Operator: Ladies and gentlemen, good day, and welcome to Bajaj Housing Finance Limited Q2 FY 2027 Earnings Conference Call hosted by JM Financial Institutional Securities Limited. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ajit Kumar from JM Financial Institutional Securities Limited. Thank you, and over to you, Mr. Kumar.
Ajit Kumar: Thank you, Nirav. Good evening, everyone. Welcome to the Q2 FY 2027 Earnings Conference Call of Bajaj Housing Finance. I would like to thank the management of Bajaj Housing Finance for giving us this opportunity to host the call. From the management team today, we have Mr. Atul Jain, Managing Director, Mr. Gaurav Kalani, Chief Financial Officer, and the entire senior management team. We will have opening comments from the management team, post which we will open the floor for Q&A. With that, I will now hand over the call to Mr. Atul Jain for his opening remarks. Over to you, sir.
Atul Jain: Thank you, Ajit and JM team for hosting us. A very good evening and welcome to the BHFL Q2 Earning Call to all. I have the entire senior management team members with me. We have uploaded investor presentation on our website and stock exchanges. I hope you got a chance to go through the same. I will focus on key updates from the same presentation for the quarter, which should take around 10 to 12 minutes, and then we will open the forum for the Q&A. Beginning, I am on panel number three on the presentation. Last quarter witnessed two significant milestones for the company. We crossed a landmark INR 1.5 lakh crore AUM, driven by strong and diversified growth. Along with that, Sambhav loans crossed monthly disbursement run rate of INR 500 crore during the quarter. Overall good quarter across growth, asset quality and profitability.
Atul Jain: Disbursement increased by 25% on YoY basis, and AUM growth also was 25% on YoY basis. Add growth was 18% year-on-year to INR 980 crore in Q2, while ROA was 2.2% and ROE improved to 12.7%. Operating efficiency continues to improve with Opex to NPA ratio at 19.1% as against 19.7%, which was in Q2 last year. Asset quality remains stable with GNPA of 29 bps and NNPA of 12 bps, same in line with last quarter. And operational networks stood at 223 branches across 182 locations. Capital adequacy was 21.24%, and Principal Business Criteria stood at 60.49% as of 30 September 2026, against the 60% regulatory criteria. I am moving to the next panel, which are quarterly financial indicators.
Atul Jain: AUM total stood at INR 1.58 lakh crore as of 30 September, and a quarterly AUM addition was close to INR 8,580 crore this quarter, against INR 6,329 crore in Q2 of last year. Product growth across anchor products was good. Home Loans AUM improved to 22% growth in Q2 against 20% in last quarter, while LAP growth was also strong at 39% against 41% growth in Q1. LRD grew 26% and DF grew 13% on year-on-year basis. AUM mix remained well diversified, with a higher Home Loan composition at 53.9%. Disbursement momentum was good during the last quarter with 25% growth, moving from INR 15,900 crore to INR 19,900 crore in Q2 FY27. I am moving to panel number 5. The cost of funds reduced by 17 bps on sequential basis from 7.2% in Q1 to close to 7% in Q2 FY27.
Atul Jain: It was mainly due to conversion of fixed rate sensitivities to floating rate instrument. We always used to follow this strategy, and we had accelerated that strategy in last Q2. Borrowing mix continued to have a higher money market mix at 56%, followed by bank lines at 35% and NHB at 9%. Total gross spreads improved by 7 bps because of driven largely by cost moderation of 17 bps. Thereby it was able to offset 10 bps portfolio yield reduction and NIM moderated slightly by 10 bps sequentially to 3.7% to Q2 FY27. And Opex to NPA, as already called out, improved 57 bps from 19.7% in Q2 FY26 to 19.1% in Q2 FY27. Moving to the next panel. Asset quality was stable during the quarter with GNPA flat and sequential basis at 29 bps and NNPA at 12 bps.
Atul Jain: Credit cost overall moderated by 6 bps on year-on-year basis to 10 bps in Q2 FY27 against 16 bps in Q2 FY26. Thereby, PAT increased by 18% year-on-year to INR 757 crore from INR 643 crore in the same quarter last year. Annualized ROA 2.2% in the current quarter. It was 2.3% in the last year YOY in Q2 FY26, while ROE improved from 12.2% in last year to 12.7% in the current year Q2. Now I will go to panel number 21. Most of the metrics in this panel have already been covered on the previous panel. Net NPA growth was 15%, if I have to just call out separately what has not been called out on a YOY basis from INR 1,090 crore to INR 1,254 crore, and PBT at 18%, INR 980 crore.
Atul Jain: Coming to half yearly performance. NPA grew 16% to INR 2,429 crore in H1, while Opex growth was 10% on YOY basis to INR 470 crore. Both PBT and PAT growth was 20% to INR 1,908 and INR 1,472 crore respectively for H1 of the year. Opex to NII improved from 20.4% in H1 FY26 to 19.3% in H1 FY27, and credit cost was 8 bps in H1 FY27. ROA for the half year also stood at 2.2% and ROE at 12.6% in H1 FY27. I will move to panel number 23. As already called out, portfolio yield moderated by 10 bps sequentially from 8.9% in Q1 to 8.8% in Q2, while cost of funds dropped from 7.2% to 7% in Q2.
Atul Jain: Overall gross spread inched up by 7 bps on sequential basis to 1.8% in Q2 against 1.7% in Q1. I have already talked about other metrics which are depicted on this panel. I will come to the next panel for treasury. The borrowing mix continues to be diversified, but with higher composition of NCDs at 50.8%, which has improved 430 bps sequentially, which has offset the moderation of 280 bps in bank borrowing, 90 bps in commercial paper and 60 bps in NHB, as well overall refinancing mix for the company. Coming to panel number 29. AUM mix continue to remain diversified with sequential increment in LRD by 90 bps against moderation of 70 bps in developer finance and 20 bps in Home Loans.
Atul Jain: Now on panel number 31, which is covering Sambhav Housing updates. Business crossed a critical milestone of INR 500 crore monthly disbursement rendered in the last quarter, with quarterly improvement in disbursement growth, and now Sambhav constitutes 16% of overall Home Loan originations in Q2. It is progressing well across all metrics with B2C team deepening its penetration and new sourcing channels for B2B and B2C are shaping well. ATS remains stable at INR 28 lakh and customer having bureau score greater than 750 increased to 65%. Salaried customers continue to have a higher mix of 66% even in this business. Moving to panel 36, which is on asset quality.
Atul Jain: Stage 1 assets improved marginally by 1 bp sequentially from 99.39 to 99.40, with similar reduction in Stage 2 from 32 bps to 31 bps, while GNPA was constant at 29 bps. Provisioning coverage ratio continue to remain healthy, with Stage 3 coverage at close to 60% at 59.8%. Moving to the next panel, which is the last panel I will cover before we open the forum for questions. Product level GNPA. Home Loan stood at 36 bps in Q2 against 34 bps in Q1, marginally up. GNPA moderated by 1 bps sequentially to 61 bps. LRD GNPA up 2 bps due to movement of one retail LRD account to NPA during the quarter, which was in Stage 2 last quarter, which moved to Stage 3, excluding which portfolio continued to remain strong.
Atul Jain: Developer finance GNPA was flat at 12 bps. Overall, NNPA flat at 12 bps on sequential basis with 1 bps increment in Home Loans to 16 bps, 4 bps reduction in LAP to 21 bps and LRD NNPA at 1 bps and DF NNPA moderation of 3 bps sequentially. That is all from my end on the updates from the quarter. Happy to take questions. Over to you, Achin.
Operator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and 1 to ask a question. First question is from the line of Kunal Shah from Citi. Please go ahead.
Kunal Shah: Yeah. Hi. Thanks for taking the question. Couple of questions. One is on developer finance book. Anything to read into it? Was it like a higher repayments which have happened during the quarter, or we have seen the slowdown in the disbursal momentum itself out there? Because after a long, we had seen the decline in the portfolio on a sequential basis, and what would be the strategy out there on the developer book? The second question is on overall margin trajectory, given that now there is lot of liquidity with the banks as well. Within the prime side, have we started to see active competition with respect to the rates? Would there be more pressure given that repo rate is also being hiked?
Kunal Shah: We will see the pressure on the cost of funds, while maybe on the yields, would there be a limited pricing power to entirely pass it on? Would the margin pressure be relatively higher than what we had anticipated earlier? Yeah. These are the two questions.
Atul Jain: Thanks, Kunal. Just to answer the first question was on the DF book. It was much higher repayments during the quarter, coupled with slower disbursements, both. But larger part was higher repayment, which is a project-led cash flow. So cash flow momentum was significantly higher. That is what resulted to the book to there. Our strategy remains to grow the book. It is not a strategic call or a conscious call from the company to reduce the growth in this portfolio. In fact, in the first 6 months of the year, our sanctions in this business have increased significantly compared to the last year's same first half. But in this business, sanctions translate to disbursements and the AUM growth at a lag basis. Going forward, you should see the business composition increasing. We want to grow this business at a rate of around 15% to 17% of the portfolio.
Atul Jain: That has always been our stated stance, and we should see that stance back sooner than later. That's on the DF.
Kunal Shah: Sorry, just in terms of lower disbursements, so what was it like tightening of the guardrails or something? Or maybe it was just in the normal course of business.
Atul Jain: Normal course. I called out specifically there was no conscious strategy at the company end. There's no conscious strategy of the company end. In fact, we remain committed to, at a strategic level, to grow this business significantly at a higher pace than the company pace. It was just a higher attrition coupled with lower disbursement, which has resulted into 13%. We hope that we should be back to the growth trajectory very well in Q3 and Q4 in this business. Because it remains our largest funnel for Home Loan business as well as it remains our largest profit driver. So there is no strategy or a cautious stance at the company end. On the margin trajectory, things are yet to play out. The repo hike rightfully will result into pressure in terms of cost of fund going up.
Atul Jain: How much translation happens in the field from the yield perspective on the acquisition pricing, we are yet to see that because the repo hike has happened 7, 8 days back. Generally, by 20th or 25th of the month is when you, after 15 days of the repo hike, when you start seeing the real acquisition pricing movement by the other leading prime player, which is the banks in this case, how they pass on. If the pass on through the acquisition pricing is lower, we may see higher BT pressure, which will impact AUM growth because that is what happened in the last scenario of the interest rate movement. We cannot give a firm view as of today because we have to see the market response to the repo rate hike.
Atul Jain: The banks increasing the MCLR very fast after the repo hike gives us an indicator saying that probably there will be a movement in the acquisition price as well in the Home Loan as well because we have seen leading PSU banks have increased the MCLR very fast in terms of as soon as the repo hike was there. It gives us an indicator saying that where they will be heading, but we have to wait and watch because of a liquidity, what is there in the system for a fresh acquisition. That they have to decide. We will get to know that in next 5, 7 days, Kunal, in the market. If the acquisition pricing pass-through is not there, it can result into higher attrition pressure on the prime side of the book.
Atul Jain: To offset that, what we have always stated or had been stating for last 4, 5 quarter, we will continue to expand our presence in the near-prime. We will accelerate that if we see in next 2, 3 months more pricing pressure coming in the prime. To offset and maintain the growth stance, we will accelerate more on the near-prime side so as to we can continue to balance.
Kunal Shah: As we swap from fixed rate to floating rate, is it like larger part of the optimization already done. How sustainable would this 7% cost of funds be. Otherwise, maybe I think now since we have swapped it to floating and incrementally repo rate are also getting high. Obviously cost of funds would definitely inch up from the current level.
Atul Jain: Yes. Largely we are optimized balance sheet with interest rate to liabilities, asset to liability floating almost completely matched. The flow-through of a repo hike to the cost of funds should be to the extent of close to 80% to 82% of the hikes which will happen, and the similar flow-through will happen in the portfolio as far as it is concerned. There will not be any margin compression because of that. That margin compression can be only on the acquisition side. If the acquisition pricing doesn't move up in line with the repo hikes or the repo hike there. As far as the portfolio is concerned, portfolio will move in line with the cost of funds. Portfolio rate hikes will move in line with the cost of funds movement.
Kunal Shah: Okay. Thanks. That clarifies. All the best for the future quarters.
Atul Jain: Thanks, Kunal.
Operator: Thank you. Next question is from line of Viral Shah from IIFL Capital Services. Please go ahead.
Viral Shah: Yeah. Hi, Atul and Gaurav. Thanks for the opportunity. I had two questions. First is with regards to the Insurance Commission. I understand, of course, this is a draft. What I wanted to understand is, of course, first, what do you think could be, is there any scope for, say, the representation bearing some fruits? More importantly, generally what we hear is that most of the peers talk about being able to offset this via, say, processing fees or something else. That is also a function of the competitive pressure. Do you anticipate such kind of, say, offsets being available to BHFL? That is my first question. The second piece is, Atul, on the Sambhav segment piece. I know you mentioned that in the event of, say, competitive pressures being more elevated, you anyway are scaling up the Sambhav piece.
Viral Shah: Over here, as I understand, we have a novel, say, business model, wherein we have this more of a hub-and-spoke model, unlike what we have seen for some of the peers. How has the experience been? Do you anticipate or, say, are you geared up to do a rapid scale-up of this book? If so, what is the kind of targets we can look at, say, over the medium term?
Atul Jain: Thanks, Viral. So two questions you have asked. First is on the Insurance Commission. I will not like to hazard a guess on how the regulator will respond on the representations that have been made by the various industry players on the commission. If we have to assume that the final guidelines are the same as the draft guidelines or with a minor modification, the impact on the income would be there. That is visible because that is visible from the numbers as well, which is the cross-sell income in the financial. In Sambhav segment, some offset will happen through the higher processing fees and a bit of a higher margin because that is what the industry will pass through, that is what we will pass through.
Atul Jain: In the Prime segment, some impact can be offset with better efficiencies, better productivity, some a bit of a higher fee, but not fully. However, I will call out, Viral, here is that the higher fee or the higher margin will play in a bit of a longer term if the guidelines are there in the shorter run, which is an Ind AS accounting because fees does not get accounted for upfront unlike a cross-sell income. The impact on the short-term profitability will be to the extent of there because we will offset the P&L impact at an iGAAP level because we see P&L internally both iGAAP and Ind AS, while the regulatory accounts or the financial accounts are only Ind AS. iGAAP, some bit of offset is possible.
Atul Jain: Ind AS, full offset, we will have to see how does the industry move. But if the insurance commissions are the way they are, for Ind AS accounting for short term for 1 year, I do not think it is feasible to offset that impact. What we are seeing is that if we have to call out specifically, there is a 10%, 11% of the PBT which is generated from the cross-sell income, which is the income in conversation. I think 4%, 5% can be offset by various methods, whether higher efficiencies or there. Balance 6%, 7% impact on the PBT is likely to be there, which will also have an impact on Opex to NTI in the next year because if your NTI goes down, the Opex to NTI metric, what we had been always calling out that we bring it down by 1% every year.
Atul Jain: We may have a flattish Opex to NTI metric next year assuming these guidelines come. I think that is more than required detailing I have given or you asked for in this.
Viral Shah: No, it is quite detailed.
Atul Jain: Okay.
Viral Shah: Thank you.
Atul Jain: Second question here was on Sambhav segment. We follow a centralized underwriting model for Sambhav and to a certain extent, regionalized operation center. It has worked very well for us. Our confidence on the business is growing by the day. We have been looking to accelerate. In fact, that is the path what we have chosen and we had already in the year beginning had said that by year-end, we should be at INR 600 crore monthly disbursal run rate. This is current trend. I do not see a reason that why we should not be touching or crossing that INR 600 crore run rate. As far as accelerating is concerned, Viral, we would like to accelerate it much more. But this business, I think we are already accelerating it in a reasonably fast pace. We will continue to grow this.
Atul Jain: We have said in the medium next year, we will take it to around 20% of the Home Loan mix. In a longer term, longer term means I am saying 3 years or 3 and a half year, 4 years, we will take it to 30% of our Home Loan mix. The growth will continue to be there in the business for next 3, 4 years, significantly ahead of the Prime growth for us to keep on balancing the mix from a margin protection point.
Viral Shah: Right. Got it. Atul, one more question, if I may. Probably more so for Gaurav. With regards to the cost of fund side. I understand you did explain the entire four Ps and the outlook, but I just wanted to understand, given that in this the prior say the rate cut cycle, we have seen an inadequate transmission by the banks, right? I am specifically concentrating just on the bank piece. Do you anticipate in your negotiations, of course, this is something that you would be negotiating on the way up as well. Do you have some room to kind of negotiate on the spreads and extract that kind of benefit which otherwise was not passed through in this cycle on the way up?
Atul Jain: Viral, we largely borrow only on EBLR. The mix of MCLR borrowing is close to 1% or 2% only in our there. If I leave aside NHB refi because NHB refinance is on NHB PLR, which in any case is a mix of a, which is efficient funding always because of a mix of a portable, which is a fixed for a longer term and normal refinance, which is on a PLR. We do not have any mix of It is insignificant, 1% or 2%.
Gaurav Kalani: 2 and a half percent.
Atul Jain: 2.5% of our liabilities. The rest of our liabilities are always on EBLR. That is why I said close to 80% of the repo hike, we will see it transmitted through the CoF as the repo hike high. Because we are largely on the EBLR, that is why our cost of funds had been efficient always. We are largely on EBLR.
Viral Shah: Right. No, just on this piece, what I was referring to is the spread piece. Are you able to, say, negotiate the spread, say, lower on this way up rate hike?
Atul Jain: We will have to wait to see that if it is a one hike or a two hike or a three hike, four hike scenario. As the scenario evolves, I don't think there is any scope of negotiation on the first hike. Probably as the times, the negotiation scope also open ups from what is available in the money market on the upfront basis versus what your existing liabilities are priced at. Today, in last four, five days because of overall treasury market and overall money market, I think there is I will not call there a scope available right now basis this hike and basis the money market situation what is there post the policy for last seven, eight days. Vijay, am I right?
[Company Representative] (Bajaj Housing Finance): Yeah.
Atul Jain: Our treasurer is there, sir, just asking. But it will evolve. It is too early right now for us to say. If there is a scope available, if the fresh borrowings are at a lower price than the existing borrowing, there is always a scope for negotiation.
Viral Shah: Got it. Thanks very much, Atul. And all the very best.
Atul Jain: Thanks.
Operator: Thank you. Participant streaming plus star and one to ask the question. Next question is from the line of Subhranshu Mishra from PhillipCapital. Please go ahead.
Subhranshu Mishra: Hi, Atul. Hi, Gaurav. So two quick questions.
Operator: Subhranshu, sorry to interrupt you. Your voice is not coming very clear. Can you speak through the handset, please?
Subhranshu Mishra: Right. I am speaking from the handset. Can you hear me now?
Atul Jain: Yeah.
Operator: Much better. Thank you.
Subhranshu Mishra: Right. Hi, Atul. Hi, Gaurav. Two quick questions. The first one is around the PBC criteria. What percentage of our book now is Home Loans, pure Home Loans? What is the denominator that we use here? Is it just the AUM or are we adding the investments and cash as well in the denominator to calculate the PBC? Second is that in the ticket size that we operate, do we think that with banks being flushed with FCNR, we are going to see hyper competition? Of course, some of the banks have also increased the rates by 20 to 25 bps for the inaugural scores of Home Loans. How do we look at competition from PSU and private banks going forward in the ticket sizes that we operate in prime housing? Thanks. These are my two questions.
Atul Jain: Thanks, Subhranshu. As far as PBC criteria is concerned, we have called out in the presentation, we are at 60.49 as of 30 September and 50.6 if you have to take individual Home Loan. There are two criteria, 50 and 60. 50 being individual Home Loan and 60 being our housing assets. We are 50.6 in the individual Home Loans as a criteria. This is AR criteria. These are not AUM criteria. The regulatory criterias are inclusive of all investments, everything, all assets. Tangible assets. Tangible assets. The PBC update, what we provide in any investor call is as per the regulatory definition. It is not as per our definition. All the numbers, whenever, whatever are provided for PBC are in line with regulatory definition.
Atul Jain: IHL definition of numerator being in the way regulator combines the IHL without minus any VAS loan or any non-top up loan or minus that. The denominator is all total tangible assets of the company. That is your question number one. On the second side, like I called out just in the previous call as well, acquisition pricing pass-through from the public sector banks or the private sector banks, I think we will get to know more in the next 8 to 10 days. The repo hike has happened there. Normally people wait for each other to move high. One or two banks have moved by 15 to 20 bps is to my knowledge, 15 bps, 20 bps. But the broader movement in the market and also older sanctions exhaust when do they decide in an ALCO and when do they move.
Atul Jain: It will be by 24, 25, I think the picture will be clearer in the market. FCNR or no FCNR, I think public sector banks and private sector bank, we consider competitive pressure in pricing in prime as a feature, not as a novelty. Something would keep on happening for the pricing pressure in the prime to be extremely high, and that is why we started moving our focus on both while keep on growing prime, but grow Sambhav simultaneously for us to keep on competing in the prime, to keep on delivering the growth what we are delivering. Along with that, offsetting the margin pressure what keeps on coming from the prime. So 14% to 16% in Q1 to Q2, we have moved in competition of Sambhav. Like I was calling out in the previous question, I think by year-end, we should be close to 20%.
Atul Jain: Then over a medium-term, we will take it to 30% kind of a mix of Sambhav.
Subhranshu Mishra: Understood. Just one follow-up question. Basically 50.6% on the ARA, which would imply that we are lower than 50% for individual Home Loans if we take just pure AUM as the denominator. Is that a fair understanding?
Atul Jain: Can be. Because PBC is on.
Gaurav Kalani: Sir, AUM mix, Subhranshu, we are at 53.9.
Atul Jain: No, but that is Home Loan.
Gaurav Kalani: We got.
Atul Jain: Yeah, Subhranshu, you are right. Home loan AUM is 54%, but IHL AUM is not calculated. If I go by the larger mix of the assigned out assets are non IHL, which is the purpose of our assignment out because home loan growth during last 5, 6 quarters had been lagging the company growth. At an AUM level, it would not be 50% or slightly tagged below 50% because assignment out largely in last 6 quarters had been only non-home loan assets. But the measurement or the regulatory measurement is only AI. You are asking a question which is outside the regulatory definition. AUM assigned out is a strategy what we have always followed, and we had always called out to maintain PBC.
Subhranshu Mishra: Right. In this individual home loan, we used to call out what is top-up loans as well, right?
Atul Jain: No. Individual home loans, Subhranshu, as a regulatory definition, doesn't have anything other than money paid purely for buying a home.
Subhranshu Mishra: Understood.
Atul Jain: No top up, no fees, no VAS, nothing. That is why if I had to look at an AI level, home loans is 58%. At an AI level. But 58% relative to IHL of 50.6% because everything else is stripped out when the regulatory definition of IHL is applied.
Subhranshu Mishra: Understood. This was very helpful, Atul. Thank you so much, Gaurav. I will take the rest of the questions offline. Bye.
Atul Jain: Thanks so much.
Operator: Thank you. Participants, you may press star and 1 to ask a question. Next question is from the line of Gaurav Sharma from HSBC. Please go ahead.
Gaurav Sharma: Hello, am I audible?
Atul Jain: You are audible.
Operator: Yes, go ahead.
Atul Jain: You are audible. Yeah.
Gaurav Sharma: Thank you for taking my question. Couple of questions. First, on the fee income side, sir, we have seen a sharp uptick in fee income in this quarter. Just wanted to understand, maybe we are seeing a pickup in some loans which could have a higher fee income. Is this the reason or something else? How we see fee income panning out as a proportion of the ROA going forward. That is one. Secondly, sir, can you please call off your incremental rates in NCD as well as the bank borrowing and how you are seeing the benefit? I think NCDs are currently lower prices compared to bank. Could you please elaborate on this?
Atul Jain: Second question, I will answer, Gaurav, and then I will request Gaurav to answer the first part, which is an incremental rate in NCD, which we last did it on, I think before the policy, 1 day before the policy 1. There at 10-year money, post hedging was costing at around 7.04% for us. That was the incremental post-policy after 6 because the last issuance, what we did was on a 6. Post that we have not borrowed anything, and I do not think after policy we have borrowed anything from the bank as well. But pre-policy, the NCD money was cheaper than the bank. That is where when you look at the mix of the borrowing or the treasury mix in last 1 year, you will see a sharp uptick in the NCD borrowing versus the bank borrowing line, which has gone down.
Atul Jain: The bank borrowing had been lower focus for last 6 to 9 months because I think post January, February, money market had been cheaper and longer money available for us to borrow. On the fee income, I will request Gaurav to explain.
Gaurav Kalani: Yeah. So fee income predominantly is higher because of higher insurance income and also this quarter we had some higher foreclosure income. These are the 2 reasons why fees income is higher. CM commission line is higher. Insurance again, as Sambhav loans are growing, the attachment rates also are higher there. That is the reason along with the disbursement and AUM growth there. So 25% growth in disbursements, but also because of higher contribution coming from Sambhav loans.
Gaurav Sharma: Got it, sir. Very helpful. Thank you so much.
Operator: Thank you. Next question is from line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Abhijit Tibrewal: Yeah. Good evening, sir. Thank you for taking my question. Just to understand this interest rate and the margin line better. Atul sir, you have been saying, right, that we will maybe get to know after 24 January, 25 January, what are the other peers and largely banks doing. I am guessing this you are talking about the newer originations, right?
Atul Jain: Correct.
Abhijit Tibrewal: What is it that they are planning to do?
Atul Jain: See, portfolio we have to reprice in line with our cost of fund movement. Portfolio repricing is in line with the cost of fund movement. For the acquisition pricing, what I called out in the first question was that portfolio price pass-through will be there in line with the cost of fund. What can cause a margin compression further is if acquisition pricing does not move and it can cause a bit of additional attrition pressure if acquisition pricing in the market does not move in line with the rate movement. That is what exactly I called out.
Abhijit Tibrewal: Right. Which essentially means that till now we have not made any PLR changes.
Atul Jain: No. There is a 25% to 30% of the book which is our link to repo. So that will get reset at the reset date. Typically, 7 days after repo policy date is what is ever there. For our internal book, which is a FRR book, we have made a 15 bps increase today, which will be effective next week. 15 bps increase is done and the rest of the increase will happen basis because the pass-through in the cost of fund is also on a staggered basis. What is getting through in October and November is getting passed through on the asset side. As what will come through in November and December as liabilities get repriced, will get passed on as there. So from a transmission point of view on the asset portfolio, the transmission will be in line with the cost of funds.
Atul Jain: There will not be any compression in the margin because of the cost of fund movement on portfolio versus pass-through in the portfolio. Compression, what I talked about can be if the acquisition price doesn't move in line with the cost of fund movement.
Abhijit Tibrewal: Got it. So this is useful. This is all I wanted to understand. Thank you so much for taking the question.
Atul Jain: Thank you.
Operator: Thank you. Next question is from line of Gaurav Khandelwal from JP Morgan. Please go ahead.
Gaurav Khandelwal: Yeah. Hi, good evening. Thanks for taking my questions. I just wanted to, again, touch a bit on the interest rate questions. Let us say in a scenario where cost of funds for us move up, and let us say after 20, 30 days. Cost of funds move up, but the acquisition rates are still staying low because of whatever reason led by large banks in the primary mortgage space. In that case, how will we try to address the trade-off between growth and profitability?
Atul Jain: Gaurav, if the cost moves up, like I called out, portfolio pricing moves up, that is in line with whatever cost moves up. So the margins which get crunched, which would be if, let us say, new acquisition pricing from the banks is not moving in line with our cost movement. In that scenario, the balancing has to happen at the company end to maintain overall margin because in acquisition pricing you have to match or compete with the same larger players. Then the rebalancing in terms of the acquisition engine, that do we accelerate more near-prime or do we accelerate more LAP a bit, or we accelerate more Construction Finance?
Atul Jain: In any case, at a company level, there is a margin available, which is what I called out in answer to the first question, that DF we have gone down in last two quarters while our sanctions are very healthy, momentum is healthy. So there is an uptick which will, at a company level in the margin offset, which will come because the highest margin business today has been least growing in the current purchase. So that gives us, in any case, a leeway to offset a bit of a margin pressure if it in the prime acquisition pricing doesn't move in line. Portfolio pricing moves, so at best there can be 2, 3 bps, kind of a movement here and there if the acquisition pricing doesn't move in line. More impact can come through with a higher attrition, which we saw during last year.
Atul Jain: Our growth was, AUM growth came down to 23% because of the higher attrition. That's why we have not even changed our yearly guidance, 21% to 23%, what we have done. While in Q1 we were 24% and we are as of now 25%. We are yet to see the impact in the market because acquisition pricing not moving can lead to a higher attrition pressure, again, largely on the prime housing and some extent, LRD, because both of these are most price sensitive customers. So we will just hold our AUM growth forecast to watch out from how does the market play out.
Gaurav Khandelwal: In this scenario, sir, then the mortgage growth will be, the Home Loan growth will be slightly slower compared to rest of the portfolio, and then we'll have to assign out more loans. Then is that understanding correct?
Atul Jain: Yeah, that we do on a monthly basis. The non-Home Loan asset assignment out for last 18, 20 months has been a monthly phenomenon.
Gaurav Khandelwal: Got it. Okay. The other couple of housekeeping questions. Income on de-recognized loans keep dropping every quarter for the last few quarters. Can I understand that better? What is happening there?
Gaurav Kalani: It is basically quantum of assignment which we do in a particular quarter. Generally, this quarter, the income is around INR 40 crores. Last quarter was INR 68 crores. That is predominantly driven by lower assignment, which we did in this quarter. It was around 1,400 odd crores of INR 1,428 crores of assignment, which we did in this quarter, versus 2,600 odd crores of assignment we did last quarter. Broadly, it is as we had talked about earlier also, we look at PBC and ALM strategies to define how much of assignment we continue to do on a quarterly basis. That is why it will keep moving. But in general, we are in the 11% to 13% corridor always on the off-book side.
Atul Jain: Income on de-recognized loan also, Gaurav, moves in line with what type of assets you have assigned out. When you assign out LRD assets, the income booking is less compared to when you assign out LAP assets. So there is a bit of a dynamics and how much of our old assigned book has run down also impacts the new income booking, because as the old book run down, you have to write off whatever income you had booked at that time. So there are multiple moving pieces. The asset strategy, the liability strategy remains same. That as Gaurav has called out, 11% to 13% of the book will get assigned out and the assignment is a strategy we follow for maintaining PBC, followed by ALM, followed by income booking. Income booking number can change basis of various underlying dynamics, which is the previous book rundown.
Atul Jain: What was the book which has run down the previous book, which has run down in the current quarter? What is the type of asset which has been assigned out? What was the acquisition price of that asset? There is a gap between the acquisition price and the assignment. Assigned out price is only what gets booked as an income.
Gaurav Khandelwal: Got it, sir. Thanks for that. Another housekeeping question is, when I look at the fee-related expenses and if I, let's say, plot it against the fee income, effectively fee-related expenses divided by fee income, that ratio also keeps dropping. What is driving that reduction there?
Atul Jain: Sorry.
Gaurav Kalani: Fee related expenses is marginal. Those are basically the charges we pay for portfolios we assign. That's a smaller number that will continue to remain range bound. That won't increase significantly. Fee income is where we continue to see expansion driven by insurance income broadly, which drives that line item on the income side. Expense side won't move significantly for now.
Gaurav Khandelwal: Got it. Thanks. Just sorry, the final question. The salary expenses have been increasing quite a bit in last 2 quarters. This quarter it was 19% up year on year. Is this clean salary cost or are there any adjustments there as well?
Atul Jain: No, this is a salary cost because last year, when you look at a year on year, last one and a half year, we have been investing very heavily in Sambhav and our non-top 6 market structure, what we had called out last year. You will keep on seeing a bit of a salary cost increase going up year on year even for next 4 quarters, because as we are building out the businesses which is on the Sambhav side, it's a manpower intensive business. So there's no other one-timer adjustment or a catch-up. Nothing.
Gaurav Khandelwal: It is basically with the increase in headcounts effectively.
Atul Jain: Increase in headcount or increase in expenses related to the manpower, the senior teams which are coming on board and year-over-year will always be. In next one year, I think after that it will stabilize on a year-over-year basis.
Gaurav Khandelwal: Got it.
Atul Jain: Because when you look at a year-over-year, the previous quarter is the previous year does not have a full 100% impact.
Gaurav Khandelwal: Yeah
Atul Jain: of the people who have come on board. Like we had called out earlier, this year we will continue to invest deep in the near-prime and top 6 plus. Next year, we will still continue to invest very deeply in affordable. For 1 and a half years, you will see these numbers going up regularly.
Gaurav Khandelwal: Perfect, sir. Thank you so much.
Atul Jain: Thank you.
Operator: Thank you. Next question is from the line of Renish from ICICI Securities. Please go ahead.
[Analyst] (ICICI Securities): Yeah. Hi, sir. Congratulations on a good set of numbers. Just two things, sir. One, around this interest rate cycle, historically, have you guys seen any correlation between housing demand during rising rate cycle?
Atul Jain: Hi, Renish. First answer, I think it is simpler. The housing sale in the country was highest in calendar year 2024, where the interest rate was highest in the recent six, seven years.
[Analyst] (ICICI Securities): Okay.
Atul Jain: Housing demand had been a bit sluggish in 2025, 2026 when the disbursements grew in industry at 1% or close to 0%, when the interest rates were cut significantly.
[Analyst] (ICICI Securities): Okay.
Atul Jain: I believe housing demand is a core demand or core need. It is driven more less of interest rate because every customer understands it is a variable rate. Today, you do not buy a house because interest rate is low because you know during the currency of the loan, the rate can go up or it can go down. At least the evolved buyer or largely the segment of the customer we deal with understand that very well. It is largely driven from the expectation of a real estate price hike, where the Home Loan demand or housing demand moves up or down. If the housing pricing is on the If you are not expecting the prices to go up, you will always see it sluggish irrespective of the interest rate cycle.
Atul Jain: If the market expectation is the house prices will go up, the person will want to lock in today rather than wait for the perfect interest rate of a 50 bps or a 75 bps for him to go and buy a house because the pricing differential can be very high by the time he wants to buy the house. So interest rate movement to my understanding or to my whatever we have seen over the year is largely linked to home price expectation, not Home Loans prices.
[Analyst] (ICICI Securities): Got it. So you are saying the demand elasticity is higher with asset price than the interest rate?
Atul Jain: Yeah. Expectation of asset price inflation or not.
[Analyst] (ICICI Securities): Got it. And just related to that, do you have also seen any correlation between, let us say, the higher repayment rate when interest rates are going up or that also does not change the customer behavior?
Atul Jain: The higher repayment rate comes through the BT in any interest rate destabilized environment, whether rates are going down or rates are going up. They remain lower only when the interest rates are stable over a longer period. Any interest rate cycle, whether up or down, will see higher repayment rate because of a balance transfer. If I have to give you an example, basis of bureau data, you will see Q1 of the current financial year, Home Loan industry disbursements growth is 18%, where basis RBI data, Home Loan AUM growth is 10% in industry. That tells you that it is largely balance transfer, which is moving the needle. The repayment rate of a customer themselves paying down or going up or down doesn't move in correlation to the interest rate cycle because that is again not there.
Atul Jain: The BT out rates move in any interest rate destabilization or a non-stable phase.
[Analyst] (ICICI Securities): Got it. I am just trying to understand, let us say if customers start anticipating rates to go up, then rather they prepay loans and lowering their EMI. I am just trying to understand from that perspective.
Atul Jain: Customers will, in the Home Loan, what we have seen a consistent trend, even when, let us say last year, the interest rates were the lowest. The part prepayment rates were highest last year for us in our portfolio.
[Analyst] (ICICI Securities): Got it.
Atul Jain: Because customers will pay you the part payment, whatever surplus they have, irrespective of the interest rate. Interest rate for a home ownership and a home loan pay down or a Home Loans take-up, largely I have not seen it related to the interest rate because given the variability of the interest rate. Where interest rate will be lower in the industry when even the income generation also is lower and customer first wants to pay off the Home Loans irrespective whether Home Loans rates are higher or are lower.
[Analyst] (ICICI Securities): Got it.
Atul Jain: That's why we realize maturities of a Home Loans always remains far lower than whatever the booking tenures are there because the priority of Indian customer, at least we have always seen to pay down Home Loans much faster irrespective of the interest rate scenario.
[Analyst] (ICICI Securities): Got it. This is very helpful, sir. Just a last bookkeeping question maybe to Gaurav. So what is the floating and fixed rate asset liability mix for us?
Atul Jain: It is like, I think I called out in the earlier question, 88% is both asset and the liability side.
[Analyst] (ICICI Securities): Asset and the liability side. Actually, I just missed our commentary on the PLR hike. So have we hiked PLR rate in the month of October after the repo rate hike?
Atul Jain: Yeah, 15 bps.
[Analyst] (ICICI Securities): 15 bps. Okay.
Atul Jain: Which will be effective next week. The decision has been taken by ALCO effectively.
[Analyst] (ICICI Securities): Okay.
Atul Jain: Sorry, being effective today.
[Analyst] (ICICI Securities): Got it. The floating rate assets, these assets are linked to what? I mean, is it linked to the PLR or is it linked to the external benchmark or it is mixed?
Atul Jain: 25%, 30% of the assets are linked to the repo and balance are linked to the internal floating rate.
[Analyst] (ICICI Securities): Which is obviously linked to PLR.
Atul Jain: Yes. From the asset side, out of the 88% assets, largely 54% of the total, which will mean 62% of the floating rate assets are linked to PLR, balance are linked to external benchmark.
[Analyst] (ICICI Securities): Got it. And what is the borrowing which is linked to EBLR? I mean, the repo or
Atul Jain: Largely other than 2.5%, everything is EBLR for us.
[Analyst] (ICICI Securities): Got it. Okay. This is very helpful, sir. Thank you, and best of luck.
Atul Jain: Thank you, Raj.
Operator: Thank you. Next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Raghav Garg: Hi, good evening. Am I audible?
Atul Jain: Yeah, Raghav. It will be better if you can speak a bit closer or louder. You are audible, but
Operator: We will have to strain our ears.
Raghav Garg: Is this better now?
Atul Jain: Yeah, this is much better.
Raghav Garg: Okay. I was looking at your Sambhav portfolio. You are saying that it is 16% of the total acquisition in Home Loans. Is this in terms of value or volume?
Atul Jain: In value. Mortgage is a value activity, Raghav.
Raghav Garg: Correct.
Atul Jain: Any number we give is in value. But count, this will be much more.
Raghav Garg: Sure. I think last quarter, the Sambhav acquisition mix was 14% in HL. Now, when I try to back calculate the total HL acquisition, there is a decline in this quarter. This quarter, I think the HL acquisition is INR 9,500 crores. Last quarter, it was INR 9,800 crores. What is the reason for the HL originations or acquisition declining quarter on quarter? In such a scenario, how do you really pass on the interest rates to the customer when the demand is weak or, even when you look at the real estate data, the demand is a bit soft. I just wanted to understand that bit.
Atul Jain: Well, we don't pay heed too much in a quarter on quarter, because at a Y-o-Y level, the quarter on quarter, there are movements which will always happen depending upon the season. Y-o-Y, I think Home Loan overall aggregate disbursements will remain strong. That's why you see the 22% AUM growth, which is after a long time in Home Loan, we had a 22% AUM growth. The disbursal absolute number Y-o-Y is less relevant. Largely relevant is the AUM growth. AUM growth can happen because of two factors. Either the disbursements keep on growing very fast, which was last year. Last year, disbursements were growing very fast, but the attrition was growing faster. So it was not there.
Atul Jain: If Q2, the attrition was a bit softer and the disbursements were also a bit softer because of a seasonality impact to a certain extent. But AUM growth was fine. The Home Loans and any other business in mortgage, we largely track on AUM growth rather than on a disbursal. Disbursals we quote as a one time in the cemented quarter update when we give, because there are a lot of questions which were always coming on the investor calls on the disbursements. While internally as a company, the only metric we track, whether for business performance or anything, is the AUM growth.
Raghav Garg: Understood. This number in HL, which I think you for the industry said is up 18% Y-o-Y. How much was the growth for you? When I look at this INR 9,500 crore number in HL, how is this versus, say, Q2 of last year?
Atul Jain: Just 1 minute. I will have to take year-over-year disbursal to HL in quarter. Like I said, since we do not track this on a daily basis, we will have the number. I will find that number. If you have another question, you can ask by the time Ravi.
Raghav Garg: I just have 1 more question. So INR 28 lakh ticket size, is that on portfolio as in AUM, or is that the disbursement ticket size?
Atul Jain: Through the door. It is through the door. Acquisition.
Raghav Garg: Understood. Sure, that is all from my side. Thank you.
Atul Jain: Home loan disbursal growth is 24% year-on-year.
Raghav Garg: Understood. Super.
Atul Jain: Which is in line with the portfolio disbursal growth, 25%.
Raghav Garg: Sure.
Operator: Raghav, do you have any follow-up question?
Raghav Garg: No, I am good. Thank you.
Operator: Thank you. Next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.
Nischint Chawathe: Hi. Thanks for taking my question. You gave a guidance in the last quarter, management assessment for 2027. Would you want to revise it, especially in the backdrop of NIM advance in this quarter?
Atul Jain: Hi, Nischint. We will not revise the guidance as of now because there are a bit of moving pieces. AUM growth is much faster than the guidance, if that is what you are referring to. But like I called out in two questions earlier, we are yet to watch out what is the interest rate change regime just to the acquisition pricing. Because in the acquisition pricing, it does not move in line with the portfolio pricing. We can see again, an elevated attrition pressure, which can result into, again, AUM growth moving down. In terms of a margin, what we called out around 25 bps, kind of a NIM compression.
Atul Jain: As of today, our calculation would be that we should be in that broadly the range, even if we stress test it to a certain extent of acquisition pricing not growing in line with cost to the extent of only it grows 60% to 70%, then 1 to 2 bps further can be the NIM pressure. This is a moving pieces and this is in the interest rate. First hike has just happened and we do not know the future scenarios. We would desist from revising the growth estimates, what we have given. There are two main bases. Volume can be lower because if, let us say, larger players do not flow through in the acquisition prices. The BT pressure can be higher, which can lead to 25% going down to 20% to 23%.
Atul Jain: I am not saying this is what is going to happen, but we do not know how it will play out. Last year we had seen that higher BT out result had resulted into 2% to 3% of a suppression of AUM growth. That is why AUM growth not being there. On the margins, we are largely, we gave a 2.1% to 2.3% kind of a ROA range. We are at 2.2%. Broadly here and there is what our estimate would be as of now. There can be 2 to 3 bps of additional compression, which can be if the acquisition pricing pressure is much more severe. That is, I think it does not call for us to revise the guidance, as of today.
Nischint Chawathe: So broadly, your guidance of 20 to 25 basis margin compression for the year, which obviously means a fair amount of heavy lifting in the H2 of the year, probably much more than 25, 30, 40 basis points on a sequential basis, I think. So what that essentially bakes in is that the acquisition pricing does not really live up to the pace at which the benchmark rates are going up. I think that is what broadly we are trying to do here.
Atul Jain: 17 bps of a drop has already happened in the year versus last year, if you have to take out of 25 bps what we said. So 17 bps has happened. As we keep on saying, there is a moderation in the portfolio yield because the new through the door versus what goes out has been lower. The spread was able to hold back in the Q2, which is a one-time impact, which we said because of a CoF drop was higher. As we factoring from here onward because asset and liabilities are perfectly balanced at 88:88 there. There is no protection. Additionally, the margin compression will come through the liability movement.
Atul Jain: Natural compression, which will keep on happening because of a newer asset being lower price than the older asset and the attriting assets being higher price than the coming in asset, will mean that 25 basis points will happen. It is not being a conservative assessment decision, if I have to say that. In fact, I am calling out 1 or 2 basis points further hit can be there in case the acquisition pricing pressure is significant.
Nischint Chawathe: Got it.
Atul Jain: And-
Nischint Chawathe: Yeah, I know. I understood. That is very clear. Just one thing, this 20 basis points reduction in cost of borrowing. This is a one-off impact or is it something which is now the starting point for the next quarter?
Atul Jain: This is starting point. This is a one-time impact, which is there, which was because of one-off maturity of certain high-priced earlier borrowings, which happened and the substitution happened at a lower rate. Second, a bit of a past book, old book also we converted to a floating. Part of it was due to that. Part of it is because of a change strategy of not in the last one quarter we largely were in the money market and converting it there rather than borrowing through the bank, which were a bit higher price. This would be the base for any trajectory movement up. Q3 trajectory will be up because one repo hike has already happened. If December hike also happens, it should be there. Like I called, what we estimate, if there are three hikes, let us say between October, December, February, it is just a hypothetical scenario.
Atul Jain: We should see increase in costs from now to exit around 61 bps. I called out around 80% of the repo hike should flow through the CoF. Every 25 bps, around 20 bps should flow through the CoF, which will be what will flow through the portfolio as well on the asset side.
Nischint Chawathe: Got it. 7% exit September could probably be 7.6 exit March, assuming the 25, 25. That is what I think we can say.
Atul Jain: Yes. 75 bps should result into 61, 62 kind of a. It does not factor in the new marginal cost of borrowing. Two, three paisa plus minuses can be there because of the new borrowing which will come. We are talking the portfolio through the portfolio impact. The additional new borrowing, it will depend upon the market scenario. How is the market scenario, how is the new borrowings available. That will be a minor impact on the overall cost point. Major impact is on the portfolio flow through from the repo hike, which will be 60, 61 bps if there are three hikes.
Nischint Chawathe: Perfect. Got it. Thank you very much and all the best.
Atul Jain: Thanks.
Operator: Thank you. Next follow-up question is from Gaurav Khandelwal from JP Morgan. Please go ahead.
Gaurav Khandelwal: Hi. Thanks for taking my follow-up question. I only want to understand what is the incremental loan yield today pre the rate hike, which was at 8%, 8.1% last quarter. Just want to understand where is that number today.
Atul Jain: Gaurav, pre hike.
Gaurav Kalani: Pre hike to now.
Atul Jain: No. Pre hike, the incremental loan hike yield, what was
Gaurav Khandelwal: Incremental loan. Yeah.
Atul Jain: Q2 versus Q1.
Gaurav Kalani: It was similar at 8.1, Gaurav.
Gaurav Khandelwal: Okay. Got it. So far we haven't taken a call on the new acquisition rates.
Atul Jain: That has gone into effect from today because the PLR hike has happened today, so the new pricing also has gone into effect from today.
Gaurav Khandelwal: Okay. So that's another 15 basis points.
Atul Jain: Close to 15 to 20 bps. On the new acquisition, portfolio is 15.
Gaurav Khandelwal: Okay, got it.
Atul Jain: New acquisition is close to 15, 20 and we will recalibrate it as we see the market, how does it move.
Gaurav Khandelwal: Got it, sir. Okay, thank you so much.
Operator: Thank you very much. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Atul Jain: Thank you all very much for being on the call and giving us a patient listening. Thank you from my side and all the management team to Ajit and all the participants on the call. Thank you.
Operator: Thank you very much. On behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.
