Operator: Ladies and gentlemen, good day and welcome to the CreditAccess Grameen Limited Q2 FY27 earnings conference call hosted by Motilal Oswal Financial Services 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, 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. Abhijit Tibrewal from Motilal Oswal Financial Services. Thank you, and over to you, sir.
Abhijit Tibrewal: Thank you, Robin. Good evening, everyone. I am Abhijit Tibrewal from Motilal Oswal, and it is our pleasure to welcome you all to this earnings call. Thank you very much for joining us for the CreditAccess Grameen call to discuss their Q2 FY27 earnings. To discuss the company's earnings, I am pleased to welcome Mr. Ganesh Narayanan, Managing Director and Chief Executive Officer, Mr. Gururaj Rao, Chief Operating Officer, Mr. Nilesh Dalvi, Chief Financial Officer, and Mr. Sahib Sharma, DGM, Investor Relations and Strategy. On behalf of Motilal Oswal, we thank the senior management and the investor relations team of CreditAccess Grameen for giving us this opportunity to host you today. I now invite Mr. Narayanan for his opening remarks, post which we will open the floor for a Q&A. With that, over to you, sir.
Ganesh Narayanan: Thank you, Abhijit. A very good evening, everyone, and a very warm welcome to discuss our second quarter and first half of FY27 business performance. We reported our highest quarterly profit of INR 502 crore in this quarter, having grown five-fold over the past five years. Current financial year marks a clear turnaround, recording INR 995 crore PAT in the first half, as against INR 778 crore PAT during the previous financial year. Our H1 ROA stood at 5.9% and ROE stood at 23.8%. We are delivering record profitability while remaining amongst the most competitively priced lenders across our product segments. Our lending franchise today spans across group loans, individual business loans, secured business loans, affordable housing loans, and two-wheeler finance, with growth margins and asset quality all moving in the right direction. Our AUM grew 19.5% year on year and 2.1% quarter on quarter to INR 30,946 crore.
Ganesh Narayanan: Disbursement stood at INR 6,355 crore, up 19.4% year on year and 4.1% quarter on quarter, taking H1 disbursements to INR 12,461 crore. We added 2.3 lakh new borrowers, of which 35% were new to credit, taking our H1 additions to 4.9 lakh customers. We also opened 62 new branches during the quarter, expanding our network to 2,326 branches across 460 districts. Digital connections rose to 26.3% versus 18.1% a year ago. When we began building our retail franchise, our thesis was very simple. The customers we have served for years would need more than a group loan as their economic profile improves and financing needs expand. That thesis continues to be playing out at scale with regulatory support in place. Of the 45 lakh borrower base, 15% or 6.8 lakh borrowers belong to retail finance.
Ganesh Narayanan: Retail finance AUM grew to INR 7,200 crore, now 23.3% of the total AUM, up from 20.6% in Q1 FY27. Within this, our secured book comprising of secured business loans, affordable housing loans, and two-wheeler loans grew 60.9% year on year to INR 695 crore. Our mortgage presence now stands across 300 GL and 128 retail finance branches, with two-wheeler loans offered through 950 plus group loan branches. Our two-wheeler loan book witnessed strong traction, having crossed INR 60 crore compared to INR 20 crore in Q1. Further, our ability to meet evolving credit needs of our customers is also deepening their loyalty, with loan retention rates improving from 85% in FY26 to 88% in H1 FY27. Alongside, we are also strengthening our collection ability with a dedicated collection team comprising of 500+ employees across operating geographies.
Ganesh Narayanan: Our group loan portfolio stood at INR 23,646 crore as of September 2026, a marginal decline of 2% from the start of FY27. This was on account of write-offs and graduation. Most of the INR 614 crore portfolio written off in H1 FY27 consists of group loans. With write-offs normalizing and the seasonally stronger second half ahead and increase in customer acquisition during H2, we expect the group loan book growth to return to guided levels. Commenting on our asset quality, we saw a temporary increase in monthly NPA accretion rate during August and September, driven by excess rainfall and flooding in certain regions of Bihar, UP, Chhattisgarh, and Madhya Pradesh, along with seasonal festivities in a few geographies. However, despite this, our asset quality is back to pre-crisis levels at its best in the last 10 quarters.
Ganesh Narayanan: Gross NPA stood at 1.79%, net NPA at 0.59%, and PAR 90+ at 1.11%, each improving sequentially. Collection efficiency, excluding arrears, stood at 97.9%, and ex-bucket collection efficiency for September stood at 99.71%. Credit cost for the quarter stood at INR 299 crore, or 0.99% on a non-annualized basis, of which 0.70 or 70 basis points was driven by new PAR and 29 basis points due to increasing ECL provisioning rates. We further strengthened our ECL provisioning at 3.31% after building a macroprudential buffer of 45 basis points or INR 137 crore. Our annualized H1 FY27 credit cost of 3.43% includes normative credit cost of 2.98% and 0.45% of macroprudential buffer, which is well within our guided range.
Ganesh Narayanan: Commenting on our margins, we saw our NIMs expand to 15.1% in Q2 from 14.4% in Q1, driven by lower interest reversals in group loan book, higher yielding individual loan book, stable cost of borrowing, and higher capital push. Our cost-to-income ratio improved to 28.2%, and PPOP grew 39.6% year on year and 11.2% quarter on quarter to INR 970 crore in Q2 FY27. Our marginal cost of borrowing stood at 9.1% in Q2 FY27, while average cost of borrowing was stable at 9.1%. Our capital position strengthened further with our capital adequacy at 26.9%, Tier 1 at 26.2%, and total equity base of INR 8,919 crore. On the liability side, diversifying our funding mix, coupled with focus on long tenure funds, remains our medium-term strategy. We signed USD $175 million ECB loan in October, syndicated by Standard Chartered Bank and DBS Bank.
Ganesh Narayanan: Despite global macroeconomic uncertainty and strong competition in the ECB market from FCNR deposit mobilization by banks, the transaction received a strong response at a competitive pricing, with 15 financial institutions participating from across Asia, Middle East, and Africa. We see this as a clear reflection of international lenders' continued confidence in our business model and governance standards. This is our fifth ECB syndication in the past five years. We also mobilized INR 940 crore of domestic NCDs through private placement process in this financial year. ECBs and NCDs help us both in liability diversification as well as securing longer tenure of funding to strengthen our ALM. This is our strong H1 FY27 financial performance. We have raised our profitability guidance for FY27, ROA of 5.2% to 5.8% versus 4% to 4.8% earlier, and ROE of 21% to 24% versus 16% to 20% earlier.
Ganesh Narayanan: We retain our AUM growth guidance of 20% to 25%, supported by return to growth in group loan portfolio coupled with continued momentum in retail finance. We expect a NIM of 14.4% to 14.7% as against 12.8% to 13.2% guided earlier, driven by healthy asset quality, strong control over borrowing costs, and a higher capital position, even after factoring the 50 bps rate reduction applicable from October onwards. We are best placed to protect our NIMs in an evolving macroeconomic environment. Our risk-adjusted NIMs are currently at highest levels. Further, we can maintain our borrowing cost range bound, supported by diversified lender base, high-quality PSL book, and judicious borrowing mix between repo, MCLR, and fixed rates. Cost to income may range between 29% to 30% as operating costs remain well under control despite inflationary trends.
Ganesh Narayanan: We are retaining our credit cost guidance of 3% to 4%, and it should comfortably cover for any volatility on account of evolving drought-related conditions in some operating geographies. We are seeing a few signs of drought-related challenges in October around certain pockets of Maharashtra, wherein the borrowers are requesting for additional time for repayment, including restructuring options. At this point of time, we are not seeing any on-ground impact in any other geographies. We also note that northeast monsoons are expected to be normal, providing respite to southern peninsular India. We will focus on addressing the growing credit needs of our established seasoned customers with a proven track record of repayments across credit cycles through renewals, group loan servicing, and targeted graduation to individual secured lending products. New customer acquisition will be a key growth driver, with momentum expected to accelerate in the H2.
Ganesh Narayanan: To conclude, CA Grameen today is stronger, more diversified, and more profitable than any point in its history, and we are executing with the discipline of a franchisee that has been tested through cycles. As we enter the seasonally stronger second half, we do so with momentum in our business, strength in our balance sheet, and full confidence in delivering the guidance we have set out today. We will now open the forum for questions. Thank you.
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 one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Renish with ICICI. Please go ahead.
Renish Bhuva: Yeah. Hi, sir. Congratulations on a good set of numbers. Just two things. One on this 50 basis point lending rate cut. When I look at the marginal cost of borrowing, which has already gone up by almost 20 to 30 basis points sequentially. When there is a clear sign of likely increase in cost of borrowing going ahead, what is the thought process behind trimming lending rate now? I can understand the better profitability must be driving this, but when we see a broad kind of a scenario spanning out, cost of borrowing likely to go up. Just wanted to understand why to consider lending rate cut at this stage, not waiting for maybe one more quarter.
Ganesh Narayanan: Right. Renish, our current NIMs are at highest levels. As you know, the lending rate is guided by our pricing policy, which takes into account several factors, including your credit cost, including your cost of borrowing, as well as OPEX, right?
Ganesh Narayanan: Only lever today is if credit costs increase, that is when we can retain this pricing. The credit cost, since we are publishing within the guided range and being driven by the pricing policy.
Renish Bhuva: I see.
Ganesh Narayanan: this will be range bound. We have earlier also indicated we will do 50 basis points cut this quarter and probably 50 in the next quarter. Marginal cost of borrowing increases slightly because of the big borrowing that we have taken right now, and not necessarily indicating a higher increase.
Renish Bhuva: Okay
Ganesh Narayanan: at this point of time. We do acknowledge that the repo rates have gone up, but it will be gradually passed, and that will go through. If, for example, if the cost of borrowing goes up in next quarter, we have the right to reprice or not necessarily pass back the 50 bps that is planned for the next quarter also. I think it is something that we work on. But at this point of time, we need to pass this 50 basis points to the customer given that the credit cost itself is ground.
Renish Bhuva: Got it.
Nilesh Dalvi: Yeah, Renish, Nilesh here. I will add a couple of points here. Firstly, on the borrowing cost, we do have borrowings from a wide range of lenders. There are more than 80 lending institutions from whom we borrow. And obviously, the borrowing rates will be within a range. That is where the blended rate, what appears on the balance sheet is around 9%. In Q2, obviously, we did couple of NCD transactions. We had couple of longer tenure funds, which obviously will come at a slightly higher rate. But at the same time, what we have to also look at is the loans what we are replacing. Like even in Q3, we will see the marginal borrowing cost will be higher because we have done a USD 175 million ECB in the month of October, which will come at a higher rate.
Nilesh Dalvi: But it will also replace the $200 million ECB which is going to expire in the same month. The new ECB, what we have taken is at a lower rate compared to the previous ECB which is getting replaced.
Renish Bhuva: Got it.
Nilesh Dalvi: So now when I look at my borrowing for next six months, the amount what we are going to draw down is at a similar rate of the amount what we are going to repay. So that is where we are of a view that our borrowing cost will stay in this 9.2% to 9.3% range until March. While we do have certain repo-linked exposures, around 30% of our borrowings are fixed, 45% are linked to MCLR, and balance 30% are linked to
Renish Bhuva: Yes
Nilesh Dalvi: even the loans which are linked to repo, they reprice at different points in time. It is not that it will immediately kind of add to the cost of borrowings.
Renish Bhuva: No, no.
Nilesh Dalvi: The MCLR-linked borrowings, typically they react with much lag. Today, given the liquidity in the system, we have seen instances in a couple of banks, the MCLR has even come down. From that perspective, as of now, we have a visibility on the borrowing cost. As Ganesh said,
Renish Bhuva: Got it.
Nilesh Dalvi: if any upside risks on the cost of borrowing, then maybe every quarter when we relook at the lending rate, we can reprice it.
Renish Bhuva: Got it. So we have
Nilesh Dalvi: visibility on the NIMs.
Renish Bhuva: Got it. So we have flexibility to change our lending rate on quarterly basis. I mean, that is
Nilesh Dalvi: Yes
Renish Bhuva: the board approved.
Nilesh Dalvi: Yes. As we had said previous quarter, we had said that we will pass on 50 bps in Q3, Q4 and next year's Q1. Now we have taken a 50 bps cut in Q3. Now, the subsequent lending rate decisions will depend upon how the credit cost is evolving and how the borrowing cost is evolving. There is no compulsion that we have to pass on. It purely depends on the risk-adjusted NIM what we want to retain. Today, with a 14.5% to 15% NIMs, on an H1 basis, our NIM is 14.7%. On a risk-adjusted basis, the NIM is closer to 11% or more than 11%. We would want to retain a risk-adjusted NIM of 10%, so that it allows us to achieve our targeted ROA of 4% up to 5% on a steady state basis.
Nilesh Dalvi: From that perspective, we have enough flexibility to manage our NIMs aligning with the evolving credit cost itself.
Renish Bhuva: Got it. Okay. All of this well understood. Thanks, Ganesh and Nilesh. Secondly, on this credit cost trajectory, obviously, credit costs will remain between 3% to 4% for sure. I think in that, the lower credit cost in Q1 will also help us. From a trend perspective, do you see Q3, Q4 credit cost inching up from Q2 levels? As you rightly mentioned, there are still some risk of drought-related regions and also maybe few of the larger players are also indicating the same thing. What do you guys expect internally? The credit cost in Q3, Q4 should trend upwards and still remain within guided range or how one should look at the trends going ahead?
Ganesh Narayanan: Correct. Renish, right now our expectation is that in Q3 it should probably inch up a little more. However,
Renish Bhuva: Okay
Ganesh Narayanan: on an overall year basis, we still believe that we are significantly positioned to be within the guided range. One is you also have festivals in October, November.
Renish Bhuva: Correct.
Ganesh Narayanan: You also have certain drought-related situation emerging slowly in some districts of Maharashtra. Other than that,
Renish Bhuva: Correct
Ganesh Narayanan: we don't see any risk right now. As we all know that we will know for clear only in this quarter. We'll have to
Renish Bhuva: Got it.
Ganesh Narayanan: wait for how things fall. We estimated a certain inching up, but it is going to be range bound within the guided range.
Renish Bhuva: Got it.
Ganesh Narayanan: Renish, for H1, the credit cost run rate is 3%. In H2, even if it slightly inches up, maybe even if we go to 5% run rate, still for the full year, we should be within 4%. Today, like I said in my previous response,
Ganesh Narayanan: They are well enough to cover 4% kind of a credit cost and still deliver the ROAs what we are aiming for.
Renish Bhuva: Correct. You are absolutely right in this. Broadly, what I just wanted to understand is that obviously FY27 will be taken care of, but if my credit cost trajectory continue to inch up, then at some point it might create a risk for FY28 wherein maybe we are expecting a credit cost to remain at 3%. I mean, that's what we expect in a steady state basis. If my credit cost continues to inch up, then FY28 credit cost could remain more than 3%. Hence, I am more concerned about Q3, Q4 trajectory.
Nilesh Dalvi: Right. I think we have to wait it out for Q3, Q4, and we have to position ourselves for next year, like we said, because we have a significant pricing advantage. Any inching up in credit cost can definitely be priced in what we are looking at.
Renish Bhuva: Got it.
Nilesh Dalvi: Renish, for example, if we take a scenario wherein the credit cost even stays elevated next year. In that case, we need not pass on any further price cuts.
Renish Bhuva: Got it.
Nilesh Dalvi: So like we had said in our previous calls, we have to pass on, say, 100 to 150 bps price cut, but we have only done 50 bps, so we can stop there basis how the credit cost is evolving. So the profitability will be protected this year as well as next year.
Renish Bhuva: Got it. And maybe can I squeeze one more last question?
Nilesh Dalvi: Yeah, go ahead.
Renish Bhuva: So being an industry leader, what is your assessment in any drought kind of a scenario historically, how does the credit loss actually strengths out? I mean, obviously interim, we can witness farm portfolio going up, but ultimately, what kind of credit losses you guys have witnessed in historical events when there is a drought situation?
Nilesh Dalvi: See, historically, we have not seen this kind of drought, number 1. Historically, our data at least indicates that we have not had any significant impact because of drought.
Nilesh Dalvi: But this year we will have to watch out because it is very widespread. Like I said, except for few districts in Maharashtra, we are not seeing stress anywhere. But we will have to watch out for now up to December. But the big plus is at least the northeast monsoon is holding up. So that is also a good reprieve to look out to. And we will have to watch out how things evolve.
Renish Bhuva: Got it. So this is very helpful. Thank you and best of luck.
Nilesh Dalvi: Thank you, Renish.
Operator: Thank you. Our next question comes from the line of Shreya Shivani with Nomura. Please go ahead.
Shreya Shivani: Yeah, thank you for the opportunity. I have 2 questions. First is again going back to drought situation. So what are the operational changes that we are implementing at our branch level in Maharashtra where we are seeing drought situations? Any change in incentive structure for the loan officers? Any other process changes that you can highlight? Also, do we have any kind of credit guarantee schemes on our book which can protect us probably if certain portion of our book is impacted? That's my first question. Second question is the impact of the insurance regulation reform. Any commentary, the conversations that you have, if you've had any conversations with the regulator, anything that you can share with us on that matter. Thank you.
Nilesh Dalvi: See, first on the drought situation right now, it is around a few districts in Maharashtra, especially in the central part of Maharashtra. There probably we will not focus on sourcing new customers. We will focus on only our existing customers with respect to business. We strengthen our presence on the collection side with additional resources from across different teams and that is going to help us in the short term. With respect to guarantee, we have not yet availed a guarantee for microfinance. There is some budgetary approval which is pending. Though we've applied for it, we expect it to open up in a week or 2. So as and when it opens, we will start enrolling ourselves into that. That is where we are. But we do have a smaller amount of guarantee that we've initiated for individual lending through CGTMSE as well as PII.
Nilesh Dalvi: And with respect to insurance, right now, I think it is too early. We have not had any direct discussions with regulators. However, we will have to wait for the regulations to firm up. We believe that it will be slightly moderated from current levels. I am not sure about what levels it could be. But the impact we see is around 25, 30 bps on our ROA, which I think we are better placed than anyone else in case we need to cover it through pricing to protect our ROA.
Shreya Shivani: Right. And sir, just one follow-up on the credit life piece. So when you attach the credit life on your policies, you are only covering the woman of the house, right?
Nilesh Dalvi: Today it is a choice of the customer, both for herself as well as for the husband. But our preferred coverage would be for both the man and the woman. And predominantly we achieve it, right? There may be few thousand customers probably who bought a very both or any one or something like that.
Shreya Shivani: Oh, okay. All right. And sir, just to follow up on the first bit in terms of the collection efforts that you are building in. While the drought situation has only been in Maharashtra, I believe in the Q2 some of your northern states would have also been impacted by floods, et cetera. So what has been the trajectory of behavior with the customers in those states? I just want to know whether the floods have been more temporary in nature, the drought situation may stretch out. Yeah.
Ganesh Narayanan: Yes. Typically, floods are temporary in nature. We come back within two to three weeks.
Shreya Shivani: Okay.
Ganesh Narayanan: This has been the scenario even this time.
Shreya Shivani: All right.
Ganesh Narayanan: There is no other effect at this point of time anyways.
Shreya Shivani: All right. So it is only Maharashtra. We do not have a big exposure in AP and Telangana, right?
Ganesh Narayanan: No.
Shreya Shivani: Okay. Understood. Thank you. Thank you, and all the best.
Operator: Thank you. Our next question comes from the line of Nidhesh Jain with Investec. Please go ahead.
Nidhesh Jain: Thanks for the opportunity, sir. Sir, can you quantify the number of districts which are impacted or percentage of portfolio which is exposed to those districts where we are seeing drought-related impact?
Ganesh Narayanan: We are seeing currently, when I say impact today, there are customers who are coming out and asking for time for restructuring solutions. This is something which is developing. We are seeing this in around 6 districts, especially in central part of Maharashtra. That is where we are talking about.
Nidhesh Jain: What portion of portfolio will be coming from these districts approximately?
Ganesh Narayanan: Right now, I think I do not have the data in hand. We can pick it up offline.
Nidhesh Jain: Sure.
Ganesh Narayanan: This is very early signs, something we will have to watch out for.
Nidhesh Jain: Sure. Yeah, that is it from my side. Thank you.
Ganesh Narayanan: Thank you, Nidhesh.
Operator: Thank you. Our next question comes from the line of Rajiv Mehta with Yes Securities. Please go ahead.
Rajiv Mehta: Yeah. Hi, good evening. Congrats on the good numbers for the quarter. See, again on few other states like UP, Bihar, MP, Tamil Nadu, we did see some inch up in PAR 15 accretion rate in September. Are you trying to imply that except for Maharashtra, everything else has kind of cooled off in October? In October, the PAR 15 accretion in these states has kind of come back to usual levels?
Ganesh Narayanan: Yes. More or less, the September spike was because of floods, like I said, as well as festivities in that particular month. Other than Maharashtra, everywhere else we are normal this month.
Rajiv Mehta: Even Karnataka and Tamil Nadu, we haven't seen any spike as yet in October. Correct. When I look at your credit cost guidance for H2, which is implied, because H1 has already occurred, your write-offs will come down significantly since you are just having INR 550 crore of NPA at this point in time. So write-off quantum will come down, so that credit cost will come down. The PAR 15 accretion so far is not changing, except for a few districts of Maharashtra. Are you also trying to build in some more strengthening of retail provisions in the current guidance level? If you can quantify that. Is there a plan to take stage 1 provision to a certain higher level from where we are?
Ganesh Narayanan: No. Stage 1 currently is around 1.8%.
Rajiv Mehta: Okay.
Ganesh Narayanan: We've already taken a macro buffer of around 45 basis points. That is something which we already have, totaling to around INR 137 crore.
Ganesh Narayanan: The stage 1 provisioning may inch up by maybe 5 to 6 bps every quarter or in Q3 and Q4. This is the new data point setting.
Rajiv Mehta: Okay. Yeah, that is it from my side. Thank you.
Ganesh Narayanan: Thank you, Rajiv.
Rajiv Mehta: Sorry, can I just
Ganesh Narayanan: Yes.
Rajiv Mehta: Yeah. Just one thing, I mean, I do not know whether if you can just clarify on the transaction which the promoter is trying to do, maybe some color, if any idea about where are we, if you have any idea about what is the status of it, maybe from a timeline point of view or the nature of it point of view, because I think that has been also a slight unnerving for a lot of people, yeah.
Ganesh Narayanan: Right. See, as you know, currently the promoters are in an active discussion for a strategic investor of the whole group. That is where it is. We should see some progress in the next couple of quarters.
Rajiv Mehta: Got it.
Ganesh Narayanan: Is there anything else you are asking? This is what you are asking for, right?
Rajiv Mehta: Yeah. Sure. I mean, it is also subject to a rightful price discovery, right? There is no time element to it. I mean, if that is the clarification, if you can give. Yeah.
Ganesh Narayanan: Yes.
Rajiv Mehta: Okay. Yeah. Thank you.
Operator: Thank you. Our next question comes from the line of Piran Engineer with CLSA. Please go ahead. Piran Engineer, your line has been unmuted. You may proceed with your question.
Piran Engineer: Yeah. Hi, am I audible now?
Operator: Yes, you are, sir. Please go ahead.
Piran Engineer: Is it better? Yeah. Okay. So sorry, just before I get to my questions, a couple of clarifications. The strategic investor is at the holdco level, right? Of the promoter.
Ganesh Narayanan: Yes.
Piran Engineer: Not at our level.
Ganesh Narayanan: No, not at our level.
Piran Engineer: Got it. Also, sir, did I hear you say correctly or maybe I did not hear it correctly or did not understand it correctly, but it will be like a 25 to 30 bps credit cost impact next quarter, higher credit cost?
Ganesh Narayanan: No, 25 to 30 bps was the insurance commission contribution to ROA.
Piran Engineer: Yeah.
Ganesh Narayanan: That is what it was. So that was a comment on insurance in case the commissions drop to indicated draft guidance, then we could have an impact
Piran Engineer: Okay.
Ganesh Narayanan: of 25, 30 basis points on our ROA.
Piran Engineer: Okay. Got it. Could you just quantify when you say next quarter credit cost could inch up? Broadly, can you give a sense of how much you think?
Nilesh Dalvi: See, right now what we are saying is that even if we budget a certain amount of increase because of the drought situation, we do not see it go beyond our guidance in the lend area. Right now, if you remove the provisions, that is the buffer that we have created of 45 bps, we are at around 3% credit cost. Including the buffer, we are at around 3.45%. Even if we see an inch up in credit cost, we are not able to envisage the situation right now where our credit cost could cross our guidance. You should assume that it will be somewhere between 3.5% to 4%.
Piran Engineer: 3.5% to 4%, okay. Got it. Just firstly, now coming to my question, the way we should think about the interplay between pricing of loans and cost of funds and credit costs is that over a cycle you want to achieve a 4% to 4.5% ROA. Is that a fair statement?
Nilesh Dalvi: Yeah. Piran, today, the way the pricing is structured is up to a certain credit cost we can obviously price it, but obviously it is not an unlimited flexibility to price. Like you must have seen last year in FY26, with a 7% credit cost, we did a 2.7% ROA. Typically, up to 4.5% to 5% credit cost, we can pass it on and we can still protect our ROAs of around 4.5% up to 5%. But if a credit cost spikes beyond 5%, then obviously we cannot price it. Maybe up to that threshold, we can protect our ROAs in the range of 4.5% up to 5%.
Piran Engineer: Understood.
Nilesh Dalvi: So that is where I said today on a risk-adjusted basis with a 14.5% NIM, we can absorb a 4.5% credit cost and still do a 5% ROA.
Piran Engineer: Got it. Secondly, can you talk a bit about your IBL book? Because this has grown really fast. Are you seeing similar delinquency trends there? Also if you can clarify, all these are existing customers who were never in stage 2 in the past?
Nilesh Dalvi: Right. I am just clarifying, so it is not IGL, it is individual business loans.
Piran Engineer: Yeah. Sorry, I meant individual, IGL. Yeah, individual loans.
Nilesh Dalvi: This is basically a graduation product. These are your high vintage customers with better credit profile as well as credit scores. For example, our prime product for graduation, which is Unnati, has an average tenure of customers over seven years and an average credit score of more than 730. This book, at the peak of the credit cycle in the last year, as well as on a continuous basis, the PAR 30 has never crossed 3%.
Piran Engineer: Okay. Even now it is fair to say that delinquencies in this book are much lower than the MFIs.
Nilesh Dalvi: Yes, it is much lower than MFI.
Piran Engineer: Got it. That is it from my end. Thanks, and wish you all the best.
Nilesh Dalvi: Thank you.
Operator: Thank you. Our next question comes from the line of Abhishek Murarka with HSBC. Please go ahead.
Abhishek Murarka: Hello. Ananda here.
Ganesh Narayanan: Hi, Abhishek.
Abhishek Murarka: Yeah. Hi, Ganesh. I have just two, three quick questions. One is, in terms of disbursements of overall microfinance, there has been seen a little bit of a slowdown or containments of this. What are you observing on the ground? Is everybody sort of pulling back? Is that more pronounced in the states that are impacted? Is that still continuing or people are starting to disburse more? Just what are the dynamics right now in terms of the states that are impacted by the drought or flood?
Ganesh Narayanan: You are talking about industry or talking about CreditAccess?
Abhishek Murarka: Industry. In your locations where you are.
Ganesh Narayanan: Right
Abhishek Murarka: What is the competitive action currently?
Ganesh Narayanan: So what we have seen through the cycle, we can see that banks have significantly pulled back and MFIs have
Abhishek Murarka: Okay
Ganesh Narayanan: garnered better market share. So that is a trend that is emerging. Your NBFCs have also garnered better market share. SFBs have contracted a little, but banks have significantly contracted on the microfinance side. Otherwise, I think it is business as usual. I do not see any contraction. In our case, because majority of the write-offs in H1 was
Nilesh Dalvi: for microfinance. And typically Q2, Q3 is your growth periods. You will see the microfinance book inch up in Q3, Q4. But if I see the H1 or Q1, Q2 also, compared to historical, our disbursements have been quite strong in both these quarters.
Abhishek Murarka: Yeah. For you, I completely agree. And also, those people who are disbursing, is it just two or three large NBFCs or MFIs, or is it more broad-based?
Ganesh Narayanan: I think currently as we start publishing, like I said, historically also, the only reason probably growth is a little not visible is because of liquidity aspects to smaller NBFCs.
Ganesh Narayanan: continue to do normal business. But as more liquidity kicks in, I think you should start seeing growth. That is where I see the challenge. Otherwise, I don't see
Abhishek Murarka: Sure
Ganesh Narayanan: any large player pulling back at this point.
Abhishek Murarka: Got it. Because if you think back to 2024, due to elections, heatwave or whatever other triggers, basically when everybody pulled back, there was a credit crunch, and that sort of led to a bit of a spiral. So you don't see that kind of a caution at the ground level.
Ganesh Narayanan: I do not see that kind of a situation right now. You may also have to take a slightly different interpretation of microfinance growth going forward because now it is getting distributed between individual and microfinance. This graduation is something that everybody is taking in, right? We will have to monitor both individual business loans and if at all we have data at some point of time, how many customers have moved from microfinance into individual, and hence what is the drop, right? In my view, like us, industry also will be range bound in microfinance growth and you will see retail growth probably.
Abhishek Murarka: Perfect. That brings me to IBL. Have you also taken any yield cuts in IBL product?
Ganesh Narayanan: Yes. This 50 basis points is across all our products.
Abhishek Murarka: Okay. Across products. Right.
Ganesh Narayanan: Except for mortgage and two-wheeler.
Abhishek Murarka: Got it. How long will it take for the yield cut to flow through into actual yield reduction? That will take a couple of quarters at least to start showing up?
Ganesh Narayanan: Four to six quarters.
Abhishek Murarka: Suffice to say your yield broadly remains where it is this quarter or maybe even goes up next quarter because of the momentum of the bank growth and then it starts coming down.
Ganesh Narayanan: Yes. Yields have peaked out, Abhishek.
Abhishek Murarka: Exactly.
Ganesh Narayanan: In Q2, the yields have peaked out. Yes.
Abhishek Murarka: Okay.
Ganesh Narayanan: But the decline will happen over four to six quarters. The 50 bps cut, what we took, it will at least take four quarters for the entire 50 bps cut to flow in.
Abhishek Murarka: Of course, yeah. Next quarter again, you take a 50 bps cut that will also take four. The overlapping effect. Okay. That is understandable now.
Ganesh Narayanan: The subsequent rate cuts will only happen if the credit cost holds at 3%. If there is any increase, then we may have to revisit.
Abhishek Murarka: Understood. Got it. Thanks so much. Those were my questions and all the best. Congrats for the quarter.
Ganesh Narayanan: Thank you, Abhishek.
Operator: Thank you. Our next question comes from the line of Ashlesh Sonje with Kotak Securities. Please go ahead.
Ashlesh Sonje: Hi, team. Good evening. A few questions from my side. Firstly, just a clarification. The increase in PAR 15+ accretion that we have seen in this quarter, especially in a few states like MP. That number is primarily due to the flood situation in those states. It has nothing to do with the drought situation thus far. Is that understanding correct?
Ganesh Narayanan: Yes, that is correct.
Ashlesh Sonje: Okay. Understood, sir. Then two more questions. Firstly, the kind of disbursement demand that you are seeing today from the customers, has the demand for, let us say, smaller ticket loans gone up in the last few months or there is no such trend right now?
Ganesh Narayanan: There is no specific pattern I can relate to.
Ashlesh Sonje: Okay, understood. Sir, and lastly, in your borrower base, when you look at the overall leverage of the borrower, not just for you, but across all MFI lenders, what proportion of borrowers would have roughly hit the INR 200,000 limit of leverage?
Ganesh Narayanan: I do not have this data offhand.
Ashlesh Sonje: Okay.
Ganesh Narayanan: We can get back. Yeah.
Ashlesh Sonje: Okay, sir. Perfect. Those are all the questions I had. Thank you very much.
Ganesh Narayanan: Many have hit the limit.
Operator: Thank you. Our next question comes from the line of Shreepal Doshi with Equirus. Please go ahead.
Shreepal Doshi: Hi, sir. Good evening, and thank you for giving me the opportunity. My question was largely on, since you started acquiring new customers actively now, what sort of a trend are we seeing in terms of the customers having exposure to gold loan as a category? Are we seeing that the newer customers that we are acquiring, larger proportion of them have exposure to gold loan versus a trend that we were seeing probably 2 years back or 3 years back?
Ganesh Narayanan: Right now, we did do some research on this data. Right now, what we are seeing is that it is stable at around 10%, 12% of our customers on a consistent basis. We are not seeing any upswing or low swing at this point of time.
Shreepal Doshi: This 10% to 12% is for the new customers that we acquire or the existing customer pool that we have?
Ganesh Narayanan: On our overall customer base, I do not have a cut of new customers' exposure to gold loan at this point of time. But because we study this every month, the trend has ranged low. I do not see that there is significant increase.
Shreepal Doshi: That is broadly at 10% to 12% versus what we had seen probably two, three years back. That is holding up.
Ganesh Narayanan: Yes. If I am able to understand your question right, why we do this research every month is also to see how the credit profiles are different for a pure microfinance customer as well as customers with retail exposure. Consistently for the last 12 to 14 months, we have seen that customers with retail exposure fare far better than that of a pure microfinance customer.
Shreepal Doshi: Got it. Sir, second question was largely towards FY28. How are we seeing that year shaping up in terms of growth? Because I believe margins, we will see moderation given our pricing strategy that we have. But overall loan growth as well as ROA trajectory, what is it that we are targeting?
Ganesh Narayanan: It should be similar in my view. We may have to probably guide this towards Q4, but I don't see a reason why we should have any stress on any of the margins.
Shreepal Doshi: The growth also confident of holding it in the range of 20% to 25%?
Ganesh Narayanan: Yes. All the more today because you have a set of products that you picked up and you're accelerating all of this. Say, for example, mortgage, which used to be done out of 120 branches now. We are doing today, right now, around 425 branches. We expect to scale up a few hundred branches every year as we gain more experience and train our employees in this. So growth will be a combination of microfinance and retail. Retail will grow faster. Microfinance, as we said in our strategic plan, would be ranged around in the range of anywhere between 10 to 12.
Shreepal Doshi: Got it, sir. Thank you so much for answering my questions and good luck to you.
Ganesh Narayanan: Thank you.
Operator: Thank you. Our next question comes from the line of Anand Dhama with Nuvama. Please go ahead.
Anand Dama: Yeah, thank you for the opportunity and congratulations for that great set of numbers. My question was about your borrower growth. That seems to be in a single digit. Is it that you are not acquiring new customers and is that the problem that you are seeing for the entire microfinance industry? Or is it that now you are focusing more on the average ticket size increase post the imposition of the MFIN guidelines? If you can just explain how the borrower growth is going to be in the coming years and what is basically expensively for slower borrower growth for now.
Ganesh Narayanan: Right. Firstly, a lot of our efforts today is towards ensuring that Q3, Q4, we start showing significant increase in number of customers. There is a lot of effort going in that and that should hopefully improve. This is also a result of a higher graduation that is happening. One side you are acquiring customers, second side you are also graduating more customers into retail. Microfinance side, I think the momentum will start in the next two quarters. It is a little bit of lag, it is a little bit of lag, I agree. What I am saying, Q3, Q4, you should start seeing us publish better numbers in customer acquisition.
Anand Dama: Okay. Because what is happening is that right now you are focusing more on average ticket size or giving loan to the existing customer and that is basically also keeping your OPEX to AUM on a lower side.
Ganesh Narayanan: Right.
Anand Dama: To some extent, your ROA also looks far more higher. But if you enter into a cycle where the borrower growth does not come in or if you go for a higher borrower growth and your OPEX shoots up and then your credit cost also comes in, you will get into a situation where possibly your ROA will come down faster than what one would expect it to be.
Ganesh Narayanan: Which is true and in a certain way, in a certain angle, I agree with you. But what I am trying to implicate is that it is not that the focus on customer acquisition is not there. It is just that you have come out of very strong two years of credit cycle. It takes some time to catch up momentum. Hence that is taking some time. Along with that, the company is also doing various other things with respect to graduating customers, new products, processes, technology, et cetera. Which I think is more or less streamlined today and we are hoping that Q3 and Q4, we should actually see momentum in customer. Ideally, we would like to publish more than 1 lakh customers every month and that is a target that we are working on. We are right now around 80,000 customers per month.
Anand Dama: Okay. Because I think most other guidances that you have given, I think you are overshooting, but I think the borrower growth and the AUM growth is where I think you are still undershooting.
Gururaj Rao: Right. Yeah. Anand, Gururaj Rao here.
Gururaj Rao: Yeah.
Gururaj Rao: Even if you see last four quarters, we have added close to 10 lakh customers. Even in Q1, we added 2.5 lakh customers. Q2, we added 2.3 lakh customers. But it is not showing in the overall borrower numbers because of the write-off for winter, the credit crisis we are just out. Most of the write-off has happened during last one year. You do not see the borrower number going up because there is a natural attrition as well as a write-off impact on the numbers. Starting from Q1 onwards, you can see little positive numbers coming in. In Q3 and Q4 it will be much more. I think from next quarter onwards you can see the borrower numbers also. Yeah. See, also to keep in mind, we are working on two fronts now. One is that you are retaining your vintage customers longer.
Gururaj Rao: That means your customers attriting will get better. You are already seeing that we have moved from 65% to 88%. Second is that we have kind of attrited 3 lakh customers because of write-offs. With write-off kind of clearing up, the subsequent quarters you will see lesser customers adding down because of write-offs. That should also help along with stronger acquisition.
Anand Dama: Sure. And sir, the NPAs in the mortgage book seems to be now going up. Is it still within your tolerable level or like you feel that basically that is to some extent a concern?
Gururaj Rao: It is still within our tolerable level and we are quite bullish about this business at this point.
Anand Dama: Okay. What is your broadly tolerable level in the mortgage book in terms of NPAs?
Gururaj Rao: So see for us, industry is I think roughly around PAR 0 are around
Shreepal Doshi: Yeah, around 5% to 8%.
Gururaj Rao: Yeah, 5% to 8% of this book. But we built a model where we've currently budgeted around a 2% credit cost to mortgage. That is where we are working to.
Anand Dama: Okay. Sure. That's comforting. Thanks a lot, sir.
Operator: Thank you. Our next question comes from the line of Sonal with Prescient Capital. Please go ahead.
Sonal Minhas: Hi there, this is Sonal Meena from Prescient Capital. I cover Mortec.
Operator: You are audible, sir. You may proceed.
Sonal Minhas: Sure. I have just a small question. I am on slide 28, and I see the customers MFI exposure, whereby CA Grameen plus 2 has gone down from 17% to 15% quarter-on-quarter, and so has plus 3. From a guardrail perspective or from a perspective of identifying new customers, is there a prudence there whereby we say that these kind of customers will see a CreditAccess Grameen plus 3 will inch towards zero over time, and we look for more higher quality customers?
Ganesh Narayanan: Can you repeat the question? I did not get your question clearly.
Sonal Minhas: I am slide number 28, sir.
Ganesh Narayanan: You are talking about the 3%, the Grameen plus 3. Yeah.
Sonal Minhas: Yes. The number when I compare to last quarter, Grameen plus 2 and plus 3, the plus 3 number has gone down basically.
Ganesh Narayanan: Right.
Sonal Minhas: Plus 2 has actually gone down too. Just wanted to understand from an operations perspective, what are you doing to guardrail the quality and the vintage of customers? That is broader the sense of the question I wanted to understand.
Ganesh Narayanan: I think this will gradually keep dropping. I am not sure that it will go to zero. It may remain probably at a certain level because there are various issues because of which it can be Grameen plus 3 with respect to credit bureau, et cetera. But what I am saying, trajectory it will continue to go down. Second, I do not think there is a specific strategy to target customers who do not have enough penetration. The deeper you go, you will get better. So with our contiguous approach, we have always been able to kind of get a good 2 to 3 end customers. So that is an effort will continue. So as we open more branches and go deeper, we will continue to get a mix of both experienced as well as new to credit customers. New to credit customers in Q2 was around 35%.
Sonal Minhas: Important, sir. My second question is, sorry, is that as the earlier participant was saying that you were mentioning that banks have vacated the space, some NBFC and small finance banks have also vacated the space. So is that giving you the confidence to finding new, better, unique customers and the growth that you basically are envisioning over the course of next 1 year or so?
Ganesh Narayanan: Right. I do not think banks have vacated the space, they have slowed down.
Sonal Minhas: Okay.
Ganesh Narayanan: They basically are outstanding. But I feel all of this is temporary, right? Because with repeated quarterly performances, the rest of them would also inch up gradually. Right? So it is what I feel. So temporarily, we do have an advantage of slightly lesser competition is how I put it.
Sonal Minhas: Got it, sir. That explains. Thank you. Thank you very much, appreciate it.
Ganesh Narayanan: Thank you.
Operator: Thank you. Our next question comes from the line of Rishi Modi with Modi Advisory. Please go ahead.
Rishi Modi: Yeah. Hi, am I audible?
Operator: You are audible, sir. You may proceed.
Rishi Modi: Yeah. So just harping on a few points here. First is your customer count, right? I am seeing that a lot of it is going out through attrition, which means that say maybe a good quality customer is transferring to a lower lending rate lender in the MFI space. If I just do a rough calculation, your book has grown by 19%, your customer count has grown by 1%, which means customer concentration has grown by 18%. So just firstly, what steps are we taking to combat this attrition? Do we have any structural advantage or are we going to keep competing against lower rate lenders and lose customers in the future? Secondly, what risk management metrics have we taken to manage this customer concentration risk, like checks at household level debt versus household level income? Do we have data being actually captured with higher accuracy for this?
Rishi Modi: So that is my first question. I will come to the second one after this.
Ganesh Narayanan: Okay. So let me take the first one. So first point, we are one of the lowest priced lenders in the microfinance industry, right? Hence, moving from us to somebody else for a lower interest rate is very unlikely. Number two, if you see our attrition, we have actually improved our retention from 85% to 88%. What could possibly happen, like I said, is because we have written off a lot of customers, so customer count is dropping, number one. Number two, customers could also be graduating, because of which your customer count could be dropping. Third could also be that customers are reaching guardrails because of which we are not able to lend, because of limits have exhausted. That can also be one reason.
Ganesh Narayanan: So if you see our clear strategy for the next 5 years is to ensure that your good quality customers are able to stay with us for a longer period of time by handholding them through graduation products. Which means they enter through microfinance, and as they become better profile, then we graduate them to individual business loans and secured business loans. Even in those products that we have picked up, be it two-wheeler, mortgage, anything, we are quite competitive in the space from pricing perspective. In the last quarter, we have been able to kind of bring around 90 customers from other mortgage players back into CA Grameen who were not with us earlier. So pricing-wise, we are well-placed. It is just a question of our acceleration towards individual lending. Like I said, because of heavier write-offs historically, the count also looks little lower.
Ganesh Narayanan: But since our write-off is more or less done, you should see acceleration of customer growth in the upcoming quarters.
Rishi Modi: So when you represent this 675,000 attrition number of customer count, this also includes customers whom you cannot lend to because their borrowing limits are exceeded? What is this number defining? Because the 300,000 I understand is people whom you do not want to lend to. What is this remaining 700,000, 675,000 number?
Ganesh Narayanan: Right. Which means that customers who have left us, also including customers whom we have not been able to renew or rollover because of base of guardrails or group lenders and limits, et cetera. It could also have-
Rishi Modi: Okay, maybe.
Ganesh Narayanan: customers who don't want loan. It could also have customers who don't want loans because that is also a portion. Historically, when we analyze their attrition, we've seen that we used to have around 15% attrition. When we analyze that, around 7%, 7.5% move up, and that is the bucket we are trying to hold back. Other 7.5% either don't borrow or they have defaulted, because of which they're not getting a loan, and various other things.
Rishi Modi: Okay, fine. Maybe just split it next time into people who actually moved out versus people whom you aren't willing to lend more to, so we get a clearer picture maybe where competition is affecting us versus where we're not getting affected. That's just one suggestion if it's possible to do that.
Ganesh Narayanan: We'll take it up.
Rishi Modi: And if you could just come to the risk management piece. Sorry, I interrupted you.
Ganesh Narayanan: From a risk management perspective, we have a very well-evolved policy where we do not cross greater than 2% in any district exposure. So that kind of restricts your per district exposure to not more than 2% of an area, number one. Number two, we also have lending limits, basis different districts with respect to per capita income, with respect to repayment rates in that particular district, et cetera. Then we have product level controls for various products. Broadly customer level, so one is vintage level. So if the customer has higher vintage, then you have higher limits. If the customer has lower vintage, you have lower limits. Then depending on the district we are pressing and the history of credit costs in those districts, there are also controls on what is the pricing, how much you can lend, et cetera.
Rishi Modi: No. So I understand what our general credit underwriting is. What I am trying to understand is that now because we are growing our book on the existing customers, we are going towards more individual loans rather than the group loans.
Rishi Modi: Right? So people who were, say, borrowing INR 20,000, INR 10,000 are now getting affordable housing at INR 2 lakh, INR 3 lakh. First is then their capability to repay.
Ganesh Narayanan: Okay. I got your question.
Rishi Modi: Like household level debts we are able to calculate or not?
Ganesh Narayanan: Yes. Retail is a completely different ball game. When we graduate customers from microfinance to retail, the underwriting is a lot more sharper. We have specific credit teams who visit and spend more than an hour to understand the profile of the customer, their cash flow, et cetera. Credit score is also coming to play. We factor all of these aspects before we take a call on a larger credit. Say, for example, our graduation path to Unnati Loan, like I said, the average credit score there is 730. The average vintage that has spent with us is 7 years. These are high quality, long vintage customers who are able to demonstrate better cash flow, without which they will not move. That is why though we have a 50 lakh customer base, this will grow at a much smaller pace.
Ganesh Narayanan: It is not that everybody moves there. We are looking at around 6% to 8% of our customers on a yearly basis getting converted into individual but with a combination of secured and unsecured individuals.
Rishi Modi: Okay, fine.
Ganesh Narayanan: Hope I answered your question.
Rishi Modi: I have some more but let's move on to the second question that I had. This credit guarantee scheme, if you could just explain me the economics of it, how much does it cover in case of a default? And what is the cost? Who bears the cost eventually, like we're going to cap it or we're going to pay the cost from our own profits or credit costs? I'm just trying to understand here.
Ganesh Narayanan: Rishi, currently we don't have the guarantee scheme for microfinance.
Rishi Modi: Sir, you told me that you have not enrolled but you are in the process, right?
Ganesh Narayanan: Yeah.
Rishi Modi: What will it end up being? Any idea?
Ganesh Narayanan: Typically, under the CGFMU scheme, the annual premium cost is around 1.3% to 1.5%. It covers around 75% of the losses which you claim for, and the total cap is 15% of the full volume of insurance.
Rishi Modi: Okay. This I am assuming all SFBs and banks would also be applying for? Ideally, I am trying to understand how the competitive scenario on credit underwriting will change once this comes into play and hence competition for share of the wallet, right?
Ganesh Narayanan: Yes. This is already in place. It has been for sure. Banks, SFBs have already covered their books through this scheme.
Rishi Modi: Okay. We haven't chosen to right now because we have better underwriting skills.
Ganesh Narayanan: Yes. We think it's like INR 200 to 1,000 crore in the next few years and scale it up based on the experience.
Rishi Modi: Okay, fine. That's it for me right now. I'll reach out to the IR team in case I want more clarification. Thank you guys so much.
Operator: Thank you. Ladies and gentlemen, we will take that as our last question for today. I would now like to hand the conference over to the management for any closing comments.
Ganesh Narayanan: Thank you all for the trusted confidence you had in CA Grameen. I think we have done two good quarters this year, and we are working towards ensuring the annual guidance we have given is met with, and we are fully confident that the next two quarters would also see strong performance from our side. Thank you so much.
Operator: Thank you. On behalf of CreditAccess Grameen Limited and Motilal Oswal Financial Services Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.
