Thank you, Swapnali. Hi, good evening everyone, and welcome to SBFC Finance Q1 FY '27 earnings call.

On behalf of ICICI Securities, I would like to thank SBFC management team for giving us the opportunity to host this call. Today, we have with us the entire top management team of SBFC represented by Mr.

Aseem Dhru, Executive Vice Chairman; Mr. Mahesh Dayani, MD and CEO; Mr.

Sanket Agrawal, Chief Financial Officer; and Mr. Rajiv Thakkar, Chief Risk Officer.

I will now hand over the call to Aseem for his opening remarks, and then we'll open the floor for Q&A. Over to you, sir.

Thank you, Dinesh, and good evening everyone. As our standing in credit markets with lenders has improved over the years, we have been able to avail new loans at better interest rates as well as diversify our lenders.

Aided by the transmission of repo rate cuts, our cost of funds has come down by about 90 basis points year on year. Cost of operations have been calibrated in a downward-sloping curve, and we continue our guidance of a 25 basis point reduction this year over the 150 basis point reduction we have delivered since listing.

Cost of credit will remain range-bound. The US 10-year bonds may force Fed rates for a rate increase.

Independently, India's currency market situation could also force RBI's hand sooner. Independent of repo, deposit rates have firmed up, and as banks' deposit growth continues to lag lending, interest rates in India will have an upward bias, and we could arrive sooner if crude continues to push $100 and stays about it longer.

One thing is abundantly clear: it is impossible to crystal-gaze into what will happen. We're living in a strange world.

If you look at the 30-year, the US bond market is sitting in a 2008 crisis level even as the stock market continues in a bull sprint. Geopolitical uncertainties and India's mother of all problem oil, one doesn't know directionally what to pencil in.

The only clarity we have is that we have to prepare for what cannot be anticipated. In our antifragile approach build, we always remain cautiously optimistic.

We have taken steps needed to ensure that we keep walking the guided path with metronomical consistency. Our premise at SBFC from the start has been that acceleration and deceleration both put load on the engine and create heat and fuel waste.

What's important is steady momentum. For 30 quarters, we have delivered this through system shocks created by successive failure of financial companies, COVID waves 1 and 2, interest rate rides up and down.

When we did our strategy meeting charting out our growth from ₹10,000 crores to ₹20,000 crores, we concluded that the risks ahead never remain the same. The external challenges change, the internal challenges also change, but we will endeavor to keep a steady pace through all the crosscurrents we face.

Our approach continues to be learning from our mistakes, using analytics and technology, and onboarding better customers, managing risks better, and keeping a superior provisioning, which is currently 2x regulatory minimum. As we have in the past and in the future, we also remain focused on spreads, NIMs, ROAs, and ROEs as we believe that consistent profitable growth is our north star.

With that, I hand over the call to Mahesh.

Thank you, Aseem. We entered the first quarter of 2027 with multiple headwinds.

Interest rates were volatile in March, and with the global situation continuing to write its own script, we had to plan our borrowings with more prudence than usual: measure twice, borrow once. Second, gold prices were on a declining trend, and with new regulations effective April 1st, 2026 resetting eligibility norms, the loan amount landing in customers' hands came down accordingly: less shine, less size, to speak.

Third, the regulator circular mandating banks not to accept collateral security for MSME customers within the ₹20 lakh ticket size had a direct bearing on our co-origination, which accounts for roughly 20% of our disbursement and book. Lastly, a few birds strayed on the badminton court, by which I mean competitors showing up with competitive pricing or generous loan amounts, which simply made us adjust our footwork.

Despite all this, the underlying business held its ground. AUM grew 6% for the quarter at 27-odd percent for the full year at ₹11,922 crores.

MSME disbursements rose 3% quarter on quarter to ₹809 crores. Following the revised guidelines, the co-origination mix reset to 10%.

This has since stabilized, and we expect a return to the usual run rate from this quarter onwards. On the household side, the incomes haven't materially changed over the year, but inflation has quietly eaten into the disposable income, denting repayment capacity.

We've seen this show up in our login-to-disbursal conversion, which moderated to 34% from 42%. This isn't just our anecdote.

The RBI's FSR Report, June 2026, echoes the same patterns, noting that nearly 60% of lending is now flowing towards consumption rather than asset creation. The sub-₹10 lakh segment in particular is showing signs of leverage stress and warrants close monitoring.

We have the distribution and gunpowder to push the pedal right now, but we'd rather scale this the right way than rush it. We were deliberate about pricing through the quarter, which meant walking away from some business rather than chasing it at any cost.

Capital allocation discipline helped us protect spreads, which improved by 39 bps at 9.4, driven by both a lower cost of borrowing and better pricing on the asset side. NIMs moved up by a similar basis point as spreads and stood at 10.6% even as absolute borrowings increased.

Proof that growing the balance sheet and protecting the margin aren't mutually exclusive, just occasionally in tension. Opex came in at 4.29%, down 30 basis points year on year, though sequentially higher than March, largely on account of increments and full-year cost impact of branches opened over the last two quarters.

As a result, our PPoP improved 7.3% quarter on quarter and 34.4% year on year. On asset quality, 0+ rose by 70 bps during the quarter, and that's our homework for the current quarter.

The momentum on rollbacks is better, and we should stabilize here for a quarter before a pullback in the subsequent quarters. NPAs improved 12 bps year on year to 2.66%, though up 5 bps sequentially.

As flagged in our last call, we took stage 2 ECL up to 16% from 6%, bringing total provisioning to assets at 1.91%, the highest we've taken to date and roughly twice the regulatory requirement. We'd rather over-insulate the P&L now than explain a surprise later.

Call it prudence with a margin of safety. In a secured book, this level of coverage appears to be amongst the highest in our peer set.

PAT stood at ₹130 crores, up 6% quarter on quarter and 29% year on year, marginally outpacing book growth. That gap reflects the combined efficiency of risk-adjusted pricing, disciplined borrowing costs, and distribution, each working together.

We closed the quarter at 14 14.7% ROE, and our guidance for the coming quarter remains unchanged on all fronts. No surprises there, birds on the badminton court notwithstanding.

With that, I'll hand it over to Sanket to walk through the detailed financials for the quarter and the year-on-year performance.

Thank you, Mahesh. Good evening, everyone.

In terms of business, our total AUM for June 2026 is at INR 11,922 crore with a growth of 27% on year-on-year basis and 6% on quarter-on-quarter basis. Our MSME AUM is at 9,271 crore, which has increased 4.5% on quarter-on-quarter basis.

Our MSME disbursement for the quarter stands at 809 crore, which has increased 3% on quarter-on-quarter basis. The loan against gold AUM is at 2,631 crore with a growth of 11% on quarter-on-quarter- quarter basis.

We added five branches during the quarter, bringing the total branch count to 256 as on June 2026. In terms of yields and margins, our yields for the quarter is at 17.9% with a reduction of 9 basis points year on year and an increase of 29 basis points on quarter-on-quarter basis.

Our cost of borrowing for the quarter is at 8.42%, which has reduced 90 bps year on year and 10 bps quarter on quarter. Consequently, our spread for the quarter is at 9.48% with a growth of 81 basis points on year-on-year basis and 39 basis points on quarter-on-quarter basis.

In terms of borrowing and capital allocation capital position, we have upfronted borrowing seeing the macro environment and thus having a closing liquidity of INR 1,864 crore. As we grow towards 15,000 crore, we intend to keep higher liquidity on the balance sheet.

Given the movements in bond yields during the quarter, the CD rates, and the overall cost environment, we think we should now stabilize on the cost of borrowing at current levels. Our capital adequacy ratio is sufficient at 32% with tangible net worth at 3,613 crore as of March 202- as of June 2026.

In terms of cost, our opex for the quarter is at 4.29%, which is 36 bps increase on quarter-on-quarter basis. This is largely due to increase in branches in the last quarter of FY 2026 and the impact of increments rolled out for the year.

As the AUM grows on this set of branches, we'll start to see the cost to average AUM coming down, and we should be closer to 4% or below at the end of the year. The guidance for the year of 25 bps reduction remains unchanged.

In terms of asset quality, our GNPA is range-bound at 2.66%, which has reduced by 12 bps year on year and increased 5 bps quarter on quarter with a PCR of 42%. Our credit cost for the quarter is at 1.45%.

We expect it to remain in this range in the short term. In terms of return ratios, our return on average AUM is 4.53% with ROE at 14.73% for the quarter.

Our PAT for the quarter is 130 crore, growing 29% year on year and 6% on quarter-on-quarter basis. With this, we open the floor for questions and answers.

Hi sir. Congrats on a good set of numbers.

Just two, three things. One, on the Mahesh comment about the overleverage position in sub-₹10 lakh rupee ticket size.

Where do we stand in terms of cycle in that particular product? Are we at the start of the cycle, or we are in middle of the cycle?

Sorry, we missed you in between. Can you just repeat the question?

Yeah.

Mahesh, you did mention that sub-₹10 lakh rupee ticket size, there is still some sort of overleveraging which is visible and sort of which requires close monitoring. According to you, where do we stand in terms of cycle?

Also how it should impact SBFC's growth plans or maybe overall profitability metrics in FY '27?

I think from our earlier commentary and what I had articulated in the call earlier today, we've not seen the situation improve in the sub-₹10 lakh category. Even on the new origination front, if you probably look at our presentation, you'll see that most of the CIBIL scores are now more than 700, and almost 90% of the portfolio have a score of more than 700.

Despite that, our throughputs have dropped from almost 42 to 35, effectively which means that a lot of these customers where bureau scores are more than 700 are still not passing through the filter. One strange thing that's actually emerging is that you have scores, but eligibility is not passing through your filters, which effectively means that you might have a score, but the amount of credit that's been seeked is still extremely high.

That's the reason we're a bit watchful on that segment. If you would see that our average ticket size is inched up compared to last year or last quarter versus this quarter, and that's largely because the shift that's beginning to happen from that segment.

If you see, Renish, if you had seen the latest CLSA report on the household DSR in India now almost touching 14%,

and

which is one of the highest in the world. While people look at retail to GDP, which also is now pushing 45% plus, and we're really high, but what is concerning is the DSR.

Clearly, these signals are saying that you'll be watchful. It is not that we are seeing anything that worries us or concerns us.

This is part of the business we do, and our job is to be a little worried. That's part of our job description.

If we are not worried, you should be very worried. No,

absolutely.

We have to be careful because we don't know when cycles turn. We really don't know if you're in the start of the cycles, the middle of the cycles.

These are all guessworks. In reality, you have to be watchful, and if you're seeing signals in your customers that there is a build-up of leverage, then you better be watchful rather than be sorry later.

Got it. Got it.

My second question again on this the journey from 10,000 to 20,000. Till now we have been stuck to two products, right?

The small-ticket LAP and gold loan. Do you feel that over next maybe 12, 18 months we need to think about adding new products to build a more stronger franchise, or do you think there is enough white space at least in these two products in which we operate and hence it's not right time to think about new products?

No,

no, we keep doing what we are doing. We have to get better at what we are doing.

We still have a lot of work to do in that. We will keep focusing.

We have learned something over the last 8 years, and once you've learned it, hopefully over the next 8 years, you will better it. We don't want to at this stage look at anything different or new.

We will continue doing what we are doing. Hopefully, we will do it better than what we have done so far.

Got it. Got it, sir.

That's it from my side, sir. Thank you, and best of luck.

Thank you.

Either we have been very clear, or we have confused everyone.

Hi, thank you, sir, for the opportunity, and congratulations for a good set of numbers. I just had a few questions.

One is around the employee cost. Is the increase in employee cost largely based on increments and bonuses, or is there anything else in it?

Meghna, there are two things that have happened during the quarter. One, obviously, is the rollout of increment that has happened.

That has one impact. The second is that last quarter we opened close to 20, 25 branches.

Again, this quarter we've added five. All that employee that we have hired, full-blown cost has come in in this quarter.

Both put together is the increase in that cost. What will happen over a period of this next 9 months is that once those employees become productive and we add it on the AUM, you will tend to see the cost to AUM starts to coming back where we intend to.

Got it, got it. The second question was on the yield front.

Although we have just inched up our ticket sizes marginally during the quarter, our yield has improved by 30 basis points. Is that because we are incorporating higher risk and that's why we increase our yield because of the risk?

See, what happens is that we in our model has baked in a spread of 9% since last 1 year and said that this 9% something we have to hold to ensure the return matrixes make sense for us. To that effect, what happens is between products, there are some yields improvement, some reductions.

Gold in this quarter has done a better job in terms of yields. That has added to the yield improvement of 29 basis points.

The range that we're looking at should be in the range of 17.5 to 17.75. That's our range where the yields generally stabilize.

One good quarter of either product gives a 10, 15 bps up and down. That's the range we will be at, and which ensures that at, say, current cost of funds, 10 bps up and down will give you a spread of more than 9%.

That compensates more than enough for your risk-adjusted pricing and gives you the desired return ratios.

It's largely related to the gold portfolio that we're seeing spike during the quarter. It's a one-off, right, in the yield?

Yeah. It keeps moving slightly up or down on the gold front, but the stable yield what we can see is between 17.5 to 17.75.

That's the company yield, which is largely we bake in internally.

Got it. Got it.

What would be the branch expansion plan during the year?

We upfronted a lot of it in H2 of last year. We will go slow this year.

We will be in the range of, say, 10, 15 branches, not beyond that. All the branches that we have opened in the last quarter has to become productive.

Those employees have to become productive and start giving us the returns that we expect. We generally base our expansion on profitability matrices, and once those returns comes in, that's when we do further expansion.

This year should be between 10, 15 branches, three, four up and down based on what the supervisors generally request you to and you approve. That's the plan.

Just to add, if you look at our distribution mix, you'll see that our branches which are more than ₹67 crores, roughly around 60% of that distribution is more than ₹67 crores. This number was substantially higher largely because most of these 52-odd branches that we opened in the last 1 year.

I think the whole idea is that we will consolidate at these increased branches that we've opened. We follow a policy of growth and consolidate, and then start to grow.

Now, the addition of branches have to actually start delivering the required return before we add in any more branches.

Got it. Lastly, sir, on the credit cost for the year, do we see a 1.4 sort of a range stable for the full year, right?

We are penciling in that it will be range-bound in this current range, 1.4 or 1.5. This is the range that we are looking at for at least next two quarters.

We are at 1.45, should be in this range.

Got it, sir. All right, thank you.

Hi, good evening. Congratulations on a good set of numbers.

My question is regarding the 1+ DPD. We have seen a slight uptick compared to the last quarter.

If you could throw some color on that.

First quarter, there's been a slight increase, and this was pretty much similar what we experienced last year in the first quarter as well, and then it stabilizes. In fact, and that was my opening remark as well, so that's a bit of our homework to do, but the rollbacks have been pretty within our required control, we should be able to roll it back or stabilize in this quarter and roll it back in the subsequent quarter.

We not seeing any red alerts from the slippages that we've seen.

Yeah. Thank you.

Thank you.

Hi. Just two questions.

One is what is the incremental yield in both the segments? See,

we generally don't call out product-wise. Incremental yield is in the same range.

That's what we answered previously as well that it will remain the overall yield for the company will remain in this 17.5 to 17.75 range. Incremental yield is also in this same range, is slightly uptick because of the gold yields, but otherwise it will be in the same range.

Nischint, I think the way what we've seen in the last 24 months that our focus is largely on spreads, and that's what we've called out is that whichever way the market moves, we'll at least ensure that our spreads are upwards of nine. You may have a season where you accelerate on gold or you accelerate on co-origination or the non-co-origination, but the whole idea is that we land at the spreads.

If you look at our yields, probably they're lower than last year by 10 basis points, but probably higher than the previous quarter. You will see these movements, but I think the only parameter that one should probably look at is whether we've been able to maintain our spreads.

Obviously, gold is higher than the MSME yields.

Directionally, do you see gold yields going down?

My sense is that the 25, 30 basis increase you shouldn't pencil in and extrapolate the numbers from here. My sense is that it's going to be pretty range-bound.

You could see marginal reduction, but not a very sharp fall.

Okay. On the disbursement side, is this kind of the trend this quarter was sort of a little more technical because of the co-lending norms, or is it something to do with the fact that in terms of demand, there was a challenge, or maybe you chose to lie a little low?

Probably let me give you some sense as to where it is. One, obviously, we'll see an upside because of the co-origination reset which happened, and that though that run rates come back to normal, you'll see that upside coming in this quarter.

I think the larger question that has to be answered with respect to the pass-through of the customers. We log in roughly, say, 21-odd thousand applications a quarter, and a 7% drop is roughly around 1,400, so that's roughly around ₹140 crores, which probably was going through earlier, but what's not going through now.

Now, that's some bit of that reset has to come back or that part has to come back, or we need to originate a lot more. Clearly, the whole idea is that we will not really push through if it's not passing through the filters.

As and when it starts passing through the filters, we will see that improvement come through. There's going to be some marginal uptick which is going to come from co-origination and some betterment with respect to better higher logins, but we expect that the login-to-disbursal to be maintained at a similar level of 35-odd percent.

Maybe in an environment where you probably see things getting a little tougher or probably the screens getting or loans getting difficult to pass through the screens, would you not want to spread yourself wider so that you can continue to maintain the growth momentum in the future?

No, I think our insights have been, let's see what's changed over the last 1 year. Over the last 1 year, I think when we called out that the segment below five or below six was not looking too good, now it's more to do with below 10 is not looking as attractive as they were.

You have a separate segment across geographies. There is an opportunity for us to deep dive in these geographies and make up for the numbers.

I think from a growth perspective, the numbers that we have to roll out is not extraordinarily high, we really don't have to push ourselves very hard to achieve on the guided range that we've already called out for. I don't think there's a pressing need to add a particular product or add additional geographies to deliver what we've called out for the full year.

Got it. Just one last clarification.

The reset because of the co-origination side is done, right? From next quarter onwards, we can expect things back.

The numbers are going to come back this quarter.

Perfect, got it. Thank you very much.

Thank you.

Thank you so much for joining the call. Have a happy weekend.