Operator: Ladies and gentlemen, good day and welcome to Capri Global Capital Limited Q2 and H1 FY 2027 earnings conference call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note this conference is being recorded. I now hand the conference over to Ms. Shweta. Thank you and over to you, ma'am.
Shweta Daptardar: Thank you. Good evening, everyone, and a warm welcome to Q2 and H1 FY 2027 earnings conference call for Capri Global Capital Limited. This is Shweta, Senior Vice President, Corporate Finance and Investor Relations. Before we begin, let me read out a brief disclaimer for today's call. The discussion around today's call regarding Capri Global Capital Limited's earnings performance is based on judgments derived from results declared and information on business opportunities available to company at this time. The company's performance is subject to risks, uncertainties, and assumptions that could cause results to differ in future. In that context, participants on today's call are advised to consider the same while interpreting the results. The complete disclosure is available on slide 65 of the earnings presentation. Participants are requested to kindly take note of the same. Format of today's call will be opening remarks by the management team, followed by Q&A.
Shweta Daptardar: Let me now introduce the management team from Capri Global Capital present on the call today. With us, we have Mr. Rajesh Sharma, Managing Director and Promoter, Ms. Divya Sutar, President and Executive Director, Business Strategy, Mr. Kishore Lodha, Chief Financial Officer, and Mr. Sanjeev Srivastava, Chief Risk Officer. I would now request our Managing Director, Mr. Rajesh Sharma, to present his opening remarks on the results. Over to you, sir.
Rajesh Sharma: Yeah. Thank you. Good evening, everyone. I hope you all are doing well. We announced our financial results for the second quarter of FY27 on 27 October. I trust you have had the opportunity to go through the earnings presentation, which is also available on our website. Before I move on to the financial and operational highlights, I would like to touch upon the broader operating environment and key developments during the quarter. Global energy shocks, aggressive monetary tightening, and surging domestic inflation are the critical macroeconomic headwinds led to overall environment being soft for the quarter. Amidst this soft macro environment, Capri Global delivered strong growth and profitability in Q2 FY22, successfully navigating challenging macros marked by rising funding costs, global monetary tightening, and a 25 basis RBI repo rate hike.
Rajesh Sharma: Yet, I am delighted to share that Capri Global raised USD 300 million through its GMTN program during H1 FY27 via a maiden US dollar senior secured bond issue. As part of our liability diversification journey, we further raised INR 500 crore via commercial papers in addition to INR 1,271 crore raised in Q1 FY27 through a combination of NCD and CP. We continue to diversify our funding structure to capture global growth opportunities, optimize capital efficiency, and hedge against rising domestic interest rates. Moreover, as part of our branch network expansion journey, we added 176 branches for the quarter gone by, with continued focus on expanding digital journeys, embedding AI into customer and collection operations, and strengthening the platform that supports the lending cycle. Last quarter, we demonstrated our capacity to scale AI. This quarter, the scale has translated into measurable customer adoption and structural cost efficiencies.
Rajesh Sharma: Besides establishing firmly our footprint in South with two brand campaigns starring acclaimed actor and entrepreneur, Nayanthara as our brand ambassador, helped us in campaign reach 141 million plus, positive visibility impact of 93.8%, and gold loan search growth of 173% plus. Our ESG rating continues to soar higher as we achieve a CRISIL ESG score of 72, placing it in the leadership category. With this backdrop, I am pleased to say that Capri Global delivered strong quarterly performance in Q2 FY27, continuing its growth momentum and maintaining asset quality while delivering highest ever quarterly profit of INR 418 crore, a 77% increase year-on-year. H1 FY27 profit is INR 772 crore, almost double from the last year. The cost to income ratio improved to 42.6% from 48.1% in H1 FY27, reflecting stronger operating leverage. H1 FY27 ROE stood at 20.4%, reinforcing the company's progress on sustainable profitability.
Rajesh Sharma: Now coming to our detailed business and earning performance during this quarter. We continued our strong momentum across all our lending businesses in Q2 FY27. Our consolidated AUM stood at INR 43,878 crore, reflecting a robust 62% year-on-year growth and 9% quarter-on-quarter growth. Gold loan grew an impressive 102% year-on-year, and MSME grew at healthy 25% year-on-year. While housing loan rose 39% year-on-year, disbursements for the quarter rose 49% year-on-year to INR 13,309 crore on account of growing customer base and widening distribution network. Our growth remains granular, diversified, and retail-led with our customer base now exceeding 8 lakh. For our gold loan business, we delivered a strong and well-balanced performance in line with our strategic objective of growth driven by branch expansion, while maintaining focus on effective risk management.
Rajesh Sharma: With a net addition of 176 branches during the quarter, our overall branch network stood at 1,609 branches as of 26 September, with 1,154 branches dedicated towards gold loan. While we entrenched in southern belt through gold loan in Andhra Pradesh and Telangana markets, the north and central part of Uttar Pradesh, Madhya Pradesh, and Rajasthan also saw a strengthening of gold loan branch footprint in Q2 FY27. AUM saw robust growth to INR 21,000 crore, a sequential increase of 10% quarter-on-quarter, led by steady customer demand and productivity gains. Our aggregate branch productivity continues to remain resilient and now stands at INR 18.2 crore per branch versus INR 19.2 crore per branch, which is function of rapid network expansion and addition of new branches during the quarter, and the natural time lag for new branches to achieve full operational velocity.
Rajesh Sharma: Alongside increased employee base in gold loan business, the employee productivity from INR 1.8 crore a year earlier to now INR 3.4 crore. This steady productivity gains and the fact that with over 86% branching network have already making profits, continue to support Capri's gold loan book expansion. Collateral weight in custody increased from 16 tons a year ago to 21 tons in Q2 FY27, an increase of 28% year-on-year and 4% quarter-on-quarter, and number of active customer increased by 44% year-on-year and 8% quarter-on-quarter. A strategic branch expansion that stands supportive of volume growth and improving branch productivity at existing locations continue to sustaining strong book growth momentum despite underlying market volatility. Importantly, LTV on fresh disbursement during the quarter remained disciplined at 73.8%, in line with the increased RBI's prescribed limit for small ticket loans and permissible limit for income generating loans.
Rajesh Sharma: On the asset quality front, a Stage 2 spike remains a blip as our collateral cover remains highly resilient. While we are rigorously managing overdue accounts through targeted collection strategies and timely auctions, Capri Global maintains stringent auction policy versus competition to curb loss in the event of acute price volatility. Because the gold loan portfolio is predominantly granular and short-term, Capri's digital-first initiative will act as a continuous feedback loop to catch credit deterioration before it turns into bad loans. Driven by data analytics, Capri's gold loan business utilizes automated LTV tracking, real-time LTV breach alerts, and rapid recovery mechanisms to minimize actual losses and establish a clear competitive edge. Overall, Q2 marked strong performance for gold loan business, combining growth through capitalizing strong branch expansion alongside maintaining discipline on asset quality amid gold price volatility.
Rajesh Sharma: Our branch expansion plan for the year is underway, and we expect to close the financial year with approximately 1,500 branches, reflecting our commitment to expand our presence. Our MSME AUM grew to ₹7,016 crores, up 25% year-on-year, and disbursement stood at ₹560 crore for Q2 FY27, up 36% year-on-year, primarily attributed to new geography foray, namely in Delhi, Uttar Pradesh, Mumbai, and Pune. Moreover, our expansion into new geographies focuses heavily on direct sourcing, which has driven a higher revenue contribution from our internal direct team. Within MSME, our Micro LAP business continued to gain traction with AUM rising to ₹929 crore as at end of Q2 FY27. This vertical enables us to serve emerging self-employed borrowers with smaller ticket size requirement. In this segment, we have implemented FOIR gating criterias to filter out unsuitable customer prospects right from the start.
Rajesh Sharma: Said that, while exercising caution in sourcing, we are refining our sourcing strategy to target higher tier profiles and increase the average ticket size, thereby progressively elevating overall input quality. In Q2 FY27, asset quality remained steady at 3.1%, similar level of Q1, supported by strategy, focus on middle and higher level customer segment across ticket sizes, and the tech initiative like the new risk panel, moving beyond traditional borrower profiles. The platform synthesizes location, industry sourcing, and employee performance metrics into a unified risk assessment. Our housing AUM stood at rupees 8,325 crores, delivering a year-on-year growth of 39%, anchored by robust customer retention, disciplined portfolio management, and the progressive scaling of the South India franchise. While focusing on current network productivity, we intend to enhance presence in the southern states, particularly Tamil Nadu and Andhra Pradesh, where we see attractive opportunities for affordable housing finance.
Rajesh Sharma: From a product and customer segment perspective, we will continue to focus on smaller ticket loans and higher yielding business with increased emphasis on self-employed, non-professional customers, which now contributes 76% to our AUM. Sequential asset quality held steady, with GNPA standing at 1.2% on Q2 FY27, reflecting our consistent adherence to a disciplined credit and risk management framework. Our construction finance AUM saw healthy growth of 51% year-on-year to rupees 7,503 crores, spread across 304 active projects, with an average sanctioned ticket size of 48 crores and outstanding portfolio ticket size of 25 crores. The strong growth for the quarter comes ahead of festive demand and healthy traction in residential sales. Our portfolio remains geographically well-diversified, reflecting a strategic focus on mid-sized, small developers across metro and Tier 1 cities. This footprint expanded further in Q2 with our parent entering the Tamil Nadu metro market.
Rajesh Sharma: Our construction finance book remains granular with emphasis upon disciplined underwriting through rigorous due diligence and escrow-based cash flow management, ensuring a risk containment approach. Q2 FY27 saw sharp improvement in asset quality, with negligible NPA reported for the quarter, led by recoveries from written off accounts totaling of about INR 18.5 crores, and we further expect recoveries over the next 12 months. Our total branch network expanded to 1,609 locations in Q2 FY27, with a net addition of 176 branches during the quarter. We are steadily expanding our network and geographical reach to establish a large-scale pan-Indian retail lending footprint. Now coming to earnings performance, let me now provide an update. Our blended yields and spreads on net advances increased in the quarter to 17.5% and 8.3% respectively, driven by increasing share of high-yield products and leveraging competitive cost of funds.
Rajesh Sharma: Our net interest income for Q2 FY27 stood at INR 820 crores, up 69% year-on-year, driven by strong loan book expansion. In line with our focus on building diversified, resilient earnings profile, we continued to strengthen our non-interest income stream in Q2 FY27, reinforcing our strategy of generating recurring quality fee income. Non-interest income grew 34% year-on-year to INR 273 crores, contributing 25% of our net total income for the quarter. This strong increase was largely driven by growth in commission on insurance distribution and treasury gains. In our insurance distribution business, we generated net fee income of INR 51 crores during the quarter.
Rajesh Sharma: On the IRDAI consultation paper, based on our review of the consultation paper, we expect the primary impact to be in the areas of distributor governance, sales monitoring, customer disclosure, audit trails, policy tagging, reporting and compliance oversight, rather than any fundamental change in the insurance distribution model. We have initiated a gap assessment covering sales journeys, distribution management system, customer consent capture, policy issuing workflows, training, certification, record management, information system, and regulatory reporting. Also, Capri Global leverages a tech-driven distribution model to maintain efficiency. Its proprietary insurance tech platform utilizes data analytics, AI, and digital channels, such as apps and call centers, to structurally lower customer acquisition costs. This advanced technology architecture will ensure seamless operation transition across products and channels, fully aligning with the proposed regulations.
Rajesh Sharma: Moreover, compared to peer NBFCs that only heavily on insurance cross-selling for pre-tax profit, Capri Global's core earnings remains highly anchored to retail loan book, like gold loan, housing finance, MSME co-lending. Therefore, if implemented, the new draft guidelines, while FY27 may not likely see much impact, we expect return on average equity for FY28 and 29 to decline by about 1% for consolidated levels. Also, the consultation paper puts forth a framework that could allow higher remuneration for distribution in the underserved market, including rural areas, smaller towns, and smaller cities, thereby incentivizing distributor where customer access is limited. Capri Global could be a potential beneficiary here. Our co-lending AUM surged 60% year-on-year and 12% quarter-on-quarter to INR 9,083 crore rupees, now accounting for 21% of total AUM, reflecting our strategy of capital efficient growth.
Rajesh Sharma: As you would be aware, new co-lending guidelines have come into effect from 1 January 2026. As per that, industry will already started moving to the new CLA guidelines once existing contracts expire. Over half of the number of our partner bank have already transitioned to the new CLA guidelines. While such a transition may cause a temporary softness in disbursement in the co-lending book, advanced technology integration and stronger bank partnership have ensured that we are able to maintain our 21% share despite these changes. Also, the near-term impact is expected to be offset by rising direct assignment arrangement, with the latter now contributing 28% to our co-lending AUM. Partner banks continue to show strong demand for these arrangements, attracted by the priority sector lending compliance of our loan book and gold portfolio.
Rajesh Sharma: Our co-lending and DA income for the quarter stood at INR 72 crore, up 11% quarter-on-quarter, driven by deeper engagement with partner banks. Our car loan distribution business maintained steady momentum with originations of INR 3,601 crore in Q2 FY27, up 27% year-on-year. With a growing footprint and deep relationships across 13 partner banks and financial institutions, we have built a scalable platform with pan-India presence of 821 locations with potential to monetize further distributors in other products. On the expenses front, our operating expenses increased 7% quarter-on-quarter. This was mainly driven by net addition of 1,477 on account of higher branch addition and strategic network expansion during the quarter. Yet, the cost-to-income ratio improving to 41% in Q2 FY27 from 44% in Q1 FY27 and 49% in Q2 FY26, reflecting our continued focus on operating efficiency.
Rajesh Sharma: This sharp improvement signifies the benefit of investment in technology, in maturing branch networks, rising productivity, and improving operating leverage across our business. As a result of margin expansion, operational efficiency improvement, and strong traction in fee income, our pre-provision operating profit surged 84% year-on-year to INR 636 crore for the quarter. Further, we continued our strong profitability momentum in Q2 FY27, delivering a robust profit after tax of INR 418 crore, up 77% year-on-year. Our return ratio considerably improved during Q1 FY27, with return on average equity at 21.6% versus 14.4% for the previous year, and return on average assets at 4.4% for the year versus 4% for the previous year. Now, coming to asset quality. We saw improvement in asset quality across each of our business segments, except gold loan.
Rajesh Sharma: Our gross stage 2 assets spiked by INR 1,266 crore, which is entirely attributable to gold loan stage 2 spike by similar level and are temporal in nature, also given the high collateralized value of the underlying assets and focus on proactive collections. Following the RBI's revised gold loan guidelines with effect from April 2026, which require accrued interest to be factored into LTV ceiling for bullet loans, most major gold loan lenders moved towards shorter tenure products. We similarly introduced monthly and bimonthly repayment frequency loans in Q1 FY27. These shorter cycles led to technical delinquencies driven by repayment convenience rather than borrower ability or willingness to pay. Shorter loans simply trip overdue thresholds sooner. This was a widely reported industry experience. We have already discontinued these schemes and reverted to standard longer tenure structures.
Rajesh Sharma: The increase in reported GNPA in gold loan particularly reflects product-level repayment dynamics and our calibrated approach to collateral enforcement rather than a corresponding increase in expected credit losses. Importantly, the underlying collateral coverage and historically demonstrated recovery performance continue to provide substantial protection against principal loss. As part of our transition to the revised regulatory framework, we introduced certain shorter tenure repayment structure during Q1 FY27. While these products were designed to facilitate more frequent repayment discipline, the change in repayment frequency created some friction for customers accustomed to conventional bullet repayment structure, resulting in higher technical delinquencies. Our gross stage 3 assets spiked by INR 95 crore quarter-on-quarter, mainly on account of INR 126 crore increase in gold finance segment.
Rajesh Sharma: However, INR 45 crore were written off on account of construction finance slippage of Q1, wherein we recovered INR 9 crore during the quarter and expect further recoveries over the next 12 months. Our consolidated gross stage 3 ratio spiked by 22 basis points quarter-on-quarter to 1.2% due to a spike in gold loan at around similar levels. Housing loan stage 3 remained steady at 1.2%, and construction finance stage 3 improved significantly, dropping to 0.02% level on account of write-off and recoveries, as mentioned earlier. The net stage 3 ratio stood at about 0.8%, up 22 basis points sequentially, still standing among the top quartile in the industry. Our impairment cost for the quarter stood at INR 79 crore. This is largely attributed to the return of accounts and construction finance book, and prudent management overlay and provision to account for evolving macroeconomic conditions.
Rajesh Sharma: Our credit cost for the quarter stood at 0.8%, and we expect to maintain credit cost in the range of 0.6% to 0.9% level on a sustainable basis going forward. At consolidated level, our provision coverage ratio on stage 3 assets stand at 33.3%, and our segment-wise PCR also remains healthy and amongst the best in our peer group. Now, coming to capital liquidity position and borrowing. Let me now talk about liquidity side. Our borrowing increased by 82% year-on-year, and incremental borrowings sanction limits by around INR 4,428 crore. We now have 40 plus lender relationship. We also continue to diversify our borrowing mix by raising funds through other instruments such as non-convertible debentures and commercial paper. Just after the close H1 FY27, we raised INR 160 crore from non-convertible debentures, besides the INR 1,270 crore raised in Q1 FY27.
Rajesh Sharma: As a result of liability diversification and our active efforts on repricing existing borrowing, our cost of borrowing have increased only marginally quarter-on-quarter to 9.2%. Our balance sheet remains robust with low leverage ratio of 3.8, providing ample headroom to support growth across business segments. Our standalone capital adequacy ratio for Capri Global Capital is 22.7% and 27.8% for Capri Global Housing Finance. Our liquidity remains comfortable with over INR 6,057 crore in cash and bank balances, investment and undrawn credit line for the consolidated entities. On the technology front, over the years, technology at Capri has evolved from an operational enabler into a strategic differentiator. Our proprietary platform, artificial intelligence and digital infrastructure are translating to measurable gains in productivity, credit discipline, customer engagement and operating leverage.
Rajesh Sharma: With our technology ecosystem predominantly developed in-house, we have the ability to continuously refine platform, recalibrate decision model, and respond rapidly to evolving portfolio behavior and business requirement. This enables us to embed intelligence directly into operating architecture, strengthening execution efficiency, consistency, and control as we scale. During Q2 FY27, this progress was evident across digital adoption, underwriting collections, and AI-led productivity. Digital penetration across our MSME and housing businesses continues to demonstrate sustained momentum, with 91.2% of the inbound payment received digitally in September compared to 90.7% in June. Our Capri Loans application facilitated over 17 lakh transaction aggregating approximately INR 594 crore during Q2, registering 47% quarter-on-quarter growth in transaction value. Monthly transaction value increased consistently to INR 209 crore in September, more than doubling to INR 106 crore in January.
Rajesh Sharma: With over 3 lakh transacting customer, the application is progressively evolving into a high engagement self-servicing transaction ecosystem. Our proprietary underwriting intelligence platform, Sentinel, continues to mature into an integrated credit decisioning ecosystem, combining rule-based automation, behavioral analytics, and portfolio informed risk intelligence. Our evolving underwriting architecture brings together decision AI, vision AI, generative AI, and emerging agentic AI capabilities to interpret financial information, validate documentation, assess borrower behavior, and identify risk exceptions. These interconnected intelligence layers progressively equip credit managers with real-time insight, contextual risk assessment, and actionable recommendations, enabling faster, more consistent, and better informed credit decisions. During Q2, our bureau rule engine evaluated over 1.08 lakh applications, registering 34% quarter-on-quarter growth with automated policy validation origination. In parallel, over 21,000 bank statement assessments were processed through intelligent analytical workflows.
Rajesh Sharma: The larger transformation is from fragmented, manually intensive credit assessment towards integrated AI assisted decisioning architecture, where human judgment is augmented by real-time intelligence. As these capabilities mature, we expect to improve underwriting productivity, accelerate decision turnaround, strengthen portfolio selection, and create a structurally more efficient credit operating model, supporting disciplined credit costs and sustainable risk-adjusted returns. Our collections transformation is underpinned by Pegasus, our proprietary collections execution platform, operating in conjunction with Kronos, our collection intelligence model. The integration of these capabilities is progressively transitioning our collections architecture from conventional activity-led recovery processes towards predictive, behaviorally segmented, and intelligence orchestrated interventions. Technology enabled collections across MSME and housing increased to 34% in September compared with 32% in June. Our speech AI and conversational intelligence capabilities have already achieved meaningful production scale.
Rajesh Sharma: We are progressively extending these capabilities across our gold loan portfolio of approximately 8 lakh customers, initially focusing on delinquency management, repayment reminders, and collections. Speech intelligence interprets customer interaction, document intelligence, and structures unorganized information and vision intelligence to strengthen user verification. Predictive models support risk differentiation while conversational systems facilitate contextual customer engagement. Our next phase of technology development is focused on the convergence of agentic AI, intelligent workflows, orchestration, and ultra low latency decisioning. We are preparing to introduce a cluster of specialized AI agents across our digital customer channels designed to provide multilingual round the clock assistance and progressively automate defined servicing workflows. In parallel, we are developing an in-house decisioning framework targeting reduction in processing latency from seconds to milliseconds for eligible automated decision.
Rajesh Sharma: This convergence of real-time data, predictive intelligence, and autonomous workflows execution represents an important progression towards increasingly frictionless customer journey, faster decision-making, and higher speeds through processing. Our emphasis will remain on translating these innovations into measurable improvements in transactions, economics, processing productivity, decision consistency, and customer experience. As we look ahead, the convergence of our technology architecture, advanced analytics, and artificial intelligence is fundamentally redefining the economics of our operating model. We are progressively building an intelligence-led enterprise. The cumulative impact extends well beyond conventional productivity improvements. It creates the foundation for sustained operational leverage, structurally lowering marginal costs and scalable growth, while reinforcing the quality, consistency, and resilience of our earnings. On the ESG front, we are pleased to share that Capri Global ESG practices have received recognition from leading global rating agencies.
Rajesh Sharma: The company achieved an S&P Global ESG score of 70, ranking 20th globally and seventh in Asia Pacific, and was recognized in the S&P Global Sustainability Yearbook as the highest-scoring NBFC in its category, receiving the prestigious Industry Mover Award. Capri Global also achieved a CRISIL ESG score of 72 and MSCI ESG rating of 73, placing it in the leadership category. The company has also been assessed to having low ESG risk by Morningstar Sustainalytics. Our commitment to sustainable financing is further reflected in our sustainable financing framework. We received a good rating through an independent second-party opinion by Sustainable Fitch. We also strengthened the credibility and transparency of our ESG disclosures, with BDO providing third-party assurance over Scope 1, Scope 2, and Scope 3 emissions, including financed emissions. This represents a significant milestone, particularly as relatively few NBFCs have attained assurance covering this breadth of emissions disclosure.
Rajesh Sharma: We also released the third edition of our sustainability report, reflecting our continued focus on transparency and alignment with globally benchmarked standards. Together, these achievements reinforce our commitment to responsible growth and the integration of sustainability consideration across the company. Before we open the floor for question and answer, let me sum up. We delivered a strong performance in Q2 FY27, with healthy AUM growth across our key lending segments, supported by diversified and predominantly retail secured portfolio. Profitability significantly improved during the year, driven by changing mix to high yield product, improving margin, a strong growth in fee-based income, and operating leverage from existing branch network, while asset quality remains under control.
Rajesh Sharma: With a strong capital position and continued investment in technology and distribution, we are well-positioned to scale efficiently and are confident of achieving our AUM target of INR 65,000 crore by FY28 and sustainable return on average equity of about 20% to 21% and return on average asset between 4.2% to 4.7% by FY28. We shall now be happy to take your questions.
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 their 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. The first question is from the line of Ishank Gupta from Choice Institutional Equities. Please go ahead.
Ishank Gupta: Good afternoon. Congratulations for a good set of numbers. My first question is, large players in the gold loan industry have observed a decline in yields over last few quarters. Majority of these peers have their network, particularly in south, and we are aspiring to build a network there. How we are targeting to defend the yields on gold loans? Could you also please enlighten the trend that we expect in terms of incremental and overall portfolio yields?
Rajesh Sharma: Yeah, thank you. If you have observed our numbers, our yield has improved slightly by keeping a focus on a ticket size, not growing on a larger ticket size segment and doing more of a teaser loan and following in the only growth target and the competition. We are focused on granular growth, where ticket size is not as high as INR 500,000 and above. Some of the contribution have also come because the moment gold loan customer default, their interest rate also goes up. With this combination, I think our yield has been improved by 19%. Going forward, even while the competition is increasing, we are quite confident that our yield will not go significantly lower, and we will always maintain an equilibrium between the yield growth and asset quality. We do not wish to grow at a low yield.
Rajesh Sharma: Rather, we will focus on, if required, we can always increase the lever of our smaller-ticket lending in the gold loan rather than going for the big ticket size. I think that strategy is playing well. Our data science tool, we are able to identify which are the customer which are likely to result into giving a better yield. That is where we differentiate. While we have also launched Vyapar Mahotsav and all. But again, in that also, we focus on the smaller ticket size customer. With this strategy, I think we should be able to withstand this competitive pressure and should be able to maintain our yields.
Operator: Thank you. Next question is from the line of Laksh from Share India Securities. Please go ahead.
Varun Dubey: Good evening, sir. This is Varun from Share India Securities. Congratulations on your strong set of numbers. Sir, you highlighted about Vyapar Mahotsav. I think so there, the gold loan was starting at around 11%. Can you tell us how much of overall gold loan was given in this Vyapar Mahotsav? At what rate of interest was it given? If you can just highlight that.
Rajesh Sharma: When you launch the Vyapar Mahotsav, that also not for all the number of days. That is given for a particular day to immediately attract the customer attention and bring them in. But actually, when the customer comes in, not necessary that every customer you will be offering those kind of rates. While we can offer those rates to the bigger customer, but the smaller customer, for various other reason, there could be that low LTV, low interest rate, while the maximum LTV in some of the smaller customers still we maintain our original rate. That is a different kind of activity where you create a buzz, but you always keep a sharp focus that you should not end up lowering the portfolio yield by substantially doing the business at low yield basis, and precisely that is reflected in our numbers.
Varun Dubey: Okay. No issue, sir. Sir, also if you can tell me, your AUM per branch has gone down from INR 19.2 crore to around INR 18.2 crore. What is the reason for this? Because you are expanding your branches continuously in the gold loan segment. Why this AUM per branch is actually coming down? If you can just highlight something.
Rajesh Sharma: Last quarter number of branches versus this quarter number of branches addition have happened. Numerator-denominator effect you put in, the new branches immediately will not do the AUM. On a base of INR 1,000 crore, their branch was INR 19 crore per branch AUM. You add the new branches numbers there, then automatically 154 branches, if you add that, those 150 branches, these are INR 3, INR 4 crore, not INR 19 crore. That effect will be seen in the average.
Varun Dubey: Okay. That means, the pace at which you are going to add the gold loan branches, this number will come down for the incoming quarters. Because you are adding gold loan branches at a pace, right?
Rajesh Sharma: After efficiency perspective, how we have to see that our more than 18-month gold loan branches, their average must still be about INR 20 crore. The new branches average you will find, depending on what pace, it will be within INR 4 to INR 7 crore.
Varun Dubey: Okay. Got it, sir. One last question, just wanted to understand, sir, because there are several states who have actually declared droughts. What is the impact on this drought on your business? Not only gold loan, but other business as well. Also will you go slow in any of the categories because of this drought-like situation?
Rajesh Sharma: I would like Sanjeev Srivastava to answer this.
Sanjeev Srivastava: Yeah. So largely, we have analyzed all our portfolio, for those geographies where the drought has impacted. As far as my MSME, HL, CF is concerned, we have practically not seen any impact. As far as gold loan is concerned, obviously, the branches that are in semi-urban and rural areas, we have seen an opening sign of some stress there. But of course, we are properly collateralized, and we have right kind of a security to cover any kind of unforeseen that might crop up in the future.
Varun Dubey: Okay. But sir, would you go slow in terms of disbursement or sanction in these areas?
Sanjeev Srivastava: Sorry, if you can repeat that question.
Varun Dubey: Sir, would you go slow on disbursements or sanctions in these areas where you are seeing a little bit stress?
Sanjeev Srivastava: Yeah. Wherever we are seeing a stress directly coming from the agriculture sector or this thing, where we are tightening our credit screen, and we will, as and when the numbers unfold and we get more understanding on this, we will be increasing the FOIR ratio for income-generating loans. We will reduce the LTV. We will do those kind of activities, for sure.
Varun Dubey: Okay. Thank you, sir. Thank you for answering my questions. Once again, congratulations on the strong set of numbers.
Rajesh Sharma: Thank you.
Operator: Thank you. Next question is from the line of Ishank Gupta from Choice Institutional Equities. Sir, your line got disconnected, so please go ahead.
Ishank Gupta: Yeah. What trend do we oversee in incremental cost of funds and overall cost of funds by the end of this year and next year?
Rajesh Sharma: We are not currently witnessing material pressure on our blended cost of domestic borrowing, supported by the structure of existing liabilities and continued improvement in our credit profile. A significant proportion of our domestic borrowing is linked to MCLR-based benchmark, where contractual reset provision provide a degree of insulation against immediate interest rate pricing. Because these rates get reset at the end of either 6 months or 12 months, as the contracts are. Consequently, changes in benchmark rate do not immediately necessarily translate into equivalent or immediate increase in overall borrowing costs. More importantly, our improving profitability, operating scale, and credit profile have enabled us to negotiate lower lending spreads with several banking partners, including on existing facilities. These reductions provide a meaningful offset against potential increase in benchmark rates. Accordingly, so far, there is no increase in the cost of fund ourselves.
Rajesh Sharma: Gradually, over a period of time, when the interest rate goes up and the MCLR get reset, to that extent, the rates will go up. We will also do offset by borrowing in the capital market short-term money, because our gold loan portfolio behaviorally is about less than 6 months. So we will increase that mix of shorter tenure borrowing of commercial paper and NCDs, where we are able to borrow at a cheaper rate.
Ishank Gupta: But considering around 70% of our overall borrowings is bank term loans, and with an MCLR reset of six months down the line this year, with a 50 bps repo hike, we may see about 25, 30 bps hike in our cost of funds. Is it fair to assume?
Rajesh Sharma: MCLR, whatever to that extent it will increase of the bank, to that extent on the day of reset, that much cost of fund will go up. So if we assume that repo rate will not directly translate the entire hike in the MCLR. So if MCLR goes by 15, 20 basis to that extent, yes, it will increase.
Ishank Gupta: Understood. And third, sequentially, gross and net NPA has seen a sharp uptake. So could you explain the movement? Moreover, were the slippages driven by any specific geography or was this broad-based?
Rajesh Sharma: As we said, our slippage have not happened in MSME, housing, or construction finance. It has happened only on the gold loan. So gold loan, our slippages have increased, as I said, because there was a short-term different tenure of the loan were introduced because of the new guidelines where we have given one month, two month, three months, and based on that, in gold loan portfolio, we have seen the stage 2 have gone up by INR 1,266 crore. And this is a temporary behavior. We are quite confident that by end of the next quarter, this will significantly come down back, because now those schemes where repayment was, or interest was due between one and two and three months, they have been reduced.
Ishank Gupta: Understood. That is it from my end. All the best for the next quarter.
Operator: Thank you. Next question is from the line of Nivedita Chaudhary from ICICI Securities. Please go ahead.
Nivedita Choudhary: Congratulations, sir, on good set of numbers. Sir, given the strong performance in H1, do we expect an increase in guidance? Are we revising our FY27 guidance?
Rajesh Sharma: So 2027 guideline in terms of AUM, we are maintaining it about INR 50,000 crore. Already we are about 44. Slightly we may do it better, but we are maintaining guidance at the 50,000. As far as the profit after tax is concerned, I think we will be about INR 1,600 crore.
Nivedita Choudhary: Thank you, sir.
Operator: Thank you. Next question is from the line of Gagandeep Singh from Doong Funds. Please go ahead.
Gagandeep Singh: Hi, sir. Congratulations on great set of number. My question was on the gold NPA. As you said, just wanted to confirm that this NPA gross NPA and the net NPA will go down from the next quarter.
Operator: Sir, you are not audible.
Gagandeep Singh: Hello, am I audible now?
Rajesh Sharma: Yeah. The increase in reported gold loan delinquencies during the quarter was attributable to identifiable, largely operational factors rather than a corresponding deterioration in underlying credit quality. We have undertaken a detailed assessment of the contributing factors and have already implemented corrective measures, including discontinuation of the shorter tenure repayment structures that contributed to these technical delinquencies. By end of the next quarter, you will see significantly delinquency coming down in the gold loan. In any case, our loan to value remain very conservative. At portfolio level it is about 70%, leaving adequate margin and room available for us to recoveries.
Gagandeep Singh: Thank you, sir. That's about it.
Operator: A reminder to all the participants, anyone who wishes to ask a question may press star and one on their touchtone telephone. Next question is from the line of Sagar Shah from Spark Private Wealth Management. Please go ahead.
Sagar Shah: Yes. First of all, thank you for the opportunity and many congratulations to the Capri Global team for another excellent set of performance in the quarter. Sir, I had two questions, actually. My first question was related to gold loans. You said that we were actually quite comfortable with the ticket size of the gold loan, and we are looking to actually decrease our ticket size or maybe maintain our ticket size, actually, not going up the scale, at least, maintain our yields. But if I look your slide 8, in which you have mentioned the average ticket size, your average ticket size has been increasing for the last three quarters. And now it is reaching almost to INR 14,000.
Sagar Shah: I wanted to understand some perspective on that, at what level are we looking to stabilize on the ticket size, actually, especially when we are now expanding to southern region where the competition is quite high. This is my first question.
Rajesh Sharma: What we mean that our ticket size is still at less than INR 3 lakh ticket size. And if you really see, there are some of the competition, we are doing the gold loan above INR 5 lakh ticket size, and that is where the interest rate is very low in terms of net realization is lower side. So our focus will continue to remain in the below INR 3 lakh of ticket size where yields are better. While you have to put more efforts, but you can command the yields better there. Simply, we are also not going in this teaser loan competition, but focusing on our core smaller ticket size retail portfolio. And with this strategy, we have seen that last both the quarter, we are able to improve our yields while maintaining the growth in our targeted growth trajectory.
Sagar Shah: Okay. So basically, is it safe to assume that we will be actually stabilizing with INR 3 lakh in whichever target segment/target customers actually are there?
Rajesh Sharma: Yes.
Sagar Shah: Okay. Thank you. My second question was related to this new co-lending guidelines. Now almost major banks have already transitioned to that, and Capri being 21% of the portfolio through the co-lending part. I wanted to understand the perspective that based on the provisions, according to you, how will the new provisions actually affect Capri Global in terms of your co-lending/DA income or/originating of new loans or how it will affect your part of borrowings as well. I wanted to understand what the net effect actually of these provisions on your side actually.
Rajesh Sharma: As per new guideline, income will now get recognized over the lifetime of the contract instead of upfront in the revised co-lending guideline. The impact is that you can't book the upfront income in the co-lending contracts. As far as the various other operational changes are concerned, where within 15 days, simultaneously disbursement has to happen and certain LTV, et cetera, norms has to be aligned as per the new overall gold lending guideline. Integration with the bank partner have already happened more than 50% of our partner. That is the reason that we are able to grow quarter on quarter, about 12% in the co-lending. Further, we also started doing direct assignment route, so that will also help us to do the more of downselling our portfolio through DA.
Rajesh Sharma: With this combination, that will become very asset-light model where we are able to get the entire spread, but our capital is released the moment we downsell it to do co-lending. The overall impact is that it is a capital-light model without compromising the return. In the books of the bank, it is reflected as a retail lending and priority sector loan reflect under the priority sector. It is a win-win situation for both.
Sagar Shah: Okay. Basically, we can assume your co-lending income, which is your non-interest income, might get a hit once the entire new scheme actually comes into force into your books of accounts as well.
Rajesh Sharma: Just to clarify, the co-lending income earlier used to get upfront booked. Now in the new guideline, you cannot book it upfront. I think upfronting is changed. However, co-lending providing the benefit that you need not to provide any capital because you already downsell that portfolio. However, you get the entire spread in your books. As far as the earning potential is concerned, there is no change in that. As far as the allocation of capital is concerned, there is no change in that because capital get released. Only change is that you cannot do upfronting of the income of the co-lending portfolio, that is booked over the life cycle of the contract of the co-lending.
Sagar Shah: Okay. Got your point, sir. Thank you, and all the best for future.
Operator: Thank you. Next question is from the line of Meet from Entegrity Ventures. Please go ahead.
Meet Mehta: Yeah. Thank you very much for the opportunity and congratulations on the great set of results. Sir, just wanted to understand on the demand in the MSME segment. Are we seeing any kind of stretch because of geopolitical and macroeconomic issues on our book and on the demand? That is my first question.
Rajesh Sharma: If you look at our GNPA of segmental in the MSME segment, it has remained quite stable. If you look at last three, four quarters, it has remained in the range about 3% to 3.1%. There is no stress we have seen in the MSME portfolio. So far, geopolitical situation has not given any impact on that, and growth is also having good. We are able to grow. We have dispersed about close to INR 560 crore during this quarter and able to grow this portfolio as per our target.
Meet Mehta: Okay. Just wanted to understand on the branch additions. What kind of branch addition we are targeting in Q3 and Q4?
Rajesh Sharma: This year we intend to add about, as per the board has given us approval for 600 branches. We are going to add about 500 branches this year in the gold loan alone. Besides that, we will add more branches in the MSME and affordable housing.
Meet Mehta: Okay.
Rajesh Sharma: Last quarter we added about 176 branches, out of which 154 branches were for the gold and about 22 branches for the non-gold segment.
Meet Mehta: Got it. So INR 500 we would be adding in gold and additional MSME also we would be adding.
Rajesh Sharma: We will be adding more MSME as well as in affordable housing segment.
Meet Mehta: Got it. Okay. Last on the OpenAI partnership, we discussed in the last call. What is the update on the technology integrations that we had anticipated?
Rajesh Sharma: I will ask Divya to take this question.
Divya Sutar: Hi. Good afternoon. On OpenAI, we have already initiated the partnership. The same has been institutionalized within the organization across various work teams. Definitely on the development side, we have started seeing an inch up in terms of the productivity and other matrices. However, OpenAI is also working with our team to institutionalize the enterprise level solutioning on the customer service side as well as the loan productivity management. The entire project is under progress, and we will keep on giving you updates as it moves forward in the journey.
Meet Mehta: Yes, sure. Thank you very much and all the best for the next quarter.
Operator: Thank you. Next question is from the line of Saumya from Nirva Securities. Please go ahead.
Saumya Raghuvanshi: Good evening. Thank you so much for taking my questions. Sir, gold loan AUM has doubled year on year, but live accounts have declined approximately from 10.1 lakh in Q4 to 9.83 lakh in Q2, if I am not wrong, while average ticket size has increased to INR 2.14 lakh. How much of the AUM expansion is attributable to gold price appreciation and higher ticket sizes rather than genuine customer acquisition? Are we seeing any moderation in underlying business volumes?
Rajesh Sharma: So live account per customer have gone down. It naturally means that the borrowing by the same customer in different loan have gone down, but overall number of live account
Operator: Sir, you are not audible. Sir, you are not audible.
Rajesh Sharma: If you look at our total number of customer have gone up from 659,000 to 713,000. So there is increase in number of unique customer about 8%. As far as the live account number have gone down because live account per customer has gone down, it means the same customer who is borrowing in different loan, those loan have gone down. But there is a growth in the customer have happened. It is not that new customer have not been added. So the total live unique customer has been increased from 659,000 to 713,000.
Saumya Raghuvanshi: Hello?
Rajesh Sharma: Yeah.
Saumya Raghuvanshi: Yeah. Okay, sir. Got it. Got it, sir. My next question is on incremental gold loan. LTV has increased from around 70% in Q4 to 74% in Q2 FY27, alongside a significant increase in average ticket size. Is this primarily a competitive response or a deliberate change in underwriting strategy? How sensitive would the portfolio be to a meaningful correction in gold prices?
Rajesh Sharma: If the gold loan prices correct, if you see it has corrected between 13 May to 30 June, also in the last quarter. Correction of the gold prices would mean that we have to collect the margin from the customer by way of cash margin or by pledge of additional gold so that LTV can be maintained. Your question, what is the risk that price volatility lower side in the gold loan will bring in? I think any sharp corrections happens, that would mean that we have to do the collection from the customer. Currently, portfolio level our LTV is about 70%. It means that our LTV is still lower than the prescribed of 75%. It means we have a good amount of cushion, about 30% in the portfolio.
Rajesh Sharma: Any correction of lower 5%, 6%, 7%, to that extent, I think we have that ability, that cushion is there. During that period, we also be able to collect the money from the customers. We remain that way, quite conservative when LTVs are on the lower side. We don't see any risk on that front if the gold loan prices goes down.
Saumya Raghuvanshi: Okay, sir. That's it from my side, sir. Thank you so much.
Operator: Thank you. The last question from today is from the line of Suhani Singh from Ross Capital. Please go ahead.
Suhani Singh: Hello, sir. Good evening. I just had a couple of questions. The MSME average sanction ticket size has increased from INR 1.2 million to INR 1.7 million year-on-year. While the incremental LTV has also risen to 53.5%, is the company consciously moving towards large borrowers to improve productivity? How does this affect portfolio granularity and risk-adjusted return?
Rajesh Sharma: There is some network issue. Can you repeat your question, please?
Suhani Singh: Yes, sir. The MSME average sanction ticket size has increased from INR 1.2 million to INR 1.7 million year-on-year. While the incremental LTV has also risen to 53.5%, is the company still consciously moving towards larger borrowers to improve productivity? How does this affect portfolio granularity and risk-adjusted returns?
Rajesh Sharma: You are referring to average ticket size per live account, you mean to say 1.7 going to 2.1?
Suhani Singh: INR 1.2 to INR 1.7 million. Average sanction ticket size.
Rajesh Sharma: Because if you see the trend is across these segments, every ticket size is going up because now the property price is also going up, and they are the essentially function of not only their requirement of the loan, but also underlying property prices. Over a period of time, when we are opening new branches, as well we are seeing the trend that the amount of demand is in the range about INR 20, 25 lakh rupees as compared to earlier one. Average ticket size is going up, but that necessarily would not mean that the risk is going up because we are maintaining the loan-to-value ratio wherever the mortgage loans are happening in the MSME.
Suhani Singh: Okay, sir. Also the Stage 3 provision coverage has fallen sharply from 43.2% to 33.3%, even as gross Stage 3 has increased. Is this decline largely due to a change in the composition of stressed assets, particularly towards the better collateralized loans, or has it been a change in provisioning assumptions? If you can tell us how we should assess the adequacy of coverage across individual segments.
Rajesh Sharma: I think we have to look at individually. In the MSME loan, our provision coverage ratio still is about 45%. Housing loan is about 38%, and in the construction finance 50%. In gold loan, it is about 19%. Gold loan, if you look at the competition, while in all other cases it par, even in the gold loan, which in our case used to be higher, it is now rationalized at about 19%. Competition, which is doing purely gold loan, not like us, we have even 50% portfolio is non-gold. Their PCR is about in the range of 15%. Still our PCR is higher in the segmental in the gold as compared to our competition. Now, PCR should be able to give you adequate coverage for the losses in case NP happens.
Rajesh Sharma: So in the gold loan portfolio, if the PCR is 19%, that means even though your NPA account, you have very well coverage ratio, so there will be no hit in the balance sheet. Similarly, in our MSME, which is collateralized by property, housing is collateralized by property, so is the construction finance where cash flow and the underlying collateral of the land and construction is there. I think that kind of provision is giving adequate cushion. So we have to look at the segmental rather than overall. Yes, overall it has come down, but you look at the segmental logically, whether they provide the adequate cushion, answer is yes.
Suhani Singh: Okay, sir. That's all. Thank you very much.
Operator: Thank you. As that was the last question for today, I now hand the conference over to the management for closing comments.
Rajesh Sharma: I thank you for participating in the earning call today. Should you have any questions, you can reach out to us or our IR advisors, and we shall be happy to answer your queries. I reiterate, we are on the track to achieve an AUM of INR 65,000 crore by FY28, with return on average equity in the range about 19% to 21%, and return on average assets of 4.2% to 4.7%. Thank you once again, and have a happy week ahead.
Operator: Thank you. On behalf of Capri Global Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
