Operator: FY 2027 earnings call. I would like to hand over the call to my colleague, Nidhesh Jain.
Nidhesh Jain: Thank you, Ramya.
Operator: Before I say, I am sorry, Nidhesh, I am butting in between. Before I say that, kindly note that this call is being recorded. I would request you to raise your hands if you have any questions. Over to you, Nidhesh. Thank you.
Nidhesh Jain: Thank you, Ramya. Good afternoon, everyone. Welcome to Quarter 2 FY27 earnings conference call of Can Fin Homes Limited, hosted by Investec Capital. As a reminder, all the participants will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. For Q&A, please raise your virtual hand, and we will unmute you from our side. We will start the management commentary followed by a Q&A session. To discuss the financial performance of Can Fin Homes and to address your queries, we have with us Mr. Suresh Iyer, MD and CEO, and Mr. Abhishek Mishra, CFO of Can Fin Homes Limited. Please note that this call is being recorded. I would now like to hand over the call to Mr. Iyer for his opening comments. Over to you, sir.
Suresh Iyer: Yeah. Thank you, Nidhesh, and good afternoon, everyone, and thank you for joining the earnings call for the Q2 results of Can Fin Homes. Before we get into the question, I do have a small brief on the highlights of the quarter, which I will just share, and then we can go into the question answers. The highlight of the quarter for Can Fin obviously has been that the entire Project Tejas, which is the IT transformation project, has gone fully live. In fact, we went in phases where July we went live with 11 branches, five old branches and six new branches. Thereafter, in August, additional 75 old branches and 14 new branches were added. In September, 77 old branches again were added.
Suresh Iyer: Finally, from effective 1 October, 93 of the remaining old branches and the five branches which have subsequently opened new branches have all gone live. So presently, we are completely online in the new system. All the aspects of the project, including the security aspects, the infrastructure aspects which were already implemented earlier, and now all the operational or the functionalities which are there in the project have all been implemented, and we have gone live with the entire LOS, LMS across all the branches. Of course, this implementation has had an impact in terms of our disbursement, particularly in each of the branches in the month where the business or the IT implementation has taken place. To this effect, we have actually given an additional slide in the presentation, that is slide number 20, as to the impact that we have had because of this IT implementation.
Suresh Iyer: The month in which the implementation has happened, the disbursements, they have dropped in that particular branches by about 70% to 75%. Then the next month, again, it pushes back, and it comes back to almost 80% to 90% of the old disbursement. So that's the kind of thing. As a result of this, in August and September, where we had a large chunk of 75 and 77 old branches going live, there has been a major impact. As a result, the disbursements for the quarter were at only INR 2,375 crores. This, of course, is net of the INR 29 crores which we have reduced from the disbursements because of the NHB guidelines which has come saying that regarding the cancellation of DDs.
Suresh Iyer: So, during the quarter, we have had about INR 28 crores odd crores of cancellations of disbursements which were earlier handed over to customers for various reasons, and that has been netted off. Plus also about INR 19 lakhs, which is in respect of the cancellations from the date of the closure of the quarter to the date of the announcement of the results. So basically, combined, both these things put together is about INR 29 crores, which has also been netted off from this INR 2,375 crores. So that is the impact. In terms of the state-wise or region-wise disbursement, the demand has been quite strong. There has been no change in the demand. We observed that.
Suresh Iyer: In fact, on page 20 of the presentation, you will also see that particularly the branches where no impact or no IT transformation has happened in the month of October, there you will see that in the month of July, August, and September, the business has been robust. There has been an increase only as against an average of INR 435 crores, which these 93 branches were doing in Q1. In the month of September also, they have done INR 481, so INR 458, INR 424, and INR 481 crores. Basically, in terms of the demand or in terms of the business per se, there has been no change, but for the impact of the IT transformation, which is mainly on account of the understanding or rather the change in the flow, the additional processes that have been incorporated.
Suresh Iyer: Now, in fact, there are some four OTPs, 4 to 5 OTPs depending on the customer and the type, which we have to take from the borrower as well as the co-borrower separately. So that comes to around 8 to 10 OTPs additionally. Those kind of process changes which have been implemented have resulted in some time lag and things like that. Plus, in every month, since it was a migration from a legacy system, the migration data had to go through a couple of processes. So every month, we basically were able to hand over to the branches only after post-5th. So that is 5 days of gap also. Basically, these are one-time issues which have impacted, but as can be seen from the 93 branches data, the demand, there is no issue. We are still seeing robust demand across all the geographies.
Suresh Iyer: Karnataka also, which has been in the past always a point of observation, has stabilized around INR 230 to INR 250 crore of disbursement consistently. Only other change during the quarter has been that in the state of Telangana, there has been a new Section 22A or something, some section has been there, wherein, at the time of some areas have been identified by the sub-registrar offices or by the government to have been notified for this, which is only available with the sub-registrar offices. So before execution of any document, everything has to be taken to the sub-registrar office, and they will confirm whether this can be registered or cannot be registered.
Suresh Iyer: This process, before the entire process of processing, we had a lot of cases where finally when it went for the documentation or registration, the process was stopped because then some study or as per Section 22A, the legality of those properties is being verified again. So this has slightly impacted, but having said that, now we have changed the process whereby now before we entertain any login or spend time in processing the entire case, we ask the customer only to get the item verified from the sub-registrar office, and then only we do it. Otherwise, a lot of cases where it came, all the effort up to the stage of documentation was done, and we had to cancel the disbursement. Basically, that process has been changed now to adjust to this new change of Section 22A.
Suresh Iyer: As a result of this, it is only a one-quarter impact which is there in terms of disbursement. For the full year, we continue to have the same guidance of INR 13,000 crore in terms of disbursement. To that effect, whatever corrections, whatever strengthening we have had to do, we had already initiated in October itself across all the branches so that we can push disbursement in Q3 and Q4. Another thing is that now with the entire, all branches having gone on the new system, we should now be able to pull out the people from the teams for sales also, because we were about 84 people in the month of March in the sales department. Even now, as we speak, it is about 90. But all the people will now get relieved, and so we will be able to strengthen the sales team.
Suresh Iyer: You will see in one of the slides also that the sales team with the same set of staff has also done INR 560 crore of disbursements have come from the sales team of about 98 people. So it is about average 90 people. So, in terms of the comparison last year was for the full year, the sales team has contributed about INR 868 crore. So basically, even without much of an addition in the team, the contribution has increased from the sales team. Now with additional staff that will be moving from the business to the sales division, we will be able to push further in terms of the sales team disbursements, and that will also support us in Q3 and Q4. Same also in the sense that we have 28 branches which are planned for the full year.
Suresh Iyer: As against that, 25 branches have already been started, and they are operational with staffing also in place. Therefore, the contribution of these 25 branches will also come in Q3 and Q4, which will support in our disbursement push. So we hold the guidance of INR 13,000 crore for disbursement, and we will push in Q3 and Q4 to cover up. The second thing is in terms of prepayment, you will see that in absolute value last quarter, we had a slight increase, and we had indicated that we are taking certain steps in terms of converting some regular excess payment customers to deposits or some alerts and all those things. Some impact we are starting to see in terms of the prepayments. July was a little high at INR 655 crore, but then the next two months, it has dropped to below INR 600 crore per month.
Suresh Iyer: For the full quarter, it has been much lower at INR 1,795 crore as compared to INR 1,857 crore in Q1 of this year. So there has been an improvement in the prepayments. Plus, now with the rate hike which has been there, the gap between what the market is offering and what we are offering will come down because, as I mentioned, there was a 25 basis points increase in the repo rate, whereas we have only increased 10 basis points for our housing customers, old as well as new customers. So basically, the gap will now start reducing, which will also help us in retaining good customers. So this is in terms of the prepayments. The AUM consequently has been impacted because of a lower disbursement and has been there.
Suresh Iyer: But with the full year guidance continuing at INR 13,000 crores, we hold the same guidance for AUM of 13%, 14%, closer to 14% in terms of our AUM growth for the year. During the quarter, we received, in terms of borrowing side, we received a sanction from NHB for INR 1,350 crores. You would also have heard the news articles about NHB planning to increase the refinance as well as increase the proportion of refinance under the AHF component. This should help us positively, and the INR 1,350 crores plus whatever enhanced sanction can come, we will be drawing during the year. Last year, as a strategy, we had planned to draw the entire funds only in Q4 when normally the liquidity pressures are there and the rate is slightly elevated.
Suresh Iyer: But if the sanctions are on the higher side, we will probably start drawing this year from Q3 itself so that we can enjoy the lower rate also. In terms of the undrawn sanctions, we are having close to INR 2,500 crores of undrawn sanctions which are also there to support the business. In terms of the rate hike, as I mentioned, we have already passed on effective 8 October, 10 basis points for our housing customers. Basically, our endeavor will be to ensure that our NIM and spread and NIM stays protected. Our guidance is of 2.75% and 3.75% for spread and NIM. Whereas we have been operating around 2.8% and 3.8%.
Suresh Iyer: So we will continue to protect our spread and NIM, and we are confident during the year we should be able to maintain that because net impact of the rate hike would be that on a 65% of our liability side, we are impacted by this repo rate as well or by the T-bill rate. To that effect, it will be on the entire book, it will be about 12 to 13 basis points increase, which will be there, as against which we have already increased 10 basis points. As you know, last year also when the rates were coming down, we did it in four parts of 10 basis points, 15 basis points, 15 basis points, and 10 basis points. Same way, the next hike, maybe we may look at a 15 so that we can average out to about 12 to 15 basis points.
Suresh Iyer: So indirectly, what I am trying to say is that the NIM and spread, we will continue to maintain at 2.75%, 2.75% plus, and that will be a thing. In terms of delinquency, our overall delinquency has not been impacted much. Only there is a little bit of an increase in the SMA0, which also is mainly because of the methodology of computation or flagging of these cases. Basically, we had an old system which was computing the overdue or outstanding up to the end of the month, whereas here it is on a daily basis. If the customer, many times for very, very small amounts, what was told to the customer five days back, the customer pays today, but the five days interest is becoming a lag.
Suresh Iyer: We are slightly changing the process and all those things to see that we can communicate to the customer that if you pay today, this much, if you pay by the end of the month, this much payment. Delinquency is not much of a concern. Overall, our credit costs, we have guided for 10 basis points, and for the quarter, end of the quarter, it is about 9 basis points. I think we can continue with the guidance of 10 basis points. Generally, also you will see that in H2, there is a reduction in our gross NPA. That would also help. In fact, it should reduce the NPA from the current levels. That will also help in the provisioning. Plus, if you see, in fact, the current year, the H1 is always where the NPA goes up and then starts coming down.
Suresh Iyer: Last year, our increase in NPA in the H1 was about INR 40 crores, as against this, in the current year, the 6 months, it has been INR 35 crores. Again, the pushback will come in the H2, then we will be under a more comfortable position. The last thing is about the regulatory guidelines. First, as I mentioned, there was an NHB regulation or a guideline regarding the reporting of disbursement as netting off the cancellation during the quarter and the cancellations which have been from the date of the end of the quarter to the date of reporting. That we have already implemented in this quarter, and we have netted off INR 29 crores from our disbursements which otherwise where the customers have been handed over the disbursements.
Suresh Iyer: The second change is regarding the wage bill, where we have not had a problem in either of the two cases, where all our staff, we are having a salary more than INR 25,000. Even the joining entry level salary starts from about INR 36,000. Basically, that is not impacting. Second thing is, again, earlier last quarter also we had indicated, our basic plus DA is more than 50% of their total package. That is also no impact in the company. The third is more of a prospective or a likely impact, which is because of the insurance discussion paper or wherein the insurance commissions have come down, are proposed to be brought down drastically.
Suresh Iyer: There also, in fact, the entire year last year, our commission from insurance business was only to the tune of about INR 12 and odd crores, which is less than 1% of our PBT of INR 1,304 crores of last year. Basically, even if it is implemented in the way it has been shared or publicized in the media, it will not have many meaningful impact in terms of our profitability or anything, because the contribution of the insurance income is, premium income is very, very low for us. Basically, these are the highlights of the quarter. We can open up for question-answer. Once again, thank you for joining this call. Back to you, Nidhesh.
Nidhesh Jain: Thank you, sir. Thank you. We open up for the Q&A session. Attendees, please raise your virtual hand, and we will unmute you from our side for the Q&A. Thank you. We are taking the first question from Nipun. Nipun, please go ahead with your question.
[Analyst 1]: Yeah. Hi, sir. My first question was, our liquidity coverage ratio has gone up for some 100%, when the regulatory requirement is only 100%. Is there a reason behind it?
Suresh Iyer: Yeah. Nipun, basically, the only thing is it is a matter of computation. We have to just compute for the next three months or one month actually and see what is the kind of liabilities which are falling due. You would see that by and large, we have increased our long-term borrowings, and therefore the short-term borrowings basically are which normally come up again and again, and for which we have to provide or maintain the HQLA, that figure has come down. Just to give you a small number, probably around 23, from the time of March 2023, we had almost about 26% to 27% of our total borrowing side was short-term borrowing, which now has come down to around 12%. You can imagine this is basically the CPs we have brought down. We have brought down the short-term borrowings from the banks and everything.
Suresh Iyer: Basically, that is what is impacted. Also a fact that now what we as a strategy do is instead of taking bulk borrowings of INR 1,000 crore or INR 500 crore or INR 2,000 crore, which will come for a prepayment in one single shot, we are taking in smaller proportions. Basically, the load in terms of providing the liquidity in any period of 30 days is kind of reduced. This helps us in managing our borrowings and basically maintaining our LCR.
[Analyst 1]: Okay. What should be the steady rate of this ratio?
Suresh Iyer: See, basically, it is a continuous flow of thing that we have to maintain. If there are more short-term borrowings or any kind of borrowings where it falls due in the next 30 days, we have to provide the HQLA. Normally, we have a standard amount of approximately INR 2,300 crore or something that we are maintaining as our HQLA. Therefore, what happens if this figure keeps changing, this ratio also slightly keeps changing. But what we are maintaining in HQLA will always be above 100%.
Suresh Iyer: If it is in the next 30 days, if it is not there and we have more liabilities falling due or interest payments or regulatory payments falling due in the after 30 days, then it will not reflect, so the LCR will reflect high. But our HQLA that we are maintaining is almost steady, and it is enough to maintain at any given point in time as per the current requirement, more than 100% LCR.
Abhishek Mishra: Macro should be minimum 130%.
[Analyst 1]: Okay. Got it. And sir, what kind of stress tests have we done on our loan book?
Suresh Iyer: See, we have almost 12 order scenarios that we are doing in terms of how much of a flow will happen in terms of our delinquency, how much weight will happen. We are also doing in terms of the rate of interest impact. We are also doing in terms of delinquency. Both these kind of tests we are doing for stress testing. So we also see how much it will have an impact. So all these tests we are doing as per our RMCB is also we are presenting it to the RMCB.
[Analyst 1]: Okay. And what is the frequency of this?
Suresh Iyer: We are doing it every quarter.
[Analyst 1]: Okay. Yeah, that is it. Thank you, sir.
Nidhesh Jain: Yeah, we will take the next question from Renish Bhuva.
Renish Bhuva: Yeah. Hi. Am I audible?
Nidhesh Jain: Yes.
Nidhesh Jain: Yeah, please go ahead. Yeah. Yeah, please go ahead.
Renish Bhuva: Good afternoon, sir. Just two things.
Suresh Iyer: Yeah, good afternoon.
Renish Bhuva: One on this interest rate cycle. So two things. One, as you rightly mentioned that our ALM is such that most likely will not have any material impact on them. But any sense on, let us say, does this interest rate hiking rate cycle will have any impact on the demand side? I mean, as per your, let's say, assessment, historically, whenever we are going through a rising rate cycle, does that impact demand for home loan or it's a non-event?
Suresh Iyer: Well, I would say, quarter percent, half a percent is a kind of a non-event. The rate that we are seeing, I think, only once in the past we have seen a rate which is lower than this at around once when it had touched 6.75%. Otherwise, 7.15%, 7.5%, 8%, these are among the lowest that we have seen. So, half a percent increase from here is not going to make much of an impact in the terms of the demand. Because once it is converted into a 15-year EMI, the impact on the EMI is very, very limited. So it is not going to affect the cash flow as much.
Suresh Iyer: Half a percentage point increase or even 75 basis points increase in our The thing in terms of the EMI is not a very large amount. Of course, that is an increase. So either you can increase and start giving more of 25, 30-year loans, or you can so that the EMI remains the same. Or else you can, even with a little increase in the EMI, it is not too much to deter demand.
Renish Bhuva: Got it. So basically, you don't see any change in customer behavior just because of rising rate cycles?
Suresh Iyer: Not much. This should not have not much.
Renish Bhuva: Okay. Sir, second thing is, on this El Niño impact, right? I mean, we are hearing that South is actually going through a very bad rainy season. So what is your assessment? I mean, do you also foresee some impact because of this over next maybe 6 to 12 months on demand or asset quality?
Suresh Iyer: See, there's definitely an impact. Just to answer your previous one more point in your previous question. As I mentioned, a 25 basis points increase in the rate for our loans is only about 10 basis points. As I mentioned that when the rates were coming down, we also reduced 50 basis points for our 125 basis points cut. Consequently, when the same reverse cycle happens, we will also not pass on the impact. For us, a 50 basis points might work out to over 22, 23 basis points increase for our loans. That is a customer that we offer. That is just a clarification. Coming back to this, if there is a water shortage, of course, it can impact in terms of the construction activity.
Suresh Iyer: But we'll have to see how much, because sometimes there has been delayed rains, and at least Maharashtra, Karnataka, and some of the states, yes, there has been definitely a lot of drought-prone, the thing drought that has been announced in quite a few villages and stuff like that. Of course, in our case, we don't have too much of a deeper penetration into up to the tier 3, up to tier 4, tier 5, and all.
Suresh Iyer: We mostly restrict up to tier 1, tier 2, where at least there is water is available, of course, but still it will have an impact in the overall scene of things. It will have an impact where construction may slow down a little bit. But I think it's still a little early for it. It's a little early. If at all it happens, of course, it will be impacting everybody. But yeah, it is something which can impact a little bit.
Renish Bhuva: Got it. Just a follow-up on that. I mean, then in that case, do you foresee any risk to our disbursement target for 2027?
Suresh Iyer: See, if the overall industry is going to slow down, I think we are part of the industry. We cannot be very different, and I don't think we will then be revisiting. But as of now, as I said, it's a little early to start projecting that. But as of now, I mean, there are a lot of constructions. There are other ways also. Like we may look at a little more of LAP, or we may look at some construction, some top-ups for a short period and all. These are all things which, as a short-term strategy, Can Fin Homes will have to adopt.
Renish Bhuva: Got it. That is very useful, sir. Thank you and best of luck.
Suresh Iyer: Thank you.
Nidhesh Jain: Just a request to all the participants to limit their questions to two per participant. The next question we'll take up from Devesh Trivedi. Devesh, you may unmute yourself and go ahead with the question. Devesh, you can unmute yourself and go ahead with the question.
Suresh Iyer: I think there is some issue. Maybe we can go to the next.
Nidhesh Jain: Yeah
Suresh Iyer: person in the queue.
Operator: Yeah. We will take the next question from Mr. Vijay Singh Gaur.
[Analyst 2]: Hi. Good afternoon, sir. My question is.
Suresh Iyer: Good afternoon.
[Analyst 2]: We have done an IT transformation after a long period. How the operational efficiencies are expected to play out in FY27 and FY28?
Suresh Iyer: Sir, see, as I was mentioning, once this, there is a lot of process change, but a lot of things in terms of the efficiency in the sense that we have a lot of processes which were erstwhile manual, have been converted into the automated processes. That is in terms of the process change. There are a lot of opportunities because all the OEMs or all the applications that we have taken are having native AI capabilities also. We are also looking at some more features which can be added. Auto-form filling, things like that are definitely going to improve. This is going to open up a complete channel of digital sourcing for us because earlier, it was purely a manual-driven process and all those things. Now, in fact, a lot of customer journeys in terms of digital journeys can also be incorporated.
Suresh Iyer: Those are things which will start now, and we will start to see some benefits. If you see one of our sourcing, we have a 10% business we are expecting to come from the digital source. That will be an enhancement to our business. Then, in terms of efficiency, as the processes are there, a lot of activities which are manual are doing this. We will be able to pull out people from our team for sales and on-field activities. That is also a thing. In terms of a lot of other internal processes, there are auto-form filling, auto-verification, validations which are happening. In terms of the compliance also, there is going to be a lot of improvements.
Suresh Iyer: This year, if you see, we have actually looking at an increase from 90 or 85 to, or people to, in the sales department, to take it up to 150. All this is without increasing the basic structure of the staffing at the branches that we are looking. It is not that we are adding another 75 people or something in the sales department. What we are doing is, from the existing team, we will be able to remove the people and put them on the field because the efficiency will start to come in. At least in this year and part of next year, we will definitely see some improvement or some benefit in terms of more people on the field because of efficiencies coming in.
[Analyst 2]: One small follow-up question here. What is the process has been completed for the entire organization, or is it pending or due?
Suresh Iyer: No, this has entirely been implemented. If you see our presentation, we have various activities which have been put, page number 19 of this presentation, line number 19, you will see that all those things have already been fully been implemented. In fact, this implementation started from as early as prior to September 2025, where first the infrastructure part component started getting delivered, the security, the SOC, and all started getting implemented. Then in a phased manner, by September, the risk and ALM and borrowing modules got implemented. January, we had the deposits, the DMS, all those things. Basically, the entire package with all the components which were part of the RFP which we had released in 2024 end, that have all been implemented.
[Analyst 2]: Thank you so much, sir. It is a good work. Thank you so much.
Suresh Iyer: Yeah.
[Analyst 2]: My one more question is here. That is related to, it is a rising interest rate scenario, and what is our expectation of prepayment rates? Definitely, it is going to come down if 100 basis points repo move up.
Suresh Iyer: As I said, we will not pass on the full increase to the customer because, for us, 65% of our liability side is linked to floating rate, 65 odd percentage. Whatever is the impact which we will see, 25 basis points could roughly implement about 13, 14, 15 basis points for us. Some we will pass on right now, 10 basis points to our customers is what we are passing on for our housing customers. Basically, if you look at it in terms of the prepayment, what will happen is, prior to the rates coming down before the cycle started, the gap was about 55 basis points in terms of the rates.
Suresh Iyer: Now that went up by another 65, 75 points because 125 was reduced by the banks and those linked to the external benchmark, whereas we reduced by only 50 basis points for our existing and new customers. This gap widened. Now what will happen is this gap is slowly starting to shrink. Say for example, 100 basis points increase over the next, say, one year if it happens, then the gap will reduce by around, for us, about 60 basis points.
Suresh Iyer: That is basically a sizable amount of reduction because, as I said, 50 to 75 basis points, I think the customers do not mind. But if it is more than 1%, 1.5%, 1.25%, then the impact in terms of the EMI will be larger. Obviously, this gap, once it starts shrinking, it will help us in our prepayments. In the past, our prepayments have been in the range of about 15.5%, 16 odd percent, which has gone up to almost 17%, 17.5%. 1%, 1.5% reduction in our prepayments or rundown will be almost coming down to about INR 400 crores.
[Analyst 2]: Okay. Any outlook for 2028? A quick question. I am sorry, I asked three questions. Any outlook for FY28, anything in terms of AUM growth?
Suresh Iyer: See, next year, at least we are internally looking at around INR 16,000 crore disbursement for FY28. So that should translate to around 15% plus AUM growth for next year. Because, assuming that our prepayments also goes up by, say, for example, from this to, say, INR 8,500 crores or whatever, then also the addition to the book will be a little higher. So we expect that this should probably work around 15% plus, closer to 15.5% or something.
[Analyst 2]: Once again, congratulations for IT implementation, sir. Thank you so much. Thank you.
Suresh Iyer: Thank you.
Nidhesh Jain: Just a request to all the participants to limit their questions to two or three things. We take the next question from Mr. Abhijit Tibrewal. Please unmute him.
Abhijit Tibrewal: Hello, am I audible?
Suresh Iyer: Yes, please go ahead.
Abhijit Tibrewal: Yes, sir. Hi. Good afternoon. Thank you for taking my question. Sir, just two things. One is that you say 65% of your borrowings are floating. I am assuming you are just talking about the bank borrowings here, which, if I remember in the past, we have moved almost all of it to repo rate linked borrowings. So as repo rates move up now, our bank borrowings will reprice upwards. So, sir, this happens on T plus 1, or this usually happens the following month, following quarter? How does that work?
Suresh Iyer: Bank borrowings, it increases in the next month. This time it has happened on 2 October. Basically from 1 November, our rates on the bank borrowings will go up. Of course, linked to the EBLR, linked to repo rate. There are some which are linked to T-bills and all, which will happen at the preset quarter, whatever is the. We would have taken on a, most of them are at a quarterly reset. At that time, the T-bill whenever it is there, it will be there. Not all the floating rate liabilities are on monthly reset.
Abhijit Tibrewal: Got it. Then, sir, I mean, NHB, which is almost 14%, 15% for us, that is also largely floating only, right? Linked to NHB's PLR.
Suresh Iyer: It is linked to NHB's PLR, but NHB's PLR also has not changed for some time. There were only one change, which also last time, instead of 13, they did it at a very lag and they did it. By and large, that is also very delayed. It does not happen immediately. Of course, for NHB also, we have the AHF which is fixed. It is not floating.
Abhijit Tibrewal: Right, sir. Okay. Sir, in that case, I mean, for us to keep our spreads and margins stable, whatever increase we see in our liability side, and like you mentioned, predominantly banks, will have to be passed on to the customers. Otherwise, I mean, there is a risk of spread and margin compression in a rising rate cycle.
Suresh Iyer: That is absolutely right. So basically, 7th was a policy announcement, and on 8th itself, we had our ALCO, and we have increased our rates for our existing and new customers on the housing side by 10 basis points. Obviously, the impact would be resultant would be around 12, 13 basis points, but we have done 10 this time. Maybe next time we will do 15 for our equivalent 25 basis points increase, because we are not doing this, it is 5, 10, or 15 basis points.
Abhijit Tibrewal: And sir, this 10 basis points that you hiked for your borrowers, that is effective? So if you increase it on the 8th, that becomes effective on?
Suresh Iyer: So basically, for new customers, of course, there are two, three days of implementation in the system. So effective 12th, we have to give the notice also. So effective 12th, all new customers will start getting it. And post 12th of October, whenever the reset comes for the existing 85% or 87% of our floating rate assets, as and when the reset comes, that will happen. And now we are 87% and what we reset only about 12 or percentage, 12 point something percentage is in our annual reset. So within a quarter, this entire thing will be passed on from 12th of October onwards.
Abhijit Tibrewal: Got it. And sir, the last question that I had is, you have not changed your guidance on disbursements and loan growth for this year. And sir, what I am able to see on slide number 20 for us, there are still about 90, 95 branches which will undergo the tech upgradation or which will migrate to the new tech platform, maybe this month of October.
Suresh Iyer: Yes.
Abhijit Tibrewal: So sir, in October, they have actually already been
Suresh Iyer: They have already. Yeah, yeah. First, effective first, they have already moved to the new system.
Abhijit Tibrewal: Okay. So sir, in that case, these 90, 95 branches will exhibit some weakness in disbursements in October.
Suresh Iyer: In October. Right.
Abhijit Tibrewal: So then sir-
Suresh Iyer: Notwithstanding that, we are saying we will be able to push the disbursements. We are targeting for about INR 3,500 crore in this quarter and the balance in the next quarter. The thing is that, along with this, now that the tech implementation is over, one is, we have to be clear, we had about 129 people who were deployed in this IT transformation, either in for our testing part of it or for the training part of it, or from the branch component, this thing for the train the trainer module and all. Slowly, we have also started taking out some. Those people are also going back to the branches and moving back to the once they are branches or to the respective department, as and when those Because now the implementation is complete.
Suresh Iyer: Now we basically require people only to maintain and maybe for a little more longer, for maybe 1 or 2 months for the support. Otherwise, basically, the testing component, the implementation, all those things are already over. Those teams are going back to support the branches. As I mentioned earlier, there are two things. One is, this sales team will get a support and we will be able to push our sales team strength from 90 to around 150. In fact, by December, definitely it will cross 120 because already we have that many people who are lined up to move back into sales and all. Some more who will be joining and all.
Suresh Iyer: Basically, that will be one support, plus these 25 branches which we have opened will also support in terms of disbursement because they have all been opened in the month of mostly August and September. So, those branches will start delivering additional business which is not part of the H1 business. Basically, that's what it is. We have also started taking some steps in terms of some contest, some kind of support, and some decisions in terms of some fees and all those things, so that we can start pushing disbursements and cover up for the Q2 impact.
Abhijit Tibrewal: Got it, sir. That is all from my side, and I wish you and your team the very best.
Suresh Iyer: Thank you. Thank you.
Nidhesh Jain: Thank you. We will take the next question from Mr. Shreepal Doshi. Please unmute yourself.
Shreepal Doshi: Hi. Good afternoon, sir. Thank you for the opportunity. My question was again on the pricing side. If there is a 25 basis point of rate cut, how much time does it typically take for the same to get incorporated in the PLR? While you said to the earlier participant that on 8 October, you revised the rate, sorry, 7 October, there was a revision on the cost of fund side, at least the 25 basis point increase on the 65% of our borrowing. Typically on the mathematic, if you look at it, how much time does it take for any rate hike, any repo rate change to get implemented or incorporated in the PLR?
Suresh Iyer: See, as I mentioned earlier, 62% or 65% of our borrowings on the liability side, our borrowings are linked to this, but not all of them are linked to repo. There are about 75% or 80% which is linked to repo, the remaining is linked to T-bill. On the repo-linked borrowings, the impact will be from 1 November. For the T-bill-linked borrowings, depending on when the quarter reset happens, that date it will start impacting. In terms of our asset side, from 12 October onwards, as and when the three quarters you have, so you have about 99% you say.
Suresh Iyer: So 33% of the book will get repriced on 1 November, 33% you can say on a standard basis, not to the exact 33%. But roughly I am saying one-third, one-third, one-third will happen on 1 November, 1 December, 1 January. In the meantime, if say for example, something else, further addition increase in repo rate happens in December, then maybe the ones which will happen in January will have a combined impact in January.
Shreepal Doshi: Okay. Got it. The remaining 13% of the portfolio which is still an annual reset, when will that transition to quarterly reset?
Suresh Iyer: See, basically, we are making attempts to convert those customers also into quarterly reset. Last time when we had sent this communication, many customers either were not able to, or had shown the reluctance to move to quarterly reset. So probably this may not reduce further. Even if it does, it will be a very slow change. Over a period now, since all incremental loans are only under quarterly reset, so basically, over a period, this percentage, anyway, it will start coming down and the impact will be lower.
Suresh Iyer: Otherwise, by and large, these customers that have either opted not to go for a quarterly reset or have We still have, of course, some impact that customers we could not contact or we are still to push a little bit. That we will try to do. So this will now slowly be a little slower impact. And obviously, smart customers will now not want to move to a quarterly reset because the rates are on an increasing curve. Basically, the smart ones may not want to do it.
Shreepal Doshi: Got it. The second question was on the PMAY 2.0. How is the scale-up of that? How are you seeing that benefiting us? Are you seeing, is it relatively, let's say, slow versus the earlier schemes?
Suresh Iyer: It is a little slow. Not to the extent that we have seen in PMAY-1 or CLSS-1. The impact is much less. But recently, the government did have a meeting to review and has taken a lot of our suggestions. I think the process, which is a little longer, much longer compared to what it was in CLSS-1, that process, of course, may see some improvements. We have some cases, but definitely whatever we have, even if we are able to convert it will be much lower than what we saw in CLSS-1. That definitely is there because again, it comes down to the locations where we are operating.
Suresh Iyer: The states where now there is a shortfall and where first-time home buyers will be wanting to go for it, those states who have not opted for PMAY or for whom this is the first housing loan in the family. For those kind of customers which are in the states which are there, we have a smaller presence also. The CLSS-1 was very successful in states like Maharashtra, Gujarat, Karnataka, Tamil Nadu, which are already well-developed states and all. But now the shortfall has considerably reduced over here. Now the shortfall is more in other states like Odisha, Bengal, Bihar, UP, and all. Obviously, those states, our presence is less. At least in UP, we have increased our presence now quite a bit. We have added about 12 branches in the last year in UP. We are trying to see if we can take advantage of that.
Shreepal Doshi: Got it. Thank you so much, sir, for answering all my questions. Good luck for the next quarter.
Suresh Iyer: Thank you.
Nidhesh Jain: We will take the next question from Sonal Minhas. Sonal Minhas, please unmute yourself.
Sonal Minhas: Hi, this is Sonal Minhas, sir. Thanks for taking my question. I hope I am audible.
Suresh Iyer: Yeah, very much audible. Please go ahead.
Sonal Minhas: Sure. Sir, if I understand the data given in the deck correctly, there was a potential shortfall of INR 357 crores of loans being dispersed because of the IT impact of the software. If you add that back basically to the numbers that have been given, we have been growing at roughly 2% quarter on quarter net of prepayment and amortization. Now, for the H2, we have given a target of roughly 5% quarter on quarter growth. First question is, how sure are we with hitting these numbers? Because even despite that, I think if you compare the numbers to last year and this year itself, we have been growing at 2% to 3% quarter on quarter. So, what changes that gives you this confidence? That is the first part of the question. First question.
Suresh Iyer: Sure. See, if you look at it that way, last year we had given that when we had given our INR 10,500 crore target, we had said we will do about INR 2,000, INR 2,500, INR 3,000, and INR 3,500. So that is how we had planned our business for the last year. For this year also, in the beginning, we said we will do INR 2,500, INR 3,000, INR 3,500, and INR 4,000. That is how the plan for the four quarters was prepared. Now, in the Q1, against INR 2,500, we have done INR 2,600. So obviously, there has been a INR 100 crore extra we have done, which is a bumper in Q2. This quarter, we have had a shortfall, but for Q3, we are sticking to the same INR 3,500, which anyway we had planned.
Suresh Iyer: So basically, if you look at it from that point of view, what we are targeting is about additional 500 or something odd if we are doing every quarter more than what we did in the previous corresponding quarter. That is how it is planned. So INR 3,500 is still in line with what we had when we began the year also. The shortfall of that 400 odd crores that now is there, we will now have to cover up in the Q4, which we will build up during the year. So that is the plan basically.
Sonal Minhas: Got it, sir. Just from our understanding, these proposals during this period where we could not lend because of slowness or the implementation in the IT system, those proposals are in the system, or you have lost those proposals to, let us say, competition, or they have just figured off? There is a pipeline basically is what I am trying to get to, right? Just if you could explain that.
Suresh Iyer: Sure. See, there are two things. One is sanctioned but not disbursed. Second is the undisbursed portion of partly disbursed cases, which of course will be the same because whatever you disburse based on that only as per stage of construction. Basically, it is the sanctioned, not disbursed, and there are files in the hand which we could not sanction because of this process change. That is the thing. Yes, there is a definite, at least in the pipeline, which is not being booked or which has not even been entered. Yes, we do not have the visibility right now. But even if you look at the numbers, I guess if I recollect, it is about INR 118 crores is the extra amount that we are carrying in terms of the sanctioned but not disbursed as compared to the previous quarter.
Suresh Iyer: There is about INR 100, INR 150, which is already locked in, sanctioned, and kept on hand. Then in the process, of course, there are some more, which partly are the old system which will have to be brought into the new system and all. That is again something which is additional to that. There is some business. But having said that, of course, when it comes to the customer, it is not there. I am sure some of the loans, or at least a decent proportion of the loans, would also have gone off the system because the customer eventually wants the money. If you are not able to give it, they would have gone elsewhere also. Some of the business is definitely lost, but some of it is already booked in, and we are sitting on that, which will help us in the coming quarter.
Sonal Minhas: Got it, sir. Sir, just the second part of the question, given that you are sure about your guidance this particular year, does a target of 15% next year seem to be something which is conservative? I am not questioning the target, but I am just trying to understand bottoms up, which are the pockets where you think you can actually fire more? Because you, in which way, is adding 27 branches this particular year. You will be adding more branches next year. Is this a ballpark? If yes, then what is the subjective guidance behind that?
Suresh Iyer: Okay. See, the 15% is the AUM growth that we are talking about. It is also an outcome of the rundown that is there. What we have in our control is the amount of disbursement that we can do. Against the INR 10,500 crore, we have targeted INR 13,000 crore this year, which is a 20% plus disbursement growth. Next year, when we are saying INR 13,000 crore to INR 16,000 crore, that again is almost 22% growth in disbursements compared to the FY27.
Suresh Iyer: Basically, disbursements will grow, but the AUMs will slowly inch up as we go ahead. It will come with a lag. The 15%, 15.5% or whatever is more of a net income, assuming that the prepayments would remain the same or slightly elevated. Even if we are able to reduce on the prepayments because the rate, the gap is reducing, then in fact, it is even better. This could improve or-
Sonal Minhas: It could be even higher.
Suresh Iyer: It could be, exactly. Basically, that 15% is more of a resultant figure. What we have in our control is the disbursements, where we are saying we will grow at 22% next year.
Sonal Minhas: Got it, sir. I will call back if I have some more questions, sir. Thank you.
Suresh Iyer: Thank you.
Nidhesh Jain: We will take the next question from Mr. Raghav Garg. Please unmute yourself. Yeah, Mr. Raghav Garg, please go ahead.
Raghav Garg: Am I audible?
Suresh Iyer: Yes, yes. Now you are audible, Raghav.
Raghav Garg: Okay, thanks. Sir, I have two questions. One, you have given some data on sourcing through new and old branches, old branches being the ones that were opened before March 2023. What I understand is that the disbursement productivity in the new branches is about 50% to 60% lower versus the older ones. What I want to understand is that how many years does it take for a new branch to get to the same productivity level as an old branch? Is it 1 year, 2 years, 3 years? What is the typical timeline that you observed? That is my first question.
Suresh Iyer: See, in terms of the productivity, there are, I mean, productivity, of course, I think it will take about 18, normally we say 18 to 24 months. Some do it much earlier. On an average, this is what it works out to reach that kind of a level of productivity or whatever. We generally maintain our productivity of five cases per staff per month. Keeping that in mind, to reach that kind of a productivity, it is about 18 months is what you can say. However, the other thing is that we have a category of branches. There are small branches where we only have three people staff. Once it crosses a threshold of the particular book size, then it can move to a medium branch, then a large branch, then a very large branch, and so on.
Suresh Iyer: Basically, along with the movement from small to medium, the staff size increases from three to four. With a productivity of five, three-man branch will do 15, a four-man branch, then the number obviously increases to 20. It is not just a simple increase. At that time, the jump is also because the staff also we provide more. Basically, we also have that kind of a movement which will help, where more people get added because the branch is shifted from one level to the next level. But productivity, to answer your question, yes, 18 months roughly you can say on a blended basis. Some faster, some a little slower, some take more time. Blended about 18 months to reach a five of productivity.
Raghav Garg: If I look at 2026 numbers, then the newer branches were disbursing about INR 20 crore of business annually. That should get to about INR 40 crore, INR 45 crore in about a year and a half time. Thank you. That is reasonable to expect?
Suresh Iyer: So, INR 100 crore is when they cross the target of INR 100 crore, that is when they become a medium branch. So, that is what it is. Up to below INR 100 crore AUM or book size, we keep it as a small branch. But yes, the productivity will increase. The branches which are opened in 2026, by end of 2027 is when they will reach that five cases per staff per month or 15 cases in a branch kind of a thing.
Raghav Garg: Understood. Sir, my second question is that, I think all of us understand that disbursements have been impacted because of the tech upgrade. But just before this, if you can throw some color on maybe the inquiry levels, were they up this quarter versus same quarter last year? Something that you were referring to in the previous question about the pipeline that was there in your hands. Can you give us some flavor on how was the pipeline looking like, whether that was better than last year or not? Because if it was, then eventually it will get converted into disbursements in the subsequent quarters, right?
Suresh Iyer: Okay. I will just go back to the sales slide number 20. If you see the first column number 3 talks about the average business in the first quarter of the year. Now, if you see the branches which went live in August, the August disbursement was more than the first quarter average business in the month of July. In July, they had a better inquiry, but because that was implemented in August, there was that dip. Same way, if you look at the branches which went live in the month of September, you will see the July business as well as the August business was more than what was the average of the first quarter. So that is.
Suresh Iyer: Now, same way, if you look at the branch which has not gone live at all, which went live in the month of October or 1 October, the 435 was the average. The entire quarter, if you look at it, they have done actually more than that. So there was an improvement if had everything been the way without any implementation, the business would have been close to INR 3,000 crore only because the month after month, the business would have improved. So I think that should answer your query.
Suresh Iyer: The same slide, if you look at the fourth last, second last column of October, that will give you an idea that the business was definitely there. The business where no impact happened, where no implementation happened, business was inching up and moving up. So there was a demand, there was no problem. The logins also were there. That is why the numbers have also gone up. So the 435, the average would have been around 450 to 455 if the same trend that has continued, if you see. From the Q1, 435, it is 450 average.
Raghav Garg: Thanks a lot for those answers. Thank you.
Suresh Iyer: Yeah.
Nidhesh Jain: We will take the last question from Mr. Rajiv Mehta. Mr. Rajiv Mehta, please unmute.
Rajiv Mehta: Yeah. Hi. Most questions answered, but sir, firstly some queries on the business side. When you look at, do you expect that there will be a much sharper movement towards higher ticket home loan in your quest to cover up the business and scale up the business to your desired level? Would one see more sharper movement towards higher ticket home loans and maybe even say non-home loans like LAP or the other loans? In your slide of your disbursement mix, you are also now mentioning digital sourcing coming in and becoming 10% by Q4 FY28, which is not there right now.
Rajiv Mehta: What is this? What do you mean by digital sourcing, and does the new tech stack enable you to scale this channel in a meaningful way? For the sales team contribution in disbursement, currently it is 10%, 11%. I mean, it is not the right quarter to look at, but you are projecting that it is going to become 20% in the next four, five quarters. What is the plan to scale up or to add people on the sales side?
Suresh Iyer: Sure. Your first question, higher ticket business. See, over a period, if you look at it, INR 30 lakh plus kind of business in terms of the incremental disbursement has also slightly gone up, and even in terms of AUM has gone up. Yes, there is a little bit of high ticket business or the INR 30 lakh plus business which is coming in, and that is also because the construction cost and everything has also increased. Plus, of course, the fact that Gram Panchayat and all those things in Karnataka and even in case of Telangana actually, there are issues. Basically, we are doing more business in the corporation areas and the BDA and all those things, which there the property prices are a little on the higher than what it was in the Gram Panchayat area. That is yes.
Suresh Iyer: But at the same time, if you see, I think the message from NHB is that the AHF funding is going to increase. We are also, in fact, looking at doing some, pushing some business in the affordable AHF category because we also have to have the loans for availing that refinance from NHB, and we are definitely looking that as the direction which the government is having. We are also going to look at it. While yes, the number of INR 30 lakh plus loans will increase, I think we will also have INR 15 lakh to INR 25 lakh segment also, which is under AHF, which will also go up. Okay, that is the first part because we are looking at, as I mentioned, some steps that we are taking. We are looking at this segment also because government is looking at the AHF to be pushed.
Suresh Iyer: The second in terms of digital, yes, the new package enables us to have customer journeys, fully digital journeys, online applications, CRM package, which will be able to be onboarded, all those included and all. Yes, digital will be something which will add in terms of the channel available to us. That will slowly start inching up. The third is in terms of sales. You are saying like rate is still 11%. How are we projecting a 20%? Today, if you look at it, we are targeting 90 people out there. We are targeting to increase it to about 150 people. We are looking at about INR 1,500 crore this year, INR 1,500 to 1,600 crore coming from the sales team. Already in the H1, with the same lower staff strength also, they have contributed INR 560 crore.
Suresh Iyer: With additional 60, 70 people, and the H2 being with the entire IT transformation behind us, I think the remaining INR 1,000 crore will come. Next year, when we are looking at it, we are looking at increasing this strength from 150 to 250. Next year, definitely, we should be having more than INR 2,500 crore of the business coming from this AC. If you are looking at INR 16,000 crore, 20% will be INR 3,200 crore.
Suresh Iyer: We are definitely looking at INR 2,500 plus crore of business coming from it. 20% is what we are aiming at. But definitely, it will be somewhere there because we are looking at a much more number of people, the feet on street, who will be doing business from that. Once we increase it from 150 to 250 people next year, obviously, the numbers will be even higher. That's how we are looking at it contributing.
Rajiv Mehta: Sir, my second part of my question is on liabilities. If you can first you repeat the NHB sanction that you have received, what is the amount and what is the pricing? Second is on NCDs. I mean, you haven't spoken about the risk on liabilities, repricing happening because of NCDs, the newer NCDs for which you will have to pay a higher rate maybe in the future. When I look at your bank loan mix, except for the repo loans, there are also special rate loans. When you say special rate loans, and that's a significant part.
Suresh Iyer: Yes, sir.
Rajiv Mehta: Is there a risk that those special rate loans can actually get repriced at a much higher level or the revision in terms of rates can be much sharper than just the repo rate loans?
Suresh Iyer: See, first question, NHB refinance, we have got INR 1,350 crores of refinance right now. The rate, obviously, it is a mix. Last year, when we got the INR 1,500 crores of refinance, which we drew last year, we had INR 400 crores under AHF and INR 1,100 crores under regular refinance. The blended cost for us came to somewhere around 6.6% to 6.7%. Between that range, we got the cost. This time, the government, as the NHB has indicated that here, the proportion of AHF could be higher. In which case, even the impact of the rate hike will not be impacted because even if the regular refinance rate is slightly higher, the AHF, which is a fixed component, will be at larger proportion. So effectively, the cost may still be 6.6% to 6.7% only. Right now, we have got INR 1,350 crores.
Suresh Iyer: There is a possibility now that with the NHB looking at increasing the size of the refinance, you may in fact be able to apply for an additional refinance limit also during the current year. So that is what we are exploring. But as of now, it is INR 1,350, and the cost is most likely between 6.6% to 6.7%. The second thing is, regarding the liabilities, special rate, basically, these are T-bill linked. Yes, there is a possibility that depending on that, at the time of reset, whatever is there, it may slightly vary here and there. But by and large, the market prices it accordingly only. So it should not be a major impact on that. Second, I think you also asked about NCDs.
Suresh Iyer: NCDs actually, for the current year, while we were getting around, even after this 25 basis increase, we are getting bank term loans at 7.65%. I think today, if you go, maybe it might be 8.3% or 8.35% for an NCD. Having said that, today, we are already complying with the regulatory guidelines on the 25% borrowing through the market for this financial year. We are not having any compulsion to go to the market and raise at 8.3%.
Suresh Iyer: Of course, it is all a matter of how you read the interest rates and when you borrow and the timing and the plan that you have. As of the moment, at least we are not under a compulsion to go and raise money from the NCD market because we are already complying with our 25% requirement. We will plan accordingly and see if there is a good opportunity at a good time, good price, we will then probably go for it.
Abhishek Mishra: Refinance won't be happening in May. Refinance. This is also NCD. That already happened in May only.
Suresh Iyer: No, he did not want that.
Rajiv Mehta: Okay, sir. Thank you so much for answering all my questions and best of luck.
Suresh Iyer: Yeah. Yeah. Thank you. Thank you, Amit.
Nidhesh Jain: So that was the last question for the day. I will just hand over the call to the management for the closing comments.
Suresh Iyer: Yes. Thank you. Thank you to everyone for taking time out and joining this earnings call. I hope we have answered all the queries. I think it has been a quarter where it has been slightly impacted because of the IT transformation, but I think it is in the long-term perspective of the company. I think this IT transformation was very, very necessary and also is going to drive the business in the coming quarters, in the coming years. So I think this was very well necessary and it will bring in long-term benefits for the company. We are still confident that in the next 2 quarters, we will cover up for the shortfall in the disbursements, and we have already initiated steps also in that regard. In a nutshell, I think the thing would be to protect the NIM and the spread.
Suresh Iyer: And at the same time, we will also push for growth. We will be looking at a 20% plus growth in terms of the disbursement, which consequently should become a 13%, 14% AUM growth this year and a 15% plus AUM growth in the next year. So that is what is the attempt by the management. Once again, thank you to all of you for joining this earnings call. And thank you to Investec also, Nidhesh's team for organizing this. So back to you, Nidhesh.
Operator: Hi, sir. Thank you very much. Thank you so much, sir. We would request all the participants that you may exit this call. Thank you for joining today.
Suresh Iyer: Yeah, thank you.
