.

Hi, Aalok. Just wanted to take forward from Ronak's question on loan against property.

What we're kind of looking for is a slightly more nuanced and detailed understanding of how do you plan to roll out this product, and what kind of customer occupancies have you seen join in or cohorts where it's worked out well, and if you can share between the three markets how has been behavioral pattern. One of the issues in this particular product has been that there's been some level of overleveraging at the end client.

What are your thoughts on that and how have you built a credit process to kind of keep a check? Because if the customer is not been that overleveraged, the collections in these products are phenomenal.

Generally, want to get a perspective of how you're seeing this product and its nuances over a 3-year window.

Let me tell you that the NPAs in this segment are pretty much very very low at this point. I think it's only 30 bps.

I don't have enough data to develop that nuance: is one occupation better than other, is one region better than other. I have not noticed anything at least from the BI perspective.

We track all of these things, but nothing really has emerged as more or less risky in terms of LAP. Now we are rolling them out in our MSME branches, which are located in Gujarat, MP, Rajasthan, Telangana, and Maharashtra we are not rolling out, but obviously we have in Maharashtra as well.

Far, we have rolled them out in MP, Telangana, and Gujarat. All right.

We have not rolled them out in Rajasthan yet.

We're not even in Rajasthan that way, but

very

few cases we might have tried there just to get the flavor of the place. But

Right.

The major pie for the LAP portfolio, as we talk today, stands in Gujarat, which is more than 60% of the entire and then Telangana, MP, and as we scale up, maybe UP might be also one of the larger.

Right.

In the MSME side, we are pushing our branches towards UP, and so that can be another place that we can start micro-LAP in the UP market. Now, in terms of underwriting, you're absolutely right.

I don't know so much about the LAP, but at least in the affordable housing, some players are better than others, some are just considering something as secured and just not doing a lot of underwriting checks, and they're making sure that all of their loan agreements and mortgage deeds and everything are absolutely clean. As far as assessing whether the customer can actually repay the loan, I don't think a lot of players, in my limited opinion, are doing a very very good job, just getting comfort from the fact that it's a secured product, and I believe that in the Indian context, it's very very difficult to repossess somebody's house, their primary residence, and so whether it's secured or unsecured, you have to make sure that all the underwriting you do is assuming that it's going to be very difficult to get comfort from the security itself.

We are doing everything that we can. Obviously, we are doing the reasonably well income assessment and making sure that on the ground level, doing all kinds of checks as we possibly can.

Income proofs are difficult to get in some of these segment markets, but in the event income proof is not available, our BCMs go in and make sure that they get a good guesstimate around it by supporting evidence. I don't know if that answers your question or not

Perfect. Effectively, we have 120 MSME branches, over a period of time, most of these branches will also service micro-LAP.

Would that be a fair understanding?

I would say most, not all, for sure, but most would, yeah.

Got it. These are separate teams completely sitting there, right?

Because last time I checked, the credit appraisal team of the micro-LAP is completely different. It's basically one infrastructure housing two different teams.

It's one infrastructure housing two separate teams, but in many cases, there are two levels of BCMs that we have. The more senior BCM structure that we have can do the evaluation for both MSME and micro-LAP, and of course, there are other branches where it is separated also.

It just depends based on branch-to-branch nuances.

Got it. Just one last question is in MFI, we've added credit officer in many of these branches.

Just wanted to circle back. Even last time, you had very encouraging feedback on this practice.

How has been your assessment of loans that have been disbursed post this particular addition? In those branches, have you particularly seen quality of book being better when there is a person kind of overlooking the specifics, on and so forth?

Correct. That's a great question.

On average, non-BCM-originated customers post, let's say, November of 2024, compared to BCM-originated cases post November 2024, there's almost a 50% difference in the default rates. Again, the default rate is low as it is, let's say if it was non-BCM-originated where 2%, this is close to 1%.

There is a broad difference right now. Whether that carries forward during credit cycles is anybody's guess, because it's easy to say 50% when your default rates are low, but whether that same thing carries forward when the default rates are high, I don't know, and there's no way to know until you reach that, right?

I'm very bullish on it. Having BCMs, apart from reduction in overall credit cost, also serves another benefit in terms of culture and having the ability to introduce new products, right?

If you are just doing the same JLG, one could argue, well, given the cost and what you are saving, it might not be worthwhile to have BCM. Having BCMs, every new product that we introduce is always, okay, this requires a lot more evaluation, it's higher ticket size, it's something we haven't done.

It allows us a lot more flexibility to be agile in terms of offering new products or changing our products.

Perfect. Congratulations.

That sounds good, yeah. I'll get back into the question queue.

Thanks a lot.

Hi, sir. My first question is on this provisioning and NNPA.

We've seen some rise in the NNPA from generally I think the last three quarters for about 0.5, and now this is inched up to 0.8. Does it mean that you have confidence in terms of your GNPA attrition to be lower going forward and that's why we have not provided for, and you're comfortable with that kind of a number?

Two things that have happened here over the last 1 year is given the overall market scenario, we've been slightly aggressive in our write-offs, and hence the on-balance-sheet books, the average DPDs of the NPAs are far lower when we compare on a YoY basis. Right.

That means something which sits at an average of, let's say, 180 DPD in my NPA book vis-a-vis an average that would have been, let's say, 225 days, my NPA provisioning requirement based on the analysis will slightly come down, taper down. To that extent, there is an improvement in the overall collection efficiencies and the quality of the NPA book.

Got it. Just a question on this.

You said product innovation and new products, right? If you can give some more color on that side, like we've seen that solar financing as a new product launch.

Can you provide some thoughts on new product launches in the period?

The individual loan portfolio in the microfinance Namra side is one such thing where I think what is the book now? That ₹280

₹285

crores-odd crores, yeah. That is one part where we are using the BCMs to evaluate customers almost similar to how we evaluate them in the MSME book, right?

We are focusing on See, one of the main purposes of JLG was also the opex part, because we were doing doorstep collections. Instead of going to one customer to collect at their doorstep, it's a lot easier to go to five and collect at their doorstep, right?

There was, apart from the risk-mitigation part, there was a good case in terms of operating cost as well. With these customers, we are targeting cashless, and I think last month until last month, in this entire portfolio, I believe 75% to 80% of the money was coming through cashless mechanisms, Which is which is

Primarily the UPI mandate.

UPI mandate or NACH mandate. That is the full model.

We are not waiting for the customers to initiate a cashless payment, but we are directly pulling it out of their bank accounts. As long as it remains that way, even if it maybe slightly goes slightly lower, I'm very very comfortable with the individual book.

In fact, more so, because we're doing a lot more underwriting. The only problem with individual that I had was, the opex side.

As long as it continues to perform well in cashless payments, I don't foresee much of an issue there. That is the individual loan side.

Other than that, obviously we had started micro-LAP. I we have talked in quite a bit of detail in this call about that, and I won't get into that.

Solar is just an experiment. I don't want to spend too much time talking about it.

People who have been following the company knows that we do these occasional pilots and experiments. I think let's talk more about it in next quarter, let let's and it's it's really too early to kind of get into a lot of details about that.

Got it, sir. Thank you.

Hello, sir. Good afternoon.

I want to understand firstly on the MSME book, right? We had spoken about earlier with another participant how the book grew and it contributes to significant portion of the high-yield book.

Because this is a high-touch cash-collection model, I wanted to understand do the current branches and manpower infrastructure that we have, does it support further scaling of this vertical, if required, without diluting the underwriting standards?

What you are asking is that, can I push the portfolio higher without increasing operating cost? Is that

Correct.

Yes?

Yeah.

Yes, but not by much. Maybe 10%-20%.

No, I take that back. We have a lot of new branches,

yeah.

Maybe by about 20%-25% for sure we can scale up without increasing opex. Will we?

I don't know. This is a continuous process.

We've got to open branches, invest in people. The case load of around 300 or something in the MSME, I have to hire another ICO.

Once the branch reaches a certain portfolio, I have to get assistant BM. Once the branch reaches a certain portfolio, I have people in the credit side instead of one.

Then there's a whole support team above it. MFI, 100% I can tell you that we can scale that up quite a bit before needs to hire new people, at least in terms of portfolio and disbursement.

MSME, besides new branches, I'm not too sure.

Sir. Understood.

Sir, and the next question in the presentation, we had mentioned that digital collections are now about 25%. Yeah.

I want to understand with that are we analyzing the credit behavior of digital payers versus cash payers? If in case we're doing that and if digital payers show a lower default rate, are we thinking of any differential pricing with lower interest rates to incentivize digital adoption?

That's a good question. At the origination stage, It's not that we cash payers and cashless, because we encourage all customers to become cashless.

At origination stage, it's an interesting point, Vivek, we would have to look into that at that point. Right now, no, we are not distinguishing cash payers versus cashless payers.

It's hard to tell them apart during the origination side. In terms of offering better rates to people who are paying cashless in further cycles, of course, happy to do so because the operating cost would be much lower.

I think if a customer is paying their EMIs through cashless mechanisms, definitely we can pass on some

Sir. Got it.

Sir, next, I wanted to understand, sir, you had mentioned there are commentary around visible signs of normalization and credit behavior is improving, right, industry-wide. Given that our MFI GNPA has moderated down to 3.4%, do you think that this is the bottom of the credit cost cycle that we're seeing, or in the coming quarters, can we expect more write-offs?

I'm not sure exactly how to answer that, Vivek. Would GNPAs continue to go down from this 3 and 1/2%?

My judgment tells me that, yes, definitely in Q4 it should go down further. You are the accounting person.

Primarily if you can look at the GNPA plus 12-month trailing write-offs, if you can put it that way as a figure, that definitely has been tapering downward for the last three quarters. We feel that this will continue to kind of keep coming down with the overall improvement in the sector and also with the kind of checks and balances that we put into place through the BCMs, this will be continue to perform better than the market for Namra, yeah, particularly.

Where the industry stands today, it would be hard for me to say that we will ever go below 3%, for example. Good cycles where you are growing very fast, and due to the denominator effect, you go under 3%.

It would be very say that it in the long run on average it will go below 3%. Happy to be proven wrong.

Sir. Got it.

There was a slight disturbance, but I think I get the gist of what you're saying.

Sorry.

No, no worries, sir. No worries.

Next, I wanted to understand, sir, around the MFI customers, we are down to about 5 lakhs and our disbursements are rising. Is this because we are increasing the ticket size per borrower to drive growth, and do you see this as a risk of increasing delinquencies next FY?

Yes, I would say that it would be hypocritical of me to not acknowledge the fact that the average ticket sizes have increased, especially not in the JLG products. I think in the JLG products, they have decreased or are in stagnant.

In the other products, like the individual loans, they are obviously much higher. That said, being a sort of a conservative kind of a guy myself, in terms of risk, I am not very uncomfortable even despite the higher ticket sizes in the individual products, because, again, we are being very very careful, very selective.

To give you an example, in the individual product, all of our customers have a credit score of 300+, and they all have credit history. We are not really doing a lot of new-to-credit borrowers unless the checks and balances around that are even much stronger.

It's just a different product. I would be a lot more uncomfortable if the JLG ticket sizes were increasing.

In this product, we are taking ample precautions, and still I agree it's still at an early stage to say that whether it's less risky, more risky. It seemed like the right strategic decision, and I still stand by that this was the right direction to go towards.

Sir. Understood, sir.

Sir, and on the

I heard "on the". Muskan, are we disconnected?

Nothing much to add. I think nice long call.

Thank everybody for being a part of this call, and hopefully answered all the questions to the best of our abilities. If you need more information, please feel free to contact the Investor Relations team.

Their contact available in the presentations. I appreciate everybody's time.

Thank you very much.